<PAGE>
Registration No. 333-10401
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT
NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WPL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
[TO BE RENAMED INTERSTATE ENERGY CORPORATION]
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WISCONSIN 6719 39-1380265
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
222 WEST WASHINGTON AVENUE
MADISON, WISCONSIN 53703
(608) 252-3311
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ERROLL B. DAVIS, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WPL HOLDINGS, INC.
222 WEST WASHINGTON AVENUE
MADISON, WISCONSIN 53703
(608) 252-3311
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
--------------------------
INTERSTATE POWER COMPANY
(Exact name of registrant as specified in its charter)
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WISCONSIN 4939 42-1457523
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1000 MAIN STREET
DUBUQUE, IOWA 52001
(319) 582-5421
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
MICHAEL R. CHASE
PRESIDENT
INTERSTATE POWER COMPANY
1000 MAIN STREET
DUBUQUE, IOWA 52001
(319) 582-5421
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
--------------------------
COPIES OF ALL CORRESPONDENCE TO:
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<S> <C> <C>
Benjamin F. Garmer, III, Esq. Stephen W. Southwick, Esq. M. Douglas Dunn, Esq.
Foley & Lardner Vice President, General Counsel & Milbank, Tweed, Hadley & McCloy
777 East Wisconsin Avenue Secretary 1 Chase Manhattan Plaza
Milwaukee, WI 53202-5367 IES Industries Inc. New York, NY 10005
IES Tower
200 First Street S.E.
Cedar Rapids, IA 52401
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the Mergers as defined herein have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
Pursuant to Rule 429 under the Securities Act of 1933, the Joint Proxy
Statement/Prospectus and the Supplement thereto contained as part of this
Registration Statement on Form S-4 also relate to the Registration Statement on
Form S-4 (Registration No. 333-07931).
--------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
WPL HOLDINGS, INC.
[TO BE RENAMED INTERSTATE ENERGY CORPORATION]
INTERSTATE POWER COMPANY
CROSS REFERENCE SHEET SHOWING THE LOCATION IN THE
JOINT PROXY STATEMENT/PROSPECTUS AND THE SUPPLEMENT THERETO OF THE INFORMATION
REQUIRED BY ITEMS 1 THROUGH 19, PART I, OF FORM S-4
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ITEM NUMBER AND CAPTION OF FORM S-4 LOCATION
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A. Information About the Transaction
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Facing Page of Registration Statement; Cross
Reference Sheet; Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Available Information; Incorporation of Documents
by Reference (in the Joint Proxy
Statement/Prospectus and the Supplement thereto);
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................ Summary; Selected Historical and Pro Forma
Financial Data; Recent Developments
4. Terms of Transaction.............................. Summary; The Mergers; The Merger Agreement; The
Stock Option Agreements; Description of
Interstate Energy Capital Stock; Amendments to
WPLH Restated Articles of Incorporation;
Comparison of Shareowner Rights; Interstate
Energy Following the Mergers; Recent Developments
5. Pro Forma Financial Information................... Unaudited Pro Forma Combined Financial Information
(in the Joint Proxy Statement/Prospectus and the
Supplement thereto)
6. Material Contacts with the Company Being
Acquired......................................... Summary; The Mergers; The Merger Agreement; The
Stock Option Agreements; Selected Information
Concerning WPLH, IES and IPC; Recent Developments
7. Additional Information Required for Reoffering by
Person and Parties Deemed to be Underwriters..... Not Applicable
8. Interests of Named Experts and Counsel............ Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
B. Information About the Registrant
10. Information With Respect to S-3 Registrants....... Incorporation of Documents by Reference (in the
Joint Proxy Statement/Prospectus and the
Supplement thereto)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION OF FORM S-4 LOCATION
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<C> <C> <S> <C>
11. Incorporation of Certain Information by
Reference........................................ Incorporation of Documents by Reference (in the
Joint Proxy Statement/Prospectus and the
Supplement thereto)
12. Information With Respect to S-2 or S-3
Registrants...................................... Not Applicable
13. Incorporation of Certain Information by
Reference........................................ Not Applicable
14. Information With Respect to Registrants Other Than
S-3 or S-2 Registrants........................... Summary; The Mergers; Selected Historical and Pro
Forma Data; Selected Information Concerning WPLH,
IES and IPC; Annex S
C. Information About the Company Being Acquired
15. Information With Respect to S-3 Companies......... Incorporation of Documents by Reference
16. Information With Respect to S-2 or S-3
Companies........................................ Not Applicable
17. Information With Respect to Companies Other Than
S-3 or S-2 Companies............................. Not Applicable
D. Voting and Management Information
18. Information if Proxies, Consents or Authorizations
are to be Solicited.............................. Incorporation of Documents by Reference; Summary;
Meetings, Voting and Proxies; The Mergers;
Selected Information Concerning WPLH, IES and
IPC; For WPLH -- Election of WPLH Directors,
Meetings and Committees of WPLH Board, Ownership
of Voting Securities, Compensation of Executive
Officers*, Comparison of Five-Year Cumulative
Total Return*; For IES -- Election of IES
Directors, Security Ownership of Beneficial
Owners, Security Ownership of Management, Other
Transactions, Functioning of the IES Board and
Committees, Compensation of Directors, Report of
the Compensation Committee on Executive
Compensation*, Performance Graph*, IES Plans,
Iowa Southern Utilities Plans, Employment
Agreement; For IPC -- Election of IPC Directors,
Principal Holders of Voting Securities,
Compensation of Directors and Executive Officers*
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange
Offer............................................ Not Applicable
</TABLE>
- ------------------------
* In accordance with Item 402(a)(8) and (9) of Regulation S-K, the board
compensation committee report on executive compensation and the performance
graph information under these captions is provided for the purpose of WPLH's,
IES's or IPC's Proxy Statement only and is not intended to be a part of the
Joint Registration Statement, the Prospectus or the Supplement to the
Prospectus.
<PAGE>
[WPL HOLDINGS, INC. LETTERHEAD]
ERROLL B. DAVIS, JR.
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
August 21, 1996
Dear WPL Holdings, Inc. Shareowner:
On August 15, 1996, your Board of Directors approved an amendment to the
Agreement and Plan of Merger (the "Merger Agreement") for the strategic
three-way business combination of WPL Holdings, Inc. ("WPLH"), Cedar Rapids,
Iowa-based IES Industries Inc. ("IES") and Dubuque, Iowa-based Interstate Power
Company ("IPC").
Under the terms of the revised Merger Agreement, which was also approved by
the Boards of Directors of IES and IPC, each share of IES common stock will be
converted into 1.14 shares of Interstate Energy Corporation common stock at the
time of the consummation of the merger transaction. Under the prior arrangement,
each share of IES common stock was to be converted into 1.01 shares of
Interstate Energy Corporation common stock. The IES exchange ratio was adjusted
in conjunction with the rejection by the IES Board of an unsolicited proposal
made for IES by Des Moines, Iowa-based MidAmerican Energy Company.
Only the IES exchange ratio has been adjusted under the revised Merger
Agreement. As under the prior arrangement, each share of IPC common stock will
be converted into 1.11 shares of Interstate Energy Corporation common stock and
each share of WPLH common stock will represent one share of Interstate Energy
Corporation common stock following consummation of the merger transaction.
Your Board of Directors continues to believe that the proposed transaction
between WPLH, IES and IPC will result in a combined entity that will be
well-positioned to compete in an increasingly competitive utility industry
environment. The Board further believes that the increased IES exchange ratio is
justified by the strategic value of the three-way combination. The Board has
received a written opinion from its financial advisor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, dated August 21, 1996, to the effect that, as of
such date, and based upon the assumptions made, matters considered and limits of
review set forth in such opinion, the revised IES exchange ratio and the IPC
exchange ratio, taken together, are fair, from a financial point of view, to
WPLH.
The 1996 WPLH Annual Meeting remains scheduled for Thursday, September 5,
1996, at the Exhibition Hall at the Dane County Expo Center, 1881 Expo Mall,
Madison, Wisconsin. The WPLH Annual Meeting will be held immediately following
the Annual Meeting of Shareowners of Wisconsin Power and Light Company, which
meeting will start at 10:00 a.m. (Central Time).
Your Board of Directors believes that each of the proposals to be voted on
at the WPLH Annual Meeting (including the proposal to approve the revised Merger
Agreement and the transactions contemplated thereby) is in the best interests of
WPLH and its shareowners, and unanimously recommends that shareowners vote "FOR"
each of the proposals.
We have enclosed an additional proxy card for the WPLH Annual Meeting for
your use. IF YOU HAVE ALREADY MAILED A PROXY FOR THE WPLH ANNUAL MEETING, YOU
NEED NOT RETURN THE ENCLOSED CARD UNLESS YOU WISH TO CHANGE YOUR VOTE, WHICH YOU
MAY DO BY COMPLETING, SIGNING, DATING AND RETURNING THE ENCLOSED PROXY. SUCH NEW
PROXY WHEN RECEIVED WILL SUPERSEDE YOUR EARLIER PROXY. IF YOU HAVE NOT ALREADY
RETURNED A PROXY, YOU ARE URGED TO RETURN THE ENCLOSED PROXY AS SOON AS
POSSIBLE.
The accompanying Supplement to the Joint Proxy Statement/Prospectus provides
shareowners with further details regarding the revised Merger Agreement and
other recent developments. If you have any questions about these specific
matters or about the WPLH Annual Meeting in general, please call Shareowner
Services at 608-252-3110 (local) or 1-800-356-5343 (toll-free).
Sincerely,
[/S/ ERROLL B. DAVIS, JR.]
Erroll B. Davis, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
[IES Industries Inc. Letterhead]
Dear IES Industries Inc. Shareholder:
Enclosed is a copy of the Supplement to Joint Proxy Statement/Prospectus
relating to the matters to be voted on at the annual meeting of shareholders on
Thursday, September 5, 1996. IES Industries seeks your approval of a revised
agreement for a strategic three-way business combination among IES, WPL
Holdings, Inc. ("WPLH") and Interstate Power Company ("IPC"), to create a new
regional energy powerhouse, Interstate Energy Corporation.
Your Board of Directors believes the combination of IES, WPLH and IPC will
result in a strong business organization able to take advantage of attractive
regional opportunities in both its core utility and its diversified businesses.
Under the terms of the revised agreement for the proposed transaction, which
was also approved by the Boards of WPLH and IPC, each share of IES common stock
will be converted into 1.14 shares of Interstate Energy common stock (the "IES
Ratio"). Under the new terms, it is anticipated that the value to IES
shareholders of Interstate Energy's initial annual cash dividend will be $2.25
per share of IES common stock. As under the prior agreement, each share of IPC
common stock will be converted into 1.11 shares of Interstate Energy common
stock (the "IPC Ratio").
Under the former agreement, each IES common share was to be converted into
1.01 shares of Interstate Energy common stock. Under the revised agreement, the
Interstate Energy transaction provides enhanced value to IES shareholders,
giving them an even bigger stake in a regional utility with excellent growth
potential. In addition, the Board received a written opinion dated the date
hereof from its financial advisor, Morgan Stanley & Co. Incorporated, to the
effect that, as of such date, and based upon the procedures and subject to the
assumptions described therein, the revised IES Ratio, taking into account the
IPC Ratio, is fair from a financial point of view to the holders of IES common
stock.
THE IES BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS
AND CONDITIONS OF THE MERGER TO BE VOTED UPON AT THE IES ANNUAL MEETING AND
BELIEVES IT IS IN THE BEST INTERESTS OF IES AND ITS SHAREHOLDERS AND RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" THE PROPOSALS DESCRIBED IN THE ATTACHED SUPPLEMENT
TO JOINT PROXY STATEMENT/PROSPECTUS.
In addition, IES shareholders will be asked to elect nine directors to serve
until the next annual meeting of IES shareholders or until their successors are
elected and qualified.
The IES Board also unanimously (with one abstention by a director who was
not eligible to vote on the matter) rejected the hostile takeover proposal from
MidAmerican Energy of Des Moines, Iowa, concluding that it is inferior to the
terms of the revised Interstate Energy merger agreement and is not in the best
interests of IES shareholders. The Board also viewed with concern the impact of
the proposed MidAmerican transaction on customers, employees and the communities
IES has served for more than 100 years.
Despite your Board's rejection of MidAmerican's hostile offer, MidAmerican
has sent you materials asking you to vote against our merger with WPLH and IPC,
and to support their takeover. Your Board strongly urges that you do NOT return
any solicitation materials received from MidAmerican.
WE HAVE ENCLOSED AN ADDITIONAL PROXY/DIRECTION CARD FOR THE ANNUAL MEETING
FOR YOUR USE. IES STRONGLY URGES YOU TO VOTE FOR THE REVISED INTERSTATE ENERGY
MERGER (PROPOSAL 2) ON THE ENCLOSED WHITE PROXY/ DIRECTION CARD. TIME IS SHORT,
SO PLEASE SIGN, DATE AND RETURN THE ENCLOSED WHITE PROXY/DIRECTION CARD IN THE
POSTAGE PAID ENVELOPE TODAY. EVEN IF YOU HAVE PREVIOUSLY VOTED AGAINST THE
MERGER, ON EITHER IES'S PROXY/ DIRECTION CARD OR MIDAMERICAN'S PROXY/DIRECTION
CARD, THERE IS STILL TIME TO CHANGE YOUR MIND BY SIGNING, DATING AND RETURNING
THE ENCLOSED WHITE PROXY/DIRECTION CARD FOR A VOTE FOR PROPOSAL 2. REMEMBER,
ONLY YOUR LATEST DATED, VALIDLY EXECUTED PROXY/DIRECTION CARD COUNTS, SO PLEASE
ACT TODAY. AS A SHAREHOLDER, IT IS IN YOUR BEST INTEREST, AS WELL AS HELPFUL TO
YOUR BOARD OF DIRECTORS, THAT YOU PARTICIPATE IN THE AFFAIRS OF IES, WHETHER YOU
OWN A FEW SHARES OR MANY SHARES.
<PAGE>
Let me express my appreciation for your past cooperation. I look forward to
your continued interest in IES.
Whether or not you plan to attend the Annual Meeting, please promptly
complete, sign, date and return the enclosed proxy/direction card in the
enclosed postage prepaid envelope. You may, of course, attend the Annual Meeting
and vote in person, even if you have previously returned your proxy card. The
Annual Meeting will be held at the Collins Plaza Hotel, 1200 Collins Road N.E.,
Cedar Rapids, Iowa, on September 5, 1996 at 10:00 a.m. (Central Time). If you
have any questions about the IES Annual Meeting, please call Georgeson & Co.,
IES's proxy solicitor, at (800) 223-2064.
On behalf of your Board of Directors, thank you for your continued support.
Sincerely,
[/S/ LEE LIU]
Lee Liu
Chairman of the Board,
President & Chief
Executive Officer
August 21, 1996
<PAGE>
[INTERSTATE POWER COMPANY LETTERHEAD]
WAYNE H. STOPPELMOOR
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
August 21, 1996
Dear Interstate Power Company Stockholder:
On August 15, 1996, your Board of Directors approved an amendment to the
Agreement and Plan of Merger (the "Merger Agreement") for the strategic
three-way business combination of Interstate Power Company ("IPC"), Madison,
Wisconsin-based WPL Holdings, Inc. ("WPLH") and Cedar Rapids, Iowa-based IES
Industries Inc. ("IES").
Under the terms of the revised Merger Agreement, which was also approved by
the Boards of Directors of WPLH and IES, each share of IES common stock will be
converted into 1.14 shares of Interstate Energy Corporation common stock at the
time of the consummation of the merger transaction. Under the prior arrangement,
each share of IES common stock was to be converted into 1.01 shares of
Interstate Energy Corporation common stock. The IES exchange ratio was adjusted
in conjunction with the rejection by the IES Board of an unsolicited takeover
proposal made for IES by Des Moines, Iowa-based MidAmerican Energy Company.
Only the IES exchange ratio has been adjusted under the revised Merger
Agreement. As under the prior arrangement, each share of IPC common stock will
be converted into 1.11 shares of Interstate Energy Corporation common stock and
each share of WPLH common stock will represent one share of Interstate Energy
Corporation common stock following consummation of the merger transaction.
Your Board of Directors continues to believe that the proposed transaction
between IPC, WPLH and IES will result in a combined entity that will be
well-positioned to compete in an increasingly competitive utility industry
environment. The Board further believes that the increased IES exchange ratio is
justified by the strategic value of the three-way combination. The Board has
received a written opinion from its financial advisor, Salomon Brothers Inc,
dated August 21, 1996, to the effect that, as of such date, and based upon the
assumptions made, matters considered and limits of review set forth in such
opinion, the IPC exchange ratio is fair to the holders of IPC common stock from
a financial point of view.
The 1996 IPC Annual Meeting remains scheduled for Thursday, September 5,
1996, at the Holiday Inn Dubuque Five Flags, 450 Main Street, Dubuque, Iowa at
10:00 a.m. (Central Time).
Your Board of Directors believes that each of the proposals to be voted on
at the IPC Annual Meeting (including the proposal to approve the revised Merger
Agreement and the transactions contemplated thereby) is in the best interests of
IPC and its stockholders, and unanimously recommends that stockholders vote
"FOR" each of the proposals.
We have enclosed an additional proxy card for the IPC Annual Meeting for
your use. IF YOU HAVE ALREADY MAILED A PROXY FOR THE IPC ANNUAL MEETING, YOU
NEED NOT RETURN THE ENCLOSED CARD. If you wish to change your vote, you may do
so by completing, signing, dating and returning the enclosed proxy which when
received, will supersede your earlier proxy. If you have not already returned a
proxy, I urge you to return the enclosed proxy as soon as possible.
<PAGE>
The accompanying Supplement to the Joint Proxy Statement/Prospectus provides
stockholders with further details regarding the revised Merger Agreement and
other recent developments. If you have any questions about these specific
matters or about the IPC Annual Meeting in general, please call IPC Stockholder
Services at 319-582-5421, ext. 465.
Sincerely,
[/S/ WAYNE H. STOPPELMOOR]
Wayne H. Stoppelmoor
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE>
SUPPLEMENT TO
JOINT PROXY STATEMENT
OF
WPL HOLDINGS, INC.,
IES INDUSTRIES INC.
AND
INTERSTATE POWER COMPANY
(A DELAWARE CORPORATION)
------------------------
PROSPECTUS
SUPPLEMENT
OF
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WPL HOLDINGS, INC.
TO BE RENAMED
INTERSTATE ENERGY CORPORATION INTERSTATE POWER COMPANY
(A WISCONSIN CORPORATION) AND (A WISCONSIN CORPORATION)
relating to shares of common stock relating to shares of preferred stock
(and accompanying common stock
purchase rights)
</TABLE>
------------------------
This Supplement to Joint Proxy Statement/Prospectus relates to the proposed
combination of WPL Holdings, Inc. ("WPLH"), IES Industries Inc. ("IES") and
Interstate Power Company ("IPC") into a single entity to be known after the
combination as Interstate Energy Corporation ("Interstate Energy"). This
Supplement supplements, and should be read in conjunction with, the Joint Proxy
Statement/Prospectus dated July 11, 1996 (the "Original Joint Proxy
Statement/Prospectus"). The Original Joint Proxy Statement/Prospectus is
modified as set forth herein. Capitalized terms used herein and not otherwise
defined have the meanings ascribed to such terms in the Original Joint Proxy
Statement/Prospectus.
The purpose of this Supplement is to inform the shareowners of WPLH, IES and
IPC that the Merger Agreement has been amended to increase the IES Ratio from
1.01 to 1.14 (which represents a value per share of IES Common Stock of $36.20,
based upon the closing price per share of WPLH Common Stock of $31 3/4 on August
15, 1996), and to seek approval from such shareowners for the Merger Agreement,
as so amended, at the annual meetings of WPLH, IES and IPC scheduled to be held
on Thursday, September 5, 1996. See "Recent Developments."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THE ORIGINAL JOINT PROXY STATEMENT/ PROSPECTUS AS
SUPPLEMENTED BY THIS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Supplement to Joint Proxy Statement/Prospectus and accompanying forms
of proxy are first being mailed to shareowners of WPLH, IES and IPC on or about
August 23, 1996.
THE DATE OF THIS SUPPLEMENT TO JOINT PROXY STATEMENT/PROSPECTUS IS AUGUST 21,
1996.
<PAGE>
RECENT DEVELOPMENTS
BACKGROUND OF THE MERGERS
On November 10, 1995, WPLH, IES and IPC entered into the Merger Agreement,
which was subsequently amended by Amendment No. 1 thereto, dated May 22, 1996.
Each of the parties to the Merger Agreement has scheduled an annual meeting for
September 5, 1996 at which the respective shareowners of WPLH, IES and IPC are
to vote to approve, among other things, the Merger Agreement and the
transactions contemplated thereby. On August 4, 1996, MidAmerican Energy Company
("MEC") made an unsolicited takeover proposal for IES.
A predecessor of MEC had previously entered into a Confidentiality and
Standstill Agreement with IES dated August 16, 1993 (the "Standstill
Agreement"), which provided, among other things, that until August 1, 1996,
neither party would,
without the prior written consent of the Board of Directors of the other
party (i) in any manner acquire, agree to acquire or make any proposal to
acquire, directly or indirectly, any securities of the other party or any of
its subsidiaries, (ii) in any manner acquire, agree to acquire or make any
proposal to acquire, directly or indirectly, any property of the other party
or any of its subsidiaries, except in the ordinary course of business, (iii)
make, or in any way participate, directly or indirectly, in any
"solicitation" of "proxies" (as such terms are used in the proxy rules of
the Securities and Exchange Commission) to vote, or seek to advise or
influence any person with respect to the voting of, any voting securities of
the other party or any of its subsidiaries, (iv) form, join or in any way
participate in a "group" (within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) with respect to any voting
securities of the other party or any of its subsidiaries, (v) otherwise act,
alone or in concert with others, to seek to control or influence the
management, Board of Directors or policies of the other party, (vi) disclose
any intention, plan or arrangement inconsistent with the foregoing, or (vii)
advise, assist or encourage any other persons in connection with the
foregoing.
Each party also agreed, until August 1, 1996,
not to (i) request the other party or its Representatives, directly or
indirectly, to amend or waive any provision of this paragraph (including
this sentence) or (ii) take any action which might require the other party
to make a public announcement regarding the possibility of a business
combination or merger.
Notwithstanding the restrictions contained in the Standstill Agreement, in
August 1995 executives of MEC approached Lee Liu, Chairman of the Board,
President & Chief Executive Officer of IES, to discuss a potential business
combination between MEC and IES. MEC did not propose any terms for such a
combination and IES indicated that it was not interested in discussing such a
combination at that time. MEC then sent letters to IES dated October 3 and
October 10, 1995, requesting discussions with IES concerning a possible
combination. Neither of these letters contained any proposed terms for such a
combination and IES again declined to enter into discussions with MEC. IES
responded to MEC's first letter on October 6, 1995, writing that members of the
IES Board had discussed MEC's letter, and that at that time, IES was "not
interested in entering into discussion with [MEC] relative to a possible
business combination."
Also notwithstanding the restrictions contained in the Standstill Agreement,
on October 23, 1995 MEC formally requested that the IES Board grant it
permission to make a formal business combination proposal. In the letter, MEC
indicated that such a formal proposal would contain, among other things, the
following terms: (i) a "merger of equals" between MEC and IES after receipt of
all appropriate approvals; (ii) an exchange ratio of common stock to provide a
premium to IES shareholders of 15% over its $26.875 market value at closing on
October 20, 1995 (premised and conditioned on 29,290,660 outstanding shares of
IES Common Stock); (iii) the combined company would continue to maintain a
"significant and appropriate" presence in Cedar Rapids; and (iv) IES
shareholders would have "appropriate" representation on the combined company's
Board of Directors.
2
<PAGE>
On October 26, 1995, IES informed MEC that it would consider its request at
the next regular IES Board meeting in November.
On November 10, 1995, the IES Board held a meeting at which it discussed,
among other things, the proposed terms of MEC's combination proposal. After
discussion and consultation with its legal and financial advisors and a review
of its previous strategic option evaluations as discussed in the Original Joint
Proxy Statement/Prospectus under the caption "The Mergers -- Background of the
Mergers," the IES Board determined not to pursue the MEC proposal and approved
the Merger Agreement. Later that day, IES entered into the Merger Agreement with
WPLH and IPC.
On Thursday, August 1, 1996, the Standstill Agreement terminated and
thereafter, on Sunday, August 4, MEC delivered a letter to IES with a formal
takeover proposal (the "MEC Takeover Proposal"). Mr. Liu subsequently informed
Erroll B. Davis, Jr., President and Chief Executive Officer of WPLH, and Wayne
H. Stoppelmoor, Chairman of the Board, President and Chief Executive Officer of
IPC, of the MEC Takeover Proposal. MEC also delivered to IES a demand, from
Regina Rae Huggins, a holder of four shares of IES Common Stock, for a list of
the IES shareholders.
The MEC Takeover Proposal was premised upon the withdrawal by IES from its
proposed transaction with WPLH and IPC. MEC stated that the MEC Takeover
Proposal had been approved and authorized by MEC's Board of Directors. The MEC
Takeover Proposal contained, among other things, the following terms: (i) IES
would merge with and into MEC or with a subsidiary of MEC; (ii) the aggregate
consideration would be 40% cash (or less if shareholders so elected) and the
remainder in MEC common stock, to be allocated in accordance with customary
election and allocation procedures to be set forth in a new merger agreement;
(iii) IES common shareholders electing to receive cash would receive $39 for
each share of IES Common Stock; (iv) IES common shareholders electing to receive
stock would receive 2.346 shares of MEC common stock for each share of IES
Common Stock (which has a value of $37.24 per share of IES Common Stock, based
upon the closing price of MEC common stock of $15 7/8 per share on August 15,
1996); (v) a new merger agreement would include "the same representations and
warranties and substantially the same applicable terms, conditions and
covenants" as the Merger Agreement; (vi) the headquarters of the combined
company would be in Des Moines, Iowa; (vii) the combined company would continue
to maintain a "significant" presence in Cedar Rapids; (viii) the proposed
transaction would be accounted for as a purchase rather than a pooling of
interests; and (ix) the Board of the combined company would include an
unspecified number of directors from IES.
On Monday, August 5, the IES Board, together with its counsel, Winthrop,
Stimson, Putnam & Roberts, and its financial advisor, Morgan Stanley & Co.
Incorporated ("Morgan Stanley"), held a telephonic meeting at which the
participants discussed the status of the Standstill Agreement, the MEC Takeover
Proposal and the options available to the IES Board. The IES Board scheduled a
meeting for August 14 for further discussion of the MEC Takeover Proposal with
its legal and financial advisors. Thereafter, IES issued a press release
indicating that it had received the MEC Takeover Proposal and that it would be
considered and evaluated by the IES Board. In the press release, IES also
requested that its shareholders take no action until the IES Board had fully
evaluated the MEC Takeover Proposal.
In the eight days following the August 5, 1996 announcement of the MEC
Takeover Proposal, and prior to the August 14, 1996 IES Board meeting, IES's
directors and officers continued to examine the MEC Takeover Proposal and to
consult with IES's legal and financial advisors concerning their options and
obligations. On August 7, 1996, Mr. Liu and Larry Root, a former executive
officer of and now a consultant to IES, held a conference call with counsel to
IES and with Morgan Stanley. IES retained Georgeson & Co. ("Georgeson") to act
as its individual proxy solicitor and Kekst & Co. ("Kekst") to assist with
public relations. For its services, Georgeson will be paid a fee not to exceed
$500,000 on the following basis: $200,000 payable upon execution of an
arrangement with IES, $200,000 payable September 8, 1996, and if Georgeson's
services are required after December 7, 1996, an additional $100,000 payable
December 8, 1996. IES will also pay Georgeson an additional $6.00 per
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phone call to individual shareholders and non-objecting beneficial owners and
for incoming calls from such owners, which fees shall include all telephone
charges. In addition, the respective counsel and financial advisors of WPLH, IES
and IPC held several informal, nonsubstantive discussions during this period
regarding the status of the MEC Takeover Proposal and the Merger Agreement.
On Friday, August 9, 1996, IES issued a press release, together with letters
to its shareholders and employees, informing them that the IES Board would be
meeting to evaluate the MEC Takeover Proposal. IES urged its shareholders not to
act until the IES Board had made its recommendation. IES also made available its
shareholder list to Ms. Huggins on August 9, 1996.
Also on August 9, 1996, Stanley J. Bright, President and Chief Executive
Officer of MEC, called Mr. Stoppelmoor. Mr. Bright informed Mr. Stoppelmoor of
the MEC Takeover Proposal and indicated that the purpose of the call was merely
a courtesy to Mr. Stoppelmoor. Messrs. Bright and Stoppelmoor did not engage in
any substantive discussion of the MEC Takeover Proposal or any other matter.
On Sunday, August 11, 1996, Messrs. Liu and Root and Stephen Southwick, Vice
President, General Counsel & Secretary of IES, held a conference call with
counsel to IES and with Morgan Stanley, during which the participants discussed
the MEC Takeover Proposal. Mr. Liu authorized Morgan Stanley to contact Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), WPLH's financial
advisor, and Salomon Brothers Inc ("Salomon Brothers"), IPC's financial advisor,
to discuss IES's interest in increasing the IES Ratio in light of the MEC
Takeover Proposal.
During this period, senior management of WPLH held several discussions with
Merrill Lynch and with Foley & Lardner, WPLH's legal counsel, and Mr.
Stoppelmoor held several discussions with Salomon Brothers and Milbank, Tweed,
Hadley & McCloy, IPC's financial and legal advisors, to discuss the
ramifications of the MEC Takeover Proposal on the transactions contemplated by
the Merger Agreement. On August 13, 1996, representatives of WPLH and IPC, along
with their respective legal and financial advisors, held several conference
calls regarding increasing the IES Ratio in light of the MEC Takeover Proposal
and in response to discussions such financial advisors had with Morgan Stanley.
On August 14, 1996, Mr. Stoppelmoor called Mr. Liu to inform him that WPLH
and IPC managements, after consulting with members of their respective Boards of
Directors and financial and legal advisors, would be prepared to recommend to
their Boards of Directors that the IES Ratio be increased from 1.01 to 1.11.
Also on August 14, 1996, the IES Board met in Chicago. All directors were
present for the meeting. Representatives of Arthur Andersen Economic Consulting,
Morgan Stanley, Winthrop, Stimson, Putnam & Roberts, Georgeson and Kekst were
also present at the request of the IES Board. At such meeting, Arthur Andersen
Economic Consulting reviewed certain publicly available information with respect
to the MEC Takeover Proposal and the Mergers, as well as its analysis presented
at the October 5, 1995 IES Board meeting, which had not been updated. Its
representative discussed the following factors: (i) WPLH's price to earnings
ratio at the time of Arthur Andersen Economic Consulting's 1995 study, based on
1994 earnings, was approximately 16, compared with MEC's pro forma price to
earnings ratio, based on the individual MEC constituent corporations' price to
earnings ratios of approximately 12; (ii) the total return to shareholders of
WPLH during the period 1990-1994 was $1.55 for every dollar invested at the
beginning of the period, while returns to shareholders of the constituent
corporations that formed MEC during the same period was $1.08 and $1.26 for
every dollar invested at the beginning of the period, assuming in each case that
dividends were reinvested; (iii) WPLH's bond rating is higher than that of MEC,
WPLH's long-term debt is approximately 36% of capitalization compared to 51% for
MEC, and MEC has stated publicly that its debt ratio may increase beyond the
range of its present debt rating due to the additional indebtedness it intends
to incur to acquire IES; (iv) MEC's potential stranded costs (defined as
expenditures made for prior utility investments in generation or other plant
and/or property that may not be recoverable through rates in the new competitive
environment), estimated in 1995 by Moody's Investor Service, are approximately
$172 million, while Moody's estimated no stranded costs for WPLH; (v) MEC's
average cost per
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kilowatt-hour for 1994 was 5.5 CENTS, while WPLH's average cost per
kilowatt-hour was 4.9 CENTS and IES's average cost per kilowatt-hour was
5.2 CENTS; (vi) under the MEC Takeover Proposal, IES shareholders would receive
29% of the combined company (assuming that 40% of the consideration is cash)
compared to 34% in MEC's October 1995 proposal and 42% in the Mergers under the
Merger Agreement as it existed on August 14, 1996; (vii) the MEC Takeover
Proposal would concentrate regulatory matters primarily before a single state
commission, while a combination involving WPLH would subject the combined entity
to less concentrated regulation at the state level; (viii) MEC's then-current
estimate of synergies from the MEC Takeover Proposal of more than $500 million
over ten years (which MEC has since increased to an amount in excess of $650
million), based exclusively on publicly available information relating to IES,
contrasts with IES's estimated synergies resulting from the Mergers of $677
million over the same period, based exclusively on publicly available
information so that, based upon these estimates, at the relevant percentages of
ownership and assuming that 40% of the consideration in the MEC Takeover
Proposal is cash, IES would receive an estimated average benefit of $15 million
per year before taxes from the MEC transaction, compared to an estimated average
benefit of $28 million per year it would receive from the Mergers; and (ix)
Arthur Andersen Economic Consulting's view that MEC's methodology in estimating
labor synergies yields higher estimates than does IES's methodology, such that
if IES's estimate of labor savings were applied to the MEC Takeover Proposal the
combined company would be expected to achieve less than $400 million in
synergies over ten years, while if MEC's estimate of labor savings were applied
to the Mergers, Interstate Energy would be expected to achieve synergies of more
than $800 million over the same period. Arthur Andersen Economic Consulting also
informed the IES Board that the MEC Takeover Proposal stated that it would
result in approximately 450 lost jobs while its September 1995 analysis of a
hypothetical IES/MEC merger, based solely on publicly available data, estimated
less than 110 jobs would be lost. Finally, Arthur Andersen Economic Consulting
observed that the impact of the sale of underperforming and non-strategic assets
under the MEC Takeover Proposal should be considered. Arthur Andersen Economic
Consulting is a practice unit within Arthur Andersen LLP. Arthur Andersen LLP
has served as the independent accountants for IES, WPLH and MEC for many years,
performing the independent annual audit of the companies and providing business
advisory and tax consultation to the three companies. Arthur Andersen LLP has
received customary fees for these services.
To assist the IES Board in its consideration of the MEC Takeover Proposal
and the Mergers, the IES Board requested that Morgan Stanley provide it with
information and analyses related thereto. Further to such requests, at the
August 14, 1996 IES Board meeting, Morgan Stanley presented information and
analyses consisting of the following: (i) an estimate of the nominal value of
the MEC Takeover Proposal as between $36.95 and $37.77 per share of IES Common
Stock on a pre-tax basis, based upon the closing price of MEC's common stock as
of August 13, 1996 and depending on the percentage of IES shares exchanged for
cash, compared with the nominal value of the Mergers to the holders of IES
Common Stock as between $31.69 and $39.72, based upon the closing price of WPLH
Common Stock as of August 13, 1996 and assuming various modified exchange ratios
for the IES Ratio; (ii) a comparison of certain financial implications of the
MEC Takeover Proposal and the Mergers, including the view that the Mergers
afforded the combined company with the opportunity to trade at a relatively
higher pro forma price to earnings multiple and would, in most cases, maintain a
lower pro forma dividend payout ratio, but would offer a lower pro forma
dividend per share increase, in each case, than would the MEC Takeover Proposal
if effectuated; (iii) an overview of selected business, financial and market
statistics for IES and MEC, including certain financial and operating
information taken from publicly available financial statements and reports of
each such companies, closing prices for the common stock of IES and MEC as of
August 13, 1996, securities research analysts consensus earnings estimates and
five-year earnings growth rates as reported by I/B/E/S, and senior corporate
credit ratings as reported by Standard & Poor's; (iv) an analysis of the trading
history of the common stock of each of IES and MEC, including the fact that MEC
had traded in a range between $13.75 and $18.75 per share since its initial
listing on July 3, 1995 following the merger forming MEC and that MEC stock had
underperformed on a relative basis as compared to IES
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Common Stock during such period; (v) analyses of the pro forma ownership
interests of IES shareholders, ranging from approximately 29.4% to 41.0%, and
MEC shareholders, ranging from 59.0% to 70.6%, respectively, in a combined
company, assuming varying percentages of cash consideration to be paid by MEC to
effect the MEC Takeover Proposal; (vi) pro forma analyses of the earnings impact
of the MEC Takeover Proposal if effectuated to (a) holders of IES Common Stock,
which generated earnings accretion during the period 1997-1999 ranging from
26.8% to 52.1%, and (b) MEC shareholders, which yielded results during the
period 1997-1999 ranging from 19.8% dilution to 0.8% accretion, in each case,
based upon consensus estimates of securities research analysts as of July 18,
1996 and depending upon varying percentages of cash consideration to be paid by
MEC to effect the MEC Takeover Proposal, the levels, amount and timing of
synergies realized by the combined company and the financing and stock
repurchase strategies that were implemented (this analysis, which was provided
to the IES Board for background purposes, is relevant in assessing the ability
of MEC to obtain approval from its shareholders and in terms of how the future
trading value of MEC common stock might be adversely affected); (vii) a summary
analysis of the pro forma dividend impact per share if the MEC Takeover Proposal
were effectuated showing that holders of IES Common Stock would experience an
increase in dividends per share during the period 1997-1999 ranging from
approximately 31.6% to 34.1% over the projected IES stand-alone dividend level;
(viii) estimates of expected MEC pro forma 1998 per share values ranging from
$13.34 to $19.62, with the per share values at the lower end of such range being
more relevant based on the 1998 price to earnings multiple of MEC as of August
2, 1996 and August 13, 1996, based on sensitivity analyses performed using a
range of price to earnings multiples, varying percentages of cash consideration
to be paid by MEC to effectuate the MEC Takeover Proposal, the levels, amount
and timing of synergies realized by the combined company, and the financing and
stock repurchase strategies implemented; (ix) analyses of the pro forma
ownership interests of WPLH shareholders, ranging from approximately 39.8% to
43.0%, of IES shareholders, ranging from approximately 42.1% to 46.5%, and IPC
shareholders, ranging from 13.7% to 14.8%, respectively, if the Mergers were
consummated, based on various modified exchange ratios for the IES Ratio; (x)
pro forma analyses of the earnings impact of the Mergers to (a) holders of IES
Common Stock, which resulted in earnings accretion during 1998 ranging from 3.7%
to 30.0%, (b) holders of WPLH Common Stock, which in 1998 led to results ranging
from earnings dilution of 13.9% to earnings accretion of 5.4%, and (c) holders
of IPC Common Stock, which in 1998 generated earnings accretion ranging from
3.0% to 26.1%, in each case, based upon consensus estimates of securities
research analysts as of July 18, 1996 and using various modified exchange ratios
for the IES Ratio and varying levels of synergies realized by the combined
company; (xi) a summary analysis of the pro forma dividend impact per share of
the Mergers showing that holders of IES Common Stock would experience during the
period 1997-1999 results ranging from 4.0% dilution to 18.4% accretion, based on
various modified exchange ratios for the IES Ratio; (xii) estimates of expected
Interstate Energy pro forma 1998 per share values ranging from $25.62 to $33.93,
with the per share values at the higher end of such range being more relevant
based on the 1998 price to earnings multiple of WPLH as of August 2, 1996 and
August 13, 1996, based on sensitivity analyses performed using a range of price
to earnings multiples, various modified exchange ratios for the IES Ratio and
varying levels of synergies realized; and (xiii) pro forma financial ratios for
the MEC Takeover Proposal if effectuated, including latest twelve months
EBITDA/Total Interest Expense ranging between 3.7x-4.6x and Total Debt/Total
Book Capitalization ranging between 47.5% and 57.0%, in each case, depending on
the percentages of cash consideration to be paid by MEC in effectuating the MEC
Takeover Proposal, and the Mergers, including latest twelve months EBITDA/Total
Interest Expense of 5.2x and Total Debt/Total Book Capitalization of 47.4%.
Morgan Stanley assumed various modified exchange ratios for the IES Ratio for
purposes of performing its analyses as indicated above, since at August 14,
1996, it was not known whether the Board of Directors of WPLH and IPC would
approve an exchange ratio more favorable to IES than the ratio then in effect,
or what that exchange ratio would be. Morgan Stanley also presented (a) a
listing of the IES shareholdings showing the relative levels of institutional,
retail and insider/beneficial ownership and (b) a listing of certain other
electric utility transactions and comparative statistics derived therefrom.
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After discussion, the IES Board concluded that, from a strategic
perspective, the Mergers would be more beneficial to IES and its shareholders,
customers and employees and the communities that IES serves than the MEC
Takeover Proposal would be. The IES Board then asked Mr. Liu to speak again with
Mr. Stoppelmoor to suggest that the parties agree on an increase in the IES
Ratio beyond 1.11 to enhance further the probability that the IES shareholders
would approve the Merger Agreement. This conversation thereafter took place
wherein Mr. Stoppelmoor indicated to Mr. Liu that he believed an increase in the
IES Ratio by an unspecified amount over 1.11 might be possible. Mr. Stoppelmoor
also told Mr. Liu that WPLH and IPC had scheduled Board meetings for the next
day. The IES Board then reconvened and approved the change of control agreements
described in "Executive Change of Control Agreements" below. Following
consultations with representatives of WPLH and IPC and their respective
financial and legal advisors and a separate conversation between Mr. Davis and
Mr. Stoppelmoor, Mr. Stoppelmoor called Mr. Liu in the evening of August 14,
1996 to inform him that the managements of WPLH and IPC were prepared to
recommend to their respective Boards of Directors an increase in the IES Ratio
to 1.14.
On August 15, 1996, the WPLH Board, at a special meeting, discussed with
WPLH's financial and legal advisors the MEC Takeover Proposal and the proposed
increase in the IES Ratio. Merrill Lynch discussed and reviewed with the WPLH
Board the proposed adjustment of the IES Ratio to 1.14 and orally confirmed that
Merrill Lynch would be prepared to render an opinion to the effect that, based
on the assumptions made, matters considered and limits of review set forth in
such opinion, the Ratios (including the IES Ratio as proposed to be adjusted)
are fair to WPLH from a financial point of view. At this meeting, counsel to
WPLH also described the proposed amendment to the Merger Agreement and discussed
with the WPLH Board legal issues relating to soliciting proxies for the WPLH
Meeting. The WPLH Board further discussed and affirmed the benefits of the
Mergers to WPLH and its shareowners, employees and customers and the communities
that it serves, as set forth in the Original Joint Proxy Statement/Prospectus
under the caption "The Mergers -- Reasons for the Mergers; Recommendations of
the Boards of Directors." After considering the presentations made and the
matters discussed at the meeting, the WPLH Board by the directors present
unanimously approved a proposal to amend the Merger Agreement to increase the
IES Ratio to 1.14.
Also on August 15, 1996, at a special meeting of the IPC Board, the IPC
Board discussed with IPC's legal and financial advisors the MEC Takeover
Proposal and the proposed increase in the IES Ratio. Salomon Brothers discussed
and reviewed with the IPC Board the proposed adjustment of the IES Ratio and
orally confirmed that Salomon Brothers would be able to render an opinion to the
effect that, based on the assumptions made, matters considered and limits of
review set forth in such opinion, the IPC Ratio (assuming the increase for the
IES Ratio from 1.01 to 1.14) is fair from a financial point of view to the
holders of IPC Common Stock. The IPC Board further discussed and affirmed the
benefits of the Mergers to IPC and its shareholders, employees and customers and
the communities that it serves, as set forth in the Original Joint Proxy
Statement/Prospectus under the caption "The Mergers -- Reasons for the Mergers;
Recommendations of the Boards of Directors." IPC's legal advisors described the
proposed amendment to the Merger Agreement and discussed with the IPC Board
various other matters relating to the solicitation of proxies for the IPC
Meeting. After considering the presentations made and the matters discussed at
the meeting, the IPC Board unanimously approved a resolution to amend the Merger
Agreement to increase the IES Ratio to 1.14.
At 6:00 p.m., Central time, on August 15, 1996, the IES Board held a
telephonic meeting. Mr. Liu informed the IES Board that WPLH and IPC had agreed
to increase the IES Ratio to 1.14, and the IES Board unanimously (with one
abstention by a director who was not eligible to vote on the matter) authorized
the execution and delivery by IES of an amendment to the Merger Agreement
effecting this change. The IES Board also determined unanimously (with one
abstention) to reject the MEC Takeover Proposal.
The parties thereafter executed and delivered Amendment No. 2, dated as of
August 16, 1996, to the Merger Agreement, increasing the IES Ratio to 1.14.
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On August 21, 1996, a lawsuit described as a class action was filed against
IES, each of its directors and James E. Hoffman, its Executive Vice President.
The plaintiffs claim ownership of a total of 600 shares of IES Common Stock. The
lawsuit alleges breaches of fiduciary duties by the directors of IES for claimed
conflicts of interest and for allegedly failing to consider the MEC Takeover
Proposal adequately. The plaintiffs seek an order directing the named defendants
to negotiate in good faith with MEC; to undertake "an appropriate" evaluation of
the MEC Takeover Proposal; rescinding the Merger Agreement "to the extent
already implemented"; and providing certain ancillary relief. To IES's
knowledge, no order for certification of a class has issued, and the hearing
required for such an order has not yet been sought by plaintiffs. IES beleives
the suit is without merit. IES intends to oppose certification of a class and to
defend the lawsuit vigorously.
REASONS FOR THE MERGERS; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
WPLH. WPLH continues to believe that the Mergers offer significant
strategic and financial benefits to WPLH and its shareowners, as well as to its
employees and customers and the communities which it serves. These reasons are
summarized in the Original Joint Proxy Statement/Prospectus under the caption
"The Mergers -- Reasons for the Mergers; Recommendations of the Boards of
Directors."
THE WPLH BOARD BY THE DIRECTORS PRESENT HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, AS AMENDED, AND BELIEVES THAT THE TERMS OF THE MERGERS ARE FAIR TO,
AND IN THE BEST INTERESTS OF, WPLH'S SHAREOWNERS, HAS APPROVED EACH OF THE WPLH
CHARTER AMENDMENTS DESCRIBED IN THE ORIGINAL JOINT PROXY STATEMENT/PROSPECTUS,
SUPPORTS THE ELECTION OF THE NOMINATED WPLH DIRECTORS AND SUPPORTS THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS WPLH'S INDEPENDENT AUDITORS FOR THE YEAR
ENDING DECEMBER 31, 1996. THE WPLH BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE
MERGER AGREEMENT, AS AMENDED, FOR APPROVAL OF EACH OF THE WPLH CHARTER
AMENDMENTS, FOR THE ELECTION OF THE NOMINATED WPLH DIRECTORS AND FOR THE
RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT AUDITORS.
IES. For the reasons stated in the Original Joint Proxy
Statement/Prospectus under the caption "The Mergers -- Reasons for the Mergers;
Recommendations of the Boards of Directors" and for the reasons set forth below,
the IES Board believes that the terms of the Mergers, as amended, are fair to,
and in the best interests of, IES and its shareholders. Accordingly, the IES
Board, by a unanimous vote (with one abstention), has approved the Merger
Agreement, as amended, and the transactions contemplated thereby, recommends its
approval and adoption by IES's shareholders, and has rejected the MEC Takeover
Proposal.
The IES Board believes that: (i) the IES Ratio offers IES shareholders an
attractive premium over the recent historical trading prices of IES Common
Stock, including a 22% premium (based on the closing price of WPLH Common Stock
on August 15, 1996) over the closing price of IES Common Stock on the New York
Stock Exchange (the "NYSE") on August 2, 1996 (the last full trading day prior
to the public announcement of the MEC Takeover Proposal); (ii) as shareholders
of Interstate Energy, IES shareholders will benefit more by participation in the
combined economic growth of the service territories of IES Utilities Inc.
("Utilities"), Wisconsin Power & Light Company ("WP&L") and IPC than IES
shareholders would benefit as shareholders of IES alone or in combination with
MEC, due to a higher expected growth rate in Utilities', WP&L's and IPC's
service territories than in MEC's service territory, and as evidenced by the
difference in the price to earnings ratios of WPLH and MEC stock; (iii) as
shareholders of Interstate Energy, IES shareholders will benefit more from the
inherent increase in economies of scale, the market and regulatory
diversification and the resulting increased financial stability and strength of
the combined entity than IES shareholders would benefit as shareholders of IES
alone or in combination with MEC, due in large measure to the difference in cost
and capital structures between WPLH and MEC and MEC's proposed plan for
financing the MEC Takeover Proposal; (iv) the Mergers will result in cost
savings from decreased electric production and gas supply costs, a reduction in
operating and maintenance expense and other factors discussed in the
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Original Joint Proxy Statement/Prospectus in comparison with IES alone or in
combination with MEC, while the MEC Takeover Proposal would result in increased
average cost per kilowatt hour compared to IES alone or in combination with WPLH
and IPC; (v) in large part due to its expected lower cost structure and its
presence in several jurisdictions, Interstate Energy would be better able to
participate in the increasingly competitive market for the generation of power
than could IES alone or in combination with MEC; and (vi) the Mergers and
various provisions of the Merger Agreement offer IES shareholders, ratepayers
and employees a unique opportunity to realize the benefits created by combining
the three entities, due to the unprecedented combination of the service
territories of three strong neighboring utilities and the management succession
plan resulting therefrom. The IES Board believes that these factors offer a
potential increase in earnings in excess of those that could be achieved by IES
alone or in combination with MEC, and that the Mergers will result in the
creation of a financially stronger company.
In reaching its conclusions, the IES Board considered (i) the original and
newly-adjusted IES Ratio and the fact that such ratios represent an 11% premium
and a 32% premium (based on the closing price of WPLH Common Stock on August 15,
1996), respectively, over the closing price of IES Common Stock on the NYSE on
November 10, 1995 (the last full trading day prior to the public announcement of
the Mergers) and premiums of approximately 14% and 37%, respectively, over the
closing price of IES Common Stock on the NYSE on October 10, 1995 (the trading
day that is 30 days prior to the date on which the Mergers were publicly
announced); (ii) the newly-adjusted IES Ratio represents a 22% premium (based on
the closing price of WPLH Common Stock on August 15, 1996) over the closing
price of IES Common Stock on the NYSE on August 2, 1996 (the last full trading
day prior to the public announcement of the MEC Takeover Proposal); (iii) the
financial performance (1995 revenue of $851 million, $807 million, $318.5
million and $1,723.6 million, respectively, and net income of $64.2 million,
$58.4 million, $27.7 million and $122.8 million, respectively), financial
condition, business operations, prospects and historical price to earnings ratio
(14.83, 13.51, 14.20 and 10.73 times estimated 1996 earnings, based on I/B/E/S
dated July 18, 1996 and closing stock prices as of August 15, 1996) of each of
IES, WPLH, IPC and MEC and that, on a combined basis, IES, WPLH and IPC will
likely have greater financial stability and strength than IES alone or in
combination with MEC due to participation in the combined economic climate and
growth of each of the Utilities, WP&L and IPC service territories, the inherent
increase in economies of scale, the market diversification resulting from the
combination of customer bases and the impact of the potential operating
efficiencies and other synergies which are expected to reduce operational and
maintenance expenses, as more fully discussed in the Original Joint Proxy
Statement/Prospectus; (iv) current industry, economic, market and regulatory
conditions which encourage consolidation to reduce risk and create new avenues
for earnings growth (as discussed under "The Mergers -- Background of the
Mergers" in the Original Joint Proxy Statement/Prospectus); (v) the prospects
for earnings and dividend growth of IES alone and in combination with MEC in
light of the pro forma percentage (44% in the case of the Mergers after the
increase in the IES Ratio, 29% in the case of the MEC Takeover Proposal,
assuming 40% of the consideration in the MEC Takeover Proposal is cash) of
estimated synergies ($749 million in the case of the Mergers, based upon a
report prepared jointly by WPLH, IES and IPC, and $500 million in the case of
the MEC Takeover Proposal, according to MEC's public filings (which amount MEC
has since increased to an amount in excess of $650 million)) that would inure to
the benefit of the holders of IES Common Stock, as well as the cost structures
of the respective combined companies; (vi) the recent levels of merger activity
involving electric utility companies in markets near Utilities' service
territory and the ability of IES alone or in combination with MEC to remain
competitive over the long-term; (vii) the anticipated positive effect of the
Mergers on IES's shareholders and Utilities' customers, including maintaining
competitiveness, integrating corporate and administrative functions and reducing
operating costs, particularly as compared with the MEC Takeover Proposal (all as
more fully described above and in the Original Joint Proxy
Statement/Prospectus); (viii) the terms of the Merger Agreement, the Stock
Option Agreements, the Employment Agreements and other documents executed and to
be executed in connection with the Mergers which provide for reciprocal
representations and warranties, conditions to closing and rights to termination,
and balanced rights
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and obligations; (ix) the management succession plan specified in the Merger
Agreement and the Employment Agreements of Messrs. Liu, Davis, Stoppelmoor and
Chase (as described under "The Mergers -- Employment Agreements" and "Interstate
Energy Following the Mergers -- Management of Interstate Energy" in the Original
Joint Proxy Statement/Prospectus) which provides a plan for managing the
integration of and transition in management; (x) the impact of regulation under
various state and federal laws (as described under "Regulatory Matters" and "The
Mergers -- Background of the Mergers" in the Original Joint Proxy
Statement/Prospectus); (xi) that the Mergers are expected to be treated as
tax-free reorganizations to shareholders and to be accounted for as a
pooling-of-interests transaction (which avoids the reduction in earnings which
would result from increased depreciation associated with the write-up of asset
values, and the creation and amortization of goodwill, under purchase
accounting); (xii) equivalent annual dividends per share of Interstate Energy
Common Stock which are expected to be approximately 15 cents or 7% higher than
the current annualized dividends which have been paid on IES Common Stock;
(xiii) the risk that MEC might not be able to obtain its own shareholders'
approval for the MEC Takeover Proposal in light of the potential substantial
earnings dilution that would be experienced by MEC shareholders, as well as the
risk that MEC might not be able to obtain regulatory approval for a transaction
with significant consequences within Iowa; and (xiii) the opinion of Morgan
Stanley, described below, that the IES Ratio, taking into account the IPC Ratio,
is fair from a financial point of view to the holders of IES Common Stock. The
IES Board did not rely on Morgan Stanely's opinion in determining that the
strategic benefits of the Mergers were more favorable to IES, its shareholders
and its other constituencies than those which could be realized in the MEC
Takeover Proposal. The IES Board believed that the strategic benefits of the
Mergers outweighed the apparent differences in immediate shareholder value which
would be higher for the MEC Takeover Proposal. The IES Board determined it to be
reasonable to rely on the Morgan Stanley opinion in respect of the fariness of
the Mergers to the holders of IES Common Stock, as stated in Morgan Stanely's
opinion, because of Morgan Stanley's recognized expertise in financial analysis,
its history of providing opinions as to the fairness of other transactions and
the comprehensive analysis upon which its opinion was based. Moreover, under
Section 490.1108 of the Iowa Business Corporation Act, the IES Board was
entitled to consider, in addition to the interests of IES and its shareholders,
the effects of the MEC Takeover Proposal on IES's employees, suppliers,
creditors and customers; the effects of the MEC Takeover Proposal on the
communities in which IES operates; and the long-term as well as the short-term
interests of IES and its shareholders, including the possibility that these
interests may be best served by the continued independence of IES. Moreover, the
IES Board obtained advice from its legal counsel as to its fiduciary obligations
in connection with its consideration of the relative benefits to IES
shareholders and IES's other constituencies, which could be derived from the
Mergers compared to the MEC Takeover Proposal. The IES Board recognized that,
(a) the consideration offered by MEC in the MEC Takeover Proposal may be valued
at a greater amount than the value of the consideration to be received in the
Mergers, (b) although annual dividends per share of Interstate Energy Common
Stock are expected to be higher than those which have been paid on IES Common
Stock, such dividends would be approximately 20% less than the annual dividends
per share that MEC claims would be paid under the MEC Takeover Proposal, and (c)
IES combined with MEC would be a larger company than Interstate Energy would be.
Although the IES Board recognized the negative factors discussed in this
paragraph are not immaterial, the IES Board believes considerations favoring the
Mergers, together with the advice or assistance of its financial advisor and
consultants as described herein, substantially outweigh any negatives and the
terms of the Mergers are, as a whole, in the best interests of IES and its
shareholders. The IES Board believes that the difference in the value of the
consideration between the MEC Takeover Proposal and the Mergers is not
significant enough to justify terminating the Mergers, which the IES Board
believes provide greater strategic benefits than the MEC Takeover Proposal. The
IES Board further believes that, although MEC has projected that it will be able
to maintain its promised dividend rate, MEC might not be able to do so if it is
not able to sell assets sufficiently quickly or to realize enough from asset
sales to reduce the debt it would incur to complete the MEC Takeover Proposal.
Finally, the IES Board believes that the quality of management and a shared
strategic vision is more important in the creation of a low-cost energy producer
able to meet the
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challenges arising from an expansion of competition in the utility business than
size alone. In determining that the Mergers are fair to and in the best
interests of shareholders, the IES Board considered the above factors as a whole
and did not assign specific or relative weights to any one factor or group of
factors.
THE IES BOARD HAS APPROVED THE MERGER AGREEMENT, AS AMENDED, BY UNANIMOUS
VOTE (WITH ONE ABSTENTION) AND BELIEVES THAT THE TERMS OF THE MERGERS ARE FAIR
TO, AND IN THE BEST INTERESTS OF, IES'S SHAREHOLDERS, AND SUPPORTS THE ELECTION
OF THE NOMINATED IES DIRECTORS. THE IES BOARD RECOMMENDS A VOTE FOR APPROVAL OF
THE MERGER AGREEMENT, AS AMENDED, AND FOR THE ELECTION OF THE NOMINATED IES
DIRECTORS.
IPC. IPC continues to believe that the Mergers offer significant strategic
and financial benefits to IPC and its stockholders, as well as to its employees
and customers. These reasons are summarized in the Original Joint Proxy
Statement/Prospectus under the caption "The Mergers -- Reasons for the Mergers;
Recommendations of the Boards of Directors."
THE IPC BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, AS AMENDED, AND
BELIEVES THAT THE TERMS OF THE MERGERS ARE FAIR TO, AND IN THE BEST INTERESTS
OF, IPC'S STOCKHOLDERS, HAS UNANIMOUSLY ADOPTED A RESOLUTION SETTING FORTH THE
IPC CHARTER AMENDMENT AND DECLARING ITS ADVISABILITY, AND SUPPORTS THE ELECTION
OF THE NOMINATED IPC DIRECTORS. THE IPC BOARD RECOMMENDS A VOTE FOR APPROVAL OF
THE MERGER AGREEMENT, AS AMENDED, FOR APPROVAL OF THE IPC CHARTER AMENDMENT AND
FOR THE ELECTION OF THE NOMINATED IPC DIRECTORS.
OPINIONS OF FINANCIAL ADVISORS
WPLH'S FINANCIAL ADVISOR. Merrill Lynch has delivered to the WPLH Board its
written opinion dated August 21, 1996 to the effect that, as of such date, and
based upon the assumptions made, matters considered and limits of review as set
forth in such opinion, the Ratios are fair, from a financial point of view, to
WPLH. On August 15, 1996, at a special meeting of the WPLH Board, Merrill Lynch
discussed and reviewed with the WPLH Board the proposed adjustment of the IES
Ratio to 1.14 (the "Adjusted IES Ratio"). The following is a summary of all of
the analyses that Merrill Lynch performed in connection with the Adjusted IES
Ratio.
Merrill Lynch compared the financial terms and related impact on WPLH
shareowners of the Merger Agreement, as amended as of May 22, 1996, to the terms
of the proposed amendment to the Merger Agreement. In this regard, Merrill Lynch
compared the overall aggregate percentage pro forma ownership of the combined
company assuming the Mergers were consummated at the Ratios (assuming the IES
Ratio was 1.01 (the "Old IES Ratio")) to the Adjusted IES Ratio as follows: (i)
the holders of WPLH Common Stock would own 43.0% of the combined company
(assuming the Old IES Ratio) compared to 40.8% of the combined company (assuming
the Adjusted IES Ratio), (ii) the holders of IES Common Stock would own 42.0% of
the combined company (assuming the Old IES Ratio) compared to 45.0% of the
combined company (assuming the Adjusted IES Ratio), and (iii) the holders of IPC
Common Stock would own 14.9% of the combined company (assuming the Old IES
Ratio) compared to 14.2% of the combined company (assuming the Adjusted IES
Ratio). Merrill Lynch also analyzed the payout ratio of dividends to earnings
for the combined company and WPLH using the projected earnings for the years
1997 through 1999 provided by the respective managements of WPLH, IES and IPC
(the "Projections"). This analysis resulted in amounts equal to approximately
82.8% in 1997, 78.1% in 1998 and 76.5% in 1999 for the combined company on a pro
forma basis compared to 78.7% in 1997, 79.4% in 1998 and 77.4% in 1999 for WPLH
on a stand-alone basis. Merrill Lynch summarized the MEC Takeover Proposal and
compared such proposal to the IES Ratio and to the Adjusted IES Ratio. Merrill
Lynch reviewed the performance of the per share market price of IES Common Stock
and WPLH Common Stock during the period from November 10, 1995 through August
14, 1996 and calculated the ratio of the per share market price of IES Common
Stock to the per
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share market price of WPLH Common Stock during this period and compared such
result to the Adjusted IES Ratio. In addition, Merrill Lynch compared the
results of its analyses performed in connection with the opinion of Merrill
Lynch rendered on November 10, 1995, as adjusted by the increase in the McLeod,
Inc. ("McLeod") valuation referred to below, to the Adjusted IES Ratio. This
comparison confirmed that the Adjusted IES Ratio was within the ranges
calculated for each of the following analyses: (i) comparable publicly traded
company analysis, (ii) contribution analysis, (iii) dividend discount analysis,
(iv) discounted cash flow analysis and (v) comparable acquisition transaction
analysis, in each case assuming a discount off of the public market trading
value of McLeod shares on August 14, 1996. Merrill Lynch noted to the WPLH Board
that (i) Merrill Lynch originally valued IES's equity interest in McLeod at book
value, which was approximately $10.0 million in November 1995, to arrive at the
opinion of Merrill Lynch rendered on November 10, 1995 and (ii) that on June 14,
1996, McLeod consummated its initial public offering. Merrill Lynch calculated
IES's equity interest in McLeod based on the public trading market of McLeod on
August 14, 1996 to be approximately $252.2 million. Merrill Lynch calculated the
net increase in the value of each IES share based solely on the increase in the
value of IES owned shares of McLeod by comparing the initial McLeod valuation
with the current trading value of McLeod at 100% and 70% of the public market
trading value of McLeod shares as of August 14, 1996. Such calculation resulted
in a net increase in the value of each IES share of $8.47 and $5.83, assuming
100% and 70%, respectively, of the public market trading value of McLeod shares
as of August 14, 1996. Merrill Lynch also analyzed the earnings per share
accretion/dilution of WPLH Common Stock using the Projections and assuming
certain synergies for the combined company provided by WPLH management. This
analysis indicated that the Old IES Ratio would be accretive to WPLH shareowners
in amounts of 0.4% in 1997, 7.4% in 1998 and 7.1% in 1999, and the Adjusted IES
Ratio would be dilutive to WPLH shareowners in the amount of 4.9% in 1997 and
accretive to WPLH shareowners in the amounts of 1.6% in 1998 and 1.2% in 1999.
Merrill Lynch noted to the WPLH Board that compared to the Old IES Ratio, the
Adjusted IES Ratio would produce earnings per share which are dilutive to WPLH
shareowners in 1997, and less accretive in 1998 and 1999. However, in light of
the increased value of McLeod and the results of all of the analyses performed
by Merrill Lynch, Merrill Lynch concluded that the Ratios (including the
Adjusted IES Ratio) are fair, from a financial point of view, to WPLH.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at the August 21, 1996
opinion.
A COPY OF THE AUGUST 21, 1996 OPINION OF MERRILL LYNCH, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF
REVIEW UNDERTAKEN BY MERRILL LYNCH, IS ATTACHED AS ANNEX II TO THIS SUPPLEMENT
TO THE JOINT PROXY STATEMENT/PROSPECTUS. WPLH SHAREOWNERS ARE URGED TO READ SUCH
OPINION IN ITS ENTIRETY. THE AUGUST 21, 1996 OPINION OF MERRILL LYNCH IS
DIRECTED ONLY TO THE FAIRNESS OF THE RATIOS FROM A FINANCIAL POINT OF VIEW AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY WPLH SHAREOWNER AS TO HOW SUCH
SHAREOWNER SHOULD VOTE AT THE WPLH MEETING. REFERENCES TO THE AUGUST 21, 1996
OPINION OF MERRILL LYNCH SET FORTH HEREIN ARE QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION ATTACHED AS ANNEX II HERETO.
IES'S FINANCIAL ADVISOR. On August 14, 1996, at a meeting of the IES Board,
Morgan Stanley discussed and reviewed with the IES Board the proposed adjustment
to the IES Ratio and rendered to the IES Board an oral opinion to the effect
that, as of such date, and based on the procedures and subject to the
assumptions stated at such August 14, 1996 IES Board meeting, and in the opinion
dated the date of this Supplement to Joint Proxy Statement/Prospectus, which is
attached hereto as Annex III, the IES Ratio (as adjusted to 1.14), taking into
account the IPC Ratio, is fair from a financial point of view. In a written
opinion dated the date hereof, Morgan Stanley confirmed its August 14, 1996 oral
opinion.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION DATED THE DATE HEREOF,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX III TO THIS SUPPLEMENT TO JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF IES
COMMON STOCK ARE URGED TO, AND SHOULD, READ THIS OPINION CAREFULLY IN ITS
ENTIRETY. MORGAN STANLEY'S
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OPINION ADDRESSES ONLY THE FAIRNESS OF THE IES RATIO (AS ADJUSTED), TAKING INTO
ACCOUNT THE IPC RATIO, FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF IES
COMMON STOCK, AND IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGERS NOR DOES
IT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF IES COMMON STOCK AS TO HOW TO
VOTE AT THE IES MEETING. THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET FORTH
IN THIS SUPPLEMENT TO JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of its opinion. With respect to the
financial projections and the estimates of potential cost savings to be derived
from the Mergers, Morgan Stanley assumed that such projections and estimates
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of each of IES, WPLH
and IPC, respectively, and of the amount and timing of such cost savings. Morgan
Stanley also relied upon, with the consent of IES, IES's assessment of the
strategic and other benefits of the Mergers. Morgan Stanley did not make any
independent valuation or appraisal of the assets or liabilities of IES, WPLH and
IPC. In addition, Morgan Stanley, in rendering its opinion dated as of the date
of this Supplement to the Joint Proxy Statement/Prospectus, did not address the
relative merits of the Mergers and the MEC Takeover Proposal or any other
alternative potential transactions. In arriving at its opinion, Morgan Stanley
assumed that in connection with the receipt of all the necessary regulatory and
governmental approvals for the proposed Mergers, no restriction will be imposed
that would have a material adverse effect on the contemplated benefits expected
to be derived in the proposed Mergers. Morgan Stanley also assumed that the
Mergers will be consummated in accordance with the terms set forth in the Merger
Agreement, including, among other things, that the Mergers will be accounted for
as a "pooling-of-interests" business combination in accordance with United
States generally accepted accounting principles and that the Mergers will be
treated as a tax-free reorganization and/or exchange, in each case, pursuant to
the Code. Morgan Stanley's opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to it as
of, the date of its opinion.
In addition, Morgan Stanley was not authorized to solicit, and did not
solicit, interest from any party with respect to a merger with or other business
combination transaction involving IES, or any of its assets, nor did Morgan
Stanley have any discussions or negotiations with any parties, other than WPLH
and IPC, in connection with the Mergers.
In connection with its opinion dated as of the date of this Supplement to
Joint Proxy Statement/ Prospectus, Morgan Stanley confirmed the appropriateness
of its reliance on the analyses used to render its November 10, 1995 oral
opinion and its July 11, 1996 written opinion by performing procedures to update
certain of such analyses and by reviewing the asssumptions upon which such
analyses were based and the factors considered in connection therewith. In
arriving at this opinion, Morgan Stanley, in addition to the aforementioned
procedures, performed certain analyses which were reviewed by the IES Board in
connection with the delivery of its opinion dated the date hereof, which are
briefly summarized as follows:
PRO FORMA OWNERSHIP. Morgan Stanley compared the overall aggregate
percentage share ownership of the combined company assuming the Mergers were
consummated at the prior exchange ratios (assuming the previous IES Ratio of
1.01) and at the IES Ratio (as adjusted to 1.14): (i) the holders of IES Common
Stock would own approximately 45.1% of the combined company pursuant to the
adjusted IES Ratio as compared to 42.1% of the combined company pursuant to the
previous exchange ratio, (ii) the holders of WPLH Common Stock would own
approximately 40.8% of the combined company pursuant to the adjusted IES Ratio
as compared to 43.0% of the combined company pursuant to the previous exchange
ratio and (iii) the holders of IPC Common Stock would own approximately 14.1% of
the combined company pursuant to the adjusted IES Ratio as compared to 14.9% of
the combined company pursuant to the previous exchange ratio.
UPDATED PRO FORMA ANALYSIS OF THE MERGERS. Morgan Stanley analyzed the pro
forma impact, taking into account the impact of the upward adjustment to the IES
Ratio of the Mergers on IES
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earnings per share for the fiscal years ended 1997 through 1999. Such analysis
was performed utilizing stand-alone earnings estimated for the fiscal years
ended 1997 through 1999 for IES, WPLH and IPC based on an updated compilation of
earnings projections by securities research analysts, taking into account the
cost savings expected to be derived from the Mergers as estimated by the
managements of IES, WPLH and IPC. Based on the IES Ratio, earnings accretion to
holders of IES Common Stock during the period 1997-1999 ranged from 9.2% to
26.3%.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. Morgan
Stanley believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion. In addition,
Morgan Stanley may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting for any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of IES, WPLH and IPC.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of IES, WPLH and IPC. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
value, which may be significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely as part of Morgan Stanley's
analysis of the fairness of the IES Ratio, taking into account the IPC Ratio,
from a financial point of view to the holders of IES Common Stock and were
provided to the IES Board in connection with the delivery of Morgan Stanley's
written opinion dated the date hereof confirming its oral opinion of August 14,
1996. The analyses do not purport to be appraisals or to reflect the prices at
which IES, WPLH and IPC might actually be sold. Because such estimates are
inherently subject to uncertainty, none of IES, Morgan Stanley, or any other
person assumes responsibility for their accuracy. In addition, as described
above, Morgan Stanley's opinion and presentation to the IES Board was one of
many factors taken into consideration by the IES Board in making its
determination to approve the Mergers. Consequently, the Morgan Stanley analyses
described above should not be viewed as determinative of the opinion of the IES
Board or the view of management of either WPLH or IPC with respect to the value
of WPLH and IPC or of whether the IES Board or the managements of WPLH and IPC
would have been willing to agree to a different exchange ratio.
In addition to its retention to act as financial advisor with respect to the
Mergers, Morgan Stanley has been retained by IES to act as financial advisor
with respect to the MEC Takeover Proposal. Pursuant to a letter agreement dated
as of August 4, 1996 between IES and Morgan Stanley, Morgan Stanley is entitled
to (a) an advisory fee for advising IES in the amount of $1,250,000, which is
payable as of the date of this Supplement to Joint Proxy Statement/Prospectus,
and (b) a transaction fee based upon the Aggregate Value (as such term is
defined in such letter agreement) of any consummated Acquisition Transaction (as
such term is defined in such letter agreement, which excludes the Mergers),
which fee will be a varying percentage of such Aggregate Value, decreasing from
0.450% of the aggregate value for an Acquisition Transaction having a value of
$1 billion, to 0.426% of the Aggregate Value for an Acquisition Transaction
having a value of $1.4 billion or more. The amount paid or payable to Morgan
Stanley as an advisory fee will be credited against the transaction fee.
IPC'S FINANCIAL ADVISOR. On August 15, 1996, at a meeting of the IPC Board,
Salomon Brothers reviewed with the IPC Board the proposed increase to the IES
Ratio from 1.01 to 1.14 and the financial impact of the proposed amendment to
the Merger Agreement on the holders of IPC Common Stock. Salomon Brothers
reviewed with the IPC Board the terms of the MEC Takeover Proposal and compared
such terms to those terms contemplated by the Merger Agreement and the proposed
amendment thereto. Salomon Brothers estimated the value of the MEC Takeover
Proposal to be approximately $37.95 per share of IES Common Stock, assuming
closing stock prices as of August 14, 1996 and 40% cash consideration. Salomon
Brothers compared the results of its analyses, as adjusted to give effect to the
increase in the valuation of McLeod, with the results of its analyses performed
in
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connection with its opinion rendered on November 10, 1995. Salomon Brothers
calculated the net increase in the value of each share of IES Common Stock by
comparing the initial valuation of McLeod with a range of trading values for
McLeod, which range included the closing stock price for McLeod as of August 14,
1996. Such calculations resulted in a range of incremental after-tax value
attributable to IES Common Stock of $3.80 to $5.91 per share. Salomon Brothers
noted that such range of incremental value attributable to the IES-owned shares
of McLeod supported the proposed increase to the IES Ratio, and that such range
of incremental value would be attributable to the combined company, and
therefore attributable to the value of common stock of the combined company to
be received by holders of IPC Common Stock, assuming the Mergers were
consummated as of August 14, 1996. Salomon Brothers reviewed the results of its
analyses which were prepared in connection with its opinion rendered on November
10, 1995, which analyses related to the prices of the common stock of each of
IPC, WPLH and IES immediately prior to the initial announcement of the Mergers.
Salomon Brothers also noted that, assuming the Mergers were consummated at the
revised Ratios, the former holders of IPC Common Stock would own 14.1% of the
combined company, which compared to 14.9% of the combined company based upon the
Ratios presented at the meeting of the IPC Board on May 10, 1996. Further,
Salomon Brothers reviewed with the Board an updated pro forma analysis of merger
consequences to reflect the proposed increase to the IES Ratio. In addition to
the analyses set forth above, Salomon Brothers updated all of its analyses set
forth on pages 65-68 of the Original Joint Proxy Statement/Prospectus to reflect
the proposed increase to the IES Ratio. However, since such updated analyses did
not adversely affect Salomon Brothers' opinion as to the fairness of the IPC
Ratio, Salomon Brothers did not review the results of such updated analyses with
the IPC Board. Salomon Brothers advised the IPC Board that if the proposed
amendment to the Merger Agreement to give effect to the proposed increase to the
IES Ratio were entered into, Salomon Brothers would be able to render an opinion
to the effect that, based upon and subject to various considerations that would
be set forth in such opinion, the IPC Ratio (assuming the increase to the IES
Ratio from 1.01 to 1.14) is fair from a financial point of view to the holders
of IPC Common Stock (other than WPLH, IES or any of their respective
affiliates). In addition, Salomon Brothers has delivered to the IPC Board its
written opinion, dated August 21, 1996, to the effect that, based upon and
subject to various considerations set forth in such opinion, as of such date,
the IPC Ratio is fair from a financial point of view to the holders of IPC
Common Stock (other than WPLH, IES or any of their respective affiliates).
THE FULL TEXT OF SALOMON BROTHERS' OPINION DATED THE DATE OF THIS SUPPLEMENT
TO JOINT PROXY STATEMENT/ PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE,
GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS ANNEX IV TO THIS SUPPLEMENT TO JOINT PROXY STATEMENT/
PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. SALOMON BROTHERS' OPINIONS
ARE DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO THE IPC
STOCKHOLDERS OF THE IPC RATIO AND DO NOT ADDRESS IPC'S UNDERLYING BUSINESS
DECISION TO ENTER INTO THE MERGERS OR CONSTITUTE A RECOMMENDATION TO ANY IPC
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER
AGREEMENT, AS AMENDED. THE SUMMARY OF SALOMON BROTHERS' OPINION SET FORTH ABOVE
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SALOMON BROTHERS'
OPINION DATED THE DATE OF THIS SUPPLEMENT TO JOINT PROXY STATEMENT/PROSPECTUS
ATTACHED AS ANNEX IV HERETO. IPC STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE
OPINION CAREFULLY AND IN ITS ENTIRETY. THE OPINION DATED THE DATE OF THIS
SUPPLEMENT TO JOINT PROXY STATEMENT/PROSPECTUS IS SUBSTANTIALLY SIMILAR TO THE
SALOMON BROTHERS' OPINIONS DATED NOVEMBER 10, 1995 AND JULY 11, 1996.
THE MERGER AGREEMENT
The parties have executed and delivered Amendment No. 2 to the Merger
Agreement, dated as of August 16, 1996, a copy of which is attached hereto as
Annex I. The only substantive change effected by Amendment No. 2 was to increase
the IES Ratio to 1.14. The other terms of the Merger Agreement as in effect
prior to Amendment No. 2 are summarized in the Original Joint Proxy Statement/
Prospectus under the caption "The Merger Agreement" and such Merger Agreement is
attached as Annex A to the Original Joint Proxy Statement/Prospectus.
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On August 15, 1996, the last full trading day before the public announcement
of an agreement in principle to increase the IES Ratio to 1.14, the high, low
and closing sales prices per share of (i) WPLH Common Stock on the NYSE were
$31 3/4, $31 1/2 and $31 3/4, respectively, (ii) IES Common Stock on the NYSE
were $33 3/8, $33 and $33 3/8, respectively, and (iii) IPC Common Stock on the
NYSE were $31 1/2, $31 1/4 and $31 1/4, respectively. Accordingly, if the
Mergers had been consummated on that date, each share of IES Common Stock would
have been converted into the right to receive 1.14 shares of WPLH Common Stock
having a market value of $36.20 based upon the closing price per share of WPLH
Common Stock on such date and each share of IPC Common Stock would have been
converted into the right to receive 1.11 shares of WPLH Common Stock having a
market value of $35.24 based on the closing price per share of WPLH Common Stock
on that date.
Based on the capitalization of WPLH, IES and IPC on August 15, 1996 and the
Ratios (including the IES Ratio of 1.14), holders of WPLH Common Stock, IES
Common Stock and IPC Common Stock would have held approximately 40.8%, 45.1% and
14.1%, respectively, of Interstate Energy Common Stock that would have been
outstanding if the Mergers had been consummated as of such date.
EXECUTIVE CHANGE OF CONTROL AGREEMENTS
The Original Joint Proxy Statement/Prospectus describes certain existing
severance agreements with IES executives, which include amendments to those
agreements approved by IES in November 1995. The severance agreements as so
amended provide salary continuation and other benefits in the event the
executive is terminated during the period beginning 180 days prior to a change
of control of IES and ending three years after the date of the change of
control. The Mergers will constitute a change of control for purposes of each of
these severance agreements.
On August 14, 1996, the IES Board approved special change of control
severance agreements with fourteen of the Company's executives, including Mr.
Liu, James E. Hoffman and John F. Franz, Jr. The special severance agreements
would not apply in the event the Mergers are consummated (the existing severance
agreements would remain in place for this purpose), but would apply in the event
IES experiences another type of change of control, including, but not limited to
the transaction contemplated by the MEC Takeover Proposal. Specifically, the
special severance agreements define a "change of control" to mean any of the
following events: (i) an acquisition of 20% or more of IES's voting stock by any
person, entity or group acting together; (ii) individuals who, at the time the
special severance agreements are entered into, constitute the IES Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
IES Board, except that individuals whose election to the IES Board is approved
by a majority of the Incumbent Board shall be considered to be members of the
Incumbent Board for this purpose; (iii) shareholder approval of a merger in
which IES is not the surviving entity (other than the Mergers); (iv) shareholder
approval of a sale of all or substantially all of the assets of IES; and (v)
shareholder approval of a liquidation or dissolution of IES. The special
severance agreements were approved partly in response to the MEC Takeover
Proposal but were also intended to apply to transactions involving any other
potential acquiror that meets the above definition of "change of control" (other
than the Mergers).
The special severance agreements are identical to the existing severance
agreements in defining the types of terminations of employment that will trigger
salary and benefit continuation, and the period during which such terminations
have to occur (I.E., the period beginning 180 days prior to a change of control
and ending three years after the change of control). The specific levels of
salary and benefit continuation and other benefit entitlements provided under
the special severance agreements are identical to those provided under the
existing severance agreements, except for the following changes. Salary and
benefit continuation would be provided for a period ranging from twenty-four to
thirty-six months (Mr. Liu's continuation period would remain unchanged at
thirty-six months, while the continuation period for Messrs. Hoffman and Franz
would increase from eighteen to twenty-four months). In addition, there are
certain changes regarding executives with supplemental retirement plan ("SERP")
benefits. The special severance agreements would provide Mr. Liu with the same
level of SERP benefits as would be provided in the Employment Agreement to be
executed between Mr. Liu
16
<PAGE>
and Interstate Energy in connection with the Mergers. Under that Employment
Agreement, Mr. Liu's SERP payments would be based on 75% of the sum of his
annual base salary and average annual bonus during the preceding three years (as
opposed to 75% of annual base salary under his existing severance agreement),
and in the event of Mr. Liu's death, payments would be guaranteed for a period
of 180 months (as opposed to 120 months under his existing severance agreement).
Other executives who are under age 56 with at least ten years of service at the
time of the change of control would be entitled to the same SERP benefits as
executives age 56 or older (under the existing severance agreements, all
executives who are under age 56 forfeit their SERP benefits and receive instead
a tax-deferred annuity). Mr. Franz is over age 56 and his SERP benefits would
not change. Mr. Hoffman is under age 56 with less than ten years of service, and
thus would receive only a tax-deferred annuity purchased with a cash amount
equal to twelve months of salary, an increase from six months under the original
agreement.
If all fourteen of the executives covered by the special severance
agreements were involuntarily terminated in 1996 following a change in control,
the approximate cost in present value terms of the additional benefits provided
under the special severance agreements (as compared to the existing severance
agreements) would be less than $1.3 million. The special severance agreements
thus would not have a significant anti-takeover effect. IES believes that the
special severance agreements and the existing severance agreements enable IES to
employ key executives who can approach major business decisions objectively and
without concern for their personal situations.
17
<PAGE>
COMPARATIVE BOOK VALUES, DIVIDENDS AND EARNINGS PER COMMON SHARE
The following sets forth certain data on a historical and equivalent pro
forma basis giving effect to the Mergers and providing for the IES Ratio of 1.14
and the IPC Ratio of 1.11.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------------- -------------
<S> <C> <C>
BOOK VALUES PER COMMON SHARE
WPLH/Interstate Energy
Historical (6)................................................................... $ 19.99 $ 19.41
Equivalent pro forma (6)......................................................... $ 18.82 $ 18.64
IES
Historical....................................................................... $ 20.51 $ 20.75
Equivalent pro forma (1)(6)...................................................... $ 21.45 $ 21.25
IPC
Historical....................................................................... $ 20.95 $ 20.68
Equivalent pro forma (1)(6)...................................................... $ 20.89 $ 20.69
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
TWELVE MONTHS
ENDED -------------------------------
JUNE 30, 1996 1995 1994 1993
--------------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH DIVIDENDS DECLARED PER COMMON SHARE
WPLH/Interstate Energy
Historical.............................................................. $ 1.96 $ 1.94 $ 1.92 $ 1.90
Equivalent pro forma (1)................................................ $ 1.89 $ 1.89 $ 1.88 $ 1.87
IES
Historical.............................................................. $ 2.10 $ 2.10 $ 2.10 $ 2.10
Equivalent pro forma (1)................................................ $ 2.15 $ 2.15 $ 2.14 $ 2.13
IPC
Historical.............................................................. $ 2.08 $ 2.08 $ 2.08 $ 2.08
Equivalent pro forma (1)................................................ $ 2.10 $ 2.10 $ 2.09 $ 2.08
EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS
WPLH/Interstate Energy
Historical (3)(6)....................................................... $ 2.99 $ 2.33 $ 2.17 $ 2.15
Equivalent pro forma (1)(3)(6).......................................... $ 2.48 $ 2.16 $ 2.05 $ 2.06
IES
Historical (3).......................................................... $ 2.27 $ 2.20 $ 2.34 $ 2.45
Equivalent pro forma (1)(3)............................................. $ 2.83 $ 2.46 $ 2.34 $ 2.35
IPC
Historical (3).......................................................... $ 2.82 $ 2.63 $ 1.92 $ 1.73
Equivalent pro forma (1)(3)............................................. $ 2.75 $ 2.40 $ 2.28 $ 2.29
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
PRO FORMA DIVIDEND PAYOUT RATIO
The pro forma dividend payout ratio of Interstate Energy for the twelve
months ended June 30, 1996 is based upon Interstate Energy's expected dividend
rate divided by the pro forma earnings per share for such period. It is
anticipated that Interstate Energy will retain WPLH's then current common share
dividend payment level as of the effective time of the Mergers. WPLH's current
annualized dividend rate is $1.97 per share.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
JUNE 30, 1996
-------------
<S> <C>
Pro Forma Dividend Payout Ratio
Interstate Energy.................................................................... 79.4%
</TABLE>
18
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma financial information combines the
historical consolidated balance sheets and statements of income of WPLH, IES and
IPC, including their respective Subsidiaries, after giving effect to the Mergers
and providing for the IES Ratio of 1.14 and the IPC Ratio of 1.11. The
historical data for WPLH have been adjusted to reflect the restatement of such
data to account for certain discontinued operations discussed in the notes
hereto. The unaudited pro forma combined balance sheet at June 30, 1996 gives
effect to the Mergers as if they had occurred at June 30, 1996. The unaudited
pro forma combined statements of income for each of the three years in the
period ended December 31, 1995, the six-month periods ended June 30, 1996 and
1995, and the twelve-month period ended June 30, 1996 give effect to the Mergers
as if they had occurred at January 1, 1993. These statements are prepared on the
basis of accounting for the Mergers as a pooling of interests and are based on
the assumptions set forth in the notes thereto. In addition, the pro forma
financial information does not give effect to the expected synergies or the
costs to be incurred to achieve such synergies. The pro forma financial
information, however, does reflect the transaction costs to effect the Mergers.
The following pro forma financial information has been prepared from, and
should be read in conjunction with, the historical consolidated financial
statements and related notes thereto of WPLH, IES and IPC, incorporated by
reference herein. The following information is not necessarily indicative of the
financial position or operating results that would have occurred had the Mergers
been consummated on the date, or at the beginning of the periods, for which the
Mergers are being given effect nor is it necessarily indicative of future
operating results or financial position. In addition, due to the effect of
weather on sales and other factors which are characteristic of public utility
operations, financial results for the six-month periods ended June 30, 1996 and
1995 are not necessarily indicative of trends for any twelve-month period.
19
<PAGE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
WPLH IES IPC
(AS REPORTED) (AS REPORTED) (AS REPORTED)
------------- ------------- -------------
<S> <C> <C> <C>
UTILITY PLANT
Electric............................................................................. $ 1,686,564 $ 1,921,426 $ 843,003
Gas.................................................................................. 220,824 167,760 63,518
Other................................................................................ 166,316 109,088 --
------------- ------------- -------------
Total............................................................................ 2,073,704 2,198,274 906,521
Accumulated provision for depreciation............................................... 929,494 996,595 416,090
Construction work in progress........................................................ 52,936 82,070 6,319
Nuclear fuel -- net.................................................................. 17,247 40,532 --
------------- ------------- -------------
Net utility plant................................................................ 1,214,393 1,324,281 496,750
OTHER PROPERTY, PLANT AND EQUIPMENT -- NET AND INVESTMENTS (Note 8).................... 125,270 263,990 460
CURRENT ASSETS
Cash and cash equivalents............................................................ 9,635 14,520 1,324
Accounts receivable -- net........................................................... 81,253 38,407 27,298
Fossil fuel inventories, at average cost............................................. 14,548 12,821 13,926
Materials and supplies, at average cost.............................................. 21,304 23,968 5,955
Prepayments and other................................................................ 39,040 45,994 12,743
------------- ------------- -------------
Total current assets............................................................. 165,780 135,710 61,246
EXTERNAL DECOMMISSIONING FUND.......................................................... 84,747 52,084 --
DEFERRED CHARGES AND OTHER............................................................. 248,232 238,242 72,010
------------- ------------- -------------
TOTAL ASSETS..................................................................... $ 1,838,422 $ 2,014,307 $ 630,466
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- ----------
<S> <C> <C>
UTILITY PLANT
Electric............................................................................. $ -- $4,450,993
Gas.................................................................................. -- 452,102
Other................................................................................ -- 275,404
----------- ----------
Total............................................................................ -- 5,178,499
Accumulated provision for depreciation............................................... -- 2,342,179
Construction work in progress........................................................ -- 141,325
Nuclear fuel -- net.................................................................. -- 57,779
----------- ----------
Net utility plant................................................................ -- 3,035,424
OTHER PROPERTY, PLANT AND EQUIPMENT -- NET AND INVESTMENTS (Note 8).................... -- 389,720
CURRENT ASSETS
Cash and cash equivalents............................................................ -- 25,479
Accounts receivable -- net........................................................... -- 146,958
Fossil fuel inventories, at average cost............................................. -- 41,295
Materials and supplies, at average cost.............................................. -- 51,227
Prepayments and other................................................................ -- 97,777
----------- ----------
Total current assets............................................................. -- 362,736
EXTERNAL DECOMMISSIONING FUND.......................................................... -- 136,831
DEFERRED CHARGES AND OTHER............................................................. -- 558,484
----------- ----------
TOTAL ASSETS..................................................................... $ -- $4,483,195
----------- ----------
----------- ----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
20
<PAGE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
WPLH IES IPC
(AS REPORTED) (AS REPORTED) (AS REPORTED)
------------- ------------- -------------
<S> <C> <C> <C>
LIABILITIES AND EQUITY
CAPITALIZATION
Common Stock Equity:
Common stock (Note 1).......................................................... $ 308 $ 399,928 $ 33,583
Other stockholders' equity (Note 1)............................................ 615,307 212,003 167,410
------------- ------------- -------------
Total common stock equity.................................................... 615,615 611,931 200,993
Preferred stock not mandatorily redeemable....................................... 59,963 18,320 10,819
Preferred stock mandatory sinking fund........................................... -- -- 24,090
Long-term debt -- net............................................................ 423,701 604,469 171,918
------------- ------------- -------------
Total capitalization......................................................... 1,099,279 1,234,720 407,820
CURRENT LIABILITIES
Current maturities, sinking funds, and capital lease obligations................. 3,453 37,343 17,000
Commercial paper, notes payable and other........................................ 57,534 125,000 29,700
Variable rate demand bonds....................................................... 56,975 -- --
Accounts payable and accruals.................................................... 86,049 67,047 19,061
Taxes accrued.................................................................... 17,680 47,698 15,145
Other accrued liabilities........................................................ 50,784 69,872 8,348
------------- ------------- -------------
Total current liabilities.................................................... 272,475 346,960 89,254
OTHER LIABILITIES
Deferred income taxes............................................................ 238,048 258,310 98,269
Deferred investment tax credits.................................................. 37,887 35,793 17,527
Accrued environmental remediation costs.......................................... 76,611 43,400 6,834
Capital lease obligations........................................................ -- 26,649 --
Other liabilities and deferred credits........................................... 114,122 68,475 10,762
------------- ------------- -------------
Total other liabilities...................................................... 466,668 432,627 133,392
------------- ------------- -------------
TOTAL CAPITALIZATION AND LIABILITIES........................................... $ 1,838,422 $ 2,014,307 $ 630,466
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- ----------
<S> <C> <C>
LIABILITIES AND EQUITY
CAPITALIZATION
Common Stock Equity:
Common stock (Note 1).......................................................... $(433,064) $ 755
Other stockholders' equity (Note 1)............................................ 424,804 1,419,524
----------- ----------
Total common stock equity.................................................... (8,260) 1,420,279
Preferred stock not mandatorily redeemable....................................... -- 89,102
Preferred stock mandatory sinking fund........................................... -- 24,090
Long-term debt -- net............................................................ -- 1,200,088
----------- ----------
Total capitalization......................................................... (8,260) 2,733,559
CURRENT LIABILITIES
Current maturities, sinking funds, and capital lease obligations................. -- 57,796
Commercial paper, notes payable and other........................................ -- 212,234
Variable rate demand bonds....................................................... -- 56,975
Accounts payable and accruals.................................................... -- 172,157
Taxes accrued.................................................................... -- 80,523
Other accrued liabilities........................................................ 14,000 143,004
----------- ----------
Total current liabilities.................................................... 14,000 722,689
OTHER LIABILITIES
Deferred income taxes............................................................ (5,740) 588,887
Deferred investment tax credits.................................................. -- 91,207
Accrued environmental remediation costs.......................................... -- 126,845
Capital lease obligations........................................................ -- 26,649
Other liabilities and deferred credits........................................... -- 193,359
----------- ----------
Total other liabilities...................................................... (5,740) 1,026,947
----------- ----------
TOTAL CAPITALIZATION AND LIABILITIES........................................... $ -- $4,483,195
----------- ----------
----------- ----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
21
<PAGE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WPLH IES IPC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric............................... $ 285,584 $ 262,400 $ 132,936 $ -- $ 680,920
Gas.................................... 99,743 132,651 30,411 -- 262,805
Other.................................. 83,843 58,793 -- -- 142,636
------------- ------------- ------------- ------------- ------------
Total operating revenues............. 469,170 453,844 163,347 -- 1,086,361
Operating Expenses
Electric production fuels.............. 55,943 43,021 28,941 -- 127,905
Purchased power........................ 31,773 36,469 30,980 -- 99,222
Cost of gas sold....................... 61,054 99,250 16,585 -- 176,889
Other operation........................ 151,737 104,808 25,418 -- 281,963
Maintenance............................ 19,491 25,920 8,433 -- 53,844
Depreciation and amortization.......... 45,828 54,608 15,175 -- 115,611
Taxes other than income taxes.......... 18,055 26,004 8,638 -- 52,697
------------- ------------- ------------- ------------- ------------
Total operating expenses............. 383,881 390,080 134,170 -- 908,131
------------- ------------- ------------- ------------- ------------
Operating Income......................... 85,289 63,764 29,177 -- 178,230
Other Income (Expense)
Allowance for equity funds used during
construction.......................... 905 (4) -- -- 901
Other income and deductions -- net..... 10,078 2,373 713 -- 13,164
------------- ------------- ------------- ------------- ------------
Total other income (expense)......... 10,983 2,369 713 -- 14,065
Interest Charges......................... 18,526 24,455 8,035 -- 51,016
------------- ------------- ------------- ------------- ------------
Income from continuing operations before
income taxes and preferred dividends.... 77,746 41,678 21,855 -- 141,279
Income Taxes............................. 27,871 19,070 8,387 -- 55,328
Preferred dividends of subsidiaries (Note
2)...................................... 1,656 457 1,231 -- 3,344
------------- ------------- ------------- ------------- ------------
Income from Continuing Operations (Notes
3 and 6)................................ $ 48,219 $ 22,151 $ 12,237 $ -- $ 82,607
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
Average Common Shares Outstanding (Note
1)...................................... 30,784 29,723 9,566 5,213 75,286
Earnings per share of Common Stock from
continuing operations................... $1.57 $0.75 $1.28 $ -- $1.10
----- ----- ----- ----- ----
----- ----- ----- ----- ----
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
22
<PAGE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WPLH IES IPC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric................................ $ 257,244 $ 249,626 $ 128,887 $ -- $ 635,757
Gas..................................... 77,657 96,992 25,932 -- 200,581
Other................................... 56,963 49,221 -- -- 106,184
------------- ------------- ------------- ------------- -----------
Total operating revenues.............. 391,864 395,839 154,819 -- 942,522
Operating Expenses
Electric production fuels............... 57,611 39,746 32,618 -- 129,975
Purchased power......................... 17,382 33,444 27,163 -- 77,989
Cost of gas sold........................ 46,241 72,356 13,831 -- 132,428
Other operation......................... 119,947 93,965 18,974 -- 232,886
Maintenance............................. 23,048 23,489 7,242 -- 53,779
Depreciation and amortization........... 42,836 50,461 14,487 -- 107,784
Taxes other than income taxes........... 18,671 26,807 8,745 -- 54,223
------------- ------------- ------------- ------------- -----------
Total operating expenses.............. 325,736 340,268 123,060 -- 789,064
------------- ------------- ------------- ------------- -----------
Operating Income.......................... 66,128 55,571 31,759 -- 153,458
Other Income (Expense)
Allowance for equity funds used during
construction........................... 722 360 -- -- 1,082
Other income and deductions -- net...... (106) 523 (4,561) -- (4,144)
------------- ------------- ------------- ------------- -----------
Total other income (expense).......... 616 883 (4,561) -- (3,062)
Interest Charges.......................... 20,217 23,507 8,396 -- 52,120
------------- ------------- ------------- ------------- -----------
Income from continuing operations before
income taxes and preferred dividends..... 46,527 32,947 18,802 -- 98,276
Income Taxes.............................. 16,971 13,242 7,180 -- 37,393
Preferred dividends of subsidiaries (Note
2)....................................... 1,655 457 1,228 -- 3,340
------------- ------------- ------------- ------------- -----------
Income from Continuing Operations (Notes 3
and 6)................................... $ 27,901 $ 19,248 $ 10,394 $ -- $ 57,543
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------
Average Common Shares Outstanding (Note
1)....................................... 30,774 29,008 9,564 5,113 74,459
Earnings per share of Common Stock from
continuing operations.................... $0.91 $0.66 $1.08 $ -- $0.77
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
23
<PAGE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
TWELVE MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WPLH IES IPC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric............................... $ 574,664 $ 573,246 $ 278,922 $ -- $ 1,426,832
Gas.................................... 161,251 225,999 48,148 -- 435,398
Other.................................. 148,646 109,773 -- -- 258,419
------------- ------------- ------------- ------------- ------------
Total operating revenues............. 884,561 909,018 327,070 -- 2,120,649
Operating Expenses.......................
Electric production fuels.............. 114,820 99,530 58,487 -- 272,837
Purchased power........................ 58,406 69,899 61,382 -- 189,687
Cost of gas sold....................... 98,815 168,610 28,642 -- 296,067
Other operation........................ 282,586 212,231 52,161 -- 546,978
Maintenance............................ 38,486 48,525 16,072 -- 103,083
Depreciation and amortization.......... 89,311 102,104 30,249 -- 221,664
Taxes other than income taxes.......... 33,572 48,211 15,882 -- 97,665
------------- ------------- ------------- ------------- ------------
Total operating expenses............. 715,996 749,110 262,875 -- 1,727,981
Operating Income......................... 168,565 159,908 64,195 -- 392,668
------------- ------------- ------------- ------------- ------------
Other Income (Expense)...................
Allowance for equity funds used during
construction.......................... 2,484 22 3 -- 2,509
Other income and deductions -- net..... 13,287 5,016 2,885 -- 21,188
------------- ------------- ------------- ------------- ------------
Total other income (expense)......... 15,771 5,038 2,888 -- 23,697
Interest Charges......................... 42,081 48,636 16,434 -- 107,151
------------- ------------- ------------- ------------- ------------
Income from continuing operations before
income taxes and preferred dividends.... 142,255 116,310 50,649 -- 309,214
Income Taxes............................. 47,008 48,318 21,146 -- 116,472
Preferred dividends of subsidiaries (Note
2)...................................... 3,311 914 2,461 -- 6,686
------------- ------------- ------------- ------------- ------------
Income from Continuing Operations (Notes
3 and 6)................................ $ 91,936 $ 67,078 $ 27,042 $ -- $ 186,056
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
Average Common Shares Outstanding (Note
1)...................................... 30,779 29,560 9,565 5,190 75,094
Earnings per share of Common Stock from
continuing operations................... $2.99 $2.27 $2.82 $ -- $2.48
----- ----- ----- ----- ----
----- ----- ----- ----- ----
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
24
<PAGE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WPLH IES IPC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric............................. $ 546,324 $ 560,471 $ 274,873 $ -- $ 1,381,668
Gas.................................. 139,165 190,339 43,669 -- 373,173
Other................................ 121,766 100,200 -- -- 221,966
------------- ------------- ------------- ----- -------------
Total operating revenues........... 807,255 851,010 318,542 -- 1,976,807
Operating Expenses
Electric production fuels............ 116,488 96,256 62,164 -- 274,908
Purchased power...................... 44,015 66,874 57,566 -- 168,455
Cost of gas sold..................... 84,002 141,716 25,888 -- 251,606
Other operation...................... 250,796 201,390 45,717 -- 497,903
Maintenance.......................... 42,043 46,093 14,881 -- 103,017
Depreciation and amortization........ 86,319 97,958 29,560 -- 213,837
Taxes other than income
taxes............................... 34,188 49,011 15,990 -- 99,189
------------- ------------- ------------- ----- -------------
Total operating expenses........... 657,851 699,298 251,766 -- 1,608,915
------------- ------------- ------------- ----- -------------
Operating Income....................... 149,404 151,712 66,776 -- 367,892
Other Income (Expense)
Allowance for equity funds used
during construction................. 1,425 386 -- -- 1,811
Other income and deductions -- net... 3,103 3,170 (2,872) -- 3,401
------------- ------------- ------------- ----- -------------
Total other income
(expense)......................... 4,528 3,556 (2,872) -- 5,212
Interest Charges....................... 42,896 47,689 16,795 -- 107,380
------------- ------------- ------------- ----- -------------
Income from continuing operations
before income taxes and preferred
dividends............................. 111,036 107,579 47,109 -- 265,724
Income Taxes........................... 36,108 42,489 19,453 -- 98,050
Preferred dividends of subsidiaries
(Note 2).............................. 3,310 914 2,458 -- 6,682
------------- ------------- ------------- ----- -------------
Income from Continuing Operations
(Notes 3 and 6)....................... $ 71,618 $ 64,176 $ 25,198 $ -- $ 160,992
------------- ------------- ------------- ----- -------------
------------- ------------- ------------- ----- -------------
Average Common Shares Outstanding (Note
1).................................... 30,774 29,202 9,564 5,140 74,680
Earnings per share of Common Stock from
continuing operations................. $2.33 $2.20 $2.63 $ -- $2.16
----- ----- ----- ----- ----
----- ----- ----- ----- ----
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
25
<PAGE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WPLH IES IPC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric............................. $ 531,747 $ 537,327 $ 261,730 $ -- $ 1,330,804
Gas.................................. 151,931 165,569 45,920 -- 363,420
Other................................ 112,039 82,968 -- -- 195,007
------------- ------------- ------------- ----- -------------
Total operating revenues........... 795,717 785,864 307,650 -- 1,889,231
Operating Expenses
Electric production fuels............ 123,469 85,952 61,384 -- 270,805
Purchased power...................... 37,913 68,794 58,339 -- 165,046
Cost of gas sold..................... 100,942 120,795 30,905 -- 252,642
Other operation...................... 246,212 176,863 51,917 -- 474,992
Maintenance.......................... 41,227 52,841 17,160 -- 111,228
Depreciation and amortization........ 80,351 86,378 28,212 -- 194,941
Taxes other than income
taxes............................... 33,788 46,308 16,298 -- 96,394
------------- ------------- ------------- ----- -------------
Total operating expenses........... 663,902 637,931 264,215 -- 1,566,048
------------- ------------- ------------- ----- -------------
Operating Income....................... 131,815 147,933 43,435 -- 323,183
Other Income (Expense)
Allowance for equity funds used
during construction................. 3,009 2,299 166 -- 5,474
Other income and deductions -- net... 7,610 3,472 3,100 -- 14,182
------------- ------------- ------------- ----- -------------
Total other income
(expense)......................... 10,619 5,771 3,266 -- 19,656
Interest Charges....................... 36,657 44,399 16,845 -- 97,901
------------- ------------- ------------- ----- -------------
Income from continuing operations
before income taxes and preferred
dividends............................. 105,777 109,305 29,856 -- 244,938
Income Taxes........................... 36,043 41,573 9,189 -- 86,805
Preferred dividends of subsidiaries
(Note 2).............................. 3,310 914 2,454 -- 6,678
------------- ------------- ------------- ----- -------------
Income from Continuing Operations
(Notes 3 and 6)....................... $ 66,424 $ 66,818 $ 18,213 $ -- $ 151,455
------------- ------------- ------------- ----- -------------
------------- ------------- ------------- ----- -------------
Average Common Shares Outstanding (Note
1).................................... 30,671 28,560 9,479 5,041 73,751
Earnings per share of Common Stock from
continuing operations................. $2.17 $2.34 $1.92 $ -- $2.05
----- ----- ----- ----- ----
----- ----- ----- ----- ----
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
26
<PAGE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WPLH IES IPC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric............................. $ 503,187 $ 550,521 $ 255,759 $ -- $ 1,309,467
Gas.................................. 137,270 181,923 53,709 -- 372,902
Other................................ 98,147 68,822 -- -- 166,969
------------- ------------- ------------- ----- -------------
Total operating revenues........... 738,604 801,266 309,468 -- 1,849,338
Operating Expenses
Electric production fuels............ 123,919 87,702 64,059 -- 275,680
Purchased power...................... 28,574 93,449 53,936 -- 175,959
Cost of gas sold..................... 90,505 135,830 38,309 -- 264,644
Other operation...................... 221,840 162,642 48,567 -- 433,049
Maintenance.......................... 44,763 48,913 16,771 -- 110,447
Depreciation and amortization........ 68,680 77,012 26,955 -- 172,647
Taxes other than income taxes........ 32,379 44,449 17,080 -- 93,908
------------- ------------- ------------- ----- -------------
Total operating expenses........... 610,660 649,997 265,677 -- 1,526,334
------------- ------------- ------------- ----- -------------
Operating Income....................... 127,944 151,269 43,791 -- 323,004
Other Income (Expense)
Allowance for equity funds used
during construction................. 2,978 824 68 -- 3,870
Other income and deductions net...... (633) (2,908) 1,209 -- (2,332)
------------- ------------- ------------- ----- -------------
Total other income (expense)....... 2,345 (2,084) 1,277 -- 1,538
Interest Charges....................... 37,020 43,292 16,617 -- 96,929
------------- ------------- ------------- ----- -------------
Income from continuing operations
before income taxes and preferred
dividends............................. 93,269 105,893 28,451 -- 227,613
Income Taxes........................... 25,656 37,041 9,464 -- 72,161
Preferred dividends of subsidiaries
(Note 2).............................. 3,928 914 2,861 -- 7,703
------------- ------------- ------------- ----- -------------
Income from Continuing Operations
(Notes 3 and 6)....................... $ 63,685 $ 67,938 $ 16,126 $ -- $ 147,749
------------- ------------- ------------- ----- -------------
------------- ------------- ------------- ----- -------------
Average Common Shares Outstanding (Note
1).................................... 29,681 27,764 9,316 4,912 71,673
Earnings per share of Common Stock from
continuing operations................. $2.15 $2.45 $1.73 $ -- $2.06
----- ----- ----- ----- ----
----- ----- ----- ----- ----
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
27
<PAGE>
INTERSTATE ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
1. The pro forma combined financial statements reflect the conversion of each
share of IES Common Stock (no par value) outstanding into 1.14 shares of
WPLH Common Stock ($.01 par value) and the conversion of each share of IPC
Common Stock ($3.50 par value) into 1.11 of a share of WPLH Common Stock
($.01 par value), and the continuation of each share of WPLH Common Stock
($.01 par value) outstanding as one share of Interstate Energy Common Stock,
as provided in the Merger Agreement. The pro forma adjustment to common
stock equity restates the common stock account to equal par value for all
shares to be issued ($.01 par value per share of Interstate Energy Common
Stock) and reclassifies the excess to other stockholders' equity. The pro
forma combined statements of income are presented as if the companies were
combined on January 1, 1993. The pro forma combined balance sheet gives
effect to the Mergers as if they occurred at June 30, 1996.
The number of shares of common stock used for calculating per share amounts
is based on the exchange ratios shown below.
AVERAGE NUMBER OF SHARES OUTSTANDING FOR THE TWELVE MONTHS ENDED
<TABLE>
<CAPTION>
EXCHANGE AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
RATIO 6/30/96 6/30/96 12/31/95 12/31/95 12/31/94 12/31/94
----------------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
IES.......... 1.14 29,560 33,698 29,202 33,290 28,560 32,558
IPC.......... 1.11 9,565 10,617 9,564 10,616 9,479 10,522
WPLH......... N/A 30,779 30,779 30,774 30,774 30,671 30,671
</TABLE>
<TABLE>
<CAPTION>
EXCHANGE AS REPORTED PRO FORMA
RATIO 12/31/93 12/31/93
----------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
IES................................ 1.14 27,764 31,651
IPC................................ 1.11 9,316 10,341
WPLH............................... N/A 29,681 29,681
</TABLE>
AVERAGE NUMBER OF SHARES OUTSTANDING FOR THE SIX MONTHS ENDED
<TABLE>
<CAPTION>
EXCHANGE AS REPORTED PRO FORMA AS REPORTED PRO FORMA
RATIO 6/30/96 6/30/96 6/30/95 6/30/95
----------------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
IES................................ 1.14 29,723 33,884 29,008 33,069
IPC................................ 1.11 9,566 10,618 9,564 10,616
WPLH............................... N/A 30,784 30,784 30,774 30,774
</TABLE>
2. The IPC Preferred Stock has been reclassified in the pro forma statements as
preferred stock of subsidiary companies and deducted in the determination of
income from continuing operations which reflects the holding company
structure of the entity formed through the Mergers.
3. Nonrecurring items affecting WPLH's 1994 performance included the impact of
early retirement and severance programs and the reversal of a coal contract
penalty assessed by the Wisconsin Commission which was charged to income in
1989. The net after-tax impact of these items on income from continuing
operations for the year ended December 31, 1994 was a decrease of $8.3
million related to the early retirement and severance programs offset by an
increase of $4.9 million related to the coal contract penalty reversal.
Nonrecurring items affecting WPLH's
28
<PAGE>
INTERSTATE ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (CONTINUED)
performance for the twelve months ended June 30, 1996 included a net
after-tax gain of $2.0 million on the sale of an HDC real estate investment,
Heartland Retirement Services, and a net after-tax gain of $3.4 million on
the sale of a combustion turbine.
IPC's income from continuing operations includes expenses associated with
the environmental investigation and remediation costs of former manufactured
gas plants. Operating expenses for the twelve months ended June 30, 1996 and
for the years ended December 31, 1995, 1994 and 1993 include $0.1 million,
$0.3 million, $0.8 million and $3.5 million, respectively, for these costs.
Other operating expenses for the twelve months ended June 30, 1996 and for
the year ended December 31, 1995 also include $1.2 million and $0.7 million,
respectively, of legal fees related to coal tar remediation, compared with
$1.0 million and $0.3 million for the years ended December 31, 1994 and
1993, respectively. For the twelve months ended June 30, 1996 and for the
years ended December 31, 1995, 1994 and 1993, $0.2 million, $0.6 million,
$0.7 million and $0.6 million, respectively, of the foregoing expenses were
recovered in rates.
Nonrecurring items affecting IES's income from continuing operations for the
year ended December 31, 1993 include various gains and losses related to
sales of assets and property valuation adjustments associated with its
nonregulated businesses. The net after-tax impact of these items on income
from continuing operations for the year ended December 31, 1993 was a
decrease of $2.0 million.
4. The allocation between WPLH, IES and IPC and their customers of the
estimated costs savings of approximately $749 million over ten years
resulting from the Mergers, net of the costs incurred to achieve such
savings, will be subject to regulatory review and approval. Costs arising
from the proposed Mergers are currently estimated to be approximately $78.4
million (including transaction costs of $11.5 million related to fees for
financial advisors and $2.5 million related to fees for attorneys,
accountants, consultants, filings and printing). Such costs do not reflect
the increased costs associated with the MEC Takeover Proposal and the
increase in the IES Ratio, which WPLH, IES and IPC are unable to estimate as
of the date of this Supplement to Joint Proxy Statement/Prospectus, but
which the parties believe will exceed $4 million. In addition, none of the
estimated cost savings, or the costs to achieve such savings, have been
reflected in the pro forma combined financial statements. The transaction
costs have been reflected in the pro forma balance sheet at June 30, 1996
such that shareowner equity has been reduced by $8.26 million, accrued
liabilities have been increased by $14.0 million, and deferred taxes were
decreased by $5.74 million.
5. Intercompany transactions (including purchased and exchange power
transactions) between WPLH, IES and IPC during the periods presented were
included in the determination of regulated rates and were not material.
Accordingly, no pro forma adjustments were made to eliminate such
transactions.
6. The financial statements of WPLH reflect the discontinuance of operations of
its utility energy and marketing consulting business in 1995. The
discontinuance of this business resulted in a pre-tax loss of $7.7 million
($11.0 million net of the applicable income tax expenses) in 1995. Operating
revenues, operating expenses, other income and expense and income taxes for
the discontinued operations for the time periods presented have been
excluded from income from continuing operations. Interest expense has been
adjusted for the amounts associated with direct obligations of the
discontinued operations.
29
<PAGE>
INTERSTATE ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (CONTINUED)
Operating revenues, related losses, and income tax benefits associated with
the discontinued operations for the indicated time periods were as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------
1996 1995 1994 1993
-------------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenues................................... $ 8,806 $ 24,979 $ 34,798 $ 33,340
-------------- --------- --------- ---------
-------------- --------- --------- ---------
Loss from discontinued operations before tax
benefit............................................. $ 1,496 $ 3,663 $ 1,806 $ 1,761
Income tax benefit................................... 593 1,451 632 599
-------------- --------- --------- ---------
Loss from discontinued operations.................... $ 903 $ 2,212 $ 1,174 $ 1,162
-------------- --------- --------- ---------
-------------- --------- --------- ---------
</TABLE>
7. Accounting principles have been consistently applied in the financial
statement presentations for WPLH, IES and IPC with one exception. IPC does
not include unbilled electric and gas revenues in its calculation of total
revenues. The utility subsidiaries of WPLH and IES accrue unbilled revenues.
The impact of this difference in accounting principles among the companies
does not have a material impact on the unaudited pro forma combined
financial statements as presented and, accordingly, no adjustments have been
made to conform accounting principles.
8. At June 30, 1996, IES had a $10.0 million investment in Class A common stock
of McLeod, Inc., a $9.2 million investment in Class B common stock and
vested options that, if exercised, would represent an additional investment
of approximately $2.3 million. McLeod provides local and long-distance
telecommunications services to business customers and other services related
to fiber optics.
In June 1996, McLeod completed an initial public offering (IPO) of its Class
A common stock. As of June 30, 1996, IES is the beneficial owner of
approximately 10.2 million total shares on a fully diluted basis. Class B
shares are convertible at the option of IES into Class A shares at any time
on a one-for-one basis. The rights of McLeod Class A common stock and Class
B common stock are substantially identical except that Class A common stock
has 1 vote per share and Class B common stock has 0.40 votes per share. IES
currently accounts for this investment under the cost method.
IES has entered into an agreement with McLeod which provides that for two
years commencing on June 10, 1996, IES cannot sell or otherwise dispose of
any of its securities of McLeod without the consent of the McLeod Board of
Directors. Also, under certain SEC rules, IES may be subject to certain
restrictions with respect to the sale of McLeod shares for a period of time.
These contractual and SEC sale restrictions result in restricted stock under
the provisions of Statement of Financial Accounting Standards No. 115 (SFAS
No. 115), Accounting for Certain Investments in Debt and Equity Securities,
until such time as the restrictions lapse and such shares became qualified
for sale within a one year period. As a result, IES currently carries this
investment at cost.
Under the provisions of SFAS No. 115, the carrying value of the McLeod
investment will be adjusted to estimated fair value at the time such shares
are not considered to be restricted stock. Under the SEC rules, it is
possible that the shares will become unrestricted over time rather than all
at once. Therefore, adjustments to market value under the provisions of SFAS
No. 115 would only be recorded for the portion of shares held that are no
longer deemed to be restricted. Any
30
<PAGE>
INTERSTATE ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (CONTINUED)
such adjustments to reflect the estimated fair value of this investment
would be reflected as an increase in the investment carrying value with the
unrealized gains reported as a net of tax amount in other common
shareholders equity until realized (I.E., sold by IES).
The closing price of the McLeod Class A common stock on June 30, 1996, on
the Nasdaq National Market, was $24.00 per share. The current market value
of the shares IES beneficially owns (approximately 10.2 million shares) is
currently impacted by, among other things, the fact that the shares cannot
be sold for a period of time and it is not possible to estimate what the
market value of the shares will be at the point in time such sale
restrictions are lifted. In addition, any gain upon an eventual sale of this
investment would likely be subject to tax.
31
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
THIS SUPPLEMENT TO JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS
BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH
DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING
ANY BENEFICIAL OWNER, TO WHOM THIS SUPPLEMENT TO JOINT PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST, WITHOUT CHARGE,
IN THE CASE OF DOCUMENTS RELATING TO WPLH, DIRECTED TO EDWARD M. GLEASON, VICE
PRESIDENT, TREASURER AND CORPORATE SECRETARY, WPL HOLDINGS, INC., 222 WEST
WASHINGTON AVENUE, P.O. BOX 2568, MADISON, WISCONSIN 53701-2568 (TELEPHONE
NUMBER (608) 252-3311), IN THE CASE OF DOCUMENTS RELATING TO IES, DIRECTED TO
STEPHEN W. SOUTHWICK, ESQ., VICE PRESIDENT, GENERAL COUNSEL & SECRETARY, IES
INDUSTRIES INC., IES TOWER, 200 FIRST STREET S.E., CEDAR RAPIDS, IOWA 52401
(TELEPHONE NUMBER (319) 398-4411), OR IN THE CASE OF DOCUMENTS RELATING TO IPC,
DIRECTED TO JOSEPH C. MCGOWAN, SECRETARY AND TREASURER, INTERSTATE POWER
COMPANY, 1000 MAIN STREET, P.O. BOX 769, DUBUQUE, IOWA 52004-0769 (TELEPHONE
NUMBER (319) 582-5421). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUESTS SHOULD BE MADE BY AUGUST 28, 1996.
An additional copy of the Original Joint Proxy Statement/Prospectus may be
obtained by any WPLH, IES or IPC shareowner by calling, in the case of WPLH
shareowners, WPLH Shareowner Services at (608) 252-3110 (local) or (800)
356-5343 (toll-free), in the case of IES shareholders, IES Shareholder Services
at (319) 398-7755 (local) or (800) 247-9785 (toll-free) or, in the case of IPC
stockholders, IPC Stockholder Services (collect) at (319) 582-5421, ext. 465.
The following documents filed with the SEC by WPLH (File No. 1-9894), IES
(File No. 1-9187) or IPC (File No. 1-3632) pursuant to the Exchange Act are
incorporated in this Supplement to Joint Proxy Statement/Prospectus by
reference:
1. WPLH's Annual Report on Form 10-K filed on March 29, 1996 for the
year ended December 31, 1995, as amended by the Form 10-K/A filed on April
29, 1996.
2. WPLH's Quarterly Reports on Form 10-Q for the quarters ended March
31 and June 30, 1996, filed on May 15 and August 14, 1996, respectively, as
amended by the Form 10-Q/A filed August 16, 1996.
3. WPLH's Current Reports on Form 8-K dated January 17 and May 22,
1996, filed on January 17 and May 24, 1996, respectively.
4. IES's Annual Report on Form 10-K filed on March 7, 1996 for the year
ended December 31, 1995, as amended by the Form 10-K/A filed on April 29,
1996.
5. IES's Quarterly Reports on Form 10-Q for the quarters ended March 31
and June 30, 1996, filed on May 14 and August 14, 1996, respectively.
6. IES's Current Reports on Form 8-K dated February 9, April 3, April
12 and May 22, 1996, filed on February 20, April 8, April 18 and May 24,
1996, respectively.
7. The description of IES Common Stock in IE Industries Inc.'s
Registration Statement on Form 8-B filed June 20, 1986, as amended, and the
share purchase rights associated with IES Common Stock contained in IES's
registration statement on Form 8-A filed November 13, 1991, as amended.
8. IPC's Annual Report on Form 10-K filed on March 29, 1996 for the
year ended December 31, 1995, as amended by the Form 10-K/A filed on April
29, 1996.
9. IPC's Quarterly Reports on Form 10-Q for the quarters ended March 31
and June 30, 1996, filed on May 15 and August 13, 1996, respectively, as
amended by the Form 10-Q/A filed on August 14, 1996.
10. IPC's Current Report on Form 8-K dated May 22, 1996, filed on May
29, 1996.
32
<PAGE>
11. The description of IPC Common Stock contained in IPC's registration
statements filed pursuant to Section 12 of the Exchange Act and any
amendment or report filed for the purpose of updating such description.
In lieu of incorporating by reference the description of WPLH Common Stock
(including the accompanying common stock purchase rights) contained in WPLH's
Form 8-B and Form 8-A registration statements filed pursuant to Section 12 of
the Exchange Act, such description is included in the Original Joint Proxy
Statement/Prospectus. See "Description of Interstate Energy Capital Stock."
The information relating to WPLH, IES and IPC contained in the Original
Joint Proxy Statement/Prospectus, as supplemented hereby, does not purport to be
comprehensive and should be read together with the information in the documents
incorporated by reference herein.
All documents filed by WPLH, IES or IPC pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
date of the WPLH Meeting on Thursday, September 5, 1996, and any adjournment or
postponement thereof, the IES Meeting on Thursday, September 5, 1996, and any
adjournment or postponement thereof, or the IPC Meeting on Thursday, September
5, 1996, and any adjournment or postponement thereof, respectively, shall be
deemed to be incorporated by reference herein and into the Original Joint Proxy
Statement/Prospectus, as supplemented hereby, and to be a part hereof and
thereof from the date of filing of such documents.
Any statement contained in a document incorporated by reference herein or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Supplement to Joint Proxy Statement/Prospectus
to the extent that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Supplement to Joint Proxy Statement/Prospectus.
The Original Joint Proxy Statement/Prospectus as supplemented constitutes a
prospectus of WPLH (to be renamed Interstate Energy) with respect to up to
46,879,250 shares of Interstate Energy Common Stock to be issued pursuant to or
as contemplated by the Merger Agreement. The Original Joint Proxy
Statement/Prospectus as supplemented also constitutes a prospectus of New IPC
with respect to up to 761,381 shares of New IPC Preferred Stock to be issued,
assuming that the IPC Reincorporation Merger is effected, pursuant to or as
contemplated by the Merger Agreement.
33
<PAGE>
ANNEX I
AMENDMENT NO. 2
TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT No. 2 (this "Amendment No. 2") dated as of August 16, 1996,
by and among WPL Holdings, Inc., a holding company incorporated under the laws
of the State of Wisconsin ("WPL"), IES Industries Inc., a holding company
incorporated under the laws of the State of Iowa ("IES"), Interstate Power
Company, an operating public utility incorporated under the laws of the State of
Delaware ("Interstate"), WPLH Acquisition Co., a wholly-owned subsidiary of WPL
incorporated under the laws of the State of Wisconsin ("Acquisition"), and
Interstate Power Company, a wholly-owned subsidiary of Interstate incorporated
under the laws of the State of Wisconsin ("New Interstate");
W I T N E S S E T H:
WHEREAS, the parties hereto have entered into an Agreement and Plan of
Merger dated as of November 10, 1995, as amended (the "Merger Agreement");
WHEREAS, in furtherance of the transactions contemplated therein, the
respective parties have agreed to make certain further amendments to the Merger
Agreement;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
1. AMENDMENTS. Upon the execution of this Amendment No. 2 by all parties
hereto, the Merger Agreement shall be amended as follows:
(a) Section 2.1(b)(i) of the Merger Agreement shall be amended by
deleting such section in its entirety and replacing it with the following
language:
"Each issued and outstanding share of IES Common Stock
(other than shares canceled pursuant to Section 2.1(a)(i)
and IES Dissenting Shares (as hereinafter defined)) shall
be converted into the right to receive 1.14 (the "IES
Ratio") duly authorized, validly issued, fully paid and
nonassessable (except as otherwise provided in Section
180.0622(2)(b) of the WBCL) shares of Common Stock, par
value $.01 per share, of WPL ("WPL Common Stock"),
including, if applicable, associated rights (the "WPL
Rights") to purchase shares of WPL Common Stock pursuant
to the terms of that certain Rights Agreement between WPL
and Morgan Shareholder Services Trust Company, as Rights
Agent thereunder, dated as of February 22, 1989 (the "WPL
Rights Agreement"). Until the Distribution Date (as
defined in the WPL Rights Agreement) all references in
this Agreement to the WPL Common Stock shall be deemed to
include the associated WPL Rights."
(b) The Index of Defined Terms which precedes the body of the Merger
Agreement shall be amended to delete the defined terms "McLeod Contingency"
and "McLeod."
2. REFERENCES TO MERGER AGREEMENT. From and after the date of this
Amendment No. 2, each reference in the Merger Agreement to "this Agreement,"
"hereof," "hereunder" or words of like import, and all references to the Merger
Agreement in any and all agreements, instruments, documents, notes, certificates
and other writings of every kind and nature, shall be deemed to mean the Merger
Agreement as modified and amended by this Amendment No. 2.
3. FULL FORCE AND EFFECT. The Merger Agreement, as amended by this
Amendment No. 2, is and shall remain in full force and effect and is hereby in
all respects ratified and confirmed.
I-1
<PAGE>
4. COUNTERPARTS. This Amendment No. 2 may be executed in counterparts,
each of which shall be deemed to be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, WPL, IES, Interstate, Acquisition and New Interstate
have caused this Amendment No. 2 to be signed by their respective officers
thereunto duly authorized as of the date first written above.
<TABLE>
<S> <C>
WPL HOLDINGS, INC.
Attest:
By: /s/ERROLL B. DAVIS, JR.
By: /s/EDWARD M. GLEASON Name: Erroll B. Davis, Jr
Edward M. Gleason Title: PRESIDENT AND CHIEF EXECUTIVE
CORPORATE SECRETARY OFFICER
IES INDUSTRIES INC.
Attest:
By: /s/LEE LIU
By: /s/STEPHEN W. SOUTHWICK Name: Lee Liu
Stephen W. Southwick Title: CHAIRMAN OF THE BOARD, PRESIDENT
SECRETARY AND GENERAL COUNSEL AND CHIEF EXECUTIVE OFFICER
INTERSTATE POWER COMPANY
(a Delaware corporation)
Attest:
By: /s/JOSEPH C. MCGOWAN By: /s/MICHAEL R. CHASE
Joseph C. McGowan Name: Michael R. Chase
SECRETARY AND TREASURER Title: EXECUTIVE VICE PRESIDENT
WPLH ACQUISITION CO.
Attest:
By: /s/EDWARD M. GLEASON By: /s/ERROLL B. DAVIS, JR.
Edward M. Gleason Name: Erroll B. Davis, Jr.
SECRETARY Title: PRESIDENT
INTERSTATE POWER COMPANY
(a Wisconsin corporation)
Attest:
By: /s/JOSEPH C. MCGOWAN By: /s/MICHAEL R. CHASE
Joseph C. McGowan Name: Michael R. Chase
SECRETARY Title: PRESIDENT
</TABLE>
I-2
<PAGE>
ANNEX II
Merrill Lynch
August 21, 1996
Board of Directors
WPL Holdings, Inc.
P.O. Box 2568
Madison, Wisconsin 53701-2568
Directors:
WPL Holdings, Inc. ("WPL"), IES Industries Inc. ("IES"), Interstate Power
Company ("Interstate"), WPLH Acquisition Co., a wholly-owned subsidiary of WPL
("Acquisition"), and Interstate Power Company, a wholly-owned subsidiary of
Interstate, have entered into an agreement and plan of merger dated as of
November 10, 1995, as amended as of May 22, 1996 and as of August 16, 1996 (the
"Agreement") pursuant to which IES will be merged with and into WPL (the "IES
Merger"), and Acquisition will be merged with and into Interstate (the
"Interstate Merger" and together with the IES Merger, the "Merger"). In the IES
Merger, each issued and outstanding share of IES's common stock, no par value
(the "IES Shares"), shall be converted into the right to receive 1.14 shares of
the common stock, par value $.01 per share of WPL (the "WPL Shares"), and in the
Interstate Merger, each issued and outstanding share of Interstate's common
stock, par value $3.50 per share (the "Interstate Shares"), shall be converted
into the right to receive 1.11 WPL Shares. The ratio at which IES Shares are
converted into WPL Shares, in accordance with the Agreement, is referred to
herein as the "IES Ratio", and the ratio at which Interstate Shares are
converted into WPL Shares, in accordance with the Agreement, is referred to
herein as the "Interstate Ratio." The IES Ratio and Interstate Ratio together
are referred to herein as the "Conversion Ratios." Consummation of the Merger is
subject to the terms and conditions set forth in the Agreement. The Agreement
also provides for an alternative transaction structure, to satisfy certain
regulatory requirements, in the event the structure described above does not
comply with such regulatory requirements. In connection with the Merger, WPL,
IES and Interstate also have entered into six agreements dated as of November
10, 1995, as amended as of May 22, 1996 (the "Stock Option Agreements") pursuant
to which each of WPL, IES, and Interstate, respectively, has granted to the
others an option to purchase shares of its common stock on the terms and
conditions provided in such agreements, representing in the aggregate 19.9% of
the total issued and outstanding shares of each company as of November 10, 1995.
You have asked us whether, in our opinion, the Conversion Ratios
contemplated by the Agreement are fair to WPL from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed WPL's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1995 and WPL's
Form 10-Q and the related unaudited financial information for the
quarterly periods ending March 31, 1996 and June 30, 1996;
II-1
<PAGE>
(2) Reviewed IES's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1995 and IES's
Form 10-Q and the related unaudited financial information for the
quarterly periods ending March 31, 1996 and June 30, 1996;
(3) Reviewed Interstate's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1995 and
Interstate's Form 10-Q and the related unaudited financial information
for the quarterly periods ending March 31, 1996 and June 30, 1996;
(4) Reviewed certain other filings with the Securities and Exchange
Commission made by WPL, IES and Interstate, including proxy statements,
Forms 8-K and registration statements, during the last three years;
(5) Reviewed certain information, including financial forecasts, relating to
the business, earnings, dividends, cash flow, assets and prospects of
WPL, IES, and Interstate, furnished to us by WPL, IES, and Interstate,
respectively;
(6) Conducted discussions with members of senior management of WPL, IES and
Interstate concerning their respective businesses, regulatory
environments, prospects and strategic objectives and possible operating,
administrative and capital synergies which might be realized for the
combined companies following the Merger;
(7) Reviewed the historical market prices and trading activity for WPL
Shares, IES Shares, Interstate Shares and Class A common stock of
McLeod, Inc.;
(8) Compared the results of operations of WPL, IES and Interstate with that
of certain companies which we deemed to be reasonably similar to WPL,
IES and Interstate, respectively;
(9) Compared the proposed financial terms of the Merger with the financial
terms of certain other mergers and acquisitions which we deemed to be
relevant;
(10) Analyzed the relative valuation of WPL Shares, IES Shares and Interstate
Shares using various valuation methodologies which we deemed
appropriate;
(11) Considered the pro forma effect of the Merger, in terms of net income
available to common stockholders, dividends per common share, book value
per share and capitalization, on WPL Shares;
(12) Reviewed the Agreement;
(13) Reviewed the Stock Option Agreements; and
(14) Reviewed such other financial studies and analyses and made such other
inquiry and took into account such other matters as we deemed necessary
or appropriate.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by WPL, IES and
Interstate, and we have not independently verified such information or any
underlying assumptions, conducted a physical inspection of the properties or
facilities of WPL, IES or Interstate, or undertaken or obtained any evaluation
or independent appraisal of the assets or liabilities (contingent or otherwise)
of WPL, IES or Interstate. We have assumed that the financial forecasts and
projected synergies furnished by WPL, IES and Interstate have been reasonably
prepared in accordance with accepted industry practices and reflect the best
currently available estimates and judgment of WPL's, IES's and Interstate's
management as to the expected future financial performance of WPL, IES and
Interstate, respectively, and as to the expected future projected outcomes of
various legal, regulatory and other contingencies. We have also assumed that the
Merger will be free of Federal tax to WPL, Acquisition, IES, Interstate and the
respective holders of WPL Shares, IES Shares
II-2
<PAGE>
and Interstate Shares, and we further assume that the Merger will be accounted
for as a pooling of interests. Our opinion is based upon general economic,
market, monetary and other conditions as they exist and can be evaluated, and
the information made available to us, as of the date hereof.
We have, in the past, provided financial advisory and financing services to
WPL, its subsidiary Wisconsin Power and Light Company, IES, its subsidiary IES
Utilities Inc., and Interstate and have received fees for the rendering of such
services. In addition, in the ordinary course of our securities business, we may
actively trade debt and equity securities of WPL, its subsidiary Wisconsin Power
and Light Company, IES, its subsidiary IES Utilities Inc., and Interstate for
our own account and the accounts of our customers, and we therefore may from
time to time hold a long or short position in such securities.
This opinion has been prepared for the confidential use of WPL's Board of
Directors and may not be reproduced, summarized, described or referred to
without Merrill Lynch's prior written consent.
On the basis of, and subject to the foregoing, we are of the opinion that
the Conversion Ratios contemplated by the Agreement are fair to WPL from a
financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
II-3
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
ANNEX III
August 21, 1996
Board of Directors
IES Industries Inc.
IES Tower
200 First Street, S.E.
Cedar Rapids, IA 52401
Members of the Board of Directors
We understand that IES Industries Inc. ("IES" or the "Company"), WPL
Holdings, Inc., which upon or immediately prior to consummation of the Merger
(as hereinafter defined) is proposed to be renamed Interstate Energy Corporation
("WPL"), Interstate Power Company ("IPC") and WPLH Acquisition Co., a wholly
owned subsidiary of WPL ("Merger Sub") have entered into an Agreement and Plan
of Merger, dated as of November 10, 1995, and subsequently have entered into
amendments thereto, dated as of May 22, 1996 and August 16, 1996 (as amended,
the "Merger Agreement"), which provides, among other things, for (i) the merger
of the Company with and into WPL (the "IES Merger") and (ii) the merger of
Merger Sub with and into IPC (the "IPC Merger" and, together with the IES
Merger, the "Merger"). Pursuant to the Merger, (i) WPL will be the surviving
corporation of the IES Merger and each issued and outstanding share of common
stock, no par value, of the Company (the "Company Common Stock"), other than
shares held in treasury or held by WPL or IPC or any of their subsidiaries or as
to which dissenters' rights have been perfected, will be converted into the
right to receive 1.14 shares (the "IES Ratio") of common stock, par value $.01
per share of WPL (the "WPL Common Stock"); and (ii) IPC will become a wholly
owned subsidiary of WPL and each issued and outstanding share of common stock,
par value $3.50 per share, of IPC (the "IPC Common Stock"), other than shares
held in treasury or held by WPL or the Company or any of their subsidiaries,
will be converted into the right to receive 1.11 shares (the "IPC Ratio") of WPL
Common Stock. It is also our understanding that the Company, WPL and IPC have
entered into Stock Option Agreements, each dated as of November 10, 1995, as
amended (the "Option Agreements"), which provide, among other things, for the
grant by the Company to each of WPL and IPC of an option to acquire certain
shares of Company Common Stock, the grant by WPL to each of the Company and IPC
to acquire certain shares of WPL Common Stock, and the grant by IPC to each of
the Company and WPL of an option to acquire certain shares of IPC Common Stock,
in each case, upon the terms and conditions provided in such agreements
(collectively, the "Options"). We further understand that the Merger Agreement
provides for an alternative transaction structure, to satisfy certain regulatory
requirements, in the event the structure outlined above does not comply with
such regulatory requirements. The terms and conditions of the Merger and Options
are more fully set forth in the Merger Agreement and Option Agreements,
respectively.
We further understand that on August 4, 1996 MidAmerican Energy Company
("MidAmerican") made an unsolicited proposal to acquire all of the outstanding
shares of Company Common Stock (the "Acquisition Proposal"). Pursuant to the
Acquisition Proposal, the Company would merge with and into MidAmerican or a
subsidiary of MidAmerican and the holders of each issued and outstanding share
of Company Common Stock would have the right to elect to receive either (i)
$39.00 in cash or (ii) 2.346 shares of common stock of MidAmerican; provided
that the cash consideration may not exceed 40% of the aggregate consideration
paid.
You have asked for our opinion as to whether the IES Ratio, taking into
account the IPC Ratio, is fair from a financial point of view to the holders of
shares of the Company Common Stock. As you are aware, we have previously
rendered a financial opinion letter dated July 11, 1996 in connection with the
Merger.
III-1
<PAGE>
For purposes of the opinion set forth herein, we have:
(i)
analyzed certain publicly available statements and other information
of the Company, WPL and IPC, respectively;
(ii)
analyzed certain internal financial statements and other financial
and operating data concerning the Company, WPL and IPC prepared by
their respective managements;
(iii)
analyzed certain financial projections of the Company, WPL and IPC
prepared by their respective managements;
(iv)
reviewed certain public research reports concerning IES, WPL and IPC
prepared by certain equity research analysts and discussed these
research reports, including financial projections contained therein, with
the managements of IES, WPL and IPC, respectively;
(v)
discussed the past and current operations and financial condition
and the prospects of the Company, WPL and IPC with senior executives
of the Company, WPL and IPC, respectively;
(vi)
reviewed the reported prices and trading activity of each of the
Company Common Stock, WPL Common Stock, IPC Common Stock and the
Class A common stock of McLeod, Inc. ("McLeod");
(vii)
compared the financial performance of the Company, WPL and IPC and
the prices and trading activity of the Company Common Stock, WPL
Common Stock and IPC Common Stock with that of certain other comparable
publicly traded companies and their securities;
(viii)
reviewed the financial terms, to the extent publicly available, of
certain comparable merger or acquisition transactions;
(ix)
analyzed the pro forma financial impact of the Merger on the
Company;
(x)
participated in discussions and negotiations among representatives
of the Company, WPL and IPC and their respective financial and legal
advisors;
(xi)
reviewed the Merger Agreement, the Option Agreements and certain
related documents;
(xii)
reviewed and discussed with the Company, WPL and IPC an analysis
prepared by the Company, WPL and IPC with the assistance of a third
party consultant to the Company, WPL and IPC regarding estimates of the
amount and timing of the potential cost savings to be derived from the
Merger;
(xiii)
reviewed the registration statements filed on Form S-1, dated May
15, 1996 and on June 10, 1996, respectively, regarding the initial
public offering of Class A common stock of McLeod (the "McLeod IPO"), as
well as the Investor Agreement among various parties, including McLeod, IES
Investments Inc., Midwest Capital Group Inc., MWR Investments, Inc. and
Clark and Mary McLeod, entered into as April 1, 1996 which, among other
things, sets forth certain restrictions on the transfer of McLeod common
stock owned by the Company;
(xiv)
reviewed certain information pertaining to McLeod and the McLeod IPO
provided by the Company and discussed certain aspects of such
information with the management of the Company; and
(xv)
performed such other analyses and examinations and considered such
other factors as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purpose of
this opinion. With respect to the financial projections and the estimates of the
potential cost savings to be derived from the Merger, we have assumed that such
projections and estimates have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the future financial
performance of the Company,
III-2
<PAGE>
WPL and IPC, respectively, and of the amount and timing of such cost savings. We
have also relied upon, with your consent, the Company's assessment of the
strategic and other benefits of the Merger. We have not made any independent
valuation or appraisal of the assets or liabilities of the Company, WPL and IPC.
In addition, we did not address the relative merits of the Merger and the
Acquisition Proposal or any other alternative potential transactions. We assumed
that the Merger will be consummated in accordance with the terms set forth in
the Merger Agreement, including, among other things, that the Merger will be
accounted for as a "pooling-of-interests" business combination in accordance
with U.S. generally accepted accounting principles and that the Merger will be
treated as a tax-free reorganization and/or exchange, each pursuant to the
Internal Revenue Code of 1986. Our opinion is necessarily based on economic,
market and other conditions as in effect on, and the information made available
to us as of, the date hereof.
In arriving at our opinion, we have assumed that in connection with the
receipt of all the necessary regulatory and governmental approvals for the
proposed Merger, no restriction will be imposed that would have a material
adverse effect on the contemplated benefits expected to be derived in the
proposed Merger. In addition, we were not authorized to solicit, and did not
solicit, interest from any party with respect to a merger with or other business
combination transaction involving the Company or any of its assets, nor did we
have any discussions or negotiations with any parties, other than WPL and IPC,
in connection with the Merger.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates ("Morgan
Stanley") have provided financial advisory and financing services for the
Company and WPL and have received fees for the rendering of these services.
Morgan Stanley acted as co-lead manager of the McLeod IPO.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission
with respect to the Merger and the transactions related thereto. In addition, we
express no recommendation as to how the shareholders of the Company should vote
at the shareholders' meeting held in connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
IES Ratio, taking into account the IPC Ratio, is fair from a financial point of
view to the holders of shares of the Company Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ ROBERT W. JONES
-----------------------------------
Robert W. Jones
Managing Director
III-3
<PAGE>
ANNEX IV
Salomon Brothers Inc
August 21, 1996
Board of Directors
Interstate Power Company
1000 Main Street
Post Office Box 769
Dubuque, IA 52004-0769
Dear Sirs:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of common stock, par value $3.50 per share ("Company Common
Stock"), of Interstate Power Company, a Delaware corporation (the "Company"),
other than WPL Holdings, Inc. ("WPL"), IES Industries Inc. ("IES") or any of
their respective affiliates, of the exchange ratio to be used for the conversion
of Company Common Stock in connection with the proposed combination (the
"Combination") of the Company, WPL and IES pursuant to the Agreement and Plan of
Merger dated as of November 10, 1995, as amended (the "Merger Agreement"), by
and among WPL, IES, the Company, WPLH Acquisition Co., a wholly owned subsidiary
of WPL ("Acquisition"), and Interstate Power Company, a wholly owned subsidiary
of the Company and a Wisconsin corporation ("New IPC"). In the Combination, IES
will merge into WPL, which will be the surviving corporation in the Combination,
and either (x) Acquisition will merge into the Company, with the Company to be
the surviving corporation and a wholly owned subsidiary of WPL, or (y) in the
event certain regulatory requirements mandate that the utility subsidiaries of
WPL be Wisconsin corporations, the Company will merge into New IPC and then
Acquisition will merge into New IPC, with New IPC to be the surviving
corporation and a wholly owned subsidiary of WPL. As a result of the foregoing,
WPL (which will change its name to Interstate Energy Corporation) will be a
holding company with three operating utilities as subsidiaries. In the
Combination, each issued and outstanding share of Company Common Stock, other
than shares owned by the Company, WPL, IES or any of their respective
subsidiaries, will be converted into 1.11 shares (the "Company Exchange Ratio")
of common stock, par value of $0.01 per share ("WPL Common Stock"), of WPL. Each
issued and outstanding share of common stock, no par value, of IES, other than
shares owned by IES, WPL, the Company or any of their respective subsidiaries,
will be converted into 1.14 shares of WPL Common Stock. We understand the
Combination is intended to be accounted for as a pooling of interests in
accordance with generally accepted accounting principles as described in
Accounting Principles Board Opinion Number 16.
In arriving at our opinion, we have reviewed the Merger Agreement, its
related exhibits and the Joint Proxy Statement/Prospectus dated July 11, 1996
and the Supplement to such Joint Proxy Statement/Prospectus dated the date
hereof, in each case relating to the Combination. We also have reviewed certain
publicly available business and financial information relating to the Company,
WPL and IES, as well as certain other information, including financial
projections, provided to us by the Company, WPL and IES. We have discussed the
past and current operations and financial condition and prospects of the
Company, WPL and IES with their respective senior management. We also have
considered such other information, financial studies, analyses, investigations
and financial, economic, market and trading criteria which we deemed relevant,
including the amended registration statement on Form S-1 filed by McLeod, Inc.
(a Delaware corporation in which IES has a significant ownership interest).
We have assumed and relied on the accuracy and completeness of the
information reviewed by us for the purpose of this opinion and we have not
assumed any responsibility for independent verification of such information or
for independent evaluation or appraisal of the assets of the Company, WPL or
IES. With respect to the financial projections of the Company, WPL and IES, we
have assumed that
IV-1
<PAGE>
Board of Directors
Interstate Power Company
Page 2
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of the Company, WPL or IES,
as the case may be, as to the future financial performance of such entity, and
we express no opinion with respect to such forecasts or the assumptions on which
they are based.
Our opinion is necessarily based upon business, market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this letter
and does not address the Company's underlying business decision to enter into
the Combination or constitute a recommendation to any holder of Company Common
Stock as to how such holder should vote with respect to the Combination. We were
not requested to, and did not, solicit third party offers to acquire all or any
part of the Company. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for WPL Common Stock following the
consummation of the Combination, which may vary depending on, among other
factors, changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors that generally influence the price of
securities.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Combination and will receive a fee for our services, the
payment of a portion of which is contingent upon the consummation of the
Combination. Additionally, we have acted as underwriter for the Company in
connection with three of its prior financings, as well as lead manager for the
initial public offering by McLeod, Inc. In the ordinary course of our business,
we actively trade the debt and equity securities of the Company, WPL and IES for
our own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Company Exchange Ratio is fair from a financial point of view
to the holders of Company Common Stock (other than WPL, IES or any of their
respective affiliates).
Very truly yours,
Salomon Brothers Inc
IV-2
<PAGE>
[WPL HOLDINGS, INC. LETTERHEAD]
ERROLL B. DAVIS, JR.
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
July 23, 1996
Dear WPL Holdings, Inc. Shareowner:
We extend a cordial invitation to you to join us at the 1996 Annual Meeting
of Shareowners of WPL Holdings, Inc. ("WPLH"). The WPLH Annual Meeting will be
held immediately following the Annual Meeting of Shareowners of Wisconsin Power
and Light Company at the Exhibition Hall at the Dane County Expo Center, 1881
Expo Mall, Madison, Wisconsin, on September 5, 1996, at 10:00 a.m. (Central
Time). A lunch will be served following the meeting.
At this important meeting, the WPLH shareowners will be asked to approve a
strategic three-way business combination among WPLH, Cedar Rapids, Iowa-based
IES Industries Inc. ("IES") and Dubuque, Iowa-based Interstate Power Company
("IPC"). WPLH, as the surviving holding company in the merger transaction, will
be renamed Interstate Energy Corporation.
The utility industry continues to undergo rapid change and is becoming
increasingly competitive. This new environment, driven by regulatory changes at
the federal and state levels and by technological advances, has and will
continue to alter in a fundamental way the manner in which the entire utility
industry does business. Your Board of Directors believes that the proposed
combination with IES and IPC will result in a combined business that will be
well-positioned to compete in this new environment.
Following consummation of the mergers, each share of WPLH common stock you
own will represent one share of Interstate Energy Corporation common stock. AS A
SHAREOWNER OF WPLH, YOU WILL NOT NEED TO EXCHANGE YOUR WPLH STOCK CERTIFICATES.
In the mergers, each share of IES common stock will be converted into 1.01
shares of Interstate Energy Corporation common stock and each share of IPC
common stock will be converted into 1.11 shares of Interstate Energy Corporation
common stock. As described in greater detail in the attached Joint Proxy
Statement/Prospectus, the shares of WPLH common stock issued in the mergers are
expected to have attached thereto associated rights to purchase common stock.
Your Board has received a written opinion from its financial advisor, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, dated November 10, 1995, which was
confirmed in a written opinion dated the date of the attached Joint Proxy
Statement/Prospectus, to the effect that, as of such dates, and based upon the
assumptions made, matters considered and limits of review as set forth in such
opinions, the foregoing exchange ratios, taken together, are fair, from a
financial point of view, to WPLH. Wisconsin law does not provide shareowners of
WPLH with statutory dissenters' rights in connection with the mergers.
Approval of the combination by the shareowners of WPLH, IES and IPC entitled
to vote thereon is a condition to the completion of the transaction. In
addition, the transaction will be consummated only after certain regulatory
approvals are received and other conditions are satisfied or waived. If all
required approvals are received, it is presently anticipated that the proposed
combination will be completed during the first half of 1997.
At the WPLH Annual Meeting, you will also be asked to consider and vote upon
certain proposed amendments to the Restated Articles of Incorporation of WPLH,
the election of three directors for terms expiring at the 1999 Annual Meeting of
Shareowners, and the appointment of Arthur Andersen
<PAGE>
LLP as the independent auditors of WPLH for the year ending December 31, 1996.
The amendments to the Restated Articles are necessary to effect the name change
from WPLH to Interstate Energy Corporation and to ensure that Interstate Energy
Corporation will have sufficient authorized but unissued shares of common stock
to complete the proposed combination, as well as to provide Interstate Energy
Corporation with the flexibility to issue shares in the future when the need
arises without the delay of having to obtain shareowner approval to authorize
the issuance if not otherwise required.
Each of the proposals to be considered at the WPLH Annual Meeting is
described in greater detail in the accompanying Notice and Joint Proxy
Statement/Prospectus and its various attachments. I encourage you to read these
materials carefully.
THE BOARD OF DIRECTORS OF WPLH HAS CAREFULLY REVIEWED AND CONSIDERED THE
TERMS AND CONDITIONS OF THE PROPOSALS TO BE VOTED UPON AT THE WPLH ANNUAL
MEETING AND BELIEVES THAT THEY ARE IN THE BEST INTERESTS OF WPLH AND ITS
SHAREOWNERS, AND UNANIMOUSLY RECOMMENDS THAT SHAREOWNERS VOTE "FOR" EACH OF THE
PROPOSALS DESCRIBED IN THE ATTACHED JOINT PROXY STATEMENT/PROSPECTUS.
Your vote is important no matter how many shares you hold. Whether or not
you plan to attend the WPLH Annual Meeting, please fill out, sign and date the
enclosed proxy card, and return it promptly in the accompanying envelope, which
requires no postage if mailed in the United States. If you plan to join us at
the WPLH Annual Meeting, please indicate the names of the individuals who will
be attending on the enclosed proxy card reservation form. To help with
directions to the site for the WPLH Annual Meeting, a map is provided on the
last page of this document for your reference. Parking will be available to you
at no charge.
If you have any questions about the WPLH Annual Meeting, please call
Shareowner Services at 608-252-3110 (local) or 1-800-356-5343 (toll-free).
Sincerely,
[/S/ ERROLL B. DAVIS, JR.]
Erroll B. Davis, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
[IES Industries Inc. Letterhead]
Dear IES Industries Inc. Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
IES Industries Inc. ("IES") which will be held on Thursday, September 5, 1996,
at the Collins Plaza Hotel, 1200 Collins Road N.E., Cedar Rapids, Iowa, at 10:00
a.m. (Central Time).
At this meeting, the IES Shareholders will be asked to approve a strategic
three-way business combination among IES, WPL Holdings, Inc. ("WPLH") and
Interstate Power Company ("IPC"). The new holding company will be renamed
Interstate Energy Corporation.
Your Board of Directors expects the utility industry to undergo rapid change
over the next several years, becoming increasingly competitive. Federal and
state regulatory changes and technological advances will have fundamental
effects on the entire utility industry.
Your Board of Directors believes the combination of IES, WPLH and IPC will
result in a strong business organization able to take advantage of opportunities
in both its core utility and its diversified businesses.
In the proposed transaction, each outstanding share of IES Common Stock will
be converted into 1.01 shares of Interstate Energy Common Stock (the "IES
Ratio"). In addition, each outstanding share of IPC Common Stock will be
converted into 1.11 shares of Interstate Energy Common Stock (the "IPC Ratio").
As described in greater detail in the attached Joint Proxy Statement/Prospectus,
the shares of Interstate Energy Common Stock issued in the transaction are
expected to have attached thereto associated rights to purchase common stock. On
November 10, 1995, your Board of Directors received the oral opinion of its
financial advisor, Morgan Stanley & Co. Incorporated, which was confirmed in a
written opinion dated as of the date of the attached Joint Proxy
Statement/Prospectus, to the effect that, as of such dates, and based upon the
procedures and subject to the assumptions described therein, the IES Ratio,
taking into account the IPC Ratio, is fair from a financial point of view to the
holders of IES Common Stock. The transaction requires, among other conditions,
certain regulatory approvals, as well as the approval of IES, WPLH and IPC
shareholders.
THE IES BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS
AND CONDITIONS OF THE MERGER TO BE VOTED UPON AT THE IES ANNUAL MEETING AND
BELIEVES IT IS IN THE BEST INTERESTS OF IES AND ITS SHAREHOLDERS AND RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" THE PROPOSALS DESCRIBED IN THE ATTACHED JOINT PROXY
STATEMENT/PROSPECTUS.
In addition, IES Shareholders will be asked to elect nine directors to serve
until the next annual meeting of IES Shareholders or until their successors are
elected and qualified.
You have, as an IES Shareholder, the right under Iowa law to dissent from
and obtain the "fair value" of your IES Common Stock in the event the
transaction contemplated by the Merger Agreement is completed. If you wish to
assert your dissenters' rights, you must give notice to IES prior to the
shareholder meeting and not vote in favor of the merger. Please see the
discussion of your dissenters' rights in the accompanying Joint Proxy
Statement/Prospectus.
A map showing the location of the Annual Meeting of Shareholders is printed
on the last page of this Joint Proxy Statement/Prospectus. A notice of the
meeting and a proxy/directions card are enclosed. We hope you will sign, date
and return the proxy/directions card as promptly as possible in the enclosed
self-addressed postage prepaid envelope. As a Shareholder, it is in your best
interest, as well as helpful to your Board of Directors, that you participate in
the affairs of IES, whether you own a few shares or many shares.
A copy of the Annual Report of IES, including financial statements for the
year ended December 31, 1995, has previously been sent to you. A report of the
Annual Meeting will be mailed to all Shareholders following the meeting.
Please let me express my appreciation for your past cooperation. I look
forward to your continued interest in IES.
<PAGE>
Whether or not you plan to attend the Annual Meeting, please promptly
complete, sign, date and return the enclosed proxy/directions card in the
enclosed postage prepaid envelope. You may, of course, attend the Annual Meeting
and vote in person, even if you have previously returned your proxy card. If you
have any questions about the IES Annual Meeting, please call IES Shareholder
Services at (319) 398-7755 or (800) 247-9785 (toll-free).
On behalf of your Board of Directors, thank you for your continued support.
Sincerely,
[/S/ LEE LIU]
LEE LIU
CHAIRMAN OF THE BOARD, PRESIDENT &
CHIEF EXECUTIVE OFFICER
July 23, 1996
<PAGE>
[INTERSTATE POWER COMPANY LETTERHEAD]
WAYNE H. STOPPELMOOR
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
July 23, 1996
Dear Interstate Power Company Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Interstate Power Company ("IPC") which will be held on Thursday, September 5,
1996, at the Holiday Inn Dubuque Five Flags, 450 Main Street, Dubuque, Iowa at
10:00 a.m. (Central Time).
At this important meeting, holders of IPC Common Stock will be asked to
approve a strategic three-way business combination among IPC, IES Industries
Inc. ("IES") based in Cedar Rapids, Iowa, and WPL Holdings, Inc. ("WPLH") based
in Madison, Wisconsin. The resulting entity in this three-way combination will
be named Interstate Energy Corporation. Holders of IPC Preferred Stock are not
entitled to vote on the three-way combination.
The utility industry is in the midst of fundamental change fueled by federal
and state regulatory shifts and technological advances. These changes are moving
the utility industry into an era of unprecedented competition. Your Board of
Directors believes the proposed combination with WPLH and IES will result in a
strong organization well positioned to take advantage of opportunities in this
new environment.
In the mergers, each share of IPC Common Stock that you own will be
converted into 1.11 shares of common stock of the combined entity, Interstate
Energy Corporation. In addition, each outstanding share of IES Common Stock will
be converted into 1.01 shares of common stock of Interstate Energy Corporation.
As described in greater detail in the attached Joint Proxy Statement/Prospectus,
the shares of common stock of Interstate Energy Corporation issued in the
mergers are expected to have attached thereto associated rights to purchase
common stock.
As an important part of the mergers, and in order to ensure that the mergers
qualify for tax-free reorganization treatment under the Internal Revenue Code,
holders of IPC Common Stock will be asked to consider and vote upon the approval
of an amendment to IPC's Restated Certificate of Incorporation which will
provide that each share of IPC Preferred Stock will have one vote, voting
together as one class with the holders of IPC Common Stock (except as otherwise
required by law or as specifically provided in the Restated Certificate of
Incorporation), on all matters to come before a vote of the stockholders of IPC.
Under Delaware law, holders of IPC Preferred Stock who do not wish to accept
the consideration to be provided them in connection with the mergers are
entitled to an appraisal of the fair value of such holder's shares by the
Delaware courts. Holders of IPC Common Stock are not entitled to an appraisal of
their shares. Please read the Joint Proxy Statement/Prospectus for a description
of the procedural requirements to be followed to perfect appraisal rights.
<PAGE>
In addition, holders of IPC Common Stock will be asked to elect two Class II
directors to hold office for a term of three years expiring at the 1999 annual
meeting of IPC stockholders, and until their respective successors shall have
been duly elected and qualified.
Each of the proposals to be considered at the IPC Annual Meeting is
described in greater detail in the accompanying Notice of Meeting and Joint
Proxy Statement/Prospectus and its various attachments. I encourage you to read
these materials carefully.
YOUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE TERMS AND CONDITIONS OF
THE MERGERS AND THE OTHER PROPOSALS TO BE VOTED UPON AT THE IPC ANNUAL MEETING
AND BELIEVES THEY ARE IN THE BEST INTERESTS OF IPC AND ITS STOCKHOLDERS, AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" EACH OF THE PROPOSALS
DESCRIBED IN THE ATTACHED JOINT PROXY STATEMENT/PROSPECTUS.
A copy of the Annual Report of IPC, including financial statements for the
fiscal year ended December 31, 1995, has previously been sent to you.
Your vote is important no matter how many shares you hold. WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE PROMPTLY COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. You may, of
course, attend the Annual Meeting and vote in person, even if you have
previously returned your proxy.
If you have any questions regarding the IPC Annual Meeting, please call IPC
Stockholder Services at (319) 582-5421, ext. 465.
On behalf of your Board of Directors, thank you for your continued support.
Sincerely,
[/S/ WAYNE H. STOPPELMOOR]
Wayne H. Stoppelmoor
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
[LOGO]
------------------------
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
DIRECTLY FOLLOWING THE 10:00 A.M. ANNUAL MEETING OF SHAREOWNERS
OF WISCONSIN POWER AND LIGHT COMPANY, SEPTEMBER 5, 1996
------------------------
The Annual Meeting of Shareowners of WPL Holdings, Inc., a Wisconsin
corporation ("WPLH"), will be held at the Exhibition Hall at the Dane County
Expo Center, 1881 Expo Mall, Madison, Wisconsin, on September 5, 1996, directly
following the 10:00 a.m., Central Time, Annual Meeting of Shareowners of
Wisconsin Power and Light Company, for the following purposes, all of which are
more fully described in the accompanying Joint Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of November 10, 1995, as amended (together with a
related Plan of Merger, the "Merger Agreement"), among WPLH, IES
Industries Inc., an Iowa corporation ("IES"), Interstate Power Company, a
Delaware corporation ("IPC"), WPLH Acquisition Co., a Wisconsin
corporation and wholly-owned subsidiary of WPLH, and Interstate Power
Company, a Wisconsin corporation and wholly-owned subsidiary of IPC, a
copy of which is attached as Annex A to the accompanying Joint Proxy
Statement/Prospectus, and the transactions contemplated thereby,
including, among other things, the issuance of shares of common stock of
WPLH (to be renamed Interstate Energy Corporation) pursuant to the terms
of the Merger Agreement.
2. To consider and vote upon a proposal to approve amendments to the
Restated Articles of Incorporation of WPLH (a) to change the name of WPLH
to Interstate Energy Corporation (the "Name Change Amendment") and (b) to
increase the number of shares of common stock of WPLH authorized for
issuance from 100,000,000 to 200,000,000 ("the Common Stock Amendment,"
and together with the Name Change Amendment, the "WPLH Charter
Amendments").
3. To elect a total of three directors for terms expiring at the 1999
Annual Meeting of Shareowners.
4. To appoint Arthur Andersen LLP as independent auditors for the year
ending December 31, 1996.
5. To consider and act upon any other business that may properly come
before the meeting or any adjournment or postponement thereof.
Only the holders of common stock of record on the books of WPLH at the close
of business on July 10, 1996, are entitled to vote at the meeting or any
adjournment or postponement thereof. All such shareowners are requested to be
present at the meeting in person or by proxy, so that the presence of a quorum
may be assured.
Approval of proposals 1 and 2 are conditions to the consummation of the
transactions contemplated by the Merger Agreement. If approved by shareowners,
each of the WPLH Charter Amendments will become effective only if the
transactions contemplated by the Merger Agreement are consummated. As described
in greater detail in the attached Joint Proxy Statement/Prospectus, the shares
of WPLH common stock issued in the mergers are expected to have attached thereto
associated rights to purchase common stock.
PLEASE SIGN AND RETURN YOUR PROXY IMMEDIATELY. IF YOU ATTEND THE MEETING,
YOU MAY WITHDRAW YOUR PROXY AT THE REGISTRATION DESK AND VOTE IN PERSON. ALL
SHAREOWNERS ARE URGED TO RETURN THEIR PROXIES PROMPTLY.
<PAGE>
Your proxy covers all of your shares of common stock of WPLH. For present or
past employees of WPLH or Wisconsin Power and Light Company, your proxy includes
any shares held for your account under WPLH's Dividend Reinvestment and Stock
Purchase Plan. For shares credited to an account under the Wisconsin Power and
Light Company Employees' Retirement Savings Plan (formerly the Employees' Long
Range Savings and Investment Plan), you will receive a form of proxy from the
trustee of the plan.
A copy of the 1995 Annual Report of WPLH has previously been sent to you.
By Order of the Board of Directors
[/S/ EDWARD M. GLEASON]
Edward M. Gleason
VICE PRESIDENT, TREASURER AND
CORPORATE SECRETARY
Madison, Wisconsin
July 23, 1996
YOUR VOTE IS IMPORTANT NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE. TO
ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE DATE THE ENCLOSED
PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS OF WPLH, SIGN EXACTLY AS
YOUR NAME APPEARS THEREON AND RETURN IMMEDIATELY.
<PAGE>
IES INDUSTRIES INC.
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 5, 1996
To the Shareholders of IES INDUSTRIES INC.:
The Annual Meeting of Shareholders of IES Industries Inc., an Iowa
corporation ("IES"), will be held at the Collins Plaza Hotel, 1200 Collins Road
N.E., Cedar Rapids, Iowa, on the 5th day of September, 1996, at the hour of
10:00 a.m. (Central Time) for the following purposes, all of which are more
fully described in the accompanying Joint Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of November 10, 1995, as amended (together with a
related Plan of Merger, the "Merger Agreement"), among IES, WPL Holdings,
Inc., a Wisconsin corporation ("WPLH"), Interstate Power Company, a
Delaware corporation ("IPC"), WPLH Acquisition Co., a Wisconsin
corporation and wholly-owned subsidiary of WPLH, and Interstate Power
Company, a Wisconsin corporation and wholly-owned subsidiary of IPC, a
copy of which is attached as Annex A to the accompanying Joint Proxy
Statement/Prospectus.
2. To elect a board of nine directors to serve until the next annual
meeting or until their successors are duly elected and qualified.
3. To transact such other business as may properly come before the meeting
or at any adjournment or postponement thereof.
The Board of Directors, in accordance with the Bylaws and Articles of
Incorporation of IES, has fixed the close of business, July 10, 1996, as the
record date for the determination of shareholders entitled to notice of and to
vote at this meeting and any adjournment or postponement thereof. Your continued
interest and cooperation are greatly appreciated.
Approval of the Merger Agreement is a condition to the consummation of the
transactions contemplated by the Merger Agreement. As described in greater
detail in the attached Joint Proxy Statement/Prospectus, the shares of common
stock to be issued pursuant to the Merger Agreement are expected to have
attached thereto associated rights to purchase common stock.
Any shareholder has the right to dissent from and to obtain the "fair value"
of such shareholder's shares of IES Common Stock in the event of the
consummation of the transactions contemplated by the Merger Agreement, provided
that such shareholder perfects his or her dissenter's rights in accordance with
Sections 490.1301 through 490.1331 of the Iowa Business Corporation Act. Please
see the discussion of dissenters' rights in the accompanying Joint Proxy
Statement/Prospectus and Sections 490.1301 through 490.1331, a copy of which is
attached as Annex P to the Joint Proxy Statement/Prospectus.
This Notice is sent to you by order of the Board of Directors.
[/S/ STEPHEN W. SOUTHWICK]
STEPHEN W. SOUTHWICK
VICE PRESIDENT, GENERAL COUNSEL &
SECRETARY
Cedar Rapids, Iowa
July 23, 1996
THE BYLAWS REQUIRE THAT THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES
OF STOCK ENTITLED TO VOTE BE REPRESENTED IN PERSON OR BY PROXY AT THE MEETING TO
CONSTITUTE A QUORUM FOR THE TRANSACTION OF BUSINESS. THEREFORE, REGARDLESS OF
THE NUMBER OF SHARES YOU HOLD, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED
AT THE MEETING.
PLEASE SIGN, DATE AND MAIL THE PROXY/DIRECTIONS CARD PROMPTLY IN THE SELF-
ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
THE PROMPT RETURN OF YOUR PROXY/DIRECTIONS CARD WILL SAVE THE EXPENSE INVOLVED
IN FURTHER COMMUNICATION.
<PAGE>
INTERSTATE POWER COMPANY
1000 Main Street
P.O. Box 769
Dubuque, Iowa 52004-0769
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO THE HOLDERS OF COMMON STOCK OF
INTERSTATE POWER COMPANY:
NOTICE IS HEREBY GIVEN that the annual meeting of the stockholders of
Interstate Power Company, a Delaware corporation ("IPC"), will be held at the
Holiday Inn Dubuque Five Flags, 450 Main Street, Dubuque, Iowa, on Thursday, the
fifth (5th) day of September, 1996, at ten o'clock in the morning, Central Time,
for the purpose of considering and voting with respect to the following matters,
all of which are more fully described in the accompanying Joint Proxy
Statement/Prospectus:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of November 10, 1995, as amended (the "Merger
Agreement"), among IPC, WPL Holdings, Inc., a Wisconsin corporation
("WPLH"), IES Industries Inc., an Iowa corporation ("IES"), WPLH
Acquisition Co., a Wisconsin corporation and a wholly-owned subsidiary of
WPLH, and Interstate Power Company, a Wisconsin corporation and a
wholly-owned subsidiary of IPC, a copy of which is attached as Annex A to
the accompanying Joint Proxy Statement/ Prospectus. Each of the specific
merger transactions to which IPC may be a party that are contemplated by
the Merger Agreement (including the IPC Reincorporation Merger), which
are described in detail in the accompanying Joint Proxy
Statement/Prospectus, requires approval of the holders of IPC common
stock.
2. To consider and vote upon a proposal to approve an amendment to IPC's
Restated Certificate of Incorporation to provide that each share of
preferred stock of IPC outstanding from time to time will have one vote,
voting together as a class with the holders of IPC common stock (except
as otherwise provided by law or specifically set forth in IPC's Restated
Certificate of Incorporation), on all matters to come before a vote of
the stockholders of IPC.
3. The election of two Class II directors to hold office for a term of
three years expiring at the 1999 annual meeting of stockholders of IPC,
or until their respective successors shall have been duly elected and
qualified.
4. The transaction of such other business as may properly be presented to
the meeting.
In accordance with the provisions of the Restated Certificate of
Incorporation, as amended, and the By-Laws, as amended, of IPC, the Board of
Directors has determined that only holders of IPC common stock of record at the
close of business on July 10, 1996, will be entitled to notice of and to vote at
the meeting.
Approval of proposals 1 and 2 are conditions to the consummation of the
transactions contemplated by the Merger Agreement. As described in greater
detail in the attached Joint Proxy Statement/ Prospectus, the shares of common
stock issued pursuant to the Merger Agreement are expected to have attached
thereto associated rights to purchase common stock.
Under Section 262 of the Delaware General Corporation Law, holders of IPC
preferred stock have the right to dissent from the transactions contemplated by
the Merger Agreement and, if such transactions are consummated, to obtain
payment of the "fair value" of their shares. Section 262 of the Delaware General
Corporation Law is attached in full as Annex Q to the accompanying Joint Proxy
Statement/Prospectus, which also includes the description of procedures to be
followed under that section by a holder of IPC preferred stock wishing to
dissent.
<PAGE>
If you do not expect to be present at the meeting, please execute the
enclosed proxy and return it promptly in the accompanying addressed envelope.
INTERSTATE POWER COMPANY
BY: [/S/ J.C. MCGOWAN]
J.C. McGowan
SECRETARY
Dubuque, Iowa
July 23, 1996
YOUR VOTE IS IMPORTANT NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE. TO
ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE DATE THE ENCLOSED
PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS OF IPC, SIGN EXACTLY AS YOUR
NAME APPEARS THEREON AND RETURN IMMEDIATELY.
<PAGE>
JOINT PROXY STATEMENT
OF
WPL HOLDINGS, INC.,
IES INDUSTRIES INC.
AND
INTERSTATE POWER COMPANY
(A DELAWARE CORPORATION)
--------------------------
PROSPECTUS
OF
<TABLE>
<S> <C> <C>
WPL HOLDINGS, INC.
TO BE RENAMED
INTERSTATE ENERGY CORPORATION INTERSTATE POWER COMPANY
(A WISCONSIN CORPORATION) AND (A WISCONSIN CORPORATION)
relating to shares of common stock relating to shares of preferred stock
(and accompanying common stock
purchase rights)
</TABLE>
--------------------------
This Joint Proxy Statement/Prospectus relates to the proposed combination of
WPL Holdings, Inc., IES Industries Inc. and Interstate Power Company into a
single entity to be known after the combination as Interstate Energy
Corporation. Following the combination, the utility subsidiaries of Interstate
Energy Corporation (Wisconsin Power and Light Company, IES Utilities Inc. and
Interstate Power Company) will continue to operate as separate entities. Set
forth below are disclosures relating to (i) the proposed mergers and certain
related transactions contemplated by the Agreement and Plan of Merger, dated as
of November 10, 1995, as amended (together with a related Plan of Merger, the
"Merger Agreement"), by and among WPL Holdings, Inc., a holding company
incorporated under the laws of the State of Wisconsin ("WPLH"), IES Industries
Inc., a holding company incorporated under the laws of the State of Iowa
("IES"), Interstate Power Company, an operating public utility incorporated
under the laws of the State of Delaware ("IPC"), WPLH Acquisition Co., a wholly-
owned subsidiary of WPLH incorporated under the laws of the State of Wisconsin
("Acquisition"), and Interstate Power Company, a wholly-owned subsidiary of IPC
incorporated under the laws of the State of Wisconsin ("New IPC"), and (ii) the
election of directors and certain other matters related to the annual meetings
of each of WPLH, IES and IPC. The other matters to be considered at the annual
meetings include: (i) in the case of WPLH, the approval of charter amendments
authorizing the change in corporate name to Interstate Energy Corporation and
increasing the number of authorized shares of common stock, the appointment of
independent auditors, and the transaction of any other business properly brought
before the meeting; (ii) in the case of IES, the transaction of any other
business properly brought before the meeting; and (iii) in the case of IPC, the
approval of a charter amendment providing the holders of preferred stock of IPC
with specified voting rights and the transaction of any other business properly
brought before the meeting.
Upon consummation of the mergers provided for in the Merger Agreement, WPLH
(which will be renamed Interstate Energy Corporation ("Interstate Energy") at or
prior to such time) will be the holding company of the utility and other
subsidiaries of WPLH, including Wisconsin Power and Light Company, a Wisconsin
corporation ("WP&L"), the utility and other subsidiaries of IES, including IES
Utilities Inc., an Iowa corporation ("Utilities") (which, if required for
regulatory reasons, will be merged with and into IES Utilities Inc., a
corporation which will be a wholly-owned subsidiary of IES incorporated under
the laws of the State of Wisconsin ("New Utilities")), and IPC (which, if
required for regulatory reasons, will be merged with and into the Wisconsin
corporation, New IPC). Interstate Energy will be a registered public utility
holding company under the Public Utility Holding Company Act of 1935, as amended
(the "1935 Act"). See "Regulatory Matters." As used in this Joint Proxy
Statement/Prospectus, "Interstate Energy" shall refer to WPLH from and after the
effective time of the mergers provided for in the Merger Agreement.
Subject to an alternative structure described below, the Merger Agreement
provides for: (i) the merger of IES with and into WPLH, which merger will result
in the combination of WPLH and IES as a single company (the "IES Merger"),
pursuant to which each outstanding share of common stock, no par value, of IES
("IES Common Stock") (other than shares held by IES shareowners who perfect
dissenters' rights under applicable state law ("IES Dissenting Shares"), and
other than shares owned by WPLH, IES or IPC or any of their respective
subsidiaries, which shares will be cancelled) will be converted into the right
to receive 1.01 shares (the "IES Ratio") of common stock, par value $.01 per
share, of Interstate Energy ("Interstate Energy Common Stock"); and (ii) the
merger of Acquisition with and into IPC, which merger will result in IPC
becoming a subsidiary of Interstate Energy (the "IPC Direct Merger"), pursuant
to which (a) each outstanding share of common stock, par value $3.50 per share,
of IPC ("IPC Common Stock") (other than shares owned by WPLH, IES or IPC or any
of their respective subsidiaries, which shares will be cancelled) will be
converted into the right to receive 1.11 shares (the "IPC Ratio," and together
with the IES Ratio, the "Ratios") of Interstate Energy Common Stock and (b) each
outstanding share of preferred stock, par value $50 per share, of IPC ("IPC
Preferred Stock") (other than shares held by IPC preferred stockholders who
perfect dissenters' rights under applicable state law ("IPC Dissenting Shares"))
will remain outstanding and shall be unchanged thereby (including with respect
to the additional voting rights proposed to be approved at the IPC annual
meeting). Unless regulatory requirements require the foregoing transactions to
be consummated pursuant to the alternate structure described below, such
transactions will be effected in the manner described above.
[COVER PAGE IS CONTINUED ON THE FOLLOWING PAGE]
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
This Joint Proxy Statement/Prospectus and accompanying forms of proxy are
first being mailed to shareowners of WPLH, IES and IPC on or about July 23,
1996.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS JULY 11, 1996.
<PAGE>
The Merger Agreement provides, however, that if, prior to the consummation
of the transactions described above, the companies determine that certain
regulatory requirements mandate that the utility subsidiaries of Interstate
Energy be Wisconsin corporations, the transactions will be consummated in a
manner designed to comply with such regulatory requirements. In that event, the
(i) IES Merger will be effected as described above and (ii) Utilities will be
merged with and into New Utilities (the "Utilities Reincorporation Merger"),
pursuant to which each outstanding share of common stock, $2.50 par value, of
Utilities ("Utilities Common Stock") will be converted into one share of common
stock, $2.50 par value, of New Utilities ("New Utilities Common Stock"). If the
Utilities Reincorporation Merger is to be consummated, it is currently
anticipated that the shares of cumulative preferred stock, $50 par value, of
Utilities ("Utilities Preferred Stock") then outstanding will be redeemed by
Utilities prior to the consummation of such merger. Redemption of the Utilities
Preferred Stock is not expected to occur as part of the transactions
contemplated hereby if the Utilities Reincorporation Merger is not required to
be effected. If the Utilities Reincorporation Merger is not effected, the
Utilities Preferred Stock will remain outstanding and unchanged as a result of
the transactions described herein. See "Summary -- The Parties -- IES," "Summary
- -- The Mergers" and "The Mergers -- Redemption of Utilities Preferred Stock." In
addition, the merger involving IPC will be reconstituted to provide for: (i) the
merger of IPC with and into New IPC (the "IPC Reincorporation Merger") pursuant
to which (a) each outstanding share of IPC Common Stock (other than shares owned
by WPLH, IES or IPC or any of their respective subsidiaries, which shares will
be cancelled) will be converted into one share of common stock, par value $3.50
per share, of New IPC ("New IPC Common Stock") and (b) each outstanding share of
IPC Preferred Stock (other than IPC Dissenting Shares) will be converted into
one share of preferred stock, par value $50 per share, of New IPC ("New IPC
Preferred Stock") with terms (including dividend rates) and designations under
New IPC's Restated Articles of Incorporation (the "New IPC Charter")
substantially identical to those of IPC's Preferred Stock under IPC's Restated
Certificate of Incorporation (the "IPC Charter"), including the additional
voting rights proposed to be approved at the IPC annual meeting; and (ii) the
merger of Acquisition with and into New IPC, which merger will result in New IPC
becoming a subsidiary of Interstate Energy (the "IPC Merger"), pursuant to which
(a) each outstanding share of New IPC Common Stock (other than shares owned by
WPLH, IES or IPC or any of their respective subsidiaries, which will be
cancelled) will be converted into the right to receive shares of Interstate
Energy Common Stock based on the IPC Ratio and (b) each outstanding share of New
IPC Preferred Stock (other than IPC Dissenting Shares) will remain outstanding
and unchanged as a result thereof.
APPROVAL OF THE MERGER AGREEMENT AT THE ANNUAL MEETINGS OF EACH OF WPLH, IES
AND IPC WILL CONSTITUTE APPROVAL OF THE TRANSACTIONS DESCRIBED ABOVE REGARDLESS
OF WHICH OF THE ALTERNATIVE STRUCTURES DESCRIBED HEREIN IS ULTIMATELY EMPLOYED
TO EFFECT SUCH TRANSACTIONS. The IES Merger and the IPC Direct Merger or, in the
alternative, the IES Merger, the IPC Reincorporation Merger, the IPC Merger and
the Utilities Reincorporation Merger, are collectively referred to herein as the
"Mergers." Approval of the holders of IES Common Stock is not specifically
required to consummate the Utilities Reincorporation Merger. In the event that
the Utilities Reincorporation Merger is required and the Utilities Preferred
Stock is therefore redeemed, IES, as the sole shareholder of Utilities, will
approve the Utilities Reincorporation Merger. The Utilities Reincorporation
Merger will not, however, be effected if the holders of IES Common Stock fail to
approve the Merger Agreement. The approval of the holders of IPC Common Stock is
required to approve the IPC Reincorporation Merger, if, for regulatory reasons,
such transaction is required in order to consummate the Mergers. Approval of the
holders of IPC Preferred Stock is not required to approve the IPC
Reincorporation Merger.
The Merger Agreement requires that specified termination fees be paid under
certain circumstances in the event the Merger Agreement is terminated, including
if there is a material, willful breach of the Merger Agreement or if, under
certain circumstances, a business combination with a third party is consummated
within two and one-half years of the termination of the Merger Agreement. The
aggregate termination fees under this provision together with the amounts
payable under certain provisions of stock option agreements entered into by the
parties may not exceed $40,000,000 payable by each of WPLH and IES and
$20,000,000 payable by IPC. The Merger Agreement also provides for the payment
of expenses by a breaching party in the event the Merger Agreement is terminated
as a result of a breach of the representations and warranties or covenants and
agreements contained in the Merger Agreement. In the event of a non-willful
breach, each non-breaching party will be entitled to the reimbursement of its
documented out-of-pocket expenses, not to exceed $5,000,000 for each
non-breaching party. In the event the breach is willful, the $5,000,000 limit
will not apply. For a more detailed description of the termination fees that may
be payable in certain circumstances, see "The Merger Agreement -- Termination
Fees" and "The Stock Option Agreements -- Certain Repurchases and Other
Payments."
Under applicable state law, holders of IES Common Stock and IPC Preferred
Stock who do not wish to accept the consideration to be paid to them in
connection with the Mergers will have the right to have the fair value of their
shares appraised by judicial determination and paid to them. In order to perfect
such dissenters' rights, holders of IES Common Stock and IPC Preferred Stock
must comply with the procedural requirements of applicable state law, including,
without limitation, delivering notice to IES or IPC, as the case may be, with
respect to the exercise of such rights prior to the annual meetings of IES or
IPC, as the case may be, and not voting in favor of the Merger Agreement. For a
discussion of the dissenters' rights applicable to the holders of IES Common
Stock, see "The Mergers -- Iowa Dissenters' Rights" and Annex P, and for a
discussion of the dissenters' rights applicable to the holders of IPC Preferred
Stock, see "The Mergers -- Delaware Dissenters' Rights" and Annex Q. Holders of
WPLH Common Stock and IPC Common Stock are not entitled to dissenters' rights in
connection with the Mergers.
In connection with the Mergers, each outstanding share of common stock, par
value $.01 per share, of WPLH ("WPLH Common Stock") will remain outstanding and
unchanged as one share of Interstate Energy Common Stock. Based on the
capitalization of WPLH, IES and IPC on July 10, 1996 and the Ratios, holders of
WPLH Common Stock, IES Common Stock and IPC Common Stock would have held
approximately 43%, 42.2% and 14.8%, respectively, of the aggregate number of
shares of Interstate Energy Common Stock that would have been outstanding if the
Mergers had been consummated as of such date. In this Joint Proxy
Statement/Prospectus, unless the context otherwise requires, all references to
Interstate Energy Common Stock include, if applicable, the associated rights to
purchase shares of such common stock pursuant to the terms of the Rights
Agreement between WPLH and Morgan Shareholder Services Trust Company, as Rights
Agent thereunder, dated as of February 22, 1989 (the "Rights Agreement"). For
more detailed description of the Rights Agreement and the associated rights
accompanying shares of Interstate Energy Common Stock, see "Description of
Interstate Energy Capital Stock -- Certain Anti-Takeover Provisions."
<PAGE>
This Joint Proxy Statement/Prospectus constitutes a prospectus of WPLH (to
be renamed Interstate Energy) filed as part of the Joint Registration Statement
(as hereinafter defined) with respect to up to 42,798,875 shares of Interstate
Energy Common Stock to be issued pursuant to or as contemplated by the Merger
Agreement. This Joint Proxy Statement/Prospectus also constitutes a prospectus
of New IPC filed as part of the Joint Registration Statement with respect to up
to 761,381 shares of New IPC Preferred Stock to be issued, assuming that the IPC
Reincorporation Merger is effected, pursuant to or as contemplated by the Merger
Agreement.
This Joint Proxy Statement/Prospectus is being furnished to the holders of
WPLH Common Stock in connection with solicitation of proxies by the Board of
Directors of WPLH (the "WPLH Board") for use at the annual meeting of WPLH to be
held immediately following the annual meeting of shareowners of WP&L at 10:00
a.m., Central Time, on Thursday, September 5, 1996 at the Exhibition Hall of the
Dane County Expo Center, 1881 Expo Mall, Madison, Wisconsin, and at any
adjournment or postponement thereof (the "WPLH Meeting"). At the WPLH Meeting,
in addition to voting upon proposals to approve the Merger Agreement and the
transactions contemplated thereby, including the issuance of shares of
Interstate Energy Common Stock pursuant to the terms of the Merger Agreement,
and to approve certain amendments to the Restated Articles of Incorporation of
WPLH (the "WPLH Charter"), holders of WPLH Common Stock will also consider and
vote upon proposals with respect to the election of directors and the
ratification of the appointment of WPLH's independent auditors. Information with
respect to these proposals is being furnished at the back of this Joint Proxy
Statement/Prospectus to the shareowners of WPLH only.
This Joint Proxy Statement/Prospectus is also being furnished to the holders
of IES Common Stock in connection with the solicitation of proxies by the Board
of Directors of IES (the "IES Board") for use at the annual meeting of IES to be
held at 10:00 a.m., Central Time, on Thursday, September 5, 1996 at the Collins
Plaza Hotel, 1200 Collins Road N.E., Cedar Rapids, Iowa, and at any adjournment
or postponement thereof (the "IES Meeting"). At the IES Meeting, in addition to
voting upon a proposal to approve the Merger Agreement, holders of IES Common
Stock will also consider and vote upon a proposal with respect to the election
of directors. Information with respect to this proposal is being furnished at
the back of this Joint Proxy Statement/Prospectus to the shareholders of IES
only.
This Joint Proxy Statement/Prospectus is also being furnished to the holders
of IPC Common Stock in connection with the solicitation of proxies by the Board
of Directors of IPC (the "IPC Board") for use at the annual meeting of IPC to be
held at 10:00 a.m., Central Time, on Thursday, September 5, 1996 at the Holiday
Inn Dubuque Five Flags, 450 Main Street, Dubuque, Iowa, and at any adjournment
or postponement thereof (the "IPC Meeting"). At the IPC Meeting, in addition to
voting upon a proposal to approve the Merger Agreement and a proposal to approve
an amendment to the IPC Charter to provide expanded voting rights to holders of
shares of IPC Preferred Stock, holders of IPC Common Stock will also consider
and vote upon a proposal with respect to the election of directors. Information
with respect to the proposal to elect directors of IPC is being furnished at the
back of this Joint Proxy Statement/Prospectus to the stockholders of IPC only.
All information concerning WPLH and Acquisition included in this Joint Proxy
Statement/ Prospectus has been furnished by WPLH, all information concerning
IES, Utilities and New Utilities included in this Joint Proxy
Statement/Prospectus has been furnished by IES and all information concerning
IPC and New IPC included in this Joint Proxy Statement/Prospectus has been
furnished by IPC.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Joint Proxy Statement/Prospectus, and, if given or made, such information or
representation should not be relied upon as having been authorized. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Joint Proxy
Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction, to or
from any person to whom or from whom it is unlawful to make such an offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither the
delivery of this Joint Proxy Statement/Prospectus nor any distribution of
securities pursuant to this Joint Proxy Statement/Prospectus shall, under any
circumstances, create an implication that there has been no change in the
affairs of WPLH, IES or IPC or in the information set forth herein since the
date of this Joint Proxy Statement/Prospectus.
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This Joint Proxy Statement/Prospectus does not cover any resale of the
securities to be received by shareowners of IES or IPC upon consummation of the
Mergers, and no person is authorized to make any use of this Joint Proxy
Statement/Prospectus in connection with any such resale.
AVAILABLE INFORMATION
WPLH, IES and IPC are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information filed by WPLH, IES and IPC with the SEC can be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the Regional Offices of the SEC at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, and at 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material may also be obtained
from the Public Reference Section of the SEC, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. In addition, WPLH Common
Stock, IES Common Stock and IPC Common Stock are listed on the New York Stock
Exchange, the Chicago Stock Exchange and the Pacific Stock Exchange, and WPLH
Common Stock and IES Common Stock are listed on the Boston Stock Exchange, and
reports, proxy statements and other information filed by WPLH, IES and/or IPC
with such exchanges may be inspected at the offices of the New York Stock
Exchange, Inc. (the "NYSE"), 20 Broad Street, 7th Floor, New York, New York
10005, the Boston Stock Exchange, Inc. (the "BSE"), One Boston Place, Boston,
Massachusetts 02108, the Chicago Stock Exchange, Inc. (the "CSE"), 440 South
LaSalle Street, Chicago, Illinois 60605, or the Pacific Stock Exchange, Inc.
(the "PSE"), 301 Pine Street, San Francisco, California 94104, and such material
and other information concerning IES can also be inspected at the Philadelphia
Stock Exchange, Inc. (the "PhSE"), 1900 Market Street, Philadelphia,
Pennsylvania 19103, on which exchange the IES Common Stock is listed.
In addition, the SEC maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC. The address of such Web site is http://www.sec.gov.
WPLH and New IPC have filed with the SEC a Joint Registration Statement on
Form S-4 (together with all amendments, schedules and exhibits thereto, the
"Joint Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares of Interstate Energy Common
Stock to be issued in connection with the IES Merger and the IPC Merger or IPC
Direct Merger, as the case may be, and the shares of New IPC Preferred Stock
which may be issued in connection with the IPC Reincorporation Merger. This
Joint Proxy Statement/Prospectus does not contain all the information set forth
in the Joint Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the SEC. The Joint Registration
Statement is available for inspection and copying as set forth above. Statements
contained in this Joint Proxy Statement/Prospectus or in any document
incorporated by reference in this Joint Proxy Statement/Prospectus as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Joint Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
INCORPORATION OF DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST, WITHOUT CHARGE, IN THE CASE OF DOCUMENTS RELATING TO WPLH, DIRECTED TO
EDWARD M. GLEASON, VICE PRESIDENT, TREASURER AND CORPORATE SECRETARY, WPL
HOLDINGS, INC., 222 WEST WASHINGTON AVENUE, P.O. BOX 2568, MADISON, WISCONSIN
53701-2568 (TELEPHONE NUMBER (608) 252-3311), IN THE CASE OF DOCUMENTS RELATING
TO IES, DIRECTED TO STEPHEN W. SOUTHWICK, ESQ., VICE PRESIDENT, GENERAL COUNSEL
& SECRETARY, IES INDUSTRIES INC., IES TOWER, 200 FIRST STREET S.E., CEDAR
RAPIDS, IOWA 52401 (TELEPHONE NUMBER (319) 398-4411), OR IN THE CASE OF
iii
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DOCUMENTS RELATING TO IPC, DIRECTED TO JOSEPH C. MCGOWAN, SECRETARY AND
TREASURER, INTERSTATE POWER COMPANY, 1000 MAIN STREET, P.O. BOX 769, DUBUQUE,
IOWA 52004-0769 (TELEPHONE NUMBER (319) 582-5421). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUESTS SHOULD BE MADE BY AUGUST 28, 1996.
The following documents filed with the SEC by WPLH (File No. 1-9894), IES
(File No. 1-9187) or IPC (File No. 1-3632) pursuant to the Exchange Act are
incorporated in this Joint Proxy Statement/ Prospectus by reference:
1. WPLH's Annual Report on Form 10-K for the year ended December 31,
1995, as amended by the Form 10-K/A filed on April 29, 1996.
2. WPLH's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996.
3. WPLH's Current Reports on Form 8-K dated January 17 and May 22,
1996.
4. IES's Annual Report on Form 10-K for the year ended December 31,
1995, as amended by the Form 10-K/A filed on April 29, 1996.
5. IES's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996.
6. IES's Current Reports on Form 8-K dated February 9, April 3, April
12 and May 22, 1996.
7. The description of IES Common Stock (including the accompanying
preferred share purchase rights) contained in IES's registration statements
filed pursuant to Section 12 of the Exchange Act and any amendment or report
filed for the purpose of updating such description.
8. IPC's Annual Report on Form 10-K for the year ended December 31,
1995, as amended by the Form 10-K/A filed on April 29, 1996.
9. IPC's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996.
10. IPC's Current Report on Form 8-K dated May 22, 1996.
11. The description of IPC Common Stock contained in IPC's registration
statements filed pursuant to Section 12 of the Exchange Act and any
amendment or report filed for the purpose of updating such description.
In lieu of incorporating by reference the description of WPLH Common Stock
(including the accompanying common stock purchase rights) contained in WPLH's
Form 8-B and Form 8-A registration statements filed pursuant to Section 12 of
the Exchange Act, such description is included in this Joint Proxy
Statement/Prospectus. See "Description of Interstate Energy Capital Stock."
The information relating to WPLH, IES and IPC contained in this Joint Proxy
Statement/ Prospectus does not purport to be comprehensive and should be read
together with the information in the documents incorporated by reference herein.
All documents filed by WPLH, IES or IPC pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
date of the WPLH Meeting on Thursday, September 5, 1996, and any adjournment or
postponement thereof, the IES Meeting on Thursday, September 5, 1996, and any
adjournment or postponement thereof, or the IPC Meeting on Thursday, September
5, 1996, and any adjournment or postponement thereof, respectively, shall be
deemed to be incorporated by reference into this Joint Proxy
Statement/Prospectus and to be a part hereof from the date of filing of such
documents.
Any statement contained in a document incorporated by reference herein or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Joint Proxy Statement/Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Joint
Proxy Statement/Prospectus.
iv
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TABLE OF CONTENTS
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AVAILABLE INFORMATION...................................................................................... iii
INCORPORATION OF DOCUMENTS BY REFERENCE.................................................................... iii
INDEX OF DEFINED TERMS..................................................................................... ix
SUMMARY.................................................................................................... 1
The Parties.............................................................................................. 1
The Meetings............................................................................................. 2
Required Vote............................................................................................ 4
The Mergers.............................................................................................. 4
Exchange of Stock Certificates........................................................................... 6
Stock Option Agreements.................................................................................. 6
Treatment of Shares; Ratios.............................................................................. 7
Background............................................................................................... 8
Reasons for the Mergers.................................................................................. 8
Recommendations of the Board of Directors................................................................ 8
Opinions of Financial Advisors........................................................................... 9
Interests of Certain Persons in the Mergers.............................................................. 9
Management of Interstate Energy.......................................................................... 11
Conditions to the Mergers................................................................................ 11
Rights to Terminate, Amend or Waive Conditions........................................................... 11
Certain Federal Income Tax Consequences.................................................................. 12
Operations After the Mergers............................................................................. 13
Regulatory Matters....................................................................................... 13
Accounting Treatment..................................................................................... 14
Dissenters' Rights....................................................................................... 15
Dividends................................................................................................ 15
Amendments to WPLH Charter............................................................................... 16
Amendment to IPC Charter................................................................................. 16
Comparison of Rights of Shareowners...................................................................... 16
SELECTED HISTORICAL AND PRO FORMA DATA..................................................................... 17
Selected Historical Financial and Market Data............................................................ 17
Selected Unaudited Pro Forma Financial Data.............................................................. 21
Comparative Book Values, Dividends and Earnings Per Common Share......................................... 22
Comparative Market Prices and Dividends.................................................................. 24
MEETINGS, VOTING AND PROXIES............................................................................... 26
The WPLH Meeting......................................................................................... 26
The IES Meeting.......................................................................................... 28
The IPC Meeting.......................................................................................... 30
THE MERGERS................................................................................................ 31
Background of the Mergers................................................................................ 31
Reasons for the Mergers; Recommendations of the Boards of Directors...................................... 46
Opinions of Financial Advisors........................................................................... 53
Interests of Certain Persons in the Mergers.............................................................. 69
Certain Arrangements Regarding the Directors and Management of Interstate Energy Following the Mergers... 72
Employment Agreements.................................................................................... 73
Certain Federal Income Tax Consequences.................................................................. 74
Accounting Treatment..................................................................................... 77
Stock Exchange Listing of Interstate Energy Common Stock................................................. 77
</TABLE>
v
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Redemption of Utilities Preferred Stock.................................................................. 77
Federal Securities Law Consequences...................................................................... 77
No Wisconsin Dissenters' Rights.......................................................................... 78
Iowa Dissenters' Rights.................................................................................. 78
Delaware Dissenters' Rights.............................................................................. 80
REGULATORY MATTERS......................................................................................... 82
State Approvals and Related Matters...................................................................... 82
Public Utility Holding Company Act of 1935............................................................... 84
Federal Power Act........................................................................................ 85
Antitrust Considerations................................................................................. 86
Atomic Energy Act........................................................................................ 86
Other.................................................................................................... 86
General.................................................................................................. 87
THE MERGER AGREEMENT....................................................................................... 87
The Mergers.............................................................................................. 87
Subsidiaries and Joint Ventures.......................................................................... 90
Representations and Warranties........................................................................... 90
Certain Covenants........................................................................................ 91
No Solicitation of Transactions.......................................................................... 92
Interstate Energy Board of Directors..................................................................... 93
Indemnification.......................................................................................... 93
Conditions to Each Party's Obligation to Effect the Mergers.............................................. 94
Benefit Plans............................................................................................ 95
Termination.............................................................................................. 96
Termination Fees......................................................................................... 97
Expenses................................................................................................. 98
Amendment and Waiver..................................................................................... 98
Standstill Provisions.................................................................................... 99
THE STOCK OPTION AGREEMENTS................................................................................ 99
General.................................................................................................. 99
Certain Repurchases and Other Payments................................................................... 100
Voting................................................................................................... 101
Restrictions on Transfer................................................................................. 101
AMENDMENTS TO WPLH RESTATED ARTICLES OF INCORPORATION...................................................... 101
Name Change Amendment.................................................................................... 102
Common Stock Amendment................................................................................... 102
AMENDMENT TO IPC RESTATED CERTIFICATE OF INCORPORATION..................................................... 103
DESCRIPTION OF INTERSTATE ENERGY CAPITAL STOCK............................................................. 104
General.................................................................................................. 104
Interstate Energy Common Stock........................................................................... 104
Certain Anti-Takeover Provisions......................................................................... 105
DESCRIPTION OF NEW IPC PREFERRED STOCK..................................................................... 107
General.................................................................................................. 107
Dividend Rights.......................................................................................... 107
Dividend Restrictions.................................................................................... 108
Voting Rights............................................................................................ 108
Redemption Provisions.................................................................................... 109
Change in Control........................................................................................ 109
Liquidation Rights....................................................................................... 109
</TABLE>
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[ALTERNATE PAGE FOR
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Preemption and Subscription Rights........................................................................ 110
COMPARISON OF SHAREOWNER RIGHTS............................................................................ 110
Comparison of Interstate Energy Charter and Bylaws to IES and IPC Charter and Bylaws..................... 110
Comparison of Wisconsin, Iowa and Delaware Law........................................................... 114
Anti-Takeover Statutes................................................................................... 118
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION......................................................... 120
SELECTED INFORMATION CONCERNING WPLH, IES AND IPC.......................................................... 132
Business of WPLH......................................................................................... 132
Business of IES.......................................................................................... 132
Business of IPC.......................................................................................... 132
Certain Business Relationships Between WPLH, IES and IPC................................................. 133
INTERSTATE ENERGY FOLLOWING THE MERGERS.................................................................... 133
Management of Interstate Energy.......................................................................... 133
Operations............................................................................................... 133
Dividends................................................................................................ 134
EXPERTS.................................................................................................... 134
LEGAL MATTERS.............................................................................................. 135
SHAREOWNER PROPOSALS....................................................................................... 135
ELECTION OF WPLH DIRECTORS................................................................................. 136
Nominees................................................................................................. 136
Continuing Directors..................................................................................... 137
APPOINTMENT OF INDEPENDENT AUDITORS........................................................................ 139
MEETINGS AND COMMITTEES OF THE WPLH BOARD.................................................................. 139
Audit Committee.......................................................................................... 140
Compensation and Personnel Committee..................................................................... 140
Nominating Committee..................................................................................... 140
Compensation of Directors................................................................................ 140
OWNERSHIP OF VOTING SECURITIES............................................................................. 141
COMPENSATION OF EXECUTIVE OFFICERS......................................................................... 142
Stock Options............................................................................................ 143
Long-Term Incentive Awards............................................................................... 144
Certain Transactions and Agreements with Executives...................................................... 145
Retirement and Employee Benefit Plans.................................................................... 145
Report of the Compensation and Personnel Committee on Executive Compensation............................. 147
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN............................................................ 151
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934....................................... 151
</TABLE>
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[ALTERNATE PAGE FOR
IES PROXY STATEMENT]
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Preemption and Subscription Rights........................................................................ 110
COMPARISON OF SHAREOWNER RIGHTS............................................................................ 110
Comparison of Interstate Energy Charter and Bylaws to IES and IPC Charter and Bylaws..................... 110
Comparison of Wisconsin, Iowa and Delaware Law........................................................... 114
Anti-Takeover Statutes................................................................................... 118
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION......................................................... 120
SELECTED INFORMATION CONCERNING WPLH, IES AND IPC.......................................................... 132
Business of WPLH......................................................................................... 132
Business of IES.......................................................................................... 132
Business of IPC.......................................................................................... 132
Certain Business Relationships Between WPLH, IES and IPC................................................. 133
INTERSTATE ENERGY FOLLOWING THE MERGERS.................................................................... 133
Management of Interstate Energy.......................................................................... 133
Operations............................................................................................... 133
Dividends................................................................................................ 134
EXPERTS.................................................................................................... 134
LEGAL MATTERS.............................................................................................. 135
SHAREOWNER PROPOSALS....................................................................................... 135
ELECTION OF IES DIRECTORS.................................................................................. 136
SECURITY OWNERSHIP OF BENEFICIAL OWNERS.................................................................... 139
SECURITY OWNERSHIP OF MANAGEMENT........................................................................... 139
OTHER TRANSACTIONS......................................................................................... 140
FUNCTIONING OF THE IES BOARD AND COMMITTEES................................................................ 140
COMPENSATION OF DIRECTORS.................................................................................. 140
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION............................................. 141
Compensation Philosophy.................................................................................. 141
Description of Compensation Programs..................................................................... 142
EXECUTIVE COMPENSATION..................................................................................... 145
PERFORMANCE GRAPH.......................................................................................... 147
IES PLANS.................................................................................................. 148
IOWA SOUTHERN UTILITIES PLANS.............................................................................. 151
EMPLOYMENT AGREEMENT....................................................................................... 152
CERTAIN SEC FILINGS........................................................................................ 153
INDEPENDENT PUBLIC ACCOUNTANTS............................................................................. 153
GENERAL.................................................................................................... 153
</TABLE>
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[ALTERNATE PAGE FOR
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Preemption and Subscription Rights....................................................................... 110
COMPARISON OF SHAREOWNER RIGHTS............................................................................ 110
Comparison of Interstate Energy Charter and Bylaws to IES and IPC Charter and Bylaws..................... 110
Comparison of Wisconsin, Iowa and Delaware Law........................................................... 114
Anti-Takeover Statutes................................................................................... 118
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION......................................................... 120
SELECTED INFORMATION CONCERNING WPLH, IES AND IPC.......................................................... 132
Business of WPLH......................................................................................... 132
Business of IES.......................................................................................... 132
Business of IPC.......................................................................................... 132
Certain Business Relationships Between WPLH, IES and IPC................................................. 133
INTERSTATE ENERGY FOLLOWING THE MERGERS.................................................................... 133
Management of Interstate Energy.......................................................................... 133
Operations............................................................................................... 133
Dividends................................................................................................ 134
EXPERTS.................................................................................................... 134
LEGAL MATTERS.............................................................................................. 135
SHAREOWNER PROPOSALS....................................................................................... 135
ELECTION OF IPC DIRECTORS.................................................................................. 136
Nominees for Directors................................................................................... 136
Committees of the IPC Board.............................................................................. 138
Compensation of Directors................................................................................ 139
Compensation Committee Interlocks and Insider Participation.............................................. 139
PRINCIPAL HOLDERS OF VOTING SECURITIES..................................................................... 139
Security Ownership of Certain Beneficial Owners.......................................................... 139
Security Ownership of Management......................................................................... 139
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS........................................................... 141
Compensation Committee Report............................................................................ 141
Performance Graph........................................................................................ 142
Cash Compensation........................................................................................ 143
Summary Compensation Table............................................................................... 143
Compensation Pursuant to Plans........................................................................... 143
Other Compensation....................................................................................... 144
Stock Option and Stock Appreciation Right Plans.......................................................... 145
Termination of Employment and Change in Control Arrangements............................................. 145
Employment Agreements.................................................................................... 145
RELATIONSHIP WITH INDEPENDENT PUBLIC AUDITORS.............................................................. 145
</TABLE>
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Annex A Agreement and Plan of Merger, as amended..................................................... A-1
Annex B WPLH/IES Stock Option Agreement.............................................................. B-1
Annex C WPLH/IPC Stock Option Agreement.............................................................. C-1
Annex D IES/WPLH Stock Option Agreement.............................................................. D-1
Annex E IES/IPC Stock Option Agreement............................................................... E-1
Annex F IPC/WPLH Stock Option Agreement.............................................................. F-1
Annex G IPC/IES Stock Option Agreement............................................................... G-1
Annex H Form of Employment Agreement with Lee Liu.................................................... H-1
Annex I Form of Employment Agreement with Erroll B. Davis, Jr........................................ I-1
Annex J Form of Employment Agreement with Wayne Stoppelmoor.......................................... J-1
Annex K Form of Employment Agreement with Michael Chase.............................................. K-1
Annex L Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated................................ L-1
Annex M Opinion of Morgan Stanley & Co. Incorporated................................................. M-1
Annex N Opinion of Salomon Brothers Inc.............................................................. N-1
Annex O Proposed Amendments to the Restated Articles of Incorporation of Interstate Energy
Corporation................................................................................. O-1
Annex P Sections 490.1301 to 490.1331 of the Iowa Business Corporation Act........................... P-1
Annex Q Section 262 of the Delaware General Corporation Law.......................................... Q-1
Annex R Proposed Amendment to the Restated Certificate of Incorporation of Interstate Power Company
(IPC)....................................................................................... R-1
Annex S Audited Financial Statements of Interstate Power Company (New IPC)........................... S-1
</TABLE>
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INDEX OF DEFINED TERMS
<TABLE>
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1935 Act....................................... i
1992 Act....................................... 31
1995 EPS Ratio................................. 55
1996 EPS Ratio................................. 55
Acquisition.................................... i
Antitrust Division............................. 86
Atomic Energy Act.............................. 13
Book Value Multiple............................ 57
BSE............................................ iii
Business Combination........................... 96
Certificates................................... 6
Class I........................................ 93
Class II....................................... 93
Class III...................................... 93
Closing........................................ 87
Closing Date................................... 87
Code........................................... 12
Common Equity Ratio............................ 55
Common Stock Amendment......................... 2
Comparable Merger Transactions................. 57
Confidentiality Agreement...................... 97
Consulting Group............................... 36
CRANDIC........................................ 57
CSE............................................ iii
DCF............................................ 56
Delaware Business Combination Statute.......... 119
Delaware Chancery Court........................ 15
DGCL........................................... 4
Diversified.................................... 1
Dividend Ratio................................. 55
Division....................................... 85
DRSPP Shares................................... 31
EBIT........................................... 56
EBIT Multiple.................................. 57
EBITDA......................................... 57
EBITDA Multiple................................ 57
Effective Time................................. 5
EHC............................................ 56
Electric Utility MOE Transactions.............. 62
Employment Agreements.......................... 10
EPS............................................ 55
ERISA.......................................... 91
EWGs........................................... 31
Exchange Act................................... iii
Exchange Agent................................. 89
FERC........................................... 13
FERC Application............................... 86
FTC............................................ 86
HDC............................................ 1
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HDC MIP........................................ 148
Historical Period.............................. 56
HPI............................................ 56
HSR Act........................................ 13
IBCA........................................... 4
ICC............................................ 13
IEA............................................ 57
IES............................................ i
IES Board...................................... ii
IES Bylaws..................................... 4
IES Cancelled Shares........................... 88
IES Charter.................................... 4
IES Common Stock............................... i
IES Dissenting Shares.......................... i
IES Joint Ventures............................. 90
IES Meeting.................................... ii
IES Merger..................................... i
IES Options.................................... 99
IES Preferred Stock............................ 15
IES Ratio...................................... i
IES Record Date................................ 3
IES Stock Award................................ 96
IES Stock Option............................... 95
IES Subsidiaries............................... 90
Indemnified Parties............................ 94
Interested Contracts or Transactions........... 114
Interstate Energy.............................. i
Interstate Energy Board........................ 10
Interstate Energy Bylaws....................... 16
Interstate Energy Charter...................... 16
Interstate Energy Common Stock................. i
IPC............................................ i
IPC Board...................................... ii
IPC Bonds...................................... 108
IPC Bylaws..................................... 4
IPC Cancelled Shares........................... 88
IPC Charter.................................... i
IPC Charter Amendment.......................... 3
IPC Common Stock............................... i
IPC Direct Merger.............................. i
IPC Dissenting Shares.......................... i
IPC DRSPP...................................... 31
IPC Executives................................. 71
IPC Joint Ventures............................. 90
IPC Meeting.................................... ii
IPC Merger..................................... i
IPC Options.................................... 99
IPC Preference Stock........................... 107
IPC Preferred Stock............................ i
</TABLE>
ix
<PAGE>
[ALTERNATE PAGE FOR
WPLH PROXY STATEMENT]
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
IPC Ratio...................................... i
IPC Record Date................................ 3
IPC Reincorporation Effective Time............. 5
IPC Reincorporation Merger..................... i
IPC Severance Agreements....................... 71
IPC Subsidiaries............................... 90
IUB............................................ 13
Joint Registration Statement................... iii
LTM............................................ 57
Market/Offer Price............................. 100
Merger Agreement............................... i
Mergers........................................ i
Merrill Lynch.................................. 9
Merrill Lynch Opinion.......................... 53
McLeod......................................... 5
McLeod Contingency............................. 5
Minnesota Commission........................... 13
ML IES Comparables............................. 55
ML IPC Comparables............................. 55
ML WPLH Comparables............................ 55
Morgan Stanley................................. 9
Mr. Ahearn..................................... 11
Mr. Chase...................................... 9
Mr. Davis...................................... 9
Mr. Liu........................................ 9
Mr. Stoppelmoor................................ 9
MS IES Comparables............................. 61
MS WPLH Comparables............................ 61
Name Change Amendment.......................... 2
Net Income Multiple............................ 57
New IPC........................................ i
New IPC Charter................................ i
New IPC Common Stock........................... i
New IPC Preference Stock....................... 107
New IPC Preferred Stock........................ i
New Utilities.................................. i
New Utilities Common Stock..................... i
Notice Date.................................... 100
NRC............................................ 13
NYSE........................................... iii
Offer Price.................................... 100
Option......................................... 6
Option Grantor................................. 99
Option Holders................................. 99
Option Shares.................................. 99
Options........................................ 6
Payor.......................................... 98
Payors......................................... 98
PhSE........................................... iii
<CAPTION>
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---------
<S> <C>
PP&E........................................... 66
Projected Period............................... 56
PSE............................................ iii
Ratios......................................... i
Representatives................................ 93
Repurchase Period.............................. 100
Restricted Shares.............................. 101
Right.......................................... 106
Rights Agreement............................... i
Salomon Brothers............................... 9
Salomon Brothers Report........................ 66
SB IES Comparable Group........................ 67
SB IPC Comparable Group........................ 66
SB WPLH Comparable Group....................... 66
SEC............................................ iii
Section 262.................................... 80
Securities Act................................. iii
SERP........................................... 71
S&P............................................ 151
Stock Option Agreements........................ 6
Stock Price.................................... 66
Subsidiaries................................... 90
Target Party................................... 97
Trigger Payment................................ 101
Utilities...................................... i
Utilities Common Stock......................... i
Utilities Preferred Stock...................... i
Utilities Reincorporation Merger............... i
WBCL........................................... 4
Wisconsin Commission........................... 13
Wisconsin Holding Company Act.................. 14
WP&L........................................... i
WP&L MIP....................................... 148
WP&L Preferred Stock........................... 15
WP&L Savings Plan.............................. 27
WPLH........................................... i
WPLH Board..................................... ii
WPLH Bylaws.................................... 4
WPLH Charter................................... ii
WPLH Charter Amendments........................ 2
WPLH Committee................................. 147
WPLH Common Stock.............................. i
WPLH DRIP...................................... 27
WPLH Joint Ventures............................ 90
WPLH Meeting................................... ii
WPLH MIP....................................... 149
WPLH Options................................... 99
WPLH Record Date............................... 3
WPLH Subsidiaries.............................. 90
</TABLE>
x
<PAGE>
[ALTERNATE PAGE FOR
IES PROXY STATEMENT]
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
1935 Act....................................... i
1992 Act....................................... 31
1995 EPS Ratio................................. 55
1996 EPS Ratio................................. 55
Acquisition.................................... i
Antitrust Division............................. 86
Atomic Energy Act.............................. 13
Book Value Multiple............................ 57
BSE............................................ iii
Business Combination........................... 96
CCK............................................ 142
Certificates................................... 6
Class I........................................ 93
Class II....................................... 93
Class III...................................... 93
Closing........................................ 87
Closing Date................................... 87
Code........................................... 12
Common Equity Ratio............................ 55
Common Stock Amendment......................... 2
Comparable Merger Transactions................. 57
Confidentiality Agreement...................... 97
Consulting Group............................... 36
CRANDIC........................................ 57
CSE............................................ iii
DCF............................................ 56
Delaware Business Combination Statute.......... 119
Delaware Chancery Court........................ 15
DGCL........................................... 4
Diversified.................................... 1
Dividend Ratio................................. 55
Division....................................... 85
DRSPP Shares................................... 31
EBIT........................................... 56
EBIT Multiple.................................. 57
EBITDA......................................... 57
EBITDA Multiple................................ 57
Effective Time................................. 5
EHC............................................ 56
Electric Utility MOE Transactions.............. 62
Employment Agreements.......................... 10
EPS............................................ 55
ERISA.......................................... 91
EWGs........................................... 31
Exchange Act................................... iii
Exchange Agent................................. 89
FERC........................................... 13
FERC Application............................... 86
FTC............................................ 86
<CAPTION>
PAGE
---------
<S> <C>
Guaranty Plan.................................. 150
HDC............................................ 1
Historical Period.............................. 56
HPI............................................ 56
HSR Act........................................ 13
IASD........................................... 137
IBCA........................................... 4
ICC............................................ 13
IEA............................................ 57
IES............................................ i
IES Board...................................... ii
IES Bylaws..................................... 4
IES Cancelled Shares........................... 88
IES Charter.................................... 4
IES Common Stock............................... i
IES Dissenting Shares.......................... i
IES Joint Ventures............................. 90
IES Meeting.................................... ii
IES Merger..................................... i
IES Options.................................... 99
IES Preferred Stock............................ 15
IES Ratio...................................... i
IES Record Date................................ 3
IES Stock Award................................ 96
IES Stock Option............................... 95
IES Subsidiaries............................... 90
Indemnified Parties............................ 94
Interested Contracts or Transactions........... 114
Interstate Energy.............................. i
Interstate Energy Board........................ 10
Interstate Energy Bylaws....................... 16
Interstate Energy Charter...................... 16
Interstate Energy Common Stock................. i
Iowa Southern Utilities........................ 151
IPC............................................ i
IPC Board...................................... ii
IPC Bonds...................................... 108
IPC Bylaws..................................... 4
IPC Cancelled Shares........................... 88
IPC Charter.................................... i
IPC Charter Amendment.......................... 3
IPC Common Stock............................... i
IPC Direct Merger.............................. i
IPC Dissenting Shares.......................... i
IPC DRSPP...................................... 31
IPC Executives................................. 71
IPC Joint Ventures............................. 90
IPC Meeting.................................... ii
IPC Merger..................................... i
</TABLE>
ix
<PAGE>
[ALTERNATE PAGE FOR
IES PROXY STATEMENT]
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
IPC Options.................................... 99
IPC Preference Stock........................... 107
IPC Preferred Stock............................ i
IPC Ratio...................................... i
IPC Record Date................................ 3
IPC Reincorporation Effective Time............. 5
IPC Reincorporation Merger..................... i
IPC Severance Agreements....................... 71
IPC Subsidiaries............................... 90
IUB............................................ 13
Joint Registration Statement................... iii
Liu Agreement.................................. 152
LTM............................................ 57
Market/Offer Price............................. 100
Merger Agreement............................... i
Mergers........................................ i
Merrill LyGnch................................. 9
Merrill Lynch Opinion.......................... 53
McLeod......................................... 5
McLeod Contingency............................. 5
Minnesota Commission........................... 13
ML IES Comparables............................. 55
ML IPC Comparables............................. 55
ML WPLH Comparables............................ 55
Morgan Stanley................................. 9
Mr. Ahearn..................................... 11
Mr. Chase...................................... 9
Mr. Davis...................................... 9
Mr. Liu........................................ 9
Mr. Stoppelmoor................................ 9
MS IES Comparables............................. 61
MS WPLH Comparables............................ 61
Name Change Amendment.......................... 2
Net Income Multiple............................ 57
New IPC........................................ i
New IPC Charter................................ i
New IPC Common Stock........................... i
New IPC Preference Stock....................... 107
New IPC Preferred Stock........................ i
New Utilities.................................. i
New Utilities Common Stock..................... i
Notice Date.................................... 100
NRC............................................ 13
NYSE........................................... iii
Offer Price.................................... 100
Option......................................... 6
Option Grantor................................. 99
Option Holders................................. 99
Option Shares.................................. 99
Options........................................ 6
<CAPTION>
PAGE
---------
<S> <C>
Payor.......................................... 98
Payors......................................... 98
Period of Consulting........................... 152
Period of Employment........................... 152
PhSE........................................... iii
PP&E........................................... 66
Projected Period............................... 56
PSE............................................ iii
Ratios......................................... i
Representatives................................ 93
Repurchase Period.............................. 100
Restricted Shares.............................. 101
Right.......................................... 106
Rights Agreement............................... i
Salomon Brothers............................... 9
Salomon Brothers Report........................ 66
SB IES Comparable Group........................ 67
SB IPC Comparable Group........................ 66
SB WPLH Comparable Group....................... 66
SEC............................................ iii
Section 262.................................... 80
Securities Act................................. iii
SERP........................................... 71
Stock Option Agreements........................ 6
Stock Price.................................... 66
Subsidiaries................................... 90
Target Party................................... 97
Trigger Payment................................ 101
Utilities...................................... i
Utilities Common Stock......................... i
Utilities Preferred Stock...................... i
Utilities Reincorporation Merger............... i
WBCL........................................... 4
Wisconsin Commission........................... 13
Wisconsin Holding Company Act.................. 14
WP&L........................................... i
WP&L Preferred Stock........................... 15
WP&L Savings Plan.............................. 27
WPLH........................................... i
WPLH Board..................................... ii
WPLH Bylaws.................................... 4
WPLH Charter................................... ii
WPLH Charter Amendments........................ 2
WPLH Common Stock.............................. i
WPLH DRIP...................................... 27
WPLH Joint Ventures............................ 90
WPLH Meeting................................... ii
WPLH Options................................... 99
WPLH Record Date............................... 3
WPLH Subsidiaries.............................. 90
</TABLE>
x
<PAGE>
[ALTERNATE PAGE FOR
IPC PROXY STATEMENT]
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
1935 Act....................................... i
1992 Act....................................... 31
1995 EPS Ratio................................. 55
1996 EPS Ratio................................. 55
Acquisition.................................... i
Antitrust Division............................. 86
Atomic Energy Act.............................. 13
Book Value Multiple............................ 57
BSE............................................ iii
Business Combination........................... 96
Certificates................................... 6
CEOs........................................... 141
Class I........................................ 93
Class II....................................... 93
Class III...................................... 93
Closing........................................ 87
Closing Date................................... 87
Code........................................... 12
Common Equity Ratio............................ 55
Common Stock Amendment......................... 2
Comparable Merger Transactions................. 57
Confidentiality Agreement...................... 97
Consulting Group............................... 36
CRANDIC........................................ 57
CSE............................................ iii
DCF............................................ 56
Delaware Business Combination Statute.......... 119
Delaware Chancery Court........................ 15
DGCL........................................... 4
Diversified.................................... 1
Dividend Ratio................................. 55
Division....................................... 85
DRSPP Shares................................... 31
EBIT........................................... 56
EBIT Multiple.................................. 57
EBITDA......................................... 57
EBITDA Multiple................................ 57
Effective Time................................. 5
EHC............................................ 56
Electric Utility MOE Transactions.............. 62
Employment Agreements.......................... 10
EPS............................................ 55
ERISA.......................................... 91
EWGs........................................... 31
Exchange Act................................... iii
Exchange Agent................................. 89
FERC........................................... 13
FERC Application............................... 86
FTC............................................ 86
<CAPTION>
PAGE
---------
<S> <C>
HDC............................................ 1
Historical Period.............................. 56
HPI............................................ 56
HSR Act........................................ 13
IBCA........................................... 4
ICC............................................ 13
IEA............................................ 57
IES............................................ i
IES Board...................................... ii
IES Bylaws..................................... 4
IES Cancelled Shares........................... 88
IES Charter.................................... 4
IES Common Stock............................... i
IES Dissenting Shares.......................... i
IES Joint Ventures............................. 90
IES Meeting.................................... ii
IES Merger..................................... i
IES Options.................................... 99
IES Preferred Stock............................ 15
IES Ratio...................................... i
IES Record Date................................ 3
IES Stock Award................................ 96
IES Stock Option............................... 95
IES Subsidiaries............................... 90
Indemnified Parties............................ 94
Interested Contracts or Transactions........... 114
Interstate Energy.............................. i
Interstate Energy Board........................ 10
Interstate Energy Bylaws....................... 16
Interstate Energy Charter...................... 16
Interstate Energy Common Stock................. i
IPC............................................ i
IPC Board...................................... ii
IPC Bonds...................................... 108
IPC Bylaws..................................... 4
IPC Cancelled Shares........................... 88
IPC Charter.................................... i
IPC Charter Amendment.......................... 3
IPC Common Stock............................... i
IPC Direct Merger.............................. i
IPC Dissenting Shares.......................... i
IPC DRSPP...................................... 31
IPC Executives................................. 71
IPC Joint Ventures............................. 90
IPC Meeting.................................... ii
IPC Merger..................................... i
IPC Options.................................... 99
IPC Preference Stock........................... 107
IPC Preferred Stock............................ i
</TABLE>
ix
<PAGE>
[ALTERNATE PAGE FOR
IPC PROXY STATEMENT]
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
IPC Ratio...................................... i
IPC Record Date................................ 3
IPC Reincorporation Effective Time............. 5
IPC Reincorporation Merger..................... i
IPC Severance Agreements....................... 71
IPC Subsidiaries............................... 90
IUB............................................ 13
Joint Registration Statement................... iii
LTM............................................ 57
Market/Offer Price............................. 100
Merger Agreement............................... i
Mergers........................................ i
Merrill Lynch.................................. 9
Merrill Lynch Opinion.......................... 53
McLeod......................................... 5
McLeod Contingency............................. 5
Minnesota Commission........................... 13
ML IES Comparables............................. 55
ML IPC Comparables............................. 55
ML WPLH Comparables............................ 55
Morgan Stanley................................. 9
Mr. Ahearn..................................... 11
Mr. Chase...................................... 9
Mr. Davis...................................... 9
Mr. Liu........................................ 9
Mr. Stoppelmoor................................ 9
MS IES Comparables............................. 61
MS WPLH Comparables............................ 61
Name Change Amendment.......................... 2
Net Income Multiple............................ 57
New IPC........................................ i
New IPC Charter................................ i
New IPC Common Stock........................... i
New IPC Preference Stock....................... 107
New IPC Preferred Stock........................ i
New Utilities.................................. i
New Utilities Common Stock..................... i
Notice Date.................................... 100
NRC............................................ 13
NYSE........................................... iii
Offer Price.................................... 100
Option......................................... 6
Option Grantor................................. 99
Option Holders................................. 99
Option Shares.................................. 99
Options........................................ 6
Payor.......................................... 98
Payors......................................... 98
<CAPTION>
PAGE
---------
<S> <C>
PhSE........................................... iii
PP&E........................................... 66
Projected Period............................... 56
PSE............................................ iii
Ratios......................................... i
Representatives................................ 93
Repurchase Period.............................. 100
Restricted Shares.............................. 101
Right.......................................... 106
Rights Agreement............................... i
Salomon Brothers............................... 9
Salomon Brothers Report........................ 66
SB IES Comparable Group........................ 67
SB IPC Comparable Group........................ 66
SB WPLH Comparable Group....................... 66
SEC............................................ iii
Section 262.................................... 80
Securities Act................................. iii
SERP........................................... 71
SRP............................................ 144
Stock Option Agreements........................ 6
Stock Price.................................... 66
Subsidiaries................................... 90
Target Party................................... 97
Trigger Payment................................ 101
Utilities...................................... i
Utilities Common Stock......................... i
Utilities Preferred Stock...................... i
Utilities Reincorporation Merger............... i
WBCL........................................... 4
Wisconsin Commission........................... 13
Wisconsin Holding Company Act.................. 14
WP&L........................................... i
WP&L Preferred Stock........................... 15
WP&L Savings Plan.............................. 27
WPLH........................................... i
WPLH Board..................................... ii
WPLH Bylaws.................................... 4
WPLH Charter................................... ii
WPLH Charter Amendments........................ 2
WPLH Common Stock.............................. i
WPLH DRIP...................................... 27
WPLH Joint Ventures............................ 90
WPLH Meeting................................... ii
WPLH Options................................... 99
WPLH Record Date............................... 3
WPLH Subsidiaries.............................. 90
</TABLE>
x
<PAGE>
SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN IMPORTANT TERMS AND CONDITIONS
OF THE MERGERS AND RELATED INFORMATION. AS USED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, THE TERMS "WPLH," "IES" AND "IPC" REFER TO SUCH
CORPORATIONS, RESPECTIVELY, AND, EXCEPT WHERE THE CONTEXT OTHERWISE REQUIRES,
SUCH ENTITIES AND THEIR RESPECTIVE SUBSIDIARIES. THIS SUMMARY DOES NOT PURPORT
TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, THE ANNEXES HERETO AND THE DOCUMENTS INCORPORATED HEREIN
BY REFERENCE. SHAREOWNERS ARE URGED TO REVIEW CAREFULLY THE ENTIRE JOINT PROXY
STATEMENT/PROSPECTUS.
THE PARTIES
INTERSTATE ENERGY. The WPLH Charter will be amended immediately prior to or
upon consummation of the Mergers to, among other things, change the name of WPLH
to "Interstate Energy Corporation." Interstate Energy will be the holding
company for IPC or New IPC, as the case may be, and the operating subsidiaries
of WPLH and IES following the Mergers. Interstate Energy will be a public
utility holding company registered under the 1935 Act. See "Regulatory Matters"
and "Interstate Energy Following the Mergers." The principal executive office of
Interstate Energy will be located at 222 West Washington Avenue, Madison,
Wisconsin 53703, telephone number (608) 252-3311.
WPLH. WPLH, incorporated under the laws of the State of Wisconsin in 1981,
is the holding company for WP&L and its utility-related subsidiary and for
Heartland Development Corporation ("HDC"), the parent corporation for WPLH's
non-utility businesses. WP&L is a public utility engaged principally in
generating, purchasing, distributing and selling electric energy in portions of
southern and central Wisconsin. WP&L also purchases, distributes, transports and
sells natural gas in parts of such areas and supplies water in two communities.
A wholly-owned subsidiary of WP&L supplies electric, gas and water service
principally in Winnebago County, Illinois. HDC and its principal subsidiaries
are engaged in business development in three major areas: environmental
engineering and consulting; affordable housing; and energy services. The
principal executive office of WPLH and WP&L is, and the principal executive
office of WP&L after the Effective Time (as hereinafter defined) will be,
located at 222 West Washington Avenue, Madison, Wisconsin 53703, telephone
number (608) 252-3311. See "Selected Information Concerning WPLH, IES and IPC --
Business of WPLH" and "Interstate Energy Following the Mergers -- Operations."
IES. IES, incorporated under the laws of the State of Iowa in 1986, is a
holding company for Utilities and for IES Diversified Inc. ("Diversified"), the
parent corporation for most of IES's non-utility businesses. Utilities is a
public utility engaged principally in generating, purchasing, distributing and
selling electric energy in portions of the State of Iowa. Utilities also
purchases, distributes, transports and sells natural gas in its service
territory. The shares of Utilities Preferred Stock are currently registered
under Section 12(g) of the Exchange Act and, as such, Utilities is required to
make periodic and other filings with the SEC. In the event that the Mergers can
be effected without consummating the Utilities Reincorporation Merger, it is
expected that the Utilities Preferred Stock would remain outstanding and
unchanged as a result of the Mergers and that Utilities, as a subsidiary of
Interstate Energy, would remain a reporting company under the Exchange Act. In
the event that the consummation of the Utilities Reincorporation Merger is
necessary for regulatory reasons and the Utilities Preferred Stock is redeemed,
it is anticipated that New Utilities (as the successor to Utilities in the
Utilities Reincorporation Merger) would not be subject to the reporting
requirements of the Exchange Act and would not make filings on its own behalf
with the SEC. Diversified and its subsidiaries engage in various non-utility
operations, including oil and natural gas production and marketing, energy
services, railroad and other transportation services in the Midwest, and local
real estate development. The principal executive office of IES and Utilities is
located at IES Tower, 200 First Street S.E., Cedar Rapids, Iowa 52401, telephone
number (319) 398-4411. See "Selected Information Concerning WPLH, IES and IPC --
Business of IES" and "Interstate Energy Following the Mergers -- Operations."
1
<PAGE>
IPC. IPC, an operating public utility incorporated in 1925 under the laws
of the State of Delaware, is engaged in the generation, purchase, transmission,
distribution and sale of electric energy. IPC owns property in portions of
twenty-five counties in the northern and northeastern parts of Iowa, in portions
of twenty-two counties in the southern part of Minnesota, and in portions of
four counties in northwestern Illinois. IPC also engages in the distribution and
sale of natural gas in Albert Lea, Minnesota; Clinton, Mason City and Clear
Lake, Iowa; Fulton and Savanna, Illinois; and in a number of smaller Minnesota,
Iowa and Illinois communities, and in the transportation of natural gas within
Iowa, Minnesota and in interstate commerce. The principal executive office of
IPC is located at 1000 Main Street, Dubuque, Iowa 52001, telephone number (319)
582-5421. In the event the IPC Direct Merger is consummated, the principal
executive office of IPC after the Effective Time will continue to be located at
such address. See "Selected Information Concerning WPLH, IES and IPC -- Business
of IPC" and "Interstate Energy Following the Mergers -- Operations."
NEW IPC. New IPC is a Wisconsin corporation which was created to effect the
IPC Reincorporation Merger in the event such merger is required for regulatory
purposes. It has, and prior to the Mergers will have, no operations except as
contemplated by the Merger Agreement. The audited financial statements of New
IPC are attached as Annex S. IPC is the sole shareowner of New IPC. Pursuant to
the Merger Agreement, in the event that the IPC Reincorporation Merger is to be
effected, immediately prior to the consummation of the Mergers New IPC will
acquire certain utility assets from WP&L. The principal executive office of New
IPC is, and after the Effective Time will be, located at 1000 Main Street,
Dubuque, Iowa 52001, telephone number (319) 582-5421. See "The Merger Agreement
- -- The Mergers" and "Interstate Energy Following the Mergers -- Operations."
NEW UTILITIES. New Utilities will be a Wisconsin corporation which will be
created to effect the Utilities Reincorporation Merger in the event such merger
is required for regulatory purposes. Prior to the Mergers, it will have no
operations except as contemplated by the Merger Agreement. IES will be the sole
shareowner of New Utilities. Pursuant to the Merger Agreement, in the event that
the Utilities Reincorporation Merger is to be effected, immediately prior to the
consummation of the Mergers New Utilities will acquire certain utility assets
from WP&L. The principal executive office of New Utilities will be located at
IES Tower, 200 First Street S.E., Cedar Rapids, Iowa 52401, telephone number
(319) 398-4411. See "The Merger Agreement -- The Mergers" and "Interstate Energy
Following the Mergers -- Operations."
ACQUISITION. Acquisition is a Wisconsin corporation which was created to
effect the IPC Merger or the IPC Direct Merger, as the case may be. It has, and
prior to the Mergers will have, no operations except as contemplated by the
Merger Agreement. WPLH is the sole shareowner of Acquisition. The principal
executive office of Acquisition is located at 222 West Washington Avenue,
Madison, Wisconsin 53703, telephone number (608) 252-3311. See "The Merger
Agreement -- The Mergers."
THE MEETINGS
WPLH. At the WPLH Meeting, the holders of WPLH Common Stock will be asked
to consider and vote upon proposals (i) to approve the Merger Agreement and the
transactions contemplated thereby, including, among other things, the issuance
of shares of Interstate Energy Common Stock pursuant to the terms of the Merger
Agreement, (ii) to approve the amendments to the WPLH Charter to change the name
of WPLH to "Interstate Energy Corporation" (the "Name Change Amendment") and to
increase the number of shares of WPLH Common Stock authorized for issuance from
100,000,000 to 200,000,000 (the "Common Stock Amendment," and together with the
Name Change Amendment, the "WPLH Charter Amendments"), (iii) to elect a total of
three directors for terms expiring at the 1999 annual meeting of shareowners of
WPLH or until their successors are duly elected and qualified, and (iv) to
appoint Arthur Andersen LLP as independent auditors for WPLH for the year ending
December 31, 1996. Pursuant to the Merger Agreement, consummation of the Mergers
is conditioned upon approval of proposals (i) and (ii) above, but is not
conditioned upon approval by the shareowners of WPLH of any other proposal. See
"Meetings, Voting and Proxies -- The WPLH Meeting."
2
<PAGE>
The WPLH Meeting is scheduled to be held immediately following the annual
meeting of shareowners of WP&L which will be held at 10:00 a.m., Central Time,
on Thursday, September 5, 1996 at the Dane County Expo Center, 1881 Expo Mall,
Madison, Wisconsin. The WPLH Board has fixed the close of business on July 10,
1996 as the record date (the "WPLH Record Date") for the determination of
holders of WPLH Common Stock entitled to notice of and to vote at the WPLH
Meeting.
The WPLH Board, by a unanimous vote of the directors then present, has
approved the Merger Agreement and the transactions contemplated thereby, and
each of the WPLH Charter Amendments, and recommends that WPLH shareowners vote
FOR approval of the Merger Agreement (including the issuance of shares of
Interstate Energy Common Stock pursuant to the terms of the Merger Agreements)
and FOR approval of each of the WPLH Charter Amendments. In addition, the WPLH
Board unanimously recommends that WPLH shareowners vote FOR the election of the
nominated WPLH directors and FOR the appointment of Arthur Andersen LLP as
WPLH's independent auditors.
IES. At the IES Meeting, the holders of IES Common Stock will be asked to
consider and vote upon proposals (i) to approve the Merger Agreement and the
transactions contemplated thereby, and (ii) to elect nine directors to serve
until the next annual meeting or until their successors are duly elected and
qualified. Pursuant to the Merger Agreement, consummation of the Mergers is
conditioned upon approval of proposal (i) above, but is not conditioned upon
approval by the shareholders of IES of any other proposal. See "Meetings, Voting
and Proxies -- The IES Meeting."
The IES Meeting is scheduled to be held at 10:00 a.m., Central Time, on
Thursday, September 5, 1996 at the Collins Plaza Hotel, 1200 Collins Road N.E.,
Cedar Rapids, Iowa. The IES Board has fixed the close of business on July 10,
1996 as the record date (the "IES Record Date") for the determination of holders
of IES Common Stock entitled to notice of and to vote at the IES Meeting.
The IES Board, by a unanimous vote of the directors then present, has
approved the Merger Agreement and the transactions contemplated thereby, and
recommends that IES shareholders vote FOR approval of the Merger Agreement. In
addition, the IES Board unanimously recommends that IES shareholders vote FOR
the election of the nominated IES directors.
IPC. At the IPC Meeting, the holders of IPC Common Stock will be asked to
consider and vote upon proposals (i) to approve the Merger Agreement and the
transactions contemplated thereby, (ii) to approve an amendment to the IPC
Charter to provide that each share of IPC Preferred Stock outstanding from time
to time will have one vote, voting together as one class with the holders of IPC
Common Stock (except as otherwise required by applicable law or as specifically
set forth in the IPC Charter), on all matters to come before a vote of the
stockholders of IPC (the "IPC Charter Amendment"), and (iii) to elect two Class
II directors to hold office for a term of three years expiring at the 1999
annual meeting of stockholders of IPC or until their respective successors shall
have been duly elected and qualified. Holders of IPC Preferred Stock are not
entitled to vote on the proposed amendment to the IPC Charter. Pursuant to the
Merger Agreement, consummation of the Mergers is conditioned upon approval of
proposals (i) and (ii) above, but is not conditioned upon approval by the
stockholders of IPC of any other proposal. See "Meetings, Voting and Proxies --
The IPC Meeting."
The IPC Meeting is scheduled to be held at 10:00 a.m., Central Time, on
Thursday, September 5, 1996 at the Holiday Inn Dubuque Five Flags, 450 Main
Street, Dubuque, Iowa. The IPC Board has fixed the close of business on July 10,
1996 as the record date (the "IPC Record Date") for the determination of holders
of IPC Common Stock entitled to notice of and to vote at the IPC Meeting.
The IPC Board, by a unanimous vote, has approved the Merger Agreement and
has determined that the IPC Charter Amendment is advisable, and accordingly
recommends that IPC stockholders vote FOR approval of the Merger Agreement and
FOR approval of the IPC Charter Amendment. In addition, the IPC Board
unanimously recommends that IPC stockholders vote FOR the election of the
nominated IPC directors.
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REQUIRED VOTE
WPLH. As provided under the Wisconsin Business Corporation Law (the
"WBCL"), the WPLH Charter and the bylaws of WPLH (the "WPLH Bylaws"), as
applicable: (i) the affirmative vote of a majority of the votes entitled to be
cast by the holders of the outstanding shares of WPLH Common Stock entitled to
vote thereon is required for approval of the Merger Agreement (including the
issuance of shares of Interstate Energy Common Stock pursuant to the terms of
the Merger Agreement), (ii) the affirmative vote of a majority of the votes
entitled to be cast by the holders of the shares of WPLH Common Stock
represented in person or by proxy at the WPLH Meeting and entitled to vote
thereon is required for approval of each of the WPLH Charter Amendments, (iii) a
plurality of the votes cast at the WPLH Meeting is required for the election of
directors and (iv) the affirmative vote of a majority of the votes entitled to
be cast by the holders of the shares of WPLH Common Stock represented in person
or by proxy at the WPLH Meeting and entitled to vote thereon is required to
appoint Arthur Andersen LLP as WPLH's independent auditors. On the WPLH Record
Date, there were 30,795,260 shares of WPLH Common Stock outstanding and entitled
to vote. As of the WPLH Record Date, directors and executive officers of WPLH,
together with their affiliates as a group, owned less than 1% of the issued and
outstanding shares of WPLH Common Stock. See "Meetings, Voting and Proxies --
The WPLH Meeting."
IES. As provided under the Iowa Business Corporation Act (the "IBCA"), the
Restated Articles of Incorporation of IES (the "IES Charter") and the bylaws of
IES (the "IES Bylaws"), as applicable: (i) the affirmative vote of a majority of
the votes entitled to be cast by the holders of shares of IES Common Stock
entitled to vote thereon is required for approval of the Merger Agreement and
(ii) the affirmative vote of a majority of the votes entitled to be cast by the
holders of the shares of IES Common Stock represented in person or by proxy at
the IES Meeting and entitled to vote thereon is required for the election of
directors. On the IES Record Date, there were 29,923,233 shares of IES Common
Stock outstanding and entitled to vote. As of the IES Record Date, directors and
executive officers of IES, together with their affiliates as a group, owned less
than 1% of the issued and outstanding shares of IES Common Stock. See "Meetings,
Voting and Proxies -- The IES Meeting."
IPC. As provided under the Delaware General Corporation Law (the "DGCL"),
the IPC Charter and the bylaws of IPC (the "IPC Bylaws"), as applicable: (i) the
affirmative vote of a majority of the votes entitled to be cast by the holders
of shares of IPC Common Stock is required for approval of the Merger Agreement
and the approval of the IPC Charter Amendment and (ii) a plurality of the votes
cast at the IPC Meeting is required for the election of directors. On the IPC
Record Date, there were 9,595,028 shares of IPC Common Stock outstanding and
entitled to vote. As of the IPC Record Date, directors and executive officers of
IPC, together with their affiliates as a group, owned less than 1% of the issued
and outstanding shares of IPC Common Stock. See "Meetings, Voting and Proxies --
The IPC Meeting."
THE MERGERS
Subject to an alternative structure described below, the Merger Agreement
provides for (a) the IES Merger in which IES will be merged with and into WPLH
with WPLH to be the surviving corporation and (b) the IPC Direct Merger in which
Acquisition will be merged with and into IPC with IPC to be the surviving
corporation. However, in the event that the parties determine that the IPC
Reincorporation Merger and the Utilities Reincorporation Merger are required for
regulatory purposes, the Merger Agreement provides that those mergers will be
consummated, followed by the IPC Merger and the IES Merger. Pursuant to the
Merger Agreement (i) each outstanding share of IES Common Stock (other than
shares owned directly or indirectly by WPLH, IES or IPC and IES Dissenting
Shares) will be converted into the right to receive 1.01 shares of Interstate
Energy Common Stock; (ii) each outstanding share of IPC Common Stock (other than
shares owned directly or indirectly by WPLH, IES, or IPC) will be converted into
the right to receive 1.11 shares of Interstate Energy Common Stock; (iii) each
outstanding share of IPC Preferred Stock (other than shares owned directly or
indirectly by WPLH, IES or IPC and other than IPC Dissenting Shares) will remain
outstanding and unchanged (including with respect to the additional voting
rights proposed to be
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approved at the IPC Meeting) or, in the event that the IPC Reincorporation
Merger is to be effected, will be converted into one share of New IPC Preferred
Stock with terms (including dividend rights) and designations under the New IPC
Charter substantially identical to those of the converted shares of IPC
Preferred Stock under the IPC Charter, including the additional voting rights
proposed to be approved at the IPC Meeting; (iv) each outstanding share of WPLH
Common Stock will remain outstanding and unchanged as one share of Interstate
Energy Common Stock; and (v) if the Utilities Reincorporation Merger is
effected, each outstanding share of Utilities Common Stock will be converted
into one share of New Utilities Common Stock. If the Utilities Reincorporation
Merger is to be consummated, it is currently anticipated that shares of
Utilities Preferred Stock then outstanding will be redeemed by Utilities prior
to the consummation of such merger. The redemption of the Utilities Preferred
Stock would avoid the need to obtain a class vote of the holders of such stock
to approve the Utilities Reincorporation Merger. The Utilities Preferred Stock
is redeemable, in whole or in part, at the option of Utilities at any time or
from time to time on not less than 30 days' notice at $51.00 per share for the
4.30% Series and the 6.10% Series and at $50.25 per share for the 4.80% Series,
plus, in each case, dividends accrued and unpaid to and including the date of
redemption. See "The Mergers -- Redemption of Utilities Preferred Stock." As a
result of the Mergers, the common shareowners of WPLH, IES and IPC immediately
prior to the Mergers (except for holders of IES Dissenting Shares) will all be
common shareowners of Interstate Energy immediately following consummation of
the Mergers.
The Merger Agreement also contemplated an adjustment of the IES Ratio to
1.01 from the initial ratio of 0.98 in the event that, prior to the consummation
of the Mergers, McLeod, Inc., a Delaware corporation in which IES has a
significant ownership interest ("McLeod"), (a) completed a firm commitment
underwritten initial public offering of its Class A common stock at a per share
price of at least $13.00 (subject to adjustment) in which McLeod received gross
proceeds (exclusive of proceeds from shares purchased by existing McLeod
shareowners) of at least $75 million and (b) immediately following such public
offering the Class A common stock was registered under Section 12 of the
Exchange Act (the "McLeod Contingency"). On June 14, 1996, McLeod completed an
initial public offering of 13.8 million shares of its Class A common stock at a
price to the public of $20 per share. The McLeod offering satisfied the
conditions of the McLeod Contingency and, as a result, the IES Ratio was
automatically adjusted to 1.01. See "The Mergers -- Background of the Mergers."
Pursuant to the Merger Agreement, (a) the IES Merger will become effective
at the time specified in the articles of merger filed by WPLH with the
Secretaries of State of the States of Wisconsin and Iowa and (b) the IPC Direct
Merger will become effective at the time specified in the certificate of merger
and articles of merger filed by IPC with the Secretaries of State of the States
of Delaware and Wisconsin. If only the IES Merger and the IPC Direct Merger are
to be consummated, the term "Effective Time" as used herein will mean the time
that the IES Merger and the IPC Direct Merger become effective. It is
anticipated that in that case both the IES Merger and the IPC Direct Merger will
be consummated simultaneously. If the IPC Reincorporation Merger and the
Utilities Reincorporation Merger are deemed by the parties to be required for
regulatory purposes, the IPC Reincorporation Merger will become effective at the
time specified in the certificate of merger and articles of merger filed by New
IPC with the Secretaries of State of the States of Delaware and Wisconsin (the
"IPC Reincorporation Effective Time"). If the IPC Reincorporation Merger is
effected, (a) the IES Merger will then become effective at the time specified in
the articles of merger filed by IES with the Secretaries of State of the States
of Wisconsin and Iowa; (b) the IPC Merger will become effective at the time
specified in the articles of merger filed by New IPC with the Secretary of State
of the State of Wisconsin; and (c) the Utilities Reincorporation Merger will
become effective at the time specified in the articles of merger filed by New
Utilities with the Secretaries of State of the States of Wisconsin and Iowa. If
the IPC Reincorporation Merger is effected, the term "Effective Time" as used
herein will mean the time that the IES Merger, the IPC Merger and the Utilities
Reincorporation Merger become effective, which will be subsequent to the IPC
Reincorporation Effective Time.
See "The Merger Agreement -- The Mergers."
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EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Effective Time, the exchange agent will
mail transmittal instructions to each holder of record of shares of IES and IPC
Common Stock at the Effective Time, advising such holder of the procedure for
surrendering such holder's certificates (the "Certificates") which immediately
prior to the IPC Reincorporation Effective Time or the Effective Time, as the
case may be, represented shares of IES Common Stock or IPC Common Stock that
were cancelled and became instead the right to receive shares of Interstate
Energy Common Stock. Holders of Certificates, which prior to the Reincorporation
Effective Time or the Effective Time, as the case may be, represented shares of
IES Common Stock or IPC Common Stock, will not be entitled to receive any
payment of dividends or other distributions on or payment for any fractional
share with respect to their IES or IPC Certificates until such Certificates have
been surrendered for certificates representing shares of Interstate Energy
Common Stock. Cash will be paid to IES and IPC shareowners in lieu of fractional
shares of Interstate Energy Common Stock. Holders of shares of IES Common Stock
and IPC Common Stock should not submit their stock certificates for exchange
until a form of letter of transmittal and instructions therefor are received.
See "The Merger Agreement -- The Mergers."
Holders of IPC Preferred Stock do not need to exchange their existing
certificates representing shares of IPC Preferred Stock for new stock
certificates. Shares of IPC Preferred Stock (other than IPC Dissenting Shares)
will remain unchanged (including with respect to the additional voting rights
proposed to be approved at the IPC Meeting) and outstanding following the IPC
Direct Merger. In the event the IPC Reincorporation Merger is consummated, each
outstanding certificate representing shares of IPC Preferred Stock (other than
IPC Dissenting Shares) immediately prior to the IPC Reincorporation Effective
Time will, from and after the IPC Reincorporation Effective Time, represent the
same number of shares of the corresponding series of New IPC Preferred Stock
with terms (including dividend rates) and designations under the New IPC Charter
substantially identical to those of the converted shares of IPC Preferred Stock
under the IPC Charter, including the additional voting rights proposed to be
approved at the IPC Meeting. After the Effective Time, if the IPC
Reincorporation Merger is effected, new certificates reflecting the fact that
New IPC is a Wisconsin corporation will be issued as outstanding stock
certificates formerly representing shares of IPC Preferred Stock are presented
for transfer.
Shareowners of WPLH do not need to exchange their existing stock
certificates for new stock certificates reflecting WPLH's name change to
Interstate Energy. However, any WPLH shareowners desiring new stock certificates
may, after the Effective Time, submit their existing stock certificates
representing shares of WPLH Common Stock to the transfer agent of Interstate
Energy to obtain new certificates. Each outstanding certificate representing
shares of WPLH Common Stock immediately prior to the Effective Time will, from
and after the Effective Time, represent the same number of shares of Interstate
Energy Common Stock. After the Effective Time, new certificates bearing the name
of Interstate Energy will be issued as outstanding stock certificates formerly
representing shares of WPLH Common Stock are presented for transfer.
STOCK OPTION AGREEMENTS
In connection with the execution and delivery of the Merger Agreement, WPLH,
IES and IPC entered into reciprocal option grantor/option holder stock option
and trigger payment agreements (the "Stock Option Agreements") each granting the
other two parties an irrevocable option (individually an "Option" and
collectively the "Options") to purchase, under certain circumstances, a certain
percentage of authorized but unissued shares of the respective issuer's common
stock (representing up to an aggregate of 19.9% of the outstanding common stock
of such issuer on November 10, 1995), at an exercise price of $30.675 per share
in the case of WPLH Common Stock, $26.7125 per share in the case of IES Common
Stock and $28.9375 per share in the case of IPC Common Stock. The exercise of
the Options and the effectiveness of certain provisions of the Stock Option
Agreements are subject to certain conditions described in the Stock Option
Agreements and in the Merger Agreement. See "The Stock Options Agreements --
General" and "The Merger Agreement -- Termination Fees." In addition, the Stock
Option Agreements provide that the holder of an option has the right to require
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the issuer thereof to repurchase from the holder of the Option (i) all or any
portion of the Option at any time the Option is exercisable at a price equal to
the amount of the difference between the Market/ Offer Price (as hereinafter
defined) and the exercise price of the Option; and (ii) on or at any time prior
to May 10, 1997 (which date may be extended to May 10, 1998 under certain
circumstances) all or any portion of any shares purchased pursuant to the
Option. In addition, the Stock Option Agreements provide that in the event an
Option becomes exercisable but regulatory approvals relating to issuance,
acquisition or exercise of the Option, if any, have not been obtained, the
holder of the Option has the right to demand from the issuer thereof an amount
in cash equal to the product of (a) the number of shares the holder would have
received upon exercise of the Option and (b) the difference between the
Market/Offer Price and the exercise price of the Option. See "The Stock Option
Agreements -- Certain Repurchases and Other Payments." The Stock Option
Agreements are intended to increase the likelihood that the Mergers will be
consummated in accordance with the terms of the Merger Agreement and may have
the effect of discouraging competing offers. See "The Stock Options Agreements."
The Options will generally become exercisable at any time after the Merger
Agreement becomes terminable by the holder of an Option under circumstances
which could entitle such holder to termination fees from the issuer of the
Option, including if there is a material, willful breach of the Merger Agreement
at any time which a third party has proposed to consummate a business
combination with the issuer of the Option or if, under certain circumstances, a
business combination with a third party is consummated within two and one-half
years of the termination of the Merger Agreement. See "The Stock Option
Agreements."
Further, the Stock Option Agreements contemplate the continuation of certain
standstill provisions and provide that any shares of any other party acquired or
otherwise beneficially owned must be voted for and against each matter submitted
to a shareowner vote in the same proportion as the other shareowners of the
issuer thereof vote for and against such matter. See "The Merger Agreement --
Standstill Provisions" and "The Stock Option Agreements -- Voting."
TREATMENT OF SHARES; RATIOS
Each share of IES Common Stock issued and outstanding immediately prior to
the Effective Time (other than IES Dissenting Shares) will, pursuant to the
Merger Agreement, be cancelled and converted into the right to receive 1.01
shares of Interstate Energy Common Stock. In the IPC Direct Merger, each share
of IPC Common Stock issued and outstanding immediately prior to the Effective
Time will, pursuant to the Merger Agreement, be cancelled and converted into the
right to receive 1.11 shares of Interstate Energy Common Stock. In the event
that the IPC Reincorporation Merger is effected, each share of IPC Common Stock
issued and outstanding immediately prior to the IPC Reincorporation Effective
Time will, pursuant to the Merger Agreement, be cancelled and converted into one
share of New IPC Common Stock which, in turn, will immediately be cancelled and
converted into the right to receive 1.11 shares of Interstate Energy Common
Stock in connection with the IPC Merger. Each share of WPLH Common Stock
outstanding immediately prior to the Effective Time will, upon consummation of
the Mergers, remain outstanding and unchanged as one share of Interstate Energy
Common Stock. Holders of IES Common Stock and IPC Common Stock will receive cash
in lieu of fractional shares of Interstate Energy Common Stock. In the IPC
Direct Merger, each share of IPC Preferred Stock outstanding immediately prior
to the Effective Time (other than the IPC Dissenting Shares) will after the
Effective Time remain unchanged (including with respect to the additional voting
rights proposed to be approved at the IPC Meeting) and outstanding as a share of
IPC Preferred Stock. In the event the IPC Reincorporation Merger is effected,
each share of IPC Preferred Stock outstanding immediately prior to the IPC
Reincorporation Effective Time (other than IPC Dissenting Shares) will, upon
consummation of the Mergers, be cancelled and converted into one share of New
IPC Preferred Stock with terms (including dividend rates) and designations under
the New IPC Charter substantially identical to those of the IPC Preferred Stock
under the IPC Charter, including the additional voting rights proposed to be
approved at the IPC Meeting. In the event the
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Utilities Reincorporation Merger is effected, each share of Utilities Common
Stock issued and outstanding immediately prior to the Effective Time will, upon
consummation of the Mergers, be cancelled and converted into one share of New
Utilities Common Stock. See "The Merger Agreement -- The Mergers."
BACKGROUND
For a description of the background of the Mergers, see "The Mergers --
Background of the Mergers."
REASONS FOR THE MERGERS
WPLH, IES and IPC believe that the Mergers offer significant strategic and
financial benefits to each company and to their respective shareowners, as well
as to their employees and customers. These benefits include, among others:
- Maintenance of competitive rates that will improve the combined entity's
ability to meet the challenges of the increasingly competitive environment
in the utility industry.
- Reduced operating costs and expenditures resulting from integration of
corporate and administrative functions, including the elimination of
duplicative positions, limiting duplicative capital expenditures for
administrative and customer service programs and information systems, and
savings in areas such as legal, audit and consulting fees.
- Reduced electric production costs through the joint dispatch of systems
and natural gas supply savings through combined purchasing.
- Greater purchasing power for items such as fuel and transportation
services, general and operational goods and services and the reduction of
inventories.
- More efficient pursuit of diversification into non-utility areas.
- Increased customer diversity and geographic diversity of service
territories, reducing exposure to local changes in economic, competitive
or climatic conditions.
- Expanded management resources and ability to select leadership from a
larger and more diverse management pool.
See "The Mergers -- Reasons for the Mergers; Recommendations of the Boards
of Directors."
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
WPLH. The WPLH Board, by a unanimous vote of the directors present, has
approved the Merger Agreement and the transactions contemplated thereby,
believes that the terms of the Mergers are fair to, and in the best interests
of, WPLH's shareowners, has approved each of the WPLH Charter Amendments,
supports the election of the nominated WPLH directors and supports the
appointment of Arthur Andersen LLP as WPLH's independent auditors for the year
ending December 31, 1996. The WPLH Board recommends that the shareowners of WPLH
vote (i) FOR approval of the Merger Agreement (including the issuance of shares
of Interstate Energy Common Stock pursuant to the terms of the Merger
Agreement), (ii) FOR approval of each of the WPLH Charter Amendments, (iii) FOR
the election of the nominated WPLH directors and (iv) FOR the ratification of
the appointment of the independent auditors. The WPLH Board approved the Merger
Agreement after consideration of a number of factors described under the heading
"The Mergers -- Reasons for the Mergers; Recommendations of the Boards of
Directors." WPLH directors Katharine C. Lyall and Arnold M. Nemirow were not
present at the WPLH Board meeting at which the Merger Agreement was initially
approved and WPLH director Milton E. Neshek was not present at the WPLH Board
meeting at which the amendment to the Merger Agreement was approved.
IES. The IES Board, by a unanimous vote of the directors present, has
approved the Merger Agreement and the transactions contemplated thereby,
believes that the terms of the Mergers are fair to, and in the best interests
of, IES's shareholders, and supports the election of the nominated IES
directors. The IES Board recommends that the shareholders of IES vote (i) FOR
approval of the Merger Agreement and the transactions contemplated thereby, and
(ii) FOR the election of the
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nominated IES directors. The IES Board approved the Merger Agreement after
consideration of a number of factors described under the heading "The Mergers --
Reasons for the Mergers; Recommendations of the Boards of Directors." IES
shareholders are urged to consider those factors before making any decision with
respect to their proxies. IES director Dr. George Daly was not present at the
IES Board meeting at which the Merger Agreement was initially approved. Dr. Daly
resigned as an IES director prior to the time the IES Board approved the
amendment to the Merger Agreement.
IPC. The IPC Board, by unanimous vote, has approved the Merger Agreement
and the transactions contemplated thereby, believes that the terms of the
Mergers are fair to, and in the best interests of, IPC stockholders, has adopted
a resolution setting forth the IPC Charter Amendment and declaring its
advisability, and supports the election of the nominated IPC directors. The IPC
Board recommends that the IPC stockholders vote (i) FOR approval of the Merger
Agreement and the transactions contemplated thereby, (ii) FOR approval of the
IPC Charter Amendment, and (iii) FOR the election of the nominated IPC
directors. The IPC Board approved the Merger Agreement after consideration of a
number of factors described under the heading "The Mergers -- Reasons for the
Mergers; Recommendations of the Boards of Directors."
OPINIONS OF FINANCIAL ADVISORS
WPLH. Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch")
delivered to the WPLH Board its written opinion dated November 10, 1995, which
was confirmed in a written opinion dated the date of this Joint Proxy
Statement/Prospectus, to the effect that, as of such dates, and based upon the
assumptions made, matters considered and limits of review as set forth in such
opinions, the Ratios are fair, from a financial point of view, to WPLH. The
written opinion of Merrill Lynch dated the date of this Joint Proxy
Statement/Prospectus is attached hereto as Annex L and is incorporated herein by
reference. HOLDERS OF SHARES OF WPLH COMMON STOCK ARE URGED TO, AND SHOULD, READ
SUCH OPINION IN ITS ENTIRETY. For a description of the assumptions made and
matters considered by Merrill Lynch in reaching its opinions and the fees
received and to be received by Merrill Lynch, see "The Mergers -- Opinions of
Financial Advisors" and Annex L.
IES. Morgan Stanley & Co. Incorporated ("Morgan Stanley") delivered its
oral opinion on November 10, 1995 to the IES Board which was confirmed in a
written opinion dated as of the date of this Joint Proxy Statement/Prospectus to
the IES Board to the effect that, as of the respective dates of such opinions,
and based upon the procedures and subject to assumptions described therein, the
IES Ratio, taking into account the IPC Ratio, is fair from a financial point of
view to the holders of IES Common Stock. The written opinion of Morgan Stanley
dated as of the date of this Joint Proxy Statement/Prospectus is attached hereto
as Annex M. HOLDERS OF SHARES OF IES COMMON STOCK ARE URGED TO, AND SHOULD, READ
SUCH OPINION IN ITS ENTIRETY. For a description of the assumptions made and
matters considered by Morgan Stanley in reaching its opinions and the fees
received and to be received by Morgan Stanley, see "The Mergers -- Opinions of
Financial Advisors" and Annex M.
IPC. Salomon Brothers Inc ("Salomon Brothers") delivered to the IPC Board
its written opinions dated November 10, 1995 and the date of this Joint Proxy
Statement/Prospectus to the effect that, based upon and subject to various
considerations set forth in such opinions, as of the respective dates of such
opinions, the IPC Ratio is fair to the holders of IPC Common Stock from a
financial point of view. The written opinion of Salomon Brothers dated the date
of this Joint Proxy Statement/ Prospectus is attached hereto as Annex N and is
incorporated herein by reference. HOLDERS OF SHARES OF IPC COMMON STOCK ARE
URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. For a description of
the assumptions made and matters considered by Salomon Brothers in reaching its
opinions and the fees received and to be received by Salomon Brothers, see "The
Mergers -- Opinions of Financial Advisors" and Annex N.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
EMPLOYMENT AGREEMENTS. Each of Lee Liu, Chairman of the Board, President &
Chief Executive Officer of IES ("Mr. Liu"), Erroll B. Davis, Jr., President and
Chief Executive Officer of WPLH ("Mr. Davis"), Wayne H. Stoppelmoor, Chairman of
the Board, President and Chief Executive Officer of IPC ("Mr. Stoppelmoor"), and
Michael R. Chase, Executive Vice President of IPC ("Mr. Chase"),
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will enter into employment agreements with Interstate Energy or its subsidiaries
to become effective upon consummation of the Mergers (the "Employment
Agreements"). Pursuant to the Employment Agreements, Mr. Liu will serve as
Chairman of Interstate Energy for a period of two years following the Effective
Time and thereafter will retire as an officer of Interstate Energy, although he
may continue to serve as a director. Mr. Davis will serve as President and Chief
Executive Officer of Interstate Energy for a period of two years following the
Effective Time and, for the three-year period thereafter and following Mr. Liu's
retirement, Mr. Davis will serve as Chairman, President and Chief Executive
Officer of Interstate Energy. Mr. Stoppelmoor will serve as Vice Chairman of
Interstate Energy for a period of two years following the Effective Time and
thereafter will retire as an officer of Interstate Energy, although he may
continue to serve as a director. Mr. Chase will serve as President of New IPC or
IPC, as the case may be, from and after the Effective Time until the last day of
the calendar month immediately following the calendar month in which he attains
age 62. See "The Mergers -- Interests of Certain Persons in the Mergers --
Employment Agreements."
SEVERANCE ARRANGEMENTS. Each of WPLH, IES and IPC maintain or have entered
into certain severance agreements under which certain benefits may become vested
and certain payments may become payable in connection with certain change in
control conditions which include the Mergers. WPLH has employment and severance
agreements with each of thirteen executives of WPLH and certain of its
subsidiaries which generally provide for certain benefits in the event the
executive is terminated following a change in control of WPLH (as defined). The
WPLH Board has authorized the amendment of each of the foregoing WPLH agreements
to provide specifically that the consummation of the Mergers will constitute a
change in control in certain circumstances for purposes of the agreements. IES
has severance agreements with twelve executives of IES and Utilities. Each of
the IES severance agreements provides severance payments and benefits if the
employment of the covered executive is terminated following a change in control.
The Mergers will constitute a change in control under the IES severance
agreements. IPC has change in control severance agreements with each of nine
senior executives of IPC which generally provide for certain benefits in the
event the executive is terminated or resigns under certain circumstances
following a change in control of IPC (as defined in the agreements). The Mergers
will constitute a change in control of IPC for purposes of such agreements.
Based on the compensation paid to the executives of WPLH, IES and IPC in 1995
and assuming the occurrence of a termination for which severance benefits would
be payable following a change of control, the maximum amounts payable under
these severance agreements to all of the executives of WPLH, IES or IPC, each as
a group, respectively, would be approximately $7,014,000, $6,263,000 and
$2,800,000, respectively. See "The Mergers -- Interests of Certain Persons in
the Mergers -- Severance Arrangements."
BOARD OF DIRECTORS. The Merger Agreement provides that the Interstate
Energy Board of Directors (the "Interstate Energy Board") will, upon
consummation of the Mergers, consist of fifteen persons, six of whom will be
designated by WPLH, including Mr. Davis, six of whom will be designated by IES,
including Mr. Liu, and three of whom will be designated by IPC, including Mr.
Stoppelmoor. See "The Mergers -- Interests of Certain Persons in the Mergers --
Board of Directors."
INDEMNIFICATION. The parties have agreed in the Merger Agreement that
Interstate Energy will indemnify, to the fullest extent permitted by applicable
law, the present and former officers, directors and employees of each of the
parties to the Merger Agreement or any of their subsidiaries against certain
liabilities (i) arising out of actions or omissions occurring at or prior to the
Effective Time that arise from or are based on such service as an officer,
director or employee; or (ii) that are based on or arise out of or pertain to
the transactions contemplated by the Merger Agreement, and to maintain policies
of directors' and officers' liability insurance for a period of not less than
six years after the Effective Time. To the fullest extent permitted by law, from
and after the Effective Time, all rights to indemnification existing in favor of
the employees, agents, directors or officers of WPLH, IES and IPC and their
respective subsidiaries with respect to their activities as such prior to the
Effective Time, as provided in their respective certificate or articles of
incorporation and bylaws, in effect on November 10, 1995, or otherwise in effect
on November 10, 1995, shall survive the Mergers and shall
10
<PAGE>
continue in full force and effect for a period of not less than six years from
the Effective Time. See "The Mergers -- Interests of Certain Persons in the
Mergers -- Indemnification" and "The Merger Agreement -- Indemnification."
MANAGEMENT OF INTERSTATE ENERGY
As provided in the Merger Agreement, at the Effective Time, the Interstate
Energy Board will consist of fifteen directors, six designated by WPLH, six
designated by IES and three designated by IPC. At the Effective Time, Mr. Liu
will become Chairman of Interstate Energy, Mr. Davis will be President and Chief
Executive Officer of Interstate Energy and Mr. Stoppelmoor will become Vice
Chairman of Interstate Energy. In addition, following the Effective Time, Mr.
Chase will become President of New IPC or IPC, as the case may be, and Lance W.
Ahearn ("Mr. Ahearn") will become President and Chief Operating Officer of the
holding company for the non-utility businesses of Interstate Energy. To date,
WPLH, IES and IPC have not determined the individuals, in addition to the
foregoing, who will be designated to serve as directors or officers of
Interstate Energy or its subsidiaries as of the Effective Time. See "The Mergers
- -- Employment Agreements" and "Interstate Energy Following the Mergers --
Management of Interstate Energy."
CONDITIONS TO THE MERGERS
The respective obligations of WPLH, IES and IPC to consummate the Mergers
are subject to the satisfaction of certain conditions, including: the approval
of the Merger Agreement by the shareowners of each of WPLH, IES and IPC; the
receipt of all material governmental approvals; the absence of any injunction
that prevents the consummation of the Mergers; the listing on the NYSE of the
shares of Interstate Energy Common Stock to be issued pursuant to the terms of
the Merger Agreement; the qualification of the business combination to be
effected by the Mergers as a pooling of interests transaction for accounting
purposes; the accuracy of the representations and warranties of the other
parties set forth in the Merger Agreement as of the Closing Date (as defined
herein) (except for inaccuracies which would not reasonably be likely to result
in a material adverse effect); the performance by the other parties in all
material respects, or waiver, of all obligations required to be performed under
the Merger Agreement and the Stock Option Agreements; the receipt of an
officer's certificate from the other parties stating that certain conditions set
forth in the Merger Agreement have been satisfied, there having been no material
adverse effect on any other party; the receipt of opinions that the Mergers will
qualify as tax-free reorganizations; the receipt of certain material third-party
consents; the receipt of letters from affiliates of the other parties with
respect to transactions in securities of WPLH, IES or IPC; and the effectiveness
of the Joint Registration Statement. See "The Merger Agreement -- Conditions to
Each Party's Obligation to Effect the Mergers."
RIGHTS TO TERMINATE, AMEND OR WAIVE CONDITIONS
The Merger Agreement may be terminated under certain circumstances,
including: by mutual consent of WPLH, IES and IPC; by any party if the Mergers
are not consummated by May 10, 1997 (which date may be extended to May 10, 1998
under certain circumstances); by any party if the requisite shareowner approvals
are not obtained or if any state or federal law or court order prohibits
consummation of the Mergers; by a non-breaching party if there occurs a material
breach of the Merger Agreement which is not cured within 20 days; or by a party,
under certain circumstances, as a result of a more favorable third-party tender
offer or business combination proposal with respect to such party. The Merger
Agreement requires that termination fees be paid under certain circumstances,
including if there is a material, willful breach of the Merger Agreement or if,
under certain circumstances, a business combination with a third party is
consummated within two and one-half years of the termination of the Merger
Agreement. The aggregate termination fees under this provision together with the
amounts payable under certain provisions of the Stock Option Agreements may not
exceed $40,000,000 payable by each of WPLH and IES and $20,000,000 payable by
IPC. See "The Merger Agreement -- Termination," "The Merger Agreement --
Termination Fees" and "The Stock Options Agreements -- Certain Repurchases and
Other Payments." The Merger Agreement also provides for the reimbursement of
documented out-of-pocket expenses incurred by the non-breaching party or parties
in the event the Merger Agreement is terminated under certain circumstances. In
the
11
<PAGE>
event that the Merger Agreement provides for expense reimbursement and the
breach giving rise to the termination of the Merger Agreement is not willful,
each non-breaching party is entitled to reimbursement of documented
out-of-pocket expenses, not to exceed $5,000,000 for each non-breaching party.
In the event of a willful breach, the $5,000,000 limit on expense reimbursement
will not apply. The Merger Agreement does not provide for any modification in
the Ratios due to changes in the operating results, financial condition or
trading prices of the WPLH Common Stock, IES Common Stock or IPC Common Stock
between the time of the execution of the Merger Agreement and the consummation
of the transactions contemplated thereby.
The Merger Agreement may be amended by the boards of directors of the
parties at any time before or after its approval by the shareowners of WPLH, IES
and IPC, but after any such approval, no amendment may be made which alters or
changes (i) the amount or kind of shares, rights or the manner of conversion of
such shares, (ii) the terms or conditions of the Merger Agreement, if such
alteration or change, alone or in the aggregate, would materially adversely
affect the rights of the WPLH, IES or IPC shareowners, or (iii) any term of the
WPLH, IES or IPC Charter, except for alterations or changes that could otherwise
be adopted by the Interstate Energy Board without the further approval of such
shareowners. See "The Merger Agreement -- Amendment and Waiver."
At any time prior to the Effective Time, to the extent permitted by
applicable law, the conditions to WPLH's, IES's or IPC's obligation to
consummate the Mergers may be waived by such party. Any determination to waive a
condition would depend upon the facts and circumstances existing at the time of
such waiver and would be made by the waiving parties' boards of directors,
exercising their fiduciary duties to their shareowners. See "The Merger
Agreement -- Amendment and Waiver."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
WPLH's obligation to effect the Mergers is conditioned on the delivery of an
opinion to WPLH from Foley & Lardner, counsel for WPLH, IES's obligation to
effect the Mergers is conditioned upon the delivery of an opinion to IES from
Winthrop, Stimson, Putnam & Roberts, counsel for IES, and IPC's obligation to
effect the Mergers is conditioned upon the delivery of an opinion to IPC from
Milbank, Tweed, Hadley & McCloy, counsel for IPC, each dated as of the Closing
Date, based upon certain customary representations and assumptions set forth
therein, substantially to the effect that, for federal income tax purposes, each
of the mergers to which such party or its subsidiaries is a constituent
constitutes a tax-free reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
Subject to the approval by the IPC stockholders of the IPC Charter
Amendment, and provided that there shall have been no adverse changes in
applicable law or facts prior to the Effective Time, in general: (i) no gain or
loss will be recognized by WPLH, IES, IPC, or Acquisition (or New IPC, Utilities
and New Utilities, if applicable) pursuant to the Mergers; (ii) no gain or loss
will be recognized by holders of IES Common Stock or IPC Common Stock (or New
IPC Common Stock, if applicable) upon the exchange of their IES Common Stock or
IPC Common Stock (or New IPC Common Stock, if applicable) into Interstate Energy
Common Stock pursuant to the Mergers; (iii) no gain or loss will be recognized
by holders of IPC Preferred Stock (or New IPC Preferred Stock, if applicable)
either upon consummation of the IPC Direct Merger (or the IPC Merger, if
applicable) or, if applicable, upon the exchange of their IPC Preferred Stock
for New IPC Preferred Stock pursuant to the IPC Reincorporation Merger; and (iv)
no gain or loss will be recognized by shareowners of WPLH upon consummation of
the Mergers. See "The Mergers -- Certain Federal Income Tax Consequences."
EACH SHAREOWNER IS URGED TO CONSULT HIS, HER OR ITS TAX ADVISOR AS TO THE
TAX CONSEQUENCES OF THE MERGERS APPLICABLE TO THE INDIVIDUAL CIRCUMSTANCES OF
SUCH SHAREOWNER UNDER FEDERAL, STATE, LOCAL OR ANY OTHER
APPLICABLE LAW.
12
<PAGE>
OPERATIONS AFTER THE MERGERS
Following the Mergers, Interstate Energy will be a registered public utility
holding company under the 1935 Act (unless pending legislation to repeal the
1935 Act has been enacted), and the operating utilities WP&L, New Utilities or
Utilities, as the case may be, and New IPC or IPC, as the case may be, will be
its principal subsidiaries. The headquarters of Interstate Energy will be in
Madison, Wisconsin. The headquarters of the three utility subsidiaries will
remain in their current locations, WP&L in Madison, Wisconsin, New Utilities or
Utilities in Cedar Rapids, Iowa and New IPC or IPC in Dubuque, Iowa. Interstate
Energy's utility subsidiaries are expected to serve approximately 870,000
electric customers and 360,000 natural gas customers in portions of Iowa,
Illinois, Minnesota and Wisconsin. The business of Interstate Energy will be to
operate as a holding company for its utility subsidiaries and various
non-utility subsidiaries. WPLH, IES and IPC recognize that the SEC could require
divestiture of all or part of their existing gas operations and certain
non-utility operations under the registered holding company structure, but
intend to seek approval from the SEC to retain such businesses. See "Regulatory
Matters" and "Interstate Energy Following the Mergers -- Operations."
REGULATORY MATTERS
The approval of the SEC under the 1935 Act, the Nuclear Regulatory
Commission (the "NRC") under the Atomic Energy Act of 1954, as amended (the
"Atomic Energy Act"), the Federal Energy Regulatory Commission (the "FERC")
under the Federal Power Act, as well as the approval of the Iowa Utilities Board
(the "IUB"), the Illinois Commerce Commission (the "ICC"), the Minnesota Public
Utilities Commission (the "Minnesota Commission") and the Public Service
Commission of Wisconsin (the "Wisconsin Commission") under applicable state laws
and the expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), are required in order to consummate the Mergers.
Upon consummation of the Mergers, Interstate Energy will be required to
register as a holding company under the 1935 Act unless pending legislation to
repeal the 1935 Act has been enacted. The 1935 Act imposes restrictions on the
operations of registered holding company systems. Among these are requirements
that securities issuances, sales and acquisitions of utility assets, securities
of utility and other companies, and any other interests in any business be
approved by the SEC. The 1935 Act also limits the ability of registered holding
companies to engage in non-utility ventures and regulates holding company system
service companies and the rendering of services by holding company affiliates to
the system's utilities. WPLH, IES and IPC believe the foregoing restrictions and
limitations imposed by the 1935 Act in its current form may limit possible
operations of Interstate Energy following the Mergers. However, WPLH, IES and
IPC believe the benefits of the Mergers exceed the potential adverse effects of
such 1935 Act regulation.
In addition, the SEC historically has interpreted the 1935 Act to preclude
registered holding companies, with limited exceptions, from owning both electric
and gas utility systems. Although the SEC has recently recommended that
registered holding companies be allowed to hold both gas and electric utility
operations if the affected states agree, it remains possible that the SEC may
require as a condition to its approval of the Mergers that WPLH, IES and IPC
divest their gas utility properties and possibly certain non-utility ventures
within a reasonable time after the Mergers. In certain cases, the SEC has
allowed the retention of such properties or deferred the question of divestiture
for a substantial period of time. In those cases in which divestiture has taken
place, the SEC has usually allowed enough time to complete the divestiture so as
to allow the applicant to conduct an orderly sale of the divested assets. WPLH,
IES and IPC believe there are strong policy reasons and prior SEC decisions
which support their retention of existing gas utility properties and non-utility
ventures, or, alternatively, which support deferring the question of divestiture
for a substantial period of time. Accordingly, WPLH, IES and IPC will request in
their 1935 Act application that WPLH, IES and IPC be allowed to retain, or in
the alternative that the question of divestiture be deferred with respect to,
WPLH's, IES's and IPC's existing gas utility properties and non-utility
ventures. Should the SEC
13
<PAGE>
deny this request, a required divestiture could, under certain circumstances, be
at a price below fair market value or otherwise on terms deemed unsatisfactory
by Interstate Energy and could have a material adverse effect on the operations,
earnings and financial condition of Interstate Energy.
Legislation to repeal the 1935 Act was introduced in Congress in 1995 and is
pending. No assurance can be given as to when or if such legislation will be
considered or enacted. The Staff of the SEC has also recommended that the SEC
"permit combination systems by registered holding companies if the affected
states concur," and the SEC has proposed rules that would relax current
restrictions on investment by registered holding companies in certain "energy
related," non-utility businesses. No prediction can be made as to the outcome of
these legislative and regulatory proposals.
Following consummation of the Mergers, Interstate Energy also will be
subject to regulation by the Wisconsin Commission under Section 196.795 Wis.
Stats. (the "Wisconsin Holding Company Act") as WPLH and WP&L are currently. The
Wisconsin Holding Company Act regulates, among other things, the type and amount
of investments in non-utility businesses. WPLH, IES and IPC do not expect such
regulation to have a materially adverse effect upon the operations of Interstate
Energy following the Mergers. WPLH, IES and IPC believe, and intend to take
appropriate action to establish, that IPC and Utilities qualify as "public
utility affiliates" of Interstate Energy within the meaning of the Wisconsin
Holding Company Act. If, however, IPC and Utilities, as presently constituted,
were to be deemed nonutility affiliates (because they are not Wisconsin
utilities or Wisconsin corporations), the parties reserve the right to take such
action as may be required to cause IPC and Utilities to be treated as "public
utility affiliates" for purposes of the Wisconsin Holding Company Act. Under the
alternative structure set forth in the Merger Agreement, IPC and Utilities would
become Wisconsin corporations and acquire certain of the water utility
operations currently conducted by WP&L within the State of Wisconsin. Although
the parties believe that the Mergers can be consummated under either or both
structures in compliance with the Wisconsin Holding Company Act, that statute
has not been authoritatively construed, and no assurance as to the
interpretation of that statute can be given. The companies currently intend to
seek regulatory approval to effect the transactions under either structure.
WPLH, IES and IPC believe that, under the reincorporation structure, the
Wisconsin Commission would not seek to regulate activities of New Utilities and
New IPC following the Mergers other than those activities directly related to
the water utility properties and the provision of water utility service in the
State of Wisconsin.
Under the Merger Agreement, WPLH, IES and IPC have agreed to use all
reasonable efforts to obtain all governmental authorizations necessary or
advisable to consummate or effect the transactions contemplated by the Merger
Agreement. Various parties may seek to intervene in these proceedings to oppose
the Mergers or to have conditions imposed upon the receipt of necessary
approvals. While WPLH, IES and IPC believe that they will receive the requisite
regulatory approvals for the Mergers, there can be no assurance as to the timing
of such approvals or the ability of such parties to obtain such approvals on
satisfactory terms or otherwise. It is a condition to the consummation of the
Mergers that final orders approving the Mergers be obtained from the various
federal and state commissions described above on terms and conditions which
would not have, or would not be reasonably likely to have, a material adverse
effect on the business, assets, financial condition, results of operations or
prospects of Interstate Energy, or which would be materially inconsistent with
the agreements of the parties contained in the Merger Agreement. There can be no
assurance that any such approvals will not contain terms or conditions that
cause such approvals to fail to satisfy such condition to the consummation of
the Mergers. Should any such approvals contain terms and conditions
unsatisfactory to WPLH, IES or IPC, such party may waive the condition to
consummation of, and may proceed with, the Mergers. Additional shareowner
approval for any such waiver will not be required or sought. See "Regulatory
Matters."
ACCOUNTING TREATMENT
The Mergers will be treated by the parties as a pooling of interests for
accounting purposes. See "The Mergers -- Accounting Treatment." The receipt by
each of WPLH, IES and IPC of a letter from
14
<PAGE>
their respective independent accountants, stating that the transaction will
qualify as a pooling of interests, is a condition precedent to the consummation
of the Mergers. See "The Merger Agreement -- Conditions to Each Party's
Obligation to Effect the Mergers."
DISSENTERS' RIGHTS
Under Iowa law, holders of record of IES Common Stock as of the IES Record
Date who do not wish to accept shares of Interstate Energy Common Stock in the
IES Merger have the right to have the fair value of the IES shares appraised by
judicial determination and paid to them in cash. In order to perfect such
dissenters' rights, holders of IES Common Stock must comply with the procedural
requirements of the IBCA, including, without limitation, filing written notice
with IES prior to the IES Meeting of such shareholder's intention to dissent and
demand payment of the fair value of his or her shares, not voting in favor of
the Merger Agreement and making a written demand for payment and depositing the
certificates representing such shares within 30 days after notice is given by
IES of the results of the vote at the IES Meeting. See "The Mergers -- Iowa
Dissenters' Rights" and Annex P.
Under Delaware law, holders of record of IPC Preferred Stock as of the IPC
Record Date who wish to exercise dissenters' rights with respect to the IPC
Direct Merger or who do not wish to accept New IPC Preferred Stock in the IPC
Reincorporation Merger, as the case may be, have the right to have the fair
value of their shares of IPC Preferred Stock appraised by judicial determination
and paid to them. In order to perfect such dissenters' rights, holders of IPC
Preferred Stock must comply with the procedural requirements of the DGCL,
including, without limitation, delivering to IPC before the IPC Meeting a
written notice of such stockholder's intention to dissent and demand appraisal
of his or her shares, not voting in favor of the Merger Agreement and filing a
petition in the Delaware Court of Chancery (the "Delaware Chancery Court")
demanding a determination of the fair value of the IPC Preferred Stock. Under
Delaware law, the holders of IPC Common Stock have no dissenters' rights in
connection with the Mergers. See "The Mergers -- Delaware Dissenters' Rights"
and Annex Q.
Under Wisconsin law, the holders of WPLH Common Stock have no dissenters'
rights. See "The Mergers -- No Wisconsin Dissenters' Rights."
DIVIDENDS
WPLH, IES AND IPC PRIOR TO THE EFFECTIVE TIME. Pursuant to the Merger
Agreement, each of WPLH, IES and IPC shall not, and shall not permit any of its
subsidiaries to, declare or pay any dividends on, or make other distributions in
respect of, any of its capital stock, other than to such party or its
wholly-owned subsidiaries and other than dividends required to be paid on any
series of cumulative preferred stock, no par value, of IES ("IES Preferred
Stock") (no shares of which are currently outstanding), Utilities Preferred
Stock, preferred stock, no par value, of WP&L ("WP&L Preferred Stock"), or IPC
Preferred Stock in accordance with the respective terms thereof, and regular
quarterly dividends to be paid on WPLH Common Stock, IES Common Stock and IPC
Common Stock not to exceed in any fiscal year 100% of the dividends for the
prior fiscal year in the case of IES and IPC and 105% in the case of WPLH.
INTERSTATE ENERGY AFTER THE EFFECTIVE TIME. IT IS ANTICIPATED THAT
INTERSTATE ENERGY WILL RETAIN WPLH'S THEN CURRENT COMMON SHARE DIVIDEND PAYMENT
LEVEL AS OF THE EFFECTIVE TIME. WPLH's current annualized dividend rate is $1.97
per share, IES's annual dividend rate is currently $2.10 per share and IPC's
annual dividend rate is currently $2.08 per share. The dividend policy of
Interstate Energy is subject to evaluation from time to time by the Interstate
Energy Board based on Interstate Energy's results of operations, financial
condition, capital requirements and other relevant considerations, including
regulatory considerations. Declaration and timing of dividends on Interstate
Energy Common Stock will be a business decision to be made by the Interstate
Energy Board from time to time based upon the results of operations and
financial condition of Interstate Energy and its subsidiaries and such other
business considerations as the Interstate Energy Board considers relevant in
accordance with applicable laws. See "Interstate Energy Following the Mergers"
and "Description of Interstate Energy Capital Stock -- Interstate Energy Common
Stock."
15
<PAGE>
PREFERRED STOCK AFTER THE EFFECTIVE TIME. Following the Effective Time,
dividends will be paid on shares of IES Preferred Stock (if any such shares are
then outstanding), Utilities Preferred Stock (unless such shares are redeemed in
connection with the Utilities Reincorporation Merger), WP&L Preferred Stock and
IPC Preferred Stock (or New IPC Preferred Stock if the IPC Reincorporation
Merger is effected) in accordance with the respective terms of such stock.
AMENDMENTS TO WPLH CHARTER
Pursuant to the Merger Agreement, subject to the approval of each of the
WPLH Charter Amendments by WPLH's shareowners at the WPLH Meeting, the WPLH
Charter will be amended no later than the Effective Time as provided in Annex O.
The WPLH Charter Amendments will (i) change the name of WPLH to Interstate
Energy Corporation; and (ii) increase the number of shares of WPLH Common Stock
authorized for issuance from 100,000,000 to 200,000,000. The WPLH Charter, as so
amended, will be the Restated Articles of Incorporation of Interstate Energy
(the "Interstate Energy Charter") at the Effective Time and until thereafter
amended in accordance with the WBCL and the Interstate Energy Charter. Approval
of each of the WPLH Charter Amendments is a condition precedent to the
consummation of the Mergers. See "Amendments to WPLH Restated Articles of
Incorporation."
AMENDMENT TO IPC CHARTER
Subject to the approval of the IPC Charter Amendment by IPC's stockholders
at the IPC Meeting, the IPC Charter will be amended following the IPC Meeting
and prior to the Effective Time as provided in Annex R. The IPC Charter
Amendment would provide that each share of IPC Preferred Stock outstanding from
time to time will have one vote, voting together as one class with the holders
of IPC Common Stock (except as otherwise required by applicable law or as
specifically set forth in the IPC Charter), on all matters to come before a vote
of the stockholders of IPC. The IPC Charter Amendment is designed to comply with
certain provisions of the Code to enable the IPC Merger to qualify as a tax-free
reorganization under the Code. Approval of the IPC Charter Amendment is a
condition precedent to the consummation of the Mergers. See "Amendment to IPC
Restated Certificate of Incorporation" and "The Mergers -- Certain Federal
Income Tax Consequences."
COMPARISON OF RIGHTS OF SHAREOWNERS
As a result of the Mergers, holders of IES Common Stock (other than IES
Dissenting Shares) will become shareowners of Interstate Energy, a Wisconsin
corporation. Such shareowners will have certain different rights as Interstate
Energy shareowners than they had as shareowners of IES, both because of the
differences between the IES Charter and the IES Bylaws and the Interstate Energy
Charter and the bylaws of Interstate Energy (the "Interstate Energy Bylaws"),
and because of differences between Wisconsin and Iowa corporation law. For a
comparison of Wisconsin and Iowa law and the charter and bylaw provisions of IES
and Interstate Energy, see "Comparison of Shareowner Rights."
As a result of the Mergers, holders of IPC Common Stock will become
shareowners of Interstate Energy, a Wisconsin corporation. Such shareowners will
have certain different rights as Interstate Energy shareowners than they had as
shareowners of IPC, both because of the differences between the IPC Charter and
the IPC Bylaws and the Interstate Energy Charter and the Interstate Energy
Bylaws, and because of differences between Wisconsin and Delaware corporation
law. In the event that the IPC Reincorporation Merger is effected, holders of
IPC Preferred Stock (other than IPC Dissenting Shares) will receive in the IPC
Reincorporation Merger shares of New IPC Preferred Stock, the terms (including
dividend rates) and designations of which will be substantially identical to
those of the corresponding shares of IPC Preferred Stock (as set forth in the
IPC Charter), including the additional voting rights proposed to be approved at
the IPC Meeting. The rights of holders of New IPC Preferred Stock may be
different in certain respects under Wisconsin law than the rights of holders of
IPC Preferred Stock under Delaware law. For a comparison of Wisconsin and
Delaware law and the charter and bylaw provisions of IPC and Interstate Energy,
see "Comparison of Shareowner Rights."
16
<PAGE>
SELECTED HISTORICAL AND PRO FORMA DATA
The summary below sets forth selected historical financial and market data
and selected unaudited pro forma financial data. The financial data should be
read in conjunction with the historical consolidated financial statements and
related notes thereto of WPLH, IES and IPC, incorporated herein by reference,
and in conjunction with the unaudited pro forma combined financial statements
and related notes thereto of Interstate Energy included elsewhere in this Joint
Proxy Statement/Prospectus. See "Unaudited Pro Forma Combined Financial
Information."
SELECTED HISTORICAL FINANCIAL AND MARKET DATA
The selected historical financial data of each of WPLH, IES and IPC for the
five years ended December 31, 1995, set forth below, have been derived (except
as described below) from audited financial statements. The selected historical
financial data of WPLH, IES and IPC as of and for the twelve-month period ended
March 31, 1996, set forth below, have been derived (except as described below)
from unaudited financial statements. The financial data of WPLH set forth below
have been adjusted to reflect the restatement of such data to account for
certain discontinued operations discussed in the notes hereto. The selected
historical market data of each of WPLH, IES and IPC for the dates indicated
below are based on the closing sales prices of WPLH Common Stock, IES Common
Stock and IPC Common Stock as reported on the NYSE Composite Tape for such
dates. The Aggregate Market Capitalization represents the product of the closing
sale prices on such dates multiplied by the number of outstanding shares on such
dates.
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<PAGE>
WPL HOLDINGS, INC.
<TABLE>
<CAPTION>
TWELVE MONTHS YEAR ENDED DECEMBER 31,
ENDED MARCH ---------------------------------------------------------------------
31, 1996 1995 1994 1993 1992 1991
-------------- ------------ ------------ ------------ ------------ -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues.......... $ 852,258 $ 807,255 $ 795,717 $ 738,604 $ 673,273 $ 669,549
Operating Income............ 158,865 149,404 131,815 127,944 117,959 132,605
Allowance for Borrowed and
Other Funds Used During
Construction............... 2,503 2,088 4,038 4,031 3,680 1,959
Preferred Dividend
Requirements of
Subsidiary................. 3,310 3,310 3,310 3,928 3,811 3,811
Income From Continuing
Operations (a)(g)(j)....... 83,239 71,618 66,424 63,685 58,007 65,930
Earnings per Common Share
from Continuing Operations
(a)(g)(j).................. $ 2.70 $ 2.33 $ 2.17 $ 2.15 $ 2.10 $ 2.42
Cash Dividends Declared per
Common Share............... $ 1.948 $ 1.94 $ 1.92 $ 1.90 $ 1.86 $ 1.80
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
MARCH 31, 1996 1995 1994 1993 1992 1991
-------------- ------------ ------------ ------------ ------------ -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets (j)............ $ 1,838,674 $ 1,872,414 $ 1,805,901 $ 1,761,899 $ 1,565,898 $ 1,383,499
Long-Term Obligations (c)... 429,753 433,759 450,942 425,887 418,960 371,904
Commercial Paper, Notes
Payable and Other.......... 57,896 109,525 64,501 91,902 71,427 52,838
Variable Rate Demand
Bonds...................... 56,975 56,975 56,975 56,975 57,075 57,875
Preferred Stock --
Not Subject to Mandatory
Redemption............... 59,963 59,963 59,963 59,963 62,449 62,449
Subject to Mandatory
Redemption............... -- -- -- -- -- --
Common Stock Equity (j)..... 613,628 597,470 597,798 582,966 483,536 459,659
Book Value per Common Share
(j)........................ $ 19.94 $ 19.41 $ 19.43 $ 19.15 $ 17.38 $ 16.84
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
MARCH 31, 1996 1995 1994 1993 1992 1991
-------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
MARKET DATA -- COMMON STOCK
Aggregate Market
Capitalization (millions).. $ 950 $ 942 $ 842 $ 1,001 $ 943 $ 894
Closing Market Price per
Share...................... $ 30.875 $ 30.625 $ 27.375 $ 32.875 $ 33.875 $ 32.75
Ratio of Market Value to
Book Value (j)............. 1.55x 1.58x 1.41x 1.72x 1.95x 1.94x
</TABLE>
See accompanying Notes to Selected Historical and Pro Forma Data
18
<PAGE>
IES INDUSTRIES INC.
<TABLE>
<CAPTION>
TWELVE MONTHS YEAR ENDED DECEMBER 31,
ENDED MARCH ---------------------------------------------------------------------
31, 1996 1995 1994 1993 1992 1991
-------------- ------------ ------------ ------------ ------------ -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues.......... $ 887,816 $ 851,010 $ 785,864 $ 801,266 $ 678,296 $ 661,538
Operating Income............ 166,594 151,712 147,933 151,269 109,024 103,357
Allowance for Borrowed and
Other Funds Used During
Construction............... 2,999 3,424 3,910 1,972 3,177 2,086
Preferred and Preference
Dividend Requirements of
Subsidiary................. 914 914 914 914 1,729 2,170
Income from Continuing
Operations (a)(i).......... 71,531 64,176 66,818 67,938 48,711 44,657
Earnings per Common Share
from Continuing Operations
(a)(i)..................... $ 2.43 $ 2.20 $ 2.34 $ 2.45 $ 1.92 $ 1.85
Cash Dividends Declared per
Common Share............... $ 2.10 $ 2.10 $ 2.10 $ 2.10 $ 2.10 $ 2.03
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
MARCH 31, 1996 1995 1994 1993 1992 1991
-------------- ------------ ------------ ------------ ------------ -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets................ $ 1,986,944 $ 1,985,591 $ 1,849,093 $ 1,699,819 $ 1,594,382 $ 1,448,492
Long-Term Obligations (c)... 653,450 656,543 626,011 577,611 553,257 507,921
Commercial Paper, Notes
Payable and Other.......... 92,000 101,000 37,000 24,000 92,000 40,900
Preferred and Preference
Stock --
Not Subject to Mandatory
Redemption............... 18,320 18,320 18,320 18,320 18,320 18,320
Subject to Mandatory
Redemption............... -- -- -- -- -- 10,874
Common Stock Equity......... 615,820 612,346 591,783 572,051 482,729 463,296
Book Value per Common
Share...................... $ 20.75 $ 20.75 $ 20.56 $ 20.21 $ 18.89 $ 19.07
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
MARCH 31, 1996 1995 1994 1993 1992 1991
-------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
MARKET DATA -- COMMON STOCK
Aggregate Market
Capitalization (millions).. $ 827 $ 782 $ 727 $ 885 $ 754 $ 662
Closing Market Price per
Share...................... $ 27.875 $ 26.50 $ 25.25 $ 31.25 $ 29.50 $ 27.25
Ratio of Market Value to
Book Value................. 1.34x 1.28x 1.23x 1.55x 1.56x 1.43x
</TABLE>
See accompanying Notes to Selected Historical and Pro Forma Data
19
<PAGE>
INTERSTATE POWER COMPANY (IPC)
<TABLE>
<CAPTION>
TWELVE MONTHS YEAR ENDED DECEMBER 31,
ENDED MARCH -----------------------------------------------------------
31, 1996 1995 1994 1993 1992 1991
-------------- ---------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues................... $ 322,826 $ 318,542 $ 307,650 $ 309,468 $ 285,298 $ 291,805
Operating Income (h)................. 69,190 66,776 43,435 43,791 44,521 60,911
Allowance for Borrowed and Other
Funds Used During Construction...... 304 341 498 213 371 2,094
Preferred and Preference Dividend
Requirements........................ 2,459 2,458 2,454 2,861 2,975 3,075
Income from Continuing Operations
(h)................................. 26,982 25,198 18,213 16,126 16,242 26,435
Earnings per Common Share from
Continuing Operations (h)........... $ 2.82 $ 2.63 $ 1.92 $ 1.73 $ 1.74 $ 2.84
Cash Dividends Declared per Common
Share............................... $ 2.08 $ 2.08 $ 2.08 $ 2.08 $ 2.08 $ 2.04
Ratio of Earnings to Fixed Charges
Plus Preferred and Preference
Dividend Requirements (b)........... 3.15x 2.99x 2.26x 2.14x 2.13x 2.92x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
MARCH 31, 1996 1995 1994 1993 1992 1991
-------------- ---------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets......................... $ 630,107 $ 634,316 $ 628,845 $ 604,361 $ 558,100 $ 550,631
Long-Term Obligations (c)............ 188,899 188,880 203,032 203,170 199,532 205,036
Commercial Paper, Notes Payable and
Other............................... 23,150 39,300 35,600 20,100 9,000 7,200
Preferred and Preference Stock --
Not Subject to Mandatory
Redemption........................ 10,819 10,819 10,819 10,819 20,911 20,911
Subject to Mandatory Redemption.... 24,062 24,036 23,933 23,837 14,426 15,782
Common Stock Equity.................. 201,713 197,770 192,505 189,809 190,324 193,421
Book Value per Common Share.......... $ 21.09 $ 20.68 $ 20.13 $ 20.21 $ 20.47 $ 20.80
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
MARCH 31, 1996 1995 1994 1993 1992 1991
-------------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
MARKET DATA -- COMMON STOCK
Aggregate Market Capitalization
(millions).......................... $ 305 $ 317 $ 227 $ 283 $ 287 $ 314
Closing Market Price per Share....... $ 31.875 $ 33.125 $ 23.75 $ 30.125 $ 30.875 $ 33.75
Ratio of Market Value to Book
Value............................... 1.51x 1.60x 1.18x 1.49x 1.51x 1.62x
</TABLE>
See accompanying Notes to Selected Historical and Pro Forma Data
20
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The following selected unaudited pro forma financial information combines
the historical consolidated balance sheets and statements of income of WPLH, IES
and IPC, including their respective subsidiaries, after giving effect to the
Mergers. The unaudited pro forma combined balance sheet data at March 31, 1996
and December 31, 1995, 1994 and 1993 give effect to the Mergers as if they had
occurred at the respective balance sheet dates. The unaudited pro forma combined
statements of income for the twelve months ended March 31, 1996 and each of the
years in the three-year period ended December 31, 1995 give effect to the
Mergers as if they had occurred at January 1, 1993. These statements are
prepared on the basis of accounting for the Mergers as a pooling of interests
and are based on the assumptions set forth in the notes thereto. The following
information is not necessarily indicative of the financial position or operating
results that would have occurred had the Mergers been consummated on the date as
of which, or at the beginning of the periods for which, the Mergers are being
given effect nor is it necessarily indicative of future operating results or
financial position. See "Unaudited Pro Forma Combined Financial Information."
INTERSTATE ENERGY CORPORATION PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
TWELVE MONTHS YEAR ENDED DECEMBER 31,
ENDED -------------------------------
MARCH 31, 1996 1995 1994 1993
--------------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues................................................... $ 2,063 $ 1,977 $ 1,889 $ 1,849
Operating Income..................................................... 395 368 323 323
Allowance for Borrowed and Other Funds Used During Construction...... 6 6 8 6
Preferred Dividend Requirements of Subsidiaries...................... 7 7 7 8
Income from Continuing Operations (a)(g)(h)(i)(j).................... 182 161 151 148
Earnings Per Common Share from Continuing
Operations (a)(d)(g)(h)(i)(j)....................................... $ 2.56 $ 2.27 $ 2.16 $ 2.17
Cash Dividends Declared per Common Share (d)......................... $ 1.99 $ 1.99 $ 1.98 $ 1.97
EQUIVALENT IES PRO FORMA PER SHARE DATA (E)
Earnings per Common Share (a)(g)(h)(i)............................... $ 2.59 $ 2.29 $ 2.18 $ 2.19
Cash Dividends Declared per Common Share (f)......................... $ 2.01 $ 2.01 $ 2.00 $ 1.99
EQUIVALENT IPC PRO FORMA PER SHARE DATA (E)
Earnings per Common Share (a)(g)(h)(i)............................... $ 2.84 $ 2.52 $ 2.40 $ 2.41
Cash Dividends Declared per Common Share(f).......................... $ 2.21 $ 2.21 $ 2.20 $ 2.19
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------------
1996 1995 1994 1993
--------------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Total Assets (j)..................................................... $ 4,456 $ 4,492 $ 4,284 $ 4,066
Long-Term Obligations (c)............................................ 1,270 1,279 1,280 1,207
Variable Rate Demand Bonds........................................... 57 57 57 57
Commercial Paper, Notes and Other.................................... 173 250 137 136
Preferred Stock --
Not Subject to Mandatory Redemption................................ 89 89 89 89
Subject to Mandatory Redemption.................................... 24 24 24 24
Common Stock Equity (j).............................................. 1,423 1,399 1,382 1,345
Book Value per Common Share (j)...................................... $ 19.94 $ 19.65 -- --
EQUIVALENT IES PRO FORMA PER SHARE DATA (E)
Book Value per Common Share (j)...................................... $ 20.14 $ 19.85 -- --
EQUIVALENT IPC PRO FORMA PER SHARE DATA (E)
Book Value per Common Share Data (j)................................. $ 22.13 $ 21.81 -- --
</TABLE>
See accompanying Notes to Selected Historical and Pro Forma Data
21
<PAGE>
COMPARATIVE BOOK VALUES, DIVIDENDS AND EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------------- -------------
<S> <C> <C>
BOOK VALUES PER COMMON SHARE
WPLH/Interstate Energy
Historical (j)................................................................. $ 19.94 $ 19.41
Equivalent pro forma (j)....................................................... $ 19.94 $ 19.65
IES
Historical..................................................................... $ 20.75 $ 20.75
Equivalent pro forma (e)(j).................................................... $ 20.14 $ 19.85
IPC
Historical..................................................................... $ 21.09 $ 20.68
Equivalent pro forma (e)(j).................................................... $ 22.13 $ 21.81
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
TWELVE MONTHS
ENDED -------------------------------
MARCH 31, 1996 1995 1994 1993
--------------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH DIVIDENDS DECLARED PER COMMON SHARE
WPLH/Interstate Energy
Historical............................................................ $ 1.948 $ 1.94 $ 1.92 $ 1.90
Equivalent pro forma (d).............................................. $ 1.99 $ 1.99 $ 1.98 $ 1.97
IES
Historical............................................................ $ 2.10 $ 2.10 $ 2.10 $ 2.10
Equivalent pro forma (e)(f)........................................... $ 2.01 $ 2.01 $ 2.00 $ 1.99
IPC
Historical............................................................ $ 2.08 $ 2.08 $ 2.08 $ 2.08
Equivalent pro forma (e)(f)........................................... $ 2.21 $ 2.21 $ 2.20 $ 2.19
EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS
WPLH/Interstate Energy
Historical (a)(g)(j).................................................. $ 2.70 $ 2.33 $ 2.17 $ 2.15
Equivalent pro forma (a)(d)(g)(h)(j).................................. $ 2.56 $ 2.27 $ 2.16 $ 2.17
IES
Historical (a)(i)..................................................... $ 2.43 $ 2.20 $ 2.34 $ 2.45
Equivalent pro forma (a)(e)(g)(h)(i).................................. $ 2.59 $ 2.29 $ 2.18 $ 2.19
IPC
Historical (h)........................................................ $ 2.82 $ 2.63 $ 1.92 $ 1.73
Equivalent pro forma (a)(e)(g)(h)(i).................................. $ 2.84 $ 2.52 $ 2.40 $ 2.41
</TABLE>
See accompanying Notes to Selected Historical and Pro Forma Data
22
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA DATA
(a) Income from Continuing Operations and Earnings per Common Share are based on
income from continuing operations after preferred dividend requirements.
(b) For purposes of computing the ratios of earnings to fixed charges plus
preferred and preference dividend requirements, "earnings" consist of income
from continuing operations before accounting changes (see Note k), plus
interest charges, preferred and preference dividend requirements, income
taxes, and the estimated interest component of rentals, minus the
undistributed equity in earnings of unconsolidated investees. "Earnings"
also include allowance for borrowed and other funds used during
construction. "Fixed charges" consist of interest charges, the estimated
interest component of rentals and the pre-tax dividend requirements on
subsidiary preferred stock. Currently, the IPC Preferred Stock is not issued
by a subsidiary; subsequent to the Mergers, the IPC Preferred Stock or the
New IPC Preferred Stock, as the case may be, will be issued by a subsidiary
of Interstate Energy. The pro forma ratios of earnings to fixed charges plus
preferred and preference dividend requirements of New IPC (after giving
effect to the IPC Reincorporation Merger) for the years ended December 31,
1993, 1994 and 1995 and for the twelve months ended March 31, 1996 are 2.14,
2.26, 2.99 and 3.15, respectively.
(c) Includes long-term debt, sinking fund requirements, current maturities,
current and long-term capital lease obligations, net of unamortized discount
and premium.
(d) Pro forma per common share amounts give effect to the conversion of each
share of IES Common Stock and IPC Common Stock outstanding into 1.01 and
1.11 shares, respectively, of Interstate Energy Common Stock. Pro forma per
common share amounts do not, however, give effect to the cost-saving
synergies of the transaction or transaction costs. For a description of the
synergies, see "The Mergers -- Reasons for the Mergers; Recommendations of
the Boards of Directors."
(e) Represents the pro forma equivalent of one share of IES Common Stock or one
share of IPC Common Stock, as the case may be, calculated by multiplying the
pro forma information by the conversion ratio of 1.01 and 1.11 shares,
respectively, of Interstate Energy Common Stock for each share of IES Common
Stock and IPC Common Stock.
(f) Pursuant to SEC requirements, the amount is calculated based on historical
dividends paid by WPLH, IES, and IPC combined. It is anticipated that
Interstate Energy will retain WPLH's common share dividend payment level in
effect at the Effective Time.
(g) Nonrecurring items affecting WPLH's 1994 performance include the impact of
early retirement and severance programs and the reversal of a coal contract
penalty assessed by the Wisconsin Commission which was charged to income in
1989. The net after-tax impact of these items on income from continuing
operations for the year ended December 31, 1994 was a decrease of $8.3
million related to the early retirement and severance programs offset by an
increase of $4.9 million related to the coal contract penalty reversal.
(h) IPC's income from continuing operations includes expenses associated with
environmental investigation and remediation costs of former manufactured gas
plants. Operating expenses for the twelve months ended March 31, 1996 and
for the years ended December 31, 1995, 1994 and 1993 include $0.2 million,
$0.3 million, $0.8 million and $3.5 million, respectively, for these costs.
Other operating expenses for the twelve months ended March 31, 1996 and for
the year ended December 31, 1995 also include $0.8 million and $0.7 million,
respectively, of legal fees related to coal tar remediation, compared with
$1.0 million and $0.3 million for the years ended December 31, 1994 and
1993, respectively. For the twelve months ended March 31, 1996 and for the
years ended December 31, 1995, 1994 and 1993, $0.4 million, $0.6 million,
$0.7 million and $0.6 million, respectively, of the foregoing expenses were
recovered in rates.
(i) Nonrecurring items affecting IES's income from continuing operations for the
year ended December 31, 1993 include various gains and losses related to
sales of assets and property valuation
23
<PAGE>
adjustments associated with its nonregulated businesses. The net after-tax
impact of these items on income from continuing operations for the year
ended December 31, 1993 was a decrease of $2.0 million.
(j) The selected historical and pro forma data of WPLH reflect the
discontinuance of operations of its utility energy and marketing consulting
business in 1995. The discontinuance of this business resulted in a pre-tax
loss of $7.7 million ($11.0 million net of the applicable income tax
expenses) in 1995. Operating revenues, operating expenses, other income and
expense and income taxes for the discontinued operations for the time
periods presented have been excluded from income from continuing operations.
Interest expense has been adjusted for the amounts associated with direct
obligations of the discontinued operations.
Operating revenues, related losses, and income tax benefits associated with
the discontinued operations for the indicated time periods were as follows:
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED MARCH YEAR ENDED DECEMBER 31,
31, -------------------------------
1996 1995 1994 1993
----------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenues................................. $ 15,969 $ 24,979 $ 34,798 $ 33,340
----------- --------- --------- ---------
----------- --------- --------- ---------
Loss from discontinued operations before tax
benefit........................................... $ 2,990 $ 3,663 $ 1,806 $ 1,761
Income tax benefit................................. 1,184 1,451 632 599
----------- --------- --------- ---------
Loss from discontinued operations.................. $ 1,806 $ 2,212 $ 1,174 $ 1,162
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>
(k) Accounting principles have been consistently applied in the financial
statement presentations for WPLH, IES and IPC with one exception. IPC does
not include unbilled electric and gas revenues in its calculation of total
revenues. The utility subsidiaries of WPLH and IES accrue unbilled revenues.
The impact of this difference in accounting principles among the companies
does not have a material impact on the selected historical and pro forma
data as presented and, accordingly, no adjustments have been made to conform
accounting principles.
COMPARATIVE MARKET PRICES AND DIVIDENDS
The WPLH Common Stock, the IES Common Stock and the IPC Common Stock are
listed on the NYSE, the CSE and the PSE; the WPLH Common Stock and the IES
Common Stock are also listed on the BSE; and the IES Common Stock is also traded
on the PhSE. The following table sets forth, for the periods indicated, the high
and low sales prices of WPLH Common Stock, IES Common Stock and IPC Common Stock
as reported on the NYSE Composite Tape and the dividends declared thereon.
<TABLE>
<CAPTION>
IES IPC WPLH
---------------------------- ---------------------------- ----------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------- ------- --------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993
First Quarter..... 31 1/8 28 3/8 .525 34 1/8 30 3/8 .52 36 32 1/2 .475
Second Quarter.... 32 5/8 28 5/8 .525 32 3/4 29 .52 36 3/4 33 1/8 .475
Third Quarter..... 34 1/4 31 1/4 .525 31 3/4 29 .52 36 1/4 35 .475
Fourth Quarter.... 34 29 1/8 .525 30 3/4 29 1/8 .52 36 31 1/2 .475
1994
First Quarter..... 31 3/8 27 .525 30 1/4 26 3/8 .52 32 7/8 27 3/4 .48
Second Quarter.... 29 25 1/2 .525 29 22 1/4 .52 30 3/4 26 3/8 .48
Third Quarter..... 28 3/8 24 7/8 .525 24 3/4 21 .52 29 7/8 27 .48
Fourth Quarter.... 26 5/8 24 3/4 .525 23 3/4 20 7/8 .52 28 7/8 26 7/8 .48
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
IES IPC WPLH
---------------------------- ---------------------------- ----------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------- ------- --------- ------- ------- --------- ------- ------- ---------
1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter..... 27 5/8 24 5/8 .525 25 1/8 23 .52 31 27 1/4 .485
Second Quarter.... 26 3/8 20 3/8 .525 25 23 1/2 .52 30 27 1/2 .485
Third Quarter..... 26 3/4 21 3/8 .525 27 1/4 23 1/4 .52 29 3/8 27 1/2 .485
Fourth Quarter.... 28 1/2 25 7/8 .525 33 1/4 27 1/8 .52 31 3/4 29 1/4 .485
1996
First Quarter..... 29 5/8 26 1/2 .525 33 1/2 30 .52 32 29 7/8 .4925
Second Quarter.... 30 1/8 25 1/2 .525 32 1/2 29 7/8 .52 32 7/8 28 5/8 .4925
Third Quarter .... 30 29 1/4 .525 32 1/8 30 5/8 .52 32 7/8 31 5/8 .4925
(through July 9)
</TABLE>
On November 10, 1995, the last full trading day before the public
announcement of the execution and delivery of the Merger Agreement, the high,
low and closing sales prices per share of (i) WPLH Common Stock on the NYSE were
$30 7/8, $30 3/4 and $30 3/4, respectively, (ii) IES Common Stock on the NYSE
were $27 1/2, $27 and $27 1/8, respectively, and (iii) IPC Common Stock on the
NYSE were $29 7/8, $29 5/8, and $29 5/8, respectively. On May 22, 1996, the last
full trading day before the public announcement of the execution and delivery of
the amendment to the Merger Agreement, the high, low and closing sales prices
per share of (i) WPLH Common Stock on the NYSE were $30 3/4, $30 5/8 and
$30 3/4, respectively, (ii) IES Common Stock on the NYSE were $28 5/8, $28 1/4
and $28 1/2, respectively, and (iii) IPC Common Stock on the NYSE were $31 1/8,
$31 and $31, respectively.
For calendar year 1995, dividends paid per share of common stock were $1.94
for WPLH, $2.10 for IES and $2.08 for IPC. WPLH's current annualized dividend
rate is $1.97 per share. It is anticipated that Interstate Energy will retain
WPLH's then current common share dividend payment level as of the Effective
Time. Assuming the WPLH annual dividend level remains $1.97 as of the Effective
Time, and giving effect to the Ratios, former holders of IES Common Stock will
receive an annual dividend equivalent to approximately $1.99 per share of IES
Common Stock held immediately preceding the Effective Time and former holders of
IPC Common Stock will receive an annual dividend equivalent to approximately
$2.187 per share of IPC Common Stock held immediately preceding the Effective
Time.
On July 9, 1996, the most recent date for which it was practicable to obtain
market price data prior to the printing of this Joint Proxy
Statement/Prospectus, the high, low and closing sales prices per share of WPLH
Common Stock on the NYSE were $32, $31 5/8 and $31 3/4, respectively, the high,
low and closing sales prices per share of IES Common Stock on the NYSE were
$29 1/2, $29 1/4 and $29 3/8, respectively, and the high, low and closing sales
prices per share of IPC Common Stock on the NYSE were $31 1/8, $30 5/8 and
$30 5/8, respectively. Accordingly, if the Mergers had been consummated on that
date, each share of IES Common Stock would have been converted into the right to
receive 1.01 shares of WPLH Common Stock having a market value of $32.07 based
upon the closing price per share of WPLH Common Stock on such date and each
share of IPC Common Stock would have converted into the right to receive 1.11
shares of WPLH Common Stock having a market value of $35.24 based on the closing
price per share of WPLH Common Stock on such date.
The market prices of WPLH Common Stock, IES Common Stock and IPC Common
Stock are subject to fluctuation. WPLH shareowners, IES shareowners and IPC
shareowners are urged to obtain current market quotations for WPLH Common Stock,
IES Common Stock and IPC Common Stock.
25
<PAGE>
MEETINGS, VOTING AND PROXIES
This Joint Proxy Statement/Prospectus is being furnished to (i) the holders
of WPLH Common Stock in connection with the solicitation of proxies by the WPLH
Board from the holders of WPLH Common Stock for use at the WPLH Meeting, (ii)
the holders of IES Common Stock in connection with the solicitation of proxies
by the IES Board from the holders of IES Common Stock for use at the IES Meeting
and (iii) the holders of IPC Common Stock in connection with the solicitation of
proxies by the IPC Board from the holders of IPC Common Stock for use at the IPC
Meeting.
THE WPLH MEETING
PURPOSE OF WPLH MEETING. The purpose of the WPLH Meeting is to consider and
vote upon: (i) a proposal to approve the Merger Agreement and the transactions
contemplated thereby (including, among other things, the issuance of shares of
Interstate Energy Common Stock pursuant to the terms of the Merger Agreement);
(ii) a proposal to approve the Name Change Amendment and the Common Stock
Amendment; (iii) a proposal to elect a total of three directors for terms
expiring at the 1999 annual meeting of shareowners of WPLH or until their
successors have been duly elected and qualified; (iv) a proposal to appoint
Arthur Andersen LLP as independent auditors of WPLH for the year ending December
31, 1996; and (v) such other matters, if any, as may properly come before the
WPLH Meeting. The WPLH Board is not aware, as of the date of mailing of this
Joint Proxy Statement/Prospectus, of any other matters which may properly come
before the WPLH Meeting. If any such other matters properly come before the WPLH
Meeting, or any adjournment or postponement thereof, it is the intention of the
persons named in the WPLH proxy to vote such proxies in accordance with their
best judgment on such matters.
The WPLH Board, by unanimous vote of the directors present, has approved the
Merger Agreement and each of the WPLH Charter Amendments, authorized the
execution and delivery of the Merger Agreement, and recommends that WPLH
shareowners vote FOR approval of the Merger Agreement (including the issuance of
shares of Interstate Energy Common Stock pursuant to the terms of the Merger
Agreement), FOR approval of each of the WPLH Charter Amendments, FOR the
election of the nominated WPLH directors and FOR the appointment of Arthur
Andersen LLP as independent auditors.
Pursuant to the Merger Agreement, consummation of the Mergers is conditioned
upon approval by the shareowners of WPLH of proposals (i) and (ii) set forth
above, but is not conditioned upon approval of the shareowners of WPLH of any
other of the above proposals. If approved, each of the WPLH Charter Amendments
will become effective only if the Mergers are consummated.
DATE, PLACE AND TIME; RECORD DATE. The WPLH Meeting is scheduled to be held
on Thursday, September 5, 1996, immediately following the annual meeting of WP&L
which will be held at 10:00 a.m., Central Time, at the Exhibition Hall at the
Dane County Expo Center, 1881 Expo Mall, Madison, Wisconsin. Holders of record
of WPLH Common Stock at the close of business on July 10, 1996, the WPLH Record
Date, will be entitled to notice of and to vote at the WPLH Meeting. As of the
close of business on the WPLH Record Date, 30,795,260 shares of WPLH Common
Stock were issued and outstanding and entitled to vote.
VOTING RIGHTS. Each outstanding share of WPLH Common Stock is entitled to
one vote upon each matter presented at the WPLH Meeting. A majority of the votes
entitled to be cast by holders of shares of WPLH Common Stock represented in
person or by proxy, shall constitute a quorum for each matter presented at the
WPLH Meeting. Abstentions and broker non-votes (I.E., proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owners or other persons entitled to vote shares as to a matter with
respect to which brokers or nominees do not have discretionary power to vote)
will be considered present for the purpose of establishing a quorum.
If a quorum is present, the affirmative vote of a majority of the votes
entitled to be cast by the holders of the outstanding shares of WPLH Common
Stock entitled to vote thereon is required for approval of the Merger Agreement
(including the issuance of shares of Interstate Energy Common
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Stock pursuant to the terms of the Merger Agreement). Under applicable Wisconsin
law, in determining whether the Merger Agreement (including the issuance of
shares of Interstate Energy Common Stock pursuant to the terms of the Merger
Agreement) has received the requisite number of affirmative votes, abstentions
and broker non-votes will have the same effect as votes cast against approval of
the Merger Agreement. Failure to return a WPLH proxy or to vote in person at the
WPLH Meeting will have the effect of a vote against the Merger Agreement. If a
quorum is present, the affirmative vote of a majority of the votes entitled to
be cast by the holders of the shares of WPLH Common Stock represented at the
WPLH Meeting and entitled to vote thereon is required for approval of each of
the WPLH Charter Amendments and for the appointment of Arthur Andersen LLP as
WPLH's independent auditors for the year ending December 31, 1996. In tabulating
the votes for each of the WPLH Charter Amendments and for the appointment of
Arthur Andersen LLP, an abstention has the same effect as a vote against, while
broker non-votes are treated as shares not entitled to vote. The directors will
be elected by a plurality of the votes cast at the WPLH Meeting (assuming a
quorum is present). Consequently, any shares not voted at the WPLH Meeting,
whether due to abstentions or otherwise, will have no impact on the election of
directors. The directors and executive officers of WPLH, together with their
affiliates as a group, are deemed to own beneficially less than 1% of the issued
and outstanding shares of WPLH Common Stock.
PROXIES. Holders of the WPLH Common Stock may vote either in person or by
properly executed proxy. By completing and returning the form of proxy, the WPLH
shareowner authorizes the persons named therein to vote all the WPLH
shareowner's shares on his or her behalf. Issued and outstanding shares of WPLH
Common Stock which are represented by properly executed proxies will, unless
such proxies have been revoked, be voted in accordance with the instructions
indicated in such proxies. If no instructions are indicated on a properly
executed proxy, such shares will be voted FOR approval of the Merger Agreement
(including the issuance of shares of Interstate Energy Common Stock pursuant to
the terms of the Merger Agreement), FOR approval of each of the WPLH Charter
Amendments, FOR the election of the nominated directors and FOR the appointment
of Arthur Andersen LLP as WPLH's independent auditors for the year ending
December 31, 1996. A WPLH proxy may be revoked by voting in person at the WPLH
Meeting, by written notice to WPLH's Corporate Secretary, or by delivery of a
duly executed proxy bearing a later date, in each case prior to the closing of
the polls for voting at the WPLH Meeting. Attendance at the WPLH Meeting will
not in itself constitute revocation of a proxy.
If an individual is a participant in the WP&L Employees' Retirement Savings
Plan (the "WP&L Savings Plan"), the participant will receive a voting directive
from the WP&L Savings Plan trustee for shares of WPLH Common Stock allocated to
the participant's account under the WP&L Savings Plan. The trustee for the WP&L
Savings Plan will vote such shares as instructed by the participant in his or
her voting directive. If a participant does not return a voting directive, such
participant's shares will be voted by the trustee for the WP&L Savings Plan in
its absolute discretion and in accordance with ERISA (as hereinafter defined).
If a WPLH shareowner is a participant in the WPLH Dividend Reinvestment and
Stock Purchase Plan (the "WPLH DRIP"), the WPLH proxy will represent the shares
held on behalf of the participant under the WPLH DRIP and such shares will be
voted in accordance with the instructions on the WPLH proxy. If a participant in
the WPLH DRIP does not return a WPLH proxy, the participant's shares will not be
voted.
WPLH will bear the cost of the solicitation of proxies for the WPLH Meeting,
except that WPLH, IES and IPC have agreed to share the expenses incurred in
connection with printing and filing this Joint Proxy Statement/Prospectus (43%
by WPLH, 43% by IES and 14% by IPC). See "The Merger Agreement -- Expenses." In
addition to soliciting proxies by mail, officers and employees of WPLH, without
receiving additional compensation therefor, may solicit proxies by telephone,
telecopy, telegram or in person. WPLH, IES and IPC have retained Morrow & Co.,
Inc. to assist in the solicitation of
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proxies from their respective shareowners, including brokers' accounts, at an
aggregate fee for such services of $15,000 plus an additional $2.00 per
shareowner contact and reasonable out-of-pocket expenses.
The WPLH Meeting may be adjourned to another date and/or place for any
proper purpose (including, without limitation, for the purpose of soliciting
additional proxies).
THE IES MEETING
PURPOSE OF IES MEETING. The purpose of the IES Meeting is to consider and
vote upon: (i) a proposal to approve the Merger Agreement and the transactions
contemplated thereby; (ii) a proposal to elect a board of nine directors to
serve until the next annual meeting or until their successors are duly elected
and qualified; and (iii) such other matters, if any, as may properly come before
the IES Meeting. The IES Board is not aware, as of the date of mailing of this
Joint Proxy Statement/ Prospectus, of any other matters which may properly come
before the IES Meeting. If any such other matters properly come before the IES
Meeting, or any adjournment or postponement thereof, it is the intention of the
persons named in the IES proxy to vote such proxies in accordance with their
best judgment on such matters.
The IES Board, by unanimous vote of the directors present at the meeting,
has approved the Merger Agreement, authorized the execution and delivery of the
Merger Agreement, and recommends that IES shareholders vote FOR approval of the
Merger Agreement and FOR the election of the nominated IES directors.
Pursuant to the Merger Agreement, consummation of the Mergers is conditioned
upon approval by the shareholders of IES of proposal (i) set forth above, but is
not conditioned upon approval by the shareholders of IES of any other proposal.
DATE, PLACE AND TIME; RECORD DATE. The IES Meeting is scheduled to be held
on Thurssday, September 5, 1996, at 10:00 a.m., Central Time, at the Collins
Plaza Hotel, 1200 Collins Road N.E., Cedar Rapids, Iowa. Holders of record of
IES Common Stock at the close of business on July 10, 1996, the IES Record Date,
will be entitled to notice of and to vote at the IES Meeting. As of the close of
business on the IES Record Date, 29,923,233 shares of IES Common Stock were
issued and outstanding and entitled to vote.
VOTING RIGHTS. Each outstanding share of IES Common Stock is entitled to
one vote upon each matter presented at the IES Meeting. A majority of the votes
entitled to be cast by holders of shares of IES Common Stock, represented in
person or by proxy, shall constitute a quorum for each matter presented at the
IES Meeting. Abstentions and broker non-votes (I.E., proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owners or other persons entitled to vote shares as to a matter with
respect to which brokers or nominees do not have discretionary power to vote)
will be considered present for the purpose of establishing a quorum.
If a quorum is present, (i) the affirmative vote of a majority of the votes
entitled to be cast by the holders of the outstanding shares of IES Common Stock
entitled to vote thereon is required for approval of the Merger Agreement, and
(ii) the affirmative vote of a majority of the votes entitled to be cast by the
holders of the outstanding shares of IES Common Stock represented at the IES
Meeting and entitled to vote thereon is required for the election of directors.
Under applicable Iowa law, in determining whether the Merger Agreement and the
nominees for directors have received the requisite number of affirmative votes,
abstentions and broker non-votes will have the same effect as votes cast against
approval of the Merger Agreement and against approval of the nominees for
director. Failure to return an IES proxy or to vote in person at the IES Meeting
will also have the effect of a vote against the Merger Agreement and against the
nominees for director. The directors and executive officers of IES, together
with their affiliates as a group, are deemed to own beneficially less than 1% of
the issued and outstanding shares of IES Common Stock.
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PROXIES. Holders of IES Common Stock may vote either in person or by
properly executed proxy. By completing and returning the form of proxy, the IES
shareholder authorizes the persons named therein to vote all the IES
shareholder's shares on his or her behalf. Issued and outstanding shares of IES
Common Stock which are represented by properly executed proxies will, unless
such proxies have been revoked, be voted in accordance with the instructions
indicated on such proxies. If no instructions are indicated on a properly
executed proxy, such shares will be voted FOR approval of the Merger Agreement
and FOR the election of the nominated directors. An IES proxy may be revoked by
voting in person at the IES Meeting, by written notice to IES's Secretary, or by
delivery of a duly executed proxy bearing a later date, in each case prior to
the closing of the polls for voting at the IES Meeting. Attendance at the IES
Meeting will not in itself constitute revocation of proxy.
The proxy/directions cards enclosed have imprinted thereon the number of
shares of IES Common Stock held of record as well as shares held for the account
of shareholder participants in the IES Dividend Reinvestment and Stock Purchase
Plan. Proxy/directions cards for shareholders who are employees of IES and who
are participants in the IES Employee Stock Purchase Plan, the Dividend
Reinvestment and Stock Purchase Plan or the IES Bonus Stock Ownership Plan will
also have imprinted thereon the number of shares held for the account of
participants in that plan. Employees who are not shareholders of record but who
are participants in any of the plans will receive a proxy/ directions card for
shares being held for them pursuant to such plan. The number of shares imprinted
on the proxy/directions cards are the number of shares to be voted in accordance
with the instructions of the shareholder or plan participant.
All shares of IES Common Stock held for the account of participants in the
IES Dividend Reinvestment and Stock Purchase Plan, IES Bonus Stock Ownership
Plan and the IES Employee Stock Purchase Plan, respectively, are held of record
by the Shareholder Services Department of IES. All shares held in such plans
will be voted by said Department in the manner indicated by the participant's
proxy/directions card. Participants in the Iowa Southern Utilities Company
Employee Stock Ownership Plan will receive a proxy/directions card for shares
being held for them pursuant to such plan. The number of shares imprinted on the
proxy/directions card are the number of shares to be voted in accordance with
the instructions of the participant. All shares of IES Common Stock held for the
account of such participants are held of record by Stephen W. Southwick (Vice
President, General Counsel & Secretary of IES), as Trustee. All shares held in
such plan will be voted by the Trustee in the manner indicated by the
participant's proxy/direction card.
Employees who are participants in the IES Common Stock Fund of the IES
Employee Savings Plan will receive a proxy/directions card from American Express
Trust Company, as Trustee, the holder of record for shares held in such plan.
The proxy/directions cards have imprinted thereon the number of shares held for
the account of each participant. The number of shares imprinted on the
proxy/directions card will be voted by the Trustee in accordance with the
instructions of the participant. Shares not voted by the participants will be
voted by the Trustee as the Employee Savings Plan Committee of IES directs.
IES will bear the cost of the solicitation of proxies for the IES Meeting,
except that IES, WPLH and IPC have agreed to share the expenses incurred in
connection with printing and filing this Joint Proxy Statement/Prospectus (43%
by IES, 43% by WPLH and 14% IPC). See "The Merger Agreement -- Expenses." In
addition to soliciting proxies by mail, officers and employees of IES, without
receiving additional compensation therefor, may solicit proxies by telephone,
telecopy, telegram or in person. IES, WPLH and IPC have retained Morrow & Co.,
Inc. to assist in the solicitation of proxies from their respective
shareholders, including brokers' accounts, at an aggregate fee for such services
of $15,000 plus an additional $2.00 per shareholder contact and reasonable
out-of-pocket expenses.
The IES Meeting may be adjourned to another date and/or place for any proper
purpose (including, without limitation, for the purpose of soliciting additional
proxies).
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THE IPC MEETING
PURPOSE OF THE IPC MEETING. The purpose of the IPC Meeting is to consider
and vote upon: (i) a proposal to approve the Merger Agreement and the
transactions contemplated thereby; (ii) a proposal to approve the IPC Charter
Amendment; (iii) a proposal to elect two Class II directors to hold office for a
term of three years expiring at the 1999 annual meeting of stockholders of IPC,
or until their respective successors shall have been duly elected and qualified;
and (iv) such other matters, if any, as may properly come before the IPC
Meeting. The IPC Board is not aware, as of the date of mailing of this Joint
Proxy Statement/Prospectus, of any other matters which may properly come before
the IPC Meeting. If any such other matters properly come before the IPC Meeting,
or any adjournment or postponement thereof, it is the intention of the persons
named in the IPC proxy to vote such proxies in accordance with their best
judgment on such matters.
The IPC Board, by unanimous vote, has approved the Merger Agreement,
authorized the execution and delivery of the Merger Agreement, adopted a
resolution setting forth the IPC Charter Amendment and declaring its
advisability, and recommends that IPC stockholders vote FOR approval of the
Merger Agreement, FOR approval of the IPC Charter Amendment and FOR the election
of the nominated IPC directors.
Pursuant to the Merger Agreement, consummation of the Mergers is conditioned
upon approval by the stockholders of IPC of proposals (i) and (ii) set forth
above, but is not conditioned upon approval by the stockholders of IPC of any
other proposal.
DATE, PLACE AND TIME; RECORD DATE. The IPC Meeting is scheduled to be held
on Thursday, September 5, 1996, at 10:00 a.m., Central Time, at the Holiday Inn
Dubuque Five Flags, 450 Main Street, Dubuque, Iowa. Holders of record of IPC
Common Stock at the close of business on July 10, 1996, the IPC Record Date,
will be entitled to notice of and to vote at the IPC Meeting. As of the close of
business on the IPC Record Date, 9,595,028 shares of IPC Common Stock were
issued and outstanding and entitled to vote.
VOTING RIGHTS. Each outstanding share of IPC Common Stock is entitled to
one vote upon each matter presented at the IPC Meeting. A majority of the votes
entitled to be cast by holders of shares of IPC Common Stock, represented in
person or by proxy, shall constitute a quorum. Abstentions and broker non-votes
(I.E., proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons entitled to
vote shares as to a matter with respect to which brokers or nominees do not have
discretionary power to vote) will be considered present for the purpose of
establishing a quorum.
The affirmative vote of a majority of the outstanding IPC Common Stock
entitled to vote is required for approval of the Merger Agreement and approval
of the IPC Charter Amendment, and a plurality of votes cast at the IPC Meeting
is required for the election of directors.
As to the votes on the Merger Agreement and the IPC Charter Amendment before
stockholders at the IPC Meeting, abstentions and broker non-votes will have the
same effect as votes cast against approval of the Merger Agreement and the IPC
Charter Amendment. As to the election of directors before stockholders at the
IPC Meeting, abstentions and broker non-votes will have no effect. The directors
and executive officers of IPC, together with their affiliates as a group, are
deemed to own beneficially less than 1% of the issued and outstanding shares of
IPC Common Stock.
PROXIES. Holders of the IPC Common Stock may vote either in person or by
properly executed proxy. By completing and returning the form of proxy, the IPC
stockholder authorizes the persons named therein to vote all the IPC
stockholder's shares on his or her behalf. All completed IPC proxies returned
will be voted in accordance with the instructions indicated on such proxies. If
no instructions are given on a properly executed proxy, the IPC proxies will be
voted FOR approval of the Merger Agreement, FOR approval of the IPC Charter
Amendment and FOR election of the two Class II directors recommended by the IPC
Board. An IPC proxy may be revoked by voting in person at the
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IPC Meeting, by written notice to IPC's Corporate Secretary, or by delivery of a
duly executed proxy bearing a later date, in each case prior to the closing of
the polls for voting at the IPC Meeting. Attendance at the IPC Meeting will not
in itself constitute revocation of a proxy.
For stockholders participating in IPC's Dividend Reinvestment and Stock
Purchase Plan (the "IPC DRSPP"), the enclosed proxy will represent the number of
shares registered in the participating stockholder's name and/or the number of
shares allocated to the participating stockholder's account (the "DRSPP Shares")
under the IPC DRSPP. The enclosed proxy will serve as the instructions as to how
to vote the DRSPP Shares. If a participating stockholder does not furnish any
proxy to vote the DRSPP Shares, that stockholder's DRSPP Shares will not be
voted.
IPC employees that participate in the IPC Common Stock Fund of the IPC
401(k) Plan will receive a proxy from Dubuque Bank & Trust Company (the 401(k)
Plan Trustee and the holder of record for shares held in the IPC 401(k) Plan).
The proxy will have imprinted thereon the number of shares held for the account
of each participant in the IPC 401(k) Plan. The number of shares imprinted on
the proxy will be voted by the IPC 401(k) Plan Trustee in accordance with the
instructions of the IPC 401(k) Plan participant.
IPC will bear the cost of the solicitation of proxies for the IPC Meeting,
except that IPC, WPLH and IES have agreed to share the expenses incurred in
connection with printing and filing this Joint Proxy Statement/Prospectus (14%
by IPC, 43% by WPLH and 43% by IES). See "Merger Agreement -- Expenses." Proxies
may be solicited by certain officers and employees of IPC or its subsidiaries by
mail, by telephone, personally or by other communications, without compensation
apart from their normal salaries. IPC, WPLH and IES have retained Morrow & Co.,
Inc. to assist in the solicitation of proxies from their respective
stockholders, including brokers' accounts, at an aggregate fee for such services
of $15,000 plus an additional $2.00 per stockholder contact and reasonable
out-of-pocket expenses.
The IPC Meeting may be adjourned to another date and/or place for any proper
purpose (including, without limitation, for the purpose of soliciting additional
proxies).
THE MERGERS
BACKGROUND OF THE MERGERS
Each of WPLH, IES and IPC believes that fundamental changes in the
regulatory structure of the electric utility industry are inevitable and that
such changes will likely occur in the near future. Recently enacted federal laws
and actions by federal and state regulatory commissions are facilitating the
changes to bring more competition to various segments of the industry.
The Energy Policy Act of 1992 (the "1992 Act") granted FERC the authority to
order electric utilities to provide transmission service to other utilities and
to other buyers and sellers of electricity in the wholesale market. The 1992 Act
also created a new class of power producers, exempt wholesale generators
("EWGs"), which are exempt from regulation under the 1935 Act. The exemption
from regulation under the 1935 Act of EWGs has increased the number of entrants
into the wholesale electric generation market, thus increasing competition in
the wholesale segment of the electric utility industry.
Commencing in December 1993, pursuant to its authority under the 1992 Act,
FERC issued a number of orders in specific cases directing utilities to provide
transmission services. Under FERC's evolving transmission policies, utilities
are being required to offer transmission services to third parties on a basis
comparable to services that the utilities provide themselves. FERC is in the
process of rulemaking pursuant to which it is seeking to implement, on a
comprehensive basis, the comparable transmission service policies it has set
forth in these specific cases. FERC's actions to date and its transmission
rulemaking proceeding have increased the availability of transmission services,
thus creating greater competition in the wholesale power market.
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In addition, state regulatory bodies in over thirty states, including, among
others, Wisconsin, Illinois, Iowa and Minnesota, have initiated proceedings to
review the basic structure of the industry. These bodies are considering, or may
soon consider, proposals to require some measure of competition in the retail
portion of the industry. The Wisconsin Commission requested comment regarding
how the industry might be restructured in order to create a more competitive
environment. Following receipt of responses, the Wisconsin Commission created a
task force to analyze how the industry might be restructured in Wisconsin to
allow consumers to receive the benefits of increased competition. On December
19, 1995, following receipt of the report of the task force, the Wisconsin
Commission agreed to take steps to further increase competition in Wisconsin's
electric utility industry within five years. While the outcome of the actions
described above is uncertain, it remains the view of the management of WPLH, IES
and IPC that there will ultimately be increased competition in the retail
segment of the business.
The changes to the electric industry that have occurred and that are
occurring are bringing increased competition to various sectors of the business
and are putting pressure on utilities to lower their costs. Each of WPLH, IES
and IPC recognized that a combination with one or more appropriate utilities
would enable the combined entity to generate and deliver energy more cheaply and
efficiently and thereby remain a competitive supplier of energy in an
increasingly competitive industry.
Over the last several years, the management of WPLH has periodically
analyzed various potential strategic options that might be available to WPLH,
including possible business combinations or alliances with other utilities. WPLH
management considered the possibility of pursuing business combinations with a
number of the utilities with service areas proximate to the service area of
WP&L, as well as other utilities with Midwestern operations, and periodically
briefed the WPLH Board on such matters. Based on a cost-benefit analysis of the
potential strategic options considered, WPLH management determined the options
studied were not in the best interests of WPLH and its shareowners. In early
February 1995, during the continuation of one of its reviews of various
strategic alternatives, WPLH management concluded that, among others, both IES
and IPC were prospective merger partners that would provide a good overall
strategic fit. WPLH's management based its conclusions on various factors,
including low-cost structure, competitive energy rates, potential merger-related
cost savings, economies of scale, marketing potential and similar shareowner and
common stock trading characteristics. These reasons, combined with the physical
proximity of the respective companies' service areas and the compatibility of
and similarity between the companies' operations and management, made IES and
IPC natural combination partners for WPLH.
IES has believed for many years that consolidation of electric utilities
within the State of Iowa would be both desirable and inevitable. In July 1991,
Iowa Southern Inc. and IE Industries Inc. merged to form IES. The utilities in
that merger, Iowa Southern Utilities Company and Iowa Electric Light and Power
Company, merged in December 1993 to form Utilities. Since the 1991 merger,
management of IES has continued to assess other possible combination
transactions both in the State of Iowa and generally in the Midwest. In December
1992, IES acquired certain electric utility assets and properties in Iowa from
Union Electric Company. Preliminary discussions with respect to consolidation
transactions were held from time to time between representatives of IES and
other utilities in the Midwest, including IPC. IES management recognized that in
the increasingly competitive market for electric power, important criteria would
include low cost production, efficiencies of scale, transmission capability, as
well as cultural fit between possible partners and resolution of corporate
governance and other issues. In December 1994, IES determined to pursue
aggressively process reengineering to reduce costs and create efficiencies in
its electric and gas utility businesses. Management of IES continued to consider
potential combination transactions both as an additional means of realizing
higher efficiency levels and as a means to increase shareholder value.
For the past several years, IPC has been monitoring the changes occurring in
the electric and gas utility industry and conducting strategic planning in an
effort to remain competitive in the changing environment. During that time, IPC
has been approached by representatives of other utilities (including IES) in
connection with potential business combinations, but has not held substantive
discussions
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on any specific proposed combination. During the eighteen months prior to the
execution of the Merger Agreement, the management of IPC analyzed various
potential strategic options that might be available to IPC, including possible
business combinations or strategic alliances with other utilities, as well as
options that could be pursued by IPC on a stand-alone basis. In examining these
potential strategic initiatives, IPC management determined that, at that time,
and based upon the circumstances then existing, IPC and its stockholders would
be best served by a strengthening of IPC on a stand-alone basis. This
determination was made by IPC management based upon its subjective assessment of
the potential benefits and potential risks of each of the alternatives
considered. In April 1995, IPC management proposed to the IPC Board, and the IPC
Board approved, a series of strategic steps to be pursued by IPC on an
independent basis. These strategic steps included initiatives to: increase
energy sales consistent with efficient energy usage; enhance efforts to improve
productivity and efficiency; leverage existing skills and resources to increase
revenues and earnings through new service offerings; focus the core energy
service business to be customer driven; prepare the generation segment for
potential unregulated market; intensify efforts to earn the allowed rate of
return in all jurisdictions in which IPC does business; and investigate the
potential for diversification into non-core businesses.
Over the last several years, as the foregoing issues were being considered
by the management of each of WPLH, IES and IPC, Messrs. Liu and Davis and
Messrs. Liu and Stoppelmoor held general discussions concerning the evolving
nature of the electric utility industry. In May 1995, Mr. Davis called Mr. Liu
to schedule a meeting to discuss in a more focussed manner the views of WPLH and
IES regarding the future of the utility industry. That call resulted in a
meeting on May 18, 1995 at which the concept of a business combination between
WPLH and IES and a subsequent combination between the combined WPLH/IES and IPC
were discussed in a very preliminary fashion. At that meeting, Messrs. Davis and
Liu also identified the issues of management succession, board composition and
various utility integration strategies as significant points in any such
business combination to be agreed upon, and agreed that discussions between
representatives of WPLH and IES should be initiated.
On May 23 and June 12, 1995, Eliot G. Protsch, Senior Vice President of
WP&L, and Robert J. Latham, then Senior Vice President, Finance of IES, met to
compare corporate strategies and discuss the potential synergies that could
result from a business combination between WPLH and IES. At such meetings,
Messrs. Protsch and Latham also discussed various strategies on how to further
the discussions that had occurred from time to time between IES and IPC
regarding a possible business combination between IES and IPC. At the latter
meeting, WPLH and IES entered into a confidentiality agreement, pursuant to
which the parties agreed to exchange non-public information with a view towards
exploring a possible business combination.
On June 22, 1995, at a regularly scheduled meeting of the WPLH Board which
took place in Washington D.C., a number of outside experts gave presentations to
the WPLH Board regarding, among other things, the evolution of the utility
industry towards a more competitive environment and the consolidation occurring
in the industry. At the June 22 meeting, WPLH management also informed the WPLH
Board of the meetings that had taken place between WPLH and IES and discussed
the overall concept of a business combination between WPLH and IES and the
possibility that such combination would potentially be followed by a business
combination with IPC. At this meeting, the WPLH Board authorized management to
retain financial and legal advisors to assist with the potential transaction.
After the June 22, 1995 meeting, WPLH engaged Merrill Lynch as its exclusive
financial advisor to assist WPLH in analyzing, structuring, negotiating, and
effecting the possible transaction. As described in greater detail below,
Merrill Lynch, in the course of its engagement, primarily performed various
financial analyses and financial due diligence regarding each of the parties. In
addition, Merrill Lynch provided advice regarding, and participated in
discussions concerning, exchange ratios. Merrill Lynch also participated from
time to time in discussions regarding the structure of the
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transaction, although structural issues were predominantly influenced by tax and
regulatory considerations. In addition, following the June 22 meeting, WPLH
engaged Foley & Lardner, its outside law firm, to advise it with respect to the
potential business combination.
On June 27, 1995, Mr. Liu met in Dubuque, Iowa with Mr. Stoppelmoor to
determine if IPC would be interested in entering into a two-way or a three-way
business combination. At that meeting, Mr. Liu and Mr. Stoppelmoor discussed the
perceived potential benefits that could accrue to IPC stockholders in a two-way
or three-way business combination. Mr. Stoppelmoor indicated that he would
consider the matters discussed at this meeting and, if appropriate, would
respond to Mr. Liu.
On June 29 and 30, 1995, officers of WPLH and IES, including Mr. Protsch and
William D. Harvey, Senior Vice President of WP&L, and Mr. Latham and Blake O.
Fisher, then Executive Vice President and Chief Financial Officer of IES, met to
further review strategic compatibility of the two companies and the potential
synergies that could result from a potential business combination transaction,
and to discuss possible preliminary timetables for such a transaction.
On June 30, 1995, IES formally engaged Morgan Stanley as its financial
advisor in connection with this possible transaction. During the term of its
engagement, Morgan Stanley provided IES with financial advice and assistance in
connection with the Mergers, including advice and assistance with respect to
defining objectives, performing valuation analysis and structuring, planning and
negotiating the transaction. In particular, and as described in greater detail
below, Morgan Stanley, in the course of its engagement, primarily performed
various financial analyses and financial due diligence regarding each of the
parties. In addition, Morgan Stanley provided advice regarding, and participated
in discussions concerning, exchange ratios. Morgan Stanley also participated
from time to time in discussions regarding the structure of the transaction,
although structural issues were predominantly influenced by tax and regulatory
considerations.
On July 3, 1995, Messrs. Davis and Liu met in Madison, Wisconsin to review
the status of the potential transaction and further discuss issues relating to
management succession, the composition of the combined corporation's board of
directors and various utility integration strategies.
On July 8, 1995, the IES Board held a special meeting at which Mr. Liu and
representatives of Morgan Stanley and Winthrop, Stimson, Putnam & Roberts, IES's
outside law firm, briefed the members of the IES Board on discussions that had
been taking place with WPLH and IPC. At this meeting, the merger of Midwest
Resources Inc. and Iowa-Illinois Gas and Electric Company, which had been
announced on July 27, 1994, was also discussed. Mr. Liu presented profiles of
both IES and WPLH and noted a number of areas of compatibility and opportunities
which could result from a combination between IES and WPLH. The IES Board
considered that strategic combination alternatives for IES were limited, and
that the number of possible partners, following the Midwest Resources/
Iowa-Illinois announcement, would likely decline further over time. The IES
Board identified a number of concerns that would need to be addressed in further
discussions, such as the effects of Wisconsin regulation and the structural
necessity of becoming a registered holding company under the 1935 Act. At this
time, the IES Board determined that it would be advisable to proceed with
discussions to the next level and to begin due diligence with respect to the
business and legal aspects of a possible combination with WPLH.
On July 12, 1995, the WPLH Board met with WPLH's advisors. Representatives
of Merrill Lynch discussed their views on changing conditions in the utility
industry and provided financial profiles and preliminary valuations of IES.
Legal counsel for WPLH explained the directors' legal responsibilities and
presented information as to the regulatory approvals that would be required for
a combination with IES, the standards for review to be applied by the various
regulatory bodies and the implications of adopting a registered holding company
structure under the 1935 Act, including the possibility that divestiture of the
combined entity's gas and certain non-utility operations might be required. The
WPLH Board discussed the potential benefits to shareowners and customers of WPLH
that could result from the proposed combination and authorized management to
proceed with the process.
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In mid-July 1995, Mr. Liu contacted Mr. Stoppelmoor to discuss further the
potential benefits that could accrue to IPC and its stockholders and customers
in a two-way or three-way business combination. At the conclusion of this
conversation, Mr. Stoppelmoor indicated that he would report Mr. Liu's proposal
to the IPC Board at its next regularly scheduled meeting on July 27, 1995 and
would respond to Mr. Liu, if appropriate, following that meeting.
On July 17 and July 24, 1995, Mr. Protsch, Mr. Ahearn, Daniel A. Doyle, Vice
President-Finance, Controller and Treasurer of WP&L, Barbara J. Swan, Vice
President and General Counsel of WP&L, Larry D. Root, then Executive Vice
President of IES, Stephen W. Southwick, Vice President, General Counsel and
Secretary of IES, and Mr. Fisher, together with other personnel from WPLH and
IES, as well as their financial and legal advisors, held introductory meetings
to discuss, among other things, a timetable for accomplishing the tasks required
to negotiate, prepare and execute a merger agreement between the two companies.
At these meetings, due diligence was performed on both the utility and
non-utility businesses of WPLH and IES and working groups composed of
representatives of both companies were formed to examine more comprehensively
various issues including corporate structure, nonregulated operations,
environmental compliance and liabilities, nuclear generation opportunities and
risks, reengineering initiatives under way at the companies, regulatory
considerations, and synergy identification and quantification approaches
relating thereto.
On July 27, 1995, at a meeting of the IPC Board, Mr. Stoppelmoor reported to
the IPC Board that he had been contacted by Mr. Liu with respect to scheduling a
meeting to discuss a potential business combination among IPC, IES and WPLH. The
IPC Board authorized Messrs. Stoppelmoor and Chase to meet with representatives
of IES and WPLH to discuss on a preliminary basis a potential business
combination among the companies.
The IES Board met on July 31 and August 1, 1995, at which time the results
of the due diligence investigation conducted to date were presented and further
discussions were held as to the desirability of pursuing a combination
transaction with WPLH. At this meeting, the IES Board discussed alternatives for
possible combination partners, as well as a strategy of remaining independent
while pursuing the reengineering initiative undertaken earlier in the year. The
IES Board concluded that it should retain an independent consultant to assist in
evaluating the strategic alternatives available to IES. At the same time, the
IES Board directed management to continue its discussions with WPLH and IPC.
The reengineering initiative was undertaken by IES to examine all of the
major business processes of Utilities. The goals of the initiative as approved
by the IES Board were to improve customer service and commitment and
significantly reduce Utilities' cost structure. The majority of the changes
identified in connection with the initiative are intended to be implemented in
1996. Such changes include, but are not limited to, managing the business in
business unit form rather than functionally, formation of alliances with vendors
of certain types of material rather than opening most purchases to a bidding
process, changing standards and construction practices in transmission and
distribution areas, changing certain work practice in power plants, and
improving the method by which service is delivered to customers in all customer
classes.
On August 9, 1995, Mr. Davis, Mr. Liu, Mr. Stoppelmoor and Mr. Chase met to
evaluate IPC's interest in a three-way business combination between WPLH, IES
and IPC. At this meeting, the representatives from the three companies discussed
their views on the future of the utility industry and identified the issues of
management succession, board composition and various utility integration
strategies as points to be agreed upon. At such meeting, IPC informed WPLH and
IES that the potential three-way transaction would need to be discussed with the
IPC Board before IPC would engage in any substantive discussions. After such
meeting, Messrs. Davis and Liu reviewed the status of discussions that had
occurred to date regarding the potential two-way business combination between
WPLH and IES.
Over the course of the next two weeks, representatives of both WPLH and IES
continued their work with respect to the synergy identification and
quantification approaches relating thereto, non-
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regulated operations, environmental compliance and liabilities, nuclear
generation opportunities and risks, reengineering initiatives underway at the
companies, legal structure, regulatory plans and other due diligence activities.
On August 14, 1995, Arthur Andersen Economic Consulting made a presentation
to IES management and a subcommittee of the IES Board discussing competitive
forces in the industry, regulatory reform proposals and strategic options for
utilities. Arthur Andersen Economic Consulting was thereafter engaged to assist
the IES Board and management in their consideration of strategic alternatives,
particularly in the area of possible synergies and/or cost savings that could be
obtained from various alternative combination transactions and as compared to
cost savings which management of IES believed could be obtained on a stand-alone
basis through process reengineering. IES selected Arthur Andersen Economic
Consulting for this assignment based on the firm's experience and reputation in
providing strategic and regulatory consulting for the electric power and natural
gas industries. Arthur Andersen Economic Consulting is an affiliate of Arthur
Andersen LLP. Arthur Andersen LLP has served as the independent accountants for
IES and WPLH for many years, performing the independent annual audit of the
companies and providing business advisory and tax consultation to the two
companies. Arthur Andersen LLP has received customary fees for these services.
Arthur Andersen Economic Consulting received a fee of approximately $200,000 in
connection with its services provided to IES.
At a special meeting of the IPC Board on August 23, 1995, Messrs.
Stoppelmoor and Chase reported to the IPC Board their discussions with
representatives of IES and WPLH regarding a proposed three-way business
combination. The IPC Board then discussed the potential strategic benefits of
such a combination to IPC and its stockholders and customers as compared to the
potential benefits of the strategic options that IPC had earlier determined to
pursue on a stand-alone basis. The IPC Board concluded that a three-way
combination with IES and WPLH offered potential benefits to IPC and its
stockholders (in the form of a larger, financially sound enterprise with
potentially greater earnings and dividend prospects) and to IPC's customers (in
the form of a more competitive enterprise) and should be further explored. At
the August 23 meeting, the IPC Board authorized IPC management to continue
discussions with representatives of IES and WPLH regarding a potential
transaction and, in furtherance thereof, authorized IPC management to enter into
a confidentiality agreement with IES and WPLH pursuant to which the companies
would exchange certain non-public information and authorized IPC management to
retain counsel, financial advisors and such other professional advisors as IPC
management deemed prudent in assisting IPC in evaluating a potential business
combination transaction.
Shortly after the August 23, 1995 meeting, IPC engaged Salomon Brothers as
its financial advisor to assist IPC in analyzing, structuring, negotiating and
effecting the possible three-way transaction and engaged the law firm of
Milbank, Tweed, Hadley & McCloy to advise it with respect thereto. As described
in greater detail below, Salomon Brothers, in the course of its engagement,
primarily performed various financial analyses and financial due diligence
regarding each of the parties. In addition, Salomon Brothers provided advice
regarding, and participated in discussions concerning, exchange ratios. Salomon
Brothers also participated from time to time in discussions regarding the
structure of the transaction, although structural issues were predominantly
influenced by tax and regulatory considerations. In addition, following the
August 23 meeting, IPC engaged the Deloitte & Touche Consulting Group
("Consulting Group") to assist IPC's management in identifying other potential
combination partners and in assessing the relative attractiveness of each of
these potential partners, including WPLH and IES, from the standpoint of the
potential synergies described by management which could be realizable from such
a transaction. IPC management, with the assistance of Consulting Group,
identified certain financial factors, such as financial strength and earnings
growth, and certain operational factors, such as customer mix and capacity mix,
that would be relevant to the IPC Board's assessment of the relative
attractiveness of other potential combination partners. This information, based
only on publicly available information and certain attributes regarding the
financial and operational profile of these potential partners, was presented to
the IPC Board to describe potential areas of synergies.
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On August 25, 1995, Mr. Protsch, Mr. Root and Mr. Chase met to review a
schedule of due diligence requirements and the expansion of the confidentiality
agreement between WPLH and IES to include IPC, as well as the prospective
timetable for a three-way transaction.
On August 30, 1995, the IES Board met again to consider strategic
alternatives, including the possible combination with WPLH, or a combination
with WPLH and IPC. At this meeting, Arthur Andersen Economic Consulting
discussed the changes occurring in the electric utility industry and the
strategic options available for electric utilities, provided an overview of
relevant factors to consider in evaluating mergers and made a preliminary
presentation in which it analyzed, based solely on publicly available
information and using a third party model and assumptions adopted by IES
management, cost-savings which could be realized from various strategic
alternatives, including combination transactions with WPLH and/or WPLH and IPC.
The results of IES management's ongoing due diligence were also presented at
this meeting. The IES Board concluded that the most desirable transaction would
likely involve the three-way combination of IES with WPLH and IPC, but that a
two-way transaction with WPLH alone also appeared worthy of pursuit. Although
the IES Board decided to pursue a combination, the IES Board also decided to
continue the reengineering initiative described above.
The WPLH Board met on September 6, 1995 and was updated by management,
Merrill Lynch and legal counsel on the status of the discussions with IES and
IPC and received a comprehensive due diligence report on IES. Legal counsel
again advised the WPLH Board with respect to the directors' legal
responsibilities in connection with the proposed transaction. Merrill Lynch also
provided updated financial profiles and preliminary valuations of IES and IPC.
The WPLH Board again discussed the potential benefits to shareowners of WPLH (in
the form of enhanced opportunities for earnings) and customers of WPLH (in the
form of maintenance of competitive rates) that could result from the proposed
two-way or three-way combination and agreed that management should proceed with
its discussions with IES and IPC.
On September 7, 1995, Mr. Davis met Mr. Liu and Jack R. Newman and C.R.S.
Anderson, outside directors of IES assigned to study and evaluate the potential
transaction, in Chicago, Illinois to discuss various issues in connection with
the proposed business combination and the operations of the combined company
after the combination.
On September 11, 1995, Mr. Protsch, Mr. Root and Mr. Chase met to discuss
the general terms to be included in the merger agreement and to further discuss
the issues of management succession, the composition of the board of directors
of the combined company and various utility integration strategies. At this
meeting, the three executives also reviewed the status of the due diligence
process regarding WPLH and IES.
On September 14, 1995, the IPC Board met with IPC's financial and legal
advisors to discuss the proposed combination and various other matters. IPC
management discussed with the IPC Board management's views on the changing
conditions in the electric utility industry generally, and specifically the
continued consolidation within the industry as utilities prepared for a more
competitive environment. Salomon Brothers reviewed with the IPC Board
preliminary financial profiles and preliminary valuation information with
respect to IES and WPLH. Salomon Brothers also reviewed certain preliminary
financial information regarding other potential merger candidates. Legal counsel
for IPC advised the IPC Board with respect to their legal responsibilities and
presented information as to the regulatory approvals that would be required for
a business combination involving IPC generally and specifically in connection
with a combination involving IES and WPLH, including the implications under the
1935 Act. Counsel also discussed the various implications of combining with
entities (such as IES and WPLH) that owned and/or operated nuclear generating
facilities and the various legal, regulatory and environmental considerations
associated with nuclear generation. At that meeting, Consulting Group discussed
with the IPC Board, on behalf of IPC's management, the views of such management
as to various areas of operations in which potential synergies could be realized
following a combination with IES and WPLH and management's preliminary analysis
of the scope
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of such potential synergies. Consulting Group also discussed the potential areas
for operational synergies that could result from combinations involving other
potential merger candidates. The IPC Board discussed the potential benefits to
stockholders and customers that could result from the proposed combination as
well as combinations involving other potential merger partners, and authorized
management to proceed with the process.
Following the September 14 IPC Board Meeting, IPC engaged Synergy Consulting
Services Corporation to conduct an analysis of the nuclear facilities of IES and
WPLH, and WPLH, IES and IPC entered into a confidentiality agreement, which
superseded the confidentiality agreement previously entered into by and between
WPLH and IES, pursuant to which the parties agreed to exchange non-public
information with a view towards exploring a possible business combination. For a
description of certain standstill provisions contained in such confidentiality
agreement, see "The Merger Agreement -- Standstill Provisions."
On September 19 and 20, 1995, Mr. Protsch, Mr. Ahearn, Mr. Fisher, Mr. Root,
Mr. Stoppelmoor and Mr. Chase, together with other personnel from WPLH, IES and
IPC, as well as their financial and legal advisors, held the first full scale
meeting among all three companies to discuss, among other things, a timetable
for accomplishing the tasks required to negotiate, prepare and execute a merger
agreement among the three companies. Representatives of Consulting Group, which
firm had been retained to assist IPC's management, as described above, were also
present at such meeting. At these meetings, due diligence was conducted by the
managements of WPLH, IES and IPC and IPC representatives were added to the
working groups previously formed by WPLH and IES to examine more comprehensively
various issues, including corporate structure, nonregulated operations,
environmental compliance and liabilities, nuclear generation opportunities and
risks, reengineering initiatives under way at the companies, regulatory
considerations, and synergy identification and quantification approaches
relating thereto. A decision was also made by WPLH, IES and IPC to engage
Consulting Group to assist the senior managements of all three companies and
certain employees designated by them in identifying and quantifying the
potential cost savings from synergies resulting from the proposed three-way
merger. The scope of Consulting Group's engagement (as with its earlier
engagement by IPC) was limited to assisting such managements and designated
employees in the identification and quantification of potential combination
synergies, including personnel reductions, non-labor savings, field operations,
electric dispatch, capacity deferral and gas supply savings; the assessment of
impacts of current stand-alone cost reduction initiatives on merger-related
savings; quantification of costs to achieve identified savings; and developing
summary presentation materials and supporting documentation. Managements of the
three companies were responsible for the assumptions and conclusions made in the
synergy study. While Consulting Group assisted such managements in the synergy
identification and estimation process, the determination of synergy estimates
were the sole responsibility of the managements of the three companies.
Consistent with its assignment, Consulting Group did not prepare any financial
projections, feasibility studies or reports, or assist the three companies with
financial evaluation or modeling of potential combination scenarios. Consulting
Group is a division of Deloitte & Touche LLP, an accounting firm that has acted
as independent auditors for IPC for many years and that has received customary
fees for such services. Consulting Group is a nationally recognized consulting
firm with experience in utility merger and acquisition transactions. Consulting
Group was selected by WPLH, IES and IPC based on its reputation, experience and
expertise. WPLH, IES and IPC will share equally the fees of Consulting Group in
connection with its assistance to the managements of the three parties, which
will be based on time spent plus expenses and are estimated at $400,000. The
fees and expenses of Consulting Group incurred in connection with its assignment
with IPC exclusively will be borne exclusively by IPC, and are estimated at
$100,000. Consulting Group has also been retained by WPLH, IES and IPC to
provide expert testimony in proceedings before regulatory commissions relating
to approval of the Mergers.
On September 20, 1995, WPLH management, Merrill Lynch and legal counsel
briefed the WPLH Board on the status of discussions with IES and IPC regarding a
business combination. Merrill Lynch reviewed its valuation methodology with the
WPLH Board and management explained the structural,
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nonregulated, environmental, nuclear, reengineering, regulatory and synergy
analyses being undertaken and the proposed timetable for their completion. The
potential benefits to shareowners and customers of WPLH were again discussed by
the WPLH Board.
In the ten days following September 20, 1995, representatives of WPLH, IES
and IPC continued their work with respect to the synergy identification,
nonregulated operations, environmental compliance and liabilities, nuclear
generation opportunities and risks, reengineering initiatives under way at the
companies, legal structure, regulatory plans and due diligence.
Following a September 29, 1995 due diligence meeting involving all three
companies, Mr. Davis, Mr. Protsch, Mr. Liu, Mr. Root, Mr. Stoppelmoor and Mr.
Chase met to further discuss the terms of the proposed merger agreement and
various other issues relating to the potential three-way business combination,
such as management succession, board composition and various utility integration
strategies.
On October 5, 1995, Arthur Andersen Economic Consulting made a presentation
at a meeting of the IES Board that covered strategic options in preparing for
competition and an analysis of possible cost savings from both a two-way and
three-way transaction involving WPLH and IPC as well as other possible strategic
combinations and savings which might be obtained on a stand-alone basis. Arthur
Andersen Economic Consulting's presentation emphasized that when considering
merger partners, the IES Board should consider not only possible cost savings
but also strategic and qualitative differences. The presentation also covered
the relative benefits of proceeding with a merger concurrent with or subsequent
to the reengineering initiatives undertaken by IES. Arthur Andersen Economic
Consulting's analysis of possible cost savings of the various combinations and
of IES on a stand-alone basis indicated that a three-way combination of IES with
WPLH and IPC would be expected to result in the highest level of cost savings.
Morgan Stanley reviewed with the IES Board the status of discussions with WPLH
and IPC and delivered to the IES Board its preliminary findings with respect to
the due diligence conducted as of such date on WPLH and IPC. Morgan Stanley
reviewed its valuation methodology with the IES Board and presented financial
profiles for and preliminary valuations of each of WPLH and IPC. At this
meeting, the IES Board concluded that management should pursue the three-way
transaction as the most desirable from the perspective of IES and its various
constituencies, recognizing that in so doing, other strategic opportunities
might be foregone.
During the next several days, preliminary discussions occurred between WPLH
management and Merrill Lynch, IES management and Morgan Stanley, and IPC
management and Salomon Brothers, with respect to negotiation of the exchange
ratios, and between counsel for WPLH, counsel for IES and counsel for IPC, with
respect to the terms of the draft merger agreement and the terms of possible
stock option agreements.
On October 13, 1995, Messrs. Doyle, Root and Chase met with Consulting Group
to discuss the scope, costs and timetable of the synergy study undertaken by the
managements of the three companies with the assistance of Consulting Group. Over
the next several weeks, the working group from the three companies had periodic
conversations and met with Consulting Group to finalize managements' synergy
analysis.
On October 18, 1995, at a regularly scheduled meeting of the WPLH Board,
WPLH management, Merrill Lynch and legal counsel updated the WPLH Board on the
overall progress of the merger negotiations with IES and IPC and the WPLH Board
received a full due diligence report on IPC. Merrill Lynch reviewed financial
and other information concerning WPLH, IES and IPC. Management reported on the
handling of various other issues relating to the transaction, such as management
succession, the composition of the board of directors of the combined company
and potential utility integration strategies. The WPLH Board once again
discussed the potential benefits to shareowners of WPLH (in the form of enhanced
opportunities for earnings) and customers of WPLH (in the form of maintenance of
competitive rates) that could result from the proposed three-way combination and
authorized management to continue negotiations with IES and IPC.
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On October 19, 1995, the IPC Board met with its legal and financial advisors
to receive an update on the status of the merger negotiations and the due
diligence investigations of IES and WPLH. Management reported to the IPC Board
on the overall status of the merger negotiations to date, and management, in
conjunction with Consulting Group, discussed with the IPC Board the continuing
analysis by the members of the companies' working group of the areas for the
realization of potential operational synergies that IPC management had concluded
might result from the proposed combination. Salomon Brothers reviewed certain
preliminary financial and other information regarding IPC, IES, and WPLH. Legal
counsel presented a legal due diligence report on IES and WPLH and reviewed with
the IPC Board the proposed handling of certain issues relating to the
combination, including management succession, the composition of the board of
directors of the combined company, the location of the headquarters of the
utility subsidiaries of the combined company and employee related matters. Legal
counsel also reviewed the proposed merger structure and certain significant
terms of the proposed mergers. Synergy Consulting Services Corporation, a
nationally recognized independent nuclear energy consultant retained by IPC,
presented a report containing the results of its evaluation of the Duane Arnold
Energy Center nuclear generating facility of Utilities and of the Kewaunee
nuclear facility of WP&L and identified and characterized for the IPC Board
generic nuclear power plant business risks. Synergy Consulting Services
Corporation concluded that the Duane Arnold facility ranked above-average among
the industry's nuclear generating plants in all benchmarking categories, was in
good physical condition and was well managed and also concluded that the plans
for decommissioning the Duane Arnold facility at the end of its useful life
appeared to be adequate assuming Utilities was successful in obtaining approval
from the IUB for a significant increase in its annual decommissioning fund
allocation beginning in 1996. Synergy Consulting Services Corporation concluded
that the Kewaunee facility has historically been one of the best performing
plants within the nuclear industry and noted that it had recently received the
highest possible performance ratings from both the NRC and from the Institute of
Nuclear Power Operations (INPO). However, Synergy Consulting Services
Corporation also noted that the Kewaunee facility is experiencing certain steam
generator tube and tube sleeve degradation that potentially threatens the
economic viability of continued plant operation but that viable economic
alternatives to this operational problem exist. Synergy Consulting Services
Corporation also concluded that WP&L management understood the financial risks
associated with the alternative scenarios for the Kewaunee facility's future,
that WP&L management had concluded that such risks were manageable and that the
plans for decommissioning the Kewaunee facility at the end of its useful life
were adequate. In the course of its evaluation, Synergy Consulting Services
Corporation reviewed documentation containing relevant operating statistics
(capacity factors, production costs and regulatory performance) and reviewed
external performance evaluations of the Duane Arnold and Kewaunee facilities
including INPO ratings, NRC Systematic Assessment of Licensee Performance (SALP)
ratings and other ratings based on publicly available industry benchmarking data
of nuclear station performance. The Synergy Consulting Services Corporation
evaluation took into account specific risks associated with the Duane Arnold and
Kewaunee facilities in the following categories: production, costs, organization
and management, and decommissioning plan. Finally, Synergy Consulting Services
Corporation briefed the IPC Board on the generic risks associated with nuclear
generating plants, including premature permanent plant shutdown, temporary plant
shutdown, uneconomic plant operation, inability to extend plant life,
unanticipated costs, consequences of a nuclear accident, changes in regulations,
fuel storage and fuel disposal and decommissioning costs. Following such
presentations, the IPC Board once again discussed the various potential benefits
of the proposed combination to IPC's stockholders and customers and authorized
management to continue negotiations with IES and WPLH.
The representatives and advisors for all three companies met and spoke on
numerous occasions over the next three weeks, finalizing managements' synergy
study, discussing the transaction and the related documentation and negotiating
the terms of the Merger Agreement, including the conditions to closing, the
termination provisions, the break-up fees, the covenants which would govern the
operations of WPLH, IES and IPC prior to the Effective Time and various other
policy matters that would govern the operations of the combined company after
the Effective Time. These discussions
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included meetings on November 1 and November 6, 1995 in New York among Edward M.
Gleason, Vice President, Treasurer and Corporate Secretary of WPLH, Mr. Root,
Mr. Stoppelmoor and Mr. Chase, as well as their legal counsel, to document the
negotiated terms of the Merger Agreement and other transaction documents.
Merrill Lynch, Morgan Stanley and Salomon Brothers held further discussions with
respect to the exchange ratios during the week of November 5, 1995. During the
course of these discussions, Merrill Lynch, Morgan Stanley and Salomon Brothers
each formulated a range of exchange ratios (but not specific ratios) for
purposes of the ultimate negotiation of the specific exchange ratios by the
parties, which ranges were then communicated to each firm's respective client.
While the parties' financial advisors discussed the exchange ratios and their
respective client's positions with respect thereto, the IES Ratio and the IPC
Ratio were ultimately determined by each of IES and WPLH and IPC and WPLH,
respectively.
On November 7, 1995, at a special meeting of the IPC Board, IPC management,
Salomon Brothers and legal counsel updated the IPC Board on the overall progress
of the merger negotiations with WPLH and IES. Counsel to IPC outlined in detail
the terms and conditions of the then current forms of the Merger Agreement, the
Stock Option Agreements and the Employment Agreements. Counsel reviewed such
matters as the covenants that would govern the operations of the companies prior
to the Effective Time, the representations and warranties of each of the
companies, the conditions to consummation of the Mergers and the termination
provisions of the Merger Agreement (including the termination fees and the
operation of the Stock Option Agreements). The IPC Board also discussed with
management, counsel and Salomon Brothers the management succession plan outlined
in the Merger Agreement, the composition of the Interstate Energy Board and
potential integration strategies. Consulting Group assisted IPC management in a
further presentation to the IPC Board where management reported on the analyses
of WPLH, IES and IPC managements of the potential synergies that could be
achieved by a combination of the three companies. This presentation reviewed
assumptions underlying managements' analyses, gave an overview of the types of
synergies (financial, regulatory and operational) that could be achieved by a
three-way combination and emphasized that the identified synergies were all
directly related to a possible merger and did not include other types of savings
that might be achieved without a merger. An overview of categories of synergies
was given which identified the following areas for potential synergies:
corporate and support labor, corporate programs, electric production, fuel
transportation, gas supply costs and purchasing economies for items such as
materials, supplies and contract services. The analyses assumed a period of
1997-2006, that the combination would result in a utility holding company
registered under the 1935 Act, that management and operational integration of
corporate, distribution and production support functions would occur without
total physical centralization, that labor savings would be achieved by a variety
of methods, including attrition, controlled hiring and voluntary separation
programs over three years following the combination, and that costs to achieve
the savings would be incurred primarily over the first three years following the
combination. Based upon the information compiled through November 7, 1995,
managements' analyses, as reported to the IPC Board, estimated that
approximately $780 million in potential synergy savings were realizable over the
assumed ten-year period, with the cost to achieve such savings estimated to be
approximately $80 million, resulting in managements' estimate of approximately
$700 million of net anticipated synergy savings as a result of the Mergers over
the assumed ten-year period. The analyses employed in order to develop
managements' estimates of potential savings as a result of the Mergers utilized
information provided by each company and were based upon various assumptions
that involve judgments with respect to, among other things, future national and
regional economic and competitive conditions, technological developments,
inflation rates, regulatory treatment, weather conditions, financial market
conditions, future business decisions and other uncertainties, all of which are
difficult to predict and many of which are beyond the control of IPC, IES and
WPLH.
At the November 7 meeting, the IPC Board also discussed with Salomon
Brothers various financial analyses prepared by Salomon Brothers with respect to
each of IPC, WPLH and IES. The IPC Board again discussed the potential benefits
of the proposed three-way combination to IPC stockholders (in the form of a
premium for their shares and enhanced opportunities for earnings and dividend
growth) and to customers of IPC (in the form of maintenance of quality service
and competitive rates). At the
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conclusion of the November 7 meeting, the IPC Board authorized management to
pursue finalization of the Merger Agreement and the other transaction documents
with WPLH and IES and to negotiate an exchange ratio for IPC Common Stock within
a specified range determined by the IPC Board.
On November 9, 1995, discussions were held among Mr. Davis, Mr. Liu and Mr.
Stoppelmoor and among Merrill Lynch, Morgan Stanley and Salomon Brothers
regarding the exchange ratios to be applied to IES Common Stock and IPC Common
Stock. After consulting and reviewing with Merrill Lynch the range of exchange
ratios previously presented by Merrill Lynch and discussed with the WPLH Board,
as well as the discussions among the companies and their financial advisors
regarding the exchange ratios, WPLH management proposed ratios to IES and IPC
which would result in each share of WPLH Common Stock remaining outstanding as
one share of Interstate Energy Common Stock, each share of IES Common Stock
being converted into 0.98 a share of Interstate Energy Common Stock and each
share of IPC Common Stock being converted into 1.11 shares of Interstate Energy
Common Stock.
As a result of these discussions, Mr. Stoppelmoor determined to present to
IPC's Board WPLH's proposed exchange ratio of 1.11 shares of Interstate Energy
Common Stock for each share of IPC Common Stock. This determination was made
based upon the fact that this exchange ratio was within the range specified by
IPC's Board at the November 7, 1995 meeting and was subject to the understanding
of Salomon Brothers and Mr. Stoppelmoor that the exchange ratio proposed with
respect to IES would be 0.98 of a share of Interstate Energy Common Stock for
each share of IES Common Stock.
On November 10, 1995, at a special meeting of the WPLH Board, counsel to
WPLH outlined in detail the terms and conditions of the final forms of Merger
Agreement, Stock Option Agreements, Employment Agreements and other transaction
documents. Counsel reviewed such matters as the representations and warranties
of each of the companies, the conditions to consummation of the Mergers and the
termination provisions of the Merger Agreement (including the termination fees
and the operation of the Stock Option Agreements). Counsel also reviewed the
succession plan outlined in the Merger Agreement and the handling of the various
other issues relating to the transactions, such as the composition of the board
of directors of the combined company. Mr. Protsch, A.J. (Nino) Amato, Senior
Vice President of WP&L, Mr. Doyle, Ms. Swan and Mr. Gleason made management
presentations to the WPLH Board, including an updated report on the analysis of
potential synergies prepared by the managements of WPLH, IES and IPC, with the
assistance of Consulting Group, which included discussions of potential cost
savings from economies of scale and decreased electric production and gas
purchase costs and elimination of duplicative administrative expenses, and a
review of the regulatory plan and the completion of the overall due diligence
process. Legal counsel and management then described the covenants which would
govern the operations of WPLH, IES and IPC prior to the Effective Time and other
policy issues which would govern the operations of the combined company and its
subsidiaries subsequent to the Effective Time. At the November 10 meeting,
Merrill Lynch delivered its written opinion to the WPLH Board that, as of such
date and based upon and subject to the matters discussed, the proposed exchange
ratios of 0.98 of a share of Interstate Energy Common Stock per share of IES
Common Stock and 1.11 shares of Interstate Energy Common Stock per share of IPC
Common Stock were fair to WPLH from a financial point of view. The WPLH Board
discussed the presentations they had received at this and various other WPLH
Board Meetings and, upon conclusion, unanimously approved the Merger Agreement
and the Stock Option Agreements and authorized their execution.
On November 10, 1995, at a regularly scheduled meeting of the IES Board,
counsel to IES presented in detail the terms and conditions of the proposed
Merger Agreement, Stock Option Agreements, Employment Agreements and other
transaction documents. Arthur Andersen Economic Consulting made a presentation
summarizing various financial data of the merger candidates and IES, including
retail price per Kwh and sales volume growth, and emphasizing that factors to be
considered in evaluating a merger candidate include management capability,
regulatory issues (including past regulatory performances, stranded asset
exposure and complexities of multi-state operations) and cultural factors. The
Arthur Andersen Economic Consulting presentation also generally reviewed two
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strategic options available for electric utilities responding to increased
competition: 1) consolidation or merger; and 2) process reengineering. Arthur
Andersen Economic Consulting analyzed for IES cost savings that could possibly
be realized from four different hypothetical merger combination transactions and
through process reengineering on a stand-alone basis. The cost savings analyses
were based solely on publicly available information and were developed using a
third-party model and assumptions, including industry benchmarks developed in
conjunction with and adopted by IES management. In addition to the principal
approach using the third-party model, two additional methodologies were utilized
to substantiate the reasonableness of the principal approach: the average
preliminary comparison method and the statistical econometric regression
estimation methodology. Both of these secondary methodologies utilize publicly
available data gleaned from recently announced or completed electric utility
mergers. The cost savings analyses of the four possible merger combinations and
of IES on a stand-alone basis pursuing process reengineering indicated that a
three-way combination of IES and WPLH and IPC might result in the highest level
of cost savings. Because these analyses were based solely on publicly available
data without input from nonpublic information from the various potential merger
candidates, Arthur Andersen Economic Consulting stressed that these analyses
could not be relied on to definitively rank the alternatives. Although Arthur
Andersen Economic Consulting reviewed various potential transactions, the firm
made no recommendation to the IES Board as to whether or not to proceed with a
merger or who to select as a merger partner. Morgan Stanley rendered to the IES
Board an oral opinion to the effect that, at such date, and based upon the
procedures and subject to the assumptions stated at the meeting, the IES Ratio,
taking into account the IPC Ratio, was fair from a financial point of view to
the holders of IES Common Stock. The IES Board discussed the presentations they
had received at this and other IES Board meetings and, upon conclusion, the IES
Board members present at the meeting unanimously approved the Merger Agreement
and the Stock Option Agreements and authorized their execution.
On November 10, 1995, at a special meeting of the IPC Board, counsel to IPC
reviewed with the IPC Board the terms of the final forms of Merger Agreement,
Stock Option Agreements, Employment Agreements and other transaction documents.
Counsel also reviewed the approval process to be commenced upon execution of the
Merger Agreement, including the process of seeking the approval of IPC
stockholders and the various regulatory agencies whose approval would be
required. Counsel also discussed with the IPC board various provisions of the
1935 Act and their applicability to the proposed Mergers and to the operations
of the combined entity after the Effective Time. At the November 10 meeting,
Salomon Brothers delivered its written opinion to the IPC Board to the effect
that, as of such date and based upon and subject to various considerations set
forth in such opinion, the proposed exchange ratio of 1.11 shares of Interstate
Energy Common Stock for each share of IPC Common Stock was fair, from a
financial point of view, to the holders of IPC Common Stock (other than WPLH,
IES or any of their respective affiliates). The IPC Board then discussed the
presentations they had received at this and various other IPC Board meetings
and, upon conclusion, unanimously approved the Merger Agreement and the Stock
Option Agreements and the transactions contemplated thereby, and authorized
their execution. Following the meetings of the WPLH Board, the IES Board and the
IPC Board, the Merger Agreement and the Stock Option Agreements were executed.
In mid-April 1996, Morgan Stanley, on behalf of IES, contacted Merrill Lynch
and informed Merrill Lynch that IES desired to discuss certain issues regarding
the Merger Agreement and specifically IES's investment in McLeod. Morgan Stanley
noted that the potential value of IES's stake in McLeod might be above that
contemplated at the time the parties originally entered into the Merger
Agreement.
As of the date hereof, IES Investments Inc., an indirect wholly-owned
subsidiary of IES, holds 8,420,457 shares of McLeod Class B common stock (which
is convertible at the option of IES into McLeod Class A common stock on a
share-for-share basis) and vested options to purchase an additional 1,300,688
shares. In the McLeod initial public offering, IES Investments Inc. also
purchased 500,000 shares of Class A common stock. The rights of McLeod Class A
common stock and Class B common stock are substantially identical except that
Class A common stock has 1 vote per share and
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Class B common stock has 0.40 votes per share. Mr. Liu is a director of McLeod,
owns 7,450 shares of Class A common stock and has a currently exercisable option
to purchase 32,813 shares of Class A common stock of McLeod.
IES Investments Inc. purchased the McLeod Class B common stock in three
blocks commencing in April 1993, for an aggregate of $9.2 million. The options
are exercisable for approximately $2.3 million in the aggregate. IES Investments
Inc. paid $10.0 million for the Class A common stock purchased in the McLeod
initial public offering.
Following the passage of the Telecommunications Act of 1996, in April 1996,
McLeod filed a registration statement with the SEC with respect to an initial
public offering of its Class A common stock. On June 14, 1996, McLeod sold 13.8
million shares of its Class A common stock in an initial public offering at a
price to the public of $20 per share. On such date, the last sale price per
share of the McLeod Class A common stock on the Nasdaq National Market was
$25.50. McLeod, a provider of integrated local and long distance
telecommunications services to small and medium-sized businesses primarily in
Iowa and Illinois, reported a net loss of $11.3 million on revenues of $29.0
million for the fiscal year ended December 31, 1995. IES did not sell or convert
any of its shares of Class B common stock of McLeod in the initial public
offering, but purchased $10 million of McLeod Class A common stock as a part of
the public offering transaction. IES is also subject to an Investor Agreement
executed on April 1, 1996 with McLeod pursuant to which IES has agreed, for a
two-year period which commenced on June 10, 1996, not to sell any equity
securities of McLeod unless otherwise approved by the McLeod Board of Directors.
On April 19, 1996, prior to the consummation of the McLeod initial public
offering, Morgan Stanley, on behalf of IES, proposed that the ratio at which
shares of IES Common Stock would be converted into shares of Interstate Energy
Common Stock be adjusted to provide IES shareholders with two-thirds of the
after-tax gain of IES's investment in McLeod, assuming that McLeod completed its
initial public offering and that IES constructively sold its investment in
McLeod within a period immediately prior to consummation of the Mergers. Under
the IES proposal, the after-tax gain associated with a constructive sale of
IES's interest in McLeod and the value of additional shares of Interstate Energy
Common Stock to be issued to holders of IES Common Stock would have been based
on the market value of McLeod common shares within a period immediately prior to
the consummation of the Mergers. Following discussions with its financial and
legal advisors, management of WPLH indicated that WPLH did not consider the
modification of the IES exchange ratio as proposed by IES to be appropriate
based in part upon the contingent nature of IES's investment in McLeod. IPC's
management concurred with the position adopted by WPLH.
On May 1, 1996, Morgan Stanley delivered to Merrill Lynch a revised proposal
from IES to provide for an adjustment of the IES exchange ratio. The revised IES
proposal provided that the IES exchange ratio be increased to provide an
additional $25 million of Interstate Energy Common Stock to IES shareholders
contingent upon McLeod completing an initial public offering prior to the
consummation of the Mergers. As proposed by IES, the number of additional shares
of Interstate Energy Common Stock to be issued in the event McLeod completed its
initial public offering as described above would be based on the trading price
of the WPLH Common Stock in the ten trading days prior to the execution of an
amendment to the Merger Agreement.
After consulting with members of the WPLH Board and WPLH's financial and
legal advisors regarding the revised IES proposal, Mr. Davis contacted Mr. Liu
and informed him that WPLH management would be prepared to recommend to the WPLH
Board a proposal that would increase the IES exchange ratio from 0.98 to 1.01
provided that, prior to the consummation of the Mergers, McLeod completed its
initial public offering generally as described in its initial filing with the
SEC and at a price per share greater than or equal to $13.00. During this time,
Mr. Davis also had periodic conversations with Mr. Stoppelmoor regarding the IES
proposals and IPC's position regarding an amendment to the Merger Agreement. The
financial advisors for both WPLH and IPC also discussed matters relating to the
amendment and IPC's views with respect thereto. Following these discussions
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and further consultations with members of their respective Boards and financial
and legal advisors, Messrs. Davis, Liu and Stoppelmoor agreed to recommend to
their Boards approval of an amendment to the Merger Agreement that would include
a provision increasing the IES exchange ratio from 0.98 to 1.01 in the event
McLeod completed an initial public offering within the parameters described
above prior to the consummation of the Mergers.
On May 7, 1996, the IES Board approved in principle the proposed amendment
to the Merger Agreement. The IES Board, in attempting to determine the potential
value to the IES shareholders of the McLeod holdings, estimated that IES could
have realized a potential pre-tax gain of $152 million if IES were able to
participate in the McLeod initial public offering and realize a sale price equal
to $17 per share, the midpoint of McLeod's then disclosed offering price range
(assuming the exercise of all options vested as of June 30, 1996). In deciding
to accept the revised IES Ratio, the IES Board, after discussion with Morgan
Stanley, considered, among other factors (i) the taxes which would likely be
payable by IES upon the eventual sale of its McLeod common stock once the
aforementioned restrictions on transfer had lapsed, (ii) the fact that, in
valuing IES Common Stock, the market would significantly discount the value of
McLeod due to lack of earnings and to the underlying volatility which would be
inherent in the publicly-traded McLeod Class A common stock, given the
difference in industry fundamentals and anticipated shareholder profiles between
McLeod and IES, (iii) the illiquidity of the IES stake in light of IES's
restrictions on transfer, and (iv) the fact that with the adjusted 1.01 exchange
ratio, IES shareholders, through their pro forma ownership of Interstate Energy,
would effectively retain approximately 42% of the value attributable to IES's
ownership of McLeod shares.
On May 7, 1996, at a special meeting of the WPLH Board, counsel to WPLH
described the proposed amendment to the Merger Agreement and discussed with the
WPLH Board the impact the proposed amendment would have on various provisions of
the Merger Agreement. At this meeting, Merrill Lynch also discussed and reviewed
with the WPLH Board the proposed contingent adjustment to the IES Ratio relating
to the McLeod Contingency and orally confirmed that Merrill Lynch would be
prepared to render an opinion to the effect that, based on the assumptions made,
matters considered and limits of review as set forth in such opinion, the Ratios
(including the IES Ratio as adjusted if the McLeod Contingency is satisfied) are
fair to WPLH from a financial point of view. After considering the presentations
made and the matters discussed at the special meeting, the WPLH Board by the
directors present unanimously approved the proposed amendment to the Merger
Agreement and authorized the execution thereof.
On May 10, 1996, the IPC Board met with its financial and legal advisors to
discuss and vote upon the proposed amendment to the Merger Agreement. IPC's
legal advisors described the proposed amendment to the IPC Board, and discussed
with the IPC Board various applicable provisions of the Merger Agreement.
Salomon Brothers reviewed with the IPC Board the proposed contingent adjustment
to the IES Ratio relating to the McLeod Contingency and advised the IPC Board
that if the proposed amendment were adopted, Salomon Brothers could render an
opinion to the effect that, based upon and subject to various considerations
that would be set forth in such opinion, as of May 10, 1996, the IPC Ratio
(assuming the IES Ratio is adjusted for satisfaction of the McLeod Contingency)
is fair to the holders of IPC Common Stock (other than WPLH, IES or any of their
respective affiliates) from a financial point of view. After considering the
presentations made and the matters discussed at the meeting, the IPC Board
unanimously approved the proposed amendment to the Merger Agreement and
authorized the execution thereof.
The amendment to the Merger Agreement was executed by the parties on May 22,
1996.
On June 14, 1996, McLeod completed its initial public offering and the
McLeod Contingency was satisfied. As a result, the IES Ratio was automatically
adjusted to 1.01.
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REASONS FOR THE MERGERS; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
WPLH, IES and IPC believe that the Mergers offer the following significant
strategic and financial benefits to each company and to their respective
shareowners, as well as to their employees and customers:
- MAINTENANCE OF COMPETITIVE RATES -- Interstate Energy will be more
effective in meeting the challenges of the increasingly competitive
environment in the utility industry than any of WPLH, IES or IPC standing
alone due to the economies of scale available to Interstate Energy. The
impact of these economies of scale, which are described in greater detail
below, will help to position Interstate Energy to deal effectively with
increased competition with respect to rates. The Mergers, by creating the
potential for increased economies of scale, will create the opportunity
for strategic, financial and operational benefits for customers in the
form of more competitive rates over the long term and for shareowners in
the form of greater financial strength and financial flexibility.
- INTEGRATION OF CORPORATE AND ADMINISTRATIVE FUNCTIONS -- Interstate
Energy will be able to consolidate certain corporate and administrative
functions of WPLH, IES and IPC, thereby eliminating duplicative
positions, reducing other non-labor corporate and administrative expenses
and limiting or avoiding duplicative expenditures for administrative and
customer service programs and information systems. A joint transition
task force is examining the manner in which to best organize and manage
the businesses of Interstate Energy and identify duplicative positions in
the corporate and administrative areas. It is anticipated that, as a
result of combining staff and other functions, Interstate Energy will
have somewhat fewer employees within several years than WPLH, IES and IPC
currently have in the aggregate. WPLH, IES and IPC are committed to
achieve cost savings in the area of personnel reductions through
attrition, strictly controlled hiring, and reassignment and retraining
and, to the extent required, severance and targeted early retirement
programs. In addition, some savings in areas such as insurance and
regulatory costs and legal, audit and consulting fees are expected to be
realized.
- REDUCED OPERATING COSTS -- The combination should result in decreased
electric production costs through the joint dispatch of the systems.
Natural gas supply savings through combined purchasing are also
anticipated.
- PURCHASING ECONOMIES AND STREAMLINING OF INVENTORIES -- The combination
of the three companies should result in greater purchasing power for
items such as fuel and transportation services and general and
operational goods and services, and the reduction of inventories for
standardized materials and supplies for construction, operations and
maintenance within the combined generation, transmission and distribution
systems.
- COORDINATION OF DIVERSIFICATION PROGRAMS -- WPLH and IES each have
significant non-utility subsidiaries, and Interstate Energy, as a
stronger financial entity, should be able to manage and pursue such
subsidiary businesses more efficiently and effectively. WPLH and IES
currently engage in a number of diversified businesses, some of which are
complementary. To the extent such complementary businesses are combined
and able to collaborate in the pursuit of market opportunities, benefits
from economies of scale should be obtained and thereby improve the
performance of these businesses. Furthermore, due to the larger capital
base of Interstate Energy, the financial flexibility will exist to
support the existing businesses as well as take advantage of new business
opportunities as they arise.
- MORE DIVERSE SERVICE TERRITORY -- The combined service territories of
WP&L, Utilities and IPC will be larger and more diverse than any of the
service territories of WP&L, Utilities or IPC as independent entities.
This increased customer and geographical diversity is expected to reduce
the exposure to changes in economic, competitive or climatic conditions
in any given sector of the combined service territory.
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- EXPANDED MANAGEMENT RESOURCES -- In combination, WPLH, IES and IPC will
be able to draw on a larger and more diverse mid- and senior-level
management pool to lead Interstate Energy forward in an increasingly
competitive environment for the delivery of energy and should be better
able to attract and retain the most qualified employees. The employees of
Interstate Energy should also benefit from new opportunities in the
expanded organization.
Subject to the qualifications expressed below, WPLH, IES and IPC believe
that synergies from the Mergers will generate substantial cost savings to
Interstate Energy, which would not be available absent the Mergers. Although
there can be no assurances that such results will be achieved, current estimates
by the managements of WPLH, IES and IPC indicate that the Mergers could result
in potential net cost savings (that is, after taking into account the costs
incurred to achieve such savings) of approximately $749 million during the
ten-year period following the Mergers. Approximately 45% of these savings are
expected to be achieved through personnel reductions involving approximately 600
positions. Other potentially significant cost savings include reduced corporate
and administrative programs, reduced electric production costs, nonfuel
purchasing economies, lower gas supply costs, and other avoided or reduced
operation and maintenance costs, such as the deferral of costs associated with
adding new generating capacity.
Any actual savings in costs are expected through the regulatory process to
inure to the benefit of both shareowners and ratepayers. The allocation of the
benefits and cost savings among shareowners and ratepayers will depend on the
results of regulatory proceedings in the various jurisdictions in which WPLH,
IES and IPC operate their businesses. See "Regulatory Matters."
The foregoing discussion contains forward looking statements, including,
without limitation, mangements' estimates of potential net cost savings. Actual
results might differ materially from those contained in the forward looking
statements. The analyses employed in order to develop managements' estimates of
potential savings as a result of the Mergers were necessarily based upon various
assumptions that involve judgments with respect to, among other things, future
national and regional economic and competitive conditions, technological
developments, inflation rates, regulatory treatment, weather conditions,
financial market conditions, future business decisions, and other uncertainties,
all of which are difficult to predict and many of which are beyond the control
of WPLH, IES and IPC. Accordingly, while WPLH, IES and IPC believe that such
assumptions are reasonable for purposes of the development of estimates of
potential savings, there can be no assurance that such assumptions will
approximate actual experience or that such savings will be realized.
The WPLH Board, the IES Board and the IPC Board each considered the impact
of Interstate Energy registering as a holding company under the 1935 Act in
connection with the Mergers. Based on the benefits that each company believes
will be derived from the Mergers, the potential detriments associated with
Interstate Energy operating as a registered holding company were not deemed
material. See "Regulatory Matters -- Public Utility Holding Company Act of
1935."
WPLH. The WPLH Board believes that the terms of the Mergers are fair to,
and in the best interests of, WPLH and its shareowners. Accordingly, the WPLH
Board, by a unanimous vote, has approved the Merger Agreement (and the
transactions contemplated thereby) and recommends its approval and adoption by
WPLH's shareowners. The WPLH Board believes: that WPLH's shareowners will
benefit by participation in the combined economic growth of the WP&L, Utilities
and IPC service territories, and from the inherent increase in scale economies,
the market diversification and the resulting increased financial stability and
strength; that the Mergers will result in cost savings from decreased electric
production and gas supply costs, a reduction in operating and maintenance
expense and other factors discussed above; and that the combined enterprise can
more effectively participate in the increasingly competitive market for the
generation of power. All of these factors offer a potential increase in earnings
and the creation of a larger, financially stronger company.
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In reaching its conclusions, the WPLH Board considered (i) the financial
performance, condition, business operations and prospects of each of WPLH, IES
and IPC and that, on a combined basis, the companies will likely have greater
financial stability and strength due to participation in the combined economic
climate and growth of each of the WP&L, Utilities and IPC service territories,
the inherent increase in scale economies, the market diversification resulting
from the combination of customer bases and the impact of the potential operating
efficiencies and other synergies which are expected to reduce operational and
maintenance expenses, as more fully discussed above; (ii) current industry,
economic, market and regulatory conditions which encourage consolidation to
reduce risk and create new avenues for earnings growth (as discussed under "The
Mergers -- Background of the Mergers" above); (iii) the anticipated positive
effect of the Mergers on shareowners and customers (as more fully discussed
above); (iv) the terms of the Merger Agreement, the Stock Option Agreements, the
Employment Agreements and other documents executed and to be executed in
connection with the Mergers which provide for reciprocal representations and
warranties, conditions to closing and rights to termination, balanced rights and
obligations and protection for employees of WPLH (as discussed under "The Merger
Agreement," "The Stock Option Agreements" and "-- Employment Agreements"); (v)
the management succession plan specified in the Merger Agreement and the
Employment Agreements of Messrs. Liu, Davis, Stoppelmoor and Chase (as described
under "-- Employment Agreements" and "Interstate Energy Following the Mergers --
Management of Interstate Energy") which provides a prudent plan for managing the
integration of and transition in management; (vi) the impact of regulation under
various state and federal laws (as described under "Regulatory Matters" and "--
Background of the Mergers"); (vii) that the Mergers are expected to be treated
as a tax-free reorganization to shareowners and to be accounted for as a
pooling-of-interests transaction (which avoids the reduction in earnings which
would result from the creation and amortization of goodwill under purchase
accounting) (as discussed under "-- Certain Federal Income Tax Consequences" and
"-- Accounting Treatment"); and (viii) the opinion of Merrill Lynch, described
below, that the Ratios are fair to WPLH from a financial point of view. In
determining that the Mergers are fair to and in the best interests of its
shareowners, the WPLH Board considered the above factors as a whole and did not
assign specific or relative weights to any one factor or group of factors.
The WPLH Board did, however, consider several countervailing factors
associated with the Mergers. The first factor related to Utilities' ownership
and operation of the Duane Arnold Energy Center, which is a 520 MW boiling water
reactor nuclear power plant. The WPLH Board considered the fact that Utilities
was a 70% owner of the plant and that this plant provided Utilities with
approximately 18% of its generating capacity and 25% of its energy requirements.
Comparable to the Kewaunee Nuclear facility (of which WP&L is a part owner) in
terms of its licensed life, the Duane Arnold facility had a net book value in
the fall of 1995 of approximately $300 million. Available estimates suggested
that the facility faced a decommissioning liability of approximately $361
million (in 1993 dollars) of which Utilities is responsible for 70% or
approximately $253 million, with approximately $34 million (at the end of 1994)
thereof accumulated in an external trust fund and approximately $21 million (at
the end of 1994) thereof accumulated in an internal reserve. The WPLH Board
considered this as a potential negative factor associated with the combination
due to the uncertainty surrounding whether the Duane Arnold facility would be
well-positioned to operate as a competitive power production facility in the
event that the generation segment of the electric utility industry became
substantially unregulated and fully competitive. The question presented was
whether there was likely to be material financial risk in such a circumstance in
the form of potential stranded investment.
The potential negative impact of the Duane Arnold facility was offset by
various other factors. First, the WPLH Board believes, based on ongoing
proceedings at FERC, that federal policymakers will ultimately allow for the
recovery of stranded investment in the event that policies are implemented which
bring about greater competition in the generation sector of the electric utility
industry. Second, all available information led to the conclusion that the Duane
Arnold facility was a well-operated and well-managed nuclear facility whose
costs were generally more favorable than those of most nuclear plants in North
America. Third, historical regulatory experiences in Iowa presented no evidence
that unreasonable regulatory ratemaking policies would likely be implemented
with respect to that facility.
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A second concern considered by the WPLH Board related to the ownership by
Utilities and IPC of former manufactured gas plant sites for which remediation
costs will be incurred over time. Utilities owns or may have responsibility for
remediation for 34 such sites while IPC owns or may have responsibility for
remediation for nine such sites. With respect to the Utilities sites,
information available to the WPLH Board suggested that while the potential
magnitude of remaining clean-up costs was significant (approximately $37 million
based on then current estimates), Utilities had a well-established track record
of effectively investigating and remediating its former manufactured gas plant
sites and of seeking and receiving favorable regulatory rate treatment in the
State of Iowa for the costs incurred in those efforts. With respect to a
majority of the sites, IPC was found to be in the early stages of evaluating its
manufactured gas plant obligations and potential financial exposures. As of the
fall of 1995, IPC had received favorable regulatory rate treatment in the States
of Iowa and Illinois with respect to costs incurred to date in the investigation
of its former manufactured gas plant sites. In connection with the IPC sites
located in Minnesota, a decision on rate recovery was then pending in a rate
case and the WPLH Board did not rely on the potential for full or partial rate
recovery (or the timing thereof) in analyzing the Mergers.
Although the WPLH Board considered the foregoing factors in approving the
Mergers, due to the beneficial aspects of the Mergers described above, the WPLH
Board concluded that the unfavorable aspects of the Mergers were outweighed by
the positive impacts and potential opportunities.
THE WPLH BOARD BY THE DIRECTORS PRESENT HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND BELIEVES THAT THE TERMS OF THE MERGERS ARE FAIR TO, AND IN THE
BEST INTERESTS OF, WPLH'S SHAREOWNERS, HAS APPROVED EACH OF THE WPLH CHARTER
AMENDMENTS, SUPPORTS THE ELECTION OF THE NOMINATED WPLH DIRECTORS AND SUPPORTS
THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS WPLH'S INDEPENDENT AUDITORS FOR THE
YEAR ENDING DECEMBER 31, 1996. THE WPLH BOARD RECOMMENDS A VOTE FOR APPROVAL OF
THE MERGER AGREEMENT, FOR APPROVAL OF EACH OF THE WPLH CHARTER AMENDMENTS, FOR
THE ELECTION OF THE NOMINATED WPLH DIRECTORS AND FOR THE RATIFICATION OF THE
APPOINTMENT OF THE INDEPENDENT AUDITORS.
IES. The IES Board believes that the terms of the Mergers are fair to, and
in the best interests of, IES and its shareholders. Accordingly, the IES Board,
by a unanimous vote of the directors present, has approved the Merger Agreement
and the transactions contemplated thereby and recommends its approval and
adoption by IES's shareholders. The IES Board believes: that the IES Ratio
offers IES shareholders an attractive premium over the recent historical trading
prices of IES Common Stock; that IES shareholders will benefit by participation
in the combined economic growth of the service territories of Utilities, WP&L
and IPC, and from the inherent increase in scale economies, the market
diversification and the resulting increased financial stability and strength of
the combined entity; that the Mergers will result in cost savings from decreased
electric production and gas supply costs, a reduction in operating and
maintenance expense and other factors discussed above; that the combined
enterprise can more effectively participate in the increasingly competitive
market for the generation of power; and that the Mergers and various provisions
of the Merger Agreement offer IES shareholders, ratepayers and employees a
unique opportunity to realize the benefits created by combining the three
entities. The IES Board believes that these factors offer a potential increase
in earnings in excess of those that could be achieved by IES alone, and that the
Mergers will result in the creation of a larger, financially stronger company.
In reaching its conclusions, the IES Board considered (i) the original and
the adjusted IES Ratio and the fact that such ratios represent approximately an
11% premium and an 11.34% premium, respectively, over the closing price of IES
Common Stock on the NYSE on November 10, 1995 (the last full trading day prior
to the public announcement of the Mergers) and premiums of approximately 14% and
14.43%, respectively, over the closing price of IES Common Stock on the NYSE on
October 10, 1995 (the trading day that is 30 days prior to the date on which the
Mergers were publicly announced); (ii) the financial performance, condition,
business operations and prospects of each of IES, WPLH and IPC and that, on a
combined basis, the companies will likely have greater financial stability and
strength due to
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participation in the combined economic climate and growth of each of the
Utilities, WP&L and IPC service territories, the inherent increase in scale
economies, the market diversification resulting from the combination of customer
bases and the impact of the potential operating efficiencies and other synergies
which are expected to reduce operational and maintenance expenses, as more fully
discussed above; (iii) current industry, economic, market and regulatory
conditions which encourage consolidation to reduce risk and create new avenues
for earnings growth (as discussed under "The Mergers -- Background of the
Mergers" above); (iv) IES's prospects for earnings and dividend growth on a
stand-alone basis in light of IES's size relative to many of the electric
utility companies abutting Utilities' service territory (IES ranks ninth out of
20 such companies based on aggregate market capitalization); (v) the recent wave
of merger activity involving electric utility companies in markets near
Utilities' service territory and IES's ability to remain competitive on an
independent basis over the long-term; (vi) the anticipated positive effect of
the Mergers on IES's shareholders and Utilities' customers, including
maintaining competitiveness, integrating corporate and administrative functions
and reducing operating costs (all as more fully described above); (vii) the
terms of the Merger Agreement, the Stock Option Agreements, the Employment
Agreements and other documents executed and to be executed in connection with
the Mergers which provide for the adjustment of the IES Ratio in the event the
McLeod Contingency is satisfied (which has occurred), reciprocal representations
and warranties, conditions to closing and rights to termination, and balanced
rights and obligations; (viii) the management succession plan specified in the
Merger Agreement and the Employment Agreements of Messrs. Liu, Davis,
Stoppelmoor and Chase (as described under "-- Employment Agreements" and
"Interstate Energy Following the Mergers -- Management of Interstate Energy")
which provides a prudent plan for managing the integration of and transition in
management; (ix) the impact of regulation under various state and federal laws
(as described under "Regulatory Matters" and "-- Background of the Mergers");
(x) that the Mergers are expected to be treated as tax-free reorganizations to
shareholders and to be accounted for as a pooling-of-interests transaction
(which avoids the reduction in earnings which would result from the creation and
amortization of goodwill under purchase accounting); and (xi) the opinion of
Morgan Stanley, described below, that the IES Ratio, taking into account the IPC
Ratio, is fair from a financial point of view to the holders of IES Common
Stock. The IES Board recognizes that (i) giving effect to the Mergers,
equivalent IES earnings per share will be slightly lower than IES earnings per
share for the 12-months ended September 30, 1995, (ii) annual dividends per
share of Interstate Energy Common Stock are expected to be lower than those
which have been paid on IES Common Stock (see "Selected Historical and Pro Forma
Data"), and (iii) recent operating revenues, operating income and other
financial factors are slightly higher for IES than WPLH; and, although these
factors are not immaterial, the IES Board believes the factors discussed in the
preceding sentences, together with those reasons discussed above and the advice
or assistance of its financial advisors and consultants as described herein,
substantially outweigh any negatives and the terms of the Mergers are, as a
whole, in the best interests of IES and its shareholders. In determining that
the Mergers are fair to and in the best interests of shareholders, the IES Board
considered the above factors as a whole and did not assign specific or relative
weights to any one factor or group of factors.
THE IES BOARD HAS APPROVED THE MERGER AGREEMENT BY UNANIMOUS VOTE OF THE
DIRECTORS THEN PRESENT AND BELIEVES THAT THE TERMS OF THE MERGERS ARE FAIR TO,
AND IN THE BEST INTERESTS OF, IES'S SHAREHOLDERS, AND SUPPORTS THE ELECTION OF
THE NOMINATED IES DIRECTORS. THE IES BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE
MERGER AGREEMENT AND FOR THE ELECTION OF THE NOMINATED IES DIRECTORS.
IPC. The IPC Board believes that the terms of the Mergers are fair to, and
in the best interests of, IPC and its stockholders. Accordingly, the IPC Board,
by a unanimous vote, has approved the Merger Agreement (and the transactions
contemplated thereby) and recommends its approval and adoption by IPC's
stockholders. The IPC Board further believes that the IPC Charter Amendment is
an important precondition to the IPC Merger in order to secure tax-free
reorganization status for the IPC Merger or the IPC Direct Merger, as the case
may be, under the Code. Accordingly, the IPC Board, by a unanimous vote, has
adopted a resolution setting forth the IPC Charter Amendment and
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declaring its advisability, and recommends approval of the IPC Charter Amendment
by IPC's stockholders. The IPC Board believes: that the IPC Ratio offers to IPC
stockholders an attractive premium over the recent historical trading prices of
IPC Common Stock; that IPC stockholders will benefit by participation in the
combined economic growth of the service territories of IPC, WP&L and Utilities,
and from the anticipated increase in scale economies, the market diversification
and the resulting increased financial stability and strength of the combined
entity; that the Mergers will result in cost savings from decreased electric
production and gas supply costs, a reduction in operating and maintenance
expense and other factors discussed above; that the combined enterprise can more
effectively participate in the increasingly competitive market for the
generation of power; and that the Mergers and various provisions of the Merger
Agreement offer IPC stockholders, ratepayers and employees a unique opportunity
to realize the benefits created by combining the three entities. The IPC Board
believes that these factors offer a potential increase in earnings in excess of
those that could be achieved by IPC alone, and the potential for IPC's
stockholders to participate in the creation of a larger, financially stronger
company.
In reaching its conclusions, the IPC Board considered (i) the IPC Ratio and
the fact that it represents a premium of approximately 15.2% over the closing
price of IPC's Common Stock on the NYSE on November 10, 1995 (the last full
trading day prior to the public announcement of the Mergers) and a premium of
approximately 22.4% over the closing price of IPC's Common Stock on October 10,
1995 (the trading day that is 30 days prior to the date on which the Mergers
were publicly announced); (ii) the financial performance, condition, business
operations and prospects of each of WPLH, IES and IPC and that, on a combined
basis, the companies will likely have greater financial stability and strength
due to participation in the combined economic climate and growth of each of the
WP&L, Utilities and IPC service territories, the inherent increase in scale
economies, the market diversification resulting from the combination of customer
bases and the impact of the potential operating efficiencies and other synergies
that are expected to reduce operational and maintenance expenses, as more fully
discussed above; (iii) current industry, economic, market and regulatory
conditions that encourage consolidation to reduce risk and create new avenues
for earnings growth (as discussed under "The Mergers -- Background of the
Mergers" above); (iv) IPC's prospects for earnings and dividend growth on a
stand-alone basis in light of IPC's size relative to many of the electric
utility companies abutting IPC's service territory (each of which is at least
three times larger than IPC when measured by any of a number of criteria); (v)
the recent wave of merger activity involving electric utility companies in
markets near IPC's service territory and IPC's ability to remain competitive on
an independent basis over the long-term (vi) the anticipated positive effect of
the Mergers on IPC's stockholders and customers (as disclosed in more detail in
the preceding paragraph); (vii) the terms of the Merger Agreement, the Stock
Option Agreements, the Employment Agreements and other documents executed and to
be executed in connection with the Mergers which provide for reciprocal
representations and warranties, conditions to closing and rights to termination,
balanced rights and obligations and certain protections for employees of IPC;
(viii) the management succession plan specified in the Merger Agreement and the
Employment Agreements of Messrs. Liu, Davis, Stoppelmoor and Chase (as described
under "-- Employment Agreements" and "Interstate Energy Following the Mergers --
Management of Interstate Energy") that provides a prudent plan for managing the
integration of and transition in management; (ix) the impact of regulation under
various state and federal laws (as described under "Regulatory Matters" and "--
Background of the Mergers"); (x) that, subject to approval of the IPC Charter
Amendment by the IPC stockholders at the IPC Meeting, the Mergers are expected
to be treated as tax-free reorganizations to stockholders and to be accounted
for as a pooling-of-interests transaction (which avoids the reduction in
earnings that would result from the creation and amortization of goodwill under
purchase accounting); and (xi) the opinion of Salomon Brothers, described below,
that the IPC Ratio is fair to the holders of IPC Common Stock from a financial
point of view. In determining that the Mergers are fair to and in the best
interests of its stockholders, the IPC Board considered the above factors as a
whole and did not assign specific or relative weights to any one factor or group
of factors.
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The IPC Board did, however, consider certain countervailing factors
associated with the Mergers. The first factor related to the ownership by WP&L
of the Kewaunee Nuclear Power facility and the ownership by Utilities of the
Duane Arnold Energy Center, both of which are nuclear power plants. IPC does not
own any interests in nuclear generating facilities. The IPC Board considered
generally the ownership and operation of nuclear generating facilities and the
potential generic risks and costs associated therewith, including premature
permanent plant shutdown, temporary plant shutdown, uneconomic plant operation,
consequences of a nuclear accident, fuel storage and fuel disposal and
decommissioning costs. The IPC Board also considered factors specific to each of
the Kewaunee and Duane Arnold facilities.
With respect to IES, the IPC Board considered the fact that Utilities was a
70% owner of the Duane Arnold facility and that the Duane Arnold facility
provided Utilities with approximately 18% of its generating capability and 25%
of its energy requirements. Available estimates suggested that the Duane Arnold
facility faced a decommissioning liability of approximately $361 million (in
1993 dollars) of which Utilities is responsible for 70% or approximately $253
million, with approximately $34 million (at the end of 1994) thereof accumulated
in an external trust fund and approximately $21 million (at the end of 1994)
thereof accumulated in an internal reserve. In addition, the IPC Board
considered that the adequacy of the Duane Arnold facility decommissioning plan
funding depended in part on Utilities' success in obtaining approval from the
IUB for a significant increase in its annual decommissioning fund allocation
beginning in 1996. These factors caused the IPC Board to consider whether the
Duane Arnold facility was likely to present a material financial risk in the
form of stranded investment as the generation segment of the electric utility
industry moved toward deregulation and open competition.
The IPC Board believed that the potential negative impact of the Duane
Arnold facility was offset by various other factors. First, the IPC Board
believes, based on ongoing proceedings at FERC, that federal policymakers will
ultimately allow for the recovery of stranded investment in the event that
policies are implemented which bring about greater competition in the generation
sector of the electric utility industry. Second, all available information led
to the conclusion that the Duane Arnold facility was a well-operated and
well-managed nuclear facility whose costs were generally more favorable than
those of most nuclear plants in North America. Third, historical regulatory
experiences in Iowa presented no evidence that unreasonable regulatory
ratemaking policies would likely be implemented with respect to the Duane Arnold
facility.
With respect to the Kewaunee facility, the IPC Board considered the fact
that WP&L was a 41% owner of the Kewaunee facility and that the Kewaunee
facility provided WP&L with approximately 16% of its generating capability and
14% of its energy requirements. The IPC Board further considered the fact that
the Kewaunee facility is experiencing certain steam generation equipment
degradation that potentially threatens the economic viability of continued
operation of the Kewaunee facility. These factors caused the IPC Board to
consider whether the Kewaunee facility was likely to present a material
financial risk in terms of its future economic viability.
The IPC Board believed that the potential negative impact of the Kewaunee
facility was offset by various factors. First, the Kewaunee facility has
historically been one of the top performing plants within the nuclear industry
and has recently received the highest possible performance ratings assigned by
applicable regulatory agencies. Second, there exist viable economic alternatives
to the steam generator equipment degradation noted above, and WPLH's management
has indicated its belief that the risks of these alternatives are manageable.
Third, the IPC Board believes that the plans for decommissioning the Kewaunee
facility at the end of its useful life are adequate.
Although the IPC Board considered the foregoing factors in approving the
Mergers, the IPC Board concluded that the potential unfavorable aspects of the
Mergers were outweighed by the positive impacts and potential benefits of the
Mergers described above.
THE IPC BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND BELIEVES
THAT THE TERMS OF THE MERGERS ARE FAIR TO, AND IN THE BEST INTERESTS OF, IPC'S
STOCKHOLDERS, HAS UNANIMOUSLY ADOPTED A RESOLUTION SETTING FORTH THE
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IPC CHARTER AMENDMENT AND DECLARING ITS ADVISABILITY, AND SUPPORTS THE ELECTION
OF THE NOMINATED IPC DIRECTORS. THE IPC BOARD RECOMMENDS A VOTE FOR APPROVAL OF
THE MERGER AGREEMENT, FOR APPROVAL OF THE IPC CHARTER AMENDMENT, AND FOR THE
ELECTION OF THE NOMINATED IPC DIRECTORS.
OPINIONS OF FINANCIAL ADVISORS
WPLH'S FINANCIAL ADVISOR. During the course of discussions regarding a
possible transaction, Merrill Lynch attended meetings of the WPLH Board as
described in "The Mergers -- Background of the Mergers." At such meetings,
Merrill Lynch reviewed financial information concerning WPLH, IES and IPC and
provided preliminary valuations of IES and IPC. The financial information
reviewed by Merrill Lynch was the same financial information used in arriving at
the Merrill Lynch Opinion (as updated through the relevant date), all of which
information is described below. The results of the preliminary valuations
presented by Merrill Lynch at such WPLH Board meetings are consistent with the
results utilized by Merrill Lynch to arrive at the Merrill Lynch Opinion, which
results are described below.
On November 10, 1995, Merrill Lynch delivered its written opinion to the
WPLH Board to the effect that, as of such date, and based upon the assumptions
made, matters considered and limits of review as set forth in such opinion, the
Ratios (without adjustment of the IES Ratio to reflect the satisfaction of the
McLeod Contingency) are fair to WPLH from a financial point of view. On May 7,
1996, at a meeting of the WPLH Board, Merrill Lynch discussed and reviewed with
the WPLH Board the proposed contingent adjustment to the IES Ratio relating to
the McLeod Contingency and orally confirmed that Merrill Lynch would be prepared
to render an opinion dated the date of this Joint Proxy Statement/Prospectus to
the effect that, as of such date, and based on the assumptions made, matters
considered and limits of review as set forth in such opinion, the Ratios
(including the IES Ratio as adjusted if the McLeod Contingency was satisfied)
are fair to WPLH from a financial point of view. In a written opinion dated the
date of this Joint Proxy Statement/Prospectus, Merrill Lynch confirmed (i) its
November 10, 1995 opinion as it relates to the Ratios (including the IES Ratio
as adjusted to reflect the satisfaction of the McLeod Contingency) and (ii) the
appropriateness of its reliance on the analyses used to render the November 10,
1995 opinion by performing procedures to update such analyses and by reviewing
the assumptions on which such analyses were based and the factors considered
therewith. Merrill Lynch performed and updated the same analyses utilized in
rendering the November 10, 1995 opinion, including reviewing the financial
information on which such analyses were based and the recent financial results
of WPLH, IES and IPC, and the results of such updated analyses were
substantially similar to the prior results. References herein to the "Merrill
Lynch Opinion" refer to the written opinion of Merrill Lynch dated November 10,
1995.
A COPY OF THE MERRILL LYNCH OPINION DATED THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED
AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY MERRILL LYNCH, IS
ATTACHED AS ANNEX L TO THIS JOINT PROXY STATEMENT/PROSPECTUS. WPLH SHAREOWNERS
ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. THE MERRILL LYNCH OPINIONS ARE
DIRECTED ONLY TO THE FAIRNESS OF THE RATIOS FROM A FINANCIAL POINT OF VIEW AND
DO NOT CONSTITUTE A RECOMMENDATION TO ANY WPLH SHAREOWNER AS TO HOW SUCH
SHAREOWNER SHOULD VOTE AT THE WPLH MEETING. THE SUMMARY OF THE MERRILL LYNCH
OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MERRILL LYNCH OPINION ATTACHED AS
ANNEX L HERETO. THE MERRILL LYNCH OPINION DATED THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS SUBSTANTIALLY SIMILAR TO THE MERRILL LYNCH OPINION DATED
NOVEMBER 10, 1995.
In arriving at the Merrill Lynch Opinion, Merrill Lynch among other things
(i) reviewed WPLH's, IES's, and IPC's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended December 31, 1994, and
Forms 10-Q and related unaudited financial information for the quarterly periods
ended June 30, 1995; (ii) reviewed certain other filings with the SEC made by
WPLH, IES, and IPC, including proxy statements, Forms 8-K, and registration
statements, during the last three years; (iii) reviewed certain information,
including financial forecasts, relating to the business, earnings, dividends,
cash flow, assets and prospects of WPLH, IES, and IPC, furnished to Merrill
Lynch by WPLH, IES, and IPC, respectively; (iv) conducted discussions with
members of
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senior management of WPLH, IES and IPC concerning their respective businesses,
regulatory environments, prospects and strategic objectives and possible
operating, administrative and capital synergies which might be realized for the
combined companies following the Mergers; (v) reviewed the historical market
prices and trading activity for WPLH Common Stock, IES Common Stock, and IPC
Common Stock; (vi) compared the results of operations of WPLH, IES and IPC with
those of certain companies deemed by Merrill Lynch to be reasonably similar to
WPLH, IES and IPC, respectively; (vii) compared the proposed financial terms of
the Mergers with the financial terms of certain other mergers and acquisitions
which Merrill Lynch deemed to be relevant; (viii) analyzed the relative
valuation of WPLH Common Stock, IES Common Stock, and IPC Common Stock using
various valuation methodologies which Merrill Lynch deemed to be appropriate;
(ix) considered the pro forma effect of the Mergers, in terms of net income
available to common stockholders, dividends per common share, book value per
common share and capitalization, on WPLH Common Stock; (x) reviewed drafts of
the Merger Agreement and the Stock Option Agreements, dated November 10, 1995
and November 6, 1995, respectively; and (xi) reviewed such other financial
studies and analyses and made such other inquiry and took into account such
other matters deemed necessary or appropriate by Merrill Lynch for purposes of
the Merrill Lynch Opinion.
In preparing the Merrill Lynch opinions, Merrill Lynch relied on the
accuracy and completeness of all information supplied or otherwise made
available to it by WPLH, IES and IPC, and did not independently verify such
information or any underlying assumptions. Merrill Lynch did not undertake an
independent appraisal or physical inspection of the assets or liabilities
(contingent or otherwise) of WPLH, IES or IPC. Merrill Lynch also assumed that
the financial forecasts and projected synergies furnished to it by WPLH, IES and
IPC were reasonably prepared in accordance with accepted industry practices and
reflected the best currently available estimates and judgments of WPLH's, IES's
and IPC's management as to the expected future financial performance of WPLH,
IES and IPC, respectively, and as to the expected future projected outcomes of
various legal, regulatory and other contingencies. Merrill Lynch also assumed
that the Mergers will be free of Federal tax to WPLH, IES, IPC and the
respective holders of WPLH Common Stock, IES Common Stock and IPC Common Stock,
and further assumed that the Mergers will be accounted for as a pooling of
interests. Merrill Lynch's opinions are based upon general economic, market,
monetary and other conditions as they existed and could be evaluated, and the
information made available to it, as of the respective dates of such opinions.
The Merrill Lynch opinions do not constitute a recommendation to any WPLH
shareowner as to how such shareowner should vote at the WPLH Meeting.
The matters considered by Merrill Lynch in arriving at the Merrill Lynch
opinions are based on numerous macroeconomic, operating and financial
assumptions with respect to industry performance, general business and economic
conditions, many of which are beyond the control of WPLH, IES and IPC, and
involve the application of complex methodologies and educated judgment. Any
estimates incorporated in the analyses performed by Merrill Lynch are not
necessarily indicative of actual past or future results or values, which may be
significantly more or less favorable than such estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies may be sold in the future. The Merrill Lynch opinions do
not present a discussion of the relative merits of the Mergers as compared to
any other business plan or opportunity that might be presented to WPLH, or the
effect of any other arrangement in which WPLH might engage.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch in arriving at its November 10, 1995 opinion. Merrill
Lynch derived implied exchange ratios for WPLH Common Stock, IES Common Stock
and IPC Common Stock based upon what these analyses, when considered in light of
the judgment and experience of Merrill Lynch, suggested about their relative
values. The Merrill Lynch Opinion is based upon Merrill Lynch's consideration of
the collective results of all such analyses, together with the other factors
referred to in its opinion letter. In the Mergers, each issued and outstanding
share of IES Common Stock will be converted into the right to receive 0.98 of a
share of Interstate Energy Common Stock (subsequently adjusted to 1.01 shares
upon satisfaction of the McLeod Contingency), and each issued and outstanding
share of IPC Common Stock will be ultimately converted into the right to receive
1.11 shares of Interstate Energy Common Stock. In concluding that the Ratios are
fair to WPLH and in its discussions with the WPLH Board,
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Merrill Lynch compared the IES Ratio and IPC Ratio to each range of implied
exchange ratios set forth below, which were derived from the analyses performed
by it, and noted as generally supporting its opinion that 0.98 (subsequently
adjusted to 1.01 upon satisfaction of the McLeod Contingency) and 1.11 were
consistent with the ranges of such implied exchange ratios for each of IES
Common Stock to WPLH Common Stock and IPC Common Stock to WPLH Common Stock
derived from comparable publicly traded company analysis (0.84 to 1.07 and 0.82
to 1.18, respectively), contribution analysis (0.91 to 1.16 and 0.82 to 1.09,
respectively), dividend discount analysis (0.82 to 1.32 and 0.78 to 1.24,
respectively), discounted cash flow analysis (0.75 to 1.38 and 0.65 to 1.28,
respectively), and comparable acquisition transactions analysis (0.75 to 1.36
and 0.81 to 1.50, respectively).
TRADING RATIO ANALYSIS. Merrill Lynch reviewed the performance of the per
share market price of WPLH Common Stock, IES Common Stock and IPC Common Stock
over the five year period ended November 7, 1995. Merrill Lynch also calculated
the ratio of the per share market price of each of IES Common Stock and IPC
Common Stock to the per share market price of WPLH Common Stock from November 7,
1990 to November 7, 1995, November 7, 1992 to November 7, 1995, and November 7,
1994 to November 7, 1995. This analysis showed that over the five year period,
the per share market price of IES Common Stock and IPC Common Stock compared to
the price of WPLH Common Stock, traded at average ratios of 0.922 and 0.939,
respectively. Over the three year period this analysis showed that the per share
market price of IES Common Stock and IPC Common Stock compared to the price of
WPLH Common Stock, traded at average ratios of 0.903 and 0.871, respectively.
Over the one year period this analysis showed that the per share market price of
IES Common Stock and IPC Common Stock compared to the price of WPLH Common
Stock, traded at average ratios of 0.864 and 0.848, respectively. Based on the
November 7, 1995 closing prices, the trading ratios of the IES Common Stock and
IPC Common Stock were 0.886 and 0.980, respectively, compared to the closing
price of WPLH Common Stock on that day.
COMPARABLE PUBLICLY TRADED COMPANY ANALYSIS. Using publicly available
information, Merrill Lynch compared certain financial and operating information
and ratios (described below) for WPLH, IES and IPC, respectively, with the
corresponding financial and operating information and ratios for separate groups
of publicly traded companies that Merrill Lynch deemed to be reasonably
comparable to WPLH, IES and IPC, respectively. The companies included in the
WPLH comparable company analyses were: Delmarva Power and Light Company, Kansas
City Power and Light Company, and WPS Resources Corporation (collectively, the
"ML WPLH Comparables"). The companies included in the IES comparable company
analyses were: MidAmerican Energy Company and Minnesota Power & Light Company
(collectively, the "ML IES Comparables"). The companies included in the IPC
comparable company analyses were: Central Hudson Gas & Electric Corporation,
CILCORP, Inc., Madison Gas & Electric Company, Orange & Rockland Utilities, Inc.
and Southern Indiana Gas & Electric Company (collectively, the "ML IPC
Comparables"). Merrill Lynch selected the companies in the ML WPLH Comparables,
ML IES Comparables and ML IPC Comparables, respectively, from the universe of
possible comparable utility companies based upon Merrill Lynch's views as to the
comparability of financial and operating characteristics of these companies to
WPLH, IES and IPC, respectively.
In order to determine an implied exchange ratio range based upon comparable
publicly traded company analysis, Merrill Lynch compared the market value of
WPLH Common Stock, IES Common Stock, and IPC Common Stock as a multiple of (a)
estimated 1995 earnings per share ("EPS"), which estimates were obtained from
First Call (the "1995 EPS Ratio"), (b) estimated 1996 EPS, which estimates were
obtained from First Call (the "1996 EPS Ratio"), (c) book value of common equity
as of June 30, 1995, the most recently available fiscal quarter (the "Common
Equity Ratio"), and (d) indicated dividend yield (the "Dividend Ratio"), to the
corresponding ratios for each of the ML WPLH Comparables, ML IES Comparables and
ML IPC Comparables. First Call is a data service which monitors and publishes a
compilation of earnings estimates produced by selected research analysts on
companies of interest to investors. The results of the foregoing were: (i) the
1995 EPS Ratio resulted in a range of implied exchange ratios for IES Common
Stock to WPLH Common Stock and IPC Common Stock to WPLH Common Stock of 0.87 to
1.02 and 0.84 to 1.11, respectively, (ii) the
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1996 EPS Ratio resulted in a range of implied exchange ratios of 0.89 to 1.04
and 0.82 to 1.05, respectively, (iii) the Common Equity Ratio resulted in a
range of implied exchange ratios of 0.86 to 1.07 and 0.86 to 1.18, respectively,
and (iv) the Dividend Ratio resulted in a range of implied exchange ratios of
0.84 to 1.01 and 0.92 to 1.16, respectively.
Utilizing comparable publicly traded company analysis, Merrill Lynch
calculated implied exchange ratio ranges for IES Common Stock to WPLH Common
Stock and IPC Common Stock to WPLH Common Stock of 0.84 to 1.07 and 0.82 to
1.18, respectively.
CONTRIBUTION ANALYSIS. In order to determine an implied exchange ratio
range based upon contribution analysis, Merrill Lynch calculated the
contribution of each of WPLH, IES and IPC to the pro forma combined company with
respect to (i) earnings per common share (ii) common equity per common share and
(iii) dividends per common share, for the years 1993 through 1994 (the
"Historical Period") and, using certain projections provided by the respective
managements of WPLH, IES and IPC, for the years 1995 through 1999 (the
"Projected Period"). The analysis of earnings per common share yielded a range
of implied exchange ratios for IES Common Stock to WPLH Common Stock and IPC
Common Stock to WPLH Common Stock of 1.10 to 1.16 and 0.82 to 0.90, respectively
during the Historical Period and 0.91 to 1.09 and 0.91 to 1.08, respectively
during the Projected Period. The analysis of common equity per common share
yielded a range of implied exchange ratios of 1.05 to 1.06 and 1.04 to 1.04,
respectively during the Historical Period and 1.06 to 1.09 and 1.01 to 1.03,
respectively during the Projected Period. The analysis of dividends per common
share yielded a range of implied exchange ratios of 1.09 to 1.11 and 1.08 to
1.09, respectively during the Historical Period and 1.06 to 1.08 and 1.03 to
1.07, respectively during the Projected Period. In arriving at the Merrill Lynch
Opinion, Merrill Lynch considered, as one of the factors in its analysis, that
the Ratios are outside of certain of the implied exchange ratios.
DIVIDEND DISCOUNT ANALYSIS. In order to determine an implied exchange ratio
range based upon dividend discount analysis, Merrill Lynch calculated ranges of
value for WPLH Common Stock, IES Common Stock and IPC Common Stock based upon
the sum of the present value, assuming equity discount rates ranging from 8.75%
to 10.25%, of (a) each of WPLH's, IES's and IPC's projected dividends for the
years 1996 through 1999 using the same management projections, and (b) the 1999
value of WPLH, IES and IPC, respectively, assuming perpetual dividend growth
rates ranging from 1.50% to 2.00% for WPLH, 1.25% to 1.75% for IES and 1.00% to
1.50% for IPC.
Utilizing dividend discount analysis, Merrill Lynch calculated implied
exchange ratio ranges for IES Common Stock to WPLH Common Stock and IPC Common
Stock to WPLH Common Stock of 0.82 to 1.32 and 0.78 to 1.24, respectively.
DISCOUNTED CASH FLOW ANALYSIS. In order to determine an implied exchange
ratio range based upon discounted cash flow ("DCF") analysis, Merrill Lynch
performed unlevered DCF analyses for the primary businesses of WPLH, IES and IPC
using the same management projections, and calculated ranges of value for WPLH
Common Stock, IES Common Stock and IPC Common Stock.
Merrill Lynch performed separate discounted cash flow analyses for the
following subsidiaries of WPLH: WP&L, Heartland Environmental Holding Company
("EHC"), and Heartland Properties, Inc. ("HPI"). WP&L's DCF was based upon the
discount to present value, assuming discount rates ranging from 7.5% to 9.5%, of
(i) its projected unlevered free cash flow for the years 1996 through 1999, and
(ii) its 1999 value based upon a range of multiples from 12.0x to 13.0x its
projected 1999 net income, and 1.6x to 1.8x its projected 1999 book value, plus
in each case assumed debt and preferred stock at year-end 1999. EHC's DCF was
based upon the discount to present value, assuming discount rates ranging from
10.0% to 12.0%, of (i) its projected unlevered free cash flow for the years 1996
through 1999, and (ii) its 1999 value based upon a range of multiples from 7.0x
to 8.0x its projected 1999 earnings before interest and taxes ("EBIT"). HPI's
DCF was based upon the discount to present value, assuming discount rates
ranging from 10.0% to 14.0%, of its projected unlevered free cash flow
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for the years 1996 through 1999. In addition, Merrill Lynch calculated a range
of value for HPI based upon its book value. Based on these analyses, Merrill
Lynch calculated a range of value for WPLH Common Stock of $820 million to
$1,111 million.
Merrill Lynch performed separate discounted cash flow analyses for the
following subsidiaries of IES: Utilities, Industrial Energy Applications
("IEA"), and Cedar Rapids and Iowa City Railway Company ("CRANDIC"). Utilities'
DCF was based upon the discount to present value, assuming discount rates
ranging from 7.5% to 9.5%, of (i) its projected unlevered free cash flow for the
years 1996 through 1999, and (ii) its 1999 value based upon a range of multiples
from 12.0x to 13.0x its projected 1999 net income, and 1.6x to 1.8x its
projected 1999 book value, plus in each case assumed net debt and preferred
stock at year-end 1999. IEA's DCF was based upon the discount to present value,
assuming discount rates ranging from 10.0% to 12.0%, of (i) its projected
unlevered free cash flow for the years 1996 through 1999, and (ii) its 1999
value based upon a range of multiples from 7.0x to 9.0x its projected 1999
earnings before interest, taxes, depreciation and amortization ("EBITDA").
CRANDIC's DCF was based upon the discount to present value, assuming discount
rates ranging from 11.0% to 13.0%, (i) its projected unlevered free cash flow
for the years 1996 through 1999, and (ii) its 1999 value based upon a range of
multiples from 6.0x to 7.0x its projected 1999 EBITDA. In addition, Merrill
Lynch calculated a range of value for IES's Whiting Petroleum Corporation
subsidiary based upon a range of $3.50 to $5.00 per barrel of oil equivalents.
Based on these analyses, Merrill Lynch calculated a range of value for IES
Common Stock of $788 million to $1,075 million.
IPC's DCF was based upon the discount to present value, assuming discount
rates ranging from 7.5% to 9.5%, of (i) its projected unlevered free cash flow
for the years 1996 through 1999, and (ii) its 1999 value based upon a range of
multiples from 11.5x to 12.5x its projected 1999 net income, and 1.6x to 1.8x
its projected 1999 book value, plus in each case assumed net debt and preferred
stock at year-end 1999. Based on this analysis, Merrill Lynch calculated a range
of value for IPC Common Stock of $223 million to $326 million.
Utilizing DCF analysis, Merrill Lynch calculated implied exchange ratio
ranges for IES Common Stock to WPLH Common Stock and IPC Common Stock to WPLH
Common Stock were 0.75 to 1.38 and 0.65 to 1.28, respectively.
COMPARABLE MERGER TRANSACTIONS ANALYSIS. Using publicly available
information, Merrill Lynch reviewed eleven transactions announced between March
16, 1990 and September 25, 1995, involving the merger of selected electric
utility companies (the "Comparable Merger Transactions"). The Comparable Merger
Transactions and the date the transaction was announced were as follows:
Baltimore Gas and Electric Company/Potomac Electric Power Company (September
1995), Public Service Company of Colorado/Southwestern Public Service Company
(August 1995), Union Electric Company/CIPSCO Incorporated (August 1995),
Northern States Power Company/Wisconsin Energy Corporation (May 1995), Midwest
Resources Inc./Iowa-Illinois Gas & Electric Company (July 1994), Washington
Water Power Company/Sierra Pacific Resources (June 1994), Cincinnati Gas &
Electric Company/PSI Resources, Inc. (August 1993), Entergy Corporation/Gulf
States Utilities Company (June 1992), IE Industries, Inc./Iowa Southern, Inc.
(February 1991), Kansas Power & Light Company/Kansas Gas & Electric Company
(October 1990), and Iowa Resources, Inc./Midwest Energy Company (March 1990).
In order to determine an implied exchange ratio range based on comparable
merger transactions analysis, Merrill Lynch (i) compared the offer value in each
of the Comparable Merger Transactions as a multiple of the then publicly
available (a) latest twelve months ("LTM") net income available to common stock
(the "Net Income Multiple"), and (b) book value of common equity for the most
recently available fiscal quarter preceding such transaction (the "Book Value
Multiple") and (ii) compared the transaction value (defined to be the offer
value plus the liquidation value of preferred stock plus the principal amount of
debt less cash and option proceeds) for each of the Comparable Merger
Transactions as a multiple of the then publicly available (a) LTM EBIT (the
"EBIT Multiple"), and (b) LTM EBITDA (the "EBITDA Multiple"), to the
corresponding multiples
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for WPLH Common Stock, IES Common Stock and IPC Common Stock. The results of the
foregoing were: (i) the Net Income Multiple resulted in a range of implied
exchange ratios for IES Common Stock to WPLH Common Stock and IPC Common Stock
to WPLH Common Stock of 0.85 to 1.22 and 0.83 to 1.20, respectively, (ii) the
Book Value Multiple resulted in a range of implied exchange ratios of 0.92 to
1.17 and 0.93 to 1.17, respectively, (iii) the EBIT Multiple resulted in a range
of implied exchange ratios of 0.75 to 1.36 and 0.81 to 1.50, respectively, and
(iv) the EBITDA Multiple resulted in a range of implied exchange ratios of 0.87
to 1.35 and 0.84 to 1.32, respectively.
Utilizing the comparable merger transactions analysis, Merrill Lynch
calculated implied exchange ratio ranges for IES Common Stock to WPLH Common
Stock and IPC Common Stock to WPLH Common Stock of 0.75 to 1.36 and 0.81 to
1.50, respectively.
PRO FORMA ANALYSIS. Merrill Lynch also analyzed certain pro forma effects
resulting from the Mergers, including the potential impact to earnings per share
of WPLH Common Stock. Using the projected earnings for the years 1997 through
1999 provided by the respective managements of WPLH, IES and IPC, Merrill Lynch
compared the projected earnings per share of WPLH on a stand-alone basis
assuming the Mergers do not occur, to the earnings per share of Interstate
Energy Common Stock assuming the Ratios of 0.98 (subsequently adjusted to 1.01
upon satisfaction of the McLeod Contingency) and 1.11 for IES and IPC,
respectively, and certain estimated synergies that WPLH management expects to
achieve as a result of the Mergers. The analysis indicated that the Mergers
would be accretive to the projected earnings per share of a WPLH shareowner in
amounts of 6.6% in 1997, 8.8% in 1998, and 8.3% in 1999. In addition, Merrill
Lynch made a similar comparison assuming the Ratios of 0.98 (subsequently
adjusted to 1.01 upon satisfaction of the McLeod Contingency) and 1.11 for IES
and IPC, respectively, no synergies, and projected earnings for IES adjusted
with the guidance of WPLH management to give effect to more conservative
assumptions. The analysis indicated that the Mergers would be accretive to the
projected earnings per share of a WPLH shareowner in the amount of 0.4% in 1997,
and dilutive to the projected earnings per share of a WPLH shareowner in amounts
of (2.4%) in 1998, and (3.0%) in 1999.
On May 7, 1996, at a meeting of the WPLH Board, Merrill Lynch discussed and
reviewed with the WPLH Board the proposed contingent adjustment to the IES Ratio
relating to the McLeod Contingency. Following is a summary of all of the
analyses that Merrill Lynch performed in connection with the McLeod Contingency.
Merrill Lynch calculated the potential contribution of the proceeds of McLeod's
proposed initial public offering, based on a range of possible final pricing
terms for McLeod's proposed initial public offering, and compared the overall
aggregate percentage share ownership of the combined company assuming the
Mergers were consummated at the Ratios (assuming the IES Ratio was not adjusted
to 1.01) and the IES Ratio as adjusted if the McLeod Contingency was satisfied
as follows: (i) the holders of WPLH Common Stock would own 43.6% of the combined
company assuming the Mergers were consummated at the Ratios (assuming the IES
Ratio was not adjusted to 1.01) compared to 43.0% of the combined company
assuming the Mergers were consummated at the IES Ratio as adjusted if the McLeod
Contingency was satisfied, (ii) the holders of IES Common Stock would own 41.3%
of the combined company assuming the Mergers were consummated at the Ratios
(assuming the IES Ratio was not adjusted to 1.01) compared to 42.1% of the
combined company assuming the Mergers were consummated at the IES Ratio as
adjusted if the McLeod Contingency was satisfied and (iii) the holders of IPC
Common Stock would own 15.1% of the combined company assuming the Mergers were
consummated at the Ratios (assuming the IES Ratio was not adjusted to 1.01)
compared to 14.9% of the combined company assuming the Mergers were consummated
at the IES Ratio as adjusted if the McLeod Contingency was satisfied.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at the Merrill Lynch
Opinion. The preparation of a fairness opinion is a complex process not
necessarily susceptible to partial or summary description. Although certain of
the implied exchange ratios calculated as described above are outside of the
Ratios, Merrill Lynch believes that its analyses must be considered as a whole
and that selecting portions of its analyses and of the factors considered by it,
without considering all such factors and analyses, could
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create a misleading view of the process underlying its analyses set forth in the
Merrill Lynch Opinion. No company in the ML WPLH Comparables, the ML IES
Comparables or the ML IPC Comparables is identical to WPLH, IES, or IPC,
respectively, and none of the Comparable Merger Transactions is identical to the
Mergers. Accordingly, an analysis of comparable publicly traded companies and
comparable acquisition transactions is not mathematical; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the comparable companies and other factors that
could affect the public trading value of the comparable companies or company to
which they are being compared.
The WPLH Board selected Merrill Lynch to render a fairness opinion because
Merrill Lynch is an internationally recognized investment banking firm with
substantial experience in transactions similar to the Mergers and because it is
familiar with WPLH and its business. Merrill Lynch has from time to time
rendered investment banking, financial advisory and other services to WPLH, its
subsidiary WP&L, IES, its subsidiary Utilities, and IPC, for which it has
received customary compensation. As part of its investment banking business,
Merrill Lynch is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions.
Pursuant to the terms of an engagement letter dated June 29,1995, WPLH has
agreed to pay Merrill Lynch (i) a $100,000 retainer fee, payable as of the date
of the engagement letter, (ii) $200,000 payable upon the execution of the Merger
Agreement, (iii) $200,000 payable upon the delivery of the Merrill Lynch Opinion
and (iv) a transaction fee payable only upon consummation of the Mergers equal
to 0.40% of the product of the closing price of WPLH Common Stock on November 6,
1995, which was $30.75, multiplied by the sum of (a) 10,616,359, the number of
outstanding shares of IPC Common Stock as set forth in the Merger Agreement
multiplied by the IPC Ratio, and (b) 29,639,029, the number of outstanding
shares of IES Common Stock as set forth in the Merger Agreement multiplied by
the IES Ratio (approximately $4,951,413), against which the amounts referred to
in clauses (i) - (iii) above will be credited. WPLH has also agreed to reimburse
Merrill Lynch for its reasonable out-of-pocket expenses, including all
reasonable fees and disbursements of its legal counsel, and to indemnify Merrill
Lynch and certain related persons against certain liabilities in connection with
its engagement, including certain liabilities under the federal securities laws.
In the ordinary course of Merrill Lynch's business, Merrill Lynch may
actively trade the securities of WPLH, IES and IPC for its own account and for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
IES'S FINANCIAL ADVISOR. On June 30, 1995, Morgan Stanley was retained by
IES to act as its financial advisor in connection with the Mergers. Morgan
Stanley is an internationally recognized investment banking firm and was
selected by IES based on Morgan Stanley's experience and expertise. In
connection with Morgan Stanley's engagement, IES requested that Morgan Stanley
evaluate the fairness of the IES Ratio, taking into account the IPC Ratio, from
a financial point of view to the holders of IES Common Stock. On November 10,
1995, Morgan Stanley rendered to the IES Board an oral opinion to the effect
that, as of such date, and based upon the procedures and subject to the
assumptions stated at the meeting, the IES Ratio (prior to consideration of the
McLeod Contingency), taking into account the IPC Ratio, was fair from a
financial point of view to the holders of IES Common Stock. On April 29, 1996,
at a telephonic meeting of the IES Board of Directors, Morgan Stanley discussed
and reviewed with the IES Board the proposed contingent adjustment to the IES
Ratio relating to the McLeod Contingency and orally confirmed that,
notwithstanding the fact that Morgan Stanley had not yet convened its internal
fairness opinion committee to consider such matters, based on the facts and
circumstances existing at such time, Morgan Stanley anticipated that it would be
able to render an opinion dated the date hereof, to the effect that, as of such
date, and based upon the procedures and subject to the assumptions stated at the
November 10, 1995 IES Board meeting and set forth in the fairness opinion dated
the date of this Joint Proxy Statement/Prospectus, which is attached as Annex M
to this Joint Proxy Statement/Prospectus, the IES Ratio (whether or
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not the IES Ratio was adjusted if the McLeod Contingency was satisfied), taking
into account the IPC Ratio, is fair from a financial point of view to the
holders of IES Common Stock. In a written opinion dated the date hereof, Morgan
Stanley confirmed its November 10, 1995 oral opinion.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION DATED THE DATE HEREOF,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX M TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF IES
COMMON STOCK ARE URGED TO, AND SHOULD, READ THIS OPINION CAREFULLY IN ITS
ENTIRETY. MORGAN STANLEY'S OPINION ADDRESSES ONLY THE FAIRNESS OF THE IES RATIO
(INCLUDING THE IES RATIO AS ADJUSTED TO REFLECT THE SATISFACTION OF THE MCLEOD
CONTINGENCY), TAKING INTO ACCOUNT THE IPC RATIO, FROM A FINANCIAL POINT OF VIEW
TO THE HOLDERS OF IES COMMON STOCK, AND IT DOES NOT ADDRESS ANY OTHER ASPECT OF
THE MERGERS NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF IES COMMON
STOCK AS TO HOW TO VOTE AT THE IES MEETING. THE SUMMARY OF THE OPINION OF MORGAN
STANLEY SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at this opinion, Morgan Stanley: (i) analyzed certain publicly
available financial statements and other information of IES, WPLH and IPC; (ii)
analyzed certain internal financial statements and other historical financial
and operating data concerning IES, WPLH and IPC prepared by their respective
managements; (iii) analyzed certain financial projections of IES, WPLH and IPC
prepared by their respective managements; (iv) reviewed certain public research
reports concerning IES, WPLH and IPC prepared by certain equity research
analysts and discussed these research reports, including financial projections
contained therein, with senior executives of IES, WPLH and IPC, respectively;
(v) discussed the past and current operations and financial condition and the
prospects of IES, WPLH and IPC with senior executives of IES, WPLH and IPC,
respectively; (vi) reviewed the reported prices and trading activity of each of
IES Common Stock, WPLH Common Stock, IPC Common Stock and McLeod Class A common
stock; (vii) compared the financial performance of IES, WPLH and IPC and the
prices and trading activity of IES Common Stock, WPLH Common Stock and IPC
Common Stock with that of certain other comparable publicly traded companies and
their securities; (viii) reviewed the financial terms, to the extent publicly
available, of certain comparable merger or acquisition transactions; (ix)
analyzed the pro forma financial impact of the Mergers on IES; (x) participated
in discussions and negotiations among representatives of IES, WPLH and IPC and
their respective financial and legal advisors; (xi) reviewed the Merger
Agreement, the Stock Option Agreements and certain related documents; (xii)
reviewed and discussed with IES, WPLH and IPC an analysis prepared by IES, WPLH
and IPC with the assistance of a third-party consultant to IES, WPLH and IPC
regarding estimates of the amount and timing of the potential cost savings to be
derived from the Mergers; (xiii) reviewed the amended registration statements
filed by McLeod on Form S-1, dated May 15, 1996 and June 10, 1996, respectively,
as well as the Investor Agreement among various parties including McLeod, IES
Investments Inc., Midwest Capital Group Inc., MWR Investments Inc. and Clark and
Mary McLeod, entered into as of April 1, 1996, which, among other things, sets
forth certain restrictions on the transfer of McLeod stock owned by IES; (xiv)
reviewed certain information pertaining to McLeod and McLeod's contemplated
initial public offering provided by IES and discussed certain aspects of such
information with the management of IES; and (xv) performed such other analyses
and examinations and considered such other factors as Morgan Stanley deemed
appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of its opinion. With respect to the
financial projections and the estimates of potential cost savings to be derived
from the Mergers, Morgan Stanley assumed that such projections and estimates
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of each of IES, WPLH
and IPC, respectively, and of the amount and timing of such cost savings. Morgan
Stanley did not make any independent valuation or appraisal of the assets or
liabilities of IES, WPLH and IPC. In addition, Morgan Stanley assumed that the
Mergers will be consummated in accordance with the terms set forth in the Merger
Agreement, including, among
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other things, that the Mergers will be accounted for as a "pooling-of-interests"
business combination in accordance with United States generally accepted
accounting principles and that the Mergers will be treated as a tax-free
reorganization and/or exchange, in each case, pursuant to the Code. Morgan
Stanley's opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to it as of, the date of its
opinion.
In arriving at its opinion, Morgan Stanley assumed that in connection with
the receipt of all the necessary regulatory and governmental approvals for the
proposed Mergers, no restriction will be imposed that would have a material
adverse effect on the contemplated benefits expected to be derived in the
proposed Mergers. In addition, Morgan Stanley was not authorized to solicit, and
did not solicit, interest from any party with respect to a merger with or other
business combination transaction involving IES, or any of its assets, nor did
Morgan Stanley have any discussions or negotiations with any parties, other than
WPLH and IPC, in connection with the Mergers.
The following is a brief summary of certain analyses performed by Morgan
Stanley and reviewed with the IES Board on November 10, 1995 in connection with
Morgan Stanley's presentation and opinion to the IES Board on such date:
COMPARABLE PUBLICLY TRADED COMPANY ANALYSIS. As part of its analysis,
Morgan Stanley compared certain financial information of IES with that of a
group of publicly traded electric utility companies, including MidAmerican
Energy Company, Washington Water & Power, and Delmarva Power and Light Company
(collectively, the "MS IES Comparables") and also compared certain financial
information of WPLH with that of a group of publicly traded electric utility
companies, including Kansas City Power & Light, WPS Resources Corporation, Union
Electric, Western Resources, CILCORP Inc., Utilicorp United, CIPSCO
Incorporated, and IPALCO Enterprises (collectively, the "MS WPLH Comparables").
Such financial information included price to LTM ended June 30, 1995, forecasted
1995 and forecasted 1996 earnings multiples, price to book value multiple, price
to LTM operating cash flow multiple and dividend yield. In particular, such
analyses indicated that as of November 7, 1995 and based on a compilation of
earnings projections by securities research analysts as of October 28, 1995, IES
and WPLH traded at 11.8 and 17.1 times historical LTM earnings, respectively,
12.6 and 13.6 times forecasted earnings for the calendar year 1995,
respectively, 12.1 and 13.0 times forecasted earnings for the calendar year
1996, respectively, 1.35 and 1.58 times book value as of the quarter ended June
30, 1995, respectively, 4.7 and 6.6 times historical LTM operating cash flow,
respectively, and a 7.7% and a 6.3% dividend yield, respectively. Morgan Stanley
noted that, based on a compilation of earnings projections by securities
research analysts as of October 28, 1995, the MS IES Comparables and MS WPLH
Comparables traded in a range of 13.4 to 14.1 times and 14.2 to 17.3 times
historical LTM earnings, respectively, 12.2 to 12.8 and 12.6 to 14.9 times 1995
forecasted earnings, respectively, 12.2 to 12.4 and 12.5 to 13.6 times 1996
forecasted earnings, respectively, and 1.33 to 1.50 and 1.53 to 1.95 times book
value as of the quarter ended June 30, 1995, respectively, and had a 6.9% to
7.3% and a 5.6% to 6.3% dividend yield, respectively.
TRADING RATIO ANALYSIS. Morgan Stanley also reviewed the ratio of the IES
Common Stock to WPLH Common Stock trading prices over varying intervals of time
over the latest five years. This ratio ranged from approximately 0.86 to 0.92
and, based on the closing price of IES Common Stock and WPLH Common Stock on
November 7, 1995 of $27.13 and $30.63, respectively, the ratio was 0.89.
CONTRIBUTION ANALYSIS. Morgan Stanley analyzed the pro forma contribution
of each of IES, WPLH and IPC to Interstate Energy. Such analysis included, among
other things, relative contributions of revenues, EBITDA, EBIT, net income,
operating cash flow and book value at or over various time periods. In
particular such analysis showed that IES, WPLH and IPC contributed approximately
41.9%, 42.1% and 16.0% of historical LTM revenues, 44.0%, 39.7% and 16.3% of
historical LTM EBITDA, 46.8%, 37.8% and 15.4% of historical LTM EBIT, 45.2%,
40.1% and 14.7% of historical LTM operating cash flow, respectively, and 41.8%,
45.2% and 13.0% of the projected net income for calendar year 1995, 41.4%, 45.5%
and 13.1% of the projected net income for calendar year 1996, and 41.7%, 42.2%
and 16.1% of the book value, as of the quarter ended June 30, 1995,
respectively. Morgan
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Stanley observed that the aforementioned contribution percentages implied a
range of exchange ratios between IES Common Stock and WPLH Common Stock of 0.88
to 1.30 and a range of implied exchange ratios between IPC Common Stock and WPLH
Common Stock of 0.93 and 1.32. Based on this analysis, Morgan Stanley calculated
mean and median implied exchange ratios between IES Common Stock and WPLH Common
Stock of 1.06 and 1.04, respectively, and mean and median implied exchange
ratios between IPC Common Stock and WPLH Common Stock of 1.12 and 1.18,
respectively. While the mean of exchange ratios between the IES Common Stock and
the WPLH Common Stock implied by the relative contribution of such companies
across the eight LTM and forward operating statistics analyzed is above 0.98,
the IES Ratio does fall within the broad range implied by this methodology and,
in fact, is higher than the mean implied exchange ratios suggested by the
relative contributions of IES and WPLH for three of such eight operating
statistics.
DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley performed DCF analyses of IES
and WPLH for the fiscal years ended 1995 through 1999 based on certain financial
projections prepared by the respective managements of each company. Unlevered
free cash flows of each company were calculated as net income available to
common shareowners plus the aggregate of preferred stock dividends, depreciation
and amortization, deferred taxes, and other non-cash expenses and after-tax net
interest expense less the sum of capital expenditures and investment in non-cash
working capital. Morgan Stanley calculated terminal values by applying a range
of perpetual growth rates to the normalized unlevered free cash flows in fiscal
1999 from 1.0% to 2.0% and 0.5% to 1.5%, representing estimated ranges of
long-term cash flow growth rates for IES and WPLH, respectively. The cash-flow
streams and terminal values were then discounted to the present using a range of
discount rates from 7.0% to 8.0%, representing an estimated range of the
weighted average cost of capital for each of IES and WPLH. Based on this
analysis, Morgan Stanley calculated median per share values for IES ranging from
$23.03 to $30.99 and for WPLH ranging from $32.63 to $35.59.
DISCOUNTED DIVIDEND ANALYSIS. Morgan Stanley performed discounted dividend
analyses of IES and WPLH for the fiscal years ended 1995 through 1999 based on
certain dividend projections prepared by the respective managements of each
company and on a compilation of earnings projections by securities research
analysts as of October 28, 1995. Morgan Stanley calculated terminal values by
applying a range of terminal multiples to the earnings per share in the fiscal
year 1999 from 11.5 times to 12.5 times and 12.5 times to 13.5 times,
representing estimated ranges of comparable forward price to earnings multiples
for IES and WPLH. The dividend streams and terminal values were then discounted
to the present using a range of discount rates from 9.0% to 10.0%, representing
a range of the estimated cost of equity for each of IES and WPLH. Based on this
analysis, Morgan Stanley calculated median per share values for IES ranging from
$27.27 to $31.75 and for WPLH ranging from $31.09 to $32.41.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Using publicly available
information, Morgan Stanley reviewed the following four proposed or completed
transactions constituting mergers of equals in the electric utility industry:
Southwestern Public Service Co. and Public Service Co. of Colorado, Northern
States Power and Wisconsin Energy Corp., Iowa-Illinois Gas & Electric and
Midwest Resources, and Iowa Resources and Midwest Energy (collectively, the
"Electric Utility MOE Transactions"). Morgan Stanley compared certain financial
and market statistics of the Electric Utility MOE Transactions. The mean premium
to unaffected market price (I.E., the market price one month prior to the
announcement of the transaction) was 3.6%, the mean price to book value multiple
was 1.5 times, the mean LTM price to earnings multiple was 12.0 times and the
mean LTM operating cash flow multiple was 5.3 times. Based on this analysis,
Morgan Stanley calculated per share values for IES ranging from $24.78 to
$32.06.
PRO FORMA ANALYSIS OF THE MERGERS. Morgan Stanley analyzed the pro forma
impact of the Mergers on IES earnings and dividends per share for the fiscal
years ended 1997 through 1999. Such analysis was performed utilizing stand-alone
earnings estimated for the fiscal years ended 1997
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through 1999 for IES, WPLH and IPC based on certain financial projections
prepared by the respective managements of each company and on a compilation of
earnings projections by securities research analysts, in each case, taking into
account the cost savings expected to be derived from the Mergers as estimated by
the managements of IES, WPLH and IPC.
On April 29, 1996, at a meeting of the IES Board, Morgan Stanley discussed
and reviewed with the IES Board the proposed contingent adjustment to the IES
Ratio relating to the McLeod Contingency. In this regard, Morgan Stanley
examined the potential contributions to the market price of IES Common Stock,
based on the implied values for such stake suggested by the estimated offering
price range as would be set forth in McLeod's amended registration statement on
Form S-1, dated May 15, 1996, taking into account, among other things, the
following factors: the execution risk involved in achieving a successful public
offering, the underlying volatility which would be inherent in the
publicly-traded McLeod Class A common stock, given the difference in industry
fundamentals and anticipated shareholder profiles between McLeod and IES; the
depressing effect an exit (if permissible) by one of McLeod's three founding
shareholders would have on the initial public offering price; the illiquidity of
the IES stake in light of the restrictions on transfer contained in the
Investment Agreement; the taxes which would likely be payable by IES upon the
eventual sale of its McLeod common stock once the aforementioned restrictions on
transfer had lapsed; and the fact that with the adjusted 1.01 exchange ratio,
IES shareholders, through their pro forma ownership of Interstate Energy, would
effectively retain 42.1% of the value attributable to IES's ownership of McLeod
shares.
PRO FORMA OWNERSHIP. Morgan Stanley compared the overall aggregate
percentage share ownership of the combined company assuming the Mergers were
consummated at the Ratios (assuming the IES Ratio was not adjusted to 1.01) and
the IES Ratio as adjusted if the McLeod Contingency was satisfied as follows:
(i) the holders of IES Common Stock would own 41.3% of the combined company
assuming the Mergers were consummated at the Ratios (assuming the IES Ratio was
not adjusted to 1.01) compared to 42.1% of the combined company assuming the
Mergers were consummated at the IES Ratio as adjusted if the McLeod Contingency
was satisfied, (ii) the holders of WPLH Common Stock would own 43.6% of the
combined company assuming the Mergers were consummated at the Ratios (assuming
the IES Ratio was not adjusted to 1.01) compared to 43.0% of the combined
company assuming the Mergers were consummated at the IES Ratio as adjusted if
the McLeod Contingency was satisfied and (iii) the holders of IPC Common Stock
would own 15.1% of the combined company assuming the Mergers were consummated at
the Ratios (assuming the IES Ratio was not adjusted to 1.01) compared to 14.9%
of the combined company assuming the Mergers were consummated at the IES Ratio
as adjusted if the McLeod Contingency was satisfied.
UPDATED CONTRIBUTION ANALYSIS. Morgan Stanley analyzed the pro forma
contribution of each of IES, WPLH and IPC to Interstate Energy based primarily
on historical LTM financial information as of the quarter ended March 31, 1996.
Such analysis included, among other things, relative contributions of revenue,
EBITDA, EBIT, net income, operating cash flow and book value at or over various
time periods. In particular such analysis showed that IES, WPLH and IPC
contributed approximately 43.0%, 41.3% and 15.6% of historical LTM revenue,
45.1%, 42.3% and 12.6% of historical LTM EBITDA, 44.7%, 43.3% and 12.0% of
historical LTM EBIT, 42.4%, 43.0% and 14.6% of historical LTM operating cash
flow, respectively, in each case, LTM as of the quarter ended March 31, 1996,
and 41.5%, 45.4% and 13.2% of projected net income for calendar year 1996,
41.4%, 45.2% and 13.3% of projected net income for calendar year 1997 and 43.0%,
42.9% and 14.1% of the book value, as of the quarter ended March 31, 1996,
respectively. Morgan Stanley observed that the aforementioned contribution
percentages implied a range of exchange ratios between IES Common Stock and WPLH
Common Stock of 0.87 to 1.10 and a range of exchange ratios between IPC Common
Stock and WPLH Common Stock of 0.89 to 1.22. Based on this analysis, Morgan
Stanley calculated mean and median implied exchange ratios between IES Common
Stock and WPLH Common Stock of 0.99 and 1.02, respectively, and mean and median
implied exchange ratios between IPC Common Stock and WPLH Common Stock of 1.01
and 1.02, respectively.
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UPDATED PRO FORMA ANALYSIS OF THE MERGERS. Morgan Stanley analyzed the pro
forma impact, taking into account the impact of the adjustment to the IES Ratio
upon satisfying the McLeod Contingency, of the Mergers on IES earnings per share
for the fiscal years ended 1997 through 1999. Such analysis was performed
utilizing stand-alone earnings estimated for the fiscal years ended 1997 through
1999 for IES, WPLH and IPC based on certain updating discussions with the
respective managements of IES, WPLH and IPC as to the current operating
environment and future business prospects for each such company, and as an
updated compilation of earnings projections by securities research analysts, in
each case, taking into account the cost savings expected to be derived from the
Mergers as estimated by the managements of IES, WPLH and IPC.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. Morgan
Stanley believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion. In addition,
Morgan Stanley may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting for any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of IES, WPLH and IPC.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of IES, WPLH and IPC. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
value, which may be significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely as part of Morgan Stanley's
analysis of the fairness of the IES Ratio, taking into account the IPC Ratio,
from a financial point of view to the holders of IES Common Stock and were
provided to the IES Board in connection with the delivery of Morgan Stanley's
written opinion dated the date hereof confirming its oral opinion of November
10, 1995. The analyses do not purport to be appraisals or to reflect the prices
at which IES, WPLH and IPC might actually be sold. Because such estimates are
inherently subject to uncertainty, none of IES, Morgan Stanley, or any other
person assumes responsibility for their accuracy. In addition, as described
above, Morgan Stanley's opinion and presentation to the IES Board was one of
many factors taken into consideration by the IES Board in making its
determination to approve the Mergers. Consequently, the Morgan Stanley analyses
described above should not be viewed as determinative of the opinion of the IES
Board or the view of management of either WPLH or IPC with respect to the value
of WPLH and IPC or of whether the IES Board or the managements of WPLH and IPC
would have been willing to agree to a different exchange ratio.
As part of its investment banking business, Morgan Stanley is regularly
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuation for estate, corporate and other purposes. In the ordinary course of
its business, Morgan Stanley and its affiliates may actively trade the debt and
equity securities of IES, WPLH and IPC for their own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. In the past, Morgan Stanley has provided financial
advisory and financing services to IES and WPLH, for which services Morgan
Stanley has received customary fees. Morgan Stanley acted as co-lead manager of
the McLeod initial public offering.
Morgan Stanley has been retained by IES to act as financial advisor to IES
with respect to the Mergers. Pursuant to a letter agreement dated June 30, 1995
between IES and Morgan Stanley, Morgan Stanley is entitled to (i) an advisory
fee for its time and efforts expended in connection with the engagement which is
estimated to be between $100,000 and $250,000, which is payable in the event the
transaction is not consummated, (ii) an announcement fee of $1,000,000, which
has been paid, and (iii) a transaction fee equal to the product of 0.472562%
multiplied by the Aggregate Value of the transaction (as such term is defined in
such letter agreement), or approximately $4,370,228, which is payable only upon
consummation of the transaction. Any amounts paid or payable to Morgan
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Stanley as advisory or announcement fees will be credited against the
transaction fee. IES has agreed to reimburse Morgan Stanley for its expenses,
including reasonable fees and expenses of its counsel, and to indemnify Morgan
Stanley and its affiliates against certain liabilities and expenses, including
liabilities under federal securities laws.
IPC'S FINANCIAL ADVISOR. Salomon Brothers has acted as financial advisor to
IPC in connection with the Mergers. During the course of discussions regarding a
possible transaction, Salomon Brothers attended meetings of the IPC Board as
described in "The Mergers -- Background of the Mergers." At such meetings,
Salomon Brothers reviewed financial information concerning IPC, WPLH and IES and
provided preliminary valuations. The financial information reviewed by Salomon
Brothers at these meetings was the same financial information used by Salomon
Brothers in arriving at its opinions (as updated through the relevant date), all
of which information is described below. The results of the preliminary
valuations presented by Salomon Brothers at such IPC Board meetings are
consistent with the results utilized by Salomon Brothers to arrive at the
opinions of Salomon Brothers which results are described below.
Salomon Brothers delivered to the IPC Board its written opinion dated
November 10, 1995 to the effect that, based upon and subject to various
considerations set forth in such opinion, as of such date, the IPC Ratio
(without adjustment of the IES Ratio for satisfaction of the McLeod Contingency)
is fair to the holders of IPC Common Stock (other than WPLH, IES or any of their
respective affiliates) from a financial point of view. At the May 10, 1996
meeting of the IPC Board, Salomon Brothers reviewed with the IPC Board the
proposed contingent adjustment to the IES Ratio relating to the McLeod
Contingency. Salomon Brothers advised the IPC Board that if the proposed
amendment were adopted, Salomon Brothers could render an opinion to the effect
that, based upon and subject to various considerations that would be set forth
in such opinion, as of May 10, 1996, the IPC Ratio (assuming adjustment of the
IES Ratio for satisfaction of the McLeod Contingency) is fair to the holders of
IPC Common Stock (other than WPLH, IES or any of their respective affiliates)
from a financial point of view. In addition, Salomon Brothers has delivered to
the IPC Board its written opinion, dated the date of this Joint Proxy
Statement/Prospectus, to the effect that, based upon and subject to various
considerations set forth in such opinion, as of such date, the IPC Ratio (with
the IES Ratio adjusted for the satisfaction of the McLeod Contingency) is fair
to the holders of IPC Common Stock (other than WPLH, IES or any of their
respective affiliates) from a financial point of view.
THE FULL TEXT OF SALOMON BROTHERS' OPINION DATED THE DATE OF THIS JOINT
PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE, GENERAL
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS
ATTACHED AS ANNEX N TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED
HEREIN BY REFERENCE. SALOMON BROTHERS' OPINIONS ARE DIRECTED ONLY TO THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO THE IPC STOCKHOLDERS OF THE IPC
RATIO AND DO NOT ADDRESS IPC'S UNDERLYING BUSINESS DECISION TO ENTER INTO THE
MERGERS OR CONSTITUTE A RECOMMENDATION TO ANY IPC STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER AGREEMENT. THE SUMMARY OF
SALOMON BROTHERS' OPINIONS SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SALOMON BROTHERS' OPINION DATED THE DATE OF THIS
JOINT PROXY STATEMENT/PROSPECTUS ATTACHED AS ANNEX N HERETO. IPC STOCKHOLDERS
ARE URGED TO, AND SHOULD, READ THE OPINION CAREFULLY AND IN ITS ENTIRETY. THE
OPINION DATED THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS SUBSTANTIALLY
SIMILAR TO THE SALOMON BROTHERS' OPINION DATED NOVEMBER 10, 1995.
In arriving at its opinions, Salomon Brothers reviewed the Merger Agreement
and its related exhibits and, in the case of the opinion dated the date hereof,
this Joint Proxy Statement/Prospectus. Salomon Brothers also reviewed certain
publicly available information relating to IPC, WPLH and IES, as well as certain
other information, including financial projections, provided to Salomon Brothers
by IPC, WPLH and IES. Salomon Brothers discussed the past and current operations
and financial condition and prospects of IPC, WPLH and IES with their respective
senior management. Salomon Brothers also considered such other information,
financial studies, analyses, investigations and financial, economic, market and
trading criteria as it deemed relevant, including the amended registration
statement filed by McLeod on Form S-1.
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Salomon Brothers assumed and relied upon the accuracy and completeness of
the information reviewed by it for the purpose of its opinions and did not
assume any responsibility for independent verification of such information or
for independent evaluation or appraisal of the assets of IPC, WPLH or IES. With
respect to the financial projections of IPC, WPLH and IES, Salomon Brothers
assumed that they had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of IPC, WPLH or
IES, as the case may be, as to the future financial performance of such entity,
and Salomon Brothers expressed no opinion with respect to such forecasts or the
assumptions on which they were based.
Salomon Brothers' opinions were necessarily based upon business, market,
economic and other conditions as they existed on, and could be evaluated as of,
the respective dates of its opinions and did not address IPC's underlying
business decision to enter into the Mergers or constitute a recommendation to
any IPC stockholder as to how such stockholder should vote with respect to the
Merger Agreement. Salomon Brothers was not requested to, and did not, solicit
third party offers to acquire all or any part of IPC. Salomon Brothers' opinions
do not imply any conclusion as to the likely trading range for WPLH Common Stock
following the consummation of the Mergers, which may vary depending on, among
other factors, changes in interest rates, dividend rates, market conditions,
general economic conditions and other factors that generally influence the price
of securities.
The following is a summary of the report (the "Salomon Brothers Report")
presented by Salomon Brothers to the IPC Board on November 10, 1995, in
connection with the delivery of the Salomon Brothers opinion dated such date. In
connection with the Salomon Brothers' opinion dated the date of this Joint Proxy
Statement/Prospectus, Salomon Brothers performed certain procedures, including
each of the financial analyses described below, to update its analyses made in
connection with the delivery of its opinion dated November 10, 1995 and reviewed
with the managements of IPC, WPLH and IES the financial information on which
such analyses were based and other factors, including the current financial
results of such companies and the future prospects for such companies.
COMPARABLE PUBLIC COMPANY ANALYSIS. Salomon Brothers reviewed the financial
and market performance of the following group of publicly traded utilities with
those of IPC: Black Hills Corporation, Central Louisiana Electric Company, Inc.,
Empire District Electric Company, Northwestern Public Service Company, Orange &
Rockland Utilities, Inc., Otter Tail Power Company and Sierra Pacific Resources
(collectively, the "SB IPC Comparable Group"). For IPC and each company in the
SB IPC Comparable Group, Salomon Brothers calculated multiples of Firm Value to
LTM EBIT and EBITDA and to property, plant and equipment and investments
("PP&E") and multiples of closing stock prices ("Stock Price") at November 3,
1995, to book value, LTM EPS and 1995 and 1996 estimated EPS. The projected
results were based on published research reports of certain analysts covering
the SB IPC Comparable Group. This analysis yielded the following multiple ranges
for the SB IPC Comparable Group: Firm Value to LTM EBIT (9.9x to 12.9x); Firm
Value to LTM EBITDA (7.1x to 8.8x); Firm Value to PP&E (1.02x to 1.34x); Stock
Price to Book Value (1.32x to 2.17x); Stock Price to LTM EPS (12.7x to 15.4x);
Stock Price to 1995 estimated EPS (11.8x to 14.9x); and Stock Price to 1996
estimated EPS (11.5x to 14.5x). Salomon Brothers also calculated a range of
dividend yields for the SB IPC Comparable Group of 4.8% to 7.2%.
Salomon Brothers performed the same analysis for WPLH using the following
group of publicly traded utilities: Duke Power Company, FPL Group, Inc.,
Northern States Power Company, Union Electric Company, Wisconsin Energy
Corporation and WPS Resources Corporation (collectively, the "SB WPLH Comparable
Group"). The analysis yielded the following multiple ranges for the SB WPLH
Comparable Group: Firm Value to LTM EBIT (9.9x to 12.4x); Firm Value to LTM
EBITDA (5.9x to 8.2x); Firm Value to PP&E (1.14x to 1.36x); Stock Price to Book
Value (1.66x to 1.98x); Stock Price to LTM EPS (13.9x to 15.2x) Stock Price to
1995 estimated EPS (13.4x to 14.3x); and Stock Price to 1996 estimated EPS
(13.0x to 14.3x). The range of dividend yields for the SB WPLH Comparable Group
was 4.2% to 6.2%.
For IES, Salomon Brothers compared the financial and market data of the
following group of publicly traded utility companies: Carolina Power & Light
Company, Florida Progress Corporation,
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The Kansas City Power & Light Company, MidAmerican Energy Company, SCANA
Corporation and Western Resources, Inc. (collectively, the "SB IES Comparable
Group"). Salomon Brothers calculated the following ranges of multiples for the
SB IES Comparable Group: Firm Value to LTM EBIT (10.6x to 12.8x); Firm Value to
EBITDA (6.3x to 9.2x); Firm Value to PP&E (0.89x to 1.24x); Stock Price to Book
Value (1.39x to 1.97x); Stock Price to LTM EPS (13.3x to 16.9x); Stock Price to
1995 estimated EPS (12.3x to 14.6x); and Stock Price to 1996 estimated EPS
(12.1x to 14.0x). The dividend yield range for the SB IES Comparable Group was
5.3% to 7.3%.
COMPARABLE TRANSACTION ANALYSIS. Salomon Brothers also reviewed the
consideration paid or proposed to be paid in recent acquisitions of utility
companies. Specifically, Salomon Brothers reviewed the following
acquiror/acquiree transactions: PECO Energy Company/PP&L Resources, Inc. (1995);
Union Electric Company/CIPSCO Incorporated (1995); Cincinnati Gas & Electric
Company/ PSI Resources, Inc. (1992); Entergy Corporation/Gulf States Utilities
Company (1992); IE Industries Inc. /Iowa Southern Utilities Company (1991); The
Kansas Power & Light Company/Kansas Gas and Electric Company (1990);
PacifiCorp./Pinnacle West Capital Corporation (1989); WPLH/Madison Gas and
Electric Company (1989); SCEcorp./San Diego Gas & Electric Company (1988); The
Southern Company/Savannah Electric and Power Company (1987); and PacifiCorp/Utah
Power & Light Company (1987). For these transactions, Salomon Brothers
calculated the following ranges of multiples of the aggregate value of each such
transaction to the aggregate market value of the acquiree one month prior to the
first indication that the acquiree is a merger candidate (1.23x to 1.65x, with a
median of 1.36x); to the book value of the acquiree (1.14x to 2.34x, with a
median of 1.78x); and to the acquiree's EPS for the trailing 12 months (11.1x to
20.3x, with a median of 14.8x). Salomon Brothers applied these multiples to
corresponding data for IPC and calculated an implied exchange ratio range for
IPC Common Stock to WPLH Common Stock of 0.98 to 1.30.
In addition, Salomon Brothers reviewed the consideration paid or payable in
the following mergers of equals: Baltimore Gas & Electric Company/Potomac
Electric Power Company (1995); Public Service Company of Colorado/Southwestern
Public Service Company (1995); Northern States Power Company/Wisconsin Energy
Corporation (1995): Midwest Resources, Inc./Iowa-Illinois Gas & Electric Company
(1994); Washington Water Power Company/Sierra Pacific Resources (1994); Midwest
Energy Company/Iowa Resources Inc. (1990); Fitchburg Gas and Electric Light
Company/ UNITIL (1989); and San Diego Gas & Electric Company/Tucson Electric
Power Company (1988). For these transactions, Salomon Brothers calculated a
range for the multiple of each transaction's aggregate value to the acquiree's
aggregate market value of 1.00x to 1.21x (with a median of 1.00x). Based on that
data, Salomon Brothers calculated an implied exchange ratio of IES Common Stock
to WPLH Common Stock of 0.88 to 1.06.
DISCOUNTED CASH FLOW ANALYSIS. Using a DCF analysis, Salomon Brothers
estimated the present value of the future cash flows that each of IPC, WPLH and
IES could produce over a five-year period from 1995 through 1999, if each of
them were to perform on a stand-alone basis (without giving effect to any
operating or other efficiencies pursuant to the Mergers) in accordance with
forecasts developed by the managements of IPC, WPLH and IES, respectively.
Salomon Brothers determined implied equity values for each of IPC, WPLH and IES
based upon the sum of (i) the aggregate discounted value (using various discount
rates ranging from 6.75% to 7.75%) of the five-year unleveraged free cash flows
of IPC, WPLH and IES, as the case may be, plus (ii) the discounted value (using
the same discount rate range) of the sum of (a) the product of (x) the final
year's projected net income multiplied by (y) numbers representing various
terminal or exit multiples (ranging from 12.50x to 14.50x for IPC and IES and
from 13.00x to 15.00x for WPLH) and (b) the projected net debt and preferred
equity in the final year.
Utilizing this DCF analysis, Salomon Brothers calculated a range of value
for IPC Common Stock, WPLH Common Stock and IES Common Stock of $256 million to
$313 million, $944 million to $1,125 million and $877 million to $1,077 million,
respectively.
CONTRIBUTION ANALYSIS. Salomon Brothers analyzed the pro forma
contributions from each of WPLH, IES and IPC to the combined company, assuming
the Mergers are consummated as set forth in
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the Merger Agreement. Salomon Brothers analyzed, among other things, in each
case for the fiscal years ending December 31, 1994, 1996 and 1997, the relative
contribution to the combined company from each of WPLH's, IES's and IPC's
revenues, EBITDA, EBIT and net income. The analysis did not assume the
realization of any synergies in the Mergers or include any transaction costs or
purchase adjustments, but did assume that pooling accounting was used. The
analysis determined that WPLH, IES and IPC would have contributed the following
percentages to the combined company's results in 1994: revenues -- 42.7%, 41.2%
and 16.1%, respectively; EBITDA -- 40.9%, 45.3% and 13.8%, respectively; EBIT --
40.5%, 46.0% and 13.5%, respectively; and net income -- 43.4%, 44.5% and 12.1%,
respectively. Book value contributions at June 30, 1995, would have been 43.2%,
42.8% and 14.0% from WPLH, IES and IPC, respectively. Utilizing this
contribution analysis, Salomon Brothers calculated implied exchange ratio ranges
for IPC Common Stock to WPLH Common Stock and IES Common Stock to WPLH Common
Stock of 0.89 to 1.24 and 0.91 to 1.25, respectively.
PRO FORMA MERGER CONSEQUENCES ANALYSIS. Salomon Brothers analyzed certain
pro forma effects on WPLH, IPC and IES resulting from the Mergers for the
projected twelve-month periods ending December 31, 1997, 1998 and 1999. Such
analysis was performed utilizing stand-alone earnings estimates prepared by the
respective managements of each company.
EXCHANGE RATIO ANALYSIS. Salomon Brothers reviewed and analyzed the
historical ratios of the daily closing prices of IPC Common Stock and IES Common
Stock to WPLH Common Stock during the five-year period ending November 3, 1995.
The exchange ratios for the daily closing per share prices of IPC Common Stock
to WPLH Common Stock ranged from a low of 0.74 to a high of 1.18, with an
average of 0.94. The exchange ratios for IES Common Stock to WPLH Common Stock
ranged from 0.73 to 1.19, with an average of 0.92.
On May 10, 1996, at a meeting of the IPC Board, Salomon Brothers reviewed
with the IPC Board the proposed contingent adjustment to the IES Ratio relating
to the McLeod Contingency. In this regard, Salomon Brothers calculated the
potential contribution of the proceeds of McLeod's proposed initial public
offering, based on a range of possible final pricing terms for McLeod's proposed
initial public offering, and compared the percentage share ownership of former
holders of IPC Common Stock of the combined company assuming the Mergers were
consummated at the Ratios (assuming the McLeod Contingency was not satisfied and
the IES Ratio was not adjusted to 1.01) and the adjusted IES Ratio (assuming the
McLeod Contingency was satisfied and the IES Ratio was adjusted to 1.01).
Assuming the McLeod Contingency was not satisfied and the Mergers were
consummated at the Ratios (with the IES Ratio not adjusted to 1.01), the former
holders of IPC Common Stock would own 15.1% of the combined company.
Alternatively, assuming the McLeod Contingency was satisfied and the IES Merger
was consummated at the adjusted IES Ratio, the former holders of IPC Common
Stock would own 14.9% of the combined company. Additionally, Salomon Brothers
reviewed a range of potential values attributable to IES's ownership of McLeod
shares and the allocation of those values among WPLH, IES and IPC assuming the
Mergers were consummated at the Ratios (without the IES Ratio being adjusted for
the McLeod Contingency) in comparison to the allocation assuming the Mergers
were consummated and the IES Ratio was adjusted for satisfaction of the McLeod
Contingency. The analysis demonstrated that if the value attributable to IES's
ownership of McLeod shares reflected in the combined company's market value
exceeded approximately $26.6 million, the adjustment of the IES Ratio for
satisfaction of the McLeod Contingency would not result in a decrease in the
market capitalization of the combined company attributable to IPC stockholders.
In arriving at its opinions, in preparing the Salomon Brothers Report and in
reviewing the McLeod Contingency, Salomon Brothers performed a variety of
financial analyses, the material portions of which are summarized above. The
summary set forth above does not purport to be a complete description of the
analyses performed by Salomon Brothers or its presentation to the IPC Board. In
addition, Salomon Brothers believes that its analyses must be considered as a
whole and that selecting portions of such analyses and the factors considered by
it, without considering all such analyses and factors, could create an
incomplete view of the process underlying its analyses set forth in the opinions
and in the Salomon Brothers Report. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. In
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addition, Salomon Brothers made no attempt to assign specific weights to
particular analyses. With regard to the comparable public company analysis and
the comparable acquisition analysis summarized above, Salomon Brothers selected
comparable public companies on the basis of various factors, including the size
of the public company and similarity of the line of business; however, no public
company or transaction utilized as a comparison is identical to IPC, WPLH, IES
or the Mergers. Accordingly, an analysis of the foregoing is not mathematical;
rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the comparable companies and other
factors that could affect the acquisition or public trading value of the
comparable companies and transactions to which IPC, WPLH, IES and the Mergers
are being compared.
In performing its analyses, Salomon Brothers made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
IPC, WPLH and IES. Any estimates contained in such analyses are not necessarily
indicative of actual past or future results or values, which may be
significantly more or less than such estimates. Actual values will depend upon
several factors, including events affecting the utility industry, general
economic, market and interest rate conditions and other factors which generally
influence the price of securities. Additionally, all projections and estimates
for future results of IPC, WPLH and IES referred to above were based on
information provided by the respective managements of such companies.
Salomon Brothers is an internationally recognized investment banking firm
and regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. The IPC Board
selected Salomon Brothers to act as its financial advisor on the basis of
Salomon Brothers' international reputation and Salomon Brothers' familiarity
with IPC and the utility industry. Salomon Brothers acted as underwriter for IPC
in connection with three of its prior financings, as well as lead manager for
the McLeod initial public offering. In the ordinary course of its business,
Salomon Brothers actively trades the debt and equity securities of IPC, WPLH and
IES for Salomon Brothers' own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
The Ratios were determined by arms'-length negotiations among IPC, WPLH and IES,
in consultation with their respective financial advisors and other
representatives.
Pursuant to a letter agreement dated September 13, 1995, between IPC and
Salomon Brothers, Salomon Brothers agreed to act as financial advisor to IPC in
connection with the Mergers. IPC is obligated to pay Salomon Brothers a monthly
fee of $25,000 during the term of the engagement and an additional fee equal to
the product of 0.75% multiplied by the aggregate consideration paid for IPC's
common equity (approximately $2,448,000). This additional fee is due Salomon
Brothers as follows: 25% contingent upon and payable following execution of the
Merger Agreement; 25% contingent upon and payable following approval by the IPC
stockholders; and the remainder (less all monthly fees paid or payable)
contingent upon and only payable following consummation of the Mergers. IPC also
agreed to reimburse Salomon Brothers for its reasonable out-of-pocket expenses,
including fees and disbursements of counsel, and to indemnify Salomon Brothers
and its affiliates, their respective directors, officers, agents and employees
and each person, if any, controlling Salomon Brothers or any of its affiliates
against certain liabilities, including liabilities under the federal securities
laws, relating to, or arising out of, its engagement.
As noted under the caption "The Mergers -- Reasons for the Mergers;
Recommendations of the Boards of Directors," the fairness opinion of Salomon
Brothers was only one of many factors considered by the IPC Board in determining
to approve the Merger Agreement and the IPC Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In considering the recommendations of the WPLH Board, the IES Board and the
IPC Board with respect to the Mergers, shareowners should be aware that certain
members of WPLH's, IES's and IPC's management and Boards of Directors have
certain interests in the Mergers that are in addition
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to their interest, if any, as shareowners of WPLH, IES and IPC generally. The
Boards of Directors of each of WPLH, IES and IPC were aware of these interests
and considered them, among other things, in approving the Merger Agreement and
the transactions contemplated thereby.
EMPLOYMENT AGREEMENTS. The Employment Agreements with each of Messrs. Liu,
Davis, Stoppelmoor and Chase will become effective only at the Effective Time.
The Employment Agreements are described in greater detailed under "-- Employment
Agreements" below.
SEVERANCE ARRANGEMENTS. Under certain severance arrangements and other
employee agreements maintained, or entered into, by each of WPLH, IES and IPC,
certain benefits may become vested, and certain payments may become payable, in
connection with the Mergers. WPLH has employment and severance agreements with
each of thirteen executives of WPLH and certain of its subsidiaries which
provide these executives with a measure of security against changes in their
relationship with WPLH and its subsidiaries in the event of a change in control
of WPLH. These agreements provide that each executive officer that is a party
thereto is entitled to benefits if, within five years after a change in control
of WPLH (as defined in the agreements), the officer's employment is ended
through (a) termination by WPLH or its subsidiaries, other than by reason of
death or disability or for cause (as defined in the agreements), or (b)
termination by the officer due to a breach of the agreement by WPLH or its
subsidiaries or a significant change in the officer's responsibilities, or (c)
in the case of Mr. Davis's agreement only, termination by Mr. Davis following
the first anniversary of the change in control. The benefits provided under each
of the agreements include: (a) a cash termination payment of one, two or three
times (depending on which executive is involved) the sum of the executive
officer's annual salary and his or her average annual bonus during the three
years before the termination and (b) continuation for up to five years of
equivalent hospital, medical, dental, accident, disability and life insurance
coverage as in effect at the time of termination. The agreements also provide
the foregoing benefits in connection with certain terminations which are
effected in anticipation of a change in control. Each agreement provides that if
any portion of the benefits under the agreement or under any other agreement for
the officer would constitute an excess payment for purposes of the Code,
benefits will be reduced so that the officer will be entitled to receive $1 less
than the maximum amount which he or she could have received without becoming
subject to the 20% excise tax imposed by the Code on certain excess payments, or
which WPLH may pay without the loss of deduction under the Code. The WPLH Board
has authorized that each of the foregoing agreements be amended to specifically
provide that the consummation of the Mergers will constitute a change in control
in certain circumstances for purposes of the agreements.
Based on the compensation paid to the executives in 1995 and assuming the
occurrence of a termination for which severance benefits would be payable
following a change of control of WPLH, the maximum amounts payable to each of
Messrs. Davis, Harvey, Protsch, Ahearn and Amato and all of the other executives
of WPLH as a group (eight persons) under their employment and severance
agreements would be $1,623,524, $745,524, $745,704, $737,310, $577,962 and
$2,583,641, respectively.
IES has severance agreements with twelve of its and Utilities' executives,
including Mr. Liu, James E. Hoffman, Executive Vice President of Utilities, and
John F. Franz, Jr., Vice President of Utilities. The severance agreements run
for terms of one year, subject to automatic renewal unless either party gives
notice of non-renewal to the other party at least 60 days prior to the annual
renewal date. Each agreement provides for salary continuation and certain other
benefits in the event the covered executive is terminated within a three-year
period following a change of control of IES. The Mergers will constitute a
change of control for purposes of each of the IES severance agreements.
Specifically, the agreements provide that following termination of a covered
executive's employment, except terminations for just cause, death, retirement,
disability or voluntary resignation (other than resignation for "good reason"),
the executive's salary will be continued, at a level equal to his salary just
prior to termination, for a period ranging from eighteen to thirty-six months
(depending on the executive involved and, in certain cases, his length of
service). Additionally, certain benefits will be
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continued during the applicable severance period, including life and health
insurance, and the executive will continue to receive annual incentive award
payments equal to the average annual incentive awards paid to executives of the
same or comparable designation during the three years prior to the change in
control. In the event the executive dies during the severance period, the salary
and benefit payments described above shall be payable during the remainder of
the term to the executive's surviving spouse or his estate. The executive will
also become immediately vested and entitled to receive awards of restricted
stock or other rights granted to the executive under IES' Long-Term Incentive
Plan. With respect to a covered executive who is age 56 or older at the time of
the change of control, the severance agreement further provides that the change
of control will cause the executive to become fully vested in his supplemental
retirement plan benefit (his "SERP"), and that if the executive is terminated
within three years following the change of control, he will be able to commence
his SERP payments on the earlier of the date he attains age 65 or the date
salary continuation payments cease under his severance agreement. With respect
to an executive who is under age 56 at the time of the change of control, the
severance agreement further provides that upon the change of control the
executive will receive an annuity with a value of six months' salary if the
executive has been employed by IES or Utilities for less than ten years, and one
year's salary otherwise.
In November 1995, IES approved certain amendments to the existing severance
agreements which will take effect no later than the next annual renewal of each
agreement, subject to each executive's execution of an amended form of
agreement. The amendments to the severance agreement for Mr. Liu provides, among
other things, that during the applicable severance period Mr. Liu will be
entitled to receive payments equal to the average value of both the long-term
and the annual incentive awards received by executives of the same or comparable
designation during the three years prior to the change of control. In addition,
the amendments for all covered executives provide reimbursement, in an aggregate
amount not to exceed 15% of the executive's base salary, for outplacement
services and legal fees incurred by the executive in connection with his
termination, and also provide severance benefits in the event of certain
employment terminations within 180 days prior to a change in control.
The provisions of the severance agreement covering Mr. Liu have been
incorporated into the Employment Agreement to be executed between Mr. Liu and
Interstate Energy in connection with the Mergers (described below and attached
as Annex H), and after the Effective Time his Employment Agreement will
supersede his existing severance agreement.
Based on the compensation paid to the executives in 1995 and assuming the
occurrence of a termination for which severance benefits would be payable
following a change in control of IES, the maximum amounts payable to each of
Messrs. Liu, Hoffman and Franz and all of the other executives of IES as a group
(nine persons) under their severance agreements would be $2,269,694, $549,614,
$297,696 and $3,146,135, respectively.
Effective as of November 8, 1995, IPC entered into agreements (the "IPC
Severance Agreements") providing certain severance benefits with nine executive
officers of IPC, including Messrs. Stoppelmoor and Chase (collectively, the "IPC
Executives"). The IPC Severance Agreements will provide benefits to the IPC
Executives whose employment is terminated under certain circumstances at any
time within thirty-six months after the month in which a change in control (as
defined in the IPC Severance Agreements) occurs. The term of the IPC Severance
Agreements expires on December 31, 1998 and may be extended for additional one
year periods. However, the term of the IPC Severance Agreements will not extend
beyond the date on which the covered IPC Executive attains the age of sixty-two.
The severance benefits described below will be paid if an IPC Executive's
employment is terminated after a change in control unless the termination is:
(i) by IPC for cause; (ii) by the IPC Executive without "good reason" (as
defined in the IPC Severance Agreements); (iii) due to the retirement of the IPC
Executive; (iv) due to the death of the IPC Executive; or (v) due to the
disability of the IPC Executive. An IPC Executive's employment will be deemed to
have been terminated following a change in control by IPC without cause or by
the IPC Executive for good reason if the IPC Executive
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reasonably demonstrates that the IPC Executive was terminated either: (i) as a
result of the request of a person who has entered into a change in control
agreement with IPC, or (ii) otherwise in connection with, as a result of, or in
anticipation of, a change in control.
The severance benefits provided under the IPC Severance Agreements consist
of: (i) a cash lump sum payment of up to three times the sum of the IPC
Executive's annual salary and his or her average annual bonus during the three
years prior to the IPC Executive's termination of employment, (ii) continuation
of life, disability, accident and health insurance benefits similar to those
that the IPC Executive enjoyed prior to the change in control for thirty six
months after the date of termination, or if sooner, until the IPC Executive
reaches the age of sixty-two years; (iii) outplacement services on an
individualized basis at a level commensurate with the IPC Executive's status
with IPC; and (iv) the immediate vesting of all outstanding stock options and
all shares of restricted stock.
Mr. Stoppelmoor is not expected to receive any payments under the IPC
Severance Agreements because he has already attained age 62. If a change in
control were to occur on December 31, 1995 and all covered executives were
immediately terminated with each such executive being entitled to receive the
full benefits provided under his IPC Severance Agreement, the approximate
amounts that would be payable to certain executive officers of IPC would be as
follows: Mr. Chase $467,000; Mr. Hamill $321,000; and Mr. Troy $318,000; under
these assumptions, which would maximize the benefits that could be received
under the IPC Severance Agreements, the aggregate amount of all of the payments
that could be received by all of the executives covered under the IPC Severance
Agreements would not exceed $2,800,000.
BOARD OF DIRECTORS. As provided in the Merger Agreement, at the Effective
Time, the Interstate Energy Board will consist of fifteen directors, six of whom
will be designated by WPLH, including
Mr. Davis, six of whom will be designated by IES, including Mr. Liu, and three
of whom will be designated by IPC, including Mr. Stoppelmoor. See "Interstate
Energy Following the Mergers -- Management of Interstate Energy."
INDEMNIFICATION. Pursuant to the Merger Agreement, to the extent, if any,
not provided by an existing right of indemnification or other agreement or
policy, from and after the Effective Time, Interstate Energy will, to the
fullest extent permitted by applicable law, indemnify, defend and hold harmless
each person who was at, or who has been at any time prior to the date of the
Merger Agreement, or who becomes prior to the Effective Time, an officer,
director or employee of WPLH, IES or IPC or any of their subsidiaries (including
New Utilities and New IPC) against all losses, expenses (including reasonable
attorneys' fees and expenses), claims, damages or liabilities or, subject to
certain restrictions, amounts paid in settlement, (i) arising out of actions or
omissions occurring at or prior to the Effective Time (and whether asserted or
claimed prior to, at or after the Effective Time) that are in whole or part
based on, or arising out of, the fact that such person is or was a director,
officer or employee of such party, or (ii) based on, arising out of or
pertaining to the transactions contemplated by the Merger Agreement. See "The
Merger Agreement -- Indemnification."
CERTAIN ARRANGEMENTS REGARDING THE DIRECTORS AND MANAGEMENT OF INTERSTATE ENERGY
FOLLOWING THE MERGERS
In connection with the Mergers, the Interstate Energy Board, at the
Effective Time, will consist of fifteen persons, six of whom will be designated
by WPLH, including Mr. Davis, six of whom will be designated by IES, including
Mr. Liu, and three of whom will be designated by IPC, including Mr. Stoppelmoor.
The Merger Agreement also provides for the designation of certain senior
officers of Interstate Energy and its subsidiaries following the Effective Time.
See "Interstate Energy Following the Mergers -- Management of Interstate
Energy." In addition, the Merger Agreement provides that during the three-year
period following the Effective Time, certain provisions thereof (including
provisions relating to existing employee agreements, workforce matters, benefit
plans, stock option and other plans, certain officer positions at Interstate
Energy and its subsidiaries and certain post-merger operations) may be enforced
on behalf of the officers, directors and employees of WPLH, IES and IPC, as the
case may be, by the directors designated by each of such companies (or their
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successors), respectively. The Merger Agreement also provides such directors
with the standing to enforce provisions relating to the composition of and other
matters relating to the Interstate Energy Board for as long as such provisions
are applicable, including the provisions governing the selection of each of the
WPLH, IES and IPC designated directors until the date of the third annual
meeting of shareowners of Interstate Energy and the provisions limiting the
designation of employee directors for a period of five years following the
Effective Time. Finally, the Merger Agreement provides that the directors
designated by WPLH will be entitled to enforce for a five-year period provisions
relating to the selection of Mr. Davis as the Chief Executive Officer (and,
following Mr. Liu's retirement, as Chairman of the Board) of Interstate Energy
and his selection to serve in certain other capacities.
EMPLOYMENT AGREEMENTS
The forms of the Employment Agreements for Messrs. Liu, Davis, Stoppelmoor
and Chase are attached hereto as Annexes H through K, respectively. The
Employment Agreements will become effective only at the Effective Time.
Pursuant to Mr. Liu's Employment Agreement, Mr. Liu will serve as Chairman
of Interstate Energy, for a period of two years following the Effective Time and
thereafter will retire as an officer of Interstate Energy, although he may
continue to serve as a director. Under Mr. Davis's Employment Agreement, Mr.
Davis will, following the Effective Time, serve as President and Chief Executive
Officer of Interstate Energy for a period of five years following the Effective
Time and, for the three-year period following Mr. Liu's retirement, Mr. Davis
will also serve as Chairman of Interstate Energy. Following the initial
five-year term of Mr. Davis's Employment Agreement, the Employment Agreement
will automatically renew for successive one-year terms, unless either party
gives prior written notice of his or its intent to terminate the Employment
Agreement. Mr. Davis's Employment Agreement also provides that he serve as Chief
Executive Officer of each subsidiary of Interstate Energy during the three-year
period following the Effective Time and as a director of such companies during
the term of his Employment Agreement. Pursuant to Mr. Stoppelmoor's Employment
Agreement, Mr. Stoppelmoor will serve as Vice Chairman of Interstate Energy for
a period of two years following the Effective Time and thereafter will retire as
an officer of Interstate Energy, although he may continue to serve as a
director. The provisions of the Employment Agreements for each of Messrs. Liu,
Davis and Stoppelmoor which relate to such persons serving as directors of
Interstate Energy assume that such persons are, to the extent applicable,
reelected and not removed from the Interstate Energy Board by the Interstate
Energy shareowners. Pursuant to Mr. Chase's Employment Agreement, Mr. Chase will
serve as President of IPC or New IPC, as the case may be, following the
Effective Time and until the last day of the calendar month immediately
following the calendar month in which Mr. Chase attains age 62.
Mr. Liu's Employment Agreement provides that he will receive an annual base
salary of not less than $400,000, and supplemental retirement benefits and the
opportunity to earn short-term and long-term incentive compensation (including
stock options, restricted stock and other long-term incentive compensation) in
amounts no less than he was eligible to receive from IES before the Effective
Time. Pursuant to Mr. Davis's Employment Agreement, he will be paid an annual
base salary not less than his aggregate annual salary from WPLH and its
subsidiaries as in effect immediately prior to the Effective Time ($450,000 as
of January 1, 1996). Mr. Davis will also have the opportunity to earn short-term
and long-term incentive compensation (including stock options, restricted stock
and other long-term incentive compensation) in amounts no less than he was
eligible to receive before the Effective Time, as well as supplemental
retirement benefits (including continued participation in the WP&L Executive
Tenure Compensation Plan) in an amount no less than he was eligible to receive
before the Effective Time and life insurance providing a death benefit of three
times his annual salary. Under Mr. Stoppelmoor's Employment Agreement, he will
receive an annual base salary of not less than $300,000, and supplemental
retirement benefits and the opportunity to earn short-term and long-term
incentive compensation (including stock options, restricted stock and other
long-term incentive compensation) in amounts no less than he was eligible to
receive from IPC before the Effective Time. Mr. Stoppelmoor's Employment
Agreement also provides that, following his
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retirement as Vice Chairman of the Board of Interstate Energy, he will serve as
a consultant to the Chief Executive Officer of Interstate Energy for a one-year
period. In consideration for his services as a consultant, Mr. Stoppelmoor will
be paid a fee of $16,667 per month and will be reimbursed for reasonable
expenses incurred in the performance of such services. Under Mr. Chase's
Employment Agreement, he will receive an annual base salary not less than the
aggregate annual base salary he was paid by IPC immediately prior to the
Effective Time ($165,000 as of January 1, 1996). Mr. Chase will also receive
supplemental retirement benefits and will have the opportunity to earn
short-term and long-term incentive compensation (including stock options,
restricted stock and other long-term compensation) offered to other senior
executive officers of Interstate Energy and its affiliates in amounts not less
than he was eligible to receive from IPC before the Effective Time.
If the employment of any of the officers with Employment Agreements is
terminated without cause (as defined in the Employment Agreements) or if any
officer terminates his employment for good reason (as defined in the Employment
Agreements), Interstate Energy or its affiliates will continue to provide the
compensation and benefits called for by the respective Employment Agreement
through the end of the term of such Employment Agreement (with incentive
compensation based on the maximum potential awards or, in the case of Mr. Chase,
on the average awards received during the prior three years, and with any stock
compensation paid in cash), and all unvested stock compensation will vest
immediately. If the officer dies or becomes disabled, or terminates his
employment without good reason, during the term of the Employment Agreement,
Interstate Energy or its affiliates will pay to the officer or his beneficiaries
or estate all compensation earned through the date of death, disability or such
termination (including previously deferred compensation and pro rata incentive
compensation based upon the maximum potential awards). If the officer is
terminated for cause, Interstate Energy or its affiliates will pay his base
salary through the date of termination plus any previously deferred
compensation. Notwithstanding the foregoing, in the event that any payments to
an officer under his Employment Agreement or otherwise are subject to the excise
tax on excess parachute payments under the Code, then the total payments to be
made under the Employment Agreement will be reduced so that the value of these
payments the officer is entitled to receive is $1 less than the amount that
would subject the officer to the excise tax.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL. The following is a summary description of the material federal
income tax consequences of the Mergers and summarizes the respective opinions of
counsel to WPLH, IES and IPC, subject to the following qualification. This
description summarizes the opinion of Foley & Lardner, counsel to WPLH, only
insofar as it relates to consequences of the IES Merger and the IPC Direct
Merger (or the IPC Merger, if applicable) to WPLH's shareowners, it summarizes
the opinion of Winthrop, Stimson, Putnam & Roberts, counsel to IES, only insofar
as it relates to consequences of the IES Merger (and the Utilities
Reincorporation Merger, if applicable) to IES's shareholders, and it summarizes
the opinion of Milbank, Tweed, Hadley & McCloy, counsel to IPC, only insofar as
it relates to consequences of the IPC Direct Merger (or the IPC Merger and the
IPC Reincorporation Merger, if applicable) to IPC's stockholders. The opinions
summarized below are filed as exhibits to the Joint Registration Statement.
This summary is not a complete description of all of the consequences of the
Mergers and, in particular, may not address federal income tax considerations
that may affect the treatment of a shareowner that, at the Effective Time, is
not a U.S. person or is a tax-exempt entity or an individual who acquired IES
Common Stock or IPC Common Stock pursuant to an employee stock option or
otherwise as compensation. In addition, no information is provided with respect
to the tax consequences of the Mergers under foreign, state or local laws. The
discussion is based on the Code as in effect on the date of this Joint Proxy
Statement/Prospectus, without consideration of the particular facts or
circumstances of any shareowner. CONSEQUENTLY, EACH SHAREOWNER IS ADVISED TO
CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO
HIM, HER OR IT OF THE MERGERS.
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THE MERGERS. The respective obligations of the parties to effect the
Mergers are conditioned on their receipt of certain additional tax opinions
described in the remainder of this paragraph and the following two paragraphs.
The WPLH obligation to effect the combined IES Merger and IPC Direct Merger (or
IPC Merger, if applicable) is conditioned on the delivery of an opinion to WPLH
from Foley & Lardner, its counsel, dated as of the Closing Date, based upon
certain customary representations and assumptions set forth therein,
substantially to the effect that, for federal income tax purposes, each of the
IES Merger and the IPC Direct Merger (or the IPC Merger, if applicable)
constitutes a tax-free reorganization within the meaning of Section 368(a) of
the Code.
The IES obligation to effect the IES Merger (and the Utilities
Reincorporation Merger, if applicable) is conditioned on the delivery of an
opinion to IES from Winthrop, Stimson, Putnam & Roberts, its counsel, dated as
of the Closing Date, based upon certain customary representations and
assumptions set forth therein, substantially to the effect that, for federal
income tax purposes, the IES Merger (and the Utilities Reincorporation Merger,
if applicable) constitutes a tax-free reorganization within the meaning of
Section 368(a) of the Code.
The IPC obligation to effect the IPC Direct Merger (or the IPC Merger and
the IPC Reincorporation Merger, if applicable) is conditioned on the delivery of
an opinion to IPC from Milbank, Tweed, Hadley & McCloy, its counsel, dated as of
the Closing Date, based upon certain customary representations and assumptions
set forth therein, substantially to the effect that, for federal income tax
purposes, the IPC Direct Merger (or the IPC Merger and the IPC Reincorporation
Merger, if applicable) constitutes a tax-free reorganization within the meaning
of Section 368(a) of the Code.
Rulings will not be sought from the Internal Revenue Service regarding the
Mergers and the Internal Revenue Service may disagree with the conclusions
expressed in the opinions of counsel referred to above.
Based on the foregoing, and subject in all events to the approval of the IPC
Charter Amendment by the IPC stockholders at the IPC Meeting, the following is a
summary of the material federal income tax consequences of the Mergers as
described in the opinions of Foley & Lardner, Winthrop, Stimson, Putnam &
Roberts and Milbank, Tweed, Hadley & McCloy filed as exhibits to the Joint
Registration Statement:
(i)
WPLH, IES, IPC and Acquisition (and New IPC, Utilities and New
Utilities, if applicable) will each be a party to a reorganization
within the meaning of Section 368(b) of the Code;
(ii)
No gain or loss will be recognized by WPLH, IES, IPC or Acquisition
(or New IPC, Utilities and New Utilities, if applicable) pursuant to
the Mergers;
(iii)
No gain or loss will be recognized by the holders of IES Common
Stock upon the exchange of their IES Common Stock for Interstate
Energy Common Stock pursuant to the IES Merger, except that a holder of IES
Common Stock that receives cash in lieu of a fractional share interest in
Interstate Energy Common Stock will recognize gain or loss equal to the
difference between the cash received and the tax basis allocated to the
fractional share interest. Any gain or loss recognized by a holder will
constitute capital gain or loss if such holder's IES Common Stock with
respect to which gain or loss is recognized is held as a capital asset at
the Effective Time;
(iv)
A holder of IES Common Stock that receives cash for IES Dissenting
Shares will recognize gain or loss equal to the difference between
the amount of such cash and the tax basis of such holder's IES Dissenting
Shares. Any such gain or loss recognized by a holder will constitute capital
gain or loss if such holder's IES Dissenting Shares are held as capital
assets at the Effective Time;
(v)
No gain or loss will be recognized by the holders of IPC Common
Stock upon the exchange of their IPC Common Stock for Interstate
Energy Common Stock pursuant to the IPC Direct Merger, except that a holder
of IPC Common Stock that receives cash in lieu of a fractional share
interest in Interstate Energy Common Stock will recognize gain or loss equal
to the
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difference between the cash received and the tax basis allocated to the
fractional share interest. Any gain or loss recognized by a holder will
constitute capital gain or loss if such holder's IPC Common Stock with
respect to which gain or loss is recognized is held as a capital asset at
the Effective Time;
(vi)
The tax basis of the Interstate Energy Common Stock received by a
holder of IES Common Stock or IPC Common Stock, as the case may be,
will be the same as such holder's tax basis in the IES Common Stock or IPC
Common Stock that was exchanged pursuant to the IES Merger or IPC Direct
Merger, as the case may be, reduced by the tax basis allocable to any
fractional share interest in Interstate Energy Common Stock with respect to
which cash is being received;
(vii)
The holding period of the Interstate Energy Common Stock received in
the IES Merger or IPC Direct Merger, as the case may be, will
include the holder's holding period with respect to the IES Common Stock or
IPC Common Stock that was exchanged pursuant to the IES Merger or IPC Direct
Merger, as the case may be (PROVIDED that such stock was held as a capital
asset at the Effective Time);
(viii)
No gain or loss will be recognized by the holders of IPC Preferred
Stock under the IPC Direct Merger, except that a holder of IPC
Preferred Stock that receives cash for IPC Dissenting Shares will recognize
gain or loss equal to the difference between the amount of such cash and the
tax basis of such holder's IPC Dissenting Shares. Any such gain or loss
recognized by a holder will constitute capital gain or loss if such holder's
IPC Dissenting Shares are held as capital assets at the Effective Time;
(ix)
Assuming the IPC Reincorporation Merger and the IPC Merger are
effected, no gain or loss will be recognized by the holders of IPC
Preferred Stock (other than for holders of IPC Dissenting Shares who will
incur the tax treatment as described in subparagraph (viii) above) and IPC
Common Stock upon the exchange of their IPC Preferred Stock or IPC Common
Stock for New IPC Preferred Stock or New IPC Common Stock, as the case may
be, pursuant to the IPC Reincorporation Merger, and no gain or loss will be
recognized by the holders of New IPC Common Stock upon the exchange of their
New IPC Common Stock for Interstate Energy Common Stock pursuant to the IPC
Merger, except that a holder of New IPC Common Stock that receives cash in
lieu of a fractional share interest in Interstate Energy Common Stock will
recognize gain or loss equal to the difference between the cash received and
the tax basis allocated to the fractional share interest. Any gain or loss
recognized by a holder will constitute capital gain or loss if such holder's
New IPC Common Stock with respect to which gain or loss is recognized is
held as a capital asset at the Effective Time;
(x)
Assuming the IPC Reincorporation Merger and the IPC Merger are
effected, the tax basis of the New IPC Preferred Stock or New IPC
Common Stock received by a holder of IPC Preferred Stock or IPC Common Stock
will be the same as such holder's tax basis in the IPC Preferred Stock or
IPC Common Stock that was exchanged pursuant to the IPC Reincorporation
Merger, and the tax basis of the Interstate Energy Common Stock received by
a holder of New IPC Common Stock will be the same as such holder's tax basis
in the New IPC Common Stock that was exchanged pursuant to the IPC Merger;
(xi)
Assuming the IPC Reincorporation Merger and the IPC Merger are
effected, the holding period of the New IPC Preferred Stock or New
IPC Common Stock received by a holder of IPC Preferred Stock or IPC Common
Stock will include the holder's holding period with respect to the IPC
Preferred Stock or IPC Common Stock that was exchanged pursuant to the IPC
Reincorporation Merger, and the holding period of the Interstate Energy
Common Stock received by a holder of New IPC Common Stock will include the
holder's holding period with respect to the New IPC Common Stock that was
exchanged pursuant to the IPC Merger (PROVIDED, in each case, that such
stock was held as a capital asset at the Effective Time); and
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(xii)
No gain or loss will be recognized by a shareowner of WPLH upon
consummation of the Mergers.
ACCOUNTING TREATMENT
The Mergers will be treated by the parties as a pooling of interests for
accounting and financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of WPLH, IES and IPC will be carried forward
to the consolidated financial statements of Interstate Energy at their recorded
amounts; income of Interstate Energy will include income of WPLH, IES and IPC
for the entire fiscal year in which the Mergers occur; and the reported income
of the separate corporations for prior periods will be combined and restated as
income of Interstate Energy. The receipt by each of WPLH, IES and IPC of a
letter from their respective independent accountants, stating that the Mergers
will qualify as a pooling of interests, is a condition precedent to consummation
of the Mergers. Representatives of Arthur Andersen LLP are expected to be
present at the WPLH Meeting and the IES Meeting and representatives of Deloitte
& Touche LLP are expected to be present at the IPC Meeting and in each case to
be available to respond to questions, and will have an opportunity to make a
statement if they desire to do so. See "The Merger Agreement -- Conditions to
Each Party's Obligation to Effect the Mergers" and "Unaudited Pro Forma Combined
Financial Information."
STOCK EXCHANGE LISTING OF INTERSTATE ENERGY COMMON STOCK
Application will be made for the listing on the NYSE of the shares of
Interstate Energy Common Stock to be issued pursuant to the terms of the Merger
Agreement. The listing on the NYSE of such shares, subject to notice of
issuance, is a condition precedent to the consummation of the Mergers. So long
as WPLH, IES and IPC continue to meet the requirements of the NYSE, WPLH Common
Stock, IES Common Stock and IPC Common Stock, as the case may be, will continue
to be listed on the NYSE until the Effective Time. So long as WPLH continues to
meet the requirements of the BSE, the CSE and the PSE, the other national
securities exchanges which list WPLH Common Stock, WPLH Common Stock will
continue to be listed on the BSE, the CSE and the PSE. So long as IES and IPC
continue to meet the requirements of the CSE and the PSE, and IES continues to
meet the requirements of the BSE and the PhSE, the other national securities
exchanges which list IES Common Stock and IPC Common Stock, IES Common Stock and
IPC Common Stock will continue to be listed on the CSE and the PSE, and the IES
Common Stock will continue to be listed on the BSE and the PhSE, until the
Effective Time.
REDEMPTION OF UTILITIES PREFERRED STOCK
If the Utilities Reincorporation Merger is necessary for regulatory reasons,
it is currently anticipated that shares of Utilities Preferred Stock then
outstanding will be redeemed by Utilities prior to the consummation of such
merger in order to avoid the need to obtain a class vote of the holders of such
stock to approve the Utilities Reincorporation Merger. The Amended and Restated
Articles of Incorporation of Utilities provides that the three outstanding
series of Utilities Preferred Stock (I.E., 4.30%, 4.80% and 6.10%) are currently
redeemable in whole or in part at the option of Utilities at any time or from
time to time on not less than 30 days' notice at $51.00 per share for the 4.30%
Series, $50.25 per share for the 4.80% Series and $51.00 per share for the 6.10%
Series, together, in each case, with an amount equal to the accrued and unpaid
dividends to and including the date of redemption.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Interstate Energy Common Stock and New IPC Preferred Stock
(assuming the IPC Reincorporation Merger is effected) received by shareowners of
IES and IPC in the Mergers will be freely transferable, except that shares of
Interstate Energy Common Stock and New IPC Preferred Stock received by persons
who are deemed to be "affiliates" (as such term is defined under the Securities
Act) of WPLH, IES, IPC or New IPC prior to the Mergers may be resold by them
only in transactions permitted by the resale provisions of Rule 145 promulgated
under the Securities Act (or Rule 144, in the case of such persons who become
affiliates of Interstate Energy or New IPC) or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of Interstate Energy,
WPLH, IES, IPC or New IPC generally include individuals or entities that
control, are
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controlled by, or are under common control with, such party and may include
certain officers and directors of such party as well as principal shareowners of
such party. The Merger Agreement requires each of WPLH, IES and IPC to use all
reasonable efforts to cause each of its affiliates to execute a written
agreement to the effect that such affiliate will not offer or sell or otherwise
dispose of (i) any shares of WPLH, IES, IPC or Interstate Energy during the
period beginning 30 days prior to the Effective Time and continuing until such
time as results covering at least 30 days of post-Effective Time operations of
Interstate Energy have been published or (ii) any of the shares of Interstate
Energy Common Stock or New IPC Preferred Stock issued to such affiliate in or
pursuant to the Mergers in violation of the Securities Act or the rules and
regulations promulgated by the SEC thereunder.
This Joint Proxy Statement/Prospectus does not cover resales of Interstate
Energy Common Stock or New IPC Preferred Stock received by any person who may be
deemed to be an affiliate of WPLH, IES, IPC, New IPC or Interstate Energy.
NO WISCONSIN DISSENTERS' RIGHTS
The WBCL does not give WPLH shareowners the right to dissent from, and
obtain payment of the fair value of their shares in connection with, the matters
to be considered at the WPLH Meeting.
IOWA DISSENTERS' RIGHTS
The IBCA provides dissenters' rights for shareholders who object to the IES
Merger and meet the requisite statutory requirements contained in Sections
490.1301 through 490.1331 of the IBCA. Sections 490.1301 through 490.1331 of the
IBCA are reprinted in their entirety as Annex P to this Joint Proxy
Statement/Prospectus.
The following discussion includes all material elements of the IBCA relating
to dissenters' rights but is not a complete statement of the provisions of
Sections 490.1301 through 490.1331 of the IBCA and is qualified in its entirety
by reference to Annex P hereto and to any amendments to such sections as may be
adopted after the date of this Joint Proxy Statement/Prospectus. THIS DISCUSSION
AND ANNEX P SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER OF IES COMMON STOCK WHO
WISHES TO EXERCISE STATUTORY DISSENTERS' RIGHTS OR WHO WISHES TO PRESERVE THE
RIGHT TO DO SO BECAUSE FAILURE STRICTLY TO COMPLY WITH THE PROCEDURES SET FORTH
HEREIN AND THEREIN WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS.
A shareholder may dissent as to less than all of the shares of capital stock
registered in the name of such shareholder only if such shareholder dissents
with respect to all shares beneficially owned by any one person and notifies IES
in writing of the name and address of each person on whose behalf such
shareholder asserts dissenters' rights. The rights of a partial dissenter are
determined as if the shares of capital stock as to which the shareholder
dissents and such shareholder's other shares of capital stock were registered in
the names of different shareholders. A beneficial shareholder may assert
dissenters' rights as to shares held on such shareholder's behalf only if such
shareholder (i) submits to IES the record shareholder's written consent to the
dissent not later than the time the beneficial shareholder asserts dissenters'
rights and (ii) asserts dissenters' rights with respect to all shares of capital
stock of which the shareholder is the beneficial shareholder or over which such
beneficial shareholder has the power to direct the vote.
The IBCA requires that a shareholder who wishes to assert dissenters' rights
(i) deliver to IES, before the vote is taken, written notice of the
shareholder's intent to demand payment for shares of common stock if the IES
Merger is consummated and (ii) not vote such shares of capital stock in favor of
the Mergers. ANY SUCH NOTICE BY SHAREHOLDERS OF IES MUST BE RECEIVED BY IES AT
IES TOWER, 200 FIRST STREET S.E., CEDAR RAPIDS, IOWA 52401, ATTENTION: VICE
PRESIDENT, GENERAL COUNSEL AND SECRETARY, PRIOR TO SUCH VOTE. A vote against the
Merger Agreement will not satisfy the notice requirement. The submission by a
shareholder of a blank proxy card or one voted in favor of the Merger Agreement
(if not
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revoked) will count as a vote in favor of the Merger Agreement and will serve to
waive dissenters' rights. However, failure to return a proxy or to vote against
or abstain from voting will not serve to waive such rights.
Within ten days after the date on which the Merger Agreement is approved by
its shareholders, IES must deliver a written dissenters' notice to all of its
shareholders that have given a written notice and not voted in favor of the
Merger Agreement in accordance with the preceding paragraph. The dissenters'
notice will (i) state where the payment demand must be sent and where and when
certificates for shares of capital stock must be deposited, (ii) supply a form
for demanding payment that includes the date of the first announcement to the
news media or to shareholders of the terms of the proposed IES Merger and which
requires that the shareholder asserting dissenters' rights certify whether or
not such shareholder acquired beneficial ownership of the shares before such
date, (iii) set a date by which IES must receive the payment demand, which date
will be not less than 30 nor more than 60 days from the date such dissenters'
notice is delivered, and (iv) be accompanied by the relevant sections of the
IBCA.
A shareholder who has received a dissenters' notice as described above and
who wishes to assert dissenters' rights must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date set
forth in the dissenters' notice and deposit the certificate representing the
shares in accordance with the terms of the notice. A shareholder who does not
demand payment or deposit the shareholder's share certificates where required,
each by the date set in the dissenters' notice, is not entitled to payment for
the shareholder's shares.
Upon receipt of the payment demand, or at the Effective Time, whichever
occurs later, Interstate Energy must pay each dissenting shareholder that has
complied with the provisions of the IBCA the amount estimated to be the fair
value of the dissenter's shares, plus accrued interest from the Effective Time
to the date of payment at the average rate paid by Interstate Energy on its bank
loans or, if none, at a rate that is fair and equitable under all the
circumstances. Such payment must be accompanied by certain financial data
relating to Interstate Energy and other specified information as required by the
IBCA. If the proposed IES Merger is not effected within 60 days after the date
set for demanding payment and depositing the capital share certificates, IES
will return the deposited certificates and, if the IES Merger is subsequently
effected, Interstate Energy will deliver a new dissenters' notice as if the
corporate action was taken without the vote of the shareholders and repeat the
payment demand procedure. Interstate Energy may elect to withhold payment from a
dissenting shareholder unless the dissenting shareholder was the beneficial
owner of the shares before the date set forth in the dissenters' notice as the
date of the first announcement of the terms of the proposed IES Merger. If
Interstate Energy so elects to withhold payment, it must, after the Effective
Time, estimate the fair value of the shares, plus accrued interest at the rate
described above, and pay such amount and provide certain other specified
information as set forth in the IBCA to each such dissenting shareholder who
agrees to accept it in full satisfaction of the dissenter's demand.
Shareholders considering seeking dissenters' rights should be aware that the
"fair value" of their shares of IES Common Stock determined under Sections
490.1301 through 490.1331 of the IBCA could be more than, the same as or less
than the market value of such securities and that opinions of investment banking
firms as to fairness, from a financial point of view, may not provide a reliable
guide to fair value under Sections 490.1301 through 490.1331. If (i) the
dissenter believes that the amount offered or paid is less than the fair value
of the dissenter's shares or that the interest due is incorrectly calculated,
(ii) Interstate Energy fails to make payment within 60 days after the date set
for demanding payment, or (iii) IES, having failed to effect the Mergers, does
not return the deposited certificates within 60 days after the date set for
demanding payment, dissenters may, within 30 days after the payment was made or
offered, notify Interstate Energy or IES, as the case may be, in writing of the
dissenting shareholder's own estimate of the fair value of the shares and the
amount of interest due, and demand payment of the fair value of such shares and
interest so calculated less payments received by such dissenting shareholder, if
any. A dissenter waives the right to demand payment as described in this
paragraph unless the dissenter notifies Interstate Energy of the dissenter's
demand
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within 30 days after Interstate Energy made or offered payment for the
dissenter's shares. If demand of a dissenter for payment remains unsettled,
Interstate Energy must (i) commence a proceeding in the Iowa District Court for
Linn County, Iowa, within 60 days after receiving the payment demand to
determine the fair value of the shares and accrued interest or (ii) pay to each
such dissenter the amount demanded. The costs of a proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court, will
generally be assessed against Interstate Energy. The court may, however, assess
such court costs, including the fees and expenses of counsel and experts,
against a dissenter that is found by the court to have acted arbitrarily,
vexatiously or not in good faith in demanding payment.
DELAWARE DISSENTERS' RIGHTS
In connection with the Mergers, holders of shares of IPC Preferred Stock are
entitled to appraisal rights under Section 262 of the DGCL ("Section 262") as to
shares owned by them. Section 262 is reprinted in its entirety as Annex Q to
this Joint Proxy Statement/Prospectus. All references in this summary to a
"stockholder" are to the record holder of the shares of IPC Preferred Stock as
to which appraisal rights are asserted. A person having a beneficial interest in
shares of IPC Preferred Stock that are held of record in the name of another
person, such as a broker or nominee, must act promptly to cause the record
holder to follow the steps summarized below properly and in a timely manner to
perfect whatever appraisal rights the beneficial owner may have.
The following discussion includes all material elements of the law relating
to appraisal rights but is not a complete statement of such rights and is
qualified in its entirety by reference to Annex Q. THIS DISCUSSION AND ANNEX Q
SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER OF IPC PREFERRED STOCK WHO WISHES TO
EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO
BECAUSE FAILURE STRICTLY TO COMPLY WITH THE PROCEDURES SET FORTH HEREIN AND
THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.
EACH STOCKHOLDER ELECTING TO DEMAND THE APPRAISAL OF HIS OR HER SHARES OF
IPC PREFERRED STOCK MUST DELIVER TO IPC, BEFORE THE TAKING OF THE VOTE ON THE
MERGERS AT THE IPC MEETING, A WRITTEN DEMAND FOR APPRAISAL OF HIS OR HER SHARES
OF IPC PREFERRED STOCK. ANY SUCH STOCKHOLDER MUST MAIL OR DELIVER HIS OR HER
WRITTEN DEMAND TO THE SECRETARY OF IPC AT 1000 MAIN STREET, DUBUQUE, IA 52001.
The written demand for appraisal must specify the stockholder's name and mailing
address, the number of shares of IPC Preferred Stock owned, and that the
stockholder is thereby demanding appraisal of his or her shares of IPC Preferred
Stock. BECAUSE THE HOLDERS OF IPC PREFERRED STOCK WILL NOT VOTE ON APPROVAL OF
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, THE FAILURE OF A
HOLDER OF IPC PREFERRED STOCK TO VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT
WILL NOT AFFECT SUCH HOLDER'S ABILITY TO DEMAND OR PERFECT APPRAISAL RIGHTS.
Appraisal rights will not be available under Section 262 if the stockholder does
not continuously hold through the Effective Time the shares of IPC Preferred
Stock with respect to which he, she or it demands appraisal. Within ten days
after the Effective Time, IPC must provide notice of the Effective Time to all
stockholders who have complied with Section 262.
A demand for appraisal must be executed by or for the stockholder of record,
fully and correctly, as such stockholder's name appears on the IPC Certificate
or Certificates. If the shares of IPC Preferred Stock are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, such demand
must be executed by the fiduciary. If the shares of IPC Preferred Stock are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand,
such person is acting as agent for the record owner.
A record owner, such as a broker, who holds shares of IPC Preferred Stock as
nominee for others, may exercise appraisal rights with respect to the shares of
IPC Preferred Stock held for all or less than all beneficial owners of shares of
IPC Preferred Stock as to which such person is the record owner. In
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such case the written demand must set forth the number of shares of IPC
Preferred Stock covered by such demand. Where the number of shares of IPC
Preferred Stock is not expressly stated, the demand will be presumed to cover
all shares of IPC Preferred Stock outstanding in the name of such record owner.
Beneficial owners who are not record owners and who intend to exercise appraisal
rights should instruct the record owner to comply strictly with the statutory
requirements with respect to the exercise of appraisal rights BEFORE the taking
of the vote on the Mergers at the IPC Meeting.
Within 120 days after the Effective Time, either the surviving corporation
in the IPC Merger or any stockholder who has complied with the required
conditions of Section 262 may file a petition in the Delaware Chancery Court
demanding a determination of the value of the shares of IPC Preferred Stock. If
a petition for an appraisal is timely filed, after a hearing on such petition,
the Delaware Chancery Court will determine which stockholders are entitled to
appraisal rights and will appraise the shares of IPC Preferred Stock owned by
such stockholders determining the fair value of such shares of IPC Preferred
Stock, exclusive of any element of value arising from the accomplishment or
expectation of the IPC Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining such
fair value, the Delaware Chancery Court is to take into account all relevant
factors. In WEINBERGER V. UOP INC., ET AL., decided February 1, 1983, the
Delaware Supreme Court discussed the factors that could be considered in
determining fair value in an appraisal proceeding, stating that "proof of value
by any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered and
that "fair price obviously requires consideration of all relevant factors
involving the value of a company." The Delaware Supreme Court stated that in
making this determination of fair value the court must consider market value,
asset value, dividends, earnings prospects, the nature of the enterprise and any
other facts which could be ascertained as of the date of the merger which throw
any light on future prospects of the merged corporation. Section 262 provides
that fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger." In WEINBERGER, the Delaware
Supreme Court construed Section 262 to mean that "elements of future value,
including the nature of the enterprise, which are known or susceptible of proof
as of the date of the merger and not the product of speculation, may be
considered."
Stockholders considering seeking appraisal should have in mind that the
"fair value" of their shares of IPC Preferred Stock determined under Section 262
could be more than, the same as or less than the market value of such
securities. The cost of the appraisal proceeding may be determined by the
Delaware Chancery Court and taxed against the parties as the Delaware Chancery
Court deems equitable in the circumstances. Upon application of a dissenting
stockholder, the Delaware Chancery Court may order that all or a portion of the
expenses incurred by any dissenting stockholder in connection with the appraisal
proceeding, including without limitation, reasonable attorneys' fees and the
fees and expenses of experts, be charged pro rata against the value of all
shares of IPC Preferred Stock entitled to appraisal.
Within 120 days after the Effective Time, any stockholder who has complied
with the requirements for exercise of appraisal rights, as discussed above, is
entitled, upon written request, to receive from the surviving corporation in the
IPC Merger, or the IPC Direct Merger, as the case may be, a statement setting
forth the aggregate number of shares of IPC Preferred Stock with respect to
which demands for appraisal have been made and the aggregate number of holders
of such shares. Such statement must be mailed within 10 days after the written
request therefor has been received by the surviving corporation in the IPC
Merger, or the IPC Direct Merger, as the case may be.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, from and after the Effective Time, be entitled to vote for any
purpose the shares of IPC Preferred Stock subject to such demand or to receive
payment of dividends or other distributions on such shares of IPC Preferred
Stock, except for dividends or distributions payable to stockholders of record
at a date prior to the Effective Time.
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At any time within 60 days after the Effective Time, any stockholder shall
have the right to withdraw his or her demand for appraisal and to accept the
terms offered in the Mergers whereby such holder will obtain a like number of
shares of New IPC Preferred Stock if the IPC Reincorporation Merger is effected
or retain his or her shares of IPC Preferred Stock if the IPC Direct Merger is
effected; after this period, the stockholder may withdraw his or her demand for
appraisal only with the consent of the surviving corporation in the IPC Merger
or the IPC Direct Merger, as the case may be. If no petition for appraisal is
filed with the Delaware Chancery Court within 120 days after the Effective Time,
stockholders' rights to appraisal shall cease. Inasmuch as IPC will have no
obligation to file such a petition, and has no present intention to do so, any
stockholder who desires such a petition to be filed is advised to file it on a
timely basis. However, no petition timely filed in the Delaware Chancery Court
demanding appraisal shall be dismissed as to any stockholder without the
approval of the Delaware Chancery Court, and such approval may be conditioned
upon such terms as the Delaware Chancery Court deems just. Any holder of IPC
Preferred Stock who effectively withdraws his or her demand for appraisal, or
whose right to an appraisal shall cease, shall be deemed to have lost such
holder's appraisal rights.
REGULATORY MATTERS
As indicated below, consummation of the Mergers is subject to numerous
regulatory approvals, which are presently anticipated to be received during the
first half of 1997. Set forth below is a summary of the material regulatory
requirements affecting the Mergers.
STATE APPROVALS AND RELATED MATTERS
WP&L is subject to the jurisdiction of the Wisconsin Commission with respect
to retail utility service provided in Wisconsin. WPLH and WP&L are each public
utility holding companies under the Wisconsin Holding Company Act and are
subject to the jurisdiction of the Wisconsin Commission. A wholly-owned
subsidiary of WP&L with utility operations in Illinois is subject to the
jurisdiction of the ICC with respect to its operations.
Utilities is currently subject to the jurisdiction of the IUB with respect
to its utility operations in Iowa. IPC is subject to the jurisdiction of the
IUB, the ICC and the Minnesota Commission with respect to its utility operations
in Iowa, Illinois and Minnesota.
Applications for approval of the Mergers and related transactions,
including, in the case of certain commissions, the issuance of securities in
connection therewith, were initially filed in early March 1996 with the
Wisconsin Commission, the IUB, the ICC and the Minnesota Commission.
Interstate Energy will remain a public utility holding company under the
Wisconsin Holding Company Act and will remain subject to the jurisdiction of the
Wisconsin Commission. The following is a brief summary of certain provisions of
the Wisconsin Holding Company Act that will continue to apply to Interstate
Energy after the Effective Time.
The Wisconsin Holding Company Act prohibits any person from forming a public
utility holding company or acquiring or holding more than 10% of the outstanding
voting securities of a public utility holding company, without Wisconsin
Commission approval. The Wisconsin Commission, if it finds the capital of any
public utility affiliate will be impaired by payment of a dividend, may order
the utility affiliate to limit or cease payment of dividends to the public
utility holding company. Various transactions by a public utility affiliate with
others in the public utility holding company system are prohibited, including
lending money, guaranteeing obligations, combined advertising, providing utility
service on terms different from those for other consumers in the same class,
and, without Wisconsin Commission approval after establishment that the utility
affiliate will be paid at fair market value, certain sales or leases of real
property and use of services of utility employees. The Wisconsin Holding Company
Act prohibits (i) any public utility affiliate from providing any non-utility
product or service in a manner or at a price that unfairly discriminates against
any competing provider; (ii) any non-utility activity from being subsidized
materially by the customers of any public utility in the system;
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(iii) the operation of the system in any way which materially impairs the
credit, ability to acquire capital on reasonable terms or ability to provide
safe, reasonable, reliable and adequate utility service, of any public utility
affiliate in the system; (iv) any transfer by a public utility affiliate to any
other system company of any confidential public utility information, including
customer lists, for any non-utility purpose, unless the Wisconsin Commission has
approved the transfer; and (v) any termination of the system's interest in a
public utility affiliate without Wisconsin Commission approval. Other statutory
provisions which pre-existed the Wisconsin Holding Company Act include
requirements for submission to the Wisconsin Commission for approval of certain
contracts or other arrangements for furnishing property or services between a
public utility and an affiliate.
The Wisconsin Holding Company Act also limits non-utility diversification,
in that, stated generally, the net book value of the assets (other than
investment in system affiliates) of all non-utility affiliates may not exceed
the sum of 25% of the net book value of the assets of all electric utility
affiliates and a percentage, to be determined by the Wisconsin Commission (but
not less than 25%), of the net book value of the assets of all other public
utility affiliates. Based on an applicable review of legislative history and
principles of statutory interpretation, WPLH, IES and IPC believe and intend to
take appropriate action to establish that the utility subsidiaries of Interstate
Energy following consummation of the Mergers will qualify as "public utility
affiliates" of Interstate Energy within the meaning of the Wisconsin Holding
Company Act. If, however, IPC and Utilities, as presently constituted, were to
be deemed nonutility affiliates (because they are not Wisconsin utilities or
Wisconsin corporations), the parties reserve the right to take such action as
may be required to cause IPC and Utilities to be treated as "public utility
affiliates" for purposes of the Wisconsin Holding Company Act. Under the
alternative structure set forth in the Merger Agreement, IPC and Utilities would
become Wisconsin corporations and acquire certain of the water utility
operations currently conducted by WP&L within the State of Wisconsin. The
parties currently intend to seek regulatory approval to effect the transactions
under either structure. Although the parties believe that the Mergers can be
consummated under either or both structures in compliance with the Wisconsin
Holding Company Act, that statute has not been authoritatively construed, and no
assurance as to the interpretation of the Wisconsin Holding Company Act can be
given.
In addition, the Wisconsin Holding Company Act requires the Wisconsin
Commission to periodically investigate the impact of the operation of every
holding company system on every public utility affiliate in the system and to
determine whether each non-utility affiliate does, or can reasonably be expected
to do, at least one of the following: (i) substantially retain, attract or
promote business activity or employment or provide capital to businesses within
the service territory of any public utility affiliate or certain others, (ii)
increase or promote energy conservation or develop, produce or sell renewable
energy products or equipment, (iii) conduct a business that is functionally
related to the provision of utility service or to the development or acquisition
of energy resources, and (iv) develop or operate commercial or industrial parks
in the service territory of any public utility affiliate. WPLH and IES believe
that their existing non-utility businesses meet the requirements of the
Wisconsin Holding Company Act. The Wisconsin Commission also is authorized to
order a holding company to terminate its interest in a public utility affiliate
if the Wisconsin Commission finds that, based upon clear and convincing
evidence, termination of the interest is necessary to protect the interest of
utility investors in a financially healthy utility and the interest of consumers
in reasonably adequate utility service at a just and reasonable price.
Given WPLH's experience of operating under the Wisconsin Holding Company
Act, WPLH, IES and IPC do not expect the restrictions of the Wisconsin Holding
Company Act to have a materially adverse effect upon the operations of
Interstate Energy following the Mergers.
Under either transaction structure described above, IPC's utility operations
would remain subject to regulation by the IUB, the ICC and the Minnesota
Commission, Utilities' utility operations would remain subject to regulation by
the IUB and WP&L's utility operations would remain subject to regulation by the
Wisconsin Commission. In addition, under the reincorporation structure, New
Utilities and New IPC would become Wisconsin utilities by virtue of their
acquisitions of certain water
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utility properties from WP&L and would become subject to the jurisdiction of the
Wisconsin Commission with respect to such water utility service. Based on
historical experience and preliminary discussions with the staff of the
Wisconsin Commission, WPLH, IES and IPC believe that, under the reincorporation
structure, the Wisconsin Commission would not seek to regulate activities of New
Utilities and New IPC following the Mergers other than those activities directly
related to the water utility properties and the provision of water utility
service in the State of Wisconsin.
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Interstate Energy is required to obtain SEC approval under Section 9(a)(2)
of the 1935 Act in connection with the Mergers. Section 9(a)(2) of the 1935 Act
provides that it is unlawful for any person to acquire any security of any
public utility company if that person owned, or by virtue of that transaction
will come to own, 5% or more of the voting securities of that public utility
company and of any other public utility company, without the prior approval of
the SEC. An application for approval of the Mergers will be filed by WPLH, IES
and IPC at the appropriate time. Under the applicable standards of the 1935 Act,
the SEC is directed to approve a proposed acquisition unless it finds that (i)
the acquisition would tend towards detrimental interlocking relations or a
detrimental concentration of control, (ii) the consideration to be paid in
connection with the acquisition is not reasonable, (iii) the acquisition would
unduly complicate the capital structure of the applicant's holding company
system or would be detrimental to the public interest or the interest of
investors or consumers or the proper functioning of the applicant's holding
company system, or (iv) the acquisition would violate applicable state law. In
order to approve a proposed acquisition, the SEC must also find that the
acquisition would tend towards the economical and efficient development of an
integrated public utility system and would otherwise conform to the 1935 Act's
integration and corporate simplification standards.
WPLH is currently exempt from the registration and other requirements of the
1935 Act, other than from Section 9(a)(2) thereof, pursuant to an order of the
SEC under Section 3(a)(1) of the 1935 Act. The basis of the exemption under
Section 3(a)(1) is that WPLH and its public utility subsidiaries are
predominantly intrastate in character and carry on their businesses
substantially in a single state in which they are organized (Wisconsin). IES is
also currently exempt from the registration and other requirements of the 1935
Act, other than from Section 9(a)(2) thereof, pursuant to an order of the SEC
under Section 3(a)(1) of the 1935 Act. The basis of the exemption under Section
3(a)(1) is that IES and its public utility subsidiaries are predominantly
intrastate in character and carry on their businesses substantially in a single
state in which they are organized (Iowa). IPC is currently not subject to the
requirements of the 1935 Act because it is not a public utility holding company
within the definition of the 1935 Act. The Section 3(a)(1) exemption under which
WPLH and IES currently operate will not be available to Interstate Energy after
consummation of the Mergers.
Accordingly, upon consummation of the Mergers, Interstate Energy must
register as a holding company under the 1935 Act. The 1935 Act imposes numerous
restrictions on the operations of a registered holding company and its
subsidiaries and affiliates. Subject to limited exceptions, SEC approval is
required under the 1935 Act for a registered holding company or any of its
subsidiaries to: (i) issue securities, (ii) acquire utility assets from a third
person, (iii) acquire any securities of another public utility, (iv) amend its
articles of incorporation, or (v) acquire stock, extend credit, pay dividends,
lend money or invest in any manner in any other businesses. SEC approval under
the 1935 Act also will be required for certain proposed transactions relating to
the Mergers. For example, SEC approval will be required for Interstate Energy's
issuance of securities pursuant to employee benefit plans and the establishment
of a service company to provide various administrative and support services to
Interstate Energy and certain of its subsidiaries. The 1935 Act also limits the
ability of registered holding companies to engage in non-utility ventures and
regulates holding company system service companies and the rendering of services
by holding company affiliates to the system's utilities. WPLH, IES and IPC
believe the foregoing restrictions and limitations imposed by the 1935 Act in
its current form may limit possible operations of Interstate Energy following
the Mergers. However, WPLH, IES and IPC believe the benefits of the Mergers
exceed the potential adverse effects of such
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1935 Act regulation. In reaching this determination, WPLH, IES and IPC concluded
that there are various registered public utility holding companies which have
operated successfully within the limitations imposed under the 1935 Act. In
addition, WPLH, IES and IPC considered existing initiatives to lessen the impact
of the 1935 Act and the legislation to repeal the 1935 Act, all of which are
discussed below.
In addition, the SEC historically has interpreted the 1935 Act to preclude
registered holding companies, with limited exceptions, from owning both electric
and gas utility systems. Although the SEC has recently recommended that
registered holding companies be allowed to hold both gas and electric utility
operations if the affected states agree, it remains possible that the SEC may
require as a condition to its approval of the Mergers that WPLH, IES and IPC
divest their gas utility properties and possibly certain non-utility ventures of
WPLH and IES within a reasonable time after the Mergers. In a few cases, the SEC
has allowed the retention of such properties or deferred the question of
divestiture for a substantial period of time. In those cases in which
divestiture has taken place, the SEC has usually allowed enough time to complete
the divestiture so as to allow the applicant to complete an orderly sale of the
divested assets. WPLH, IES and IPC believe there are strong policy reasons and
prior SEC decisions which support their retention of existing gas utility
properties and non-utility ventures, or, alternatively, which support deferring
the question of divestiture for a substantial period of time. Accordingly, WPLH,
IES and IPC will request in their 1935 Act application that Interstate Energy be
allowed to retain, or, in the alternative, that the question of divestiture be
deferred with respect to, the existing gas utility properties and non-utility
ventures of WPLH, IES and IPC. Should the SEC deny this request, a required
divestiture could, under certain circumstances, be at a price below fair market
value or otherwise on terms deemed unsatisfactory by Interstate Energy and could
have a materially adverse effect on the operations, earnings and financial
condition of Interstate Energy.
On June 20, 1995, the SEC issued a series of new proposed regulations that
are designed, among other things, to ease the restrictions on and regulation of
the activities of registered holding companies, including investment by
registered holding companies in non-utility businesses. At the same time, the
SEC's Division of Investment Management (the "Division") issued a report of
legislative and administrative recommendations, including the Division's
preferred recommendation that Congress repeal the 1935 Act, subject to the
transfer of certain authority over the books and records of registered holding
companies to state utility commissions and to the FERC. The report also
recommended liberalizing the SEC's interpretation of the 1935 Act to permit
registered holding companies
to own both electric and gas utility systems where the affected states concur.
After the release of the report, legislation to repeal the 1935 Act was
introduced in Congress and is pending. There is no assurance that the
legislation to repeal the 1935 Act will be enacted or that regulations proposed
by the SEC will be implemented or that the recommendations made in the
Division's report will be adopted. To the extent that some or all of the
regulations and recommendations are implemented, however, restrictions on and
regulation of Interstate Energy's activities may be reduced or eliminated, and
Interstate Energy's ability to retain ownership of the gas utility properties
and some or all of the non-utility ventures currently operated by WPLH, IES and
IPC would be enhanced.
FEDERAL POWER ACT
Section 203 of the Federal Power Act provides that no public utility shall
sell or otherwise dispose of its jurisdictional facilities or, directly or
indirectly, merge or consolidate such facilities with those of any other person
or acquire any security of any other public utility without first having
obtained authorization from the FERC. The approval of the FERC is required in
order to consummate the Mergers. Under Section 203 of the Federal Power Act, the
FERC will approve a merger if it finds the merger "consistent with the public
interest." In reviewing a merger, the FERC generally has evaluated: (i) whether
the merger will adversely affect competition, (ii) whether the merger will
adversely affect operating costs and rates, (iii) whether the merger will impair
the effectiveness of regulation, (iv) whether the purchase price is reasonable,
(v) whether the merger is the result of coercion, and (vi) whether the
accounting treatment is reasonable. It should be noted, however, that certain
FERC
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commissioners have called for FERC to reevaluate its merger policy; and it
cannot be predicted how any such reevaluation would affect the FERC's review of
the Mergers. On March 1, 1996, WPLH, IES and IPC filed a combined application
with the FERC requesting that the FERC approve the Mergers under Section 203 of
the Federal Power Act (the "FERC Application"). Following the filing of the FERC
Application, certain parties, including several consumer-owned municipal
electric utilities, intervened in the FERC proceeding. The intervenors have
raised issues regarding their access to transmission facilities following
consummation of the Mergers and the impact of the Mergers on existing power
supply agreements. It is presently anticipated that such issues will be
favorably resolved and will not adversely impact the FERC proceedings relative
to approval of the Mergers. Based on recent FERC proceedings and prior
experience, WPLH, IES and IPC believe that FERC will reject several of the
issues raised by the intervenors and that any remaining issues will be
susceptible to successful resolution through negotiations with the intervening
parties.
In addition, Utilities and IPC hold certain certificates of public
convenience and necessity under Section 7 of the Natural Gas Act. The Mergers
will constitute transfers of the certificates of public convenience and
necessity, requiring approval from the FERC.
Furthermore, prior to the IPC Reincorporation Merger and the Utilities
Reincorporation Merger, if such mergers are to be effected, the approval of the
FERC under Section 204 of the Federal Power Act is required for New IPC and New
Utilities to assume the debt of IPC and Utilities, respectively.
ANTITRUST CONSIDERATIONS
The HSR Act and the rules and regulations promulgated thereunder provide
that certain transactions (including the Mergers) may not be consummated until
certain information has been submitted to the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the Federal Trade
Commission (the "FTC") and specified HSR Act waiting period requirements have
been satisfied. On June 7, 1996, WPLH, IES and IPC filed their premerger
notification forms pursuant to the HSR Act and on July 7, 1996 the HSR Act
waiting period expired. The expiration of the HSR Act waiting period does not
preclude the Antitrust Division or the FTC from challenging the Mergers on
antitrust grounds. However, neither WPLH, IES nor IPC believes that the Mergers
will violate federal antitrust laws. With the expiration of the waiting period,
there are no remaining federal antitrust issues to be resolved in order to
consummate the Mergers. If the Mergers are not consummated within 12 months
after the expiration of the initial HSR Act waiting period, WPLH, IES and IPC
would be required to submit new information to the Antitrust Division and the
FTC, and a new HSR Act waiting period would have to expire or be earlier
terminated before the Mergers could be consummated.
ATOMIC ENERGY ACT
Utilities holds an NRC operating license authorizing Utilities to hold an
ownership interest in the Duane Arnold Energy Center and to operate the
facility. WP&L also holds an NRC operating license authorizing WP&L to hold an
ownership interest in the Kewaunee nuclear generating facility. The Atomic
Energy Act provides that no NRC license may be transferred, assigned, or in any
manner disposed of, directly or indirectly, through transfer of control of any
license to any person unless the NRC finds that the transfer is in accordance
with the Atomic Energy Act and consents to the transfer. WPLH and IES will seek
any approvals required from the NRC pursuant to the Atomic Energy Act to reflect
the fact that New Utilities or Utilities, as the case may be, and WP&L will
continue to hold their existing NRC licenses as operating company subsidiaries
of Interstate Energy upon the consummation of the Mergers.
OTHER
Utilities and IPC possess municipal franchises and environmental permits and
licenses that may need to be renewed or replaced as a result of the Mergers.
Utilities and IPC do not anticipate any difficulties at the present time in
obtaining such renewals or replacements.
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GENERAL
Under the Merger Agreement, WPLH, IES and IPC have agreed to use all
reasonable efforts to obtain all necessary material permits, licenses,
franchises and other governmental authorizations necessary or advisable to
consummate or effect the transactions contemplated by the Merger Agreement.
Various parties may seek to intervene in these proceedings to oppose the Mergers
or to have conditions imposed upon the receipt of necessary approvals. While
WPLH, IES and IPC believe that they will receive the requisite regulatory
approvals for the Mergers, there can be no assurance as to the timing of such
approvals or the ability of such parties to obtain such approvals on
satisfactory terms or otherwise.
It is a condition to the consummation of the Mergers that final orders
approving the Mergers be obtained from the various federal and state regulatory
bodies described above on terms and conditions which would not have, or would
not be reasonably likely to have, a material adverse effect on the business,
assets, financial condition, results of operations or prospects of Interstate
Energy or which would be materially inconsistent with the agreements of the
parties contained in the Merger Agreement. There can be no assurance that any
such approvals will not contain terms or conditions that cause such approvals to
fail to satisfy such condition to the consummation of the Mergers. Should any
approvals contain terms or conditions unsatisfactory to WPLH, IES or IPC, such
party may waive such condition to consummation of, and may proceed with, the
Mergers. Any determination to waive a condition would depend upon the facts and
circumstances existing at the time of such waiver and would be made by the
waiving party's Board of Directors, exercising its fiduciary duties to its
shareowners. Such facts and circumstances may be different than the facts and
circumstances existing at the time the parties entered into the Merger Agreement
or at the time of the WPLH Meeting, the IES Meeting or the IPC Meeting and could
be more or less favorable to WPLH, IES, IPC or their respective shareowners than
such earlier facts and circumstances. No shareowner approval will be required or
sought for any such waiver, and the shareowners' approval of the Merger
Agreement constitutes approval of such waivers as may be granted by the WPLH
Board, the IES Board or the IPC Board, as the case may be, in its discretion.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached as Annex A and is incorporated herein by reference.
This summary is qualified in its entirety by reference to the Merger Agreement.
THE MERGERS
The Merger Agreement provides that, following the approval of the Merger
Agreement by the shareowners of WPLH, IES and IPC, and the satisfaction or
waiver of the other conditions to the Mergers, including obtaining the requisite
regulatory approvals and, if the Utilities Reincorporation Merger is to be
effected, the redemption of the then issued and outstanding shares of Utilities
Preferred Stock, either the IES Merger and the IPC Direct Merger will be
effected or the IPC Reincorporation Merger, the IES Merger, the IPC Merger and
the Utilities Reincorporation Merger will be effected.
If the Merger Agreement is approved by the shareowners of WPLH, IES and IPC,
and the other conditions to the Mergers are satisfied or waived, the closing of
the Mergers (the "Closing") will take place on the second business day
immediately following the date on which the last of the conditions referred to
below under "-- Conditions to Each Party's Obligation to Effect the Merger" is
fulfilled or waived, or at such time and date as WPLH, IES and IPC shall
mutually agree (the "Closing Date"). On or after the Closing Date, (i) the IES
Merger will become effective at the Effective Time, as specified in the articles
of merger filed by WPLH with the Secretaries of State of the States of Wisconsin
and Iowa and (ii) the IPC Direct Merger will become effective at the Effective
Time, as specified in the articles of merger filed by IPC with the Secretaries
of State of the States of Delaware and Wisconsin. It is intended that both the
IES Merger and the IPC Direct Merger will be effected simultaneously. If the
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IPC Reincorporation Merger and the Utilities Reincorporation Merger are deemed
by the parties to be required for regulatory purposes, (i) the IES Merger will
become effective at the time specified in the articles of merger filed by WPLH
with the Secretaries of State of the States of Wisconsin and Iowa, (ii) the IPC
Reincorporation Merger will become effective at the IPC Reincorporation
Effective Time, as specified in the articles of merger and certificate of merger
filed by New IPC with the Secretaries of State of the States of Wisconsin and
Delaware, (iii) the IPC Merger will become effective at the time specified in
the articles of merger filed by New IPC with the Secretary of State of the State
of Wisconsin, and (iv) the Utilities Reincorporation Merger will become
effective at the time specified in the articles of merger filed by New Utilities
with the Secretaries of State of the States of Wisconsin and Iowa. If the IPC
Reincorporation Merger and the Utilities Reincorporation Merger are to be
consummated, it is intended that the IES Merger, the IPC Merger and the
Utilities Reincorporation Merger would be effected simultaneously after the IPC
Reincorporation Effective Time.
Subject to the condition that the opinions from Merrill Lynch, Morgan
Stanley and Salomon Brothers as to the fairness of the IES Ratio and IPC Ratio
to WPLH and to the holders of IES Common Stock and IPC Common Stock,
respectively, shall not have been withdrawn, WPLH, IES and IPC have agreed in
the Merger Agreement to call, give notice of, convene and hold a meeting of
their respective shareowners as soon as reasonably practicable for the purpose
of securing their approval to the Mergers.
CONSUMMATION OF THE MERGERS. Upon the consummation of the Mergers:
- Each share of IES that is owned by IES, WPLH or IPC or any of their
respective subsidiaries ("IES Cancelled Shares") will be cancelled and
will cease to exist.
- Each share of IPC or New IPC that is owned by IES, WPLH or IPC or any of
their respective subsidiaries ("IPC Cancelled Shares") will be cancelled
and will cease to exist.
- Each issued and outstanding share of IES Common Stock, other than IES
Cancelled Shares and IES Dissenting Shares, will be converted into the
right to receive 1.01 shares of Interstate Energy Common Stock (as
adjusted from 0.98 to reflect satisfaction of the McLeod Contingency) in
the IES Merger.
- In the IPC Direct Merger, each issued and outstanding share of IPC Common
Stock, other than IPC Cancelled Shares, will be converted into the right
to receive 1.11 shares of Interstate Energy Common Stock.
- In the IPC Direct Merger, each issued and outstanding share of IPC
Preferred Stock, other than IPC Dissenting Shares, will be unchanged
(including with respect to the additional voting rights proposed to be
approved at the IPC Meeting) as a result of the IPC Direct Merger and will
remain outstanding thereafter.
- IES Dissenting Shares will be cancelled and converted into such
consideration as may be due with respect to such shares pursuant to the
applicable provisions of the IBCA, unless and until the right of such
holder to receive fair value for such IES Dissenting Shares terminates in
accordance with the IBCA, in which case such shares will cease to be IES
Dissenting Shares and will represent the right to receive Interstate
Energy Common Stock pursuant to the Merger Agreement.
- If the IPC Reincorporation Merger is consummated, each issued and
outstanding share of IPC Common Stock, other than IPC Cancelled Shares,
will be converted into an equal number of shares of New IPC Common Stock.
- If the IPC Reincorporation Merger is consummated, each issued and
outstanding share of IPC Preferred Stock, other than IPC Dissenting
Shares, will be converted into an equal number of shares of New IPC
Preferred Stock.
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- If the IPC Merger is consummated, each issued and outstanding share of New
IPC Common Stock, other than IPC Cancelled Shares, will immediately be
converted into the right to receive 1.11 shares of Interstate Energy
Common Stock.
- If the IPC Merger is consummated, each issued and outstanding share of New
IPC Preferred Stock, other than IPC Dissenting Shares, will be unchanged
as a result of the IPC Merger and will remain outstanding thereafter.
- IPC Dissenting Shares will be cancelled and converted into such
consideration as may be due with respect to such shares pursuant to the
applicable provisions of the DGCL, unless and until the right of such
holder to receive fair value for such IPC Dissenting Shares terminates in
accordance with the DGCL, in which case such shares will cease to be IPC
Dissenting Shares and will either represent the right to receive New IPC
Preferred Stock or remain as IPC Preferred Stock, as the case may be,
pursuant to the Merger Agreement.
- If the Utilities Reincorporation Merger is consummated, each issued and
outstanding share of Utilities Common Stock will be converted into an
equal number of shares of New Utilities Common Stock.
- Upon the conversions of the IES Common Stock in the IES Merger and the IPC
Common Stock in the IPC Direct Merger or, in the alternative, the New IPC
Common Stock in the IPC Merger, except for IES Dissenting Shares, all such
shares of IES Common Stock and IPC Common Stock or New IPC Common Stock,
as the case may be, will be cancelled and cease to exist, and each holder
thereof will cease to have rights with respect thereto, except the right
to receive the shares of Interstate Energy Common Stock and any cash in
lieu of fractional shares of Interstate Energy Common Stock to be issued
in consideration therefor.
- Each issued and outstanding share of WPLH Common Stock will remain
outstanding and unchanged as a result of the Mergers and will remain as
one share of Interstate Energy Common Stock.
Based upon the capitalization of WPLH, IES and IPC on November 10, 1995, and
the IES Ratio of 1.01 shares of Interstate Energy Common Stock per share of IES
Common Stock and the IPC Ratio of 1.11 shares of Interstate Energy Common Stock
per share of IPC Common Stock, holders of WPLH Common Stock, as a group, IES
Common Stock, as a group, and IPC Common Stock, as a group, would have held
43.3%, 41.7% and 15.0% of the common equity of Interstate Energy if the Mergers
had been consummated as of such date.
Based on the capitalization of WPLH, IES and IPC on July 10, 1996, and the
IES Ratio and the IPC Ratio, holders of WPLH Common Stock, as a group, IES
Common Stock, as a group, and IPC Common Stock, as a group, would have held 43%,
42.2% and 14.8% of the common equity of Interstate Energy if the Mergers had
been consummated as of such date.
If any holder of IES Common Stock or IPC Common Stock would be entitled to
receive a number of shares of Interstate Energy Common Stock that includes a
fraction, then in lieu of a fractional share, such holder will be entitled to
receive a cash payment in an amount determined by multiplying the fractional
share interest by the average of the last reported sales price, regular way, per
share of WPLH Common Stock on the NYSE for the ten business days prior to and
including the last business day prior to the Effective Time on which shares of
IES Common Stock and IPC Common Stock were traded on the NYSE, without any
interest thereon.
As soon as practicable after the Effective Time, a company mutually
acceptable to WPLH, IES and IPC (the "Exchange Agent") will mail to each holder
of record of a Certificate which immediately prior to the Effective Time (or, if
applicable, the IPC Reincorporation Effective Time) represented outstanding
shares of IES Common Stock or IPC Common Stock that were cancelled and became
instead the right to receive shares of Interstate Energy Common Stock and a
letter of transmittal and instructions for use in effecting the surrender of the
Certificates for certificates representing shares of
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Interstate Energy Common Stock. Upon surrender of a Certificate to the Exchange
Agent for cancellation, together with a duly executed letter of transmittal and
such other documents, if any, as the Exchange Agent may require, the holder of
such Certificate will be entitled to receive a certificate representing that
number of whole shares of Interstate Energy Common Stock and any cash in lieu of
fractional shares of Interstate Energy Common Stock which such holder has the
right to receive pursuant to the provisions of the Merger Agreement. Until
surrendered, each Certificate will be deemed at any time after the Effective
Time to represent only the right to receive upon surrender the certificate
representing shares of Interstate Energy Common Stock and cash in lieu of any
fractional share of Interstate Energy Common Stock.
The letter of transmittal may, at the option of Interstate Energy, provide
for the ability of a holder of one or more Certificates to elect that the shares
of Interstate Energy to be received in exchange for the shares of IES Common
Stock and/or IPC Common Stock formerly represented by such surrendered
Certificates be issued in uncertificated form or to elect that such shares be
credited to an account established for such holder under the WPLH DRIP, which
will become the Interstate Energy DRIP following the Effective Time.
No dividends or other distributions declared or made after the Effective
Time with respect to shares of Interstate Energy Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered
Certificate and no cash payment in lieu of fractional shares will be paid to any
such holder until such Certificate is surrendered. After such surrender, subject
to applicable law, there will be paid to such holder, without interest, the
unpaid dividends and distributions, and any cash payment in lieu of a fractional
share, to which such holder is entitled.
Certificates which immediately prior to the Effective Time represented
shares of WPLH Common Stock need not be exchanged and will be deemed to
represent a like number of shares of Interstate Energy Common Stock from and
after the Effective Time. Certificates which immediately prior to the Effective
Time represented shares of IPC Preferred Stock also need not be exchanged and
will, except for IPC Dissenting Shares, continue to represent IPC Preferred
Stock, or, if applicable, will be deemed to represent a like number of shares of
New IPC Preferred Stock, from and after the Effective Time.
HOLDERS OF IES COMMON STOCK AND IPC COMMON STOCK SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL. SHAREOWNERS OF WPLH AND
HOLDERS OF IPC PREFERRED STOCK NEED NOT EXCHANGE THEIR CERTIFICATES.
SUBSIDIARIES AND JOINT VENTURES
The Merger Agreement designates the majority-owned subsidiaries of WPLH, IES
and IPC, respectively, as "WPLH Subsidiaries," "IES Subsidiaries" and "IPC
Subsidiaries" (which are collectively referred to as "Subsidiaries"). The
remaining subsidiaries, joint venture interests and investments of WPLH, IES and
IPC are referred to as "WPLH Joint Ventures," "IES Joint Ventures" and "IPC
Joint Ventures," respectively. The representations, warranties and covenants of
WPLH, IES and IPC in the Merger Agreement apply only to the parties themselves
and their Subsidiaries.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
each of WPLH, IES and IPC relating to, among other things, (a) their respective
organizations, the organization of their respective Subsidiaries and similar
corporate matters; (b) their respective capital structures; (c) authorization,
execution, delivery, performance and enforceability of the Merger Agreement and
related matters; (d) required regulatory approvals; (e) their compliance with
applicable laws and agreements; (f) reports and financial statements filed with
the SEC and the accuracy of information contained therein; (g) the absence of
any material adverse effect on their business, assets, financial condition,
results of operations, or prospects; (h) the absence of adverse material suits,
claims or proceedings, and other litigation issues; (i) the accuracy of
information supplied by each of WPLH, IES and IPC for use in the Joint
Registration Statement of which this Joint Proxy Statement/
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Prospectus forms a part; (j) tax matters; (k) retirement and other employee
benefit plans and matters relating to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"); (l) labor matters; (m) compliance with all
applicable environmental laws, possession of all material environmental, health,
and safety permits and other environmental issues; (n) the regulation of WPLH,
IES and IPC and their subsidiaries as public utilities in specified states; (o)
the shareowner vote required in connection with the Merger Agreement and the
transactions contemplated thereby (as set forth in this Joint Proxy
Statement/Prospectus) being the only vote required; (p) that neither WPLH, IES
and IPC or any of their respective affiliates have taken or agreed to take any
action that would prevent the Mergers as being accounted for as a pooling of
interests; (q) the inapplicability of certain provisions of applicable state law
relating to changes in control; (r) the delivery of fairness opinions by Merrill
Lynch in the case of WPLH, Morgan Stanley in the case of IES, and Salomon
Brothers in the case of IPC; (s) the maintenance of adequate insurance and (t)
the absence of ownership of each other's stock. In addition, each of WPLH and
IES provides representations with respect to their respective shareowner rights
plans not being triggered by the consummation of the Mergers and with respect to
the operations of their nuclear facilities.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, each of WPLH, IES and IPC have agreed
that, during the period from the date of the Merger Agreement until the
Effective Time, except as permitted by the Merger Agreement (including the
disclosure schedules thereto) or the Stock Option Agreements, or as otherwise
consented to in writing by the other parties, it will (and will cause its
Subsidiaries to), subject to certain exceptions specified therein, among other
things: (a) carry on its business in the ordinary course consistent with prior
practice; (b) not declare or pay any dividends on or make other distributions in
respect of any of its capital stock, other than to such party or its
wholly-owned subsidiaries, dividends required to be paid on any IES Preferred
Stock (no shares of which are currently outstanding), Utilities Preferred Stock,
WP&L Preferred Stock or IPC Preferred Stock, and regular quarterly dividends to
be paid on WPLH Common Stock not to exceed in any fiscal year 105% of the
dividends for the prior fiscal year, and regular quarterly dividends to be paid
on IES Common Stock and IPC Common Stock not to exceed in any fiscal year 100%
of the dividends for the prior fiscal year; (c) not effect certain other changes
in its capitalization other than redeeming any series of IES Preferred Stock,
Utilities Preferred Stock, WP&L Preferred Stock or IPC Preferred Stock, as
required by their respective terms, or in connection with a refunding of
preferred stock at a lower cost of funds, or if necessary to facilitate the
transactions contemplated by the Merger Agreement; (d) not issue or encumber any
capital stock, rights, warrants, options or convertible or similar securities
other than (i) issuances pursuant to the Stock Option Agreements, (ii) issuances
pursuant to the benefit plans relating to certain WPLH Subsidiaries; (iii)
intercompany issuances, (iv) issuances in connection with refunding preferred
stock with preferred stock or debt at a lower cost of funds, (v) issuances in
connection with dividend reinvestment plans or shareowner rights plans, as
applicable, and (vi) up to 450,000 shares of IES Common Stock, 1,000,000 shares
of WPLH Common Stock and 200,000 shares of IPC Common Stock to be issued for
general corporate purposes, including issuances in connection with acquisitions
and financings and issuances pursuant to employee benefit plans, stock option
and other incentive compensation plans and directors' plans; (e) not amend its
articles of incorporation, by-laws or regulations or similar corporate
documents; (f) not engage in material acquisitions in excess of $10,000,000 in
the case of each of WPLH and IES or $5,000,000 in the case of IPC in the
aggregate over the amounts budgeted or forecasted by each such party; (g) not
enter into any written commitments for the purchase of sulfur dioxide emission
allowances as provided for by the Clean Air Act Amendments of 1990 in excess of
an aggregate of $1,000,000 in the case of WPLH, $500,000 in the case of IES and
$250,000 in the case of IPC; (h) not make any capital expenditures in excess of
$50,000,000 in the case of WPLH, $80,000,000 in the case of IES and $16,000,000
in the case of IPC in the aggregate over the amounts budgeted by each such party
for capital expenditures; (i) not sell, lease, encumber or otherwise dispose of
material assets in an aggregate amount equalling or exceeding $10,000,000 in the
case of each of WPLH and IES and $2,000,000 in the case of IPC, other than
planned or ordinary course of business dispositions and encumbrances; (j) not
incur indebtedness (or
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guarantees thereof), other than (i) short-term indebtedness in the ordinary
course of business consistent with prior practice, (ii) long-term indebtedness
not aggregating more than $40,000,000 in the case of WPLH, $60,000,000 in the
case of IES and $20,000,000 in the case of IPC; (iii) arrangements between such
party and its Subsidiaries or among its Subsidiaries, (iv) in connection with
the refunding of existing indebtedness at a lower cost of funds, or (v) in
connection with any permitted refunding of preferred stock; (k) not enter into,
adopt or amend or increase the amount or accelerate the payment or vesting of
any benefit or amount payable under, any employee benefit plan or other
agreement, commitment, arrangement, plan or policy, except for normal increases
in the ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to such party or any of its Subsidiaries; (l) not engage in any activity
which would cause a change in its status under the 1935 Act; (m) not commence
construction of or obligate itself to purchase any additional generating,
transmission or delivery capacity in an amount in excess of $30,000,000 in the
case of WPLH, $80,000,000 in the case of IES and $16,000,000 in the case of IPC,
other than in the ordinary course of business consistent with past practice or
pursuant to tariffs on file with the FERC or as budgeted or forecasted; (n) not
make any material change in their accounting methods other than as required by
law or in accordance with generally accepted accounting principles; (o) not take
any action to prevent Interstate Energy from accounting for the business
combination to be effected by the Mergers as a pooling of interests; (p) not
take any action that would adversely affect the status of the Mergers as a
tax-free transaction; (q) not enter into agreements with affiliates (other than
wholly-owned Subsidiaries) other than on an arm's-length basis; (r) cooperate
with the other parties, provide reasonable access to its books and records and
notify the other parties of any significant changes; (s) use all commercially
reasonable efforts to obtain certain third-party consents to the Mergers; (t)
not take any action that would or is reasonably likely to result in a material
breach of any provision of the Merger Agreement or the Stock Option Agreements
or cause any of the representations and warranties therein to be untrue on or as
of the Closing Date; (u) not take any action that is likely to jeopardize the
qualification of WP&L's, Utilities' or IPC's outstanding revenue bonds as
tax-exempt industrial revenue bonds; (v) create a joint transition steering team
to examine alternatives to effect the integration of the parties after the
Effective Time; (w) take, and cause their Subsidiaries to take, only those
actions that are required, permitted or contemplated by the Merger Agreement
from the date thereof to the Effective Time; (x) refrain from taking specified
actions relating to certain tax matters; (y) not discharge or satisfy any
claims, liabilities or obligations, other than discharges in the ordinary course
of business or in accordance with their terms, of liabilities reflected in the
most recent consolidated financial statements; (z) not, except in the ordinary
course of business, change the status of any of its material contracts or
agreements or waive or release or assign any material rights or claims; and (aa)
maintain adequate insurance and use reasonable efforts to maintain all existing
governmental permits.
The parties also agreed in the Merger Agreement that, prior to the Closing
Date, (a) WPLH and IPC will take all actions necessary so the WPLH Charter
Amendments become effective no later than the Effective Time and the IPC Charter
Amendment becomes effective prior to the Effective Time; and (b) IES will amend
its rights agreement to terminate no later than the Effective Time.
The Merger Agreement provides that if the parties are unable to obtain the
necessary statutory approvals and other third-party consents which are necessary
to effect the strategic combination of WPLH, IES and IPC in the form
contemplated by the Merger Agreement, and the adoption of an alternative
structure (that otherwise substantially preserves for WPLH, IES and IPC the
economic benefits of the Mergers) would result in such conditions being
satisfied or waived, then the parties shall use their respective best efforts to
effect a business combination among themselves by means of a mutually agreed
upon structure other than the Mergers that so preserves such benefits.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that no party thereto will, and each such
party will cause its Subsidiaries not to, and each such party will not permit
any of its officers, directors, employees, accountants, counsel, investment
bankers, financial advisors and other representatives (collectively,
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"Representatives") to, and each such party will use its best efforts to cause
such persons not to, directly or indirectly: initiate, solicit or encourage, or
take any action to facilitate the making of any offer or proposal which
constitutes or is reasonably likely to lead to, any Business Combination
Proposal (as defined herein), or, in the event of an unsolicited Business
Combination Proposal, except to the extent required by their fiduciary duties
under applicable law if so advised in a written opinion of outside counsel,
engage in negotiations or provide any information or data to any person relating
to any Business Combination Proposal. As used above, "Business Combination
Proposal" means any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving any party to the Merger
Agreement or any of its material Subsidiaries, or any proposal or offer (in each
case, whether or not in writing and whether or not delivered to the shareowners
of a party generally) to acquire in any manner, directly or indirectly, a
substantial equity interest in or a substantial portion of the assets of any
party to the Merger Agreement, or any of its material Subsidiaries, other than
pursuant to the transactions contemplated by the Merger Agreement.
INTERSTATE ENERGY BOARD OF DIRECTORS
The Merger Agreement provides that the WPLH Board, the IES Board and the IPC
Board will take such action as may be necessary to cause the number of directors
comprising the full Interstate Energy Board at the Effective Time to be fifteen
persons. The directors will be divided into three classes (hereafter referred to
as "Class I," "Class II" and "Class III") of five directors each. Class I
directors will be appointed for a term expiring at the first annual meeting of
the shareowners of Interstate Energy following the Effective Time, Class II
directors will be appointed for a term expiring at the second annual meeting of
shareowners of Interstate Energy following the Effective Time, and Class III
directors will be appointed for a term expiring at the third annual meeting of
shareowners of Interstate Energy following the Effective Time, and in each case
until their respective successors have been duly elected and qualified. Prior to
the Effective Time, WPLH and IES will each designate two directors and IPC will
designate one director for each of Classes I and II. Class III directors will
consist of Mr. Liu, Mr. Davis and Mr. Stoppelmoor, as well as two additional
directors, one of whom will be designated by each of WPLH and IES prior to the
Effective Time. Directors designated by WPLH, IES and IPC (including their
successors) are hereinafter sometimes referred to as the "WPLH Directors," the
"IES Directors" and the "IPC Directors," respectively. To date, WPLH, IES and
IPC have not determined who, in addition to Messrs. Liu, Davis and Stoppelmoor,
will be designated to serve on the Interstate Energy Board after the Effective
Time. If after their selection and prior to the Effective Time, any of such
designees shall decline or be unable to serve, the party that designated such
person shall designate another person to serve in such person's stead.
The Merger Agreement also provides that for a period commencing with the
Effective Time and expiring on the date of the third annual meeting of the
shareowners of the Company following the Effective Time, the WPLH, IES and IPC
Directors (each as a separate group) will be entitled to nominate those persons
who will be eligible to be appointed, elected or reelected as WPLH, IES and IPC
Directors, respectively. The WPLH Board, the IES Board and the IPC Board will
also take such action as may be necessary to cause the Nominating, Audit and
Compensation Committees of the Interstate Energy Board at the Effective Time to
consist proportionately (to the extent reasonably practicable) of designees of
each of WPLH, IES and IPC.
The Merger Agreement further provides that for a period of five years
following the Effective Date, no person who is an executive officer or employee
of Interstate Energy or any of its subsidiaries will be eligible to serve as a
director of Interstate Energy except for Messrs. Liu, Davis and Stoppelmoor.
However, if Mr. Davis is not then serving as Chief Executive Officer of
Interstate Energy, the person serving in such capacity will be eligible to serve
as a director of Interstate Energy.
INDEMNIFICATION
The Merger Agreement provides that, to the extent, if any, not provided by
an existing right of indemnification or other agreement or policy, from and
after the Effective Time, Interstate Energy will, to the fullest extent
permitted by applicable law, indemnify, defend and hold harmless each person who
was at, or who had been at any time prior to, the date of the Merger Agreement,
or who becomes prior to the Effective Time, an officer, director or employee of
any of the parties thereto or
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any subsidiary (the "Indemnified Parties") against all losses, expenses
(including reasonable attorney's fees and expenses), claims, damages or
liabilities or, subject to the proviso of the next succeeding sentence, amounts
paid in settlement, arising out of actions or omissions occurring at or prior to
the Effective Time (and whether asserted or claimed prior to, at or after the
Effective Time) that are, in whole or in part, based on or arising out of the
fact that such person is or was a director, officer or employee of such party,
and all such indemnified liabilities to the extent they are based on arise out
of or pertain to the transactions contemplated by the Merger Agreement. In the
event of any such loss, expense, claim, damage or liability (whether or not
arising before the Effective Time), (i) Interstate Energy will pay the
reasonable fees and expenses of counsel selected by the Indemnified Parties,
which counsel will be reasonably satisfactory to Interstate Energy and otherwise
advance to such Indemnified Party upon request reimbursement of documented
expenses reasonably incurred, (ii) Interstate Energy will cooperate in the
defense of any such matter and (iii) any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the standards
set forth under Wisconsin law and the Interstate Energy Charter or the
Interstate Energy Bylaws will be made by independent counsel mutually acceptable
to Interstate Energy and the Indemnified Party; PROVIDED, HOWEVER, that
Interstate Energy will not be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld). The Merger
Agreement further provides that the Indemnified Parties as a group may retain
only one law firm with respect to each unrelated matter except to the extent
there is, in the opinion of counsel to an Indemnified Party, under applicable
standards of professional conduct, a conflict on any significant issue between
positions of such Indemnified Party and any other Indemnified Party or
Indemnified Parties.
In addition, the Merger Agreement requires that for a period of six years
after the Effective Time, Interstate Energy will cause to be maintained in
effect policies of directors' and officers' liability insurance maintained by
WPLH, IES and IPC for the benefit of those persons who were covered by such
policies as of the date of the Merger Agreement on terms no less favorable than
the terms of such insurance coverage, PROVIDED that Interstate Energy will not
be required to expend in any year an amount in excess of 150% of the annual
aggregate premiums currently paid by WPLH, IES and IPC for such insurance and,
PROVIDED FURTHER that if the annual premiums of such insurance coverage exceed
such amount, Interstate Energy shall be obligated to obtain a policy with the
best coverage available, in the reasonable judgment of the Interstate Energy
Board, for a cost not exceeding such amount. Also, the Merger Agreement provides
that to the fullest extent allowed by law, from and after the Effective Time,
all rights to indemnification existing in favor of the employees, agents,
directors and officers of WPLH, IES and Interstate and their respective
subsidiaries with respect to their activities as such prior to the Effective
Time, as provided in their respective articles of incorporation and bylaws in
effect on the date of the Merger Agreement or otherwise in effect on the date of
the Merger Agreement will survive the Mergers and will continue in full force
and effect for a period of not less than six years from the Effective Time.
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGERS
The respective obligations of WPLH, IES and IPC to effect the Mergers are
subject to the following conditions: (a) the approval of the Merger Agreement
and the transactions contemplated thereby by the shareowners of WPLH, IES and
IPC, the approval of the IPC Charter Amendment by the shareowners of IPC and the
approval of the WPLH Charter Amendments by the shareowners of WPLH; (b) no
temporary restraining order, preliminary or permanent injunction or other order
by any federal or state court shall be in effect that prevents consummation of
the Mergers; (c) the Joint Registration Statement shall have become effective in
accordance with the provisions of the Securities Act and shall not be the
subject of a stop order suspending such effectiveness; (d) the shares of
Interstate Energy Common Stock issuable in connection with the Merger shall have
been authorized for listing on the NYSE, upon official notice of issuance; (e)
the receipt of all material governmental authorizations, consents, orders or
approvals which do not impose terms or conditions which could reasonably be
expected to have a material adverse effect on Interstate Energy; (f) the receipt
by each of WPLH, IES and IPC of letters from their independent accountants
stating that the business combination to be effected by the Mergers will qualify
as a pooling of interests transaction under generally accepted accounting
principles and applicable SEC regulations; (g) the performance in all
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material respects of all obligations of the other parties required to be
performed under the Merger Agreement and the Stock Option Agreements; (h) the
accuracy of the representations and warranties of the other parties set forth in
the Merger Agreement as of the date of the Merger Agreement and as of the
Closing Date (except as would not reasonably be likely to result in a material
adverse effect); (i) WPLH, IES and IPC having received officers' certificates
from each other stating that certain conditions set forth in the Merger
Agreement have been satisfied; (j) there having been no material adverse effect
on the business, assets, financial condition, results of operations or prospects
of the other parties and their subsidiaries taken as a whole; (k) the receipt of
tax opinions from counsel to each party to the effect that the Mergers will be
treated as tax-free reorganizations under Section 368(a) of the Code; (l) the
receipt by the other parties of certain material third-party consents; and (m)
the receipt by Interstate Energy of letter agreements relating to trading in
securities of WPLH, IES and IPC (substantially in the form attached as an
exhibit to the Merger Agreement), duly executed by each affiliate of the other
party.
In addition, the Merger Agreement provides that it shall be a condition to
the obligations of WPLH to hold the WPLH Meeting that the opinion of Merrill
Lynch attached hereto as Annex L shall not have been withdrawn, it shall be a
condition to the obligation of IES to hold the IES Meeting that the opinion of
Morgan Stanley attached hereto as Annex M shall not have been withdrawn, and it
shall be a condition to the obligation of IPC to hold the IPC Meeting that the
opinion of Salomon Brothers attached hereto as Annex N shall not have been
withdrawn.
At any time prior to the Effective Time, to the extent permitted by
applicable law, the conditions to the obligations of each of WPLH, IES or IPC to
consummate the Mergers may be waived in writing by such party. Any determination
to waive a condition would depend upon the facts and circumstances existing at
the time of such waiver and would be made by the waiving party's Board of
Directors, exercising its fiduciary duties to its shareowners. No shareowner
approval will be required or sought for any such waiver; a shareowner's approval
of the Merger Agreement constitutes approval of such waivers as may be granted
by the Board of Directors in its discretion. See " -- Amendment and Waiver."
BENEFIT PLANS
Except for the benefit plans referred to in the immediately following
paragraph, each of the benefit plans of WPLH, IES and IPC in effect as of the
date of the Merger Agreement will be continued for the employees or former
employees of WPLH, IES and IPC and any of their Subsidiaries who are covered by
such plans immediately prior to the Closing Date, until Interstate Energy
otherwise determines after the Effective Time (subject to any reserved right
contained in any such benefit plan to amend, modify, suspend, revoke or
terminate such plan). To the extent certain of such benefit plans are not
continued, Interstate Energy or its subsidiaries have agreed to provide, for at
least one year following the Effective Time, benefits which are no less
favorable in the aggregate that the benefits provided under the affected WPLH,
IES or IPC benefit plans. Each participant in a WPLH, IES or IPC benefit plan
shall receive credit for purposes of eligibility to receive benefits under,
vesting and benefit accrual under an Interstate Energy benefit plan for service
credited for the corresponding purpose
under such benefit plan. Any employee first hired after the Closing Date will be
eligible to participate in any benefit plan maintained, or contributed to, by
the subsidiary, division or operation employing such person, so long as such
person meets the eligibility requirements of such plan.
Prior to the Effective Time, (i) each outstanding option to purchase shares
of IES Common Stock under an IES stock plan (each an "IES Stock Option") along
with any tandem stock appreciation right, will constitute an option to acquire
on the same terms and conditions as were applicable under such option (subject
to the adjustments necessary to give effect to the IES Merger), shares of
Interstate Energy Common Stock based on the same number of shares of Interstate
Energy Common Stock as the holder of such IES Stock Option would have been
entitled to receive pursuant to the IES Merger had such holder exercised such
option in full immediately prior to the Effective Time and (ii) each
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other outstanding award under an IES stock plan (each an "IES Stock Award") will
constitute an award based upon the same number of shares of Interstate Energy
Common Stock as the holder of such IES Stock Award would have been entitled to
receive pursuant to the IES Merger had such holder been the owner, immediately
before the Effective Time of the shares of IES Common Stock on which such IES
Stock Award is based, and otherwise on the same terms and conditions as governed
such IES Stock Award immediately before the Effective Time.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Closing
Date, whether before or after approval by the shareowners of WPLH, IES and IPC:
(a) by mutual written consent of WPLH, IES and IPC; (b) by any party thereto, by
written notice to the other parties, if the Effective Time shall not have
occurred on or before May 10, 1997 (which date shall be extended to May 10, 1998
if the required statutory approvals and consents have not been obtained by May
10, 1997, but all other conditions to Closing shall be, or shall be capable of
being fulfilled); PROVIDED, HOWEVER, that such right to terminate the Merger
Agreement will not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before that date; (c) by any party
thereto if any required shareowner approval was not obtained at a duly held
meeting of shareowners or at any adjournment thereof; (d) by any party thereto,
if any state or federal law, order, rule or regulation is adopted or issued,
which has the effect of prohibiting the Mergers, or any court of competent
jurisdiction in the U.S. or any state shall have issued an order, judgment or
decree permanently restraining, enjoining or otherwise prohibiting the Mergers,
and such order, judgment or decree shall have become final and nonappealable;
(e) by WPLH, IES or IPC upon two days' prior notice to the other parties, if, as
a result of a tender offer by a person other than the other parties, or any of
their affiliates, or any written offer or proposal with respect to a merger of
such party, sale of a material portion of such party's assets or other business
combination involving such party (each, a "Business Combination") by a person
other than the other parties, or any of their affiliates, the Board of Directors
of such party determines in good faith that its fiduciary obligations under
applicable law require that such tender offer or other written offer or proposal
be accepted; PROVIDED, HOWEVER, that (i) the Board of Directors of such party
has been advised in writing by outside counsel that notwithstanding a binding
commitment to consummate an agreement of the nature of the Merger Agreement
entered into in the proper exercise of their applicable fiduciary duties and
notwithstanding all concessions which may be offered by the other parties, such
fiduciary duties would also require the directors to reconsider such commitment
as a result of such tender offer or other written offer or proposal; and (ii)
prior to any such termination, such party shall, and shall cause its respective
financial and legal advisors to, negotiate with the other parties to make such
adjustments in the terms and conditions of the Merger Agreement as would enable
such party to proceed with the transactions contemplated thereby on such
adjusted terms, or (f) by either WPLH, IES or IPC, by written notice to the
other parties, if (i) there exist breaches of the representations and warranties
on the part of either of the other parties made in the Merger Agreement or the
Stock Option Agreements as of the date thereof which breaches, individually or
in the aggregate, would or would be reasonably likely to result in a material
adverse effect on the business, assets, financial condition, results of
operations or prospects of such other party and its subsidiaries taken as a
whole, and such breaches shall not have been remedied within 20 days after
receipt by the breaching party of notice in writing from the non-breaching party
or parties, specifying the nature of such breaches and requesting that they be
remedied; (ii) either of the other parties (and/or their appropriate
Subsidiaries) has not performed and complied in all respects with certain
agreements and covenants relating to the absence of changes in capitalization or
issuance of securities or has failed to perform and comply, in all material
respects, with its other agreements and covenants under the Merger Agreement or
under the Stock Option Agreements, and such failure to perform or comply has not
been remedied within 20 days after receipt by the breaching party of notice in
writing from the non-breaching party, specifying the nature of such failure and
requesting that it be remedied, or (iii) the Board of Directors of either of the
other parties or any committee thereof (A) shall withdraw or modify in any
manner adverse to such party its approval or recommendation of the Merger
Agreement
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or the Mergers, (B) shall fail to reaffirm such approval or recommendation upon
such party's request, (C) shall approve or recommend any acquisition of either
of the other parties or a material portion of their assets or any tender offer
for either of the other parties' common stock, in each case by a party other
than such party or any of its affiliates or (D) shall resolve to take any of the
actions specified in clause (A), (B), or (C).
In the event of termination of the Merger Agreement by either WPLH, IES or
IPC as provided above, there shall be no liability or obligation on the part of
WPLH, IES or IPC or their respective officers or directors thereunder other
than: to hold in strict confidence all documents furnished to the other in
accordance with the Confidentiality Agreement, dated September 19, 1995, as may
be amended from time to time (the "Confidentiality Agreement"); to pay certain
fees and expenses pursuant to certain specified provisions of the Merger
Agreement described below under "-- Termination Fees" and "-- Expenses"; and to
comply with certain other specified provisions of the Merger Agreement.
The Merger Agreement does not provide for any modification in the Ratios due
to changes in the operating results, financial condition or trading prices of
the WPLH Common Stock, IES Common Stock or IPC Common Stock between the time of
the execution of the Merger Agreement and the consummation of the transactions
contemplated thereby.
TERMINATION FEES
The Merger Agreement provides that if the Merger Agreement is terminated at
such time as it is terminable by WPLH, IES or IPC (but not all three) for
breaches of any representations or warranties contained in the Merger Agreement
as of the date thereof, or of agreements and covenants contained in the Merger
Agreement or the Stock Option Agreements, pursuant to the provisions of the
Merger Agreement described in clauses (f)(i) and (f)(ii) under "-- Termination"
above, then if such breach is not willful, each non-breaching party is entitled
to reimbursement of its documented out-of-pocket expenses, not to exceed
$5,000,000 per each non-breaching party. In the event of a willful breach, the
non-breaching party or parties will be entitled to its or their out-of-pocket
expenses and fees (which shall not be limited to $5,000,000) and any remedies it
or they may have at law or in equity, and provided that if, at the time of the
breaching party's or parties' willful breach, there shall have been a
third-party tender offer or proposal for a Business Combination which has not
been rejected by the breaching party or parties or withdrawn by the third party,
and within two and one-half years of any termination by the non-breaching party
or parties, the breaching party or parties become a subsidiary of such offeror
or of an affiliate of such offeror or accept an offer to consummate or
consummates a Business Combination with such third party, then such breaching
party or parties, upon the closing of such Business Combination, will pay to the
non-breaching party or parties an additional aggregate fee equal to $25,000,000,
if WPLH or IES is the breaching party, or $12,500,000, if IPC is the breaching
party.
The Merger Agreement also requires payment of an aggregate termination fee
of $25,000,000, if WPLH or IES is the Target Party (as hereinafter defined), or
$12,500,000, if IPC is the Target Party, together with reimbursement of
out-of-pocket expenses, by one party (the "Target Party") to the other parties
in the following circumstances: (1) the Merger Agreement is terminated (x) as a
result of the acceptance by the Target Party of a third-party tender offer or
proposal for a Business Combination, (y) following a failure of the shareowners
of the Target Party to grant their approval to the Mergers or (z) as a result of
the Target Party's material failure to convene a shareowner meeting, distribute
proxy materials and, subject to its Board of Directors' fiduciary duties,
recommend the Mergers to its shareowners; (2) at the time of such termination or
prior to the meeting of such party's shareowners there has been a third-party
tender offer or proposal for a Business Combination which shall not have been
rejected by the Target Party or withdrawn by such third party; and (3) within
two and one-half years of any such termination described in clause (1) above,
the Target Party accepts an
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offer to consummate or consummates a Business Combination with such third party.
The applicable termination fee and out-of-pocket expenses referred to in the
previous sentence will be paid at the closing of such third-party Business
Combination.
In addition to the foregoing, if the Merger Agreement is terminated under
circumstances that give rise to the payment of the termination fee discussed
above by the Target Party referred to above and within nine months of such
termination one of the non-terminating parties is acquired by the same
third-party offeror, the sole remaining party will be entitled to (i) a second
termination fee of $25,000,000, if WPLH or IES is the second target party, or
$12,500,000 if IPC is the second target party, on the signing of a definitive
agreement, or if no such agreement is signed at the closing, relating to such
Business Combination, and (ii) payment of any termination fee paid to such
second target party by the original terminating party (I.E., the first Target
Party) pursuant to the termination of the Merger Agreement. If only one party
must pay expenses, or is entitled to receive a termination fee as set forth
above, such party will pay or receive one hundred percent (100%) of the
applicable expenses or fee. If two parties are required to pay expenses or
entitled to receive any such fee, each such party's percentage of such expenses
or fee will equal a fraction, the numerator of which shall be, in the case of
IES or IPC, the number of shares of Interstate Energy Common Stock which would
have been issuable (on a fully diluted basis) to such party's shareowners, or,
in the case of WPLH, the number of shares of Interstate Energy Common Stock (on
a fully diluted basis) that would have been retained by its shareowners, had the
Effective Time occurred at the time the Merger Agreement is terminated, and the
denominator of which will be the aggregate number of shares of Interstate Energy
Common Stock that would have been issuable to or retained by (in either case on
a fully diluted basis) the shareowners of the two parties required to pay
expenses or entitled to receive such fee had the Effective Time occurred at the
time the Merger Agreement is terminated.
In the event that the Merger Agreement becomes terminable under
circumstances in which a termination fee could be payable by one or more parties
(the "Payor" or "Payors") pursuant to the immediately preceding paragraph, such
event will also constitute a "Trigger Event" under the Stock Option Agreements
pursuant to which the Payors issued Options to the other party or parties, so as
to entitle the other party or parties to require the Payors to repurchase such
Option or the Option Shares (as defined herein) issued upon exercise thereof or
to make a Trigger Payment (as defined herein). The termination fees payable by
WPLH, IES and/or IPC under the foregoing provisions plus the aggregate amount
which could be payable by WPLH, IES and/or IPC under the Stock Option Agreements
may not exceed $40,000,000 (for WPLH or IES) or $20,000,000 (for IPC) in the
aggregate. See "The Stock Option Agreements."
The Merger Agreement further provides that all termination fees constitute
liquidated damages and not a penalty and, if one party should fail to pay any
termination fee due, the defaulting party shall pay the cost and expenses in
connection with any action taken to collect payment, together with interest on
the amount of any unpaid termination fee.
EXPENSES
Except as set forth above, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby shall be
paid by the party incurring such expense, except that those expenses incurred in
connection with the printing and filing of this Joint Proxy Statement/Prospectus
shall be shared 43% by WPLH, 43% by IES and 14% by IPC.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the directors of the parties thereto,
at any time before or after approval thereof by the shareowners of WPLH, IES and
IPC and prior to the Effective Time, but after such approvals no such amendment
shall alter or change the amount or kind of shares, rights or manner of
conversion of such shares, alter or change any of the terms or conditions of the
Merger Agreement if any of the alterations or changes, alone or in the
aggregate, would materially adversely affect the rights of holders of WPLH, IES
or IPC Common Stock, or alter or change any term of the WPLH, IES or IPC
Charters as approved by the shareowners of WPLH, IES or IPC, except for
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alterations or changes that could otherwise be adopted by the Interstate Energy
Board without the further approval of such shareowners (such as to delete the
name and address of a former registered agent or office, to change the
registered agent or office or to make certain limited changes in the corporate
name). The parties to the Merger Agreement may extend the time for the
performance of any of the obligations or other acts of the other parties
thereto, waive any inaccuracies in the representations and warranties contained
therein or in any document delivered pursuant thereto, and waive compliance with
any of the agreements or conditions contained in the Merger Agreement to the
extent permitted by law.
STANDSTILL PROVISIONS
Pursuant to the Confidentiality Agreement, WPLH, IES and IPC have each
agreed (other than as contemplated in the Merger Agreement or Stock Option
Agreements), that they will not, for a period of two years from the date
thereof, (i) acquire or agree to acquire any securities of either or both of the
other parties or any warrant or option for such securities or any security
convertible into such securities; (ii) make or in any way participate in any
solicitation of proxies to vote, or seek to advise or influence any person with
respect to the voting of, securities of either or both of the other parties;
(iii) otherwise act to seek control or influence the management, Board of
Directors or policies of either or both of the other parties; or (iv) make any
public request to waive any provision of the Confidentiality Agreement to permit
such party to take any action prohibited above.
THE STOCK OPTION AGREEMENTS
The following is a brief summary of the terms of the Stock Option
Agreements, copies of which are attached as Annexes B through G and which are
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the Stock Option Agreements. The Stock Option Agreements are
intended to increase the likelihood that the Mergers will be consummated in
accordance with the terms of the Merger Agreement. Consequently, certain aspects
of the Stock Option Agreements may have the effect of discouraging persons who
might now or prior to the Effective Time be interested in acquiring all or a
significant interest in, or otherwise effecting a Business Combination with,
WPLH, IES or IPC from considering or proposing such a transaction, even if such
persons were prepared to offer to pay consideration to shareowners of WPLH, IES
or IPC, as the case may be, which had a higher value than the shares of
Interstate Energy Common Stock to be received per share of IES or IPC Common
Stock or to be retained by holders of WPLH Common Stock, as the case may be,
pursuant to the Merger Agreement.
GENERAL
Concurrently with the Merger Agreement, WPLH, IES and IPC entered into the
Stock Option Agreements. As holders of Options thereunder (the "Option
Holders"), WPLH, IES and IPC have the right, under certain circumstances, to
purchase, up to (i) with respect to the Options granted by WPLH (the "WPLH
Options"), 6,123,944 shares of WPLH Common Stock; (ii) with respect to the
Options granted by IES (the "IES Options), up to 5,861,115 shares of IES Common
Stock; and (iii) with respect to the Options granted by IPC (the "IPC Options"),
up to 1,903,293 shares of IPC Common Stock (shares of common stock purchasable
pursuant to the WPLH Options, the IES Options and the IPC Options are
collectively referred to as the "Option Shares") at an exercise price of $30.675
per share for the WPLH Common Stock, $26.7125 per share for the IES Common Stock
and $28.9375 per share for the IPC Common Stock, such prices being equal to the
average of the daily closing sale prices for such shares on the NYSE during the
ten NYSE trading days prior to the fifth NYSE trading day preceding the date of
the Merger Agreement.
The Options may be exercised by an Option Holder, in whole or in part, at
any time or from time to time after the Merger Agreement becomes terminable by
such Option Holder under circumstances which could entitle such Option Holder to
termination fees from the issuer of the Options (the "Option Grantor") as a
result of a Trigger Event (as defined in the Stock Option Agreements and
described above under "The Merger Agreement -- Termination Fees"), regardless of
whether the
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Merger Agreement is actually terminated or whether there occurs a closing of any
Business Combination. If only one Option Holder becomes entitled to exercise its
Option as it relates to a specific Option Grantor, the Option will be for 100%
of the shares subject thereto. If more than one Option Holder becomes entitled
to exercise its Option with respect to a specific Option Grantor, the percentage
of the number of shares of the Option Grantor's common stock that the Option
Holder may purchase upon exercise of the Option shall be equal to a fraction,
the numerator of which will be the number of shares of Interstate Energy Common
Stock (on a fully diluted basis) that would have been acquired or retained by
the Option Holder's shareowners had the effective time of the Mergers occurred
as of the date on which the exercise notice under the Stock Option Agreement is
delivered or the date on which demand for a Trigger Payment is given, as the
case may be, and the denominator of which will be the aggregate number of shares
of Interstate Energy Common Stock that would have been issuable to or retained
by (in either case on a fully diluted basis) the shareowners of both of the
Option Holders entitled to exercise their respective Options had the effective
time of the Mergers occurred as of the date on which the exercise notice is
delivered or the date on which demand for a Trigger Payment is given, as the
case may be. The exercise price under the Stock Option Agreements may be paid,
at the Option Holder's election, either in cash or shares of the common stock of
the Option Holder.
The Options will terminate upon the earlier of (i) the Effective Time, (ii)
the termination of the Merger Agreement pursuant to its terms (other than a
termination under circumstances which would constitute a Trigger Event), or
(iii) 180 days following any termination of the Merger Agreement upon or during
the continuance of a Trigger Event (or, if at the expiration of such 180-day
period the Option cannot be exercised by reason of any applicable judgment,
decree, order, law or regulation, ten business days after such impediment to
exercise shall have been removed or shall have become final and not subject to
appeal, but in no event under this clause (iii) later than May 10, 1998).
Notwithstanding the foregoing, no Option may be exercised (a) if the Option
Holder is in material breach of any of its material representations or
warranties, or in material breach of any of its covenants or agreements
contained in the applicable Stock Option Agreement or in the Merger Agreement,
or (b) if a Trigger Payment has been paid pursuant to the applicable Stock
Option Agreement or a demand therefor has been made and not withdrawn.
CERTAIN REPURCHASES AND OTHER PAYMENTS
Under the terms of the Stock Option Agreements, at any time during which the
Option is exercisable (the "Repurchase Period"), the Option Holder has the right
to require the Option Grantor to repurchase from the Option Holder all or any
portion of the Option or, at any time prior to May 10, 1997 (PROVIDED that such
date shall be extended to May 10, 1998 under the circumstances where the date
after which any party may terminate the Merger Agreement has been extended to
May 10, 1998), all or any portion of the Option Shares purchased by the Option
Holder pursuant to the exercise of the Option. The amount that the Option
Grantor will pay to the Option Holder to repurchase the Option is the difference
between the Market/Offer Price for shares of the Option Grantor's common stock
as of the date the Option Holder gives notice of its intent to exercise its
rights (the "Notice Date") and the exercise price for the Option, multiplied by
the number of Option Shares purchasable pursuant to the Option, or the portion
thereof to be so repurchased, but only if the Market/Offer Price is greater than
such exercise price. The amount that the Option Grantor will pay to the Option
Holder to repurchase the Option Shares is the exercise price paid by the Option
Holder for the Option Shares plus the difference between the Market/Offer Price
and the exercise price paid by the Option Holder for the Option Shares (but only
if the Market/Offer Price is greater than such exercise price), multiplied by
the number of Option Shares to be so repurchased. The Stock Option Agreements
define "Market/Offer Price" as the higher of (A) the price per share (the "Offer
Price") offered as of the Notice Date pursuant to any tender or exchange offer
or other Business Combination offer which was made prior to the Notice Date and
not terminated or withdrawn as of such date or (B) the Fair Market Value of the
Option Grantor's common stock as of the Notice Date (which is defined in the
Stock Option Agreements as the average of the daily closing sale price for such
shares on the NYSE during the ten NYSE trading days prior to the fifth NYSE
trading day preceding such date). The Offer Price
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for the repurchase by the Option Grantor of Option Shares purchased by the
Option Holder pursuant to the Option is the highest price per share offered
pursuant to a tender or exchange offer or other Business Combination offer which
was made during the Repurchase Period prior to the Notice Date. At any time
prior to May 10, 1997 (which date may be extended to May 10, 1998 under the
circumstances described above), the Option Holder may also require the Option
Grantor to sell to the Option Holder any shares of the Option Holder's common
stock delivered by the Option Holder to the issuer in payment for the exercise
price of the Option, at the price attributed to such shares for such purchase
plus interest at the rate of 8.75% PER ANNUM (from the date of the delivery of
such shares through the date of such repurchase) less any dividends paid or
declared and payable thereon. In addition, the Stock Option Agreements provide
that in the event during the Repurchase Period any regulatory approval or order
required for the issuance of the Option by the Option Grantor thereof or the
acquisition of such Option by the Option Holder has not been obtained, the
Option Holder will be entitled to demand an amount in cash (the "Trigger
Payment") from the Option Grantor. The Trigger Payment will be equal to the
product of the number of shares the Option Holder would have been entitled to
receive upon exercise of the Option if the regulatory approvals or orders had
been obtained and the difference between the Market/Offer Price determined as of
the date notice of demand for the Trigger Payment is given and the exercise
price of the Option, but only if the Market/Offer Price is higher than the
exercise price. In the event the Trigger Payment is made, the Option Holder will
have no right to exercise the Option.
VOTING
Each party has agreed to vote, until November 10, 2000, any shares of the
capital stock of the other party acquired pursuant to the Stock Option
Agreements or otherwise beneficially owned by such party on each matter
submitted to a vote of shareowners of such other party for and against such
matter in the same proportion as the vote of all other shareowners of such other
party is voted for and against such matters.
RESTRICTIONS ON TRANSFER
The Stock Option Agreements provide that, until November 10, 2000, neither
party may sell, assign, pledge or otherwise dispose of or transfer the shares it
acquires pursuant to the Stock Option Agreements (collectively, the "Restricted
Shares") except as described below. In addition to the repurchase rights
described above under "-- Certain Repurchases and Other Payments," subsequent to
the termination of the Merger Agreement, the parties have the right to have such
shares of the other party or parties registered under the Securities Act for
sale in a public offering. The Stock Option Agreements also provide that,
following the termination of the Merger Agreement, any party may sell any
Restricted Shares of another party then held by it in response to a tender or
exchange offer approved or recommended, or otherwise determined to be fair and
in the best interests of the shareowners of the issuer of the Restricted Shares,
by a majority of the Board of Directors of the issuer of the Restricted Shares.
AMENDMENTS TO WPLH RESTATED ARTICLES OF INCORPORATION
THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS WITH
RESPECT TO THE PROPOSED AMENDMENTS TO THE WPLH CHARTER IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE TEXT OF THE PROPOSED AMENDMENTS TO THE INTERSTATE
ENERGY CHARTER ATTACHED HERETO AS ANNEX O AND INCORPORATED HEREIN BY REFERENCE.
Pursuant to the terms of the Merger Agreement, WPLH shareowners are being
asked to consider and approve each of the WPLH Charter Amendments, which would
amend the WPLH Charter to (i) change the name of WPLH to Interstate Energy
Corporation and (ii) increase the number of shares of WPLH Common Stock
authorized for issuance from 100,000,000 to 200,000,000. The WPLH Charter as so
amended will be the Interstate Energy Charter at the Effective Time and until
thereafter amended in accordance with the WBCL and the Interstate Energy
Charter.
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THE WPLH BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE WPLH
CHARTER AMENDMENTS. Approval of each of the WPLH Charter Amendments is a
condition to consummation of the Mergers. If approved by WPLH shareowners, each
of the WPLH Charter Amendments will not become effective until immediately prior
to or concurrent with the Effective Time. If, after WPLH shareowner approval of
each of the WPLH Charter Amendments, the Mergers are not consummated, WPLH will
not file the WPLH Charter Amendments with the Wisconsin Secretary of State and
the WPLH Charter Amendments will therefore not become effective.
NAME CHANGE AMENDMENT
Pursuant to the Merger Agreement, WPLH agreed to change its name to
Interstate Energy Corporation. Each of WPLH, IES and IPC believes that the new
name reflects the nature of the merged company as a multi-state utility holding
company. Changing WPLH's name does not substantively or otherwise alter any of
the rights of WPLH shareowners.
The affirmative vote of a majority of the votes entitled to be cast by the
holders of the shares of WPLH Common Stock represented at the WPLH Meeting and
entitled to vote thereon is required for approval of the Name Change Amendment.
COMMON STOCK AMENDMENT
As of the WPLH Record Date, of the 100,000,000 shares of WPLH Common Stock
presently authorized, 30,795,260 shares were issued and outstanding, and
21,138,992 shares of WPLH Common Stock were reserved for issuance for a specific
purpose, as follows: 399,497 shares under the WPLH DRIP, 386,763 shares under
the WP&L Savings Plan, 1,000,000 shares under the WPLH Long-Term Equity
Incentive Plan and 19,352,732 shares under the Rights Agreement. An additional
6,123,944 shares (subject to adjustment) are reserved for issuance pursuant to
the WPLH Options, but such Options to purchase shares granted to IES and IPC
thereunder will terminate at the Effective Time. See "The Stock Option
Agreements." If the Mergers are consummated, up to 42,798,875 additional shares
of WPLH Common Stock will be issued to former holders of IES Common Stock and
IPC Common Stock. Additional shares of WPLH Common Stock will be issuable to
holders of employee stock options to purchase IES Common Stock that are
outstanding at the Effective Time, and will be converted into options to acquire
shares of WPLH Common Stock, upon exercise of such options.
The additional 100,000,000 authorized shares of Interstate Energy Common
Stock may be issued for any proper corporate purpose approved by the Interstate
Energy Board. Without the Common Stock Amendment, WPLH would not have a
sufficient number of authorized shares to complete the Mergers. The availability
of additional authorized shares will also enable the Interstate Energy Board to
act with flexibility when and as the need arises to issue additional shares in
the future without the delays necessitated by having to obtain a shareowner
vote. Among the reasons for issuing additional shares would be to increase
Interstate Energy's capital through sales of Interstate Energy Common Stock, to
engage in other types of capital transactions, to undertake acquisitions, and to
satisfy contractual commitments, including pursuant to employee stock options.
The WPLH Board has not proposed the increase in the amount of authorized WPLH
Common Stock with the intention of discouraging tender offers or takeover
attempts of Interstate Energy. However, the availability of additional
authorized shares for issuance could render more difficult or discourage a
merger, tender offer, proxy contest or other attempt to obtain control of
Interstate Energy, which may adversely affect the ability of Interstate Energy
shareowners to obtain a premium for their shares of Interstate Energy Common
Stock and, accordingly, have a negative effect on the price of Interstate Energy
Common Stock.
WPLH management regularly reviews a range of possible financing
transactions, including the issuance of WPLH Common Stock. Except for (i) shares
to be issued in connection with the Mergers and (ii) shares issued in connection
with the benefit plans mentioned above, WPLH has no present intention of issuing
or selling WPLH Common Stock for any purpose, but may do so if market and other
conditions should indicate that such a course of action were advisable. Under
the Merger Agreement, WPLH has agreed (other than for issuances under the WPLH
DRIP and the Rights
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Agreement), from the date of the Merger Agreement through the Effective Time or
earlier termination of the Merger Agreement, to issue, without the consent of
IES and IPC, no more than 1,000,000 additional shares of WPLH Common Stock for
general corporate purposes, including issuances in connection with acquisitions
and financings and pursuant to employee benefit plans, stock option and other
incentive compensation plans and director plans.
If the Common Stock Amendment is approved, while the Interstate Energy Board
generally may issue such additional authorized shares of Interstate Energy
Common Stock without further shareowner approval, such issuances will generally
require the approval of the SEC under the 1935 Act as presently in effect. See
"Regulatory Matters." In some instances, shareowner approval for the issuance of
additional shares may be required by law or by the requirements of the NYSE, on
which the Interstate Energy Common Stock will be listed, or the obtaining of
such approvals may be otherwise necessary or desirable. Except in such cases, it
is not anticipated that further shareowner authorization will be solicited.
Holders of WPLH Common Stock are not entitled to preemptive rights to subscribe
for or purchase any part of any new or additional issue of WPLH Common Stock or
securities convertible into WPLH Common Stock.
The affirmative vote of a majority of the votes entitled to be cast by the
holders of the shares of WPLH Common Stock represented at the WPLH Meeting and
entitled to vote thereon is required for approval of the Common Stock Amendment.
AMENDMENT TO IPC RESTATED CERTIFICATE OF INCORPORATION
THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS WITH
RESPECT TO THE PROPOSED AMENDMENT TO THE IPC CHARTER IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE TEXT OF THE PROPOSED AMENDMENT TO THE IPC CHARTER
ATTACHED HERETO AS ANNEX R AND INCORPORATED HEREIN BY REFERENCE.
In furtherance of the Merger Agreement and the transactions contemplated
thereby, IPC stockholders are being asked to consider and approve the IPC
Charter Amendment, which would amend the IPC Charter to provide that each share
of IPC Preferred Stock outstanding from time to time will be entitled to one
vote, voting together as one class with the holders of IPC Common Stock except
as otherwise required by law or as specifically provided in the IPC Charter, on
all matters to come before a vote of the IPC stockholders.
THE IPC BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE IPC CHARTER
AMENDMENT. Approval of the IPC Charter Amendment is a condition to consummation
of the Mergers. If approved by the IPC stockholders, the IPC Charter Amendment
will become effective as soon as practicable following the date of the IPC
Meeting.
As discussed above, the Mergers are designed to be tax-free reorganizations
under the Code. It is a condition to the Mergers that each of the parties
receive from its respective counsel an opinion to the effect that the Mergers
will be treated for federal income tax purposes as tax-free reorganizations
under the Code.
For the IPC Direct Merger or the IPC Merger, as the case may be, to qualify
as a tax-free reorganization under applicable Code provisions, IPC stockholders
must exchange a "controlling" stock interest in IPC or New IPC, as the case may
be, for WPLH (or Interstate Energy after the Mergers) voting stock. To satisfy
this "control" requirement, the ultimate acquiror of IPC's stock (Interstate
Energy) must acquire at least 80% of the total combined voting power of IPC or
New IPC, as the case may be, plus at least 80% of the total number of shares of
all other IPC or New IPC, as the case may be, stock classes. Because the Merger
Agreement contemplates that holders of IPC Preferred Stock or New IPC Preferred
Stock, as the case may be, will not participate in the IPC Merger or the IPC
Direct Merger, as the case may be, (I.E., the IPC Preferred Stock or New IPC
Preferred Stock, as the case may be, will remain outstanding), the "control"
requirement will be met only if the IPC Preferred Stock or New IPC Preferred
Stock, as the case may be, is voting stock before the Effective Time and the
vote constitutes less than 20% of the total voting stock. Granting the IPC
Preferred
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Stock one vote per share will enable the ultimate acquiror of IPC's Common Stock
(Interstate Energy) to acquire "control" because it will acquire at least 80% of
the total combined voting power of IPC, there being no other classes of IPC
stock outstanding.
As of July 10, 1996, IPC had outstanding 9,595,028 shares of IPC Common
Stock and an aggregate of 761,381 shares of IPC Preferred Stock. Assuming
approval of the IPC Charter amendment by the IPC stockholders at the IPC
Meeting, the IPC Preferred Stock would represent, in the aggregate,
approximately 7.35% of the total combined voting power of IPC, and the IPC
Common Stock would represent approximately 92.65% of the total combined voting
power of IPC. The exchange then of IPC Common Stock for Interstate Energy Common
Stock in the IPC Merger would constitute an exchange of a "controlling" stock
interest within the meaning of Section 368(a)(2)(E) of the Code, and the IPC
Merger would be eligible for tax-free reorganization treatment under that
provision.
Approval of the IPC Charter Amendment would result in dilution of the voting
power of the IPC Common Stock of approximately 7.35%.
No other aspects of IPC's Charter will be affected by the IPC Charter
Amendment nor will the IPC Charter Amendment result in any other change in the
relative rights, preferences and other terms of the IPC Preferred Stock.
The affirmative vote of a majority of the votes entitled to be cast by the
holders of shares of IPC Common Stock is required for approval of the IPC
Charter Amendment.
DESCRIPTION OF INTERSTATE ENERGY CAPITAL STOCK
GENERAL
Pursuant to the Merger Agreement, no later than the Effective Time, the WPLH
Charter will be amended substantially in the manner set forth in Annex O,
subject to shareowner approval of each of the WPLH Charter Amendments at the
WPLH Meeting, and, as so amended, shall be the Interstate Energy Charter until
thereafter amended in accordance with the WBCL and the Interstate Energy
Charter. See "Amendments to WPLH Restated Articles of Incorporation." The
authorized capital stock of Interstate Energy, as of the Effective Time, will
consist of 200,000,000 shares of Interstate Energy Common Stock. The description
of Interstate Energy capital stock set forth herein does not purport to be
complete and is qualified in its entirety by reference to the Interstate Energy
Charter and the Interstate Energy Bylaws, copies of which are filed as exhibits
to the Joint Registration Statement and are incorporated hereby by reference,
the proposed amendments to the WPLH Charter, attached hereto as Annex O, and
applicable statutory or other law.
INTERSTATE ENERGY COMMON STOCK
The holders of Interstate Energy Common Stock will be entitled to receive
such dividends as the Interstate Energy Board may from time to time declare.
Except as provided by the WBCL as described below, each holder of Interstate
Energy Common Stock will be entitled to one vote per share on each matter
submitted to a vote at a meeting of shareowners. The holders of Interstate
Energy Common Stock will not be entitled to cumulate votes for the election of
directors. In the event of any liquidation, dissolution or winding up of
Interstate Energy, the holders of Interstate Energy Common Stock will be
entitled to receive the remainder, if any, of the assets of Interstate Energy
after the discharge of its liabilities. Holders of Interstate Energy Common
Stock will not be entitled to preemptive rights to subscribe for or purchase any
part of any new or additional issue of stock or securities convertible into
stock. The Interstate Energy Common Stock does not contain any redemption
provisions or conversion rights.
The shares of Interstate Energy Common Stock that will be issued pursuant to
the Merger Agreement, when so issued, will be fully paid and nonassessable
except as provided by Section 180.0622(2)(b) of the WBCL, which provides that
shareowners will be personally liable up to the par value of the shares owned by
them for all debts owing to employees of the Company for services performed for
the Company not exceeding 6 months service in any one case. A Wisconsin trial
court
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has interpreted "par value" to mean the subscription price paid for the shares
rather than the lower par value. While the Wisconsin Supreme Court by an evenly
divided vote affirmed the trial court's decision, such affirmation technically
provides no precedential effect because of the court's even division.
Interstate Energy's ability to pay dividends will depend primarily upon the
ability of its subsidiaries to pay dividends or otherwise transfer funds to it.
Various financing arrangements and regulatory requirements will impose certain
restrictions on the ability of Interstate Energy's public utility subsidiaries
to transfer funds to Interstate Energy in the form of cash dividends, loans or
advances.
Under WP&L's current Wisconsin Commission retail rate order, the Wisconsin
Commission would have to approve the payment of any dividends by WP&L to
Interstate Energy that in the aggregate exceeded $58.1 million per year for the
period from January 1, 1995 to December 31, 1996, if such dividends would reduce
WP&L's average common equity ratio below 51.93%. The Wisconsin Commission's
dividend limitation is subject to review and modification as part of WP&L's rate
cases. In connection with its First Mortgage Bond Indenture, WP&L is subject to
restrictions on the amount of net accumulated reinvested earnings available for
the payments of dividends. WP&L also has outstanding various series of WP&L
Preferred Stock that have certain preferential rights relating to the payment of
dividends. Historically, WPLH's ability to pay dividends has not been affected
by compliance with the dividend restrictions described above.
Under Utilities' current IUB retail rate order, there is no restriction on
the amount of dividends that Utilities is permitted to pay to IES. However, the
IUB could in the future impose conditions in rate orders that would have the
effect of limiting the payment of dividends by Utilities. Utilities also has
outstanding various series of Utilities Preferred Stock that have certain
preferential rights relating to the payment of dividends, which Utilities
Preferred Stock will remain outstanding after the Effective Time if the parties
to the Mergers determine that the Utilities Reincorporation Merger will not be
effected. Historically, Utilities' ability to pay dividends on its common stock
has not been affected by actions by the IUB or compliance with such preferential
dividend rights.
Under IPC's current IUB, Minnesota Commission and ICC retail rate orders,
there is no restriction on the amount of dividends that IPC is permitted to pay
to its stockholders. However, the IUB, Minnesota Commission or ICC could in the
future impose conditions in rate orders that would have the effect of limiting
the payment of dividends by IPC. IPC also has outstanding various series of IPC
Preferred Stock that have certain preferential rights relating to the payment of
dividends, which IPC Preferred Stock (or New IPC Preferred Stock, in the event
the IPC Reincorporation Merger is consummated) will remain outstanding after the
Effective Time. In addition, under IPC's First Mortgage Bond Indenture, IPC's
ability to pay dividends on the IPC Common Stock is restricted in the event that
certain financial ratios are not maintained. Historically, IPC's ability to pay
dividends has not been affected by actions by the IUB, Minnesota Commission or
ICC, compliance with such preferential dividend rights or compliance with the
dividend restrictions contained in IPC's First Mortgage Bond Indenture.
In addition, under the Wisconsin Holding Company Act, Interstate Energy's
public utility affiliates will be prohibited from lending funds, either directly
or indirectly, to Interstate Energy. Furthermore, the SEC, under the 1935 Act,
and the Wisconsin Commission, under the Wisconsin Holding Company Act, will have
the power to preclude the payment to Interstate Energy of dividends by public
utility affiliates thereof. Under the 1935 Act, the SEC will also have the power
to preclude the payment of dividends by Interstate Energy. See "Regulatory
Matters."
It is a condition to consummation of the Mergers that the Interstate Energy
Common Stock be approved for listing on the NYSE subject to official
notification of the issuance.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Interstate Energy Charter, the Rights Agreement and the WBCL contain
provisions that may have the effect of discouraging persons from acquiring large
blocks of Interstate Energy stock or
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delaying or preventing a change in control of Interstate Energy. The Interstate
Energy Charter will provide that the Board of Directors is to be divided into
three classes, with staggered terms of three years each. See "The Merger
Agreement -- Interstate Energy Board of Directors."
Interstate Energy will be subject to the Rights Agreement pursuant to which
each outstanding share of Interstate Energy Common Stock will have attached
thereto one Common Stock Purchase Right ("Right") and each share subsequently
issued by Interstate Energy prior to the expiration of the Rights Agreement,
including the shares issued pursuant to the Merger Agreement, will have attached
thereto one Right. Under certain circumstances described below, the Rights will
entitle the holder thereof to purchase additional shares of Common Stock.
Currently, the Rights are not exercisable and trade with the WPLH Common
Stock. In the event the Rights become exercisable, each Right (unless held by a
person or group which beneficially owns more than 20% of the outstanding
Interstate Energy Common Stock) will initially entitle the holder to purchase
one-half share of Interstate Energy Common Stock at a price of $60 per full
share (equivalent to $30 for each one-half share), subject to adjustment. The
Rights will only become exercisable if a person or group has acquired, or
announced an intention to acquire, 20% or more of the outstanding shares of
Interstate Energy Common Stock. Under certain circumstances, including the
existence of a 20% acquiring party, each holder of a Right, other than the
acquiring party, will be entitled to purchase at the exercise price of
Interstate Energy Common Stock having a market value of two times the exercise
price. In the event of the acquisition of Interstate Energy by another
corporation subsequent to a party acquiring 20% or more of the Interstate Energy
Common Stock, each holder of a Right will be entitled to receive the acquiring
corporation's common shares having a market value of two times the exercise
price. The Rights may be redeemed at a price of $.01 per Right prior to the
existence of a 20% acquiring party. The Rights will expire on February 22, 1999.
Under the Rights Agreement, the Interstate Energy Board will be able to reduce
the thresholds applicable to the Rights from 20% to not less than 10%. The
Rights do not have voting or dividend rights and, until they become exercisable,
have no dilutive effect on the earnings of the Company.
Section 180.1150 of the WBCL provides that the voting power of shares of
Wisconsin corporations such as Interstate Energy held by any person or persons
acting as a group that hold in excess of 20% of the voting power for the
election of directors is limited to 10% of the full voting power of those
shares. This restriction does not apply to shares acquired directly from
Interstate Energy or in certain specified transactions or shares for which full
voting power has been restored pursuant to a vote of shareowners.
Sections 180.1140 to 180.1144 of the WBCL contain certain limitations and
special voting provisions applicable to specified business combinations
involving Wisconsin corporations such as Interstate Energy and a significant
shareowner, unless the board of directors of the Wisconsin corporation approves
the business combination or the shareowner's acquisition of shares before such
shares are acquired. Similarly, Sections 180.1130 to 180.1133 of the WBCL
contain special voting provisions applicable to certain business combinations,
unless specified minimum price and procedural requirements are met. Following
commencement of a takeover offer, Section 180.1134 of the WBCL imposes special
voting requirements on certain share repurchases effected at a premium to the
market and on certain asset sales by the corporation, unless, as it relates to
the potential sale of assets, the corporation has at least three independent
directors and a majority of the independent directors vote not to have the
provision apply to the corporation.
Finally, Section 196.795(3) of the WBCL provides that no person may hold or
acquire directly or indirectly more than 10% of the outstanding securities of a
public utility holding company such as Interstate Energy without the approval of
the Wisconsin Commission.
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DESCRIPTION OF NEW IPC PREFERRED STOCK
The terms of the shares of New IPC Preferred Stock, as set forth in the New
IPC Charter, are substantially identical to the terms of the corresponding
shares of IPC Preferred Stock, as set forth in the IPC Charter, as amended by
the IPC Charter Amendment. The New IPC Charter is included as an exhibit to this
Joint Registration Statement. The bylaws of New IPC, which are included as an
exhibit to this Joint Registration Statement, will be substantially the same as
the IPC Bylaws, except for changes required by the WBCL. At the IPC
Reincorporation Effective Time, assuming that the IPC Reincorporation Merger is
effected, IPC will merge with and into New IPC, with New IPC being the surviving
corporation of the IPC Reincorporation Merger. The purpose of the IPC
Reincorporation Merger is to provide one alternative to comply with the
Wisconsin Holding Company Act. See "Regulatory Matters -- State Approvals and
Related Matters." Assuming that the IPC Reincorporation Merger is effected, each
share of IPC Preferred Stock issued and outstanding immediately prior to the IPC
Reincorporation Effective Time (other than IPC Dissenting Shares) will be
converted into one share of New IPC Preferred Stock with terms (including
dividend rights) and designations under the New IPC Charter substantially
identical to those of the converted shares of IPC Preferred Stock under the IPC
Charter, as amended by the IPC Charter Amendment. IPC Preferred Stock and a
corresponding share of New IPC Preferred Stock also differ due to differences in
the laws of Delaware and Wisconsin. See "Comparison of Shareowner Rights --
Comparison of Wisconsin, Iowa and Delaware Law."
The following is a description of both (i) the IPC Common Stock, the IPC
Preferred Stock and the preference stock, $1.00 par value, of IPC ("IPC
Preference Stock") as they exist under the IPC Charter prior to the IPC
Reincorporation Merger and (ii) the New IPC Common Stock, the New IPC Preferred
Stock and the preference stock, $1.00 par value, of New IPC ("New IPC Preference
Stock") as they will exist under the New IPC Charter following the IPC
Reincorporation Effective Time assuming that the IPC Reincorporation Merger is
effected. As used in the following description, unless otherwise stated, the
term "IPC" refers to IPC with respect to any period prior to the IPC
Reincorporation Effective Time and to New IPC with respect to any period after
the IPC Reincorporation Effective Time. Except as otherwise indicated, the
following summary describes certain provisions of the IPC Charter and the New
IPC Charter, and is qualified in its entirety by reference to the IPC Charter
and the New IPC Charter.
GENERAL
The capital stock of IPC consists of three classes: IPC Common Stock, par
value $3.50 per share (30,000,000 shares authorized, of which 9,595,028 shares
were outstanding on the IPC Record Date); IPC Preferred Stock, par value $50 per
share (2,000,000 shares authorized, of which the following series were
outstanding as of the IPC Record Date: 4.36% Series -- 60,455 shares; 4.68%
Series -- 55,926 shares; 7.76% Series -- 100,000 shares; and 6.40% Series --
545,000 shares); and IPC Preference Stock, par value $1.00 per share (2,000,000
shares authorized, of which none were issued and outstanding as of the IPC
Record Date). The IPC Board is authorized to provide for the issuance from time
to time of IPC Preferred Stock and IPC Preference Stock in series and, as to
each series, to fix the designation, dividend rates and time of payment,
redemption price, and liquidation price or preference as to assets in voluntary
liquidation. Cumulative dividends, redemption provisions and sinking fund
requirements, to the extent that some or all of these features are or may be
present when IPC Preferred Stock or IPC Preference Stock is issued, could have
an adverse effect on the availability of earnings for distribution to the
holders of the IPC Common Stock or for other corporate purposes.
DIVIDEND RIGHTS
Before any dividends may be paid on the IPC Common Stock, the holders of
each series of IPC Preferred Stock and IPC Preference Stock are entitled to
receive all accumulated and unpaid dividends for past dividend periods at the
respective rates provided for the shares of the respective series and classes.
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DIVIDEND RESTRICTIONS
In an Indenture, dated as of January 1, 1948, between IPC and the Chase
National Bank of the City of New York (now known as the Chase Manhattan Bank
(N.A.)) and Carl E. Buckley, as Trustees (the Chase Manhattan Bank (N.A.) and C.
J. Heinzelmann, Successor Trustees), as amended and supplemented, IPC has
covenanted that while any of the bonds issued thereunder (the "IPC Bonds") are
outstanding, it will not pay any cash dividends on or make any other
distribution with respect to the IPC stock unless the earned surplus of IPC,
less the aggregate amount of all such payments and other distributions made
during the period from December 31, 1946, to the date of the proposed payment of
such dividend or the making of such distribution that have not been charged to
such earned surplus, shall be at least equal to the amount of the proposed
dividend or distribution.
IPC has covenanted that, so long as any IPC Bonds of the series issued
subsequent to May 1, 1963 which were outstanding on October 15, 1975, remain
outstanding, it will not pay any cash dividends on or make any other
distribution with respect to the IPC Common Stock unless the earned surplus of
IPC, less the sum of (a) the aggregate amount of all such payments and other
distributions made during the period from December 31, 1946, to the date of the
proposed payment of such dividend or the making of such distributions that have
not been charged to such earned surplus and (b) the excess, if any, of 15% of
electric operating revenues and 12.5% of the gas and steam operating revenues of
IPC, less expenditures made during such period by IPC by charges against
earnings or earned surplus during the period, shall be at least equal to the
amount of the proposed dividend or distribution.
VOTING RIGHTS
EXISTING VOTING RIGHTS UNDER THE IPC CHARTER. Currently, the holders of
shares of each series of IPC Preferred Stock and IPC Preference Stock generally
are not entitled to vote. However, if and whenever full cumulative dividends on
the IPC Preferred Stock have not been paid for four quarterly dividend periods,
holders of IPC Preferred Stock are entitled to elect a majority of the Board of
Directors as then constituted with holders of IPC Common Stock being entitled to
elect the remaining directors. The right of the holders of IPC Preferred Stock
to elect directors in such cases shall cease when full cumulative dividends on
all series of IPC Preferred Stock have been paid, or declared and set aside for
payment. In addition, if and whenever full cumulative dividends on the IPC
Preference Stock have not been paid for six quarterly dividend periods (whether
or not consecutive), the size of the IPC Board shall be increased by two
directors and the holders of IPC Preference Stock, as a class, will be entitled
to elect the additional two directors and, in such cases, holders of IPC Common
Stock are entitled to elect the remaining directors, subject to the voting
rights of the holders of IPC Preferred Stock at that time, if any. The right of
the holders of the IPC Preference Stock to elect the two additional directors in
such cases shall cease when full cumulative dividends have been paid, or
declared and set aside for payment.
The affirmative vote or consent of the holders of various specified
percentages of IPC Preferred Stock is required to: merge, consolidate or sell
substantially all of the assets of IPC unless such transaction is approved by
the SEC or other regulatory authority of the federal government or unless such
transaction is undertaken with a subsidiary of IPC; increase the total
authorized amount of IPC Preferred Stock or authorize any other preferred stock
on a parity therewith with respect to dividends or liquidation rights; issue any
additional shares of IPC Preferred Stock on a parity with the outstanding IPC
Preferred Stock with respect to payment of dividends or liquidation rights
unless (i) IPC's consolidated gross income for 12 consecutive calendar months
within a period of 15 calendar months immediately preceding such issuance is
equal to at least 150% of IPC's aggregate consolidated interest charges and the
annual dividend charges of all IPC Preferred Stock that will be outstanding
immediately after such issuance and (ii) the stated capital of IPC less the
liquidation preferences of the IPC Preferred Stock and IPC Preference Stock is
at least equal to the aggregate par value of the IPC Common Stock; issue or
assume any unsecured debt for any purpose other than to refund existing
unsecured debt, redeem any indebtedness pursuant to authorization by state or
federal regulatory authority, or redeem any outstanding shares of IPC Preferred
Stock if after such transaction IPC's
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aggregate unsecured debt exceeds 20% of IPC's then outstanding secured debt and
total equity; authorize any class of stock with rights greater than the IPC
Preferred Stock; or change adversely the express terms and provisions of the IPC
Preferred Stock.
In the event that the IPC Charter Amendment is approved at the IPC Meeting,
holders of IPC Preferred Stock will thereafter have one vote per share, voting
together as a class with the holders of IPC Common Stock (except as otherwise
provided by law or specifically set forth in IPC's Charter as summarized above),
on all matters to come before a vote of stockholders of IPC. See "Amendment to
IPC Restated Certificate of Incorporation."
The affirmative vote or consent of the holders of various specified
percentages of IPC Preference Stock is required to: authorize or increase the
authorized amount of any class of stock with rights greater than the IPC
Preference Stock other than IPC Preferred Stock; change adversely the express
terms of the IPC Preference Stock; increase the authorized amount of IPC
Preference Stock; authorize or increase the authorized amount of any class of
stock with rights on a parity to the IPC Preference Stock; merge, consolidate or
sell substantially all the assets of IPC unless such transaction is approved by
the SEC or any regulatory authority of the federal government.
VOTING RIGHTS UNDER THE NEW IPC CHARTER. In the event the IPC
Reincorporation Merger is effected, the holders of New IPC Preferred Stock will
have the right to cast one vote per share, voting with the holders of New IPC
Common Stock, on all matters submitted to a vote of New IPC's shareowners
including the election of directors. In addition, where the holders of IPC
Preferred Stock and IPC Preference Stock had a right to vote under the IPC
Charter, the holders of New IPC Preferred Stock and New IPC Preference Stock
will have the right to vote as separate classes on such matters.
REDEMPTION PROVISIONS
IPC, at its option, generally may redeem the whole or any part of the IPC
Preferred Stock or IPC Preference Stock of any series or of all series upon at
least 30 days written notice. However, IPC may not redeem any shares of the
6.40% IPC Preferred Stock before May 1, 2003 if the redemption is being made to
refund such IPC Preferred Stock with funds with an effective cost of less than
6.40% per annum.
IPC has issued and outstanding three series of IPC Preferred Stock with
optional sinking fund provisions and one series of IPC Preferred Stock with
mandatory sinking fund provisions.
Under the provisions of the IPC Charter, beginning in 2003 IPC is required
to redeem annually $1.4 million of IPC's 6.40% Preferred Stock, par value $50
per share (27,250 shares).
CHANGE IN CONTROL
The IPC Charter and the DGCL contain provisions that could discourage or
make more difficult a change in control of IPC, including provisions requiring a
higher vote for certain business transactions. Assuming that the IPC
Reincorporation Merger is effected, following the IPC Reincorporation Effective
Time, the rights of holders of New IPC Preferred Stock, including rights
relating to a potential change in control of New IPC, will be governed by the
WBCL. For a discussion of the differences between such provisions under the DGCL
and the WBCL, see "Comparison of Shareowner Rights -- Comparison of Wisconsin,
Iowa and Delaware Law." Following consummation of the Mergers, Interstate Energy
will be an Interested Stockholder of IPC or New IPC, as the case may be, as such
term is defined in the IPC Charter or the New IPC Charter, as applicable. As a
result, a supermajority vote of the holders of outstanding shares of IPC
Preferred Stock or New IPC Preferred Stock, as the case may be, would be
required to effect certain transactions constituting a change in control in
accordance with the terms of the IPC Charter or the New IPC Charter, as
applicable.
LIQUIDATION RIGHTS
In the event of liquidation, holders of all series of IPC Preferred Stock
are entitled to $50 per share, in the event of involuntary liquidation, or the
then applicable redemption prices in the case of voluntary liquidation, plus in
either case, an amount equal to all accumulated and unpaid dividends.
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Following distributions to holders of IPC Preferred Stock, holders of IPC
Preference Stock are entitled to the amount of consideration originally received
by IPC for such shares, in the event of involuntary liquidation, or the
applicable amount determined to be payable in the event of voluntary
liquidation. Following the distributions to the holders of IPC Preferred Stock
and IPC Preference Stock, the holders of IPC Common Stock are entitled to the
remaining assets. If upon any such liquidation the assets distributable among
the holders of IPC Preferred Stock, of all series, or IPC Preference Stock, of
all series, are insufficient to pay in full the amounts to which such holders
are entitled, the amount distributable to the holders of IPC Preferred stock, of
all series, or IPC Preference Stock, of all series, as the case may be, will be
apportioned among them ratably in proportion to the amounts to which they are
respectively then entitled.
PREEMPTION AND SUBSCRIPTION RIGHTS
No holder of IPC Common Stock, IPC Preferred Stock or IPC Preference Stock
has the preemptive right to purchase or subscribe for any additional capital
stock of IPC.
COMPARISON OF SHAREOWNER RIGHTS
If the Mergers are consummated, the persons who were holders of WPLH Common
Stock immediately prior to the Mergers will remain common shareowners of
Interstate Energy immediately after consummation of the Mergers and their rights
will be governed by the Interstate Energy Charter, the Interstate Energy Bylaws
and the WBCL. The WPLH Charter, as amended by the WPLH Charter Amendments, which
are being submitted for shareowner approval at the WPLH Meeting, will be the
Interstate Energy Charter at the Effective Time. See "Amendments to WPLH
Restated Articles of Incorporation." The Interstate Energy Bylaws will be the
WPLH Bylaws as in effect at the Effective Time.
The holders of IES and IPC Common Stock, upon consummation of the Mergers,
will become holders of Interstate Energy Common Stock and their rights will be
governed by the Interstate Energy Charter, the Interstate Energy Bylaws and the
WBCL. The Interstate Energy Charter and the Interstate Energy Bylaws are
different in certain respects from the IES Charter and the IPC Charter and the
IES Bylaws and IPC Bylaws. In addition, certain differences exist between the
WBCL, IBCA and DGCL with respect to shareowners' rights. While it is
impracticable to compare all these differences, material significant differences
between the Interstate Energy Charter and the Interstate Energy Bylaws, on the
one hand, and the IES Charter and IPC Charter and the IES Bylaws and IPC Bylaws,
on the other hand, are summarized below under "-- Comparison of Interstate
Energy Charter and Bylaws to IES and IPC Charter and Bylaws," and material
similarities and differences between the WBCL, the IBCA and the DGCL with
respect to shareowners' rights are summarized below under "-- Comparison of
Wisconsin, Iowa and Delaware Law."
The following discussion is not intended to be complete and is qualified in
its entirety by reference to the Interstate Energy Charter and the Interstate
Energy Bylaws which are filed as exhibits to the Joint Registration Statement
and incorporated by reference herein, the WBCL, IBCA and DGCL and the IES
Charter, the IPC Charter, the IES Bylaws and the IPC Bylaws.
COMPARISON OF INTERSTATE ENERGY CHARTER AND BYLAWS TO IES AND IPC CHARTER AND
BYLAWS
BOARD OF DIRECTORS. The IES Charter provides that the IES Board shall be
comprised of not less than five members, as fixed in the IES Bylaws. The IES
Bylaws provide that the IES Board will consist of nine directors effective on
the date of the IES Meeting. The IES Board currently consists of nine directors.
The IPC Charter provides that the number of directors on the IPC Board shall be
fixed by the IPC Bylaws. The IPC Bylaws provide that the IPC Board will consist
of seven directors. The IPC Board currently consists of seven directors. The
Interstate Energy Charter will provide that the number of directors will be
fixed by the Interstate Energy Bylaws, but shall not be less than seven. The
Interstate Energy Bylaws will be amended to provide that at the Effective Time
the number of
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directors on the Interstate Energy Board will be set at fifteen, with six
directors designated by WPLH, six directors designated by IES and three
directors designated by IPC. The Interstate Energy Board, like the WPLH Board
and the IPC Board, will be classified into three classes.
CERTAIN SHARE ACQUISITIONS AND BUSINESS COMBINATIONS. The IPC Charter
contains provisions that have the effect of discouraging persons from acquiring
large blocks of IPC stock or delaying or preventing a change in control of IPC.
Under certain circumstances, these provisions could have the effect of, among
other things (i) prohibiting a 5% stockholder from engaging in a business
combination with IPC unless certain requirements are satisfied, (ii) prohibiting
the payment of a market premium (I.E., greenmail) to a 5% stockholder, and (iii)
prohibiting a potential tender offeror from engaging in an unequal two-tier
tender offer. The DGCL, in addition, contains certain provisions that have the
effect of discouraging persons from acquiring large blocks of IPC stock or
delaying or preventing a change in control of IPC. Under certain circumstances,
these provisions could have the effect of, among other things, prohibiting a 10%
stockholder from engaging in a business combination with IPC for three years
following the date such 10% interest was acquired. See " -- Comparison of
Wisconsin, Iowa and Delaware Law" below for a more complete discussion of such
provisions, including the circumstances under which such provisions are
triggered.
The IES Charter contains certain provisions that have the effect of
discouraging persons from acquiring large blocks of IES stock or delaying or
preventing a change in control of IES. Under certain circumstances, these
provisions could have the effect of, among other things, (i) prohibiting a 5%
shareholder from engaging in a business combination with IES unless certain
requirements are satisfied, (ii) prohibiting the payment of a market premium
(I.E., greenmail) to a 5% shareholder and (iii) prohibiting a potential tender
offeror from engaging in an unequal two-tier tender offer. The IBCA is silent
with regard to certain share acquisitions and business combinations.
Certain provisions of the WBCL have the effect of discouraging persons from
acquiring large blocks of WPLH stock or delaying or preventing a change in
control of WPLH. Under certain circumstances, these provisions could have the
effect of, among other things, (i) reducing the voting power of shares acquired
by a 20% shareowner, (ii) prohibiting a 10% shareowner from engaging in a
business combination with WPLH for three years following the date of acquisition
of such 10% interest, (iii) prohibiting a potential tender offeror from engaging
in an unequal two-tier tender offer and (iv) prohibiting the payment of a market
premium (I.E., greenmail) to a 5% shareowner who has held such shares for less
than two years. See " -- Comparison of Wisconsin, Iowa and Delaware Law" below
for a more complete discussion of such provisions, including the circumstances
under which such provisions are triggered.
REMOVAL OF DIRECTORS. The IES Charter and IES Bylaws provide that directors
may be removed only for cause. The IPC Charter provides that directors may be
removed only for cause, except that in certain situations involving the
non-payment of dividends on the IPC Preferred Stock, a majority of the directors
may be replaced by nominees of the preferred stockholders. The Interstate Energy
Charter and Interstate Energy Bylaws are silent as to the removal of directors.
The WBCL provides that directors may be removed with or without cause but only
at a special meeting called for the purpose of removing the director provided
that the notice of such meeting states the purpose of the meeting is to remove
the director. For a discussion of who can call a special meeting, see "--
Special Meetings of Shareowners; Shareowner Action By Written Consent" below.
VACANCIES ON THE BOARD OF DIRECTORS. The IES Bylaws provide that vacancies
caused by an increase in the size of the board, or by any other cause may be
filled by the remaining directors. Directors filling such vacancies shall serve
for the unexpired term of the vacant directorship or the full term of the new
directorship.
The IPC Charter and IPC Bylaws provide that vacancies on the IPC Board and
newly created directorships resulting from an increase in the authorized number
of directors may be filled by a majority vote of the directors then in office,
even though they may be less than a quorum, provided that, if at the time of
filling any vacancy or newly created directorship, the directors then in office
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constitute less than a majority of the whole board, any stockholder or
stockholder group holding at least ten percent of the total number of shares
entitled to vote for directors may petition the Delaware Court of Chancery to
order an election to fill such vacancies or newly created directorships or to
replace the directors chosen by the directors then in office. Such directors
shall serve until the next election of the class for which they were selected.
The Interstate Energy Charter provides that any vacancies may be filled by
the remaining directors. If the remaining directors are less than a quorum,
vacancies may be filled by the affirmative vote of a majority of all directors
remaining in office. Directors selected by majority vote of the directors then
in office shall serve until the next annual meeting of the shareowners.
AMENDMENTS TO ARTICLES OF INCORPORATION. The IES Charter is silent as to
amendment procedures, except that an 80% vote of the outstanding voting stock is
required to amend the provisions governing business combinations or amendments
of the article provisions regarding business combinations (except in situations
where the proposed article amendments are unanimously recommended by the
Company's Unaffiliated Directors). The IBCA requires that, unless a greater
proportion is required by the articles, amendments to the articles of
incorporation must be approved by the affirmative vote of the holders of a
majority of the voting power of the shares entitled to vote. In certain
circumstances, a vote by class or series is required.
The IPC Charter provides that amendments thereto shall be made in the manner
prescribed by statute. The DGCL provides that amendments to the IPC Charter must
be approved by a majority of the outstanding stock entitled to vote and by a
majority of the outstanding stock entitled to vote as a class.
The Interstate Energy Charter is silent with regard to amendments thereto.
The WBCL generally provides that amendments to the articles of incorporation
must be approved by a majority of the votes cast, unless a greater or lesser
proportion is required by the articles or bylaws.
AMENDMENT TO BYLAWS. The IES Charter provides that the IES Board has the
authority to make and alter the IES Bylaws, subject to the power of the
shareholders to change or repeal the IES Bylaws contained in the IBCA. The IPC
Charter provides that the IPC Board may make and amend the IPC Bylaws without
any action on the part of the stockholders, subject to the rights of the
stockholders to amend bylaws made by directors. The IPC Bylaws provide that the
IPC Bylaws may be amended and new bylaws made at any annual, regular or special
meeting of stockholders by the affirmative vote of a majority in interest of the
stock issued, outstanding and entitled to vote. The Interstate Energy Bylaws
provide that the Interstate Energy Bylaws may be amended by the Interstate
Energy Board at any regular or special meeting of the Interstate Energy Board or
by the shareowners by the affirmative vote of a majority of the outstanding
voting stock possessed by all owners at any annual or special meeting of
shareowners (provided that the notice calling any special meeting must state the
proposal to amend the Bylaws).
VOTING/CUMULATIVE VOTING. The IES Charter provides that each share of IES
Common Stock is entitled to one vote on each matter submitted to a vote of
shareholders. The IES Charter does not provide for cumulative voting in
connection with the election of directors. Pursuant to the IES Charter, shares
of IES Preferred Stock may have such voting rights as are designated by the IES
Board at the time of issuance. The IPC Charter provides that each share of IPC
Common Stock is entitled to one vote on each matter submitted to a vote of
stockholders. The IPC Charter further provides that holders of IPC Preferred
Stock and IPC Preference Stock have no votes except when certain arrearages have
occurred with respect to the IPC Preferred Stock and IPC Preference Stock or
when certain specified transactions adversely affect the rights of holders of
either class of such shares. In such case, the holders of such shares are
entitled to one vote, voting as separate classes, on each matter submitted to
such class for a vote. The IPC Charter provides that there is no cumulative
voting for any class of stock. The IPC Charter is proposed to be amended to
provide certain voting rights to holders of IPC Preferred Stock. See "Amendment
to IPC Restated Certificate of Incorporation." The Interstate Energy Charter and
Interstate Energy Bylaws are silent with regard to the voting power of
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holders of Interstate Energy Common Stock. The WBCL provides that each
outstanding share is entitled to one vote on each matter voted on at a
shareowner meeting. The WBCL further provides that shareowners do not have a
right to cumulative voting unless the articles of incorporation otherwise
provide, which the Interstate Energy Charter does not so provide.
SPECIAL MEETINGS OF SHAREOWNERS; SHAREOWNER ACTION BY WRITTEN CONSENT. The
IES Bylaws provide that special meetings of IES shareholders may be called by
the Chairman of the Board, the President, the IES Board or the holders of not
less than 10% of all the shares entitled to vote at the meeting. The IPC Bylaws
provide that special meetings of IPC stockholders may be called by the IPC
Board, the Chairman of the Board, the President, a Vice-President or the holders
of at least twenty-five percent of the shares issued and outstanding and
entitled to vote. The Interstate Energy Bylaws provide that special meetings of
the shareowners may be called by the Chairperson of the Board, the Chief
Executive Officer or the Interstate Energy Board. Pursuant to the WBCL, special
meetings of shareowners may also be called by the holders of at least 10% of the
votes entitled to be cast on any issue.
The IES Bylaws are silent as to whether shareholders may take action by
written consent without a meeting. The IBCA authorizes shareholders to take
action without a meeting by written consents signed by the holders of not less
than 90% of the votes entitled to be cast. The IPC Charter is also silent as to
whether stockholders may take action by written consent in lieu of a meeting.
The DGCL allows stockholders to take action in lieu of a meeting by written
consent signed by the holders of outstanding stock having not less than the
number of votes that would be necessary to authorize such action at a meeting.
The Interstate Energy Bylaws are also silent regarding whether shareowners may
take action by written consent without a meeting. The WBCL permits shareowners
to take action without a meeting by unanimous written consent.
INDEMNIFICATION/LIMITATION OF LIABILITY. The IES Charter provides that IES
shall indemnify any director, officer, employee or agent to the fullest extent
permitted under the IBCA. The IES Charter further authorizes IES to purchase and
maintain insurance for any such person or any person serving at the request of
IES as a director, officer, employee or agent of another enterprise against any
liability incurred as a result of the person serving in such official capacity.
The IES Charter also limits the personal liability of directors for monetary
damages for breach of their fiduciary duties, except for liability relating to
(i) any breach of the director's duty of loyalty to the corporation or its
shareholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of the law, (iii) any transaction
from which the director derived an improper personal benefit, or (iv) unlawful
distributions.
The IPC Bylaws provide that IPC shall indemnify any person who is a party or
threatened to be made a party to any legal proceeding by reason of the fact that
such person is or was a director, officer, employee or attorney of IPC, or is or
was serving at the request of IPC as a director, officer, employee or attorney
of another enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person. This right of indemnity includes the advancement of expenses upon
receipt of an undertaking to repay upon specified conditions. The right to
indemnification does not extend to matters in which the person seeking
indemnification is found liable to the corporation by a court of competent
jurisdiction, by a majority of the directors who are not seeking indemnification
or by independent counsel appointed by the IPC Board unless and only to the
extent that a court determines such person is fairly and reasonably entitled to
indemnification despite a final determination of liability. The IPC Charter
limits the personal liability of directors for any acts or omissions in the
performance of their duties as directors to the full extent permitted under the
DGCL.
The Interstate Energy Bylaws provide that Interstate Energy shall indemnify
a director or officer or any person serving at the request of Interstate Energy
as a director, officer, agent or employee of another enterprise against all
reasonable expenses (including attorneys' fees) incurred in connection with any
threatened or pending legal proceeding to which the director or officer was a
party because
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such person was a director or officer to the extent such person was successful
on the merits or otherwise in the defense of the threatened or pending
proceeding. The Interstate Energy Bylaws further provide that Interstate Energy
shall indemnify directors and officers against liability incurred in threatened
or pending legal proceedings to which the director or officer was a party
because such party was a director or officer unless the liability was incurred
because the director or officer (i) willfully failed to deal fairly with the
corporation or its shareowners in connection with a matter in which the director
or officer had a material conflict of interest, (ii) violated criminal law
unless the director or officer had reasonable cause to believe his or her
conduct was lawful or had no reasonable cause to believe such conduct was
unlawful, (iii) engaged in a transaction from which he or she received an
improper personal benefit, or (iv) engaged in willful misconduct. This right of
indemnity includes the advancement of expenses upon receipt of an undertaking to
repay upon specified conditions. The right to indemnification (except in the
event of a successful defense, in which case such indemnification is automatic)
will be determined at the indemnified party's election by (i) majority vote of a
quorum of disinterested directors, (ii) independent legal counsel, (iii) a panel
of three arbitrators, (iv) majority vote of the shareowners, (v) a court, or
(vi) such other method provided for in any additional right to indemnification.
COMPARISON OF WISCONSIN, IOWA AND DELAWARE LAW
As described below, the DGCL, IBCA and WBCL generally provide shareowners
with similar rights and protections. A comparison of the DGCL as it applies to
IPC, the IBCA as it applies to IES and the WBCL as it applies to WPLH is set
forth below:
CLASSIFIED BOARD OF DIRECTORS; REMOVAL OF DIRECTORS; VACANCIES. The DGCL,
IBCA and WBCL each allow the board of directors to be divided into classes.
Under the DGCL, directors serving on a classified board of directors may be
removed only for cause unless the certificate of incorporation provides
otherwise. Under both the IBCA and WBCL, absent a provision to the contrary
contained in the corporation's articles of incorporation or bylaws, a director
can be removed with or without cause by the affirmative vote of the holders of
the proportion of the voting power of the shares of the classes or series such
director represents sufficient to elect such director.
The DGCL provides that vacancies on the board of directors will be filled as
the certificate of incorporation or the bylaws provide, and that in the absence
of any such certificate of incorporation or bylaw provision, vacancies will be
filled by the board of directors. The IBCA and WBCL both provide that unless the
articles of incorporation otherwise provide, vacancies may be filled by the
shareowners or by the affirmative vote of a majority of the directors, even if
the directors remaining in the office constitute less than a quorum. The IBCA
and WBCL also both provide that if the vacant office was held by a director
elected by a voting group of shareowners, only the shareowners of that voting
group may vote to fill the vacancy if filled by shareowners, and only the
remaining directors elected by that voting group may vote to fill the vacancy if
filled by the directors.
INTERESTED DIRECTOR TRANSACTIONS. The DGCL, IBCA and WBCL each provide that
contracts or transactions in which one or more of the corporation's directors
have an interest ("Interested Contracts or Transactions") are not void or
voidable solely because of such interest or because such director was present at
the directors' or shareowners' meeting where such contracts or transactions were
approved, provided certain conditions are met. Interested Contracts or
Transactions may be approved by a majority vote of the disinterested directors
or by vote of disinterested shareowners if the material facts of the contracts
or transactions and the director's interest in such contracts or transactions
are fully disclosed and a vote is taken in good faith. Furthermore, Interested
Contracts or Transactions may be approved if such contracts or transactions are
shown to be fair and reasonable to the corporation at the time they are
authorized, approved or ratified by the board of directors or shareowners and
separate disinterested shareowner or disinterested director approval is not
required.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. The WBCL provides for mandatory
indemnification of a director or officer against certain liabilities and
expenses if the director or officer was a party to a proceeding because of his
or her status as such: (a) to the extent such director or officer is successful
on
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the merits or otherwise in the defense of the proceeding; and (b) in proceedings
in which the director or officer is not successful in the defense thereof,
unless it is determined that the liability was incurred because the director or
officer breached or failed to perform a duty that he or she owes to the
corporation and the breach or failure to perform constitutes: (i) a willful
failure to deal fairly with the corporation or its shareowners in connection
with a matter in which the director or officer has a material conflict of
interest; (ii) a violation of criminal law, unless the director or officer had
reasonable cause to believe that his or her conduct was lawful or no reasonable
cause to believe that his or her conduct was unlawful; (iii) a transaction from
which the director or officer derived an improper personal profit; or (iv)
willful misconduct. Indemnification under the WBCL is not required if the
director or officer has previously received indemnification from any person,
including the corporation, in connection with the same proceeding. The WBCL
provides that a corporation's articles of incorporation may limit its obligation
to indemnify directors and officers. The WBCL specifically states that it is the
public policy of Wisconsin to require or permit indemnification in connection
with a proceeding involving securities regulation, as described therein, to the
extent otherwise required or permitted under the WBCL.
The IBCA provides that a corporation shall indemnify a director or officer,
made party to a proceeding because of his or her status as such, who was wholly
successful on the merits or otherwise in the defense of such proceeding. Under
the IBCA, the corporation may indemnify a director or officer against liability
incurred in a proceeding provided the director or officer: (a) acted in good
faith; (b) reasonably believed that his or her conduct was in the corporation's
best interests (in the case of conduct in such person's official capacity) or
not opposed to the corporation's best interests (in all other cases); (c) in the
case of any criminal proceeding, he or she had no reasonable cause to believe
that the conduct was unlawful; (d) was not adjudged liable to the corporation;
and (e) did not receive an improper personal benefit. The IBCA provides that a
corporation's articles of incorporation may limit its obligation to indemnify
directors and officers.
The DGCL provides that a director or officer shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred to the
extent such director or officer has been successful on the merits or otherwise
in any action brought against such director or officer because of his or her
status as such. With respect to a third-party action, the DGCL provides that a
corporation may indemnify a director or officer against liability if such
director or officer (a) acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation and
(b) with respect to any criminal action, had no reasonable cause to believe his
or her conduct was unlawful. With respect to claims brought against a director
or officer by or in the right of the corporation, such director or officer may
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her except that no indemnification shall be made
in respect to any claim as to which such director or officer was adjudged to be
liable to the corporation unless and only to the extent that the Delaware
Chancery Court determines otherwise.
LIMITED LIABILITY OF DIRECTORS. The DGCL, IBCA and WBCL each provides for
the limitation or elimination of the personal liability of a company's directors
to the company or its shareowners for monetary damages for a breach of a
director's fiduciary duty. This immunity is automatic under Wisconsin law, but
must be provided for in the certificate or articles of incorporation under
Delaware and Iowa law. In any case, directors cannot be immunized in certain
instances including: (i) breach of the duty of loyalty; (ii) acts or omissions
not in good faith that involve intentional misconduct or a knowing violation of
law; (iii) unlawful distributions; and (iv) transactions in which the director
received an improper personal benefit. Other limitations specific to each state
also exist.
AMENDMENT OF ARTICLES. The DGCL, IBCA and WBCL each provide that the board
of directors may propose amendments to a corporation's certificate or articles
of incorporation, respectively. Under the DGCL, proposed amendments must be
approved by the affirmative vote of the holders of a majority of the voting
power of the shares entitled to vote. Under the IBCA and WBCL, unless the
articles of incorporation, bylaws adopted under authority granted in the
articles, the board (if the board is proposing the amendment), or the IBCA or
WBCL, as applicable, requires a greater vote or
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vote by voting groups, a proposed amendment is adopted if approved by a majority
of the votes cast by every voting group entitled to vote on the amendment. In
addition, each of the DGCL, IBCA and WBCL require that certain amendments must
be approved by a separate vote of a class or series of stock if, among other
things, the amendment would adversely affect the rights or preferences of such
shares.
AMENDMENT OF BYLAWS. Under the DGCL, the power to adopt, amend or repeal
the bylaws is vested in the stockholders entitled to vote, unless the
certificate of incorporation confers the power to adopt, amend or repeal the
bylaws upon the directors. Under the IBCA and WBCL, unless reserved by the
certificate of incorporation to the shareowners, the power to adopt, amend or
repeal the bylaws is generally vested in the directors, subject to the power of
the shareowners to adopt, amend, or repeal bylaws adopted, amended or repealed
by the directors.
VOTE REQUIRED FOR CERTAIN MERGERS, CONSOLIDATIONS OR DISSOLUTIONS. The
DGCL, IBCA and WBCL each require shareowner approval (except as indicated below
and for certain mergers between a parent company and its 90% owned subsidiary)
by the shareowners of each corporation that is party to a plan of merger and the
selling corporation for the sale by the corporation of substantially all its
assets if not in the usual or regular course of business. (The DGCL does not
refer to the usual or regular course of business). The IBCA and WBCL further
provide for a shareowner vote of the corporation whose shares will be acquired
in a statutory share exchange. Each of the DGCL, IBCA and WBCL require a
shareowner vote to approve the dissolution of a corporation.
The DGCL provides that the vote required to approve a plan of merger, sale
of substantially all the assets or dissolution is a majority of the outstanding
stock of the corporation entitled to vote thereon. Under the IBCA and the WBCL,
unless a higher voting requirement is imposed by the articles of incorporation
or, in the case of the WBCL by the bylaws adopted under authority granted by the
articles of incorporation, or, in the case of the IBCA by the board of directors
requiring a higher vote as a condition to its submission of the plan to
shareowners, the vote required to approve a plan of merger, statutory share
exchange, sale of substantially all assets not in the ordinary course of
business or dissolution is a majority of the voting power of all shares entitled
to vote of each corporation whose shareowners have a right to vote; approval of
a plan of merger or statutory share exchange (and in the case of the WBCL, a
sale of substantially all assets or dissolution) also may require the
affirmative vote of one or more classes or series of stock.
Neither the IBCA nor the WBCL requires the vote of the shareowners of a
surviving corporation in a merger if (i) the corporation's articles of
incorporation will not be amended in the transaction (except for amendments
permitted to be made by the board without a shareowner vote under the WBCL),
(ii) shareowners of the corporation immediately before the effective date of the
transaction will hold the same number of shares with identical rights
immediately after the effective date, (iii) the number of shares entitled to
vote immediately after the merger (plus shares issuable upon certain conversions
or pursuant to certain rights) does not exceed by more than 20% the number of
shares entitled to vote immediately before the transaction, and (iv) the number
of participating shares of the corporation (outstanding shares of the
corporation that entitle their holders to participate, without limitation, in
distributions by the corporation) immediately after the merger, plus the number
of participating shares of the corporation issuable on the conversion of, or on
the exercise of rights to purchase, securities issued in the transaction, will
not exceed by more than 20% the number of participating shares of the
corporation immediately before the transaction. The DGCL similarly does not
require a stockholder vote of the stockholders of a surviving corporation to a
merger if (i) the agreement of merger does not amend in any respect the
surviving corporation's certificate, (ii) each share of stock outstanding
immediately prior to the merger is identical to outstanding or treasury shares
following the merger, and (iii) no shares of stock (and no securities
convertible into shares of stock) are to be issued pursuant to the merger or the
number of shares issued (or the securities convertible into shares of stock)
does not exceed 20% of the number of shares outstanding immediately prior to the
merger.
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CLASS VOTE FOR CERTAIN REORGANIZATIONS. The IBCA and the WBCL both provide,
with certain exceptions, that a class or series of shares of a corporation is
entitled to vote on a plan of merger or statutory share exchange as a class or
series if any provision of the plan would, if contained in a proposed amendment
to the articles of incorporation, entitle the class or series of shares to vote
as a class or series and, in the case of an exchange, if the class or series is
included in the plan of exchange. The DGCL does not contain similar provisions.
In addition to the voting requirements discussed above, anti-takeover
legislation adopted in Wisconsin and Delaware imposes additional restrictions on
mergers and other business combinations between certain shareowners and the
corporation. See "-- Anti-Takeover Statutes."
SHAREOWNER ACTION BY CONSENT. The DGCL, IBCA and WBCL each permit
shareowners to take action without a meeting by written consent. However, the
DGCL and IBCA both allow corporations to opt out of such written consent
provisions by so stating in their certificate or articles of incorporation,
respectively. To approve an action in lieu of meeting by written consent, the
DGCL requires each written consent to be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to approve such action at a meeting where all shares entitled to vote thereon
were present and voted. The IBCA requires written consents to be signed by the
holders of 90% of the votes entitled to be cast for shareowner action to be
approved. The WBCL requires unanimous consent unless the articles of
incorporation provide for action by less than unanimous consent.
STATUTORY SHAREOWNER LIABILITY. The WBCL provides that shareowners of
Wisconsin corporations are personally liable up to an amount equal to the par
value of shares owned by them (and to the consideration for which shares without
par value were issued) for debts owing to employees of the corporation for
services performed for such corporation, but not exceeding six months' service
in any one case. The liability imposed by the predecessor to this statute was
interpreted in a trial court decision to extend to the original issue price for
shares, rather than the stated par value. Although affirmed by the Wisconsin
Supreme Court, the case offers no precedential value due to the fact that the
decision was affirmed by an equally divided court. The DGCL and the IBCA do not
contain comparable provisions.
DISTRIBUTIONS. The IBCA and the WBCL both provide that the board of
directors may authorize and the corporation may make, subject to any restriction
by the articles of incorporation, distributions to its shareowners unless after
such distribution the corporation would not be able to pay its debts as they
become due or its total assets after the distribution would be less than the sum
of its total liabilities, plus the amount that would be needed, if the
corporation were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareowners whose preferential rights
are superior to those receiving the distribution.
The DGCL provides that, subject to any restrictions contained in a
corporation's certificate of incorporation, the directors may declare and pay
dividends either (i) out of the corporation's surplus, or (ii) if there shall be
no surplus, out of the corporation's net profits for the fiscal year in which
the dividend is declared and/or the preceding fiscal year, unless the
corporation's capital is diminished by depreciation to an amount less than the
aggregate capital represented by the corporation's issued and outstanding stock
having a distribution preference.
SPECIAL MEETINGS OF SHAREOWNERS. Under the DGCL, IBCA and WBCL, a special
meeting of shareowners may be called by the board of directors or by any person
authorized by the certificate or articles of incorporation or bylaws to call a
special meeting. The IBCA and WBCL further provide for the calling of a special
meeting pursuant to a written demand of the holders of not less than 10% of the
votes entitled to be cast at such a meeting.
DISSENTERS' RIGHTS. The DGCL, IBCA and WBCL each entitle shareowners of a
corporation to dissent from and obtain fair value for their shares in the event
of certain corporate actions. Subject to certain exceptions, limitations and
conditions, shareowners of corporations incorporated in these states may dissent
from a plan of merger. The IBCA and WBCL also both provide that shareowners may
dissent from a statutory share exchange or a sale of all or substantially all of
the assets of the
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corporation. The IBCA also provides that dissenters' rights are available to
shareholders in the event of any amendment to the articles of incorporation that
materially and adversely affects the rights or preferences of the dissenting
shareholders' shares in certain specified ways. The DGCL, IBCA and WBCL provide
that a corporation may create additional dissenters' rights in its certificate
or articles of incorporation. The IBCA and WBCL also allow corporations to
create additional dissenters' rights in their bylaws or by board resolution.
The DGCL and WBCL both provide that dissenters' rights are not available to
holders of shares listed on a national securities exchange or quoted on the
Nasdaq National Market. In addition, the DGCL provides that dissenters' rights
are not available to holders of shares that are held of record by more than
2,000 holders. The DGCL provides that such shares do not carry dissenters'
rights unless the holders thereof are required to accept in consideration of
their shares anything other than listed securities or cash in lieu of fractional
shares. The WBCL provides that such shares do not carry dissenters' rights
unless the articles of incorporation provide otherwise or except in a Business
Combination (as defined under the WBCL and described below under "Anti-Takeover
Statutes").
DIRECTOR AND OFFICER DISCRETION. The WBCL provides that, in discharging his
or her duties to the corporation and in determining what he or she believes to
be in the best interests of the corporation, a director or officer may, in
addition to considering the effects of any action on shareowners, consider (i)
the effects of the action on employees, suppliers and customers of the
corporation, (ii) the effects of the action on the communities in which the
corporation operates and (iii) any other factors that the director or officer
considers pertinent. The IBCA contains comparable provisions. The IBCA provides
that, in discharging the duties of the position of director, a director may, in
considering the best interests of the corporation, consider the interests of the
corporation's employees, customers, suppliers, and creditors, the economy of the
state and nation, community and societal considerations, and the long-term as
well as short-term interests of the corporation and its shareholders including
the possibility that these interests may be best served by the continued
independence of the corporation. Delaware judicial doctrine allows directors to
consider similar factors.
ANTI-TAKEOVER STATUTES
Wisconsin law regulates a broad range of "business combinations" between a
Wisconsin corporation and an "interested stockholder." Wisconsin law defines a
"business combination" to include a merger or a share exchange, sale of assets,
issuance of stock or rights to purchase stock and certain related party
transactions. An "interested stockholder" is defined as a person who
beneficially owns, directly or indirectly, 10% of the outstanding voting stock
of a corporation or who is an affiliate or associate of the corporation and
beneficially owned 10% of the voting stock within the last three years. With
certain exceptions, Wisconsin law prohibits a corporation from engaging in a
business combination with an interested stockholder for a period of three years
following the date on which the person became an interested stockholder, unless
the board of directors approved the business combination or the acquisition of
the stock prior to the interested stockholder's stock acquisition date. A
corporation may engage in a business combination with an interested stockholder
after the third anniversary of the acquisition date provided any of the
following is satisfied: (i) the board of directors approved the purchase of
stock by the interested stockholder prior to the interested stockholder's stock
acquisition date, (ii) the business combination is approved by a majority of the
outstanding voting stock not owned by the interested stockholder, (iii) the
consideration to be received by shareowners meets certain requirements of the
statute with respect to form and amount or (iv) the business combination is of a
type specifically excluded from the coverage of the statute.
Section 180.1150 of the WBCL provides that in particular circumstances the
voting of shares of a Wisconsin "issuing public corporation" (a Wisconsin
corporation which has at least 100 Wisconsin resident shareowners, 500 or more
shareowners of record and total assets exceeding $1 million) held by any person
in excess of 20% of the voting power is limited to 10% of the full voting power
of such excess shares. Full voting power may be restored under Section 180.1150
if a majority of the voting power of shares represented at a meeting, including
those held by the party seeking restoration, are voted in favor of such
restoration.
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In addition, the WBCL sets forth certain fair price provisions which govern
mergers and share exchanges with, or sales of substantially all of a Wisconsin
issuing public corporation's assets to, a 10% shareowner, mandating that any
such transaction meet one of two requirements. First, the transaction must be
approved by 80% of all shareowners and two-thirds of "disinterested"
shareowners, which generally exclude the 10% shareowner. Second, the corporation
must pay a statutory fair price, which is intended to insure that shareowners in
the second step merger, share exchange or asset sale receive at least what
shareowners received in the first step.
Further, the WBCL requires shareowner approval for certain transactions in
the context of a tender offer or similar action for an amount in excess of 5% of
a Wisconsin corporation's stock. Shareowner approval is required for the
acquisition of more than 5% of the corporation's stock at a price above market
value, unless the corporation makes an equal offer to acquire all shares.
Shareowner approval is also required for the sale or option of assets which
amount to at least 10% of the market value of the corporation, but this
requirement does not apply if the corporation meets certain minimum outside
director standards.
Section 203 of the DGCL (the "Delaware Business Combination Statute")
applies to certain business combinations involving a corporation and certain of
its stockholders. The Delaware Business Combination Statute prevents a
corporation from engaging in any "business combination" (defined to include a
variety of transactions, including the sale of assets, mergers and most related
party transactions) with an "interested stockholder" (defined generally as a
person owning 15% or more of the corporation's outstanding voting stock) for
three years following the date such stockholder became an interested
stockholder, unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the business combination or the
transaction in which the interested stockholder became an interested
stockholder, or (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by certain employee stock ownership plans), or (iii)
following the transaction in which such person became an interested stockholder,
the business combination is approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the affirmative vote
of the holders of two-thirds of the outstanding voting stock of the corporation
not owned by the interested stockholder.
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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma financial information combines the
historical consolidated balance sheets and statements of income of WPLH, IES and
IPC, including their respective Subsidiaries, after giving effect to the
Mergers. The historical data for WPLH have been adjusted to reflect the
restatement of such data to account for certain discontinued operations
discussed in the notes hereto. The unaudited pro forma combined balance sheet at
March 31, 1996 gives effect to the Mergers as if they had occurred at March 31,
1996. The unaudited pro forma combined statements of income for each of the
three years in the period ended December 31, 1995, the three-month periods ended
March 31, 1996 and 1995, and the twelve-month period ended March 31, 1996 give
effect to the Mergers as if they had occurred at January 1, 1993. These
statements are prepared on the basis of accounting for the Mergers as pooling of
interests and are based on the assumptions set forth in the notes thereto. In
addition, the pro forma financial information does not give effect to the
expected synergies or the costs to be incurred to achieve such synergies. The
pro forma financial information, however, does reflect the transaction costs to
effect the Mergers.
The following pro forma financial information has been prepared from, and
should be read in conjunction with, the historical consolidated financial
statements and related notes thereto of WPLH, IES and IPC, incorporated by
reference herein. The following information is not necessarily indicative of the
financial position or operating results that would have occurred had the Mergers
been consummated on the date, or at the beginning of the periods, for which the
Mergers are being given effect nor is it necessarily indicative of future
operating results or financial position. In addition, due to the effect of
weather on sales and other factors which are characteristic of public utility
operations, financial results for the three-month periods ended March 31, 1996
and 1995 are not necessarily indicative of trends for any twelve-month period.
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INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
WPLH IES IPC
(AS REPORTED) (AS REPORTED) (AS REPORTED)
------------- ------------- -------------
<S> <C> <C> <C>
UTILITY PLANT
Electric............................................................................. $ 1,674,322 $ 1,909,500 $ 836,863
Gas.................................................................................. 218,973 166,248 63,344
Other................................................................................ 163,576 106,504 --
------------- ------------- -------------
Total............................................................................ 2,056,871 2,182,252 900,207
Accumulated provision for depreciation............................................... 908,603 973,304 409,051
Construction work in progress........................................................ 42,848 65,862 3,945
Nuclear fuel -- net.................................................................. 14,976 34,915 --
------------- ------------- -------------
Net utility plant................................................................ 1,206,092 1,309,725 495,101
OTHER PROPERTY, PLANT AND EQUIPMENT -- NET AND INVESTMENTS............................. 148,100 250,703 1,231
CURRENT ASSETS
Cash and cash equivalents............................................................ 7,935 10,435 1,218
Accounts receivable -- net........................................................... 81,797 54,838 29,559
Fossil fuel inventories, at average cost............................................. 12,285 12,313 11,938
Materials and supplies, at average cost.............................................. 20,904 25,164 5,762
Prepayments and other................................................................ 24,163 40,224 14,165
------------- ------------- -------------
Total current assets............................................................. 147,084 142,974 62,642
EXTERNAL DECOMMISSIONING FUND.......................................................... 82,523 49,543 --
DEFERRED CHARGES AND OTHER............................................................. 254,875 233,999 71,133
------------- ------------- -------------
TOTAL ASSETS..................................................................... $ 1,838,674 $ 1,986,944 $ 630,107
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- ----------
<S> <C> <C>
UTILITY PLANT
Electric............................................................................. -- $4,420,685
Gas.................................................................................. -- 448,565
Other................................................................................ -- 270,080
----------- ----------
Total............................................................................ -- 5,139,330
Accumulated provision for depreciation............................................... -- 2,290,958
Construction work in progress........................................................ -- 112,655
Nuclear fuel -- net.................................................................. -- 49,891
----------- ----------
Net utility plant................................................................ -- 3,010,918
OTHER PROPERTY, PLANT AND EQUIPMENT -- NET AND INVESTMENTS............................. -- 400,034
CURRENT ASSETS
Cash and cash equivalents............................................................ -- 19,588
Accounts receivable -- net........................................................... -- 166,194
Fossil fuel inventories, at average cost............................................. -- 36,536
Materials and supplies, at average cost.............................................. -- 51,830
Prepayments and other................................................................ -- 78,552
----------- ----------
Total current assets............................................................. -- 352,700
EXTERNAL DECOMMISSIONING FUND.......................................................... -- 132,066
DEFERRED CHARGES AND OTHER............................................................. -- 560,007
----------- ----------
TOTAL ASSETS..................................................................... $ -- $4,455,725
----------- ----------
----------- ----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
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INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
WPLH IES IPC
(AS REPORTED) (AS REPORTED) (AS REPORTED)
------------- ------------- -------------
<S> <C> <C> <C>
LIABILITIES AND EQUITY
CAPITALIZATION
Common Stock Equity:
Common stock (Note 1)........................................................... $ 308 $ 396,230 $ 33,475
Other stockholders' equity (Note 1)............................................. 613,320 219,590 168,238
------------- ------------- -------------
Total common stock equity..................................................... 613,628 615,820 201,713
Preferred stock not mandatorily redeemable........................................ 59,963 18,320 10,819
Preferred stock mandatory sinking fund............................................ -- -- 24,062
Long-term debt -- net............................................................. 428,347 600,677 188,899
------------- ------------- -------------
Total capitalization.......................................................... 1,101,938 1,234,817 425,493
CURRENT LIABILITIES
Current maturities, sinking funds, and capital lease obligations.................. 1,406 30,234 --
Commercial paper, notes payable and other......................................... 57,896 92,000 23,150
Variable rate demand bonds........................................................ 56,975 -- --
Accounts payable and accruals..................................................... 93,463 68,656 14,145
Taxes accrued..................................................................... 24,103 69,294 20,801
Other accrued liabilities......................................................... 41,455 69,370 14,714
------------- ------------- -------------
Total current liabilities..................................................... 275,298 329,554 72,810
OTHER LIABILITIES
Deferred income taxes............................................................. 245,153 256,066 96,663
Deferred investment tax credits................................................... 38,364 36,454 17,784
Accrued environmental remediation costs........................................... 76,763 43,680 6,834
Capital lease obligations......................................................... -- 20,135 --
Other liabilities and deferred credits............................................ 101,158 66,238 10,523
------------- ------------- -------------
Total other liabilities....................................................... 461,438 422,573 131,804
------------- ------------- -------------
TOTAL CAPITALIZATION AND LIABILITIES............................................ $ 1,838,674 $ 1,986,944 $ 630,107
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- ----------
<S> <C> <C>
LIABILITIES AND EQUITY
CAPITALIZATION
Common Stock Equity:
Common stock (Note 1)........................................................... $(429,299) $ 714
Other stockholders' equity (Note 1)............................................. 421,039 1,422,187
----------- ----------
Total common stock equity..................................................... (8,260) 1,422,901
Preferred stock not mandatorily redeemable........................................ -- 89,102
Preferred stock mandatory sinking fund............................................ -- 24,062
Long-term debt -- net............................................................. -- 1,217,923
----------- ----------
Total capitalization.......................................................... (8,260) 2,753,988
CURRENT LIABILITIES
Current maturities, sinking funds, and capital lease obligations.................. -- 31,640
Commercial paper, notes payable and other......................................... -- 173,046
Variable rate demand bonds........................................................ -- 56,975
Accounts payable and accruals..................................................... -- 176,264
Taxes accrued..................................................................... -- 114,198
Other accrued liabilities......................................................... 14,000 139,539
----------- ----------
Total current liabilities..................................................... 14,000 691,662
OTHER LIABILITIES
Deferred income taxes............................................................. (5,740) 592,142
Deferred investment tax credits................................................... -- 92,602
Accrued environmental remediation costs........................................... -- 127,277
Capital lease obligations......................................................... -- 20,135
Other liabilities and deferred credits............................................ -- 177,919
----------- ----------
Total other liabilities....................................................... (5,740) 1,010,075
----------- ----------
TOTAL CAPITALIZATION AND LIABILITIES............................................ $ -- $4,455,725
----------- ----------
----------- ----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
122
<PAGE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WPLH IES IPC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric................................ $ 148,500 $ 125,368 $ 65,915 $ -- $ 339,783
Gas..................................... 71,741 90,024 21,134 -- 182,899
Other................................... 40,636 27,805 -- -- 68,441
------------- ------------- ------------- ------------- -----------
Total operating revenues.............. 260,877 243,197 87,049 -- 591,123
Operating Expenses
Electric production fuels............... 28,604 20,292 14,774 -- 63,670
Purchased power......................... 15,344 14,469 14,193 -- 44,006
Cost of gas sold........................ 45,364 67,437 11,473 -- 124,274
Other operation......................... 76,565 52,525 11,712 -- 140,802
Maintenance............................. 8,551 10,833 3,693 -- 23,077
Depreciation and amortization........... 23,116 27,384 7,577 -- 58,077
Taxes other than income taxes........... 9,171 13,262 4,550 -- 26,983
------------- ------------- ------------- ------------- -----------
Total operating expenses.............. 206,715 206,202 67,972 -- 480,889
------------- ------------- ------------- ------------- -----------
Operating Income.......................... 54,162 36,995 19,077 -- 110,234
Other Income (expense)
Allowance for equity funds used during
construction........................... 529 -- -- -- 529
Other income and deductions -- net...... 3,950 1,677 812 -- 6,439
------------- ------------- ------------- ------------- -----------
Total other income (expense).......... 4,479 1,677 812 -- 6,968
Interest Charges.......................... 8,674 12,216 4,077 -- 24,967
------------- ------------- ------------- ------------- -----------
Income from continuing operations before
income taxes and preferred dividends..... 49,967 26,456 15,812 -- 92,235
Income Taxes.............................. 17,459 12,132 6,271 -- 35,862
Preferred dividends of subsidiaries (Note
2)....................................... 828 229 615 -- 1,672
------------- ------------- ------------- ------------- -----------
Income from Continuing Operations (Notes 3
and 6)................................... $ 31,680 $ 14,095 $ 8,926 $ -- $ 54,701
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------
Average Common Shares Outstanding (Note
1)....................................... 30,774 29,645 9,564 1,348 71,331
Earnings per share of Common Stock from
continuing operations.................... $1.03 $0.48 $0.93 $-- $0.77
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
123
<PAGE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WPLH IES IPC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric................................ $ 131,151 $ 116,577 $ 63,803 $ -- $ 311,531
Gas..................................... 55,207 64,982 18,962 -- 139,151
Other................................... 29,516 24,833 -- -- 54,349
------------- ------------- ------------- ------------- -----------
Total operating revenues.............. 215,874 206,392 82,765 -- 505,031
Operating Expenses
Electric production fuels............... 29,713 19,443 16,840 -- 65,996
Purchased power......................... 7,148 16,314 12,102 -- 35,564
Cost of gas sold........................ 33,882 49,289 9,957 -- 93,128
Other operation......................... 59,991 48,090 12,031 -- 120,112
Maintenance............................. 9,832 12,163 3,440 -- 25,435
Depreciation and amortization........... 21,284 25,538 7,226 -- 54,048
Taxes other than income taxes........... 9,323 13,440 4,505 -- 27,268
------------- ------------- ------------- ------------- -----------
Total operating expenses.............. 171,173 184,277 66,101 -- 421,551
------------- ------------- ------------- ------------- -----------
Operating Income.......................... 44,701 22,115 16,664 -- 83,480
Other Income (expense)
Allowance for equity funds used during
construction........................... 271 282 -- -- 553
Other income and deductions -- net...... 35 360 270 -- 665
------------- ------------- ------------- ------------- -----------
Total other income (expense).......... 306 642 270 -- 1,218
Interest Charges.......................... 10,157 11,136 4,217 -- 25,510
------------- ------------- ------------- ------------- -----------
Income from continuing operations before
income taxes and preferred dividends..... 34,850 11,621 12,717 -- 59,188
Income Taxes.............................. 13,963 4,652 4,960 -- 23,575
Preferred dividends of subsidiaries (Note
2)....................................... 828 229 614 -- 1,671
------------- ------------- ------------- ------------- -----------
Income from Continuing Operations (Notes 3
and 6)................................... $ 20,059 $ 6,740 $ 7,143 $ -- $ 33,942
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------
Average Common Shares Outstanding (Note
1)....................................... 30,774 28,889 9,564 1,341 70,568
Earnings per share of Common Stock from
continuing operations.................... $0.65 $0.23 $0.75 $-- $0.48
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
124
<PAGE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
TWELVE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WPLH IES IPC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric............................... $ 563,672 $ 569,262 $ 276,986 $ -- $ 1,409,920
Gas.................................... 155,703 215,381 45,840 -- 416,924
Other.................................. 132,883 103,173 -- -- 236,056
------------- ------------- ------------- ------------- ------------
Total operating revenues............. 852,258 887,816 322,826 -- 2,062,900
Operating Expenses.......................
Electric production fuels.............. 115,380 97,105 60,099 -- 272,584
Purchased power........................ 52,210 65,029 59,656 -- 176,895
Cost of gas sold....................... 95,483 159,864 27,404 -- 282,751
Other operation........................ 267,371 205,822 45,398 -- 518,591
Maintenance............................ 40,762 44,763 15,134 -- 100,659
Depreciation and amortization.......... 88,151 99,803 29,911 -- 217,865
Taxes other than income taxes.......... 34,036 48,836 16,034 -- 98,906
------------- ------------- ------------- ------------- ------------
Total operating expenses............. 693,393 721,222 253,636 -- 1,668,251
Operating Income......................... 158,865 166,594 69,190 -- 394,649
------------- ------------- ------------- ------------- ------------
Other Income (expense)...................
Allowance for equity funds used during
construction.......................... 1,684 104 -- -- 1,788
Other income and deductions -- net..... 7,018 4,489 (2,330) -- 9,177
------------- ------------- ------------- ------------- ------------
Total other income (expense)......... 8,702 4,593 (2,330) -- 10,965
Interest Charges......................... 41,414 48,772 16,655 -- 106,841
------------- ------------- ------------- ------------- ------------
Income from continuing operations before
income taxes and preferred dividends.... 126,153 122,415 50,205 -- 298,773
Income Taxes............................. 39,604 49,970 20,764 -- 110,338
Preferred dividends of subsidiaries (Note
2)...................................... 3,310 914 2,459 -- 6,683
------------- ------------- ------------- ------------- ------------
Income from Continuing Operations (Notes
3 and 6)................................ $ 83,239 $ 71,531 $ 26,982 $ -- $ 181,752
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
Average Common Shares Outstanding (Note
1)...................................... 30,774 29,391 9,564 1,346 71,075
Earnings per share of Common Stock from
continuing operations................... $2.70 $2.43 $2.82 $-- $2.56
----- ----- ----- ----- ----
----- ----- ----- ----- ----
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
125
<PAGE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WPLH IES IPC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric............................... $ 546,324 $ 560,471 $ 274,873 $ -- $ 1,381,668
Gas.................................... 139,165 190,339 43,669 -- 373,173
Other.................................. 121,766 100,200 -- -- 221,966
------------- ------------- ------------- ----- ------------
Total operating revenues............. 807,255 851,010 318,542 -- 1,976,807
Operating Expenses
Electric production fuels.............. 116,488 96,256 62,164 -- 274,908
Purchased power........................ 44,015 66,874 57,566 -- 168,455
Cost of gas sold....................... 84,002 141,716 25,888 -- 251,606
Other operation........................ 250,796 201,390 45,717 -- 497,903
Maintenance............................ 42,043 46,093 14,881 -- 103,017
Depreciation and amortization.......... 86,319 97,958 29,560 -- 213,837
Taxes other than income
taxes................................. 34,188 49,011 15,990 -- 99,189
------------- ------------- ------------- ----- ------------
Total operating expenses............. 657,851 699,298 251,766 -- 1,608,915
------------- ------------- ------------- ----- ------------
Operating Income......................... 149,404 151,712 66,776 -- 367,892
Other Income (Expense)
Allowance for equity funds used during
construction.......................... 1,425 386 -- -- 1,811
Other income and deductions -- net..... 3,103 3,170 (2,872) -- 3,401
------------- ------------- ------------- ----- ------------
Total other income
(expense)........................... 4,528 3,556 (2,872) -- 5,212
Interest Charges......................... 42,896 47,689 16,795 -- 107,380
------------- ------------- ------------- ----- ------------
Income from continuing operations before
income taxes and preferred dividends.... 111,036 107,579 47,109 -- 265,724
Income Taxes............................. 36,108 42,489 19,453 -- 98,050
Preferred dividends of subsidiaries (Note
2)...................................... 3,310 914 2,458 -- 6,682
------------- ------------- ------------- ----- ------------
Income from Continuing Operations (Notes
3 and 6)................................ $ 71,618 $ 64,176 $ 25,198 $ -- $ 160,992
------------- ------------- ------------- ----- ------------
------------- ------------- ------------- ----- ------------
Average Common Shares Outstanding (Note
1)...................................... 30,774 29,202 9,564 1,344 70,884
Earnings per share of Common Stock from
continuing operations................... $2.33 $2.20 $2.63 $ -- $2.27
----- ----- ----- ------ ----
----- ----- ----- ------ ----
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
126
<PAGE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WPLH IES IPC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric............................... $ 531,747 $ 537,327 $ 261,730 $ -- $ 1,330,804
Gas.................................... 151,931 165,569 45,920 -- 363,420
Other.................................. 112,039 82,968 -- -- 195,007
------------- ------------- ------------- ----- ------------
Total operating revenues............. 795,717 785,864 307,650 -- 1,889,231
Operating Expenses
Electric production fuels.............. 123,469 85,952 61,384 -- 270,805
Purchased power........................ 37,913 68,794 58,339 -- 165,046
Cost of gas sold....................... 100,942 120,795 30,905 -- 252,642
Other operation........................ 246,212 176,863 51,917 -- 474,992
Maintenance............................ 41,227 52,841 17,160 -- 111,228
Depreciation and amortization.......... 80,351 86,378 28,212 -- 194,941
Taxes other than income
taxes................................. 33,788 46,308 16,298 -- 96,394
------------- ------------- ------------- ----- ------------
Total operating expenses............. 663,902 637,931 264,215 -- 1,566,048
------------- ------------- ------------- ----- ------------
Operating Income......................... 131,815 147,933 43,435 -- 323,183
Other Income (Expense)
Allowance for equity funds used during
construction.......................... 3,009 2,299 166 -- 5,474
Other income and deductions -- net..... 7,610 3,472 3,100 -- 14,182
------------- ------------- ------------- ----- ------------
Total other income
(expense)........................... 10,619 5,771 3,266 -- 19,656
Interest Charges......................... 36,657 44,399 16,845 -- 97,901
------------- ------------- ------------- ----- ------------
Income from continuing operations before
income taxes and preferred dividends.... 105,777 109,305 29,856 -- 244,938
Income Taxes............................. 36,043 41,573 9,189 -- 86,805
Preferred dividends of subsidiaries (Note
2)...................................... 3,310 914 2,454 -- 6,678
------------- ------------- ------------- ----- ------------
Income from Continuing Operations (Notes
3 and 6)................................ $ 66,424 $ 66,818 $ 18,213 $ -- $ 151,455
------------- ------------- ------------- ----- ------------
------------- ------------- ------------- ----- ------------
Average Common Shares Outstanding (Note
1)...................................... 30,671 28,560 9,479 1,329 70,039
Earnings per share of Common Stock from
continuing operations................... $2.17 $2.34 $1.92 $ -- $2.16
----- ----- ----- ------ ----
----- ----- ----- ------ ----
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
127
<PAGE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WPLH IES IPC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Operating Revenues
Electric............................... $ 503,187 $ 550,521 $ 255,759 $ -- $ 1,309,467
Gas.................................... 137,270 181,923 53,709 -- 372,902
Other.................................. 98,147 68,822 -- -- 166,969
------------- ------------- ------------- ----- ------------
Total operating revenues............. 738,604 801,266 309,468 -- 1,849,338
Operating Expenses
Electric production fuels.............. 123,919 87,702 64,059 -- 275,680
Purchased power........................ 28,574 93,449 53,936 -- 175,959
Cost of gas sold....................... 90,505 135,830 38,309 -- 264,644
Other operation........................ 221,840 162,642 48,567 -- 433,049
Maintenance............................ 44,763 48,913 16,771 -- 110,447
Depreciation and amortization.......... 68,680 77,012 26,955 -- 172,647
Taxes other than income taxes.......... 32,379 44,449 17,080 -- 93,908
------------- ------------- ------------- ----- ------------
Total operating expenses............. 610,660 649,997 265,677 -- 1,526,334
------------- ------------- ------------- ----- ------------
Operating Income......................... 127,944 151,269 43,791 -- 323,004
Other Income (Expense)
Allowance for equity funds used during
construction.......................... 2,978 824 68 -- 3,870
Other income and deductions net........ (633) (2,908) 1,209 -- (2,332)
------------- ------------- ------------- ----- ------------
Total other income (expense)......... 2,345 (2,084) 1,277 -- 1,538
Interest Charges......................... 37,020 43,292 16,617 -- 96,929
------------- ------------- ------------- ----- ------------
Income from continuing operations before
income taxes and preferred dividends.... 93,269 105,893 28,451 -- 227,613
Income Taxes............................. 25,656 37,041 9,464 -- 72,161
Preferred dividends of subsidiaries (Note
2)...................................... 3,928 914 2,861 -- 7,703
------------- ------------- ------------- ----- ------------
Income from Continuing Operations (Notes
3 and 6)................................ $ 63,685 $ 67,938 $ 16,126 $ -- $ 147,749
------------- ------------- ------------- ----- ------------
------------- ------------- ------------- ----- ------------
Average Common Shares Outstanding (Note
1)...................................... 29,681 27,764 9,316 1,303 68,064
Earnings per share of Common Stock from
continuing operations................... $2.15 $2.45 $1.73 $ -- $2.17
----- ----- ----- ------ ----
----- ----- ----- ------ ----
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
128
<PAGE>
INTERSTATE ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
1. The pro forma combined financial statements reflect the conversion of each
share of IES Common Stock (no par value) outstanding into 1.01 shares of
WPLH Common Stock ($.01 par value) and the conversion of each share of IPC
Common Stock ($3.50 par value) into 1.11 of a share of WPLH Common Stock
($.01 par value), and the continuation of each share of WPLH Common Stock
($.01 par value) outstanding as one share of Interstate Energy Common Stock,
as provided in the Merger Agreement. The pro forma adjustment to common
stock equity restates the common stock account to equal par value for all
shares to be issued ($.01 par value per share of Interstate Energy Common
Stock) and reclassifies the excess to other stockholders' equity. The pro
forma combined statements of income are presented as if the companies were
combined on January 1, 1993. The pro forma combined balance sheet gives
effect to the Mergers as if they occurred at March 31, 1996.
The number of shares of common stock used for calculating per share amounts
is based on the exchange ratios shown below.
AVERAGE NUMBER OF SHARES OUTSTANDING FOR THE TWELVE MONTHS ENDED
<TABLE>
<CAPTION>
EXCHANGE AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
RATIO 3/31/96 3/31/96 12/31/95 12/31/95 12/31/94 12/31/94
----------------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
IES.......... 1.01 29,391 29,685 29,202 29,494 28,560 28,846
IPC.......... 1.11 9,564 10,616 9,564 10,616 9,479 10,522
WPLH......... N/A 30,774 30,774 30,774 30,774 30,671 30,671
</TABLE>
<TABLE>
<CAPTION>
EXCHANGE AS REPORTED PRO FORMA
RATIO 12/31/93 12/31/93
----------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
IES................................ 1.01 27,764 28,042
IPC................................ 1.11 9,316 10,341
WPLH............................... N/A 29,681 29,681
</TABLE>
AVERAGE NUMBER OF SHARES OUTSTANDING FOR THE THREE MONTHS ENDED
<TABLE>
<CAPTION>
EXCHANGE AS REPORTED PRO FORMA AS REPORTED PRO FORMA
RATIO 3/31/96 3/31/96 3/31/95 3/31/95
----------------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
IES................................ 1.01 29,645 29,941 28,889 29,178
IPC................................ 1.11 9,564 10,616 9,564 10,616
WPLH............................... N/A 30,774 30,774 30,774 30,774
</TABLE>
2. The IPC Preferred Stock has been reclassified in the pro forma statements as
preferred stock of subsidiary companies and deducted in the determination of
income from continuing operations which reflects the holding company
structure of the entity formed through the Mergers.
3. Nonrecurring items affecting WPLH's 1994 performance included the impact of
early retirement and severance programs and the reversal of a coal contract
penalty assessed by the Wisconsin Commission which was charged to income in
1989. The net after-tax impact of these items on income from continuing
operations for the year ended December 31, 1994 was a decrease of $8.3
million related to the early retirement and severance programs offset by an
increase of $4.9 million related to the coal contract penalty reversal.
129
<PAGE>
INTERSTATE ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (CONTINUED)
IPC's income from continuing operations includes expenses associated with
the environmental investigation and remediation costs of former manufactured
gas plants. Operating expenses for the twelve months ended March 31, 1996
and for the years ended December 31, 1995, 1994 and 1993 include $0.2
million, $0.3 million, $0.8 million and $3.5 million, respectively, for
these costs. Other operating expenses for the twelve months ended March 31,
1996 and for the year ended December 31, 1995 also include $0.8 million and
$0.7 million, respectively, of legal fees related to coal tar remediation,
compared with $1.0 million and $0.3 million for the years ended December 31,
1994 and 1993, respectively. For the twelve months ended March 31, 1996 and
for the years ended December 31, 1995, 1994 and 1993, $0.4 million, $0.6
million, $0.7 million and $0.6 million, respectively, of the foregoing
expenses were recovered in rates.
Nonrecurring items affecting IES's income from continuing operations for the
year ended December 31, 1993 include various gains and losses related to
sales of assets and property valuation adjustments associated with its
nonregulated businesses. The net after-tax impact of these items on income
from continuing operations for the year ended December 31, 1993 was a
decrease of $2.0 million.
4. The allocation between WPLH, IES and IPC and their customers of the
estimated costs savings of approximately $749 million over ten years
resulting from the Mergers, net of the costs incurred to achieve such
savings, will be subject to regulatory review and approval. Costs arising
from the proposed Mergers are currently estimated to be approximately $78.4
million (including transaction costs of $11.5 million related to fees for
financial advisors and $2.5 million related to fees for attorneys,
accountants, consultants, filings and printing). None of these estimated
cost savings, or the costs to achieve such savings, have been reflected in
the pro forma combined financial statements. The transaction costs have been
reflected in the pro forma balance sheet at March 31, 1996 such that
shareowner equity has been reduced by $8.26 million, accrued liabilities
have been increased by $14.0 million, and deferred taxes were decreased by
$5.74 million.
5. Intercompany transactions (including purchased and exchange power
transactions) between WPLH, IES and IPC during the periods presented were
included in the determination of regulated rates and were not material.
Accordingly, no pro forma adjustments were made to eliminate such
transactions.
6. The financial statements of WPLH reflect the discontinuance of operations of
its utility energy and marketing consulting business in 1995. The
discontinuance of this business resulted in a pre-tax loss of $7.7 million
($11.0 million net of the applicable income tax expenses) in 1995. Operating
revenues, operating expenses, other income and expense and income taxes for
the discontinued operations for the time periods presented have been
excluded from income from continuing operations. Interest expense has been
adjusted for the amounts associated with direct obligations of the
discontinued operations.
130
<PAGE>
INTERSTATE ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS (CONTINUED)
Operating revenues, related losses, and income tax benefits associated with
the discontinued operations for the indicated time periods were as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -------------------------------
1996 1995 1994 1993
-------------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenues................................... $ 15,969 $ 24,979 $ 34,798 $ 33,340
-------------- --------- --------- ---------
-------------- --------- --------- ---------
Loss from discontinued operations before tax
benefit............................................. $ 2,990 $ 3,663 $ 1,806 $ 1,761
Income tax benefit................................... 1,184 1,451 632 599
-------------- --------- --------- ---------
Loss from discontinued operations.................... $ 1,806 $ 2,212 $ 1,174 $ 1,162
-------------- --------- --------- ---------
-------------- --------- --------- ---------
</TABLE>
7. Accounting principles have been consistently applied in the financial
statement presentations for WPLH, IES and IPC with one exception. IPC does
not include unbilled electric and gas revenues in its calculation of total
revenues. The utility subsidiaries of WPLH and IES accrue unbilled revenues.
The impact of this difference in accounting principles among the companies
does not have a material impact on the unaudited pro forma combined
financial statements as presented and, accordingly, no adjustments have been
made to conform accounting principles.
131
<PAGE>
SELECTED INFORMATION CONCERNING WPLH, IES AND IPC
BUSINESS OF WPLH
WPLH, incorporated under the laws of the State of Wisconsin in 1981, is the
holding company for WP&L and its utility-related subsidiaries and for HDC, the
parent corporation for WPLH's non-utility businesses. WP&L is a public utility
engaged principally in generating, purchasing, distributing and selling electric
energy in portions of southern and central Wisconsin. WP&L also purchases,
distributes, transports and sells natural gas in parts of such areas and
supplies water in two communities. A wholly-owned subsidiary of WP&L supplies
electric, gas and water service principally in Winnebago County, Illinois. WP&L
provides retail electric service to approximately 377,000 customers in 663
cities, villages and towns, and wholesale service to 27 municipal utilities, one
privately-owned utility, three rural electric cooperatives and the Wisconsin
Public Power, Inc. system, which provides retail service to nine communities.
WP&L owns 20,969 miles of electric transmission and distribution lines and 362
substations located adjacent to the communities served. WP&L provides retail
natural gas service to approximately 146,000 customers in 239 cities, villages
and towns.
HDC and its principal subsidiaries are engaged in business development in
three major areas: (i) environmental engineering and consulting, (ii) affordable
housing and (iii) energy services.
The principal executive office of WPLH is located at 222 West Washington
Avenue, Madison, Wisconsin 53703, telephone number (608) 252-3311.
BUSINESS OF IES
IES, incorporated under the laws of the State of Iowa in 1986, is a holding
company for Utilities and Diversified, the parent company for most of IES's
non-utility businesses. Utilities is a public utility primarily engaged in
providing electric energy, natural gas and, to a limited extent, steam used for
heating and industrial purposes in Iowa. Utilities serves more than 333,000
electric customers and 174,000 natural gas customers in more than 550
communities across Iowa and provides wholesale electrical service to 30 Iowa
municipal utilities.
Diversified is a holding company that is engaged in various non-utility
operations, including energy production and marketing, railroad and other
transportation services, and local real estate development through its
wholly-owned subsidiaries. IES Energy Inc. develops stand-by production
facilities for large users of electricity, markets natural gas and steam to end
users, and purchases, explores for, develops and produces crude oil and natural
gas. IES Transportation Inc. provides short-line rail freight service between
Cedar Rapids and Iowa City, Iowa, provides barge terminal and hauling service on
the Mississippi River, and provides transloading and storage services. IES
Investments, Inc. pursues real estate and economic development activities in
Utilities' service territory, owns resort properties, and holds certain other
passive equity investments.
The principal executive office of IES and Utilities is located at IES Tower,
200 First Street S.E., Cedar Rapids, Iowa 52401, telephone number (319)
398-4411.
BUSINESS OF IPC
IPC is an operating public utility incorporated in 1925 under the laws of
the State of Delaware. IPC services 162,000 retail electric customers in
portions of 25 counties in northern and northeastern Iowa, portions of 22
counties in southern Minnesota and portions of four counties in northwestern
Illinois. IPC also serves 48,600 natural gas customers in 39 communities,
including Albert Lea, Minnesota; Clinton, Mason City and Clear Lake, Iowa; and
Fulton and Savanna, Illinois. In addition, IPC engages in the transportation of
natural gas within Iowa, Minnesota and in interstate commerce.
The principal executive office of IPC is located at 1000 Main Street,
Dubuque, Iowa 52001, telephone number (319) 582-5421.
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CERTAIN BUSINESS RELATIONSHIPS BETWEEN WPLH, IES AND IPC
In the normal course of business, WP&L, Utilities and IPC buy and sell
electric power from and to each other in arm's-length transactions pursuant to
filed rate schedules. In addition, from time to time, a subsidiary of
Diversified has provided WP&L with barge service across the Mississippi River to
facilitate the delivery of coal to WP&L's generating facilities. IPC also has
contracted with a subsidiary of HDC for certain energy brokerage services.
INTERSTATE ENERGY FOLLOWING THE MERGERS
No later than the Effective Time, subject to approval of the Name Change
Amendment at the WPLH Meeting, WPLH will change its name to "Interstate Energy
Corporation." Interstate Energy will be the parent of IPC or New IPC, as the
case may be, and the operating subsidiaries of both WPLH and IES. The
headquarters of Interstate Energy will be in Madison, Wisconsin. The utility
subsidiaries of Interstate Energy will serve more than 870,000 electric
customers and 360,000 natural gas customers, and its service territory will
include portions of Wisconsin, Iowa, Illinois and Minnesota. The business of
Interstate Energy will consist of owning utilities and various non-utility
subsidiaries. WPLH, IES and IPC recognize that the divestiture of their existing
gas operations and certain non-utility operations is a possibility under the new
registered holding company structure, but are seeking approval from the SEC to
maintain such businesses. See "Regulatory Matters."
MANAGEMENT OF INTERSTATE ENERGY
Pursuant to the Merger Agreement, at the Effective Time, the Interstate
Energy Board will consist of fifteen members, six members of which will be
designated by WPLH, including Mr. Davis, six members of which will be designated
by IES, including Mr. Liu, and three members of which will be designated by IPC,
including Mr. Stoppelmoor. It is anticipated that simultaneously with the
Mergers, all but six of the WPLH directors then in office will resign and the
remaining WPLH directors will increase the size of the Interstate Energy Board
to fifteen and appoint the six persons designated by the IES Board and the three
persons designated by the IPC Board to fill the nine resulting vacancies. WPLH
and IES will each designate two directors and IPC will designate one director
for each of Classes I and II of the Interstate Energy Board. Class III directors
will consist of Messrs. Liu, Davis and Stoppelmoor, as well as one additional
designee of each of WPLH and IES. To date, WPLH, IES and IPC have not determined
which individuals, in addition to Messrs. Liu, Davis and Stoppelmoor, will be
designated to serve as directors of Interstate Energy as of the Effective Time.
Each designee shall serve for a term equal to the remaining balance of the
three-year term of the class of directors in which such designee shall serve. At
each annual shareowners' meeting after the Effective Time, the number of
directors equal to the number of the class whose term expires at the time of the
meeting shall be elected for a term of three years. See "The Merger Agreement --
Interstate Energy Board of Directors."
At the Effective Time, Mr. Liu will be Chairman of Interstate Energy, Mr.
Davis will be President and Chief Executive Officer of Interstate Energy, Mr.
Stoppelmoor will be Vice Chairman of Interstate Energy and Mr. Chase will be
President of IPC or New IPC, as the case may be. Each of Mr. Liu, Mr. Davis, Mr.
Stoppelmoor and Mr. Chase will have an employment agreement with Interstate
Energy or its subsidiaries following the Mergers. See "The Mergers -- Employment
Agreements." At the Effective Time, Mr. Ahearn will be President and Chief
Operating Officer of the holding company for the non-utility business of
Interstate Energy.
OPERATIONS
After the Mergers, WP&L, Utilities or New Utilities, as the case may be, and
IPC or New IPC, as the case may be, will operate as the principal subsidiaries
of Interstate Energy. The headquarters of the three utilities will remain in
their current locations.
Except for the transfer of WP&L's water utility business in Wisconsin to New
Utilities and New IPC in the event that the IPC Reincorporation Merger and the
Utilities Reincorporation Merger are effected, the utility operations of WP&L,
Utilities and IPC will continue and will be unaffected by
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consummation of the Mergers. The Wisconsin water utility business of WP&L will
be transferred to New Utilities and New IPC immediately after consummation of
the Mergers in the event that the IPC Reincorporation Merger and the Utilities
Reincorporation Merger are effected. Upon receipt of the necessary approvals
from the FERC and applicable state regulators and on or following the Effective
Time, WP&L, Utilities or New Utilities, as the case may be, and IPC or New IPC,
as the case may be, expect to enter into a power purchase agreement and
agreements providing for the integrated operation (including joint dispatch) of
their systems and expect to become parties to a coordination agreement, whereby
costs of generating capacity and transmission will be shared. The integration of
the WP&L, Utilities or New Utilities, as the case may be, and IPC or New IPC, as
the case may be, generating capacity should increase the ability of these
companies to meet demands for electricity within the territories each serves. It
is also anticipated that a single administrative and support system will be
established following the Mergers.
The non-utility operations of WPLH are presently conducted through HDC, and
most of the non-utility operations of IES are presently conducted through
Diversified. Following the Mergers, it is anticipated that HDC and Diversified
will be combined into one entity to manage the diversified operations of
Interstate Energy.
DIVIDENDS
It is anticipated that Interstate Energy will retain WPLH's then current
common share dividend. Based on the dividend paid for the first quarter of 1996,
WPLH's annualized dividend rate is currently $1.97 per share, IES currently pays
$2.10 per share annually and IPC's annual dividend rate is currently $2.08 per
share. However, no assurance can be given that such dividend rate will be in
effect or will remain unchanged, and Interstate Energy reserves the right to
increase or decrease its dividend as may be required by law or contract or as
may be determined by the Interstate Energy Board, in its discretion, to be
advisable. Declaration and timing of dividends on Interstate Energy Common Stock
will be a business decision to be made by the Interstate Energy Board from time
to time based upon the results of operations and financial condition of
Interstate Energy and its subsidiaries and such other business considerations as
the Interstate Energy Board considers relevant in accordance with applicable
laws. For a description of certain restrictions on Interstate Energy's ability
to pay dividends on the Interstate Energy Common Stock, see "Description of
Interstate Energy Capital Stock."
EXPERTS
The consolidated financial statements and schedules of WPLH at December 31,
1995 and 1994 and for each of the three years in the period ending December 31,
1995 incorporated by reference in this Joint Proxy Statement/Prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The consolidated financial statements and schedule of IES at December 31,
1995 and 1994 and for each of the three years in the period ending December 31,
1995 incorporated by reference in this Joint Proxy Statement/Prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The financial statements and the related financial statement schedule of IPC
at December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995 incorporated in this Joint Proxy Statement/Prospectus by
reference from IPC's Annual Report on Form 10-K for the year ended December 31,
1995 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
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LEGAL MATTERS
Foley & Lardner, Milwaukee, Wisconsin, will pass upon the legality of the
shares of Interstate Energy Common Stock and the shares of New IPC Preferred
Stock, if any, to be issued in connection with the Mergers.
SHAREOWNER PROPOSALS
In order to be eligible to be considered for inclusion in WPLH's proxy
materials relating to the WPLH annual shareowner meeting in 1997, any shareowner
proposal intended to be presented at that meeting must be received at the
principal office of WPLH on or before November 20, 1996.
In order to be eligible to be considered for inclusion in IES's proxy
materials relating to the IES annual shareowner meeting in 1997, any shareowner
proposal intended to be presented at that meeting must be received at the
principal office of IES on or before on or before November 20, 1996.
In order to be eligible to be considered for inclusion in IPC's proxy
materials relating to the IPC annual shareowner meeting in 1997, any shareowner
proposal intended to be presented at that meeting must be received at the
principal office of IPC on or before on or before November 20, 1996.
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ELECTION OF WPLH DIRECTORS
Three directors are to be elected at the WPLH Meeting. Rockne G. Flowers,
Katharine C. Lyall and Henry C. Prange are nominees to hold office for a term
expiring at the 1999 Annual Meeting of Shareowners of WPLH or until their
successors have been duly elected and qualified.
The proxies solicited may be voted for a substitute nominee or nominees in
the event that any of the nominees shall be unable to serve, or for good reason
will not serve, a contingency not now anticipated.
Brief biographies of the director nominees and continuing directors follow.
These biographies include their age (as of December 31, 1995), an account of
their business experience, and the names of publicly-held and certain other
corporations of which they are also directors. Except as otherwise indicated,
each nominee and continuing director has been engaged in his or her present
occupation for at least the past five years.
NOMINEES
THE WPLH BOARD RECOMMENDS THE FOLLOWING NOMINEES FOR ELECTION AS DIRECTORS
AND URGES EACH SHAREOWNER TO VOTE "FOR" ALL NOMINEES. SHARES OF WPLH COMMON
STOCK REPRESENTED BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR" ALL
NOMINEES.
<TABLE>
<S> <C>
ROCKNE G. FLOWERS Principal Occupation: President and Director of Nelson Industries,
Inc. (a muffler, filter, industrial silencer, and active sound and
(Photo) vibration control technology and manufacturing firm), Stoughton,
Wisconsin.
Age: 64
Served as director since 1981
Annual Meeting at which nominated term of office will expire: 1999
OTHER INFORMATION: Mr. Flowers has served as a director of WP&L since 1994. He previously
served as a director of WP&L from 1979 to 1990. Mr. Flowers is also a director of RMT, Inc.,
a subsidiary of HDC; Digisonix, Inc.; American Family Mutual Insurance Company; Janesville
Sand and Gravel Company; M&I Madison Bank; Meriter Health Services, Inc.; Meriter Hospital;
and the Wisconsin History Foundation. He is also a member of the University of
Wisconsin-Madison School of Business Board of Visitors.
KATHARINE C. LYALL Principal Occupation: President, University of Wisconsin System,
Madison, Wisconsin.
(Photo) Age: 54
Served as director from 1986 to 1990 and since 1994
Annual Meeting at which nominated term of office will expire: 1999
OTHER INFORMATION: Ms. Lyall has served as President of the University of Wisconsin System
since April 1992. Prior to becoming President, she served as Executive Vice President of the
University of Wisconsin System. Ms. Lyall has served as a director of WP&L since 1986. She
also serves on the Board of Directors of the Kemper National Insurance Companies and the
Carnegie Foundation for the Advancement of Teaching. She is a member of a variety of
professional and community organizations, including the American Economic Association; the
Association of American Universities (currently serving on the executive committee); the
Wisconsin Academy of Sciences, Arts and Letters; the American Red Cross (Dane County);
Competitive Wisconsin, Inc.; and Forward Wisconsin. In addition to her administrative
position, she is a professor of economics at the University of Wisconsin-Madison.
</TABLE>
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<TABLE>
<S> <C>
HENRY C. PRANGE Principal Occupation: Retired Chairman of the Board, H. C. Prange
Company (retail stores), Green Bay, Wisconsin.
(Photo) Age: 68
Served as director since 1986
Annual Meeting at which nominated term of office will expire: 1999
OTHER INFORMATION: Mr. Prange has served as a director of WP&L since 1965.
CONTINUING DIRECTORS
L. DAVID CARLEY Principal Occupation: Consultant to institutions and associations in
higher education and health delivery; financial advisor to small
(Photo) businesses.
Age: 67
Served as director from 1986 to 1990 and since 1994
Annual Meeting at which current term of office will expire: 1998
OTHER INFORMATION: Mr. Carley has served as a director of WP&L from 1975 to 1977, and again
since 1983. He is also a trustee of the Kennedy Presidential Library, and is the Chairman of
the Board of Alliance Therapies Inc., a health rehabilitation firm.
ERROLL B. DAVIS, JR. Principal Occupation: President and Chief Executive Officer of WPLH;
President and Chief Executive Officer of WP&L; Chairman of the Board
(Photo) of HDC.
Age: 51
Served as director since 1982
Annual Meeting at which current term of office will expire: 1997
OTHER INFORMATION: Mr. Davis was elected President of WPLH in January 1990, and was elected
President and Chief Executive Officer of WPLH effective July 1, 1990. He has served as a
director of WP&L since 1984. Mr. Davis joined WP&L in August 1978 and was elected President
in July 1987. He was elected to his current position with WP&L in August 1988. Mr. Davis was
elected Chairman of the Board of HDC effective July 1, 1990. He is a director of the Edison
Electric Institute, the Association of Edison Illuminating Companies, Amoco Oil Company,
Competitive Wisconsin, Inc., Electric Power Research Institute, PPG Industries, Inc., Sentry
Insurance Company (a mutual company), and the Wisconsin Utilities Association. Mr. Davis is
also a director and immediate past chair of the Wisconsin Association of Manufacturers and
Commerce and a director and vice chair of Forward Wisconsin.
</TABLE>
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<TABLE>
<S> <C>
DONALD R. HALDEMAN Principal Occupation: Executive Vice President and Chief Executive
Officer, Rural Insurance Companies (a mutual group), Madison,
(Photo) Wisconsin.
Age: 59
Served as director from 1986 to 1990 and since 1994
Annual Meeting at which current term of office will expire: 1998
OTHER INFORMATION: Mr. Haldeman has served as a director of WP&L since 1985. Mr. Haldeman
is also a director of Competitive Wisconsin, Inc., and a member of the Board of Directors of
the Natural Resources Foundation of Wisconsin, Inc.
ARNOLD M. NEMIROW Principal Occupation: President and Chief Executive Officer, Bowater,
Inc. (a pulp and paper manufacturer), Greenville, South Carolina.
(Photo) Age: 52
Served as director since 1991
Annual Meeting at which current term of office will expire: 1998
OTHER INFORMATION: Mr. Nemirow served as President, Chief Executive Officer and Director of
Wausau Paper Mills Company, a pulp and paper manufacturer, from 1990 until joining Bowater,
Inc., in September 1994. Mr. Nemirow has served as a director of WP&L since 1994. He is a
member of the New York Bar.
MILTON E. NESHEK Principal Occupation: President, Chief Executive Officer and Director
of the law firm of Godfrey, Neshek, Worth, and Leibsle, S.C.,
(Photo) Elkhorn, Wisconsin, and General Counsel, Assistant Secretary and
Manager, New Market Development, Kikkoman Foods, Inc. (a food
products manufacturer), Walworth, Wisconsin.
Age: 65
Served as director since 1986
Annual Meeting at which current term of office will expire: 1997
OTHER INFORMATION: Mr. Neshek has served as a director of WP&L since 1984. Mr. Neshek is a
director of HPI and Capital Square Financial Corporation, a subsidiary of HDC. He is also a
director of Kikkoman Foods, Inc.; Midwest U.S.-Japan Association; Regional Transportation
Authority (for southeast Wisconsin); and Wisconsin-Chiba, Inc. Mr. Neshek was the Chairman
of the Governor's Commission on University of Wisconsin System Compensation from 1991
through 1995 and is a former member of the University of Wisconsin Accountability Task
Force. He is a fellow in the American College of Probate Counsel. Mr. Neshek is active in
the Walworth County Bar Association and the State Bar of Wisconsin and is a member of the
Wisconsin Sesquicentennial Commission.
</TABLE>
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<TABLE>
<S> <C>
JUDITH D. PYLE Principal Occupation: Vice Chair and Senior Vice President of
Corporate Marketing of Rayovac Corporation (a battery and lighting
(Photo) products manufacturer), Madison, Wisconsin.
Age: 52
Served as a director since 1992
Annual Meeting at which current term of office will expire: 1998
OTHER INFORMATION: Ms. Pyle has served as a director of WP&L since 1994. Ms. Pyle is also a
director of Rayovac Corporation, Firstar Corporation, and Oshkosh B'Gosh. She is also a
member of the Board of Visitors at the University of Wisconsin School of Business and the
School of Family Resources and Consumer Sciences. Further, Ms. Pyle is a member of Boards of
Directors of the United Way Foundation, Greater Madison Chamber of Commerce, Madison Art
Center, and Wisconsin Taxpayers Alliance, and is a trustee of the White House Endowment
Fund.
CAROL T. TOUSSAINT Principal Occupation: Consultant
Age: 66
(Photo) Served as director from 1986 to 1990 and since 1994
Annual Meeting at which current term of office will expire: 1997
OTHER INFORMATION: Mrs. Toussaint has served as a director of WP&L since 1976. She is a
Senior Associate of Hayes Briscoe, a national fund development firm. She also works as an
independent consultant to nonprofit organizations and operates a lecture program business.
She is a member of the President's Advisory Council on the Arts of the Kennedy Center for
the Performing Arts, and serves on the Board of Governors of the Madison Community
Foundation and as Vice Chair of the Madison Rotary Foundation. Mrs. Toussaint also serves as
a director of the Evjue Foundation, the Madison Civic Center Foundation and the Wisconsin
History Foundation. At the University of Wisconsin-Madison, she serves as a director of the
Research Park, the School of Business Dean's Advisory Board and the Foundation's Council on
Women's Giving, and as a director of the Alumni Association and convener of its Cabinet 99
Women's Initiative.
</TABLE>
APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors of WPLH recommends the
reappointment of Arthur Andersen LLP, independent public accountants, as
auditors to examine the consolidated financial statements of WPLH for 1996.
Arthur Andersen LLP served as auditors for WPLH in 1995.
A representative of Arthur Andersen LLP will be present at the meeting and
available to make a statement or to respond to questions, as appropriate.
THE WPLH BOARD RECOMMENDS A VOTE "FOR" THE REAPPOINTMENT OF ARTHUR ANDERSEN
LLP. SHARES OF WPLH COMMON STOCK REPRESENTED BY EXECUTED BUT UNMARKED PROXIES
WILL BE VOTED "FOR" SUCH REAPPOINTMENT.
MEETINGS AND COMMITTEES OF THE WPLH BOARD
The WPLH Board has standing Audit, Compensation and Personnel, and
Nominating Committees. A description of the duties of each committee and
meetings held during 1995 follows.
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AUDIT COMMITTEE
As of January 1, 1995, the committee consisted of L. Aspin, L. D. Carley, R.
G. Flowers, D. R. Haldeman, H. F. Scheig, and K. C. Lyall (Chair). Mr. Scheig
retired as a director effective May 17, 1995. Mr. Aspin passed away on May 21,
1995. The committee held two meetings in 1995. The committee recommends to the
shareowners the independent auditors to be elected; reviews the reports and
comments of the independent auditors; reviews the activities and reports of
WPLH's internal audit staff; and, in response to the reports and comments of
both the independent auditors and internal auditors, recommends to the WPLH
Board any action which the Audit Committee considers appropriate.
COMPENSATION AND PERSONNEL COMMITTEE
As of January 1, 1995, the committee consisted of A. M. Nemirow, M. E.
Neshek (Chair), H. C. Prange, J. D. Pyle, and C. T. Toussaint. On May 17, 1995,
Mr. Nemirow became Chair of the Committee. The committee held six meetings in
1995. The committee sets executive compensation policy; reviews the performance
of and approves salaries for officers and certain other management personnel;
reviews and recommends to the WPLH Board new or changed employee benefit plans;
reviews major provisions of negotiated employment contracts, if any; and reviews
human resource development programs.
NOMINATING COMMITTEE
As of January 1, 1995, the committee consisted of L. Aspin, R. G. Flowers,
K. C. Lyall, A. M. Nemirow (Chair), H. C. Prange, and J. D. Pyle. As of May 17,
1995, Mr. L. D. Carley was added to the Nominating Committee and was elected as
Chair. Mr. Aspin passed away on May 21, 1995. The committee held two meetings in
1995. The committee's responsibilities include making recommendations to the
WPLH Board for nominees for election to the WPLH Board. In making
recommendations of nominees for election to the WPLH Board, the Nominating
Committee will consider nominees recommended by shareowners. Any shareowner
wishing to make a recommendation should write the Chief Executive Officer of
WPLH, who will forward all recommendations to the Nominating Committee.
The WPLH Board held eleven meetings during 1995. No director attended less
than 76% of the aggregate number of meetings of the WPLH Board and board
committees on which they served.
COMPENSATION OF DIRECTORS
No fees are paid to directors who are officers of WPLH and/or any of its
subsidiaries (presently Mr. Davis). Nonmanagement directors, each of whom serve
on the Boards of WPLH, WP&L, and HDC, receive an annual retainer of $32,800 for
service on all three boards. Travel expenses are paid for each meeting day
attended. All nonmanagement directors also receive a 25% matching contribution
in WPLH Common Stock for limited optional cash purchases, up to $10,000, of WPLH
Common Stock through the WPLH DRIP. Matching contributions of $2,500 each for
calendar year 1995 were made for the following directors: L. Aspin, L. D.
Carley, R. G. Flowers, D. R. Haldeman, K. C. Lyall, A. M. Nemirow, M. E. Neshek,
H. C. Prange, J. D. Pyle, H. F. Scheig and C. T. Toussaint.
DIRECTOR'S CHARITABLE AWARD PROGRAM -- WPLH maintains a Director's
Charitable Award Program for the nonmanagement members of the WPLH Board
beginning after three years of service. The purpose of the program is to
recognize the interest of WPLH and its directors in supporting worthy
institutions, and enhance WPLH's director benefit program so that WPLH is able
to continue to attract and retain directors of the highest caliber. Under the
program, when a director dies, WPLH will donate a total of $500,000 to one
qualified charitable organization, or divide that amount among a maximum of four
qualified charitable organizations, selected by the individual director. The
individual director derives no financial benefit from the program. All
deductions for charitable contributions are taken by WPLH, and the donations are
funded by WPLH through life insurance policies on the
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directors. Over the life of the program, all costs of donations and premiums on
the life insurance policies, including a return of WPLH's cost of funds, will be
recovered through life insurance proceeds on the directors. The program, over
its life, will not result in any material cost to WPLH.
DIRECTOR'S LIFE INSURANCE PROGRAM -- WPLH maintains a split-dollar
Director's Life Insurance Program for nonemployee directors, beginning after
three years of service, which provides a maximum death benefit of $500,000 to
each eligible director. Under the split-dollar arrangement, directors are
provided a death benefit only and do not have any interest in the cash value of
the policies. The Life Insurance Program is structured to pay a portion of the
total death benefit to WPLH to reimburse WPLH for all costs of the program,
including a return on its funds. The Life Insurance Program, over its life, will
not result in any material cost to WPLH.
OWNERSHIP OF VOTING SECURITIES
Listed in the following table are the shares of WPLH Common Stock owned by
the executive officers listed in the Summary Compensation Table and all
directors of WPLH, as well as the number of shares owned by directors and
officers as a group as of June 1, 1996. The table also sets forth each person
known by WPLH to beneficially own as of June 1, 1996 five percent or more of the
outstanding shares of WPLH Common Stock.
<TABLE>
<CAPTION>
SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- --------------------------------------------------------------------------------- ------------------ ------------
<S> <C> <C>
Executive (1)
Lance W. Ahearn................................................................ 22,997(2) *
A. J. (Nino) Amato............................................................. 2,389(3) *
William D. Harvey.............................................................. 7,393(3) *
Eliot G. Protsch............................................................... 8,344(3) *
Director Nominees
Rockne G. Flowers.............................................................. 7,863 *
Katharine C. Lyall............................................................. 4,859 *
Henry C. Prange................................................................ 9,792(3) *
Continuing Directors
L. David Carley................................................................ 3,623 *
Erroll B. Davis, Jr............................................................ 10,486(3)(4) *
Donald R. Haldeman............................................................. 3,510 *
Arnold M. Nemirow.............................................................. 6,814 *
Milton E. Neshek............................................................... 10,656 *
Judith D. Pyle................................................................. 4,592 *
Carol T. Toussaint............................................................. 8,947 *
All Executives and Directors as a Group
27 people, including those listed above......................................... 129,364 *
Other Beneficial Owners (5)
IES............................................................................ 6,123,944 16.6%
IPC............................................................................ 6,123,944 16.6%
</TABLE>
- ------------------------
* Less than one percent of the total outstanding shares of WPLH Common Stock.
(1) Stock ownership of Mr. Davis is shown with continuing directors.
(2) Prior to April 1, 1996, Mr. Ahearn owned 5 shares of HDC common stock
subject to the terms of a Restricted Stock Agreement with HDC and WPLH.
Pursuant to such agreement, Mr. Ahearn exchanged one-third of his shares of
HDC common stock for WPLH Common Stock on April 1, 1996. Based on the terms
of the agreement and the most recent available appraisal of HDC, pursuant to
which the exchange ratio is calculated, Mr. Ahearn received 21,672 shares of
WPLH Common Stock in exchange for one-third of his HDC shares. Mr. Ahearn's
beneficial ownership
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reflected in the table above includes the shares of WPLH Common Stock he
received pursuant to such an exchange. It is currently anticipated that HDC
will also repurchase an additional 1.80 HDC shares from Mr. Ahearn at the
most recent per share appraised value.
(3) Included in the beneficially owned shares shown are the following indirect
ownership interests with shared voting and investment powers: Mr. Amato --
880; Mr. Harvey -- 1,558; Mr. Protsch -- 394; Mr. Davis -- 4,602; and Mr.
Prange -- 248.
(4) Mr. Davis has been awarded 1.67 shares of HDC common stock subject to a
Restricted Stock Agreement with HDC and WPLH.
(5) By reason of the Stock Option Agreements, each of IES and IPC may be deemed
to have sole voting and dispositive power with respect to the shares listed
above which are subject to their respective Options from WPLH and,
accordingly, each of IES and IPC may be deemed to beneficially own all of
such shares (assuming exercise of its Option and the nontriggering of the
other party's right to exercise its Option for WPLH Common Stock). However,
each of IES and IPC expressly disclaim any beneficial ownership of such
shares because the Options are exercisable only in certain circumstances.
See "The Stock Option Agreements."
COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth the total compensation
paid by WPLH and its subsidiaries for all services rendered during 1995, 1994,
and 1993 to the Chief Executive Officer and the four other most highly
compensated executive officers of WPLH or its subsidiaries who perform policy
making functions for WPLH.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------
AWARDS
--------------------------
ANNUAL COMPENSATION SECURITIES
----------------------------------------- RESTRICTED UNDERLYING
NAME AND OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY (1) BONUS COMPENSATION (2) AWARDS (3) SARS (4) COMPENSATION (5)
- -------------------- --------- ----------- --------- ----------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Erroll B. Davis, Jr. 1995 $ 426,038 $ 125,496 $ 18,963 $ 0 13,100 $ 61,513
President and CEO 1994 426,038 128,232 14,958 272,000 0 57,723
1993 427,616 115,796 10,262 0 0 55,674
William D. Harvey 1995 203,846 47,340 5,746 0 4,700 23,534
Senior Vice 1994 193,654 56,080 5,203 0 0 22,632
President- 1993 168,962 42,104 4,152 0 0 24,003
WP&L
Eliot G. Protsch 1995 200,000 47,520 4,169 0 4,700 20,178
Senior Vice 1994 190,000 56,080 3,930 0 0 18,346
President- 1993 154,549 42,104 3,194 0 0 15,371
WP&L
Lance W. Ahearn 1995 195,000 34,125 3,814 0 0 29,663
President and 1994 186,533 33,576 0 0 0 30,811
CEO-HDC 1993 170,500 84,609 0 0 0 3,570
Anthony J. Amato 1995 156,804 40,046 5,144 0 3,650 18,059
Senior Vice 1994 152,885 43,138 5,328 0 0 17,021
President- 1993 140,769 33,240 4,181 0 0 17,842
WP&L
</TABLE>
- ------------------------
(1) Includes vacation days sold back to WPLH.
(2) For all except Mr. Davis, amounts for 1995 consist of income tax gross-ups
for reverse split-dollar life insurance. For Mr. Davis, amount for 1995
consists of income tax gross-ups for (a) reverse split-dollar life insurance
- $14,352, and (b) financial counseling benefit - $4,611.
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(3) The restricted stock award to Mr. Davis consists of 1.67 shares of HDC
common stock which had an estimated net book value of $269,132 at December
31, 1995. Dividends are not paid on Mr. Davis' restricted stock. These
shares vest at a rate of 0.4175 shares per year beginning on December 21,
1994, and will be fully vested on March 31, 1997, subject to earlier vesting
in certain cases. These shares are subject to transfer restrictions in
accordance with a Restricted Stock Agreement between WPLH, HDC and Mr.
Davis. WPLH loaned to Mr. Davis $125,053 which equals the income taxes
withheld in connection with shares vested as of December 31, 1995. Mr. Davis
is charged interest on the loan at the prime rate.
(4) Stock option grants made in 1995 were in combination with contingent
dividend awards as described in the table entitled "Long-Term Incentive
Awards in 1995."
(5) All Other Compensation for 1995 consists of: matching contributions to
401(k) plan, Mr. Davis -- $12,781, Mr. Harvey -- $6,202, Mr. Protsch --
$6,000, Mr. Ahearn -- $4,620 and Mr. Amato $4,704; financial counseling
benefit, Mr. Davis -- $5,000; split dollar life insurance premiums, Mr.
Davis -- $28,171, Mr. Harvey -- $11,102, Mr. Protsch -- $9,669, Mr. Ahearn
-- $18,002, and Mr. Amato -- $6,908; reverse split dollar life insurance,
Mr. Davis -- $15,561, Mr. Harvey -- $6,230, Mr. Protsch -- $4,509, Mr.
Ahearn -- $7,041, and Mr. Amato -- $6,447. The split dollar and reverse
split dollar insurance premiums are calculated using the "foregone interest"
method.
STOCK OPTIONS
WPLH has in effect the WPLH Long-Term Equity Incentive Plan pursuant to
which, among other awards, options to purchase WPLH Common Stock may be granted
to key employees (including executive officers) of WPLH and its subsidiaries.
The following table sets forth certain information concerning stock options
granted during 1995 to the executive officers named in the Summary Compensation
Table.
OPTION/SAR GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS
------------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS/ SARS STOCK APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM (2)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED (1) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ----------------------------------------- --------------- --------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Erroll B. Davis, Jr...................... 13,100 31% 27.50 1/3/05 226,630 574,304
William D. Harvey........................ 4,700 11% 27.50 1/3/05 81,310 206,048
Eliot G. Protsch......................... 4,700 11% 27.50 1/3/05 81,310 206,048
Lance W. Ahearn.......................... NA NA NA NA NA NA
Anthony J. Amato......................... 3,650 9% 27.50 1/3/05 63,145 160,016
</TABLE>
- ------------------------
(1) Consists of non-qualified stock options to purchase shares of WPLH Common
Stock granted pursuant to WPLH's Long-Term Equity Incentive Plan. Options
were granted on January 3, 1995, and will fully vest on January 3, 1998.
These options were granted with an equal number of contingent dividend
awards as described in the table entitled "Long-Term Incentive Awards in
1995" and have per share exercise prices equal to the fair market value of a
share of WPLH Common Stock on the date of grant. Upon a "change in control"
of WPLH as defined in the Long-Term Equity Incentive Plan or upon
retirement, disability or death of the option holder, these options shall
become immediately exercisable. Upon exercise of an option, the optionee
purchases all or a portion of the shares covered by the option by paying the
exercise price multiplied by the number of shares as to which the option is
exercised, either in cash or by surrendering shares of WPLH Common Stock
already owned by the optionee.
(2) The hypothetical potential appreciation shown for the named executives is
required by the SEC rules. The amounts shown do not represent either the
historical or expected future performance
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of WPLH Common Stock. For example, in order for the named executives to
realize the potential values set forth in the 5% and 10% columns in the
table above, the price per share of WPLH's Common Stock would be $44.80 and
$71.34, respectively, as of the expiration date of the options.
The following table provides information for the executive officers named in
the Summary Compensation Table regarding the number and value of unexercised
options. No options were exercised by such officers during 1995.
OPTION/SAR EXERCISES IN 1995 AND
OPTION/SAR VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS/SARS AT YEAR
OPTIONS/SARS AT YEAR END END (1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Erroll B. Davis, Jr....................................... 0 13,100 0 $ 40,938
William D. Harvey......................................... 0 4,700 0 14,688
Eliot G. Protsch.......................................... 0 4,700 0 14,688
Lance W. Ahearn........................................... NA NA NA NA
Anthony J. Amato.......................................... 0 3,650 0 11,406
</TABLE>
- ------------------------
(1) Based on the closing per share price on December 29, 1995 of WPLH Common
Stock of $30 5/8.
LONG-TERM INCENTIVE AWARDS
The following table provides information concerning long-term incentive
awards made in 1995 to the executive officers named in the Summary of
Compensation Table.
LONG-TERM INCENTIVE AWARDS IN 1995
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF SHARES, OR OTHER NON-STOCK PRICE-BASED PLANS (2)
UNITS OR OTHER PERIOD UNTIL ---------------------------------
RIGHTS MATURATION THRESHOLD TARGET MAXIMUM
NAME (#)(1) OR PAYOUT ($) ($) ($)
- ----------------------- ----------------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Erroll B. Davis, Jr. 13,100 1/3/98 61,622 77,028 134,799
William D. Harvey 4,700 1/3/98 22,109 27,636 48,363
Eliot G. Protsch 4,700 1/3/98 22,109 27,636 48,363
Lance W. Ahearn NA NA NA NA NA
Anthony J. Amato 3,650 1/3/98 17,170 21,462 37,559
</TABLE>
- ------------------------
(1) Consists of Performance Units awarded under WPLH's Long-Term Equity
Incentive Plan in combination with stock options (as described in the table
entitled "Option/SAR Grants in 1995"). These Performance Units are entirely
in the form of contingent dividends and will be paid if total shareowner
return over a three-year period ending January 3, 1998 equals or exceeds the
median return earned by the companies in a peer group of utility holding
companies, except that there will be no payment if WPLH's total return is
negative over the course of such period. If payable, each participant shall
receive an amount equal to the accumulated dividends paid on one share of
WPLH Common Stock during the period of January 3, 1995 through January 2,
1998 multiplied by the number of performance units awarded to the
participant, and modified by a performance multiplier which ranges from 0 to
1.75 based on WPLH total return relative to the peer group.
(2) Assumes, for purposes of illustration only, a two cent per share increase in
the annual dividend on shares of WPLH Common Stock for 1996 and 1997.
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CERTAIN TRANSACTIONS AND AGREEMENTS WITH EXECUTIVES
WPLH has entered into employment and severance agreements with certain of
its executive officers and certain executive officers of its subsidiaries,
including Messrs. Davis, Harvey, Protsch, Ahearn and Amato. For a description of
these agreements, see "The Mergers -- Interests of Certain Persons in the
Mergers -- Severance Agreements."
WPLH and HDC also entered into a Restricted Stock Agreement with Mr. Davis
in relation to the award to Mr. Davis in 1994 of 1.67 shares of HDC common stock
as shown in the Summary Compensation Table. (See footnote 3 to the Summary
Compensation Table for additional information on the award of HDC stock to Mr.
Davis.) The agreement restricts the transfer of the HDC stock awarded to Mr.
Davis and gives HDC the right of first refusal on any proposed transfer of the
stock, at prices per share as determined in accordance with the agreement. The
agreement also provides for the sale of the stock by Mr. Davis to HDC in the
event of a sale of HDC, and, beginning on March 31, 1997, provides for the
conversion of the HDC stock into WPLH Common Stock over a period of five years
at a ratio as determined in accordance with the agreement.
WPLH and HDC also have in place a Restricted Stock Agreement with Mr. Ahearn
in connection with an award to Mr. Ahearn of five shares of HDC common stock in
1991. The final portion of Mr. Ahearn's restricted stock vested in 1994. The
provisions of the agreement with Mr. Ahearn are similar to the provisions of the
agreement with Mr. Davis. HDC has loaned to Mr. Ahearn an amount of $485,401
which equals the income taxes withheld in connection with HDC shares awarded to
him. Mr. Ahearn is charged interest on the loan at the prime rate. It is
currently anticipated that HDC will repurchase 1.80 shares of HDC common stock
from Mr. Ahearn at the most recent per share value, as determined by an
independent appraiser selected by the Compensation and Personnel Committee of
the WPLH Board and Mr. Ahearn.
RETIREMENT AND EMPLOYEE BENEFIT PLANS
Salaried employees (including officers) of WPLH and WP&L are eligible to
participate in a Retirement Plan maintained by WP&L. Mr. Ahearn is not eligible
to participate in the plan. All of the other executive officers named in the
Summary Compensation Table participated in the plan during 1995. Contributions
to the plan are determined actuarially, computed on a straight-life annuity
basis, and cannot be readily calculated as applied to any individual participant
or small group of participants. For purposes of the plan, compensation means
payment for services rendered, including vacation and sick pay, and is
substantially equivalent to the salary amounts reported in the foregoing Summary
Compensation Table. Retirement Plan benefits depend upon length of plan service
(up to a maximum of 30 years), age at retirement, and amount of compensation
(determined in accordance with the plan) and are reduced by up to 50 percent of
Social Security benefits. Credited years of service under the plan for covered
persons named in the foregoing Summary Compensation Table are as follows: Mr.
Davis, 16 years; Mr. Protsch, 16 years; Mr. Amato, 9 years; and Mr. Harvey, 8
years. Assuming retirement at age 65, a Retirement Plan participant (in
conjunction with the Unfunded Supplemental Retirement Plan described below)
would be eligible at retirement for a maximum annual retirement benefit as
follows:
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RETIREMENT PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE ANNUAL BENEFIT AFTER SPECIFIED YEARS IN PLAN*
ANNUAL ------------------------------------------------------------------------
COMPENSATION 5 10 15 20 25 30
- ------------- --------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 125,000 $ 10,210 $ 20,421 $ 30,631 $ 40,841 $ 51,052 $ 61,262
150,000 12,502 25,004 37,506 50,008 62,510 75,012
200,000 17,085 34,171 51,256 68,341 85,427 102,512
250,000 21,669 43,337 65,006 86,675 108,343 130,012
300,000 26,252 52,504 78,756 105,008 131,260 157,512
350,000 30,835 61,671 92,506 123,341 154,177 185,012
400,000 35,419 70,837 106,256 141,675 177,093 212,512
450,000 40,002 80,004 120,006 160,008 200,010 240,012
475,000 42,294 84,587 126,881 169,175 211,468 253,762
500,000 44,585 89,171 133,756 178,341 222,927 267,512
525,000 46,877 93,754 140,631 187,508 234,385 281,262
</TABLE>
- ------------------------
* Average annual compensation is based upon the average of the highest 36
consecutive months of compensation. The Retirement Plan benefits shown above
are net of estimated Social Security benefits and do not reflect any
deductions for other amounts. The annual retirement benefits payable are
subject to certain maximum limitations (in general, $120,000 for 1995 and
$120,000 for 1996) under the Internal Revenue Code. Under the Retirement Plan
and a supplemental survivors income plan, if a Retirement Plan participant
dies prior to retirement, the designated survivor of the participant is
entitled to a monthly income benefit equal to approximately 50 percent (100
percent in the case of certain executive officers and key management
employees) of the monthly retirement benefit which would have been payable to
the participant under the Retirement Plan if the participant had remained
employed by WPLH until eligible for normal retirement.
UNFUNDED SUPPLEMENTAL RETIREMENT PLAN -- WP&L maintains an Unfunded
Supplemental Retirement Plan which provides funds for payment of retirement
benefits above the limitations on payments from qualified pension plans in those
cases where an employee's retirement benefits exceed the qualified plan limits.
Additionally, the plan provides for payments of supplemental retirement benefits
to employees holding the position of Vice President or higher, who have been
granted additional months of service by the WPLH Board for purposes of computing
retirement benefits. The benefits payable under this plan are included in the
amounts disclosed in the Retirement Plan Table set forth above.
UNFUNDED EXECUTIVE TENURE COMPENSATION PLAN -- WP&L maintains an Unfunded
Executive Tenure Compensation Plan to provide incentive for key executives to
remain in the service of WP&L by providing additional compensation which is
payable only if the executive remains with WP&L until retirement (or other
termination if approved by the WPLH Board). Participants in the plan must be
designated by the Chief Executive Officer of WP&L and approved by the WP&L
Board. Mr. Davis was the only active participant in the plan as of December 31,
1995. The plan provides for monthly payments to a participant after retirement
(at or after age 65, or with approval of the WP&L Board, prior to age 65) for
120 months. The payments will be equal to 25 percent of the participant's
highest average salary for any consecutive 36-month period. If a participant
dies prior to retirement or before 120 payments have been made, the
participant's beneficiary will receive monthly payments equal to 50 percent of
such amount for 120 months in the case of death before retirement, or if the
participant dies after retirement, 50 percent of such amount for the balance of
the 120 months. Annual benefits of $104,500 would be payable to Mr. Davis upon
retirement, assuming he continues in WP&L's service until retirement at the same
salary as was in effect on December 31, 1995.
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REPORT OF THE COMPENSATION AND PERSONNEL COMMITTEE ON EXECUTIVE COMPENSATION
TO OUR SHAREOWNERS: The Compensation and Personnel Committee (the "WPLH
Committee") of the WPLH Board is comprised of five independent, nonemployee
directors who have no "interlocking" relationships, as defined by the SEC. The
WPLH Committee assesses the effectiveness and competitiveness of, approves the
design of, and administers executive compensation programs within a consistent
total compensation framework for WPLH. The WPLH Committee also reviews and
approves all salary arrangements and other remuneration for executives,
evaluates executive performance, and considers related matters. To support the
WPLH Committee in carrying out its mission, Hewitt Associates, an independent
consultant, is engaged to provide assistance in the development of comprehensive
executive compensation policies.
The WPLH Committee is committed to implementing a total compensation program
for executives which furthers WPLH's mission. The WPLH Committee, therefore,
adheres to the following compensation policies which are intended to facilitate
the achievement of WPLH's business strategies.
- Total compensation should enhance WPLH's ability to attract, retain, and
encourage the development of exceptionally knowledgeable and experienced
executives, upon whom, in large part, the successful operation and
management of WPLH depends.
- Base salary levels should be targeted at the median level paid to
executives of companies in their respective industry(ies).
- Incentive compensation programs should strengthen the relationship between
pay and performance by emphasizing variable, at-risk compensation that is
consistent with meeting predetermined WPLH, subsidiary, and individual
performance goals.
COMPONENTS OF COMPENSATION. The WPLH Committee relates total compensation
levels for WPLH's senior executives to the compensation paid to executives of
similar companies in their respective industry(ies). As WPLH is a diversified
utility holding company with both regulated and nonregulated operations,
comparison groups are customized to the respective industries in which an
executive is involved. Utility executives' pay is compared to that of executives
at utilities with similar operations in both the Midwest and national markets,
as well as to utilities with similar revenue levels, market capitalizations,
employment levels, and total shareowner returns. Compensation paid to holding
company executives, including Mr. Davis, is compared to the compensation paid by
the same utility comparison group. However, in order to recognize holding
company employees for increasing nonregulated business responsibilities,
benchmark data also are drawn from similarly sized diversified industrial
companies furnished by public survey data. For executives with sole
responsibilities in the nonregulated businesses, comparison group data reflect
the relevant mix of the nonregulated business operations.
The WPLH Committee has reviewed overall compensation levels and compared
them to the benchmarks established. It has been determined that total executive
compensation, including that for Mr. Davis, is in line with the median of the
comparison groups of companies.
The current elements of WPLH's executive compensation program are base
salary, short-term (annual) incentives and long-term (equity) incentives. These
elements are addressed separately below. In determining each component of
compensation, the WPLH Committee considers all elements of an executive's total
compensation package, including benefit and perquisite programs.
BASE SALARIES. The WPLH Committee annually reviews each executive's base
salary. Base salaries are targeted at the median of the executive's respective
industry market rate when comparing both utility and non-utility (general
industry) data. Base salaries are adjusted annually by the WPLH Committee to
recognize changes in market rate, varying levels of responsibility, prior
experience, breadth of knowledge as well as internal equity issues. Increases to
base salaries are driven primarily
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<PAGE>
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by market rate adjustments. Individual performance factors are not considered by
the WPLH Committee in setting base salaries. In 1995, executives did not receive
an across-the-board salary adjustment. Certain executives received base salary
increases in recognition of changes in current market rates. Mr. Davis did not
receive a base salary increase in 1995 as his salary level corresponded to the
median of the targeted market range. Greater emphasis was placed on the
opportunity for executives to increase their earnings through annual incentive
plans by exceeding specific strategic goals. Base pay adjustments are tied to
median market rate changes and will minimize across-the-board increases. During
1995, all executive salaries were reviewed for median market rate comparability
utilizing utility and general industry data contained in compensation surveys
published by Edison Electric Institute, American Gas Association and several
compensation consulting firms. Any recommended changes will be effective for
1996. Market rates will be reviewed annually.
SHORT-TERM INCENTIVES. The goal of short-term (annual) incentive programs
is to promote the WPLH Committee's pay-for-performance philosophy by providing
executives with direct financial incentives in the form of annual cash or stock
based bonuses to achieve corporate, subsidiary, and individual performance
goals. Annual bonus opportunities allow the WPLH Committee to communicate
specific goals that are of primary importance during the coming year and
motivate executives to achieve these goals. The WPLH Committee on an annual
basis reviews and approves the program's performance goals and the relative
weight assigned to each goal as well as targeted and maximum award levels. A
description of the short-term incentive programs available to executive officers
follows.
WP&L MANAGEMENT INCENTIVE PLAN -- The WP&L Management Incentive Plan (the
"WP&L MIP") covers utility executives and in 1995 was based on achieving annual
targets in several areas of overall corporate performance that include
profitability, operations and maintenance expense control, reduction in lost
time accidents, and achievement of electric service reliability standards.
Target and maximum bonus awards were set at the median of the utility market
levels. Targets were considered by the WPLH Committee to be achievable, but
require above-average performance from each of the executives. For 1995, the
threshold levels for all WP&L MIP performance categories were exceeded. Actual
payment of bonuses, as a percentage of annual salary, is determined by the level
of performance achieved in each category. Weighting factors are applied to the
percentage achievement under each category to determine overall performance. If
the threshold performance level is not reached, there is no bonus payment
associated with that particular category. Once the designated maximum
performance is reached, there is no additional payment. The actual percentage of
salary paid as a bonus, within the allowable range, is equal to the weighted
average percent achievement for all the performance categories. For example, if
the overall weighted performance achievement is 70%, the executive will receive
70% of his or her maximum allowable bonus award. The WP&L MIP awarded 64 percent
of its allowable maximum for 1995. Potential WP&L MIP awards for executives
range from 0 to 40 percent of annual salary. The WP&L MIP does not allow for
discretion in bonus determinations. Awards for 1995 under the WP&L MIP made to
top executives (other than to Mr. Davis and Mr. Ahearn) are shown in the Summary
Compensation Table.
HDC MANAGEMENT INCENTIVE PLAN -- Mr. Ahearn and selected other executives of
HDC are covered by the HDC Management Incentive Plan (the "HDC MIP") which is
based on achievement of specified combinations of net income and after-tax
return on capital invested in HDC and on achieving a number of other specific
HDC performance objectives which included the development of business strategies
for certain new ventures and restructuring and growth targets for existing
operating units. The incentive compensation plan for Mr. Ahearn consists of a
potential award maximum of 80 percent of his base salary; 75 percent associated
with performance in the net income and after-tax return category and 25 percent
for the achievement of specific personal performance goals. The actual payment
of bonuses as a percentage of annual salary is determined as described for the
WP&L MIP. In 1995, the threshold level of net profit and after-tax return was
not achieved so that there was no payout for this component. Mr. Ahearn did
exceed the minimum performance for his personal goals
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which resulted in a payout for this component. The HDC MIP awarded 22 percent of
its allowable maximum in 1995 solely based on performance in relation to the
preestablished objectives. Mr. Ahearn's award for 1995 under the HDC MIP is set
forth in the Summary Compensation Table.
WPLH MANAGEMENT INCENTIVE PLAN - Mr. Davis is covered by WPLH's Management
Incentive Plan (the "WPLH MIP"). Awards under the WPLH MIP are based on WP&L,
HDC and individual performance achievement in relation to predetermined goals.
For each plan year, the WPLH Committee will determine the performance
apportionment for Mr. Davis. In 1995 that apportionment was 50% for WP&L
performance, 25% for HDC performance and 25% for individual performance. WP&L
performance is measured based on the overall percentage achievement factor of
the corporate goals established for the WP&L MIP. HDC performance is measured
based on the overall percentage achievement of the 1995 return on capital and
net income matrix from the HDC plan. Individual performance is measured based on
the achievement of certain specific goals, which included strategy development
and implementation, established for Mr. Davis by the WPLH Committee. The 1995
WPLH MIP award range for Mr. Davis was from 0% to 70% of annual salary. The
actual payment of bonuses as a percentage of annual salary is determined as
described for the WP&L MIP. In 1995, the WPLH MIP provided a payment to Mr.
Davis as a result of the achievement of goals under the WP&L MIP as described
above and for achievement of the personal goals established by the WPLH
Committee. There was no payout under the HDC performance component. For 1995
performance, Mr. Davis' annual bonus payment represented 29% of his base salary,
as reflected in the Summary Compensation Table. Under the WPLH MIP, Mr. Davis
was awarded $125,496 solely in connection with 1995 performance as discussed
above. In the judgment of the WPLH Committee, Mr. Davis' award range is in line
with the median of the same combined utility and general industry comparison
group used for base salary comparisons.
LONG-TERM INCENTIVES. The WPLH Committee strongly believes compensation for
senior executives should include long-term, at-risk pay to strengthen the
alignment of shareowner and management interests at both the WP&L and HDC
levels. In this regard, the Long-Term Equity Incentive Plan allows for grants of
stock options, restricted stock, and performance units/shares with respect to
WPLH Common Stock. The WPLH Committee believes the Long-Term Equity Incentive
Plan balances WPLH's existing compensation programs by emphasizing compensation
based on the long-term successful performance of WPLH from the perspective of
the shareowners. Stock options provide a reward that is directly tied to the
benefit shareowners receive from increases in the price of WPLH Common Stock.
The payout from the performance units is based on WPLH's continued payment of
dividends, a significant component of investment returns for utilities, and the
relative total return to shareowners compared to other comparable investments.
Thus the two components of the Long-Term Equity Incentive Plan, I.E., stock
options and performance units, provide incentives for management to produce
superior shareowner returns on both an absolute and relative basis. During 1995
the WPLH Committee made a grant of stock options and performance units to Messrs
Davis, Amato, Protsch and Harvey. All option grants were made at the fair market
value of WPLH Common Stock on the date the grants were approved (January 3,
1995). The options vest after three years and have a ten-year term from the date
of the grant. Executives were also granted performance units which will
accumulate all of the dividends paid on one share of WPLH Common Stock over a
three-year period. One performance unit was granted for each option received by
the executive. Accrued dividends are not reinvested in WPLH Common Stock, nor is
any interest paid on accrued dividends. Performance Units will be paid out in
cash or in shares of WPLH Common Stock. The payment will be modified by a
performance multiplier which ranges from 0 to 1.75 based on the three year
average of WPLH total shareowner return relative to a utility holding company
peer group. If WPLH's total shareowner return for the three year period is
negative, the performance unit payout will be zero. In determining actual award
levels, the WPLH Committee was primarily concerned with providing a competitive
total compensation level to officers. As such, award levels (including the
awards made to Mr. Davis) were based on a competitive analysis of
similarly-sized utility companies that took into consideration the market level
of long-term incentives, as well as the competitiveness of the total
compensation package. Award ranges, as well as individual award levels, were
then established based on responsibility level
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and market competitiveness. No corporate or individual performance measures were
reviewed in connection with the awards of options and performance units. Award
levels were targeted to the median of the range of such awards paid by
comparable companies. In addition, the WPLH Committee did not consider the
amounts of options or performance units already outstanding or previously
granted since no options or performance units have been granted by WPLH in the
past.
POLICY WITH RESPECT TO THE $1 MILLION DEDUCTION LIMIT. Section 162(m) of
the Code generally limits the corporate deduction for compensation paid to
executive officers named in the proxy statement to $1 million unless such
compensation is based upon performance objectives meeting certain regulatory
criteria or is otherwise excluded from the limitation. The WPLH Committee has
carefully considered the impact of this tax code provision. Based on the WPLH
Committee's commitment to link compensation with performance as described in
this report, the WPLH Committee currently intends to qualify compensation paid
to WPLH's executive officers for deductibility by WPLH under Section 162(m).
CONCLUSION. The WPLH Committee believes the existing executive compensation
policies and programs provide the appropriate level of competitive compensation
for WPLH executives. In addition, the WPLH Committee believes that the long and
short term performance incentives effectively align the interests of executives
and shareowners toward a successful future for WPLH.
COMPENSATION AND PERSONNEL
COMMITTEE
Arnold M. Nemirow (Chair)
Milton E. Neshek
Henry C. Prange
Judith D. Pyle
Carol T. Toussaint
150
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WPLH PROXY STATEMENT]
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Rules of the SEC require that WPLH show a graphical comparison of the total
return on the WPLH Common Stock for the last five fiscal years with the total
returns of a broad market index and a more narrowly focused industry or group
index. (Total return is defined as the return on common stock including
dividends and stock price appreciation, assuming reinvestment of dividends.)
WPLH has selected the Standard & Poors ("S&P") 500 index for the broad market
index, and the S&P Utility Index as the industry index. These indices were
selected because of their broad availability and recognition. The following
chart compares the total return of an investment of $100 in WPLH Common Stock on
December 31, 1990, with like returns for the S&P 500 and S&P Utilities indices.
CUMULATIVE TOTAL SHAREHOLDER RETURN
WPL HOLDINGS, INC.; S&P 500 INDEX; AND S&P UTILITIES INDEX
[LOGO]
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
WPL Holdings, Inc. $ 100.00 $ 143.10 $ 156.54 $ 160.41 $ 142.51 $ 170.34
S&P Utilities Index $ 100.00 $ 114.62 $ 123.89 $ 141.79 $ 130.52 $ 185.38
S&P 500 Index $ 100.00 $ 130.57 $ 140.60 $ 154.64 $ 156.64 $ 215.49
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
WPLH's directors, its executive officers, and certain other officers are
required to report their ownership of WPLH Common Stock and WP&L Preferred Stock
and any changes in that ownership to the SEC and the NYSE. All required filings
in 1995 were properly made in a timely fashion. In making the above statements,
WPLH has relied on the representations of the persons involved and on copies of
their reports filed with the SEC.
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ELECTION OF IES DIRECTORS
Nine directors will be elected by the IES shareholders at the IES Meeting to
serve until the next annual meeting or until their respective successors have
been duly elected and qualified. All nine of the nominees have previously been
elected as directors by the shareholders.
In the event that any nominee should become unavailable for election, which
is not now contemplated, the IES Board reserves discretionary authority to
designate a substitute nominee. Proxies will be voted for the election of such
other nominee or nominees as may be so designated by the IES Board.
NOMINEES FOR ELECTION AS DIRECTORS
<TABLE>
<CAPTION>
YEAR FIRST
NAME AND AGE ELECTED A DIRECTOR
----------------------------------------------------------------------- -------------------
<S> <C> <C>
C.R.S. ANDERSON, 68 1978
INSERT PICTURE #1 Mr. Anderson is the retired Chairman of the Board of IES after serving in that position
following the merger of IE Industries Inc. and Iowa Southern Inc. Prior to the merger, Mr.
Anderson was Chairman and President of Iowa Southern Inc., and had served in various
positions at Iowa Southern Utilities Company since 1956. He is a past chairman of the
Missouri Valley Electric Association and the Iowa Association of Business and Industry; and
a former director of IMG Bond Accumulation Fund, IMG Stock Accumulation Fund, Midwest Gas
Association and the Iowa Business Development Credit Corporation. Mr. Anderson has been a
director of IES since 1991 and was first elected to the Iowa Southern Utilities Company
board in 1978. Mr. Anderson serves on the Executive Committee and chairs the Audit
Committee.
J. WAYNE BEVIS, 61 1987
INSERT PICTURE #2 Mr. Bevis is Vice Chairman of Pella Corporation, a window and door manufacturing company in
Pella, Iowa. Mr. Bevis retired on December 31, 1995 as Chief Executive Officer of Pella
Corporation. He has served in various positions at Pella Corporation since 1973. Mr. Bevis
is Chairman of several Pella Corporation subsidiaries and a member of the Policy Advisory
Board of the Joint Center of Housing Studies of Harvard University and the University of
Iowa College of Business Board of Visitors. He is a member and past chairman of the Iowa
Business Council. Mr. Bevis has been a director of IES since 1991 and was first elected to
the IE Industries Inc. board in 1987. Mr. Bevis serves on the Audit Committee.
LEE LIU, 62 1981
INSERT PICTURE #3 Mr. Liu is Chairman of the Board, President & Chief Executive Officer of IES and is Chairman
of the Board, President & Chief Executive Officer of Utilities. Mr. Liu has held a number of
professional, management and executive positions since joining Iowa Electric Light and Power
Company in 1957. He is a director of: HON Industries Inc., an office equipment manufacturer
in Muscatine, Iowa; Principal Financial Group, an insurance company in Des Moines, Iowa; and
Eastman Chemical Company, a diversified chemical company in Kingsport, Tennessee. He also
serves as a trustee for Mercy Medical Center, a hospital in Cedar Rapids, Iowa and is a
member of the Iowa Business Council, the Iowa Utility Association and the University of Iowa
College of Business Board of Visitors. Mr. Liu has been a director of IES since 1991 and was
first elected to the board of Iowa Electric Light and Power Company in 1981. Mr. Liu chairs
the Executive Committee and serves on the Nominating Committee.
</TABLE>
136
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IES PROXY STATEMENT]
<TABLE>
<CAPTION>
YEAR FIRST
NAME AND AGE ELECTED A DIRECTOR
----------------------------------------------------------------------- -------------------
JACK R. NEWMAN, 62 1994
<S> <C> <C>
INSERT PICTURE #4 Mr. Newman has been a Partner of Morgan, Lewis & Bockius, an international law firm based in
Washington, D.C., specializing in energy matters since December 1, 1994. Mr. Newman has been
engaged in private practice since 1967 and was previously a partner in the law firms Newman
& Holtzinger and Newman, Bouknight & Edgar. He has served as nuclear legal counsel to IES
since 1968. Prior to 1967, Mr. Newman served as Secretary and General Counsel of the Nuclear
Materials and Equipment Corporation and as Staff Counsel to the Joint Congressional
Committee on Atomic Energy. He advises a number of utility companies on nuclear power
matters, including many European and Asian companies. Mr. Newman is a member of the Bar of
the State of New York, the Bar Association of the District of Columbia, the Association of
the Bar of the City of New York, the Federal Bar Association and the Lawyers Committee of
the Edison Electric Institute. He was first appointed to the board of IES in August 1994.
Mr. Newman serves on the Compensation Committee.
ROBERT D. RAY, 67 1987
INSERT PICTURE #5 Mr. Ray is President and Chief Executive Officer of IASD Health Services Inc. (formerly Blue
Cross and Blue Shield of Iowa, Western Iowa and South Dakota) ("IASD"), an insurance firm in
Des Moines, Iowa. From 1983 until 1989 he was President and Chief Executive Officer of Life
Investors, Inc., an insurance firm in Cedar Rapids, Iowa. Mr. Ray served as Governor of the
State of Iowa for fourteen years, and was the United States Delegate to the United Nations
in 1984. He is a director of the Maytag Company, an appliance manufacturer in Newton, Iowa
and a director of Norwest Bank of Iowa in Des Moines, Iowa. He also serves as Chairman of
the National Leadership Commission on Health Care Reform and the National Advisory Committee
on Rural Health Care. Mr. Ray is a member of the Board of Governors Drake University, Des
Moines, Iowa, and the Iowa Business Council. He has been a director of IES since 1991 and
was first elected to the IE Industries Inc. board in 1987. Mr. Ray serves on the Audit and
Nominating Committees.
DAVID Q. REED, 64 1967
INSERT PICTURE #6 Mr. Reed is an independent practitioner of law in Kansas City, Missouri. Mr. Reed has been
engaged in the private practice of law since 1960. From 1972 until 1988, he was a senior
member of the firm of Kodas, Reed & McFadden, P.C. in Kansas City, Missouri. Mr. Reed is a
member of the American Bar Association, the Association of Trial Lawyers of America, the
Missouri Association of Trial Attorneys, the Missouri Bar and the Kansas City Metropolitan
Bar Association. He served in the Missouri General Assembly from 1972 until 1974. Mr. Reed
has been a director of IES since 1991 and was first elected to the Iowa Electric Light and
Power Company board in 1967. Mr. Reed serves on the Executive Committee and chairs the
Nominating Committee.
</TABLE>
137
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IES PROXY STATEMENT]
<TABLE>
<CAPTION>
YEAR FIRST
NAME AND AGE ELECTED A DIRECTOR
----------------------------------------------------------------------- -------------------
HENRY ROYER, 64 1984
<S> <C> <C>
INSERT PICTURE #7 Mr. Royer has been President and Chief Executive Officer of River City Bank in Sacramento,
California since August 1994. He served as Chairman of the Board and President of Firstar
Bank of Cedar Rapids, N.A. from 1983 until 1994. Mr. Royer is a director of CRST, Inc., a
trucking company in Cedar Rapids, Iowa and has served on numerous Cedar Rapids community
organization boards. He has been a director of IES since 1991 and was first elected to the
board of Iowa Electric Light and Power Company in 1984. Mr. Royer serves on the Executive
Committee and chairs the Compensation Committee.
ROBERT W. SCHLUTZ, 60 1989
INSERT PICTURE #8 Mr. Schlutz is President of Schlutz Enterprises, a diversified farming and retailing
business in Columbus Junction, Iowa. He is a director of Agri-Nutritional Group Inc., an
animal health business, in St. Louis, Missouri and the Iowa Foundation for Agricultural
Advancement. Mr. Schlutz is a President of the Iowa State Fair Board and a member of various
community organizations. He also served on the National Advisory Council for the Kentucky
Fried Chicken Corporation. He is a past chairman of the Environmental Protection Commission
for the State of Iowa. Mr. Schlutz has been a director of IES since 1991 and was first
elected to the Iowa Southern Inc. board in 1989. Mr. Schlutz serves on the Audit Committee.
ANTHONY R. WEILER, 59 1979
INSERT PICTURE #9 Mr. Weiler is Senior Vice President, Merchandising, for Heilig-Meyers Company, a national
furniture retailer with more than 750 stores headquartered in Richmond, Virginia. Mr. Weiler
was previously Chairman and Chief Executive Officer of Chittenden & Eastman Company, a
national manufacturer of mattresses in Burlington, Iowa. He was with Chittenden & Eastman
from 1960 until 1995, and held various management positions. Mr. Weiler is Chairman of the
National Home Furnishings Association and a director of the Retail Home Furnishings
Foundation. He is a trustee of NHFA Insurance and a past director of the Burlington Area
Development Corporation, the Burlington Area Chamber of Commerce and various community
organizations. Mr. Weiler has been a director of IES since 1991 and was first elected to the
Iowa Southern Utilities Company board in 1979. Mr. Weiler serves on the Nominating
Committee.
</TABLE>
138
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[ALTERNATE PAGE FOR
IES PROXY STATEMENT]
Except as otherwise noted, all nominees have served in their current positions
for five years or more as of the date of this proxy. All other information is as
of January 1, 1996. All nominees are also the current directors of Utilities.
THE IES BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL NOMINEES.
------------------------
SECURITY OWNERSHIP OF BENEFICIAL OWNERS
Set forth below is certain information with respect to beneficial ownership of
the IES Common Stock by each person known by IES to own 5% or more of the
outstanding IES Common Stock as of June 1, 1996:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP (1) OF CLASS (1)
- ---------------------------------------------------------------- ------------------------- -------------
<S> <C> <C>
WPLH............................................................ 5,861,115 16.4%
IPC............................................................. 5,861,115 16.4%
</TABLE>
- ------------------------
(1) By reason of the Stock Option Agreements, each of WPLH and IPC may be deemed
to have sole voting and dispositive power with respect to the shares listed
above which are subject to their respective Options from IES and,
accordingly, each of WPLH and IPC may be deemed to beneficially own all of
such shares (assuming exercise of its Option and the nontriggering of the
other party's right to exercise its Option for IES Common Stock). However,
each of WPLH and IPC expressly disclaim any beneficial ownership of such
shares because the Options are exercisable only in certain circumstances.
See "The Stock Option Agreements."
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below is certain information with respect to beneficial ownership
of the IES Common Stock as of June 1, 1996 by each director and nominee for
director, certain Executive Officers and by all directors and Executive Officers
of IES as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP (1) OF CLASS
- ----------------------------------------------------------------------------- ------------------------- -------------
<S> <C> <C>
C.R.S. Anderson.............................................................. 19,000 .06%
J. Wayne Bevis............................................................... 500 (2)
Blake O. Fisher, Jr.......................................................... 16,415 .05%
John F. Franz, Jr............................................................ 14,492 .05%
James E. Hoffman............................................................. 5,000 .02%
Lee Liu...................................................................... 44,638 .15%
Rene H. Males................................................................ 6,712 .02%
Jack R. Newman............................................................... 0 (2)
Robert D. Ray................................................................ 1,500 (2)
David Q. Reed................................................................ 4,002 .01%
Larry D. Root................................................................ 17,470 .06%
Henry Royer.................................................................. 1,925 (2)
Robert W. Schlutz............................................................ 1,399 (2)
Anthony R. Weiler............................................................ 2,335 (2)
All Executive Officers and Directors of IES and Utilities as a group (20
persons).................................................................... 168,556 .56%
</TABLE>
- ------------------------
(1) Includes ownership of shares by family members even though beneficial
ownership of such shares may be disclaimed.
(2) Less than .01% of the Class (IES Common Stock).
139
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[ALTERNATE PAGE FOR
IES PROXY STATEMENT]
OTHER TRANSACTIONS
IES has a contract with IASD for administration of its employee health
insurance plan, as it has for many prior years. In 1995, IES paid $291,285 to
IASD. Beginning in 1995, IES also contracted with IASD for administration of its
dental insurance plan and paid $63,925 to IASD for those services. As previously
stated, Mr. Ray is President and Chief Executive Officer of IASD.
FUNCTIONING OF THE IES BOARD AND COMMITTEES
IES's Board has an Executive Committee, an Audit Committee, a Nominating
Committee and a Compensation Committee.
Current members of the Executive Committee are Lee Liu, Chairman, C.R.S.
Anderson, David Q. Reed and Henry Royer. The current members served on this
Committee during 1995. The Committee met three times during 1995. It is
empowered with all of the authority vested in the IES Board, subject to certain
limitations, and may act when the IES Board is not in session.
Current members of the Audit Committee are C.R.S. Anderson, Chairman, J.
Wayne Bevis, Robert D. Ray and Robert W. Schlutz. The current members served on
this Committee during 1995. The Committee met twice during 1995. The principal
functions of the Committee are to review IES's internal audit activities,
including reviews of the internal control procedures; to oversee the corporate
compliance process; to recommend to the IES Board an independent public
accounting firm to be IES's auditors; and to approve the audit arrangements and
audit results. Both the internal and independent auditors have direct and
independent access to the Audit Committee.
Current members of the Nominating Committee are David Q. Reed, Chairman, Lee
Liu, Robert D. Ray and Anthony R. Weiler. The current members served on this
Committee during 1995. The Committee met twice during 1995. Its principal
function is to review and recommend to the IES Board nominees to serve on the
IES Board and its committees. While there are no formal procedures, the
Committee considers nominees brought to its attention by other members of the
IES Board, members of management and shareholders.
The Compensation Committee members for 1995 and for 1996 (until April 12,
1996) were Henry Royer, Chairman; Dr. George Daly; G. Sharp Lannom, IV; and Jack
R. Newman. The Committee met five times during 1995. Dr. Daly was a member of
the Compensation Committee until his resignation from the Board of Directors on
April 3, 1996. Mr. Lannom was a member of the Compensation Committee until his
resignation from the Board of Directors on April 12, 1996. The current members
of the Compensation Committee are Henry Royer, Chairman; J. Wayne Bevis; Jack R.
Newman; and Anthony R. Weiler. The principal functions of the Committee are to
review and make recommendations to the IES Board on the salaries and other
compensation and benefits of the elected officers of IES and its subsidiaries,
and to review and administer incentive compensation or similar plans for
officers and other key employees of IES and its subsidiaries. The report of the
Compensation Committee is included later in this Joint Proxy
Statement/Prospectus.
IES's Board met ten times in 1995. The various committees of the Board met
an aggregate of twelve times. All of the directors attended 75% or more of these
meetings.
COMPENSATION OF DIRECTORS
In 1995, non-employee directors of IES received an annual fee of $12,000
plus $700 per Board meeting or Committee meeting attended. If a Committee
meeting was the same day as a meeting of the IES Board as a whole or if a
Committee meeting was by telephone conference, each participating non-employee
director received $350, one-half the regular Committee meeting fee. In addition,
non-employee directors serving as chairman of a Committee received an annual fee
of $1,500 for serving in such capacity. In 1993, the IES Board decided that
directors who are officers would not receive an annual fee or any fees for
attendance at Board meetings or meetings of committees of which they are
140
<PAGE>
[ALTERNATE PAGE FOR
IES PROXY STATEMENT]
members. Robert F. Brewer and Dr. Salomon Levy, who served as directors until
May 17, 1994, served as emeritus directors of IES until May 16, 1995. Mr. Brewer
received $1,400 in meeting fees in 1995 as an emeritus director.
Under the Director Retirement Plan, IES provides a retirement or death
benefit to directors, including directors who are employees of IES, in an amount
equal to 80% of the annual directors fee. Such amount is payable annually, based
upon length of service, to directors who have served at least four years, with a
maximum payment period of eight years. Mr. Brewer and Dr. Levy each received
payments of $8,000 under the Director Retirement Plan in 1995.
S. Levy, Incorporated, an engineering and management consulting firm of
which Dr. Salomon Levy, a director emeritus until May 16, 1995, is Chairman,
performed consulting services for Utilities in 1995 for which it was paid
$125,554. Dr. Levy has retired as Chief Executive Officer of S. Levy,
Incorporated and does not participate in the day to day management of the
company. Utilities has a service contract with S. Levy, Incorporated pursuant to
which it supplied these services and under which it will provide services in
1996. Dr. Salomon Levy was appointed as the Nuclear Advisor to the Board of
Directors on May 17, 1994 and received $5,771 for his services in 1995 as
Nuclear Advisor. Dr. Levy also serves on the IES Utilities Nuclear Safety
Committee.
Director Jack R. Newman has served as nuclear legal counsel to IES since
1968. Mr. Newman's firm, Morgan, Lewis & Bockius, was paid $453,002 for legal
services provided to IES in 1995.
IES makes available to members of the Board of Directors a business travel
accident insurance policy at an annual cost to IES of $10 per director. No
director received any payments under such policy in 1995.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Under the supervision of the Compensation Committee of the IES Board, IES
has implemented compensation practices intended to enhance the performance of
IES and increase its value to all shareholders. In order to provide information
on current and future practices of IES, the Compensation Committee has furnished
the following report on executive compensation.
COMPENSATION PHILOSOPHY
The Compensation Committee has devoted substantial attention to the
philosophy of IES compensation. This philosophy is intended to provide guiding
principles for the future and is embodied in four primary objectives:
1. To provide incentives based on value delivered to IES's shareholders
and customers.
2. To clearly link individual executive pay actions to performance.
3. To maintain a system of rewards that is structured competitively
with industry standards.
4. To attract, motivate and retain executives of the highest quality.
The most important performance yardstick in our compensation program is our
ability to deliver value to shareholders through appreciation in share price,
payment of dividends and their future continuity. On an ongoing basis, the
Committee will test and refine the compensation program to ensure a high
correlation between the level of compensation and the return to shareholders.
Achieving desirable shareholder returns over a sustained period of time requires
management's attention to a number of financial and non-financial strategic
elements which enable us to focus on the current and long-term requirements of
the customer. OUR COMPENSATION PROGRAM, THEREFORE, FOCUSES EXECUTIVES ON ACTIONS
THAT DIRECTLY IMPACT SHAREHOLDER RETURN IN THE SHORT- AND LONG-TERM AND BY
PROVIDING SERVICE TO OUR CUSTOMERS.
141
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IES PROXY STATEMENT]
The Committee uses multiple sources of information to evaluate and establish
appropriate compensation practices. While using multiple sources, we rely on
data from a utility industry peer group of companies (as listed in the
Performance Graph below) to assess IES's relative performance and compensation
levels. Peer companies were selected by meeting multiple criteria including
revenue size, sources of revenue, geographic location, markets served, and
comparable operations. Consistent with our objectives, the Committee will
position its executives' total compensation target levels at the median of this
peer group of companies. The total compensation target levels for the last
fiscal year for the Chief Executive Officer and Executive Officers in general
were consistent with said policy. Annual executive total compensation will fall
below, at, or above the median depending on individual and company performance.
IES's executive compensation program has three components -- base salary,
annual incentives and long-term incentives. The target mix of total compensation
for executives will be an approximate range of 50% to 75% base salary and the
remainder of 25% to 50% in the combined total of short- and long-term
incentives. The calculations for the short- and long-term incentive awards for
the Chief Executive Officer and the Executive Officers in general are described
later in this report. Furthermore, the Committee believes this mix, while more
variable than industry-wide practices, serves to send a clear message to IES's
executives that performance directly governs pay.
The Committee strongly believes that incentive compensation should only be
awarded with commensurate performance. We have approved compensation plans which
include high threshold (minimum) levels of performance to ensure that incentives
are paid only when truly earned.
DESCRIPTION OF COMPENSATION PROGRAMS
The following text briefly describes the role of each element of
compensation.
BASE SALARY. Base salary will be at levels sufficient to attract and retain
qualified executives. Aggregate base salary increases are intended to parallel
increases in the pay levels of the utility industry as a whole. Individual
executive salary increases will reflect the individual's level of performance,
current position within salary range, and utility industry trends.
ANNUAL INCENTIVE. IES's executive annual incentive plan serves to recognize
and reward executives for taking actions that build the value of IES, generate
competitive total returns to shareholders, and minimize cost to IES's customers.
The formula for annual incentive awards recognizes operational and financial
goals of significance to IES and is based on IES's achievement of Earnings Per
Share ("EPS") versus a predetermined target and a Cost to the Customer per Kwh
("CCK") measure versus a peer group cost target, along with the achievement of
individual objectives. The criteria for the annual incentive plan is reviewed
prior to the beginning of a new fiscal year. Payments are made based on
corporate and individual performance versus target, with an emphasis on
CORPORATE over INDIVIDUAL.
For the 1995 fiscal year, this plan had various incentive levels with target
award opportunities ranging from 12% to 35% of base salary. Awards based on the
target criteria of EPS and CCK measure could range between 0% and 150% of the
target incentive level, with adjustments for individual performance. The EPS for
1995 was $2.20 and the CCK was 125.82. This corporate performance for 1995 based
on the predetermined financial and operational goals provided, in general, 120%
of the target incentive level with adjustments for individual considerations.
There were no adjustments for individual performance made to the 1995 fiscal
year awards. Thus, the calculation for an individual who had an opportunity to
earn 12% of base salary would be base salary X 12% X 120%. The results of this
plan for the Chief Executive Officer and the Executive Officers in general
appear in this Joint Proxy Statement/Prospectus.
LONG-TERM INCENTIVES. IES's current long-term incentive plan serves to
reward executive performance in successfully executing the long-term business
strategy and building shareholder value. The plan allows for the awarding of
nonqualified stock options, stock appreciation rights, restricted stock, and
performance units payable in cash or stock.
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IES PROXY STATEMENT]
The performance criteria for the long-term incentive plan for fiscal years
1993, 1994 and 1995 include total return to shareholders versus the peer group
(35%), earnings growth versus three-year growth rates (35%) and team/individual
performance (30%). Each performance criteria could range between 0% and 125% of
the target incentive levels. For the 1994 and 1995 fiscal years, this plan had
various incentive levels with target award opportunities ranging from 26% to 65%
of base salary.
Awards for 1994 performance were determined in May 1995 and only shares of
restricted stock were granted. The corporate performance for 1994 for the total
return to shareholders versus the peer group resulted in an adjustment of 75%
and earnings growth versus three-year growth rates resulted in an adjustment of
125%. The third component, team/individual performance, resulted in John Franz
receiving a 100% performance rating and all other executives receiving an 83%
performance rating. The adjustment percentage for all executives, except John
Franz, would be (75% X 35%) + (125% X 35%) + (83% X30%) or a 95% adjustment.
Thus, the calculation for an executive who had an opportunity to earn 26% of
base salary would be base salary X 26% X 95%. This amount is divided by the
closing price for IES Common Stock on the last trading day of the year for that
performance year to determine the number of shares for the award. For the year
1994, the closing price was $25.25. The value of the award is then determined by
the number of shares of common stock from the previous calculations times the
closing price on the award date. The closing price on June 1, 1995, the award
date in 1995, was $22.625. The 1994 awards for the Chief Executive Officer and
the next highest paid Executive Officers are shown in the Summary Compensation
Table as 1994 compensation.
Awards for 1995 performance were determined in May 1996 and only shares of
restricted stock were granted. The corporate performance for 1995 for the total
return to shareholders versus the peer group resulted in an adjustment of 0% and
earnings growth versus three-year growth rates resulted in an adjustment of
125%. The third component, team/individual performance, resulted in all
executives receiving a 100% performance rating. Based on his individual
performance, John Franz was granted an extra $10,000 of common stock. The
adjustment percentage for all executives would be (0% x 35%) + (125% x 35%) +
(100% x 30%) or a 74% adjustment. Thus, the calculation for an executive who had
an opportunity to earn 26% of base salary would be base salary x 26% x 74%. This
amount is divided by the closing price for IES Common Stock on the last trading
day of the year for that performance year to determine the number of shares for
the award. For the year 1995, the closing price was $26.50. The value of the
award is then determined by the number of shares of common stock from the
previous calculations times the closing price on the award date. The closing
price on May 31, 1996, the award date in 1996, was $28.625. The 1995 awards for
the Chief Executive Officer and the next highest paid Executive Officers are
shown in the Summary Compensation Table as 1995 compensation.
COMPENSATION ADMINISTRATION. The Committee follows an annual cycle to
administer each of the three components of executive compensation. The integrity
of our compensation program relies on a rigorous, annual performance evaluation
process. Moreover, the Committee's evaluation process includes the use of
outside consultants in order to assure it has the best possible information and
an objective approach to the administration of compensation programs.
DISCUSSION OF CHIEF EXECUTIVE OFFICER PAY. Consistent with the compensation
philosophy, the Committee managed the Chief Executive Officer's total
compensation during 1995 based on the overall performance of IES and on relative
levels of compensation for Chief Executive Officers in the utility industry.
The Committee took the following 1995 compensation actions for the Chief
Executive Officer:
1. BASE SALARY AT $340,000. Generally, base salary levels for
management positions remained the same in 1995 as in 1994. Thus, Mr. Liu did
not receive an increase in base salary, which remained at $340,000.
2. PROVIDED A CASH INCENTIVE IN 1996 OF $142,800 BASED ON 1995
PERFORMANCE. Mr. Liu's annual incentive target is 35% of base salary, which
represents a more variable approach than industry practices and is based on
the formula for annual incentive awards as set forth in the
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IES PROXY STATEMENT]
above "Annual Incentive" section. The formula for performance in 1995
provided 120% of the target incentive with no individual consideration.
Thus, Mr. Liu's award was calculated by multiplying his base salary X 35% X
120%.
3. GRANTED 8,315 SHARES OF RESTRICTED STOCK ON JUNE 1, 1995 AT A MARKET
PRICE PER SHARE OF $22.625. This grant represents a target award of
restricted stock under the long-term incentive plan as set forth in the
above "Long-Term Incentive" section. Mr. Liu received a grant of 61.75% of
base salary based on multiplying his base salary X 65% X 95%. This grant
vests at a rate of 33% per year.
4. GRANTED 4,000 SHARES OF RESTRICTED STOCK ON DECEMBER 8, 1995 AT A
MARKET PRICE PER SHARE OF $27.50. To recognize Mr. Liu's contribution to
IES, the Compensation Committee authorized in 1990 a supplemental grant of
restricted stock under IES's Long-Term Incentive Plan to be given over a
five-year period. The supplemental grant of 4,000 restricted shares, which
will remain restricted until Mr. Liu retires, was made pursuant to the 1990
decision. The number of shares granted in 1995 was based on financial
achievements and specific objectives.
5. GRANTED 6,171 SHARES OF RESTRICTED STOCK ON MAY 31, 1996 AT A MARKET
PRICE PER SHARE OF $28.625. This grant represents a target award of
restricted stock under the long-term incentive plan as set forth in the
above "Long Term Incentive" section. Mr. Liu received a grant of 48.1% of
base salary based on multiplying his base salary x 65% x 74%. This grant
vests at a rate of 33% per year.
The Committee is aware of the limitations recent tax legislation has placed
on the tax deductibility of compensation in excess of $1 million which is earned
in any year by an Executive Officer. Currently none of the Executive Officers
has earned compensation subject to such limitations. The Committee will continue
to monitor developments in this area.
<TABLE>
<CAPTION>
Compensation Committee
<S> <C> <C>
Henry Royer, Chair Dr. George Daly*
G. Sharp Lannom, IV** Jack R. Newman
</TABLE>
*Dr. Daly was a member of the Compensation Committee until his resignation from
the Board of Directors on April 3, 1996.
**Mr. Lannom was a member of the Compensation Committee until his resignation
from the Board of Directors on April 12, 1996.
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IES PROXY STATEMENT]
EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ending December 31,
1993-1995, the cash compensation paid by IES and its subsidiaries as well as
certain other compensation paid or accrued for those years, to the Chief
Executive Officer and to each of the four most highly compensated Executive
Officers of IES and its subsidiaries and to Rene H. Males who would have been
among the four most highly compensated executive officers if he was employed by
IES on December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------
------------------------------------------------- RESTRICTED ALL OTHER
NAME AND PRINCIPAL POSITION (1) YEAR SALARY BONUS (3) OTHER (4) STOCK AWARDS(5) COMPENSATION (6)
- --------------------------------------- --------- -------------- ----------- --------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Lee Liu 1995 $ 340,000 $ 142,800 $ 1,588 $ 176,645 $ 13,507
Chairman of the Board, 1994 324,375 161,798 1,114 298,127 13,604
President & Chief Executive Officer 1993 307,450(2) 157,500 1,625 237,341 10,571
Blake O. Fisher, Jr. 1995 241,861 76,440 160 -- 6,945
Executive Vice President & 1994 210,060 88,800 160 88,894 7,138
Chief Financial Officer 1993 212,475(2) 81,974 720 74,049 4,392
James E. Hoffman 1995 89,583 206,500 51,523 143,125 324
Executive Vice President
Larry D. Root 1995 220,822(2) 62,606 566 -- 208,038
Executive Vice President 1994 197,765 70,935 483 83,690 7,820
1993 200,694(2) 77,176 2,168 69,724 5,948
John F. Franz, Jr. 1995 144,050 25,213 418 41,993 4,893
Vice President 1994 127,379 30,062 57 257,473 1,863
1993 114,425 32,577 171 28,634 1,035
Rene H. Males 1995 141,624(2) 38,084 780 -- 358,244
Executive Vice President 1994 162,750 57,534 1,761 -- 4,910
1993 179,024(2) 65,100 404 -- 25,817
</TABLE>
- ------------------------
(1) Messrs. Hoffman, Males and Franz are not officers of IES, but are officers
of Utilities. Mr. Hoffman commenced employment with Utilities effective
August 1, 1995. Mr. Fisher resigned his employment with IES effective
February 21, 1996. Mr. Root retired effective December 31, 1995. Mr. Males
retired effective September 30, 1995.
(2) The amounts reported as salary include director's fees and payments in lieu
of director's fees for each of Messrs. Liu, Fisher, Root and Males, of
$11,200 in 1993, and accrued vacation pay for Mr. Root of $20,162 and Mr.
Males of $19,561 in 1995.
(3) The amounts listed represent plan year awards pursuant to the Management
Incentive Compensation Plan, IES's annual incentive plan, with cash payment
made in the subsequent calendar year. The amount reported as bonus for Mr.
Hoffman includes a one-time payment of $185,000 when he commenced employment
with Utilities.
(4) The 1995 amounts shown as Other Annual compensation represent the earnings
for the Key Employee Deferred Compensation Plan in excess of 120% of the
applicable federal long-term rate provided under Section 1274(d) of the
Code. Also included are relocation and moving expenses for Mr. Hoffman in
the amount of $51,523.
(5) The awards of restricted stock have been made on June 1st since 1988, with
one-third of the award being restricted for one year, one-third being
restricted for two years and one-third being restricted for three years. The
shares of restricted stock reflected in this table subject to such
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three-year vesting schedule for Messrs. Liu, Fisher, Root and Franz are as
follows: Mr. Liu -- 6,171 shares in 1995; 8,315 shares in 1994 and 5,670
shares in 1993; Mr. Fisher -- 3,929 shares in 1994 and 2,705 shares in 1993;
Mr. Root -- 3,699 shares in 1994 and 2,547 shares in 1993; and Mr. Franz --
1,467 shares in 1995, 1,380 shares in 1994 and 1,046 shares in 1993. In
addition, in June 1993 Mr. Liu received a grant of 4,000 shares, in June
1994 Mr. Liu received a grant of 3,000 shares and in December 1995 Mr. Liu
received a grant of 4,000 shares, all of which will vest at retirement. In
June 1995, Mr. Franz received a grant of 10,000 shares. The restrictions on
1,000 shares will lapse each year beginning in June 1996 with the
restrictions on the remainder lapsing at retirement but not prior to Mr.
Franz becoming age 60. On May 31, 1996, Mr. Hoffman received a grant of
5,000 shares as set forth in his offer of employment letter. These shares
are in lieu of any award for 1995 under the long-term incentive plan but
they have the same restrictions as if awarded under the plan. Restricted
stock is considered outstanding upon award date and dividends are paid to
the eligible officers on these shares while restricted. The amounts shown in
the table above represent the value of the awards based upon closing price
of IES Common Stock on the award date. The award date is in the calendar
year following the plan year. Messrs. Fisher and Root did not receive any
awards in 1996 since they are no longer IES employees. At December 31, 1995,
the listed officers had restricted stock for which restrictions had not
lapsed (based upon the December 29, 1995 closing price of IES Common Stock)
as follows:
<TABLE>
<CAPTION>
SHARES VALUE
--------- -----------
<S> <C> <C>
Lee Liu 27,761 $ 735,667
Blake O. Fisher, Jr. 6,084 161,226
James E. Hoffman -- --
Larry D. Root 5,700 151,050
John F. Franz, Jr. 12,160 322,240
Rene H. Males -- --
</TABLE>
No stock options or stock appreciation rights have been awarded to the Executive
Officers listed above.
(6) Amounts shown for 1995 represent: (a) contributions by IES to the applicable
employee savings plan in the following amounts: Mr. Liu -- $4,648, Mr.
Fisher -- $4,436, Mr. Root -- $4,210, Mr. Franz -- $2,730 and Mr. Males --
$3,063; (b) amount included in W-2 earnings for life insurance coverage in
excess of $50,000 in the following amounts: Mr. Liu -- $8,859, Mr. Fisher --
$2,509, Mr. Hoffman - $324, Mr. Root - $3,168, Mr. Franz - $2,163 and Mr.
Males - $3,286; (c) severance pay to be paid in 1996 in the following
amounts: Mr. Root - $200,660 and Mr. Males - $332,180; and (d) supplemental
retirement pay of $19,715 for Mr. Males.
146
<PAGE>
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IES PROXY STATEMENT]
PERFORMANCE GRAPH
The graph below compares the total return to shareholders of IES versus that
for the S&P 500 and IES's peer group. Peer companies were identified based on
revenue size, sources of revenue, geographic location, markets served and
comparable operations. The following 17 companies comprise IES's peer group
(Iowa-Illinois Gas and Electric Company and Midwest Resources Inc. have
individually been omitted from this year's peer group because they merged to
form MidAmerican Energy Company):
<TABLE>
<S> <C>
CIPSCO Inc. MDU Resources Group, Inc.
CILCORP Inc. MidAmerican Energy Company
DPL Inc. Minnesota Power and Light Company
IPALCO Enerprises Inc. Southwestern Public Service Company
Illinois Power Company UtiliCorp United Inc.
IPC WPLH
KU Energy Corp. Wisconsin Energy Corporation
Kansas City Power and Light Company Wisconsin Public Service Corporation
LG&E Energy Corp.
</TABLE>
IES INDUSTRIES INC.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
[CHART]
- ------------------------
* IES and Peer Group Index total returns include dividends compounded annually.
The companies comprising the Peer Group Index are identified above.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
IES Industries Inc. $ 100.00 $ 117.87 $ 136.68 $ 154.52 $ 135.24 $ 153.18
Peer Group Index $ 100.00 $ 133.77 $ 142.75 $ 156.01 $ 148.80 $ 189.24
S&P 500 $ 100.00 $ 130.57 $ 140.60 $ 154.64 $ 156.64 $ 215.49
</TABLE>
Total returns for each peer company were determined in accordance with the
Securities and Exchange Commission regulations, I.E., weighted according to each
company's stock market capitalization.
147
<PAGE>
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IES PROXY STATEMENT]
IES PLANS
IES PENSION PLANS: IES, Utilities and the Cedar Rapids and Iowa City
Railway Company have non-contributory retirement plans covering employees who
have at least one year of accredited service. Directors who are not officers do
not participate in the plans. Maximum annual benefits payable at age 65 to
participants who retire at age 65, calculated on the basis of straight life
annuity, are illustrated in the following table:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE OF HIGHEST
ANNUAL ESTIMATED MAXIMUM ANNUAL RETIREMENT BENEFITS BASED ON
SALARY (REMUNERATION) SERVICE YEARS
FOR 3 CONSECUTIVE -----------------------------------------------------
YEARS OF THE LAST 10 15 20 25 30 35
- ------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
125,000..... 27,119 36,158 45,198 54,237 63,277
150,000..... 32,931 43,908 54,885 65,862 76,839
175,000..... 36,941 49,460 61,980 74,499 87,018
200,000..... 41,816 56,210 70,605 84,999 99,393
225,000..... 46,691 62,960 79,230 95,499 111,768
250,000..... 47,466 64,033 80,600 97,168 113,735
300,000..... 47,466 64,033 80,600 97,168 113,735
400,000..... 47,466 64,033 80,600 97,168 113,735
450,000..... 47,466 64,033 80,600 97,168 113,735
500,000..... 47,466 64,033 80,600 97,168 113,735
</TABLE>
For 1995, $120,000 is the maximum benefits allowable under the retirement
plans prescribed by Section 415 of the Code.
With respect to the officers named in the Summary Compensation Table, the
remuneration for retirement plan purposes would be substantially the same as
that shown as "Salary." As of December 31, 1995, the officers had accredited
years of service for the retirement plan as follows: Lee Liu, 38 years; Blake O.
Fisher, Jr., 5 years; James E. Hoffman, 0 years; Larry D. Root, 25 years; and
John F. Franz, Jr., 4 years.
SUPPLEMENTAL RETIREMENT PLANS: IES has a non-qualified Supplemental
Retirement Plan for eligible officers of IES and Utilities, including Messrs.
Hoffman and Franz. The plan provides for payment of supplemental retirement
benefits equal to 69% of the officer's base salary in effect at the date of
retirement, reduced by benefits receivable under the qualified retirement plan,
for a period not to exceed 18 years following the date of retirement. In the
event of the death of the officer following retirement, similar payments reduced
by the joint and survivor annuity of the qualified retirement plan will be made
to his designated beneficiary (surviving spouse or dependent children), if any,
for a period not to exceed 12 years from the date of the officer's retirement.
Thus, if an officer died 12 years after retirement, no payment to the
beneficiary would be made. Death benefits are provided on the same basis to a
designated beneficiary for a period not to exceed 12 years from the date of
death should the officer die prior to retirement. The Supplemental Retirement
Plan further provides that if, at the time of the death of an officer, the
officer is entitled to receive, is receiving, or has received supplemental
retirement benefits by virtue of having taken retirement, a death benefit shall
be paid to the officer's designated beneficiary or to the officer's estate in an
amount equal to 100% of the officer's annual salary in effect at the date of
retirement. Under certain circumstances, an officer who takes early retirement
will be entitled to reduced benefits under the Supplemental Retirement Plan. The
Supplemental Retirement Plan also provides for benefits in the event an officer
becomes disabled under the terms of the qualified retirement plan. IES has
purchased life insurance on the participants
148
<PAGE>
[ALTERNATE PAGE FOR
IES PROXY STATEMENT]
sufficient in amount to finance actuarially all of its future liabilities under
the Supplemental Retirement Plan and IES is the owner and beneficiary of all
such life insurance. The Supplemental Retirement Plan has been designed so that
if the assumptions made as to mortality, experience, policy dividends, tax
credits and other factors are realized, IES will fully recover all of its
premium payments over the life of the Supplemental Retirement Plan.
The following table shows the estimated annual benefits payable under the
Supplemental Retirement Plan equal to 69% of the officers base salary in effect
at the date of retirement:
IES INDUSTRIES INC.
SUPPLEMENTAL RETIREMENT PLAN PAYMENTS
69% SRP BENEFIT
<TABLE>
<CAPTION>
SERVICE YEARS
FINAL ANNUAL -----------------------------------------------------
SALARY 15 20 25 30 35
- ---------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
125,000.... 59,131 50,092 41,052 32,013 22,973
150,000.... 70,569 59,592 48,615 37,638 26,661
175,000.... 83,809 71,290 58,770 46,251 33,732
200,000.... 96,184 81,790 67,395 53,001 38,607
225,000.... 108,559 92,290 76,020 59,751 43,482
250,000.... 125,034 108,467 91,900 75,332 58,765
300,000.... 159,534 142,967 126,400 109,832 93,265
400,000.... 228,534 211,967 195,400 178,832 162,265
450,000.... 263,034 246,467 229,900 213,332 196,765
500,000.... 297,534 280,967 264,400 247,832 231,265
</TABLE>
Mr. Liu has elected to continue under the supplemental retirement agreement
previously provided to him by IES with provisions for payment of benefits equal
to 75% of the officer's base salary, for a period not to exceed 15 years
following the date of retirement, and payment to the surviving spouse or
dependent children for a period not to exceed 10 years following the date of
retirement.
The following table shows the estimated annual benefits payable under the
Supplemental Retirement Plan equal to 75% of the officer's base salary in effect
at the date of retirement:
IES INDUSTRIES INC.
SUPPLEMENTAL RETIREMENT PLAN PAYMENTS
75% SRP BENEFIT
<TABLE>
<CAPTION>
SERVICE YEARS
FINAL ANNUAL -----------------------------------------------------
SALARY 15 20 25 30 35
- ---------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
125,000 66,631 57,592 48,552 39,513 30,473
150,000 79,569 68,592 57,615 46,638 35,661
175,000 94,309 81,790 69,270 56,751 44,232
200,000 108,184 93,790 79,395 65,001 50,607
225,000 122,059 105,790 89,520 73,251 56,982
250,000 140,034 123,467 106,900 90,332 73,765
300,000 177,534 160,967 144,400 127,832 111,265
400,000 252,534 235,967 219,400 202,832 186,265
450,000 290,034 273,467 256,900 240,332 223,765
500,000 327,534 310,967 294,400 277,832 261,265
</TABLE>
Mr. Males retired under a supplemental retirement agreement previously
provided to him by Iowa Southern Utilities Company with provisions for payment
of benefits equal to 65% of base salary for life, subject to consumer price
index adjustment, and payments to survivors after death of the officer for a
period not to exceed 15 years following the date of retirement.
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<PAGE>
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IES PROXY STATEMENT]
The following table shows the estimated annual benefits payable under the
Supplemental Retirement Plan equal to 65% of the officer's base salary in effect
at the date of retirement:
IES INDUSTRIES INC.
SUPPLEMENTAL RETIREMENT PLAN PAYMENTS
65% SRP BENEFIT
<TABLE>
<CAPTION>
SERVICE YEARS
FINAL ANNUAL -----------------------------------------------------
SALARY 15 20 25 30 35
- ---------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
125,000 54,131 45,092 36,052 27,013 17,973
150,000 64,569 53,592 42,615 31,638 20,661
175,000 76,809 64,290 51,770 39,251 26,732
200,000 88,184 73,790 59,395 45,001 30,607
225,000 99,559 83,290 67,020 50,751 34,482
250,000 115,034 98,467 81,900 65,332 48,765
300,000 147,534 130,967 114,400 97,832 81,265
400,000 212,534 195,967 179,400 162,832 146,265
450,000 245,034 228,467 211,900 195,332 178,765
500,000 277,534 260,967 244,400 227,832 211,265
</TABLE>
EXECUTIVE GUARANTY PLAN: The IES Board has approved an Executive Guaranty
Plan (the "Guaranty Plan") for officers of IES and its principal subsidiary,
Utilities. The purpose of the Guaranty Plan is to promote flexibility in
financial planning of participating officers and to provide an inducement to new
officers in order to retain and attract the best possible executive management
team. Under the Guaranty Plan, IES guarantees loans within defined limits, based
on salary level and years of service made to participating officers for various
specified purposes, including real estate acquisitions and purchases of IES
Common Stock. As of December 31, 1995, guarantees of $76,653, $49,125 and
$50,000, were outstanding for Messrs. Liu, Root and Fisher, respectively.
EXECUTIVE CHANGE OF CONTROL AGREEMENTS: IES has severance agreements with
twelve of its executives, including Messrs. Liu, Hoffman and Franz. Mr. Fisher
had a severance agreement with IES which is described in this section. The
severance agreements run for terms of one year (three years in the case of Mr.
Liu), subject to automatic renewal unless either party gives notice of non-
renewal to the other party at least 60 days prior to the annual renewal date.
Each agreement provides for salary continuation and certain other benefits in
the event the covered executive is terminated within a three-year period
following a change of control of IES. For these purposes, a "change of control"
is described in the IES Charter and, in addition, will be deemed to have
occurred, if following a merger, consolidation or reorganization, the owners of
the capital stock entitled to vote in the election of directors of IES prior to
the transaction own less than 75% of the resulting entity's voting stock or
during any period of two consecutive years, individuals who, at the beginning of
such period constitute the Board of Directors of the parent company, cease for
any reason to constitute at least a majority of the Board of Directors of any
successor organization. Accordingly, the Mergers will constitute a change of
control for purposes of each of the IES severance agreements. Specifically, the
agreements provide that following termination of a covered executive's
employment, except terminations for just cause, death, retirement, disability or
voluntary resignation (other than resignation for "good reason"), the
executive's salary will be continued, at a level equal to his salary just prior
to termination, for a period ranging from eighteen to thirty-six months
(depending on the executive involved and, in certain cases, his/her length of
service). Additionally, certain benefits will be continued during the applicable
severance period, including life and health insurance, and the executive will
continue to receive annual incentive award payments equal to the average annual
incentive awards paid to executives of the same or comparable designation during
the three years prior to the change of control. In the event the executive dies
during the severance period, the salary and benefit payments described above
shall be payable during the remainder of the term to the executive's surviving
spouse or his estate. The executive will also become immediately vested and
entitled to receive awards of
150
<PAGE>
[ALTERNATE PAGE FOR
IES PROXY STATEMENT]
restricted stock or other rights granted to the executive under IES's Long-Term
Incentive Plan. With respect to a covered executive who is age 56 or older at
the time of the change of control, the severance agreement further provides that
the change of control will cause the executive to become fully vested in his
supplemental retirement plan benefit ("SERP"), and that if the executive is
terminated within three years following the change of control, he will be able
to commence his SERP payments on the earlier of the date he attains age 65 or
the date salary continuation payments cease under his severance agreement.
In November 1995, IES approved certain amendments to the existing severance
agreements which will take effect no later than the next annual renewal of each
agreement, subject to each executive's execution of an amended form of
agreement. The amendments to the severance agreements for Messrs. Liu and Fisher
provide, among other things, that during the applicable severance period Messrs.
Liu and Fisher will be entitled to receive payments equal to the average value
of both the long-term and the annual incentive awards received by executives of
the same or comparable designation during the three years prior to the change of
control. In addition, the amendments for all covered executives provide
reimbursement, in an amount not to exceed 15% of the executive's base salary,
for outplacement services and legal fees incurred by the executive in connection
with his termination, and also provide severance benefits in the event of
certain employment terminations within 180 days prior to a change of control.
The provisions of the severance agreement covering Mr. Liu has been
incorporated into the Employment Agreement to be executed between Mr. Liu and
Interstate Energy in connection with the Mergers (See "The Mergers -- Employment
Agreements" and Annex H). After the Effective Time, his Employment Agreement
will supersede his existing severance agreement.
IES believes that these agreements enable IES to employ key executives who
can approach major business decisions objectively and without concern for their
personal situations.
TERMINATION OF EMPLOYMENT ARRANGEMENT: Larry D. Root, IES Executive Vice
President, elected to take early retirement effective as of December 31, 1995,
following 25 years of service to IES. In connection with Mr. Root's retirement,
IES entered into an early retirement agreement with Mr. Root which, among other
things, provided for certain payments and other financial considerations. Under
the terms of Mr. Root's early retirement agreement, IES paid Mr. Root a lump sum
cash payment of $200,660 on January 4, 1996. IES agreed to accelerate the
vesting of restricted stock grants previously granted to Mr. Root so that such
grants became vested on December 31, 1995. IES also agreed that Mr. Root was
eligible to receive an award under the Management Incentive Compensation Plan
for 1995 performance, which was awarded to him in February 1996. Mr. Root shall
receive, as an unfunded supplemental pension benefit, $11,306.11 per month for a
period of fifteen (15) years. IES shall also pay, within three months of Mr.
Root's death, a death benefit of $200,660 to his beneficiaries. Mr. Root shall
be eligible for the medical coverage generally offered by IES to retiring
employees, in accordance with the terms of the IES Health Care Plan. Blake O.
Fisher, Jr., IES Executive Vice President & Chief Financial Officer, resigned
from IES effective February 21, 1996. IES and Mr. Fisher entered into an
agreement which provided for certain payments and other financial considerations
as set forth in Mr. Fisher's Executive Change of Control Agreement, details of
which are set forth in the section above entitled "Executive Change of Control
Agreements."
IOWA SOUTHERN UTILITIES PLANS
IOWA SOUTHERN UTILITIES PENSION PLAN: Iowa Southern Utilities Company
("Iowa Southern Utilities") provided a contributory pension plan which covered
substantially all non-collective bargaining employees who have completed the
minimum eligibility requirements of 1,000 hours in a year. The plan was amended
effective January 1, 1991 to be non-contributory. As of his retirement on
September 30, 1995, Mr. Males had 4 years of accredited service under the
Pension Plan. Participants contributed one percent of annual compensation to the
Pension Plan through 1990.
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IES PROXY STATEMENT]
IOWA SOUTHERN UTILITIES SENIOR EXECUTIVE SEVERANCE AGREEMENTS: Individual
agreements providing for severance pay were entered into by Iowa Southern
Utilities and four senior executives, including Mr. Males. The benefits to be
provided were generally as follows: a lump sum payment equal to the executive's
salary for a payment period equal to the greater of 24 months, or one month
multiplied by years of service with a limit of 30 months. Mr. Males's agreement
provides for the greater of 24 months or the period between the date his
employment terminates and January 28, 1996. In addition, each covered senior
executive was entitled to continuation of life and health insurance coverage
during the payment period and reimbursement of certain other expenses. The only
agreement still in effect in 1995 was with Mr. Males. Mr. Males' retirement was
a qualified termination under the agreement. Mr. Males will receive payments
under the severance agreement beginning in 1996.
EMPLOYMENT AGREEMENT
IE Industries Inc. and Iowa Electric Light and Power Company, the
predecessor companies of IES Industries and Utilities, entered into an
employment agreement (the "Liu Agreement") with Lee Liu, which became effective
July 1, 1991. The Liu Agreement provides that Mr. Liu shall be employed as
President, Chief Executive Officer and Chairman of the Executive Committee of
IES and as Chief Executive Officer and Chairman of Utilities from July 1, 1991
until April 1995, which period shall be automatically extended unless at least
six months prior to any expiration thereof either IES or Utilities or Mr. Liu
shall give notice that they do not wish to extend such time (the "Period of
Employment"). To date, neither party has given such notice. The Liu Agreement
also provides that he shall become Chairman of the Board at such time as C.R.S.
Anderson ceases to serve in such position. This occurred on July 1, 1993. The
Liu Agreement provides that Mr. Liu shall provide consulting services to IES for
three years ( the "Period of Consulting") after the conclusion of the Period of
Employment.
During the Period of Employment, Mr. Liu will be paid a base annual salary
of at least $275,000, and will be entitled to participate in all incentive
compensation plans applicable to the positions he holds and all retirement and
employee welfare benefit plans. During the Period of Employment, Mr. Liu's
incentive compensation shall be at least equal to that paid to the Chairman of
the Board of IES.
If Mr. Liu's employment is terminated without his consent by IES or
Utilities during the Period of Employment for other than an unremedied material
breach or just cause or by his resignation if such resignation occurs after IES
fails to cause him to be employed in or elected to the positions specified in
the Liu Agreement or after a material diminution in his duties, responsibilities
or status, then Mr. Liu shall be entitled to an amount equal to the sum of his
base annual salary as of the date of termination plus his average incentive
compensation during the three years immediately preceding the date of
termination multiplied by the number of years (and fractions thereof) then
remaining in the Period of Employment. Mr. Liu also would be entitled to
continued insurance coverages and an amount equal to the then present value of
the actuarially determined difference between the aggregate retirement benefits
actually to be received by him as of the date of termination and those that
would have been received by him had he continued to be employed at the base
salary in effect at termination through the expiration of the Period of
Employment. All his shares of IES Restricted Stock would also vest at that time.
During the Period of Consulting, Mr. Liu will make himself available for up
to 30 days per year, report to the Chief Executive Officer of IES and will earn
an annual consulting fee equal to 13.33% of his highest annual base salary
during his Period of Employment. If Mr. Liu's consulting services are terminated
for reasons other than material breach or just cause, he will be entitled to a
lump sum payment equal to the amount of the consulting fee he would otherwise
have earned during the Period of Consulting.
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IES PROXY STATEMENT]
The Employment Agreement which Mr. Liu will enter into with Interstate
Energy in connection with the Mergers will supersede the Liu Agreement described
above. See "The Mergers -- Employment Agreements."
CERTAIN SEC FILINGS
Section 16(a) of the Securities Exchange Act of 1934 requires IES's officers
and directors and persons who own more than 10% of the registered class of IES's
equity securities to file reports of ownership and changes in ownership with the
SEC. Such officers, directors and shareholders are required by SEC regulations
to furnish IES with copies of all such reports that they file.
Based solely on a review of copies of reports filed with the SEC with
respect to 1995 and of written representations by certain officers and
directors, all persons subject to the reporting requirements of Section 16(a)
filed the required reports on a timely basis.
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee recommended and the IES Board authorized the engagement
of Arthur Andersen LLP as auditors for IES and its subsidiaries for 1996. They
have served as IES's auditors for 1995 and for many prior years. The IES Board
believes that because of the Audit Committee's direct and independent access to
both the internal and independent auditors and the Audit Committee's overall
responsibility for audit results and supervision of the auditors, the Audit
Committee is best suited to select the independent auditor and approve audit
arrangements. A representative of Arthur Andersen LLP will be in attendance at
the IES Meeting and will be available to respond to appropriate questions and to
make a statement if he desires to do so.
GENERAL
A copy of the Annual Report of IES, including financial statements for the
fiscal year ended December 31, 1995, was previously mailed to shareholders.
153
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ELECTION OF IPC DIRECTORS
NOMINEES FOR DIRECTORS
The IPC Board is divided into three classes serving staggered terms in
accordance with the IPC Charter. The number of directors, in accordance with
IPC's By-Laws, constituting the full board of directors shall be seven. The
terms of Mr. James E. Byrns and Mr. Gerald L. Kopischke will expire at the 1996
annual meeting and each has been nominated for re-election to a term of three
years expiring in 1999. In all cases, the directors elected will continue to
serve until their respective successors shall have been duly elected and
qualified.
It is intended that the proxies solicited on behalf of the IPC Board will be
voted for the Class II nominees, Mr. Byrns and Mr. Kopischke.
In the event that either of the nominees should become unable or for good
reason will not serve as a director, it is intended that the proxies will be
voted for the election of such other person or persons as shall be designated by
the IPC Board. It is not anticipated that either of the nominees will be unable
or unwilling to serve as a director. Except as otherwise indicated, each nominee
has been engaged in his or her present principal occupation for at least the
past five years.
The IPC Board recommends a vote FOR the nominees for director.
Mr. Nicholas J. Schrup, 66, a member of the IPC Board since 1979, passed
away on January 16, 1996.
Following the untimely death of Mr. Schrup, Mr. Michael R. Chase was elected
to the IPC Board effective January 26, 1996 to fill Mr. Schrup's unexpired term
as a Class III director.
Biographical information concerning each of the nominees for re-election and
the directors continuing in office is presented on the following pages.
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NOMINEES FOR DIRECTOR FOR TERMS EXPIRING IN 1999
CLASS II DIRECTORS -- PRESENT TERMS EXPIRE AT 1996 ANNUAL MEETING
<TABLE>
<C> <S>
(Insert Photograph) JAMES E. BYRNS, 69, is Chairman and Chief Executive Officer of
Custom-Pak, Inc. of Clinton, Iowa, a firm of which he was
co-founder in 1974. Mr. Byrns was elected to this position on
August 15, 1989. He had been President of that Company since
1980 having served as Executive Vice President from 1974. He was
elected to the IPC Board on January 31, 1984. Mr. Byrns is
Chairman of the Nominating Committee and is a member of the
Audit Committee and the Compensation Committee.
(Insert Photograph) GERALD L. KOPISCHKE, 64, was elected to the IPC Board effective
July 10, 1992. Mr. Kopischke was elected Vice President --
Electric Operations on September 1, 1980 and retired from that
position on January 1, 1996. He had served as Director of
Electrical Engineering prior to being appointed as Vice
President. Mr. Kopischke is a member of the Nominating
Committee.
</TABLE>
OTHER INCUMBENT DIRECTORS
CLASS III DIRECTORS -- PRESENT TERMS EXPIRE AT 1997 ANNUAL MEETING
<TABLE>
<C> <S>
(Insert Photograph) ALAN B. ARENDS, 62, is President of Arends Associates, Inc., of
Albert Lea, Minnesota, an employee benefits company which he
founded in 1983. Mr. Arends has also taught at both the high
school and college levels. He was elected to the IPC Board on
August 15, 1993. Mr. Arends is Chairman of the Compensation
Committee and is a member of the Audit Committee.
(Insert Photograph) MICHAEL R. CHASE, 57, was elected to the IPC Board effective
January 26, 1996. Mr. Chase replaces Nicholas J. Schrup who
passed away on January 16, 1996. Mr. Chase was elected Executive
Vice President on July 1, 1995. He had served as Director, Power
Generation beginning in 1988 and then Vice President, Power
Production on January 1, 1991.
(Insert Photograph) WAYNE H. STOPPELMOOR, 62, was elected to the IPC Board in July
1986. He was elected President and Chief Executive Officer
effective January 1, 1987 and was elected Chairman on May 1,
1990. Mr. Stoppelmoor had served as Vice President of
Administration beginning in 1978 and then Executive Vice
President starting in May 1985. Mr. Stoppelmoor is Chairman of
the Executive Committee.
</TABLE>
137
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CLASS I DIRECTORS -- PRESENT TERMS EXPIRE AT 1998 ANNUAL MEETING
<TABLE>
<C> <S>
(Insert Photograph) ALFRED D. CORDES, 64, was elected to the IPC Board on January 1,
1992. He was elected Vice President -- District Administration
and Public Affairs on May 1, 1990 and retired from that position
on July 1, 1995. He has also served as District Manager and
Executive Assistant prior to being appointed Vice President --
District Administration on January 1, 1986. Mr. Cordes is a
member of the Executive Committee and the Nominating Committee.
(Insert Photograph) JOYCE L. HANES, 63, has been a Director of Midwest Wholesale
Inc., Mason City, Iowa since 1970. She was elected Chairman of
the Board of that Company in May, 1986 and retired from that
position in 1988. She was elected a Director of Interstate Power
Company on January 1, 1982. Mrs. Hanes is Chairman of the Audit
Committee and is a member of the Executive Committee and the
Compensation Committee.
</TABLE>
Certain information regarding executive officers of IPC called for by
applicable regulations of the SEC has been furnished in IPC's annual report on
Form 10-K for 1995.
COMMITTEES OF THE IPC BOARD
IPC has a standing Executive Committee, present members are Mr. Stoppelmoor,
Mr. Cordes, and Mrs. Hanes. Prior to his death, Mr. Schrup was a member of this
committee. This committee held two meetings during the year 1995. The functions
performed by the Executive Committee include acting on behalf of the IPC Board
when necessary between meetings of the full IPC Board.
IPC has a standing Audit Committee, present members are Mrs. Hanes, Mr.
Arends, and Mr. Byrns. The Audit Committee held two meetings during the year
1995. The functions performed were briefly as follows: recommending to the IPC
Board the independent auditors to be employed by IPC, reviewing the planned
audit scope, reviewing the results of the independent auditors' examination and
reporting to the IPC Board the results of such services with recommendations
concerning the same.
IPC has a standing Nominating Committee, present members are Mr. Byrns, Mr.
Kopischke, and Mr. Cordes. The Nominating Committee held two meetings in 1995.
The committee's function is to make recommendations to the IPC Board for IPC
Board member succession, and as to the IPC Board member compensation. While
there are no formal procedures, the committee considers nominees brought to its
attention by other members of the IPC Board, members of management and
shareowners.
IPC has a standing Compensation Committee, present members are Mr. Arends,
Mr. Byrns, and Mrs. Hanes. Prior to his death, Mr. Schrup was a member of this
committee. The Compensation Committee's functions are to recommend to the IPC
Board the compensation of the CEO and executive officers, the types and nature
of employee benefit plans, and to prepare, as required by the Proxy Rules, a
Compensation Committee report to be included in the Proxy Statement. The
Compensation Committee held one meeting during 1995.
NOTE: The total number of meetings (of all kinds) of the IPC Board (together
with Committee meetings) during the fiscal year 1995 was 19. All directors with
the exception of Mr. Byrns, Mr. Cordes and Mr. Schrup (deceased on January 16,
1996) attended all of the meetings of the IPC Board and
138
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committees of the IPC Board on which he or she served. During 1995 Mr. Byrns,
Mr. Cordes and Mr. Schrup attended all but one of the total number of IPC Board
meetings and Committee meetings on which they served.
COMPENSATION OF DIRECTORS
During the period of January 1, 1995 to March 31, 1995, all directors who
were not employees of IPC were paid $8,200.00 per year plus $550.00 for each
directors' meeting in which they participated. Also $550.00 was paid each
non-employee director for each committee meeting held on a day separate from a
scheduled IPC Board meeting while $275.00 was paid for each committee meeting
which they attended that was held the same day but not in conjunction with an
IPC Board meeting. Effective April 1, 1995, the annual retainer for non-employee
directors was increased to $8,500.00 per year. The fees for any regular or
special meeting of the IPC Board as well as committee meetings held on non-board
meeting days were increased to $600. Fees for committee meetings held on an IPC
Board meeting day but not consecutive of that meeting were increased to $300.
The meeting and committee fees were for non-employee directors only.
All directors who were not employees received reimbursement of out-of-pocket
expenses incurred in connection with directors' or committee meetings. Each
director was included in IPC's group life insurance program.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The IPC Board accepted the recommendations of the Compensation Committee for
the 1995 salaries at the December 8, 1994 IPC Board meeting. The following
interlocking and insider positions are required to be disclosed. Mr. Stoppelmoor
is an employee of IPC and serves on the Board of Directors of American Trust &
Savings Bank. Mr. Schrup (deceased on January 16, 1996) who was on the Board of
Directors of American Trust & Savings Bank was the Chairman of IPC's
Compensation Committee.
PRINCIPAL HOLDERS OF VOTING SECURITIES
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
IPC represents that as of June 20, 1996, to the best of its knowledge only
the following persons or groups owned of record or beneficially more than 5% of
the outstanding VOTING SECURITIES of IPC:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL % OF OWNERSHIP
NAME OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP (1) (1)
- ------------------------------------------ ----------------------- ------------------ ---------------
<S> <C> <C> <C>
WPLH IPC Common Stock 1,903,293 16.6%
IES IPC Common Stock 1,903,293 16.6%
</TABLE>
- ------------------------
(1) By reason of the Stock Option Agreements, each of WPLH and IES may be deemed
to have sole voting and dispositive power with respect to the shares listed
above which are subject to their respective Options from IPC and,
accordingly, each of WPLH and IES may be deemed to beneficially own all of
such shares (assuming exercise of its Option and the nontriggering of the
other party's right to exercise its Option for IPC Common Stock). However,
each of WPLH and IES expressly disclaim any beneficial ownership of such
shares because the Options are exercisable only in certain circumstances.
See "The Stock Option Agreements."
SECURITY OWNERSHIP OF MANAGEMENT
The directors and officers of IPC owned of record and beneficially on June
20, 1996 an aggregate of 32,198 shares of IPC Common Stock, representing less
than 1% of the shares outstanding.
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IPC represents that as of June 20, 1996, to the best of its knowledge
beneficial ownership of shares of each class of EQUITY SECURITIES of IPC by all
directors and nominees individually, the CEO and certain named executive
officers individually, and the directors and officers of IPC as a group is as
follows:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL % OF
NAME OF NOMINEE TITLE OF CLASS (1) OWNERSHIP (2)(3) OWNERSHIP
- -------------------------------------------------------- ----------------------- ------------------ ----------
<S> <C> <C> <C>
Alan B. Arends IPC Common Stock 964 *
James E. Byrns IPC Common Stock 2,859 *
Michael R. Chase IPC Common Stock 5,251 *
Alfred D. Cordes IPC Common Stock 2,290(4) *
Donald E. Hamill IPC Common Stock 2,257(4) *
Joyce L. Hanes IPC Common Stock 1,652 *
Gerald L. Kopischke IPC Common Stock 4,157(4) *
Wayne H. Stoppelmoor IPC Common Stock 4,698(4) *
William C. Troy IPC Common Stock 310(4) *
Officers and Directors as a group -- 14 in group IPC Common Stock 32,198(4) *
</TABLE>
- ------------------------
* less than 1%
(1) In addition to IPC Common Stock, which is the only class of equity stock of
IPC which presently has voting power for the election of directors, IPC also
has, as equity securities, outstanding shares of IPC Preferred Stock.
(2) Information with respect to beneficial ownership based upon information
furnished by each officer or director and contained in filings made with the
SEC.
(3) Includes shares in which said director or officer may have an indirect
beneficial ownership by reason of the ownership of such shares by their
spouses, dependent children or trusts.
(4) Includes 1,684 shares for Mr. Stoppelmoor, 1,459 shares for Mr. Kopischke,
1,620 shares for Mr. Hamill, 999 shares for Mr. Cordes, 215 shares for Mr.
Troy and an aggregate of 11,325 shares for officers and directors. These
shares are in IPC's 401(k) Plan as of June 20, 1996.
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COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION COMMITTEE REPORT
The Compensation Committee consists of three members of the IPC Board (Mrs.
Hanes and Messrs. Arends and Schrup (deceased January 16, 1996) (Chairman)) none
of whom is a current or former officer or employee of IPC.
Annually, the Committee reviews executive compensation to determine
officers' salary levels for the following year. The compensation of the CEO and
officers of IPC consists solely of base salary. The base salary levels for IPC's
CEO, Mr. Stoppelmoor, and executive officers are competitively set by the
Committee compared with the base salary levels of similar position in other
companies of similar size and purpose. Also, considered in the salary
determination is the individual officer's experience and performance relative to
IPC's goals. It is the aim of the Committee to determine salary levels that
reward economic value delivered to IPC's shareowners and customers and that
attract, motivate, and retain executives of the highest quality. As guidelines
in determining the CEO and officer salary levels, the Committee reviews the
overall corporate performance (including earnings per share, return on common
equity, operating expense, customer service, economic development and management
efficiency), the compensation levels of comparable utilities and general
industry and the salary recommendation of the Chief Executive Officer of IPC. Of
these factors, the Committee accords significant weight to the compensation
levels of comparable utilities.
During the discussion of the overall corporate performance, it was noted
that for the 1994 year the earnings, although still low, had increased. The
earnings were affected by a combination of unfavorable rate treatment, abnormal
weather conditions, purchased power capacity payments, and environmental cleanup
costs. Operating efficiencies were improved through a consolidation of operating
districts. IPC realized interest savings through the issuance of four series of
Pollution Control Refunding Revenue Bonds. There was also implemented a
Strategic Planning Study to review the company's current and future long-range
goals in order to cut costs of operation.
To determine equitable CEO and officer salary levels, the Committee reviewed
studies on executive compensation in non-manufacturing industries as done by
Ernst and Young LLP and the Conference Board, a list of salaries of executives
of the major publicly-held companies doing business in Iowa as published by a
major Iowa newspaper, and a similar list from the 1994 Edison Electric
Institutes Executive Compensation Survey of Chief Executive Officers ("CEOs"),
more specifically those companies west of the Mississippi River plus Wisconsin
and Illinois that have revenues ranging from $89 million to $540 million. It has
been determined that Mr. Stoppelmoor's salary should be aligned to the average
total cash compensation of peer CEOs of the utilities surveyed and then
internally each officer's salary would be set at a percentage of the CEOs.
In setting 1995 salaries, the Committee considered the progress made toward
corporate goals of company wide cost containment and the establishment of a
strong record in the areas of customer service, economic development, and
management efficiency. The Committee recommended to the IPC Board executive
salaries consistent with the range of average estimated salary increases
throughout the comparable-size utility industry. (The Committee's
recommendations for 1995 officers' salaries were approved by the IPC Board.)
In addition, on November 7, 1995 the Committee recommended to the IPC Board,
and the IPC Board subsequently adopted, the IPC Change-in-Control Severance
Agreements for each of nine of IPC's executive officers, including Messrs.
Stoppelmoor, Chase, Hamill and Troy. In determining to recommend such
agreements, the Committee concluded that it was in the best interests of IPC and
its shareowners to foster the continued employment of key executive personnel.
The Committee believes that the IPC Change-in-Control Severance Agreements are
an appropriate manner in which to reinforce and encourage the continued
attention and dedication of IPC's key executive personnel to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from a possible change in control of IPC. The Committee believes that
the IPC Change-in-Control
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Severance Agreements will preserve the interests of shareowners by providing
certain financial protections for senior executive officers who represent
important assets of IPC's business, thus allowing management objectivity and
continuity of operations in the event of, and after, a change in control of IPC.
Compensation Committee
Nicholas J. Schrup, Chairman Joyce L. Hanes Alan B. Arends
(deceased January 16, 1996)
PERFORMANCE GRAPH
INTERSTATE POWER COMPANY
Comparison of Five Year Cumulative Total Return* Among IPC,
Standard and Poor's Corporation (S & P) 500 Index
& Edison Electric Institute (EEI) 100 Index of Investor Owned Electrics**
[GRAPH]
Assumes $100 invested on January 1, 1991 in IPC Common Stock, S & P 500 Index
and EEI 100 Index of Investor Owned Electrics * Total Return Assumes
Reinvestment of Dividends **Fiscal Year Ending December 31.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interstate Power Company $ 100 $ 143 $ 140 $ 146 $ 126 $ 189
S&P 500 Index $ 100 $ 131 $ 140 $ 155 $ 157 $ 215
EEI 100 Index $ 100 $ 129 $ 139 $ 154 $ 136 $ 179
</TABLE>
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CASH COMPENSATION
There is set forth below certain information concerning all compensation of
the CEO and the four most highly compensated executive officers of IPC as to
whom the total compensation exceeded $100,000 during the year 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION
- ----------------------------------------------------
(A) ANNUAL COMPENSATION
---------------------------------------------------------------------------
YEAR SALARY($) BONUS OTHER ANNUAL ALL OTHER
--------- --------- ------ COMPENSATION COMPENSATION($)
(B) (C)(1) (D) ------------------- -----------------
(E) (I)(2)
<S> <C> <C> <C> <C> <C>
Wayne H. Stoppelmoor 1995 260,000 0 0 250
President & CEO 1994 245,000 0 0 250
1993 242,000 0 0 0
Gerald L. Kopischke 1995 168,500 0 0 250
VP-Electric Operations 1994 160,000 0 0 250
1993 157,000 0 0 0
Michael R. Chase 1995 138,000 0 0 250
VP-Power Production then Executive VP 1994 123,500 0 0 250
effective 07-01-95 1993 118,000 0 0 0
Donald E. Hamill 1995 123,000 0 0 250
VP-Budgets/Regulatory Affairs 1994 118,000 0 0 250
1993 116,000 0 0 0
William C. Troy 1995 123,000 0 0 250
Controller 1994 118,000 0 0 250
1993 116,000 0 0 0
</TABLE>
- ------------------------
(1) Column (c) includes any salary elective deferral pursuant to IPC's 401(k)
Plan. The 401(k) Plan is available to all employees.
(2) Column (i) includes any company matching funds pursuant to IPC's 401(k)
Plan. IPC matched $.25 on every dollar deferred by the participant up to a
maximum match of $250. The option is available to all employees.
COMPENSATION PURSUANT TO PLANS
IPC's Pension Plan covers substantially all employees including officers.
Pension Plan benefits depend upon credited service, age at retirement and
compensation. At an assumed retirement age of 65, the normal retirement benefit
for Pension Plan participants is based on a formula that applies a factor of
1.17% to the participant's average annual compensation for the four highest
consecutive years plus a factor of .35% to the participant's average
compensation in excess of social security covered compensation multiplied by the
number of accredited service years (maximum 35). Optional benefit forms are also
available.
The following table displays the maximum annual retirement benefits payable
under the straight life annuity form of pension at the normal retirement age of
65 for specified remunerations and years of service under the Pension Plan
provisions in effect December 31, 1995.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS FOR YEARS OF SERVICE
LISTED
AVERAGE ANNUAL COMPENSATION FOR 4 HIGHEST PAID --------------------------------------------------
CONSECUTIVE YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ------------------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$100,000 $ 28,586 $ 35,732 $ 42,878 $ 50,025
125,000 36,186 45,232 54,278 63,325
150,000 43,786 54,732 65,678 76,625
175,000 or greater 43,786* 54,732* 65,678* 76,625*
</TABLE>
* 1995 maximum allowable by current law.
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For purposes of determining Pension Plan benefits, compensation for each of
the individuals listed in the Summary Compensation Table is the same as the
amounts set forth in that table. The estimated full years of credited service
for benefits at retirement under the Pension Plan for those executive officers
listed in the Summary Compensation Table are: Wayne H. Stoppelmoor, 35 years;
Gerald L. Kopischke, 35 years; Michael R. Chase, 35 years; Donald E. Hamill, 35
years; and William C. Troy, 25 years.
In addition to the Pension Plan, the Supplemental Retirement Plan ("SRP")
amended in 1995 provides a supplemental retirement benefit for certain officers
of IPC who meet Plan requirements. The Plan presently covers the President, all
Vice Presidents, the Controller, the Secretary and Treasurer, and the Assistant
Secretary and Assistant Treasurer ("certain executive officers"). Benefits begin
at the normal retirement date (age 65) or a participant electing early
retirement may begin receiving reduced benefits as early as age 55. For those
certain executive officers retiring on or after January 1, 1994, the SRP (1)
provides a retirement benefit per month equal to seventy-five percent of the
individual's highest average monthly salary for any consecutive 12-month period
of employment by Interstate prior to retirement, less the individual's qualified
defined benefit retirement plan benefit and less the individual's social
security benefit, and (2) provides a survivor benefit. The SRP may be funded in
part from the general assets of IPC in addition to the purchase of cost recovery
life insurance policies by IPC.
The following table displays the maximum annual supplemental retirement
benefits payable under the straight life annuity form of pension at the normal
retirement age of 65 for specified remunerations for the year of retirement
under the SRP provisions in effect at December 31, 1995.
ESTIMATED ANNUAL SRP BENEFITS FOR YEARS OF SERVICE LISTED
<TABLE>
<CAPTION>
FINAL ANNUAL SALARY 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ---------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$125,000 $ 44,364 $ 35,318 $ 26,272 $ 17,225
150,000 55,514 44,568 33,622 22,675
175,000 74,264 63,318 52,372 41,425
200,000 93,014 82,068 71,122 60,175
225,000 111,764 100,818 89,872 78,925
250,000 130,514 119,568 108,622 97,675
275,000 149,264 138,318 127,372 116,425
300,000 168,014 157,068 146,122 135,175
325,000 186,764 175,818 164,872 153,925
</TABLE>
IPC has an Amended Deferred Compensation Plan available to officers and
non-employee directors and provides for deferral of salaries and fees with
accrued interest.
In 1988, IPC adopted a 401(k) Plan in which all employees of IPC are
eligible to participate, subject to meeting Plan eligibility requirements. Under
the provisions of this Plan, any eligible employee may elect to direct up to 15%
of his or her compensation, as defined in the Plan with a maximum contribution
of $9,240 for the year 1995. Any amount so deferred by the employee is exempt
from current federal income tax. Directors who are not employees are not
eligible to participate in the Plan. To encourage participation in this Plan,
IPC contributes to the account of participating employees 25 cents for each one
dollar contributed by the employee, up to a maximum Company contribution of
$250. Upon retirement from IPC, employees may receive distributions from their
account held by the Plan Trustee.
OTHER COMPENSATION
No officer individually or officers as a group received "Other Annual
Compensation" of $50,000 or 10% of the salary and bonus reported in the Summary
Compensation Table.
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STOCK OPTION AND STOCK APPRECIATION RIGHT PLANS
No director or Officer of IPC held any options to purchase securities from
IPC or its subsidiary during the year 1995.
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
IPC has entered into the IPC Severance Agreements with each of nine senior
executives of IPC (including Messrs. Stoppelmoor, Chase, Hamill and Troy) which
generally provide for certain benefits in the event the executive is terminated
or resigns under certain circumstances following a change in control of IPC (as
defined in the agreements). The Mergers will constitute a change in control of
IPC for purposes of these agreements. For a more complete description of the IPC
Severance Agreements, see "The Mergers -- Interests of Certain Persons in the
Mergers -- Severance Arrangements."
EMPLOYMENT AGREEMENTS
Pursuant to the Merger Agreement, it is anticipated that IPC will enter into
an employment agreement with Mr. Chase following consummation of the Mergers.
See "The Mergers -- Employment Agreements."
RELATIONSHIP WITH INDEPENDENT PUBLIC AUDITORS
The firm of Deloitte & Touche LLP has been selected to serve as the
independent auditors for IPC for the fiscal year ending December 31, 1996. A
representative of Deloitte & Touche LLP is expected to be present at the annual
meeting of shareowners of IPC scheduled for September 5, 1996 with the
opportunity to make a statement and to be available to respond to appropriate
questions.
145
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER, AS AMENDED
BY AND AMONG
WPL HOLDINGS, INC.,
IES INDUSTRIES INC.,
INTERSTATE POWER COMPANY
(A DELAWARE CORPORATION),
WPLH ACQUISITION CO.
AND
INTERSTATE POWER COMPANY
(A WISCONSIN CORPORATION)
DATED AS OF NOVEMBER 10, 1995
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C> <C>
ARTICLE I
THE MERGER
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
Section 1.1 The Merger.................................................................. A-12
Section 1.2 Effects of the Merger....................................................... A-13
Section 1.3 Effective Time of the Merger................................................ A-14
ARTICLE II
TREATMENT OF SHARES
Section 2.1 Effect of the Merger on Capital Stock....................................... A-14
(a) Cancellation of Certain Common Stock............................. A-14
(b) Conversion of Certain Common Stock............................... A-14
(c) Interstate Preferred Stock....................................... A-15
(d) Conversion of Acquisition Common Stock........................... A-15
(e) Redemption of Utilities Preferred Stock.......................... A-16
Section 2.2 Dissenting Shares........................................................... A-16
Section 2.3 Issuance of New Certificates................................................ A-16
(a) Deposit with Exchange Agent...................................... A-16
(b) Issuance Procedures.............................................. A-16
(c) Distributions with Respect to Unsurrendered Shares............... A-17
(d) No Fractional Securities......................................... A-17
(e) Closing of Common Stock Transfer Books........................... A-18
(f) Termination of Exchange Agent.................................... A-18
ARTICLE III
THE CLOSING
Section 3.1 The Closing................................................................. A-18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WPL
Section 4.1 Organization and Qualification.............................................. A-18
Section 4.2 Subsidiaries................................................................ A-19
Section 4.3 Capitalization.............................................................. A-19
Section 4.4 Authority; Noncontravention; Statutory Approvals; Compliance................ A-20
(a) Authority........................................................ A-20
(b) Noncontravention................................................. A-20
(c) Statutory Approvals.............................................. A-21
(d) Compliance....................................................... A-21
Section 4.5 Reports and Financial Statements............................................ A-22
Section 4.6 Absence of Certain Changes or Events........................................ A-22
Section 4.7 Litigation.................................................................. A-23
Section 4.8 Registration Statement and Proxy Statement.................................. A-23
Section 4.9 Tax Matters................................................................. A-23
(a) Filing of Timely Tax Returns..................................... A-23
(b) Payment of Taxes................................................. A-23
(c) Tax Reserves..................................................... A-23
(d) Tax Liens........................................................ A-23
(e) Withholding Taxes................................................ A-24
(f) Extensions of Time for Filing Tax Returns........................ A-24
</TABLE>
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(g) Waivers of Statute of Limitations................................ A-24
(h) Expiration of Statute of Limitations............................. A-24
(i) Audit, Administrative and Court Proceedings...................... A-24
(j) Powers of Attorney............................................... A-24
(k) Tax Rulings...................................................... A-24
(l) Availability of Tax Returns...................................... A-24
(m) Tax Sharing Agreements........................................... A-24
(n) Code Section 280G................................................ A-24
(o) Liability for Others............................................. A-24
Section 4.10 Employee Matters; ERISA..................................................... A-25
(a) Benefit Plans.................................................... A-25
(b) Contributions.................................................... A-25
(c) Qualification; Compliance........................................ A-25
(d) Liabilities...................................................... A-25
(e) Welfare Plans.................................................... A-25
(f) Documents made Available......................................... A-26
(g) Payments Resulting from Merger................................... A-26
(h) Labor Agreements................................................. A-26
Section 4.11 Environmental Protection.................................................... A-27
(a) Compliance....................................................... A-27
(b) Environmental Permits............................................ A-27
(c) Environmental Claims............................................. A-27
(d) Releases......................................................... A-27
(e) Predecessors..................................................... A-27
(f) Disclosure....................................................... A-28
(i) "Environmental Claim"....................................... A-28
(ii) "Environmental Laws"....................................... A-28
(iii) "Hazardous Materials"..................................... A-28
(iv) "Release".................................................. A-29
Section 4.12 Regulation as a Utility..................................................... A-29
Section 4.13 Vote Required............................................................... A-29
Section 4.14 Accounting Matters.......................................................... A-29
Section 4.15 Applicability of Certain Provisions of Wisconsin Law, Etc................... A-29
Section 4.16 Opinion of Financial Advisor................................................ A-30
Section 4.17 Insurance................................................................... A-30
Section 4.18 Ownership of IES and Interstate Common Stock................................ A-30
Section 4.19 WPL Rights Agreement........................................................ A-30
Section 4.20 Operations of Nuclear Power Plant........................................... A-30
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF IES
Section 5.1 Organization and Qualification.............................................. A-30
Section 5.2 Subsidiaries................................................................ A-31
Section 5.3 Capitalization.............................................................. A-31
Section 5.4 Authority; Noncontravention; Statutory Approvals; Compliance................ A-32
(a) Authority........................................................ A-32
(b) Noncontravention................................................. A-32
(c) Statutory Approvals.............................................. A-33
(d) Compliance....................................................... A-33
Section 5.5 Reports and Financial Statements............................................ A-33
Section 5.6 Absence of Certain Changes or Events........................................ A-34
Section 5.7 Litigation.................................................................. A-34
Section 5.8 Registration Statement and Proxy Statement.................................. A-34
</TABLE>
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Section 5.9 Tax Matters................................................................. A-35
(a) Filing of Timely Tax Returns..................................... A-35
(b) Payment of Taxes................................................. A-35
(c) Tax Reserves..................................................... A-35
(d) Tax Liens........................................................ A-35
(e) Withholding Taxes................................................ A-35
(f) Extensions of Time for Filing Tax Returns........................ A-35
(g) Waivers of Statute of Limitations................................ A-35
(h) Expiration of Statute of Limitations............................. A-35
(i) Audit, Administrative and Court Proceedings...................... A-35
(j) Powers of Attorney............................................... A-35
(k) Tax Rulings...................................................... A-35
(l) Availability of Tax Returns...................................... A-35
(m) Tax Sharing Agreements........................................... A-36
(n) Code Section 280G................................................ A-36
(o) Liability for Others............................................. A-36
Section 5.10 Employee Matters; ERISA..................................................... A-36
(a) Benefit Plans.................................................... A-36
(b) Contributions.................................................... A-36
(c) Qualification; Compliance........................................ A-36
(d) Liabilities...................................................... A-36
(e) Welfare Plans.................................................... A-36
(f) Documents made Available......................................... A-37
(g) Payments Resulting from Merger................................... A-37
(h) Labor Agreements................................................. A-37
Section 5.11 Environmental Protection.................................................... A-38
(a) Compliance....................................................... A-38
(b) Environmental Permits............................................ A-38
(c) Environmental Claims............................................. A-38
(d) Releases......................................................... A-38
(e) Predecessors..................................................... A-38
(f) Disclosure....................................................... A-39
Section 5.12 Regulation as a Utility..................................................... A-39
Section 5.13 Vote Required............................................................... A-39
Section 5.14 Accounting Matters.......................................................... A-39
Section 5.15 Applicability of Certain Iowa Law........................................... A-39
Section 5.16 Opinion of Financial Advisor................................................ A-39
Section 5.17 Insurance................................................................... A-39
Section 5.18 Ownership of WPL and Interstate Common Stock................................ A-39
Section 5.19 IES Rights Agreement........................................................ A-40
Section 5.20 Operations of Nuclear Power Plant........................................... A-40
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF INTERSTATE
Section 6.1 Organization and Qualification.............................................. A-40
Section 6.2 Subsidiaries................................................................ A-40
Section 6.3 Capitalization.............................................................. A-41
Section 6.4 Authority; Noncontravention; Statutory Approvals; Compliance................ A-41
(a) Authority........................................................ A-41
(b) Noncontravention................................................. A-42
(c) Statutory Approvals.............................................. A-42
(d) Compliance....................................................... A-42
Section 6.5 Reports and Financial Statements............................................ A-43
</TABLE>
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Section 6.6 Absence of Certain Changes or Events........................................ A-43
Section 6.7 Litigation.................................................................. A-44
Section 6.8 Registration Statement and Proxy Statement.................................. A-44
Section 6.9 Tax Matters................................................................. A-44
(a) Filing of Timely Tax Returns..................................... A-44
(b) Payment of Taxes................................................. A-44
(c) Tax Reserves..................................................... A-44
(d) Tax Liens........................................................ A-44
(e) Withholding Taxes................................................ A-44
(f) Extensions of Time for Filing Tax Returns........................ A-45
(g) Waivers of Statute of Limitations................................ A-45
(h) Expiration of Statute of Limitations............................. A-45
(i) Audit, Administrative and Court Proceedings...................... A-45
(j) Powers of Attorney............................................... A-45
(k) Tax Rulings...................................................... A-45
(l) Availability of Tax Returns...................................... A-45
(m) Tax Sharing Agreements........................................... A-45
(n) Code Section 280G................................................ A-45
(o) Liability for Others............................................. A-45
Section 6.10 Employee Matters; ERISA..................................................... A-45
(a) Benefit Plans.................................................... A-45
(b) Contributions.................................................... A-46
(c) Qualification; Compliance........................................ A-46
(d) Liabilities...................................................... A-46
(e) Welfare Plans.................................................... A-46
(f) Documents made Available......................................... A-46
(g) Payments Resulting from Merger................................... A-47
(h) Labor Agreements................................................. A-47
Section 6.11 Environmental Protection.................................................... A-47
(a) Compliance....................................................... A-47
(b) Environmental Permits............................................ A-48
(c) Environmental Claims............................................. A-48
(d) Releases......................................................... A-48
(e) Predecessors..................................................... A-48
(f) Disclosure....................................................... A-48
Section 6.12 Regulation as a Utility..................................................... A-48
Section 6.13 Vote Required............................................................... A-49
Section 6.14 Accounting Matters.......................................................... A-49
Section 6.15 Applicability of Certain Delaware Law, Etc.................................. A-49
Section 6.16 Opinion of Financial Advisor................................................ A-49
Section 6.17 Insurance................................................................... A-49
Section 6.18 Ownership of WPL and IES Common Stock....................................... A-49
</TABLE>
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ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
Section 7.1 Covenants of the Parties.................................................... A-49
Section 7.2 Ordinary Course of Business................................................. A-49
Section 7.3 Dividends................................................................... A-50
Section 7.4 Issuance of Securities...................................................... A-51
Section 7.5 Charter Documents........................................................... A-52
Section 7.6 No Acquisitions............................................................. A-52
Section 7.7 Capital Expenditures and Emission Allowances................................ A-52
Section 7.8 No Dispositions............................................................. A-53
Section 7.9 Indebtedness................................................................ A-53
Section 7.10 Compensation, Benefits...................................................... A-53
Section 7.11 1935 Act.................................................................... A-53
Section 7.12 Transmission, Generation.................................................... A-54
Section 7.13 Accounting.................................................................. A-54
Section 7.14 Pooling..................................................................... A-54
Section 7.15 Taxfree Status.............................................................. A-54
Section 7.16 Affiliate Transactions...................................................... A-54
Section 7.17 Cooperation, Notification................................................... A-54
Section 7.18 Thirdparty Consents......................................................... A-55
Section 7.19 No Breach................................................................... A-55
Section 7.20 Taxexempt Status............................................................ A-55
Section 7.21 Transition Steering Team.................................................... A-55
Section 7.22 Company Actions............................................................. A-55
Section 7.23 Tax Matters................................................................. A-55
Section 7.24 Discharge of Liabilities.................................................... A-56
Section 7.25 Contracts................................................................... A-56
Section 7.26 Insurance................................................................... A-56
Section 7.27 Permits..................................................................... A-56
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 Access to Information....................................................... A-56
Section 8.2 Joint Proxy Statement and Registration Statement............................ A-57
(a) Preparation and Filing........................................... A-57
(b) Letter of WPL's Accountants...................................... A-57
(c) Letter of IES's Accountants...................................... A-57
(d) Letter of Interstate's Accountants............................... A-57
(e) Fairness Opinions................................................ A-57
Section 8.3 Regulatory Matters.......................................................... A-58
(a) HSR Filings...................................................... A-58
(b) Other Regulatory Approvals....................................... A-58
Section 8.4 Shareholder Approval........................................................ A-58
(a) Approval of IES Shareholders..................................... A-58
(b) Approval of WPL Shareholders..................................... A-58
(c) Approval of Interstate Shareholders.............................. A-59
(d) Meeting Date..................................................... A-59
(e) Fairness Opinions Not Withdrawn.................................. A-59
Section 8.5 Director and Officer Indemnification........................................ A-59
(a) Indemnification.................................................. A-59
</TABLE>
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(b) Insurance........................................................ A-60
(c) Successors....................................................... A-60
(d) Survival of Indemnification...................................... A-60
(e) Benefit.......................................................... A-60
Section 8.6 Disclosure Schedules........................................................ A-60
Section 8.7 Public Announcements........................................................ A-61
Section 8.8 Rule 145 Affiliates......................................................... A-61
Section 8.9 Employee Agreements and Workforce Matters................................... A-61
(a) Certain Employee Agreements...................................... A-61
(b) Workforce Matters................................................ A-61
Section 8.10 Employee Benefit Plans...................................................... A-62
Section 8.11 Stock Option and Other Stock Plans.......................................... A-62
(a) Amendment of Stock Plans and Agreements.......................... A-62
(b) Company Action................................................... A-63
Section 8.12 No Solicitations............................................................ A-63
Section 8.13 Company Board of Directors.................................................. A-64
Section 8.14 Company Officers............................................................ A-65
Section 8.15 Employment Contracts........................................................ A-65
Section 8.16 PostMerger Operations....................................................... A-65
Section 8.17 Expenses.................................................................... A-66
Section 8.18 Further Assurances.......................................................... A-66
Section 8.19 Charter and Bylaw Amendments................................................ A-66
Section 8.20 IES Rights Agreement........................................................ A-66
ARTICLE IX
CONDITIONS
Section 9.1 Conditions to each Party's Obligation to Effect the Merger.................. A-66
(a) Shareholder Approvals............................................ A-66
(b) No Injunction.................................................... A-67
(c) Registration Statement........................................... A-67
(d) Listing of Shares................................................ A-67
(e) Statutory Approvals.............................................. A-67
(f) Pooling.......................................................... A-67
Section 9.2 Further Conditions to Obligation of IES to Effect the IES Merger............ A-67
(a) Performance of Obligations....................................... A-67
(b) Representations and Warranties................................... A-67
(c) Closing Certificates............................................. A-68
(d) Material Adverse Effect.......................................... A-68
(e) Tax Opinions..................................................... A-68
(f) Required Consents................................................ A-68
(g) Affiliate Agreements............................................. A-68
Section 9.3 Further Conditions to Obligation of Interstate to Effect the Interstate
Merger...................................................................... A-68
(a) Performance of Obligations....................................... A-68
(b) Representations and Warranties................................... A-68
(c) Closing Certificates............................................. A-69
(d) Material Adverse Effect.......................................... A-69
(e) Tax Opinions..................................................... A-69
(f) Required Consents................................................ A-69
(g) Affiliate Agreements............................................. A-69
Section 9.4 Further Conditions to Obligation of WPL to Effect the Merger................ A-69
(a) Performance of Obligations....................................... A-69
</TABLE>
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(b) Representations and Warranties................................... A-69
(c) Closing Certificates............................................. A-69
(d) Material Adverse Effect.......................................... A-70
(e) Tax Opinions..................................................... A-70
(f) Required Consents................................................ A-70
(g) Affiliate Agreements............................................. A-70
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination................................................................. A-70
Section 10.2 Effect of Termination....................................................... A-73
Section 10.3 Termination Fee; Expenses................................................... A-73
(a) Termination Fee Upon Breach or Withdrawal of Approval............ A-73
(b) Additional Termination Fee....................................... A-74
(c) Second Termination Fee........................................... A-75
(d) Expenses......................................................... A-75
(e) Limitation on Termination Fees................................... A-75
(f) Certain Definitions.............................................. A-76
(i) Participation Percentage.................................... A-76
(ii) Target Party............................................... A-76
Section 10.4 Amendment................................................................... A-76
Section 10.5 Waiver...................................................................... A-76
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Nonsurvival; Effect of Representations and Warranties....................... A-77
Section 11.2 Brokers..................................................................... A-77
Section 11.3 Notices..................................................................... A-77
Section 11.4 Miscellaneous............................................................... A-79
Section 11.5 Interpretation.............................................................. A-79
Section 11.6 Counterparts; Effect........................................................ A-79
Section 11.7 Parties in Interest......................................................... A-79
Section 11.8 Binding Effect; Benefits.................................................... A-80
Section 11.9 WAIVER OF JURY TRIAL AND CERTAIN DAMAGES.................................... A-80
Section 11.10 Enforcement................................................................. A-80
</TABLE>
EXHIBITS
<TABLE>
<S> <C> <C> <C>
Exhibit A -- WPL/IES Stock Option Agreement
Exhibit B -- WPL/Interstate Stock Option Agreement
Exhibit C -- IES/WPL Stock Option Agreement
Exhibit D -- IES/Interstate Stock Option Agreement
Exhibit E -- Interstate/WPL Stock Option Agreement
Exhibit F -- Interstate/IES Stock Option Agreement
Exhibit 1.3 -- Plan of Merger
Exhibit 8.8(a) -- Affilate Agreement of WPL
Exhibit 8.8(b) -- Affiliate Agreement of IES and Interstate
Exhibit 8.15.1 -- WPL Employment Contract with Mr. Liu
Exhibit 8.15.2 -- WPL Employment Contract with Mr. Davis
Exhibit 8.15.3 -- WPL Employment Contract with Mr. Stoppelmoor
Exhibit 8.15.4 -- WPL Employment Contract with Mr. Chase
</TABLE>
A-8
<PAGE>
INDEX OF DEFINED TERMS
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Acquisition................................................................................................................. A-12
Acquisition Common Stock.................................................................................................... A-15
1935 Act.................................................................................................................... A-19
Affiliate................................................................................................................... A-29
Affiliate Agreement......................................................................................................... A-61
Affiliated Employees........................................................................................................ A-62
Agreement................................................................................................................... A-12
Atomic Energy Act........................................................................................................... A-22
Business Combination........................................................................................................ A-71
Business Combination Proposal............................................................................................... A-64
Canceled Common Shares...................................................................................................... A-16
Certificates................................................................................................................ A-16
Class I..................................................................................................................... A-64
Class II.................................................................................................................... A-64
Class III................................................................................................................... A-64
Closing..................................................................................................................... A-18
Closing Agreement........................................................................................................... A-25
Closing Date................................................................................................................ A-18
Code........................................................................................................................ A-12
Company..................................................................................................................... A-12
Confidentiality Agreement................................................................................................... A-57
DAEC........................................................................................................................ A-40
DGCL........................................................................................................................ A-13
Disclosure Schedules........................................................................................................ A-61
Dissenting Shares........................................................................................................... A-16
DOE......................................................................................................................... A-22
Effective Time.............................................................................................................. A-14
Environmental Claim......................................................................................................... A-28
Environmental Laws.......................................................................................................... A-28
Environmental Permits....................................................................................................... A-27
ERISA....................................................................................................................... A-25
Exchange Act................................................................................................................ A-22
Exchange Agent.............................................................................................................. A-16
FERC........................................................................................................................ A-22
Final Order................................................................................................................. A-67
GAAP........................................................................................................................ A-12
Governmental Authority...................................................................................................... A-21
Hazardous Materials......................................................................................................... A-28
HSR Act..................................................................................................................... A-58
IBCA........................................................................................................................ A-13
Indemnified Liabilities..................................................................................................... A-59
Indemnified Party........................................................................................................... A-59
Indemnified Parties......................................................................................................... A-59
IES......................................................................................................................... A-12
IES Benefit Plans........................................................................................................... A-36
IES Common Stock............................................................................................................ A-14
IES Disclosure Schedule..................................................................................................... A-30
IES Directors............................................................................................................... A-64
IES Dissenting Shares....................................................................................................... A-16
IES Financial Statements.................................................................................................... A-34
IES/Interstate Stock Option Agreement....................................................................................... A-12
</TABLE>
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IES Joint Venture........................................................................................................... A-31
IES Material Adverse Effect................................................................................................. A-31
IES Merger.................................................................................................................. A-12
IES Preferred Stock......................................................................................................... A-31
IES Ratio................................................................................................................... A-14
IES Required Consents....................................................................................................... A-32
IES Required Statutory Approvals............................................................................................ A-33
IES Rights Agreement........................................................................................................ A-40
IES SEC Reports............................................................................................................. A-33
IES Shareholders' Approval.................................................................................................. A-39
IES Special Meeting......................................................................................................... A-58
IES Stock Awards............................................................................................................ A-63
IES Stock Option............................................................................................................ A-62
IES Subsidiary.............................................................................................................. A-31
IES/WPL Stock Option Agreement.............................................................................................. A-12
Initial Termination Date.................................................................................................... A-70
Interstate.................................................................................................................. A-12
Interstate Benefit Plans.................................................................................................... A-46
Interstate Common Stock..................................................................................................... A-14
Interstate Directors........................................................................................................ A-64
Interstate Disclosure Schedule.............................................................................................. A-40
Interstate Dissenting Shares................................................................................................ A-16
Interstate Financial Statements............................................................................................. A-43
Interstate/IES Stock Option Agreement....................................................................................... A-12
Interstate Joint Venture.................................................................................................... A-41
Interstate Material Adverse Effect.......................................................................................... A-40
Interstate Merger........................................................................................................... A-13
Interstate Preferred Stock.................................................................................................. A-15
Interstate Ratio............................................................................................................ A-15
Interstate Required Consents................................................................................................ A-42
Interstate Required Statutory Approval...................................................................................... A-42
Interstate SEC Reports...................................................................................................... A-43
Interstate Shareholders' Approval........................................................................................... A-49
Interstate Special Meeting.................................................................................................. A-59
Interstate Subsidiary....................................................................................................... A-41
Interstate/WPL Stock Option Agreement....................................................................................... A-12
IRS......................................................................................................................... A-25
Joint Proxy/Registration Statement.......................................................................................... A-57
Joint Venture............................................................................................................... A-19
Kewaunee.................................................................................................................... A-30
knowledge................................................................................................................... A-21
McLeod...................................................................................................................... A-14
McLeod Contengency.......................................................................................................... A-14
Merger...................................................................................................................... A-13
Merrill..................................................................................................................... A-30
Morgan...................................................................................................................... A-39
New Interstate.............................................................................................................. A-12
New Interstate Common Stock................................................................................................. A-15
New Interstate Preferred Stock.............................................................................................. A-15
New Utilities............................................................................................................... A-13
New Utilities Common Stock.................................................................................................. A-15
Nonregulated Company........................................................................................................ A-66
Non-Target Party............................................................................................................ A-75
</TABLE>
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<PAGE>
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NRC......................................................................................................................... A-22
NYSE........................................................................................................................ A-18
Payment Date................................................................................................................ A-51
Participation Percentage.................................................................................................... A-76
PBGC........................................................................................................................ A-25
Permits..................................................................................................................... A-21
Plan of Merger.............................................................................................................. A-14
Power Act................................................................................................................... A-22
Proxy Statement............................................................................................................. A-23
Registration Statement...................................................................................................... A-23
Release..................................................................................................................... A-29
Representatives............................................................................................................. A-56
Salomon..................................................................................................................... A-49
SEC......................................................................................................................... A-12
Second Target Party......................................................................................................... A-75
Securities Act.............................................................................................................. A-22
Stock Option Agreements..................................................................................................... A-12
Stock Plans................................................................................................................. A-63
Subsidiary.................................................................................................................. A-19
Target Party................................................................................................................ A-76
Tax Return.................................................................................................................. A-25
Tax Ruling.................................................................................................................. A-25
Taxes....................................................................................................................... A-24
Three-Year Period........................................................................................................... A-79
Transition Team............................................................................................................. A-55
Utilities................................................................................................................... A-31
Utilities Common Stock...................................................................................................... A-31
Utilities Preferred Stock................................................................................................... A-31
Violation................................................................................................................... A-20
WBCL........................................................................................................................ A-13
Wisconsin Regulatory Event.................................................................................................. A-13
WP&LC....................................................................................................................... A-19
WP&LC Common Stock.......................................................................................................... A-19
WP&LC Preferred Stock....................................................................................................... A-20
WPL......................................................................................................................... A-12
WPL Benefit Plans........................................................................................................... A-25
WPL Common Stock............................................................................................................ A-14
WPL Directors............................................................................................................... A-64
WPL Disclosure Schedule..................................................................................................... A-18
WPL Financial Statements.................................................................................................... A-22
WPL/IES Stock Option Agreement.............................................................................................. A-12
WPL/Interstate Stock Option Agreement....................................................................................... A-12
WPL Joint Venture........................................................................................................... A-19
WPL Material Adverse Effect................................................................................................. A-18
WPL Rights.................................................................................................................. A-14
WPL Rights Agreement........................................................................................................ A-14
WPL Required Consents....................................................................................................... A-21
WPL Required Statutory Approvals............................................................................................ A-21
WPL SEC Reports............................................................................................................. A-22
WPL Shareholders' Approval.................................................................................................. A-29
WPL Special Meeting......................................................................................................... A-58
WPL Subsidiary.............................................................................................................. A-19
WPS......................................................................................................................... A-30
</TABLE>
A-11
<PAGE>
THIS AGREEMENT AND PLAN OF MERGER, dated as of November 10, 1995, as amended
(this "AGREEMENT"), by and among WPL Holdings, Inc., a holding company
incorporated under the laws of the State of Wisconsin ("WPL"), IES Industries
Inc., a holding company incorporated under the laws of the State of Iowa
("IES"), Interstate Power Company, an operating public utility incorporated
under the laws of the State of Delaware ("INTERSTATE"), WPLH Acquisition Co., a
wholly-owned subsidiary of WPL incorporated under the laws of the State of
Wisconsin ("ACQUISITION"), and Interstate Power Company, a wholly-owned
subsidiary of Interstate incorporated under the laws of the State of Wisconsin
("NEW INTERSTATE", and together with WPL, IES, Interstate and Acquisition, after
the Effective Time (as hereinafter defined), the "COMPANY"),
W I T N E S S E T H:
WHEREAS, WPL, IES and Interstate have determined that it would be in their
respective best interests and in the interests of their respective shareholders
to effect the transactions contemplated by this Agreement;
WHEREAS, in furtherance thereof, the respective Boards of Directors of WPL,
IES, Interstate, Acquisition and New Interstate have approved this Agreement and
the Merger (as defined in Section 1.1 below) on the terms and conditions set
forth in this Agreement;
WHEREAS, the Board of Directors of WPL has approved and WPL has executed
agreements with IES in the form of Exhibit A (the "WPL/IES STOCK OPTION
AGREEMENT"), and Interstate in the form of Exhibit B (the "WPL/INTERSTATE STOCK
OPTION AGREEMENT"), the Board of Directors of IES has approved and IES has
executed agreements with WPL in the form of Exhibit C (the "IES/WPL STOCK OPTION
AGREEMENT"), and Interstate in the form of Exhibit D (the "IES/INTERSTATE STOCK
OPTION AGREEMENT"), and the Board of Directors of Interstate has approved and
Interstate has executed agreements with WPL in the form of Exhibit E (the
"INTERSTATE/WPL STOCK OPTION AGREEMENT") and IES in the form of Exhibit F (the
"INTERSTATE/IES STOCK OPTION AGREEMENT") (collectively, the "STOCK OPTION
AGREEMENTS") whereby each of WPL, IES and Interstate, respectively, has granted
to the others an option to purchase shares of its common stock on the terms and
conditions provided in such agreements;
WHEREAS, for Federal income tax purposes, it is intended that the
transactions contemplated herein will be reorganizations described in SECTION
368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"), and the
regulations thereunder, and that the parties hereto and their respective
shareholders will recognize no gain or loss for Federal income tax purposes as a
result of the consummation of the Merger;
WHEREAS, for accounting purposes, it is intended that the Merger will be
accounted for as a pooling of interests in accordance with generally accepted
accounting principles applied on a consistent basis ("GAAP") and applicable
regulations of the Securities and Exchange Commission (the "SEC");
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the conditions of
this Agreement:
(a) at the Effective Time the Merger shall be effected as follows:
(i) IES shall be merged with and into WPL (the "IES MERGER") in
accordance with the laws of the States of Wisconsin and Iowa;
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(ii) Acquisition shall be merged with and into Interstate (the
"INTERSTATE MERGER") in accordance with the laws of the States of
Wisconsin and Delaware;
(iii) The IES Merger, together with the Interstate Merger, are
collectively referred to herein as the "MERGER;"
PROVIDED, HOWEVER, that in the event that there has been a failure to obtain
any WPL Required Statutory Approvals due to any limitations imposed under
Section 196.795 of the Wisconsin Statutes (a "WISCONSIN REGULATORY EVENT"),
the Merger shall be effected as follows, with the terms "IES Merger,"
"Interstate Merger" and "Merger" being defined as set forth below:
(i) Interstate shall be merged with and into New Interstate
(following such intermediate merger, to be deemed "Interstate" for the
purposes of this Agreement), with New Interstate to be the surviving
corporation; and
(ii) Acquisition shall be merged with and into Interstate, with
Interstate to be the surviving corporation (steps (i) and (ii) being
collectively referred to herein as the "INTERSTATE MERGER"); and
(iii) Utilities (as hereinafter defined) shall be merged with and into
a wholly-owned subsidiary of IES ("NEW UTILITIES," to be formed as a
Wisconsin corporation, and following such intermediate merger, to be
deemed "Utilities" for the purposes of this Agreement), with New
Utilities to be the surviving corporation; and
(iv) IES shall be merged with and into WPL (steps (iii) and (iv),
collectively, the "IES MERGER") in accordance with the laws of the States
of Wisconsin and Iowa; and
(v) The IES Merger, together with the Interstate Merger, are
collectively referred to herein as the "MERGER."
(b) WPL shall be the surviving corporation of the IES Merger, and
Interstate shall be the surviving corporation of the Interstate Merger, and
each shall continue its respective corporate existence under the laws of the
States of Wisconsin and Delaware, as applicable; and
(c) the effects and the consequences of the Merger shall be as set forth
in SECTION 1.2.
Section 1.2 EFFECTS OF THE MERGER. At the Effective Time,
(a) the surviving corporation of the IES Merger shall change its name to
Interstate Energy Corporation,
(b) the Restated Articles of Incorporation of WPL, as in effect
immediately prior to the Effective Time, except as set forth in SECTION
1.2(a) above, shall be the Restated Articles of Incorporation of WPL as the
surviving corporation in the IES Merger until thereafter amended,
(c) the By-laws of WPL, as in effect immediately prior to the Effective
Time, shall be the By-laws of WPL as the surviving corporation in the IES
Merger until thereafter amended,
(d) the Restated Certificate of Incorporation of Interstate, as in
effect immediately prior to the Effective Time, shall be the Restated
Certificate of Incorporation of Interstate as the surviving corporation in
the Interstate Merger until thereafter amended, and
(e) the By-laws of Interstate, as in effect immediately prior to the
Effective Time, shall be the By-laws of Interstate as the surviving
corporation in the Interstate Merger until thereafter amended.
Subject to the foregoing, the additional effects of the Merger shall be as
provided in the applicable provisions of the Wisconsin Business Corporation Law
(the "WBCL"), the Iowa Business Corporation Act (the "IBCA") and the Delaware
General Corporation Law (the "DGCL").
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Section 1.3 EFFECTIVE TIME OF THE MERGER. On the Closing Date (as
hereinafter defined), articles and certificates of merger together, in the case
of the IES Merger, with a Plan of Merger in substantially the form attached
hereto as Exhibit 1.3, which Plan of Merger is incorporated by reference herein
and deemed a part hereof (the "PLAN OF MERGER"), complying with the requirements
of the WBCL, the IBCA and the DGCL, shall be executed by WPL, IES, Interstate
and Acquisition (or, if a Wisconsin Regulatory Event shall have occurred, WPL,
IES, Interstate, New Interstate, Utilities, New Utilities and Acquisition) and
shall be filed by WPL, Utilities and Interstate, as appropriate, with the
Secretary of State of the State of Wisconsin pursuant to the WBCL and the
Secretary of State of the State of Iowa pursuant to the IBCA, in the case of the
IES Merger, and the Secretary of State of the State of Delaware pursuant to the
DGCL and the Secretary of State of the State of Wisconsin pursuant to the WBCL,
in the case of the Interstate Merger. The Merger shall become effective on the
later of the times (the "EFFECTIVE TIME") specified in the appropriate articles
and certificates of merger filed with respect to the IES Merger and the
Interstate Merger, respectively.
ARTICLE II
TREATMENT OF SHARES
Section 2.1 EFFECT OF THE MERGER ON CAPITAL STOCK. At the Effective Time,
by virtue of the Merger and without any action on the part of any holder of any
capital stock of WPL, IES, Interstate or Acquisition:
(a) CANCELLATION OF CERTAIN COMMON STOCK.
(i) Each share of Common Stock, no par value, of IES (the "IES COMMON
STOCK") that is owned by IES, WPL or Interstate or any of their
respective Subsidiaries (as hereinafter defined) shall be canceled and
shall cease to exist, and
(ii) each share of Common Stock, par value $3.50 per share, of
Interstate (the "INTERSTATE COMMON STOCK") that is owned by IES, WPL or
Interstate or any of their respective Subsidiaries shall be canceled and
shall cease to exist.
(b) CONVERSION OF CERTAIN COMMON STOCK.
(i) Each issued and outstanding share of IES Common Stock (other than
shares canceled pursuant to SECTION 2.1(a)(i) and IES Dissenting Shares
(as hereinafter defined)) shall be converted into the right to receive
0.98 duly authorized, validly issued, fully paid and nonassessable
(except as otherwise provided in SECTION 180.0622(2)(b) of the WBCL)
shares of Common Stock, par value $.01 per share, of WPL ("WPL COMMON
STOCK"), including, if applicable, associated rights (the "WPL RIGHTS")
to purchase shares of WPL Common Stock pursuant to the terms of that
certain Rights Agreement between WPL and Morgan Shareholder Services
Trust Company, as Rights Agent thereunder, dated as of February 22, 1989
(the "WPL RIGHTS AGREEMENT"). Until the Distribution Date (as defined in
the WPL Rights Agreement) all references in this Agreement to the WPL
Common Stock shall be deemed to include the associated WPL Rights.
Notwithstanding the foregoing, if the McLeod Contingency (as hereinafter
defined) shall have occurred prior to the Closing Date, each issued and
outstanding share of IES Common Stock (other than shares canceled
pursuant to SECTION 2.1(a)(i) and IES Dissenting Shares) shall be
converted into the right to receive 1.01 duly authorized, validly issued,
fully paid and nonassessable (except as otherwise provided in SECTION
180.0622(2)(b) of the WBCL) shares of WPL Common Stock. The specific
exchange ratio at which shares of IES Common Stock are ultimately
converted into shares of WPL Common Stock in the IES Merger is hereafter
referred to as the "IES RATIO". As used in this Agreement, the term
"MCLEOD CONTINGENCY" shall mean the completion of a firm commitment
underwritten intitial public offering of Class A common stock by McLeod,
Inc., a Delaware corporation ("MCLEOD"), at a per share price equal to or
greater than $13.00 (as adjusted for any stock split, recapitalization or
the like effected prior to the completion of
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such offering, other than the stock split disclosed in McLeod's
registration statement on Form S-1 filed with the Securities and Exchange
Commission on April 2, 1996), that results in McLeod (a) receiving gross
proceeds of such offering equal to or greater than $75 million in
addition to any gross proceeds from the sale of its Class A common stock
to exisiting stockholders and (b) having its Class A common stock,
immediately following the completion of such initial public offering,
registered pursuant to Section 12 of the Exchange Act (as hereinafter
defined).
(ii) Each issued and outstanding share of Interstate Common Stock
(other than shares canceled pursuant to SECTION 2.1(a)(ii)) shall be
converted into the right to receive 1.11 (the "INTERSTATE RATIO") duly
authorized, validly issued, fully paid and nonassessable (except as
otherwise provided in SECTION 180.0622(2)(b) of the WBCL) shares of WPL
Common Stock, PROVIDED, HOWEVER, that if a Wisconsin Regulatory Event
shall have occurred, each issued and outstanding share of Interstate
Common Stock (other than shares canceled pursuant to SECTION 2.1(a)(ii))
shall FIRST automatically be converted into one duly authorized, validly
issued, fully paid and nonassessable (except as otherwise provided in
SECTION 180.0622(2)(b) of the WBCL) share of Common Stock, par value
$3.50 per share, of New Interstate (the "NEW INTERSTATE COMMON STOCK")
and THEREAFTER, such one share of New Interstate Common Stock shall be
converted into the right to receive a number of duly authorized, validly
issued, fully paid and nonassessable (except as otherwise provided in
SECTION 180.0622(2)(b) of the WBCL) shares of WPL Common Stock equal to
the Interstate Ratio.
(iii) If a Wisconsin Regulatory Event shall have occurred, each issued
and outstanding share of Utilities Common Stock (as hereinafter defined)
shall be converted into the right to receive one duly authorized, validly
issued, fully paid and nonassessable (except as otherwise provided in
SECTION 180.0622(2)(b) of the WBCL) share of Common Stock, par value
$2.50 per share, of New Utilities (the "NEW UTILITIES COMMON STOCK").
(iv) Upon such conversions and except as otherwise provided in SECTION
2.2, all such shares of IES Common Stock, Interstate Common Stock (and,
if a Wisconsin Regulatory Event shall have occurred, Utilities Common
Stock) shall be canceled and cease to exist, and each holder of a
certificate formerly representing any such shares of IES Common Stock and
Interstate Common Stock (and, if applicable, Utilities Common Stock)
shall cease to have rights with respect thereto, except the right to
receive the shares of WPL Common Stock (or New Utilities Common Stock) to
be issued in consideration therefor upon (in the case of the IES Common
Stock and the Interstate Common Stock) the surrender of such certificate
in accordance with SECTION 2.3 and any cash in lieu of fractional shares
of WPL Common Stock.
(c) INTERSTATE PREFERRED STOCK. Each issued and outstanding share of
Preferred Stock, $50 par value, of Interstate (the "INTERSTATE PREFERRED
STOCK") shall be unchanged as a result of the Interstate Merger and shall
remain outstanding thereafter, PROVIDED, HOWEVER, that if a Wisconsin
Regulatory Event shall have occurred, each outstanding share of Interstate
Preferred Stock (other than shares owned directly or indirectly by WPL, IES
or Interstate and other than Interstate Dissenting Shares) will be converted
into one share of Preferred Stock, $50 par value, of New Interstate (the
"NEW INTERSTATE PREFERRED STOCK") with terms (including dividend rights) and
designations under the New Interstate restated articles of incorporation
substantially identical to those of the converted shares of Interstate
Preferred Stock under the Interstate restated certificate of incorporation.
In the event that a Wisconsin Regulatory Event shall have occurred, from and
after the Effective Time, each outstanding certificate theretofore
representing shares of Interstate Preferred Stock shall be deemed for all
purposes to evidence the ownership of and to represent an equal number of
shares of New Interstate Preferred Stock into which such shares of
Interstate Preferred Stock shall have been converted.
(d) CONVERSION OF ACQUISITION COMMON STOCK. All of the shares of
Common Stock, par value $0.01 per share, of Acquisition (the "ACQUISITION
COMMON STOCK") issued and outstanding
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immediately prior to the Effective Time shall be converted into that number
of shares of Interstate Common Stock (as the surviving corporation in the
Interstate Merger) which shall be equivalent to the aggregate number of
shares of Interstate Common Stock (exclusive of the shares canceled pursuant
to SECTION 2.1(a)(ii)) issued and outstanding immediately prior to the
Effective Time, PROVIDED, HOWEVER, if a Wisconsin Regulatory Event shall
have occurred, all of the shares of Acquisition Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted into
that number of shares of New Interstate Common Stock (as the surviving
corporation in the Interstate Merger) which shall be equivalent to the
aggregate number of shares of New Interstate Common Stock (exclusive of the
shares canceled pursuant to SECTION 2.1(a)(ii)) issued and outstanding
immediately prior to the Effective Time. From and after the Effective Time,
each outstanding certificate theretofore representing shares of Acquisition
Common Stock shall be deemed for all purposes to evidence ownership of and
to represent the number of shares of Interstate Common Stock or New
Interstate Common Stock, as appropriate, into which such shares of
Acquisition Common Stock shall have been converted.
(e) REDEMPTION OF UTILITIES PREFERRED STOCK. If a Wisconsin Regulatory
Event shall have occurred, all of the shares of Utilities Preferred Stock
(as hereinafter defined) issued and outstanding immediately prior to the
Effective Time shall be redeemed prior to consummation of the Merger.
Section 2.2 DISSENTING SHARES.
(a) Shares of IES Common Stock held by any holder entitled to relief as
a dissenting shareholder under SECTION 490.1302 of the IBCA (the "IES
DISSENTING SHARES") shall not be converted into the right to receive WPL
Common Stock in the IES Merger, but shall be canceled and converted into
such consideration as may be due with respect to such shares pursuant to the
applicable provisions of SECTIONS 490.1320 through 490.1330 of the IBCA,
unless and until the right of such holder to receive fair cash value for
such Dissenting Shares (as hereinafter defined) terminates in accordance
with SECTIONS 490.1320 through 490.1330 of the IBCA. If such right is
terminated otherwise than by the purchase of such shares by WPL, then such
shares shall cease to be Dissenting Shares and shall represent the right to
receive WPL Common Stock, as provided in SECTION 2.1(b)(i).
(b) Shares of Interstate Preferred Stock held by any holder entitled to
relief as a dissenting shareholder under SECTION 262 of the DGCL (the
"INTERSTATE DISSENTING SHARES," and, collectively with the IES Dissenting
Shares, the "DISSENTING SHARES") shall be canceled and converted into such
consideration as may be due with respect to such shares pursuant to the
applicable provisions of SECTION 262 of the DGCL. If such right is
terminated otherwise than by the purchase of such shares by WPL, then such
shares shall cease to be Dissenting Shares and shall remain outstanding.
Section 2.3 ISSUANCE OF NEW CERTIFICATES.
(a) DEPOSIT WITH EXCHANGE AGENT. As soon as practicable after the
Effective Time, WPL shall deposit with such bank, trust company or other
appropriate entity mutually agreeable to WPL, IES and Interstate (the
"EXCHANGE AGENT"), certificates representing shares of WPL Common Stock
required to effect the issuances referred to in SECTION 2.1, together with
cash payable in respect of fractional shares pursuant to SECTION 2.3(d).
(b) ISSUANCE PROCEDURES.
(i) As soon as practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of a certificate or
certificates (the "CERTIFICATES") which immediately prior to the
Effective Time represented outstanding shares of IES Common Stock or
Interstate Common Stock, as the case may be (collectively, the "CANCELED
COMMON SHARES"), that were canceled and became instead the right to
receive shares of WPL Common Stock pursuant to SECTION 2.1(b) and the
Plan of Merger, (A) a letter of transmittal (which shall specify
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that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon actual delivery of the Certificates to
the Exchange Agent), and (B) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing
WPL Common Stock.
(ii) Upon surrender of a Certificate to the Exchange Agent for
cancellation (or to such other agent or agents as may be appointed by
agreement of WPL, IES and Interstate), together with a duly executed
letter of transmittal and such other documents as the Exchange Agent
shall require, the holder of such Certificate shall be entitled to
receive a certificate representing that number of whole shares of WPL
Common Stock which such holder has the right to receive pursuant to the
provisions of this Article II and the Plan of Merger. In the event of a
transfer of ownership of Canceled Common Shares which is not registered
in the transfer records of IES or Interstate, as the case may be, a
certificate representing the proper number of shares of WPL Common Stock
may be issued to a transferee if the Certificate representing such
Canceled Common Shares is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer and by
evidence satisfactory to the Exchange Agent that any applicable stock
transfer taxes have been paid.
(iii) Until surrendered as contemplated by this SECTION 2.3, each
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing WPL Common Stock and cash in lieu of any fractional shares
of WPL Common Stock contemplated by this SECTION 2.3.
(c) DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED SHARES.
(i) No dividends or other distributions declared or made after the
Effective Time with respect to shares of WPL Common Stock with a record
date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of WPL Common Stock
represented thereby and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to SECTION 2.3(d) until the
holder of record of such Certificate (or a transferee as described in
SECTION 2.3(b)) shall surrender such Certificate.
(ii) Subject to the effect of unclaimed property, escheat and other
applicable laws, following surrender of any such Certificate, there shall
be paid to the record holders (or a transferee as described in SECTION
2.3(b)) of the certificates representing whole shares of WPL Common Stock
issued in consideration therefor, without interest,
(A) at the time of such surrender, the amount of cash in lieu of
a fractional share of WPL Common Stock to which such holder (or
transferee) is entitled pursuant to SECTION 2.3(d) and the amount of
dividends or other distributions with a record date after the
Effective Time which theretofore became payable but which were not
paid by reason of SECTION 2.3(c)(i) with respect to such whole shares
of WPL Common Stock, and
(B) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable
with respect to such whole shares of WPL Common Stock.
(d) NO FRACTIONAL SECURITIES.
(i) Notwithstanding any other provision of this Agreement, no
certificates or scrip representing fractional shares of WPL Common Stock
shall be issued upon the surrender for exchange of Certificates and such
fractional shares shall not entitle the owner thereof to vote as, or to
any other rights of, a holder of WPL Common Stock.
(ii) A holder of IES Common Stock or Interstate Common Stock who
would otherwise have been entitled to receive a fractional share of WPL
Common Stock shall be entitled to
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receive a cash payment in lieu of such fractional share in an amount
equal to the product (rounded to the nearest cent) of such fraction
(rounded to the nearest thousandth) multiplied by the average of the last
reported sales price, regular way, per share of WPL Common Stock, on the
New York Stock Exchange ("NYSE") Composite Tape for the ten business days
prior to and including the last business day prior to the Effective Time
on which WPL Common Stock was traded on the NYSE, without any interest
thereon.
(e) CLOSING OF COMMON STOCK TRANSFER BOOKS. From and after the
Effective Time, the stock transfer books of IES and Interstate with respect
to shares of IES Common Stock and Interstate Common Stock issued and
outstanding prior to the Effective Time shall be closed and no transfer of
any such shares shall thereafter be made. If, after the Effective Time,
Certificates are presented to WPL or Interstate, they shall be canceled and
exchanged for certificates representing the appropriate number of shares of
WPL Common Stock as provided in this SECTION 2.3.
(f) TERMINATION OF EXCHANGE AGENT. Any certificates representing WPL
Common Stock deposited with the Exchange Agent pursuant to SECTION 2.3(a)
and not exchanged within one year after the Effective Time pursuant to this
SECTION 2.3 shall be returned by the Exchange Agent to the Company, which
shall thereafter act as Exchange Agent. All funds held by the Exchange Agent
for payment to the holders of unsurrendered Certificates and unclaimed at
the end of one year from the Effective Time shall be returned to the
Company, after which time any holder of unsurrendered Certificates shall
look as a general creditor only to the Company for payment of such funds to
which such holder may be due, subject to applicable law. The Company shall
not be liable to any person for such shares or funds delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
ARTICLE III
THE CLOSING
Section 3.1 THE CLOSING. The closing of the Merger (the "CLOSING") shall
take place at the offices of Foley & Lardner, 777 East Wisconsin Avenue,
Milwaukee, Wisconsin, at 10:00 a.m. (Milwaukee, Wisconsin local time) on the
second business day immediately following the date on which the last of the
conditions set forth in Article IX hereof is fulfilled or waived, or at such
other time and date and place as WPL, IES and Interstate shall mutually agree
(the "CLOSING DATE").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WPL
WPL represents and warrants to IES and Interstate as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. Except as set forth in SECTION
4.1 of the Disclosure Schedule to this Agreement prepared and delivered by WPL
(the "WPL DISCLOSURE SCHEDULE"), each of WPL and the WPL Subsidiaries (as
hereinafter defined) is a corporation duly organized, validly existing and in
good standing (to the extent applicable) under the laws of its respective
jurisdiction of incorporation or organization, has all requisite corporate power
and authority, and has been duly authorized by all necessary approvals and
orders to own, lease and operate its assets and properties to the extent owned,
leased and operated and to carry on its business as it is now being conducted
and is duly qualified and in good standing (to the extent applicable) to do
business in each respective jurisdiction in which the nature of its business or
the ownership or leasing of its assets and properties makes such qualification
necessary, other than in such jurisdictions where the failure to be so qualified
and in good standing would not, when taken together with all other such
failures, have a material adverse effect on the business, operations,
properties, assets, condition (financial or otherwise), or the results of
operations of WPL and the WPL Subsidiaries taken as a whole or on the
consummation of the transactions contemplated hereby (a "WPL MATERIAL ADVERSE
EFFECT").
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Section 4.2 SUBSIDIARIES.
(a) SECTION 4.2 of the WPL Disclosure Schedule sets forth a description
as of the date hereof, of all WPL Subsidiaries and WPL Joint Ventures,
including (i) the name of each such entity and WPL's interest therein, and
(ii) a brief description of the principal line or lines of business
conducted by each such entity.
(b) Except as set forth in SECTION 4.2 of the WPL Disclosure Schedule,
none of the WPL Subsidiaries or WPL Joint Ventures is a "PUBLIC UTILITY
COMPANY," a "HOLDING COMPANY," a "SUBSIDIARY COMPANY" or an "AFFILIATE" of
any public utility company within the meaning of SECTION 2(a)(5), 2(a)(7),
2(a)(8) or 2(a)(11) of the Public Utility Holding Company Act of 1935, as
amended (the "1935 ACT"), respectively.
(c) Except as set forth in SECTION 4.2 of the WPL Disclosure Schedule,
all of the issued and outstanding shares of capital stock of each WPL
Subsidiary are duly authorized, validly issued, fully paid, nonassessable
(except as otherwise provided in SECTION 180.0622(2)(b) of the WBCL) and
free of preemptive rights, and are owned, directly or indirectly, by WPL
free and clear of any liens, claims, encumbrances, security interests,
equities, charges and options of any nature whatsoever, and there are no
outstanding subscriptions, options, calls, contracts, voting trusts, proxies
or other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement, obligating any such WPL
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of its capital stock, or granting to any person
other than WPL or a WPL Subsidiary any right to participate in its dividends
or earnings or obligating it to grant, extend or enter into any such
agreement or commitment.
(d) As used in this Agreement,
(i) "SUBSIDIARY" of a person shall mean any corporation or other
entity (including partnerships and other business associations) of which
at least a majority of the outstanding capital stock or other voting
securities having voting power under ordinary circumstances to elect
directors or similar members of the governing body of such corporation or
entity shall at the time be held, directly or indirectly, by such person
or entity;
(ii) "WPL SUBSIDIARY" shall mean any Subsidiary of WPL;
(iii) "JOINT VENTURE" of a person or entity shall mean any corporation
or other entity (including partnerships and other business associations)
that is not a Subsidiary of such person or entity, in which such person
or one or more of its Subsidiaries owns directly or indirectly an equity
interest, other than equity interests held for passive investment
purposes which are less than 5% of each class of the outstanding voting
securities or equity interests of any such entity; and
(iv) "WPL JOINT VENTURE" shall mean any Joint Venture of WPL or any
WPL Subsidiary.
Section 4.3 CAPITALIZATION.
(a) The authorized capital stock of WPL consists of 100,000,000 shares
of WPL Common Stock of which 30,773,588 shares were issued and outstanding
as of September 30, 1995;
(b) The authorized capital stock of Wisconsin Power and Light Company
("WP&LC"), a Wisconsin corporation and a Subsidiary of WPL, consists of
(A) 18,000,000 shares of Common Stock, $5 par value, of which
13,236,601 shares were issued and outstanding as of September 30, 1995
(the "WP&LC COMMON STOCK"), and
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(B) 3,750,000 shares of Preferred Stock without mandatory redemption,
(4.50% series, 4.80% series, 4.96% series, 4.40% series, 4.76% series,
6.50% series and 6.20% series) of which 1,049,225 were issued and
outstanding as of September 30, 1995 (the classes set forth in this
clause (B) being referred to collectively as, the "WP&LC PREFERRED
STOCK").
(c) All of the issued and outstanding shares of WPL Common Stock, WP&LC
Common Stock and WP&LC Preferred Stock are, and any shares of WPL Common
Stock issued pursuant to the Merger and the WPL/Interstate and WPL/IES Stock
Option Agreements will be duly authorized, validly issued, fully paid,
nonassessable (except as otherwise provided in SECTION 180.0622(2)(b) of the
WBCL) and free of preemptive rights.
(d) Except as set forth in SECTION 4.3 of the WPL Disclosure Schedule,
as of the date hereof, there are no outstanding subscriptions, options,
calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating WPL or any of the WPL Subsidiaries
to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of WPL, or obligating WPL to grant,
extend or enter into any such agreement or commitment, other than under the
WPL/IES and WPL/Interstate Stock Option Agreements.
Section 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. WPL has all requisite corporate power and authority to
enter into this Agreement and the WPL/IES and WPL/Interstate Stock Option
Agreements, and, subject to the applicable WPL Shareholders' Approval (as
hereinafter defined) and the applicable WPL Required Statutory Approvals (as
hereinafter defined), to consummate the transactions contemplated hereby or
thereby. The execution and delivery of this Agreement and the WPL/IES and
WPL/Interstate Stock Option Agreements and the consummation by WPL of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of WPL, subject to obtaining the
applicable WPL Shareholders' Approval. Each of this Agreement and the
WPL/IES and WPL/Interstate Stock Option Agreements has been duly and validly
executed and delivered by WPL and, assuming the due authorization, execution
and delivery hereof and thereof by the other signatories hereto and thereto,
constitutes the valid and binding obligation of WPL enforceable against it
in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally, and except that the availability
of equitable remedies, including specific performance, may be subject to the
discretion of any court before which any proceeding therefor may be brought.
(b) NON-CONTRAVENTION. Except as set forth in Section 4.4(b) of the
WPL Disclosure Schedule, the execution and delivery of this Agreement and
the WPL/IES and the WPL/Interstate Stock Option Agreements by WPL do not,
and the consummation of the transactions contemplated hereby or thereby will
not violate, conflict with, or result in a breach of any provision of, or
constitute a default (with or without notice or lapse of time or both)
under, or result in the termination or modification of, or accelerate the
performance required by, or result in a right of termination, cancellation,
or acceleration of any obligation or the loss of a benefit under, or result
in the creation of any lien, security interest, charge or encumbrance upon
any of the properties or assets of WPL or any of the WPL Subsidiaries or WPL
Joint Ventures (any such violation, conflict, breach, default, termination,
modification, cancellation, acceleration, loss or creation, a "VIOLATION"
with respect to WPL, such term when used in Articles V and VI having a
correlative meaning with respect to IES and Interstate, respectively)
pursuant to any provisions of:
(i) the Articles of Incorporation, By-laws or similar governing
documents of WPL or any of the WPL Subsidiaries or WPL Joint Ventures;
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(ii) subject to obtaining the WPL Required Statutory Approvals and
the receipt of the WPL Shareholders' Approval, any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any Governmental Authority (as hereinafter defined)
applicable to WPL or any of the WPL Subsidiaries or WPL Joint Ventures or
any of their respective properties or assets; or
(iii) subject to obtaining the third-party consents set forth in
SECTION 4.4(b) of the WPL Disclosure Schedule (the "WPL REQUIRED
CONSENTS") any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which WPL or any of the WPL
Subsidiaries or WPL Joint Ventures is a party or by which it or any of
its properties or assets may be bound or affected,
excluding from the foregoing clauses (ii) and (iii) such violations which,
in the aggregate do not, and insofar as reasonably can be foreseen, would
not, have a WPL Material Adverse Effect.
(c) STATUTORY APPROVALS. No declaration, filing or registration with,
or notice to or authorization, consent or approval of, any court, Federal,
state, local or foreign governmental or regulatory body (including a stock
exchange or other self-regulatory body) or authority (each, a "GOVERNMENTAL
AUTHORITY") is necessary for the execution and delivery of this Agreement or
the WPL/IES and WPL/Interstate Stock Option Agreements by WPL or the
consummation by WPL of the transactions contemplated hereby or thereby,
except as described in SECTION 4.4(c) of the WPL Disclosure Schedule (the
"WPL REQUIRED STATUTORY APPROVALS," it being understood that references in
this Agreement to "OBTAINING" such WPL Required Statutory Approvals shall
mean making such declarations, filings or registrations; giving such
notices; obtaining such authorizations, consents or approvals; and having
such waiting periods expire as are necessary to avoid a violation of law).
(d) COMPLIANCE.
(i) (A) Except as set forth in SECTION 4.4(d), SECTION 4.10 or
SECTION 4.11 of the WPL Disclosure Schedule, or as disclosed in the WPL
SEC Reports (as hereinafter defined) filed prior to the date hereof,
neither WPL nor any of the WPL Subsidiaries nor, to the knowledge of WPL,
any WPL Joint Venture, is in violation of, is under investigation with
respect to any violation of, or has been given notice or been charged
with any violation of, any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any Governmental
Authority, except for violations which, in the aggregate do not, and
insofar as reasonably can be foreseen, would not, have a WPL Material
Adverse Effect.
(B) For purposes of this Agreement "KNOWLEDGE" shall mean, with
respect to any party hereto, the actual knowledge after due inquiry
of principal executive officers of WPL, IES or Interstate,
respectively set forth in SECTIONS 4.4(d), 5.4(d) and 6.4(d) of the
WPL Disclosure Schedule, IES Disclosure Schedule (as hereinafter
defined) and Interstate Disclosure Schedule (as hereinafter defined).
(ii) Except as set forth in SECTION 4.4(d) or in SECTION 4.11 of the
WPL Disclosure Schedule, WPL and the WPL Subsidiaries and the WPL Joint
Ventures have all permits, licenses, franchises and other governmental
authorizations, consents and approvals (collectively, the "PERMITS")
necessary to conduct their businesses as presently conducted, except
those the failure of which to obtain, in the aggregate do not, and
insofar as reasonably can be foreseen, would not, have a WPL Material
Adverse Effect.
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(iii) Except as set forth in SECTION 4.4(d) of the WPL Disclosure
Schedule, each of WPL and the WPL Subsidiaries and WPL Joint Ventures is
not in breach, violation or default in the performance or observance of
any term or provision of, and no event has occurred which, with lapse of
time or action by a third party, could result in a default under,
(A) its Articles of Incorporation or By-laws, or
(B) any contract, commitment, agreement, indenture, mortgage,
loan agreement, note, lease, bond, license, approval or other
instrument to which it is a party or by which it is bound or to which
any of its property is subject, except for breaches, violations or
defaults which, in the aggregate do not, and insofar as reasonably
can be foreseen, would not, have a WPL Material Adverse Effect.
Section 4.5 REPORTS AND FINANCIAL STATEMENTS.
(a) The filings required to be made by WPL and the WPL Subsidiaries
since January 1, 1992 under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), the 1935 Act, the Federal Power Act (the "POWER ACT"), the
Atomic Energy Act of 1954, as amended (the "ATOMIC ENERGY ACT") and
applicable state laws and regulations have been filed with the SEC, the
Federal Energy Regulatory Commission (the "FERC"), the Nuclear Regulatory
Commission (the "NRC"), the Department of Energy (the "DOE") or any
appropriate state public utilities commission, as the case may be, including
all forms, statements, reports, agreements (oral or written) and all
documents, exhibits, amendments and supplements appertaining thereto, and
complied, as of their respective dates, in all material respects with all
applicable requirements of the appropriate statute and the rules and
regulations thereunder.
(b) WPL has made available to IES and Interstate a true and complete
copy of each form, report, schedule, registration statement and definitive
proxy statement filed by each of WPL and WP&LC with the SEC since January 1,
1992 (as such documents have since the time of their filing been amended or
supplemented, the "WPL SEC REPORTS") and each other filing described in
SECTION 4.5(a). As of their respective dates, the WPL SEC Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) The audited consolidated financial statements and unaudited interim
financial statements of WPL and WP&LC, as the case may be, included in the
WPL SEC Reports (collectively, the "WPL FINANCIAL STATEMENTS") have been
prepared in accordance with GAAP (except as may be indicated therein or in
the notes thereto and except with respect to unaudited statements as
permitted by Form 10-Q under the Exchange Act) and fairly present in all
material respects the financial position of WPL or WP&LC, as the case may
be, as of the dates thereof and the results of its operations and cash flows
for the periods then ended, subject, in the case of the unaudited interim
financial statements, to normal, recurring audit adjustments.
(d) True, accurate and complete copies of the Restated Articles of
Incorporation and By-laws of WPL, as in effect on the date hereof, are
included (or incorporated by reference) in the WPL SEC Reports.
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the WPL SEC Reports filed prior to the date hereof or as set forth in SECTION
4.6 of the WPL Disclosure Schedule, since December 31, 1994, WPL and each of the
WPL Subsidiaries and the WPL Joint Ventures have conducted their businesses only
in the ordinary course of their respective businesses consistent with past
practice and there has not been, and no facts or conditions exist (other than
facts or conditions of general applicability to electric utility companies in
the region in which WPL, IES and Interstate operate) which, in the aggregate
have, or insofar as reasonably can be foreseen, would have, a WPL Material
Adverse Effect.
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Section 4.7 LITIGATION. Except as disclosed in the WPL SEC Reports filed
prior to the date hereof or as set forth in SECTION 4.7, SECTION 4.9 or SECTION
4.11 of the WPL Disclosure Schedule,
(a) there are no claims, suits, actions or proceedings pending or, to
the knowledge of WPL, threatened, nor are there, to the knowledge of WPL,
any investigations or reviews pending or threatened against, relating to or
affecting WPL or any of the WPL Subsidiaries and, to the knowledge of WPL,
the WPL Joint Ventures;
(b) there have not been any developments since December 31, 1994 with
respect to such disclosed claims, suits, actions, proceedings,
investigations or reviews; and
(c) there are no judgments, decrees, injunctions, rules or orders of any
court, governmental department, commission, agency, instrumentality or
authority or any arbitrator applicable to WPL or any of the WPL Subsidiaries
and, to the knowledge of WPL, the WPL Joint Ventures,
which, when taken together with any other nondisclosures of matters described in
clauses (a), (b) and (c), have, or insofar as reasonably can be foreseen, would
have, a WPL Material Adverse Effect.
Section 4.8 REGISTRATION STATEMENT AND PROXY STATEMENT.
(a) None of the information supplied or to be supplied by or on behalf
of WPL for inclusion or incorporation by reference in:
(i) the registration statement on Form S-4 to be filed with the SEC
by WPL in connection with the issuance of shares of WPL Common Stock in
the Merger (the "REGISTRATION STATEMENT") will, at the time the
Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and
(ii) the joint proxy statement, in definitive form, relating to the
meetings of WPL, IES and Interstate shareholders to be held in connection
with the Merger (the "PROXY STATEMENT") will, at the date(s) mailed to
shareholders and at the times of the meetings of shareholders to be held
in connection with the Merger, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(b) The Registration Statement and the Proxy Statement will comply as to
form in all material respects with the provisions of the Securities Act and
the Exchange Act, respectively, and the applicable rules and regulations
thereunder.
Section 4.9 TAX MATTERS. Except as set forth in SECTION 4.9 of the WPL
Disclosure Schedule:
(a) FILING OF TIMELY TAX RETURNS. WPL and each of the WPL Subsidiaries
have filed (or there has been filed on its behalf) all Tax Returns (as
hereinafter defined) required to be filed by each of them under applicable
law. All such Tax Returns were and are in all material respects true,
complete and correct and filed on a timely basis.
(b) PAYMENT OF TAXES. WPL and each of the WPL Subsidiaries have,
within the time and in the manner prescribed by law, paid all Taxes (as
hereinafter defined) that are currently due and payable except for those
contested in good faith and for which adequate reserves have been taken.
(c) TAX RESERVES. WPL and the WPL Subsidiaries have established on
their books and records reserves adequate to pay all Taxes and reserves for
deferred income taxes in accordance with GAAP.
(d) TAX LIENS. There are no Tax liens upon the assets of WPL or any of
the WPL Subsidiaries except liens for Taxes not yet due.
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(e) WITHHOLDING TAXES. WPL and each of the WPL Subsidiaries have
complied in all material respects with the provisions of the Code relating
to the withholding of Taxes, as well as similar provisions under any other
laws, and have, within the time and in the manner prescribed by law,
withheld from employee wages and paid over to the proper governmental
authorities all amounts required.
(f) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Neither WPL nor any of
the WPL Subsidiaries has requested any extension of time within which to
file any Tax Return, which Tax Return has not since been timely filed.
(g) WAIVERS OF STATUTE OF LIMITATIONS. Neither WPL nor any of the WPL
Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) EXPIRATION OF STATUTE OF LIMITATIONS. The statute of limitations
for the assessment of all Taxes has expired for all applicable Tax Returns
of WPL and each of the WPL Subsidiaries or those Tax Returns have been
examined by the appropriate taxing authorities for all Tax periods ended
before the date hereof, and no deficiency for any Taxes has been proposed,
asserted or assessed against WPL or any of the WPL Subsidiaries that has not
been resolved and paid in full.
(i) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of WPL or any of the WPL Subsidiaries.
(j) POWERS OF ATTORNEY. No power of attorney currently in force has
been granted by WPL or any of the WPL Subsidiaries concerning any Tax
matter.
(k) TAX RULINGS. Neither WPL nor any of the WPL Subsidiaries has
received a Tax Ruling (as hereinafter defined) or entered into a Closing
Agreement (as hereinafter defined) with any taxing authority that would have
a continuing adverse effect after the Closing Date.
(l) AVAILABILITY OF TAX RETURNS. WPL has made available to IES and
Interstate complete and accurate copies covering the six years ended
December 31, 1994 of (i) all Tax Returns, and any amendments thereto, filed
by WPL or any of the WPL Subsidiaries, (ii) all audit reports received from
any taxing authority relating to any Tax Return filed by WPL or any of the
WPL Subsidiaries, and (iii) any Closing Agreements entered into by WPL or
any of the WPL Subsidiaries with any taxing authority.
(m) TAX SHARING AGREEMENTS. Neither WPL nor any WPL Subsidiary is a
party to any agreement relating to allocating or sharing of Taxes.
(n) CODE SECTION 280G. Neither WPL nor any of the WPL Subsidiaries is
a party to any agreement, contract, or arrangement that could result, on
account of the transactions contemplated hereunder, separately or in the
aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code.
(o) LIABILITY FOR OTHERS. None of WPL or any of the WPL Subsidiaries
has any liability for Taxes of any person other than WPL and the WPL
Subsidiaries (i) under Treasury Regulations SECTION 1.1502-6 (or any similar
provision of state, local or foreign law) as a transferee or successor, (ii)
by contract, or (iii) otherwise.
(p) As used in this Agreement:
(i) "TAXES" means any Federal, state, county, local or foreign taxes,
charges, fees, levies, or other assessments, including all net income,
gross income, sales and use, ad valorem, transfer, gains, profits,
excise, franchise, real and personal property, gross receipts, capital
stock, production, business and occupation, disability, employment,
payroll, license,
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estimated, stamp, custom duties, severance or withholding taxes or
charges imposed by any governmental entity, and includes any interest and
penalties (civil or criminal) on or additions to any such taxes;
(ii) "TAX RETURN" means a report, return or other information
required to be supplied to a governmental entity with respect to Taxes
including, where permitted or required, combined or consolidated returns
for a group of entities;
(iii) "TAX RULING" means a written ruling of a taxing authority
relating to Taxes; and
(iv) "CLOSING AGREEMENT" means a written and legally binding agreement
with a taxing authority relating to Taxes.
Section 4.10 EMPLOYEE MATTERS; ERISA.
(a) BENEFIT PLANS. SECTION 4.10(a) of the WPL Disclosure Schedule
contains a true and complete list of each employee benefit plan, program or
arrangement covering employees, former employees or directors of WPL and
each of the WPL Subsidiaries or their beneficiaries, or providing benefits
to such persons in respect of services provided to any such entity,
including, but not limited to, employee benefit plans within the meaning of
SECTION 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and any severance or change in control agreement
(collectively, the "WPL BENEFIT PLANS"). For the purposes of this SECTION
4.10 only, the term "WPL" shall be deemed to include the predecessors of
such company.
(b) CONTRIBUTIONS. Except as set forth in SECTION 4.10(b) of the WPL
Disclosure Schedule, all material contributions and other payments required
to be made by WPL or any of the WPL Subsidiaries to any WPL Benefit Plan (or
to any person pursuant to the terms thereof) have been made or the amount of
such payment or contribution obligation has been reflected in the WPL
Financial Statements.
(c) QUALIFICATION; COMPLIANCE. Except as set forth in SECTION 4.10(c)
of the WPL Disclosure Schedule each of the WPL Benefit Plans intended to be
"QUALIFIED" within the meaning of SECTION 401(a) of the Code has been
determined by the Internal Revenue Service (the "IRS") to be so qualified,
and, to the knowledge of WPL, no circumstances exist that are reasonably
expected by WPL to result in the revocation of any such determination. WPL
is in compliance in all respects with, and each of the WPL Benefit Plans is
and has been operated in all respects in compliance with, all applicable
laws, rules and regulations governing each such plan, including, without
limitation, ERISA and the Code, except for any violations that, in the
aggregate do not, and insofar as reasonably can be foreseen, would not, give
rise to a WPL Material Adverse Effect. Each WPL Benefit Plan intended to
provide for the deferral of income, the reduction of salary or other
compensation, or to afford other income tax benefits, complies in all
material respects with the requirements of the applicable provisions of the
Code or other laws, rules and regulations required to provide such income
tax benefits.
(d) LIABILITIES. With respect to the WPL Benefit Plans, individually
and in the aggregate, no event has occurred, and, to the knowledge of WPL,
there does not now exist any condition or set of circumstances that could
subject WPL or any of the WPL Subsidiaries to any liability arising under
the Code, ERISA or any other applicable law (including, without limitation,
any liability of any kind whatsoever, whether direct or indirect,
contingent, inchoate or otherwise, to any such plan or the Pension Benefit
Guaranty Corporation (the "PBGC")), or under any indemnity agreement to
which WPL is subject, which liability, excluding liability for PBGC
premiums, benefit claims and funding obligations payable in the ordinary
course, has, or insofar as reasonably can be foreseen, would have, a WPL
Material Adverse Effect.
(e) WELFARE PLANS. Except as set forth in SECTION 4.10(e) of the WPL
Disclosure Schedule, none of the WPL Benefit Plans that are "WELFARE PLANS"
within the meaning of SECTION 3(1) of ERISA, provides for any benefits
payable to or on behalf of any employee or director after
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termination of employment or service, as the case may be, other than
elective continuation coverage required to be provided under SECTION 4980B
of the Code or Part 6 of Title I of ERISA or coverage which expires at the
end of the calendar month following such event.
(f) DOCUMENTS MADE AVAILABLE. WPL has made available to IES and
Interstate a true and correct copy of each collective bargaining agreement
to which WPL or any of the WPL Subsidiaries is a party or under which WPL or
any of the WPL Subsidiaries has obligations and, with respect to each WPL
Benefit Plan, where applicable,
(i) such plan and summary plan description,
(ii) the most recent annual report filed with the IRS,
(iii) each related trust agreement, insurance contract, service
provider or investment management agreement (including all amendments to
each such document),
(iv) the most recent determination of the IRS with respect to the
qualified status of such WPL Benefit Plan, and
(v) the most recent actuarial report or valuation.
(g) PAYMENTS RESULTING FROM MERGER. Except as set forth in SECTION
4.10(g) of the WPL Disclosure Schedule:
(i) The consummation or announcement of any transaction contemplated
by this Agreement will not (either alone or upon the occurrence of any
additional or further acts or events) result in any
(A) payment (whether of severance pay or otherwise) becoming due
from WPL or any of the WPL Subsidiaries to any officer, employee,
former employee or director thereof or to the trustee under any
"RABBI TRUST" or similar arrangement that would not have been paid
without regard to such consummation or announcement, or
(B) benefit under any WPL Benefit Plan being established or
becoming accelerated, vested or payable; and
(ii) neither WPL nor any of the WPL Subsidiaries is a party to
(A) any management, employment, deferred compensation, severance
(including any payment, right or benefit resulting from a change in
control), bonus or other contract for personal services with any
officer, director or employee,
(B) any consulting contract with any person who prior to entering
into such contract was a director or officer of WPL, or
(C) any material plan, agreement, arrangement or understanding
similar to any of the foregoing.
(h) LABOR AGREEMENTS. Except as set forth in SECTION 4.10(h) of the
WPL Disclosure Schedule, as of the date hereof, neither WPL nor any of the
WPL Subsidiaries is a party to any collective bargaining agreement or other
labor agreement with any union or labor organization. To the knowledge of
WPL, as of the date hereof, there is no current union representation
question involving employees of WPL or any of the WPL Subsidiaries, nor does
WPL know of any activity or proceeding of any labor organization (or
representative thereof) or employee group to organize any such employees.
Except as disclosed in the WPL SEC Reports filed prior to the date hereof or
in SECTION 4.10(h) of the WPL Disclosure Schedule,
(i) there is no material unfair labor practice, employment
discrimination or other complaint against WPL or any of the WPL
Subsidiaries pending, or to the knowledge of WPL, threatened,
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(ii) there is no strike, lockout or material dispute, slowdown or
work stoppage pending, or to the knowledge of WPL, threatened, against or
involving WPL or any of the WPL Subsidiaries, and
(iii) there is no material proceeding, claim, suit, action or
governmental investigation pending or, to the knowledge of WPL,
threatened, in respect of which any director, officer, employee or agent
of WPL or any of the WPL Subsidiaries is or may be entitled to claim
indemnification from WPL or such WPL Subsidiary pursuant to their
respective Articles of Incorporation or By-laws.
Section 4.11 ENVIRONMENTAL PROTECTION. Except as set forth in SECTION 4.11
of the WPL Disclosure Schedule or in the WPL SEC Reports filed prior to the date
hereof:
(a) COMPLIANCE.
(i) Each of WPL and the WPL Subsidiaries and WPL Joint Ventures is in
compliance with all applicable Environmental Laws (as hereinafter
defined), except where the failure to be in compliance, in the aggregate
does not, and insofar as reasonably can be foreseen, would not, have a
WPL Material Adverse Effect; and
(ii) neither WPL nor any of the WPL Subsidiaries and WPL Joint
Ventures has received any communication (written or oral) from any person
or Governmental Authority that alleges that WPL or any of the WPL
Subsidiaries and WPL Joint Ventures is not in such compliance with
applicable Environmental Laws.
(b) ENVIRONMENTAL PERMITS. Each of WPL and the WPL Subsidiaries has
obtained all material environmental, health and safety permits and
governmental authorizations (collectively, the "ENVIRONMENTAL PERMITS")
necessary for the construction of their facilities and the conduct of their
operations, as applicable, and all such Environmental Permits are in good
standing or, where applicable, a renewal application has been timely filed
and is pending agency approval, and WPL and the WPL Subsidiaries are in
compliance with all terms and conditions of the Environmental Permits,
except where the failure to be in such compliance, in the aggregate does
not, and insofar as reasonably can be foreseen, would not, have a WPL
Material Adverse Effect.
(c) ENVIRONMENTAL CLAIMS. There is no material Environmental Claim (as
hereinafter defined) pending
(i) against WPL or any of the WPL Subsidiaries or WPL Joint Ventures,
(ii) against any person or entity whose liability for any
Environmental Claim WPL or any of the WPL Subsidiaries has or may have
retained or assumed either contractually or by operation of law, or
(iii) against any real or personal property or operations which WPL or
any of the WPL Subsidiaries owns, leases or manages, in whole or in part.
(d) RELEASES. To the knowledge of WPL, there have not been any
material Releases (as hereinafter defined) of any Hazardous Material (as
hereinafter defined) that would be reasonably likely to form the basis of
any material Environmental Claim against WPL or any of the WPL Subsidiaries,
or against any person or entity whose liability for any material
Environmental Claim WPL or any of the WPL Subsidiaries has or may have
retained or assumed either contractually or by operation of law.
(e) PREDECESSORS. To the knowledge of WPL, with respect to any
predecessor of WPL or any of the WPL Subsidiaries, there is no material
Environmental Claim pending or threatened, and there has been no Release of
Hazardous Materials that would be reasonably likely to form the basis of any
material Environmental Claim.
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(f) DISCLOSURE. To WPL's knowledge, WPL has disclosed to each of IES
and Interstate all material facts which WPL reasonably believes form the
basis of a material Environmental Claim arising from
(i) the cost of WPL pollution control equipment currently required or
known to be required in the future;
(ii) current WPL remediation costs or WPL remediation costs known to
be required in the future; or
(iii) any other environmental matter affecting WPL or the WPL
Subsidiaries or WPL Joint Ventures.
(g) As used in this Agreement:
(i) "ENVIRONMENTAL CLAIM" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices of
noncompliance, liability or violation (written or oral) by any person or
entity (including any Governmental Authority) alleging potential
liability (including, without limitation, potential responsibility or
liability for enforcement, investigatory costs, cleanup costs,
governmental response costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from
(A) the presence, or Release or threatened Release into the
environment, of any Hazardous Materials at any location, whether or
not owned, operated, leased or managed by WPL or any of the WPL
Subsidiaries or WPL Joint Ventures (for purposes of this SECTION
4.11), or by IES or any of the IES Subsidiaries or IES Joint Ventures
(as hereinafter defined) (for purposes of SECTION 5.11) or by
Interstate or any of the Interstate Subsidiaries or Interstate Joint
Ventures (as hereinafter defined) (for the purposes of SECTION 6.11);
or
(B) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law; or
(C) any and all claims by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence or Release of any
Hazardous Materials;
(ii) "ENVIRONMENTAL LAWS" means all Federal, state and local laws,
rules and regulations relating to pollution, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or protection of human health as it relates to the
environment including, without limitation, laws and regulations relating
to Releases or threatened Releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials;
(iii) "HAZARDOUS MATERIALS" means (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, and transformers or
other equipment that contain dielectric fluid containing polychlorinated
biphenyls; and (b) any chemicals, materials or substances which are now
defined as or included in the definition of "HAZARDOUS SUBSTANCES,"
"HAZARDOUS WASTES," "HAZARDOUS MATERIALS," "EXTREMELY HAZARDOUS WASTES,"
"RESTRICTED HAZARDOUS WASTES," "TOXIC SUBSTANCES," "TOXIC POLLUTANTS," or
words of similar import, under any Environmental Law; and (c) any other
chemical, material, substance or waste, exposure to which is now
prohibited, limited or regulated under any Environmental Law in a
jurisdiction in which WPL or
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any of the WPL Subsidiaries or WPL Joint Ventures operates (for purposes
of this SECTION 4.11) or in which IES or any of the IES Subsidiaries or
IES Joint Ventures operates (for purposes of SECTION 5.11) or in which
Interstate or any of the Interstate Subsidiaries or Interstate Joint
Ventures operates (for purposes of SECTION 6.11); and
(iv) "RELEASE" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, groundwater or property.
Section 4.12 REGULATION AS A UTILITY. (a) WP&LC is regulated as a public
utility in the State of Wisconsin and in no other state. WP&LC's Subsidiary,
South Beloit Water, Gas and Electric Company, an Illinois corporation, is a
public utility supplying electric, gas and water service, principally in
Winnebago County, Illinois. Except as set forth in SECTION 4.12 of the WPL
Disclosure Schedule, neither WPL nor any "SUBSIDIARY COMPANY" or "AFFILIATE" of
WPL is subject to regulation as a public utility or public service company (or
similar designation) by any other state in the United States or any foreign
country. WPL is an exempt holding company under SECTION 3(a)(1) of the 1935 Act.
(b) As used in this SECTION 4.12 and in SECTIONS 5.12 and 6.12, the terms
"SUBSIDIARY COMPANY" and "AFFILIATE" shall have the respective meanings ascribed
to them in the 1935 Act.
Section 4.13 VOTE REQUIRED. The approval by the holders of a majority of
the votes entitled to be cast by all holders of WPL Common Stock (the "WPL
SHAREHOLDERS' APPROVAL") to approve the IES Merger, the issuance of the shares
of WPL Common Stock in the Merger and the charter amendments as described in
SECTION 8.19 of the WPL Disclosure Schedule is the only vote of the holders of
any class or series of the capital stock of WPL required for any of the
transactions contemplated by this Agreement or the Stock Option Agreements to
which WPL is a party; PROVIDED, HOWEVER, that the approval of shareholders of
WPL may be required for the repurchase of shares of WPL Common Stock pursuant to
SECTION 8(a) of each of the WPL/IES and WPL/Interstate Stock Option Agreements
under circumstances where SECTION 180.1134 of the WBCL would be applicable.
Section 4.14 ACCOUNTING MATTERS.
(a) Neither WPL nor, to WPL's knowledge, any of its Affiliates (as
hereinafter defined) has taken or agreed to take any action that would
prevent WPL from accounting for the transactions to be effected pursuant to
this Agreement as a pooling of interests in accordance with GAAP and
applicable SEC regulations.
(b) As used in this Agreement (except as specifically otherwise
defined):
(i) "AFFILIATE" means, as to any person, any other person which
directly or indirectly controls, or is under common control with, or is
controlled by, such person; and
(ii) "CONTROL" (including, with its correlative meanings, "CONTROLLED
BY" and "UNDER COMMON CONTROL WITH") means possession, directly or
indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise).
Section 4.15 APPLICABILITY OF CERTAIN PROVISIONS OF WISCONSIN LAW,
ETC. Assuming the representations and warranties of IES and Interstate made in
SECTIONS 5.18 and 6.18, respectively, are correct, none of the "CONTROL SHARE
VOTING" provisions of SECTION 180.1150 of the WBCL, the "BUSINESS COMBINATION"
provisions of SECTIONS 180.1140 to 180.1144 of the WBCL, the "FAIR PRICE"
provisions of SECTIONS 180.1130 to 180.1133 of the WBCL, or any other takeover
related provisions of the WBCL (or, to the knowledge of WPL, any other similar
state statute) or the Restated Articles of Incorporation or By-laws of WPL, are
applicable to the transactions contemplated by this Agreement, including the
granting or exercise of the WPL/IES and WPL/Interstate Stock Option Agreements
(except as set forth in SECTION 4.15 of the WPL Disclosure Schedule).
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Section 4.16 OPINION OF FINANCIAL ADVISOR. As of the date hereof, WPL has
received the opinion of Merrill Lynch & Co. ("MERRILL"), to the effect that, as
of the date hereof, the IES Ratio and the Interstate Ratio are fair to WPL from
a financial point of view.
Section 4.17 INSURANCE. Except as set forth in SECTION 4.17 of the WPL
Disclosure Schedule, each of WPL and the WPL Subsidiaries is, and has been
continuously since January 1, 1990, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary in
all material respects for companies conducting the business conducted by WPL and
the WPL Subsidiaries during such time period. Except as set forth in SECTION
4.17 of the WPL Disclosure Schedule, neither WPL nor any of the WPL Subsidiaries
has received any notice of cancellation or termination with respect to any
material insurance policy of WPL or any of the WPL Subsidiaries. The insurance
policies of WPL and each of the WPL Subsidiaries are valid and enforceable
policies in all material respects.
Section 4.18 OWNERSHIP OF IES AND INTERSTATE COMMON STOCK. Except as set
forth in SECTION 4.18 of the WPL Disclosure Schedule, and except pursuant to the
terms of the IES/WPL Stock Option Agreement and the Interstate/WPL Stock Option
Agreement, WPL does not "BENEFICIALLY OWN" (as such term is defined for purposes
of SECTION 13(d) of the Exchange Act) any shares of IES Common Stock or
Interstate Common Stock.
Section 4.19 WPL RIGHTS AGREEMENT. Assuming the accuracy of the
representations contained in SECTIONS 5.18 and 6.18, the consummation of the
transactions contemplated by this Agreement will not result in the triggering of
any right or entitlement of WPL shareholders under the WPL Rights Agreement.
Section 4.20 OPERATIONS OF NUCLEAR POWER PLANT. Except as set forth in
SECTION 4.20 of the WPL Disclosure Schedule, the operations of the Kewaunee
Nuclear Facility ("KEWAUNEE") owned by WPL (together with Wisconsin Public
Service Corporation ("WPS") and Madison Gas & Electric Company, as tenants in
common) and operated by WPS, have at all times been conducted in compliance with
applicable health, safety, regulatory and other legal requirements, except where
the failure to be in compliance in the aggregate does not, and insofar as can
reasonably be foreseen, would not, have a WPL Material Adverse Effect. Kewaunee
maintains emergency plans designed to respond to an unplanned release from
Kewaunee of radioactive materials into the environment. Customary liability
insurance consistent with industry practice and consistent with WPL's view of
the risks inherent in the operation of a nuclear power facility currently exists
with respect to Kewaunee. Plans for the decommissioning of Kewaunee and for the
short-term storage of spent nuclear fuel conform with the requirements of
applicable law, and such plans have at all times been funded consistently with
budget projections for such plans.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF IES
IES represents and warrants to WPL and Interstate as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION. Except as set forth in SECTION
5.1 of the Disclosure Schedule to this Agreement prepared and delivered by IES
(the "IES DISCLOSURE SCHEDULE"), each of IES and the IES Subsidiaries (as
hereinafter defined) is a corporation duly organized, validly existing and in
good standing (to the extent applicable under the laws of its respective
jurisdiction of incorporation or organization, has all requisite corporate power
and authority, and has been duly authorized by all necessary approvals and
orders to own, lease and operate its assets and properties to the extent owned,
leased and operated and to carry on its business as it is now being conducted
and is duly qualified and in good standing (to the extent applicable) to do
business in each respective jurisdiction in which the nature of its business or
the ownership or leasing of its assets and properties makes such qualification
necessary, other than in such jurisdictions where the failure to be so qualified
and in good standing would not, when taken together with all other such
failures, have a material adverse effect
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on the business, operations, properties, assets, condition (financial or
otherwise), or the results of operations of IES and the IES Subsidiaries taken
as a whole or on the consummation of the transaction contemplated hereby (an
"IES MATERIAL ADVERSE EFFECT").
Section 5.2 SUBSIDIARIES.
(a) SECTION 5.2 of the IES Disclosure Schedule sets forth a description
as of the date hereof, of all IES Subsidiaries and IES Joint Ventures,
including (i) the name of each such entity and IES's interest therein, and
(ii) a brief description of the principal line or lines of business
conducted by each such entity.
(b) Except as set forth in SECTION 5.2 of the IES Disclosure Schedule,
none of the IES Subsidiaries is a "PUBLIC UTILITY COMPANY," a "HOLDING
COMPANY," a "SUBSIDIARY COMPANY" or an "AFFILIATE" of any public utility
company within the meaning of SECTION 2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11)
of the 1935 Act, respectively.
(c) Except as set forth in SECTION 5.2 of the IES Disclosure Schedule,
all of the issued and outstanding shares of capital stock of each IES
Subsidiary are duly authorized, validly issued, fully paid, nonassessable
and free of preemptive rights, and are owned, directly or indirectly, by IES
free and clear of any liens, claims, encumbrances, security interests,
equities, charges and options of any nature whatsoever, and there are no
outstanding subscriptions, options, calls, contracts, voting trusts, proxies
or other commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement, obligating any such IES
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of its capital stock, or granting to any person
other than IES or an IES Subsidiary any right to participate in its
dividends or earnings or obligating it to grant, extend or enter into any
such agreement or commitment.
(d) As used in this Agreement,
(i) "IES SUBSIDIARY" shall mean any Subsidiary of IES; and
(ii) "IES JOINT VENTURE" shall mean any Joint Venture of IES or any
IES Subsidiary.
Section 5.3 CAPITALIZATION.
(a) The authorized capital stock of IES consists of
(i) 48,000,000 shares of IES Common Stock of which 29,345,573 shares
were issued and outstanding as of September 30, 1995, and
(ii) 5,000,000 shares of IES Cumulative Preferred Stock, no par value
("IES PREFERRED STOCK"), of which none were issued or outstanding as of
September 30, 1995.
(b) The authorized capital stock of IES's Subsidiary, IES Utilities
Inc., an Iowa corporation ("UTILITIES") consists of
(i) 24,000,000 shares of common stock, par value $2.50 per share of
which 13,370,788 shares were issued and outstanding as of September 30,
1995 ("UTILITIES COMMON STOCK"),
(ii) 466,406 shares of Cumulative Preferred Stock, $50 par value
(4.30% series, 4.80% series, and 6.10% series) of which 120,000 of the
4.30% series, 146,354 of the 4.80% series, and 100,000 of the 6.10%
series were issued and outstanding as of September 30, 1995 ("UTILITIES
PREFERRED STOCK"), and
(iii) 700,000 shares of Cumulative Preference Stock, $100 par value,
of which none were outstanding as of September 30, 1995.
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(c) All of the issued and outstanding shares of IES Common Stock,
Utilities Common Stock and Utilities Preferred Stock are, and any shares of
IES Common Stock issued pursuant to the IES/WPL and IES/Interstate Stock
Option Agreements will be, duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights.
(d) Except as set forth in SECTION 5.3 of the IES Disclosure Schedule,
as of the date hereof, there are no outstanding subscriptions, options,
calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating IES or any of the IES Subsidiaries
to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of IES, or obligating IES to grant,
extend or enter into any such agreement or commitment, other than under the
IES/WPL and IES/ Interstate Stock Option Agreements.
Section 5.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. IES has all requisite corporate power and authority to
enter into this Agreement and the IES/WPL and IES/Interstate Stock Option
Agreements, and, subject to the applicable IES Shareholders' Approval (as
hereinafter defined) and the applicable IES Required Statutory Approvals (as
hereinafter defined), to consummate the transactions contemplated hereby or
thereby. The execution and delivery of this Agreement and the IES/WPL and
IES/ Interstate Stock Option Agreements and the consummation by IES of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of IES, subject to obtaining the
applicable IES Shareholders' Approval. Each of this Agreement and the
IES/WPL and IES/Interstate Stock Option Agreements has been duly and validly
executed and delivered by IES and, assuming the due authorization, execution
and delivery hereof and thereof by the other signatories hereto and thereto,
constitutes the valid and binding obligation of IES enforceable against it
in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally, and except that the availability
of equitable remedies, including specific performance, may be subject to the
discretion of any court before which any proceeding therefor may be brought.
(b) NON-CONTRAVENTION. Except as set forth in SECTION 5.4(b) of the
IES Disclosure Schedule, the execution and delivery of this Agreement and
the IES/WPL and IES/Interstate Stock Option Agreements by IES do not, and
the consummation of the transactions contemplated hereby or thereby will
not, result in a Violation pursuant to any provisions of:
(i) the Articles of Incorporation, By-laws or similar governing
documents of IES or any of the IES Subsidiaries or the IES Joint
Ventures;
(ii) subject to obtaining the IES Required Statutory Approvals and
the receipt of the IES Shareholders' Approval, any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any Governmental Authority applicable to IES or any
of IES Subsidiaries or IES Joint Ventures or any of their respective
properties or assets, or
(iii) subject to obtaining the third-party consents set forth in
SECTION 5.4(b) of the IES Disclosure Schedule (the "IES REQUIRED
CONSENTS"), any material note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which IES or any of
the IES Subsidiaries or IES Joint Ventures is a party or by which it or
any of its properties or assets may be bound or affected,
excluding from the foregoing clauses (ii) and (iii) such violations which,
in the aggregate do not, and insofar as reasonably can be foreseen, would
not, have an IES Material Adverse Effect.
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(c) STATUTORY APPROVALS. No declaration, filing or registration with,
or notice to or authorization, consent or approval of, any Governmental
Authority is necessary for the execution and delivery of this Agreement or
the IES/WPL and IES/Interstate Stock Option Agreements by IES or the
consummation by IES of the transactions contemplated hereby or thereby,
except as described in SECTION 5.4(c) of the IES Disclosure Schedule (the
"IES REQUIRED STATUTORY APPROVALS", it being understood that references in
this Agreement to "OBTAINING" such IES Required Statutory Approvals shall
mean making such declarations, filings or registrations; giving such
notices; obtaining such authorizations, consents or approvals; and having
such waiting periods expire as are necessary to avoid a violation of law).
(d) COMPLIANCE.
(i) Except as set forth in SECTION 5.4(d), SECTION 5.10 or SECTION
5.11 of the IES Disclosure Schedule, or as disclosed in the IES SEC
Reports (as hereinafter defined) filed prior to the date hereof, neither
IES nor any of the IES Subsidiaries nor, to the knowledge of IES, any IES
Joint Venture, is in violation of, is under investigation with respect to
any violation of, or has been given notice or been charged with any
violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental
law, ordinance or regulation) of any Governmental Authority, except for
violations which, in the aggregate do not, and insofar as reasonably can
be foreseen, would not, have an IES Material Adverse Effect.
(ii) Except as set forth in SECTION 5.4(d) or in SECTION 5.11 of the
IES Disclosure Schedule, IES and the IES Subsidiaries and IES Joint
Ventures have all Permits necessary to conduct their businesses as
presently conducted, except those the failure of which to obtain, in the
aggregate do not, and insofar as reasonably can be foreseen, would not,
have an IES Material Adverse Effect.
(iii) Except as set forth in SECTION 5.4(d) of the IES Disclosure
Schedule, each of IES and the IES Subsidiaries and IES Joint Ventures is
not in breach, violation, or default in the performance or observance of
any term or provision of, and no event has occurred which, with lapse of
time or action by a third party, could result in a default under,
(A) its Articles of Incorporation or By-laws, or
(B) any contract, commitment, agreement, indenture, mortgage,
loan agreement, note, lease, bond, license, approval or other
instrument to which it is a party or by which it is bound or to which
any of its property is subject, except for breaches, violations or
defaults which, in the aggregate do not, and insofar as reasonably
can be foreseen, would not, have an IES Material Adverse Effect.
Section 5.5 REPORTS AND FINANCIAL STATEMENTS.
(a) The filings required to be made by IES and the IES Subsidiaries
since January 1, 1992 under the Securities Act, the Exchange Act, the 1935
Act, the Power Act, the Atomic Energy Act and applicable state laws and
regulations have been filed with the SEC, the FERC, the NRC, the DOE or any
appropriate state public utilities commission, as the case may be, including
all forms, statements, reports, agreements (oral or written) and all
documents, exhibits, amendments and supplements appertaining thereto, and
complied, as of their respective dates, in all material respects with all
applicable requirements of the appropriate statute and the rules and
regulations thereunder.
(b) IES has made available to WPL and Interstate a true and complete
copy of each form, report, schedule, registration statement and definitive
proxy statement filed by each of IES and Utilities with the SEC since
January 1, 1992 (as such documents have since the time of their filing been
amended or supplemented, the "IES SEC REPORTS") and each other filing
described in SECTION 5.5(a). As of their respective dates, the IES SEC
Reports did not contain any untrue
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statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) The audited consolidated financial statements and unaudited interim
financial statements of IES and Utilities, as the case may be, included in
the IES SEC Reports (collectively, the "IES FINANCIAL STATEMENTS") have been
prepared in accordance with GAAP (except as may be indicated therein or in
the notes thereto and except with respect to unaudited statements as
permitted by Form 10-Q under the Exchange Act) and fairly present in all
material respects the financial position of IES or Utilities, as the case
may be, as of the dates thereof and the results of its operations and cash
flows for the periods then ended, subject, in the case of the unaudited
interim financial statements, to normal, recurring audit adjustments.
(d) True, accurate and complete copies of the Restated Articles of
Incorporation and By-laws of IES, as in effect on the date hereof, are
included (or incorporated by reference) in the IES SEC Reports.
Section 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the IES SEC Reports filed prior to the date hereof or as set forth in SECTION
5.6 of the IES Disclosure Schedule, since December 31, 1994, IES and each of the
IES Subsidiaries and IES Joint Ventures have conducted their businesses only in
the ordinary course of their respective businesses consistent with past practice
and there has not been, and no facts or conditions exist (other than facts or
conditions of general applicability to electric utility companies in the region
in which WPL, IES and Interstate operate) which, in the aggregate have or,
insofar as reasonably can be foreseen, would have, an IES Material Adverse
Effect.
Section 5.7 LITIGATION. Except as disclosed in the IES SEC Reports filed
prior to the date hereof or as set forth in SECTION 5.7, SECTION 5.9 or SECTION
5.11 of the IES Disclosure Schedule,
(a) there are no claims, suits, actions or proceedings pending or, to
the knowledge of IES, threatened, nor are there, to the knowledge of IES,
any investigations or reviews pending or threatened against, relating to or
affecting IES or any of the IES Subsidiaries and, to the knowledge of IES,
the IES Joint Ventures;
(b) there have not been any developments since December 31, 1994 with
respect to such disclosed claims, suits, actions, proceedings,
investigations or reviews; and
(c) there are no judgments, decrees, injunctions, rules or orders of any
court, governmental department, commission, agency, instrumentality or
authority or any arbitrator applicable to IES or any of the IES Subsidiaries
and, to the knowledge of IES, or the IES Joint Ventures,
which, when taken together with any other nondisclosures of matters described in
clauses (a), (b) and (c), have, or insofar as reasonably can be foreseen, would
have, an IES Material Adverse Effect.
Section 5.8 REGISTRATION STATEMENT AND PROXY STATEMENT.
(a) None of the information supplied or to be supplied by or on behalf
of IES for inclusion or incorporation by reference in:
(i) the Registration Statement will, at the time the Registration
Statement is filed with the SEC and at the time it becomes effective
under the Securities Act, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, not misleading, and
(ii) the Proxy Statement will, at the date mailed to shareholders and
at the times of the meetings of shareholders to be held in connection
with the IES Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
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(b) The Registration Statement and the Proxy Statement will comply as to
form in all material respects with the provisions of the Securities Act and
the Exchange Act, respectively, and the applicable rules and regulations
thereunder.
Section 5.9 TAX MATTERS. Except as set forth in SECTION 5.9 of the IES
Disclosure Schedule:
(a) FILING OF TIMELY TAX RETURNS. IES and each of the IES Subsidiaries
have filed (or there has been filed on its behalf) all Tax Returns required
to be filed by each of them under applicable law. All such Tax Returns were
and are in all material respects true, complete and correct and filed on a
timely basis.
(b) PAYMENT OF TAXES. IES and each of the IES Subsidiaries have,
within the time and in the manner prescribed by law, paid all Taxes that are
currently due and payable except for those contested in good faith and for
which adequate reserves have been taken.
(c) TAX RESERVES. IES and the IES Subsidiaries have established on
their books and records reserves adequate to pay all Taxes and reserves for
deferred income taxes in accordance with GAAP.
(d) TAX LIENS. There are no Tax liens upon the assets of IES or any of
the IES Subsidiaries except liens for Taxes not yet due.
(e) WITHHOLDING TAXES. IES and each of the IES Subsidiaries have
complied in all material respects with the provisions of the Code relating
to the withholding of Taxes, as well as similar provisions under any other
laws, and have, within the time and in the manner prescribed by law,
withheld from employee wages and paid over to the proper governmental
authorities all amounts required.
(f) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Neither IES nor any of
the IES Subsidiaries has requested any extension of time within which to
file any Tax Return, which Tax Return has not since been timely filed.
(g) WAIVERS OF STATUTE OF LIMITATIONS. Neither IES nor any of the IES
Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) EXPIRATION OF STATUTE OF LIMITATIONS. The statute of limitations
for the assessment of all Taxes has expired for all applicable Tax Returns
of IES and each of the IES Subsidiaries or those Tax Returns have been
examined by the appropriate taxing authorities for all Tax periods ended
before the date hereof, and no deficiency for any Taxes has been proposed,
asserted or assessed against IES or any of the IES Subsidiaries that has not
been resolved and paid in full.
(i) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of IES or any of the IES Subsidiaries.
(j) POWERS OF ATTORNEY. No power of attorney currently in force has
been granted by IES or any of the IES Subsidiaries concerning any Tax
matter.
(k) TAX RULINGS. Neither IES nor any of the IES Subsidiaries has
received a Tax Ruling or entered into a Closing Agreement with any taxing
authority that would have a continuing adverse effect after the Closing
Date.
(l) AVAILABILITY OF TAX RETURNS. IES has made available to WPL and
Interstate complete and accurate copies covering the six years ended
December 31, 1994 of (i) all Tax Returns, and any amendments thereto, filed
by IES or any of the IES Subsidiaries, (ii) all audit reports received from
any taxing authority relating to any Tax Return filed by IES or any of the
IES Subsidiaries, and (iii) any Closing Agreements entered into by IES or
any of the IES Subsidiaries with any taxing authority.
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(m) TAX SHARING AGREEMENTS. Neither IES nor any IES Subsidiary is a
party to any agreement relating to allocating or sharing of Taxes.
(n) CODE SECTION 280G. Except as set forth in SECTION 5.9(n) of the
IES Disclosure Schedule, neither IES nor any of the IES Subsidiaries is a
party to any agreement, contract, or arrangement that could result, on
account of the transactions contemplated hereunder, separately or in the
aggregate, in the payment of any "EXCESS PARACHUTE PAYMENTS" within the
meaning of SECTION 280G of the Code.
(o) LIABILITY FOR OTHERS. None of IES or any of the IES Subsidiaries
has any liability for Taxes of any person other than IES and the IES
Subsidiaries (i) under Treasury Regulations SECTION 1.1502-6 (or any similar
provision of state, local or foreign law) as a transferee or successor, (ii)
by contract, or (iii) otherwise.
Section 5.10 EMPLOYEE MATTERS; ERISA.
(a) BENEFIT PLANS. SECTION 5.10(a) of the IES Disclosure Schedule
contains a true and complete list of each employee benefit plan, program or
arrangement covering employees, former employees or directors of IES and
each of the IES Subsidiaries or their beneficiaries, or providing benefits
to such persons in respect of services provided to any such entity,
including, but not limited to, employee benefit plans within the meaning of
SECTION 3(3) of ERISA and any severance or change in control agreement
(collectively, the "IES BENEFIT PLANS"). For the purposes of this SECTION
5.10 only, the term "IES" shall be deemed to include the predecessors of
such company.
(b) CONTRIBUTIONS. Except as set forth in SECTION 5.10(b) of the IES
Disclosure Schedule, all material contributions and other payments required
to be made by IES or any of the IES Subsidiaries to any IES Benefit Plan (or
to any person pursuant to the terms thereof) have been made or the amount of
such payment or contribution obligation has been reflected in the IES
Financial Statements.
(c) QUALIFICATION; COMPLIANCE. Except as set forth in SECTION 5.10(c)
of the IES Disclosure Schedule, each of the IES Benefit Plans intended to be
"QUALIFIED" within the meaning of SECTION 401(a) of the Code has been
determined by the IRS to be so qualified, and, to the knowledge of IES, no
circumstances exist that are reasonably expected by IES to result in the
revocation of any such determination. IES is in compliance in all respects
with, and each of the IES Benefit Plans is and has been operated in all
respects in compliance with, all applicable laws, rules and regulations
governing each such plan, including, without limitation, ERISA and the Code,
except for any violations that, in the aggregate do not, and insofar as
reasonably can be foreseen, would not, give rise to an IES Material Adverse
Effect. Each IES Benefit Plan intended to provide for the deferral of
income, the reduction of salary or other compensation, or to afford other
income tax benefits, complies in all material respects with the requirements
of the applicable provisions of the Code or other laws, rules and
regulations required to provide such income tax benefits.
(d) LIABILITIES. With respect to the IES Benefit Plans, individually
and in the aggregate, no event has occurred, and, to the knowledge of IES,
there does not now exist any condition or set of circumstances that could
subject IES or any of the IES Subsidiaries to any liability arising under
the Code, ERISA or any other applicable law (including, without limitation,
any liability of any kind whatsoever, whether direct or indirect,
contingent, inchoate or otherwise, to any such plan or the PBGC), or under
any indemnity agreement to which IES is subject, which liability, excluding
liability for PBGC premiums, benefit claims and funding obligations payable
in the ordinary course, has, or insofar as reasonably can be foreseen, would
have, an IES Material Adverse Effect.
(e) WELFARE PLANS. Except as set forth in SECTION 5.10(e) of the IES
Disclosure Schedule, none of the IES Benefit Plans that are "WELFARE PLANS"
within the meaning of SECTION 3(1) of ERISA, provides for any benefits
payable to or on behalf of any employee or director after
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termination of employment or service, as the case may be, other than
elective continuation coverage required to be provided under SECTION 4980B
of the Code or Part 6 of Title I of ERISA or coverage which expires at the
end of the calendar month following such event.
(f) DOCUMENTS MADE AVAILABLE. IES has made available to WPL and
Interstate a true and correct copy of each collective bargaining agreement
to which IES or any of the IES Subsidiaries is a party or under which IES or
any of the IES Subsidiaries has obligations and, with respect to each IES
Benefit Plan, where applicable,
(i) such plan and summary plan description,
(ii) the most recent annual report filed with the IRS,
(iii) each related trust agreement, insurance contract, service
provider or investment management agreement (including all amendments to
each such document),
(iv) the most recent determination of the IRS with respect to the
qualified status of such IES Benefit Plan, and
(v) the most recent actuarial report or valuation.
(g) PAYMENTS RESULTING FROM MERGER. Except as set forth in SECTION
5.10(g) of the IES Disclosure Schedule:
(i) The consummation or announcement of any transaction contemplated
by this Agreement will not (either alone or upon the occurrence of any
additional or further acts or events) result in any
(A) payment (whether of severance pay or otherwise) becoming due
from IES or any of the IES Subsidiaries to any officer, employee,
former employee or director thereof or to the trustee under any
"RABBI TRUST" or similar arrangement that would not have been paid
without regard to such consummation or announcement or
(B) benefit under any IES Benefit Plan being established or
becoming accelerated, vested or payable; and
(ii) neither IES nor any of the IES Subsidiaries is a party to
(A) any management, employment, deferred compensation, severance
(including any payment, right or benefit resulting from a change in
control), bonus or other contract for personal services with any
officer, director or employee,
(B) any consulting contract with any person who prior to entering
into such contract was a director or officer of IES, or
(C) any material plan, agreement, arrangement or understanding
similar to any of the foregoing.
(h) LABOR AGREEMENTS. Except as set forth in SECTION 5.10(h) of the
IES Disclosure Schedule, as of the date hereof, neither IES nor any of the
IES Subsidiaries is a party to any collective bargaining agreement or other
labor agreement with any union or labor organization. To the knowledge of
IES, as of the date hereof, there is no current union representation
question involving employees of IES or any of the IES Subsidiaries, nor does
IES know of any activity or proceeding of any labor organization (or
representative thereof) or employee group to organize any such employees.
Except as disclosed in the IES SEC Reports filed prior to the date hereof or
in SECTION 5.10(h) of the IES Disclosure Schedule,
(i) there is no material unfair labor practice, employment
discrimination or other complaint against IES or any of the IES
Subsidiaries pending, or to the knowledge of IES, threatened,
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(ii) there is no strike, lockout or material dispute, slowdown or
work stoppage pending, or to the knowledge of IES, threatened, against or
involving IES or any of the IES Subsidiaries, and
(iii) there is no material proceeding, claim, suit, action or
governmental investigation pending or, to the knowledge of IES,
threatened, in respect of which any director, officer, employee or agent
of IES or any of the IES Subsidiaries is or may be entitled to claim
indemnification from IES or such IES Subsidiary pursuant to their
respective Articles of Incorporation or By-laws.
Section 5.11 ENVIRONMENTAL PROTECTION. Except as set forth in SECTION 5.11
of the IES Disclosure Schedule or in the IES SEC Reports filed prior to the date
hereof:
(a) COMPLIANCE.
(i) Each of IES and the IES Subsidiaries and IES Joint Ventures is in
compliance with all applicable Environmental Laws, except where the
failure to be in compliance, in the aggregate does not, and insofar as
reasonably can be foreseen, would not, have an IES Material Adverse
Effect; and
(ii) neither IES nor any of the IES Subsidiaries and IES Joint
Ventures has received any communication (written or oral) from any person
or Governmental Authority that alleges that IES or any of the IES
Subsidiaries and IES Joint Ventures is not in such compliance with
applicable Environmental Laws.
(b) ENVIRONMENTAL PERMITS. Each of IES and the IES Subsidiaries has
obtained all Environmental Permits necessary for the construction of their
facilities and the conduct of their operations, as applicable, and all such
Environmental Permits are in good standing or, where applicable, a renewal
application has been timely filed and is pending agency approval, and IES
and the IES Subsidiaries are in compliance with all terms and conditions of
the Environmental Permits, except where the failure to be in such
compliance, in the aggregate does not, and insofar as reasonably can be
foreseen, would not, have an IES Material Adverse Effect.
(c) ENVIRONMENTAL CLAIMS. There is no material Environmental Claim
pending
(i) against IES or any of the IES Subsidiaries or IES Joint Ventures,
(ii) against any person or entity whose liability for any
Environmental Claim IES or any of the IES Subsidiaries has or may have
retained or assumed either contractually or by operation of law, or
(iii) against any real or personal property or operations which IES or
any of the IES Subsidiaries owns, leases or manages, in whole or in part.
(d) RELEASES. To the knowledge of IES, there have not been any
material Releases of any Hazardous Material that would be reasonably likely
to form the basis of any material Environmental Claim against IES or any of
the IES Subsidiaries, or against any person or entity whose liability for
any material Environmental Claim IES or any of the IES Subsidiaries has or
may have retained or assumed either contractually or by operation of law.
(e) PREDECESSORS. To the knowledge of IES, with respect to any
predecessor of IES or any of the IES Subsidiaries, there is no material
Environmental Claim pending or threatened, and there has been no Release of
Hazardous Materials that would be reasonably likely to form the basis of any
material Environmental Claim.
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(f) DISCLOSURE. To IES's knowledge, IES has disclosed to each of WPL
and Interstate all material facts which IES reasonably believes form the
basis of a material Environmental Claim arising from
(i) the cost of IES pollution control equipment currently required or
known to be required in the future;
(ii) current IES remediation costs or IES remediation costs known to
be required in the future; or
(iii) any other environmental matter affecting IES or the IES
Subsidiaries or IES Joint Ventures.
Section 5.12 REGULATION AS A UTILITY. Utilities is regulated as a public
utility in the State of Iowa and in no other state. Except as set forth in
SECTION 5.12 of the IES Disclosure Schedule, neither IES nor any "SUBSIDIARY
COMPANY" or "AFFILIATE" of IES is subject to regulation as a public utility or
public service company (or similar designation) by any other state in the United
States or any foreign country. IES is an exempt holding company under SECTION
3(a)(1) of the 1935 Act.
Section 5.13 VOTE REQUIRED. The approval by the holders of a majority of
the votes entitled to be cast by all holders of IES Common Stock (the "IES
SHAREHOLDERS' APPROVAL") to approve the IES Merger, is the only vote of the
holders of any class or series of capital stock of IES required for any of the
transactions required by this Agreement or the Stock Option Agreements to which
IES is a party.
Section 5.14 ACCOUNTING MATTERS. Neither IES nor, to IES's knowledge, any
of its Affiliates has taken or agreed to take any action that would prevent IES
from accounting for the transactions to be effected pursuant to this Agreement
as a pooling of interests in accordance with GAAP and applicable SEC
regulations.
Section 5.15 APPLICABILITY OF CERTAIN IOWA LAW, ETC. Assuming the
representations and warranties of WPL and Interstate made in SECTIONS 4.18 and
6.18, respectively, are correct, none of the "FAIR PRICE" provisions of SECTION
502.214.7 of the IBCA, or any other takeover related provisions of the IBCA (or,
to the knowledge of IES, any other similar state statute) or the Restated
Articles of Incorporation or By-laws of IES is applicable to the transaction
contemplated by this Agreement, including the granting or exercise of the
IES/WPL and IES/Interstate Stock Option Agreements (except as set forth on
SCHEDULE 5.15 of the IES Disclosure Schedule).
Section 5.16 OPINION OF FINANCIAL ADVISOR. As of the date hereof, IES has
received the opinion of Morgan Stanley & Co. Incorporated ("MORGAN"), to the
effect that, as of the date hereof, the IES Ratio, taking into account the
Interstate Ratio, is fair from a financial point of view to the holders of IES
Common Stock.
Section 5.17 INSURANCE. Except as set forth in SECTION 5.17 of the IES
Disclosure Schedule, each of IES and the IES Subsidiaries is, and has been
continuously since January 1, 1990, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary in
all material respects for companies conducting the business conducted by IES and
the IES Subsidiaries during such time period. Except as set forth in SECTION
5.17 of the IES Disclosure Schedule, neither IES nor any of the IES Subsidiaries
has received any notice of cancellation or termination with respect to any
material insurance policy of IES or any of the IES Subsidiaries. The insurance
policies of IES and each of the IES Subsidiaries are valid and enforceable
policies in all material respects.
Section 5.18 OWNERSHIP OF WPL AND INTERSTATE COMMON STOCK. Except as set
forth in SECTION 5.18 of the IES Disclosure Schedule, and except pursuant to the
terms of the WPL/IES Stock Option Agreement and the Interstate/IES Stock Option
Agreement, IES does not "BENEFICIALLY OWN" (as such term is defined for purposes
of SECTION 13(d) of the Exchange Act) any shares of WPL Common Stock or
Interstate Common Stock.
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Section 5.19 IES RIGHTS AGREEMENT. Assuming the accuracy of the
representations contained in SECTIONS 4.18 and 6.18, the consummation of the
transactions contemplated by this Agreement will not result in the triggering of
any right or entitlement of IES shareholders under the Rights Agreement, dated
as of November 6, 1991, between IES and IES, as rights agent (the "IES RIGHTS
AGREEMENT").
Section 5.20 OPERATIONS OF NUCLEAR POWER PLANT. Except as set forth in
SECTION 5.20 of the IES Disclosure Schedule, the operations of the Duane Arnold
Energy Center ("DAEC") owned by IES (together with Central Iowa Power
Cooperative and Cornbelt Power Cooperative, as tenants in common) and operated
by IES, have at all times been conducted in compliance with applicable health,
safety, regulatory and other legal requirements, except where the failure to be
in compliance in the aggregate does not, and insofar as can reasonably be
foreseen, would not, have an IES Material Adverse Effect. DAEC maintains
emergency plans designed to respond to an unplanned release from DAEC of
radioactive materials into the environment. Customary liability insurance
consistent with industry practice and consistent with IES's view of the risks
inherent in the operation of a nuclear power facility currently exists with
respect to DAEC. Plans for the decommissioning of DAEC and for the short-term
storage of spent nuclear fuel conform with the requirements of applicable law,
and such plans have at all times been funded consistently with budget
projections for such plans.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF INTERSTATE
Interstate represents and warrants to WPL and IES as follows:
Section 6.1 ORGANIZATION AND QUALIFICATION. Except as set forth in SECTION
6.1 of the Disclosure Schedule to this Agreement prepared and delivered by
Interstate (the "INTERSTATE DISCLOSURE SCHEDULE"), each of Interstate and the
Interstate Subsidiaries (as hereinafter defined) is a corporation duly
organized, validly existing and in good standing (to the extent applicable)
under the laws of its respective jurisdiction of incorporation or organization,
has all requisite corporate power and authority, and has been duly authorized by
all necessary approvals and orders to own, lease and operate its assets and
properties to the extent owned, leased and operated and to carry on its business
as it is now being conducted and is duly qualified and in good standing (to the
extent applicable) to do business in each respective jurisdiction in which the
nature of its business or the ownership or leasing of its assets and properties
makes such qualification necessary, other than in such jurisdictions where the
failure to be so qualified and in good standing would not, when taken together
with all other such failures, have a material adverse effect on the business,
operations, properties, assets, condition (financial or otherwise), or the
results of operations of Interstate and the Interstate Subsidiaries taken as a
whole or on the consummations of the transactions contemplated hereby (an
"INTERSTATE MATERIAL ADVERSE EFFECT").
Section 6.2 SUBSIDIARIES.
(a) SECTION 6.2 of the Interstate Disclosure Schedule sets forth a
description as of the date hereof, of all Interstate Subsidiaries and
Interstate Joint Ventures, including (i) the name of each such entity and
Interstate's interest therein, and (ii) a brief description of the principal
line or lines of business conducted by each such entity.
(b) Except as set forth in SECTION 6.2 of the Interstate Disclosure
Schedule, none of the Interstate Subsidiaries is a "PUBLIC UTILITY COMPANY,"
a "HOLDING COMPANY," A "SUBSIDIARY COMPANY" or an "AFFILIATE" of any public
utility company within the meaning of SECTION 2(a)(5), 2(a)(7), 2(a)(8)OR
2(a)(11) of the 1935 Act, respectively.
(c) Except as set forth in SECTION 6.2 of the Interstate Disclosure
Schedule, all of the issued and outstanding shares of capital stock of each
Interstate Subsidiary are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights, and are owned, directly or
indirectly, by Interstate free and clear of any liens, claims, encumbrances,
security interests, equities,
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charges and options of any nature whatsoever, and there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating any such Interstate
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of its capital stock or granting to any person other
than Interstate or any Interstate Subsidiary any right to participate in its
dividends or earnings or obligating it to grant, extend or enter into any
such agreement or commitment.
(d) As used in this Agreement,
(i) "INTERSTATE SUBSIDIARY" shall mean any Subsidiary of Interstate;
and
(ii) "INTERSTATE JOINT VENTURE" shall mean any Joint Venture of
Interstate or any Interstate Subsidiary.
Section 6.3 CAPITALIZATION.
(a) The authorized capital stock of Interstate consists of
(i) 30,000,000 shares of Interstate Common Stock of which 9,564,287
shares were issued and outstanding as of September 30, 1995,
(ii) 2,000,000 shares of Interstate Preferred Stock were authorized,
of which 761,381 shares of the 4.36% series, 4.68% series, 6.40% series
and 7.76% series were issued and outstanding as of September 30, 1995,
and
(iii) 2,000,000 shares of Interstate Preference Stock, $1.00 par
value, of which none were issued and outstanding as of September 30,
1995.
(b) All of the issued and outstanding shares of Interstate Common Stock
and Interstate Preferred Stock are, and any shares of Interstate Common
Stock issued pursuant to the Interstate/WPL and Interstate/IES Stock Option
Agreements will be, duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights.
(c) Except as set forth in SECTION 6.3 of the Interstate Disclosure
Schedule, as of the date hereof, there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating Interstate or any of the
Interstate Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of Interstate, or
obligating Interstate to grant, extend or enter into any such agreement or
commitment, other than under the Interstate/WPL and Interstate/IES Stock
Option Agreements.
Section 6.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. Interstate has all requisite corporate power and
authority to enter into this Agreement and the Interstate/WPL and
Interstate/IES Stock Option Agreements, and, subject to the applicable
Interstate Shareholders' Approval (as hereinafter defined) and the
applicable Interstate Required Statutory Approvals (as hereinafter defined),
to consummate the transactions contemplated hereby or thereby. The execution
and delivery of this Agreement and the Interstate/WPL and Interstate/IES
Stock Option Agreements and the consummation by Interstate of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of Interstate, subject to
obtaining the applicable Interstate Shareholders' Approval. Each of this
Agreement and the Interstate/WPL and Interstate/IES Stock Option Agreements
has been duly and validly executed and delivered by Interstate and, assuming
the due authorization, execution and delivery hereof and thereof by the
other signatories hereto and thereto, constitutes the valid and binding
obligation of Interstate enforceable against it in accordance with its
terms, except as may be limited by applicable bankruptcy,
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insolvency, reorganization or other similar laws affecting the enforcement
of creditors' rights generally, and except that the availability of
equitable remedies, including specific performance, may be subject to the
discretion of any court before which any proceeding therefor may be brought.
(b) NON-CONTRAVENTION. Except as set forth in SECTION 6.4(b) of the
Interstate Disclosure Schedule, the execution and delivery of this Agreement
and the Interstate/WPL and Interstate/ IES Stock Option Agreements by
Interstate do not, and the consummation of the transactions contemplated
hereby or thereby will not, result in a Violation pursuant to any provisions
of:
(i) the Articles of Incorporation, By-laws or similar governing
documents of Interstate or any of the Interstate Subsidiaries or
Interstate Joint Ventures;
(ii) subject to obtaining the Interstate Required Statutory Approvals
and the receipt of the Interstate Shareholders' Approval, any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any Governmental Authority applicable to
Interstate or any of the Interstate Subsidiaries or Interstate Joint
Ventures or any of their respective properties or assets; or
(iii) subject to obtaining the third-party consents set forth in
SECTION 6.4(b) of the Interstate Disclosure Schedule (the "INTERSTATE
REQUIRED CONSENTS"), any material note, bond, mortgage, indenture, deed
of trust, license, franchise, permit, concession, contract, lease or
other instrument, obligation or agreement of any kind to which Interstate
or any of the Interstate Subsidiaries or the Interstate Joint Ventures is
a party or by which it or any of its properties or assets may be bound or
affected,
excluding from the foregoing clauses (ii) and (iii) such violations which,
in the aggregate do not, and insofar as reasonably can be foreseen, would
not, have an Interstate Material Adverse Effect.
(c) STATUTORY APPROVALS. No declaration, filing or registration with,
or notice to or authorization, consent or approval of, any Governmental
Authority is necessary for the execution and delivery of this Agreement or
the Interstate/WPL and Interstate/IES Stock Option Agreements by Interstate
or the consummation by Interstate of the transactions contemplated hereby or
thereby, except as described in SECTION 6.4(c) of the Interstate Disclosure
Schedule (the "INTERSTATE REQUIRED STATUTORY APPROVALS", it being understood
that references in this Agreement to "OBTAINING" such Interstate Required
Statutory Approvals shall mean making such declarations, filings or
registrations; giving such notices; obtaining such authorizations, consents
or approvals; and having such waiting periods expire as are necessary to
avoid a violation of law).
(d) COMPLIANCE.
(i) Except as set forth in SECTION 6.4(d), SECTION 6.10 or SECTION
6.11 of the Interstate Disclosure Schedule, or as disclosed in the
Interstate SEC Reports (as hereinafter defined) filed prior to the date
hereof, neither Interstate nor any of the Interstate Subsidiaries nor, to
the knowledge of Interstate, any Interstate Joint Venture is in violation
of, is under investigation with respect to any violation of, or has been
given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance or judgment (including, without
limitation, any applicable environmental law, ordinance or regulation) of
any Governmental Authority, except for violations which, in the aggregate
do not, and insofar as reasonably can be foreseen, would not, have an
Interstate Material Adverse Effect.
(ii) Except as set forth in SECTION 6.4(d) or in SECTION 6.11 of the
Interstate Disclosure Schedule, Interstate and the Interstate
Subsidiaries and Interstate Joint Ventures have all Permits necessary to
conduct their businesses as presently conducted, except those the failure
of which to obtain, in the aggregate do not, and insofar as reasonably
can be foreseen, would not, have an Interstate Material Adverse Effect.
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(iii) Except as set forth in SECTION 6.4(d) of the Interstate
Disclosure Schedule, each of Interstate and the Interstate Subsidiaries
and Interstate Joint Ventures is not in breach, violation or default in
the performance or observance of any term or provision of, and no event
has occurred which, with lapse of time or action by a third party, could
result in a default under,
(A) its Articles of Incorporation or By-laws, or
(B) any contract, commitment, agreement, indenture, mortgage,
loan agreement, note, lease, bond, license, approval or other
instrument to which it is a party or by which it is bound or to which
any of its property is subject, except for breaches, violations or
defaults which, in the aggregate do not, and insofar as can be
reasonably foreseen, would not, have an Interstate Material Adverse
Effect.
Section 6.5 REPORTS AND FINANCIAL STATEMENTS.
(a) The filings required to be made by Interstate and the Interstate
Subsidiaries since January 1, 1992 under the Securities Act, the Exchange
Act, the Power Act, and applicable state laws and regulations have been
filed with the SEC, the FERC, or any appropriate state public utilities
commission, as the case may be, including all forms, statements, reports,
agreements (oral or written) and all documents, exhibits, amendments and
supplements appertaining thereto, and complied, as of their respective
dates, in all material respects with all applicable requirements of the
appropriate statute and the rules and regulations thereunder.
(b) Interstate has made available to WPL and IES a true and complete
copy of each form, report, schedule, registration statement and definitive
proxy statement filed by Interstate with the SEC since January 1, 1992 (as
such documents have since the time of their filing been amended or
supplemented, the "INTERSTATE SEC REPORTS") and each other filing described
in SECTION 6.5(A). As of their respective dates, the Interstate SEC Reports
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(c) The audited consolidated financial statements and unaudited interim
financial statements of Interstate included in the Interstate SEC Reports
(collectively, the "INTERSTATE FINANCIAL STATEMENTS") have been prepared in
accordance with GAAP (except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements as permitted by Form
10-Q under the Exchange Act) and fairly present in all material respects the
financial position of Interstate as of the dates thereof and the results of
its operations and cash flows for the periods then ended, subject, in the
case of the unaudited interim financial statements, to normal, recurring
audit adjustments.
(d) True, accurate and complete copies of the Restated Articles of
Incorporation and By-laws of Interstate, as in effect on the date hereof,
are included (or incorporated by reference) in the Interstate SEC Reports.
Section 6.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Interstate SEC Reports filed prior to the date hereof or as set forth in
SECTION 6.6 of the Interstate Disclosure Schedule, since December 31, 1994,
Interstate and each of the Interstate Subsidiaries and Interstate Joint Ventures
have conducted their businesses only in the ordinary course of their respective
businesses consistent with past practice and there has not been, and no facts or
conditions exist (other than facts or conditions of general applicability to
electric utility companies in the region in which WPL, IES and Interstate
operate) which, in the aggregate have or, insofar as reasonably can be foreseen,
would have, an Interstate Material Adverse Effect.
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Section 6.7 LITIGATION. Except as disclosed in the Interstate SEC Reports
filed prior to the date hereof or as set forth in SECTION 6.7, SECTION 6.9 or
SECTION 6.11 of the Interstate Disclosure Schedule,
(a) there are no claims, suits, actions or proceedings pending or, to
the knowledge of Interstate, threatened, nor are there, to the knowledge of
Interstate, any investigations or reviews pending or threatened against,
relating to or affecting Interstate or any of the Interstate Subsidiaries
and, to the knowledge of Interstate, the Interstate Joint Ventures;
(b) there have not been any developments since December 31, 1994 with
respect to such disclosed claims, suits, actions, proceedings,
investigations or reviews; and
(c) there are no judgments, decrees, injunctions, rules or orders of any
court, governmental department, commission, agency, instrumentality or
authority or any arbitrator applicable to Interstate or any of the
Interstate Subsidiaries and, to the knowledge of Interstate, the Interstate
Joint Ventures,
which, when taken together with any other nondisclosures of matters described in
clauses (a), (b) and (c), have, or insofar as reasonably can be foreseen, would
have, an Interstate Material Adverse Effect.
Section 6.8 REGISTRATION STATEMENT AND PROXY STATEMENT.
(a) None of the information supplied or to be supplied by or on behalf
of Interstate for inclusion or incorporation by reference in
(i) the Registration Statement will, at the time the Registration
Statement is filed with the SEC and at the time it becomes effective
under the Securities Act, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and
(ii) the Proxy Statement will, at the date mailed to shareholders and
at the times of the meetings of shareholders to be held in connection
with the Interstate Merger, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(b) The Registration Statement and the Proxy Statement will comply as to
form in all material respects with the provisions of the Securities Act and
the Exchange Act, respectively, and the applicable rules and regulations
thereunder.
Section 6.9 TAX MATTERS. Except as set forth in SECTION 6.9 of the
Interstate Disclosure Schedule:
(a) FILING OF TIMELY TAX RETURNS. Interstate and each of the
Interstate Subsidiaries have filed (or there has been filed on its behalf)
all Tax Returns required to be filed by each of them under applicable law.
All such Tax Returns were and are in all material respects true, complete
and correct and filed on a timely basis.
(b) PAYMENT OF TAXES. Interstate and each of the Interstate
Subsidiaries have, within the time and in the manner prescribed by law, paid
all Taxes that are currently due and payable except for those contested in
good faith and for which adequate reserves have been taken.
(c) TAX RESERVES. Interstate and the Interstate Subsidiaries have
established on their books and records reserves adequate to pay all Taxes
and reserves for deferred income taxes in accordance with GAAP.
(d) TAX LIENS. There are no Tax liens upon the assets of Interstate or
any of the Interstate Subsidiaries except liens for Taxes not yet due.
(e) WITHHOLDING TAXES. Interstate and each of the Interstate
Subsidiaries have complied in all material respects with the provisions of
the Code relating to the withholding of Taxes, as
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well as similar provisions under any other laws, and have, within the time
and in the manner prescribed by law, withheld from employee wages and paid
over to the proper governmental authorities all amounts required.
(f) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Neither Interstate nor
any of the Interstate Subsidiaries has requested any extension of time
within which to file any Tax Return, which Tax Return has not since been
timely filed.
(g) WAIVERS OF STATUTE OF LIMITATIONS. Neither Interstate nor any of
the Interstate Subsidiaries has executed any outstanding waivers or
comparable consents regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns.
(h) EXPIRATION OF STATUTE OF LIMITATIONS. The statute of limitations
for the assessment of all Taxes has expired for all applicable Tax Returns
of Interstate and each of the Interstate Subsidiaries or those Tax Returns
have been examined by the appropriate taxing authorities for all Tax periods
ended before the date hereof, and no deficiency for any Taxes has been
proposed, asserted or assessed against Interstate or any of the Interstate
Subsidiaries that has not been resolved and paid in full.
(i) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of Interstate or any of the Interstate
Subsidiaries.
(j) POWERS OF ATTORNEY. No power of attorney currently in force has
been granted by Interstate or any of the Interstate Subsidiaries concerning
any Tax matter.
(k) TAX RULINGS. Neither Interstate nor any of the Interstate
Subsidiaries has received a Tax Ruling or entered into a Closing Agreement
with any taxing authority that would have a continuing adverse effect after
the Closing Date.
(l) AVAILABILITY OF TAX RETURNS. Interstate has made available to WPL
and IES complete and accurate copies covering the six years ended December
31, 1994 of (i) all Tax Returns, and any amendments thereto, filed by
Interstate or any of the Interstate Subsidiaries, (ii) all audit reports
received from any taxing authority relating to any Tax Return filed by
Interstate or any of the Interstate Subsidiaries, and (iii) any Closing
Agreements entered into by Interstate or any of the Interstate Subsidiaries
with any taxing authority.
(m) TAX SHARING AGREEMENTS. Neither Interstate nor any Interstate
Subsidiary is a party to any agreement relating to allocating or sharing of
Taxes.
(n) CODE SECTION 280G. Neither Interstate nor any of the Interstate
Subsidiaries is a party to any agreement, contract, or arrangement that
could result, on account of the transactions contemplated hereunder,
separately or in the aggregate, in the payment of any "EXCESS PARACHUTE
PAYMENTS" within the meaning of SECTION 280G of the Code.
(o) LIABILITY FOR OTHERS. None of Interstate or any of the Interstate
Subsidiaries has any liability for Taxes of any person other than Interstate
and the Interstate Subsidiaries (i) under Treasury Regulations SECTION
1.1502-6 (or any similar provision of state, local or foreign law) as a
transferee or successor, (ii) by contract, or (iii) otherwise.
Section 6.10 EMPLOYEE MATTERS; ERISA.
(a) BENEFIT PLANS. SECTION 6.10(a) of the Interstate Disclosure
Schedule contains a true and complete list of each employee benefit plan,
program or arrangement covering employees, former employees or directors of
Interstate and each of the Interstate Subsidiaries or their beneficiaries,
or providing benefits to such persons in respect of services provided to any
such entity, including, but not limited to, employee benefit plans within
the meaning of SECTION 3(3) of
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ERISA and any severance or change in control agreement (collectively, the
"INTERSTATE BENEFIT PLANS"). For the purposes of this SECTION 6.10 only, the
term "INTERSTATE" shall be deemed to include the predecessors of such
company.
(b) CONTRIBUTIONS. Except as set forth in SECTION 6.10(b) of the
Interstate Disclosure Schedule, all material contributions and other
payments required to be made by Interstate or any of the Interstate
Subsidiaries to any Interstate Benefit Plan (or to any person pursuant to
the terms thereof) have been made or the amount of such payment or
contribution obligation has been reflected in the Interstate Financial
Statements.
(c) QUALIFICATION; COMPLIANCE. Except as set forth in SECTION 6.10(b)
of the Interstate Disclosure Schedule, each of the Interstate Benefit Plans
intended to be "QUALIFIED" within the meaning of SECTION 401(a) of the Code
has been determined by the IRS to be so qualified, and, to the knowledge of
Interstate, no circumstances exist that are reasonably expected by
Interstate to result in the revocation of any such determination. Interstate
is in compliance in all respects with, and each of the Interstate Benefit
Plans is and has been operated in all respects in compliance with, all
applicable laws, rules and regulations governing each such plan, including,
without limitation, ERISA and the Code except for any violations that, in
the aggregate do not, and insofar as reasonably can be foreseen, would not,
give rise to an Interstate Material Adverse Effect. Each Interstate Benefit
Plan intended to provide for the deferral of income, the reduction of salary
or other compensation, or to afford other income tax benefits, complies in
all material respects with the requirements of the applicable provisions of
the Code or other laws, rules and regulations required to provide such
income tax benefits.
(d) LIABILITIES. With respect to the Interstate Benefit Plans,
individually and in the aggregate, no event has occurred, and, to the
knowledge of Interstate, there does not now exist any condition or set of
circumstances that could subject Interstate or any of the Interstate
Subsidiaries to any liability arising under the Code, ERISA or any other
applicable law (including, without limitation, any liability of any kind
whatsoever, whether direct or indirect, contingent, inchoate or otherwise to
any such plan or the PBGC), or under any indemnity agreement to which
Interstate is subject, which liability, excluding liability for PBGC
premiums, benefit claims and funding obligations payable in the ordinary
course, has, or insofar as reasonably can be foreseen, would have, an
Interstate Material Adverse Effect.
(e) WELFARE PLANS. Except as set forth in SECTION 6.10(e) of the
Interstate Disclosure Schedule, none of the Interstate Benefit Plans that
are "WELFARE PLANS" within the meaning of SECTION 3(1) of ERISA provides for
any benefits payable to or on behalf of any employee or director after
termination of employment or service, as the case may be, other than
elective continuation coverage required to be provided under SECTION 4980B
of the Code or Part 6 of Title I of ERISA or coverage which expires at the
end of the calendar month following such event.
(f) DOCUMENTS MADE AVAILABLE. Interstate has made available to WPL and
IES a true and correct copy of each collective bargaining agreement to which
Interstate or any of the Interstate Subsidiaries is a party or under which
Interstate or any of the Interstate Subsidiaries has obligations and, with
respect to each Interstate Benefit Plan, where applicable,
(i) such plan and summary plan description,
(ii) the most recent annual report filed with the IRS,
(iii) each related trust agreement, insurance contract, service
provider or investment management agreement (including all amendments to
each such document),
(iv) the most recent determination of the IRS with respect to the
qualified status of such Interstate Benefit Plan, and
(v) the most recent actuarial report or valuation.
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(g) PAYMENTS RESULTING FROM MERGER. Except as set forth in SECTION
6.10(g) of the Interstate Disclosure Schedule:
(i) The consummation or announcement of any transaction contemplated
by this Agreement will not (either alone or upon the occurrence of any
additional or further acts or events) result in any
(A) payment (whether of severance pay or otherwise) becoming due
from Interstate or any of the Interstate Subsidiaries to any officer,
employee, former employee or director thereof or to the trustee under
any "RABBI TRUST" or similar arrangement that would not have been
paid without regard to such consummation or announcement, or
(B) benefit under any Interstate Benefit Plan being established
or becoming accelerated, vested or payable; and
(ii) neither Interstate nor any of the Interstate Subsidiaries is a
party to
(A) any management, employment, deferred compensation, severance
(including any payment, right or benefit resulting from a change in
control), bonus or other contract for personal services with any
officer, director or employee,
(B) any consulting contract with any person who prior to entering
into such contract was a director or officer of Interstate, or
(C) any material plan, agreement, arrangement or understanding
similar to any of the foregoing.
(h) LABOR AGREEMENTS. Except as set forth in SECTION 6.10(h) of the
Interstate Disclosure Schedule, as of the date hereof, neither Interstate
nor any of the Interstate Subsidiaries is a party to any collective
bargaining agreement or other labor agreement with any union or labor
organization. To the knowledge of Interstate, as of the date hereof, there
is no current union representation question involving employees of
Interstate or any of the Interstate Subsidiaries, nor does Interstate know
of any activity or proceeding of any labor organization (or representative
thereof) or employee group to organize any such employees. Except as
disclosed in the Interstate SEC Reports filed prior to the date hereof or in
SECTION 6.10(h) of the Interstate Disclosure Schedule,
(i) there is no material unfair labor practice, employment
discrimination or other complaint against Interstate or any of the
Interstate Subsidiaries pending, or to the knowledge of Interstate,
threatened,
(ii) there is no strike, lockout or material dispute, slowdown or
work stoppage pending, or to the knowledge of Interstate threatened,
against or involving Interstate or any of the Interstate Subsidiaries,
and
(iii) there is no material proceeding, claim, suit, action or
governmental investigation pending or, to the knowledge of Interstate,
threatened, in respect of which any director, officer, employee or agent
of Interstate or any of the Interstate Subsidiaries is or may be entitled
to claim indemnification from Interstate or such Interstate Subsidiary
pursuant to their respective Articles of Incorporation or by-laws.
Section 6.11 ENVIRONMENTAL PROTECTION. Except as set forth in SECTION 6.11
of the Interstate Disclosure Schedule or in the Interstate SEC Reports filed
prior to the date hereof:
(a) COMPLIANCE.
(i) Each of Interstate and the Interstate Subsidiaries and Interstate
Joint Ventures is in compliance with all applicable Environmental Laws,
except where the failure to be in compliance, in the aggregate does not,
and insofar as reasonably can be foreseen, would not, have an Interstate
Material Adverse Effect; and
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(ii) neither Interstate nor any of the Interstate Subsidiaries and
Interstate Joint Ventures has received any communication (written or
oral) from any person or Governmental Authority that alleges that
Interstate or any of the Interstate Subsidiaries and Interstate Joint
Ventures is not in compliance, as required by clause (i) above, with
applicable Environmental Laws.
(b) ENVIRONMENTAL PERMITS. Each of Interstate and the Interstate
Subsidiaries has obtained all Environmental Permits necessary for the
construction of their facilities and the conduct of their operations, as
applicable, and all such Environmental Permits are in good standing or,
where applicable, a renewal application has been timely filed and is pending
agency approval, and Interstate and the Interstate Subsidiaries are in
compliance with all terms and conditions of the Environmental Permits,
except where the failure to be in such compliance, in the aggregate does
not, and insofar as reasonably can be foreseen, would not, have an
Interstate Material Adverse Effect.
(c) ENVIRONMENTAL CLAIMS. There is no material Environmental Claim
pending
(i) against Interstate or any of the Interstate Subsidiaries or
Interstate Joint Ventures,
(ii) against any person or entity whose liability for any
Environmental Claim Interstate or any of the Interstate Subsidiaries has
or may have retained or assumed either contractually or by operation of
law, or
(iii) against any real or personal property or operations which
Interstate or any of the Interstate Subsidiaries owns, leases or manages,
in whole or in part.
(d) RELEASES. To the knowledge of Interstate, there has not been any
material Releases of any Hazardous Material that would be reasonably likely
to form the basis of any material Environmental Claim against Interstate or
any of the Interstate Subsidiaries, or against any person or entity whose
liability for any material Environmental Claim Interstate or any of the
Interstate Subsidiaries has or may have retained or assumed either
contractually or by operation of law.
(e) PREDECESSORS. To the knowledge of Interstate, with respect to any
predecessor of Interstate or any of the Interstate Subsidiaries, there is no
material Environmental Claim pending or threatened, and there has been no
Release of Hazardous Materials that would be reasonably likely to form the
basis of any material Environmental Claim.
(f) DISCLOSURE. To Interstate's knowledge, Interstate has disclosed to
each of WPL and IES all material facts which Interstate reasonably believes
form the basis of a material Environmental Claim arising from
(i) the cost of Interstate pollution control equipment currently
required or known to be required in the future;
(ii) current Interstate remediation costs or Interstate remediation
costs known to be required in the future; or
(iii) any other environmental matter affecting Interstate or the
Interstate Subsidiaries or Interstate Joint Ventures.
Section 6.12 REGULATION AS A UTILITY. Interstate is regulated as a public
utility in the States of Iowa, Illinois and Minnesota and in no other state.
Except as set forth in SECTION 6.12 of the Interstate Disclosure Schedule, no
"SUBSIDIARY COMPANY" or "AFFILIATE" of Interstate is subject to regulation as a
public utility or public service company (or similar designation) by any other
state in the United States or any foreign country.
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Section 6.13 VOTE REQUIRED. The approval by the holders of a majority of
the outstanding shares of Interstate Common Stock (the "INTERSTATE SHAREHOLDERS'
APPROVAL") to approve the Interstate Merger is the only vote of the holders of
any class or series of capital stock of Interstate required for any of the
transactions required by this Agreement or the Stock Option Agreements to which
Interstate is a party. The approval by the holders of shares of Interstate
Preferred Stock is not required to approve the Interstate Merger.
Section 6.14 ACCOUNTING MATTERS. Neither Interstate nor, to Interstate's
knowledge, any of its Affiliates has taken or agreed to take any action that
would prevent Interstate from accounting for the transactions to be effected
pursuant to this Agreement as a pooling of interests in accordance with GAAP and
applicable SEC regulations.
Section 6.15 APPLICABILITY OF CERTAIN DELAWARE LAW, ETC. Assuming the
representations and warranties of WPL and IES made in SECTIONS 4.18 and 5.18,
respectively, are correct, none of the provisions of SECTION 203 of the DGCL, or
any other takeover related provisions of the DGCL (or to the knowledge of
Interstate, any other similar State statute) or the Restated Articles of
Incorporation or By-laws of Interstate are applicable to the transactions
contemplated by this Agreement, including the granting or exercise of the
Interstate/WPL and Interstate/IES Stock Option Agreements (except as set forth
in SECTION 6.15 of the Interstate Disclosure Schedule).
Section 6.16 OPINION OF FINANCIAL ADVISOR. Interstate has received the
opinion of Salomon Brothers Inc ("SALOMON") dated November 10, 1995, to the
effect that, as of the date thereof, the consideration to be received by the
holders of Interstate Common Stock in the Interstate Merger is fair from a
financial point of view to the holders of Interstate Common Stock.
Section 6.17 INSURANCE. Except as set forth in SECTION 6.17 of the
Interstate Disclosure Schedule, each of Interstate and the Interstate
Subsidiaries is, and has been continuously since January 1, 1990, insured with
financially responsible insurers in such amounts and against such risks and
losses as are customary in all material respects for companies conducting the
business conducted by Interstate and the Interstate Subsidiaries during such
time period. Except as set forth in SECTION 6.17 of the Interstate Disclosure
Schedule, neither Interstate nor any of the Interstate Subsidiaries has received
any notice of cancellation or termination with respect to any material insurance
policy of Interstate or any of the Interstate Subsidiaries. The insurance
policies of Interstate and each of the Interstate Subsidiaries are valid and
enforceable policies in all material respects.
Section 6.18 OWNERSHIP OF WPL AND IES COMMON STOCK. Except pursuant to the
terms of the WPL/Interstate and IES/Interstate Stock Option Agreements,
Interstate does not "BENEFICIALLY OWN" (as such term is defined for purposes of
SECTION 13(d) of the Exchange Act) any shares of WPL Common Stock or IES Common
Stock.
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
Section 7.1 COVENANTS OF THE PARTIES. After the date hereof and prior to
the Effective Time or earlier termination of this Agreement, WPL, IES and
Interstate each agree as set forth in this Article VII, each as to itself and to
each of the WPL Subsidiaries, the IES Subsidiaries and the Interstate
Subsidiaries, respectively, except as expressly contemplated or permitted in
this Agreement, the Stock Option Agreements, or to the extent the other parties
hereto shall otherwise consent in writing.
Section 7.2 ORDINARY COURSE OF BUSINESS. Each party hereto shall, and
shall cause its Subsidiaries to, carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and use all commercially reasonable efforts to preserve
intact their present business organizations and goodwill, preserve the goodwill
and relationships with customers, suppliers and others having business dealings
with them and, subject to prudent management of workforce needs and ongoing
programs currently in force, keep available the services of their
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present officers and employees. Except as set forth in SECTION 7.2 of the WPL
Disclosure Schedule, the IES Disclosure Schedule or the Interstate Disclosure
Schedule, respectively, no party shall, nor shall any party permit any of its
Subsidiaries to, enter into a new line of business, or make any change in the
line of business it engages in as of the date hereof involving any material
investment of assets or resources or any material exposure to liability or loss,
in the case of WPL, to WPL and its Subsidiaries taken as a whole, in the case of
IES, to IES and its Subsidiaries taken as a whole, and in the case of
Interstate, to Interstate and its Subsidiaries taken as a whole.
Section 7.3 DIVIDENDS. No party shall, nor shall any party permit any of
its Subsidiaries to,
(a) (i) declare or pay any dividends on or make other distributions in
respect of any of their capital stock other than
(A) to such party or its wholly-owned Subsidiaries,
(B) dividends required to be paid on any IES Preferred Stock,
Utilities Preferred Stock, WP&LC Preferred Stock or Interstate Preferred
Stock in accordance with the respective terms thereof, and
(C) regular quarterly dividends on IES Common Stock and Interstate
Common Stock, with usual record and payment dates, during any fiscal
year, which dividends shall not exceed 100% of the prior year in the case
of IES and 100% of the prior year in the case of Interstate, and
(D) regular quarterly dividends on WPL Common Stock, with usual
record and payment dates, during any fiscal year, which dividends shall
not exceed 105% of the dividends for the prior fiscal year; and
(ii) split, combine or reclassify any of their capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of, or in substitution for, shares of their capital stock; or
(iii) redeem, repurchase or otherwise acquire any shares of their capital
stock, other than
(A) redemptions, purchases or acquisitions required by the respective
terms of any series of IES Preferred Stock, Utilities Preferred Stock,
WP&LC Preferred Stock, or Interstate Preferred Stock,
(B) in connection with refunding of IES Preferred Stock, Utilities
Preferred Stock, WP&LC Preferred Stock or Interstate Preferred Stock with
preferred stock or debt at a lower cost of funds (calculating such cost
on an after-tax basis),
(C) in connection with intercompany purchases of capital stock,
(D) for the purpose of funding employee stock ownership or dividend
reinvestment and stock purchase plans in accordance with past practice,
or
(E) as set forth on SECTION 7.3(a)(iii) of the WPL Disclosure
Schedule, IES Disclosure Schedule or Interstate Disclosure Schedule.
(b) Each of WPL, IES, and Interstate shall declare a dividend on each
share of its Common Stock to holders of record of such shares as of the
close of business on the business day next preceding the Effective Time in
an amount equal to the product of
(i) a fraction,
(A) the numerator of which equals the number of days between the
payment date with respect to the most recent regular dividend paid by
WPL, IES, or Interstate, as the case may be, and the Effective Time,
and
(B) the denominator of which equals 91, and
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(ii) the amount of the regular cash dividend most recently paid by
WPL, IES or Interstate, as the case may be;
PROVIDED, HOWEVER, that if any one or more of WPL, IES or Interstate has
declared a regular quarterly dividend on shares of its Common Stock with a
payment date (the "PAYMENT DATE") after the Effective Time, then no dividend
as provided for in this SECTION 7.3(b) shall be declared or paid with
respect to such shares and the dividend of the other party or parties shall
be calculated by substituting "Payment Date" for "Effective Time" in clause
(i)(A) of this SECTION 7.3(b).
(c) Notwithstanding the foregoing,
(i) WPL may redeem all or any portion of the WP&LC Preferred Stock if
the Board of Directors of WPL in good faith determines such course of
action will facilitate the transactions contemplated hereby,
(ii) IES may redeem all or any portion of the IES Preferred Stock or
Utilities Preferred Stock if the IES Board of Directors in good faith
determines such course of action will facilitate the transactions
contemplated hereby, and
(iii) Interstate may redeem all or any portion of the Interstate
Preferred Stock, if the Interstate Board of Directors in good faith
determines such course of action will facilitate the transactions
contemplated hereby.
Section 7.4 ISSUANCE OF SECURITIES.
(a) No party shall, nor shall any party permit any of its Subsidiaries
to, issue, agree to issue, deliver, sell, award, pledge, dispose of or
otherwise encumber or authorize or propose the issuance, delivery, sale,
award, pledge, disposal or other encumbrance of, any shares of their capital
stock of any class or any securities convertible into or exchangeable for,
or any rights, warrants or options to acquire, any such shares or
convertible or exchangeable securities, other than (w) pursuant to the Stock
Option Agreements, (x) pursuant to the Benefit Plans relating to the WPL
Subsidiaries listed in (and in amounts no greater than those set forth in)
Section 7.4 of the WPL Disclosure Schedule, (y) issuances by a Subsidiary of
a party hereto to the party that directly or indirectly controls such
Subsidiary or to a wholly-owned Subsidiary of such party, and (z) issuances:
(i) in the case of IES and the IES Subsidiaries
(A) in connection with refunding IES Preferred Stock or Utilities
Preferred Stock with preferred stock or debt at a lower cost of funds
(calculating such cost on an after-tax basis); and
(B) up to 450,000 shares of IES Common Stock to be issued for
general corporate purposes, including issuances in connection with
acquisitions and financing and issuances pursuant to employee benefit
plans, stock option and other incentive compensation plans, directors
plans and stock purchase plans;
(C) issuances of IES Common Stock pursuant to IES dividend
reinvestment plans; and
(D) issuances of securities pursuant to the IES Rights Agreement.
(ii) in the case of WPL and the WPL Subsidiaries
(A) in connection with refunding of WP&LC Preferred Stock with
preferred stock or debt at a lower cost of funds (calculating such
cost on an after-tax basis); and
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(B) up to 1 million shares of WPL Common Stock to be issued for
general corporate purposes, including issuances in connection with
acquisitions and financing and issuances pursuant to employee benefit
plans, stock option and other incentive compensation plans, directors
plans and stock purchase plans;
(C) issuances of WPL Common Stock pursuant to WPL dividend
reinvestment plans; and
(D) issuances of securities pursuant to the WPL Rights Agreement.
(iii) in the case of Interstate and the Interstate Subsidiaries
(A) in connection with refunding of Interstate Preferred Stock
with preferred stock or debt at a lower cost of funds (calculating
such cost on an after-tax basis); and
(B) up to 200,000 shares of Interstate Common Stock to be issued
for general corporate purposes, including issuances in connection
with acquisitions and financing and issuances pursuant to employee
benefit plans, stock option and other incentive compensation plans,
directors plans and stock purchase plans; and
(C) issuances of Interstate Common Stock pursuant to Interstate's
dividend reinvestment plans.
(b) The parties shall promptly furnish to each other such information as
may be reasonably requested including financial information and take such
action as may be reasonably necessary and otherwise fully cooperate with
each other in the preparation of any registration statement under the
Securities Act and other documents necessary in connection with issuance of
securities as contemplated by this SECTION 7.4, subject to obtaining
customary indemnities.
Section 7.5 CHARTER DOCUMENTS. Except as set forth in SECTION 7.5 of the
WPL Disclosure Schedule, the IES Disclosure Schedule or the Interstate
Disclosure Schedule, except as contemplated herein, no party shall amend or
propose to amend its respective articles of incorporation, by-laws or
regulations, or similar organic documents.
Section 7.6 NO ACQUISITIONS. Except as set forth in SECTION 7.6 of the WPL
Disclosure Schedule, the IES Disclosure Schedule or the Interstate Disclosure
Schedule, other than acquisitions by a party and its Subsidiaries not in excess
of $10 million in the case of WPL, $10 million in the case of IES and $5 million
in the case of Interstate, over the amount budgeted or forecasted by each party
for acquisition expenditures, as set forth in such SECTION 7.6 of the WPL
Disclosure Schedule, the IES Disclosure Schedule or the Interstate Disclosure
Schedule, singularly or in the aggregate, no party shall, nor shall any party
permit any of its Subsidiaries to, acquire, or publicly propose to acquire, or
agree to acquire, by merger or consolidation with, or by purchase or otherwise,
a substantial equity interest in or a substantial portion of the assets of, any
business or any corporation, partnership, association or other business
organization or division thereof, nor shall any party acquire or agree to
acquire a material amount of assets other than in the ordinary course of
business consistent with past practice.
Section 7.7 CAPITAL EXPENDITURES AND EMISSION ALLOWANCES. Except as set
forth in SECTION 7.7 of the WPL Disclosure Schedule, the IES Disclosure Schedule
or the Interstate Disclosure Schedule, or as required by law, no party shall,
nor shall any party permit any of its Subsidiaries to, (i) make capital
expenditures in excess of $50 million in the case of WPL, $80 million in the
case of IES, and $16 million in the case of Interstate over the amount budgeted
by each such party for capital expenditures as set forth in such SECTION 7.7 of
the WPL Disclosure Schedule, the IES Disclosure Schedule or the Interstate
Disclosure Schedule, or (ii) enter into written commitments for the purchase of
sulfur dioxide emission allowances as provided for by the Clean Air Act
Amendments of 1990, in excess (singularly or in the aggregate) of $1 million in
the case of WPL, $500,000 in the case of IES, and $250,000 in the case of
Interstate.
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Section 7.8 NO DISPOSITIONS. Except as set forth in SECTION 7.8of the WPL
Disclosure Schedule, the IES Disclosure Schedule or the Interstate Disclosure
Schedule, other than dispositions by a party and its Subsidiaries of assets
having a fair market value (singularly or in the aggregate) of less than $10
million in the case of WPL, $10 million in the case of IES, and $2 million in
the case of Interstate, no party shall, nor shall any party permit any of its
Subsidiaries to, sell, lease, license, encumber or otherwise dispose of, any of
its assets, other than encumbrances or dispositions in the ordinary course of
its business consistent with past practice.
Section 7.9 INDEBTEDNESS. Except as contemplated by this Agreement, no
party shall, nor shall any party permit any of its Subsidiaries to, incur or
guarantee any indebtedness (including any debt borrowed or guaranteed or
otherwise assumed including, without limitation, the issuance of debt securities
or warrants or rights to acquire debt) or enter into any "KEEP WELL" or other
agreement to maintain any financial condition of another person or enter into
any arrangement having the economic effect of any of the foregoing other than
(i) short-term indebtedness in the ordinary course of business consistent with
past practice (such as the issuance of commercial paper or the use of existing
credit facilities); (ii) long-term indebtedness not aggregating more than $40
million in the case of WPL, $60 million in the case of IES, and $20 million in
the case of Interstate; (iii) arrangements between such party and its
Subsidiaries or among its Subsidiaries; (iv) as set forth in SECTION 7.9 of the
WPL Disclosure Schedule, the IES Disclosure Schedule or the Interstate
Disclosure Schedule; (v) in connection with the refunding of existing
indebtedness at a lower cost of funds; or (vi) in connection with the refunding
of IES Preferred Stock, Utilities Preferred Stock, WP&LC Preferred Stock or
Interstate Preferred Stock, as permitted in SECTION 7.3.
Section 7.10 COMPENSATION, BENEFITS. Except as set forth in SECTION 7.10
of the WPL Disclosure Schedule, the IES Disclosure Schedule or the Interstate
Disclosure Schedule, as may be required by applicable law or as contemplated by
this Agreement, no party shall, nor shall any party permit any of its
Subsidiaries to
(a) enter into, adopt or amend or increase the amount or accelerate the
payment or vesting of any benefit or amount payable under, any employee
benefit plan or other contract, agreement, commitment, arrangement, plan or
policy maintained by, contributed to or entered into by such party or any of
its Subsidiaries, or increase, or enter into any contract, agreement,
commitment or arrangement to increase in any manner, the compensation or
fringe benefits, or otherwise to extend, expand or enhance the engagement,
employment or any related rights, of any director, officer or other employee
of such party or any of its Subsidiaries, except for normal increases in the
ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to such party or any of its Subsidiaries, or
(b) enter into or amend any employment, severance or special pay
arrangement with respect to the termination of employment or other similar
contract, agreement or arrangement with any director or officer or other
employee, except as set forth in SECTION 7.10 of the WPL Disclosure
Schedule, the IES Disclosure Schedule or the Interstate Disclosure Schedule
or otherwise in the ordinary course of business consistent with past
practice.
Section 7.11 1935 ACT. Except as set forth in SECTION 7.11 of the WPL
Disclosure Schedule, the IES Disclosure Schedule or the Interstate Disclosure
Schedule, no party shall, nor shall any party permit any of its Subsidiaries to,
except as required or contemplated by this Agreement, engage in any activities
which would cause a change in its status, or that of its Subsidiaries, under the
1935 Act, or that would impair the ability of WPL to claim an exemption pursuant
to its order under SECTION 3(a)(1) of the 1935 Act or that would impair the
ability of IES to claim an exemption pursuant to its order under SECTION 3(a)(1)
of the 1935 Act prior to the Effective Time, other than (i) the application to
the SEC under the 1935 Act contemplated by this Agreement for approval to the
extent required of the transactions contemplated hereby and (ii) the
registration of the Company pursuant to the 1935 Act.
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Section 7.12 TRANSMISSION, GENERATION. Except as required pursuant to
tariffs on file with the FERC as of the date hereof, in the ordinary course of
business consistent with past practice, or as set forth in SECTION 7.12 of the
WPL Disclosure Schedule, the IES Disclosure Schedule or the Interstate
Disclosure Schedule, no party shall, nor shall any party permit any of its
Subsidiaries to,
(a) commence construction of any additional generating, transmission or
delivery capacity, or
(b) obligate itself to purchase or otherwise acquire, or to sell or
otherwise dispose of, or to share, any additional generating, transmission
or delivery capacity,
in an amount in excess of $30 million in the case of WPL, $80 million in the
case of IES, and $16 million in the case of Interstate, except as set forth in
the budgets or forecasts of WPL dated November 10, 1995, IES dated October 16,
1995 and Interstate dated February 27, 1995, respectively, which budgets or
forecasts have been shared with each other party hereto.
Section 7.13 ACCOUNTING. Except as set forth in SECTION 7.13 of the WPL
Disclosure Schedule, the IES Disclosure Schedule or the Interstate Disclosure
Schedule, no party shall, nor shall any party permit any of its Subsidiaries to,
make any changes in their accounting methods, except as required by law, rule,
regulation or GAAP.
Section 7.14 POOLING. No party shall, nor shall any party permit any of
its Subsidiaries or, within the exercise of its best efforts, its Joint Ventures
to, take any action which would, or would be reasonably likely to, prevent the
Company from accounting for the transactions to be effected pursuant to this
Agreement as a pooling of interests in accordance with GAAP and applicable SEC
regulations, and each party hereto shall use all reasonable efforts to achieve
such result (including taking such actions as may be necessary to cure any facts
or circumstances that could prevent such transactions from qualifying for
pooling-of-interests accounting treatment).
Section 7.15 TAX-FREE STATUS. No party shall, nor shall any party permit
any of its Subsidiaries or, within the exercise of its best efforts, its Joint
Ventures to, take any actions which would, or would be reasonably likely to,
adversely affect the status of the Merger as a tax-free transaction (except as
to dissenters' rights and fractional shares) under SECTION 368(a) of the Code,
and each party hereto shall use all reasonable efforts to achieve such result.
Section 7.16 AFFILIATE TRANSACTIONS. Except as set forth in SECTION 7.16
of the WPL Disclosure Schedule, the IES Disclosure Schedule or the Interstate
Disclosure Schedule, no party shall, nor shall any party permit any of its
Subsidiaries or, within the exercise of its best efforts, its Joint Ventures to,
enter into any material agreement or arrangement with any of their respective
Affiliates (other than wholly-owned Subsidiaries) on terms materially less
favorable to such party than could reasonably be expected to have been obtained
with an unaffiliated third party on an arm's-length basis.
Section 7.17 COOPERATION, NOTIFICATION. Each party shall, and shall cause
its Subsidiaries and shall use its best efforts to cause, its Joint Ventures to
(a) cause its appropriate representatives to confer on a regular and
frequent basis with one or more representatives of each other party to
discuss, subject to applicable law, material operational matters and the
general status of its ongoing operations;
(b) promptly notify each other party of any significant changes in its
business, properties, assets, condition (financial or other), results of
operations or prospects;
(c) advise each other party of any change or event which has, had or,
insofar as reasonably can be foreseen, is reasonably likely to result in, in
the case of WPL, a WPL Material Adverse Effect, in the case of IES, an IES
Material Adverse Effect, or in the case of Interstate, an Interstate
Material Adverse Effect; and
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(d) promptly provide each other party with copies of all filings made by
such party or any of its Subsidiaries with any state or Federal court,
administrative agency, commission or other Governmental Authority in
connection with this Agreement and the transactions contemplated hereby.
Section 7.18 THIRD-PARTY CONSENTS.
(a) WPL shall, and shall cause its Subsidiaries to, use all commercially
reasonable efforts to obtain all WPL Required Consents. WPL shall promptly
notify IES and Interstate of any failure or prospective failure to obtain
any such consents and, if requested by IES or Interstate, shall provide
copies of all WPL Required Consents obtained by WPL to IES and Interstate.
(b) IES shall, and shall cause its Subsidiaries to, use all commercially
reasonable efforts to obtain all IES Required Consents. IES shall promptly
notify WPL and Interstate of any failure or prospective failure to obtain
any such consents and, if requested by WPL or Interstate, shall provide
copies of all IES Required Consents obtained by IES to WPL and Interstate.
(c) Interstate shall, and shall cause its Subsidiaries to, use all
commercially reasonable efforts to obtain all Interstate Required Consents.
Interstate shall promptly notify WPL and IES of any failure or prospective
failure to obtain any such consents and, if requested by WPL or IES, shall
provide copies of all Interstate Required Consents obtained by Interstate to
WPL and IES.
Section 7.19 NO BREACH. No party shall, nor shall any party permit any of
its Subsidiaries to, willfully take any action that would or is reasonably
likely to result
(a) in a material breach of any provision of this Agreement or the Stock
Option Agreements, or
(b) in any of its representations and warranties set forth in this
Agreement or the Stock Option Agreements being untrue on and as of the
Closing Date.
Section 7.20 TAX-EXEMPT STATUS. No party shall, nor shall any party permit
any Subsidiary to take any action that would be reasonably likely to jeopardize
the qualification of WP&LC's, Utilities's or Interstate's outstanding revenue
bonds which qualify on the date hereof under SECTION 142(a) of the Code as
"EXEMPT FACILITY BONDS" or as tax-exempt industrial development bonds under
SECTION 103(b)(4) of the Internal Revenue Code of 1954, as amended, prior to the
enactment of the Tax Reform Act of 1986.
Section 7.21 TRANSITION STEERING TEAM. As soon as practicable after the
date hereof, the parties shall create a special transition steering team (the
"TRANSITION TEAM") reporting to Erroll B. Davis, Jr. ("MR. DAVIS") which shall
be chaired by Wayne H. Stoppelmoor ("MR. STOPPELMOOR") and include a designee of
each of IES, WPL and Interstate. The Transition Team shall develop
recommendations concerning the future structure and operations of the Company
after the Effective Time, subject to applicable law.
Section 7.22 COMPANY ACTIONS. IES, WPL and Interstate shall, and shall
cause their respective Subsidiaries and shall use their best efforts to cause
their respective Joint Ventures to, take only those actions, from the date
hereof until the Effective Time, that are required, permitted or contemplated by
this Agreement to be taken by any of them, including, without limitation, the
declaration, filing or registration with, or notice to or authorization, consent
or approval of, any Governmental Authority, as set forth in SECTION 7.22 of the
WPL Disclosure Schedule, the IES Disclosure Schedule and the Interstate
Disclosure Schedule, respectively.
Section 7.23 TAX MATTERS. Except as set forth in SECTION 7.23of the WPL
Disclosure Schedule, the IES Disclosure Schedule or the Interstate Disclosure
Schedule, no party shall make or rescind any material express or deemed election
relating to taxes, settle or compromise any material claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to taxes, or change
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any of its methods of reporting income or deductions for Federal income tax
purposes from those employed in the preparation of its Federal income tax return
for the taxable year ending December 31, 1994, except as may be required by
applicable law.
Section 7.24 DISCHARGE OF LIABILITIES. No party shall, nor shall any party
permit its Subsidiaries to, pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice (which includes
the payment of final and unappealable judgments) or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated by, the
most recent consolidated financial statements (or the notes thereto) of such
party included in such party's reports filed with the SEC, or incurred in the
ordinary course of business consistent with past practice.
Section 7.25 CONTRACTS. No party shall, nor shall any party permit its
Subsidiaries or, within the exercise of its best efforts, its Joint Ventures to,
except in the ordinary course of business consistent with past practice, modify,
amend, terminate, renew or fail to use reasonable business efforts to renew any
material contract or agreement to which such party or any Subsidiary of such
party is a party or waive, release or assign any material rights or claims.
Section 7.26 INSURANCE. Each party shall, and shall cause its Subsidiaries
to, maintain with financially responsible insurance companies insurance coverage
in such amounts and against such risks and losses as are customary for companies
engaged in the electric and gas utility industry and employing methods of
generating electric power and fuel sources similar to those methods employed and
fuels used by such party or its Subsidiaries.
Section 7.27 PERMITS. Each party shall, and shall cause its Subsidiaries
to, use reasonable efforts to maintain in effect all existing Permits pursuant
to which such party or its Subsidiaries operate.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 ACCESS TO INFORMATION.
(a) Upon reasonable notice, each party shall, and shall cause its
Subsidiaries and, shall use its best efforts to cause, its Joint Ventures
to, afford to the officers, directors, employees, accountants, counsel,
investment bankers, financial advisors and other representatives of the
other parties (collectively, "REPRESENTATIVES") reasonable access, during
normal business hours throughout the period prior to the Effective Time, to
all of its properties, books, contracts, commitments and records (including,
but not limited to, Tax Returns) and, during such period, each party shall,
and shall cause its Subsidiaries to, furnish promptly to the other parties
(i) access to each report, schedule and other document filed or
received by it or any of its Subsidiaries and, within the exercise of its
best efforts, its Joint Ventures pursuant to the requirements of Federal
or state securities laws or filed with or sent to the SEC, the FERC, the
NRC, the DOE, the Department of Justice, the Federal Trade Commission,
the Iowa Utilities Board, the Public Service Commission of Wisconsin, the
Illinois Commerce Commission, the Minnesota Public Utilities Commission
or any other Federal or state regulatory agency or commission, and
(ii) access to all information concerning itself, its Subsidiaries
and, within the exercise of its best efforts, its Joint Ventures,
directors, officers and shareholders and such other matters as may be
reasonably requested by any other party in connection with any filings,
applications or approvals required or contemplated by this Agreement or
for any other reason related to the transactions contemplated by this
Agreement.
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(b) Each party shall, and shall cause its Subsidiaries and
Representatives, and shall use its best efforts to cause its Joint Ventures
to, hold in strict confidence all documents and information concerning the
others furnished to it in connection with the transactions contemplated by
this Agreement in accordance with the Confidentiality Agreement, dated
September 19, 1995, among WPL, IES and Interstate, as it may be amended from
time to time (the "CONFIDENTIALITY AGREEMENT").
Section 8.2 JOINT PROXY STATEMENT AND REGISTRATION STATEMENT.
(a) PREPARATION AND FILING. The parties will prepare and file with the
SEC as soon as reasonably practicable after the date hereof the Registration
Statement and the Proxy Statement (together, the "JOINT PROXY/REGISTRATION
STATEMENT"). The parties hereto shall each use reasonable efforts to cause
the Registration Statement to be declared effective under the Securities Act
as promptly as practicable after such filing. Each party hereto shall also
take such action as may reasonably be required to cause the shares of WPL
Common Stock issuable in connection with the Merger to be registered (or to
obtain an exemption from registration) under applicable state "BLUE SKY" or
securities laws; PROVIDED, HOWEVER, that no party shall be required to
register or qualify as a foreign corporation or to take other action which
would subject it to service of process in any jurisdiction where it will not
be, following the Merger, so subject. Each of the parties hereto shall
furnish all information concerning itself which is required or customary for
inclusion in the Joint Proxy/Registration Statement. The parties shall use
reasonable efforts to cause the shares of WPL Common Stock issuable in the
Merger to be approved for listing on the NYSE subject only to official
notice of issuance. The information provided by any party hereto for use in
the Joint Proxy/Registration Statement shall be true and correct in all
material respects without omission of any material fact which is required to
make such information not false or misleading. No representation, covenant
or agreement is made by any party hereto with respect to information
supplied by any other party for inclusion in the Joint Proxy/Registration
Statement.
(b) LETTER OF WPL'S ACCOUNTANTS. WPL shall use best efforts to cause
to be delivered to IES and Interstate a letter of Arthur Andersen LLP, dated
a date within two business days before the date of the Joint
Proxy/Registration Statement, and addressed to IES and Interstate, in form
and substance reasonably satisfactory to IES and Interstate, and customary
in scope and substance for "COLD COMFORT" letters delivered by independent
public accountants in connection with registration statements on Form S-4.
(c) LETTER OF IES'S ACCOUNTANTS. IES shall use best efforts to cause
to be delivered to WPL and Interstate a letter of Arthur Andersen LLP, dated
a date within two business days before the date of the Joint
Proxy/Registration Statement, and addressed to WPL and Interstate, in form
and substance reasonably satisfactory to WPL and Interstate and customary in
scope and substance for "COLD COMFORT" letters delivered by independent
public accountants in connection with registration statements on Form S-4.
(d) LETTER OF INTERSTATE'S ACCOUNTANTS. Interstate shall use best
efforts to cause to be delivered to WPL and IES a letter of Deloitte &
Touche LLP, dated a date within two business days before the date of the
Joint Proxy/Registration Statement, and addressed to WPL and IES, in form
and substance reasonably satisfactory to WPL and IES and customary in scope
and substance for "COLD COMFORT" letters delivered by independent public
accountants in connection with registration statements on Form S-4.
(e) FAIRNESS OPINIONS. It shall be a condition to the mailing of the
Joint Proxy/Registration Statement to the shareholders of WPL, IES and
Interstate that
(i) WPL shall have received an opinion from Merrill, dated the date
of the Joint Proxy/ Registration Statement, to the effect that, as of the
date thereof, the IES Ratio and the Interstate Ratio are fair to WPL from
a financial point of view,
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(ii) IES shall have received an opinion from Morgan, dated the date
of the Joint Proxy/ Registration Statement, to the effect that, as of the
date thereof, the IES Ratio, taking into account the Interstate Ratio, is
fair from a financial point of view to the holders of IES Common Stock,
and
(iii) Interstate shall have received an opinion from Salomon, dated
the date of the Joint Proxy/Registration Statement, to the effect that,
as of the date thereof, the consideration to be received by the holders
of Interstate Common Stock in the Interstate Merger is fair from a
financial point of view to the holders of Interstate Common Stock.
Section 8.3 REGULATORY MATTERS.
(a) HSR FILINGS. Each party hereto shall file or cause to be filed
with the Federal Trade Commission and the Department of Justice any
notifications required to be filed by itself or its respective "ULTIMATE
PARENT" company under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR ACT"), and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby. Such
parties will use all commercially reasonable efforts to make such filings
within 200 days after the date hereof, and to respond promptly to any
requests for additional information made by either of such agencies.
(b) OTHER REGULATORY APPROVALS. Each party hereto shall cooperate and
use its best efforts to promptly prepare and file all necessary
documentation, to effect all necessary applications, notices, petitions,
filings and other documents, and to use all commercially reasonable efforts
to obtain all necessary permits, consents, approvals and authorizations of
all Governmental Authorities necessary or advisable to consummate the
Merger, including, without limitation, the WPL Required Statutory Approvals,
the IES Required Statutory Approvals and the Interstate Required Statutory
Approvals.
Section 8.4 SHAREHOLDER APPROVAL
(a) APPROVAL OF IES SHAREHOLDERS. Subject to the provisions of SECTION
8.4(d) and SECTION 8.4(e), IES shall, as soon as reasonably practicable
after the date hereof
(i) take all steps necessary to duly call, give notice of, convene
and hold a special meeting of its shareholders (the "IES SPECIAL
MEETING") for the purpose of securing the IES Shareholders' Approval,
(ii) distribute to its shareholders the Proxy Statement in accordance
with applicable Federal and state law and with its Restated Articles of
Incorporation and By-laws,
(iii) subject to the fiduciary duties of its Board of Directors,
recommend to its shareholders the approval of the IES Merger, this
Agreement and the transactions contemplated hereby, and
(iv) cooperate and consult with WPL and Interstate with respect to
each of the foregoing matters.
(b) APPROVAL OF WPL SHAREHOLDERS. Subject to the provisions of SECTION
8.4(d) and SECTION 8.4(e), WPL shall, as soon as reasonably practicable
after the date hereof
(i) take all steps necessary to duly call, give notice of, convene
and hold a special meeting of its shareholders (the "WPL SPECIAL
MEETING") for the purpose of securing the WPL Shareholders' Approval,
(ii) distribute to its shareholders the Proxy Statement in accordance
with applicable Federal and state law and with its Restated Articles of
Incorporation and By-laws,
(iii) subject to the fiduciary duties of its Board of Directors,
recommend to its shareholders the approval of the Merger, this Agreement
and the transactions contemplated hereby, and
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(iv) cooperate and consult with IES and Interstate with respect to
each of the foregoing matters.
(c) APPROVAL OF INTERSTATE SHAREHOLDERS. Subject to the provisions of
SECTION 8.4(d) and SECTION 8.4(e), Interstate shall, as soon as reasonably
practicable after the date hereof
(i) take all steps necessary to duly call, give notice of, convene
and hold a special meeting of its shareholders (the "INTERSTATE SPECIAL
MEETING") for the purpose of securing the Interstate Shareholders'
Approval,
(ii) distribute to its shareholders the Proxy Statement in accordance
with applicable Federal and state law and with its Restated Certificate
of Incorporation and By-laws,
(iii) subject to the fiduciary duties of its Board of Directors,
recommend to its shareholders the approval of the Interstate Merger, this
Agreement and the transactions contemplated hereby, and
(iv) cooperate and consult with IES and WPL with respect to each of
the foregoing matters.
(d) MEETING DATE. The IES Special Meeting, the WPL Special Meeting and
the Interstate Special Meeting shall be held on such dates as WPL, IES and
Interstate shall mutually determine.
(e) FAIRNESS OPINIONS NOT WITHDRAWN. It shall be a condition to the
obligation of WPL to hold the WPL Special Meeting that the opinion of
Merrill, referred to in SECTION 8.2(e), shall not have been withdrawn, it
shall be a condition to the obligation of IES to hold the IES Special
Meeting that the opinion of Morgan, referred to in SECTION 8.2(e), shall not
have been withdrawn, and it shall be a condition to the obligation of
Interstate to hold the Interstate Special Meeting that the opinion of
Salomon, referred to in SECTION 8.2(e), shall not have been withdrawn.
Section 8.5 DIRECTOR AND OFFICER INDEMNIFICATION.
(a) INDEMNIFICATION. To the extent, if any, not provided by an
existing right of indemnification or other agreement or policy, from and
after the Effective Time, the Company shall, to the fullest extent permitted
by applicable law, indemnify, defend and hold harmless each person who is
now, or has been at any time prior to the date hereof, or who becomes prior
to the Effective Time, an officer, director or employee of any of the
parties hereto or any Subsidiary (each an "INDEMNIFIED PARTY" and
collectively, the "INDEMNIFIED PARTIES") against
(i) all losses, expenses (including reasonable attorney's fees and
expenses), claims, damages or liabilities or, subject to the proviso of
the next succeeding sentence, amounts paid in settlement, arising out of
actions or omissions occurring at or prior to the Effective Time (and
whether asserted or claimed prior to, at or after the Effective Time)
that are, in whole or in part, based on or arising out of the fact that
such person is or was a director, officer or employee of such party (the
"INDEMNIFIED LIABILITIES"), and
(ii) all Indemnified Liabilities to the extent that they are based on
or arise out of or pertain to the transactions contemplated by this
Agreement.
In the event of any such loss, expense, claim, damage or liability
(whether or not arising before the Effective Time),
(A) the Company shall pay the reasonable fees and expenses of
counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to the Company, promptly after statements
therefor are received and otherwise advance to such Indemnified Party
upon request reimbursement of documented expenses reasonably
incurred,
(B) the Company will cooperate in the defense of any such matter,
and
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(C) any determination required to be made with respect to whether
an Indemnified Party's conduct complies with the standards set forth
under SECTIONS 180.0850 through 180.0859 of the WBCL and the Restated
Articles of Incorporation or By-laws of the Company (as the same
shall be amended from time to time) shall be made by independent
counsel mutually acceptable to the Company and the Indemnified Party;
PROVIDED, HOWEVER, that the Company shall not be liable for any
settlement effected without its written consent (which consent shall
not be unreasonably withheld).
The Indemnified Parties as a group may retain only one law firm with
respect to each related matter except to the extent that there is, in the
opinion of counsel to an Indemnified Party, under applicable standards of
professional conduct, a conflict on any significant issue between
positions of such Indemnified Party and any other Indemnified Party or
Indemnified Parties.
(b) INSURANCE. For a period of six years after the Effective Time, the
Company shall cause to be maintained in effect policies of directors' and
officers' liability insurance maintained by WPL, IES and Interstate for the
benefit of those persons who are currently covered by such policies on terms
no less favorable than the terms of such current insurance coverage;
PROVIDED, HOWEVER, that the Company shall not be required to expend in any
year an amount in excess of 150% of the annual aggregate premiums currently
paid by WPL, IES and Interstate for such insurance; and PROVIDED, FURTHER,
that if the annual premiums of such insurance coverage exceed such amount,
the Company shall be obligated to obtain a policy with the best coverage
available, in the reasonable judgment of the Board of Directors of the
Company, for a cost not exceeding such amount.
(c) SUCCESSORS. In the event the Company or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such consolidation
or merger, or (ii) transfers all or substantially all of its properties and
assets to any person, then and in either such case, proper provisions shall
be made so that the successors and assigns of the Company shall assume the
obligations set forth in this SECTION 8.5.
(d) SURVIVAL OF INDEMNIFICATION. To the fullest extent permitted by
law, from and after the Effective Time, all rights to indemnification as of
the date hereof in favor of the employees, agents, directors and officers of
WPL, IES and Interstate and their respective Subsidiaries with respect to
their activities as such prior to the Effective Time, as provided in their
respective articles of incorporation and by-laws in effect on the date
thereof, or otherwise in effect on the date hereof, shall survive the Merger
and shall continue in full force and effect for a period of not less than
six years from the Effective Time.
(e) BENEFIT. The provisions of this SECTION 8.5 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party, his or
her heirs and his or her representatives.
Section 8.6 DISCLOSURE SCHEDULES. On the date hereof,
(a) IES has delivered to WPL and Interstate an IES Disclosure Schedule,
accompanied by a certificate signed by the chief financial officer of IES
stating the IES Disclosure Schedule is being delivered pursuant to this
SECTION 8.6(a),
(b) WPL has delivered to IES and Interstate a WPL Disclosure Schedule,
accompanied by a certificate signed by the Vice President, Corporate
Secretary and Treasurer of WPL stating the WPL Disclosure Schedule is being
delivered pursuant to this SECTION 8.6(b), and
(c) Interstate has delivered to WPL and IES an Interstate Disclosure
Schedule, accompanied by a certificate signed by the principal financial
officer of Interstate stating the Interstate Disclosure Schedule is being
delivered pursuant to this SECTION 8.6(c).
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(d) The WPL Disclosure Schedule, the IES Disclosure Schedule and the
Interstate Disclosure Schedule are collectively referred to herein as the
"DISCLOSURE SCHEDULES."
(e) The Disclosure Schedules constitute an integral part of this
Agreement and modify the respective representations, warranties, covenants
or agreements of the parties hereto contained herein to the extent that such
representations, warranties, covenants or agreements expressly refer to the
Disclosure Schedules. Anything to the contrary contained herein or in the
Disclosure Schedules notwithstanding, any and all statements,
representations, warranties or disclosures set forth in the Disclosure
Schedules shall be deemed to have been made on and as of the date hereof.
Section 8.7 PUBLIC ANNOUNCEMENTS. Subject to each party's disclosure
obligations imposed by law, WPL, IES and Interstate will cooperate with each
other in the development and distribution of all news releases and other public
information disclosures with respect to this Agreement or any of the
transactions contemplated hereby and shall not issue any public announcement or
statement with respect hereto or thereto without the consent of the other
parties (which consent shall not be unreasonably withheld).
Section 8.8 RULE 145 AFFILIATES. Within 30 days before the Closing Date,
WPL shall identify in a letter to IES and Interstate, IES shall identify in a
letter to WPL and Interstate, and Interstate shall identify in a letter to WPL
and IES, all persons who are, and to such person's knowledge who will be at the
Closing Date, "AFFILIATES" of WPL, IES and Interstate, respectively, as such
term is used in Rule 145 under the Securities Act (or otherwise under applicable
SEC accounting releases with respect to pooling-of-interests accounting
treatment). Each of WPL, IES and Interstate shall use all reasonable efforts to
cause their respective affiliates (including any person who may be deemed to
have become an affiliate after the date of the letter referred to in the prior
sentence) to deliver to the Company on or prior to the Closing Date a written
agreement substantially in the form attached as Exhibit 8.8(a) with respect to
affiliates of WPL and Exhibit 8.8(b) with respect to affiliates of IES and
Interstate (each, an "AFFILIATE AGREEMENT").
Section 8.9 EMPLOYEE AGREEMENTS AND WORKFORCE MATTERS.
(a) CERTAIN EMPLOYEE AGREEMENTS. Subject to SECTION 8.10, SECTION 8.14
and SECTION 8.15, the Company and its Subsidiaries shall honor, without
modification, all contracts, agreements, collective bargaining agreements
and commitments of the parties prior to the date hereof which apply to any
current or former employee or current or former director of the parties
hereto; PROVIDED, HOWEVER, that this undertaking is not intended to prevent
the Company from enforcing such contracts, agreements, collective bargaining
agreements and commitments in accordance with their terms, including,
without limitation, any reserved right to amend, modify, suspend, revoke or
terminate any such contract, agreement, collective bargaining agreement or
commitment.
(b) WORKFORCE MATTERS.
(i) Subject to applicable collective bargaining agreements, for a
period of three years following the Effective Time, any reductions in
workforce in respect to employees of the Company (except as provided in
subparagraph (ii) below) shall be made on a fair and equitable basis, in
light of the circumstances and the objectives to be achieved, giving
consideration to previous work history, job experience and
qualifications, without regard to whether employment was with WPL or its
Subsidiaries, IES or its Subsidiaries, or Interstate or its Subsidiaries,
and any employees whose employment is terminated or jobs are eliminated
by the Company or any of its Subsidiaries during such period shall be
entitled to participate on a fair and equitable basis in the job
opportunity and employment placement programs offered by the Company or
any of its Subsidiaries. Any workforce reductions carried out following
the Effective Time by the Company and its Subsidiaries shall be done in
accordance with all applicable collective bargaining agreements, and all
laws and regulations
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governing the employment relationship and termination thereof including,
without limitation, the Worker Adjustment and Retraining Notification Act
and regulations promulgated thereunder, and any comparable state or local
law.
(ii) During the three-year period ending on the third anniversary of
the Closing Date, the overall employment levels of the Company in the
greater Dubuque area as measured against such levels as of the Closing
Date will not fall (for any reason whatsoever, including attrition of all
types) below the following levels,
(A) prior to the first anniversary of the Closing Date, 90%,
(B) prior to the second anniversary of the Closing Date, 75%, and
(C) prior to the third anniversary of the Closing Date, 60%.
Section 8.10 EMPLOYEE BENEFIT PLANS. Subject to SECTION 7.10, each of the
WPL Benefit Plans, the IES Benefit Plans and the Interstate Benefit Plans in
effect at the date hereof shall be maintained in effect with respect to the
employees or former employees of WPL and any of its Subsidiaries, IES and any of
its Subsidiaries, and Interstate and any of its Subsidiaries, respectively, who
are covered by any such Benefit Plan immediately prior to the Closing Date (the
"AFFILIATED EMPLOYEES") until the Company otherwise determines after the
Effective Time; PROVIDED, HOWEVER, that nothing herein contained shall limit any
reserved right contained in any such WPL Benefit Plan, IES Benefit Plan or
Interstate Benefit Plan, to amend, modify, suspend, revoke or terminate any such
plan; PROVIDED, FURTHER, HOWEVER, that the Company or its Subsidiaries shall
provide to the Affiliated Employees for a period of not less than one year
following the Effective Time benefits, other than with respect to plans referred
to in SECTION 8.11, which are no less favorable in the aggregate than those
provided under the WPL Benefit Plans, the IES Benefit Plans or the Interstate
Benefit Plans, as the case may be. Without limitation of the foregoing, each
participant of any such WPL Benefit Plan, IES Benefit Plan or Interstate Benefit
Plan shall receive credit for purposes of eligibility to participate, vesting,
benefit accrual and eligibility to receive benefits under a benefit plan of the
Company or any of its Subsidiaries or Affiliates for service credited for the
corresponding purpose under such benefit plan; PROVIDED, HOWEVER, that such
crediting of service shall not operate to duplicate any benefit to any such
participant or the funding for any such benefit. Any person hired by the Company
or any of its Subsidiaries after the Closing Date who was not employed by any
party hereto or its Subsidiaries immediately prior to the Closing Date shall be
eligible to participate in such benefit plans maintained, or contributed to, by
the Company or the Subsidiary, division or operation by which such person is
employed, PROVIDED that such person meets the eligibility requirements of the
applicable plan.
Section 8.11 STOCK OPTION AND OTHER STOCK PLANS.
(a) AMENDMENT OF STOCK PLANS AND AGREEMENTS. Prior to the Effective
Time, IES shall amend its Stock Plan (as hereinafter defined) and each
underlying award agreement to provide that (i) each outstanding option to
purchase shares of IES Common Stock (a "IES STOCK OPTION"), along with any
tandem stock appreciation right, shall constitute an option to acquire
shares of WPL Common Stock, on the same terms and conditions as were
applicable under such IES Stock Option, based on the same number of shares
of WPL Common Stock as the holder of such IES Stock Option would have been
entitled to receive pursuant to the Merger in accordance with Article II had
such holder exercised such option in full immediately prior to the Effective
Time; PROVIDED, HOWEVER, that the number of shares, the option price, and
the terms and conditions of exercise of such option, shall be determined in
a manner that preserves both (A) the aggregate gain (or loss) on the IES
Stock Option immediately prior to the Effective Time and (B) the ratio of
the exercise price per share of the IES Stock to the fair market value
(determined immediately prior to Effective Time) per share subject to such
option; and PROVIDED, FURTHER, that in the case of any option to which
SECTION 421 of the Code applies by reason of its qualification under any of
SECTIONS 422-424 of the Code, the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise
of such option shall be determined in order to
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comply with SECTION 424(a) of the Code; and (ii) each other outstanding
award under the IES Stock Plan (the "IES STOCK AWARDS") shall constitute an
award based upon the same number of shares of WPL Common Stock as the holder
of such IES Stock Award would have been entitled to receive pursuant to the
Merger in accordance with Article II had such holder been the absolute
owner, immediately before the Effective Time, of the shares of IES Common
Stock on which such IES Stock Award is based, and otherwise on the same
terms and conditions as governed by such IES Stock Award immediately before
the Effective Time. At the Effective Time, the Company shall assume each
stock award agreement relating to the IES Stock Plan, as amended as
previously provided. As soon as practicable after the Effective Time, the
Company shall deliver to the holders of IES Stock Options and IES Stock
Awards appropriate notices setting forth such holders' rights with respect
to such options and awards after the Effective Time and each underlying
stock award agreement, each as assumed by the Company.
(b) COMPANY ACTION. After the Effective Time, with respect to the IES
Stock Plan, and any other plans under which the delivery of WPL Common Stock
is required upon payment of benefits, grant of awards or exercise of options
(the "STOCK PLANS"), the Company shall take all corporate action necessary
or appropriate to
(i) obtain shareholder approval with respect to such Stock Plan to
the extent such approval is required for purposes of the Code or other
applicable law, or to enable such Stock Plan to comply with Rule 16b-3
promulgated under the Exchange Act,
(ii) reserve for issuance under such plan or otherwise provide a
sufficient number of shares of WPL Common Stock for delivery upon payment
of benefits, grant of awards or exercise of options under such Stock
Plan, and
(iii) as soon as practicable after the Effective Time, file
registration statements on Form S-3 or Form S-8, as the case may be (or
any successor or other appropriate forms), with respect to the shares of
WPL Common Stock subject to such Stock Plan to the extent such
registration statement is required under applicable law, and the Company
shall use its best efforts to maintain the effectiveness of such
registration statements (and maintain the current status of the
prospectuses contained therein) for so long as such benefits and grants
remain payable and such options remain outstanding.
With respect to those individuals who subsequent to the Merger will be
subject to the reporting requirements under SECTION 16(a) of the Exchange
Act, the Company shall administer the Stock Plans, where applicable, in a
manner that complies with Rule 16b-3 promulgated under the Exchange Act.
Section 8.12 NO SOLICITATIONS.
(a) No party hereto shall, and each such party shall use its best
efforts to cause its Subsidiaries not to, permit any of its Representatives,
directly or indirectly initiate, solicit or encourage, or take any action to
facilitate the making of any offer or proposal which constitutes or is
reasonably likely to lead to, any Business Combination Proposal (as
hereinafter defined), or, in the event of an unsolicited Business
Combination Proposal, except to the extent required by their fiduciary
duties under applicable law if so advised in a written opinion of outside
counsel, engage in negotiations or provide any information or data to any
person relating to any Business Combination Proposal.
(b) Each party hereto shall notify the other parties orally and in
writing of any such inquiries, offers or proposals (including, without
limitation, the terms and conditions of any such proposal and the identity
of the person making it), within 24 hours of the receipt thereof, shall keep
the other parties informed of the status and details of any such inquiry,
offer or proposal, and shall give the other parties five days' advance
notice of any agreement to be entered into with or any information to be
supplied to any person making such inquiry, offer or proposal. Each party
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hereto shall immediately cease and cause to be terminated all existing
discussions and negotiations, if any, with any parties conducted heretofore
with respect to any Business Combination Proposal.
(c) As used in this SECTION 8.12, "BUSINESS COMBINATION PROPOSAL" shall
mean any tender or exchange offer, proposal for a merger, consolidation or
other business combination involving any party to this Agreement or any of
its material Subsidiaries, or any proposal or offer (in each case, whether
or not in writing and whether or not delivered to the shareholders of a
party generally) to acquire in any manner, directly or indirectly, a
substantial equity interest in or a substantial portion of the assets of any
party to this Agreement or any of its material Subsidiaries, other than
pursuant to the transactions contemplated by this Agreement.
(d) Nothing contained herein shall prohibit a party from taking and
disclosing to its shareholders a position contemplated by Rule 14e-2(a)
under the Exchange Act with respect to a Business Combination Proposal made
by means of a tender offer.
Section 8.13 COMPANY BOARD OF DIRECTORS.
(a) WPL's, IES's and Interstate's respective Boards of Directors will
take such action as may be necessary to cause the number of directors
comprising the full Board of Directors of the Company at the Effective Time
to be fifteen (15) persons. The directors shall be divided into three
classes (hereafter referred to as "CLASS I," "CLASS II" and "CLASS III") of
five directors each. Class I directors shall be appointed for a term
expiring at the first annual meeting of shareholders of the Company
following the Effective Time, Class II directors shall be appointed for a
term expiring at the second annual meeting of shareholders of the Company
following the Effective Time, and Class III directors shall be appointed for
a term expiring at the third annual meeting of shareholders of the Company
following the Effective Time, and in each case until their respective
successors have been duly elected and qualified. Of the directors comprising
Class I, two shall be designated by each of IES and WPL and one shall be
designated by Interstate prior to the Effective Time. Of the directors
comprising Class II, two shall be designated by each of IES and WPL, and one
shall be designated by Interstate prior to the Effective Time. Class III
directors shall consist of Lee Liu ("MR. LIU"), Mr. Davis and Mr.
Stoppelmoor as well as two additional directors, one director designated by
each of IES and WPL prior to the Effective Time. Directors designated by
IES, WPL and Interstate (including their successors) are hereinafter
sometimes referred to as the "IES DIRECTORS," "WPL DIRECTORS" and
"INTERSTATE DIRECTORS," respectively. Notwithstanding the foregoing, if,
prior to the Effective Time, any of such designees shall decline or be
unable to serve, the respective party which designated such person shall
designate another person to serve in such person's stead. In addition,
subject to the limitations set forth in SECTION 8.13(B), for a period
commencing as of the Effective Time and expiring on the date of the third
annual meeting of shareholders of the Company following the Effective Time,
the IES, WPL and Interstate Directors (each as a separate group) shall be
entitled to nominate those persons who will be eligible to be appointed,
elected or re-elected as IES, WPL and Interstate Directors, respectively.
For purposes of this Agreement, Messrs. Liu, Davis and Stoppelmoor shall be
deemed to have been designated by IES, WPL and Interstate, respectively.
WPL's, IES's and Interstate's respective Boards of Directors will also take
such action as may be necessary to cause the Nominating, Audit and
Compensation Committees of the Board of Directors of the Company at the
Effective Time to consist proportionally (to the extent reasonably
practicable) of designees of each of WPL, IES and Interstate.
(b) For a period of five years following the Effective Time, no person
who is an executive officer or employee of the Company or any of its
Subsidiaries shall be eligible to serve as a director of the Company, except
for Messrs. Liu, Davis and Stoppelmoor; PROVIDED, HOWEVER, that if Mr. Davis
is not then serving as Chief Executive Officer of the Company, the
individual serving in such capacity shall be eligible to serve as a director
of the Company.
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(c) Meetings of the Board of Directors of the Company shall be
reasonably rotated among the WPL, IES and Interstate cities for so long as
separate utility headquarters exist in those cities.
Section 8.14 COMPANY OFFICERS. At the Effective Time, pursuant to the
terms hereof and of the employment contracts referred to in SECTION 8.15:
(a) Mr. Liu shall hold the position of Chairman of the Board of
Directors and shall be entitled to serve in such capacity for a period of
two years from the Effective Time, after which time he will retire as
Chairman of the Board of Directors of the Company but he shall continue to
be eligible to serve as a director.
(b) Mr. Davis shall hold the positions of Chief Executive Officer and
President for a period of at least five years from the Effective Time. When
Mr. Liu no longer serves as Chairman of the Board of Directors, Mr. Davis
shall be entitled to continue to serve in his capacity as Chief Executive
Officer and President, and shall also serve as Chairman of the Board of
Directors for at least the remainder of the five year term specified above.
Subject to the five-year term specified above, Mr. Davis shall be entitled
to serve in all of the above-referenced capacities until his successor is
elected or appointed and shall have qualified in accordance with the WBCL
and the Restated Articles of Incorporation and By-laws of the Company (as
the same shall be amended pursuant to SECTION 8.19). In addition, Mr. Davis
shall hold the positions of Chief Executive Officer of each of Utilities,
WP&LC, Interstate and the Nonregulated Company (as hereinafter defined), and
shall be entitled to serve in such capacities for a period of three years
from the Effective Time and until his successor is duly elected or appointed
and qualified in accordance with applicable charter documents and law.
(c) Mr. Stoppelmoor shall hold the position of Vice Chairman of the
Board of Directors of the Company and shall be entitled to serve in such
capacity for a period of two years after the Effective Time, after which
time he shall retire as Vice Chairman, but he shall continue to be eligible
to serve as a director.
(d) Mr. Michael R. Chase ("MR. CHASE") shall hold the position of
President of Interstate and shall be entitled to serve in such capacity for
a period of at least three years after the Effective Time.
(e) Mr. Lance W. Ahearn ("MR. AHEARN") shall be appointed to the
position of President and Chief Operating Officer of the Nonregulated
Company as of the Effective Time.
(f) Subject to SECTION 8.14(g), if any of the foregoing persons is
unable or unwilling to hold such offices for the periods set forth above,
his successor shall be selected by the Board of Directors of the Company in
accordance with its By-laws.
(g) For a period of five years following the Effective Time, a majority
vote of the WPL Directors or the successors thereto shall, in addition to
any other vote required by law, be required to appoint or elect any person
other than Mr. Davis as Chief Executive Officer of the Company.
Section 8.15 EMPLOYMENT CONTRACTS. WPL, or in the case of Mr. Chase,
Interstate, shall, as of or prior to the Effective Time, enter into employment
contracts with each of Messrs. Liu, Davis, Stoppelmoor and Chase in the forms
set forth in EXHIBIT 8.15.1, 8.15.2, 8.15.3 and 8.15.4, respectively.
Section 8.16 POST-MERGER OPERATIONS. Following the Effective Time, the
Company shall conduct its operations or take such action in accordance with the
following:
(a) the Company shall maintain its headquarters in Madison, Wisconsin,
but this location will be evaluated over time as future business needs
dictate.
(b) during the three-year period following the Effective Time,
Utilities, WP&LC, and Interstate shall maintain their separate corporate
existences and shall maintain their headquarters in their present locations
of Cedar Rapids, Iowa, Madison, Wisconsin and Dubuque, Iowa, respectively;
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(c) immediately following the Effective Time, the Company shall cause
the IES nonregulated holding company to merge with and into the WPL
nonregulated holding company, with the WPL nonregulated holding company
being the surviving corporation (the combined company is herein referred to
as the "NONREGULATED COMPANY"); and
(d) during the five-year period following the Effective Time or for such
shorter period as the following entities maintain their separate corporate
existences, the Company shall use its best efforts to insure that the
composition of the Board of Directors of each of Utilities, WP&LC and
Interstate and Nonregulated Company will be identical to the composition of
the Board of Directors of the Company.
Section 8.17 EXPENSES. Subject to SECTION 10.3, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that those
expenses incurred in connection with printing the Joint Proxy/ Registration
Statement, as well as the filing fee relating thereto, shall be shared by the
parties in the following proportions: 43% by WPL, 14% by Interstate and 43% by
IES.
Section 8.18 FURTHER ASSURANCES. Each party will, and will cause its
Subsidiaries and, will use its best efforts to cause its Joint Ventures to,
execute such further documents and instruments and take such further actions as
may reasonably be requested by the terms hereof. The parties expressly
acknowledge and agree that, although it is their current intention to effect a
business combination among themselves in the form contemplated by this
Agreement, it may be preferable to effectuate such a business combination by
means of an alternative structure in light of the conditions set forth in
SECTION 9.1(e), SECTION 9.2(e), SECTION 9.2(f), SECTION 9.3(e), SECTION 9.3(f),
SECTION 9.4(e) and SECTION 9.4(f). Accordingly, if the only conditions to the
parties' obligations to consummate the Merger which are not satisfied or waived
are receipt of any one or more of the WPL Required Consents, WPL Required
Statutory Approvals, IES Required Consents, IES Required Statutory Approvals,
Interstate Required Consents, Interstate Required Statutory Approvals or the
opinions referred to in SECTIONS 9.2(e), 9.3(e), and 9.4(e), and the adoption of
an alternative structure (that otherwise substantially preserves for WPL, IES
and Interstate the economic and other material benefits of the Merger) would
result in such conditions being satisfied or waived, then the parties shall use
their respective best efforts to effect a business combination among themselves
by means of a mutually agreed upon structure other than the Merger that so
preserves such benefits; provided that, prior to closing any such restructured
transaction, all material third party and Governmental Authority declarations,
filings, registrations, notices, authorizations, consents or approvals necessary
to effect such alternative business combination shall have been obtained and all
other conditions to the parties' obligations to consummate the Merger, as
applied to such alternative business combination, shall have been satisfied or
waived.
Section 8.19 CHARTER AND BY-LAW AMENDMENTS. Prior to the Closing, WPL
shall cause its Articles of Incorporation and By-laws to be amended as
contemplated in Section 8.19 of the WPL Disclosure Schedule.
Section 8.20 IES RIGHTS AGREEMENT. Prior to or at the time of the Closing,
IES shall amend the IES Rights Agreement to cause it to terminate effective as
of the Effective Time.
ARTICLE IX
CONDITIONS
Section 9.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions, except, to the extent permitted by applicable law, that such
conditions may be waived in writing pursuant to SECTION 10.5 by the joint action
of the parties hereto:
(a) SHAREHOLDER APPROVALS. The IES Shareholders' Approval, the
Interstate Shareholders' Approval and the WPL Shareholders' Approval shall
have been obtained.
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(b) NO INJUNCTION. No temporary restraining order or preliminary or
permanent injunction or other order by any Federal or state court preventing
consummation of the Merger (including either or both of the IES Merger and
the Interstate Merger) shall have been issued and be continuing in effect,
and the Merger (including either or both of the IES Merger and the
Interstate Merger) and the other transactions contemplated hereby shall not
have been prohibited under any applicable Federal or state law or
regulation.
(c) REGISTRATION STATEMENT. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act,
and no stop order suspending such effectiveness shall have been issued and
remain in effect.
(d) LISTING OF SHARES. The shares of WPL Common Stock issuable in the
Merger pursuant to Article II shall have been approved for listing on the
NYSE subject only to official notice of issuance.
(e) STATUTORY APPROVALS.
(i) The WPL Required Statutory Approvals, the IES Required Statutory
Approvals and the Interstate Required Statutory Approvals shall have been
obtained at or prior to the Effective Time, such approvals shall have
become Final Orders (as hereinafter defined) and such Final Orders shall
not impose terms or conditions which, in the aggregate have, or insofar
as reasonably can be foreseen, would have, a material adverse effect on
the business, assets, financial condition or results of operations or
prospects of the Company or which would be materially inconsistent with
the agreements of the parties contained herein.
(ii) As used in this Agreement, "FINAL ORDER" means action by the
relevant regulatory authority which has not been reversed, stayed,
enjoined, set aside, annulled or suspended, with respect to which any
waiting period prescribed by law before the transactions contemplated
hereby may be consummated has expired, and as to which all conditions to
the consummation of such transactions prescribed by law, regulation or
order have been satisfied.
(f) POOLING. Each of WPL, IES and Interstate shall have received a
letter of its independent public accountants, dated the Closing Date, in
form and substance reasonably satisfactory, in each case, to WPL, IES and
Interstate, stating that the transactions effected pursuant to this
Agreement will qualify as a pooling of interests transaction pursuant to
GAAP and applicable SEC regulations.
Section 9.2 FURTHER CONDITIONS TO OBLIGATION OF IES TO EFFECT THE IES
MERGER. The obligation of IES to effect the IES Merger shall be further subject
to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by IES in writing pursuant to SECTION 10.5:
(a) PERFORMANCE OF OBLIGATIONS. WPL (and/or its appropriate
Subsidiaries) and Interstate (and/or its appropriate Subsidiaries) will have
performed their agreements and covenants contained in SECTIONS 7.3 and 7.4
and will have performed in all material respects their other agreements and
covenants contained in or contemplated by this Agreement, and the WPL/IES
and Interstate/IES Stock Option Agreements required to be performed by each
of them at or prior to the Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of WPL and Interstate set forth in this Agreement shall be true and correct
(i) on and as of the date hereof and (ii) on and as of the Closing Date with
the same effect as though such representations and warranties had been made
on and as of the Closing Date (except for representations and warranties
that expressly speak only as of a specific date or time other than the date
hereof or the Closing Date which need only be true and correct as of such
date or time) except in each of cases (i) and (ii) for such failures of
representations or warranties to be true and correct (without regard to any
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materiality qualifications contained therein) which, individually or in the
aggregate do not, and insofar as reasonably can be foreseen, would not,
result in a WPL Material Adverse Effect or an Interstate Material Adverse
Effect, as the case may be.
(c) CLOSING CERTIFICATES. IES shall have received a certificate signed
by the chief financial officer of each of WPL and Interstate, dated the
Closing Date, to the effect that, to such officer's knowledge, the
conditions set forth in SECTION 9.2(a) and SECTION 9.2(b) with respect to
WPL or Interstate, as the case may be, have been satisfied.
(d) MATERIAL ADVERSE EFFECT. No WPL Material Adverse Effect or
Interstate Material Adverse Effect shall have occurred, and there shall
exist no facts or conditions (other than facts or conditions of general
applicability to electric utility companies in the region in which WPL, IES
and Interstate conduct their utility operations) which have, or insofar as
reasonably can be foreseen, would have a WPL Material Adverse Effect or an
Interstate Material Adverse Effect, as the case may be.
(e) TAX OPINIONS.
(i) IES shall have received an opinion of Winthrop, Stimson, Putnam &
Roberts dated as of the Closing Date, to the effect that the IES Merger
will be treated as a tax-free reorganization under SECTION 368(a) of the
Code, and
(ii) IES and Winthrop, Stimson, Putnam & Roberts shall have had the
opportunity to review the tax opinions of Interstate's and WPL's special
tax counsel received pursuant to SECTIONS 9.3(e)(i) and 9.4(e)(i),
respectively, including the representations, covenants or other matters
in reliance on which the opinions are being rendered, and shall be
reasonably satisfied with the completeness and accuracy of said opinions.
(f) REQUIRED CONSENTS. The WPL Required Consents and the Interstate
Required Consents, the failure of which to obtain would have a WPL Material
Adverse Effect or an Interstate Material Adverse Effect, shall have been
obtained.
(g) AFFILIATE AGREEMENTS. WPL shall have received Affiliate
Agreements, duly executed by each Affiliate of WPL and Interstate,
substantially in the form of Exhibit 8.8(a) or 8.8(b), as provided in
SECTION 8.8.
Section 9.3 FURTHER CONDITIONS TO OBLIGATION OF INTERSTATE TO EFFECT THE
INTERSTATE MERGER. The obligation of Interstate to effect the Interstate Merger
shall be further subject to the satisfaction, on or prior to the Closing Date,
of the following conditions, except as may be waived by Interstate in writing
pursuant to SECTION 10.5:
(a) PERFORMANCE OF OBLIGATIONS. IES (and/or its appropriate
Subsidiaries) and WPL (and/ or its appropriate Subsidiaries) will have
performed their agreements and covenants contained in SECTIONS 7.3 and 7.4
and will have performed in all material respects their other agreements and
covenants contained in or contemplated by this Agreement and the
IES/Interstate and WPL/ Interstate Stock Option Agreement required to be
performed by each of them at or prior to the Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of IES and WPL set forth in this Agreement shall be true and correct (i) on
and as of the date hereof and (ii) on and as of the Closing Date with the
same effect as though such representations and warranties had been made on
and as of the Closing Date (except for representations and warranties that
expressly speak only as of a specific date or time other than the date
hereof or the Closing Date which need only be true and correct as of such
date or time) except in each of cases (i) and (ii) for such failures of
representations or warranties to be true and correct (without regard to any
materiality qualifications contained therein) which, individually or in the
aggregate do not, and insofar as reasonably can be foreseen, would not,
result in an IES Material Adverse Effect or a WPL Material Adverse Effect,
as the case may be.
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(c) CLOSING CERTIFICATES. Interstate shall have received a certificate
signed by the chief financial officer of each of IES and WPL, dated the
Closing Date, to the effect that, to such officer's knowledge, the
conditions set forth in SECTION 9.3(a) and SECTION 9.3(b) with respect to
WPL or IES, as the case may be, have been satisfied.
(d) MATERIAL ADVERSE EFFECT. No IES Material Adverse Effect or WPL
Material Adverse Effect shall have occurred, and there shall exist no facts
or conditions (other than facts or conditions of general applicability to
electric utility companies in the region in which WPL, IES and Interstate
conduct their utility operations) which have, or insofar as reasonably can
be foreseen, would have an IES Material Adverse Effect or a WPL Material
Adverse Effect, as the case may be.
(e) TAX OPINIONS.
(i) Interstate shall have received an opinion of Milbank, Tweed,
Hadley & McCloy dated as of the Closing Date, to the effect that the
Interstate Merger will be treated as a tax-free reorganization under
SECTION 368(a) of the Code; and
(ii) Interstate and Milbank, Tweed, Hadley & McCloy shall have had
the opportunity to review the tax opinions of IES's and WPL's special tax
counsel received pursuant to SECTIONS 9.2(e)(i) and 9.4(e)(i),
respectively, including the representations, covenants or other matters
in reliance on which the opinions are being rendered, and shall be
reasonably satisfied with the completeness and accuracy of said opinions.
(f) REQUIRED CONSENTS. The IES Required Consents and the WPL Required
Consents, the failure of which to obtain would have an IES Material Adverse
Effect or a WPL Material Adverse Effect, shall have been obtained.
(g) AFFILIATE AGREEMENTS. WPL shall have received Affiliate
Agreements, duly executed by each Affiliate of IES and WPL, substantially in
the form of Exhibit 8.8(a) and 8.8(b), as provided in SECTION 8.8.
Section 9.4 FURTHER CONDITIONS TO OBLIGATION OF WPL TO EFFECT THE
MERGER. The obligation of WPL to effect the Merger shall be further subject to
the satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by WPL in writing pursuant to SECTION 10.5:
(a) PERFORMANCE OF OBLIGATIONS. IES (and/or its appropriate
Subsidiaries) and Interstate (and/or its appropriate Subsidiaries) will have
performed their agreements and covenants contained in Sections 7.3 and 7.4
and will have performed in all material respects their other agreements and
covenants contained in or contemplated by this Agreement and the IES/WPL and
Interstate/WPL Stock Option Agreements required to be performed by it at or
prior to the Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of IES and Interstate set forth in this Agreement shall be true and correct
(i) on and as of the date hereof and (ii) on and as of the Closing Date with
the same effect as though such representations and warranties had been made
on and as of the Closing Date (except for representations and warranties
that expressly speak only as of a specific date or time other than the date
hereof or the Closing Date which need only be true and correct as of such
date or time) except in each of cases (i) and (ii) for such failures of
representations or warranties to be true and correct (without regard to any
materiality qualifications contained therein) which, individually or in the
aggregate do not, and insofar as reasonably can be foreseen, would not,
result in an IES Material Adverse Effect or an Interstate Material Adverse
Effect, as the case may be.
(c) CLOSING CERTIFICATES. WPL shall have received a certificate signed
by the chief financial officer of each of IES and Interstate, dated the
Closing Date, to the effect that, to such officer's knowledge, the
conditions set forth in SECTION 9.4(a) and SECTION 9.4(b) with respect to
IES or Interstate, as the case may be, have been satisfied.
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(d) MATERIAL ADVERSE EFFECT. No IES Material Adverse Effect or
Interstate Material Adverse Effect shall have occurred, and there shall
exist no facts or conditions (other than facts or conditions of general
applicability to electric utility companies in the region in which WPL, IES
and Interstate conduct their utility operations) which have, or insofar as
reasonably can be foreseen, would have an IES Material Adverse Effect or an
Interstate Material Adverse Effect, as the case may be.
(e) TAX OPINIONS.
(i) WPL shall have received an opinion of Foley & Lardner dated as of
the Closing Date, to the effect that the Merger will be treated as a
tax-free reorganization under Section 368(a) of the Code; and
(ii) WPL and Foley & Lardner shall have had the opportunity to review
the tax opinions of IES's and Interstate's special tax counsel, as set
forth in Sections 9.2(e)(i) and 9.3(e)(i), respectively, including the
representations, covenants or other matters in reliance on which the
opinions are being rendered, and shall be reasonably satisfied with the
completeness and accuracy of said opinions.
(f) REQUIRED CONSENTS. The IES Required Consents and the Interstate
Required Consents, the failure of which to obtain would have an IES Material
Adverse Effect or an Interstate Material Adverse Effect, shall have been
obtained.
(g) AFFILIATE AGREEMENTS. WPL shall have received Affiliate
Agreements, duly executed by each Affiliate of IES and Interstate,
substantially in the form of Exhibit 8.8(b), as provided in Section 8.8.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval by the shareholders
of the respective parties hereto contemplated by this Agreement:
(a) by mutual written consent of WPL, IES and Interstate;
(b) by any party hereto, by written notice to the other parties, if the
Effective Time shall not have occurred on or before May 10, 1997 (the
"INITIAL TERMINATION DATE"); provided, however, that the right to terminate
the Agreement under this SECTION 10.(b) 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 Effective Time to occur on or
before the Initial Termination Date; and PROVIDED, FURTHER, that if on the
Initial Termination Date the conditions to the Closing set forth in SECTIONS
9.1(e), 9.2(f), 9.3(f) and/or 9.4(f) shall not have been fulfilled but all
other conditions to the Closing shall be fulfilled or shall be capable of
being fulfilled, then the Initial Termination Date shall be extended to May
10, 1998;
(c) by any party hereto, by written notice to the other parties, if
(i) the WPL Shareholders' Approval shall not have been obtained at a
duly held WPL Special Meeting, including any adjournments thereof, or
(ii) the IES Shareholders' Approval shall not have been obtained at a
duly held IES Special Meeting, including any adjournments thereof, or
(iii) the Interstate Shareholders' Approval shall not have been
obtained at a duly held Interstate Special Meeting, including any
adjournments thereof;
(d) by any party hereto, if any state or Federal law, order, rule or
regulation is adopted or issued, which has the effect, as supported by the
written opinion of outside counsel for such party,
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of prohibiting the Merger (including either or both the IES Merger and the
Interstate Merger), or by any party hereto if any court of competent
jurisdiction in the United States or any State shall have issued an order,
judgment or decree permanently restraining, enjoining or otherwise
prohibiting the Merger (including either or both the IES Merger and the
Interstate Merger), and such order, judgment or decree shall have become
final and nonappealable;
(e) by IES, upon two days' prior notice to WPL and Interstate, if, as a
result of a tender offer by a party other than WPL or Interstate or any of
their respective Affiliates or any written offer or proposal with respect to
a merger, sale of a material portion of its assets or other business
combination (each, a "BUSINESS COMBINATION") by a party other than WPL or
Interstate or any of their respective Affiliates, the Board of Directors of
IES determines in good faith that its fiduciary obligations under applicable
law require that such tender offer or other written offer or proposal be
accepted; PROVIDED, HOWEVER, that
(i) The Board of Directors of IES shall have been advised in a
written opinion of outside counsel that notwithstanding a binding
commitment to consummate an agreement of the nature of this Agreement
entered into in the proper exercise of its applicable fiduciary duties,
and notwithstanding all concessions which may be offered by WPL and
Interstate in negotiations entered into pursuant to CLAUSE (ii) below,
such fiduciary duties would require the directors to reconsider such
commitment as a result of such tender offer or other written offer or
proposal; and
(ii) prior to any such termination, IES shall, and shall cause its
respective financial and legal advisors to, negotiate with WPL and
Interstate to make such adjustments in the terms and conditions of this
Agreement as would enable IES to proceed with the transactions
contemplated herein on such adjusted terms;
(f) by Interstate, upon two days' prior notice to WPL and IES, if, as a
result of a tender offer by a party other than WPL or IES or any of their
respective Affiliates or any written offer or proposal with respect to a
Business Combination by a party other than WPL or IES or any of their
respective Affiliates, the Board of Directors of Interstate determines in
good faith that its fiduciary obligations under applicable law require that
such tender offer or other written offer or proposal be accepted; PROVIDED,
HOWEVER, that
(i) the Board of Directors of Interstate shall have been advised in a
written opinion of outside counsel that notwithstanding a binding
commitment to consummate an agreement of the nature of this Agreement
entered into in the proper exercise of its applicable fiduciary duties,
and notwithstanding all concessions which may be offered by WPL and IES
in negotiations entered into pursuant to CLAUSE (ii) below, such
fiduciary duties would require the directors to reconsider such
commitment as a result of such tender offer or other written offer or
proposal; and
(ii) prior to any such termination, Interstate shall, and shall cause
its respective financial and legal advisors to, negotiate with WPL and
IES to make such adjustments in the terms and conditions of this
Agreement as would enable Interstate to proceed with the transactions
contemplated herein on such adjusted terms;
(g) by WPL, upon two days' prior notice to IES and Interstate, if, as a
result of a tender offer by a party other than IES or Interstate or any of
their respective Affiliates or any written offer or proposal with respect to
a Business Combination by a party other than IES or Interstate or any of
their respective Affiliates, the Board of Directors of WPL determines in
good faith that its fiduciary obligations under applicable law require that
such tender offer or other written offer or proposal be accepted; PROVIDED,
HOWEVER, that
(i) the Board of Directors of WPL shall have been advised in a
written opinion of outside counsel that notwithstanding a binding
commitment to consummate an agreement of the nature of this Agreement
entered into in the proper exercise of its applicable fiduciary
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duties, and notwithstanding all concessions which may be offered by IES
and Interstate in negotiations entered into pursuant to CLAUSE (ii)
below, such fiduciary duties would require the directors to reconsider
such commitment as a result of such tender offer or other written offer
or proposal; and
(ii) prior to any such termination, WPL shall, and shall cause its
respective financial and legal advisors to, negotiate with IES and
Interstate to make such adjustments in the terms and conditions of this
Agreement as would enable WPL to proceed with the transactions
contemplated herein on such adjusted terms;
(h) by IES, by written notice to WPL and Interstate, if
(i) there exists any breach or breaches of the representations and
warranties of WPL or Interstate made herein or in any of the Stock Option
Agreements pursuant to which either of them is a grantor of options,
which breaches, individually or in the aggregate have or, insofar as
reasonably can be foreseen, would have, a WPL Material Adverse Effect or
an Interstate Material Adverse Effect, and such breaches shall not have
been remedied within 20 days after receipt by WPL or Interstate, as the
case may be, of notice in writing from IES, specifying the nature of such
breaches and requesting that they be remedied;
(ii) WPL or Interstate (and/or its appropriate Subsidiaries) shall
not have performed and complied with its agreements and covenants
contained in SECTIONS 7.3 and 7.4 or shall have failed to perform and
comply with, in all material respects, their other agreements and
covenants hereunder or under the Stock Option Agreements and such failure
to perform or comply shall not have been remedied within 20 days after
receipt by WPL or Interstate, as the case may be, of notice in writing
from IES, specifying the nature of such failure and requesting that it be
remedied; or
(iii) the Board of Directors of WPL or Interstate or any committee
thereof:
(A) shall withdraw or modify in any manner adverse to IES its
approval or recommendation of this Agreement, or the IES Merger or
the Interstate Merger,
(B) shall fail to reaffirm such approval or recommendation upon
IES's request,
(C) shall approve or recommend any Business Combination involving
WPL or Interstate other than the Merger involving WPL and Interstate
or any tender offer for shares of capital stock of WPL or Interstate,
in each case, by or involving a party other than IES or any of its
Affiliates or
(D) shall resolve to take any of the actions specified in CLAUSE
(A), (B) OR (C);
(i) by Interstate, by written notice to WPL and IES, if
(i) there exists any breach or breaches of the representations and
warranties of WPL or IES made herein or in any of the Stock Option
Agreements pursuant to which either of them is a grantor of options,
which breaches, individually or in the aggregate have, or insofar as
reasonably can be foreseen, would have, a WPL Material Adverse Effect or
an IES Material Adverse Effect, and such breaches shall not have been
remedied within 20 days after receipt by WPL or IES, as the case may be,
of notice in writing from Interstate, specifying the nature of such
breaches and requesting that they be remedied;
(ii) WPL or IES (and/or its appropriate Subsidiaries) shall not have
performed and complied with its agreements and covenants contained in
SECTIONS 7.3 and 7.4 or shall have failed to perform and comply with, in
all material respects, its other agreements and covenants hereunder or
under the Stock Option Agreements and such failure to perform or comply
shall not have been remedied within 20 days after receipt by WPL or IES,
as the case may be, of notice in writing from Interstate, specifying the
nature of such failure and requesting that it be remedied; or
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(iii) the Board of Directors of WPL or IES or any committee thereof:
(A) shall withdraw or modify in any manner adverse to Interstate
its approval or recommendation of this Agreement, the IES Merger or
the Interstate Merger,
(B) shall fail to reaffirm such approval or recommendation upon
Interstate's request,
(C) shall approve or recommend any Business Combination involving
WPL or IES other than the Merger involving WPL and IES or any tender
offer for shares of capital stock of WPL or IES, in each case, by or
involving a party other than Interstate or any of its Affiliates or
(D) shall resolve to take any of the actions specified in CLAUSE
(A), (B) or (C); or
(j) by WPL, by written notice to Interstate and IES, if
(i) there exists any breach or breaches of the representations and
warranties of Interstate or IES made herein or in any of the Stock Option
Agreements pursuant to which either of them is a grantor of options,
which breaches, individually or in the aggregate have or, insofar as
reasonably can be foreseen, would have, an Interstate Material Adverse
Effect or an IES Material Adverse Effect, and such breaches shall not
have been remedied within 20 days after receipt by Interstate or IES, as
the case may be, of notice in writing from WPL, specifying the nature of
such breaches and requesting that they be remedied;
(ii) Interstate or IES (and/or its appropriate Subsidiaries) shall
not have performed and complied with its agreements and covenants
contained in SECTIONS 7.3 and 7.4 or shall have failed to perform and
comply with, in all material respects, its other agreements and covenants
hereunder or under the Stock Option Agreements, and such failure to
perform or comply shall not have been remedied within 20 days after
receipt by Interstate or IES, as the case may be, of notice in writing
from WPL, specifying the nature of such failure and requesting that it be
remedied; and
(iii) the Board of Directors of Interstate or IES or any committee
thereof:
(A) shall withdraw or modify in any manner adverse to WPL its
approval or recommendation of this Agreement, or the IES Merger or
the Interstate Merger,
(B) shall fail to reaffirm such approval or recommendation upon
WPL's request,
(C) shall approve or recommend any Business Combination involving
Interstate or IES other than the Merger involving Interstate and IES
or any tender offer for the shares of capital stock of Interstate or
IES, in each case by or involving a party other than WPL or any of
its Affiliates or
(D) shall resolve to take any of the actions specified in CLAUSE
(A), (B) or (C).
Section 10.2 EFFECT OF TERMINATION. Subject to SECTION 11.1(b), in the
event of termination of this Agreement by WPL, IES or Interstate pursuant to
SECTION 10.1 there shall be no liability on the part of either WPL, IES or
Interstate or their respective officers or directors hereunder, except that
SECTION 8.1(b), SECTION 8.17, SECTION 10.3, SECTION 11.2 and SECTION 11.8 shall
survive the termination.
Section 10.3 TERMINATION FEE; EXPENSES.
(a) TERMINATION FEE UPON BREACH OR WITHDRAWAL OF APPROVAL. If this
Agreement is terminated at such time that this Agreement is terminable
pursuant to one or two (but not three) of (x) SECTION 10.1(h)(i) or (ii),
(y) SECTION 10.1(i)(i) or (ii) or (z) SECTION 10.1(j)(i) or (ii), then:
(i) each breaching party shall promptly (but no later than five
business days after receipt of notice from the non-breaching party or
parties (other than Acquisition and New
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Interstate)) pay to the non-breaching party or parties in cash such
breaching party's Participation Percentage (as hereinafter defined) of an
amount equal to all documented out-of-pocket expenses and fees incurred
by the non-breaching party or parties (including, without limitation,
fees and expenses payable to all legal, accounting, financial, public
relations and other professional advisors arising out of, in connection
with or related to the Merger or the transactions contemplated by this
Agreement) not in excess of $5 million for any non-breaching party;
PROVIDED, HOWEVER, that, if this Agreement is terminated by a party as a
result of a willful breach by any other party, each non-breaching party
may pursue any remedies available to it at law or in equity and shall, in
addition to its documented out-of-pocket expenses and fees (which shall
be paid as specified above and shall not be limited to $5 million for any
non-breaching party), be entitled to retain such additional amounts as
such non-breaching party may be entitled to receive at law or in equity;
and
(ii) if
(A) at the time of a breaching party's willful breach of this
Agreement, there shall have been a third party tender offer for
shares of, or a third party offer or proposal with respect to a
Business Combination involving, such party or any of its Affiliates
which at the time of such termination shall not have been rejected by
such party and its board of directors or withdrawn by the third
party, and
(B) within two and one-half years of any termination by a
non-breaching party, the breaching party or an Affiliate thereof
becomes a Subsidiary of such offeror or a Subsidiary of an Affiliate
of such offeror or accepts a written offer to consummate or
consummates a Business Combination with such offeror or an Affiliate
thereof,
then such breaching party (jointly and severally with its Affiliates), at
the closing (and as a condition to the closing) of such breaching party
becoming such a Subsidiary or of such Business Combination, will pay to each
non-breaching party (other than Acquisition and New Interstate) in cash such
non-breaching party's Participation Percentage of an additional aggregate
fee equal to $25 million, if WPL is the breaching party, $25 million, if IES
is the breaching party, or $12.5 million, if Interstate is the breaching
party.
(b) ADDITIONAL TERMINATION FEE. If
(i) this Agreement
(A) is terminated by any party pursuant to SECTION 10.1(e), (f)
or (g),
(B) is terminated following a failure of the shareholders of any
one of the necessary parties to grant the necessary approvals
described in SECTION 4.13, SECTION 5.13 and SECTION 6.13 or
(C) is terminated as a result of any party's material breach of
SECTION 8.4, and
(ii) at the time of such termination or prior to the meeting of such
party's shareholders there shall have been a third-party tender offer for
shares of, or a third-party offer or proposal with respect to a Business
Combination involving, such party or any of its Affiliates which at the
time of such termination or of the meeting of such party's shareholders
shall not have been (A) rejected by such party and its board of directors
or (B) withdrawn by the third party, and
(iii) within two and one-half years of any such termination described
in clause (i) above, a Target Party (as defined herein) becomes a
Subsidiary of such offeror or a Subsidiary of an Affiliate of such
offeror or accepts a written offer to consummate or consummates a
Business Combination with such offeror or an Affiliate thereof,
then such Target Party (jointly and severally with its Affiliates), at the
closing (and as a condition to the closing) of such Target Party becoming
such a Subsidiary or of such Business Combination,
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will pay to each other party (other than Acquisition and New Interstate) in
cash such other party's Participation Percentage of an aggregate termination
fee equal to $25 million, if WPL is the Target Party, $25 million, if IES is
the Target Party, or $12.5 million, if Interstate is the Target Party, plus,
in each case, the documented out-of-pocket fees and expenses incurred by
each such non-breaching party (including, without limitation, fees and
expenses payable to all legal, accounting, financial, public relations and
other professional advisors arising out of, in connection with or related to
the Merger or the transactions contemplated by this Agreement).
(c) SECOND TERMINATION FEE. If this Agreement is terminated under
circumstances that give rise to the payment of any fee pursuant to SECTION
10.3(b) by any party, and thereafter, within nine (9) months of such
termination, either of the parties that was not a Target Party at the time
of such termination becomes a Target Party (a "SECOND TARGET PARTY") of the
same entity, or an Affiliate thereof, that caused the original Target Party
to become such, then such Second Target Party (jointly and severally with
its Affiliates), upon the signing of a definitive agreement relating to such
a Business Combination, or, if no such agreement is signed, then at the
closing (and as a condition to the closing) of such Second Target Party
becoming such a Subsidiary or of such Business Combination, will pay to the
remaining party (other than Acquisition and New Interstate) that is neither
a Target Party nor a Second Target Party (a "NON-TARGET PARTY")
(i) a termination fee in cash equal to $25 million, if WPL is the
Second Target Party, $25 million, if IES is the Second Target Party, or
$12.5 million, if Interstate is the Second Target Party, plus, in each
case, any additional documented out-of-pocket fees and expenses incurred
by the Non-Target Party (including, without limitation, fees and expenses
payable to all legal, accounting, financial, public relations and other
professional advisors arising out of, in connection with or related to
the Merger or the transactions contemplated by this Agreement); and
(ii) the full amount of any termination fee paid to it by the first
Target Party.
(d) EXPENSES. The parties agree that the agreements contained in this
SECTION 10.3 are an integral part of the transactions contemplated by the
Agreement and constitute liquidated damages and not a penalty. If one party
fails to promptly pay to any other party any fee due hereunder, the
defaulting party shall pay the costs and expenses (including legal fees and
expenses) in connection with any action, including the filing of any lawsuit
or other legal action, taken to collect payment, together with interest on
the amount of any unpaid fee at the publicly announced prime rate of
Citibank, N.A. from the date such fee was required to be paid.
(e) LIMITATION ON TERMINATION FEES. Notwithstanding anything herein to
the contrary,
(i) the aggregate amount payable by WPL and its Affiliates to IES
and/or Interstate pursuant to SECTION 10.3(a), SECTION 10.3(b) and the
terms of the WPL/IES Stock Option Agreement and the WPL/Interstate Stock
Option Agreement shall not exceed $40 million,
(ii) the aggregate amount payable by IES and its Affiliates pursuant
to SECTION 10.3(a), SECTION 10.3(b) and the terms of the IES/WPL Stock
Option Agreement and the IES/Interstate Stock Option Agreement shall not
exceed $40 million, and
(iii) the aggregate amount payable by Interstate and its Affiliates
under SECTION 10.3(a), SECTION 10.3(b) and the terms of the
Interstate/WPL Stock Option Agreement and the Interstate/IES Stock Option
Agreement shall not exceed $20 million
(exclusive, in each case, of reimbursement for fees and expenses payable
pursuant to this SECTION 10.3). For purposes of this SECTION 10.3(d), the
amount payable pursuant to the terms of the Stock Option Agreements shall be
the amount paid pursuant to SECTION 5 and/or SECTION 8(a)(i) and 8(a)(ii)
thereof.
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(f) CERTAIN DEFINITIONS.
(i) PARTICIPATION PERCENTAGE. A party's participation
percentage ("PARTICIPATION PERCENTAGE") shall be one hundred percent
(100%) if only one party is required to pay or entitled to receive
its Participation Percentage pursuant to the terms of this SECTION
10.3. If two parties are required to pay or entitled to receive their
respective Participation Percentages, each party's Participation
Percentage shall equal a fraction (expressed as a percentage), the
numerator of which shall be, in the case of IES or Interstate, the
number of shares of WPL Common Stock which would be issuable (on a
fully diluted basis) to such party's shareholders, or, in the case of
WPL, the number of shares of WPL Common Stock (on a fully diluted
basis) that would have been retained by its shareholders, had the
Effective Time occurred at the time this Agreement is terminated and
the denominator of which shall be, the aggregate number of shares of
WPL Common Stock that would be issuable to or retained by (in either
case on a fully diluted basis) the shareholders of the two parties
required to pay or entitled to receive their Participation
Percentages, had the Effective time occurred at the time this
Agreement is terminated.
(ii) TARGET PARTY. The term "TARGET PARTY" shall mean any of
WPL, IES or Interstate, or their respective Affiliates, that is the
subject of a tender offer or offer or proposal with respect to a
Business Combination.
Section 10.4 AMENDMENT.
(a) This Agreement may be amended by the Boards of Directors of the
parties hereto, at any time before or after approval hereof by the
shareholders of WPL, IES and Interstate and prior to the Effective Time, but
after such approvals, no such amendment shall
(i) alter or change the amount or kind of shares, rights or any of
the proceedings of the treatment of shares under Article II,
(ii) alter or change any of the terms and conditions of this
Agreement if any of the alterations or changes, alone or in the
aggregate, would materially adversely affect the rights of holders of
WPL, IES and Interstate Common Stock, or
(iii) alter or change any term of the Restated Articles of
Incorporation of WPL, IES or Interstate as approved by the shareholders
of WPL, IES and Interstate, respectively, except for alterations or
changes that could otherwise be adopted by the Board of Directors of the
Company, without the further approval of such shareholders, as
applicable.
(b) This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
Section 10.5 WAIVER.
(a) At any time prior to the Effective Time, the parties hereto may
(i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions
contained herein, to the extent permitted by applicable law.
(b) Any agreement on the part of a party hereto to any such extension or
waiver shall be valid if set forth in an instrument in writing signed on
behalf of such party.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.1 NON-SURVIVAL; EFFECT OF REPRESENTATIONS AND WARRANTIES.
(a) All representations, warranties and agreements in this Agreement
shall not survive the Merger, except as otherwise provided in this Agreement
and except for the agreements contained in this SECTION 11.1 and in Article
II, SECTION 8.5 (Director and Officer Indemnification), SECTION 8.9
(Employee Agreements and Workforce Matters), SECTION 8.10 (Employee Benefit
Plans), SECTION 8.11 (STOCK OPTION AND OTHER STOCK PLANS), SECTION 8.13
(Company Board of Directors), SECTION 8.14 (Company Officers), SECTION 8.15
(Employment Contracts), SECTION 8.16 (Post-Merger Operations), SECTION 8.17
(Expenses), SECTION 11.2 (Brokers) and SECTION 11.7 (Parties in Interest).
(b) No party may assert a claim for breach of any representation or
warranty contained in this Agreement (whether by direct claim or
counterclaim) except in connection with the termination of this Agreement
pursuant to SECTION 10.1(h)(i), SECTION 10.1(i)(i), or SECTION 10.1(j)(i)
(or pursuant to any other subsection of SECTION 10.1, if the terminating
party would have been entitled to terminate this Agreement pursuant to
SECTION 10.1(h)(i), SECTION 10.1(i)(i) or SECTION 10.1(j)(i)).
SECTION 11.2 BROKERS.
(a) WPL represents and warrants that, except for Merrill, whose fees
have been disclosed to IES and Interstate prior to the date hereof, no
broker, finder or investment banker is entitled to any brokerage, finder's
or other fee or commission in connection with the Merger, or the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of WPL.
(b) IES represents and warrants that, except for Morgan, whose fees have
been disclosed to WPL and Interstate prior to the date hereof, no broker,
finder or investment banker is entitled to any brokerage, finder's or other
fee or commission in connection with the IES Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf
of IES.
(c) Interstate represents and warrants that, except for Salomon, whose
fees have been disclosed to WPL and IES prior to the date hereof, no broker,
finder or investment banker is entitled to any brokerage, finder's or other
fee or commission in connection with the Interstate Merger or the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Interstate.
Section 11.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if (i) delivered personally, (ii) sent
by reputable overnight courier service,
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(iii) telecopied (which is confirmed), or (iv) five days after being mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
<TABLE>
<S> <C> <C>
(a) If to WPL, to: WPL Holdings, Inc.
222 West Washington Avenue
P.O. Box 2568
Madison, WI 53701-2568
Attention: Erroll B. Davis, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Telephone: (608) 252-3137
Telecopy: (608) 252-5059
with a copy to: Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202-5367
Attention: Benjamin F. Garmer, III, Esq.
Telephone: (414) 297-5675
Telecopy: (414) 297-4900
(b) If to IES, to: IES Industries Inc.
IES Tower
200 First Street S.E.
Cedar Rapids, IO 52401
Attention: Stephen W. Southwick
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
Telephone: (319) 398-8147
Telecopy: (319) 398-4204
with a copy to: Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: Stephen R. Rusmisel, Esq.
Telephone: (212) 858-1442
Telecopy: (212) 858-1500
(c) If to Interstate, Interstate Power Company
to: 1000 Main Street
P.O. Box 769
Dubuque, IO 52004-0789
Attention: Wayne H. Stoppelmoor
CHAIRMAN OF THE BOARD
Telephone: (319) 557-2200
Telecopy: (319) 557-2202
with a copy to: Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005-1413
Attention: John T. O'Connor, Esq.
Telephone: (212) 530-5548
Telecopy: (212) 530-0283
</TABLE>
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Section 11.4 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein)
(a) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof other than the
Confidentiality Agreement and the Stock Option Agreements;
(b) shall not be assigned by operation of law or otherwise; and
(c) shall be governed by and construed in accordance with the laws of
the State of Delaware applicable to contracts executed in and to be fully
performed in such State, without giving effect to its conflicts of law rules
or principles or to any requirement as to jurisdiction or service of process
contained in Section 2708 of Title 6 of the Delaware Code, and except to the
extent the provisions of this Agreement (including the documents or
instruments referred to herein) are expressly governed by or derive their
authority from the WBCL, IBCA or the DGCL.
Section 11.5 INTERPRETATION. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section or Exhibit of this
Agreement, respectively, unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "INCLUDE," "INCLUDES" or "INCLUDING" are used in this Agreement, they
shall be deemed to be
followed by the words "WITHOUT LIMITATION."
SECTION 11.6 COUNTERPARTS; EFFECT. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
Section 11.7 PARTIES IN INTEREST.
(a) A majority of the IES Directors (or their successors) serving on the
Board of Directors of the Company who are designated by IES pursuant to
SECTION 8.13 (Company Board of Directors) shall be entitled to enforce or
waive compliance with the provisions of SECTION 8.13 during the time such
provisions are, by their specific terms, applicable and shall also be
entitled during the three-year period commencing at the Effective Time (the
"THREE-YEAR PERIOD") to enforce the provisions of SECTION 8.9 (Employee
Agreements and Workforce Matters), SECTION 8.10 (Employee Benefits Plans),
SECTION 8.11 (Stock Option and Other Stock Plans), SECTION 8.14(a) (Company
Officers), SECTION 8.15 (Employment Contracts) and SECTION 8.16(b) AND (d)
(Post-Merger Operations), and the agreements referred to in SCHEDULES 4.10
(Employee Matters; ERISA), 5.10 (Employee Matters; ERISA), 6.10 (Employee
Matters; ERISA) and 7.10 (Compensation Benefits), in each instance on behalf
of the IES officers, directors and employees, as the case may be;
(b) A majority of the WPL Directors (or their successors) serving on the
Board of Directors of the Company who are designated by WPL pursuant to
SECTION 8.13 shall be entitled to enforce or waive compliance with the
provisions of SECTION 8.13 during the time such provisions are, by their
specific terms, applicable and shall also be entitled during the five-year
period following the Effective Time to enforce the provisions of SECTION
8.14(b) and (h) and SECTION 8.16(a) and during the Three-Year Period to
enforce the provisions of SECTION 8.9, SECTION 8.10, SECTION 8.11 and
SECTION 8.15, and the agreements referred to in SCHEDULES 4.10, 5.10, 6.10
and 7.10, in each instance on behalf of WPL officers, directors and
employees, as the case may be; and
(c) A majority of the Interstate Directors (or their successors) serving
on the Board of Directors of the Company who are designated by Interstate
pursuant to SECTION 8.13 shall be entitled to enforce or waive compliance
with the provisions of SECTION 8.13 during the time such provisions are, by
their specific terms, applicable and shall also be entitled during the
Three-Year
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Period to enforce the provisions of SECTION 8.9, SECTION 8.10, SECTION 8.11,
SECTION 8.14(c), SECTION 8.15 and SECTION 8.16(b) and (d), and the
agreements referred to in SCHEDULES 4.10, 5.10, 6.10 and 7.10, in each
instance on behalf of the Interstate officers, directors and employees, as
the case may be.
Section 11.8 BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns; except as provided in SECTION 8.5(e) and SECTION 11.7,
nothing in this Agreement, express or implied, shall confer upon any person,
other than the parties hereto and their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
Section 11.9 WAIVER OF JURY TRIAL AND CERTAIN DAMAGES. EACH PARTY TO THIS
AGREEMENT WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
(a) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION,
SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND
(b) WITHOUT LIMITATION TO SECTION 10.3, ANY RIGHT IT MAY HAVE TO RECEIVE
DAMAGES FROM ANY OTHER PARTY BASED ON ANY THEORY OF LIABILITY FOR ANY
SPECIAL, INDIRECT, CONSEQUENTIAL (INCLUDING LOST PROFITS) OR PUNITIVE
DAMAGES.
Section 11.10 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which they are entitled at law or in equity.
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IN WITNESS WHEREOF, WPL, IES, Interstate, Acquisition and New Interstate
have caused this Agreement to be signed by their respective officers thereunto
duly authorized as of the date first written above.
<TABLE>
<C> <S>
WPL HOLDINGS, INC.
Attest:
By: /s/ EDWARD M. GLEASON By: /s/ ERROLL B. DAVIS, JR.
-------------------------------------- ------------------------------------------
Edward M. Gleason Name: Erroll B. Davis, Jr.
CORPORATE SECRETARY Title: PRESIDENT AND CHIEF
EXECUTIVE OFFICER
IES INDUSTRIES INC.
Attest:
By: /s/ STEPHEN W. SOUTHWICK By: /s/ LEE LIU
-------------------------------------- ------------------------------------------
Stephen W. Southwick Name: Lee Liu
SECRETARY AND GENERAL COUNSEL Title: CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
INTERSTATE POWER COMPANY
(a Delaware corporation)
Attest:
By: /s/ JOSEPH C. MCGOWAN By: /s/ WAYNE H. STOPPELMOOR
-------------------------------------- ------------------------------------------
Joseph C. McGowan Name: Wayne H. Stoppelmoor
SECRETARY AND TREASURER Title: CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
WPLH ACQUISITION CO.
Attest:
By: /s/ EDWARD M. GLEASON By: /s/ ERROLL B. DAVIS, JR.
-------------------------------------- ------------------------------------------
Edward M. Gleason Name: Erroll B. Davis, Jr.
SECRETARY Title: PRESIDENT
INTERSTATE POWER COMPANY
(a Wisconsin corporation)
Attest:
By: /s/ JOSEPH C. MCGOWAN By: /s/ MICHAEL R. CHASE
-------------------------------------- ------------------------------------------
Joseph C. McGowan Name: Michael R. Chase
SECRETARY Title: PRESIDENT
</TABLE>
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<PAGE>
EXHIBIT 1.3 TO MERGER AGREEMENT
PLAN OF MERGER
THIS PLAN OF MERGER, dated as of , 199 (the "Plan of Merger"),
is entered into by and between WPL Holdings, Inc., a Wisconsin corporation ("WPL
Holdings"), and IES Industries Inc., an Iowa corporation ("IES"). This Plan of
Merger is being entered into pursuant to an Agreement and Plan of Merger, dated
as of November 10, 1995, as amended (the "Merger Agreement"), by and among WPL
Holdings, IES, Interstate Power Company, a Delaware corporation ("Interstate"),
WPLH Acquisition Co., a Wisconsin corporation and a wholly owned subsidiary of
WPL Holdings, and Interstate Power Company, a Wisconsin corporation and a wholly
owned subsidiary of Interstate. The Merger Agreement, among other things,
provides for the merger of IES with and into WPL Holdings (the "Merger").
NOW, THEREFORE, in consideration of the premises and the agreements herein
contained, the parties hereto, intending to be legally bound hereby, agree to as
follows:
ARTICLE I
THE MERGER
1.01. THE MERGER. Subject to the terms and conditions of the Merger
Agreement and this Plan of Merger, IES shall be merged with and into WPL
Holdings in accordance with and with the effect as provided in the Wisconsin
Business Corporation Law (the "WBCL") and the Iowa Business Corporation Act (the
"IBCA"). WPL Holdings shall be the surviving corporation in the Merger
(sometimes hereafter referred to as the "Surviving Corporation") and shall
continue its corporate existence under the laws of the State of Wisconsin. The
separate corporate existence of IES shall cease.
1.02. EFFECTIVE TIME OF THE MERGER. Subject to the provisions of the
Merger Agreement and this Plan of Merger, articles of merger (the "Articles of
Merger") shall be duly prepared and executed by or on behalf of IES and WPL
Holdings and thereafter delivered to the Secretary of State of the States of
Wisconsin and Iowa for filing, as provided in the WBCL and the IBCA, on the
Closing Date (as defined in the Merger Agreement). The Merger shall become
effective at the time specified in the Articles of Merger filed with the
Secretary of State of the States of Wisconsin and Iowa (the "Effective Time").
1.03. RESTATED ARTICLES OF INCORPORATION AND BY-LAWS OF THE SURVIVING
CORPORATION. At the Effective Time, (i) the Restated Articles of Incorporation
of WPL Holdings in effect immediately prior to the Effective Time shall be the
Restated Articles of Incorporation of the Surviving Corporation, except that
Article I of the Restated Articles of Incorporation of WPL Holdings shall be
amended in its entirety to provide as follows: "The name of the corporation is
Interstate Energy Corporation."; and (ii) the By-laws of WPL Holdings in effect
immediately prior to the Effective Time shall be the By-laws of the Surviving
Corporation.
1.04. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. At the
Effective Time, the Board of Directors of the Surviving Corporation shall be
comprised of the persons designated pursuant to Section 8.13 of the Merger
Agreement and the Chairman and Vice Chairman of the Board of Directors and the
Chief Executive Officer and President of the Surviving Corporation shall be the
persons designated in Section 8.14 (a), (b) and (c) of the Merger Agreement.
Except as otherwise provided in Section 8.14 of the Merger Agreement, the
officers of WPL Holdings at the Effective Time shall, from and after the
Effective Time, continue as the officers of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal.
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ARTICLE II
CONVERSION OF SHARES
2.01. CANCELLATION AND CONVERSION OF IES COMMON STOCK. At the Effective
Time, in accordance with the terms and conditions set forth in the Merger
Agreement, and by virtue of the Merger and without any action on the part of any
holder of shares of Common Stock, no par value, of IES ("IES Common Stock"):
(a) CANCELLATION OF CERTAIN IES COMMON STOCK. Each share of IES Common
Stock that is owned by IES or WPL Holdings or any of their respective
subsidiaries shall be cancelled and cease to exist, and no consideration
shall be delivered in exchange therefor.
(b) CONVERSION OF CERTAIN IES COMMON STOCK. Each share of IES Common
Stock issued and outstanding immediately prior to the Effective Time (other
than shares cancelled pursuant to Section 2.01(a) or shares for which
dissenters' rights have been exercised under applicable law) shall be
converted into the right to receive [insert IES Ratio as determined in
accordance with the Merger Agreement] shares of Common Stock, $.01 par
value, of WPL Holdings ("WPL Holdings Common Stock"), including the
associated rights to purchase shares of WPL Holdings Common Stock (the
"Rights") pursuant to that certain Rights Agreement between WPL Holdings and
Morgan Shareholder Services Trust Company, as Rights Agent thereunder, dated
February 22, 1989 (the "Rights Agreement"). Until the Distribution Date (as
defined in the Rights Agreement), all references in this Plan of Merger to
the WPL Holdings Common Stock shall be deemed to include the associated
Rights.
(c) NO FRACTIONAL SHARES. Notwithstanding any other provision of this
Plan of Merger to the contrary, no certificates or scrip representing
fractional shares of WPL Holdings Common Stock shall be issued in the
Merger, and such fractional shares shall not entitle the owner thereof to
vote as, or to any rights of, a holder of WPL Holdings Common Stock. In lieu
of any such fractional shares, a holder of IES Common Stock who would
otherwise have been entitled to a fractional share of WPL Holdings Common
Stock shall receive a cash payment in an amount equal to the product
(rounded to the nearest cent) of such fraction (rounded to the nearest
thousandth) multiplied by the average of the last reported sales price,
regular way, per share of WPL Holdings Common Stock on the New York Stock
Exchange ("NYSE") Composite Tape for the ten business days prior to and
including the last business day prior to the Effective Time on which WPL
Holdings Common Stock was traded on the NYSE, without any interest thereon.
2.02. WPL HOLDINGS COMMON STOCK. The shares of WPL Holdings Common Stock
issued and outstanding immediately prior to the Effective Time shall not be
affected in any manner by virtue of the Merger.
2.03. IES PREFERRED STOCK. There are no shares of Cumulative Preferred
Stock, no par value, of IES issued and outstanding and there will be no shares
of Cumulative Preferred Stock of IES issued and outstanding as of the Effective
Time.
ARTICLE III
CONDITIONS; TERMINATION
3.01. CONDITIONS TO THE MERGER. Consummation of the Merger is conditional
upon the fulfillment or waiver of the conditions precedent set forth in Article
IX of the Merger Agreement.
3.02. TERMINATION. This Plan of Merger shall terminate forthwith in the
event that the Merger Agreement shall be terminated as therein provided. In the
event of the termination of this Plan of Merger as provided above, this Plan of
Merger shall forthwith become void and there shall be no liability on the part
of any of the parties hereto, except as otherwise provided in the Merger
Agreement.
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<PAGE>
ARTICLE IV
GENERAL PROVISIONS
4.01. COUNTERPARTS. This Plan of Merger may be executed in counterparts,
each of which shall constitute one and the same instrument.
4.02. HEADINGS. The headings in this Plan of Merger are inserted for
convenience only and shall not constitute a part hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Plan of Merger to be
duly executed as of the date first above written.
WPL HOLDINGS, INC.
("WPL Holdings")
By:
-------------------------------------
Attest:
-------------------------------------
IES INDUSTRIES INC.
("IES")
By:
-------------------------------------
Attest:
-------------------------------------
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<PAGE>
ANNEX B
OPTION GRANTOR/OPTION HOLDER STOCK OPTION
AND TRIGGER PAYMENT AGREEMENT
This STOCK OPTION AGREEMENT, dated as of November 10, 1995 (the "AGREEMENT")
by and among WPL Holdings, Inc., a corporation organized under the laws of the
State of Wisconsin ("OPTION GRANTOR" or the "COMPANY") and IES Industries Inc.,
a corporation organized under the laws of the State of Iowa ("OPTION HOLDER").
W I T N E S S E T H T H A T:
WHEREAS, concurrently with the execution and delivery of this Agreement,
OPTION GRANTOR, OPTION HOLDER, Interstate Power Company, a corporation organized
under the laws of the State of Delaware ("INTERSTATE"), WPLH Acquisition Co., a
wholly-owned subsidiary of OPTION GRANTOR organized under the laws of the State
of Wisconsin ("ACQUISITION"), and Interstate Power Company, a wholly-owned
subsidiary of Interstate organized under the laws of the State of Wisconsin, are
entering into an Agreement and Plan of Merger, dated as of November 10, 1995, as
amended (the "MERGER AGREEMENT"), which provides, INTER ALIA, upon the terms and
subject to the conditions thereof, for the merger of OPTION HOLDER with and into
OPTION GRANTOR in accordance with the laws of the States of Wisconsin and Iowa
(the "IES MERGER"), and the merger of Acquisition with and into Interstate (or a
successor thereto) in accordance with the laws of the States of Delaware and/or
Wisconsin (the "INTERSTATE MERGER", and together with the IES Merger, the
"MERGER");
WHEREAS, in connection with the execution of the Merger Agreement, OPTION
GRANTOR, OPTION HOLDER and Interstate are entering into certain stock option
agreements dated as of the date hereof, of which this Agreement is one, whereby
the parties hereto grant each other an option with respect to certain shares of
each other's common stock on the terms and subject to the conditions set forth
therein (the "STOCK OPTION AGREEMENTS"); and
WHEREAS, as a condition to OPTION HOLDER's willingness to enter into the
Merger Agreement, OPTION HOLDER has requested that OPTION GRANTOR agree, and
OPTION GRANTOR has so agreed, to grant to OPTION HOLDER an option with respect
to certain shares of OPTION GRANTOR's common stock, on the terms and subject to
the conditions set forth herein;
NOW, THEREFORE, to induce OPTION HOLDER to enter into the Merger Agreement
and certain of the Stock Option Agreements, and in consideration of the
representations, warranties, covenants and agreements contained herein, in the
Merger Agreement and in the Stock Option Agreements to which OPTION GRANTOR and
OPTION HOLDER are parties, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. GRANT OF OPTION.
(a) Subject to the receipt of all regulatory approvals and orders
required by OPTION GRANTOR as set forth in Section 4.4(c) of the WPL
Disclosure Schedule to the Merger Agreement and by OPTION HOLDER as set
forth in Section 5.4(c) of the IES Disclosure Schedule to the Merger
Agreement, OPTION GRANTOR hereby grants OPTION HOLDER an irrevocable option
(the "OPTION GRANTOR OPTION") to purchase up to that number of shares,
subject to adjustment as provided in Section 12 (the "OPTION GRANTOR
SHARES"), of common stock, par value $.01 per share, of OPTION GRANTOR (the
"OPTION GRANTOR COMMON STOCK") equal to a percentage (the "OPTION SHARES
PERCENTAGE"), which Option Shares Percentage is equal to the OPTION HOLDER's
Participation Percentage as defined below in subsection (e), of 6,123,944
shares of OPTION GRANTOR Common Stock (being 19.9% of the number of shares
of OPTION
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<PAGE>
GRANTOR Common Stock issued and outstanding as of November 10, 1995 (the
"INITIAL NUMBER") in the manner set forth below, at a price (the "EXERCISE
PRICE") per OPTION GRANTOR Share of $30.675 (which is equal to the Fair
Market Value (as defined below) of an OPTION GRANTOR Share as of the date
hereof).
(b) The Exercise Price shall be payable, at OPTION HOLDER's option, as
follows:
(i) in cash, or
(ii) subject to the receipt of all approvals of any Governmental
Authority required for OPTION GRANTOR to acquire, and OPTION HOLDER to
issue, the OPTION HOLDER Shares (as defined below) from OPTION HOLDER, in
shares of common stock, no par value, of OPTION HOLDER ("OPTION HOLDER
SHARES"),
in either case in accordance with Section 4 hereof.
(c) Notwithstanding the foregoing, in no event shall the number of
OPTION GRANTOR Shares for which the OPTION GRANTOR Option is exercisable
exceed the product of the Option Shares Percentage and the Initial Number,
subject to adjustment as provided in Section 12.
(d) As used herein, the "FAIR MARKET VALUE" of any share shall be the
average of the daily closing sales price for such share on the New York
Stock Exchange (the "NYSE") during the ten NYSE trading days prior to the
fifth NYSE trading day preceding the date such Fair Market Value is to be
determined.
(e) For purposes of this Agreement the term "PARTICIPATION PERCENTAGE"
shall have the same meaning as in Section 10.3(f)(i) of the Merger
Agreement, except that the numerator and denominator shall be calculated
based on the number of shares of WPL Common Stock which would be issuable
(or, in the case of WPL, retained by its shareholders) on a fully diluted
basis had the Effective Time occurred as of the date on which the Exercise
Notice is delivered under Section 2 hereof or the date on which demand for
the Trigger Payment (as defined herein) is given under Section 5 hereof, as
the case may be. Other capitalized terms used herein but not defined herein
shall have the meanings set forth in the Merger Agreement.
2. EXERCISE OF OPTION.
(a) The OPTION GRANTOR Option may be exercised by OPTION HOLDER, in
whole or in part, at any time or from time to time after the Merger
Agreement becomes terminable by OPTION HOLDER under circumstances which
could entitle OPTION HOLDER to a termination fee under Section 10.3(a) of
the Merger Agreement (provided that the events specified in Section
10.3(a)(ii)(A) of the Merger Agreement shall have occurred, although the
events specified in Section 10.3(a)(ii)(B) thereof need not have occurred),
or Section 10.3(b) of the Merger Agreement (regardless of whether the Merger
Agreement is actually terminated or whether there occurs a closing of any
Business Combination involving a Target Party or a closing by which a Target
Party becomes a Subsidiary), any such event by which the Merger Agreement
becomes so terminable by OPTION HOLDER being referred to herein as a
"TRIGGER EVENT").
(b)(i) OPTION GRANTOR shall notify OPTION HOLDER promptly in writing of
the occurrence of any Trigger Event, it being understood that the giving
of such notice by OPTION GRANTOR shall not be a condition to the right of
OPTION HOLDER to exercise the OPTION GRANTOR Option.
(ii) In the event OPTION HOLDER wishes to exercise the OPTION GRANTOR
Option, OPTION HOLDER shall deliver to OPTION GRANTOR written notice (an
"EXERCISE NOTICE") specifying the total number of OPTION GRANTOR Shares
it wishes to purchase.
(iii) Upon the giving by OPTION HOLDER to OPTION GRANTOR of the
Exercise Notice and the tender of the applicable aggregate Exercise
Price, OPTION HOLDER, to the
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extent permitted by law and OPTION GRANTOR's organizational documents,
and provided that the conditions to OPTION GRANTOR's obligation to issue
the OPTION GRANTOR Shares to OPTION HOLDER hereunder set forth in Section
3 have been satisfied or waived, shall be deemed to be the holder of
record of the OPTION GRANTOR Shares issuable upon such exercise,
notwithstanding that the stock transfer books of OPTION GRANTOR shall
then be closed or that certificates representing such OPTION GRANTOR
Shares shall not then be actually delivered to OPTION HOLDER.
(iv) Each closing of a purchase of OPTION GRANTOR Shares (a "CLOSING")
shall occur at a place, on a date, and at a time designated by OPTION
HOLDER in an Exercise Notice delivered at least two business days prior
to the date of the Closing.
(c) The OPTION GRANTOR Option shall terminate upon the earliest to occur
of:
(i) the Effective Time of the Merger;
(ii) the termination of the Merger Agreement pursuant to Section 10.1
thereof, other than under circumstances which also constitute a Trigger
Event under this Agreement;
(iii) 180 days following any termination of the Merger Agreement upon
or during the continuance of a Trigger Event (or if, at the expiration of
such 180 day period, the OPTION GRANTOR Option cannot be exercised by
reason of any applicable judgment, decree, order, law or regulation, ten
business days after such impediment to exercise shall have been removed
or shall have become final and not subject to appeal, but in no event
under this clause (iii) later than May 10, 1998); and
(iv) payment by OPTION GRANTOR of the Trigger Payment set forth in
Section 5 of this Agreement to OPTION HOLDER.
(d) Notwithstanding the foregoing, the OPTION GRANTOR Option may not be
exercised if (i) OPTION HOLDER is in material breach of any of its
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement, or
(ii) a Trigger Payment has been paid pursuant to Section 5 of this Agreement
or demand therefor has been made and not withdrawn.
3. CONDITIONS TO CLOSING. The obligation of OPTION GRANTOR to issue the
OPTION GRANTOR Shares to OPTION HOLDER hereunder is subject to the conditions
that
(a) all waiting periods, if any, under the HSR Act applicable to the
issuance and acquisition of the OPTION GRANTOR Shares hereunder shall have
expired or have been terminated;
(b) the OPTION GRANTOR Shares, and any OPTION HOLDER Shares which are
issued in payment of the Exercise Price, shall have been approved for
listing on the NYSE subject only to official notice of issuance;
(c) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any federal, state or local
administrative agency or commission or other federal, state or local
Governmental Authority, if any, required in connection with the issuance by
OPTION GRANTOR and the acquisition by OPTION HOLDER of the OPTION GRANTOR
Shares hereunder shall have been obtained or made, including, without
limitation, the approval of the SEC under Sections 9 and 10 of the Public
Utility Holding Company Act of 1935, as amended (the "1935 ACT"), the
approval of the Public Service Commission of Wisconsin of the issuance of
the OPTION GRANTOR Shares by OPTION GRANTOR and, if applicable, the
acquisition of OPTION GRANTOR Shares by OPTION HOLDER, and the approval of
the Iowa Utilities Board of the acquisition of the OPTION GRANTOR Shares by
OPTION HOLDER and, if applicable, the acquisition by OPTION GRANTOR of the
OPTION HOLDER Shares constituting the Exercise Price hereunder; and
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<PAGE>
(d) no preliminary or permanent injunction or other order by any court
of competent jurisdiction prohibiting or otherwise restraining such issuance
shall be in effect.
The condition set forth in paragraph (b) above may be waived by OPTION GRANTOR,
in the case of OPTION HOLDER Shares, and by OPTION HOLDER, in the case of OPTION
GRANTOR Shares, in the sole discretion of the waiving party.
4. CLOSING. At any Closing,
(a) OPTION GRANTOR shall deliver to OPTION HOLDER or its designee a
single certificate in definitive form representing the number of OPTION
GRANTOR Shares designated by OPTION HOLDER in its Exercise Notice, such
certificate to be registered in the name of OPTION HOLDER and to bear the
legend set forth in Section 13; and
(b) OPTION HOLDER shall deliver to OPTION GRANTOR the aggregate price
for the OPTION GRANTOR Shares so designated and being purchased by
(i) wire transfer of immediately available funds or certified check
or bank check, or
(ii) subject to the condition in Section 1(b)(ii), delivery of a
certificate or certificates representing the number of OPTION HOLDER
Shares being issued by OPTION HOLDER in consideration thereof, determined
in accordance with Section 4(c).
(c) In the event that OPTION HOLDER issues OPTION HOLDER Shares to
OPTION GRANTOR in consideration of OPTION GRANTOR Shares pursuant to Section
4(b)(ii), the number of OPTION HOLDER Shares to be so issued shall be equal
to the quotient obtained by dividing:
(i) the product of (x) the number of OPTION GRANTOR Shares with
respect to which the OPTION GRANTOR Option is being exercised and (y) the
Exercise Price, by
(ii) the Fair Market Value of the OPTION HOLDER Shares as of the date
immediately preceding the date the Exercise Notice is delivered to OPTION
GRANTOR.
(d) OPTION GRANTOR shall pay all expenses, and any and all Federal,
state and local taxes and other charges that may be payable in connection
with the preparation, issue and delivery of stock certificates under this
Section 4.
5. TRIGGER PAYMENT.
(a) TRIGGER PAYMENT. Subject to the provisions of Section 10.3(e) of the
Merger Agreement, if a Trigger Event shall have occurred and any regulatory
approval or order required for the issuance by OPTION GRANTOR, or the
acquisition by OPTION HOLDER, of the OPTION GRANTOR Option pursuant to
Section 1 hereof shall not have been obtained, OPTION HOLDER shall have the
right to receive, and OPTION GRANTOR shall pay to OPTION HOLDER, an amount
(the "TRIGGER PAYMENT") equal to the product of
(i) the maximum number of OPTION GRANTOR Shares that would have been
subject to purchase by OPTION HOLDER upon exercise of the OPTION GRANTOR
Option pursuant to Sections 1 and 2 hereof if all such regulatory
approvals or orders had been obtained, and
(ii) the difference between (A) the Market/Offer Price (as defined
herein), determined as of the date on which notice of demand for the
Trigger Payment is given by OPTION HOLDER, and (B) the Exercise Price
(but only if such Market/Offer Price is higher than such Exercise Price).
Demand for the Trigger Payment shall be given by notice in accordance with
the provisions of Section 17 hereof. The Trigger Payment shall be paid to
OPTION HOLDER by OPTION
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GRANTOR on the Payment Date (as defined herein), by wire transfer of
immediately available funds to an account to be designated in writing by
OPTION HOLDER not less than two business days before the Payment Date.
(b) PAYMENT DATE. For purposes of this Section 5, "PAYMENT DATE" means
the date on which termination fees are required to be paid by OPTION GRANTOR
to OPTION HOLDER under Section 10.3(a) or 10.3(b), as the case may be, of
the Merger Agreement as a result of the occurrence of the Trigger Event
referred to in subsection (a) of this Section 5.
(c) CERTAIN CONDITIONS. OPTION GRANTOR shall have no obligation to pay
the Trigger Payment if OPTION HOLDER is in material breach of any of its
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement.
6. REPRESENTATIONS AND WARRANTIES OF OPTION GRANTOR. OPTION GRANTOR
represents and warrants to OPTION HOLDER that
(a) except as set forth in Section 4.4(a) of the WPL Disclosure Schedule
to the Merger Agreement, OPTION GRANTOR has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder, subject in the case of the repurchase of the OPTION GRANTOR
Shares pursuant to Section 8(a) to applicable law and the provisions of
OPTION GRANTOR's Articles of Incorporation, as amended (the "OPTION GRANTOR
ARTICLES");
(b) this Agreement has been duly and validly executed and delivered by
OPTION GRANTOR, and, assuming the due authorization, execution and delivery
hereof by OPTION HOLDER and the receipt of all required regulatory
approvals, constitutes a valid and binding obligation of OPTION GRANTOR,
enforceable against OPTION GRANTOR in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally, and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought;
(c) OPTION GRANTOR has taken all necessary corporate action to authorize
and reserve for issuance and to permit it to issue, upon exercise of the
OPTION GRANTOR Option, and at all times from the date hereof through the
expiration of the OPTION GRANTOR Option will have reserved, the Initial
Number of authorized and unissued OPTION GRANTOR Shares, such amount being
subject to adjustment as provided in Section 12, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable (except as
otherwise provided in Section 180.0622(2)(b) of the WBCL);
(d) upon delivery of the OPTION GRANTOR Shares to OPTION HOLDER upon the
exercise of the OPTION GRANTOR Option, OPTION HOLDER will acquire the OPTION
GRANTOR Shares free and clear of all claims, liens, charges, encumbrances
and security interests of any nature whatsoever;
(e) except as described in Section 4.4(b) of the WPL Disclosure Schedule
to the Merger Agreement, the execution and delivery of this Agreement by
OPTION GRANTOR does not, and, subject to compliance with applicable law and
the OPTION GRANTOR Articles with respect to the repurchase of the OPTION
GRANTOR Shares pursuant to Section 8(a), the consummation by OPTION GRANTOR
of the transactions contemplated hereby will not violate, conflict with, or
result in a breach of any provision of, or constitute a default (with or
without notice or a lapse of time, or both) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination, cancellation, or acceleration of any obligation or the
loss of a material benefit under, or the creation of a lien, pledge,
security interest or other encumbrance on
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assets (any such conflict, violation, default, right of termination,
cancellation, acceleration, loss or creation, hereinafter a "VIOLATION") of
OPTION GRANTOR or any of its Subsidiaries, pursuant to
(i) any provision of the OPTION GRANTOR Articles or the Bylaws of
OPTION GRANTOR,
(ii) any provisions of any material loan or credit agreement, note,
mortgage, indenture, lease, benefit plan or other agreement, obligation,
instrument, permit, concession, franchise or license (any of the
foregoing in effect on the date hereof being referred to as a "MATERIAL
CONTRACT") of OPTION GRANTOR or its subsidiaries or to which any of them
is a party, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to OPTION GRANTOR or its properties or assets,
which Violation, in the case of each clauses (ii) and (iii), could
reasonably be expected to have an OPTION GRANTOR Material Adverse Effect
(except that no representation or warranty is given concerning any Violation
of a Material Contract with respect to the repurchase of OPTION GRANTOR
Shares pursuant to Section 8(a));
(f) except as described in Section 4.4(c) of the WPL Disclosure Schedule
to the Merger Agreement or Section 1 or 3 hereof, the execution and delivery
of this Agreement by OPTION GRANTOR does not, and the performance of this
Agreement by OPTION GRANTOR will not, require any consent, approval,
authorization or permit of, filing with or notification to, any Governmental
Authority;
(g) none of OPTION GRANTOR, any of its affiliates or anyone acting on
its or their behalf, has issued, sold or offered any security of OPTION
GRANTOR to any person under circumstances that would cause the issuance and
sale of OPTION GRANTOR Shares, as contemplated by this Agreement, to be
subject to the registration requirements of the Securities Act as in effect
on the date hereof, and, assuming the representations and warranties of
OPTION HOLDER contained in Section 7(g) are true and correct, the issuance,
sale and delivery of the OPTION GRANTOR Shares hereunder would be exempt
from the registration and prospectus delivery requirements of the Securities
Act, as in effect on the date hereof (and OPTION GRANTOR shall not take any
action which would cause the issuance, sale, and delivery of OPTION GRANTOR
Shares hereunder not to be exempt from such requirements); and
(h) any OPTION HOLDER Shares acquired pursuant to this Agreement will be
acquired for OPTION GRANTOR's own account, for investment purposes only, and
will not be acquired by OPTION GRANTOR with a view to the public
distribution thereof in violation of any applicable provision of the
Securities Act.
7. REPRESENTATIONS AND WARRANTIES OF OPTION HOLDER. OPTION HOLDER
represents and warrants to OPTION GRANTOR that
(a) except as set forth in Schedule 5.4(a) of the IES Disclosure
Schedule to the Merger Agreement, OPTION HOLDER has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder;
(b) this Agreement has been duly and validly executed and delivered by
OPTION HOLDER and, assuming the due authorization, execution and delivery
hereof by OPTION GRANTOR and the receipt of all required regulatory
approvals, constitutes a valid and binding obligation of OPTION HOLDER,
enforceable against OPTION HOLDER in accordance with its respective terms,
except as may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of
creditors' rights generally, and except that the availability of equitable
remedies, including specific performance, may be subject to the discretion
of any court before which any proceeding may be brought;
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(c) prior to any delivery of OPTION HOLDER Shares in consideration of
the purchase of OPTION GRANTOR Shares pursuant hereto, OPTION HOLDER will
have taken all necessary corporate action to authorize for issuance and to
permit it to issue such OPTION HOLDER Shares, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable;
(d) upon any delivery of such OPTION HOLDER Shares to OPTION GRANTOR in
consideration of the purchase of OPTION GRANTOR Shares pursuant hereto,
OPTION GRANTOR will acquire the OPTION HOLDER Shares free and clear of all
claims, liens, charges, encumbrances and security interests of any nature
whatsoever;
(e) except as described in Section 5.4(b) of the IES Disclosure Schedule
to the Merger Agreement, the execution and delivery of this Agreement by
OPTION HOLDER does not, and the consummation by OPTION HOLDER of the
transactions contemplated hereby will not, violate, conflict with, or result
in the breach of any provision of, or constitute a default (with or without
notice or a lapse of time, or both) under, or result in any Violation by
OPTION HOLDER or any of its Subsidiaries, pursuant to
(i) any provision of the Articles of Incorporation or Bylaws of
OPTION HOLDER,
(ii) any Material Contract of OPTION HOLDER or any of its
subsidiaries or to which any of them is a party, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to OPTION HOLDER or its properties or assets,
which Violation, in the case of each of clauses (ii) or (iii), would have an
OPTION HOLDER Material Adverse Effect;
(f) except as described in Section 5.4(c) of the IES Disclosure Schedule
to the Merger Agreement or Section 1 or 3 hereof, the execution and delivery
of this Agreement by OPTION HOLDER does not, and the consummation by OPTION
HOLDER of the transactions contemplated hereby will not, require any
consent, approval, authorization or permit of, filing with or notification
to, any Governmental Authority; and
(g) any OPTION GRANTOR Shares acquired upon exercise of the OPTION
GRANTOR Option will be acquired for OPTION HOLDER's own account, for
investment purposes only and will not be, and the OPTION GRANTOR Option is
not being, acquired by OPTION HOLDER with a view to the public distribution
thereof, in violation of any applicable provision of the Securities Act.
8. CERTAIN REPURCHASES.
(a) OPTION HOLDER "PUT". At the request of OPTION HOLDER by written
notice (x) at any time during which the OPTION GRANTOR Option is exercisable
pursuant to Section 2 (the "REPURCHASE PERIOD"), OPTION GRANTOR (or any
successor entity thereof) shall, if permitted by applicable law, the OPTION
GRANTOR Articles and Bylaws and OPTION GRANTOR's Material Contracts,
repurchase from OPTION HOLDER all or any portion of the OPTION GRANTOR
Option, at the price set forth in subparagraph (i) below, or, (y) at any
time prior to May 10, 1997 (provided that such date shall be extended to May
10, 1998 under the circumstances where the date after which either party may
terminate the Merger Agreement pursuant to Section 10.1(b) of the Merger
Agreement has been extended to May 10, 1998), OPTION GRANTOR (or any
successor entity thereof) shall, if permitted by applicable law, the OPTION
GRANTOR Articles and Bylaws and OPTION GRANTOR's Material Contracts,
repurchase from OPTION HOLDER all or any portion of the OPTION GRANTOR
Shares purchased by OPTION HOLDER pursuant to the OPTION GRANTOR Option, at
the price set forth in subparagraph (ii) below:
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(i)(A) The difference between the "Market/Offer Price" (as defined
below) for shares of OPTION GRANTOR Common Stock as of the date OPTION
HOLDER gives notice of its intent to exercise its rights under this
Section 8 and the Exercise Price, multiplied by the number of OPTION
GRANTOR Shares purchasable pursuant to the OPTION GRANTOR Option (or
portion thereof with respect to which OPTION HOLDER is exercising its
rights under this Section 8), but only if the Market/Offer Price is
greater than the Exercise Price.
(B) For purposes of this Agreement, "MARKET/OFFER PRICE" shall mean,
as of any date, the higher of (I) the price per share offered as of such
date pursuant to any tender or exchange offer or other offer with respect
to a Business Combination involving OPTION GRANTOR as the Target Party
which was made prior to such date and not terminated or withdrawn as of
such date and (II) the Fair Market Value of OPTION GRANTOR Common Stock
as of such date.
(ii)(A) The product of (I) the sum of (a) the Exercise Price paid by
OPTION HOLDER per OPTION GRANTOR Share acquired pursuant to the OPTION
GRANTOR Option, and (b) the difference between the "Offer Price" (as
defined below) and the Exercise Price, but only if the Offer Price is
greater than the Exercise Price, and (II) the number of OPTION GRANTOR
Shares so to be repurchased pursuant to this Section 8.
(B) For purposes of this clause (ii), the "OFFER PRICE" shall be the
highest price per share offered pursuant to a tender or exchange offer or
other Business Combination offer involving OPTION GRANTOR as the Target
Party during the Repurchase Period prior to the delivery by OPTION HOLDER
of a notice of repurchase.
(b) REDELIVERY OF OPTION HOLDER SHARES. If OPTION HOLDER shall have
previously elected to purchase OPTION GRANTOR Shares pursuant to the
exercise of the OPTION GRANTOR Option by the issuance and delivery of OPTION
HOLDER Shares, then OPTION GRANTOR shall, if so requested by OPTION HOLDER,
in fulfillment of its obligation pursuant to Section 8(a)(y) (that is, with
respect to the Exercise Price only and without limitation to its obligation
to pay additional consideration under clause (b) of Section 8(a)(ii)(A)(I)),
redeliver the certificates for such OPTION HOLDER Shares to OPTION HOLDER,
free and clear of all liens, claims, charges and encumbrances of any kind or
nature whatsoever; PROVIDED, HOWEVER, that if at any time less than all of
the OPTION GRANTOR Shares so purchased by OPTION HOLDER pursuant to the
OPTION GRANTOR Option are to be repurchased by OPTION GRANTOR pursuant to
Section 8(a)(y), then (i) OPTION GRANTOR shall be obligated to redeliver to
OPTION HOLDER the same proportion of such OPTION HOLDER Shares as the number
of OPTION GRANTOR Shares that OPTION GRANTOR is then obligated to repurchase
bears to the number of OPTION GRANTOR Shares acquired by OPTION HOLDER upon
exercise of the OPTION GRANTOR Option and (ii) OPTION HOLDER shall issue to
OPTION GRANTOR new certificates representing those OPTION HOLDER Shares
which are not due to be redelivered to OPTION HOLDER pursuant to this
Section 8(b) to the extent that excess OPTION HOLDER Shares are included in
the certificates redelivered to OPTION HOLDER by OPTION GRANTOR.
(c) PAYMENT AND REDELIVERY OF OPTION GRANTOR OPTIONS OR SHARES. In the
event OPTION HOLDER exercises its rights under this Section 8, OPTION
GRANTOR shall, within ten business days thereafter, pay the required amount
to OPTION HOLDER in immediately available funds and OPTION HOLDER shall
surrender to OPTION GRANTOR the OPTION GRANTOR Option or the certificate or
certificates evidencing the OPTION GRANTOR Shares purchased by OPTION HOLDER
pursuant hereto, and OPTION HOLDER shall warrant that it owns the OPTION
GRANTOR Option or such shares and that the OPTION GRANTOR Option or such
shares are then free and clear of all liens, claims, damages, charges and
encumbrances of any kind or nature whatsoever.
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(d) OPTION HOLDER "CALL". If OPTION HOLDER has elected to purchase
OPTION GRANTOR Shares pursuant to the exercise of the OPTION GRANTOR Option
by the issuance and delivery of OPTION HOLDER Shares, notwithstanding that
OPTION HOLDER may no longer hold any such OPTION GRANTOR Shares or that
OPTION HOLDER elects not to exercise its other rights under this Section 8,
OPTION HOLDER may require, at any time or from time to time prior to May 10,
1997 (provided that such date shall be extended to May 10, 1998 under the
circumstances where the date after which either party may terminate the
Merger Agreement pursuant to Section 10.1(b) of the Merger Agreement has
been extended to May 10, 1998), OPTION GRANTOR to sell to OPTION HOLDER any
such OPTION HOLDER Shares at the price attributed to such OPTION HOLDER
Shares pursuant to Section 4 plus interest at the rate of 8.75% per annum on
such amount from the Closing Date relating to the exchange of such OPTION
HOLDER Shares pursuant to Section 4 to the Closing Date under this Section
8(d) less any dividends on such OPTION HOLDER Shares paid during such period
or declared and payable to stockholders of record on a date during such
period.
(e) REPURCHASE PRICE REDUCED AT OPTION HOLDER'S OPTION. In the event
the repurchase price specified in Section 8(a) would subject the purchase of
the OPTION GRANTOR Option or the OPTION GRANTOR Shares purchased by OPTION
HOLDER pursuant to the OPTION GRANTOR Option to a vote of the shareholders
of OPTION GRANTOR pursuant to applicable law or the OPTION GRANTOR Articles,
then OPTION HOLDER may, at its election, reduce the repurchase price to an
amount which would permit such repurchase without the necessity for such a
shareholder vote.
9. VOTING OF SHARES. Following the date hereof and prior to the fifth
anniversary of the date hereof (the "EXPIRATION DATE"), each party shall vote
any shares of capital stock of the other party acquired by such party pursuant
to this Agreement ("RESTRICTED SHARES"), including any OPTION HOLDER Shares
issued pursuant to Section 1(b), or otherwise beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")), by such party on each matter submitted to a vote
of shareholders of such other party for and against such matter in the same
proportion as the vote of all other shareholders of such other party are voted
(whether by proxy or otherwise) for and against such matter.
10. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expiration Date, neither
party shall, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by such party, other than (i) pursuant to Section 8, or
(ii) in accordance with Section 10(b) or Section 11.
(b) PERMITTED SALES. Following the termination of the Merger
Agreement, a party shall be permitted to sell any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or
exchange offer that has been approved or recommended, or otherwise
determined to be fair to and in the best interests of the shareholders of
the other party, by a majority of the members of the Board of Directors of
such other party, which majority shall include a majority of directors who
were directors prior to the announcement of such tender or exchange offer.
11. REGISTRATION RIGHTS.
(a) Following the termination of the Merger Agreement, either party
hereto that owns Restricted Shares (a "DESIGNATED HOLDER") may by written
notice (the "REGISTRATION NOTICE") to the other party (the "REGISTRANT")
request the Registrant to register under the Securities Act all or any part
of the Restricted Shares beneficially owned by such Designated Holder (the
"REGISTRABLE SECURITIES") pursuant to a bona fide firm commitment
underwritten public offering, in which the Designated Holder and the
underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use their best efforts to
prevent any person
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(including any Group (as used in Rule 13d-5 under the Exchange Act)) and its
affiliates from purchasing through such offering Restricted Shares
representing more than 1% of the outstanding shares of common stock of the
Registrant on a fully diluted basis (a "PERMITTED OFFERING").
(b) The Registration Notice shall include a certificate executed by the
Designated Holder and its proposed managing underwriter, which underwriter
shall be an investment banking firm of nationally recognized standing (the
"MANAGER"), stating that
(i) they have a good faith intention to commence promptly a Permitted
Offering, and
(ii) the manager in good faith believes that, based on the
then-prevailing market conditions, it will be able to sell the
Registrable Securities at a per share price equal to at least 80% of the
then Fair Market Value of such shares.
(c) The Registrant (and/or any person designated by the Registrant)
shall thereupon have the option exercisable by written notice delivered to
the Designated Holder within ten business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities proposed to be so sold for cash at a price (the
"OPTION PRICE") equal to the product of (i) the number of Registrable
Securities to be so purchased by the Registrant and (ii) the then Fair
Market Value of such shares.
(d) Any purchase of Registrable Securities by the Registrant (or its
designee) under Section 11(c) shall take place at a closing to be held at
the principal executive offices of the Registrant or at the offices of its
counsel at any reasonable date and time designated by the Registrant and/or
such designee in such notice within twenty business days after delivery of
such notice, and any payment for the shares to be so purchased shall be made
by delivery at the time of such closing in immediately available funds.
(e) If the Registrant does not elect to exercise its option pursuant to
this Section 11 with respect to all Registrable Securities, it shall use its
best efforts to effect, as promptly as practicable, the registration under
the Securities Act of the unpurchased Registrable Securities proposed to be
so sold; PROVIDED, HOWEVER, that
(i) neither party shall be entitled to demand more than an aggregate
of two effective registration statements hereunder, and
(ii) the Registrant will not be required to file any such
registration statement during any period of time (not to exceed 40 days
after such request in the case of clause (A) below or 90 days in the case
of clauses (B) and (C) below) when
(A) the Registrant is in possession of material non-public
information which it reasonably believes would be detrimental to be
disclosed at such time and, in the opinion of counsel to the
Registrant, such information would be required to be disclosed if a
registration statement were filed at that time;
(B) the Registrant is required under the Securities Act to
include audited financial statements for any period in such
registration statement and such financial statements are not yet
available for inclusion in such registration statement; or
(C) the Registrant determines, in its reasonable judgment, that
such registration would interfere with any financing, acquisition or
other material transaction involving the Registrant or any of its
affiliates.
(f) The Registrant shall use its reasonable best efforts to cause any
Registrable Securities registered pursuant to this Section 11 to be
qualified for sale under the securities or Blue Sky laws of such
jurisdictions as the Designated Holder may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
PROVIDED, HOWEVER, that the Registrant shall not be required to qualify to
do business in, or consent to general service of process in, any
jurisdiction by reason of this provision.
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(g) The registration rights set forth in this Section 11 are subject to
the condition that the Designated Holder shall provide the Registrant with
such information with respect to such holder's Registrable Securities, the
plans for the distribution thereof, and such other information with respect
to such holder as, in the reasonable judgment of counsel for the Registrant,
is necessary to enable the Registrant to include in such registration
statement all material facts required to be disclosed with respect to a
registration thereunder.
(h) A registration effected under this Section 11 shall be effected at
the Registrant's expense, except for underwriting discounts and commissions
and the fees and the expenses of counsel to the Designated Holder, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as is
customary in connection with underwritten public offerings as such
underwriters may reasonably require.
(i) In connection with any registration effected under this Section 11,
the parties agree
(i) to indemnify each other and the underwriters in the customary
manner,
(ii) to enter into an underwriting agreement in form and substance
customary for transactions of such type with the Manager and the other
underwriters participating in such offering, and
(iii) to take all further actions which shall be reasonably necessary
to effect such registration and sale (including if the Manager deems it
necessary, participating in road-show presentations).
(j) The Registrant shall be entitled to include (at its expense)
additional shares of its common stock in a registration effected pursuant to
this Section 11 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such
offering.
12. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without limitation to any
restriction on OPTION GRANTOR contained in this Agreement or in the Merger
Agreement, in the event of any change in OPTION GRANTOR Common Stock by reason
of stock dividends, splitups, mergers (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the OPTION GRANTOR Option, and the
purchase price per share provided in Section 1, shall be adjusted appropriately
to restore to OPTION HOLDER its rights hereunder, including the right to
purchase from OPTION GRANTOR (or its successors) shares of OPTION GRANTOR Common
Stock (or such other shares or securities into which OPTION GRANTOR Common Stock
has been so changed) representing the Option Shares Percentage of the Initial
Number of shares of OPTION GRANTOR Common Stock for the aggregate Exercise Price
calculated as of the date of this Agreement as provided in Section 1.
13. RESTRICTIVE LEGENDS. Each certificate representing OPTION GRANTOR
Shares issued to OPTION HOLDER hereunder, and OPTION HOLDER Shares, if any,
delivered to OPTION GRANTOR at a Closing, shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR
BLUE SKY LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF
AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE
ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
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TRANSFER AS SET FORTH IN THE OPTION HOLDER STOCK OPTION AND TRIGGER
PAYMENT AGREEMENT, DATED AS OF NOVEMBER 10, 1995, A COPY OF WHICH MAY BE
OBTAINED FROM THE ISSUER UPON REQUEST.
It is understood and agreed that:
(i) the reference to the resale restrictions of the Securities Act and
state securities or Blue Sky laws in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if OPTION
HOLDER or OPTION GRANTOR, as the case may be, shall have delivered to the
other party a copy of a letter from the staff of the SEC, or an opinion of
counsel, in form and substance satisfactory to the other party, to the
effect that such legend is not required for purposes of the Securities Act
or such laws;
(ii) the reference to the provisions to this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without
such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in
the preceding clauses (i) and (ii) are both satisfied.
In addition, such certificates shall bear any other legend as may be required by
law. Certificates representing shares sold in a registered public offering
pursuant to Section 11 shall not be required to bear the legend set forth in
this Section 13.
14. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
(b) Except as expressly provided for in this Agreement, neither this
Agreement nor the rights or obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the
other party.
(c) Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature
whatsoever by reason of this Agreement.
(d) Any Restricted Shares sold by a party in compliance with the
provisions of Section 11 shall, upon consummation of such sale, be free of
the restrictions imposed with respect to such shares by this Agreement,
unless and until such party shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall not
be entitled to the registration rights of such party.
15. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable harm
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specified terms or were otherwise breached.
It is accordingly agreed that the parties hereto shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or equity.
16. VALIDITY.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
(b) In the event any court or other competent authority holds any
provisions of this Agreement to be null, void or unenforceable, the parties
hereto shall negotiate in good faith the
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execution and delivery of an amendment to this Agreement in order, as nearly
as possible, to effectuate, to the extent permitted by law, the intent of
the parties hereto with respect to such provision and the economic effects
thereof.
(c) Subject to Section 5, if for any reason any such court or regulatory
agency determines that OPTION HOLDER is not permitted to acquire, or OPTION
GRANTOR is not permitted to repurchase pursuant to Section 8, the full
number of shares of OPTION GRANTOR Common Stock provided in Section 1 hereof
(as the same may be adjusted), it is the express intention of OPTION GRANTOR
to allow OPTION HOLDER to acquire or to require OPTION GRANTOR to repurchase
such lesser number of shares as may be permissible without any amendment or
modification hereof.
(d) Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null,
void or unenforceable, or order any party to take any action inconsistent
herewith, or not take any action required herein, the other party shall not
be entitled to specific performance of such provision or part hereof or to
any other remedy, including but not limited to money damages, for breach
hereof or of any other provision of this Agreement or part hereof as the
result of such holding or order.
17. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if (a) delivered personally, or (b) if sent by
overnight courier service (receipt confirmed in writing), or (c) if delivered by
facsimile transmission (with receipt confirmed), or (d) five days after being
mailed by registered or certified mail (return receipt requested) to the parties
in each case to the following addresses (or at such other address for a party as
shall be specified by like notice):
A. If to OPTION HOLDER, to:
IES Industries Inc.
IES Tower
200 First Street S.E.
Cedar Rapids, Iowa 52401
Attention: Lee Liu
Fax: (319) 398-4204
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: Stephen R. Rusmisel, Esq.
Fax: (212) 858-1500
B. If to OPTION GRANTOR, to:
WPL Holdings, Inc.
222 West Washington Avenue
Madison, Wisconsin 53703
Attention: Erroll B. Davis, Jr.
Fax: (608) 252-5059
with a copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5367
Attention: Benjamin F. Garmer, III, Esq.
Fax: (414) 297-4900
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18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State and without regard to its choice
of law principles or to any requirement as to jurisdiction or service of process
contained in Section 2708 of Title 6 of the Delaware Code.
19. INTERPRETATION.
(a) When reference is made in this Agreement to Articles, Sections or
Exhibits, such reference shall be to an Article, Section or Exhibit of this
Agreement, as the case may be, unless otherwise indicated.
(b) The table of contents and headings contained in this Agreement are
for reference purposes and shall not affect in any way the meaning or
interpretation of the Agreement.
(c) Whenever the words "include," "includes," or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
(d) Whenever "or" is used in this Agreement it shall be construed in the
nonexclusive sense.
20. COUNTERPARTS; EFFECT. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
21. AMENDMENTS; WAIVER. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
22. EXTENSION OF TIME PERIODS. The time periods for exercises of certain
rights under Sections 2, 7 and 8 shall be extended (but in no event by more than
six months):
(a) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights, and for the expiration of all statutory waiting
periods; and
(b) to the extent necessary to avoid any liability under Section 16(b)
of the Exchange Act by reason of such exercise.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
WPL HOLDINGS, INC.
By: /s/ ERROLL B. DAVIS, JR.
--------------------------------------
Name: Erroll B. Davis, Jr.
Title: President and Chief
Executive Officer
IES INDUSTRIES INC.
By: /s/ LEE LIU
--------------------------------------
Name: Lee Liu
Title: Chairman of the Board,
President and Chief
Executive Officer
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ANNEX C
OPTION GRANTOR/OPTION HOLDER STOCK OPTION
AND TRIGGER PAYMENT AGREEMENT
This STOCK OPTION AGREEMENT, dated as of November 10, 1995 (the "AGREEMENT")
by and among WPL Holdings, Inc., a corporation organized under the laws of the
State of Wisconsin ("OPTION GRANTOR" or the "COMPANY") and Interstate Power
Company, a corporation organized under the laws of the State of Delaware
("OPTION HOLDER").
W I T N E S S E T H T H A T:
WHEREAS, concurrently with the execution and delivery of this Agreement,
OPTION GRANTOR, OPTION HOLDER, IES Industries Inc., a corporation organized
under the laws of the State of Iowa ("IES"), WPLH Acquisition Co., a
wholly-owned subsidiary of OPTION GRANTOR organized under the laws of the State
of Wisconsin ("ACQUISITION"), and Interstate Power Company, a wholly-owned
subsidiary of OPTION HOLDER organized under the laws of the State of Wisconsin,
are entering into an Agreement and Plan of Merger, dated as of November 10,
1995, as amended (the "MERGER AGREEMENT"), which provides, INTER ALIA, upon the
terms and subject to the conditions thereof, for the merger of IES with and into
OPTION GRANTOR in accordance with the laws of the States of Wisconsin and Iowa
(the "IES MERGER"), and the merger of Acquisition with and into OPTION HOLDER
(or a successor thereto) in accordance with the laws of the States of Delaware
and/or Wisconsin (the "INTERSTATE MERGER", and together with the IES Merger, the
"MERGER");
WHEREAS, in connection with the execution of the Merger Agreement, OPTION
GRANTOR, OPTION HOLDER and IES are entering into certain stock option agreements
dated as of the date hereof, of which this Agreement is one, whereby the parties
hereto grant each other an option with respect to certain shares of each other's
common stock on the terms and subject to the conditions set forth therein (the
"STOCK OPTION AGREEMENTS"); and
WHEREAS, as a condition to OPTION HOLDER's willingness to enter into the
Merger Agreement, OPTION HOLDER has requested that OPTION GRANTOR agree, and
OPTION GRANTOR has so agreed, to grant to OPTION HOLDER an option with respect
to certain shares of OPTION GRANTOR's common stock, on the terms and subject to
the conditions set forth herein;
NOW, THEREFORE, to induce OPTION HOLDER to enter into the Merger Agreement
and certain of the Stock Option Agreements, and in consideration of the
representations, warranties, covenants and agreements contained herein, in the
Merger Agreement and in the Stock Option Agreements to which OPTION GRANTOR and
OPTION HOLDER are parties, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. GRANT OF OPTION.
(a) Subject to the receipt of all regulatory approvals and orders
required by OPTION GRANTOR as set forth in Section 4.4(c) of the WPL
Disclosure Schedule to the Merger Agreement and by OPTION HOLDER as set
forth in Section 6.4(c) of the Interstate Disclosure Schedule to the Merger
Agreement, OPTION GRANTOR hereby grants OPTION HOLDER an irrevocable option
(the "OPTION GRANTOR OPTION") to purchase up to that number of shares,
subject to adjustment as provided in Section 12 (the "OPTION GRANTOR
SHARES"), of common stock, par value $.01 per share, of OPTION GRANTOR (the
"OPTION GRANTOR COMMON STOCK") equal to a percentage (the "OPTION SHARES
PERCENTAGE"), which Option Shares Percentage is equal to the OPTION HOLDER's
Participation Percentage as defined below in subsection (e), of 6,123,944
shares of OPTION GRANTOR Common Stock (being 19.9% of the number of shares
of OPTION GRANTOR Common Stock issued and outstanding as of November 10,
1995 (the
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"INITIAL NUMBER") in the manner set forth below, at a price (the "EXERCISE
PRICE") per OPTION GRANTOR Share of $30.675 (which is equal to the Fair
Market Value (as defined below) of an OPTION GRANTOR Share as of the date
hereof).
(b) The Exercise Price shall be payable, at OPTION HOLDER's option, as
follows:
(i) in cash, or
(ii) subject to the receipt of all approvals of any Governmental
Authority required for OPTION GRANTOR to acquire, and OPTION HOLDER to
issue, the OPTION HOLDER Shares (as defined below) from OPTION HOLDER, in
shares of common stock, $3.50 par value, of OPTION HOLDER ("OPTION HOLDER
SHARES"),
in either case in accordance with Section 4 hereof.
(c) Notwithstanding the foregoing, in no event shall the number of
OPTION GRANTOR Shares for which the OPTION GRANTOR Option is exercisable
exceed the product of the Option Shares Percentage and the Initial Number,
subject to adjustment as provided in Section 12.
(d) As used herein, the "FAIR MARKET VALUE" of any share shall be the
average of the daily closing sales price for such share on the New York
Stock Exchange (the "NYSE") during the ten NYSE trading days prior to the
fifth NYSE trading day preceding the date such Fair Market Value is to be
determined.
(e) For purposes of this Agreement the term "PARTICIPATION PERCENTAGE"
shall have the same meaning as in Section 10.3(f)(i) of the Merger
Agreement, except that the numerator and denominator shall be calculated
based on the number of shares of WPL Common Stock which would be issuable
(or, in the case of WPL, retained by its shareholders) on a fully diluted
basis had the Effective Time occurred as of the date on which the Exercise
Notice is delivered under Section 2 hereof or the date on which demand for
the Trigger Payment (as defined herein) is given under Section 5 hereof, as
the case may be. Other capitalized terms used herein but not defined herein
shall have the meanings set forth in the Merger Agreement.
2. EXERCISE OF OPTION.
(a) The OPTION GRANTOR Option may be exercised by OPTION HOLDER, in
whole or in part, at any time or from time to time after the Merger
Agreement becomes terminable by OPTION HOLDER under circumstances which
could entitle OPTION HOLDER to a termination fee under Section 10.3(a) of
the Merger Agreement (provided that the events specified in Section
10.3(a)(ii)(A) of the Merger Agreement shall have occurred, although the
events specified in Section 10.3(a)(ii)(B) thereof need not have occurred),
or Section 10.3(b) of the Merger Agreement (regardless of whether the Merger
Agreement is actually terminated or whether there occurs a closing of any
Business Combination involving a Target Party or a closing by which a Target
Party becomes a Subsidiary), any such event by which the Merger Agreement
becomes so terminable by OPTION HOLDER being referred to herein as a
"TRIGGER EVENT").
(b) (i) OPTION GRANTOR shall notify OPTION HOLDER promptly in writing of
the occurrence of any Trigger Event, it being understood that the giving of
such notice by OPTION GRANTOR shall not be a condition to the right of
OPTION HOLDER to exercise the OPTION GRANTOR Option.
(ii) In the event OPTION HOLDER wishes to exercise the OPTION GRANTOR
Option, OPTION HOLDER shall deliver to OPTION GRANTOR written notice (an
"EXERCISE NOTICE") specifying the total number of OPTION GRANTOR Shares
it wishes to purchase.
(iii) Upon the giving by OPTION HOLDER to OPTION GRANTOR of the
Exercise Notice and the tender of the applicable aggregate Exercise
Price, OPTION HOLDER, to the extent permitted by law and OPTION GRANTOR's
organizational documents, and provided that the conditions to OPTION
GRANTOR's obligation to issue the OPTION GRANTOR
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Shares to OPTION HOLDER hereunder set forth in Section 3 have been
satisfied or waived, shall be deemed to be the holder of record of the
OPTION GRANTOR Shares issuable upon such exercise, notwithstanding that
the stock transfer books of OPTION GRANTOR shall then be closed or that
certificates representing such OPTION GRANTOR Shares shall not then be
actually delivered to OPTION HOLDER.
(iv) Each closing of a purchase of OPTION GRANTOR Shares (a "CLOSING")
shall occur at a place, on a date, and at a time designated by OPTION
HOLDER in an Exercise Notice delivered at least two business days prior
to the date of the Closing.
(c) The OPTION GRANTOR Option shall terminate upon the earliest to occur
of:
(i) the Effective Time of the Merger;
(ii) the termination of the Merger Agreement pursuant to Section 10.1
thereof, other than under circumstances which also constitute a Trigger
Event under this Agreement;
(iii) 180 days following any termination of the Merger Agreement upon
or during the continuance of a Trigger Event (or if, at the expiration of
such 180 day period, the OPTION GRANTOR Option cannot be exercised by
reason of any applicable judgment, decree, order, law or regulation, ten
business days after such impediment to exercise shall have been removed
or shall have become final and not subject to appeal, but in no event
under this clause (iii) later than May 10, 1998); and
(iv) payment by OPTION GRANTOR of the Trigger Payment set forth in
Section 5 of this Agreement to OPTION HOLDER.
(d) Notwithstanding the foregoing, the OPTION GRANTOR Option may not be
exercised if (i) OPTION HOLDER is in material breach of any of its
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement, or
(ii) a Trigger Payment has been paid pursuant to Section 5 of this Agreement
or demand therefor has been made and not withdrawn.
3. CONDITIONS TO CLOSING. The obligation of OPTION GRANTOR to issue the
OPTION GRANTOR Shares to OPTION HOLDER hereunder is subject to the conditions
that
(a) all waiting periods, if any, under the HSR Act applicable to the
issuance and acquisition of the OPTION GRANTOR Shares hereunder shall have
expired or have been terminated;
(b) the OPTION GRANTOR Shares, and any OPTION HOLDER Shares which are
issued in payment of the Exercise Price, shall have been approved for
listing on the NYSE subject only to official notice of issuance;
(c) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any federal, state or local
administrative agency or commission or other federal, state or local
Governmental Authority, if any, required in connection with the issuance by
OPTION GRANTOR and the acquisition by OPTION HOLDER of the OPTION GRANTOR
Shares hereunder shall have been obtained or made, including, without
limitation, the approval of the SEC under Sections 9 and 10 of the Public
Utility Holding Company Act of 1935, as amended (the "1935 ACT"), the
approval of the Public Service Commission of Wisconsin of the issuance of
the OPTION GRANTOR Shares by OPTION GRANTOR and, if applicable, the
acquisition of OPTION GRANTOR Shares by OPTION HOLDER, and the approval of
the Iowa Utilities Board, the Minnesota Public Utilities Commission and the
Illinois Commerce Commission of the acquisition of the OPTION GRANTOR Shares
by OPTION HOLDER and, if applicable, the acquisition by OPTION GRANTOR of
the OPTION HOLDER Shares constituting the Exercise Price hereunder; and
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(d) no preliminary or permanent injunction or other order by any court
of competent jurisdiction prohibiting or otherwise restraining such issuance
shall be in effect.
The condition set forth in paragraph (b) above may be waived by OPTION GRANTOR,
in the case of OPTION HOLDER Shares, and by OPTION HOLDER, in the case of OPTION
GRANTOR Shares, in the sole discretion of the waiving party.
4. CLOSING. At any Closing,
(a) OPTION GRANTOR shall deliver to OPTION HOLDER or its designee a
single certificate in definitive form representing the number of OPTION
GRANTOR Shares designated by OPTION HOLDER in its Exercise Notice, such
certificate to be registered in the name of OPTION HOLDER and to bear the
legend set forth in Section 13; and
(b) OPTION HOLDER shall deliver to OPTION GRANTOR the aggregate price
for the OPTION GRANTOR Shares so designated and being purchased by
(i) wire transfer of immediately available funds or certified check
or bank check, or
(ii) subject to the condition in Section 1(b)(ii), delivery of a
certificate or certificates representing the number of OPTION HOLDER
Shares being issued by OPTION HOLDER in consideration thereof, determined
in accordance with Section 4(c).
(c) In the event that OPTION HOLDER issues OPTION HOLDER Shares to
OPTION GRANTOR in consideration of OPTION GRANTOR Shares pursuant to Section
4(b)(ii), the number of OPTION HOLDER Shares to be so issued shall be equal
to the quotient obtained by dividing:
(i) the product of (x) the number of OPTION GRANTOR Shares with
respect to which the OPTION GRANTOR Option is being exercised and (y) the
Exercise Price, by
(ii) the Fair Market Value of the OPTION HOLDER Shares as of the date
immediately preceding the date the Exercise Notice is delivered to OPTION
GRANTOR.
(d) OPTION GRANTOR shall pay all expenses, and any and all Federal,
state and local taxes and other charges that may be payable in connection
with the preparation, issue and delivery of stock certificates under this
Section 4.
5. TRIGGER PAYMENT.
(a) TRIGGER PAYMENT. Subject to the provisions of Section 10.3(e) of
the Merger Agreement, if a Trigger Event shall have occurred and any
regulatory approval or order required for the issuance by OPTION GRANTOR, or
the acquisition by OPTION HOLDER, of the OPTION GRANTOR Option pursuant to
Section 1 hereof shall not have been obtained, OPTION HOLDER shall have the
right to receive, and OPTION GRANTOR shall pay to OPTION HOLDER, an amount
(the "TRIGGER PAYMENT") equal to the product of
(i) the maximum number of OPTION GRANTOR Shares that would have been
subject to purchase by OPTION HOLDER upon exercise of the OPTION GRANTOR
Option pursuant to Sections 1 and 2 hereof if all such regulatory
approvals or orders had been obtained, and
(ii) the difference between (A) the Market/Offer Price (as defined
herein), determined as of the date on which notice of demand for the
Trigger Payment is given by OPTION HOLDER, and (B) the Exercise Price
(but only if such Market/Offer Price is higher than such Exercise Price).
Demand for the Trigger Payment shall be given by notice in accordance with
the provisions of Section 17 hereof. The Trigger Payment shall be paid to
OPTION HOLDER by OPTION
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GRANTOR on the Payment Date (as defined herein), by wire transfer of
immediately available funds to an account to be designated in writing by
OPTION HOLDER not less than two business days before the Payment Date.
(b) PAYMENT DATE. For purposes of this Section 5, "PAYMENT DATE" means
the date on which termination fees are required to be paid by OPTION GRANTOR
to OPTION HOLDER under Section 10.3(a) or 10.3(b), as the case may be, of
the Merger Agreement as a result of the occurrence of the Trigger Event
referred to in subsection (a) of this Section 5.
(c) CERTAIN CONDITIONS. OPTION GRANTOR shall have no obligation to pay
the Trigger Payment if OPTION HOLDER is in material breach of any of its
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement.
6. REPRESENTATIONS AND WARRANTIES OF OPTION GRANTOR. OPTION GRANTOR
represents and warrants to OPTION HOLDER that
(a) except as set forth in Section 4.4(a) of the WPL Disclosure Schedule
to the Merger Agreement, OPTION GRANTOR has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder, subject in the case of the repurchase of the OPTION GRANTOR
Shares pursuant to Section 8(a) to applicable law and the provisions of
OPTION GRANTOR's Articles of Incorporation, as amended (the "OPTION GRANTOR
ARTICLES");
(b) this Agreement has been duly and validly executed and delivered by
OPTION GRANTOR, and, assuming the due authorization, execution and delivery
hereof by OPTION HOLDER and the receipt of all required regulatory
approvals, constitutes a valid and binding obligation of OPTION GRANTOR,
enforceable against OPTION GRANTOR in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally, and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought;
(c) OPTION GRANTOR has taken all necessary corporate action to authorize
and reserve for issuance and to permit it to issue, upon exercise of the
OPTION GRANTOR Option, and at all times from the date hereof through the
expiration of the OPTION GRANTOR Option will have reserved, the Initial
Number of authorized and unissued OPTION GRANTOR Shares, such amount being
subject to adjustment as provided in Section 12, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable (except as
otherwise provided in Section 180.0622(2)(b) of the WBCL);
(d) upon delivery of the OPTION GRANTOR Shares to OPTION HOLDER upon the
exercise of the OPTION GRANTOR Option, OPTION HOLDER will acquire the OPTION
GRANTOR Shares free and clear of all claims, liens, charges, encumbrances
and security interests of any nature whatsoever;
(e) except as described in Section 4.4(b) of the WPL Disclosure Schedule
to the Merger Agreement, the execution and delivery of this Agreement by
OPTION GRANTOR does not, and, subject to compliance with applicable law and
the OPTION GRANTOR Articles with respect to the repurchase of the OPTION
GRANTOR Shares pursuant to Section 8(a), the consummation by OPTION GRANTOR
of the transactions contemplated hereby will not violate, conflict with, or
result in a breach of any provision of, or constitute a default (with or
without notice or a lapse of time, or both) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination, cancellation, or acceleration of any obligation or the
loss of a material benefit under, or the creation of a lien, pledge,
security interest or other encumbrance on
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assets (any such conflict, violation, default, right of termination,
cancellation, acceleration, loss or creation, hereinafter a "VIOLATION") of
OPTION GRANTOR or any of its Subsidiaries, pursuant to
(i) any provision of the OPTION GRANTOR Articles or the Bylaws of
OPTION GRANTOR,
(ii) any provisions of any material loan or credit agreement, note,
mortgage, indenture, lease, benefit plan or other agreement, obligation,
instrument, permit, concession, franchise or license (any of the
foregoing in effect on the date hereof being referred to as a "MATERIAL
CONTRACT") of OPTION GRANTOR or its subsidiaries or to which any of them
is a party, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to OPTION GRANTOR or its properties or assets,
which Violation, in the case of each clauses (ii) and (iii), could
reasonably be expected to have an OPTION GRANTOR Material Adverse Effect
(except that no representation or warranty is given concerning any Violation
of a Material Contract with respect to the repurchase of OPTION GRANTOR
Shares pursuant to Section 8(a));
(f) except as described in Section 4.4(c) of the WPL Disclosure Schedule
to the Merger Agreement or Section 1 or 3 hereof, the execution and delivery
of this Agreement by OPTION GRANTOR does not, and the performance of this
Agreement by OPTION GRANTOR will not, require any consent, approval,
authorization or permit of, filing with or notification to, any Governmental
Authority;
(g) none of OPTION GRANTOR, any of its affiliates or anyone acting on
its or their behalf, has issued, sold or offered any security of OPTION
GRANTOR to any person under circumstances that would cause the issuance and
sale of OPTION GRANTOR Shares, as contemplated by this Agreement, to be
subject to the registration requirements of the Securities Act as in effect
on the date hereof, and, assuming the representations and warranties of
OPTION HOLDER contained in Section 7(g) are true and correct, the issuance,
sale and delivery of the OPTION GRANTOR Shares hereunder would be exempt
from the registration and prospectus delivery requirements of the Securities
Act, as in effect on the date hereof (and OPTION GRANTOR shall not take any
action which would cause the issuance, sale, and delivery of OPTION GRANTOR
Shares hereunder not to be exempt from such requirements); and
(h) any OPTION HOLDER Shares acquired pursuant to this Agreement will be
acquired for OPTION GRANTOR's own account, for investment purposes only, and
will not be acquired by OPTION GRANTOR with a view to the public
distribution thereof in violation of any applicable provision of the
Securities Act.
7. REPRESENTATIONS AND WARRANTIES OF OPTION HOLDER. OPTION HOLDER
represents and warrants to OPTION GRANTOR that
(a) except as set forth in Schedule 6.4(a) of the Interstate Disclosure
Schedule to the Merger Agreement, OPTION HOLDER has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder;
(b) this Agreement has been duly and validly executed and delivered by
OPTION HOLDER and, assuming the due authorization, execution and delivery
hereof by OPTION GRANTOR and the receipt of all required regulatory
approvals, constitutes a valid and binding obligation of OPTION HOLDER,
enforceable against OPTION HOLDER in accordance with its respective terms,
except as may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of
creditors' rights generally, and except that the availability of equitable
remedies, including specific performance, may be subject to the discretion
of any court before which any proceeding may be brought;
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(c) prior to any delivery of OPTION HOLDER Shares in consideration of
the purchase of OPTION GRANTOR Shares pursuant hereto, OPTION HOLDER will
have taken all necessary corporate action to authorize for issuance and to
permit it to issue such OPTION HOLDER Shares, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable;
(d) upon any delivery of such OPTION HOLDER Shares to OPTION GRANTOR in
consideration of the purchase of OPTION GRANTOR Shares pursuant hereto,
OPTION GRANTOR will acquire the OPTION HOLDER Shares free and clear of all
claims, liens, charges, encumbrances and security interests of any nature
whatsoever;
(e) except as described in Section 6.4(b) of the Interstate Disclosure
Schedule to the Merger Agreement, the execution and delivery of this
Agreement by OPTION HOLDER does not, and the consummation by OPTION HOLDER
of the transactions contemplated hereby will not, violate, conflict with, or
result in the breach of any provision of, or constitute a default (with or
without notice or a lapse of time, or both) under, or result in any
Violation by OPTION HOLDER or any of its Subsidiaries, pursuant to
(i) any provision of the Articles of Incorporation or Bylaws of
OPTION HOLDER,
(ii) any Material Contract of OPTION HOLDER or any of its
subsidiaries or to which any of them is a party, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to OPTION HOLDER or its properties or assets,
which Violation, in the case of each of clauses (ii) or (iii), would have an
OPTION HOLDER Material Adverse Effect;
(f) except as described in Section 6.4(c) of the Interstate Disclosure
Schedule to the Merger Agreement or Section 1 or 3 hereof, the execution and
delivery of this Agreement by OPTION HOLDER does not, and the consummation
by OPTION HOLDER of the transactions contemplated hereby will not, require
any consent, approval, authorization or permit of, filing with or
notification to, any Governmental Authority; and
(g) any OPTION GRANTOR Shares acquired upon exercise of the OPTION
GRANTOR Option will be acquired for OPTION HOLDER's own account, for
investment purposes only and will not be, and the OPTION GRANTOR Option is
not being, acquired by OPTION HOLDER with a view to the public distribution
thereof, in violation of any applicable provision of the Securities Act.
8. CERTAIN REPURCHASES.
(a) OPTION HOLDER "PUT". At the request of OPTION HOLDER by written
notice (x) at any time during which the OPTION GRANTOR Option is exercisable
pursuant to Section 2 (the "REPURCHASE PERIOD"), OPTION GRANTOR (or any
successor entity thereof) shall, if permitted by applicable law, the OPTION
GRANTOR Articles and Bylaws and OPTION GRANTOR's Material Contracts,
repurchase from OPTION HOLDER all or any portion of the OPTION GRANTOR
Option, at the price set forth in subparagraph (i) below, or, (y) at any
time prior to May 10, 1997 (provided that such date shall be extended to May
10, 1998 under the circumstances where the date after which either party may
terminate the Merger Agreement pursuant to Section 10.1(b) of the Merger
Agreement has been extended to May 10, 1998), OPTION GRANTOR (or any
successor entity thereof) shall, if permitted by applicable law, the
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OPTION GRANTOR Articles and Bylaws and OPTION GRANTOR's Material Contracts,
repurchase from OPTION HOLDER all or any portion of the OPTION GRANTOR
Shares purchased by OPTION HOLDER pursuant to the OPTION GRANTOR Option, at
the price set forth in subparagraph (ii) below:
(i) (A) The difference between the "Market/Offer Price" (as defined
below) for shares of OPTION GRANTOR Common Stock as of the date OPTION
HOLDER gives notice of its intent to exercise its rights under this
Section 8 and the Exercise Price, multiplied by the number of OPTION
GRANTOR Shares purchasable pursuant to the OPTION GRANTOR Option (or
portion thereof with respect to which OPTION HOLDER is exercising its
rights under this Section 8), but only if the Market/Offer Price is
greater than the Exercise Price.
(B) For purposes of this Agreement, "MARKET/OFFER PRICE" shall
mean, as of any date, the higher of (I) the price per share offered as of
such date pursuant to any tender or exchange offer or other offer with
respect to a Business Combination involving OPTION GRANTOR as the Target
Party which was made prior to such date and not terminated or withdrawn
as of such date and (II) the Fair Market Value of OPTION GRANTOR Common
Stock as of such date.
(ii) (A) The product of (I) the sum of (a) the Exercise Price paid by
OPTION HOLDER per OPTION GRANTOR Share acquired pursuant to the OPTION
GRANTOR Option, and (b) the difference between the "Offer Price" (as
defined below) and the Exercise Price, but only if the Offer Price is
greater than the Exercise Price, and (II) the number of OPTION GRANTOR
Shares so to be repurchased pursuant to this Section 8.
(B) For purposes of this clause (ii), the "OFFER PRICE" shall be
the highest price per share offered pursuant to a tender or exchange
offer or other Business Combination offer involving OPTION GRANTOR as the
Target Party during the Repurchase Period prior to the delivery by OPTION
HOLDER of a notice of repurchase.
(b) REDELIVERY OF OPTION HOLDER SHARES. If OPTION HOLDER shall have
previously elected to purchase OPTION GRANTOR Shares pursuant to the
exercise of the OPTION GRANTOR Option by the issuance and delivery of OPTION
HOLDER Shares, then OPTION GRANTOR shall, if so requested by OPTION HOLDER,
in fulfillment of its obligation pursuant to Section 8(a)(y) (that is, with
respect to the Exercise Price only and without limitation to its obligation
to pay additional consideration under clause (b) of Section 8(a)(ii)(A)(I)),
redeliver the certificates for such OPTION HOLDER Shares to OPTION HOLDER,
free and clear of all liens, claims, charges and encumbrances of any kind or
nature whatsoever; PROVIDED, HOWEVER, that if at any time less than all of
the OPTION GRANTOR Shares so purchased by OPTION HOLDER pursuant to the
OPTION GRANTOR Option are to be repurchased by OPTION GRANTOR pursuant to
Section 8(a)(y), then (i) OPTION GRANTOR shall be obligated to redeliver to
OPTION HOLDER the same proportion of such OPTION HOLDER Shares as the number
of OPTION GRANTOR Shares that OPTION GRANTOR is then obligated to repurchase
bears to the number of OPTION GRANTOR Shares acquired by OPTION HOLDER upon
exercise of the OPTION GRANTOR Option and (ii) OPTION HOLDER shall issue to
OPTION GRANTOR new certificates representing those OPTION HOLDER Shares
which are not due to be redelivered to OPTION HOLDER pursuant to this
Section 8(b) to the extent that excess OPTION HOLDER Shares are included in
the certificates redelivered to OPTION HOLDER by OPTION GRANTOR.
(c) PAYMENT AND REDELIVERY OF OPTION GRANTOR OPTIONS OR SHARES. In the
event OPTION HOLDER exercises its rights under this Section 8, OPTION
GRANTOR shall, within ten business days thereafter, pay the required amount
to OPTION HOLDER in immediately available funds and OPTION HOLDER shall
surrender to OPTION GRANTOR the OPTION GRANTOR Option or the certificate or
certificates evidencing the OPTION GRANTOR Shares purchased by OPTION HOLDER
pursuant hereto, and OPTION HOLDER shall warrant
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that it owns the OPTION GRANTOR Option or such shares and that the OPTION
GRANTOR Option or such shares are then free and clear of all liens, claims,
damages, charges and encumbrances of any kind or nature whatsoever.
(d) OPTION HOLDER "CALL". If OPTION HOLDER has elected to purchase
OPTION GRANTOR Shares pursuant to the exercise of the OPTION GRANTOR Option
by the issuance and delivery of OPTION HOLDER Shares, notwithstanding that
OPTION HOLDER may no longer hold any such OPTION GRANTOR Shares or that
OPTION HOLDER elects not to exercise its other rights under this Section 8,
OPTION HOLDER may require, at any time or from time to time prior to May 10,
1997 (provided that such date shall be extended to May 10, 1998 under the
circumstances where the date after which either party may terminate the
Merger Agreement pursuant to Section 10.1(b) of the Merger Agreement has
been extended to May 10, 1998), OPTION GRANTOR to sell to OPTION HOLDER any
such OPTION HOLDER Shares at the price attributed to such OPTION HOLDER
Shares pursuant to Section 4 plus interest at the rate of 8.75% per annum on
such amount from the Closing Date relating to the exchange of such OPTION
HOLDER Shares pursuant to Section 4 to the Closing Date under this Section
8(d) less any dividends on such OPTION HOLDER Shares paid during such period
or declared and payable to stockholders of record on a date during such
period.
(e) REPURCHASE PRICE REDUCED AT OPTION HOLDER'S OPTION. In the event
the repurchase price specified in Section 8(a) would subject the purchase of
the OPTION GRANTOR Option or the OPTION GRANTOR Shares purchased by OPTION
HOLDER pursuant to the OPTION GRANTOR Option to a vote of the shareholders
of OPTION GRANTOR pursuant to applicable law or the OPTION GRANTOR Articles,
then OPTION HOLDER may, at its election, reduce the repurchase price to an
amount which would permit such repurchase without the necessity for such a
shareholder vote.
9. VOTING OF SHARES. Following the date hereof and prior to the fifth
anniversary of the date hereof (the "EXPIRATION DATE"), each party shall vote
any shares of capital stock of the other party acquired by such party pursuant
to this Agreement ("RESTRICTED SHARES"), including any OPTION HOLDER Shares
issued pursuant to Section 1(b), or otherwise beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")), by such party on each matter submitted to a vote
of shareholders of such other party for and against such matter in the same
proportion as the vote of all other shareholders of such other party are voted
(whether by proxy or otherwise) for and against such matter.
10. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expiration Date, neither
party shall, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by such party, other than (i) pursuant to Section 8, or
(ii) in accordance with Section 10(b) or Section 11.
(b) PERMITTED SALES. Following the termination of the Merger
Agreement, a party shall be permitted to sell any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or
exchange offer that has been approved or recommended, or otherwise
determined to be fair to and in the best interests of the shareholders of
the other party, by a majority of the members of the Board of Directors of
such other party, which majority shall include a majority of directors who
were directors prior to the announcement of such tender or exchange offer.
11. REGISTRATION RIGHTS.
(a) Following the termination of the Merger Agreement, either party
hereto that owns Restricted Shares (a "DESIGNATED HOLDER") may by written
notice (the "REGISTRATION NOTICE") to the other party (the "REGISTRANT")
request the Registrant to register under the Securities Act all
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or any part of the Restricted Shares beneficially owned by such Designated
Holder (the "REGISTRABLE SECURITIES") pursuant to a bona fide firm
commitment underwritten public offering, in which the Designated Holder and
the underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use their best efforts to
prevent any person (including any Group (as used in Rule 13d-5 under the
Exchange Act)) and its affiliates from purchasing through such offering
Restricted Shares representing more than 1% of the outstanding shares of
common stock of the Registrant on a fully diluted basis (a "PERMITTED
OFFERING").
(b) The Registration Notice shall include a certificate executed by the
Designated Holder and its proposed managing underwriter, which underwriter
shall be an investment banking firm of nationally recognized standing (the
"MANAGER"), stating that
(i) they have a good faith intention to commence promptly a Permitted
Offering, and
(ii) the manager in good faith believes that, based on the
then-prevailing market conditions, it will be able to sell the
Registrable Securities at a per share price equal to at least 80% of the
then Fair Market Value of such shares.
(c) The Registrant (and/or any person designated by the Registrant)
shall thereupon have the option exercisable by written notice delivered to
the Designated Holder within ten business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities proposed to be so sold for cash at a price (the
"OPTION PRICE") equal to the product of (i) the number of Registrable
Securities to be so purchased by the Registrant and (ii) the then Fair
Market Value of such shares.
(d) Any purchase of Registrable Securities by the Registrant (or its
designee) under Section 11(c) shall take place at a closing to be held at
the principal executive offices of the Registrant or at the offices of its
counsel at any reasonable date and time designated by the Registrant and/or
such designee in such notice within twenty business days after delivery of
such notice, and any payment for the shares to be so purchased shall be made
by delivery at the time of such closing in immediately available funds.
(e) If the Registrant does not elect to exercise its option pursuant to
this Section 11 with respect to all Registrable Securities, it shall use its
best efforts to effect, as promptly as practicable, the registration under
the Securities Act of the unpurchased Registrable Securities proposed to be
so sold; PROVIDED, HOWEVER, that
(i) neither party shall be entitled to demand more than an aggregate
of two effective registration statements hereunder, and
(ii) the Registrant will not be required to file any such
registration statement during any period of time (not to exceed 40 days
after such request in the case of clause (A) below or 90 days in the case
of clauses (B) and (C) below) when
(A) the Registrant is in possession of material non-public
information which it reasonably believes would be detrimental to be
disclosed at such time and, in the opinion of counsel to the
Registrant, such information would be required to be disclosed if a
registration statement were filed at that time;
(B) the Registrant is required under the Securities Act to
include audited financial statements for any period in such
registration statement and such financial statements are not yet
available for inclusion in such registration statement; or
(C) the Registrant determines, in its reasonable judgment, that
such registration would interfere with any financing, acquisition or
other material transaction involving the Registrant or any of its
affiliates.
(f) The Registrant shall use its reasonable best efforts to cause any
Registrable Securities registered pursuant to this Section 11 to be
qualified for sale under the securities or Blue Sky laws
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of such jurisdictions as the Designated Holder may reasonably request and
shall continue such registration or qualification in effect in such
jurisdiction; PROVIDED, HOWEVER, that the Registrant shall not be required
to qualify to do business in, or consent to general service of process in,
any jurisdiction by reason of this provision.
(g) The registration rights set forth in this Section 11 are subject to
the condition that the Designated Holder shall provide the Registrant with
such information with respect to such holder's Registrable Securities, the
plans for the distribution thereof, and such other information with respect
to such holder as, in the reasonable judgment of counsel for the Registrant,
is necessary to enable the Registrant to include in such registration
statement all material facts required to be disclosed with respect to a
registration thereunder.
(h) A registration effected under this Section 11 shall be effected at
the Registrant's expense, except for underwriting discounts and commissions
and the fees and the expenses of counsel to the Designated Holder, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as is
customary in connection with underwritten public offerings as such
underwriters may reasonably require.
(i) In connection with any registration effected under this Section 11,
the parties agree
(i) to indemnify each other and the underwriters in the customary
manner,
(ii) to enter into an underwriting agreement in form and substance
customary for transactions of such type with the Manager and the other
underwriters participating in such offering, and
(iii) to take all further actions which shall be reasonably necessary
to effect such registration and sale (including if the Manager deems it
necessary, participating in road-show presentations).
(j) The Registrant shall be entitled to include (at its expense)
additional shares of its common stock in a registration effected pursuant to
this Section 11 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such
offering.
12. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without limitation to any
restriction on OPTION GRANTOR contained in this Agreement or in the Merger
Agreement, in the event of any change in OPTION GRANTOR Common Stock by reason
of stock dividends, splitups, mergers (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the OPTION GRANTOR Option, and the
purchase price per share provided in Section 1, shall be adjusted appropriately
to restore to OPTION HOLDER its rights hereunder, including the right to
purchase from OPTION GRANTOR (or its successors) shares of OPTION GRANTOR Common
Stock (or such other shares or securities into which OPTION GRANTOR Common Stock
has been so changed) representing the Option Shares Percentage of the Initial
Number of shares of OPTION GRANTOR Common Stock for the aggregate Exercise Price
calculated as of the date of this Agreement as provided in Section 1.
13. RESTRICTIVE LEGENDS. Each certificate representing OPTION GRANTOR
Shares issued to OPTION HOLDER hereunder, and OPTION HOLDER Shares, if any,
delivered to OPTION GRANTOR at a Closing, shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR
BLUE SKY LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF
AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE
ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
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TRANSFER AS SET FORTH IN THE OPTION HOLDER STOCK OPTION AND TRIGGER
PAYMENT AGREEMENT, DATED AS OF NOVEMBER 10, 1995, A COPY OF WHICH MAY BE
OBTAINED FROM THE ISSUER UPON REQUEST.
It is understood and agreed that:
(i) the reference to the resale restrictions of the Securities Act and
state securities or Blue Sky laws in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if OPTION
HOLDER or OPTION GRANTOR, as the case may be, shall have delivered to the
other party a copy of a letter from the staff of the SEC, or an opinion of
counsel, in form and substance satisfactory to the other party, to the
effect that such legend is not required for purposes of the Securities Act
or such laws;
(ii) the reference to the provisions to this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without
such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in
the preceding clauses (i) and (ii) are both satisfied.
In addition, such certificates shall bear any other legend as may be
required by law. Certificates representing shares sold in a registered
public offering pursuant to Section 11 shall not be required to bear the
legend set forth in this Section 13.
14. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
(b) Except as expressly provided for in this Agreement, neither this
Agreement nor the rights or obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the
other party.
(c) Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature
whatsoever by reason of this Agreement.
(d) Any Restricted Shares sold by a party in compliance with the
provisions of Section 11 shall, upon consummation of such sale, be free of
the restrictions imposed with respect to such shares by this Agreement,
unless and until such party shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall not
be entitled to the registration rights of such party.
15. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable harm
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specified terms or were otherwise breached.
It is accordingly agreed that the parties hereto shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or equity.
16. VALIDITY.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
(b) In the event any court or other competent authority holds any
provisions of this Agreement to be null, void or unenforceable, the parties
hereto shall negotiate in good faith the
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execution and delivery of an amendment to this Agreement in order, as nearly
as possible, to effectuate, to the extent permitted by law, the intent of
the parties hereto with respect to such provision and the economic effects
thereof.
(c) Subject to Section 5, if for any reason any such court or regulatory
agency determines that OPTION HOLDER is not permitted to acquire, or OPTION
GRANTOR is not permitted to repurchase pursuant to Section 8, the full
number of shares of OPTION GRANTOR Common Stock provided in Section 1 hereof
(as the same may be adjusted), it is the express intention of OPTION GRANTOR
to allow OPTION HOLDER to acquire or to require OPTION GRANTOR to repurchase
such lesser number of shares as may be permissible without any amendment or
modification hereof.
(d) Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null,
void or unenforceable, or order any party to take any action inconsistent
herewith, or not take any action required herein, the other party shall not
be entitled to specific performance of such provision or part hereof or to
any other remedy, including but not limited to money damages, for breach
hereof or of any other provision of this Agreement or part hereof as the
result of such holding or order.
17. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if (a) delivered personally, or (b) if sent by
overnight courier service (receipt confirmed in writing), or (c) if delivered by
facsimile transmission (with receipt confirmed), or (d) five days after being
mailed by registered or certified mail (return receipt requested) to the parties
in each case to the following addresses (or at such other address for a party as
shall be specified by like notice):
<TABLE>
<S> <C>
A. If to OPTION HOLDER, to:
Interstate Power Company
1000 Main Street
Dubuque, Iowa 52004-0789
Attention: Wayne H. Stoppelmoor
Chairman
Fax: (319) 557-2202
with a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005-1413
Attention: John T. O'Connor, Esq.
Fax: (212) 530-5219
B. If to OPTION GRANTOR, to:
WPL Holdings, Inc.
222 West Washington Avenue
Madison, Wisconsin 53703
Attention: Erroll B. Davis, Jr.
Fax: (608) 252-3137
with a copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5367
Attention: Benjamin F. Garmer, III, Esq.
Fax: (414) 297-4900
</TABLE>
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<PAGE>
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State and without regard to its choice
of law principles or to any requirement as to jurisdiction or service of process
contained in Section 2708 of Title 6 of the Delaware Code.
19. INTERPRETATION.
(a) When reference is made in this Agreement to Articles, Sections or
Exhibits, such reference shall be to an Article, Section or Exhibit of this
Agreement, as the case may be, unless otherwise indicated.
(b) The table of contents and headings contained in this Agreement are
for reference purposes and shall not affect in any way the meaning or
interpretation of the Agreement.
(c) Whenever the words "include," "includes," or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
(d) Whenever "or" is used in this Agreement it shall be construed in the
nonexclusive sense.
20. COUNTERPARTS; EFFECT. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
21. AMENDMENTS; WAIVER. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
22. EXTENSION OF TIME PERIODS. The time periods for exercises of certain
rights under Sections 2, 7 and 8 shall be extended (but in no event by more than
six months):
(a) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights, and for the expiration of all statutory waiting
periods; and
(b) to the extent necessary to avoid any liability under Section 16(b)
of the Exchange Act by reason of such exercise.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
WPL HOLDINGS, INC.
By: /s/ ERROLL B. DAVIS, JR.
--------------------------------------
Name: Erroll B. Davis, Jr.
Title: President and Chief Executive
Officer
INTERSTATE POWER COMPANY
By: /s/ WAYNE H. STOPPELMOOR
--------------------------------------
Name: Wayne H. Stoppelmoor
Title: Chairman of the Board,
President and Chief Executive
Officer
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<PAGE>
ANNEX D
OPTION GRANTOR/OPTION HOLDER STOCK OPTION
AND TRIGGER PAYMENT AGREEMENT
This STOCK OPTION AGREEMENT, dated as of November 10, 1995 (the "AGREEMENT")
by and among IES Industries Inc., a corporation organized under the laws of the
State of Iowa ("OPTION GRANTOR" or the "COMPANY") and WPL Holdings, Inc., a
corporation organized under the laws of the State of Wisconsin ("OPTION
HOLDER").
W I T N E S S E T H T H A T:
WHEREAS, concurrently with the execution and delivery of this Agreement,
OPTION GRANTOR, OPTION HOLDER, Interstate Power Company, a corporation organized
under the laws of the State of Delaware ("INTERSTATE"), WPLH Acquisition Co., a
wholly-owned subsidiary of OPTION HOLDER organized under the laws of the State
of Wisconsin ("ACQUISITION"), and Interstate Power Company, a wholly-owned
subsidiary of Interstate organized under the laws of the State of Wisconsin, are
entering into an Agreement and Plan of Merger, dated as of November 10, 1995, as
amended (the "MERGER AGREEMENT"), which provides, INTER ALIA, upon the terms and
subject to the conditions thereof, for the merger of OPTION GRANTOR with and
into OPTION HOLDER in accordance with the laws of the States of Wisconsin and
Iowa (the "IES MERGER"), and the merger of Acquisition with and into Interstate
(or a successor thereto) in accordance with the laws of the States of Delaware
and/or Wisconsin (the "INTERSTATE MERGER", and together with the IES Merger, the
"MERGER");
WHEREAS, in connection with the execution of the Merger Agreement, OPTION
GRANTOR, OPTION HOLDER and Interstate are entering into certain stock option
agreements dated as of the date hereof, of which this Agreement is one, whereby
the parties hereto grant each other an option with respect to certain shares of
each other's common stock on the terms and subject to the conditions set forth
therein (the "STOCK OPTION AGREEMENTS"); and
WHEREAS, as a condition to OPTION HOLDER's willingness to enter into the
Merger Agreement, OPTION HOLDER has requested that OPTION GRANTOR agree, and
OPTION GRANTOR has so agreed, to grant to OPTION HOLDER an option with respect
to certain shares of OPTION GRANTOR's common stock, on the terms and subject to
the conditions set forth herein;
NOW, THEREFORE, to induce OPTION HOLDER to enter into the Merger Agreement
and certain of the Stock Option Agreements, and in consideration of the
representations, warranties, covenants and agreements contained herein, in the
Merger Agreement and in the Stock Option Agreements to which OPTION GRANTOR and
OPTION HOLDER are parties, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. GRANT OF OPTION.
(a) Subject to the receipt of all regulatory approvals and orders
required by OPTION GRANTOR as set forth in Section 5.4(c) of the IES
Disclosure Schedule to the Merger Agreement and by OPTION HOLDER as set
forth in Section 4.4(c) of the WPL Disclosure Schedule to the Merger
Agreement, OPTION GRANTOR hereby grants OPTION HOLDER an irrevocable option
(the "OPTION GRANTOR OPTION") to purchase up to that number of shares,
subject to adjustment as provided in Section 12 (the "OPTION GRANTOR
SHARES"), of common stock, no par value, of OPTION GRANTOR (the "OPTION
GRANTOR COMMON STOCK") equal to a percentage (the "OPTION SHARES
PERCENTAGE"), which Option Shares Percentage is equal to the OPTION HOLDER's
Participation Percentage as defined below in subsection (e), of 5,861,115
shares of OPTION GRANTOR Common Stock (being 19.9% of the number of shares
of OPTION
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<PAGE>
GRANTOR Common Stock issued and outstanding as of November 10, 1995 (the
"INITIAL NUMBER") in the manner set forth below, at a price (the "EXERCISE
PRICE") per OPTION GRANTOR Share of $26.7125 (which is equal to the Fair
Market Value (as defined below) of an OPTION GRANTOR Share as of the date
hereof).
(b) The Exercise Price shall be payable, at OPTION HOLDER's option, as
follows:
(i) in cash, or
(ii) subject to the receipt of all approvals of any Governmental
Authority required for OPTION GRANTOR to acquire, and OPTION HOLDER to
issue, the OPTION HOLDER Shares (as defined below) from OPTION HOLDER, in
shares of common stock, $.01 par value, of OPTION HOLDER ("OPTION HOLDER
SHARES"),
in either case in accordance with Section 4 hereof.
(c) Notwithstanding the foregoing, in no event shall the number of
OPTION GRANTOR Shares for which the OPTION GRANTOR Option is exercisable
exceed the product of the Option Shares Percentage and the Initial Number,
subject to adjustment as provided in Section 12.
(d) As used herein, the "FAIR MARKET VALUE" of any share shall be the
average of the daily closing sales price for such share on the New York
Stock Exchange (the "NYSE") during the ten NYSE trading days prior to the
fifth NYSE trading day preceding the date such Fair Market Value is to be
determined.
(e) For purposes of this Agreement the term "PARTICIPATION PERCENTAGE"
shall have the same meaning as in Section 10.3(f)(i) of the Merger
Agreement, except that the numerator and denominator shall be calculated
based on the number of shares of WPL Common Stock which would be issuable
(or, in the case of WPL, retained by its shareholders) on a fully diluted
basis had the Effective Time occurred as of the date on which the Exercise
Notice is delivered under Section 2 hereof or the date on which demand for
the Trigger Payment (as defined herein) is given under Section 5 hereof, as
the case may be. Other capitalized terms used herein but not defined herein
shall have the meanings set forth in the Merger Agreement.
2. EXERCISE OF OPTION.
(a) The OPTION GRANTOR Option may be exercised by OPTION HOLDER, in
whole or in part, at any time or from time to time after the Merger
Agreement becomes terminable by OPTION HOLDER under circumstances which
could entitle OPTION HOLDER to a termination fee under Section 10.3(a) of
the Merger Agreement (provided that the events specified in Section
10.3(a)(ii)(A) of the Merger Agreement shall have occurred, although the
events specified in Section 10.3(a)(ii)(B) thereof need not have occurred),
or Section 10.3(b) of the Merger Agreement (regardless of whether the Merger
Agreement is actually terminated or whether there occurs a closing of any
Business Combination involving a Target Party or a closing by which a Target
Party becomes a Subsidiary), any such event by which the Merger Agreement
becomes so terminable by OPTION HOLDER being referred to herein as a
"TRIGGER EVENT").
(b)(i) OPTION GRANTOR shall notify OPTION HOLDER promptly in writing of
the occurrence of any Trigger Event, it being understood that the giving
of such notice by OPTION GRANTOR shall not be a condition to the right of
OPTION HOLDER to exercise the OPTION GRANTOR Option.
(ii) In the event OPTION HOLDER wishes to exercise the OPTION GRANTOR
Option, OPTION HOLDER shall deliver to OPTION GRANTOR written notice (an
"EXERCISE NOTICE") specifying the total number of OPTION GRANTOR Shares
it wishes to purchase.
(iii) Upon the giving by OPTION HOLDER to OPTION GRANTOR of the
Exercise Notice and the tender of the applicable aggregate Exercise
Price, OPTION HOLDER, to the extent permitted by law and OPTION GRANTOR's
organizational documents, and provided
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<PAGE>
that the conditions to OPTION GRANTOR's obligation to issue the OPTION
GRANTOR Shares to OPTION HOLDER hereunder set forth in Section 3 have
been satisfied or waived, shall be deemed to be the holder of record of
the OPTION GRANTOR Shares issuable upon such exercise, notwithstanding
that the stock transfer books of OPTION GRANTOR shall then be closed or
that certificates representing such OPTION GRANTOR Shares shall not then
be actually delivered to OPTION HOLDER.
(iv) Each closing of a purchase of OPTION GRANTOR Shares (a "CLOSING")
shall occur at a place, on a date, and at a time designated by OPTION
HOLDER in an Exercise Notice delivered at least two business days prior
to the date of the Closing.
(c) The OPTION GRANTOR Option shall terminate upon the earliest to occur
of:
(i) the Effective Time of the Merger;
(ii) the termination of the Merger Agreement pursuant to Section 10.1
thereof, other than under circumstances which also constitute a Trigger
Event under this Agreement;
(iii) 180 days following any termination of the Merger Agreement upon
or during the continuance of a Trigger Event (or if, at the expiration of
such 180 day period, the OPTION GRANTOR Option cannot be exercised by
reason of any applicable judgment, decree, order, law or regulation, ten
business days after such impediment to exercise shall have been removed
or shall have become final and not subject to appeal, but in no event
under this clause (iii) later than May 10, 1998); and
(iv) payment by OPTION GRANTOR of the Trigger Payment set forth in
Section 5 of this Agreement to OPTION HOLDER.
(d) Notwithstanding the foregoing, the OPTION GRANTOR Option may not be
exercised if (i) OPTION HOLDER is in material breach of any of its
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement, or
(ii) a Trigger Payment has been paid pursuant to Section 5 of this Agreement
or demand therefor has been made and not withdrawn.
3. CONDITIONS TO CLOSING. The obligation of OPTION GRANTOR to issue the
OPTION GRANTOR Shares to OPTION HOLDER hereunder is subject to the conditions
that
(a) all waiting periods, if any, under the HSR Act applicable to the
issuance and acquisition of the OPTION GRANTOR Shares hereunder shall have
expired or have been terminated;
(b) the OPTION GRANTOR Shares, and any OPTION HOLDER Shares which are
issued in payment of the Exercise Price, shall have been approved for
listing on the NYSE subject only to official notice of issuance;
(c) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any federal, state or local
administrative agency or commission or other federal, state or local
Governmental Authority, if any, required in connection with the issuance by
OPTION GRANTOR and the acquisition by OPTION HOLDER of the OPTION GRANTOR
Shares hereunder shall have been obtained or made, including, without
limitation, the approval of the SEC under Sections 9 and 10 of the Public
Utility Holding Company Act of 1935, as amended (the "1935 ACT"), the
approval of the Iowa Utilities Board of the issuance of the OPTION GRANTOR
Shares by OPTION GRANTOR and, if applicable, the acquisition of OPTION
GRANTOR Shares by OPTION HOLDER, and the approval of the Public Service
Commission of Wisconsin of the acquisition of the OPTION GRANTOR Shares by
OPTION HOLDER and, if applicable, the acquisition by OPTION GRANTOR of the
OPTION HOLDER Shares constituting the Exercise Price hereunder; and
D-3
<PAGE>
(d) no preliminary or permanent injunction or other order by any court
of competent jurisdiction prohibiting or otherwise restraining such issuance
shall be in effect.
The condition set forth in paragraph (b) above may be waived by OPTION GRANTOR,
in the case of OPTION HOLDER Shares, and by OPTION HOLDER, in the case of OPTION
GRANTOR Shares, in the sole discretion of the waiving party.
4. CLOSING. At any Closing,
(a) OPTION GRANTOR shall deliver to OPTION HOLDER or its designee a
single certificate in definitive form representing the number of OPTION
GRANTOR Shares designated by OPTION HOLDER in its Exercise Notice, such
certificate to be registered in the name of OPTION HOLDER and to bear the
legend set forth in Section 13; and
(b) OPTION HOLDER shall deliver to OPTION GRANTOR the aggregate price
for the OPTION GRANTOR Shares so designated and being purchased by
(i) wire transfer of immediately available funds or certified check
or bank check, or
(ii) subject to the condition in Section 1(b)(ii), delivery of a
certificate or certificates representing the number of OPTION HOLDER
Shares being issued by OPTION HOLDER in consideration thereof, determined
in accordance with Section 4(c).
(c) In the event that OPTION HOLDER issues OPTION HOLDER Shares to
OPTION GRANTOR in consideration of OPTION GRANTOR Shares pursuant to Section
4(b)(ii), the number of OPTION HOLDER Shares to be so issued shall be equal
to the quotient obtained by dividing:
(i) the product of (x) the number of OPTION GRANTOR Shares with
respect to which the OPTION GRANTOR Option is being exercised and (y) the
Exercise Price, by
(ii) the Fair Market Value of the OPTION HOLDER Shares as of the date
immediately preceding the date the Exercise Notice is delivered to OPTION
GRANTOR.
(d) OPTION GRANTOR shall pay all expenses, and any and all Federal,
state and local taxes and other charges that may be payable in connection
with the preparation, issue and delivery of stock certificates under this
Section 4.
5. TRIGGER PAYMENT.
(a) TRIGGER PAYMENT. Subject to the provisions of Section 10.3(e) of
the Merger Agreement, if a Trigger Event shall have occurred and any
regulatory approval or order required for the issuance by OPTION GRANTOR, or
the acquisition by OPTION HOLDER, of the OPTION GRANTOR Option pursuant to
Section 1 hereof shall not have been obtained, OPTION HOLDER shall have the
right to receive, and OPTION GRANTOR shall pay to OPTION HOLDER, an amount
(the "TRIGGER PAYMENT") equal to the product of
(i) the maximum number of OPTION GRANTOR Shares that would have been
subject to purchase by OPTION HOLDER upon exercise of the OPTION GRANTOR
Option pursuant to Sections 1 and 2 hereof if all such regulatory
approvals or orders had been obtained, and
(ii) the difference between (A) the Market/Offer Price (as defined
herein), determined as of the date on which notice of demand for the
Trigger Payment is given by OPTION HOLDER, and (B) the Exercise Price
(but only if such Market/Offer Price is higher than such Exercise Price).
Demand for the Trigger Payment shall be given by notice in accordance with
the provisions of Section 17 hereof. The Trigger Payment shall be paid to
OPTION HOLDER by OPTION
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GRANTOR on the Payment Date (as defined herein), by wire transfer of
immediately available funds to an account to be designated in writing by
OPTION HOLDER not less than two business days before the Payment Date.
(b) PAYMENT DATE. For purposes of this Section 5, "PAYMENT DATE" means
the date on which termination fees are required to be paid by OPTION GRANTOR
to OPTION HOLDER under Section 10.3(a) or 10.3(b), as the case may be, of
the Merger Agreement as a result of the occurrence of the Trigger Event
referred to in subsection (a) of this Section 5.
(c) CERTAIN CONDITIONS. OPTION GRANTOR shall have no obligation to pay
the Trigger Payment if OPTION HOLDER is in material breach of any of its
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement.
6. REPRESENTATIONS AND WARRANTIES OF OPTION GRANTOR. OPTION GRANTOR
represents and warrants to OPTION HOLDER that
(a) except as set forth in Section 5.4(a) of the IES Disclosure Schedule
to the Merger Agreement, OPTION GRANTOR has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder, subject in the case of the repurchase of the OPTION GRANTOR
Shares pursuant to Section 8(a) to applicable law and the provisions of
OPTION GRANTOR's Articles of Incorporation, as amended (the "OPTION GRANTOR
ARTICLES");
(b) this Agreement has been duly and validly executed and delivered by
OPTION GRANTOR, and, assuming the due authorization, execution and delivery
hereof by OPTION HOLDER and the receipt of all required regulatory
approvals, constitutes a valid and binding obligation of OPTION GRANTOR,
enforceable against OPTION GRANTOR in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally, and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought;
(c) OPTION GRANTOR has taken all necessary corporate action to authorize
and reserve for issuance and to permit it to issue, upon exercise of the
OPTION GRANTOR Option, and at all times from the date hereof through the
expiration of the OPTION GRANTOR Option will have reserved, the Initial
Number of authorized and unissued OPTION GRANTOR Shares, such amount being
subject to adjustment as provided in Section 12, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable;
(d) upon delivery of the OPTION GRANTOR Shares to OPTION HOLDER upon the
exercise of the OPTION GRANTOR Option, OPTION HOLDER will acquire the OPTION
GRANTOR Shares free and clear of all claims, liens, charges, encumbrances
and security interests of any nature whatsoever;
(e) except as described in Section 5.4(b) of the IES Disclosure Schedule
to the Merger Agreement, the execution and delivery of this Agreement by
OPTION GRANTOR does not, and, subject to compliance with applicable law and
the OPTION GRANTOR Articles with respect to the repurchase of the OPTION
GRANTOR Shares pursuant to Section 8(a), the consummation by OPTION GRANTOR
of the transactions contemplated hereby will not violate, conflict with, or
result in a breach of any provision of, or constitute a default (with or
without notice or a lapse of time, or both) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination, cancellation, or acceleration of any obligation or the
loss of a material benefit under, or the creation of a lien, pledge,
security interest or other encumbrance on
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assets (any such conflict, violation, default, right of termination,
cancellation, acceleration, loss or creation, hereinafter a "VIOLATION") of
OPTION GRANTOR or any of its Subsidiaries, pursuant to
(i) any provision of the OPTION GRANTOR Articles or the Bylaws of
OPTION GRANTOR,
(ii) any provisions of any material loan or credit agreement, note,
mortgage, indenture, lease, benefit plan or other agreement, obligation,
instrument, permit, concession, franchise or license (any of the
foregoing in effect on the date hereof being referred to as a "MATERIAL
CONTRACT") of OPTION GRANTOR or its subsidiaries or to which any of them
is a party, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to OPTION GRANTOR or its properties or assets,
which Violation, in the case of each clauses (ii) and (iii), could
reasonably be expected to have an OPTION GRANTOR Material Adverse Effect
(except that no representation or warranty is given concerning any Violation
of a Material Contract with respect to the repurchase of OPTION GRANTOR
Shares pursuant to Section 8(a));
(f) except as described in Section 5.4(c) of the IES Disclosure Schedule
to the Merger Agreement or Section 1 or 3 hereof, the execution and delivery
of this Agreement by OPTION GRANTOR does not, and the performance of this
Agreement by OPTION GRANTOR will not, require any consent, approval,
authorization or permit of, filing with or notification to, any Governmental
Authority;
(g) none of OPTION GRANTOR, any of its affiliates or anyone acting on
its or their behalf, has issued, sold or offered any security of OPTION
GRANTOR to any person under circumstances that would cause the issuance and
sale of OPTION GRANTOR Shares, as contemplated by this Agreement, to be
subject to the registration requirements of the Securities Act as in effect
on the date hereof, and, assuming the representations and warranties of
OPTION HOLDER contained in Section 7(g) are true and correct, the issuance,
sale and delivery of the OPTION GRANTOR Shares hereunder would be exempt
from the registration and prospectus delivery requirements of the Securities
Act, as in effect on the date hereof (and OPTION GRANTOR shall not take any
action which would cause the issuance, sale, and delivery of OPTION GRANTOR
Shares hereunder not to be exempt from such requirements); and
(h) any OPTION HOLDER Shares acquired pursuant to this Agreement will be
acquired for OPTION GRANTOR's own account, for investment purposes only, and
will not be acquired by OPTION GRANTOR with a view to the public
distribution thereof in violation of any applicable provision of the
Securities Act.
7. REPRESENTATIONS AND WARRANTIES OF OPTION HOLDER. OPTION HOLDER
represents and warrants to OPTION GRANTOR that
(a) except as set forth in Schedule 4.4(a) of the WPL Disclosure
Schedule to the Merger Agreement, OPTION HOLDER has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder;
(b) this Agreement has been duly and validly executed and delivered by
OPTION HOLDER and, assuming the due authorization, execution and delivery
hereof by OPTION GRANTOR and the receipt of all required regulatory
approvals, constitutes a valid and binding obligation of OPTION HOLDER,
enforceable against OPTION HOLDER in accordance with its respective terms,
except as may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of
creditors' rights generally, and except that the availability of equitable
remedies, including specific performance, may be subject to the discretion
of any court before which any proceeding may be brought;
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(c) prior to any delivery of OPTION HOLDER Shares in consideration of
the purchase of OPTION GRANTOR Shares pursuant hereto, OPTION HOLDER will
have taken all necessary corporate action to authorize for issuance and to
permit it to issue such OPTION HOLDER Shares, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable (except as
otherwise provided in Section 180.0622(2)(b) of the WBCL);
(d) upon any delivery of such OPTION HOLDER Shares to OPTION GRANTOR in
consideration of the purchase of OPTION GRANTOR Shares pursuant hereto,
OPTION GRANTOR will acquire the OPTION HOLDER Shares free and clear of all
claims, liens, charges, encumbrances and security interests of any nature
whatsoever;
(e) except as described in Section 4.4(b) of the WPL Disclosure Schedule
to the Merger Agreement, the execution and delivery of this Agreement by
OPTION HOLDER does not, and the consummation by OPTION HOLDER of the
transactions contemplated hereby will not, violate, conflict with, or result
in the breach of any provision of, or constitute a default (with or without
notice or a lapse of time, or both) under, or result in any Violation by
OPTION HOLDER or any of its Subsidiaries, pursuant to
(i) any provision of the Articles of Incorporation or Bylaws of
OPTION HOLDER,
(ii) any Material Contract of OPTION HOLDER or any of its
subsidiaries or to which any of them is a party, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to OPTION HOLDER or its properties or assets,
which Violation, in the case of each of clauses (ii) or (iii), would have an
OPTION HOLDER Material Adverse Effect;
(f) except as described in Section 4.4(c) of the WPL Disclosure Schedule
to the Merger Agreement or Section 1 or 3 hereof, the execution and delivery
of this Agreement by OPTION HOLDER does not, and the consummation by OPTION
HOLDER of the transactions contemplated hereby will not, require any
consent, approval, authorization or permit of, filing with or notification
to, any Governmental Authority; and
(g) any OPTION GRANTOR Shares acquired upon exercise of the OPTION
GRANTOR Option will be acquired for OPTION HOLDER's own account, for
investment purposes only and will not be, and the OPTION GRANTOR Option is
not being, acquired by OPTION HOLDER with a view to the public distribution
thereof, in violation of any applicable provision of the Securities Act.
8. CERTAIN REPURCHASES.
(a) OPTION HOLDER "PUT". At the request of OPTION HOLDER by written
notice (x) at any time during which the OPTION GRANTOR Option is exercisable
pursuant to Section 2 (the "REPURCHASE PERIOD"), OPTION GRANTOR (or any
successor entity thereof) shall, if permitted by applicable law, the OPTION
GRANTOR Articles and Bylaws and OPTION GRANTOR's Material Contracts,
repurchase from OPTION HOLDER all or any portion of the OPTION GRANTOR
Option, at the price set forth in subparagraph (i) below, or, (y) at any
time prior to May 10, 1997 (provided that such date shall be extended to May
10, 1998 under the circumstances where the date after which either party may
terminate the Merger Agreement pursuant to Section 10.1(b) of the Merger
Agreement has been extended to May 10, 1998), OPTION GRANTOR (or any
successor entity thereof) shall, if permitted by applicable law, the OPTION
GRANTOR Articles and Bylaws and OPTION GRANTOR's Material Contracts,
repurchase from OPTION HOLDER all or any portion of the OPTION GRANTOR
Shares purchased by OPTION HOLDER pursuant to the OPTION GRANTOR Option, at
the price set forth in subparagraph (ii) below:
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(i)(A) The difference between the "Market/Offer Price" (as defined
below) for shares of OPTION GRANTOR Common Stock as of the date OPTION
HOLDER gives notice of its intent to exercise its rights under this
Section 8 and the Exercise Price, multiplied by the number of OPTION
GRANTOR Shares purchasable pursuant to the OPTION GRANTOR Option (or
portion thereof with respect to which OPTION HOLDER is exercising its
rights under this Section 8), but only if the Market/Offer Price is
greater than the Exercise Price.
(B) For purposes of this Agreement, "Market/Offer Price" shall mean,
as of any date, the higher of (I) the price per share offered as of such
date pursuant to any tender or exchange offer or other offer with respect
to a Business Combination involving OPTION GRANTOR as the Target Party
which was made prior to such date and not terminated or withdrawn as of
such date and (II) the Fair Market Value of OPTION GRANTOR Common Stock
as of such date.
(ii)(A) The product of (I) the sum of (a) the Exercise Price paid by
OPTION HOLDER per OPTION GRANTOR Share acquired pursuant to the OPTION
GRANTOR Option, and (b) the difference between the "Offer Price" (as
defined below) and the Exercise Price, but only if the Offer Price is
greater than the Exercise Price, and (II) the number of OPTION GRANTOR
Shares so to be repurchased pursuant to this Section 8.
(B) For purposes of this clause (ii), the "Offer Price" shall be the
highest price per share offered pursuant to a tender or exchange offer or
other Business Combination offer involving OPTION GRANTOR as the Target
Party during the Repurchase Period prior to the delivery by OPTION HOLDER
of a notice of repurchase.
(b) REDELIVERY OF OPTION HOLDER SHARES. If OPTION HOLDER shall have
previously elected to purchase OPTION GRANTOR Shares pursuant to the
exercise of the OPTION GRANTOR Option by the issuance and delivery of OPTION
HOLDER Shares, then OPTION GRANTOR shall, if so requested by OPTION HOLDER,
in fulfillment of its obligation pursuant to Section 8(a)(y) (that is, with
respect to the Exercise Price only and without limitation to its obligation
to pay additional consideration under clause (b) of Section 8(a)(ii)(A)(I)),
redeliver the certificates for such OPTION HOLDER Shares to OPTION HOLDER,
free and clear of all liens, claims, charges and encumbrances of any kind or
nature whatsoever; PROVIDED, HOWEVER, that if at any time less than all of
the OPTION GRANTOR Shares so purchased by OPTION HOLDER pursuant to the
OPTION GRANTOR Option are to be repurchased by OPTION GRANTOR pursuant to
Section 8(a)(y), then (i) OPTION GRANTOR shall be obligated to redeliver to
OPTION HOLDER the same proportion of such OPTION HOLDER Shares as the number
of OPTION GRANTOR Shares that OPTION GRANTOR is then obligated to repurchase
bears to the number of OPTION GRANTOR Shares acquired by OPTION HOLDER upon
exercise of the OPTION GRANTOR Option and (ii) OPTION HOLDER shall issue to
OPTION GRANTOR new certificates representing those OPTION HOLDER Shares
which are not due to be redelivered to OPTION HOLDER pursuant to this
Section 8(b) to the extent that excess OPTION HOLDER Shares are included in
the certificates redelivered to OPTION HOLDER by OPTION GRANTOR.
(c) PAYMENT AND REDELIVERY OF OPTION GRANTOR OPTIONS OR SHARES. In the
event OPTION HOLDER exercises its rights under this Section 8, OPTION
GRANTOR shall, within ten business days thereafter, pay the required amount
to OPTION HOLDER in immediately available funds and OPTION HOLDER shall
surrender to OPTION GRANTOR the OPTION GRANTOR Option or the certificate or
certificates evidencing the OPTION GRANTOR Shares purchased by OPTION HOLDER
pursuant hereto, and OPTION HOLDER shall warrant that it owns the OPTION
GRANTOR Option or such shares and that the OPTION GRANTOR Option or such
shares are then free and clear of all liens, claims, damages, charges and
encumbrances of any kind or nature whatsoever.
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(d) OPTION HOLDER "CALL". If OPTION HOLDER has elected to purchase
OPTION GRANTOR Shares pursuant to the exercise of the OPTION GRANTOR Option
by the issuance and delivery of OPTION HOLDER Shares, notwithstanding that
OPTION HOLDER may no longer hold any such OPTION GRANTOR Shares or that
OPTION HOLDER elects not to exercise its other rights under this Section 8,
OPTION HOLDER may require, at any time or from time to time prior to May 10,
1997 (provided that such date shall be extended to May 10, 1998 under the
circumstances where the date after which either party may terminate the
Merger Agreement pursuant to Section 10.1(b) of the Merger Agreement has
been extended to May 10, 1998), OPTION GRANTOR to sell to OPTION HOLDER any
such OPTION HOLDER Shares at the price attributed to such OPTION HOLDER
Shares pursuant to Section 4 plus interest at the rate of 8.75% per annum on
such amount from the Closing Date relating to the exchange of such OPTION
HOLDER Shares pursuant to Section 4 to the Closing Date under this Section
8(d) less any dividends on such OPTION HOLDER Shares paid during such period
or declared and payable to stockholders of record on a date during such
period.
(e) REPURCHASE PRICE REDUCED AT OPTION HOLDER'S OPTION. In the event
the repurchase price specified in Section 8(a) would subject the purchase of
the OPTION GRANTOR Option or the OPTION GRANTOR Shares purchased by OPTION
HOLDER pursuant to the OPTION GRANTOR Option to a vote of the shareholders
of OPTION GRANTOR pursuant to applicable law or the OPTION GRANTOR Articles,
then OPTION HOLDER may, at its election, reduce the repurchase price to an
amount which would permit such repurchase without the necessity for such a
shareholder vote.
9. VOTING OF SHARES. Following the date hereof and prior to the fifth
anniversary of the date hereof (the "EXPIRATION DATE"), each party shall vote
any shares of capital stock of the other party acquired by such party pursuant
to this Agreement ("RESTRICTED SHARES"), including any OPTION HOLDER Shares
issued pursuant to Section 1(b), or otherwise beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")), by such party on each matter submitted to a vote
of shareholders of such other party for and against such matter in the same
proportion as the vote of all other shareholders of such other party are voted
(whether by proxy or otherwise) for and against such matter.
10. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expiration Date, neither
party shall, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by such party, other than (i) pursuant to Section 8, or
(ii) in accordance with Section 10(b) or Section 11.
(b) PERMITTED SALES. Following the termination of the Merger
Agreement, a party shall be permitted to sell any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or
exchange offer that has been approved or recommended, or otherwise
determined to be fair to and in the best interests of the shareholders of
the other party, by a majority of the members of the Board of Directors of
such other party, which majority shall include a majority of directors who
were directors prior to the announcement of such tender or exchange offer.
11. REGISTRATION RIGHTS.
(a) Following the termination of the Merger Agreement, either party
hereto that owns Restricted Shares (a "DESIGNATED HOLDER") may by written
notice (the "Registration Notice") to the other party (the "REGISTRANT")
request the Registrant to register under the Securities Act all or any part
of the Restricted Shares beneficially owned by such Designated Holder (the
"REGISTRABLE SECURITIES") pursuant to a bona fide firm commitment
underwritten public offering, in which the Designated Holder and the
underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use their best efforts to
prevent any person
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(including any Group (as used in Rule 13d-5 under the Exchange Act)) and its
affiliates from purchasing through such offering Restricted Shares
representing more than 1% of the outstanding shares of common stock of the
Registrant on a fully diluted basis (a "PERMITTED OFFERING").
(b) The Registration Notice shall include a certificate executed by the
Designated Holder and its proposed managing underwriter, which underwriter
shall be an investment banking firm of nationally recognized standing (the
"MANAGER"), stating that
(i) they have a good faith intention to commence promptly a Permitted
Offering, and
(ii) the manager in good faith believes that, based on the
then-prevailing market conditions, it will be able to sell the
Registrable Securities at a per share price equal to at least 80% of the
then Fair Market Value of such shares.
(c) The Registrant (and/or any person designated by the Registrant)
shall thereupon have the option exercisable by written notice delivered to
the Designated Holder within ten business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities proposed to be so sold for cash at a price (the
"OPTION PRICE") equal to the product of (i) the number of Registrable
Securities to be so purchased by the Registrant and (ii) the then Fair
Market Value of such shares.
(d) Any purchase of Registrable Securities by the Registrant (or its
designee) under Section 11(c) shall take place at a closing to be held at
the principal executive offices of the Registrant or at the offices of its
counsel at any reasonable date and time designated by the Registrant and/or
such designee in such notice within twenty business days after delivery of
such notice, and any payment for the shares to be so purchased shall be made
by delivery at the time of such closing in immediately available funds.
(e) If the Registrant does not elect to exercise its option pursuant to
this Section 11 with respect to all Registrable Securities, it shall use its
best efforts to effect, as promptly as practicable, the registration under
the Securities Act of the unpurchased Registrable Securities proposed to be
so sold; PROVIDED, HOWEVER, that
(i) neither party shall be entitled to demand more than an aggregate
of two effective registration statements hereunder, and
(ii) the Registrant will not be required to file any such
registration statement during any period of time (not to exceed 40 days
after such request in the case of clause (A) below or 90 days in the case
of clauses (B) and (C) below) when
(A) the Registrant is in possession of material non-public
information which it reasonably believes would be detrimental to be
disclosed at such time and, in the opinion of counsel to the
Registrant, such information would be required to be disclosed if a
registration statement were filed at that time;
(B) the Registrant is required under the Securities Act to
include audited financial statements for any period in such
registration statement and such financial statements are not yet
available for inclusion in such registration statement; or
(C) the Registrant determines, in its reasonable judgment, that
such registration would interfere with any financing, acquisition or
other material transaction involving the Registrant or any of its
affiliates.
(f) The Registrant shall use its reasonable best efforts to cause any
Registrable Securities registered pursuant to this Section 11 to be
qualified for sale under the securities or Blue Sky laws of such
jurisdictions as the Designated Holder may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
PROVIDED, HOWEVER, that the Registrant shall not be required to qualify to
do business in, or consent to general service of process in, any
jurisdiction by reason of this provision.
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(g) The registration rights set forth in this Section 11 are subject to
the condition that the Designated Holder shall provide the Registrant with
such information with respect to such holder's Registrable Securities, the
plans for the distribution thereof, and such other information with respect
to such holder as, in the reasonable judgment of counsel for the Registrant,
is necessary to enable the Registrant to include in such registration
statement all material facts required to be disclosed with respect to a
registration thereunder.
(h) A registration effected under this Section 11 shall be effected at
the Registrant's expense, except for underwriting discounts and commissions
and the fees and the expenses of counsel to the Designated Holder, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as is
customary in connection with underwritten public offerings as such
underwriters may reasonably require.
(i) In connection with any registration effected under this Section 11,
the parties agree
(i) to indemnify each other and the underwriters in the customary
manner,
(ii) to enter into an underwriting agreement in form and substance
customary for transactions of such type with the Manager and the other
underwriters participating in such offering, and
(iii) to take all further actions which shall be reasonably necessary
to effect such registration and sale (including if the Manager deems it
necessary, participating in road-show presentations).
(j) The Registrant shall be entitled to include (at its expense)
additional shares of its common stock in a registration effected pursuant to
this Section 11 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such
offering.
12. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without limitation to any
restriction on OPTION GRANTOR contained in this Agreement or in the Merger
Agreement, in the event of any change in OPTION GRANTOR Common Stock by reason
of stock dividends, splitups, mergers (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the OPTION GRANTOR Option, and the
purchase price per share provided in Section 1, shall be adjusted appropriately
to restore to OPTION HOLDER its rights hereunder, including the right to
purchase from OPTION GRANTOR (or its successors) shares of OPTION GRANTOR Common
Stock (or such other shares or securities into which OPTION GRANTOR Common Stock
has been so changed) representing the Option Shares Percentage of the Initial
Number of shares of OPTION GRANTOR Common Stock for the aggregate Exercise Price
calculated as of the date of this Agreement as provided in Section 1.
13. RESTRICTIVE LEGENDS. Each certificate representing OPTION GRANTOR
Shares issued to OPTION HOLDER hereunder, and OPTION HOLDER Shares, if any,
delivered to OPTION GRANTOR at a Closing, shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR
BLUE SKY LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF
AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE
ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE
OPTION HOLDER STOCK OPTION AND TRIGGER PAYMENT AGREEMENT, DATED AS OF
NOVEMBER 10, 1995, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER UPON
REQUEST.
It is understood and agreed that:
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(i) the reference to the resale restrictions of the Securities Act and
state securities or Blue Sky laws in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if OPTION
HOLDER or OPTION GRANTOR, as the case may be, shall have delivered to the
other party a copy of a letter from the staff of the SEC, or an opinion of
counsel, in form and substance satisfactory to the other party, to the
effect that such legend is not required for purposes of the Securities Act
or such laws;
(ii) the reference to the provisions to this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without
such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in
the preceding clauses (i) and (ii) are both satisfied.
In addition, such certificates shall bear any other legend as may be required by
law. Certificates representing shares sold in a registered public offering
pursuant to Section 11 shall not be required to bear the legend set forth in
this Section 13.
14. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
(b) Except as expressly provided for in this Agreement, neither this
Agreement nor the rights or obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the
other party.
(c) Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature
whatsoever by reason of this Agreement.
(d) Any Restricted Shares sold by a party in compliance with the
provisions of Section 11 shall, upon consummation of such sale, be free of
the restrictions imposed with respect to such shares by this Agreement,
unless and until such party shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall not
be entitled to the registration rights of such party.
15. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable harm
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specified terms or were otherwise breached.
It is accordingly agreed that the parties hereto shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or equity.
16. VALIDITY.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
(b) In the event any court or other competent authority holds any
provisions of this Agreement to be null, void or unenforceable, the parties
hereto shall negotiate in good faith the execution and delivery of an
amendment to this Agreement in order, as nearly as possible, to effectuate,
to the extent permitted by law, the intent of the parties hereto with
respect to such provision and the economic effects thereof.
(c) Subject to Section 5, if for any reason any such court or regulatory
agency determines that OPTION HOLDER is not permitted to acquire, or OPTION
GRANTOR is not permitted to
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repurchase pursuant to Section 8, the full number of shares of OPTION
GRANTOR Common Stock provided in Section 1 hereof (as the same may be
adjusted), it is the express intention of OPTION GRANTOR to allow OPTION
HOLDER to acquire or to require OPTION GRANTOR to repurchase such lesser
number of shares as may be permissible without any amendment or modification
hereof.
(d) Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null,
void or unenforceable, or order any party to take any action inconsistent
herewith, or not take any action required herein, the other party shall not
be entitled to specific performance of such provision or part hereof or to
any other remedy, including but not limited to money damages, for breach
hereof or of any other provision of this Agreement or part hereof as the
result of such holding or order.
17. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if (a) delivered personally, or (b) if sent by
overnight courier service (receipt confirmed in writing), or (c) if delivered by
facsimile transmission (with receipt confirmed), or (d) five days after being
mailed by registered or certified mail (return receipt requested) to the parties
in each case to the following addresses (or at such other address for a party as
shall be specified by like notice):
A. If to OPTION HOLDER, to:
WPL Holdings, Inc.
222 West Washington Avenue
Madison, Wisconsin 53703
Attention: Erroll B. Davis, Jr.
Fax: (608) 252-5059
with a copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5367
Attention: Benjamin F. Garmer, III, Esq.
Fax: (414) 297-4900
B. If to OPTION GRANTOR, to:
IES Industries Inc.
IES Tower
200 First Street S.E.
Cedar Rapids, Iowa 52401
Attention: Lee Liu
Fax: (319) 398-4204
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: Stephen R. Rusmisel, Esq.
Fax: (212) 858-1500
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18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State and without regard to its choice
of law principles or to any requirement as to jurisdiction or service of process
contained in Section 2708 of Title 6 of the Delaware Code.
19. INTERPRETATION.
(a) When reference is made in this Agreement to Articles, Sections or
Exhibits, such reference shall be to an Article, Section or Exhibit of this
Agreement, as the case may be, unless otherwise indicated.
(b) The table of contents and headings contained in this Agreement are
for reference purposes and shall not affect in any way the meaning or
interpretation of the Agreement.
(c) Whenever the words "include," "includes," or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
(d) Whenever "or" is used in this Agreement it shall be construed in the
nonexclusive sense.
20. COUNTERPARTS; EFFECT. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
21. AMENDMENTS; WAIVER. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
22. EXTENSION OF TIME PERIODS. The time periods for exercises of certain
rights under Sections 2, 7 and 8 shall be extended (but in no event by more than
six months):
(a) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights, and for the expiration of all statutory waiting
periods; and
(b) to the extent necessary to avoid any liability under Section 16(b)
of the Exchange Act by reason of such exercise.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
IES INDUSTRIES INC.
By: /s/ LEE LIU
--------------------------------------
Name: Lee Liu
Title: Chairman of the Board,
President
and Chief Executive Officer
WPL HOLDINGS, INC.
By: /s/ ERROLL B. DAVIS, JR.
--------------------------------------
Name: Erroll B. Davis, Jr.
Title: President and Chief Executive
Officer
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<PAGE>
ANNEX E
OPTION GRANTOR/OPTION HOLDER STOCK OPTION
AND TRIGGER PAYMENT AGREEMENT
This STOCK OPTION AGREEMENT, dated as of November 10, 1995 (the "AGREEMENT")
by and among IES Industries Inc., a corporation organized under the laws of the
State of Iowa ("OPTION GRANTOR" or the "COMPANY") and Interstate Power Company,
a corporation organized under the laws of the State of Delaware ("OPTION
HOLDER").
W I T N E S S E T H T H A T:
WHEREAS, concurrently with the execution and delivery of this Agreement,
OPTION GRANTOR, OPTION HOLDER, WPL Holdings, Inc., a corporation organized under
the laws of the State of Wisconsin ("WPL"), WPLH Acquisition Co., a wholly-owned
subsidiary of WPL organized under the laws of the State of Wisconsin
("ACQUISITION"), and Interstate Power Company, a wholly-owned subsidiary of
OPTION HOLDER organized under the laws of the State of Wisconsin, are entering
into an Agreement and Plan of Merger, dated as of November 10, 1995, as amended
(the "MERGER AGREEMENT"), which provides, INTER ALIA, upon the terms and subject
to the conditions thereof, for the merger of OPTION GRANTOR with and into WPL in
accordance with the laws of the States of Wisconsin and Iowa (the "IES MERGER"),
and the merger of Acquisition with and into OPTION HOLDER (or a successor
thereto) in accordance with the laws of the States of Delaware and/or Wisconsin
(the "INTERSTATE MERGER", and together with the IES Merger, the "MERGER");
WHEREAS, in connection with the execution of the Merger Agreement, OPTION
GRANTOR, OPTION HOLDER and WPL are entering into certain stock option agreements
dated as of the date hereof, of which this Agreement is one, whereby the parties
hereto grant each other an option with respect to certain shares of each other's
common stock on the terms and subject to the conditions set forth therein (the
"STOCK OPTION AGREEMENTS"); and
WHEREAS, as a condition to OPTION HOLDER's willingness to enter into the
Merger Agreement, OPTION HOLDER has requested that OPTION GRANTOR agree, and
OPTION GRANTOR has so agreed, to grant to OPTION HOLDER an option with respect
to certain shares of OPTION GRANTOR's common stock, on the terms and subject to
the conditions set forth herein;
NOW, THEREFORE, to induce OPTION HOLDER to enter into the Merger Agreement
and certain of the Stock Option Agreements, and in consideration of the
representations, warranties, covenants and agreements contained herein, in the
Merger Agreement and in the Stock Option Agreements to which OPTION GRANTOR and
OPTION HOLDER are parties, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. GRANT OF OPTION.
(a) Subject to the receipt of all regulatory approvals and orders
required by OPTION GRANTOR as set forth in Section 5.4(c) of the IES
Disclosure Schedule to the Merger Agreement and by OPTION HOLDER as set
forth in Section 6.4(c) of the Interstate Disclosure Schedule to the Merger
Agreement, OPTION GRANTOR hereby grants OPTION HOLDER an irrevocable option
(the "OPTION GRANTOR OPTION") to purchase up to that number of shares,
subject to adjustment as provided in Section 12 (the "OPTION GRANTOR
SHARES"), of common stock, no par value, of OPTION GRANTOR (the "OPTION
GRANTOR COMMON STOCK") equal to a percentage (the "OPTION SHARES
PERCENTAGE"), which Option Shares Percentage is equal to the OPTION HOLDER's
Participation Percentage as defined below in subsection (e), of 5,861,115
shares of OPTION GRANTOR Common Stock (being 19.9% of the number of shares
of OPTION
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GRANTOR Common Stock issued and outstanding as of November 10, 1995 (the
"INITIAL NUMBER") in the manner set forth below, at a price (the "EXERCISE
PRICE") per OPTION GRANTOR Share of $26.7125 (which is equal to the Fair
Market Value (as defined below) of an OPTION GRANTOR Share as of the date
hereof).
(b) The Exercise Price shall be payable, at OPTION HOLDER's option, as
follows:
(i) in cash, or
(ii) subject to the receipt of all approvals of any Governmental
Authority required for OPTION GRANTOR to acquire, and OPTION HOLDER to
issue, the OPTION HOLDER Shares (as defined below) from OPTION HOLDER, in
shares of common stock, $3.50 par value, of OPTION HOLDER ("OPTION HOLDER
SHARES"),
in either case in accordance with Section 4 hereof.
(c) Notwithstanding the foregoing, in no event shall the number of
OPTION GRANTOR Shares for which the OPTION GRANTOR Option is exercisable
exceed the product of the Option Shares Percentage and the Initial Number,
subject to adjustment as provided in Section 12.
(d) As used herein, the "FAIR MARKET VALUE" of any share shall be the
average of the daily closing sales price for such share on the New York
Stock Exchange (the "NYSE") during the ten NYSE trading days prior to the
fifth NYSE trading day preceding the date such Fair Market Value is to be
determined.
(e) For purposes of this Agreement the term "PARTICIPATION PERCENTAGE"
shall have the same meaning as in Section 10.3(f)(i) of the Merger
Agreement, except that the numerator and denominator shall be calculated
based on the number of shares of WPL Common Stock which would be issuable
(or, in the case of WPL, retained by its shareholders) on a fully diluted
basis had the Effective Time occurred as of the date on which the Exercise
Notice is delivered under Section 2 hereof or the date on which demand for
the Trigger Payment (as defined herein) is given under Section 5 hereof, as
the case may be. Other capitalized terms used herein but not defined herein
shall have the meanings set forth in the Merger Agreement.
2. EXERCISE OF OPTION.
(a) The OPTION GRANTOR Option may be exercised by OPTION HOLDER, in
whole or in part, at any time or from time to time after the Merger
Agreement becomes terminable by OPTION HOLDER under circumstances which
could entitle OPTION HOLDER to a termination fee under Section 10.3(a) of
the Merger Agreement (provided that the events specified in Section
10.3(a)(ii)(A) of the Merger Agreement shall have occurred, although the
events specified in Section 10.3(a)(ii)(B) thereof need not have occurred),
or Section 10.3(b) of the Merger Agreement (regardless of whether the Merger
Agreement is actually terminated or whether there occurs a closing of any
Business Combination involving a Target Party or a closing by which a Target
Party becomes a Subsidiary), any such event by which the Merger Agreement
becomes so terminable by OPTION HOLDER being referred to herein as a
"TRIGGER EVENT").
(b)(i) OPTION GRANTOR shall notify OPTION HOLDER promptly in writing of
the occurrence of any Trigger Event, it being understood that the giving
of such notice by OPTION GRANTOR shall not be a condition to the right of
OPTION HOLDER to exercise the OPTION GRANTOR Option.
(ii) In the event OPTION HOLDER wishes to exercise the OPTION GRANTOR
Option, OPTION HOLDER shall deliver to OPTION GRANTOR written notice (an
"EXERCISE NOTICE") specifying the total number of OPTION GRANTOR Shares
it wishes to purchase.
(iii) Upon the giving by OPTION HOLDER to OPTION GRANTOR of the
Exercise Notice and the tender of the applicable aggregate Exercise
Price, OPTION HOLDER, to the extent permitted by law and OPTION GRANTOR's
organizational documents, and provided
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that the conditions to OPTION GRANTOR's obligation to issue the OPTION
GRANTOR Shares to OPTION HOLDER hereunder set forth in Section 3 have
been satisfied or waived, shall be deemed to be the holder of record of
the OPTION GRANTOR Shares issuable upon such exercise, notwithstanding
that the stock transfer books of OPTION GRANTOR shall then be closed or
that certificates representing such OPTION GRANTOR Shares shall not then
be actually delivered to OPTION HOLDER.
(iv) Each closing of a purchase of OPTION GRANTOR Shares (a "CLOSING")
shall occur at a place, on a date, and at a time designated by OPTION
HOLDER in an Exercise Notice delivered at least two business days prior
to the date of the Closing.
(c) The OPTION GRANTOR Option shall terminate upon the earliest to occur
of:
(i) the Effective Time of the Merger;
(ii) the termination of the Merger Agreement pursuant to Section 10.1
thereof, other than under circumstances which also constitute a Trigger
Event under this Agreement;
(iii) 180 days following any termination of the Merger Agreement upon
or during the continuance of a Trigger Event (or if, at the expiration of
such 180 day period, the OPTION GRANTOR Option cannot be exercised by
reason of any applicable judgment, decree, order, law or regulation, ten
business days after such impediment to exercise shall have been removed
or shall have become final and not subject to appeal, but in no event
under this clause (iii) later than May 10, 1998); and
(iv) payment by OPTION GRANTOR of the Trigger Payment set forth in
Section 5 of this Agreement to OPTION HOLDER.
(d) Notwithstanding the foregoing, the OPTION GRANTOR Option may not be
exercised if (i) OPTION HOLDER is in material breach of any of its
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement, or
(ii) a Trigger Payment has been paid pursuant to Section 5 of this Agreement
or demand therefor has been made and not withdrawn.
3. CONDITIONS TO CLOSING. The obligation of OPTION GRANTOR to issue the
OPTION GRANTOR Shares to OPTION HOLDER hereunder is subject to the conditions
that
(a) all waiting periods, if any, under the HSR Act applicable to the
issuance and acquisition of the OPTION GRANTOR Shares hereunder shall have
expired or have been terminated;
(b) the OPTION GRANTOR Shares, and any OPTION HOLDER Shares which are
issued in payment of the Exercise Price, shall have been approved for
listing on the NYSE subject only to official notice of issuance;
(c) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any federal, state or local
administrative agency or commission or other federal, state or local
Governmental Authority, if any, required in connection with the issuance by
OPTION GRANTOR and the acquisition by OPTION HOLDER of the OPTION GRANTOR
Shares hereunder shall have been obtained or made, including, without
limitation, the approval of the SEC under Sections 9 and 10 of the Public
Utility Holding Company Act of 1935, as amended (the "1935 ACT"), the
approval of the Iowa Utilities Board of the issuance of the OPTION GRANTOR
Shares by OPTION GRANTOR and, if applicable, the acquisition of the OPTION
GRANTOR Shares by OPTION HOLDER, and the approval of the Iowa Utilities
Board, the Minnesota Public Utilities Commission and the Illinois Commerce
Commission of the acquisition of the OPTION GRANTOR Shares by OPTION HOLDER
and, if applicable, the acquisition by OPTION GRANTOR of the OPTION HOLDER
Shares constituting the Exercise Price hereunder; and
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(d) no preliminary or permanent injunction or other order by any court
of competent jurisdiction prohibiting or otherwise restraining such issuance
shall be in effect.
The condition set forth in paragraph (b) above may be waived by OPTION GRANTOR,
in the case of OPTION HOLDER Shares, and by OPTION HOLDER, in the case of OPTION
GRANTOR Shares, in the sole discretion of the waiving party.
4. CLOSING. At any Closing,
(a) OPTION GRANTOR shall deliver to OPTION HOLDER or its designee a
single certificate in definitive form representing the number of OPTION
GRANTOR Shares designated by OPTION HOLDER in its Exercise Notice, such
certificate to be registered in the name of OPTION HOLDER and to bear the
legend set forth in Section 13; and
(b) OPTION HOLDER shall deliver to OPTION GRANTOR the aggregate price
for the OPTION GRANTOR Shares so designated and being purchased by
(i) wire transfer of immediately available funds or certified check
or bank check, or
(ii) subject to the condition in Section 1(b)(ii), delivery of a
certificate or certificates representing the number of OPTION HOLDER
Shares being issued by OPTION HOLDER in consideration thereof, determined
in accordance with Section 4(c).
(c) In the event that OPTION HOLDER issues OPTION HOLDER Shares to
OPTION GRANTOR in consideration of OPTION GRANTOR Shares pursuant to Section
4(b)(ii), the number of OPTION HOLDER Shares to be so issued shall be equal
to the quotient obtained by dividing:
(i) the product of (x) the number of OPTION GRANTOR Shares with
respect to which the OPTION GRANTOR Option is being exercised and (y) the
Exercise Price, by
(ii) the Fair Market Value of the OPTION HOLDER Shares as of the date
immediately preceding the date the Exercise Notice is delivered to OPTION
GRANTOR.
(d) OPTION GRANTOR shall pay all expenses, and any and all Federal,
state and local taxes and other charges that may be payable in connection
with the preparation, issue and delivery of stock certificates under this
Section 4.
5. TRIGGER PAYMENT.
(a) TRIGGER PAYMENT. Subject to the provisions of Section 10.3(e) of
the Merger Agreement, if a Trigger Event shall have occurred and any
regulatory approval or order required for the issuance by OPTION GRANTOR, or
the acquisition by OPTION HOLDER, of the OPTION GRANTOR Option pursuant to
Section 1 hereof shall not have been obtained, OPTION HOLDER shall have the
right to receive, and OPTION GRANTOR shall pay to OPTION HOLDER, an amount
(the "TRIGGER PAYMENT") equal to the product of
(i) the maximum number of OPTION GRANTOR Shares that would have been
subject to purchase by OPTION HOLDER upon exercise of the OPTION GRANTOR
Option pursuant to Sections 1 and 2 hereof if all such regulatory
approvals or orders had been obtained, and
(ii) the difference between (A) the Market/Offer Price (as defined
herein), determined as of the date on which notice of demand for the
Trigger Payment is given by OPTION HOLDER, and (B) the Exercise Price
(but only if such Market/Offer Price is higher than such Exercise Price).
Demand for the Trigger Payment shall be given by notice in accordance with
the provisions of Section 17 hereof. The Trigger Payment shall be paid to
OPTION HOLDER by OPTION
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GRANTOR on the Payment Date (as defined herein), by wire transfer of
immediately available funds to an account to be designated in writing by
OPTION HOLDER not less than two business days before the Payment Date.
(b) PAYMENT DATE. For purposes of this Section 5, "PAYMENT DATE" means
the date on which termination fees are required to be paid by OPTION GRANTOR
to OPTION HOLDER under Section 10.3(a) or 10.3(b), as the case may be, of
the Merger Agreement as a result of the occurrence of the Trigger Event
referred to in subsection (a) of this Section 5.
(c) CERTAIN CONDITIONS. OPTION GRANTOR shall have no obligation to pay
the Trigger Payment if OPTION HOLDER is in material breach of any of its
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement.
6. REPRESENTATIONS AND WARRANTIES OF OPTION GRANTOR. OPTION GRANTOR
represents and warrants to OPTION HOLDER that
(a) except as set forth in Section 5.4(a) of the IES Disclosure Schedule
to the Merger Agreement, OPTION GRANTOR has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder, subject in the case of the repurchase of the OPTION GRANTOR
Shares pursuant to Section 8(a) to applicable law and the provisions of
OPTION GRANTOR's Articles of Incorporation, as amended (the "OPTION GRANTOR
ARTICLES");
(b) this Agreement has been duly and validly executed and delivered by
OPTION GRANTOR, and, assuming the due authorization, execution and delivery
hereof by OPTION HOLDER and the receipt of all required regulatory
approvals, constitutes a valid and binding obligation of OPTION GRANTOR,
enforceable against OPTION GRANTOR in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally, and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought;
(c) OPTION GRANTOR has taken all necessary corporate action to authorize
and reserve for issuance and to permit it to issue, upon exercise of the
OPTION GRANTOR Option, and at all times from the date hereof through the
expiration of the OPTION GRANTOR Option will have reserved, the Initial
Number of authorized and unissued OPTION GRANTOR Shares, such amount being
subject to adjustment as provided in Section 12, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable;
(d) upon delivery of the OPTION GRANTOR Shares to OPTION HOLDER upon the
exercise of the OPTION GRANTOR Option, OPTION HOLDER will acquire the OPTION
GRANTOR Shares free and clear of all claims, liens, charges, encumbrances
and security interests of any nature whatsoever;
(e) except as described in Section 5.4(b) of the IES Disclosure Schedule
to the Merger Agreement, the execution and delivery of this Agreement by
OPTION GRANTOR does not, and, subject to compliance with applicable law and
the OPTION GRANTOR Articles with respect to the repurchase of the OPTION
GRANTOR Shares pursuant to Section 8(a), the consummation by OPTION GRANTOR
of the transactions contemplated hereby will not violate, conflict with, or
result in a breach of any provision of, or constitute a default (with or
without notice or a lapse of time, or both) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination, cancellation, or acceleration of any obligation or the
loss of a material benefit under, or the creation of a lien, pledge,
security interest or other encumbrance on
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assets (any such conflict, violation, default, right of termination,
cancellation, acceleration, loss or creation, hereinafter a "VIOLATION") of
OPTION GRANTOR or any of its Subsidiaries, pursuant to
(i) any provision of the OPTION GRANTOR Articles or the Bylaws of
OPTION GRANTOR,
(ii) any provisions of any material loan or credit agreement, note,
mortgage, indenture, lease, benefit plan or other agreement, obligation,
instrument, permit, concession, franchise or license (any of the
foregoing in effect on the date hereof being referred to as a "MATERIAL
CONTRACT") of OPTION GRANTOR or its subsidiaries or to which any of them
is a party, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to OPTION GRANTOR or its properties or assets,
which Violation, in the case of each clauses (ii) and (iii), could
reasonably be expected to have an OPTION GRANTOR Material Adverse Effect
(except that no representation or warranty is given concerning any
Violation of a Material Contract with respect to the repurchase of OPTION
GRANTOR Shares pursuant to Section 8(a));
(f) except as described in Section 5.4(c) of the IES Disclosure Schedule
to the Merger Agreement or Section 1 or 3 hereof, the execution and delivery
of this Agreement by OPTION GRANTOR does not, and the performance of this
Agreement by OPTION GRANTOR will not, require any consent, approval,
authorization or permit of, filing with or notification to, any Governmental
Authority;
(g) none of OPTION GRANTOR, any of its affiliates or anyone acting on
its or their behalf, has issued, sold or offered any security of OPTION
GRANTOR to any person under circumstances that would cause the issuance and
sale of OPTION GRANTOR Shares, as contemplated by this Agreement, to be
subject to the registration requirements of the Securities Act as in effect
on the date hereof, and, assuming the representations and warranties of
OPTION HOLDER contained in Section 7(g) are true and correct, the issuance,
sale and delivery of the OPTION GRANTOR Shares hereunder would be exempt
from the registration and prospectus delivery requirements of the Securities
Act, as in effect on the date hereof (and OPTION GRANTOR shall not take any
action which would cause the issuance, sale, and delivery of OPTION GRANTOR
Shares hereunder not to be exempt from such requirements); and
(h) any OPTION HOLDER Shares acquired pursuant to this Agreement will be
acquired for OPTION GRANTOR's own account, for investment purposes only, and
will not be acquired by OPTION GRANTOR with a view to the public
distribution thereof in violation of any applicable provision of the
Securities Act.
7. REPRESENTATIONS AND WARRANTIES OF OPTION HOLDER. OPTION HOLDER
represents and warrants to OPTION GRANTOR that
(a) except as set forth in Schedule 6.4(a) of the Interstate Disclosure
Schedule to the Merger Agreement, OPTION HOLDER has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder;
(b) this Agreement has been duly and validly executed and delivered by
OPTION HOLDER and, assuming the due authorization, execution and delivery
hereof by OPTION GRANTOR and the receipt of all required regulatory
approvals, constitutes a valid and binding obligation of OPTION HOLDER,
enforceable against OPTION HOLDER in accordance with its respective terms,
except as may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of
creditors' rights generally, and except that the availability of equitable
remedies, including specific performance, may be subject to the discretion
of any court before which any proceeding may be brought;
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(c) prior to any delivery of OPTION HOLDER Shares in consideration of
the purchase of OPTION GRANTOR Shares pursuant hereto, OPTION HOLDER will
have taken all necessary corporate action to authorize for issuance and to
permit it to issue such OPTION HOLDER Shares, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable;
(d) upon any delivery of such OPTION HOLDER Shares to OPTION GRANTOR in
consideration of the purchase of OPTION GRANTOR Shares pursuant hereto,
OPTION GRANTOR will acquire the OPTION HOLDER Shares free and clear of all
claims, liens, charges, encumbrances and security interests of any nature
whatsoever;
(e) except as described in Section 6.4(b) of the Interstate Disclosure
Schedule to the Merger Agreement, the execution and delivery of this
Agreement by OPTION HOLDER does not, and the consummation by OPTION HOLDER
of the transactions contemplated hereby will not violate, conflict with, or
result in the breach of any provision of, or constitute a default (with or
without notice or a lapse of time, or both) under, or result in any
Violation by OPTION HOLDER or any of its Subsidiaries, pursuant to
(i) any provision of the Articles of Incorporation or Bylaws of
OPTION HOLDER,
(ii) any Material Contract of OPTION HOLDER or any of its
subsidiaries or to which any of them is a party, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to OPTION HOLDER or its properties or assets,
which Violation, in the case of each of clauses (ii) or (iii), would have an
OPTION HOLDER Material Adverse Effect;
(f) except as described in Section 6.4(c) of the Interstate Disclosure
Schedule to the Merger Agreement or Section 1 or 3 hereof, the execution and
delivery of this Agreement by OPTION HOLDER does not, and the consummation
by OPTION HOLDER of the transactions contemplated hereby will not, require
any consent, approval, authorization or permit of, filing with or
notification to, any Governmental Authority; and
(g) any OPTION GRANTOR Shares acquired upon exercise of the OPTION
GRANTOR Option will be acquired for OPTION HOLDER's own account, for
investment purposes only and will not be, and the OPTION GRANTOR Option is
not being, acquired by OPTION HOLDER with a view to the public distribution
thereof, in violation of any applicable provision of the Securities Act.
8. CERTAIN REPURCHASES.
(a) OPTION HOLDER "PUT". At the request of OPTION HOLDER by written
notice (x) at any time during which the OPTION GRANTOR Option is exercisable
pursuant to Section 2 (the "REPURCHASE PERIOD"), OPTION GRANTOR (or any
successor entity thereof) shall, if permitted by applicable law, the OPTION
GRANTOR Articles and Bylaws and OPTION GRANTOR's Material Contracts,
repurchase from OPTION HOLDER all or any portion of the OPTION GRANTOR
Option, at the price set forth in subparagraph (i) below, or, (y) at any
time prior to May 10, 1997 (provided that such date shall be extended to May
10, 1998 under the circumstances where the date after which either party may
terminate the Merger Agreement pursuant to Section 10.1(b) of the Merger
Agreement has been extended to May 10, 1998), OPTION GRANTOR (or any
successor entity thereof) shall, if permitted by applicable law, the OPTION
GRANTOR Articles and Bylaws and OPTION GRANTOR's Material Contracts,
repurchase from OPTION HOLDER all or any portion of the OPTION GRANTOR
Shares purchased by OPTION HOLDER pursuant to the OPTION GRANTOR Option, at
the price set forth in subparagraph (ii) below:
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(i)(A) The difference between the "Market/Offer Price" (as defined
below) for shares of OPTION GRANTOR Common Stock as of the date OPTION
HOLDER gives notice of its intent to exercise its rights under this
Section 8 and the Exercise Price, multiplied by the number of OPTION
GRANTOR Shares purchasable pursuant to the OPTION GRANTOR Option (or
portion thereof with respect to which OPTION HOLDER is exercising its
rights under this Section 8), but only if the Market/Offer Price is
greater than the Exercise Price.
(B) For purposes of this Agreement, "MARKET/OFFER PRICE" shall mean,
as of any date, the higher of (I) the price per share offered as of such
date pursuant to any tender or exchange offer or other offer with respect
to a Business Combination involving OPTION GRANTOR as the Target Party
which was made prior to such date and not terminated or withdrawn as of
such date and (II) the Fair Market Value of OPTION GRANTOR Common Stock
as of such date.
(ii)(A) The product of (I) the sum of (a) the Exercise Price paid by
OPTION HOLDER per OPTION GRANTOR Share acquired pursuant to the OPTION
GRANTOR Option, and (b) the difference between the "OFFER PRICE" (as
defined below) and the Exercise Price, but only if the Offer Price is
greater than the Exercise Price, and (II) the number of OPTION GRANTOR
Shares so to be repurchased pursuant to this Section 8.
(B) For purposes of this clause (ii), the "OFFER PRICE" shall be the
highest price per share offered pursuant to a tender or exchange offer or
other Business Combination offer involving OPTION GRANTOR as the Target
Party during the Repurchase Period prior to the delivery by OPTION HOLDER
of a notice of repurchase.
(b) REDELIVERY OF OPTION HOLDER SHARES. If OPTION HOLDER shall have
previously elected to purchase OPTION GRANTOR Shares pursuant to the
exercise of the OPTION GRANTOR Option by the issuance and delivery of OPTION
HOLDER Shares, then OPTION GRANTOR shall, if so requested by OPTION HOLDER,
in fulfillment of its obligation pursuant to Section 8(a)(y) (that is, with
respect to the Exercise Price only and without limitation to its obligation
to pay additional consideration under clause (b) of Section 8(a)(ii)(A)(I)),
redeliver the certificates for such OPTION HOLDER Shares to OPTION HOLDER,
free and clear of all liens, claims, charges and encumbrances of any kind or
nature whatsoever; PROVIDED, HOWEVER, that if at any time less than all of
the OPTION GRANTOR Shares so purchased by OPTION HOLDER pursuant to the
OPTION GRANTOR Option are to be repurchased by OPTION GRANTOR pursuant to
Section 8(a)(y), then (i) OPTION GRANTOR shall be obligated to redeliver to
OPTION HOLDER the same proportion of such OPTION HOLDER Shares as the number
of OPTION GRANTOR Shares that OPTION GRANTOR is then obligated to repurchase
bears to the number of OPTION GRANTOR Shares acquired by OPTION HOLDER upon
exercise of the OPTION GRANTOR Option and (ii) OPTION HOLDER shall issue to
OPTION GRANTOR new certificates representing those OPTION HOLDER Shares
which are not due to be redelivered to OPTION HOLDER pursuant to this
Section 8(b) to the extent that excess OPTION HOLDER Shares are included in
the certificates redelivered to OPTION HOLDER by OPTION GRANTOR.
(c) PAYMENT AND REDELIVERY OF OPTION GRANTOR OPTIONS OR SHARES. In the
event OPTION HOLDER exercises its rights under this Section 8, OPTION
GRANTOR shall, within ten business days thereafter, pay the required amount
to OPTION HOLDER in immediately available funds and OPTION HOLDER shall
surrender to OPTION GRANTOR the OPTION GRANTOR Option or the certificate or
certificates evidencing the OPTION GRANTOR Shares purchased by OPTION HOLDER
pursuant hereto, and OPTION HOLDER shall warrant that it owns the OPTION
GRANTOR Option or such shares and that the OPTION GRANTOR Option or such
shares are then free and clear of all liens, claims, damages, charges and
encumbrances of any kind or nature whatsoever.
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(d) OPTION HOLDER "CALL". If OPTION HOLDER has elected to purchase
OPTION GRANTOR Shares pursuant to the exercise of the OPTION GRANTOR Option
by the issuance and delivery of OPTION HOLDER Shares, notwithstanding that
OPTION HOLDER may no longer hold any such OPTION GRANTOR Shares or that
OPTION HOLDER elects not to exercise its other rights under this Section 8,
OPTION HOLDER may require, at any time or from time to time prior to May 10,
1997 (provided that such date shall be extended to May 10, 1998 under the
circumstances where the date after which either party may terminate the
Merger Agreement pursuant to Section 10.1(b) of the Merger Agreement has
been extended to May 10, 1998), OPTION GRANTOR to sell to OPTION HOLDER any
such OPTION HOLDER Shares at the price attributed to such OPTION HOLDER
Shares pursuant to Section 4 plus interest at the rate of 8.75% per annum on
such amount from the Closing Date relating to the exchange of such OPTION
HOLDER Shares pursuant to Section 4 to the Closing Date under this Section
8(d) less any dividends on such OPTION HOLDER Shares paid during such period
or declared and payable to stockholders of record on a date during such
period.
(e) REPURCHASE PRICE REDUCED AT OPTION HOLDER'S OPTION. In the event
the repurchase price specified in Section 8(a) would subject the purchase of
the OPTION GRANTOR Option or the OPTION GRANTOR Shares purchased by OPTION
HOLDER pursuant to the OPTION GRANTOR Option to a vote of the shareholders
of OPTION GRANTOR pursuant to applicable law or the OPTION GRANTOR Articles,
then OPTION HOLDER may, at its election, reduce the repurchase price to an
amount which would permit such repurchase without the necessity for such a
shareholder vote.
9. VOTING OF SHARES. Following the date hereof and prior to the fifth
anniversary of the date hereof (the "EXPIRATION DATE"), each party shall vote
any shares of capital stock of the other party acquired by such party pursuant
to this Agreement ("RESTRICTED SHARES"), including any OPTION HOLDER Shares
issued pursuant to Section 1(b), or otherwise beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")), by such party on each matter submitted to a vote
of shareholders of such other party for and against such matter in the same
proportion as the vote of all other shareholders of such other party are voted
(whether by proxy or otherwise) for and against such matter.
10. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expiration Date, neither
party shall, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by such party, other than (i) pursuant to Section 8, or
(ii) in accordance with Section 10(b) or Section 11.
(b) PERMITTED SALES. Following the termination of the Merger
Agreement, a party shall be permitted to sell any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or
exchange offer that has been approved or recommended, or otherwise
determined to be fair to and in the best interests of the shareholders of
the other party, by a majority of the members of the Board of Directors of
such other party, which majority shall include a majority of directors who
were directors prior to the announcement of such tender or exchange offer.
11. REGISTRATION RIGHTS.
(a) Following the termination of the Merger Agreement, either party
hereto that owns Restricted Shares (a "DESIGNATED HOLDER") may by written
notice (the "REGISTRATION NOTICE") to the other party (the "REGISTRANT")
request the Registrant to register under the Securities Act all or any part
of the Restricted Shares beneficially owned by such Designated Holder (the
"REGISTRABLE SECURITIES") pursuant to a bona fide firm commitment
underwritten public offering, in which the Designated Holder and the
underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use their best efforts to
prevent any person
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(including any Group (as used in Rule 13d-5 under the Exchange Act)) and its
affiliates from purchasing through such offering Restricted Shares
representing more than 1% of the outstanding shares of common stock of the
Registrant on a fully diluted basis (a "PERMITTED OFFERING").
(b) The Registration Notice shall include a certificate executed by the
Designated Holder and its proposed managing underwriter, which underwriter
shall be an investment banking firm of nationally recognized standing (the
"MANAGER"), stating that
(i) they have a good faith intention to commence promptly a Permitted
Offering, and
(ii) the manager in good faith believes that, based on the
then-prevailing market conditions, it will be able to sell the
Registrable Securities at a per share price equal to at least 80% of the
then Fair Market Value of such shares.
(c) The Registrant (and/or any person designated by the Registrant)
shall thereupon have the option exercisable by written notice delivered to
the Designated Holder within ten business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities proposed to be so sold for cash at a price (the
"OPTION PRICE") equal to the product of (i) the number of Registrable
Securities to be so purchased by the Registrant and (ii) the then Fair
Market Value of such shares.
(d) Any purchase of Registrable Securities by the Registrant (or its
designee) under Section 11(c) shall take place at a closing to be held at
the principal executive offices of the Registrant or at the offices of its
counsel at any reasonable date and time designated by the Registrant and/or
such designee in such notice within twenty business days after delivery of
such notice, and any payment for the shares to be so purchased shall be made
by delivery at the time of such closing in immediately available funds.
(e) If the Registrant does not elect to exercise its option pursuant to
this Section 11 with respect to all Registrable Securities, it shall use its
best efforts to effect, as promptly as practicable, the registration under
the Securities Act of the unpurchased Registrable Securities proposed to be
so sold; PROVIDED, HOWEVER, that
(i) neither party shall be entitled to demand more than an aggregate
of two effective registration statements hereunder, and
(ii) the Registrant will not be required to file any such
registration statement during any period of time (not to exceed 40 days
after such request in the case of clause (A) below or 90 days in the case
of clauses (B) and (C) below) when
(A) the Registrant is in possession of material non-public
information which it reasonably believes would be detrimental to be
disclosed at such time and, in the opinion of counsel to the
Registrant, such information would be required to be disclosed if a
registration statement were filed at that time;
(B) the Registrant is required under the Securities Act to
include audited financial statements for any period in such
registration statement and such financial statements are not yet
available for inclusion in such registration statement; or
(C) the Registrant determines, in its reasonable judgment, that
such registration would interfere with any financing, acquisition or
other material transaction involving the Registrant or any of its
affiliates.
(f) The Registrant shall use its reasonable best efforts to cause any
Registrable Securities registered pursuant to this Section 11 to be
qualified for sale under the securities or Blue Sky laws of such
jurisdictions as the Designated Holder may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
PROVIDED, HOWEVER, that the Registrant shall not be required to qualify to
do business in, or consent to general service of process in, any
jurisdiction by reason of this provision.
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<PAGE>
(g) The registration rights set forth in this Section 11 are subject to
the condition that the Designated Holder shall provide the Registrant with
such information with respect to such holder's Registrable Securities, the
plans for the distribution thereof, and such other information with respect
to such holder as, in the reasonable judgment of counsel for the Registrant,
is necessary to enable the Registrant to include in such registration
statement all material facts required to be disclosed with respect to a
registration thereunder.
(h) A registration effected under this Section 11 shall be effected at
the Registrant's expense, except for underwriting discounts and commissions
and the fees and the expenses of counsel to the Designated Holder, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as is
customary in connection with underwritten public offerings as such
underwriters may reasonably require.
(i) In connection with any registration effected under this Section 11,
the parties agree
(i) to indemnify each other and the underwriters in the customary
manner,
(ii) to enter into an underwriting agreement in form and substance
customary for transactions of such type with the Manager and the other
underwriters participating in such offering, and
(iii) to take all further actions which shall be reasonably necessary
to effect such registration and sale (including if the Manager deems it
necessary, participating in road-show presentations).
(j) The Registrant shall be entitled to include (at its expense)
additional shares of its common stock in a registration effected pursuant to
this Section 11 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such
offering.
12. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without limitation to any
restriction on OPTION GRANTOR contained in this Agreement or in the Merger
Agreement, in the event of any change in OPTION GRANTOR Common Stock by reason
of stock dividends, splitups, mergers (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the OPTION GRANTOR Option, and the
purchase price per share provided in Section 1, shall be adjusted appropriately
to restore to OPTION HOLDER its rights hereunder, including the right to
purchase from OPTION GRANTOR (or its successors) shares of OPTION GRANTOR Common
Stock (or such other shares or securities into which OPTION GRANTOR Common Stock
has been so changed) representing the Option Shares Percentage of the Initial
Number of shares of OPTION GRANTOR Common Stock for the aggregate Exercise Price
calculated as of the date of this Agreement as provided in Section 1.
13. RESTRICTIVE LEGENDS. Each certificate representing OPTION GRANTOR
Shares issued to OPTION HOLDER hereunder, and OPTION HOLDER Shares, if any,
delivered to OPTION GRANTOR at a Closing, shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR
BLUE SKY LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF
AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE
ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE
OPTION HOLDER STOCK OPTION AND TRIGGER PAYMENT AGREEMENT, DATED AS OF
NOVEMBER 10, 1995, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER UPON
REQUEST.
It is understood and agreed that:
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<PAGE>
(i) the reference to the resale restrictions of the Securities Act and
state securities or Blue Sky laws in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if OPTION
HOLDER or OPTION GRANTOR, as the case may be, shall have delivered to the
other party a copy of a letter from the staff of the SEC, or an opinion of
counsel, in form and substance satisfactory to the other party, to the
effect that such legend is not required for purposes of the Securities Act
or such laws;
(ii) the reference to the provisions to this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without
such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in
the preceding clauses (i) and (ii) are both satisfied.
In addition, such certificates shall bear any other legend as may be required by
law. Certificates representing shares sold in a registered public offering
pursuant to Section 11 shall not be required to bear the legend set forth in
this Section 13.
14. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
(b) Except as expressly provided for in this Agreement, neither this
Agreement nor the rights or obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the
other party.
(c) Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature
whatsoever by reason of this Agreement.
(d) Any Restricted Shares sold by a party in compliance with the
provisions of Section 11 shall, upon consummation of such sale, be free of
the restrictions imposed with respect to such shares by this Agreement,
unless and until such party shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall not
be entitled to the registration rights of such party.
15. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable harm
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specified terms or were otherwise breached.
It is accordingly agreed that the parties hereto shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or equity.
16. VALIDITY.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
(b) In the event any court or other competent authority holds any
provisions of this Agreement to be null, void or unenforceable, the parties
hereto shall negotiate in good faith the execution and delivery of an
amendment to this Agreement in order, as nearly as possible, to effectuate,
to the extent permitted by law, the intent of the parties hereto with
respect to such provision and the economic effects thereof.
(c) Subject to Section 5, if for any reason any such court or regulatory
agency determines that OPTION HOLDER is not permitted to acquire, or OPTION
GRANTOR is not permitted to
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<PAGE>
repurchase pursuant to Section 8, the full number of shares of OPTION
GRANTOR Common Stock provided in Section 1 hereof (as the same may be
adjusted), it is the express intention of OPTION GRANTOR to allow OPTION
HOLDER to acquire or to require OPTION GRANTOR to repurchase such lesser
number of shares as may be permissible without any amendment or modification
hereof.
(d) Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null,
void or unenforceable, or order any party to take any action inconsistent
herewith, or not take any action required herein, the other party shall not
be entitled to specific performance of such provision or part hereof or to
any other remedy, including but not limited to money damages, for breach
hereof or of any other provision of this Agreement or part hereof as the
result of such holding or order.
17. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if (a) delivered personally, or (b) if sent by
overnight courier service (receipt confirmed in writing), or (c) if delivered by
facsimile transmission (with receipt confirmed), or (d) five days after being
mailed by registered or certified mail (return receipt requested) to the parties
in each case to the following addresses (or at such other address for a party as
shall be specified by like notice):
A. If to OPTION HOLDER, to:
Interstate Power Company
1000 Main Street
Dubuque, Iowa 52004-0789
Attention: Wayne H. Stoppelmoor
Chairman
Fax: (319) 557-2202
with a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005-1413
Attention: John T. O'Connor, Esq.
Fax: (212) 530-5219
B. If to OPTION GRANTOR, to:
IES Industries Inc.
IES Tower
200 First Street, S.E.
Cedar Rapids, Iowa 52401
Attention: Lee Liu
Fax: (319) 398-4204
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: Stephen R. Rusmisel, Esq.
Fax: (212) 858-1500
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<PAGE>
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State and without regard to its choice
of law principles or to any requirement as to jurisdiction or service of process
contained in Section 2708 of Title 6 of the Delaware Code.
19. INTERPRETATION.
(a) When reference is made in this Agreement to Articles, Sections or
Exhibits, such reference shall be to an Article, Section or Exhibit of this
Agreement, as the case may be, unless otherwise indicated.
(b) The table of contents and headings contained in this Agreement are
for reference purposes and shall not affect in any way the meaning or
interpretation of the Agreement.
(c) Whenever the words "include," "includes," or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
(d) Whenever "or" is used in this Agreement it shall be construed in the
nonexclusive sense.
20. COUNTERPARTS; EFFECT. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
21. AMENDMENTS; WAIVER. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
22. EXTENSION OF TIME PERIODS. The time periods for exercises of certain
rights under Sections 2, 7 and 8 shall be extended (but in no event by more than
six months):
(a) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights, and for the expiration of all statutory waiting
periods; and
(b) to the extent necessary to avoid any liability under Section 16(b)
of the Exchange Act by reason of such exercise.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
IES INDUSTRIES INC.
By: /s/ LEE LIU
-----------------------------------
Name: Lee Liu
Title: Chairman of the Board,
President and Chief
Executive Officer
INTERSTATE POWER COMPANY
By: /s/ WAYNE H. STOPPELMOOR
-----------------------------------
Name: Wayne H. Stoppelmoor
Title: Chairman of the Board,
President and Chief
Executive Officer
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<PAGE>
ANNEX F
OPTION GRANTOR/OPTION HOLDER STOCK OPTION
AND TRIGGER PAYMENT AGREEMENT
This STOCK OPTION AGREEMENT, dated as of November 10, 1995 (the "AGREEMENT")
by and among Interstate Power Company, a corporation organized under the laws of
the State of Delaware ("OPTION GRANTOR" or the "COMPANY") and WPL Holdings,
Inc., a corporation organized under the laws of the State of Wisconsin ("OPTION
HOLDER").
W I T N E S S E T H T H A T:
WHEREAS, concurrently with the execution and delivery of this Agreement,
OPTION GRANTOR, OPTION HOLDER, IES Industries Inc., a corporation organized
under the laws of the State of Iowa ("IES"), WPLH Acquisition Co., a
wholly-owned subsidiary of OPTION HOLDER organized under the laws of the State
of Wisconsin ("ACQUISITION"), and Interstate Power Company, a wholly-owned
subsidiary of OPTION GRANTOR organized under the laws of the State of Wisconsin,
are entering into an Agreement and Plan of Merger, dated as of November 10,
1995, as amended (the "MERGER AGREEMENT"), which provides, INTER ALIA, upon the
terms and subject to the conditions thereof, for the merger of IES with and into
OPTION HOLDER in accordance with the laws of the States of Wisconsin and Iowa
(the "IES MERGER"), and the merger of Acquisition with and into OPTION GRANTOR
(or a successor thereto) in accordance with the laws of the States of Delaware
and/or Wisconsin (the "INTERSTATE MERGER", and together with the IES Merger, the
"MERGER");
WHEREAS, in connection with the execution of the Merger Agreement, OPTION
GRANTOR, OPTION HOLDER and IES are entering into certain stock option agreements
dated as of the date hereof, of which this Agreement is one, whereby the parties
hereto grant each other an option with respect to certain shares of each other's
common stock on the terms and subject to the conditions set forth therein (the
"STOCK OPTION AGREEMENTS"); and
WHEREAS, as a condition to OPTION HOLDER's willingness to enter into the
Merger Agreement, OPTION HOLDER has requested that OPTION GRANTOR agree, and
OPTION GRANTOR has so agreed, to grant to OPTION HOLDER an option with respect
to certain shares of OPTION GRANTOR's common stock, on the terms and subject to
the conditions set forth herein;
NOW, THEREFORE, to induce OPTION HOLDER to enter into the Merger Agreement
and certain of the Stock Option Agreements, and in consideration of the
representations, warranties, covenants and agreements contained herein, in the
Merger Agreement and in the Stock Option Agreements to which OPTION GRANTOR and
OPTION HOLDER are parties, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. GRANT OF OPTION.
(a) Subject to the receipt of all regulatory approvals and orders
required by OPTION GRANTOR as set forth in Section 6.4(c) of the Interstate
Disclosure Schedule to the Merger Agreement and by OPTION HOLDER as set
forth in Section 4.4(c) of the WPL Disclosure Schedule to the Merger
Agreement, OPTION GRANTOR hereby grants OPTION HOLDER an irrevocable option
(the "OPTION GRANTOR OPTION") to purchase up to that number of shares,
subject to adjustment as provided in Section 12 (the "OPTION GRANTOR
SHARES"), of common stock, par value $3.50 per share, of OPTION GRANTOR (the
"OPTION GRANTOR COMMON STOCK") equal to a percentage (the "OPTION SHARES
PERCENTAGE"), which Option Shares Percentage is equal to the OPTION HOLDER's
Participation Percentage as defined below in subsection (e), of 1,903,293
shares of OPTION GRANTOR Common Stock (being 19.9% of the number of shares
of OPTION GRANTOR Common Stock issued and outstanding as of November 10,
1995 (the
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<PAGE>
"INITIAL NUMBER") in the manner set forth below, at a price (the "EXERCISE
PRICE") per OPTION GRANTOR Share of $28.9375 (which is equal to the Fair
Market Value (as defined below) of an OPTION GRANTOR Share as of the date
hereof).
(b) The Exercise Price shall be payable, at OPTION HOLDER's option, as
follows:
(i) in cash, or
(ii) subject to the receipt of all approvals of any Governmental
Authority required for OPTION GRANTOR to acquire, and OPTION HOLDER to
issue, the OPTION HOLDER Shares (as defined below) from OPTION HOLDER, in
shares of common stock, $.01 par value, of OPTION HOLDER ("OPTION HOLDER
SHARES"),
in either case in accordance with Section 4 hereof.
(c) Notwithstanding the foregoing, in no event shall the number of
OPTION GRANTOR Shares for which the OPTION GRANTOR Option is exercisable
exceed the product of the Option Shares Percentage and the Initial Number,
subject to adjustment as provided in Section 12.
(d) As used herein, the "FAIR MARKET VALUE" of any share shall be the
average of the daily closing sales price for such share on the New York
Stock Exchange (the "NYSE") during the ten NYSE trading days prior to the
fifth NYSE trading day preceding the date such Fair Market Value is to be
determined.
(e) For purposes of this Agreement the term "PARTICIPATION PERCENTAGE"
shall have the same meaning as in Section 10.3(f)(i) of the Merger
Agreement, except that the numerator and denominator shall be calculated
based on the number of shares of WPL Common Stock which would be issuable
(or, in the case of WPL, retained by its shareholders) on a fully diluted
basis had the Effective Time occurred as of the date on which the Exercise
Notice is delivered under Section 2 hereof or the date on which demand for
the Trigger Payment (as defined herein) is given under Section 5 hereof, as
the case may be. Other capitalized terms used herein but not defined herein
shall have the meanings set forth in the Merger Agreement.
2. EXERCISE OF OPTION.
(a) The OPTION GRANTOR Option may be exercised by OPTION HOLDER, in
whole or in part, at any time or from time to time after the Merger
Agreement becomes terminable by OPTION HOLDER under circumstances which
could entitle OPTION HOLDER to a termination fee under Section 10.3(a) of
the Merger Agreement (provided that the events specified in Section
10.3(a)(ii)(A) of the Merger Agreement shall have occurred, although the
events specified in Section 10.3(a)(ii)(B) thereof need not have occurred),
or Section 10.3(b) of the Merger Agreement (regardless of whether the Merger
Agreement is actually terminated or whether there occurs a closing of any
Business Combination involving a Target Party or a closing by which a Target
Party becomes a Subsidiary), any such event by which the Merger Agreement
becomes so terminable by OPTION HOLDER being referred to herein as a
"TRIGGER EVENT").
(b)(i) OPTION GRANTOR shall notify OPTION HOLDER promptly in writing of
the occurrence of any Trigger Event, it being understood that the giving
of such notice by OPTION GRANTOR shall not be a condition to the right of
OPTION HOLDER to exercise the OPTION GRANTOR Option.
(ii) In the event OPTION HOLDER wishes to exercise the OPTION GRANTOR
Option, OPTION HOLDER shall deliver to OPTION GRANTOR written notice (an
"EXERCISE NOTICE") specifying the total number of OPTION GRANTOR Shares
it wishes to purchase.
(iii) Upon the giving by OPTION HOLDER to OPTION GRANTOR of the
Exercise Notice and the tender of the applicable aggregate Exercise
Price, OPTION HOLDER, to the extent permitted by law and OPTION GRANTOR's
organizational documents, and provided that the conditions to OPTION
GRANTOR's obligation to issue the OPTION GRANTOR
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Shares to OPTION HOLDER hereunder set forth in Section 3 have been
satisfied or waived, shall be deemed to be the holder of record of the
OPTION GRANTOR Shares issuable upon such exercise, notwithstanding that
the stock transfer books of OPTION GRANTOR shall then be closed or that
certificates representing such OPTION GRANTOR Shares shall not then be
actually delivered to OPTION HOLDER.
(iv) Each closing of a purchase of OPTION GRANTOR Shares (a "CLOSING")
shall occur at a place, on a date, and at a time designated by OPTION
HOLDER in an Exercise Notice delivered at least two business days prior
to the date of the Closing.
(c) The OPTION GRANTOR Option shall terminate upon the earliest to occur
of:
(i) the Effective Time of the Merger;
(ii) the termination of the Merger Agreement pursuant to Section 10.1
thereof, other than under circumstances which also constitute a Trigger
Event under this Agreement;
(iii) 180 days following any termination of the Merger Agreement upon
or during the continuance of a Trigger Event (or if, at the expiration of
such 180 day period, the OPTION GRANTOR Option cannot be exercised by
reason of any applicable judgment, decree, order, law or regulation, ten
business days after such impediment to exercise shall have been removed
or shall have become final and not subject to appeal, but in no event
under this clause (iii) later than May 10, 1998); and
(iv) payment by OPTION GRANTOR of the Trigger Payment set forth in
Section 5 of this Agreement to OPTION HOLDER.
(d) Notwithstanding the foregoing, the OPTION GRANTOR Option may not be
exercised if (i) OPTION HOLDER is in material breach of any of its
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement, or
(ii) a Trigger Payment has been paid pursuant to Section 5 of this Agreement
or demand therefor has been made and not withdrawn.
3. CONDITIONS TO CLOSING. The obligation of OPTION GRANTOR to issue the
OPTION GRANTOR Shares to OPTION HOLDER hereunder is subject to the conditions
that
(a) all waiting periods, if any, under the HSR Act applicable to the
issuance and acquisition of the OPTION GRANTOR Shares hereunder shall have
expired or have been terminated;
(b) the OPTION GRANTOR Shares, and any OPTION HOLDER Shares which are
issued in payment of the Exercise Price, shall have been approved for
listing on the NYSE subject only to official notice of issuance;
(c) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any federal, state or local
administrative agency or commission or other federal, state or local
Governmental Authority, if any, required in connection with the issuance by
OPTION GRANTOR and the acquisition by OPTION HOLDER of the OPTION GRANTOR
Shares hereunder shall have been obtained or made, including, without
limitation, the approval of the SEC under Sections 9 and 10 of the Public
Utility Holding Company Act of 1935, as amended (the "1935 ACT"), the
approval of the Iowa Utilities Board, the Public Service Commission of
Minnesota and the Illinois Commerce Commission of the issuance of the OPTION
GRANTOR Shares by OPTION GRANTOR and, if applicable, the acquisition of
OPTION GRANTOR Shares by OPTION HOLDER, and the approval of the Public
Service Commission of Wisconsin of the acquisition of the OPTION GRANTOR
Shares by OPTION HOLDER and, if applicable, the acquisition by OPTION
GRANTOR of the OPTION HOLDER Shares constituting the Exercise Price
hereunder; and
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(d) no preliminary or permanent injunction or other order by any court
of competent jurisdiction prohibiting or otherwise restraining such issuance
shall be in effect.
The condition set forth in paragraph (b) above may be waived by OPTION GRANTOR,
in the case of OPTION HOLDER Shares, and by OPTION HOLDER, in the case of OPTION
GRANTOR Shares, in the sole discretion of the waiving party.
4. CLOSING. At any Closing,
(a) OPTION GRANTOR shall deliver to OPTION HOLDER or its designee a
single certificate in definitive form representing the number of OPTION
GRANTOR Shares designated by OPTION HOLDER in its Exercise Notice, such
certificate to be registered in the name of OPTION HOLDER and to bear the
legend set forth in Section 13; and
(b) OPTION HOLDER shall deliver to OPTION GRANTOR the aggregate price
for the OPTION GRANTOR Shares so designated and being purchased by
(i) wire transfer of immediately available funds or certified check
or bank check, or
(ii) subject to the condition in Section 1(b)(ii), delivery of a
certificate or certificates representing the number of OPTION HOLDER
Shares being issued by OPTION HOLDER in consideration thereof, determined
in accordance with Section 4(c).
(c) In the event that OPTION HOLDER issues OPTION HOLDER Shares to
OPTION GRANTOR in consideration of OPTION GRANTOR Shares pursuant to Section
4(b)(ii), the number of OPTION HOLDER Shares to be so issued shall be equal
to the quotient obtained by dividing:
(i) the product of (x) the number of OPTION GRANTOR Shares with
respect to which the OPTION GRANTOR Option is being exercised and (y) the
Exercise Price, by
(ii) the Fair Market Value of the OPTION HOLDER Shares as of the date
immediately preceding the date the Exercise Notice is delivered to OPTION
GRANTOR.
(d) OPTION GRANTOR shall pay all expenses, and any and all Federal,
state and local taxes and other charges that may be payable in connection
with the preparation, issue and delivery of stock certificates under this
Section 4.
5. TRIGGER PAYMENT.
(a) TRIGGER PAYMENT. Subject to the provisions of Section 10.3(e) of
the Merger Agreement, if a Trigger Event shall have occurred and any
regulatory approval or order required for the issuance by OPTION GRANTOR, or
the acquisition by OPTION HOLDER, of the OPTION GRANTOR Option pursuant to
Section 1 hereof shall not have been obtained, OPTION HOLDER shall have the
right to receive, and OPTION GRANTOR shall pay to OPTION HOLDER, an amount
(the "TRIGGER PAYMENT") equal to the product of
(i) the maximum number of OPTION GRANTOR Shares that would have been
subject to purchase by OPTION HOLDER upon exercise of the OPTION GRANTOR
Option pursuant to Sections 1 and 2 hereof if all such regulatory
approvals or orders had been obtained, and
(ii) the difference between (A) the Market/Offer Price (as defined
herein), determined as of the date on which notice of demand for the
Trigger Payment is given by OPTION HOLDER, and (B) the Exercise Price
(but only if such Market/Offer Price is higher than such Exercise Price).
Demand for the Trigger Payment shall be given by notice in accordance with
the provisions of Section 17 hereof. The Trigger Payment shall be paid to
OPTION HOLDER by OPTION
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GRANTOR on the Payment Date (as defined herein), by wire transfer of
immediately available funds to an account to be designated in writing by
OPTION HOLDER not less than two business days before the Payment Date.
(b) PAYMENT DATE. For purposes of this Section 5, "PAYMENT DATE" means
the date on which termination fees are required to be paid by OPTION GRANTOR
to OPTION HOLDER under Section 10.3(a) or 10.3(b), as the case may be, of
the Merger Agreement as a result of the occurrence of the Trigger Event
referred to in subsection (a) of this Section 5.
(c) CERTAIN CONDITIONS. OPTION GRANTOR shall have no obligation to pay
the Trigger Payment if OPTION HOLDER is in material breach of any of its
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement.
6. REPRESENTATIONS AND WARRANTIES OF OPTION GRANTOR. OPTION GRANTOR
represents and warrants to OPTION HOLDER that
(a) except as set forth in Section 6.4(a) of the Interstate Disclosure
Schedule to the Merger Agreement, OPTION GRANTOR has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder, subject in the case of the repurchase of the OPTION GRANTOR
Shares pursuant to Section 8(a) to applicable law and the provisions of
OPTION GRANTOR's Articles of Incorporation, as amended (the "OPTION GRANTOR
ARTICLES");
(b) this Agreement has been duly and validly executed and delivered by
OPTION GRANTOR, and, assuming the due authorization, execution and delivery
hereof by OPTION HOLDER and the receipt of all required regulatory
approvals, constitutes a valid and binding obligation of OPTION GRANTOR,
enforceable against OPTION GRANTOR in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally, and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought;
(c) OPTION GRANTOR has taken all necessary corporate action to authorize
and reserve for issuance and to permit it to issue, upon exercise of the
OPTION GRANTOR Option, and at all times from the date hereof through the
expiration of the OPTION GRANTOR Option will have reserved, the Initial
Number of authorized and unissued OPTION GRANTOR Shares, such amount being
subject to adjustment as provided in Section 12, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable;
(d) upon delivery of the OPTION GRANTOR Shares to OPTION HOLDER upon the
exercise of the OPTION GRANTOR Option, OPTION HOLDER will acquire the OPTION
GRANTOR Shares free and clear of all claims, liens, charges, encumbrances
and security interests of any nature whatsoever;
(e) except as described in Section 6.4(b) of the Interstate Disclosure
Schedule to the Merger Agreement, the execution and delivery of this
Agreement by OPTION GRANTOR does not, and, subject to compliance with
applicable law and the OPTION GRANTOR Articles with respect to the
repurchase of the OPTION GRANTOR Shares pursuant to Section 8(a), the
consummation by OPTION GRANTOR of the transactions contemplated hereby will
not violate, conflict with, or result in a breach of any provision of, or
constitute a default (with or without notice or a lapse of time, or both)
under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination, cancellation, or
acceleration of any obligation or the loss of a material benefit under, or
the creation of a lien, pledge, security interest or other encumbrance on
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assets (any such conflict, violation, default, right of termination,
cancellation, acceleration, loss or creation, hereinafter a "VIOLATION") of
OPTION GRANTOR or any of its Subsidiaries, pursuant to
(i) any provision of the OPTION GRANTOR Articles or the Bylaws of
OPTION GRANTOR,
(ii) any provisions of any material loan or credit agreement, note,
mortgage, indenture, lease, benefit plan or other agreement, obligation,
instrument, permit, concession, franchise or license (any of the
foregoing in effect on the date hereof being referred to as a "MATERIAL
CONTRACT") of OPTION GRANTOR or its subsidiaries or to which any of them
is a party, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to OPTION GRANTOR or its properties or assets,
which Violation, in the case of each clauses (ii) and (iii), could
reasonably be expected to have an OPTION GRANTOR Material Adverse Effect
(except that no representation or warranty is given concerning any
Violation of a Material Contract with respect to the repurchase of OPTION
GRANTOR Shares pursuant to Section 8(a));
(f) except as described in Section 6.4(c) of the Interstate Disclosure
Schedule to the Merger Agreement or Section 1 or 3 hereof, the execution and
delivery of this Agreement by OPTION GRANTOR does not, and the performance
of this Agreement by OPTION GRANTOR will not, require any consent, approval,
authorization or permit of, filing with or notification to, any Governmental
Authority;
(g) none of OPTION GRANTOR, any of its affiliates or anyone acting on
its or their behalf, has issued, sold or offered any security of OPTION
GRANTOR to any person under circumstances that would cause the issuance and
sale of OPTION GRANTOR Shares, as contemplated by this Agreement, to be
subject to the registration requirements of the Securities Act as in effect
on the date hereof, and, assuming the representations and warranties of
OPTION HOLDER contained in Section 7(g) are true and correct, the issuance,
sale and delivery of the OPTION GRANTOR Shares hereunder would be exempt
from the registration and prospectus delivery requirements of the Securities
Act, as in effect on the date hereof (and OPTION GRANTOR shall not take any
action which would cause the issuance, sale, and delivery of OPTION GRANTOR
Shares hereunder not to be exempt from such requirements); and
(h) any OPTION HOLDER Shares acquired pursuant to this Agreement will be
acquired for OPTION GRANTOR's own account, for investment purposes only, and
will not be acquired by OPTION GRANTOR with a view to the public
distribution thereof in violation of any applicable provision of the
Securities Act.
7. REPRESENTATIONS AND WARRANTIES OF OPTION HOLDER. OPTION HOLDER
represents and warrants to OPTION GRANTOR that
(a) except as set forth in Schedule 4.4(a) of the WPL Disclosure
Schedule to the Merger Agreement, OPTION HOLDER has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder;
(b) this Agreement has been duly and validly executed and delivered by
OPTION HOLDER and, assuming the due authorization, execution and delivery
hereof by OPTION GRANTOR and the receipt of all required regulatory
approvals, constitutes a valid and binding obligation of OPTION HOLDER,
enforceable against OPTION HOLDER in accordance with its respective terms,
except as may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of
creditors' rights generally, and except that the availability of equitable
remedies, including specific performance, may be subject to the discretion
of any court before which any proceeding may be brought;
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(c) prior to any delivery of OPTION HOLDER Shares in consideration of
the purchase of OPTION GRANTOR Shares pursuant hereto, OPTION HOLDER will
have taken all necessary corporate action to authorize for issuance and to
permit it to issue such OPTION HOLDER Shares, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable (except as
otherwise provided in Section 180.0622(2)(b) of the WBCL);
(d) upon any delivery of such OPTION HOLDER Shares to OPTION GRANTOR in
consideration of the purchase of OPTION GRANTOR Shares pursuant hereto,
OPTION GRANTOR will acquire the OPTION HOLDER Shares free and clear of all
claims, liens, charges, encumbrances and security interests of any nature
whatsoever;
(e) except as described in Section 4.4(b) of the WPL Disclosure Schedule
to the Merger Agreement, the execution and delivery of this Agreement by
OPTION HOLDER does not, and the consummation by OPTION HOLDER of the
transactions contemplated hereby will not, violate, conflict with, or result
in the breach of any provision of, or constitute a default (with or without
notice or a lapse of time, or both) under, or result in any Violation by
OPTION HOLDER or any of its Subsidiaries, pursuant to
(i) any provision of the Articles of Incorporation or Bylaws of
OPTION HOLDER,
(ii) any Material Contract of OPTION HOLDER or any of its
subsidiaries or to which any of them is a party, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to OPTION HOLDER or its properties or assets,
which Violation, in the case of each of clauses (ii) or (iii), would have an
OPTION HOLDER Material Adverse Effect;
(f) except as described in Section 4.4(c) of the WPL Disclosure Schedule
to the Merger Agreement or Section 1 or 3 hereof, the execution and delivery
of this Agreement by OPTION HOLDER does not, and the consummation by OPTION
HOLDER of the transactions contemplated hereby will not, require any
consent, approval, authorization or permit of, filing with or notification
to, any Governmental Authority; and
(g) any OPTION GRANTOR Shares acquired upon exercise of the OPTION
GRANTOR Option will be acquired for OPTION HOLDER's own account, for
investment purposes only and will not be, and the OPTION GRANTOR Option is
not being, acquired by OPTION HOLDER with a view to the public distribution
thereof, in violation of any applicable provision of the Securities Act.
8. CERTAIN REPURCHASES.
(a) OPTION HOLDER "PUT". At the request of OPTION HOLDER by written
notice (x) at any time during which the OPTION GRANTOR Option is exercisable
pursuant to Section 2 (the "REPURCHASE PERIOD"), OPTION GRANTOR (or any
successor entity thereof) shall, if permitted by applicable law, the OPTION
GRANTOR Articles and Bylaws and OPTION GRANTOR's Material Contracts,
repurchase from OPTION HOLDER all or any portion of the OPTION GRANTOR
Option, at the price set forth in subparagraph (i) below, or, (y) at any
time prior to May 10, 1997 (provided that such date shall be extended to May
10, 1998 under the circumstances where the date after which either party may
terminate the Merger Agreement pursuant to Section 10.1(b) of the Merger
Agreement has been extended to May 10, 1998), OPTION GRANTOR (or any
successor entity thereof) shall, if permitted by applicable law, the OPTION
GRANTOR Articles and Bylaws and OPTION GRANTOR's Material Contracts,
repurchase from OPTION HOLDER all or any portion of the OPTION GRANTOR
Shares purchased by OPTION HOLDER pursuant to the OPTION GRANTOR Option, at
the price set forth in subparagraph (ii) below:
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(i)(A) The difference between the "MARKET/OFFER PRICE" (as defined
below) for shares of OPTION GRANTOR Common Stock as of the date OPTION
HOLDER gives notice of its intent to exercise its rights under this
Section 8 and the Exercise Price, multiplied by the number of OPTION
GRANTOR Shares purchasable pursuant to the OPTION GRANTOR Option (or
portion thereof with respect to which OPTION HOLDER is exercising its
rights under this Section 8), but only if the Market/Offer Price is
greater than the Exercise Price.
(B) For purposes of this Agreement, "MARKET/OFFER PRICE" shall mean,
as of any date, the higher of (I) the price per share offered as of such
date pursuant to any tender or exchange offer or other offer with respect
to a Business Combination involving OPTION GRANTOR as the Target Party
which was made prior to such date and not terminated or withdrawn as of
such date and (II) the Fair Market Value of OPTION GRANTOR Common Stock
as of such date.
(ii)(A) The product of (I) the sum of (a) the Exercise Price paid by
OPTION HOLDER per OPTION GRANTOR Share acquired pursuant to the OPTION
GRANTOR Option, and (b) the difference between the "Offer Price" (as
defined below) and the Exercise Price, but only if the Offer Price is
greater than the Exercise Price, and (II) the number of OPTION GRANTOR
Shares so to be repurchased pursuant to this Section 8.
(B) For purposes of this clause (ii), the "OFFER PRICE" shall be the
highest price per share offered pursuant to a tender or exchange offer or
other Business Combination offer involving OPTION GRANTOR as the Target
Party during the Repurchase Period prior to the delivery by OPTION HOLDER
of a notice of repurchase.
(b) REDELIVERY OF OPTION HOLDER SHARES. If OPTION HOLDER shall have
previously elected to purchase OPTION GRANTOR Shares pursuant to the
exercise of the OPTION GRANTOR Option by the issuance and delivery of OPTION
HOLDER Shares, then OPTION GRANTOR shall, if so requested by OPTION HOLDER,
in fulfillment of its obligation pursuant to Section 8(a)(y) (that is, with
respect to the Exercise Price only and without limitation to its obligation
to pay additional consideration under clause (b) of Section 8(a)(ii)(A)(I)),
redeliver the certificates for such OPTION HOLDER Shares to OPTION HOLDER,
free and clear of all liens, claims, charges and encumbrances of any kind or
nature whatsoever; PROVIDED, HOWEVER, that if at any time less than all of
the OPTION GRANTOR Shares so purchased by OPTION HOLDER pursuant to the
OPTION GRANTOR Option are to be repurchased by OPTION GRANTOR pursuant to
Section 8(a)(y), then (i) OPTION GRANTOR shall be obligated to redeliver to
OPTION HOLDER the same proportion of such OPTION HOLDER Shares as the number
of OPTION GRANTOR Shares that OPTION GRANTOR is then obligated to repurchase
bears to the number of OPTION GRANTOR Shares acquired by OPTION HOLDER upon
exercise of the OPTION GRANTOR Option and (ii) OPTION HOLDER shall issue to
OPTION GRANTOR new certificates representing those OPTION HOLDER Shares
which are not due to be redelivered to OPTION HOLDER pursuant to this
Section 8(b) to the extent that excess OPTION HOLDER Shares are included in
the certificates redelivered to OPTION HOLDER by OPTION GRANTOR.
(c) PAYMENT AND REDELIVERY OF OPTION GRANTOR OPTIONS OR SHARES. In the
event OPTION HOLDER exercises its rights under this Section 8, OPTION
GRANTOR shall, within ten business days thereafter, pay the required amount
to OPTION HOLDER in immediately available funds and OPTION HOLDER shall
surrender to OPTION GRANTOR the OPTION GRANTOR Option or the certificate or
certificates evidencing the OPTION GRANTOR Shares purchased by OPTION HOLDER
pursuant hereto, and OPTION HOLDER shall warrant that it owns the OPTION
GRANTOR Option or such shares and that the OPTION GRANTOR Option or such
shares are then free and clear of all liens, claims, damages, charges and
encumbrances of any kind or nature whatsoever.
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(d) OPTION HOLDER "CALL". If OPTION HOLDER has elected to purchase
OPTION GRANTOR Shares pursuant to the exercise of the OPTION GRANTOR Option
by the issuance and delivery of OPTION HOLDER Shares, notwithstanding that
OPTION HOLDER may no longer hold any such OPTION GRANTOR Shares or that
OPTION HOLDER elects not to exercise its other rights under this Section 8,
OPTION HOLDER may require, at any time or from time to time prior to May 10,
1997 (provided that such date shall be extended to May 10, 1998 under the
circumstances where the date after which either party may terminate the
Merger Agreement pursuant to Section 10.1(b) of the Merger Agreement has
been extended to May 10, 1998), OPTION GRANTOR to sell to OPTION HOLDER any
such OPTION HOLDER Shares at the price attributed to such OPTION HOLDER
Shares pursuant to Section 4 plus interest at the rate of 8.75% per annum on
such amount from the Closing Date relating to the exchange of such OPTION
HOLDER Shares pursuant to Section 4 to the Closing Date under this Section
8(d) less any dividends on such OPTION HOLDER Shares paid during such period
or declared and payable to stockholders of record on a date during such
period.
(e) REPURCHASE PRICE REDUCED AT OPTION HOLDER'S OPTION. In the event
the repurchase price specified in Section 8(a) would subject the purchase of
the OPTION GRANTOR Option or the OPTION GRANTOR Shares purchased by OPTION
HOLDER pursuant to the OPTION GRANTOR Option to a vote of the shareholders
of OPTION GRANTOR pursuant to applicable law or the OPTION GRANTOR Articles,
then OPTION HOLDER may, at its election, reduce the repurchase price to an
amount which would permit such repurchase without the necessity for such a
shareholder vote.
9. VOTING OF SHARES. Following the date hereof and prior to the fifth
anniversary of the date hereof (the "EXPIRATION DATE"), each party shall vote
any shares of capital stock of the other party acquired by such party pursuant
to this Agreement ("RESTRICTED SHARES"), including any OPTION HOLDER Shares
issued pursuant to Section 1(b), or otherwise beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")), by such party on each matter submitted to a vote
of shareholders of such other party for and against such matter in the same
proportion as the vote of all other shareholders of such other party are voted
(whether by proxy or otherwise) for and against such matter.
10. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expiration Date, neither
party shall, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by such party, other than (i) pursuant to Section 8, or
(ii) in accordance with Section 10(b) or Section 11.
(b) PERMITTED SALES. Following the termination of the Merger
Agreement, a party shall be permitted to sell any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or
exchange offer that has been approved or recommended, or otherwise
determined to be fair to and in the best interests of the shareholders of
the other party, by a majority of the members of the Board of Directors of
such other party, which majority shall include a majority of directors who
were directors prior to the announcement of such tender or exchange offer.
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11. REGISTRATION RIGHTS.
(a) Following the termination of the Merger Agreement, either party
hereto that owns Restricted Shares (a "DESIGNATED HOLDER") may by written
notice (the "REGISTRATION NOTICE") to the other party (the "REGISTRANT")
request the Registrant to register under the Securities Act all or any part
of the Restricted Shares beneficially owned by such Designated Holder (the
"REGISTRABLE SECURITIES") pursuant to a bona fide firm commitment
underwritten public offering, in which the Designated Holder and the
underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use their best efforts to
prevent any person (including any Group (as used in Rule 13d-5 under the
Exchange Act)) and its affiliates from purchasing through such offering
Restricted Shares representing more than 1% of the outstanding shares of
common stock of the Registrant on a fully diluted basis (a "PERMITTED
OFFERING").
(b) The Registration Notice shall include a certificate executed by the
Designated Holder and its proposed managing underwriter, which underwriter
shall be an investment banking firm of nationally recognized standing (the
"MANAGER"), stating that
(i) they have a good faith intention to commence promptly a Permitted
Offering, and
(ii) the manager in good faith believes that, based on the
then-prevailing market conditions, it will be able to sell the
Registrable Securities at a per share price equal to at least 80% of the
then Fair Market Value of such shares.
(c) The Registrant (and/or any person designated by the Registrant)
shall thereupon have the option exercisable by written notice delivered to
the Designated Holder within ten business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities proposed to be so sold for cash at a price (the
"OPTION PRICE") equal to the product of (i) the number of Registrable
Securities to be so purchased by the Registrant and (ii) the then Fair
Market Value of such shares.
(d) Any purchase of Registrable Securities by the Registrant (or its
designee) under Section 11(c) shall take place at a closing to be held at
the principal executive offices of the Registrant or at the offices of its
counsel at any reasonable date and time designated by the Registrant and/or
such designee in such notice within twenty business days after delivery of
such notice, and any payment for the shares to be so purchased shall be made
by delivery at the time of such closing in immediately available funds.
(e) If the Registrant does not elect to exercise its option pursuant to
this Section 11 with respect to all Registrable Securities, it shall use its
best efforts to effect, as promptly as practicable, the registration under
the Securities Act of the unpurchased Registrable Securities proposed to be
so sold; PROVIDED, HOWEVER, that
(i) neither party shall be entitled to demand more than an aggregate
of two effective registration statements hereunder, and
(ii) the Registrant will not be required to file any such
registration statement during any period of time (not to exceed 40 days
after such request in the case of clause (A) below or 90 days in the case
of clauses (B) and (C) below) when
(A) the Registrant is in possession of material non-public
information which it reasonably believes would be detrimental to be
disclosed at such time and, in the opinion of counsel to the
Registrant, such information would be required to be disclosed if a
registration statement were filed at that time;
(B) the Registrant is required under the Securities Act to
include audited financial statements for any period in such
registration statement and such financial statements are not yet
available for inclusion in such registration statement; or
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(C) the Registrant determines, in its reasonable judgment, that
such registration would interfere with any financing, acquisition or
other material transaction involving the Registrant or any of its
affiliates.
(f) The Registrant shall use its reasonable best efforts to cause any
Registrable Securities registered pursuant to this Section 11 to be
qualified for sale under the securities or Blue Sky laws of such
jurisdictions as the Designated Holder may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
PROVIDED, HOWEVER, that the Registrant shall not be required to qualify to
do business in, or consent to general service of process in, any
jurisdiction by reason of this provision.
(g) The registration rights set forth in this Section 11 are subject to
the condition that the Designated Holder shall provide the Registrant with
such information with respect to such holder's Registrable Securities, the
plans for the distribution thereof, and such other information with respect
to such holder as, in the reasonable judgment of counsel for the Registrant,
is necessary to enable the Registrant to include in such registration
statement all material facts required to be disclosed with respect to a
registration thereunder.
(h) A registration effected under this Section 11 shall be effected at
the Registrant's expense, except for underwriting discounts and commissions
and the fees and the expenses of counsel to the Designated Holder, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as is
customary in connection with underwritten public offerings as such
underwriters may reasonably require.
(i) In connection with any registration effected under this Section 11,
the parties agree
(i) to indemnify each other and the underwriters in the customary
manner,
(ii) to enter into an underwriting agreement in form and substance
customary for transactions of such type with the Manager and the other
underwriters participating in such offering, and
(iii) to take all further actions which shall be reasonably necessary
to effect such registration and sale (including if the Manager deems it
necessary, participating in road-show presentations).
(j) The Registrant shall be entitled to include (at its expense)
additional shares of its common stock in a registration effected pursuant to
this Section 11 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such
offering.
12. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without limitation to any
restriction on OPTION GRANTOR contained in this Agreement or in the Merger
Agreement, in the event of any change in OPTION GRANTOR Common Stock by reason
of stock dividends, splitups, mergers (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the OPTION GRANTOR Option, and the
purchase price per share provided in Section 1, shall be adjusted appropriately
to restore to OPTION HOLDER its rights hereunder, including the right to
purchase from OPTION GRANTOR (or its successors) shares of OPTION GRANTOR Common
Stock (or such other shares or securities into which OPTION GRANTOR Common Stock
has been so changed) representing the Option Shares Percentage of the Initial
Number of shares of OPTION GRANTOR Common Stock for the aggregate Exercise Price
calculated as of the date of this Agreement as provided in Section 1.
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13. RESTRICTIVE LEGENDS. Each certificate representing OPTION GRANTOR
Shares issued to OPTION HOLDER hereunder, and OPTION HOLDER Shares, if any,
delivered to OPTION GRANTOR at a Closing, shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR
BLUE SKY LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF
AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE
ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE
OPTION HOLDER STOCK OPTION AND TRIGGER PAYMENT AGREEMENT, DATED AS OF
NOVEMBER 10, 1995, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER UPON
REQUEST.
It is understood and agreed that:
(i) the reference to the resale restrictions of the Securities Act and
state securities or Blue Sky laws in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if OPTION
HOLDER or OPTION GRANTOR, as the case may be, shall have delivered to the
other party a copy of a letter from the staff of the SEC, or an opinion of
counsel, in form and substance satisfactory to the other party, to the
effect that such legend is not required for purposes of the Securities Act
or such laws;
(ii) the reference to the provisions to this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without
such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in
the preceding clauses (i) and (ii) are both satisfied.
In addition, such certificates shall bear any other legend as may be required by
law. Certificates representing shares sold in a registered public offering
pursuant to Section 11 shall not be required to bear the legend set forth in
this Section 13.
14. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
(b) Except as expressly provided for in this Agreement, neither this
Agreement nor the rights or obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the
other party.
(c) Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature
whatsoever by reason of this Agreement.
(d) Any Restricted Shares sold by a party in compliance with the
provisions of Section 11 shall, upon consummation of such sale, be free of
the restrictions imposed with respect to such shares by this Agreement,
unless and until such party shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall not
be entitled to the registration rights of such party.
15. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable harm
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specified terms or were otherwise breached.
It is accordingly agreed that the parties hereto shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or equity.
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<PAGE>
16. VALIDITY.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
(b) In the event any court or other competent authority holds any
provisions of this Agreement to be null, void or unenforceable, the parties
hereto shall negotiate in good faith the execution and delivery of an
amendment to this Agreement in order, as nearly as possible, to effectuate,
to the extent permitted by law, the intent of the parties hereto with
respect to such provision and the economic effects thereof.
(c) Subject to Section 5, if for any reason any such court or regulatory
agency determines that OPTION HOLDER is not permitted to acquire, or OPTION
GRANTOR is not permitted to repurchase pursuant to Section 8, the full
number of shares of OPTION GRANTOR Common Stock provided in Section 1 hereof
(as the same may be adjusted), it is the express intention of OPTION GRANTOR
to allow OPTION HOLDER to acquire or to require OPTION GRANTOR to repurchase
such lesser number of shares as may be permissible without any amendment or
modification hereof.
(d) Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null,
void or unenforceable, or order any party to take any action inconsistent
herewith, or not take any action required herein, the other party shall not
be entitled to specific performance of such provision or part hereof or to
any other remedy, including but not limited to money damages, for breach
hereof or of any other provision of this Agreement or part hereof as the
result of such holding or order.
17. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if (a) delivered personally, or (b) if sent by
overnight courier service (receipt confirmed in writing), or (c) if delivered by
facsimile transmission (with receipt confirmed), or (d) five days after being
mailed by registered or certified mail (return receipt requested) to the parties
in each case to the following addresses (or at such other address for a party as
shall be specified by like notice):
A. If to OPTION HOLDER, to:
WPL Holdings, Inc.
222 West Washington Avenue
Madison, Wisconsin 53703
Attention: Erroll B. Davis, Jr.
Fax: (608) 252-5059
with a copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5367
Attention: Benjamin F. Garmer, III, Esq.
Fax: (414) 297-4900
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<PAGE>
B. If to OPTION GRANTOR, to:
Interstate Power Company
1000 Main Street
Dubuque, Iowa 52004-0789
Attention: Wayne H. Stoppelmoor
Chairman
Fax: (319) 557-2202
with a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005-1413
Attention: John T. O'Connor, Esq.
Fax: (212) 530-5219
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State and without regard to its choice
of law principles or to any requirement as to jurisdiction or service of process
contained in Section 2708 of Title 6 of the Delaware Code.
19. INTERPRETATION.
(a) When reference is made in this Agreement to Articles, Sections or
Exhibits, such reference shall be to an Article, Section or Exhibit of this
Agreement, as the case may be, unless otherwise indicated.
(b) The table of contents and headings contained in this Agreement are
for reference purposes and shall not affect in any way the meaning or
interpretation of the Agreement.
(c) Whenever the words "include," "includes," or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
(d) Whenever "or" is used in this Agreement it shall be construed in the
nonexclusive sense.
20. COUNTERPARTS; EFFECT. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
21. AMENDMENTS; WAIVER. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
22. EXTENSION OF TIME PERIODS. The time periods for exercises of certain
rights under Sections 2, 7 and 8 shall be extended (but in no event by more than
six months):
(a) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights, and for the expiration of all statutory waiting
periods; and
(b) to the extent necessary to avoid any liability under Section 16(b)
of the Exchange Act by reason of such exercise.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
INTERSTATE POWER COMPANY
By: /s/ WAYNE H. STOPPELMOOR
--------------------------------------
Name: Wayne H. Stoppelmoor
Title: Chairman of the Board,
President and Chief
Executive Officer
WPL HOLDINGS, INC.
By: /s/ ERROLL B. DAVIS, JR.
--------------------------------------
Name: Erroll B. Davis, Jr.
Title: President and Chief
Executive Officer
F-15
<PAGE>
ANNEX G
OPTION GRANTOR/OPTION HOLDER STOCK OPTION
AND TRIGGER PAYMENT AGREEMENT
This STOCK OPTION AGREEMENT, dated as of November 10, 1995 (the "AGREEMENT")
by and among Interstate Power Company, a corporation organized under the laws of
the State of Delaware ("OPTION GRANTOR" or the "COMPANY") and IES Industries
Inc., a corporation organized under the laws of the State of Iowa ("OPTION
HOLDER").
W I T N E S S E T H T H A T:
WHEREAS, concurrently with the execution and delivery of this Agreement,
OPTION GRANTOR, OPTION HOLDER, WPL Holdings, Inc., a corporation organized under
the laws of the State of Wisconsin ("WPL"), WPLH Acquisition Co., a wholly-owned
subsidiary of WPL organized under the laws of the State of Wisconsin
("ACQUISITION"), and Interstate Power Company, a wholly-owned subsidiary of
OPTION GRANTOR organized under the laws of the State of Wisconsin, are entering
into an Agreement and Plan of Merger, dated as of November 10, 1995, as amended
(the "MERGER AGREEMENT"), which provides, INTER ALIA, upon the terms and subject
to the conditions thereof, for the merger of OPTION HOLDER with and into WPL in
accordance with the laws of the States of Wisconsin and Iowa (the "IES MERGER"),
and the merger of Acquisition with and into OPTION GRANTOR (or a successor
thereto) in accordance with the laws of the States of Delaware and/or Wisconsin
(the "INTERSTATE MERGER, and together with the IES Merger, the "MERGER");
WHEREAS, in connection with the execution of the Merger Agreement, OPTION
GRANTOR, OPTION HOLDER and WPL are entering into certain stock option agreements
dated as of the date hereof, of which this Agreement is one, whereby the parties
hereto grant each other an option with respect to certain shares of each other's
common stock on the terms and subject to the conditions set forth therein (the
"STOCK OPTION AGREEMENTS"); and
WHEREAS, as a condition to OPTION HOLDER's willingness to enter into the
Merger Agreement, OPTION HOLDER has requested that OPTION GRANTOR agree, and
OPTION GRANTOR has so agreed, to grant to OPTION HOLDER an option with respect
to certain shares of OPTION GRANTOR's common stock, on the terms and subject to
the conditions set forth herein;
NOW, THEREFORE, to induce OPTION HOLDER to enter into the Merger Agreement
and certain of the Stock Option Agreements, and in consideration of the
representations, warranties, covenants and agreements contained herein, in the
Merger Agreement and in the Stock Option Agreements to which OPTION GRANTOR and
OPTION HOLDER are parties, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. GRANT OF OPTION.
(a) Subject to the receipt of all regulatory approvals and orders
required by OPTION GRANTOR as set forth in Section 6.4(c) of the Interstate
Disclosure Schedule to the Merger Agreement and by OPTION HOLDER as set
forth in Section 5.4(c) of the IES Disclosure Schedule to the Merger
Agreement, OPTION GRANTOR hereby grants OPTION HOLDER an irrevocable option
(the "OPTION GRANTOR OPTION") to purchase up to that number of shares,
subject to adjustment as provided in Section 12 (the "OPTION GRANTOR
SHARES"), of common stock, par value $3.50 per share, of OPTION GRANTOR (the
"OPTION GRANTOR COMMON STOCK") equal to a percentage (the "OPTION SHARES
PERCENTAGE"), which Option Shares Percentage is equal to the OPTION HOLDER's
Participation Percentage as defined below in subsection (e), of 1,903,293
shares of OPTION GRANTOR Common Stock (being 19.9% of the number of shares
of OPTION GRANTOR Common Stock issued and outstanding as of November 10,
1995 (the
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"INITIAL NUMBER") in the manner set forth below, at a price (the "EXERCISE
PRICE") per OPTION GRANTOR Share of $28.9375 (which is equal to the Fair
Market Value (as defined below) of an OPTION GRANTOR Share as of the date
hereof).
(b) The Exercise Price shall be payable, at OPTION HOLDER's option, as
follows:
(i) in cash, or
(ii) subject to the receipt of all approvals of any Governmental
Authority required for OPTION GRANTOR to acquire, and OPTION HOLDER to
issue, the OPTION HOLDER Shares (as defined below) from OPTION HOLDER, in
shares of common stock, no par value, of OPTION HOLDER ("OPTION HOLDER
SHARES"),
in either case in accordance with Section 4 hereof.
(c) Notwithstanding the foregoing, in no event shall the number of
OPTION GRANTOR Shares for which the OPTION GRANTOR Option is exercisable
exceed the product of the Option Shares Percentage and the Initial Number,
subject to adjustment as provided in Section 12.
(d) As used herein, the "FAIR MARKET VALUE" of any share shall be the
average of the daily closing sales price for such share on the New York
Stock Exchange (the "NYSE") during the ten NYSE trading days prior to the
fifth NYSE trading day preceding the date such Fair Market Value is to be
determined.
(e) For purposes of this Agreement the term "PARTICIPATION PERCENTAGE"
shall have the same meaning as in Section 10.3(f)(i) of the Merger
Agreement, except that the numerator and denominator shall be calculated
based on the number of shares of WPL Common Stock which would be issuable
(or, in the case of WPL, retained by its shareholders) on a fully diluted
basis had the Effective Time occurred as of the date on which the Exercise
Notice is delivered under Section 2 hereof or the date on which demand for
the Trigger Payment (as defined herein) is given under Section 5 hereof, as
the case may be. Other capitalized terms used herein but not defined herein
shall have the meanings set forth in the Merger Agreement.
2. EXERCISE OF OPTION.
(a) The OPTION GRANTOR Option may be exercised by OPTION HOLDER, in
whole or in part, at any time or from time to time after the Merger
Agreement becomes terminable by OPTION HOLDER under circumstances which
could entitle OPTION HOLDER to a termination fee under Section 10.3(a) of
the Merger Agreement (provided that the events specified in Section
10.3(a)(ii)(A) of the Merger Agreement shall have occurred, although the
events specified in Section 10.3(a)(ii)(B) thereof need not have occurred),
or Section 10.3(b) of the Merger Agreement (regardless of whether the Merger
Agreement is actually terminated or whether there occurs a closing of any
Business Combination involving a Target Party or a closing by which a Target
Party becomes a Subsidiary), any such event by which the Merger Agreement
becomes so terminable by OPTION HOLDER being referred to herein as a
"TRIGGER EVENT").
(b)(i) OPTION GRANTOR shall notify OPTION HOLDER promptly in writing of
the occurrence of any Trigger Event, it being understood that the giving
of such notice by OPTION GRANTOR shall not be a condition to the right of
OPTION HOLDER to exercise the OPTION GRANTOR Option.
(ii) In the event OPTION HOLDER wishes to exercise the OPTION GRANTOR
Option, OPTION HOLDER shall deliver to OPTION GRANTOR written notice (an
"EXERCISE NOTICE") specifying the total number of OPTION GRANTOR Shares
it wishes to purchase.
(iii) Upon the giving by OPTION HOLDER to OPTION GRANTOR of the
Exercise Notice and the tender of the applicable aggregate Exercise
Price, OPTION HOLDER, to the extent permitted by law and OPTION GRANTOR's
organizational documents, and provided that the conditions to OPTION
GRANTOR's obligation to issue the OPTION GRANTOR
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<PAGE>
Shares to OPTION HOLDER hereunder set forth in Section 3 have been
satisfied or waived, shall be deemed to be the holder of record of the
OPTION GRANTOR Shares issuable upon such exercise, notwithstanding that
the stock transfer books of OPTION GRANTOR shall then be closed or that
certificates representing such OPTION GRANTOR Shares shall not then be
actually delivered to OPTION HOLDER.
(iv) Each closing of a purchase of OPTION GRANTOR Shares (a "CLOSING")
shall occur at a place, on a date, and at a time designated by OPTION
HOLDER in an Exercise Notice delivered at least two business days prior
to the date of the Closing.
(c) The OPTION GRANTOR Option shall terminate upon the earliest to occur
of:
(i) the Effective Time of the Merger;
(ii) the termination of the Merger Agreement pursuant to Section 10.1
thereof, other than under circumstances which also constitute a Trigger
Event under this Agreement;
(iii) 180 days following any termination of the Merger Agreement upon
or during the continuance of a Trigger Event (or if, at the expiration of
such 180 day period, the OPTION GRANTOR Option cannot be exercised by
reason of any applicable judgment, decree, order, law or regulation, ten
business days after such impediment to exercise shall have been removed
or shall have become final and not subject to appeal, but in no event
under this clause (iii) later than May 10, 1998); and
(iv) payment by OPTION GRANTOR of the Trigger Payment set forth in
Section 5 of this Agreement to OPTION HOLDER.
(d) Notwithstanding the foregoing, the OPTION GRANTOR Option may not be
exercised if (i) OPTION HOLDER is in material breach of any of its
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement, or
(ii) a Trigger Payment has been paid pursuant to Section 5 of this Agreement
or demand therefor has been made and not withdrawn.
3. CONDITIONS TO CLOSING. The obligation of OPTION GRANTOR to issue the
OPTION GRANTOR Shares to OPTION HOLDER hereunder is subject to the conditions
that
(a) all waiting periods, if any, under the HSR Act applicable to the
issuance and acquisition of the OPTION GRANTOR Shares hereunder shall have
expired or have been terminated;
(b) the OPTION GRANTOR Shares, and any OPTION HOLDER Shares which are
issued in payment of the Exercise Price, shall have been approved for
listing on the NYSE subject only to official notice of issuance;
(c) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any federal, state or local
administrative agency or commission or other federal, state or local
Governmental Authority, if any, required in connection with the issuance by
OPTION GRANTOR and the acquisition by OPTION HOLDER of the OPTION GRANTOR
Shares hereunder shall have been obtained or made, including, without
limitation, the approval of the SEC under Sections 9 and 10 of the Public
Utility Holding Company Act of 1935, as amended (the "1935 ACT"), the
approval of the Iowa Utilities Board, the Public Service Commission of
Minnesota and the Illinois Commerce Commission of the issuance of the OPTION
GRANTOR Shares by OPTION GRANTOR and, if applicable, the acquisition of
OPTION GRANTOR Shares by OPTION HOLDER, and the approval of the Iowa
Utilities Board of the acquisition of the OPTION GRANTOR Shares by OPTION
HOLDER and, if applicable, the acquisition by OPTION GRANTOR of the OPTION
HOLDER Shares constituting the Exercise Price hereunder; and
G-3
<PAGE>
(d) no preliminary or permanent injunction or other order by any court
of competent jurisdiction prohibiting or otherwise restraining such issuance
shall be in effect.
The condition set forth in paragraph (b) above may be waived by OPTION GRANTOR,
in the case of OPTION HOLDER Shares, and by OPTION HOLDER, in the case of OPTION
GRANTOR Shares, in the sole discretion of the waiving party.
4. CLOSING. At any Closing,
(a) OPTION GRANTOR shall deliver to OPTION HOLDER or its designee a
single certificate in definitive form representing the number of OPTION
GRANTOR Shares designated by OPTION HOLDER in its Exercise Notice, such
certificate to be registered in the name of OPTION HOLDER and to bear the
legend set forth in Section 13; and
(b) OPTION HOLDER shall deliver to OPTION GRANTOR the aggregate price
for the OPTION GRANTOR Shares so designated and being purchased by
(i) wire transfer of immediately available funds or certified check
or bank check, or
(ii) subject to the condition in Section 1(b)(ii), delivery of a
certificate or certificates representing the number of OPTION HOLDER
Shares being issued by OPTION HOLDER in consideration thereof, determined
in accordance with Section 4(c).
(c) In the event that OPTION HOLDER issues OPTION HOLDER Shares to
OPTION GRANTOR in consideration of OPTION GRANTOR Shares pursuant to Section
4(b)(ii), the number of OPTION HOLDER Shares to be so issued shall be equal
to the quotient obtained by dividing:
(i) the product of (x) the number of OPTION GRANTOR Shares with
respect to which the OPTION GRANTOR Option is being exercised and (y) the
Exercise Price, by
(ii) the Fair Market Value of the OPTION HOLDER Shares as of the date
immediately preceding the date the Exercise Notice is delivered to OPTION
GRANTOR.
(d) OPTION GRANTOR shall pay all expenses, and any and all Federal,
state and local taxes and other charges that may be payable in connection
with the preparation, issue and delivery of stock certificates under this
Section 4.
5. TRIGGER PAYMENT.
(a) TRIGGER PAYMENT. Subject to the provisions of Section 10.3(e) of
the Merger Agreement, if a Trigger Event shall have occurred and any
regulatory approval or order required for the issuance by OPTION GRANTOR, or
the acquisition by OPTION HOLDER, of the OPTION GRANTOR Option pursuant to
Section 1 hereof shall not have been obtained, OPTION HOLDER shall have the
right to receive, and OPTION GRANTOR shall pay to OPTION HOLDER, an amount
(the "TRIGGER PAYMENT") equal to the product of
(i) the maximum number of OPTION GRANTOR Shares that would have been
subject to purchase by OPTION HOLDER upon exercise of the OPTION GRANTOR
Option pursuant to Sections 1 and 2 hereof if all such regulatory
approvals or orders had been obtained, and
(ii) the difference between (A) the Market/Offer Price (as defined
herein), determined as of the date on which notice of demand for the
Trigger Payment is given by OPTION HOLDER, and (B) the Exercise Price
(but only if such Market/Offer Price is higher than such Exercise Price).
Demand for the Trigger Payment shall be given by notice in accordance with
the provisions of Section 17 hereof. The Trigger Payment shall be paid to
OPTION HOLDER by OPTION
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<PAGE>
GRANTOR on the Payment Date (as defined herein), by wire transfer of
immediately available funds to an account to be designated in writing by
OPTION HOLDER not less than two business days before the Payment Date.
(b) PAYMENT DATE. For purposes of this Section 5, "PAYMENT DATE" means
the date on which termination fees are required to be paid by OPTION GRANTOR
to OPTION HOLDER under Section 10.3(a) or 10.3(b), as the case may be, of
the Merger Agreement as a result of the occurrence of the Trigger Event
referred to in subsection (a) of this Section 5.
(c) CERTAIN CONDITIONS. OPTION GRANTOR shall have no obligation to pay
the Trigger Payment if OPTION HOLDER is in material breach of any of its
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement.
6. REPRESENTATIONS AND WARRANTIES OF OPTION GRANTOR. OPTION GRANTOR
represents and warrants to OPTION HOLDER that
(a) except as set forth in Section 6.4(a) of the Interstate Disclosure
Schedule to the Merger Agreement, OPTION GRANTOR has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder, subject in the case of the repurchase of the OPTION GRANTOR
Shares pursuant to Section 8(a) to applicable law and the provisions of
OPTION GRANTOR's Articles of Incorporation, as amended (the "OPTION GRANTOR
ARTICLES");
(b) this Agreement has been duly and validly executed and delivered by
OPTION GRANTOR, and, assuming the due authorization, execution and delivery
hereof by OPTION HOLDER and the receipt of all required regulatory
approvals, constitutes a valid and binding obligation of OPTION GRANTOR,
enforceable against OPTION GRANTOR in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally, and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought;
(c) OPTION GRANTOR has taken all necessary corporate action to authorize
and reserve for issuance and to permit it to issue, upon exercise of the
OPTION GRANTOR Option, and at all times from the date hereof through the
expiration of the OPTION GRANTOR Option will have reserved, the Initial
Number of authorized and unissued OPTION GRANTOR Shares, such amount being
subject to adjustment as provided in Section 12, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable;
(d) upon delivery of the OPTION GRANTOR Shares to OPTION HOLDER upon the
exercise of the OPTION GRANTOR Option, OPTION HOLDER will acquire the OPTION
GRANTOR Shares free and clear of all claims, liens, charges, encumbrances
and security interests of any nature whatsoever;
(e) except as described in Section 6.4(b) of the Interstate Disclosure
Schedule to the Merger Agreement, the execution and delivery of this
Agreement by OPTION GRANTOR does not, and, subject to compliance with
applicable law and the OPTION GRANTOR Articles with respect to the
repurchase of the OPTION GRANTOR Shares pursuant to Section 8(a), the
consummation by OPTION GRANTOR of the transactions contemplated hereby will
not violate, conflict with, or result in a breach of any provision of, or
constitute a default (with or without notice or a lapse of time, or both)
under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination, cancellation, or
acceleration of any obligation or the loss of a material benefit under, or
the creation of a lien, pledge, security interest or other encumbrance on
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<PAGE>
assets (any such conflict, violation, default, right of termination,
cancellation, acceleration, loss or creation, hereinafter a "VIOLATION") of
OPTION GRANTOR or any of its Subsidiaries, pursuant to
(i) any provision of the OPTION GRANTOR Articles or the Bylaws of
OPTION GRANTOR,
(ii) any provisions of any material loan or credit agreement, note,
mortgage, indenture, lease, benefit plan or other agreement, obligation,
instrument, permit, concession, franchise or license (any of the
foregoing in effect on the date hereof being referred to as a "MATERIAL
CONTRACT") of OPTION GRANTOR or its subsidiaries or to which any of them
is a party, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to OPTION GRANTOR or its properties or assets,
which Violation, in the case of each clauses (ii) and (iii), could
reasonably be expected to have an OPTION GRANTOR Material Adverse Effect
(except that no representation or warranty is given concerning any Violation
of a Material Contract with respect to the repurchase of OPTION GRANTOR
Shares pursuant to Section 8(a));
(f) except as described in Section 6.4(c) of the Interstate Disclosure
Schedule to the Merger Agreement or Section 1 or 3 hereof, the execution and
delivery of this Agreement by OPTION GRANTOR does not, and the performance
of this Agreement by OPTION GRANTOR will not, require any consent, approval,
authorization or permit of, filing with or notification to, any Governmental
Authority;
(g) none of OPTION GRANTOR, any of its affiliates or anyone acting on
its or their behalf, has issued, sold or offered any security of OPTION
GRANTOR to any person under circumstances that would cause the issuance and
sale of OPTION GRANTOR Shares, as contemplated by this Agreement, to be
subject to the registration requirements of the Securities Act as in effect
on the date hereof, and, assuming the representations and warranties of
OPTION HOLDER contained in Section 7(g) are true and correct, the issuance,
sale and delivery of the OPTION GRANTOR Shares hereunder would be exempt
from the registration and prospectus delivery requirements of the Securities
Act, as in effect on the date hereof (and OPTION GRANTOR shall not take any
action which would cause the issuance, sale, and delivery of OPTION GRANTOR
Shares hereunder not to be exempt from such requirements); and
(h) any OPTION HOLDER Shares acquired pursuant to this Agreement will be
acquired for OPTION GRANTOR's own account, for investment purposes only, and
will not be acquired by OPTION GRANTOR with a view to the public
distribution thereof in violation of any applicable provision of the
Securities Act.
7. REPRESENTATIONS AND WARRANTIES OF OPTION HOLDER. OPTION HOLDER
represents and warrants to OPTION GRANTOR that
(a) except as set forth in Schedule 5.4(a) of the IES Disclosure
Schedule to the Merger Agreement, OPTION HOLDER has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder;
(b) this Agreement has been duly and validly executed and delivered by
OPTION HOLDER and, assuming the due authorization, execution and delivery
hereof by OPTION GRANTOR and the receipt of all required regulatory
approvals, constitutes a valid and binding obligation of OPTION HOLDER,
enforceable against OPTION HOLDER in accordance with its respective terms,
except as may be limited by applicable bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of
creditors' rights generally, and except that the availability of equitable
remedies, including specific performance, may be subject to the discretion
of any court before which any proceeding may be brought;
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(c) prior to any delivery of OPTION HOLDER Shares in consideration of
the purchase of OPTION GRANTOR Shares pursuant hereto, OPTION HOLDER will
have taken all necessary corporate action to authorize for issuance and to
permit it to issue such OPTION HOLDER Shares, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable;
(d) upon any delivery of such OPTION HOLDER Shares to OPTION GRANTOR in
consideration of the purchase of OPTION GRANTOR Shares pursuant hereto,
OPTION GRANTOR will acquire the OPTION HOLDER Shares free and clear of all
claims, liens, charges, encumbrances and security interests of any nature
whatsoever;
(e) except as described in Section 5.4(b) of the IES Disclosure Schedule
to the Merger Agreement, the execution and delivery of this Agreement by
OPTION HOLDER does not, and the consummation by OPTION HOLDER of the
transactions contemplated hereby will not, violate, conflict with, or result
in the breach of any provision of, or constitute a default (with or without
notice or a lapse of time, or both) under, or result in any Violation by
OPTION HOLDER or any of its Subsidiaries, pursuant to
(i) any provision of the Articles of Incorporation or Bylaws of
OPTION HOLDER,
(ii) any Material Contract of OPTION HOLDER or any of its
subsidiaries or to which any of them is a party, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to OPTION HOLDER or its properties or assets,
which Violation, in the case of each of clauses (ii) or (iii), would have an
OPTION HOLDER Material Adverse Effect;
(f) except as described in Section 5.4(c) of the IES Disclosure Schedule
to the Merger Agreement or Section 1 or 3 hereof, the execution and delivery
of this Agreement by OPTION HOLDER does not, and the consummation by OPTION
HOLDER of the transactions contemplated hereby will not, require any
consent, approval, authorization or permit of, filing with or notification
to, any Governmental Authority; and
(g) any OPTION GRANTOR Shares acquired upon exercise of the OPTION
GRANTOR Option will be acquired for OPTION HOLDER's own account, for
investment purposes only and will not be, and the OPTION GRANTOR Option is
not being, acquired by OPTION HOLDER with a view to the public distribution
thereof, in violation of any applicable provision of the Securities Act.
8. CERTAIN REPURCHASES.
(a) OPTION HOLDER "PUT". At the request of OPTION HOLDER by written
notice (x) at any time during which the OPTION GRANTOR Option is exercisable
pursuant to Section 2 (the "REPURCHASE PERIOD"), OPTION GRANTOR (or any
successor entity thereof) shall, if permitted by applicable law, the OPTION
GRANTOR Articles and Bylaws and OPTION GRANTOR's Material Contracts,
repurchase from OPTION HOLDER all or any portion of the OPTION GRANTOR
Option, at the price set forth in subparagraph (i) below, or, (y) at any
time prior to May 10, 1997 (provided that such date shall be extended to May
10, 1998 under the circumstances where the date after which either party may
terminate the Merger Agreement pursuant to Section 10.1(b) of the Merger
Agreement has been extended to May 10, 1998), OPTION GRANTOR (or any
successor entity thereof) shall, if permitted by applicable law, the
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OPTION GRANTOR Articles and Bylaws and OPTION GRANTOR's Material Contracts,
repurchase from OPTION HOLDER all or any portion of the OPTION GRANTOR
Shares purchased by OPTION HOLDER pursuant to the OPTION GRANTOR Option, at
the price set forth in subparagraph (ii) below:
(i)(A) The difference between the "Market/Offer Price" (as defined
below) for shares of OPTION GRANTOR Common Stock as of the date OPTION
HOLDER gives notice of its intent to exercise its rights under this
Section 8 and the Exercise Price, multiplied by the number of OPTION
GRANTOR Shares purchasable pursuant to the OPTION GRANTOR Option (or
portion thereof with respect to which OPTION HOLDER is exercising its
rights under this Section 8), but only if the Market/Offer Price is
greater than the Exercise Price.
(B) For purposes of this Agreement, "MARKET/OFFER PRICE" shall mean,
as of any date, the higher of (I) the price per share offered as of such
date pursuant to any tender or exchange offer or other offer with respect
to a Business Combination involving OPTION GRANTOR as the Target Party
which was made prior to such date and not terminated or withdrawn as of
such date and (II) the Fair Market Value of OPTION GRANTOR Common Stock
as of such date.
(ii)(A) The product of (I) the sum of (a) the Exercise Price paid by
OPTION HOLDER per OPTION GRANTOR Share acquired pursuant to the OPTION
GRANTOR Option, and (b) the difference between the "Offer Price" (as
defined below) and the Exercise Price, but only if the Offer Price is
greater than the Exercise Price, and (II) the number of OPTION GRANTOR
Shares so to be repurchased pursuant to this Section 8.
(B) For purposes of this clause (ii), the "OFFER PRICE" shall be the
highest price per share offered pursuant to a tender or exchange offer or
other Business Combination offer involving OPTION GRANTOR as the Target
Party during the Repurchase Period prior to the delivery by OPTION HOLDER
of a notice of repurchase.
(b) REDELIVERY OF OPTION HOLDER SHARES. If OPTION HOLDER shall have
previously elected to purchase OPTION GRANTOR Shares pursuant to the
exercise of the OPTION GRANTOR Option by the issuance and delivery of OPTION
HOLDER Shares, then OPTION GRANTOR shall, if so requested by OPTION HOLDER,
in fulfillment of its obligation pursuant to Section 8(a)(y) (that is, with
respect to the Exercise Price only and without limitation to its obligation
to pay additional consideration under clause (b) of Section 8(a)(ii)(A)(I)),
redeliver the certificates for such OPTION HOLDER Shares to OPTION HOLDER,
free and clear of all liens, claims, charges and encumbrances of any kind or
nature whatsoever; PROVIDED, HOWEVER, that if at any time less than all of
the OPTION GRANTOR Shares so purchased by OPTION HOLDER pursuant to the
OPTION GRANTOR Option are to be repurchased by OPTION GRANTOR pursuant to
Section 8(a)(y), then (i) OPTION GRANTOR shall be obligated to redeliver to
OPTION HOLDER the same proportion of such OPTION HOLDER Shares as the number
of OPTION GRANTOR Shares that OPTION GRANTOR is then obligated to repurchase
bears to the number of OPTION GRANTOR Shares acquired by OPTION HOLDER upon
exercise of the OPTION GRANTOR Option and (ii) OPTION HOLDER shall issue to
OPTION GRANTOR new certificates representing those OPTION HOLDER Shares
which are not due to be redelivered to OPTION HOLDER pursuant to this
Section 8(b) to the extent that excess OPTION HOLDER Shares are included in
the certificates redelivered to OPTION HOLDER by OPTION GRANTOR.
(c) PAYMENT AND REDELIVERY OF OPTION GRANTOR OPTIONS OR SHARES. In the
event OPTION HOLDER exercises its rights under this Section 8, OPTION
GRANTOR shall, within ten business days thereafter, pay the required amount
to OPTION HOLDER in immediately available funds and OPTION HOLDER shall
surrender to OPTION GRANTOR the OPTION GRANTOR Option or the certificate or
certificates evidencing the OPTION GRANTOR Shares purchased by OPTION HOLDER
pursuant hereto, and OPTION HOLDER shall warrant
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that it owns the OPTION GRANTOR Option or such shares and that the OPTION
GRANTOR Option or such shares are then free and clear of all liens, claims,
damages, charges and encumbrances of any kind or nature whatsoever.
(d) OPTION HOLDER "CALL". If OPTION HOLDER has elected to purchase
OPTION GRANTOR Shares pursuant to the exercise of the OPTION GRANTOR Option
by the issuance and delivery of OPTION HOLDER Shares, notwithstanding that
OPTION HOLDER may no longer hold any such OPTION GRANTOR Shares or that
OPTION HOLDER elects not to exercise its other rights under this Section 8,
OPTION HOLDER may require, at any time or from time to time prior to May 10,
1997 (provided that such date shall be extended to May 10, 1998 under the
circumstances where the date after which either party may terminate the
Merger Agreement pursuant to Section 10.1(b) of the Merger Agreement has
been extended to May 10, 1998), OPTION GRANTOR to sell to OPTION HOLDER any
such OPTION HOLDER Shares at the price attributed to such OPTION HOLDER
Shares pursuant to Section 4 plus interest at the rate of 8.75% per annum on
such amount from the Closing Date relating to the exchange of such OPTION
HOLDER Shares pursuant to Section 4 to the Closing Date under this Section
8(d) less any dividends on such OPTION HOLDER Shares paid during such period
or declared and payable to stockholders of record on a date during such
period.
(e) REPURCHASE PRICE REDUCED AT OPTION HOLDER'S OPTION. In the event
the repurchase price specified in Section 8(a) would subject the purchase of
the OPTION GRANTOR Option or the OPTION GRANTOR Shares purchased by OPTION
HOLDER pursuant to the OPTION GRANTOR Option to a vote of the shareholders
of OPTION GRANTOR pursuant to applicable law or the OPTION GRANTOR Articles,
then OPTION HOLDER may, at its election, reduce the repurchase price to an
amount which would permit such repurchase without the necessity for such a
shareholder vote.
9. VOTING OF SHARES. Following the date hereof and prior to the fifth
anniversary of the date hereof (the "EXPIRATION DATE"), each party shall vote
any shares of capital stock of the other party acquired by such party pursuant
to this Agreement ("RESTRICTED SHARES"), including any OPTION HOLDER Shares
issued pursuant to Section 1(b), or otherwise beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT")), by such party on each matter submitted to a vote
of shareholders of such other party for and against such matter in the same
proportion as the vote of all other shareholders of such other party are voted
(whether by proxy or otherwise) for and against such matter.
10. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expiration Date, neither
party shall, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by such party, other than (i) pursuant to Section 8, or
(ii) in accordance with Section 10(b) or Section 11.
(b) PERMITTED SALES. Following the termination of the Merger
Agreement, a party shall be permitted to sell any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or
exchange offer that has been approved or recommended, or otherwise
determined to be fair to and in the best interests of the shareholders of
the other party, by a majority of the members of the Board of Directors of
such other party, which majority shall include a majority of directors who
were directors prior to the announcement of such tender or exchange offer.
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11. REGISTRATION RIGHTS.
(a) Following the termination of the Merger Agreement, either party
hereto that owns Restricted Shares (a "DESIGNATED HOLDER") may by written
notice (the "REGISTRATION NOTICE") to the other party (the "REGISTRANT")
request the Registrant to register under the Securities Act all or any part
of the Restricted Shares beneficially owned by such Designated Holder (the
"REGISTRABLE SECURITIES") pursuant to a bona fide firm commitment
underwritten public offering, in which the Designated Holder and the
underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use their best efforts to
prevent any person (including any Group (as used in Rule 13d-5 under the
Exchange Act)) and its affiliates from purchasing through such offering
Restricted Shares representing more than 1% of the outstanding shares of
common stock of the Registrant on a fully diluted basis (a "PERMITTED
OFFERING").
(b) The Registration Notice shall include a certificate executed by the
Designated Holder and its proposed managing underwriter, which underwriter
shall be an investment banking firm of nationally recognized standing (the
"MANAGER"), stating that
(i) they have a good faith intention to commence promptly a Permitted
Offering, and
(ii) the manager in good faith believes that, based on the
then-prevailing market conditions, it will be able to sell the
Registrable Securities at a per share price equal to at least 80% of the
then Fair Market Value of such shares.
(c) The Registrant (and/or any person designated by the Registrant)
shall thereupon have the option exercisable by written notice delivered to
the Designated Holder within ten business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities proposed to be so sold for cash at a price (the
"OPTION PRICE") equal to the product of (i) the number of Registrable
Securities to be so purchased by the Registrant and (ii) the then Fair
Market Value of such shares.
(d) Any purchase of Registrable Securities by the Registrant (or its
designee) under Section 11(c) shall take place at a closing to be held at
the principal executive offices of the Registrant or at the offices of its
counsel at any reasonable date and time designated by the Registrant and/or
such designee in such notice within twenty business days after delivery of
such notice, and any payment for the shares to be so purchased shall be made
by delivery at the time of such closing in immediately available funds.
(e) If the Registrant does not elect to exercise its option pursuant to
this Section 11 with respect to all Registrable Securities, it shall use its
best efforts to effect, as promptly as practicable, the registration under
the Securities Act of the unpurchased Registrable Securities proposed to be
so sold; PROVIDED, HOWEVER, that
(i) neither party shall be entitled to demand more than an aggregate
of two effective registration statements hereunder, and
(ii) the Registrant will not be required to file any such
registration statement during any period of time (not to exceed 40 days
after such request in the case of clause (A) below or 90 days in the case
of clauses (B) and (C) below) when
(A) the Registrant is in possession of material non-public
information which it reasonably believes would be detrimental to be
disclosed at such time and, in the opinion of counsel to the
Registrant, such information would be required to be disclosed if a
registration statement were filed at that time;
(B) the Registrant is required under the Securities Act to
include audited financial statements for any period in such
registration statement and such financial statements are not yet
available for inclusion in such registration statement; or
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(C) the Registrant determines, in its reasonable judgment, that
such registration would interfere with any financing, acquisition or
other material transaction involving the Registrant or any of its
affiliates.
(f) The Registrant shall use its reasonable best efforts to cause any
Registrable Securities registered pursuant to this Section 11 to be
qualified for sale under the securities or Blue Sky laws of such
jurisdictions as the Designated Holder may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
PROVIDED, HOWEVER, that the Registrant shall not be required to qualify to
do business in, or consent to general service of process in, any
jurisdiction by reason of this provision.
(g) The registration rights set forth in this Section 11 are subject to
the condition that the Designated Holder shall provide the Registrant with
such information with respect to such holder's Registrable Securities, the
plans for the distribution thereof, and such other information with respect
to such holder as, in the reasonable judgment of counsel for the Registrant,
is necessary to enable the Registrant to include in such registration
statement all material facts required to be disclosed with respect to a
registration thereunder.
(h) A registration effected under this Section 11 shall be effected at
the Registrant's expense, except for underwriting discounts and commissions
and the fees and the expenses of counsel to the Designated Holder, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as is
customary in connection with underwritten public offerings as such
underwriters may reasonably require.
(i) In connection with any registration effected under this Section 11,
the parties agree
(i) to indemnify each other and the underwriters in the customary
manner,
(ii) to enter into an underwriting agreement in form and substance
customary for transactions of such type with the Manager and the other
underwriters participating in such offering, and
(iii) to take all further actions which shall be reasonably necessary
to effect such registration and sale (including if the Manager deems it
necessary, participating in road-show presentations).
(j) The Registrant shall be entitled to include (at its expense)
additional shares of its common stock in a registration effected pursuant to
this Section 11 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such
offering.
12. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without limitation to any
restriction on OPTION GRANTOR contained in this Agreement or in the Merger
Agreement, in the event of any change in OPTION GRANTOR Common Stock by reason
of stock dividends, splitups, mergers (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the OPTION GRANTOR Option, and the
purchase price per share provided in Section 1, shall be adjusted appropriately
to restore to OPTION HOLDER its rights hereunder, including the right to
purchase from OPTION GRANTOR (or its successors) shares of OPTION GRANTOR Common
Stock (or such other shares or securities into which OPTION GRANTOR Common Stock
has been so changed) representing the Option Shares Percentage of the Initial
Number of shares of OPTION GRANTOR Common Stock for the aggregate Exercise Price
calculated as of the date of this Agreement as provided in Section 1.
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13. RESTRICTIVE LEGENDS. Each certificate representing OPTION GRANTOR
Shares issued to OPTION HOLDER hereunder, and OPTION HOLDER Shares, if any,
delivered to OPTION GRANTOR at a Closing, shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR
BLUE SKY LAWS, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF
AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE
ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE
OPTION HOLDER STOCK OPTION AND TRIGGER PAYMENT AGREEMENT, DATED AS OF
NOVEMBER 10, 1995, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER UPON
REQUEST.
It is understood and agreed that:
(i) the reference to the resale restrictions of the Securities Act and
state securities or Blue Sky laws in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if OPTION
HOLDER or OPTION GRANTOR, as the case may be, shall have delivered to the
other party a copy of a letter from the staff of the SEC, or an opinion of
counsel, in form and substance satisfactory to the other party, to the
effect that such legend is not required for purposes of the Securities Act
or such laws;
(ii) the reference to the provisions to this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without
such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in
the preceding clauses (i) and (ii) are both satisfied.
In addition, such certificates shall bear any other legend as may be required by
law. Certificates representing shares sold in a registered public offering
pursuant to Section 11 shall not be required to bear the legend set forth in
this Section 13.
14. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
(b) Except as expressly provided for in this Agreement, neither this
Agreement nor the rights or obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the
other party.
(c) Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature
whatsoever by reason of this Agreement.
(d) Any Restricted Shares sold by a party in compliance with the
provisions of Section 11 shall, upon consummation of such sale, be free of
the restrictions imposed with respect to such shares by this Agreement,
unless and until such party shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall not
be entitled to the registration rights of such party.
15. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable harm
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specified terms or were otherwise breached.
It is accordingly agreed that the parties hereto shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or equity.
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16. VALIDITY.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
(b) In the event any court or other competent authority holds any
provisions of this Agreement to be null, void or unenforceable, the parties
hereto shall negotiate in good faith the execution and delivery of an
amendment to this Agreement in order, as nearly as possible, to effectuate,
to the extent permitted by law, the intent of the parties hereto with
respect to such provision and the economic effects thereof.
(c) Subject to Section 5, if for any reason any such court or regulatory
agency determines that OPTION HOLDER is not permitted to acquire, or OPTION
GRANTOR is not permitted to repurchase pursuant to Section 8, the full
number of shares of OPTION GRANTOR Common Stock provided in Section 1 hereof
(as the same may be adjusted), it is the express intention of OPTION GRANTOR
to allow OPTION HOLDER to acquire or to require OPTION GRANTOR to repurchase
such lesser number of shares as may be permissible without any amendment or
modification hereof.
(d) Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null,
void or unenforceable, or order any party to take any action inconsistent
herewith, or not take any action required herein, the other party shall not
be entitled to specific performance of such provision or part hereof or to
any other remedy, including but not limited to money damages, for breach
hereof or of any other provision of this Agreement or part hereof as the
result of such holding or order.
17. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if (a) delivered personally, or (b) if sent by
overnight courier service (receipt confirmed in writing), or (c) if delivered by
facsimile transmission (with receipt confirmed), or (d) five days after being
mailed by registered or certified mail (return receipt requested) to the parties
in each case to the following addresses (or at such other address for a party as
shall be specified by like notice):
A. If to OPTION HOLDER, to:
IES Industries Inc.
IES Tower
200 First Street S.E.
Cedar Rapids, Iowa 52401
Attention: Lee Liu
Fax: (319) 398-4204
with a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004-1490
Attention: Stephen R. Rusmisel, Esq.
Fax: (212) 858-1500
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B. If to OPTION GRANTOR, to:
Interstate Power Company
1000 Main Street
Dubuque, Iowa 52004-0789
Attention: Wayne H. Stoppelmoor
Chairman
Fax: (319) 557-2202
with a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005-1413
Attention: John T. O'Connor, Esq.
Fax: (212) 530-5219
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State and without regard to its choice
of law principles or to any requirement as to jurisdiction or service of process
contained in Section 2708 of Title 6 of the Delaware Code.
19. INTERPRETATION.
(a) When reference is made in this Agreement to Articles, Sections or
Exhibits, such reference shall be to an Article, Section or Exhibit of this
Agreement, as the case may be, unless otherwise indicated.
(b) The table of contents and headings contained in this Agreement are
for reference purposes and shall not affect in any way the meaning or
interpretation of the Agreement.
(c) Whenever the words "include," "includes," or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
(d) Whenever "or" is used in this Agreement it shall be construed in the
nonexclusive sense.
20. COUNTERPARTS; EFFECT. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
21. AMENDMENTS; WAIVER. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
22. EXTENSION OF TIME PERIODS. The time periods for exercises of certain
rights under Sections 2, 7 and 8 shall be extended (but in no event by more than
six months):
(a) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights, and for the expiration of all statutory waiting
periods; and
(b) to the extent necessary to avoid any liability under Section 16(b)
of the Exchange Act by reason of such exercise.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
INTERSTATE POWER COMPANY
By: /s/ WAYNE H. STOPPELMOOR
--------------------------------------
Name: Wayne H. Stoppelmoor
Title: Chairman of the Board,
President and Chief
Executive Officer
IES INDUSTRIES INC.
By: /s/ LEE LIU
--------------------------------------
Name: Lee Liu
Title: Chairman of the Board,
President and Chief
Executive Officer
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ANNEX H
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between Interstate Energy Corporation, a Wisconsin
corporation (the "Company"), and Lee Liu (the "Executive"), dated as of the
day of , 199 .
WHEREAS, WPL Holdings, Inc., IES Industries Inc. ("IES Industries"),
Interstate Power Company, a Delaware corporation, WPLH Acquisition Co. and
Interstate Power Company, a Wisconsin corporation (collectively, the "Merger
Parties"), have entered into an Agreement and Plan of Merger dated as of
November 10, 1995, as amended (the "Merger Agreement"); and
WHEREAS, the Merger Parties wish to provide for the orderly succession of
management of the Company following the Effective Time (as defined in the Merger
Agreement); and
WHEREAS, the Merger Parties further wish to provide for the employment by
the Company of the Executive, and the Executive wishes to serve the Company, in
the capacities and on the terms and conditions set forth in this Agreement:
NOW, THEREFORE, it is hereby agreed as follows:
1. EMPLOYMENT PERIOD. The Company shall employ the Executive, and the
Executive shall serve the Company as an employee and officer of the Company, on
the terms and conditions set forth in this Agreement, for the period commencing
on the Effective Time and ending on the date immediately preceding the second
anniversary of the Effective Time (the "Employment Period"). Upon the
termination of the Employment Period the Executive will have the status of a
retired senior executive officer of the Company and shall be entitled to all of
the rights, privileges and benefits provided to such retired officers.
2. POSITION AND DUTIES.
(a) TITLE. During the Employment Period, the Executive shall serve as
Chairman of the Board of Directors (the "Board") of the Company
("Chairman"). Upon termination of the Employment Period, the Executive shall
continue to be eligible to serve as a director of the Company.
(b) DUTIES. During the Employment Period, the Executive shall perform
the normal and ordinary duties of Chairman and shall serve, together with
the Vice Chairman of the Board and the Chief Executive Officer, as a member
of the senior executive team of the Company charged with responsibility for
developing and implementing programs to achieve the corporate integration
and restructuring of the Merger Parties following the Effective Time. In
addition, he will have involvement, as appropriate, in government regulatory
initiatives, will be involved in major economic development initiatives of
the Company and will serve in such other capacities and will perform such
other functions consistent with his status as Chairman as may be reasonably
assigned by the Board from time to time. The Executive shall devote the
necessary time and effort required to perform the above described duties.
(c) OFFICE. The Executive's services hereunder shall be performed
primarily at the existing executive offices of IES Industries located in
Cedar Rapids, Iowa, subject to such business travel as shall be necessary
and appropriate.
3. COMPENSATION.
(a) BASE SALARY. During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary") of not less than Four
Hundred Thousand Dollars ($400,000), payable in accordance with the
Company's regular payroll practice for its senior executives, as in effect
from time to time. During the Employment Period, the Annual Base Salary
shall be reviewed for possible increase at least annually. Any increase in
the Annual Base Salary shall not
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limit or reduce any other obligation of the Company under this Agreement.
The Annual Base Salary shall not be reduced after any such increase, and the
term "Annual Base Salary" shall thereafter refer to the Annual Base Salary
as so increased.
(b) INCENTIVE COMPENSATION. During the Employment Period, the
Executive shall participate in such short-term incentive compensation plans
and long-term incentive compensation plans as shall be decided upon in the
discretion of the Compensation Committee of the Board (the "Compensation
Committee") (the latter to consist of plans offering stock options,
restricted stock and/or other long-term incentive compensation), providing
him with the opportunity to earn, on an annualized basis, short-term and
long-term incentive compensation (collectively, the "Incentive
Compensation") not less than the aggregate amount of the incentive
compensation that the Executive had an opportunity to earn under IES
Industries' Management Incentive Compensation Plan (the "MICP") and
Long-Term Incentive Plan (the "LTIP") in respect of the calendar year ended
immediately prior to the Effective Time, and such Incentive Compensation
shall be payable in accordance with standards (I.E., performance criteria,
performance levels, etc.) which are no less favorable to the Executive than
those applicable with respect to the amounts that were payable to the
Executive under each of the MICP and the LTIP in respect of the calendar
year ended immediately prior to the Effective Time.
(c) OTHER BENEFITS. In addition, and without limiting the generality
of the foregoing, during the Employment Period and thereafter: (A) the
Executive shall be entitled to participate in all applicable incentive,
savings and retirement plans, practices, policies and programs of the
Company and its affiliates to the same extent as other senior executives
(or, where applicable, retired senior executives) of the Company, (B) the
Executive and/or the Executive's family, as the case may be, shall be
eligible for immediate participation in (and without any limitation for pre-
existing conditions), and shall receive all benefits under, all applicable
welfare benefit plans, practices, policies and programs provided by the
Company and its affiliates, including, without limitation, medical,
prescription, dental, disability, salary continuance, accidental death and
travel insurance plans and programs, to the same extent as other senior
executives (or, where applicable, retired senior executives) of the Company,
provided, however that the Executive's aggregate benefits as a retired
senior executive under the plans described in this clause (B) shall not be
less than the benefits provided by IES Industries to its retired senior
executive officers as of the date of this Agreement and (C) the Company
shall maintain, at no cost to the Executive, life insurance on the life of
the Executive payable to one or more beneficiaries designated by the
Executive in an amount not less than the aggregate amount of the life
insurance provided to the Executive by IES Industries immediately prior to
the Effective Time.
(d) PERQUISITES. During the Employment Period, the Executive shall be
entitled to receive such perquisites as the Company may establish from time
to time which are commensurate with his position and at least comparable to
those received by other senior executives at the Company.
(e) EXPENSE REIMBURSEMENT. The Company shall reimburse the Executive
for all reasonable and documented expenses incurred by the Executive in the
performance of the Executive's duties under this Agreement.
(f) SUPPLEMENTAL RETIREMENT BENEFIT. The Executive and IES Industries
have entered into that certain Amended and Restated Supplemental Retirement
Agreement dated February 1, 1993, as amended (the "Supplemental Retirement
Agreement"). The Company shall assume, honor and perform the obligations of
IES Industries under the Supplemental Retirement Agreement (as amended as
set forth below). In addition, the Company and the Executive agree that as
of the Effective Time the terms of the Supplemental Retirement Agreement
shall be amended as provided below. (Capitalized terms used below in this
Section 3(f) which are not otherwise specifically defined in this Agreement
shall have the meanings ascribed to such terms in the Supplemental
Retirement Agreement as amended hereby). The Supplemental Retirement
Agreement shall be amended as follows:
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(i) the term "Annual Salary" as defined in Section 2.1 of the
Supplemental Retirement Agreement for purposes of calculating the benefit
payable to the Executive and his Designated Beneficiary under the
Supplemental Retirement Agreement shall be modified so that "Annual
Salary" shall be the sum of (A) the Executive's Annual Base Salary and
(B) an amount equal to the average of the annual incentive awards payable
to the Executive under the MICP, or any other annual incentive
arrangement of IES Industries or the Company, in respect of each of the
three (3) consecutive annual performance periods ended immediately prior
to the termination of the Executive's employment with the Company;
(ii) the Executive shall be fully vested in and entitled to receive,
at Normal Retirement Age, the full amount of his Normal Retirement
Benefit under the Supplemental Retirement Agreement, as amended hereby,
and the Executive shall be deemed to have attained Normal Retirement Age
for all purposes under the Supplemental Retirement Agreement as of the
date on which he ceases, for any reason, to receive the compensation and
benefits set forth in paragraphs (a), (b) and (c) of Section 3 of this
Agreement;
(iii) Sections 3.2, 3.3 and 4.1 of the Supplemental Retirement
Agreement shall be amended to provide that in the event of the
Executive's death at any time on or after the Effective Time, the
Executive's Designated Beneficiary shall receive monthly Supplemental
Benefit payments or Death Benefit payments, as the case may be, for a
period of months that, when added to the number of months, if any, during
which the Executive received monthly benefits under the Supplemental
Retirement Agreement, will be equal to one hundred eighty (180) months;
and
(iv) for purposes of Section 9.1 of the Supplemental Retirement
Agreement, in the event of the Executive's death, the Executive shall be
treated as receiving the Supplemental Benefit portion of the Normal
Retirement Benefit at the time of death regardless of whether he was
actually receiving such Supplemental Benefit at such time.
The foregoing modifications to the terms of the Supplemental Retirement
Agreement shall take effect as of the Effective Time. As soon as practicable
following the Effective Time (but in no event later than 60 days after the
Effective Time), the Company and the Executive shall take all actions necessary
to execute a formal amendment to the Supplemental Retirement Agreement
incorporating the modifications set forth above. Until the time that such a
formal amendment is properly executed, the provisions of this Section 3(f) shall
serve and be construed, for all intents and purposes, as an amendment to the
terms of the Supplemental Retirement Agreement, and the obligations of the
Company thereunder shall be governed by the terms of the Supplemental Retirement
Agreement as so amended.
4. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. The
Company shall be entitled to terminate the Executive's employment because of
the Executive's Disability during the Employment Period. "Disability" means
that (i) the Executive has been unable, for a period of one hundred and
eighty (180) consecutive business days, to perform the Executive's duties
under this Agreement, as a result of physical or mental illness or injury,
and (ii) a physician selected by the Company or its insurers, and acceptable
to the Executive or the Executive's legal representative, has determined
that the Executive's incapacity is total and permanent. A termination of the
Executive's employment by the Company for Disability shall be communicated
to the Executive by written notice and shall be effective on the thirtieth
(30th) day after receipt of such notice by the Executive (the "Disability
Effective Date"), unless the Executive returns to full-time performance of
the Executive's duties before the Disability Effective Date.
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(b) BY THE COMPANY.
(i) The Company may terminate the Executive's employment during the
Employment Period for Cause or without Cause. "Cause" means:
A. the willful and continued failure of the Executive
substantially to perform the Executive's duties under this Agreement
(other than as a result of physical or mental illness or injury),
after the Board of Directors of the Company (the "Board") delivers to
the Executive a written demand for substantial performance that
specifically identifies the manner in which the Board believes that
the Executive has not substantially performed the Executive's duties;
or
B. illegal conduct or gross misconduct by the Executive, in
either case that is willful and results in material and demonstrable
damage to the business or reputation of the Company.
No act or failure to act on the part of the Executive shall be considered
"willful" unless it is done, or omitted to be done, by the Executive in
bad faith or without reasonable belief that the Executive's action or
omission was in the best interests of the Company. Any act or failure to
act that is based upon authority given pursuant to a resolution duly
adopted by the Board, or the advice of counsel for the Company, shall be
conclusively presumed to be done, or omitted to be done, by the Executive
in good faith and in the best interests of the Company.
(ii) A termination of the Executive's employment for Cause shall be
effected in accordance with the following procedures. The Company shall
give the Executive written notice ("Notice of Termination for Cause") of
its intention to terminate the Executive's employment for Cause, setting
forth in reasonable detail the specific conduct of the Executive that it
considers to constitute Cause and the specific provision(s) of this
Agreement on which it relies, and stating the date, time and place of the
Board Meeting for Cause. The "Board Meeting for Cause" means a meeting of
the Board at which the Executive's termination for Cause will be
considered, that takes place not less than ten (10) and not more than
twenty (20) business days after the Executive receives the Notice of
Termination for Cause. The Executive shall be given an opportunity,
together with counsel, to be heard at the Board Meeting for Cause. The
Executive's termination for Cause shall be effective when and if a
resolution is duly adopted at the Board Meeting for Cause by a two-thirds
vote of the entire membership of the Board, excluding employee directors,
stating that in the good faith opinion of the Board, the Executive is
guilty of the conduct described in the Notice of Termination for Cause,
and that conduct constitutes Cause under this Agreement.
(iii) A termination of the Executive's employment without Cause shall
be effected in accordance with the following procedures. The Company
shall give the Executive written notice ("Notice of Termination Without
Cause") of its intention to terminate the Executive's employment without
Cause, stating the date, time and place of the Board Meeting without
Cause. The "Board Meeting without Cause" means a meeting of the Board at
which the Executive's termination without Cause will be considered, that
takes place not less than ten (10) and not more than twenty (20) business
days after the Executive receives the Notice of Termination without
Cause. The Executive shall be given an opportunity, together with
counsel, to be heard at the Board Meeting without Cause. The Executive's
termination without Cause shall be effective when and if a resolution is
duly adopted at the Board Meeting without Cause by a two-thirds vote of
the entire membership of the Board, excluding employee directors, stating
that the Executive is terminated without Cause.
(c) GOOD REASON.
(i) The Executive may terminate employment for Good Reason or without
Good Reason. "Good Reason" means:
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A. the assignment to the Executive of any duties inconsistent in
any respect with paragraphs (a) and (b) of Section 2 of this
Agreement, or any other action by the Company that results in a
diminution in the Executive's position, authority, duties or
responsibilities, other than an isolated, insubstantial and
inadvertent action that is not taken in bad faith and is remedied by
the Company promptly after receipt of notice thereof from the
Executive;
B. any failure by the Company to comply with any provision of
Section 3 of this Agreement, other than an isolated, insubstantial
and inadvertent failure that it not taken in bad faith and is
remedied by the Company promptly after receipt of notice thereof from
the Executive;
C. any requirement by the Company that the Executive's services
be rendered primarily at a location or locations other than that
provided for in paragraph (c) of Section 2 of this Agreement.
D. any purported termination of the Executive's employment by
the Company for a reason or in a manner not expressly permitted by
this Agreement;
E. any failure by the Company to comply with paragraph (c) of
Section 12 of this Agreement; or
F. any other substantial breach of this Agreement by the Company
that either is not taken in good faith or is not remedied by the
Company promptly after receipt of notice thereof from the Executive.
(ii) A termination of employment by the Executive for Good Reason
shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination within six (6) months of
the event constituting Good Reason, setting forth in reasonable detail
the specific conduct of the Company that constitutes Good Reason and the
specific provision(s) of this Agreement on which the Executive relies. A
termination of employment by the Executive for Good Reason shall be
effective on the fifth (5th) business day following the date when the
Notice of Termination for Good Reason is given, unless the notice sets
forth a later date (which date shall in no event be later than (thirty)
30 days after the notice is given).
(iii) A termination of the Executive's employment by the Executive
without Good Reason shall be effected by giving the Company written
notice of the termination.
(d) DATE OF TERMINATION. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company for Cause or
without Cause or by the Executive for Good Reason is effective, or the date
on which the Executive gives the Company notice of a termination of
employment without Good Reason, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) BY THE COMPANY OTHER THAN FOR CAUSE, DEATH OR DISABILITY; BY THE
EXECUTIVE FOR GOOD REASON. If, during the Employment Period, the Company
terminates the Executive's employment, other than for Cause, Death or
Disability, or the Executive terminates employment for Good Reason, the
Company shall continue to provide the Executive with the compensation and
benefits set forth in paragraphs (a), (b) and (c) of Section 3 as if he had
remained employed by the Company pursuant to this Agreement through the end
of the Employment Period and then retired (at which time he will be treated
as eligible for all retiree welfare benefits and other benefits provided to
retired senior executives, as set forth in Sections 3(c) and (f)); PROVIDED,
that the Incentive Compensation for such period shall be equal to the
maximum Incentive Compensation that the Executive would have been eligible
to earn for such period; PROVIDED, further that in lieu of stock options,
restricted stock and other stock-based awards, the Executive
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shall be paid cash equal to the fair market value (without regard to any
restrictions) of the stock options, restricted stock and other stock-based
awards that would otherwise have been granted; PROVIDED, further, that to
the extent any benefits described in paragraph (c) of Section 3 cannot be
provided pursuant to a plan or program maintained by the Company for its
executives, the Company shall provide such benefits outside such plan or
program at no additional cost (including without limitation tax cost) to the
Executive and his family; and PROVIDED, finally, that during any period when
the Executive is eligible to receive benefits of the type described in
clause (B) of paragraph (c) of Section 3 under another employer-provided
plan, the benefits provided by the Company under this paragraph (a) of
Section 5 may be made secondary to those provided under such other plan. In
addition to the foregoing, any restricted stock outstanding on the Date of
Termination shall be fully vested as of the Date of Termination and all
options outstanding on the Date of Termination shall be fully vested and
exercisable and shall remain in effect and exercisable through the end of
their respective terms, without regard to the termination of the Executive's
employment. The payments and benefits provided pursuant to this paragraph
(a) of Section 5 are intended as liquidated damages for a termination of the
Executive's employment by the Company other than for Cause or Disability or
for the actions of the Company leading to a termination of the Executive's
employment by the Executive for Good Reason, and shall be the sole and
exclusive remedy therefor.
(b) DEATH AND DISABILITY. If the Executive's employment is terminated
by reason of the Executive's death or Disability during the Employment
Period, the Company shall pay to the Executive or, in the case of the
Executive's death, to the Executive's designated beneficiaries (or, if there
is no such beneficiary, to the Executive's surviving spouse, or if the
Executive is not survived by a spouse, to the Executive's estate or legal
representative), in a lump sum in cash within thirty (30) days after the
Date of Termination, the sum of the following amounts (the "Accrued
Obligations"): (1) any portion of the Executive's Annual Base Salary through
the Date of Termination that has been earned but not yet been paid; (2) an
amount representing the Incentive Compensation for the period that includes
the Date of Termination, computed by assuming that the amount of all such
Incentive Compensation would be equal to the maximum amount of such
Incentive Compensation that the Executive would have been eligible to earn
for such period, and multiplying that amount by a fraction, the numerator of
which is the number of days in such period through the Date of Termination,
and the denominator of which is the total number of days in the relevant
period; (3) any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) that has not yet been paid;
and (4) any accrued but unpaid Incentive Compensation and vacation pay. Any
deferred compensation (together with any accrued interest or earnings
thereon, if any) that has not yet been paid, will be paid in accordance with
the terms and conditions applicable to such deferred compensation.
(c) BY THE COMPANY FOR CAUSE; BY THE EXECUTIVE OTHER THAN FOR GOOD
REASON. If the Executive's employment is terminated by the Company for
Cause during the Employment Period, the Company shall pay the Executive the
Annual Base Salary through the Date of Termination and the amount of any
compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon), in each case to the extent not yet paid, and
the Company shall have no further obligations under this Agreement, except
as specified in Section 6 below. If the Executive voluntarily terminates
employment during the Employment Period, other than for Good Reason, the
Company shall pay the Accrued Obligations to the Executive in a lump sum in
cash within thirty (30) days of the Date of Termination, and the Company
shall have no further obligations under this Agreement, except as specified
in Section 6 below.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company for which the Executive may qualify,
nor shall anything in this Agreement limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company or any
of its affiliates relating to subject matter other than that specifically
addressed herein. Vested benefits
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and other amounts that the Executive is otherwise entitled to receive under the
Incentive Compensation, the deferred compensation and other benefit programs
listed in paragraph (c) of Section 3, or any other plan, policy, practice or
program of, or any contract or agreement with, the Company or any of its
affiliates on or after the Date of Termination shall be payable in accordance
with the terms of each such plan, policy, practice, program, contract or
agreement, as the case may be, except as explicitly modified by this Agreement.
7. FULL SETTLEMENT. The Company's obligation to make the payments provided
for in, and otherwise to perform its obligations under, this Agreement shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action that the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement. The amounts payable by the Company
under this Agreement shall not be offset or reduced by any amounts otherwise
receivable or received by the Executive from any source, except as specifically
provided in paragraph (a) of Section 5 with respect to benefits described in
clause (B) of paragraph (c) of Section 3.
8. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies and
their respective businesses that the Executive obtains during the Executive's
employment by the Company or any of its affiliated companies and that is not
public knowledge (other than secret or confidential information, knowledge or
data which becomes public knowledge as a result of the Executive's violation of
this Section 8) ("Confidential Information"). The Executive shall not
communicate, divulge or disseminate Confidential Information at any time during
or after the Executive's employment with the Company, except with the prior
written consent of the Company or as otherwise required by law or legal process.
In no event shall any asserted violation of the provisions of this Section 8
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement.
9. LIMITATION ON PAYMENTS.
(a) Notwithstanding any other provision of this Agreement, if any
portion of any payment under this Agreement, or under any other agreement
with or plan of the Company or its affiliates (in the aggregate "Total
Payments"), would constitute an "excess parachute payment," then the Total
Payments to be made to the Executive shall be reduced such that the value of
the aggregate Total Payments that the Executive is entitled to receive shall
be One Dollar ($1) less than the maximum amount which the Executive may
receive without becoming subject to the tax imposed by Section 4999 (or any
successor provision) of the Internal Revenue Code of 1986, as amended (the
"Code") or which the Company may pay without loss of deduction under Section
280G(a) of the Code (or any successor provision). For purposes of this
Agreement, the terms "excess parachute payment" and "parachute payments"
shall have the meanings 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 for purposes of this Agreement shall be
calculated in accordance with Section 1274(b)(2) of the Code (or any
successor provision). Within fifteen (15) days following the Date of
Termination or notice by the Company to the Executive of its belief that
there is a payment or benefit due the Executive which will result in an
excess parachute payment as defined in Section 280G of the Code (or any
successor provision), the Executive 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 Executive in his sole discretion (which may
be regular outside counsel to the Company), which opinion sets forth (i) the
amount of the Base Period Income, (ii) the amount and present value of Total
Payments and (iii) the amount and present value of any excess parachute
payments determined without regard to the limitations of this paragraph (a)
of Section 9. As used in this Agreement, the term "Base Period Income" means
an amount equal to the Executive's "annualized includible compensation for
the base period" as defined in Section 280G(d)(1) of the
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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 Executive. Such opinion shall be
dated as of the Date of Termination and addressed to the Company and the
Executive and shall be binding upon the Company and the Executive. If such
opinion determines that there would be an excess parachute payment, any
payment or benefit determined by such counsel to be includible in Total
Payments shall be reduced or eliminated as specified by the Executive in
writing delivered to the Company within thirty (30) days of his receipt of
such opinion or, if the Executive 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 paragraph (a) of Section 9, the Executive 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 Executive. If the provisions of Sections
280G and 4999 of the Code (or any successor provisions) are repealed without
succession, then this paragraph (a) of Section 9 shall be of no further
force or effect.
(b) If, notwithstanding the provisions of paragraph (a) of Section 9, it
is ultimately determined by a court or pursuant to a final determination by
the Internal Revenue Service that any portion of Total Payments is subject
to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any
successor provision), the Company shall pay to the Executive an additional
amount (the "Gross-Up Payment") such that the net amount retained by the
Executive after deduction of any Excise Tax and any interest charges or
penalties in respect of the imposition of such Excise Tax (but not any
federal, state or local income tax) on the Total Payments, and any federal,
state and local income tax and Excise Tax upon the payment provided for by
this paragraph (b) of section 9, shall be equal to the Total Payments. For
purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment
is to be made and state and local income taxes at the highest marginal rates
of taxation in the state and locality of the Executive's domicile for income
tax purposes on the date the Gross-Up Payment is made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes.
10. EXECUTIVE'S SERVICE ON THE BOARD.
(a) APPOINTMENT AND NOMINATION. The Company shall appoint the
Executive as a member of the Board for an initial three (3) year term
commencing on the Effective Date (the "Initial Board Term").
(b) BOARD AND COMMITTEE COMPENSATION. The Executive shall be
compensated for his Board services in accordance with the general policies
and practices of the Company as in effect from time to time relating to the
compensation of employee and non-employee directors, as the case may be, and
to the extent that such policies and practices provide for such
compensation.
(c) OFFICE AND SECRETARIAL ASSISTANCE. Provided that the Executive
remains in the employ of the Company as of the conclusion of the Employment
Period and continues to serve as a member of the Board throughout his
initial three-year term as a director, the Company shall provide to the
Executive, for a period of one (1) year following the conclusion of the
Employment Period, a furnished office and a full-time secretary at the
Executive's disposal at the existing executive offices of IES Industries in
Cedar Rapids, Iowa for the Executive's use in connection with any continuing
business of the Company and any personal business of the Executive.
11. ATTORNEYS' FEES. The Company agrees to pay, as incurred, to the
fullest extent permitted by law, all legal fees and expenses that the Executive
may reasonably incur as a result of any contest
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(regardless of the outcome) by the Company, the Executive or others of the
validity or enforceability of or liability under, or otherwise involving, any
provision of this Agreement, together with interest on any delayed payment at
the applicable federal rate provided for in Section 7872(f)(2)(A) of the Code.
12. SUCCESSORS.
(a) This Agreement is personal to the Executive and, without the prior
written consent of the Company, shall not be assignable by the Executive.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would have been required to perform it if no such succession had
taken place. As used in this Agreement, "Company" shall mean both the
Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
13. MISCELLANEOUS.
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Iowa, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified except by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall be
in writing and shall be given by hand delivery to the other party or by
facsimile, addressed as follows:
IF TO THE EXECUTIVE:
Mr. Lee Liu
[ ]
IF TO THE COMPANY:
Interstate Energy Corporation
222 West Washington Avenue
P.O. Box 2568
Madison, Wisconsin 53701-2568
Attn: General Counsel
or to such other address as either party furnishes to the other in writing
in accordance with this paragraph (b) of Section 13. Notices and
communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be
held invalid or unenforceable in part, the remaining portion of such
provision, together with all other provisions of this Agreement, shall
remain valid and enforceable and continue in full force and effect to the
fullest extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the Company
may withhold from amounts payable under this Agreement all federal, state,
local and foreign taxes that are required to be withheld by applicable laws
or regulations.
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(e) The Executive's or the Company's failure to insist upon strict
compliance with any provisions of, or to assert any right under, this
Agreement (including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to paragraph (c) of Section 4
of this Agreement) shall not be deemed to be a waiver of such provision or
right or of any other provision of or right under this Agreement.
(f) The Executive and the Company acknowledge that this Agreement
supersedes the Employment Agreement between IES Industries and the
Executive, dated February 27, 1991 and the Executive Change of Control
Severance Agreement between IES Industries and the Executive, dated December
12, 1989 (and any successor Executive Change of Control Severance Agreement
between the Executive and IES Industries).
(g) The rights and benefits of the Executive under this Agreement may
not be anticipated, alienated or subject to attachment, garnishment, levy,
execution or other legal or equitable process except as required by law. Any
attempt by the Executive to anticipate, alienate, assign, sell, transfer,
pledge, encumber or charge the same shall be void. Payments hereunder shall
not be considered assets of the Executive in the event of insolvency or
bankruptcy.
(h) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute
but one and the same instrument.
14. EFFECTIVENESS OF AGREEMENT. The effectiveness of this Agreement is
subject to the consummation of the Combination (as defined in the Merger
Agreement). If for any reason the Combination is not consummated in accordance
with the terms of the Merger Agreement, this Agreement shall be null and void AB
INITIO.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization of the Board of Directors, the Company has caused
this Agreement to be executed in its name on its behalf, all as of the day and
year first above written.
INTERSTATE ENERGY CORPORATION
By: ______________________________
Name: ____________________________
Title: ___________________________
__________________________________
LEE LIU
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ANNEX I
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between Interstate Energy Corporation, a Wisconsin
corporation (the "Company"), and Erroll B. Davis, Jr. (the "Executive"), dated
as of the day of , 199 .
W I T N E S S E T H T H A T
WHEREAS, the Company is party to an Agreement and Plan of Merger, as amended
(the "Merger Agreement"), dated November 10, 1995, by and among the Company, IES
Industries Inc., an Iowa corporation ("IES"), Interstate Power Company, a
Delaware corporation ("Interstate Power"), WPLH Acquisition Co., a Wisconsin
corporation and a wholly-owned subsidiary of the Company, and Interstate Power
Company, a Wisconsin corporation and a wholly-owned subsidiary of Interstate;
and
WHEREAS, the parties to the Merger Agreement wish to provide for the orderly
succession of management of the Company following the Effective Time (as defined
in the Merger Agreement); and
WHEREAS, the parties to the Merger Agreement further wish to provide for the
employment by the Company of the Executive, and the Executive wishes to serve
the Company and its subsidiaries, in the capacities and on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. EMPLOYMENT PERIOD. The Company shall employ the Executive, and the
Executive shall serve the Company, on the terms and conditions set forth in this
Agreement, for an initial period (the "Initial Period") commencing at the
Effective Time and ending on the date immediately preceding the fifth
anniversary of the Effective Time. This Agreement thereafter will automatically
renew for successive terms of one (1) year each, unless either party hereto has
given sixty (60) days' advance written notice of its or his intent to allow the
term of this Agreement to expire. The term during which the Executive is
employed by the Company hereunder (including without limitation the Initial
Period) is hereafter referred to as the "Employment Period." Upon the
termination of the Employment Period the Executive will have the status of a
retired senior executive officer of the Company and shall be entitled to all of
the rights, privileges and benefits provided to such retired officers.
2. POSITION AND DUTIES.
(a) During the first two (2) years of the Initial Period, the Executive
shall serve as President and Chief Executive Officer of the Company and
thereafter, until the end of the Employment Period, the Executive shall
serve as Chairman of the Board of Directors, President and Chief Executive
Officer of the Company; in each case with such duties and responsibilities
as are customarily assigned to such positions, and such other duties and
responsibilities not inconsistent therewith as may from time to time be
assigned to him by the Board of Directors of the Company (the "Board"). The
Executive also shall continue to serve as a member of the Board following
the Effective Time, and the Board shall propose the Executive for
re-election to the Board throughout the Employment Period.
(b) In addition to the responsibilities designated in paragraph (a) of
Section 2 above, during the three-year period following the Effective Time,
the Executive shall be entitled to serve as the Chief Executive Officer of
each entity which during such period is a subsidiary of the Company and the
Company shall cause the Executive to be appointed or elected as the Chief
Executive Officer of each such subsidiary. In his capacity as the Chief
Executive Officer of said subsidiaries, the Executive shall have such duties
and responsibilities as are customarily assigned to such position, and such
other duties and responsibilities not inconsistent therewith as may from
time
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to time be assigned to him by the Board of Directors of each such
subsidiary. During the Employment Period, the Executive also shall serve as
a member of the Board of Directors of each of the Company's subsidiaries and
the Company shall cause the Executive to be appointed, elected or re-elected
as such a director.
(c) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive shall
devote reasonable attention and time during normal business hours to the
business and affairs of the Company and its affiliates and, to the extent
necessary to discharge the responsibilities assigned to the Executive under
this Agreement, use the Executive's reasonable best efforts to carry out
such responsibilities faithfully and efficiently. It shall not be considered
a violation of the foregoing for the Executive to serve on corporate,
industry, civic or charitable boards or committees, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company and its
affiliates in accordance with this Agreement.
(d) The Company's headquarters shall be located in Madison, Wisconsin
and the Executive shall reside in the general area of Madison, Wisconsin.
During the Employment Period, the Company also will provide the Executive
with a furnished apartment in the Cedar Rapids, Iowa area.
3. COMPENSATION.
(a) BASE SALARY. The Executive's compensation during the Employment
Period shall be determined by the Board upon the recommendation of the
Compensation and Personnel Committee (or other appropriate committee) of the
Board, subject to the next sentence and paragraph (b) of Section 3. During
the Employment Period, the Executive shall receive an annual base salary
("Annual Base Salary") of not less than his aggregate annual base salary
from the Company and its subsidiaries as in effect immediately before the
Effective Time. The Annual Base Salary shall be payable in accordance with
the Company's regular payroll practice for its senior executives, as in
effect from time to time. During the Employment Period, the Annual Base
Salary shall be reviewed for possible increase at least annually. Any
increase in the Annual Base Salary shall not limit or reduce any other
obligation of the Company under this Agreement. The Annual Base Salary shall
not be reduced after any such increase, and the term "Annual Base Salary"
shall thereafter refer to the Annual Base Salary as so increased.
(b) INCENTIVE COMPENSATION. During the Employment Period, the
Executive shall continue to participate in short-term incentive compensation
plans and long-term incentive compensation plans (the latter to consist of
plans offering stock options, restricted stock and other long-term incentive
compensation) offered by the Company and its present or future affiliates
which shall provide him with the opportunity to earn, on a year-by-year
basis, short-term and long-term incentive compensation (the "Incentive
Compensation") at least equal to the amounts that he had the opportunity to
earn immediately before the Effective Time, and such compensation shall be
payable in accordance with standards (I.E., performance criteria,
performance levels, etc.) which are no less favorable to the Executive than
those applicable with respect to the Incentive Compensation payable to the
Executive immediately before the Effective Time.
(c) OTHER BENEFITS.
(i) RETIREMENT PLAN; SUPPLEMENTAL RETIREMENT PLAN. During the
Employment Period, the Executive shall participate in a retirement
plan and/or supplemental retirement plan (the "Defined Benefit
Arrangement") such that the aggregate value of the retirement
benefits that he and his spouse will receive at the end of the
Employment Period under all defined benefit plans of the Company and
its affiliates (whether qualified or not) will be not less than the
benefits he would have received (assuming his
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employment through the end of the Employment Period) under the
Wisconsin Power and Light Company Retirement Plan and the
Supplemental Retirement Plan in which the Executive participates, as
in effect immediately prior to the Effective Time.
(ii) EXECUTIVE TENURE COMPENSATION PLAN. During the Employment
Period, the Executive shall continue to participate in the Wisconsin
Power and Light Company Executive Tenure Compensation Plan.
(iii) LIFE INSURANCE. During the Employment Period, the Company
shall provide the Executive with life insurance coverage (the "Life
Insurance Coverage") providing a death benefit to such beneficiary or
beneficiaries as the Executive may designate of not less than three
times his Annual Base Salary.
(iv) ADDITIONAL BENEFITS. In addition, and without limiting the
generality of the foregoing, during the Employment Period and
thereafter: (A) the Executive shall be entitled to participate in all
applicable incentive, savings and retirement plans, practices,
policies and programs of the Company and its affiliates to the same
extent as other senior executives (or, where applicable, retired
senior executives) of the Company, and (B) the Executive and/or the
Executive's family, as the case may be, shall be eligible for
immediate participation in (and without any limitation for
preexisting conditions), and shall receive all benefits under, all
applicable welfare benefit plans, practices, policies and programs
provided by the Company and its affiliates, other than severance
plans, practices, policies and programs but including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life insurance, group life insurance,
accidental death and travel accident insurance plans and programs, to
the same extent as other senior executives (or, where applicable,
retired senior executives) of the Company, provided, however, that
the Executive's aggregate benefits as a retired senior executive
under the plans described in this clause (B) shall not be less than
the benefits provided by the Company and its affiliates to its
retired senior executive officers as of the date of this Agreement.
(d) PERQUISITES. During the Employment Period, the Executive shall be
entitled to receive such perquisites as the Company may establish from time
to time which are commensurate with his position and at lease comparable to
those received by other senior executives at the Company.
(e) EXPENSE REIMBURSEMENT. The Company shall reimburse the Executive
for all reasonable and documented expenses incurred by the Executive in the
performance of the Executive's duties under this Agreement.
4. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. The
Company shall be entitled to terminate the Executive's employment because of
the Executive's Disability during the Employment Period. "Disability" means
that (i) the Executive has been unable, for a period of 180 consecutive
business days, to perform the Executive's duties under this Agreement, as a
result of physical or mental illness or injury, and (ii) a physician
selected by the Company or its insurers, and acceptable to the Executive or
the Executive's legal representative, has determined that the Executive's
incapacity is total and permanent. A termination of the Executive's
employment by the Company for Disability shall be communicated to the
Executive by written notice, and shall be effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective Date"),
unless the Executive returns to full-time performance of the Executive's
duties before the Disability Effective Date.
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(b) BY THE COMPANY.
(i) The Company may terminate the Executive's employment during the
Employment Period for Cause or without Cause. "Cause" means:
A. the willful and continued failure of the Executive
substantially to perform the Executive's duties under this Agreement
(other than as a result of physical or mental illness or injury),
after the Board delivers to the Executive a written demand for
substantial performance that specifically identifies the manner in
which the Board believes that the Executive has not substantially
performed the Executive's duties; or
B. illegal conduct or gross misconduct by the Executive, in
either case that is willful and results in material and demonstrable
damage to the business or reputation of the Company.
No act or failure to act on the part of the Executive shall be considered
"willful" unless it is done, or omitted to be done, by the Executive in
bad faith or without reasonable belief that the Executive's action or
omission was in the best interests of the Company. Any act or failure to
act that is based upon authority given pursuant to a resolution duly
adopted by the Board, or the advice of counsel for the Company, shall be
conclusively presumed to be done, or omitted to be done, by the Executive
in good faith and in the best interests of the Company.
(ii) A termination of the Executive's employment for Cause shall be
effected in accordance with the following procedures. The Company shall
give the Executive written notice ("Notice of Termination for Cause") of
its intention to terminate the Executive's employment for Cause, setting
forth in reasonable detail the specific conduct of the Executive that it
considers to constitute Cause and the specific provision(s) of this
Agreement on which it relies, and stating the date, time and place of the
Special Board Meeting for Cause. The "Special Board Meeting for Cause"
means a meeting of the Board called and held specifically for the purpose
of considering the Executive's termination for Cause, that takes place
not less than ten (10) and not more than twenty (20) business days after
the Executive receives the Notice of Termination for Cause. The Executive
shall be given an opportunity, together with counsel, to be heard at the
Special Board Meeting for Cause. The Executive's termination for Cause
shall be effective when and if a resolution is duly adopted at the
Special Board Meeting for Cause by a two-thirds vote of the entire
membership of the Board, excluding employee directors, stating that in
the good faith opinion of the Board, the Executive is guilty of the
conduct described in the Notice of Termination for Cause, and that
conduct constitutes Cause under this Agreement.
(iii) A termination of the Executive's employment without Cause shall
be effected in accordance with the following procedures. The Company
shall give the Executive written notice ("Notice of Termination without
Cause") of its intention to terminate the Executive's employment without
Cause, stating the date, time and place of the Special Board Meeting
without Cause. The "Special Board Meeting without Cause" means a meeting
of the Board called and held specifically for the purpose of considering
the Executive's termination with-out Cause, that takes place not less
than ten (10) and not more than twenty (20) business days after the
Executive receives the Notice of Termination without Cause. The Executive
shall be given an opportunity, together with counsel, to be heard at the
Special Board Meeting without Cause. The Executive's termination without
Cause shall be effective when and if a resolution is duly adopted at the
Special Board Meeting without Cause by a two-thirds vote of the entire
membership of the Board, excluding employee directors, stating that the
Executive is terminated without Cause.
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(c) GOOD REASON.
(i) The Executive may terminate employment for Good Reason or without
Good Reason. "Good Reason" means:
A. the assignment to the Executive of any duties inconsistent in
any respect with paragraphs (a) and (b) of Section 2 of this
Agreement, or any other action by the Company that results in a
diminution in the Executive's position, authority, duties or
responsibilities, other than an isolated, insubstantial and
inadvertent action that is not taken in bad faith and is remedied by
the Company promptly after receipt of notice thereof from the
Executive;
B. any failure by the Company to comply with any provision of
Section 3 of this Agreement, other than an isolated, insubstantial
and inadvertent failure that is not taken in bad faith and is
remedied by the Company promptly after receipt of notice thereof from
the Executive;
C. any requirement by the Company that the Executive's services
be rendered primarily at a location or locations other than that
provided for in paragraph (d) of Section 2 of this Agreement;
D. any purported termination of the Executive's employment by
the Company for a reason or in a manner not expressly permitted by
this Agreement;
E. any failure by the Company to comply with paragraph (c) of
Section 11 of this Agreement; or
F. any other substantial breach of this Agreement by the Company
that either is not taken in good faith or is not remedied by the
Company promptly after receipt of notice thereof from the Executive.
(ii) A termination of employment by the Executive for Good Reason
shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination within six months of the
event constituting Good Reason, setting forth in reasonable detail the
specific conduct of the Company that constitutes Good Reason and the
specific provision(s) of this Agreement on which the Executive relies. A
termination of employment by the Executive for Good Reason shall be
effective on the fifth business day following the date when the Notice of
Termination for Good Reason is given, unless the notice sets forth a
later date (which date shall in no event be later than thirty (30) days
after the notice is given).
(iii) A termination of the Executive's employment by the Executive
without Good Reason shall be effected by giving the Company written
notice of the termination.
(d) DATE OF TERMINATION. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company for Cause or
without Cause or by the Executive for Good Reason is effective, or the date
on which the Executive gives the Company notice of a termination of
employment without Good Reason, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) BY THE COMPANY OTHER THAN FOR CAUSE, DEATH OR DISABILITY; BY THE
EXECUTIVE FOR GOOD REASON. If, during the Employment Period, the Company
terminates the Executive's employment, other than for Cause, Death, or
Disability, or the Executive terminates employment for Good Reason, the
Company shall continue to provide the Executive with the compensation and
benefits set forth in paragraphs (a), (b) and (c) of Section 3 as if he had
remained employed by the Company pursuant to this Agreement through the end
of the Employment Period and then retired (at which time he will be treated
as eligible for and will be entitled to receive all retiree
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welfare benefits and other benefits provided to retired senior executives,
as set forth in Section 3(c), with such benefits being calculated for this
purpose as though the Executive had retired at age 62 with earnings on an
annual basis during the years between the Date of Termination and age 62
equal to the Executive's earnings for the year immediately preceding the
Date of Termination); provided, that the Incentive Compensation for the
period through the end of the Employment Period shall be equal to the
maximum Incentive Compensation that the Executive would have been eligible
to earn for such period; provided, further that in lieu of stock options,
restricted stock and other stock-based awards, the Executive shall be paid
cash equal to the fair market value (without regard to any restrictions) of
the stock options, restricted stock and other stock-based awards that would
otherwise have been granted; and provided, further that to the extent any
benefits described in paragraph (c) of Section 3 cannot be provided pursuant
to the plan or program maintained by the Company for its executives, the
Company shall provide such benefits outside such plan or program at no
additional cost (including without limitation tax cost) to the Executive and
his family; and provided, finally, that during any period when the Executive
is eligible to receive benefits of the type described in clause (B) of
paragraph (c)(iv) of Section 3 under another employer-provided plan, the
benefits provided by the Company under this paragraph (a) of Section 5 may
be made secondary to those provided under such other plan. In addition to
the foregoing, any restricted stock outstanding on the Date of Termination
shall be fully vested as of the Date of Termination and all options
outstanding on the Date of Termination shall be fully vested and exercisable
and shall remain in effect and exercisable through the end of their
respective terms, without regard to the termination of the Executive's
employment. The payments and benefits provided pursuant to this paragraph
(a) of Section 5 are intended as liquidated damages for a termination of the
Executive's employment by the Company other than for Cause or Disability or
for the actions of the Company leading to a termination of the Executive's
employment by the Executive for Good Reason, and shall be the sole and
exclusive remedy therefor.
(b) DEATH AND DISABILITY. If the Executive's employment is terminated
by reason of the Executive's death or Disability during the Employment
Period, the Company shall pay to the Executive or, in the case of the
Executive's death, to the Executive's designated beneficiaries (or, if there
is no such beneficiary, to the Executive's estate or legal representative),
in a lump sum in cash within thirty (30) days after the Date of Termination,
the sum of the following amounts (the "Accrued Obligations"): (1) any
portion of the Executive's Annual Base Salary through the Date of
Termination that has not yet been paid; (2) an amount representing the
Incentive Compensation for the period that includes the Date of Termination,
computed by assuming that the amount of all such Incentive Compensation
would be equal to the maximum amount of such Incentive Compensation that the
Executive would have been eligible to earn for such period, and multiplying
that amount by a fraction, the numerator of which is the number of days in
such period through the Date of Termination, and the denominator of which is
the total number of days in the relevant period; (3) any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon) that has not yet been paid; and (4) any accrued but unpaid
Incentive Compensation and vacation pay. Any deferred compensation (together
with any accrued interest or earnings thereon, if any) that has not yet been
paid, will be paid in accordance with the terms and conditions applicable to
such deferred compensation.
(c) BY THE COMPANY FOR CAUSE; BY THE EXECUTIVE OTHER THAN FOR GOOD
REASON. If the Executive's employment is terminated by the Company for
Cause during the Employment Period, the Company shall pay the Executive the
Annual Base Salary through the Date of Termination and the amount of any
compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon), in each case to the extent not yet paid, and
the Company shall have no further obligations under this Agreement, except
as specified in Section 6 below. If the Executive voluntarily terminates
employment during the Employment Period, other than for
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Good Reason, the Company shall pay the Accrued Obligations to the Executive
in a lump sum in cash within thirty (30) days of the Date of Termination,
and the Company shall have no further obligations under this Agreement,
except as specified in Section 6 below.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliates for which
the Executive may qualify, nor shall anything in this Agreement limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliates relating to subject matter
other than that specifically addressed herein. Vested benefits and other amounts
that the Executive is otherwise entitled to receive under the Incentive
Compensation program, the Defined Benefit Arrangement, the Life Insurance
Coverage, the Executive Tenure Compensation Plan, the Executive's Deferred
Compensation Plan(s), or any other plan, policy, practice or program of, or any
contract or agreement with, the Company or any of its affiliates on or after the
Date of Termination shall be payable in accordance with the terms of each such
plan, policy, practice, program, contract or agreement, as the case may be,
except as explicitly modified by this Agreement.
7. FULL SETTLEMENT. The Company's obligation to make the payments provided
for in, and otherwise to perform its obligations under, this Agreement shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action that the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement. The amounts payable by the Company
under this Agreement shall not be offset or reduced by any amounts otherwise
receivable or received by the Executive from any source, except as specifically
provided in paragraph (a) of Section 5 with respect to benefits described in
clause (B) of paragraph (c)(iv) of Section 3.
8. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies and
their respective businesses that the Executive obtains during the Executive's
employment by the Company or any of its affiliated companies and that is not
public knowledge (other than as a result of the Executive's violation of this
Section 8) ("Confidential Information"). The Executive shall not communicate,
divulge or disseminate Confidential Information at any time during or after the
Executive's employment with the Company, except with the prior written consent
of the Company or as otherwise required by law or legal process. In no event
shall any asserted violation of the provisions of this Section 8 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
9. LIMITATION ON PAYMENTS.
(a) Notwithstanding any other provision of this Agreement, if any
portion of any payment under this Agreement, or under any other agreement
with or plan of the Company or its affiliates (in the aggregate "Total
Payments"), would constitute an "excess parachute payment," then the Total
Payments to be made to the Executive shall be reduced such that the value of
the aggregate Total Payments that the Executive is entitled to receive shall
be One Dollar ($1) less than the maximum amount which the Executive may
receive without becoming subject to the tax imposed by Section 4999 (or any
successor provision) of the Internal Revenue Code of 1986, as amended (the
"Code") or which the Company may pay without loss of deduction under Section
280G(a) of the Code (or any successor provision). For purposes of this
Agreement, the terms "excess parachute payment" and "parachute payments"
shall have the meanings 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 for purposes of this Agreement shall be
calculated in accordance with Section 1274(b)(2) of the Code (or any
successor provision). Within fifteen (15) days following the Date of
Termination or notice by the Company to the Executive of its belief that
there is a payment or benefit due the Executive which will result in an
excess parachute
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payment as defined in Section 280G of the Code (or any successor provision),
the Executive 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
Executive in his sole discretion (which may be regular outside counsel to
the Company), which opinion sets forth (i) the amount of the Base Period
Income, (ii) the amount and present value of Total Payments and (iii) the
amount and present value of any excess parachute payments determined without
regard to the limitations of this paragraph (a) of Section 9. As used in
this Agreement, the term "Base Period Income" means an amount equal to the
Executive'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 Executive.
Such opinion shall be dated as of the Date of Termination and addressed to
the Company and the Executive and shall be binding upon the Company and the
Executive. If such opinion determines that there would be an excess
parachute payment, any payment or benefit determined by such counsel to be
includible in Total Payments shall be reduced or eliminated as specified by
the Executive in writing delivered to the Company within thirty (30) days of
his receipt of such opinion or, if the Executive 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 paragraph (a) of Section 9, the Executive 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 Executive. If the provisions of Sections
280G and 4999 of the Code (or any successor provisions) are repealed without
succession, then this paragraph (a) of Section 9 shall be of no further
force or effect.
(b) If, notwithstanding the provisions of paragraph (a) of Section 9, it
is ultimately determined by a court or pursuant to a final determination by
the Internal Revenue Service that any portion of Total Payments is subject
to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any
successor provision), the Company shall pay to the Executive an additional
amount (the "Gross-Up Payment") such that the net amount retained by the
Executive after deduction of any Excise Tax and any interest charges or
penalties in respect of the imposition of such Excise Tax (but not any
federal, state or local income tax) on the Total Payments, and any federal,
state and local income tax and Excise Tax upon the payment provided for by
this paragraph (b) of Section 9, shall be equal to the Total Payments. For
purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment
is to be made and state and local income taxes at the highest marginal rates
of taxation in the state and locality of the Executive's domicile for income
tax purposes on the date the Gross-Up Payment is made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes.
10. ATTORNEYS' FEES. The Company agrees to pay, as incurred, to the
fullest extent permitted by law, all legal fees and expenses that the Executive
may reasonably incur as a result of any contest (regardless of the outcome) by
the Company, the Executive or others of the validity or enforceability of or
liability under, or otherwise involving, any provision of this Agreement,
together with interest on any delayed payment at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the Code.
11. SUCCESSORS.
(a) This Agreement is personal to the Executive and, without the prior
written consent of the Company, shall not be assignable by the Executive.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
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(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would have been required to perform it if no such succession had
taken place. As used in this Agreement, "Company" shall mean both the
Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
12. MISCELLANEOUS.
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Wisconsin, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified except by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Erroll B. Davis, Jr.
If to the Company:
Interstate Energy Corporation
222 West Washington Avenue
P.O. Box 2568
Madison, Wisconsin 53701-2568
Attention: General Counsel
With a copy to:
Benjamin F. Garmer, III
c/o Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202-5367
or to such other address as either party furnishes to the other in writing
in accordance with this paragraph (b) of Section 12. Notices and
communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be
held invalid or unenforceable in part, the remaining portion of such
provision, together with all other provisions of this Agreement, shall
remain valid and enforceable and continue in full force and effect to the
fullest extent consistent with law.
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(d) Notwithstanding any other provisions of this Agreement, the Company
may withhold from amounts payable under this Agreement all federal, state,
local and foreign taxes that are required to be withheld by applicable laws
or regulations.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provisions of, or to assert any right under, this
Agreement (including, without limitation, the right of Executive to
terminate employment for Good Reason pursuant to paragraph (c) of Section 4
of this Agreement) shall not be deemed to be a waiver of such provision or
right or of any other provision of or right under this Agreement.
(f) The Executive and the Company acknowledge that this Agreement
supersedes any other agreement between them concerning the subject matter
hereof, excluding the agreement between the Executive and the Company dated
June 25, 1994, as in effect on the date hereof or as hereafter amended from
time to time (the "Severance Agreement"); PROVIDED, HOWEVER, that to the
extent that a payment or benefit to be provided under this Agreement is
similarly to be provided under the Severance Agreement, the Company agrees
to pay or provide to the Executive that payment or benefit which provides
the highest value to the Executive, and the Executive agrees, in order to
avoid duplication of payments or benefits, that upon the receipt of any such
highest value payment or benefit under either this Agreement or the
Severance Agreement, as the case may be, he shall have no right to any
similar payment or benefit of lesser value under the other agreement.
(g) The rights and benefits of the Executive under this Agreement may
not be anticipated, assigned, alienated or subject to attachment,
garnishment, levy, execution or other legal or equitable process except as
required by law. Any attempt by the Executive to anticipate, alienate,
assign, sell, transfer, pledge, encumber or charge the same shall be void.
Payments hereunder shall not be considered assets of the Executive in the
event of insolvency or bankruptcy.
(h) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute
but one and the same instrument.
13. EFFECTIVENESS OF AGREEMENT. The effectiveness of this Agreement is
subject to the consummation of the Merger (as defined in the Merger Agreement).
If for any reason the Combination is not consummated in accordance with the
terms of the Merger Agreement, this Agreement shall be null and void, AB INITIO.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization of its Board of Directors, the Company has caused
this Agreement to be executed in its name and on its behalf, all as of the day
and year first above written.
--------------------------------------
Erroll B. Davis, Jr.
INTERSTATE ENERGY CORPORATION
By
--------------------------------------
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ANNEX J
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between Interstate Energy Corporation, a Wisconsin
corporation (the "Company"), and Wayne Stoppelmoor (the "Executive"), dated as
of the day of , 199 .
WHEREAS, WPL Holdings, Inc., IES Industries Inc., Interstate Power Company,
a Delaware corporation ("Interstate Power"), WPLH Acquisition Co. and Interstate
Power Company, a Wisconsin corporation (collectively, the "Merger Parties"),
have entered into an Agreement and Plan of Merger dated as of November 10, 1995,
as amended (the "Merger Agreement"); and
WHEREAS, the Merger Parties wish to provide for the orderly succession of
management of the Company following the Effective Time (as defined in the Merger
Agreement); and
WHEREAS, the Merger Parties further wish to provide for the employment by
the Company of the Executive, and the Executive wishes to serve the Company, in
the capacities and on the terms and conditions set forth in this Agreement:
NOW, THEREFORE, it is hereby agreed as follows:
1. EMPLOYMENT PERIOD/CONSULTING PERIOD.
(a) The Company shall employ the Executive, and the Executive shall
serve the Company as an employee and officer of the Company, on the terms
and conditions set forth in this Agreement, for the period commencing on the
Effective Time and ending on the date immediately preceding the second
anniversary of the Effective Time (the "Employment Period"). Upon the
termination of the Employment Period the Executive will have the status of a
retired senior executive officer of the Company and shall be entitled to all
of the rights, privileges and benefits provided to such retired officers.
(b) In addition to his status as a retiree, for the one-year period
immediately following the Employment Period (the "Consulting Period") the
Executive shall act as a consultant to the Company as more fully described
in Section 2(d) below.
2. POSITION AND DUTIES.
(a) TITLE. During the Employment Period, the Executive shall serve as
Vice Chairman of the Board of Directors (the "Board") of the Company ("Vice
Chairman"). Upon the termination of the Employment Period, the Executive
shall continue to be eligible to serve as a director of the Company.
(b) DUTIES. During the Employment Period, the Executive shall perform
the normal and ordinary duties of Vice Chairman and shall serve, together
with the Chairman of the Board (the "Chairman") and the Chief Executive
Officer, as a member of the senior executive team of the Company charged
with responsibility for developing and implementing programs to achieve the
corporate integration and restructuring of the Merger Parties following the
Effective Time. In addition, he will serve in such other capacities and will
perform such other functions consistent with his status as Vice Chairman as
may be reasonably assigned by the Board from time to time. The Executive
shall devote the necessary time and effort required to perform the above
described duties and shall report to the Board.
(c) OFFICE. The Executive's services hereunder shall be performed
primarily at the executive offices of the Company located in Dubuque, Iowa,
subject to such business travel as shall be necessary and appropriate.
(d) CONSULTANCY. During the Consulting Period, (i) the Executive shall
serve as a consultant to the Chief Executive Officer, performing such
consulting services (but not in excess of forty
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(40) hours in any month) as the Chief Executive Officer may reasonably
request from time to time for a monthly fee of $16,667 and shall be
reimbursed for reasonable expenses incurred in the performance of such
services and (ii) the Executive shall not be an employee of the Company.
3. COMPENSATION.
(a) BASE SALARY. During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary") of not less than Three
Hundred Thousand Dollars ($300,000), payable in accordance with the
Company's regular payroll practice for its senior executives, as in effect
from time to time. During the Employment Period, the Annual Base Salary
shall be reviewed for possible increase at least annually. Any increase in
the Annual Base Salary shall not limit or reduce any other obligation of the
Company under this Agreement. The Annual Base Salary shall not be reduced
after any such increase, and the term "Annual Base Salary" shall thereafter
refer to the Annual Base Salary as so increased.
(b) INCENTIVE COMPENSATION. During the Employment Period, the
Executive shall participate in such short-term incentive compensation plans
and long-term incentive compensation plans as shall be decided upon in the
discretion of the Compensation Committee of the Board (the "Compensation
Committee") (the latter to consist of plans offering stock options,
restricted stock and/or other long-term incentive compensation), providing
him with the opportunity to earn, on an annualized basis, short-term and
long-term incentive compensation ("Incentive Compensation") (i) which, in
the aggregate, is in the same proportion to the Executive's Annual Base
Salary as the aggregate "Incentive Compensation" that the Chairman has or
would have an opportunity to earn under his Employment Agreement with the
Company of even date herewith is to the Chairman's "Annual Base Salary"
under such Employment Agreement, and (ii) is payable in accordance with
standards (I.E., performance criteria, performance levels, etc.)
substantially similar to those that are or would be applicable with respect
to the "Incentive Compensation" payable to the Chairman under such
Employment Agreement.
(c) OTHER BENEFITS. In addition, and without limiting the generality
of the foregoing, during the Employment Period and thereafter: (A) the
Executive shall be entitled to participate in all applicable incentive,
savings and retirement plans, practices, policies and programs of the
Company and its affiliates to the same extent as other senior executives
(or, where applicable, retired senior executives) of the Company, and (B)
the Executive and/or the Executive's family, as the case may be, shall be
eligible for immediate participation in (and without any limitation for any
pre-existing condition), and shall receive all benefits under, all
applicable welfare benefit plans, practices, policies and programs provided
by the Company and its affiliates, including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life
insurance, accidental death and travel insurance plans and programs, to the
same extent as other senior executives (or, where applicable, retired senior
executives) of the Company; provided, however that the Executive's aggregate
benefits as a retired senior executive under the plans described in clause
(B) above shall not be less than the benefits provided by Interstate Power
to its retired senior executive officers as of the date of this Agreement.
(d) PERQUISITES. During the Employment Period, the Executive shall be
entitled to receive such perquisites as the Company may establish from time
to time which are commensurate with his position and at least comparable to
those received by other senior executives at the Company.
(e) EXPENSE REIMBURSEMENT. The Company shall reimburse the Executive
for all reasonable and documented expenses incurred by the Executive in the
performance of the Executive's duties under this Agreement.
(f) SUPPLEMENTAL RETIREMENT BENEFIT. During the Employment Period, the
Executive shall participate in a retirement plan and/or supplemental
retirement plan such that the aggregate value of the retirement benefits
that will be payable to or with respect to the Executive at the end of the
Employment Period under all defined benefit plans of the Company and its
affiliates
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(whether qualified or not) will not be less than the benefits he would have
received (assuming his employment through the end of the Employment Period)
under the Interstate Power Company Retirement Income Plan and the Interstate
Power Company Supplemental Retirement Plan, as in effect on the date of this
Agreement.
4. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. The
Company shall be entitled to terminate the Executive's employment because of
the Executive's Disability during the Employment Period. "Disability" means
that (i) the Executive has been unable, for a period of one hundred and
eighty (180) consecutive business days, to perform the Executive's duties
under this Agreement, as a result of physical or mental illness or injury,
and (ii) a physician selected by the Company or its insurers, and acceptable
to the Executive or the Executive's legal representative, has determined
that the Executive's incapacity is total and permanent. A termination of the
Executive's employment by the Company for Disability shall be communicated
to the Executive by written notice and shall be effective on the thirtieth
(30th) day after receipt of such notice by the Executive (the "Disability
Effective Date"), unless the Executive returns to full-time performance of
the Executive's duties before the Disability Effective Date.
(b) BY THE COMPANY.
(i) The Company may terminate the Executive's employment during the
Employment Period for Cause or without Cause. "Cause" means:
A. the willful and continued failure of the Executive
substantially to perform the Executive's duties under this Agreement
(other than as a result of physical or mental illness or injury),
after the Board of Directors of the Company (the "Board") delivers to
the Executive a written demand for substantial performance that
specifically identifies the manner in which the Board believes that
the Executive has not substantially performed the Executive's duties;
or
B. illegal conduct or gross misconduct by the Executive, in
either case that is willful and results in material and demonstrable
damage to the business or reputation of the Company.
No act or failure to act on the part of the Executive shall be considered
"willful" unless it is done, or omitted to be done, by the Executive in
bad faith or without reasonable belief that the Executive's action or
omission was in the best interests of the Company. Any act or failure to
act that is based upon authority given pursuant to a resolution duly
adopted by the Board, or the advice of counsel for the Company, shall be
conclusively presumed to be done, or omitted to be done, by the Executive
in good faith and in the best interests of the Company.
(ii) A termination of the Executive's employment for Cause shall be
effected in accordance with the following procedures. The Company shall
give the Executive written notice ("Notice of Termination for Cause") of
its intention to terminate the Executive's employment for Cause, setting
forth in reasonable detail the specific conduct of the Executive that it
considers to constitute Cause and the specific provision(s) of this
Agreement on which it relies, and stating the date, time and place of the
Board Meeting for Cause. The "Board Meeting for Cause" means a meeting of
the Board at which the Executive's termination for Cause will be
considered, that takes place not less than ten (10) and not more than
twenty (20) business days after the Executive receives the Notice of
Termination for Cause. The Executive shall be given an opportunity,
together with counsel, to be heard at the Board Meeting for Cause. The
Executive's termination for Cause shall be effective when and if a
resolution is duly adopted at the Board Meeting for Cause by a two-thirds
vote of the entire
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membership of the Board, excluding employee directors, stating that in
the good faith opinion of the Board, the Executive is guilty of the
conduct described in the Notice of Termination for Cause, and that
conduct constitutes Cause under this Agreement.
(iii) A termination of the Executive's employment without Cause shall
be effected in accordance with the following procedures. The Company
shall give the Executive written notice ("Notice of Termination Without
Cause") of its intention to terminate the Executive's employment without
Cause, stating the date, time and place of the Board Meeting without
Cause. The "Board Meeting without Cause" means a meeting of the Board at
which the Executive's termination without Cause will be considered, that
takes place not less than ten (10) and not more than twenty (20) business
days after the Executive receives the Notice of Termination without
Cause. The Executive shall be given an opportunity, together with
counsel, to be heard at the Board Meeting without Cause. The Executive's
termination without Cause shall be effective when and if a resolution is
duly adopted at the Board Meeting without Cause by a two-thirds vote of
the entire membership of the Board, excluding employee directors, stating
that the Executive is terminated without Cause.
(c) GOOD REASON.
(i) The Executive may terminate employment for Good Reason or without
Good Reason. "Good Reason" means:
A. the assignment to the Executive of any duties inconsistent in
any respect with paragraphs (a) and (b) of Section 2 of this
Agreement, or any other action by the Company that results in a
diminution in the Executive's position, authority, duties or
responsibilities, other than an isolated, insubstantial and
inadvertent action that is not taken in bad faith and is remedied by
the Company promptly after receipt of notice thereof from the
Executive;
B. any failure by the Company to comply with any provision of
Section 3 of this Agreement, other than an isolated, insubstantial
and inadvertent failure that it not taken in bad faith and is
remedied by the Company promptly after receipt of notice thereof from
the Executive;
C. any requirement by the Company that the Executive's services
be rendered primarily at a location or locations other than that
provided for in paragraph (c) of Section 2 of this Agreement;
D. any purported termination of the Executive's employment by
the Company for a reason or in a manner not expressly permitted by
this Agreement;
E. any failure by the Company to comply with paragraph (c) of
Section 11 of this Agreement; or
F. any other substantial breach of this Agreement by the Company
that either is not taken in good faith or is not remedied by the
Company promptly after receipt of notice thereof from the Executive.
(ii) A termination of employment by the Executive for Good Reason
shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination within six (6) months of
the event constituting Good Reason, setting forth in reasonable detail
the specific conduct of the Company that constitutes Good Reason and the
specific provision(s) of this Agreement on which the Executive relies. A
termination of employment by the Executive for Good Reason shall be
effective on the fifth (5th) business day following the date when the
Notice of Termination for Good Reason is given, unless the notice sets
forth a later date (which date shall in no event be later than (thirty)
30 days after the notice is given).
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(iii) A termination of the Executive's employment by the Executive
without Good Reason shall be effected by giving the Company written
notice of the termination.
(d) DATE OF TERMINATION. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company for Cause or
without Cause or by the Executive for Good Reason is effective, or the date
on which the Executive gives the Company notice of a termination of
employment without Good Reason, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) BY THE COMPANY OTHER THAN FOR CAUSE, DEATH OR DISABILITY; BY THE
EXECUTIVE FOR GOOD REASON. If, during the Employment Period, the Company
terminates the Executive's employment, other than for Cause, Death or
Disability, or the Executive terminates employment for Good Reason, the
Company shall continue to provide the Executive with the compensation and
benefits set forth in paragraphs (a), (b) and (c) of Section 3 as if he had
remained employed by the Company pursuant to this Agreement through the end
of the Employment Period and then retired (at which time he will be treated
as eligible for all retiree welfare benefits and other benefits provided to
retired senior executives, as set forth in Section 3(c)); PROVIDED, that the
Incentive Compensation for such period shall be equal to the maximum
Incentive Compensation that the Executive would have been eligible to earn
for such period; PROVIDED, further, that in lieu of stock options,
restricted stock and other stock-based awards, the Executive shall be paid
cash equal to the fair market value (without regard to any restrictions) of
the stock options, restricted stock and other stock-based awards that would
otherwise have been granted; PROVIDED, further, that to the extent any
benefits described in paragraph (c) of Section 3 cannot be provided pursuant
to a plan or program maintained by the Company for its executives, the
Company shall provide such benefits outside such plan or program at no
additional cost (including without limitation tax cost) to the Executive and
his family; and PROVIDED, finally, that during any period when the Executive
is eligible to receive benefits of the type described in clause (B) of
paragraph (c) of Section 3 under another employer-provided plan, the
benefits provided by the Company under this paragraph (a) of Section 5 may
be made secondary to those provided under such other plan. In addition to
the foregoing, any restricted stock outstanding on the Date of Termination
shall be fully vested as of the Date of Termination and all options
outstanding on the Date of Termination shall be fully vested and exercisable
and shall remain in effect and exercisable through the end of their
respective terms, without regard to the termination of the Executive's
employment. The payments and benefits provided pursuant to this paragraph
(a) of Section 5 are intended as liquidated damages for a termination of the
Executive's employment by the Company other than for Cause or Disability or
for the actions of the Company leading to a termination of the Executive's
employment by the Executive for Good Reason, and shall be the sole and
exclusive remedy therefor.
(b) DEATH AND DISABILITY. If the Executive's employment is terminated
by reason of the Executive's death or Disability during the Employment
Period, the Company shall pay to the Executive or, in the case of the
Executive's death, to the Executive's designated beneficiaries (or, if there
is no such beneficiary, to the Executive's surviving spouse, or if the
Executive is not survived by a spouse, to the Executive's estate or legal
representative), in a lump sum in cash within thirty (30) days after the
Date of Termination, the sum of the following amounts (the "Accrued
Obligations"): (1) any portion of the Executive's Annual Base Salary through
the Date of Termination that has been earned but not yet been paid; (2) an
amount representing the Incentive Compensation for the period that includes
the Date of Termination, computed by assuming that the amount of all such
Incentive Compensation would be equal to the maximum amount of such
Incentive Compensation that the Executive would have been eligible to earn
for such period, and multiplying that amount by a fraction, the numerator of
which is the number of days in such period through the Date of Termination,
and the denominator of which is the total number of days in the relevant
period; (3) any compensation previously deferred by the Executive
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(together with any accrued interest or earnings thereon) that has not yet
been paid; and (4) any accrued but unpaid Incentive Compensation and
vacation pay. Any deferred compensation (together with any accrued interest
or earnings thereon, if any) will be paid in accordance with the terms and
conditions applicable to such deferred compensation.
(c) BY THE COMPANY FOR CAUSE; BY THE EXECUTIVE OTHER THAN FOR GOOD
REASON. If the Executive's employment is terminated by the Company for
Cause during the Employment Period, the Company shall pay the Executive the
Annual Base Salary through the Date of Termination and the amount of any
compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon), in each case to the extent not yet paid, and
the Company shall have no further obligations under this Agreement, except
as specified in Section 6 below. If the Executive voluntarily terminates
employment during the Employment Period, other than for Good Reason, the
Company shall pay the Accrued Obligations to the Executive in a lump sum in
cash within thirty (30) days of the Date of Termination, and the Company
shall have no further obligations under this Agreement, except as specified
in Section 6 below.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company for which the Executive may qualify,
nor shall anything in this Agreement limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company or any
of its affiliates relating to subject matter other than that specifically
addressed herein. Vested benefits and other amounts that the Executive is
otherwise entitled to receive under the Incentive Compensation, the deferred
compensation and other benefit programs listed in paragraph (c) of Section 3, or
any other plan, policy, practice or program of, or any contract or agreement
with, the Company or any of its affiliates on or after the Date of Termination
shall be payable in accordance with the terms of each such plan, policy,
practice, program, contract or agreement, as the case may be, except as
explicitly modified by this Agreement.
7. FULL SETTLEMENT. The Company's obligation to make the payments provided
for in, and otherwise to perform its obligations under, this Agreement shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action that the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement. The amounts payable by the Company
under this Agreement shall not be offset or reduced by any amounts otherwise
receivable or received by the Executive from any source, except as specifically
provided in paragraph (a) of Section 5 with respect to benefits described in
clause (B) of paragraph (c) of Section 3.
8. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies and
their respective businesses that the Executive obtains during the Executive's
employment by the Company or any of its affiliated companies and that is not
public knowledge (other than as a result of the Executive's violation of this
Section 8) ("Confidential Information"). The Executive shall not communicate,
divulge or disseminate Confidential Information at any time during or after the
Executive's employment with the Company, except with the prior written consent
of the Company or as otherwise required by law or legal process. In no event
shall any asserted violation of the provisions of this Section 8 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
9. LIMITATION ON PAYMENTS.
(a) Notwithstanding any other provision of this Agreement, if any
portion of any payment under this Agreement, or under any other agreement
with or plan of the Company or its affiliates (in the aggregate "Total
Payments"), would constitute an "excess parachute payment," then the Total
Payments to be made to the Executive shall be reduced such that the value of
the aggregate Total Payments that the Executive is entitled to receive shall
be One Dollar ($1) less than the
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maximum amount which the Executive may receive without becoming subject to
the tax imposed by Section 4999 (or any successor provision) of the Internal
Revenue Code of 1986, as amended (the "Code") or which the Company may pay
without loss of deduction under Section 280G(a) of the Code (or any
successor provision). For purposes of this Agreement, the terms "excess
parachute payment" and "parachute payments" shall have the meanings 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 for
purposes of this Agreement shall be calculated in accordance with Section
1274(b)(2) of the Code (or any successor provision). Within fifteen (15)
days following the Date of Termination or notice by the Company to the
Executive of its belief that there is a payment or benefit due the Executive
which will result in an excess parachute payment as defined in Section 280G
of the Code (or any successor provision), the Executive 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 Executive in his sole discretion
(which may be regular outside counsel to the Company), which opinion sets
forth (i) the amount of the Base Period Income, (ii) the amount and present
value of Total Payments and (iii) the amount and present value of any excess
parachute payments determined without regard to the limitations of this
paragraph (a) of Section 9. As used in this Agreement, the term "Base Period
Income" means an amount equal to the Executive'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 Executive. Such opinion shall be
dated as of the Date of Termination and addressed to the Company and the
Executive and shall be binding upon the Company and the Executive. If such
opinion determines that there would be an excess parachute payment, any
payment or benefit determined by such counsel to be includible in Total
Payments shall be reduced or eliminated as specified by the Executive in
writing delivered to the Company within thirty (30) days of his receipt of
such opinion or, if the Executive 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 paragraph (a) of Section 9, the Executive 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 Executive. If the provisions of Sections
280G and 4999 of the Code (or any successor provisions) are repealed without
succession, then this paragraph (a) of Section 9 shall be of no further
force or effect.
(b) If, notwithstanding the provisions of paragraph (a) of Section 9, it
is ultimately determined by a court or pursuant to a final determination by
the Internal Revenue Service that any portion of Total Payments is subject
to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any
successor provision), the Company shall pay to the Executive an additional
amount (the "Gross-Up Payment") such that the net amount retained by the
Executive after deduction of any Excise Tax and any interest charges or
penalties in respect of the imposition of such Excise Tax (but not any
federal, state or local income tax) on the Total Payments, and any federal,
state and local income tax and Excise Tax upon the payment provided for by
this paragraph (b) of Section 9, shall be equal to the Total Payments. For
purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment
is to be made and state and local income taxes at the highest marginal rates
of taxation in the state and locality of the Executive's domicile for income
tax purposes on the date the Gross-Up Payment is made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes.
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10. ATTORNEYS' FEES. The Company agrees to pay, as incurred, to the
fullest extent permitted by law, all legal fees and expenses that the Executive
may reasonably incur as a result of any contest (regardless of the outcome) by
the Company, the Executive or others of the validity or enforceability of or
liability under, or otherwise involving, any provision of this Agreement,
together with interest on any delayed payment at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the Code.
11. SUCCESSORS.
(a) This Agreement is personal to the Executive and, without the prior
written consent of the Company, shall not be assignable by the Executive.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would have been required to perform it if no such succession had
taken place. As used in this Agreement, "Company" shall mean both the
Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
12. MISCELLANEOUS.
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Iowa, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified except by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall be
in writing and shall be given by hand delivery to the other party or by
facsimile, addressed as follows:
If to the Executive:
Mr. Wayne Stoppelmoor
[ ]
If to the Company:
Interstate Energy Corporation
222 West Washington Avenue
P.O. Box 2568
Madison, Wisconsin 53701-2568
Attn: General Counsel
or to such other address as either party furnishes to the other in writing
in accordance with this paragraph (b) of Section 12. Notices and
communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be
held invalid or unenforceable in part, the remaining portion of such
provision, together with all other provisions of this Agreement, shall
remain valid and enforceable and continue in full force and effect to the
fullest extent consistent with law.
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(d) Notwithstanding any other provision of this Agreement, the Company
may withhold from amounts payable under this Agreement all federal, state,
local and foreign taxes that are required to be withheld by applicable laws
or regulations.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provisions of, or to assert any right under, this
Agreement (including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to paragraph (c) of Section 4
of this Agreement) shall not be deemed to be a waiver of such provision or
right or of any other provision of or right under this Agreement.
(f) The Executive and the Company acknowledge that this Agreement
supersedes any other agreement between the Executive and the Company or
Interstate Power concerning the subject matter hereof, including, without
limitation, any change in control protection agreements between the
Executive and Interstate Power.
(g) The rights and benefits of the Executive under this Agreement may
not be anticipated, alienated or subject to attachment, garnishment, levy,
execution or other legal or equitable process except as required by law. Any
attempt by the Executive to anticipate, alienate, assign, sell, transfer,
pledge, encumber or charge the same shall be void. Payments hereunder shall
not be considered assets of the Executive in the event of insolvency or
bankruptcy.
(h) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute
but one and the same instrument.
13. EFFECTIVENESS OF AGREEMENT. The effectiveness of this Agreement is
subject to the consummation of the Combination (as defined in the Merger
Agreement). If for any reason the Combination is not consummated in accordance
with the terms of the Merger Agreement, this Agreement shall be null and void AB
INITIO.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization of the Board of Directors, the Company has caused
this Agreement to be executed in its name on its behalf, all as of the day and
year first above written.
INTERSTATE ENERGY CORPORATION
By: ______________________________
Name: ____________________________
Title: ___________________________
__________________________________
WAYNE STOPPELMOOR
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<PAGE>
ANNEX K
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between Interstate Power Company, a Delaware
corporation (the "Company"), and Michael Chase (the "Executive"), dated as of
the day of , 199 .
WHEREAS, the Company, WPL Holdings, Inc. ("WPL Holdings"), IES Industries
Inc., WPLH Acquisition Co. and Interstate Power Company, a Wisconsin corporation
(collectively, the "Merger Parties"), have entered into an Agreement and Plan of
Merger dated as of November 10, 1995, as amended (the "Merger Agreement"); and
WHEREAS, the Merger Parties wish to provide for the orderly succession of
management of the Company following the Effective Time (as defined in the Merger
Agreement); and
WHEREAS, the Merger Parties further wish to provide for the employment by
the Company of the Executive, and the Executive wishes to serve the Company, in
the capacities and on the terms and conditions set forth in this Agreement:
NOW, THEREFORE, it is hereby agreed as follows:
1. EMPLOYMENT PERIOD. The Company shall employ the Executive, and the
Executive shall serve the Company as an employee and officer of the Company, on
the terms and conditions set forth in this Agreement, for the period commencing
on the Effective Time and ending on the last day of the calendar month
immediately following the calendar month in which the Executive attains age 62
(the "Employment Period"). Upon the termination of the Employment Period the
Executive will have the status of a retired senior executive officer of the
Company and shall be entitled to all of the rights, privileges and benefits
provided to such retired officers.
2. POSITION AND DUTIES.
(a) TITLE. During the Employment Period, the Executive shall serve as
the President of the Company.
(b) DUTIES. During the Employment Period, the Executive shall report
to the Board of Directors of the Company (the "Board") and shall perform the
duties, undertake the responsibilities and exercise the authority
customarily performed, undertaken and exercised by persons situated in a
similar executive capacity and shall additionally perform such duties as may
be reasonably assigned from time to time by the Board, consistent with his
status as President. During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
shall devote the whole of his attention and time during normal business
hours (and outside those hours when reasonably necessary to his duties
hereunder) to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive under
this Agreement, use the Executive's reasonable best efforts to carry out
such responsibilities faithfully and efficiently. It shall not be considered
a violation of the foregoing for the Executive to serve on corporate,
industry, civic or charitable boards or committees, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance
with this Agreement.
(c) OFFICE. The Executive's services hereunder shall be performed
primarily at the executive offices of the Company located in Dubuque, Iowa,
subject to such business travel as shall be necessary and appropriate.
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<PAGE>
3. COMPENSATION.
(a) BASE SALARY. The Executive's compensation during the Employment
Period shall be determined by the Board upon the recommendation of the
Compensation and Personnel Committee (or the appropriate committee) of the
Board, subject to the next sentence and paragraph (b) of Section 3. During
the Employment Period, the Executive shall receive an annual salary ("Annual
Base Salary") of not less than his aggregate annual base salary from the
Company and its affiliates in effect immediately before the Effective Time.
The Annual Base Salary shall be payable in accordance with the Company's
regular payroll practice for its senior executives, as in effect from time
to time. During the Employment Period, the Annual Base Salary shall be
reviewed for possible increase at least annually. Any increase in the Annual
Base Salary shall not limit or reduce any other obligation of the Company
under this Agreement. The Annual Base Salary shall not be reduced after any
such increase, and the term "Annual Base Salary" shall thereafter refer to
the Annual Base Salary as so increased.
(b) INCENTIVE COMPENSATION. During the Employment Period, the
Executive shall participate in such short-term incentive compensation plans
and long-term incentive compensation plans as shall be decided upon in the
discretion of the Compensation Committee of the Board (or other appropriate
committee) (the latter to consist of plans offering stock options,
restricted stock and/or other long-term incentive compensation), offered by
WPL Holdings and its present and future affiliates, to the same extent as
other senior executives of WPL Holdings and its primary subsidiaries (the
"Incentive Compensation").
(c) OTHER BENEFITS. In addition, and without limiting the generality
of the foregoing, during the Employment Period and thereafter: (A) the
Executive shall be entitled to participate in all applicable incentive,
savings and retirement plans, practices, policies and programs of WPL
Holdings and its affiliates to the same extent as other senior executives
(or, where applicable, retired senior executives) of the Company, and (B)
the Executive and/or the Executive's family, as the case may be, shall be
eligible for immediate participation in (and without any limitation for
pre-existing conditions), and shall receive all benefits under, all
applicable welfare benefit plans, practices, policies and programs provided
by WPL Holdings and its affiliates, including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life
insurance, accidental death and travel insurance plans and programs, to the
same extent as other senior executives (or, where applicable, retired senior
executives) of the Company; provided, however that the Executive's aggregate
benefits as a retired senior executive under the plans described in this
clause (B) shall not be less than the benefits provided by the Company to
its retired senior executive officers as of the date of this Agreement.
(d) PERQUISITES. During the Employment Period, the Executive shall be
entitled to receive such perquisites as WPL Holdings may establish from time
to time which are commensurate with his position and at least comparable to
those received by other senior executives at WPL Holdings.
(e) EXPENSE REIMBURSEMENT. The Company shall reimburse the Executive
for all reasonable and documented expenses incurred by the Executive in the
performance of the Executive's duties under this Agreement.
(f) SUPPLEMENTAL RETIREMENT BENEFIT. During the Employment Period, the
Executive shall participate in a retirement plan and/or supplemental
retirement plan such that the aggregate value of the retirement benefits
that will be payable to or with respect to the Executive at the end of the
Employment Period under all defined benefit plans of the Company and its
affiliates (whether qualified or not) will not be less than the benefits he
would have received (assuming his employment through the end of the
Employment Period) under the Interstate Power Company Retirement Income Plan
and the Interstate Power Company Supplemental Retirement Plan, as in effect
on the date of this Agreement.
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<PAGE>
4. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. The
Company shall be entitled to terminate the Executive's employment because of
the Executive's Disability during the Employment Period. "Disability" means
that (i) the Executive has been unable, for a period of one hundred and
eighty (180) consecutive business days, to perform the Executive's duties
under this Agreement, as a result of physical or mental illness or injury,
and (ii) a physician selected by the Company or its insurers, and acceptable
to the Executive or the Executive's legal representative, has determined
that the Executive's incapacity is total and permanent. A termination of the
Executive's employment by the Company for Disability shall be communicated
to the Executive by written notice and shall be effective on the thirtieth
(30th) day after receipt of such notice by the Executive (the "Disability
Effective Date"), unless the Executive returns to full-time performance of
the Executive's duties before the Disability Effective Date.
(b) BY THE COMPANY.
(i) The Company may terminate the Executive's employment during the
Employment Period for Cause or without Cause. "Cause" means:
A. the willful and continued failure of the Executive
substantially to perform the Executive's duties under this Agreement
(other than as a result of physical or mental illness or injury),
after the Board of Directors of the Company (the "Board") delivers to
the Executive a written demand for substantial performance that
specifically identifies the manner in which the Board believes that
the Executive has not substantially performed the Executive's duties;
or
B. illegal conduct or gross misconduct by the Executive, in
either case that is willful and results in material and demonstrable
damage to the business or reputation of the Company.
No act or failure to act on the part of the Executive shall be considered
"willful" unless it is done, or omitted to be done, by the Executive in
bad faith or without reasonable belief that the Executive's action or
omission was in the best interests of the Company. Any act or failure to
act that is based upon authority given pursuant to a resolution duly
adopted by the Board, or the advice of counsel for the Company, shall be
conclusively presumed to be done, or omitted to be done, by the Executive
in good faith and in the best interests of the Company.
(ii) A termination of the Executive's employment for Cause shall be
effected in accordance with the following procedures. The Company shall
give the Executive written notice ("Notice of Termination for Cause") of
its intention to terminate the Executive's employment for Cause, setting
forth in reasonable detail the specific conduct of the Executive that it
considers to constitute Cause and the specific provision(s) of this
Agreement on which it relies, and stating the date, time and place of the
Board Meeting for Cause. The "Board Meeting for Cause" means a meeting of
the Board at which the Executive's termination for Cause will be
considered, that takes place not less than ten (10) and not more than
twenty (20) business days after the Executive receives the Notice of
Termination for Cause. The Executive shall be given an opportunity,
together with counsel, to be heard at the Board Meeting for Cause. The
Executive's termination for Cause shall be effective when and if a
resolution is duly adopted at the Board Meeting for Cause by a two-thirds
vote of the entire membership of the Board, excluding employee directors,
stating that in the good faith opinion of the Board, the Executive is
guilty of the conduct described in the Notice of Termination for Cause,
and that conduct constitutes Cause under this Agreement.
(iii) A termination of the Executive's employment without Cause shall
be effected in accordance with the following procedures. The Company
shall give the Executive written notice ("Notice of Termination Without
Cause") of its intention to terminate the Executive's
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<PAGE>
employment without Cause, stating the date, time and place of the Board
Meeting without Cause. The "Board Meeting without Cause" means a meeting
of the Board at which the Executive's termination without Cause will be
considered, that takes place not less than ten (10) and not more than
twenty (20) business days after the Executive receives the Notice of
Termination without Cause. The Executive shall be given an opportunity,
together with counsel, to be heard at the Board Meeting without Cause.
The Executive's termination without Cause shall be effective when and if
a resolution is duly adopted at the Board Meeting without Cause by a
two-thirds vote of the entire membership of the Board, excluding employee
directors, stating that the Executive is terminated without Cause.
(c) GOOD REASON.
(i) The Executive may terminate employment for Good Reason or without
Good Reason. "Good Reason" means:
A. the assignment to the Executive of any duties inconsistent in
any respect with paragraphs (a) and (b) of Section 2 of this
Agreement, or any other action by the Company that results in a
diminution in the Executive's position, authority, duties or
responsibilities, or a diminution in the overall importance of the
Executive's role to WPL Holdings and its affiliates, other than an
isolated, insubstantial and inadvertent action that is not taken in
bad faith and is remedied by the Company promptly after receipt of
notice thereof from the Executive;
B. any failure by the Company to comply with any provision of
Section 3 of this Agreement, other than an isolated, insubstantial
and inadvertent failure that is not taken in bad faith and is
remedied by the Company promptly after receipt of notice thereof from
the Executive;
C. any requirement by the Company that the Executive's services
be rendered primarily at a location or locations other than that
provided for in paragraph (c) of Section 2 of this Agreement;
D. any purported termination of the Executive's employment by
the Company for a reason or in a manner not expressly permitted by
this Agreement;
E. any failure by the Company to comply with paragraph (c) of
Section 11 of this Agreement; or
F. any other substantial breach of this Agreement by the Company
that either is not taken in good faith or is not remedied by the
Company promptly after receipt of notice thereof from the Executive.
(ii) A termination of employment by the Executive for Good Reason
shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination within three (3) months
of the event constituting Good Reason, setting forth in reasonable detail
the specific conduct of the Company that constitutes Good Reason and the
specific provision(s) of this Agreement on which the Executive relies. A
termination of employment by the Executive for Good Reason shall be
effective on the fifth (5th) business day following the date when the
Notice of Termination for Good Reason is given, unless the notice sets
forth a later date (which date shall in no event be later than (thirty)
30 days after the notice is given).
(iii) A termination of the Executive's employment by the Executive
without Good Reason shall be effected by giving the Company written
notice of the termination.
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<PAGE>
(d) DATE OF TERMINATION. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company for Cause or
without Cause or by the Executive for Good Reason is effective, or the date
on which the Executive gives the Company notice of a termination of
employment without Good Reason, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) BY THE COMPANY OTHER THAN FOR CAUSE, DEATH OR DISABILITY; BY THE
EXECUTIVE FOR GOOD REASON. If, during the Employment Period, the Company
terminates the Executive's employment, other than for Cause, Death or
Disability, or the Executive terminates employment for Good Reason, the
Company shall continue to provide the Executive with the compensation and
benefits set forth in paragraphs (a), (b) and (c) of Section 3 as if he had
remained employed by the Company pursuant to this Agreement until the end of
the Employment Period; PROVIDED, that the annualized Incentive Compensation
for such period shall be equal to the average of the annualized Incentive
Compensation payable to the Executive in respect of each of the three
successive calendar years ended immediately prior to the Date of
Termination; PROVIDED, further that in lieu of stock options, restricted
stock and other stock-based awards, the Executive shall be paid cash equal
to the fair market value (without regard to any restrictions) of the stock
options, restricted stock and other stock-based awards that would otherwise
have been granted; PROVIDED, further, that to the extent any benefits
described in paragraph (c) of Section 3 cannot be provided pursuant to a
plan or program maintained by the Company for its executives, the Company
shall provide such benefits outside such plan or program at no additional
cost (including without limitation tax cost) to the Executive and his
family; and PROVIDED, finally, that during any period when the Executive is
eligible to receive benefits of the type described in clause (B) of
paragraph (c) of Section 3 under another employer-provided plan, the
benefits provided by the Company under this paragraph (a) of Section 5 may
be made secondary to those provided under such other plan. In addition to
the foregoing, any restricted stock outstanding on the Date of Termination
shall be fully vested as of the Date of Termination and all options
outstanding on the Date of Termination shall be fully vested and exercisable
and shall remain in effect and exercisable through the end of their
respective terms, without regard to the termination of the Executive's
employment. The payments and benefits provided pursuant to this paragraph
(a) of Section 5 are intended as liquidated damages for a termination of the
Executive's employment by the Company other than for Cause or Disability or
for the actions of the Company leading to a termination of the Executive's
employment by the Executive for Good Reason, and shall be the sole and
exclusive remedy therefor.
(b) DEATH AND DISABILITY. If the Executive's employment is terminated
by reason of the Executive's death or Disability during the Employment
Period, the Company shall pay to the Executive or, in the case of the
Executive's death, to the Executive's designated beneficiaries (or, if there
is no such beneficiary, to the Executive's surviving spouse, or if the
Executive is not survived by a spouse, to the Executive's estate or legal
representative), in a lump sum in cash within thirty (30) days after the
Date of Termination, the sum of the following amounts (the "Accrued
Obligations"): (1) any portion of the Executive's Annual Base Salary through
the Date of Termination that has been earned but not yet been paid; (2) an
amount representing the Incentive Compensation for the period that includes
the Date of Termination, computed by assuming that the amount of all such
Incentive Compensation would be equal to the maximum amount of such
Incentive Compensation that the Executive would have been eligible to earn
for such period, and multiplying that amount by a fraction, the numerator of
which is the number of days in such period through the Date of Termination,
and the denominator of which is the total number of days in the relevant
period; (3) any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) that has not yet been paid;
and (4) any
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<PAGE>
accrued but unpaid Incentive Compensation and vacation pay. Any deferred
compensation (together with any accrued interest or earnings thereon, if
any) that has not yet been paid, will be paid in accordance with the terms
and conditions applicable to such deferred compensation.
(c) BY THE COMPANY FOR CAUSE; BY THE EXECUTIVE OTHER THAN FOR GOOD
REASON. If the Executive's employment is terminated by the Company for
Cause during the Employment Period, the Company shall pay the Executive the
Annual Base Salary through the Date of Termination and the amount of any
compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon), in each case to the extent not yet paid, and
the Company shall have no further obligations under this Agreement, except
as specified in Section 6 below. If the Executive voluntarily terminates
employment during the Employment Period, other than for Good Reason, the
Company shall pay the Accrued Obligations to the Executive in a lump sum in
cash within thirty (30) days of the Date of Termination, and the Company
shall have no further obligations under this Agreement, except as specified
in Section 6 below.
6. NON-EXCLUSIVITY OF RIGHTS. Subject to Section 12(f), nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
for which the Executive may qualify, nor shall anything in this Agreement limit
or otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliates relating to subject matter
other than that specifically addressed herein. Vested benefits and other amounts
that the Executive is otherwise entitled to receive under the Incentive
Compensation, the deferred compensation and other benefit programs listed in
paragraph (c) of Section 3, or any other plan, policy, practice or program of,
or any contract or agreement with, the Company or any of its affiliates on or
after the Date of Termination shall be payable in accordance with the terms of
each such plan, policy, practice, program, contract or agreement, as the case
may be, except as explicitly modified by this Agreement.
7. FULL SETTLEMENT. The Company's obligation to make the payments provided
for in, and otherwise to perform its obligations under, this Agreement shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action that the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement. The amounts payable by the Company
under this Agreement shall not be offset or reduced by any amounts otherwise
receivable or received by the Executive from any source, except as specifically
provided in paragraph (a) of Section 5 with respect to benefits described in
clause (B) of paragraph (c) of Section 3.
8. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies and
their respective businesses that the Executive obtains during the Executive's
employment by the Company or any of its affiliated companies and that is not
public knowledge (other than as a result of the Executive's violation of this
Section 8) ("Confidential Information"). The Executive shall not communicate,
divulge or disseminate Confidential Information at any time during or after the
Executive's employment with the Company, except with the prior written consent
of the Company or as otherwise required by law or legal process. In no event
shall any asserted violation of the provisions of this Section 8 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
9. LIMITATION ON PAYMENTS.
(a) Notwithstanding any other provision of this Agreement, if any
portion of any payment under this Agreement, or under any other agreement
with or plan of the Company or its affiliates (in the aggregate "Total
Payments"), would constitute an "excess parachute payment," then the Total
Payments to be made to the Executive shall be reduced such that the value of
the aggregate Total Payments that the Executive is entitled to receive shall
be One Dollar ($1) less than the maximum amount which the Executive may
receive without becoming subject to the tax imposed
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by Section 4999 (or any successor provision) of the Internal Revenue Code of
1986, as amended (the "Code") or which the Company may pay without loss of
deduction under Section 280G(a) of the Code (or any successor provision).
For purposes of this Agreement, the terms "excess parachute payment" and
"parachute payments" shall have the meanings 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 for purposes of this
Agreement shall be calculated in accordance with Section 1274(b)(2) of the
Code (or any successor provision). Within fifteen (15) days following the
Date of Termination or notice by the Company to the Executive of its belief
that there is a payment or benefit due the Executive which will result in an
excess parachute payment as defined in Section 280G of the Code (or any
successor provision), the Executive 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 Executive in his sole discretion (which may
be regular outside counsel to the Company), which opinion sets forth (i) the
amount of the Base Period Income, (ii) the amount and present value of Total
Payments and (iii) the amount and present value of any excess parachute
payments determined without regard to the limitations of this paragraph (a)
of Section 9. As used in this Agreement, the term "Base Period Income" means
an amount equal to the Executive'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 Executive. Such opinion shall be dated as of the Date
of Termination and addressed to the Company and the Executive and shall be
binding upon the Company and the Executive. If such opinion determines that
there would be an excess parachute payment, any payment or benefit
determined by such counsel to be includible in Total Payments shall be
reduced or eliminated as specified by the Executive in writing delivered to
the Company within thirty (30) days of his receipt of such opinion or, if
the Executive 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
paragraph (a) of Section 9, the Executive 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 Executive. If the provisions of Sections 280G and 4999 of
the Code (or any successor provisions) are repealed without succession, then
this paragraph (a) of Section 9 shall be of no further force or effect.
(b) If, notwithstanding the provisions of paragraph (a) of Section 9, it
is ultimately determined by a court or pursuant to a final determination by
the Internal Revenue Service that any portion of Total Payments is subject
to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any
successor provision), the Company shall pay to the Executive an additional
amount (the "Gross-Up Payment") such that the net amount retained by the
Executive after deduction of any Excise Tax and any interest charges or
penalties in respect of the imposition of such Excise Tax (but not any
federal, state or local income tax) on the Total Payments, and any federal,
state and local income tax and Excise Tax upon the payment provided for by
this paragraph (b) of section 9, shall be equal to the Total Payments. For
purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment
is to be made and state and local income taxes at the highest marginal rates
of taxation in the state and locality of the Executive's domicile for income
tax purposes on the date the Gross-Up Payment is made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes.
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10. ATTORNEYS' FEES. The Company agrees to pay, as incurred, to the
fullest extent permitted by law, all legal fees and expenses that the Executive
may reasonably incur as a result of any contest (regardless of the outcome) by
the Company, the Executive or others of the validity or enforceability of or
liability under, or otherwise involving, any provision of this Agreement,
together with interest on any delayed payment at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the Code.
11. SUCCESSORS.
(a) This Agreement is personal to the Executive and, without the prior
written consent of the Company, shall not be assignable by the Executive.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would have been required to perform it if no such succession had
taken place. As used in this Agreement, "Company" shall mean both the
Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
12. MISCELLANEOUS.
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Iowa, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified except by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall be
in writing and shall be given by hand delivery to the other party or by
facsimile, addressed as follows:
IF TO THE EXECUTIVE:
Mr. Michael Chase
[ ]
IF TO THE COMPANY:
Interstate Power Company
1000 Main Street
P.O. Box 769
Dubuque, Iowa 52004-0769
Attn: General Counsel
with a copy to:
Interstate Energy Corporation
222 West Washington Avenue
P.O. Box 2568
Madison, Wisconsin 53701-2568
Attn: General Counsel
or to such other address as either party furnishes to the other in writing
in accordance with this paragraph (b) of Section 12. Notices and
communications shall be effective when actually received by the addressee.
K-8
<PAGE>
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be
held invalid or unenforceable in part, the remaining portion of such
provision, together with all other provisions of this Agreement, shall
remain valid and enforceable and continue in full force and effect to the
fullest extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the Company
may withhold from amounts payable under this Agreement all federal, state,
local and foreign taxes that are required to be withheld by applicable laws
or regulations.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provisions of, or to assert any right under, this
Agreement (including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to paragraph (c) of Section 4
of this Agreement) shall not be deemed to be a waiver of such provision or
right or of any other provision of or right under this Agreement.
(f) The Executive and the Company acknowledge that this Agreement
supersedes any other agreement between the Executive and Company concerning
the subject matter hereof, excluding the Agreement between the Executive and
the Company dated as of November 8, 1995, as in effect on the date hereof or
as hereafter amended from time to time (the "Severance Agreement");
PROVIDED, HOWEVER, that to the extent that a payment or benefit to be
provided, or limitation or restriction to be imposed, under this Agreement
is similarly to be provided or imposed under the Severance Agreement, the
Company agrees to pay, provide or impose that payment, benefit, limitation
or restriction which, in each case, provides the highest value to the
Executive, and the Executive agrees, in order to avoid duplication of
payments or benefits, that upon the receipt of any such highest value
payment or benefit under either this Agreement or the Severance Agreement,
as the case may be, he shall have no right to any similar payment or benefit
of lesser value under the other agreement.
(g) The rights and benefits of the Executive under this Agreement may
not be anticipated, alienated or subject to attachment, garnishment, levy,
execution or other legal or equitable process except as required by law. Any
attempt by the Executive to anticipate, alienate, assign, sell, transfer,
pledge, encumber or charge the same shall be void. Payments hereunder shall
not be considered assets of the Executive in the event of insolvency or
bankruptcy.
(h) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute
but one and the same instrument.
13. EFFECTIVENESS OF AGREEMENT. The effectiveness of this Agreement is
subject to the consummation of the Combination (as defined in the Merger
Agreement). If for any reason the Combination is not consummated in accordance
with the terms of the Merger Agreement, this Agreement shall be null and void AB
INITIO.
K-9
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization of the Board of Directors, the Company has caused
this Agreement to be executed in its name on its behalf, all as of the day and
year first above written.
INTERSTATE POWER COMPANY
By:
--------------------------------------
Name:
Title:
--------------------------------------
MICHAEL CHASE
K-10
<PAGE>
ANNEX L
Merrill Lynch
July 11, 1996
Board of Directors
WPL Holdings, Inc.
P.O. Box 2568
Madison, Wisconsin 53701-2568
Directors:
WPL Holdings, Inc. ("WPL"), IES Industries Inc. ("IES"), Interstate Power
Company ("Interstate"), WPLH Acquisition Co., a wholly-owned subsidiary of WPL
("Acquisition"), and Interstate Power Company, a wholly-owned subsidiary of
Interstate, have entered into an agreement and plan of merger dated as of
November 10, 1995, as amended as of May 22, 1996 (the "Agreement") pursuant to
which IES will be merged with and into WPL (the "IES Merger"), and Acquisition
will be merged with and into Interstate (the "Interstate Merger" and together
with the IES Merger, the "Merger"). In the IES Merger, each issued and
outstanding share of IES's common stock, no par value (the "IES Shares"), shall
be converted into the right to receive 1.01 shares of the common stock, par
value $.01 per share of WPL (the "WPL Shares"), and in the Interstate Merger,
each issued and outstanding share of Interstate's common stock, par value $3.50
per share (the "Interstate Shares"), shall be converted into the right to
receive 1.11 WPL Shares. The ratio at which IES Shares are converted into WPL
Shares, in accordance with the Agreement, is referred to herein as the "IES
Ratio", and the ratio at which Interstate Shares are converted into WPL Shares,
in accordance with the Agreement, is referred to herein as the "Interstate
Ratio." The IES Ratio and Interstate Ratio together are referred to herein as
the "Conversion Ratios." Consummation of the Merger is subject to the terms and
conditions set forth in the Agreement. The Agreement also provides for an
alternative transaction structure, to satisfy certain regulatory requirements,
in the event the structure described above does not comply with such regulatory
requirements. In connection with the Merger, WPL, IES and Interstate also have
entered into six agreements dated as of November 10, 1995, as amended as of May
22, 1996 (the "Stock Option Agreements") pursuant to which each of WPL, IES, and
Interstate, respectively, has granted to the others an option to purchase shares
of its common stock on the terms and conditions provided in such agreements,
representing in the aggregate 19.9% of the total issued and outstanding shares
of each company as of November 10, 1995.
You have asked us whether, in our opinion, the Conversion Ratios
contemplated by the Agreement are fair to WPL from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed WPL's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1995 and WPL's
Form 10-Q and the related unaudited financial information for the
quarterly period ending March 31, 1996;
L-1
<PAGE>
(2) Reviewed IES's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1995 and IES's
Form 10-Q and the related unaudited financial information for the
quarterly period ending March 31, 1996;
(3) Reviewed Interstate's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1995 and
Interstate's Form 10-Q and the related unaudited financial information
for the quarterly period ending March 31, 1996;
(4) Reviewed certain other filings with the Securities and Exchange
Commission made by WPL, IES and Interstate, including proxy statements,
Forms 8-K and registration statements, during the last three years;
(5) Reviewed certain information, including financial forecasts, relating to
the business, earnings, dividends, cash flow, assets and prospects of
WPL, IES, and Interstate, furnished to us by WPL, IES, and Interstate,
respectively;
(6) Conducted discussions with members of senior management of WPL, IES and
Interstate concerning their respective businesses, regulatory
environments, prospects and strategic objectives and possible operating,
administrative and capital synergies which might be realized for the
combined companies following the Merger;
(7) Reviewed the historical market prices and trading activity for WPL
Shares, IES Shares and Interstate Shares;
(8) Compared the results of operations of WPL, IES and Interstate with that
of certain companies which we deemed to be reasonably similar to WPL,
IES and Interstate, respectively;
(9) Compared the proposed financial terms of the Merger with the financial
terms of certain other mergers and acquisitions which we deemed to be
relevant;
(10) Analyzed the relative valuation of WPL Shares, IES Shares and Interstate
Shares using various valuation methodologies which we deemed
appropriate;
(11) Considered the pro forma effect of the Merger, in terms of net income
available to common stockholders, dividends per common share, book value
per share and capitalization, on WPL Shares;
(12) Reviewed the Agreement;
(13) Reviewed the Stock Option Agreements; and
(14) Reviewed such other financial studies and analyses and made such other
inquiry and took into account such other matters as we deemed necessary
or appropriate.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by WPL, IES and
Interstate, and we have not independently verified such information or any
underlying assumptions, conducted a physical inspection of the properties or
facilities of WPL, IES or Interstate, or undertaken or obtained any evaluation
or independent appraisal of the assets or liabilities (contingent or otherwise)
of WPL, IES or Interstate. We have assumed that the financial forecasts and
projected synergies furnished by WPL, IES and Interstate have been reasonably
prepared in accordance with accepted industry practices and reflect the best
currently available estimates and judgment of WPL's, IES's and Interstate's
management as to the expected future financial performance of WPL, IES and
Interstate, respectively, and as to the expected future projected outcomes of
various legal, regulatory and other contingencies. We have also assumed that the
Merger will be free of Federal tax to WPL, Acquisition, IES, Interstate and the
respective holders of WPL Shares, IES Shares and Interstate Shares, and we
further assume that the Merger will be accounted for as a pooling
L-2
<PAGE>
of interests. Our opinion is based upon general economic, market, monetary and
other conditions as they exist and can be evaluated, and the information made
available to us, as of the date hereof.
We have, in the past, provided financial advisory and financing services to
WPL, its subsidiary Wisconsin Power and Light Company, IES, its subsidiary IES
Utilities Inc., and Interstate and have received fees for the rendering of such
services. In addition, in the ordinary course of our securities business, we may
actively trade debt and equity securities of WPL, its subsidiary Wisconsin Power
and Light Company, IES, its subsidiary IES Utilities Inc., and Interstate for
our own account and the accounts of our customers, and we therefore may from
time to time hold a long or short position in such securities.
This opinion has been prepared for the confidential use of WPL's Board of
Directors and may not be reproduced, summarized, described or referred to
without Merrill Lynch's prior written consent.
On the basis of, and subject to the foregoing, we are of the opinion that
the Conversion Ratios contemplated by the Agreement are fair to WPL from a
financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
L-3
<PAGE>
ANNEX M
MORGAN STANLEY & CO. INCORPORATED
July 11, 1996
Board of Directors
IES Industries Inc.
IES Tower
200 First Street, S.E.
Cedar Rapids, IA 52401
Members of the Board of Directors:
We understand that IES Industries Inc. ("IES" or the "Company"), WPL
Holdings, Inc., which upon or immediately prior to consummation of the Merger
(as hereinafter defined) is proposed to be renamed Interstate Energy Corporation
("WPL"), Interstate Power Company ("IPC") and WPLH Acquisition Co., a wholly
owned subsidiary of WPL ("Merger Sub"), have entered into an Agreement and Plan
of Merger, dated as of November 10, 1995, and subsequently have entered into an
amendment thereto, dated as of May 22, 1996, (as amended, the "Merger
Agreement"), which provides, among other things, for (i) the merger of the
Company with and into WPL (the "IES Merger") and (ii) the merger of Merger Sub
with and into IPC ("IPC Merger" and together with the IES Merger, the "Merger").
Pursuant to the Merger, (i) WPL will be the surviving corporation of the IES
Merger and each issued and outstanding share of common stock, no par value, of
the Company (the "Company Common Stock"), other than shares held in treasury or
held by WPL or IPC or any of their subsidiaries or as to which dissenters'
rights have been perfected, will be converted into the right to receive 0.98 of
a share, or upon satisfaction of the McLeod Contingency (as defined in the
Merger Agreement) each share of Company Common Stock will be converted into the
right to receive 1.01 shares of common stock, par value $.01 per share, of WPL
(the "WPL Common Stock"); and (ii) IPC will become a wholly owned subsidiary of
WPL and each issued and outstanding share of common stock, par value $3.50 per
share, of IPC (the "IPC Common Stock"), other than shares held in treasury or
held by WPL or the Company or any of their subsidiaries or as to which
dissenters' rights have been perfected, will be converted into the right to
receive 1.11 shares (the "IPC Ratio") of WPL Common Stock. We also understand
that the McLeod Contingency has been satisfied, and therefore the Merger
Agreement provides that each share of Company Common Stock will be converted
into the right to receive 1.01 shares (the "IES Ratio") of WPL Common Stock. It
is also our understanding that the Company, WPL and IPC have entered into Stock
Option Agreements, each dated as of November 10, 1995, as amended (the "Option
Agreements"), which provide, among other things, for the grant by the Company to
each of WPL and to IPC of an option to acquire certain shares of Company Common
Stock, the grant by WPL to each of the Company and IPC to acquire certain shares
of WPL Common Stock, and the grant by IPC to each of the Company and WPL of an
option to acquire certain shares of IPC Common Stock, in each case, upon the
terms and conditions provided in such agreements (collectively, the "Options").
We further understand that the Merger Agreement provides for an alternative
transaction structure, to satisfy certain regulatory requirements, in the event
the structure outlined above does not comply with such regulatory requirements.
The terms and conditions of the Merger and the Options are more fully set forth
in the Merger Agreement and Option Agreements, respectively.
You have asked for our opinion as to whether the IES Ratio, taking into
account the IPC Ratio, is fair from a financial point of view to the holders of
shares of the Company Common Stock.
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of the Company, WPL and IPC, respectively;
M-1
<PAGE>
(ii) analyzed certain internal financial statements and other financial and
operating data concerning the Company, WPL and IPC prepared by their
respective managements;
(iii) analyzed certain financial projections of the Company, WPL and IPC
prepared by their respective managements;
(iv) reviewed certain public research reports concerning IES, WPL and IPC
prepared by certain equity research analysts and discussed these
research reports including financial projections contained therein with
the managements of IES, WPL and IPC, respectively;
(v) discussed the past and current operations and financial condition and
the prospects of the Company, WPL and IPC with senior executives of the
Company, WPL and IPC, respectively;
(vi) reviewed the reported prices and trading activity of each of the Company
Common Stock, WPL Common Stock, IPC Common Stock and Class A common
stock of McLeod Inc. ("McLeod");
(vii) compared the financial performance of the Company, WPL and IPC and the
prices and trading activity of the Company Common Stock, WPL Common
Stock and IPC Common Stock with that of certain other comparable
publicly traded companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger or acquisition transactions;
(ix) analyzed the pro forma financial impact of the Merger on the Company;
(x) participated in discussions and negotiations among representatives of
the Company, WPL and IPC and their respective financial and legal
advisors;
(xi) reviewed the Merger Agreement, the Option Agreements and certain related
documents;
(xii) reviewed and discussed with the Company, WPL and IPC an analysis
prepared by the Company, WPL and IPC with the assistance of a third
party consultant to the Company, WPL and IPC regarding estimates of the
amount and timing of the potential cost savings to be derived from the
Merger;
(xiii) reviewed the registration statements filed on Form S-1, dated May 15,
1996 and on June 10, 1996, respectively, regarding the initial public
offering of Class A common stock of McLeod (the "McLeod IPO"), as well
as the Investor Agreement among various parties, including McLeod, IES
Investments Inc., Midwest Capital Group Inc., MWR Investments, Inc. and
Clark and Mary McLeod, entered into as of April 1, 1996 which, among
other things, sets forth certain restrictions on the transfer of McLeod
common stock owned by the Company;
(xiv) reviewed certain information pertaining to McLeod and the McLeod IPO
provided by IES and discussed certain aspects of such information with
the management of IES; and
(xv) performed such other analyses and examinations and considered such other
factors as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections and the estimates of the
potential cost savings to be derived from the Merger, we have assumed that such
projections and estimates have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the future financial
performance of the Company, WPL and IPC, respectively, and of the amount and
timing of such cost savings. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company, WPL and IPC. In addition,
we have assumed that the Merger will be consummated in accordance with the terms
set forth in the Merger Agreement, including, among other things, that the
Merger will be accounted for
M-2
<PAGE>
as a "pooling-of-interests" business combination in accordance with U.S.
generally accepted accounting principles and that the Merger will be treated as
a tax-free reorganization and/or exchange, each pursuant to the Internal Revenue
Code of 1986. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
In arriving at our opinion, we have assumed that in connection with the
receipt of all the necessary regulatory and governmental approvals for the
proposed Merger, no restriction will be imposed that would have a material
adverse effect on the contemplated benefits expected to be derived in the
proposed Merger. In addition, we were not authorized to solicit, and did not
solicit, interest from any party with respect to a merger with or other business
combination transaction involving the Company or any of its assets, nor did we
have any discussions or negotiations with any parties, other than WPL and IPC,
in connection with the Merger.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates ("Morgan
Stanley") have provided financial advisory and financing services for the
Company and WPL and have received fees for the rendering of these services.
Morgan Stanley acted as co-lead manager of the McLeod IPO.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission
with respect to the Merger and the transactions related thereto. In addition, we
express no recommendation as to how the shareholders of the Company should vote
at the shareholders' meetings held in connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
IES Ratio, taking into account the IPC Ratio, is fair from a financial point of
view to the holders of shares of the Company Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ ROBERT W. JONES
-----------------------------------
Robert W. Jones
Managing Director
M-3
<PAGE>
ANNEX N
Salomon Brothers Inc
July 11, 1996
Board of Directors
Interstate Power Company
1000 Main Street
Post Office Box 769
Dubuque, IA 52004-0769
Dear Sirs:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of common stock, par value $3.50 per share ("Company Common
Stock"), of Interstate Power Company, a Delaware corporation (the "Company"),
other than WPL Holdings, Inc. ("WPL"), IES Industries Inc. ("IES") or any of
their respective affiliates, of the exchange ratio to be used for the conversion
of Company Common Stock in connection with the proposed combination (the
"Combination") of the Company, WPL and IES pursuant to the Agreement and Plan of
Merger dated as of November 10, 1995, as amended (the "Merger Agreement"), by
and among WPL, IES, the Company, WPLH Acquisition Co., a wholly owned subsidiary
of WPL ("Acquisition"), and Interstate Power Company, a wholly owned subsidiary
of the Company and a Wisconsin corporation ("New IPC"). In the Combination, IES
will merge into WPL, which will be the surviving corporation in the Combination,
and either (x) Acquisition will merge into the Company, with the Company to be
the surviving corporation and a wholly owned subsidiary of WPL, or (y) in the
event certain regulatory requirements mandate that the utility subsidiaries of
WPL be Wisconsin corporations, the Company will merge into New IPC and then
Acquisition will merge into New IPC, with New IPC to be the surviving
corporation and a wholly owned subsidiary of WPL. As a result of the foregoing,
WPL (which will change its name to Interstate Energy Corporation) will be a
holding company with three operating utilities as subsidiaries. In the
Combination, each issued and outstanding share of Company Common Stock, other
than shares owned by the Company, WPL, IES or any of their respective
subsidiaries, will be converted into 1.11 shares (the "Company Exchange Ratio")
of common stock, par value of $0.01 per share ("WPL Common Stock"), of WPL. Each
issued and outstanding share of common stock, no par value, of IES, other than
shares owned by IES, WPL, the Company or any of their respective subsidiaries,
will be converted into 1.01 shares of WPL Common Stock. We understand the
Combination is intended to be accounted for as a pooling of interests in
accordance with generally accepted accounting principles as described in
Accounting Principles Board Opinion Number 16.
In arriving at our opinion, we have reviewed the Merger Agreement, its
related exhibits and the Joint Proxy Statement/Prospectus dated the date hereof
and relating to the Combination. We also have reviewed certain publicly
available business and financial information relating to the Company, WPL and
IES, as well as certain other information, including financial projections,
provided to us by the Company, WPL and IES. We have discussed the past and
current operations and financial condition and prospects of the Company, WPL and
IES with their respective senior management. We also have considered such other
information, financial studies, analyses, investigations and financial,
economic, market and trading criteria which we deemed relevant, including the
amended registration statement on Form S-1 filed by McLeod, Inc. (a Delaware
corporation in which IES has a significant ownership interest).
We have assumed and relied on the accuracy and completeness of the
information reviewed by us for the purpose of this opinion and we have not
assumed any responsibility for independent verification of such information or
for independent evaluation or appraisal of the assets of the Company, WPL or
IES. With respect to the financial projections of the Company, WPL and IES, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and
N-1
<PAGE>
Board of Directors
Interstate Power Company
Page 2
judgments of the management of the Company, WPL or IES, as the case may be, as
to the future financial performance of such entity, and we express no opinion
with respect to such forecasts or the assumptions on which they are based.
Our opinion is necessarily based upon business, market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this letter
and does not address the Company's underlying business decision to enter into
the Combination or constitute a recommendation to any holder of Company Common
Stock as to how such holder should vote with respect to the Combination. We were
not requested to, and did not, solicit third party offers to acquire all or any
part of the Company. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for WPL Common Stock following the
consummation of the Combination, which may vary depending on, among other
factors, changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors that generally influence the price of
securities.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Combination and will receive a fee for our services, the
payment of a portion of which is contingent upon the consummation of the
Combination. Additionally, we have acted as underwriter for the Company in
connection with three of its prior financings, as well as lead manager for the
initial public offering by McLeod, Inc. In the ordinary course of our business,
we actively trade the debt and equity securities of the Company, WPL and IES for
our own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Company Exchange Ratio is fair from a financial point of view
to the holders of Company Common Stock (other than WPL, IES or any of their
respective affiliates).
Very truly yours,
Salomon Brothers Inc
N-2
<PAGE>
ANNEX O
PROPOSED AMENDMENTS TO THE RESTATED ARTICLES
OF INCORPORATION OF INTERSTATE ENERGY CORPORATION
Proposed amendments reflecting the Name Change Amendment and the Common
Stock Amendment are italicized and in bold face. Deletions caused by the Name
Change Amendment or the Common Stock Amendment are indicated by overstriking.
------------------------
ARTICLE I
The name of the corporation is <#>WPL Holdings, Inc.</#> INTERSTATE ENERGY
CORPORATION.
* * * *
ARTICLE IV
The corporation shall have authority to issue <#>one</#> TWO hundred million
<#>(100,000,000)</#> (200,000,000) shares of common stock, $.01 par value.
* * * *
O-1
<PAGE>
ANNEX P
SECTIONS 490.1301 TO 490.1331 OF THE
IOWA BUSINESS CORPORATION ACT
DIVISION XIII
DISSENTERS' RIGHTS
PART A.
490.1301 DEFINITIONS FOR DIVISION XIII. -- In this division:
1. "Beneficial shareholder" means the person who is a beneficial owner
of shares held by a nominee as the record shareholder.
2. "Corporation" means the issuer of the shares held by a dissenter
before the corporate action or the surviving or acquiring corporation by
merger or share exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 490.1302 and who exercises that right when
and in the manner required by sections 490.1320 through 490.1328.
4. "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
5. "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
6. "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
7. "Shareholder" means the record shareholder or the beneficial
shareholder.
490.1302 SHAREHOLDERS' RIGHT TO DISSENT. -- 1. A shareholder is entitled to
dissent from, and obtain payment of the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
a. Consummation of a plan of merger to which the corporation is a party
if either of the following apply:
(1) Shareholder approval is required for the merger by section
490.1103 or the articles of incorporation and the shareholder is entitled
to vote on the merger.
(2) The corporation is a subsidiary that is merged with its parent
under section 490.1104.
b. Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan.
c. Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the shareholders
within one year after the date of sale.
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d. An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it does
any or all of the following:
(1) Alters or abolishes a preferential right of the shares.
(2) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares.
(3) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities.
(4) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights.
(5) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under section 490.604.
(6) Extends, for the first time after being governed by this chapter,
the period of duration of a corporation organized under chapter 491 or
496A and existing for a period of years on the day preceding the date the
corporation is first governed by this chapter.
e. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
2. A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter is not entitled to challenge the
corporate action creating the shareholder's entitlement unless the action is
unlawful or fraudulent with respect to the shareholder or the corporation.
490.1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -- 1. A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in that shareholder's name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the
shareholder dissents and the shareholder's other shares were registered in the
names of different shareholders.
2. A beneficial shareholder may asserts dissenters' rights as to shares
held on the shareholder's behalf only if the shareholder does both of the
following:
a. Submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights.
b. Does so with respect to all shares of which the shareholder is the
beneficial shareholder or over which that beneficial shareholder has power
to direct the vote.
PART B
490.1320 NOTICE OF DISSENTERS' RIGHTS. -- 1. If proposed corporate action
creating dissenter's rights under section 490.1302 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this part and be accompanied
by a copy of this part.
2. If corporate action creating dissenters' rights under section 490.1302
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in section 490.1322.
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490.1321 NOTICE OF INTENT TO DEMAND PAYMENT. -- 1. If proposed corporate
action creating dissenters' rights under section 490.1302 is submitted to a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights must do all of the following:
a. Deliver to the corporation before the vote is taken written notice
of the shareholder's intent to demand payment for the shareholder's shares
if the proposed action is effectuated.
b. Not vote the dissenting shareholder's shares in favor of the
proposed action.
2. A shareholder who does not satisfy the requirements of subsection 1 is
not entitled to payment for the shareholder's shares under this part.
490.1322 DISSENTERS' NOTICE. -- 1. If proposed corporate action creating
dissenters' rights under section 490.1302 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of section 490.1321.
2. The dissenters' notice must be sent no later than ten days after the
proposed corporate action is authorized at a shareholders' meeting, or, if the
corporate action is taken without a vote of the shareholders, no later than ten
days after the corporate action is taken, and must do all of the following:
a. State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited.
b. Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received.
c. Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not the person acquired beneficial ownership of
the shares before that date.
d. Set a date by which the corporation must receive the payment demand,
which date shall not be fewer than thirty nor more than sixty days after the
date the dissenters' notice is delivered.
e. Be accompanied by a copy of this division.
490.1323 DUTY TO DEMAND PAYMENT. -- 1. A shareholder sent a dissenters'
notice described in section 490.1322 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date required
to be set forth in the dissenters' notice pursuant to section 490.1322,
subsection 2, paragraph "c," and deposit the shareholder's certificates in
accordance with the terms of the notice.
2. The shareholder who demands payment and deposits the shareholder's
shares under subsection 1 retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
3. A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
division.
490.1324 SHARE RESTRICTIONS. -- 1. The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under section 490.1326.
2. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
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490.1325 PAYMENT. -- 1. Except as provided in section 490.1327, at the time
the proposed corporate action is taken, or upon receipt of a payment demand,
whichever occurs later, the corporation shall pay each dissenter who complied
with section 490.1323 the amount the corporation estimates to be the fair value
of the dissenter's shares, plus accrued interest.
2. The payment must be accompanied by all of the following:
a. The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any.
b. A statement of the corporation's estimate of the fair value of the
shares.
c. An explanation of how the interest was calculated.
d. A statement of the dissenter's rights to demand payment under
section 490.1328.
e. A copy of this division.
490.1326 FAILURE TO TAKE ACTION. -- 1. If the corporation does not take the
proposed action within sixty days after the date set for demanding payment and
depositing share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
2. If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 490.1322 as if the corporate action was taken
without a vote of the shareholders and repeat the payment demand procedure.
490.1327 AFTER-ACQUIRED SHARES. -- 1. A corporation may elect to withhold
payment required by section 490.1325 from a dissenter unless the dissenter was
the beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
2. To the extent the corporation elects to withhold payment under
subsection 1, after taking the proposed corporate action, it shall estimate the
fair value of the shares, plus accrued interest, and shall pay this amount to
each dissenter who agrees to accept it in full satisfaction of the dissenter's
demand. The corporation shall send with its offer a statement of its estimate of
the fair value of the shares, an explanation of how the interest was calculated,
and a statement of the dissenter's right to demand payment under section
490.1328.
490.1328 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. -- 1.
A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest due,
and demand payment of the dissenter's estimate, less any payment under section
490.1325, or reject the corporation's offer under section 490.1327 and demand
payment of the fair value of the dissenter's shares and interest due, if any of
the following apply:
a. The dissenter believes that the amount paid under section 490.1325
or offered under section 490.1327 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated.
b. The corporation fails to make payment under section 490.1325 within
sixty days after the date set for demanding payment.
c. The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
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2. A dissenter waives the dissenter's right to demand payment under this
section unless the dissenter notifies the corporation of the dissenter's demand
in writing under subsection 1 within thirty days after the corporation made or
offered payment for the dissenter's shares.
PART C
490.1330 COURT ACTION. -- 1. If a demand for payment under section 490.1328
remains unsettled, the corporation shall commence a proceeding within sixty days
after receiving the payment demand and petition the court to determine the fair
value of the shares and accrued interest. If the corporation does not commence
the proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
2. The corporation shall commence the proceeding in the district court of
the county where a corporation's principal office or, if none in this state, its
registered office is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
3. The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend decision on the question of fair
value. The appraisers have the powers described in the order appointing them, or
in any amendment to it. The dissenters are entitled to the same discovery rights
as parties in other civil proceedings.
5. Each dissenter made a party to the proceeding is entitled to judgment
for either of the following:
a. The amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the
corporation.
b. The fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under section 490.1327.
490.1331 COURT COSTS AND COUNSEL FEES. -- 1. The court in an appraisal
proceeding commenced under section 490.1330 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under section 490.1328.
2. The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable, for either of
the following:
a. Against the corporation and in favor of any or all dissenters if the
court find the corporation did not substantially comply with the
requirements of sections 490.1320 through 490.1328.
b. Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this chapter.
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3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted.
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ANNEX Q
SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW
SECTION262. APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the holders of the surviving corporation as provided in
subsections (f) or (g) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it appears
on the records of the corporation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of the notice, demand
in writing from the surviving or resulting corporation the appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after
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his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and in the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
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(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 79, L.
'95, eff. 7-1-95.)
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ANNEX R
PROPOSED AMENDMENT TO RESTATED CERTIFICATE OF
INCORPORATION OF INTERSTATE POWER COMPANY (IPC)
RESOLVED, that the Restated Certificate of Incorporation of Interstate Power
Company be amended by deleting Heading C and Paragraph XII of Article FOURTH in
their entirety and inserting in lieu thereof the following Heading C and
Paragraph XII:
"C. Voting Rights of Common
Stock and Preferred Stock -- Certain Voting
Rights of Preferred Stock and
Preference Stock as to Directors
XII. Except as otherwise required by the statutes of the State of Delaware
and as otherwise provided in this Article FOURTH, and subject to the provisions
of the By-Laws of the Corporation, as from time to time amended, with respect to
the closing of the transfer books and the fixing of a record date for the
determination of stockholders entitled to vote, the holders of the Common Stock
and the Preferred Stock shall exclusively possess all voting power for the
election of directors and for all other purposes, and the holders of the
Preference Stock shall have no voting power and shall not be entitled to any
notice of or to attend any meeting of stockholders. Except as otherwise required
by the statutes of the State of Delaware and as otherwise provided in this
Article FOURTH, the holders of the Preferred Stock and the holders of the Common
Stock shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation, with each share of Preferred Stock and each
share of Common Stock being entitled to one vote. Notwithstanding the foregoing,
(a) if and whenever full cumulative dividends for four (4) quarterly dividend
periods upon any series of Preferred Stock shall be unpaid, the holders of the
Preferred Stock as a class, subject to any rights of the holders of the
Preference Stock, if any, and without regard to series shall thereafter at all
elections of directors have the exclusive right to elect the smallest number of
directors of the Corporation that shall constitute a majority of the Board of
Directors as then constituted, and the holders of the Common Stock of the
Corporation as a class shall have the exclusive right to elect the remaining
number of directors of the Corporation, which right of the holders of the
Preferred Stock, shall however, cease when full cumulative dividends upon the
Preferred Stock of all series then outstanding shall have been paid or declared
and set apart for payment (and such full cumulative dividends shall be declared
and paid out of any funds legally available therefor as soon as reasonably
practicable), and/or (b) if and whenever full cumulative dividends for six (6)
quarterly dividend periods (whether or not consecutive) upon any series of
Preference Stock shall be unpaid, in whole or in part, the number of directors
then constituting the full Board of Directors shall be increased by two (said
two being referred to as the "additional two directors") and the holders of the
Preference Stock as a class and without regard to series shall thereafter at all
elections of directors have the exclusive right to elect said "additional two
directors" and the holders of the Common Stock and the Preferred Stock of the
Corporation voting as one class, subject to any additional rights of the holders
of the Preferred Stock, if any, shall have the exclusive right to elect the
remaining number of directors of the Corporation, which right of the holders of
the Preference Stock shall, however, cease when full cumulative dividends upon
the Preference Stock of all series then outstanding shall have been paid or
declared and set apart for payment (and such full cumulative dividends shall be
declared and paid out of any funds legally available therefor as soon as
reasonably practicable).
The terms of office of all persons who may be directors of the Corporation
at the time when such right to elect a majority of the directors shall accrue to
holders of Preferred Stock and/or right to elect such additional two directors
shall accrue to holders of Preference Stock shall terminate upon the election of
the successors of such majority directors and/or such additional two directors
at the next annual meeting of the stockholders or (unless under the provisions
of the By-Laws of the Corporation, as then in effect, an annual meeting of the
stockholders is to be held within ninety (90) days after such
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right to elect a majority of directors and/or such additional two directors
shall have so accrued) at an earlier special meeting of the stockholders held as
hereinafter in this Paragraph XII provided. A special meeting of the
stockholders shall be held at any time after such right to elect a majority of
the directors shall accrue to holders of Preferred Stock and/or such right to
elect such two additional directors shall accrue to holders of Preference Stock
upon notice similar to that provided in the By-Laws for an annual meeting, which
notice shall be given not more than fifteen (15) days after the accrual of such
rights by the President, a Vice-President, or the Secretary, of the Corporation,
such meeting to be held not less than sixty (60) nor more than ninety (90) days
after the accrual of such rights.
At the first meeting of stockholders held for the purpose of electing
directors during such time as the holders of the Preferred Stock and/or
Preference Stock shall have the special rights voting as separate classes to
elect directors, the presence in person or by proxy of the holders of a majority
of the outstanding Common Stock, together with the Preferred Stock, shall be
required to constitute a quorum of each such class for the election of
directors, and the presence in person or by proxy of the holders of a majority
of the outstanding Preferred Stock and/or Preference Stock shall be required to
constitute a quorum of each such class for the election of directors; provided,
however, that in the absence of a quorum of the holders of the Preferred Stock
and/or Preference Stock, no election of directors shall be held, but a majority
of the holders of the Preferred Stock and/or Preference Stock who are present in
person or by proxy shall have power to adjourn the election of the directors to
a date not less than fifteen nor more than fifty days from the giving of the
notice of such adjourned meeting hereinafter provided for; and provided,
further, that at such adjourned meeting, the presence in person or by proxy of
the holders of 35% of the outstanding Preferred Stock and/or Preference Stock
shall be required to constitute a quorum of each such class for the election of
directors. In the event such first meeting of stockholders shall be so
adjourned, it shall be the duty of the President, a Vice-President or the
Secretary of the Corporation, within ten days from the date on which such first
meeting shall have been adjourned, to cause notice of such adjourned meeting to
be given to the stockholders entitled to vote thereat, such adjourned meeting to
be held not less than fifteen days nor more than fifty days from the giving of
such second notice. Such second notice shall be given in the form and manner
hereinabove provided for with respect to the notice required to be given of such
first meeting of stockholders, and shall further set forth that a quorum was not
present at such first meeting and that the holders of 35% of the outstanding
Preferred Stock and/or Preference Stock shall be required to constitute a quorum
of each such class for the election of directors at such adjourned meeting. If
the requisite quorum of holders of the Preferred Stock and/or Preference Stock
shall not be present at said adjourned meeting, then the directors of the
Corporation then in office shall remain in office until the next annual meeting
of the Corporation, or special meeting in lieu thereof and until their
successors shall have been elected and qualify. Neither such first meeting nor
such adjourned meeting need be held on a date within sixty days of the next
annual meeting of the Corporation or special meeting in lieu thereof. At each
annual meeting of the Corporation, or special meeting in lieu thereof, held
during such time as the holders of the Preferred Stock and/or Preference Stock,
voting as separate classes shall have the right to elect Directors, the
foregoing provisions of this paragraph shall govern each annual meeting, or
special meeting in lieu thereof, as if said annual meeting or special meeting
were the first meeting of stockholders held for the purpose of electing
directors after the right of the holders of the Preferred Stock and/or
Preference Stock, voting as separate classes, to elect Directors, should have
accrued with the exception, that if, at any adjourned annual meeting, or special
meeting in lieu thereof, the holders of 35% of the outstanding Preferred Stock
and/or Preference Stock are not present in person or by proxy, all the directors
shall be elected by a vote of the holders of a majority of the Common Stock and
the Preferred Stock of the Corporation present or represented at the meeting
voting as one class; provided, however, that notwithstanding the provisions of
this paragraph so long as any shares of the Preferred Stock and/or Preference
Stock of the Corporation shall be outstanding, the holders of a majority of the
Preferred Stock and/or Preference Stock shall be sufficient to constitute a
quorum of the outstanding Preferred Stock and/or Preference Stock for the
election of directors.
R-2
<PAGE>
No delay or failure by the holders of the Preferred Stock and/or Preference
Stock to elect the members of the Board of Directors which such holders are
entitled to elect shall invalidate the election of the members of the Board of
Directors elected by the holders of the Common Stock and the Preferred Stock
voting as one class. Upon the termination of such right of the holders of the
Preferred Stock to elect a majority of directors, the terms of office of all the
directors of the Corporation shall terminate upon the election of the successors
of such directors at the next annual meeting of the stockholders or at an
earlier special meeting of the stockholders called in like manner and subject to
similar conditions as hereinbefore in this Paragraph XII provided with respect
to the call of a special meeting of stockholders for the election of directors
by the holders of the Preferred Stock.
If and when all dividends then in default on the Preference Stock of each
series then outstanding shall have been paid, the Preference Stock shall be
divested of such voting powers and the terms of office of the additional two
directors (whether elected by vote of the holders of Preference Stock or to fill
a vacancy) shall forthwith terminate and the number of directors constituting
the full Board of Directors shall be reduced accordingly.
Whenever the Preferred Stock and/or Preference Stock shall be entitled to
elect Directors, any holder of such stock shall have the right, during regular
business hours, in person or by a duly authorized representative, to examine and
to make transcripts of the stock records of the Corporation for the Preferred
Stock and/or Preference Stock for the purpose of communicating with other
holders of such stock with respect to the exercise of such right of election."
* * * *
R-3
<PAGE>
ANNEX S
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Interstate Power Company, a Wisconsin Corporation,
a subsidiary of Interstate Power Company, a Delaware Corporation
Dubuque, Iowa
We have audited the accompanying balance sheet as of March 25, 1996 of
Interstate Power Company, a Wisconsin Corporation, a subsidiary of Interstate
Power Company, a Delaware Corporation. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position as of March 25, 1996 of Interstate Power
Company, a Wisconsin Corporation, a subsidiary of Interstate Power Company, a
Delaware Corporation, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
April 3, 1996
Davenport, Iowa
S-1
<PAGE>
INTERSTATE POWER COMPANY
(A WISCONSIN CORPORATION)
BALANCE SHEET
MARCH 25, 1996
ASSETS
<TABLE>
<S> <C>
Cash............................................................................... $ 1,000
---------
---------
STOCKHOLDER'S EQUITY
Common stock; par value $.01;
9,000 shares authorized; 100 shares issued and outstanding........................ 1
Additional paid-in capital......................................................... 999
---------
Total.............................................................................. $ 1,000
---------
---------
</TABLE>
SEE NOTE TO BALANCE SHEET
------------------------
S-2
<PAGE>
INTERSTATE POWER COMPANY
(A WISCONSIN CORPORATION)
NOTE TO BALANCE SHEET
ORGANIZATION OF INTERSTATE POWER COMPANY
Interstate Power Company, a Wisconsin corporation ("New IPC"), was formed on
March 25, 1996 for purposes of facilitating the mergers between Interstate Power
Company, a Delaware corporation ("IPC"), WPL Holdings, Inc., a Wisconsin
corporation ("WPLH"), and IES Industries Inc., an Iowa corporation ("IES"). New
IPC has, and prior to the mergers described below will have, no operations,
except as contemplated by the Agreement and Plan of Merger, dated as of November
10, 1995, as amended (the "Merger Agreement"), by and among New IPC, IPC, WPLH,
IES and WPLH Acquisition Co., a Wisconsin corporation and wholly-owned
subsidiary of WPLH ("Acquisition"). IPC is the sole shareholder of New IPC. The
principal executive office of New IPC is located at 1000 Main Street, Dubuque,
Iowa 52001.
The Merger Agreement provides for two alternative structures to consummate
the mergers of IPC, WPLH and IES. New IPC will be a participant in the mergers
only under the second alternative structure; which alternative will only be
followed if the parties determine, for reasons relating to Wisconsin regulatory
requirements, that such structure is required. Under the second alternative
structure, the following events involving New IPC will occur: New IPC will
acquire certain of the utility assets currently owned by WPLH; IPC shall cause
the Articles of Incorporation of New IPC to be amended and restated prior to the
consummation of the mergers to, among other things, increase the par value of
common stock of New IPC ("New IPC Common Stock") to $3.50 per share, create a
class of preferred stock, $50.00 par value per share, of New IPC ("New IPC
Preferred Stock") with 2,000,000 authorized shares and increase the authorized
shares of New IPC Common Stock to 30,000,000 shares. In addition, the
alternative structure provides for: (i) the merger of IPC with and into New IPC
pursuant to which (a) each outstanding share of common stock, par value $3.50
per share, of IPC ("IPC Common Stock") will be canceled and converted into one
share of New IPC Common Stock and (b) each outstanding share of preferred stock,
par value $50 per share, of IPC ("IPC Preferred Stock") (except shares held by
IPC preferred stockholders who perfect dissenters' rights under applicable state
law) will be canceled and converted into one share of New IPC Preferred Stock
with terms (including dividend rates) and designations under New IPC's Restated
Articles of Incorporation substantially identical to those of the IPC Preferred
Stock under IPC's Restated Certificate of Incorporation; and (ii) the merger of
Acquisition with and into New IPC pursuant to which (a) each outstanding share
of New IPC Common Stock will be canceled and converted into 1.11 shares of
common stock, par value $.01 per share, of Interstate Energy Corporation and (b)
each outstanding share of New IPC Preferred Stock will remain outstanding and
unchanged thereby.
S-3
<PAGE>
[ALTERNATE PAGE FOR
WPLH PROXY STATEMENT]
[MAP OF LOCATION OF WPLH MEETING]
[LOGO]
<PAGE>
[Alternate Page for IES Proxy Statement]
MAP TO IES INDUSTRIES INC. -- ANNUAL MEETING LOCATION
[Map of Location of IES Meeting]
TAKE EXIT 24A FROM INTERSTATE 380 AND PROCEED EAST ON COLLINS ROAD TO COLLINS
PLAZA HOTEL.
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the provisions of the Wisconsin Business Corporation Law,
directors and officers of WPLH and New IPC are entitled to mandatory
indemnification from WPLH or New IPC, respectively, against certain liabilities
(which may include liabilities under the Securities Act of 1933) and expenses
(i) to the extent such officers or directors are successful in the defense of a
proceeding; and (ii) in proceedings in which the director or officer is not
successful in defense thereof, unless it is determined that the director or
officer breached or failed to perform his or her duties to WPLH or New IPC, as
the case may be, and such breach or failure constituted: (a) a willful failure
to deal fairly with WPLH or its shareholders or New IPC or its shareholders, as
the case may be, in connection with a matter in which the director or officer
had a material conflict of interest; (b) a violation of criminal law unless the
director or officer had a reasonable cause to believe his or her conduct was
lawful or had no reasonable cause to believe his or her conduct was unlawful;
(c) a transaction from which the director or officer derived an improper
personal profit; or (d) willful misconduct. Additionally, under the Wisconsin
Business Corporation Law, directors of WPLH and New IPC are not subject to
personal liability to WPLH or New IPC, as the case may be, their respective
shareholders or any person asserting rights on behalf thereof, for certain
breaches or failures to perform any duty resulting solely from their status as
directors, except in circumstances paralleling those outlined in (a) through (d)
above.
WPLH's Bylaws and New IPC's Bylaws contain similar indemnification
provisions as to their respective officers and directors.
The indemnification provided by the Wisconsin Business Corporation Law,
WPLH's Bylaws and New IPC's Bylaws is not exclusive of any other rights to which
a director or officer of WPLH or New IPC may be entitled. WPLH and New IPC also
carry directors' and officers' liability insurance.
Under Section 8.5 of the Merger Agreement, the parties have agreed that
Interstate Energy will (i) indemnify, defend and hold harmless to the fullest
extent permitted by applicable law, the present and former officers, directors
and employees of each of the parties to the Merger Agreement or any subsidiary
against certain liabilities (a) arising out of actions or omissions occurring at
or prior to the Effective Time that are based on or arise out of such service as
an officer, director or employee or (b) that are based on, arise from or pertain
to the transactions contemplated by the Merger Agreement, and (ii) maintain
policies of directors' and officers' liability insurance for a period of six
years after the Effective Time. In addition, to the fullest extent permitted by
law, all existing rights of indemnification will continue in full force and
effect for not less than six years from the Effective Time. See "The Merger
Agreement -- Indemnification" in the Original Joint Proxy Statement/ Prospectus
which forms a part of this Registration Statement.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. The exhibits listed in the accompanying Exhibit Index are
filed (except where otherwise indicated) as part of this Joint Registration
Statement. The cautionary language regarding forward looking statements set
forth on page 47 of the Original Joint Proxy Statement/Prospectus is applicable
to forward looking statements contained in the exhibits filed herewith or
incorporated by reference herein.
(b) FINANCIAL STATEMENT SCHEDULES. No financial statement schedules are
required to be filed.
(c) OPINIONS OF FINANCIAL ADVISORS, PRESENTATION OF ARTHUR ANDERSEN
ECONOMIC CONSULTING AND SYNERGY PRESENTATIONS (PREPARED BY THE MANAGEMENTS OF
WPLH, IES AND IPC WITH THE ASSISTANCE OF CONSULTING GROUP). Reference is made
to Annexes II, III and IV to the Supplement to the Joint Proxy
Statement/Prospectus and to Annexes L, M and N to the Joint Proxy
Statement/Prospectus with
II-1
<PAGE>
respect to the opinions of financial advisors. Reference is made to exhibits
(99.7) and (99.8) to this Joint Registration Statement with respect to the
presentation of Arthur Andersen Economic Consulting and the Synergy
Presentations.
ITEM 22. UNDERTAKINGS.
(a) Each undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the Registration Statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Each undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Each undersigned Registrant hereby undertakes as follows: That prior to
any public reoffering of the securities registered hereunder through use of
prospectus which is part of this Registration Statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(d) Each Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
II-2
<PAGE>
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of a
Registrant pursuant to the foregoing provisions, or otherwise, each Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by a Registrant of expenses incurred or
paid by a director, officer or controlling person of such Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, each Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(f) Each undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(g) Each undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Madison,
State of Wisconsin, on August 21, 1996.
WPL HOLDINGS, INC.
By: /s/ ERROLL B. DAVIS, JR.
-----------------------------------
Erroll B. Davis, Jr.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
NAME TITLE DATE
- --------------------------------------------- ----------------------------------------- -----------------------
/s/ ERROLL B. DAVIS, JR.
------------------------------------ President, Chief Executive Officer and August 21, 1996
Erroll B. Davis, Jr. Director (Principal Executive Officer)
/s/ EDWARD M. GLEASON Vice President, Treasurer and Corporate
------------------------------------ Secretary (Principal Financial and August 21, 1996
Edward M. Gleason Accounting Officer)
L. David Carley* Director August 21, 1996
Rockne G. Flowers* Director August 21, 1996
Donald R. Haldeman* Director August 21, 1996
Katharine C. Lyall* Director August 21, 1996
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S> <C>
NAME TITLE DATE
- --------------------------------------------- ----------------------------------------- -----------------------
Arnold M. Nemirow* Director August 21, 1996
Milton E. Neshek* Director August 21, 1996
Henry C. Prange* Director August 21, 1996
Judith D. Pyle* Director August 21, 1996
Carol T. Toussaint* Director August 21, 1996
*By: /s/ ERROLL B. DAVIS, JR.
------------------------------
Erroll B. Davis, Jr.
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dubuque,
State of Iowa, on August 21, 1996.
INTERSTATE POWER COMPANY
By: /s/ MICHAEL R. CHASE
-----------------------------------
Michael R. Chase
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------------------- -----------------------
/s/ MICHAEL R. CHASE
------------------------------------ President (Principal Executive, Financial August 21, 1996
Michael R. Chase and Accounting Officer)
/s/ WAYNE H. STOPPELMOOR
------------------------------------ Director August 21, 1996
Wayne H. Stoppelmoor
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
(2.1) Agreement and Plan of Merger, dated as of November 10, 1995, as amended, by and among WPL
Holdings, Inc., IES Industries Inc., Interstate Power Company, WPLH Acquisition Co. and
Interstate Power Company. [Annex A to the Original Joint Proxy Statement/Prospectus
contained in this Registration Statement (the "Original Joint Proxy Statement/Prospectus")]
(REGISTRANTS AGREE TO FURNISH SUPPLEMENTALLY A COPY OF ANY OMITTED SCHEDULE OR EXHIBIT TO
THE SECURITIES AND EXCHANGE COMMISSION UPON REQUEST)
(2.2) Amendment No. 2 to Agreement and Plan of Merger, dated as of August 16, 1996, by and among
WPL Holdings, Inc., IES Industries Inc., Interstate Power Company, WPLH Acquisition Co. and
Interstate Power Company. [Annex I to the Supplement to the Original Joint Proxy
Statement/Prospectus contained in this Registration Statement]
(2.3) Plan of Merger, dated as of , 199 , between WPL Holdings Inc. and IES Industries
Inc. [Included as Exhibit 1.3 of Annex A to the Original Joint Proxy Statement/Prospectus]
(2.4) Option Grantor/Option Holder Stock Option and Trigger Payment Agreement, dated as of November
10, 1995, by and among WPL Holdings, Inc. and IES Industries Inc. [Annex B to the Original
Joint Proxy Statement/Prospectus]
(2.5) Option Grantor/Option Holder Stock Option and Trigger Payment Agreement, dated as of November
10, 1995, by and among WPL Holdings, Inc. and Interstate Power Company (IPC). [Annex C to
the Original Joint Proxy Statement/Prospectus]
(2.6) Option Grantor/Option Holder Stock Option and Trigger Payment Agreement, dated as of November
10, 1995, by and among IES Industries Inc. and WPL Holdings, Inc. [Annex D to the Original
Joint Proxy Statement/Prospectus]
(2.7) Option Grantor/Option Holder Stock Option and Trigger Payment Agreement, dated as of November
10, 1995, by and among IES Industries Inc. and Interstate Power Company (IPC). [Annex E to
the Original Joint Proxy Statement/Prospectus]
(2.8) Option Grantor/Option Holder Stock Option and Trigger Payment Agreement, dated as of November
10, 1995, by and among Interstate Power Company (IPC) and WPL Holdings, Inc. [Annex F to the
Original Joint Proxy Statement/Prospectus]
(2.9) Option Grantor/Option Holder Stock Option and Trigger Payment Agreement, dated as of November
10, 1995, by and among Interstate Power Company (IPC) and IES Industries Inc. [Annex G to
the Original Joint Proxy Statement/Prospectus]
(2.10) Form of Employment Agreement of Lee Liu. [Annex H to the Original Joint Proxy
Statement/Prospectus]
(2.11) Form of Employment Agreement of Erroll B. Davis, Jr. [Annex I to the Original Joint Proxy
Statement/Prospectus]
(2.12) Form of Employment Agreement of Wayne Stoppelmoor. [Annex J to the Original Joint Proxy
Statement/Prospectus]
(2.13) Form of Employment Agreement of Michael Chase. [Annex K to the Original Joint Proxy
Statement/Prospectus]
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
(3.1) Articles of Incorporation of Interstate Power Company (New IPC). [Incorporated by reference
to Exhibit (3.1) to the Joint Registration Statement on Form S-4 (Registration No.
333-07931) of WPL Holdings, Inc. and Interstate Power Company (New IPC)]
(3.2) Form of Restated Articles of Incorporation of Interstate Power Company (New IPC).
[Incorporated by reference to Exhibit (3.2) to the Joint Registration Statement on Form S-4
(Registration No. 333-07931) of WPL Holdings, Inc. and Interstate Power Company (New IPC)]
(3.3) Bylaws of Interstate Power Company (New IPC). [Incorporated by reference to Exhibit (3.3) to
the Joint Registration Statement on Form S-4 (Registration No. 333-07931) of WPL Holdings,
Inc. and Interstate Power Company (New IPC)]
(3.4) Form of Amended/New Bylaws of Interstate Power Company (New IPC). [Incorporated by reference
to Exhibit (3.4) to the Joint Registration Statement on Form S-4 (Registration No.
333-07931) of WPL Holdings, Inc. and Interstate Power Company (New IPC)]
(4.1) Restated Articles of Incorporation of WPL Holdings, Inc. [Incorporated by reference to
Exhibit (4.1) to WPL Holdings, Inc.'s Form S-3 Registration Statement (Registration No.
33-59972)]
(4.2) Form of Articles of Amendment to the Restated Articles of Incorporation of WPL Holdings, Inc.
providing for an increase in the number of authorized shares of common stock from
100,000,000 to 200,000,000. [Incorporated by reference to Exhibit (4.2) to the Joint
Registration Statement on Form S-4 (Registration No. 333-07931) of WPL Holdings, Inc. and
Interstate Power Company (New IPC)]
(4.3) Bylaws of WPL Holdings, Inc. as amended [Incorporated by reference to Exhibit (3B) to WPL
Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1996]
(4.4) Rights Agreement, dated as of February 22, 1989, between WPL Holdings, Inc. and Morgan
Shareholder Services Trust Company. [Incorporated by reference to Exhibit 4 to WPL Holdings,
Inc.'s Current Report on Form 8-K, dated February 27, 1989]
(4.5) Indenture of Mortgage or Deed of Trust dated August 1, 1941, between Wisconsin Power and
Light Company and First Wisconsin Trust Company
(n/k/a Firstar Trust Company) and George B. Luhman, as Trustees. [Incorporated by reference
to Exhibit 7(a) in File No. 2-6409]
(4.6) Supplemental Indenture of Wisconsin Power and Light Company dated January 1, 1948.
[Incorporated by reference to Second Amended Exhibit 7(b) in File No. 2-7361]
(4.7) Supplemental Indenture of Wisconsin Power and Light Company dated September 1, 1948.
[Incorporated by reference to Amended Exhibit 7(c) in File No. 2-7628]
(4.8) Supplemental Indenture of Wisconsin Power and Light Company dated June 1, 1950. [Incorporated
by reference to Amended Exhibit 7.02 in File No. 2-8462]
(4.9) Supplemental Indenture of Wisconsin Power and Light Company dated April 1, 1951.
[Incorporated by reference to Amended Exhibit 7.02 in File No. 2-8882]
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
(4.10) Supplemental Indenture of Wisconsin Power and Light Company dated April 1, 1952.
[Incorporated by reference to Second Amended Exhibit 4.03 in File No. 2-9526]
(4.11) Supplemental Indenture of Wisconsin Power and Light Company dated September 1, 1953.
[Incorporated by reference to Amended Exhibit 4.03 in File No. 2-10406]
(4.12) Supplemental Indenture of Wisconsin Power and Light Company dated October 1, 1954.
[Incorporated by reference to Amended Exhibit 2.02 in File No. 2-11130]
(4.13) Supplemental Indenture of Wisconsin Power and Light Company dated March 1, 1959.
[Incorporated by reference to Amended Exhibit 2.02 in File No. 2-14816]
(4.14) Supplemental Indenture of Wisconsin Power and Light Company dated May 1, 1962. [Incorporated
by reference to Amended Exhibit 2.02 in File No. 2-20372]
(4.15) Supplemental Indenture of Wisconsin Power and Light Company dated August 1, 1968.
[Incorporated by reference to Amended Exhibit 2.02 in File No. 2-29738]
(4.16) Supplemental Indenture of Wisconsin Power and Light Company dated June 1, 1969. [Incorporated
by reference to Amended Exhibit 2.02 in File No. 2-32947]
(4.17) Supplemental Indenture of Wisconsin Power and Light Company dated October 1, 1970.
[Incorporated by reference to Amended Exhibit 2.02 in File No. 2-38304]
(4.18) Supplemental Indenture of Wisconsin Power and Light Company dated July 1, 1971. [Incorporated
by reference to Amended Exhibit 2.02 in File No. 2-40802]
(4.19) Supplemental Indenture of Wisconsin Power and Light Company dated April 1, 1974.
[Incorporated by reference to Amended Exhibit 2.02 in File No. 2-50308]
(4.20) Supplemental Indenture of Wisconsin Power and Light Company dated December 1, 1975.
[Incorporated by reference to Exhibit 2.01(a) in File No. 2-57775]
(4.21) Supplemental Indenture of Wisconsin Power and Light Company dated May 1, 1976. [Incorporated
by reference to Amended Exhibit 2.02 in File No. 2-56036]
(4.22) Supplemental Indenture of Wisconsin Power and Light Company dated May 15, 1978. [Incorporated
by reference to Amended Exhibit 2.02 in File No. 2-61439]
(4.23) Supplemental Indenture of Wisconsin Power and Light Company dated August 1, 1980.
[Incorporated by reference to Exhibit 4.02 in File No. 2-70534]
(4.24) Supplemental Indenture of Wisconsin Power and Light Company dated January 15, 1981.
[Incorporated by reference to Amended Exhibit 4.03 in File No. 2-70534]
(4.25) Supplemental Indenture of Wisconsin Power and Light Company dated August 1, 1984.
[Incorporated by reference to Exhibit 4.02 in File No. 33-2579]
(4.26) Supplemental Indenture of Wisconsin Power and Light Company dated January 15, 1986.
[Incorporated by reference to Amended Exhibit 4.03 in File No. 33-2579]
</TABLE>
E-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
(4.27) Supplemental Indenture of Wisconsin Power and Light Company dated June 1, 1986. [Incorporated
by reference to Amended Exhibit 4.02 in File No. 33-4961]
(4.28) Supplemental Indenture of Wisconsin Power and Light Company dated August 1, 1988.
[Incorporated by reference to Exhibit 4.24 in File No. 33-45726]
(4.29) Supplemental Indenture of Wisconsin Power and Light Company dated December 1, 1990.
[Incorporated by reference to Exhibit 4.25 in File No. 33-45726]
(4.30) Supplemental Indenture of Wisconsin Power and Light Company dated September 1, 1991.
[Incorporated by reference to Exhibit 4.26 in File No. 33-45726]
(4.31) Supplemental Indenture of Wisconsin Power and Light Company dated October 1, 1991.
[Incorporated by reference to Exhibit 4.27 in File No. 33-45726]
(4.32) Supplemental Indenture of Wisconsin Power and Light Company dated March 1, 1992.
[Incorporated by reference to Exhibit 4.1 to Wisconsin Power and Light Company's Current
Report on Form 8-K, dated March 9, 1992]
(4.33) Supplemental Indenture of Wisconsin Power and Light Company dated May 1, 1992. [Incorporated
by reference to Exhibit 4.1 to Wisconsin Power and Light Company's Current Report on Form
8-K, dated May 12, 1992]
(4.34) Supplemental Indenture of Wisconsin Power and Light Company dated June 1, 1992. [Incorporated
by reference to Exhibit 4.1 to Wisconsin Power and Light Company's Current Report on Form
8-K, dated June 29, 1992]
(4.35) Supplemental Indenture of Wisconsin Power and Light Company dated July 1, 1992. [Incorporated
by reference to Exhibit 4.1 to Wisconsin Power and Light Company's Current Report on Form
8-K, dated July 20, 1992]
(4.36)* Indenture of Interstate Power Company to The Chase National Bank of the City of New York and
Carl E. Buckley, as Trustees, dated as of January 1, 1948. [Incorporated by reference to
Registration Statement No. 2-7659 under the Securities Act of 1933 as Exhibit 7-A]
(4.37)* First Supplemental Indenture of Interstate Power Company to The Chase National Bank of the
City of New York and Carl E. Buckley, as Trustees, dated as of January 1, 1948.
[Incorporated by reference to Registration Statement No. 2-7659 under the Securities Act of
1933 as Exhibit 7-A]
(4.38)* Second Supplemental Indenture of Interstate Power Company to The Chase National Bank of the
City of New York and Carl E. Buckley, as Trustees, dated as of July 1, 1948. [Incorporated
by reference to Registration Statement No. 2-7659 under the Securities Act of 1933 as
Exhibit 7-B]
(4.39)* Third Supplemental Indenture of Interstate Power Company to The Chase National Bank of the
City of New York and Carl E. Buckley, as Trustees, dated as of January 1, 1950.
[Incorporated by reference to Registration Statement No. 2-8427 under the Securities Act of
1933 as Exhibit 7-BBB]
</TABLE>
- ------------------------
* This agreement is currently an agreement to which IPC (which is not a
Registrant hereunder) is a party. In the event that the IPC Reincorporation
Merger is effected, by operation of such merger this agreement will become an
agreement of New IPC (which is a Registrant hereunder), as successor to IPC
in the IPC Reincorporation Merger.
E-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
(4.40)* Fourth Supplemental Indenture of Interstate Power Company to The Chase National Bank of the
City of New York and Carl E. Buckley, as Trustees, dated as of January 1, 1952.
[Incorporated by reference to Registration Statement No. 2-9481 under the Securities Act of
1933 as Exhibit 4-FF]
(4.41)* Fifth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank and Carl
E. Buckley, as Trustees, dated as of September 30, 1995. [Incorporated by reference to
Registration Statement No. 2-13268 under the Securities Act of 1933 as Exhibit 4-F]
(4.42)* Sixth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank and
Arthur F. Henning, as Trustees, dated as of May 1, 1957. [Incorporated by reference to
Registration Statement No. 2-13268 under the Securities Act of 1933 as Exhibit 4-G]
(4.43)* Seventh Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank and
Arthur F. Henning, as Trustees, dated as of May 1, 1959. [Incorporated by reference to
Registration Statement No. 2-17732 as Exhibit 4-H]
(4.44)* Eighth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank and
Arthur F. Henning, as Trustees, dated as of May 1, 1961. [Incorporated by reference to
Registration Statement No. 2-21187 as Exhibit 4-I]
(4.45)* Ninth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank and
Arthur F. Henning, as Trustees, dated as of May 1, 1963. [Incorporated by reference to
Registration Statement No. 2-23301 as Exhibit 4-J]
(4.46)* Tenth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank and C.
F. Ruge, as Trustees, dated as of May 1, 1965. [Incorporated by reference to Registration
Statement No. 2-26130 as Exhibit 4-K]
(4.47)* Eleventh Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank
(National Association) and C. F. Ruge, as Trustees, dated as of May 1, 1967. [Incorporated
by reference to Registration Statement No. 2-32133 as Exhibit 2-B-13]
(4.48)* Twelfth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank
(National Association) and C. F. Ruge, as Trustees, dated as of May 1, 1969. [Incorporated
by reference to Interstate Power Company's Current Report on Form 8-K for the month of May,
1969 as Exhibit A]
(4.49)* Thirteenth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank
(National Association) and C. F. Ruge, as Trustees, dated as of May 1, 1974. [Incorporated
by reference to Interstate Power Company's Current Report on Form 8-K for the month of May,
1974 as Exhibit A]
</TABLE>
- ------------------------
* This agreement is currently an agreement to which IPC (which is not a
Registrant hereunder) is a party. In the event that the IPC Reincorporation
Merger is effected, by operation of such merger this agreement will become an
agreement of New IPC (which is a Registrant hereunder), as successor to IPC
in the IPC Reincorporation Merger.
E-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
(4.50)* Fourteenth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank
(National Association) and C. F. Ruge, as Trustees, dated as of October 15, 1975.
[Incorporated by reference to Interstate Power Company's Current Report on Form 8-K for the
month of October, 1975 as Exhibit A]
(4.51)* Fifteenth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank
(National Association) and C. F. Ruge, as Trustees, dated as of October 1, 1976.
[Incorporated by reference to Interstate Power Company's Current Report on Form 8-K for the
month of October, 1976 as Exhibit A]
(4.52)* Sixteenth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank
(National Association) and C. F. Ruge, as Trustees, dated as of September 15, 1977.
[Incorporated by reference to Interstate Power Company's Annual Report on Form 10-K for the
year ended December 31, 1977 as Exhibit A]
(4.53)* Seventeenth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank
(National Association) and C. F. Ruge, as Trustees, dated as of March 15, 1978.
[Incorporated by reference to Interstate Power Company's Annual Report on Form 10-K for the
year ended December 31, 1978 as Exhibit A]
(4.54)* Eighteenth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank
(National Association) and C. J. Heinzelmann, as Trustees, dated as of September 15, 1991.
[Incorporated by reference to Interstate Power Company's Annual Report on Form 10-K for the
year ended December 31, 1991 as Exhibit Y]
(4.55)* Nineteenth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank
(National Association) and C. J. Heinzelmann, as Trustees, dated as of February 15, 1992.
[Incorporated by reference to Interstate Power Company's Annual Report on Form 10-K for the
year ended December 31, 1992 as Exhibit N]
(4.56)* Twentieth Supplemental Indenture of Interstate Power Company to The Chase Manhattan Bank
(National Association) and C. J. Heinzelmann, as Trustees, dated as of May 15, 1993.
[Incorporated by reference to Registration Statement No. 33-59352 dated as of March 11, 1993
under the Securities Act of 1933 as Exhibit (4)(u)]
(5.1)** Opinion of Foley & Lardner as to the legality of the shares of WPL Holdings, Inc. being
registered (including consent of counsel).
(8.1)** Opinion of Foley & Lardner as to federal income tax matters (including consent of counsel).
(8.2)** Opinion of Winthrop, Stimson, Putnam & Roberts as to federal income tax matters (including
consent of counsel).
(8.3)** Opinions of Milbank, Tweed, Hadley & McCloy as to federal income tax matters (including
consent of counsel).
</TABLE>
- ------------------------
* This agreement is currently an agreement to which IPC (which is not a
Registrant hereunder) is a party. In the event that the IPC Reincorporation
Merger is effected, by operation of such merger this agreement will become
an agreement of New IPC (which is a Registrant hereunder), as successor to
IPC in the IPC Reincorporation Merger.
** Previously filed with this Registration Statement.
E-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
(23.1) Consent of Arthur Andersen LLP, WPL Holdings, Inc.'s independent accountants.
(23.2) Consent of Arthur Andersen LLP, IES Industries Inc.'s independent accountants.
(23.3) Consent of Deloitte & Touche LLP, Interstate Power Company's (IPC's and New IPC's)
independent auditors.
(23.4) Consent of Foley & Lardner (filed as part of Exhibits (5.1) and (8.1)).
(23.5) Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated, financial advisor to WPL
Holdings, Inc.
(23.6) Consent of Morgan Stanley & Co. Incorporated, financial advisor to IES Industries, Inc.
(23.7) Consent of Salomon Brothers Inc, financial advisor to Interstate Power Company (IPC).
(23.8) Consent of Winthrop, Stimson, Putnam & Roberts (filed as part of Exhibit (8.2)).
(23.9) Consent of Milbank, Tweed, Hadley & McCloy (filed as part of Exhibit (8.3)).
(23.10) Consent of Arthur Andersen LLP (relating to Arthur Andersen Economic Consulting).
(24)** Powers of attorney.
(99.1) Form of Proxy for the WPL Holdings, Inc. Annual Meeting of Shareowners. [Incorporated by
reference to Exhibit (99.1) to the Joint Registration Statement on Form S-4 (Registration
No. 333-07931) of WPL Holdings, Inc. and Interstate Power Company (New IPC)]
(99.2) Forms of Proxy for the IES Industries Inc. Annual Meeting of Shareowners. [Incorporated by
reference to Exhibit (99.2) to the Joint Registration Statement on Form S-4 (Registration
No. 333-07931) of WPL Holdings, Inc. and Interstate Power Company (New IPC)]
(99.3) Form of Proxy for the Interstate Power Company (IPC) Annual Meeting of Shareowners.
[Incorporated by reference to Exhibit (99.3) to the Joint Registration Statement on Form S-4
(Registration No. 333-07931) of WPL Holdings, Inc. and Interstate Power Company (New IPC)]
(99.4) Restated Certificate of Incorporation of Interstate Power Company (IPC). [Incorporated by
reference to Exhibit 3.a to Interstate Power Company's Annual Report on Form 10-K for the
year ended December 31, 1993]
(99.5) Form of Certificate of Amendment to the Restated Certificate of Incorporation of Interstate
Power Company (IPC) providing voting rights for the shares of preferred stock. [Incorporated
by reference to Exhibit (99.5) to the Joint Registration Statement on Form S-4 (Registration
No. 333-07931) of WPL Holdings, Inc. and Interstate Power Company (New IPC)]
(99.6) Bylaws of Interstate Power Company (IPC), as amended. [Incorporated by reference to Exhibit
(3.2) to Interstate Power Company's Annual Report on Form 10-K for the year ended December
31, 1995]
</TABLE>
- ------------------------
** Previously filed with this Registration Statement.
E-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
(99.7) Presentation of Arthur Andersen Economic Consulting. (Portions of this exhibit have been
redacted and are subject to a confidential treatment request filed with the Secretary of the
Securities and Exchange Commission pursuant to Rule 406 under the Securities Act of 1933, as
amended. Brackets around the words "REDACTED LANGUAGE" indicate those portions of text that
have been omitted and filed separately with the Securities and Exchange Commission.)
[Incorporated by reference to Exhibit (99.7) to the Joint Registration Statement on Form S-4
(Registration No. 333-07931) of WPL Holdings, Inc. and Interstate Power Company (New IPC)]
(99.8) Synergy Presentations (prepared by the managements of WPL Holdings, Inc., IES Industries Inc.
and Interstate Power Company (IPC) with the assistance of Deloitte & Touche Consulting
Group). [Incorporated by reference to Exhibit (99.8) to the Joint Registration Statement on
Form S-4 (Registration No. 333-07931) of WPL Holdings, Inc. and Interstate Power Company
(New IPC)]
</TABLE>
E-8
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated January 26, 1996
included in the WPL Holdings, Inc. Form 10-K for the year ended December 31,
1995 and to all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
August 21, 1996
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated February 2, 1996
included in the IES Industries Inc. Form 10-K for the year ended December 31,
1995 and to all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
August 21, 1996
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
WPL Holdings, Inc. and Interstate Power Company, a Wisconsin Corporation, on
Form S-4, Amendment No. 1, of our reports dated January 26, 1996, appearing
in and incorporated by reference in the Annual Report on Form 10-K of
Interstate Power Company, a Delaware Corporation, for the year ended
December 31, 1995 and to the reference to us under the heading "Experts" in
the Joint Proxy Statement/Prospectus, which is part of this Registration
Statement.
We also consent to the use in this Registration Statement of WPL Holdings, Inc.
and Interstate Power Company, a Wisconsin Corporation, on Form S-4 of our report
dated April 3, 1996 (relating to the balance sheet as of March 25, 1996 of
Interstate Power Company, a Wisconsin Corporation), appearing in Annex S to this
Joint Proxy Statement/Prospectus, which is part of this Registration Statement.
Deloitte & Touche LLP
Davenport, Iowa
August 19, 1996
<PAGE>
CONSENT OF MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
August 21, 1996
The Board of Directors
WPL Holdings, Inc.
P.O. Box 2568
Madison, Wisconsin 53701-2568
Dear Members of the Board:
We hereby consent to the use of our opinion letters dated July 11,
1996 and August 21, 1996, to the Board of Directors of WPL Holdings, Inc.
("WPL"), included as Annex L to the Joint Proxy Statement/Prospectus and as
Annex II to the Supplement to the Joint Proxy Statement/Prospectus dated
August 21, 1996, in each case of WPL, IES Industries Inc. and Interstate
Power Company, which form a part of the Registration Statement on Form S-4 of
WPL filed with the Securities and Exchange Commission, and to the references
therein to such opinion under the captions "Summary," "The Mergers" and
"Recent Developments."
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: /s/ William D. Rifkin
--------------------------------
Managing Director
<PAGE>
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
August 21, 1996
IES Industries Inc.
IES Tower
200 First Street, S.E.
Cedar Rapids, Iowa 52401
Dear Sirs:
We hereby consent to the inclusion in the Registration Statement of WPL
Holdings, Inc. ("WPL") and Interstate Power Company, a Wisconsin corporation,
on Form S-4, relating to the proposed merger of IES Industries Inc., WPL and
Interstate Power Company, a Delaware corporation, of our opinion letters
appearing as Annex M to the Proxy Statement/Prospectus and as Annex III to
the Supplement to Proxy Statement/Prospectus, each of which is a part of the
Registration Statement, and to the references of our firm name therein. In
giving such consent, we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations adopted by the Securities and
Exchange Commission thereunder nor do we admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "experts" as used in the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Kenneth R. Marks
---------------------------------
<PAGE>
CONSENT OF SALOMON BROTHERS INC
We hereby consent to the use of our name and to the description of our
opinion letters dated November 10, 1995, July 11, 1996 and August 21, 1996
under the captions "THE MERGERS -- Opinions of Financial Advisors" and
"RECENT DEVELOPMENTS -- Opinions of Financial Advisors" in, and to the
inclusion of our opinion letters dated July 11, 1996 and August 21, 1996, as
Annexes N and IV to, the Joint Proxy Statement/Prospectus and the Supplement
to Joint Proxy Statement/Prospectus, respectively, of WPL Holdings, Inc., IES
Industries Inc. and Interstate Power Company, which Joint Proxy
Statement/Prospectus and Supplement to Joint Proxy Statement/Prospectus are
part of the Registration Statement on Form S-4 of WPL Holdings, Inc. By
giving such consent we do not thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"expert" as used in, or that we come within the category of persons whose
consent is required under, the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
SALOMON BROTHERS INC
By: /s/ Salomon Brothers Inc
---------------------------
New York, New York
August 21, 1996
<PAGE>
CONSENT OF ARTHUR ANDERSEN LLP
We hereby consent to the use in this registration statement of the reports of
Arthur Andersen Economic Consulting referred to in "The Mergers -- Background
of the Mergers" section of the joint proxy statement/prospectus and in the
"Recent Developments" section of the prospectus supplement included in this
registration statement and to all references to Arthur Andersen Economic
Consulting included in this registration statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
August 22, 1996
