UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission Registrant; State of Incorporation; Address; IRS Employer
File Number and Telephone Number Identification No.
1-9187 IES INDUSTRIES INC. (an Iowa Corporation) 42-1271452
IES Tower, Cedar Rapids, Iowa 52401
319-398-4411
0-4117-1 IES UTILITIES INC. (an Iowa Corporation) 42-0331370
IES Tower, Cedar Rapids, Iowa 52401
319-398-4411
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Registrant Title of Each Class Which Registered
IES Industries Inc. Common Stock, no par value New York Stock Exchange
IES Utilities Inc. 7-7/8% Quarterly Debt
Capital Securities New York Stock Exchange
(Subordinated Deferrable
Interest Debentures)
Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of Class
IES Industries Inc. None
IES Utilities Inc. Cumulative Preferred Stock Par Value $50 per share 4.80%
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrants were required to file such reports), and (2)
have been subject to such filing requirements for the past 90
days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrants' knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ______
The aggregate market value of the voting stock of IES Industries Inc.
held by non-affiliates, as of January 31, 1997 was approximately
$918,961,374 based upon the Composite Tape closing price as reported in
The Wall Street Journal. (For this purpose only, the individuals listed
under "Security Ownership of Management" in the Definitive Proxy
Statement incorporated herein by reference are considered to be
affiliates.)
The aggregate market value of the voting stock of IES Utilities Inc.
held by non-affiliates, as of January 31, 1997 was $0.
Indicate the number of shares outstanding of each of the registrants'
classes of Common Stock, as of January 31, 1997.
IES Industries Inc. Common Stock, no par value - 30,162,731 shares
IES Utilities Inc. Common Stock, $2.50 par value - 13,370,788 shares
DOCUMENTS INCORPORATED BY REFERENCE
Part of this Form 10-K into
Document Which Document is Incorporated
Definitive proxy statement of IES Industries Inc.
to be filed within 120 days of December 31, 1996 III
IES INDUSTRIES INC. and IES UTILITIES INC.
Form 10-K for the Year Ended December 31, 1996
TABLE OF CONTENTS
PART I Page No.
Item 1. Business 3
Proposed Merger of the Company 6
Construction and Acquisition Program and Financing 7
Regulation 8
Employees 9
Environmental Matters 9
Competition 11
Rate Matters 13
Electric Operations 13
Gas Operations 20
Item 2. Properties 23
Item 3. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 25
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 26
Item 6. Selected Consolidated Financial Data 27
Item 7. Management's Discussion and Analysis of the Results
of Operations and Financial Condition 30
Selected Consolidated Quarterly Financial
Data (unaudited) 43
Item 8. Financial Statements and Supplementary Data
IES Industries Inc. Consolidated Financial
Statements 44
IES Industries Inc. Notes to Consolidated Financial
Statements 50
IES Utilities Inc. Consolidated Financial Statements 73
IES Utilities Inc. Notes to Consolidated Financial
Statements 79
Item 9. Changes and Disagreements with Accountants on
Accounting and Financial Disclosure 84
PART III
Item 10. Directors, Executive Officers, Promoters and
Control Persons of the Registrant 85
Item 11. Executive Compensation 86
Item 12. Security Ownership of Certain Beneficial Owners
and Management 87
Item 13. Certain Relationships and Related Transactions 87
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 88
Schedule II - Valuation and Qualifying
Accounts and Reserves 95
Unaudited Pro Forma Combined Financial
Information of Interstate Energy Corporation 96
Signatures 105
This document contains the Annual Reports on Form 10-K for the
fiscal year ended December 31, 1996 for each of IES Industries Inc. and
IES Utilities Inc. Information contained herein relating to an
individual registrant is filed by such registrant on its own behalf.
Accordingly, except for its subsidiaries, IES Utilities Inc. makes no
representation as to information relating to IES Industries Inc. or to
any other companies affiliated with IES Industries Inc. IES Industries
Inc. and its consolidated subsidiaries may collectively be referred to as
"the Company".
From time to time, the Company may make forward-looking statements
within the meaning of the federal securities laws that involve judgments,
assumptions and other uncertainties beyond the control of the Company.
These forward-looking statements may include, among others, statements
concerning revenue and cost trends, cost recovery, cost reduction
strategies and anticipated outcomes, pricing strategies, changes in
the utility industry, planned capital expenditures, financing needs
and availability, statements of the Company's expectations, beliefs,
future plans and strategies, anticipated events or trends and similar
comments concerning matters that are not historical facts. Investors
and other users of the forward-looking statements are cautioned that
such statements are not a guarantee of future performance of the
Company and that such forward-looking statements are subject
to risks and uncertainties that could cause actual results to differ
materially from those expressed in, or implied by, such statements.
Some, but not all, of the risks and uncertainties include weather
effects on sales and revenues, competitive factors, general economic
conditions in the Company's service territory, federal and state
regulatory and government actions, the operating of a nuclear
facility and changes in the rate of inflation.
PART I
Item 1. Business
IES Industries Inc.
IES Industries Inc. (Industries) is a holding company which is
incorporated under the laws of Iowa. Industries' wholly-owned
subsidiaries are IES Utilities Inc. (Utilities) and IES Diversified Inc.
(Diversified). Utilities is primarily an electric and natural gas utility
company operating in the State of Iowa and serving
approximately 336,000 electric and 176,000 natural gas
retail customers as well as 30 electric resale customers in more than
550 Iowa communities. Diversified is a holding company for non-utility
subsidiaries which are primarily engaged in the energy-related,
transportation and real estate development businesses. Industries'
consolidated assets and earnings are predominantly those of Utilities.
Utilities
Utilities is primarily a public utility operating company engaged
in providing electric energy, natural gas and, to a limited extent,
steam used for industrial and heating purposes, in the State of Iowa.
Utilities' only wholly-owned subsidiary as of December 31, 1996,
was IES Ventures Inc. (Ventures), which is a holding company for
unregulated investments. Ventures' wholly-owned subsidiary at
December 31, 1996, was IES Midland Development Inc. (Midland), which
owns and operates a landfill in Ottumwa, Iowa. Ventures also has a 35%
equity investment in Aqua Ventures L.C., which is an aquaculture
facility formed to raise fish for human consumption.
Utilities' sales of electricity (in Kwh), excluding off-system
sales, increased 1.7%, 5.3% and 4.3%, during the years 1996-1994,
respectively. Under historically normal weather conditions, total sales
(excluding off-system sales) would have increased 3.5%, 3.6% and 4.8%
during 1996-1994, respectively. Total gas delivered by Utilities,
including transported volumes, increased or (decreased) 5.9%, 4.8% and
(2.7)% during the years 1996-1994, respectively. Under historically
normal weather conditions, Utilities' gas sales and transported volumes
would have increased 1.9%, 3.5% and 0.7% during 1996-1994, respectively.
There are seasonal variations in Utilities' electric and gas
businesses, which are principally related to the use of energy for air
conditioning and heating. In 1996, 39.8% of Utilities' electric
revenues were earned in June through September, reflecting the use of
electricity for cooling, and 72.0% of Utilities' gas revenues were
earned in the months of January - March, November and December,
reflecting the use of gas for heating.
The approximate percentages of Utilities' revenue and operating
income derived from the sale of electricity and gas during the years
1996-1994 are as follows:
1996 1995 1994
Revenues:
Electric 76% 79% 78%
Gas 21% 19 20
Operating income:
Electric 86% 92% 93%
Gas 11% 6 6
The relationships between the electric and gas percentages
presented above are influenced by changes in energy sales, timing of
regulatory price proceedings and changes in the costs of fuel or
purchased gas billed to customers through related adjustment clauses.
For additional information concerning electric and gas operations,
see Item 1. "Other Information Relating to Utilities Only", Item 7.
"Management's Discussion and Analysis of the Results of Operations and
Financial Condition" and the "Electric Operations" and "Gas Operations"
sections of Item 1.
Diversified
Other than Utilities' unregulated investments, the non-utility
operations of the Company are organized under Diversified. Diversified
is a holding company whose wholly-owned subsidiaries include IES
Transportation Inc. (IES Transportation), IES Energy Inc. (IES Energy),
IES Investments Inc. (IES Investments) and IES International Inc. (IES
International).
IES Transportation is a holding company whose wholly-owned
subsidiaries at December 31, 1996, included the Cedar Rapids and Iowa
City Railway Company (CRANDIC) and IES Transfer Services Inc.
(Transfer). CRANDIC is a short-line railway which renders freight
service between Cedar Rapids and Iowa City. Transfer's operations
include transloading and storage services. IES Transportation also has
a 75% equity investment in IEI Barge Services, Inc. (Barge) which
provides barge terminal and hauling service on the Mississippi River.
In addition, IES Transportation has investments in two Iowa railroad
companies. IES Transportation's 1996 operating revenues and assets at
December 31, 1996 were as follows:
Operating
Revenues Assets
(in 000s)
CRANDIC $ 17,375 $ 39,162
Barge 1,872 8,112
Transfer 415 838
Other (including eliminations) - 286
$ 19,662 $ 48,398
IES Energy is a holding company whose wholly-owned subsidiaries at
December 31, 1996, included Industrial Energy Applications, Inc. (IEA)
and Whiting Petroleum Corporation (Whiting). IEA offers commodities-
based and facilities-based energy services for customers, including
purchasing energy, standby generation, cogeneration, steam production
and propane air systems. Whiting is organized to purchase, develop and
produce crude oil and natural gas. IES Energy's 1996 operating revenues
and assets at December 31, 1996 were as follows:
Operating
Revenues Assets
(in 000s)
IEA $ 126,932 $ 52,204
Whiting 65,724 129,227
Other (including eliminations) (1,670) (1,255)
$ 190,986 $ 180,176
IES Investments is a holding company whose primary wholly-owned
subsidiaries at December 31, 1996, included Iowa Land and Building
Company (Iowa Land), IES Investco Inc. (Investco) and Village
Lakeshares, Inc. (Lakeshares). Iowa Land is organized to pursue real
estate and economic development activities in Utilities' service
territory. Investco is a holding company for certain equity investments
and currently has no operating revenues. The gains and losses on the
sale of such investments are recorded in "Miscellaneous, net" in Industries'
Consolidated Statements of Income. Lakeshares is a holding company for
resort properties in Iowa.
IES Investments had a $29.2 million investment in McLeod, Inc.
(McLeod), a holding company for various telecommunications businesses,
at December 31, 1996. The McLeod investment is not consolidated,
therefore Industries does not include any of McLeod's operating revenues in
its consolidated results. IES Investments also has direct and indirect
equity interests in various real estate ventures, primarily concentrated
in Cedar Rapids, and holds other passive investments. IES Investments'
1996 operating revenues and assets, other than the international
investments noted below, at December 31, 1996, were as follows:
Operating
Revenues Assets
(in 000s)
Iowa Land $ 1,570 $ 11,969
Investco - 2,941
Lakeshares 4,313 11,230
Real estate ventures 3,863 24,893
Investment in McLeod - 29,200
Other (including eliminations) - 13,535
$ 9,746 $ 93,768
IES International is a holding company whose wholly-owned
subsidiaries are IES New Zealand Limited (IES New Zealand) and
Interstate Energy Corporation Pte Ltd. (IECP). IES New Zealand has
equity investments in two New Zealand electric distribution entities.
IECP has a 50% equity investment in JIES Heat and Power Ltd., a
cogeneration facility in China. None of the investments under IES
International are consolidated, therefore IES International has no
operating revenues. (IES Investments also has several investments in
foreign entities, including a loan to a New Zealand company and an
investment in an international venture capital fund. These investments
are considered international investments for management purposes and
therefore are included in the following schedule.) IES International's
assets at December 31, 1996, were as follows:
Assets
(in 000s)
IES New Zealand $ 19,819
Investment in JIES Heat and Power Ltd. 13,598
IES Investments' foreign investments 11,665
Other (including eliminations) (136)
$ 44,946
Refer to Note 15 of Industries' Notes to Consolidated Financial
Statements for a further discussion of the Company's segments of business.
Other Information Relating to the Company
PROPOSED MERGER OF THE COMPANY. Industries, WPL Holdings, Inc.
(WPLH) and Interstate Power Company (IPC) have entered into an
Agreement and Plan of Merger, as amended (Merger Agreement), dated
November 10, 1995, which provides for the combination of all three
companies (Proposed Merger). The new company will be named Interstate Energy
Corporation (IEC).
WPLH is a holding company headquartered in Madison, Wisconsin, and
is the parent company of Wisconsin Power and Light Company (WP&L) and
Heartland Development Corporation (HDC). WP&L supplies electric and gas
service to approximately 385,000 and 150,000 customers, respectively, in
south and central Wisconsin. HDC and its principal subsidiaries are
engaged in businesses in three major areas: environmental engineering
and consulting, affordable housing and energy services. IPC, a public
utility headquartered in Dubuque, Iowa, supplies electric and gas
service to approximately 165,000 and 49,000 customers, respectively, in
northeast Iowa, northwest Illinois and southern Minnesota.
The Proposed Merger, which will be accounted for as a pooling of
interests, has been approved by the respective Boards of Directors and
shareholders. The merger is conditioned on the receipt of approvals of
several federal and state regulatory agencies. The status of these
approvals is as follows:
On January 15, 1997, the Federal Energy Regulatory Commission
(FERC) issued an order in which it accepted several provisions of the
IEC merger application without the need for public hearings. The FERC
has set limited issues for hearing, including generation market power in
the transmission-constrained Wisconsin Upper Michigan System (WUMS)
subregion in Wisconsin. The FERC has also ordered the merger partners to
attempt to negotiate a wholesale customer protection mechanism with
those intervenors who are not satisfied with the four year rate freeze
proposed in the application. If an agreement between the merger
partners and the intervenors is not reached, the FERC will decide the
issue. A final decision on the merger is expected to be issued by the
FERC by the end of the third quarter of 1997.
Utilities and IPC announced in 1996 their intentions to hold retail
electric prices to their current levels until at least January 1, 2000.
The companies made the proposal as part of their testimony in the IEC
merger application filed with the Iowa Utilities Board (IUB). The
proposal excludes price changes due to government-mandated programs,
such as energy efficiency cost recovery, or unforeseen dramatic changes
in operations. Hearings before the IUB are expected to be held in the
summer of 1997 with a decision expected by the end of the third quarter
of 1997.
In March of 1996, an application requesting approval of the merger
was filed with the Public Service Commission of Wisconsin (PSCW).
Hearings are currently scheduled for June 4, 1997, with a decision
anticipated in the third quarter of 1997. Legislation was introduced in
the Wisconsin State Senate in February 1997 which could delay the PSCW
approval of the merger. Industries cannot predict the outcome of such
legislation.
In March of 1996, an application requesting approval of the merger
was also submitted to the Illinois Commerce Commission (ICC). The ICC
conducted hearings on November 12, 1996 and final briefs were filed on
December 23, 1996. A decision is pending.
On January 15, 1997, the Minnesota Public Utilities Commission
(MPUC) announced that it had approved the IEC merger without hearings,
subject to a number of technical conditions, which Industries
anticipates will not be opposed by the merger partners. Included in
these conditions is a four year rate freeze for IEC's electric and gas
customers in the state of Minnesota.
An application to establish IEC as a registered holding company
under the Public Utility Holding Company Act of 1935 (1935 Act) was
submitted to the Securities and Exchange Commission (SEC). The period
for comments by interested parties closed on November 5, 1996. A
decision on the application is expected at the end of the third quarter
of 1997. The SEC historically has interpreted the 1935 Act to preclude
registered holding companies, with limited exceptions, from owning both
electric and gas utility systems. In addition, the SEC could also
require that IEC divest certain non-utility ventures of Industries and
WPLH. As part of the application, IEC has requested permission to
retain its existing gas utility properties and non-utility ventures.
An impact review of the merger on market power, which is required
by the Hart-Scott-Rodino Antitrust Improvements Act, was completed by
the U.S. Department of Justice (DOJ). All requirements of this review
have been satisfied. If the merger is not consummated before July 7,
1997, the merger partners will be required to submit new information to
the DOJ. The merger partners do not believe that any such resubmission
would cause a material delay in approval.
An application was filed with the Nuclear Regulatory Commission
(NRC) to approve the transfer of indirect control over the licenses of
Utilities and WP&L for the Duane Arnold Energy Center (DAEC) nuclear
facility and Kewaunee Nuclear Power Plant, respectively, to IEC. Both
plants are jointly owned with other companies. The application, which
was filed on October 1, 1996, is pending.
See Note 2 of Industries' Notes to Consolidated Financial
Statements and Item 14 for further information and the unaudited pro
forma financial statements of IEC, respectively.
CONSTRUCTION AND ACQUISITION PROGRAM AND FINANCING.
The Company's construction and acquisition program
anticipates expenditures of approximately $225 million
for 1997, of which approximately $147 million represents
expenditures at Utilities and approximately $78 million
represents expenditures at Diversified. Of the $147 million
of Utilities' expenditures, 39% represents expenditures for
electric transmission and distribution facilities, 21%
represents electric generation expenditures, 21% represents
information technology expenditures and 5% represents
gas expenditures. The remaining 14% represents
miscellaneous electric, steam and general expenditures.
Diversified's anticipated expenditures include approximately
$75 million for domestic and international energy-related
construction and acquisition expenditures.
The Company's levels of construction and acquisition
expenditures are projected to be $208 million in 1998,
$212 million in 1999, $182 million in 2000 and $198
million in 2001. It is estimated that virtually all of Utilities'
construction and acquisition expenditures will be provided by
cash from operating activities (after payment of dividends)
for the five-year period 1997 - 2001. Financing plans for
Diversified's construction and acquisition program will
vary, depending primarily on the level of energy-related
acquisitions.
Capital expenditure and investment and financing plans
are subject to continual review and change. The capital
expenditure and investment programs may be revised
significantly as a result of many considerations including
changes in economic conditions, variations in actual sales
and load growth compared to forecasts, requirements of
environmental, nuclear and other regulatory authorities,
acquisition and business combination opportunities, the
availability of alternate energy and purchased power sources,
the ability to obtain adequate and timely rate relief, escalations
in construction costs and conservation and energy efficiency
programs.
Under provisions of the Merger Agreement, there are
restrictions on the amount of construction and acquisition
expenditures the Company can make pending the merger.
The Company does not expect the restrictions to have a
material effect on its ability to implement its anticipated
construction and acquisition program.
Other than Utilities' periodic sinking fund requirements,
which Utilities intends to meet by pledging additional
property, the following long-term debt will mature prior
to December 31, 2001:
(in millions)
Utilities $207.2
Diversified's credit facility 172.1
Other subsidiaries' debt 11.2
$390.5
The Company intends to refinance the majority of the
debt maturities with long-term securities.
For a discussion regarding the Company's assumptions in financing
future capital requirements, see the "Liquidity and Capital Resources"
section of Item 7. "Management's Discussion and Analysis of the Results
of Operations and Financial Condition."
REGULATION. Because of its ownership of Utilities, Industries is a
"holding company" as defined by the 1935 Act. However, Industries
claims exemption from regulation under the 1935 Act (except for Section
9(a)2 thereof, which requires that any acquisition of securities of a
utility company by Industries be approved by the SEC) on the basis that
Industries and Utilities are both organized in the same state and
Utilities conducts its business in that state. Congress began examining
repeal of PUHCA during 1995 and is expected to continue reviewing this
issue. No assurance can be given as to when or if such legislation will
be considered or enacted.
Utilities operates pursuant to the laws of the State of Iowa and is
thereby subject to the jurisdiction of the IUB. The IUB has authority
to regulate rates and standards of service, to prescribe accounting
requirements and to approve the location and construction of electric
generating facilities having a capacity in excess of 25,000 Kw. The IUB
is comprised of three Commissioners appointed by the Governor and
ratified by the State Senate. Requests for price relief are based on
historical test periods, adjusted for certain known and measurable
changes. The IUB must decide on requests for price relief within 10
months of the date of the application for which relief is filed or the
interim prices granted become permanent. Interim prices, if allowed,
are permitted to become effective, subject to refund, no later than 90
days after the price increase application is filed.
In Iowa, non-exclusive franchises, which cover the use of streets
and alleys for public utility facilities in incorporated communities,
are granted for a maximum of twenty-five years by a majority vote of
local qualified residents. In addition, the IUB defines the boundaries
of mutually exclusive service territories for all electric utilities.
The IUB has jurisdiction and grants franchises for the use of public
highway rights-of-way for electric and gas facilities outside corporate
limits.
Utilities is subject to the jurisdiction of the FERC with respect
to wholesale electric sales, its accounting practices and the issuance
of securities. Revenues derived from Utilities' wholesale and off-
system sales amounted to 6.5%, 6.3% and 6.9% of electric revenues for
1996-1994, respectively. Utilities' consolidated subsidiaries are not
subject to regulation by the IUB or the FERC.
Following consummation of the Proposed Merger, Interstate Energy
will be subject to regulation by the PSCW, as WPLH and
WP&L are currently. The PSCW regulates, among otherthings,
the type and amount of investments in non-utility businesses.
The Company does not expect such regulation to have a materially adverse
effect upon Interstate Energy following the Proposed Merger.
See the "Environmental Matters", "Competition", "Electric
Operations" and "Gas Operations" sections of Item 1 for a discussion of
various other regulatory issues.
EMPLOYEES. At December 31, 1996, the Company had a total of 2,406
(2,016 at Utilities) regular full-time employees. At December 31, 1996,
Utilities had 1,081 employees subject to 6 collective bargaining
agreements (776 of these employees were part of one agreement), CRANDIC
had 71 employees subject to 4 collective bargaining agreements and Barge
had 6 employees subject to 1 collective bargaining agreement. None of
Utilities' bargaining agreements expires in 1997.
ENVIRONMENTAL MATTERS. The Company is regulated in environmental
protection matters by a number of federal, state and local agencies.
Such regulations are the result of a number of environmental protection
laws passed by the U. S. Congress, state legislature and local
governments and enforced by federal, state and county agencies. The
laws impacting the Company's operations include the Clean Water Act;
Clean Air Act, as amended by the Clean Air Act Amendments of 1990;
National Environmental Policy Act; Resource Conservation and Recovery
Act; Comprehensive Environmental Response, Compensation and Liability
Act of 1980 (CERCLA), as amended by the Superfund Amendments and
Reauthorization Act of 1986; Occupational Safety and Health Act;
National Energy Policy Act of 1992 and a number of others. The Company
regularly secures and renews federal, state and local permits to comply
with the environmental protection laws and regulations. Costs
associated with such compliances have increased in recent years and are
expected to increase moderately in the future.
Utilities has been named as a Potentially Responsible Party (PRP)
by various federal and state environmental agencies for 28 Former
Manufactured Gas Plant (FMGP) sites. Utilities has recorded
environmental liabilities related to the FMGP sites of approximately $36
million (including $4.7 million as current liabilities) at December 31,
1996. Regulatory assets of approximately $36 million, which reflect the
future recovery that is being provided through Utilities' rates, have
been recorded in the Consolidated Balance Sheets. Considering the
current rate treatment allowed by the IUB, management believes that the
clean-up costs incurred by Utilities for these FMGP sites will not have
a material adverse effect on its financial position or results of
operations. Refer to Note 13(f) of Industries' Notes to Consolidated
Financial Statements for a further discussion, including a discussion of
a lawsuit filed by Utilities seeking recovery of FMGP-related costs from
its insurance carriers.
The Clean Air Act Amendments of 1990 (Act) requires emission
reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx) to achieve
reductions of atmospheric chemicals believed to cause acid rain. The Act
and other federal laws also require the United States Environmental
Protection Agency (EPA) to study and regulate, if necessary, additional
issues that potentially affect the electric utility industry, including
emissions relating to NOx, ozone transport, mercury and particulate
control; toxic release inventories and modifications to the PCB rules.
In 1995, the EPA published the Sulfur Dioxide Network Design Review
for Cedar Rapids, Iowa, which, based on the EPA's assumptions and worst-
case modeling method suggests that the Cedar Rapids area could be
classified as "nonattainment" for the National Ambient Air Quality
Standards established for SO2. The worst-case modeling study suggested
that two of Utilities' generating facilities contribute to the modeled
exceedences.
Pursuant to a routine review of operations, Utilities determined
that certain changes undertaken during the previous three years at one
of its power plants may have required a federal Prevention of
Significant Deterioration (PSD) permit. Refer to Note 13(g) of
Industries' Notes to Consolidated Financial Statements for a further
discussion of the above mentioned air quality issues.
The National Energy Policy Act of 1992 requires owners of nuclear
power plants to pay a special assessment into a "Uranium Enrichment
Decontamination and Decommissioning Fund." Refer to Note 13(f) of
Industries' Notes to Consolidated Financial Statements for a further
discussion.
The Nuclear Waste Policy Act of 1982 assigned responsibility to the
U.S. Department of Energy (DOE) to establish a facility for the ultimate
disposition of high level waste and spent nuclear fuel and authorized
the DOE to enter into contracts with parties for the disposal of such
material beginning in January 1998. Utilities entered into such a
contract and has made the agreed payments to the Nuclear Waste Fund
(NWF) held by the U.S. Treasury. The DOE, however, has experienced
significant delays in its efforts and material acceptance is now
expected to occur no earlier than 2010 with the possibility of further
delay being likely. Utilities has been storing spent nuclear fuel on-
site since plant operations began in 1974 and has current on-site
capability to store spent fuel until 2001. Utilities is aggressively
reviewing options for expanding on-site storage. Utilities has been
formally notified by the DOE that they anticipate being unable to begin
acceptance of spent nuclear fuel by January 31, 1998. Utilities is
evaluating courses of action to protect the interests of its customers
and its rights under the DOE contract. Utilities is also evaluating
legislation proposed to the Congress addressing this issue. In July
1996, the IUB initiated a Notice of Inquiry (NOI) on spent nuclear fuel.
One purpose of the NOI was to evaluate whether the current collection of
money from Utilities' customers for payment to the NWF should be placed
in an escrow account in lieu of being paid to the NWF. Utilities
believes that the issue of using an escrow account should be decided at
the federal level rather than the state level. Utilities cannot predict
the outcome of this NOI.
The Low-Level Radioactive Waste Policy Amendments Act of 1985
mandated that each state must take responsibility for the storage of low-
level radioactive waste produced within its borders. The State of Iowa
has joined the Midwest Interstate Low-Level Radioactive Waste Compact
Commission (Compact), which is planning a storage facility to be located
in Ohio to store waste generated by the Compact's six member states. At
December 31, 1996, Utilities has prepaid costs of approximately
$1.1 million to the Compact for the building of such a facility. A
Compact disposal facility is anticipated to be in operation in
approximately ten years after approval of new enabling legislation by
the member states. Such legislation was approved in 1996 by all six
states that are members of the Compact. Final approval by the U.S.
Congress is now required. On-site storage capability currently exists
for low-level radioactive waste expected to be generated until the
Compact facility is able to accept waste materials. In addition, the
Barnwell, South Carolina disposal facility has reopened for an
indefinite time period and Utilities is in the process of shipping to
Barnwell the majority of the low-level radioactive waste it has
accumulated on-site, and currently intends to ship the waste it produces
in the future as long as the Barnwell site remains open, thereby
minimizing the amount of low-level waste stored on-site. However,
management of the Barnwell site has modified its fee schedule to
emphasize total radioactivity content and weight, instead of the
historical volume related fees. Utilities is evaluating the outcome of
these changes on its potential future disposal costs at the Barnwell
site; such changes could result in a revision to Utilities' future
disposal plans.
The possibility that exposure to electric and magnetic fields (EMF)
emanating from power lines, household appliances and other electric
sources may result in adverse health effects has been the subject of
increased public, governmental, industry and media attention. A recent
study completed by the National Research Council concluded that the
current body of evidence does not support the notion that exposure to
these fields may result in adverse health effects. Utilities will
continue to monitor the events in this area, including future scientific
research.
Whiting is responsible for certain dismantlement and abandonment
costs related to various off-shore oil and gas properties. Refer to
Note 13(f) of Industries' Notes to Consolidated Financial Statements for
a further discussion.
Utilities was notified in 1986 that it was designated by the EPA as
a PRP (there are 832 in total) for the investigation and cleanup of the
Maxey Flats Nuclear Disposal site at Morehead, Kentucky. The EPA notice
encouraged all PRPs to undertake voluntary clean up activities at the
site. A Steering Committee was organized and Utilities is participating
in its activities. The Steering Committee has reached settlement of the
issues with the EPA, the State of Kentucky and deminimis parties.
Consent Decrees have been finalized and Utilities' share of the cost is
estimated at $250,000, which is included in the $53 million of
environmental liabilities the Company has recorded at December 31, 1996.
Refer to Note 13 of Industries' Notes to Consolidated Financial
Statements for further discussion of environmental matters.
Other Information Relating to Utilities Only
COMPETITION. Utilities and its predominant business, electric
energy generation, transmission and distribution, are in a period of
fundamental change in the manner in which customers obtain, and energy
suppliers provide, energy services. As legislative, regulatory,
economic and technological changes occur, electric utilities are faced
with increasing pressure to become more competitive. Such competitive
pressures could result in loss of customers and an incurrence of
stranded costs (i.e., the cost of assets rendered unrecoverable as the
result of competitive pricing). To the extent stranded costs cannot be
recovered from customers, they would be borne by security holders.
The National Energy Policy Act of 1992 addresses several matters
designed to promote competition in the electric wholesale power
generation market. In April 1996, the FERC issued final rules (FERC
Orders 888 and 889), largely confirming earlier proposals, requiring
electric utilities to open their transmission lines to other wholesale
buyers and sellers of electricity. The rules became effective on July
9, 1996. Utilities filed conforming pro-forma open access transmission
tariffs with the FERC which became effective October 1, 1995. In
response to FERC Order 888, Utilities filed its final pro-forma tariffs
with FERC on July 9, 1996. The non-rate provisions of the tariffs were
approved on November 13, 1996. FERC has not yet ruled on the rate
provisions of the tariffs. The geographic position of Utilities'
transmission system could provide revenue opportunities in the open
access environment. The Company cannot predict the long-term
consequences of these rules on its results ofoperations or financial
condition.
FERC does not have jurisdiction over the retail jurisdiction, and
thus the final FERC rules do not provide for the recovery of stranded
costs resulting from retail competition. The various states retain
jurisdiction over the question of whether to permit retail competition,
the terms of such retail competition and the recovery of any portion of
stranded costs that are ultimately determined by FERC and the states to
have resulted from retail competition.
The IUB initiated a Notice of Inquiry (Docket No. NOI-95-1) in
early 1995 on the subject of "Emerging Competition in the Electric
Utility Industry" to address all forms of competition in the electric
utility industry and to gather information and perspectives on electric
competition from all persons or entities with an interest or stake in
the issues. In January 1996, the IUB created its own timeline for
evaluating industry restructuring in Iowa. Included in the IUB's
process was the creation of a 22-member advisory panel, of which
Utilities is a member. The IUB conducted public information meetings
around the State of Iowa. A draft report was created by the IUB staff
and is expected to be finalized in the first quarter of 1997. The draft
report indicated that the IUB is of the opinion that there is no
compelling reason to move quickly into restructuring the electric
utility industry in Iowa. However, they will continue the analysis and
debate on restructuring and retail competition in Iowa.
As part of Utilities' strategy for the emerging and competitive
power markets, Utilities, IPC, WP&L and a number of other utilities have
proposed the creation of an independent system operator (ISO) for the
companies' power transmission grid. The companies would retain
ownership and control of the facilities, but the ISO would set rates for
access and assure fair treatment for all companies seeking access. The
proposal requires approval from state regulators and the FERC. Various
other proposals for ISO's have been made by other companies and
Utilities is monitoring all such proposals. Membership in an ISO could
become a condition of merger approval by the various regulatory bodies.
Utilities is subject to the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" (SFAS 71). If a portion of Utilities' operations
become no longer subject to the provisions of SFAS 71, as a result of
competitive restructurings or otherwise, a write-down of related
regulatory assets would be required, unless some form of transition cost
recovery is established by the appropriate regulatory body. In
addition, the Company would be required to determine any impairment to
other assets and write-down such assets to their fair value. Utilities
believes that it still meets the requirements of SFAS 71.
The Company cannot predict the long-term consequences of these
competitive issues on its results of operations or financial condition.
The Company's strategy for dealing with these emerging issues includes
seeking growth opportunities, continuing to offer quality customer
service, ongoing cost reductions and productivity enhancements, the
major objective of which is to allow Utilities to better prepare for a
competitive, deregulated electric utility industry. In this connection,
Utilities is in the final stages of a significant process improvement
program to improve its service levels, reduce its cost structure and
become more market-focused and customer oriented. (The Company's
continuous improvement efforts, in general, will be an ongoing effort,
however).
Examples of the process improvement changes being implemented are,
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 and/or services rather than opening most purchases to
a bidding process; changing standards and construction practices in
transmission and distribution areas; changing certain work practices in
power plants; making investments in information technology upgrades; and
improving the method by which service is delivered to customers in all
customer classes. The specific changes range from simple improvements
in current operations to radical changes in the way work is performed
and service is delivered. Some of the changes are currently in the
pilot stage thus the results from this evaluation period or the
potential effects of the pending merger could prove that some of the
changes are not efficient or effective and must be revised or
eliminated. Subject to delays caused by implementing any such
revisions, implementation of the changes began in 1996 and will continue
into 1997; however, certain results will not be realized until 1997. In
addition, the Company must give consideration to the potential effects
of the pending merger as part of the implementation process so that
duplication of efforts are avoided.
RATE MATTERS. Refer to Note 3 of Industries' Notes to Consolidated
Financial Statements for a discussion of Utilities' rate matters,
including its electric price freeze proposals.
ELECTRIC OPERATIONS -
General Utilities' net peak load (60 minutes integrated) of 1,833,203
kilowatts occurred on August 6, 1996, and represented a new energy peak
demand record. At the time of the peak load, 75 interruptible customers
were interrupted representing approximately 206,000 kilowatts of a
possible 382,259 kilowatts available for interruption. Utilities'
additional reserve obligation at the time of the peak was 262,980
kilowatts and the net capability of Utilities' generating stations was
1,864,390 kilowatts, with an additional 232,000 kilowatts being
available under purchase contracts, thereby providing an aggregate
capability of 2,096,390 kilowatts.
Utilities projects an electric sales growth rate of approximately 2
to 3 percent per year over the next five years, which will be met by a
mix of its existing generation, capacity purchases and new construction.
The construction activities will be undertaken in a fashion that best
meets the needs of individual customers and the system as a whole. See
Note 13(b) of Industries' Notes to Consolidated Financial Statements for
a discussion of Utilities' firm contracts for the purchase of capacity.
Utilities' electric facilities are interconnected with certain Iowa
and neighboring utilities. Also, Utilities is a member of the
Mid-Continent Area Power Pool (MAPP). This pool is comprised of 18
utilities which are Transmission Owning Members (TOMs) and 58 energy-
related companies providing services in the upper midwest region of the
United States, and operates pursuant to an agreement which provides for
the interchange of electric energy, the sharing of responsibilities for
production capacity and reserve and the supply of electric energy.
Utilities is a party to the Twin Cities-Iowa-St. Louis 345 Kv
Interconnection Coordinating Agreement (the Coordinating Agreement) with
five other midwestern utilities, three of which operate in the State of
Iowa. The Coordinating Agreement provides for the interconnection of
the respective systems of the companies through a 345 Kv transmission
line and for the interchange of power on various bases. The rates under
the Coordinating Agreement are primarily determined by agreement between
the delivering and receiving companies.
Utilities maintains and operates transmission and substation
facilities connecting with its high voltage transmission systems
pursuant to a non-cancelable operating agreement (the Operating
Agreement) with Central Iowa Power Cooperative (CIPCO). The Operating
Agreement, which will terminate on December 31, 2035, provides for the
joint use of certain transmission facilities of Utilities and CIPCO.
The Resale Power Group of Iowa (RPGI), consisting of virtually all
of Utilities' wholesale customers, has notified Utilities that it will
not purchase its power supply from Utilities after December 31, 1998.
It is possible that certain RPGI customers will drop out of RPGI in
order to remain as Utilities' customers. RPGI will continue to purchase
transmission services from Utilities after December 31, 1998. While the
Company cannot determine the outcome of this issue at this time, the
result will not have a material adverse effect on its financial position
or results of operations given 1) Utilities' wholesale sales only
accounted for approximately 5% of Utilities' total 1996 electric sales,
excluding off-system sales; 2) Utilities currently has to supplement its
generating capability with purchased power to meet its sales load; and
3) Utilities' annual electric sales growth rate continues to be strong.
Upon consummation of the Proposed Merger, Utilities expects to
realize reduced electric production costs through the joint dispatch of
systems and increased marketing opportunities in the wholesale and
interchange markets through electric interconnections with other
utilities.
For comments relating to agreements between Utilities and its
partners for the joint ownership of the DAEC, the Ottumwa Generating
Station (OGS) and Neal Unit No. 3, see Item 2. "Properties" and Note 14
of Industries' Notes to Consolidated Financial Statements.
Fuel Supply The following table details the sources of the electricity
sold by Utilities during 1996 and expected sources for the following
three years:
Actual /------------ Expected ------------/
1996 1997 1998 1999
Fossil, primarily coal 42% 63% 64% 63%
Nuclear 23 26 23 23
Purchases 35 11 13 14
100% 100% 100% 100%
The 1996 fossil percentage was lower than anticipated because of
several maintenance outages at the various fossil-fueled generating
facilities. Utilities expects its off-system sales in 1997-1999 to be
significantly lower than they were in 1996 as the result of the
implementation of FERC Order 888. This results in a significant
reduction in the purchases figures in 1997-1999. Utilities is
currently on an eighteen-month cycle for nuclear refueling
outages and the above percentages assume outages will
occur during both 1998 and 1999. There was also a refueling outage in
1996.
Utilities' primary fuel source is coal and the generation mix is
influenced directly by refueling outages at the DAEC. The average cost
of fuel used for generation by Utilities for the years 1996-1994 is
presented below:
1996 1995 1994
Average cost of fuel:
Nuclear, per million Btu's $ .73 $ .76 $ .67
Coal, per million Btu's .95 .97 .97
Average for all fuels, per million Btu's .94 .95 .89
The decrease in the average cost of coal during 1996 was primarily
due to a decline in Wyoming coal prices and burning more lower priced
Wyoming coal and less higher priced Illinois Basin coal. The increase
in the average cost of nuclear fuel during 1995 was the result of
compounded interest charges on uranium acquired during the mid-1980's.
Utilities used the last of this uranium during the 1996 refueling
outage. Utilities has entered into a contract to meet its nuclear
fuel needs beyond 1996 and the average cost of such fuel is expected to
be significantly lower than the prior periods.
The following table summarizes Utilities' minimum coal contract
commitments at December 31, 1996:
<TABLE>
<CAPTION>
Average
Annual Maximum estimated base price
Quantity Termination Sulfur per ton of coal delivered
(000s Tons) Date Content 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Cordero Mining Co.
(OGS) (1) 774 12/31/01 0.6% $ 18.86 $ 19.40 $ 19.99
Koch Carbon Inc.
(Sutherland) 100 12/31/99 6.2% $ 19.77 $ 20.07 $ 20.37
Powder River Coal Co.
(OGS or BGS) (2) 1,200 12/31/97 0.4% $ 13.19 $ N/A $ N/A
Caballo Coal Co.
(Sutherland) 450 12/31/97 0.5% $ 12.66 $ N/A $ N/A
Caballo Rojo / Ft. Union
(BGS) (3) 714 12/31/97 0.3% $ 14.83 $ N/A $ N/A
Caballo Rojo / Ft. Union
(Prairie Creek) (3) 986 12/31/97 0.3% $ 16.43 $ N/A $ N/A
Franklin Coal Sales Co.
(OGS) 225 9/30/97 0.5% $ 12.68 $ N/A $ N/A
</TABLE>
(1) Cost under the contract is comprised of base contract
prices plus specifically contracted periodic adjustments for
increases in certain specific costs of producing the coal.
The effect of such adjustments to the base contract prices of
future coal cannot currently be predicted with any certainty.
(2) The contract covers 1,200,000 annual tons delivered to
either the OGS or the Burlington Generating Station (BGS).
Utilities anticipates that 100% of the total 1997 contract
tons will be delivered to OGS. The price listed in the table
is for OGS, with the BGS price being $16.04 per ton.
(3) The contract covers 1,700,000 annual tons to be delivered
to either the Prairie Creek Generating Station (PC) or the
BGS, from either Caballo Rojo or Ft. Union. The price listed
in the table for BGS is for Ft. Union coal and the price
listed in the table for PC is for Caballo Rojo coal. Utilities
anticipates that 100% of PC's shipments will be
Caballo Rojo coal, with BGS shipments being 35% from Caballo
Rojo and the remaining 65% from Ft. Union. The price for
Caballo Rojo coal to BGS is $15.39 per ton.
During 1996, Utilities purchased a total of 3,518,000 tons of coal
for its generating plants. At December 31, 1996, Utilities had a
weighted average of approximately 60 days' usage of coal inventory at
its principal generating stations based upon the 1997 expected usage.
Utilities estimates that its existing coal fired generating units
will require approximately 12,837,000 tons of coal to operate during the
period 1997-1999. The average annual quantities listed in the preceding
table represent Utilities' minimum commitments. Many of the contracts
contain provisions allowing Utilities to purchase additional tons of
coal. Utilities estimates that it has the capability to purchase almost
50% of its 1997-1999 coal requirements under these contracts and will
meet the remainder of its requirements from either future contracts or
purchases in the spot market. Utilities believes that an ample supply of
coal is available in the spot market to meet its needs.
Some of Utilities' contracted coal supply is provided by surface
mining operations which are regulated by the Federal Strip Mine Act.
Most of the surface mining coal contracts contain clauses which pass
reclamation and royalty costs through to the respective utility; such
costs billed to Utilities are recoverable through its Energy Adjustment
Clauses (EAC). See Note 1(k) of Industries' Notes to Consolidated
Financial Statements for discussion of the EAC.
A contract for enrichment services and enriched uranium product was
signed with the United States Enrichment Corporation (USEC) in 1995,
which will reduce Utilities' enrichment and uranium costs. This
contract will be effective through 2001 and may extend beyond 2001 if
certain conditions occur. Fabrication of the nuclear fuel is being
performed by General Electric Company for fuel through the 2008
refueling of the DAEC. Utilities believes that an ample supply of
uranium and enrichment services will be available in the future and
intends to purchase such uranium and enrichment services as necessary on
the spot market and/or via medium length (less than five years)
contracts to supplement its current contracts and meet its generation
requirements. See Note 13(f) of Industries' Notes to Consolidated
Financial Statements for a discussion of Utilities' assessment under the
National Energy Policy Act of 1992 for the "Uranium Enrichment
Decontamination and Decommissioning Fund," which is based upon prior
nuclear fuel purchases.
Refer to Item 1. "Environmental Matters" for a discussion of
nuclear waste disposal issues.
Nuclear As an owner and the operator of a nuclear generating unit at
the DAEC, Utilities is subject to the jurisdiction of the NRC. The NRC
has broad supervisory and regulatory jurisdiction over the construction
and operation of nuclear reactors, particularly with regard to public
health, safety and environmental considerations. Utilities' current NRC
license for DAEC expires in 2014.
The operation and design of nuclear power plants is under constant
review by the NRC. Utilities has complied with and is currently
complying with all NRC requests for data relating to these reviews. As
a result of such reviews, further changes in operations or
modifications of equipment may be required, the cost of
which cannot currently be estimated. Utilities' anticipated nuclear-
related construction expenditures for 1997-2001 are approximately $33
million.
The DAEC received the highest ratings in its history in the
NRC's last Systematic Assessment of Licensee Performance (SALP) report
by earning the highest score possible (1 on a 3-point scale) in the
areas of plant operations, engineering and plant support and a "good"
rating (2) in the area of maintenance. The SALP evaluation process is
being reviewed along with an overall rebaselining of regulatory strategy
and initiatives by the NRC. The results of this NRC effort appear to
include an overall reduction in SALP scores across the nuclear industry.
The effect on the DAEC will be clearer after the current evaluation
period closes in the second quarter of 1997.
Utilities conducted an inspection during the 1996 refueling outage
of the DAEC reactor core internals. No cracks were identified and no
related repairs were required. Utilities continues its efforts to
monitor and maintain the reactor core internals.
The large number of design documents, drawings, specifications,
license documents, analyses, evaluations, reports, procedures,
instructions and other documents related to nuclear plant design and
operation present a particular challenge to Utilities to make sure all
affected plant documents are updated when changes are made to
a nuclear plant's design or operating practice. The NRC is currently
applying new, and more exacting, interpretations to existing
regulations that result in increased expectations relating to the
level of detail and the scope of the information to be documented.
Utilities has made significant efforts through its configuration
management and design basis programs, and expects to continue
such efforts in the future, to meet the NRC's expectations.
Under the Price-Anderson Amendments Act of 1988 (1988 Act),
Utilities currently has the benefit of $8.9 billion of public liability
coverage which would compensate the public in the event of an accident
at a commercial nuclear power plant. The 1988 Act permits such coverage
to rise with increased availability of nuclear insurance and the
changing number of operating nuclear plants subject to retroactive
premium assessments. The 1988 Act provides for inflation indexing
(Consumer Price Index every fifth year) of the retroactive premium
assessments.
As an outgrowth of the Three Mile Island Nuclear Power Plant (TMI)
experience, nuclear plant owners have initiated a cooperative insurance
program designed to help cover business interruption expenses for
participating utilities arising from a possible nuclear plant event.
Utilities is a participant in this program. This type of insurance is
an industry response intended to lessen the cost burden on customers in
the event of a lengthy plant shutdown.
To provide this coverage, a nuclear utility mutual insurance
company known as Nuclear Electric Insurance Limited (NEIL) was formed.
Under Utilities' policy, following a 21 week waiting period from the
time of an accident, coverage of up to 100% of estimated replacement
power costs for an ensuing one year period is provided and up to 80% of
that amount will be provided for a second and third year. The annual
premium cost to Utilities is estimated to be less than the cost of
replacement power for one week.
Utilities currently carries primary property insurance coverage on
the DAEC facility of $500 million with Nuclear Mutual Limited (NML).
Following the TMI incident, it became apparent to nuclear plant owners
that the commercially available property insurance was inadequate
considering the cost of decontamination. Consequently, Utilities
obtained excess property insurance through NEIL, providing an additional
$1.4 billion of coverage after losses exceed $500 million. These
policies bring the total property coverage to $1.9 billion.
For information concerning the potential assessment of retroactive
premiums relating to the above described public liability, replacement
power and excess property insurance coverages, refer to Note 13(e) of
Industries' Notes to Consolidated Financial Statements. The NRC
established requirements with respect to guaranteeing the ability of
owners to make such retroactive payments on the public liability policy.
Of the various alternatives available, Utilities elected to submit
certified financial statements showing that sufficient cash flow could
be generated and would be available for payment of the required
assessments within a three month period. The maximum of the annual
retroactive premiums was approximately $7 million at December 31, 1996.
In the unlikely event of catastrophic loss at DAEC, the amount
of insurance available may not be adequate to cover property damage,
decontamination and premature decommissioning. Uninsured losses,
to the extent not recovered through rates, would be borne by Utilities
and could have a material adverse effect on Utilities' financial position
and results of operations.
Refer to Item 1. "Environmental Matters" for a discussion of
nuclear waste disposal issues and Note 1(g) of Industries' Notes to
Consolidated Financial Statements for a discussion of the
decommissioning of the DAEC.
<TABLE>
ELECTRIC OPERATING COMPARISON
<CAPTION>
1996 1995 1994 1993 1992 1986
<S> <C> <C> <C> <C> <C> <C>
Operating revenues (000's):
Residential and rural $ 212,799 $ 216,270 $ 199,587 $ 203,870 $ 176,811 $ 160,267
General service 98,196 97,496 97,454 99,221 87,202 75,649
Large general service 213,223 199,840 191,601 184,657 140,496 127,034
Street lighting 8,778 8,810 8,521 8,404 7,241 7,194
Total from ultimate consumers 532,996 522,416 497,163 496,152 411,750 370,144
Sales for resale 17,894 17,554 19,195 20,254 18,602 14,963
Off-system 19,490 17,802 18,077 29,400 28,304 34,397
Other 3,893 2,699 2,892 4,715 4,343 2,091
$ 574,273 $ 560,471 $ 537,327 $ 550,521 $ 462,999 $ 421,595
Energy sales (000's Kwh):
Residential and rural 2,633,704 2,680,340 2,484,089 2,518,580 2,146,079 2,122,204
General service 1,231,115 1,242,373 1,170,923 1,166,072 1,061,444 914,665
Large general service 5,500,606 5,283,694 4,990,890 4,581,590 3,320,439 2,629,046
Street lighting 73,381 77,388 77,952 78,004 75,957 78,754
Total to ultimate consumers 9,438,806 9,283,795 8,723,854 8,344,246 6,603,919 5,744,669
Sales for resale 514,398 499,719 567,721 561,276 528,752 411,043
Sales of electricity to customers 9,953,204 9,783,514 9,291,575 8,905,522 7,132,671 6,155,712
Off-system 1,231,298 1,086,121 1,137,219 2,068,015 2,275,616 2,349,985
11,184,502 10,869,635 10,428,794 10,973,537 9,408,287 8,505,697
Sources of electric energy (000's Kwh):
Generation:
Fossil, primarily coal 4,972,736 5,775,002 5,522,966 5,356,930 4,317,154 3,983,607
Nuclear (1) 2,753,542 2,610,979 2,875,867 2,264,507 2,402,501 2,095,334
Hydro 7,081 7,690 8,205 7,201 7,579 5,595
7,733,359 8,393,671 8,407,038 7,628,638 6,727,234 6,084,536
Purchases 4,176,700 3,012,934 2,646,673 3,949,296 3,322,182 2,930,845
11,910,059 11,406,605 11,053,711 11,577,934 10,049,416 9,015,381
Net capability at time of peak load (Kw):
Generating capability 1,864,390 1,873,300 1,741,100 1,733,700 1,718,600 1,626,600
Purchase capability 232,000 207,100 280,000 248,000 207,000 100,000
2,096,390 2,080,400 2,021,100 1,981,700 1,925,600 1,726,600
Net peak load (Kw) (2) 1,833,203 1,824,100 1,779,627 1,716,380 1,425,441 1,380,391
Cooling degree days as
percentage of normal 89% 128% 99% 89% 72% 106%
Number of customers at year-end 336,048 333,489 330,405 327,265 325,172 299,506
Revenue per Kwh (excluding
off-system) in cents 5.57 5.55 5.59 5.85 6.09 6.29
(1) Represents IES Utilities' 70% undivided interest in the
Duane Arnold Energy Center, which is operated by IES Utilities Inc.
(2) 60 minutes integrated.
</TABLE>
GAS OPERATIONS. With the advent of FERC Order 636 (Order 636),
issued in 1992, the nature of Utilities' gas supply portfolio has
changed. Order 636, among other things, eliminated the interstate
pipelines' obligation to serve and now requires Utilities to purchase
virtually 100% of its gas supply requirements from non-pipeline
suppliers. Utilities has enhanced access to competitively priced gas
supply and more flexible transportation services as a result of Order
636. However, under Order 636, Utilities is required to pay certain
transition costs incurred and billed by its pipeline suppliers.
Utilities began paying the transition costs in 1993 and at December
31, 1996, has recorded a liability of $4.2 million for those transition
costs that have been incurred, but not yet billed, by the pipelines to
date, including $2.1 million expected to be billed through 1997.
Utilities is currently recovering the transition costs from its
customers through its Purchased Gas Adjustment Clauses as such costs are
billed by the pipelines. Transition costs, in addition to the recorded
liability, that may ultimately be charged to Utilities could approximate
$3.8 million. The ultimate level of costs to be billed to Utilities
depends on the pipelines' future filings with the FERC and other future
events, including the market price of natural gas. However, Utilities
believes any transition costs that the FERC would allow the pipelines to
collect from Utilities would be recovered from its customers, based upon
regulatory treatment of these costs currently and similar past costs by
the IUB. Accordingly, regulatory assets, in amounts corresponding to
the recorded liabilities, have been recorded to reflect the anticipated
recovery.
Contracts with the pipelines subsequent to Order 636 are comprised
primarily of firm transportation, firm storage and no-notice service.
Firm transportation contracts grant Utilities access to firm pipeline
capacity which is used to transport gas supplies from non-pipeline
suppliers on peak day. Firm storage service allows Utilities to
purchase gas during off-peak periods and place this gas in an account
with the pipelines. When the gas is needed for peak day deliveries,
Utilities requests and the pipelines deliver the gas back on a firm
basis. No-notice service grants Utilities the right to take more or
less gas than is actually scheduled up to the level of no-notice
service. No-notice service takes the form of transportation balancing
or storage service depending on the pipeline.
Utilities' portfolio of firm transportation, firm storage and no-
notice service from pipelines is as follows:
Firm Firm
Transportation Storage No-Notice
Northern:
Volume (Dekatherm/day) 142,996 48,218 10,000
Expiration date 10/31/97 10/31/97 10/31/97
Natural:
Volume (Dekatherm/day) 28,605 34,014 996
Expiration date 11/30/2000 11/30/98 11/30/98
ANR:
Volume (Dekatherm/day) 60,737 19,180 5,000
Expiration date 10/31/2003 10/31/2003 10/31/2003
In addition to firm storage with pipelines, Utilities also
contracts for firm storage from Llano, Inc. This contract calls for peak
day deliveries of 18,667 Dekatherm(Dth)/day and expires May 31, 1997.
Gas supply is purchased from a variety of non-pipeline suppliers
located in the United States and Canada having access to virtually all
major natural gas producing regions. For the calendar year 1996,
Utilities' maximum daily load occurred on February 2, 1996 with total
system flow of approximately 290,987 dekatherms, including transported
volumes, and a total contract availability of approximately 276,352
dekatherms.
As a result of Order 636, Utilities accepted assignment of certain
gas supply contracts previously held by Northern. Accepting assignment
of these contracts resulted in lower costs to Utilities than would have
been incurred had Northern bought out the agreements and billed
Utilities for its share of such costs.
Contracts assigned to Utilities from Northern have maximum delivery
requirements of 13,631 Dth, and minimum take requirements of 2,726 Dth.
Additional firm gas supply agreements were independently negotiated by
Utilities with various non-pipeline suppliers. These gas supply
agreements have maximum and minimum obligations and will
be delivered through gas transmission pipelines as follows:
Maximum Minimum
Daily Quantity Daily Quantity
(Dth/day) (Dth/day)
Northern 57,569 28,358
Natural 26,575 18,575
ANR 41,000 25,500
These gas supply contracts have expiration dates
ranging from a few months to almost seven years.
Rates charged by Utilities' suppliers are subject to
regulation by the FERC. Utilities' tariffs provide for
subsequent adjustments to its natural gas rates for changes in the
cost of natural gas purchased for resale. See Note 1(k) of
Industries' Notes to Consolidated Financial
Statements for discussion of the PGA.
<TABLE>
GAS OPERATING COMPARISON
<CAPTION>
1996 1995 1994 1993 1992 1986
<S> <C> <C> <C> <C> <C> <C>
Operating revenues (000's):
IES Utilities Inc.:
Residential $ 97,708 $ 84,562 $ 82,795 $ 90,462 $ 78,685 $ 79,176
Commercial 46,966 40,390 40,912 45,528 39,780 42,608
Industrial 12,256 8,790 12,515 15,593 18,649 39,485
156,930 133,742 136,222 151,583 137,114 161,269
Other 3,934 3,550 2,811 2,735 2,341 881
Total revenues 160,864 137,292 139,033 154,318 139,455 162,150
Industrial Energy Applications, Inc. 113,115 53,047 26,536 27,605 27,627 0
$ 273,979 $ 190,339 $ 165,569 $ 181,923 $ 167,082 $ 162,150
Energy sales (000's dekatherms):
IES Utilities Inc.:
Residential 17,680 16,302 15,766 16,971 15,098 15,825
Commercial 10,323 9,534 9,298 10,133 8,479 9,707
Industrial 3,796 3,098 4,010 4,618 6,175 11,722
31,799 28,934 29,074 31,722 29,752 37,254
Industrial - transported volumes * 10,341 10,871 8,901 7,284 7,283 1,031
Total volumes delivered 42,140 39,805 37,975 39,006 37,035 38,285
Industrial Energy Applications, Inc. * 43,055 31,916 14,443 12,493 14,830 0
85,195 71,721 52,418 51,499 51,865 38,285
*IEA energy sales that are also
included as transported volumes
of IES Utilities Inc. 4,383 4,232 3,134 2,883 2,955 0
Operating statistics for
IES Utilities Inc.:
Cost per dekatherm of gas
purchased for resale $ 3.29 $ 3.13 $ 3.31 $ 3.49 $ 3.36 $ 3.62
Peak daily sendout in dekatherms 290,987 269,545 288,352 268,419 254,989 282,956
Heating degree days as
percentage of normal 109% 101% 96% 103% 93% 94%
Number of customers at year-end 176,238 174,470 172,829 170,719 167,813 164,670
Revenue per dekatherm sold
for IES Utilities Inc.
(excluding transported volumes) $ 4.94 $ 4.62 $ 4.69 $ 4.78 $ 4.61 $ 4.33
</TABLE>
Item 2. Properties
Industries has no significant properties other than common stock of
affiliates, temporary cash investments and cash surrender value of
corporate life insurance policies.
Utilities' principal electric generating stations at December 31,
1996, are as follows:
<TABLE>
<CAPTION>
Name and Location Major Fuel Minimum Net Kilowatts Accredited
of Station Type Generating Capability
<S> <C> <C> <C>
Duane Arnold Energy Center, Palo, Iowa Nuclear 364,000 (1)
Ottumwa Generating Station, Ottumwa, Iowa Coal 343,440 (2)
Prairie Creek Station, Cedar Rapids, Iowa Coal 205,500
Sutherland Station, Marshalltown, Iowa Coal 143,000
Sixth Street Station, Cedar Rapids, Iowa Coal 65,000
Burlington Generating Station, Burlington, Iowa Coal 211,800
George Neal Unit 3, Sioux City, Iowa Coal 144,200 (3)
Total Coal 1,112,940
Peaking Turbines, Marshalltown, Iowa Oil 162,500
Centerville Combustion Turbines, Centerville, Iowa Oil 48,600
Diesel Stations, all in Iowa Oil 12,200
Total Oil 223,300
Grinnell Station, Grinnell, Iowa Gas 45,300
Agency Street Combustion Turbines,
West Burlington, Iowa Gas 57,700
Burlington Combustion Turbines, Burlington, Iowa Gas 63,100 (4)
Red Cedar Combustion Turbine, Cedar Rapids, Iowa Gas 18,800 (5)
Total Gas 184,900
Total generating capability 1,885,140
</TABLE>
(1) Represents Utilities' 70% ownership interest in this 520,000
Kw generating station. The plant is operated by Utilities.
(2) Represents Utilities' 48% ownership interest in this 715,500
Kw generating station. The plant is operated by Utilities.
(3) Represents Utilities' 28% ownership interest in this 515,000
Kw generating station which is operated by an unaffiliated
utility.
(4) Burlington Combustion Turbine Unit 3 became operational June
28, 1996.
(5) Red Cedar Cogeneration Station became operational December 13,
1996.
At December 31, 1996, the transmission lines of Utilities,
operating from 34,000 to 345,000 volts, approximated 4,436 circuit miles
(substantially all located in Iowa). Utilities owned 108 transmission
substations (all located in Iowa) with a total installed capacity of
8,647 MVa and 468 distribution substations (all located in Iowa) with a
total installed capacity of 2,626 MVa.
Subsidiaries other than Utilities also own property which primarily
represents investments in transportation, energy-related, telecommunications
and real estate properties.
The Company's principal properties are suitable for their intended
use. Utilities' principal properties are held subject to liens of
indentures relating to its bonds.
Item 3. Legal Proceedings
On April 30, 1996, Utilities filed suit, IES Utilities Inc. v. Home
Ins. Co., et al., No. 4-96-CV-10343 (S.D. Iowa filed Apr. 30, 1996),
against various insurers who had sold comprehensive general liability
policies to Iowa Southern Utilities Company (ISU) and Iowa Electric
Light and Power Company (IE) (Utilities was formed as the result of a
merger of ISU and IE). The suit seeks judicial determination of the
respective rights of the parties, a judgment that each defendant is
obligated under its respective insurance policies to pay in full all
sums that Utilities has become or may become obligated to pay in
connection with its defense against allegations of liability for
property damage at and around FMGP sites, and indemnification for all
sums that it has or may become obligated to pay for the investigation,
mitigation, prevention, remediation and monitoring of damage to
property, including damage to natural resources like groundwater, at and
around the FMGP sites. Settlement discussions are proceeding between
Utilities and its insurance carriers regarding the recovery of these
FMGP-related costs. Settlement has been reached with two carriers and
an agreement in principle has been reached with three other carriers
thus far. Any amounts received from insurance carriers will be deferred
pending a determination of the regulatory treatment of such recoveries.
Industries, Diversified, IES Energy, MicroFuel Corporation (the
Corporation) now known as Ely, Inc. in which IES Energy has a 69.40%
equity ownership, and other parties have been sued in Linn County
District Court in Cedar Rapids, Iowa, by Allen C. Wiley. Mr. Wiley
claims money damages on various tort and contract theories arising out
of the 1992 sale of the assets of the Corporation, of which Mr. Wiley
was a director and shareholder. All of the defendants in Mr. Wiley's
suit answered the complaint and denied liability. Industries and
Diversified were dismissed from the suit in a motion for summary
judgment. In addition, a grant of summary judgment has reduced Mr.
Wiley's claims against the remaining parties to breach of fiduciary
duty. A separate motion for summary judgment, which was filed seeking
dismissal of the remaining claims against the remaining parties, was
overruled on September 20, 1996, and the trial has been set for May 1998.
All of the defendants are vigorously contesting the claims.
The Corporation commenced a separate suit to determine the fair
value of Mr. Wiley's shares under Iowa Code section 490. A decision was
issued on August 31, 1994, by the Linn County District Court ruling that
the value of Mr. Wiley's shares was $377,600 based on a 40 cent per
share valuation. The Corporation contended that the value of Mr. Wiley's
shares was 2.5 cents per share. The Decision was appealed to the Iowa
Supreme Court by the Corporation on a number of issues, including the
Corporation's position that the trial court erred as a matter of law in
discounting the testimony of the Corporation's expert witness. The Iowa
Supreme Court assigned the case to the Iowa Court of Appeals. On
February 2, 1996, the Iowa Court of Appeals reversed the District Court
ruling after determining the District Court erred in discounting the
expert testimony. The case was remanded back to the District Court for
consideration of the expert testimony, but with no additional evidence
taken. The District Court re-affirmed its original decision on August
28, 1996, and the Corporation has again appealed to the Iowa Supreme
Court.
On October 3, 1996, Lambda Energy Marketing Company, L. C. (Lambda)
filed a request with the IUB that the IUB initiate formal complaint
proceedings against Utilities. Lambda alleges that Utilities is
discriminating against it by refusing to enter into contracts with it
for remote displacement service and by favoring IEA in such matters. On
October 17, 1996, Utilities filed a Response which denied the
allegations, and alleged, inter alia, that Lambda is unlawfully
attempting to provide retail electrical services in Utilities' exclusive
service territory. The IUB has set the matter for hearing on March 17,
1997. A decision is expected in the second quarter of 1997.
On October 9, 1996, the Company filed a civil suit in the Iowa
District Court in and for Linn County against Lambda, Robert Latham,
Louie Ervin, and David Charles (collectively the "Defendants", including
three former employees of the Company and/or its subsidiaries) alleging,
inter alia, violations of Iowa's trade secret act and interference with
existing and prospective business advantage. On November 1, 1996, the
Defendants filed their Answer and Counterclaims alleging, inter alia,
violation of Iowa competition law, tortious interference and commercial
disparagement. The Defendants therewith also filed a Third-Party
Petition against Utilities, IEA and Lee Liu, Chairman of the Board &
Chief Executive Officer of Industries and Utilities, alleging, inter alia,
tortious interference and commercial disparagement.
Reference is made to Notes 3 and 13 of Industries' Notes to
Consolidated Financial Statements for a discussion of Utilities' rate
proceedings and the Company's environmental matters, respectively. Also
see Item 1. "Business - Environmental Matters" and Item 7.
"Management's Discussion and Analysis of the Results of Operations and
Financial Condition - Environmental Matters."
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
IES Industries Inc.
(a) Price Range of Industries' Common Stock and Dividends
Declared
Industries' Common Stock is listed on the New York Stock Exchange
(NYSE) under the symbol "IES." The table below sets forth, for the
calendar quarters indicated, the reported high and low sales prices of
Industries' Common Stock as reported on the NYSE Composite Tape based on
published financial sources, and the dividends declared per share on
Industries' Common Stock.
Industries' Common stock
High Sale Low Sale Dividend (i)
1996
First Quarter $ 29 5/8 $ 26 1/2 $ .525
Second Quarter 30 1/8 25 1/2 .525
Third Quarter 34 3/4 29 .525
Fourth Quarter 31 1/2 29 .525
Year $ 34 3/4 $ 25 1/2 $ 2.10
1995
First Quarter $ 27 5/8 $ 24 5/8 $ .525
Second Quarter 26 3/8 20 3/8 .525
Third Quarter 26 3/4 21 3/8 .525
Fourth Quarter 28 1/2 25 7/8 .525
Year $ 28 1/2 $ 20 3/8 $ 2.10
The closing price of Industries' common stock on December 31, 1996
was $29 7/8.
(i) Industries has paid regular quarterly dividends on its
common stock since April 1, 1950. Although Industries'
practice has been to pay dividends quarterly, the timing of
payment and amount of future dividends are necessarily
dependent upon earnings, financial requirements and other
factors.
(b) Approximate Number of Equity Security Holders of Industries
Approximate Number of Record
Title of Class Holders (as of December 31, 1996)
Common Stock, no par value 27,468
(c) Restriction on Payment of Dividends by Industries
Under provisions of the Merger Agreement, Industries' annual
dividend payment cannot exceed $2.10 per share, the current annual
payment level, pending the Proposed Merger.
See Item 1, "Proposed Merger of the Company" for a further
discussion of Industries' pending merger.
IES Utilities Inc.
(a) Price Range of Utilities' Common Stock and Dividends
Declared
All outstanding common stock of Utilities is held by its parent
(Industries), and is not traded.
(b) Approximate Number of Equity Security Holders of Utilities
All outstanding common stock of Utilities is held by its parent
(Industries).
(c) Restriction on Payment of Dividends by Utilities
Utilities has the right under the terms of the Subordinated
Deferrable Interest Debentures, so long as an Event of Default has not
occurred and is not continuing, to extend the interest payment period at
any time and from time to time on the Subordinated Deferrable Interest
Debentures to a period not exceeding 20 consecutive quarters. If
Utilities exercises its right to extend the interest payment period,
Utilities may not, during any such extended interest payment period,
declare or pay dividends on, or redeem, purchase or acquire, or make any
liquidation payment with respect to, any of its capital stock or make
any guarantee payment with respect to the foregoing. Utilities does not
intend to exercise its right to extend the interest payment period.
Item 6. Selected Consolidated Financial Data
The following selected consolidated financial data, in the opinion
of the Company, includes adjustments, which are normal and recurring in
nature, necessary for the fair presentation of the results of operations
and financial position. See Item 7. "Management's Discussion and
Analysis of the Results of Operations and Financial Condition" for a
discussion of transactions that affect the comparability of the years
1996-1994.
The 1996 results were affected by costs incurred relating to the
successful defense of the hostile takeover attempt mounted by
MidAmerican Energy Company. The 1995 results were affected by the
impact of the IUB price reduction order in Utilities' last electric rate
case and significantly warmer than normal weather. The 1993 results
were affected by the acquisition of the Iowa service territory from
Union Electric Company on December 31, 1992.
The Selected Consolidated Financial Data should be read in
conjunction with the Consolidated Financial Statements, the Notes to
Consolidated Financial Statements and Management's Discussion and
Analysis of the Results of Operations and Financial Condition contained
elsewhere in this report.
<TABLE>
IES INDUSTRIES INC. SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Income statement data (000's):
Operating revenues $ 973,912 $ 851,010 $ 785,864 $ 801,266 $ 678,296
Operating income 164,308 151,712 147,933 151,269 109,024
Net income 60,907 64,176 66,818 67,938 48,711
Common stock data (per share
except percentages):
Earnings $ 2.04 $ 2.20 $ 2.34 $ 2.45 $ 1.92
Dividends declared 2.10 2.10 2.10 2.10 2.10
Return on average common equity 9.9% 10.7% 11.5% 12.4% 10.3%
Market price at year-end $ 29.88 $ 26.50 $ 25.25 $ 31.25 $ 29.50
Book value at year-end 20.84 20.75 20.56 20.21 18.89
Ratio of market price to book value
at year-end 143% 128% 123% 155% 156%
Capitalization:
Common equity 47% 49% 50% 51% 48%
Preferred and preference stock 1 2 2 2 2
Long-term debt 52 49 48 47 50
100% 100% 100% 100% 100%
Other selected financial data:
Total assets (000's) $ 2,125,562 $ 1,985,591 $ 1,849,093 $ 1,699,819 $ 1,594,382
Non-utility assets (000's) (1) 352,824 282,433 206,411 153,853 153,491
Long-term obligations, net (000's) 744,298 654,090 623,359 574,488 551,335
Construction and acquisition
expenditures (000's) 238,378 218,099 206,548 169,017 192,520 (2)
Times interest earned before
income taxes 2.99 3.12 3.38 3.38 2.63
Selected financial data for
IES Utilities Inc.:
Utility plant in service (000's) $ 2,310,161 $ 2,172,378 $ 2,042,179 $ 1,932,558 $ 1,852,733
Accumulated depreciation of
utility plant in service (000's) 1,030,390 950,324 880,888 813,312 759,754
Construction and acquisition
expenditures (000's) (3) 143,648 129,444 148,103 113,212 171,013 (2)
Times interest earned before
income taxes 3.44 3.26 3.39 3.64 2.67
Electric Kwh sales
(excluding off-system) (000's) 9,953,204 9,783,514 9,291,575 8,905,522 7,132,671
Gas Dth sales (including
transported volumes) (000's) 42,140 39,805 37,975 39,006 37,035
(1) Includes non-utility assets of IES Utilities Inc.
(2) Includes $61 million for the acquisition of the Iowa
service territory from Union Electric Company.
(3) Includes acquisitions from affiliated companies and
Utilities' non-utility expenditures.
</TABLE>
<TABLE>
IES UTILITIES INC. SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>
Year Ended December 31
1996 1995 1994 1993 1992
($ in thousands)
<S> <C> <C> <C> <C> <C>
Operating revenues $ 754,979 $ 709,826 $ 685,366 $ 713,750 $ 610,262
Operating income 153,725 142,265 135,591 143,329 100,361
Net income 63,729 59,278 61,210 67,970 45,291
Net income available for common stock 62,815 58,364 60,296 67,056 43,562
Cash dividends declared on common stock 44,000 43,000 52,000 31,300 24,721
Total assets 1,778,610 1,708,635 1,645,368 1,546,978 1,440,891
Long-term obligations 560,199 517,538 530,275 531,979 490,251
Times interest earned before income taxes 3.44 3.26 3.39 3.64 2.67
Capitalization ratios:
Common equity 50% 51% 50% 50% 48%
Preferred and preference stock 2 2 2 2 2
Long-term debt 48 47 48 48 50
100% 100% 100% 100% 100%
</TABLE>
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
IES Industries Inc.'s Consolidated Financial Statements include
the accounts of IES Industries Inc. (Industries) and its consolidated
subsidiaries (collectively the Company). Industries'
wholly-owned subsidiaries are IES Utilities Inc. (Utilities)
and IES Diversified Inc. (Diversified). The information
presented in this management's discussion and analysis
addresses the financial statements of Industries and Utilities as
presented in this joint filing. Information related to Utilities also
relates to Industries' Consolidated Financial Statements.
Information related to Diversified does not pertain
to the discussion of the financial condition and results of operations
of Utilities. The references to various Notes to Consolidated Financial
Statements are all to Industries' Notes to Consolidated Financial
Statements.
COMPETITION
Utilities and its predominant business, electric energy generation,
transmission and distribution, are in a period of fundamental change in
the manner in which customers obtain, and energy suppliers provide,
energy services. As legislative, regulatory, economic and technological
changes occur, electric utilities are faced with increasing pressure to
become more competitive. Such competitive pressures could result in loss
of customers and an incurrence of stranded costs (i.e., the cost of
assets rendered unrecoverable as the result of competitive pricing). To
the extent stranded costs cannot be recovered from customers, they would
be borne by security holders.
The National Energy Policy Act of 1992 addresses several matters
designed to promote competition in the electric wholesale power
generation market. In April 1996, the Federal Energy Regulatory
Commission (FERC) issued final rules (FERC Orders 888 and 889), largely
confirming earlier proposals, requiring electric utilities to open their
transmission lines to other wholesale buyers and sellers of electricity.
The rules became effective on July 9, 1996. Utilities filed conforming
pro-forma open access transmission tariffs with the FERC which became
effective October 1, 1995. In response to FERC Order 888, Utilities
filed its final pro-forma tariffs with FERC on July 9, 1996. The non-
rate provisions of the tariffs were approved on November 13, 1996. FERC
has not yet ruled on the rate provisions of the tariffs. The geographic
position of Utilities' transmission system could provide revenue
opportunities in the open access environment. Industrial Energy
Applications, Inc. (IEA), a wholly-owned subsidiary under Diversified,
received approval in the 1995 FERC proceeding to market electric power
at market based rates. The Company cannot predict the long-term
consequences of these rules on its results of operations or financial
condition.
FERC does not have jurisdiction over the retail jurisdiction, and
thus the final FERC rules do not provide for the recovery of stranded
costs resulting from retail competition. The various states retain
jurisdiction over the question of whether to permit retail competition,
the terms of such retail competition and the recovery of any portion of
stranded costs that are ultimately determined by FERC and the states to
have resulted from retail competition.
The Iowa Utilities Board (IUB) initiated a Notice of Inquiry
(Docket No. NOI-95-1) in early 1995 on the subject of "Emerging
Competition in the Electric Utility Industry" to address all forms of
competition in the electric utility industry and to gather information
and perspectives on electric competition from all persons or entities
with an interest or stake in the issues. In January 1996, the IUB
created its own timeline for evaluating industry restructuring in Iowa.
Included in the IUB's process was the creation of a 22-member advisory
panel, of which Utilities is a member. The IUB conducted public
information meetings around the State of Iowa. A draft report was
created by the IUB staff and is expected to be finalized in the first
quarter of 1997. The draft report indicated that the IUB is of the
opinion that there is no compelling reason to move quickly into
restructuring the electric utility industry in Iowa. However, they will
continue the analysis and debate on restructuring and retail competition
in Iowa.
As part of Utilities' strategy for the emerging and competitive
power markets, Utilities, Interstate Power Company (IPC) and Wisconsin
Power and Light Company (the utility subsidiary of WPL Holdings, Inc.
(WPLH)), and a number of other utilities have proposed the creation of
an independent system operator (ISO) for the companies' power
transmission grid. (The Company, WPLH and IPC have entered into a
merger agreement, as discussed later). The companies would retain
ownership and control of the facilities, but the ISO would set rates for
access and assure fair treatment for all companies seeking access. The
proposal requires approval from state regulators and the FERC. Various
other proposals for ISO's have been made by other companies and
Utilities is monitoring all such proposals. Membership in an ISO could
become a condition of merger approval by the various regulatory bodies.
Utilities is subject to the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" (SFAS 71). If a portion of Utilities' operations
become no longer subject to the provisions of SFAS 71, as a result of
competitive restructurings or otherwise, a write-down of related
regulatory assets would be required, unless some form of transition cost
recovery is established by the appropriate regulatory body. In
addition, the Company would be required to determine any impairment to
other assets and write-down such assets to their fair value. Utilities
believes that it still meets the requirements of SFAS 71.
The Company cannot predict the long-term consequences of these
competitive issues on its results of operations or financial condition.
The Company's strategy for dealing with these emerging issues includes
seeking growth opportunities, continuing to offer quality customer
service, ongoing cost reductions and productivity enhancements, the
major objective of which is to allow Utilities to better prepare for a
competitive, deregulated electric utility industry. In this connection,
Utilities is in the final stages of a significant process improvement
program to improve its service levels, reduce its cost structure and
become more market-focused and customer oriented. (The Company's
continuous improvement efforts, in general, will be an ongoing effort,
however).
Examples of the process improvement changes being implemented are,
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 and/or services rather than opening most purchases to
a bidding process; changing standards and construction practices in
transmission and distribution areas; changing certain work practices in
power plants; making investments in information technology upgrades; and
improving the method by which service is delivered to customers in all
customer classes. The specific changes range from simple improvements
in current operations to radical changes in the way work is performed
and service is delivered. Some of the changes are currently in the
pilot stage thus the results from this evaluation period or the
potential effects of the pending merger could prove that some of the
changes are not efficient or effective and must be revised or
eliminated. Subject to delays caused by implementing any such
revisions, implementation of the changes began in 1996 and will continue
into 1997; however, certain results will not be realized until 1997. In
addition, the Company must give consideration to the potential effects
of the pending merger as part of the implementation process so that
duplication of efforts are avoided.
PROPOSED MERGER OF THE COMPANY
The Company, WPLH and IPC have entered into an Agreement and Plan
of Merger, as amended (Merger Agreement), dated November 10, 1995. As a
result of the transactions contemplated by the Merger Agreement, the
combined company, Interstate Energy Corporation (Interstate Energy),
anticipates cost savings of approximately $749 million over a ten-year
period, net of transaction costs and costs to achieve the savings of
approximately $14 million and $64 million, respectively. The estimate
of potential cost savings constitutes a forward-looking statement and
actual results may differ materially from this estimate. The estimate
is 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 treatments, weather conditions, financial
market conditions, future business decisions and other uncertainties.
No assurance can be given that the estimated cost savings will actually
be realized.
The merger, which is conditioned upon, among other things, receipt
of certain regulatory and governmental approvals, is expected to close
by the end of the third quarter of 1997. As part of the approval
process, management has proposed retail and wholesale price freezes to
be implemented in certain jurisdictions. Refer to Notes 2 and 3 of the
Notes to Consolidated Financial Statements for additional information
regarding the proposed merger and the proposed price freezes.
RESULTS OF OPERATIONS OF THE COMPANY
The following discussion analyzes significant changes in the
components of net income and financial condition from the prior periods
for the Company.
The Company's net income decreased ($3.3) million and ($2.6)
million during 1996 and 1995, respectively. Earnings per average common
share declined to $2.04 in 1996 from $2.20 in 1995. The 1996 decrease
in earnings was primarily due to costs incurred relating to the
successful defense of the hostile takeover attempt mounted by
MidAmerican Energy Company (MAEC) and preparing for the Company's
pending three-way merger. The Company estimates that the hostile
takeover defense and merger costs reduced 1996 earnings by $0.15 per
share and $0.11 per share, respectively. The 1996 earnings benefited
from increased electric, gas and steam sales at Utilities, the impact of
a natural gas pricing increase implemented in the fourth quarter of 1995
and increased earnings at the Company's oil and gas subsidiary, Whiting
Petroleum Corporation (Whiting). Increased operating expenses, higher
interest expense and a higher effective income tax rate also contributed
to the decrease in earnings in 1996. The 1995 results reflect the
impact of the IUB price reduction order in Utilities' latest electric
rate case. The effect of the lower electric prices, including the
required refund, reduced the 1995 net income by approximately $9.7
million ($0.33 per share). Warmer than normal weather conditions during
the summer months, which added $0.18 to earnings, and an aggressive cost
containment program partially offset the negative effects of the IUB
order. The 1994 results were affected by milder than normal weather,
particularly during the summer months.
The Company's operating income increased $12.6 million and $3.8
million during 1996 and 1995, respectively. The contrasting
relationship between the change in operating income and net income for
1996 was due to the hostile takeover defense costs of $7.8 million,
which are included in "Miscellaneous, net" in the Consolidated
Statements of Income, higher interest expense and a higher effective
income tax rate. The 1995 difference was also due to increased interest
expense and a higher effective income tax rate. Reasons for the changes
in the results of operations are explained in the following discussion.
Electric Operations
Electric margins and Kwh sales for Utilities were as follows:
<TABLE>
<CAPTION>
Revenues and Costs Kwhs Sold
(In thousands) (In thousands)
1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Residential and rural $ 212,799 $ 216,270 $ 199,587 $ 2,633,704 $ 2,680,340 $ 2,484,089
General service 98,196 97,496 97,454 1,231,115 1,242,373 1,170,923
Large general service 213,223 199,840 191,601 5,500,606 5,283,694 4,990,890
Sales for resale
and other 30,565 29,063 30,608 587,779 577,107 645,673
Total, excluding off-
system sales 554,783 542,669 519,250 9,953,204 9,783,514 9,291,575
Off-system sales 19,490 17,802 18,077 1,231,298 1,086,121 1,137,219
Total 574,273 560,471 537,327 11,184,502 10,869,635 10,428,794
Fuel for production
(excluding steam) 74,608 90,558 81,567
Purchased power 88,350 66,874 68,794
Margin $ 411,315 $ 403,039 $ 386,966
</TABLE>
Electric margins increased $8.3 million and $16.1 million during
1996 and 1995, respectively. The increase during 1996 was primarily due
to higher sales relating to continuing sales growth in Utilities'
service territory, lower purchased power capacity costs and increased
revenues due to the recovery of previously deferred energy efficiency
expenditures. These increases were partially offset by a true-up
adjustment to Utilities' unbilled sales recorded in 1995 and lower sales
to residential and rural customers during 1996, primarily due to cooler
weather conditions during the summer of 1996 as compared to the summer
of 1995. The 1995 electric margin increase was primarily due to higher
sales due to a significantly warmer summer in 1995 as compared to 1994,
sales growth, the unbilled sales adjustment, lower purchased power
capacity costs and the recovery of energy efficiency costs. These
increases were partially offset by a reduction in revenues of
approximately $17 million as a result of the IUB price reduction order,
of which approximately $3.5 million related to revenues collected in the
fourth quarter of 1994. Refer to Notes 3(a) and 3(b) of the Notes to
Consolidated Financial Statements for a discussion of merger-related
retail and wholesale electric price proposals that Utilities has
announced and the energy efficiency cost recoveries, respectively.
Under historically normal weather conditions, total sales
(excluding off-system sales) during 1996 and 1995 would have increased
3.5% and 3.6%, as compared to actual increases of 1.7% and 5.3%,
respectively.
Utilities' electric tariffs include energy adjustment clauses (EAC)
that are designed to currently recover the costs of fuel and the energy
portion of purchased power billings to customers. See Note 1(k) of the
Notes to Consolidated Financial Statements for discussion of the EAC.
Gas Operations
Gas margins and dekatherm sales for Utilities and IEA were as
follows:
Revenues and Costs Dths Sold
(In thousands) (In thousands)
1996 1995 1994 1996 1995 1994
Utilities -
Residential $ 97,708 $ 84,562 $ 82,795 17,680 16,302 15,766
Commercial 46,966 40,390 40,912 10,323 9,534 9,298
Industrial 12,256 8,790 12,515 3,796 3,098 4,010
Transportation
and other 3,934 3,550 2,811 10,341 10,871 8,901
Total Utilities 160,864 137,292 139,033 42,140 39,805 37,975
IEA 113,115 53,047 26,536 43,055 31,916 14,443
Total 273,979 190,339 165,569 85,195 71,721 52,418
Gas purchased
for resale 217,351 141,716 120,795
Margin $ 56,628 $ 48,623 $ 44,774
Total gas margins increased $8.0 million and $3.8 million during
1996 and 1995, respectively. The 1996 increase was primarily due to an
annual increase of $6.3 million in Utilities' gas rates that was
implemented in the fourth quarter of 1995, recovery of Utilities'
previously deferred energy efficiency expenditures and the increased
sales, largely the result of more favorable weather conditions in 1996.
While IEA's gas sales were up significantly in 1996, their margins
actually decreased due to fluctuations in gas prices and the
competitiveness of the gas marketing business. Therefore, this decrease
partially offset the increase in Utilities' margin. The 1995 margin
increase was primarily due to the price increase at Utilities mentioned
above, recovery of Utilities' previously deferred energy efficiency
expenditures and higher IEA gas margins resulting from increased volumes
sold due to heightened marketing efforts as well as expanding into
additional regional markets.
Under historically normal weather conditions, Utilities' gas sales
and transported volumes would have increased 1.9% and 3.5% in 1996 and
1995, as compared to actual increases of 5.9% and 4.8%, respectively.
Utilities' gas tariffs include purchased gas adjustment clauses
(PGA) that are designed to currently recover the cost of gas sold. See
Note 1(k) of the Notes to Consolidated Financial Statements for
discussion of the PGA.
Other Revenues Other revenues increased $25.5 million and
$17.2 million during 1996 and 1995, respectively, primarily because of
increased revenues at Whiting due to increases in oil and gas prices and
increased gas volumes sold during 1996, and increases in oil and gas
volumes sold in 1995. An increase in Utilities' steam revenues also
contributed to the increase in both years. The steam volumes sold
increased significantly during 1996 and 1995 primarily due to the
addition of a new industrial customer. The 1995 increase was partially
offset as a result of the sale of several of Diversified's subsidiaries
during 1995 and 1994. The operations of the subsidiaries that were sold
were not significant to the results of operations or financial position
of the Company.
Operating Expenses Other operating expenses increased $13.4 million
and $24.5 million in 1996 and 1995, respectively. Contributing to the
increase in both periods were increased operating activities at Whiting
and IEA, increased labor and benefits costs at Utilities, increases in
the amortization of previously deferred energy efficiency expenditures
at Utilities (which are currently being recovered through rates) and
costs relating to the pending merger. The 1996 increase was partially
offset by decreased operating expenses at the Duane Arnold Energy Center
(DAEC), Utilities' nuclear generating facility. The 1995 increase was
also due to costs relating to the Company's process improvement program,
partially offset by lower nuclear operating and insurance costs at
Utilities, decreased costs resulting from the sale of the Diversified
subsidiaries and a cost-cutting effort implemented after the receipt of
the IUB electric price reduction order earlier in 1995.
Maintenance expenses increased or (decreased) $2.9 million and
($6.7) million during 1996 and 1995, respectively. The 1996 increase
was due to increased maintenance activities at Utilities' fossil-fueled
generating stations, partially offset by lower maintenance expenses at
the DAEC. The 1995 decrease was due to lower maintenance expenses at
the DAEC and at Utilities' fossil-fueled generating stations as well as
the cost containment actions discussed above.
Depreciation and amortization increased $9.4 million and $11.6
million in 1996 and 1995, respectively, because of increases in utility
plant in service, the acquisition of oil and gas operating properties
and amortization costs relating to the future dismantlement and
abandonment of Whiting's offshore oil and gas properties. (See Note
13(f) of the Notes to Consolidated Financial Statements for a further
discussion of the dismantlement and abandonment costs). The 1995
increase was partially offset by lower depreciation rates implemented at
Utilities as a result of the IUB electric price reduction order.
Depreciation and amortization expenses for all periods include a
provision for decommissioning the DAEC, which is collected through
rates. The current annual recovery level is $6.0 million.
During the first quarter of 1996, the Financial Accounting
Standards Board (FASB) issued an Exposure Draft on Accounting for
Liabilities Related to Closure and Removal of Long-Lived Assets which
deals with, among other issues, the accounting for decommissioning
costs. If current electric utility industry accounting practices for
such decommissioning are changed: (1) annual provisions for
decommissioning could increase relative to 1996 and, (2) the estimated
cost for decommissioning could be recorded as a liability, rather than
as accumulated depreciation, with recognition of an increase in the
recorded amount of the related DAEC plant. If such changes are
required, Utilities believes that there would not be an adverse effect
on its financial position or results of operations based on current rate
making practices. See Note 1(g) of the Notes to Consolidated Financial
Statements for a discussion of the recovery of decommissioning costs
allowed in Utilities' most recent rate case.
Taxes other than income taxes increased or (decreased)
($0.8) million and $2.7 million during 1996 and 1995, respectively,
largely due to changes in property taxes at Utilities caused by
fluctuations in assessed property values. The 1996 decrease was
partially offset by an increase in production taxes at Whiting.
Interest Expense and Other Interest expense increased $4.1 million and
$4.7 million in 1996 and 1995, respectively, primarily because of
increases in the average amount of short-term debt outstanding at
Utilities and the average amount of borrowings under Diversified's
credit facility. Lower average interest rates, partially attributable
to refinancing long-term debt at lower rates and the mix of long-term
and short-term debt, partially offset the increases for both periods.
The increase in interest expense during 1996 was also due to a higher
amount of long-term debt outstanding at Utilities, partially offset by
rate refund interest recorded in 1995 at Utilities and the effects of
the interest rate swap agreement discussed in Note 12(a) of the Notes to
Consolidated Financial Statements.
Miscellaneous, net reflects comparative decreases in income of
($5.5) million and ($0.3) million during 1996 and 1995, respectively.
The 1996 decrease was primarily due to approximately $7.8 million in
costs incurred relating to the successful defense of the hostile
takeover attempt mounted by MAEC and certain property write-downs at
Diversified. The decrease was partially offset by dividends received
from the two New Zealand entities in which the company has equity
investments and various gains realized on the disposition of assets.
The 1995 decrease was primarily because of higher fees associated with
an increase in the average amount of utility accounts receivable sold,
partially offset by various gains realized on the sale of several
investments by Diversified.
Federal and State Income Taxes Federal and state income taxes
increased $4.9 million and $0.9 million in 1996 and 1995, respectively.
The increase for both periods was due to a higher effective tax rate
resulting from: 1) the effect of property related temporary differences
for which deferred taxes had not previously been provided in rates,
pursuant to rate making principles, that are now becoming payable and
are being recovered from ratepayers and 2) adjustments to tax reserves.
The 1996 increase in effective tax rate was also due to recording the
impacts of a tentative Internal Revenue Service audit settlement for tax
years 1991-1993 as well as the incurrence of certain merger-related
expenses, which are not tax deductible.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily attributable to
Utilities' construction programs, its debt maturities and the level of
Diversified's business opportunities. The Company's pretax ratio of
times interest earned was 2.99, 3.12 and 3.38 in 1996-1994,
respectively. Cash flows from operating activities were $183 million,
$200 million and $217 million in 1996-1994, respectively. The 1996
decrease was primarily due to the timing of income tax payments and
other changes in working capital. The 1995 decrease was primarily due
to expenditures related to the 1995 DAEC refueling outage and other
changes in working capital.
The Company anticipates that future capital requirements will be
met by cash generated from operations and external financing. The level
of cash generated from operations is partially dependent upon economic
conditions, legislative activities, environmental matters and timely
regulatory recovery of Utilities' costs. See Notes 3 and 13 of the
Notes to Consolidated Financial Statements.
Access to the long-term and short-term capital and credit markets,
and costs of external financing, are dependent on the Company's
creditworthiness. The Company's debt ratings are as follows:
Moody's Standard & Poor's
Utilities - Long-term debt A2 A
- Commercial paper P1 A1
Diversified - Commercial paper P2 A2
Utilities' credit ratings are under review for potential upgrade
related to the pending merger.
The Company's liquidity and capital resources will be affected by
environmental, regulatory and competitive issues, including the ultimate
disposition of remediation issues surrounding the Company's
environmental liabilities and the Clean Air Act as amended, as discussed
in Note 13 of the Notes to Consolidated Financial Statements, and
emerging competition in the electric utility industry as discussed in
the Competition section. Consistent with rate making principles of the
IUB, management believes that the costs incurred for the above matters
will not have a material adverse effect on the financial position or
results of operations of the Company.
At December 31, 1996, Utilities had approximately $61 million of
energy efficiency program costs recorded as regulatory assets. See Note
3(b) of the Notes to Consolidated Financial Statements for a discussion
of the timing of the filings for the recovery of these costs under IUB
rules and Iowa statutory changes recently enacted relating to these
programs.
At December 31, 1996, the Company had a $20.0 million investment in
Class A common stock of McLeod, Inc. (McLeod), 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, long-distance and other telecommunications
services. See Notes 6(b) and 11 of the Notes to Consolidated Financial
Statements for further information on the Company's investment in
McLeod.
The Company has financial guarantees amounting to $22.9 million
outstanding at December 31, 1996, which are not reflected in the
consolidated financial statements. Such guarantees are generally issued
to support third-party borrowing arrangements and similar transactions.
The Company believes that the likelihood of material cash payments by
the Company under these agreements is remote.
The Company increased its investments in foreign entities by
approximately $20 million in 1996 (see Note 6(a) of the Notes to
Consolidated Financial Statements for a further discussion). The
Company also continues to explore other international investment
opportunities. Such investments carry a higher level of risk than the
Company's traditional utility investments or Diversified's domestic
investments. Such risks could include foreign government actions,
foreign economic and currency risks and others. The Company may also
incur business development expenses for potential projects pursued by
the Company that may never materialize. The Company is striving to
select international investments where these risks are both understood
and minimized.
The Resale Power Group of Iowa (RPGI), consisting of virtually all
of Utilities' wholesale customers, has notified Utilities that it will
not purchase its power supply from Utilities after December 31, 1998.
It is possible that certain RPGI customers will drop out of RPGI in
order to remain as Utilities' customers. RPGI will continue to purchase
transmission services from Utilities after December 31, 1998. While the
Company cannot determine the outcome of this issue at this time, the
result will not have a material adverse effect on its financial position
or results of operations given 1) Utilities' wholesale sales only
accounted for approximately 5% of Utilities' total 1996 electric sales,
excluding off-system sales; 2) Utilities currently has to supplement its
generating capability with purchased power to meet its sales load; and
3) Utilities' annual electric sales growth rate continues to be strong.
Under provisions of the Merger Agreement, there are restrictions on
the amount of common stock and long-term debt the Company can issue
pending the merger. The Company does not expect the restrictions to
have a material effect on its ability to meet its future capital
requirements.
CONSTRUCTION AND ACQUISITION PROGRAM
The Company's construction and acquisition program anticipates
expenditures of approximately $225 million for 1997, of which
approximately $147 million represents expenditures at Utilities and
approximately $78 million represents expenditures at Diversified. Of
the $147 million of Utilities' expenditures, 39% represents expenditures
for electric transmission and distribution facilities, 21% represents
electric generation expenditures, 21% represents information technology
expenditures and 5% represents gas expenditures. The remaining 14%
represents miscellaneous electric, steam and general expenditures.
Diversified's anticipated expenditures include approximately $75 million
for domestic and international energy-related construction and
acquisition expenditures.
The Company's levels of construction and acquisition expenditures
are projected to be $208 million in 1998, $212 million in 1999,
$182 million in 2000 and $198 million in 2001. It is estimated that
virtually all of Utilities' construction and acquisition expenditures
will be provided by cash from operating activities (after payment of
dividends) for the five-year period 1997-2001. Financing plans for
Diversified's construction and acquisition program will vary, depending
primarily on the level of energy-related acquisitions.
Capital expenditure and investment and financing plans are subject
to continual review and change. The capital expenditure and investment
programs may be revised significantly as a result of many considerations
including changes in economic conditions, variations in actual sales and
load growth compared to forecasts, requirements of environmental,
nuclear and other regulatory authorities, acquisition and business
combination opportunities, the availability of alternate energy and
purchased power sources, the ability to obtain adequate and timely rate
relief, escalations in construction costs and conservation and energy
efficiency programs.
Under provisions of the Merger Agreement, there are restrictions on
the amount of construction and acquisition expenditures the Company can
make pending the merger. The Company does not expect the restrictions
to have a material effect on its ability to implement its anticipated
construction and acquisition program.
LONG-TERM FINANCING
Other than Utilities' periodic sinking fund requirements, which
Utilities intends to meet by pledging additional property, the following
long-term debt will mature prior to December 31, 2001:
(in millions)
Utilities $ 207.2
Diversified's credit facility 172.1
Other subsidiaries' debt 11.2
$ 390.5
The Company intends to refinance the majority of the debt
maturities with long-term securities.
In September 1996, Utilities repaid at maturity $15 million of
Series J, 6.25% First Mortgage Bonds and, in a separate transaction,
issued $60 million of Collateral Trust Bonds, 7.25%, due 2006.
Utilities has entered into an Indenture of Mortgage and Deed of
Trust dated September 1, 1993 (New Mortgage). The New Mortgage provides
for, among other things, the issuance of Collateral Trust Bonds upon the
basis of First Mortgage Bonds being issued by Utilities. The lien of
the New Mortgage is subordinate to the lien of Utilities' first
mortgages until such time as all bonds issued under the first mortgages
have been retired and such mortgages satisfied. Accordingly, to the
extent that Utilities issues Collateral Trust Bonds on the basis of
First Mortgage Bonds, it must comply with the requirements for the
issuance of First Mortgage Bonds under Utilities' first mortgages.
Under the terms of the New Mortgage, Utilities has covenanted not to
issue any additional First Mortgage Bonds under its first mortgages
except to provide the basis for issuance of Collateral Trust Bonds.
The indentures pursuant to which Utilities issues First Mortgage
Bonds constitute direct first mortgage liens upon substantially all
tangible public utility property and contain covenants which restrict
the amount of additional bonds which may be issued. At
December 31, 1996, such restrictions would have allowed Utilities to
issue at least $241 million of additional First Mortgage Bonds.
In order to provide an instrument for the issuance of unsecured
subordinated debt securities, Utilities entered into an Indenture dated
December 1, 1995 (Subordinated Indenture). The Subordinated Indenture
provides for, among other things, the issuance of unsecured subordinated
debt securities. Any debt securities issued under the Subordinated
Indenture are subordinate to all senior indebtedness of Utilities,
including First Mortgage Bonds and Collateral Trust Bonds.
Utilities has received authority from the FERC and the SEC to issue
up to $250 million of long-term debt, and has $190 million of remaining
authority under the current FERC docket through April 1998, and $140
million of remaining authority under the current SEC shelf registration.
Diversified has a variable rate credit facility that extends
through November 20, 1999, with two one-year extensions potentially
available to Diversified. Refer to Note 10(a) of the Notes to
Consolidated Financial Statements for a further discussion of this
credit facility.
The Articles of Incorporation of Utilities authorize and limit the
aggregate amount of additional shares of Cumulative Preference Stock and
Cumulative Preferred Stock that may be issued. At December 31, 1996,
Utilities could have issued an additional 700,000 shares of Cumulative
Preference Stock and 100,000 additional shares of Cumulative Preferred
Stock. In addition, Industries had 5,000,000 shares of Cumulative
Preferred Stock, no par value, authorized for issuance, none of which
were outstanding at December 31, 1996.
The Company's capitalization ratios at year-end were as follows:
1996 1995
Long-term debt 52% 49%
Preferred stock 1 2
Common equity 47 49
100% 100%
Under provisions of the Merger Agreement, there are restrictions on
the amount of common stock and long-term debt the Company can issue
pending the merger. The Company does not expect the restrictions to
have a material effect on its ability to meet its future capital
requirements.
SHORT-TERM FINANCING
For interim financing, Utilities is authorized by the FERC to
issue, through 1998, up to $200 million of short-term notes. In
addition to providing for ongoing working capital needs, this
availability of short-term financing provides Utilities flexibility in
the issuance of long-term securities. At December 31, 1996, Utilities
had outstanding short-term borrowings of $135 million.
Utilities has an agreement, which expires in 1999, with a financial
institution to sell, with limited recourse, an undivided fractional
interest of up to $65 million in its pool of utility accounts
receivable. At December 31, 1996, Utilities had sold $65 million under
the agreement. Refer to Note 5 of the Notes to Consolidated Financial
Statements for a further discussion of this agreement, including the
issuance of a new accounting standard which impacts the accounting for
the sales.
At December 31, 1996, the Company had bank lines of credit
aggregating $136.1 million. Utilities was using $110 million to support
commercial paper (weighted average interest rate of 5.70%) and
$11.1 million to support certain pollution control obligations.
Commitment fees are paid to maintain these lines and there are no
conditions which restrict the unused lines of credit. In addition to
the above, Utilities has an uncommitted credit facility with a financial
institution whereby it can borrow up to $40 million. Rates are set at
the time of borrowing and no fees are paid to maintain this facility. At
December 31, 1996, there was $25 million outstanding under this facility
(weighted average interest rate of 6.28%).
ENVIRONMENTAL MATTERS
Utilities has been named as a Potentially Responsible Party (PRP)
by various federal and state environmental agencies for 28 Former
Manufactured Gas Plant (FMGP) sites. Utilities has recorded
environmental liabilities related to the FMGP sites of approximately $36
million (including $4.7 million as current liabilities) at December 31,
1996. Regulatory assets of approximately $36 million, which reflect the
future recovery that is being provided through Utilities' rates, have
been recorded in the Consolidated Balance Sheets. Considering the
current rate treatment allowed by the IUB, management believes that the
clean-up costs incurred by Utilities for these FMGP sites will not have
a material adverse effect on its financial position or results of
operations. Refer to Note 13(f) of the Notes to Consolidated Financial
Statements for a further discussion, including a discussion of a lawsuit
filed by Utilities seeking recovery of FMGP-related costs from its
insurance carriers.
The Clean Air Act Amendments of 1990 (Act) requires emission
reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx) to achieve
reductions of atmospheric chemicals believed to cause acid rain. The
acid rain program under the Act also governs SO2 allowances. The Act
and other federal laws also require the United States Environmental
Protection Agency (EPA) to study and regulate, if necessary, additional
issues that potentially affect the electric utility industry, including
emissions relating to NOx, ozone transport, mercury and particulate
control; toxic release inventories and modifications to the PCB rules.
In 1995, the EPA published the Sulfur Dioxide Network Design Review
for Cedar Rapids, Iowa, which, based on the EPA's assumptions and worst-
case modeling method suggests that the Cedar Rapids area could be
classified as "nonattainment" for the National Ambient Air Quality
Standards established for SO2. The worst-case modeling study suggested
that two of Utilities' generating facilities contribute to the modeled
exceedences.
Pursuant to a routine review of operations, Utilities determined
that certain changes undertaken during the previous three years at one
of its power plants may have required a federal Prevention of
Significant Deterioration (PSD) permit. Refer to Note 13(g) of the
Notes to Consolidated Financial Statements for a further discussion of
the above mentioned air quality issues.
The National Energy Policy Act of 1992 requires owners of nuclear
power plants to pay a special assessment into a "Uranium Enrichment
Decontamination and Decommissioning Fund." Refer to Note 13(f) of the
Notes to Consolidated Financial Statements for a further discussion.
The Nuclear Waste Policy Act of 1982 assigned responsibility to the
U.S. Department of Energy (DOE) to establish a facility for the ultimate
disposition of high level waste and spent nuclear fuel and authorized
the DOE to enter into contracts with parties for the disposal of such
material beginning in January 1998. Utilities entered into such a
contract and has made the agreed payments to the Nuclear Waste Fund
(NWF) held by the U.S. Treasury. The DOE, however, has experienced
significant delays in its efforts and material acceptance is now
expected to occur no earlier than 2010 with the possibility of further
delay being likely. Utilities has been storing spent nuclear fuel on-
site since plant operations began in 1974 and has current on-site
capability to store spent fuel until 2001. Utilities is aggressively
reviewing options for expanding on-site storage. Utilities has been
formally notified by the DOE that they anticipate being unable to begin
acceptance of spent nuclear fuel by January 31, 1998. Utilities is
evaluating courses of action to protect the interests of its customers
and its rights under the DOE contract. Utilities is also evaluating
legislation proposed to the Congress addressing this issue. In July
1996, the IUB initiated a Notice of Inquiry (NOI) on spent nuclear fuel.
One purpose of the NOI was to evaluate whether the current collection of
money from Utilities' customers for payment to the NWF should be placed
in an escrow account in lieu of being paid to the NWF. Utilities
believes that the issue of using an escrow account should be decided at
the federal level rather than the state level. Utilities cannot predict
the outcome of this NOI.
The Low-Level Radioactive Waste Policy Amendments Act of 1985
mandated that each state must take responsibility for the storage of low-
level radioactive waste produced within its borders. The State of Iowa
has joined the Midwest Interstate Low-Level Radioactive Waste Compact
Commission (Compact), which is planning a storage facility to be located
in Ohio to store waste generated by the Compact's six member states. At
December 31, 1996, Utilities has prepaid costs of approximately
$1.1 million to the Compact for the building of such a facility. A
Compact disposal facility is anticipated to be in operation in
approximately ten years after approval of new enabling legislation by
the member states. Such legislation was approved in 1996 by all six
states that are members of the Compact. Final approval by the U.S.
Congress is now required. On-site storage capability currently exists
for low-level radioactive waste expected to be generated until the
Compact facility is able to accept waste materials. In addition, the
Barnwell, South Carolina disposal facility has reopened for an
indefinite time period and Utilities is in the process of shipping to
Barnwell the majority of the low-level radioactive waste it has
accumulated on-site, and currently intends to ship the waste it produces
in the future as long as the Barnwell site remains open, thereby
minimizing the amount of low-level waste stored on-site. However,
management of the Barnwell site has modified its fee schedule to
emphasize total radioactivity content and weight, instead of the
historical volume related fees. Utilities is evaluating the outcome of
these changes on its potential future disposal costs at the Barnwell
site; such changes could result in a revision to Utilities' future
disposal plans.
The possibility that exposure to electric and magnetic fields (EMF)
emanating from power lines, household appliances and other electric
sources may result in adverse health effects has been the subject of
increased public, governmental, industry and media attention. A recent
study completed by the National Research Council concluded that the
current body of evidence does not support the notion that exposure to
these fields may result in adverse health effects. Utilities will
continue to monitor the events in this area, including future scientific
research.
Whiting is responsible for certain dismantlement and abandonment
costs related to various off-shore oil and gas properties. Refer to
Note 13(f) of the Notes to Consolidated Financial Statements for a
further discussion.
OTHER MATTERS
Labor Issues Utilities has six collective bargaining agreements,
covering approximately 54% of its workforce. None of the agreements
expires in 1997.
Financial Derivatives The Company has a policy that financial
derivatives are to be used only to mitigate business risks and not for
speculative purposes. Derivatives have been used by the Company on a
very limited basis. At December 31, 1996, the only material financial
derivatives outstanding for the Company were the interest rate swap
agreement and gas futures contracts described in Note 12 of the Notes to
Consolidated Financial Statements.
Inflation The Company does not expect the effects of inflation at
current levels to have a significant effect on its financial position or
results of operations.
Selected Consolidated Quarterly Financial Data (unaudited)
The following unaudited consolidated quarterly data, in the opinion
of the Company, includes adjustments, which are normal and recurring in
nature, necessary for the fair presentation of the results of operations
and financial position. Utilities' results of operations are a
significant portion of Industries' consolidated results. The quarterly
amounts were affected by, among other items, Utilities' rate activities,
seasonal weather conditions, changes in sales and operating expenses and
costs incurred relating to the successful defense of the hostile
takeover attempt mounted by MidAmerican Energy Company. Refer to
Management's Discussion and Analysis of the Results of Operations and
Financial Condition for a discussion of these items. The fourth quarter
of 1996 net income benefited from lower than anticipated costs for a
refueling outage at Utilities' nuclear power plant.
IES INDUSTRIES INC.
Quarter Ended
March 31 June 30 September 30 December 31
(in thousands, except per share amounts)
1996
Operating revenues $ 243,197 $ 210,648 $ 233,907 $ 286,160
Operating income 36,995 26,770 55,701 44,842
Net income 14,095 8,056 20,889 17,867
Earnings per average
common share 0.48 0.27 0.70 0.59
1995
Operating revenues $ 206,392 $ 189,447 $ 238,467 $ 216,704
Operating income 22,115 33,456 63,710 32,431
Net income 6,740 12,508 31,120 13,808
Earnings per average
common share 0.23 0.43 1.06 0.48
IES UTILITIES INC.
Quarter Ended
March 31 June 30 September 30 December 31
(in thousands)
1996
Operating revenues $ 198,768 $ 164,240 $ 190,170 $ 201,801
Operating income 34,204 23,009 53,253 43,259
Net income 14,128 7,230 20,013 22,358
Net income available
for common stock 13,899 7,001 19,784 22,131
1995
Operating revenues $ 172,839 $ 157,671 $ 200,448 $ 178,868
Operating income 19,896 30,444 61,360 30,565
Net income 6,161 11,067 29,842 12,208
Net income available
for common stock 5,932 10,838 29,613 11,981
Item 8. Financial Statements and Supplementary Data
Information required by Item 8. begins on page 44 for Industries
and page 73 for Utilities.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
IES Industries Inc.:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of IES Industries Inc. (an Iowa
corporation) and subsidiary companies as of December 31, 1996 and 1995,
and the related consolidated statements of income, retained earnings and
cash flows for each of the three years in the period ended
December 31, 1996. These financial statements and the financial
statement schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IES
Industries Inc. and subsidiary companies as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule
listed in Item 14(a)2 is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and,
in our opinion, fairly states in all material respects the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 31, 1997
<TABLE>
IES INDUSTRIES INC. CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31
1996 1995 1994
(in thousands, except per share amounts)
<S> <C> <C> <C>
Operating revenues:
Electric $ 574,273 $ 560,471 $ 537,327
Gas 273,979 190,339 165,569
Other 125,660 100,200 82,968
973,912 851,010 785,864
Operating expenses:
Fuel for production 84,579 96,256 85,952
Purchased power 88,350 66,874 68,794
Gas purchased for resale 217,351 141,716 120,795
Other operating expenses 214,759 201,390 176,863
Maintenance 49,001 46,093 52,841
Depreciation and amortization 107,393 97,958 86,378
Taxes other than income taxes 48,171 49,011 46,308
809,604 699,298 637,931
Operating income 164,308 151,712 147,933
Interest expense and other:
Interest expense 54,822 50,727 46,010
Allowance for funds used during construction -2,103 -3,424 -3,910
Preferred dividend requirements of IES Utilities Inc. 914 914 914
Miscellaneous, net 2,333 -3,170 -3,472
55,966 45,047 39,542
Income before income taxes 108,342 106,665 108,391
Federal and state income taxes 47,435 42,489 41,573
Net income $ 60,907 $ 64,176 $ 66,818
Average number of common shares outstanding 29,861 29,202 28,560
Earnings per average common share $ 2.04 $ 2.20 $ 2.34
</TABLE>
<TABLE>
IES INDUSTRIES INC. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<CAPTION>
Year Ended December 31
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 221,077 $ 218,293 $ 211,750
Net income 60,907 64,176 66,818
Cash dividends declared on common stock, at a per
share rate of $2.10 for all years -62,738 -61,392 -60,065
Other 0 0 -210
Balance at end of year $ 219,246 $ 221,077 $ 218,293
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
<TABLE>
IES INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31
ASSETS (in thousands) 1996 1995
<S> <C> <C>
Property, plant and equipment:
Utility -
Plant in service -
Electric $ 2,007,839 $ 1,900,157
Gas 175,472 165,825
Other 126,850 106,396
2,310,161 2,172,378
Less - Accumulated depreciation 1,030,390 950,324
1,279,771 1,222,054
Leased nuclear fuel, net of amortization 34,725 36,935
Construction work in progress 43,719 52,772
1,358,215 1,311,761
Other, net of accumulated depreciation and
amortization of $70,031 and $53,026, respectively 223,805 193,215
1,582,020 1,504,976
Current assets:
Cash and temporary cash investments 8,675 6,942
Accounts receivable -
Customer, less allowance for doubtful accounts
of $1,087 and $1,145, respectively 50,821 37,214
Other 12,040 10,493
Income tax refunds receivable 8,890 982
Production fuel, at average cost 13,323 12,155
Materials and supplies, at average cost 22,842 28,354
Adjustment clause balances 10,752 0
Regulatory assets 26,539 22,791
Oil and gas properties held for resale 0 9,843
Prepayments and other 24,169 23,099
178,051 151,873
Investments:
Nuclear decommissioning trust funds 59,325 47,028
Investment in foreign entities 44,946 24,770
Investment in McLeod, Inc. 29,200 9,200
Cash surrender value of life insurance policies 11,217 9,838
Other 4,903 3,897
149,591 94,733
Other assets:
Regulatory assets 201,129 207,202
Deferred charges and other 14,771 26,807
215,900 234,009
$ 2,125,562 $ 1,985,591
December 31
CAPITALIZATION AND LIABILITIES (in thousands) 1996 1995
Capitalization (See Consolidated Statements of Capitalization):
Common stock $ 407,635 $ 391,269
Retained earnings 219,246 221,077
Total common equity 626,881 612,346
Cumulative preferred stock of IES Utilities Inc. 18,320 18,320
Long-term debt (excluding current portion) 701,100 601,708
1,346,301 1,232,374
Current liabilities:
Short-term borrowings 135,000 101,000
Capital lease obligations 15,125 15,717
Maturities and sinking funds 8,473 15,447
Accounts payable 99,861 80,089
Dividends payable 16,431 16,244
Accrued interest 8,985 8,051
Accrued taxes 43,926 53,983
Accumulated refueling outage provision 1,316 7,690
Adjustment clause balances 0 3,148
Environmental liabilities 5,679 5,634
Other 22,087 21,800
356,883 328,803
Long-term liabilities:
Pension and other benefit obligations 39,643 52,677
Capital lease obligations 19,600 21,218
Environmental liabilities 47,502 43,087
Other 18,488 13,039
125,233 130,021
Deferred credits:
Accumulated deferred income taxes 262,675 257,278
Accumulated deferred investment tax credits 34,470 37,115
297,145 294,393
Commitments and contingencies (Note 13)
$ 2,125,562 $ 1,985,591
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
<TABLE>
IES INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
December 31
1996 1995
(in thousands)
<S> <C> <C>
Common equity:
Common stock - no par value - authorized 48,000,000 shares;
outstanding 30,077,212 and 29,508,415 shares, respectively $ 407,635 $ 391,269
Retained earnings 219,246 221,077
626,881 612,346
Cumulative preferred stock of IES Utilities Inc. 18,320 18,320
Long-term debt:
IES Utilities Inc. -
Collateral Trust Bonds -
7.65% series, due 2000 50,000 50,000
7.25% series, due 2006 60,000 0
6% series, due 2008 50,000 50,000
7% series, due 2023 50,000 50,000
5.5% series, due 2023 19,400 19,400
229,400 169,400
First Mortgage Bonds -
Series J, 6-1/4%, retired in 1996 0 15,000
Series L, 7-7/8%, due 2000 15,000 15,000
Series M, 7-5/8%, due 2002 30,000 30,000
Series Y, 8-5/8%, due 2001 60,000 60,000
Series Z, 7.60%, due 1999 50,000 50,000
6-1/8% series, due 1997 8,000 8,000
9-1/8% series, due 2001 21,000 21,000
7-3/8% series, due 2003 10,000 10,000
7-1/4% series, due 2007 30,000 30,000
224,000 239,000
Pollution control obligations -
5.75%, due serially 1997 to 2003 3,416 3,556
5.95%, due serially 2000 to 2007, secured by First
Mortgage Bonds 10,000 10,000
Variable rate (4.25% - 4.35% at December 31, 1996),
due 2000 to 2010 11,100 11,100
24,516 24,656
Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025 50,000 50,000
Total IES Utilities Inc. 527,916 483,056
IES Diversified Inc. -
Credit facility 172,105 124,245
Other subsidiaries' debt maturing through 2013 11,994 12,307
712,015 619,608
Unamortized debt premium and (discount), net -2,442 -2,453
709,573 617,155
Less - Amount due within one year 8,473 15,447
701,100 601,708
$ 1,346,301 $ 1,232,374
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
<TABLE>
IES INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 60,907 $ 64,176 $ 66,818
Adjustments to reconcile net income to net cash flows
from operating activities -
Depreciation and amortization 107,393 97,958 86,378
Amortization of principal under capital lease obligations 16,491 15,714 16,246
Deferred taxes and investment tax credits 9,189 7,757 4,050
Refueling outage provision -6,374 -7,506 12,536
Amortization of other assets 9,828 7,391 2,228
Other 856 712 387
Other changes in assets and liabilities -
Accounts receivable -22,154 -15,221 6,777
Sale of utility accounts receivable 7,000 4,000 800
Production fuel, materials and supplies 650 4,050 -1,184
Accounts payable 20,934 2,902 21,871
Accrued taxes -17,965 9,434 4,575
Provision for rate refunds -106 106 -8,670
Adjustment clause balances -13,900 4,581 -6,582
Gas in storage -1,154 3,245 1,135
Other 11,764 532 9,340
Net cash flows from operating activities 183,359 199,831 216,705
Cash flows from financing activities:
Dividends declared on common stock -62,738 -61,392 -60,065
Proceeds from issuance of common stock 14,164 15,616 16,426
Purchase of treasury stock -269 0 -6,233
Net change in IES Diversified Inc. credit facility 47,860 43,745 48,500
Proceeds from issuance of other long-term debt 60,000 100,007 11,640
Reductions in other long-term debt -15,454 -100,424 -9,790
Net change in short-term borrowings 34,000 64,000 13,000
Principal payments under capital lease obligations -19,108 -14,463 -16,304
Other -458 -1,438 -46
Net cash flows from financing activities 57,997 45,651 -2,872
Cash flows from investing activities:
Construction and acquisition expenditures -
Utility -142,259 -125,558 -138,829
Other -96,119 -92,541 -67,719
Oil and gas properties held for resale 9,843 -9,843 0
Deferred energy efficiency expenditures -16,857 -18,029 -16,157
Nuclear decommissioning trust funds -6,008 -6,100 -5,532
Proceeds from disposition of assets 8,295 14,271 8,803
Other 3,482 -5,733 3,129
Net cash flows from investing activities -239,623 -243,533 -216,305
Net increase (decrease) in cash and temporary cash investments 1,733 1,949 -2,472
Cash and temporary cash investments at beginning of year 6,942 4,993 7,465
Cash and temporary cash investments at end of year $ 8,675 $ 6,942 $ 4,993
Supplemental cash flow information:
Cash paid during the year for -
Interest $ 53,046 $ 50,877 $ 44,421
Income taxes $ 54,881 $ 26,478 $ 36,097
Noncash investing and financing activities -
Capital lease obligations incurred $ 14,281 $ 2,918 $ 14,297
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
IES INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of Consolidation -
The Consolidated Financial Statements include the accounts of IES
Industries Inc. (Industries) and its consolidated subsidiaries
(collectively the Company). Industries is an investor-owned holding
company whose primary operating company, IES Utilities Inc. (Utilities),
is engaged principally in the generation, transmission, distribution and
sale of electric energy and the purchase, distribution, transportation
and sale of natural gas. The Company's principal markets are located in
the state of Iowa. The Company also has various non-utility
subsidiaries which are primarily engaged in the energy-related,
transportation and real estate development businesses.
All subsidiaries for which Industries owns directly or indirectly
more than 50% of the voting stock are included as consolidated
subsidiaries. Industries' wholly-owned subsidiaries are Utilities and
IES Diversified Inc. (Diversified). All significant intercompany
balances and transactions, other than energy-related transactions
affecting Utilities, have been eliminated from the Consolidated
Financial Statements. Such energy-related transactions are made at
prices that approximate market value and the associated costs are
recoverable from Utilities' customers through the rate making process.
Investments for which the Company has at least a 20% voting
interest are generally accounted for under the equity method of
accounting. These investments are stated at acquisition cost, increased
or decreased for the Company's equity in undistributed net income or
loss, which is included in "Miscellaneous, net" in the Consolidated
Statements of Income. Investments that do not meet the criteria for the
consolidating or equity methods of accounting are accounted for under
the cost method.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect: 1) the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, and 2) the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Certain prior period amounts have been reclassified on a basis
consistent with the 1996 presentation.
(b) Regulation -
Because of its ownership of Utilities, Industries is a holding
company under the Public Utility Holding Company Act of 1935, but claims
an exemption from all provisions thereof except Section 9(a)(2), which
applies to the purchase of stock of other utility companies. Utilities
is subject to regulation by the Iowa Utilities Board (IUB) and the
Federal Energy Regulatory Commission (FERC).
Refer to Note 2 for a discussion of the proposed merger of the
Company.
(c) Regulatory Assets -
Utilities is subject to the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" (SFAS 71). The regulatory assets represent
probable future revenue to Utilities associated with certain incurred
costs as these costs are recovered through the rate making process. At
December 31, regulatory assets as reflected in the Consolidated Balance
Sheets were comprised of the following items:
1996 1995
(in millions)
Deferred income taxes (Note 1(d)) $ 84.7 $ 91.1
Energy efficiency program costs (Note 3(b)) 61.1 49.7
Environmental liabilities (Note 13(f)) 46.3 46.9
Employee pension and benefit costs (Note 8) 22.9 27.5
Other 12.7 14.8
227.7 230.0
Classified as "Current assets - regulatory assets" 26.6 22.8
Classified as "Other assets - regulatory assets" $ 201.1 $ 207.2
Refer to the individual notes referenced above for a further
discussion of certain items reflected in regulatory assets.
If a portion of Utilities' operations become no longer subject to
the provisions of SFAS 71, a write-off of related regulatory assets
would be required, unless some form of transition cost recovery is
established by the appropriate regulatory body. In addition, the
Company would be required to determine any impairment to other assets
and write-down such assets to their fair value. Effective January 1,
1996, the Company adopted SFAS 121 which established accounting
standards for the impairment of long-lived assets. This standard also
requires that regulatory assets that are no longer probable of recovery
through future revenues be charged to earnings. There was no impact on
the Company's financial position or results of operations upon adoption
of SFAS 121.
(d) Income Taxes -
The Company follows the liability method of accounting for deferred
income taxes, which requires the establishment of deferred tax
liabilities and assets, as appropriate, for all temporary differences
between the tax basis of assets and liabilities and the amounts reported
in the financial statements. Deferred taxes are recorded using
currently enacted tax rates.
Except as noted below, income tax expense includes provisions for
deferred taxes to reflect the tax effects of temporary differences
between the time when certain costs are recorded in the accounts and
when they are deducted for tax return purposes. As temporary
differences reverse, the related accumulated deferred income taxes are
reversed to income. Investment tax credits for Utilities have been
deferred and are subsequently credited to income over the average lives
of the related property.
Consistent with rate making practices for Utilities, deferred tax
expense is not recorded for certain temporary differences (primarily
related to utility property, plant and equipment). As the deferred
taxes become payable, over periods exceeding 30 years for some
generating plant differences, they are recovered through rates.
Accordingly, Utilities has recorded deferred tax liabilities and
regulatory assets, as identified in Note 1(c).
(e) Temporary Cash Investments -
Temporary cash investments are stated at cost, which approximates
market value, and are considered cash equivalents for the Consolidated
Statements of Cash Flows. These investments consist of short-term
liquid investments that have maturities of less than 90 days from the
date of acquisition.
(f) Depreciation of Utility Property, Plant and Equipment -
Utilities uses the remaining life method of depreciation for its
nuclear generating facility, the Duane Arnold Energy Center (DAEC), and
the straight-line method for all other utility property. The remaining
life of the DAEC is based on the Nuclear Regulatory Commission (NRC)
license life of 2014. The average rates of depreciation for electric and
gas properties of Utilities, consistent with current rate making
practices, were as follows:
1996 1995 1994
Electric 3.5% 3.4% 3.6%
Gas 3.5% 3.5% 3.8%
The electric and gas depreciation rates declined in 1995 from 1994
because of revised depreciation rates approved in rate proceedings of
Utilities.
(g) Decommissioning of the DAEC -
Pursuant to the most recent electric rate case order, the IUB
allows Utilities to recover $6.0 million annually for the cost to
decommission the DAEC. Decommissioning expense is included in
"Depreciation and amortization" in the Consolidated Statements of Income
and the cumulative amount is included in "Accumulated depreciation" in
the Consolidated Balance Sheets to the extent recovered through rates.
The current recovery figures are based on the following assumptions: 1)
cost to decommission the DAEC of $252.8 million, which is Utilities' 70%
portion in 1993 dollars, based on the NRC minimum formula (which exceeds
the amount in the current site-specific study completed in 1994); 2)
inflation of 4.91% annually through 1997; 3) the prompt dismantling and
removal method of decommissioning, which is assumed to begin in the year
2014; 4) monthly funding of all future collections into external trust
funds and funded on a tax-qualified basis to the extent possible; and 5)
an average after-tax return of 6.82% for all external investments. All
of these assumptions are subject to change in future regulatory
proceedings. At December 31, 1996, Utilities had $59.3 million invested
in external decommissioning trust funds as indicated in the Consolidated
Balance Sheets, and also had an internal decommissioning reserve of
$21.7 million recorded as accumulated depreciation. Earnings on the
external trust funds, which were $2.2 million in 1996, are recorded as
interest income and a corresponding interest expense payable to the
funds is recorded. The earnings accumulate in the external trust fund
balances and in accumulated depreciation on utility plant.
See "Management's Discussion and Analysis of the Results of
Operations and Financial Condition" for a discussion of the Exposure
Draft on Accounting for Liabilities Related to Closure and Removal of
Long-Lived Assets, issued by the Financial Accounting Standards Board
(FASB) in the first quarter of 1996, which deals with, among other
issues, the accounting for decommissioning costs.
(h) Property, Plant and Equipment -
Utility plant (other than acquisition adjustments of $29.4 million,
net of accumulated amortization, recorded at cost) is recorded at
original cost, which includes overhead and administrative costs and an
allowance for funds used during construction (AFC). The AFC, which
represents the cost during the construction period of funds used for
construction purposes, is capitalized by Utilities as a component of the
cost of utility plant. The amount of AFC applicable to debt funds and
to other (equity) funds, a non-cash item, is computed in accordance with
the prescribed FERC formula. The aggregate gross rates used by
Utilities for 1996-1994 were 5.5%, 6.5% and 9.3%, respectively. These
capitalized costs are recovered by Utilities in rates as the cost of the
utility plant is depreciated.
Other property, plant and equipment is recorded at cost. Upon
retirement or sale of other property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any gain or
loss is included in "Miscellaneous, net" in the Consolidated Statements
of Income.
Normal repairs, maintenance and minor items of utility plant and
other property, plant and equipment are expensed. Ordinary retirements
of utility plant, including removal costs less salvage value, are
charged to accumulated depreciation upon removal from utility plant
accounts, and no gain or loss is recognized.
(i) Oil and Gas Properties -
Whiting Petroleum Corporation (Whiting), a wholly-owned subsidiary
under Diversified, uses the full cost method of accounting for its oil
and gas properties. Accordingly, all costs of acquisition, exploration
and development of properties are capitalized. Amortization of proved
oil and gas properties is calculated using the units of production
method. At December 31, 1996, capitalized costs less related
accumulated amortization did not exceed the sum of 1) the present value
of future net revenue from estimated production of proved oil and gas
reserves (calculated using current prices); plus 2) the cost of
properties not being amortized, if any; plus 3) the lower of cost or
estimated fair value of unproved properties included in the costs being
amortized, if any; less 4) income tax effects related to differences in
the book and tax basis of oil and gas properties. The Company had $9.8
million on its Consolidated Balance Sheet at December 31, 1995, relating
to specific oil and gas properties purchased by Whiting in the fourth
quarter of 1995 that it intended to sell during 1996. The Company
subsequently decided not to sell these properties and, accordingly, the
balance at December 31, 1996 is included in "Other property, plant and
equipment" on the Consolidated Balance Sheet.
(j) Operating Revenues -
The Company accrues revenues for services rendered but unbilled at
month-end in order to more properly match revenues with expenses.
(k) Adjustment Clauses -
Utilities' tariffs provide for subsequent adjustments to its
electric and natural gas rates for changes in the cost of fuel and
purchased energy and in the cost of natural gas purchased for resale.
Changes in the under/over collection of these costs are reflected in
"Fuel for production" and "Gas purchased for resale" in the Consolidated
Statements of Income. The cumulative effects are reflected in the
Consolidated Balance Sheets as a current asset or current liability,
pending automatic reflection in future billings to customers.
(l) Accumulated Refueling Outage Provision -
The IUB allows Utilities to collect, as part of its base revenues,
funds to offset other operating and maintenance expenditures incurred
during refueling outages at the DAEC. As these revenues are collected,
an equivalent amount is charged to other operating and maintenance
expenses with a corresponding credit to a reserve. During a refueling
outage, the reserve is reversed to offset the refueling outage
expenditures.
(2) PROPOSED MERGER OF THE COMPANY:
On November 10, 1995, Industries, WPL Holdings, Inc. (WPLH) and
Interstate Power Company (IPC) entered into an Agreement and Plan of
Merger, as amended (Merger Agreement), providing for: a) IPC becoming a
wholly-owned subsidiary of WPLH, and b) the merger of Industries with
and into WPLH, which merger will result in the combination of Industries
and WPLH as a single holding company (collectively, the Proposed
Merger). The new holding company will be named Interstate Energy
Corporation (Interstate Energy) and Industries will cease to exist. The
Proposed Merger, which will be accounted for as a pooling of interests
and is intended to be tax-free for federal income tax purposes, has been
approved by the respective Boards of Directors and shareholders. It is
still subject to approval by several federal and state regulatory
agencies. The companies expect to receive such regulatory approvals by
the end of the third quarter of 1997.
The summary below contains selected unaudited pro forma financial
data for the year ended December 31, 1996. The financial data should be
read in conjunction with the historical consolidated financial
statements and related notes of the Company, WPLH, and IPC and in
conjunction with the unaudited pro forma combined financial statements
and related notes of Interstate Energy included in Item 14. The pro
forma combined earnings per share reflect the issuance of shares
associated with the exchange ratios discussed below.
PRO FORMA
IES COMBINED
INDUSTRIES WPLH IPC (Unaudited)
(in thousands, except per share amounts)
Operating revenues $ 973,912 $ 932,844 $ 326,084 $ 2,232,840
Net income from
continuing operations 60,907 73,205 25,860 159,972
Earnings per share from
continuing operations 2.04 2.38 2.69 2.12
Assets at December 31, 1996 2,125,562 1,900,531 639,200 4,665,293
Long-term obligations at
December 31, 1996 744,298 430,190 188,731 1,363,219
Under the terms of the Merger Agreement, the outstanding shares of
WPLH's common stock will remain unchanged and outstanding as shares of
Interstate Energy. Each outstanding share of the Company's common stock
will be converted to 1.14 shares of Interstate Energy's common stock.
Each share of IPC's common stock will be converted to 1.11 shares of
Interstate Energy's common stock. It is anticipated that Interstate
Energy will retain WPLH's common share dividend payment level as of the
effective time of the merger. On January 22, 1997, the Board of
Directors of WPLH declared a quarterly dividend of $0.50 per share.
This represents an equivalent annual rate of $2.00 per share.
WPLH is a holding company headquartered in Madison, Wisconsin, and
is the parent company of Wisconsin Power and Light Company (WP&L) and
Heartland Development Corporation (HDC). WP&L supplies electric and gas
service to approximately 385,000 and 150,000 customers, respectively, in
south and central Wisconsin. HDC and its principal subsidiaries are
engaged in businesses in three major areas: environmental engineering
and consulting, affordable housing and energy services. IPC, an
operating public utility headquartered in Dubuque, Iowa, supplies
electric and gas service to approximately 165,000 and 49,000 customers,
respectively, in northeast Iowa, northwest Illinois and southern
Minnesota.
Interstate Energy will be the parent company of Utilities, WP&L and
IPC and will be registered under the Public Utility Holding Company Act
of 1935, as amended (1935 Act). The Merger Agreement provides that
these operating utility companies will continue to operate as separate
entities for a minimum of three years beyond the effective date of the
merger. In addition, the non-utility operations of the Company and WPLH
will be combined shortly after the effective date of the merger under
one entity to manage the diversified operations of Interstate Energy.
The corporate headquarters of Interstate Energy will be in Madison.
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 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 Proposed
Merger that the Company, WPLH and IPC divest their gas utility
properties, and possibly certain non-utility ventures of the Company and
WPLH, within a reasonable time after the effective date of the Proposed
Merger.
(3) RATE MATTERS:
(a) Electric Price Announcements -
Utilities and its Iowa-based proposed merger partner, IPC,
announced in 1996 their intentions to hold retail electric prices to
their current levels until at least January 1, 2000. The companies made
the proposal as part of their testimony in the merger-related
application filed with the IUB; the application was later withdrawn and
was resubmitted in January 1997 and the companies included the same
proposal in the resubmittal of the filing. The proposal excludes price
changes due to government-mandated programs, such as energy efficiency
cost recovery, or unforeseen dramatic changes in operations.
Utilities, WP&L and IPC also proposed to freeze their wholesale
electric prices for four years from the effective date of the merger as
part of their merger filing with the FERC. The Company does not expect
the merger-related electric price proposals to have a material adverse
effect on its financial position or results of operations.
(b) Energy Efficiency Cost Recovery -
Current IUB rules mandate Utilities to spend 2% of electric and
1.5% of gas gross retail operating revenues for energy efficiency
programs. Under provisions of the IUB rules, Utilities is currently
recovering the energy efficiency costs incurred through 1993 for such
programs, including its direct expenditures, carrying costs, a return on
its expenditures and a reward. These costs are being recovered over a
four-year period and the recovery began on June 1, 1995.
In December 1996, under provisions of the IUB rules, the Company
filed for recovery of the costs relating to its 1994 and 1995 programs.
Utilities' proposed recovery was for approximately $53 million ($42
million electric and $11 million gas) and was composed of $34 million
for direct expenditures and carrying costs, $10 million for a return on
the expenditures over the recovery period and $9 million for a reward
based on a sharing of the benefits of such programs. The Company
expects to receive the final order in the proceeding in June 1997 with
recovery of the allowed costs to commence in the third quarter of 1997.
Iowa statutory changes enacted in 1996, and applicable to future
programs once the legislation is implemented by the IUB, have
eliminated: 1) the 2% and 1.5% spending requirements described above in
favor of IUB-determined energy savings targets, 2) the delay in
recovery of energy efficiency costs by allowing recovery which is
concurrent with spending and 3) the recovery of a sharing reward. The
IUB commenced a rulemaking in January 1997 to implement the statutory
change and a final order in this proceeding is expected in the second
quarter of 1997. The proposed rules provide that the Company would
begin to recover its 1996 expenditures, and the 1997 expenditures
incurred at such time, during the summer of 1997 over a likely four-year
recovery period. The Company would also begin concurrent recovery of
its prospective expenditures at such time. The implementation of these
changes will gradually eliminate the regulatory asset which exists under
the current rate making mechanism as these costs are recovered.
The Company has the following amounts of energy efficiency costs
included in regulatory assets on its Consolidated Balance Sheets at
December 31 (in thousands):
1996 1995
Costs incurred through 1993 $ 12,834 $ 18,287
Costs incurred in 1994-1995 33,161 31,393
Costs incurred in 1996 15,087 -
$ 61,082 $ 49,680
The above amounts include the direct expenditures and carrying
costs incurred by the Company but do not include any amounts for a
return on its expenditures over the recovery period or for a reward.
(4) LEASES:
Utilities has a capital lease covering its 70% undivided interest
in nuclear fuel purchased for the DAEC. Future purchases of fuel may
also be added to the fuel lease. This lease provides for annual
one-year extensions and Utilities intends to continue exercising such
extensions. Interest costs under the lease are based on commercial
paper costs incurred by the lessor. Utilities is responsible for the
payment of taxes, maintenance, operating cost, risk of loss and
insurance relating to the leased fuel.
The lessor has a $45 million credit agreement with a bank
supporting the nuclear fuel lease. The agreement continues on a year-to-
year basis, unless either party provides at least a three-year notice of
termination; no such notice of termination has been provided by either
party.
Annual nuclear fuel lease expenses include the cost of fuel, based
on the quantity of heat produced for the generation of electric energy,
plus the lessor's interest costs related to fuel in the reactor and
administrative expenses. These expenses (included in "Fuel for
production" in the Consolidated Statements of Income) for 1996-1994 were
$18.2 million, $18.0 million and $17.8 million, respectively.
The Company's operating lease rental expenses for 1996-1994 were
$8.3 million, $10.4 million and $11.1 million, respectively.
The Company's future minimum lease payments by year are as follows:
Capital Operating
Year Lease Leases
(in thousands)
1997 $ 16,808 $ 6,891
1998 9,889 6,565
1999 6,969 4,741
2000 3,004 2,510
2001 861 1,370
Thereafter 307 197
37,838 $ 22,274
Less: Amount representing interest 3,113
Present value of net minimum
capital lease payments $ 34,725
(5) UTILITY ACCOUNTS RECEIVABLE:
Customer accounts receivable, including unbilled revenues, arise
primarily from the sale of electricity and natural gas. At December 31,
1996, Utilities was serving a diversified base of residential,
commercial and industrial customers consisting of approximately 336,000
electric and 176,000 gas customers and did not have any significant
concentrations of credit risk.
Utilities has entered into an agreement, which expires in 1999,
with a financial institution to sell, with limited recourse, an
undivided fractional interest of up to $65 million in its pool of
utility accounts receivable. Expenses related to the sale of
receivables are paid to the financial organization under this contract
and approximated a 5.86% annual rate during 1996. During 1996 and 1995,
the monthly proceeds from the sale of accounts receivable averaged
$62.9 million and $61.9 million, respectively. At December 31, 1996,
$65 million was sold under the agreement.
SFAS 125, issued by the FASB in 1996 and effective for 1997,
provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishment of liabilities. The accounting
for Utilities' sale of accounts receivable agreement is impacted by this
standard. As a result, the agreement is being modified to comply with
the SFAS 125 requirements and thus the accounting and reporting for the
sale of Utilities' receivables will remain unchanged.
(6) INVESTMENTS:
(a) Foreign Entities -
At December 31, 1996, the Company had $44.9 million of investments
in foreign entities on its Consolidated Balance Sheet that included 1)
investments in two New Zealand electric distribution entities, 2) a loan
to a New Zealand company, 3) an investment in a cogeneration facility in
China, and 4) an investment in an international venture capital fund.
The Company accounts for the China investment under the equity method
and the other investments under the cost method. The geographic
concentration of the Company's investments in foreign entities at
December 31, 1996, included investments of approximately $30.9 million
in New Zealand, $13.6 in China and $0.4 million in other countries.
(b) McLeod, Inc. (McLeod) -
At December 31, 1996, the Company had a $20.0 million investment in
Class A common stock of McLeod, 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, long-distance and other telecommunications services.
McLeod completed an Initial Public Offering (IPO) of its Class A
common stock in June 1996 and a secondary offering in November 1996. As
of December 31, 1996, the Company is the beneficial owner of
approximately 10.6 million total shares on a fully diluted basis. Class
B shares are convertible at the option of the Company 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 vote per share. The Company currently accounts for this
investment under the cost method.
The Company has entered into an agreement with McLeod which
provides that for two years commencing on June 10, 1996, the Company
cannot sell or otherwise dispose of any of its securities of McLeod
without the consent of the McLeod Board of Directors. This contractual
sale restriction results 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, the Company currently
carries this investment at cost.
The closing price of the McLeod Class A common stock on December
31, 1996, on the Nasdaq National Market, was $25.50 per share. The
current market value of the shares the Company beneficially owns
(approximately 10.6 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 a tax.
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 become qualified for sale within a one year period; this
will occur on June 10, 1997, which is one year before the contractual
restrictions on sale are lifted. At that time, the adjustment to
reflect the estimated fair value of this investment will be reflected as
an increase in the investment carrying value with the unrealized gain
reported as a net of tax amount in other common shareholders equity
until realized (i.e., sold by the Company).
(7) INCOME TAXES:
The components of federal and state income taxes for the years
ended December 31, were as follows:
1996 1995 1994
(in millions)
Current tax expense $ 38.2 $ 34.7 $ 37.5
Deferred tax expense 11.8 10.5 6.7
Amortization and adjustment
of investment tax credits (2.6) (2.7) (2.6)
$ 47.4 $ 42.5 $ 41.6
The overall effective income tax rates shown below for the years
ended December 31, were computed by dividing total income tax expense by
income before income taxes.
1996 1995 1994
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefits 6.6 5.5 5.9
Effect of rate making on property
related differences 2.8 2.6 1.6
Amortization of investment tax credits (2.4) (2.5) (2.5)
Adjustment of prior period taxes 1.4 (0.4) (1.6)
Other items, net 0.4 (0.4) -
Overall effective income tax rate 43.8% 39.8% 38.4%
The accumulated deferred income taxes as set forth below in the
Consolidated Balance Sheets at December 31, arise from the following
temporary differences:
1996 1995
(in millions)
Property related $ 293 $ 296
Investment tax credit related (24) (26)
Decommissioning related (15) (14)
Other 9 1
$ 263 $ 257
(8) BENEFIT PLANS:
(a) Pension Plans -
The Company has two non-contributory pension plans that,
collectively, cover substantially all of its employees. Plan benefits
are generally based on years of service and compensation during the
employees' latter years of employment. Payments made from the pension
funds to retired employees and beneficiaries during 1996 totaled
$10.7 million.
The Company's policy is to fund the pension cost at an amount that
is at least equal to the minimum funding requirements mandated by the
Employee Retirement Income Security Act (ERISA) and that does not exceed
the maximum tax deductible amount for the year. The Company has an
investment policy governing asset allocation guidelines for its pension
plans. The target ranges are as follows: 1) 37%-43% in large and mid-
sized domestic company equity securities, 2) 7%-13% in foreign equity
securities, 3) 7%-13% in small domestic company equity securities, 4) 0-
5% in real estate, and 5) the remainder in fixed income securities. As
of December 31, 1996, the plan's investment mix was consistent with the
policy guidelines.
Pursuant to the provisions of SFAS 71, certain adjustments to
Utilities' pension provision are necessary to reflect the accounting for
pension costs allowed in its most recent rate cases.
The components of the pension provision for the years ended
December 31, were as follows:
1996 1995 1994
(in thousands)
Service cost $ 5,997 $ 5,215 $ 5,863
Interest cost on projected benefit
obligation 12,711 11,811 11,431
Assumed return on plans' assets (14,976) (12,567) (12,593)
Early retirement benefits 4,713 - -
Net amortization 906 268 841
Pension cost 9,351 4,727 5,542
Adjustment to funding level (9,351) (4,727) (5,431)
Total pension costs paid to the Trustee $ - $ - $ 111
Actual return on plans' assets $ 26,297 $ 36,614 $ (97)
During 1996, the Company incurred a one-time charge of $4.7 million
related to an early retirement program. Of such costs, $0.2 million was
charged to expense and the remaining amount was deferred for future
recovery through the regulatory process.
A reconciliation of the funded status of the plans to the amounts
recognized in the Consolidated Balance Sheets at December 31, is
presented below:
1996 1995
(in thousands)
Fair market value of plans' assets $ 212,394 $ 195,329
Actuarial present value of benefits rendered to date -
Accumulated benefits based on compensation to date,
including vested benefits of $130,334,000 and
$119,996,000, respectively 142,515 131,274
Additional benefits based on estimated future
salary levels 42,940 41,581
Projected benefit obligation 185,455 172,855
Plans' assets in excess of projected
benefit obligation 26,939 22,474
Remaining unrecognized net asset existing at
January 1, 1987, being amortized over 20 years (3,179) (3,511)
Unrecognized prior service cost 15,523 16,905
Unrecognized net gain (54,442) (41,795)
Accrued pension cost recognized in the
Consolidated Balance Sheets $ (15,159) $ (5,927)
Assumed rate of return, all plans 9.00% 8.00%
Weighted average discount rate of projected benefit
obligation, all plans 7.50% 7.50%
Assumed rate of increase in future compensation
levels for the plans 4.75% 4.75%
The assumed rate of return was increased to 9.00% in 1996 based on
actual historical performance of the previously stated investment mix.
The Company also sponsors defined contribution pension plans
(401(k) plans) covering substantially all employees. The Company's
contributions to the plans, which are based on the participants' level
of contribution and cannot exceed 2.8% of the participants' salaries or
wages, were $1.7 million, $1.5 million and $1.8 million in 1996, 1995
and 1994, respectively.
(b) Other Postemployment Benefit Plans -
The Company provides certain benefits to retirees (primarily health
care benefits). The IUB adopted rules stating that postretirement
benefits other than pensions will be included in Utilities' rates
pursuant to the provisions of SFAS 106. The rules permit Utilities to
amortize the transition obligation as of January 1, 1993, over 20 years
and require that all amounts collected are to be funded into an external
trust to pay benefits as they become due. The gas and electric portions
of these costs are being recovered through rates beginning in 1993 and
1995, respectively, including amounts that were deferred by the Company,
pursuant to IUB rules, between when SFAS 106 was adopted and when
recovery through rates began. The amounts deferred are being amortized
as they are collected through rates over a three-year period.
Utilities' unamortized balance of these deferred costs was $1.5 million
at December 31, 1996.
Pursuant to the provisions of SFAS 71, certain adjustments to
Utilities' other postretirement benefit provisions are necessary to
reflect the accounting for other postretirement benefit costs allowed in
its most recent rate cases.
The components of postretirement benefit costs for the years ended
December 31, were as follows:
1996 1995 1994
(in thousands)
Service cost $ 1,888 $ 1,387 $ 1,838
Interest cost on accumulated
postretirement benefit obligation 3,726 3,175 3,275
Assumed return on plans' assets (388) (56) (60)
Net amortization of transition
obligation and other 1,970 1,813 2,037
Amortized/(deferred) postretirement
benefit costs 1,863 2,220 (2,732)
Regulatory recognition of incurred cost 49 1,162 -
Net postretirement benefit costs $ 9,108 $ 9,701 $ 4,358
Actual return on plans' assets $ 945 $ 273 $ 47
A reconciliation of the funded status of the plans to the amounts
recognized in the Consolidated Balance Sheets at December 31, is
presented below:
1996 1995
(in thousands)
Fair market value of plans' assets $ 12,312 $ 6,515
Accumulated postretirement benefit obligation -
Active employees not yet eligible 19,056 22,254
Active employees eligible 4,866 6,282
Retirees 25,992 22,575
Total accumulated postretirement benefit
obligation 49,914 51,111
Accumulated postretirement benefit obligation
in excess of plans' assets (37,602) (44,596)
Unrecognized transition obligation 31,020 34,415
Unrecognized net (gain)/loss (2,505) 349
Unrecognized prior service cost (427) 151
Accrued postretirement benefit cost in the
Consolidated Balance Sheets $ (9,514) $ (9,681)
Assumed rate of return 9.00% 8.00%
Weighted average discount rate of accumulated
postretirement benefit obligation 7.50% 7.50%
Medical trend on paid charges:
Initial trend rate 9.00% 10.00%
Ultimate trend rate 6.50% 6.50%
The assumed rate of return was increased to 9.00% in 1996 based on
actual historical performance of investments of a similar nature. The
assumed medical trend rates are critical assumptions in determining the
service and interest cost and accumulated postretirement benefit
obligation related to postretirement benefit costs. A 1% change in the
medical trend rates, holding all other assumptions constant, would have
changed the 1996 service and interest cost by $1.2 million (21%) and the
accumulated postretirement benefit obligation at December 31, 1996, by
$8.5 million (17%).
(9) COMMON, PREFERRED AND PREFERENCE STOCK:
(a) Common Stock -
The following table presents information relating to the changes in
common stock.
Common Stock
Number of Shares
Outstanding Amount
(in thousands)
Balance, December 31, 1993 28,304,188 $ 360,301
Shares issued in connection with
acquisition of oil and gas companies 139,102 4,027
Purchases of treasury stock (213,300) (6,233)
Stock plan issuances* 547,056 15,395
Balance, December 31, 1994 28,777,046 373,490
Shares issued in connection with
acquisition of oil and gas companies 75,638 1,925
Stock plan issuances* 655,731 15,854
Balance, December 31, 1995 29,508,415 391,269
Purchases of treasury stock (9,448) (269)
Stock plan issuances* 578,245 16,635
Balance, December 31, 1996 30,077,212 $ 407,635
Shares reserved for issuance pursuant to the
Company's stock plans at December 31, 1996* 1,632,869
* Dividend Reinvestment and Stock Purchase Plan,
Employee Stock Purchase Plan, Employee Savings Plan,
Long-Term Incentive Plan, IES Bonus Stock Ownership
Plan and Whiting Stock Option Plans
During 1996, Industries reacquired 9,448 shares of its common stock
on the open market, at an average price of $28.44 per share, which were
subsequently issued to various Company Directors and employees. During
1994, Industries reacquired 213,300 shares of its common stock on the
open market, at an average price of $29.22 per share, which were
subsequently issued to the Dividend Reinvestment Plan and certain of its
benefit plans. At December 31, 1996, no shares remained held as
treasury stock.
(b) Preferred and Preference Stock:
Utilities has 466,406 shares of Cumulative Preferred Stock, $50 par
value, authorized for issuance at December 31, 1996, of which the 6.10%,
4.80% and 4.30% Series had 100,000, 146,406 and 120,000 shares,
respectively, outstanding at both December 31, 1996 and 1995. These
shares are redeemable at the option of Utilities upon 30 days notice at
$51.00, $50.25 and $51.00 per share, respectively, plus accrued
dividends.
There are 5,000,000 shares of Industries Cumulative Preferred Stock
(no par value) and 700,000 shares of Utilities Cumulative Preference
Stock ($100 par value) authorized for issuance, of which none were
outstanding at December 31, 1996.
(10) DEBT:
(a) Long-Term Debt -
In September 1996, Utilities repaid at maturity $15 million of
Series J, 6.25% First Mortgage Bonds and, in a separate transaction,
issued $60 million of Collateral Trust Bonds, 7.25%, due 2006.
Utilities' Indentures and Deeds of Trust securing its First
Mortgage Bonds constitute direct first mortgage liens upon substantially
all tangible public utility property. Utilities' Indenture and Deed of
Trust securing its Collateral Trust Bonds constitutes a second lien on
substantially all tangible public utility property while First Mortgage
Bonds remain outstanding.
Diversified has a variable rate credit facility that extends
through November 20, 1999, with two one-year extensions potentially
available to Diversified. The unborrowed portion of the agreement is
also used to support Diversified's commercial paper program. A combined
maximum of $300 million of borrowings under the agreement and commercial
paper program may be outstanding at any one time. Interest rates and
maturities are set at the time of borrowing for direct borrowings under
the agreement and for issuances of commercial paper. The interest rate
options are based upon quoted market rates and the maturities are less
than one year. At December 31, 1996, $23 million was borrowed under
this facility, bearing an interest rate of 5.75%, maturing in the first
quarter of 1997. Diversified had $149.1 million of commercial paper
outstanding at December 31, 1996, with interest rates ranging from 5.50%
to 7.10% and maturity dates in the first quarter of 1997. Diversified
intends to continue borrowing under the renewal options of the facility
and no conditions exist at December 31, 1996, that would prevent such
borrowings. Accordingly, this debt is classified as long-term in the
Consolidated Balance Sheets. Refer to Note 12(a) for a discussion of an
interest rate swap agreement Diversified entered into relating to this
facility.
Total sinking fund requirements, which Utilities intends to meet by
pledging additional property under the terms of its Indentures and Deeds
of Trust, and debt maturities for 1997-2001 are $9 million, $1 million,
$61 million, $67 million and $255 million, respectively. The Company
intends to refinance the majority of the debt maturities with long-term
securities.
(b) Short-Term Debt -
At December 31, 1996, the Company had bank lines of credit
aggregating $136.1 million. Utilities was using $110 million to support
commercial paper and $11.1 million to support certain pollution control
obligations. Commitment fees are paid to maintain these lines and there
are no conditions which restrict the unused lines of credit. In
addition to the above, Utilities has an uncommitted credit facility with
a financial institution whereby it can borrow up to $40 million. Rates
are set at the time of borrowing and no fees are paid to maintain this
facility. Information regarding short-term debt (all issued by
Utilities) is as follows (dollars in thousands):
1996 1995 1994
As of end of year -
Commercial paper outstanding $ 110,000 $ 101,000 $ 37,000
Notes payable outstanding 25,000 - -
Weighted average interest rate
on commercial paper 5.70% 5.81% 6.13%
Weighted average interest rate
on notes payable 6.28% - -
For the year ended -
Maximum month-end amount
of short-term debt $ 145,000 $ 132,000 $ 37,000
Average daily amount outstanding 120,112 79,159 5,269
Weighted average interest rate 5.52% 5.97% 5.31%
(11) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Current Assets and Current Liabilities - The carrying amount
approximates fair value because of the short maturity of such financial
instruments.
Nuclear Decommissioning Trust Funds - The carrying amount
represents the fair value of these trust funds, as reported by the
trustee. The balance of the "Nuclear decommissioning trust funds" as
shown in the Consolidated Balance Sheets included $9.4 million of
unrealized gains at December 31, 1996, and $5.3 million of unrealized
gains at December 31, 1995, on the investments held in the trust funds.
The accumulated reserve for decommissioning costs was adjusted by a
corresponding amount.
Cumulative Preferred Stock of Utilities - Based upon the market
yield of similar securities and quoted market prices.
Long-Term Debt - Based upon the market yield of similar securities
and quoted market prices.
Investments carried at cost - Fair value of the McLeod investment
is based on quoted market prices at December 31, 1996 (including an
assumed exercise of the Company's options at the December 31, 1996
market price less the exercise price); the 1995 fair value is based on
the carrying value as there was no quoted market price prior to the 1996
IPO. Fair value of the New Zealand investments is based on quoted
market prices; while the market is not of a breadth and scope comparable
to a U.S. market as required for SFAS 115 accounting purposes, the
Company does believe it produces a reasonable representation of the fair
market value of the investment. Fair value of the other investments is
based on quoted market prices where available, and cost when not
available as the Company believes the carrying value approximates fair
value for such investments.
The following table presents the carrying amount and estimated fair
value of certain financial instruments as of December 31 (in millions):
1996 1995
Carrying Fair Carrying Fair
Value Value Value Value
Cumulative preferred stock
of Utilities $ 18 $ 12 $ 18 $ 11
Long-term debt, including
current portion 712 722 620 644
Investments carried at cost -
Investment in McLeod, Inc. (Note 6(b)) 29 267 9 9
Investments in New Zealand (Note 6(a)) 31 45 25 22
Other 3 4 3 5
Since Utilities is subject to regulation, any gains or losses
related to the difference between the carrying amount and the fair value
of its financial instruments may not be realized by the Company's
shareholders.
(12) DERIVATIVE FINANCIAL INSTRUMENTS:
The Company has a policy that financial derivatives are to be used
only to mitigate business risks and not for speculative purposes.
Derivatives have been used by the Company on a very limited basis.
(a) Interest Rate Swap Agreement -
In February 1996, Diversified entered into an interest rate swap
agreement on a variable rate borrowing of $100 million converting this
debt into a fixed-rate borrowing at a rate of 4.7 percent. The swap
period is for two years with an additional one-year option available to
the counterparty and the agreement includes quarterly settlement dates.
Diversified realized approximately $0.7 million in interest expense
savings in 1996 under the agreement. The fair value of this financial
instrument is based on the amounts estimated to terminate or settle the
agreement. At December 31, 1996, the agreement, if settled on that
date, would have required the counterparty to pay the Company
approximately $1.2 million. Such value is based on the difference in
the interest rates as well as the amount of time remaining in the
agreement. The Company has no intention of terminating the agreement at
this time.
(b) Gas Futures Contracts -
Industrial Energy Applications, Inc. (IEA), a wholly-owned
subsidiary under Diversified, has entered into natural gas contracts on
the New York Mercantile Exchange (NYMEX) in the notional amount of $6.4
million at December 31, 1996. The original contract terms range from
one to seventeen months. The contracts are intended to mitigate risk
from fluctuations in the price of natural gas that will be required to
satisfy sales commitments for future deliveries to customers and for
sales from storage. Gains and losses on these hedging contracts are
deferred and recognized in income when the transactions being hedged are
finalized.
(13) COMMITMENTS AND CONTINGENCIES:
(a) Construction Program -
The Company's construction and acquisition program anticipates
expenditures of approximately $225 million for 1997, which includes $147
million at Utilities and $78 million at Diversified. Substantial
commitments have been made in connection with these expenditures.
(b) Purchased Power, Coal and Natural Gas Contracts -
Utilities has entered into purchased power capacity and coal
contracts and its minimum commitments are as follows (dollars and tons
in thousands):
Purchased Power Coal
Dollars Mw's Dollars Tons
1997 $ 11,175 69 - 144 $ 68,323 4,472
1998 3,415 9 - 109 17,250 886
1999 3,283 1 - 101 17,509 874
2000 283 1 15,696 762
2001 283 1 15,913 751
The Company has several purchased power contracts for the annual
six-month summer season and thus the minimum and maximum of the noted
range represent the power purchased during the winter and summer
seasons, respectively. The Company expects to supplement its coal
contracts with spot market purchases to fulfill its future fossil fuel
needs.
Utilities also has various natural gas supply, transportation and
storage contracts outstanding. The gas supply commitments are all index
based and the minimum dekatherm commitments, in thousands, for 1997-2001
are 10,699, 5,074, 5,074, 3,574 and 3,574, respectively. The minimum
transportation and storage commitments for 1997-2001, in thousands, are
$32,080, $31,842, $29,220, $27,050 and $24,008, respectively. The
Company expects to supplement its natural gas supply with spot market
purchases as needed.
(c) Information Technology Services -
The Company entered into an agreement, expiring in 2004, with
Electronic Data Systems Corporation (EDS) for information technology
services. The contract is subject to declining termination fees. The
Company's anticipated operating and capital expenditures under the
agreement for 1997 are estimated to total approximately $12.5 million.
Future costs under the agreement are variable and are dependent upon the
Company's level of usage of technological services from EDS.
(d) Financial Guarantees -
The Company has financial guarantees amounting to $22.9 million
outstanding at December 31, 1996, which are not reflected in the
consolidated financial statements. Such guarantees are generally issued
to support third-party borrowing arrangements and similar transactions.
The Company believes that the likelihood of material cash payments by
the Company under these agreements is remote.
(e) Nuclear Insurance Programs -
Public liability for nuclear accidents is governed by the Price
Anderson Act of 1988 which sets a statutory limit of $8.9 billion for
liability to the public for a single nuclear power plant incident and
requires nuclear power plant operators to provide financial protection
for this amount. As required, Utilities provides this financial
protection for a nuclear incident at the DAEC through a combination of
liability insurance ($200 million) and industry-wide retrospective
payment plans ($8.7 billion). Under the industry-wide plan, each
operating licensed nuclear reactor in the United States is subject to an
assessment in the event of a nuclear incident at any nuclear plant in
the United States. Based on its ownership of the DAEC, Utilities could
be assessed a maximum of $79.3 million per nuclear incident, with a
maximum of $10 million per incident per year (of which Utilities' 70%
ownership portion would be approximately $55 million and $7 million,
respectively) if losses relating to the incident exceeded $200 million.
These limits are subject to adjustments for changes in the number of
participants and inflation in future years.
Utilities is a member of Nuclear Mutual Limited (NML) and Nuclear
Electric Insurance Limited (NEIL). These companies provide $1.9 billion
of insurance coverage on certain property losses at DAEC for property
damage, decontamination and premature decommissioning. The proceeds
from such insurance, however, must first be used for reactor
stabilization and site decontamination before they can be used for plant
repair and premature decommissioning. NEIL also provides separate
coverage for the cost of replacement power during certain outages.
Owners of nuclear generating stations insured through NML and NEIL are
subject to retroactive premium adjustments if losses exceed accumulated
reserve funds. NML and NEIL's accumulated reserve funds are currently
sufficient to more than cover its exposure in the event of a single
incident under the primary and excess property damage or replacement
power coverages. However, Utilities could be assessed annually a
maximum of $3.0 million under NML, $6.4 million for NEIL property and
$0.7 million for NEIL replacement power if losses exceed the accumulated
reserve funds. Utilities is not aware of any losses that it believes
are likely to result in an assessment.
In the unlikely event of a catastrophic loss at DAEC, the amount of
insurance available may not be adequate to cover property damage,
decontamination and premature decommissioning. Uninsured losses, to the
extent not recovered through rates, would be borne by Utilities and
could have a material adverse effect on Utilities' financial position
and results of operations.
(f) Environmental Liabilities -
The Company has recorded environmental liabilities of approximately
$53 million in its Consolidated Balance Sheets at December 31, 1996. The
Company's significant environmental liabilities are discussed below.
Former Manufactured Gas Plant (FMGP) Sites
Utilities has been named as a Potentially Responsible Party (PRP)
by various federal and state environmental agencies for 28 FMGP sites,
but believes it is not responsible for two of these sites based on
extensive reviews of the ownership records and historical information
available for the two sites. Utilities has notified the appropriate
regulatory agency that it believes it does not have any responsibility
as relates to these two sites, but no response has been received from
the agency on this issue. Utilities is also aware of six other sites
that it may have owned or operated in the past and for which, as a
result, it may be designated as a PRP in the future in the event that
environmental concerns arise at these sites. Utilities is working
pursuant to the requirements of the various agencies to investigate,
mitigate, prevent and remediate, where necessary, damage to property,
including damage to natural resources, at and around the sites in order
to protect public health and the environment. Utilities believes it has
completed the remediation of ten sites although it is in the process of
obtaining final approval from the applicable environmental agencies on
this issue for each site. Utilities is in various stages of the
investigation and/or remediation processes for the remaining 16 sites
and estimates the range of additional costs to be incurred for
investigation, remediation and monitoring of the sites to be
approximately $24 million to $54 million.
Utilities has recorded environmental liabilities related to the
FMGP sites of approximately $36 million (including $4.7 million as
current liabilities) at December 31, 1996. These amounts are based upon
Utilities' best current estimate of the amount to be incurred for
investigation, remediation and monitoring costs for those sites where
the investigation process has been or is substantially completed, and
the minimum of the estimated cost range for those sites where the
investigation is in its earlier stages. It is possible that future cost
estimates will be greater than the current estimates as the
investigation process proceeds and as additional facts become known.
Regulatory assets of approximately $36 million, which reflect the future
recovery that is being provided through Utilities' rates, have been
recorded in the Consolidated Balance Sheets. Considering the current
rate treatment allowed by the IUB, management believes that the clean-up
costs incurred by Utilities for these FMGP sites will not have a
material adverse effect on its financial position or results of
operations.
In April 1996, Utilities filed a lawsuit against certain of its
insurance carriers seeking reimbursement for investigation, mitigation,
prevention, remediation and monitoring costs associated with the FMGP
sites. Settlement discussions are proceeding between Utilities and its
insurance carriers regarding the recovery of these FMGP-related costs.
Settlement has been reached with two carriers and an agreement in
principle has been reached with three other carriers thus far. Any
amounts received from insurance carriers will be deferred pending a
determination of the regulatory treatment of such recoveries.
National Energy Policy Act of 1992
The National Energy Policy Act of 1992 requires owners of nuclear
power plants to pay a special assessment into a "Uranium Enrichment
Decontamination and Decommissioning Fund." The assessment is based upon
prior nuclear fuel purchases and, for the DAEC, averages $1.4 million
annually through 2007, of which Utilities' 70% share is $1.0 million.
Utilities is recovering the costs associated with this assessment
through its electric fuel adjustment clauses over the period the costs
are assessed. Utilities' 70% share of the future assessment, $9.9
million payable through 2007, has been recorded as a liability in the
Consolidated Balance Sheets, including $0.9 million included in "Current
liabilities - Environmental liabilities," with a related regulatory
asset for the unrecovered amount.
Oil and Gas Properties Dismantlement and Abandonment Costs
Whiting is responsible for certain dismantlement and abandonment
costs related to various off-shore oil and gas properties, the most
significant of which is located off the coast of California. The
Company estimates the total costs for these properties to be
approximately $16 million and the expenditures are not expected to be
incurred for approximately five years. Whiting accrues these costs as
reserves are extracted and such costs are included in "Depreciation and
amortization" in the Consolidated Statements of Income, resulting in a
liability of $7.0 million at December 31, 1996, in the Consolidated
Balance Sheets.
The Company adopted the provisions of Statement of Position 96-1
(SOP-96-1), Environmental Remediation Liabilities, in 1996. This
statement provides authoritative guidance for recognition, measurement
and disclosure of environmental remediation liabilities in financial
statements. Upon adoption of SOP-96-1, the Company's estimated
liability increased by approximately $2.2 million, primarily resulting
from the recording of Utilities' anticipated FMGP postremediation
monitoring costs, and a related increase to regulatory assets was also
recorded.
(g) Air Quality Issues -
The Clean Air Act Amendments of 1990 (Act) requires emission
reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx) to achieve
reductions of atmospheric chemicals believed to cause acid rain. The
provisions of the Act are being implemented in two phases; the Phase I
requirements have been met and the Phase II requirements affect eleven
other fossil units beginning in the year 2000. Utilities expects to
meet the requirements of Phase II by switching to lower sulfur fuels,
capital expenditures primarily related to fuel burning equipment and
boiler modifications, and the possible purchase of SO2 allowances.
Utilities estimates capital expenditures at approximately $12.9 million,
including $0.6 million in 1997, in order to meet the acid rain
requirements of the Act.
The acid rain program under the Act also governs SO2 allowances.
An allowance is defined as an authorization for an owner to emit one ton
of SO2 into the atmosphere. Currently, Utilities receives a sufficient
number of allowances annually to offset its emissions of SO2 from its
Phase I units. It is anticipated that in the year 2000, Utilities may
have an insufficient number of allowances annually to offset its
estimated emissions and may have to purchase additional allowances, or
make modifications to the plants or limit operations to reduce
emissions. Utilities is reviewing its options to ensure that it will
have sufficient allowances to offset its emissions in the future.
Utilities believes that the potential cost of ensuring sufficient
allowances will not have a material adverse effect on its financial
position or results of operations.
The Act and other federal laws also require the United States
Environmental Protection Agency (EPA) to study and regulate, if
necessary, additional issues that potentially affect the electric
utility industry, including emissions relating to NOx, ozone transport,
mercury and particulate control; toxic release inventories and
modifications to the PCB rules. In December 1996, the EPA issued
proposed rules that would tighten the National Ambient Air Quality
Standards (NAAQS) for ozone and particulate matter emissions. Also in
the fourth quarter of 1996, the EPA announced that it would issue a
notice in March 1997 requiring the 37 states in the Ozone Transport
Assessment Group (OTAG), which includes Iowa, to implement further
controls on NOx. These proposals could result in the Company having to
incur additional capital expenditures to further reduce its emissions of
NOx, ozone and particulate matter. Currently, the impacts of these
potential regulations are too speculative to quantify.
In 1995, the EPA published the Sulfur Dioxide Network Design Review
for Cedar Rapids, Iowa, which, based on the EPA's assumptions and worst-
case modeling method suggests that the Cedar Rapids area could be
classified as "nonattainment" for the NAAQS established for SO2. The
worst-case modeling study suggested that two of Utilities' generating
facilities contribute to the modeled exceedences and recommended that
additional monitors be located near Utilities' sources to assess actual
ambient air quality. As a result of these exceedences, Utilities is
entering into a Consent Agreement with the Iowa Department of Natural
Resources. The intent of this agreement, as currently proposed, is to
develop a three-year plan for a process to explore and implement options
to modify one of Utilities fossil generating facilities to reduce SO2
emissions. In addition, Utilities is proposing to resolve the remainder
of EPA's nonattainment concerns by either modifying the current stack or
installing a new stack at the other generating facility contributing to
the modeled exceedences at a potential aggregate capital cost of up to
$4.5 million over the next two years.
Pursuant to a routine internal review of operations, Utilities
determined that certain changes undertaken during the previous three
years at one of its power plants may have required a federal Prevention
of Significant Deterioration (PSD) permit. Utilities initiated
discussions with its regulators on the matter and is preparing the PSD
permit application for filing in the first quarter of 1997. Utilities
may be required to accept operational limits or to install additional
controls and may be subject to liability for not having obtained the
permit previously; however, Utilities believes that any likely actions
resulting from this matter will not have a material adverse effect on
its financial position or results of operations.
(h) Spent Nuclear Fuel -
The Nuclear Waste Policy Act of 1982 assigned responsibility to the
U.S. Department of Energy (DOE) to establish a facility for the ultimate
disposition of high level waste and spent nuclear fuel and authorized
the DOE to enter into contracts with parties for the disposal of such
material beginning in January 1998. Utilities entered into such a
contract and has made the agreed payments to the Nuclear Waste Fund
(NWF) held by the U.S. Treasury. The DOE, however, has experienced
significant delays in its efforts and material acceptance is now
expected to occur no earlier than 2010 with the possibility of further
delay being likely. Utilities has been storing spent nuclear fuel on-
site since plant operations began in 1974 and has current on-site
capability to store spent fuel until 2001. Utilities is aggressively
reviewing options for expanding on-site storage. Utilities has been
formally notified by the DOE that they anticipate being unable to begin
acceptance of spent nuclear fuel by January 31, 1998. Utilities is
evaluating courses of action to protect the interests of its customers
and its rights under the DOE contract. Utilities is also evaluating
legislation proposed to the Congress addressing this issue.
(i) Legal Proceedings -
The Company is involved in other legal and administrative
proceedings before various courts and agencies with respect to matters
arising in the ordinary course of business. Although unable to predict
the outcome of these matters, the Company believes that appropriate
liabilities have been established and final disposition of these actions
will not have a material adverse effect on its financial position or
results of operations.
(14) JOINTLY-OWNED ELECTRIC UTILITY PLANT:
Under joint ownership agreements with other Iowa utilities,
Utilities has undivided ownership interests in jointly-owned electric
generating stations and related transmission facilities. Each of the
respective owners is responsible for the financing of its portion of the
construction costs. Kilowatt-hour generation and operating expenses are
divided on the same basis as ownership with each owner reflecting its
respective costs in its Statements of Income. Information relative to
Utilities' ownership interest in these facilities at December 31, 1996
is as follows:
Ottumwa Neal
DAEC Unit 1 Unit 3
(Nuclear) (Coal) (Coal)
($ in millions)
Utility plant in service $ 501.0 $ 190.2 $ 60.7
Accumulated depreciation $ 217.2 $ 91.0 $ 28.8
Construction work in progress $ 1.2 $ 0.1 $ 0.1
Plant capacity - Mw 520 716 515
Percent ownership 70% 48% 28%
In-service date 1974 1981 1975
(15) SEGMENTS OF BUSINESS:
The principal business segments of Industries are the generation,
transmission, distribution and sale of electric energy by Utilities and
the purchase, distribution, transportation and sale of natural gas by
Utilities and IEA. Certain financial information relating to
Industries' significant segments of business is presented below:
Year Ended December 31
1996 1995 1994
(in thousands)
Operating results:
Revenues -
Electric $ 574,273 $ 560,471 $ 537,327
Gas 273,979 190,339 165,569
Operating income -
Electric 132,278 130,390 125,487
Gas 14,978 11,056 8,762
Other information:
Depreciation and amortization -
Electric 77,578 72,487 68,640
Gas 6,200 6,176 6,214
Construction and acquisition expenditures - *
Electric 115,810 108,356 112,773
Gas 20,980 9,368 10,066
Assets -
Identifiable assets -
Electric 1,438,370 1,395,666 1,347,024
Gas 228,780 199,050 192,397
1,667,150 1,594,716 1,539,421
Other corporate assets 458,412 390,875 309,672
Total consolidated assets $ 2,125,562 $ 1,985,591 $ 1,849,093
* Excludes intercompany acquisitions which are eliminated for consolidated
financial statement purposes.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
IES Utilities Inc.:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of IES Utilities Inc. (an Iowa corporation)
and subsidiary companies as of December 31, 1996 and 1995, and the
related consolidated statements of income, retained earnings and cash
flows for each of the three years in the period ended December 31, 1996.
These financial statements and the financial statement schedule referred
to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IES
Utilities Inc. and subsidiary companies as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule
listed in Item 14(a)2 is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and,
in our opinion, fairly states in all material respects the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 31, 1997
<TABLE>
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Operating revenues:
Electric $ 574,273 $ 560,471 $ 537,327
Gas 160,864 137,292 139,033
Other 19,842 12,063 9,006
754,979 709,826 685,366
Operating expenses:
Fuel for production 84,579 96,256 85,952
Purchased power 88,350 66,874 68,794
Gas purchased for resale 103,877 91,198 95,340
Other operating expenses 150,001 145,250 132,281
Maintenance 45,869 43,586 49,542
Depreciation and amortization 84,975 79,384 75,316
Taxes other than income taxes 43,603 45,013 42,550
601,254 567,561 549,775
Operating income 153,725 142,265 135,591
Interest expense and other:
Interest expense 43,714 44,460 41,572
Allowance for funds used during construction -2,103 -3,424 -3,910
Miscellaneous, net 5,293 856 -1,247
46,904 41,892 36,415
Income before income taxes 106,821 100,373 99,176
Federal and state income taxes 43,092 41,095 37,966
Net income 63,729 59,278 61,210
Preferred dividend requirements 914 914 914
Net income available for common stock $ 62,815 $ 58,364 $ 60,296
</TABLE>
<TABLE>
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<CAPTION>
Year Ended December 31
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 212,522 $ 197,158 $ 188,862
Net income 63,729 59,278 61,210
Cash dividends declared -
Common stock -44,000 -43,000 -52,000
Preferred stock, at stated rates -914 -914 -914
Balance at end of year $ 231,337 $ 212,522 $ 197,158
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
<TABLE>
IES UTILITIES INC. CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31
ASSETS (in thousands) 1996 1995
<S> <C> <C>
Property, plant and equipment:
Utility -
Plant in service -
Electric $ 2,007,839 $ 1,900,157
Gas 175,472 165,825
Other 126,850 106,396
2,310,161 2,172,378
Less - Accumulated depreciation 1,030,390 950,324
1,279,771 1,222,054
Leased nuclear fuel, net of amortization 34,725 36,935
Construction work in progress 43,719 52,772
1,358,215 1,311,761
Other, net of accumulated depreciation and amortization
of $1,438 and $1,166, respectively 5,872 5,477
1,364,087 1,317,238
Current assets:
Cash and temporary cash investments 11,608 2,734
Accounts receivable -
Customer, less allowance for doubtful accounts
of $546 and $676, respectively 22,461 18,619
Other 11,270 8,912
Income tax refunds receivable 2,664 846
Production fuel, at average cost 13,323 12,155
Materials and supplies, at average cost 21,716 27,229
Adjustment clause balances 10,752 0
Regulatory assets 26,539 22,791
Prepayments and other 18,705 18,556
139,038 111,842
Investments:
Nuclear decommissioning trust funds 59,325 47,028
Cash surrender value of life insurance policies 4,281 3,582
Other 313 475
63,919 51,085
Other assets:
Regulatory assets 201,129 207,202
Deferred charges and other 10,437 21,268
211,566 228,470
$ 1,778,610 $ 1,708,635
December 31
CAPITALIZATION AND LIABILITIES (in thousands) 1996 1995
Capitalization (See Consolidated Statements of Capitalization):
Common stock $ 33,427 $ 33,427
Paid-in surplus 279,042 279,042
Retained earnings 231,337 212,522
Total common equity 543,806 524,991
Cumulative preferred stock 18,320 18,320
Long-term debt (excluding current portion) 517,334 465,463
1,079,460 1,008,774
Current liabilities:
Notes payable to associated companies 0 8,888
Other short-term borrowings 135,000 101,000
Capital lease obligations 15,125 15,717
Maturities and sinking funds 8,140 15,140
Accounts payable 76,287 64,564
Accrued interest 8,839 8,038
Accrued taxes 40,953 50,369
Accumulated refueling outage provision 1,316 7,690
Adjustment clause balances 0 3,148
Environmental liabilities 5,517 5,521
Other 17,114 17,300
308,291 297,375
Long-term liabilities:
Pension and other benefit obligations 25,826 41,866
Capital lease obligations 19,600 21,218
Environmental liabilities 40,299 40,905
Other 14,030 8,719
99,755 112,708
Deferred credits:
Accumulated deferred income taxes 256,634 252,663
Accumulated deferred investment tax credits 34,470 37,115
291,104 289,778
Commitments and contingencies (Note 13)
$ 1,778,610 $ 1,708,635
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
<TABLE>
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
December 31
1996 1995
(in thousands)
<S> <C> <C>
Common equity:
Common stock - par value $2.50 per share - authorized
24,000,000 shares; outstanding 13,370,788 shares $ 33,427 $ 33,427
Paid-in surplus 279,042 279,042
Retained earnings 231,337 212,522
543,806 524,991
Cumulative preferred stock 18,320 18,320
Long-term debt:
Collateral Trust Bonds -
7.65% series, due 2000 50,000 50,000
7.25% series, due 2006 60,000 0
6% series, due 2008 50,000 50,000
7% series, due 2023 50,000 50,000
5.5% series, due 2023 19,400 19,400
229,400 169,400
First Mortgage Bonds -
Series J, 6-1/4%, retired in 1996 0 15,000
Series L, 7-7/8%, due 2000 15,000 15,000
Series M, 7-5/8%, due 2002 30,000 30,000
Series Y, 8-5/8%, due 2001 60,000 60,000
Series Z, 7.60%, due 1999 50,000 50,000
6-1/8% series, due 1997 8,000 8,000
9-1/8% series, due 2001 21,000 21,000
7-3/8% series, due 2003 10,000 10,000
7-1/4% series, due 2007 30,000 30,000
224,000 239,000
Pollution control obligations -
5.75%, due serially 1997 to 2003 3,416 3,556
5.95%, due serially 2000 to 2007, secured by
First Mortgage Bonds 10,000 10,000
Variable rate (4.25%-4.35% at December 31, 1996),
due 2000 to 2010 11,100 11,100
24,516 24,656
Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025 50,000 50,000
Unamortized debt premium and (discount), net -2,442 -2,453
525,474 480,603
Less - Amount due within one year 8,140 15,140
517,334 465,463
$ 1,079,460 $ 1,008,774
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
<TABLE>
IES UTILITIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 63,729 $ 59,278 $ 61,210
Adjustments to reconcile net income to net cash
flows from operating activities -
Depreciation and amortization 84,975 79,384 75,316
Amortization of principal under capital
lease obligations 16,491 15,714 16,246
Deferred taxes and investment tax credits 7,763 7,628 -410
Refueling outage provision -6,374 -7,506 12,536
Amortization of other assets 9,776 7,391 2,228
Other 279 184 -1,232
Other changes in assets and liabilities -
Accounts receivable -13,200 -9,717 10,395
Sale of utility accounts receivable 7,000 4,000 800
Production fuel, materials and supplies 651 1,658 404
Accounts payable 12,885 -4,395 20,444
Accrued taxes -11,234 5,785 7,057
Provision for rate refunds -106 106 -8,670
Adjustment clause balances -13,900 4,581 -6,582
Gas in storage -551 2,429 1,919
Other 7,322 -1,085 4,171
Net cash flows from operating activities 165,506 165,435 195,832
Cash flows from financing activities:
Dividends declared on common stock -44,000 -43,000 -52,000
Dividends declared on preferred stock -914 -914 -914
Proceeds from issuance of long-term debt 60,000 100,000 0
Reductions in long-term debt -15,140 -100,140 -224
Net change in short-term borrowings 25,112 54,393 31,495
Principal payments under capital lease obligations -19,108 -14,463 -16,304
Other -420 -1,831 -5,144
Net cash flows from financing activities 5,530 -5,955 -43,091
Cash flows from investing activities:
Construction and acquisition expenditures -
Utility -142,381 -126,104 -146,240
Other -1,267 -3,340 -1,863
Deferred energy efficiency expenditures -16,857 -18,029 -16,157
Nuclear decommissioning trust funds -6,008 -6,100 -5,532
Other 4,351 -5,308 873
Net cash flows from investing activities -162,162 -158,881 -168,919
Net increase (decrease) in cash and
temporary cash investments 8,874 599 -16,178
Cash and temporary cash investments at
beginning of year 2,734 2,135 18,313
Cash and temporary cash investments at
end of year $ 11,608 $ 2,734 $ 2,135
Supplemental cash flow information:
Cash paid during the year for -
Interest $ 42,072 $ 44,569 $ 40,005
Income taxes $ 45,383 $ 29,083 $ 34,479
Noncash investing and financing activities -
Capital lease obligations incurred $ 14,281 $ 2,918 $ 14,297
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
IES UTILITIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Except as modified below, the IES Industries Inc. (Industries)
Notes to Consolidated Financial Statements are incorporated
by reference insofar as they relate to IES Utilities Inc.
(Utilities). Industries' Notes 1(i), 6, 9(a) and 12 do
not relate to Utilities and, therefore, are not incorporated by
reference.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of Consolidation -
Utilities is a wholly-owned subsidiary of
Industries. The Consolidated Financial Statements
include the accounts of Utilities and its consolidated subsidiaries.
Utilities is engaged principally in the generation, transmission,
distribution and sale of electric energy, the purchase, distribution,
transportation and sale of natural gas and to provide steam for
industrial and heating purposes. Utilities' markets are located in the
state of Iowa.
All subsidiaries for which Utilities owns directly or indirectly
more than 50% of the voting stock are included as consolidated
subsidiaries. Utilities' only wholly-owned subsidiary at December 31,
1996 was IES Ventures Inc. (Ventures). Ventures' wholly-owned
subsidiary at December 31, 1996 was IES Midland Development Inc. All
significant intercompany balances and transactions have been eliminated
from the Consolidated Financial Statements.
(4) LEASES:
Utilities' operating lease rental expenses for 1996-1994 were $7.1
million, $9.0 million and $9.8 million, respectively.
Utilities' future minimum lease payments by year are as follows:
Capital Operating
Year Lease Leases
(in thousands)
1997 $ 16,808 $ 5,601
1998 9,889 5,374
1999 6,969 3,658
2000 3,004 1,654
2001 861 1,329
Thereafter 307 19
37,838 $ 17,635
Less: Amount representing interest 3,113
Present value of net minimum
capital lease payments $ 34,725
(7) INCOME TAXES:
The components of federal and state income taxes for the years
ended December 31, were as follows:
1996 1995 1994
(in millions)
Current tax expense $ 35.3 $ 33.5 $ 38.4
Deferred tax expense 10.4 10.3 2.2
Amortization and adjustment
of investment tax credits (2.6) (2.7) (2.6)
$ 43.1 $ 41.1 $ 38.0
Utilities' overall effective income tax rates shown below for the
years ended December 31, were computed by dividing total income tax
expense by income before income taxes.
1996 1995 1994
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefits 6.9 5.9 6.1
Effect of rate making on property
related differences 2.9 2.8 1.7
Amortization of investment tax credits (2.5) (2.7) (2.7)
Adjustment of prior period taxes (3.3) (0.1) (1.9)
Other items, net 1.3 - 0.1
Overall effective income tax rate 40.3% 40.9% 38.3%
Utilities' accumulated deferred income taxes as set forth below in
the Consolidated Balance Sheets at December 31, arise from the following
temporary differences:
1996 1995
(in millions)
Property related $ 275 $ 282
Investment tax credit related (24) (26)
Decommissioning related (15) (14)
Other 21 11
$ 257 $ 253
(8) BENEFIT PLANS:
(a) Pension Plans -
Payments made from the pension funds to retired employees and
beneficiaries during 1996 totaled $10.4 million for Utilities.
The components of the pension provision for the years ended
December 31, were as follows:
1996 1995 1994
(in thousands)
Service cost $ 5,439 $ 4,721 $ 5,786
Interest cost on projected benefit
obligation 12,435 11,577 11,265
Assumed return on plans' assets (14,653) (12,340) (12,426)
Early retirement benefits 4,498 - -
Net amortization 885 260 826
Pension cost 8,604 4,218 5,451
Adjustment to funding level (8,604) (4,218) (5,340)
Total pension costs paid to the Trustee $ - $ - $ 111
Actual return on plans' assets $ 25,727 $ 35,947 $ (101)
During 1996, Utilities incurred a one-time charge of $4.5 million
related to an early retirement program. These costs were deferred for
future recovery through the regulatory process.
A reconciliation of the funded status of the plans to the amounts
recognized in Utilities' Consolidated Balance Sheets at December 31, is
presented below:
1996 1995
(in thousands)
Fair market value of plans' assets $ 205,699 $ 191,782
Actuarial present value of benefits
rendered to date -
Accumulated benefits based on compensation
to date, including vested benefits of
$125,983,000 and $117,624,000, respectively 137,772 128,674
Additional benefits based on estimated future
salary levels 41,589 40,790
Projected benefit obligation 179,361 169,464
Plans' assets in excess of projected benefit
obligation 26,338 22,318
Remaining unrecognized net asset existing at
January 1, 1987, being amortized over 20 years (3,124) (3,451)
Unrecognized prior service cost 15,195 16,564
Unrecognized net gain (50,818) (40,707)
Accrued pension cost recognized in the
Consolidated Balance Sheets $ (12,409) $ (5,276)
Assumed rate of return, all plans 9.00% 8.00%
Weighted average discount rate of projected
benefit obligation, all plans 7.50% 7.50%
Assumed rate of increase in future compensation
levels for the plans 4.75% 4.75%
Utilities' employees also participate in defined contribution
pension plans (401(k) plans) covering substantially all employees.
Utilities' contributions to the plans, which are based on the
participants' level of contribution and cannot exceed 2.8% of the
participants' salaries or wages, were $1.5 million, $1.4 million and
$1.6 million in 1996, 1995 and 1994, respectively.
(b) Other Postemployment Benefit Plans -
The components of postretirement benefit costs for the years ended
December 31, were as follows:
1996 1995 1994
(in thousands)
Service cost $ 1,714 $ 1,227 $ 1,785
Interest cost on accumulated postretirement
benefit obligation 3,577 3,049 3,175
Assumed return on plans' assets (388) (56) (60)
Net amortization of transition obligation
and other 1,987 1,822 2,039
Amortized/(deferred) postretirement
benefit costs 1,863 2,220 (2,732)
Costs billed to affiliate - (265) -
Regulatory recognition of incurred cost 49 1,162 -
Net postretirement benefit costs $ 8,802 $ 9,159 $ 4,207
Actual return on plans' assets $ 945 $ 273 $ 47
A reconciliation of the funded status of the plans to the amounts
recognized in Utilities' Consolidated Balance Sheets at December 31, is
presented below:
1996 1995
(in thousands)
Fair market value of plans' assets $ 12,312 $ 6,515
Accumulated postretirement benefit obligation -
Active employees not yet eligible 17,990 20,936
Active employees eligible 4,675 6,148
Retirees 25,300 21,846
Total accumulated postretirement benefit
obligation 47,965 48,930
Accumulated postretirement benefit obligation
in excess of plans' assets (35,653) (42,415)
Unrecognized transition obligation 31,020 34,415
Unrecognized net (gain)/loss (2,571) 268
Unrecognized prior service cost - 151
Accrued postretirement benefit cost in the
Consolidated Balance Sheets $ (7,204) $ (7,581)
Assumed rate of return 9.00% 8.00%
Weighted average discount rate of accumulated
postretirement benefit obligation 7.50% 7.50%
Medical trend on paid charges:
Initial trend rate 9.00% 10.00%
Ultimate trend rate 6.50% 6.50%
The assumed medical trend rates are critical assumptions in
determining the service and interest cost and accumulated postretirement
benefit obligation related to postretirement benefit costs. A 1% change
in the medical trend rates, holding all other assumptions constant,
would have changed the 1996 service and interest cost for Utilities by
$1.1 million (21%) and the accumulated postretirement benefit obligation
for Utilities at December 31, 1996, by $8.1 million (17%).
(11) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
Long-Term Debt - The estimated fair value is based upon the market
yield of similar securities and quoted market prices. At December 31,
1996, and December 31, 1995, the carrying amount of Utilities' long-term
debt was $528 million and $483 million, compared to estimated fair
values of $538 million and $507 million, respectively.
(13) COMMITMENTS AND CONTINGENCIES:
(c) Information Technology Services -
Industries entered into an agreement, expiring in 2004, with
Electronic Data Systems Corporation (EDS) for information technology
services. The contract is subject to declining termination fees.
Utilities' anticipated operating and capital expenditures under the
agreement for 1997 are estimated to total approximately $12.1 million.
Future costs under the agreement are variable and are dependent upon
Utilities' level of usage of technological services from EDS.
(d) Financial Guarantees -
Utilities' has financial guarantees amounting to $22.6 million
outstanding at December 31, 1996, which are not reflected in Utilities'
consolidated financial statements. Such guarantees are generally issued
to support third-party borrowing arrangements and similar transactions.
Utilities believes that the likelihood of material cash payments by
Utilities under these agreements is remote.
(15) SEGMENTS OF BUSINESS:
The principal business segments of Utilities are the generation,
transmission, distribution and sale of electric energy and the purchase,
distribution, transportation and sale of natural gas. Certain financial
information relating to Utilities' significant segments of business is
presented below:
Year Ended December 31
1996 1995 1994
(in thousands)
Operating results:
Revenues -
Electric $ 574,273 $ 560,471 $ 537,327
Gas 160,864 137,292 139,033
Operating income -
Electric 132,278 130,390 125,487
Gas 17,088 9,208 8,135
Other information:
Depreciation and amortization -
Electric 77,578 72,487 68,640
Gas 6,200 6,176 6,214
Construction and acquisition expenditures -
Electric 115,929 108,902 120,180
Gas 12,981 9,368 10,066
Assets -
Identifiable assets -
Electric 1,438,370 1,395,666 1,347,024
Gas 205,680 192,045 186,911
1,644,050 1,587,711 1,533,935
Other corporate assets 134,560 120,924 111,433
Total consolidated assets $ 1,778,610 $ 1,708,635 $ 1,645,368
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons
of the Registrant
Information regarding the identification of directors of IES
Industries Inc. and IES Utilities Inc. and compliance with Section 16(a)
reporting requirements of the Securities and Exchange Commission is
included in Industries' definitive proxy statement (Proxy Statement)
prepared for the 1997 annual meeting of stockholders, which will be
filed within 120 days of December 31, 1996, (Proxy Statement under the
captions "Proposal - Nomination and Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance" and is incorporated
herein by reference. The executive officers of the registrants as of
December 31, 1996 are as follows: (Figures following the names
represent the officer's age as of December 31, 1996).
Executive Officers of IES Industries Inc.
Lee Liu, 63, Chairman of the Board & Chief Executive Officer.
First elected officer in 1975.
Larry D. Root, 60, President & Chief Operating Officer. Re-elected
officer in 1996. (i)
James E. Hoffman, 43, Executive Vice President. First elected
officer in 1996. (ii)
Thomas M. Walker, 49, Executive Vice President & Chief Financial
Officer. First elected officer in 1996. (iii)
Peter W. Dietrich, 57, Vice President, Corporate Development.
First elected officer in 1988.
Dean E. Ekstrom, 49, Vice President, Administration. First elected
officer in 1991.
Stephen W. Southwick, 50, Vice President, General Counsel &
Secretary. First elected officer in 1982.
John E. Ebright, 53, Controller & Chief Accounting Officer. First
elected officer in 1996. (iv)
Dennis B. Vass, 47, Treasurer. First elected officer in 1995.
Executive Officers of IES Utilities Inc.
Lee Liu, 63, Chairman of the Board & Chief Executive Officer.
First elected officer in 1975.
Larry D. Root, 60, President & Chief Operating Officer. Re-elected
officer in 1996. (i)
James E. Hoffman, 43, Executive Vice President, Customer Service &
Energy Delivery. First elected officer in 1995. (ii)
Thomas M. Walker, 49, Executive Vice President & Chief Financial
Officer. First elected officer in 1996. (iii)
John F. Franz, Jr., 57, Vice President, Nuclear. First elected
officer in 1992.
Harold W. Rehrauer, 59, Vice President, Field Operations. First
elected officer in 1987.
Stephen W. Southwick, 50, Vice President, General Counsel &
Secretary. First elected officer in 1982.
Philip D. Ward, 56, Vice President, Generation. First elected
officer in 1990.
John E. Ebright, 53, Controller & Chief Accounting Officer. First
elected officer in 1996. (iv)
Dennis B. Vass, 47, Treasurer. First elected officer in 1995.
Officers are elected annually by the Board of Directors and each of
the officers named above, except Larry D. Root, James E. Hoffman, Thomas
M. Walker and John E. Ebright, has been employed by Industries or one of
its significant subsidiaries as an officer or in other responsible
positions at such companies for at least five years. There are no
family relationships among these officers or among the officers and
directors. There are no arrangements or understandings with respect to
election of any person as an officer.
(i) Larry D. Root, who retired in 1995, was re-elected as
President & Chief Operating Officer of both IES Industries
Inc. and IES Utilities Inc. effective November 6, 1996. Mr.
Root was first elected as an officer in 1979.
(ii) James E. Hoffman was elected Executive Vice President of
IES Industries Inc. effective November 6, 1996. Prior to his
appointment as Executive Vice President, Customer Service
& Energy Delivery of IES Utilities Inc. in 1995, he
was employed by MCI Communications as Chief Information
Officer from 1990 to 1995.
(iii) Thomas M. Walker was elected Executive Vice
President & Chief Financial Officer of both IES Industries
Inc. and IES Utilities Inc. effective December 16, 1996.
Prior to joining the Company in December 1996, he was employed
from 1990 - 1995 by Information Resources, Inc. as Executive
Vice President, Chief Financial and Administrative Officer and
Member of the Board of Directors.
(iv) John E. Ebright was elected Controller & Chief Accounting
Officer of both IES Industries Inc. and IES Utilities Inc.
effective July 8, 1996. Prior to joining the Company in July
1996, he was employed by MidCon Corp., a subsidiary of
Occidental Petroleum Corporation, as Vice President and
Controller from 1987 to 1996.
Item 11. Executive Compensation
Information regarding executive compensation and transactions is
included in the Proxy Statement under the captions "Compensation of
Directors", "Summary Compensation Table" and "IES Industries Plans" and
is incorporated herein by reference, except for the "Report of the
Compensation Committee on Executive Compensation" and the "Performance
Graph", which are not incorporated herein by reference. The Proxy
Statement will be filed with the Securities and Exchange Commission
within 120 days of December 31, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial
owners and management is included in the Proxy Statement under the
captions "Security Ownership of Beneficial Owners" and "Security
Ownership of Management" and is incorporated herein by reference. The
Proxy Statement will be filed with the Securities and Exchange
Commission within 120 days of December 31, 1996.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related
transactions is included in the Proxy Statement under the captions
"Other Transactions" and "Compensation of Directors" and is incorporated
herein by reference. The Proxy Statement will be filed with the
Securities and Exchange Commission within 120 days of December 31, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) 1. Financial Statements (Included in Part II of this report) -
Page No.
IES IES
Description Industries Utilities
Inc. Inc.
Report of Independent Public Accountants 44 73
Consolidated Statements of Income
for the years ended December 31, 1996, 1995 and 1994 45 74
Consolidated Statements of Retained Earnings
for the years ended December 31, 1996, 1995 and 1994 45 74
Consolidated Balance Sheets
at December 31, 1996 and 1995 46 - 47 75 - 76
Consolidated Statements of Capitalization
at December 31, 1996 and 1995 48 77
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994 49 78
Notes to Consolidated Financial Statements 50 - 72 79 - 84
(a) 2. Financial Statement Schedules (Included in Part IV of
this report) -
Schedule II - Valuation and Qualifying Accounts
and Reserves for the years ended
December 31, 1996, 1995 and 1994 95
Other schedules are omitted as not required under
Rules of Regulation S-X
(a) 3. Exhibits Required by Securities and Exchange Commission
Regulation S-K -
The Exhibits designated by an asterisk are filed herewith and all other
Exhibits as stated to be filed are incorporated herein by reference.
Exhibit
2(a) 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 (Filed as Exhibit 2.1 to Industries'
Joint Proxy Statement, dated July 11, 1996).
2(b) Amendment No. 2 to Agreement and Plan of Merger,
as amended, dated August 16, 1996, by and among IES Industries
Inc., WPL Holdings, Inc., Interstate Power Company, WPLH
Acquisition Co. and Interstate Power Company (Filed as Annex 1 to
the Supplement to the Joint Proxy Statement of WPL Holdings,
Inc., IES Industries Inc. and Interstate Power Company, dated
August 21, 1996).
2(c) 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. (Filed as Exhibit
2.2 to Industries' Current Report on Form 8-K, dated
November 10, 1995).
2(d) 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. (Filed as Exhibit 2.3 to Industries'
Current Report on Form 8-K, dated November 10, 1995).
2(e) 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. (Filed as Exhibit 2.4 to Industries'
Current Report on Form 8-K, dated November 10, 1995).
2(f) 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. (Filed as Exhibit 2.5 to Industries' Current
Report on Form 8-K, dated November 10, 1995).
2(g) Option Grantor/Option Holder Stock Option and Trigger
Payment Agreement, dated as of November 10, 1995,
by and among Interstate Power Company and WPL
Holdings, Inc. (Filed as Exhibit 2.6 to Industries'
Current Report on Form 8-K, dated November 10, 1995).
2(h) Option Grantor/Option Holder Stock Option and Trigger
Payment Agreement, dated as of November 10, 1995,
by and among Interstate Power Company and IES
Industries Inc. (Filed as Exhibit 2.7 to Industries'
Current Report on Form 8-K, dated November 10, 1995).
3(a) Articles of Incorporation of IES Industries Inc.
(Industries), Amended and Restated as of May 4, 1993 (Filed as
Exhibit 3(a) to Industries' Form 10-K for the year 1993).
3(b) Articles of Incorporation of IES Utilities Inc.
(Utilities), Amended and Restated as of January 6, 1994 (Filed as
Exhibit 4(b) to Utilities' Current Report on Form 8-K, dated
January 7, 1994).
* 3(c) Bylaws of Industries, as amended February 4, 1997.
* 3(d) Bylaws of Utilities, as amended February 4, 1997.
4(a) Indenture of Mortgage and Deed of Trust, dated as
of September 1, 1993, between Utilities (formerly Iowa Electric
Light and Power Company (IE)) and The First National Bank of
Chicago, as Trustee (Mortgage) (Filed as Exhibit 4(c) to IE's
Form 10-Q for the quarter ended September 30, 1993).
4(b) Supplemental Indentures to the Mortgage:
Number Dated as of IE/Utilities File Reference Exhibit
First October 1, 1993 Form 10-Q, 11/12/93 4(d)
Second November 1, 1993 Form 10-Q, 11/12/93 4(e)
Third March 1, 1995 Form 10-Q, 5/12/95 4(b)
Fourth September 1, 1996 Form 8-K, 9/19/96 4(c)(i)
4(c) Indenture of Mortgage and Deed of Trust, dated as
of August 1, 1940, between Utilities (formerly IE) and The First
National Bank of Chicago, Trustee (1940 Indenture) (Filed as
Exhibit 2(a) to IE's Registration Statement, File No. 2-25347).
4(d) Supplemental Indentures to the 1940 Indenture:
Number Dated as of IE/Utiliites File Reference Exhibit
First March 1, 1941 2-25347 2(a)
Second July 15, 1942 2-25347 2(a)
Third August 2, 1943 2-25347 2(a)
Fourth August 10, 1944 2-25347 2(a)
Fifth November 10, 1944 2-25347 2(a)
Sixth August 8, 1945 2-25347 2(a)
Seventh July 1, 1946 2-25347 2(a)
Eighth July 1, 1947 2-25347 2(a)
Ninth December 15, 1948 2-25347 2(a)
Tenth November 1, 1949 2-25347 2(a)
Eleventh November 10, 1950 2-25347 2(a)
Twelfth October 1, 1951 2-25347 2(a)
Thirteenth March 1, 1952 2-25347 2(a)
Fourteenth November 5, 1952 2-25347 2(a)
Fifteenth February 1, 1953 2-25347 2(a)
Sixteenth May 1, 1953 2-25347 2(a)
Seventeenth November 3, 1953 2-25347 2(a)
Eighteenth November 8, 1954 2-25347 2(a)
Nineteenth January 1, 1955 2-25347 2(a)
Twentieth November 1, 1955 2-25347 2(a)
Twenty-first November 9, 1956 2-25347 2(a)
Twenty-second November 6, 1957 2-25347 2(a)
Twenty-third November 4, 1958 2-25347 2(a)
Twenty-fourth November 3, 1959 2-25347 2(a)
Twenty-fifth November 1, 1960 2-25347 2(a)
Twenty-sixth January 1, 1961 2-25347 2(a)
Twenty-seventh November 7, 1961 2-25347 2(a)
Twenty-eighth November 6, 1962 2-25347 2(a)
Twenty-ninth November 5, 1963 2-25347 2(a)
Thirtieth November 4, 1964 2-25347 2(a)
Thirty-first November 2, 1965 2-25347 2(a)
Thirty-second September 1, 1966 Form 10-K, 1966 4.10
Thirty-third November 30, 1966 Form 10-K, 1966 4.10
Thirty-fourth November 7, 1967 Form 10-K, 1967 4.10
Thirty-fifth November 5, 1968 Form 10-K, 1968 4.10
Thirty-sixth November 1, 1969 Form 10-K, 1969 4.10
Thirty-seventh December 1, 1970 Form 8-K, 12/70 1
Thirty-eighth November 2, 1971 2-43131 2(g)
Thirty-ninth May 1, 1972 Form 8-K, 5/72 1
Fortieth November 7, 1972 2-56078 2(i)
Forty-first November 7, 1973 2-56078 2(j)
Forty-second September 10, 1974 2-56078 2(k)
Forty-third November 5, 1975 2-56078 2(l)
Forty-fourth July 1, 1976 Form 8-K, 7/76 1
Forty-fifth November 1, 1976 Form 8-K, 12/76 1
Forty-sixth December 1, 1977 2-60040 2(o)
Forty-seventh November 1, 1978 Form 10-Q, 6/30/79 1
Forty-eighth December 1, 1979 Form S-16, 2-65996 2(q)
Forty-ninth November 1, 1981 Form 10-Q, 3/31/82 2
Fiftieth December 1, 1980 Form 10-K, 1981 4(s)
Fifty-first December 1, 1982 Form 10-K, 1982 4(t)
Fifty-second December 1, 1983 Form 10-K, 1983 4(u)
Fifty-third December 1, 1984 Form 10-K, 1984 4(v)
Fifty-fourth March 1, 1985 Form 10-K, 1984 4(w)
Fifty-fifth March 1, 1988 Form 10-Q, 5/12/88 4(b)
Fifty-sixth October 1, 1988 Form 10-Q, 11/10/88 4(c)
Fifty-seventh May 1, 1991 Form 10-Q, 8/13/91 4(d)
Fifty-eighth March 1, 1992 Form 10-K, 1991 4(c)
Fifty-ninth October 1, 1993 Form 10-Q, 11/12/93 4(a)
Sixtieth November 1, 1993 Form 10-Q, 11/12/93 4(b)
Sixty-first March 1, 1995 Form 10-Q, 5/12/95 4(a)
Sixty-second September 1, 1996 Form 8-K, 9/19/96 4(f)
4(e) Indenture or Deed of Trust dated as of February 1,
1923, between Utilities (successor to Iowa Southern Utilities
Company (IS) as result of merger of IS and IE) and The Northern
Trust Company (The First National Bank of Chicago, successor) and
Harold H. Rockwell (Richard D. Manella, successor), as Trustees
(1923 Indenture) (Filed as Exhibit B-1 to File No. 2-1719).
4(f) Supplemental Indentures to the 1923 Indenture:
Dated as of File Reference Exhibit
May 1, 1940 2-4921 B-1-k
May 2, 1940 2-4921 B-1-l
October 1, 1945 2-8053 7(m)
October 2, 1945 2-8053 7(n)
January 1, 1948 2-8053 7(o)
September 1, 1950 33-3995 4(e)
February 1, 1953 2-10543 4(b)
October 2, 1953 2-10543 4(q)
August 1, 1957 2-13496 2(b)
September 1, 1962 2-20667 2(b)
June 1, 1967 2-26478 2(b)
February 1, 1973 2-46530 2(b)
February 1, 1975 2-53860 2(aa)
July 1, 1975 2-54285 2(bb)
September 2, 1975 2-57510 2(bb)
March 10, 1976 2-57510 2(cc)
February 1, 1977 2-60276 2(ee)
January 1, 1978 0-849 2
March 1, 1979 0-849 2
March 1, 1980 0-849 2
May 31, 1986 33-3995 4(g)
July 1, 1991 0-849 4(h)
September 1, 1992 0-849 4(m)
December 1, 1994 0-4117-1 4(f)
* 4(g) Third Amended and Restated Credit Agreement dated
as of November 20, 1996 among IES Diversified Inc. as Borrower,
certain banks and Citibank, N.A., as Agent.
4(h) Indenture (For Unsecured Subordinated Debt
Securities), dated as of December 1, 1995, between Utilities and
The First National Bank of Chicago, as Trustee (Subordinated
Indenture) (Filed as Exhibit 4(i) to Utilities' Amendment No. 1
to Registration Statement, File No. 33-62259).
10(a) Operating and Transmission Agreement between
Central Iowa Power Cooperative and IE (Filed as Exhibit 10(q) to
IE's Form 10-K for the year 1990).
10(b) Duane Arnold Energy Center Ownership Participation
Agreement dated June 1, 1970 between Central Iowa Power
Cooperative, Corn Belt Power Cooperative and IE. (Filed as
Exhibit 5(kk) to IE's Registration Statement, File No. 2-38674).
10(c) Duane Arnold Energy Center Operating Agreement
dated June 1, 1970 between Central Iowa Power Cooperative, Corn
Belt Power Cooperative and IE. (Filed as Exhibit 5(ll) to IE's
Registration Statement, File No. 2-38674).
10(d) Duane Arnold Energy Center Agreement for
Transmission, Transformation, Switching, and Related Facilities
dated June 1, 1970 between Central Iowa Power Cooperative, Corn
Belt Power Cooperative and IE. (Filed as Exhibit 5(mm) to IE's
Registration Statement, File No. 2-38674).
10(e) Basic Generating Agreement dated April 16, 1975
between Iowa Public Service Company, Iowa Power and Light
Company, Iowa-Illinois Gas and Electric Company and IS for the
joint ownership of Ottumwa Generating Station-Unit 1 (OGS-1).
(Filed as Exhibit 1 to IE's Form 10-K for the year 1977).
10(f) Addendum Agreement to the Basic Generating
Agreement for OGS-1 dated December 7, 1977 between Iowa Public
Service Company, Iowa-Illinois Gas and Electric Company, Iowa
Power and Light Company, IS and IE for the purchase of 15%
ownership in OGS-1. (Filed as Exhibit 3 to IE's Form 10-K for
the year 1977).
10(g) Second Amended and Restated Credit Agreement dated
as of September 17, 1987 between Arnold Fuel, Inc. and the First
National Bank of Chicago and the Amended and Restated Consent and
Agreement dated as of September 17, 1987 by IE. (Filed as
Exhibit 10(j) to IE's Form 10-K for the year 1987).
Management Contracts and/or Compensatory Plans (Exhibits 10(h) through 10(s))
10(h) Supplemental Retirement Plan. (Filed as Exhibit
10(l) to Industries' Form 10-K for the year 1987).
10(i) Management Incentive Compensation Plan. (Filed as
Exhibit 10(m) to Industries' Form 10-K for the year 1987).
10(j) Key Employee Deferred Compensation Plan. (Filed
as Exhibit 10(n) to Industries' Form 10-K for the year 1987).
10(k) Long-Term Incentive Plan. (Filed as Exhibit A to
Industries' Proxy Statement dated March 20, 1995).
10(l) Executive Guaranty Plan. (Filed as Exhibit 10(p)
to Industries' Form 10-K for the year 1987).
10(m) Executive Change of Control Severance Agreement -
CEO (Filed as Exhibit 10(a) to Industries' Form 10-Q for the
quarter ended September 30, 1996 (File No. 1-9187)).
10(n) Executive Change of Control Severance Agreement -
Vice Presidents (Filed as Exhibit 10(b) to Industries' Form 10-Q
for the quarter ended September 30, 1996 (File No. 1-9187)).
10(o) Executive Change of Control Severance Agreement -
Other Officers (Filed as Exhibit 10(c) to Industries' Form 10-Q
for the quarter ended September 30, 1996 (File No. 1-9187)).
10(p) Amendments to Key Employee Deferred Compensation
Agreement for Directors. (Filed as Exhibit 10(u) to Industries'
Form 10-Q for the quarter ended March 31, 1990).
10(q) Amendments to Key Employee Deferred Compensation
Agreement for Key Employees. (Filed as Exhibit 10(v) to
Industries' Form 10-Q for the quarter ended March 31, 1990).
10(r) Amendments to Management Incentive Compensation
Plan. (Filed as Exhibit 10(y) to Industries' Form 10-Q for the
quarter ended March 31, 1990).
*10(s) Director Retirement Plan.
10(t) Agreement and Plan of Merger, dated as of February
27, 1991, by and between IE Industries Inc. and Iowa Southern
Inc. (Filed as Exhibit 2 to Industries' Form 8-K dated
February 27, 1991).
10(u) IES Industries Inc. Shareholders' Rights Plan.
(Filed as Exhibit I-2 to Industries' Registration Statement on
Form 8-A filed November 13, 1991).
10(v) Lease and Security Agreement, dated
October 1, 1993, between IES Diversified Inc., as lessee, and
Sumitomo Bank Leasing and Finance, Inc., as lessor. (Filed as
Exhibit 10(z) to Industries' Form 10-K for the year 1993).
10(w) Receivables Purchase and Sale Agreement dated as of June 30,
1989, as Amended and Restated as of April 15, 1994, among IES
Utilities Inc. (as Seller) and CIESCO L.P. (as the Investor) and
Citicorp North America, Inc. (as Agent). (Filed as Exhibit 10(a)
to Utilities' Form 10-Q for the quarter ended March 31, 1994
(File No. 0-4117-1)).
10(x) Guaranty (IES Utilities Trust No. 1994-A) from IES Utilities
Inc., dated as of June 29, 1994. (Filed as Exhibit 10(b) to
Utilities' Form 10-Q for the quarter ended June 30, 1994 (File
No. 0-4117-1)).
10(y) Copy of Coal Supply Agreement, dated July 27,
1977, between IS and Sunoco Energy Development Co. (former parent
of Cordero Mining Co.), and letter memorandum thereto, dated
October 29, 1984, relating to the purchase of coal supplies for
the fuel requirements at the Ottumwa Generating Station. (Filed
as Exhibit 10-A-4 to File No. 33-3995).
*12 Ratio of Earnings to Fixed Charges (IES Utilities Inc.)
*21 Subsidiaries of the Registrant (IES Industries Inc.)
*23(a) Consent of Independent Public Accountants (IES Industries Inc.)
*23(b) Consent of Independent Public Accountants (IES Utilities Inc.)
*27(a) Financial Data Schedule (IES Industries Inc.)
*27(b) Financial Data Schedule (IES Utilities Inc.)
Note: Pursuant to (b)(4)(iii)(A) of Item 601 of Regulation
S-K, the Company has not filed as an exhibit to this Form 10-K
certain instruments with respect to long-term debt that has not
been registered if the total amount of securities authorized
thereunder does not exceed 10% of total assets of the Company but
hereby agrees to furnish to the Commission on request any such
instruments.
(a) 4. Unaudited Pro Forma Combined Financial Information of
Interstate Energy Corporation:
Unaudited Pro Forma Combined Balance Sheet at
December 31, 1996 97 - 98
Unaudited Pro Forma Combined Statements of Income
for the years ended December 31, 1996, 1995 and 1994 99 - 101
Notes to Unaudited Pro Forma Combined
Financial Statements 102 - 104
(b) Reports on Form 8-K -
Industries - None.
Utilities - None.
IES INDUSTRIES INC. AND IES UTILITIES INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Column A Column B Column E
Balance Balance
Description January 1 December 31
(in thousands)
VALUATION AND QUALIFYING ACCOUNTS WHICH ARE DEDUCTED IN THE BALANCE SHEET
FROM THE ASSETS TO WHICH THEY APPLY:
IES Utilities Inc.:
Accumulated Provision for Uncollectible Accounts:
Year ended December 31, 1996 $ 676 $ 757
Year ended December 31, 1995 $ 650 $ 676
Year ended December 31, 1994 $ 409 $ 650
Non-utility Subsidiaries:
Accumulated Provision for Uncollectible Accounts:
Year ended December 31, 1996 $ 685 $ 774
Year ended December 31, 1995 $ 372 $ 685
Year ended December 31, 1994 $ 506 $ 372
Note: The above provisions relate to various customer, notes and other
receivable balances included in several line items on the Company's
Consolidated Balance Sheets.
OTHER RESERVES:
IES Utilities Inc.:
Accumulated Provision for Rate Refunds
Year ended December 31, 1996 $ 106 $ -
Year ended December 31, 1995 $ - $ 106
Year ended December 31, 1994 $ 8,670 $ -
IES Utilities Inc.:
Accumulated Provision for Merchandise Warranty, Property
Insurance, Injuries and Damages, Workmen's Compensation
and Other Miscellaneous Claims
Year ended December 31, 1996 $ 2,876 $ 2,694
Year ended December 31, 1995 $ 2,516 $ 2,876
Year ended December 31, 1994 $ 1,611 $ 2,516
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
OF INTERSTATE ENERGY CORPORATION
IES Industries Inc. (IES), WPL Holdings, Inc. (WPLH), Interstate Power
Company (IPC), and certain related parties have entered into an
Agreement and Plan of Merger, dated as of November 10, 1995, as amended
(the Merger Agreement), providing for (a) the merger of IES with and
into WPLH and (b) the merger of IPC with a subsidiary of WPLH pursuant
to which IPC will become a subsidiary of WPLH (the above referenced
mergers are collectively referred herein to as the Mergers). In
connection with the consummation of the Mergers, WPLH will change its
name to Interstate Energy Corporation. Detailed information with
respect to the Merger Agreement and the proposed Mergers is contained in
the Joint Proxy Statement/Prospectus, dated July 11, 1996, as
supplemented by the Supplement to Joint Proxy Statement/Prospectus,
dated August 21, 1996, contained in WPLH's Registration Statements on
Form S-4, Registration Nos. 333-07931 and 333-10401 relating to the
meetings of shareowners of WPLH, IES and IPC to vote on the Merger
Agreement and related matters.
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 December 31, 1996 gives effect to
the Mergers as if they had occurred at December 31, 1996. The unaudited
pro forma combined statements of income for each of the three years in
the period ended December 31, 1996 give effect to the Mergers as if they
had occurred at January 1, 1994. 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 cost 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.
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.
<TABLE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 31, 1996
(In thousands)
<CAPTION>
ASSETS WPLH IES IPC Pro Forma Pro Forma
(As Reported) (As Reported) (As Reported) Adjustments Combined
<S> <C> <C> <C> <C> <C>
UTILITY PLANT
Electric $ 1,729,311 $ 2,007,839 $ 853,007 $ ---- $ 4,590,157
Gas 227,809 175,472 68,047 ---- 471,328
Other 175,998 126,850 --- ---- 302,848
Total 2,133,118 2,310,161 921,054 ---- 5,364,333
Less: Accumulated provision for depreciation 967,436 1,030,390 426,471 ---- 2,424,297
Construction work in progress 55,519 43,719 3,129 ---- 102,367
Nuclear fuel--net 19,368 34,725 --- ---- 54,093
Net utility plant 1,240,569 1,358,215 497,712 ---- 3,096,496
OTHER PROPERTY, PLANT AND EQUIPMENT
---NET AND INVESTMENTS (NOTE 8) 144,671 314,071 453 ---- 459,195
CURRENT ASSETS
Cash and cash equivalents 11,070 8,675 3,072 ---- 22,817
Accounts receivable ---net 88,798 62,861 28,227 ---- 179,886
Fossil fuel inventories, at average cost 15,841 13,323 16,623 ---- 45,787
Materials and supplies, at average cost 29,907 22,842 6,214 ---- 58,963
Prepayments and other 26,786 70,350 13,497 ---- 110,633
Total current assets 172,402 178,051 67,633 ---- 418,086
EXTERNAL DECOMMISSIONING FUND 90,671 59,325 --- ---- 149,996
DEFERRED CHARGES AND OTHER 252,218 215,900 73,402 ---- 541,520
TOTAL ASSETS $ 1,900,531 $ 2,125,562 $ 639,200 $ ---- $ 4,665,293
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
</TABLE>
<TABLE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET (Continued)
December 31, 1996
(In thousands)
<CAPTION>
LIABILITIES AND EQUITY WPLH IES IPC Pro Forma Pro Forma
(As Reported) (As Reported) (As Reported) Adjustments Combined
<S> <C> <C> <C> <C> <C>
CAPITALIZATION
Common Stock Equity:
Common Stock (Note 1) $ 308 $ 407,635 $ 33,848 $ -441,033 $ 758
Other stockholders' equity (Note 1) 607,047 219,246 172,210 430,033 1,428,536
Total common stock equity 607,355 626,881 206,058 -11,000 1,429,294
Preferred stock not mandatorily redeemable 59,963 18,320 10,819 ---- 89,102
Preferred stock mandatory sinking fund ---- ---- 24,147 ---- 24,147
Long-term debt ---net 362,564 701,100 171,731 ---- 1,235,395
Total capitalization 1,029,882 1,346,301 412,755 -11,000 2,777,938
CURRENT LIABILITIES
Current maturities, sinking funds, and
capital lease obligations 67,626 23,598 17,000 ---- 108,224
Commercial paper, notes payable and other 102,779 135,000 28,700 ---- 266,479
Variable rate demand bonds 56,975 ---- ---- ---- 56,975
Accounts payable and accruals 120,986 99,861 14,013 ---- 234,860
Taxes accrued 4,669 43,926 16,953 ---- 65,548
Other accrued liabilities 54,303 54,498 11,785 11,000 131,586
Total current liabilities 407,338 356,883 88,451 11,000 863,672
OTHER LIABILITIES
Deferred income taxes 245,686 262,675 99,303 ---- 607,664
Deferred investment tax credits 36,931 34,470 17,013 ---- 88,414
Accrued environmental remediation costs 74,075 47,502 7,234 ---- 128,811
Capital lease obligations ---- 19,600 ---- ---- 19,600
Other liabilities and deferred credits 106,619 58,131 14,444 ---- 179,194
Total other liabilities 463,311 422,378 137,994 ---- 1,023,683
TOTAL CAPITALIZATION AND LIABILITIES $ 1,900,531 $ 2,125,562 $ 639,200 $ ---- $ 4,665,293
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
</TABLE>
<TABLE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
(In thousands, except per share amounts)
<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 $ 589,482 $ 574,273 $ 276,620 $ ----- $ 1,440,375
Gas 165,627 273,979 49,464 ----- 489,070
Other 177,735 125,660 ----- ----- 303,395
Total operating revenues 932,844 973,912 326,084 ----- 2,232,840
Operating Expenses
Electric production fuels 114,470 84,579 57,560 ----- 256,609
Purchased power 81,108 88,350 61,556 ----- 231,014
Cost of gas sold 104,830 217,351 31,617 ----- 353,798
Other operation 319,154 214,759 53,134 ----- 587,047
Maintenance 46,492 49,001 16,164 ----- 111,657
Depreciation and amortization 90,683 107,393 31,087 ----- 229,163
Taxes other than income
taxes 34,603 48,171 16,064 ----- 98,838
Total operating expenses 791,340 809,604 267,182 ----- 1,868,126
Operating Income 141,504 164,308 58,902 ----- 364,714
Other Income (Expense)
Allowance for equity funds
used during construction 2,270 -100 13 ----- 2,183
Other income and
deductions ---net 15,644 -2,333 3,763 ----- 17,074
Total other income (expense) 17,914 -2,433 3,776 ----- 19,257
Interest Charges 41,089 52,619 16,222 ----- 109,930
Income from continuing
operations before income taxes
and preferred dividends 118,329 109,256 46,456 ----- 274,041
Income Taxes 41,814 47,435 18,133 ----- 107,382
Preferred dividends of
subsidiaries (Note 2) 3,310 914 2,463 ----- 6,687
Income from continuing
Operations (Notes 3 and 6) $ 73,205 $ 60,907 $ 25,860 $ ----- $ 159,972
Average Common Shares
Outstanding (Note 1) 30,790 29,861 9,594 5,236 75,481
Earnings per share of Common
Stock from continuing
operations $ 2.38 $ 2.04 $ 2.69 $ ---- $ 2.12
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
</TABLE>
<TABLE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
(In thousands, except per share amounts)
<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 44,940 66,874 57,566 ---- 169,380
Cost of gas sold 84,002 141,716 25,888 ---- 251,606
Other operation 253,277 201,390 45,717 ---- 500,384
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 661,257 699,298 251,766 ---- 1,612,321
Operating Income 145,998 151,712 66,776 ---- 364,486
Other Income (Expense)
Allowance for equity funds
used during construction 1,425 386 ---- ---- 1,811
Other income and
deductions ---net 6,509 3,170 -2,872 ---- 6,807
Total other income (expense) 7,934 3,556 -2,872 ---- 8,618
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
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
</TABLE>
<TABLE>
INTERSTATE ENERGY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1994
(In thousands, except per share amounts)
<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 248,847 176,863 51,917 ----- 477,627
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 666,537 637,931 264,215 ----- 1,568,683
Operating Income 129,180 147,933 43,435 ----- 320,548
Other Income (Expense)
Allowance for equity funds
used during construction 3,009 2,299 166 ----- 5,474
Other income and
deductions ---net 10,245 3,472 3,100 ----- 16,817
Total other income (expense) 13,254 5,771 3,266 ----- 22,291
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
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
</TABLE>
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 ($3.50 par value) into
1.11 shares of WPLH Common Stock ($.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, 1994. The pro forma combined balance sheet
gives effect to the Mergers as if they occurred at December 31, 1996.
The number of shares of common stock used for calculating per share
amounts is based on the exchange ratio shown below.
<TABLE>
<CAPTION>
Exchange As reported Pro forma As reported Pro forma As reported Pro forma
Ratio 12/31/96 12/31/96 12/31/95 12/31/95 12/31/94 12/31/94
<S> <C> <C> <C> <C> <C> <C> <C>
IES___ 1.14 29,861 34,042 29,202 33,290 28,560 32,558
IPC___ 1.11 9,594 10,649 9,564 10,616 9,479 10,522
WPLH__ N/A 30,790 30,790 30,774 30,774 30,671 30,671
</TABLE>
2. The Preferred Stock of IPC 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. IES's income from continuing operations for the year ended December
31, 1996 included costs incurred relating to its successful defense of
a hostile takeover attempt mounted by MidAmerican Energy Company. The
after-tax impact on income from continuing operations was a decrease
of $4.6 million.
Nonrecurring items affecting WPLH's performance for the year ended
December 31, 1996 included the impact of the sale of a combustion
turbine and the sale of WPLH's assisted-living real estate
investments. The after-tax impact of these items on continuing
operations was an increase of $5.9 million. 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 Public Service Commission of Wisconsin 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.
4. The allocation between WPLH, IES and IPC and their customers of the
estimated cost 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 million (including transaction costs of $11 million
related to fees for financial advisors, attorneys, accountants and
consultants). The estimate of potential cost savings constitutes a
forward-looking statement and actual results may differ materially from
this estimate. The estimate is 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 treatments,
weather conditions, financial market conditions, future business
decisions and other uncertainties. No assurance can be given that the
estimated costs savings will actually be realized.
In addition to the $11 million of remaining transaction costs, since
the announcement of the Merger Agreement on November 11, 1995, IES,
IPC and WPLH have collectively incurred $6 million of merger-related
transaction costs through December 31, 1996, which have been expensed
and are reflected in the combined income statements as presented. The
remaining $11 million of transaction costs have been reflected in the
pro forma balance sheet at December 31, 1996 such that shareowners'
equity has been reduced by $11 million and accrued liabilities have
been increased by $11 million. None of the estimated cost savings,
or costs to achieve such savings, have been reflected in the pro forma
combined financial statements.
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
in the fourth quarter of 1995 of $7.7 million. The after-tax loss on
disposition was $11.0 million reflecting the associated tax expense on
disposition due to the non-deductibility of the carrying value of
goodwill at sale. During 1996, WPLH recognized an additional loss of
$1.3 million, net of applicable income tax benefit, associated with the
final disposition of the business. 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 years ending December 31 were
as follows:
1995 1994
Operating revenues $ 24,979 $ 34,798
Loss from discontinued operations before income tax $ 3,663 $ 1,806
Income tax benefit 1,451 632
Loss from discontinued operations $ 2,212 $ 1,174
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 December 31, 1996, IES had a $20.0 million investment in Class A
common stock of McLeod, Inc. (McLeod), 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, long-distance and other telecommunications
services.
McLeod completed an Initial Public Offering (IPO) of its Class A common
stock in June 1996 and a secondary offering in November 1996. As of
December 31, 1996, IES is the beneficial owner of approximately 10.6
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 vote 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. This contractual sale restriction results 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.
The closing price of the McLeod Class A common stock on December 31,
1996, on the Nasdaq National Market, was $25.50 per share. The current
market value of the shares IES beneficially owns (approximately 10.6
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 a
tax.
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 become qualified for sale within a one year period; this will
occur on June 10, 1997, which is one year before the contractual
restrictions on sale are lifted. At that time, the adjustment to
reflect the estimated fair value of this investment will be reflected
as an increase in the investment carrying value with the unrealized gain
reported as a net of tax amount in other common shareholders' equity
until realized (i.e. until the shares are sold by IES).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 14th day of March 1997.
IES INDUSTRIES INC.
(Registrant)
By /s/ Lee Liu
Lee Liu
Chairman of the Board &
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated on March 14,
1997:
/s/ Lee Liu Chairman of the Board &
Lee Liu Chief Executive Officer
(Principal Executive Officer)
/s/ Thomas M. Walker Executive Vice President &
Thomas M. Walker Chief Financial Officer
(Principal Financial Officer)
/s/ John E. Ebright Controller & Chief Accounting Officer
John E. Ebright (Principal Accounting Officer)
/s/ C.R.S. Anderson Director
C.R.S. Anderson
J. Wayne Bevis Director
J. Wayne Bevis
/s/ Jack R. Newman Director
Jack R. Newman
/s/ Robert D. Ray Director
Robert D. Ray
/s/ David Q. Reed Director
David Q. Reed
/s/ Henry Royer Director
Henry Royer
/s/ Robert W. Schlutz Director
Robert W. Schlutz
/s/ Anthony R. Weiler Director
Anthony R. Weiler
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 14th day of March 1997.
IES UTILITIES INC.
(Registrant)
By /s/ Lee Liu
Lee Liu
Chairman of the Board &
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated on
March 14, 1997:
/s/ Lee Liu Chairman of the Board &
Lee Liu Chief Executive Officer
(Principal Executive Officer)
/s/ Thomas M. Walker Executive Vice President &
Thomas M. Walker Chief Financial Officer
(Principal Financial Officer)
/s/ John E. Ebright Controller & Chief Accounting Officer
John E. Ebright (Principal Accounting Officer)
/s/ C.R.S. Anderson Director
C.R.S. Anderson
J. Wayne Bevis Director
J. Wayne Bevis
/s/ Jack R. Newman Director
Jack R. Newman
/s/ Robert D. Ray Director
Robert D. Ray
/s/ David Q. Reed Director
David Q. Reed
/s/ Henry Royer Director
Henry Royer
/s/ Robert W. Schlutz Director
Robert W. Schlutz
/s/ Anthony R. Weiler Director
Anthony R. Weiler
Exhibit 3(c)
BYLAWS AS AMENDED
OF
IES INDUSTRIES INC.
(Amended as of February 4, 1997)
ARTICLE I
OFFICES
SECTION 1.1 PRINCIPAL OFFICE. - The principal office shall be
established and maintained in the ie: Tower, 200 First Street, S.E., in
the City of Cedar Rapids, in the County of Linn, in the State of Iowa.
SECTION 1.2. OTHER OFFICES. - The Corporation may have other
offices, either within or without the State of Iowa, at such place or
places as the Board of Directors may from time to time appoint or the
business of the Corporation may require. The registered office of the
Corporation required by the Iowa Business Corporation Act to be
maintained in the State of Iowa may be, but need not be identical with
the principal office in the State of Iowa, and the address of the
registered office may be changed from time to time by the Board of
Directors.
ARTICLE II
SHAREHOLDERS
SECTION 2.1. ANNUAL MEETING. - The annual meeting of shareholders
for the election of directors and the transaction of other business
shall be held, in each year, on the third Tuesday in May at two o'clock
in the afternoon (if such day is a holiday, the annual meeting will be
held at such time on the next succeeding business day) or any other date
specified by the Board of Directors.
SECTION 2.2. PLACE OF SHAREHOLDERS' MEETING. - The annual meeting
or any special meeting of shareholders shall be held at the principal
office of the Corporation or any place, within the State of Iowa, as
shall be designated by the Board of Directors and stated in the notice
of the meeting.
SECTION 2.3. SPECIAL MEETINGS. - Special meetings of the
shareholders may be called by the Chairman of the Board, the President,
the Board of Directors, or the holders of not less than ten percent of
all the shares entitled to vote at the meeting.
SECTION 2.4. NOTICE OF MEETINGS. - WAIVER. - Written or printed
notice, stating the place, day and hour of the meeting and, in case of a
special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten nor more than sixty days
before the date of the meeting, either personally or by mail, by or at
the direction of the Board of Directors, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail
addressed to the shareholder at the address appearing on the stock
transfer books of the Corporation, with postage thereon prepaid.
SECTION 2.5. CLOSING OF TRANSFER BOOKS; FIXING OF RECORD DATE. For
the purpose of determining shareholders entitled to notice of, or to
vote at, any special meeting of shareholders, or at any adjournment
thereof, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper
purpose, the Board of Directors of the Corporation may provide that the
stock transfer books shall be closed for a stated period but not to
exceed, in any case, 60 days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of
or to vote at a meeting of shareholders, such books shall be closed for
at least 10 days immediately preceding such meeting. In lieu of closing
the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such
date in any case not to be more than 70 days, and in the case of a
meeting of shareholders not less than 10 days, prior to the date on
which the particular action, requiring such determination of
shareholders, is to be taken. If the stock transfer books are not
closed and no record date is fixed for the determination of
shareholders, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for
such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been
made as provided in this section, such determination shall apply to any
adjournment thereof.
SECTION 2.6. VOTING RECORD. - The officer or agent having charge of
the stock transfer books for shares of the Corporation shall make, at
least 10 days prior to each meeting of shareholders, a complete record
of the shareholders entitled to vote at such meeting, or any adjournment
thereof, arranged in alphabetical order with the address of and the
number of shares held by each, which record shall be kept on file at the
registered office of the Corporation and shall be subject to inspection
by any shareholder at any time during usual business hours for a period
of 10 days prior to such meeting. Such record shall also be produced
and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the
meeting. The original stock transfer book shall be prima facie evidence
of the identity of the shareholders entitled to examine such record or
transfer books or to vote at any meeting of shareholders.
SECTION 2.7. QUORUM. - A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a
majority of the outstanding shares are represented at a meeting, a
majority of the shares so represented may adjourn the meeting from time
to time without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified.
The shareholders present at a duly organized meeting may continue to
transact business until adjournment only if a quorum is represented
throughout.
SECTION 2.8. CONDUCT OF MEETING. - Meetings of the shareholders
shall be presided over by one of the following officers in the order of
seniority if present and acting - the Chairman of the Board, the
President, the Secretary, or if none of the foregoing is in office and
present and acting, by a chairperson to be chosen by the shareholders.
The Secretary of the Corporation, or if absent, an Assistant Secretary,
shall act as secretary of the meeting, but if neither the Secretary nor
an Assistant Secretary is present, or if the Secretary is presiding over
the meeting and the Assistant Secretary is not present, the Chairman of
the meeting shall appoint a secretary of the meeting.
SECTION 2.9. PROXIES. - At all meetings of shareholders, a
shareholder may vote by proxy executed in writing by the shareholder or
by a duly authorized attorney-in-fact. Such proxy shall be filed with
the Secretary of the Corporation before or at the time of the meeting.
No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
SECTION 2.10. VOTING OF SHARES. - Each outstanding share entitled
to vote shall be entitled to one vote upon each matter submitted to a
vote at a meeting of shareholders.
SECTION 2.11 VOTING OF SHARES BY CERTAIN HOLDERS. - Shares standing
in the name of another corporation may be voted by such officer, agent
or proxy as the Bylaws of such corporation may prescribe, or, in the
absence of such provision, as the Board of Directors of such corporation
may determine.
Shares held by an administrator, executor, guardian or conservator
may be voted by such person, either in person or by proxy, without a
transfer of such shares into that person's name. Shares standing in the
name of a trustee may be voted by such trustee, either in person or by
proxy, without a transfer of such shares into the trustee's name. The
Corporation may request evidence of such fiduciary status with respect
to the vote, consent, waiver, or proxy appointment.
Shares standing in the name of a receiver or trustee in bankruptcy
may be voted by such receiver or trustee, and shares held by or under
the control of a receiver may be voted by such receiver without the
transfer of the shares into such person's name if authority so to do be
contained in an appropriate order of the court by which such receiver
was appointed.
A pledgee, beneficial owner, or attorney-in-fact of the shares held
in the name of a shareholder shall be entitled to vote such shares. The
Corporation may request evidence of such signatory's authority to sign
for the shareholder with respect to the vote, consent, waiver, or proxy
appointment.
Neither treasury shares nor shares held by another corporation, if
a majority of the shares entitled to vote for the election of Directors
of such other corporation is held by the Corporation, shall be voted at
any meeting or counted in determining the total number of outstanding
shares at any given time.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. - The business and affairs of the
Corporation shall be managed by its Board of Directors.
SECTION 3.2. NUMBER, TENURE, QUALIFICATIONS AND REMOVAL. - The
number of Directors of the Corporation shall be nine. Each Director
shall hold office until the next annual meeting of shareholders and
until the Director's successor shall have been elected and qualified,
unless removed at a meeting called expressly for that purpose by a vote
of the holders of a majority of the shares then entitled to vote at an
election of Directors. A Director may only be removed upon a showing of
cause. Directors need not be residents of the State of Iowa or
shareholders of the Corporation. Not more than three Directors shall be
officers or employees of the Corporation or its subsidiaries. No person
who has reached the age of 70 years shall be eligible for election or re-
election to the Board of Directors, unless approved by the Board of
Directors upon recommendation by the Chairman of the Board and the
Nominating Committee. Except for the Chief Executive Officer, any
Officer or employee of the Corporation serving as a Director who
retires, resigns or is removed or terminated from his or her present
office or employment with the Corporation shall simultaneously resign
from the Board of Directors. In the event the Chief Executive Officer
resigns or retires from his or her office or employment with the
Corporation, he or she shall simultaneously submit his or her
resignation from the Board of Directors if requested by the Nominating
Committee. In the event that the Chief Executive Officer is removed
from his or her office by the Board of Directors, or is involuntarily
terminated from employment with the Corporation, he or she shall
simultaneously submit his or her resignation from the Board of
Directors.
SECTION 3.3. REGULAR MEETINGS. - An annual meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately
after, and at the same place as, the annual meeting of shareholders.
Unless otherwise provided by resolution of the Board of Directors,
regular meetings of the Board of Directors, additional to the annual
meeting, shall be held on the first Tuesday of February, May, and
August, and on the first Wednesday of November of each year, at the
principal office or any place within or without the State of Iowa as
shall be designated by the Board of Directors without notice other than
such resolution.
SECTION 3.4. SPECIAL MEETINGS. - Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the
Board, President or any two Directors. The person or persons authorized
to call special meetings of the Board of Directors may fix any place
either within or without the State of Iowa, whether in person or by
telecommunications, as the place for holding any special meeting of the
Board of Directors called by them.
SECTION 3.5. NOTICE. - Notice of any special meeting shall be given
at least three days prior to the meeting by written notice delivered
personally or mailed to each Director at the Director's business
address, by telegram, or orally by telephone. If mailed, such notice
shall be deemed to be delivered when deposited in the United States
mail, so addressed, with postage prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram
is delivered to the telegraph company. Any director may waive notice of
any meeting. The attendance of a Director at a meeting shall constitute
a waiver of notice of such meeting, except where a Director attends a
meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting.
SECTION 3.6. QUORUM. - A majority of the number of Directors fixed
by Section 3.2 of this Article III shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if
less than such majority is present at a meeting, a majority of the
Directors present may adjourn the meeting from time to time without
further notice.
SECTION 3.7. MANNER OF ACTING. - The act of the majority of the
Directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors. A Director shall be considered present
at a meeting of the Board of Directors or of a committee designated by
the Board if the Director participates in such meeting by conference
telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
SECTION 3.8. INFORMAL ACTION. - Any action required or permitted
to be taken at any meeting of the Directors of the Corporation or of any
committee of the Board may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by all of the
Directors or all of the members of the committee of Directors, as the
case may be. Such consent shall have the same force and effect as a
unanimous vote at a meeting and shall be filed with the Secretary of the
Corporation to be included in the official records of the Corporation.
SECTION 3.9. PRESUMPTION OF ASSENT. - A Director of the Corporation
who is present at a meeting of the Board of Directors at which action on
any corporate matter is taken shall be presumed to have assented to the
action taken unless (a) the Director objects at the beginning of the
meeting or promptly upon arrival to the holding of or transacting
business at the meeting, (b) the Director's dissent shall be entered in
the minutes of the meeting, or (c) the Director shall file a written
dissent to such action with the person acting as the secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered or certified mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent
shall not apply to a Director who voted in favor of such action.
SECTION 3.10. VACANCIES. - Any vacancy occurring in the Board of
Directors and any directorship to be filled by reason of an increase in
the number of Directors may be filled by the affirmative vote of a
majority of the Directors then in office, even if less than a quorum of
the Board of Directors. Failure to attend three consecutive regular
meetings of the Board of Directors shall disqualify a Director from
further service as a Director during the year in which the third
delinquency occurs and shall make such Director ineligible for re-
election, unless such failure to attend be determined by the affirmative
vote of two-thirds of the remaining Directors holding office to be due
to circumstances beyond the control of such Director. A resignation
may be tendered by any Director at any meeting of the shareholders or of
the Board of Directors, who shall at such meeting accept the same.
SECTION 3.11. COMPENSATION. - The Directors may be paid their
expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of
the Board of Directors or may receive a stated salary as Director. No
such payment shall preclude any Director from serving the Corporation in
any other capacity and receiving compensation therefor. Members of
special or standing committees may be allowed like compensation for
attending committee meetings.
SECTION 3.12. EXECUTIVE COMMITTEE. - The Board of Directors shall,
at each annual meeting thereof, appoint from its number an Executive
Committee of not less than three (3) nor more than five (5) members,
including the Chairman of the Board and the Chief Executive Officer of
the Corporation, to serve, subject to the pleasure of the Board, for the
year next ensuing and until their successors are appointed by the Board.
The Board of Directors at such time shall also fix the compensation to
be paid to the members of the Executive Committee. No member of the
Executive Committee shall continue to be a member after ceasing to be a
Director of the Corporation. The Board of Directors shall have the
power at any time to increase or decrease the number of members of the
Executive Committee, to fill vacancies, to change any member, and to
change the functions or terminate the Committee's existence.
SECTION 3.13. POWERS OF EXECUTIVE COMMITTEE. - The Executive
Committee appointed by the Board of Directors as above provided shall
possess all the power and authority of the Board of Directors when said
Board is not in session, but the Executive Committee shall not have the
power to, (1) declare dividends or distributions, (2) approve or
recommend directly to the shareholders actions required by law to be
approved by shareholders, (3) fill vacancies on the Board of Directors
or designate directors for purposes of proxy solicitation, (4) amend the
Articles, (5) adopt, amend, or repeal Bylaws, (6) approve a plan of
merger not requiring shareholders approval, (7) authorize reacquisition
of shares unless pursuant to a method specified by the Board, or (8)
authorize the sale or issuance of shares or designate the terms of a
series of a class of shares, except pursuant to a method specified by
the Board, to the extent permitted by law.
SECTION 3.14. PROCEDURE: MEETINGS: QUORUM. - Regular meetings of
the Executive Committee may be held at least once in each month on such
day as the Committee shall elect and special meetings may be held at
such other times as the Chairman of the Board or any two members of the
Executive Committee may designate. Notice of special meetings of the
Executive Committee shall be given by letter, telegram, or cable
delivered for transmission not later than during the second day
immediately preceding the day for such meeting or by word of mouth or
telephone not later than the day immediately preceding the date for such
meeting. No such notice need state the business to be transacted at the
meeting. No notice need be given of an adjourned meeting. The
Executive Committee may fix its own rules of procedure. It shall keep a
record of its proceedings and shall report these proceedings to the
Board of Directors at the regular meeting thereof held next after the
meeting of the Executive Committee. Attendance at any meeting of the
Executive Committee at a special meeting shall constitute a waiver of
notice of such special meeting.
At its last meeting preceding the annual meeting of the Board of
Directors, the Executive Committee shall make to the Board its
recommendation of officers of the Corporation to be elected by the Board
for the ensuing year.
The Chairman of the Board shall act as Chairman at all meetings of
the Executive Committee. The Secretary of the Corporation shall act as
Secretary of the meeting. In case of the absence from any meeting of
the Executive Committee of the Secretary of the Corporation, the
Executive Committee shall appoint a secretary of the meeting. The
Executive Committee may hold its meetings within or without the State of
Iowa, as it may from time to time by resolution determine. A majority
of the Executive Committee shall be necessary to constitute a quorum for
the transaction of any business, and the act of a majority of the
members present at a meeting at which a quorum is present shall be the
act of the Executive Committee. The members of the Executive Committee
shall act only as a committee, and the individual members shall have no
power as such.
SECTION 3.15. OTHER COMMITTEES. - The Board of Directors may
appoint by resolution adopted by a majority of the full Board of
Directors from among its members, other committees, temporary or
permanent, and, to the extent permitted by law and these Bylaws, may
designate the duties, powers, and authorities of such committees subject
to the same restriction of powers as provided in Section 3.13.
ARTICLE IV
OFFICERS
SECTION 4.1. OFFICERS. - The officers of the Corporation shall be a
Chairman of the Board, a President, a Secretary, a Treasurer, Assistant
Secretaries and Assistant Treasurers, and may include a General Counsel,
each of whom shall be elected by the Board of Directors. Such other
officers, including vice-presidents and assistant officers as may be
deemed necessary may be elected or appointed by the Board of Directors.
Any two or more offices, other than those of Chairman of the Board and
Secretary and those of President and Secretary, may be held by the same
person.
SECTION 4.2. ELECTION AND TERM OF OFFICE. - The officers of the
Corporation to be elected by the Board of Directors shall be elected
annually by the Board at its annual meeting held after each annual
meeting of the shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as
may be convenient. A vacancy in any office for any reason may be filled
by the Board of Directors for the unexpired portion of the term.
SECTION 4.3. REMOVAL OF OFFICERS. - Any officer may be removed by
the Board of Directors whenever in its judgment the best interests of
the Corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer shall not of itself
create contract rights.
SECTION 4.4. CHAIRMAN OF THE BOARD. - The Chairman of the Board
shall be the Chief Executive Officer of the Corporation. The Chairman
of the Board shall preside at all meetings of the Board of Directors and
shall be a member of the Executive Committee. The Chairman of the Board
shall see that all resolutions and orders of the Board of Directors or
the Executive Committee are carried into effect and shall exercise such
other powers and perform such other duties as may be designated by the
Board of Directors and the Executive Committee.
SECTION 4.5. PRESIDENT. - The President shall be the Chief
Operating Officer of the Corporation and shall have general supervision
of and be accountable for the control of the Corporation's business
affairs, properties and management and otherwise shall have the general
powers and duties usually vested with the office of President of a
Corporation, subject, however, to the control of the Board of Directors,
the Executive Committee, and the Chairman of the Board & Chief Executive
Officer. The President shall see that all resolutions and orders of the
Board of Directors or the Executive Committee are carried into effect
and shall exercise such other powers and perform such other duties as
may be designated by the Board of Directors, the Executive Committee,
and the Chairman of the Board & Chief Executive Officer.
SECTION 4.6. VICE-PRESIDENTS. - A Vice President (if one or more be
elected or appointed) shall have such powers and perform such duties as
the Board of Directors may from time to time prescribe or as the
Chairman of the Board or the President may from time to time delegate.
SECTION 4.7 TREASURER. - The Treasurer shall have the custody of
the funds and securities of the Corporation. Whenever necessary or
proper, the Treasurer shall (1) endorse, on behalf of the Corporation,
checks, notes or other obligations and deposit the same to the credit of
the Corporation in such bank or banks or depositories as the Board of
Directors may designate; (2) sign receipts or vouchers for payments made
to the Corporation which shall also be signed by such other officer as
may be designated by the Board of Directors- (3) disburse the funds of
the Corporation as may be ordered by the Board, taking proper vouchers
for such disbursements- and (4) render to the Board of Directors, the
Executive Committee, the Chairman of the Board and the President at the
regular meetings of the Board or Executive Committee, or whenever any of
them may require it, an account of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall
give the Corporation a bond with one or more sureties satisfactory to
the board, for the faithful performance of the duties of this office,
and for the restoration to the Corporation, in case of death,
resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in possession or
under control of the Treasurer.
SECTION 4.8. SECRETARY. - The Secretary shall record the votes and
proceedings of the Shareholders, the Board of Directors and the
Executive Committee in a book or books kept for that purpose, and shall
serve notices of and attend all meetings of the Directors, the Executive
Committee and shareholders. In the absence of the Secretary or an
Assistant Secretary from any meeting of the Board of Directors, the
proceedings of such meeting shall be recorded by such other person as
may be appointed for that purpose.
The Secretary shall keep in safe custody the seal of the
Corporation, and duplicates, if any, and when requested by the Board of
Directors, or when any instrument shall have been first signed by the
Chairman of the Board, the President or a Vice President duly authorized
to sign the same, or when necessary to attest any proceedings of the
shareholders or directors, shall affix it to any instrument requiring
the same, and shall attest the same. The Secretary shall, with the
Chairman of the Board or the President, sign certificates of stock of
the Corporation and affix a seal of the Corporation or cause such seal
to be imprinted or engraved thereon, subject, however, to the provisions
providing for the use of facsimile signatures on stock certificates
under certain conditions. The Secretary shall have charge of such books
and papers as properly belong to such office, or as may be committed to
the Secretary's care by the Board of Directors or by the Executive
Committee, and shall perform such other duties as pertain to such
office, or as may be required by the Board of Directors, the Executive
Committee or the President.
SECTION 4.9. ASSISTANT TREASURERS. - Each Assistant Treasurer (if
one or more Assistant Treasurers be elected or appointed) shall assist
the Treasurer and shall perform such other duties as the Board of
Directors may from time to time prescribe or the Chairman of the Board
or the President may from time to time delegate. At the request of the
Treasurer, any Assistant Treasurer may perform temporarily the duties of
Treasurer in the case of the Treasurer's absence or inability to act.
In the case of the death of the Treasurer, or in the case of absence or
inability to act without having designated an Assistant Treasurer to
perform temporarily the duties of Treasurer, an Assistant Treasurer
shall be designated by the Chairman of the Board or the President to
perform the duties of the Treasurer. Each Assistant Treasurer shall, if
required by the Board of Directors, give the Corporation a bond with
such surety or sureties as may be ordered by the Board of Directors, for
the faithful performance of the duties of such office and for the
restoration to the Corporation, in case of death, resignation,
retirement or removal from office, of all books, papers, vouchers, money
and other property of whatever kind belonging to the Corporation in the
possession or under control of such Assistant Treasurer,
SECTION 4.10. ASSISTANT SECRETARIES. - Each Assistant Secretary (if
one or more Assistant secretaries be elected or appointed) shall assist
the Secretary and shall perform such other duties as the Board of
Directors may from time to time prescribe or the Chairman of the Board
or the President may from time to time delegate. At the request of the
Secretary, any Assistant Secretary may perform temporarily the duties of
Secretary in the case of the Secretary's absence or inability to act.
In the case of the death of the Secretary, or in the case of absence or
inability to act without having designated an Assistant Secretary to
perform temporarily the duties of Secretary, the Assistant Secretary to
perform the duties of the Secretary shall be designated by the Chairman
of the Board or the President.
SECTION 4.11. GENERAL COUNSEL. - The General Counsel shall be
responsible for the management of the Legal Department in its support of
all other operations of the Corporation including management guidance to
assure responsible decisions, information for all employees concerning
the legal and judicial environment and recommended changes of law as
deemed advisable. In addition, the General Counsel shall be responsible
for the coordination of outside counsel activities in all instances as
well as the prosecution of charges against the Corporation or other
judicial or regulatory activities. This shall include full information
for the management and employees of judicial, regulatory or other
administrative body rulings and their impact on the Corporation. The
duties shall include approval of all legal and contractual documents of
the Corporation, prior to their authorization, and full support to
various departments to assist in the development of these documents.
The General Counsel shall perform such other duties as may be assigned
from time to time by the Board of Directors, the Executive Committee,
the Chairman of the Board or the President.
ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 5.1. CERTIFICATES FOR SHARES. - Each certificate
representing shares of the Corporation shall state upon the fact (a)
that the Corporation is organized under the laws of the State of Iowa,
(b) the name of the person to whom issued, (c) the number and class of
shares, and the designation of the series, if any, which such
certificate represents, and (d) the par value of each share, if any, and
each such certificate shall otherwise be in such form as shall be
determined by the Board of Directors. Such certificates shall be
signed by the Chairman of the Board or the President and by the
Secretary or an Assistant Secretary and shall be sealed with the
corporate seal or a facsimile thereof. The signatures of such officers
upon a certificate may be facsimiles. If a certificate is countersigned
by a transfer agent, or registered by a registrar, the signatures of the
persons signing for such transfer agent or registrar also may be
facsimiles. In case any officer or other authorized person who has
signed or whose facsimile signature has been placed upon such
certificate for the Corporation shall have ceased to be such officer or
employee or agent before such certificate is issued, it may be issued by
the Corporation with the same effect as if such person where an officer
or employee or agent at the date of its issue. Each certificate for
shares shall be consecutively numbered or otherwise identified.
All certificates surrendered to the Corporation for transfer shall
be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and
indemnity to the Corporation as the Board of Directors may prescribe.
SECTION 5.2. TRANSFER OF SHARES. - Transfer of shares of the
Corporation shall be made only on the stock transfer books of the
Corporation by the holder of record thereof or by such person's legal
representative, who shall furnish proper evidence of authority to
transfer, or authorized attorney, by power of attorney duly executed and
filed with the Secretary of the Corporation, and on surrender for
cancellation of the certificate for such shares.
Subject to the provisions of Section 2.11 of Article II of these
Bylaws, the person in whose name shares stand on the books of the
Corporation shall be treated by the Corporation as the owner thereof for
all purposes, including all rights deriving from such shares, and the
Corporation shall not be bound to recognize any equitable or other claim
to, or interest in, such shares or rights deriving from such shares, on
the part of any other person, including (without limitation) a
purchaser, assignee or transferee of such shares, or rights deriving
from such shares, unless and until such purchaser, assignee, transferee
or other person becomes the record holder of such shares, whether or not
the Corporation shall have either actual or constructive notice of the
interest of such purchaser, assignee, transferee or other person.
Except as provided in said Section 2.11 hereof, no such purchaser,
assignee, transferee or other person shall be entitled to receive notice
of the meetings of shareholders, to vote at such meetings, to examine
the complete record of the shareholders entitled to vote at meetings, or
to own, enjoy or exercise any other property or rights deriving from
such shares against the Corporation, until such purchaser, assignee,
transferee or other person has become the record holder of such shares.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. INDEMNIFICATION. - The Corporation shall indemnify its
directors, officers, employees and agents to the full extent permitted
by the Iowa Business Corporation Act, as amended from time to time. The
Corporation shall purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any
liability asserted against and incurred by such person in any such
capacity or arising out of such person's status as such, whether or not
the Corporation would have the power to indemnify such person against
such liability under the provisions of this section.
SECTION 6.2. FISCAL YEAR. - The fiscal year of the Corporation
shall be the calendar year.
SECTION 6.3. SEAL. - The corporate seal shall be circular in form
and shall have inscribed thereon the name of the Corporation and the
words "CORPORATE SEAL IOWA". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 6.4. CONTRACTS, CHECKS, DRAFTS, LOANS AND DEPOSITS. - All
contracts, checks, drafts or other orders for the payment of money,
notes or other evidences of indebtedness issued in the name of the
Corporation, shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time
be determined by resolution of the Board of Directors. The Board may
authorize by resolution any officer or officers to enter into and
execute any contract or instrument of indebtedness in the name of the
Corporation, and such authority may be general or confined to specific
instances. All funds of the Corporation not otherwise employed shall be
deposited from time to time to the credit of the Corporation in such
banks or other depositories as the Board of Directors may authorize.
SECTION 6.5. DIVIDENDS. - Subject to the provisions of the Articles
of Incorporation, the Board of Directors may, at any regular or special
meeting, declare dividends upon the capital stock of the Corporation
payable out of surplus (whether earned or paid-in) or profits as and
when they deem expedient. Before declaring any dividend there may be
set apart out of surplus or profits such sum or sums as the directors
from time to time in their discretion deem proper for working capital or
as a reserve fund to meet contingencies or for such other purposes as
the directors shall deem conducive to the interests of the Corporation.
SECTION 6.6. WAIVER OF NOTICE. - Whenever any notice is required to
be given to any shareholder or Director of the Corporation under the
provisions of these Bylaws or under the provisions of the Articles of
Incorporation or under the provisions of the Iowa Business Corporation
Act, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
SECTION 6.7. VOTING OF SHARES OWNED BY THE CORPORATION. Subject
always to the specific directions of the Board of Directors, any share
or shares of stock issued by any other corporation and owned or
controlled by the Corporation may be voted at any shareholders' meeting
of such other corporation by the President of the Corporation if
present, or if absent by any other officer of the Corporation who may be
present. Whenever, in the judgment of the President, or if absent, of
any officer, it is desirable for the Corporation to execute a proxy or
give a shareholders' consent in respect to any share or shares of stock
issued by any other corporation and owned by the Corporation, such proxy
or consent shall be executed in the name of the Corporation by the
President or one of the officers of the Corporation and shall be
attested by the Secretary or an Assistant Secretary of the Corporation
without necessity of any authorization by the Board of Directors. Any
person or persons designated in the manner above stated as the proxy or
proxies of the Corporation shall have full right, power and authority to
vote the share or shares of stock issued by such other corporation and
owned by the Corporation in the same manner as such share or shares
might be voted by the Corporation.
SECTION 6.8. AMENDMENTS. - These Bylaws may be altered, amended or
repealed and new Bylaws may be adopted by the Board of Directors at any
regular or special meeting of the Board of Directors.
Exhibit 3(d)
BYLAWS AS AMENDED
OF
IES UTILITIES INC.
(Amended as of February 4, 1997)
ARTICLE I
OFFICES
SECTION 1.1. PRINCIPAL OFFICE. - The principal office shall be
established and maintained in the ie: Tower, 200 First Street, S.E., in
the City of Cedar Rapids, in the County of Linn, in the State of Iowa.
SECTION 1.2. OTHER OFFICES. - The Corporation may have other
offices, either within or without the State of Iowa, at such place or
places as the Board of Directors may from time to time appoint or the
business of the Corporation may require. The registered office of the
Corporation required by the Iowa Business Corporation Act to be
maintained in the State of Iowa may be, but need not be identical with
the principal office in the State of Iowa, and the address of the
registered office may be changed from time to time by the Board of
Directors.
ARTICLE II
SHAREHOLDERS
SECTION 2.1. ANNUAL MEETING. - The annual meeting of shareholders
for the election of directors and the transaction of other business
shall be held, in each year, on the third Tuesday in May at two o'clock
in the afternoon (if such day is a holiday, the annual meeting will be
held at such time on the next succeeding business day) or any other date
specified by the Board of Directors.
SECTION 2.2. PLACE OF SHAREHOLDERS' MEETING. - The annual meeting
or any special meeting of shareholders shall be held at the principal
office of the Corporation or any place, within the State of Iowa, as
shall be designated by the Board of Directors and stated in the notice
of the meeting.
SECTION 2.3. SPECIAL MEETINGS. - Special meetings of the
shareholders may be called by the Chairman of the Board, the President,
the Board of Directors, or the holders of not less than ten percent of
all the shares entitled to vote at the meeting.
SECTION 2.4. NOTICE OF MEETINGS. - WAIVER. - Written or printed
notice, stating the place, day and hour of the meeting and, in case of a
special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten nor more than sixty days
before the date of the meeting, either personally or by mail, by or at
the direction of the Board of Directors, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail
addressed to the shareholder at the address appearing on the stock
transfer books of the Corporation, with postage thereon prepaid.
SECTION 2.5. CLOSING OF TRANSFER BOOKS; FIXING OF RECORD DATE. -
For the purpose of determining shareholders entitled to notice of, or to
vote at, any special meeting of shareholders, or at any adjournment
thereof, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper
purpose, the Board of Directors of the Corporation may provide that the
stock transfer books shall be closed for a stated period but not to
exceed, in any case, 60 days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of
or to vote at a meeting of shareholders, such books shall be closed for
at least 10 days immediately preceding such meeting. In lieu of closing
the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such
date in any case not to be more than 70 days, and in the case of a
meeting of shareholders not less than 10 days, prior to the date on
which the particular action, requiring such determination of
shareholders, is to be taken. If the stock transfer books are not
closed and no record date is fixed for the determination of
shareholders, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for
such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been
made as provided in this section, such determination shall apply to any
adjournment thereof.
SECTION 2.6. VOTING RECORD. - The officer or agent having charge
of the stock transfer books for shares of the Corporation shall make, at
least 10 days prior to each meeting of shareholders, a complete record
of the shareholders entitled to vote at such meeting, or any adjournment
thereof, arranged in alphabetical order with the address of and the
number of shares held by each, which record shall be kept on file at the
registered office of the Corporation and shall be subject to inspection
by any shareholder at any time during usual business hours for a period
of 10 days prior to such meeting. Such record shall also be produced
and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the
meeting. The original stock transfer book shall be prima facie evidence
of the identity of the shareholders entitled to examine such record or
transfer books or to vote at any meeting of shareholders.
SECTION 2.7. QUORUM. - A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a
majority of the outstanding shares are represented at a meeting, a
majority of the shares so represented may adjourn the meeting from time
to time without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified.
The shareholders present at a duly organized meeting may continue to
transact business until adjournment only if a quorum is represented
throughout.
SECTION 2.8. CONDUCT OF MEETING. - Meetings of the shareholders
shall be presided over by one of the following officers in the order of
seniority if present and acting - the Chairman of the Board, the
President, the Secretary, or if none of the foregoing is in office and
present and acting, by a chairperson to be chosen by the shareholders.
The Secretary of the Corporation, or if absent, an Assistant Secretary,
shall act as secretary of the meeting, but if neither the Secretary nor
an Assistant Secretary is present, or if the Secretary is presiding over
the meeting and the Assistant Secretary is not present, the Chairman of
the meeting shall appoint a secretary of the meeting.
SECTION 2.9. PROXIES. - At all meetings of shareholders, a
shareholder may vote by proxy executed in writing by the shareholder or
by a duly authorized attorney-in-fact. Such proxy shall be filed with
the Secretary of the Corporation before or at the time of the meeting.
No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
SECTION 2.10. VOTING OF SHARES. - Each outstanding share entitled
to vote shall be entitled to one vote upon each matter submitted to a
vote at a meeting of shareholders.
SECTION 2.11. VOTING OF SHARES BY CERTAIN HOLDERS. - Shares
standing in the name of another corporation may be voted by such
officer, agent or proxy as the Bylaws of such corporation may
prescribe, or, in the absence of such provision, as the Board of
Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator
may be voted by such person, either in person or by proxy, without a
transfer of such shares into that person's name. Shares standing in the
name of a trustee may be voted by such trustee, either in person or by
proxy, without a transfer of such shares into the trustee's name. The
Corporation may request evidence of such fiduciary status with respect
to the vote, consent, waiver, or proxy appointment.
Shares standing in the name of a receiver or trustee in bankruptcy
may be voted by such receiver or trustee, and shares held by or under
the control of a receiver may be voted by such receiver without the
transfer of the shares into such person's name if authority so to do be
contained in an appropriate order of the court by which such receiver
was appointed.
A pledgee, beneficial owner, or attorney-in-fact of the shares held
in the name of a shareholder shall be entitled to vote such shares. The
Corporation may request evidence of such signatory's authority to sign
for the shareholder with respect to the vote, consent, waiver, or proxy
appointment.
Neither treasury shares nor shares held by another corporation, if
a majority of the shares entitled to vote for the election of Directors
of such other corporation is held by the Corporation, shall be voted at
any meeting or counted in determining the total number of outstanding
shares at any given time.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. - The business and affairs of the
Corporation shall be managed by its Board of Directors.
SECTION 3.2. NUMBER, TENURE, QUALIFICATIONS AND REMOVAL. - The
number of Directors of the Corporation shall be nine. Each Director
shall hold office until the next annual meeting of shareholders and
until the Director's successor shall have been elected and qualified,
unless removed at a meeting called expressly for that purpose by a vote
of the holders of a majority of the shares then entitled to vote at an
election of Directors. A Director may only be removed upon a showing of
cause. Directors need not be residents of the State of Iowa or
shareholders of the Corporation. Not more than three Directors shall be
officers or employees of the Corporation or its subsidiaries. No person
who has reached the age of 70 years shall be eligible for election or re-
election to the Board of Directors, unless approved by the Board of
Directors upon recommendation by the Chairman of the Board and the
Nominating Committee. Except for the Chief Executive Officer, any
Officer or employee of the Corporation serving as a Director who
retires, resigns or is removed or terminated from his or her present
office or employment with the Corporation shall simultaneously resign
from the Board of Directors. In the event the Chief Executive Officer
resigns or retires from his or her office or employment with the
Corporation, he or she shall simultaneously submit his or her
resignation from the Board of Directors if requested by the Nominating
Committee. In the event that the Chief Executive Officer is removed
from his or her office by the Board of Directors, or is involuntarily
terminated from employment with the Corporation, he or she shall
simultaneously submit his or her resignation from the Board of
Directors.
SECTION 3.3. REGULAR MEETINGS. - An annual meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately
after, and at the same place as, the annual meeting of shareholders.
Unless otherwise provided by resolution of the Board of Directors,
regular meetings of the Board of Directors, additional to the annual
meeting, shall be held on the first Tuesday of February, May, and
August, and on the first Wednesday of November of each year, at the
principal office or any place within or without the State of Iowa as
shall be designated by the Board of Directors without notice other than
such resolution.
SECTION 3.4. SPECIAL MEETINGS. - Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the
Board, President or any two Directors. The person or persons authorized
to call special meetings of the Board of Directors may fix any place
either within or without the State of Iowa, whether in person or by
telecommunications, as the place for holding any special meeting of the
Board of Directors called by them.
SECTION 3.5. NOTICE. - Notice of any special meeting shall be
given at least three days prior to the meeting by written notice
delivered personally or mailed to each Director at the Director's
business address, by telegram, or orally by telephone. If mailed, such
notice shall be deemed to be delivered when deposited in the United
States mail, so addressed, with postage prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram
is delivered to the telegraph company. Any director may waive notice of
any meeting. The attendance of a Director at a meeting shall constitute
a waiver of notice of such meeting, except where a Director attends a
meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting.
SECTION 3.6. QUORUM. - A majority of the number of Directors fixed
by Section 3.2 of this Article III shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if
less than such majority is present at a meeting, a majority of the
Directors present may adjourn the meeting from time to time without
further notice.
SECTION 3.7. MANNER OF ACTING. - The act of the majority of the
Directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors. A Director shall be considered present
at a meeting of the Board of Directors or of a committee designated by
the Board if the Director participates in such meeting by conference
telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
SECTION 3.8. INFORMAL ACTION. Any action required or permitted to
be taken at any meeting of the Directors of the Corporation or of any
committee of the Board may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by all of the
Directors or all of the members of the committee of Directors, as the
case may be. Such consent shall have the same force and effect as a
unanimous vote at a meeting and shall be filed with the Secretary of the
Corporation to be included in the official records of the Corporation.
SECTION 3.9. PRESUMPTION OF ASSENT. - A Director of the
Corporation who is present at a meeting of the Board of Directors at
which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless (a) the Director objects at the
beginning of the meeting or promptly upon arrival to the holding of or
transacting business at the meeting, (b) the Director's dissent shall be
entered in the minutes of the meeting, or (c) the Director shall file a
written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such
dissent by registered or certified mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such
right to dissent shall not apply to a Director who voted in favor of
such action.
SECTION 3.10. VACANCIES. - Any vacancy occurring in the Board of
Directors and any directorship to be filled by reason of an increase in
the number of Directors may be filled by the affirmative vote of a
majority of the Directors then in office, even if less than a quorum of
the Board of Directors. Failure to attend three consecutive regular
meetings of the Board of Directors shall disqualify a Director from
further service as a Director during the year in which the third
delinquency occurs and shall make such Director ineligible for re-
election, unless such failure to attend be determined by the affirmative
vote of two-thirds of the remaining Directors holding office to be due
to circumstances beyond the control of such Director. A resignation may
be tendered by any Director at any meeting of the shareholders or of the
Board of Directors, who shall at such meeting accept the same.
SECTION 3.11. COMPENSATION. - The Directors may be paid their
expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of
the Board of Directors or may receive a stated salary as Director. No
such payment shall preclude any Director from serving the Corporation in
any other capacity and receiving compensation therefor. Members of
special or standing committees may be allowed like compensation for
attending committee meetings.
SECTION 3.12. EXECUTIVE COMMITTEE. - The Board of Directors shall,
at each annual meeting thereof, appoint from its number an Executive
Committee of not less than three (3) nor more than five (5) members,
including the Chairman of the Board and the Chief Executive Officer of
the Corporation, to serve, subject to the pleasure of the Board, for the
year next ensuing and until their successors are appointed by the Board.
The Board of Directors at such time shall also fix the compensation to
be paid to the members of the Executive Committee. No member of the
Executive Committee shall continue to be a member after ceasing to be a
Director of the Corporation. The Board of Directors shall have the
power at any time to increase or decrease the number of members of the
Executive Committee, to fill vacancies, to change any member, and to
change the functions or terminate the Committee's existence.
SECTION 3.13. POWERS OF EXECUTIVE COMMITTEE. - The Executive
Committee appointed by the Board of Directors as above provided shall
possess all the power and authority of the Board of Directors when said
Board is not in session, but the Executive Committee shall not have the
power to: (1) declare dividends or distributions, (2) approve or
recommend directly to the shareholders actions required by law to be
approved by shareholders, (3) fill vacancies on the Board of Directors
or designate directors for purposes of proxy solicitation, (4) amend the
Articles, (5) adopt, amend, or repeal Bylaws, (6) approve a plan of
merger not requiring shareholders approval, (7) authorize reacquisition
of shares unless pursuant to a method specified by the Board, or
(8) authorize the sale or issuance of shares or designate the terms of a
series of a class of shares, except pursuant to a method specified by
the Board, to the extent permitted by law.
SECTION 3.14. PROCEDURE: MEETINGS: QUORUM. - Regular meetings of
the Executive Committee may be held at least once in each month on such
day as the Committee shall elect and special meetings may be held at
such other times as the Chairman of the Board or any two members of the
Executive Committee may designate. Notice of special meetings of the
Executive Committee shall be given by letter, telegram, or cable
delivered for transmission not later than during the second day
immediately preceding the day for such meeting or by word of mouth or
telephone not later than the day immediately preceding the date for such
meeting. No such notice need state the business to be transacted at the
meeting. No notice need be given of an adjourned meeting. The
Executive Committee may fix its own rules of procedure. It shall keep a
record of its proceedings and shall report these proceedings to the
Board of Directors at the regular meeting thereof held next after the
meeting of the Executive Committee. Attendance at any meeting of the
Executive Committee at a special meeting shall constitute a waiver of
notice of such special meeting.
At its last meeting preceding the annual meeting of the Board of
Directors, the Executive Committee shall make to the Board its
recommendation of officers of the Corporation to be elected by the Board
for the ensuing year.
The Chairman of the Board shall act as Chairman at all meetings of
the Executive Committee. The Secretary of the Corporation shall act as
Secretary of the meeting. In case of the absence from any meeting of
the Executive Committee of the Secretary of the Corporation, the
Executive Committee shall appoint a secretary of the meeting. The
Executive Committee may hold its meetings within or without the State of
Iowa, as it may from time to time by resolution determine. A majority
of the Executive Committee shall be necessary to constitute a quorum for
the transaction of any business, and the act of a majority of the
members present at a meeting at which a quorum is present shall be the
act of the Executive Committee. The members of the Executive Committee
shall act only as a committee, and the individual members shall have no
power as such.
SECTION 3.15. OTHER COMMITTEES. - The Board of Directors may
appoint by resolution adopted by a majority of the full Board of
Directors from among its members, other committees, temporary or
permanent, and, to the extent permitted by law and these Bylaws, may
designate the duties, powers, and authorities of such committees subject
to the same restriction of powers as provided in Section 3.13.
ARTICLE IV
OFFICERS
SECTION 4.1. OFFICERS. - The officers of the Corporation shall be
a Chairman of the Board, a President, a Secretary and a Treasurer, each
of whom shall be elected by the Board of Directors. Such other
officers, including vice presidents, general counsel and assistant
officers as may be deemed necessary may be elected or appointed by the
Board of Directors. Any two or more of the offices may be held by the
same person if so decided by the Board of Directors.
SECTION 4.2. ELECTION AND TERM OF OFFICE. - The officers of the
Corporation to be elected by the Board of Directors shall be elected
annually by the Board at its annual meeting held after each annual
meeting of the shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as
may be convenient. A vacancy in any office for any reason may be filled
by the Board of Directors for the unexpired portion of the term.
SECTION 4.3. REMOVAL OF OFFICERS. - Any officer may be removed by
the Board of Directors whenever in its judgment the best interests of
the Corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer shall not of itself
create contract rights.
SECTION 4.4. CHAIRMAN OF THE BOARD. - The Chairman of the Board
shall be the Chief Executive Officer of the Corporation. The Chairman
of the Board shall preside at all meetings of the Board of Directors and
shall be a member of the Executive Committee. The Chairman of the Board
shall see that all resolutions and orders of the Board of Directors or
the Executive Committee are carried into effect and shall exercise such
other powers and perform such other duties as may be designated by the
Board of Directors and the Executive Committee.
SECTION 4.5. PRESIDENT. - The President shall be the Chief
Operating Officer of the Corporation and shall have general supervision
of and be accountable for the control of the Corporation's business
affairs, properties and management and otherwise shall have the general
powers and duties usually vested with the office of President of a
Corporation, subject, however, to the control of the Board of Directors,
the Executive Committee, and the Chairman of the Board & Chief Executive
Officer. The President shall see that all resolutions and orders of the
Board of Directors or the Executive Committee are carried into effect
and shall exercise such other powers and perform such other duties as
may be designated by the Board of Directors, the Executive Committee,
and the Chairman of the Board & Chief Executive Officer.
SECTION 4.6. VICE-PRESIDENTS. - A Vice President (if one or more
be elected or appointed) shall have such powers and perform such duties
as the Board of Directors may from time to time prescribe or as the
Chairman of the Board or the President may from time to time delegate.
SECTION 4.7. TREASURER. - The Treasurer shall have the custody of
the funds and securities of the Corporation. Whenever necessary or
proper, the Treasurer shall (1) endorse, on behalf of the Corporation,
checks, notes or other obligations and deposit the same to the credit of
the Corporation in such bank or banks or depositories as the Board of
Directors may designate; (2) sign receipts or vouchers for payments made
to the Corporation which shall also be signed by such other officer as
may be designated by the Board of Directors; (3) disburse the funds of
the Corporation as may be ordered by the Board, taking proper vouchers
for such disbursements; and (4) render to the Board of Directors, the
Executive Committee, the Chairman of the Board and the President at the
regular meetings of the Board or Executive Committee, or whenever any of
them may require it, an account of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall
give the Corporation a bond with one or more sureties satisfactory to
the board, for the faithful performance of the duties of this office,
and for the restoration to the Corporation, in case of death, resigna
tion, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in possession or under control
of the Treasurer.
SECTION 4.8. SECRETARY. - The Secretary shall record the votes and
proceedings of the Shareholders, the Board of Directors and the
Executive Committee in a book or books kept for that purpose, and shall
serve notices of and attend all meetings of the Directors, the
Executive Committee and shareholders. In the absence of the Secretary
or an Assistant Secretary from any meeting of the Board of Directors,
the proceedings of such meeting shall be recorded by such other person
as may be appointed for that purpose.
The Secretary shall keep in safe custody the seal of the
Corporation, and duplicates, if any, and when requested by the Board of
Directors, or when any instrument shall have been first signed by the
Chairman of the Board, the President or a Vice President duly
authorized to sign the same, or when necessary to attest any proceedings
of the shareholders or directors, shall affix it to any instrument
requiring the same, and shall attest the same. The Secretary shall,
with the Chairman of the Board or the President, sign certificates of
stock of the Corporation and affix a seal of the Corporation or cause
such seal to be imprinted or engraved thereon, subject, however, to the
provisions providing for the use of facsimile signatures on stock
certificates under certain conditions. The Secretary shall have charge
of such books and papers as properly belong to such office, or as may be
committed to the Secretary's care by the Board of Directors or by the
Executive Committee, and shall perform such other duties as pertain to
such office, or as may be required by the Board of Directors, the
Executive Committee or the Chairman of the Board.
SECTION 4.9. ASSISTANT TREASURERS. - Each Assistant Treasurer (if
one or more Assistant Treasurers be elected or appointed) shall assist
the Treasurer and shall perform such other duties as the Board of
Directors may from time to time prescribe or the Chairman of the Board
or the President may from time to time delegate. At the request of the
Treasurer, any Assistant Treasurer may perform temporarily the duties of
Treasurer in the case of the Treasurer's absence or inability to act.
In the case of the death of the Treasurer, or in the case of absence or
inability to act without having designated an Assistant Treasurer to
perform temporarily the duties of Treasurer, an Assistant Treasurer
shall be designated by the Chairman of the Board or the President to
perform the duties of the Treasurer. Each Assistant Treasurer shall, if
required by the Board of Directors, give the Corporation a bond with
such surety or sureties as may be ordered by the Board of Directors, for
the faithful performance of the duties of such office and for the
restoration to the Corporation, in case of death, resignation,
retirement or removal from office, of all books, papers, vouchers, money
and other property of whatever kind belonging to the Corporation in the
possession or under control of such Assistant Treasurer.
SECTION 4.10. ASSISTANT SECRETARIES. - Each Assistant Secretary
(if one or more Assistant secretaries be elected or appointed) shall
assist the Secretary and shall perform such other duties as the Board of
Directors may from time to time prescribe or the Chairman of the Board
or the President may from time to time delegate. At the request of the
Secretary, any Assistant Secretary may perform temporarily the duties of
Secretary in the case of the Secretary's absence or inability to act.
In the case of the death of the Secretary, or in the case of absence or
inability to act without having designated an Assistant Secretary to
perform temporarily the duties of Secretary, the Assistant Secretary to
perform the duties of the Secretary shall be designated by the Chairman
of the Board or the President.
SECTION 4.11. GENERAL COUNSEL. - The General Counsel shall be
responsible for the management of the Legal Department in its support of
all other operations of the Corporation including management guidance to
assure responsible decisions, information for all employees concerning
the legal and judicial environment and recommended changes of law as
deemed advisable. In addition, the General Counsel shall be responsible
for the coordination of outside counsel activities in all instances as
well as the prosecution of charges against the Corporation or other
judicial or regulatory activities. This shall include full information
for the management and employees of judicial, regulatory or other
administrative body rulings and their impact on the Corporation. The
duties shall include approval of all legal and contractual documents of
the Corporation, prior to their authorization, and full support to
various departments to assist in the development of these documents.
The General Counsel shall perform such other duties as may be assigned
from time to time by the Board of Directors, the Executive Committee,
the Chairman of the Board or the President.
ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 5.1. CERTIFICATES FOR SHARES. - Each certificate
representing shares of the Corporation shall state upon the face (a)
that the Corporation is organized under the laws of the State of Iowa,
(b) the name of the person to whom issued, (c) the number and class of
shares, and the designation of the series, if any, which such
certificate represents, and (d) the par value of each share, if any, and
each such certificate shall otherwise be in such form as shall be
determined by the Board of Directors. Such certificates shall be signed
by the Chairman of the Board or the President and by the Secretary or an
Assistant Secretary and shall be sealed with the corporate seal or a
facsimile thereof. The signatures of such officers upon a certificate
may be facsimiles. If a certificate is countersigned by a transfer
agent, or registered by a registrar, the signatures of the persons
signing for such transfer agent or registrar also may be facsimiles. In
case any officer or other authorized person who has signed or whose
facsimile signature has been placed upon such certificate for the
Corporation shall have ceased to be such officer or employee or agent
before such certificate is issued, it may be issued by the Corporation
with the same effect as if such person were an officer or employee or
agent at the date of its issue. Each certificate for shares shall be
consecutively numbered or otherwise identified.
All certificates surrendered to the Corporation for transfer shall
be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and
indemnity to the Corporation as the Board of Directors may prescribe.
SECTION 5.2. TRANSFER OF SHARES. - Transfer of shares of the
Corporation shall be made only on the stock transfer books of the
Corporation by the holder of record thereof or by such person's legal
representative, who shall furnish proper evidence of authority to
transfer, or authorized attorney, by power of attorney duly executed and
filed with the Secretary of the Corporation, and on surrender for
cancellation of the certificate for such shares.
Subject to the provisions of Section 2.11 of Article II of these
Bylaws, the person in whose name shares stand on the books of the
Corporation shall be treated by the Corporation as the owner thereof for
all purposes, including all rights deriving from such shares, and the
Corporation shall not be bound to recognize any equitable or other claim
to, or interest in, such shares or rights deriving from such shares, on
the part of any other person, including (without limitation) a
purchaser, assignee or transferee of such shares, or rights deriving
from such shares, unless and until such purchaser, assignee, transferee
or other person becomes the record holder of such shares, whether or not
the Corporation shall have either actual or constructive notice of the
interest of such purchaser, assignee, transferee or other person.
Except as provided in said Section 2.11 hereof, no such purchaser,
assignee, transferee or other person shall be entitled to receive notice
of the meetings of shareholders, to vote at such meetings, to examine
the complete record of the shareholders entitled to vote at meetings, or
to own, enjoy or exercise any other property or rights deriving from
such shares against the Corporation, until such purchaser, assignee,
transferee or other person has become the record holder of such shares.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. INDEMNIFICATION. - The Corporation shall indemnify
its directors, officers, employees and agents to the full extent
permitted by the Iowa Business Corporation Act, as amended from time to
time. The Corporation shall purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any
liability asserted against and incurred by such person in any such
capacity or arising out of such person's status as such, whether or not
the Corporation would have the power to indemnify such person against
such liability under the provisions of this section.
SECTION 6.2. FISCAL YEAR. - The fiscal year of the Corporation
shall be the calendar year.
SECTION 6.3. SEAL. - The corporate seal shall be circular in form
and shall have inscribed thereon the name of the Corporation and the
words "CORPORATE SEAL IOWA". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 6.4. CONTRACTS, CHECKS, DRAFTS, LOANS AND DEPOSITS. - All
contracts, checks, drafts or other orders for the payment of money,
notes or other evidences of indebtedness issued in the name of the
Corporation, shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time
be determined by resolution of the Board of Directors. The Board may
authorize by resolution any officer or officers to enter into and
execute any contract or instrument of indebtedness in the name of the
Corporation; and such authority may be general or confined to specific
instances. All funds of the Corporation not otherwise employed shall be
deposited from time to time to the credit of the Corporation in such
banks or other depositories as the Board of Directors may authorize.
SECTION 6.5. DIVIDENDS. - Subject to the provisions of the
Articles of Incorporation, the Board of Directors may, at any regular or
special meeting, declare dividends upon the capital stock of the
Corporation payable out of surplus (whether earned or paid-in) or
profits as and when they deem expedient. Before declaring any dividend
there may be set apart out of surplus or profits such sum or sums as the
directors from time to time in their discretion deem proper for working
capital or as a reserve fund to meet contingencies or for such other
purposes as the directors shall deem conducive to the interests of the
Corporation.
SECTION 6.6. WAIVER OF NOTICE. - Whenever any notice is required
to be given to any shareholder or Director of the Corporation under the
provisions of these Bylaws or under the provisions of the Articles of
Incorporation or under the provisions of the Iowa Business Corporation
Act, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
SECTION 6.7. VOTING OF SHARES OWNED BY THE CORPORATION. - Subject
always to the specific directions of the Board of Directors, any share
or shares of stock issued by any other corporation and owned or
controlled by the Corporation may be voted at any shareholders' meeting
of such other corporation by the President of the Corporation if
present, or if absent by any other officer of the Corporation who may be
present. Whenever, in the judgment of the President, or if absent, of
any officer, it is desirable for the Corporation to execute a proxy or
give a shareholders' consent in respect to any share or shares of stock
issued by any other corporation and owned by the Corporation, such proxy
or consent shall be executed in the name of the Corporation by the
President or one of the officers of the Corporation and shall be
attested by the Secretary or an Assistant Secretary of the Corporation
without necessity of any authorization by the Board of Directors. Any
person or persons designated in the manner above stated as the proxy or
proxies of the Corporation shall have full right, power and authority to
vote the share or shares of stock issued by such other corporation and
owned by the Corporation in the same manner as such share or shares
might be voted by the Corporation.
SECTION 6.8. AMENDMENTS. - These Bylaws may be altered, amended or
repealed and new Bylaws may be adopted by the Board of Directors at any
regular or special meeting of the Board of Directors.
Exhibit 4(g)
EXECUTION
COPY
$300,000,000
THIRD
AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of November 20, 1996
Among
IES DIVERSIFIED INC.
as Borrower
and
THE BANKS NAMED HEREIN
as Banks
and
CITIBANK, N.A.
as Agent
TABLE OF CONTENTS
Section Page
ARTICLE I - DEFINITIONS AND ACCOUNTING TERMS 1
SECTION 1.01. Certain Defined Terms. 1
SECTION 1.02. Computation of Time Periods 15
SECTION 1.03. Computations of Outstandings 16
SECTION 1.04. Accounting Terms 16
ARTICLE II - AMOUNTS AND TERMS OF THE ADVANCES 16
SECTION 2.01. The A Advances 16
SECTION 2.03. The B Advances 18
SECTION 2.04. Fees 21
SECTION 2.05. Reduction of the Commitments 21
SECTION 2.06. Repayment of A Advances 22
SECTION 2.07. Interest on A Advances 22
SECTION 2.08. Additional Interest on Eurodollar Rate Advances 22
SECTION 2.09. Interest Rate Determination 23
SECTION 2.10. Voluntary Conversion of A Advances 25
SECTION 2.11. Optional Prepayments of Advances 25
SECTION 2.12. Mandatory Prepayments 25
SECTION 2.13. Increased Costs 26
SECTION 2.14. Illegality 27
SECTION 2.15. Payments and Computations 28
SECTION 2.16. Taxes 29
SECTION 2.17. Sharing of Payments, Etc. 30
SECTION 2.18. Extension of Termination Date 31
ARTICLE III - CONDITIONS OF LENDING 32
SECTION 3.01. Conditions Precedent to Closing 32
SECTION 3.02. Conditions Precedent to Each A Borrowing 34
SECTION 3.03. Conditions Precedent to Each B Borrowing 35
SECTION 3.04. Reliance on Certificates 36
ARTICLE IV -REPRESENTATIONS AND WARRANTIES 36
SECTION 4.01. Representations and Warranties of the Borrower 36
ARTICLE V - COVENANTS OF THE BORROWER 38
SECTION 5.01. Affirmative Covenants 38
SECTION 5.02. Negative Covenants 42
ARTICLE VI - EVENTS OF DEFAULT 46
SECTION 6.01. Events of Default 46
ARTICLE VII - THE AGENT 48
SECTION 7.01. Authorization and Action 48
SECTION 7.02. Agent's Reliance, Etc 49
SECTION 7.03. Citibank, N.A. and Affiliates 49
SECTION 7.04. Lender Credit Decision 50
SECTION 7.05. Indemnification 50
SECTION 7.06. Successor Agent 50
ARTICLE VIII - MISCELLANEOUS 51
SECTION 8.01. Amendments, Etc 51
SECTION 8.02. Notices, Etc 51
SECTION 8.03. No Waiver; Remedies 52
SECTION 8.04. Costs, Expenses, Taxes and Indemnification 52
SECTION 8.05. Right of Set-off 53
SECTION 8.06. Binding Effect 54
SECTION 8.07. Assignments and Participations 54
SECTION 8.08. Confidentiality 57
SECTION 8.09. Waiver of Jury Trial 58
SECTION 8.10. Consent 58
SECTION 8.11. Governing Law 58
SECTION 8.12. Relation of the Parties; No Beneficiary 58
SECTION 8.13. Execution in Counterparts 58
THIRD AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of November 20, 1996
THIS CREDIT AGREEMENT is made by and among:
(i) IES DIVERSIFIED INC., an Iowa corporation (the
"Borrower"), all of whose common stock is owned on the date
hereof by the Parent (as hereinafter defined),
(ii) the banks (the "Banks") listed on the signature
pages hereof and the other Lenders (as hereinafter defined)
from time to time party hereto, and
(iii) Citibank, N.A., as agent (the "Agent") for the
Lenders hereunder.
PRELIMINARY STATEMENTS
(1) The Borrower, certain banks (the "Existing
Banks") and Citibank, N.A., as agent for the Existing Banks,
are parties to that certain Second Amended and Restated Credit
Agreement, dated as of November 9, 1994 (the "Existing
Facility").
(2) The Borrower has requested that the Existing
Facility be amended and restated so as to (i) increase the
Commitments (as defined therein) to $300,000,000 and (ii)
effect certain other amendments and modifications as set forth
herein.
(3) The Banks and the Agent have agreed to such
request, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto hereby
agree that the Existing Facility is hereby amended and
restated in its entirety to read as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"A Advance" means an advance by a Lender to the
Borrower as part of an A Borrowing and refers to an
Adjusted CD Rate Advance, a Base Rate Advance or a
Eurodollar Rate Advance, each of which shall be a "Type"
of A Advance.
"A Borrowing" means a borrowing consisting of
simultaneous A Advances of the same Type, having the same
Interest Period and ratably made or Converted on the same
day by each of the Lenders pursuant to Section 2.02 or
2.10, as the case may be. All Advances of the same Type,
having the same Interest Period and made or Converted on
the same day shall be deemed a single Borrowing hereunder
until repaid or next Converted.
"A Note" means a promissory note of the Borrower
payable to the order of any Lender, in substantially the
form of Exhibit 1.01A-1 hereto, evidencing the aggregate
indebtedness of the Borrower to such Lender resulting
from the A Advances made by such Lender.
"Adjusted CD Rate" means, for any Interest Period
for each Adjusted CD Rate Advance made as part of the
same A Borrowing, an interest rate per annum equal to the
sum of:
(a) the rate per annum obtained by
dividing (i) the rate of interest determined by the Agent to
be the average (rounded upward to the nearest whole multiple
of 1/100 of 1% per annum, if such average is not such a
multiple) of the consensus bid rate determined by each of the
Reference Banks for the bid rates per annum at 9:00 a.m. (New
York City time) (or as soon thereafter as practicable) on the
first day of such Interest Period of New York certificate of
deposit dealers of recognized standing selected by such
Reference Bank for the purchase at face value of certificates
of deposit of such Reference Bank in an amount substantially
equal to such Reference Bank's Adjusted CD Rate Advance made
as part of such A Borrowing and maturing on the last day of
such Interest Period, by (ii) a percentage equal to 100% minus
the Adjusted CD Rate Reserve Percentage (as defined below) for
such Interest Period, plus
(b) the Assessment Rate (as defined
below) for such Interest Period.
The "Adjusted CD Rate Reserve Percentage" for the
Interest Period for each Adjusted CD Rate Advance
comprising part of the same A Borrowing means the reserve
percentage applicable on the first day of such Interest
Period, as determined by the Agent, under regulations
issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) for determining
the maximum reserve requirement (including, but not
limited to, any emergency, supplemental or other marginal
reserve requirement) for a member bank of the Federal
Reserve System in New York City with deposits exceeding
one billion dollars with respect to liabilities
consisting of or including (among other liabilities) U.S.
dollar nonpersonal time deposits in the United States
with a maturity equal to such Interest Period. The
"Assessment Rate" for the Interest Period for each
Adjusted CD Rate Advance comprising part of the same A
Borrowing means the annual assessment rate estimated by
the Agent on the first day of such Interest Period for
determining the then current annual assessment payable by
the Agent to the Federal Deposit Insurance Corporation
(or any successor) for insuring U.S. dollar deposits of
the Agent in the United States. The Adjusted CD Rate for
the Interest Period for each Adjusted CD Rate Advance
comprising part of the same A Borrowing shall be
determined by the Agent on the basis of applicable rates
furnished to and received by the Agent from the Reference
Banks on the first day of such Interest Period, subject,
however, to the provisions of Section 2.09.
"Adjusted CD Rate Advance" means an A Advance which
bears interest as provided in Section 2.07(b).
"Advance" means an A Advance or a B Advance.
"Affiliate" means, with respect to any Person, any
other Person directly or indirectly controlling
(including but not limited to all directors and officers
of such Person), controlled by, or under direct or
indirect common control with such Person. A Person shall
be deemed to control another entity if such Person
possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of
such entity, whether through the ownership of voting
securities, by contract, or otherwise.
"Alternate Base Rate" means a fluctuating interest
rate per annum as shall be in effect from time to time
which rate per annum shall at all times be equal to the
higher of:
(c) the rate of interest announced
publicly by Citibank, N.A. in New York, New York, from time to
time, as Citibank, N.A.'s base rate; and
(d) 1/2 of one percent per annum above
the Federal Funds Rate.
Each change in the Alternate Base Rate shall take effect
concurrently with any change in such base rate or the
Federal Funds Rate.
"Applicable Lending Office" means, with respect to
each Lender, such Lender's Domestic Lending Office in the
case of a Base Rate Advance, such Lender's CD Lending
Office in the case of an Adjusted CD Rate Advance and
such Lender's Eurodollar Lending Office in the case of a
Eurodollar Rate Advance and, in the case of a B Advance,
the office of such Lender notified by such Lender to the
Agent as its Applicable Lending Office with respect to
such B Advance.
"Applicable Margin" means, for a Eurodollar Rate
Advance, an Adjusted CD Rate Advance or Base Rate
Advance, the basis points per annum set forth, in the
columns identified as Level 1, Level 2, Level 3 or Level
4 below, opposite the rate applicable to such Advance.
Level 1 Level 2 Level 3 Level 4
S&P A- or better BBB+ BBB below BBB*
and and and or
Moody's A3 or better Baa1 Baa2 below Baa2*
Basis Points Per Annum
Eurodollar Rate 25.0 25.0 30.0 70.0
Adjusted CD Rate 37.5 37.5 42.5 82.5
Base Rate Advance 0 0 0 100.0
* or unrated
The Applicable Margin will be based upon the Level
corresponding to First Mortgage Bond (IES Utilities) Debt
Rating at the time of determination. Any change in the
Applicable Margin shall be effective as of the Borrowing
date following the date on which the applicable rating
agency announces the applicable change in ratings.
"Applicable Rate" means:
(i) in the case of each Base Rate Advance, a rate
per annum equal at all times to the sum of the Alternate Base
Rate in effect from time to time plus the Applicable Margin in
effect from time to time;
(ii) in the case of each Adjusted CD Rate Advance
comprising part of the same A Borrowing, a rate per annum
during each Interest Period equal at all times to the sum of
the Adjusted CD Rate for such Interest Period plus the
Applicable Margin in effect from time to time during such
Interest Period; and
(iii) in the case of each Eurodollar Rate Advance
comprising part of the same A Borrowing, a rate per annum
during each Interest Period equal at all times to the sum of
the Eurodollar Rate for such Interest Period plus the
Applicable Margin in effect from time to time during such
Interest Period.
"Available Commitment" means, for each Lender at any
time on any day, the unused portion of such Lender's
Commitment, computed after giving effect to all
Extensions of Credit theretofore made on such day and the
application of proceeds therefrom.
"Available Commitments" means the aggregate of the
Lenders' Available Commitments hereunder.
"B Advance" means an advance by a Lender to the
Borrower as part of a B Borrowing resulting from the
auction bidding procedure described in Section 2.03.
"B Borrowing" means a borrowing consisting of
simultaneous B Advances from each of the Lenders whose
offer to make one or more B Advances as part of such
borrowing has been accepted by the Borrower under the
auction bidding procedure described in Section 2.03.
"B Note" means a promissory note of the Borrower
payable to the order of any Lender, in substantially the
form of Exhibit 1.01A-2 hereto, evidencing the aggregate
indebtedness of the Borrower to such Lender resulting
from a B Advance(s) made by such Lender.
"B Reduction" has the meaning assigned to that term
in Section 2.01.
"Base Rate Advance" means an A Advance that bears
interest as provided in Section 2.07(a).
"Borrowing" means an A Borrowing or a B Borrowing.
Any A Borrowing consisting of A Advances of a particular
Type may be referred to as being an A Borrowing of such
"Type".
"Business Day" means a day of the year on which
banks are not required or authorized to close in New York
City, Chicago, Illinois or Cedar Rapids, Iowa, and, if
the applicable Business Day relates to any Eurodollar
Rate Advance, on which dealings are carried on in the
London interbank market.
"CD Lending Office" means, with respect to any
Lender, the office or affiliate of such Lender specified
as its "CD Lending Office" opposite its name on Schedule
I hereto or in the Lender Assignment pursuant to which it
became a Lender (or, if no such office is specified, its
Domestic Lending Office) or such other office or
affiliate of such Lender as such Lender may from time to
time specify to the Borrower and the Agent.
"Capitalized Lease Obligations" means obligations to
pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real and/or
personal property which obligation is required to be
classified and accounted for as a capital lease on a
balance sheet prepared in accordance with generally
accepted accounting principles, and for purposes hereof
the amount of such obligations shall be the capitalized
amount determined in accordance with such principles.
"Cash and Cash Equivalents" means, with respect to
any Person, the aggregate amount of the following, to the
extent owned by such Person free and clear of all Liens,
encumbrances and rights of others and not subject to any
judicial, regulatory or other legal constraint: (i) cash
on hand; (ii) Dollar demand deposits maintained in the
United States with any commercial bank and Dollar time
deposits maintained in the United States with, or
certificates of deposit having a maturity of one year or
less issued by, any commercial bank which has its head
office in the United States and which has a combined
capital and surplus of at least $100,000,000;
(iii) eurodollar time deposits maintained in the United
States with, or eurodollar certificates of deposit having
a maturity of one year or less issued by, any commercial
bank having outstanding unsecured indebtedness that is
rated (on the date of acquisition thereof) A- or better
by S&P or A3 or better by Moody's (or an equivalent
rating by another nationally-recognized credit rating
agency of similar standing if neither of such
corporations is then in the business of rating unsecured
bank indebtedness); (iv) direct obligations of, or
unconditionally guaranteed by, the United States and
having a maturity of one year or less; (v) commercial
paper rated (on the date of acquisition thereof) A-1 or P-
1 or better by S&P or Moody's, respectively (or an
equivalent rating by another nationally-recognized credit
rating agency of similar standing if neither of such
corporations is then in the business of rating commercial
paper), and having a maturity of one year or less;
(vi) obligations with any Lender or any other commercial
bank in respect of the repurchase of obligations of the
type described in clause (iv), above, provided that such
repurchase obligations shall be fully secured by
obligations of the type described in said clause (iv) and
the possession of such obligations shall be transferred
to, and segregated from other obligations owned by, such
Lender or such other commercial bank; and (vii) preferred
stock of any Person that is rated A- or better by S&P or
A3 or better by Moody's (or an equivalent rating by
another nationally-recognized credit rating agency of
similar standing if neither of such corporations is then
in the business of rating preferred stock of entities
engaged in such businesses).
"Closing" means the day upon which each of the
applicable conditions precedent enumerated in Section
3.01 shall be fulfilled to the satisfaction of, or waived
with the consent of, the Lenders, the Agent and the
Borrower. All transactions contemplated by the Closing
shall take place on a Business Day on or prior to
November 20, 1996, at the offices of King & Spalding, 120
West 45th Street, New York, New York 10036, at
10:00 a.m., or such later Business Day as the parties
hereto may mutually agree.
"Commitment" means, for each Lender, the obligation
of such Lender to make Advances to the Borrower in an
amount no greater than the amount set forth on Schedule I
hereto or, if such Lender has entered into one or more
Lender Assignments, set forth for such Lender in the
Register maintained by the Agent pursuant to Section
8.07(c), in each such case as such amount may be reduced
from time to time pursuant to Section 2.05.
"Commitments" means the total of the Lenders' Commitments
hereunder. The Commitments shall in no event exceed
$300,000,000.
"Consolidated Capital" means, with respect to any
Person, at any date of determination, the sum of
(a) Consolidated Debt of such Person, (b) consolidated
equity of the common stockholders of such Person and its
Consolidated Subsidiaries, (c) consolidated equity of the
preference stockholders of such Person and its
Consolidated Subsidiaries and (d) consolidated equity of
the preferred stockholders of such Person and its
Consolidated Subsidiaries, in each case determined at
such date in accordance with generally accepted
accounting principles.
"Consolidated Debt" means, with respect to any
Person, at any date of determination, the aggregate Debt
of such Person and its Consolidated Subsidiaries
determined on a consolidated basis in accordance with
generally accepted accounting principles.
"Consolidated Subsidiary" means, with respect to any
Person, any Subsidiary of such Person whose accounts are
or are required to be consolidated with the accounts of
such Person in accordance with generally accepted
accounting principles.
"Convert", "Conversion" and "Converted" each refers
to a conversion of Advances of one Type into Advances of
another Type, or to the selection of a new, or the
renewal of the same, Interest Period for Advances, as the
case may be, pursuant to Section 2.09 or 2.10.
"Debt" means, for any Person, any and all
indebtedness, liabilities and other monetary obligations
of such Person (i) for borrowed money or evidenced by
bonds, debentures, notes or other similar instruments,
(ii) to pay the deferred purchase price of property or
services (except trade accounts payable arising and
repaid in the ordinary course of business),
(iii) Capitalized Lease Obligations, (iv) under
reimbursement or similar agreements with respect to
letters of credit (other than trade letters of credit)
issued to support indebtedness or obligations of such
Person or of others of the kinds referred to in clauses
(i) through (iii), above, and clause (v), below,
(v) reasonably quantifiable obligations under direct
guaranties or indemnities, or under support agreements,
in respect of, and reasonably quantifiable obligations
(contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss
in respect of, or to assure an obligee against failure to
make payment in respect of, indebtedness or obligations
of others of the kinds referred to in clauses (i) through
(iv), above, and (vi) in respect of unfunded vested
benefits under Plans. In determining Debt for any
Person, there shall be included accrued interest on the
principal amount thereof to the extent such interest has
accrued for more than six months.
"Default Rate" means a rate per annum equal at all
times to 2% per annum above the Applicable Rate in effect
from time to time for Base Rate Advances.
"Direct Subsidiary" means, with respect to any
Person, any Subsidiary directly owned by such Person.
"Dollars" and the sign "$" each means lawful money
of the United States.
"Domestic Lending Office" means, with respect to any
Lender, the office or affiliate of such Lender specified
as its "Domestic Lending Office" opposite its name on
Schedule I hereto or in the Lender Assignment pursuant to
which it became a Lender, or such other office or
affiliate of such Lender as such Lender may from time to
time specify in writing to the Borrower and the Agent.
"Eligible Assignee" means (a) a commercial bank or
trust company organized under the laws of the United
States, or any State thereof; (b) a commercial bank
organized under the laws of any other country that is a
member of the OECD, or a political subdivision of any
such country, provided that such bank is acting through a
branch or agency located in the United States; (c) the
central bank of any country that is a member of the OECD;
and (d) any other commercial bank or other financial
institution engaged generally in the business of
extending credit or purchasing debt instruments;
provided, however, that (A) any such Person shall also
(i) have outstanding unsecured indebtedness that is rated
A- or better by S&P or A3 or better by Moody's (or an
equivalent rating by another nationally-recognized credit
rating agency of similar standing if neither of such
corporations is then in the business of rating unsecured
indebtedness of entities engaged in such businesses) or
(ii) have combined capital and surplus (as established in
its most recent report of condition to its primary
regulator) of not less than $250,000,000 (or its
equivalent in foreign currency), (B) any Person described
in clause (b), (c), or (d), above, shall, on the date on
which it is to become a Lender hereunder, (i) be entitled
to receive payments hereunder without deduction or
withholding of any United States Federal income taxes (as
contemplated by Section 2.16) and (ii) not be incurring
any losses, costs or expenses of the type for which such
Person could demand payment under Section 2.13, and
(C) any Person described in clauses (b), (c) and (d),
above, shall, in addition, be reasonably acceptable to
the Agent and the Borrower.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time, and
the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate" means, with respect to any Person,
any trade or business (whether or not incorporated) which
is a member of a group of which such Person is a member
and which is under common control within the meaning of
the regulations under Section 414(b) or (c) of the
Internal Revenue Code of 1986, as amended from time to
time.
"ERISA Event" means (i) the occurrence of a
reportable event, within the meaning of Section 4043 of
ERISA, unless the 30-day notice requirement with respect
thereto has been waived by the PBGC; (ii) the provision
by the administrator of any Plan of notice of intent to
terminate such Plan, pursuant to Section 4041(a)(2) of
ERISA (including any such notice with respect to a plan
amendment referred to in Section 4041(e) of ERISA);
(iii) the cessation of operations at a facility in the
circumstances described in Section 4062(e) of ERISA;
(iv) the withdrawal by the Borrower or an ERISA Affiliate
of the Borrower from a Multiple Employer Plan during a
plan year for which it was a "substantial employer", as
defined in Section 4001(a)(2) of ERISA; (v) the failure
by the Borrower or an ERISA Affiliate of the Borrower to
make a payment to a Plan required under Section 302(f)(1)
of ERISA, which failure results in the imposition of a
lien for failure to make required payments; (vi) the
adoption of an amendment to a Plan requiring the
provision of security to such Plan, pursuant to Section
307 of ERISA; or (vii) the institution by the PBGC of
proceedings to terminate a Plan, pursuant to Section 4042
of ERISA, or the occurrence of any event or condition
which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, a Plan.
"Eurocurrency Liabilities" has the meaning assigned
to that term in Regulation D of the Board of Governors of
the Federal Reserve System, as in effect from time to
time.
"Eurodollar Lending Office" means, with respect to
any Lender, the office or affiliate of such Lender
specified as its "Eurodollar Lending Office" opposite its
name on Schedule I hereto or in the Lender Assignment
pursuant to which it became a Lender (or, if no such
office is specified, its Domestic Lending Office), or
such other office or affiliate of such Lender as such
Lender may from time to time specify in writing to the
Borrower and the Agent.
"Eurodollar Rate" means, for each Interest Period
for each Eurodollar Rate Advance made as part of the same
A Borrowing, an interest rate per annum equal to the
average (rounded upward to the nearest whole multiple of
1/16 of 1% per annum, if such average is not such a
multiple) of the rate per annum at which deposits in U.S.
dollars are offered by the principal office of each of
the Reference Banks in London, England to prime banks in
the London interbank market at 11:00 a.m. (London time)
two Business Days before the first day of such Interest
Period in an amount substantially equal to such Reference
Bank's Eurodollar Rate Advance made as part of such A
Borrowing and for a period equal to such Interest Period.
The Eurodollar Rate for the Interest Period for each
Eurodollar Rate Advance made as part of the same A
Borrowing shall be determined by the Agent on the basis
of applicable rates furnished to and received by the
Agent from the Reference Banks two Business Days before
the first day of such Interest Period, subject, however,
to the provisions of Section 2.09.
"Eurodollar Rate Advance" means an A Advance that
bears interest as provided in Section 2.07(c).
"Eurodollar Reserve Percentage" of any Lender for
each Interest Period for each Eurodollar Rate Advance
means the reserve percentage applicable to such Lender
during such Interest Period (or if more than one such
percentage shall be so applicable, the daily average of
such percentages for those days in such Interest Period
during which any such percentage shall be so applicable)
under Regulation D or other regulations issued from time
to time by the Board of Governors of the Federal Reserve
System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve
requirement) then applicable to such Lender with respect
to liabilities or assets consisting of or including
Eurocurrency Liabilities having a term equal to such
Interest Period.
"Events of Default" has the meaning assigned to that
term in Section 6.01.
"Existing Banks" has the meaning assigned to that
term in Preliminary Statement (1) to this Agreement.
"Existing Credit Agreement" has the meaning assigned
to that term int he Preliminary Statements.
"Existing Facility" has the meaning assigned to that
term in Preliminary Statement (1) to this Agreement.
"Extension of Credit" means the making of a
Borrowing. For purposes of this Agreement, a Conversion
shall not constitute an Extension of Credit.
"External Line" means any arrangement (other than
pursuant to this Agreement or the Senior Debt Documents)
with any commercial bank pursuant to which such
commercial bank has agreed (whether or not such agreement
shall constitute a committed facility or shall otherwise
be legally enforceable) to make unsecured loans or extend
credit on an unsecured basis to one or more Borrowers up
to a specified amount ether on a demand basis or for
periods of not in excess of 270 days or any similar
finance arrangement commonly known as a "line of credit".
"Facility Fee" means a fee which shall be payable on
the aggregate amount of the Commitments, irrespective of
usage, to each Lender pro rata on the amount of their
respective Commitments. As described below, the Facility
Fee will be determined with reference to the basis points
per annum set forth in the columns identified as Level 1,
Level 2, Level 3 or Level 4 and the First Mortgage Bond
(IES Utilities) Debt Rating.
Level 1 Level 2 Level 3 Level 4
S&P A- or better BBB+ BBB below BBB*
and and and or
Moody's A3 or better Baa1 Baa2 below Baa2*
Basis Points 15.0 20.0 25.0 30.0
* or unrated
Any change in the Facility Fee shall be effective as of
the date on which the applicable rating agency announces
the applicable change of ratings.
"FDIC Assessment Rate" mean, during an Interest
Period for CD Rate Advances comprising a single
Borrowing, the annual rate (rounded upwards, if
necessary, to the next 1/100 of 1%) most recently
estimated by the Administrative Agent as the then current
annual assessment rate payable by the Administrative
Agent to the Federal Deposit Insurance Corporation (or
any successor) for insurance by such Corporation (or such
successor) of time deposits made in U.S. dollars at the
Administrative Agent's domestic offices. The FDIC
Assessment Rate shall be the same for all CD Rate
Advances comprising the same Borrowing and shall be
adjusted automatically on and as of he effective date of
each change in any such rate.
"Federal Funds Rate" means, for any period, a
fluctuating interest rate per annum equal for each day
during such period to the weighted average of the rates
on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate
is not so published for any day which is a Business Day,
the average of the quotations for such day on such
transactions received by the Agent from three Federal
funds brokers of recognized standing selected by it.
"Fee Letter" means that certain letter agreement,
dated October 17, 1996, among the Borrower, the Agent and
Citicorp Securities, Inc.
"First Mortgage Bonds (IES Utilities) Debt Rating"
means the rating assigned by Moody's or S&P, as the case
may be, to the senior secured non-credit enhanced long-
term Debt of IES Utilities.
"Governmental Approval" means any authorization,
consent, approval, license, franchise, lease, ruling,
tariff, rate, permit, certificate, exemption of, or
filing or registration with, any governmental authority
or other legal or regulatory body.
"Hazardous Substance" means any waste, substance, or
material identified as hazardous, dangerous or toxic by
any office, agency, department, commission, board,
bureau, or instrumentality of the United States or of the
State or locality in which the same is located having or
exercising jurisdiction over such waste, substance or
material.
"IES Utilities" means IES Utilities Inc., an Iowa
corporation, all of whose common stock is owned on the
date hereof by the Parent.
"Increasing Lender" means each Existing Bank whose
Commitment exceeds its "Commitment" under the Existing
Facility.
"Information Memorandum" means the Confidential
Information Memorandum of the Parent dated October 1996
previously delivered by Citicorp Securities, Inc. at the
direction of the Parent to the Lenders.
"Interest Period" means, for each A Advance made as
part of the same A Borrowing, the period commencing on
the date of such A Advance or the date of the Conversion
of any A Advance into such an A Advance and ending on the
last day of the period selected by the Borrower pursuant
to the provisions below and, thereafter, each subsequent
period commencing on the last day of the immediately
preceding Interest Period and ending on the last day of
the period selected by the Borrower pursuant to the
provisions below. The duration of each such Interest
Period shall be 30, 60, 90 or 180 days in the case of an
Adjusted CD Rate Advance, and 1, 2, 3 or 6 months in the
case of a Eurodollar Rate Advance, in each case as the
Borrower may, upon notice received by the Agent not later
than 12:00 noon (New York City time) (a) on the third
Business Day prior to the first day of such Interest
Period in the case of a Eurodollar Rate Advance and
(b) on the second Business Day prior to the first day of
such Interest Period in the case of an Adjusted CD Rate
Advance, select; provided, however, that:
(i) the Borrower may not select any Interest Period
that ends after the Termination Date;
(ii) Interest Periods commencing on the same date
for A Advances comprising part of the same A Borrowing shall
be of the same duration; and
(iii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided, in the case of any
Interest Period for a Eurodollar Rate Advance, that if such
extension would cause the last day of such Interest Period to
occur in the next following calendar month, the last day of
such Interest Period shall occur on the next preceding
Business Day.
"Lenders" means the Banks listed on the signature
pages hereof and each Eligible Assignee that shall become
a party hereto pursuant to Section 8.07.
"Lender Assignment" means an assignment and
acceptance agreement entered into by a Lender and an
Eligible Assignee, and accepted by the Agent, in
substantially the form of Exhibit 8.07.
"Lien" has the meaning assigned to that term in
Section 5.02(a).
"Loan Documents" means this Agreement, the Notes,
the Support Agreement, the Fee Letter and all other
agreements, instruments and documents now or hereafter
executed and/or delivered pursuant hereto or thereto.
"Majority Lenders" means, on any date of
determination, Lenders that, collectively, on such date
(i) hold at least 66-2/3% of the then aggregate unpaid
principal amount of the A Advances owing to Lenders and
(ii) if no A Advances are then outstanding, have
Percentages in the aggregate of at least 66-2/3%. Any
determination of those Lenders constituting the Majority
Lenders shall be made by the Agent and shall be
conclusive and binding on all parties absent manifest
error.
"Moody's" means Moody's Investors Service, Inc. or
any successor thereto.
"Moody's Rating" means, on any date of
determination, the rating of the long-term senior secured
Debt of IES Utilities most recently announced by Moody's.
"Multiemployer Plan" means a multiemployer plan, as
defined in Section 4001(a)(3) of ERISA, which is subject
to Title IV of ERISA and to which the Borrower or any
ERISA Affiliate of the Borrower is making or accruing an
obligation to make contributions, or has within any of
the preceding five plan years made or accrued an
obligation to make contributions, such plan being
maintained pursuant to one or more collective bargaining
agreements.
"Multiple Employer Plan" means a single employer
plan, as defined in Section 4001(a)(15) of ERISA, which
is subject to Title IV of ERISA and which (i) is
maintained for employees of the Borrower or an ERISA
Affiliate of the Borrower and at least one Person other
than the Borrower and its ERISA Affiliates or (ii) was so
maintained and in respect of which the Borrower or an
ERISA Affiliate of the Borrower could have liability
under Section 4064 or 4069 of ERISA in the event such
plan has been or were to be terminated.
"New Lenders" means the Banks other than the
Existing Banks.
"Note" means an A Note or a B Note.
"Notice of A Borrowing" has the meaning assigned to
that term in Section 2.02(a).
"Notice of B Borrowing" has the meaning assigned to
that term in Section 2.03(a).
"Notice of Conversion" has the meaning assigned to
that term in Section 2.10.
"OECD" means the Organization for Economic
Cooperation and Development.
"Parent" means IES Industries Inc., an Iowa
corporation, or any successor by merger thereto that
succeeds to the obligations of IES Industries Inc. under,
and in accordance with Section 2(e) of, the Support
Agreement.
"PBGC" means the Pension Benefit Guaranty
Corporation (or any successor entity) established under
ERISA.
"Percentage" means, for any Lender on any date of
determination, the percentage obtained by dividing such
Lender's Commitment on such day by the total of the
Commitments on such date, and multiplying the quotient so
obtained by 100%.
"Person" means an individual, partnership,
corporation (including a business trust), limited
liability company, joint stock company, trust,
unincorporated association, joint venture or other
entity, or a government or any political subdivision or
agency thereof.
"Plan" means a Single Employer Plan or a Multiple
Employer Plan.
"PUHCA" means the Public Utility Holding Company Act
of 1935, as amended from time to time.
"Reference Banks" means Citibank, N.A., CIBC Inc.
and The Sanwa Bank, Ltd., or any additional or substitute
Lenders as may be selected from time to time to act as
Reference Banks hereunder by the Agent, the Majority
Lenders and the Borrower.
"Register" has the meaning assigned to that term in
Section 8.07(c).
"S&P" means Standard & Poor's Corporation or any
successor thereto.
"S&P Rating" means, on any date of determination,
the rating of the long-term senior secured Debt of IES
Utilities most recently announced by S&P.
"Senior Financial Officer" means the President, the
Chief Executive Officer, the Chief Financial Officer or
the Treasurer of the Borrower.
"Significant Subsidiary" means any Subsidiary of the
Borrower that, on a consolidated basis with any of its
Subsidiaries as of any date of determination, accounts
for more than 20% of the consolidated assets (valued at
book value) of the Borrower and its Subsidiaries.
"Single Employer Plan" means a single employer plan,
as defined in Section 4001(a)(15) of ERISA, which is
subject to Title IV of ERISA and which (i) is maintained
for employees of the Borrower or an ERISA Affiliate of
the Borrower and no Person other than the Borrower and
its ERISA Affiliates, or (ii) was so maintained and in
respect of which the Borrower or an ERISA Affiliate of
the Borrower could have liability under Section 4069 of
ERISA in the event such plan has been or were to be
terminated.
"Subsidiary" means, with respect to any Person, any
corporation or unincorporated entity of which more than
50% of the outstanding capital stock (or comparable
interest) having ordinary voting power (irrespective of
whether at the time capital stock (or comparable
interest) of any other class or classes of such
corporation or entity shall or might have voting power
upon the occurrence of any contingency) is at the time
directly or indirectly owned by said Person (whether
directly or through one of more other Subsidiaries). In
the case of an unincorporated entity, a Person shall be
deemed to have more than 50% of interests having ordinary
voting power only if such Person's vote in respect of
such interests comprises more than 50% of the total
voting power of all such interests in the unincorporated
entity.
"Support Agreement" means the Third Amended and
Restated Support Agreement, dated as of the date hereof,
between the Parent and the Borrower, substantially in the
form of Exhibit 1.01B.
"Termination Date" means the earlier to occur of
(i) November 20, 1999 or such later date to which the
Termination Date is extended in accordance with Section
2.18, and (ii) the date of termination or reduction in
whole of the Commitments pursuant to Section 2.05 or
6.01.
"Type" has the meaning assigned to that term (i) in
the definition of "A Advance" when used in such context
and (ii) in the definition of "Borrowing" when used in
such context.
"Unmatured Default" means an event that, with the
giving of notice or lapse of time, or both, would
constitute an Event of Default.
SECTION 1.02. Computation of Time Periods. Unless
otherwise indicated, each reference in this Agreement to a
specific time of day is a reference to New York City time. In
the computation of periods of time under this Agreement, any
period of a specified number of days or months shall be
computed by including the first day or month occurring during
such period and excluding the last such day or month. In the
case of a period of time "from" a specified date "to" or
"until" a later specified date, the word "from" means "from
and including" and the words "to" and "until" each means "to
but excluding".
SECTION 1.03. Computations of Outstandings. Whenever
reference is made in this Agreement to the "principal amount
outstanding" on any date under this Agreement, such reference
shall refer to the aggregate principal amount of all Advances
outstanding on such date after giving effect to all Extensions
of Credit to be made on such date and the application of the
proceeds thereof.
SECTION 1.04. Accounting Terms. All accounting terms
not specifically defined herein shall be construed in
accordance with generally accepted accounting principles
consistent with those applied in the preparation of the
financial statements referred to in Section 5(d) of the
Support Agreement.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The A Advances. (a) Each Lender severally
agrees, on the terms and conditions hereinafter set forth, to
make A Advances to the Borrower from time to time on any
Business Day during the period from the Closing until the
Termination Date in an aggregate outstanding amount not to
exceed at any time such Lender's Available Commitment,
provided that the aggregate amount of the Commitments of the
Lenders shall be deemed used from time to time to the extent
of the aggregate amount of the B Advances then outstanding and
such deemed use of the aggregate amount of the Commitments
shall be applied to the Lenders ratably according to their
respective Percentages (such deemed use of the aggregate
amount of the Commitments being a "B Reduction"). Each A
Borrowing shall be in an aggregate amount not less than
$5,000,000 (or, if lower, the amount of the Available
Commitments) or an integral multiple of $1,000,000 in excess
thereof and shall consist of A Advances of the same Type made
on the same day by the Lenders ratably according to their
respective Percentages. Within the limits of each Lender's
Commitment and as hereinabove and hereinafter provided, the
Borrower may request Extensions of Credit hereunder, and repay
or prepay Advances pursuant to Section 2.11 and utilize the
resulting increase in the Available Commitments for further
Extensions of Credit in accordance with the terms hereof.
(b) In no event shall the Borrower be entitled to
request or receive any Extensions of Credit that would cause
the principal amount outstanding hereunder to exceed the
Commitments.
SECTION 2.02. Making the A Advances. (a) Each A Borrowing
shall be made on notice, given not later than 12:00 noon
(i) on the third Business Day prior to the date of the
proposed A Borrowing, in the case of an A Borrowing comprised
of Eurodollar Rate Advances, (ii) on the second Business Day
prior to the date of the proposed A Borrowing, in the case of
an A Borrowing comprised of Adjusted CD Rate Advances, and
(iii) on the date of the proposed A Borrowing, in the case of
an A Borrowing comprised of Base Rate Advances, in each case
by the Borrower to the Agent, which shall give to each Lender
prompt notice thereof by telecopier, telex or cable. Each
such notice of an A Borrowing (a "Notice of A Borrowing")
shall be by telecopier, telex or cable, in substantially the
form of Exhibit 2.02(a) hereto, specifying therein the
requested (A) date of such A Borrowing, (B) Type of A
Advances comprising such A Borrowing, (C) aggregate amount of
such A Borrowing and (D) in the case of an A Borrowing
comprised of Adjusted CD Rate Advances or Eurodollar Rate
Advances, initial Interest Period for each such A Advance.
Each Lender shall, before (x) 12:00 noon on the date of such A
Borrowing, in the case of an A Borrowing comprised of
Eurodollar Rate Advances or Adjusted CD Rate Advances, and (y)
1:00 p.m. on the date of such A Borrowing, in the case of an A
Borrowing comprised of Base Rate Advances, make available for
the account of its Applicable Lending Office to the Agent at
its address referred to in Section 8.02, in same day funds,
such Lender's ratable portion of such A Borrowing. After the
Agent's receipt of such funds and upon fulfillment of the
applicable conditions set forth in Article III, the Agent will
promptly make such funds available to the Borrower at the
Agent's aforesaid address.
(b) Each Notice of A Borrowing shall be irrevocable
and binding on the Borrower. In the case of any A Borrowing
which the related Notice of A Borrowing specifies is to be
comprised of Adjusted CD Rate Advances or Eurodollar Rate
Advances, the Borrower shall indemnify each Lender against any
loss, cost or expense incurred by such Lender as a result of
any failure to fulfill on or before the date specified in such
Notice of A Borrowing for such A Borrowing the applicable
conditions set forth in Article III, including, without
limitation, any loss, cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds
acquired by such Lender to fund the A Advance to be made by
such Lender as part of such A Borrowing when such A Advance,
as a result of such failure, is not made on such date.
(c) Unless the Agent shall have received notice
from a Lender prior to the date of any A Borrowing that such
Lender will not make available to the Agent such Lender's A
Advance as part of such A Borrowing, the Agent may assume that
such Lender has made such A Advance available to the Agent on
the date of such A Borrowing in accordance with subsection (a)
of this Section 2.02 and the Agent may, in reliance upon such
assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Lender
shall not have so made such A Advance available to the Agent,
such Lender and the Borrower severally agree to repay to the
Agent forthwith on demand such corresponding amount, together
with interest thereon, for each day from the date such amount
is made available to the Borrower until the date such amount
is repaid to the Agent, at (i) in the case of the Borrower,
the interest rate applicable at the time to A Advances
comprising such A Borrowing and (ii) in the case of such
Lender, the Federal Funds Rate. If such Lender shall repay to
the Agent such corresponding amount, such amount so repaid
shall constitute such Lender's A Advance as part of such A
Borrowing for purposes of this Agreement.
(d) The failure of any Lender to make the A Advance
to be made by it as part of any A Borrowing shall not relieve
any other Lender of its obligation, if any, hereunder to make
its A Advance on the date of such A Borrowing, but no Lender
shall be responsible for the failure of any other Lender to
make the A Advance to be made by such other Lender on the date
of any A Borrowing.
SECTION 2.03. The B Advances. (a) Each Lender severally
agrees that the Borrower may request B Borrowings under this
Section 2.03 from time to time on any Business Day during the
period from the date hereof until the date occurring 30 days
prior to the Termination Date in the manner, and subject to
the terms and conditions, set forth below. The rates of
interest offered by the Lenders and accepted by the Borrower
for each B Borrowing shall be fixed rates per annum.
(i) The Borrower may request a B Borrowing under
this Section 2.03 by delivering to the Agent, by telecopier,
telex or cable, a notice of a B Borrowing (a "Notice of B
Borrowing"), in substantially the form of Exhibit 2.03(a)(i)
hereto, specifying the date and aggregate amount of the
proposed B Borrowing, the maturity date for repayment of each
B Advance to be made as part of such B Borrowing (which
maturity date may not be earlier than the date occurring 30
days after the date of such B Borrowing nor later than the
earlier to occur of the then scheduled Termination Date and
the date occurring 180 days following the date of such B
Borrowing), the interest payment date or dates relating
thereto, and any other terms to be applicable to such B
Borrowing, not later than 3:00 p.m. at least one Business Day
prior to the date of the proposed B Borrowing. The Agent
shall in turn promptly notify each Lender of each request for
a B Borrowing received by it from the Borrower by sending such
Lender a copy of the related Notice of B Borrowing.
(ii) Each Lender may, if, in its sole discretion, it
elects to do so, irrevocably offer to make one or more B
Advances to the Borrower as part of such proposed B Borrowing
at a rate or rates of interest specified by such Lender in its
sole discretion, by notifying the Agent (which shall give
prompt notice thereof to the Borrower), before 11:00 a.m., on
the date of such proposed B Borrowing, of the minimum amount
and maximum amount of each B Advance which such Lender would
be willing to make as part of such proposed B Borrowing (which
amounts may, subject to the limitation contained in subsection
(d), below, exceed such Lender's Commitment), the rate or
rates of interest therefor and such Lender's Applicable
Lending Office with respect to such B Advance; provided that
if the Agent in its capacity as a Lender shall, in its sole
discretion, elect to make any such offer, it shall notify the
Borrower of such offer before 10:30 a.m. on the date on which
notice of such election is to be given to the Agent by the
other Lenders. If any Lender shall elect not to make such an
offer, such Lender shall so notify the Agent before 11:00 a.m.
on the date on which notice of such election is to be given to
the Agent by the other Lenders, and such Lender shall not be
obligated to, and shall not, make any B Advance as part of
such B Borrowing; provided that the failure by any Lender to
give such notice shall not cause such Lender to be obligated
to make any B Advance as part of such proposed B Borrowing.
(iii) The Borrower shall, in turn, before 12:00 noon
on the date of such proposed B Borrowing either
(x) cancel such B Borrowing by either
giving the Agent notice to that effect or failing to
accept one or more offers as provided in clause (y),
below, or
(y) accept one or more of the offers made
by any Lender or Lenders pursuant to paragraph (ii),
above, in its sole discretion, by giving written
notice to the Agent of the amount of each B Advance
(which amount shall be equal to or greater than the
minimum amount, and equal to or less than the
maximum amount, notified to the Borrower by the
Agent on behalf of such Lender for such B Advance
pursuant to paragraph (ii), above) to be made by
each Lender as part of such B Borrowing, and reject
any remaining offers made by Lenders pursuant to
paragraph (ii), above, by giving the Agent written
notice to that effect.
(iv) If the Borrower cancels such B Borrowing
pursuant to paragraph (iii)(x), above, the Agent shall give
prompt notice thereof to the Lenders and such B Borrowing
shall not be made.
(v) If the Borrower accepts one or more of the
offers made by any Lender or Lenders pursuant to paragraph
(iii)(y), above, such acceptance shall be irrevocable and
binding on the Borrower and, subject to the satisfaction of
the applicable conditions set forth in Article III, on such
Lender or Lenders. The Borrower shall indemnify each such
Lender against any loss, cost or expense incurred by such
Lender as a result of any failure to fulfill, on or before the
date specified in the notice provided pursuant to paragraph
(vii)(A), below, the applicable conditions set forth in
Article III, including, without limitation, any loss, cost or
expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such Lender to fund the
B Advance to be made by such Lender as part of such B
Borrowing when such B Advance, as a result of such failure, is
not made on such date.
(vi) Unless the Agent shall have received notice
from a Lender prior to the date of any B Borrowing in which
such Lender is required to participate that such Lender will
not make available to the Agent such Lender's B Advance as
part of such B Borrowing, the Agent may assume that such
Lender has made such B Advance available to the Agent on the
date of such B Borrowing in accordance with paragraph (vii),
below, and the Agent may, in reliance upon such assumption,
make available to the Borrower on such date a corresponding
amount. If and to the extent that such Lender shall not have
so made such B Advance available to the Agent, such Lender and
the Borrower severally agree to repay to the Agent forthwith
on demand such corresponding amount together with interest
thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid
to the Agent, at (i) in the case of the Borrower, the interest
rate applicable to such B Advance and (ii) in the case of such
Lender, the Federal Funds Rate. If such Lender shall repay to
the Agent such corresponding amount, such amount so repaid
shall constitute such Lender's B Advance as part of such B
Borrowing for purposes of this Agreement.
(vii) If the Borrower accepts one or more of the
offers made by any Lender or Lenders pursuant to paragraph
(iii)(y), above, the Agent shall in turn promptly notify
(A) each Lender that has made an offer as described in
paragraph (ii), above, of the date and aggregate amount of
such B Borrowing and whether or not any offer or offers made
by such Lender pursuant to paragraph (ii), above, have been
accepted by the Borrower, (B) each Lender that is to make a B
Advance as part of such B Borrowing of the amount of the B
Advance to be made by such Lender as part of such B Borrowing
and (C) each Lender that is to make a B Advance as part of
such B Borrowing, upon receipt, that the Agent has received
forms of documents appearing to fulfill the applicable
conditions set forth in Article III. Each Lender that is to
make a B Advance as part of such B Borrowing shall, before
1:00 p.m. on the date of such B Borrowing specified in the
notice received from the Agent pursuant to clause (A) of the
preceding sentence or any later time when such Lender shall
have received notice from the Agent pursuant to clause (C) of
the preceding sentence, make available for the account of its
Applicable Lending Office to the Agent at its address referred
to in Section 8.02 such Lender's B Advance, in same day funds.
Upon fulfillment of the applicable conditions set forth in
Article III and after receipt by the Agent of such funds, the
Agent will promptly make such funds available to the Borrower
at the Agent's aforesaid address. Promptly after each B
Borrowing the Agent will notify each Lender of the amount of
the B Borrowing, the consequent B Reduction and the dates upon
which such B Reduction commenced and will terminate.
(b) Each B Borrowing shall be in an aggregate
amount not less than $5,000,000 or an integral multiple of
$1,000,000 in excess thereof.
(c) Within the limits and on the conditions set
forth in this Section 2.03, the Borrower may from time to time
borrow under this Section 2.03, repay pursuant to subsection
(e), below, prepay pursuant to Section 2.11 and reborrow under
this Section 2.03, provided that a B Borrowing shall not be
made within three Business Days of the date of any other B
Borrowing.
(d) In no event shall the Borrower be entitled to
request or receive any B Advances that would cause the
principal amount outstanding hereunder to exceed the
Commitments.
(e) The Borrower shall repay to the Agent for the
account of each Lender which has made a B Advance, or each
other holder of a B Note, on the maturity date of each B
Advance (such maturity date being that specified by the
Borrower for repayment of such B Advance in the related Notice
of B Borrowing delivered pursuant to subsection (a)(i), above,
and provided in the B Note evidencing such B Advance), the
then unpaid principal amount of such B Advance.
(f) The Borrower shall pay interest on the unpaid
principal amount of each B Advance from the date of such B
Advance to the date the principal amount of such B Advance is
repaid in full, at the rate of interest for such B Advance
specified by the Lender making such B Advance in its notice
with respect thereto delivered pursuant to subsection (a)(ii),
above, payable on the interest payment date or dates specified
by the Borrower for such B Advance in the related Notice of B
Borrowing delivered pursuant to subsection (a)(i), above, as
provided in the B Note evidencing such B Advance.
(g) The indebtedness of the Borrower resulting from
each B Advance made to the Borrower as part of a B Borrowing
shall be evidenced by a separate B Note of the Borrower
payable to the order of the Lender making such B Advance.
SECTION 2.04. Fees. (a) The Borrower agrees to pay to the
Agent for the account of each Lender the Facility Fee from the
date hereof, in the case of each Bank, and from the effective
date specified in the Lender Assignment pursuant to which it
became a Lender, in the case of each other Lender, until the
Termination Date, payable quarterly in arrears on the last day
of each March, June, September and December during the term of
such Lender's Commitment, commencing December 31, 1996, and on
the Termination Date.
(b) In addition to the fee provided for in
subsection (a), above, the Borrower shall pay to the Agent,
for the account of the Agent, such fees as are provided for in
the Fee Letter.
(c) The Borrower agrees to pay to the Agent for the
account of each Bank, on the date of execution and delivery of
this Agreement, a participation fee equal to (i) in the case
of each Increasing Lender, .10% of the amount by which such
Bank's Commitment hereunder exceeds such Bank's Commitment
under the Existing Facility (in each case without giving
effect to any reduction in such Commitment arising as a result
of any Advances being outstanding) and (ii) in the case of any
New Lender, .10% of such Bank's Commitment.
(d) The Borrower further agrees to pay to the Agent
a competitive bid auction fee of $1,000 at the time of
delivery of each Notice of B Borrowing.
SECTION 2.05. Reduction of the Commitments. (a) The
Borrower shall have the right, upon at least three Business
Days' notice to the Agent, to terminate in whole or reduce
ratably in part the unused portions of the respective
Commitments of the Lenders; provided that the aggregate amount
of the Commitments of the Lenders shall not be reduced to an
amount which is less than the aggregate principal amount of
the B Advances then outstanding; and provided, further, that
each partial reduction shall be in an aggregate amount equal
to the product of (A) $1,000,000 and (B) the number of
Lenders on the effective date of such reduction, or an
integral multiple in excess thereof.
(b) On the Termination Date, the Commitments of the
Lenders shall be reduced to zero.
SECTION 2.06. Repayment of A Advances. The Borrower
shall repay the principal amount of each A Advance made by
each Lender in accordance with the A Note to the order of such
Lender.
SECTION 2.07. Interest on A Advances. The Borrower
shall pay interest on the unpaid principal amount of each A
Advance owing to each Lender from the date of such A Advance
until such principal amount shall be paid in full, at the
Applicable Rate for such A Advance (except as otherwise
provided in this Section 2.07), payable as follows:
(a) Base Rate Advances. If such A Advance is a
Base Rate Advance, interest thereon shall be payable quarterly
in arrears on the last day of each March, June, September and
December, on the date of any Conversion of such Base Rate
Advance and on the date such Base Rate Advance shall become
due and payable or shall otherwise be paid in full; provided
that any amount of principal that is not paid when due
(whether at stated maturity, by acceleration or otherwise)
shall bear interest, from the date on which such amount is due
until such amount is paid in full, payable on demand, at a
rate per annum equal at all times to the Default Rate.
(b) Adjusted CD Rate Advances. If such A Advance
is an Adjusted CD Rate Advance, interest thereon shall be
payable on the last day of such Interest Period and, if the
Interest Period for such A Advance has a duration of more than
90 days, on each day that occurs during such Interest Period
every 90 days from the first day of such Interest Period;
provided that any amount of principal that is not paid when
due (whether at stated maturity, by acceleration or otherwise)
shall bear interest, from the date on which such amount is due
until such amount is paid in full, payable on demand, at a
rate per annum equal at all times to the Default Rate.
(c) Eurodollar Rate Advances. If such A Advance is
a Eurodollar Rate Advance, interest thereon shall be payable
on the last day of such Interest Period and, if the Interest
Period for such A Advance has a duration of more than three
months, on that day of each third month during such Interest
Period that corresponds to the first day of such Interest
Period (or, if any such month does not have a corresponding
day, then on the last day of such month); provided that any
amount of principal that is not paid when due (whether at
stated maturity, by acceleration or otherwise) shall bear
interest, from the date on which such amount is due until such
amount is paid in full, payable on demand, at a rate per annum
equal at all times to the Default Rate.
SECTION 2.08. Additional Interest on Eurodollar Rate
Advances. The Borrower shall pay to Agent for the account of
each Lender any costs actually incurred by such Lender with
respect to Eurodollar Rate Advances which are attributable to
such Lender's compliance with regulations of the Board of
Governors of the Federal Reserve System requiring the
maintenance of reserves with respect to liabilities or assets
consisting of or including Eurocurrency Liabilities. Such
costs shall be paid to the Agent for the account of such
Lender in the form of additional interest on the unpaid
principal amount of each Eurodollar Rate Advance of such
Lender, from the date of such A Advance until such principal
amount is paid in full, at an interest rate per annum equal at
all times to the remainder obtained by subtracting (i) the
Eurodollar Rate for the Interest Period for such A Advance
from (ii) the rate obtained by dividing such Eurodollar Rate
by a percentage equal to 100% minus the Eurodollar Reserve
Percentage of such Lender for such Interest Period, payable on
each date on which interest is payable on such A Advance.
Such additional interest shall be determined by such Lender
and notified to the Borrower through the Agent. A certificate
as to the amount of such additional interest, submitted to the
Borrower and the Agent by such Lender, shall be conclusive and
binding for all purposes, absent manifest error, provided that
the determination thereof shall have been made by such Lender
in good faith.
SECTION 2.09. Interest Rate Determination. (a) Each
Reference Bank agrees to furnish to the Agent timely
information for the purpose of determining each Adjusted CD
Rate or Eurodollar Rate, as applicable. If any one or more of
the Reference Banks shall not furnish such timely information
to the Agent for the purpose of determining any such interest
rate, the Agent shall determine such interest rate on the
basis of timely information furnished by the remaining
Reference Banks.
(b) The Agent shall give prompt notice to the
Borrower and the Lenders of the applicable interest rate
determined by the Agent for purposes of Section 2.07(a), (b)
or (c), and the applicable rate, if any, furnished by each
Reference Bank for the purpose of determining the applicable
interest rate under Section 2.07(b) or (c).
(c) If fewer than two Reference Banks furnish
timely information to the Agent for determining the Adjusted
CD Rate for any Adjusted CD Rate Advances, or the Eurodollar
Rate for any Eurodollar Rate Advances, due to the
unavailability of funds to such Reference Banks in the
relevant financial markets:
(i) the Agent shall forthwith notify the Borrower
and the Lenders that the interest rate cannot be determined
for such Adjusted CD Rate Advances or Eurodollar Rate
Advances, as the case may be;
(ii) each such Advance will automatically, on the
last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance (or if such Advance is then a
Base Rate Advance, will continue as a Base Rate Advance); and
(iii) the obligation of the Lenders to make, or to
Convert A Advances into, Adjusted CD Rate Advances or
Eurodollar Rate Advances, as the case may be, shall be
suspended until the Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension no
longer exist.
(d) If, with respect to any Eurodollar Rate
Advances, the Majority Lenders notify the Agent that the
Eurodollar Rate for any Interest Period for such Advances will
not adequately reflect the cost to such Majority Lenders of
making, funding or maintaining their respective Eurodollar
Rate Advances for such Interest Period, the Agent shall
forthwith so notify the Borrower and the Lenders, whereupon:
(i) each Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest
Period therefor, Convert into a Base Rate Advance or, if
requested by the Borrower in accordance with Section 2.10, an
Adjusted CD Rate Advance; and
(ii) the obligation of the Lenders to make, or to
Convert A Advances into, Eurodollar Rate Advances shall be
suspended until the Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension no
longer exist.
(e) If the Borrower shall fail to (i) select the
duration of any Interest Period for any Adjusted CD Rate
Advances or any Eurodollar Rate Advances in accordance with
the provisions contained in the definition of "Interest
Period" in Section 1.01, (ii) provide a Notice of Conversion
with respect to any Eurodollar Rate Advances or Adjusted CD
Rate Advances on or prior to 12:00 noon (A) on the third
Business Day prior to the last day of the Interest Period
applicable thereto, in the case of a Conversion to or in
respect of Eurodollar Rate Advances, or (B) on the second
Business Day prior to the last day of the Interest Period
applicable thereto, in the case of a Conversion to or in
respect of Adjusted CD Rate Advances, or (iii) satisfy the
applicable conditions precedent set forth in Section 3.02 with
respect to the Conversion to or in respect of any Eurodollar
Rate Advances or Adjusted CD Rate Advances, the Agent will
forthwith so notify the Borrower and the Lenders and such
Advances will automatically, on the last day of the then
existing Interest Period therefor, Convert into Base Rate
Advances; provided, however, that if, in the case of any
failure by the Borrower pursuant to clause (iii), above, the
Majority Lenders do not notify the Borrower within 30 days
after such Conversion into Base Rate Advances that they have
agreed to waive, or have decided not to waive, the applicable
conditions precedent set forth in Section 3.02 that the
Borrower failed to satisfy, the Majority Lenders shall be
deemed to have waived such conditions precedent solely with
respect to the Advances so Converted, and the Borrower shall,
at any time after such 30-day period, be permitted to Convert
such Advances into Eurodollar Rate Advances or Adjusted CD
Rate Advances; and provided further, however, that such deemed
waiver shall be of no further force or effect if, at any time
after such 30-day period, the Majority Lenders notify the
Borrower that they no longer agree to waive such conditions
precedent, in which case any such Advances so Converted into
Eurodollar Rate Advances or Adjusted CD Rate Advances shall
automatically Convert into Base Rate Advances on the last day
of the then existing Interest Period therefor.
(f) On the date on which the aggregate unpaid
principal amount of A Advances comprising any A Borrowing
shall be reduced, by payment or prepayment or otherwise, to
less than the product of (i) $1,000,000 and (ii) the number
of Lenders on such date, such A Advances shall, if they are
Advances of a Type other than Base Rate Advances,
automatically Convert into Base Rate Advances, and on and
after such date the right of the Borrower to Convert such A
Advances into Advances of a Type other than Base Rate Advances
shall terminate; provided, however, that if and so long as
each such A Advance shall be of the same Type and have the
same Interest Period as A Advances comprising another A
Borrowing or other A Borrowings, and the aggregate unpaid
principal amount of all such A Advances shall equal or exceed
the product of (i) $1,000,000 and (ii) the number of Lenders
on such date, the Borrower shall have the right to continue
all such A Advances as, or to Convert all such A Advances
into, Advances of such Type having such Interest Period.
SECTION 2.10. Voluntary Conversion of A Advances.
Subject to the applicable conditions set forth in Section
3.02, the Borrower may on any Business Day, by delivering a
notice of Conversion (a "Notice of Conversion") to the Agent
not later than 12:00 noon (i) on the third Business Day prior
to the date of the proposed Conversion, in the case of a
Conversion to or in respect of Eurodollar Rate Advances,
(ii) on the second Business Day prior to the date of the
proposed Conversion, in the case of a Conversion to or in
respect of Adjusted CD Rate Advances and (iii) on the date of
the proposed Conversion, in the case of a Conversion to or in
respect of Base Rate Advances, and subject to the provisions
of Sections 2.09 and 2.13, Convert all A Advances of one Type
comprising the same A Borrowing into Advances of another Type;
provided, however, that, in the case of any Conversion of any
Adjusted CD Rate Advances or Eurodollar Rate Advances into
Advances of another Type on a day other than the last day of
an Interest Period for such Adjusted CD Rate Advances or
Eurodollar Rate Advances, the Borrower shall be obligated to
reimburse the Lenders in respect thereof pursuant to
Section 8.04(b). Each such Notice of Conversion shall be in
substantially the form of Exhibit 2.10 and shall, within the
restrictions specified above, specify (A) the date of such
Conversion, (B) the A Advances to be Converted, (C) if such
Conversion is into Adjusted CD Rate Advances or Eurodollar
Rate Advances, the duration of the Interest Period for each
such A Advance, and (D) the aggregate amount of A Advances
proposed to be Converted.
SECTION 2.11. Optional Prepayments of Advances. The
Borrower may, upon at least three Business Day's notice to the
Agent stating the proposed date and aggregate principal amount
of the prepayment, and if such notice is given the Borrower
shall, prepay the outstanding principal amounts of the
Advances comprising part of the same Borrowing in whole or
ratably in part, together with accrued interest to the date of
such prepayment on the principal amount prepaid; provided,
however, that each partial prepayment shall be in an aggregate
principal amount not less than $1,000,000 (or, if lower, the
principal amount outstanding hereunder on the date of such
prepayment) or an integral multiple of $1,000,000 in excess
thereof. In the case of any such prepayment of an Adjusted CD
Rate Advance, Eurodollar Rate Advance or a B Advance, the
Borrower shall be obligated to reimburse the Lender(s) in
respect thereof pursuant to Section 8.04(b). Except as
provided in this Section 2.11, the Borrower shall have no
right to prepay any principal amount of any Advances.
SECTION 2.12. Mandatory Prepayments. (a) On the date of
any termination or reduction of the Commitments pursuant to
Section 2.05, the Borrower shall pay or prepay for the ratable
accounts of the Lenders so much of the principal amount
outstanding under this Agreement as shall be necessary in
order that the principal amount outstanding (after giving
effect to such prepayment) will not exceed the amount of
Commitments following such termination or reduction, together
with (A) accrued interest to the date of such prepayment on
the principal amount repaid or prepaid and (B) in the case of
prepayments of Eurodollar Rate Advances, Adjusted CD Rate
Advances or B Advances, any amount payable to the Lenders
pursuant to Section 8.04(b).
(b) All prepayments required to be made pursuant to
this Section 2.12 shall be applied by the Agent as follows:
(i) first, to the prepayment of the A Advances
(without reference to minimum dollar requirements), applied to
outstanding Base Rate Advances up to the full amount thereof
before they are applied to the ratable prepayment of
Eurodollar Rate and Adjusted CD Rate Advances; and
(ii) second, to the prepayment of the B Advances
(without reference to minimum dollar requirements), applied
ratably among all the Lenders holding B Advances.
(c) In lieu of prepaying any Eurodollar Rate
Advances, Adjusted CD Rate Advances or B Advances under any
provision (other than Sections 2.14 and 6.01) of this
Agreement, the Borrower may, upon notice to the Agent, deliver
such funds to the Agent, to be held as additional cash
collateral securing the obligations hereunder and under the
Notes. The Agent shall deposit all amounts delivered to it in
a non-interest-bearing special purpose cash collateral
account, to be governed by a cash collateral agreement in form
and substance satisfactory to the Borrower and the Agent, and
shall apply all such amounts in such account against such
Advances on the last day of the Interest Period therefor. The
Agent shall promptly notify the Lenders of any election by the
Borrower to deliver funds to the Agent under this subsection
(c).
SECTION 2.13. Increased Costs. (a) If, due to either
(i) the introduction of or any change (other than any change
by way of imposition or increase of reserve requirements, in
the case of Adjusted CD Rate Advances, included in the
definition of Adjusted CD Rate or, in the case of Eurodollar
Rate Advances, included in the Eurodollar Rate Reserve
Percentage) in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or
request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any
increase in the cost to any Lender of agreeing to make or
making, funding or maintaining Adjusted CD Rate Advances or
Eurodollar Rate Advances, then the Borrower shall from time to
time, upon demand by such Lender (with a copy of such demand
to the Agent), pay to the Agent for the account of such Lender
additional amounts sufficient to compensate such Lender for
such increased cost. A certificate as to the amount of such
increased cost, submitted to the Borrower and the Agent by
such Lender, shall be conclusive and binding for all purposes,
absent manifest error, provided that the determination thereof
shall have been made by such Lender in good faith.
(b) If any Lender determines that compliance with
any law or regulation or any guideline or request from any
central bank or other governmental authority (whether or not
having the force of law) affects or would affect the amount of
capital required or expected to be maintained by such Lender
or any corporation controlling such Lender and that the amount
of such capital is increased by or based upon the existence of
such Lender's commitment to lend hereunder and other
commitments of this type, then, upon demand by such Lender
(with a copy of such demand to the Agent), the Borrower shall
immediately pay to the Agent for the account of such Lender,
from time to time as specified by such Lender, additional
amounts sufficient to compensate such Lender or such
corporation in the light of such circumstances, to the extent
that such Lender reasonably determines such increase in
capital to be allocable to the existence of such Lender's
Commitment. A certificate as to such amounts submitted to the
Borrower and the Agent by such Lender, describing in
reasonable detail the manner in which such amounts have been
calculated, shall be conclusive and binding for all purposes,
absent manifest error, provided that the determination and
allocation thereof shall have been made by such Lender in good
faith.
(c) Notwithstanding the provisions of subsections
(a) or (b), above, to the contrary, no Lender shall be
entitled to demand compensation or be compensated thereunder
to the extent that such compensation relates to any period of
time more than 60 days prior to the date upon which such
Lender first notified the Borrower of the occurrence of the
event entitling such Lender to such compensation (unless, and
to the extent, that any such compensation so demanded shall
relate to the retroactive application of any event so notified
to the Borrower).
SECTION 2.14. Illegality. Notwithstanding any other
provision of this Agreement to the contrary, if any Lender
(the "Affected Lender") shall notify the Agent and the
Borrower that the introduction of or any change in or in the
interpretation of any law or regulation makes it unlawful, or
any central bank or other governmental authority asserts that
it is unlawful, for the Affected Lender or its Eurodollar
Lending Office to perform its obligations hereunder to make
Eurodollar Rate Advances or to fund or maintain Eurodollar
Rate Advances hereunder, (i) all Eurodollar Rate Advances of
the Affected Lender shall, on the fifth Business Day following
such notice from the Affected Lender, automatically be
Converted into a like number of Base Rate Advances, each in
the amount of the corresponding Eurodollar Rate Advance of the
Affected Lender being so Converted (each such Advance, as so
Converted, being an "Affected Lender Advance"), and the
obligation of the Affected Lender to make, maintain, or
Convert A Advances into Eurodollar Rate Advances shall
thereupon be suspended until the Agent shall notify the
Borrower and the Lenders that the circumstances causing such
suspension no longer exist, or the Affected Lender has been
replaced pursuant to Section 8.07(g), and (ii) in the event
that, on the last day of each of the then-current Interest
Periods for each Eurodollar Rate Advance (each such Advance
being an "Unaffected Lender Advance") of each of the other
Lenders (each such Lender being an "Unaffected Lender"), the
Agent shall have yet to notify the Borrower and the Lenders
that the circumstances causing such suspension of the Affected
Lender's obligations as aforesaid no longer exist, or the
Affected Lender has not yet been replaced pursuant to Section
8.07(g), such Unaffected Lender Advance shall be Converted by
the Borrower in accordance with Section 2.10 into an Advance
of another Type (or, in the event that the Borrower shall fail
to duly deliver a Notice of Conversion with respect thereto,
into a Base Rate Advance), and the obligation of such
Unaffected Lender to make, maintain, or Convert A Advances
into Eurodollar Rate Advances shall be suspended until the
Agent shall so notify the Borrower and the Lenders, or the
Affected Lender shall be so replaced. For purposes of any
prepayment under this Agreement, each Affected Lender Advance
shall be deemed to continue to be part of the same Borrowing
as the Unaffected Lender Advance to which it corresponded at
the time of the Conversion of such Affected Lender Advance
pursuant to clause (i), above.
SECTION 2.15. Payments and Computations. (a)The Borrower
shall make each payment hereunder and under the Notes not
later than 1:00 p.m. on the day when due in Dollars to the
Agent at its address referred to in Section 8.02 in same day
funds. The Agent will promptly thereafter cause to be
distributed like funds relating to the payment of principal or
interest or fees ratably (other than amounts payable pursuant
to Section 2.03, 2.08, 2.12(b)(iii), 2.16 or 8.04(b)) to the
Lenders for the account of their respective Applicable Lending
Offices, and like funds relating to the payment of any other
amount payable to any Lender to such Lender for the account of
its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. Upon its
acceptance of a Lender Assignment and recording of the
information contained therein in the Register pursuant to
Section 8.07(d), from and after the effective date specified
in such Lender Assignment, the Agent shall make all payments
hereunder and under the Notes in respect of the interest
assigned thereby to the Lender assignee thereunder, and the
parties to such Lender Assignment shall make all appropriate
adjustments in such payments for periods prior to such
effective date directly between themselves.
(b) The Borrower hereby authorizes each Lender, if
and to the extent payment owed to such Lender is not made when
due hereunder or under any Note held by such Lender, to charge
from time to time against any or all of the Borrower's
accounts with such Lender any amount so due.
(c) All computations of interest based on the
Alternate Base Rate and the Federal Funds Rate and of fees
shall be made by the Agent on the basis of a year of 365 or
366 days, as the case may be, and all computations of interest
based on the Adjusted CD Rate and the Eurodollar Rate shall be
made by the Agent, and all computations of interest pursuant
to Section 2.08 shall be made by a Lender, on the basis of a
year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring
in the period for which such interest or fees are payable.
Each determination by the Agent (or, in the case of Section
2.08, by a Lender) of an interest rate hereunder shall be
conclusive and binding for all purposes, absent manifest
error, provided that such determination shall have been made
by the Agent or such Lender, as the case may be, in good
faith.
(d) Whenever any payment hereunder or under the
Notes shall be stated to be due on a day other than a Business
Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as
the case may be; provided, however, that if such extension
would cause payment of interest on or principal of Eurodollar
Rate Advances to be made in the next following calendar month,
such payment shall be made on the next preceding Business Day.
(e) Unless the Agent shall have received notice
from the Borrower prior to the date on which any payment is
due to the Lenders hereunder that the Borrower will not make
such payment in full, the Agent may assume that the Borrower
has made such payment in full to the Agent on such date and
the Agent may, in reliance upon such assumption, cause to be
distributed to each Lender on such due date an amount equal to
the amount then due such Lender. If and to the extent that
the Borrower shall not have so made such payment in full to
the Agent, each Lender shall repay to the Agent forthwith on
demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is
distributed to such Lender until the date such Lender repays
such amount to the Agent, at the Federal Funds Rate.
SECTION 2.16. Taxes. (a) Any and all payments by the
Borrower hereunder and under the other Loan Documents shall be
made, in accordance with Section 2.15, free and clear of and
without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of
each Lender and the Agent, taxes imposed on its overall net
income and franchise taxes imposed on it by the jurisdiction
under the laws of which such Lender or the Agent (as the case
may be) is organized or any political subdivision thereof and,
in the case of each Lender, taxes imposed on its overall net
income and franchise taxes imposed on it by the jurisdiction
of such Lender's Applicable Lending Office or any political
subdivision thereof (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities
being hereinafter referred to as "Taxes"); provided, however,
that, notwithstanding the foregoing, Taxes shall not include
any taxes otherwise required to be deducted by the Borrower
pursuant to this subsection (a) as a result of activities of
any Lender or the Agent in the State of Iowa (other than as a
result, or in respect, of this Agreement). If the Borrower
shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder or under any other Loan
Document to any Lender or the Agent, (i) the sum payable shall
be increased as may be necessary so that after making all
required deductions (including deductions applicable to
additional sums payable under this Section 2.16) such Lender
or the Agent (as the case may be) receives an amount equal to
the sum it would have received had no such deductions been
made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance
with applicable law.
(b) In addition, the Borrower agrees to pay any
present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies which
arise from any payment made hereunder or under any other Loan
Document or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement or any other Loan
Document (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender and the
Agent for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 2.16) paid
by such Lender or the Agent (as the case may be) and any
liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. This
indemnification shall be made within 30 days from the date
such Lender or the Agent (as the case may be) makes written
demand therefor. Nothing herein shall preclude the right of
the Borrower to contest any such Taxes or Other Taxes so paid,
and the Lenders in question or the Agent (as the case may be)
will, following notice from, and at the expense of, the
Borrower, reasonably cooperate with the Borrower to preserve
the Borrower's rights to contest such Taxes or Other Taxes.
(d) Within 30 days after the date of any payment of
Taxes, the Borrower will furnish to the Agent, at its address
referred to in Section 8.02, the original or a certified copy
of a receipt evidencing payment thereof.
(e) Each Lender agrees that, on or prior to the
date upon which it shall become a party hereto, and upon the
reasonable request from time to time of the Borrower or the
Agent, such Lender will deliver to the Borrower and the Agent
either (i) a statement that it is organized under the laws of
a jurisdiction within the United States or (ii) duly completed
copies of such form or forms as may from time to time be
prescribed by the United States Internal Revenue Service
indicating that such Lender is entitled to receive payments
without deduction or withholding of any United States federal
income taxes, as permitted by the Internal Revenue Code of
1986, as amended from time to time. Each Lender that delivers
to the Borrower and the Agent the form or forms referred to in
the preceding sentence further undertakes to deliver to the
Borrower and the Agent further copies of such form or forms,
or successor applicable form or forms, as the case may be, as
and when any previous form filed by it hereunder shall expire
or shall become incomplete or inaccurate in any respect. Each
Lender represents and warrants that each such form supplied by
it to the Agent and the Borrower pursuant to this subsection
(e), and not superseded by another form supplied by it, is or
will be, as the case may be, complete and accurate.
(f) Any Lender claiming any additional amounts
payable pursuant to this Section 2.16 shall use its best
efforts (consistent with its internal policy and legal and
regulatory restrictions) to change the jurisdiction of its
Applicable Lending Office if the making of such a change would
avoid the need for, or reduce the amount of, any such
additional amounts which may thereafter accrue and would not,
in the reasonable judgment of such Lender, be otherwise
disadvantageous to such Lender.
(g) Without prejudice to the survival of any other
agreement of the Borrower hereunder, the agreements and
obligations of the Borrower contained in this Section 2.16
shall survive the payment in full of principal and interest
hereunder and under the Notes.
SECTION 2.17. Sharing of Payments, Etc. If any Lender
shall obtain any payment (whether voluntary, involuntary,
through the exercise of any right of set-off, or otherwise) on
account of the A Advances made by it (other than pursuant to
Section 2.08, 2.16 or 8.04(b)) in excess of its ratable share
of payments on account of the A Advances obtained by all the
Lenders, such Lender shall forthwith purchase from the other
Lenders such participations in the Advances made by them as
shall be necessary to cause such purchasing Lender to share
the excess payment ratably with each of them; provided,
however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, such
purchase from each Lender shall be rescinded and such Lender
shall repay to the purchasing Lender the purchase price to the
extent of such recovery, together with an amount equal to such
Lender's ratable share (according to the proportion of (i) the
amount of such Lender's required repayment to (ii) the total
amount so recovered from the purchasing Lender) of any
interest or other amount paid or payable by the purchasing
Lender in respect of the total amount so recovered. The
Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 2.17 may, to the
fullest extent permitted by law, exercise all its rights of
payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation.
SECTION 2.18. Extension of Termination Date. (a) At least
90 but not more than 120 days before each of November 20, 1998
and November 20, 1999, the Borrower may, by delivering a
written request to the Agent (each such request being
irrevocable), request that each Lender extend for one year the
Termination Date with respect to such Lender's Commitment.
The Agent shall, upon its receipt of such a request, promptly
notify each Lender thereof, and request that each Lender
promptly advise the Agent of its approval or rejection of such
request.
(b) Upon receipt of such notification from the
Agent, each Lender may (but shall not be required to), in its
sole and absolute discretion, agree to extend the Termination
Date with respect to its Commitment for a period of one year,
and shall (should it determine to do so), no later than 60
days following its receipt of such notification, notify the
Agent of its approval concerning such request. If any Lender
shall not so notify the Agent, such Lender shall be deemed not
to have consented to such request. The Agent shall thereupon
notify the Borrower as to the Lenders, if any, that have
consented to such request.
(c) If all of the Lenders agree to extend the
Termination Date, the Commitments shall be extended for a
period of one year, commencing on the then-scheduled
Termination Date; provided, however, that the Commitments
shall be so extended notwithstanding the existence of one or
more Lenders (the "Nonextending Lenders") which have elected
not to extend (or failed to notify the Agent of its consent to
extend) their Commitment if (i) such Nonextending Lender(s)
have been replaced in the full amount of its (or their)
Commitment(s) pursuant to Section 8.07(g) and (ii) no Event of
Default or Unmatured Default shall then have occurred and be
continuing. If a Nonextending Lender is not so replaced
pursuant to Section 8.07(g), the Commitments of all of the
Lenders shall automatically terminate on the then-scheduled
Termination Date.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Closing. The
Commitments of the Lenders shall not become effective unless
the following conditions precedent shall have been fulfilled
on or prior to November 20, 1996 (or such later Business Day
as the parties hereto may mutually agree):
(a) The Agent shall have received the following,
each dated the date of the Closing, in form and substance
satisfactory to the Lenders and (except for the Notes) in
sufficient copies for each Lender:
(i) this Agreement, duly executed by the Borrower,
each Bank and the Agent;
(ii) the A Notes payable to the order of the
Lenders, respectively, duly completed and executed by the
Borrower;
(iii) certified copies of the resolutions of the
Board of Directors of the Borrower approving this Agreement,
the Notes and the other Loan Documents to which it is, or is
to be, a party, and of all documents evidencing other
necessary corporate action with respect to this Agreement, the
Notes and such Loan Documents;
(iv) certified copies of the resolutions of the
Board of Directors of the Parent approving the Support
Agreement and the other Loan Documents to which it is, or is
to be, a party, together with a certificate of the Secretary
or an Assistant Secretary of the Parent certifying that the
credit facility evidenced by this Agreement is the only credit
facility of the Borrower having the benefit of a guaranty or
other support arrangement from the Parent pursuant to such
resolutions, and of all documents evidencing other necessary
corporate action with respect to the Support Agreement and
such Loan Documents;
(v) a certificate of the Secretary or an Assistant
Secretary of the Borrower certifying the names, true
signatures and incumbency of the officers of the Borrower
authorized to sign this Agreement, the Notes and the other
Loan Documents to which it is, or is to be, a party;
(vi) a certificate of the Secretary or an Assistant
Secretary of the Parent certifying the names, true signatures
and incumbency of the officers of the Parent authorized to
sign the Support Agreement and the other Loan Documents to
which it is, or is to be, a party;
(vii) copies of the Certificate of Incorporation (or
comparable charter document) and by-laws of the Borrower,
together with all amendments thereto, certified by the
Secretary or an Assistant Secretary of the Borrower;
(viii) copies of the Certificate of Incorporation (or
comparable charter document) and by-laws of the Parent,
together with all amendments thereto, certified by the
Secretary or an Assistant Secretary of the Parent;
(ix) certified copies of all Governmental Approvals,
if any, required in connection with the execution, delivery
and performance of this Agreement and the other Loan
Documents;
(x) certified copies of the financial statements
referred to in Section 5(d) of the Support Agreement;
(xi) the Support Agreement duly executed by the
Parent and the Borrower, together with (A) a letter from the
Parent to the Agent affirming that the Lenders are "Lenders"
under the Support Agreement and (B) proper Financing
Statements (Form UCC-1 or UCC-3) to be filed under the Uniform
Commercial Code in all jurisdictions as may be necessary or,
in the opinion of the Agent, desirable to perfect the security
interests created by the Support Agreement;
(xii) favorable opinions of:
(A) Winthrop, Stimson, Putnam &
Roberts, special New York counsel for the Borrower and the
Parent, in substantially the form of Exhibit 3.01(a)(xii)-1
and as to such other matters as the Majority Lenders, through
the Agent, may reasonably request;
(B) Stephen W. Southwick, Counsel for the
Borrower and Vice President, General Counsel & Secretary of
the Parent, in substantially the form of Exhibit 3.01(a)(xii)-
2 and as to such other matters as the Majority Lenders,
through the Agent, may reasonably request;
(C) King & Spalding, special New York counsel
to the Agent, in substantially the form of Exhibit
3.01(a)(xii)-3 and as to such other matters as the Majority
Lenders, through the Agent, may reasonably request; and
(xiii) such other approvals, opinions and
documents as any Lender, through the Agent, may reasonably
request.
(b) The following statements shall be true and
correct and the Agent shall have received a certificate of a
duly authorized officer of the Borrower, dated the date of the
Closing and in sufficient copies for each Lender, stating
that:
(i) the representations and warranties set forth in
Section 4.01 of this Agreement are true and correct on and as
of the date of the Closing as though made on and as of such
date, and
(ii) no event has occurred and is continuing that
constitutes an Unmatured Default or an Event of Default.
(c) The Agent shall have received a certificate
(the statements in which shall be true) of a duly authorized
officer of the Parent, dated the date of the Closing and in
sufficient copies for each Lender, stating that the
representations and warranties set forth in Section 5 of the
Support Agreement are true and correct on and as of the date
of the Closing as though made on and as of such date.
(d) The Borrower shall have paid (i) all fees under
or referenced in Section 2.04 hereof, to the extent then due
and payable, and (ii) all costs and expenses of the Agent
(including counsel fees and disbursements) incurred through
(and for which statements have been provided prior to) the
Closing.
(e) Each New Lender and Increasing Lender shall, on
the date of the Closing, have purchased by assignment from the
Existing Banks that are parties hereto such portion of the A
Advances owing to them as shall be designated by the Agent
such that, after giving effect to all such purchases and
assignments, the outstanding A Advances owing to each Lender
shall equal such Lender's Percentage of the aggregate amount
of A Advances owing to all Lenders.
SECTION 3.02. Conditions Precedent to Each A Borrowing.
The obligation of each Lender to make an A Advance on the
occasion of each A Borrowing (including the initial A
Borrowing) shall be subject to the conditions precedent that,
on the date of such A Borrowing,
(a) the following statements shall be true and
correct (and each of the giving of the applicable Notice of A
Borrowing and the acceptance by the Borrower of the proceeds
therefrom shall constitute a representation and warranty by
the Borrower that, on the date of such A Borrowing, such
statements are true and correct):
(i) the representations and warranties
contained in Section 4.01 (excluding those contained in
subsections (e), (f), (g), (h) and (j) thereof if such A
Borrowing does not increase the aggregate outstanding
principal amount of A Advances over the aggregate outstanding
principal amount of all Advances immediately prior to making
such A Borrowing) and in Section 5 of the Support Agreement
are true and correct on and as of the date of such A
Borrowing, before and after giving effect to the application
of the proceeds therefrom, as though made on and as of such
date; and
(ii) no event has occurred and is continuing, or
would result from such A Borrowing or from the application of
the proceeds therefrom, which constitutes an Event of Default
or an Unmatured Default; and
(b) the Agent shall have received such other
approvals, opinions, or documents as the Agent, or the
Majority Lenders through the Agent, may reasonably request,
and such approvals, opinions, and documents shall be
satisfactory in form and substance to the Agent.
SECTION 3.03. Conditions Precedent to Each B Borrowing.
The obligation of each Lender to make a B Advance on the
occasion of a B Borrowing (including the initial B Borrowing)
shall be subject to the conditions precedent that (a) the Agent
shall have received the written confirmatory Notice of B
Borrowing with respect thereto; (b) on or before the date of such
B Borrowing, but prior to such B Borrowing, the Agent shall
have received a B Note payable to the order of such Lender for
each of the one or more B Advances to be made by such Lender
as part of such B Borrowing, in a principal amount equal to
the principal amount of the B Advance to be evidenced thereby
and otherwise on such terms as were agreed to for such B
Advance in accordance with Section 2.03; (c) on the date of such
B Borrowing the following statements shall be true and correct
(and each of the giving of the applicable Notice of B
Borrowing and the acceptance by the Borrower of the proceeds
therefrom shall constitute a representation and warranty by
the Borrower that, on the date of such B Borrowing, such
statements are true and correct):
(i) the representations and warranties
contained in Section 4.01 (excluding those contained in
subsections (e), (f), (g), (h) and (j) thereof if such B
Borrowing does not increase the aggregate amount of
Advances over the aggregate amount of all Advances
outstanding immediately prior to such B Borrowing) and in
Section 5 of the Support Agreement are true and correct
on and as of the date of such B Borrowing, before and
after giving effect to such B Borrowing and to the
application of the proceeds therefrom, as though made on
and as of such date; and
(ii) no event has occurred and is continuing,
or would result from such B Borrowing or from the
application of the proceeds therefrom, which constitutes
an Event of Default or an Unmatured Default; and
(d) the Agent shall have received such other approvals,
opinions, or documents as the Agent, or the Majority Lenders
through the Agent, may reasonably request, and such approvals,
opinions, and documents shall be satisfactory in form and
substance to the Agent.
SECTION 3.04. Reliance on Certificates. The Lenders and
the Agent shall be entitled to rely conclusively upon the
certificates delivered from time to time by officers of the
Borrower and the Parent as to the names, incumbency, authority
and signatures of the respective Persons named therein until
such time as the Agent may receive a replacement certificate,
in form acceptable to the Agent, from an officer of such
Person identified to the Agent as having authority to deliver
such certificate, setting forth the names and true signatures
of the officers and other representatives of such Person
thereafter authorized to act on behalf of such Person.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the
Borrower. The Borrower represents and warrants as follows:
(a) The Borrower and each of its Subsidiaries
is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its
incorporation and is duly qualified to do business in, and is
in good standing in, all other jurisdictions where the nature
of its business or the nature of property owned or used by it
makes such qualification necessary (except where the failure
to so qualify would not have a material adverse affect on the
business, financial condition, operations, results of
operations or prospects of the Borrower and its Subsidiaries,
taken as a whole).
(b) The execution, delivery and performance by
the Borrower of this Agreement, the Notes and the other Loan
Documents to which it is or will be a party are within the
Borrower's corporate powers, have been duly authorized by all
necessary corporate action, and do not and will not contravene
(i) the Borrower's charter or by-laws, (ii) law, or (iii) any
legal or contractual restriction binding on or affecting the
Borrower; and such execution, delivery and performance do not
and will not result in or require the creation of any Lien
(other than pursuant to the Loan Documents) upon or with
respect to any of its properties.
(c) No Governmental Approval is required in
connection with the execution, delivery or performance of any
Loan Document.
(d) This Agreement is, and each other Loan
Document to which the Borrower will be a party when executed
and delivered hereunder will be, legal, valid and binding
obligations of the Borrower enforceable against the Borrower
in accordance with their respective terms, subject to the
qualifications, however, that the enforcement of the rights
and remedies herein and therein is subject to bankruptcy and
other similar laws of general application affecting rights and
remedies of creditors and that the remedy of specific
performance or of injunctive relief is subject to the
discretion of the court before which any proceedings therefor
may be brought.
(e) Since December 31, 1995, there has been no
material adverse change in the business, financial condition,
operations, results of operations or prospects of the Borrower
and its Subsidiaries, taken as a whole, or in the Borrower's
ability to perform its obligations under this Agreement or any
other Loan Document to which it is or will be a party.
(f) The pro forma unaudited consolidated and
consolidating balance sheets of the Borrower and its
Subsidiaries as at December 31, 1995, and the related pro
forma unaudited consolidated and consolidating statements of
income of the Borrower and its Subsidiaries for the fiscal
year then ended, and the unaudited consolidated and
consolidating balance sheets of the Borrower and its
Subsidiaries as at September 30, 1996 and the related
unaudited consolidated and consolidating statements of income
for the nine-month period then ended, copies of each of which
have been furnished to each Bank, fairly present (subject, in
the case of such balance sheets and statements of income for
the nine months ended September 30, 1996, to year-end
adjustments) the consolidated financial condition of the
Borrower and its Subsidiaries as at such dates and the
consolidated results of operations of the Borrower and its
Subsidiaries for the periods ended on such dates, all in
accordance, in all material respects, with generally accepted
accounting principles consistently applied.
(g) Except as disclosed in the Parent's Report
on Form 10-K for the year ended December 31, 1995 and Report
on Form 10-Q for the period ended September 30, 1996, there
is no pending or threatened action or proceeding affecting the
Borrower or any of its Subsidiaries or properties before any
court, governmental agency or arbitrator, that might
reasonably be expected to materially adversely affect (i) the
business, financial condition, results of operations or
prospects of the Borrower and its Subsidiaries, taken as a
whole, or (ii) the ability of the Borrower to perform its
obligations under this Agreement or any other Loan Document to
which the Borrower or the Parent is or is to be a party; and
since September 30, 1996 there have been no material adverse
developments in any action or proceeding so disclosed.
(h) No ERISA Event has occurred or is
reasonably expected to occur with respect to any Plan of the
Borrower or any of its ERISA Affiliates which would result in
a material liability to the Borrower. Since the date of the
most recent Schedule B (Actuarial Information) to the annual
report of Plans maintained by the Borrower (Form 5500 Series),
if any, there has been no material adverse change in the
funding status of the Plans referred to therein and no
"prohibited transaction" has occurred with respect thereto
which is reasonably expected to result in a material liability
to the Borrower. Neither the Borrower nor any of its ERISA
Affiliates has incurred nor reasonably expects to incur any
material withdrawal liability under ERISA to any Multiemployer
Plan.
(i) The Support Agreement is in full force and
effect without having been amended, modified, waived or
terminated in any manner, except in each case in accordance
with the terms thereof.
(j) The Borrower has filed all tax returns
(Federal, state and local) required to be filed and paid all
taxes shown thereon to be due, including interest and
penalties, or, to the extent the Borrower is contesting in
good faith an assertion of liability based on such returns,
has provided adequate reserves for payment thereof in
accordance with generally accepted accounting principles.
(k) Following application of the proceeds of
each Advance, not more than 25 percent of the value of the
assets of the Borrower and its Subsidiaries on a consolidated
basis will be margin stock (within the meaning of Regulation U
issued by the Board of Governors of the Federal Reserve
System).
(l) The Borrower is not an "investment
company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as
amended.
(m) As of the date hereof, the Borrower is not
a "holding company" within the meaning of PUHCA.
(n) From and after the date upon which, and at
all times during which, any Subsidiary of the Borrower shall
be a "public-utility company" within the meaning of PUHCA, the
Borrower will be a "holding company" within the meaning of
PUHCA, but the Borrower and its Subsidiaries will be exempt
from the provisions of that Act, except Section 9(a)(2)
thereof, by virtue of having filed with the Securities and
Exchange Commission a Statement by Holding Company Claiming
Exemption Under Rule U-2 from the Provisions of the Public
Utility Holding Company Act of 1935 on Form U-3A-2.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as
any amount in respect of any Note shall remain unpaid or any
Lender shall have any Commitment, the Borrower will, unless
the Majority Lenders shall otherwise consent in writing:
(a) Payment of Taxes, Etc. Pay and discharge,
and cause each of its Subsidiaries to pay and discharge,
before the same shall become delinquent, all taxes,
assessments and governmental charges, royalties or levies
imposed upon it or upon its property except, in the case of
taxes, to the extent the Borrower or such Subsidiary is
contesting the same in good faith and by appropriate
proceedings and has set aside adequate reserves for the
payment thereof in accordance with generally accepted
accounting principles.
(b) Maintenance of Insurance. Maintain, or
cause to be maintained, insurance covering the Borrower and
each of its Subsidiaries and their respective properties in
effect at all times in such amounts and covering such risks as
is usually carried by companies of a similar size (based on
the aggregate book value of the Parent's assets, as determined
on a consolidated basis in accordance with generally accepted
accounting principles consistently applied), engaged in
similar businesses and owning similar properties in the same
general geographical area in which the Borrower and each such
Subsidiary operates, either with reputable insurance companies
or, in whole or in part, by establishing reserves of one or
more insurance funds, either alone or with other corporations
or associations.
(c) Preservation of Existence, Etc. Preserve
and maintain, and cause each of its Subsidiaries to preserve
and maintain, its corporate existence, material rights
(statutory and otherwise) and franchises; provided, however,
that neither the Borrower nor any of its Subsidiaries shall be
required to preserve and maintain any such right or franchise,
and no such Subsidiary shall be required to preserve and
maintain its corporate existence, unless the failure to do so
would have a material adverse effect on the business,
financial condition, operations, results of operations or
prospects of the Borrower and its Subsidiaries, taken as a
whole, or on the Borrower's ability to perform its obligations
under this Agreement or any other Loan Document to which it is
or will be a party.
(d) Compliance with Laws, Etc. Comply, and
cause each of its Subsidiaries to comply, with the
requirements of all applicable laws, rules, regulations and
orders of any governmental authority, including without
limitation any such laws, rules, regulations and orders
relating to zoning, environmental protection, use and disposal
of Hazardous Substances, land use, ERISA, construction and
building restrictions, and employee safety and health matters
relating to business operations, the non-compliance with which
would have a material adverse effect on the business,
financial condition, operations, results of operations or
prospects of the Borrower and its Subsidiaries, taken as a
whole, or on the Borrower's ability to perform its obligations
under this Agreement or any other Loan Document to which it is
or will be a party.
(e) Inspection Rights. At any time and from
time to time upon reasonable notice, permit or arrange for the
Agent, the Lenders and their respective agents and
representatives to examine and make copies of and abstracts
from the records and books of account of, and the properties
of, the Borrower and each of its Subsidiaries, and to discuss
the affairs, finances and accounts of the Borrower and its
Subsidiaries with the Borrower and its Subsidiaries and their
respective officers, directors and accountants.
(f) Keeping of Books. Keep, and cause its
Subsidiaries to keep, proper records and books of account, in
which full and correct entries shall be made of all financial
transactions of the Borrower and its Subsidiaries and the
assets and business of the Borrower and its Subsidiaries, in
accordance with generally accepted accounting principles
consistently applied.
(g) Maintenance of Properties, Etc. Maintain,
and cause each of its Subsidiaries to maintain, good and
marketable title to, and preserve, maintain, develop, and
operate in substantial conformity with all laws and material
contractual obligations, all of its properties which are used
or useful in the conduct of its business in good working order
and condition, ordinary wear and tear excepted, except where
the failure to do so would not have a material adverse effect
on the business, financial condition, operations, results of
operations or prospects of the Borrower and its Subsidiaries,
taken as a whole, or on the Borrower's ability to perform its
obligations under this Agreement or any other Loan Document to
which it is or will be a party.
(h) Reporting Requirements. Furnish to each Lender:
(i) as soon as possible and in any event
within five Business Days after the occurrence of each
Unmatured Default or Event of Default continuing on the date
of such statement, a statement of a Senior Financial Officer
setting forth details of such Unmatured Default or Event of
Default and the action that the Borrower proposes to take with
respect thereto;
(ii) as soon as available and in any event
within 60 days after the end of each of the first three
quarters of each fiscal year of the Borrower, a consolidated
balance sheet of the Borrower and its Subsidiaries as at the
end of such quarter and consolidated statements of income,
retained earnings and cash flows of the Borrower and its
Subsidiaries for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter,
all in reasonable detail and duly certified (subject to
year-end audit adjustments) by a Senior Financial Officer as
having been prepared in accordance (in all material respects)
with generally accepted accounting principles consistent with
those applied in the preparation of the financial statements
referred to in Section 5(d) of the Support Agreement, together
with a certificate of said officer stating that no Unmatured
Default or Event of Default has occurred and is continuing or,
if an Unmatured Default or Event of Default has occurred and
is continuing, a statement as to the nature thereof and the
action that the Borrower proposes to take with respect
thereto;
(iii) as soon as available and in any event
within 120 days after the end of each fiscal year of the
Borrower, a copy of the consolidated balance sheet of the
Borrower and its Subsidiaries as at the end of such fiscal
year and consolidated statements of income, retained earnings
and cash flows of the Borrower and its Subsidiaries for such
fiscal year, in each case (x) accompanied by the audit report
of Arthur Andersen & Co. or another nationally-recognized
independent public accounting firm acceptable to the Majority
Lenders if at any time during such fiscal year the Moody's
Rating was Baa2 or lower or the S&P Rating was BBB or lower or
(y) in reasonable detail and duly certified by a Senior
Financial Officer as having been prepared in accordance (in
all material respects) with generally accepted accounting
principles consistent with those applied in the preparation of
the financial statements referred to in Section 5(d) of the
Support Agreement, together with a certificate of a Senior
Financial Officer stating that no Unmatured Default or Event
of Default has occurred and is continuing or, if an Unmatured
Default or Event of Default has occurred and is continuing, a
statement as to the nature thereof and the action that the
Borrower proposes to take with respect thereto;
(iv) as soon as possible and in any event (A)
within 30 days after any ERISA Event described in clause (i)
of the definition of ERISA Event with respect to any Plan of
the Borrower or any ERISA Affiliate of the Borrower has
occurred and (B) within 10 days after any other ERISA Event
with respect to any Plan of the Borrower or any ERISA
Affiliate of the Borrower has occurred, a statement of a
Senior Financial Officer describing such ERISA Event and the
action, if any, which the Borrower or such ERISA Affiliate
proposes to take with respect thereto;
(v) promptly after receipt thereof by the
Borrower or any of its ERISA Affiliates from the PBGC copies
of each notice received by the Borrower or such ERISA
Affiliate of the PBGC's intention to terminate any Plan of the
Borrower or such ERISA Affiliate or to have a trustee
appointed to administer any such Plan;
(vi) promptly and in any event within 30 days
after the filing thereof with the Internal Revenue Service,
copies of each Schedule B (Actuarial Information) to the
annual report (Form 5500 Series) with respect to each Plan (if
any) to which the Borrower or any ERISA Affiliate of the
Borrower is a contributing employer;
(vii) promptly after receipt thereof by the
Borrower or any ERISA Affiliate of the Borrower from a
Multiemployer Plan sponsor, a copy of each notice received by
the Borrower or such ERISA Affiliate concerning the imposition
or amount of withdrawal liability in an aggregate principal
amount of at least $250,000 pursuant to Section 4202 of ERISA
in respect of which the Borrower or such ERISA Affiliate is
reasonably expected to be liable;
(viii) promptly after the Borrower becomes
aware of the occurrence thereof, notice of all actions, suits,
proceedings or other events of (A) of the type described in
Section 4.01(g) or (B) for which the Agent, the Lenders will
be entitled to indemnity under Section 8.04(c);
(ix) promptly after the sending or filing
thereof, copies of all such proxy statements, financial
statements, and reports which the Borrower sends to its public
security holders (if any), and copies of all regular, periodic
and special reports, and all registration statements and
periodic or special reports, if any, which the Borrower or the
Parent files with the Securities and Exchange Commission or
any governmental authority which may be substituted therefor,
or with any national securities exchange; and
(x) promptly after requested, such other
information respecting the business, properties, results of
operations, prospects, revenues, condition or operations,
financial or otherwise, of the Borrower or any of its
Subsidiaries as the Agent or any Lender through the Agent may
from time to time reasonably request.
(i) Further Assurances. At the expense of the
Borrower, promptly execute and deliver, or cause to be
promptly executed and delivered, all further instruments and
documents, and take and cause to be taken all further actions,
that may be necessary or that the Majority Lenders through the
Agent may reasonably request to enable the Lenders and the
Agent to enforce the terms and provisions of this Agreement
and to exercise their rights and remedies hereunder or under
any other Loan Document. In addition, the Borrower will use
all reasonable efforts to duly obtain Governmental Approvals
required in connection with the Loan Documents from time to
time on or prior to such date as the same may become legally
required, and thereafter to maintain all such Governmental
Approvals in full force and effect.
SECTION 5.02. Negative Covenants. So long as any amount
in respect of any Note shall remain unpaid or any Lender shall
have any Commitment, the Borrower will not, without the
written consent of the Majority Lenders:
(a) Liens, Etc. Create, incur, assume, or
suffer to exist, or permit any of its Subsidiaries to create,
incur, assume, or suffer to exist, any lien, security
interest, or other charge or encumbrance (including the lien
or retained security title of a conditional vendor) of any
kind, or any other type of arrangement intended or having the
effect of conferring upon a creditor a preferential interest
upon or with respect to any of its properties of any character
(including, without limitation, accounts) (any of the
foregoing being referred to herein as a "Lien"), excluding,
however, from the operation of the foregoing restrictions the
Liens created under the Loan Documents and the following:
(i) Liens for taxes, assessments or governmental
charges or levies to the extent not past due;
(ii) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's liens and
other similar Liens arising in the ordinary course of business
securing obligations which are not overdue or which are being
contested in good faith, provided that any such contested Lien
securing an amount claimed in excess of $1,000,000 shall be
fully bonded within 90 days after the imposition of such Lien;
(iii) pledges or deposits to secure obligations under
workmen's compensation laws or similar legislation, to secure
public or statutory obligations of the Borrower or such
Subsidiary, or to secure the utility obligations of any such
Subsidiary incurred in the ordinary course of business;
(iv) (A) purchase money Liens upon or in property
now owned or hereafter acquired by the Borrower or any of its
Subsidiaries in the ordinary course of business (consistent
with present practices) to secure (1) the purchase price of
such property or (2) Debt incurred solely for the purpose of
financing the acquisition, construction or improvement of any
such property to be subject to such Liens, or (B) Liens
existing on any such property at the time of acquisition, or
extensions, renewals or replacements of any of the foregoing
for the same or a lesser amount, provided that no such Lien
shall extend to or cover any property other than the property
being acquired, constructed or improved and replacements,
modifications and proceeds of such property, and no such
extension, renewal or replacement shall extend to or cover any
property not theretofore subject to the Lien being extended,
renewed or replaced;
(v) Liens on the capital stock of any of the
Borrower's single-purpose Subsidiaries or any such
Subsidiary's assets to secure the repayment of project
financing for such Subsidiary;
(vi) attachment, judgment or other similar Liens
arising in connection with court proceedings, provided that
the execution or other enforcement of such Liens is
effectively stayed and the claims secured thereby are being
actively contested in good faith by appropriate proceedings or
the payment of which is covered in full (subject to customary
deductible amounts) by insurance maintained with responsible
insurance companies and the applicable insurance company has
acknowledged its liability therefor in writing;
(vii) Liens securing obligations under agreements
entered into pursuant to the Iowa Industrial New Jobs Training
Act or any similar or successor legislation, provided that
such obligations do not exceed $1,000,000 in the aggregate at
any one time outstanding; and
(viii) other Liens set forth in Schedule II hereto,
and any extensions or renewals of any such Liens upon or in
the same property theretofore subject thereto.
(b) Debt. Create, incur, assume, or suffer
to exist any Debt other than:
(A) Debt hereunder and under the other Loan
Documents; and
(B) other Debt of the Borrower; provided, however,
that both immediately before and after the incurrence of any
such other Debt, the Parent shall be in compliance with the
covenant set forth in Section 2(a) of the Support Agreement.
(ii) Permit any of its Subsidiaries to create,
incur, assume, or suffer to exist any Debt other than:
(A) Debt of any Person acquired by the Borrower or
any such Subsidiary (whether by merger, stock or asset
purchase, or otherwise) that was in effect and outstanding at
the time of acquisition;
(B) Debt owing by any such Subsidiary to the
Borrower or to any other such Subsidiary;
(C) Debt of such Subsidiaries under working capital
lines and with respect to Capitalized Lease Obligations not to
exceed $5,000,000 in the aggregate at any one time outstanding
(such dollar limitation to apply to the Debt of any Persons
acquired by and merged into any such Subsidiary to the extent
of any surviving working capital lines and Capitalized Lease
Obligations of any such Person which shall survive such
acquisition and merger);
(D) Debt secured by Liens permitted by Section
5.02(a)(iv) and (v);
(E) Debt under agreements entered into pursuant to
the Iowa Industrial New Jobs Training Act or any similar or
successor legislation, provided that such Debt does not exceed
$1,000,000 in the aggregate at any one time outstanding; and
(F) existing Debt set forth in Schedule III hereto;
provided, however, that both immediately before and after the
incurrence of any Debt described in clauses (A), (B), (C), (D)
and (E), above, the Parent shall be in compliance with the
covenant set forth in Section 2(a) of the Support Agreement.
(c) Compliance with ERISA. (i) Permit to
exist any "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as
amended from time to time) (unless such deficiency exists with
respect to a Multiple Employer Plan or Multiemployer Plan and
the Borrower has no control over the reduction or elimination
of such deficiency), (ii) terminate, or permit any ERISA
Affiliate of the Borrower to terminate, any Plan of the
Borrower or such ERISA Affiliate so as to result in any
material (in the opinion of the Majority Lenders) liability of
the Borrower to the PBGC, or (iii) permit to exist any
occurrence of any Reportable Event (as defined in Title IV of
ERISA), or any other event or condition, which presents a
material (in the opinion of the Majority Lenders) risk of such
a termination by the PBGC of any Plan of the Borrower or such
ERISA Affiliate and such a material liability to the Borrower.
(d) Transactions with Affiliates. Enter into,
or permit any of its Subsidiaries to enter into, any
transaction with an Affiliate of the Borrower, unless such
transaction is on terms no less favorable to the Borrower or
such Subsidiary, as the case may be, than if the transaction
had been negotiated in good faith on an arm's length basis
with a Person which was not an Affiliate of the Borrower.
(e) Mergers, Etc. (i) Merge with or into or
consolidate with or into any other Person, except that the
Borrower may merge with or into or consolidate with or into
any of the Parent's Subsidiaries or the Parent, provided that
immediately after giving effect thereto, (A) no event
shall occur and be continuing which constitutes an Unmatured
Default or an Event of Default, (B) the Borrower is the
surviving corporation or, with respect to any merger or
consolidation of the Borrower with or into the Parent, the
surviving (if not the Borrower) or resulting corporation shall
have expressly assumed the obligations of the Borrower under
this Agreement, the Notes and the other Loan Documents to
which the Borrower is a party, (C) the Parent (unless it shall
be the surviving corporation) shall reaffirm its obligations
to the surviving or resulting corporation under the Support
Agreement and (D) the Borrower shall not be liable with
respect to any Debt or allow its property to be subject to any
Lien which it could not become liable with respect to or allow
its property to become subject to under this Agreement or any
other Loan Document on the date of such transaction, and (ii)
permit any of its Subsidiaries to merge with or into or
consolidate with or into any other Person, except that any
such Subsidiary may merge with or into any other Person,
provided that immediately after giving effect thereto, (x) the
surviving corporation is a Subsidiary of the Borrower, (y) no
event shall occur and be continuing which constitutes an
Unmatured Default or an Event of Default and (z) the Borrower
or any of its Subsidiaries shall not be liable with respect to
any Debt or allow its property to be subject to any Lien which
it could not become liable with respect to or allow its
property to become subject to under this Agreement or any
other Loan Document on the date of such transaction.
(f) Sales, Etc., of Assets. Sell, lease,
transfer, assign or otherwise dispose of all or any
substantial part of its assets, or permit any of its
Subsidiaries to sell, lease, transfer, assign or otherwise
dispose of all or any substantial part of its assets, except
(i) sales, leases, transfers and assignments from one
Subsidiary of the Borrower to another such Subsidiary, (ii) in
any transaction in which the proceeds from such sale, lease,
transfer, assignment or disposition are solely in Cash and
Cash Equivalents and such proceeds are (A) reinvested, or
held for no more than 180 days in Cash and Cash Equivalents
pending reinvestment, in lines of business (other than real
estate) in which the Borrower or any of its Subsidiaries is
engaged in at the time of the Closing, (B) applied as a
reduction of the Commitments and an optional prepayment
pursuant to Sections 2.05 and 2.11, respectively, or
(C) applied to pay or prepay Debt incurred by the Borrower or
any such Subsidiary in connection with the project comprising
such assets, or (iii) in connection with a sale and leaseback
transaction entered into by any Subsidiary of the Borrower,
provided in each case that no Unmatured Default or Event of
Default shall have occurred and be continuing after giving
effect thereto, and provided, further, that, notwithstanding
the foregoing, so long as no Unmatured Default or Event of
Default shall have occurred and be continuing, the Borrower
and its Subsidiaries may sell, lease, transfer, assign or
otherwise dispose of up to $20,000,000 (in book value) in the
aggregate of their collective assets during any 12-calendar-
month period in any single or series of transactions, whether
or not related.
(g) Modification of Support Agreement. Agree
to amend, modify, terminate, or waive any provision of the
Support Agreement.
(h) Letter of Credit Obligations. Incur, or
permit any of its Subsidiaries to incur, any indebtedness,
liabilities or obligations (whether contingent or otherwise)
in excess of $1,000,000 in the aggregate at any one time
outstanding under reimbursement or similar agreements with
respect to letters of credit issued to support obligations
that do not constitute Debt.
(i) Maintenance of Ownership of Significant
Subsidiaries. Sell, assign, transfer, pledge or otherwise
dispose of any shares of capital stock of any of its
Significant Subsidiaries or any warrants, rights or options to
acquire such capital stock, or permit any of its Significant
Subsidiaries to issue, sell or otherwise dispose of any shares
of its capital stock or the capital stock of any other of its
Subsidiaries or any warrants, rights or options to acquire
such capital stock, except (and only to the extent) as may be
necessary to give effect to a transaction permitted by
subsection (e), above.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the
following events (each an "Event of Default") shall occur and
be continuing after the applicable grace period and notice
requirement (if any):
(a) The Borrower shall fail to pay any
principal of any Note when the same becomes due and payable;
or
(b) The Borrower shall fail to pay any
interest on any Note or any other amount due under this
Agreement for two days after the same becomes due; or
(c) Any representation or warranty made by or
on behalf of the Borrower in any Loan Document or in any
certificate or other writing delivered pursuant thereto shall
prove to have been incorrect in any material respect when made
or deemed made; or
(d) Any representation or warranty made by or
on behalf of the Parent in the Support Agreement or in any
certificate or other writing delivered pursuant thereto shall
prove to have been incorrect in any material respect when made
or deemed made; or
(e) The Borrower shall fail to perform or
observe any term or covenant on its part to be performed or
observed contained in Section 5.02 (other than subsections
(c), (d), (g), (i) or (j) thereof), or the Parent shall fail
to perform or observe any term or covenant on its part to be
performed or observed contained in Section 1, 2 or 4 of the
Support Agreement; or
(f) The Borrower shall fail to perform or
observe any other term or covenant on its part to be performed
or observed contained in Section 5.01, Section 5.02 or in any
other Loan Document, or the Parent shall fail to perform or
observe any other term or covenant on its part to be performed
or observed contained in the Support Agreement, and any such
failure shall remain unremedied, after written notice thereof
shall have been given to the Borrower by the Agent, for a
period of 30 days; or
(g) The Parent or any of its Subsidiaries
(including the Borrower but excluding IES Utilities) shall
fail to pay any of its Debt (including any interest or premium
thereon but excluding Debt evidenced by the Notes) aggregating
$5,000,000 or more when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and
such failure shall continue after the applicable grace period,
if any, specified in any agreement or instrument relating to
such Debt; or any other default under any agreement or
instrument relating to any such Debt, or any other event,
shall occur and shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if
the effect of such default or event is to accelerate, or to
permit the acceleration of, the maturity of such Debt; or any
such Debt shall be declared to be due and payable, or required
to be prepaid (other than by a regularly scheduled required
prepayment) prior to the stated maturity thereof as a result
of a default or other similar adverse event; or
(h) IES Utilities shall fail to pay any of its
Debt (including any interest or premium thereon) aggregating
$5,000,000 or more when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and
such failure shall continue after the applicable grace period,
if any, specified in any agreement or instrument relating to
such Debt; or any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly
scheduled required prepayment) prior to the stated maturity
thereof as a result of a default or other similar adverse
event; or
(i) The Borrower, the Parent or IES Utilities
shall generally not pay its debts as such debts become due, or
shall admit in writing its inability to pay its debts
generally, or shall make an assignment for the benefit of
creditors; or any proceeding shall be instituted by or against
the Borrower, the Parent or IES Utilities seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of its debts under any law
relating to bankruptcy, insolvency, or reorganization or
relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, or other similar
official for it or for any substantial part of its property
and, in the case of a proceeding instituted against the
Borrower, the Parent or IES Utilities, either such proceeding
shall remain undismissed or unstayed for a period of 60 days
or any of the actions sought in such proceeding (including
without limitation the entry of an order for relief against
the Borrower, the Parent or IES Utilities or the appointment
of a receiver, trustee, custodian or other similar official
for the Borrower, the Parent or IES Utilities or any of its
property) shall occur; or the Borrower, the Parent or IES
Utilities shall take any corporate or other action to
authorize any of the actions set forth above in this
subsection (i); or
(j) Any judgment or order for the payment of
money equal to or in excess of $5,000,000 shall be rendered
against the Parent or any of its Direct Subsidiaries
(including, without limitation, the Borrower and IES
Utilities) or their respective properties and either
(i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order or (ii) there shall be
any period of 30 consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(k) The Support Agreement, after delivery
thereof under Article III, shall for any reason, except to the
extent permitted by the terms thereof, cease to be valid and
binding on the Parent or the Borrower; or
(l) Any Governmental Approval required in
connection with the execution, delivery and performance of the
Loan Documents shall be rescinded, revoked, otherwise
terminated, or amended or modified in any manner which is
materially adverse to the interests of the Lenders and the
Agent; or
(m) Any ERISA Event shall have occurred with
respect to a Plan which could reasonably be expected to result
in a material liability to the Borrower, and, 30 days after
notice thereof shall have been given to the Borrower by the
Agent or any Lender, such ERISA Event shall still exist;
then, and in any such event, the Agent (i) shall at the
request, or may with the consent, of the holders of at least
66-2/3% in principal amount of the A Advances then outstanding
or, if no A Advances are then outstanding, Banks having at
least 66-2/3% of the Commitments (without giving effect to any
B Reduction), by notice to the Borrower, declare the
obligation of each Lender to make Advances to be terminated,
whereupon the same shall forthwith terminate, and (ii) shall
at the request, or may with the consent, of the holders of at
least 66-2/3% in principal amount of the Advances then
outstanding or, if no Advances are then outstanding, Lenders
having at least 66-2/3% of the Commitments, by notice to the
Borrower, declare the Notes (if any), all interest thereon and
all other amounts payable under this Agreement to be forthwith
due and payable, whereupon the Notes, all such interest and
all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived
by the Borrower; provided, however, that in the event of an
actual or deemed entry of an order for relief with respect to
the Borrower under the Federal Bankruptcy Code, (A) the
Commitments and the obligation of each Lender to make Advances
shall automatically be terminated and (B) the Notes, all such
interest and all such amounts shall automatically become and
be due and payable, without presentment, demand, protest or
any notice of any kind, all of which are hereby expressly
waived by the Borrower.
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action. Each Lender
hereby appoints and authorizes the Agent to take such action
as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Agent by the terms hereof,
together with such powers as are reasonably incidental
thereto. As to any matters not expressly provided for by this
Agreement or any other Loan Document (including, without
limitation, enforcement or collection of the Notes), the Agent
shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting
(and shall be fully protected in so acting or refraining from
acting) upon the instructions of the Majority Lenders, and
such instructions shall be binding upon all Lenders and all
holders of Notes; provided, however, that the Agent shall not
be required to take any action which exposes the Agent to
personal liability or which is contrary to this Agreement or
applicable law. The Agent agrees to give to each Lender
prompt notice of each notice given to it by the Borrower
pursuant to the terms of this Agreement. The Agent shall be
deemed to have exercised reasonable care in the administration
and enforcement of this Agreement and the other Loan Documents
if it undertakes such administration and enforcement in a
manner substantially equal to that which Citibank, N.A.
accords credit facilities similar to the credit facility
hereunder for which it is the sole lender.
SECTION 7.02. Agent's Reliance, Etc. Neither the Agent
nor any of its directors, officers, agents or employees shall
be liable for any action taken or omitted to be taken by it or
them under or in connection with this Agreement or any other
Loan Document, except for its or their own gross negligence or
willful misconduct. Without limitation of the generality of
the foregoing, the Agent: (i) may treat the payee of any Note
as the holder thereof until the Agent receives and accepts a
Lender Assignment entered into by the Lender which is the
payee of such Note, as assignor, and an Eligible Assignee, as
assignee, as provided in Section 8.07; (ii) may consult with
legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by
it and shall not be liable for any action taken or omitted to
be taken in good faith by it in accordance with the advice of
such counsel, accountants or experts; (iii) makes no warranty
or representation to any Lender and shall not be responsible
to any Lender for any statements, warranties or
representations (whether written or oral) made in or in
connection with this Agreement or any other Loan Document;
(iv) shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants
or conditions of this Agreement or any other Loan Document on
the part of the Borrower or the Parent or to inspect the
property (including the books and records) of the Borrower or
the Parent; (v) shall not be responsible to any Lender for the
due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement, any other
Loan Document or any other instrument or document furnished
pursuant hereto or thereto; and (vi) shall incur no liability
under or in respect of this Agreement or any other Loan
Document by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telecopier,
telegram, cable or telex) believed by it to be genuine and
signed or sent by the proper party or parties.
SECTION 7.03. Citibank, N.A. and Affiliates. With
respect to its Commitment, the Advances made by it and the
Notes issued to it, Citibank, N.A. shall have the same rights
and powers under this Agreement as any other Lender and may
exercise the same as though it were not the Agent; and the
term "Bank" or "Banks" and "Lender" or "Lenders" shall, unless
otherwise expressly indicated, include Citibank, N.A. in its
individual capacity. Citibank, N.A. and its Affiliates may
accept deposits from, lend money to, act as trustee under
indentures of, and generally engage in any kind of business
with, the Borrower, the Parent any of its Subsidiaries and any
Person who may do business with or own securities of the
Borrower, the Parent or any such Subsidiary, all as if
Citibank, N.A. were not the Agent and without any duty to
account therefor to the Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender
acknowledges that it has, independently and without reliance
upon the Agent or any other Lender and based on the financial
statements referred to in Section 5(d) of the Support
Agreement and such other documents and information as it has
deemed appropriate, made its own credit analysis and decision
to enter into this Agreement. Each Lender also acknowledges
that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking
action under this Agreement.
SECTION 7.05. Indemnification. The Lenders agree to
indemnify the Agent (to the extent not reimbursed by the
Borrower), ratably according to (a) on or before the
Termination Date, the respective principal amounts of the A
Notes then held by each of them (or if no A Notes are at the
time outstanding or if any A Notes are held by Persons which
are not Lenders, ratably according to the respective
Percentages of the Lenders), or (b) after the Termination
Date, the respective principal amounts of the Notes then held
by each of them (or if no Notes are at the time outstanding or
if any Notes are held by Persons which are not Lenders,
ratably according to the respective unpaid principal amounts
of the Advances made by each Lender), from and against any and
all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against the Agent in any way relating
to or arising out of this Agreement or any action taken or
omitted by the Agent under this Agreement, provided that no
Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the
Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender agrees to reimburse
the Agent promptly upon demand for its ratable share of any
out-of-pocket expenses (including counsel fees) incurred by
the Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings
or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, to the extent that the
Agent is not reimbursed for such expenses by the Borrower.
SECTION 7.06. Successor Agent. The Agent may resign at
any time by giving written notice thereof to the Lenders and
the Borrower and may be removed at any time with or without
cause by the Majority Lenders, with any such resignation or
removal to become effective only upon the appointment of a
successor Agent pursuant to this Section 7.06. Upon any such
resignation or removal, the Majority Lenders shall have the
right to appoint a successor Agent, which shall be a Lender or
shall be another commercial bank or trust company reasonably
acceptable to the Borrower organized under the laws of the
United States or of any State thereof. If no successor Agent
shall have been so appointed by the Majority Lenders, and
shall have accepted such appointment, within 30 days after the
retiring Agent's giving of notice of resignation or the
Majority Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be a Lender or shall be another
commercial bank or trust company organized under the laws of
the United States of any State thereof reasonably acceptable
to the Borrower. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of
this Article VII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under
this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver
of any provision of any Loan Document, nor consent to any
departure by the Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by
the Majority Lenders and, in the case of any amendment, the
Borrower, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for
which given; provided, however, that no amendment, waiver or
consent shall, unless in writing and signed by all the
Lenders, do any of the following: (a) waive, modify or
eliminate any of the conditions specified in Article III, (b)
increase the Commitments of the Lenders or subject the Lenders
to any additional obligations, (c) reduce the principal of, or
interest on, the A Notes, any Applicable Margin or any fees or
other amounts payable hereunder, (d) postpone any date fixed
for any payment of principal of, or interest on, the A Notes
or any fees or other amounts payable hereunder, (e) change the
percentage of the Commitments or of the aggregate unpaid
principal amount of the A Notes, or the number of Lenders,
which shall be required for the Lenders or any of them to take
any action hereunder or (f) amend this Section 8.01; and
provided, further, that no amendment, waiver or consent shall,
unless in writing and signed by the Agent in addition to the
Lenders required above to take such action, affect the rights
or duties of the Agent under this Agreement or any Note.
SECTION 8.02. Notices, Etc. All notices and other
communications provided for hereunder and under the other Loan
Documents shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed,
telecopied, telegraphed, telexed, cabled or delivered, if to
the Borrower, at its address at 200 First Street, Cedar
Rapids, Iowa 52401, Attention: Treasurer; if to the Parent, at
its address at 200 First Street, Cedar Rapids, Iowa 52401,
Attention: Treasurer; if to any Bank, at its Domestic Lending
Office specified opposite its name on Schedule I hereto; if to
any other Lender, at its Domestic Lending Office specified in
the Lender Assignment pursuant to which it became a Lender;
and if to the Agent, at its address at One Court Square, 7th
Floor, Zone 2, Long Island City, New York 11120, Attention:
Bank Loan Syndications; or, as to each party, at such other
address as shall be designated by such party in a written
notice to the other parties. All such notices and
communications shall, when mailed, telecopied, telegraphed,
telexed or cabled, be effective five days after being
deposited in the mails, or when delivered to the telegraph
company, telecopied, confirmed by telex answerback or
delivered to the cable company, respectively, except that
notices and communications to the Agent pursuant to Article II
or VII shall not be effective until received by the Agent.
SECTION 8.03. No Waiver; Remedies. No failure on the
part of any Lender or the Agent to exercise, and no delay in
exercising, any right hereunder or under any Note shall
operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
SECTION 8.04. Costs, Expenses, Taxes and Indemnification.
(a) The Borrower agrees to pay on demand all costs and expenses
of the Agent in connection with the preparation (including,
without limitation, printing costs), negotiation, execution,
delivery, modification and amendment of this Agreement and the
other Loan Documents, and the other documents and instruments
to be delivered hereunder and thereunder, including, without
limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Agent with respect thereto and with respect to
the administration of, and advising the Agent as to its rights
and responsibilities under, this Agreement and the other Loan
Documents. The Borrower further agrees to pay on demand all
costs and expenses, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings
or otherwise) of this Agreement and the other Loan Documents
and the other documents and instruments to be delivered
hereunder and thereunder, including, without limitation,
reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 8.04(a). In
addition, the Borrower shall pay any and all stamp and other
taxes payable or determined to be payable in connection with
the execution and delivery of this Agreement and the other
Loan Documents, and the other documents and instruments to be
delivered hereunder and thereunder, and agrees to save the
Agent and each Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes.
(b) If any payment of principal of, or
Conversion of, any Adjusted CD Rate Advance, Eurodollar Rate
Advance or B Advance is made other than on the last day of the
Interest Period for such A Advance or other than on the
maturity date of such B Advance, as a result of a payment or
Conversion pursuant to Section 2.09(f), 2.10, 2.11, 2.12 or
2.14 or acceleration of the maturity of the Notes pursuant to
Section 6.01 or for any other reason, the Borrower shall, upon
demand by any Lender (with a copy of such demand to the
Agent), pay to the Agent for the account of such Lender any
amounts required to compensate such Lender for any additional
losses, costs or expenses which it may reasonably incur as a
result of such payment or Conversion, including, without
limitation, any loss, cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds
acquired by any Lender to fund or maintain such Advance.
(c) The Borrower hereby agrees to indemnify
and hold each Lender, the Agent and their respective officers,
directors, employees, professional advisors and affiliates
(each, an "Indemnified Person") harmless from and against any
and all claims, damages, losses, liabilities, costs or
expenses (including reasonable attorney's fees and expenses,
whether or not such Indemnified Person is named as a party to
any proceeding or is otherwise subjected to judicial or legal
process arising from any such proceeding) which any of them
may incur or which may be claimed against any of them by any
Person (except for such claims, damages, losses, liabilities,
costs and expenses resulting from such Indemnified Person's
gross negligence or willful misconduct):
(i) by reason of or in connection with the
execution, delivery or performance of any of the Loan
Documents or any transaction contemplated thereby, or the use
by the Borrower of the proceeds of any Extension of Credit;
(ii) in connection with any documentary taxes,
assessments or charges made by any governmental authority by
reason of the execution and delivery of any of the Loan
Documents; or
(iii) in connection with or resulting from the
utilization, storage, disposal, treatment, generation,
transportation, release or ownership of any Hazardous
Substance (i) at, upon, or under any property of the Borrower
or any of its Affiliates or (ii) by or on behalf of the
Borrower or any of its Affiliates at any time and in any
place.
(d) The Borrower's obligations under this
Section 8.04 shall survive the repayment of all amounts owing
to the Lenders under the Notes and the termination of the
Commitments. If and to the extent that the obligations of the
Borrower under this Section 8.04 are unenforceable for any
reason, the Borrower agrees to make the maximum contribution
to the payment and satisfaction thereof which is permissible
under applicable law.
SECTION 8.05. Right of Set-off. (a) Upon (i) the
occurrence and during the continuance of any Event of Default
and (ii) the making of the request or the granting of the
consent by the Majority Lenders specified by Section 6.01 to
authorize the Agent to declare the Notes due and payable
pursuant to the provisions of Section 6.01, each Lender is
hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time
owing by such Lender to or for the credit or the account of
the Borrower against any and all of the obligations of the
Borrower now or hereafter existing under any Loan Document and
any Note held by such Lender, irrespective of whether or not
such Lender shall have made any demand under such Loan
Document or such Note and although such obligations may be
unmatured. Each Lender agrees promptly to notify the Borrower
after any such set-off and application made by such Lender,
provided that the failure to give such notice shall not affect
the validity of such set-off and application. The rights of
each Lender under this Section are in addition to other rights
and remedies (including, without limitation, other rights of
set-off) which such Lender may have.
(b) The Borrower agrees that it shall have no
right of set-off, deduction or counterclaim in respect of its
obligations hereunder, and that the obligations of the Lenders
hereunder are several and not joint. Nothing contained herein
shall constitute a relinquishment or waiver of the Borrower's
rights to any independent claim that the Borrower may have
against the Agent or any Lender for the Agent's or such
Lender's, as the case may be, gross negligence or wilful
misconduct, but no Lender shall be liable for the conduct of
the Agent or any other Lender, and the Agent shall not be
liable for the conduct of any Lender.
SECTION 8.06. Binding Effect. This Agreement shall
become effective when it shall have been executed by the
Borrower and the Agent and when the Agent shall have been
notified in writing by each Bank that such Bank has executed
it and thereafter shall be binding upon and inure to the
benefit of the Borrower, the Agent and each Lender and their
respective successors and assigns, except that the Borrower
shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of the
Lenders.
SECTION 8.07. Assignments and Participations. (a) Each
Lender may assign to one or more Eligible Assignees all or a
portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its
Commitment, the Advances owing to it and the Note or Notes
held by it); provided, however, that (i) each such assignment
shall be of a constant, and not a varying, percentage of all
of the assigning Lender's rights and obligations under this
Agreement, (ii) the amount of the Commitment of the assigning
Lender being assigned pursuant to each such assignment
(determined as of the date of the Lender Assignment with
respect to such assignment) shall in no event be less than the
lesser of the amount of such Lender's then remaining
Commitment and $5,000,000 (except in the case of assignments
between Lenders at the time already parties hereto), and
(iii) the parties to each such assignment shall execute and
deliver to the Agent, for its acceptance and recording in the
Register, a Lender Assignment, together with any Note or Notes
subject to such assignment and a processing and recordation
fee of $2,500. Promptly following its receipt of such Lender
Assignment, Note or Notes and fee, the Agent shall accept and
record such Lender Assignment in the Register. Upon such
execution, delivery, acceptance and recording, from and after
the effective date specified in each Lender Assignment, (x)
the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been
assigned to it pursuant to such Lender Assignment, have the
rights and obligations of a Lender hereunder and (y) the
Lender assignor thereunder shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to
such Lender Assignment, relinquish its rights and be released
from its obligations under this Agreement (and, in the case of
a Lender Assignment covering all or the remaining portion of
an assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto).
Notwithstanding anything to the contrary contained in this
Agreement, any Lender may at any time assign all or any
portion of the Advances owing to it to any Affiliate of such
Lender. No such assignment, other than to an Eligible
Assignee, shall release the assigning Lender from its
obligations hereunder.
(b) By executing and delivering a Lender
Assignment, the Lender assignor thereunder and the assignee
thereunder confirm to and agree with each other and the other
parties hereto as follows: (i) other than as provided in such
Lender Assignment, such assigning Lender makes no
representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made
in or in connection with any Loan Document or the execution,
legality, validity, enforceability, genuineness, sufficiency
or value of any Loan Document or any other instrument or
document furnished pursuant thereto; (ii) such assigning
Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the
Borrower or the Parent or the performance or observance by the
Borrower or the Parent of any of its obligations under any
Loan Document or any other instrument or document furnished
pursuant thereto; (iii) such assignee confirms that it has
received a copy of each Loan Document, together with copies of
the financial statements referred to in Section 5(d) of the
Support Agreement and such other documents and information as
it has deemed appropriate to make its own credit analysis and
decision to enter into such Lender Assignment; (iv) such
assignee will, independently and without reliance upon the
Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking
or not taking action under the Loan Documents; (v) such
assignee confirms that it is an Eligible Assignee; (vi) such
assignee appoints and authorizes the Agent to take such action
as agent on its behalf and to exercise such powers under the
Loan Documents as are delegated to the Agent by the terms
thereof, together with such powers as are reasonably
incidental thereto; and (vii) such assignee agrees that it
will perform in accordance with their terms all of the
obligations which by the terms of the Loan Documents are
required to be performed by it as a Lender. Anything in this
Section 8.07 to the contrary notwithstanding, this Section
8.07 shall not apply to any of the assignments contemplated by
Section 3.01(e).
(c) The Agent shall maintain at its address
referred to in Section 8.02 a copy of each Lender Assignment
delivered to and accepted by it and a register for the
recordation of the names and addresses of the Lenders and the
Commitment of, and principal amount of the Advances owing to,
each Lender from time to time (the "Register"). The entries
in the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrower, the Parent,
the Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available
for inspection by the Borrower or any Lender at any reasonable
time and from time to time upon reasonable prior notice.
(d) Upon its receipt of a Lender Assignment
executed by an assigning Lender and an assignee representing
that it is an Eligible Assignee, together with any Note or
Notes subject to such assignment, the Agent shall, if such
Lender Assignment has been completed and is in substantially
the form of Exhibit 8.07 hereto, (i) accept such Lender
Assignment, (ii) record the information contained therein in
the Register and (iii) give prompt notice thereof to the
Borrower. Within 10 Business Days after its receipt of such
notice, the Borrower, at its own expense, shall execute and
deliver to the Agent in exchange for the surrendered Note or
Notes a new Note to the order of such Eligible Assignee in an
amount equal to the Commitment assumed by it pursuant to such
Lender Assignment and, if the assigning Lender has retained a
Commitment hereunder, a new Note to the order of the assigning
Lender in an amount equal to the Commitment retained by it
hereunder. Such new Note or Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of
such surrendered Note or Notes, shall be dated the effective
date of such Lender Assignment and shall otherwise be in
substantially the form of Exhibit 1.01A-1 hereto.
(e) Each Lender may sell participations to one
or more banks, financial institutions or other entities in all
or a portion of its rights and obligations under the Loan
Documents (including, without limitation, all or a portion of
its Commitment, the Advances owing to it and the Note or Notes
held by it); provided, however, that (i) such Lender's
obligations under this Agreement (including, without
limitation, its Commitment to the Borrower hereunder) shall
remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of
such obligations, (iii) such Lender shall remain the holder of
any such Note for all purposes of this Agreement, and (iv) the
Borrower, the Agent and the other Lenders shall continue to
deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement.
(f) Any Lender may, in connection with any
assignment or participation or proposed assignment or
participation pursuant to this Section 8.07, disclose to the
assignee or participant or proposed assignee or participant,
any information relating to the Borrower or the Parent
furnished to such Lender by or on behalf of the Borrower or
the Parent; provided that, prior to any such disclosure, the
assignee or participant or proposed assignee or participant
shall agree, in accordance with the terms of Section 8.08, to
preserve the confidentiality of any Confidential Information
relating to the Borrower or the Parent received by it from
such Lender.
(g) If any Lender (or any bank, financial
institution, or other entity to which such Lender has sold a
participation) shall (i) make any demand for payment under
Section 2.08 or 2.13, (ii) give notice to the Agent pursuant
to Section 2.14 or (iii) determine not to extend the
Termination Date in response to any request by the Borrower
pursuant to Section 2.18, then (A) in the case of any demand
made under clause (i), above, or the occurrence of the event
described in clause (ii), above, within 30 days after any such
demand or occurrence (if, but only if, in the case of any
demanded payment described in clause (i), such demanded
payment has been made by the Borrower), and (B) in the case of
the occurrence of the event described in clause (iii), above,
at any time prior to the then-scheduled Termination Date, the
Borrower may, with the approval of the Agent (which approval
shall not be unreasonably withheld), and provided that no
Event of Default or Unmatured Default shall then have occurred
and be continuing, demand that such Lender assign in
accordance with this Section 8.07 to one or more Eligible
Assignees designated by the Borrower all (but not less than
all) of such Lender's Commitment and the Advances owing to it
within the period ending on the latest to occur of (x) the
last day in the period described in clause (A) or (B), above,
as applicable, (y) the last day of the longest of the then
current Interest Periods for such Advances, and (z) the latest
maturity date of any B Advances owing to such Lender. If any
such Eligible Assignee designated by the Borrower shall fail
to consummate such assignment on terms acceptable to such
Lender, or if the Borrower shall fail to designate any such
Eligible Assignees for all or part of such Lender's Commitment
or Advances, then such demand by the Borrower shall become
ineffective; it being understood for purposes of this
subsection (g) that such assignment shall be conclusively
deemed to be on terms acceptable to such Lender, and such
Lender shall be compelled to consummate such assignment to an
Eligible Assignee designated by the Borrower, if such Eligible
Assignee (1) shall agree to such assignment by entering into a
Lender Assignment with such Lender and (2) shall offer
compensation to such Lender in an amount equal to all amounts
then owing by the Borrower to such Lender hereunder and under
the Note made by the Borrower to such Lender, whether for
principal, interest, fees, costs or expenses (other than the
demanded payment referred to above and payable by the Borrower
as a condition to the Borrower's right to demand such
assignment), or otherwise.
(h) Anything in this Section 8.07 to the
contrary notwithstanding, any Lender may assign and pledge all
or any portion of its Commitment and the Advances owing to it
to any Federal Reserve Bank (and its transferees) as
collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and any Operating
Circular issued by such Federal Reserve Bank. No such
assignment shall release the assigning Lender from its
obligations hereunder.
SECTION 8.08. Confidentiality. In connection with the
negotiation and administration of this Agreement and the other
Loan Documents, the Borrower and the Parent have furnished and
will from time to time furnish to the Agent and the Lenders
(each, a "Recipient") written information which is identified
to the Recipient in writing when delivered as confidential
(such information, other than any such information which
(i) as publicly available, or otherwise known to the
Recipient, at the time of disclosure, (ii) subsequently
becomes publicly available other than through any act or
omission by the Recipient or (iii) otherwise subsequently
becomes known to the Recipient other than through a Person
whom the Recipient knows to be acting in violation of his or
its obligations to the Borrower or the Parent, being
hereinafter referred to as "Confidential Information"). The
Recipient will maintain the confidentiality of any
Confidential Information in accordance with such procedures as
the Recipient applies generally to information of that nature.
It is understood, however, that the foregoing will not
restrict the Recipient's ability to freely exchange such
Confidential Information with current or prospective
participants in or assignees of the Recipient's position
herein, but the Recipient's ability to so exchange
Confidential Information shall be conditioned upon any such
prospective participant's or assignee's entering into an
understanding as to confidentiality similar to this provision.
It is further understood that the foregoing will not prohibit
the disclosure of any or all Confidential Information if and
to the extent that such disclosure may be required (i) by a
regulatory agency or otherwise in connection with an
examination of the Recipient's records by appropriate
authorities, (ii) pursuant to court order, subpoena or other
legal process or in connection with any pending or threatened
litigation, (iii) otherwise as required by law, or (iv) in
order to protect its interests or its rights or remedies
hereunder or under the other Loan Documents; in the event of
any required disclosure under clause (ii) or (iii), above, the
Recipient agrees to use reasonable efforts to inform the
Borrower and the Parent as promptly as practicable.
SECTION 8.09. WAIVER OF JURY TRIAL. THE AGENT, THE
LENDERS, THE BORROWER AND THE PARENT HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON,
OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN), OR ACTIONS OF THE AGENT, SUCH LENDERS, THE BORROWER
OR THE PARENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT.
SECTION 8.10. Consent. Unless otherwise specified as
being within the sole discretion of the Agent, the Lenders the
Majority Lenders or the Borrower, whenever the consent or
approval of the Agent, the Lenders, the Majority Lenders or
the Borrower, respectively, is required herein, such consent
or approval shall not be unreasonably withheld or delayed.
SECTION 8.11. Governing Law. This Agreement and the
other Loan Documents shall be governed by, and construed in
accordance with, the laws of the State of New York. The
Borrower, the Parent, each Lender, and the Agent
(i) irrevocably submits to the non-exclusive jurisdiction of
any New York State court or Federal court sitting in New York
City in any action arising out of any Loan Document,
(ii) agrees that all claims in such action may be decided in
such court, (iii) waives, to the fullest extent it may
effectively do so, the defense of an inconvenient forum and
(iv) consents to the service of process by mail. A final
judgment in any such action shall be conclusive and may be
enforced in other jurisdictions. Nothing herein shall affect
the right of any party to serve legal process in any manner
permitted by law or affect its right to bring any action in
any other court.
SECTION 8.12. Relation of the Parties; No Beneficiary.
No term, provision or requirement, whether express or implied,
of any Loan Document, or actions taken or to be taken by any
party thereunder, shall be construed to create a partnership,
association, or joint venture between such parties or any of
them. No term or provision of the Loan Documents shall be
construed to confer a benefit upon, or grant a right or
privilege to, any Person other than the parties thereto.
SECTION 8.13. Execution in Counterparts. This Agreement
may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers
thereunto duly authorized, as of the date first above written.
IES DIVERSIFIED INC.
By
Title:
CITIBANK, N.A.,
as Agent
By
Vice President
Bank
CITIBANK, N.A.
By
Title:
Bank
CIBC INC.
By
Title:
Bank
MELLON BANK, N.A.
By
Title:
Bank
THE CHASE MANHATTAN BANK
By
Title:
Bank
BARCLAYS BANK PLC
By
Title:
Bank
THE FIRST NATIONAL BANK OF CHICAGO
By
Title:
Bank
THE FUJI BANK, LIMITED
By
Title:
Bank
THE SANWA BANK, LIMITED,
CHICAGO BRANCH
By
Title:
Bank
UNION BANK OF CALIFORNIA, N.A.
By
Title:
Bank
NORWEST BANK IOWA,
NATIONAL ASSOCIATION
By
Title:
Bank
ABN AMRO N.V. by
ABN AMRO NORTH AMERICA, INC.
By
Title:
EXHIBIT 1.01A-1
FORM OF A NOTE
U.S.$__________ Dated:__________, 19__
FOR VALUE RECEIVED, the undersigned, IES DIVERSIFIED
INC., an Iowa corporation (the "Borrower"), HEREBY PROMISES TO
PAY to the order of ___________________________ (the "Lender")
for the account of its Applicable Lending Office (as defined
in the Credit Agreement referred to below) the principal sum
of U.S.$[amount of the Lender's Commitment in figures] or, if
less, the aggregate principal amount of the A Advances (as
defined below) made by the Lender to the Borrower pursuant to
the Credit Agreement outstanding on the Termination Date (as
defined in the Credit Agreement).
The Borrower promises to pay interest on the unpaid
principal amount of each A Advance from the date of such A
Advance until such principal amount is paid in full, at such
interest rates, and payable at such times, as are specified in
the Credit Agreement.
Both principal and interest are payable in lawful money
of the United States of America to Citibank, N.A., as Agent,
at 399 Park Avenue, New York, New York 10043, Attention:
Utilities Department, in same day funds. Each A Advance made
by the Lender to the Borrower pursuant to the Credit
Agreement, and all payments made on account of principal
thereof, shall be recorded by the Lender and, prior to any
transfer hereof, endorsed on the grid attached hereto which is
part of this Promissory Note, provided that the failure to so
record any A Advance or any payment thereof shall not affect
the payment obligations of the Borrower hereunder or under the
Credit Agreement.
This Promissory Note is one of the A Notes referred to
in, and is entitled to the benefits of, the Third Amended and
Restated Credit Agreement, dated as of November 20, 1996 (as
amended, modified or supplemented from time to time, the
"Credit Agreement"), among the Borrower, the Lender and
certain other lenders parties thereto, and Citibank, N.A., as
Agent for the Lender and such other lenders. The Credit
Agreement, among other things, (i) provides for the making of
advances (the "A Advances") by the Lender to the Borrower from
time to time in an aggregate amount not to exceed at any time
outstanding the U.S. dollar amount first above mentioned, the
indebtedness of the Borrower resulting from each such A
Advance being evidenced by this Promissory Note, and
(ii) contains provisions for acceleration of the maturity
hereof upon the happening of certain stated events and also
for prepayments on account of principal hereof prior to the
maturity hereof upon the terms and conditions therein
specified.
The Borrower hereby waives presentment, demand, protest
and notice of any kind. No failure to exercise, and no delay
in exercising, any rights hereunder on the part of the holder
hereof shall operate as a waiver of such rights.
This Promissory Note shall be governed by, and construed
in accordance with, the laws of the State of New York. The
Borrower (i) irrevocably submits to the non-exclusive
jurisdiction of any New York State Court or Federal court
sitting in New York City in any action arising out of this
Promissory Note, (ii) agrees that all claims in such action
may be decided in such court, (iii) waives, to the fullest
extent it may effectively do so, the defense of an
inconvenient forum and (iv) consents to the service of process
by mail. A final judgment in any such action shall be
conclusive and may be enforced in other jurisdictions.
Nothing herein shall affect the right of any party to serve
legal process in any manner permitted by law or affect its
right to bring any action in any other court.
IES DIVERSIFIED INC.
By
Title:
ADVANCES, MATURITIES, AND PAYMENTS OF PRINCIPAL
Amount of
Maturity Principal Unpaid
Amount of of Paid or Principal Notation
Date Advance Advance Prepaid Balance Made By
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
EXHIBIT 1.01A-2
FORM OF B NOTE
U.S.$__________ Dated:__________, 19__
FOR VALUE RECEIVED, the undersigned, IES DIVERSIFIED
INC., an Iowa corporation (the "Borrower"), HEREBY PROMISES TO
PAY to the order of _______________________________ (the
"Lender") for the account of its Applicable Lending Office (as
defined in the Credit Agreement referred to below), on
__________,19__, the principal amount of __________ Dollars
($________).
The Borrower promises to pay interest on the unpaid
principal amount hereof from the date hereof until such
principal amount is paid in full, at the interest rate and
payable on the interest payment date or dates provided below:
Interest Rate: ____% per annum (calculated on the basis
of a year of ______ days for the actual number of days
elapsed).
Interest Payment Date or Dates:__________
Both principal and interest are payable in lawful money
of the United States of America to Citibank, N.A., as Agent,
at 399 Park Avenue, New York, New York 10043, Attention:
Utilities Department, in same day funds.
This Promissory Note is one of the B Notes referred to
in, and is entitled to the benefits of, the Third Amended and
Restated Credit Agreement, dated as of November 20, 1996 (as
amended, modified or supplemented from time to time, the
"Credit Agreement"), among the Borrower, the Lender and
certain other lenders parties thereto, and Citibank, N.A., as
Agent for the Lender and such other lenders. The Credit
Agreement, among other things, contains provisions for
acceleration of the maturity hereof upon the happening of
certain stated events.
The Borrower hereby waives presentment, demand, protest
and notice of any kind. No failure to exercise, and no delay
in exercising, any rights hereunder on the part of the holder
hereof shall operate as a waiver of such rights.
This Promissory Note shall be governed by, and construed
in accordance with, the laws of the State of New York. The
Borrower (i) irrevocably submits to the non-exclusive
jurisdiction of any New York State Court or Federal court
sitting in New York City in any action arising out of this
Promissory Note, (ii) agrees that all claims in such action
may be decided in such court, (iii) waives, to the fullest
extent it may effectively do so, the defense of an
inconvenient forum and (iv) consents to the service of process
by mail. A final judgment in any such action shall be
conclusive and may be enforced in other jurisdictions.
Nothing herein shall affect the right of any party to serve
legal process in any manner permitted by law or affect its
right to bring any action in any other court.
IES DIVERSIFIED INC.
By
Title:
SUPPORT AGREEMENT
THIS THIRD AMENDED AND RESTATED SUPPORT AGREEMENT, made
the 20th day of November, 1996, by and between IES INDUSTRIES
INC., an Iowa corporation (together with any successor thereto
in accordance with Section 2(e) hereof, the "Parent"), and IES
DIVERSIFIED INC., an Iowa corporation (the "Borrower").
W I T N E S S E T H:
WHEREAS, the Parent is the owner of 100% of the
outstanding common stock of the Borrower;
WHEREAS, the Borrower, certain banks (the "Existing
Banks") and Citibank, N.A., as agent for the Existing Banks,
are parties to that certain Second Amended and Restated Credit
Agreement, dated as of November 9, 1994 (the "Existing
Facility"). The Borrower has requested that the Existing
Facility be amended and restated so as to (i) increase the
Commitments (as defined therein) to $300,000,000 and
(ii) effect certain other amendments and modifications as set
forth in the Third Amended Credit Agreement (as defined
below).
WHEREAS, the Borrower intends to make borrowings from,
and issue promissory notes to, certain lenders pursuant to
that certain Third Amended and Restated Credit Agreement,
dated as of November 20, 1996 (said Agreement, as it may
hereafter be amended or otherwise modified from time to time,
being the "Third Amended Credit Agreement", the terms defined
therein and not otherwise defined herein being used herein as
therein defined), among the Borrower, said lenders (the
"Lenders") and Citibank, N.A., as Agent, so that the Borrower
will be in a position to provide financing for itself and for
some or all of its (and, in turn, the Parent's) Subsidiaries
(other than IES Utilities);
WHEREAS, the Parent and the Borrower are parties to that
certain Second Amended and Restated Support Agreement, dated
as of November 9, 1994 (the "Existing Support Agreement"). In
connection with the amendment and restatement of the Existing
Facility, the Parent and the Borrower desire to amend and
restate the Existing Support Agreement to enhance and maintain
the financial condition of the Borrower as hereinafter set
forth in order to enable the Borrower to incur Debt under the
Third Amended Credit Agreement on more advantageous and
reasonable terms; and
WHEREAS, the Parent has entered into an Agreement and
Plan of Merger, dated as of November 10, 1995, as amended,
with WPL Holdings, Inc., a Wisconsin Corporation ("WPL"), and
Interstate Power Company, a Delaware corporation ("IPC"),
pursuant to which, if the merger contemplated thereby (the
"Proposed Merger") is consummated, the Parent will merge with
and into WPL and IPC will become a subsidiary of such merged
entity;
WHEREAS, the Parent and the Borrower understand and agree
that the Agent and the Lenders have relied upon this Agreement
in entering into the Third Amended Credit Agreement and will
rely hereon in making Advances to the Borrower;
NOW, THEREFORE, in consideration of the premises, and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties
hereto agree that the Existing Support Agreement is hereby
amended and restated in its entirety to read as follows:
SECTION 1. Affirmative Covenants of the Parent. So
long as any amount in respect of any Note shall remain unpaid
or any Lender shall have any Commitment, the Parent will,
unless the Majority Lenders shall otherwise consent in
writing:
(a) Stock Ownership. At all times maintain
direct ownership of 100% of the shares of capital stock (or
comparable interests) of the Borrower and IES Utilities now or
hereafter issued and outstanding, other than the preferred and
preference stock of IES Utilities.
(b) Net Worth. Cause the Borrower to have at
all times a positive net worth (net assets less intangible
assets, if any), as determined in accordance with generally
accepted accounting principles.
SECTION 2. Negative Covenants of the Parent. So long
as any amount in respect of any Note shall remain unpaid or
any Lender shall have any Commitment, the Parent will not,
without the written consent of the Majority Lenders:
(a) Consolidated Leverage Ratio. Allow the ratio
of (i) Consolidated Debt of the Parent to (ii) Consolidated
Capital of the Parent to exceed 0.65 to 1.00 at any time.
(b) Debt. Create, incur, assume, or suffer to
exist any Debt other than:
(i) Debt under (A) existing guaranties of the
mortgage obligations of certain officers of the Parent and (B)
an existing line of credit provided to the Parent by Firstar
Bank which supports the Parent's obligations under such
guaranties, provided that such Debt shall not exceed
$1,500,000 in the aggregate at any one time outstanding;
(ii) Debt under guaranties and other types of
support agreements in respect of Debt of the Borrower;
provided that if the terms of any such guaranty or support
agreement are more favorable to the beneficiary thereof than
are the terms of this Agreement to the Agent and the Lenders,
this Agreement shall, coincident with the delivery of such
guaranty or support agreement, be replaced with an agreement
containing such more favorable terms (or amended to contain
such more favorable terms); and provided, further, that both
immediately before and after the execution and delivery of
such guaranty or support agreement, the Parent shall be in
compliance with the covenant set forth in subsection (a),
above;
(iii) unsecured Debt owing to the Borrower;
(iv) existing Debt set forth in Schedule 2
hereto; and
(v) from and after the consummation of the
Proposed Merger and the satisfaction of
the conditions set forth in Section 2(e)
hereof, other Debt in the aggregate not
to exceed $50,000,000.
(c) Prohibited Transactions. Enter into any
transaction, or permit the Borrower to enter into any
transaction, which will result in an Event of Default.
(d) Negative Pledge. Create or suffer to exist any
Lien upon or with respect to any capital stock of the Borrower
from time to time owned by the Parent or any capital stock of
IES Utilities from time to time owned by the Parent.
(e) Merger. Merge with or into or consolidate
with or into any other entity, unless, as a condition to such
merger or consolidation, the surviving corporation (if not the
Parent) (i) expressly assumes in a writing delivered to the
Agent (with sufficient copies for each Lender) the due and
punctual performance and observance of all of the obligations
in the Support Agreement to be performed or observed by the
Parent and (ii) delivers to the Agent (with sufficient copies
for each Lender) an opinion of counsel, in form and substance
satisfactory to the Agent, as to the enforceability of the
obligations set forth in such writing and the obtaining of all
Governmental Approvals necessary for the performance of such
obligations by such surviving corporation and such other
matters as the Agent may reasonably request.
SECTION 3. Delivery of Financial Statements. So long
as any amount in respect of any Note shall remain unpaid or
any Lender shall have any Commitment, the Parent will, unless
the Majority Lenders shall otherwise consent in writing,
furnish to each Lender:
(a) Quarterly Financial Statements. As soon as
available and in any event within 60 days after the end of
each of the first three quarters of each fiscal year of the
Parent, (i) a consolidated and consolidating balance sheet of
the Parent and its Subsidiaries as at the end of such quarter
and (ii) consolidated and consolidating statements of income
and retained earnings, and a consolidated statement of cash
flows, of the Parent and its Subsidiaries for the period
commencing at the end of the previous fiscal year and ending
with the end of such quarter, all in reasonable detail and
duly certified (subject to year-end audit adjustments) by the
chief financial officer of the Parent as having been prepared
in accordance with generally accepted accounting principles
consistent with those applied in the preparation of the
financial statements referred to in Section 5(d) hereof,
together with a schedule in form satisfactory to the Majority
Lenders of the computations used by the Parent in determining
compliance with the covenant contained in Section 2(a) hereof.
(b) Annual Consolidated Financial Statements. As
soon as available and in any event within 120 days after the
end of each fiscal year of the Parent, a copy of the
consolidated balance sheet of the Parent and its Subsidiaries
as at the end of such fiscal year and consolidated statements
of income, retained earnings and cash flows of the Parent and
its Subsidiaries for such fiscal year, in each case
accompanied by the audit report of Arthur Andersen & Co. or
another nationally-recognized independent public accounting
firm acceptable to the Majority Lenders, together with a
schedule in form satisfactory to the Majority Lenders of the
computations used by such accounting firm in determining, as
of the end such fiscal year, compliance with the covenant
contained in Section 2(a) hereof.
(c) Annual Consolidating Financial Statements. As
soon as available and in any event within 120 days after the
end of each fiscal year of the Parent, a copy of the
consolidating balance sheet of the Parent and its Subsidiaries
as at the end of such fiscal year and consolidating statements
of income and retained earnings of the Parent and its
Subsidiaries for such fiscal year, all in reasonable detail
and duly certified by the chief financial officer of the
Parent as having been prepared in accordance with generally
accepted accounting principles consistent with those applied
in the preparation of the financial statements referred to in
Section 5(d) hereof.
(d) Other Information. Promptly after requested,
such other information respecting the business, properties,
results of operations, prospects, revenues, condition or
operations, financial or otherwise, of the Parent or any of
its Subsidiaries as the Agent or any Lender through the Agent
may from time to time reasonably request.
SECTION 4. Liquidity Undertaking. If, during the
term of this Agreement, the Borrower is unable to make timely
payment of any of its obligations now or hereafter existing
under the Third Amended Credit Agreement and the Notes,
whether for principal, interest, fees, expenses or otherwise
(such obligations being the "Obligations"), the Parent agrees
that it shall promptly provide to the Borrower, at its request
or at the request of the Agent or any Lender, such amount of
funds (in the form of cash or liquid assets, and as equity or,
subject to Section 5.02(b) of the Third Amended Credit
Agreement, as a loan) as shall be necessary to enable the
Borrower to make payment of such Obligations. If such funds
are advanced to the Borrower as a loan, such loan shall be on
such terms and conditions, including maturity and rate of
interest, as the Parent and the Borrower shall agree.
Notwithstanding the foregoing, any such loan shall be
subordinated in all respects to any and all Obligations upon
the terms set forth in Schedule 1 hereto, whether or not any
Obligations are outstanding at the time of such loan.
SECTION 5. Representations and Warranties of the Parent.
The Parent represents and warrants to the Borrower, the Agent
and the Lenders as follows:
(a) The Parent and each of its Subsidiaries is a
corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its
incorporation and is duly qualified to do business in, and is
in good standing in, all other jurisdictions where the nature
of its business or the nature of property owned or used by it
makes such qualification necessary (except where the failure
to so qualify would not have a material adverse affect on the
business, financial condition, operations, results of
operations or prospects of the Parent and its Subsidiaries,
taken as a whole).
(b) The execution, delivery and performance by the
Parent of this Agreement are within the Parent's corporate
powers, have been duly authorized by all necessary corporate
action, and do not and will not contravene (i) the Parent's
charter or by-laws, (ii) law, or (iii) any legal or
contractual restriction binding on or affecting the Parent;
and such execution, delivery and performance do not or will
not result in or require the creation of any Lien upon or with
respect to any of its properties.
(c) This Agreement is the legal, valid and binding
obligation of the Parent enforceable against the Parent in
accordance with its terms, subject to the qualifications,
however, that the enforcement of the rights and remedies
herein is subject to bankruptcy and other similar laws of
general application affecting rights and remedies of creditors
and that the remedy of specific performance or of injunctive
relief is subject to the discretion of the court before which
any proceedings therefor may be brought.
(d) The consolidated balance sheet of the Parent
and its Subsidiaries as at December 31, 1995, and the related
consolidated statements of income, retained earnings and cash
flows of the Parent and its Subsidiaries for the fiscal year
then ended, and accompanied by a report thereon of Arthur
Andersen & Co., and the consolidated unaudited balance sheet
of the Parent and its Subsidiaries as at September 30, 1996,
and the related consolidated unaudited statements of income,
retained earnings and cash flows of the Parent and its
Subsidiaries for the nine-month period then ended, copies of
each of which have been furnished to each Lender, fairly
present (subject, in the case of such balance sheets and
statements of income, retained earnings and cash flows for the
nine months ended September 30, 1996, to year-end adjustments)
the consolidated financial condition of the Parent and its
Subsidiaries as at such dates and the consolidated results of
operations of the Parent and its Subsidiaries for the periods
ended on such dates, all in accordance with generally accepted
accounting principles consistently applied, and since
September 30, 1996, there has been no material adverse change
in the business, financial condition, operations, results of
operations or prospects of the Parent and its Subsidiaries,
taken as a whole, or in the Parent's ability to perform its
obligations under this Agreement or any other Loan Document to
which it is or will be a party.
(e) Except as disclosed in the Parent's Report on
Form 10-K for the year ended December 31, 1995 and Report on
Form 10-Q for the period ended September 30, 1996, there is no
pending or threatened action or proceeding affecting the
Parent or any of its Subsidiaries or properties before any
court, governmental agency or arbitrator, that might
reasonably be expected to materially adversely affect (i) the
business, financial condition, operations, results of
operations or prospects of the Parent and its Subsidiaries,
taken as a whole, or (ii) the ability of the Parent to perform
its obligations under this Agreement or under any other Loan
Document to which it is or is to be a party; and since
September 30, 1996 there have been no material adverse
developments in any action or proceeding so disclosed.
(f) The Parent has filed all tax returns (Federal,
state and local) required to be filed and paid all taxes shown
thereon to be due, including interest and penalties, or, to
the extent the Parent is contesting in good faith an assertion
of liability based on such returns, has provided adequate
reserves for payment thereof in accordance with generally
accepted accounting principles.
(g) (i) Until such time as the Proposed Merger is
consummated, the Parent is and will continue to be a "holding
company" within the meaning of the PUHCA, but the Parent and
its Subsidiaries are and will be exempt from the provisions of
that Act, except Section 9(a)(2) thereof, by virtue of having
filed with the Securities and Exchange Commission a Statement
by Holding Company Claiming Exemption Under Rule U-2 from the
Provisions of the Public Utility Holding Company Act of 1935
on Form U-3A-2. Until such time, such exemption is and will
be in full force and effect and the Parent is not aware of any
existing or proposed proceedings contemplating the revocation
or modification of such exemption.
(ii) From and after the consummation of the Proposed
Merger, the Parent is and will continue to be a "holding
company" within the meaning of he PUHCA.
(h) No Governmental Approval which has not been
obtained is required in connection with the execution,
delivery and performance by the Parent of this Agreement.
(i) The consolidated and consolidating financial
statements of the Parent and its Subsidiaries contained in the
Information Memorandum fairly present the financial condition
of the Parent and its Subsidiaries as at the dates specified
therein and the results of operations of the Parent and its
Subsidiaries for the periods ended on such dates, all in
accordance with generally accepted accounting principles
consistently applied.
SECTION 6. Waivers. (a) The Parent hereby waives any
failure or delay on the part of the Borrower in asserting or
enforcing any of its rights or in making any claims or demands
hereunder. The Borrower, the Agent or any Lender may at any
time, without the Parent's consent, without notice to the
Parent and without affecting or impairing the Borrower's, the
Agent's or such Lender's rights or the Parent's obligations
hereunder, do any of the following with respect to the Third
Amended Credit Agreement and the Notes: (i) make changes,
modifications, amendments or alterations thereto, by operation
of law or otherwise, including, without limitation, any
increase in the Commitments or the rate of interest payable
with respect to Advances or any change in the method of
calculating the rate of interest payable with respect thereto,
(ii) grant renewals and extensions of time, for payment or
otherwise, (iii) accept new or additional documents,
instruments or agreements relating to or in substitution
thereof, or (iv) otherwise handle the enforcement of their
respective rights and remedies in accordance with their
business judgment.
(b) If the Parent shall at any time or from time to
time fail to perform or comply with any of its obligations
contained herein and if for any reason the Agent or any Lender
shall have failed to receive when due and payable (whether at
stated maturity, by acceleration, or otherwise) the payment of
all or any part of principal of, or interest on, or any other
amount payable by the Borrower in respect of any Obligations
owing to the Agent or such Lender, then in each case, to the
fullest extent permitted by law, (i) it shall be assumed
conclusively without necessity of proof that such failure by
the Parent was the sole and direct cause of the Agent's or
such Lender's (as the case may be) failure to receive such
payment when due irrespective of any other contributing or
intervening cause whatsoever, and (ii) the Parent further
irrevocably waives any right or defense that the Parent may
have to cause the Agent or any Lender to prove the cause or
amount of any damages or to mitigate the same.
(c) The Parent irrevocably waives, to the fullest
extent permitted by law and for the benefit of, and as a
separate undertaking with, the Agent and each Lender, any
defense to the performance of this Agreement that may be
available to the Parent as a consequence of this Agreement's
being rejected or otherwise not assumed by the Borrower or any
trustee or similar official for the Borrower or for any
substantial part of the property of the Borrower, or as a
consequence of this Agreement's being otherwise terminated or
modified, in any bankruptcy or insolvency proceeding, whether
such rejection, non-assumption, termination or modification
shall have been by reason of this Agreement's being held to be
an executory contract or by reason of any other circumstance.
If, notwithstanding the foregoing, this Agreement shall be
rejected or otherwise not assumed, or terminated or modified,
the Parent agrees, to the fullest extent permitted by law, for
the benefit of, and as a separate undertaking with, the Agent
and each Lender, that the Parent will be unconditionally
liable to pay to the Agent and each Lender an amount equal to
each payment that would otherwise be payable by the Parent
under or in connection with this Agreement if this Agreement
were not so rejected or otherwise not assumed or terminated or
modified.
SECTION 7. Amendments, Etc. No amendment or waiver
of any provision of this Agreement, nor consent to any
departure therefrom, shall in any event be effective unless
the same shall be in writing and signed by both parties and
consented to by the Majority Lenders.
SECTION 8. Rights of the Lenders. The Borrower
hereby assigns and pledges to the Agent for the ratable
benefit of each Lender, the Borrower's rights under
Sections 1, 2 and 4 of this Agreement, and, if the Borrower
fails or refuses to take timely action to enforce its rights
under Section 1, 2 or 4 of this Agreement or if the Borrower
defaults in the timely payment of any Obligations owed to the
Agent or any Lender when due, the Agent may proceed directly
against the Parent to enforce the Borrower's rights under
Sections 1, 2 and 4 of this Agreement or to obtain payment of
such defaulted Obligations owed to the Agent or such Lender.
SECTION 9. Notices. All notices and other
communications provided for hereunder shall be in writing
(including telecopier, telegraphic, telex or cable
communication) and mailed, telecopied, telegraphed, telexed,
cabled or delivered, if to the Borrower, at its address at 200
First Street, Cedar Rapids, Iowa 52401, Attention: Treasurer;
if to the Parent, at its address at 200 First Street, Cedar
Rapids, Iowa 52401, Attention: Treasurer; if to any Bank, at
its Domestic Lending Office specified opposite its name on
Schedule I to the Third Amended Credit Agreement; if to any
other Lender, at its Domestic Lending Office specified in the
Lender Assignment pursuant to which it became a Lender; and if
to the Agent, at its address at One Court Plaza, 7th Floor,
Zone 2, Long Island City, New York 11120, Attention: Bank Loan
Syndication; or, as to each party, at such other address as
shall be designated by such party in a written notice to the
other parties. All such notices and communications shall,
when mailed, telecopied, telegraphed, telexed or cabled, be
effective five days after being deposited in the mails, or
when delivered to the telegraph company, telecopied, confirmed
by telex answerback or delivered to the cable company,
respectively.
SECTION 10. Successors. Subject to Section 2(e), this
Agreement shall be binding upon the parties hereto and their
respective successors and assigns and is also intended for the
benefit of the Agent and the Lenders and, notwithstanding that
the Agent and the Lenders are not parties hereto, the Agent
and each Lender shall be entitled to the full benefits of this
Agreement and to enforce the covenants and agreements
contained herein. This Agreement is not intended for the
benefit of any Person other than the Agent and the Lenders,
and shall not confer or be deemed to confer upon any other
such Person any benefits, rights or remedies hereunder.
SECTION 11. Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the
State of New York.
SECTION 12. Remedies. The parties to this Agreement
acknowledge and agree that breach of any of the covenants of
the Parent set forth herein may not be compensable by payment
of money damages and, therefore, that the covenants of the
Parent set forth herein may be enforced in equity by a decree
requiring specific performance. Such remedies shall be
cumulative and non-exclusive and shall be in addition to any
other rights and remedies the Borrower may have under this
Agreement.
IN WITNESS WHEREOF, the parties hereto have set their
hands and affixed their corporate seals as of the day and year
above written.
IES INDUSTRIES INC.
By_________________________________
Title:
IES DIVERSIFIED INC.
By_________________________________
Title:
Schedule 1
TERMS OF SUBORDINATION
[The following provisions are to be included
in each instrument or document evidencing
loans from the Parent to the Borrower pursuant
to Section 4 of the Support Agreement]
1. Reference is made to the Third Amended and
Restated Credit Agreement, dated as of November 20, 1996 (such
agreement, as it may hereafter be amended, modified or
supplemented from time to time, being the "Credit Agreement";
the terms defined therein and not otherwise defined herein
being used herein as therein defined), among IES Diversified
Inc., the Lenders named therein and Citibank, N.A., as Agent
for the Lenders. The Parent hereby agrees for the benefit of
the Agent and the Lenders that all obligations of the Borrower
to the Parent hereunder (the "Subordinated Debt") are and
shall be subordinate, to the extent and in the manner set
forth hereinafter, in right of payment to the prior payment in
full of all obligations of the Borrower under the Credit
Agreement and the other Loan Documents, whether for principal,
interest (including interest, as provided in the Loan
Documents, after the filing of a petition initiating any
proceeding referred to in paragraph 3, below), fees, expenses
or otherwise (all such obligations being the "Senior Debt").
2. Upon the occurrence and during the continuance
of an Event of Default or an Unmatured Default, the Parent
shall not ask, demand, sue for, take or receive from the
Borrower, directly or indirectly, in cash or other property or
by set-off or in any other manner (including, without
limitation, from or by way of collateral), payment of all or
any of the Subordinated Debt.
3. Upon any distribution of all or any of the
assets of the Borrower to creditors of the Borrower upon the
dissolution, winding up, liquidation, arrangement,
reorganization or composition of the Borrower, whether in any
bankruptcy, insolvency, arrangement, reorganization,
receivership or similar proceedings or upon an assignment for
the benefit of creditors or any other marshaling of the assets
and liabilities of the Borrower or otherwise, any payment or
distribution of any kind (whether in cash, property or
securities) which otherwise would be payable or deliverable
upon or with respect to the Subordinated Debt shall be paid or
delivered directly to the Agent for the benefit of the Agent
and the Lenders for application (in the case of cash) to or as
collateral (in the case of non-cash property or securities)
for the payment or prepayment of the Senior Debt until the
Senior Debt shall have been paid in full. For the purposes of
these provisions, the Senior Debt shall not be deemed to have
been paid in full until the Agent and the Lenders shall have
indefeasibly received payment in full of the Senior Debt in
cash.
4. Until such time as the Senior Debt shall have
been paid in full, if any proceeding referred to in paragraph
3, above, is commenced by or against the Borrower, the Agent
is hereby irrevocably authorized and empowered (in its own
name, on behalf of the Lenders, in the name of the Parent, or
otherwise), but shall have no obligation, to demand, sue for,
collect and receive every payment or distribution referred to
in paragraph 3, above, and give acquittance therefor and to
file claims and proofs of claim and take such other action
(including, without limitation, voting the Subordinated Debt
or enforcing any Lien securing payment of the Subordinated
Debt) as it may deem necessary or advisable for the exercise
or enforcement of any of the rights or interests of the
Lenders hereunder.
5. All payments or distributions upon or with
respect to the Subordinated Debt which are received by the
Parent contrary to the provisions hereof shall be received in
trust for the benefit of the Agent and the Lenders, shall be
segregated from other funds and property held by the Parent
and shall be forthwith paid over to the Agent for the benefit
of the Agent and the Lenders in the same form as so received
(with any necessary endorsement) to be applied (in the case of
cash) to or held as collateral (in the case of non-cash
property or securities) for the payment or prepayment of the
Senior Debt in accordance with the terms of the Loan
Documents.
6. The Agent is hereby authorized to demand
specific performance of these terms of subordination, whether
or not the Borrower shall have complied with any of the
provisions hereof applicable to it, at any time when the
Parent shall have failed to comply with any of such provisions
applicable to it. The Parent hereby irrevocably waives any
defense based on the adequacy of a remedy at law which might
be asserted as a bar to such remedy of specific performance.
7. So long as any of the Senior Debt shall remain
unpaid, the Parent shall not (i) commence, or join with any
creditor other than the Agent and the Lenders in commencing,
any involuntary proceeding referred to in paragraph 3, above,
or (ii) declare any default in payment due hereunder or sue
for breach of the terms hereof, if and so long as payment
hereunder would not be permissible pursuant to paragraph 2
above.
8. No payment or distribution to the Agent and the
Lenders pursuant to the above provisions shall entitle the
Parent to exercise any rights of subrogation in respect
thereof until the Senior Debt shall have been paid in full.
9. The holders of the Senior Debt may, at any time
and from time to time, without any consent of or notice to the
Parent or any other holder of the Subordinated Debt and
without impairing or releasing the obligations of the Parent
under these terms of subordination: (i) change the manner,
place or terms of payment or change or extend the time of
payment of, or renew or alter, the Senior Debt (including any
change in the interest rate under which any of the Senior Debt
is outstanding); (ii) sell, exchange, release, not perfect and
otherwise deal with any property at any time pledged, assigned
or mortgaged to secure the Senior Debt; (iii) release anyone
liable in any manner under or in respect of the Senior Debt;
(iv) exercise or refrain from exercising any rights against
the Borrower and others; and (v) apply any sums from time to
time received to the Senior Debt.
10. The foregoing provisions regarding
subordination are for the benefit of the holders of the Senior
Debt and shall be enforceable by them directly against the
holders of any Subordinated Debt, and no holder of the Senior
Debt shall be prejudiced in its right to enforce subordination
of any of the Subordinated Debt by any act or failure to act
by the Borrower or anyone in custody of its assets or
property. No such provisions may be amended or modified
without the prior written consent of the Agent.
SCHEDULE 2
Principal Borrower Amount Lender Type
1. Iowa Northern Railway Co. 220,649.00 Iowa Railway IES Guarantee of
Financing unsecured loan
Authority to Iowa Northern
Railway
EXHIBIT 2.02(a)
FORM OF NOTICE OF A BORROWING
Citibank, N.A., as Agent
for the Lenders parties
to the Credit Agreement
referred to below
Attention: __________
[Date]
Gentlemen:
The undersigned, IES Diversified Inc., refers to the
Third Amended and Restated Credit Agreement, dated as of
November 20, 1996 (as amended, modified or supplemented from
time to time, the "Credit Agreement", the terms defined
therein being used herein as therein defined), among the
undersigned, the Lenders named therein and the Agent, and
hereby gives you notice, irrevocably, pursuant to Section 2.02
of the Credit Agreement that the undersigned hereby requests
an A Borrowing under the Credit Agreement, and in that
connection sets forth below the information relating to such A
Borrowing (the "Proposed A Borrowing") as required by Section
2.02(a) of the Credit Agreement:
(i) The Business Day of the Proposed A Borrowing is
__________, 19__.
(ii) The Type of A Advances comprising the Proposed
A Borrowing is [Adjusted CD Rate Advances]
[Base Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed A
Borrowing is $__________.
1] [(iv) The Interest Period for each A Advance made as
part of the Proposed A Borrowing is [_____days]
[_____month[s]].]
_______________
1 To be included for a Proposed A Borrowing comprised of
Adjusted CD Rate Advances or Eurodollar Rate Advances.
The undersigned hereby acknowledges that the delivery of
this Notice of A Borrowing shall constitute a representation
and warranty by the Borrower that, on the date of the Proposed
A Borrowing, the statements contained in Section 3.02 of the
Credit Agreement are true.
Very truly yours,
IES DIVERSIFIED INC.
By
Title:
EXHIBIT 2.03(a)(i)
FORM OF NOTICE OF B BORROWING
Citibank, N.A., as Agent
for the Lenders parties
to the Credit Agreement
referred to below
Attention: ___________
[Date]
Gentlemen:
The undersigned, IES Diversified Inc., refers to the
Third Amended and Restated Credit Agreement, dated as of
November 20, 1996 (as amended, modified or supplemented from
time to time, the "Credit Agreement", the terms defined
therein being used herein as therein defined), among the
undersigned, the Lenders named therein and the Agent, and
hereby gives you notice pursuant to Section 2.03 of the Credit
Agreement that the undersigned hereby requests a B Borrowing
under the Credit Agreement, and in that connection sets forth
the terms on which such B Borrowing (the "Proposed B
Borrowing") is requested to be made:
(A) Date of B Borrowing __________
(B) Amount of B Borrowing __________
(C) Maturity Date __________
(D) Interest Payment Date(s) __________
(E) __________ __________
(F) __________ __________
(G) __________ __________
The undersigned hereby acknowledges that the delivery of
this Notice of B Borrowing shall constitute a representation
and warranty by the Borrower that, on the date of the Proposed
B Borrowing, the statements contained in Section 3.03 of the
Credit Agreement are true.
The undersigned hereby confirms that the Proposed B
Borrowing is to be made available to it in accordance with
Section 2.03 of the Credit Agreement.
Very truly yours,
IES DIVERSIFIED INC.
By
Title:
EXHIBIT 2.10
FORM OF NOTICE OF CONVERSION
Citibank, N.A., as Agent
for the Lenders parties
to the Credit Agreement
referred to below
Attention: _____________________
[Date]
Gentlemen:
The undersigned, IES Diversified Inc., refers to the
Third Amended and Restated Credit Agreement, dated as of
November 20, 1996 (as amended, modified or supplemented from
time to time, the "Credit Agreement", the terms defined
therein being used herein as therein defined), among the
undersigned, the Lenders named therein and the Agent, and
hereby gives you notice, irrevocably, pursuant to Section 2.10
of the Credit Agreement that the undersigned hereby requests a
Conversion under the Credit Agreement, and in that connection
sets forth below the information relating to such Conversion
(the "Proposed Conversion") as required by Section 2.10 of the
Credit Agreement:
(i) The Business Day of the Proposed Conversion is
__________, ____.
(ii) The Type of Advances comprising the Proposed
Conversion is [Adjusted CD Rate Advances]
[Base Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed Conversion
is $__________.
(iv) The Type of Advances to which such Advances are
proposed to be Converted is [CD Rate Advances]
[Base Rate Advances] [Eurodollar Rate Advances].
(v) The Interest Period for each Advance made as
part of the Proposed Conversion is [_____days]
[_____ month(s)]. 2
_______________
2 Delete for Base Rate Advances
The undersigned hereby represents and warrants that the
following statements are true on the date hereof, and will be
true on the date of the Proposed Conversion:
(A) The Borrower's request for the Proposed
Conversion is made in compliance with Section 2.10 of the
Credit Agreement; and
(B) The statements contained in Section 3.02 of
the Credit Agreement are true.
Very truly yours,
IES DIVERSIFIED INC.
By
Title:
EXHIBIT 3.01(a)(xii)-1
FORM OF OPINION OF
WINTHROP, STIMSON, PUTNAM & ROBERTS
[Date of Closing]
To each of the Lenders parties to the
Credit Agreement referred to below,
and to Citibank, N.A., as Agent
Re: IES Diversified Inc.
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section
3.01(a)(xii)(A) of the Third Amended and Restated Credit
Agreement, dated as of November ___, 1996 (the "Credit
Agreement"), among IES Diversified Inc. (the "Borrower"), the
Banks parties thereto and the other Lenders from time to time
parties thereto, and Citibank, N.A., as Agent. Terms defined
in the Credit Agreement and not otherwise defined herein are
used herein as therein defined.
We have acted as counsel for the Borrower and the parent
in connection with the preparation, execution and delivery of,
and the Closing on this date under, the Credit Agreement and
the other Loan Documents.
In that capacity we have examined:
(a) The Credit Agreement;
(b) The A Notes;
(c) The Support Agreement;
(d) The Articles of Incorporation of the Borrower and all
amendments thereto (the "Borrower Charter");
(e) The by-laws of the Borrower and all amendments thereto
(the "Borrower By-laws");
(f) The Articles of Incorporation of the Parent and all
amendments thereto (the "Parent Charter"); and
(g) The by-laws of the Parent and all amendments thereto (the
"Parent By-laws").
In addition, we have examined the originals, or copies
certified to our satisfaction, of such other corporate records
of the Borrower and of the Parent, certificates of public
officials and of officers of the Borrower and of the Parent,
and agreements, instruments and other documents, as we have
deemed necessary as a basis for the opinions expressed below.
As to questions of fact material to such opinions, we have,
when relevant facts were not independently established by us,
relied upon certificates of the Borrower and of the Parent or
their respective officers or of public officials.
We have assumed (i) the due execution and delivery,
pursuant to due authorization, of the Credit Agreement by all
parties to the Credit Agreement and the Existing Facility
(other than the Borrower), (ii) the authenticity of all such
documents submitted to us as originals, (iii) the genuineness
of all signatures (other than those of the Borrower and of the
Parent) and (iv) the conformity to the originals of all such
documents submitted to us as copies.
Our opinions expressed herein are limited to the laws of
the State of New York and the Federal laws of the United
States of America. To the extent that any of the opinions
expressed below involve conclusions as to matters governed by
the laws of the State of Iowa, we have relied on the opinion
of _______________, General Counsel and Secretary of the
Borrower and Vice President, General Counsel and Secretary of
the Parent, delivered to you pursuant to
Section 3.01(a)(xii)(B) of the Credit Agreement. We believe
that you and we are justified in relying on such opinion for
such purposes.
Based upon to the foregoing and upon such investigation
as we have deemed necessary, we are of the following opinion:
1. Each of the Borrower and the Parent is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Iowa.
2. The execution, delivery and performance by the
Borrower of the Credit Agreement, the Notes, the Support
Agreement and the Fee Letter are within the Borrower's
corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (a) the Borrower
Charter or the Borrower By-laws, (b) any law, rule, regulation
or, to our knowledge, any order or judgment, applicable to the
Borrower, (c) any contractual restriction arising under any
agreement or instrument evidencing indebtedness described in
Schedule III of the Credit Agreement, or (d) to our knowledge,
any other legal or contractual restriction binding on or
affecting the Borrower or its properties; and such execution,
delivery and performance do not result in or require the
creation or imposition of any Lien (other than the Lien of the
Agent for the benefit of the Lenders upon the rights of the
Borrower under the Support Agreement) upon or with respect to
any of its properties under any agreement or instrument
evidencing indebtedness described in Schedule III of the
Credit Agreement or, to our knowledge, under any other
agreement or instrument. The Credit Agreement, the A Notes,
the Support Agreement and the Fee Letter have been duly
executed and delivered on behalf of the Borrower. When
completed in the form thereof attached as Exhibit 1.01A-2 to
the Credit Agreement, and executed by a Senior Financial
Officer and delivered on behalf of the Borrower, each B Note
will have been duly executed and delivered on behalf of the
Borrower.
3. The execution, delivery and performance by the
Parent of the Support Agreement are within the Parent's
corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (a) the Parent Charter
or the Parent By-laws, (b) any law, rule, regulation or, to
our knowledge, any order or judgment, applicable to the
Parent, (c) any contractual restriction arising under (i) the
$1,500,000 line of credit provided to the Parent by Firstar
Bank or (ii) any agreement or instrument evidencing
indebtedness described in Schedule 2 of the Support Agreement,
or (d) to our knowledge, any other legal or contractual
restriction binding on or affecting the Parent or its
properties; and such execution, delivery and performance do
not result in or require the creation or imposition of any
Lien upon or with respect to any of its properties under the
$1,500,000 line of credit provided to the Parent by Firstar
Bank or under any agreement or instrument evidencing
indebtedness described in Schedule 2 of the Support Agreement,
or, to our knowledge, under any other agreement or instrument.
The Support Agreement has been duly executed and delivered on
behalf of the Parent.
4. No authorization or approval or other action
by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due
execution, delivery and performance by the Borrower of the
Credit Agreement and the other Loan Documents to which it is,
or is to be, a party.
5. No authorization or approval or other action
by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due
execution, delivery and performance by the Parent of the
Support Agreement.
6. The Credit Agreement, the A Notes, the Support
Agreement and the Fee Letter are legal, valid and binding
obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms; and when completed
in the form thereof attached as Exhibit 1.01A-2 to the Credit
Agreement, and executed by a Senior Financial Officer and
delivered on behalf of the Borrower pursuant to corporate
authorization existing and as in effect on the date hereof,
each B Note will be a legal, valid and binding obligation of
the Borrower, enforceable against the Borrower in accordance
with its terms.
7. The Support Agreement is the legal, valid and
binding obligation of the Parent, enforceable against the
Parent in accordance with its terms.
8. Neither the Borrower nor the Parent is an
"investment company" as defined in the Investment Company Act
of 1940, as amended. The Borrower is not a "holding company"
as that term is defined in, and is not otherwise subject to
regulation under, the Public Utility Holding Company Act of
1935, as amended. The Parent is a "holding company" as that
term is defined in the Public Utility Holding Company Act of
1935, as amended, but is exempt from said Act except with
respect to the acquisition of securities in other public
utility companies and other public utility holding companies.
The opinions set forth in paragraphs 6 and 7, above, are
subject to the following qualifications:
(a) The enforceability of the Borrower's
obligations under the Credit Agreement and the other Loan
Documents to which it is, or is to be, a party, and the
enforceability of the Parent's obligations under the Support
Agreement, are subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar
law affecting creditors' rights generally.
(b) The enforceability of the Borrower's
obligations under the Credit Agreement and the other Loan
Documents to which it is, or is to be, a party, and the
enforceability of the Parent's obligations under the Support
Agreement, are subject to general principals of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law). Such principles of equity
are of general application and, in applying such principles, a
court, among other things, might not allow a contracting party
to exercise remedies in respect of a default deemed
immaterial, or might decline to order an obligor to perform
covenants. Such principles would include an expectation that
parties act with reasonableness and in good faith, and might
be applied, for example, to provisions which purport to grant
a party with the authority to exercise sole discretion or make
conclusive determinations.
(c) We note further that, in addition to the
application of equitable principles described above, courts
have imposed an obligation on contracting parties to act
reasonably and in good faith in the exercise of their
contractual rights and remedies, and may also apply public
policy considerations in limiting the right of parties seeking
to obtain indemnification.
Very truly yours,
EXHIBIT 3.01(a)(xii)-2
FORM OF OPINION OF GENERAL COUNSEL OF THE
BORROWER AND THE PARENT
[Date of Closing]
To each of the Lenders parties to the
Credit Agreement referred to below,
and to Citibank, N.A., as Agent
IES Diversified Inc.
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section
3.01(a)(xii)(B) of the Third Amended and Restated Credit
Agreement, dated as of November ___, 1996 (the "Credit
Agreement"), among IES Diversified Inc. (the "Borrower"), the
Banks parties thereto and the other Lenders from time to time
parties thereto, and Citibank, N.A., as Agent. Terms defined
in the Credit Agreement and not otherwise defined herein are
used herein as therein defined.
I am Secretary of the Borrower and act as its counsel and
Vice President, General Counsel & Secretary of the Parent and
have acted as such in connection with the preparation,
execution and delivery of, and the Closing on this date under,
the Credit Agreement and the other Loan Documents.
In that capacity I have examined, or have arranged for
the examination by an attorney or attorneys under my general
supervision of:
(d) The Credit Agreement;
(e) The A Notes;
(f) The Support Agreement;
(g) The Articles of Incorporation of the Borrower and all
amendments thereto (the "Borrower Charter");
(h) The by-laws of the Borrower and all amendments thereto
(the "Borrower By-laws");
(i) The Articles of Incorporation of the Parent and all
amendments thereto (the "Parent Charter"); and
(j) The by-laws of the Parent and all amendments thereto (the
"Parent By-laws").
In addition, I, or an attorney or attorneys under my
general supervision, have examined the originals, or copies
certified to my or their satisfaction, of such other corporate
records of the Borrower and of the Parent, certificates of
public officials and of officers of the Borrower and of the
Parent, and agreements, instruments and other documents, as I
or such attorneys have deemed necessary as a basis for the
opinions expressed below. As to questions of fact material to
such opinions, I or such attorneys have, when relevant facts
were not independently established by me or by them, relied
upon certificates of the Borrower and of the Parent or their
respective officers or of public officials.
I have assumed (i) the due execution and delivery,
pursuant to due authorization, of the Credit Agreement by all
parties to such document (other than the Borrower), (ii) the
authenticity of all such documents submitted to me as
originals, (iii) the genuineness of all signatures (other than
those of the Borrower and of the Parent) and (iv) the
conformity to the originals of all such documents submitted to
me as copies.
I, or an attorney or attorneys under my general
supervision, have made such examination of law as in my or
their judgment is necessary or appropriate for purposes of
this opinion. I and such attorneys do not, however, purport
to be qualified to pass upon, and express no opinion as to,
the laws of any jurisdiction other than the laws of the State
of Iowa.
Based upon and subject to the foregoing, I am of the
opinion that:
1. Each of the Borrower and the Parent is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Iowa and is duly
qualified to do business in, and is in good standing in, all
other jurisdictions where the nature of its business or the
nature of the property owned or leased by it makes such
qualification necessary, except where the failure to so
qualify would not have a material adverse affect on the
business, financial condition, results of operations or
prospects of the Borrower and its Subsidiaries, taken as a
whole, or of the Parent and its Subsidiaries, taken as a
whole.
2. The execution, delivery and performance by the
Borrower of the Credit Agreement, the Notes, the Support
Agreement and the Fee Letter are within the Borrower's
corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (a) the Borrower
Charter or the Borrower By-laws, (b) any law, rule,
regulation, order or judgment applicable to the Borrower,
(c) any contractual restriction arising under any agreement or
instrument evidencing indebtedness described in Schedule III
of the Credit Agreement, or (d) to my knowledge, any other
legal or contractual restriction binding on or affecting the
Borrower or its properties; and such execution, delivery and
performance do not result in or require the creation or
imposition of any Lien (other than the Lien of the Agent for
the benefit of the Lenders upon the rights of the Borrower
under the Support Agreement) upon or with respect to any of
its properties under any agreement or instrument evidencing
indebtedness described in Schedule III of the Credit Agreement
or, to my knowledge, under any other agreement or instrument.
The Credit Agreement, the A Notes, the Support Agreement and
the Fee Letter have been duly executed and delivered on behalf
of the Borrower. When completed in the form thereof attached
as Exhibit 1.01A-2 to the Credit Agreement, and executed by a
Senior Financial Officer and delivered on behalf of the
Borrower, each B Note will have been duly executed and
delivered on behalf of the Borrower.
3. The execution, delivery and performance by the
Parent of the Support Agreement are within the Parent's
corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (a) the Parent Charter
or the Parent By-laws, (b) any law, rule, regulation, order or
judgment applicable to the Parent, (c) any contractual
restriction arising under (i) the $1,500,000 line of credit
provided to the Parent by Firstar Bank or (ii) any agreement
or instrument evidencing indebtedness described in Schedule 2
of the Support Agreement, or (d) to my knowledge, any other
legal or contractual restriction binding on or affecting the
Parent or its properties; and such execution, delivery and
performance do not result in or require the creation or
imposition of any Lien upon or with respect to any of its
properties under the $1,500,000 line of credit provided to the
Parent by Firstar Bank or under any agreement or instrument
evidencing indebtedness described in Schedule 2 of the Support
Agreement, or, to my knowledge, under any other agreement or
instrument. The Support Agreement has been duly executed and
delivered on behalf of the Parent.
4. No authorization or approval or other action
by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due
execution, delivery and performance by the Borrower of the
Credit Agreement and the other Loan Documents to which it is,
or is to be, a party.
5. No authorization or approval or other action
by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due
execution, delivery and performance by the Parent of the
Support Agreement.
6. There is no pending or, to my knowledge,
threatened action or proceeding affecting the Borrower or its
properties before any court, governmental agency or
arbitrator, that could reasonably be expected, if adversely
determined, to materially and adversely affect the business,
financial condition, operations, results of operations or
prospects of the Borrower, or affect the legality, validity or
enforceability of the Credit Agreement or any other Loan
Document to which the Borrower is, or is to be, a party.
7. There is no pending or, to my knowledge,
threatened action or proceeding affecting the Parent or its
properties before any court, governmental agency or
arbitrator, that could reasonably be expected, if adversely
determined, to materially and adversely affect the business,
financial condition, operations, results of operations or
prospects of the Parent, or affect the legality, validity or
enforceability of the Support Agreement.
I authorize Winthrop, Stimson, Putnam & Roberts, special
New York counsel to the Borrower and the Parent, to rely on
this opinion respecting matters covered by or relating to the
laws of the State of Iowa.
Very truly yours,
EXHIBIT 3.01(a)(xii)-3
FORM OF KING & SPALDING OPINION
[Date of Closing]
To each of the Lenders parties to the
Credit Agreement referred to below
and to Citibank, as Agent
IES Diversified, Inc.
Ladies and Gentlemen:
We have acted as special New York counsel to Citibank,
N.A., individually and as Agent, in connection with the
preparation, execution and delivery of the Third Amended and
Restated Credit Agreement, dated as of November __, 1996 (the
"Credit Agreement"), among IES Diversified, Inc., the Banks
party thereto and Citibank, N.A., as Agent for the Banks.
Unless otherwise indicated, terms defined in the Credit
Agreement are used herein as therein defined.
In that connection, we have examined the following
documents:
(1) counterparts of the Credit Agreement, executed
by the Borrower, the Agent and the Banks; and
(2) a counterpart of the Support Agreement,
executed by the Parent; and
(3) the other documents furnished by the Borrower
pursuant to Section 3.01 of the Credit Agreement,
including the opinion of Winthrop, Stimson, Putnam &
Roberts, special New York counsel for the Borrower and
Stephen W. Southwick, Counsel for the Borrower and Vice
President, General Counsel and Secretary of the Parent
(collectively, the "Opinions").
In our examination of the documents referred to above, we
have assumed the authenticity of all such documents submitted
to us as originals, the genuineness of all signatures, the due
authority of the parties executing such documents and the
conformity to the originals of all such documents submitted to
us as copies. We have also assumed that each of the Banks and
the Agent has duly executed and delivered, with all necessary
power and authority (corporate and otherwise), the Credit
Agreement.
To the extent that our opinions expressed below involve
conclusions as to matters governed by law other than the law
of the State of New York, we have relied upon the Opinions and
have assumed without independent investigation the correctness
of the matters set forth therein, our opinions expressed below
being subject to the assumptions, qualifications and
limitations set forth in the Opinions. As to matters of fact,
we have relied solely upon the documents we have examined.
Based upon the foregoing, and subject to the
qualifications set forth below, we are of the opinion that:
(i) The Credit Agreement and the A Notes
are, and the B Notes will be, when executed and delivered by
the Borrower for value, the legal, valid and binding
obligations of the Borrower enforceable against the Borrower
in accordance with their respective terms.
(ii) The Support Agreement is the legal, valid and
binding obligation of the Parent enforceable against the
Parent in accordance with its terms.
(iii) While we have not independently considered the
matters covered by the Opinions to the extent necessary to
enable us to express the conclusions stated therein, the
Opinions and the other documents referred to in item (3) above
are substantially responsive to the corresponding requirements
set forth in Section 3.01 of the Credit Agreement pursuant to
which the same have been delivered.
Our opinions are subject to the following
qualifications:
(a) Our opinions in paragraphs (i) and (ii) above
are subject to the effect of any applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium
or similar law affecting creditors' rights generally.
(b) Our opinions in paragraphs (i) and (ii) above
are subject to the effect of general principles of equity,
including (without limitation) concepts of materiality,
reasonableness, good faith and fair dealing (regardless of
whether considered in a proceeding in equity or at law).
(c) We note further that, in addition to the
application of equitable principles described above, courts
have imposed an obligation on contracting parties to act
reasonably and in good faith in the exercise of their
contractual rights and remedies, and may also apply public
policy considerations in limiting the right of parties seeking
to obtain indemnification under circumstances where the
conduct of such parties in the circumstances in question is
determined to have constituted negligence.
(d) We express no opinion herein as to (i)
Section 8.05 of the Credit Agreement or Section 14 of the
Support Agreement, (ii) the enforceability of provisions
purporting to grant to a party conclusive rights of
determination, (iii) the availability of specific performance or
other equitable remedies, (iv) the enforceability of rights to
indemnity under Federal or state securities laws and (v) the
enforceability of waivers by parties of their respective
rights and remedies under law.
(e) Our opinions expressed above are limited to the
law of the State of New York and the Federal law of the United
States, and we do not express any opinion herein concerning
any other law. Without limiting the generality of the
foregoing, we express no opinion as to the effect of the law
of any jurisdiction other than the State of New York wherein
any Bank may be located or wherein enforcement of the Credit
Agreement, any Note or the Support Agreement may be sought
that limits the rates of interest legally chargeable or
collectible.
The foregoing opinion is solely for your benefit and may
not be relied upon by any other Person other than any Person
that may become a Bank under the Credit Agreement after the
date hereof.
Very truly yours,
MEO:IS:pc
EXHIBIT 8.07
FORM OF LENDER ASSIGNMENT
Dated__________, 19__
Reference is made to the Third Amended and Restated
Credit Agreement, dated as of November _, 1996 (said
Agreement, as it may hereafter be amended or otherwise
modified from time to time, being the "Credit Agreement", the
terms defined therein and not otherwise defined herein being
used herein as therein defined), among IES Diversified Inc.,
an Iowa corporation (the "Borrower"), the Lenders named
therein and the Agent. Pursuant to the Credit Agreement,
_________________ (the "Assignor") has committed to make
advances ("Advances") to the Borrower, which Advances are
evidenced by a promissory note (the "Note") issued by the
Borrower to the Assignor.
The Assignor and _______________ (the "Assignee")
agree as follows:
1. The Assignor hereby sells and assigns to the
Assignee, and the Assignee hereby purchases and assumes from
the Assignor, that interest in and to all of the Assignor's
rights and obligations under the Credit Agreement as of the
Effective Date (as defined below) which represents the
percentage interest specified on Schedule 1 of all outstanding
rights and obligations under the Credit Agreement (the
"Assigned Interest"), including, without limitation, such
interest in the Assignor's Commitment, the Advances owing to
the Assignor, and the Note[s] held by the Assignor. After
giving effect to such sale and assignment, the Assignee's
Commitment and the amount of the Advances owing to the
Assignee will be as set forth in Section 2 of Schedule 1. The
effective date of this sale and assignment shall be the date
specified on Schedule 1 hereto (the "Effective Date").
2. On the Effective Date, the Assignee will pay to
the Assignor, in same day funds, at such address and account
as the Assignor shall advise the Assignee, $___________, and
the sale and assignment contemplated hereby shall thereupon
become effective. From and after the Effective Date, the
Assignor agrees that the Assignee shall be entitled to all
rights, powers and privileges of the Assignor under the Credit
Agreement and the Note[s] to the extent of the Assigned
Interest, including without limitation (1) the right to
receive all payments in respect of the Assigned Interest for
the period from and after the Effective Date, whether on
account of principal, interest, fees, indemnities in respect
of claims arising after the Effective Date, increased costs,
additional amounts or otherwise, (2) the right to vote and to
instruct the Agent under the Credit Agreement according to its
Percentage based on the Assigned Interest, (3) the right to
set-off and to appropriate and apply deposits of the Borrower
as set forth in the Credit Agreement and (4) the right to
receive notices, requests, demands and other communications.
The Assignor agrees that it will promptly remit to the
Assignee any amount received by it in respect of the Assigned
Interest (whether from the Borrower, the Agent or otherwise)
in the same funds in which such amount is received by the
Assignor.
3. The Assignor (i) represents and warrants that
it is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and
clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in
connection with the Credit Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency
or value of the Credit Agreement or any other instrument or
document furnished pursuant thereto; (iii) makes no
representation or warranty and assumes no responsibility with
respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its
obligations under the Credit Agreement or any other instrument
or document furnished pursuant thereto; (iv) makes no
representation or warranty and assumes no responsibility with
respect to the financial condition of the Parent or the
performance or observance by the Parent of any of its
obligations under the Support Agreement or any other
instrument or document furnished pursuant thereto; and
(v) attaches the Note[s] referred to in paragraph 1 above and
requests that the Agent exchange such Note[s] for a new Note
payable to the order of the Assignee in an amount equal to the
Commitment assumed by the Assignee pursuant hereto or new
Notes payable to the order of the Assignee in an amount equal
to the Commitment assumed by the Assignee pursuant hereto and
the Assignor in an amount equal to the Commitment retained by
the Assignor under the Credit Agreement, respectively, as
specified on Schedule 1 hereto. Except as specified in this
Section 3, the assignment of the Assigned Interest shall be
without recourse to the Assignor.
4. The Assignee (i) confirms that it has received
a copy of the Credit Agreement, together with copies of the
financial statements referred to in Section 5(d) of the
Support Agreement and such other documents and information as
it has deemed appropriate to make its own credit analysis and
decision to enter into this Lender Assignment; (ii) agrees
that it will, independently and without reliance upon the
Agent, the Assignor or any other Lender and based on such
documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement; (iii) confirms
that it is an Eligible Assignee; (iv) appoints and authorizes
the Agent to take such action as agent on its behalf and to
exercise such powers under the Credit Agreement as are
delegated to the Agent by the terms thereof, together with
such powers as are reasonably incidental thereto; (v) agrees
that it will perform in accordance with their terms all of the
obligations which by the terms of the Credit Agreement are
required to be performed by it as a Lender; [and]
(vi) specifies as its CD Lending Office, Domestic Lending
Office (and address for notices) and Eurodollar Lending Office
the offices set forth beneath its name on the signature pages
hereof [and (vii) attaches the forms prescribed by the
Internal Revenue Service of the United States certifying as to
the Assignee's status for purposes of determining exemption
from United States withholding taxes with respect to all
payments to be made to the Assignee under the Credit Agreement
and the Notes or such other documents as are necessary to
indicate that all such payments are subject to such rates at a
rate reduced by an applicable tax treaty]. 1
5. Following the execution of this Lender
Assignment by the Assignor and the Assignee, it will be
delivered to the Agent for acceptance and recording by the
Agent. Upon such acceptance and recording by the Agent, as of
the Effective Date, (i) the Assignee shall be a party to the
Credit Agreement and, to the extent provided in this Lender
Assignment, have the rights and obligations of a Lender
thereunder and under the other Loan Documents and (ii) the
Assignor shall, to the extent provided in this Lender
Assignment, relinquish its rights and be released from its
obligations under the Credit Agreement and the other Loan
Documents.
6. Upon such acceptance and recording by the
Agent, from and after the Effective Date, the Agent shall make
all payments under the Credit Agreement and the Notes in
respect of the interest assigned hereby (including, without
limitation, all payments of principal, interest and commitment
fees with respect thereto) to the Assignee. The Assignor and
Assignee shall make all appropriate adjustments in payments
under the Credit Agreement and the Notes for periods prior to
the Effective Date directly between themselves.
7. This Lender Assignment may be executed in any
number of counterparts and by different parties in separate
counterparts, each of which when so executed shall be deemed
to be an original and all of which taken together shall
constitute but one and the same instrument.
8. This Lender Assignment shall be governed by,
and construed in accordance with, the laws of the State of New
York.
IN WITNESS WHEREOF, the parties hereto have caused this
Lender Assignment to be executed by their respective officers
thereunto duly authorized, as of the date first above written,
such execution being made on Schedule 1 hereto.
_______________
1 If the Assignee is organized under the laws of a
jurisdiction outside the United States.
SCHEDULE 1
to
LENDER ASSIGNMENT
Dated__________, 19__
Section 1.
Percentage Interest: _____%
Section 2.
Assignee's Commitment: $ _____
Aggregate Outstanding Principal
Amount of A Advances owing to the Assignee: $ _____
An A Note payable to the order of the Assignee
Dated:__________, 19__
Principal amount: _____
An A Note payable to the order of the Assignor
Dated:__________, 19__
Principal amount: _____
Aggregate Outstanding Principal
Amount of B Advances owing to the Assignee: $ _____
A B Note payable to the order of the Assignee
Dated:__________, 19__
Principal amount: _____
A B Note payable to the order of the Assignor
Dated:__________, 19__
Principal amount: _____
Section 3.
Effective Date: __________, 19
[NAME OF ASSIGNOR]
By _______________
Title:
[NAME OF ASSIGNEE]
By _______________
Title:
CD Lending Office:
[Address]
Domestic Lending Office (and
address for notices):
[Address]
Eurodollar Lending Office:
[Address]
Accepted this _____ day
of __________, 19__
CITIBANK, N.A., as Agent
By __________
Title:
SCHEDULE I
IES DIVERSIFIED INC.
Third Amended and Restated Credit Agreement, dated as of
November 20, 1996, among
IES Diversified Inc., the Banks named therein and Citibank,
N.A., as Agent
<TABLE>
<CAPTION>
Name of Bank Commitment Domestic Lending Office CD Lending Office Eurodollar Lending Office
<S> <C> <C> <C> <C>
ABN AMRO N.V. $28,000,000 ABN AMRO Bank Same as Domestic Same as Domestic
N.V. Chicago Branch Lending Office Lending Office
135 South LaSalle Street,
Suite 625
Chicago, IL 60603
Telephonr: 312.904.2007
Telecopy: 312.606.8425
Attention: Barbara Popp
Barclays $20,000,000 222 Broadway Same as Domestic Same as Domestic
Bank PLC New York, New York 10038 Lending Office Lending Office
Telephone: 212.412.3571
Telecopy: 212.412.5002
Attention: Stephanie Gledhill
The Chase $28,000,000 One Chase Plaza, 8th Floor Same as Domestic Same as Domestic
Manhattan New York, NY 10081 Lending Office Lending Office
Bank Telephone: 212.552.7692
Telecopy: 212.552.5777
Attention: Lynett Lang
CIBC Inc. $40,000,000 Two Paces West Same as Domestic Same as Domestic
2727 Paces Ferry Road, Lending Office Lending Office
Suite 1200
Atlanta, Georgia
Telephone: 404.319.4836
Telecopy: 404.319.4950
Attention: Clare Coyne
Citibank, $40,000,000 One Court Square, 7th Floor Same as Domestic Same as Domestic
N.A. Zone 2 Lending Office Lending Office
Long Island City, NY 11120
Telecopy: 718.248.4490
Attention: Bank Loan Syndications
The First $28,000,000 One First National Plaza, Same as Domestic Same as Domestic
National Suite 0363 Lending Office Lending Office
Bank of Chicago, Illinois 60670-0363
Chicago Telephone: 312.732.9780
Telecopy: 312.732.3055 /
312.732.6485
Attention: Robert G. Bussa
The Fuji $28,000,000 U.S. Corporate Banking Same as Domestic Same as Domestic
Bank, 225 West Wacker Drive, Lending Office Lending Office
Limited, Suite 2000
Chicago Chicago, Illinois 60606
Branch Telephone: 312.621.0526
Telecopy: 312.621.0539
Attention: James Bell
Mellon $40,000,000 One Mellon Bank Center-151-4425 Same as Domestic Same as Domestic
Bank Pittsburgh, Pennsylvania Lending Office Lending Office
15258-0001
Telephone: 412.236.2988
Telecopy: 412.234.6375
Attention: Jacquelyn S. Peters
Norwest $ 8,000,000 101 Third Avenue S.W. Same as Domestic Same as Domestic
Bank Iowa, Cedar Rapids, Iowa 52404 Lending Office Lending Office
N.A. Telephone: 319.368.1143
Telecopy: 319.368.1299
Attention: R. Troy Hansen
The Sanwa $28,000,000 10 South Wacker Drive, Same as Domestic Same as Domestic
Bank, Ltd. 31st Floor Lending Office Lending Office
Chicago Chicago, Illinois 60606
Branch Telephone: 312.368.3016
Telecopy: 312.346.6677
Telex: 3735188
Attention: Beverly Wyckoff
Union Bank $12,000,000 445 South Figueroa Street Same as Domestic Same as Domestic
Los Angeles, California 90071 Lending Office Lending Office
Telephone: 213.236.5809
Telecopier: 213.236.4096
Attention: John M. Edmonston
</TABLE>
SCHEDULE II
LIENS
Subsidiary Amount Holder Property
1. Centerplace
Limited $1,029,724.00 Norwest Bank River Place Apartments
Cedar Rapids, Iowa
2. 2060
Partnership $9,485,088.00 Firstar Bank 201/221 Town Center
Building
Cedar Rapids, Iowa
3. 2002
Partnership $1,553,811.00 Brenton Bank Iowa Building
Cedar Rapids, Iowa
SCHEDULE III
DEBT
Subsidiary Amount Holder Property
1. Centerplace Limited $1,029,724.00 Norwest Bank Mortgage
2. 2060 Partnership $9,485,088.00 Firstar Bank Mortgage
3. 2002 Partnership $1,553,811.00 Brenton Bank Mortgage
Exhibit 10(s)
DIRECTOR RETIREMENT PLAN
This Retirement Plan for the benefit of the Directors of IES
INDUSTRIES, INC. is adopted this 1st day of February, 1994 and revised
effective November 6, 1996, by IES INDUSTRIES INC. (hereafter the
"Company").
WITNESSETH:
WHEREAS, the Company wishes to provide a non-qualified
retirement benefit for its Directors, subject to a Director satisfying
certain conditions and periods of service as a Director with the Company
as set forth herein.
NOW, THEREFORE, the Company hereby adopts the following non-
qualified Retirement Plan (the "Plan"):
ARTICLE I
1.1 Right to Participate Under This Plan and Loss of Such
Right. The only individuals eligible to participate under this Plan
shall be those Directors of the Company who are serving on the date of
the adoption of this Plan or who subsequently serve on the Board of
Directors of the Company, and who complete the required years of service
with the Company as a Director and who satisfy the other terms and
conditions of this Plan.
ARTICLE II
2.1 Director. "Director" shall mean an individual elected by
the shareholders of the Company to serve as a member of the Board of
Directors of the Company.
2.2 Qualified Director. "Qualified Director" shall mean a
Director who has served at least forty-eight (48) months (service before
the adoption of this Plan shall be taken into account for this purpose)
as a Director of the Company, as a Director of IOWA SOUTHERN INC. or IE
INDUSTRIES INC. and who has not acted in a manner detrimental to the
best interests of the Company as determined by the Board of Directors.
The service requirement may be satisfied by continuous or non-continuous
service as a Director.
2.3 Qualified Inside Director. "Qualified Inside Director"
shall mean any Qualified Director who has served as a Director while in
regular employee status with the Company, IES UTILITIES INC. or any
affiliated companies.
2.4 Annual Directors Fee. "Annual Directors Fee" shall mean
the annual outside Directors Fee in effect at the time of a Qualified
Director's termination of his or her position as a Director with the
Company. For those Directors who are Directors as of November 6, 1996,
and who will not be a Director as a result of the Merger among WPL
Holdings, Inc. and Interstate Power Company, the "Annual Directors Fee"
shall mean the annual cash fee and the value of the common stock award
in effect at the time of that Director's termination as a Director.
2.5 Surviving Spouse. "Surviving Spouse" shall mean the
individual, if any, married to a Qualified Director at the time of his
or her death.
2.6 Retirement Benefit. "Retirement Benefit," shall mean an
amount equal to eighty percent (80%) of the Annual Directors Fee. Such
benefit shall be paid on the date the Company pays Annual Directors Fee.
2.7 Death Benefit. "Death Benefit" shall mean an amount
equal to eighty percent (80%) of the Annual Directors Fee. Such benefit
shall be paid on the date the Company pays Annual Directors Fee.
2.8 Board of Directors. "Board of Directors" shall mean the
Board of Directors of the Company.
2.9 Benefit Period. "Benefit Period" shall mean a period of
four (4) years plus one (1) additional year for each additional twelve
(12) months of service as a Director after forty-eight (48) months of
service, subject to the limitation that in no event shall the Benefit
Period be more than eight (8) years.
ARTICLE III
3.1 Receipt of Retirement Benefit upon Director's Retirement
from the Company. Subject to Paragraph 3.2 of this Article and the
provisions of Article V, a Qualified Director shall receive an amount
equal to the Retirement Benefit, as established in Paragraph 2.6 of
Article II of this Plan, for the Benefit Period, as established under
Paragraph 2.9 of Article II. The Retirement Benefit shall be paid to
the Qualified Director or his or her Surviving Spouse. Payment of the
Retirement Benefit shall commence to a Qualified Director, other than a
Qualified Inside Director, on the next date, following the Qualified
Director's termination as a Director, that the Company pays the Annual
Directors Fee to its Board of Directors. Payment of the Retirement
Benefit shall be made to a Qualified Inside Director on the next date
one (1) year following the later of the Qualified Inside Director's
termination as a Director or termination of employment with the Company
or any affiliate that the Company pays the Annual Directors Fee to its
Board of Directors.
3.2 Benefit Payable to Surviving Spouse Prior to Receipt by
Director of Benefits for the Benefit Period. Subject to the provisions
of Article V, in the event of the death of the Qualified Director after
termination as a Director, but prior to the Qualified Director receiving
the Retirement Benefit payments for the Benefit Period that he or she is
entitled to receive from the Company under this Plan, the Surviving
Spouse of the Qualified Director shall be entitled to receive the
Retirement Benefit payments under this Plan until the earlier of (a) the
receipt by the Qualified Director and his or her Surviving Spouse of
Retirement Benefit payments under this Plan for the Benefit Period that
the Director was entitled to receive; or (b) the Surviving Spouse's
death.
ARTICLE IV
4.1 Death Benefit Payable Prior to Termination as a Director.
Subject to the provisions of Article V, if a Director dies while serving
as a Director with the Company and at the time of death was a Qualified
Director, the Company shall pay to the Surviving Spouse of the Qualified
Director a Death Benefit as defined in Paragraph 2.7. The Death
Benefit, if any, payable under this Article is to be made in yearly
payments (on the date that Company pays the Annual Directors Fee) for a
period equal to the Benefit Period for which the Director was entitled
to receive benefit payments at the time of his or her death. The first
payment to be made under this Article shall be on the next date that the
Company pays its Annual Directors Fee following the death of the
Director. If the Qualified Director leaves no Surviving Spouse or the
Surviving Spouse dies prior to the receipt of the yearly Death Benefit
payments that he or she is entitled to receive, the Death Benefit shall
terminate and the Company shall have no further obligation under this
Plan.
ARTICLE V
5.1 Retirement Benefit or Death Benefit Payable if No
Surviving Spouse. In the event a Qualified Director dies leaving no
Surviving Spouse or, if at any time during the Benefit Period or during
the period for payment of the Death Benefit under Article IV the
Qualified Director's Surviving Spouse dies, the payments to the
Surviving Spouse shall terminate and the Company shall have no further
obligation under Articles III or IV.
5.2 No Payment to the Qualified Director's or Surviving
Spouse's Estate. In no event shall any payment under this Plan be
payable to the estate of any Qualified Director, the estate of any
Qualified Director's Surviving Spouse or to any heir of either of the
above.
5.3 No Payment Beyond Benefit Period. In no event shall the
Director or his or her Surviving Spouse be entitled to receive a
Retirement Benefit or a Death Benefit for more than the Benefit Period.
ARTICLE VI
6.1 Unsecured Obligation. The Company's obligation under
this Plan to the Qualified Director or his or her Surviving Spouse is
solely an unsecured promise of the Company and nothing herein shall be
construed to give the Qualified Director or his or her Surviving Spouse
any right, title, interest or claim in or to any specific asset, fund,
reserve, account or property of any kind whatsoever owned by the Company
or in which it may have any right, title, or interest now or in the
future. The Qualified Director or his or her Surviving Spouse shall
have only the right to enforce a claim against the Company in the same
manner as any unsecured creditor.
ARTICLE VII
7.1 Modifications. At any time this Plan may be terminated
or amended by action of the Board of Directors in its sole and absolute
discretion without notice, consent or approval of any Director. The
right of the Board of Directors to amend or terminate this Plan at any
time shall include the absolute discretion to make any amendments
prospective or retroactive in application, except that no such amendment
or termination shall terminate or reduce any benefit to a Qualified
Director or his or her Surviving Spouse after that Qualified Director or
his or her Surviving Spouse has received one (1) annual benefit payment
under this Plan.
7.2 Administration and Interpretation of this Plan.
Interpretation by the Board of Directors shall be final and binding upon
a Director. The Board of Directors in its sole and absolute discretion
shall have the right to determine whether a Director has acted in a
manner detrimental to the best interests of the Company. The Board of
Directors may adopt rules and regulations relating to this Plan as it
may deem necessary or advisable for the administration of this Plan,
including designating a committee to act on behalf of the full Board of
Directors.
7.3 Claims Procedure. If a Qualified Director or the
Qualified Director's Surviving Spouse (hereinafter referred to as a
"Claimant") is denied the Retirement Benefit or the Death Benefit under
this Plan for any reason including a determination that the Director has
acted in a manner detrimental to the best interests of the Company, he
or she may file a claim with the Board of Directors. The Board of
Directors shall notify the Claimant within sixty (60) days of allowance
or denial of the claim, unless the Claimant receives written notice from
the Board of Directors prior to the end of the sixty (60) day period
stating that special circumstances require an extension of the time for
decision. Notice of the Board of Directors' decision shall be in
writing sent by mail to Claimant's last known address, and, if a denial
of the claim, must contain the following information:
a. specific reasons for the denial;
b. specific reference to pertinent provisions of
this Plan on which the denial is based; and
c. if applicable, a description of any additional
information or material necessary to perfect the claim, an
explanation of why such information or material is necessary
and an explanation of the claims review procedure.
7.4 Review Procedure.
a. A Claimant is entitled to request a review of
any denial of his or her claim for the Retirement Benefit or
Death Benefit by the Board of Directors. The request for
review must be submitted in writing within sixty (60) days of
mailing of the notice of the denial. Absent a request for
review within the sixty (60) day period, the claim will be
deemed to be conclusively denied. The Claimant or his or her
representative shall be entitled to review all pertinent
documents, and to submit issues and comments orally and in
writing.
b. The review shall be conducted by the Board of
Directors, which shall afford the Claimant a hearing and the
opportunity to review all pertinent documents and submit
issues and comments orally and in writing. The Board of
Directors shall render a decision within ninety (90) days
after receipt of a request for a review, provided that, in
special circumstances (such as the necessity of holding a
hearing) the Board of Directors may extend the time for
decision by not more than sixty (60) days upon written notice
to the Claimant. The Claimant shall receive written notice of
the Board of Directors' review decision, together with
specific reasons for the decision and references to the
pertinent provisions of this Plan.
ARTICLE VIII
8.1 Assignability of Benefits. Neither a Qualified
Director, nor his or her Surviving Spouse, shall have the power to
transfer, assign, anticipate, mortgage or otherwise encumber any right
to receive Retirement Benefits or Death Benefits in advance of such
payment and any attempted transfer, assignment, anticipation, mortgage
or encumbrance shall be void. No payment shall be subject to seizure
for payment of public or private debts, judgments, alimony or separate
maintenance, or be transferred by operation of law in the event of
bankruptcy, insolvency or otherwise.
ARTICLE IX
9.1 Covenant Not to Compete. Payments pursuant to this Plan
also serve as consideration for the following covenant not to compete.
Notwithstanding anything in this Plan to the contrary, it is expressly
agreed that the Retirement Benefit or the Death Benefit payment under
this Plan shall terminate as to the Qualified Director and his or her
Surviving Spouse and the Company shall have no further obligation under
this Plan upon the violation of the provisions of Paragraph 9.2 by the
Qualified Director.
9.2 If the Qualified Director, during the period set forth
herein and within the service area in which the Company or any
affiliated companies provide utility services or, in the case of any non-
utility business, within the geographic area served by such business,
accepts employment or engages in any business as an employee, officer,
consultant, director or becomes a partner or shareholder (except that
the Qualified Director and his or her Surviving Spouse may hold up to a
five percent (5%) interest in any company that is traded on the New York
Stock Exchange, American Stock Exchange or other national over-the-
counter exchange) in any company that is in competition with the
business of the Company or any of its affiliated companies, and the
Qualified Director fails to terminate such position within thirty (30)
days after notice from the Board of Directors to the Qualified Director
of the violation of this covenant not to compete, the Qualified Director
and the Qualified Director's Surviving Spouse shall forfeit all rights
to future payments under this Plan, and the Company shall have no
further obligation under this Plan. Any violation of the provisions set
forth above during the period the Qualified Director is receiving any
payments under this Plan beginning with the date of the receipt of the
first payment under this Plan shall constitute a violation of this
Article and result in the termination of all future payments under this
Plan. The determination of the Board of Directors as to whether a
business is in competition with the Company and whether the Competition
is occurring in the geographic area designated above shall be
controlling for purposes of this Plan.
ARTICLE X
10.1 Applicable Law. This Plan shall be governed by and
construed in accordance with the laws of the State of Iowa and venue for
any action brought under this Agreement shall be in Linn County, Iowa.
10.2 Tax Withholding. The Company shall withhold all
applicable taxes required on all payments under this Plan.
ARTICLE XI
11.1 Headings. The headings in this Plan are for convenience
only and shall not be used to interpret or construe its provisions.
<TABLE>
EXHIBIT 12
IES UTILITIES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year Ended December 31,
1992 1993 1994 1995 1996
(in thousands, except ratio of earnings to fixed charges)
<S> <C> <C> <C> <C> <C>
Net income $ 45,291 $ 67,970 $ 61,210 $ 59,278 $ 63,729
Federal and state
income taxes 20,723 37,963 37,966 41,095 43,092
Net income before
income taxes 66,014 105,933 99,176 100,373 106,821
Interest on long-term debt 35,689 34,926 37,942 36,375 37,048
Other interest 3,939 5,243 3,630 8,085 6,666
Estimated interest
component of rents 4,567 3,729 3,970 4,637 4,091
Fixed charges as defined 44,195 43,898 45,542 49,097 47,805
Earnings as defined $ 110,209 $ 149,831 $ 144,718 $ 149,470 $ 154,626
Ratio of earnings to fixed
charges (unaudited) 2.49 3.41 3.18 3.04 3.23
For the purposes of computation of these ratios (a) earnings have been
calculated by adding fixed charges and federal and state income taxes
to net income; (b) fixed charges consist of interest (including amortization
of debt expense, premium and discount) on long-term and other debt and the
estimated interest component of rents.
</TABLE>
EXHIBIT 21
IES INDUSTRIES INC.
SUBSIDIARIES OF THE REGISTRANT
The following are deemed to be significant subsidiaries of Industries --
Name of Subsidiary State of Incorporation
IES Utilities Inc. Iowa
IES Diversified Inc. Iowa
Exhibit 23(a)
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K into IES
Industries Inc.'s (the "Company") previously filed Form S-8 Registration
Statement (File No. 33-57088) for the Company's Employee Stock Purchase
Plan, Form S-8 Registration Statement (File No. 33-32468) for the
Company's Employee Savings Plan and Form S-3 Registration Statement
(File No. 33-56981) for the Company's Dividend Reinvestment and Stock
Purchase Plan.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 14, 1997
Exhibit 23(b)
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K into IES Utilities
Inc.'s previously filed Form S-3 Registration Statement (File No. 33-
62259).
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 14, 1997
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
Exhibit 27(a)
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1996 and the Consolidated Statement
of Income and the Consolidated Statement of Cash Flows for the twelve months
ended December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000789943
<NAME> IES INDUSTRIES INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,358,215
<OTHER-PROPERTY-AND-INVEST> 373,396
<TOTAL-CURRENT-ASSETS> 178,051
<TOTAL-DEFERRED-CHARGES> 14,771
<OTHER-ASSETS> 201,129
<TOTAL-ASSETS> 2,125,562
<COMMON> 407,635
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 219,246
<TOTAL-COMMON-STOCKHOLDERS-EQ> 626,881
0
18,320
<LONG-TERM-DEBT-NET> 701,100
<SHORT-TERM-NOTES> 25,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 110,000
<LONG-TERM-DEBT-CURRENT-PORT> 8,473
0
<CAPITAL-LEASE-OBLIGATIONS> 19,600
<LEASES-CURRENT> 15,125
<OTHER-ITEMS-CAPITAL-AND-LIAB> 601,063
<TOT-CAPITALIZATION-AND-LIAB> 2,125,562
<GROSS-OPERATING-REVENUE> 973,912
<INCOME-TAX-EXPENSE> 47,435<F1>
<OTHER-OPERATING-EXPENSES> 809,604
<TOTAL-OPERATING-EXPENSES> 809,604<F1>
<OPERATING-INCOME-LOSS> 164,308
<OTHER-INCOME-NET> (230)
<INCOME-BEFORE-INTEREST-EXPEN> 164,078
<TOTAL-INTEREST-EXPENSE> 54,822
<NET-INCOME> 60,907<F2>
914<F2>
<EARNINGS-AVAILABLE-FOR-COMM> 60,907
<COMMON-STOCK-DIVIDENDS> 62,738
<TOTAL-INTEREST-ON-BONDS> 38,709
<CASH-FLOW-OPERATIONS> 183,359
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 0
<FN>
<F1>Income tax expense is not included in Operating Expense in the Consolidated
Statements of Income for IES Industries Inc. (Industries).
<F2> Since the preferred dividends are for a subsidiary of Industries, they are
considered a fixed charge on Industries' Consolidated Statement of Income.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
Exhibit 27(b)
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1996 and the Consolidated Statement
of Income and the Consolidated Statement of Cash Flows for the twelve months
ended December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000052485
<NAME> IES UTILITIES INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,358,215
<OTHER-PROPERTY-AND-INVEST> 69,791
<TOTAL-CURRENT-ASSETS> 139,038
<TOTAL-DEFERRED-CHARGES> 10,437
<OTHER-ASSETS> 201,129
<TOTAL-ASSETS> 1,778,610
<COMMON> 33,427
<CAPITAL-SURPLUS-PAID-IN> 279,042
<RETAINED-EARNINGS> 231,337
<TOTAL-COMMON-STOCKHOLDERS-EQ> 543,806
0
18,320
<LONG-TERM-DEBT-NET> 517,334
<SHORT-TERM-NOTES> 25,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 110,000
<LONG-TERM-DEBT-CURRENT-PORT> 8,140
0
<CAPITAL-LEASE-OBLIGATIONS> 19,600
<LEASES-CURRENT> 15,125
<OTHER-ITEMS-CAPITAL-AND-LIAB> 521,285
<TOT-CAPITALIZATION-AND-LIAB> 1,778,610
<GROSS-OPERATING-REVENUE> 754,979
<INCOME-TAX-EXPENSE> 43,092<F1>
<OTHER-OPERATING-EXPENSES> 601,254
<TOTAL-OPERATING-EXPENSES> 601,254<F1>
<OPERATING-INCOME-LOSS> 153,725
<OTHER-INCOME-NET> (3,190)
<INCOME-BEFORE-INTEREST-EXPEN> 150,535
<TOTAL-INTEREST-EXPENSE> 43,714
<NET-INCOME> 63,729
914
<EARNINGS-AVAILABLE-FOR-COMM> 62,815
<COMMON-STOCK-DIVIDENDS> 44,000
<TOTAL-INTEREST-ON-BONDS> 38,709
<CASH-FLOW-OPERATIONS> 165,506
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Income tax expense is not included in Operating Expense in the Consolidated
Statements of Income for IES Utilities Inc.
</FN>
</TABLE>
