SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission Registrant; State of Incorporation IRS Employer
file number Address; and Telephone Number Identification No.
- ----------- ---------------------------------- ------------------
1-11337 WPS RESOURCES CORPORATION 39-1775292
(A Wisconsin Corporation)
700 North Adams Street
P. O. Box 19001
Green Bay, WI 54307-9001
920-433-4901
1-3016 WISCONSIN PUBLIC SERVICE CORPORATION 39-0715160
(A Wisconsin Corporation)
700 North Adams Street
P. O. Box 19001
Green Bay, WI 54307-9001
800-450-7260
Securities registered pursuant to Section 12(b) of the Act:
- -----------------------------------------------------------
Title of Name of each exchange
each class on which registered
---------- ---------------------
WPS RESOURCES CORPORATION Common Stock, New York Stock Exchange
$1 par value
Rights to purchase New York Stock Exchange
Common Stock pursuant
to Rights Agreement
dated December 12, 1996
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Securities registered pursuant to Section 12(g) of the Act:
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WISCONSIN PUBLIC SERVICE CORPORATION
Preferred Stock, Cumulative, $100 par value
5.00% Series 6.76% Series
5.04% Series 6.88% Series
5.08% Series
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
nonaffiliates of the Registrant.
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WPS RESOURCES CORPORATION
$621,719,414 as of March 10, 2000
WISCONSIN PUBLIC SERVICE CORPORATION
None
Number of shares outstanding of each class of common stock, as of
December 31, 1999
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WPS RESOURCES CORPORATION Common Stock, $1 par value,
26,851,045 shares
WISCONSIN PUBLIC SERVICE CORPORATION Common Stock, $4 par value,
23,896,962 shares.
WPS Resources Corporation is
the sole holder of Wisconsin
Public Service Corporation
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Definitive proxy statement for the WPS Resources Corporation
Annual Meeting of Shareholders on May 11, 2000 is incorporated
into Parts I and III.
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WPS RESOURCES CORPORATION
and
WISCONSIN PUBLIC SERVICE CORPORATION
FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1999
TABLE OF CONTENTS
PART I
1. BUSINESS............................................................1
A. GENERAL
WPS Resources Corporation...................................1
Wisconsin Public Service Corporation........................1
Upper Peninsula Power Company...............................2
WPS Resources Capital Corporation...........................2
WPS Energy Services, Inc....................................2
WPS Power Development, Inc..................................2
Regulatory Oversight........................................2
An Overview of Industry Restructuring.......................3
General..................................................3
Effect on Operations.....................................3
Regional Merger Activities..................................3
Y2K Compliance..............................................4
Forward-Looking Statements..................................4
B. ELECTRIC UTILITY MATTERS
Electric Operations.........................................4
Generating Capacity.........................................5
Kewaunee Nuclear Power Plant................................5
General..................................................5
Ownership................................................6
Steam Generator Replacement..............................6
Formation of a Nuclear Management Company................7
Low-Level Radioactive Waste Storage......................7
Depreciation and Decommissioning.........................7
Fuel Supply.................................................8
Electric Generation Mix..................................8
Fuel Costs...............................................8
Coal.....................................................8
Nuclear Fuel Cycle.......................................9
Spent Nuclear Fuel Disposal.............................10
Funding Decontamination and Decommissioning of
Federal Facilities....................................10
Regulatory Matters in the Wisconsin Jurisdiction ..........11
Industry Restructuring..................................11
Independent System Operator.............................12
Utility Businesses and Affiliate Interest Standards.....12
Electric Supply Issues..................................12
Customer Rate Matters...................................13
Regulatory Matters in the Michigan Jurisdiction............13
Industry Restructuring..................................13
Customer Rate Matters...................................14
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Regulatory Matters in the FERC Jurisdiction................14
Customer Rate Matters...................................14
Wholesale Status........................................14
Regulatory Compliance...................................14
Regional Transmission Organizations.....................15
Hydroelectric Licenses..................................15
Other Matters..............................................16
Research and Development................................16
Technology..............................................16
Customer Segmentation...................................16
Contracted Construction Project.........................16
Electric Financial Summary.................................17
Electric Operating Statistics..............................18
Wisconsin Public Service Corporation....................18
Upper Peninsula Power Company...........................19
C. GAS UTILITY MATTERS
Wisconsin Public Service Corporation's Gas Market..........20
Gas Supply.................................................21
General.................................................21
Pipeline Capacity and Storage...........................21
Supply Contracts........................................22
Regulatory Matters in the Wisconsin Jurisdiction...........22
Industry Restructuring..................................22
Cost Recovery Mechanism.................................22
Gas Supply Plan.........................................23
Customer Rates..........................................23
Regulatory Matters in the Michigan Jurisdiction ...........23
Industry Restructuring..................................23
Gas Cost Recovery Plan..................................23
Customer Rates..........................................23
Regulatory Matters in the Federal Energy Regulatory........23
Commission Jurisdiction....................................23
Gas Financial Summary......................................25
Gas Operating Statistics...................................25
Wisconsin Public Service Corporation....................25
D. NONREGULATED BUSINESS ACTIVITIES
General....................................................26
WPS Energy Services, Inc...................................26
WPS Power Development, Inc.................................27
Technology..............................................28
E. ENVIRONMENTAL MATTERS
General....................................................28
Air Quality................................................29
Water Quality..............................................30
Gas Plant Cleanup..........................................31
Ash Disposal...............................................31
F. CAPITAL REQUIREMENTS..........................................32
G. EMPLOYEES.....................................................32
2. PROPERTIES.........................................................34
A. UTILITY.......................................................34
Wisconsin Public Service Facilities........................34
Upper Peninsula Power Facilities...........................35
B. NONREGULATED..................................................36
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3. LEGAL PROCEEDINGS..................................................36
Spent Nuclear Fuel Disposal.....................................36
Funding Decontamination and Decommissioning of
Federal Facilities...........................................36
Environmental...................................................36
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................36
4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................37
A. EXECUTIVE OFFICERS OF WPS RESOURCES CORPORATION...............37
B. EXECUTIVE OFFICERS OF WISCONSIN PUBLIC SERVICE CORPORATION....39
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS........................................41
WPS Resources Corporation Common Stock Two-Year Comparison......41
Dividend Restrictions...........................................41
Common Stock....................................................42
6. SELECTED FINANCIAL DATA............................................43
WPS RESOURCES CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1995 TO 1999)
A. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME....43
B. CONSOLIDATED BALANCE SHEETS...................................44
C. FINANCIAL STATISTICS..........................................45
WISCONSIN PUBLIC SERVICE CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1997 TO 1999)
D. SELECTED FINANCIAL DATA.......................................46
E. FINANCIAL STATISTICS..........................................47
UPPER PENINSULA POWER COMPANY
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1997 TO 1999)
F. SELECTED FINANCIAL DATA.......................................48
G. FINANCIAL STATISTICS..........................................49
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS .............................................50
WPS RESOURCES CORPORATION.......................................50
WISCONSIN PUBLIC SERVICE CORPORATION............................72
A. Quantitative And Qualitative Disclosures About Market Risk....76
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8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................77
WPS RESOURCES CORPORATION
A. CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME,
AND RETAINED EARNINGS.........................................77
B. CONSOLIDATED BALANCE SHEETS...................................78
C. CONSOLIDATED STATEMENTS OF CAPITALIZATION.....................80
D. CONSOLIDATED STATEMENTS OF CASH FLOWS.........................81
E. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS....................82
F. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.....................108
WISCONSIN PUBLIC SERVICE CORPORATION
G. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME...109
H. CONSOLIDATED BALANCE SHEETS..................................110
I. CONSOLIDATED STATEMENTS OF CAPITALIZATION....................112
J. CONSOLIDATED STATEMENTS OF CASH FLOWS........................113
K. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS.................114
L. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................115
M. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.....................116
9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...............................117
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................117
11. EXECUTIVE COMPENSATION............................................117
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....117
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................117
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K...............................................118
DESCRIPTION OF DOCUMENTS..........................................120
SIGNATURES........................................................127
SCHEDULE I - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
A. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.....................128
B. STATEMENTS OF INCOME AND RETAINED EARNINGS...................129
C. BALANCE SHEETS...............................................130
D. STATEMENTS OF CASH FLOWS.....................................131
E. NOTES TO PARENT COMPANY FINANCIAL STATEMENTS.................132
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EXHIBITS
2A* Asset Purchase Agreement By and Among PP&L, Inc.,
PP&L Resources, Inc., Lady Jane Collieries, Inc.
and Sunbury Holdings, LLC, dated as of
May 1, 1999....................................................E-1
3B-1 By-Laws of WPS Resources Corporation as in Effect
February 10, 2000.............................................E-76
3B-2 By-Laws of Wisconsin Public Service Corporation as in
Effect February 10, 2000.....................................E-116
4H Term Loan Agreement, dated as of November 5, 1999 among
PDI New England, Inc., PDI Canada, Inc., and
Bayerische Landesbank Girozentrale...........................E-155
10H-1 WPS Resources Corporation Amended and Restated
Deferred Compensation Plan Effective March 1, 1999
WPS Resources Corporation.................................E-211
21 Subsidiaries of the Registrant...............................E-240
23 Consent of Independent Public Accountants....................E-241
24 Powers of Attorney...........................................E-242
27 Financial Data Schedule
WPS Resources Corporation.................................E-251
Wisconsin Public Service Corporation......................E-252
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* Schedules and exhibits to this document are not being filed herewith.
The registrant agrees to furnish supplementally a copy of any such schedule or
exhibit to the Securities and Exchange Commission upon request.
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Part I
Item 1. BUSINESS
A. GENERAL
WPS RESOURCES CORPORATION
WPS Resources was incorporated in Wisconsin in 1993. WPS Resources is a
holding company for regulated utility and nonregulated business units.
Principal operating subsidiaries and their approximate percentages of revenues
and assets are:
Percent of Percent of
Revenues Assets
---------- ----------
Wisconsin Public Service Corporation 65% 77%
Upper Peninsula Power Company 6% 7%
WPS Energy Services, Inc. 27% 4%
WPS Power Development, Inc. 3% 10%
Upper Peninsula Power is a Michigan corporation. The other listed
subsidiaries are Wisconsin corporations. Wisconsin Public Service and
Upper Peninsula Power are both regulated utilities.
WISCONSIN PUBLIC SERVICE CORPORATION
Wisconsin Public Service is a regulated electric and gas utility serving
an 11,000 square-mile service territory in northeastern Wisconsin and a
portion of the Upper Peninsula of Michigan. In 1999 Wisconsin Public Service
served 388,390 electric retail customers and 229,905 gas retail customers.
Wholesale electric service is provided to various customers including
municipal utilities, electric cooperatives, energy marketers, other
investor-owned utilities, and a municipal joint action agency.
1999 Operating Revenues were:
State Wisconsin 96% Michigan 4%
Customers Electric 73% Gas 27%
Electric
Jurisdiction Retail 89% Wholesale 11%
Gas
Jurisdiction Retail 100% Wholesale 0%
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UPPER PENINSULA POWER COMPANY
In 1999, Upper Peninsula Power, a regulated utility, provided electric
service to a 4,500 square-mile area of Michigan's Upper Peninsula. Electric
service was provided to 48,636 retail customers. Wholesale electric service
was provided to various municipal utilities, electric cooperatives, and other
investor-owned utilities. Total revenues consisted of 92% retail sales and 8%
wholesale sales.
WPS RESOURCES CAPITAL CORPORATION
WPS Resources Capital Corporation was created in 1999 as an intermediate
holding company for the nonregulated subsidiaries of WPS Resources. Financing
for most nonregulated projects is expected to be obtained through nonrecourse
project financing. WPS Resources Capital Corporation will provide the equity
for these projects. At the end of 1999, WPS Resources Capital Corporation had
total assets of $59.1 million, consisting mainly of its investments in
WPS Energy Services and WPS Power Development.
WPS ENERGY SERVICES, INC.
WPS Energy Services is a nonregulated subsidiary of WPS Resources.
WPS Energy Services provides energy and related products and services in the
nonregulated energy market throughout the Midwest and eastern United States.
WPS Energy Services had revenues of $292 million in 1999.
WPS POWER DEVELOPMENT, INC.
WPS Power Development is also a nonregulated subsidiary of
WPS Resources. WPS Power Development currently owns through subsidiaries,
electric generation facilities in Wisconsin, Maine, Pennsylvania, and
New Brunswick, Canada. Synthetic fuel processing and steam production
facilities are located in Alabama, Arkansas and Oregon. Energy-related
services provided by WPS Power Development, include acquisition and investment
analysis of generation facilities, engineering and management services, and
operations and maintenance services. WPS Power Development had revenues of
$35 million in 1999.
REGULATORY OVERSIGHT
WPS Resources is exempt from registration under the Public Utility
Holding Company Act of 1935. We are subject to various requirements and
prohibitions of the Wisconsin Public Utility Holding Company Act.
The Public Service Commission of Wisconsin regulates the Wisconsin
retail utility operations of Wisconsin Public Service. The Michigan Public
Service Commission regulates Michigan retail utility operations of
Upper Peninsula Power and Wisconsin Public Service. Both utility companies
are subject to regulation of their wholesale electric rates, hydroelectric
projects, and certain other matters by the Federal Energy Regulatory
Commission. In addition, both are subject to limited regulation by local
authorities. Each utility follows Statement of Financial Accounting Standards
No. 71, "Accounting for the Effects of Certain Types of Regulation." Their
financial statements and the consolidated financial statements of
WPS Resources reflect the different ratemaking principles of various
jurisdictions. The operation of the Kewaunee Nuclear Power Plant is subject
to the jurisdiction of the Nuclear Regulatory Commission.
Hydroelectric projects operated by WPS Power Development, in the State
of Maine are also regulated by the Federal Energy Regulatory Commission.
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There is no comparable Canadian regulation on the hydroelectric facilities
operated in Canada.
AN OVERVIEW OF INDUSTRY RESTRUCTURING
GENERAL
In April 1994, the Federal Energy Regulatory Commission issued Order 888
on open access electric transmission and stranded cost recovery due to
wholesale competition. Order 888 directs the creation of power pools and
independent system operators to meet the open access requirements and
principles.
An independent system operator is an independent third party that would
regulate the operation of the transmission systems in a defined geographic
area. Independent system operators would monitor the generation, transmission
and distribution systems, direct the operations of transmission facilities,
administer open access transmission tariffs, and direct generation. In an
independent operator system, the transmission system assets may be retained by
the electric utilities.
In 1999 Wisconsin enacted the Reliability 2000 Act. This law requires a
utility holding company to have its Wisconsin utility subsidiary contribute
its transmission assets to the Wisconsin Transmission Company in exchange for
relief from the asset cap limitation on non-utility investments by its parent
holding company. The Wisconsin Transmission Company would be a member of the
Midwest Independent System Operator. The Wisconsin Transmission Company would
own the transmission assets contributed. The Federal Energy Regulatory
Commission has jurisdiction in setting rates for both independent system
operators and independent transmission companies.
In April 1994, the Federal Energy Regulatory Commission also issued
Order 889 which requires public utilities to develop a system to communicate
information about their transmission systems and services electronically to
all potential customers at the same time. Wisconsin Public Service is
included in the system created by the Mid-America Interconnected Network, one
of the existing electric reliability regions in the United States.
EFFECT ON OPERATIONS
Industry restructuring will create competitive markets which could make
the recovery of investment dollars in customer rates less certain. We believe
that the cost of our utility assets will continue to be recoverable in the new
competitive environment.
We expect that increased competition in a deregulated environment will
put greater emphasis on managing costs and put pressure on operating margins
at the utility companies.
REGIONAL MERGER ACTIVITIES
Industry restructuring has been accompanied by merger activity in the
region, impacting the competitive environment. We anticipate that mergers and
acquisitions will continue to be one means to gain an advantage in a
competitive environment.
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Y2K COMPLIANCE
The beginning of the new year proved to be uneventful for WPS Resources
and its subsidiaries. No significant problems were experienced with our
operational or management systems entering the year 2000.
FORWARDING-LOOKING STATEMENTS
Except for historical data and statements of current fact, the
information contained in this Annual Report constitutes forward-looking
statements. Any references made to plans, goals, beliefs, or expectations in
respect to future events and conditions or to estimates are forward-looking
statements. We believe our expectations are based on reasonable assumptions.
Forward-looking statements are inherently uncertain and subject to risks.
Such statements should be viewed with caution. Actual results or experience
could differ materially from the forward-looking statements as a result of
many factors. Forward-looking statements in this report include, but are not
limited to statements regarding:
1) expectations regarding future revenues,
2) estimated future capital expenditures,
3) the expected costs of purchased power in the future,
4) the costs of decommissioning nuclear generating plants,
5) future cleanup costs associated with gas plant sites, and
6) statements in the Management Discussion and Analysis of
Financial Condition and Results of Operations regarding
trends or estimates.
We cannot predict the course of future events or anticipate the
interaction of multiple factors beyond our control and their effect on
revenues, project timing and costs. Some risk factors that could cause
results different from any forward-looking statement include:
1) the speed and degree to which competition enters the
electric and natural gas industries,
2) state and Federal legislation, regulation, interpretation,
or enforcement,
3) regulatory initiatives,
4) economic climate,
5) industrial, commercial, and residential growth,
6) environmental regulation,
7) weather,
8) timing and extent of changes in commodity prices,
9) interest rates,
10) capital markets, and
11) opportunities for expansion in nonregulated energy markets.
We make no commitment to disclose any revisions to the forward-looking
statements, facts, events, or circumstances after the date of this report.
B. ELECTRIC UTILITY MATTERS
ELECTRIC OPERATIONS
In Wisconsin, the largest communities served by Wisconsin Public Service
at the electric retail level are the cities of Green Bay, Oshkosh, Wausau, and
Stevens Point. In Michigan, the largest community served at the electric
retail level is the area of Houghton/Hancock, which is served by
Upper Peninsula Power.
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GENERATING CAPACITY
In 1999, Wisconsin Public Service reached a firm net design peak of
1,751 megawatts on July 30 between 10 a.m. and 3 p.m. The summer time period
is the most relevant for capacity planning purposes. During the actual peak,
there were firm purchases of 15 megawatts and firm sales of 110 megawatts.
Planned generator capability for the 1999 summer period was 1,979 megawatts.
Future supply reserves are estimated to be above the minimum 18% planning
criteria for 2000 and 2001.
For additional information regarding our generation facilities, see
"UTILITY" in Part I, Item 2, PROPERTIES.
In 1997, the Public Service Commission of Wisconsin authorized the
construction of a 179-megawatt combustion turbine generating facility by
De Pere Energy LLC, an affiliate of SkyGen LLC, an independent power producer.
The facility was completed and placed in service in early June 1999.
Effective June 1, 1999, Wisconsin Public Service entered into a 25-year
contract to purchase capacity and energy from the facility. This contract is
accounted for as a capital lease. Under the terms of the contract, the
De Pere Energy Center will be converted to a combined-cycle unit with a summer
rating of 233 megawatts sometime after the year 2003. A combined-cycle unit
recovers heat from hot exhaust gases to produce steam that drives a steam
turbine generator to produce approximately one-third of the power generated.
Wisconsin Public Service will furnish natural gas for the facility under
existing gas tariffs. The energy center will be operated by
De Pere Energy LLC. See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
Note 13, Commitments and Contingencies regarding "Long-Term Power Supply."
In 1999, Upper Peninsula Power purchased 86% of its total energy
requirements. Remaining energy requirements were supplied by hydroelectric
and combustion turbine facilities owned by Upper Peninsula Power. During
1999, 50 megawatts of firm power were purchased from Commonwealth Edison and
15 megawatts were purchased from Wisconsin Public Service. Upper Peninsula
Power also purchased non-firm power from Wisconsin Public Service and
Wisconsin Power and Light Company among others. The purchase from
Commonwealth Edison represented 45% of Upper Peninsula Power's total energy
requirements in 1999. These purchase contracts were effective through
December 31, 1999. Upper Peninsula Power has contracted for 65 megawatts of
capacity and energy from Wisconsin Public Service for the years 2000, 2001,
and 2002.
Wisconsin Public Service completed construction of a 9-megawatt wind
facility in 1999. The facility includes 14 wind turbines installed on private
farmlands located in the Town of Lincoln in Kewaunee County, Wisconsin. The
plant became operational in June 1999 at a cost of $10.3 million.
Wisconsin Public Service owns 33.1% of the outstanding capital stock of
Wisconsin River Power Company, the owner and operator of two dams and related
hydroelectric plants on the Wisconsin River having an aggregate installed
capacity of approximately 39 megawatts.
KEWAUNEE NUCLEAR POWER PLANT
GENERAL
The Kewaunee plant is a pressurized water reactor plant with a nameplate
capacity of 562 megawatts. It is currently jointly owned by Wisconsin Public
Service (41.2%), Wisconsin Power and Light Company (41.0%), and Madison Gas
and Electric Company (17.8%). See the discussion on ownership below for
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information on the future ownership of the Kewaunee plant. Wisconsin Public
Service is the plant operator. The plant's operating license expires in 2013.
OWNERSHIP
On September 29, 1998, Wisconsin Public Service and Madison Gas and
Electric Company entered into an agreement to transfer Madison Gas and
Electric's 17.8% share of the Kewaunee plant to Wisconsin Public Service. The
closing of this agreement is contingent upon regulatory approvals. After the
transfer, our ownership interest in the plant will be 59.0%. The remaining
co-owner, Wisconsin Power and Light Company, will retain its 41.0% ownership
interest in the plant.
Under terms of the agreement Wisconsin Public Service will pay
Madison Gas and Electric an amount equal to its depreciated book value for its
share of the Kewaunee plant at the ownership transfer date. Madison Gas and
Electric will provide to Wisconsin Public Service:
1) its qualified decommissioning trust at the date of the ownership
change,
2) access to its nonqualified trust, and
3) annual future decommissioning contributions of $8,091,000 through
the year 2002. These contributions are expected to fully fund
Madison Gas and Electric's share of total expected plant
decommissioning costs.
Wisconsin Public Service will then assume responsibility for 59.0% of
the costs of decommissioning the plant. Madison Gas and Electric will retain
its obligation for its share of the costs for final disposal of spent nuclear
fuel created up to the time of ownership transfer. Madison Gas and Electric
will be provided an option to purchase power from Wisconsin Public Service for
two years following the date of the ownership transfer. The amount of
potential power to be provided is approximately equal to Madison Gas and
Electric's current share of the power generated by the plant.
STEAM GENERATOR REPLACEMENT
On April 7, 1998, the Public Service Commission of Wisconsin approved
the Wisconsin Public Service application for replacement of the two steam
generators at the Kewaunee plant. The total cost of replacing the steam
generators is estimated to be approximately $113 million. After the
acquisition of Madison Gas & Electric's interest in the Kewaunee Plant our
share of the cost is estimated to be $66.7 million. Madison Gas and Electric
will not be responsible for any portion of the costs of the generator
replacement as a result of the change in ownership discussed above. Due to
delays in the manufacture of the new generators, the replacement is now
scheduled for the fall of 2001 and will take approximately 60 days.
On November 27, 1998, the plant returned to service from the 1998
planned maintenance and refueling outage. Inspection of the plant's two steam
generators showed that the repairs made to the tubes in 1997 were holding up
well and few additional repairs were needed. A major overhaul was also
performed on the main turbine generator. The next shutdown for refueling and
maintenance is scheduled for the spring of 2000. The Kewaunee plant completed
1999 with 100% availability.
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FORMATION OF THE NUCLEAR MANAGEMENT COMPANY
On February 25, 1999, Northern States Power Company, Wisconsin Electric
Power Company, and Wisconsin Public Service announced the formation of Nuclear
Management Company. Subsequently, Alliant Energy Corporation also became a
participant in Nuclear Management Company. Combined, the four utilities
operate seven nuclear generating units at five locations for a combined
generating capacity of approximately 3,760 megawatts. This represents between
12% and 25% of the electricity generated by the individual utilities.
Nuclear Management Company was formed to sustain long-term safety,
optimize reliability, and improve the operational performance of the
individual nuclear generating plants. Overall plant operations will continue
to be staffed by the same plant personnel. Initially, the utilities will
continue to own their respective plants, be entitled to energy generated at
the plants, and retain the financial obligations for their safe operation,
maintenance, and decommissioning. Each utility will obtain required state and
Federal regulatory approvals prior to its participation in Nuclear Management
Company.
LOW-LEVEL RADIOACTIVE WASTE STORAGE
On June 26, 1997, the Midwest Compact Commission halted development of a
six-state regional disposal facility for low-level radioactive waste storage
in Ohio. The Midwest Compact Commission, established to implement the Federal
Low Level Radioactive Waste Policy Act of 1980, cited dwindling regional waste
volumes, continued access to existing disposal facilities, and potentially
high development costs as the primary reasons for the decision. The Midwest
Compact Commission continues to monitor the availability of disposal
facilities for the low-level radioactive waste created by all Midwest
generators. A site at Barnwell, South Carolina, has been available for the
storage of low-level radioactive waste from the Kewaunee plant in the past.
The availability of this site for future waste storage is uncertain. As a
result of technology advances, waste compaction, and the reduction of waste
generated, the Kewaunee plant has on-site low-level radioactive waste storage
capacity sufficient to store the amount of low-level waste expected over the
next 10-year period.
DEPRECIATION AND DECOMMISSIONING
In 1997, the Public Service Commission of Wisconsin directed the owners
of the Kewaunee plant to develop depreciation and decommissioning cost
projections based on full cost recovery, of the estimated obligation by the
end of 2002. Previous cost estimates were based on full collection of funds
required for decommissioning by 2013, the year in which the operating license
expires. The order was prompted by uncertainty regarding the expected useful
life of the plant without steam generator replacement. In 1998, after the
approval of the project to replace the steam generators, the Public Service
Commission of Wisconsin ruled that, until the replacement steam generators are
installed, we should continue to depreciate and collect decommissioning funds
at rates sufficient to fully recover costs by 2002. Once the replacement
steam generators are installed, the Public Service Commission of Wisconsin has
directed Wisconsin Public Service to depreciate and collect decommissioning
funds sufficient to recover remaining costs over a period of approximately 8.5
years. An accelerated depreciation method will be utilized for calculating
depreciation expense. The steam generators are scheduled for replacement in
the fall of 2001. A review of the depreciation and decommissioning costs and
their rate of recovery will be considered during the next rate case in 2000
for rates to be effective in 2001.
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At December 31, 1999, the net carrying amount of our investment in
Kewaunee was approximately $28.2 million. The current cost for our share of
the estimated costs to decommission Kewaunee is $200.7 million.
Decommissioning trust assets at December 31, 1999 totaled $198.1 million.
Wisconsin and Michigan retail customers of Wisconsin Public Service are
responsible for approximately 91% of our share of the plant's costs.
During 1999, $8.3 million of depreciation expense related to unrecovered
plant investment was recognized compared with $8.2 million recognized in 1998.
The 1999 decommissioning funding level was $9.2 million compared with
$17.2 million in 1998, largely due to good investment return reflected in the
1998 decommissioning funding plan. Customer rates, which became effective in
the Wisconsin jurisdiction on January 15, 1999, are designed to recover the
accelerated plant depreciation and provide funds for decommissioning.
Additional discussion of Kewaunee plant matters is included in
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION and the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Notes 1(i),
1(k), 1(l), and 13.
FUEL SUPPLY
ELECTRIC GENERATION MIX
Wisconsin Public Service electric generation mix for 1999 and 1998 was:
1999 1998
---- ----
Energy Sources
Coal 64.0% 69.2%
Nuclear 14.5% 12.5%
Hydro 2.0% 1.7%
Natural gas/fuel oil 2.2% 1.8%
Purchased power 17.3% 14.8%
Purchased power represents short-term energy purchases.
FUEL COSTS
Wisconsin Public Service fuel costs for 1999 and 1998 were:
1999 1998
---- ----
Fuel Source
Coal $1.08 $1.04
Nuclear 0.45 0.42
Natural gas 3.05 2.59
Fuel oil 4.03 3.89
Propane 4.98 N/A
Costs presented above are measured in dollars per million Btus.
COAL
Coal is the primary fuel source for Wisconsin Public Service, most of
which is from the Powder River Basin mines located in Wyoming and Montana.
Powder River Basin coal is very low in sulfur and meets the standards of the
1990 Clean Air Act for the Year 2000 and beyond. This coal has been our
least-cost coal source from any of the subbituminous coal-producing regions in
the United States.
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Wisconsin Public Service is testing alternative coal sources for its
Pulliam and Weston plants. Alternative sources could provide more competitive
market pricing and higher Btu content. Coal with higher Btu content will
increase generation output and provide flexibility in meeting peak electric
demands.
Wisconsin Public Service purchases most coal for its wholly owned plants
and the jointly-owned Edgewater and Columbia plants under relatively
short-term contracts of up to three years duration. One long-term contract
covers approximately 16% of total requirements and has take-or-pay obligations
totaling $94.2 million for the years 2000 through 2016.
Coal transportation for these plants is purchased under contracts of up
to five years duration. Over 90% of our coal transportation is under
competitive transportation agreements which are expected to continue to
contribute to competitive fuel costs. Union Pacific Railroad Company is the
exclusive provider of coal transportation for the Edgewater plant. The plant
operator, Wisconsin Power and Light Company, filed a complaint with the
Surface Transportation Board on December 30, 1999 claiming the tariff charged
by Union Pacific for unit train service between the Powder River Basin and the
Edgewater plant is unreasonably high.
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Note 13, COMMITMENTS AND
CONTINGENCIES regarding "Coal Contracts."
NUCLEAR FUEL CYCLE
Wisconsin Public Service purchases uranium concentrates, conversion
services, enrichment services, and fabrication services for nuclear fuel
assemblies at the Kewaunee plant. Approximately one-third of the 121 fuel
assemblies are removed from the reactor every 18 months and replaced with new
assemblies. Removed assemblies are placed in storage at the plant site
pending permanent disposal by the United States Department of Energy.
Uranium concentrates, conversion services, and enrichment services are
purchased either on the spot market, through a bidding process, or using
existing contracts.
The uranium inventory policy of Wisconsin Public Service requires that
sufficient inventory be maintained for two reactor refuelings. As of
December 31, 1999, approximately 983,000 pounds of yellowcake (a processed
form of uranium ore), or its equivalent, were held in inventory for the plant.
Inventory includes uranium under contract.
Conversion services are complete for nuclear fuel reloads in 2000, 2001,
and 2003.
A fixed quantity of enrichment services has been contracted through the
year 2004. Wisconsin Public Service has the option of purchasing future
enrichment services under an existing contract or by purchases from the spot
market.
Wisconsin Public Service has contracts in place for fuel fabrication
services for the next decade. These contracts contain force majeure and
termination for convenience provisions.
If, for any reason, the Kewaunee plant was forced to suspend operations
permanently, the maximum exposure related to fuel contracts would not be
expected to exceed $274,000. No financial penalties associated with the
present uranium supply, conversion service, and enrichment agreements exist.
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<PAGE>
The fuel fabrication contract contains force majeure and termination for
convenience provisions. Uranium inventories could be sold on the spot market.
SPENT NUCLEAR FUEL DISPOSAL
The Federal government has the responsibility to dispose of or
permanently store spent nuclear fuel. Spent nuclear fuel is currently being
stored at the Kewaunee plant. With minor plant modifications planned for
2001, the Kewaunee plant should have sufficient fuel storage capacity until
the end of its licensed life in 2013. Legislation is being considered on the
Federal level to provide for the establishment of an interim storage facility.
On January 31, 1998, the United States Department of Energy failed to
comply with its obligation to begin removing spent nuclear fuel from plant
sites as required by the Nuclear Waste Policy Act of 1982. Wisconsin Public
Service joined other utilities in a motion to enforce the July 1996 mandate of
the United States Court of Appeals for the District of Columbia. The Court
had ruled that the Department of Energy had an unconditional obligation to
begin accepting, transporting, and disposing of spent nuclear fuel by
January 31, 1998.
On May 5, 1998, the United States Court of Appeals for the District of
Columbia issued a decision denying the motion to enforce the Court's 1996
mandate. The denial centered on the question of whether the Department of
Energy could properly use the Nuclear Waste Fund as a source to pay damages.
The Court also ruled that the question is not ready for review. The Court
indicated that compelling the Department of Energy to submit a detailed
program for disposing of spent fuel from utilities and declaring that the
utilities are relieved of their obligation to pay fees to the Nuclear Waste
Fund falls outside the scope of the Court's authority. The scope of the
Court's mandate was limited to defining the nature of the Department of
Energy's statutory obligations and did not extend to requiring the Department
of Energy to perform under its contracts with the utilities. Our current
recourse is to request reimbursement from the Department of Energy for
expansion of disposal facilities. Litigation on this issue continues in the
industry and we continue to monitor its progress.
FUNDING DECONTAMINATION AND DECOMMISSIONING OF FEDERAL FACILITIES
A surcharge imposed by the Energy Policy Act of 1992 requires nuclear
power companies to fund the decontamination and decommissioning of Department
of Energy facilities relating to the processing of nuclear fuel. As a result,
we are required to pay a surcharge on uranium enrichment services purchased
from the Federal government prior to October 23, 1992. On an inflation
adjusted basis, our portion of the obligation related to the Kewaunee plant is
approximately $600,000 per year through the year 2007. Madison Gas and
Electric has agreed to continue to pay its portion of this annual assessment
after the transfer of their ownership interest in the plant to Wisconsin
Public Service.
Wisconsin Public Service and a number of other nuclear power companies
sued the Department of Energy in the United States Court of Federal Claims
seeking a refund of the previously paid decontamination and decommissioning
surcharge payments. This claim continues in the Court of Federal Claims
pending the settlement of other litigation. On August 13, 1998, 22 utilities
filed a complaint in the U.S. District Court for the Southern District of
New York seeking a declaratory judgement that certain sections of the Energy
Policy Act are unconstitutional. As of December 1999, the Department of
Energy and the utilities continue legal proceedings in both the Court of
Federal Claims and the United States District Courts. No rulings have been
issued.
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REGULATORY MATTERS IN THE WISCONSIN JURISDICTION
INDUSTRY RESTRUCTURING
Electric reliability continues to be the primary issue for the Public
Service Commission of Wisconsin and the state's legislature. Industry
restructuring and retail generation open access remain secondary issues in the
state. The Public Service Commission of Wisconsin's top priorities for the
past two years have been to develop the utility infrastructure necessary to
assure reliable electric service and remove the barriers to competition at the
wholesale level. Laws addressing reliability issues were passed in 1998 and
1999.
The State of Wisconsin 1999 Budget Act included a major package of
energy reforms affecting utilities and utility holding companies. The package
of energy reforms is generally referred to as "Reliability 2000." The law:
- Changes the asset cap for nonutility investments for
three investor-owned utility holding companies, including
WPS Resources, to allow investments in energy and
energy-related business which would be exempt from the
asset cap calculation,
- Requires the utility subsidiaries of these three utility
holding companies to place their transmission assets into
a statewide transmission company, in exchange for an
equity interest in the transmission company, as a
condition of applying the new asset cap provisions,
- Increases targets for retail electricity sales from
renewable resources. Targets would begin at 1/2% of
total energy sales by the end of 2001 and increase to
2.2% of total energy sales by the end of 2011, and
- Increases, by 50%, the amount of ratepayer funding for
public benefits spending used for low-income energy
assistance, conservation, and renewable energy research.
The statewide transmission company will be owned by those utilities
transferring transmission assets into the new company. Other Wisconsin public
utilities and electric cooperatives may acquire an equity interest in the
transmission company by transferring transmission assets to the transmission
company. The transferring utility is required to provide operation and
maintenance of these assets for a three-year period. The transmission company
is required to apply for membership in the Midwest Independent System
Operator. These legislative changes do not require any public utility to
contribute its transmission facilities to the transmission company. The bill
only requires such a transfer as a condition of granting relief to a public
utility holding company from the asset cap.
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<PAGE>
INDEPENDENT SYSTEM OPERATOR
A major regulatory concern in a restructured electric industry is the
establishment of independent system operators. An independent system operator
is an independent third party that would regulate, on a "real-time" basis, the
operation of the transmission systems in a defined geographic area. The
system operator would:
1) monitor the generation, transmission, and distribution systems,
2) direct the operations of transmission facilities,
3) administer open access transmission tariffs,
4) manage parallel path flows,
5) monitor generation and transmission maintenance schedules, and
6) manage congestion on the transmission system.
The Wisconsin 1998 Reliability Act requires all eastern Wisconsin
utilities with transmission systems to join the Midwest Independent System
Operator by June 30, 2000. The Reliability 2000 Act also provides utility
holding companies relief from the Wisconsin Holding Company Act asset cap
limitation on nonutility investments if their utility subsidiaries contribute
their transmission assets to this statewide transmission company. The
legislation requires one zone for pricing transmission services in eastern
Wisconsin. The result will be one transmission rate for all transmission
owners in eastern Wisconsin. The rate will be based on the average revenue
requirements of the member utilities.
The Midwest Independent System Operator is currently working with the
Federal Energy Regulatory Commission to determine transmission rates. The
Federal Energy Regulatory Commission has approved the Midwest Independent
System Operator rate methods, although several conditions are being contested.
The Federal Energy Regulatory Commission is still considering a uniform
authorized allowed return on equity for each member transmission owner.
UTILITY BUSINESSES AND AFFILIATE INTEREST STANDARDS
In 1998, the Wisconsin Commission opened a docket to review the types of
services that a regulated utility should be allowed to provide. Participants
in this docket include all Wisconsin utilities; a heating, ventilating and air
conditioning contractor trade association; several power marketers; and
various special interest groups. The trade association is recommending
regulated utilities be limited to the delivery of natural gas and electricity.
Any other services would need to be provided by the utility's unregulated
affiliates. The utilities are recommending that they be allowed to provide
services that are related to their core services, such as gas appliance
service. The record in this docket was closed in February 1999. The
Wisconsin Commission has taken no action on this docket and there are no
published plans to do so in the near future. The Wisconsin Commission will
open the second phase of this docket to determine the appropriate affiliate
interest requirements when a decision is reached in the first phase of the
docket regarding the types of services a regulated utility may offer.
ELECTRIC SUPPLY ISSUES
The summer of 1999 provided a number of challenges to maintaining the
reliability of the electric system in the region. In late July, Wisconsin
experienced some of the highest temperature and humidity conditions in the
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<PAGE>
last 105 years. These extreme conditions resulted in higher electric loads
than anticipated in the state and region, resulting in significant stress on
generation availability, transmission capacity, capacity prices and energy
prices. Price spikes reached $5,000 per megawatt hour in the region.
Wisconsin Public Service and the other state utilities met energy demands
through this period with no interruptions of firm customers and limited
financial consequences. A number of large interruptible customers on our
system experienced very high buy-through prices during this period. Due to
the high prices, many of these customers decided to temporarily shut down
operations during this period.
CUSTOMER RATE MATTERS
In 1999, the Edison Electric Institute reported Wisconsin Public Service
to be the low-cost electric provider in the State of Wisconsin, among
investor-owned utilities. 1999 rates were 89% of the state average for
residential rates, 77% for commercial rates, and 80% for large industrial
rates. Wisconsin Public Service also had some of the lowest natural gas rates
in Wisconsin in 1999. 1999 rates were 99% of the state average for
residential rates, 94% for commercial rates, and 72% for large industrial
rates.
The 1999 rate order for Wisconsin Public Service provided for a rate
case reopener to resolve several issues for the year 2000. A request for a
change in rates was filed under this reopener provision. The issues addressed
include:
1) construction of a combustion turbine for Madison Gas and
Electric Company,
2) deferral of 1998 costs related to tubing repairs at the
Kewaunee plant,
3) recovery of deferred Pulliam Unit 3 costs, and
4) changes in fuel transportation contracts and purchased power
costs.
Requests for approximately a $23.4 million increase in electric rates
were filed in 1999. No change in natural gas pricing was requested. The
resulting rate order maintained the current return on equity rate of 12.1% and
granted a $21.1 million, or 4.6%, increase in electric rates for 2000.
REGULATORY MATTERS IN THE MICHIGAN JURISDICTION
INDUSTRY RESTRUCTURING
On June 29, 1999, the Michigan Supreme Court found that the Michigan
Public Service Commission did not have the statutory authority to order retail
generation open access in Michigan. Following that decision, the Michigan
Commission determined that it had the authority to regulate open access
programs if the utilities volunteered to implement them. Detroit Edison and
Consumers Energy volunteered to implement open access programs previously
ordered by the Michigan Commission and retail open access is in progress in
the Lower Peninsula of Michigan. A number of parties have initiated
challenges in the Michigan Court of Appeals and Supreme Court questioning the
Michigan Commission's authority to approve voluntary open access programs.
The Michigan Supreme Court has refused to hear this case until the Court of
Appeals has made its determination.
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<PAGE>
In 1999, the Michigan Chamber of Commerce organized a coalition of
utilities, energy marketers, customers, and customer groups to develop
consensus legislation for generation open access. The effort produced several
versions of legislation over a 10-month period. The legislation was
negotiated with Consumers Energy and Detroit Edison and was introduced in
January 2000. This proposal is to be considered by the Michigan legislature
in early 2000.
CUSTOMER RATE MATTERS
In 1999, Wisconsin Public Service was the lowest cost provider of
electric service in Michigan for all customer classes. Our electric rates were
79% of the state average for residential rates, 81% for commercial rates, and
78% for large industrial rates. We also had some of the lowest natural gas
rates in Michigan in 1999. Our gas rates were 77% of the state average for
residential rates, 88% for commercial rates, and 61% for large industrial
rates.
Other than power supply and gas cost recovery adjustments, Wisconsin
Public Service has not had a Michigan electric rate increase since 1987 or a
gas rate increase since 1986. Wisconsin Public Service anticipates filing a
rate request in Michigan in early 2000.
REGULATORY MATTERS IN THE FERC JURISDICTION
CUSTOMER RATE MATTERS
Other than a transmission open access tariff case and an adjustment for
a fuel buyout, Wisconsin Public Service has not had a full Federal Energy
Regulatory Commission wholesale rate case since 1987.
WHOLESALE STATUS
Wisconsin Public Service continues to participate in the wholesale
electric market primarily with municipal electric utilities and electric
distribution cooperatives. In 1999, Wisconsin Public Service entered into a
three-year contract with Upper Peninsula Power to supply 65 megawatts of
baseload energy beginning January 1, 2000. Although the future of wholesale
electric sales within the regulated utility is uncertain, we continue to serve
customers under existing contracts.
In 1999, Wisconsin Public Service provided 31 wholesale electric
customers with either all or a portion of their power supply needs.
Wholesale customers in 1999 included 7 municipal customers, 3 electric
cooperatives, 9 investor-owned utilities, 11 marketers, and 1 municipal joint
action agency. Total wholesale sales for resale in 1999 were approximately
1.95 million megawatts of firm sales and various levels of interruptible and
non-firm service. Total wholesale sales for resale represented 16.4% of
Wisconsin Public Service's electric sales volume in 1999 compared with 17%
in 1998.
The wholesale electric market continues to be influenced by the
availability of transmission, reliable and economic capacity, and energy.
Changing markets, state and Federal regulatory and legislative agendas and
uncertainties regarding deregulation continue to impact the wholesale market
and how WPS Resources and its subsidiaries will participate in the future.
REGULATORY COMPLIANCE
An issue in a 1997 complaint on transmission use in Wisconsin was the
use of Capacity Benefit Margin by several Wisconsin utilities including
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Wisconsin Public Service in determining available transmission capacity.
Capacity Benefit Margin is the use of the transmission system to provide
reserve generation capacity for reliability of the system. Wisconsin Public
Power, Inc. and Madison Gas and Electric maintain that this reservation of
transmission capacity is inappropriate and restricts available capacity for
their use. In 1998, the Federal Energy Regulatory Commission ordered
Wisconsin Public Service to provide additional information on the economics
and reliability of this provision. Additional data was supplied to support
the use of Capacity Benefit Margin to provide reliability to the
Wisconsin Public Service service territory.
The Federal Energy Regulatory Commission opened a generic docket on this
issue in 1999 and held hearings to collect additional information. The
Federal Energy Regulatory Commission issued a preliminary partial order on
Capacity Benefit Margin in this generic docket. The preliminary partial order
requires all utilities that use Capacity Benefit Margin to:
1) come to a regional agreement on how Capacity Benefit Margin
will be calculated,
2) determine how entities can access Capacity Benefit Margin,
3) document these methods, and
4) post the resulting values on their Open Access Sametime
Information System ("OASIS") or internet web pages.
Wisconsin Public Service, the Mid-America Interconnected Network, and
the Wisconsin Upper Michigan System utilities complied with this order by the
required date of August 27, 1999. The Federal Energy Regulatory Commission
has yet to rule regarding whether Capacity Benefit Margin is appropriate.
REGIONAL TRANSMISSION ORGANIZATIONS
The Federal Energy Regulatory Commission initiated a Notice of Proposed
Rule Making in 1999 regarding Regional Transmission Organizations, which
include independent system operators as well as independent transmission
companies. In this rule making process, the Commission took comments from
over 100 participants including utilities, customers, state regulatory
commissions, and marketers. After considering participant comments the
Federal Energy Regulatory Commission issued Order 2000 identifying the minimum
conditions a regional transmission organization must meet. This order will
not have a significant effect in Wisconsin. Wisconsin law requires Wisconsin
utilities to join the Midwest Independent System Operator by June 30, 2000.
The Midwest Independent System Operator is already approved by the Federal
Energy Regulatory Commission as a regional transmission organization in the
Midwest area including Wisconsin. The final Federal Energy Regulatory
Commission approval of rates for the regional transmission organization is
expected in 2000.
HYDROELECTRIC LICENSES
All Federal Energy Regulatory Commission hydroelectric facility licenses
held by Wisconsin Public Service are current. With the exception of the
licenses for Bond Falls and Dead River, all hydroelectric facility licenses
held by Upper Peninsula Power are also current.
In 1998, Upper Peninsula Power reached a settlement agreement with
Federal and state agencies and special interest groups regarding its Bond
Falls license. Signing of the agreement, by all parties, is expected early in
2000. The agreement will be the basis for a new license from the Federal
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Energy Regulatory Commission. Issuance of the new license is expected early
in 2001. The license will have a term of 40 years from the date it is
granted.
Licensing of the Dead River project is also progressing. During 1999, a
long-term water power easement agreement was obtained from adjacent landowners
providing flowage rights required by the Federal Energy Regulatory Commission
and the Clean Water Act. Issuance of the license is expected in 2001. The
license will have a 40-year term beginning in August 1991, the date the
Federal Energy Regulatory Commission claimed jurisdiction over the Dead River
Project.
OTHER MATTERS
RESEARCH AND DEVELOPMENT
Electric research and development expenditures for Wisconsin Public
Service totaled $1.7 million for 1999, $1.5 million for 1998, and $1.3 million
for 1997. These expenditures were primarily charged to electric operations.
TECHNOLOGY
Wisconsin Public Service will be the first utility in the country to use
superconducting magnetic energy storage units to increase the stability of its
transmission grid during periods of transmission system disturbances. Six
portable units have been purchased and will be connected to key points on the
Wisconsin Public Service transmission grid. The units will boost local
voltages during the first critical moments of system disturbances. The
superconducting magnetic energy storage units will provide an immediate
temporary solution for Wisconsin Public Service while a long-term transmission
solution is pursued.
CUSTOMER SEGMENTATION
Twenty-eight paper mills account for 12% of Wisconsin Public Service
electric revenues. There is no single customer, or small group of customers,
the loss of which would have a materially adverse effect on the electric
business of Wisconsin Public Service in the current regulatory environment.
CONTRACTED CONSTRUCTION PROJECT
Wisconsin Public Service has agreed to construct and operate for Madison
Gas and Electric an 83-megawatt combustion turbine at the West Marinette site
of Wisconsin Public Service. The combustion turbine is scheduled for
completion in the second quarter of 2000. Wisconsin Public Service will
supply gas to this unit pursuant to existing gas tariffs.
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ELECTRIC FINANCIAL SUMMARY
The following table sets forth the revenues, net income, and assets
attributable to electric utility operations:
ELECTRIC UTILITY OPERATIONS (WISCONSIN PUBLIC SERVICE AND UPPER PENINSULA
POWER)
==============================================================================
(Thousands) Year Ended December 31
- ------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------
Consolidated Electric Operating Revenues $ 582,471 $ 543,260 $ 536,885
Net Income $ 56,083 $ 50,488 $ 53,294
Total Assets $1,247,859 $1,117,438 $1,089,875
==============================================================================
See Note 15 in Notes to Consolidated Financial Statements. The consolidated
electric operating revenues, above, reflect the elimination of intercompany
sales and do not agree with regulated electric operating revenues shown in
Note 15, Segments of Business, which do not reflect such elimination.
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ELECTRIC OPERATING STATISTICS
WISCONSIN PUBLIC SERVICE CORPORATION
==============================================================================
1999 1998 1997
- ------------------------------------------------------------------------------
Operating revenues (Thousands)
Residential and farm $183,163 $164,961 $163,766
Small commercial and industrial 151,275 141,203 138,949
Large commercial and industrial 127,056 119,601 120,312
Resale and other 66,428 61,575 56,361
- ------------------------------------------------------------------------------
Total $527,922 $487,340 $479,388
==============================================================================
Kilowatt-hour sales (Thousands)
Residential and farm 2,747,659 2,627,496 2,565,432
Small commercial and industrial 3,135,669 3,004,134 2,876,832
Large commercial and industrial 4,053,153 3,977,829 3,943,275
Resale and other 1,983,667 1,990,705 1,873,788
- ------------------------------------------------------------------------------
Total 11,920,148 11,600,164 11,259,327
==============================================================================
Customers served (End of period)
Residential and farm 345,962 339,881 334,134
Small commercial and industrial 41,394 40,247 39,400
Large commercial and industrial 220 211 197
Resale and other 875 853 836
- ------------------------------------------------------------------------------
Total 388,451 381,192 374,567
==============================================================================
Annual average use (Kilowatt-hours)
Residential and farm 8,020 7,803 7,751
Small commercial and industrial 76,804 75,537 74,082
Large commercial and industrial 18,808,135 18,978,191 606,984
==============================================================================
Average kilowatt-hour price (Cents)
Residential and farm 6.67 6.28 6.38
Small commercial and industrial 4.82 4.70 4.83
Large commercial and industrial 3.13 3.01 3.05
==============================================================================
Production capacity (Summer - kilowatts)
Steam 1,326,100 1,307,800 1,326,000
Nuclear 208,000 205,200 212,200
Hydraulic 53,400 53,000 53,000
Combustion turbine 382,736 206,340 205,930
Other 8,600 7,800 7,800
Purchased capacity 14,900 14,750 14,750
- ------------------------------------------------------------------------------
Total system capacity 1,993,736 1,794,890 1,819,680
==============================================================================
Generation and purchases
(Thousands of kilowatt-hours)
Steam 8,055,350 8,513,537 8,213,518
Nuclear 1,823,147 1,526,702 973,485
Hydraulic 250,306 212,607 351,034
Purchases and other 2,435,409 1,994,826 2,327,334
- ------------------------------------------------------------------------------
Total 12,564,212 12,247,672 11,865,371
==============================================================================
Steam fuel costs
(Cents per million Btu)
Fossil 109.101 105.353 110.124
Nuclear 45.298 41.565 43.174
Total 97.378 95.735 103.093
- ------------------------------------------------------------------------------
System peak - firm (kilowatts) 1,751,000 1,685,000 1,607,000
==============================================================================
Annual load factor 77.71% 78.35% 79.42%
==============================================================================
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ELECTRIC OPERATING STATISTICS
UPPER PENINSULA POWER COMPANY
==============================================================================
1999 1998 1997
- ------------------------------------------------------------------------------
Operating revenues (Thousands)
Residential and farm $25,109 $21,894 $22,626
Small commercial and industrial 19,035 16,688 16,611
Large commercial and industrial 10,809 9,773 9,271
Resale and other 7,483 14,310 11,694
- ------------------------------------------------------------------------------
Total $62,436 $62,665 $60,202
==============================================================================
Kilowatt-hour sales (Thousands)
Residential and farm 263,742 241,517 252,897
Small commercial and industrial 239,698 223,282 223,040
Large commercial and industrial 226,913 225,565 222,143
Resale and other 147,281 148,153 147,297
- ------------------------------------------------------------------------------
Total 877,634 838,517 845,377
==============================================================================
Customers served (End of period)
Residential and farm 43,309 42,783 42,551
Small commercial and industrial 5,304 5,286 5,254
Large commercial and industrial 9 9 8
Resale and other 183 194 190
- ------------------------------------------------------------------------------
Total 48,805 48,272 48,003
==============================================================================
Annual average use (Kilowatt-hours)
Residential and farm 6,113 5,646 5,945
Small commercial and industrial 45,296 42,239 42,454
Large commercial and industrial 25,212,556 25,062,778 26,708,834
==============================================================================
Average kilowatt-hour price (Cents)
Residential and farm 9.57 9.07 8.95
Small commercial and industrial 7.95 7.48 7.45
Large commercial and industrial 4.78 4.34 4.17
==============================================================================
Production capacity (Summer - kilowatts)
Steam 17,700 17,700 17,700
Hydraulic 30,000 30,000 30,000
Combustion turbine 55,000 55,000 55,000
Purchased capacity 65,000 55,000 65,000
- ------------------------------------------------------------------------------
Total system capacity 167,700 157,700 167,700
==============================================================================
Generation and purchases
(Thousands of kilowatt-hours)
Steam (451) 4,029 (298)
Hydraulic 126,146 97,988 138,923
Purchases and other 846,088 845,426 795,599
- ------------------------------------------------------------------------------
Total 971,783 947,443 934,224
==============================================================================
Steam fuel costs
(Cents per million Btu)
Fossil - 2.67943 -
- ------------------------------------------------------------------------------
System peak - firm (kilowatts) 149,300 137,000 138,600
==============================================================================
Annual load factor 68.65% 74.44% 73.23%
==============================================================================
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C. GAS UTILITY MATTERS
WISCONSIN PUBLIC SERVICE CORPORATION'S GAS MARKET
As of December 31, 1999, Wisconsin Public Service provided natural gas
distribution service to 224,674 customers in 225 cities, villages, and towns
in northeastern and central Wisconsin, and 5,231 customers in and around the
city of Menominee, Michigan, for a total of 229,905 gas distribution
customers. This represents an increase of 5,847 customers, or 2.6%, compared
to December 31, 1998. The principal cities served include Green Bay, Oshkosh,
Sheboygan, Two Rivers, Marinette, Stevens Point, and Rhinelander, in
Wisconsin, and the city of Menominee in Michigan.
The gas distribution business of Wisconsin Public Service has a
significant seasonal component and is impacted by varying weather conditions
from year-to-year. In 1999, 65.5% of its gas sales and 58.5% of its total gas
system throughput occurred during the five winter months of November through
March. Total gas throughput includes gas sales and gas delivered for
transportation customers. Competition with other forms of energy exists in
varying degrees, particularly for large commercial and industrial customers
who have the ability to switch between natural gas and alternate fuels.
Wisconsin Public Service offers interruptible gas sales and gas transportation
service for these customers to enable them to reduce their energy costs
through the use of natural gas. There are currently 330 gas transportation
customers on our system. These customers purchase their gas from other
suppliers and contract with Wisconsin Public Service to transport the gas from
interstate natural gas pipelines to their facilities. Additionally,
121 customers still purchase their gas commodity directly from Wisconsin
Public Service, but have elected to do so on an interruptible basis. These
customers continue to switch from firm system supply to either interruptible
system supply or transportation service each year as the economics and service
options become attractive for them.
Gas operations also provide interruptible gas service to Wisconsin
Public Service electric operations for power generation in combustion turbine
peaking generators and for start-up, flame stabilization, and peaking use at
the Weston and Pulliam coal-fired plants.
Gas sales for customer-owned power generation use are provided on an
interruptible basis, with the power plants maintaining alternate fuel
capability. In 1999, Wisconsin Public Service began to provide interruptible
gas supplies to the De Pere Energy Center. Wisconsin Public Service will also
provide interruptible gas supplies to a combustion turbine owned by Madison
Gas and Electric Company upon its completion in 2000.
Total gas deliveries in 1999 for Wisconsin Public Service, including
customer-owned gas transported, were 66,397,064 dekatherms, an 8.9% increase
over 1998. A dekatherm is equivalent to 10 therms or 1 million Btu of energy.
Gas transported for end-user transport customers made up approximately, 43.7%
or 28,974,784 dekatherms of natural gas delivered. Winter weather in 1999 was
still warmer than the 20-year average benchmark generally used by Wisconsin
Public Service and the Public Service Commission of Wisconsin.
Peak day gas throughput in 1999 occurred on Tuesday, December 21 with
414,055 dekatherms total gas throughput at an average Green Bay temperature of
minus 1.2 degrees Fahrenheit. This compares with the previously reported 1998
record gas system throughput of 432,928 dekatherms set on February 2, 1996 at
an average Green Bay temperature of minus 23.8 degrees Fahrenheit.
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GAS SUPPLY
GENERAL
Since the implementation of the Federal Energy Regulatory Commission
Order 636 in November 1993, Wisconsin Public Service has had full
responsibility for the design, acquisition, and management of gas supplies and
the pipeline transportation and storage services required to meet the varying
daily, seasonal, and annual load requirements of its customers. Wisconsin
Public Service manages a portfolio of gas supply contracts, pipeline
transportation, and storage services designed to meet its varying load pattern
at the lowest reasonable cost.
PIPELINE CAPACITY AND STORAGE
The service territory of Wisconsin Public Service is directly served by
a single interstate pipeline; ANR Pipeline Company. Through ANR's system,
Wisconsin Public Service directly or indirectly accesses three major gas-
producing areas of North America:
1) the Gulf of Mexico,
2) the mid-continent areas of Kansas, Texas, and Oklahoma, and
3) the Province of Alberta in western Canada.
Wisconsin Public Service holds firm long-term transportation capacity on
the pipeline in roughly equal proportions from each of these three supply
areas until November 2000. After November 2000, Wisconsin Public Service will
restructure its transportation services portfolio by eliminating
transportation capacity from the Gulf of Mexico and adding transportation
capacity from the developing Chicago Hub. The term for these restructured
services will extend through November 2010. Wisconsin Public Service holds
firm transportation capacity with Viking Gas Transmission Company, to deliver
gas on a firm basis from their interconnection with TransCanada Pipelines at
Emerson, in the Canadian Province of Manitoba, to the interconnection with
ANR at Marshfield, Wisconsin. These Canadian gas suppliers hold firm capacity
on TransCanada Pipelines from Emerson back into the production areas in
Alberta, Canada.
Because of the substantial daily and seasonal swings in gas usage in our
service territory, Wisconsin Public Service also has contracted with ANR for
firm underground storage capacity located in Michigan. There are no known
geological formations in Wisconsin capable of being developed into underground
storage facilities.
Besides providing the ability to manage significant changes in daily gas
demand, storage also provides the ability to purchase gas from the production
areas at high load factors, thus minimizing supply costs. During the summer,
gas purchased in excess of market demand is injected into storage. During the
winter, gas is withdrawn from storage and combined with gas purchased in the
production areas to meet the increased winter demand. Gas from storage
provides up to 65% of our supply on winter peak days, approximately 34% of our
winter sales volumes, and approximately 23% of our total annual sales volumes.
Our total firm storage capacity with ANR is 11.3 million dekatherms.
For peak day needs, Wisconsin Public Service also contracts with
third-party suppliers for high deliverability storage in production areas
during the winter. This storage capacity provides a back-up supply of gas for
transportation contracts when other supplies cannot be delivered due to
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production supply losses caused by extremely cold weather in the production
areas.
SUPPLY CONTRACTS
Wisconsin Public Service contracts for fixed term firm supplies with
approximately 12 to 16 suppliers each year for gas produced in each of the
three production areas. Due to the current uncertainty regarding the future
role of gas utilities in continuing the gas supply function, Wisconsin Public
Service has continued the practice of contracting for domestic gas supplies
for terms of one-year or less. This will minimize potential stranded gas
supply contract costs if retail gas deregulation should proceed quickly in
Wisconsin. Our supply portfolio, as of December 31, 1999, contained contracts
with remaining terms ranging from three months to four years.
Additional supplies are purchased on the monthly spot market as required
to supplement supplies from fixed term firm contracts. Wisconsin Public
Service has been an active spot market purchaser since 1985 and has contracts
in place with a number of suppliers of spot market gas.
REGULATORY MATTERS IN THE WISCONSIN JURISDICTION
INDUSTRY RESTRUCTURING
The Public Service Commission of Wisconsin is continuing to implement
its plan to deregulate the gas market in Wisconsin. In June 1997, the
Wisconsin Commission decided to move incrementally on gas deregulation and
accommodate competition. Six working groups are to be formed to develop
policy recommendations regarding:
1) pipeline capacity,
2) market-based pricing for interruptible customers,
3) legislative changes,
4) marketer certification,
5) end user price reporting, and
6) consumer protection and essential services.
With the exception of the issuance of the work group's report on
consumer standards and essential services, little progress has been made on
gas deregulation in Wisconsin over the last year. The timing and details of
implementation could have an impact on Wisconsin Public Service because of
potential stranded costs associated with interstate pipeline capacity
contracts. It is expected that the Wisconsin Commission will allow for
stranded cost recovery from customers or direct assignment of stranded
contracts should deregulation progress. Wisconsin Public Service has taken
positive steps to reduce its exposure to stranded interstate pipeline capacity
costs.
COST RECOVERY MECHANISM
Wisconsin Public Service implemented a Modified One-for-One Gas Cost
Recovery Mechanism in January 1999, in response to Public Service Commission
of Wisconsin requirements. This method allows for the recovery of all gas
supply costs provided those costs meet index-based benchmarks and are not
deemed imprudent. Under this method, Wisconsin Public Service has been
authorized to recover all gas commodity costs incurred through November 1999.
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GAS SUPPLY PLAN
As a requirement of the 05-GI-106 order, on July 1, 1999 Wisconsin
Public Service filed a Three-Year Gas Supply Plan with the Wisconsin
Commission detailing its plans to purchase and transport the necessary gas
supplies for the period November 1999 through October 2002. The Gas Supply
Plan was approved in October 1999.
CUSTOMER RATES
On January 14, 1999, the Wisconsin Commission granted Wisconsin Public
Service a $10.3 million, or 5.1%, increase in its retail natural gas rates.
The rates were effective January 15, 1999. The 1999 gas rates were very
competitive in Wisconsin. Rates were 99% of the state average for residential
rates 94% for commercial rates, and 73% for large industrial rates.
Wisconsin Public Service anticipates filing an application with the
Wisconsin Commission on April 1, 2000 for new retail gas rates for the years
2001 and 2002.
REGULATORY MATTERS IN THE MICHIGAN JURISDICTION
INDUSTRY RESTRUCTURING
The Michigan Public Service Commission is investigating the deregulation
of retail gas markets and expansion of gas transportation service in Michigan.
The Michigan Commission decided it would be appropriate to conduct a series of
pilot projects to test the development of competitive retail gas markets in
Michigan. The Michigan Commission contacted Michigan's four largest gas
utilities regarding development and implementation of pilot programs.
Because of the small size and limited number of customers in its
Michigan service territory, a pilot transportation program was not conducted
by Wisconsin Public Service.
GAS COST RECOVERY PLAN
As required, on December 28, 1999 Wisconsin Public Service filed a
five-year Gas Cost Recovery Plan with the Michigan Commission detailing its
plan to purchase and transport the necessary gas supplies for the April 2000
through March 2005 period. This Gas Cost Recovery Plan is expected to be
approved by the Michigan Commission by May 2000.
CUSTOMER RATES
Wisconsin Public Service has not had a natural gas rate case in Michigan
since 1986.
REGULATORY MATTERS IN THE FEDERAL ENERGY REGULATORY COMMISSION JURISDICTION
Wisconsin Public Service involvement in Federal regulatory activities in
the natural gas area has been through the Wisconsin Distributor Group. This
group is made up of several Wisconsin gas utilities. Over the past several
years, the Wisconsin Distributor Group has participated in numerous dockets
filed by ANR Pipeline Company, Viking Gas Transmission Company, and the
Federal Energy Regulatory Commission. Although members may file individual
interventions, most interventions have been done through the Wisconsin
Distributor Group. Past successes in various Federal Energy Regulatory
Commission dockets have resulted in substantial refunds for natural gas
customers in Wisconsin as well as lower pipeline transportation rates charged
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by ANR and Viking. Through its membership in the Wisconsin Distributor Group,
Wisconsin Public Service participated in a number of dockets at the Federal
Energy Regulatory Commission this past year.
Due to the volume of comments received, the Federal Energy Regulatory
Commission Notice of Proposed Rule Making on the Regulation of Short-term
Natural Gas Transportation Services and the Notice of Inquiry on the
Regulation of Interstate Natural Gas Transportation Services took the majority
of the group's efforts in 1999. The issue of greatest interest for
participants in the Notice of Proposed Rule Making was the Federal Energy
Regulatory Commission proposal to market unused pipeline capacity through an
auction process. The Wisconsin Distributor Group and Wisconsin Public Service
do not support the auction process and instead believe that increased
reporting and disclosure requirements may be enough to meet the goal of
stimulating competition. In the Notice of Inquiry, the Wisconsin Distributor
Group and Wisconsin Public Service support efforts to formulate pro-
competitive, long-term pricing policies to ensure that the Federal Energy
Regulatory Commission continues to fulfill its statutory obligation to protect
consumers while also encouraging the evolution of a competitive natural gas
industry. The Federal Energy Regulatory Commission has not yet issued a final
order on the Notice of Proposed Rule Making and Notice of Inquiry.
Another docket that drew the attention of the Wisconsin Distributor
Group was the Viking rate case. The Wisconsin Distributor Group was able to
reach a settlement with Viking and other shippers on Viking's system. An
agreement was also reached with other parties on a phase-in of recent
expansion costs on Viking's system. The phased-in approach greatly benefited
customers of Wisconsin Public Service as compared to an immediate roll-in of
all expansion costs. Also included in the Viking settlement was a refund of
approximately $48,000 to our customers, which appeared as a credit on Viking's
April 1999 invoice.
On-going activities in which Wisconsin Public Service will be
participating as a member of the Wisconsin Distributor Group include:
1) the continuation of the Federal Energy Regulatory Commission
Notice of Proposed Rule Making and the Notice of Inquiry and
2) continued monitoring of various dockets filed by ANR Pipeline
Company and Viking Gas Transmission Company at the Federal
Energy Regulatory Commission.
Along with our participation in the Wisconsin Distributor Group,
Wisconsin Public Service has begun to take a more active role in the American
Gas Association's Federal Energy Regulatory Commission Regulatory Committee.
Two of the issues being addressed through the Committee are the Federal Energy
Regulatory Commission's rule that shippers must have title to gas being
transported and their policy on the certification of natural gas pipeline
expansions.
The rule requiring a shipper to have title provides that anyone who
holds contracted capacity on an interstate pipeline must have title to the gas
that is moved on that capacity. In a deregulated natural gas industry, this
rule will bog down transactions between capacity holders and owners of natural
gas who wish to use the capacity, by requiring title transfer agreements or
capacity release agreements in order to transport gas for customers. The
elimination of this rule would greatly enhance the efficiency of a deregulated
natural gas market.
The new Federal Energy Regulatory Commission policy on pipeline
certification may make it more difficult for new pipelines to be built. This
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is a concern to Wisconsin Public Service because its service territory is
currently served by only one pipeline. If the new policy permanently stops
the construction of new pipelines or the expansion of existing pipelines,
other than that of ANR, to its service territory, Wisconsin Public Service
customers may never see the benefits of true competition in pipeline services.
GAS FINANCIAL SUMMARY
The following table sets forth the amounts of revenues, net income, and
assets attributable to gas utility operations:
GAS UTILITY OPERATIONS (WISCONSIN PUBLIC SERVICE)
==============================================================================
(Thousands) Year Ended December 31
- ------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------
Consolidated Gas Operating Revenues $191,521 $165,111 $211,090
Net Income $ 11,246 $ 5,912 $ 7,878
Total Assets $267,356 $246,365 $246,842
==============================================================================
See Note 15 in Notes to Consolidated Financial Statements.
<TABLE>
GAS OPERATING STATISTICS
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
==========================================================================================
1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues (Thousands)
Residential $114,610 $ 96,223 $122,782
Small commercial and industrial 21,922 19,333 23,790
Large commercial and industrial 43,980 37,482 53,517
Other 11,009 12,073 11,001
- ------------------------------------------------------------------------------------------
Total $191,521 $165,111 $211,090
==========================================================================================
Therms delivered (Thousands)
Residential 190,797 172,007 202,558
Small commercial and industrial 42,457 38,104 43,056
Large commercial and industrial 112,528 103,226 127,132
Other 27,085 29,182 21,148
- ------------------------------------------------------------------------------------------
Total therm sales 372,867 342,519 393,894
Transportation 289,748 265,573 268,114
- ------------------------------------------------------------------------------------------
Total 662,615 608,092 662,008
==========================================================================================
Customers served (End of period)
Residential 208,975 203,665 198,524
Small commercial and industrial 17,647 17,656 16,770
Large commercial and industrial 2,952 2,454 2,780
Other 1 1 1
Transportation customers 330 282 224
- ------------------------------------------------------------------------------------------
Total 229,905 224,058 218,299
==========================================================================================
Average annual use (Therms)
Residential 926.7 858.0 1,037.3
Small commercial and industrial 2,424.3 2,207.5 2,619.4
Large commercial and industrial 39,699.4 40,792.7 45,558.7
==========================================================================================
Average therm price (Cents)
Residential 60.07 55.94 60.62
Small commercial and industrial 51.63 50.74 55.25
Large commercial and industrial 39.08 36.31 42.10
==========================================================================================
</TABLE>
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D. NONREGULATED BUSINESS ACTIVITIES
GENERAL
The energy marketplace in the United States is moving toward
deregulation and a competitive, commodity-driven environment. We have two
primary nonregulated subsidiaries to implement our strategy to move from a
regulated vertically integrated utility to a vertically integrated
nonregulated energy company. Our nonregulated subsidiaries, WPS Energy
Services, Inc. and WPS Power Development, Inc. were formed in 1994 and 1995.
These subsidiaries are preparing for issues related to:
1) deregulation of generation assets,
2) providing competitive energy products and services in open
access energy markets
3) development of nonregulated merchant generating plants,
4) independent system operators,
5) open market energy trading and sales common in the national
deregulation environment,
6) managing and optimizing the risks and opportunities related to
nonregulated assets in the competitive energy marketplace, and
7) the interface with regulated transmission and distribution
companies of the future.
WPS Energy Services and WPS Power Development provide us flexibility to
adapt to the energy industry of the future.
In transitioning from a regulated environment to a competitive,
commodity-driven environment, significant investment in technical support
systems, human resources, and benefit and incentive-based compensation
packages are being made.
WPS ENERGY SERVICES, INC.
WPS Energy Services is a competitive energy company providing energy and
energy related products and services to the nonregulated energy market place.
It targets retail energy markets in the mid-western and eastern United States
serving commercial, industrial, and residential customers. Principal offices
are located in Illinois, Maine, Michigan, Ohio, and Wisconsin.
WPS Energy Services provides electric, natural gas, and alternate fuel
products, real-time energy management services, energy information management,
project management and energy utilization consulting.
WPS Energy Service's target wholesale market region encompasses that of
its retail customers, and includes the natural gas producing regions important
to those retail markets. Primary production regions include the United States
Gulf and mid-continent regions and Canada. WPS Energy Services opened an
office in Maine in 1999 to market the energy and capacity of the generation
assets acquired by WPS Power Development into the deregulated electric
marketplace, scheduled to open March 2000. The retail marketing efforts of
this office will generate electric revenue for WPS Energy Services while
securing a market for the output of the WPS Power Development generation
assets.
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Nonregulated gas markets are highly volatile commodity markets.
WPS Energy Services has instituted various processes to manage its exposure in
these markets. Risk and credit guidelines, daily mark-to-market analysis, and
value-at-risk assessments have been instituted to continually evaluate
financial exposures in market commitments. Speculative trading in electric
energy markets has been minimized. See NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Note 1(e) and Note 10
regarding "Price Risk Management Activities."
Revenues at WPS Energy Services were $292.2 million in 1999 compared
with $351.3 million in 1998, a decrease of 16.8%. This decrease is the result
of lower overall gas prices experienced in 1999, and a deliberate change in
wholesale product mix focusing on the development of higher value, lower risk
wholesale products rather than high volume, low margin transactions common in
1998. Revenues in 1999, have not benefited from retail electric sales, as
electric retail access has been slow to develop in target market areas.
WPS Energy Services' strategy is to introduce electric products and services
to current gas customers, as the regulatory environment changes to allow
consumer choice. Beginning in March 2000, WPS Energy Services will serve as a
"standard offer" provider to electric customers in northern Maine. WPS Energy
Services works with WPS Power Development to establish control of physical
generation assets that will be able to serve the needs of the developing
nonregulated market.
WPS Energy Services experienced a loss of $3.5 million in 1999 compared
with a loss of $6.9 million in 1998, an improvement of 49.3%. The primary
reasons for the increased earnings at WPS Energy Services were the elimination
of speculative trading losses that occurred in 1998, and an increase in gas
margins. The improved trading performance on reduced trading volume is the
result of a deliberate shift in focus to emphasize capturing present
opportunities in the market rather than taking a position in anticipation of a
future market movement.
In the fourth quarter of 1999, WPS Energy Services opened an office in
Traverse City, Michigan. The office is focusing on wholesale gas
transactions, and is expected to make an immediate contribution to net income
in 2000.
WPS Energy Services is in the process of developing a natural gas
storage facility in Michigan. The facility is expected to be operational in
the second quarter of 2000, and have a capacity of 3 billion cubic feet of
gas. Additional storage capacity will allow increased supply reliability to
customers in Michigan, and greater flexibility in meeting peak day energy
requirements. This facility is not expected to have a material effect on
earnings in 2000.
WPS POWER DEVELOPMENT, INC.
WPS Power Development develops and owns electric generation projects and
provides services to the electric power generation industry nationwide.
Services include acquisition and investment analysis, project development,
engineering and management services, and operations and maintenance services.
An emerging trend in the restructuring of the electric utility industry is the
divestiture of generation facilities. WPS Power Development is continually
monitoring and assessing investment opportunities in this area. In addition,
WPS Power Development concentrates on cogeneration, distributed generation,
generation from renewable energy sources, new generation facilities and
generation plant repowering projects. WPS Power Development is currently
operating projects in six states and Canada.
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ECO Coal Pelletization #12, LLC is a WPS Power Development investment that
produces synthetic fuel from coal fines. The project began operation in June
1998 and is eligible to receive Federal tax credits as the processed coal fines
qualify as a synthetic fuel. The project has addressed operational problems
throughout much of 1999. Project earnings improved in 1999. Management
expects further improvement in the year 2000.
WPS Power Development was the successful bidder for the purchase of
approximately 92 megawatts of hydroelectric and oil-fired facilities in Maine
and New Brunswick, Canada from Maine Public Service Company. The acquisition
was finalized in June of 1999.
WPS Power Development was the successful bidder for the purchase of the
Sunbury generation assets in Pennsylvania from PP&L Resources Inc. The
generation assets acquired have a total nameplate generating capacity of
472 megawatts. Final approvals were received and the transaction was
concluded in November 1999.
WPS Power Development experienced a loss of $3.8 million in 1999
compared with a $2.4 million loss in 1998, a change of 58.3%. The increased
loss was primarily due to additional expenses incurred in 1999 for the start
up and operation of newly acquired facilities and the pursuit of new projects.
TECHNOLOGY
WPS Resources has invested $1.5 million for a 40% interest in a fiber
optic communication network. The network is a competitive local exchange with
approximately 60 miles of fiber optic facilities in the City of Green Bay.
The project also has a communication link to approximately 50 miles of fiber
optic facilities in the City of Appleton.
WPS Energy Services has patented an energy management system called
DENet TM. DENet provides customers the capability to manage their energy
consumption on a real time basis and generate reports on historical energy use
through the Internet. The System's flexibility allows a customer to monitor
utility and process parameters related to gas, electricity, water, steam,
temperature, and production output. DENet allows WPS Power Development to
coordinate the operation of its plants through an integrated computer network.
Employees in numerous locations have access to plant operations through the
system.
See MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION at page 53 for additional information regarding
nonregulated operations.
E. ENVIRONMENTAL MATTERS
GENERAL
We are subject to Federal, state, and local regulations regarding
environmental impacts of our operations on air and water quality and solid
waste. The application of Federal and state restrictions to protect the
environment can involve review, certification, or issuance of permits by
various Federal and state authorities, including the United States
Environmental Protection Agency and the Wisconsin Department of Natural
Resources. These restrictions may limit, prevent, or substantially increase
the cost of the operation of generating facilities and may require substantial
investments in new equipment at existing installations. Such restrictions may
require substantial additional investments for new projects and may delay or
prevent completion of projects. We cannot forecast the effects of such
regulation on our generation, transmission, and other facilities, or
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operations but we believe that Wisconsin Public Service, Upper Peninsula
Power, and WPS Power Development are presently meeting existing requirements.
AIR QUALITY
Wisconsin Public Service generation plants are in compliance with all
current sulfur dioxide, nitrogen oxide, and particulate emission standards.
The Federal Clean Air Act required reductions in sulfur dioxide in 1995
to meet limitations based on an emission rate of 2.5 pounds per million Btu
multiplied by a historical generation baseline for Pulliam Unit 8 and
Edgewater Unit 4 generation units. The Clean Air Act requires further
reductions beginning in the year 2000. The year 2000 limits are based on an
emission rate of 1.2 pounds per million Btu multiplied by a historical
generation baseline for all generation units. Our generation facilities met
the year 2000 standard in 1995. Compliance with Wisconsin and Federal sulfur
dioxide emission limitations were met by switching to low sulfur coal.
The Clean Air Act created an emission allowance system. Our early compliance
with the Clean Air Act requirements produced surplus allowances. The surplus
allowances aided in the compliance with the year 2000 requirements. We will
consider the sale of any allowances available in excess of our own needs. The
Wisconsin Commission has ordered that profits from the sale of allowances be
passed on to customers.
The Clean Air Act requires the installation of low nitrogen oxide
burners on several of our generating units. Low nitrogen oxide burners were
installed at Pulliam Unit 8 early in 1994. The Clean Air Act allows units
smaller than 100 megawatts, such as Pulliam Unit 7, to elect to comply with
the 1995 emission standards, thus building up sulfur dioxide credits. Having
made this election, low nitrogen oxide burners were installed on Pulliam
Unit 7 in 1994. Low nitrogen oxide burner equipment was installed on Weston
Unit 2 in 1999. Nitrogen oxide emissions from Pulliam Units 3 through 8 and
Weston Units 1 through 3 are averaged together to reach compliance
requirements under the Clean Air Act.
In September 1998, the United States Environmental Protection Agency
required certain states, including Wisconsin, to develop plans to reduce the
emissions of nitrogen oxides from sources within the state by May 2003. On a
preliminary basis, we project potential capital costs of between $61 million
and $112 million to comply with possible future regulations. Wisconsin Public
Service has committed $6.3 million to fund our share of initial costs for
Columbia Unit 2 selective catalytic nitrogen oxide reduction equipment to be
installed in the spring of 2000. The anticipated ozone season operation and
maintenance expenses are $3.6 million per year. The costs will depend on the
state-specific compliance method to be adopted in the future and the
effectiveness of the various technologies available for nitrogen oxide
emission control. Under our current practices, capital costs and the actual
operating costs are anticipated to be recovered through customer rates.
On December 24, 1998, Wisconsin Public Service and five other parties
filed a petition challenging the United States Environmental Protection
Agency's regulations that required Wisconsin to prepare and submit a Nitrogen
Oxide State Implementation Plan (Wisconsin Paper Council v. U.S. Environmental
Protection Agency, Case No. 98-4269 (7th Cir. 1998)). This petition was
consolidated with other similar challenges in the District of Columbia Circuit
Court. On January 22, 1999, the State of Wisconsin moved to intervene in the
litigation and challenged the geographic scope of the rule within Wisconsin
and the time required to implement nitrogen oxide controls in the state.
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On March 3, 2000, the United States Court of Appeals for the District of
Columbia, held that the United States Environmental Protection Agency Nitrogen
Oxide State Implementation Plan call was not appropriately issued to the state
of Wisconsin. The decision is being reviewed by the Wisconsin Department of
Natural Resources, which indicated that reductions in nitrogen oxides may
still be necessary to show continued progress in achieving attainment with the
national ambient air quality standard for ozone. The affect of this ruling on
the company is uncertain at this time.
Toxic air provisions in the Clean Air Act will not be applied until the
United States Environmental Protection Agency determines if those standards
need to be applied to utilities.
Recent air quality modeling by the Wisconsin Department of Natural
Resources revealed that Weston Units 1 and 2 contribute to a modeled deviation
from the sulfur dioxide ambient air quality standard. Wisconsin Public
Service is evaluating options for increasing the stack height and reducing the
sulfur dioxide emission limit to eliminate the modeled deviation. These
options include extending the existing stacks, construction of new stacks, and
reducing the sulfur dioxide emission limit from 3.2 pounds per million Btu to
1.2 pounds per million Btu.
Due to degradation of the electrostatic precipitator at Weston Unit 3,
Wisconsin Public Service is evaluating the installation of a baghouse. A
baghouse is an alternative pollution control device to an electrostatic
precipitator. If the installation proceeds, it is estimated it will cost
approximately $25.7 million.
The Sunbury plant, acquired in November 1999 by WPS Power Development,
currently purchases emission allowances to comply with air regulations.
Additional nitrogen oxide control technology may be required by the year 2003
to comply with clean air regulations. Expenditures for this technology could
be significant.
On November 3, 1999, the United States Environmental Protection Agency
announced that it was pursuing an enforcement initiative against seven
utilities, or their subsidiaries, located in the Midwest and the South as well
as the Tennessee Valley Authority. The enforcement initiative alleges that
the utilities and the Tennessee Valley Authority undertook modifications at
their coal-fired power plants in violation of the Clean Air Act. The United
States Environmental Protection Agency is seeking penalties and the
installation of additional pollution control equipment.
No investigation has been undertaken of our Wisconsin or Pennsylvania
facilities in connection with this enforcement initiative. However, other
industries are being investigated, and we are aware that investigations of
certain operators of coal fired boilers in the pulp and paper industry are
occurring in the State of Wisconsin.
WATER QUALITY
Wisconsin Public Service is subject to regulation by the United States
Environmental Protection Agency and the Wisconsin Department of Natural
Resources with respect to thermal and other discharges from its power plants,
into Lake Michigan and other waters of Wisconsin. Wastewater discharge
permits, with a term of five years, were re-issued by the Wisconsin Department
of Natural Resources for our Kewaunee plant in 1995. Similar permits were
re-issued for our Pulliam and Weston power plants in 1996. No new permit
conditions or associated material costs were imposed as part of the new
permits. Revisions to state water quality rules under the Great Lakes
Initiative are not expected to result in any significant changes when
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<PAGE>
wastewater permits are reissued in 2000 for the Kewaunee Nuclear Power Plant
or in 2001 for the Pulliam and Weston plants. Wisconsin Public Service is not
aware of any significant changes in future operations at its jointly owned
plants at Columbia or Edgewater as a result of the Great Lakes Initiative.
GAS PLANT CLEANUP
Wisconsin Public Service continues the investigation and cleanup of
eight manufactured gas plant sites previously operated in Green Bay,
Two Rivers, Oshkosh, Marinette, Sheboygan, Stevens Point, and Menominee
Michigan. There are two individual sites in Sheboygan. Wisconsin Public
Service is proceeding with these projects as the designated party responsible
for cleanup. Formal agreements have been executed with the Wisconsin
Department of Natural Resources covering the investigation and restoration
activities of the Sheboygan II and Oshkosh sites. The agreement for
Sheboygan II allows Wisconsin Public Service to work with the State of
Wisconsin on restoration. The site is not associated with the larger
Sheboygan River and Harbor Superfund site. The agreement for Oshkosh was
entered into to resolve a unilateral administrative order that was issued by
the Wisconsin Department of Natural Resources.
Work at the Stevens Point site was substantially completed in 1998 and
we continue to monitor the site. Cleanup costs were within the cost
projections for this site. An independent environmental consultant has
estimated total costs of cleanup for the remaining seven sites to be between
$34 million to $41 million. The estimates assume removal of significantly
contaminated soil, groundwater treatment, and monitoring for up to 25 years,
depending on site conditions. The cost estimates for five of the sites
include removal and disposal of contaminated river sediments. As remedial
feasibility studies and initial remedial activities are completed, cost
estimates may be adjusted significantly. Other factors that can affect these
estimates are changes in remedial technology and regulatory requirements.
Expenditures for gas plant site cleanup are expected for the next
31 years. An initial liability for cleanup of $41.7 million had been
established with an offsetting regulatory asset. A regulatory asset is a
Commission approved deferral of a current expense which is to be recovered
through rates at a later time. Expenditures have reduced the liability to
$38.6 million at December 31, 1999. Based on discussions with regulators and
a Wisconsin rate order, management believes that these costs, excluding
carrying costs associated with amounts expensed but not yet recovered, will be
recoverable in future customer rates. Wisconsin Public Service received an
order from the Michigan Public Service Commission authorizing the deferral of
the Michigan portion of these costs, using Wisconsin methods for future cost
recovery.
Cost estimates presented above do not reflect any recovery obtained from
insurance carriers or other third parties. Insurance recoveries are deferred
as a reduction to the regulatory asset. Adjustments to the estimated
liability and insurance recoveries have no immediate impact on net income. We
have received insurance settlements of approximately $12.6 million, reducing
the regulatory asset to $29.0 million at December 31, 1999.
ASH DISPOSAL
The ash disposal site for Upper Peninsula Power's John H. Warden Station
was closed in 1993. Subsequent groundwater testing indicated elevated levels
of boron and lithium. Supplemental remedial investigations were performed and
a revised remedial action plan was developed. The plan was submitted to the
Michigan Department of Environmental Quality for approval in 1999. A
liability of $1.9 million and a regulatory asset of $1.9 million have been
-31-
<PAGE>
recorded for estimated future expenditures associated with this site.
Upper Peninsula received an order permitting deferral of these costs.
F. CAPITAL REQUIREMENTS
Wisconsin Public Service makes large investments in capital assets.
Construction expenditures are expected to be approximately $530.0 million for
the period 2000 through 2002. This includes expenditures for the replacement
of the Kewaunee plant steam generators and construction of a proposed
transmission line from Wausau, Wisconsin to Duluth, Minnesota.
Other Wisconsin Public Service capital requirements for the three-year
period include Kewaunee decommissioning trust fund contributions of
$14.1 million.
Upper Peninsula Power will incur construction expenditures of
approximately $22.0 million for the period 2000 through 2002, primarily for
electric distribution improvements.
There are no commitments for additional acquisition expenditures for the
nonregulated subsidiaries at this time. Future nonregulated projects are
expected to be financed through nonrecourse project financing to the extent
possible. Additional financing will be obtained through WPS Resources Capital
Corporation, as needed. This subsidiary was formed in January 1999 for the
purpose of financing future projects. The $107 million purchase of the
Sunbury plant is to be refinanced with nonrecourse debt and equity infusions
from WPS Resources.
WPS Resources will use internally generated funds and short-term
borrowing to satisfy most of its capital requirements. WPS Resources may
periodically issue additional long-term debt and common stock to reduce
short-term debt and maintain desired capitalization ratios.
Specific forms of financing, amounts, and timing will depend on the
availability of projects, market conditions, and other factors. WPS Resources
filed a shelf registration with the Securities and Exchange Commission, which
allows the issuance of an aggregate of $400.0 million of long-term debt and
common stock. Long-term debt of $150.0 million was issued under the shelf
registration in November 1999 to reduce short-term debt and provide equity
infusions to subsidiaries. WPS Resources began issuing new shares of common
stock for the Stock Investment Plan in January 1999. In November 1999,
WPS Resources discontinued issuing new shares. In December 1999 we began to
purchase shares on the open market for the Stock Investment Plan. Wisconsin
Public Service may expand its leveraged employee stock ownership plan in the
three-year period beginning in the year 2000.
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Note 13 regarding
"Future Utility Expenditures".
G. EMPLOYEES
At December 31, 1999, WPS Resources and its subsidiaries employed
2,900 people. Of this number, 2,493 employees were employed by
Wisconsin Public Service and 170 were employed by Upper Peninsula Power.
Of the Wisconsin Public Service employees, 1,979 were electric utility
employees and 514 were gas utility employees. Local 310 of the International
Union of Operating Engineers represents 1,244 of these employees. The current
collective bargaining agreement with Local 310 expires on October 28, 2000.
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<PAGE>
Local 510 of the International Brotherhood of Electrical Workers,
AFL-CIO represents 124 employees of Upper Peninsula Power. The current
collective bargaining agreement with Local 510 expires on April 30, 2002.
Local 1600 of the International Brotherhood of Electrical Workers,
AFL-CIO represents approximately 100 employees at the Sunbury generation
facilities owned and operated by subsidiaries of WPS Power Development. The
current collective bargaining agreement with Local 1600 expires on May 12,
2002.
-33-
<PAGE>
ITEM 2. PROPERTIES
A. UTILITY
WISCONSIN PUBLIC SERVICE FACILITIES
The following table summarizes information on the electric generation
facilities of Wisconsin Public Service, including jointly-owned facilities:
Rated
Capacity (a)
Type Name Location Fuel (Kilowatts)
- ----------- ---------------- ------------- ----------- -------------
Steam Pulliam Green Bay, WI Coal 395,900 (b)
Weston Wausau, WI Coal or Gas 479,300 (c)
Kewaunee Kewaunee, WI Nuclear 205,200 (d)
Columbia -
Units 1 & 2 Portage, WI Coal 322,600 (d)
Edgewater
Unit 4 Sheboygan, WI Coal 105,800 (d)
---------
Total Steam 1,508,800
Hydro Various 51,700 (e)
(15 Plants)
Combustion Various Gas, Oil, 390,760 (f)
Turbine (8 Plants) or Diesel
and Diesel
Wind Lincoln Turbines Wind 1,900
---------
Total System 1,953,160
=========
(a) Based on July 2000 capacity ratings.
(b) This plant has six units.
(c) This plant has three units. Two units burn only coal
and the other unit can burn coal or natural gas.
(d) These facilities are jointly-owned by Wisconsin Public
Service, Wisconsin Power and Light Company, and Madison
Gas and Electric Company. Wisconsin Public Service
operates the Kewaunee Nuclear Power Plant. The
Columbia and Edgewater units are operated by Wisconsin
Power and Light Company. The capacity indicated is our
portion of total plant capacity based on the percent of
ownership. The Kewaunee Nuclear Power Plant's
ownership is based on the percent of ownership before
the proposed acquisition of Madison Gas and Electric
Company's share of the plant in late 2001.
(e) Includes 12,900 kilowatts purchased from Wisconsin River Power
Company.
(f) Wisconsin Public Service and Marshfield Electric and
Water Department jointly own 77,000 kilowatts of
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<PAGE>
combustion turbine summer peaking capacity. Wisconsin
Public Service is the operator of these jointly owned
facilities. Included is 175,800 kilowatts of capacity
from the De Pere Energy LLC gas turbine in De Pere.
Wisconsin Public Service accounts for the De Pere
Energy Center LLC unit as a capital lease.
Wisconsin Public Service owns 55 transmission substations with a
transformer capacity of 5,616,110 kilovolt-amperes, 111 distribution
substations with a transformer capacity of 3,054,110 kilovolt-amperes,
1,549 miles of electric transmission lines, and 19,556 miles of electric
distribution lines.
Gas properties include approximately 4,774 miles of main, 70 gate and
city regulator stations, and 209,419 lateral services. All gas facilities are
located in Wisconsin except for distribution facilities in and near the city
of Menominee, Michigan.
Substantially all of our utility plant is subject to a first mortgage
lien.
UPPER PENINSULA POWER FACILITIES
The following table summarizes information on the electric generation
facilities of Upper Peninsula Power:
Rated
Capacity (a)
Type Name Location Fuel (Kilowatts)
- ------------ ------------- ------------- -------- ------------
Steam Warden (b) L'Anse, MI Coal/Gas 17,700
Hydro Various
(9 plants)(c) Hydro 37,910
Combustion Portage Houghton, MI Oil 27,500
Turbine Gladstone Gladstone, MI Oil 27,500
-------
Total System 110,610
=======
(a) Based on winter-rated capacity.
(b) The J. H. Warden station is capable of burning any
combination of gas and/or coal. The station was taken
out of service on January 1, 1994 and is in standby or
inactive reserve status.
(c) Included in the nine hydro plants are Escanaba 1,
Escanaba 3, and Boney Falls, which generate a total of
7,850 kilowatts. All energy produced at these
facilities is sold directly to a paper industry
customer located in Escanaba, Michigan.
Upper Peninsula Power owns 806 miles of electric transmission and 2,753
miles of electric distribution lines.
Substantially all of Upper Peninsula Power's utility plant is subject to
a first mortgage lien.
-35-
<PAGE>
B. NONREGULATED
The following table summarizes information on the electric generation
facilities of WPS Power Development, including jointly-owned facilities:
Rated
Capacity
Type Name Location Fuel (Kilowatts)
- ----------- ---------- ---------------- --------- -----------
Steam Stoneman Cassville, WI Coal 55,000 (a)
Caribou Northern Maine Oil 23,000
Sunbury Shamokin Dam, PA Coal 425,000
Hydro Squa Pan Northern Maine Hydro 1,400
Caribou Northern Maine Hydro 900
Tinker Northern Maine Hydro 33,500
Combustion Various Gas, Oil, 70,400
Turbine (6 Plants) or Diesel
and Diesel
-------
Total System 609,200
=======
(a) The Stoneman facility is owned by Mid-American Power,
LLC. PDI Stoneman, Inc. (a wholly-owned subsidiary of
WPS Power Development, Inc.) and B. M. Stoneman, Inc.,
(a wholly-owned subsidiary of Burns and McDonnell) own
66-2/3% and 33-1/3%, respectively, of Mid-American
Power, LLC.
ITEM 3. LEGAL PROCEEDINGS
SPENT NUCLEAR FUEL DISPOSAL
See the section titled Spent Nuclear Fuel Disposal under Part I,
Item 1B, ELECTRIC MATTERS, Fuel Supply, at page 10 for a description of
various proceedings relating to spent nuclear fuel.
FUNDING DECONTAMINATION AND DECOMMISSIONING OF FEDERAL FACILITIES
See the section titled Funding Decontamination and Decommissioning of
Federal Facilities under Part I, Item 1B, ELECTRIC MATTERS, Fuel Supply, at
page 10 for a description of various proceedings relating to decontamination
and decommissioning liabilities.
ENVIRONMENTAL
See Part I, Item 1E, ENVIRONMENTAL MATTERS, at page 28 for a description
of various proceedings relating to environmental matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year.
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<PAGE>
ITEM 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about outside directors is included in our proxy statement for
the Annual Meeting of Shareholders of WPS Resources which is scheduled to be
held on May 11, 2000.
<TABLE>
A. EXECUTIVE OFFICERS OF WPS RESOURCES CORPORATION
<CAPTION>
Current Position and Business Effective
Name and Age Experience During Past Five Years Date
- ----------------------------- --------------------------------------------- ---------
<S> <C> <C>
Larry L. Weyers 54 Chairman, President, and Chief Executive
Officer 02-12-98
President and Chief Executive Officer 05-01-97
President and Chief Operating Officer 01-01-96
Senior Vice President-Power Supply and
Engineering 08-01-95*
Vice President-Power Supply and Engineering 05-09-94*
Patrick D. Schrickel 55 Executive Vice President 12-29-96
Vice President 12-09-93
Phillip M. Mikulsky 51 Senior Vice President-Development 02-12-98
Vice President-Development 09-01-95
Manager-System Operations 10-01-91*
Daniel P. Bittner 56 Senior Vice President and Chief Financial
Officer 10-17-99
Vice President and Chief Financial Officer 05-01-97
Vice President 12-29-96
Senior Vice President-Customer Service 05-09-94*
Richard E. James 46 Vice President-Corporate Planning 12-29-96
Vice President-Corporate Planning 08-01-95*
Assistant Vice President-Corporate Planning 05-09-94*
Thomas P. Meinz 53 Vice President-Public Affairs 02-12-98
Vice President-Power Supply and Engineering 02-23-97*
Power Supply and Engineering Executive 01-14-96*
Senior Corporate Planning Executive 05-09-94*
Bernard J. Treml 50 Vice President-Human Resources 02-12-98
Vice President-Human Resources 05-09-94*
Neal A. Siikarla 52 Vice President 06-01-98
Treasurer, Northern States Power - Wisconsin 06-01-92
Glen R. Schwalbach 54 Assistant Vice President-Corporate Planning 12-29-96
Assistant Vice President-Corporate Planning 07-28-96*
Assistant Vice President-Gas Engineering
and Supply 06-01-90*
Ralph G. Baeten 56 Vice President-Treasurer 10-17-99
Treasurer 12-09-93
Diane L. Ford 46 Vice President-Controller and Chief Accounting
Officer 07-11-99
Controller and Chief Accounting Officer 05-01-97
Controller 12-15-93
Barth J. Wolf 42 Secretary and Manager-Legal Services 09-19-99
Assistant Secretary and Manager-Legal Services 07-12-98
Manager-Legal and Risk Management 05-19-96*
Administrator-Risk Management 03-01-92*
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
Current Position and Business Effective
Name and Age Experience During Past Five Years Date
- ----------------------------- --------------------------------------------- ---------
<S> <C> <C>
George R. Wiesner 42 Assistant Controller 12-15-96
Director-Financial Accounting ESI/PDI 08-25-96*
Financial Reporting Supervisor 05-01-87*
</TABLE>
* Identifies experience with Wisconsin Public Service Corporation.
All officers listed above are also officers of Wisconsin Public
Service with the exception of Phillip M. Mikulsky,
Richard E. James, Neal A. Siikarla, Glen R. Schwalbach, and
George R. Wiesner.
-38-
<PAGE>
<TABLE>
B. EXECUTIVE OFFICERS OF WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
Current Position and Business Effective
Name and Age Experience During Past Five Years Date
- ----------------------------- --------------------------------------------- ---------
<S> <C> <C>
Larry L. Weyers 54 Chairman and Chief Executive Officer 02-12-98
President and Chief Executive Officer 05-04-97
President and Chief Operating Officer 01-01-96
Senior Vice President-Power Supply and
Engineering 08-01-95
Vice President-Power Supply and Engineering 05-09-94
Patrick D. Schrickel 55 President and Chief Operating Officer 02-12-98
Executive Vice President 12-29-96
Senior Vice President-Finance and Corporate
Services 05-09-94
Daniel P. Bittner 56 Senior Vice President and Chief Financial
Officer 10-17-99
Senior Vice President-Finance 05-17-98
Senior Vice President-Finance and Corporate
Services 12-29-96
Senior Vice President-Customer Service 05-09-94
Charles A. Schrock 46 Senior Vice President-Energy Supply 12-13-98
Vice President-Energy Supply 05-31-98
Manager-Kewaunee Nuclear Power Plant 02-20-95
Manager-Nuclear Engineering 10-01-91
Bradley W. Andress 45 Vice President-Marketing 09-01-98
Vice President-Marketing, Lund Holding Intrntl. 10-28-95
Vice President-Sales, Plastics Inc,
Division of Newell 11-01-94
Ralph G. Baeten 56 Vice President-Treasurer 08-01-95
Treasurer 03-01-92
Mark L. Marchi 52 Vice President-Nuclear 12-13-98
Site Vice President-Kewaunee Nuclear Power Plant 05-03-98
Manager-Nuclear Business Group 02-20-95
Manager-Kewaunee Nuclear Power Plant 08-01-89
Thomas P. Meinz 53 Vice President-Public Affairs 02-12-98
Vice President-Power Supply and Engineering 02-23-97
Power Supply and Engineering Executive 01-14-96
Senior Corporate Planning Executive 05-09-94
Wayne J. Peterson 41 Vice President-Distribution and Customer
Service 02-12-98
Assistant Vice President-Customer Service 02-23-97
Manager-System Operations 10-01-95
Site Leader 10-01-94
Bernard J. Treml 50 Vice President-Human Resources 05-09-94
Lawrence T. Borgard 38 Vice President-Transmission 07-11-99
General Manager-Transmission 04-05-98
Manager-Transmission Planning & Operations 04-06-97
Regulatory Compliance Supervisor 09-08-96
Transmission Planning Engineer 02-11-96
Electrical Engineer 11-01-89
</TABLE>
-39-
<PAGE>
<TABLE>
B. EXECUTIVE OFFICERS OF WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
Current Position and Business Effective
Name and Age Experience During Past Five Years Date
- ----------------------------- --------------------------------------------- ---------
<S> <C> <C>
Diane L. Ford 46 Vice President-Controller 07-11-99
Controller 03-01-92
Barth J. Wolf 42 Secretary and Manager-Legal Services 09-19-99
Assistant Secretary and Manager-Legal Services 07-12-98
Manager-Legal & Risk Management 05-19-96
Administrator-Risk Management 03-01-92
</TABLE>
NOTE: All ages are as of December 31, 1999. None of the executives listed
above are related by blood, marriage, or adoption to any of the other
officers listed or to any director of the Registrant. Each officer
shall hold office until his or her successor has been duly elected and
qualified, or until his or her death, resignation, disqualification,
or removal. Clark R. Steinhardt, Senior Vice President-Nuclear Power,
retired on January 31, 1999. Francis J. Kicsar, Secretary, retired
September 30, 1999.
-40-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
WPS RESOURCES CORPORATION COMMON STOCK TWO-YEAR COMPARISON
Dividends
Share Data Per Share Price Range
- ---------- --------- --------------------
High Low
-------- --------
1999
1st Quarter $ .495 35-3/4 29-1/4
2nd Quarter .495 32-1/4 28-3/8
3rd Quarter .505 30-11/16 27-13/16
4th Quarter .505 29-1/16 24-1/4
-----
Total $2.00
1998
1st Quarter $ .485 33-13/16 32
2nd Quarter .485 34 29-15/16
3rd Quarter .495 35-3/4 31-5/8
4th Quarter .495 37-1/2 33
-----
Total $1.96
DIVIDEND RESTRICTIONS
WPS Resources' principal subsidiary, Wisconsin Public Service, is
restricted by a Public Service Commission of Wisconsin order limiting the
payment of normal common stock dividends to no more than 109% of the previous
year's common stock dividend, without prior notice to the Wisconsin
Commission. Special dividends may be declared in order to maintain utility
common equity levels consistent with those allowed by the Public Service
Commission of Wisconsin. Wisconsin law prohibits Wisconsin Public Service
from making loans to WPS Resources and its nonregulated subsidiaries and
guaranteeing their obligations.
At December 31, 1999, WPS Resources had $335.4 million of retained
earnings available for dividends.
Upper Peninsula Power's indentures relating to first mortgage bonds
contain certain limitations on the payment of cash dividends on common stock.
Under the most restrictive of these provisions, approximately $6.4 million of
consolidated retained earnings were available at December 31, 1999, for the
payment of common stock cash dividends by Upper Peninsula Power.
-41-
<PAGE>
COMMON STOCK
Listed: New York Stock Exchange
Ticker Symbol: WPS
Transfer Agent and Registrar: Firstar Bank, N.A.
P. O. Box 2077
Milwaukee, Wisconsin 53201
As of December 31, 1999, there were 25,020 common stock shareholders of
record.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
WPS RESOURCES CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1995 TO 1999)
A. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
=================================================================================================
Consolidated Statements of Income and Comprehensive Income
=================================================================================================
Year Ended December 31
(Thousands, except share amounts) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues
Electric utility $ 582,471 $ 543,260 $536,885 $548,701 $550,105
Gas utility 191,521 165,111 211,090 211,357 174,693
Nonregulated energy and other 324,548 355,365 187,862 156,391 56,155
- -------------------------------------------------------------------------------------------------
Total operating revenues 1,098,540 1,063,736 935,837 916,449 780,953
=================================================================================================
Operating expenses
Electric production fuels 113,780 110,809 107,988 105,449 105,085
Purchased power 73,619 56,447 63,947 55,844 59,339
Gas purchased for resale 118,889 105,908 147,755 149,388 116,253
Nonregulated energy cost of sales 301,451 346,663 182,863 155,133 53,983
Other operating expenses 194,938 172,876 165,982 183,768 169,067
Maintenance 60,564 52,813 44,325 51,782 54,658
Depreciation and decommissioning 83,744 86,274 83,441 70,762 71,345
Taxes other than income 31,818 31,902 31,375 31,671 30,555
- -------------------------------------------------------------------------------------------------
Total operating expenses 978,803 963,692 827,676 803,797 660,285
=================================================================================================
Operating income 119,737 100,044 108,161 112,652 120,668
- -------------------------------------------------------------------------------------------------
Other income and (deductions)
Allowance for equity funds
used during construction 716 173 154 255 180
Other, net 8,233 2,505 11,952 (903) 5,852
- -------------------------------------------------------------------------------------------------
Total other income and (deductions) 8,949 2,678 12,106 (648) 6,032
=================================================================================================
Income before interest expense 128,686 102,722 120,267 112,004 126,700
- -------------------------------------------------------------------------------------------------
Interest on long-term debt 27,162 23,987 26,273 25,494 26,839
Other interest 8,507 4,827 4,910 3,922 2,677
Allowance for borrowed funds
used during construction (2,901) (177) (167) (299) (80)
- -------------------------------------------------------------------------------------------------
Total interest expense 32,768 28,637 31,016 29,117 29,436
=================================================================================================
Distributions - preferred
securities of subsidiary trust 3,501 1,488 - - -
=================================================================================================
Income before income taxes 92,417 72,597 89,251 82,887 97,264
Income taxes 29,741 23,445 31,106 27,216 33,494
Minority interest - (611) (797) (348) -
Preferred stock dividends of
subsidiary 3,111 3,132 3,133 3,134 3,136
- -------------------------------------------------------------------------------------------------
Net income 59,565 46,631 55,809 52,885 60,634
=================================================================================================
Other comprehensive income - - - - -
=================================================================================================
Comprehensive income $ 59,565 $ 46,631 $ 55,809 $ 52,885 $ 60,634
=================================================================================================
Shares of common stock less
shares in deferred
compensation trust
Outstanding at December 31 26,780 26,502 26,518 26,537 26,551
Average 26,644 26,511 26,527 26,545 26,551
Basic and diluted earnings per
average share of common stock $2.24 $1.76 $2.10 $1.99 $2.28
Dividend per share of
common stock 2.00 1.96 1.92 1.88 1.84
=================================================================================================
</TABLE>
-43-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
WPS RESOURCES CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1995 TO 1999)
B. CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
=================================================================================================
Consolidated Balance Sheets
=================================================================================================
Assets
- -------------------------------------------------------------------------------------------------
At December 31 (Thousands) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Utility plant
Electric $1,797,832 $1,715,882 $1,685,413 $1,639,490 $1,603,632
Gas 285,048 267,892 251,603 240,791 228,346
Property under capital lease 74,130 - - - -
- -------------------------------------------------------------------------------------------------
Total 2,157,010 1,983,774 1,937,016 1,880,281 1,831,978
Less - Accumulated depreciation
and decommissioning 1,293,354 1,206,123 1,113,142 1,028,266 977,163
- -------------------------------------------------------------------------------------------------
Net 863,656 777,651 823,874 852,015 854,815
Nuclear decommissioning trusts 198,052 171,442 134,108 100,570 82,109
Construction in progress 74,187 42,424 11,776 24,827 18,508
Nuclear fuel, net 15,007 18,641 19,062 19,381 14,275
- -------------------------------------------------------------------------------------------------
Net utility plant 1,150,902 1,010,158 988,820 996,793 969,707
=================================================================================================
Current assets 292,925 240,712 213,453 233,933 202,399
Net nonutility and
nonregulated plant 168,143 41,235 28,188 28,470 9,033
Regulatory and other assets 204,578 218,282 205,343 204,120 212,769
- -------------------------------------------------------------------------------------------------
Total assets $1,816,548 $1,510,387 $1,435,804 $1,463,316 $1,393,908
=================================================================================================
=================================================================================================
Capitalization and Liabilities
- -------------------------------------------------------------------------------------------------
Capitalization
Common stock equity $ 536,300 $ 517,190 $ 518,764 $ 510,642 $ 505,178
Preferred stock of subsidiaries 51,193 51,200 51,645 51,656 51,703
Long-term debt 634,502 393,037 347,015 349,054 350,098
- -------------------------------------------------------------------------------------------------
Total capitalization 1,221,995 961,427 917,424 911,352 906,979
=================================================================================================
Liabilities
Short-term borrowings 90,258 60,293 40,466 63,192 27,425
Deferred income taxes 111,092 122,642 131,197 135,904 141,518
Other liabilities and credits 393,203 366,025 346,717 352,868 317,986
- -------------------------------------------------------------------------------------------------
Total liabilities 594,553 548,960 518,380 551,964 486,929
=================================================================================================
Total capitalization and
liabilities $1,816,548 $1,510,387 $1,435,804 $1,463,316 $1,393,908
=================================================================================================
</TABLE>
-44-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
WPS RESOURCES CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1995 TO 1999)
C. FINANCIAL STATISTICS
<TABLE>
<CAPTION>
================================================================================================
Year Ended December 31 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stock price $25-1/8 $35-1/4 $33-13/16 $28-1/2 $34
Book value per share $20.03 $19.52 $19.56 $19.24 $19.03
Return on average equity 11.3% 9.0% 10.8% 10.3% 12.2%
Number of common stock shareholders 25,020 26,319 27,369 27,922 28,416
Number of employees 2,900 2,673 2,902 3,032 3,002
- ------------------------------------------------------------------------------------------------
Capitalization ratios
Common equity including
Employee Stock Ownership Plan 43.9 53.8 56.6 56.0 55.7
Preferred stock of subsidiaries 4.2 5.3 5.6 5.7 5.7
Trust preferred securities
of subsidiary trust 4.1 5.2 - - -
Long-term debt 47.8 35.7 37.8 38.3 38.6
- ------------------------------------------------------------------------------------------------
Weather information
Cooling degree days 481 519 255 352 808
Cooling degree days as
a percent of normal 103.0% 107.0% 53.3% 73.6% 170.1%
Heating degree days 7,273 6,530 8,099 8,566 7,813
Heating degree days as
a percent of normal 91.7% 82.4% 101.6% 107.5% 98.0%
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Common Stock Comparison Dividends
(by quarter) Per Share High Low
- -------------------------------------------------------------------------
<S> <C> <C> <C>
1999
1st quarter $ .495 35-3/4 29-1/4
2nd quarter .495 32-1/4 28-3/8
3rd quarter .505 30-11/16 27-13/16
4th quarter .505 29-1/16 24-1/4
-----
$2.00
- -------------------------------------------------------------------------
1998
1st quarter $ .485 33-13/16 32
2nd quarter .485 34 29-15/16
3rd quarter .495 35-3/4 31-5/8
4th quarter .495 37-1/2 33
-----
$1.96
</TABLE>
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
WISCONSIN PUBLIC SERVICE CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1997 TO 1999)
D. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
===================================================================================
(Millions) 1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $719.4 $652.5 $690.5
Net income 70.2 57.2 64.7
Total assets (at December 31) 1,409.9 1,267.6 1,234.0
Long-term debt, net (at December 31) 373.1 304.0 307.6
===================================================================================
</TABLE>
-46-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
WISCONSIN PUBLIC SERVICE CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1997 TO 1999)
E. FINANCIAL STATISTICS
<TABLE>
<CAPTION>
===================================================================================
(Millions) 1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Coverage
- -----------------------------------------------------------------------------------
Times interest earned before income taxes 4.71 4.48 4.48
Times interest earned after income taxes 3.41 3.29 3.30
Times interest and preferred dividends
earned after income taxes 3.08 2.93 2.97
===================================================================================
Capitalization ratios
Common equity including Employee Stock Ownership Plan 55.3 57.6 56.0
Preferred stock 5.4 6.1 6.3
Long-term debt 39.3 36.3 37.7
===================================================================================
Percent long-term debt to net utility plant 35.6 33.5 34.7
===================================================================================
Average rate
Bonds 7.2 7.2 7.0
Preferred stock 6.1 6.1 6.1
===================================================================================
Number of preferred stock shareholders 2,339 2,501 2,734
===================================================================================
Weather information
Cooling degree days 481 519 255
Cooling degree days as a percent of normal 103.0% 107.0% 53.3%
Heating degree days 7,273 6,530 8,099
Heating degree days as a percent of normal 91.7% 82.4% 101.6%
===================================================================================
</TABLE>
-47-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
UPPER PENINSULA POWER COMPANY
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1997 TO 1999)
F. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
==================================================================================
(Millions) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $62.4 $62.7 $60.2
Net income 2.0 3.5 3.7
Total assets (at December 31) 125.2 127.3 131.3
Long-term debt, net (at December 31) 44.8 38.8 38.9
==================================================================================
</TABLE>
-48-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
UPPER PENINSULA POWER COMPANY
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1997 TO 1999)
G. FINANCIAL STATISTICS
<TABLE>
<CAPTION>
==================================================================================
(Millions) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Coverage
- ----------------------------------------------------------------------------------
Times interest earned before income taxes 1.82 2.31 2.34
Times interest earned after income taxes 1.46 1.81 1.87
Times interest and preferred dividends
earned after income taxes - - 1.87
==================================================================================
Capitalization ratios
Common equity 46.5 47.6 50.4
Preferred stock - - 0.6
Long-term debt 53.5 52.4 49.0
==================================================================================
Percent long-term debt to net utility plant 43.9 38.2 37.9
==================================================================================
Average rate
Bonds 8.9 8.9 8.9
Preferred stock - - 4.9
==================================================================================
Number of preferred stock shareholders - - 48
==================================================================================
</TABLE>
-49-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS - WPS RESOURCES CORPORATION
WPS Resources Corporation is a holding company. Our wholly-owned
subsidiaries include two regulated utilities, Wisconsin Public Service
Corporation and Upper Peninsula Power Company. Another wholly-owned
subsidiary, WPS Resources Capital Corporation, is a holding company for our
nonregulated businesses including WPS Energy Services, Inc. and WPS Power
Development, Inc. Approximately 83% of our assets at December 31, 1999 and
approximately 71% of our 1999 revenues were derived from electric and gas
utility operations. Substantially all of our 1999 net income was derived from
utility operations.
1999 COMPARED WITH 1998
WPS RESOURCES CORPORATION OVERVIEW
WPS Resources' 1999 and 1998 results of operations are shown in the
following chart:
========================================================================
WPS Resources' Results Percent
(Millions, except share amounts) 1999 1998 Change
- ------------------------------------------------------------------------
Consolidated operating revenues $1,098.5 $1,063.7 3.3
Net income 59.6 46.6 27.9
Basic and diluted earnings per share $2.24 $1.76 27.3
========================================================================
The primary reasons for the higher earnings were increased sales volumes
at Wisconsin Public Service coupled with the implementation of new Wisconsin
retail electric and gas rates and the elimination of net trading losses at
WPS Energy Services.
OVERVIEW OF UTILITY OPERATIONS (WISCONSIN PUBLIC SERVICE AND UPPER PENINSULA
POWER)
Revenues and earnings for our electric and gas utility operations are
shown in the following chart:
========================================================================
Percent
Results (Millions) 1999 1998 Change
- ------------------------------------------------------------------------
Wisconsin Public Service
- ------------------------
Operating revenues $719.4 $652.5 10.3
Earnings 65.3 52.9 23.4
Upper Peninsula Power
- ---------------------
Operating revenues 62.4 62.7 (0.5)
Earnings 2.0 3.5 (42.9)
========================================================================
-50-
<PAGE>
The primary reasons for higher earnings at Wisconsin Public Service
were increased sales coupled with the implementation of new Wisconsin retail
electric and gas rates.
ELECTRIC UTILITY OPERATIONS (WISCONSIN PUBLIC SERVICE AND UPPER PENINSULA
POWER)
Our consolidated electric margins increased $19.1 million, or 5.1%.
This increase was due to increased sales volume at Wisconsin Public Service
coupled with the January 15, 1999 implementation of new Wisconsin retail
electric rates. A 6.3% increase in electric rates was authorized by the
Public Service Commission of Wisconsin.
==========================================================================
WPS Resources' Consolidated Electric Utility Results (Thousands)
- --------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------
Revenues $ 582,471 $ 543,260 $ 536,885
Fuel and purchased power 187,399 167,256 171,935
- --------------------------------------------------------------------------
Margin $ 395,072 $ 376,004 $ 364,950
==========================================================================
Sales in kilowatt-hours 12,503,487 12,172,432 11,993,358
==========================================================================
Our consolidated electric utility revenues increased $39.2 million, or
7.2%, primarily due to the electric rate increase at Wisconsin Public Service.
Also contributing to higher electric revenues was a 2.8% increase in overall
kilowatt-hour sales at Wisconsin Public Service. Included in 1998 electric
revenues, but not in 1999 electric revenues, are surcharge revenues at
Wisconsin Public Service of $3.8 million related to the recovery of the
deferred costs for the 1997 Kewaunee Nuclear Power Plant steam generator
repairs. Wisconsin Public Service is the operator and 41.2% owner of the
Kewaunee plant.
Our consolidated electric production fuel expense increased
$3.0 million, or 2.7%, primarily as a result of increased generation
requirements at Wisconsin Public Service's combustion turbine and nuclear
generating plants in 1999. Partially offsetting this factor was a decrease in
production at Wisconsin Public Service's coal-fired generation plants as a
result of both scheduled and unscheduled maintenance activities.
Our consolidated purchased power requirements increased $17.2 million,
or 30.4%, primarily due to additional purchase requirements at both
Wisconsin Public Service and Upper Peninsula Power in 1999. Purchase
requirements increased 20.1% at Wisconsin Public Service due to the lack of
production at its coal-fired generation plants during the time they were
off-line for maintenance in 1999. In addition, the cost of purchases was
12.8% higher in 1999 than in 1998.
The Public Service Commission of Wisconsin allows Wisconsin Public
Service to adjust prospectively the amount billed to Wisconsin retail
customers for fuel and purchased power if costs fall outside a specified
range. Wisconsin Public Service is required to file an application to adjust
rates either higher or lower when costs are plus or minus 2.0% from forecasted
costs on an annualized basis. Annual 1999 fuel costs at December 31, 1999
were within this 2.0% window and, accordingly, no adjustment will be made.
-51-
<PAGE>
GAS UTILITY OPERATIONS (WISCONSIN PUBLIC SERVICE)
The consolidated gas utility margin represents gas revenues less
purchases exclusive of intercompany transactions. The consolidated gas
utility margin increased $13.4 million in 1999. The gas utility margin at
Wisconsin Public Service increased $13.4 million, or 22.2%, in 1999. This
increase was primarily due to the implementation of a Public Service
Commission of Wisconsin rate order which authorized a 5.1% increase in
Wisconsin retail gas rates and to an increase in therm sales.
==========================================================================
Wisconsin Public Service's Gas Utility Results (Thousands)
- --------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------
Revenues $191,521 $165,111 $211,090
Purchase costs 117,582 104,608 147,493
- --------------------------------------------------------------------------
Margin $ 73,939 $ 60,503 $ 63,597
==========================================================================
Sales in therms 662,615 608,092 662,008
==========================================================================
Wisconsin Public Service's gas operating revenues increased
$26.4 million, or 16.0%. This increase was due to the implementation of new
Wisconsin retail gas rates and a 9.0% increase in overall therm sales as a
result of colder weather in 1999. Although the winter weather was 11.4%
colder in 1999 than in 1998, it was still 8.3% warmer than normal.
Note that 1998 gas utility revenues were reduced by $7.5 million for
refunds from ANR Pipeline Company which were passed on to Wisconsin Public
Service's customers. Gas purchase costs in 1998 were likewise reduced as this
$7.5 million refund was credited to gas expense.
Wisconsin Public Service's gas purchase costs increased $13.0 million,
or 12.4%. This increase was due to increased sales and to a higher cost of
gas. Under current regulatory practice, the Public Service Commission of
Wisconsin and the Michigan Public Service Commission allow Wisconsin Public
Service to pass changes in the cost of gas on to customers through a purchased
gas adjustment clause.
OTHER UTILITY EXPENSES/INCOME (WISCONSIN PUBLIC SERVICE AND UPPER PENINSULA
POWER)
Other operating expenses at Wisconsin Public Service increased
$12.6 million, or 9.1%, primarily due to higher customer service expenses of
$5.1 million related to conservation expenditures, and higher pension costs of
$3.4 million due to a change in the assumptions used to calculate this
expense. Also contributing to increased operating expenses were higher
medical benefit expenses of $1.2 million and higher electric distribution
expenses of $1.2 million.
Maintenance expense at Wisconsin Public Service increased $7.2 million,
or 14.6%, primarily due to additional costs of $8.0 million at its coal-fired
generation plants and $1.6 million at its other power generation plants for
both scheduled and unscheduled maintenance activities. Offsetting these costs
was a decrease in maintenance expense of $8.5 million at the Kewaunee plant.
-52-
<PAGE>
A scheduled refueling outage at the Kewaunee plant in 1998 caused 1998 nuclear
maintenance expenses to be higher. In addition, $3.8 million in deferred
costs for the 1997 Kewaunee plant's steam generator repairs was recognized in
1998. Maintenance of overhead distribution lines increased $4.7 million in
1999 due to additional tree trimming, line clearance, and storm damage
repairs.
PRICE RISK MANAGEMENT ACTIVITIES (WISCONSIN PUBLIC SERVICE AND UPPER PENINSULA
POWER)
WPS Resources engages in minimal price risk management activities at its
utility operations because much of the utility price risk exposure is
recoverable through customer rates.
OVERVIEW OF NONREGULATED AND NONUTILITY OPERATIONS
Nonregulated operations consist of the gas and electric sales at
WPS Energy Services, Inc., a diversified energy supply and services company.
Nonregulated operations also include those of WPS Resources as a holding
company and those of WPS Power Development, Inc., an electric generation asset
development company. Nonutility operations refer to the activities of
Wisconsin Public Service and Upper Peninsula Power which do not fall under
utility regulation.
Nonregulated and nonutility operations experienced a loss of
$7.8 million in 1999 compared with a loss of $9.8 million in 1998. Although
margins on nonregulated energy sales continue to grow, losses are being
experienced primarily due to operating expenses associated with new
facilities, market expansion, and the pursuit of additional projects.
Nonutility operations in 1999 included a one-time special dividend of
$0.5 million. This special dividend was related to a land sale from an
investment held at Wisconsin Public Service. Nonregulated earnings in 1998
included a one-time dividend of $2.0 million received by WPS Resources from a
venture capital investment.
OVERVIEW OF WPS ENERGY SERVICES, INC.
Revenues at WPS Energy Services were $292.2 million in 1999 compared
with $351.3 million in 1998, a decrease of 16.8%. The revenue decrease is
attributable to a combination of lower overall natural gas prices experienced
in 1999, and a deliberate change in the wholesale product mix. WPS Energy
Services experienced an improvement in operating results, reducing net losses
by 49.3% in 1999. Net losses were $3.5 million in 1999 compared with
$6.9 million in 1998. The primary reason for the decrease in losses was the
elimination of trading losses that occurred in 1998. WPS Energy Services
implemented a deliberate shift in focus within its trading unit to emphasize
capturing present opportunities in the market rather than taking a position in
anticipation of a future market movement. While not without risk, this
lower-risk approach did yield gains in 1999. WPS Energy Services also
experienced an increase in total gas margin due to improved gas procurement
operations and processes, and an increased emphasis on creation of wholesale
products providing greater value, thus higher margin, to customers in the
wholesale marketplace. Partially offsetting these factors was a one-time
pretax write-down of $0.7 million related to an investment in a gas production
field.
NONREGULATED MARGINS (WPS ENERGY SERVICES)
Gas margins at WPS Energy Services were $4.6 million in 1999 compared
with $4.0 million in 1998, an increase of 15.0%. Electric margins remained
fairly stable. Gas revenues at WPS Energy Services were $288.0 million in
-53-
<PAGE>
1999 compared with $330.0 million in 1998. This decrease was the result of
lower overall natural gas market prices and an increased emphasis on higher
quality and lower-risk wholesale products rather than a large volume of
wholesale transactions with lower margins. Electric revenues were
$3.4 million in 1999 and $20.5 million in 1998, a decrease of 83.4%. This
decrease was the result of WPS Energy Services' efforts to focus participation
in the wholesale electric markets where transactions are based on physical
generation assets controlled by an affiliate of WPS Resources.
WPS Energy Services' cost of sales was $286.6 million in 1999 and
$346.4 million in 1998, a decrease of 17.3%. This decrease was due to
decreased gas purchases of $42.7 million primarily due to lower natural gas
prices and, to a lesser extent, reduced wholesale sales volumes. Also
contributing to the lower cost of sales was continued improvement in gas
procurement processes. Electric purchases decreased $17.1 million due to
decreased sales.
OTHER NONREGULATED EXPENSES/INCOME (WPS ENERGY SERVICES)
Other operating expenses at WPS Energy Services increased $1.0 million,
or 11.1%, primarily due to costs of $0.7 million associated with entering into
expanded retail customer-choice programs. Improved processes and strategies
emphasizing reduced risk at WPS Energy Services resulted in a gas trading gain
in 1999 compared with gas trading losses of $4.9 million in 1998. Essentially
no electric trading losses were experienced in 1999 compared with $1.2 million
in 1998.
PRICE RISK MANAGEMENT ACTIVITIES (WPS ENERGY SERVICES)
WPS Energy Services uses derivative financial and commodity instruments
to reduce market risk associated with the changing prices of natural gas and
electricity sold at firm prices to customers. WPS Energy Services also uses
derivatives to manage market risk associated with anticipated energy
purchases, as well as trading activities. Derivatives may include futures and
forward contracts, basis swap agreements, or call and put options.
Gains and losses on derivatives are recognized immediately in earnings
when it is no longer probable that the related forecasted transaction will
occur. Each accounting period, WPS Energy Services records gains or losses on
changes in market value of trading derivatives in other income. WPS Energy
Services recorded net trading gains of $0.1 million in 1999 and net trading
losses of $6.1 million in 1998.
At December 31, 1999, WPS Energy Services had outstanding 11.4 million
notional dekatherms of natural gas under futures and option agreements and
5.9 million notional dekatherms of natural gas under basis swap agreements in
order to manage market risk. These financial instruments expire at various
times through October 2001. WPS Energy Services has gas sales commitments
through October 2000 with a range of sale prices from $2.06 to $3.09 per
dekatherm and a range of associated gas purchase costs of $2.05 to $3.00 per
dekatherm.
At December 31, 1999, the fair value of trading instruments included
assets of $7.5 million and liabilities of $6.8 million. Natural gas
derivatives were used for all trading activities in 1999 and 1998, except for
a small amount of electric trading transactions. At December 31, 1999,
WPS Energy Services had outstanding 1.4 million notional dekatherms of natural
gas under futures and option agreements and 1.7 million notional dekatherms of
natural gas under basis swap agreements for trading purposes.
-54-
<PAGE>
============================================================================
Derivatives (contract amounts in millions)
- ----------------------------------------------------------------------------
Expected Maturity
-------------------- Fair
2000 2001 2002 Total Value
- ----------------------------------------------------------------------------
Futures NYMEX - hedging
Long (billion cubic feet) 25.3
Weighted average settlement price
(per dekatherm) $2.54
Contract amount $64.4 $64.4 $(5.1)
Short (billion cubic feet) 23.1 0.4
Weighted average settlement price
(per dekatherm) $2.60 $2.80
Contract amount $59.9 $1.1 $61.0 $5.8
- ----------------------------------------------------------------------------
Futures NYMEX - trading
Long (billion cubic feet) 10.3
Weighted average settlement price
(per dekatherm) $2.63
Contract amount $27.2 $27.2 $(3.0)
Short (billion cubic feet) 10.8
Weighted average settlement price
(per dekatherm) $2.63
Contract amount $28.5 $28.5 $3.2
- ----------------------------------------------------------------------------
OTC futures - hedging
Long (billion cubic feet) 7.8 0.7 0.18
Weighted average settlement price
(per dekatherm) $2.36 $2.22 $2.22
Contract amount $18.5 $1.6 $0.4 $20.5 $0.4
Short (billion cubic feet) 3.2
Weighted average settlement price
(per dekatherm) $2.64
Contract amount $8.4 $8.4 $0.9
- ----------------------------------------------------------------------------
OTC futures - trading
Long (billion cubic feet) 0.8
Weighted average settlement price
(per dekatherm) $2.47
Contract amount $2.0 $2.0 $(0.1)
Short (billion cubic feet) 0.5
Weighted average settlement price
(per dekatherm) $2.77
Contract amount $1.4 $1.4 $0.2
- ----------------------------------------------------------------------------
-55-
<PAGE>
============================================================================
Derivatives (continued)
- ----------------------------------------------------------------------------
Expected Maturity
-------------------- Fair
2000 2001 2002 Total Value
- ----------------------------------------------------------------------------
Options - hedging
Long calls (billion cubic feet) 2.3
Weighted average strike price
(per dekatherm) $3.03
Contract amount $6.9 $6.9 $(0.5)
Long puts (billion cubic feet) 2.9
Weighted average strike price
(per dekatherm) $2.31
Contract amount $6.6 $6.6 $0.0
Short calls (billion cubic feet) 1.1
Weighted average strike price
(per dekatherm) $3.07
Contract amount $3.4 $3.4 $0.2
Short puts (billion cubic feet) 5.8
Weighted average strike price
(per dekatherm) $2.31
Contract amount $13.3 $13.3 $(0.1)
- ----------------------------------------------------------------------------
Options - trading
Long calls (billion cubic feet) 0.2
Weighted average strike price
(per dekatherm) $2.30
Contract amount $0.3 $0.3 $0.0
Long puts (billion cubic feet) 1.9
Weighted average strike price
(per dekatherm) $2.11
Contract amount $3.9 $3.9 $0.0
Short calls (billion cubic feet) 0.3
Weighted average strike price
(per dekatherm) $2.50
Contract amount $0.6 $0.6 $0.0
Short puts (billion cubic feet) 0.8
Weighted average strike price
(per dekatherm) $2.30
Contract amount $1.7 $1.7 $0.1
- ----------------------------------------------------------------------------
Basis swaps - hedging
Receive fixed (billion cubic feet) 28.9 0.7
Weighted average settlement price
(per dekatherm) $0.11 $0.22
Contract amount $3.3 $0.2 $3.5 $(0.9)
Receive floating
(billion cubic feet) 23.7
Weighted average settlement price
(per dekatherm) $0.12
Contract amount $2.8 $2.8 $(0.1)
- ----------------------------------------------------------------------------
-56-
<PAGE>
============================================================================
Derivatives (continued)
- ----------------------------------------------------------------------------
Expected Maturity
-------------------- Fair
2000 2001 2002 Total Value
- ----------------------------------------------------------------------------
Basis swaps - trading
Receive fixed (billion cubic feet) 39.1
Weighted average settlement price
(per dekatherm) $0.18
Contract amount $7.0 $7.0 $(3.7)
Receive floating
(billion cubic feet) 36.3 1.1
Weighted average settlement price
(per dekatherm) $0.19 $0.12
Contract amount $7.0 $0.1 $7.1 $4.0
============================================================================
OVERVIEW OF WPS POWER DEVELOPMENT
Losses at WPS Power Development were $3.8 million in 1999 compared with
$2.4 million in 1998. The increase in losses at WPS Power Development was
primarily due to additional costs incurred in 1999 for the development and
operation of newly acquired facilities and the evaluation of new projects.
WPS Power Development experienced an increase of $9.5 million in its
margin on operating generation facilities in 1999. This increase was due to
the operation of the electric generation assets acquired in Maine and Canada
on June 8, 1999, and in Pennsylvania on November 1, 1999. Other operating
expenses at WPS Power Development increased $10.5 million largely due to
operating expenses related to the electric generation assets acquired in Maine
and Canada from Maine Public Service and the Sunbury plant acquired in
Pennsylvania from PP&L Resources. Higher operating expenses at ECO Coal
Pelletization #12, LLC also contributed to the increase. Partially offsetting
increased expenses at ECO #12 was the benefit of tax credits received for
these operations. Although ECO #12 experienced problems with materials and
customers in the early part of 1999, these problems have been resolved and
sales have increased significantly. Additional costs related to the pursuit
and development of new projects also contributed to higher operating expenses
at WPS Power Development in 1999.
OVERVIEW OF OTHER NONREGULATED AND NONUTILITY OPERATIONS
A one-time dividend of $0.5 million was received by Wisconsin Public
Service in 1999 related to a land sale from an investment. This dividend
represented a one cent per share increase to earnings for 1999. A one-time
dividend of $2.0 million was received by WPS Resources in 1998 from a venture
capital investment. This dividend represented a four cents per share increase
in earnings for 1998.
-57-
<PAGE>
1998 COMPARED WITH 1997
WPS RESOURCES CORPORATION OVERVIEW
WPS Resources' results of operations and financial position for 1998 and
1997 include the effects of the merger with Upper Peninsula Energy Corporation
which was effective September 29, 1998 and was accounted for as a pooling of
interests. In accordance with the terms of the merger, each of the 2,950,001
outstanding shares of Upper Peninsula Energy Corporation common stock (no par
value) was converted into 0.90 shares of WPS Resources' common stock. The
conversion was subject to adjustment for cash payments for fractional shares.
In conjunction with this merger, we expensed transaction charges of
approximately $1.6 million in 1998 and $2.7 million in 1997. These merger
transaction charges consisted of the following:
=====================================================
Merger Charges (Millions)
-----------------------------------------------------
1998 1997
-----------------------------------------------------
Investment bankers $0.8 $0.9
Legal 0.7 0.9
Accounting - 0.2
Other 0.1 0.7
-----------------------------------------------------
Total $1.6 $2.7
=====================================================
In addition, Upper Peninsula Power, Upper Peninsula Energy Corporation's
primary subsidiary, recorded severance costs of $1.1 million and an additional
$0.5 million in other merger-related expenses in 1998.
WPS Resources' 1998 and 1997 results of operation are shown in the
following chart:
========================================================================
WPS Resources' Results Percent
(Millions, except share amounts) 1998 1997 Change
- ------------------------------------------------------------------------
Consolidated operating revenues $1,063.7 $935.8 13.7
Net income 46.6 55.8 (16.5)
Basic and diluted earnings per share $1.76 $2.10 (16.2)
========================================================================
The primary reasons for the decrease in earnings were the impact of
unusually warm winter weather, the effects of a full year electric rate
decrease at Wisconsin Public Service, higher maintenance expenses at
Wisconsin Public Service, decreased other income, higher other operating
expenses, and a decrease in Wisconsin Public Service's gas margin. Partially
offsetting these factors were an increase in electric utility margins and an
increase in nonregulated margins.
-58-
<PAGE>
OVERVIEW OF UTILITY OPERATIONS (WISCONSIN PUBLIC SERVICE AND UPPER PENINSULA
POWER)
Revenues and earnings for our electric and gas utility operations are
shown in the following chart:
========================================================================
Percent
Results (Millions) 1998 1997 Change
- ------------------------------------------------------------------------
Wisconsin Public Service
- ------------------------
Operating revenues $652.5 $690.5 (5.5)
Earnings 52.9 57.5 (8.0)
Upper Peninsula Power
- ---------------------
Operating revenues 62.7 60.2 4.2
Earnings 3.5 3.7 (5.4)
========================================================================
The primary reasons for the decrease in earnings at Wisconsin Public
Service were the impact of unusually warm winter weather, increased
maintenance expenses, a decrease in other income, an increase in other
operating expenses, and a decrease in the gas margin. Partially offsetting
these factors were an increase in the electric utility margin and a decrease
in interest expense.
The primary reasons for the decrease in earnings at Upper Peninsula
Power were higher maintenance and other operating expenses partially offset by
an increase in the electric margin.
ELECTRIC UTILITY OPERATIONS (WISCONSIN PUBLIC SERVICE AND UPPER PENINSULA
POWER)
Our consolidated electric utility margins increased $11.1 million, or
3.0%, primarily due to increased kilowatt-hour sales of 3.0% to
Wisconsin Public Service's customers as a result of warmer summer weather in
1998. Partially offsetting the increase in electric margins in 1998 was the
impact on Wisconsin Public Service of a Public Service Commission of Wisconsin
8.1% retail electric rate decrease which was effective for the entire year in
1998 but was only effective in 1997 for the period after February 21, 1997.
Our consolidated electric utility revenues increased $6.4 million, or
1.2%, largely due to increased revenues of $4.8 million from Wisconsin Public
Service's wholesale customers and $1.5 million from Wisconsin Public Service's
commercial and industrial customers as a result of the warmer summer weather.
Also included in 1998 electric revenues were surcharge revenues at
Wisconsin Public Service of $3.8 million related to the recovery of deferred
costs for the 1997 Kewaunee plant steam generator repairs. Partially
offsetting these factors were the electric rate reduction and a $1.0 million
refund of Wisconsin Public Service's transmission revenues as the result of a
1998 Federal Energy Regulatory Commission settlement related to open access
transmission tariff rates.
Our consolidated electric production fuel expense increased
$2.8 million, or 2.6%, primarily as a result of increased generation expense.
The Kewaunee plant was out of service for the first six months of 1997 as the
result of an extended outage to repair steam generators, thus, in comparison,
the higher generation expense in 1998.
-59-
<PAGE>
Our consolidated purchased power expense decreased $7.5 million, or
11.7%, primarily due to decreased purchase requirements at Wisconsin Public
Service in the first half of 1998. Purchase requirements at Wisconsin Public
Service in the first half of 1997 were higher due to lack of production at the
Kewaunee plant in the first and second quarters of 1997 as a result of an
extended outage. The Kewaunee plant was also off-line in 1998 for a six-week
scheduled refueling outage. Also contributing to lower purchased power
expense at Wisconsin Public Service was a $1.2 million credit to purchased
power expense in the fourth quarter of 1998 related to the settlement of
litigation involving a contract with a power supplier.
GAS UTILITY OPERATIONS (WISCONSIN PUBLIC SERVICE)
The consolidated gas utility margin decreased $4.1 million, or 6.5%, in
1998. This decrease was primarily due to winter weather that was 19.4% warmer
in 1998 than in 1997. The gas utility margin at Wisconsin Public Service
decreased $3.1 million, or 4.9%, in 1998.
Wisconsin Public Service's gas operating revenues decreased
$46.0 million, or 21.8%. This decrease was due to unusually mild winter
weather in 1998 resulting in lower gas therm sales for 1998 of 8.1%.
Note that 1998 gas utility revenues were reduced by $7.5 million for
refunds from ANR Pipeline Company which were passed on to Wisconsin Public
Service's customers. Gas purchase costs in 1998 were likewise reduced as this
$7.5 million refund was credited to gas expense.
Wisconsin Public Service's gas purchase costs decreased $42.9 million,
or 29.1%. This decrease was due to reduced customer demand as a result of the
mild weather during 1998.
OTHER UTILITY EXPENSES/INCOME (WISCONSIN PUBLIC SERVICE AND UPPER PENINSULA
POWER)
Other operating expenses at Wisconsin Public Service increased
$4.1 million, or 3.1%, primarily due to higher benefit costs in 1998.
Other operating expenses at Upper Peninsula Power increased
$0.6 million, or 3.6%, primarily as the result of the accrual of $1.1 million
in merger-related severance expense in 1998. Other operating expenses at
Upper Peninsula Power in 1997 included costs incurred related to the
termination of Upper Peninsula Power's Presque Isle Plant Operating Agreement
with Wisconsin Electric Power Company. Upper Peninsula Power had staffed and
operated Wisconsin Electric's Presque Isle Power Plant through December 31,
1997, at which time the operating agreement was terminated.
Maintenance expense at Wisconsin Public Service increased $7.8 million,
or 18.6%, primarily as a result of increased expenses at the Kewaunee plant
during the second and fourth quarters of 1998. This increase was partly due
to the recognition of the deferred expenses for the 1997 Kewaunee plant's
steam generator repairs. The Public Service Commission of Wisconsin approved
deferral of the repairs in 1997, the cost of which had been collected in the
second quarter of 1998 through a $3.8 million electric revenue surcharge. In
addition, maintenance expense at the Kewaunee plant increased in the fourth
quarter of 1998 due to a scheduled refueling outage.
Depreciation and decommissioning expenses at Wisconsin Public Service
increased $2.4 million, or 3.1%, due to an increased plant base and to the
accelerated recovery of investment in the Kewaunee plant and accelerated
funding of the Kewaunee plant's decommissioning costs. Accelerated recovery
of investment and funding began on February 21, 1997 and, therefore, was
effective for all of 1998 but only a portion of 1997.
-60-
<PAGE>
PRICE RISK MANAGEMENT ACTIVITIES (WISCONSIN PUBLIC SERVICE AND UPPER PENINSULA
POWER)
WPS Resources engages in minimal price risk management activities at its
utility operations because much of the utility price risk exposure is
recoverable through customer rates.
OVERVIEW OF NONREGULATED AND NONUTILITY OPERATIONS
Nonregulated and nonutility operations experienced a loss of
$9.8 million in 1998 compared with a loss of $5.4 million in 1997. Although
nonregulated margins continued to grow, losses were experienced due to gas and
electric trading losses and expenses associated with the expansion of customer
base. Nonutility operations experienced a one-time gain of $4.8 million on
the sale of nonutility property in 1997.
OVERVIEW OF WPS ENERGY SERVICES
Revenues at WPS Energy Services were $351.3 million in 1998 compared
with $189.4 million in 1997, an increase of 85.5%. WPS Energy Services
experienced a loss of $6.9 million in 1998 compared with a loss of
$4.9 million in 1997. The primary reasons for the increased loss at
WPS Energy Services were increased electric and gas trading losses primarily
due to market volatility, and higher operating expenses due to expansion of
the energy trading business. Partially offsetting these factors was an
increase in the gas margin.
NONREGULATED MARGINS (WPS ENERGY SERVICES)
Gas margins at WPS Energy Services were $4.0 million in 1998 compared
with $1.9 million in 1997, an increase of 110.5%. Electric margins at
WPS Energy Services remained fairly stable. Gas revenues at WPS Energy
Services were $330.0 million in 1998 compared with $182.3 million in 1997, an
increase of $147.7 million, or 81.0%. This increase was the result of sales
volume growth and expansion to additional geographic areas. Electric revenues
at WPS Energy Services were $20.5 million in 1998 and $6.4 million in 1997, an
increase of $14.1 million, or 220.3%. This increase was also the result of
sales volume growth.
WPS Energy Services' cost of sales were $346.4 million in 1998 and
$186.6 million in 1997, an increase of $159.8 million, or 85.6%. This
increase was primarily due to increased gas purchases of $145.6 million and
increased purchased power expense of $14.2 million. These increases were the
result of customer growth and higher costs of purchases.
OTHER NONREGULATED EXPENSES/INCOME (WPS ENERGY SERVICES)
Other operating expenses at WPS Energy Services increased $1.1 million,
or 13.6%, due to expansion of the business. WPS Energy Services experienced
gas trading losses of $4.9 million in 1998 and $1.4 million in 1997 largely
due to market volatility. WPS Energy Services also experienced electric
trading losses of $1.2 million in 1998 primarily due to losses in the third
quarter related to the unprecedented market volatility in the electric trading
market.
PRICE RISK MANAGEMENT ACTIVITIES (WPS ENERGY SERVICES)
WPS Energy Services uses derivative financial and commodity instruments
to reduce market risk associated with changing prices of natural gas and
electricity sold at firm prices to customers. WPS Energy Services also uses
derivatives to manage market risk associated with anticipated energy
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purchases, as well as trading activities. Derivatives may include futures and
forward contracts, price swap agreements, or call and put options.
Gains and losses on derivatives are recognized immediately in earnings
when it is no longer probable that the related forecasted transaction will
occur. Each accounting period, WPS Energy Services records gains or losses on
changes in market value of trading derivatives in other income. WPS Energy
Services recorded net trading losses of $6.1 million in 1998 and $1.4 million
in 1997.
At December 31, 1998, WPS Energy Services had outstanding 27.4 million
notional dekatherms of natural gas under futures and option agreements and
0.9 million notional dekatherms of natural gas under basis swap agreements in
order to manage market risk. These financial instruments expire at various
times through August 2000. WPS Energy Services had gas sales commitments
through August 2000 with a range of sale prices from $2.36 to $2.38 per
dekatherm and a range of associated gas purchase costs of $2.29 to $2.31 per
dekatherm.
At December 31, 1998, the fair value of trading instruments included
assets of $29.2 million and liabilities of $30.0 million. Virtually all
trading activities in 1998 and 1997 involved natural gas derivatives, except
for a small amount of electric trading transactions. At December 31, 1998,
WPS Energy Services had outstanding 0.4 million notional dekatherms of natural
gas under futures and option agreements and 2.8 million notional dekatherms of
natural gas under basis swap agreements for trading purposes.
============================================================================
Derivatives (contract amounts in millions)
- ----------------------------------------------------------------------------
Expected Maturity
-------------------- Fair
1999 2000 Total Value
- ----------------------------------------------------------------------------
Futures NYMEX - hedging
Long (billion cubic feet) 34.8 2.2
Weighted average settlement price
(per dekatherm) $2.26 $2.32
Contract amount $78.8 $5.1 $83.9 $(13.4)
Short (billion cubic feet) 18.4 0.8
Weighted average settlement price
(per dekatherm) $2.18 $2.50
Contract amount $40.0 $2.1 $42.1 $6.2
- ----------------------------------------------------------------------------
Futures NYMEX - trading
Long (billion cubic feet) 33.5
Weighted average settlement price
(per dekatherm) $2.28
Contract amount $76.3 $76.3 $(15.3)
Short (billion cubic feet) 37.0
Weighted average settlement price
(per dekatherm) $2.25
Contract amount $83.2 $83.2 $16.0
- ----------------------------------------------------------------------------
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============================================================================
Derivatives (continued)
- ----------------------------------------------------------------------------
Expected Maturity
-------------------- Fair
1999 2000 Total Value
- ----------------------------------------------------------------------------
OTC futures - hedging
Long (billion cubic feet) 7.2 3.4
Weighted average settlement price
(per dekatherm) $2.21 $2.28
Contract amount $15.9 $7.8 $23.7 $(1.6)
Short (billion cubic feet) 1.5 0.1
Weighted average settlement price
(per dekatherm) $2.12 $2.18
Contract amount $3.1 $0.3 $3.4 $0.4
- ----------------------------------------------------------------------------
OTC futures - trading
Long (billion cubic feet) 6.0
Weighted average settlement price
(per dekatherm) $2.21
Contract amount $13.1 $13.1 $(1.9)
Short (billion cubic feet) 3.1 0.1
Weighted average settlement price
(per dekatherm) $2.15 $1.85
Contract amount $6.8 $0.2 $7.0 $1.0
- ----------------------------------------------------------------------------
Options - hedging
Long calls (billion cubic feet) 0.6
Weighted average strike price
(per dekatherm) $2.46
Contract amount $1.6 $1.6 $(0.1)
Long puts (billion cubic feet) 0.6
Weighted average strike price
(per dekatherm) $1.87
Contract amount $1.1 $1.1 $0.0
Short calls (billion cubic feet) 0.7
Weighted average strike price
(per dekatherm) $2.43
Contract amount $1.7 $1.7 $0.2
Short puts (billion cubic feet) 0.8 0.5
Weighted average strike price
(per dekatherm) $2.25 $2.43
Contract amount $1.8 $1.1 $2.9 $0.0
- ----------------------------------------------------------------------------
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============================================================================
Derivatives (continued)
- ----------------------------------------------------------------------------
Expected Maturity
-------------------- Fair
1999 2000 Total Value
- ----------------------------------------------------------------------------
Options - trading
Long calls (billion cubic feet) 2.2
Weighted average strike price
(per dekatherm) $2.27
Contract amount $5.1 $5.1 $(0.2)
Long puts (billion cubic feet) 5.9
Weighted average strike price
(per dekatherm) $2.05
Contract amount $12.0 $12.0 $0.5
Short calls (billion cubic feet) 1.5
Weighted average strike price
(per dekatherm) $2.17
Contract amount $3.2 $3.2 $0.1
Short puts (billion cubic feet) 5.0 0.5
Weighted average strike price
(per dekatherm) $2.14 $2.30
Contract amount $10.7 $1.0 $11.7 $(0.5)
- ----------------------------------------------------------------------------
Basis swaps - hedging
Receive fixed (billion cubic feet) 12.2 0.9
Weighted average settlement price
(per dekatherm) $0.17 $0.29
Contract amount $2.1 $0.3 $2.4 $(0.9)
Receive floating
(billion cubic feet) 13.5 0.5
Weighted average settlement price
(per dekatherm) $0.20 $0.09
Contract amount $2.7 $2.7 $1.2
- ----------------------------------------------------------------------------
Basis swaps - trading
Receive fixed (billion cubic feet) 80.5 2.6
Weighted average settlement price
(per dekatherm) $0.25 $0.24
Contract amount $20.9 $0.6 $21.5 $(12.1)
Receive floating
(billion cubic feet) 82.1 3.8
Weighted average settlement price
(per dekatherm) $0.25 $0.23
Contract amount $20.4 $0.9 $21.3 $11.6
============================================================================
OVERVIEW OF WPS POWER DEVELOPMENT
Losses at WPS Power Development were $2.4 million in 1998 compared with
$1.9 million in 1997. The increase in losses at WPS Power Development was
primarily due to additional expenses incurred in 1998 for the start-up of new
projects. Other operating expenses at WPS Power Development increased
$1.1 million, or 25.4%, due to higher project expenses.
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OVERVIEW OF OTHER NONREGULATED AND NONUTILITY OPERATIONS
Other income at the WPS Resources holding company in 1998 included a
dividend of $2.0 million on a venture capital investment.
BALANCE SHEET - WPS RESOURCES
1999 COMPARED WITH 1998
Nuclear decommissioning trusts increased $26.6 million due to continued
funding and favorable investment returns. Construction in progress increased
$31.8 million largely as a result of construction expenditures at
Wisconsin Public Service related to the Kewaunee plant's steam generator
replacement project and the combustion turbine project at West Marinette which
Wisconsin Public Service is building for Madison Gas and Electric Company.
Customer receivables increased $15.1 million primarily as a result of
increased sales at Wisconsin Public Service and WPS Power Development. Net
nonutility and nonregulated plant increased $126.9 million as a result of the
acquisition of additional generation assets at WPS Power Development.
Long-term debt increased $170.6 million and commercial paper increased
$32.3 million as a result of equity infusions to subsidiaries and nonrecourse
financing at WPS Power Development. Cash requirements exceeded internally
generated funds at WPS Resources.
FINANCIAL CONDITION - WPS RESOURCES
INVESTMENTS AND FINANCING
Nonutility assets of $11.9 million were transferred from
Wisconsin Public Service to WPS Resources in 1999. Special common stock
dividends of $25.0 million were paid by Wisconsin Public Service to
WPS Resources in 1999. Equity infusions of $60.0 million were made by
WPS Resources to Wisconsin Public Service in 1999. These special dividends
and equity infusions allowed Wisconsin Public Service's average equity
capitalization ratio for ratemaking to remain at its target level as
established by the Public Service Commission of Wisconsin in its most recent
rate order.
Cash requirements exceeded internally generated funds in 1999 and new
financing of $211.5 million was necessary to obtain funds for the acquisition
of generating units from Maine Public Service and the Sunbury plant from
PP&L Resources. Our pretax interest coverage was 3.20 times for the 12 months
ended December 31, 1999. See the following table for WPS Resources' credit
ratings.
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========================================================================
Credit Ratings Standard & Poor's Moody's
- ------------------------------------------------------------------------
WPS Resources Corporation
Senior unsecured debt AA Aa3
Commercial paper A1+ P1
Trust preferred securities A+ aa3
WPS Resources Capital Corporation
Unsecured debt * AA Aa3
Wisconsin Public Service Corporation
Bonds AA+ Aa1
Preferred stock AA aa2
Commercial paper A1+ P1
========================================================================
* No securities currently outstanding.
WPS Resources normally uses internally generated funds and short-term
borrowing to satisfy most of its capital requirements. Long-term debt and
common stock may periodically be issued to reduce short-term debt and to
maintain desired capitalization ratios.
The specific forms of financing, amounts, and timing will depend on the
availability of projects, market conditions, and other factors. WPS Resources
filed a shelf registration with the Securities and Exchange Commission, which
allows the issuance of $400.0 million in the aggregate of long-term debt and
common stock. Long-term debt of $150.0 million was issued under the shelf
registration in November 1999. New shares of common stock were issued for the
Stock Investment Plan in January through November of 1999. The leveraged
Employee Stock Ownership Plan may also be expanded during the next three
years.
Wisconsin Public Service makes large investments in capital assets.
Construction expenditures for Wisconsin Public Service are expected to be
approximately $530.0 million in the aggregate for the 2000 through 2002
timeframe. This includes expenditures for replacement of the Kewaunee plant's
steam generators and construction of a proposed transmission line between
Wausau and Duluth which is estimated to cost between $125.0 million and
$175.0 million.
In addition, other capital requirements for Wisconsin Public Service for
the three-year period 2000 through 2002 include contributions of approximately
$14.1 million to the Kewaunee plant decommissioning trust fund.
Wisconsin Public Service's agreement to purchase electricity from the
De Pere Energy Center, a gas-fired cogeneration facility, is accounted for as
a capital lease. The De Pere Energy Center lease was capitalized at
$74.1 million on the in-service date, June 14, 1999.
Upper Peninsula Power will incur construction expenditures of
approximately $22.0 million in the aggregate for the period 2000 through 2002,
primarily for electric distribution improvements.
On November 1, 1999, WPS Power Development completed the purchase of the
Sunbury plant from PP&L Resources, Inc. The $107.0 million purchase includes
a coal-fired plant and two oil-fired combustion turbines with a total
nameplate capacity of 472 megawatts, coal inventories, and a coal
transshipment facility. The purchase was temporarily financed with debt from
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WPS Resources. This temporary debt will be refinanced with nonrecourse debt
and equity infusions.
WPS Power Development's purchase of generation assets for $37.4 million
from Maine Public Service, which was originally financed with short-term debt
was refinanced with $24.0 million of nonrecourse long-term debt and an equity
infusion.
Other investment expenditures for nonregulated projects are uncertain
since there are no firm commitments at this time. Financing for most
nonregulated projects is expected to be obtained through nonrecourse project
financing and/or through a subsidiary, WPS Resources Capital Corporation,
which was formed to obtain funding for those projects.
REGULATORY
Wisconsin Public Service received a rate order in the Wisconsin
jurisdiction on January 15, 1999. The impact is an estimated $26.9 million
increase in electric revenues and an estimated $10.3 million increase in gas
revenues on an annual basis. The new rates are effective for 1999 and 2000.
The Public Service Commission of Wisconsin authorized a 12.1% return on
Wisconsin Public Service's equity for 1999 and 2000.
On July 1, 1999, Wisconsin Public Service filed to reopen this rate
order to consider issues related to the Kewaunee plant, the recovery of
deferred expenses related to the repowering of Pulliam Unit 3, and the fuel
forecast for 2000. Hearings on the rate reopener were held on October 12,
1999. As a result of those hearings, Wisconsin Public Service received an
order on December 15, 1999 approving a 4.6% electric rate increase. The new
rates were implemented on January 1, 2000.
YEAR 2000 COMPLIANCE
The Year 2000 issue arose because software programs, computer hardware,
and equipment that have date sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
may have resulted in system failures or other disruptions of operations.
WPS Resources and its subsidiary companies were committed to eliminating
or minimizing the adverse effects of the Year 2000 computer compliance issue
on our business operations, including the products and services provided to
our customers, and to maintaining our reputation as an efficient and reliable
supplier of energy. Our commitment paid off when December 31, 1999 was
non-eventful. No Year 2000 energy problems have been reported through the
first eight weeks of 2000.
In all, no negative reaction was apparent from either customers or
employees. The large scale communications effort, patterned after our
procedures involved in nuclear exercises and drills, was extremely successful.
Fewer expenditures were made for hardware and software than originally
anticipated. Expenditures for the Year 2000 project incurred through
January 31, 2000 were $3.9 million.
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TRENDS - WPSR
ACCOUNTING STANDARDS
Wisconsin Public Service and Upper Peninsula Power follow Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation," and their financial statements reflect the effects of
the different ratemaking principles followed by the various jurisdictions
regulating each utility. For Wisconsin Public Service these include the
Public Service Commission of Wisconsin, 89% of revenues; the Michigan Public
Service Commission, 2% of revenues; and the Federal Energy Regulatory
Commission, 9% of revenues. In addition, the Kewaunee plant is regulated by
the Nuclear Regulatory Commission. Environmental matters are primarily
governed by the United States Environmental Protection Agency and the
Wisconsin Department of Natural Resources.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires all derivatives
to be measured at fair value and recognized as either assets or liabilities in
the statement of financial position. The accounting for changes in the fair
value of a derivative depends upon the use of the derivative and its resulting
designation. Unless specific hedge accounting criteria are met, changes in
the derivative's fair value must be recognized currently in earnings. In
June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137. This new statement delays the
effective date of Standard No. 133 to fiscal periods beginning after June 15,
2000. We will be adopting the requirements of this statement on January 1,
2001. We have inventoried the outstanding contracts at our utility
subsidiaries. Based on our understanding of the current interpretation of
this statement, we have limited exposure at the utilities at this time.
However, the requirements of this statement could increase volatility in
earnings and other comprehensive income at the nonregulated subsidiaries.
UTILITY RESTRUCTURING
Electric reliability issues have replaced restructuring and retail
competition issues as the focus of attention in Wisconsin. Electric
reliability continues to be the primary focus for the Public Service
Commission of Wisconsin and the Wisconsin legislature. The Public Service
Commission of Wisconsin's first priorities are to develop the utility
infrastructure necessary to assure reliable electric service and to remove the
barriers to competition at the wholesale level. In 1998, the Public Service
Commission of Wisconsin and the major utilities in Wisconsin, including
Wisconsin Public Service, made legislative proposals to address reliability
and restructuring concerns, including market power, among other issues. This
resulted in the 1998 Electric Reliability Act. In 1999, the Public Service
Commission of Wisconsin created three rulemaking projects in response to the
Electric Reliability Act. These projects define the requirements for the
construction of merchant plants in Wisconsin, establish rules for opportunity
sales by regulated utilities, address the asset cap relief provision, and
address issues related to the development of a transmission company. In
addition, a new biennial Strategic Energy Assessment process was defined.
This process replaces the existing Advance Plan process. Also in 1999,
Wisconsin enacted the Reliability 2000 Act which addresses asset cap relief
provisions, the transfer of transmission assets into a statewide transmission
company, targets for retail electric sales from renewable resources, and
ratepayer funding of public benefits spending.
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On June 5, 1997, the Michigan Public Service Commission ordered
utilities under its jurisdiction to file electric open access plans and
related tariffs. The Michigan Public Service Commission order called for
generation open access in increments of 2.5% of retail load each year starting
in 1997 and ending in 2001. The Michigan Public Service Commission order
requires full generation open access for retail load in 2002.
Wisconsin Public Service and Upper Peninsula Power submitted plans which
provide full retail open access in 2002. On June 29, 1999, the Michigan
Supreme Court found that the Michigan Public Service Commission did not have
the statutory authority to order retail open access. The Michigan Public
Service Commission then determined that it had the authority to regulate open
access programs if the utilities volunteered to implement such programs. This
authority to approve voluntary open access programs is being challenged.
Should electric deregulation occur such that Wisconsin Public Service
and Upper Peninsula Power would no longer qualify to reflect the effects of
ratemaking under Statement of Financial Accounting Standards No. 71 in their
financial statements, we anticipate no impairment of significant recorded
assets or reduction in reported equity. Wisconsin Public Service and
Upper Peninsula Power do not have significant assets which are foreseen as
being potentially stranded and no potential disparity between the depreciable
lives of capital assets and those lives applicable to a competitive
environment has been identified. Increased competition is likely to put
pressure on electric utility margins. At this time, however, we cannot
predict the ultimate results of deregulation.
The 1998 Electric Reliability Act requires all eastern Wisconsin
utilities with transmission systems to join the Midwest Independent System
Operator by June 30, 2000. Under the Reliability 2000 Act, Wisconsin
utilities are also required to join and transfer their assets into the
Wisconsin Transmission Company in order to obtain relief from the holding
company system asset cap limitation on nonutility investments.
Both the Public Service Commission of Wisconsin and the Michigan Public
Service Commission continue to review gas industry restructuring. In a
current docket, the Public Service Commission of Wisconsin is addressing gas
restructuring issues including unbundling of rates, pricing of contracted
services in potential gas transportation situations, and the separation of gas
utilities from their nonregulated gas marketing affiliates. The
Michigan Public Service Commission is conducting pilot studies to test the
development of competitive retail gas markets in Michigan.
Wisconsin Public Service has historically recovered gas costs through a
purchased gas adjustment clause. The Public Service Commission of Wisconsin
has recently allowed utilities to select either an incentive gas cost recovery
mechanism or a modified one-for-one mechanism for gas cost recovery.
Wisconsin Public Service has selected the modified one-for-one gas cost
recovery plan, and implementation of the new mechanism, which is similar to
the recovery received under the purchased gas adjustment clause previously in
effect, began in January of 1999.
ENVIRONMENTAL
Wisconsin Public Service continues to investigate the environmental
cleanup of eight manufactured gas plant sites. The cleanup of the
Stevens Point manufactured gas plant site has been substantially completed
with monitoring of the site continuing. Costs of this cleanup were within the
range expected for this site. Future investigation and cleanup costs for the
remaining seven sites is estimated to be in the range of $34.3 million to
$41.0 million. These estimates may be adjusted in the future contingent upon
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remedial technology, regulatory requirements, and experience gained through
cleanup activities.
An initial liability for cleanup of $41.7 million had been established
with an offsetting regulatory asset (deferred charge). Expenditures have
reduced the liability to $38.6 million. Management believes that cleanup
costs net of insurance recoveries, but not the carrying costs associated with
the cleanup expenditures, will be recoverable in current and future customer
rates. Wisconsin Public Service has received $12.6 million in insurance
recoveries which have been recorded as a reduction in the regulatory asset.
Wisconsin Public Service is in compliance with both the Phase I and
Phase II sulfur dioxide and nitrogen oxide emission limits established by the
Federal Clean Air Act Amendments of 1990. Management believes that all costs
incurred for additional compliance will be recoverable in future customer
rates.
In late September of 1998, the United States Environmental Protection
Agency required certain states, including Wisconsin to develop plans to reduce
the emissions of nitrogen oxides from sources within the state by late 2003.
On a preliminary basis, Wisconsin Public Service projects potential capital
costs of between $62.5 million and $112.0 million to comply with possible
future regulations. The annual operating and maintenance expense associated
with these possible future regulations are projected to range from
$2.0 million to $6.0 million. The costs depend on the state-specific
compliance method to be adopted in the future and the effectiveness of the
various technologies available for nitrogen oxide emission control. Under
Wisconsin Public Service's current practice, the capital costs (as reflected
in depreciation expenses and return on capital allowed) and the annual
operating costs are anticipated to be recovered through future customer rates.
On December 24, 1998, Wisconsin Public Service joined other parties in a
petition challenging the Environmental Protection Agency's regulations that
require Wisconsin to prepare and submit a nitrogen oxide implementation plan.
On January 22, 1999, the State of Wisconsin intervened in the litigation and
challenged the geographic scope of the rule and the required timing for
implementation of nitrogen oxide controls within the state. The court heard
arguments on November 9, 1999. No decision has yet been rendered.
The Sunbury plant, acquired by WPS Power Development in November 1999,
currently purchases emission allowances to comply with air regulations.
Additional technology may be required by 2003 in order to comply with nitrogen
oxide standards. Expenditures for this technology could be significant.
KEWAUNEE NUCLEAR POWER PLANT
On September 29, 1998, Wisconsin Public Service and Madison Gas and
Electric entered into an agreement pursuant to which Wisconsin Public Service
will acquire Madison Gas and Electric's 17.8% share of the Kewaunee plant.
This agreement, the closing of which is contingent upon regulatory approval
and steam generator replacement scheduled for the fall of 2001, will result in
Wisconsin Public Service's ownership interest in the Kewaunee plant increasing
to 59.0%.
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IMPACT OF INFLATION - WPSR
Our financial statements are prepared in accordance with generally
accepted accounting principles and report operating results in terms of
historic cost. The statements provide a reasonable, objective, and
quantifiable statement of financial results; but they do not evaluate the
impact of inflation. Under rate treatment prescribed by utility regulatory
commissions, Wisconsin Public Service's and Upper Peninsula Power's projected
operating costs are recoverable in revenues. Because rate forecasting assumes
inflation, most of the inflationary effects on normal operating costs are
recoverable in rates. However, in these forecasts, Wisconsin Public Service
and Upper Peninsula Power are only allowed to recover the historic cost of
plant via depreciation.
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RESULTS OF OPERATIONS - WISCONSIN PUBLIC SERVICE CORPORATION
Wisconsin Public Service Corporation is a regulated electric and gas
utility. Electric operations accounted for approximately 73% of 1999
revenues, while gas contributed 27% to 1999 revenues.
1999 COMPARED WITH 1998
WISCONSIN PUBLIC SERVICE CORPORATION OVERVIEW
Revenues at Wisconsin Public Service were $719.4 million in 1999
compared with $652.5 million in 1998, an increase of 10.3%. Earnings were
$67.1 million in 1999 and $54.1 million in 1998, an increase of 24.0%. The
primary reasons for the higher earnings at Wisconsin Public Service were
increased sales coupled with the implementation of new Wisconsin retail
electric and gas rates.
ELECTRIC UTILITY OPERATIONS
Wisconsin Public Service's electric margins increased $22.8 million, or
6.8%. This increase was due to increased sales volume coupled with the
January 15, 1999 implementation of new Wisconsin retail electric rates. A
6.3% increase in electric rates was authorized by the Public Service
Commission of Wisconsin.
==========================================================================
Wisconsin Public Service's Electric Utility Results (Thousands)
- --------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------
Revenues $ 527,922 $ 487,340 $ 479,388
Fuel and purchased power 170,560 152,783 153,414
- --------------------------------------------------------------------------
Margin $ 357,362 $ 334,557 $ 325,974
==========================================================================
Sales in kilowatt-hours 11,920,148 11,600,164 11,259,327
==========================================================================
Wisconsin Public Service's electric utility revenues increased
$40.6 million, or 8.3%, primarily due to the electric rate increase. Also
contributing to higher electric revenues was a 2.8% increase in overall
kilowatt-hour sales. Included in 1998 electric revenues, but not in 1999
electric revenues, are surcharge revenues of $3.8 million related to the
recovery of the deferred costs for the 1997 Kewaunee Nuclear Power Plant steam
generator repairs. Wisconsin Public Service is the operator and 41.2% owner
of the Kewaunee plant.
Electric production fuel expense increased $2.7 million, or 2.5%,
primarily as a result of increased generation requirements at Wisconsin Public
Service's combustion turbine and nuclear generating plants in 1999. Partially
offsetting this factor was a decrease in production at Wisconsin Public
Service's coal-fired generation plants as a result of both scheduled and
unscheduled maintenance activities.
Purchased power expense increased $15.1 million, or 35.5%, primarily due
to additional purchase requirements at Wisconsin Public Service in 1999.
Purchase requirements increased 20.1% due to the lack of production at
Wisconsin Public Service's coal-fired generation plants during the time they
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were off-line for maintenance in 1999. In addition, the cost of purchases was
12.8% higher in 1999 than in 1998.
The Public Service Commission of Wisconsin allows Wisconsin Public
Service to adjust prospectively the amount billed to Wisconsin retail
customers for fuel and purchased power if costs fall outside a specified
range. Wisconsin Public Service is required to file an application to adjust
rates either higher or lower when costs are plus or minus 2.0% from forecasted
costs on an annualized basis. Annual 1999 fuel costs at December 31, 1999 were
within this 2.0% window and, accordingly, no adjustment will be made.
GAS UTILITY OPERATIONS
The gas utility margin at Wisconsin Public Service increased
$13.4 million, or 22.2%, in 1999. This increase was primarily due to the
implementation of a Public Service Commission of Wisconsin rate order which
authorized a 5.1% increase in Wisconsin retail gas rates and to an increase in
therm sales.
==========================================================================
Wisconsin Public Service's Gas Utility Results (Thousands)
- --------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------
Revenues $191,521 $165,111 $211,090
Purchase costs 117,582 104,608 147,493
- --------------------------------------------------------------------------
Margin $ 73,939 $ 60,503 $ 63,597
==========================================================================
Sales in therms 662,615 608,092 662,008
==========================================================================
Wisconsin Public Service's gas operating revenues increased
$26.4 million, or 16.0%. This increase was due to the implementation of new
Wisconsin retail gas rates and a 9.0% increase in overall therm sales as a
result of colder weather in 1999. Although the winter weather was 11.4%
colder in 1999 than in 1998, it was still 8.3% warmer than normal.
Note that 1998 gas utility revenues were reduced by $7.5 million for
refunds from ANR Pipeline Company which were passed on to Wisconsin Public
Service's customers. Gas purchase costs in 1998 were likewise reduced as this
$7.5 million refund was credited to gas expense.
Wisconsin Public Service's gas purchase costs increased $13.0 million,
or 12.4%. This increase was due to increased sales and to a higher cost of
gas. Under current regulatory practice, the Public Service Commission of
Wisconsin and the Michigan Public Service Commission allow Wisconsin Public
Service to pass changes in the cost of gas on to customers through a purchased
gas adjustment clause.
OTHER UTILITY EXPENSES/INCOME
Other operating expenses at Wisconsin Public Service increased
$12.6 million, or 9.1%, primarily due to higher customer service expenses of
$5.1 million related to conservation expenditures, and higher pension costs of
$3.4 million due to a change in the assumptions used to calculate this
expense. Also contributing to increased operating expenses were higher medical
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<PAGE>
benefit expenses of $1.2 million and higher electric distribution expenses of
$1.2 million.
Maintenance expense at Wisconsin Public Service increased $7.2 million,
or 14.6%, primarily due to additional costs of $8.0 million at its coal-fired
generation plants and $1.6 million at its other power generation plants for
both scheduled and unscheduled maintenance activities. Offsetting these costs
was a decrease in maintenance expense of $8.5 million at the Kewaunee plant.
A scheduled refueling outage at the Kewaunee plant in 1998 caused 1998 nuclear
maintenance expenses to be higher. In addition, $3.8 million in deferred
costs for the 1997 Kewaunee plant's steam generator repairs was recognized in
1998. Maintenance of overhead distribution lines increased $4.7 million in
1999 due to additional tree trimming, line clearance, and storm damage
repairs.
A one-time dividend of $0.5 million was received by Wisconsin Public
Service in 1999. This dividend was related to a land sale from an investment.
PRICE RISK MANAGEMENT ACTIVITIES AT WISCONSIN PUBLIC SERVICE
Wisconsin Public Service engages in minimal price risk management
activities because much of the utility price risk exposure is recoverable
through customer rates.
1998 COMPARED WITH 1997
WISCONSIN PUBLIC SERVICE OVERVIEW
Revenues at Wisconsin Public Service Corporation were $652.5 million in
1998 compared with $690.5 million in 1997, a decrease of 5.5%. Earnings were
$54.1 million in 1998 and $61.1 million in 1997, a decrease of 12.2%. The
primary reasons for the decrease in earnings at Wisconsin Public Service were
the impact of unusually warm winter weather, increased maintenance expenses, a
decrease in other income, an increase in other operating expenses, and a
decrease in the gas margin. Partially offsetting these factors were an
increase in the electric utility margin and a decrease in interest expense.
ELECTRIC UTILITY OPERATIONS
Wisconsin Public Service's electric utility margin increased
$8.6 million, or 2.6%, primarily due to increased kilowatt-hour sales of 3.0%
as a result of warmer summer weather in 1998. Partially offsetting the
increase in electric margins in 1998 was the impact of a Public Service
Commission of Wisconsin 8.1% retail electric rate decrease which was effective
for the entire year in 1998 but was only effective in 1997 for the period
after February 21, 1997.
Electric utility revenues increased $8.0 million, or 1.7%, largely due
to increased revenues of $4.8 million from Wisconsin Public Service's
wholesale customers and $1.5 million from its commercial and industrial
customers as a result of the warmer summer weather. Also included in 1998
electric revenues were surcharge revenues of $3.8 million related to the
recovery of deferred costs for the 1997 Kewaunee plant steam generator
repairs. Partially offsetting these factors were the electric rate reduction
and a $1.0 million refund of Wisconsin Public Service's transmission revenues
as the result of a 1998 Federal Energy Regulatory Commission settlement
related to open access transmission tariff rates.
Electric production fuel expense increased $2.9 million, or 2.7%,
primarily as a result of increased generation expense. The Kewaunee plant was
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out of service for the first six months of 1997 as the result of an extended
outage to repair steam generators, thus, in comparison, the higher generation
expense in 1998.
Purchased power expense decreased $3.5 million, or 7.7%, primarily due
to decreased purchase requirements in the first half of 1998. Purchase
requirements in the first half of 1997 were higher due to lack of production
at the Kewaunee plant in the first and second quarters of 1997 as a result of
an extended outage. The Kewaunee plant was also off-line in 1998 for a six-
week scheduled refueling outage. Also contributing to lower purchased power
expense was a $1.2 million credit to purchased power expense in the fourth
quarter of 1998 related to the settlement of litigation involving a contract
with a power supplier.
GAS UTILITY OPERATIONS
Wisconsin Public Service's gas utility margin decreased $3.1 million, or
4.9%, in 1998. This decrease was primarily due to winter weather that was
19.4% warmer in 1998 than in 1997.
Wisconsin Public Service's gas operating revenues decreased
$46.0 million, or 21.8%. This decrease was due to unusually mild winter
weather in 1998 resulting in lower gas therm sales for 1998 of 8.1%.
Note that 1998 gas utility revenues were reduced by $7.5 million for
refunds from ANR Pipeline Company which were passed on to Wisconsin Public
Service's customers. Gas purchase costs in 1998 were likewise reduced as this
$7.5 million refund was credited to gas expense.
Wisconsin Public Service's gas purchase costs decreased $42.9 million,
or 29.1%. This decrease was due to reduced customer demand as a result of the
mild weather during 1998.
OTHER UTILITY EXPENSES/INCOME
Other operating expenses at Wisconsin Public Service increased
$4.1 million, or 3.1%, primarily due to higher benefit costs in 1998.
Maintenance expense at Wisconsin Public Service increased $7.8 million,
or 18.6%, primarily as a result of increased expenses at the Kewaunee plant
during the second and fourth quarters of 1998. This increase was partly due
to the recognition of the deferred expenses for the 1997 Kewaunee plant's
steam generator repairs. The Public Service Commission of Wisconsin approved
deferral of the repairs in 1997, the cost of which had been collected in the
second quarter of 1998 through a $3.8 million electric revenue surcharge. In
addition, maintenance expense at the Kewaunee plant increased in the fourth
quarter of 1998 due to a scheduled refueling outage.
Depreciation and decommissioning expenses increased $2.4 million, or
3.1%, due to an increased plant base and to the accelerated recovery of
investment in the Kewaunee plant and accelerated funding of the Kewaunee
plant's decommissioning costs. Accelerated recovery of investment and funding
began on February 21, 1997 and, therefore, was effective for all of 1998 but
only a portion of 1997.
Wisconsin Public Service recognized a one-time gain of $4.8 million
on the sale of nonutility property in 1997.
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<PAGE>
PRICE RISK MANAGEMENT ACTIVITIES AT WISCONSIN PUBLIC SERVICE
Wisconsin Public Service engages in minimal price risk management
activities because much of the utility price risk exposure is recoverable
through customer rates.
BALANCE SHEET - WISCONSIN PUBLIC SERVICE
1999 COMPARED WITH 1998
Nuclear decommissioning trusts increased $26.6 million due to continued
funding and favorable investment returns. Construction in progress increased
$31.8 million largely as a result of construction expenditures related to the
Kewaunee plant's steam generator replacement project and the combustion
turbine project at West Marinette which Wisconsin Public Service is building
for Madison Gas and Electric Company. Investments and other assets decreased
$25.5 million primarily as the result of transferring nonutility assets to
WPS Resources.
Commercial paper increased $15.0 million due to increased operational
cash needs at Wisconsin Public Service.
FINANCIAL CONDITION - WISCONSIN PUBLIC SERVICE
INVESTMENTS AND FINANCING
Nonutility assets of $11.9 million were transferred from
Wisconsin Public Service to WPS Resources in 1999. Special common stock
dividends of $25.0 million were paid by Wisconsin Public Service to
WPS Resources in 1999. Equity infusions of $60.0 million were made by
WPS Resources to Wisconsin Public Service in 1999. These special dividends
and equity infusions allowed Wisconsin Public Service's average equity
capitalization ratio for ratemaking to remain near its target level as
established by the Public Service Commission of Wisconsin in its most recent
rate order.
Pretax interest coverage was 4.71 times for the 12 months ended
December 31, 1999. See the following table for Wisconsin Public Service's
credit ratings.
========================================================================
Credit Ratings Standard & Poor's Moody's
- ------------------------------------------------------------------------
Wisconsin Public Service Corporation
Bonds AA+ Aa1
Preferred stock AA aa2
Commercial paper A1+ P1
========================================================================
See WPS Resources' management discussion for additional information
regarding Wisconsin Public Service's financial condition and trends.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures About Market Risk are reported
under "Price Risk Management Activities (WPS Energy Services)" as part of
Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, on pages 54 through 57.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WPS RESOURCES CORPORATION
A. CONSOLIDATED STATEMENTS OF INCOME,
COMPREHENSIVE INCOME, AND RETAINED EARNINGS
<TABLE>
<CAPTION>
=================================================================================================
Year Ended December 31 (Thousands, except share amounts) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues
Electric utility $ 582,471 $ 543,260 $536,885
Gas utility 191,521 165,111 211,090
Nonregulated energy and other 324,548 355,365 187,862
- -------------------------------------------------------------------------------------------------
Total operating revenues 1,098,540 1,063,736 935,837
=================================================================================================
Operating expenses
Electric production fuels 113,780 110,809 107,988
Purchased power 73,619 56,447 63,947
Gas purchased for resale 118,889 105,908 147,755
Nonregulated energy cost of sales 301,451 346,663 182,863
Other operating expenses 194,938 172,876 165,982
Maintenance 60,564 52,813 44,325
Depreciation and decommissioning 83,744 86,274 83,441
Taxes other than income 31,818 31,902 31,375
- -------------------------------------------------------------------------------------------------
Total operating expenses 978,803 963,692 827,676
=================================================================================================
Operating income 119,737 100,044 108,161
- -------------------------------------------------------------------------------------------------
Other income
Allowance for equity funds used during construction 716 173 154
Other, net 8,233 2,505 11,952
- -------------------------------------------------------------------------------------------------
Total other income 8,949 2,678 12,106
=================================================================================================
Income before interest expense 128,686 102,722 120,267
- -------------------------------------------------------------------------------------------------
Interest on long-term debt 27,162 23,987 26,273
Other interest 8,507 4,827 4,910
Allowance for borrowed funds used during construction (2,901) (177) (167)
- -------------------------------------------------------------------------------------------------
Total interest expense 32,768 28,637 31,016
=================================================================================================
Distributions - preferred securities of subsidiary trust 3,501 1,488 -
=================================================================================================
Income before income taxes 92,417 72,597 89,251
Income taxes 29,741 23,445 31,106
Minority interest - (611) (797)
Preferred stock dividends of subsidiaries 3,111 3,132 3,133
- -------------------------------------------------------------------------------------------------
Net income 59,565 46,631 55,809
=================================================================================================
Other comprehensive income - - -
=================================================================================================
Comprehensive income 59,565 46,631 55,809
=================================================================================================
Retained earnings at beginning of year 335,154 339,508 333,375
Cash dividends on common stock (53,018) (50,985) (49,676)
- -------------------------------------------------------------------------------------------------
Retained earnings at end of year $ 341,701 $ 335,154 $339,508
=================================================================================================
Average shares of common stock 26,644 26,511 26,527
Basic and diluted earnings per average share
of common stock $2.24 $1.76 $2.10
Dividend per share of common stock 2.00 1.96 1.92
=================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WPS RESOURCES CORPORATION
B. CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
=============================================================================================
Assets
- ---------------------------------------------------------------------------------------------
At December 31 (Thousands) 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Utility plant
Electric $1,797,832 $1,715,882
Gas 285,048 267,892
Property under capital lease 74,130 -
- ---------------------------------------------------------------------------------------------
Total 2,157,010 1,983,774
Less - Accumulated depreciation and decommissioning 1,293,354 1,206,123
- ---------------------------------------------------------------------------------------------
Net 863,656 777,651
Nuclear decommissioning trusts 198,052 171,442
Construction in progress 74,187 42,424
Nuclear fuel, less accumulated amortization 15,007 18,641
- ---------------------------------------------------------------------------------------------
Net utility plant 1,150,902 1,010,158
=============================================================================================
Current assets
Cash and equivalents 10,547 7,134
Customer and other receivables, net of reserves 132,355 117,206
Accrued utility revenues 38,533 34,175
Fossil fuel, at average cost 24,657 13,152
Gas in storage, at average cost 29,344 20,795
Materials and supplies, at average cost 28,618 21,788
Prepayments and other 28,871 26,462
- ---------------------------------------------------------------------------------------------
Total current assets 292,925 240,712
=============================================================================================
Regulatory assets 70,490 70,041
Net nonutility and nonregulated plant 168,143 41,235
Pension assets 65,622 60,018
Investments and other assets 68,466 88,223
=============================================================================================
Total $1,816,548 $1,510,387
=============================================================================================
</TABLE>
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WPS RESOURCES CORPORATION
B. CONSOLIDATED BALANCE SHEETS CONTINUED
<TABLE>
<CAPTION>
=============================================================================================
Capitalization and Liabilities
- ---------------------------------------------------------------------------------------------
At December 31 (Thousands) 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Capitalization
Common stock equity $ 536,300 $ 517,190
Preferred stock of subsidiary with no mandatory redemption 51,193 51,200
Company-obligated mandatorily redeemable trust preferred
securities of subsidiary trust holding solely WPS Resources
7.00% subordinated debentures 50,000 50,000
Long-term capital lease obligation 73,585 -
Long-term debt 510,917 343,037
- ---------------------------------------------------------------------------------------------
Total capitalization 1,221,995 961,427
=============================================================================================
Current liabilities
Current portion of long-term debt and capital lease obligation 1,362 884
Notes payable 10,403 12,703
Commercial paper 79,855 47,590
Accounts payable 103,437 115,490
Accrued taxes 9,844 2,838
Accrued interest 7,561 7,594
Other 21,099 9,095
- ---------------------------------------------------------------------------------------------
Total current liabilities 233,561 196,194
=============================================================================================
Long-term liabilities and deferred credits
Accumulated deferred income taxes 111,092 122,642
Accumulated deferred investment tax credits 25,748 27,150
Regulatory liabilities 64,148 50,474
Postretirement health care liability 47,115 41,713
Environmental remediation liabilities 40,557 40,478
Other long-term liabilities 72,332 70,309
- ---------------------------------------------------------------------------------------------
Total long-term liabilities and deferred credits 360,992 352,766
=============================================================================================
Commitments and contingencies (See Note 13) - -
=============================================================================================
Total $1,816,548 $1,510,387
=============================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WPS RESOURCES CORPORATION
C. CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
===========================================================================================
At December 31 (Thousands, except share amounts) 1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock equity
Common stock, $1 par value, 100,000,000 shares authorized;
26,851,045 shares outstanding at December 31, 1999 and
26,551,405 shares outstanding at December 31, 1998 $ 26,851 $ 26,551
Premium on capital stock 172,108 163,438
Retained earnings 341,701 335,154
Shares in deferred compensation trust; 71,097 shares at
an average cost of $30.04 per share at December 31, 1999
and 49,477 shares at an average cost of $30.42 per share
at December 31, 1998 (2,136) (1,505)
Employee Stock Ownership Plan loan guarantees (2,224) (6,448)
- -------------------------------------------------------------------------------------------
Total common stock equity 536,300 517,190
===========================================================================================
Preferred stock - Wisconsin Public Service Corporation
Cumulative, $100 par value, 1,000,000 shares authorized;
with no mandatory redemption
Shares Outstanding
----------------------------
Series 1999 1998
------ ---- ----
5.00% 131,950 132,000 13,195 13,200
5.04% 29,980 30,000 2,998 3,000
5.08% 50,000 50,000 5,000 5,000
6.76% 150,000 150,000 15,000 15,000
6.88% 150,000 150,000 15,000 15,000
- -------------------------------------------------------------------------------------------
Total preferred stock of subsidiary with no
mandatory redemption 51,193 51,200
===========================================================================================
Company-obligated mandatorily redeemable trust
preferred securities of subsidiary trust
holding solely WPS Resources 7.00% subordinated debentures 50,000 50,000
===========================================================================================
Capital lease obligation - Wisconsin Public Service
Corporation 74,004 -
Less current portion 419 -
- -------------------------------------------------------------------------------------------
Long-term capital lease obligation 73,585 -
===========================================================================================
Long-term debt
First mortgage bonds - Wisconsin Public Service Corporation
Series Year Due
------ --------
7.30% 2002 50,000 50,000
6.80% 2003 50,000 50,000
6-1/8% 2005 9,075 9,075
6.90% 2013 22,000 22,000
8.80% 2021 53,100 53,100
7-1/8% 2023 50,000 50,000
6.08% 2028 50,000 50,000
First mortgage bonds - Upper Peninsula Power Company
Series Year Due
------ --------
7.94% 2003 15,000 15,000
10.0% 2008 4,800 6,000
9.32% 2021 18,000 18,000
Unsecured senior notes - WPS Resources Corporation
Series Year Due
------ --------
7.00% 2009 150,000 -
Term loan - nonrecourse, secured by nonregulated
assets of PDI New England and PDI Canada
Series Year Due
------ --------
8.75% 2010 24,000 -
Employee Stock Ownership Plan loan guarantees 2,224 6,448
Notes payable to bank, secured by nonregulated plant 11,136 10,943
Senior secured note 3,722 3,886
Other long-term debt 142 286
- -------------------------------------------------------------------------------------------
Total 513,199 344,738
Unamortized discount and premium on bonds and debt
securities, net (1,339) (817)
- -------------------------------------------------------------------------------------------
Total long-term debt 511,860 343,921
Less current portion (943) (884)
- -------------------------------------------------------------------------------------------
Net long-term debt 510,917 343,037
===========================================================================================
Total capitalization $1,221,995 $961,427
===========================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WPS RESOURCES CORPORATION
D. CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
=================================================================================================
Year Ended December 31 (Thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 59,565 $ 46,631 $ 55,809
Adjustments to reconcile net income to net cash from
operating activities
Depreciation and decommissioning 83,744 86,274 83,441
Amortization of nuclear fuel and other 14,949 16,257 14,665
Deferred income taxes (12,624) (11,940) (6,220)
Investment tax credit restored (1,402) (2,311) (1,949)
Allowance for equity funds used during construction (716) (173) (154)
Pension income (5,604) (9,669) (12,548)
Postretirement health care funding 5,402 4,491 6,424
Unrealized gains and losses on gas futures contracts 7,586 (6,380) (575)
Other, net (2,746) (2,156) (7,278)
Changes in
Customer and other receivables (15,149) (21,106) 17,343
Accrued utility revenues (4,358) (3,425) 4,636
Fossil fuel inventory (11,505) (2,530) (2,112)
Gas in storage (8,549) 1,285 (2,093)
Accounts payable (12,053) 25,743 (10,794)
Accrued taxes 7,006 (7,276) 1,937
Environmental remediation insurance recovery - - 12,374
Miscellaneous current and accrued liabilities 11,312 (4,004) (3,373)
- -------------------------------------------------------------------------------------------------
Net cash from operating activities 114,858 109,711 149,533
=================================================================================================
Cash flows from (used for) investing activities
Construction of utility plant and nuclear fuel
expenditures (140,697) (94,734) (58,258)
Purchase of other property and equipment (132,486) (16,075) (8,057)
Decommissioning funding (9,180) (17,239) (16,059)
Other 12,840 4,046 5,086
- -------------------------------------------------------------------------------------------------
Net cash used for investing activities (269,523) (124,002) (77,288)
=================================================================================================
Cash flows from (used for) financing activities
Issuance of notes payable 34,350 196,353 97,260
Redemption of notes payable (36,650) (203,150) (109,360)
Issuance of other long-term debt 174,433 50,233 1,789
Redemption of other long-term debt (1,484) (53,660) -
Issuance of mandatorily redeemable trust preferred
securities - 50,000 -
Issuance of commercial paper 1,661,095 2,157,808 700,540
Redemption of commercial paper (1,628,830) (2,130,924) (711,184)
Cash dividends on common stock (53,018) (50,985) (49,698)
Issuance of common stock 8,970 - -
Other (788) (2,745) (1,139)
- -------------------------------------------------------------------------------------------------
Net cash from (used for) financing activities 158,078 12,930 (71,792)
=================================================================================================
Net increase (decrease) in cash and equivalents 3,413 (1,361) 453
=================================================================================================
Cash and equivalents at beginning of year 7,134 8,495 8,042
=================================================================================================
Cash and equivalents at end of year $ 10,547 $ 7,134 $ 8,495
=================================================================================================
Cash paid during year for
Interest, less amount capitalized $ 34,106 $ 26,879 $ 26,669
Income taxes 35,285 44,553 37,366
Preferred stock dividends of subsidiary 3,111 3,132 3,133
=================================================================================================
</TABLE>
Supplemental schedule of noncash investing and financing activities:
A capital lease obligation of $74,130 was incurred when
Wisconsin Public Service entered into a long-term lease agreement
for utility plant assets.
The accompanying notes are an integral part of these statements.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WPS RESOURCES CORPORATION AND
WISCONSIN PUBLIC SERVICE CORPORATION
E. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF OPERATIONS--WPS Resources Corporation is a holding
company. Approximately 71% of our 1999 revenues, 83% of our assets, and
substantially all of our 1999 net income was derived from our utility
subsidiaries. Our primary wholly-owned subsidiary, Wisconsin Public Service
Corporation, is an electric and gas utility. Wisconsin Public Service
supplies and distributes electric power and natural gas in its franchised
service territory in northeastern Wisconsin and an adjacent portion of the
Upper Peninsula of Michigan. Our other wholly-owned utility subsidiary,
Upper Peninsula Power Company, is an electric utility. Upper Peninsula Power
supplies and distributes electric energy in the Upper Peninsula of Michigan.
Another wholly-owned subsidiary, WPS Resources Capital Corporation, is a
holding company for our nonregulated businesses; WPS Energy Services, Inc.,
which is a diversified energy supply and services company and WPS Power
Development, Inc., which develops, owns and operates, through its own
subsidiaries, electric generation projects and provides service to the
electric power generation industry. Our other nonregulated subsidiaries
include Upper Peninsula Building Development Company, Penvest, Inc., and
subsidiaries of Wisconsin Public Service and WPS Power Development.
The term "utility" refers to the regulated activities of
Wisconsin Public Service and Upper Peninsula Power, while the term
"nonutility" refers to the activities of Wisconsin Public Service and
Upper Peninsula Power which are not regulated. The term "nonregulated" refers
to activities other than those of Wisconsin Public Service and Upper Peninsula
Power.
(b) USE OF ESTIMATES--We prepare our financial statements in
conformity with generally accepted accounting principles. We make estimates
and assumptions that affect reported amounts. These estimates and assumptions
include assets, liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(c) ACQUISITIONS AND NONREGULATED INVESTMENTS--In 1999, WPS Power
Development purchased the Sunbury plant, a 472-megawatt nameplate capacity
coal and oil-fired generation facility in Pennsylvania from
PP&L Resources, Inc., and 92 megawatts of hydro, steam, and diesel generation
facilities in Maine and New Brunswick, Canada from Maine Public Service
Company. In addition, WPS Power Development indirectly owns a two-thirds
interest in a merchant generating plant in Cassville, Wisconsin, the Stoneman
Power Plant, and owns a two-thirds interest in a coal pelletization plant
currently located in Alabama.
The emission allowances acquired in the Sunbury plant acquisition have
been assigned a value which is being amortized over the respective lives of
the allowances.
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<PAGE>
At WPS Energy Services, the price paid in excess of fair value for
identifiable assets acquired in 1995 and 1999 are being amortized over
five-year periods.
(d) CONSOLIDATION--We consolidate all majority-owned subsidiaries.
All significant intercompany transactions and accounts have been eliminated.
(e) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--In June 1998, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement requires all derivatives to be measured at fair
value and recognized as either assets or liabilities in the statement of
financial position. The accounting for changes in the fair value of a
derivative depends upon the use of the derivative and its resulting
designation. Unless specific hedge accounting criteria are met, changes in
the derivative's fair value must be recognized currently in earnings.
In June 1999, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 137. This new statement delays the
effective date of Statement No. 133 to fiscal periods beginning after June 15,
2000. We will be adopting Statement No. 133 on January 1, 2001.
We have certain fixed price contracts for future purchases of
commodities in our utility business that may be considered derivatives under
Statement No. 133. We believe these contracts would qualify as hedges under
current interpretations. Based on the limited number of contracts as of
December 31, 1999, we do not expect the amount of derivative assets and
liabilities that would be recognized on our balance sheet to be significant.
We are currently reviewing the impact of implementing Statement No. 133
at our nonregulated subsidiaries. At this time, we do not know the effect
that Statement No. 133 will have on our financial statements. We expect that
substantially all of the derivatives used by WPS Energy Services to hedge
price risk associated with firm commitments and inventory will qualify for
hedge accounting. Statement No. 133, in part, allows special hedge accounting
for fair value and cash flow hedges. Statement No. 133 provides that the gain
or loss on a derivative instrument designated and qualifying as a fair value
hedging instrument as well as the offsetting gain or loss on the hedged item
attributable to the hedged risk be recognized currently in earnings in the
same accounting period. Statement No. 133 provides that the effective portion
of the gain or loss on a derivative designated and qualifying as a cash flow
hedging instrument be reported as a component of other comprehensive income.
The effective portion of the gain or loss will be reclassified into earnings
in the period or periods during which the hedged forecasted transaction
affects earnings. The ineffective portion of the gain or loss on the
derivative instrument, if any, must be recognized currently in earnings.
Prior to the adoption of these new accounting requirements in January of
2001, we will continue to account for price risk management activities under
existing accounting standards. Under these standards, we have not experienced
significant price risk activities at our utility operations because much of
the utility price risk exposure is recoverable through customer rates.
WPS Energy Services experiences price risk under the existing accounting
pronouncements. WPS Energy Services records gains or losses on derivatives
related to firm commitments as adjustments to the cost of sales or to revenues
when the related transactions affect earnings. Gains and losses on
derivatives associated with forecasted transactions are recorded when the
forecasted transactions affect earnings. WPS Power Development experiences
electric power price risk, but does not use derivatives to manage risk.
-83-
<PAGE>
(f) PROPERTY ADDITIONS, MAINTENANCE, AND RETIREMENTS OF UTILITY
PLANT--Utility plant is stated at the original cost of construction which
includes an allowance for funds used during construction. The cost of
renewals and betterments of units of property (as distinguished from minor
items of property) is capitalized as an addition to the utility plant
accounts. Except for land, no gain or loss is recognized in connection with
ordinary retirements of utility property units. The cost of units of property
retired, sold, or otherwise disposed of, plus removal, less salvage, are
charged to the accumulated provision for depreciation. Maintenance, repair,
replacement, and renewal costs associated with items not qualifying as units
of property are generally charged to operating expense.
Nonutility property and nonregulated property follow a similar policy
except that interest is capitalized during construction and gains and losses
are recognized in connection with retirements.
We capitalize software in accordance with the American Institute of
Certified Public Accountant's Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." We
capitalize certain costs related to software developed or obtained for
internal use and amortize those costs to operating expense over the estimated
useful life of the related software.
(g) ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION--Approximately 50% of
Wisconsin Public Service's retail jurisdictional construction work in progress
expenditures are subject to allowance for funds used during construction.
Wisconsin Public Service uses a factor based on its overall cost of capital.
Certain major new generating facilities earn an allowance for funds used
during construction based on total construction work in progress expenditures.
This includes the combustion turbine being constructed at West Marinette for
Madison Gas and Electric. For 1999, Wisconsin Public Service's allowance for
funds used during construction retail rate was approximately 10.6%. A
separately negotiated rate, however, is being used for the combustion turbine
being constructed for Madison Gas and Electric. Upper Peninsula Power's
construction work in progress expenditures are not subject to retail
jurisdictional allowance for funds used during construction.
Allowance for funds used during construction is recorded on
Wisconsin Public Service's and Upper Peninsula Power's wholesale
jurisdictional electric construction work in progress at debt and equity
percentages specified in the Federal Energy Regulatory Commission's Uniform
System of Accounts. For 1999, the allowance for funds used during
construction wholesale rate was approximately 6.7% for Wisconsin Public
Service and 5.3% for Upper Peninsula Power.
(h) LEASES--Wisconsin Public Service accounts for the agreement to
purchase power from the De Pere Energy Center LLC (an affiliate of SkyGen LLC)
as a capital lease according to Statement of Financial Accounting Standards
No. 13, "Accounting For Leases." On June 14, 1999, Wisconsin Public Service
recorded a leased asset and a lease obligation equal to the present value of
the minimum lease payments. The leased asset is depreciated over 25 years,
the life of the contract.
(i) DEPRECIATION--Straight-line depreciation expense is recorded over
the estimated useful life of property and includes amounts for estimated
removal and salvage. Depreciation rates for Wisconsin Public Service were
approved by the Public Service Commission of Wisconsin effective January 1,
1999. Wisconsin Public Service also uses the rates established by the
Public Service Commission of Wisconsin to depreciate its property in the
Upper Peninsula of Michigan. Depreciation of the Kewaunee Nuclear Power Plant
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<PAGE>
is covered in a separate order from the Public Service Commission of Wisconsin
as explained below.
Depreciation rates for Upper Peninsula Power were approved by the
Michigan Public Service Commission on January 1, 1994 and remain in effect
through 2001. A new depreciation study will be filed with the
Michigan Public Service Commission in early 2001, with new rates expected to
become effective January 1, 2002.
Depreciation expense also includes accruals for nuclear decommissioning.
These accruals are not included in the annual composite rates shown below. An
explanation of this item is included in Note 1(l).
============================================================
WPS Resources 1999 1998 1997
------------------------------------------------------------
Annual composite
depreciation rates
Electric 3.56% 3.57% 3.55%
Gas 3.23% 3.26% 3.26%
============================================================
Wisconsin Public Service
------------------------------------------------------------
Annual composite
depreciation rates
Electric 3.46% 3.55% 3.52%
Gas 3.23% 3.26% 3.26%
============================================================
Property recently acquired from Maine Public Service and PP&L Resources
is depreciated using various lives. Depreciable lives are as long as 40 years
on the Maine and Canada property and as long as 30 years on the Sunbury
property. Property at the Stoneman plant is also depreciated using various
lives. Some of the lives are as long as 40 years. Other nonutility and
nonregulated property is depreciated using straight-line depreciation. Asset
lives range from five to ten years.
Depreciation for the Kewaunee plant is being accrued based on a 1997
Public Service Commission of Wisconsin order. The order allows for full cost
recovery by the end of 2002. The Public Service Commission of Wisconsin's
depreciation rate order effective for 1999 also includes a change in
methodology for the Kewaunee plant after steam generators have been replaced.
The replacement is estimated for completion in the fall of 2001. At that time,
the unrecovered basis of the Kewaunee plant, including the new steam
generators, will be recovered over an 8.5-year remaining life using the
sum-of-the-years depreciation method.
(j) IMPAIRMENT--Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of," requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever circumstances indicate that
the carrying amount of an asset may not be recoverable. Impairment losses
resulting from application of this statement are reported in income in the
period the recognition criteria are first applied and met. This statement
does not have a material impact on the current carrying amount of our assets.
(k) NUCLEAR FUEL--The quantity of heat produced for the generation of
electric energy by the Kewaunee plant is the basis for the amortization of the
costs of nuclear fuel to electric production fuel expense. Costs amortized to
electric fuel expense assume no salvage values for uranium and plutonium.
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<PAGE>
Included in the costs was an amount for ultimate disposal. These costs are
recovered currently from customers in rates. The ultimate storage of fuel is
handled by the United States Department of Energy pursuant to a contract. The
contract was required by the Nuclear Waste Act of 1982. The Department of
Energy receives quarterly payments for the storage of fuel based on
generation. Spent nuclear fuel storage space is provided at the Kewaunee
plant on an interim basis. The expenses associated with this storage are
recognized as current operating costs. With minor plant modifications planned
for 2001, the Kewaunee plant should have sufficient fuel storage capacity
until the end of its useful life in 2013. At December 31, 1999, the
accumulated provision for nuclear fuel totaled $162.7 million compared with
$156.6 million at December 31, 1998.
(l) NUCLEAR DECOMMISSIONING--Nuclear decommissioning costs to date
have been accrued over the estimated service life of the Kewaunee plant,
recovered currently from customers in rates, and deposited in external trusts.
Such costs totaled $9.2 million in 1999, $17.2 million in 1998, and
$16.1 million in 1997. The decrease in 1999 was the result of the
Public Service Commission of Wisconsin's approval of a change in
Wisconsin Public Service's decommissioning funding levels in a rate order
issued on January 14, 1999. The revised funding level continues to use a
recovery period ending in 2002 as described in Note 1(i).
Based on the standard cost escalation assumptions required by a
July 1994 Public Service Commission of Wisconsin order, the undiscounted
amount of Wisconsin Public Service's decommissioning costs forecasted to be
expended between the years 2013 and 2043 is $675.2 million under the revised
funding plan which became effective in 1999. In developing the funding plan,
a long-term after-tax earnings rate of approximately 5.3% was assumed.
Wisconsin Public Service's share of the Kewaunee plant decommissioning
is estimated to be $200.7 million in current dollars based on a site-specific
study. The study, which was performed in 1998, uses immediate dismantlement
as the method of decommissioning and assumes shutdown in 2013. As of
December 31, 1999, the market value of the external nuclear decommissioning
trusts totaled $198.1 million. Based on that study, Wisconsin Public
Service's contributions for 2000 under the 1999 Public Service Commission of
Wisconsin rate order will be $8.3 million.
Depreciation expense includes future decommissioning costs collected in
customer rates and an offsetting charge for earnings from external trusts. As
of December 31, 1999, the accumulated provision for depreciation and
decommissioning included accumulated provisions for decommissioning totaling
$198.1 million. Realized trust earnings totaled $4.6 million in 1999,
$3.3 million in 1998, and $3.7 million in 1997. Unrealized trust earnings
totaled $16.2 million in 1999, $16.8 million in 1998, and $13.8 million in
1997. Unrealized gains, net of tax, in external trusts are reflected as an
increase to the decommissioning reserve, since decommissioning expense will be
recognized as the gains are realized, in accordance with regulatory
requirements.
Investments in the nuclear decommissioning trusts are recorded at market
value. Investments at December 31, 1999 consisted of 61.0% equity securities
and 39.0% corporate and municipal debt securities. The investments classified
as utility plant are presented net of related income tax effects on unrealized
gains and represent the amount of assets available to accomplish
decommissioning. The nonqualified trust investments designated to pay income
taxes when unrealized gains become realized are classified as other assets.
An offsetting regulatory liability reflects the expected reduction in future
rates as unrealized gains in the nonqualified trust are realized. Information
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<PAGE>
regarding the cost and market value of the external nuclear decommissioning
trusts is set forth below:
=========================================================================
Unrealized
1999 (Thousands) Market Cost Gain (Loss)
- -------------------------------------------------------------------------
Security Type
Debt $ 77,156 $ 78,394 $(1,238)
Equity 120,896 62,861 58,035
- -------------------------------------------------------------------------
Balance at December 31 $198,052 $141,255 $56,797
=========================================================================
=========================================================================
Unrealized
1998 (Thousands) Market Cost Gain (Loss)
- -------------------------------------------------------------------------
Security Type
Debt $ 71,771 $ 69,911 $ 1,860
Equity 99,680 58,231 41,449
- -------------------------------------------------------------------------
Balance at December 31 $171,451 $128,142 $43,309
=========================================================================
(m) CASH AND EQUIVALENTS--We consider short-term investments with
an original maturity of three months or less to be cash equivalents.
(n) REVENUE AND CUSTOMER RECEIVABLES--We accrue revenues related to
electric and gas service. These accruals include estimated amounts for
service rendered but not billed. Approximately 12% of our total revenue is
from companies in the paper products industry.
Automatic fuel adjustment clauses are used for Federal Energy Regulatory
Commission wholesale-electric and the Michigan Public Service Commission
retail-electric portions of Wisconsin Public Service's and Upper Peninsula
Power's businesses.
The Wisconsin retail-electric portion of Wisconsin Public Service's
business uses a "cost variance range" approach. This range is based on a
specific estimated fuel cost for the forecast year. If Wisconsin Public
Service's actual fuel costs fall outside this range, a hearing can be held
resulting in an adjustment to future rates.
The Public Service Commission of Wisconsin has approved a modified
one-for-one gas cost recovery plan for Wisconsin Public Service. Utilities
were given the choice between continuing under a modified one-for-one gas cost
recovery plan or switching to an incentive gas cost recovery mechanism.
Implementation of the modified one-for-one gas cost recovery plan began in
January 1999. This plan allows Wisconsin Public Service to pass changes in
the cost of gas purchased from its suppliers on to system gas customers,
subject to regulatory review.
Billings to Upper Peninsula Power's customers under the Michigan Public
Service Commission's jurisdiction include base rate charges and a power supply
cost recovery factor. Approximately 44% of Upper Peninsula Power's operating
expenses are power supply costs. Upper Peninsula Power receives
Michigan Public Service Commission approval each year to recover projected
power supply costs by establishment of power supply cost recovery factors.
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<PAGE>
These factors are subject to annual reconciliation to actual costs and permit
100% recovery of allowed power supply costs. Any over or under recovery is
deferred on Upper Peninsula Power's balance sheet. Additional billings or
refunds are made to relieve these deferrals.
Wisconsin Public Service and Upper Peninsula Power are required to
provide service and grant credit to customers within their service
territories. Wisconsin Public Service is precluded from discontinuing service
to residential customers during certain periods of the year. Wisconsin Public
Service and Upper Peninsula Power continually review their customers'
credit-worthiness and obtain deposits or refund deposits accordingly.
(o) REGULATORY ASSETS AND LIABILITIES--Wisconsin Public Service and
Upper Peninsula Power are subject to the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation." Regulatory assets represent probable future revenue associated
with certain incurred costs. Revenue will be recovered from customers through
the ratemaking process. Regulatory liabilities represent amounts that are
refundable in future customer rates. The following regulatory assets and
liabilities were reflected in our Consolidated Balance Sheets as of
December 31:
======================================================================
WPS Resources (Thousands) 1999 1998
- ----------------------------------------------------------------------
Regulatory assets
Demand-side management expenditures $23,862 $23,860
Environmental remediation costs
(net of insurance recoveries) 30,942 30,285
Funding for enrichment facilities 4,579 5,056
Other 11,107 10,840
- ----------------------------------------------------------------------
Total $70,490 $70,041
======================================================================
Regulatory liabilities
Income tax related items $29,080 $29,617
Unrealized gain on decommissioning trust 19,129 16,397
Kewaunee deferred revenue 2,819 4,009
De Pere Energy Center deferred revenue 3,263 -
Deferred gain on emission allowance sales 3,705 3,304
Interest from tax refunds 3,730 -
Other 2,422 (2,853)
- ----------------------------------------------------------------------
Total $64,148 $50,474
======================================================================
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<PAGE>
======================================================================
Wisconsin Public Service (Thousands) 1999 1998
- ----------------------------------------------------------------------
Regulatory assets
Demand-side management expenditures $23,862 $23,860
Environmental remediation costs
(net of insurance recoveries) 29,017 29,021
Funding for enrichment facilities 4,579 5,056
Other 10,711 10,398
- ----------------------------------------------------------------------
Total $68,169 $68,335
======================================================================
Regulatory liabilities
Income tax related items $21,660 $22,734
Unrealized gain on decommissioning trust 19,129 16,397
Kewaunee deferred revenue 2,819 4,009
De Pere Energy Center deferred revenue 3,263 -
Deferred gain on emission allowance sales 3,705 3,304
Interest from tax refunds 3,730 -
Other 2,422 (2,853)
- ----------------------------------------------------------------------
Total $56,728 $43,591
======================================================================
As of December 31, 1999, most of Wisconsin Public Service's regulatory
assets are being recovered through rates charged to customers over periods
ranging from one to ten years. Recovery periods for Upper Peninsula Power's
regulatory assets are up to 35 years. Carrying costs for all of
Wisconsin Public Service's regulatory assets are being recovered except for
those associated with environmental costs. No carrying costs are being
recovered for Upper Peninsula Power's regulatory assets in 1999. Starting in
2000, Upper Peninsula Power is permitted to recover carrying costs on
environmental regulatory assets. Based on prior and current rate treatment
for such costs, we believe it is probable that Wisconsin Public Service and
Upper Peninsula Power will continue to recover from customers the regulatory
assets described above.
See Notes 11 and 12 for specific information on pension and income tax
related regulatory liabilities. See Note 13 for information on environmental
remediation deferred costs.
(p) INVESTMENTS AND OTHER ASSETS--Investments include Wisconsin Public
Service's ownership interests in Wisconsin River Power Company and Wisconsin
Valley Improvement Company. Income related to these investments is included
in other income and deductions using the equity method of accounting. Other
assets include operating deposits for jointly-owned plants, the cash surrender
value of life insurance policies, the long-term portion of energy conservation
loans to customers, and the decommissioning trust investments designated for
payment of income taxes.
(q) STOCK OPTIONS--Beginning in 1999, we issued options under our
stock option plans. We account for these plans using the intrinsic value
based method described in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The intrinsic value based method
only records compensation expense for the excess of the quoted market price of
the stock at the measurement date over the amount an employee must pay to
acquire the stock. See Note 8 for more information on our stock option plans.
(r) RECLASSIFICATIONS--Certain prior year financial statement amounts
have been reclassified to conform to current year presentation.
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<PAGE>
(s) RETIREMENT OF DEBT--Historically, gains or losses resulting from
the settlement of long-term utility debt obligations have been deferred and
amortized concurrent with rate recovery as required by regulators.
NOTE 2--JOINTLY-OWNED UTILITY FACILITIES
Information regarding Wisconsin Public Service's share of major
jointly-owned electric-generating facilities in service at December 31, 1999
is set forth below:
<TABLE>
<CAPTION>
===========================================================================================
Wisconsin Public Service Kewaunee
(Thousands, except West Marinette Columbia Edgewater Nuclear
for percentages) Unit No. 33 Energy Center Unit No. 4 Power Plant
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ownership 68.0% 31.8% 31.8% 41.2%
Plant capacity (Megawatts) 77.0 322.6 105.8 205.2
Utility plant in service $15,932 $113,311 $22,574 $134,425
Accumulated depreciation $ 4,251 $ 71,432 $14,051 $106,240
In-service date 1993 1975 and 1978 1969 1974
===========================================================================================
</TABLE>
Wisconsin Public Service's share of direct expenses for these plants is
included in the corresponding operating expenses in the consolidated
statements of income. Wisconsin Public Service has supplied its own financing
for all jointly-owned projects.
We have an agreement with Madison Gas and Electric Company, which is
contingent upon steam generator replacement, that Wisconsin Public Service
will acquire Madison Gas and Electric's 17.8% share of the Kewaunee plant.
This will increase Wisconsin Public Service's ownership in the Kewaunee plant
to 59.0%. See Note 13 for additional information regarding the Kewaunee
plant.
NOTE 3--CAPITAL LEASE
In June 1999, Phase I of a 25-year power purchase contract became
effective with the De Pere Energy Center LLC. We have accounted for the
contract as a capital lease. In Phase I, an initial asset and corresponding
obligation were recorded at $74.1 million. The asset and obligation represent
the present value of minimum lease payments. Excluded from the payments are
executory costs such as insurance, maintenance, and taxes. When the contract
expires in 2024, Wisconsin Public Service may renew the contract for two
additional five-year periods with proper notice. The leased asset is being
amortized on a straight-line basis over the original 25-year term of the
contract. The following is a schedule of future minimum lease payments,
excluding executory costs, under the De Pere Energy Center LLC capital lease:
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<PAGE>
=============================================================
Year ending December 31 (Thousands)
-------------------------------------------------------------
2000 $ 4,869
2001 5,048
2002 5,234
2003 5,426
2004 5,625
Later years 108,380
-------------------------------------------------------------
Net minimum lease payments 134,582
Less: Amount representing interest (60,578)
-------------------------------------------------------------
Present value of net minimum lease payments $ 74,004
=============================================================
NOTE 4--SHORT-TERM DEBT AND LINES OF CREDIT
To provide short-term borrowing flexibility and security for commercial
paper outstanding, WPS Resources and its subsidiaries maintain bank lines of
credit. These lines of credit require a fee.
The information in the table below relates to short-term debt and lines
of credit for the years indicated:
<TABLE>
<CAPTION>
================================================================================================
(Thousands, except for percentages) 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
As of end of year
Commercial paper outstanding $ 79,855 $ 47,590 $20,706
Average discount rate on outstanding
commercial paper 6.55% 4.84% 6.55%
Short-term notes payable outstanding $ 10,403 $ 12,703 $19,500
Average interest rate on short-term notes payable 8.10% 5.88% 7.06%
Available (unused) lines of credit $127,000 $ 62,102 $27,500
================================================================================================
For the year
Maximum amount of short-term debt $218,545 $102,033 $80,017
Average amount of short-term debt $ 68,620 $ 50,939 $37,609
Average interest rate on short-term debt 5.34% 5.93% 6.06%
================================================================================================
</TABLE>
NOTE 5--LONG-TERM DEBT
In November 1999, we issued $150.0 million of 7.00% unsecured senior
notes due in 2009. At Wisconsin Public Service and Upper Peninsula Power,
utility plant assets secure first mortgage bonds. In December 1998,
Wisconsin Public Service issued $50.0 million of 6.08% senior notes due in
2028 secured by a pledge of first mortgage bonds. The 1998 notes become
unsecured if Wisconsin Public Service retires all of its outstanding first
mortgage bonds.
WPS Resources is not required to make sinking fund payments on our
outstanding debt. Wisconsin Public Service also has no sinking fund payment
requirements. Upper Peninsula Power, however, is required to make bond
sinking fund payments for its outstanding first mortgage bonds.
PDI New England and PDI Canada, subsidiaries of WPS Power Development, make
semiannual installment payments on a $24.0 million nonrecourse term loan
obtained in 1999 for financing the purchase of Maine Public Service's
generating assets. A schedule of all debt payments including bond maturities
is as follows:
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<PAGE>
==================================================
Year ending December 31 (Thousands)
--------------------------------------------------
2000 $ 14,538
2001 1,695
2002 52,863
2003 68,134
2004 3,406
Future years 372,563
--------------------------------------------------
Total payments $513,199
==================================================
As of December 31, 1999, $8.0 million has been drawn against WPS Power
Development's revolving credit note of $11.5 million, which is secured by the
assets of the Stoneman plant. An additional $3.3 million, which is to be
borrowed in the year 2000, has been committed against this note. The note,
which is guaranteed by WPS Resources, is due in 2000 or when the plant is
converted to a gas-fired combined cycle facility.
NOTE 6--COMPANY-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES
OF SUBSIDIARY TRUST
On July 30, 1998, WPSR Capital Trust I issued $50.0 million of trust
preferred securities to the public. The Trust is a Delaware business trust.
WPS Resources owns all of the outstanding trust common securities of the
Trust, and the only asset of the Trust is $51.5 million of subordinated
debentures that we issued. The debentures are due on June 30, 2038 and bear
interest at 7.0% per year. The terms and interest payments on the debentures
correspond to the terms and distributions on the trust preferred securities.
We have consolidated the preferred securities of the Trust into our financial
statements. We reflect the interest payments on the debentures as
"Distributions - preferred securities of subsidiary trust." These payments
are tax deductible by WPS Resources.
We may defer interest payments on the debentures for up to
20 consecutive quarters. This would cause the deferral of distributions on
the trust preferred securities as well. If we would defer interest payments,
interest and distributions would continue to accrue. We would also accrue
compounding interest on the deferred amounts. We may redeem all or part of
the debentures after July 30, 2003. This would require the Trust to redeem an
equal amount of trust securities at face value plus any accrued interest and
unpaid distributions. We entered into a limited guarantee of payment of
distributions, redemption payments, and liquidation payments with respect to
the trust preferred securities. This guarantee, together with our obligations
under the debentures, and under other related documents, provides a full and
unconditional guarantee by us of amounts due on the outstanding trust
preferred securities.
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<PAGE>
NOTE 7--COMMON EQUITY
Effective December 1999, we commenced purchasing common stock on the
open market to meet annual requirements of the Stock Investment Plan. From
January 1999 through November 1999, we issued new stock to satisfy shareholder
and employee purchase requirements under our Stock Investment Plan. We also
purchase stock on the open market in connection with our stock-based employee
benefit plans.
In December 1996, we adopted a Shareholder Rights Plan. The plan is
designed to enhance the ability of the Board of Directors to protect
shareholders and the company if efforts are made to gain control of our
company in a manner that is not in our best interests or the best interests of
shareholders. The plan gives existing shareholders, under certain
circumstances, the right to purchase stock at a discounted price. The rights
expire on December 11, 2006.
At December 31, 1999, we had $335.4 million of retained earnings
available for dividends. Wisconsin Public Service is restricted by a
Public Service Commission of Wisconsin order to paying normal common stock
dividends of no more than 109.0% of the previous year's common stock dividend
without the Public Service Commission of Wisconsin's approval. Special
dividends may be declared in order to maintain utility common equity levels
consistent with those allowed by the regulators. Wisconsin law prohibits
Wisconsin Public Service from making loans to or guaranteeing obligations of
WPS Resources or our other subsidiaries.
Upper Peninsula Power's indentures relating to first mortgage bonds
contain certain limitations on the payment of cash dividends on common stock.
Under the most restrictive of these provisions, approximately $6.4 million of
consolidated retained earnings were available at December 31, 1999, for the
payment of common stock cash dividends by Upper Peninsula Power.
During 1999, we made equity infusions of $60.0 million to
Wisconsin Public Service. Wisconsin Public Service paid special common
dividends of $25.0 million to WPS Resources in 1999. The equity infusions and
special dividends allowed Wisconsin Public Service's average equity
capitalization ratio for ratemaking to remain at about its target level of
54.0% as established by the Public Service Commission of Wisconsin in its most
recent rate order.
NOTE 8--STOCK OPTION PLANS
In 1999, shareholders approved the WPS Resources Corporation 1999 Stock
Option Plan for certain management personnel. In December 1999, the Board of
Directors approved the WPS Resources Corporation 1999 Non-Employee Directors
Stock Option Plan. Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations are used to account for
these plans. Accordingly, no compensation costs have been recognized for these
plans in 1999. Had compensation cost been determined consistent with Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
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<PAGE>
====================================================================
(Thousands) 1999 1998 1997
- --------------------------------------------------------------------
Net income
As reported $59,565 $46,631 $55,809
Pro forma 59,450 46,631 55,809
Basic and diluted earnings per share
As reported $2.24 $1.76 $2.10
Pro forma 2.23 1.76 2.10
====================================================================
Under the provisions of our 1999 Stock Option Plan, options cannot be
granted for more than an aggregate of 1,500,000 shares and no single
employee can be granted options for more than 400,000 shares during any
five-year period. The Compensation Committee of the Board of Directors may
grant options at any time. No options may be granted after February 10,
2004, under this plan. All options have a ten-year life. The exercise
price of each option is equal to the fair market value of the stock on the
date the option was granted. Options granted on May 6, 1999 have an
exercise price of $29.875. One-fourth of the options granted May 6, 1999
become vested and exercisable on February 11 of each of the first four
years beginning February 11, 2000.
Under the provisions of our 1999 Non-Employee Directors Stock Option
Plan, the aggregate number of shares for which options may be granted under
the plan cannot exceed 100,000. Options are granted at the discretion of the
Compensation Committee of the Board of Directors. No options may be granted
under this plan after December 31, 2008. All options have a ten-year life,
but may not be exercised until one year after the date of grant. Options
granted under this plan are immediately vested. The exercise price of each
option is equal to the fair market value of the stock on the date the option
was granted. Options were granted on December 9, 1999 with an exercise price
of $25.4375.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model assuming:
=======================================================================
WPS Resources WPS Resources 1999
1999 Non-Employee Directors
Stock Option Plan Stock Option Plan
- -----------------------------------------------------------------------
Annual dividend yield 6.63% 7.94%
Expected volatility 14.00% 14.90%
Risk-free interest rate 5.52% 6.14%
Expected life (in years) 10 10
=======================================================================
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<PAGE>
The status of the option plans as of December 31, 1999 is presented
below:
==========================================================================
Weighted-Average
Options Shares Exercise Price
- --------------------------------------------------------------------------
Outstanding at beginning of year - -
Granted
Employee plan 478,000 $29.8750
Director plan 21,000 $25.4375
Exercised - -
Forfeited - -
Outstanding at end of year
Employee plan 478,000 $29.8750
Director plan 21,000 $25.4375
Options exercisable at year-end - -
- --------------------------------------------------------------------------
Weighted-average fair value of
options granted during the year
Employee plan $2.04
Directors plan $1.38
==========================================================================
NOTE 9--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate such value:
Cash, Short-Term Investments, Energy Conservation Loans, Notes Payable,
and Outstanding Commercial Paper: The carrying amount approximates fair value
due to the short maturity of those investments and obligations.
Nuclear Decommissioning Trusts: The value of Wisconsin Public Service's
nuclear decommissioning trust investments is recorded at market value.
Long-Term Debt, Preferred Stock, and Employee Stock Ownership Plan Loan
Guarantees: The fair value of Wisconsin Public Service's long-term debt,
preferred stock, and Employee Stock Ownership Plan loan guarantees is
estimated based on the quoted market price for the same or similar issues or
on the current rates offered to Wisconsin Public Service for debt of the same
remaining maturity.
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The estimated fair values of our financial instruments as of December 31
were:
<TABLE>
<CAPTION>
=================================================================================================
(Thousands) 1999 1998
- -------------------------------------------------------------------------------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 10,547 $ 10,547 $ 7,134 $ 7,134
Energy conservation loans 5,198 5,198 7,810 7,810
Nuclear decommissioning
trusts - utility plant 198,052 198,052 171,442 171,442
Nuclear decommissioning
trusts - other assets 19,129 19,129 16,397 16,397
Notes payable 10,403 10,403 12,703 12,703
Commercial paper 79,855 79,855 47,590 47,590
Employee Stock Ownership Plan
loan guarantees 2,224 2,249 6,448 6,702
Trust preferred securities 50,000 40,260 50,000 50,250
Long-term debt 509,636 497,369 337,473 366,038
Preferred stock 51,193 47,881 51,200 53,026
Gas commodity instruments (692) 1,265 6,894 (8,833)
=================================================================================================
</TABLE>
NOTE 10--PRICE RISK MANAGEMENT ACTIVITIES
WPS Energy Services uses derivative financial and commodity instruments
to reduce market risk associated with changing prices of natural gas and
electricity sold at firm prices to customers. WPS Energy Services also
utilizes derivatives to manage market risk associated with anticipated energy
purchases, as well as trading activities. Derivatives may include futures and
forward contracts, price swap agreements, and call and put options.
Gains and losses on derivatives are recognized immediately in earnings
when it is no longer probable that the related forecasted transaction will
occur. Each accounting period, WPS Energy Services records gains or losses on
changes in market value of trading derivatives in other income. WPS Energy
Services recorded net trading gains of $0.1 million in 1999 and net trading
losses of $6.1 million in 1998.
At December 31, 1999, WPS Energy Services had outstanding 11.4 million
notional dekatherms of natural gas under futures and option agreements and
5.9 million notional dekatherms of natural gas under basis swap agreements in
order to manage market risk. These financial instruments expire at various
times through October 2001. WPS Energy Services has gas sales commitments
through October 2000 with a range of sale prices from $2.06 to $3.09 per
dekatherm and a range of associated gas purchase costs of $2.05 to $3.00 per
dekatherm.
At December 31, 1999, the fair value of trading instruments included
assets of $7.5 million and liabilities of $6.8 million. Virtually all trading
activities in 1999 and 1998 involved natural gas derivatives, except for a
small amount of electric trading transactions. At December 31, 1999,
WPS Energy Services had outstanding 1.4 million notional dekatherms of natural
gas under futures and option agreements and 1.7 million notional dekatherms of
natural gas under basis swap agreements for trading purposes.
-96-
<PAGE>
NOTE 11--EMPLOYEE BENEFIT PLANS
WPS Resources and our subsidiaries have non-contributory retirement
plans covering substantially all employees under which annual contributions
may be made to an irrevocable trust established to provide retired employees
with a monthly payment if conditions relating to age and length of service
have been met. The plans are administered and maintained by Wisconsin Public
Service. These plans are fully funded, and no contributions were made in
1999, 1998, or 1997.
WPS Resources and our subsidiaries also currently offer medical, dental,
and life insurance benefits to employees, retirees, and their dependents. The
expenses for active employees are expensed as incurred. We fund these
benefits through irrevocable trusts as allowed for income tax purposes. The
funded amounts at Wisconsin Public Service and Upper Peninsula Power, our
utility subsidiaries, have been expensed and recovered through customer rates.
Funded amounts associated with WPS Resources and all other nonregulated
subsidiaries have been expensed but are not recovered through customer rates.
Our non-administrative plan is a collectively bargained plan and, therefore,
is tax exempt. The investments in the trust covering administrative employees
are subject to federal unrelated business income taxes at a 39.6% tax rate.
All pension costs and postretirement plan costs are accounted for under
Statement of Financial Accounting Standards Nos. 87 and 106. The standards
require the cost of these benefits to be accrued as expense over the period in
which the employee renders service. The transition obligation for current and
future retirees is recognized over 20 years beginning in 1993.
The following tables provide a reconciliation of the changes in the
plan's benefit obligations and fair value of assets over the three one-year
periods ending December 31, 1999, 1998, and 1997, and a statement of the
funded status as of December 31, of each year:
<TABLE>
<CAPTION>
=============================================================================================
(Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reconciliation of benefit obligation - pension
- ---------------------------------------------------------------------------------------------
Obligation at January 1 $399,364 $350,669 $299,587
Service cost 10,904 9,014 7,019
Interest cost 27,524 25,264 22,919
Plan amendments 3,956 5,762 7,224
Actuarial (gain) loss (31,515) 26,085 28,989
Acquisitions 4,863 - -
Benefit payments (18,445) (17,430) (15,911)
Curtailments - - 842
- ---------------------------------------------------------------------------------------------
Obligation at December 31 $396,651 $399,364 $350,669
=============================================================================================
Reconciliation of benefit obligation - other
- ---------------------------------------------------------------------------------------------
Obligation at January 1 $138,815 $127,705 $116,354
Service cost 4,632 3,874 3,500
Interest cost 9,410 9,126 9,496
Plan amendments - - 6,803
Actuarial (gain) loss (13,835) 2,599 34
Acquisitions 2,174 - -
Benefit payments (5,985) (4,489) (4,174)
Curtailments - - (4,308)
- ---------------------------------------------------------------------------------------------
Obligation at December 31 $135,211 $138,815 $127,705
=============================================================================================
</TABLE>
-97-
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================
(Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reconciliation of fair value of plan assets - pension
- ---------------------------------------------------------------------------------------------
Fair value of plan assets at January 1 $ 610,483 $ 537,756 $ 470,176
Actual return on plan assets 57,984 89,618 79,731
Employer contributions - 539 3,783
Plan expenses paid - - (23)
Acquisitions 4,229 - -
Benefit payments (18,445) (17,430) (15,911)
- ---------------------------------------------------------------------------------------------
Fair value of plan assets at December 31 $ 654,251 $ 610,483 $ 537,756
- ---------------------------------------------------------------------------------------------
Funded status at December 31 $ 257,599 $ 211,119 $ 187,087
Unrecognized transition (asset) obligation (9,890) (13,467) (17,043)
Unrecognized prior-service cost 21,242 19,336 15,523
Unrecognized (gain) loss (204,057) (156,972) (132,227)
- ---------------------------------------------------------------------------------------------
Net amount recognized $ 64,894 $ 60,016 $ 53,340
=============================================================================================
Reconciliation of fair value of plan assets - other
- ---------------------------------------------------------------------------------------------
Fair value of plan assets at January 1 $ 139,841 $ 121,930 $ 104,367
Actual return on plan assets 15,226 21,161 20,376
Employer contributions 660 1,239 1,361
Benefit payments (5,985) (4,489) (4,174)
- ---------------------------------------------------------------------------------------------
Fair value of plan assets at December 31 $ 149,742 $ 139,841 $ 121,930
=============================================================================================
Funded status at December 31 $ 14,530 $ 1,026 $ (5,776)
Unrecognized transition (asset) obligation 36,605 39,434 42,286
Unrecognized prior-service cost 3,935 4,259 4,583
Unrecognized (gain) loss (104,989) (87,011) (78,496)
- ---------------------------------------------------------------------------------------------
Net amount recognized $ (49,919) $ (42,292) $ (37,403)
=============================================================================================
</TABLE>
The net amounts recognized for 1997 and 1998 pension benefits have been
reduced for an additional unrecognized regulatory liability related to pension
costs. The entire regulatory liability was recognized by year-end 1998.
The following table provides the amounts recognized in the statement of
financial position as of December 31 of each year:
<TABLE>
<CAPTION>
=============================================================================================
(Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prepaid benefit cost - pension
- ---------------------------------------------------------------------------------------------
Prepaid benefit cost $ 64,894 $ 60,016 $ 52,867
Accrued benefit liability - - (2,525)
Intangible asset - - 2,998
- ---------------------------------------------------------------------------------------------
Net amount recognized $ 64,894 $ 60,016 $ 53,340
=============================================================================================
Prepaid benefit cost - other
- ---------------------------------------------------------------------------------------------
Accrued benefit liability (49,919) (42,292) (37,403)
- ---------------------------------------------------------------------------------------------
Net amount recognized $(49,919) $(42,292) $(37,403)
=============================================================================================
</TABLE>
The following table provides the components of net periodic benefit cost
for the plans for fiscal years 1999, 1998, and 1997:
-98-
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================
(Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net periodic benefit cost - pension
- ---------------------------------------------------------------------------------------------
Service cost $ 10,904 $ 9,014 $ 7,019
Interest cost 27,524 25,264 22,919
Expected return on plan assets (42,414) (38,282) (33,883)
Amortization of transition (asset) obligation (3,576) (3,576) (3,576)
Amortization of prior-service cost 2,050 1,950 921
Amortization of net (gain) loss - (507) (781)
- ---------------------------------------------------------------------------------------------
Net periodic benefit cost $ (5,512) $ (6,137) $ (7,381)
Curtailment (gain) loss - - 1,088
- ---------------------------------------------------------------------------------------------
Net periodic benefit cost after curtailments $ (5,512) $ (6,137) $ (6,293)
=============================================================================================
Net periodic benefit cost - other
- ---------------------------------------------------------------------------------------------
Service cost $ 4,632 $ 3,874 $ 3,500
Interest cost 9,410 9,126 9,496
Expected return on plan assets (8,302) (7,356) (6,378)
Amortization of transition (asset) obligation 2,828 2,852 3,010
Amortization of prior-service cost 324 324 324
Amortization of net (gain) loss (2,780) (2,692) (2,196)
- ---------------------------------------------------------------------------------------------
Net periodic benefit cost $ 6,112 $ 6,128 $ 7,756
Curtailment (gain) loss - - 356
- ---------------------------------------------------------------------------------------------
Net periodic benefit cost after curtailments $ 6,112 $ 6,128 $ 8,112
=============================================================================================
</TABLE>
Under a contract with Wisconsin Electric Power Company, Upper Peninsula
Power had operated Wisconsin Electric Power's Presque Isle Power Plant in
Michigan since 1988. That contract terminated on December 31, 1997, and all
employees at the plant became employees of Wisconsin Electric Power. In 1997,
Upper Peninsula Power recognized a $1.1 million pension curtailment loss and a
$0.4 million other benefit plan curtailment loss from the termination of the
Presque Isle Power Plant operating agreement.
The assumptions used in measuring WPS Resources' benefit obligation are
shown in the following table:
<TABLE>
<CAPTION>
=============================================================================================
1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average assumptions as of December 31 - pension
- ---------------------------------------------------------------------------------------------
Discount rate 7.50% 6.75% 7.25%
Expected return on plan assets 8.75% 8.75% 8.75%
Rate of compensation increase 5.50% 5.50% 5.50%
=============================================================================================
Weighted average assumptions as of December 31 - other
- ---------------------------------------------------------------------------------------------
Discount rate 7.50% 6.75% 7.25%
Expected return on plan assets 8.75% 8.75% 8.75%
=============================================================================================
</TABLE>
The assumed health care cost trend rates for 1999 are 8.0% for medical
and 7.5% for dental, both decreasing to 5.0% by the year 2006. Assumed health
care cost trend rates have a significant effect on the amounts reported for
the health care plans. A 1.0% change in assumed health care cost trend rates
would have the following effects:
-99-
<PAGE>
======================================================================
1.0% 1.0%
(Thousands) Increase Decrease
- ----------------------------------------------------------------------
Effect on total of service and interest
cost components of net periodic
postretirement health care benefit cost $ 2,721 $ (2,127)
Effect on the health care component
of the accumulated postretirement
benefit obligation $22,339 $(17,804)
======================================================================
Wisconsin Public Service has a leveraged Employee Stock Ownership Plan
and Trust that held 1,912,002 shares of WPS Resources common stock (market
value of approximately $48.0 million) at December 31, 1999. At that date, the
Employee Stock Ownership Plan also had a loan guaranteed by Wisconsin Public
Service and secured by common stock. Principal and interest on the loan are
to be paid using contributions from Wisconsin Public Service and dividends on
our common stock held by the Employee Stock Ownership Plan. Shares in the
Employee Stock Ownership Plan are allocated to participants as the loan is
repaid. Tax benefits from dividends paid to the Employee Stock Ownership Plan
are recognized as a reduction in Wisconsin Public Service's cost of providing
service to customers. The Public Service Commission of Wisconsin has allowed
Wisconsin Public Service to include in cost of service an additional employer
contribution to the plan. The net effect of the tax benefits and of the
employer contribution is an approximately equal sharing of the tax benefits of
the program between customers and employees.
NOTE 12--INCOME TAXES
We account for income taxes using the liability method as prescribed by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under the liability method, deferred income tax liabilities are
established for all temporary differences in the book and tax basis of assets
and liabilities based upon enacted tax laws and rates applicable to the
periods in which the taxes become payable. Taxes provided in prior years at
rates greater than current rates are being refunded to customers prospectively
as the temporary differences reverse. The net regulatory liability for these
refunds totaled $21.7 million as of December 31, 1999.
As of December 31, 1999 and 1998, we had the following significant
temporary differences that created deferred tax assets and liabilities:
-100-
<PAGE>
=========================================================================
(Thousands) 1999 1998
- -------------------------------------------------------------------------
Deferred tax assets
Plant related $ 72,077 $ 76,400
Customer advances 11,512 10,599
Capital losses/state net operating losses 3,368 3,652
Environmental cleanup 3,835 3,992
Employee benefits 32,486 28,021
Other 5,186 4,302
- -------------------------------------------------------------------------
Total $128,464 $126,966
=========================================================================
Deferred tax liabilities
Plant related $201,826 $210,418
Demand-side management expenditures 7,043 9,421
Employee benefits 26,442 24,009
Other 4,190 5,760
- -------------------------------------------------------------------------
Total $239,501 $249,608
=========================================================================
Net deferred tax liabilities $111,037 $122,642
=========================================================================
Previously deferred investment tax credits are being amortized as a
reduction in income tax expense over the life of the related utility plant.
The components of income tax expense are set forth in the table below:
<TABLE>
<CAPTION>
=================================================================================================
(Thousands,
except for percentages) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Rate Amount Rate Amount Rate Amount
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax 35.0% $32,346 35.0% $25,623 35.0% $31,525
State income taxes, net 5.0 4,611 5.9 4,344 5.4 4,862
Investment tax credit restored (1.9) (1,789) (2.6) (1,924) (2.2) (1,949)
Rate difference on reversal
of income tax temporary
differences (1.6) (1,461) (2.4) (1,761) (2.1) (1,888)
Dividends paid to
Employee Stock Ownership Plan (1.5) (1,349) (1.9) (1,414) (1.5) (1,381)
Section 29 and 45 credits (1.6) (1,520) (1.0) (751) (0.2) (220)
Other differences, net (1.2) (1,097) (1.0) (672) 0.2 157
- -------------------------------------------------------------------------------------------------
Effective income tax 32.2% $29,741 32.0% $23,445 34.6% $31,106
=================================================================================================
Current provision
Federal $33,788 $29,492 $31,444
State 9,436 7,779 7,527
- -------------------------------------------------------------------------------------------------
Total current provision 43,224 37,271 38,971
Deferred (benefit) provision (11,694) (11,902) (5,916)
Investment tax credit
restored, net (1,789) (1,924) (1,949)
- -------------------------------------------------------------------------------------------------
Total income tax expense $29,741 $23,445 $31,106
=================================================================================================
</TABLE>
-101-
<PAGE>
NOTE 13--COMMITMENTS AND CONTINGENCIES
COAL CONTRACTS
To ensure a reliable, low-cost supply of coal, Wisconsin Public Service
entered into a long-term contract that has take-or-pay obligations totaling
$94.2 million from 2000 through 2016. The obligations are subject to force
majeure provisions which provide Wisconsin Public Service other options if the
specified coal does not meet emission limits which may be mandated in future
legislation. We believe that any amounts paid under the take-or-pay
obligations described above would be considered costs of service subject to
recovery in customer rates.
PURCHASED POWER
Wisconsin Public Service has several take-or-pay contracts for either
capacity or energy related to purchased power. These contracts total
$68.0 million through April 2003. We expect to recover these costs in future
customer rates.
LONG-TERM POWER SUPPLY
In November 1995, Wisconsin Public Service signed a 25-year agreement to
purchase power from De Pere Energy Center LLC (an affiliate of SkyGen Energy
LLC), an independent power producer that built a cogeneration facility and is
selling electrical power to Wisconsin Public Service. Phase I of the project
went into operation in June of 1999 and is accounted for as a capital lease.
The amount recorded as a part of utility plant was $74.1 million. This amount
will be depreciated over 25 years, the term of the contract. Phase II is
currently projected to be operational within five years of the start of
Phase I. If Phase II becomes operational, an additional utility plant asset
of approximately $80.0 million will be recorded.
GAS COSTS
Wisconsin Public Service has natural gas supply and transportation
contracts that require total estimated demand payments of $125.1 million
through October 2008.
In April 1992, the Federal Energy Regulatory Commission issued
Order No. 636 which required natural gas interstate pipelines to restructure
their sales and transportation services. As a result, Wisconsin Public
Service was obligated to pay for a portion of ANR Pipeline Company's
transition costs through various Federal Energy Regulatory Commission approved
surcharges. Though there may be additional transition costs, which could be
significant, the amount and timing of these costs are unknown at this time.
We expect to recover these costs in future customer rates since the
Public Service Commission of Wisconsin and the Michigan Public Service
Commission have allowed such recovery to date.
NUCLEAR LIABILITY
The Price Anderson Act ensures that funds will be available to pay for
public liability claims arising out of a nuclear incident. Wisconsin Public
Service may be required to pay up to a maximum of $36.3 million per incident.
The payments will not exceed $4.1 million per incident in a given calendar
year. These amounts represent Wisconsin Public Service's 41.2% ownership in
the Kewaunee plant.
-102-
<PAGE>
NUCLEAR PLANT OPERATION
On September 29, 1998, Wisconsin Public Service and Madison Gas and
Electric entered into an agreement pursuant to which Wisconsin Public Service
will acquire, at Madison Gas and Electric's book value, Madison Gas and
Electric's 17.8% share of the Kewaunee plant including Madison Gas and
Electric's decommissioning trust assets and will assume Madison Gas and
Electric's share of the decommissioning obligation. This agreement, the
closing of which is contingent upon regulatory approval and steam generator
replacement scheduled for the fall of 2001, will result in Wisconsin Public
Service's ownership interest in the Kewaunee plant increasing to 59.0%.
The net book value of Wisconsin Public Service's share of the Kewaunee
plant at December 31, 1999 is $28.2 million. In addition, the current cost of
Wisconsin Public Service's share of the estimated costs to decommission the
Kewaunee plant, assuming early retirement, exceeds the trust assets at
December 31, 1999 by $2.6 million. On January 3, 1997, the Public Service
Commission of Wisconsin accepted Wisconsin Public Service's recommendation to
accelerate recovery of the Wisconsin retail portion of both the current
undepreciated plant balance and the unfunded decommissioning costs over a
six-year period, 1997 through 2002. The Public Service Commission of
Wisconsin depreciation rate order authorizing new rates for 1999 includes a
change in methodology for recovery of the Kewaunee plant investment after new
steam generators have been installed, estimated to be the fall of 2001. At
that time, the unrecovered basis of the Kewaunee plant, including the new
steam generators, will be recovered over an 8.5 year remaining life using the
sum-of-the-years depreciation method.
CLEAN AIR REGULATIONS
Wisconsin Public Service is in compliance with both the Phase I and
Phase II sulfur dioxide and nitrogen oxide emission limits established by the
Federal Clean Air Act Amendments of 1990. We believe that all costs incurred
for additional compliance will be recoverable in future customer rates.
Wisconsin Public Service is evaluating the installation of a baghouse at
its Weston Unit 3 plant. Currently, an electrostatic precipitator is used as
a pollution control device, but it is in need of replacement due to
degradation. A baghouse is an alternative pollution control device to an
electrostatic precipitator. If the installation of the baghouse proceeds, it
is estimated that it will cost $25.7 million.
In late September of 1998, the United States Environmental Protection
Agency required certain states, including Wisconsin, to develop plans to
reduce the emission of nitrogen oxides from sources within the state by May of
2003. Compliance is required during the ozone season of May through
September. On a preliminary basis, Wisconsin Public Service projects
potential capital costs of between $62.5 million and $112.0 million to comply
with possible future regulations. The annual operating and maintenance
expense associated with these possible future regulations are projected to
range from $2.0 million to $6.0 million. The costs depend on the
state-specific compliance method to be adopted in the future and the
effectiveness of the various technologies available for nitrogen oxide
emission control. Under Wisconsin Public Service's current practice, the
capital costs (as reflected in depreciation expenses) and the annual operating
costs are anticipated to be recovered through future customer rates.
On December 24, 1998, Wisconsin Public Service joined other parties in a
petition challenging the Environmental Protection Agency's regulations that
require Wisconsin to prepare and submit a nitrogen oxide implementation plan.
-103-
<PAGE>
On January 22, 1999, the State of Wisconsin intervened in the litigation and
challenged the geographic scope of the rule and the required timing for
implementation of nitrogen oxide controls within the state. The court heard
arguments on November 9, 1999. No decision has yet been rendered.
The Sunbury plant, acquired by WPS Power Development in November 1999,
currently purchases emission allowances to comply with air regulations.
Additional technology may be required by 2003 in order to comply with nitrogen
oxide standards. Expenditures for this technology could be significant.
MANUFACTURED GAS PLANT REMEDIATION
Wisconsin Public Service continues to investigate the environmental
cleanup of eight manufactured gas plant sites. The cleanup of
Wisconsin Public Service's Stevens Point manufactured gas plant site is
complete with monitoring of the site continuing. Costs of this cleanup were
within the range expected for this site. Future investigation and cleanup
costs for the remaining seven sites are estimated in the range of
$34.3 million to $41.0 million. These estimates may be adjusted in the future
contingent upon remedial technology, regulatory requirements, and experience
gained through cleanup activities.
An initial liability for cleanup of $41.7 million was established with
an offsetting regulatory asset (deferred charge). Of this amount,
approximately $3.1 million has been spent to date. Wisconsin Public Service
believes it will recover cleanup costs in current and future customer rates.
Carrying costs associated with the cleanup expenditures will not be
recoverable. Wisconsin Public Service has received $12.6 million in insurance
recoveries which are recorded as a reduction in the regulatory asset.
FUTURE UTILITY EXPENDITURES
We estimate utility plant construction expenditures at Wisconsin Public
Service for 2000 to be approximately $144.6 million and construction
expenditures at Upper Peninsula Power for 2000 to be approximately
$8.4 million. Demand-side management expenditures at Wisconsin Public Service
are estimated to be $21.5 million in 2000. Of this amount, $17.7 million will
be recovered in rates in 2000 with the remainder expected to be recovered in
future rates. In addition, previously deferred demand-side management
expenditures of $17.8 million are being recovered from customers through 2002.
NOTE 14--REGULATORY ENVIRONMENT
Wisconsin Public Service received a rate order in the Wisconsin
jurisdiction on January 15, 1999. The impact is an estimated $26.9 million
increase in electric revenues and an estimated $10.3 million increase in gas
revenues on an annual basis. The new rates are effective for 1999 and 2000.
The Public Service Commission of Wisconsin authorized a 12.1% return on
Wisconsin Public Service's equity for 1999 and 2000.
Wisconsin Public Service received a new rate order in the Wisconsin
retail jurisdiction effective on January 1, 2000 because of a rate reopener
filed in July 1999. The impact is an estimated $21.1 million increase in
electric revenues for the year 2000. The reopener addressed a limited number
of issues for which information was not available when the original order for
1999 and 2000 was authorized. There were no changes to the 2000 gas revenues
or return on equity which remains at 12.1% for 2000.
-104-
<PAGE>
NOTE 15--SEGMENTS OF BUSINESS
Effective December 31, 1998, we adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Our reportable segments are managed separately due to
their different operating and regulatory environments. Our principal business
segments are the regulated electric utility operations of Wisconsin Public
Service and Upper Peninsula Power and the regulated gas utility operations of
Wisconsin Public Service. Our other reportable segments include WPS Energy
Services and WPS Power Development. WPS Energy Services is a diversified
energy supply and services company, and WPS Power Development is an electric
generation asset development company. The tables below and on the following
page present information for the respective years pertaining to our operations
segmented by lines of business. We restated 1998 and 1997 for comparative
purposes due to changes in our reportable segments. The changes include
adding a utility subtotal column and separating WPS Power Development from
Other due to its increase in significance.
<TABLE>
<CAPTION>
============================================================================================
Segments of Business (Thousands) Regulated Utilities
- --------------------------------------------------------------------------------------------
Electric Gas Total
1999 Utility* Utility* Utility*
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement
Operating revenues $ 590,359 $191,521 $ 781,880
Depreciation and decommissioning 70,898 8,216 79,114
Other income (expense) 7,232 78 7,310
Interest expense 23,965 4,534 28,499
Income taxes 32,040 7,405 39,445
Net income (loss) 56,083 11,246 67,329
Balance Sheet
Total assets 1,247,859 267,356 1,515,215
Cash expenditures for
long-lived assets 120,929 19,768 140,697
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Nonutility and
Nonregulated Operations
- --------------------------------------------------------------------------------------------
WPS Energy WPS Power
Services Development Other
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement
Operating revenues $292,212 $ 35,400 $ 5,718
Depreciation and decommissioning 1,058 3,282 290
Other income (expense) (221) (253) 5,716
Interest expense 336 4,629 7,807
Income taxes (2,579) (4,683) (2,442)
Net income (loss) (3,488) (3,799) (477)
Balance Sheet
Total assets 64,846 190,247 184,349
Cash expenditures for
long-lived assets 70 132,137 279
============================================================================================
</TABLE>
-105-
<PAGE>
<TABLE>
<CAPTION>
============================================================================================
Reconciling WPS Resources
Eliminations Consolidated
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Income Statement
Operating revenues $ (16,670) $1,098,540
Depreciation and decommissioning - 83,744
Other income (expense) (3,603) 8,949
Interest expense (8,503) 32,768
Income taxes - 29,741
Net income (loss) - 59,565
Balance Sheet
Total assets (138,109) 1,816,548
Cash expenditures for
long-lived assets - 273,183
============================================================================================
</TABLE>
*Includes only utility operations. Nonutility operations are included
in the Other column.
<TABLE>
<CAPTION>
============================================================================================
Segments of Business (Thousands) Regulated Utilities
- --------------------------------------------------------------------------------------------
Electric Gas Total
1998 Utility* Utility* Utility*
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement
Operating revenues $ 550,004 $165,111 $ 715,115
Depreciation and decommissioning 75,974 7,751 83,725
Other income (expense) 5,461 114 5,575
Interest expense 22,820 4,323 27,143
Income taxes 27,534 4,429 31,963
Net income (loss) 50,488 5,912 56,400
Balance Sheet
Total assets 1,117,438 246,365 1,363,803
Cash expenditures for
long-lived assets 75,589 19,145 94,734
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Nonutility and
Nonregulated Operations
- --------------------------------------------------------------------------------------------
WPS Energy WPS Power
Services Development Other
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement
Operating revenues $351,258 $ 5,919 $ 3,587
Depreciation and decommissioning 1,148 1,205 196
Other income (expense) (5,765) 110 4,681
Interest expense 592 1,320 3,594
Income taxes (4,783) (2,516) (1,219)
Net income (loss) (6,869) (2,432) (468)
Balance Sheet
Total assets 71,839 32,894 90,729
Cash expenditures for
long-lived assets 291 15,029 755
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Reconciling WPS Resources
Eliminations Consolidated
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Income Statement
Operating revenues $(12,143) $1,063,736
Depreciation and decommissioning - 86,274
Other income (expense) (1,923) 2,678
Interest expense (4,012) 28,637
Income taxes - 23,445
Net income (loss) - 46,631
Balance Sheet
Total assets (48,878) 1,510,387
Cash expenditures for
long-lived assets - 110,809
============================================================================================
</TABLE>
*Includes only utility operations. Nonutility operations are included
in the Other column.
-106-
<PAGE>
<TABLE>
<CAPTION>
============================================================================================
Segments of Business (Thousands) Regulated Utilities
- --------------------------------------------------------------------------------------------
Electric Gas Total
1997 Utility* Utility* Utility*
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement
Operating revenues $ 539,590 $211,090 $ 750,680
Depreciation and decommissioning 74,016 7,349 81,365
Other income (expense) 7,395 (701) 6,694
Interest expense 25,266 4,841 30,107
Income taxes 29,461 4,211 33,672
Net income (loss) 53,294 7,878 61,172
Balance Sheet
Total assets 1,089,875 246,842 1,336,717
Cash expenditures for
long-lived assets 48,846 14,227 63,073
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Nonutility and
Nonregulated Operations
- --------------------------------------------------------------------------------------------
WPS Energy WPS Power
Services Development Other
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement
Operating revenues $189,404 $ 2,623 $ 2,803
Depreciation and decommissioning 1,048 671 357
Other income (expense) (1,158) (20) 6,422
Interest expense 905 1,153 1,112
Income taxes (3,315) (1,114) 1,863
Net income (loss) (4,949) (1,944) 1,530
Balance Sheet
Total assets 44,779 18,133 57,703
Cash expenditures for
long-lived assets 78 1,223 1,941
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Reconciling WPS Resources
Eliminations Consolidated
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Income Statement
Operating revenues $ (9,673) $ 935,837
Depreciation and decommissioning - 83,441
Other income (expense) 168 12,106
Interest expense (2,261) 31,016
Income taxes - 31,106
Net income (loss) - 55,809
Balance Sheet
Total assets (21,528) 1,435,804
Cash expenditures for
long-lived assets - 66,315
============================================================================================
</TABLE>
*Includes only utility operations. Nonutility operations are included
in the Other column.
NOTE 16--QUARTERLY FINANCIAL INFORMATION (Unaudited)
<TABLE>
<CAPTION>
====================================================================================================
(Thousands, except for share amounts) Three Months Ended
- ----------------------------------------------------------------------------------------------------
1999
March June September December Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $329,834 $221,552 $251,005 $296,149 $1,098,540
Net income $ 22,752 $ 10,041 $ 13,819 $ 12,953 $ 59,565
Average number of shares of common stock 26,520 26,601 26,682 26,768 26,644
Basic and diluted earnings per share $.86 $.38 $.52 $.48 $2.24
====================================================================================================
1998
March June September December Total
- ----------------------------------------------------------------------------------------------------
Operating revenues $291,226 $232,054 $247,928 $292,528 $1,063,736
Net income $ 17,952 $ 10,465 $ 11,799 $ 6,415 $ 46,631
Average number of shares of common stock 26,516 26,512 26,508 26,505 26,511
Basic and diluted earnings per share $.68 $.39 $.45 $.24 $1.76
====================================================================================================
</TABLE>
Because of various factors which affect the utility business, the quarterly
results of operations are not necessarily comparable.
-107-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WPS RESOURCES CORPORATION
F. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of WPS Resources Corporation:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of WPS Resources Corporation (a
Wisconsin corporation) and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, comprehensive income and
retained earnings and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
WPS Resources Corporation and subsidiaries as of December 31, 1999 and 1998,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 27, 2000
-108-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
G. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
================================================================================================
Year Ended December 31 (Thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues
Electric $527,922 $487,340 $479,388
Gas 191,521 165,111 211,090
- ------------------------------------------------------------------------------------------------
Total operating revenues 719,443 652,451 690,478
================================================================================================
Operating expenses
Electric production fuels 113,170 110,443 107,538
Purchased power 57,390 42,340 45,876
Gas purchased for resale 117,582 104,608 147,493
Other operating expenses 150,822 138,232 134,113
Maintenance 56,650 49,425 41,661
Depreciation and decommissioning 73,163 78,206 75,819
Federal income taxes 30,154 23,642 26,460
Investment tax credit restored (1,608) (1,742) (1,768)
State income taxes 8,752 7,291 7,569
Gross receipts tax and other 26,414 26,403 26,396
- ------------------------------------------------------------------------------------------------
Total operating expense 632,489 578,848 611,157
================================================================================================
Operating income 86,954 73,603 79,321
- ------------------------------------------------------------------------------------------------
Other income and (deductions)
Allowance for equity funds used during construction 719 173 129
Other, net 7,888 6,765 12,591
Income taxes (805) (331) (1,110)
- ------------------------------------------------------------------------------------------------
Total other income and (deductions) 7,802 6,607 11,610
================================================================================================
Income before interest expense 94,756 80,210 90,931
- ------------------------------------------------------------------------------------------------
Interest expense
Interest on long-term debt 21,855 20,400 22,530
Other interest 5,560 2,801 3,759
Allowance for borrowed funds used during construction (2,874) (177) (100)
- ------------------------------------------------------------------------------------------------
Total interest expense 24,541 23,024 26,189
================================================================================================
Net income 70,215 57,186 64,742
================================================================================================
Preferred stock dividend requirements 3,111 3,111 3,111
Earnings on common stock 67,104 54,075 61,631
================================================================================================
Other comprehensive income - - -
================================================================================================
Comprehensive income $ 67,104 $ 54,075 $ 61,631
================================================================================================
</TABLE>
The accompanying WPS Resources Corporation notes are an
integral part of these statements.
-109-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
H. CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
=================================================================================
Assets
- ---------------------------------------------------------------------------------
At December 31 (Thousands) 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Utility plant
Electric $1,611,543 $1,534,711
Gas 285,048 267,892
Property under capital lease 74,130 -
- ---------------------------------------------------------------------------------
Total 1,970,721 1,802,603
Less - Accumulated depreciation and decommissioning 1,202,725 1,120,058
- ---------------------------------------------------------------------------------
Total 767,996 682,545
Nuclear decommissioning trusts 198,052 171,442
Construction in progress 67,831 35,996
Nuclear fuel, less accumulated amortization 15,007 18,641
- ---------------------------------------------------------------------------------
Net utility plant 1,048,886 908,624
=================================================================================
Current assets
Cash and equivalents 3,428 1,882
Customer and other receivables, net of reserves 70,940 63,193
Accrued utility revenues 36,132 30,877
Fossil fuel, at average cost 15,134 12,433
Gas in storage, at average cost 18,776 14,855
Materials and supplies, at average cost 21,302 20,054
Prepayments and other 20,734 19,491
- ---------------------------------------------------------------------------------
Total current assets 186,446 162,785
=================================================================================
Regulatory assets 68,169 68,335
Net nonutility plant 1,294 2,888
Pension assets 65,622 60,018
Investments and other assets 39,468 64,932
=================================================================================
Total $1,409,885 $1,267,582
=================================================================================
</TABLE>
-110-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
H. CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
=================================================================================
Capitalization and Liabilities
- ---------------------------------------------------------------------------------
At December 31 (Thousands) 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Capitalization
Common stock equity $ 525,128 $ 481,708
Preferred stock with no mandatory redemption 51,193 51,200
Capital lease obligation 73,585 -
Long-term debt to parent 13,780 14,061
Long-term debt 285,783 289,972
- ---------------------------------------------------------------------------------
Total capitalization 949,469 836,941
=================================================================================
Current liabilities
Current portion of capital lease obligation 419 -
Note payable 10,000 10,000
Commercial paper 40,000 25,000
Accounts payable 52,654 60,680
Accrued interest and taxes 12,819 2,590
Other 13,118 6,564
- ---------------------------------------------------------------------------------
Total current liabilities 129,010 104,834
=================================================================================
Long-term liabilities and deferred credits
Accumulated deferred income taxes 107,516 118,476
Accumulated deferred investment tax credits 23,551 24,772
Regulatory liabilities 56,728 43,591
Environmental remediation liabilities 38,632 39,028
Postretirement health care liability 47,115 41,713
Other long-term liabilities 57,864 58,227
- ---------------------------------------------------------------------------------
Total long-term liabilities and deferred credits 331,406 325,807
=================================================================================
Commitments and contingencies (See Note 10)
=================================================================================
Total $1,409,885 $1,267,582
=================================================================================
</TABLE>
The accompanying WPS Resources Corporation notes are an integral part of these
balance sheets.
-111-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
I. CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
===========================================================================
At December 31 (Thousands, except share amounts) 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Common stock equity
Common stock $ 95,588 $ 95,588
Premium on capital stock 167,842 107,842
Retained earnings 263,922 284,726
Employee Stock Ownership Plan loan guarantees (2,224) (6,448)
- ---------------------------------------------------------------------------
Total common stock equity 525,128 481,708
===========================================================================
Preferred stock
Cumulative, $100 par value, 1,000,000 shares
authorized with no mandatory redemption -
Shares Outstanding
------------------
Series 1999 1998
------ ------- -------
5.00% 131,950 132,000 13,195 13,200
5.04% 29,980 30,000 2,998 3,000
5.08% 50,000 50,000 5,000 5,000
6.76% 150,000 150,000 15,000 15,000
6.88% 150,000 150,000 15,000 15,000
- ---------------------------------------------------------------------------
Total preferred stock 51,193 51,200
===========================================================================
Capital lease obligation 74,004 -
Less current portion 419 -
- ---------------------------------------------------------------------------
Net capital lease obligation 73,585 -
===========================================================================
Long-term debt to parent
Series Year Due
------ --------
8.76% 2015 5,693 5,808
7.35% 2016 8,087 8,253
- ---------------------------------------------------------------------------
Total long-term debt to parent 13,780 14,061
===========================================================================
Long-term debt
First mortgage bonds
Series Year Due
------ --------
7.30% 2002 50,000 50,000
6.80% 2003 50,000 50,000
6-1/8% 2005 9,075 9,075
6.90% 2013 22,000 22,000
8.80% 2021 53,100 53,100
7-1/8% 2023 50,000 50,000
6.08% 2028 50,000 50,000
- ---------------------------------------------------------------------------
Total 284,175 284,175
Unamortized discount and premium on bonds, net (758) (817)
- ---------------------------------------------------------------------------
Total first mortgage bonds 283,417 283,358
- ---------------------------------------------------------------------------
Employee Stock Ownership Plan loan guarantees 2,224 6,448
Other long-term debt 142 166
- ---------------------------------------------------------------------------
Total long-term debt 285,783 289,972
===========================================================================
Total capitalization $949,469 $836,941
===========================================================================
</TABLE>
The accompanying WPS Resources Corporation notes are an integral part of
these statements.
-112-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
J. CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
===============================================================================================
Year Ended December 31 (Thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 70,215 $ 57,186 $ 64,742
Adjustments to reconcile net income to net cash from
operating activities -
Depreciation and decommissioning 73,163 78,206 75,819
Amortization of nuclear fuel and other 14,160 15,634 14,665
Deferred income taxes (12,034) (12,421) (5,846)
Investment tax credit restored (1,221) (2,129) (1,767)
Allowance for equity funds used during construction (719) (173) (129)
Pension income (5,604) (9,669) (11,432)
Postretirement health care funding 5,402 9,743 4,952
Other, net 775 (489) (9,046)
Changes in -
Customer and other receivables (7,747) (7,300) 10,341
Accrued utility revenues (5,255) (127) 4,576
Fossil fuel inventory (2,701) (2,469) (1,740)
Gas in storage (3,921) 2,339 (754)
Accounts payable (8,026) 14,227 (16,047)
Environmental remediation insurance recovery - - 12,374
Miscellaneous current and accrued liabilities 6,048 (5,019) (1,957)
Accrued taxes 10,229 (7,666) 2,164
Gas refunds - 684 (318)
- -----------------------------------------------------------------------------------------------
Net cash from operating activities 132,764 130,557 140,597
===============================================================================================
Cash flows from (used for) investing activities:
Construction of utility plant and nuclear fuel
expenditures (133,809) (89,544) (58,258)
Decommissioning funding (9,180) (17,239) (16,059)
Purchase of other property and equipment (243) (270) (111)
Other 16,282 4,565 6,080
- -----------------------------------------------------------------------------------------------
Net cash used for investing activities (126,950) (102,488) (68,348)
===============================================================================================
Cash flows from (used for) financing activities:
Redemption of long-term debt - (53,659) -
Proceeds from issuance of long-term debt - 50,000 -
Proceeds from issuance of commercial paper 403,000 290,521 257,100
Redemptions of commercial paper (388,000) (281,021) (270,600)
Equity infusion from parent 60,000 34,000 -
Preferred stock dividends (3,111) (3,111) (3,111)
Dividends to parent (51,000) (46,838) (45,882)
Special dividend to parent (25,000) (20,000) (10,000)
Other (157) - -
- -----------------------------------------------------------------------------------------------
Net cash used for financing activities (4,268) (30,108) (72,493)
===============================================================================================
Net increase (decrease) in cash and equivalents 1,546 (2,039) (244)
===============================================================================================
Cash and equivalents at beginning of year 1,882 3,921 4,165
===============================================================================================
Cash and equivalents at end of year $ 3,428 $ 1,882 $ 3,921
===============================================================================================
Cash paid during year for:
Interest, less amount capitalized $ 22,941 $ 20,905 $ 22,311
Income taxes $ 44,416 $ 48,781 $ 41,151
===============================================================================================
</TABLE>
Supplemental schedule of noncash investing and financing activities:
1. A capital lease obligation of $74,130 was incurred when
Wisconsin Public Service entered into a long-term lease agreement
for utility plant assets.
2. Net cash surrender value of a key executive life insurance policy
of $11,787 was transferred from Wisconsin Public Service to
WPS Resources.
3. Nonutility assets of $121 were transferred from Wisconsin Public
Service to WPS Resources.
The accompanying WPS Resources Corporation notes are an integral
part of these statements.
-113-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
K. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
===================================================================================
Year Ended December 31 (Thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $284,726 $297,489 $291,740
Add - Net income 70,215 57,186 64,742
- -----------------------------------------------------------------------------------
354,941 354,675 356,482
- -----------------------------------------------------------------------------------
Deduct -
Cash dividends declared on preferred stock
5.00% Series ($5.00 per share) 660 660 660
5.04% Series ($5.04 per share) 151 151 151
5.08% Series ($5.08 per share) 254 254 254
6.76% Series ($6.76 per share) 1,014 1,014 1,014
6.88% Series ($6.88 per share) 1,032 1,032 1,032
Dividend to parent 87,908 66,838 55,882
- -----------------------------------------------------------------------------------
91,019 69,949 58,993
- -----------------------------------------------------------------------------------
Balance at end of year $263,922 $284,726 $297,489
===================================================================================
</TABLE>
The accompanying WPS Resources Corporation notes are an integral
part of these statements.
-114-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
L. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Notes to Consolidated Financial Statements for Wisconsin Public
Service Corporation are incorporated in the Notes to Consolidated Financial
Statements for WPS Resources Corporation at page 82 of this report.
-115-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
M. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Wisconsin Public Service Corporation:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of Wisconsin Public Service
Corporation (a Wisconsin corporation) and subsidiary as of December 31, 1999
and 1998, and the related consolidated statements of income, comprehensive
income and retained earnings and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Wisconsin Public Service Corporation and subsidiary as of December 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 27, 2000
-116-
<PAGE>
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of WPS Resources and those Class C
directors seeking re-election can be found on pages 3 through 4 of our
March 20, 2000 Proxy Statement. Such information is incorporated by reference
as if fully set forth herein.
Information regarding our executive officers, which is not included in
our Proxy Statement, can be found on pages 37 through 40 of this document.
ITEM 11. EXECUTIVE COMPENSATION
Information required under Item 11 regarding compensation paid by
WPS Resources to its Chief Executive Officer and its other executive officers
can be found in our March 20, 2000 Proxy Statement, which information is
incorporated by reference as if fully set forth herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning principal securities holders and the security
holdings of our management can be found on pages 7 through 8 of our March 20,
2000 Proxy Statement, which is incorporated by reference as if fully set forth
herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no transactions since the beginning of fiscal year 1999,
or any currently proposed transactions, or series of similar transactions, to
which WPS Resources or any of its subsidiaries was or is to be party in which
the amount exceeds $60,000 and in which any director, executive officer, any
nominee for election as a director, any security holder owning of record or
beneficially more than 5% of the Common Stock of WPS Resources, or any member
of the immediate family of any of the foregoing persons had or will have a
direct material interest.
-117-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Consolidated Financial Statements included in Part II at
Item 8 above:
Description Pages in 10-K
----------- -------------
WPS RESOURCES CORPORATION
Consolidated Statements of Income,
Comprehensive Income, and
Retained Earnings for the three years
ended December 31, 1999, 1998, and 1997 77
Consolidated Balance Sheets as of
December 31, 1999 and 1998 78
Consolidated Statements of Capitalization
as of December 31, 1999 and 1998 80
Consolidated Statements of Cash Flows for
the three years ended December 31, 1999, 1998,
and 1997 81
Notes to Consolidated Financial Statements 82
Report of Independent Public Accountants 108
Wisconsin Public Service Corporation
Consolidated Statements of Income and
Comprehensive Income for the three years
ended December 31, 1999, 1998, and 1997 109
Consolidated Balance Sheets as of
December 31, 1999 and 1998 110
Consolidated Statements of Capitalization
as of December 31, 1999 and 1998 112
Consolidated Statements of Cash Flows for
the three years ended December 31, 1999, 1998,
and 1997 113
Consolidated Statements of Retained Earnings 114
Notes to Consolidated Financial Statements 115
Report of Independent Public Accountants 116
-118-
<PAGE>
(2) Financial statement schedules.
The following financial statement schedules are included in
Part IV of this report. Schedules not included herein have
been omitted because they are not applicable or the required
information is shown in the financial statements or notes
thereto.
Description Pages in 10-K
----------- -------------
Schedule I - Condensed Parent
Company Only Financial Statements
A. Report of Independent Public
Accountants 128
B. Statements of Income and Retained
Earnings 129
C. Balance Sheets 130
D. Statements of Cash Flows 131
E. Notes to Parent Company Financial
Statements 132
(3) Listing of all exhibits, including those incorporated by
reference.
-119-
<PAGE>
Exhibit
Number Description of Documents
- ------- ------------------------
2* Asset Purchase Agreement Among Maine Public Service Company, Main
and New Brunswick Electrical Power Company, Limited and WPS Power
Development, Inc. dated as of July 7, 1998. (Incorporated by
reference to Exhibit 2 to Form 10-K for the year ended
December 31, 1998.)
2A* Asset Purchase Agreement By and Among PP&L, Inc., PP&L Resources,
Inc., Lady Jane Collieries, Inc. and Sunbury Holdings, LLC, dated
as of May 1, 1999.
3A-1 Restated Articles of Incorporation of WPS Resources Corporation.
(Incorporated by reference to Appendix B to Amendment No. 1 to the
Company's Registration Statement on Form S-4, filed February 28,
1994 [Reg. No. 33-52199]).
3A-2 Articles of Incorporation of Wisconsin Public Service Corporation
as effective May 26, 1972 and amended through May 31, 1988
(Incorporated by reference to Exhibit 3A to Form 10-K for the year
ended December 31, 1991); Articles of Amendment to Articles of
Incorporation dated June 9, 1993 (Incorporated by reference to
Exhibit 3 to Form 8-K filed June 10, 1993).
3B-1 By-Laws of WPS Resources Corporation as in effect February 10,
2000.
3B-2 By-Laws of Wisconsin Public Service Corporation as in effect
February 10, 2000.
4A Copy of Rights Agreement, dated December 12, 1996 between
WPS Resources Corporation and Firstar Trust Company (Incorporated
by reference to Exhibit 4.1 to Form 8-A filed December 13, 1996
[File No.1-11337]).
- --------------
* Schedules and exhibits to this document are not being filed herewith.
The registrant agrees to furnish supplementally a copy of any such schedule or
exhibit to the Securities and Exchange Commission upon request.
-120-
<PAGE>
Exhibit
Number Description of Documents
- ------- ------------------------
4B Copy of First Mortgage and Deed of Trust, dated as of January 1,
1941 from Wisconsin Public Service Corporation to First Wisconsin
Trust Company, Trustee (Incorporated by reference to Exhibit 7.01
- File No. 2-7229); Supplemental Indenture, dated as of
November 1, 1947 (Incorporated by reference to Exhibit 7.02
- File No. 2-7602); Supplemental Indenture, dated as of
November 1, 1950 (Incorporated by reference to Exhibit 4.04
- File No. 2-10174); Supplemental Indenture, dated as of May 1,
1953 (Incorporated by reference to Exhibit 4.03 - File No.
2-10716); Supplemental Indenture, dated as of October 1, 1954
(Incorporated by reference to Exhibit 4.03 - File No. 2-13572);
Supplemental Indenture, dated as of December 1, 1957 (Incorporated
by reference to Exhibit 4.03 - File No. 2-14527); Supplemental
Indenture, dated as of October 1, 1963 (Incorporated by reference
to Exhibit 2.02B - File No. 2-65710); Supplemental Indenture,
dated as of June 1, 1964 (Incorporated by reference to Exhibit
2.02B - File No. 2-65710); Supplemental Indenture, dated as of
November 1, 1967 (Incorporated by reference to Exhibit 2.02B -
File No. 2-65710); Supplemental Indenture, dated as of April 1,
1969 (Incorporated by reference to Exhibit 2.02B - File No.
2-65710); Fifteenth Supplemental Indenture, dated as of May 1,
1971 (Incorporated by reference to Exhibit 2.02B - File
No. 2-65710); Sixteenth Supplemental Indenture, dated as of
August 1, 1973 (Incorporated by reference to Exhibit 2.02B - File
No. 2-65710); Seventeenth Supplemental Indenture, dated as of
September 1, 1973 (Incorporated by reference to Exhibit 2.02B -
File No. 2-65710); Eighteenth Supplemental Indenture, dated as of
October 1, 1975 (Incorporated by reference to Exhibit 2.02B - File
No. 2-65710); Nineteenth Supplemental Indenture, dated as of
February 1, 1977 (Incorporated by reference to Exhibit 2.02B -
File No. 2-65710); Twentieth Supplemental Indenture, dated as of
July 15, 1980 (Incorporated by reference to Exhibit 4B to Form
10-K for the year ended December 31, 1980); Twenty-First
Supplemental Indenture, dated as of December 1, 1980 (Incorporated
by reference to Exhibit 4B to Form 10-K for the year ended
December 31, 1980); Twenty-Second Supplemental Indenture dated as
of April 1, 1981 (Incorporated by reference to Exhibit 4B to Form
10-K for the year ended December 31, 1981); Twenty-Third
Supplemental Indenture, dated as of February 1, 1984 (Incorporated
by reference to Exhibit 4B to Form 10-K for the year ended
December 31, 1983); Twenty-Fourth Supplemental Indenture, dated as
of March 15, 1984 (Incorporated by reference to Exhibit 1 to Form
10-Q for the quarter ended June 30, 1984); Twenty-Fifth
Supplemental Indenture, dated as of October 1, 1985 (Incorporated
by reference to Exhibit 1 to Form 10-Q for the quarter ended
September 30, 1985); Twenty-Sixth Supplemental Indenture, dated as
of December 1, 1987 (Incorporated by reference to Exhibit 4A-1 to
Form 10-K for the year ended December 31, 1987); Twenty-Seventh
Supplemental Indenture, dated as of September 1, 1991
(Incorporated by reference to Exhibit 4 to Form 8-K filed
September 18, 1991); Twenty-Eighth Supplemental Indenture, dated
as of July 1, 1992 (Incorporated by reference to Exhibit 4B - File
No. 33-51428); Twenty-Ninth Supplemental Indenture, dated as of
-121-
<PAGE>
Exhibit
Number Description of Documents
- ------- ------------------------
October 1, 1992 (Incorporated by reference to Exhibit 4 to Form
8-K filed October 22, 1992); Thirtieth Supplemental Indenture,
dated as of February 1, 1993 (Incorporated by reference to Exhibit
4 to Form 8-K filed January 27, 1993); Thirty-First Supplemental
Indenture, dated as of July 1, 1993 (Incorporated by reference to
Exhibit 4 to Form 8-K filed July 7, 1993); Thirty-Second
Supplemental Indenture, dated as of November 1, 1993 (Incorporated
by reference to Exhibit 4 to Form 10-Q for the quarter ended
September 30, 1993); Thirty-Third Supplemental Indenture, dated as
of December 1, 1998 (Incorporated by reference to Exhibit 4D to
Form 8-K filed December 18, 1998). All references to periodic
reports are to those of Wisconsin Public Service Corporation (File
No. 1-3016).
4C Amended and Restated Declaration of Trust of WPS Resources Capital
Trust I dated as of July 30, 1998 among WPS Resources Corporation
as sponsor, State Street Bank and Trust Company as Administrative
Trustee, First Union Trust Company, National Association, as
Delaware Trustee, and Daniel P. Bittner and Ralph G. Baeten, as
Administrative Trustees (Incorporated by reference to Exhibit 4.1
to Form 8-K filed August 6, 1998) (File No. 1-11337).
4D Indenture dated as of July 30, 1998, between WPS Resources
Corporation and State Street Bank and Trust Company, as trustee
(Incorporated by reference to Exhibit 4.2 to Form 8-K filed
August 6, 1998); First Supplemental Indenture dated as of July 30,
1998, between WPS Resources Corporation and State Street Bank and
Trust Company, as trustee (Incorporated by reference to
Exhibit 4.3 to Form 8-K filed August 6, 1998). References to
periodic reports are to those of WPS Resources Corporation. (File
No. 1-11337).
4E Trust Preferred Securities Guarantee Agreement dated as of
July 30, 1998, between WPS Resources Corporation and State Street
Bank and Trust Company, guarantee trustee (Incorporated by
reference to Exhibit 4.4 to Form 8-K filed August 6, 1998) (File
No. 1-11337).
4F Indenture, dated as of December 1, 1998, between Wisconsin Public
Service Corporation and Firstar Bank Milwaukee, N.A., National
Association (Incorporated by reference to Exhibit 4A to Form 8-K
filed December 18, 1998); First Supplemental Indenture, dated as
of December 1, 1998 between Wisconsin Public Service Corporation
and Firstar Bank Milwaukee, N.A., National Association
(Incorporated by reference to Exhibit 4C to Form 8-K filed
December 18, 1998). References to periodic reports are to those
of Wisconsin Public Service Corporation. (File No. 1-03016).
4G First Supplemental Indenture, dated as of November 1, 1999 between
WPS Resources Corporation and Firstar Bank, National Association
and Form of 7.00% Note Due November 1, 2009. (Incorporated by
reference to Exhibit 4A of Form 8-K filed November 12, 1999. [File
No. 1-11337]
-122-
<PAGE>
Exhibit
Number Description of Documents
- ------- ------------------------
4H Term Loan Agreement, dated as of November 5, 1999 among PDI New
England, Inc., PDI Canada, Inc., and Bayerische Landesbank
Girozentrale.
10A Copy of Joint Power Supply Agreement among Wisconsin Public
Service Corporation, Wisconsin Power and Light Company, and
Madison Gas and Electric Company, dated February 2, 1967
(Incorporated by reference to Exhibit 4.09 in File No. 2-27308).
10B Copy of Joint Power Supply Agreement (Exclusive of Exhibits) among
Wisconsin Public Service Corporation, Wisconsin Power and Light
Company, and Madison Gas and Electric Company dated July 26, 1973
(Incorporated by reference to Exhibit 5.04A in File No. 2-48781).
10C Settlement and Ownership Transfer Agreement dated September 29,
1998 between Wisconsin Public Service Corporation and Madison Gas
and Electric Company (Incorporated by reference to Exhibit 99-2 to
Form 8-K/A filed March 2, 1999) (File No. 1-03016).
10D-1 Copy of Basic Generating Agreement, Unit 4, Edgewater Generating
Station, dated June 5, 1967, between Wisconsin Power and Light
Company and Wisconsin Public Service Corporation (Incorporated by
reference to Exhibit 4.10 in File No. 2-27308).
10D-2 Copy of Agreement for Construction and Operation of Edgewater 5
Generating Unit, dated February 24, 1983, between Wisconsin Power
and Light Company, Wisconsin Electric Power Company, and Wisconsin
Public Service Corporation (Incorporated by reference to
Exhibit 10C-1 to Form 10-K of Wisconsin Public Service Corporation
for the year ended December 31, 1983 [File No. 1-3016]).
10D-3 Amendment No. 1 to Agreement for Construction and Operation of
Edgewater 5 Generating Unit, dated December 1, 1988 (Incorporated
by reference to Exhibit 10C-2 to Form 10-K of Wisconsin Public
Service Corporation for the year ended December 31, 1988 [File
No. 1-3016]).
10E Copy of revised Agreement for Construction and Operation of
Columbia Generating Plant among Wisconsin Public Service
Corporation, Wisconsin Power and Light Company, and Madison Gas
and Electric Company, dated July 26, 1973 (Incorporated by
reference to Exhibit 5.07 in File No. 2-48781).
10F Copy of Guaranty and Agreements and Note Agreements for Wisconsin
Public Service Corporation Employee Stock Ownership Plan and Trust
(ESOP) dated November 1, 1990 (Incorporated by reference to
Exhibits 10.1 and 10.2 to Form 8-K of Wisconsin Public Service
Corporation filed November 2, 1990 [File No. 1-3016]).
10G-1 Copy of Power Purchase Agreement Between De Pere Energy LLC and
Wisconsin Public Service Corporation dated November 8, 1995 and
amended by a Letter Agreement dated February 18, 1997.
(Incorporated by reference to Exhibit 10F-1 to the Form 10-K for
the year ended December 31, 1997 [File No. 1-3016]).
-123-
<PAGE>
Exhibit
Number Description of Documents
- ------- ------------------------
10H-1 Copy of amended and restated WPS Resources Corporation Deferred
Compensation Plan for executives and non-employee directors,
effective March 1, 1999.
10H-2 Copy of Form of Executive Employment and Severance Agreement
entered into between WPS Resources Corporation and each of the
following: Ralph G. Baeten, Daniel P. Bittner, Diane L. Ford,
Richard E. James, Thomas P. Meinz, Phillip M. Mikulsky,
Wayne J. Peterson, Patrick D. Schrickel, Charles A. Schrock,
Clark R. Steinhardt, Bernard J. Treml, and Larry L. Weyers
(Incorporated by reference to Exhibit 10.6 to Form 10-Q for the
quarter ended June 30, 1997, filed July 25, 1997 [File
No. 1-11337]).
10H-3 Copy of WPS Resources Corporation Short-Term Variable Pay Plan
effective January 1, 1998. (Incorporated by reference to
Exhibit 10G-3 in the Form 10-K for the year ended December 31,
1997 [File No. 1-11337]).
10H-4 Copy of WPS Resources 1999 Stock Option Plan effective May 6, 1999
(Incorporated by reference to Exhibit 10-2 in the Form 10-Q for
the quarter ended June 30, 1999, filed August 11, 1999. [File No.
[1-11337])
10H-5 WPS Resources Corporation 1999 Non-Employee Directors Stock Option
Plan (Incorporated by reference to Exhibit 4.2 in Form S-8
December 21, 1999. [File No. 333-93193])
99A Settlement and Ownership Transfer Agreement dated September 29,
1998 between Wisconsin Public Service Corporation and Madison Gas
& Electric Company. (Incorporated by reference to Exhibit 99-2 of
Form 8-K/A filed March 1, 1999.)
-124-
<PAGE>
LISTING OF EXHIBITS ATTACHED
Exhibit
Number Description of Document Pages in 10-K
- ------- ----------------------- -------------
2A* Asset Purchase Agreement By and Among PP&L,
Inc., PP&L Resources, Inc., Lady Jane Collieries,
Inc. and Sunbury Holdings, LLC, dated as of
May 1, 1999. E-1
3B-1 By-Laws of WPS Resources Corporation as in
effect February 10, 2000. E-76
3B-2 By-Laws of Wisconsin Public Service Corporation
as in effect February 10, 2000. E-116
4H Term Loan Agreement, dated as of November 5, 1999
among PDI New England, Inc., PDI Canada, Inc.,
and Bayerische Landesbank Girozentrale. E-155
10H-1 WPS Resources Corporation Amended and Restated
Deferred Compensation Plan Effective March 1,
1999 E-211
21 Subsidiaries of the Registrant E-240
23 Consent of Independent Public Accountants E-241
24 Powers of Attorney E-242
27 Financial Data Schedule
WPS Resources Corporation E-251
Wisconsin Public Service Corporation E-252
- --------------
* Schedules and exhibits to this document are not being filed herewith.
The registrant agrees to furnish supplementally a copy of any such schedule or
exhibit to the Securities and Exchange Commission upon request.
-125-
<PAGE>
(b) Reports on Form 8-K
A Current Report on Form 8-K dated May 24, 1999 was filed by
WPS Resources Corporation on June 1, 1999. The report included
under Item 5 the announcement of that WPS Power Development
reached agreement with PP&L Resources, Inc. to purchase the
389megawatt Sunbury Station, two oil fired combustion turbines,
coal inventory and the Lady Jane Coal Transshipment Facility.
The Form 8-K also reported on the establishment of a $150 million
medium term note program by WPS Resources Capital Corporation.
A Current Report on Form 8-K dated November 9, 1999 was filed by
WPS Resources Corporation on November 11, 1999. The report
included under Item 5 the announcement that WPS Resources entered
into an underwriting agreement in connection with the offering of
$150 million aggregate principal amount of 7.00% Senior Notes Due
November 1, 2009.
A Current Report on Form 8-K was dated and filed December 14, 1999
by WPS Resources. The report included under Item 5 the
announcement that WPS Resources would discontinue issuing common
stock under its Stock Investment Plan and would begin purchasing
common stock on the open market to meet the Plan's annual
requirements.
-126-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WPS RESOURCES CORPORATION
and
WISCONSIN PUBLIC SERVICE CORPORATION
(Registrants)
/S/ L. L. Weyers
-------------------------------------------------------------------
L. L. Weyers L. L. Weyers
Chairman, President, and Chairman and
Chief Executive Officer Chief Executive Officer
WPS Resources Corporation Wisconsin Public Service Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- -------------------------------------------------------------------------
A. Dean Arganbright Director March 16, 2000
Michael S. Ariens Director
Richard A. Bemis Director
Clarence R. Fisher Director
Robert C. Gallagher Director /S/ L. L. Weyers
Kathryn M. Hasselblad-Pascale Director -----------------
James L. Kemerling Director L. L. Weyers
John C. Meng Director Attorney-in-Fact
/S/ L. L. Weyers Principal Executive March 16, 2000
- ----------------------- Officer and Director
L. L. Weyers
/S/ D. P. Bittner Principal Financial March 16, 2000
- ----------------------- Officer
D. P. Bittner
/S/ D. L. Ford Principal Accounting March 16, 2000
- ----------------------- Officer
D. L. Ford
-127-
<PAGE>
SCHEDULE I - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
A. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE I - CONDENSED PARENT COMPANY
ONLY FINANCIAL STATEMENTS
To the Board of Directors of WPS Resources Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of WPS Resources Corporation included in
this Form 10-K, and have issued our report thereon dated January 27, 2000.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Supplemental Schedule I
is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not a part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in our audit of the
basic consolidated financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 27, 2000
-128-
<PAGE>
SCHEDULE I - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
B. STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
=================================================================================================
Year Ended December 31 (Thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Dividends from subsidiaries in excess of equity earnings $(30,128) $(26,752) $ (1,195)
Dividends from subsidiaries 91,883 75,370 59,679
- -------------------------------------------------------------------------------------------------
Income from subsidiaries 61,755 48,618 58,484
Investment income and other 5,144 4,516 2,880
- -------------------------------------------------------------------------------------------------
Total income 66,899 53,134 61,364
=================================================================================================
Operating expenses 2,642 4,557 5,122
- -------------------------------------------------------------------------------------------------
Income before interest expense 64,257 48,577 56,242
Interest expense 7,066 2,914 583
- -------------------------------------------------------------------------------------------------
Income before income taxes 57,191 45,663 55,659
Income taxes (2,374) (968) (150)
- -------------------------------------------------------------------------------------------------
Net Income 59,565 46,631 55,809
=================================================================================================
Retained earnings, beginning of year 335,154 339,508 333,375
Common stock dividend (53,018) (50,985) (49,676)
- -------------------------------------------------------------------------------------------------
Retained earnings, end of year $341,701 $335,154 $339,508
=================================================================================================
</TABLE>
-129-
<PAGE>
SCHEDULE I - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
C. BALANCE SHEETS
<TABLE>
<CAPTION>
=======================================================================================
At December 31 (Thousands) 1999 1998
- ---------------------------------------------------------------------------------------
Assets
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and equivalents $ - $ 919
Accounts receivable - affiliates 1,165 1,564
Other receivables 987 1,160
Notes receivable - affiliates (See Note 1) 125,190 25,091
- ---------------------------------------------------------------------------------------
Total current assets 127,342 28,734
=======================================================================================
Long-term notes receivable - affiliates (See Note 2) 8,811 15,538
=======================================================================================
Investments in subsidiaries, at equity
Wisconsin Public Service Corporation 525,128 481,707
WPS Resources Capital Corporation 59,093 23,438
Upper Peninsula Power Company 38,924 35,260
Other 6,207 6,297
- ---------------------------------------------------------------------------------------
Total investments in subsidiaries, at equity 629,352 546,702
=======================================================================================
Net equipment 860 1,177
Other investments 18,617 4,442
Deferred income taxes 543 169
- ---------------------------------------------------------------------------------------
Total assets $785,525 $596,762
=======================================================================================
=======================================================================================
Liabilities and Capitalization
- ---------------------------------------------------------------------------------------
Current liabilities
Notes payable $ - $ 2,400
Commercial paper 39,855 22,590
Accounts payable - affiliates 549 1,545
Accounts payable 5,045 602
Dividends payable 861 749
Other 1,996 186
- ---------------------------------------------------------------------------------------
Total current liabilities 48,306 28,072
=======================================================================================
Capitalization
Common stock, $1 par value, 100,000,000 shares
authorized; 26,851,045 shares outstanding at
December 31, 1999 and 26,551,405 shares
outstanding at December 31, 1998 26,851 26,551
Premium on capital stock 172,108 163,438
Retained earnings 341,701 335,154
Employee Stock Ownership Plan loan guarantees (2,224) (6,448)
Shares in deferred compensation trust (2,136) (1,505)
- ---------------------------------------------------------------------------------------
Total common stock equity 536,300 517,190
Unsecured senior note, net of unamortized discount
(See Note 3) 149,419 -
Advances from affiliates 51,500 51,500
- ---------------------------------------------------------------------------------------
Total capitalization 737,219 568,690
=======================================================================================
Total liabilities and capitalization $785,525 $596,762
=======================================================================================
</TABLE>
-130-
<PAGE>
SCHEDULE I - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
D. STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
===============================================================================================
Year Ended December 31 (Thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating
Net income $ 59,565 $ 46,631 $ 55,809
Add dividends from subsidiaries in excess
of equity earnings 18,211 26,752 1,195
Deferred income taxes (374) (124) 7
Other - net 7 (17) 3
Changes in other items
Receivables 572 (1,542) (25)
Accounts payable 3,447 (4,855) 3,441
Other 1,922 295 (393)
- -----------------------------------------------------------------------------------------------
Net cash - operating 83,350 67,140 60,037
===============================================================================================
Investing
Notes receivable - affiliates (93,372) (20,181) 10,809
Capital contributions - affiliates (108,554) (62,340) (8,709)
Investments - other (1,941) (1,968) (54)
- -----------------------------------------------------------------------------------------------
Net cash - investing (203,867) (84,489) 2,046
===============================================================================================
Financing
Proceeds from short-term debt 34,250 196,050 537,970
Payments on short-term debt (36,650) (193,650) (549,944)
Proceeds from commercial paper 1,258,095 1,867,287 -
Payments on commercial paper (1,240,830) (1,849,903) -
Proceeds from intercompany debt - 50,000 -
Proceeds from long-term debt 149,412 - -
Purchase of deferred compensation stock (631) (554) (507)
Proceeds from issuance of common stock 8,970 - -
Common stock dividends (53,018) (50,985) (49,676)
- -----------------------------------------------------------------------------------------------
Net cash - financing 119,598 18,245 (62,157)
===============================================================================================
Net change in cash (919) 896 (74)
Cash, beginning of period 919 23 97
- -----------------------------------------------------------------------------------------------
Cash, end of period $ 0 $ 919 $ 23
===============================================================================================
</TABLE>
Supplemental disclosure of significant noncash transactions:
WPS Resources received noncash dividends of $11,917 from its
subsidiaries in the form of investments and real property.
-131-
<PAGE>
SCHEDULE I - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
E. NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
The following are supplemental notes to the WPS Resources Corporation
(parent company only) financial statements and should be read in conjunction
with our consolidated financial statements and the related notes.
SUPPLEMENTAL NOTES
Note 1 WPS Resources has short-term notes receivable from WPS Energy
Services of $4.9 million, from WPS Power Development of
$103.0 million and from Upper Peninsula Power of $3.0 million.
Notes receivable bear interest rates that approximate current
market rates.
Note 2 WPS Resources has long-term notes receivable from Wisconsin Public
Service of $5.7 million and $8.1 million bearing interest at 8.76%
and 7.35%. Monthly payments are $51,670 and $63,896 through
January 2015 and May 2016. We have $1.3 million of long-term
notes receivable from WPS Energy Services bearing interest at
7-7/8%. Quarterly payments are $69,076 through October 2005. We
also have a $7.5 million note receivable from Upper Peninsula
Power bearing interest at 8.5% through January 2001.
Note 3 WPS Resources has long-term unsecured notes payable of
$150.0 million with an unamortized discount of $0.6 million. The
notes bear interest at 7% through November 2009. Interest is paid
semiannually.
Note 4 WPS Resources has guaranteed certain long term debt and other
obligations of our consolidated subsidiaries primarily for
customer and supplier performance arising in the ordinary course
of business.
-132-
<PAGE>
EXHIBIT 2A
ASSET PURCHASE AGREEMENT
BY AND AMONG
PP&L, INC.,
PP&L RESOURCES, INC.,
LADY JANE COLLIERIES, INC.
and
SUNBURY HOLDINGS, LLC
Dated as of May 1, 1999
E-1
<PAGE>
LIST OF SCHEDULES AND DISCLOSURE SCHEDULES
------------------------------------------
SCHEDULES
Schedule I Form of Assignment and Assumption Agreement
Schedule II Form of Bill of Sale
Schedule III Form of Control House Lease
Schedule IV Form of Easement Agreement
Schedule V Form of FIRPTA Affidavit
Schedule VI Form of Interchange Scheduling Agreement
Schedule VII Form of Interconnection Agreement
Schedule VIII Form of Special Warranty Deeds
Schedule IX Form of Transition Power Purchase Agreement
DISCLOSURE SCHEDULES
1.1(80) Permitted Encumbrances
1.1(118) Transferable Permits
2.1(b) Real Property at Buck Run and Forrestville
2.1(d) Tangible Personal Property
2.1(e) Sellers' Agreements
2.1(g) Emission Allowances
2.1(i) Location of Rail Spur
2.1(o) Intellectual Property
2.2(a) Description of Transmission Assets not included in Conveyance
4.3(a) Conflicts; Violations
4.3(b) Sellers' Required Regulatory Approvals
4.4 Insurance
4.5 Exceptions to Title
4.6 Environmental Matters
4.7 Labor Matters
4.8 Benefit Plans
4.9 Real Property
4.l0 Notices of Condemnation
4.11(a) Other Material Contracts
4.11(b) Non-Binding and Non-Assignable Contracts
4.11(c) Defaults under the Contracts
4.12 Legal Proceedings
4.13(a) Violations
4.13(b) Material Permits (other than Transferable Permits)
4.14 Taxes
4.16 Intellectual Property Exceptions
i
E-2
<PAGE>
4.17 Compliance with Laws
4.18 Sufficiency of Purchased Assets
4.24 Information
5.3(a) Consents and Approvals; No Violation
5.3(b) Buyer's Required Regulatory Approvals
6.1 Permitted Activities Prior to Closing
6.10(d) IBEW Collective Bargaining Agreement
6.10(e) Non-Union Employees
6.13 Post-Closing Services
7.1(n) Buyer's Closing Condition: Transfer of (or Buyer's Acquisition of
Satisfactory Substitutes for) the Following Transferable Permits
7.1(o) Buyer's Closing Condition: Assignment of the Following Sellers'
Agreements and Intellectual Property
7.1(p) Buyer's Closing Condition: Consents and Approvals
7.2(d) Sellers' Closing Condition: Consents and Approvals
ii
E-3
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
DEFINITIONS
1.1 Definitions...................................................2
1.2 Certain Interpretive Matters.................................14
ARTICLE II
PURCHASE AND SALE
2.1 Transfer of Assets...........................................15
2.2 Excluded Assets..............................................17
2.3 Assumed Liabilities..........................................19
2.4 Excluded Liabilities.........................................20
2.5 Control of Litigation........................................23
ARTICLE III
THE CLOSING
3.1 Closing......................................................23
3.2 Payment of Purchase Price....................................23
3.3 Adjustment to Purchase Price.................................23
3.4 Allocation of Purchase Price.................................25
3.5 Prorations...................................................25
3.6 Deliveries by Sellers........................................26
3.7 Deliveries by Buyer..........................................27
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
4.1 Incorporation; Qualification.................................28
4.2 Authority....................................................28
4.3 Consents and Approvals; No Violation.........................29
4.4 Insurance....................................................29
4.5 Title and Related Matters....................................30
4.6 Environmental Matters........................................30
4.7 Labor Matters................................................31
4.8 Benefit Plans; ERISA.........................................31
4.9 Real Property................................................31
4.10 Condemnation.................................................31
4.11 Contracts and Leases.........................................32
iii
E-4
<PAGE>
4.12 Legal Proceedings............................................32
4.13 Permits......................................................32
4.14 Taxes........................................................33
4.15 Year 2000....................................................33
4.16 Intellectual Property........................................33
4.17 Compliance with Laws.........................................34
4.18 Sufficiency of Purchased Assets..............................34
4.19 Conveyance of Real Property..................................34
4.20 Emission Allowances..........................................34
4.21 CTGs.........................................................34
4.22 Copies.......................................................35
4.23 Reports......................................................35
4.24 Information..................................................35
4.25 Disclaimers Regarding Purchased Assets.......................35
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Organization.................................................36
5.2 Authority....................................................36
5.3 Consents and Approvals; No Violation.........................37
5.4 Availability of Funds........................................37
5.5 Legal Proceedings............................................38
5.6 Qualified Buyer..............................................38
5.7 WARN Act.....................................................38
5.8 Equity Contribution Agreement................................38
ARTICLE VI
COVENANTS OF THE PARTIES
6.1 Conduct of Business Relating to the Purchased Assets.........38
6.2 Access to Information........................................40
6.3 Public Statements............................................43
6.4 Expenses.....................................................43
6.5 Further Assurances...........................................43
6.6 Consents and Approvals.......................................44
6.7 Fees and Commissions.........................................45
6.8 Tax Matters..................................................46
6.9 Advice of Changes............................................47
6.10 Employees....................................................47
6.11 Risk of Loss.................................................51
6.12 Real Property Title; Title Insurance; Surveys................51
6.13 Post-Closing Services........................................52
6.14 Easement Agreement...........................................52
6.15 Other Covenants of Buyer.....................................52
iv
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<PAGE>
ARTICLE VII
CONDITIONS
7.1 Conditions to Obligations of Buyer...........................53
7.2 Conditions to Obligations of Sellers.........................56
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification..............................................58
8.2 Defense of Claims............................................60
ARTICLE IX
TERMINATION
9.1 Termination..................................................61
9.2 Procedure and Effect of No-Default Termination...............63
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Amendment and Modification...................................63
10.2 Waiver of Compliance; Consents...............................63
10.3 No Survival..................................................63
10.4 Notices......................................................64
10.5 Assignment...................................................65
10.6 Transfer of Certain Purchased Assets to Affiliates of PP&L...65
10.7 Governing Law................................................65
10.8 Counterparts.................................................66
10.9 Interpretation...............................................66
10.10 Schedules....................................................66
10.11 Entire Agreement.............................................66
10.12 Bulk Sales Laws..............................................66
10.13 U.S. Dollars.................................................67
v
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<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
ASSET PURCHASE AGREEMENT, dated as of May 1, 1999, by and among PP&L,
Inc., a Pennsylvania corporation ("PP&L"), PP&L Resources, Inc., a
----
Pennsylvania corporation ("Resources"), Lady Jane Collieries, Inc., a
---------
Pennsylvania corporation ("LJC" and together with PP&L and Resources,
---
"Sellers"), and Sunbury Holdings, LLC, a Delaware limited liability company
-------
("Buyer"). PP&L, Resources, LJC and Buyer may be referred to individually as
a "Party," and collectively as the "Parties."
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, PP&L, a wholly-owned subsidiary of Resources, owns the Sunbury
Steam Electric Station ("Sunbury SES"), a four-unit coal-fired generating
-----------
station, including two black start diesel generating sets, and two oil-fired
combustion turbine generators ("CTGs," and together with Sunbury SES, "Sunbury
---- -------
Station"), located in Shamokin Dam, Pennsylvania, and certain facilities and
- -------
other assets associated therewith and ancillary thereto; and
WHEREAS, LJC, an indirectly wholly-owned subsidiary of Resources, owns a
fuel processing facility ("Lady Jane") located near Penfield, Pennsylvania;
---------
and
WHEREAS, Buyer, WPS Resources Capital Corporation, a Wisconsin
corporation ("WPSR Capital"), WPS Power Development, Inc., a Wisconsin
------------
corporation ("PDI") and a wholly-owned subsidiary of WPSR Capital, and Sellers
---
have entered into that certain Equity Contribution Agreement, dated as of the
date hereof (the "Equity Contribution Agreement"), pursuant to which PDI has
-----------------------------
agreed to make certain capital contributions into Buyer on or prior to the
Closing Date (as defined in Section 3.1 below) and WPSR Capital has agreed to
unconditionally guarantee the performance by Buyer of all of Buyer's
obligations under this Agreement due to be performed by Buyer at or prior to
the Closing and any Post-Closing Adjustments (as defined in Section 3.3(c)
below) thereafter; and
WHEREAS, Buyer desires to purchase and assume, or cause to be purchased
and assumed, and Sellers desire to sell and assign, or cause to be sold and
assigned, the Purchased Assets (as defined in Section 2.1 below) and certain
associated liabilities, upon the terms and conditions hereinafter set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and
intending to be legally bound hereby, the Parties agree as follows:
1
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<PAGE>
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, the following terms
-----------
have the meanings specified in this Section 1.1.
(1) "Affiliate" has the meaning set forth in Rule 12b-2 of
---------
the General Rules and Regulations under the Exchange Act.
(2) "Additional Agreements" means the Interconnection
---------------------
Agreement, the Easement Agreement, the Equity Contribution Agreement,
the Transition Power Purchase Agreement, the Securities Account
Control Agreement, the Generation Support Services Agreement, the
Control House Lease, the Transition Services Agreement, the
Interchange Scheduling Agreement, the Assignment and Assumption
Agreement, the Bill of Sale and the Special Warranty Deeds.
(3) "Agreement" means this Asset Purchase Agreement, as
---------
amended or supplemented, together with the Schedules hereto.
(4) "Assignment and Assumption Agreement" means the
-----------------------------------
Assignment and Assumption Agreement between Sellers and Buyer,
substantially in the form of Schedule I hereto, pursuant to which
Sellers shall assign the Sellers' Agreements, certain intangible
assets and other Purchased Assets to Buyer as required in this
Agreement and whereby Buyer shall assume the Assumed Liabilities.
(5) "Assumed Liabilities" has the meaning set forth in
-------------------
Section 2.3.
(6) "Benefit Plans" has the meaning set forth in Section
-------------
4.8.
(7) "Bill of Sale" means the Bill of Sale, substantially in
------------
the form of Schedule II hereto, to be delivered at the Closing, with
respect to the Tangible Personal Property included in the Purchased
Assets to be transferred to Buyer at the Closing.
(8) "Buck Run" means the 67-acre site located near the
--------
village of Buck Run, Schuylkill County, Pennsylvania described in
Schedule 2.1(b).
(9) "Business Day" shall mean any day other than Saturday,
------------
Sunday and any day which is a day on which banking institutions in
the Commonwealth of Pennsylvania are authorized or required by law or
other governmental action to close.
(10) "Buyer Material Adverse Effect" has the meaning set
-----------------------------
forth in Section 5.3(a).
2
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<PAGE>
(11) "Buyer's Benefit Plans" has the meaning set forth in
---------------------
Section 6.10(e)(iii).
(12) "Buyer's Indemnitee" has the meaning set forth in
------------------
Section 8.1(b).
(13) "Buyer's Pension Plan" has the meaning set forth in
--------------------
Section 6.10(g).
(14) "Buyer's Required Regulatory Approvals" has the meaning
-------------------------------------
set forth in Section 5.3(b).
(15) "Capital Expenditures" has the meaning set forth in
--------------------
Section 3.3(a)(iii).
(16) "CERCLA" means the Federal Comprehensive Environmental
------
Response, Compensation, and Liability Act of 1980, as amended.
(17) "Chester Engineers Letter" means the letter, dated
------------------------
May 1, 1999, from Chester Engineers to Buyer regarding the Project Half
Moon Phase II Report referred to in Section 1.1(36) hereof.
(18) "Closing" has the meaning set forth in Section 3.1.
-------
(19) "Closing Adjustment" has the meaning set forth in
------------------
Section 3.3(b).
(20) "Closing Date" has the meaning set forth in Section
------------
3.1.
(21) "COBRA" means the Consolidated Omnibus Budget
-----
Reconciliation Act of 1985, as amended.
(22) "Code" means the Internal Revenue Code of 1986, as
----
amended.
(23) "Commercially Reasonable Efforts" means efforts which
-------------------------------
are reasonably within the contemplation of the Parties at the time of
executing this Agreement and which do not require the performing
Party to expend any funds other than expenditures which are customary
and reasonable in transactions of the kind and nature contemplated by
this Agreement in order for the performing Party to satisfy its
obligations hereunder.
(24) "Computer Systems" has the meaning set forth in Section
----------------
4.15.
(25) "Confidentiality Agreement" means the Confidentiality
-------------------------
Agreement, dated November 13, 1998, by and between PP&L and PDI.
(26) "Control House Lease" means the Lease between Buyer and
-------------------
PP&L in the form of Schedule III hereto whereby PP&L, or an Affiliate
of PP&L, will lease from Buyer certain portions of the Switchyard
Control House (as defined therein).
3
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<PAGE>
(27) "Direct Claim" has the meaning set forth in Section
------------
8.2(c).
(28) "Easements" means, with respect to the Purchased
---------
Assets, the easements and access rights to be granted by Buyer to LJC
and PP&L, or an Affiliate of PP&L, pursuant to the Easement
Agreement, and the easements and access rights reserved by LJC, PP&L,
or an Affiliate of PP&L, in a Special Warranty Deed, including,
without limitation, easements authorizing access, use, maintenance,
construction, repair, replacement and other activities by LJC and
PP&L, or an Affiliate of PP&L, as further described in the Easement
Agreement and/or a Special Warranty Deed.
(29) "Easement Agreement" means the Easement Agreement
------------------
between Buyer, LJC and PP&L, or an Affiliate of PP&L, in the form of
Schedule IV hereto, whereby Buyer will provide LJC, PP&L, or an
Affiliate of PP&L, with Easements with respect to certain of the
Purchased Assets transferred to Buyer and whereby LJC and PP&L, or an
Affiliate of PP&L, will provide Buyer with certain easements and
access rights with respect to certain assets owned by LJC and PP&L,
or an Affiliate of PP&L.
(30) "Emission Allowance" means authorization by any
------------------
Governmental Authority with jurisdiction over Sunbury Station to emit
a specified amount of nitrogen oxide ("NOx") and sulfur dioxide
---
("SO2"), from a specified source during or after a specified time
---
frame. Emission Allowances for purposes of this Agreement shall
include all allowances allocated to any Sunbury Station assets by any
Governmental Authority whether allocated before, on or after the
Closing Date and which are vintage 1999 or later.
(31) "Emission Reduction Credit" means a permanent,
-------------------------
enforceable, quantifiable and surplus emissions reduction which can
be considered as a reduction for the purpose of offsetting emission
increases, pursuant to Pa. Code Ch. 127, including, without
limitation, NOx and volatile organic compound Emission Reduction
Credits.
(32) "Encumbrances" means any mortgages, pledges, liens,
------------
claims, security interests, agreements, easements, restrictions,
defects of title or encumbrances of any kind.
(33) "Environmental Condition" means the presence or Release
-----------------------
to the environment, whether at the Sites or at an off-Sites location,
of Hazardous Substances, including any migration of those Hazardous
Substances through air, soil or groundwater to or from the Sites or
any off-Sites location regardless of when such presence or Release
occurred or is discovered.
(34) "Environmental Laws" means all federal, state, local
------------------
and foreign laws, regulations, rules, ordinances, codes, decrees,
judgments, directives, or judicial or administrative orders relating
to pollution or protection of the environment, natural resources or
human health and safety, including, without limitation, laws relating
to Releases or threatened Releases of Hazardous Substances
(including, without limitation, Releases to ambient air, surface
water, groundwater, land, surface and subsurface strata)
4
E-10
<PAGE>
or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, Release, transport or handling of Hazardous
Substances. "Environmental Laws" include, without limitation, CERCLA
(42 U.S.C. Section 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.),
the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances
Control Act (15 U.S.C. Section 2601 et seq.), the Oil Pollution Act
(33 U.S.C. Section 2701 et seq.), the Emergency Planning and Community
Right-to-Know Act (42 U.S.C. Section 11001 et seq.), the Occupational
Safety and Health Act (29 U.S.C. Section 651 et seq.), the Pennsylvania
Air Pollution Control Act (35 P.S. Section 4001 et seq.), the
Pennsylvania Storage Tank and Spill Prevention Act (35 P.S. Section
6021.01 et seq.), the Pennsylvania Hazardous Sites Cleanup Act (35 P.S.
Section 6020.101 et seq.), the Pennsylvania Solid Waste Management Act
(35 P.S. Section 6018.101 et seq.), the Pennsylvania Clean Stream Law
(35 P.S. Section 691.1 et seq. ) and all other federal, state, local or
foreign laws analogous to any of the above.
(35) "Environmental Permits" has the meaning set forth in
---------------------
Section 4.6(a).
(36) "Environmental Report" means, collectively, the Project
--------------------
Half Moon Phase II Report, dated December 1998, prepared by Chester
Engineers with respect to the Sites and the Chester Engineers Letter.
(37) "Equity Contribution Agreement" has the meaning set
-----------------------------
forth in the Recitals.
(38) "ERISA" means the Employee Retirement Income Security
-----
Act of 1974, as amended.
(39) "ERISA Affiliate" has the meaning set forth in Section
---------------
2.4(k).
(40) "ERISA Affiliate Plans" has the meaning set forth in
---------------------
Section 2.4(k).
(41) "Estimated Adjustment" has the meaning set forth in
--------------------
Section 3.3(b).
(42) "Estimated Closing Statement" has the meaning set forth
---------------------------
in Section 3.3(b).
(43) "Exchange Act" means the Securities Exchange Act of
------------
1934, as amended.
(44) "Excluded Assets" has the meaning set forth in Section
---------------
2.2.
(45) "Excluded Liabilities" has the meaning set forth in
--------------------
Section 2.4.
5
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<PAGE>
(46) "FERC" means the Federal Energy Regulatory Commission,
----
or any successor agency thereto.
(47) "FIRPTA Affidavit" means the Foreign Investment in Real
----------------
Property Tax Act Certification and Affidavit, substantially in the
form of Schedule V hereto.
(48) "Forrestville" means the approximately 16-acre site
------------
located near the village of Forrestville, Schuylkill County,
Pennsylvania described in Schedule 2.1(b).
(49) "Fuel Inventories" means coal, anthracite silt,
----------------
petroleum coke, fuel oil and alternative fuel inventories which are
located at, or are in transit to, Sunbury Station or Lady Jane on the
Closing Date. The term "Fuel Inventories" shall not include the
anthracite silt reserves located at Buck Run and Forrestville.
(50) "GAAP" means United States generally accepted
----
accounting principles as in effect from time to time, applied on a
consistent basis.
(51) "Generation Support Services Agreement" means the
-------------------------------------
Generation Support Services Agreement between PP&L, or an Affiliate
of PP&L, and Buyer, the terms and conditions of which shall be
negotiated prior to Closing in accordance with Section 6.13 hereof,
pursuant to which PP&L, or an Affiliate of PP&L, will provide certain
services to Buyer after the Closing Date.
(52) "Good Utility Practices" mean any of the practices,
----------------------
methods and acts engaged in or approved by a significant portion of
the electric utility industry during the relevant time period, or any
of the practices, methods or acts which, in the exercise of
reasonable judgment in light of the facts known at the time the
decision was made, could have been expected to accomplish the desired
result at a reasonable cost consistent with good business practices,
reliability, safety and expedition. Good Utility Practices are not
intended to be limited to the optimum practices, methods or acts to
the exclusion of all others, but rather to be practices, methods or
acts generally accepted in the PJM region.
(53) "Governmental Authority" means any federal, state,
----------------------
local or other governmental, regulatory or administrative agency,
commission, department, board, or other governmental subdivision,
court, tribunal, arbitrating body or other governmental authority.
(54) "Hazardous Substances" means (a) any petrochemical or
--------------------
petroleum products, oil or coal ash, radioactive materials, radon
gas, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation and transformers or other equipment that
contain dielectric fluid which may contain levels of polychlorinated
biphenyls; (b) any chemicals, materials or substances defined as or
included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "hazardous constituents," "restricted
hazardous materials," "extremely hazardous
6
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<PAGE>
substances," "toxic substances," "contaminants," "pollutants," "toxic
pollutants" or words of similar meaning and regulatory effect under
any applicable Environmental Law; and (c) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by
any applicable Environmental Law.
(55) "HSR Act" means the Hart-Scott-Rodino Antitrust
-------
Improvements Act of 1976, as amended.
(56) "IBEW" means Local 1600 of the International
----
Brotherhood of Electrical Workers.
(57) "IBEW Collective Bargaining Agreement" has the meaning
------------------------------------
set forth in Section 6.10(d).
(58) "IBEW Grievance" means, with respect to the business or
--------------
operations of the Purchased Assets, any grievance arising out of or
under the IBEW Collective Bargaining Agreement, or other applicable
collective bargaining agreement, prior to the Closing Date, including
without limitation the grievances identified in Schedule 4.7.
(59) "IBEW Memorandum of Understanding" has the meaning set
--------------------------------
forth in Section 7.1(q).
(60) "Improvements" means all buildings, structures
------------
(including all fuel handling and storage facilities), railyard,
machinery and equipment, fixtures, construction in progress, and
other improvements, including all piping, cables and similar
equipment forming part of the mechanical, electrical, plumbing or
HVAC infrastructure of any building, structure or equipment, located
on and affixed to the Sites.
(61) "Income Tax" means any federal, state, local or foreign
----------
Tax (a) based upon, measured by or calculated with respect to net
income, profits or receipts (including, without limitation, gross
receipts Taxes, capital gains Taxes and minimum Taxes) or (b) based
upon, measured by or calculated with respect to multiple bases
(including, without limitation, corporate franchise taxes) if one or
more of the bases on which such Tax may be based, measured by or
calculated with respect to, is described in clause (a), in each case
together with any interest, penalties, or additions to such Tax.
(62) "Indemnifiable Loss" has the meaning set forth in
------------------
Section 8.1(a).
(63) "Indemnifying Party" has the meaning set forth in
------------------
Section 8.1(e).
(64) "Indemnitee" has the meaning set forth in Section
----------
8.1(d).
7
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<PAGE>
(65) "Independent Accounting Firm" means such independent
---------------------------
accounting firm within the "Big Five" as is mutually appointed by
PP&L and Buyer.
(66) "Inspection" means all tests, reviews, examinations,
----------
inspections, investigations, verifications, samplings and similar
activities conducted by Buyer or its Representatives with respect to
the Purchased Assets prior to the Closing.
(67) "Interchange Scheduling Agreement" means the
--------------------------------
Interchange Scheduling Agreement, between PP&L, or an Affiliate of
PP&L, and Buyer, in the form of Schedule VI hereto.
(68) "Intellectual Property" means patents and patent
---------------------
rights, trademarks and trademark rights, trade names and trade name
rights, service marks and service mark rights, service names and
service name rights, brand names, inventions, copyrights and
copyright rights, computer programs and pending applications for and
registrations of patents, trademarks, service marks and copyrights.
(69) "Interconnection Agreement" means the Interconnection
-------------------------
Agreement, between PP&L, or an Affiliate of PP&L, and Buyer, in the
form of Schedule VII hereto, pursuant to which PP&L, or an Affiliate
of PP&L, will provide Buyer with interconnection service to certain
of its transmission facilities and whereby Buyer will provide PP&L,
or an Affiliate of PP&L, with continuing access to certain of the
Purchased Assets after the Closing Date.
(70) "Knowledge" means the actual knowledge of the corporate
---------
officers of the specified Person charged with responsibility for the
particular function as of the date of this Agreement, or, with
respect to any certificate delivered pursuant to this Agreement, the
date of delivery of the certificate, after reasonable inquiry by them
of selected employees of the specified Person whom they believe, in
good faith, to be the persons generally responsible for the subject
matters to which the knowledge is pertinent.
(71) "Laws" means all laws, statutes, rules, regulations,
----
ordinances and other pronouncements having the effect of law of the
United States, any foreign country and any domestic or foreign state,
county, city or other political subdivision or of any Governmental
Authority.
(72) "Liability" or "Liabilities" means any liability or
--------- -----------
obligation (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, whether incurred or consequential, and
whether due or to become due).
(73) "Local Laws" means all laws, statutes, rules,
----------
regulations, ordinances and other pronouncements having the effect of
law of any county, city, township or other political subdivision of
the Commonwealth of Pennsylvania within which any of the Sites is
located.
8
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<PAGE>
(74) "Material Adverse Effect" means any change in or effect
-----------------------
on the Purchased Assets, the operation of the Purchased Assets or the
Assumed Liabilities after the date hereof that is materially adverse
to (a) the ownership, business, assets, operations or condition
(financial or otherwise) of the Purchased Assets, individually or
taken as a whole, or (b) the magnitude, duration, timing or scope of
the Assumed Liabilities, other than (i) any change resulting from
changes in the international, national, regional or local wholesale
or retail markets for electricity, including any change in the
structure, operating agreements, operations or procedures of PJM or
its control area, (ii) any change resulting from changes in the
international, national, regional or local markets for any fuel used
at Sunbury Station, (iii) any change resulting from changes in the
North American, national, regional or local electricity transmission
systems, (iv) changes in Law that apply generally to similarly
situated Persons and (v) any materially adverse change in the
Purchased Assets which is cured (including by payment of money) to
the reasonable satisfaction of Buyer before the earlier of the
Closing Date and the Termination Date. Notwithstanding the
foregoing, the term "Material Adverse Effect" shall include any
change in Local Law after the date hereof which, in its application,
operates in a way that, because of the nature of the business
conducted at Sunbury Station or Lady Jane, uniquely results in a
change or effect described in clauses (a) or (b) above (except that
any change in Local Law that arises from or in connection with the
proposed thruway construction disclosed on Schedule 4.10 shall not
constitute a Material Adverse Effect).
(75) "Non-Fuel Inventories" means limestone, materials,
--------------------
spare parts, consumable supplies and chemical and gas supply
inventories relating to the operation of Sunbury Station or Lady Jane
which are located at, or are in transit to, Sunbury Station or Lady
Jane on the Closing Date.
(76) "Non-Union Employees" has the meaning as set forth in
-------------------
Section 6.10(e).
(77) "PaPUC" means the Pennsylvania Public Utility
-----
Commission, and any successor agency thereto.
(78) "PaDEP" means the Pennsylvania Department of
-----
Environmental Protection, and any successor agency thereto.
(79) "Permits" has the meaning set forth in Section 4.13.
-------
(80) "Permitted Encumbrances" means: (i) the Easements; (ii)
----------------------
those exceptions to title to the Purchased Assets listed in Schedule
4.5 and those Encumbrances set forth in Schedule 1.1(80); (iii)
statutory liens for Taxes or other governmental charges or
assessments not yet due or delinquent or the validity of which is
being contested in good faith in appropriate proceedings, provided,
that at or prior to the Closing, Sellers shall either (x) satisfy
such liens, (y) cause such liens to be omitted from the exceptions to
the title insurance policy being obtained by the Buyer by bonding,
escrow or otherwise or (z) cause the issuer of such title insurance
policy to insure the Buyer that such liens will
9
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<PAGE>
not be collected out of or enforced against the Real Property;
(iv) mechanics', carriers', workers', repairers' and other similar
liens arising or incurred in the ordinary course of business securing
obligations that (A) are not overdue for a period of more than thirty
(30) days or (B) are being contested in good faith in appropriate
proceedings, provided, that at or prior to the Closing, Sellers shall
either (x) satisfy such liens, (y) cause such liens to be omitted from
the exceptions to the title insurance policy being obtained by the Buyer
by bonding, escrow or otherwise or (z) cause the issuer of such title
insurance policy to insure the Buyer that such liens will not be
collected out of or enforced against the Real Property; (v) zoning,
entitlement, conservation restriction and other land use and
environmental regulations by Governmental Authorities; and (vi) such
other liens, imperfections in or failure of title, charges, easements,
restrictions and Encumbrances which do not materially detract from
the value of the Purchased Assets as currently used or materially
interfere with the present use of the Purchased Assets or do not,
individually or in the aggregate, create a Material Adverse Effect.
(81) "Person" means any individual, partnership, limited
------
liability company, joint venture, corporation, trust, unincorporated
organization or any other business entity or governmental entity or
any department or agency thereof.
(82) "PJM" means PJM Interconnection, L.L.C., and any
---
successor thereto.
(83) "Post-Closing Adjustment" has the meaning set forth in
-----------------------
Section 3.3(c).
(84) "Post-Closing Statement" has the meaning set forth in
----------------------
Section 3.3(c).
(85) "Prior Welfare Plans" has the meaning set forth in
-------------------
Section 6.10(e)(iv).
(86) "Proposed Post-Closing Adjustment" has the meaning set
--------------------------------
forth in Section 3.3(c).
(87) "Proprietary Information" of a Party means all
-----------------------
information about the Party or its properties or operations furnished
to the other Party or its Representatives by the Party or its
Representatives, after the date hereof, regardless of the manner or
medium in which it is furnished. Proprietary Information does not
include information that: (a) is or becomes generally available to
the public, other than as a result of a disclosure by the other Party
or its Representatives; (b) was available to the other Party on a
nonconfidential basis prior to its disclosure by the Party or its
Representatives; (c) becomes available to the other Party on a
nonconfidential basis from a Person, other than the Party or its
Representatives, who, to the other Party's Knowledge, is not
otherwise bound by a confidentiality agreement with the Party or its
Representatives, or is not otherwise under any obligation to the
Party or any of its Representatives not to transmit the information
to the other Party or its Representatives; (d) is independently
developed
10
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<PAGE>
by the other Party; or (e) was disclosed pursuant to the Confidentiality
Agreement and remains subject to the terms and conditions of the
Confidentiality Agreement.
(88) "Purchased Assets" has the meaning set forth in Section
----------------
2.1.
(89) "Purchase Price" has the meaning set forth in Section
--------------
3.2.
(90) "Rail Spur" means the rails, ties, ballasts and all
---------
related apparatus or appurtenances attached thereto which are
necessary for the operation of a railroad, beginning at the southern
property line of the Real Property at Sunbury Station and continuing
across those certain parcels of real property owned by PP&L, or an
Affiliate of PP&L, which are adjacent to such Real Property (the
"Retained Real Property") in a southerly direction to the
----------------------
southernmost property line of the Retained Real Property, as more
particularly described on Schedule 2.1(i), but specifically excluding
the underlying property interest in the Retained Real Property.
(91) "Real Property" has the meaning set forth in Section
-------------
2.1(a).
(92) "Release" means any release, spill, leak, discharge,
-------
disposal of, pumping, pouring, emitting, emptying, injecting,
leaching, dumping or allowing to escape into or through the
environment.
(93) "Remediation" means action of any kind to address a
-----------
Release or the presence of Hazardous Substances at the Sites or an
off-Sites location including, without limitation, any or all of the
following activities to the extent they relate to or arise from the
presence of a Hazardous Substance at the Sites or an off-Sites
location: (a) monitoring, investigation, assessment, treatment,
cleanup, containment, removal, mitigation, response or restoration
work; (b) obtaining any permits, consents, approvals or
authorizations of any Governmental Authority necessary to conduct any
such activity; (c) preparing and implementing any plans or studies
for any such activity; (d) obtaining a written notice from a
Governmental Authority with jurisdiction over the Sites or an off-
Sites location under Environmental Laws that no material additional
work is required by such Governmental Authority; (e) the use,
implementation, application, installation, operation or maintenance
of removal actions on the Sites or an off-Sites location, remedial
technologies applied to the surface or subsurface soils, excavation
and off-Sites treatment or disposal of soils, systems for long-term
treatment of surface water or ground water, engineering controls or
institutional controls; and (f) any other activities reasonably
determined by a Party to be necessary or appropriate or required
under Environmental Laws to address the presence or Release of
Hazardous Substances at the Sites or an off-Sites location.
(94) "Replacement Welfare Plans" has the meaning set forth
-------------------------
in Section 6.10(e)(iv).
11
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<PAGE>
(95) "Representatives" of a Party means the Party and its
---------------
Affiliates and their respective directors, officers, employees,
agents, partners, advisors (including, without limitation,
accountants, legal counsel, environmental consultants, engineering
consultants, financial advisors and other authorized representatives)
and parents and other controlling Persons.
(96) "SEC" means the Securities and Exchange Commission, and
---
any successor agency thereto.
(97) "Securities Account Control Agreement" means the
------------------------------------
Securities Account Control Agreement, to be dated as of the Closing
Date, by and among Buyer, PP&L and the Securities Intermediary, in
substantially the form attached as Exhibit 3 to the Transition Power
Purchase Agreement.
(98) "Securities Act" means the Securities Act of 1933, as
--------------
amended.
(99) "Securities Intermediary" shall have the meaning set
-----------------------
forth in the Transition Power Purchase Agreement.
(100) "Sellers' Actuary" has the meaning set forth in Section
----------------
6.10(g).
(101) "Sellers' Agreements" means those contracts,
-------------------
agreements, licenses (other than Permits or Intellectual Property),
leases and deeds relating to the ownership, operation and maintenance
of Sunbury Station, Lady Jane, Buck Run or Forrestville and being
assigned to Buyer as part of the Purchased Assets, including the IBEW
Collective Bargaining Agreement.
(102) "Sellers' Indemnitee" has the meaning set forth in
-------------------
Section 8.1(a).
(103) "Sellers' Pension Plan" has the meaning set forth in
---------------------
Section 6.10(g).
(104) "Sellers' Required Regulatory Approvals" has the
--------------------------------------
meaning set forth in Section 4.3(b).
(105) "Silt Reserves Real Property" has the meaning set
---------------------------
forth in Section 2.1(b).
(106) "Sites" means the real property (including
-----
Improvements) forming a part of, or used or usable in connection with
the operation of, Sunbury Station, Lady Jane, Buck Run or
Forrestville, including any disposal sites included in such real
property. Any reference to the Sites shall include, by definition,
the surface and subsurface elements, to the extent owned by a Seller,
including the soil and groundwater present at the Sites and excluding
the Excluded Assets, and any reference to items "at the Sites" shall
include all items "at, on, in, upon, over, across, under and within"
the Sites.
12
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<PAGE>
(107) "Special Warranty Deeds" means the Special Warranty
----------------------
Deeds, in the form of Schedule VIII hereto, pursuant to which Sellers
will convey the Real Property and the Silt Reserves Real Property to
Buyer.
(108) "Subsidiary" when used in reference to any Person means
----------
any entity of which outstanding securities having ordinary voting
power to elect a majority of the Board of Directors or other Persons
performing similar functions of such entity are owned directly or
indirectly by such Person.
(109) "Stott Mine #1" means that certain deep coal mine
-------------
underlying Lady Jane.
(110) "Sunbury Station Compliance Accounts" means those
-----------------------------------
accounts established by the USEPA for Sunbury Station for purposes of
allocating, holding, transferring or using NOx or SO2 Emission
Allowances.
(111) "Surveys" has the meaning set forth in Section 6.12(a).
-------
(112) "Tangible Personal Property" has the meaning set forth
--------------------------
in Section 2.1(d).
(113) "Taxes" means all taxes, charges, fees, levies,
-----
penalties or other assessments imposed by any federal, state, local
or foreign taxing authority, including, but not limited to, income,
gross receipts, excise, property, sales, transfer, use, franchise,
payroll, withholding, social security, taxes payable under the
Pennsylvania Public Utility Realty Tax Act ("PURTA") or other taxes,
-----
including any interest, penalties or additions attributable thereto.
(114) "Tax Return" means any return, report, information
----------
return or other document (including any related or supporting
information) required to be supplied to any taxing authority with
respect to Taxes.
(115) "Termination Date" has the meaning set forth in Section
----------------
9.1(b).
(116) "Third Party Claim" has the meaning set forth in
-----------------
Section 8.2(a).
(117) "Title Commitments" has the meaning set forth in
-----------------
Section 6.12(a).
(118) "Transferable Permits" means those Permits and
--------------------
Environmental Permits (and any applications pertaining thereto) which
are lawfully transferable by Sellers to Buyer (with or without a
filing with, notice to, consent or approval of any Governmental
Authority) and are set forth in Schedule 1.1(118).
(119) "Transferred Non-Union Employee" has the meaning set
------------------------------
forth in Section 6.10(e).
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<PAGE>
(120) "Transferred Pension Employees" has the meaning set
-----------------------------
forth in Section 6.10(g).
(121) "Transferred Union Employee" has the meaning set forth
--------------------------
in Section 6.10(a).
(122) "Transferring Employee Records" means records related
-----------------------------
to Sellers' personnel who will become employees of Buyer only to the
extent such files pertain to: (i) skill and development training,
(ii) seniority histories, (iii) salary and benefit information, (iv)
Occupational, Safety and Health Administration reports, (v) active
medical restriction forms, and (vi) disciplinary and attendance
histories.
(123) "Transition Power Purchase Agreement" means the
-----------------------------------
Transition Power Purchase Agreement between PP&L, or an Affiliate of
PP&L, and Buyer, in the form of Schedule IX hereto, relating to the
sale of designated quantities of capacity and/or energy to PP&L, or
an Affiliate of PP&L, following the Closing Date.
(124) "Transition Services Agreement" means the Transition
-----------------------------
Services Agreement between PP&L, or an Affiliate of PP&L, and Buyer,
the terms and conditions of which shall be negotiated prior to
Closing in accordance with Section 6.13 hereof, pursuant to which
PP&L, or an Affiliate of PP&L, will provide certain information
technology and other services to Buyer after the Closing Date.
(125) "Transmission Assets" has the meaning set forth in
-------------------
Section 2.2(a).
(126) "Union Employees" has the meaning set forth in Section
---------------
6.10(a).
(127) "USEPA" means the United States Environmental
-----
Protection Agency, and any successor agency thereto.
(128) "Year 2000 Compliant" has the meaning set forth in
-------------------
Section 4.15.
(129) "Year 2000 Ready" has the meaning set forth in Section
---------------
4.15.
(130) "WARN Act" means the Federal Worker Adjustment
--------
Retraining and Notification Act of 1988, as amended.
1.2 Certain Interpretive Matters. In this Agreement, unless the
----------------------------
context otherwise requires, the singular shall include the plural, the
masculine shall include the feminine and neuter, and vice versa. The term
"includes" or "including" shall mean "including without limitation."
References to a Section, Article or Schedule shall mean a Section, Article or
Schedule of this Agreement, and reference to a given agreement or instrument
shall be a reference to that agreement or instrument as modified, amended,
supplemented and restated through the date as of which such reference is made.
14
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<PAGE>
ARTICLE II
PURCHASE AND SALE
-----------------
2.1 Transfer of Assets. Upon the terms and subject to the
------------------
satisfaction of the conditions set forth in this Agreement, at the Closing,
Sellers will sell, assign, convey, transfer and deliver to Buyer, and Buyer
will purchase, assume and acquire from Sellers, free and clear of all
Encumbrances (except for Permitted Encumbrances), all of Sellers' respective
right, title and interest in, to and under the following assets constituting,
or used in connection with the operation of, Sunbury Station or Lady Jane,
except as otherwise provided in Section 2.2, each as in existence on the
Closing Date (collectively, the "Purchased Assets"):
----------------
(a) Those certain parcels of real property (including all
buildings, railyard and other facilities and other Improvements thereon and
all appurtenances thereto) described in Schedule 4.9 (the "Real Property"),
-------------
but subject to those exceptions listed in Schedule 4.5 and except as otherwise
constituting part of the Excluded Assets;
(b) Sellers' ownership interests in the real property described
in Schedule 2.1(b) (the "Silt Reserves Real Property") underlying Sellers'
---------------------------
anthracite silt reserves at Buck Run and Forrestville and the anthracite silt
reserves located thereon as of the Closing Date;
(c) The Fuel Inventories and the Non-Fuel Inventories in
existence on the Closing Date;
(d) The machinery, equipment (including communications
equipment), vehicles, locomotives, furniture and other personal property
located on the Real Property and the Silt Reserves Real Property on the
Closing Date, including, without limitation, the items of personal property
included in Schedule 2.1(d), together with all the personal property of
Sellers used principally in the operation of the Purchased Assets and
expressly listed in Schedule 2.1(d), other than property used or primarily
usable as part of the Transmission Assets or otherwise constituting part of
the Excluded Assets (collectively, "Tangible Personal Property"); provided,
-------------------------- --------
however, that the nuclear fly ash level detection system (including all
- -------
sources and detectors and related equipment) shall not be transferred to Buyer
unless Buyer has obtained, at least thirty (30) days prior to Closing, an
appropriate license for such equipment from the Nuclear Regulatory Commission;
and provided further, that if Buyer has not obtained an appropriate license
----------------
for the nuclear fly ash level detection system at least thirty (30) days prior
to Closing, Sellers may, at their sole discretion, transfer a non-nuclear fly
ash level detection system (comparable in accuracy, reliability and
maintainability) to Buyer in substitution for the nuclear fly ash level
detection system;
(e) Subject to the receipt of necessary consents and approvals,
the Sellers' Agreements included in Schedule 2.1(e);
15
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<PAGE>
(f) Subject to the receipt of necessary consents and approvals,
the Transferable Permits;
(g) The Emission Allowances as stated in Schedule 2.1(g), and
those Emission Allowances held by the USEPA in its Special Allowance Reserve
for SO2 emissions for the year 2000 and beyond and not sold prior to the
Closing Date by the USEPA for the benefit of Sunbury Station pursuant to the
Clean Air Act; provided that if the Closing occurs during 1999, Buyer shall be
required to authorize the USEPA to deduct vintage 1999 Emission Allowances for
Sellers' use and operation of Sunbury Station as permitted pursuant to Section
6.1 hereof as follows: (1) 53.92 SO2 Emission Allowances per day for each day
from January 1, 1999 through but not including the Closing Date; and (2) 17.59
NOx Emission Allowances per day for each day from May 1, 1999 through but not
including the Closing Date or September 30, 1999, whichever occurs first.
Notwithstanding Schedule 2.1(g), if the Closing occurs during the period
October 1, 1999 through and including October 31, 1999, Sellers shall transfer
to Buyer the amount of vintage 1999 NOx Emission Allowances for Sellers' use
and operation of Sunbury Station as permitted pursuant to Section 6.1 hereof
and Buyer shall authorize the USEPA to deduct them. If the Closing occurs
during the period November 1, 1999 through and including December 31, 1999,
Buyer shall authorize the USEPA to deduct only the vintage 1999 SO2 Emission
Allowances at 53.92 Emission Allowances per day as stated above. If the
Closing occurs during 2000, Buyer shall be required to authorize the USEPA to
deduct vintage 2000 Emission Allowances for Sellers' use and operation of
Sunbury Station as permitted pursuant to Section 6.1 hereof as follows: (1)
45.21 SO2 Emission Allowances per day for each day from January 1, 2000
through but not including the Closing Date and (2) 17.59 NOx Emission
Allowances per day for each day from May 1, 2000 through but not including the
Closing Date or September 30, 2000, whichever occurs first. Notwithstanding
Schedule 2.1(g), if the Closing occurs during the period October 1, 2000
through and including October 31, 2000, Sellers shall transfer to Buyer the
amount of the vintage 2000 NOx Emission Allowances for Sellers' use and
operation of Sunbury Station as permitted pursuant to Section 6.1 hereof and
Buyer shall authorize the USEPA to deduct them. If the Closing occurs during
the period November 1, 2000 through and including December 31, 2000, Buyer
shall authorize the USEPA to deduct only the vintage 2000 SO2 Emission
Allowances at 45.21 Emission Allowances per day as stated above. In the event
Sellers' use and operation of Sunbury Station result in actual emissions
requiring surrender of a larger number of SO2 or NOx Emission Allowances than
stated above, Buyer shall be required to authorize the USEPA to deduct NOx or
SO2 Emission Allowances, as applicable, to cover such excess and Sellers shall
transfer to Buyer at Closing additional Emission Allowances equal to such
excess and having a vintage of the year of Closing or earlier;
(h) All rights of Sellers with respect to the low flow dam
adjacent to Sunbury Station pursuant to Public Law 285, 80th Congress, 1st
Session, Chapter 395 (approved July 30, 1947);
(i) The Rail Spur located on the right-of-way described on
Schedule 2.1(i);
(j) All unexpired, transferable warranties and guarantees from
third parties with respect to any item of Real Property or Tangible Personal
Property constituting part of the Purchased Assets, as of the Closing Date;
16
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<PAGE>
(k) The interests of Sellers in and to the names "Sunbury
Station" and "Lady Jane" whatever they may be; provided, however, that LJC may
-------- -------
continue its use of "Lady Jane Collieries, Inc." as its corporate and trade
name. Buyer expressly understands that Sellers are not assigning or
transferring to Buyer any right, title or interest in or to the names
"Pennsylvania Power & Light Company", "PP&L" , "PPL", or any derivation
thereof, as well as any related or similar name, or any other trade names,
trademarks, service marks, corporate names and logos or any part, derivation,
colorable imitation or combination thereof, including, without limitation, the
trademark or other rights with respect to the name "Stabil-Fill";
(l) The Transferring Employee Records;
(m) All books, expired purchase orders, operating records,
operating, safety and maintenance manuals, engineering design plans,
blueprints and as built plans, specifications, procedures, studies, reports
(including the Environmental Report), equipment repair, safety, maintenance or
service records, and similar items, to the extent maintained by Sellers and
related specifically to the Purchased Assets (subject to the right of Sellers
to retain copies of same for its use) other than such items which are
proprietary to third parties and accounting records (to the extent that any of
the foregoing, including without limitation the Transferring Employee Records,
is contained in an electronic format, Sellers shall cooperate with Buyer to
transfer such items to Buyer in a format that is reasonably acceptable to
Buyer);
(n) Benefit Plan assets to the extent described in Section
6.10(g) hereof; and
(o) Subject to the receipt of necessary consents and approvals,
the Intellectual Property listed in Schedule 2.1(o).
2.2 Excluded Assets. Notwithstanding anything to the contrary in this
---------------
Agreement, nothing in this Agreement will constitute or be construed as
conferring on Buyer, and Buyer is not acquiring, any right, title or interest
in or to (a) any properties, assets, business, operation, or division of
Sellers or their Affiliates not expressly set forth in Section 2.1, or (b) the
following specific assets which are associated with the Purchased Assets, but
which are hereby specifically excluded from the sale and the definition of
Purchased Assets herein (the "Excluded Assets"):
---------------
(a) The electrical transmission or distribution facilities (as
opposed to generation facilities) of Sellers or any of their Affiliates
located at Sunbury Station or forming part of Sunbury Station (whether or not
regarded as a "transmission" or "generation" asset for regulatory or
accounting purposes), including all switchyard facilities, substation
facilities and support equipment, as well as all permits, contracts and
warranties, to the extent they relate to such transmission and distribution
assets (other than any transmission or distribution assets expressly
identified in Schedule 2.1(d), any assets within the switchyard which are
directly associated with or necessary for the operation of any of the
Purchased Assets and which are expressly identified in Schedule 2.1(d) and any
Real Property underlying the electrical transmission or distribution
facilities expressly identified in Schedule 4.9, all of which is included as
Purchased Assets) (collectively, the "Transmission Assets"), and those certain
-------------------
assets, facilities and agreements all as identified in Schedule 2.2(a);
17
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<PAGE>
(b) Certain switches and meters at Sunbury Station, gas
facilities, revenue meters and remote testing units, drainage pipes and
systems, as identified as "Excluded Property" in the Easement Agreement;
(c) The real property underlying the Rail Spur;
(d) Certificates of deposit, shares of stock, securities, bonds,
debentures, evidences of indebtedness, and interests in joint ventures,
partnerships, limited liability companies and other entities;
(e) All cash, cash equivalents, bank deposits, accounts and
notes receivable (trade or otherwise), prepaid expenses relating to the
operation of the Purchased Assets and any income, sales, payroll or other tax
receivables;
(f) The right, title and interest of Sellers and their
successors, assigns, Affiliates and/or Representatives in and to the names
"Pennsylvania Power & Light Company", "PP&L", "PPL", or any derivation
thereof, as well as any related or similar name, or any other trade names,
trademarks, service marks, corporate names and logos, or any part, derivation,
colorable imitation or combination thereof, including, without limitation, the
trademark or other rights with respect to the name "Stabil-Fill", other than
as specified in Section 2.1(k) hereof;
(g) All tariffs, agreements and arrangements to which any Seller
is a party for the purchase or sale of electric capacity and/or energy or for
the purchase or sale of transmission or ancillary services involving the
Purchased Assets or otherwise;
(h) Except in respect of Assumed Liabilities, the rights of
Sellers in and to any causes of action against third parties relating to any
Real Property, Tangible Personal Property, Silt Reserves Real Property,
Permits, Environmental Permits, Taxes or Sellers' Agreements, if any,
including any claims for refunds (other than those Tax refunds that are
covered by Section 2.2(i) below), prepayments, offsets, recoupment, insurance
proceeds, condemnation awards, judgments and the like, whether received as
payment or credit against future liabilities, relating specifically to Sunbury
Station, Lady Jane or the Sites and relating to any period on or prior to the
Closing Date;
(i) Any refunds of real property Taxes (including interest) paid
or due with respect to Sunbury Station, Lady Jane or the Sites, which refunds
are the result of proceedings that, prior to the Closing Date, were instituted
by Sellers or their Affiliates regardless of when actually paid;
(j) All personnel records other than Transferring Employee
Records or other records the disclosure of which is required by law;
(k) The minute books, stock transfer books, corporate seal and
other corporate records of Sellers;
18
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<PAGE>
(l) The rights of any Seller in, to and under all contracts,
arrangements, permits or licenses of any nature, of which the obligations of
such Seller under such contracts, arrangements, permits or licenses are not
expressly assumed by Buyer pursuant to Section 2.3(a) hereof;
(m) Except as set forth in Section 6.10(g) hereof, all assets
owned or held by any Benefit Plan;
(n) All insurance policies relating to the operation of the
Purchased Assets;
(o) Any and all of any Sellers' rights in any contract or
arrangement representing an intercompany transaction between such Seller and
an Affiliate of such Seller, whether or not such transaction relates to the
provision of goods and services, payment arrangements, intercompany charges or
balances, or the like, other than the agreements described on Schedule 2.1(e);
(p) Any and all of Sellers' rights relating to Stott Mine #1;
(q) Any Improvements, equipment or other tangible personal
property owned or provided by any contractor or third party at Sunbury
Station, Lady Jane or the Silt Reserves Real Property, including, without
limitation, the Electronic Pitless Vehicle Scale, the Office/Lab Trailer, the
Storage Shed and the hand tools owned by Combustion Products Management, Inc.;
(r) All other assets and properties owned by Sellers or their
Affiliates which are not used in the operation of Sunbury Station or Lady
Jane; and
(s) Sellers' rights under this Agreement and the Additional
Agreements.
2.3 Assumed Liabilities. On the Closing Date, Buyer shall deliver to
-------------------
Sellers the Assignment and Assumption Agreement pursuant to which Buyer shall
assume and agree to pay, perform and discharge, without recourse to Sellers or
their Affiliates, the following Liabilities of Sellers and their Affiliates
which relate to the Purchased Assets and which arise on or after the Closing
(except as specifically provided below), other than Excluded Liabilities, in
accordance with the respective terms and subject to the respective conditions
thereof (collectively, "Assumed Liabilities"):
-------------------
(a) All Liabilities of Sellers and their Affiliates under the
Sellers' Agreements, the Intellectual Property identified in Schedule 2.1(o)
and the Transferable Permits in accordance with the terms thereof and the
contracts, licenses, agreements and personal property leases entered into by
Sellers or their Affiliates with respect to the Purchased Assets on or after
the date hereof consistent with the terms of this Agreement, except in each
case to the extent that such Liabilities, but for a breach or default by
Sellers or their Affiliates, would have been paid, performed or otherwise
discharged on or prior to the Closing Date or to the extent the same arise out
of any such breach or default or out of any event which after the giving of
notice would constitute a default by Sellers or their Affiliates;
19
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<PAGE>
(b) All Liabilities associated with the Purchased Assets in
respect of Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8
hereof;
(c) All Liabilities with respect to the Transferred Union
Employees and the Transferred Non-Union Employees arising on and after the
Closing Date (including, without limitation, any Liabilities relating to the
hiring, employment or termination of employment by Buyer or its Affiliates of
any individual on or after the Closing Date);
(d) Any Liability or responsibility under or related to
Environmental Laws or the common law arising as a result of or in connection
with (i) any violation or alleged violation of Environmental Laws, whether
prior to, on or after the Closing Date, with respect to the ownership or
operation of any of the Purchased Assets; (ii) loss of life, injury to persons
or property or damage to natural resources (whether or not such loss, injury
or damage arose or was made manifest before the Closing Date or arises or
becomes manifest on or after the Closing Date) caused (or allegedly caused) by
the presence or Release of Hazardous Substances at, on, in, under, adjacent to
or migrating from the Purchased Assets prior to, on or after the Closing Date,
including, but not limited to, Hazardous Substances contained in building
materials at or adjacent to the Purchased Assets or in the soil, surface
water, sediments, groundwater, landfill cells, or in other environmental media
at or near the Purchased Assets; and (iii) the investigation and/or
Remediation (whether or not such investigation or Remediation commenced before
the Closing Date or commences on or after the Closing Date) of Hazardous
Substances that are present or have been Released prior to, on or after the
Closing Date at, on, in, under, adjacent to or migrating from, the Purchased
Assets or in the soil, surface water, sediments, groundwater, landfill cells
or in other environmental media at or adjacent to the Purchased Assets;
provided, that nothing set forth in this Section 2.3(d) shall require Buyer to
assume any Liabilities that are expressly excluded in Section 2.4(g), Section
2.4(h), Section 2.4(i) or Section 2.4(j) hereof;
(e) All Liabilities of Sellers with respect to the Purchased
Assets under the agreements or consent orders set forth on Schedule 4.6
arising on or after the Closing; and
(f) With respect to the Purchased Assets, any Tax that may be
imposed by any federal, state or local government on the ownership, sale,
operation or use of the Purchased Assets on or after the Closing Date, except
for any Income Taxes attributable to income received by Sellers.
2.4 Excluded Liabilities. Except for the Assumed Liabilities, Buyer
--------------------
shall not assume by virtue of this Agreement or the transactions contemplated
hereby, and shall have no liability for, any Liabilities of Sellers, including
without limitation any of the following Liabilities (the "Excluded
--------
Liabilities"):
- -----------
(a) Any Liabilities of Sellers or their Affiliates in respect of
any Excluded Assets or other assets of Sellers or their Affiliates which are
not Purchased Assets, except to the extent caused by the acts or omissions of
Buyer or its Affiliates or Buyer's or its Affiliates' ownership, operation or
use of the Purchased Assets;
20
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<PAGE>
(b) Any Liabilities in respect of Taxes attributable to the
Purchased Assets for taxable periods ending before the Closing Date, except
for Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8 hereof;
(c) Any Liabilities of Sellers or their Affiliates arising from
the breach or default by Sellers or their Affiliates, prior to the Closing
Date, of any Sellers' Agreement, the Intellectual Property agreements
identified in Schedule 2.1(o), Transferable Permit or any other contract,
license, agreement or personal property lease entered into by Sellers or their
Affiliates with respect to the Purchased Assets;
(d) Any and all Liabilities to third parties for personal injury
or tort, or similar causes of action arising solely out of the ownership or
operation of the Purchased Assets prior to the Closing Date, other than any
Liabilities specifically assumed by Buyer under Section 2.3;
(e) Any fines or penalties imposed by a Governmental Authority
resulting from (i) an investigation or proceeding before a Governmental
Authority regarding acts which occurred prior to the Closing Date, or (ii)
illegal acts, willful misconduct or gross negligence of Sellers or their
Affiliates prior to the Closing Date, other than, in the case of either (i) or
(ii), any Liability specifically assumed by Buyer under Section 2.3;
(f) Any payment obligations of Sellers or their Affiliates for
goods delivered or services rendered prior to the Closing Date, including, but
not limited to, rental payments pursuant to personal property leases;
(g) Any Liability under or related to Environmental Laws or the
common law arising as a result of or in connection with loss of life, injury
to persons or property or damage to natural resources (whether or not such
loss, injury or damage arose or was made manifest before the Closing Date or
arises or becomes manifest on or after the Closing Date) caused (or allegedly
caused) by the off-Sites disposal, storage, transportation, discharge,
Release, or recycling of Hazardous Substances, or the arrangement for such
activities, prior to the Closing Date, in connection with the ownership or
operation of the Purchased Assets, provided that for purposes of this Section
2.4 "off-Sites" does not include any location to which Hazardous Substances
disposed of or Released at the Purchased Assets have migrated;
(h) Any Liability under or related to Environmental Laws or the
common law arising as a result of or in connection with the investigation
and/or Remediation (whether or not such investigation or Remediation commenced
before the Closing Date or commences on or after the Closing Date) of
Hazardous Substances that are disposed, stored, transported, discharged,
Released, recycled, or the arrangement of such activities, prior to the
Closing Date, in connection with the ownership or operation of the Purchased
Assets, at any off-Sites location, provided that for purposes of this Section
2.4 "off-Site" does not include any location to which Hazardous Substances
disposed of or Released at the Purchased Assets have migrated;
(i) Any Liability under or related to Environmental Laws or the
common law arising as a result of or in connection with PP&L's or its
Affiliate's, ownership, operation or use of
21
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<PAGE>
the Transmission Assets prior to, on or after the Closing Date, except to the
extent caused by the acts or omissions of Buyer or its Affiliates or Buyer's or
its Affiliates's ownership, operation or use of the Purchased Assets;
(j) Any Liability under or related to Environmental Laws or the
common law arising as a result of or in connection with Sellers', or their
respective Affiliate's, ownership, operation or use of Stott Mine #1 prior to,
on or after the Closing Date, except to the extent caused by the acts or
omissions of Buyer or its Affiliates or Buyer's or its Affiliates' ownership,
operation or use of the Purchased Assets;
(k) Any Liabilities relating to any Benefit Plan maintained by
Sellers or any trade or business (whether or not incorporated) which is or
ever has been under common control, or which is or ever has been treated as a
single employer, with any Seller under Section 414(b), (c), (m) or (o) of the
Code ("ERISA Affiliate") or to which any Seller and any ERISA Affiliate
---------------
contributed thereunder (the "ERISA Affiliate Plans"), maintained by,
---------------------
contributed to, or obligated to contribute to, by Sellers or any ERISA
Affiliate, including any Liability (i) to the Pension Benefit Guaranty
Corporation under Title IV of ERISA; (ii) with respect to non-compliance with
the notice and benefit continuation requirements of COBRA; or (iii) with
respect to any noncompliance by Sellers with ERISA or any other applicable
laws, but not including any Liabilities specifically assumed pursuant to
Section 6.10 hereof;
(l) Any IBEW Grievances or any other Liabilities relating to the
employment or termination of employment, including discrimination, wrongful
discharge, unfair labor practices, or constructive termination by Sellers of
any individual, attributable to any actions or inactions by Sellers prior to
the Closing Date other than such actions or inactions taken at the direction
of Buyer or its Affiliates;
(m) Any Liability of any Seller arising from the making or
performance of this Agreement or the Additional Agreements or the transactions
contemplated hereby or thereby;
(n) Any Liabilities relating to any claim, action, suit or
proceeding regarding matters which arose prior to the Closing Date,
notwithstanding the disclosure thereof in any Schedule, or any subsequent
claim, action, suit or proceeding arising out of or relating to such matters;
(o) Any Income Taxes attributable to income received by Sellers;
and
(p) Any Liabilities relating to or arising from the fuel leak at
Sunbury SES which is described in Attachment A of the Chester Engineers
Letter; and
(q) Any Liabilities arising from the failure of Sellers to
comply with their obligations pursuant to Section 2.1(g) hereof.
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<PAGE>
2.5 Control of Litigation. The Parties agree and acknowledge that
---------------------
Sellers shall be entitled exclusively to control, defend and settle any
litigation, administrative or regulatory proceeding, and any investigation or
Remediation activities (including without limitation any environmental
mitigation or Remediation activities), arising out of or related to any
Excluded Liabilities, and Buyer agrees to cooperate fully in connection
therewith; provided, however, that no Seller shall enter into any settlement
-------- -------
agreement or arrangement with respect to any IBEW Grievance that is reasonably
likely to cause a Material Adverse Effect at any time without the prior
written consent of Buyer.
ARTICLE III
THE CLOSING
-----------
3.1 Closing. The sale, assignment, conveyance, transfer and delivery
-------
of the Purchased Assets to Buyer, the payment of the Purchase Price to
Sellers, and the consummation of the other respective obligations of the
Parties contemplated by this Agreement shall take place at a closing (the
"Closing"), to be held at the offices of Skadden, Arps, Slate, Meagher & Flom
-------
LLP, 919 Third Avenue, New York, New York 10022, at 10:00 a.m. eastern
standard time, or another mutually acceptable time and location, on the date
that is fifteen (15) Business Days following the date on which the last of the
conditions precedent to Closing set forth in Article VII of this Agreement
have been either satisfied or waived by the Party for whose benefit such
conditions precedent exist or on such other date as may be mutually agreed
upon by the Parties. The date of Closing is hereinafter called the "Closing
-------
Date." The Closing shall be effective for all purposes as of 12:01 a.m. on
- ----
the Closing Date.
3.2 Payment of Purchase Price. Upon the terms and subject to the
-------------------------
satisfaction of the conditions contained in this Agreement, in consideration
of the aforesaid sale, assignment, conveyance, transfer and delivery of the
Purchased Assets, Buyer will pay or cause to be paid to Sellers at the Closing
an aggregate amount in U.S. dollars of $96,400,000 (the "Purchase Price") plus
--------------
or minus any adjustments pursuant to the provisions of this Agreement, by wire
transfer of immediately available funds denominated in U.S. dollars or by such
other means as are agreed upon by Sellers and Buyer.
3.3 Adjustment to Purchase Price. (a) Subject to Section 3.3(b), at
----------------------------
the Closing, the Purchase Price shall be adjusted to account for the items set
forth in this Section 3.3(a):
(i) The Purchase Price shall be increased to reflect the
fair market value of all Fuel Inventories held by Sellers as of the
Closing Date, calculated using the weighted average cost method consistent
with Sellers' past and current accounting practices.
(ii) The Purchase Price shall be adjusted to account for
the items prorated as of the Closing Date pursuant to Section 3.5.
(iii) The Purchase Price shall be increased by the amount
expended, or for which a commitment was made, by Sellers between the
date hereof and the Closing Date for
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<PAGE>
capital additions to or replacements of property, plant and equipment
included in the Purchased Assets and other expenditures or repairs on
property, plant and equipment included in the Purchased Assets that would
be capitalized by Sellers in accordance with normal accounting policies of
Sellers and their Affiliates (together, "Capital Expenditures"), which
--------------------
Capital Expenditures either are (A) described on Schedule 6.1; (B) for
facility upgrades or changes required by law or regulation of general
application (i.e., not Sunbury specific) enacted after the date hereof
which is applicable to the post-Closing period, provided that Buyer shall
have the opportunity to review and approve the plans, specifications, and
budget for such facility upgrades or changes, which approval shall not
be unreasonably withheld or delayed; or (C) approved in writing by
Buyer.
(b) At least ten (10) Business Days prior to the Closing Date,
Sellers shall prepare and deliver to Buyer an estimated closing statement (the
"Estimated Closing Statement") that shall set forth in reasonable detail
---------------------------
Sellers' best estimate of all estimated adjustments to the Purchase Price
required by Section 3.3(a) (the "Estimated Adjustment"), together with the
--------------------
assumptions and calculations used by Sellers to estimate such adjustments.
Within five (5) Business Days following the delivery of the Estimated Closing
Statement by Sellers to Buyer, Buyer may object in good faith to the Estimated
Adjustment in writing. If Buyer objects to the Estimated Adjustment, the
Parties shall attempt to resolve their differences by negotiation. If the
Parties are unable to do so within two (2) Business Days prior to the Closing
Date (or if Buyer does not object to the Estimated Adjustment), the Purchase
Price shall be adjusted (the "Closing Adjustment") for the Closing by the
------------------
amount of the Estimated Adjustment not in dispute. The disputed portion shall
be paid as a Post-Closing Adjustment to the extent required by Section 3.3(c).
(c) Within sixty (60) days following the Closing Date, Sellers
shall prepare and deliver to Buyer a final closing statement (the
"Post-Closing Statement") that shall set forth in reasonable detail all
----------------------
adjustments to the Purchase Price required by Section 3.3(a) (the "Proposed
--------
Post-Closing Adjustment"). Within thirty (30) days following the delivery of
- -----------------------
the Post-Closing Statement by Sellers to Buyer, Buyer may object to the
Proposed Post-Closing Adjustment in writing. Sellers agree to cooperate with
Buyer to provide Buyer and Buyer's Representatives information used to prepare
the Post-Closing Statement and information relating thereto. If Buyer objects
to the Proposed Post-Closing Adjustment, the Parties shall attempt to resolve
such dispute by negotiation. If the Parties are unable to resolve such
dispute within thirty (30) days of any objection by Buyer, the Parties shall
appoint an Independent Accounting Firm, which shall be instructed to review
the Proposed Post-Closing Adjustment and determine the appropriate adjustment
to the Purchase Price, if any, within thirty (30) days thereafter. The fees
and disbursements of such Independent Accounting Firm shall be allocated
between Buyer and Sellers such that Buyer's share of such fees and
disbursements shall be in the same proportion that the aggregate amount of
such remaining disputed amounts so submitted by Buyer to such Independent
Accounting Firm that is unsuccessfully disputed by Buyer (as finally
determined by such Independent Accounting Firm) bears to the total amount of
such remaining disputed amounts so submitted by Buyer. The finding of such
Independent Accounting Firm shall be binding on the Parties hereto. Upon
determination of the appropriate adjustment (the "Post-Closing Adjustment") by
-----------------------
agreement of the Parties or by binding determination of the Independent
Accounting Firm, if the Post-Closing Adjustment is more or less than the
Closing Adjustment, the Party owing the difference
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<PAGE>
shall deliver such difference to the other Party no later than two (2) Business
Days after such determination, by wire transfer of immediately available funds
denominated in U.S. dollars or in any other manner as reasonably requested by
the payee. Any amount paid under this Section 3.3(c) to Buyer or Sellers shall
be paid with interest for the period from, and including, the Closing Date to,
but excluding, the date of payment, calculated at the "prime rate" for domestic
banks as published in The Wall Street Journal (Northeast Edition) in the
"Money Rates" section on the Closing Date.
3.4 Allocation of Purchase Price. Buyer and Sellers shall use
----------------------------
their good faith best efforts to agree upon an allocation among the Purchased
Assets of the sum of the Purchase Price and the Assumed Liabilities consistent
with Section 1060 of the Code and the Treasury Regulations thereunder within
sixty (60) days of the date of this Agreement. In the event that the Parties
cannot agree on a mutually satisfactory allocation within said time period,
the Parties shall appoint an Independent Accounting Firm which shall, at
Sellers' and Buyer's equal expense, determine the appropriate allocation with
respect to the issues in dispute. The finding of such Independent Accounting
Firm shall be binding on the Parties. After determination of the allocation
by agreement of the Parties or by binding determination of the Independent
Accounting Firm, Buyer and Sellers agree to file, for the tax year in which
Closing occurs, Internal Revenue Service Form 8594, and all federal, state,
local and foreign Tax Returns, in accordance with such allocation. Buyer and
Sellers shall report the transactions contemplated by this Agreement for
federal Tax and all other Tax purposes in a manner consistent with the
allocation determined pursuant to this Section 3.4. Buyer and Sellers agree
to provide the other promptly with any information required to complete Form
8594. Buyer and Sellers shall notify and provide the other with reasonable
assistance in the event of an examination, audit or other proceeding regarding
the agreed upon allocation of the Purchase Price.
3.5 Prorations. (a) Buyer and Sellers agree that all of the
----------
items normally prorated, including those listed below (but not including
Income Taxes), relating to the business and operation of the Purchased Assets
shall be prorated as of the Closing Date, with Sellers liable to the extent
such items relate to any time period prior to the Closing Date, and Buyer
liable to the extent such items relate to periods commencing with the Closing
Date (measured in the same units used to compute the item in question,
otherwise measured by calendar days):
(i) Personal property, real estate and occupancy Taxes,
assessments and other charges, if any, on or with respect to the
business and operation of the Purchased Assets;
(ii) Rent, Taxes and all other items (including
prepaid services or goods not included in Inventory) payable
by or to Sellers under any of the Sellers' Agreements;
(iii) Any permit, license, registration, emission fees or
other fees with respect to any Transferable Permit; and
(iv) Sewer rents and charges for water, telephone,
electricity and other utilities.
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<PAGE>
(b) In connection with the prorations referred to in (a) above,
in the event that actual figures are not available at the Closing Date, the
proration shall be based upon the actual Taxes or other amounts accrued
through the Closing Date or paid for the most recent year (or other
appropriate period) for which actual Taxes or other amounts paid are
available. Such prorated Taxes or other amounts shall be re-prorated and paid
to the appropriate Party within sixty (60) days of the date that the
previously unavailable actual figures become available. Sellers and Buyer
agree to furnish each other with such documents and other records as may be
reasonably requested in order to confirm all adjustment and proration
calculations made pursuant to this Section 3.5.
Notwithstanding anything to the contrary herein, no proration
shall be made under this Section 3.5 with respect to (i) real property Tax
refunds described in Section 2.2(i) or (ii) transfer Taxes described in
Section 6.8(a).
3.6 Deliveries by Sellers. At the Closing, Sellers will deliver, or
---------------------
cause to be delivered, the following to Buyer:
(a) The Bill of Sale, duly executed by the appropriate Sellers;
(b) Copies of any and all governmental and other third party
consents, waivers or approvals obtained by Sellers with respect to the
transfer of the Purchased Assets, or the consummation of the transactions
contemplated by this Agreement and the Additional Agreements, to the extent
specifically required hereunder or thereunder;
(c) The Special Warranty Deeds, duly executed and acknowledged
by the appropriate Sellers and in recordable form;
(d) The Assignment and Assumption Agreement, duly executed by
the appropriate Sellers;
(e) A FIRPTA Affidavit, duly executed by the appropriate
Sellers;
(f) Copies, certified by the Secretary or Assistant Secretary of
each Seller, of corporate resolutions authorizing the execution and delivery
of this Agreement, each Additional Agreement and all of the other agreements
and instruments to be executed and delivered by such Seller in connection
herewith, and the consummation of the transactions contemplated hereby and
thereby;
(g) A certificate of the Secretary or Assistant Secretary of
each Seller identifying the name and title and bearing the signatures of the
officers of such Seller authorized to execute and deliver this Agreement, each
Additional Agreement and the other agreements and instruments contemplated
hereby;
(h) A copy of the certificate of incorporation and by-laws of
each Seller, certified by the Secretary or Assistant Secretary of such Seller,
and a copy of the certificate of incorporation of each Seller certified by the
Secretary of the Commonwealth of Pennsylvania;
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<PAGE>
(i) To the extent available, originals of all Sellers'
Agreements and Transferable Permits and, if not available, true and correct
copies thereof;
(j) All releases necessary to terminate, discharge, or waive any
Encumbrances (other than Permitted Encumbrances) on the Purchased Assets, in
recordable form;
(k) Such affidavits and, to the extent consistent with and not
in addition to the terms hereof, indemnities reasonably requested by the title
insurance company issuing the Title Commitments;
(l) Each of the other Additional Agreements, duly executed and
in recordable form, if appropriate; provided, however, that Sellers will not
-------- -------
be required to deliver, or cause to be delivered, at the Closing, a duly
executed Generation Support Services Agreement or a duly executed Transition
Services Agreement if the Parties have not agreed upon mutually acceptable
terms and conditions therefor on or prior to the Closing Date as contemplated
in Section 6.13;
(m) All such other instruments of assignment or conveyance as
shall, in the reasonable opinion of Buyer and their counsel, be necessary to
transfer to Buyer the Purchased Assets, in accordance with this Agreement and
where necessary or desirable in recordable form; and
(n) Such other agreements, documents, instruments and writings
as are required to be delivered by Sellers at or prior to the Closing Date
pursuant to this Agreement or otherwise reasonably required in connection
herewith.
3.7 Deliveries by Buyer. At the Closing, Buyer will deliver, or
-------------------
cause to be delivered, the following to Sellers:
(a) The Purchase Price, as adjusted pursuant to Section 3.3(b),
by wire transfer of immediately available funds in accordance with Sellers'
instructions or by such other means as may be agreed to by Sellers and Buyer;
(b) The Assignment and Assumption Agreement, duly executed by
Buyer;
(c) Copies, certified by the Secretary or Assistant Secretary of
Buyer, of resolutions authorizing the execution and delivery of this
Agreement, each Additional Agreement and all of the other agreements and
instruments to be executed and delivered by Buyer in connection herewith, and
the consummation of the transactions contemplated hereby and thereby;
(d) A certificate of the Secretary or Assistant Secretary of
Buyer identifying the name and title and bearing the signatures of the
officers of such Buyer authorized to execute and deliver this Agreement, each
Additional Agreement and the other agreements and instruments contemplated
hereby;
(e) A copy of the articles of organization and by-laws (or
similar governing documents) of Buyer, certified by the Secretary or Assistant
Secretary of Buyer, and a copy of the
27
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<PAGE>
articles of organization (or similar governing document) of Buyer certified by
the Secretary of the state of organization of Buyer;
(f) Each of the other Additional Agreements, duly executed and
in recordable form, if appropriate; provided, however, that Buyer will not be
-------- -------
required to deliver, or cause to be delivered, at the Closing, a duly executed
Generation Support Services Agreement or a duly executed Transition Services
Agreement if the Parties have not agreed upon mutually acceptable terms and
conditions therefor on or prior to the Closing Date as contemplated in
Section 6.13;
(g) All such other instruments of assumption as shall, in the
reasonable opinion of Sellers and their counsel, be necessary for Buyer to
assume the Assumed Liabilities in accordance with this Agreement;
(h) Copies of any and all governmental and other third party
consents, waivers or approvals obtained by Buyer with respect to the transfer
of the Purchased Assets, or the consummation of the transactions contemplated
by this Agreement and the Additional Agreements;
(i) Such other agreements, documents, instruments and writings
as are required to be delivered by Buyer at or prior to the Closing Date
pursuant to this Agreement or otherwise reasonably required in connection
herewith.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
-----------------------------------------
PP&L and LJC each hereby represent and warrant to Buyer on a joint and
several basis and Resources hereby represents and warrants to Buyer as to
itself, to the extent applicable, as follows:
4.1 Incorporation; Qualification. Each Seller is a corporation duly
----------------------------
incorporated, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite corporate power and
authority to own, lease, and operate its properties and to carry on its
business as it is now being conducted. Each Seller is duly qualified to do
business as a foreign corporation and is in good standing under the laws of
each jurisdiction in which its business as now being conducted shall require
it to be so qualified, except where the failure to be so qualified would not
have a Material Adverse Effect.
4.2 Authority. Each Seller has full corporate power and authority to
---------
execute and deliver this Agreement and each of the Additional Agreements to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and each of the
Additional Agreements by the applicable Sellers and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action required on the part of each
such Seller. This Agreement has been duly and validly executed and delivered
by each Seller and subject to the receipt of Sellers' Required Regulatory
Approvals, this Agreement constitutes, and upon the execution and delivery by
the applicable Sellers of each of the Additional Agreements, each such
Additional Agreement will constitute, legal, valid
28
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<PAGE>
and binding obligations of each such Seller, enforceable against each such
Seller in accordance with their terms, except that such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity).
4.3 Consents and Approvals; No Violation. (a) Except as set
------------------------------------
forth in Schedule 4.3(a), and subject to obtaining Sellers' Required
Regulatory Approvals, neither the execution and delivery of this Agreement and
the Additional Agreements by Sellers nor the consummation by Sellers of the
transactions contemplated hereby will (i) conflict with or result in any
breach of any provision of the Certificate of Incorporation or Bylaws of any
Seller; (ii) result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, material agreement or other instrument
or obligation to which any Seller is a party or by which it, or any of the
Purchased Assets, may be bound, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained or which, would not, individually or in the
aggregate, create a Material Adverse Effect; or (iii) constitute violations of
any law, regulation, order, judgment or decree applicable to any Seller, which
violations, individually or in the aggregate, would create a Material Adverse
Effect.
(b) Except as set forth in Schedule 4.3(b), (the filings and
approvals referred to in Schedule 4.3(b) are collectively referred to as the
"Sellers' Required Regulatory Approvals"), no consent or approval of, filing
--------------------------------------
with, or notice to, any Governmental Authority is necessary for the execution
and delivery of this Agreement and the Additional Agreements by Sellers or the
consummation by Sellers of the transactions contemplated hereby or thereby,
other than (i) such consents, approvals, filings or notices which, if not
obtained or made, will not prevent Sellers from performing its material
obligations under this Agreement and the Additional Agreements and (ii) such
consents, approvals, filings or notices which become applicable to Sellers or
the Purchased Assets as a result of the specific regulatory status of the
Buyer (or any of its Affiliates) or as a result of any other facts that
specifically relate to the business or activities in which the Buyer (or any
of its Affiliates) is or proposes to be engaged.
4.4 Insurance. Except as set forth in Schedule 4.4, all material
---------
policies of fire, liability, workers' compensation and other forms of
insurance owned or held by, or on behalf of, Sellers and insuring the
Purchased Assets are in full force and effect, all premiums with respect
thereto covering all periods up to and including the date hereof have been
paid (other than retroactive premiums which may be payable with respect to
comprehensive general liability and workers' compensation insurance policies),
and no notice of cancellation or termination has been received with respect to
any such policy which was not replaced on substantially similar terms prior to
the date of such cancellation. Except as described in Schedule 4.4, as of the
date of this Agreement, none of the Sellers have been refused any insurance
with respect to the Purchased Assets nor have their respective coverages been
limited by any insurance carrier to which any of them have applied for any
such insurance or with which any of them have carried insurance during the
last twelve (12) months.
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<PAGE>
4.5 Title and Related Matters. (a) Except as set forth in Schedule
-------------------------
4.5 and subject to Permitted Encumbrances, PP&L is the holder of record title
to the Real Property located at Sunbury Station and is the holder of the
surface rights to the Silt Reserves Real Property it is transferring and LJC
is the holder of the surface rights to the Real Property located at Lady Jane
it is transferring and PP&L or LJC, as applicable, has good and valid title to
the other Purchased Assets which it purports to own, free and clear of all
Encumbrances.
(b) Condition. The tangible assets (real and personal) at,
---------
related to, or used in connection with each of Sunbury SES, the CTGs, Lady
Jane, Buck Run, and Forrestville, in each case taken as a whole, (i) are in
good operating and usable condition and repair, free from any defects (except
for ordinary wear and tear, in light of their respective ages and historical
usages, and except for such defects as do not materially interfere with the
use thereof in the conduct of the normal operation and maintenance of the
Purchased Assets taken as a whole) and (ii) have been maintained consistent
with Good Utility Practices.
4.6 Environmental Matters. Except as disclosed in Schedule 4.6 or in
---------------------
any public filing made by Sellers or by any of their Affiliates pursuant to
the Securities Act or the Exchange Act or in the Environmental Report:
(a) Sellers hold, and are in substantial compliance with, all
permits, certificates, certifications, licenses and governmental
authorizations under Environmental Laws ("Environmental Permits") that are
---------------------
required for them to conduct the business and operations of the Purchased
Assets, and Sellers are otherwise in compliance with applicable Environmental
Laws with respect to the business and operations of the Purchased Assets,
except for such failures to hold or comply with required Environmental
Permits, or such failures to be in compliance with applicable Environmental
Laws, as would not, individually or in the aggregate, create a Material
Adverse Effect;
(b) No Seller has received any written request for information,
or been notified of any material violation, or that it is a potentially
responsible party, under CERCLA or any other Environmental Law for
contamination or air emissions at any of the Sites, except for such requests
or notices that would result in liabilities under such laws as would not be
reasonably likely to, individually or in the aggregate, create a Material
Adverse Effect and there are no claims, actions, proceedings or investigations
pending or, to the Knowledge of Sellers, threatened against any Seller before
any Governmental Authority or body acting in an adjudicative capacity relating
in any way to any Environmental Laws and concerning contamination or air
emissions at any of the Sites, except for such claims, actions, proceedings or
investigations as would not be reasonably likely to, individually or in the
aggregate, create a Material Adverse Effect, nor does any Seller have
Knowledge of any circumstances or facts that could reasonably be expected to
result in any such claims, actions, proceedings or investigations; and
(c) There are no outstanding judgments, decrees, or judicial
orders relating to the Purchased Assets regarding compliance with any
Environmental Law or to the investigation or cleanup of Hazardous Substances
under any Environmental Law relating to the Purchased Assets, except for such
consent decrees or orders, judgments, decrees or judicial orders as would not,
individually or in the aggregate, create a Material Adverse Effect.
30
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<PAGE>
The representations and warranties made in this Section 4.6 are the
Sellers' exclusive representations and warranties relating to environmental
matters.
4.7 Labor Matters. Sellers have previously delivered to Buyer true and
-------------
correct copies of all collective bargaining agreements to which any Seller is
a party or is subject and which relate to the business and operations of the
Purchased Assets owned by it. With respect to the business or operations of
the Purchased Assets, except to the extent set forth in Schedule 4.7 and
except for such matters as will not, individually or in the aggregate, create
a Material Adverse Effect, (a) each Seller is in compliance with all
applicable Laws respecting employment and employment practices, terms and
conditions of employment and wages and hours; (b) no Seller has received
written notice of any unfair labor practice complaint against it pending
before the National Labor Relations Board; and (c) no arbitration proceeding
arising out of or under any collective bargaining agreements is pending
against any Seller.
4.8 Benefit Plans; ERISA. Schedule 4.8 lists all deferred
---------------------
compensation, profit-sharing, retirement and pension plans and all material
bonus, fringe benefit and other employee benefit plans maintained or with
respect to which contributions are made by PP&L or LJC in respect of the
current employees of PP&L and LJC connected with the Purchased Assets
("Benefit Plans"). No Benefit Plan is a "multiemployer plan," as defined in
-------------
Section 4001(a)(3) of ERISA. True and complete copies of all such Benefit
Plans have been made available to Buyer.
4.9 Real Property. Schedule 4.9 and Schedule 2.1(b) describes all of
-------------
the real property (including easements, if any) that are owned or used by any
Seller principally in connection with, or that are necessary for, the
ownership and operation of the Purchased Assets, substantially as presently
owned and operated by Sellers. To the Knowledge of Sellers, no fact or
condition exists which would prohibit or materially adversely affect the
ordinary rights of access to and from the Real Property or the Silt Reserves
Real Property from and to the existing highways and roads, as applicable, and
there is no pending, or to the Knowledge of Sellers, threatened restriction or
denial, governmental or otherwise, upon such ingress or egress except as
indicated on Schedule 4.10. Except as indicated on Schedule 4.9, the Sellers
have not received written notice that their occupation and use of the Real
Property or the Silt Reserves Real Property is in violation of any applicable
Law. Sellers have not received any written notice of any claim of adverse
possession or prescriptive rights involving any of the Real Property or the
Silt Reserves Real Property. To the Knowledge of Sellers, no public
improvements have been commenced and, Sellers have not received written notice
that any public improvements are planned, which in either case may result in
special assessments against any of the Real Property or the Silt Reserves Real
Property or otherwise create a Material Adverse Effect. Except as indicated
in Schedule 4.9, no Seller has any Knowledge of any order, writ, injunction,
or decree requiring repair or alteration of any existing condition materially
adversely affecting any Real Property, the Silt Reserves Real Property or the
Improvements thereat.
4.10 Condemnation. Except as set forth in Schedule 4.10, there are no
------------
pending or, to the Knowledge of Sellers, threatened proceedings or
governmental actions to condemn or take by power of eminent domain all or any
part of the Purchased Assets.
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<PAGE>
4.11 Contracts and Leases. (a) Schedule 4.11(a) lists all written
--------------------
contracts, licenses (other than Permits or Intellectual Property), agreements
or personal property leases which are material to the business or operations
of the Purchased Assets, other than contracts, licenses, agreements or
personal property leases which are listed or described on another Schedule or
which constitute Excluded Assets or which are expected to expire or terminate
prior to the Closing Date.
(b) Except as disclosed in Schedule 4.11(b), each Sellers'
Agreement (i) constitutes a legal, valid and binding obligation of each Seller
that is a party thereto and, to such Seller's Knowledge, constitutes a valid
and binding obligation of the other parties thereto, (ii) is in full force and
effect and no Seller has delivered or received any written notice of
termination thereunder, and (iii) may be transferred to Buyer pursuant to this
Agreement without the consent of the other parties thereto and will continue
in full force and effect thereafter, in each case without breaching the terms
thereof or resulting in the forfeiture or impairment of any rights thereunder.
(c) Except as set forth in Schedule 4.11(c), there is not
under any Sellers' Agreement any default or event which, with notice or lapse
of time or both, (i) would constitute a default on the part of any Seller that
is a party thereto or, to such Sellers' Knowledge, any other party thereto,
(ii) would constitute a default on the part of any Seller that is a party
thereto or, to such Sellers' Knowledge, any other party thereto which would
give rise to an automatic termination, or the right of discretionary
termination, thereof, or (iii) would cause the acceleration of any of the
Sellers' obligations thereunder or result in the creation of any Encumbrance
(other than any Permitted Encumbrance) on any of the Purchased Assets. There
are no claims, actions, proceedings or investigations pending or, to the
Knowledge of Sellers, threatened against any Seller or any other party to any
Sellers' Agreements, before any Governmental Authority or body acting in an
adjudicative capacity relating in any way to any of Sellers' Agreements or the
subject matter thereof. Sellers have no Knowledge of any defense, offset or
counterclaim arising under any Sellers' Agreement.
4.12 Legal Proceedings. Except as set forth in Schedule 4.12 or in
-----------------
any filing made by any Seller or any of their Affiliates pursuant to the
Securities Act or the Exchange Act, there are no actions or proceedings
pending or, to the Knowledge of Sellers, threatened against any Seller before
any court, arbitrator or Governmental Authority, which could, individually or
in the aggregate, reasonably be expected to create a Material Adverse Effect
or that question the validity of this Agreement or the Additional Agreements
or of any action taken or to be taken by any Seller or any of their respective
Affiliates pursuant to or in connection with the provisions of this Agreement
or the Additional Agreements. Except as set forth in Schedule 4.12 or in any
filing made by any Seller or any of their Affiliates pursuant to the
Securities Act or the Exchange Act, no Seller is subject to any outstanding
judgments, rules, orders, writs, injunctions or decrees of any court,
arbitrator or Governmental Authority which would, individually or in the
aggregate, create a Material Adverse Effect.
4.13 Permits. (a) PP&L and LJC have all permits, licenses, franchises
-------
and other governmental authorizations, consents and approvals (other than
Environmental Permits, which are addressed in Section 4.6 hereof)
(collectively, "Permits") necessary to own and operate the Purchased Assets
-------
except where the failure to have such Permits would not, individually or in
the
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aggregate, create a Material Adverse Effect. Except as disclosed in
Schedule 4.13(a) or in the Environmental Report, no Seller has received any
written notification that it is in violation, nor does any Seller have
Knowledge of any violations, of any such Permits, or any Law or judgment of
any Government Authority applicable to it with respect to the Purchased
Assets, except for violations which would not, individually or in the
aggregate, create a Material Adverse Effect.
(b) Schedule 4.13(b) sets forth all material Permits and
Environmental Permits, other than Transferable Permits (which are set forth on
Schedule 1.1(118)).
4.14 Taxes. Except as disclosed on Schedule 4.14, (i) Sellers have
-----
filed all Tax Returns that are required to be filed by them with respect to
any Tax, and Sellers have paid all Taxes that have become due as indicated
thereon, except where such Tax is being contested in good faith by appropriate
proceedings, or where the failure to so file or pay would not be reasonably
likely to create a Material Adverse Effect and (ii) there are no Encumbrances
for Taxes on the Purchased Assets that are not Permitted Encumbrances.
4.15 Year 2000. PP&L and LJC have put into effect practices and
---------
programs which PP&L and LJC reasonably believe will enable any of the
hardware, software and firmware products (including embedded microcontrollers
in non-computer equipment) which may be included in the Purchased Assets to be
transferred under this Agreement (the "Computer Systems") to be Year 2000
----------------
Ready by December 31, 1999. In addition, PP&L has put into effect practices
and programs which PP&L reasonably believes will enable the continuous
emissions monitoring system at Sunbury SES to be Year 2000 Compliant by
December 31, 1999. For purposes hereof, (i) "Year 2000 Ready" has the meaning
set forth in the Nuclear Regulatory Commission's Generic Letter 98-01,
entitled "Year 2000 Readiness of Computer Systems at Nuclear Power Plants,"
and (ii) "Year 2000 Compliant" means that the Computer Systems will correctly
differentiate between years, in different centuries, that end in the same two
digits, and will accurately process date/time data (including, but not limited
to, calculating, comparing, and sequencing) from, into, and between the
twentieth and twenty-first centuries, including leap year calculations.
4.16 Intellectual Property. Except as set forth on Schedule 4.16 or
---------------------
in Section 2.2(f), Sellers have, or will as of the Closing have, such ownership
of or such rights by license or other agreement to use all Intellectual
Property necessary to permit Sellers to conduct their business as currently
conducted, except where the failure to have such ownership, license or right
to use would not, individually or in the aggregate, have a Material Adverse
Effect. Except as disclosed in Schedule 4.16 or Schedule 2.1(o), (i) the
Sellers are not, nor have they received any notice that they are, in default
(or with the giving of notice or lapse of time or both, would be in default),
under any contract to use such Intellectual Property, (ii) there are no
material restrictions on the transfer of any material contract, or any
interest therein, held by Sellers in respect of such Intellectual Property,
and (iii) to Sellers' Knowledge, such Intellectual Property is not being
infringed by any other Person. No Seller has received notice that it is
infringing any Intellectual Property of any other Person in connection with
the operation or business of the Purchased Assets and neither Seller, to their
Knowledge, is infringing any Intellectual Property of any other Person the
effect of which, individually or in the aggregate, would have a Material
Adverse Effect.
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4.17 Compliance with Laws. Except as disclosed in Schedule 4.17,
--------------------
Sellers are in compliance with all applicable Laws with respect to the
ownership or operation of the Purchased Assets except where the failure to be
in compliance would not, individually or in the aggregate, create a Material
Adverse Effect.
4.18 Sufficiency of Purchased Assets. Except (i) as set forth on
-------------------------------
Schedule 4.18, (ii) for any real or personal property interests necessary for
or used in connection with the provision of any of the services listed on
Schedule 6.13, (iii) as stated in the Environmental Report and (iv) for any
real or personal property interests which are not material to the ownership,
operation and maintenance of the Purchased Assets as historically owned,
operated and maintained by Sellers, and subject to (A) change in applicable
Law or interpretation thereof, after the Closing Date, and (B) events beyond
the control of the Sellers which may occur after the Closing Date, no real
property interests (including flowage rights and seepage rights), buildings,
structures, machinery, equipment, supplies, materials, spares, vehicles,
boats, trailers, contracts, agreements, rights (except Permits which are not
Transferable Permits), books, records, or other real or personal property or
interests, other than the Purchased Assets, are necessary for Buyer to own,
operate, or maintain the Purchased Assets, substantially as historically
owned, operated and maintained by Sellers. Subject to Buyer's receipt of all
necessary consents and approvals and except as set forth on Schedule 4.18, the
Purchased Assets, together with the Additional Agreements, are sufficient to
allow Buyer, after the Closing, to deliver the output of the Sunbury Station
to the PJM transmission system by and through the Seller's transmission system
at the respective interconnection points specified in the Interconnection
Agreement. As of the Closing Date, the Purchased Assets will meet the
standards required thereof and will include all Interconnection Equipment (as
defined in the Interconnection Agreement) required, in each case, as of the
Closing Date under the Interconnection Agreement and the other Additional
Agreements. Notwithstanding any provision in this Section 4.18 to the
contrary, Sellers make no representations or warranties as to the sufficiency
of the Emission Allowances which will be transferred to Buyer.
4.19 Conveyance of Real Property. No state, municipal, or other
---------------------------
governmental approval regarding the division, platting, or mapping of real
estate is required as a prerequisite to the conveyance by Sellers to Buyer (or
as a prerequisite to the recording of any conveyance document) of any Real
Property and any Silt Reserves Real Property pursuant to the terms hereof.
4.20 Emission Allowances. Subject to Sections 2.1(g) and 6.1(a)(ii),
-------------------
Sellers hold, and will transfer to Buyer at Closing, all of their right, title
and interest in, free and clear of all Encumbrances (except Permitted
Encumbrances), the Emission Allowances set forth in Schedule 2.1(g). There
have been no emission increases at Sunbury Station on or prior to the Closing
Date for which Buyer will be required to hold or obtain Emission Reduction
Credits on or after the Closing Date.
4.21 CTGs. The Sellers have, or will have prior to the Closing Date,
----
taken all action necessary under all applicable Laws (including, without
limitation, 25 Pa. Code Section 127.11a), and have, or will have prior to the
Closing Date, obtained all Permits and Environmental Permits required, to
reactivate and operate the CTGs on a continuing basis, substantially as
historically operated by Sellers prior to the deactivation of the CTGs on
May 17, 1996.
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4.22 Copies. To the extent that Sellers provided Buyer with a copy of
------
any Permit, Environmental Permit or Sellers' Agreement, such copy was true,
correct and complete in all material respects. Sellers provided a true,
correct and complete copy of the Environmental Report to Buyer.
4.23 Reports. Since January 1, 1996, Sellers have filed or caused to
-------
be filed with the SEC or the FERC, as the case may be, all material forms,
statements, reports and documents (including all exhibits, amendments and
supplements thereto) required to be filed by Sellers with respect to the
business and operations of Sellers as it relates to the Purchased Assets under
each of the Securities Act, the Exchange Act, the Federal Power Act, and the
respective rules and regulations thereunder, all of which complied in all
material respects with all applicable requirements of the appropriate act or
acts governing each such filing and the rules and regulations thereunder in
effect on the date each such report was filed.
4.24 Information. (a) The PP&L historical information set forth on
-----------
Schedule 4.24 was prepared in good faith and, to PP&L's Knowledge, does not
contain any material errors. The total amount reflected in the Materials and
Supplies Inventory List as of April 30, 1999 for Sunbury SES provided by PP&L
to Buyer agrees with the amount reflected in PP&L's general ledger. Buyer
acknowledges that the information referred to in this Section 4.24(a) is
historical in nature and is not necessarily indicative of future events or
circumstances or the future performance of the Purchased Assets, and Sellers
do not make any representations to such effect.
(b) The Line Arrangement-Block Diagrams set forth in Schedule
2.1(d)-1 accurately reflect, in all material respects, the equipment
configurations they purport to represent.
(c) The anthracite silt reserve inventory level at Forrestville
reflected on PP&L's general ledger was calculated by multiplying: (i) 701,651
tons of anthracite silt by (ii) ninety-two (92) cents per ton.
4.25 DISCLAIMERS REGARDING PURCHASED ASSETS. EXCEPT FOR THE
--------------------------------------
REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE IV, THE PURCHASED
ASSETS ARE SOLD "AS IS, WHERE IS", AND SELLERS EXPRESSLY DISCLAIM ANY
REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO
LIABILITIES, OPERATIONS OF THE PURCHASED ASSETS, THE TITLE, CONDITION, VALUE
OR QUALITY OF THE PURCHASED ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE),
RISKS AND OTHER INCIDENTS OF THE PURCHASED ASSETS AND SELLERS SPECIFICALLY
DISCLAIM ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY
OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THE PURCHASED ASSETS, OR
ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY
DEFECTS THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL
REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO ANY
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ENVIRONMENTAL LAWS, OR WHETHER SELLERS POSSESS SUFFICIENT REAL PROPERTY OR
PERSONAL PROPERTY TO OPERATE THE PURCHASED ASSETS. EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN, SELLERS FURTHER SPECIFICALLY DISCLAIM ANY
REPRESENTATION OR WARRANTY REGARDING THE ABSENCE OF HAZARDOUS
SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER
ENVIRONMENTAL LAWS WITH RESPECT TO THE PURCHASED ASSETS. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN, SELLERS EXPRESSLY DISCLAIM ANY
REPRESENTATION OR WARRANTY OF ANY KIND REGARDING THE CONDITION
OF THE PURCHASED ASSETS OR THE SUITABILITY OF THE PURCHASED
ASSETS FOR OPERATION AS A POWER PLANT OR AS A FUEL PROCESSING
FACILITY, AS APPLICABLE, AND NO SCHEDULE OR EXHIBIT TO THIS
AGREEMENT, NOR ANY OTHER MATERIAL OR INFORMATION PROVIDED BY
OR COMMUNICATIONS MADE BY SELLERS OR THEIR RESPECTIVE
REPRESENTATIVES, OR BY ANY BROKER OR INVESTMENT BANKER, WILL
CAUSE OR CREATE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO THE
TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS.
IN ADDITION, SELLERS EXPRESSLY DISCLAIM ANY AND ALL REPRESENTATIONS
AND WARRANTIES WITH RESPECT TO THE NAMES "SUNBURY STATION" AND "LADY JANE",
INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATIONS OR WARRANTIES OF
(1) TITLE; (2) LENGTH, NATURE, EXCLUSIVITY AND CONTINUITY OF USE;
(3) STRENGTH OR FAME; AND (4) NONINFRINGEMENT AND NONDILUTION OF
TRADEMARK, SERVICE MARK, TRADE NAME AND/OR OTHER PROPRIETARY RIGHTS OF
ANY THIRD PARTY. MOREOVER, BUYER ACKNOWLEDGES THAT "SUNBURY" HAS A
GEOGRAPHIC CONNOTATION ASSOCIATED WITH THE LOCATION OF CERTAIN OF THE
PURCHASED ASSETS.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to Sellers as follows:
5.1 Organization. Buyer is a limited liability company duly
------------
organized, validly existing and in good standing under the laws of the State
of Delaware and has all requisite power and authority to own, lease or operate
its properties and to carry on its business as it is now being conducted.
Buyer is, or by the Closing will be, qualified to do business in the
Commonwealth of Pennsylvania. Buyer has heretofore delivered to Sellers
complete and correct copies of its articles of organization and by-laws (or
other similar governing documents) as currently in effect.
5.2 Authority. Buyer has full power and authority to execute and
---------
deliver this Agreement and each of the Additional Agreements and, subject to
receipt of Buyer's Required Regulatory Approvals, to consummate the
transactions contemplated by it hereby and thereby. The execution
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and delivery of this Agreement and each of the Additional Agreements by the
Buyer and the consummation of the transactions contemplated hereby and thereby
have been duly and validly authorized by all necessary action required on the
part of Buyer. This Agreement has been duly and validly executed and delivered
by Buyer and subject to the receipt of Buyer's Required Regulatory Approvals,
this Agreement constitutes, and upon the execution and delivery by Buyer of
each of the Additional Agreements, each such Additional Agreement will
constitute, legal, valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms, except that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and
general principles of equity (regardless of whether enforcement is
considered in a proceeding at law or in equity).
5.3 Consents and Approvals; No Violation.
------------------------------------
(a) Except as set forth in Schedule 5.3(a), and subject to
obtaining Buyer's Required Regulatory Approvals, neither the execution and
delivery of this Agreement and the Additional Agreements by Buyer nor the
consummation by Buyer of the transactions contemplated hereby and thereby will
(i) conflict with or result in any breach of any provision of the certificate
of incorporation or articles of organization, as applicable, or by-laws (or
other similar governing documents) of Buyer or its Affiliates; (ii) result in
a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, material agreement or other instrument or
obligation to which Buyer, its Affiliates or any of their Subsidiaries is a
party or by which any of their respective assets may be bound, except for such
defaults (or rights of termination, cancellation or acceleration) as to which
requisite waivers or consents have been obtained or which would not,
individually or in the aggregate, have a material adverse effect on the
business, assets, operations or condition (financial or otherwise) of Buyer,
including any change or effect that is materially adverse to Buyer's ability
to own, operate, or use the Purchased Assets as so owned, operated and used by
the Sellers prior to the date hereof and any change or effect that is
materially adverse to Buyer's ability to perform its obligations under this
Agreement or any Additional Agreement ("Buyer Material Adverse Effect"); or
-----------------------------
(iii) constitute violations of any law, regulation, order, judgment or decree
applicable to Buyer, which violations, individually or in the aggregate, would
create a Buyer Material Adverse Effect.
(b) Except as set forth in Schedule 5.3(b) (the filings and
approvals referred to in such Schedule are collectively referred to as the
"Buyer's Required Regulatory Approvals"), no consent or approval of, filing
-------------------------------------
with, or notice to, any Governmental Authority is necessary for the execution
and delivery of this Agreement and the Additional Agreements by Buyer or the
consummation by Buyer of the transactions contemplated hereby and thereby,
other than such consents, approvals, filings or notices, which, if not
obtained or made, will not prevent Buyer from performing its obligations under
this Agreement and the Additional Agreements.
5.4 Availability of Funds. Buyer has sufficient funds and lines of
---------------------
credit available to it or has received binding written commitments from
creditworthy financial institutions, copies of which have been provided to
Sellers, to provide sufficient funds on the Closing Date to pay the Purchase
Price and to permit Buyer to timely perform all of its obligations (including,
without
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<PAGE>
limitation, its obligations pursuant to Article VIII) under this Agreement and
the Additional Agreements.
5.5 Legal Proceedings. There are no actions or proceedings pending
-----------------
or, to the Knowledge of Buyer, threatened against Buyer before any court,
arbitrator or Governmental Authority, which could, individually or in the
aggregate, reasonably be expected to create a Buyer Material Adverse Effect or
that question the validity of this Agreement or the Additional Agreements or
of any action taken or to be taken pursuant to or in connection with the
provisions of this Agreement or the Additional Agreements. Buyer is not
subject to any outstanding judgments, rules, orders, writs, injunctions or
decrees of any court, arbitrator or Governmental Authority which would,
individually or in the aggregate, create a Buyer Material Adverse Effect.
5.6 Qualified Buyer. Buyer is qualified to obtain any Permits and
---------------
Environmental Permits necessary for Buyer to own and operate the Purchased
Assets as of the Closing.
5.7 WARN Act. Buyer does not intend to engage in a Plant Closing or
--------
Mass Layoff as such terms are defined in the WARN Act within sixty (60) days
of the Closing Date.
5.8 Equity Contribution Agreement. A true and correct copy of the
-----------------------------
Equity Contribution Agreement has been provided to Sellers. The execution and
delivery of the Equity Contribution Agreement by WPSR Capital and PDI and the
consummation of the transactions contemplated thereby has been duly and
validly authorized by all necessary corporate or other action required on the
part of each of WPSR Capital and PDI. The Equity Contribution Agreement has
been duly and validly executed and delivered by each of WPSR Capital and PDI
and constitutes the legal, valid and binding obligations of each of WPSR
Capital and PDI enforceable against each of WPSR Capital and PDI in accordance
with its terms, except that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws affecting or relating to enforcement of creditors' rights
generally and general principles of equity (regardless of whether enforcement
is considered in a proceeding at law or in equity).
ARTICLE VI
COVENANTS OF THE PARTIES
------------------------
6.1 Conduct of Business Relating to the Purchased Assets. (a) Except
----------------------------------------------------
as described in Schedule 6.1 or as expressly contemplated by this Agreement or
to the extent Buyer otherwise consents in writing, during the period from the
date of this Agreement to the Closing Date, Sellers will operate the Purchased
Assets in the ordinary course of business consistent with the past practices
of Sellers or their Affiliates and with Good Utility Practices and shall use
all Commercially Reasonable Efforts to preserve intact the Purchased Assets,
and endeavor to preserve the goodwill and relationships with customers,
suppliers and others having business dealings with it. Without limiting the
generality of the foregoing, and, except as contemplated in this Agreement or
as described in Schedule 6.1 or as required under applicable law or by any
Governmental Authority,
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between the date hereof and the Closing Date, without the prior written consent
of Buyer, Sellers shall not with respect to the Purchased Assets:
(i) Make any material change in the levels of Fuel
Inventories or Non-Fuel Inventories customarily maintained by Sellers or
their Affiliates with respect to the Purchased Assets;
(ii) Except as contemplated by Section 2.1(g), sell,
lease (as lessor), encumber, pledge, transfer or otherwise dispose of,
any Purchased Assets (except for Purchased Assets used, consumed or
replaced in the ordinary course of business consistent with past
practices of Sellers or their Affiliates and with Good Utility
Practices; provided, however, that except for such transfers as are
-------- -------
permitted pursuant to Section 10.6 hereof, prior to Closing, Sellers
shall not, and shall not enter into any agreements to, sell, encumber or
otherwise transfer any Emission Allowances to, or in favor of, any
Person who is not a Party to this Agreement) other than to encumber
Purchased Assets with Permitted Encumbrances;
(iii) Except for Permits and Environmental Permits
required to make the CTGs operational as required by Section 4.21 or as
otherwise indicated on Schedule 1.1(118) or Schedule 2.1(e), modify,
amend or voluntarily terminate prior to the expiration date any of the
Sellers' Agreements or any of the material Permits or Environmental
Permits in any material respect, other than (a) in the ordinary course
of business, to the extent consistent with the past practices of Sellers
or their Affiliates or with Good Utility Practices, (b) with cause, to
the extent consistent with past practices of Sellers or their Affiliates
or with Good Utility Practices, or (c) as may be required in connection
with transferring Sellers' rights or obligations thereunder to Buyer
pursuant to this Agreement; provided, however, that any material
-------- -------
modifications or amendments that Sellers propose to make pursuant to
clause (a), (b) or (c) of this Section 6.1(a)(iii) shall be in form and
substance reasonably satisfactory to Buyer;
(iv) Except as otherwise provided herein, enter into any
commitment for the purchase, sale, or transportation of fuel having a
term greater than six months and not terminable on or before the Closing
Date either (a) automatically or (b) by option of Sellers (or, after the
Closing, by Buyer) in their sole discretion;
(v) Except as otherwise provided herein, enter into any
contract, agreement, commitment or arrangement relating to the Purchased
Assets (other than Capital Expenditures) that individually exceeds
$25,000 or in the aggregate exceeds $500,000 unless it is terminable by
Sellers without penalty or premium upon no more than sixty (60) days
notice;
(vi) Except as otherwise required by the terms of the
IBEW Collective Bargaining Agreement, (a) materially increase salaries
or wages of employees employed in connection with the Purchased Assets
prior to the Closing, (b) take any action prior to the Closing to effect
a material change in the IBEW Collective Bargaining Agreement, or (c)
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<PAGE>
take any action prior to the Closing to materially increase the
aggregate benefits payable to the employees employed in connection with
the Purchased Assets;
(vii) Make any Capital Expenditures except as permitted by
Section 3.3(a)(iii) or for Sellers' account;
(viii) Fail to maintain, by self insurance or with
financially responsible insurance companies, insurance in such amounts
and against such risks and losses as are customary for such assets and
related business;
(ix) Enter into, amend, terminate, extend or otherwise
modify any real or personal property Tax agreement, treaty or settlement
affecting the Purchased Assets;
(x) Make any material change in the quantity of
anthracite silt located at Buck Run or Forrestville;
(xi) Enter into any settlement agreement or arrangement
with respect to any IBEW Grievance that is reasonably likely to cause a
Material Adverse Effect; or
(xii) Except as otherwise provided herein, enter into any
written or oral contract, agreement, commitment or arrangement with
respect to any of the proscribed transactions set forth in the foregoing
paragraphs (i) through (xi).
6.2 Access to Information.
---------------------
(a) Between the date of this Agreement and the Closing
Date, Sellers will (i) during ordinary business hours and upon reasonable
notice, give Buyer and its Representatives reasonable access to all books,
records, plans, offices and other facilities and properties constituting the
Purchased Assets or the Assumed Liabilities; (ii) furnish Buyer with such
financial and operating data and other information with respect to the
Purchased Assets or the Assumed Liabilities as Buyer may from time to time
reasonably request; and (iii) furnish Buyer with a copy of each material
report, schedule, or other document filed or received by each Seller with the
SEC, FERC, PaPUC, or other Governmental Authority with respect to the
Purchased Assets or the Assumed Liabilities; and (iv) furnish Buyer with all
such other information as shall be reasonably necessary to enable Buyer to
verify the accuracy of the representations and warranties of Sellers contained
in this Agreement; provided, however, that (A) any such inspections and
investigations shall be conducted in such a manner as not to interfere
unreasonably with the operation of the Purchased Assets, (B) Sellers shall not
be required to take any action which would constitute a waiver of the
attorney-client or other privilege, and (C) Sellers need not supply Buyer with
any information which Sellers are under a legal or contractual obligation not
to supply. Notwithstanding anything in this Section 6.2 to the contrary,
prior to the Closing Date, Buyer shall not have the right to perform or
conduct any environmental sampling or testing at, in, on, or underneath the
Purchased Assets (except for such environmental sampling or testing as Buyer
may reasonably deem necessary to investigate (i) the validity of any claims,
actions, proceedings or investigations instigated by any Governmental
Authority on or after the date hereof with respect to any alleged violation of
Environmental Laws
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or (ii) any other environmental condition arising or occurring on or after the
date hereof which Buyer reasonably believes may constitute a violation of
Environmental Laws) and Sellers will only furnish or provide such access to
employee personnel records and files to the extent that such records and files
pertain to the following: (i) skill and development training; (ii) seniority
histories; (iii) salary and benefit information; (iv) Occupational, Safety and
Health Administration reports; (v) active medical restriction forms; and (vi)
disciplinary and attendance histories.
(b) All information furnished to or obtained by Buyer and
Buyer's Representatives pursuant to this Section 6.2 shall be Proprietary
Information. Each Party shall, and shall cause its Representatives to, (a)
keep all Proprietary Information of the other Party confidential and not
disclose or reveal any such Proprietary Information to any Person other than
such Party's Representatives and (b) not use such Proprietary Information
other than in connection with the consummation of the transactions
contemplated hereby. After the Closing Date, any Proprietary Information
solely related to the Purchased Assets shall no longer be subject to the
restrictions set forth herein. The obligations of the Parties under this
Section 6.2(b) shall be in full force and effect for three (3) years from the
date hereof and will survive the termination of this Agreement, the discharge
of all other obligations owed by the Parties to each other and the Closing of
the transactions contemplated by this Agreement.
(c) For a period of seven (7) years after the Closing Date, each
Party and its Representatives shall have reasonable access to all of the books
and records of the Purchased Assets, including all Transferring Employee
Records in the possession of the other Party to the extent that such access
may reasonably be required by such Party in connection with the Assumed
Liabilities or the Excluded Liabilities, or other matters relating to or
affected by the operation of the Purchased Assets. Such access shall be
afforded by the Party in possession of any such books and records upon receipt
of reasonable advance notice and during normal business hours. The Party
exercising this right of access shall be solely responsible for any costs or
expenses incurred by it or the other Party with respect to such access
pursuant to this Section 6.2(c). If the Party in possession of such books and
records shall desire to dispose of any books and records upon or prior to the
expiration of such seven-year period, such Party shall, prior to such
disposition, give the other Party a reasonable opportunity at such other
Party's expense, to segregate and remove such books and records as such other
Party may select.
(d) Notwithstanding the terms of Section 6.2(b) above, the
Parties agree that prior to the Closing, Buyer may reveal or disclose
Proprietary Information to any other Persons in connection with Buyer's
financing of its purchase of the Purchased Assets (provided that such Persons
agree in writing to maintain the confidentiality of the Proprietary
Information in accordance with this Agreement).
(e) Notwithstanding the terms of Section 6.2(b) above, any Party
may provide Proprietary Information of the other Parties to the PaPUC, the
SEC, the FERC or any other Governmental Authority with jurisdiction or any
stock exchange, as may be necessary to obtain Sellers' Required Regulatory
Approvals or Buyer's Required Regulatory Approvals, respectively, or to comply
generally with any relevant Laws. The disclosing Party will seek confidential
treatment for the Proprietary Information provided to any Governmental
Authority and the disclosing Party
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will notify the other Parties as far in advance as is practicable of its
intention to release to any Governmental Authority any Proprietary Information.
(f) Except as specifically provided herein or in the
Confidentiality Agreement, nothing in this Section shall impair or modify any
of the rights or obligations of Buyer or its Affiliates under the
Confidentiality Agreement, all of which remain in effect until termination of
such agreement in accordance with its terms.
(g) Except as may be permitted in the Confidentiality Agreement,
Buyer agrees that, prior to the Closing Date, it will not contact any vendors,
suppliers, employees, or other contracting parties of Sellers or their
Affiliates with respect to any aspect of the Purchased Assets or the
transactions contemplated hereby, without the prior written consent of
Sellers, which consent shall not be unreasonably withheld.
(h) A committee comprised of one Representative designated by
Sellers and one Representative designated by Buyer, and such additional
Representatives as may be appointed by the Representatives originally
appointed to such committee (the "Transition Committee") will be established,
--------------------
as soon after the execution of this Agreement as is practicable, to examine
the business issues affecting the Purchased Assets, including the operations
thereof, giving emphasis to cooperation between Buyer and Sellers after the
execution of this Agreement. From time to time, the Transition Committee
shall report its findings to the senior management of each of Sellers and
Buyer.
(i) The Parties agree that between the date hereof and the
Closing Date, at the sole responsibility and expense of Buyer, Sellers will
permit designated Representatives ("Observers") of Buyer to regularly observe,
---------
in the presence of personnel of Sellers and at Buyer's reasonable discretion,
all operations of Sellers that relate specifically to the Purchased Assets,
and the operation thereof, and to observe material discussions with third
parties relating specifically to the Purchased Assets; provided, however, that
-------- -------
(A) any such observations shall be conducted in such a manner as not to
interfere unreasonably with the operation of the Purchased Assets, (B) Buyer
shall not be entitled to observe any discussions between any Seller and its
legal counsel or accountants and shall not otherwise be entitled to observe
any activities or discussions which may constitute a waiver of the attorney-
client or other privilege, and (C) Sellers need not permit the Observers to
observe or participate in discussions concerning any information which Sellers
are under a legal or contractual obligation not to disclose. The Observers
may recommend or suggest that actions be taken or not be taken by Sellers;
provided, however, that Sellers will be under no obligation to follow any such
- -------- -------
recommendations or suggestions (except as required to remain in compliance
with Sellers' obligations pursuant to Section 6.1 hereof) and that Sellers
shall be entitled, subject to the terms of this Agreement, to conduct their
business in accordance with their own judgment and discretion. The Observers
shall have no authority to bind or make agreements on behalf of Sellers, to
conduct discussions with or make representations to third parties on behalf of
Sellers or to issue instructions to or direct or exercise authority over
Sellers or any of their respective officers, employees, advisors or agents.
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6.3 Public Statements. Subject to the requirements imposed by any
-----------------
Governmental Authority or stock exchange, prior to the Closing Date, no press
release or other public announcement or public statement or comment in
response to any inquiry relating to the transactions contemplated by this
Agreement or the Additional Agreements shall be issued or made by any Party
without the prior approval of the other Parties (which approval shall not be
unreasonably withheld). The Parties agree to cooperate in preparing such
announcements.
6.4 Expenses. Except to the extent specifically provided herein,
--------
whether or not the transactions contemplated hereby are consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the Party incurring such costs and
expenses. Notwithstanding anything to the contrary herein, Sellers will be
responsible for (a) all costs and expenses associated with the obtaining of
any title insurance policy and all endorsements thereto that Buyer obtain
pursuant to Section 6.12, (b) all Survey costs and expenses, (c) all real
estate transfer taxes required pursuant to the transactions contemplated
hereby (including, without limitation, the Pennsylvania transfer tax on
conveyances of interests in real property), and (d) all filing fees under the
HSR Act, in each case within a reasonable time of Sellers' receipt of
documentation of such expenses satisfactory to Sellers.
6.5 Further Assurances.
------------------
(a) Subject to the terms and conditions of this Agreement, each
of the Parties hereto shall use its best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Laws to consummate and make effective the
purchase and sale of the Purchased Assets pursuant to this Agreement, the
assumption of the Assumed Liabilities and the execution and delivery of each
Additional Agreement, including, without limitation, using its best efforts to
ensure satisfaction of the conditions precedent to each Party's obligations
hereunder, including obtaining all necessary consents, approvals, and
authorizations of third parties required to be obtained in order to consummate
the transactions hereunder, and to effectuate a transfer of the Transferable
Permits to Buyer. Sellers shall cooperate with Buyer in its efforts to obtain
all other Permits and Environmental Permits necessary for Buyer to operate the
Purchased Assets. Buyer agrees to perform all conditions required of Buyer in
connection with the Sellers' Required Regulatory Approvals. Neither of the
Parties hereto shall, without prior written consent of the other Party, take
or fail to take any action, which might reasonably be expected to prevent or
materially impede, interfere with or delay the transactions contemplated by
this Agreement.
(b) In the event that any Purchased Asset shall not have been
conveyed to Buyer at the Closing, Sellers shall, subject to Sections 6.5(c)
and 6.5(d), convey such asset to Buyer as promptly as is practicable after the
Closing.
(c) To the extent that Sellers' rights under any Sellers'
Agreement may not be assigned without the consent of another Person which
consent has not been obtained by the Closing Date, this Agreement shall not
constitute an agreement to assign the same, if an attempted assignment would
constitute a breach thereof or be unlawful. Sellers and Buyer agree that if
any consent to an assignment of any Sellers' Agreement shall not be obtained
or if any attempted
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assignment would be ineffective or would impair Buyer's rights and obligations
under the Sellers' Agreement in question, so that Buyer would not in effect
acquire the benefit of all such rights and obligations, Sellers, at their
option and to the maximum extent permitted by law and such Sellers' Agreement,
shall, after the Closing Date, (i) appoint Buyer to be Sellers' agent with
respect to such Sellers' Agreement or (ii) to the maximum extent permitted
by law and such Sellers' Agreement, enter into such reasonable arrangements
with Buyer or take such other actions as are necessary to provide Buyer
with the same or substantially similar rights and obligations of such
Sellers' Agreement. Sellers and Buyer shall cooperate and shall each use
Commercially Reasonable Efforts prior to and after the Closing Date to
obtain an assignment of such Sellers' Agreement to Buyer.
(d) To the extent that Sellers' rights under any warranty or
guaranty described in Section 2.1(j) may not be assigned without the consent
of another Person, which consent has not been obtained by the Closing Date,
this Agreement shall not constitute an agreement to assign the same, if an
attempted assignment would constitute a breach thereof or be unlawful.
Sellers and Buyer agree that if any consent to an assignment of any such
warranty or guaranty shall not be obtained or if any attempted assignment
would be ineffective or would impair Buyer's rights and obligations under the
warranty or guaranty in question, so that Buyer would not in effect acquire
the benefit of all such rights and obligations, Sellers shall use Commercially
Reasonable Efforts to the extent permitted by law and such warranty or
guaranty, to enforce such warranty or guaranty for the benefit of Buyer to the
maximum extent possible so as to provide Buyer with the benefits and
obligations of such warranty or guaranty. Notwithstanding the foregoing,
Sellers shall not be obligated to bring or file suit against any third party,
provided that if Sellers shall determine not to bring or file suit after being
requested by Buyer to do so, Seller shall assign, to the extent permitted by
law or any applicable agreement or contract, its rights in respect of the
claims so that Buyer may bring or file such suit.
(e) Notwithstanding the foregoing, nothing in this Section 6.5
shall require Sellers or Buyer to waive any conditions to Closing set forth in
Section 7.1 and 7.2 or to waive any other provision of this Agreement.
6.6 Consents and Approvals.
----------------------
(a) As promptly as possible, and in any case within thirty (30)
days, after the date of this Agreement, Sellers and Buyer shall each file, or
cause to be filed, with the Federal Trade Commission and the United States
Department of Justice any initial notifications required to be filed under the
HSR Act and the rules and regulations promulgated thereunder with respect to
the transactions contemplated hereby. The Parties shall use their respective
best efforts to respond promptly to any requests for additional information
made by either of such agencies, and to cause the waiting periods under the
HSR Act to terminate or expire at the earliest possible date after the date of
filing. Sellers will pay all filing fees under the HSR Act, but each Party
will bear its own costs of the preparation of any filing.
(b) As promptly as possible, and in any case within thirty (30)
days, after the date of this Agreement, Sellers and Buyer shall each file, or
cause to be filed, with the PaPUC, the FERC and any other Governmental
Authority, any initial filings required to be made with respect to the
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transactions contemplated hereby. The Parties shall respond promptly to any
requests for additional information made by such agencies, and use their
respective best efforts to cause regulatory approval to be obtained at the
earliest possible date after the date of filing. Each Party will bear its own
costs of the preparation of any such filing.
(c) Sellers and Buyer shall cooperate with each other and
promptly prepare and file notifications with, and request Tax clearances from,
state and local taxing authorities in jurisdictions in which a portion of the
Purchase Price may be required to be withheld or in which Buyer would
otherwise be liable for any Tax liabilities of Sellers pursuant to such state
and local Tax law.
(d) As promptly as possible, and in any case within thirty (30)
days after the date of this Agreement, Buyer and Sellers shall initiate all
necessary measures, including filing all necessary applications, and Buyer
shall post all necessary performance, surety or other bonds to effectuate (i)
the transfer of all Environmental Permits and (ii) the release of any
performance, surety or other bonds provided by any Seller with respect to any
of the Purchased Assets.
(e) Sellers and Buyer shall have the right to review in advance
all characterizations of the information relating to the transactions
contemplated by this Agreement or in any of the Additional Agreements which
will appear in any filing made in connection with the transactions
contemplated hereby or thereby.
(f) Notwithstanding anything herein to the contrary, Sellers
shall use Commercially Reasonable Efforts to assist Buyer in obtaining all
third party consents (including, without limitation, consents to the
collateral assignment in favor of Buyer's lenders of contracts or agreements
included in the Purchased Assets), agreements, certificates, opinions, and
other documents or instruments reasonably requested by Buyer's lenders in
connection with the financing, on a non- or limited recourse basis or
otherwise, of Buyer's acquisition of the Purchased Assets hereunder, all of
which shall be at Buyer's sole cost and expense to the extent that any such
items are not otherwise required of Sellers hereunder or under any of the
Additional Agreements. From time to time after the date hereof, the Sellers
will, execute and/or deliver such consents (including, without limitation,
consents to the collateral assignment in favor of Buyer's lenders of the
Additional Agreements), agreements, certificates, opinions, and other
documents or instruments to Buyer's lenders as Buyer's lenders may reasonably
request in connection with the financing, on a non- or limited recourse basis
or otherwise, of Buyer's acquisition of the Purchased Assets hereunder;
provided, however, that Buyer will reimburse Seller for all reasonable, out-
of-pocket expenses incurred in connection therewith.
6.7 Fees and Commissions. Sellers and Buyer represent and warrant to
--------------------
the other that, except for J.P. Morgan Securities Inc., which is acting for
and at the expense of Sellers, and Pricewaterhouse Coopers Securities LLC
which is acting for and at the expense of Buyer, no broker, finder or other
Person is entitled to any brokerage fees, commissions or finder's fees in
connection with the transaction contemplated hereby by reason of any action
taken by the Party making such representation. Sellers, on the one hand, and
Buyer, on the other hand, will pay to the other or otherwise discharge, and
will indemnify and hold the other harmless from and against, any and all
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claims or liabilities for all brokerage fees, commissions and finder's fees
(other than the fees, commissions and finder's fees payable to the parties
listed above) incurred by reason of any action taken by the indemnifying
party.
6.8 Tax Matters.
-----------
(a) Other than real estate transfer taxes as provided in Section
6.4 hereof, all transfer, excise, documentary, filing, recordation and similar
taxes shall be borne 50% by Buyer and 50% by Sellers. All sales taxes
incurred in connection with this Agreement and the transactions contemplated
hereby (including, without limitation, Pennsylvania sales tax) shall be borne
by Buyer. Sellers shall file, to the extent required by, or permissible
under, applicable law, all necessary Tax Returns and other documentation with
respect to all such transfer and sales taxes, and, if required by applicable
law, Buyer shall join in the execution of any such Tax Returns and other
documentation. Prior to the Closing Date, to the extent applicable, Buyer
shall provide to Sellers appropriate certificates of Tax exemption from each
applicable taxing authority.
(b) With respect to Taxes to be prorated in accordance with
Section 3.5 of this Agreement, Buyer shall prepare and timely file all Tax
Returns required to be filed after the Closing Date with respect to the
Purchased Assets, if any, and shall duly and timely pay all such Taxes shown
to be due on such Tax Returns. Buyer's preparation of any such Tax Returns
shall be subject to Sellers' approval, which approval shall not be
unreasonably withheld. Buyer shall make such Tax Returns available for
Sellers' review and approval no later than fifteen (15) Business Days prior to
the due date for filing each such Tax Return.
(c) Buyer and Sellers shall provide the other with such
assistance as may reasonably be requested by the other Party in connection
with the preparation of any Tax Return, any audit or other examination by any
taxing authority, or any judicial or administrative proceedings relating to
liability for Taxes, and each shall retain and provide the requesting party
with any records or information which may be relevant to such return, audit,
examination or proceedings. Any information obtained pursuant to this Section
6.8(c) or pursuant to any other Section hereof providing for the sharing of
information or review of any Tax Return or other instrument relating to Taxes
shall be kept confidential by the parties hereto.
(d) Disputes. In the event that a dispute arises between any
--------
Seller and Buyer regarding Taxes, or any amount due under this Section 6.8,
the affected Parties shall attempt in good faith to resolve such dispute and
any agreed upon amount shall be paid to the appropriate Party. If such dispute
is not resolved within thirty (30) days, the affected Parties shall submit the
dispute to an Independent Accounting Firm for resolution within thirty (30)
days thereafter, which resolution shall be final, conclusive and binding on
such Parties. Notwithstanding anything in this Agreement to the contrary, the
fees and expenses of the Independent Accounting Firm in resolving the dispute
shall be borne 50% by the affected Seller and 50% by Buyer. Any payment
required to be made as a result of the resolution of the dispute by the
Independent Accounting Firm shall be made within ten (10) days after such
resolution, together with any interest, as required for the applicable Tax.
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6.9 Advice of Changes. (a) Prior to the Closing, each Party will
-----------------
advise the other in writing with respect to any matter arising after execution
of this Agreement of which that Party obtains Knowledge and which, if existing
or occurring at the date of this Agreement, would have been required to be set
forth in this Agreement, including any of the Schedules hereto.
(b) Prior to the Closing Date, each Party shall supplement or
amend the Schedules required by this Agreement with respect to any matter
relating to the subject matter thereof hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in the Schedules by such Party. No supplement or amendment
of any Schedule made pursuant to this Section 6.9(b) shall be deemed to cure
any breach of, or expand or limit the scope of, or otherwise modify or affect
any representation or warranty made in this Agreement unless the Parties agree
thereto in writing.
(c) Without limiting the generality of the provisions of
Sections 6.2 and 6.9(a), each Party will advise the other in writing, promptly
upon obtaining Knowledge thereof but in any event within a reasonable period
of time prior thereto, of any hearings or proceedings before any Governmental
Authority which concern any of the Sellers' Required Regulatory Approvals or
the Buyer's Required Regulatory Approvals. Each Party agrees that the other
Parties hereto shall be permitted to participate in any such hearings or
proceedings and to use Commercially Reasonable Efforts to cooperate with such
other Parties in the advancement of any position reasonably taken by such
other Parties to protect their respective interests, and in any case shall not
take any position that may create a Material Adverse Effect or a Buyer
Material Adverse Effect in any such hearing or proceeding.
6.10 Employees.
---------
(a) Buyer shall have the right to offer employment, effective as
of the Closing Date, to any of those employees of PP&L employed at Sunbury SES
as of the Closing Date who are covered by the IBEW Collective Bargaining
Agreement (the "Union Employees"). Each person who becomes employed by Buyer
---------------
pursuant to this Section 6.10(a) shall be referred to herein as a "Transferred
-----------
Union Employee".
- --------------
(b) In order to encourage those Union Employees to whom Buyer
offers employment pursuant to Section 6.10(a) to accept Buyer's offer, Buyer
shall, concurrent with the offer of employment, offer a transition bonus equal
to $5,000 to each Union Employee who accepts employment with Buyer. Such
bonus shall be payable on the date which is fourteen (14) Business Days after
Closing.
(c) Any Union Employee who is not offered employment with Buyer
or who refuses an offer of employment from Buyer will be treated by PP&L, at
PP&L's expense, as a displaced employee under the terms of the IBEW Collective
Bargaining Agreement.
(d) (i) Schedule 6.10(d) sets forth a list of the collective
bargaining agreements and amendments thereto, to which PP&L is a party with
the IBEW in connection with the Purchased Assets (collectively, the "IBEW
----
Collective Bargaining Agreement"). Transferred Union Employees
- -------------------------------
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shall retain their seniority and receive full credit for service with PP&L in
connection with entitlement to vacation and all other benefits and rights under
the IBEW Collective Bargaining Agreement to which seniority or years of service
are applicable. On the Closing Date, Buyer shall, subject to the terms and
conditions of the IBEW Memorandum of Understanding (as hereinafter defined),
assume the IBEW Collective Bargaining Agreement for the duration of its term
as it relates to Transferred Union Employees and other employees to be
employed at Sunbury Station in positions covered by the IBEW Collective
Bargaining Agreement and shall comply with all applicable obligations under
the IBEW Collective Bargaining Agreement. Buyer shall be required to establish
a pension plan and benefit programs for the duration of the term of the IBEW
Collective Bargaining Agreement which are substantially equivalent to PP&L's
plans and provide at least the same level of benefits or coverage as do PP&L's
plans as of the Closing Date in accordance with any restrictions contained in
the IBEW Collective Bargaining Agreement, as modified by the IBEW Memorandum
of Understanding (as defined in Section 7.1(q)). Buyer further agree to
recognize the IBEW as the collective bargaining agent for the employees in
positions covered by the IBEW Collective Bargaining Agreement.
(e) Buyer shall also have the right to offer employment,
effective as of the Closing Date, to each employee of Sellers who is listed on
Schedule 6.10(e) (the "Non-Union Employees"). Each person who becomes employed
-------------------
by Buyer pursuant to this Section 6.10(e) shall be referred to herein as a
"Transferred Non-Union Employee". All such offers of employment shall be
------------------------------
subject to the following requirements:
(i) Each Non-Union Employee who is offered employment by
Buyer shall be offered a full time position with Buyer for a minimum
period of two years after the Closing Date (the "Employment Term");
---------------
provided, however, that nothing herein shall prevent Buyer from
-------- -------
terminating any Non-Union Employee for wilful misconduct as that term
has been construed under the Pennsylvania Unemployment Compensation Act.
(ii) During the Employment Term, Buyer shall pay each
Transferred Non-Union Employee such annual salary and opportunity for
bonuses or other incentive compensation and provide each Transferred
Non-Union Employee with such benefits that are not less, in the
aggregate, than the annual salary and opportunity for bonuses or other
incentive compensation and benefits that such Transferred Non-Union
Employee received from Sellers with respect to the calendar year ended
December 31, 1998.
(iii) Transferred Non-Union Employees shall be given credit
for all service with Sellers and their Affiliates under all employee
benefit plans, programs, and fringe benefit plans programs, and fringe
benefit arrangements of Buyer ("Buyer's Benefit Plans") in which they
---------------------
become participants; provided, however, that such service shall not be
-------- -------
required to be recognized to the extent that such recognition would
result in a duplication of benefits.
(iv) As of the Closing Date, all Transferred Non-Union
Employees shall cease to participate in the employee welfare benefit
plans (as such term is defined in ERISA) maintained or sponsored by
Sellers or their Affiliates (the "Prior Welfare Plans") and shall
-------------------
commence to participate in welfare benefit plans of Buyer or its
Affiliates (the "Replacement
-----------
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Welfare Plans"). Buyer shall (i) waive all limitations as to pre-existing
-------------
condition exclusions and waiting periods with respect to the Transferred
Non-Union Employees under the Replacement Welfare Plans, other than, but
only to the extent of, limitations or waiting periods that were in effect
with respect to such employees under the Prior Welfare Plans and that have
not been satisfied as of the Closing Date, and (ii) provide each
Transferred Non-Union Employee with credit for any co-payments and
deductibles paid prior to the Closing Date in satisfying any deductible or
out-of-pocket requirements under the Replacement Welfare Plans (on a
pro-rata basis in the event of a difference in plan years).
(v) Buyer shall pay each Transferred Non-Union Employee a
transition bonus equal to $5,000 on the date which is fourteen (14)
Business Days after Closing. In addition, Buyer shall pay each such
Transferred Non-Union Employee a retention bonus equal to $5,000 upon
the fifth anniversary of such Transferred Non-Union Employee's
employment with Buyer.
(vi) If a Transferred Non-Union Employee is terminated by
Buyer (other than for wilful misconduct) prior to the third anniversary
of such Transferred Non-Union Employee's employment with Buyer, then (i)
with respect to all such Non-Union Employees who were not employees of
LJC as of the Closing Date, PP&L or an Affiliate of PP&L, will either,
at its sole discretion and at its expense, (A) treat the employee as a
displaced manager under PP&L's then current policies or (B) consider the
employee for reemployment with PP&L or an Affiliate of PP&L (but with no
obligation to hire such employee), and (ii) with respect to all such
Non-Union Employees who were employees of LJC as of the Closing Date,
PP&L or an Affiliate of PP&L, at its expense, will treat the employee as
a terminated employee pursuant to the terms of any severance agreement
or policy in effect for such employees as of the Closing Date. Any
severance obligations on the part of PP&L or an Affiliate of PP&L will,
however, be reduced by the amount of any severance payments made by
Buyer.
(f) Any Non-Union Employees who are not LJC employees as of the
Closing Date, and who are not offered or do not accept employment offers from
Buyer, will be treated as displaced employees under current PP&L policies at
PP&L's expense. Any Non-Union Employees who are LJC employees as of the
Closing Date, and who are not offered or do not accept employment offers from
Buyer, will receive severance under the severance agreement or policy in
effect for such employees as of the Closing Date, at PP&L's expense. Neither
Buyer nor any of its Affiliates will hire any employee who receives severance
from PP&L or LJC for a period of one year from the date of termination giving
rise to such severance.
(g) As soon as practicable after, and in any event within ninety
(90) days after, and effective as of, the Closing Date, Buyer shall establish
a defined benefit pension plan (or plans) and trust (or trusts) intended to
qualify under Section 401(a) and Section 501(a) of the Code (such plan or
plans referred to as "Buyer's Pension Plan"). As soon as practicable
--------------------
following receipt by Sellers of written evidence of the adoption of Buyer's
Pension Plan and the trust (or trusts) thereunder by Buyer and either (A) the
receipt by Sellers of a copy of a favorable determination letter issued by the
Internal Revenue Service with respect to Buyer's Pension Plan or (B) an
opinion,
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satisfactory to Sellers' counsel, of Buyer's counsel to the effect that the
terms of Buyer's Pension Plan and its related trust qualify under Section
401(a) and Section 501(a) of the Code, Sellers shall direct the trustee or
trustees of the PP&L Retirement Plan ("Sellers' Pension Plan") to transfer
---------------------
from the trust or trusts under Sellers' Pension Plan to the trust or trusts
under Buyer's Pension Plan, an amount determined by the certified actuary
of the Sellers' Pension Plan ("Sellers' Actuary"), which shall be equal to
----------------
(i) the present value of all accrued benefits, including all ancillary
benefits, under Sellers' Pension Plan as of the Closing Date, in respect
of those Transferred Union Employees and Transferred Non-Union Employees
who are participants in Sellers' Pension Plan as of the Closing Date and
who become employees of Buyer or any subsidiary immediately following
the Closing Date ("Transferred Pension Employees") plus (ii) interest
-----------------------------
accrued from the Closing Date to the date of transfer on the amount of
assets to be transferred, determined at a rate reasonably determined by
Sellers' Actuary. The calculation of the present value of the benefits
described in clause (i) of the preceding sentence shall be determined
on an ongoing basis utilizing the current assumptions used by the
Sellers for accounting purposes (Financial Accounting Standard 87)
under Sellers' Pension Plan, except that the discount rate used
shall be 5.75%. The determination by Sellers' Actuary shall be final
and binding (it being understood, however, that Sellers' Actuary
shall consult in good faith with an actuary selected by the Buyer
prior to making any final determination). Transferred Pension
Employees shall cease to accrue benefits under Sellers' Pension
Plan as of the Closing Date. At the time of transfer of the a
mount set forth in this Section 6.10(g), Buyer's Pension Plan
shall assume all liabilities for all accrued benefits, including
all ancillary benefits, under Sellers' Pension Plan in respect of
Transferred Pension Employees and Sellers' Pension Plan shall be
relieved of all liabilities for such benefits. Notwithstanding
any other provisions in this Section 6.10(g), the amount of assets
to be transferred pursuant to this Section shall satisfy the
applicable requirements of Section 414(l) of the Code and it
is expected that the amount described in this Section 6.10(g)
will satisfy such
Code requirements.
Buyer and Sellers shall provide each other with such records and
information as may be necessary or appropriate to carry out their obligations
under this Section 6.10(g) for the purposes of administration of Buyer's
Pension Plan, and they shall cooperate in the filing of documents required by
the transfer of assets and liabilities described herein. Notwithstanding
anything contained herein to the contrary, no such transfer shall take place
until the 31st day following the filing of all required Forms 5310-A in
connection therewith.
(h) To the extent allowable by Law, Buyer shall take any and all
necessary action to cause the trustee of Buyer's defined contribution plan, if
requested to do so by a Transferred Union Employee or a Transferred Non-Union
Employee, to accept a direct "rollover" of all or a portion of said employee's
distribution from any tax qualified defined contribution plan or plans of
Sellers or any Affiliate thereof, into the tax qualified defined contribution
plan maintained by Buyer or an Affiliate of Buyer.
(i) Sellers shall be responsible, with respect to the Purchased
Assets, for performing and discharging all requirements under the WARN Act and
under applicable state and local laws and regulations for the notification of
its employees of any "employment loss" within the meaning of the WARN Act
which occurs prior to the Closing Date.
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6.11 Risk of Loss.
------------
(a) From the date hereof through the Closing Date, all risk of
loss or damage to the property included in the Purchased Assets shall be borne
by Sellers, other than loss or damage caused by the acts or negligence of
Buyer or any of their respective Representatives, which loss or damage shall
be the responsibility of Buyer.
(b) If, before the Closing Date, all or any portion of the
Purchased Assets is (i) taken by eminent domain or is the subject of a pending
or (to the Knowledge of Sellers) contemplated taking which has not been
consummated, or (ii) damaged or destroyed by fire or other casualty, Sellers
shall notify Buyer promptly in writing of such fact, and (x) in the case of a
condemnation, Sellers shall assign or pay, as the case may be, any proceeds
thereof to Buyer at the Closing and (y) in the case of a casualty, Sellers
shall either restore the damage to the reasonable satisfaction of Buyer or
assign the insurance proceeds therefor to Buyer at the Closing.
Notwithstanding the above, if such casualty or loss results in a Material
Adverse Effect, Buyer and Sellers shall negotiate to settle the loss resulting
from such taking (and such negotiation shall include, without limitation, the
negotiation of a fair and equitable adjustment to the Purchase Price). If no
such settlement is reached within sixty (60) days after Sellers have notified
Buyer of such casualty or loss, then Buyer or Sellers may terminate this
Agreement pursuant to Section 9.1(h).
6.12 Real Property Title; Title Insurance; Surveys.
---------------------------------------------
(a) Sellers shall deliver to Buyer a complete set of surveys
("Surveys") and title insurance commitments ("Title Commitments") for the Real
------- -----------------
Property (excluding the Silt Reserves Real Property) meeting the requirements
of this Section 6.12 within ninety (90) days after the date hereof but in any
event not less than thirty (30) days prior to the Closing Date.
(b) The Title Commitments referred to herein shall be issued by
Chicago Title Insurance Company (or another nationally recognized title
insurer selected by Sellers and reasonably acceptable to Buyer), to the extent
that Chicago Title Insurance Company (or such other title insurer) agrees to
issue to Buyer standard form owner's policies of title insurance with respect
to all Real Property (excluding the Silt Reserves Real Property), together
with a copy of each document to which reference is made in such Title
Commitments, to the extent available. Such policies shall be standard ALTA
form 1992 owner's policies in the full amount of the fair value of the Real
Property allocated respectively to each subject parcel of Real Property under
Section 3.4 hereof, insuring good and marketable title (or good and valid
leasehold estate, as the case may be) thereto (expressly including all
easements and other appurtenances) subject to Permitted Encumbrances.
(c) The Surveys shall be prepared in accordance with ALTA/ACSM
1997 urban (in the case of the Real Property identified as "Sunbury SES" in
Schedule 4.9) or mountain (in the case of the Real Property identified as
"Lady Jane" in Schedule 4.9) standards (including Table A items 1, 2, 3, 4, 5,
6, 7(a), 8, 9, 10, 11(a), 11(b), 11(d) (Sunbury SES only (excluding electric
utility facilities)), 14 (Sunbury SES only) and 15 (Lady Jane only), and any
other item reasonably agreeable between Buyer and Sellers to be omitted), each
dated no more than one hundred and eighty (180) days prior to Closing, and
each detailing the legal description, the perimeter boundaries, all
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improvements located thereon, all easements and encroachments affecting each
such parcel of Real Property and such other matters as may be reasonably
requested by Buyer or the title insurance companies, each containing a
surveyor certificate reasonably acceptable to Buyer and the title insurance
companies, and each prepared by a registered land surveyor in the jurisdiction
where the Real Property is located reasonably satisfactory to Buyer.
(d) Sellers and Buyer agree that the aggregate out-of-pocket
cost of obtaining the Title Commitments, final policy coverage (including the
endorsements referred to in Section 7.1(r) hereof) for the Real Property and
the Surveys shall be paid by Sellers, and that such Surveys shall run to the
benefit of Sellers and Buyer.
6.13 Post-Closing Services. As promptly as possible, and in any case
---------------------
within sixty (60) days after the date of this Agreement, Buyer shall send PP&L
written notification regarding which of those services listed in Schedule 6.13
hereto Buyer would like to have provided by PP&L, or an Affiliate of PP&L,
after the Closing Date and the approximate period(s) of time for which such
services are desired. Buyer and PP&L agree to cooperate and negotiate in good
faith to arrive upon mutually acceptable terms and conditions pursuant to
which PP&L, or an Affiliate of PP&L, will provide such services to Buyer and
to incorporate such terms and conditions into a Generation Support Services
Agreement and/or a Transition Services Agreement to be executed and delivered
by the respective parties thereto at Closing; provided, however, that nothing
-------- -------
herein shall obligate Buyer to purchase (or PP&L, or any Affiliate of PP&L, to
provide) any such services if Buyer and PP&L are unable to agree upon
mutually acceptable terms and conditions for the provision thereof and;
provided, further, that the Parties' inability to agree upon mutually
- -------- -------
acceptable terms and conditions for the provision of any such services shall
not relieve any Party of its obligations to consummate the transactions
otherwise contemplated by this Agreement. Buyer and Sellers agree and
acknowledge that certain of the Sellers' Agreements and Intellectual Property
will not be transferred to Buyer at Closing if those Sellers' Agreements or
Intellectual Property are necessary for or duplicative of the performance by
PP&L, or an Affiliate of PP&L, of the services agreed to between Buyer and
PP&L pursuant to this Section 6.13.
6.14 Easement Agreement. Between the date hereof and the Closing Date,
------------------
Buyer and Sellers agree to cooperate to revise the Form of Easement Agreement
attached as Schedule IV hereto, solely to separate the final Easement
Agreement into two documents, each of which shall substantially reflect the
terms and conditions in the Form of Easement Agreement except that one shall
contain the Parties' agreements with respect to Lady Jane and the other shall
contain the Parties' agreements with respect to Sunbury Station.
6.15 Other Covenants of Buyer. Within thirty (30) days after the
------------------------
Closing Date, Buyer shall inform the Susquehanna River Basin Commission, in
writing, of the change in ownership of the rights described in Section 2.1(h)
and shall take all steps necessary to register such change in ownership.
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ARTICLE VII
CONDITIONS
----------
7.1 Conditions to Obligations of Buyer. The obligation of Buyer to
----------------------------------
effect the purchase of the Purchased Assets and the other transactions
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing Date (or the waiver by Buyer) of the following conditions:
(a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall
have expired or been terminated;
(b) No preliminary or permanent injunction or other order or
decree by any federal or state court or Governmental Authority which prevents
the consummation of the sale of the Purchased Assets contemplated herein shall
have been issued and remain in effect (each Party agreeing to use its
reasonable best efforts to have any such injunction, order or decree lifted)
and no statute, rule or regulation shall have been enacted by any state or
federal government or Governmental Authority which prohibits the consummation
of the sale of the Purchased Assets;
(c) Buyer shall have received all of Buyer's Required Regulatory
Approvals in form and substance reasonably satisfactory (including no unduly
burdensome conditions) to Buyer;
(d) Sellers shall have performed and complied in all material
respects with the covenants and agreements contained in this Agreement which
are required to be performed and complied with by Sellers on or prior to the
Closing Date;
(e) The representations and warranties of Sellers and their
Affiliates, as applicable, set forth in this Agreement and in the Additional
Agreements shall be true and correct in all material respects as of the
Closing Date as though made at and as of the Closing Date (except to the
extent that such representations and warranties may be modified in connection
with the transaction contemplated in Section 10.6 hereof);
(f) Buyer shall have received certificates from an authorized
officer of Sellers, dated the Closing Date, to the effect that, to such
officer's Knowledge, the conditions set forth in Section 7.1(d) and (e) have
been satisfied by Sellers;
(g) Buyer shall have received an opinion from Sellers' counsel
or counsels, including in-house counsel, reasonably acceptable to Buyer, dated
the Closing Date and reasonably satisfactory in form and substance to Buyer
and its counsel, substantially to the effect that:
(i) Each Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation and each Seller has the corporate power and authority to
execute and deliver this Agreement and each Additional Agreement to
which it is a party and to consummate the transactions contemplated by
it hereby and thereby; and the execution and delivery by each Seller of
this Agreement and each Additional Agreement to which it is a party and
the consummation of the sale of the
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Purchased Assets contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action required on the part of such
Seller;
(ii) This Agreement and each Additional Agreement has been
duly and validly executed and delivered by each Seller or their
respective Affiliates, as applicable, that is a party hereto and thereto
and constitutes a valid and binding agreement of each such Seller or
Affiliate, enforceable in accordance with its respective terms, except
that such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights
generally and general principles of equity (regardless of whether
enforcement is considered in a proceeding at law or in equity);
(iii) The execution, delivery and performance of this
Agreement and each Additional Agreement by each Seller that is a party
hereto and thereto does not (A) conflict with the Certificate of
Incorporation or Bylaws of any such Seller or (B) to the Knowledge of
such counsel, constitute a violation of or default under any agreement
or instrument which is material to the business or financial condition
of any such Seller;
(iv) The Bill of Sale and other transfer instruments
described in Section 3.6 are in proper form to transfer to Buyer such
title as was held by the applicable Seller to the Purchased Assets;
(v) No consent or approval of, filing with, or notice to,
any Governmental Authority is necessary for the execution and delivery
of this Agreement by Sellers or the consummation by Sellers of the
transactions contemplated hereby, other than (A) such consents,
approvals, filings or notices which, if not obtained or made, will not
prevent Sellers from performing its material obligations hereunder and
(B) such consents, approvals, filings or notices which become applicable
to Sellers or the Purchased Assets as a result of the specific
regulatory status of the Buyer (or any of its Affiliates) or as a result
of any other facts that specifically relate to the business or
activities in which the Buyer (or any of its Affiliates) is or proposes
to be engaged.
(h) Sellers shall have delivered, or caused to be delivered, to
Buyer at the Closing, Sellers' closing deliveries described in Section 3.6;
(i) There shall not have occurred and be continuing a Material
Adverse Effect;
(j) The Purchased Assets shall be free and clear of all
Encumbrances except Permitted Encumbrances;
(k) The Sellers shall have delivered to Buyer Title Commitments
and Surveys meeting the requirements of Section 6.12;
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(l) There shall not be any injunction, judgment, decree, order,
ruling or Law in effect preventing consummation of any of the transactions
contemplated by this Agreement or the Additional Agreements, except as shall
not have a Material Adverse Effect;
(m) Buyer shall have been accepted for membership in PJM
effective on or before the Closing Date and shall have been granted or
obtained the benefit of all necessary approvals and agreements with PJM (other
than credit approval or support) as reasonably necessary for Buyer to buy and
sell energy, capacity and available ancillary services within or through PJM;
(n) Sellers shall have transferred to Buyer (or Buyer shall have
acquired satisfactory substitutes for) each of the Permits listed on Schedule
7.1(n);
(o) Sellers shall have received all of the consents or
approvals necessary to assign each of the Sellers' Agreements and Intellectual
Property listed on Schedule 7.1(o) to Buyer (except for those consents or
approvals which Sellers shall not be required to obtain due to the fact that
Sellers will be providing certain services to Buyer pursuant to Section 6.13);
(p) Buyer shall have received all of the consents and approvals
listed on Schedule 7.1(p);
(q) A Memorandum of Understanding or other written document in
form reasonably acceptable to Buyer and PP&L (the "IBEW Memorandum of
------------------
Understanding") shall be executed and delivered by the IBEW in favor (and for
- -------------
the benefit) of Buyer and PP&L acknowledging and agreeing that (i) Buyer is
only assuming the IBEW Collective Bargaining Agreement for purposes of Sunbury
Station, that Buyer's obligations under the IBEW Collective Bargaining
Agreement shall extend only to Buyer's operation of Sunbury Station and that
any provisions in the IBEW Collective Bargaining Agreement which relate to
generating facilities or other locations or assets of the Sellers which are
not included as Purchased Assets or which describe inter-location rights
within the PP&L system shall have no application to Buyer as a result of
Buyer's acquisition of Sunbury Station or assumption of the IBEW Collective
Bargaining Agreement in connection therewith, (ii) for the duration of the
IBEW Collective Bargaining Agreement, Buyer will provide employee benefit
programs that, in the aggregate, are substantially equivalent to the benefit
programs provided by PP&L as of the Closing Date to its employees represented
by the IBEW, and (iii) Buyer's assumption of the IBEW Collective Bargaining
Agreement as clarified by the IBEW Memorandum of Understanding fully satisfies
the requirement, set forth in the IBEW Collective Bargaining Agreement, that
Buyer assumes the terms and conditions of the IBEW Collective Bargaining
Agreement as a condition to the sale of Sunbury Station to Buyer. In order to
facilitate the fulfillment of the foregoing condition and otherwise to
facilitate the transition of ownership from Sellers to Buyer, Sellers shall
arrange such meetings between or among the IBEW, Buyer, and PP&L, prior to the
Closing Date, as Buyer may reasonably request. Nothing in this Agreement
shall constitute a warranty or other assurance by Sellers that the IBEW's
agreement to the IBEW Memorandum of Understanding can be obtained;
(r) All title policies obtained pursuant to the Title
Commitments procured in accordance with Section 6.12 shall insure title in
accordance with the representations and warranties
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set forth in this Agreement with respect thereto and shall be subject only to
such conditions and exceptions as Buyer is required to take title subject to
pursuant to the provisions of this Agreement and shall contain the following
endorsements: (i) an endorsement over rights of creditors; (ii) a "gap"
endorsement; (iii) an access endorsement; (iv) a location endorsement; (v) a
comprehensive endorsement; and (vi) a tax parcel endorsement, to the extent
available. Without limiting the foregoing, such policies shall contain a
current survey reading, no exception for parties in possession except pursuant
to the Easements and the Control House Lease and no exceptions for mechanics'
liens or statutory liens for Taxes or, in the alternative, shall insure that
such liens shall not be collected out of or enforced against the Real Property;
and
(s) Sellers shall have received all of Sellers' Required
Regulatory Approvals in form and substance reasonably satisfactory (including
no unduly burdensome conditions) to Sellers.
7.2 Conditions to Obligations of Sellers. The obligation of Sellers
------------------------------------
to effect the sale of the Purchased Assets and the other transactions
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing Date (or the waiver by Sellers) of the following conditions:
(a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall
have expired or been terminated;
(b) No preliminary or permanent injunction or other order or
decree by any federal or state court which prevents the consummation of the
sale of the Purchased Assets contemplated herein shall have been issued and
remain in effect (each Party agreeing to use its reasonable best efforts to
have any such injunction, order or decree lifted) and no statute, rule or
regulation shall have been enacted by any state or federal government or
Governmental Authority in the United States which prohibits the consummation
of the sale of the Purchased Assets;
(c) Sellers shall have received all of Sellers' Required
Regulatory Approvals in form and substance reasonably satisfactory (including
no unduly burdensome conditions) to Sellers;
(d) Sellers shall have obtained all of the consents and
approvals for the consummation of the sale of the Purchased Assets listed on
Schedule 7.2(d);
(e) Buyer shall have performed and complied in all material
respects with the covenants and agreements contained in this Agreement which
are required to be performed and complied with by Buyer on or prior to the
Closing Date;
(f) The representations and warranties of Buyer set forth in
this Agreement and in the Additional Agreements shall be true and correct in
all material respects as of the Closing Date as though made at and as of the
Closing Date;
(g) Sellers shall have received a certificate from an authorized
officer of Buyer, dated the Closing Date, to the effect that, to such
officer's Knowledge, the conditions set forth in Sections 7.2(e) and (f) have
been satisfied by Buyer;
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(h) Buyer shall have assumed, as set forth in Section 6.10 and
subject to the terms and conditions of the IBEW Memorandum of Understanding,
all of the applicable obligations under the IBEW Collective Bargaining
Agreement as they relate to Transferred Union Employees;
(i) Sellers shall have received an opinion from Buyer's counsel
reasonably acceptable to Sellers, dated the Closing Date and satisfactory in
form and substance to Sellers and their counsel, substantially to the effect
that:
(i) Buyer is a limited liability company duly organized,
validly existing and in good standing under the laws of the state of
Delaware and is qualified to do business in the Commonwealth of
Pennsylvania and has the full power and authority to execute and deliver
this Agreement and the Additional Agreements and to consummate the
transactions contemplated hereby and thereby; and the execution and
delivery by Buyer of this Agreement and the Additional Agreements and
the consummation of the transactions contemplated thereby have been duly
authorized by all necessary action required on the part of Buyer;
(ii) This Agreement and the Additional Agreements have
been duly and validly executed and delivered by Buyer, and constitute
valid and binding agreements of Buyer, enforceable against Buyer in
accordance with their terms, except that such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws affecting or relating to
enforcement of creditor's rights generally and general principles of
equity (regardless of whether enforcement is considered in a proceeding
at law or in equity);
(iii) The execution, delivery and performance of this
Agreement and the Additional Agreements by Buyer does not (A) conflict
with the articles of organization or by-laws (or other organizational
documents), as currently in effect, of Buyer or (B) to the Knowledge of
such counsel, constitute a violation of or default under any agreements
and instruments which are material to the business or financial
condition of Buyer;
(iv) The Assignment and Assumption Agreement and other
transfer instruments described in Section 3.7 are in proper form for
Buyer to assume the Assumed Liabilities; and
(v) No consent or approval of, filing with, or notice to,
any Governmental Authority is necessary for Buyer's execution and
delivery of this Agreement and the Additional Agreements or the
consummation by Buyer of the transactions contemplated hereby and
thereby, other than such consents, approvals, filings or notices, which,
if not obtained or made, will not prevent Buyer from performing its
obligations under the Agreement and the Additional Agreements.
(j) Buyer shall have delivered, or caused to be delivered, to
Sellers at the Closing, Buyer's closing deliveries described in Section 3.7;
and
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(k) There shall not be any injunction, judgment, decree, order,
ruling or Law in effect preventing consummation of any of the transactions
contemplated by this Agreement or the Additional Agreements, except as shall
not have a Material Adverse Effect.
ARTICLE VIII
INDEMNIFICATION
---------------
8.1 Indemnification.
---------------
(a) Buyer shall indemnify, defend and hold harmless each Seller
and its Affiliates, and the respective officers, directors, employees,
shareholders, Representatives and agents of each (each, a "Sellers'
--------
Indemnitee"), from and against any and all claims, demands, suits, losses,
- ----------
liabilities, penalties, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all actions,
suits, proceedings, assessments, judgments, settlements and compromises
relating thereto and reasonable attorneys' fees and reasonable disbursements
in connection therewith) (each, an "Indemnifiable Loss"), asserted against or
------------------
suffered by any Sellers' Indemnitee relating to, resulting from or arising out
of (i) any breach by Buyer of any representation, warranty, covenant or
agreement of Buyer contained in this Agreement (including, without
limitation, any breach by Buyer of their obligation to post any performance,
surety or other bonds required pursuant to Section 6.6(d)) , (ii) the Assumed
Liabilities, (iii) any loss or damages resulting from or arising out of any
Inspection, or (iv) any Third Party Claims against a Sellers' Indemnitee
arising out of or in connection with Buyer's ownership or operation of Sunbury
Station, Lady Jane and the other Purchased Assets on or after the Closing
Date.
(b) Sellers shall indemnify, defend and hold harmless Buyer and
its Affiliates, and the respective officers, directors, employees,
shareholders, Representatives and agents of each (each, a "Buyer's
-------
Indemnitee"), from and against any and all Indemnifiable Losses asserted
- ----------
against or suffered by any Buyer's Indemnitee relating to, resulting from or
arising out of (i) the Excluded Liabilities, (ii) any Third Party Claims
against a Buyer's Indemnitee arising out of or in connection with Sellers'
ownership or operation of the Excluded Assets, (iii) any breach by Sellers of
any representation, warranty, covenant or agreement of Sellers contained in
this Agreement or (iv) noncompliance by Sellers with any bulk sales or
transfer laws as provided in Section 10.12.
(c) Except as otherwise provided in Section 8.1(b), (i) Buyer,
for itself and on behalf of its Representatives and Affiliates, does hereby
release, hold harmless and forever discharge Sellers and each other Sellers'
Indemnitee from any and all Indemnifiable Losses of any kind or character,
whether known or unknown, hidden or concealed, resulting from or arising out
of any Environmental Condition or violation of Environmental Law relating to
the Purchased Assets other than any liabilities or obligations described in
Section 2.4(g), Section 2.4(h), Section 2.4(i) or Section 2.4(j) and (ii)
Buyer hereby waives any and all rights and benefits with respect to such
Indemnifiable Losses that it now has, or in the future may have conferred upon
it by virtue of any statute or common law principle which provides that a
general release does not extend to claims which a party does not know or
suspect to exist in its favor at the time of executing the release, if
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knowledge of such claims would have materially affected such party's
settlement with the obligor. In this connection, Buyer hereby acknowledges
that it is aware that factual matters now unknown to it may have given or may
hereafter give rise to Indemnifiable Losses to which this release relates that
are presently unknown, unanticipated and unsuspected, and it further agrees
that this release has been negotiated and agreed upon in light of that
awareness and they nevertheless hereby intend to release Sellers and each
other Sellers' Indemnitee from the Indemnifiable Losses described in the first
sentence of this paragraph.
(d) The amount of any Indemnifiable Loss shall be reduced (i) to
the extent that any Person entitled to receive indemnification under this
Agreement (an "Indemnitee") receives any insurance proceeds with respect to
----------
such Indemnifiable Loss, (ii) to take into account any net Tax benefit
realized by the Indemnitee arising from the recognition of such Indemnifiable
Loss (but only to the extent that the Parties, following good faith
negotiations for a period of thirty (30) days, jointly agree that such Tax
benefit would be realized by the Indemnitee) and (iii) by the amount of any
payment actually received by the Indemnitee with respect to an Indemnifiable
Loss.
(e) The expiration or termination of any covenant, agreement,
representation or warranty shall not affect the Parties' obligations under
this Section 8.1 if the Indemnitee provided the Person required to provide
indemnification under this Agreement (the "Indemnifying Party") with proper
------------------
notice of the claim or event for which indemnification is sought prior to such
expiration, termination or extinguishment.
(f) Except to the extent otherwise provided in Article IX, the
rights and remedies of Sellers and Buyer under this Article VIII are exclusive
and in lieu of any and all other rights and remedies which Sellers and Buyer
may have under this Agreement or otherwise for declaratory, injunctive or
monetary relief, with respect to (i) any breach of or failure to perform any
representation, warranty, covenant or agreement set forth in this Agreement,
after the occurrence of the Closing, or (ii) the Assumed Liabilities or the
Excluded Liabilities, as the case may be.
(g) Each Party waives any provision of law to the extent that it
would limit or restrict the agreements contained in this Section 8.1. Nothing
herein shall prevent either Party from terminating this Agreement in
accordance with Article IX. Notwithstanding any provisions in this Agreement
to the contrary, each Party to this Agreement shall retain its remedies at law
or in equity with respect to willful, knowing or intentional
misrepresentations or breaches of this Agreement, including a failure to
consummate the Closing hereunder when and if required to do so.
(h) Notwithstanding anything to the contrary herein, no party
(including an Indemnitee) shall be entitled to recover from any other party
(including an Indemnifying Party) for any liabilities, damages, obligations,
payments, losses, costs, or expenses under this Agreement or any amount in
excess of the actual compensatory damages, court costs and reasonable
attorney's fees suffered by such party. Buyer and Sellers waive any right to
recover punitive, special, exemplary and consequential damages arising in
connection with or with respect to this Agreement. The provisions of this
Section 8.1(h) shall not apply to indemnification for a Third Party Claim.
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(i) Except for any willful, knowing or intentional breach or
misrepresentation, as to which claims may be brought without limitation as to
amount: (i) neither Buyer nor Sellers, as the case may be, shall have any
liability to an Indemnitee for breaches of representations or warranties
pursuant to this Section 8.1 until the aggregate indemnification obligation of
Buyer or Sellers, as the case may be, for breaches of representations or
warranties pursuant to this Section 8.1 exceeds $250,000, and then only to the
extent that the aggregate amount of such indemnification obligation exceeds
$250,000 and (ii) the liability of Buyer or Sellers, as the case may be, for
breaches of representations or warranties pursuant to this Section 8.1 shall
not exceed, in the aggregate, fifty percent (50%) of the Purchase Price, plus
or minus any adjustments to the Purchase Price pursuant to this Agreement.
(j) The rights and obligations of indemnification under this
Section 8.1 shall not be limited or subject to set-off based on any violation
or alleged violation of any obligation under this Agreement or otherwise,
including but not limited to breach or alleged breach by the Indemnitee of any
representation, warranty, covenant or agreement contained in this Agreement.
8.2 Defense of Claims.
-----------------
(a) If any Indemnitee receives notice of the assertion of any
claim or of the commencement of any claim, action, or proceeding made or
brought by any Person who is not a party to this Agreement or any Affiliate of
a Party to this Agreement (a "Third Party Claim") with respect to which
-----------------
indemnification is to be sought from an Indemnifying Party, the Indemnitee
shall give such Indemnifying Party reasonably prompt written notice thereof,
but in any event such notice shall not be given later than twenty (20)
calendar days after the Indemnitee's receipt of notice of such Third Party
Claim. Such notice shall describe the nature of the Third Party Claim in
reasonable detail and shall indicate the estimated amount, if practicable, of
the Indemnifiable Loss that has been or may be sustained by the Indemnitee.
The Indemnifying Party will have the right to participate in or, by giving
written notice to the Indemnitee, to elect to assume the defense of any Third
Party Claim at such Indemnifying Party's expense and by such Indemnifying
Party's own counsel, provided that the counsel for the Indemnifying Party who
shall conduct the defense of such Third Party Claim shall be reasonably
satisfactory to the Indemnitee. The Indemnitee shall cooperate in good faith
in such defense at such Indemnitee's own expense. If an Indemnifying Party
elects not to assume the defense of any Third Party Claim, the Indemnitee may
compromise or settle such Third Party Claim over the objection of the
Indemnifying Party, which settlement or compromise shall conclusively
establish the Indemnifying Party's liability pursuant to this Agreement.
(b) If, within twenty (20) calendar days after an Indemnitee
provides written notice to the Indemnifying Party of any Third Party Claims,
the Indemnitee receives written notice from the Indemnifying Party that such
Indemnifying Party has elected to assume the defense of such Third Party Claim
as provided in Section 8.2(a), the Indemnifying Party will not be liable for
any legal expenses subsequently incurred by the Indemnitee in connection with
the defense thereof; provided, however, that if the Indemnifying Party shall
fail to take reasonable steps necessary to defend diligently such Third Party
Claim within twenty (20) calendar days after receiving notice from the
Indemnitee that the Indemnitee believes the Indemnifying Party has failed to
take such steps, the Indemnitee may assume its own defense and the
Indemnifying Party shall be liable for all
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reasonable expenses thereof. Without the prior written consent of the
Indemnitee, the Indemnifying Party shall not enter into any settlement of any
Third Party Claim which would lead to liability or create any financial or
other obligation on the part of the Indemnitee for which the Indemnitee is not
entitled to indemnification hereunder. If a firm offer is made to settle a
Third Party Claim without leading to liability or the creation of a financial
or other obligation on the part of the Indemnitee for which the Indemnitee is
not entitled to indemnification hereunder and the Indemnifying Party desires
to accept and agree to such offer, the Indemnifying Party shall give written
notice to the Indemnitee to that effect. If the Indemnitee fails to consent
to such firm offer within ten (10) calendar days after its receipt of such
notice, the Indemnifying Party shall be relieved of its obligations to defend
such Third Party Claim and the Indemnitee may contest or defend such Third
Party Claim. In such event, the maximum liability of the Indemnifying Party
as to such Third Party Claim will be the amount of such settlement offer
plus reasonable costs or expenses paid or incurred by Indemnitee up to the
date of said notice.
(c) Any claim by an Indemnitee on account of an Indemnifiable
Loss which does not result from a Third Party Claim (a "Direct Claim") shall
------------
be asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, stating the nature of such claim in reasonable detail and indicating
the estimated amount, if practicable, but in any event such notice shall not
be given later than twenty (20) calendar days after the Indemnitee becomes
aware of such Direct Claim, and the Indemnifying Party shall have a period of
thirty (30) calendar days within which to respond to such Direct Claim. If
the Indemnifying Party does not respond within such thirty (30) calendar day
period, the Indemnifying Party shall be deemed to have accepted such claim.
If the Indemnifying Party rejects such claim, the Indemnitee will be free to
seek enforcement of its right to indemnification under this Agreement.
(d) If the amount of any Indemnifiable Loss, at any time
subsequent to the making of an indemnity payment in respect thereof, is
reduced by recovery, settlement or otherwise under or pursuant to any
insurance coverage, or pursuant to any claim, recovery, settlement or payment
by, from or against any other entity, the amount of such reduction, less any
costs, expenses or premiums incurred in connection therewith (together with
interest thereon from the date of payment thereof at the publicly announced
prime rate then in effect of Mellon Bank of Philadelphia) shall promptly be
repaid by the Indemnitee to the Indemnifying Party.
(e) A failure to give timely notice as provided in this Section
8.2 shall not affect the rights or obligations of any Party hereunder except
if, and only to the extent that, as a result of such failure, the Party which
was entitled to receive such notice was actually prejudiced as a result of
such failure.
ARTICLE IX
TERMINATION
-----------
9.1 Termination. (a) This Agreement may be terminated at any time
-----------
prior to the Closing Date by mutual written consent of Sellers and Buyer.
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(b) This Agreement may be terminated by Sellers or Buyer if (i)
any federal or state court of competent jurisdiction shall have issued an
order, judgment or decree permanently restraining, enjoining or otherwise
prohibiting the Closing, and such order, judgment or decree shall have become
final and nonappealable or (ii) any statute, rule, order or regulation shall
have been enacted or issued by any Governmental Authority which, directly or
indirectly, prohibits the consummation of the Closing; or (iii) the Closing
contemplated hereby shall have not occurred on or before the day which is nine
(9) months from the date of this Agreement (the "Termination Date"); provided,
---------------- --------
however, that the right to terminate this Agreement under this Section 9.1(b)
- -------
(iii) shall not be available to any Party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; and provided, further,
-------- -------
that if on the day which is nine (9) months from the date of this Agreement
the conditions to the Closing set forth in Section 7.1(c), (n), (o) or (p) or
7.2(c) or (d) shall not have been fulfilled but all other conditions to the
Closing shall be fulfilled or shall be capable of being fulfilled, then the
Termination Date shall be the day which is eighteen (18) months from the date
of this Agreement.
(c) Except as otherwise provided in this Agreement, this
Agreement may be terminated by the Buyer if any of the Buyer's Required
Regulatory Approvals, the receipt of which is a condition to the obligation of
the Buyer to consummate the Closing as set forth in Section 7.1(c), shall have
been denied (and a petition for rehearing or refiling of an application
initially denied without prejudice shall also have been denied) and such
denial was not caused by a breach of this Agreement by Buyer.
(d) This Agreement may be terminated by Sellers, if any of the
Sellers' Required Regulatory Approvals, the receipt of which is a condition to
the obligation of Sellers to consummate the Closing as set forth in Section
7.2(c), shall have been denied (and a petition for rehearing or refiling of an
application initially denied without prejudice shall also have been denied)
and such denial was not caused by a breach of this Agreement by any Seller.
(e) This Agreement may be terminated by Buyer if there has been
a material violation or breach by Sellers of any covenant, representation or
warranty contained in this Agreement which has rendered the satisfaction of
any condition to the obligations of Buyer to effect the Closing impossible and
such violation or breach is not cured by the earlier of the Closing Date or
the date fifteen (15) days after receipt by Sellers of notice specifying
particularly such violation or breach, and such violation or breach has not
been waived by Buyer.
(f) This Agreement may be terminated by Sellers, if there has
been a material violation or breach by Buyer of any covenant, representation
or warranty contained in this Agreement which has rendered the satisfaction of
any condition to the obligations of Sellers to effect the Closing impossible
and such violation or breach is not cured by the earlier of the Closing Date
or the date fifteen (15) days after receipt by Buyer of notice specifying
particularly such violation or breach, and such violation or breach has not
been waived by Sellers.
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(g) This Agreement may be terminated by Sellers if there shall
have occurred any event or events which materially adversely affect Buyer's
ability to satisfy its obligations pursuant to this Agreement or Buyer's, WPSR
Capital's or PDI's ability to satisfy their respective obligations pursuant to
the Equity Contribution Agreement.
(h) This Agreement may be terminated by Sellers or Buyer in
accordance with the provisions of Section 6.11(b).
(i) This Agreement may be terminated by Sellers or Buyer if the
IBEW Memorandum of Understanding, containing the acknowledgments and
agreements described in Section 7.1(q), is not executed and delivered by the
IBEW within ninety (90) days after the date of this Agreement.
(j) This Agreement may be terminated by Sellers if the Equity
Contribution Agreement ceases to be in effect.
9.2 Procedure and Effect of No-Default Termination. In the event of
----------------------------------------------
termination of this Agreement by any of the Parties pursuant to Section 9.1,
written notice thereof shall forthwith be given by the terminating Party to
the other Party, whereupon, if this Agreement is terminated pursuant to any of
Sections 9.1(a) through (d) and 9.1(g) through (i), the liabilities of the
Parties hereunder will terminate, except as otherwise expressly provided in
this Agreement, and thereafter neither Party shall have any recourse against
the other by reason of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
------------------------
10.1 Amendment and Modification. Subject to applicable Law, this
--------------------------
Agreement may be amended, modified or supplemented only by written agreement
of Sellers and Buyer.
10.2 Waiver of Compliance; Consents. Except as otherwise
--------------------------------
specifically provided in this Agreement, any failure of any of the Parties to
comply with any obligation, covenant, agreement or condition herein may be
waived by the Party entitled to the benefits thereof only by a written
instrument signed by the Party granting such waiver, but such waiver of such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent failure to comply therewith.
10.3 No Survival. Subject to the provisions of Section 9.2, each and
-----------
every representation, warranty and covenant contained in this Agreement (other
than (a) the representations, warranties or covenants contained in Sections
2.5, 3.3(c), 3.4, 3.5(b), 5.4, 5.7, 6.2, 6.4, 6.5, 6.6, 6.7, 6.8, 6.10, 6.13,
6.15 and in Article VIII (and any other covenant which by its terms shall
survive the Closing), which provisions shall survive the Closing in accordance
with their terms and (b) the representations and warranties contained in
Articles IV and V, which representations and warranties shall survive the
Closing for a period of one (1) year (other than the representations and
warranties contained in
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(i) Sections 4.1, 4.2, 4.3, 4.5(a), 5.1, 5.2, 5.3 and 5.8, which
representations and warranties shall continue indefinitely; (ii) the
representation and warranty in Section 4.14, which representation and
warranty shall survive for the applicable statute of limitations and
(iii) the representation and warranty in Section 4.6, which representation
and warranty shall survive for three (3) years from the Closing)) shall
expire with, and be terminated and extinguished by the consummation of the
sale of the Purchased Assets and the transfer of the Assumed Liabilities
pursuant to this Agreement and such representations, warranties and covenants
shall not survive the Closing Date; and none of Sellers, Buyer or any
officer, director, trustee or Affiliate of any of them shall be under any
liability whatsoever with respect to any such representation, warranty or
covenant.
10.4 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given if delivered personally or by facsimile
transmission, or mailed by overnight courier or registered or certified mail
(return receipt requested), postage prepaid, to the recipient Party at its
address (or at such other address or facsimile number for a Party as shall be
specified by like notice; provided, however, that notices of a change of
-------- -------
address shall be effective only upon receipt thereof):
(a) If to Sellers, to:
PP&L, Inc.
2 North Ninth Street
Allentown, PA 18101
Attention: Robert J. Grey, Esq.
Facsimile: (610) 774-4455
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Attention: Michael P. Rogan, Esq.
Facsimile: (202) 393-5760
(b) if to Buyer, to:
Sunbury Holdings, LLC
c/o WPS Power Development, Inc.
677 Baeten Road
Green Bay, WI 54304
Attention: Gerald L. Mroczkowski, Vice President
Facsimile: (920) 490-5999
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with a copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202-5367
Attention: Mary Ann C. Halloin, Esq.
Facsimile: (414) 297-4900
10.5 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of the Parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
Party hereto, including by operation of law, without the prior written consent
of the other Party, nor is this Agreement intended to confer upon any other
Person except the Parties hereto any rights, interests, obligations or
remedies hereunder. No provision of this Agreement shall create any third
party beneficiary rights in any employee or former employee of Sellers
(including any beneficiary or dependent thereof) in respect of continued
employment or resumed employment, and no provision of this Agreement shall
create any rights in any such Persons in respect of any benefits that may be
provided, directly or indirectly, under any employee benefit plan or
arrangement except as expressly provided for thereunder. Notwithstanding the
foregoing, (i)(a) Sellers may assign all or any portion of its rights and
obligations hereunder to any one or more Affiliates and (b) Buyer may assign
all or any portion of their rights and obligations hereunder to any one or
more wholly owned Subsidiaries (direct or indirect) and upon Buyer's or
Sellers', as applicable, receipt of notice from Sellers or Buyer, as
applicable, of any such assignment, such assignee will be deemed to have
assumed, ratified, agreed to be bound by and perform all such obligations, and
all references herein to "Sellers" or "Buyer", as applicable shall thereafter
be deemed to be references to such assignee in each case without the necessity
for further act or evidence by the Parties hereto or such assignee, and (ii)
Buyer may assign its rights hereunder and under any Additional Agreement to
any bank, financial institution or other lender providing financing to Buyer
(on a non- or limited recourse basis or otherwise) from time to time as
collateral security for such financing; provided, however, that no assignment
-------- -------
pursuant to clause (i)(a), (i)(b) or (ii) hereof shall relieve or discharge
Buyer or Sellers, as the case may be, from any of its obligations hereunder.
10.6 Transfer of Certain Purchased Assets to Affiliates of PP&L. Prior
----------------------------------------------------------
to Closing, PP&L may sell, assign, convey, transfer and deliver to Resources
or any other Affiliate of PP&L, all or any portion of its rights, title and
interest in, to and under the Purchased Assets (the "Interim Asset Transfer").
----------------------
In such event, PP&L, Resources or such other Affiliate of PP&L, as
applicable, and Buyer shall enter into a supplemental agreement pursuant to
which (i) Resources or such other Affiliate of PP&L shall make the
representation set forth in Section 4.5 (Title and Related Matters) or Section
4.20 (Emission Allowances), as applicable, with respect to the Purchased
Assets transferred to it, as of the date of the Interim Asset Transfer and
(ii) Resources or such other Affiliate of PP&L shall agree to execute and
deliver all documents of conveyance which are necessary and appropriate for
the effective transfer of the Purchased Assets to Buyer at Closing.
10.7 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the law of the Commonwealth of Pennsylvania (without giving
effect to conflict of law
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principles) as to all matters, including but not limited to matters of
validity, construction, effect, performance and remedies. The parties
hereto agree that venue in any and all actions and proceedings related
to the subject matter of this agreement shall be in the state and federal
courts in and for the Commonwealth of Pennsylvania which courts shall have
exclusive jurisdiction for such purpose, and the parties hereto irrevocably
submit to the exclusive jurisdiction of such courts and irrevocably waive the
defense of an inconvenient forum to the maintenance of any such action or
proceeding. Service of process may be made in any manner recognized by such
courts. Each of the parties hereto irrevocably waives its right to a jury
trial with respect to any action or claim arising out of any dispute in
connection with this agreement or the transactions contemplated hereby.
10.8 Counterparts. 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.
10.9 Interpretation. The article and section headings contained in
--------------
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
10.10 Schedules. Except as otherwise provided in this Agreement, all
---------
Schedules referred to herein are intended to be and hereby are specifically
made a part of this Agreement.
10.11 Entire Agreement. This Agreement, the Confidentiality Agreement,
----------------
and the Additional Agreements including the Schedules, exhibits, documents,
certificates and instruments referred to herein or therein, embody the entire
agreement and understanding of the Parties hereto in respect of the
transactions contemplated by this Agreement. There are no restrictions,
promises, representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein or therein. It is expressly
acknowledged and agreed that there are no restrictions, promises,
representations, warranties, covenants or undertakings contained in any
material made available to Buyer pursuant to the terms of the Confidentiality
Agreement (including the Offering Memorandum dated November 1998, previously
made available to Buyer by Sellers and J.P. Morgan Securities, Inc.). This
Agreement supersedes all prior agreements and understandings between the
Parties other than the Confidentiality Agreement with respect to such
transactions.
10.12 Bulk Sales Laws. Buyer acknowledges that, notwithstanding
---------------
anything in this Agreement to the contrary, Sellers will not comply with the
provision of the bulk sales laws of any jurisdiction in connection with the
transactions contemplated by this Agreement. Buyer hereby waives compliance
by Sellers with the provisions of the bulk sales laws of all applicable
jurisdictions.
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10.13 U.S. Dollars. Unless otherwise stated, all dollar amounts set
------------
forth herein are United States (U.S.) dollars.
[signature pages follow]
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<PAGE>
IN WITNESS WHEREOF, Sellers and Buyer have caused this Agreement
to be signed by their respective duly authorized officers as of the date first
above written.
Sellers
-------
PP&L, INC.
By: /s/ J. J. McCabe
---------------------------
Name: Joseph J. McCabe
Title: Vice President and Controller
PP&L RESOURCES, INC.
By: /s/ J. J. McCabe
---------------------------
Name: Joseph J. McCabe
Title: Vice President and Controller
LADY JANE COLLIERIES, INC.
By: /s/ Robert J. Shovlin
---------------------------
Name: Robert J. Shovlin
Title: President
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Buyer
-----
SUNBURY HOLDINGS, LLC
By: WPS Power Development, Inc.,
as the sole member of Sunbury
Holdings, LLC
By: /s/ Gerald L. Mroczkowski
---------------------------
Name: Gerald L. Mroczkowski
Title: Vice President
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EXHIBIT 3B-1
WPS RESOURCES CORPORATION
BY-LAWS
As in Effect February 10, 2000
ARTICLE I. OFFICES
1. PRINCIPAL OFFICE
The principal office of the Corporation in the State of Wisconsin shall
be in the City of Green Bay. The Corporation may also have offices at
such other places, within and outside of the State of Wisconsin, as the
Board of Directors may designate or as the business of the Corporation
may require.
2. REGISTERED OFFICE
The Board of Directors shall designate the registered office of the
Corporation and may change such registered office by resolution.
ARTICLE II. SHAREHOLDERS
1. ANNUAL MEETING
The annual meeting of the shareholders ("Annual Meeting") shall be held
each year not later than the fourth Tuesday in May, at such time or on
such day as may be designated by resolution of the Board of Directors.
In fixing a meeting date for any Annual Meeting, the Board of Directors
may consider such factors as it deems relevant within the good faith
exercise of its business judgment.
2. PURPOSES OF ANNUAL MEETING
At each Annual Meeting, the shareholders shall elect the number of
directors equal to the number of directors in the class whose term
expires at the time of such Annual Meeting and transact such other
business as may properly come before the Annual Meeting in accordance
with Section 14 of Article II of these By-laws. If the election of
directors shall not be held on the date fixed as herein provided, for
any Annual Meeting, or any adjournment thereof, the Board of Directors
shall cause the election to be held at a special meeting of shareholders
(a "Special Meeting") as soon thereafter as is practicable.
3. SPECIAL MEETINGS
a. A Special Meeting may be called only by (i) the Board of Directors,
(ii) the Chairman of the Board, (iii) the President or (iv) the
Secretary and shall be
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called by the Chairman of the Board, the President or the Secretary
upon the demand, in accordance with this Section 3, of the holders
of record of shares representing at least 10% of all the votes
entitled to be cast on any issue proposed to be considered at the
Special Meeting.
b. In order that the Corporation may determine the shareholders
entitled to demand a Special Meeting, the Board of Directors may
fix a record date to determine the shareholders entitled to make
such a demand (the "Demand Record Date"). The Demand Record Date
shall not precede the date upon which the resolution fixing the
Demand Record Date is adopted by the Board of Directors and shall
not be more than ten days after the date upon which the resolution
fixing the Demand Record Date is adopted by the Board of
Directors. Any shareholder of record seeking to have shareholders
demand a Special Meeting shall, by sending written notice to the
Secretary of the Corporation by hand or by certified or registered
mail, return receipt requested, request the Board of Directors to
fix a Demand Record Date. The Board of Directors shall promptly,
but in all events within ten days after the date on which a valid
request to fix a Demand Record Date is received, adopt a
resolution fixing the Demand Record Date and shall make a public
announcement of such Demand Record Date. If no Demand Record Date
has been fixed by the Board of Directors within ten days after the
date on which such request is received by the Secretary, the
Demand Record Date shall be the 10th day after the first date on
which a valid written request to set a Demand Record Date is
received by the Secretary. To be valid, such written request
shall set forth the purpose or purposes for which the Special
Meeting is to be held, shall be signed by one or more shareholders
of record (or their duly authorized proxies or other
representatives), shall bear the date of signature of each such
shareholder (or proxy or other representative) and shall set forth
all information about each such shareholder and about the
beneficial owner or owners, if any, on whose behalf the request is
made that would be required to be set forth in a shareholder's
notice described in paragraph (a) (ii) of Section 14 of this
Article II.
c. In order for a shareholder or shareholders to demand a Special
Meeting, a written demand or demands for a Special Meeting by the
holders of record as of the Demand Record Date of shares
representing at least 10% of all the votes entitled to be cast on
any issue proposed to be considered at the Special Meeting must be
delivered to the Corporation. To be valid, each written demand by
a shareholder for a Special Meeting shall set forth the specific
purpose or purposes for which the Special Meeting is to be held
(which purpose or purposes shall be limited to the purpose or
purposes set forth in the written request to set a Demand Record
Date received by the Corporation pursuant to paragraph (b) of this
Section 3),
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shall be signed by one or more persons who as of the Demand Record
Date are shareholders of record (or their duly authorized proxies
or other representatives), shall bear the date of signature of each
such shareholder (or proxy or other representative), and shall set
forth the name and address, as they appear in the Corporation's
books, of each shareholder signing such demand and the class and
number of shares of the Corporation which are owned of record and
beneficially by each such shareholder, shall be sent to the
Secretary by hand or by certified or registered mail, return receipt
requested, and shall be received by the Secretary within seventy
days after the Demand Record Date.
d. The Corporation shall not be required to call a Special Meeting
upon shareholder demand unless, in addition to the documents
required by paragraph (c) of this Section 3, the Secretary
receives a written agreement signed by each Soliciting Shareholder
(as defined below), pursuant to which each Soliciting Shareholder,
jointly and severally, agrees to pay the Corporation's costs of
holding the Special Meeting, including the costs of preparing and
mailing proxy materials for the Corporation's own solicitation,
provided that if each of the resolutions introduced by any
Soliciting Shareholder at such meeting is adopted, and each of the
individuals nominated by or on behalf of any Soliciting
Shareholder for election as a director at such meeting is elected,
then the Soliciting Shareholders shall not be required to pay such
costs. For purposes of this paragraph (d), the following terms
shall have the meanings set forth below:
(i) "Affiliate" of any Person (as defined herein) shall mean any
Person controlling, controlled by or under common control with
such first Person.
(ii) "Participant" shall have the meaning assigned to such term
in Rule 14a-11 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
(iii) "Person" shall mean any individual, firm, corporation,
partnership, joint venture, association, trust,
unincorporated organization or other entity.
(iv) "Proxy" shall have the meaning assigned to such term in
Rule 14a-1 promulgated under the Exchange Act.
(v) "Solicitation" shall have the meaning assigned to such term
in Rule 14a-11 promulgated under the Exchange Act.
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(vi) "Soliciting Shareholder" shall mean, with respect to any
Special Meeting demanded by a shareholder or shareholders,
any of the following Persons:
(a) if the number of shareholders signing the demand or
demands of meeting delivered to the Corporation
pursuant to paragraph (c) of this Section 3 is ten or
fewer, each shareholder signing any such demand;
(b) if the number of shareholders signing the demand or
demands of meeting delivered to the Corporation
pursuant to paragraph (c) of this Section 3 is more
than ten, each Person who either (I) was a Participant
in any Solicitation of such demand or demands or (II)
at the time of the delivery to the Corporation of the
documents described in paragraph (c) of this Section 3
had engaged or intends to engage in any Solicitation
of Proxies for use at such Special Meeting (other than
a Solicitation of Proxies on behalf of the
Corporation); or
(c) any Affiliate of a Soliciting Shareholder, if a
majority of the directors then in office determine,
reasonably and in good faith, that such Affiliate
should be required to sign the written notice
described in paragraph (c) of this Section 3 and/or
the written agreement described in this paragraph (d)
in order to prevent the purposes of this Section 3
from being evaded.
e. Except as provided in the following sentence, any Special Meeting
shall be held at such hour and day as may be designated by
whichever of the Board of Directors, the Chairman of the Board,
the President or the Secretary shall have called such meeting. In
the case of any Special Meeting called by the Chairman of the
Board, the President or the Secretary upon the demand of
shareholders (a "Demand Special Meeting"), such meeting shall be
held at such hour and day as may be designated by the Board of
Directors; provided, however, that the date of any Demand Special
Meeting shall be not more than seventy days after the Meeting
Record Date (as defined in Section 6 of Article II of these
By-laws); and provided further that in the event that the
directors then in office fail to designate an hour and date for a
Demand Special Meeting within ten days after the date that valid
written demands for such meeting by the holders of record as of
the Demand Record Date of shares representing at least 10% of all
the votes entitled to be cast on each issue proposed to be
considered at the Special Meeting are delivered to the Corporation
(the "Delivery Date"), then such meeting shall be held at
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2:00 P.M. local time on the 100th day after the Delivery Date or,
if such 100th day is not a Business Day (as defined below), on the
first preceding Business Day. In fixing a meeting date for any
Special Meeting, the Board of Directors, the Chairman of the
Board, the President or the Secretary may consider such factors as
it or he deems relevant within the good faith exercise of its or
his business judgment, including, without limitation, the nature
of the action proposed to be taken, the facts and circumstances
surrounding any demand for such meeting, and any plan of the Board
of Directors to call an Annual Meeting or a Special Meeting for
the conduct of related business.
f. The Corporation may engage regionally or nationally recognized
independent inspectors of elections to act as an agent of the
Corporation for the purpose of promptly performing a ministerial
review of the validity of any purported written demand or demands
for a Special Meeting received by the Secretary. For the purpose
of permitting the inspectors to perform such review, no purported
demand shall be deemed to have been delivered to the Corporation
until the earlier of (i) five Business Days following receipt by
the Secretary of such purported demand and (ii) such date as the
independent inspectors certify to the Corporation that the valid
demands received by the Secretary represent at least 10% of all
the votes entitled to be cast on each issue proposed to be
considered at the Special Meeting. Nothing contained in this
paragraph (f) shall in any way be construed to suggest or imply
that the Board of Directors or any shareholder shall not be
entitled to contest the validity of any demand, whether during or
after such five Business Day period, or to take any other action
(including, without limitation, the commencement, prosecution or
defense of any litigation with respect thereto).
g. For purposes of these By-laws, "Business Day" shall mean any day
other than a Saturday, a Sunday or a day on which banking
institutions in the State of Wisconsin are authorized or obligated
by law or executive order to close.
4. PLACE OF MEETING
The Board of Directors, the Chairman of the Board, the President or the
Secretary may designate any place, either within or without the State of
Wisconsin, as the place of meeting for any Annual Meeting or for any
Special Meeting or for any postponement or adjournment thereof. If no
designation is made, the place of meeting shall be the principal
business office of the Corporation in the State of Wisconsin. Any
meeting may be adjourned to reconvene at any place designated by vote of
the Board of Directors or by the Chairman of the Board, the President or
the Secretary.
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5. NOTICE OF MEETING
Written or printed notice stating the date, time and place of any Annual
Meeting or Special Meeting shall be delivered not less than ten days
(unless a longer period is required by the Wisconsin Business
Corporation Law or the Articles of Incorporation of the Corporation) nor
more than 70 days before the date of such meeting either personally or
by mail, by or at the direction of the Chairman of the Board, the
President or the Secretary, to each shareholder of record entitled to
vote at such meeting and to such other shareholders as required by the
Wisconsin Business Corporation Law. In the event of any Demand Special
Meeting, such notice shall be sent not more than 45 days after the
Delivery Date. If mailed, notice pursuant to this Section 5 shall be
deemed to be effective when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock
record books of the Corporation, with postage thereon prepaid. Unless
otherwise required by the Wisconsin Business Corporation Law or the
Articles of Incorporation of the Corporation, a notice of an Annual
Meeting need not include a description of the purpose for which the
meeting is called. In the case of any Special Meeting, (a) the notice
of meeting shall describe any business that the Board of Directors shall
have theretofore determined to bring before the meeting and (b) in the
case of a Demand Special Meeting, the notice of meeting (i) shall
describe any business set forth in the statement of purpose of the
demands received by the Corporation in accordance with Section 3 of this
Article II and (ii) shall contain all of the information required in the
notice received by the Corporation in accordance with Section 14(b) of
this Article II. If an Annual Meeting or Special Meeting is adjourned
to a different date, time or place, the Corporation shall not be
required to give notice of the new date, time or place if the new date,
time or place is announced at the meeting before adjournment; provided,
however, that if a new Meeting Record Date for an adjourned meeting is
or must be fixed, the Corporation shall give notice of the adjourned
meeting to persons who are shareholders as of the new Meeting Record
Date.
6. FIXING OF RECORD DATE
The Board of Directors may fix in advance a date not less than 10 days
and not more than 70 days prior to the date of any Annual Meeting or
Special Meeting (other than a Demand Special Meeting) as the record date
for the purpose of determining shareholders entitled to notice of, and
to vote at, such meeting ("Meeting Record Date"). If a Meeting Record
Date is not fixed by the Board of Directors or by the Wisconsin Business
Corporation Law for any Annual Meeting or Special Meeting (other than a
Demand Special Meeting), the Meeting Record Date shall be the close of
business on the day before the first notice is given to Shareholders.
In the case of any Demand Special Meeting, (i) the Meeting Record Date
shall not be later than the 30th day after the Delivery Date and (ii) if
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the Board of Directors fails to fix the Meeting Record Date within
30 days after the Delivery Date, then the close of business on such
30th day shall be the Meeting Record Date. The shareholders of record
on the Meeting Record Date shall be the shareholders entitled to notice
of, and to vote at, the meeting. Except as provided by the Wisconsin
Business Corporation Law for a court-ordered adjournment, a determination
of shareholders entitled to notice of, and to vote at, any Annual Meeting
or Special Meeting is effective for any adjournment of such meeting
unless the Board of Directors fixes a new Meeting Record Date, which it
shall do if the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting. The Board of Directors may
also fix in advance a date as the record date for the purpose of
determining shareholders entitled to take any other action or
determining shareholders for any other purpose. Such record date shall
be not more than 70 days prior to the date on which the particular
action, requiring such determination of shareholders, is to be taken.
The record date for determining shareholders entitled to a distribution
(other than a distribution involving a purchase, redemption or other
acquisition of the Corporation's shares) or a share dividend is the date
on which the Board of Directors authorizes the distribution or share
dividend, as the case may be, unless the Board of Directors fixes a
different record date.
7. VOTING RECORDS
After a Meeting Record Date has been fixed, the Corporation shall
prepare a list of the names of all of the shareholders entitled to
notice of the meeting. The list shall be arranged by class or series of
shares, if any, and show the address of, and number of shares held by,
each shareholder. Such list shall be available for inspection by any
shareholder, beginning two business days after notice of the meeting is
given for which the list was prepared and continuing to the date of the
meeting, at the Corporation's principal office or at a place identified
in the meeting notice in the city where the meeting will be held. A
shareholder or his agent may, on written demand, inspect and, subject to
the limitations imposed by the Wisconsin Business Corporation Law, copy
the list, during regular business hours and at his or her expense,
during the period that it is available for inspection pursuant to this
Section 7. The Corporation shall make the shareholders' list available
at the meeting and any shareholder or his or her agent or attorney may
inspect the list at any time during the meeting or any adjournment
thereof. Refusal or failure to prepare or make available the
shareholders' list shall not affect the validity of any action taken at
a meeting of shareholders.
8. QUORUM AND VOTING REQUIREMENTS; POSTPONEMENTS; ADJOURNMENTS
a. Shares entitled to vote as a separate voting group may take action
on a matter at any Annual Meeting or Special Meeting only if a
quorum of those
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shares exists with respect to that matter. If the Corporation has
only one class of stock outstanding, such class shall constitute a
separate voting group for purposes of this Section 8. Except as
otherwise provided in the Articles of Incorporation of this
Corporation or the Wisconsin Business Corporation Law, a majority
of the votes entitled to be cast on the matter shall constitute a
quorum of the voting group for action on that matter. Once a share
is represented for any purpose at any Annual Meeting or Special
Meeting, other than for the purpose of objecting to holding the
meeting or transacting business at the meeting, it is considered
present for purposes of determining whether a quorum exists for the
remainder of the meeting and for any adjournment of that meeting,
unless a new Meeting Record Date is or must be set for the adjourned
meeting. If a quorum exists, except in the case of the election of
directors, action on a matter shall be approved if the votes cast
within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation of the
Corporation or the Wisconsin Business Corporation Law requires a
greater number of affirmative votes. Unless otherwise provided in
the Articles of Incorporation of the Corporation, each director
shall be elected by a plurality of the votes cast by the shares
entitled to vote in the election of directors at any Annual
Meeting or Special Meeting at which a quorum is present.
b. The Board of Directors acting by resolution may postpone and
reschedule any previously scheduled Annual Meeting or Special
Meeting; provided, however, that a Demand Special Meeting shall
not be postponed beyond the 100th day following the Delivery Date.
Any Annual Meeting or Special Meeting may be adjourned from time
to time, whether or not there is a quorum, (i) at any time, upon a
resolution of shareholders if the votes cast in favor of such
resolution by the holders of shares of each voting group entitled
to vote on any matter theretofore properly brought before the
meeting exceed the number of votes cast against such resolution by
the holders of shares of each such voting group or (ii) at any
time prior to the transaction of any business at such meeting, by
the Chairman of the Board, the President or the Secretary or
pursuant to a resolution of the Board of Directors. No notice of
the time and place of adjourned meetings need be given except as
required by the Wisconsin Business Corporation Law. At any
adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
9. CONDUCT OF MEETINGS
The Chairman of the Board, and in his absence, the Vice Chairman of the
Board, and in his absence, the President, and in their absence, a Vice
President in the
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order provided under Section 3 of Article IV of these By-laws, and in
their absence, any person chosen by the shareholders present shall call
any Annual Meeting or Special Meeting to order and shall act as chairman
of such meeting, and the Secretary of the Corporation shall act as
secretary of all Annual Meetings and Special Meetings, but in the absence
of the Secretary, the presiding officer may appoint any other person to
act as secretary of the meeting.
10. PROXIES
At all Annual Meetings and Special Meetings, a shareholder entitled to
vote may vote in person or by proxy. A shareholder may appoint a proxy
to vote or otherwise act for the shareholder by signing an appointment
form, either personally or by his attorney-in-fact. An appointment of a
proxy is effective when received by the Secretary or other officer or
agent of the Corporation authorized to tabulate votes. An appointment
is valid for eleven months from the date of its signing unless a
different period is expressly provided in the appointment form. Unless
otherwise provided, a proxy may be revoked any time before it is voted,
either by written notice filed with the Secretary or the acting
secretary of the meeting or by oral notice given by the shareholder to
the presiding officer during the meeting. The presence of a shareholder
who has filed his proxy does not of itself constitute a revocation. The
Board of Directors shall have the power and authority to make rules
establishing presumptions as to the validity and sufficiency of proxies.
11. VOTING OF SHARES
a. Each outstanding share shall be entitled to one vote upon each
matter submitted to a vote at any Annual Meeting or Special
Meeting, except to the extent that the voting rights of the shares
of any class or classes are enlarged, limited or denied by the
Wisconsin Business Corporation Law or the Articles of
Incorporation of the Corporation.
b. Shares held by another corporation, if a sufficient number of
shares entitled to elect a majority of the directors of such other
corporation is held directly or indirectly by the Corporation,
shall not be entitled to vote at any Annual Meeting or Special
Meeting, but shares held in a fiduciary capacity may be voted.
12. ACCEPTANCE OF INSTRUMENTS SHOWING SHAREHOLDER ACTION
If the name signed on a vote, consent, waiver or proxy appointment
corresponds to the name of a shareholder, the Corporation, if acting in
good faith, may accept the vote, consent, waiver or proxy appointment
and give it effect as the act of a shareholder. If the name signed on a
vote, consent, waiver or proxy
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appointment does not correspond to the name of a shareholder, the
Corporation, if acting in good faith, may accept the vote, consent,
waiver or proxy appointment and give it effect as the act of the
shareholder if any of the following apply:
a. The shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity.
b. The name purports to be that of a personal representative,
administrator, executor, guardian or conservator representing the
shareholder and, if the Corporation requests, evidence of
fiduciary status acceptable to the Corporation is presented with
respect to the vote, consent, waiver or proxy appointment.
c. The name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the Corporation requests,
evidence of this status acceptable to the Corporation is presented
with respect to the vote, consent, waiver or proxy appointment.
d. The name signed purports to be that of a pledgee, beneficial
owner, or attorney-in-fact of the shareholder and, if the
Corporation requests, evidence acceptable to the Corporation of
the signatory's authority to sign for the shareholder is presented
with respect to the vote, consent, waiver or proxy appointment.
e. Two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at
least one of the co-owners and the person signing appears to be
acting on behalf of all co-owners.
The Corporation may reject a vote, consent, waiver or proxy appointment if the
Secretary or other officer or agent of the Corporation who is authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
13. WAIVER OF NOTICE BY SHAREHOLDERS
A shareholder may waive any notice required by the Wisconsin Business
Corporation Law, the Articles of Incorporation of the Corporation or
these By-laws before or after the date and time stated in the notice.
The waiver shall be in writing and signed by the shareholder entitled to
the notice, contain the same information that would have been required
in the notice under applicable provisions of the Wisconsin Business
Corporation Law (except that the time and place of meeting need not be
stated) and be delivered to the Corporation for inclusion in the
corporate records. A shareholder's attendance at any Annual Meeting or
Special Meeting, in person or by proxy, waives objection to all of the
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following: (a) lack of notice or defective notice of the meeting,
unless the shareholder at the beginning of the meeting or promptly upon
arrival objects to holding the meeting or transacting business at the
meeting; and (b) consideration of a particular matter at the meeting
that is not within the purpose described in the meeting notice, unless
the shareholder objects to considering the matter when it is presented.
14. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATION OF DIRECTORS
a. Annual Meetings.
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(i) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to
be considered by the shareholders may be made at an Annual
Meeting (A) pursuant to the Corporation's notice of meeting,
(B) by or at the direction of the Board of Directors or (C)
by any shareholder of the Corporation who is a shareholder
of record at the time of giving of notice provided for in
this Section 14 and who is entitled to vote at the meeting
and complies with the notice procedures set forth in this
Section 14.
(ii) For nominations or other business to be properly brought
before an Annual Meeting by a shareholder pursuant to clause
(C) of paragraph (a)(i) of this Section 14, the shareholder
must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's
notice shall be received by the Secretary of the Corporation
at the principal offices of the Corporation not less than
45 days nor (except for shareholder proposals included in a
proxy statement for such Annual Meeting in accordance with
the requirements of Rule 14a-8 under the Exchange Act) more
than 70 days prior to the first annual anniversary of the
date set forth in the Corporation's proxy statement for the
immediately preceding Annual Meeting as the date on which
the Corporation first mailed definitive proxy materials for
the immediately preceding Annual Meeting (the "Anniversary
Date"); provided, however, that in the event that the date
for which the Annual Meeting is called is advanced by more
than 30 days or delayed by more than 30 days from the first
annual anniversary of the immediately preceding Annual
Meeting, notice by the shareholder to be timely must be so
delivered not earlier than the close of business on the
100th day prior to the date of such Annual Meeting and not
later than (A) the 75th day prior to the date of such Annual
Meeting or (B) the 10th day following the day on which
public announcement of the date of such Annual Meeting is
first
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made. In no event shall the announcement of an adjournment
of an Annual Meeting commence a new time period for the giving
of a shareholder notice as described above. Such
shareholder's notice shall be signed by the shareholder
of record who intends to make the nomination or introduce
the other business (or his duly authorized proxy or other
representative), shall bear the date of signature of such
shareholder (or proxy or other representative) and shall set
forth: (A) the name and address, as they appear on this
Corporation's books, of such shareholder and the beneficial
owner or owners, if any, on whose behalf the nomination or
proposal is made; (B) the class and number of shares of the
Corporation which are beneficially owned by such shareholder
or beneficial owner or owners; (C) a representation that
such shareholder is a holder of record of shares of the
Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to make the
nomination or introduce the other business specified in the
notice; (D) in the case of any proposed nomination for
election or re-election as a director, (I) the name and
residence address of the person or persons to be nominated,
(II) a description of all arrangements or understandings
between such shareholder or beneficial owner or owners and
each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination is to be
made by such shareholder, (III) such other information
regarding each nominee proposed by such shareholder as would
be required to be disclosed in solicitations of proxies for
elections of directors, or would be otherwise required to be
disclosed, in each case pursuant to Regulation 14A under the
Exchange Act, including any information that would be
required to be included in a proxy statement filed pursuant
to Regulation 14A had the nominee been nominated by the
Board of Directors and (IV) the written consent of each
nominee to be named in a proxy statement and to serve as a
director of the Corporation if so elected; and (E) in the
case of any other business that such shareholder proposes to
bring before the meeting, (I) a brief description of the
business desired to be brought before the meeting and, if
such business includes a proposal to amend these By-laws,
the language of the proposed amendment, (II) such
shareholder's and beneficial owner's or owners' reasons for
conducting such business at the meeting and (III) any
material interest in such business of such shareholder and
beneficial owner or owners.
(iii) Notwithstanding anything in the second sentence of paragraph
(a)(ii) of this Section 14 to the contrary, in the event
that the
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number of directors to be elected to the Board of
Directors of the Corporation is increased and there is no
public announcement naming all of the nominees for director
or specifying the size of the increased Board of Directors
made by the Corporation at least 45 days prior to the
Anniversary Date, a shareholder's notice required by this
Section 14 shall also be considered timely, but only with
respect to nominees for any new positions created by such
increase, if it shall be received by the Secretary at the
principal offices of the Corporation not later than the
close of business on the 10th day following the day on which
such public announcement is first made by the Corporation.
b. Special Meetings. Only such business shall be conducted at a
----------------
Special Meeting as shall have been described in the notice of
meeting sent to shareholders pursuant to Section 5 of Article II
of these By-laws. Nominations of persons for election to the
Board of Directors may be made at a Special Meeting at which
directors are to be elected pursuant to such notice of meeting (i)
by or at the direction of the Board of Directors or (ii) by any
shareholder of the Corporation who (A) is a shareholder of record
at the time of giving of such notice of meeting, (B) is entitled
to vote at the meeting and (C) complies with the notice procedures
set forth in this Section 14. Any shareholder desiring to
nominate persons for election to the Board of Directors at such a
Special Meeting shall cause a written notice to be received by the
Secretary of the Corporation at the principal offices of the
Corporation not earlier than ninety days prior to such Special
Meeting and not later than the close of business on the later of
(x) the 60th day prior to such Special Meeting and (y) the 10th
day following the day on which public announcement is first made
of the date of such Special Meeting and of the nominees proposed
by the Board of Directors to be elected at such meeting. Such
written notice shall be signed by the shareholder of record who
intends to make the nomination (or his duly authorized proxy or
other representative), shall bear the date of signature of such
shareholder (or proxy or other representative) and shall set
forth: (A) the name and address, as they appear on the
Corporation's books, of such shareholder and the beneficial owner
or owners, if any, on whose behalf the nomination is made; (B) the
class and number of shares of the Corporation which are
beneficially owned by such shareholder or beneficial owner or
owners; (C) a representation that such shareholder is a holder of
record of shares of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting
to make the nomination specified in the notice; (D) the name and
residence address of the person or persons to be nominated; (E) a
description of all arrangements or understandings between such
shareholder or beneficial owner or owners and each nominee and any
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other person or persons (naming such person or persons) pursuant
to which the nomination is to be made by such shareholder; (F)
such other information regarding each nominee proposed by such
shareholder as would be required to be disclosed in solicitations
of proxies for elections of directors, or would be otherwise
required to be disclosed, in each case pursuant to Regulation 14A
under the Exchange Act, including any information that would be
required to be included in a proxy statement filed pursuant to
Regulation 14A had the nominee been nominated by the Board of
Directors; and (G) the written consent of each nominee to be named
in a proxy statement and to serve as a director of the Corporation
if so elected.
c. General.
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(i) Only persons who are nominated in accordance with the
procedures set forth in this Section 14 shall be eligible to
serve as directors. Only such business shall be conducted
at an Annual Meeting or Special Meeting as shall have been
brought before such meeting in accordance with the
procedures set forth in this Section 14. The chairman of
the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the
procedures set forth in this Section 14 and, if any proposed
nomination or business is not in compliance with this
Section 14, to declare that such defective proposal shall be
disregarded.
(ii) For purposes of this Section 14, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news
service or in a document publicly filed by the Corporation
with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 14,
a shareholder shall also comply with all applicable
requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth
in this Section 14. Nothing in this Section 14 shall be
deemed to limit the Corporation's obligation to include
shareholder proposals in its proxy statement if such
inclusion is required by Rule 14a-8 under the Exchange Act.
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ARTICLE III. BOARD OF DIRECTORS
1. GENERAL POWERS
The business and affairs of the Corporation shall be managed by its
Board of Directors. The Board shall determine the nature and character
of the business to be conducted by the Corporation and the method of
doing so; what employees, agents, and officers shall be employed and
their compensation; and what purchases or contracts for purchase shall
be made. The Board may delegate any of its aforesaid powers to
committees or to officers, agents, or employees as it may from time to
time determine.
2. NUMBER OF DIRECTORS
The number of directors of the Corporation shall be nine, divided into
three classes: Class A - 3 members, Class B - 3 members, and Class C -
3 members.
3. TERM
At the 1994 annual meeting of shareholders, the directors of Class A
shall be elected for a term to expire at the first annual meeting of
shareholders after their election, and until their successors are
elected and qualify, the directors of Class B shall be elected for a
term to expire at the second annual meeting of shareholders after their
election, and until their successors are elected and qualify, and the
directors of Class C shall be elected for a term to expire at the third
annual meeting of shareholders after their election and until their
successors are elected and qualify. At each annual meeting of
shareholders after the 1994 annual meeting of shareholders, the
successors to the class of directors whose terms shall expire at the
time of such annual meeting shall be elected to hold office until the
third succeeding annual meeting of shareholders, and until their
successors are elected and qualify.
4. QUALIFICATIONS
No director shall be eligible for re-election after attaining the age of
70 years. Directors need not be shareholders of the Corporation or
residents of the State of Wisconsin.
5. MEETINGS
The Board of Directors shall hold its meetings at such place or places,
within or without the State of Wisconsin, as the Board may from time to
time determine.
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a. A meeting of the Board of Directors, to be known as the annual
meeting, may be held, without notice, immediately after and at the
same place as the annual meeting of the shareholders at which such
Board is elected, for the purpose of electing the officers of the
Corporation and to transact such other business as may come before
the Board. Such annual meeting may be held at a different place
than the annual meeting of shareholders and/or on a date subsequent
to the annual meeting of shareholders, if notice of such different
place and/or date has been given to or waived by all the directors.
b. Regular meetings of the Board of Directors may be held without
call and without notice, at such times and in such places as the
Board may by resolution from time to time determine.
c. Special meetings of the Board of Directors may be called at any
time by the Chairman of the Board or the Chief Executive Officer
and shall be called by the Secretary of the Corporation upon the
written request of three or more directors.
6. NOTICE; WAIVER
Notice of each special meeting of the Board of Directors shall be given
by written notice delivered or communicated in person, by telegraph,
teletype, facsimile or other form of wire or wireless communication, or
by mail or private carrier, to each director at his or her business
address or at such other address as such director shall have designated
in writing filed with the Secretary, in each case not less than 48 hours
prior to the meeting. The notice need not prescribe the purpose of the
special meeting of the Board of Directors or the business to be
transacted at such meeting. If mailed, such notice shall be deemed to
be effective when deposited in the United States mail so addressed, with
postage thereon prepaid. If notice is given by telegram, such notice
shall be deemed to be effective when the telegram is delivered to the
telegraph company. If notice is given by private carrier, such notice
shall be deemed to be effective when delivered to the private carrier.
Whenever any notice whatever is required to be given to any director of
the Corporation under the Articles of Incorporation or these By-laws or
any provision of the Wisconsin Business Corporation Law, a waiver
thereof in writing, signed at any time, whether before or after the date
and time of meeting, by the director entitled to such notice shall be
deemed equivalent to the giving of such notice. The Corporation shall
retain any such waiver as part of the permanent corporate records. A
director's attendance at or participation in a meeting waives any
required notice to him or her of the meeting unless the director at the
beginning of the meeting or promptly upon his or her arrival objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
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7. QUORUM
Except as otherwise provided by the Wisconsin Business Corporation Law
or by the Articles of Incorporation or these By-laws, a majority of the
number of directors specified in Section 2 of Article III of these
By-laws shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors. Except as otherwise provided by the
Wisconsin Business Corporation Law, the Articles of Incorporation, or
these By-laws, a quorum of any committee of the Board of Directors
created pursuant to Section 13 hereof shall consist of a majority of the
number of directors appointed to serve on the committee. A majority of
the directors present (though less than such quorum) may adjourn any
meeting of the Board of Directors or any committee thereof, as the case
may be, from time to time without further notice.
8. MANNER OF ACTING
The affirmative vote of a majority of the directors present at a meeting
of the Board of Directors or a committee thereof at which a quorum is
present shall be the act of the Board of Directors or such committee, as
the case may be, unless the Wisconsin Business Corporation Law, the
Articles of Incorporation, or these By-laws require the vote of a
greater number of directors.
9. MINUTES OF MEETINGS
Minutes of any regular or special meeting of the Board of Directors
shall be prepared and distributed to each director.
10. VACANCIES
Vacancies occurring in the Board of Directors shall be filled in the
manner provided in Article 5 of the Articles of Incorporation.
11. COMPENSATION
The Board of Directors, irrespective of any personal interest of any of
its members, may establish reasonable compensation of all directors for
services to the Corporation as directors, officers, or otherwise, or may
delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or delegate authority
to an appropriate committee to provide for reasonable pensions,
disability or death benefits, and other benefits or payments, to
directors, officers, and employees and to their estates, families,
dependents, or beneficiaries on account of prior services rendered by
such directors, officers, and employees to the Corporation.
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12. PRESUMPTION OF ASSENT
A director who is present and is announced as present at a meeting of
the Board of Directors or any committee thereof created in accordance
with Section 13 of this Article III, when corporate action is taken,
assents to the action taken unless any of the following occurs:
a. The director objects at the beginning of the meeting or promptly
upon his or her arrival to holding the meeting or transacting
business at the meeting;
b. The director's dissent or abstention from the action taken is
entered in the minutes of the meeting; or
c. The director delivers written notice that complies with the
Wisconsin Business Corporation Law of his or her dissent or
abstention to the presiding officer of the meeting before its
adjournment or to the Corporation immediately after adjournment of
the meeting.
Such right of dissent or abstention shall not apply to a director who
votes in favor of the action taken.
13. COMMITTEES
The Board of Directors by resolution adopted by the affirmative vote of
a majority of all of the directors then in office may create one or more
committees, appoint members of the Board of Directors to serve on the
committees and designate other members of the Board of Directors to
serve as alternates. Each committee shall have two or more members who
shall, unless otherwise provided by the Board of Directors, serve at the
pleasure of the Board of Directors. A committee may be authorized to
exercise the authority of the Board of Directors, except that a
committee may not do any of the following:
a. Authorize distributions;
b. Approve or propose to shareholders action that the Wisconsin
Business Corporation Law requires to be approved by shareholders;
c. Fill vacancies on the Board of Directors or, unless the Board of
Directors provides by resolution that vacancies on a committee
shall be filled by the affirmative vote of the remaining committee
members, on any Board committee;
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d. Amend the Corporation's Articles of Incorporation;
e. Adopt, amend, or repeal By-laws;
f. Approve a plan of merger not requiring shareholder approval;
g. Authorize or approve reacquisition of shares, except according to
a formula or method prescribed by the Board of Directors; and
h. Authorize or approve the issuance or sale or contract for sale of
shares, or determine the designation and relative rights,
preferences and limitations of a class or series of shares, except
that the Board of Directors may authorize a committee to do so
within limits prescribed by the Board of Directors. Unless
otherwise provided by the Board of Directors in creating the
committee, a committee may employ counsel, accountants, and other
consultants to assist it in the exercise of its authority.
14. TELEPHONIC MEETINGS
Except as herein provided and notwithstanding any place set forth in the
notice of the meeting or these By-laws, members of the Board of
Directors (and any committees thereof created pursuant to Section 13 of
this Article III) may participate in regular or special meetings by, or
through the use of, any means of communication by which all participants
may simultaneously hear each other, such as by conference telephone. If
a meeting is conducted by such means, then at the commencement of such
meeting the presiding officer shall inform the participating directors
that a meeting is taking place at which official business may be
transacted. Any participant in a meeting by such means shall be deemed
present in person at such meeting. Notwithstanding the foregoing, no
action may be taken at any meeting held by such means on any particular
matter which the presiding officer determines, in his or her sole
discretion, to be inappropriate under the circumstances for action at a
meeting held by such means. Such determination shall be made and
announced in advance of such meeting.
15. ACTION WITHOUT MEETING
Any action required or permitted by the Wisconsin Business Corporation
Law to be taken at a meeting of the Board of Directors or a committee
thereof created pursuant to Section 13 of this Article III may be taken
without a meeting if the action is taken by all members of the Board or
of the committee. The action shall be evidenced by one or more written
consents describing the action taken, signed by each director or
committee member, and retained by the Corporation.
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Such action shall be effective when the last director or committee member
signs the consent, unless the consent specifies a different effective
date.
ARTICLE IV. OFFICERS
1. PRINCIPAL OFFICERS
The principal officers of the Corporation required by statute shall be a
President, such number of Vice Presidents as may be elected by the Board
of Directors, a Secretary, and a Treasurer. The Board of Directors may
elect from among the directors a Chairman of the Board of Directors and
a Vice Chairman of the Board of Directors, may designate such Chairman,
Vice Chairman, or any principal officer as the Chief Executive Officer,
may elect such assistant secretaries and assistant treasurers and other
officers as it shall deem necessary, and may prescribe by resolution
their respective powers and duties.
2. PRESIDENT
The President shall be elected by the directors. Unless the Board of
Directors otherwise prescribes, he or she shall be the Chief Executive
Officer of the Corporation. In the event that the President is not the
Chief Executive Officer, he or she shall have such powers and duties as
the Board of Directors may prescribe.
3. CHAIRMAN OF THE BOARD OF DIRECTORS
If a Chairman of the Board of Directors shall be elected, he or she
shall preside as Chairman of all meetings of the shareholders and of the
Board of Directors. He or she shall have such other authority as the
Board may from time to time prescribe. If there is no Chairman of the
Board, or in the absence of the Chairman, the presiding officer at
meetings of the shareholders, and of the Board of Directors shall be
another officer in the following order of priority: Vice Chairman of
the Board of Directors, President and Vice Presidents (subject, however,
to Section 5 of this Article).
4. CHIEF EXECUTIVE OFFICER
The Chief Executive Officer shall exercise active supervision over the
business, property, and affairs of the Corporation.
a. The Chief Executive Officer shall have authority, subject to such
rules as may be prescribed from time to time by the Board or its
committees, to appoint agents or employees other than those
elected by the Board, to
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prescribe their powers and duties, and to delegate such authority as
he or she may see fit. Any agent or employee not elected by the
Board shall hold office at the discretion of the Chief Executive
Officer or other officer employing him.
b. The Chief Executive Officer is authorized to sign, execute, and
acknowledge, on behalf of the Corporation, all deeds, mortgages,
bonds, notes, debentures, contracts, leases, reports and other
documents and instruments, except where the signing and execution
thereof by some other officer or agent shall be expressly
authorized and directed by law or by the Board or by these
By-laws. Unless otherwise provided by law or by the Board, the
Chief Executive Officer may authorize any officer, employee, or
agent to sign, execute, and acknowledge, on behalf of the
Corporation, and in his or her place and stead, all such documents
and instruments.
c. Unless otherwise ordered by the Board of Directors, the Chief
Executive Officer, or a proxy appointed by him, shall have full
power and authority, in the name of and on behalf of the
Corporation, to attend, act, and vote at any meeting of the
shareholders of any other corporation in which the Corporation may
hold shares of stock. At any such meeting, he or she shall
possess and may exercise any and all rights and powers incident to
the ownership of shares of stock.
d. The Chief Executive Officer shall have such other powers and
perform such other duties as are incident to the office of Chief
Executive Officer and as may be prescribed by the Board.
5. VICE PRESIDENTS
In the absence of the President or during his or her inability or
refusal to act, his or her powers and duties shall temporarily devolve
upon such Vice Presidents or other officers as shall be designated by
the Board of Directors or, if not designated by the Board, by the Chief
Executive Officer or other officer to whom such power may be delegated
by the Board; provided, that no Vice President or other officer shall
act as a member or chairman of any committee of the Board of Directors
of which the President is a member or chairman, except at the direction
of the Board.
a. Each Vice President shall have such powers and perform such other
duties as may be assigned to him by the Board or by the President,
including the power to sign, execute, and acknowledge all
documents and instruments referred to in Section 4 of this
Article.
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b. The Board may assign to any Vice President, general supervision
and charge over any branch of the business and affairs of the
Corporation, subject to such limitations as it may elect to
impose.
c. The Board of Directors may, if it chooses, designate one or more
of the Vice Presidents "Executive Vice President" with such powers
and duties as the Board shall prescribe.
6. SECRETARY
The Secretary shall attend, and keep the minutes of meetings of the
shareholders, of the Board of Directors and, unless otherwise directed
by any such committee, of all committees, in books provided for that
purpose; shall have custody of the corporate records and seal; shall see
that notices are given and records and reports properly kept and filed
as required by law or by these By-laws; and, in general, shall have such
other powers and perform such other duties as are incident to the office
of Secretary and as may be assigned to him or her by the Board of
Directors or the Chief Executive Officer.
7. ASSISTANT SECRETARIES
In the absence of the Secretary, or during his or her inability or
refusal to act, his or her powers and duties shall temporarily devolve
upon such one of the Assistant Secretaries as the President or the Board
of Directors may direct. The Assistant Secretaries shall have such
other powers and perform such other duties as may be assigned to them by
the Board, the Chief Executive Officer, or the Secretary.
8. TREASURER
The Treasurer shall have charge and custody of the funds, securities,
and other evidences of value of the Corporation, and shall keep and
deposit them as required by the Board of Directors. He or she shall
keep proper accounts of all receipts and disbursements and of the
financial transactions of the Corporation. He or she shall render
statements of such accounts and of money received and disbursed by him
or her and of property and money belonging to the Corporation as
required by the Board. The Treasurer shall have such other powers and
perform such other duties as are incident to the office of Treasurer and
as from time to time may be prescribed by the Board or the Chief
Executive Officer.
9. ASSISTANT TREASURERS
In the absence of the Treasurer, or during his or her inability or
refusal to act, his or her powers and duties shall temporarily devolve
upon such one of the
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Assistant Treasurers as the President or the Board of Directors may
direct. The Assistant Treasurers shall have such other powers and
perform such other duties as from time to time may be assigned to them,
respectively, by the Board, the Chief Executive Officer, or the
Treasurer.
10. OTHER ASSISTANTS AND ACTING OFFICERS
The Board of Directors shall have the power to appoint any person to act
as assistant to any officer, or as agent for the Corporation in his or
her stead, or to perform the duties of such officer whenever for any
reason it is impracticable for such officer to act personally, and such
assistant or acting officer or other agent so appointed by the Board of
Directors or an authorized officer shall have the power to perform all
the duties of the office to which he or she is so appointed to be an
assistant, or as to which he or she is so appointed to act, except as
such power may be otherwise defined or restricted by the Board of
Directors.
11. COMPENSATION
The salaries or other compensation of all officers elected as provided
under Section 1 of this Article (other than assistant officers) shall be
fixed from time to time by the Board of Directors. The salaries or
other compensation of all other agents and employees of the Corporation
shall be fixed from time to time by the Chief Executive Officer, but
only within such limits as to amount, and in accordance with such other
conditions as may be prescribed by or under the authority of the Board
of Directors.
12. TENURE
Each officer shall hold office until his or her successor shall have
been duly elected and qualified, or until his or her death, resignation,
disqualification, or removal. Any officer, agent, or employee may be
removed, with or without cause, at any time by the Board of Directors
notwithstanding the contract rights, if any, of the officer removed.
The appointment of an officer does not of itself create contract rights.
13. RESIGNATION
An officer may resign at any time by delivering notice to the
Corporation that complies with the Wisconsin Business Corporation Law.
The resignation shall be effective when the notice is delivered, unless
the notice specifies a later effective date and the Corporation accepts
the later effective date.
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14. VACANCIES
Any vacancy in any office may be filled by the Board of Directors for
the unexpired portion of the term. If a resignation of an officer is
effective at a later date as contemplated by Section 13 of this
Article IV, the Board of Directors may fill the pending vacancy before
the effective date if the Board provides that the successor may not take
office until the effective date.
15. REASSIGNMENT OF DUTIES
In case of the absence or disability of any officer of the Corporation,
or for any other reason deemed sufficient by the Board of Directors, the
Board may reassign or delegate the powers and duties, or any of them, to
any other officer, director, or person it may select.
ARTICLE V. CERTIFICATES FOR AND TRANSFER OF SHARES
1. FORM
Certificates representing shares of the Corporation shall be in such
form as shall be determined by the Board of Directors. All certificates
for shares shall be consecutively numbered or otherwise identified. The
name and address of the person to whom the shares represented thereby
are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the Corporation. All
certificates surrendered for the transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except in
case of a lost or destroyed certificate provided for in Section 4 of
this Article V or a certificate for shares transferred in compliance
with the escheat laws of any state.
2. SIGNATURES
Certificates representing shares of the Corporation shall be signed by
the President or a Vice President and by the Secretary or an Assistant
Secretary; and may be sealed with the seal of the Corporation (which may
be a facsimile) and countersigned and registered in such manner, if any,
as the Board of Directors may prescribe. Whenever any certificate is
manually signed on behalf of a transfer agent, or a registrar, other
than the Corporation itself or an employee of the Corporation, the
signatures of the President, Vice President, Secretary, or Assistant
Secretary, upon such certificate may be facsimiles. In case any officer
who has signed, or whose facsimile signature has been placed upon such
certificate, ceases to be such officer before such certificate is
issued,
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it may be issued with the same effect as if he or she were such officer
at the date of its issue.
3. RESTRICTIONS ON TRANSFER
The face or reverse side of each certificate representing shares shall
bear a conspicuous notation of any restriction imposed by the
Corporation upon the transfer of such shares.
4. LOST, DESTROYED, OR STOLEN CERTIFICATES
Where the owner claims that his or her certificate for shares has been
lost, destroyed, or wrongfully taken, a new certificate shall be issued
in place thereof if the owner:
a. So requests before the Corporation has notice that such shares
have been acquired by a bona fide purchaser;
b. Files with the Corporation a sufficient indemnity bond; and
c. Satisfies such other reasonable requirements as may be prescribed
by or under the authority of the Board of Directors.
5. TRANSFER OF SHARES
Prior to due presentment of a certificate for shares for registration of
transfer the Corporation may treat the registered owner of such shares
as the person exclusively entitled to vote, to receive notifications,
and otherwise to have and exercise all the rights and powers of an
owner. Where a certificate for shares is presented to the Corporation
with a request to register for transfer, the Corporation shall not be
liable to the owner or any other person suffering loss as a result of
such registration of transfer if:
a. There were on or with the certificate the necessary endorsements;
and
b. The Corporation had no duty to inquire into adverse claims or has
discharged any such duty.
The Corporation may require reasonable assurance that said endorsements
are genuine and effective and compliance with such other regulations as
may be prescribed by or under the authority of the Board of Directors.
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6. CONSIDERATION FOR SHARES
The Board of Directors may authorize shares to be issued for
consideration consisting of any tangible or intangible property or
benefit to the Corporation, including cash, promissory notes, services
performed, contracts for services to be performed or other securities of
the Corporation. Before the Corporation issues shares, the Board of
Directors shall determine that the consideration received or to be
received for the shares to be issued is adequate. The determination of
the Board of Directors is conclusive insofar as the adequacy of
consideration for the issuance of shares relates to whether the shares
are validly issued, fully paid, and nonassessable. The Corporation may
place in escrow shares issued in whole or in part for a contract for
future services or benefits, a promissory note, or otherwise for
property to be issued in the future, or make other arrangements to
restrict the transfer of the shares, and may credit distributions in
respect of the shares against their purchase price, until the services
are performed, the benefits or property are received, or the promissory
note is paid. If the services are not performed, the benefits or
property are not received, or the promissory note is not paid, the
Corporation may cancel, in whole or in part, the shares escrowed or
restricted and the distributions credited.
7. OTHER RULES
The Board of Directors shall have the power and authority to make all
such further rules and regulations not inconsistent with the statutes of
the State of Wisconsin as it may deem expedient concerning the issue,
transfer, and registration of certificates representing shares of the
Corporation, including the appointment and designation of Transfer
Agents and Registrars.
ARTICLE VI. INDEMNIFICATION OF OFFICERS AND DIRECTORS
1. MANDATORY INDEMNIFICATION
a. In all cases other than those set forth in Section 1b hereof,
subject to the conditions and limitations set forth hereinafter in
this Article VI, the Corporation shall indemnify and hold harmless
any person who is or was a party, or is threatened to be made a
party, to any Action (see Section 16 of this Article VI for
definitions of capitalized terms used herein) by reason of his or
her status as an Executive, and/or as to acts performed in the
course of such Executive's duties to the Corporation and/or an
Affiliate, against Liabilities and reasonable Expenses incurred by
or on behalf of an Executive in connection with any Action,
including, without limitation, in connection with the
investigation, defense, settlement or appeal of any Action;
provided, pursuant to Section 3 of this Article VI, that it is not
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determined by the Authority, or by a court, that the Executive
engaged in misconduct which constitutes a Breach of Duty.
b. To the extent an Executive has been successful on the merits or
otherwise in connection with any Action, including, without
limitation, the settlement, dismissal, abandonment, or withdrawal
of any such Action where the Executive does not pay, incur, or
assume any material Liabilities, or in connection with any claim,
issue, or matter therein, he or she shall be indemnified by the
Corporation against reasonable Expenses incurred by or on behalf
of him or her in connection therewith. The Corporation shall pay
such Expenses to the Executive (net of all Expenses, if any,
previously advanced to the Executive pursuant to Section 2 of this
Article VI), or to such other person or entity as the Executive
may designate in writing to the Corporation, within ten days after
the receipt of the Executive's written request therefor, without
regard to the provisions of Section 3 of this Article VI. In the
event the Corporation refuses to pay such requested Expenses, the
Executive may petition a court to order the Corporation to make
such payment pursuant to Section 4 of this Article VI.
c. Notwithstanding any other provision contained in this Article VI
to the contrary, the Corporation shall not:
(1) Indemnify, contribute, or advance Expenses to an Executive
with respect to any Action initiated or brought voluntarily
by the Executive and not by way of defense, except with
respect to Actions:
(a) brought to establish or enforce a right to
indemnification, contribution, and/or an advance of
Expenses under Section 4 of this Article VI, under the
Statute as it may then be in effect or under any other
statute or law or otherwise as required;
(b) initiated or brought voluntarily by an Executive to
the extent such Executive is successful on the merits
or otherwise in connection with such an Action in
accordance with and pursuant to Section 1b of this
Article VI; or
(c) as to which the Board determines it to be appropriate.
(2) indemnify the Executive under this Article VI for any
amounts paid in settlement of any Action effected without
the Corporation's written consent.
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The Corporation shall not settle in any manner which would impose
any Liabilities or other type of limitation on the Executive
without the Executive's written consent. Neither the Corporation
nor the Executive shall unreasonably withhold their consent to any
proposed settlement.
d. An Executive's conduct with respect to an employee benefit plan
sponsored by or otherwise associated with the Corporation and/or
an Affiliate for a purpose he or she reasonably believes to be in
the interests of the participants in and beneficiaries of such
plan is conduct that does not constitute a breach or failure to
perform his or her duties to the Corporation or an Affiliate, as
the case may be.
2. ADVANCE FOR EXPENSES
a. The Corporation shall pay to an Executive, or to such other person
or entity as the Executive may designate in writing to the
Corporation, his or her reasonable Expenses incurred by or on
behalf of such Executive in connection with any Action, or claim,
issue, or matter associated with any such Action, in advance of
the final disposition or conclusion of any such Action (or claim,
issue, or matter associated with any such Action), within ten days
after the receipt of the Executive's written request therefor;
provided, the following conditions are satisfied:
(1) The Executive has first requested an advance of such
Expenses in writing (and delivered a copy of such request to
the Corporation) from the insurance carrier(s), if any, to
whom a claim has been reported under an applicable insurance
policy purchased by the Corporation and each such insurance
carrier, if any, has declined to make such an advance;
(2) The Executive furnishes to the Corporation an executed
written certificate affirming his or her good faith belief
that he or she has not engaged in misconduct which
constitutes a Breach of Duty; and
(3) The Executive furnishes to the Corporation an executed
written agreement to repay any advances made under this
Section 2 if it is ultimately determined that he or she is
not entitled to be indemnified by the Corporation for such
Expenses pursuant to this Article VI.
b. If the Corporation makes an advance of Expenses to an Executive
pursuant to this Section 2, the Corporation shall be subrogated to
every
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right of recovery the Executive may have against any insurance
carrier from whom the Corporation has purchased insurance for such
purpose.
3. DETERMINATION OF RIGHT TO INDEMNIFICATION
a. Except as otherwise set forth in this Section 3 or in Section 1c
of this Article VI, any indemnification to be provided to an
Executive by the Corporation under Section 1a of this Article VI
upon the final disposition or conclusion of any Action, or any
claim, issue, or matter associated with any such Action, unless
otherwise ordered by a court, shall be paid by the Corporation to
the Executive (net of all Expenses, if any, previously advanced to
the Executive pursuant to Section 2 of this Article VI), or to
such other person or entity as the Executive may designate in
writing to the Corporation, within 60 days after the receipt of
the Executive's written request therefor. Such request shall
include an accounting of all amounts for which indemnification is
being sought. No further corporate authorization for such payment
shall be required other than this Section 3.
b. Notwithstanding the foregoing, the payment of such requested
indemnifiable amounts pursuant to Section 1a of this Article VI
may be denied by the Corporation if:
(1) the Board by a majority vote thereof determines that the
Executive has engaged in misconduct which constitutes a
Breach of Duty; or
(2) a majority of the directors of the Corporation are a party
in interest to such Action.
c. In either event of nonpayment pursuant to Section 3b of this
Article VI, the Board shall immediately authorize and direct, by
resolution, that an independent determination be made as to
whether the Executive has engaged in misconduct which constitutes
a Breach of Duty and, therefore, whether indemnification of the
Executive is proper pursuant to this Article VI.
d. Such independent determination shall be made, at the option of the
Executive(s) seeking indemnification, by:
(1) A panel of three arbitrators (selected as set forth below in
Section 3f from the panels of arbitrators of the American
Arbitration Association) in Milwaukee, Wisconsin, in
accordance with the Commercial Arbitration Rules then
prevailing of the American Arbitration Association;
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(2) An independent legal counsel mutually selected by the
Executive(s) seeking indemnification and the Board by a
majority vote of a quorum thereof consisting of directors
who were not parties in interest to such Action (or, if such
quorum is not obtainable, by the majority vote of the entire
Board); or
(3) A court in accordance with Section 4 of this Article VI.
e. In any such determination there shall exist a rebuttable
presumption that the Executive has not engaged in misconduct which
constitutes a Breach of Duty and is, therefore, entitled to
indemnification hereunder. The burden of rebutting such
presumption by clear and convincing evidence shall be on the
Corporation.
f. If a panel of arbitrators is to be employed hereunder, one of such
arbitrators shall be selected by the Board by a majority vote of a
quorum thereof consisting of directors who were not parties in
interest to such Action or, if such quorum is not obtainable, by
an independent legal counsel chosen by the majority vote of the
entire Board, the second by the Executive(s) seeking
indemnification, and the third by the previous two arbitrators.
g. The Authority shall make its independent determination hereunder
within 60 days of being selected and shall simultaneously submit a
written opinion of its conclusions to both the Corporation and the
Executive.
h. If the Authority determines that an Executive is entitled to be
indemnified for any amounts pursuant to this Article VI, the
Corporation shall pay such amounts to the Executive (net of all
Expenses, if any, previously advanced to the Executive pursuant to
Section 2 of this Article VI), including interest thereon as
provided in Section 6c of this Article VI, or such other person or
entity as the Executive may designate in writing to the
Corporation, within ten days of receipt of such opinion.
i. Except with respect to any judicial determination pursuant to
Section 4 of this Article VI, the Expenses associated with the
indemnification process set forth in this Section 3 of this
Article VI, including, without limitation, the Expenses of the
Authority selected hereunder, shall be paid by the Corporation.
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4. COURT-ORDERED INDEMNIFICATION AND ADVANCE FOR EXPENSES
a. An Executive may, either before or within two years after a
determination, if any, has been made by the Authority, petition
the court before which such Action was brought or any other court
of competent jurisdiction to independently determine whether or
not he or she has engaged in misconduct which constitutes a Breach
of Duty and is, therefore, entitled to indemnification under the
provisions of this Article VI. Such court shall thereupon have
the exclusive authority to make such determination unless and
until such court dismisses or otherwise terminates such proceeding
without having made such determination. An Executive may petition
a court under this Section 4 either to seek an initial
determination by the court as authorized by Section 3d of this
Article VI or to seek review by the court of a previous adverse
determination by the Authority.
b. The court shall make its independent determination irrespective of
any prior determination made by the Authority; provided, however,
that there shall exist a rebuttable presumption that the Executive
has not engaged in misconduct which constitutes a Breach of Duty
and is, therefore, entitled to indemnification hereunder. The
burden of rebutting such presumption by clear and convincing
evidence shall be on the Corporation.
c. In the event the court determines that an Executive has engaged in
misconduct which constitutes a Breach of Duty, it may nonetheless
order indemnification to be paid by the Corporation if it
determines that the Executive is fairly and reasonably entitled to
indemnification in view of all of the circumstances of such
Action.
d. In the event the Corporation does not:
(1) Advance Expenses to the Executive within ten days of such
Executive's compliance with Section 2 of this Article VI; or
(2) Indemnify an Executive with respect to requested Expenses
under Section 1b of this Article VI within ten days of such
Executive's written request therefor, the Executive may
petition the court before which such Action was brought, if
any, or any other court of competent jurisdiction to order
the Corporation to pay such reasonable Expenses immediately.
Such court, after giving any notice it considers necessary,
shall order the Corporation to pay such Expenses if it
determines that the Executive has complied with the
applicable provisions of Section 2 of this Article VI or 1b
of this Article VI, as the case may be.
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e. If the court determines pursuant to this Section 4 that the
Executive is entitled to be indemnified for any Liabilities and/or
Expenses, or to the advance of Expenses, unless otherwise ordered
by such court, the Corporation shall pay such Liabilities and/or
Expenses to the Executive (net of all Expenses, if any, previously
advanced to the Executive pursuant to Section 2 of this
Article VI), including interest thereon as provided in Section 6c
of this Article VI, or to such other person or entity as the
Executive may designate in writing to the Corporation, within
ten days of the rendering of such determination.
f. An Executive shall pay all Expenses incurred by such Executive in
connection with the judicial determination provided in this
Section 4, unless it shall ultimately be determined by the court
that he or she is entitled, in whole or in part, to be indemnified
by, or to receive an advance from, the Corporation as authorized
by this Article VI. All Expenses incurred by an Executive in
connection with any subsequent appeal of the judicial
determination provided for in this Section 4 shall be paid by the
Executive regardless of the disposition of such appeal.
5. TERMINATION OF AN ACTION IS NONCONCLUSIVE
The adverse termination of any Action against an Executive by judgment,
order settlement, conviction, or upon a plea of no contest or its
equivalent, shall not, of itself, create a presumption that the
Executive has engaged in misconduct which constitutes a Breach of Duty.
6. PARTIAL INDEMNIFICATION; REASONABLENESS; INTEREST
a. If it is determined by the Authority, or by a court, that an
Executive is entitled to indemnification as to some claims,
issues, or matters, but not as to other claims, issues, or
matters, involved in any Action, the Authority, or the court,
shall authorize the proration and payment by the Corporation of
such Liabilities and/or reasonable Expenses with respect to which
indemnification is sought by the Executive, among such claims,
issues, or matters as the Authority, or the court, shall deem
appropriate in light of all of the circumstances of such Action.
b. If it is determined by the Authority, or by a court, that certain
Expenses incurred by or on behalf of an Executive are for whatever
reason unreasonable in amount, the Authority, or the court, shall
nonetheless authorize indemnification to be paid by the
Corporation to the Executive for such Expenses as the Authority,
or the court, shall deem reasonable in light of all of the
circumstances of such Action.
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c. Interest shall be paid by the Corporation to an Executive, to the
extent deemed appropriate by the Authority, or by a court, at a
reasonable interest rate, for amounts for which the Corporation
indemnifies or advances to the Executive.
7. INSURANCE; SUBROGATION
a. The Corporation may purchase and maintain insurance on behalf of
any person who is or was an Executive of the Corporation, and/or
is or was serving as an Executive of an Affiliate, against
Liabilities and/or Expenses asserted against him or her and/or
incurred by or on behalf of him or her in any such capacity, or
arising out of his or her status as such an Executive, whether or
not the Corporation would have the power to indemnify him or her
against such Liabilities and/or Expenses under this Article VI or
under the Statute as it may then be in effect. Except as
expressly provided herein, the purchase and maintenance of such
insurance shall not in any way limit or affect the rights and
obligations of the Corporation and/or any Executive under this
Article VI. Such insurance may, but need not, be for the benefit
of all Executives of the Corporation and those serving as an
Executive of an Affiliate.
b. If an Executive shall receive payment from any insurance carrier
or from the plaintiff in any Action against such Executive in
respect of indemnified amounts after payments on account of all or
part of such indemnified amounts have been made by the Corporation
pursuant to this Article VI, such Executive shall promptly
reimburse the Corporation for the amount, if any, by which the sum
of such payment by such insurance carrier or such plaintiff and
payments by the Corporation to such Executive exceeds such
indemnified amounts; provided, however, that such portions, if
any, of such insurance proceeds that are required to be reimbursed
to the insurance carrier under the terms of its insurance policy,
such as deductible, retention, or co-insurance amounts, shall not
be deemed to be payments to such Executive hereunder.
c. Upon payment of indemnified amounts under this Article VI, the
Corporation shall be subrogated to such Executive's rights against
any insurance carrier in respect of such indemnified amounts and
the Executive shall execute and deliver any and all instruments
and/or documents and perform any and all other acts or deeds which
the Corporation shall deem necessary or advisable to secure such
rights. The Executive shall do nothing to prejudice such rights
of recovery or subrogation.
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8. WITNESS EXPENSES
The Corporation shall advance or reimburse any and all reasonable
Expenses incurred by or on behalf of an Executive in connection with his
or her appearance as a witness in any Action at a time when he or she
has not been formally named a defendant or respondent to such an Action,
within ten days after the receipt of an Executive's written request
therefor.
9. CONTRIBUTION
a. Subject to the limitations of this Section 9, if the indemnity
provided for in Section 1 of this Article VI is unavailable to an
Executive for any reason whatsoever, the Corporation, in lieu of
indemnifying the Executive, shall contribute to the amount
incurred by or on behalf of the Executive, whether for Liabilities
and/or for reasonable Expenses in connection with any Action in
such proportion as deemed fair and reasonable by the Authority, or
by a court, in light of all of the circumstances of any such
Action, in order to reflect:
(1) The relative benefits received by the Corporation and the
Executive as a result of the event(s) and/or transaction(s)
giving cause to such Action; and/or
(2) The relative fault of the Corporation (and its other
Executives, employees, and/or agents) and the Executive in
connection with such event(s) and/or transaction(s).
b. The relative fault of the Corporation (and its other Executives,
employees, and/or agents), on the one hand, and of the Executive,
on the other hand, shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent the
circumstances resulting in such Liabilities and/or Expenses. The
Corporation agrees that it would not be just and equitable if
contribution pursuant to this Section 9 were determined by pro
rata allocation or any other method of allocation which does not
take account of the foregoing equitable considerations.
c. An Executive shall not be entitled to contribution from the
Corporation under this Section 9 in the event it is determined by
the Authority, or by a court, that the Executive has engaged in
misconduct which constitutes a Breach of Duty.
d. The Corporation's payment of, and an Executive's right to,
contribution under this Section 9 shall be made and determined in
accordance with
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and pursuant to the provisions in Sections 3 and/or 4 of this
Article VI relating to the Corporation's payment of, and the
Executive's right to, indemnification under this Article VI.
10. INDEMNIFICATION OF EMPLOYEES
Unless otherwise specifically set forth in this Article VI, the
Corporation shall indemnify and hold harmless any person who is or was a
party, or is threatened to be made a party to any Action by reason of
his or her status as, or the fact that he or she is or was an employee
or authorized agent or representative of the Corporation and/or an
Affiliate as to acts performed in the course and within the scope of
such employee's, agent's, or representative's duties to the Corporation
and/or an Affiliate, in accordance with and to the fullest extent
permitted by the Statute as it may then be in effect.
11. SEVERABILITY
If any provision of this Article VI shall be deemed invalid or
inoperative, or if a court of competent jurisdiction determines that any
of the provisions of this Article VI contravene public policy, this
Article VI shall be construed so that the remaining provisions shall not
be affected, but shall remain in full force and effect, and any such
provisions which are invalid or inoperative or which contravene public
policy shall be deemed, without further Action or deed by or on behalf
of the Corporation, to be modified, amended, and/or limited, but only to
the extent necessary to render the same valid and enforceable, and the
Corporation shall indemnify an Executive as to Liabilities and
reasonable Expenses with respect to any Action to the full extent
permitted by any applicable provision of this Article VI that shall not
have been invalidated and to the full extent otherwise permitted by the
Statute as it may then be in effect.
12. NONEXCLUSIVITY OF ARTICLE VI
The right to indemnification, contribution, and advancement of Expenses
provided to an Executive by this Article VI shall not be deemed
exclusive of any other rights to indemnification, contribution, and/or
advancement of Expenses which any Executive or other employee or agent
of the Corporation and/or of an Affiliate may be entitled under any
charter provision, written agreement, resolution, vote of shareholders
or disinterested directors of the Corporation or otherwise, including,
without limitation, under the Statute as it may then be in effect, both
as to acts in his or her official capacity as such Executive or other
employee or agent of the Corporation and/or of an Affiliate or as to
acts in any other capacity while holding such office or position,
whether or not the Corporation would have the power to indemnify,
contribute, and/or advance Expenses to the Executive under this
Article VI or under the Statute; provided
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that it is not determined that the Executive or other employee or
agent has engaged in misconduct which constitutes a Breach of Duty.
13. NOTICE TO THE CORPORATION; DEFENSE OF ACTIONS
a. An Executive shall promptly notify the Corporation in writing upon
being served with or having actual knowledge of any citation,
summons, complaint, indictment, or any other similar document
relating to any Action which may result in a claim of
indemnification, contribution, or advancement of Expenses
hereunder, but the omission so to notify the Corporation will not
relieve the Corporation from any liability which it may have to
the Executive otherwise than under this Article VI unless the
Corporation shall have been irreparably prejudiced by such
omission.
b. With respect to any such Action as to which an Executive notifies
the Corporation of the commencement thereof:
(1) The Corporation shall be entitled to participate therein at
its own expense; and
(2) Except as otherwise provided below, to the extent that it
may wish, the Corporation (or any other indemnifying party,
including any insurance carrier, similarly notified by the
Corporation or the Executive) shall be entitled to assume
the defense thereof, with counsel selected by the
Corporation (or such other indemnifying party) and
reasonably satisfactory to the Executive.
c. After notice from the Corporation (or such other indemnifying
party) to the Executive of its election to assume the defense of
an Action, the Corporation shall not be liable to the Executive
under this Article VI for any Expenses subsequently incurred by
the Executive in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below.
The Executive shall have the right to employ his or her own
counsel in such Action but the Expenses of such counsel incurred
after notice from the Corporation (or such other indemnifying
party) of its assumption of the defense thereof shall be at the
expense of the Executive unless:
(1) The employment of counsel by the Executive has been
authorized by the Corporation;
(2) The Executive shall have reasonably concluded that there may
be a conflict of interest between the Corporation (or such
other
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indemnifying party) and the Executive in the conduct
of the defense of such Action; or
(3) The Corporation (or such other indemnifying party) shall not
in fact have employed counsel to assume the defense of such
Action, in each of which cases the Expenses of counsel shall
be at the expense of the Corporation. The Corporation shall
not be entitled to assume the defense of any Derivative
Action or any Action as to which the Executive shall have
made the conclusion provided for in clause (2) above.
14. CONTINUITY OF RIGHTS AND OBLIGATIONS
The terms and provisions of this Article VI shall continue as to an
Executive subsequent to the Termination Date and such terms and
provisions shall inure to the benefit of the heirs, estate, executors,
and administrators of such Executive and the successors and assigns of
the Corporation, including, without limitation, any successor to the
Corporation by way of merger, consolidation, and/or sale or disposition
of all or substantially all of the assets or capital stock of the
Corporation. Except as provided herein, all rights and obligations of
the Corporation and the Executive hereunder shall continue in full force
and effect despite the subsequent amendment or modification of the
Corporation's Articles of Incorporation, as such are in effect on the
date hereof, and such rights and obligations shall not be affected by
any such amendment or modification, any resolution of directors or
shareholders of the Corporation, or by any other corporate action which
conflicts with or purports to amend, modify, limit, or eliminate any of
the rights or obligations of the Corporation and/or of the Executive
hereunder.
15. AMENDMENT
This Article VI may only be altered, amended, or repealed by the
affirmative vote of a majority of the shareholders of the Corporation so
entitled to vote; provided, however, that the Board may alter or amend
this Article VI without such shareholder approval if any such alteration
or amendment:
a. Is made in order to conform to any amendment or revision of the
Wisconsin Business Corporation Law, including, without limitation,
the Statute, which
(1) Expands or permits the expansion of an Executive's right to
indemnification thereunder;
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(2) Limits or eliminates, or permits the limitation or
elimination, of liability of the Executives; or
(3) Is otherwise beneficial to the Executives; or
b. In the sole judgment and discretion of the Board, does not
materially adversely affect the rights and protections of the
shareholders of the Corporation.
Any repeal, modification, or amendment of this Article VI shall not
adversely affect any rights or protections of an Executive existing
under this Article VI immediately prior to the time of such repeal,
modification, or amendment and any such repeal, modification, or
amendment shall have a prospective effect only.
16. CERTAIN DEFINITIONS
The following terms as used in this Article VI shall be defined as
follows:
a. "Action(s)" shall include, without limitation, any threatened,
pending, or completed action, claim, litigation, suit, or
proceeding, whether civil, criminal, administrative, arbitrative,
or investigative, whether predicated on foreign, Federal, state,
or local law, whether brought under and/or predicated upon the
Securities Act of 1933, as amended, and/or the Securities Exchange
Act of 1934, as amended, and/or their respective state
counterparts and/or any rule or regulation promulgated thereunder,
whether a Derivative Action and whether formal or informal.
b. "Affiliate" shall include, without limitation, any corporation,
partnership, joint venture, employee benefit plan, trust, or other
similar enterprise that directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common
control with, the Corporation.
c. "Authority" shall mean the panel of arbitrators or independent
legal counsel selected under Section 3 of this Article VI.
d. "Board" shall mean the Board of Directors of the Corporation.
e. "Breach of Duty" shall mean the Executive breached or failed to
perform his or her duties to the Corporation or an Affiliate, as
the case may be, and the Executive's breach of or failure to
perform those duties constituted:
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(1) A willful failure to deal fairly with the Corporation (or an
Affiliate) or its shareholders in connection with a matter
in which the Executive has a material conflict of interest;
(2) A violation of the criminal law, unless the Executive:
(a) Had reasonable cause to believe his or her conduct was
lawful; or
(b) Had no reasonable cause to believe his or her conduct
was unlawful;
(3) A transaction from which the Executive derived an improper
personal profit (unless such profit is determined to be
immaterial in light of all the circumstances of the Action);
or
(4) Willful misconduct.
f. "Derivative Action" shall mean any Action brought by or in the
right of the Corporation and/or an Affiliate.
g. "Executive(s)" shall mean any individual who is, was, or has
agreed to become a director and/or officer of the Corporation
and/or an Affiliate.
h. "Expenses" shall include, without limitation, all expenses, fees,
costs, charges, attorneys' fees and disbursements, other out-of-
pocket costs, reasonable compensation for time spent by the
Executive in connection with the Action for which he or she is not
otherwise compensated by the Corporation, any Affiliate, any third
party or other entity, and any and all other direct and indirect
costs of any type or nature whatsoever.
i. "Liabilities" shall include, without limitation, judgments,
amounts incurred in settlement, fines, penalties and, with respect
to any employee benefit plan, any excise tax or penalty incurred
in connection therewith, and any and all other liabilities of
every type or nature whatsoever.
j. "Statute" shall mean Wisconsin Business Corporation Law
Sections 180.0850-180.0859 (or any successor provisions).
k. "Termination Date" shall mean the date an Executive ceases, for
whatever reason, to serve in an employment relationship with the
Company and/or any Affiliate.
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ARTICLE VII. SEAL
BOARD OF DIRECTORS
The Board of Directors shall provide a corporate seal which shall be circular
in form and shall have inscribed thereon the words "WPS RESOURCES CORPORATION,
CORPORATE SEAL." The continued use for any purpose of any former corporate
seal or facsimile thereof shall have the same effect as the use of the
corporate seal or facsimile thereof in the form provided by the preceding
sentence.
ARTICLE VIII. AMENDMENTS
1. The Board of Directors shall have authority to adopt, amend, or repeal
the By-laws of this Corporation upon affirmative vote of a majority of
the total number of directors at a meeting of the Board, the notice of
which shall have included notice of the proposed amendment; but the
Board of Directors shall have no power to amend any By-law or to
reinstate any By-law repealed by the shareholders unless the
shareholders shall hereafter confer such authority upon the Board of
Directors.
2. The shareholders shall have power to adopt, amend, or repeal any of the
By-laws of the Corporation, at any regular or special meeting of the
shareholders, in accordance with the provisions of Article II of these
By-laws. There shall be included in the notice of such regular or
special meeting a statement of the nature of any amendment that is
proposed for the consideration of the shareholders by the holders of at
least 5% of the voting stock of the Corporation in a writing delivered
to the Secretary of the Corporation not less than 90 days prior to the
date of such meeting or by the Board of Directors.
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EXHIBIT 3B-2
WISCONSIN PUBLIC SERVICE CORPORATION
BY-LAWS
As In Effect February 10, 2000
ARTICLE I. OFFICES
1. PRINCIPAL OFFICE
The principal office of the Corporation in the State of Wisconsin shall
be in the City of Green Bay. The Corporation may also have offices at
such other places, within and outside of the State of Wisconsin, as the
Board of Directors may designate or as the business of the Corporation
may require.
2. REGISTERED OFFICE
The Board of Directors shall designate the registered office of the
Corporation and may change such registered office by resolution.
ARTICLE II. SHAREHOLDERS
1. ANNUAL MEETING
The annual meeting of the shareholders ("Annual Meeting") shall be held
each year not later than the fourth Tuesday in May, at such time or on
such day as may be designated by resolution of the Board of Directors.
In fixing a meeting date for any Annual Meeting, the Board of Directors
may consider such factors as it deems relevant within the good faith
exercise of its business judgment.
2. PURPOSES OF ANNUAL MEETING
At each Annual Meeting, the shareholders shall elect the number of
directors equal to the number of directors in the class whose term
expires at the time of such Annual Meeting and transact such other
business as may properly come before the Annual Meeting in accordance
with Section 14 of Article II of these By-laws. If the election of
directors shall not be held on the date fixed as herein provided, for
any Annual Meeting, or any adjournment thereof, the Board of Directors
shall cause the election to be held at a special meeting of shareholders
(a "Special Meeting") as soon thereafter as is practicable.
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3. SPECIAL MEETINGS
a. A Special Meeting may be called only by (i) the Board of Directors,
(ii) the Chairman of the Board, (iii) the President or (iv) the
Secretary and shall be called by the Chairman of the Board, the
President or the Secretary upon the demand, in accordance with this
Section 3, of the holders of record of shares representing at least
10% of all the votes entitled to be cast on any issue proposed to be
considered at the Special Meeting.
b. In order that the Corporation may determine the shareholders
entitled to demand a Special Meeting, the Board of Directors may
fix a record date to determine the shareholders entitled to make
such a demand (the "Demand Record Date"). The Demand Record Date
shall not precede the date upon which the resolution fixing the
Demand Record Date is adopted by the Board of Directors and shall
not be more than ten days after the date upon which the resolution
fixing the Demand Record Date is adopted by the Board of
Directors. Any shareholder of record seeking to have shareholders
demand a Special Meeting shall, by sending written notice to the
Secretary of the Corporation by hand or by certified or registered
mail, return receipt requested, request the Board of Directors to
fix a Demand Record Date. The Board of Directors shall promptly,
but in all events within ten days after the date on which a valid
request to fix a Demand Record Date is received, adopt a
resolution fixing the Demand Record Date and shall make a public
announcement of such Demand Record Date. If no Demand Record Date
has been fixed by the Board of Directors within ten days after the
date on which such request is received by the Secretary, the
Demand Record Date shall be the 10th day after the first date on
which a valid written request to set a Demand Record Date is
received by the Secretary. To be valid, such written request
shall set forth the purpose or purposes for which the Special
Meeting is to be held, shall be signed by one or more shareholders
of record (or their duly authorized proxies or other
representatives), shall bear the date of signature of each such
shareholder (or proxy or other representative) and shall set forth
all information about each such shareholder and about the
beneficial owner or owners, if any, on whose behalf the request is
made that would be required to be set forth in a shareholder's
notice described in paragraph (a) (ii) of Section 14 of this
Article II.
c. In order for a shareholder or shareholders to demand a Special
Meeting, a written demand or demands for a Special Meeting by the
holders of record as of the Demand Record Date of shares
representing at least 10% of all the votes entitled to be cast on
any issue proposed to be considered at the Special Meeting must be
delivered to the Corporation. To be valid, each written demand by
a shareholder for a Special Meeting shall set forth the specific
purpose or purposes for which the Special Meeting is to
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be held (which purpose or purposes shall be limited to the purpose
or purposes set forth in the written request to set a Demand Record
Date received by the Corporation pursuant to paragraph (b) of this
Section 3), shall be signed by one or more persons who as of the
Demand Record Date are shareholders of record (or their duly
authorized proxies or other representatives), shall bear the date
of signature of each such shareholder (or proxy or other
representative), and shall set forth the name and address, as they
appear in the Corporation's books, of each shareholder signing
such demand and the class and number of shares of the Corporation
which are owned of record and beneficially by each such
shareholder, shall be sent to the Secretary by hand or by
certified or registered mail, return receipt requested, and shall
be received by the Secretary within seventy days after the Demand
Record Date.
d. The Corporation shall not be required to call a Special Meeting
upon shareholder demand unless, in addition to the documents
required by paragraph (c) of this Section 3, the Secretary
receives a written agreement signed by each Soliciting Shareholder
(as defined below), pursuant to which each Soliciting Shareholder,
jointly and severally, agrees to pay the Corporation's costs of
holding the Special Meeting, including the costs of preparing and
mailing proxy materials for the Corporation's own solicitation,
provided that if each of the resolutions introduced by any
Soliciting Shareholder at such meeting is adopted, and each of the
individuals nominated by or on behalf of any Soliciting
Shareholder for election as a director at such meeting is elected,
then the Soliciting Shareholders shall not be required to pay such
costs. For purposes of this paragraph (d), the following terms
shall have the meanings set forth below:
(i) "Affiliate" of any Person (as defined herein) shall mean any
Person controlling, controlled by or under common control with
such first Person.
(ii) "Participant" shall have the meaning assigned to such term
in Rule 14a-11 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
(iii) "Person" shall mean any individual, firm, corporation,
partnership, joint venture, association, trust,
unincorporated organization or other entity.
(iv) "Proxy" shall have the meaning assigned to such term in
Rule 14a-1 promulgated under the Exchange Act.
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(v) "Solicitation" shall have the meaning assigned to such term
in Rule 14a-11 promulgated under the Exchange Act.
(vi) "Soliciting Shareholder" shall mean, with respect to any
Special Meeting demanded by a shareholder or shareholders,
any of the following Persons:
(a) if the number of shareholders signing the demand or
demands of meeting delivered to the Corporation
pursuant to paragraph (c) of this Section 3 is ten or
fewer, each shareholder signing any such demand;
(b) if the number of shareholders signing the demand or
demands of meeting delivered to the Corporation
pursuant to paragraph (c) of this Section 3 is more
than ten, each Person who either (I) was a Participant
in any Solicitation of such demand or demands or (II)
at the time of the delivery to the Corporation of the
documents described in paragraph (c) of this Section 3
had engaged or intends to engage in any Solicitation
of Proxies for use at such Special Meeting (other than
a Solicitation of Proxies on behalf of the
Corporation); or
(c) any Affiliate of a Soliciting Shareholder, if a
majority of the directors then in office determine,
reasonably and in good faith, that such Affiliate
should be required to sign the written notice
described in paragraph (c) of this Section 3 and/or
the written agreement described in this paragraph (d)
in order to prevent the purposes of this Section 3
from being evaded.
e. Except as provided in the following sentence, any Special Meeting
shall be held at such hour and day as may be designated by
whichever of the Board of Directors, the Chairman of the Board,
the President or the Secretary shall have called such meeting. In
the case of any Special Meeting called by the Chairman of the
Board, the President or the Secretary upon the demand of
shareholders (a "Demand Special Meeting"), such meeting shall be
held at such hour and day as may be designated by the Board of
Directors; provided, however, that the date of any Demand Special
Meeting shall be not more than seventy days after the Meeting
Record Date (as defined in Section 6 of Article II of these
By-laws); and provided further that in the event that the
directors then in office fail to designate an hour and date for a
Demand Special Meeting within ten days after the date that valid
written demands for such meeting by the holders of record as of
the Demand Record Date of shares representing at least 10% of all
the votes entitled to be cast on each issue
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proposed to be considered at the Special Meeting are delivered to
the Corporation (the "Delivery Date"), then such meeting shall be
held at 2:00 P.M. local time on the 100th day after the Delivery
Date or, if such 100th day is not a Business Day (as defined below),
on the first preceding Business Day. In fixing a meeting date for
any Special Meeting, the Board of Directors, the Chairman of the
Board, the President or the Secretary may consider such factors as
it or he deems relevant within the good faith exercise of its or
his business judgment, including, without limitation, the nature
of the action proposed to be taken, the facts and circumstances
surrounding any demand for such meeting, and any plan of the Board
of Directors to call an Annual Meeting or a Special Meeting for
the conduct of related business.
f. The Corporation may engage regionally or nationally recognized
independent inspectors of elections to act as an agent of the
Corporation for the purpose of promptly performing a ministerial
review of the validity of any purported written demand or demands
for a Special Meeting received by the Secretary. For the purpose
of permitting the inspectors to perform such review, no purported
demand shall be deemed to have been delivered to the Corporation
until the earlier of (i) five Business Days following receipt by
the Secretary of such purported demand and (ii) such date as the
independent inspectors certify to the Corporation that the valid
demands received by the Secretary represent at least 10% of all
the votes entitled to be cast on each issue proposed to be
considered at the Special Meeting. Nothing contained in this
paragraph (f) shall in any way be construed to suggest or imply
that the Board of Directors or any shareholder shall not be
entitled to contest the validity of any demand, whether during or
after such five Business Day period, or to take any other action
(including, without limitation, the commencement, prosecution or
defense of any litigation with respect thereto).
g. For purposes of these By-laws, "Business Day" shall mean any day
other than a Saturday, a Sunday or a day on which banking
institutions in the State of Wisconsin are authorized or obligated
by law or executive order to close.
4. PLACE OF MEETING
The Board of Directors, the Chairman of the Board, the President or the
Secretary may designate any place, either within or without the State of
Wisconsin, as the place of meeting for any Annual Meeting or for any
Special Meeting or for any postponement or adjournment thereof. If no
designation is made, the place of meeting shall be the principal
business office of the Corporation in the State of Wisconsin. Any
meeting may be adjourned to
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reconvene at any place designated by vote of the Board of Directors or
by the Chairman of the Board, the President or the Secretary.
5. NOTICE OF MEETING
Written or printed notice stating the date, time and place of any Annual
Meeting or Special Meeting shall be delivered not less than ten days
(unless a longer period is required by the Wisconsin Business
Corporation Law or the Articles of Incorporation of the Corporation) nor
more than 70 days before the date of such meeting either personally or
by mail, by or at the direction of the Chairman of the Board, the
President or the Secretary, to each shareholder of record entitled to
vote at such meeting and to such other shareholders as required by the
Wisconsin Business Corporation Law. In the event of any Demand Special
Meeting, such notice shall be sent not more than 45 days after the
Delivery Date. If mailed, notice pursuant to this Section 5 shall be
deemed to be effective when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock
record books of the Corporation, with postage thereon prepaid. Unless
otherwise required by the Wisconsin Business Corporation Law or the
Articles of Incorporation of the Corporation, a notice of an Annual
Meeting need not include a description of the purpose for which the
meeting is called. In the case of any Special Meeting, (a) the notice
of meeting shall describe any business that the Board of Directors shall
have theretofore determined to bring before the meeting and (b) in the
case of a Demand Special Meeting, the notice of meeting (i) shall
describe any business set forth in the statement of purpose of the
demands received by the Corporation in accordance with Section 3 of this
Article II and (ii) shall contain all of the information required in the
notice received by the Corporation in accordance with Section 14(b) of
this Article II. If an Annual Meeting or Special Meeting is adjourned
to a different date, time or place, the Corporation shall not be
required to give notice of the new date, time or place if the new date,
time or place is announced at the meeting before adjournment; provided,
however, that if a new Meeting Record Date for an adjourned meeting is
or must be fixed, the Corporation shall give notice of the adjourned
meeting to persons who are shareholders as of the new Meeting Record
Date.
6. FIXING OF RECORD DATE
The Board of Directors may fix in advance a date not less than 10 days
and not more than 70 days prior to the date of any Annual Meeting or
Special Meeting (other than a Demand Special Meeting) as the record date
for the purpose of determining shareholders entitled to notice of, and
to vote at, such meeting ("Meeting Record Date"). If a Meeting Record
Date is not fixed by the Board of Directors or by the Wisconsin Business
Corporation Law for any Annual Meeting or Special Meeting (other than a
Demand Special Meeting), the Meeting Record Date shall be the close of
business on the day before the first notice is given to
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Shareholders. In the case of any Demand Special Meeting, (i) the Meeting
Record Date shall not be later than the 30th day after the Delivery Date
and (ii) if the Board of Directors fails to fix the Meeting Record Date
within 30 days after the Delivery Date, then the close of business on
such 30th day shall be the Meeting Record Date. The shareholders of
record on the Meeting Record Date shall be the shareholders entitled to
notice of, and to vote at, the meeting. Except as provided by the
Wisconsin Business Corporation Law for a court-ordered adjournment, a
determination of shareholders entitled to notice of, and to vote at, any
Annual Meeting or Special Meeting is effective for any adjournment of
such meeting unless the Board of Directors fixes a new Meeting Record
Date, which it shall do if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting. The Board of
Directors may also fix in advance a date as the record date for the
purpose of determining shareholders entitled to take any other action or
determining shareholders for any other purpose. Such record date shall
be not more than 70 days prior to the date on which the particular
action, requiring such determination of shareholders, is to be taken.
The record date for determining shareholders entitled to a distribution
(other than a distribution involving a purchase, redemption or other
acquisition of the Corporation's shares) or a share dividend is the date
on which the Board of Directors authorizes the distribution or share
dividend, as the case may be, unless the Board of Directors fixes a
different record date.
7. VOTING RECORDS
After a Meeting Record Date has been fixed, the Corporation shall
prepare a list of the names of all of the shareholders entitled to
notice of the meeting. The list shall be arranged by class or series of
shares, if any, and show the address of, and number of shares held by,
each shareholder. Such list shall be available for inspection by any
shareholder, beginning two business days after notice of the meeting is
given for which the list was prepared and continuing to the date of the
meeting, at the Corporation's principal office or at a place identified
in the meeting notice in the city where the meeting will be held. A
shareholder or his agent may, on written demand, inspect and, subject to
the limitations imposed by the Wisconsin Business Corporation Law, copy
the list, during regular business hours and at his or her expense,
during the period that it is available for inspection pursuant to this
Section 7. The Corporation shall make the shareholders' list available
at the meeting and any shareholder or his or her agent or attorney may
inspect the list at any time during the meeting or any adjournment
thereof. Refusal or failure to prepare or make available the
shareholders' list shall not affect the validity of any action taken at
a meeting of shareholders.
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8. QUORUM AND VOTING REQUIREMENTS; POSTPONEMENTS; ADJOURNMENTS
a. Shares entitled to vote as a separate voting group may take action
on a matter at any Annual Meeting or Special Meeting only if a
quorum of those shares exists with respect to that matter. If the
Corporation has only one class of stock outstanding, such class
shall constitute a separate voting group for purposes of this
Section 8. Except as otherwise provided in the Articles of
Incorporation of this Corporation or the Wisconsin Business
Corporation Law, a majority of the votes entitled to be cast on
the matter shall constitute a quorum of the voting group for
action on that matter. Once a share is represented for any
purpose at any Annual Meeting or Special Meeting, other than for
the purpose of objecting to holding the meeting or transacting
business at the meeting, it is considered present for purposes of
determining whether a quorum exists for the remainder of the
meeting and for any adjournment of that meeting, unless a new
Meeting Record Date is or must be set for the adjourned meeting.
If a quorum exists, except in the case of the election of
directors, action on a matter shall be approved if the votes cast
within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation of the
Corporation or the Wisconsin Business Corporation Law requires a
greater number of affirmative votes. Unless otherwise provided in
the Articles of Incorporation of the Corporation, each director
shall be elected by a plurality of the votes cast by the shares
entitled to vote in the election of directors at any Annual
Meeting or Special Meeting at which a quorum is present.
b. The Board of Directors acting by resolution may postpone and
reschedule any previously scheduled Annual Meeting or Special
Meeting; provided, however, that a Demand Special Meeting shall
not be postponed beyond the 100th day following the Delivery Date.
Any Annual Meeting or Special Meeting may be adjourned from time
to time, whether or not there is a quorum, (i) at any time, upon a
resolution of shareholders if the votes cast in favor of such
resolution by the holders of shares of each voting group entitled
to vote on any matter theretofore properly brought before the
meeting exceed the number of votes cast against such resolution by
the holders of shares of each such voting group or (ii) at any
time prior to the transaction of any business at such meeting, by
the Chairman of the Board, the President or the Secretary or
pursuant to a resolution of the Board of Directors. No notice of
the time and place of adjourned meetings need be given except as
required by the Wisconsin Business Corporation Law. At any
adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
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9. CONDUCT OF MEETINGS
The Chairman of the Board, and in his absence, the Vice Chairman of the
Board, and in his absence, the President, and in their absence, a Vice
President in the order provided under Section 3 of Article IV of these
By-laws, and in their absence, any person chosen by the shareholders
present shall call any Annual Meeting or Special Meeting to order and
shall act as chairman of such meeting, and the Secretary of the
Corporation shall act as secretary of all Annual Meetings and Special
Meetings, but in the absence of the Secretary, the presiding officer may
appoint any other person to act as secretary of the meeting.
10. PROXIES
At all Annual Meetings and Special Meetings, a shareholder entitled to
vote may vote in person or by proxy. A shareholder may appoint a proxy
to vote or otherwise act for the shareholder by signing an appointment
form, either personally or by his attorney-in-fact. An appointment of a
proxy is effective when received by the Secretary or other officer or
agent of the Corporation authorized to tabulate votes. An appointment
is valid for eleven months from the date of its signing unless a
different period is expressly provided in the appointment form. Unless
otherwise provided, a proxy may be revoked any time before it is voted,
either by written notice filed with the Secretary or the acting
secretary of the meeting or by oral notice given by the shareholder to
the presiding officer during the meeting. The presence of a shareholder
who has filed his proxy does not of itself constitute a revocation. The
Board of Directors shall have the power and authority to make rules
establishing presumptions as to the validity and sufficiency of proxies.
11. VOTING OF SHARES
a. Each outstanding share shall be entitled to one vote upon each
matter submitted to a vote at any Annual Meeting or Special
Meeting, except to the extent that the voting rights of the shares
of any class or classes are enlarged, limited or denied by the
Wisconsin Business Corporation Law or the Articles of
Incorporation of the Corporation.
b. Shares held by another corporation, if a sufficient number of
shares entitled to elect a majority of the directors of such other
corporation is held directly or indirectly by the Corporation,
shall not be entitled to vote at any Annual Meeting or Special
Meeting, but shares held in a fiduciary capacity may be voted.
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12. ACCEPTANCE OF INSTRUMENTS SHOWING SHAREHOLDER ACTION
If the name signed on a vote, consent, waiver or proxy appointment
corresponds to the name of a shareholder, the Corporation, if acting in
good faith, may accept the vote, consent, waiver or proxy appointment
and give it effect as the act of a shareholder. If the name signed on a
vote, consent, waiver or proxy appointment does not correspond to the
name of a shareholder, the Corporation, if acting in good faith, may
accept the vote, consent, waiver or proxy appointment and give it effect
as the act of the shareholder if any of the following apply:
a. The shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity.
b. The name purports to be that of a personal representative,
administrator, executor, guardian or conservator representing the
shareholder and, if the Corporation requests, evidence of
fiduciary status acceptable to the Corporation is presented with
respect to the vote, consent, waiver or proxy appointment.
c. The name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the Corporation requests,
evidence of this status acceptable to the Corporation is presented
with respect to the vote, consent, waiver or proxy appointment.
d. The name signed purports to be that of a pledgee, beneficial
owner, or attorney-in-fact of the shareholder and, if the
Corporation requests, evidence acceptable to the Corporation of
the signatory's authority to sign for the shareholder is presented
with respect to the vote, consent, waiver or proxy appointment.
e. Two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at
least one of the co-owners and the person signing appears to be
acting on behalf of all co-owners.
The Corporation may reject a vote, consent, waiver or proxy appointment if the
Secretary or other officer or agent of the Corporation who is authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
13. WAIVER OF NOTICE BY SHAREHOLDERS
A shareholder may waive any notice required by the Wisconsin Business
Corporation Law, the Articles of Incorporation of the Corporation or
these By-laws before or after the date and time stated in the notice.
The waiver shall
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be in writing and signed by the shareholder entitled to the notice,
contain the same information that would have been required in the notice
under applicable provisions of the Wisconsin Business Corporation Law
(except that the time and place of meeting need not be stated) and be
delivered to the Corporation for inclusion in the corporate records. A
shareholder's attendance at any Annual Meeting or Special Meeting, in
person or by proxy, waives objection to all of the following: (a) lack
of notice or defective notice of the meeting, unless the shareholder at
the beginning of the meeting or promptly upon arrival objects to holding
the meeting or transacting business at the meeting; and (b) consideration
of a particular matter at the meeting that is not within the purpose
described in the meeting notice, unless the shareholder objects to
considering the matter when it is presented.
14. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATION OF DIRECTORS
a. Annual Meetings.
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(i) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to
be considered by the shareholders may be made at an Annual
Meeting (A) pursuant to the Corporation's notice of meeting,
(B) by or at the direction of the Board of Directors or (C)
by any shareholder of the Corporation who is a shareholder
of record at the time of giving of notice provided for in
this Section 14 and who is entitled to vote at the meeting
and complies with the notice procedures set forth in this
Section 14.
(ii) For nominations or other business to be properly brought
before an Annual Meeting by a shareholder pursuant to clause
(C) of paragraph (a)(i) of this Section 14, the shareholder
must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's
notice shall be received by the Secretary of the Corporation
at the principal offices of the Corporation not less than 45
days nor (except for shareholder proposals included in a
proxy statement for such Annual Meeting in accordance with
the requirements of Rule 14a-8 under the Exchange Act) more
than 70 days prior to the first annual anniversary of the
date set forth in the Corporation's proxy statement for the
immediately preceding Annual Meeting as the date on which
the Corporation first mailed definitive proxy materials for
the immediately preceding Annual Meeting (the "Anniversary
Date"); provided, however, that in the event that the date
for which the Annual Meeting is called is advanced by more
than 30 days or delayed by more than 30 days from the first
annual anniversary of the immediately preceding Annual
Meeting, notice by the
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shareholder to be timely must be so delivered not earlier than
the close of business on the 100th day prior to the date of
such Annual Meeting and not later than (A) the 75th day prior
to the date of such Annual Meeting or (B) the 10th day
following the day on which public announcement of the date of
such Annual Meeting is first made. In no event shall the
announcement of an adjournment of an Annual Meeting commence a
new time period for the giving of a shareholder notice as
described above. Such shareholder's notice shall be signed by
the shareholder of record who intends to make the nomination
or introduce the other business (or his duly authorized proxy
or other representative), shall bear the date of signature of
such shareholder (or proxy or other representative) and shall
set forth: (A) the name and address, as they appear on this
Corporation's books, of such shareholder and the beneficial
owner or owners, if any, on whose behalf the nomination or
proposal is made; (B) the class and number of shares of the
Corporation which are beneficially owned by such shareholder
or beneficial owner or owners; (C) a representation that
such shareholder is a holder of record of shares of the
Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to make the
nomination or introduce the other business specified in the
notice; (D) in the case of any proposed nomination for
election or re-election as a director, (I) the name and
residence address of the person or persons to be nominated,
(II) a description of all arrangements or understandings
between such shareholder or beneficial owner or owners and
each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination is to be
made by such shareholder, (III) such other information
regarding each nominee proposed by such shareholder as would
be required to be disclosed in solicitations of proxies for
elections of directors, or would be otherwise required to be
disclosed, in each case pursuant to Regulation 14A under the
Exchange Act, including any information that would be
required to be included in a proxy statement filed pursuant
to Regulation 14A had the nominee been nominated by the
Board of Directors and (IV) the written consent of each
nominee to be named in a proxy statement and to serve as a
director of the Corporation if so elected; and (E) in the
case of any other business that such shareholder proposes to
bring before the meeting, (I) a brief description of the
business desired to be brought before the meeting and, if
such business includes a proposal to amend these By-laws,
the language of the proposed amendment, (II) such
shareholder's and beneficial owner's or owners' reasons for
conducting such business at the meeting and
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(III) any material interest in such business of such
shareholder and beneficial owner or owners.
(iii) Notwithstanding anything in the second sentence of paragraph
(a)(ii) of this Section 14 to the contrary, in the event
that the number of directors to be elected to the Board of
Directors of the Corporation is increased and there is no
public announcement naming all of the nominees for director
or specifying the size of the increased Board of Directors
made by the Corporation at least 45 days prior to the
Anniversary Date, a shareholder's notice required by this
Section 14 shall also be considered timely, but only with
respect to nominees for any new positions created by such
increase, if it shall be received by the Secretary at the
principal offices of the Corporation not later than the
close of business on the 10th day following the day on which
such public announcement is first made by the Corporation.
b. Special Meetings. Only such business shall be conducted at a
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Special Meeting as shall have been described in the notice of
meeting sent to shareholders pursuant to Section 5 of Article II
of these By-laws. Nominations of persons for election to the
Board of Directors may be made at a Special Meeting at which
directors are to be elected pursuant to such notice of meeting (i)
by or at the direction of the Board of Directors or (ii) by any
shareholder of the Corporation who (A) is a shareholder of record
at the time of giving of such notice of meeting, (B) is entitled
to vote at the meeting and (C) complies with the notice procedures
set forth in this Section 14. Any shareholder desiring to
nominate persons for election to the Board of Directors at such a
Special Meeting shall cause a written notice to be received by the
Secretary of the Corporation at the principal offices of the
Corporation not earlier than ninety days prior to such Special
Meeting and not later than the close of business on the later of
(x) the 60th day prior to such Special Meeting and (y) the 10th
day following the day on which public announcement is first made
of the date of such Special Meeting and of the nominees proposed
by the Board of Directors to be elected at such meeting. Such
written notice shall be signed by the shareholder of record who
intends to make the nomination (or his duly authorized proxy or
other representative), shall bear the date of signature of such
shareholder (or proxy or other representative) and shall set
forth: (A) the name and address, as they appear on the
Corporation's books, of such shareholder and the beneficial owner
or owners, if any, on whose behalf the nomination is made; (B) the
class and number of shares of the Corporation which are
beneficially owned by such shareholder or beneficial owner or
owners; (C) a representation that such shareholder is a holder of
record of shares of the Corporation entitled to
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vote at such meeting and intends to appear in person or by proxy at
the meeting to make the nomination specified in the notice; (D) the
name and residence address of the person or persons to be nominated;
(E) a description of all arrangements or understandings between such
shareholder or beneficial owner or owners and each nominee and any
other person or persons (naming such person or persons) pursuant
to which the nomination is to be made by such shareholder; (F)
such other information regarding each nominee proposed by such
shareholder as would be required to be disclosed in solicitations
of proxies for elections of directors, or would be otherwise
required to be disclosed, in each case pursuant to Regulation 14A
under the Exchange Act, including any information that would be
required to be included in a proxy statement filed pursuant to
Regulation 14A had the nominee been nominated by the Board of
Directors; and (G) the written consent of each nominee to be named
in a proxy statement and to serve as a director of the Corporation
if so elected.
c. General.
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(i) Only persons who are nominated in accordance with the
procedures set forth in this Section 14 shall be eligible to
serve as directors. Only such business shall be conducted
at an Annual Meeting or Special Meeting as shall have been
brought before such meeting in accordance with the
procedures set forth in this Section 14. The chairman of
the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the
procedures set forth in this Section 14 and, if any proposed
nomination or business is not in compliance with this
Section 14, to declare that such defective proposal shall be
disregarded.
(ii) For purposes of this Section 14, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news
service or in a document publicly filed by the Corporation
with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 14,
a shareholder shall also comply with all applicable
requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth
in this Section 14. Nothing in this Section 14 shall be
deemed to limit the Corporation's obligation to include
shareholder proposals in its proxy statement if such
inclusion is required by Rule 14a-8 under the Exchange Act.
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ARTICLE III. BOARD OF DIRECTORS
1. GENERAL POWERS
The business and affairs of the Corporation shall be managed by its Board
of Directors. The Board shall determine the nature and character of the
business to be conducted by the Corporation and the method of doing so;
what employees, agents, and officers shall be employed and their
compensation; and what purchases or contracts for purchase shall be made.
The Board may delegate any of its aforesaid powers to committees or to
officers, agents, or employees as it may from time to time determine.
2. NUMBER OF DIRECTORS
The number of directors of the Corporation shall be nine, divided into
three classes: Class A - 3 members, Class B - 3 members, and Class C -
3 members.
3. TERM
At the 1988 annual meeting of shareholders, the directors of Class A
shall be elected for a term to expire at the first annual meeting of
shareholders after their election, and until their successors are elected
and qualify, the directors of Class B shall be elected for a term to
expire at the second annual meeting of shareholders after their election,
and until their successors are elected and qualify, and the directors of
Class C shall be elected for a term to expire at the third annual meeting
of shareholders after their election and until their successors are
elected and qualify. At each annual meeting of shareholders after the
1988 annual meeting of shareholders, the successors to the class of
directors whose terms shall expire at the time of such annual meeting
shall be elected to hold office until the third succeeding annual meeting
of shareholders, and until their successors are elected and qualify.
4. QUALIFICATIONS
No director elected to such office for the first time after January 1,
1972 shall be eligible for re-election after attaining the age of 70
years. Directors need not be shareholders of the Corporation or
residents of the State of Wisconsin.
5. MEETINGS
The Board of Directors shall hold its meetings at such place or places,
within or without the State of Wisconsin, as the Board may from time to
time determine.
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a. A meeting of the Board of Directors, to be known as the annual
meeting, may be held, without notice, immediately after and at the
same place as the annual meeting of the shareholders at which such
Board is elected, for the purpose of electing the officers of the
Corporation and to transact such other business as may come before
the Board. Such annual meeting may be held at a different place
than the annual meeting of shareholders and/or on a date subsequent
to the annual meeting of shareholders, if notice of such different
place and/or date has been given to or waived by all the directors.
b. Regular meetings of the Board of Directors may be held without call
and without notice, at such times and in such places as the Board
may by resolution from time to time determine.
c. Special meetings of the Board of Directors may be called at any time
by the Chairman of the Board or the Chief Executive Officer and
shall be called by the Secretary of the Corporation upon the written
request of three or more directors.
6. NOTICE; WAIVER
Notice of each special meeting of the Board of Directors shall be given
by written notice delivered or communicated in person, by telegraph,
teletype, facsimile, or other form of wire or wireless communication, or
by mail or private carrier, to each director at his business address or
at such other address as such director shall have designated in writing
filed with the Secretary, in each case not less than 48 hours prior to
the meeting. The notice need not prescribe the purpose of the special
meeting of the Board of Directors or the business to be transacted at
such meeting. If mailed, such notice shall be deemed to be effective
when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice is given by telegram, such notice shall be
deemed to be effective when the telegram is delivered to the telegraph
company. If notice is given by private carrier, such notice shall be
deemed to be effective when delivered to the private carrier. Whenever
any notice whatever is required to be given to any director of the
Corporation under the Articles of Incorporation, these By-laws, or any
provision of the Wisconsin Business Corporation Law, a waiver thereof in
writing, signed at any time, whether before or after the date and time of
meeting, by the director entitled to such notice shall be deemed
equivalent to the giving of such notice. The Corporation shall retain
any such waiver as part of the permanent corporate records. A director's
attendance at or participation in a meeting waives any required notice to
him or her of the meeting unless the director at the beginning of the
meeting or promptly upon his or her arrival objects to holding the
meeting or transacting business at the meeting and does not thereafter
vote for or assent to action taken at the meeting.
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7. QUORUM
Except as otherwise provided by the Wisconsin Business Corporation Law,
by the Articles of Incorporation, or these By-laws, a majority of the
number of directors specified in Section 2 of Article III of these By-
laws shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors. Except as otherwise provided by the
Wisconsin Business Corporation Law, by the Articles of Incorporation, or
by these By-laws, a quorum of any committee of the Board of Directors
created pursuant to Section 13 hereof shall consist of a majority of the
number of directors appointed to serve on the committee. A majority of
the directors present (though less than such quorum) may adjourn any
meeting of the Board of Directors or any committee thereof, as the case
may be, from time to time without further notice.
8. MANNER OF ACTING
The affirmative vote of a majority of the directors present at a meeting
of the Board of Directors or a committee thereof at which a quorum is
present shall be the act of the Board of Directors or such committee, as
the case may be, unless the Wisconsin Business Corporation Law, the
Articles of Incorporation, or these By-laws require the vote of a greater
number of directors.
9. MINUTES OF MEETINGS
Minutes of any regular or special meeting of the Board of Directors shall
be prepared and distributed to each director.
10. VACANCIES
Vacancies occurring in the Board of Directors shall be filled in the
manner provided in Article V of the Articles of Incorporation.
11. COMPENSATION
The Board of Directors, irrespective of any personal interest of any of
its members, may establish reasonable compensation of all directors for
services to the Corporation as directors, officers, or otherwise, or may
delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or delegate authority
to an appropriate committee to provide for reasonable pensions,
disability, or death benefits, and other benefits or payments, to
directors, officers, and employees, and to their estates, families,
dependents, or beneficiaries on account of prior services rendered by
such directors, officers, and employees to the Corporation.
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12. PRESUMPTION OF ASSENT
A director who is present and is announced as present at a meeting of the
Board of Directors or any committee thereof created in accordance with
Section 13 of this Article III, when corporate action is taken, assents
to the action taken unless any of the following occurs:
a. The director objects at the beginning of the meeting or promptly
upon his or her arrival to holding the meeting or transacting
business at the meeting.
b. The director's dissent or abstention from the action taken is
entered in the minutes of the meeting.
c. The director delivers written notice that complies with the
Wisconsin Business Corporation Law of his or her dissent or
abstention to the presiding officer of the meeting before its
adjournment or to the Corporation immediately after adjournment of
the meeting.
Such right of dissent or abstention shall not apply to a director who
votes in favor of the action taken.
13. COMMITTEES
The Board of Directors by resolution adopted by the affirmative vote of a
majority of all of the directors then in office may create one or more
committees, appoint members of the Board of Directors to serve on the
committees, and designate other members of the Board of Directors to
serve as alternates. Each committee shall have two or more members who
shall, unless otherwise provided by the Board of Directors, serve at the
pleasure of the Board of Directors. A committee may be authorized to
exercise the authority of the Board of Directors, except that a committee
may not do any of the following:
a. Authorize distributions.
b. Approve or propose to shareholders action that the Wisconsin
Business Corporation Law requires to be approved by shareholders.
c. Fill vacancies on the Board of Directors or, unless the Board of
Directors provides by resolution that vacancies on a committee shall
be filled by the affirmative vote of the remaining committee
members, on any Board committee.
d. Amend the Corporation's Articles of Incorporation.
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e. Adopt, amend, or repeal By-laws.
f. Approve a plan of merger not requiring shareholder approval.
g. Authorize or approve reacquisition of shares, except according to a
formula or method prescribed by the Board of Directors.
h. Authorize or approve the issuance or sale or contract for sale of
shares, or determine the designation and relative rights,
preferences and limitations of a class or series of shares, except
that the Board of Directors may authorize a committee to do so
within limits prescribed by the Board of Directors. Unless
otherwise provided by the Board of Directors in creating the
committee, a committee may employ counsel, accountants, and other
consultants to assist it in the exercise of its authority.
14. TELEPHONIC MEETINGS
Except as herein provided and notwithstanding any place set forth in the
notice of the meeting or these By-laws, members of the Board of
Directors (and any committees thereof created pursuant to Section 13 of
this Article III) may participate in regular or special meetings by, or
through the use of, any means of communication by which all participants
may simultaneously hear each other, such as by conference telephone. If
a meeting is conducted by such means, then at the commencement of such
meeting the presiding officer shall inform the participating directors
that a meeting is taking place at which official business may be
transacted. Any participant in a meeting by such means shall be deemed
present in person at such meeting. Notwithstanding the foregoing, no
action may be taken at any meeting held by such means on any particular
matter which the presiding officer determines, in his or her sole
discretion, to be inappropriate under the circumstances for action at a
meeting held by such means. Such determination shall be made and
announced in advance of such meeting.
15. ACTION WITHOUT MEETING
Any action required or permitted by the Wisconsin Business Corporation
Law to be taken at a meeting of the Board of Directors or a committee
thereof created pursuant to Section 13 of this Article III may be taken
without a meeting if the action is taken by all members of the Board or
of the committee. The action shall be evidenced by one or more written
consents describing the action taken, signed by each director or
committee member and retained by the Corporation. Such action shall be
effective when the last director or committee member signs the consent,
unless the consent specifies a different effective date.
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ARTICLE IV. OFFICERS
1. PRINCIPAL OFFICERS
The principal officers of the Corporation required by statute shall be a
President, such number of Vice Presidents as may be elected by the Board
of Directors, a Secretary, and a Treasurer. The Board of Directors may
elect from among the directors a Chairman of the Board of Directors and a
Vice Chairman of the Board of Directors, may designate such Chairman,
Vice Chairman, or any principal officer as the Chief Executive Officer,
may elect such Assistant Secretaries and Assistant Treasurers and other
officers as it shall deem necessary, and may prescribe by resolution
their respective powers and duties.
2. PRESIDENT
The President shall be elected by the directors. Unless the Board of
Directors otherwise prescribes, he or she shall be the Chief Executive
Officer of the Corporation. In the event that the President is not the
Chief Executive Officer, he or she shall have such powers and duties as
the Board of Directors may prescribe.
3. CHAIRMAN OF THE BOARD OF DIRECTORS
If a Chairman of the Board of Directors shall be elected, he or she
shall preside as Chairman of all meetings of the shareholders and of the
Board of Directors. He or she shall have such other authority as the
Board may from time to time prescribe. If there is no Chairman of the
Board, or in the absence of the Chairman, the presiding officer at
meetings of the shareholders, and of the Board of Directors shall be
another officer in the following order of priority: Vice Chairman of
the Board of Directors, President, and Vice Presidents (subject,
however, to Section 5 of this Article).
4. CHIEF EXECUTIVE OFFICER
The Chief Executive Officer shall exercise active supervision over the
business, property, and affairs of the Corporation.
a. The Chief Executive Officer shall have authority, subject to such
rules as may be prescribed from time to time by the Board or its
committees, to appoint agents or employees other than those elected
by the Board, to prescribe their powers and duties, and to delegate
such authority as he or she may see fit. Any agent or employee not
elected by the Board shall hold office at the discretion of the
Chief Executive Officer or other officer employing him.
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b. The Chief Executive Officer is authorized to sign, execute, and
acknowledge, on behalf of the Corporation, all deeds, mortgages,
bonds, notes, debentures, contracts, leases, reports, and other
documents and instruments, except where the signing and execution
thereof by some other officer or agent shall be expressly authorized
and directed by law or by the Board or by these By-laws. Unless
otherwise provided by law or by the Board, the Chief Executive
Officer may authorize any officer, employee, or agent to sign,
execute, and acknowledge, on behalf of the Corporation, and in his
place and stead, all such documents and instruments.
c. Unless otherwise ordered by the Board of Directors, the Chief
Executive Officer, or a proxy appointed by him, shall have full
power and authority, in the name of and on behalf of the
Corporation, to attend, act, and vote at any meeting of the
shareholders of any other corporation in which the Corporation may
hold shares of stock. At any such meeting, he or she shall possess
and may exercise any and all rights and powers incident to the
ownership of shares of stock.
d. The Chief Executive Officer shall have such other powers and perform
such other duties as are incident to the office of Chief Executive
Officer and as may be prescribed by the Board.
5. VICE PRESIDENTS
In the absence of the President or during his inability or refusal to
act, his powers and duties shall temporarily devolve upon such Vice
Presidents or other officers as shall be designated by the Board of
Directors or, if not designated by the Board, by the Chief Executive
Officer or other officer to whom such power may be delegated by the
Board; provided, that no Vice President or other officer shall act as a
member or chairman of any committee of the Board of Directors of which
the President is a member or chairman, except at the direction of the
Board.
a. Each Vice President shall have such powers and perform such other
duties as may be assigned to him or her by the Board or by the
President, including the power to sign, execute, and acknowledge all
documents and instruments referred to in Section 4 of this Article.
b. The Board may assign to any Vice President, general supervision and
charge over any branch of the business and affairs of the
Corporation, subject to such limitations as it may elect to impose.
c. The Board of Directors may, if it chooses, designate one or more of
the Vice Presidents "Executive Vice President" with such powers and
duties as the Board shall prescribe.
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6. SECRETARY
The Secretary shall attend, and keep the minutes of, meetings of the
shareholders, the Board of Directors and, unless otherwise directed by
any such committee, all committees, in books provided for that purpose;
shall have custody of the corporate records and seal; shall see that
notices are given and records and reports properly kept and filed as
required by law or by these By-laws; and, in general, shall have such
other powers and perform such other duties as are incident to the office
of Secretary and as may be assigned to him or her by the Board of
Directors or the Chief Executive Officer.
7. ASSISTANT SECRETARIES
In the absence of the Secretary, or during his or her inability or
refusal to act, his powers and duties shall temporarily devolve upon such
one of the Assistant Secretaries as the President or the Board of
Directors may direct. The Assistant Secretaries shall have such other
powers and perform such other duties as may be assigned to them by the
Board, the Chief Executive Officer, or the Secretary.
8. TREASURER
The Treasurer shall have charge and custody of the funds, securities,
and other evidences of value of the Corporation, and shall keep and
deposit them as required by the Board of Directors. He or she shall
keep proper accounts of all receipts and disbursements and of the
financial transactions of the Corporation. He or she shall render
statements of such accounts and of money received and disbursed by him
or her and of property and money belonging to the Corporation as
required by the Board. The Treasurer shall have such other powers and
perform such other duties as are incident to the office of Treasurer and
as from time to time may be prescribed by the Board or the Chief
Executive Officer.
9. ASSISTANT TREASURERS
In the absence of the Treasurer, or during his or her inability or
refusal to act, his or her powers and duties shall temporarily devolve
upon such one of the Assistant Treasurers as the President or the Board
of Directors may direct. The Assistant Treasurers shall have such other
powers and perform such other duties as from time to time may be assigned
to them, respectively, by the Board, the Chief Executive Officer, or the
Treasurer.
10. OTHER ASSISTANTS AND ACTING OFFICERS
The Board of Directors shall have the power to appoint any person to act
as assistant to any officer, or as agent for the Corporation in his or
her stead, or to
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perform the duties of such officer whenever for any reason it is
impracticable for such officer to act personally, and such assistant or
acting officer or other agent so appointed by the Board of Directors or
an authorized officer shall have the power to perform all the duties of
the office to which he or she is so appointed to be an assistant, or as
to which he or she is so appointed to act, except as such power may be
otherwise defined or restricted by the Board of Directors.
11. COMPENSATION
The salaries or other compensation of all officers elected as provided
under Section 1 of this Article (other than assistant officers) shall be
fixed from time to time by the Board of Directors. The salaries or other
compensation of all other agents and employees of the Corporation shall
be fixed from time to time by the Chief Executive Officer, but only
within such limits as to amount, and in accordance with such other
conditions as may be prescribed by or under the authority of the Board of
Directors.
12. TENURE
Each officer shall hold office until his successor shall have been duly
elected and qualified, or until his death, resignation, disqualification,
or removal. Any officer, agent, or employee may be removed, with or
without cause, at any time by the Board of Directors notwithstanding the
contract rights, if any, of the officer removed. The appointment of an
officer does not of itself create contract rights.
13. RESIGNATION
An officer may resign at any time by delivering notice to the Corporation
that complies with the Wisconsin Business Corporation Law. The
resignation shall be effective when the notice is delivered, unless the
notice specifies a later effective date, and the Corporation accepts the
later effective date.
14. VACANCIES
Any vacancy in any office may be filled by the Board of Directors for the
unexpired portion of the term. If a resignation of an officer is
effective at a later date as contemplated by Section 13 of this Article
IV, the Board of Directors may fill the pending vacancy before the
effective date if the Board provides that the successor may not take
office until the effective date.
15. REASSIGNMENT OF DUTIES
In case of the absence or disability of any officer of the Corporation,
or for any other reason deemed sufficient by the Board of Directors, the
Board may reassign
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or delegate the powers and duties, or any of them, to any other officer,
director, or person it may select.
ARTICLE V. CERTIFICATES FOR AND TRANSFER OF SHARES
1. FORM
Certificates representing shares of the Corporation shall be in such form
as shall be determined by the Board of Directors. All certificates for
shares shall be consecutively numbered or otherwise identified. The name
and address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on
the stock transfer books of the Corporation. All certificates
surrendered for the transfer shall be cancelled, and no new certificate
shall be issued until the former certificate for a like number of shares
shall have been surrendered and cancelled, except in case of a lost or
destroyed certificate provided for in Section 4 of this Article V or a
certificate for shares transferred in compliance with the escheat laws of
any state.
2. SIGNATURES
Certificates representing shares of the Corporation shall be signed by
the President or a Vice President and by the Secretary or an Assistant
Secretary; and may be sealed with the seal of the Corporation (which may
be a facsimile) and countersigned and registered in such manner, if any,
as the Board of Directors may prescribe. Whenever any certificate is
manually signed on behalf of a transfer agent or a registrar, other than
the Corporation itself or an employee of the Corporation, the signatures
of the President, Vice President, Secretary, or Assistant Secretary,
upon such certificate may be facsimiles. In case any officer who has
signed, or whose facsimile signature has been placed upon such
certificate, ceases to be such officer before such certificate is
issued, it may be issued with the same effect as if he or she were such
officer at the date of its issue.
3. RESTRICTIONS ON TRANSFER
The face or reverse side of each certificate representing shares shall
bear a conspicuous notation of any restriction imposed by the Corporation
upon the transfer of such shares.
4. LOST, DESTROYED, OR STOLEN CERTIFICATES
Where the owner claims that his certificate for shares has been lost,
destroyed, or wrongfully taken, a new certificate shall be issued in
place thereof if the owner:
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a. So requests before the Corporation has notice that such shares have
been acquired by a bona fide purchaser.
b. Files with the Corporation a sufficient indemnity bond.
c. Satisfies such other reasonable requirements as may be prescribed by
or under the authority of the Board of Directors.
5. TRANSFER OF SHARES
Prior to due presentment of a certificate for shares for registration of
transfer, the Corporation may treat the registered owner of such shares
as the person exclusively entitled to vote, to receive notifications,
and otherwise to have and exercise all the rights and powers of an
owner. Where a certificate for shares is presented to the Corporation
with a request to register for transfer, the Corporation shall not be
liable to the owner or any other person suffering loss as a result of
such registration of transfer if:
a. There were on or with the certificate the necessary endorsements
b. The Corporation had no duty to inquire into adverse claims or has
discharged any such duty.
The Corporation may require reasonable assurance that said endorsements
are genuine and effective and compliance with such other regulations as
may be prescribed by or under the authority of the Board of Directors.
6. CONSIDERATION FOR SHARES
The Board of Directors may authorize shares to be issued for
consideration consisting of any tangible or intangible property or
benefit to the Corporation, including cash, promissory notes, services
performed, contracts for services to be performed, or other securities of
the Corporation. Before the Corporation issues shares, the Board of
Directors shall determine that the consideration received or to be
received for the shares to be issued is adequate. The determination of
the Board of Directors is conclusive insofar as the adequacy of
consideration for the issuance of shares relates to whether the shares
are validly issued, fully paid, and nonassessable. The Corporation may
place in escrow shares issued in whole or in part for a contract for
future services or benefits, a promissory note, or otherwise for property
to be issued in the future, or make other arrangements to restrict the
transfer of the shares, and may credit distributions in respect of the
shares against their purchase price, until the services are performed,
the benefits or property are received, or the promissory note is paid.
If the services are not performed, the benefits or property are not
received or the promissory note is not
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paid, the Corporation may cancel, in whole or in part, the shares
escrowed or restricted and the distributions credited.
7. OTHER RULES
The Board of Directors shall have the power and authority to make all
such further rules and regulations not inconsistent with the statutes of
the State of Wisconsin as it may deem expedient concerning the issue,
transfer, and registration of certificates representing shares of the
Corporation, including the appointment and designation of Transfer Agents
and Registrars.
ARTICLE VI. INDEMNIFICATION OF OFFICERS AND DIRECTORS
1. Mandatory Indemnification
a. In all cases other than those set forth in Section 1b hereof,
subject to the conditions and limitations set forth hereinafter in
this Article VI, the Corporation shall indemnify and hold harmless
any person who is or was a party, or is threatened to be made a
party, to any Action (see Section 16 of this Article VI for
definitions of capitalized terms used herein) by reason of his or
her status as an Executive, and/or as to acts performed in the
course of such Executive's duties to the Corporation and/or an
Affiliate, against Liabilities and reasonable Expenses incurred by
or on behalf of an Executive in connection with any Action,
including, without limitation, in connection with the investigation,
defense, settlement, or appeal of any Action; provided, pursuant to
Section 3 of this Article VI, that it is not determined by the
Authority or by a court, that the Executive engaged in misconduct
which constitutes a Breach of Duty.
b. To the extent an Executive has been successful on the merits or
otherwise in connection with any Action, including, without
limitation, the settlement, dismissal, abandonment, or withdrawal of
any such Action where the Executive does not pay, incur, or assume
any material Liabilities, or in connection with any claim, issue or
matter therein, he or she shall be indemnified by the Corporation
against reasonable Expenses incurred by or on behalf of him or her
in connection therewith. The Corporation shall pay such Expenses to
the Executive (net of all Expenses, if any, previously advanced to
the Executive pursuant to Section 2 of this Article VI), or to such
other person or entity as the Executive may designate in writing to
the Corporation, within ten days after the receipt of the
Executive's written request therefor, without regard to the
provisions of Section 3 of this Article VI. In the event the
Corporation refuses to pay such requested
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Expenses, the Executive may petition a court to order the
Corporation to make such payment pursuant to Section 4 of this
Article VI.
c. Notwithstanding any other provision contained in this Article VI to
the contrary, the Corporation shall not:
(1) Indemnify, contribute or advance Expenses to an Executive with
respect to any Action initiated or brought voluntarily by the
Executive and not by way of defense, except with respect to
Actions:
(a) Brought to establish or enforce a right to
indemnification, contribution and/or an advance of
Expenses under Section 4 of this Article VI, under the
Statute as it may then be in effect or under any other
statute or law or otherwise as required;
(b) Initiated or brought voluntarily by an Executive to the
extent such Executive is successful on the merits or
otherwise in connection with such an Action in accordance
with and pursuant to Section 1b of this Article VI; or
(c) As to which the Board determines it to be appropriate.
(2) Indemnify the Executive under this Article VI for any amounts
paid in settlement of any Action effected without the
Corporation's written consent.
The Corporation shall not settle in any manner which would impose
any Liabilities or other type of limitation on the Executive without
the Executive's written consent. Neither the Corporation nor the
Executive shall unreasonably withhold their consent to any proposed
settlement.
d. An Executive's conduct with respect to an employee benefit plan
sponsored by or otherwise associated with the Corporation and/or an
Affiliate for a purpose he or she reasonably believes to be in the
interests of the participants in and beneficiaries of such plan is
conduct that does not constitute a breach or failure to perform his
or her duties to the Corporation or an Affiliate, as the case may
be.
2. ADVANCE FOR EXPENSES
a. The Corporation shall pay to an Executive, or to such other person
or entity as the Executive may designate in writing to the
Corporation, his or her reasonable Expenses incurred by or on behalf
of such Executive in connection with any Action, claim, issue, or
matter associated with any such Action, in advance of the final
disposition or conclusion of any such Action
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(or claim, issue, or matter associated with any such Action), within
ten days after the receipt of the Executive's written request
therefor; provided, the following conditions are satisfied:
(1) The Executive has first requested an advance of such Expenses
in writing (and delivered a copy of such request to the
Corporation) from the insurance carrier(s), if any, to whom a
claim has been reported under an applicable insurance policy
purchased by the Corporation and each such insurance carrier,
if any, has declined to make such an advance;
(2) The Executive furnishes to the Corporation an executed written
certificate affirming his or her good faith belief that he or
she has not engaged in misconduct which constitutes a Breach
of Duty; and
(3) The Executive furnishes to the Corporation an executed written
agreement to repay any advances made under this Section 2 if
it is ultimately determined that he or she is not entitled to
be indemnified by the Corporation for such Expenses pursuant
to this Article VI.
b. If the Corporation makes an advance of Expenses to an Executive
pursuant to this Section 2, the Corporation shall be subrogated to
every right of recovery the Executive may have against any insurance
carrier from whom the Corporation has purchased insurance for such
purpose.
3. DETERMINATION OF RIGHT TO INDEMNIFICATION
a. Except as otherwise set forth in this Section 3 or in Section 1c of
this Article VI, any indemnification to be provided to an Executive
by the Corporation under Section 1a of this Article VI upon the
final disposition or conclusion of any Action, claim, issue, or
matter associated with any such Action, unless otherwise ordered by
a court, shall be paid by the Corporation to the Executive (net of
all Expenses, if any, previously advanced to the Executive pursuant
to Section 2 of this Article VI), or to such other person or entity
as the Executive may designate in writing to the Corporation, within
60 days after the receipt of the Executive's written request
therefor. Such request shall include an accounting of all amounts
for which indemnification is being sought. No further corporate
authorization for such payment shall be required other than this
Section 3.
b. Notwithstanding the foregoing, the payment of such requested
indemnifiable amounts pursuant to Section 1a of this Article VI may
be denied by the Corporation if:
(1) The Board by a majority vote thereof determines that the
Executive has engaged in misconduct which constitutes a Breach
of Duty; or
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(2) A majority of the directors of the Corporation are a party in
interest to such Action.
c. In either event of nonpayment pursuant to Section 3b of this
Article VI, the Board shall immediately authorize and direct, by
resolution, that an independent determination be made as to whether
the Executive has engaged in misconduct which constitutes a Breach
of Duty and, therefore, whether indemnification of the Executive is
proper pursuant to this Article VI.
d. Such independent determination shall be made, at the option of the
Executive(s) seeking indemnification, by:
(1) A panel of three arbitrators (selected as set forth below in
Section 3f of this Article VI from the panels of arbitrators
of the American Arbitration Association) in Milwaukee,
Wisconsin, in accordance with the Commercial Arbitration Rules
then prevailing of the American Arbitration Association;
(2) An independent legal counsel mutually selected by the
Executive(s) seeking indemnification and the Board by a
majority vote of a quorum thereof consisting of directors who
were not parties in interest to such Action (or, if such
quorum is not obtainable, by the majority vote of the entire
Board); or
(3) A court in accordance with Section 4 of this Article VI.
e. In any such determination there shall exist a rebuttable presumption
that the Executive has not engaged in misconduct which constitutes a
Breach of Duty and is, therefore, entitled to indemnification
hereunder. The burden of rebutting such presumption by clear and
convincing evidence shall be on the Corporation.
f. If a panel of arbitrators is to be employed hereunder, one of such
arbitrators shall be selected by the Board by a majority vote of a
quorum thereof consisting of directors who were not parties in
interest to such Action or, if such quorum is not obtainable, by an
independent legal counsel chosen by the majority vote of the entire
Board, the second by the Executive(s) seeking indemnification, and
the third by the previous two arbitrators.
g. The Authority shall make its independent determination hereunder
within 60 days of being selected and shall simultaneously submit a
written opinion of its conclusions to both the Corporation and the
Executive.
h. If the Authority determines that an Executive is entitled to be
indemnified for any amounts pursuant to this Article VI, the
Corporation shall pay such amounts to the Executive (net of all
Expenses, if any, previously advanced to the Executive pursuant to
Section 2 of this Article VI), including interest
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thereon as provided in Section 6c of this Article VI, or such other
person or entity as the Executive may designate in writing to the
Corporation, within ten days of receipt of such opinion.
i. Except with respect to any judicial determination pursuant to
Section 4 of this Article VI, the Expenses associated with the
indemnification process set forth in this Section 3 of this Article
VI, including, without limitation, the Expenses of the Authority
selected hereunder, shall be paid by the Corporation.
4. COURT-ORDERED INDEMNIFICATION AND ADVANCE FOR EXPENSES
a. An Executive may, either before or within two years after a
determination, if any, has been made by the Authority, petition the
court before which such Action was brought or any other court of
competent jurisdiction to independently determine whether or not he
or she has engaged in misconduct which constitutes a Breach of Duty
and is, therefore, entitled to indemnification under the provisions
of this Article VI. Such court shall thereupon have the exclusive
authority to make such determination unless and until such court
dismisses or otherwise terminates such proceeding without having
made such determination. An Executive may petition a court under
this Section 4 either to seek an initial determination by the court
as authorized by Section 3d of this Article VI or to seek review by
the court of a previous adverse determination by the Authority.
b. The court shall make its independent determination irrespective of
any prior determination made by the Authority; provided, however,
that there shall exist a rebuttable presumption that the Executive
has not engaged in misconduct which constitutes a Breach of Duty and
is, therefore, entitled to indemnification hereunder. The burden of
rebutting such presumption by clear and convincing evidence shall be
on the Corporation.
c. In the event the court determines that an Executive has engaged in
misconduct which constitutes a Breach of Duty, it may nonetheless
order indemnification to be paid by the Corporation if it determines
that the Executive is fairly and reasonably entitled to
indemnification in view of all of the circumstances of such Action.
d. In the event the Corporation does not:
(1) Advance Expenses to the Executive within ten days of such
Executive's compliance with Section 2 of this Article VI; or
(2) Indemnify an Executive with respect to requested Expenses
under Section 1b of this Article VI within ten days of such
Executive's written request therefore, the Executive may
petition the court before which such Action was brought, if
any, or any other court of competent
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jurisdiction to order the Corporation to pay such reasonable
Expenses immediately.
Such court, after giving any notice it considers necessary, shall
order the Corporation to pay such Expenses if it determines that the
Executive has complied with the applicable provisions of Section 2
of this Article VI or Section 1b of this Article VI, as the case may
be.
e. If the court determines pursuant to this Section 4 of this Article
VI that the Executive is entitled to be indemnified for any
Liabilities and/or Expenses, or to the advance of Expenses, unless
otherwise ordered by such court, the Corporation shall pay such
Liabilities and/or Expenses to the Executive (net of all Expenses,
if any, previously advanced to the Executive pursuant to Section 2
of this Article VI), including interest thereon as provided in
Section 6c of this Article VI, or to such other person or entity as
the Executive may designate in writing to the Corporation, within
ten days of the rendering of such determination.
f. An Executive shall pay all Expenses incurred by such Executive in
connection with the judicial determination provided in this Section
4 of this Article VI, unless it shall ultimately be determined by
the court that he or she is entitled, in whole or in part, to be
indemnified by, or to receive an advance from, the Corporation as
authorized by this Article VI. All Expenses incurred by an
Executive in connection with any subsequent appeal of the judicial
determination provided for in this Section 4 of this Article VI
shall be paid by the Executive regardless of the disposition of such
appeal.
5. TERMINATION OF AN ACTION IS NONCONCLUSIVE
The adverse termination of any Action against an Executive by judgment,
order settlement, conviction, or upon a plea of no contest or its
equivalent, shall not, of itself, create a presumption that the Executive
has engaged in misconduct which constitutes a Breach of Duty.
6. PARTIAL INDEMNIFICATION; REASONABLENESS; INTEREST
a. If it is determined by the Authority, or by a court, that an
Executive is entitled to indemnification as to some claims, issues,
or matters, but not as to other claims, issues, or matters, involved
in any Action, the Authority, or the court, shall authorize the
proration and payment by the Corporation of such Liabilities and/or
reasonable Expenses with respect to which indemnification is sought
by the Executive, among such claims, issues, or matters as the
Authority, or the court, shall deem appropriate in light of all of
the circumstances of such Action.
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b. If it is determined by the Authority, or by a court, that certain
Expenses incurred by or on behalf of an Executive are for whatever
reason unreasonable in amount, the Authority, or the court, shall
nonetheless authorize indemnification to be paid by the Corporation
to the Executive for such Expenses as the Authority, or the court,
shall deem reasonable in light of all of the circumstances of such
Action.
c. Interest shall be paid by the Corporation to an Executive, to the
extent deemed appropriate by the Authority, or by a court, at a
reasonable interest rate, for amounts for which the Corporation
indemnifies or advances to the Executive.
7. INSURANCE; SUBROGATION
a. The Corporation may purchase and maintain insurance on behalf of any
person who is or was an Executive of the Corporation, and/or is or
was serving as an Executive of an Affiliate, against Liabilities
and/or Expenses asserted against him or her and/or incurred by or on
behalf of him or her in any such capacity, or arising out of his or
her status as such an Executive, whether or not the Corporation
would have the power to indemnify him or her against such
Liabilities and/or Expenses under this Article VI or under the
Statute as it may then be in effect. Except as expressly provided
herein, the purchase and maintenance of such insurance shall not in
any way limit or affect the rights and obligations of the
Corporation and/or any Executive under this Article VI. Such
insurance may, but need not, be for the benefit of all Executives of
the Corporation and those serving as an Executive of an Affiliate.
b. If an Executive shall receive payment from any insurance carrier or
from the plaintiff in any Action against such Executive in respect
of indemnified amounts after payments on account of all or part of
such indemnified amounts have been made by the Corporation pursuant
to this Article VI, such Executive shall promptly reimburse the
Corporation for the amount, if any, by which the sum of such payment
by such insurance carrier or such plaintiff and payments by the
Corporation to such Executive exceeds such indemnified amounts;
provided, however, that such portions, if any, of such insurance
proceeds that are required to be reimbursed to the insurance carrier
under the terms of its insurance policy, such as deductible,
retention, or co-insurance amounts, shall not be deemed to be
payments to such Executive hereunder.
c. Upon payment of indemnified amounts under this Article VI, the
Corporation shall be subrogated to such Executive's rights against
any insurance carrier in respect of such indemnified amounts; and
the Executive shall execute and deliver any and all instruments
and/or documents and perform any and
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all other acts or deeds which the Corporation shall deem necessary
or advisable to secure such rights. The Executive shall do nothing
to prejudice such rights of recovery or subrogation.
8. WITNESS EXPENSES
The Corporation shall advance or reimburse any and all reasonable
Expenses incurred by or on behalf of an Executive in connection with his
or her appearance as a witness in any Action at a time when he or she has
not been formally named a defendant or respondent to such an Action,
within ten days after the receipt of an Executive's written request
therefore.
9. CONTRIBUTION
a. Subject to the limitations of this Section 9, if the indemnity
provided for in Section 1 of this Article VI is unavailable to an
Executive for any reason whatsoever, the Corporation, in lieu of
indemnifying the Executive, shall contribute to the amount incurred
by or on behalf of the Executive, whether for Liabilities and/or for
reasonable Expenses in connection with any Action in such proportion
as deemed fair and reasonable by the Authority, or by a court, in
light of all of the circumstances of any such Action, in order to
reflect:
(1) The relative benefits received by the Corporation and the
Executive as a result of the event(s) and/or transaction(s)
giving cause to such Action; and/or
(2) The relative fault of the Corporation (and its other
Executives, employees, and/or agents) and the Executive
in connection with such event(s) and/or transaction(s).
b. The relative fault of the Corporation (and its other Executives,
employees, and/or agents), on the one hand, and of the Executive, on
the other hand, shall be determined by reference to, among other
things, the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent the circumstances
resulting in such Liabilities and/or Expenses. The Corporation
agrees that it would not be just and equitable if contribution
pursuant to this Section 9 were determined by pro rata allocation or
any other method of allocation which does not take account of the
foregoing equitable considerations.
c. An Executive shall not be entitled to contribution from the
Corporation under this Section 9 in the event it is determined by
the Authority, or by a court, that the Executive has engaged in
misconduct which constitutes a Breach of Duty.
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d. The Corporation's payment of, and an Executive's right to,
contribution under this Section 9 shall be made and determined in
accordance with and pursuant to the provisions in Sections 3 and/or
4 of this Article VI relating to the Corporation's payment of, and
the Executive's right to, indemnification under this Article VI.
10. INDEMNIFICATION OF EMPLOYEES
Unless otherwise specifically set forth in this Article VI, the
Corporation shall indemnify and hold harmless any person who is or was a
party, or is threatened to be made a party to any Action by reason of
his or her status as, or the fact that he or she is or was an employee
or authorized agent or representative of the Corporation and/or an
Affiliate as to acts performed in the course and within the scope of
such employee's, agent's, or representative's duties to the Corporation
and/or an Affiliate, in accordance with and to the fullest extent
permitted by the Statute as it may then be in effect.
11. SEVERABILITY
If any provision of this Article VI shall be deemed invalid or
inoperative, or if a court of competent jurisdiction determines that any
of the provisions of this Article VI contravene public policy, this
Article VI shall be construed so that the remaining provisions shall not
be affected, but shall remain in full force and effect, and any such
provisions which are invalid or inoperative or which contravene public
policy shall be deemed, without further Action or deed by or on behalf of
the Corporation, to be modified, amended, and/or limited, but only to the
extent necessary to render the same valid and enforceable, and the
Corporation shall indemnify an Executive as to Liabilities and reasonable
Expenses with respect to any Action to the full extent permitted by any
applicable provision of this Article VI that shall not have been
invalidated and to the full extent otherwise permitted by the Statute as
it may then be in effect.
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12. NONEXCLUSIVITY OF ARTICLE VI
The right to indemnification, contribution, and advancement of Expenses
provided to an Executive by this Article VI shall not be deemed exclusive
of any other rights to indemnification, contribution, and/or advancement
of Expenses which any Executive or other employee or agent of the
Corporation and/or of an Affiliate may be entitled under any charter
provision, written agreement, resolution, vote of shareholders, or
disinterested directors of the Corporation or otherwise, including,
without limitation, under the Statute as it may then be in effect, both
as to acts in his or her official capacity as such Executive or other
employee or agent of the Corporation and/or of an Affiliate or as to acts
in any other capacity while holding such office or position, whether or
not the Corporation would have the power to indemnify, contribute, and/or
advance Expenses to the Executive under this Article VI or under the
Statute; provided that it is not determined that the Executive or other
employee or agent has engaged in misconduct which constitutes a Breach of
Duty.
13. NOTICE TO THE CORPORATION; DEFENSE OF ACTIONS
a. An Executive shall promptly notify the Corporation in writing upon
being served with or having actual knowledge of any citation,
summons, complaint, indictment, or any other similar document
relating to any Action which may result in a claim of
indemnification, contribution, or advancement of Expenses hereunder,
but the omission so to notify the Corporation will not relieve the
Corporation from any liability which it may have to the Executive
otherwise than under this Article VI unless the Corporation shall
have been irreparably prejudiced by such omission.
b. With respect to any such Action as to which an Executive notifies
the Corporation of the commencement thereof:
(1) The Corporation shall be entitled to participate therein at
its own expense; and
(2) Except as otherwise provided below, to the extent that it may
wish, the Corporation (or any other indemnifying party,
including any insurance carrier, similarly notified by the
Corporation or the Executive) shall be entitled to assume the
defense thereof, with counsel selected by the Corporation (or
such other indemnifying party) and reasonably satisfactory to
the Executive.
c. After notice from the Corporation (or such other indemnifying party)
to the Executive of its election to assume the defense of an Action,
the Corporation shall not be liable to the Executive under this
Article VI for any Expenses subsequently incurred by the Executive
in connection with the
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defense thereof other than reasonable costs of investigation or as
otherwise provided below. The Executive shall have the right to
employ his or her own counsel in such Action but the Expenses of
such counsel incurred after notice from the Corporation (or such
other indemnifying party) of its assumption of the defense thereof
shall be at the expense of the Executive unless:
(1) The employment of counsel by the Executive has been authorized
by the Corporation;
(2) The Executive shall have reasonably concluded that there may
be a conflict of interest between the Corporation (or such
other indemnifying party) and the Executive in the conduct of
the defense of such Action; or
(3) The Corporation (or such other indemnifying party) shall not
in fact have employed counsel to assume the defense of such
Action, in each of which cases the Expenses of counsel shall
be at the expense of the Corporation.
The Corporation shall not be entitled to assume the defense of any
Derivative Action or any Action as to which the Executive shall have
made the conclusion provided for in clause (2) above.
14. CONTINUITY OF RIGHTS AND OBLIGATIONS
The terms and provisions of this Article VI shall continue as to an
Executive subsequent to the Termination Date and such terms and
provisions shall inure to the benefit of the heirs, estate, executors,
and administrators of such Executive and the successors and assigns of
the Corporation, including, without limitation, any successor to the
Corporation by way of merger, consolidation, and/or sale or disposition
of all or substantially all of the assets or capital stock of the
Corporation. Except as provided herein, all rights and obligations of
the Corporation and the Executive hereunder shall continue in full force
and effect despite the subsequent amendment or modification of the
Corporation's Articles of Incorporation, as such are in effect on the
date hereof, and such rights and obligations shall not be affected by any
such amendment or modification, any resolution of directors or
shareholders of the Corporation, or by any other corporate action which
conflicts with or purports to amend, modify, limit, or eliminate any of
the rights or obligations of the Corporation and/or of the Executive
hereunder.
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15. AMENDMENT
This Article VI may only be altered, amended, or repealed by the
affirmative vote of a majority of the shareholders of the Corporation so
entitled to vote; provided, however, that the Board may alter or amend
this Article VI without such shareholder approval if any such alteration
or amendment:
a. Is made in order to conform to any amendment or revision of the
Wisconsin Business Corporation Law, including, without limitation,
the Statute, which:
(1) Expands or permits the expansion of an Executive's right to
indemnification thereunder;
(2) Limits or eliminates, or permits the limitation or
elimination, of liability of the Executives; or
(3) Is otherwise beneficial to the Executives; or
b. in the sole judgment and discretion of the Board, does not
materially adversely affect the rights and protections of the
shareholders of the Corporation.
Any repeal, modification, or amendment of this Article VI shall not
adversely affect any rights or protections of an Executive existing under
this Article VI immediately prior to the time of such repeal,
modification, or amendment and any such repeal, modification, or
amendment shall have a prospective effect only.
16. CERTAIN DEFINITIONS
The following terms as used in this Article VI shall be defined as
follows:
a. "Action(s)" shall include, without limitation, any threatened,
pending, or completed action, claim, litigation, suit, or
proceeding, whether civil, criminal, administrative, arbitrative, or
investigative, whether predicated on foreign, federal, state, or
local law, whether brought under and/or predicated upon the
Securities Act of 1933, as amended, and/or the Securities Exchange
Act of 1934, as amended, and/or their respective state
counterparts, and/or any rule or regulation promulgated thereunder,
whether a Derivative Action, and whether formal or informal.
b. "Affiliate" shall include, without limitation, any corporation,
partnership, joint venture, employee benefit plan, trust, or other
similar enterprise that directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common
control with, the Corporation.
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c. "Authority" shall mean the panel of arbitrators or independent legal
counsel selected under Section 3 of this Article VI.
d. "Board" shall mean the Board of Directors of the Corporation.
e. "Breach of Duty" shall mean the Executive breached or failed to
perform his or her duties to the Corporation or an Affiliate, as the
case may be, and the Executive's breach of or failure to perform
those duties constituted:
(1) A willful failure to deal fairly with the Corporation (or an
Affiliate) or its shareholders in connection with a matter in
which the Executive has a material conflict of interest;
(2) A violation of the criminal law, unless the Executive:
(a) Had reasonable cause to believe his or her conduct was
lawful; or
(b) Had no reasonable cause to believe his or her conduct was
unlawful;
(3) A transaction from which the Executive derived an improper
personal profit (unless such profit is determined to be
immaterial in light of all the circumstances of the Action);
or
(4) Willful misconduct.
f. "Derivative Action" shall mean any Action brought by or in the right
of the Corporation and/or an Affiliate.
g. "Executive(s)" shall mean any individual who is, was, or has agreed
to become a director and/or officer of the Corporation and/or an
Affiliate.
h. "Expenses" shall include, without limitation, all expenses, fees,
costs, charges, attorneys' fees and disbursements, other out-of-
pocket costs, reasonable compensation for time spent by the
Executive in connection with the Action for which he or she is not
otherwise compensated by the Corporation, any Affiliate, any third
party or other entity, and any and all other direct and indirect
costs of any type or nature whatsoever.
i. "Liabilities" shall include, without limitation, judgments, amounts
incurred in settlement, fines, penalties, and, with respect to any
employee benefit plan, any excise tax or penalty incurred in
connection therewith, and any and all other liabilities of every
type or nature whatsoever.
38
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<PAGE>
j. "Statute" shall mean Wisconsin Business Corporation Law Sections
180.0850-180.0859 (or any successor provisions).
k. "Termination Date" shall mean the date an Executive ceases, for
whatever reason, to serve in an employment relationship with the
Company and/or any Affiliate.
ARTICLE VII. SEAL
BOARD OF DIRECTORS
The Board of Directors shall provide a corporate seal which shall be circular
in form and shall have inscribed thereon the words "WISCONSIN PUBLIC SERVICE
CORPORATION, GREEN BAY, WIS., CORPORATE SEAL." The continued use for any
purpose of any former corporate seal or facsimile thereof shall have the same
effect as the use of the corporate seal or facsimile thereof in the form
provided by the preceding sentence.
ARTICLE VIII. AMENDMENTS
1. The Board of Directors shall have authority to adopt, amend, or repeal
the By-laws of this Corporation upon affirmative vote of a majority of
the total number of directors at a meeting of the Board, the notice of
which shall have included notice of the proposed amendment; but the Board
of Directors shall have no power to amend any By-law adopted or amended
by the shareholders after May 23, 1972, or to reinstate any By-law
repealed by the shareholders after May 23, 1972, unless the shareholders
shall hereafter confer such authority upon the Board of Directors.
2. The shareholders shall have power to adopt, amend, or repeal any of the
By-laws of the Corporation, at any regular or special meeting of the
shareholders, in accordance with the provisions of Article II of these
By-laws. There shall be included in the notice of such regular or
special meeting a statement of the nature of any amendment that is
proposed for the consideration of the shareholders by the holders of at
least 5% of the voting stock of the Corporation in a writing delivered to
the Secretary of the Corporation not less than 90 days prior to the date
of such meeting or by the Board of Directors.
39
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<PAGE>
EXHIBIT 4H
TERM LOAN AGREEMENT
dated as of November 5, 1999
among
PDI NEW ENGLAND, INC.
PDI CANADA, INC.,
and
BAYERISCHE LANDESBANK GIROZENTRALE
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<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS...............................................1
1.01 Defined Terms.................................................1
1.02 Terms Generally..............................................14
1.03 Accounting Terms and Principles..............................15
SECTION 2. AMOUNT AND TERMS OF LOAN..............................15
2.01 Term Loan....................................................15
2.02 Term Note....................................................15
2.03 Prepayments..................................................16
2.04 Payments.....................................................16
SECTION 3. INTEREST, FEES, YIELD PROTECTION, ETC....................17
3.01 Interest.....................................................17
3.02 Up-Front Fee.................................................17
3.03 Funding Loss.................................................17
3.04 Increased Costs..............................................18
3.05 Taxes........................................................18
3.06 Mitigation Obligations.......................................19
SECTION 4. REPRESENTATIONS AND WARRANTIES...........................19
4.01 Corporate Status and Ownership...............................20
4.02 Corporate Power and Authority................................20
4.03 Execution and Binding Effect.................................20
4.04 Governmental Approvals; No Conflicts.........................20
4.05 Licenses and Permits.........................................21
4.06 Financial Condition; No Material Adverse Change..............21
4.07 Title to and Condition of Properties.........................21
4.08 Leases.......................................................22
4.09 Litigation and Environmental Matters.........................23
4.10 Compliance with Laws and Agreements..........................23
4.11 Regulatory Status............................................23
4.12 Taxes........................................................24
4.13 ERISA........................................................24
4.14 Disclosure...................................................25
4.15 Subsidiaries.................................................25
4.16 Insurance....................................................25
4.17 Labor Matters................................................25
4.18 Solvency.....................................................25
4.19 Security Documents...........................................26
4.20 Federal Reserve Regulations..................................26
4.21 Year 2000 Issues.............................................27
SECTION 5. CONDITIONS PRECEDENT.....................................27
SECTION 6. AFFIRMATIVE COVENANTS....................................30
i
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6.01 Financial Statements and Other Information...................30
6.02 Notices of Material Events...................................32
6.03 Existence; Conduct of Business...............................33
6.04 Payment of Obligations.......................................33
6.05 Maintenance of Properties....................................33
6.06 Books and Records; Inspection Rights.........................33
6.07 Compliance with Laws.........................................34
6.08 Use of Proceeds..............................................34
6.09 Information Regarding Collateral.............................34
6.10 Insurance....................................................34
6.11 Casualty and Condemnation....................................35
6.12 Reserve and Escrow Accounts..................................36
6.13 Application of Operating Cash Flow...........................36
6.14 Tracking of Restricted Payments..............................37
6.15 Environmental Compliance.....................................37
6.16 Year 2000....................................................37
6.17 Further Assurances...........................................38
SECTION 7. NEGATIVE COVENANTS.......................................38
7.01 Indebtedness; Preferred Stock................................38
7.02 Liens........................................................39
7.03 Fundamental Changes..........................................39
7.04 Investments, Loans, Advances, Guarantees and Acquisitions....40
7.05 Asset Sales..................................................40
7.06 Sale and Lease-Back Transactions.............................40
7.07 Hedging Agreements...........................................40
7.08 Restricted Payments..........................................41
7.09 Transactions with Affiliates.................................41
7.10 Amendment of Material Documents..............................41
SECTION 8. EVENTS OF DEFAULT........................................42
SECTION 9. MISCELLANEOUS............................................45
9.01 Notices......................................................45
9.02 Waivers; Amendments..........................................46
9.03 Expenses; Indemnity; Damage Waiver...........................46
9.04 Successors and Assigns.......................................47
9.05 Survival.....................................................49
9.06 Counterparts; Integration....................................49
9.07 Severability.................................................49
9.08 Right of Setoff..............................................49
9.09 Governing Law; Jurisdiction; Consent to Service of Process...50
9.10 WAIVER OF JURY TRIAL.........................................50
9.11 Headings.....................................................51
ii
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<PAGE>
SCHEDULES:
- ---------
Schedule 1.01 Mortgaged Properties
Schedule 4.01 Qualifications
Schedule 4.05(a) Required Permits
Schedule 4.05(b) Environmental Permits
Schedule 4.07(a) Title Exceptions
Schedule 4.07(b) Condition of Assets
Schedule 4.07(c) Real Estate
Schedule 4.07(d) Condemnation; First Refusal Rights
Schedule 4.08 Leases
Schedule 4.09 Litigation and Environmental Matters
Schedule 4.16 Insurance
Schedule 7.01 Existing Indebtedness
Schedule 7.02 Existing Liens
Schedule 7.04 Existing Investments
EXHIBITS:
- --------
Exhibit A Form of Term Note
Exhibit B Form of Parent Subordination Agreement
Exhibit C Form of Form of Assignment of Contracts and Licenses
Exhibit D Form of Debt Service Reserve Letter of Credit
Exhibit E Form of Maintenance Reserve Letter of Credit
Exhibit F Form of Security Agreement
Exhibit G Form of Opinion of Borrower's Counsel
iii
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<PAGE>
TERM LOAN AGREEMENT, dated as of November 5, 1999, among PDI NEW
ENGLAND, INC., a Wisconsin corporation ("PDI-NE"), PDI Canada, Inc., a
Wisconsin corporation ("PDI-Can") and BAYERISCHE LANDESBANK GIROZENTRALE (the
"Lender").
The parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.01 Defined Terms
As used in this Agreement, the following terms have the meanings
specified below:
"Affiliate" means, with respect to a specified Person, another
---------
Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person
specified.
"Assignment" means an Assignment of Contracts and Licenses,
----------
substantially in the form of Exhibit C, from the Borrowers to the Lender.
"Board" means the Board of Governors of the Federal Reserve System
of the United States of America.
"Borrower" and "Borrowers" means, depending on the context,
-------- ---------
either PDI-NE or PDI-Can, or both of them.
"Business Day" means any day that is not a Saturday, Sunday or
------------
other day on which commercial banks in New York City are authorized or
required by law to remain closed.
"Capital Expenditures" of any Person means expenditures (whether
--------------------
paid in cash or other consideration or accrued as a liability) for fixed or
capital assets (excluding any capitalized interest and any such asset acquired
in connection with normal replacement and maintenance programs properly
charged to current operations and excluding any replacement assets acquired
with the proceeds of insurance) made by such Person.
"Capital Lease Obligations" of any Person means the obligations
-------------------------
of such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Change in Control" means (a) the acquisition of ownership,
-----------------
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities Exchange Act of 1934 and the rules of
the Securities and Exchange Commission thereunder as in effect on the date
hereof), other than WPS Resources Corporation or any Affiliate thereof, of
shares representing more than 50% of the aggregate ordinary voting power or
economic interests
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<PAGE>
represented by the issued and outstanding equity securities of the Parent on a
fully diluted basis without the prior written consent of the Lender (such
consent not to be unreasonably withheld or delayed), (b) the failure of the
Parent or any Affiliate thereof to own directly, beneficially and of record,
67% or more of the aggregate ordinary voting power represented by the issued
and outstanding equity securities of each of the Borrowers on a fully diluted
basis, in each case, without the prior written consent of the Lender (such
consent not to be unreasonably withheld or delayed), or (c) the acquisition by
any Person or group, other than the Parent, WPS Resources Corporation and any
Affiliates thereof, of Control over either Borrower (other than through the
ownership of voting securities of such Borrower), or operating control over
any electrical generating facility of either Borrower, by contract or
otherwise, without the prior written consent of the Lender (such consent not
to be unreasonably withheld or delayed). Notwithstanding anything in this
definition to the contrary, the term "Change in Control" shall not include any
change in the ownership of Wyman Station other than a change in the ownership
interests of the Borrowers therein.
"Change in Law" means (a) the adoption of any law, rule or
-------------
regulation after the date of this Agreement, (b) any change in any law, rule
or regulation or in the interpretation or application thereof by any
Governmental Authority after the date of this Agreement or (c) compliance by
the Lender (or, for purposes of Section 3.04(b), by any lending office of the
Lender) with any request, guideline or directive (whether or not having the
force of law) of any Governmental Authority made or issued after the date of
this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from
----
time to time.
"Collateral" means any and all "Collateral" or "Mortgaged
----------
Property", as defined in any applicable Security Document.
"Commitment Amount" means $24,000,000.
-----------------
"Control" means the possession, directly or indirectly, of the
-------
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. The terms "Controlling" and "Controlled" have meanings correlative
thereto.
"Debt Service Coverage Ratio" means, as of the date of any
---------------------------
determination, the quotient of (a) the average of Operating Cash Flow for the
most recent two consecutive Semiannual Periods ended on or before the date of
determination, divided by (b) Pro Forma Debt Service as of the most recent
Semiannual Period ended on or before the date of determination.
"Debt Service Prepayment Escrow Account" means a joint
--------------------------------------
interest-bearing account maintained by the Borrowers with the Lender in which
the Borrowers may, from time to time, deposit monies pursuant to Section
8(q)(ii).
"Debt Service Reserve Account" means a joint account maintained
----------------------------
by the Borrowers with the Lender in which the Borrowers may, from time to
time, deposit Eligible Investments pursuant to Section 6.12(a).
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"Debt Service Reserve Letter of Credit" means an irrevocable
-------------------------------------
standby letter of credit substantially in the form of Exhibit D, issued by an
Eligible Bank in favor of the Lender, with an expiration date no earlier than
one year from the date of issuance.
"Debt Service Reserve Requirement" means, as of the date of any
--------------------------------
determination, the excess, if any, of (a) Pro Forma Debt Service as of the
most recent Semiannual Period ended on or before the date of determination,
over (b) the amount available to be drawn under any unexpired Debt Service
Reserve Letter of Credit then held by the Lender.
"Default" means any event or condition which constitutes an Event
-------
of Default or that upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"dollars" or "$" refers to lawful money of the United States of
------- -
America.
"Effective Date" means the date on which the conditions specified
--------------
in Section 5 are satisfied (or waived in accordance with Section 9.02).
"Eligible Bank" means a commercial bank having combined capital
-------------
and surplus of at least $100,000,000 and a short-term credit rating of "P-1"
from Moody's and "A-1" from Standard & Poor's, and otherwise reasonably
satisfactory to the Lender.
"Eligible Investments" means any of the following: (i) demand
--------------------
deposits, time deposits or certificates of deposit maturing in 30 days or less
from the date of issuance of any commercial bank having a combined capital and
surplus of at least $100,000,000 and a short-term credit rating of P-1 from
Moody's and A-1 from Standard & Poor's on the date of deposit or purchase;
(ii) direct obligations of the United States of America or any agency or
instrumentality thereof or obligations backed by the full faith and credit of
the United States of America maturing in 30 days or less from the date of
investment; (iii) commercial paper maturing in 30 days or less from the date
of investment having a rating of P-1 from Moody's or A-1 from Standard &
Poor's on the date of investment; and (iv) money market funds having, at the
time of the investment, ratings of at least P-1 by Moody's and A-1 from
Standard & Poor's.
"Environmental Laws" means all laws, rules, regulations, codes,
------------------
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or
-----------------------
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of either Borrower directly or
indirectly resulting from or based upon (a) violation of any Environmental
Law, (b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
3
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<PAGE>
"Environmental Permit" has the meaning assigned to such term in
--------------------
Section 4.05(b).
"ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
---------------
incorporated) that, together with either Borrower, is treated as a single
employer under Section 414(b) or (c) of the Code or, solely for purposes of
Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"ERISA Event" means (a) any "reportable event," as defined in
-----------
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b)
the existence with respect to any Plan of an "accumulated funding deficiency"
(as defined in Section 412 of the Code or Section 302 of ERISA), whether or
not waived; (c) the filing pursuant to Section 412(d) of the Code or Section
303(d) of ERISA of an application for a waiver of the minimum funding standard
with respect to any Plan; (d) the incurrence by either Borrower or any ERISA
Affiliate of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by either Borrower or any ERISA
Affiliate from the PBGC or a plan administrator of any notice relating to an
intention to terminate any Plan or Plans or to appoint a trustee to administer
any Plan; (f) the incurrence by either Borrower or any ERISA Affiliate of any
liability with respect to the withdrawal or partial withdrawal from any Plan
or Multiemployer Plan; or (g) the receipt by either Borrower or any ERISA
Affiliate of any notice, or the receipt by any Multiemployer Plan from the
Borrower or any ERISA Affiliate of any notice, concerning the imposition of
Withdrawal Liability or a determination that a Multiemployer Plan is, or is
expected to be, insolvent or in reorganization, within the meaning of Title IV
of ERISA.
"Escrowed Funds" means funds on deposit in the Debt Service
--------------
Prepayment Escrow Account.
"Event of Default" has the meaning assigned to such term in
----------------
Article 8.
"Excluded Taxes" means, with respect to the Lender or any other
--------------
recipient of any payment to be made by or on account of any obligation of any
Borrower under any Loan Document, (a) income or franchise taxes imposed on (or
measured by) its income or capital by the United States of America or the
Federal Republic of Germany, or by the jurisdiction under the laws of which
such recipient is organized or in which its principal office is located or, in
the case of the Lender, in which its applicable lending office is located, (b)
any branch profits taxes imposed by the United States of America or any
similar tax imposed by any other jurisdiction to which either Borrower is
subject, and (c) any withholding tax that is imposed on amounts payable to the
Lender that is attributable to the Lender's failure to comply with Section
3.05(e), except to the extent that the Lender was entitled, at the time of
designation of a new lending office, to receive additional amounts from the
Borrowers with respect to such withholding tax pursuant to Section 3.05(a).
"FERC" means the United States Federal Energy Regulatory
----
Commission.
4
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<PAGE>
"Financial Officer" means the chief financial officer, principal
-----------------
accounting officer, treasurer, controller or assistant controller of a
Borrower.
"Foreign Pension Plan" means any plan, fund (including, without
--------------------
limitation, any superannuation fund) or other similar program established or
maintained outside the United States of America by either Borrower primarily
for the benefit of employees of such Borrower residing outside the United
States of America, which plan, fund or other similar program provides, or
results in, retirement income, a deferral of income in contemplation of
retirement or payments to be made upon termination of employment, and which
plan is not subject to ERISA or the Code.
"GAAP" means generally accepted accounting principles in the
----
United States of America as modified by the Uniform System of Accounts and
regulations and orders of FERC, consistently applied.
"Governmental Authority" means the government of the
----------------------
United States of America, any other nation or any political subdivision
thereof, whether state or local, and any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or
functions of or pertaining to government.
"Guarantee" of or by any Person (the "guarantor") means any
---------
obligation, contingent or otherwise, of the guarantor guaranteeing or having
the economic effect of guaranteeing any Indebtedness or other obligation of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor as to enable the primary obligor
to pay such Indebtedness or other obligation or (d) as an account party in
respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation, provided that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guaranteed" has a meaning correlative thereto.
"Hazardous Materials" means all explosive or radioactive
-------------------
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
"Hedging Agreement" means any interest rate protection agreement,
-----------------
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging
arrangement.
5
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<PAGE>
"Holding Company Act" means the Public Utility Holding Company
-------------------
Act of 1935, as amended.
"Indebtedness" of any Person means, without duplication, (a) all
------------
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in
respect of the deferred purchase price of property or services (excluding
current accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such Person, whether or not the
Indebtedness secured thereby has been assumed, (g) all Guarantees by such
Person of Indebtedness of others, (h) all Capital Lease Obligations of such
Person, (i) all obligations, contingent or otherwise, of such Person as an
account party in respect of letters of credit and letters of guaranty and (j)
all obligations, contingent or otherwise, of such Person in respect of
bankers' acceptances. The Indebtedness of any Person shall include the
Indebtedness of any other entity (including any partnership in which such
Person is a general partner) to the extent such Person is liable therefor as a
result of such Person's ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness provide that such
Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
-----------------
"Indemnitee" has the meaning assigned to such term in Section
----------
9.03(b).
"Knowledge" means the actual knowledge, after due inquiry, of the
---------
corporate officers of the Borrowers charged with responsibility for the
relevant function or matter.
"Lien" means, with respect to any asset, (a) any mortgage, deed
----
of trust, lien, pledge, hypothecation, encumbrance, charge or security
interest in, on or of such asset, (b) the interest of a vendor or a lessor
under any conditional sale agreement, capital lease or title retention
agreement relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loan Documents" means this Agreement, the Term Note, the Parent
--------------
Subordination Agreement and the Security Documents.
"Maintenance Benchmark" means the amount of $700,000; except that
---------------------
if the amount budgeted for maintenance of electric utility plant and equipment
in the projections furnished to the Lender pursuant to Section 6.01(d) for any
fiscal year ending after December 31, 1999 exceeds 110% of the foregoing
amount (or the Maintenance Benchmark then in effect, whichever amount is
greater), effective as of the beginning of the fiscal year covered by such
projections, the amount of the Maintenance Benchmark shall be increased to the
amount budgeted for maintenance of electric utility plant and equipment in
such projections, rounded if necessary to the nearest $10,000. The Maintenance
Benchmark, as so increased, shall remain in
6
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<PAGE>
effect until any subsequent increase pursuant to the first sentence of this
definition, but shall not thereafter be decreased.
"Maintenance Reserve Account" means a joint account maintained by
---------------------------
the Borrowers with the Lender in which the Borrowers may, from time to time,
deposit Eligible Investments pursuant to Section 6.12(b).
"Maintenance Reserve Letter of Credit" means an irrevocable
------------------------------------
standby letter of credit substantially in the form of Exhibit E, issued by an
Eligible Bank in favor of the Lender, expiring no sooner than one year from
the date of issuance.
"Maintenance Reserve Requirement" means as of the time of any
-------------------------------
determination, the excess, if any, of (a) the Maintenance Benchmark over (b)
the amount available to be drawn under any unexpired Maintenance Reserve
Letter of Credit held by the Lender.
"Margin Stock" has the meaning assigned to such term in
------------
Regulation U.
"Material Adverse Effect" means a material adverse effect on
-----------------------
(a) the business, assets, operations, prospects or condition, financial or
otherwise, of the Borrowers, taken as a whole, (b) the ability of either
Borrower to perform any of its obligations under any Loan Document or (c) the
rights of or benefits available to the Lender under any Loan Document.
"Material Indebtedness" means Indebtedness (other than
---------------------
Indebtedness under the Loan Documents and Subordinated Indebtedness) or
obligations in respect of one or more Hedging Agreements, of the Borrowers in
an aggregate principal amount exceeding $250,000. For purposes of this
definition, the "principal amount" of the obligations of the Borrowers in
respect of any Hedging Agreement at any time shall be the maximum aggregate
amount (giving effect to any netting agreements) that the Borrowers or either
of them would be required to pay if such Hedging Agreement were terminated at
such time.
"Maturity Date" means May 5, 2010, or such earlier date on which
-------------
the Term Loan shall become due and payable, whether by acceleration or
otherwise.
"Moody's" means Moody's Investors Service, Inc., provided that if
-------
such corporation (or its successors or assigns) shall for any reason no longer
perform the functions of a securities rating agency, "Moody's" shall be deemed
to refer to any other nationally recognized securities rating agency selected
by the Lender.
"Mortgage" means a mortgage, deed of trust, assignment of leases
--------
and rents, leasehold mortgage or other security document granting a Lien on
any Mortgaged Property to secure the Obligations. Each Mortgage shall be
satisfactory in form and substance to the Lender.
"Mortgaged Property" means, initially, each parcel of real
------------------
property and the improvements thereto owned by the Borrowers and identified on
Schedule 1.01.
"MPSC" means Maine Public Service Company, a Maine corporation.
----
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"MPSC Transaction Documents" means: (i) the Asset Purchase
--------------------------
Agreement, dated as of July 7, 1998, among MPSC, Maine and New Brunswick
Electrical Power Company, Limited and the Parent; (ii) the Buy-Back Agreement,
dated as of June 8, 1999, among MPSC, PDI-NE and PDI-Can; (iii) the Continuing
Site Agreement, dated June 8, 1999, between MPSC and PDI-NE; (iv) the
Interconnection Agreement, dated June 8, 1999, between MPSC and PDI-NE; (v)
the Interconnection Agreement, dated June 8, 1999, MPSC and PDI-Can; (vi) the
Interconnection Agreement, dated June 6, 1999, between New Brunswick Power
Corporation and PDI-Can; (vii) the Service Agreement, dated June 8, 1999,
between MPSC and PDI-NE; and (viii) the Service Agreement, dated June 8, 1999,
between MPSC and PDI-Can.
"MPUC" means the Maine Public Utilities Commission.
----
"Multiemployer Plan" means a multiemployer plan as defined in
------------------
Section 4001(a)(3) of ERISA.
"Net Proceeds" means, with respect to any event, (a) the cash
------------
proceeds received in respect of such event, including (i) any cash received in
respect of any non-cash proceeds, but only as and when received, (ii) in the
case of a casualty, insurance proceeds and (iii) in the case of a condemnation
or similar event, condemnation awards and similar payments, (b) net of the sum
of (i) all reasonable fees and out-of-pocket expenses paid by either Borrower
to third parties in connection with such event, (ii) in the case of a sale,
transfer, lease or other disposition of an asset (including pursuant to a sale
and leaseback transaction), the amount of all payments required to be made by
either Borrower as a result of such event to repay Indebtedness (other than
the Term Loan) secured by such asset or otherwise subject to mandatory payment
as a result of such event and (iii) the amount of all taxes paid (or
reasonably estimated to be payable) by either Borrower, and the amount of any
reserves established by either Borrower to fund contingent liabilities
reasonably estimated to be payable, in each case during the year that such
event occurred or the next succeeding year and that are directly attributable
to such event (as determined reasonably and in good faith by the chief
financial officer of the Borrowers).
"Non-accountable Cash Flow" for any specified Semiannual Period
-------------------------
means Operating Cash Flow for such Semiannual Period less Tracked Income for
such Semiannual Period.
"Obligations" means (a) the due and punctual payment of
-----------
(i) principal of and premium, if any, and interest (including interest
accruing during the pendency of any bankruptcy, insolvency, receivership or
other similar proceeding, regardless of whether allowed or allowable in such
proceeding) on the Term Loan, when and as due, whether at maturity, by
acceleration, upon one or more dates set for prepayment or otherwise, and (ii)
all other monetary obligations, including fees, commissions, costs, expenses
and indemnities, whether primary, secondary, direct, contingent, fixed or
otherwise (including monetary obligations incurred during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless
of whether allowed or allowable in such proceeding), of the Borrowers to the
Lender, or that are otherwise payable to the Lender, under this Agreement and
the other Loan Documents, (b) the due and punctual performance of all
covenants, agreements, obligations and liabilities of the Borrowers under or
pursuant to this Agreement and the other Loan Documents and (c) unless
otherwise agreed upon in writing by the Lender, all obligations of the
Borrower, monetary or
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otherwise, under each interest rate protection agreement entered into with the
Lender as counterparty.
"Operating Cash Flow" means for any specified Semiannual Period,
-------------------
(i) the sum of (A) operating revenues, (B) other operating income relating to
the sale of electrical energy, and (C) net non operating income (or loss) for
such period, less (ii) the sum of (A) operation expense, (B) maintenance
expense, and (C) taxes other than income taxes on operating income for such
period, determined for the Borrowers on a combined basis in accordance with
the Uniform System of Accounts and GAAP; provided, however, that if
historical operating results of the Borrowers are not available for any
Semiannual Period ended prior to the date of this Agreement, Operating Cash
Flow for such Semiannual Period shall be determined on the basis of the
Borrowers' reasonable projection of their Operating Cash Flow for the current
Semiannual Period. For purposes of computing the amounts for clauses (A), (B)
and (C), the allocated costs, expenses, taxes, credits and other items
described in Section 7.09(ii) shall be included therein in the categories in
(A), (B) and (C) which are applicable.
"Other Taxes" means any and all current or future stamp or
-----------
documentary taxes or any other excise or property taxes, charges, recording
fees or similar levies arising from any payment made hereunder or from the
execution, delivery or enforcement of the Loan Documents.
"Parent" means WPS Power Development, Inc., a wholly-owned
------
indirect subsidiary of WPS Resources Corporation.
"Parent Subordination Agreement" means the Parent Subordination
------------------------------
Agreement, substantially in the form of Exhibit B, among the Borrowers, the
Parent and the Lender.
"Payment Date" has the meaning assigned to such term in Section
------------
2.02(b).
"Participant" has the meaning assigned to such term in Section
-----------
9.04(c).
"PBGC" means the Pension Benefit Guaranty Corporation referred to
----
and defined in ERISA and any successor entity performing similar functions.
"Perfection Certificate" means a certificate in the form of Annex
2 to the Security Agreement or any other form approved by the Lender.
"Permitted Encumbrances" means:
----------------------
(a) Liens imposed by law for taxes or other governmental
charges or assessments that are not yet due or are being contested in
compliance with Section 6.04;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the ordinary
course of business and securing obligations that are not overdue by more
than 60 days or are being contested in compliance with Section 6.04;
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(c) pledges and deposits made in the ordinary course of
business in compliance with workers' compensation, unemployment
insurance and other social security laws or regulations;
(d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case
in the ordinary course of business;
(e) judgment liens in respect of judgments that do not
constitute an Event of Default under clause (k) of Article 8;
(f) easements, zoning restrictions, rights-of-way,
encroachments and similar encumbrances on real property that do not
secure any monetary obligations and do not materially detract from the
value of the affected property or materially interfere with the ordinary
conduct of business of the Borrowers; and
(g) Liens, easements, rights-of-way, encroachments and
other encumbrances set forth on Schedule 4.07(c).
"Permitted Investments" means:
---------------------
(a) direct obligations of, or obligations the principal
of and interest on which are unconditionally guaranteed by, the
United States of America (or by any agency thereof to the extent that
such obligations are backed by the full faith and credit of the
United States of America), in each case measuring within one year from
the date of acquisition thereof;
(b) investments in commercial paper maturing within 270
days from the date of acquisition thereof and having, at such date of
acquisition, the highest credit rating obtainable from Standard & Poor's
or from Moody's;
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within 180 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, any domestic office of any
commercial bank organized under the laws of the United States of America
or any State thereof that has a combined capital and surplus and
undivided profits of not less than $500,000,000; and
(d) fully collateralized repurchase agreements with a
term of not more than 30 days for securities described in clause (a) of
this definition and entered into with a financial institution satisfying
the criteria described in clause (c) of this definition.
"Person" means any natural person, corporation, limited liability
------
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
----
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower
or any ERISA Affiliate is (or, if such plan were
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terminated, would under Section 4069 of ERISA be deemed to be) an "employer"
as defined in Section 3(5) of ERISA.
"Prepayment Percentage" shall mean: (1) 100% if the Debt Service
---------------------
Coverage Ratio as of the end of any given Semiannual Period (without regard to
any prepayment made following such Semiannual Period) is less than 1.0; (2)
50% if the Debt Service Coverage Ratio as of the end of such Semiannual Period
is greater than or equal to 1.0 but less than 1.25; and (3) 25% if the Debt
Service Coverage Ratio as of the end of such Semiannual Period is greater than
or equal to 1.25 but less than 1.5.
"Prepayment Requirement" shall mean (i) for the purpose of clause
----------------------
(i) of Section 8(q), the amount which, if applied to the prepayment of the
Term Loan would result in a Debt Service Coverage Ratio of 1.0 as of the end
of the relevant Semiannual Period, calculated on a pro forma basis after
giving effect to such prepayment and all other prepayments made prior thereto
or simultaneously therewith, and (ii) for the purpose of clause (ii) of
Section 8(q), the amount which, if applied to the prepayment of the Term Loan
would result in a Debt Service Coverage Ratio of 1.5 as of the end of the
relevant Semiannual Period, calculated on a pro forma basis after giving
effect to such prepayment and all other prepayments made prior thereto or
simultaneously therewith.
"Prime Rate" means the rate of interest per annum publicly
----------
announced from time to time by the Lender as its prime commercial lending
rate; each change in such rate being effective from and including the date of
announcement of the change. The Prime Rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged to any customer
by the Lender.
"Pro Forma Debt Service" means the sum, determined as of the end
----------------------
of any specified Semiannual Period, of (a) Pro Forma Interest Expense as of
the end of such Semiannual Period, (b) an amount equal to the excess, if any
of (i) the aggregate outstanding principal balance of all Indebtedness of the
Borrowers (other than Subordinated Indebtedness) under revolving credit
facilities at the end of the specified Semiannual Period over (ii) the
aggregate amount of commitments to the Borrowers under revolving credit
facilities (other than Subordinated Indebtedness) that are scheduled to remain
in effect until after the end of the Semiannual Period next following the end
of the specified Semiannual Period, and (c) the aggregate amounts of all
repayments of Indebtedness of the Borrowers other than under revolving credit
facilities that, as of the end of the specified Semiannual Period, were
scheduled to be made during the Semiannual Period next following the end of
the specified Semiannual Period; provided, however, that Pro Forma Debt
Service as of the end of the Semiannual Period ended immediately prior to the
Effective Date shall be calculated by giving effect to the borrowing of the
Term Loan under this Agreement.
"Pro Forma Interest Expense" means the sum, determined as of the
--------------------------
end of any specified Semiannual Period, of all interest expense and commitment
and facility fees, both expensed and capitalized (including the interest
component of Capital Lease Obligations) payable in respect of all Indebtedness
of the Borrowers (other than Subordinated Indebtedness) outstanding at the end
of the specified Semiannual Period, determined on a combined basis in
accordance with GAAP, calculated for the Semiannual Period immediately
following the end of
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the specified Semiannual Period giving effect to (a) the interest rates in
effect with respect to such Indebtedness as of the end of the specified
Semiannual Period and (b) the payment when due of principal amounts of
Indebtedness (other than under revolving credit facilities) scheduled to
become payable during the Semiannual Period following the specified Semiannual
Period.
"PSCW" means the Public Service Commission of Wisconsin.
----
"Real Estate" has the meaning assigned to such term in Section
-----------
4.07(c).
"Regulation T," "Regulation U" or "Regulation X" means Regulation
------------ ------------ ------------
T, Regulation U or Regulation X, respectively, of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Related Parties" means, with respect to any specified Person,
---------------
such Person's Affiliates and the respective directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.
"Replacement Rate" means a rate per annum equal to (i) the yield
----------------
on actively traded U.S. Treasury securities on the date a prepayment of
principal hereunder is made (or if such date is not a Business Day, the next
succeeding Business Day) adjusted to a constant maturity date comparable to
the date any installment or portion thereof would otherwise have been due and
payable had no prepayment occurred, as reported for such prepayment date in
Federal Reserve Statistical Release H.15, plus (ii) 100 basis points. If there
is no rate reported for a constant maturity date corresponding to the maturity
date of any particular installment or portion thereof, the applicable rate
shall be determined by interpolation between the rate for the nearest maturity
date before, and rate for the nearest maturity date after, the maturity date
of the installment.
"Required Permit" has the meaning assigned to such term in
---------------
Section 4.05(a).
"Reserve Account" means either the Debt Service Reserve Account
---------------
or the Maintenance Reserve Account.
"Reserve Letter of Credit" means either a Debt Service Reserve
------------------------
Letter of Credit or a Maintenance Reserve Letter of Credit.
"Reserve Requirement" means either the Debt Service Reserve
-------------------
Requirement or the Maintenance Reserve Requirement.
"Restricted Income" means Escrowed Funds and Operating Cash Flow
-----------------
for any Semiannual Period remaining after giving effect to the payments
specified in clauses (i), (ii), (iii), (iv) and (v) of Section 6.13(a).
"Restricted Payment" means, as to either Borrower (i) any
------------------
dividend or other distribution by such Borrower (whether in cash, securities
or other property) with respect to any shares of any class of equity
securities of such Borrower, (ii) any payment (whether in cash, securities or
other property), including any sinking fund or similar deposit, on account of
the purchase, redemption, retirement, acquisition, cancellation or termination
of any such shares or
12
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any option, warrant or other right to acquire any such shares, and (iii) any
payment of principal, premium or interest with respect to Indebtedness of such
Borrower to any Affiliate, whether at maturity, upon
acceleration or otherwise.
"Security Agreement" means the Security Agreement, substantially
------------------
in the form of Exhibit F, among the Borrowers and the Lender.
"Security Documents" means the Security Agreement, the Mortgages,
------------------
the Assignment, and each other security agreement, instrument or other
document executed or delivered pursuant to Section 6.17 to secure any of the
Obligations.
"Semiannual Certificate" means the certificate described in
----------------------
Section 6.01(e).
"Semiannual Period" means a fiscal period of six months ended or
-----------------
ending, depending on the context, on June 30 or December 31 in the relevant
fiscal year.
"Standard & Poor's" means Standard & Poor's Ratings Services, a
-----------------
division of The McGraw-Hill Companies, Inc., provided that if such corporation
(or its successors or assigns) shall for any reason no longer perform the
functions of a securities rating agency, "Standard & Poor's" shall be deemed
to refer to any other nationally recognized securities rating agency selected
by the Lender.
"Subordinated Indebtedness" means joint or several Indebtedness
-------------------------
of the Borrowers to the Parent listed on Schedule 7.01 or incurred after the
date of this Agreement that in each instance is fully and unconditionally
subordinated to the Term Loan as to payment of principal and interest pursuant
to the Parent Subordination Agreement.
"Subsidiary" means, with respect to any Person (the "parent") at
----------
any date, any corporation, limited liability company, partnership, association
or other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as
any other corporation, limited liability company, partnership, association or
other entity of which securities or other ownership interests representing
more than 50% of the equity or more than 50% of the ordinary voting power or,
in the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held by the parent or one
or more subsidiaries of the parent.
"Taxes" means any and all current or future taxes, levies,
-----
imposts, duties, deductions, charges or withholdings imposed by any
Governmental Authority.
"Term Loan" means the term loan referred to in Section 2.01(b)
---------
and made pursuant to Section 2.03.
"Term Note" has the meaning assigned to such term in Section
---------
2.02(a).
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"Tracked Income" for any specified Semiannual Period means the
--------------
amount determined by the following formula:
OCF - (OCF x 1.75)
----------
( DSCR )
Where:
OCF = Operating Cash Flow for such Semiannual Period; and
DSCR = the Debt Service Coverage Ratio shown in the Semiannual Certificate for
the immediately preceding Semiannual Period.
"Tracked Payment Suspense Account" has the meaning assigned to
--------------------------------
such term in Section 6.14(a).
"Uniform System of Accounts" means the Uniform System of Accounts
--------------------------
Prescribed for Public Utilities and Licensees Subject to the Provisions of the
Federal Power Act, 18 C.F.R., Part 101.
"Withdrawal Liability" means liability to a Multiemployer Plan as
--------------------
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
"Wyman Station" means the electric generating facilities known as
-------------
the W. F. Wyman Station, located in Yarmouth, Maine.
"Year 2000 Ready" has the meaning assigned to such term in
---------------
Section 4.21.
"Year 2000 Plan" has the meaning assigned to such term in Section
--------------
4.21.
1.02 TERMS GENERALLY
The definitions of terms herein shall apply equally to the
singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include," "includes" and "including" are not words of
limitation, and the words "will" and "shall" both imply a promise and not mere
intention. Unless the context requires otherwise, (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth
herein), (b) any reference herein to any Person shall be construed to include
such Person's successors and assigns, (c) the words "herein," "hereof" and
"hereunder," and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Sections, Exhibits and Schedules shall be construed to
refer to Sections of, and Exhibits and Schedules to, this Agreement, (e) all
references to time of day shall mean New York City time, and (f) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all
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tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.
1.03 ACCOUNTING TERMS AND PRINCIPLES
Except as otherwise expressly provided herein, all terms of an
accounting or financial nature shall be construed in accordance with GAAP and
the Uniform System of Accounts, as in effect from time to time. Unless the
context otherwise requires, any reference to a fiscal period refers to the
relevant fiscal period of the Borrowers.
SECTION 2. AMOUNT AND TERMS OF LOAN
2.01 TERM LOAN
(a) Subject to the terms and conditions set forth herein, the
Lender agrees to make a term loan (the "Term Loan") to the Borrowers on the
---------
Effective Date in a principal amount equal to the Commitment Amount. The
entire principal amount of and interest accruing on the Term Loan shall be the
joint and several obligation of each Borrower, regardless of the allocation of
the proceeds of the Term Loan between the Borrowers.
(b) Subject to the satisfaction of the terms and conditions set
forth herein, as determined by the Lender, the Term Loan shall be made
available to the Borrowers by the Lender on the Effective Date at the office
of the Lender specified in Section 9.01(b) by crediting the account of the
Borrowers on the books of such office with the amount of the Term Loan.
2.02 TERM NOTE
(a) The Term Loan shall be evidenced by a promissory note of the
Borrowers, substantially in the form of Exhibit A, with appropriate insertions
therein as to date and principal amount (as indorsed or modified from time to
time, the "Term Note"), payable to the order of the Lender, dated the
---------
Effective Date, and in the stated principal amount equal to the Term Loan.
(b) The principal amount of the Term Loan shall be payable in 21
consecutive semiannual installments on May 5 and November 5 in each year,
commencing on May 5, 2000 (each, a "Payment Date"). Each such installment of
------------
principal payable on the Term Loan shall be in an amount equal to the amount
set forth below opposite the due date of such installment or, if less, the
remaining unpaid principal amount of the Term Loan:
Date Amount
---- ------
May 5, 2000 $ 125,000
November 5, 2000 $ 250,000
May 5, 2001 $ 375,000
November 5, 2001 $ 500,000
May 5, 2002 $ 500,000
November 5, 2002 $ 625,000
May 5, 2003 $ 625,000
November 5, 2003 $ 750,000
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Date Amount
---- ------
May 5, 2004 $ 750,000
November 5, 2004 $ 875,000
May 5, 2005 $ 925,000
November 5, 2005 $1,250,000
May 5, 2006 $1,250,000
November 5, 2006 $1,500,000
May 5, 2007 $1,500,000
November 5, 2007 $1,750,000
May 5, 2008 $1,875,000
November 5, 2008 $2,000,000
May 5, 2009 $2,000,000
November 5, 2009 $2,250,000
May 5, 2010 $2,325,000
2.03 PREPAYMENTS
(a) PREPAYMENTS. The Borrowers may, at their option, prepay the
Term Loan in full at any time or in part from time to time. Each partial
prepayment of the Term Loan shall be in an aggregate principal amount of
$500,000 or a whole multiple of $100,000 in excess thereof, or, if less, the
outstanding principal balance of the Term Loan. Partial prepayments of the
Term Loan pursuant to Sections 7.05, 8(p) and 8(q) shall be applied to
scheduled installments of principal in the chronological order of their
maturities; all other partial prepayments of the Term Loan shall be applied to
scheduled installments of principal in the inverse order of their maturities
(b) IN GENERAL. Each prepayment of the Term Loan shall be
without premium or penalty (but subject to Section 3.03). The Borrowers shall
give the Lender written notice of each prepayment pursuant to this section at
least one Business Day prior to the prepayment date, specifying the amount to
be prepaid and the date of prepayment. Each such notice shall be irrevocable
and the amount specified in each such notice shall be due and payable on the
date specified, together with accrued interest to the date of such payment on
the amount prepaid.
2.04 Payments
(a) Each payment, including each prepayment, of principal and
interest on the Term Loan shall be made by the Borrowers prior to 1:00 p.m. on
the date such payment is due to the Lender at the Lender's office specified in
Section 9.01(b), in each case in lawful money of the United States, in
immediately available funds and without set-off or counterclaim. The failure
of the Borrowers to make any such payment by such time shall not constitute a
Default, provided that such payment is made on the due date, but any such
payment made after 1:00 p.m. on the due date shall be deemed to have been made
on the next Business Day for the purpose of calculating interest on amounts
outstanding on the Term Loan.
(b) If any payment hereunder or under the Term Note shall be due
and payable on a day which is not a Business Day, the due date thereof shall
be extended to the next Business Day and interest shall be payable at the rate
specified herein during such extension, provided,
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however, that if such next Business Day is after the Maturity Date, any such
payment shall be due on the immediately preceding Business Day.
SECTION 3. INTEREST, FEES, YIELD PROTECTION, ETC.
3.01 INTEREST
(a) PRIOR TO MATURITY. Except as otherwise provided in Section
3.01(b), prior to maturity, the Term Loan shall bear interest on the
outstanding principal balance thereof at the rate of 8.75% per annum.
(b) AFTER DEFAULT. If an Event of Default under clause (a) or
(b) of Section 8 has occurred and is continuing, then, so long as such Event
of Default is continuing, all principal of and interest on the Term Loan shall
bear interest, after as well as before judgment, at a rate per annum equal to
(i) in the case of principal of the Term Loan, 2% plus the rate otherwise
applicable to the Term Loan as provided in Section 3.01(a) or (ii) in the case
of any other amount payable under the Loan Documents, 2% plus the Prime Rate.
(c) CALCULATION AND PAYMENT. Interest on the Term Loan shall be
calculated on the basis of a 365 or 366-day year (as the case may be). Except
as otherwise provided in Section 3.01(b), interest shall be payable in arrears
on each Payment Date and upon each voluntary and mandatory prepayment of the
Term Loan.
3.02 UP-FRONT FEE
The Borrowers agree to pay to the Lender on the Effective Date a
fee equal to 1% of the Commitment Amount.
3.03 FUNDING LOSS
Upon any prepayment of the Term Loan, by acceleration or
otherwise, including any prepayment pursuant to Section 8(p) or Section 8(q),
the Borrowers shall pay to the Lender at the time such prepayment is made, as
liquidated damages and not as a penalty, an amount equal to the net present
value (if positive), discounted at the Replacement Rate, of the excess of (i)
the amount of interest, calculated at the rate specified in Section 3.01(a)
(and on the basis of a year of 365 or 366 days) which would have accrued on
the principal amount prepaid for the period or periods from the date of
prepayment to the date each installment or portion thereof prepaid would
otherwise have been due and payable had no prepayment occurred, over (ii) the
amount of interest, calculated at a rate per annum equal to the Replacement
Rate (and on the basis of a year of 365 or 366 days) that would be earned by
the Lender if the Lender reinvested the principal amount of each installment
or portion thereof prepaid for the period or periods from the date of
prepayment to the date or dates such installment or portion thereof would
otherwise have been due and payable had no prepayment occurred. A certificate
setting forth the amount due hereunder prepared by the Lender shall be
conclusive and binding, absent manifest error.
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3.04 INCREASED COSTS
(a) If the Lender determines that any Change in Law regarding
capital requirements has or would have the effect of reducing the rate of
return on the Lender's capital as a consequence of this Agreement or the Term
Loan made by the Lender to a level below that which the Lender could have
achieved but for such Change in Law (taking into consideration the Lender's
policies with respect to capital adequacy), then from time to time the
Borrowers will pay to the Lender such additional amount or amounts as will
compensate the Lender for any such reduction suffered.
(b) A certificate of the Lender setting forth the amount or
amounts necessary to compensate the Lender as specified in subparagraph (a) of
this Section shall be delivered to the Borrowers and shall be conclusive
absent manifest error. The Borrowers shall pay the Lender the amount shown as
due on any such certificate within 10 days after receipt thereof.
(c) Failure or delay on the part of the Lender to demand
compensation pursuant to this Section shall not constitute a waiver of the
Lender's right to demand such compensation; provided that the Borrowers shall
not be required to compensate the Lender pursuant to this Section for any
reductions incurred more than 90 days prior to the date that the Lender
notifies the Borrowers of the Change in Law giving rise to such reduction and
of the Lender's intention to claim compensation therefor; provided, further,
that, if the Change in Law giving rise to such increased costs or reductions
is retroactive, then the 90-day period referred to above shall be extended to
include the period of retroactive effect thereof.
3.05 TAXES
(a) Any and all payments by or on account of any obligation of
the Borrowers hereunder and under any other Loan Document shall be made free
and clear of and without deduction for any Indemnified Taxes or Other Taxes,
provided, that, if the Borrowers shall be required to deduct any Indemnified
Taxes or Other Taxes from such payments, then (i) the sum payable shall be
increased as necessary so that, after making all required deductions
(including deductions applicable to additional sums payable under this
Section), the Lender receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrowers shall make such
deductions and (iii) the Borrowers shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrowers shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Borrowers shall jointly and severally indemnify the
Lender, within ten days after written demand therefor, for the full amount of
any Indemnified Taxes or Other Taxes paid by Lender on or with respect to any
payment by or on account of any obligation of either Borrower under the Loan
Documents (including Indemnified Taxes or Other Taxes imposed or asserted on
or attributable to amounts payable under this Section) and any penalties,
interest and reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes or Other Taxes were correctly or legally
imposed or asserted by the relevant Governmental
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Authority. A certificate as to the amount of such payment or liability
delivered to the Borrowers by the Lender shall be conclusive absent manifest
error.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrowers to a Governmental Authority, the
Borrowers shall deliver to the Lender the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy
of the return reporting such payment or other evidence of such payment
reasonably satisfactory to the Lender.
(e) If the Lender is entitled to an exemption from or reduction
of withholding tax under the law of a jurisdiction to which the Lender is
subject, or any treaty to which such jurisdiction is a party, with respect to
payments under the Loan Documents, it shall deliver to the Borrowers, at the
time or times prescribed by applicable law, such properly completed and
executed documentation prescribed by applicable law or reasonably requested by
the Borrowers (including Internal Revenue Service forms) as will permit such
payments to be made without withholding or at a reduced rate.
(f) In the event that the Lender receives or becomes entitled to
any tax credit or reimbursement relating to any payment pursuant to this
Section 3.05, the Lender shall reimburse to the Borrowers an amount equal to
the benefit to the Lender of such credit or reimbursement. The benefit to the
Lender of such credit or reimbursement shall be the excess of (i) the Lender's
total income or franchise taxes for the year in which the credit or
reimbursement is taken into account over (ii) what the Lender's total income
or franchise taxes for such year would have been in the absence of such credit
or reimbursement. A certificate of the Lender setting forth in reasonable
detail the calculation of the amount of the benefit shall be conclusive and
binding, absent manifest error.
3.06 MITIGATION OBLIGATIONS
If the Lender requests compensation under Section 3.04, or if the
Borrower is required to pay any additional amount to the Lender or any
Governmental Authority for the account of the Lender pursuant to Section 3.05,
then the Lender shall use reasonable efforts to designate a different lending
office for funding or booking the Term Loan or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if,
in the judgment of the Lender, such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to Section 3.04 or 3.05, as
applicable, in the future and (ii) would not subject the Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to the
Lender. The Borrowers hereby agree to pay all reasonable costs and expenses
incurred by the Lender in connection with any such designation or assignment.
SECTION 4. REPRESENTATIONS AND WARRANTIES
Each of the Borrowers represents and warrants to the Lender that:
4.01 CORPORATE STATUS AND OWNERSHIP
(a) It is duly organized, validly existing and in good standing
under the laws of the State of Wisconsin, has all requisite corporate power
and authority to carry on its business as now conducted and is qualified or
licensed to do business in, and is in good standing in, every jurisdiction
where the ownership of its properties or the nature of its activities or both
makes such qualification or licensing necessary or advisable. The
jurisdictions in which each Borrower is qualified or licensed to do business
are listed on Schedule 4.01.
(b) All of the issued and outstanding equity securities of the
Borrower are owned, directly and beneficially, by the Parent.
4.02 CORPORATE POWER AND AUTHORITY
It has the corporate power and authority to execute, deliver,
perform, and take all actions contemplated by, each of the Loan Documents to
which it is a party, and all such action has been duly and validly authorized
by all necessary corporate proceedings on its part. Such Borrower has the
corporate power and authority to borrow pursuant to the Loan Documents to the
fullest extent permitted hereby and thereby, and has taken all necessary
corporate action to authorize such borrowing.
4.03 EXECUTION AND BINDING EFFECT
This Agreement and each of the other Loan Documents to which it
is a party and which is required to be delivered on or before the Effective
Date pursuant to Section 5 has been duly and validly executed and delivered
by the Borrower. This Agreement and each such other Loan Document constitute,
and the Term Note when executed and delivered by the Borrower will constitute,
the legal, valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with their terms, except as the enforceability
hereof or thereof may be limited by bankruptcy, insolvency or other similar
laws of general application affecting the enforcement of creditors' rights or
by general principles of equity limiting the availability of equitable
remedies.
4.04 GOVERNMENTAL APPROVALS; NO CONFLICTS
The execution and delivery of this Agreement and the other Loan
Documents, the borrowing of the Term Loan, the use of the proceeds thereof as
permitted by this Agreement, and the consummation of any other transactions
contemplated hereby and thereby (a) do not require any consent or approval of,
registration or filing with, or any other action by, any Governmental
Authority (excluding Uniform Commercial Code financing statements, filings
under the Personal Property Security Act (New Brunswick) and any consent
required from the Perth-Andover Electric Light Commission to the assignment by
PDI-Can of its rights under the agreement dated as of December 7, 1993), (b)
will not violate any applicable law or regulation or the charter or by-laws of
the Borrower or any order of any Governmental Authority, (c) will not violate
or result in a default under any indenture, agreement or other instrument
binding upon either Borrower or its assets, or give rise to a right thereunder
to require any payment to be made by either Borrower, and (d) will not result
in the creation or imposition of any Lien on any asset of either Borrower
(other than Liens permitted by Section 7.02).
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4.05 Licenses and Permits
(a) Schedule 4.05(a) lists all permits, licenses, franchises and
other governmental authorizations, consents and approvals, other than
Environmental Permits, necessary to own or otherwise utilize, operate or
maintain, or engage in the business of the Borrowers as presently conducted
(the "Required Permits"). Except as set forth in Schedule 4.05(a), the
----------------
Borrowers have not received any written notification that they are, or in the
future may be considered to be, in violation of any of the Required Permits,
or any law, statute, order, rule, regulation, ordinance or judgment of any
Governmental Authority applicable to any Required Permits, except for
notifications of violations which would not individually or in the aggregate,
create a Material Adverse Effect.
(b) The Borrowers hold all of the permits, licenses and
governmental authorizations listed on Schedule 4.05(b) (the "Environmental
-------------
Permits"), which are all of the permits, licenses and governmental
- -------
authorizations required for the Borrowers to own, operate, maintain and engage
in their business under applicable Environmental Laws, and are in compliance
with all such Environmental Permits, with respect to their assets, the
operation or maintenance of their assets, and the business of the Borrowers in
connection with their assets, except where such failure to hold or comply with
required Environmental Permits individually or in the aggregate, are not
reasonably likely to create a Material Adverse Effect.
4.06 FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE
(a) The Borrowers have heretofore furnished to the Lender an
unaudited combined balance sheet of the Borrowers as of September 30, 1999.
Such balance sheet presents fairly the financial condition of the Borrowers as
of September 30, 1999 on a combined basis in conformity with GAAP, subject to
normal and recurring year-end audit adjustments.
(b) Since September 30, 1999 there has been no material adverse
change in the business, assets, operations, prospects or condition, financial
or otherwise, of the Borrowers, taken as a whole, and there has been no such
material adverse change in the assets or financial condition of the Borrowers
described in the balance sheet referred to in paragraph (a) of this Section.
4.07 TITLE TO AND CONDITION OF PROPERTIES
(a) TITLE. Except as set forth in Schedule 4.07(a) and except
for other Permitted Encumbrances, the Borrowers have good and marketable title
to all of the Real Estate and all of the personal property material to their
businesses, free and clear of all Liens, except for minor defects in title
that do not materially interfere with their ability to conduct their business
as currently conducted or to utilize such properties for the purposes for
which they were acquired.
(b) CONDITION. Except as set forth in Schedule 4.07(b), the
tangible assets at each generating station, taken as a whole, (i) are in good
operating and usable condition and repair, free from any defects (except
ordinary wear and tear, in light of their respective ages and historical
usage, and except such minor defects as do not interfere with the use thereof
in the conduct of the normal operation and maintenance thereof) and (ii) have
been maintained consistent with the standards generally followed in the
electrical utilities industry.
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(c) REAL ESTATE. Schedule 4.07(c) sets forth all real property
owned, leased, used or occupied by the Borrowers (the "Real Estate"),
-----------
including a description of all land, and all Liens, encumbrances, easements or
rights of way of record (or, if not of record, of which the Borrowers have
notice or Knowledge) granted on or appurtenant to or otherwise affecting such
Real Estate, the zoning classification thereof, and all plants, buildings or
other structures located thereon. Except as set forth on Schedule 4.07(c) and
except with respect to the Millinocket Facility, which has no deeded access
rights but depends upon custom and usage as described in Schedule 4.07(c), to
the Knowledge of the Borrowers no fact or condition exists which would
prohibit or materially adversely affect the ordinary rights of access to and
from the Real Estate from and to the existing highways and roads, and there is
no pending or threatened restriction or denial, governmental or otherwise,
upon such ingress or egress. Except as set forth on Schedule 4.07(c), to the
Knowledge of the Borrowers: (i) the Borrowers' occupation and use of the Real
Estate is in material compliance with all applicable laws and regulations;
(ii) there is not (A) any claim of adverse possession or prescriptive rights
involving any of the Real Estate, (B) any structure located on any Real Estate
which encroaches on or over the boundaries of neighboring or adjacent
properties or (C) any structure of any other party which encroaches on or over
the boundaries of any such Real Estate; and (iii) none of the Real Estate is
located in a flood plain, flood hazard area, wetland or lakeshore erosion area
within the meaning of any applicable order decree, statute, rule, or
regulation. To the Knowledge of the Borrowers, no public improvements have
been commenced and none are planned which in either case may result in special
assessments against any of the Real Estate or otherwise create a Material
Adverse Effect. Except as set forth on Schedule 4.07(c), the Borrowers have no
Knowledge of any (i) planned or proposed increase in assessed valuations of
any Real Estate, (ii) order, writ, injunction, or decree requiring repair,
alteration or correction of any existing condition affecting any Real Estate
or the systems or improvements thereat, or any condition or defect which could
give rise to such an order, writ, injunction, or decree, or (iii) underground
storage tanks, or any structural mechanical, or other defects of material
significance affecting any Real Estate or the systems or improvements thereat
(including, but not limited to, inadequacy for normal use of mechanical
systems or disposal or water systems at or serving the Real Estate).
(d) CONDEMNATION; FIRST REFUSAL RIGHTS. Except as set forth on
Schedule 4.07(d), the Borrowers have not received notice of, nor have
Knowledge of, any pending or contemplated condemnation proceeding affecting
any Mortgaged Property or any sale or disposition thereof in lieu of
condemnation. Neither any Mortgaged Property nor any interest therein is
subject to any right of first refusal, option or other contractual right to
purchase such Mortgaged Property or interest therein.
4.08 LEASES
Schedule 4.08 lists all real property leases under which the
Borrowers are a lessee or lessor and which (i) relate to the real or personal
property of the Borrowers, the operation or maintenance thereof, or the
business of the Borrowers in connection therewith and (ii) (A) provide for
annual payments of more than $1,000 or (B) are material to the operation or
condition (financial or otherwise) of the Borrowers property or the business
of the Borrowers in connection therewith. Except as set forth in Schedule
4.08, each such lease constitutes a valid, binding and enforceable obligation
of the Borrowers in accordance with its terms, and is in full force and
effect; there are no existing material defaults by the Borrowers or, to the
Borrowers'
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Knowledge, any other party thereunder; and no event has occurred which (whether
with or without notice, lapse of time, or both) would constitute a material
default by the Borrowers or, to the Borrowers' Knowledge, any other party
thereunder, or would cause the acceleration of any of the Borrowers'
obligations thereunder or result in the creation of any Lien on any of the
Borrowers' property, or would give rise to an automatic termination, or the
right of discretionary termination thereof, except such defaults and other
events which would not individually or in the aggregate create a Material
Adverse Effect.
4.09 LITIGATION AND ENVIRONMENTAL MATTERS
(a) Except as disclosed in Schedule 4.09, there are no actions,
suits or proceedings by or before any arbitrator or Governmental Authority
pending against or, to the Knowledge of the Borrowers, threatened against or
affecting the Borrowers (i) that, if adversely determined, could reasonably be
expected, individually or in the aggregate, to result in a Material Adverse
Effect or (ii) that involve any Loan Document or the transactions contemplated
hereby and thereby.
(b) Except as disclosed in Schedule 4.09, and except with
respect to any other matters that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, the Borrowers
(i) have not failed to comply with any Environmental Law nor to obtain,
maintain or comply with any permit, license or other approval required under
any Environmental Law, (ii) have not become subject to any Environmental
Liability, (iii) have not received notice of any claim with respect to any
Environmental Liability and (iv) do not know of any basis for any
Environmental Liability.
4.10 COMPLIANCE WITH LAWS AND AGREEMENTS
Each of the Borrowers is in compliance with all laws, regulations
and orders of any Governmental Authority applicable to it or its property and
all indentures, agreements and other instruments binding upon it or its
property, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect. No
Default has occurred and is continuing.
4.11 REGULATORY STATUS
(a) Neither Borrower is an "investment company" as defined in,
or subject to regulation under, the Investment Company Act of 1940.
(b) The Borrowers are not subject to regulation as public
utility companies under the Holding Company Act (other than as Exempt
Wholesale Generators within the meaning of the Holding Company Act).
(c) PDI-NE is subject to regulation in the United States as a
public utility only by FERC. It is also subject to regulation by the
Department of Energy as to international exports of energy and by the PSCW as
to its transactions with its public utility affiliate, Wisconsin Public
Service Corporation. PDI-NE is not subject to regulation in Canada.
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(d) PDI-Can is subject to regulation in Canada as a public
utility only by the New Brunswick Board of Commissioners of Public Utilities,
and is subject to regulation by the National Energy Board of Canada with
respect to the international export of electricity and the construction and
operation of international power transmission lines and infrastructure.
PDI-Can is subject to regulation in the United States as a public utility only
by FERC. It is also subject to regulation by the PSCW as to its transactions
with its public utility affiliate, Wisconsin Public Service Corporation.
4.12 TAXES
All tax and information returns required to be filed by or on
behalf of the Borrowers have been properly prepared, executed and filed. All
Taxes upon the Borrowers or upon any of their respective properties, incomes,
sales or franchises which are due and payable have been paid, other than those
not yet delinquent and payable without premium or penalty, and except for
those being diligently contested in good faith by appropriate proceedings, and
in each case adequate reserves and provisions for Taxes have been made on the
books of the Borrowers. The reserves and provisions for Taxes on the books of
the Borrowers are adequate for all open years and for its current fiscal
period. Neither Borrower knows of any proposed additional assessment or basis
for any material assessment for additional Taxes (whether or not reserved
against).
4.13 ERISA
(a) No ERISA Event has occurred or is reasonably expected to
occur that, when taken together with all other such ERISA Events for which
liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for
purposes of Statement of Financial Accounting Standards No. 87) did not, as of
the date of the most recent financial statements reflecting such amounts,
materially exceed the fair market value of the assets of such Plan, and the
present value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial
Accounting Standards No. 87) did not, as of the date of the most recent
financial statements reflecting such amounts, materially exceed the fair
market value of the assets of all such underfunded Plans.
(b) Each Foreign Pension Plan, if any, has been maintained in
substantial compliance with its terms and with the requirements of any and all
applicable laws, statutes, rules, regulations and orders and has been
maintained, where required, in good standing with applicable regulatory
authorities. All contributions required to be made with respect to a Foreign
Pension Plan have been timely made. Neither Borrower has incurred any
obligation in connection with the termination of or withdrawal from any
Foreign Pension Plan. The present value of the accrued benefit liabilities
(whether or not vested) under each Foreign Pension Plan, determined as of the
end of the Borrowers' most recently ended fiscal year on the basis of
actuarial assumptions, each of which is reasonable, did not exceed the current
value of the assets of such Foreign Pension Plan allocable to such benefit
liabilities.
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4.14 DISCLOSURE
The Borrowers have disclosed to the Lender all agreements,
instruments and corporate or other restrictions to which they are subject, and
all other matters known to them, that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect. None of the
reports, financial statements, certificates or other information furnished by
or on behalf of the Borrowers to the Lender in connection with the negotiation
of the Loan Documents or delivered hereunder (as modified or supplemented by
other information so furnished) contains any material misstatement of fact or
omits to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
provided that, with respect to projected financial information, the Borrowers
represent only that such information was prepared in good faith based upon
assumptions believed to be reasonable at the time.
4.15 SUBSIDIARIES
The Borrowers have no Subsidiaries.
4.16 INSURANCE
Schedule 4.16 sets forth a description of all insurance
maintained by or on behalf of the Borrowers as of the Effective Date. As of
the Effective Date, all premiums in respect of such insurance that are due
and payable have been paid. Such insurance insures against at least such
liabilities, casualties and contingencies and in at least such types and
amounts as is customary in the case of corporations engaged in the same or
a similar business or having similar properties similarly situated.
4.17 LABOR MATTERS
As of the Effective Date, there are no strikes, lockouts or
slowdowns against the Borrowers, or either of them, pending or, to the
Knowledge of the Borrowers, threatened. The hours worked by and payments made
to employees of the Borrowers have not been in violation of the Fair Labor
Standards Act or any other applicable Federal, state, local or foreign law
dealing with such matters, except where any such violations, individually and
in the aggregate, would not be reasonably likely to result in a Material
Adverse Effect. All material payments due from the Borrowers, or for which any
claim may be made against the Borrowers, or either of them, on account of
wages and employee health and welfare insurance and other benefits, have been
paid or accrued as a liability on the books of the Borrowers.
4.18 SOLVENCY
Immediately after the execution and delivery of the Loan Documents
and immediately following the making of the Term Loan and after giving effect
to the application of the proceeds of the Term Loan, (a) the fair value of the
combined assets of the Borrowers, taken as a whole, at a fair valuation, will
exceed their combined debts and liabilities, subordinated, contingent or
otherwise; (b) the present fair saleable value of the property of the
Borrowers, taken as a whole, will be greater than the amount that will be
required to pay the probable liability of their debts and other liabilities,
subordinated, contingent or otherwise, as such debts
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and other liabilities become absolute and matured; (c) each of the Borrowers
will be able to pay its debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured; and (d)
each of the Borrowers will not have unreasonably small capital with which to
conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted following such date. For purposes of
calculations pursuant to this Section 4.18, all Subordinated Debt shall be
treated as equity of the Borrowers rather than as Indebtedness, but only
if such Subordinated Debt is not "debt" for purposes of section 101(32) of
the Bankruptcy Code.
4.19 SECURITY DOCUMENTS
(a) The Security Agreement is effective to create in favor of
the Lender, a legal, valid and enforceable security interest in the Collateral
(as defined in the Security Agreement) and, when (i) the financing statements
in appropriate form are filed in the offices specified on Schedule 6 to the
Perfection Certificate and (ii) all other applicable filings under the Uniform
Commercial Code or otherwise that are required under the Loan Documents are
made, the Security Agreement shall constitute a fully perfected Lien on, and
security interest in, all right, title and interest of the grantors thereunder
in such Collateral, in each case prior and superior in right to any other
Person, other than with respect to Liens expressly permitted by Section 7.02.
(b) The Mortgages are effective to create, subject to the
exceptions listed in each title insurance policy covering such Mortgage, in
favor of the Lender a legal, valid and enforceable Lien on all of the right,
title and interest of the Borrowers in and to the Mortgaged Properties
thereunder and the proceeds thereof, and when the Mortgages are filed in the
offices specified on Schedule 4.19(b), the Mortgages shall constitute a Lien
on, and security interest in, all right, title and interest of the Borrowers
in such Mortgaged Properties and the proceeds thereof, in each case prior and
superior in right to any other person, other than with respect to the rights
of persons pursuant to Liens expressly permitted by Section 7.02.
(c) The Assignments are effective to create in favor of the
Lender a legal, valid and enforceable Lien on and collateral assignment of all
of the right, title and interest of the Borrowers in and to the contracts,
licenses and permits covered thereby and when all applicable filings under the
Uniform Commercial Code or otherwise that are required under the Loan
Documents are made, the Assignments shall constitute fully perfected Liens on,
and security interests in, all right, title and interest of the grantors
thereunder in such Collateral, in each case prior and superior in right to any
other Person, other than with respect to Liens expressly permitted by Section
7.02.
4.20 FEDERAL RESERVE REGULATIONS
(a) Neither Borrower is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
buying or carrying Margin Stock.
(b) No part of the proceeds of the Term Loan will be used,
whether directly or indirectly, and whether immediately, incidentally or
ultimately, to purchase, acquire or carry any
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Margin Stock or for any purpose that entails a violation of, or that is
inconsistent with, the provisions of the regulations of the Board, including
Regulation T, U or X.
4.21 YEAR 2000 ISSUES
The Borrowers have (i) initiated a detailed review and assessment
of all areas within their business and operations, including those affected by
their Affiliates, suppliers and vendors, that could be adversely impacted by
the "Year 2000 Problem", i.e., the risk that computer applications used by the
Borrowers, their Affiliates, or their suppliers and vendors, may be unable to
recognize and perform properly date-sensitive functions involving certain
dates prior to and any date after December 31, 1999, (ii) developed a detailed
plan and timetable for addressing the Year 2000 Problem on a timely basis (the
"Year 2000 Plan"), and (iii) to date, implemented this plan in accordance with
--------------
the timetable. The Borrowers reasonably believe that all computer
applications, including those of their Affiliates, suppliers and vendors, that
are material to their business, operations or conditions (financial or
otherwise) will, on a timely basis (but in any event not later than
November 1, 1999), be able to perform properly date-sensitive functions for all
dates before and after January 1, 2000 but prior to the Maturity Date, that is,
be "Year 2000 Ready," except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect.
SECTION 5. CONDITIONS PRECEDENT
The obligations of the Lender to make the Term Loan hereunder shall not
become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 9.02):
(a) THIS AGREEMENT. The Lender shall have received a counterpart
of this Agreement signed on behalf of each Borrower.
(b) TERM NOTE. The Lender shall have received the Term Note,
dated the Effective Date and signed on behalf of each Borrower.
(c) SECURITY AGREEMENT. The Lender shall have received a
counterpart of the Security Agreement, dated the Effective Date and signed on
behalf of each Borrower, together with the following:
(i) all instruments and other documents, including Uniform
Commercial Code financing statements, required by law or reasonably
requested by the Lender to be filed, registered or recorded to create or
perfect the Liens intended to be created under the Security Agreement;
and
(ii) a completed Perfection Certificate, dated the
Effective Date and signed by the President, a Vice President or a
Financial Officer of each Borrower, together with all attachments
contemplated thereby, including the results of a search of the Uniform
Commercial Code (or equivalent) filings made with respect to the
Borrowers in the jurisdictions contemplated by the Perfection
Certificate and copies of the financing statements (or similar
documents) disclosed by such search and evidence reasonably
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satisfactory to the Lender that the Liens indicated by such financing
statements (or similar documents) are permitted by Section 7.02 or have
been released.
(d) MORTGAGES. The Lender shall have received (i) counterparts
of a Mortgage with respect to each Mortgaged Property signed on behalf of the
record owner of such Mortgaged Property, (ii) a policy or policies of title
insurance issued by a nationally recognized title insurance company, insuring
the Lien of each such Mortgage as a valid first Lien on the Mortgaged Property
described therein, free of any other Liens except as permitted by Section
7.02, in form and substance reasonably acceptable to the Lender, together with
such endorsements, coinsurance and reinsurance as the Lender may reasonably
request, (iii) such surveys as may be required pursuant to such Mortgages or
as the Lender may reasonably request, (iv) a copy of the original permanent
certificate or temporary certificate of occupancy as the same may have been
amended or issued from time to time, covering each improvement located upon
the Mortgaged Properties, that were required to have been issued by the
appropriate Governmental Authority for such improvement, (v) written
confirmation from the applicable zoning commission or other appropriate
Governmental Authority stating that, with respect to each Mortgaged Property
as built, it complies with existing land use and zoning ordinances,
regulations and restrictions applicable to such Mortgaged Property, (vi) a
Phase I environmental report for each Mortgaged Property, each such report to
be satisfactory to the Lender, (vii) such opinions of local counsel to the
Borrower with respect to the Mortgages as the Lender shall reasonably require
and (viii) such other customary documentation with respect to the Mortgages
and the Mortgaged Property as the Lender may reasonably request.
(e) ASSIGNMENTS. The Lender shall have received Assignments with
respect to all contracts, licenses and permits specified by the Lender, in
each case dated the Effective Date and signed on behalf of the appropriate
Borrower or Borrowers.
(f) PARENT SUBORDINATION AGREEMENT. The Lender shall have
received counterparts of the Parent Subordination Agreement, dated the
Effective Date and signed on behalf of the Borrowers and the Parent.
(g) RESERVE ACCOUNTS. The Reserve Accounts shall have been
opened with the Lender and Eligible Investments in an amount equal to any
applicable Reserve Requirements (after giving effect to the delivery of the
Reserve Letters of Credit) shall have been deposited therein.
(h) RESERVE LETTERS OF CREDIT. The Lender shall have received
(i) a Debt Service Reserve Letter of Credit in a stated amount of $1,800,000
and (ii) a Maintenance Reserve Letter of Credit in a stated amount equal to
the Maintenance Benchmark.
(i) DEBT SERVICE PREPAYMENT ESCROW ACCOUNT. The Debt Service
Prepayment Escrow Account shall have been opened with the Lender.
(j) OPINION OF COUNSEL. The Lender shall have received a
favorable written opinion (addressed to the Lender and dated the Effective
Date) from Foley & Lardner on behalf of the Borrowers, substantially in the
form of Exhibit G, and covering such other matters relating to the Borrowers,
the Loan Documents or the transactions contemplated by the Loan Documents
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as the Lender shall reasonably request. The Borrowers hereby request such
counsel to deliver such opinion.
(k) GOOD STANDING CERTIFICATES. The Lender shall have received
such documents and certificates as the Lender or its counsel may reasonably
request relating to the organization, existence and good standing of each
Borrower, the authorization of the transactions contemplated by the Loan
Documents and any other legal matters relating to the Borrowers, the Loan
Documents or the transactions contemplated by the Loan Documents, all in form
and substance satisfactory to the Lender and its counsel.
(l) BRING-DOWN CERTIFICATE. The Lender shall have received a
certificate, dated the Effective Date and signed by the President, a Vice
President or a Financial Officer of each Borrower to the effect that:
(i) The representations and warranties of the Borrowers
set forth in each Loan Document are true and correct on and as of the
Effective Date; and
(ii) At the time of and immediately after giving effect to
such borrowing, no Default shall have occurred and be continuing.
(m) PROJECTIONS. The Lender shall have received the projections
for the year 2000 specified in Section 6.01(d).
(n) FEES AND EXPENSES. The Lender shall have received all fees
and other amounts due and payable on or prior to the Effective Date,
including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses required to be reimbursed or paid by the Borrowers
hereunder.
(o) INSURANCE CERTIFICATES. The Lender shall have received
certificates of insurance or other evidence satisfactory to it that the
insurance policies listed on Schedule 4.16 are in effect.
(p) NO CONFLICTS. The performance by each Borrower of its
obligations under each Loan Document shall not (i) violate any applicable law,
statute, rule or regulation or (ii) conflict with, or result in a default or
event of default under, any material agreement of either Borrower, and the
Lender shall have received one or more legal opinions and/or officer's
certificates to such effect, satisfactory to the Lender.
(q) ENVIRONMENTAL AND SAFETY MATTERS. The Lender shall be
reasonably satisfied as to the amount and nature of any environmental and
employee health and safety exposures to which the Borrowers may be subject,
and with the plans of the Borrowers with respect thereto.
(r) NO LITIGATION. The Lender shall be reasonably satisfied (i)
that there shall be no litigation or administrative proceeding, or regulatory
development, that would reasonably be expected to have a Material Adverse
Effect on (a) the business, assets, operations, prospects, condition
(financial or otherwise) or material agreements of the Borrowers, taken as a
whole, (b) the ability of either Borrower to perform any of its obligations
under any Loan Document or (c)
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the rights of or benefits available to the Lender under any Loan Document and
(ii) with the current status of, and the terms of any settlement or other
resolution of, any litigation or other proceedings brought against either of
the Borrowers by any Governmental Authority relating to its business.
(s) INDEBTEDNESS. After giving effect to the Term Loan, neither
of the Borrowers shall have outstanding any shares of preferred equity
securities or any Indebtedness, other than (i) Indebtedness incurred under the
Loan Documents, (ii) Subordinated Indebtedness and (iii) Indebtedness set
forth on Schedule 7.01.
(t) TAXES. The Lender shall be reasonably satisfied in all
respects with the tax position and the contingent tax and other liabilities of
the Borrowers, and with any tax sharing agreements among, the Borrowers and
WPS Resources Corporation, and with the plans of the Borrowers with respect
thereto.
(u) NO MATERIAL ADVERSE CHANGE. Since September 30, 1999, there
has been no change in the business, assets, operations, prospects, or
condition, financial or otherwise, of the Borrowers that has had a Material
Adverse Effect.
(v) OTHER DOCUMENTS. The Lender shall have received such other
documentation and assurances as shall be reasonably required by it in
connection with the Loan Documents and the transactions contemplated thereby.
The Lender shall notify the Borrowers of the Effective Date, and such
notice shall be conclusive and binding. Notwithstanding the foregoing, the
obligation of the Lender to make the Term Loan hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on
November 30, 1999.
SECTION 6. AFFIRMATIVE COVENANTS
Until the principal of and interest on the Term Loan and all fees and
other amounts payable under the Loan Documents shall have been paid in full,
the Borrowers covenant and agree with the Lender that:
6.01 FINANCIAL STATEMENTS AND OTHER INFORMATION
The Borrowers will furnish to the Lender:
(a) within 120 days after the end of each fiscal year, an
audited combined balance sheet of the Borrowers and the related
statements of income, stockholder's equity and cash flows as of the end
of and for such year, setting forth in each case in comparative form the
comparable figures for the previous fiscal year, all reported on by
Arthur Andersen LLP or other independent public accountants of
recognized national standing (without a "going concern" or like
qualification or exception and without any qualification or exception as
to the scope of such audit) to the effect that such combined financial
statements present fairly in all material respects the financial
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condition and results of operations of the Borrowers on a combined basis
in accordance with GAAP consistently applied;
(b) within 90 days after the end of each of the first
three fiscal quarters of each fiscal year, a combined balance sheet of
the Borrowers and the related statements of income, stockholder's equity
and cash flows as of the end of and for such fiscal quarter and the then
elapsed portion of the fiscal year, setting forth in each case in
comparative form the figures for the corresponding period or periods of
(or, in the case of the balance sheet, as of the end of) the previous
fiscal year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and
results of operations of the Borrowers on a combined basis in accordance
with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes;
(c) each year, at the time of delivery of annual financial
statements with respect to the preceding fiscal year pursuant to clauses
(a) and (b) of this Section, each Borrower shall deliver to the Lender a
certificate of a Financial Officer of the Borrower, (i) setting forth
the information required pursuant to Sections 1, 2 and 8 of the
Perfection Certificate or confirming that there has been no change in
such information since the date of the Perfection Certificate or the
date of the most recent certificate delivered pursuant to this Section
and (ii) certifying that all Uniform Commercial Code financing
statements or other appropriate filings, recordings or registrations,
including all refilings, rerecordings and reregistrations, containing a
description of the Collateral have been filed of record in each
governmental, municipal or other appropriate office in each jurisdiction
identified pursuant to clause (i) above, and all other actions have been
taken, to the extent necessary to protect and perfect the security
interests under the Security Agreement for a period of not less than 18
months after the date of such certificate (except as noted therein with
respect to any continuation statements to be filed within such period);
(d) not later than November 1 in each year, projections
prepared by a Financial Officer of the Borrowers showing in reasonable
detail the Borrowers' combined operating revenues and operating
expenses, and the Borrowers' combined Capital Expenditures for the
following fiscal year;
(e) not later than 45 days after the end of each
Semiannual Period, a certificate, signed by a Financial Officer of the
Borrowers, which certificate shall set forth the following information,
to the best of such officer's knowledge, each as described in such
certificate:
(i) the Debt Service Coverage Ratio, Pro Forma Debt
Service and the Maintenance Benchmark as of the last day of the
then-ended Semiannual Period;
(ii) the total amount of Operating Cash Flow, if any
for the then-ended Semiannual Period, and the total amount of
Escrowed Funds;
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(iii) the amounts, if any, of Operating Cash Flow and
Escrowed Funds which were applied during the then-ended Semiannual
Period in accordance with Section 6.13(a)(i) and (ii);
(iv) the amount, if any, of payments required
pursuant to Section 6.13(a)(v);
(v) if such certificate indicates that a Default
under Section 8(q) exists, the amount of the applicable Prepayment
Requirement;
(vi) the amount, if any, of Restricted Payments to be
made during the then-current Semiannual Period; and
(vii) the amount credited to the Tracked Payment
Suspense Account during the then-ended Semiannual Period and the
total amount credited to such account.
(f) promptly after making, or obligating themselves to
make, Capital Expenditures in an aggregate amount exceeding (i) $250,000
in the fiscal year ending December 31, 1999, or (ii) the amount of
Capital Expenditures budgeted for any subsequent fiscal year in the
projections furnished to the Lender pursuant to subsection (d) of this
Section, provide the Lender with a statement of a Financial Officer of
the Borrowers showing on a line item basis the amount and purpose of all
Capital Expenditures made and proposed to be made during such fiscal
year; and
(g) promptly following any request therefor, such other
information regarding the operations, business affairs and financial
condition of the Borrowers, or compliance with the terms of the Loan
Documents, as the Lender may reasonably request.
6.02 NOTICES OF MATERIAL EVENTS
(a) The Borrowers will furnish to the Lender written notice of
the following, promptly after acquiring Knowledge thereof:
(i) the occurrence of any Default;
(ii) the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental Authority against
or affecting the Borrowers or either of them that, if adversely
determined, could reasonably be expected, in the good faith opinion of
the Borrowers, to result in a Material Adverse Effect;
(iii) the occurrence of any ERISA Event that, alone or
together with any other ERISA Events that have occurred, could
reasonably be expected to result in liability of the Borrowers in an
aggregate amount exceeding $250,000; provided, that liability
attributable to an ERISA Event that occurs with respect to the Plan of
an ERISA Affiliate (other than the Borrowers) shall be considered only
if the ERISA Affiliates, in
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the aggregate but excluding the Borrowers do not, as of the date of such
ERISA Event, have sufficient net worth to satisfy the liability
attributable to the ERISA Event; and
(iv) any other development that could reasonably be
expected, in the good faith opinion of the Borrowers, to result in a
Material Adverse Effect.
Each notice delivered under this subsection shall be accompanied by a
statement of a Financial Officer or other executive officer of the Borrowers
setting forth the details of the event or development requiring such notice
and any action taken or proposed to be taken with respect thereto.
(b) The Borrowers will give written notice to the Lender not
later than 30 days prior to the expiration date of any Reserve Letter of
Credit, stating whether the Borrowers will, not later than the expiration date
of such Reserve Letter of Credit, (i) furnish the Lender with an extension of
such Reserve Letter of Credit or a new Reserve Letter of Credit in a stated
amount specified in such notice in place of the expiring Reserve Letter of
Credit, (ii) deposit cash in the applicable Reserve Account in an amount
specified in such notice, or (iii) both.
6.03 EXISTENCE; CONDUCT OF BUSINESS
Each Borrower will do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its legal existence and the
rights, licenses, permits, privileges and franchises material to the conduct
of its business, including, without limitation, the permits and licenses
listed on Schedules 4.05(a) and 4.05(b).
6.04 PAYMENT OF OBLIGATIONS
Each Borrower will pay its obligations, including Tax liabilities,
that, if not paid, could result in a Material Adverse Effect before the same
shall become delinquent or in default, except where (a) the validity or amount
thereof is being contested in good faith by appropriate proceedings, (b) the
Borrower has set aside on its books adequate reserves with respect thereto in
accordance with GAAP and (c) the failure to make payment pending such contest
could not reasonably be expected to result in a Material Adverse Effect.
6.05 MAINTENANCE OF PROPERTIES
Each Borrower will keep and maintain all property material to the
conduct of its business in good working order and condition, ordinary wear and
tear excepted.
6.06 BOOKS AND RECORDS; INSPECTION RIGHTS
(a) Each Borrower will keep proper books of record and account
in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities.
(b) Each Borrower will permit any representatives designated by
the Lender, upon reasonable prior notice, to visit and inspect its properties,
to examine and make extracts
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from its books and records, and to discuss its affairs, finances and condition
with its officers and independent accountants, all at such reasonable times and
as often as reasonably requested.
6.07 COMPLIANCE WITH LAWS
Each Borrower will comply with all laws, rules, regulations and
orders of any Governmental Authority applicable to it or its property, except
where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
6.08 USE OF PROCEEDS
The proceeds of the Term Loan will be used only to pay or
reimburse the cost of the acquisition of certain assets of the Borrowers from
Maine Public Service Company and Maine and New Brunswick Electrical Power
Company, Limited, including professional fees and other closing costs, and (b)
to refinance certain existing Indebtedness incurred in connection with the
foregoing acquisition. No part of the proceeds of the Term Loan will be used,
whether directly or indirectly, and whether immediately, incidentally or
ultimately, to purchase, acquire or carry any Margin Stock or for any purpose
that entails a violation of any of the regulations of the Board, including
Regulations T, U and X.
6.09 INFORMATION REGARDING COLLATERAL
Each Borrower will furnish to the Lender prompt written notice of
any change in (i) its legal name or in any trade name used to identify it in
the conduct of its business or in the ownership of its properties, (ii) the
location of its chief executive office, its principal place of business, any
office in which it maintains books or records relating to Collateral owned or
held by it or on its behalf or any office or facility at which Collateral
owned or held by it or on its behalf with an aggregate book value in excess of
$50,000 is located (including the establishment of any such new office or
facility), (iii) the identity or organizational structure of the Borrower such
that a filed financing statement becomes misleading or (iv) the Federal
Taxpayer Identification Number of the Borrower. Each Borrower agrees not to
effect or permit any change referred to in the preceding sentence unless all
filings have been made under the Uniform Commercial Code or otherwise that are
required in order for the Lender to continue at all times following such
change to have a valid, legal and perfected security interest in all the
Collateral. Each Borrower also agrees promptly to notify the Lender if any
material portion of the Collateral is damaged or destroyed.
6.10 INSURANCE
(a) Each Borrower will maintain, with financially sound and
reputable insurance companies, (i) adequate insurance for its insurable
properties, all to such extent and against such risks, including fire,
casualty and other risks insured against by extended coverage, as is customary
with corporations engaged in the same or similar businesses or having similar
properties similarly situated, and (ii) such other insurance as is required
pursuant to the terms of any Security Document.
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(b) The Borrowers will promptly upon request therefor, deliver
or cause to be delivered to the Lender originals or duplicate originals of all
such policies of insurance. All such insurance policies in respect of property
insurance shall contain a standard loss payable clause and shall be endorsed
to provide that, in respect of the interests of the Lender: (i) the Lender
shall be an additional insured, as its interest may appear, with respect to
all coverages, (ii) 30 days' prior written notice of any cancellation,
reduction of amounts payable, or any changes and amendments shall be given to
the Lender, and (iii) the Lender shall have the right, but not the obligation,
to pay any premiums due or to acquire other such insurance upon the failure of
the Borrowers to pay the same or to so insure.
6.11 CASUALTY AND CONDEMNATION
(a) The Borrowers will furnish to the Lender prompt written
notice of any casualty or other insured damage to any portion of any
Collateral or the commencement of any action or proceeding for the taking of
any Collateral or any part thereof or interest therein under power of eminent
domain or by condemnation or similar proceeding.
(b) If any event described in paragraph (a) of this Section
affecting any of the Borrowers' generating facilities results in Net Proceeds
(whether in the form of insurance proceeds, condemnation award or otherwise)
an amount in excess of 7(r)% of the book value of the affected generating
facility (or the Borrowers' interest therein), the Lender is authorized to
collect such Net Proceeds and, if received by either Borrower, such Net
Proceeds shall be paid over to the Lender. The Borrowers will give notice to
the Lender within 30 days after the receipt of such Net Proceeds whether or
not the affected generating facility has been repaired, restored or replaced
or is capable of being repaired, restored or replaced within 180 days from the
date of receipt of such Net Proceeds and, if so, whether or not the Borrowers
have repaired restored or replaced the affected generating facility or intend
to repair, restore or replace such facility within such 180-day period.
Provided that (i) no Default or Event of Default shall exist, and (ii) Lender
receives advice from an engineer or architect satisfactory to it that the
affected generating facility can be repaired, restored or replaced within 180
days from the date of receipt of such Net Proceeds provided that the
contemplated restoration, repair or replacement of the affected generating
facility shall, when completed, render the affected facility a complete,
economically viable architectural unit of substantially the same usefulness,
design and construction and fully functional for the same purposes and uses as
existed prior to the event described in paragraph (a) of this Section, Lender
agrees promptly upon its receipt of any insurance proceeds, to pay over to the
Borrowers from time to time upon their written request, to the extent of such
insurance proceeds, the amounts theretofore expended by the Borrowers or
required by the Borrowers to pay liabilities incurred to repair, restore or
replace the affected generating facility within such 180-day period. If a
Default or Event of Default shall then exist, the Lender shall (A) if the
Default or Event of Default is other than as described in Section 8(p), hold
the proceeds of such payment as Collateral until such Default or Event of
Default shall no longer exist and then pay over the same to the Borrowers to
enable the Borrowers to repair, restore or replace the generating facility
which resulted in such payment or (B) if the Default or Event of Default is as
described in Section 8(p), hold such proceeds as Collateral and, in the event
that the Borrowers exercise their option to cure such Default as provided in
Section 8(p), apply the Net Proceeds as required by Section 8(p).
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(c) Any Net Proceeds which are paid over to the Lender as
provided in paragraphs (a) and (b) of this Section and made available to the
Borrowers for the repair, restoration or replacement of property affected by a
casualty or other insured damage shall be used by the Borrowers within 180
days.
6.12 RESERVE AND ESCROW ACCOUNTS
(a) The Borrowers will open and maintain the Debt Service
Reserve Account with the Lender and will deposit and maintain in such account
Eligible Investments in an amount the fair market value of which is equal at
all times to not less than the Debt Service Reserve Requirement. Proceeds of
Eligible Investments held in the Debt Service Reserve Account shall be applied
by the Borrowers as provided in Section 8(q).
(b) The Borrowers will open and maintain the Maintenance Reserve
Account with the Lender and will deposit and maintain in such account Eligible
Investments in an amount the fair market value of which is equal at all times
to not less than the Maintenance Reserve Requirement. Proceeds of Eligible
Investments held in the Maintenance Reserve Account in excess of the
Maintenance Reserve Requirement may be withdrawn by the Borrowers from time to
time and applied solely for the purpose of paying or reimbursing the expenses
of maintaining, repairing, renovating or replacing the Borrowers' electric
utility plant and equipment.
(c) The Borrowers will open and maintain the Debt Service
Prepayment Escrow Account with the Lender. Funds on deposit in the Debt
Service Prepayment Escrow Account may be withdrawn only as provided in Section
6.13 and Section 8(q).
(d) The Borrowers shall be entitled to withdraw, during the
period of 10 Business Days following the date of delivery of each Semiannual
Certificate, (i) an amount equal to the excess, if any, of the fair market
value of the Eligible Investments in the Debt Service Reserve Account over the
Debt Service Reserve Requirement as of the end of the Semiannual Period
covered by such Semiannual Certificate, and (ii) an amount equal to the
excess, if any, of the fair market value of the Eligible Investments in the
Maintenance Reserve Account over the Maintenance Reserve Requirement as of the
end of the Semiannual Period covered by such Semiannual Certificate
6.13 APPLICATION OF OPERATING CASH FLOW
(a) The Borrowers will apply, in accordance with clause (b) of
this Section, all Operating Cash Flow for each Semiannual Period, combined
with any Escrowed Funds, in the following order of priority:
(i) First: To pay accrued interest on Indebtedness of the
Borrowers (other than Subordinated Indebtedness) when due;
(ii) Next: To pay scheduled maturities of principal of
Indebtedness of the Borrowers (other than Subordinated Indebtedness)
when due;
(iii) Next: To fund any current deficiency in the Debt
Service Reserve Account;
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(iv) Next: To fund any current deficiency in the
Maintenance Reserve Account;
(v) Next: To pay any fees, expenses or other charges
(including funding losses under Section 3.03) payable from time to time
under the Loan Documents; and
(vi) Finally: For any other lawful purpose, including
Restricted Payments to the Parent pursuant to Section 7.08.
(b) If the Debt Service Coverage Ratio set forth in the most
recent Semiannual Certificate delivered to the Lender is equal to or greater
than 1.5, and if no Default or Event of Default has occurred and is
continuing, then the Borrowers may apply all Restricted Income together with
any funds in the Debt Service Reserve Account in excess of the Debt Service
Reserve Requirement as provided in clause (vi) of Section 6.13(a).
6.14 TRACKING OF RESTRICTED PAYMENTS
(a) The Borrowers shall maintain a separate ledger, on a
combined basis, to be known as the "Tracked Payment Suspense Account." If the
--------------------------------
Debt Service Coverage Ratio set forth in any Semiannual Certificate is equal
to or greater than 1.75, then the Borrowers shall credit the Tracked Payment
Suspense Account with 25% of the amount by which (A) the sum of Restricted
Payments plus the aggregate payments made during the then-current Semiannual
Period pursuant to clauses (i) through (v) of Section 6.13(a) exceeds (B) Non-
accountable Cash Flow for the then-current Semiannual Period.
(b) If the Debt Service Coverage Ratio set forth in any
Semiannual Certificate for a Semiannual Period subsequent to a Semiannual
Period in which an amount was credited to the Tracked Payment Suspense Account
shall be less than 1.0, the Borrowers will cause the Parent to pay to them, as
a contribution to capital, an amount in immediately available funds equal to
the then current balance in the Tracked Payment Suspense Account. Funds
received by the Borrowers from the Parent pursuant to this subsection (b)
shall be deposited in the Debt Service Reserve Account and may be applied as
provided in Section 6.13(b) and Section 8(q)(i).
6.15 ENVIRONMENTAL COMPLIANCE
Each Borrower shall use and operate all of its facilities and
property in compliance with all Environmental Laws, keep all necessary
permits, approvals, certificates, licenses and other authorizations relating
to environmental matters in effect and remain in compliance therewith, and
handle all Hazardous Materials in compliance with all applicable Environmental
Laws, except where noncompliance with any of the foregoing could not
reasonably be expected to have a Material Adverse Effect.
6.16 YEAR 2000
At the request of the Lender, the Borrowers will make available to
the Lender the Borrower's Year 2000 Plan, together with any updates or
progress reports with respect thereto. The Borrowers will promptly notify the
Lender in the event the Borrowers discover or determine
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that any computer application, including those of its Affiliates, suppliers
and vendors, that is material to its business, operations or conditions
(financial or otherwise) will not be Year 2000 Ready on a timely basis
unless the Borrowers have reasonably determined, in good faith, that such
failure could not reasonably be expected to have a Material Adverse Effect.
6.17 FURTHER ASSURANCES
Each Borrower will execute any and all further documents,
financing statements, agreements and instruments, and take all such further
actions (including the filing and recording of financing statements, fixture
filings, Mortgages and other documents), that may be required under any
applicable law, or which the Lender may reasonably request, to effectuate the
transactions contemplated by the Loan Documents or to grant, preserve, protect
or perfect the Liens created or intended to be created by the Security
Documents or the validity or priority of any such Lien, all at the expense of
the Borrowers. Each Borrower also agrees to provide to the Lender, from time
to time upon request, evidence reasonably satisfactory to the Lender as to the
perfection and priority of the Liens created or intended to be created by the
Security Documents.
SECTION 7. NEGATIVE COVENANTS
Until the principal of and interest on the Term Loan and all fees and
other amounts payable under the Loan Documents shall have been paid in full,
the Borrowers covenant and agree with the Lender that:
7.01 INDEBTEDNESS; PREFERRED STOCK
(a) The Borrowers will not create, incur, assume or permit to
exist any Indebtedness, except:
(i) Indebtedness under the Loan Documents;
(ii) Indebtedness existing on the date hereof and set forth
in Schedule 7.01, but not any extensions, renewals or replacements of
any such Indebtedness;
(iii) Subordinated Indebtedness;
(iv) Indebtedness of the Borrowers incurred to finance the
maintenance, replacement or improvement of any fixed or capital assets
owned by the Borrowers on the date of this Agreement, including Capital
Lease Obligations and any Indebtedness assumed in connection with the
replacement or improvement of any such assets or secured by a Lien on
any such assets prior to the acquisition thereof, and extensions,
renewals and replacements of any such Indebtedness that do not increase
the outstanding principal amount thereof, provided that (A) such
Indebtedness is incurred prior to or within 90 days after such
acquisition or the completion of such replacement or improvement and (B)
the aggregate principal amount of Indebtedness permitted by this clause
(iii) shall not exceed $1,000,000 at any time outstanding;
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(v) other unsecured Indebtedness of the Borrowers incurred
in the ordinary course of their business in an aggregate principal
amount not exceeding $250,000 in any fiscal year, including in such
amount any extensions, renewals or replacements of any such Indebtedness
incurred under this clause in any previous fiscal year.
(b) The Borrower will not (i) issue any preferred equity
securities or (ii) be or become liable in respect of any obligation
(contingent or otherwise) to purchase, redeem, retire, acquire or make any
other payment in respect of any shares of equity securities of the Borrower or
any option, warrant or other right to acquire any such shares of equity
securities, except as permitted under Section 7.08.
7.02 LIENS
The Borrowers will not create, incur, assume or permit to exist
any Lien on any property or asset now owned or hereafter acquired by it, or
assign or sell any income or revenues (including accounts receivable) or
rights in respect of any thereof, except:
(a) Liens created under the Loan Documents;
(b) Permitted Encumbrances;
(c) any Lien on any property or asset of the Borrowers existing
on the date hereof and set forth in Schedule 7.02, provided that (i) such Lien
shall not apply to any other property or asset of the Borrower and (ii) such
Lien shall secure only those obligations which it secures on the date hereof
and any extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof;
(d) Liens on fixed or capital assets acquired, constructed or
improved by either Borrower, provided that (i) such security interests secure
Indebtedness permitted by clause (iv) of Section 7.01(a), (ii) such security
interests and the Indebtedness secured thereby are incurred prior to or within
90 days after such acquisition or the completion of such construction or
improvement, (iii) the Indebtedness secured thereby does not exceed the cost
of acquiring, constructing or improving such fixed or capital assets and (iv)
such security interests shall not apply to any other property or assets of
either Borrower.
7.03 FUNDAMENTAL CHANGES
(a) The Borrowers will not merge into or consolidate with any
other Person, or permit any other Person to merge into or consolidate with
either of them, or sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or substantially all of their
respective assets, whether now owned or hereafter acquired, or liquidate or
dissolve.
(b) The Borrowers will not engage to any material extent in any
business other than businesses of the type conducted by the Borrowers on the
date of execution of this Agreement and businesses directly related thereto.
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7.04 INVESTMENTS, LOANS, ADVANCES, GUARANTEES AND ACQUISITIONS
The Borrowers will not purchase, hold or acquire (including
pursuant to any merger) any capital stock, evidences of indebtedness or other
securities (including any option, warrant or other right to acquire any of the
foregoing) of, make or permit to exist any loans or advances to, Guarantee any
obligations of, or make or permit to exist any investment or any other
interest in, any other Person, or purchase or otherwise acquire (in one
transaction or a series of transactions (including pursuant to any merger))
any assets of any other Person constituting a business unit, except:
(a) Permitted Investments;
(b) investments existing on the date hereof and set forth
in Schedule 7.04;
(c) loans or advances made by either Borrower to the other
Borrower; and
(d) acquisitions made by either Borrower from the other
Borrower.
7.05 ASSET SALES
The Borrowers will not sell, transfer, lease or otherwise dispose
(including pursuant to a merger) of any asset except sales, transfers, leases
and other dispositions of inventory, used or surplus equipment and Permitted
Investments, in each case in the ordinary course of business, provided,
however, that if no Default or Event of Default has occurred and is
continuing, the Borrowers may effect sales or other dispositions of its
property in an amount up to $250,000 with respect to any single transaction
and up to $1,000,000 in the aggregate. Notwithstanding anything herein to the
contrary, any transfer of any or all assets included in or relating to Wyman
Station, which transfer was not initiated or caused by the Borrowers, shall
not be deemed a breach of this Section.
7.06 SALE AND LEASE-BACK TRANSACTIONS
The Borrowers will not enter into any arrangement, directly or
indirectly, with any Person whereby it shall sell or transfer any property,
real or personal, used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property or other
property that it intends to use for substantially the same purpose or purposes
as the property being sold or transferred.
7.07 HEDGING AGREEMENTS
The Borrower will not enter into any Hedging Agreement, other
than Hedging Agreements entered into in the ordinary course of business to
hedge or mitigate risks to which the Borrowers are exposed in the conduct of
their business or the management of their liabilities.
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7.08 RESTRICTED PAYMENTS
The Borrowers will not declare or make, or agree to pay for or
make, directly or indirectly, any Restricted Payment, except that (a) either
Borrower may declare and pay dividends with respect to its equity securities
payable solely in additional shares of its equity securities and (b) the
Borrowers may make payments to the Parent in any fiscal period with respect to
their equity securities and Subordinated Indebtedness to the extent of
Operating Cash Flow for such fiscal period remaining for such purpose after
the application of such Operating Cash Flow for other purposes as required by
Section 6.13(a).
7.09 TRANSACTIONS WITH AFFILIATES
The Borrowers will not sell, transfer, lease or otherwise dispose
(including pursuant to a merger) any property or assets to, or purchase, lease
or otherwise acquire (including pursuant to a merger) any property or assets
from, or otherwise engage in any other transactions with, any Affiliates,
except in the ordinary course of business at prices and on terms and
conditions not less favorable to the Borrowers than could be obtained on an
arms-length basis from unrelated third parties, provided that:
(i) this Section shall not apply to any transaction that
is permitted under Section 7.01, 7.03, 7.04, 7.05 or 7.08, between the
Borrowers and not involving any other Affiliate; and
(ii) notwithstanding anything in Section 7.01, 7.04, 7.08
and 7.09 to the contrary, the Borrowers may participate in, and make
payments under, any Affiliate cost-sharing or cost- or benefit-
allocation program or agreement, including without limitation, overhead
allocation payments, tax credit allocation, income tax allocation,
service cost payments or Plan premium allocation payments, whether or
not such payments or allocations are pursuant to a written agreement,
provided that (i) in the case of any payment, cost sharing or overhead
or cost allocation, such payment, sharing or allocation is in ordinary
course of business of the Borrowers and pursuant to the reasonable
requirements of the Borrowers' business, is in consideration of services
or other benefits rendered or provided to the Borrowers, and is upon
fair and reasonable terms comparable to terms the Borrowers would obtain
in a comparable arms-length transaction, and (ii) in the case of any tax
credit allocation or income tax allocation or other similar allocation,
such allocation is applied consistently and in a fair and reasonable
manner to all Affiliates included in the relevant consolidated tax
return (after giving due effect to the intent of Sections 7.01, 7.04,
7.08 and 7.09).
7.10 AMENDMENT OF MATERIAL DOCUMENTS
The Borrowers will not amend, modify or waive any of its rights
under any MPSC Transaction Document, under any Required Permit or
Environmental Permit, or under its certificate of incorporation, by-laws or
other organizational documents, other than immaterial amendments,
modifications or waivers that would not reasonably be expected to cause a
Material Adverse Effect, without the prior written consent of the Lender.
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SECTION 8. EVENTS OF DEFAULT
If any of the following events ("Events of Default") shall occur:
-----------------
(a) the Borrowers shall fail to pay any principal of the Term
Loan when and as the same shall become due and payable, whether at the due
date thereof or at a date fixed for prepayment thereof or otherwise, and such
failure shall continue for more than two Business Days;
(b) the Borrower shall fail to pay any interest on the Term Loan
or any fee, commission or any other amount (other than an amount referred to
in clause (a) of this Article) payable under any Loan Document, when and as
the same shall become due and payable, and such failure shall continue for
more than two Business Days;
(c) any representation or warranty made or deemed made by or on
behalf of either Borrower in or in connection with any Loan Document or any
amendment or modification hereof or waiver thereunder, or in any report,
certificate, financial statement or other document furnished pursuant to or in
connection with any Loan Document or any amendment or modification hereof or
waiver thereunder, shall prove to have been incorrect in any material respect
when made or deemed made;
(d) either Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 6.02, 6.03, or 6.08, or
in Article 7;
(e) either Borrower shall fail to observe or perform any
covenant, condition or agreement contained in any Loan Document to which it is
a party (other than those specified in clause (a), (b) or (d) of this
Article), and such failure shall continue unremedied for a period of 30 days
after such Borrower obtained or in the exercise of due care should have
obtained Knowledge thereof, provided, however, that if such Default cannot be
cured by such Borrower within such 30-day period, it shall not constitute an
Event of Default if curative action is instituted by such Borrower within such
period and thereafter is diligently pursued until such Default is cured, so
long as such Default is cured in any event within 30 days after the expiration
of the initial 30-day period;
(f) either Borrower shall fail to make any payment (whether of
principal or interest and regardless of amount) in respect of any Material
Indebtedness, when and as the same shall become due and payable (after giving
effect to any applicable grace period);
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables or
permits (with or without the giving of notice, the lapse of time or both) the
holder or holders of any Material Indebtedness or any trustee or agent on its
or their behalf to cause any Material Indebtedness to become due, or to
require the prepayment, repurchase, redemption or defeasance thereof, prior to
its scheduled maturity (in each case after giving effect to any applicable
grace period), provided that this clause (g) shall not apply to secured
Material Indebtedness that becomes due solely as a result of the voluntary
sale or transfer or casualty loss of the property or assets securing such
Material Indebtedness;
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(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation, reorganization
or other relief in respect of either Borrower or its debts, or of a
substantial part of its assets, under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for either Borrower or
for a substantial part of its assets, and, in any such case, such
proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be
entered;
(i) either Borrower shall (i) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or other
relief under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner, any
proceeding or petition described in clause (h) of this Article, (iii) apply
for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for either Borrower or for a
substantial part of its assets, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v) make a
general assignment for the benefit of creditors or (vi) take any action for
the purpose of effecting any of the foregoing;
(j) either Borrower shall become insolvent; shall fail to pay,
become unable to pay, or admit in writing that it is or will be unable to pay,
its debts as they become due; or shall voluntarily suspend transaction of its
business;
(k) one or more judgments for the payment of money in an
aggregate amount not covered by insurance in excess of $250,000 shall be
rendered against either Borrower or both of them and the same shall remain
undischarged for a period of 30 consecutive days during which execution shall
not be effectively stayed, or any action shall be legally taken by a judgment
creditor to attach or levy upon any assets of either Borrower to enforce any
such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of
the Lender, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in liability of the Borrowers
in an aggregate amount exceeding (i) $250,000 in any year or (ii) $250,000 for
all periods; provided, that liability attributable to an ERISA Event that
occurs with respect to any Plan of an ERISA Affiliate (other than the
Borrowers) shall be considered only if the ERISA Affiliates, in the aggregate
but excluding the Borrowers do not, as of the date of such ERISA Event, have
sufficient net worth to satisfy the liability attributable to the ERISA Event;
(m) any Loan Document shall cease, for any reason, to be in full
force and effect, or either Borrower shall so assert in writing or shall
disavow any of its obligations thereunder;
(n) any Lien purported to be created under any Security
Document shall cease to be, or shall be asserted by either Borrower not to be,
a valid and perfected Lien on any Collateral, with the priority required by
the applicable Security Document, except (i) as a result of the sale or other
disposition of the applicable Collateral in a transaction permitted under the
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Loan Documents or (ii) as a result of the Lender's failure to maintain
possession of any stock certificates, promissory notes or other instruments
delivered to it under the Security Agreement;
(o) a Change in Control shall occur;
(p) any event described in Section 6.11(a) shall occur that
results in Net Proceeds (whether in the form of insurance proceeds,
condemnation award or otherwise) as to which the Borrowers have not either (i)
applied the same to repair restore, or replace an affected generating facility
as provided in 6.11(b) within 180 days of the receipt of such Net Proceeds or
(ii) within 30 days after receipt of such Net Proceeds satisfied the
conditions in clause (ii) of Section 6.11(b) entitling the Borrowers to the
use of such Net Proceeds for repair, restoration or replacement of such
affected generating facility, provided, however, that such Default and its
consequences may be cured by the Borrowers at any time within two Business
Days after the event described in clause (i) or (ii), as the case may be, by
prepaying the Term Loan in an amount equal to such Net Proceeds;
(q) the Debt Service Coverage Ratio set forth in any Semiannual
Certificate shall be less than 1.5; provided, however, that
(i) if the Debt Service Coverage Ratio set forth in such
Semiannual Certificate is less than 1.0, such Default and its
consequences shall be cured if, not later than the fifth Business Day
following the date of delivery of such Semiannual Certificate, the
Borrowers shall prepay the Term Loan in an amount equal to the lesser of
(A) the sum of Restricted Income for the Semiannual Period covered by
such Semiannual Certificate plus Pro Forma Debt Service as of the end of
such Semiannual Period, and (B) the applicable Prepayment Requirement,
provided, that the Borrowers may, at their discretion, direct the Lender
to draw on the Debt Service Reserve Letter of Credit or apply amounts on
deposit in the Debt Service Reserve Account, or both, to fund some or
all of such prepayment; and
(ii) if the Debt Service Coverage Ratio set forth in such
Semiannual Certificate is equal to or greater than 1.0, but less than
1.5, such Default and its consequences shall be cured if, not later than
the fifth Business Day following the date of delivery of such Semiannual
Certificate, the Borrowers either (A) prepay the Term Loan, or (B)
deposit in the Debt Service Prepayment Escrow Account, in either case by
an amount equal to the lesser of (I) the Prepayment Percentage of
Restricted Income for such Semiannual Period, and (II) the applicable
Prepayment Requirement; or
(r) the amount on deposit in either the Debt Service Reserve
Account or the Maintenance Reserve Account shall at any time be less than the
applicable Reserve Requirement and the Borrowers shall not within 30 days
after they obtain notice of such deficiency, either deposit cash in such
Reserve Account in the amount, or deliver to the Lender a Reserve Letter of
Credit in a stated amount, equal to the amount of such deficiency;
then, and in every such event (other than an event described in clause (h),
(i) or (j) of this Article), and at any time thereafter during the continuance
of such event, the Lender may, subject to applicable cure provisions, by
notice to the Borrower, take any or all of the following actions:
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(i) declare the Term Loan to be due and payable in whole (or in part, in which
case any principal not so declared to be due and payable may thereafter be
declared to be due and payable), and thereupon the principal of the Term Loan
so declared to be due and payable, together with accrued interest thereon and
all fees and other obligations of each Borrower accrued under the Loan
Documents, shall become due and payable immediately, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived
by the Borrowers; and in case of any event described in clause (h), (i) or
(j) of this Article, the principal of the Term Loan, together with accrued
interest thereon and all fees and other obligations of each Borrower
accrued under the Loan Documents, shall automatically become due and
payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrowers; (ii) draw on the Debt
Service Reserve Letter of Credit in an amount not to exceed the excess,
if any, of (A) Pro Forma Debt Service as of the end of the most recent
Semiannual Period ended on or before the occurrence of the Event of Default,
over (B) the amount on deposit in the Debt Service Reserve Account, and
(iii) draw on the Maintenance Reserve Letter of Credit in an amount not to
exceed the excess, if any, of (Y) the Maintenance Benchmark as
of the end of the most recent Semiannual Period ended on or before the
occurrence of the Event of Default, over (Z) the amount on deposit in the
Maintenance Reserve Account.
SECTION 9. MISCELLANEOUS
9.01 NOTICES
Except in the case of notices and other communications expressly
permitted to be given by telephone, all notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by
telecopy, as follows:
(a) if to the Borrowers:
c/o WPS Power Development, Inc.
677 Baeten Road
Green Bay, WI 54304
Attention: George R. Wiesner
Assistant Controller
Telephone: (920) 490-6052
Telecopy: (920) 496-9399
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with a copy to:
Edward Hammond, Esq.
Foley & Lardner
Firstar Center
777 E. Wisconsin Ave.
Milwaukee, WI 53202-5367
Telephone: (414) 297-5619
Telecopy: (414) 297-4900
(b) if to the Lender:
Bayerische Landesbank Girozentrale
560 Lexington Avenue
New York, NY 10022
Attention: Export & Project Finance Department
Telephone: (212) 310-9800
Telecopy: (212) 310-9868
Either party may change its address or telecopy number for notices and other
communications hereunder by notice to the other party. All notices and other
communications given to any party hereto in accordance with the provisions of
this Agreement shall be deemed to have been given on the date of receipt.
9.02 WAIVERS; AMENDMENTS
(a) No failure or delay by the Lender in exercising any right or
power under any Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Lender under the Loan Documents are cumulative and
are not exclusive of any rights or remedies that it would otherwise have. No
waiver of any provision of any Loan Document or consent to any departure by
the Lender therefrom shall in any event be effective unless the same shall
comply with subsection (b) of this Section, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrowers and the Lender.
9.03 EXPENSES; INDEMNITY; DAMAGE WAIVER
(a) The Borrowers shall jointly and severally pay (i) all
reasonable out-of-pocket expenses incurred by the Lender in connection with
the preparation and negotiation of this Agreement (but not in excess of
$175,000), whether or not the transactions
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contemplated hereby shall be consummated, (ii) all reasonable out-of-pocket
expenses incurred by the Lender in connection with any amendments,
modifications or waivers of the provisions of any Loan Document, and
(iii) all out-of-pocket expenses incurred by the Lender, including the
fees, charges and disbursements of any counsel for the Lender, in connection
with the administration of this Agreement and the enforcement or protection
of its rights in connection with the Loan Documents, including its rights
under this Section, or in connection with the Term Loan made hereunder,
including all such out-of-pocket expenses incurred during any workout,
restructuring or negotiations in respect of the Term Loan.
(b) The Borrowers shall jointly and severally indemnify the
Lender and each Related Party thereof (each such Person being an "Indemnitee")
----------
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted
against any Indemnitee arising out of, in connection with, or as a result of
(i) the execution or delivery of any Loan Document or any agreement or
instrument contemplated thereby, the performance by the parties to the Loan
Documents of their respective obligations thereunder or the consummation of
the transactions contemplated thereby, (ii) the Term Loan or the use of the
proceeds thereof, (iii) any actual or alleged presence or release of Hazardous
Materials on or from any property owned or operated by the Borrowers, or any
Environmental Liability related in any way to the Borrowers or (iv) any actual
or prospective claim, litigation, investigation or proceeding relating to any
of the foregoing, whether based on contract, tort or any other theory and
regardless of whether any Indemnitee is a party thereto, provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that
such losses, claims, damages, liabilities or related expenses are determined
by a court of competent jurisdiction by final and nonappealable judgment to
have resulted from the gross negligence or willful misconduct of such
Indemnitee.
(c) To the extent permitted by applicable law, neither Borrower
shall assert, and each of them hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential
or punitive damages (as opposed to direct or actual damages) arising out of,
in connection with, or as a result of, any Loan Document or any agreement,
instrument or other document contemplated thereby, or the Term Loan or the use
of the proceeds thereof.
(d) All amounts due under this Section shall be payable promptly
but in no event later than ten days after written demand therefor.
9.04 SUCCESSORS AND ASSIGNS
(a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that the Borrowers may not assign or
otherwise transfer any of their rights or obligations hereunder except as
otherwise permitted hereby without the prior written consent of the Lender
(and any attempted assignment or transfer by the Borrowers without such
consent shall be null and void). Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted
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hereby and, to the extent expressly contemplated hereby, the Related Parties of
the Lender) any legal or equitable right, remedy or claim under or by reason of
any Loan Document.
(b) The Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement and the Term Loan),
provided that except in the case of an assignment to an Affiliate of the
Lender, (i) the Borrowers must give their prior written consent to such
assignment (which consent shall not be unreasonably withheld), (ii) the amount
of the Term Loan subject to each such assignment shall not be less than
$1,000,000 unless the Borrowers otherwise consent, (iii) the number of
assignees shall not exceed two, unless the Borrowers otherwise consent, and
(iv) the aggregate amount of all interests so assigned shall not exceed 49% of
the outstanding principal amount of the Term Loan unless the Borrowers
otherwise consent and provided, further, that any consent of the Borrowers
otherwise required under this subsection shall not be required if a Default
has occurred and is continuing. From and after the effective date specified in
the agreement or instrument of assignment executed by the Lender and an
assignee, the assignee thereunder shall be a party hereto and, to the extent
of the interest assigned by such agreement or instrument, have the rights and
obligations of a Lender under the Loan Documents, and the Lender shall, to the
extent of the interest assigned by such agreement or instrument of assignment,
be released from its obligations under the Loan Documents (and, in the case of
an assignment to an Affiliate covering all of the Lender's rights and
obligations under the Loan Documents, the Lender shall cease to be a party
hereto but shall continue to be entitled to the benefits of Sections 3.05,
3.06, 3.07 and 10.03).
(c) The Lender may, without the consent of the Borrowers, sell
participations to one or more banks or other entities (each such bank or other
entity being called a "Participant") in all or a portion of the Lender's
-----------
rights and obligations under the Loan Documents, provided that (i) the
Lender's obligations under the Loan Documents shall remain unchanged, (ii) the
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations and (iii) the Borrowers shall continue to deal
solely and directly with the Lender in connection with the Lender's rights and
obligations under the Loan Documents. Any agreement or instrument pursuant to
which the Lender sells such a participation shall provide that the Lender
shall retain the sole right to enforce the Loan Documents and to approve any
amendment, modification or waiver of any provision of any Loan Documents,
provided that such agreement or instrument may provide that the Lender will
not, without the consent of the Participant, agree to any amendment,
modification or waiver that affects such Participant. Subject to paragraph (d)
of this Section, the Borrowers agree that each Participant shall be entitled
to the benefits of Sections 3.04 to the same extent as if it were a Lender and
had acquired its interest by assignment pursuant to paragraph (b) of this
Section.
(d) A Participant shall not be entitled to receive any greater
payment under Section 3.04 or 3.05 than the Lender would have been entitled to
receive with respect to the participation sold to such Participant, unless the
sale of the participation to such Participant is made with the Borrower's
prior written consent. A Participant that is organized under the laws of a
jurisdiction other than the United States of America or a political
subdivision thereof shall not be entitled to the benefits of Section 3.05
unless the Borrowers are notified of the participation sold to such
Participant and such Participant agrees, for the benefit of the Borrowers, to
comply with Section 3.05(e) as though it were the Lender.
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(e) The Lender may at any time pledge or assign a security
interest in all or any portion of its rights under the Loan Documents to
secure obligations of the Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest, provided that no such pledge
or assignment of a security interest shall release the Lender from any of its
obligations under the Loan Documents or substitute any such pledgee or
assignee for the Lender as a party hereto.
9.05 SURVIVAL
All covenants, agreements, representations and warranties made by
the Borrowers herein and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement or any other Loan
Document shall be considered to have been relied upon by the Lender and shall
survive the execution and delivery of any Loan Document and the making of the
Term Loan, regardless of any investigation made by the Lender or on its behalf
and notwithstanding that the Lender may have had notice or knowledge of any
Default or incorrect representation or warranty at the time any credit is
extended hereunder, and shall continue in full force and effect as long as the
principal of or any accrued interest on the Term Loan or any other amount
payable under the Loan Documents is outstanding and unpaid. The provisions of
Sections 3.04, 3.05 and 9.03 shall survive and remain in full force and effect
regardless of the consummation of the transactions contemplated hereby, the
repayment of the Term Loan or the termination of this Agreement or any
provision hereof.
9.06 COUNTERPARTS; INTEGRATION
This Agreement may be executed in counterparts (and by different
parties hereto on different counterparts), each of which shall constitute an
original, but all of which, when taken together, shall constitute but one
contract. This Agreement and the other Loan Documents constitute the entire
contract among the parties relating to the subject matter hereof and supersede
any and all previous agreements and understandings, oral or written, relating
to the subject matter hereof. Delivery of an executed counterpart of this
Agreement by facsimile transmission shall be effective as delivery of a
manually executed counterpart of this Agreement.
9.07 SEVERABILITY
In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being
understood that the invalidity of a particular provision in a particular
jurisdiction shall not in and of itself affect the validity of such provision
in any other jurisdiction). The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
9.08 RIGHT OF SETOFF
If an Event of Default shall have occurred and be continuing, the
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by applicable law, to setoff and apply any and all deposits
(general or special, time or demand, provisional or final) at
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any time held and other obligations at any time owing by it to or for the
credit or the account of the Borrowers against any of and all the obligations
of the Borrowers now or hereafter existing under this Agreement held by it,
irrespective of whether or not it shall have made any demand under this
Agreement and although such obligations may be unmatured. The rights of the
Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) that it may have.
9.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS
(a) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
(b) Each of the Borrowers hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of any
New York State court or Federal court of the United States of America sitting
in New York City, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that, to the
extent permitted by applicable law, all claims in respect of any such action
or proceeding may be heard and determined in such New York State or, to the
extent permitted by applicable law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Agreement shall affect
any right that the Lender may otherwise have to bring any action or proceeding
relating to this Agreement or the other Loan Documents against either
Borrower, or any of its property, in the courts of any jurisdiction.
(c) Each of the Borrowers hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement or the
other Loan Documents in any court referred to in subsection (b) of this
Section. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by applicable law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service
of process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
9.10 WAIVER OF JURY TRIAL
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT
OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
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LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
9.11 HEADINGS
Section headings and the Table of Contents used herein are for
convenience of reference only, are not part of this Agreement, and shall not
affect the construction of, or be taken into consideration in interpreting,
this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
PDI NEW ENGLAND, INC.
By:
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Ralph G. Baeten
Treasurer
PDI CANADA, INC.
By:
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Ralph G. Baeten
Treasurer
BAYERISCHE LANDESBANK GIROZENTRALE
By:
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Thomas von Kistowsky
Senior Vice President
By:
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Christopher A. Stolarski
Vice President
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EXHIBIT 10H-1
WPS RESOURCES CORPORATION
DEFERRED COMPENSATION PLAN
As Amended and Restated Effective January 1, 1997
[Working copy incorporating all amendments
adopted through March 1, 1999]
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WPS RESOURCES CORPORATION
DEFERRED COMPENSATION PLAN
WPS Resources Corporation Deferred Compensation Plan (the "Plan")
has been established effective January 1, 1996 to promote the best interests
of WPS Resources Corporation (the "Company") and the stockholders of the
Company by (1) attracting and retaining well-qualified persons for service as
non-employee directors of the Company and designated subsidiaries or
affiliates; and (2) attracting and retaining key management employees
possessing a strong interest in the successful operation of the Company and
its subsidiaries or affiliates and encouraging their continued loyalty,
service and counsel to the Company and its subsidiaries or affiliates. This
Plan replaces Deferred Compensation Plans 008, 009, 010 and 011 previously
maintained by the Wisconsin Public Service Corporation.
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ARTICLE I. DEFINITIONS AND CONSTRUCTION
Section 1.01. Definitions. The following terms have the meanings
--------------------------
indicated below unless the context in which the term is used clearly
indicates otherwise:
(a) "Account" means the recordkeeping account or accounts maintained
by a Participating Employer for each Participant, including to extent
applicable to any such Participant, Reserve Account A, Reserve Account B and
the Stock Account.
(b) An "Affiliate" of, or a person "affiliated" with, a specified
person is a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, the person specified and the term "Associate" used to indicate a
relationship with any person, means (i) any corporation or organization
(other than the registrant or a majority-owned subsidiary of the registrant)
of which such person is an officer or partner or is, directly or indirectly,
the beneficial owner of 10 percent or more of any class of equity securities,
(ii) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in a
similar fiduciary capacity, and (iii) any relative or spouse of such person,
or any relative of such spouse, who has the same home as such person or who
is a director or officer of the registrant or any of its parents or
subsidiaries.
(c) A person shall be deemed to be the "Beneficial Owner" of any
securities:
(i) which such Person or any of such Person's
Affiliates or Associates has the right to
acquire (whether such right is exercisable
immediately or only after the passage of time)
pursuant to any agreement, arrangement,
arrangement or understanding, or upon the
exercise of conversion rights, exchange rights,
rights, warrants or options, or otherwise;
provided, however, that a Person shall not be
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deemed the Beneficial Owner of, or to
beneficially own, (A) securities tendered
pursuant to a tender or exchange offer made by
or on behalf of such Person or any of such
Person's Affiliates or Associates until such
tendered securities are accepted for purchase
or (B) securities issuable upon exercise of
Rights pursuant to the terms of the Company's
Rights Agreement with Firstar Trust Company,
dated as of December 12, 1996, as amended from
time to time (or any successor to such Rights
Agreement) at any time before the issuance of
such securities;
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or
indirectly, has the right to vote or dispose of
or has "beneficial ownership" of (as determined
pursuant to Rule 13d-3 of the General Rules
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and Regulations under the Act), including pursuant
to any agreement, arrangement or understanding;
provided, however, that a Person shall not be
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deemed the Beneficial Owner of, or to
beneficially own, any security under this
subparagraph (ii) as a result of an agreement,
arrangement or understanding to vote such
security if the agreement, arrangement or
understanding: (A) arises solely from a
revocable proxy or consent given to such Person
in response to a public proxy or consent
solicitation made pursuant to, and in
accordance with, the applicable rules and
regulations under the Act and (B) is not also
then reportable on a Schedule 13D under the Act
(or any comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such
Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or
understanding for the purpose of acquiring,
holding, voting (except pursuant to a revocable
proxy as described in Section 1.01(c)(ii)
above) or disposing of any voting securities of
the Company.
(d) "Beneficiary" means the person or entity designated by the
Participant to be his beneficiary for purposes of this Plan. If a valid
designation of Beneficiary is not in effect at time of the death of a
Participant, the estate of the Participant is deemed to be the sole
Beneficiary. If a Beneficiary dies while entitled to receive distributions
from the Plan, any remaining payments shall be paid to the estate of the
Beneficiary. Beneficiary designations shall be in writing, filed with the
Secretary, and in such form as the Secretary may prescribe for this purpose.
(e) "Board" means the Board of Directors of the Company.
(f) "Bonus Deferral" means amounts credited, in accordance with an
Executive's election under Section 8.02(b) of the WPS Resources Corporation
Variable Pay Plan, to an Executive's Stock Account in lieu of the
payment of an equal amount as a current cash bonus.
(g) A "Change in Control of the Company" shall be deemed to have
occurred if:
(i) any Person (other than any employee benefit
plan of the Company or of any subsidiary of the
Company, any Person organized, appointed or
established pursuant to the terms of any such
benefit plan or any trustee, administrator or
fiduciary of such a plan) is or becomes the
Beneficial Owner of securities of the Company
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representing at least 30% of the combined
voting power of the Company's then outstanding
securities;
(ii) one-half or more of the members of the Board
are not Continuing Directors;
(iii) there shall be consummated any merger,
consolidation, or reorganization of the Company
with any other corporation as a result of which
less than 50% of the outstanding voting
securities of the surviving or resulting entity
are owned by the former shareholders of the
Company other than a shareholder who is an
Affiliate or Associate of any party to such
consolidation or merger;
(iv) there shall be consummated (x) any merger of
the Company or share exchange involving the
Company in which the Company is not the
continuing or surviving corporation other than
a merger of the Company in which each of the
holders of the Company's Common Stock
immediately prior to the merger have the same
proportionate ownership of common stock of the
surviving corporation immediately after the
merger;
(v) there shall be consummated any sale, lease,
exchange or other transfer (in one transaction
or a series of related transactions) of all, or
substantially all, of the assets of the Company
to a Person which is not a wholly owned
subsidiary of the Company; or
(vi) the shareholders of the Company approve any
plan or proposal for the liquidation or
dissolution of the Company.
(h) "Code" means the Internal Revenue Code of 1986, as interpreted by
regulations and rulings issued pursuant thereto, all as amended and in effect
from time to time.
(i) "Company" means WPS Resources Corporation, a Wisconsin
corporation, or any successor corporation.
(j) "Compensation" means (i) for a Director, the Retainer Fee and
(ii) for an Executive the base salary or wage payable by a Participating
Employer for services performed, including elective contributions to a
Section 125, 129 or 401(k) arrangement or Voluntary Deferrals to this Plan,
but excluding extraordinary payments such as overtime, bonuses, meal
allowances, reimbursed expenses, termination pay, moving pay, commuting
expenses, Mandatory Deferrals to this Plan or other non-elective deferred
compensation payments or accruals, stock options, the value of
employer-provided fringe benefits or coverage, and any
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contributions on behalf of the Executive paid by a Participating Employer to a
survivor's income benefit plan or any other employee benefit plan within the
meaning of ERISA, all determined in accordance with such uniform rules,
regulations or standards as may be prescribed by the Compensation Committee.
(k) "Compensation Committee" means the Compensation Committee of the
Board, which functions as the joint Compensation Committee for the Company
and for Wisconsin Public Service Corporation.
(l) "Continuing Director" means (i) any member of the Board of
Directors of the Company who was a member of such Board on May 1, 1997, (ii)
any successor of a Continuing Director who is recommended to succeed a
Continuing Director by a majority of the Continuing Directors then on such
Board and (iii) additional directors elected by a majority of the Continuing
Directors then on such Board.
(m) "Director" means a non-employee director of a Participating
Employer who has been designated by the Compensation Committee as covered
under or being eligible to participate in the Plan.
(n) "ERISA" means the Employee Retirement Income Security Act of
1974, as interpreted by regulations and rulings issued pursuant thereto, all
as amended and in effect from time to time.
(o) "Executive" means a common law employee of a Participating
Employer who has been designated by the Compensation Committee as covered
under or otherwise being eligible to participate in this Plan.
(p) "Mandatory Deferral" means the amount which may from time to time
be credited to the Stock Account of an Executive in accordance with Section
3.01 and for which the Executive does not receive the option between
receiving such amount as current cash compensation and deferring such amount
into the Plan.
(q) "Participant" means either a Director or Executive who is
participating in or eligible to participate in the Plan.
(r) "Participating Employer" means Company and any direct or indirect
subsidiary of the Company that, with the consent of the Compensation
Committee, adopts the Plan for the benefit of one or more Executives or
Directors.
(s) "Person" means any individual, firm, partnership, corporation or
other entity, including any successor (by merger or otherwise) of such
entity, or a group of any of the foregoing acting in concert.
(t) "Retainer Fee" means those fees paid by a Participating Employer
to non-employee directors for services rendered on the Board or any committee
of the Board, or for
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service on the board of directors of a subsidiary or affiliate, including
attendance fees and fees for serving as committee chair.
(u) "Secretary" means the Secretary of the Company (or his delegate).
(v) "Trust" means the WPS Resources Corporation Deferred Compensation
Trust or other funding vehicle which may from time to time be established, as
amended and in effect from time to time.
(w) "Voluntary Deferrals" means amounts (other than Bonus Deferrals)
credited, in accordance with a Participant's election, to his Account in lieu
of the payment of an equal amount of current Compensation.
(x) "WPS Resources Stock" means the common stock, $1.00 par value, of
the Company.
(y) "WPS Resources Stock Units" means the hypothetical shares of
common stock, $1.00 par value, of the Company, that may be credited (i) to
the Stock Account of an Executive as a result of Mandatory Deferrals or Bonus
Deferrals, or (ii) to the Stock Account of either a Director or Executive as
a result of Voluntary Deferrals.
Section 1.02. Construction and Applicable Law. (a) Wherever any words
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are used in the masculine, they shall be construed as though they were used in
the feminine in all cases where they would so apply; and wherever any words
are use in the singular or the plural, they shall be construed as though they
were used in the plural or the singular, as the case may be, in all cases
where they would so apply. Titles of articles and sections are for general
information only, and the Plan is not to be construed by reference to such
items.
This Plan, as applied to Executives, is intended to be a plan of
deferred compensation maintained for a select group of management or highly
compensated employees as that term is used in ERISA, and shall be interpreted
so as to comply with the applicable requirements thereof. In all other
respects, the Plan is to be construed and its validity determined according
to the laws of the State of Wisconsin to the extent such laws are not
preempted by federal law. In case any provision of the Plan is held illegal
or invalid for any reason, the illegality or invalidity will not affect the
remaining parts of the Plan, but the Plan shall, to the extent possible, be
construed and enforced as if the illegal or invalid provision had never been
inserted.
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ARTICLE II. PLAN ACCOUNTS
Section 2.01. Establishment of Accounts. One or more of the following
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Accounts (as applicable) will be established in the name of each Participant
who (i) is identified on Schedule A as being eligible to participate in
either the Voluntary Deferral component of the Plan or the Mandatory Deferral
component of the Plan or in both the Voluntary Deferral and Mandatory
Deferral components of the Plan, or (ii) is eligible for and has elected to
make Bonus Deferrals in accordance with the procedures specified in Section
8.02(b) of the WPS Resources Corporation Short-Term Variable Pay Plan:
(a) Reserve Account A
(b) Reserve Account B
(c) Stock Account.
Section 2.02. Reserve Account A. (a) This Account will be credited
---------------------------------
with the reserve account balance accumulated by a Participant as of
December 31, 1995 under the prior deferred compensation program of Wisconsin
Public Service Corporation. Except for attributed earnings as described
below, no further "contributions" or credits of any kind will be made to this
Account on behalf of a Participant.
(b) As of the end of each Plan Year, the Account will be credited
with an interest equivalent on the balance in the Account from time to time
during the year. The annual interest equivalent will be the sum (on a non-
compounded basis) of the attributed earnings for each month during the year
based on the Account balance as of the last day of the month. Unless
modified by the Compensation Committee, the interest equivalent rate for any
month will be the greater of:
(i) one-half of one percent (0.5%); or
(ii) one-twelfth (1/12) of the return on common
shareholders' equity (ROE). For the months of
April through September, ROE means the
consolidated return on equity of the Company
and all subsidiaries for the twelve (12) months
ended on the preceding March 31 as calculated
pursuant to the Company's standard accounting
procedure for financial reporting to
shareholders. For the months October through
March, ROE means return on equity as described
above for the twelve (12) months ended on the
preceding September 30.
(c) The Compensation Committee may revise the interest equivalent
rate described in Section 2.02(b) above or the manner in which it is
calculated, but in no event shall the rate
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be less than six percent (6%) per annum. Any such revised rate shall be
effective with the calendar month following such action by the Compensation
Committee.
(d) Notwithstanding Sections 2.02(b) and (c), in the event of a
Change in Control, the rate of interest equivalent for each month following
the Change in Control for which attributed earnings are required to be
calculated shall be the greater of (A) the rate of interest equivalent
otherwise applicable under Section 2.02(b) and (c) above calculated based
upon the consolidated return on common shareholders equity of the Company
(including for this purpose any successor corporation that is the survivor of
a merger with the Company or any successor to that corporation) and all
subsidiaries, and (B) a rate equal to two (2) percentage points above the
prime lending rate at Firstar Bank Milwaukee, Milwaukee, Wisconsin (or any
successor thereto) as of the last business day of that month. The minimum
rate of interest equivalent under clause (B) above shall not apply with
respect to any Participant who terminates employment under circumstances
entitling the Participant to benefits under a Key Executive Employment and
Severance Agreement in effect between the Company and such Participant.
Section 2.03. Reserve Account B. (a) This Account shall be credited
---------------------------------
with Voluntary Deferrals made after December 31, 1995 which a Participant
elects to allocate to this Account in accordance with Section 3.02(c)(ii).
(b) As of the end of each Plan Year, the Account will be credited
with an interest equivalent on the balance in the Account from time to time
during the year. The annual interest equivalent will be the sum (on a non-
compounded basis) of the attributed earnings for each month during the year
based on the Account balance as of the last day of each month. Unless
modified by the Compensation Committee, the interest equivalent rate for any
month will be the greater of:
(i) one-half of one percent (0.5%); or
(ii) seventy percent (70%) of one-twelfth (1/12) of
the return on common shareholders equity (ROE).
For the months of April through September, ROE
means the consolidated return on equity of the
Company and all subsidiaries for the twelve
(12) months ended on the preceding March 31 as
calculated pursuant to the Company's standard
accounting procedure for financial reporting to
shareholders. For the months October through
March, ROE means return on equity as described
above for the twelve (12) months ended on the
preceding September 30.
(c) The Compensation Committee may revise the interest equivalent
rate described in Section 2.03(b) above or the manner in which it is
calculated, but in no event shall the rate be less than six percent (6%) per
annum. Any such revised rate shall be effective with the calendar month
following such action by the Compensation Committee.
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(d) Notwithstanding Sections 2.03(b) and (c), in the event of a
Change in Control, the rate of interest equivalent for each month following
the Change in Control for which attributed earnings are required to be
calculated shall be the greater of (A) the rate of interest equivalent
otherwise applicable under Section 2.03(b) and (c) above calculated based
upon the consolidated return on common shareholders equity of the Company
(including for this purpose any successor corporation that is the survivor of
a merger with the Company or any successor to that corporation) and all
subsidiaries, and (B) a rate equal to two (2) percentage points above the
prime lending rate at Firstar Bank Milwaukee, Milwaukee, Wisconsin (or any
successor thereto) as of the last business day of that month. The minimum
rate of interest equivalent under clause (B) above shall not apply with
respect to any Participant who terminates employment under circumstances
entitling the Participant to benefits under a Key Executive Employment and
Severance Agreement in effect between the Company and such Participant.
Further, in the case of any other Participant, the minimum rate of interest
equivalent under clause (B) shall cease to apply on the third anniversary of
the Change in Control in the event that the Participant is actively employed
by the Company (or any successor thereto or affiliate thereof) on such date.
Section 2.04. Stock Account. (a) This Account shall be credited with
-----------------------------
(i) all Mandatory Deferrals made after December 31, 1995, (ii) those Voluntary
Deferrals made after December 31, 1995 which a Participant, in accordance
with Section 3.02(c)(ii), elects to allocate to this Account, and (iii) all
Bonus Deferrals.
(b) As of the end of each month, all Voluntary Deferrals, Mandatory
Deferrals, and Bonus Deferrals made by or on behalf of a Participant during
that month and allocated to the Participant's Stock Account (the "Convertible
Amount") shall be converted, for recordkeeping purposes, into whole and
fractional WPS Resources Stock Units, with fractional units calculated to
four decimal places. The conversion shall be accomplished by dividing each
Participant's Convertible Amount by the average purchase price of all shares
of WPS Resources Stock purchased during that month by or on behalf of the
Trust and the WPS Resources Corporation Stock Investment Plan. Likewise, any
dividends that would have been payable on the WPS Resources Stock Units
credited to a Participant's Stock Account had such Units been actual shares
of WPS Resources Stock shall be converted, for recordkeeping purposes, into
whole and fractional WPS Resources Stock Units based on the average purchase
price of all shares of WPS Resources Stock purchased by or on behalf of the
Trust and the WPS Resources Corporation Stock Investment Plan during the
month in which the dividend is paid.
Section 2.05. Accounts are For Recordkeeping Purposes Only. The Plan
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Accounts described in this Article II above serve solely as a device for
determining the amount of benefits accumulated by a Participant under the
Plan, and shall not constitute or imply an obligation on the part of a
Participating Employer to fund such benefits. In any event, the Company may,
in its discretion, set aside assets equal to part or all of such account
balances and invest such assets in Company stock, life insurance or any other
investment deemed appropriate. Any such assets, including WPS Resources
Stock and any other assets held under the Trust, shall be and remain the sole
property of the Company and except to the extent that
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the Trust authorizes a Participant to direct the trustee with respect to the
voting of WPS Resources Stock held in the Trust, a Participant shall have no
proprietary rights of any nature whatsoever with respect to such assets.
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ARTICLE III. MANDATORY AND VOLUNTARY DEFERRALS
Section 3.01. Mandatory Deferrals. The Compensation Committee may, from
-----------------------------------
time to time, authorize a Mandatory Deferral to be made on behalf of covered
Executives. The authorization of any such contribution, the Executives
entitled to the contribution, and the amount to be credited to each eligible
Executive, shall be determined by the Compensation Committee in its sole
discretion; provided that the maximum Mandatory Deferral for any year shall
not exceed thirty percent (30%) of an Executive's Compensation for the year.
Any Mandatory Deferral will be credited to an eligible Executive's Stock
Account and converted into WPS Resources Stock Units in accordance with
Section 2.04.
Section 3.02. Election to Make Voluntary Deferrals. (a) A Participant
----------------------------------------------------
may elect to make Voluntary Deferrals by submitting a properly completed and
signed election form to the Secretary on or before December 20, 1995. If the
Participant so elects, Voluntary Deferrals will commence with respect to
Compensation earned by a Participant on or after January 1, 1996.
Notwithstanding the foregoing, if, as of January 1, 1996, the Participant has
in effect an election under the prior deferred compensation program
maintained by Wisconsin Public Service Corporation and does not file an
election with the Secretary in accordance with this Section 3.02(a), the
prior election shall be deemed the Participant's initial election under this
Plan.
(b) If a Director or Executive first becomes eligible to participate
in the Plan following the election period described in Section 3.02(a) above
(such as, for example, a Director who commences service or an Executive who
is newly designated by the Compensation Committee as being eligible) the
initial deferral election may be made within thirty (30) days of the date
that such person first becomes eligible under the Plan, and shall be
effective with respect to Compensation earned by the Participant in the first
payroll commencing on or after the date on which the deferral election is
made.
(c) A Participant's election shall be in such form as the Secretary
may prescribe, and shall specify:
(i) The percentage or dollar amount of Compensation
to be deferred as a Voluntary Deferral. A
Director may elect to defer all or any part of
his Compensation, in whole dollar amounts or in
increments of one percent (1%). An Executive
may, without the consent of the Compensation
Committee, elect to defer a portion of his
Compensation, in whole dollar amounts or in
increments of one percent (1%), provided that
the amount or percentage elected does not
exceed thirty percent (30%) of the Executive's
Compensation. An Executive may elect to defer
more than thirty percent (30%) of Compensation
only if the Compensation Committee has approved
the Executive's specific deferral percentage or
amount.
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(ii) Whether the Voluntary Deferrals are to be
credited to the Participant's Reserve Account
(Reserve Account B) or the Participant's Stock
Account. If the Participant desires to
allocate Voluntary Deferrals to both his
Reserve and Stock Accounts, the election must
further specify the portion of the Voluntary
Deferrals, in whole dollar amounts or in
increments of one percent (1%), to be allocated
to each Account.
(d) An election shall be deemed made only when it is received by the
Secretary, and shall remain in effect until modified by the Participant in
accordance with Section 3.03 below or otherwise revoked in accordance with
Plan rules.
Section 3.03. Revision or Modification of Voluntary Deferral Election.
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(a) A Participant's initial election under Section 3.02 (including an
election not to make Voluntary Deferrals) shall remain in effect from year to
year unless revised or modified by the Participant in accordance with this
Section 3.03 or otherwise revoked in accordance with Plan rules.
(b) A Participant may modify his then current election (including an
election not to make Voluntary Deferrals) by filing a revised election form,
properly completed and signed, with the Secretary. The revised election will
be effective with respect to Compensation earned by the Participant in the
first payroll period commencing on or after the date on which the revised
election is received by the Secretary.
(c) An election shall be deemed revised in accordance with this
Section 3.03 only when the revised election is received by the Secretary, and
once effective, the revised election shall remain in effect until further
revised in accordance with this Section 3.03 or otherwise revoked in
accordance with Plan rules. Revised elections are prospectively effective
with respect to Compensation earned on or after the applicable effective date
described in Section 3.03(b) and (c) above. A revised election does not
operate to modify or otherwise reallocate the amounts deferred prior to the
effective date of the revised election.
Section 3.04. Involuntary Termination of Voluntary Deferral Elections.
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A deferral election shall be automatically revoked upon termination of service
as a Director (in the case of a Director) or termination of employment (in
the case of an Executive). In addition, an Executive's deferral election
shall terminate on the first day of the Plan Year following the date that the
Compensation Committee determines that the Executive is no longer eligible to
participate in the Plan, including any such action that may be necessary in
order for the Plan to qualify under ERISA, with respect to Executive
employees, as a plan of deferred compensation for a select group of
management or highly compensated employees.
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ARTICLE IV. DISTRIBUTION OF RESERVE ACCOUNT A,
RESERVE ACCOUNT B AND STOCK ACCOUNTS
Section 4.01. Distribution Election. (a) The distribution election (if
-------------------------------------
any) made by a Participant under the prior deferred compensation program
maintained by Wisconsin Public Service Corporation shall be his distribution
election under this Plan unless and until modified in accordance with Section
4.02 below.
(b) A new Participant shall, at the time he commences participation
in the Plan, make a distribution election with respect to his Account. The
election shall be in such form as the Secretary may prescribe, and shall
specify the distribution commencement date, the distribution period, the
method of distributing earnings credited to the Account, and the distribution
method applicable following the Participant's death. Any such election shall
be consistent with the following rules (or where the Participant fails to
make a selection, in accordance with the default rules set forth below):
(i) Distribution Commencement Date. Unless the
-------------------------------
Participant has selected a later commencement
date (which in no event shall be later than the
first distribution period following the
Participant's attainment of age 72),
distribution of a Participant's Accounts will
commence within 60 days following the end of
the calendar year in which occurs the
Participant's retirement or termination of
employment or service. For purposes of this
Plan, a participating Executive who is disabled
shall be deemed to have retired or terminated
at the conclusion of benefits under all
disability income plans sponsored by a
Participating Employer or to which a
Participating Employer contributes. Further, a
participating Executive who ceases employment
with a Participating Employer in connection
with an early retirement (reduction in force)
program sponsored by the Participating Employer
shall, if a participant in the Wisconsin Public
Service Administrative Employees Retirement
Plan, be deemed to have retired upon
commencement of retirement benefits under such
plan.
(ii) Distribution Period. Distributions will be
--------------------
made in 1, 3, 6, 9, 12 or 15 annual
installments, as elected by the Participant.
(iii) Method of Calculating Annual Distribution
-----------------------------------------
Amount. Unless the Participant elects the
-------
Alternate Distribution Method, the amount to be
distributed to the Participant each year during
the distribution period will be determined
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under the Regular Distribution Method. The
Regular and Alternate Distribution Methods are
described in more detail in Section 4.03.
(iv) Distribution of Remaining Account Following
-------------------------------------------
Participant's Death. In the event of the
--------------------
Participant's death, the Participant's
remaining undistributed interest will be
distributed to the Beneficiary designated by
the Participant in either a single sum payment
or in installments, as elected by the
Participant. If the Participant has elected
that death benefits be paid in a single sum,
the payment shall be made no later than March 1
following the calendar year in which occurs the
Participant's death. If the Participant has
elected that death benefits be paid in
installments, (A) any installments previously
commenced to the Participant shall continue to
the Beneficiary and (B) if installment
distributions had not commenced as of the date
of the Participant's death, payments over the
installment period elected by the Participant
shall commence to the Beneficiary no later than
March 1 following the calendar year in which
occurs the Participant's death.
(c) A distribution election shall be deemed made only when it is
received by the Secretary, and shall remain in effect until modified by the
Participant in accordance with Section 4.02 below or otherwise revoked in
accordance with Plan rules.
Section 4.02. Modified Distribution Election. A Participant may from
----------------------------------------------
time to time modify his distribution election by filing a revised distribution
election, properly completed and signed, with the Secretary. However, a
revised distribution election will be given effect only if the Participant
remains employed by (or in the case of a Director, continues service on the
Board or the board of directors of a Participating Employer) for twenty-four
(24) consecutive months following the date that the revised election is
received by the Secretary.
Section 4.03. Calculation of Annual Distribution Amount. (a) For any
---------------------------------------------------------
Participant whose retirement date was prior to January 1, 1996, distribution
will continue to be calculated under the distribution method applicable to
such Participant at the time his distributions commenced under the terms of
the prior deferred compensation program maintained by Wisconsin Public
Service Corporation.
(b) For any Participant whose retirement date is after December 31,
1995, unless the Participant has selected the Alternate Distribution Option,
the annual distribution amount shall be separately calculated for the
Participant's interest (if any) in Reserve Account A, Reserve Account B and
the Stock Account.
14
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<PAGE>
(i) The annual distribution amount for Reserve
Account A and Reserve Account B shall be
determined by dividing the balance in each
Account as of January 1 of the year for which
the distribution is being made by the number of
installment payments remaining to be made under
the distribution period selected by the
Participant. Distributions from Reserve
Account A and Reserve Account B shall be made
in cash. The amount of any distribution under
this Section 4.03(b)(i) will be charged pro-
rata against the Participant's interest in
Reserve Account A and B.
(ii) The annual distribution amount for the Stock
Account shall be determined on a share basis by
dividing the number of WPS Resources Stock
Units credited to the Participant's Stock
Account as of January 1 of the year for which
the distribution is being made by the number of
installment payments remaining to be made under
the distribution period selected by the
Participant, and then rounding the quotient
obtained for all but the final installment to
the next lowest whole number of WPS Resources
Stock Units. The Committee will then
distribute to the Participant shares of WPS
Resources Stock and/or cash equal to the annual
distribution amount. For any portion of the
distribution that the Committee elects to
satisfy by making a cash payment to the
Participant, the cash payment shall be
determined by multiplying the annual
distribution amount (or the portion of the
annual distribution amount being satisfied in
cash) by the closing price of WPS Resources
Stock on January 21 of the year in which the
distribution is being made, as such share price
is reported in the Wall Street Journal's New
York Stock Exchange Composite Transactions
listing. If January 21 falls on a Saturday,
Sunday or holiday, the calculation of the cash
portion of the distributions will be made based
upon the closing price as reported for the
immediately preceding business day.
(c) For any Participant whose retirement date is after December 31,
1995 and who has selected the Alternate Distribution Method, the annual
distribution amount shall be separately calculated for the Participant's
interest (if any) in Reserve Account A, Reserve Account B and the Stock
Accounts of January 1 of the year in which distributions commence. The
annual distribution amounts, once calculated, shall not thereafter be
recalculated.
15
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<PAGE>
(i) For the year in which distribution commences,
the annual distribution amount for Reserve
Account A and Reserve Account B shall be
determined by dividing the balance in each
Account as of January 1 of the year in which
distribution commences by the number of
installment payments selected by the
Participant. For each succeeding distribution
year, the Participant shall be entitled to a
distribution equal to the annual distribution
amount calculated in accordance with the
preceding sentence, plus all interest
equivalent credited to the Account during the
preceding calendar year. Distributions from
Reserve Account A and Reserve Account B shall
be made in cash. The amount of any
distribution under this Section 4.03(c)(i) will
be charged pro-rata against the Participant's
interest in Reserve Account A and B.
(ii) For the year in which distribution commences,
the annual distribution amount for the Stock
Account shall be determined on a share basis by
dividing the number of WPS Resources Stock
Units credited to the Participant's Stock
Account as of January 1 of the year in which
distribution commences by the number of
installment payments selected by the
Participant, and then rounding the quotient
obtained for all but the final installment to
the next lowest whole number of WPS Resources
Stock Units. For each succeeding distribution
year, the Participant shall be entitled to
distribution of the number of WPS Resources
Stock Units determined in accordance with the
preceding sentence, plus all additional WPS
Resources Stock Units credited to the Stock
Account during the preceding calendar year on
account of the assumed reinvestment of
dividends, disregarding for all but the final
installment any fractional WPS Resources Stock
Units. The Committee will then distribute to
the Participant shares of WPS Resources Stock
and/or cash equal to the number of WPS
Resources Stock Units required to be
distributed for that year. For any portion of
the distribution that the Committee elects to
satisfy by making a cash payment to the
Participant, the cash payment shall be
determined by multiplying the distribution
amount (or the portion of the distribution
amount being satisfied in cash) by the closing
price of WPS Resources Stock on January 21 of
the year in which the distribution is being
made, as such share price is reported in the
Wall Street Journal's New York Stock
16
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<PAGE>
Exchange Composite Transactions listing. If
January 21 falls on a Saturday, Sunday or holiday,
the calculation of the cash portion of the
distributions will be made based upon the
closing price as reported for the immediately
preceding business day.
Section 4.04. Time of Distribution. WPS Resources Stock distributed to
------------------------------------
a Participant shall be distributed on January 22 (or if January 22 falls on a
Saturday, Sunday or holiday, the immediately following business day). For
distribution and tax reporting purposes, the value of WPS Resources Stock
distributed shall equal the number of shares distributed multiplied by the
closing price of WPS Resources Stock on January 21 (or if January 21 falls on
a Saturday, Sunday or holiday, the immediately preceding business day) of the
year in which the distribution is being made as reported in the Wall Street
Journal's New York Stock Exchange Composite Transaction listing. The cash
portion of any distribution will be made no later than March 1 of the year
for which the distribution is being made.
Section 4.05. Other Distribution Rules. (a) Subject to adjustment as
----------------------------------------
provided in paragraph (c) of this Section 4.05, the total number of
authorized but previously unissued shares of WPS Stock which may be
distributed to Participants pursuant to the Plan shall be one hundred
thousand (100,000), which number shall not be reduced by or as a result of
(i) any cash distributions pursuant to the Plan or (ii) the distribution to
Participants pursuant to the Plan of any outstanding shares of WPS Stock
purchased by or on behalf of the Trust.
(b) The amount actually distributed to the Participant will be
reduced by applicable income tax withholding. Unless the Participant has
made a contrary election, income tax on the entire annual distribution amount
will be withheld from the cash portion of the distribution, and WPS Resources
Stock will be used to satisfy withholding obligations only to the extent that
the cash portion of the distribution is insufficient for this purpose.
(c) In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, split-up, share
combination or other change in the corporate structure of the Company or a
Participating Employer affecting WPS Stock, such adjustment shall be made in
the number and class of shares which may be distributed pursuant to the Plan
as may be determined to be appropriate and equitable by the Compensation
Committee in its sole discretion.
17
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<PAGE>
ARTICLE V. SPECIAL DEATH BENEFIT FOR PARTICIPANTS
WHO DIE WHILE MAKING VOLUNTARY AND MANDATORY DEFERRALS
Section 5.01. Eligibility. If an Executive who is identified in
---------------------------
Schedule B (as from time to time amended by the Compensation Committee) dies
prior to attainment of age sixty-two (62) and while employed by a
Participating Employer, and if at the time of the Executive's death Voluntary
or Mandatory Deferrals were being made by or on behalf of the Executive, then
a special death benefit shall be paid to the Executive's Beneficiary. This
special death benefit is in addition to any other death benefit payable under
the Plan.
Section 5.02. Calculation of Special Death Benefit Amount. The special
-----------------------------------------------------------
death benefit shall be an amount equal to the lesser of one million dollars
($1,000,000) or the sum of (a), (b), (c) and (d) below.
(a) The difference between (i) the Voluntary Deferrals (not in excess
of twenty percent (20%) of Compensation) and Mandatory Deferrals that would
have been made by or on behalf of the Executive during the month in which
occurs the Executive's death, assuming, for this purpose that the Executive
had lived, and (ii) the Voluntary Deferrals and the Mandatory Deferrals
actually made during such month;
(b) The product obtained by multiplying (i) the Voluntary Deferrals
(not in excess of twenty percent (20%) of Compensation) and Mandatory
Deferrals made by or on behalf of the Executive during the month prior to the
month in which occurs the Executive's death, and (ii) the number of full
calendar months, inclusive, from the month following the month in which
occurs the Executive's death to the month preceding the month in which the
Executive would have attained age sixty-two (62) had he lived;
(c) In the event the Executive's birthday is other than the first day
of a calendar month, for the month in which the Executive would have attained
age sixty-two (62), the product obtained by multiplying (i) the Voluntary
Deferrals (not in excess of twenty percent (20%) of Compensation) and the
Mandatory Deferrals made by or on behalf of the Executive during the month
prior to the month in which occurs the Executive's death, and (ii) a
fraction, the numerator of which is the number of days in such month prior to
the Executive's sixty-second (62nd) birthday and the denominator of which is
the total number of days in the month;
(d) A projected earnings factor equal to the amount of interest
equivalent that would have accumulated on the amounts described in (a), (b)
and (c) above. The projected earnings factor shall be calculated using the
interest equivalent rate that was in effect under Reserve Account B for the
month prior to the month in which occurs the Executive's death. The
calculation shall assume that the Voluntary and Mandatory Deferrals described
in (a), (b) and (c) above were credited to Reserve Account B on a monthly
basis assuming that the Executive had lived and continued to make Voluntary
and Mandatory Deferrals. The interest equivalent shall be compounded in the
same manner as the Executive's actual Reserve Account balance, i.e., the
annual interest equivalent calculated as of the end of each Plan Year will be
the sum
18
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<PAGE>
(on a non-compounded basis) of the attributed earnings for each month
during the year based on the Account balance as of the last day of the month.
Section 5.03. Payment of Special Death Benefit. (a) The special death
------------------------------------------------
benefit calculated in accordance with Section 5.02 above shall be paid to the
Executive's Beneficiary in fifteen (15) annual installments, with the first
installment commencing within sixty (60) days of the Executive's death. The
benefit calculated under Section 5.02 is a fixed amount which does not accrue
earnings or interest equivalent on the undistributed balance.
19
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<PAGE>
ARTICLE VI. SUPPLEMENTAL RETIREMENT BENEFIT
Section 6.01. Supplemental Retirement Benefit. (a) An Executive who at
-----------------------------------------------
the time of his retirement or termination of employment is identified in
Schedule C shall be entitled to a supplemental retirement benefit if the
Executive:
(i) retires from a Participating Employer on or
after attainment of age fifty-eight (58); or
(ii) terminates employment with a Participating
Employer on or after the attainment of age
fifty (50) provided that the Executive has
completed ten (10) or more years of service
with a Participating Employer; or
(iii) terminates employment with a Participating
Employer prior to satisfaction of the
requirements specified in Section 6.01(a)(i) or
(ii) above but with the advance written
approval of the Compensation Committee.
(b) An Executive who at the time of his termination of employment is
identified in Schedule C shall be entitled to a reduced supplemental benefit
if the Executive terminates employment from a Participating Employer after
attainment of age fifty (50) but prior to satisfying the requirements of
Section 6.01(a) above.
Section 6.02. Amount of Supplemental Benefit. (a) An Executive who
----------------------------------------------
qualifies for the supplemental retirement benefit under Section 6.01(a) above
shall receive a monthly amount equal to twenty percent (20%) [in the case of
an Executive identified in Part I of Schedule C] or ten percent (10%) [in the
case of an Executive identified in Part II of Schedule C] of the Executive's
"average monthly compensation".
(b) An Executive who qualifies for the supplemental retirement
benefit under Section 6.01(b) above shall receive a monthly amount equal to
the product obtained by multiplying (i) the monthly benefit determined under
Section 6.02(a) above, by (ii) a fraction, the numerator of which is the
Executive's years of service with a Participating Employer (including
fractional years) and the denominator of which is ten (10).
(c) The Executive's "average monthly compensation" is the Executive's
"compensation", expressed on a monthly basis, during whichever period of
thirty-six (36) consecutive months of employment produces the highest
average. For this purpose, "compensation" shall have the same meaning as
under the Wisconsin Public Service Corporation Administrative Employees'
Retirement Plan with the exception that (i) Voluntary Deferrals and Mandatory
Deferrals made by or on behalf of the Executive during the relevant period
will be included in the Executive's compensation and (ii) the compensation
limitation specified in Section 401(a)(17) of the Internal Revenue Code shall
not apply.
20
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<PAGE>
Section 6.03. Commencement and Duration of Supplemental Retirement
-------------------------------------------------------------------
Benefits. Monthly payments calculated in accordance with Section 6.02 above
- ---------
will commence to the Executive with a payment for the month following the
later to occur of (i) the month in which the Executive retires or terminates
employment, or (ii) the month in which the Executive attains age fifty-eight
(58). Monthly payments to the Executive shall continue until the earlier to
occur of (a) the month in which occurs the Executive's death, or (b) one
hundred twenty (120) monthly payments have been made.
Section 6.04. Death After Benefit Commencement But Prior to Receipt of
-----------------------------------------------------------------------
120 Monthly Payments. If the Executive dies after his supplemental retirement
- ---------------------
benefit has commenced but before receipt of 120 payments, and if the
Executive leaves a surviving spouse to whom the Executive was lawfully
married on the date of his death, the surviving spouse shall receive monthly
payments equal to fifty percent (50%) of the amount of the benefit that was
being paid to the Executive. This benefit will commence with a payment for
the month following the month in which occurs the death of the Executive and
shall continue until the earlier to occur of (a) the month in which occurs
the death of the surviving spouse, or (b) a total of one hundred twenty (120)
monthly payments have been made to either the Executive or the surviving
spouse.
Section 6.05. Death Prior to Benefit Commencement. If the Executive
---------------------------------------------------
dies prior to commencement of his supplemental retirement benefit, and if the
Executive leaves a surviving spouse to whom the Executive was lawfully
married on the date of his death, the surviving spouse shall receive monthly
payments equal to fifty percent (50%) of the amount that would have been paid
to the Executive (disregarding, in the case of an Executive who dies while
actively employed, the age and service conditions described in Section 6.01
above but with the benefit amount calculated without assuming any salary
increases). This benefit will commence with a payment for the month
following the month in which occurs the death of the Executive and shall
continue until the earlier to occur of (a) the month in which occurs the
death of the surviving spouse, or (b) one hundred twenty (120) monthly
payments have been made.
Section 6.06. Special Rules Applicable Upon a Change in Control. In the
-----------------------------------------------------------------
event of a Change in Control and unless otherwise waived by the Executive, an
Executive who is identified in Schedule C and who is actively employed on the
Change in Control date shall be entitled to receive a supplemental retirement
benefit whether or not the Executive has satisfied the eligibility conditions
set forth in Section 6.01. The supplemental retirement benefit shall
commence to the Executive with a payment for the month following the month in
which the Executive retires or otherwise terminates employment following the
Change in Control, and shall continue until the earlier to occur of (a) the
Executive's death, or (b) one hundred twenty (120) monthly payments have been
made; provided that the Executive, in accordance with rules prescribed by the
Committee but in no event after the Executive's termination of employment,
may waive the application of this sentence in which case the rules of Section
6.03 shall govern the distribution of the Executive's benefit. If the
Executive dies after benefit commencement but prior to receiving one hundred
twenty (120) monthly payments, or if the Executive dies prior to benefit
commencement, the provisions of Sections 6.04 and 6.05 shall apply
21
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<PAGE>
PROTECTION OF QUALIFIED RETIREMENT PLAN BENEFIT
Section 6.07. Pension Equalization Benefit. (a) In the case of an
--------------------------------------------
Executive who is identified on Schedule D ( as from time to time amended by
the Compensation Committee) and who participates in the Wisconsin Public
Service Corporation Administrative Employees' Retirement Plan ("Retirement
Plan"), a monthly benefit shall be paid to the Executive during his lifetime,
and if applicable, to his surviving spouse following the Executive's death, a
monthly amount equal to the difference between:
(i) The monthly benefit that would have been
payable to or on behalf of the Participant
under the Retirement Plan had the Participant's
(A) compensation for Retirement Plan purposes
been calculated prior to reduction for
Voluntary and Mandatory Deferrals made to this
Plan and without regard to the compensation
limitation described in Section 401(a)(17) of
the Code, and (B) benefit been calculated
without regard to the maximum benefit
limitation described in Section 415 of the
Internal Revenue Code; and
(ii) The monthly benefit actually payable to or on
behalf of the Executive under the Retirement
Plan.
(b) Payments under this Section 7.01 shall cease when all benefits
payable to or on behalf of the Executive under the Retirement Plan are
discontinued.
22
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<PAGE>
ARTICLE VII. RULES WITH RESPECT TO WPS RESOURCES STOCK
AND WPS RESOURCES STOCK UNITS
Section 7.01. Transactions Affecting WPS Resources Stock. In the event
----------------------------------------------------------
of any merger, share exchange, reorganization, consolidation,
recapitalization, stock dividend, stock split or other change in corporate
structure affecting WPS Resources Stock, appropriate adjustments shall be made
to the WPS Resources Stock Units (if any) credited to the Stock Account of
each Participant.
Section 7.02. No Shareholder Rights With Respect to WPS Resources Stock
------------------------------------------------------------------------
Units. Participants shall have no rights as a stockholder pertaining to
- ------
WPS Resources Stock Units credited to their Stock Account. No WPS Resources
Stock Unit nor any right or interest of a Participant under the Plan in any
WPS Resources Stock Unit may be assigned, encumbered, or transferred, except
by will or the laws of descent and distribution. The rights of a Participant
hereunder with respect to any WPS Resources Stock Unit are exercisable during
the Participant's lifetime only by him or his guardian or legal
representative.
23
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<PAGE>
ARTICLE VIII. PARTICIPATING EMPLOYERS
Section 8.01. Responsibility for Benefits. Each Participating Employer
-------------------------------------------
shall be responsible for providing all benefits under the Plan that became
payable to a Participant who is or was employed by (or serves or served on
the board of directors of) that Participating Employer. To the extent that a
Participant is or was employed by two or more Participating Employers, each
such Participating Employer shall be responsible for providing the portion of
the Participant's benefits accrued while in the employ of that employer.
24
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<PAGE>
ARTICLE IX. PROVISIONS
Section 9.01. Administration. The Compensation Committee shall
------------------------------
administer and interpret the Plan and supervise preparation of Participant
elections, forms, and any amendments thereto. To the extent necessary to
comply with applicable conditions of Rule 16b-3, the Compensation Committee
shall consist of not less than two members of the Board, each of whom is also
a director of Parent and qualifies as a "non-employee director" for purposes
of Rule 16b-3. If at any time the Compensation Committee shall not be in
existence or not be composed of members of the Board who qualify as
"non-employee directors", then all determinations affecting Participants who
are subject to Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act") shall be made by the full Board. The Board may, in its
discretion, delegate to the Secretary or another committee of the Board any or
all of the authority and responsibility of the Compensation Committee with
respect to participation by Participants other than Participants who are
subject to Section 16 of the Exchange Act at the time any such delegated
authority or responsibility is exercised. Interpretation of the Plan shall be
within the sole discretion of the Compensation Committee and shall be final
and binding upon each Participant and Beneficiary. The Compensation
Committee, and the Secretary with respect to matters assigned to him under
this Plan or delegated to him by the Compensation Committee, may adopt and
modify rules and regulations relating to the Plan as it deems necessary or
advisable for the administration of the Plan. If the Secretary shall also be
a Participant or Beneficiary, any determinations affecting the Secretary's
participation in the Plan shall be made by the Compensation Committee.
Section 9.02. Compliance With Securities Exchange Act. Transactions
-------------------------------------------------------
under the Plan are intended to comply with all applicable conditions of
Rule 16b-3 or its successor under the Exchange Act. The Plan shall be
administered by the Compensation Committee so that transactions under the
Plan will be exempt from Section 16 of the Exchange Act pursuant to
regulations and interpretations issued from time to time by the Securities
and Exchange Commission.
Section 9.03. Participant Rights Unsecured. (a) The right of a
--------------------------------------------
Participant or his Beneficiary to receive a distribution hereunder shall be
an unsecured claim, and neither the Participant nor any Beneficiary shall
have any rights in or against any amount credited to his Account or any other
specific assets of a Participating Employer. The right of a Participant or
Beneficiary to the payment of benefits under this Plan shall not be assigned,
encumbered, or transferred, except by will or the laws of descent and
distribution. The rights of a Participant hereunder are exercisable during
the Participant's lifetime only by him or his guardian or legal
representative.
(b) The Company may authorize the creation of a trust or other
arrangements to assist in meeting the obligations created under the Plan.
However, any liability to any person with respect to the Plan shall be based
solely upon any contractual obligations that may be created pursuant to the
Plan. No obligation of a Participating Employer shall be deemed to be
secured by any pledge of, or other encumbrance on, any property of a
Participating Employer.
25
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<PAGE>
Nothing contained in this Plan and no action taken pursuant to its terms shall
create or be construed to create a trust of any kind, or a fiduciary
relationship between a Participating Employer and any Participant or
Beneficiary, or any other person.
(c) If, after a Change in Control, (i) a dispute arises with respect
to the enforcement of the Participant's rights under the Plan, or (ii) any
legal proceeding shall be brought to enforce or interpret any provision
contained in the Plan or to recover damages for breach of the Plan, in either
case so long as the Participant is not acting in bad faith or otherwise
pursuing a course of action that a reasonable person would determine to be
frivolous, the Participant shall recover from the Company any reasonable
attorneys' fees and necessary costs and disbursements incurred as a result of
such dispute or legal proceeding ("Expenses"), and prejudgment interest on
any money judgment obtained by the Participant calculated at the rate of
interest announced by Firstar Bank Milwaukee, Milwaukee, Wisconsin (or any
successor thereto), from time to time as its prime or base lending rate from
the date that payments to the Participant should have been made under this
Plan. Within ten (10) days after the Participant's written request therefor,
the Company shall pay to the Participant, or such other person or entity as
the Participant may designate in writing to the Company, the Participant's
Expenses in advance of the final disposition or conclusion of any such
dispute or legal proceeding. In the case of a deceased Participant, this
Section 10.03(c) shall apply with respect to the Participant's Beneficiary or
estate.
Section 9.04. Income Tax Withholding. Subject to Section 4.04(c), no
--------------------------------------
later than the date as of which an amount first becomes includible in the
gross income of the Participant for Federal income tax purposes, the
Participant shall pay or make arrangements satisfactory to the Compensation
Committee regarding the payment of, any Federal, state, local or foreign
taxes of any kind required by law to be withheld with respect to such amount.
Section 9.05. Establishment, Amendment or Termination of Plan.
---------------------------------------------------------------
(a) There shall be no time limit on the duration of the Plan. Except
as provided in Section 10.05(b) below, the Board (or where specified herein,
the Compensation Committee) may at any time amend or terminate the Plan;
provided, however, that no amendment or termination may reduce or eliminate
any Account balance accrued or credited on behalf of a Participant based on
Mandatory Deferrals, Voluntary Deferrals and Bonus Deferrals already made or
reduce or eliminate benefits accrued or credited based upon service already
rendered.
(b) Upon and following the occurrence of a Change in Control:
(i) The Board may at any time amend the Plan
consistent with Section 10.05(a) to (A) modify
the terms and conditions applicable to (or
otherwise eliminate) Bonus Deferrals, Mandatory
Deferrals and Voluntary Deferrals made (or that
in the absence of the amendment would have been
made) on or after the Amendment Date, or (B)
modify the terms and conditions applicable to
(or otherwise eliminate) the accrual of
benefits, with respect to periods on or after
26
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<PAGE>
the Amendment Date, under the supplemental
benefits described in Articles VI and VII of
the Plan.
(ii) Any amendment to the Plan or action to
terminate the Plan that is not described in
Section 10.05(b)(i) above, including, without
limitation, an amendment that would affect the
crediting of interest equivalent with respect
to Bonus Deferrals, Mandatory Deferrals and
Voluntary Deferrals made prior to the Amendment
Date and any amendment that would affect the
supplemental benefits described in Articles VI
and VII that have accrued through the Amendment
Date, shall be effective only with the written
consent of the Participant (or in the case of a
deceased Participant, the Participant's
Beneficiary).
(c) The term "Amendment Date" means the date on which an amendment to
the Plan is validly adopted or the date on which the amendment is or purports
to be effective, whichever is later.
Section 9.06. Administrative Expenses. Costs of establishing and
---------------------------------------
administering the Plan will be paid by the Participating Employers.
Section 9.07. Effect on Other Employee Benefit Plans. Voluntary
------------------------------------------------------
Deferrals, Mandatory Deferrals and Bonus Deferrals credited to a
Participant's Account under this Plan shall not be considered "compensation"
for the purpose of computing benefits under any qualified retirement plan
maintained by a Participating Employer, but shall be considered compensation
for welfare benefit plans, such as life and disability insurance programs
sponsored by a Participating Employer.
Section 9.08. Successor and Assigns. This Plan shall be binding upon
-------------------------------------
and inure to the benefit of the Company and Participating Employers, their
successors and assigns and the Participants and their heirs, executors,
administrators, and legal representatives.
Section 9.09. Maximum Payment Limitation. Notwithstanding any other
------------------------------------------
provision of this Plan, if any portion of the payments or benefits described
in this Plan or under any other agreement with or plan of the Company (in the
aggregate, "Total Payments"), would constitute an "excess parachute payment",
then the Total Payments to be made to the Participant shall be reduced such
that the value of the aggregate Total Payments that the Participant is
entitled to receive shall be one dollar ($1) less than the maximum amount
which the Participant may receive without becoming subject to the tax imposed
by Section 4999 of the Code (or any successor provision) or which the Company
may pay without loss of deduction under Section 280G(a) of the Code (or any
successor provision); provided that this Section 10.09 shall not apply in the
case of a Participant who has in effect a valid employment contract providing
that the Total Payments to the Participant shall be determined without regard
to the maximum amount allowable under Section 280G of the Code (or any
successor provision). The terms "excess parachute payment" and "parachute
payment" shall have the meanings
27
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<PAGE>
assigned to them in Section 280G of the Code (or any successor provision), and
such "parachute payments" shall be valued as provided therein. Present value
shall be calculated in accordance with Section 280G(d)(4) of the Code (or any
successor provision). Within forty days following delivery of notice by the
Company to the Participant of its belief that there is a payment or benefit
due the Participant which will result in an excess parachute payment as
defined in Section 280G of the Code (or any successor provision), the
Participant and the Company, at the Company's expense, shall obtain the
opinion (which need not be unqualified) of nationally recognized tax counsel
selected by the Company's independent auditors and acceptable to the
Participant in his sole discretion (which may be regular outside counsel to
the Company), which opinion sets forth (A) the amount of the Base Period
Income, (B) the amount and present value of Total Payments and (C) the amount
and present value of any excess parachute payments determined without regard
to the limitations of this Section 10.09. As used in this Section 10.09, the
term "Base Period Income" means an amount equal to the Participant's
"annualized includible compensation for the base period" as defined in Section
280G(d)(1) of the Code (or any successor provision). For purposes of such
opinion, the value of any noncash benefits or any deferred payment or benefit
shall be determined by the Company's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code (or any successor
provisions), which determination shall be evidenced in a certificate of such
auditors addressed to the Company and the Participant. Such opinion shall be
addressed to the Company and the Participant and shall be binding upon the
Company and the Participant. If such opinion determines that there would be
an excess parachute payment, the payments hereunder that are includible in
Total Payments or any other payment or benefit determined by such counsel to
be includible in Total Payments shall be reduced or eliminated as specified by
the Participant in writing delivered to the Company within thirty days of his
receipt of such opinion or, if the Participant fails to so notify the Company,
then as the Company shall reasonably determine, so that under the bases of
calculations set forth in such opinion there will be no excess parachute
payment. If such legal counsel so requests in connection with the opinion
required by this Section 10.09, the Participant and the Company shall obtain,
at the Company's expense, and the legal counsel may rely on in providing the
opinion, the advice of a firm of recognized executive compensation consultants
as to the reasonableness of any item of compensation to be received by the
Participant. If the provisions of Sections 280G and 4999 of the Code (or any
successor provisions) are repealed without succession, then this Section 10.09
shall be of no further force or effect.
28
E-239
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
WPS RESOURCES CORPORATION
1) WPS RESOURCES CORPORATION *
a) Wisconsin Public Service Corporation
i) WPS Leasing, Inc.
b) Upper Peninsula Power Company
c) WPS Visions, Inc.
d) Upper Peninsula Building Development Company
e) Penvest, Inc.
f) WPSR Capital Trust I
g) WPS Nuclear Corporation
i) Nuclear Management Company, LLC (25% ownership)
h) WPS Resources Capital Corporation
i) WPS Energy Services, Inc.
(1) WPS-ESI Gas Storage, LLC (75% ownership)
ii) WPS Power Development, Inc.
(1) PDI Stoneman, Inc.
(a) Mid-American Power, LLC (66-2/3% ownership)
(2) PDI Operations, Inc.
(3) Mid-American Power Ventures, LLC (75% ownership)
(4) Neulite Industries of Wisconsin, LLC (50% ownership)
(5) PDI Canada, Inc.
(6) PDI New England, Inc.
(7) Sunbury Holdings, LLC
(a) Sunbury Generation, LLC
(b) Penfield Collieries, LLC
(8) Renewable Fibers International, LLC (33-1/3% ownership)
(9) Wisconsin Woodgas LLC
(10) Wisconsin Energy Operations LLC (49% ownership)
(11) ECO Coal Pelletization #12, LLC (66-2/3% ownership)
i) Brown County C-LEC, LLC (40% ownership)
* WPS Resources Corporation is the parent holding company. All affiliated
companies listed are 100% owned except as noted otherwise. All affiliated
companies are currently active, with the exception of Mid-American Power
Ventures, LLC and Neulite Industries of Wisconsin, LLC.
E-240
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K into WPS Resources Corporation's
previously filed Registration Statement Files No. 33-47172, No. 33-61991,
No. 33-65167, No. 333-63101, No. 333-88525, and No. 333-93193, and Wisconsin
Public Service Corporation's previously filed Registration Statement Files
No. 33-35050 and No. 333-67979.
/S/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 16, 2000
E-241
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 2000 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and B. J. Wolf or any one of them, as attorney,
with full power to act for the undersigned and in the name, place and stead of
the undersigned, to sign the name of the undersigned as Director to said
annual report on Form 10-K and any and all amendments to said annual report,
hereby ratifying and confirming all that said attorney may or shall lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
16th day of March , 2000.
- ------ ---------
(SEAL)
/S/ A. Dean Arganbright
--------------------------------------
Director
E-242
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 2000 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and B. J. Wolf or any one of them, as attorney,
with full power to act for the undersigned and in the name, place and stead of
the undersigned, to sign the name of the undersigned as Director to said
annual report on Form 10-K and any and all amendments to said annual report,
hereby ratifying and confirming all that said attorney may or shall lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
16th day of March , 2000.
- ------ ---------
(SEAL)
/S/ Michael S. Ariens
--------------------------------------
Director
E-243
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 2000 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and B. J. Wolf or any one of them, as attorney,
with full power to act for the undersigned and in the name, place and stead of
the undersigned, to sign the name of the undersigned as Director to said
annual report on Form 10-K and any and all amendments to said annual report,
hereby ratifying and confirming all that said attorney may or shall lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
16th day of March , 2000.
- ------ ---------
(SEAL)
/S/ Richard A. Bemis
--------------------------------------
Director
E-244
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 2000 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and B. J. Wolf or any one of them, as attorney,
with full power to act for the undersigned and in the name, place and stead of
the undersigned, to sign the name of the undersigned as Director to said
annual report on Form 10-K and any and all amendments to said annual report,
hereby ratifying and confirming all that said attorney may or shall lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
16th day of March , 2000.
- ------ ---------
(SEAL)
/S/ Clarence R. Fisher
--------------------------------------
Director
E-245
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 2000 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and B. J. Wolf or any one of them, as attorney,
with full power to act for the undersigned and in the name, place and stead of
the undersigned, to sign the name of the undersigned as Director to said
annual report on Form 10-K and any and all amendments to said annual report,
hereby ratifying and confirming all that said attorney may or shall lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
16th day of March , 2000.
- ------ ---------
(SEAL)
/S/ Robert C. Gallagher
--------------------------------------
Director
E-246
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 2000 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and B. J. Wolf or any one of them, as attorney,
with full power to act for the undersigned and in the name, place and stead of
the undersigned, to sign the name of the undersigned as Director to said
annual report on Form 10-K and any and all amendments to said annual report,
hereby ratifying and confirming all that said attorney may or shall lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
16th day of March , 2000.
- ------ ---------
(SEAL)
/S/ Kathryn M. Hasselblad-Pascale
--------------------------------------
Director
E-247
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 2000 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and B. J. Wolf or any one of them, as attorney,
with full power to act for the undersigned and in the name, place and stead of
the undersigned, to sign the name of the undersigned as Director to said
annual report on Form 10-K and any and all amendments to said annual report,
hereby ratifying and confirming all that said attorney may or shall lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
16th day of March , 2000.
- ------ ---------
(SEAL)
/S/ James L. Kemerling
--------------------------------------
Director
E-248
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 2000 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and B. J. Wolf or any one of them, as attorney,
with full power to act for the undersigned and in the name, place and stead of
the undersigned, to sign the name of the undersigned as Director to said
annual report on Form 10-K and any and all amendments to said annual report,
hereby ratifying and confirming all that said attorney may or shall lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
16th day of March , 2000.
- ------ ---------
(SEAL)
/S/ John C. Meng
--------------------------------------
Director
E-249
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 2000 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and B. J. Wolf or any one of them, as attorney,
with full power to act for the undersigned and in the name, place and stead of
the undersigned, to sign the name of the undersigned as Director to said
annual report on Form 10-K and any and all amendments to said annual report,
hereby ratifying and confirming all that said attorney may or shall lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
16th day of March , 2000.
- ------ ---------
(SEAL)
/S/ Larry L. Weyers
--------------------------------------
Director
E-250
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000107833
<NAME> WISCONSIN PUBLIC SERVICE CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,048,886
<OTHER-PROPERTY-AND-INVEST> 1,294
<TOTAL-CURRENT-ASSETS> 186,446
<TOTAL-DEFERRED-CHARGES> 68,169
<OTHER-ASSETS> 105,090
<TOTAL-ASSETS> 1,409,885
<COMMON> 95,588
<CAPITAL-SURPLUS-PAID-IN> 167,842
<RETAINED-EARNINGS> 261,698
<TOTAL-COMMON-STOCKHOLDERS-EQ> 525,128
0
51,193
<LONG-TERM-DEBT-NET> 299,563
<SHORT-TERM-NOTES> 10,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 40,000
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 73,585
<LEASES-CURRENT> 419
<OTHER-ITEMS-CAPITAL-AND-LIAB> 409,997
<TOT-CAPITALIZATION-AND-LIAB> 1,409,885
<GROSS-OPERATING-REVENUE> 719,443
<INCOME-TAX-EXPENSE> 37,298
<OTHER-OPERATING-EXPENSES> 595,191
<TOTAL-OPERATING-EXPENSES> 632,489
<OPERATING-INCOME-LOSS> 86,954
<OTHER-INCOME-NET> 7,802
<INCOME-BEFORE-INTEREST-EXPEN> 94,756
<TOTAL-INTEREST-EXPENSE> 24,541
<NET-INCOME> 70,215
3,111
<EARNINGS-AVAILABLE-FOR-COMM> 67,104
<COMMON-STOCK-DIVIDENDS> 76,000
<TOTAL-INTEREST-ON-BONDS> 22,941
<CASH-FLOW-OPERATIONS> 132,764
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>All of Wisconsin Public Service Corporation ("WPSC") common stock is
controlled by WPS Resources Corporation which operates as a holding company.
WPSC, as a subsidiary, does not calculate earnings per share. The earnings
per share of WPS Resources Corporation for 1999 were $2.24 for both basic
and diluted earnings per share calculations.
</FN>
</TABLE>
