UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Name of Registrant, State of
Commission Incorporation, Address of Principal IRS Employer
File Number Executive Offices and Telephone Number Identification Number
- ----------- -------------------------------------- ---------------------
1-9894 INTERSTATE ENERGY CORPORATION 39-1380265
(a Wisconsin corporation)
222 West Washington Avenue
Madison, Wisconsin 53703
Telephone (608)252-3311
0-4117-1 IES UTILITIES INC. 42-0331370
(an Iowa corporation)
Alliant Tower
Cedar Rapids, Iowa 52401
Telephone (319)398-4411
0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890
(a Wisconsin corporation)
222 West Washington Avenue
Madison, Wisconsin 53703
Telephone (608)252-3311
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 _____
This combined Form 10-Q is separately filed by Interstate Energy Corporation,
IES Utilities Inc. and Wisconsin Power and Light Company. Information contained
herein relating to any individual registrant is filed by such registrant on its
own behalf. Each registrant makes no representation as to information relating
to the other registrants.
Number of shares outstanding of each class of common stock as of April 30, 1999:
Interstate Energy Corporation Common stock, $.01 par value, 78,116,598
shares outstanding
IES Utilities Inc. Common stock, $2.50 par value, 13,370,788
shares outstanding (all of which are owned
beneficially and of record by Interstate
Energy Corporation)
Wisconsin Power and Light Company Common stock, $5 par value, 13,236,601
shares outstanding (all of which are owned
beneficially and of record by Interstate
Energy Corporation)
<PAGE>
CONTENTS
Page
----
Part I. Financial Information
Item 1. Consolidated Financial Statements
Interstate Energy Corporation:
Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and 1998 4
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999
and 1998 7
Notes to Consolidated Financial Statements 8
IES Utilities Inc.:
Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and 1998 10
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 11
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 1998 13
Notes to Consolidated Financial Statements 14
Wisconsin Power and Light Company:
Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and 1998 15
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 16
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 1998 18
Notes to Consolidated Financial Statements 19
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 33
Part II. Other Information 33
Item 1. Legal Proceedings 33
Item 6. Exhibits and Reports on Form 8-K 33
Signatures 35
2
<PAGE>
DEFINITIONS
Certain abbreviations or acronyms used in the text and notes of this combined
Form 10-Q are defined below:
Abbreviation or Acronym Definition
- ----------------------- ----------
Cargill Cargill Incorporated
CEMS Continuous Emission Monitoring System
Corporate Services Alliant Energy Corporate Services, Inc.
Dth Dekatherm
EAC Energy Adjustment Clause
EPA United States Environmental Protection Agency
IEC Interstate Energy Corporation
IESU IES Utilities Inc.
IPC Interstate Power Company
IUB Iowa Utilities Board
Kewaunee Kewaunee Nuclear Power Plant
MAEC MidAmerican Energy Company
McLeod McLeodUSA Inc.
MD&A Management's Discussion and Analysis of Financial
Condition and Results of Operations
MW Megawatt
MWH Megawatt-Hour
NOx Nitrogen Oxides
OCA Office of Consumer Advocate
PGA Purchased Gas Adjustment
Polsky Polsky Energy Corporation
PSCW Public Service Commission of Wisconsin
PUHCA Public Utility Holding Company Act of 1935
Resources Alliant Energy Resources, Inc.
SEC Securities and Exchange Commission
SIP State Implementation Plan
Whiting Whiting Petroleum Corporation
WP&L Wisconsin Power and Light Company
WPSC Wisconsin Public Service Corporation
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
INTERSTATE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months Ended March 31
1999 1998
- --------------------------------------------------------------------------------
(in thousands, except per share amounts
Operating revenues:
Electric utility $ 351,338 $ 357,751
Gas utility 133,684 130,046
Nonregulated and other 61,833 68,486
--------- ---------
546,855 556,283
--------- ---------
- --------------------------------------------------------------------------------
Operating expenses:
Electric and steam production fuels 65,404 69,556
Purchased power 52,065 56,147
Cost of utility gas sold 81,343 77,280
Other operation 130,365 157,352
Maintenance 23,812 25,259
Depreciation and amortization 73,640 69,832
Taxes other than income taxes 27,239 26,977
--------- ---------
453,868 482,403
--------- ---------
- --------------------------------------------------------------------------------
Operating income 92,987 73,880
--------- ---------
- --------------------------------------------------------------------------------
Interest expense and other:
Interest expense 33,400 30,924
Allowance for funds used during
construction (1,934) (1,503)
Preferred dividend requirements
of subsidiaries 1,676 1,674
Miscellaneous, net (6,771) (3,877)
--------- ---------
26,371 27,218
--------- ---------
- --------------------------------------------------------------------------------
Income before income taxes 66,616 46,662
--------- ---------
- --------------------------------------------------------------------------------
Income taxes 24,872 17,787
--------- ---------
- --------------------------------------------------------------------------------
Net income $ 41,744 $ 28,875
========= =========
- --------------------------------------------------------------------------------
Average number of common shares
outstanding 77,780 76,579
========= =========
- --------------------------------------------------------------------------------
Earnings per average common share
(basic and diluted) $ 0.54 $ 0.38
========= =========
- --------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
<PAGE>
INTERSTATE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31,
1999 December 31,
ASSETS (Unaudited) 1998
- --------------------------------------------------------------------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $ 4,884,916 $ 4,866,152
Gas 517,775 515,074
Other 409,844 409,711
------------ -----------------
5,812,535 5,790,937
Less - Accumulated depreciation 2,917,085 2,852,605
------------ -----------------
2,895,450 2,938,332
Construction work in progress 133,054 119,032
Nuclear fuel, net of amortization 40,709 44,316
------------ -----------------
3,069,213 3,101,680
Other property, plant and equipment,
net of accumulated depreciation and
amortization of $189,289 and
$178,248, respectively 354,075 355,100
------------ -----------------
3,423,288 3,456,780
------------ -----------------
- ------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments 54,183 31,827
Accounts receivable:
Customer, less allowance for doubtfu
accounts of $2,594 and $2,518,
respectively 96,973 102,966
Other, less allowance for doubtful
accounts of $499 and $490, respectively 22,273 26,054
Notes receivable, less allowance for
doubtful accounts of $117 and $120,
respectively 9,433 13,392
Production fuel, at average cost 44,397 54,140
Materials and supplies, at average cost 55,025 53,490
Gas stored underground, at average cost 12,489 26,013
Regulatory assets 26,628 30,796
Prepaid gross receipts tax 16,882 22,222
Other 24,316 30,767
------------ -----------------
362,599 391,667
------------ -----------------
- ------------------------------------------------------------------------------
Investments:
Investment in McLeodUSA Inc. 431,255 320,280
Nuclear decommissioning trust funds 245,024 225,803
Investment in foreign entities 119,124 68,882
Other 52,619 54,776
------------ -----------------
848,022 669,741
------------ -----------------
- ------------------------------------------------------------------------------
Other assets:
Regulatory assets 278,147 284,467
Deferred charges and other 159,066 156,682
------------ -----------------
437,213 441,149
------------ -----------------
- ------------------------------------------------------------------------------
Total assets $ 5,071,122 $ 4,959,337
============ =================
- ------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
<PAGE>
INTERSTATE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
March 31,
1999 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1998
- ------------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
<S> <C> <C>
Capitalization:
Common stock - $.01 par value - authorized 200,000,000 shares;
outstanding 77,935,693 and 77,630,043 shares, respectively $ 779 $ 776
Additional paid-in capital 913,728 905,130
Retained earnings 540,282 537,372
Accumulated other comprehensive income 237,434 163,017
----------------- -----------------
Total common equity 1,692,223 1,606,295
----------------- -----------------
Cumulative preferred stock of subsidiaries:
Par/Stated Authorized Shares Mandatory
Value Shares Outstanding Series Redemption
----- ------ ----------- ------ ----------
$ 100 * 449,765 4.40% - 6.20% No 44,977 44,977
$ 25 * 599,460 6.50% No 14,986 14,986
$ 50 466,406 366,406 4.30% - 6.10% No 18,320 18,320
$ 50 ** 216,381 4.36% - 7.76% No 10,819 10,819
$ 50 ** 545,000 6.40% Yes *** 27,250 27,250
----------------- -----------------
116,352 116,352
Less: unamortized expenses (2,819) (2,854)
----------------- -----------------
Total cumulative preferred stock of subsidiaries 113,533 113,498
----------------- -----------------
Long-term debt (excluding current portion) 1,545,251 1,543,131
----------------- -----------------
3,351,007 3,262,924
----------------- -----------------
* 3,750,000 authorized shares in total between the two classes
** 2,000,000 authorized shares in total between the two classes
*** $53.20 mandatory redemption price
- ------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities and sinking funds 54,084 63,414
Variable rate demand bonds 56,975 56,975
Commercial paper 64,000 64,500
Notes payable 50,027 51,784
Capital lease obligations 12,146 11,978
Accounts payable 163,589 204,297
Accrued taxes 106,845 84,921
Other 113,414 111,685
----------------- -----------------
621,080 649,554
----------------- -----------------
- ------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 738,168 691,624
Accumulated deferred investment tax credits 75,949 77,313
Environmental liabilities 68,192 68,399
Customer advances 35,964 37,171
Capital lease obligations 11,499 13,755
Other 169,263 158,597
----------------- -----------------
1,099,035 1,046,859
----------------- -----------------
- ------------------------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $ 5,071,122 $ 4,959,337
================= =================
- ------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>
6
<PAGE>
INTERSTATE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1999 1998
- -----------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 41,744 $ 28,875
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 73,640 69,832
Amortization of nuclear fuel 5,024 5,437
Amortization of deferred energy efficiency expenditures 7,930 8,240
Deferred taxes and investment tax credits (1,799) (13,424)
Refueling outage provision 2,415 1,299
Impairment of oil and gas properties - 6,746
Other (2,070) 1,197
Other changes in assets and liabilities:
Accounts receivable 9,774 20,221
Notes receivable 3,959 2,091
Production fuel 9,743 7,289
Materials and supplies (1,535) (1,543)
Gas stored underground 13,524 21,544
Prepaid gross receipts tax 5,340 4,912
Accounts payable (40,708) (23,964)
Accrued taxes 21,924 29,699
Adjustment clause balances 9,168 14,220
Benefit obligations and other 12,079 (398)
----------------- -----------------
Net cash flows from operating activities 170,152 182,273
----------------- -----------------
- -----------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
Common stock dividends declared (38,834) (36,580)
Proceeds from issuance of common stock 8,538 2,828
Net change in Alliant Energy Resources, Inc. credit facility 42,995 29,562
Proceeds from issuance of other long-term debt 11,994 41
Reductions in other long-term debt (62,310) (1,013)
Net change in short-term borrowings (2,257) (67,676)
Principal payments under capital lease obligations (3,369) (4,106)
Other 113 (423)
----------------- -----------------
Net cash flows used for financing activities (43,130) (77,367)
----------------- -----------------
- -----------------------------------------------------------------------------------------------------
Cashflows used for investing activities:
Construction and acquisition expenditures:
Utility (41,638) (39,160)
Nonregulated businesses (49,198) (22,554)
Nuclear decommissioning trust funds (15,437) (13,642)
Shared savings expenditures (4,247) (1,808)
Other 5,854 7,032
----------------- -----------------
Net cash flows used for investing activities (104,666) (70,132)
----------------- -----------------
- -----------------------------------------------------------------------------------------------------
Net increase in cash and temporary cash investments 22,356 34,774
----------------- -----------------
- -----------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period 31,827 27,329
----------------- -----------------
- -----------------------------------------------------------------------------------------------------
----------------- -----------------
Cash and temporary cash investments at end of period $ 54,183 $ 62,103
================= =================
- -----------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 31,952 $ 32,237
================= =================
Income taxes $ 4,600 $ 11,892
================= =================
Noncash investing and financing activities:
Capital lease obligations incurred $ 1,414 $ 1,039
================= =================
- -----------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>
7
<PAGE>
INTERSTATE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The interim consolidated financial statements included herein have been
prepared by IEC, without audit, pursuant to the rules and regulations of
the SEC. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
although management believes that the disclosures are adequate to make
the information presented not misleading. The consolidated financial
statements include IEC and its consolidated subsidiaries (WP&L, IESU,
IPC, Resources and Corporate Services). These financial statements should
be read in conjunction with the financial statements and the notes
thereto included in IEC's, IESU's and WP&L's latest Annual Report on Form
10-K.
In the opinion of management, all adjustments, which are normal and
recurring in nature, necessary for a fair presentation of (a) the
consolidated results of operations for the three months ended March 31,
1999 and 1998, (b) the consolidated financial position at March 31, 1999
and December 31, 1998, and (c) the consolidated statement of cash flows
for the three months ended March 31, 1999 and 1998, have been made.
Because of the seasonal nature of IESU's, WP&L's and IPC's operations,
results for the three months ended March 31, 1999 are not necessarily
indicative of results that may be expected for the year ending December
31, 1999. Certain prior period amounts have been reclassified on a basis
consistent with the 1999 presentation.
2. IEC's comprehensive income, and the components of other comprehensive
income (loss), net of taxes, were as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
-------------- ---------------
<S> <C> <C>
Net income $ 41,744 $ 28,875
Other comprehensive income (loss):
Unrealized gain on securities, net of tax (1)
75,031 61,829
Foreign currency translation adjustments
(614) 55
-------------- ---------------
Other comprehensive income 74,417
61,884
-------------- ---------------
Comprehensive income $ 116,161 $ 90,759
============== ===============
(1) Primarily due to the adjustment to the estimated fair value each quarter
of IEC's investment in McLeod.
</TABLE>
IESU and WP&L had no comprehensive income in the periods presented.
8
<PAGE>
3. Certain financial information relating to IEC's significant business
segments is presented below:
<TABLE>
<CAPTION>
Regulated Domestic Utilities Nonregulated IEC
-------------------------------------------
Electric Gas Other Total Businesses Other Consolidated
------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Three Months Ended
March 31, 1999
--------------
Operating revenues $351,338 $133,684 $9,204 $494,226 $53,199 ($570) $546,855
Operating income (loss) 68,615 23,939 2,354 94,908 (1,836) (85) 92,987
Net income (loss) 44,767 (1,906) (1,117) 41,744
Three Months Ended
March 31, 1998
--------------
Operating revenues $357,751 $130,046 $8,409 $496,206 $60,322 ($245) $556,283
Operating income (loss) 55,837 22,376 1,831 80,044 (5,499) (665) 73,880
Net income (loss) 33,177 (3,999) (303) 28,875
</TABLE>
Resources' (i.e. the nonregulated businesses) assets increased $150
million during the first quarter of 1999, primarily due to the increase
in market value of its investment in McLeod and additional investments in
foreign entities. Intersegment revenues were not material to IEC's
operations and there was no single customer whose revenues exceeded 10%
or more of IEC's consolidated revenues.
4. The provisions for income taxes are based on the estimated annual
effective tax rate, which differs from the federal statutory rate of 35%
principally due to: state income taxes, tax credits, effects of utility
rate making and certain nondeductible expenses.
5. At March 31, 1999, IEC had $119.1 million of investments in foreign
entities on its Consolidated Balance Sheets that included: (a)
investments in several New Zealand utility entities; (b) investments in
several generation facilities in China; and (c) an investment in an
international venture capital fund. IEC accounts for the China
investments under the equity method and the other investments under the
cost method. The geographic concentration of IEC's investments in foreign
entities at March 31, 1999, included investments of approximately $85.7
million in New Zealand, $32.9 million in China and $0.5 million in other
countries.
6. In October 1998, the Board of Directors of IEC adopted a new Shareowner
Rights Plan (new plan) to replace IEC's former plan that expired on
February 22, 1999. The new plan was approved on January 15, 1999 by the
SEC. On January 20, 1999, the Board of Directors declared a dividend of
one common share purchase right (right) on each outstanding share of
IEC's common stock which was issued on February 22, 1999 to coincide with
the expiration of the former plan. Rights under the new plan will be
exercisable only if a person or group acquires, or announces a tender
offer to acquire, 15% or more of IEC's common stock. Each right will
initially entitle shareowners to buy one-half of one share of IEC's
common stock. The rights will only be exercisable in multiples of two at
an initial price of $95.00 per full share, subject to adjustment. If any
shareowner acquires 15% or more of the outstanding common stock of IEC,
each right (subject to limitations) will entitle its holder to purchase,
at the right's then current exercise price, a number of common shares of
IEC or of the acquirer having a market value at the time of twice the
right's per full share exercise price. The Board of Directors is also
authorized to reduce the 15% thresholds to not less than 10%.
9
<PAGE>
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months Ended March 31,
1999 1998
- -------------------------------------------------------------------------------
(in thousands)
Operating revenues:
Electric utility $ 140,017 $ 140,649
Gas utility 61,296 60,395
Steam and other 7,952 7,234
--------- ---------
209,265 208,278
--------- ---------
- -----------------------------------------------------------------------------
Operating expenses:
Electric and steam production fuels 26,589 30,649
Purchased power 13,150 11,049
Cost of gas sold 37,912 37,657
Other operation 47,439 47,002
Maintenance 9,904 10,991
Depreciation and amortization 25,482 24,335
Taxes other than income taxes 12,616 12,306
--------- ---------
173,092 173,989
--------- ---------
- -----------------------------------------------------------------------------
Operating income 36,173 34,289
--------- ---------
- -----------------------------------------------------------------------------
Interest expense and other:
Interest expense 13,204 13,075
Allowance for funds used during
construction (849) (765)
Miscellaneous, net (857) 279
--------- ---------
11,498 12,589
--------- ---------
- -----------------------------------------------------------------------------
Income before income taxes 24,675 21,700
--------- ---------
- -----------------------------------------------------------------------------
Income taxes 10,216 10,040
--------- ---------
- -----------------------------------------------------------------------------
Net income 14,459 11,660
--------- ---------
- -----------------------------------------------------------------------------
Preferred dividend requirements 229 229
--------- ---------
- -----------------------------------------------------------------------------
Earnings available for common stock $ 14,230 $ 11,431
========= =========
- -----------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
10
<PAGE>
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS
March 31,
1999 December 31,
ASSETS (Unaudited) 1998
- --------------------------------------------------------------------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $ 2,148,059 $ 2,140,322
Gas 199,209 198,488
Steam 55,794 55,797
Common 106,732 106,940
------------- ---------------
2,509,794 2,501,547
Less - Accumulated depreciation 1,237,623 1,209,204
------------- ---------------
1,272,171 1,292,343
Construction work in progress 57,141 48,991
Leased nuclear fuel, net of
amortization 23,559 25,644
------------- ---------------
1,352,871 1,366,978
Other property, plant and equipment,
net of accumulated depreciation and
amortization of $1,984 and $1,948,
respectively 5,586 5,623
------------- ---------------
1,358,457 1,372,601
------------- ---------------
- ------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments 585 4,175
Temporary cash investments with
associated companies - 53,729
Accounts receivable:
Customer, less allowance for doubtful
accounts of $1,056 and $1,058,
respectively 17,543 16,703
Associated companies 2,466 2,662
Other, less allowance for doubtful
accounts of $363 and $357,
respectively 10,158 10,346
Production fuel, at average cost 13,306 11,863
Materials and supplies, at average cost 25,972 25,591
Gas stored underground, at average cost 5,887 12,284
Regulatory assets 19,324 23,487
Prepayments and other 3,879 4,185
------------- ---------------
99,120 165,025
------------- ---------------
- ------------------------------------------------------------------------------
Investments:
Nuclear decommissioning trust funds 95,398 91,691
Other 6,236 6,019
------------- ---------------
101,634 97,710
------------- ---------------
- ------------------------------------------------------------------------------
Other assets:
Regulatory assets 133,491 137,908
Deferred charges and other 15,201 15,734
------------- ---------------
148,692 153,642
------------- ---------------
- ------------------------------------------------------------------------------
Total assets $ 1,707,903 $ 1,788,978
============= ===============
- ------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
11
<PAGE>
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
March 31,
1999 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1998
- --------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
<S> <C> <C>
Capitalization:
Common stock - $2.50 par value - authorized 24,000,000
shares; 13,370,788 shares outstanding $ 33,427 $ 33,427
Additional paid-in capital 279,042 279,042
Retained earnings 245,626 275,372
------------------ -----------------
Total common equity 558,095 587,841
Cumulative preferred stock, not mandatorily redeemable -
$50 par value - authorized 466,406 shares; 366,406 shares outstanding 18,320 18,320
Long-term debt (excluding current portion) 551,086 602,020
------------------ -----------------
1,127,501 1,208,181
------------------ -----------------
- --------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities and sinking funds 51,140 50,140
Capital lease obligations 12,132 11,965
Notes payable to associated companies 9,694 -
Accounts payable 30,117 43,953
Accounts payable to associated companies 13,930 22,487
Accrued payroll and vacations 9,311 6,365
Accrued interest 10,082 12,045
Accrued taxes 64,480 55,295
Accumulated refueling outage provision 9,020 6,605
Environmental liabilities 5,660 5,660
Other 16,928 17,617
------------------ -----------------
232,494 232,132
------------------ -----------------
- --------------------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 224,893 224,510
Accumulated deferred investment tax credits 28,603 29,243
Environmental liabilities 29,027 29,195
Pension and other benefit obligations 27,283 25,655
Capital lease obligations 11,427 13,679
Other 26,675 26,383
------------------ -----------------
347,908 348,665
------------------ -----------------
- --------------------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $ 1,707,903 $ 1,788,978
================== =================
- --------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>
12
<PAGE>
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,459 $ 11,660
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 25,482 24,335
Amortization of leased nuclear fuel 3,499 4,010
Amortization of deferred energy efficiency expenditures 6,064 6,070
Deferred taxes and investment tax credits (473) (8,822)
Refueling outage provision 2,415 1,299
Other 146 319
Other changes in assets and liabilities:
Accounts receivable (456) 2,796
Production fuel (1,443) 197
Materials and supplies (381) (1,249)
Gas stored underground 6,397 10,509
Accounts payable (22,393) (12,292)
Accrued taxes 9,185 13,262
Adjustment clause balances 4,809 9,466
Benefit obligations and other 5,776 5,449
------------------ -----------------
Net cash flows from operating activities 53,086 67,009
------------------ -----------------
- -------------------------------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
Common stock dividends declared (43,976) (14,000)
Dividends payable (4,840) 14,000
Preferred stock dividends (229) (229)
Reductions in long-term debt (50,000) -
Net change in short-term borrowings 9,694 -
Principal payments under capital lease obligations (3,369) (4,106)
Other (3) -
------------------ ------------------
Net cash flows used for financing activities (92,723) (4,335)
------------------ ------------------
- -------------------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
Construction expenditures - utility (16,621) (19,198)
Nuclear decommissioning trust funds (1,502) (1,502)
Other 441 72
------------------ ------------------
Net cash flows used for investing activities (17,682) (20,628)
------------------ ------------------
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary cash investments (57,319) 42,046
------------------ ------------------
- -------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period 57,904 230
------------------ ------------------
- -------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $ 585 $ 42,276
================== ==================
- -------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information: Cash paid during the period for:
Interest $ 13,989 $ 12,378
================== ==================
Income taxes $ 7,334 $ 11,804
================== ==================
Noncash investing and financing activities - Capital lease obligations incurred $ 1,414 $ 1,039
================== ==================
- -------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>
13
<PAGE>
IES UTILITIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Except as modified below, the IEC Notes to Consolidated Financial
Statements are incorporated by reference insofar as they relate to IESU.
IEC Notes 5 and 6 do not relate to IESU and, therefore, are not
incorporated by reference.
1. The interim consolidated financial statements included herein have been
prepared by IESU, without audit, pursuant to the rules and regulations of
the SEC. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
although management believes that the disclosures are adequate to make
the information presented not misleading. The consolidated financial
statements include IESU and its consolidated wholly-owned subsidiary, IES
Ventures Inc. IESU is a subsidiary of IEC. These financial statements
should be read in conjunction with the financial statements and the notes
thereto included in IESU's latest Annual Report on Form 10-K.
In the opinion of management, all adjustments, which are normal and
recurring in nature, necessary for a fair presentation of (a) the
consolidated results of operations for the three months ended March 31,
1999 and 1998, (b) the consolidated financial position at March 31, 1999
and December 31, 1998, and (c) the consolidated statement of cash flows
for the three months ended March 31, 1999 and 1998, have been made.
Because of the seasonal nature of IESU's operations, results for the
three months ended March 31, 1999 are not necessarily indicative of
results that may be expected for the year ending December 31, 1999.
Certain prior period amounts have been reclassified on a basis consistent
with the 1999 presentation.
14
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months Ended March 31,
1999 1998
- ------------------------------------------------------------------------------
(in thousands)
Operating revenues:
Electric utility $ 149,944 $ 151,310
Gas utility 51,794 50,318
Water 1,252 1,175
---------- -----------
202,990 202,803
---------- -----------
- ------------------------------------------------------------------------------
Operating expenses:
Electric production fuels 27,366 28,897
Purchased power 24,000 28,602
Cost of gas sold 31,181 30,714
Other operation 26,108 34,003
Maintenance 9,103 9,967
Depreciation and amortization 31,139 29,258
Taxes other than income taxes 7,702 7,711
---------- -----------
156,599 169,152
---------- -----------
- ------------------------------------------------------------------------------
Operating income 46,391 33,651
---------- -----------
- ------------------------------------------------------------------------------
Interest expense and other:
Interest expense 9,865 8,383
Allowance for funds used during
construction (923) (656)
Miscellaneous, net (4,344) (1,867)
---------- -----------
4,598 5,860
---------- -----------
- ------------------------------------------------------------------------------
Income before income taxes 41,793 27,791
---------- -----------
- ------------------------------------------------------------------------------
Income taxes 15,505 10,193
---------- -----------
- ------------------------------------------------------------------------------
Net income 26,288 17,598
---------- -----------
- ------------------------------------------------------------------------------
Preferred dividend requirements 828 828
---------- -----------
- ------------------------------------------------------------------------------
Earnings available for common stock $ 25,460 $ 16,770
========== ===========
- ------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
15
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
March 31,
1999 December 31,
ASSETS (Unaudited) 1998
- --------------------------------------------------------------------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $ 1,847,950 $ 1,839,545
Gas 246,188 244,518
Water 26,584 26,567
Common 219,715 219,268
-------------- -----------------
2,340,437 2,329,898
Less - Accumulated depreciation 1,199,761 1,168,830
-------------- -----------------
1,140,676 1,161,068
Construction work in progress 63,950 56,994
Nuclear fuel, net of amortization 17,151 18,671
-------------- -----------------
1,221,777 1,236,733
Other property, plant and equipment,
net of accumulated depreciation and
amortization of $44 for both years 630 630
-------------- -----------------
1,222,407 1,237,363
-------------- -----------------
- --------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments 9,496 1,811
Accounts receivable:
Customer 9,932 13,372
Associated companies 1,921 3,019
Other 7,307 8,298
Production fuel, at average cost 14,851 20,105
Materials and supplies, at average cost 21,117 20,025
Gas stored underground, at average cost 5,924 10,738
Regulatory assets 3,707 3,707
Prepaid gross receipts tax 16,882 22,222
Other 1,413 6,987
-------------- -----------------
92,550 110,284
-------------- -----------------
- --------------------------------------------------------------------------------
Investments:
Nuclear decommissioning trust funds 149,627 134,112
Other 15,476 15,960
-------------- -----------------
165,103 150,072
-------------- -----------------
- --------------------------------------------------------------------------------
Other assets:
Regulatory assets 74,788 76,284
Deferred charges and other 113,058 111,147
-------------- -----------------
187,846 187,431
-------------- -----------------
- --------------------------------------------------------------------------------
Total assets $ 1,667,906 $ 1,685,150
============== =================
- --------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
16
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
March 31,
1999 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1998
- ---------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
<S> <C> <C>
Capitalization:
Common stock - $5 par value - authorized 18,000,000
shares; 13,236,601 shares outstanding $ 66,183 $ 66,183
Additional paid-in capital 199,438 199,438
Retained earnings 305,181 294,309
----------------- -----------------
Total common equity 570,802 559,930
----------------- -----------------
Cumulative preferred stock, not mandatorily redeemable
without par value - authorized 3,750,000 shares, maximum
aggregate stated value $150,000,000:
$100 stated value - 449,765 shares outstanding 44,977 44,977
$25 stated value - 599,460 shares outstanding 14,986 14,986
----------------- -----------------
Total cumulative preferred stock 59,963 59,963
----------------- -----------------
Long-term debt (excluding current portion) 414,603 414,579
----------------- -----------------
1,045,368 1,034,472
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------
Current liabilities:
Variable rate demand bonds 56,975 56,975
Notes payable 50,000 50,000
Notes payable to associated companies 1,102 26,799
Accounts payable 70,884 84,754
Accounts payable to associated companies 16,468 20,315
Accrued payroll and vacations 5,052 5,276
Accrued interest 8,093 6,863
Accrued taxes 16,502 740
Other 10,197 13,860
----------------- -----------------
235,273 265,582
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 243,750 245,489
Accumulated deferred investment tax credits 32,705 33,170
Customer advances 33,253 34,367
Environmental liabilities 11,644 11,683
Other 65,913 60,387
----------------- -----------------
387,265 385,096
----------------- -----------------
- ---------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $ 1,667,906 $ 1,685,150
================= =================
- ---------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>
17
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 26,288 $ 17,598
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 31,139 29,258
Amortization of nuclear fuel 1,525 1,427
Deferred taxes and investment tax credits (1,578) (1,607)
Other (1,617) (457)
Other changes in assets and liabilities:
Accounts receivable 5,529 15,460
Production fuel 5,254 4,889
Materials and supplies (1,092) (32)
Gas stored underground 4,814 8,768
Prepaid gross receipts tax 5,340 4,912
Accounts payable (17,717) (3,302)
Accrued taxes 15,762 10,396
Adjustment clause balances 7,157 3,691
Benefit obligations and other 2,814 (361)
--------------------- ---------------------
Net cash flows from operating activities 83,618 90,640
--------------------- ---------------------
- ---------------------------------------------------------------------------------------------------------------
Cash flows used for financing activities:
Common stock dividends (14,588) (14,586)
Preferred stock dividends (828) (828)
Net change in short-term borrowings (25,697) (42,500)
--------------------- ---------------------
Net cash flows used for financing activities (41,113) (57,914)
--------------------- ---------------------
- ---------------------------------------------------------------------------------------------------------------
Cash flows used for investing activities:
Construction expenditures - utility (18,967) (15,584)
Nuclear decommissioning trust funds (13,935) (12,140)
Shared savings expenditures (2,519) (1,808)
Other 601 477
--------------------- ---------------------
Net cash flows used for investing activities (34,820) (29,055)
--------------------- ---------------------
- ---------------------------------------------------------------------------------------------------------------
Net increase in cash and temporary cash investments 7,685 3,671
--------------------- ---------------------
- ---------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of period 1,811 2,492
--------------------- ---------------------
- ---------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $ 9,496 $ 6,163
===================== =====================
- ---------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid (refunded) during the period for:
Interest $ 8,468 $ 8,150
===================== =====================
Income taxes $ (357) $ 1,668
===================== =====================
- ---------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>
18
<PAGE>
WISCONSIN POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Except as modified below, the IEC Notes to Consolidated Financial
Statements are incorporated by reference insofar as they relate to WP&L.
IEC Notes 5 and 6 do not relate to WP&L and, therefore, are not
incorporated by reference.
1. The interim consolidated financial statements included herein have been
prepared by WP&L, without audit, pursuant to the rules and regulations of
the SEC. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
although management believes that the disclosures are adequate to make
the information presented not misleading. The consolidated financial
statements include WP&L and its consolidated subsidiary. WP&L is a
subsidiary of IEC. These financial statements should be read in
conjunction with the financial statements and the notes thereto included
in WP&L's latest Annual Report on Form 10-K.
In the opinion of management, all adjustments, which are normal and
recurring in nature, necessary for a fair presentation of (a) the
consolidated results of operations for the three months ended March 31,
1999 and 1998, (b) the consolidated financial position at March 31, 1999
and December 31, 1998, and (c) the consolidated statement of cash flows
for the three months ended March 31, 1999 and 1998, have been made.
Because of the seasonal nature of WP&L's operations, results for the
three months ended March 31, 1999 are not necessarily indicative of
results that may be expected for the year ending December 31, 1999.
Certain prior period amounts have been reclassified on a basis consistent
with the 1999 presentation.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
IEC is currently doing business as Alliant Energy Corporation and is the result
of a three-way merger involving WP&L Holdings, Inc., IES Industries Inc. and
Interstate Power Company that was completed in April 1998. The first tier
subsidiaries of IEC include: WP&L, IESU, IPC, Resources and Corporate Services.
Among various other regulatory constraints, IEC is operating as a registered
public utility holding company subject to the limitations imposed by PUHCA.
This MD&A includes information relating to IEC, IESU and WP&L (as well as IPC,
Resources and Corporate Services). Where appropriate, information relating to a
specific entity has been segregated and labeled as such. The following
discussion and analysis should be read in conjunction with the Consolidated
Financial Statements and Notes to Consolidated Financial Statements included in
this report as well as the financial statements, notes and MD&A included in
IEC's, IESU's and WP&L's latest Annual Report on Form 10-K.
FORWARD-LOOKING STATEMENTS
Statements contained in this report (including MD&A) that are not of historical
fact are forward-looking statements intended to qualify for the safe harbors
from liability established by the Private Securities Litigation Reform Act of
1995. From time to time, IEC, IESU or WP&L may make other forward-looking
statements within the meaning of the federal securities laws that involve
judgments, assumptions and other uncertainties beyond the control of such
companies. 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 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 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 relevant service territory, federal and state regulatory or
government actions, unanticipated construction and acquisition expenditures,
issues related to stranded costs and the recovery thereof, the operations of
IEC's nuclear facilities, unanticipated issues or costs associated with
achieving Year 2000 compliance, the ability of IEC to successfully integrate its
operations and unanticipated costs associated therewith, unanticipated
difficulties in achieving expected synergies from the merger, unanticipated
costs associated with certain environmental remediation efforts being undertaken
by IEC, technological developments, employee workforce factors, including
changes in key executives, collective bargaining agreements or work stoppages,
political, legal and economic conditions in foreign countries IEC has
investments in and changes in the rate of inflation.
UTILITY INDUSTRY OUTLOOK
A summary of the current regulatory environment is included in the Form 10-K
filed by IEC, IESU and WP&L for the year ended December 31, 1998. Set forth
below are several developments relating to such regulatory environment.
The IUB has been reviewing all forms of competition in the electric utility
industry for several years. A group comprised of the IUB, IEC, MAEC, the rural
electric cooperatives, the municipal utilities and Iowans for Choice in
Electricity (a diverse group of industrial customers, marketers, such as Enron,
and a low income customer representative, among others) endorsed a bill to allow
for such competition that was introduced in the Iowa Legislature in March 1999.
The bill was opposed by the OCA, which is charged by Iowa law with
representation of all consumers generally. While the bill did not pass, it will
by operation of Iowa General Assembly rules remain alive in the General Assembly
upon adjournment of its 1999 regular session. By operation of House rules, it
will be
20
<PAGE>
rereferred to the House Commerce Committee and will again be inserted into the
legislative process in the Second Regular Session of the 78th General Assembly
(2000).
In November 1998, IEC and Northern States Power Co. (NSP) announced plans to
develop an independent transmission company to provide electric transmission
services to the Upper Midwest. The companies are evaluating modifications to the
original structure as a result of the recent merger announcement between NSP and
New Century Energies Inc.
Each of the utilities complies with the provisions of Statement of Financial
Accounting Standards (SFAS) 71, "Accounting for the Effects of Certain Types of
Regulation." SFAS 71 provides that rate-regulated public utilities record
certain costs and credits allowed in the rate making process in different
periods than for nonregulated entities. These are deferred as regulatory assets
or regulatory liabilities and are recognized in the consolidated statements of
income at the time they are reflected in rates. If a portion of the utility
subsidiaries' operations becomes no longer subject to the provisions of SFAS 71
as a result of competitive restructurings or otherwise, a write-down of related
regulatory assets and possibly other charges would be required, unless some form
of transition cost recovery is established by the appropriate regulatory body
that would meet the requirements under generally accepted accounting principles
for continued accounting as regulatory assets during such recovery period. In
addition, each utility subsidiary would be required to determine any impairment
of other assets and write-down any impaired assets to their fair value. The
utility subsidiaries believe they currently meet the requirements of SFAS 71.
IEC RESULTS OF OPERATIONS
Overview
IEC reported net income of $41.7 million, or $0.54 per share (basic and
diluted), for the first quarter of 1999 compared with net income of $28.9
million, or $0.38 per share (basic and diluted), for the first quarter of 1998.
The 44% increase in earnings resulted from higher electric margins, lower
utility operation and maintenance expenses, improved results from IEC's
nonregulated operations and income from a weather hedge. In addition, the 1998
results included approximately $10 million of non-recurring merger-related
expenses ($0.07 per share). Higher depreciation and interest expenses partially
offset the 1999 increase in earnings.
The 1999 first quarter utility earnings were approximately $44.8 million
compared with $33.2 million ($39.0 million excluding merger-related expenses)
for the same period in 1998. The increase in utility earnings resulted primarily
from a $5.3 million increase in electric margins (excluding energy efficiency
revenues), a $2.6 million decrease in operation and maintenance expenses
(excluding merger-related and energy efficiency expenses) and $2.5 million of
pre-tax income realized from a weather hedge. Increases of $3.7 million and $1.6
million in depreciation and interest expense, respectively, partially offset
these items.
The higher electric margins stemmed from separate $15 million annual rate
increases implemented at WP&L in July 1998 and early March 1999 to recover
higher purchased power and transmission costs and a 4% increase in sales to
retail customers.
The sales increase resulted from a combination of more normal weather conditions
in 1999 as well as continued economic growth within IEC's utility service
territory. While the weather conditions in the first quarter of 1999 were milder
than normal, they were more favorable to earnings than the same period of 1998.
Through the first quarter, the estimated benefit to earnings in 1999 was $0.03
per share compared to 1998. Decreased sales to off-system customers at WP&L
partially offset these items.
The lower operation and maintenance expenses resulted from decreases in
administrative and general expenses (including lower costs in 1999 due to
merger-related operating efficiencies). This was partially offset by increased
expenses for Year 2000 readiness efforts.
21
<PAGE>
IEC's nonregulated operations reported a net loss of $1.9 million in the first
quarter of 1999, compared with a net loss of $4.0 million for the same period in
1998. The change in earnings was largely due to improved operating results at
Whiting, IEC's Denver-based oil and gas subsidiary. The 1998 results also
included an asset impairment charge of $6.7 million at Whiting. However,
Whiting's average oil and gas prices were 25% and 16% lower, respectively, in
the first quarter of 1999 compared with the same period in 1998. As a result,
Whiting experienced a slight loss in the first quarter of 1999.
Electric Utility Operations
Electric margins and MWH sales for IEC for the three months ended March 31 were
as follows:
<TABLE>
<CAPTION>
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
------------------------------ ----------------------------
1999 1998 Change 1999 1998 Change
-------------- ------------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential $ 130,280 $ 127,069 3% 1,810 1,712 6%
Commercial 72,023 72,035 - 1,244 1,185 5%
Industrial 102,601 106,403 (4%) 3,076 2,999 3%
-------------- ------------- ------------- -------------
Total from ultimate customers 304,904 305,507 - 6,130 5,896 4%
Sales for resale 36,214 43,032 (16%) 1,345 1,670 (19%)
Other 10,220 9,212 11% 41 43 (5%)
-------------- ------------- ------------- -------------
Total 351,338 357,751 (2%) 7,516 7,609 (1%)
============= ============= =========
Electric production fuels 61,309 65,702 (7%)
Purchased power 52,065 56,147 (7%)
-------------- -------------
Margin $ 237,964 $ 235,902 1%
============== ============= =========
</TABLE>
Electric margin increased $2.1 million, or 1%, in the first quarter of 1999,
compared with the same period in 1998. The increase was primarily due to
separate $15 million annual rate increases implemented at WP&L in July 1998 and
early March 1999 to recover higher purchased power and transmission costs and a
4% increase in sales to retail customers. The sales increase resulted from a
combination of more favorable weather conditions in 1999 as well as continued
economic growth within IEC's retail utility service territory. Partially
offsetting the increase in electric margin were decreased sales to off-system
customers at WP&L and decreased recoveries of concurrent and previously deferred
expenditures for Iowa-mandated energy efficiency program costs. Electric
revenues included recoveries for energy efficiency program costs of $7.3 million
and $12.0 million for the first quarter of 1999 and 1998, respectively, which is
in accordance with IUB orders (a portion of these recoveries is also amortized
to expense in other operation expenses).
IESU's and IPC's electric tariffs include EAC's that are designed to currently
recover the costs of fuel and the energy portion of purchased power billings.
22
<PAGE>
Gas Utility Operations
Gas margins and Dth sales for IEC for the three months ended March 31 were as
follows:
<TABLE>
<CAPTION>
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential $ 82,439 $ 80,293 3% 8%
14,836 13,779
Commercial 39,159 39,198 - 8,559 8,112 6%
Industrial 6,767 7,129 (5%) 1,919 1,841 4%
Transportation and other 5,319 3,426 55% 14,609 14,790 (1%)
------------- ------------- ----------- ------------
Total 133,684 130,046 3% 39,923 38,522 4%
============ ============= =========
Cost of gas sold 81,343 77,280 5%
------------- -------------
Margin $ 52,341 $ 52,766 (1%)
============= ============= =========
</TABLE>
Gas margin decreased $0.4 million, or 1%, in the first quarter of 1999, compared
with the same period in 1998, primarily due to reduced revenues from the
recovery of concurrent and previously deferred expenditures for Iowa-mandated
energy efficiency program costs in accordance with IUB orders (a portion of
these recoveries is also amortized to expense in other operation expenses) and
gas cost adjustments at IPC. Partially offsetting the decrease was a 4% increase
in Dth sales, largely due to colder weather. Gas revenues included recoveries
for energy efficiency program costs in Iowa of $6.2 million and $7.1 million for
the first quarter of 1999 and 1998, respectively. Refer to "Interest Expense and
Other" for a discussion of income IEC realized from settlement of a weather
hedge in the first quarter of 1999.
IESU's and IPC's gas tariffs include PGA clauses that are designed to currently
recover the cost of utility gas sold.
Nonregulated and Other Revenues
Nonregulated and other revenues for the three months ended March 31 were as
follows (in thousands):
1999 1998
------------- -------------
Environmental and engineering services $16,174 $16,637
Oil and gas production 12,833 17,147
Nonregulated energy 10,175 13,445
Transportation, rents and other 10,065 9,676
Steam 8,262 7,445
Affordable housing 3,072 2,961
Water 1,252 1,175
------------- -------------
$61,833 $68,486
============= =============
Oil and gas production revenues declined $4.3 million in the first quarter of
1999, compared with the same period in 1998, primarily due to lower oil and gas
prices as well as reduced volumes sold at Whiting. Average oil and gas prices in
the first quarter of 1999 declined by 25% and 16%, respectively. In addition,
nonregulated energy revenues declined by $3.3 million primarily due to a shift
to higher margin, lower volume gas customers.
23
<PAGE>
Operating Expenses
Other operation expenses for the three months ended March 31 were as follows (in
thousands):
1999 1998
-------------- --------------
Utility-IESU / WP&L / IPC $ 87,829 $102,747
Nonregulated and other 42,536 54,605
-------------- --------------
$ 130,365 $157,352
============== ==============
Other operation expenses at the utility subsidiaries decreased $14.9 million in
the first quarter of 1999, compared with the same period in 1998, primarily due
to $9.7 million of merger-related expenses in the first quarter of 1998, lower
administrative and general expenses (including lower costs in 1999 due to
merger-related operating efficiencies) and lower energy efficiency expenses.
This was partially offset by increased expenses for Year 2000 readiness efforts.
Other operation expenses at the nonregulated businesses decreased $12.1 million
in the first quarter of 1999, compared with the first quarter in 1998, primarily
due to a $6.7 million asset impairment charge in the first quarter of 1998 at
Whiting and lower operation expenses in the gas marketing business.
Depreciation and amortization expense increased $3.8 million in the first
quarter of 1999 compared with the same period last year, primarily as a result
of utility property additions.
Interest Expense and Other
Interest expense increased $2.5 million in the first quarter of 1999, compared
with the first quarter in 1998, due to higher utility and nonregulated
borrowings outstanding during 1999.
Miscellaneous, net income increased $2.9 million in the first quarter of 1999,
compared with the same period last year, primarily due to $2.5 million of income
realized from settlement of a weather hedge at WP&L for the November 1, 1998, to
March 31, 1999, heating season.
Income Taxes
IEC's income tax expense increased $7.1 million in the first quarter of 1999,
compared with the same period last year, primarily due to higher pre-tax income.
The effective rate was 36.4% and 36.8% for the first quarter of 1999 and 1998,
respectively.
IESU RESULTS OF OPERATIONS
Overview
IESU's earnings available for common stock increased $2.8 million for the first
quarter of 1999, compared with the same period in 1998. The increased earnings
in 1999 were primarily due to the non-recurrence of $2 million of merger-related
expenses in the first quarter of 1998, higher electric margins and a lower
effective tax rate. Higher operation and maintenance expenses (excluding
merger-related expenses) and increased depreciation and amortization expense
partially offset these items.
24
<PAGE>
Electric Utility Operations
Electric margins and MWH sales for IESU for the three months ended March 31 were
as follows:
<TABLE>
<CAPTION>
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential $ 54,353 $ 54,569 - 693 663 5%
Commercial 38,548 37,611 2% 628 583 8%
Industrial 37,882 40,239 (6%) 1,182 1,163 2%
------------- ------------- ------------ -------------
Total from ultimate customers 130,783 132,419 (1%) 2,503 2,409 4%
Sales for resale 6,353 5,712 11% 341 189 80%
Other 2,881 2,518 14% 10 10 -
------------- ------------- ------------ -------------
Total 140,017 140,649 - 2,854 2,608 9%
============ ============= =========
Electric production fuels 22,494 26,795 (16%)
Purchased power 13,150 11,049 19%
------------- -------------
Margin $ 104,373 $ 102,805 2%
============= ============= =========
</TABLE>
Electric margin increased $1.6 million, or 2%, for the first quarter of 1999,
compared with the same period in 1998, primarily due to a 4% increase in sales
volumes to retail customers due to economic growth in the service territory and
colder weather. Increased purchased power capacity costs partially offset the
increase. Sales for resale increased significantly in the first quarter of 1999
as a result of the implementation of a merger-related joint sales agreement
during the second quarter of 1998. Off-system sales revenues are passed through
IESU's EAC and therefore have no impact on electric margin.
IESU's electric tariffs include EAC's that are designed to currently recover the
costs of fuel and the energy portion of purchased power billings.
Gas Utility Operations
Gas margins and Dth sales for IESU for the three months ended March 31 were as
follows:
<TABLE>
<CAPTION>
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential $ 39,161 $ 38,002 3% 6,855 6,624 3%
Commercial 17,970 17,992 - 3,889 3,876 -
Industrial 2,803 3,163 (11%) 873 914 (4%)
Transportation and other 1,362 1,238 10% 3,195 3,237 (1%)
------------- ------------- ------------ -------------
Total 61,296 60,395 1% 14,812 14,651 1%
============ ============= =========
Cost of gas sold 37,912 37,657 1%
------------- -------------
Margin $ 23,384 $ 22,738 3%
============= ============= =========
</TABLE>
Gas margin increased $0.6 million, or 3%, for the first quarter of 1999,
compared with the same period in 1998, primarily due to increased residential
sales resulting from colder weather.
IESU's gas tariffs include PGA clauses that are designed to currently recover
the cost of gas sold.
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<PAGE>
Operating Expenses
IESU's other operation expenses increased $0.4 million in the first quarter of
1999, compared with the same period in 1998, largely due to increased Year 2000
readiness efforts and higher employee pension and benefits costs. Merger-related
expenses of $1.8 million in the first quarter of 1998 and lower costs associated
with merger-related operating efficiencies realized in 1999 virtually offset
these items.
Interest Expense and Other
Miscellaneous, net income increased $1.1 million for the first quarter of 1999,
compared with the same period in 1998, primarily due to higher interest income,
lower sale of accounts receivable expenses and merger-related expenses incurred
in 1998.
Income Taxes
IESU's income tax expense increased $0.2 million for the first quarter of 1999,
compared with the same period in 1998, due to higher taxable income which was
largely offset by a decrease in the overall effective tax rate. The effective
income tax rates were 41.4% and 46.3% for the first quarter of 1999 and 1998,
respectively. The effective income tax rate was lower in 1999, primarily due to
a reduction in flow-through depreciation expense and nondeductible merger
expenses in 1998.
WP&L RESULTS OF OPERATIONS
Overview
WP&L's earnings available for common stock increased $8.7 million for the first
quarter of 1999, compared with the same period in 1998. In addition to a $3.2
million decrease in merger-related expenses, the improvement in earnings in the
first quarter of 1999 primarily reflects higher electric margins, lower
operation expenses and $2.5 million of pre-tax income realized from settlement
of a weather hedge. Partially offsetting these items were $1.9 million and $1.5
million increases in depreciation and amortization expense and interest expense,
respectively.
Electric Utility Operations
Electric margins and MWH sales for WP&L for the three months ended March 31 were
as follows:
<TABLE>
<CAPTION>
Revenues and Costs MWHs Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential $ 53,889 $ 49,755 8% 801 758 6%
Commercial 27,016 25,604 6% 465 459 1%
Industrial 39,599 37,069 7% 1,087 1,041 4%
------------- ------------- ------------ -------------
Total from ultimate customers 120,504 112,428 7% 2,353 2,258 4%
Sales for resale 24,929 35,626 (30%) 813 1,415 (43%)
Other 4,511 3,256 39% 15 17 (12%)
------------- ------------- ------------ -------------
Total 149,944 151,310 (1%) 3,181 3,690 (14%)
============ ============= =========
Electric production fuels 27,366 28,897 (5%)
Purchased power 24,000 28,602 (16%)
------------- -------------
Margin $ 98,578 $ 93,811 5%
============= ============= =========
</TABLE>
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<PAGE>
Electric margin increased $4.8 million, or 5%, during the first quarter of 1999,
compared with the same period in 1998, primarily due to separate $15 million
annual rate increases implemented in July 1998 and early March 1999 to recover
higher purchased power and transmission costs. Sales to retail customers
increased 4% due to economic strength in the service territory and colder
weather compared with the same period in 1998. Lower income from off-system
sales, due to increased transmission constraints and implementation of the
merger-related joint sales agreement, partially offset these items. Under the
joint sales agreement, the margins resulting from IEC's off-system sales are
allocated among IESU, IPC and WP&L.
Gas Utility Operations
Gas margins and Dth sales for WP&L for the three months ended March 31 were as
follows:
<TABLE>
<CAPTION>
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
--------------------------- ---------------------------
1999 1998 Change 1999 1998 Change
------------- ------------- --------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential $ 31,260 $ 31,010 1% 5,857 5,227 12%
Commercial 15,100 15,237 (1%) 3,493 3,121 12%
Industrial 2,504 2,675 (6%) 659 602 9%
Transportation and other 2,930 1,396 110% 4,043 3,829 6%
------------- ------------- ------------ -------------
Total 51,794 50,318 3% 14,052 12,779 10%
============ ============= =========
Cost of gas sold 31,181 30,714 2%
------------- -------------
Margin $ 20,613 $ 19,604 5%
============= ============= =========
</TABLE>
Gas margin increased $1.0 million, or 5%, for the first quarter of 1999,
compared with the same period in 1998, primarily due to an increase in Dth sales
resulting from colder weather and customer growth. Refer to "Interest Expense
and Other" for a discussion of income WP&L realized from a weather hedge in the
first quarter of 1999.
Operating Expenses
Other operation expense decreased $7.9 million in the first quarter of 1999,
compared to the same period in 1998, primarily due to $3.2 million of
merger-related expenses in the first quarter of 1998 and reduced administrative
and general expenses in 1999, including lower costs due to merger-related
operating efficiencies.
Depreciation and amortization expense increased $1.9 million in the first
quarter of 1999, compared with the same period in 1998, primarily due to
property additions.
Interest Expense and Other
Interest expense increased $1.5 million in the first quarter of 1999, compared
with the same period in 1998, primarily due to higher borrowings outstanding in
1999.
The increase in miscellaneous, net income in the first quarter of 1999, compared
with the same period in 1998, was due to $2.5 million of pre-tax income realized
from settlement of a weather hedge for the November 1, 1998, to March 31, 1999,
heating season.
Income Taxes
Income taxes increased $5.3 million in the first quarter of 1999, compared with
the same period in 1998, due to higher pre-tax income. The effective rate for
the first quarter of 1999 was 37.1% compared with 36.7% for the same period in
1998.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities at IEC decreased $12 million for the three
months ended March 31, 1999, compared with the same period in 1998, primarily
due to changes in working capital, which were partially offset by changes in net
income, and deferred taxes and investment tax credits. Cash flows used for
financing activities decreased $34 million for the three months ended March 31,
1999, compared with the same period in 1998, primarily as a result of the net
changes in the amount of debt outstanding. Cash flows used for investing
activities increased $35 million for the three months ended March 31, 1999,
compared with the same period in 1998, primarily due to changes in the levels of
construction and acquisition expenditures.
Cash flows generated from operating activities at IESU decreased $14 million for
the three months ended March 31, 1999, compared with the same period in 1998,
primarily due to changes in working capital, which were partially offset by the
change in deferred taxes and investment tax credits. Cash flows used for
financing activities increased $88 million for the three months ended March 31,
1999, compared with the same period in 1998, due to a reduction in the amount of
debt outstanding in 1999 and increased common stock dividends as no dividend
payments were made in the last three quarters of 1998 due to merger-related tax
considerations. As a result, the dividend payment in the first quarter of 1999
was larger than IESU's historical quarterly payment. Cash flows used for
investing activities decreased $3 million for the three months ended March 31,
1999, compared with the same period in 1998, primarily due to changes in the
levels of construction expenditures.
Cash flows generated from operating activities at WP&L decreased $7 million for
the three months ended March 31, 1999, compared with the same period in 1998,
primarily due to changes in working capital, which were partially offset by
higher net income. Cash flows used for financing activities decreased $17
million for the three months ended March 31, 1999, compared with the same period
in 1998, primarily due to changes in the amount of short-term borrowings. Cash
flows used for investing activities increased $6 million for the three months
ended March 31, 1999, compared with the same period in 1998, primarily due to
increased construction expenditures.
Future Considerations
At March 31, 1999, IEC had an investment in the stock of McLeod, a
telecommunications company, valued at $431.3 million (based on a March 31, 1999
closing price of $42.00 per share and compared to a cost basis of $29.1
million). Pursuant to the applicable accounting rules, the carrying value of
this investment is adjusted to the estimated fair value each quarter based on
the closing price at the end of the quarter. The adjustments do not impact net
income as the unrealized gains or losses, net of taxes, are recorded directly to
the common equity section of the balance sheet and are a component of other
comprehensive income. In addition, any such gains or losses are reflected in
current earnings only at the time they are realized through a sale. IEC entered
into an agreement in November 1998 with McLeod whereby IEC's ability to sell the
McLeod stock is subject to various restrictions.
In April 1999, IEC announced that it expects to participate as a selling
shareholder in a secondary offering of McLeod Class A Common Stock. IEC will
sell approximately 640,000 shares of McLeod stock in the offering (at a gross
sales price of $55.63 per share). The sale is scheduled to close in May 1999.
IEC plans to use the proceeds from the sale to repay outstanding short-term debt
at Resources. IEC presently beneficially owns 10.3 million shares of McLeod
Class A Common Stock.
Under PUHCA, IEC's investments in exempt wholesale generators and foreign
utility companies is limited to 50% of IEC's consolidated retained earnings. In
addition, there are limitations on the amount of non-utility investments IEC can
make under the Wisconsin Utility Holding Company Act (WUHCA) as well. If IEC is
unable to obtain relief from the WUHCA provisions, the company may be forced to
divest certain assets to stay in compliance.
Under terms of comprehensive restructuring legislation passed in New Zealand,
IEC will be selling a portion of its current New Zealand utility investments.
IEC anticipates that it may realize a gain on such sales.
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<PAGE>
Financing and Capital Structure
At March 31, 1999, Resources had $296 million of commercial paper outstanding
and backed by its 3-Year Credit Agreement with interest rates ranging from
4.90%-5.25%. Resources intends to continue issuing commercial paper backed by
this facility, and no conditions existed at March 31, 1999 that would prevent
the issuance of commercial paper or direct borrowings on its bank lines.
Accordingly, this debt is classified as long-term.
On February 11, 1999, IPC issued $3.25 million of pollution control revenue
bonds due February 1, 2010. The proceeds were used to retire $3.25 million of
6.375% pollution control revenue bonds that were due serially 1999-2007. The
bonds have a fixed interest rate of 4.05% for the first five years. Thereafter,
IPC will have the option to reset the interest rate at one of three variable
short-term interest rates or at a new long-term interest rate, based on the then
prevailing market conditions, provided the rate does not exceed 12% per annum.
On March 23, 1999, IPC issued $7.7 million of pollution control revenue bonds
due January 1, 2013. The proceeds were used to refinance $7.7 million of 6.375%
pollution control revenue bonds that were due serially 1999-2007. The bonds have
a fixed interest rate of 4.20% for the first five years. Thereafter, IPC will
have the option to reset the interest rate at one of three variable short-term
interest rates or at a new long-term interest rate, based on the then prevailing
market conditions, provided the rate does not exceed 12% per annum.
On March 1, 1999, IESU retired $50 million of Series Z, 7.6% First Mortgage
Bonds due in March 1999. Internally generated funds were used to retire the
bonds.
Capital Requirements
On April 7, 1998, the PSCW approved WPSC's application for replacement of the
two steam generators at Kewaunee. The total cost of replacing the steam
generators would be approximately $90.7 million, with WP&L's share of the cost
being approximately $37.2 million. The replacement work originally planned for
the spring of 2000 is now scheduled for the fall of 2001 and will take
approximately 60 days. The delay is attributable to the inability of the steam
generator manufacturer to meet the spring 2000 delivery schedule. Delays in
meeting the delivery schedule did not allow for steam generator replacement to
occur prior to the start of the summer weather in 2000. Therefore, the decision
was made to store the steam generators after they are received and wait until
the next scheduled refueling outage in the fall of 2001. It is anticipated that
the delay will not adversely impact the reliability of Kewaunee in the interim.
Plans to shutdown the plant for a spring 2000 refueling remain unchanged.
Rates and Regulatory Matters
In January 1999, WP&L made a filing with the PSCW proposing to begin deferring,
on January 1, 1999, all costs associated with the EPA's required NOx emission
reductions. In connection with a statewide docket to investigate compliance
issues associated with the EPA's NOx emission reductions, on March 30, 1999, the
PSCW authorized deferral of all non-labor related costs incurred after March 30,
1999. However, the utilities are not allowed to defer costs of replacement power
associated with NOx compliance. WP&L has requested expedited approval to start
construction of NOx reduction investments at several generating units operated
by WP&L and has requested recovery of all the NOx reduction costs through a
surcharge mechanism. WP&L anticipates receiving a final order in this proceeding
in late 1999. No assurance can be given as to what relief, if any, will be
granted by the PSCW. Refer to the "Other Matters - Environmental" section for a
further discussion of the NOx issue.
Pursuant to PSCW requirements, WP&L recognizes annual demand side management
expense based on: 1) an annual fixed expenditure amount as approved by the PSCW
in the ratemaking process, and 2) PSCW approved amortization of any difference
in historical demand side management expenditures and associated rate recoveries
of such costs. Effective with WP&L's rates implemented April 29, 1997, the
annual rate recovery for demand side management expenses (and the associated
demand side management expense) was reduced to $6.9 million reflecting annual
demand side management expenditures of $14.4 million reduced by a two-year
amortization of
29
<PAGE>
prior period expenditures which were less than the associated rate recoveries
($7.5 million per year). At the completion of the two-year amortization period,
the annual demand side management expense to be recognized by WP&L returned to
the $14.4 million level. Given the price freeze WP&L has in effect in Wisconsin,
the annual rate recovery of demand side management expense is still $6.9
million.
The OCA has requested certain financial information related to the electric
utility operations within the state of Iowa for IESU and IPC. IESU and IPC
responded to the data requests in a timely manner. It is unknown if additional
data requests will be received by either IESU or IPC. While IESU and IPC cannot
predict the outcome of this process, such data requests could lead to an effort
by the OCA to seek a rate reduction for one or both of IESU and IPC in Iowa.
OTHER MATTERS
Year 2000
A summary of IEC's Year 2000 program is included in the Form 10-K filed by IEC,
IESU and WP&L for the year ended December 31, 1998. Set forth below are
developments relating to the Year 2000 program.
Remediation and Testing Year 2000 remediation and testing has been substantially
completed for all operational areas of IEC which include generating stations,
substations, transmission and distribution substations, natural gas distribution
systems, system and distribution operating centers and all key building
infrastructure. However, IEC is still dependent upon the timely provision of
necessary upgrades and modifications by certain software vendors. As of March
31, 1999, IEC was expecting upgrades from approximately 10 embedded system
vendors and 14 information technology vendors. IEC considers the potential
impact on the Year 2000 program to be minimal as: 1) the upgrades are for
non-mission critical systems or applications, or 2) operational contingency
plans have already been developed and deployed.
A. Embedded Systems -
All testing for assessing Year 2000 compliance has been completed. Remaining
work includes minor upgrades on less than 15 miscellaneous systems.
B. Information Technology -
As of March 31, 1999, approximately 90% of the systems and 80% of the
infrastructure components have been remediated and tested. IEC's customer
information systems and financial systems make up the majority of the remaining
remediation and testing effort. The remediation and testing of the customer
information systems was 95% complete at the end of March 1999. All remediation
work was completed in early May 1999 and will be operational by May 31, 1999.
The financial systems have been remediated with final roll-forward-testing
scheduled to be completed by July 15, 1999. Therefore, it is anticipated that
IEC will have its information technology remediation and testing efforts 99%
complete by July 15, 1999. On July 15, 1999 there will be four remaining
non-mission critical systems waiting for vendor supplied software, scheduled for
completion by September 1, 1999. Contingency plans for these remaining systems
are already in place as well as for all other critical systems.
Costs to Address Year 2000 Compliance IEC's historical Year 2000 project
expenditures as well as CURRENT ESTIMATES for the remaining costs to be incurred
on the project are as follows (incremental costs, in millions):
Description Total IESU WP&L Other
----------- ----- ---- ---- -----
Costs incurred from 1/1/98 - 12/31/98 $ 8.7 $4.8 $3.2 $0.7
Costs incurred from 1/1/99 - 3/31/99 $ 5.2 $2.3 $1.9 $1.0
Current estimate of remaining modifications $18.5 $5.4 $8.6 $4.5
In addition, IEC estimates it incurred $3 million in costs for internal labor
and associated overheads in 1998 and anticipates expenditures of $6 million in
1999 ($1.6 million was incurred in the first quarter of 1999). The total
30
<PAGE>
estimated project cost has decreased from the figures reported in the Form 10-K
due to lower than anticipated remediation costs and a reduction in the
contingency estimate.
In accordance with an order received from the PSCW, WP&L is deferring its Year
2000 project costs, other than internal labor and associated overheads
(approximately $4.3 million of the expenditures incurred at WP&L from January 1,
1998 through March 31, 1999 have been deferred).
Risks and Contingency Planning IEC continues to work on developing its Year 2000
contingency plan. The planning process includes three components: 1) base
contingency planning, 2) emergency preparedness, and 3) electric and gas
industry-wide coordination. The base contingency planning phase involves the
development of operating procedures to handle the malfunction of a specific
device. This work was completed in the first quarter of 1999. The emergency
preparedness phase involves the development of operating procedures to handle
the malfunction of major business processes. This work started in late 1998 and
will continue through the end of 1999.
The electric and gas industry-wide coordination is a major focus of IEC's
efforts in preparation for industry-wide drills which are being coordinated by
the North American Electric Reliability Council (NERC). As part of its
contingency planning process, NERC scheduled two nation-wide electric utility
industry drills in April 1999 and September 1999. These drills focus on safe and
reliable electrical system operations with the partial loss of
telecommunications. Results of the April 1999 NERC drill were very positive. All
contingency plans worked as anticipated, however, some procedures and manual
data forms will be refined to enhance efficiency.
In addition to these NERC drills, IEC will be conducting five additional
internal drills. These include an already completed March table-top drill, a
June 1999 functional drill and an August 1999 full-scale development drill where
key employees will test and critique IEC's contingency plans. Two additional
internal drills will also be scheduled after the September NERC full-scale
drill.
IEC also retained an outside third party to assess and evaluate its Year 2000
program and such study did not find any material deficiencies in the program.
Summary Based on IEC's current schedule for completion of its Year 2000 tasks,
IEC believes its plan is adequate to secure Year 2000 readiness of its critical
systems. Nevertheless, achieving Year 2000 readiness is subject to many risks
and uncertainties, as described above. If IEC, or third parties, fail to achieve
Year 2000 readiness with respect to critical systems and, as such, there are
systematic problems, there could be a material adverse effect on IEC's results
of operations and financial condition.
Market Risk Sensitive Instruments and Positions
Whiting is exposed to market risk in the pricing of its oil and gas production.
Historically, prices received for oil and gas production have been volatile
because of seasonal weather patterns, supply and demand factors, transportation
availability and price, and general economic conditions. Worldwide political
developments have historically also had an impact on oil prices. In the past,
IEC generally has not utilized derivative instruments designed to reduce its
exposure to these price fluctuations. However, during the first quarter of 1999,
IEC entered into a limited amount of commodity derivative transactions to fix
the ultimate sales price for approximately two-thirds of Whiting's anticipated
gas production for the remainder of 1999. At March 31, 1999, the estimated fair
value of the outstanding agreements would have resulted in a settlement payment
by IEC of approximately $1.8 million.
WP&L settled the weather insurance agreement it entered into for the November 1,
1998, to March 31, 1999, heating season and recognized income of $2.5 million in
the first quarter of 1999 relating to such settlement.
At March 31, 1999, IEC had an investment in the stock of McLeod, a
telecommunications company, valued at $431.3 million (based on a March 31, 1999
closing price of $42.00 per share and compared to a cost basis of $29.1
million). Pursuant to the applicable accounting rules, the carrying value of
this investment is adjusted to the
31
<PAGE>
estimated fair value each quarter based on the closing price at the end of the
quarter. IEC entered into an agreement in November 1998 with McLeod whereby
IEC's ability to sell the McLeod stock is subject to various restrictions.
IEC has a 50% interest in an electricity trading joint venture with Cargill.
Guarantees of approximately $61 million have been issued of which approximately
$12 million were outstanding at March 31, 1999. Under the terms of the joint
venture agreement, any payments required under the guarantees would be shared by
IEC and Cargill on a 50/50 basis to the extent the joint venture is not able to
reimburse the guarantor for payments made under the guarantee.
Environmental
A summary of IEC's environmental issues is included in the Form 10-K filed by
IEC, IESU and WP&L for the year ended December 31, 1998. Set forth below are
several developments relating to IEC's environmental issues.
In October 1998, the EPA issued a final rule requiring 22 states, including
Wisconsin, to modify their SIP's to address the ozone transport issue. The
implementation of the rule will likely require WP&L to reduce its NOx emissions
at all of its plants to a fleet average of .15 lbs/mmbtu by 2003. WP&L is
currently evaluating various options to meet the emission levels. These options
include fuel switching, operational modifications and capital investments. Based
on existing technology, the preliminary estimates indicate that capital
investments will be in the range of $150 to $215 million. Refer to the "Rates
and Regulatory Matters" section for a discussion of a filing WP&L made with the
PSCW regarding seeking rate recovery of these costs.
On February 28, 1998, the EPA issued the final report to Congress on the Study
of Hazardous Air Pollutant Emissions from Electric Utility Steam Generating
Units regarding hazardous air pollutant emissions from electric utilities (the
HAPs report). The HAPs report concluded that mercury emissions from coal fired
utilities were a concern. However, the EPA does not believe they have sufficient
information regarding mercury emissions from coal fired units. To remedy this
lack of information, the EPA required IESU, WP&L, IPC and all other coal fired
electric utilities to start collecting information regarding the types and
amount of mercury emitted as of January 1, 1999. Although the control of mercury
emissions from coal fired plants is uncertain at this time, IEC believes that
the capital investments and/or modifications required to control mercury
emissions could be significant.
Pursuant to an internal review of operations, IPC discovered that Unit No. 6 at
its generating facility in Dubuque, Iowa might require a Clean Air Act Acid Rain
permit and CEMS. IPC initiated discussions with the regulators and discontinued
operation of the unit during resolution of the issues. IPC has resolved the
issue by installing a CEMS on the unit and obtaining an Acid Rain permit.
Pursuant to its internal review, IPC also identified and disclosed to regulators
a potentially similar situation at its Lansing, Iowa generating facility, and
will potentially be installing CEMS and applying for Acid Rain permits for these
units as well, pending the outcome of regulatory review. IPC may be subject to a
penalty for not having installed the CEMS and for not having obtained the permit
previously. However, IPC believes that any likely actions resulting from this
matter will not have a material adverse effect on its financial position or
results of operations.
Power Supply
In July 1998, IEC and Polsky announced an agreement whereby Polsky would build,
own and operate a power plant in southeastern Wisconsin capable of producing up
to 450 MW of electricity. Under the agreement, IEC will purchase the capacity to
meet the electric needs of its utility customers, as outlined by the Wisconsin
Reliability Act. During the first quarter of 1999, Polsky changed its name to
SkyGen Energy LLC (SkyGen). Recent developments for the 450 MW SkyGen project
include an appeal to the EPA Appeals Board on the NOx mitigation. The appeal, if
successful, would require selective catalytic reduction to be used for NOx
mitigation instead of dry low NOx burners. Accelerated treatment (60 day
process) of the appeal is being requested and, if approved, would still allow
the facility to meet its in-service date of June 2000. Management currently
believes that the EPA will rule in favor of SkyGen.
32
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Quantitative and Qualitative Disclosures About Market Risk are reported under
Item 2. MD&A "Other Matters - Market Risk Sensitive Instruments and Positions."
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 17, 1998, MG&E and Citizens Utility Board appealed the decision of the
SEC approving the merger, Madison Gas and Electric Company and Citizens Utility
Board v. Securities and Exchange Commission. On May 15, 1998, IEC moved to
intervene in this appeal and the United States Court of Appeals for the District
of Columbia District granted the motion. Briefs were filed with the court and
oral arguments were held on January 13, 1999. The court issued its decision on
March 16, 1999 upholding the SEC's decision in approving the merger and denying
the petition for review.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following Exhibits are filed herewith or incorporated herein by
reference. Documents indicated by an asterisk (*) are incorporated herein
by reference.
3.1* Bylaws of Interstate Energy Corporation, effective as of January
20, 1999 (incorporated by reference to Exhibit 3.2 to IEC's Form
10-K for the year ended December 31, 1998)
3.2* Bylaws of Wisconsin Power and Light Company, effective as of
January 20, 1999 (incorporated by reference to Exhibit 3.4 to
WP&L's Form 10-K for the year ended December 31, 1998)
3.3* Bylaws of IES Utilities Inc., effective as of January 20, 1999
(incorporated by reference to Exhibit 3.6 to IESU's Form 10-K
for the year ended December 31, 1998)
4.1* Rights Agreement, dated January 20, 1999, between Interstate
Energy Corporation and Firstar Bank Milwaukee, N.A.
(incorporated by reference to Exhibit 4.1 to IEC's Registration
Statement on Form 8-A, dated January 20, 1999)
10.1 Restricted Stock Agreement pursuant to the Interstate Energy
Corporation Long-Term Equity Incentive Plan
10.2 Key Executive Employment and Severance Agreement, dated March
29, 1999, by and between Interstate Energy Corporation and
Erroll B. Davis, Jr.
10.3 Key Executive Employment and Severance Agreement, dated March
29, 1999, by and between Interstate Energy Corporation and each
of J.E. Hoffman, W.D. Harvey, E.G. Protsch, P.J. Wegner, T.M.
Walker and B.J. Swan
10.4 Key Executive Employment and Severance Agreement, dated March
29, 1999, by and between Interstate Energy Corporation and each
of T.L. Aller, D.A. Doyle, E.M. Gleason, D.K. Langer, D.L.
Mineck, D.R. Sharp and K.K. Zuhlke
10.5 Employment Agreement by and between Interstate Energy
Corporation and Erroll B. Davis, Jr., amended and restated as of
March 29, 1999
33
<PAGE>
27.1 Financial Data Schedule for Interstate Energy Corporation at and
for the period ended March 31, 1999
27.2 Financial Data Schedule for IES Utilities Inc. at and for the
period ended March 31, 1999
27.3 Financial Data Schedule for Wisconsin Power and Light Company at
and for the period ended March 31, 1999
(b) Reports on Form 8-K:
Interstate Energy Corporation filed a Current Report on Form 8-K, dated January
20, 1999, reporting (under Item 5) that on January 20, 1999 the Board of
Directors of Interstate Energy Corporation adopted a series of amendments to the
Bylaws of Interstate Energy Corporation.
Interstate Energy Corporation filed a Current Report on Form 8-K, dated January
20, 1999, reporting (under Item 5) that on January 20, 1999, the Board of
Directors of Interstate Energy Corporation declared a dividend of one common
share purchase right for each outstanding share of common stock, $.01 par value,
of Interstate Energy Corporation. The description and terms of the common share
purchase rights are set forth in a Rights Agreement dated January 20, 1999
between Interstate Energy Corporation and Firstar Bank Milwaukee, N.A., as
Rights Agent.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Interstate
Energy Corporation, IES Utilities Inc. and Wisconsin Power and Light Company
have each duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized on the 17th day of May 1999.
INTERSTATE ENERGY CORPORATION
Registrant
By: /s/ Thomas M. Walker Executive Vice President and Chief
Thomas M. Walker Financial Officer
(Principal Financial Officer)
By: /s/ John E. Ebright Vice President-Controller
John E. Ebright (Principal Accounting Officer)
IES UTILITIES INC.
Registrant
By: /s/ Thomas M. Walker Executive Vice President and Chief
Thomas M. Walker Financial Officer
(Principal Financial Officer)
By: /s/ John E. Ebright Vice President-Controller
John E. Ebright (Principal Accounting Officer)
WISCONSIN POWER AND LIGHT COMPANY
Registrant
By: /s/ Thomas M. Walker Executive Vice President and Chief
Thomas M. Walker Financial Officer
(Principal Financial Officer)
By: /s/ John E. Ebright Vice President-Controller
John E. Ebright (Principal Accounting Officer)
35
<PAGE>
EXHIBIT INDEX
(a) Exhibits:
The following Exhibits are filed herewith or incorporated herein by
reference. Documents indicated by an asterisk (*) are incorporated herein
by reference.
3.1* Bylaws of Interstate Energy Corporation, effective as of January
20, 1999 (incorporated by reference to Exhibit 3.2 to IEC's Form
10-K for the year ended December 31, 1998)
3.2* Bylaws of Wisconsin Power and Light Company, effective as of
January 20, 1999 (incorporated by reference to Exhibit 3.4 to
WP&L's Form 10-K for the year ended December 31, 1998)
3.3* Bylaws of IES Utilities Inc., effective as of January 20, 1999
(incorporated by reference to Exhibit 3.6 to IESU's Form 10-K
for the year ended December 31, 1998)
4.1* Rights Agreement, dated January 20, 1999, between Interstate
Energy Corporation and Firstar Bank Milwaukee, N.A.
(incorporated by reference to Exhibit 4.1 to IEC's Registration
Statement on Form 8-A, dated January 20, 1999)
10.1 Restricted Stock Agreement pursuant to the Interstate Energy
Corporation Long-Term Equity Incentive Plan
10.2 Key Executive Employment and Severance Agreement, dated March
29, 1999, by and between Interstate Energy Corporation and
Erroll B. Davis, Jr.
10.3 Key Executive Employment and Severance Agreement, dated March
29, 1999, by and between Interstate Energy Corporation and each
of J.E. Hoffman, W.D. Harvey, E.G. Protsch, P.J. Wegner, T.M.
Walker and B.J. Swan
10.4 Key Executive Employment and Severance Agreement, dated March
29, 1999, by and between Interstate Energy Corporation and each
of T.L. Aller, D.A. Doyle, E.M. Gleason, D.K. Langer, D.L.
Mineck, D.R. Sharp and K.K. Zuhlke
10.5 Employment Agreement by and between Interstate Energy
Corporation and Erroll B. Davis, Jr., amended and restated as of
March 29, 1999
27.1 Financial Data Schedule for Interstate Energy Corporation at and
for the period ended March 31, 1999
27.2 Financial Data Schedule for IES Utilities Inc. at and for the
period ended March 31, 1999
27.3 Financial Data Schedule for Wisconsin Power and Light Company at
and for the period ended March 31, 1999
Exhibit 10.1
RESTRICTED STOCK AGREEMENT
March 29, 1999
TO:
In consideration of your election to enter into a new Key Executive Employment
and Severance Agreement, the Company is granting you an award of shares of
Restricted Stock pursuant to the Interstate Energy Corporation Long-Term Equity
Incentive Plan (the "Plan"). This Agreement provides a brief summary of your
rights under the Plan.
The attached Plan document provides the complete details of all of your rights
under the Plan and this Agreement, as well as all of the conditions and
limitations affecting such rights. All capitalized terms appearing in this
Agreement shall have the meanings defined in the Plan.
OVERVIEW OF YOUR AWARD
1. Number of Shares of Restricted Stock: _______
2. Date of Grant: 3/29/99
3. Period of Restriction: Except as otherwise provided herein, the shares
of Restricted Stock may not be sold, transferred, pledged, assigned or
otherwise alienated or hypothecated until three (3) years after the date
of grant (the "Period of Restriction").
4. Certificate Legend: Each certificate representing shares of Restricted
Stock granted pursuant to the Plan shall bear the following legend:
"The sale or other transfer of the Shares of stock represented
by this certificate, whether voluntary, involuntary, or by
operation of law, is subject to certain restrictions on transfer
as set forth in the Interstate Energy Corporation Long-Term
Equity Incentive Plan, and in a Restricted Stock Agreement. A
copy of the Plan and such Restricted Stock Agreement may be
obtained from Interstate Energy Corporation."
5. Removal of Restrictions: Shares of Restricted Stock shall become freely
transferable by the Participant after the last day of the Period of
Restriction. Once the shares are released from the restrictions, the
Participant shall be entitled to have the legend required by Section 4
removed from the Participant's share certificate.
<PAGE>
6. Voting Rights; Dividends and Other Distributions:
a. Voting Rights: During the Period of Restriction and prior to any
forfeiture of Restricted Stock, the Participant may exercise
full voting rights with respect to shares of Restricted Stock.
b. Dividend and Other Distributions: During the Period of
Restriction and prior to any forfeiture of Restricted Stock, the
Participant shall be credited with all regular cash dividends
paid with respect to all shares Restricted Stock of the Company
while they are so held. Except as provided in the succeeding
sentence, all other cash dividends and other distributions paid
with respect to shares of Restricted Stock shall be credited to
the Participant subject to the same restrictions on
transferability and forfeitability as the shares of Restricted
Stock with respect to which they were paid. If any such
dividends or distributions are paid in shares of common stock of
the Company, then such shares shall be subject to the same
restrictions on transferability and forfeitability as the shares
of Restricted Stock with respect to which they were paid.
Subject to the foregoing, all dividends credited to the
Participant shall be paid to the Participant within forty-five
(45) days following the full vesting of the shares of Restricted
Stock with respect to which such dividends were earned.
7. Termination of Employment:
a. Termination of Employment Due to Death, Disability or
Retirement: If the Participant's employment terminates by reason
of death, Disability or Retirement, then all outstanding shares
of Restricted Stock shall vest one hundred percent as of the
date of employment termination. The holder of the certificates
of Restricted Stock shall be entitled to have the
nontransferability legend required under Section 4 removed from
the share certificates.
b. Termination of Employment without Cause or for Good Reason: If
the Participant's employment is terminated by the Company or any
Subsidiary without Cause or by the Participant for Good Reason
(as defined in Exhibit A attached hereto), then all outstanding
shares of Restricted Stock shall vest one hundred percent as of
the date of employment termination. The holder of the
certificates of Restricted Stock shall be entitled to have the
nontransferability legend required under Section 4 removed from
the share certificates.
c. Termination of Employment for Other Reasons: If the
Participant's employment terminates for any reason other than
those reasons set forth in Sections 7(a) and 7(b) during the
Period of Restriction, then all shares of Restricted Stock still
subject to restriction as of the date of employment termination
shall be forfeited and returned to the Company.
8. Change in Control: Upon the occurrence of a Change in Control, the
Period of Restriction and all restrictions imposed on Restricted Stock
shall lapse; provided, however, that the Committee may, in its sole
discretion, amend, modify or rescind the
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provisions of this Section 8 if it determines that the operation of this
Section 8 may prevent a transaction in which the Company or any
affiliate is a party from being accounted for on a pooling-of-interests
basis.
9. Withholding:
a. Tax Withholding: The Company shall have the right to deduct or
withhold, or require the Participant to remit to the Company, an
amount sufficient to satisfy Federal, state and local taxes
(including the Participant's FICA obligation) required by law to
be withheld with respect to any taxable event arising from, or
as a result of, the award of the Restricted Stock or the lapse
of restrictions on the Restricted Stock.
b. Share Withholding: If the Participant does not make an election
under Section 83(b) of the Internal Revenue Code of 1986, as
amended, with respect to the Restricted Stock awarded hereunder,
the Participant may elect to satisfy the Company's withholding
requirement upon the lapse of restrictions on Restricted Stock,
in whole or in part, by electing to deliver to the Company
shares of previously acquired common stock of the Company
(including Restricted Stock) having a fair market value on the
date the tax is to be determined equal to the minimum statutory
total tax required to be withheld as a result of the lapse of
the restrictions on such Restricted Stock.
Please acknowledge your agreement to participate in the Plan and this Agreement,
and to abide by all of the governing terms and provisions, by signing the
following representation:
Agreement to Participate
By signing a copy of this Agreement and returning it to Wendy Portz, I
acknowledge that I have read the Plan, and that I fully understand all of my
rights under the Plan, as well as all of the terms and conditions which may
limit the lapse of restrictions on, or result in the forfeiture of, the
Restricted Stock. Without limiting the generality of the preceding sentence, I
understand that the lapse of restrictions on, and the forfeiture of, the
Restricted Stock is generally conditioned upon my continued employment with the
Company.
/s/
(Officer) Date
(Title)
Interstate Energy Corporation
By: /s/Erroll B. Davis, Jr.
Erroll B. Davis, Jr.
President and Chief Executive Officer
<PAGE>
Exhibit A
For purposes of this Agreement, the Participant shall have "Good Reason"
for termination of employment in the event of:
1. any reduction in the Participant's base salary or any material
reduction in the percentage of base salary available as incentive compensation
or bonus opportunity or other benefits, in each case relative to those in effect
on the date hereof, or, to the extent more favorable to the Participant, those
in effect at any time after the date hereof;
2. the removal of the Participant from, or any failure to reelect or
reappoint the Participant to, any of the positions held with the Company or any
Subsidiary on the date hereof or any other positions with the Company or any
Subsidiary to which the Participant shall thereafter be elected, appointed or
assigned, except in the event that such removal or failure to reelect or
reappoint is agreed to by the Participant in writing or relates to the
termination by the Company or any Subsidiary of the Participant's employment for
Cause or by reason of Disability; or
3. a good faith determination by the Participant that there has been a
significant adverse change, without the Participant's written consent, in the
Participant's working conditions or status with the Company or any Subsidiary
relative to the working conditions or status in effect on the date hereof, or,
to the extent more favorable to the Participant, those in effect at any time
after the date hereof, including but not limited to (A) a significant change in
the nature or scope of the Participant's authority, powers, functions, duties or
responsibilities, or (B) a significant reduction in the level of support
services, staff, secretarial and other assistance, office space and
accoutrements but excluding for this purpose an isolated, insubstantial and
inadvertent event not occurring in bad faith that the Company or the applicable
Subsidiary remedies promptly after receipt of notice thereof given by the
Participant.
EXHIBIT 10.2
KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT
THIS AGREEMENT, made and entered into as of the 29th day of March, 1999
by and between Interstate Energy Corporation (d/b/a Alliant Energy Corporation),
a Wisconsin corporation (hereinafter referred to as the "Company"), and
Erroll B. Davis, Jr. (hereinafter referred to as "Executive").
W I T N E S S E T H
WHEREAS, the Executive is employed by the Company and/or a subsidiary of
the Company (hereinafter referred to collectively as the "Employer") in a key
executive capacity and the Executive's services are valuable to the conduct of
the business of the Company;
WHEREAS, the Company desires to continue to attract and retain dedicated
and skilled management employees in a period of industry consolidation,
consistent with achieving the best possible value for its shareowners in any
change in control of the Company;
WHEREAS, the Company recognizes that circumstances may arise in which a
change in control of the Company occurs, through acquisition or otherwise,
thereby causing a potential conflict of interest between the Company's needs for
the Executive to remain focused on the Company's business and for the necessary
continuity in management prior to and following a change in control, and the
Executive's reasonable personal concerns regarding future employment with the
Employer and economic protection in the event of loss of employment as a
consequence of a change in control;
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WHEREAS, the Company and the Executive are desirous that any proposal
for a change in control or acquisition of the Company will be considered by the
Executive objectively and with reference only to the best interests of the
Company and its shareowners;
WHEREAS, the Executive will be in a better position to consider the
Company's best interests if the Executive is afforded reasonable economic
security, as provided in this Agreement, against altered conditions of
employment which could result from any such change in control or acquisition;
WHEREAS, the Executive possesses intimate knowledge of the business and
affairs of the Company and has acquired certain confidential information and
data with respect to the Company; and
WHEREAS, the Company desires to insure, insofar as possible, that it
will continue to have the benefit of the Executive's services and to protect its
confidential information and goodwill.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto mutually
covenant and agree as follows:
1. Definitions.
(a) Act. For purposes of this Agreement, the term "Act" means the
Securities Exchange Act of 1934, as amended.
(b) Affiliate and Associate. For purposes of this Agreement, the terms
"Affiliate" and "Associate" shall have the respective meanings ascribed to such
terms in Rule l2b-2 of the General Rules and Regulations under the Act.
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(c) Beneficial Owner. For purposes of this Agreement, a Person shall be
deemed to be the "Beneficial Owner" of any securities:
(i) which such Person or any of such Person's Affiliates or
Associates has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, (A) securities tendered
pursuant to a tender or exchange offer made by or on behalf of such
Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase, or (B) securities
issuable upon exercise of Rights issued pursuant to the terms of the
Company's Rights Agreement, dated as of January 20, 1999, between
Interstate Energy Corporation and Firstar Bank Milwaukee, N.A., as
amended from time to time (or any successor to such Rights Agreement),
at any time before the issuance of such securities;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of
or has "beneficial ownership" of (as determined pursuant to Rule l3d-3
of the General Rules and Regulations under the Act), including pursuant
to any agreement, arrangement or understanding; provided, however, that
a Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security under this Subsection 1 (c) as a result of an
agreement, arrangement or understanding to vote such security if the
agreement, arrangement
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or understanding: (A) arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
rules and regulations under the Act and (B) is not also then reportable
on a Schedule l3D under the Act (or any comparable or successor report);
or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in Subsection 1(c) (ii) above) or disposing
of any voting securities of the Company.
(d) Cause. "Cause" for termination by the Employer of the Executive's
employment in connection with a Change in Control of the Company shall, for
purposes of this Agreement, be limited to (i) the engaging by the Executive in
intentional conduct not taken in good faith which has caused demonstrable and
serious financial injury to the Employer, as evidenced by a determination in a
binding and final judgment, order or decree of a court or administrative agency
of competent jurisdiction, in effect after exhaustion or lapse of all rights of
appeal, in an action, suit or proceeding, whether civil, criminal,
administrative or investigative; (ii) conviction of a felony (as evidenced by
binding and final judgment, order or decree of a court of competent
jurisdiction, in effect after exhaustion of all rights of appeal) which
substantially impairs the Executive's ability to perform his duties or
responsibilities; and (iii) continuing willful and unreasonable refusal by the
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Executive to perform the Executive's duties or responsibilities (unless
significantly changed without the Executive's consent).
(e) Change in Control of the Company. A "Change in Control of the
Company" shall be deemed to have occurred if an event set forth in any one of
the following paragraphs shall have occurred:
(i) any Person (other than (A) the Company or any of its
subsidiaries, (B) a trustee or other fiduciary holding securities under
any employee benefit plan of the Company or any of its subsidiaries, (C)
an underwriter temporarily holding securities pursuant to an offering of
such securities or (D) a corporation owned, directly or indirectly, by
the shareowners of the Company in substantially the same proportions as
their ownership of stock in the Company ("Excluded Persons")) is or
becomes the Beneficial Owner, directly or indirectly, of securities of
the Company (not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or its
Affiliates after November 18, 1998, pursuant to express authorization by
the Board that refers to this exception) representing 20% or more of
either the then outstanding shares of common stock of the Company or the
combined voting power of the Company's then outstanding voting
securities; or
(ii) the following individuals cease for any reason to
constitute a majority of the number of directors of the Company then
serving: (A) individuals who, on November 18, 1998, constituted the
Board and (B) any new director (other than a director whose initial
assumption of
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office is in connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating to the
election of directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A under the Act) whose appointment or election by
the Board or nomination for election by the Company's shareowners was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors on November 18, 1998, or whose
appointment, election or nomination for election was previously so
approved (collectively the "Continuing Directors"); provided, however,
that individuals who are appointed to the Board pursuant to or in
accordance with the terms of an agreement relating to a merger,
consolidation, or share exchange involving the Company (or any direct or
indirect subsidiary of the Company) shall not be Continuing Directors
for purposes of this Agreement until after such individuals are first
nominated for election by a vote of at least two-thirds (2/3) of the
then Continuing Directors and are thereafter elected as directors by the
shareowners of the Company at a meeting of shareowners held following
consummation of such merger, consolidation, or share exchange; and,
provided further, that in the event the failure of any such persons
appointed to the Board to be Continuing Directors results in a Change in
Control of the Company, the subsequent qualification of such persons as
Continuing Directors shall not alter the fact that a Change in Control
of the Company occurred; or
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(iii) the shareowners of the Company approve a merger,
consolidation or share exchange of the Company with any other
corporation or approve the issuance of voting securities of the Company
in connection with a merger, consolidation or share exchange of the
Company (or any direct or indirect subsidiary of the Company) pursuant
to applicable stock exchange requirements, other than (A) a merger,
consolidation or share exchange which would result in the voting
securities of the Company outstanding immediately prior to such merger,
consolidation or share exchange continuing to represent (either by
remaining outstanding or by being converted into voting securities of
the surviving entity or any parent thereof) at least 50% of the combined
voting power of the voting securities of the Company or such surviving
entity or any parent thereof outstanding immediately after such merger,
consolidation or share exchange, or (B) a merger, consolidation or share
exchange effected to implement a recapitalization of the Company (or
similar transaction) in which no Person (other than an Excluded Person)
is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the securities beneficially
owned by such Person any securities acquired directly from the Company
or its Affiliates after November 18, 1998, pursuant to express
authorization by the Board that refers to this exception) representing
20% or more of either the then outstanding shares of common stock of the
Company or the combined voting power of the Company's then outstanding
voting securities; or
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(iv) the shareowners of the Company approve a plan of complete
liquidation or dissolution of the Company or an agreement for the sale
or disposition by the Company of all or substantially all of the
Company's assets (in one transaction or a series of related transactions
within any period of 24 consecutive months), other than a sale or
disposition by the Company of all or substantially all of the Company's
assets to an entity at least 75% of the combined voting power of the
voting securities of which are owned by Persons in substantially the
same proportions as their ownership of the Company immediately prior to
such sale.
Notwithstanding the foregoing, no "Change in Control of the Company" shall be
deemed to have occurred if there is consummated any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to own, directly or indirectly, in the same proportions as
their ownership in the Company, an entity that owns all or substantially all of
the assets or voting securities of the Company immediately following such
transaction or series of transactions.
(f) Code. For purposes of this Agreement, the term "Code" means the
Internal Revenue Code of 1986, including any amendments thereto or successor tax
codes thereof.
(g) Covered Termination. Subject to Subsection 2(b) hereof, for purposes
of this Agreement, the term "Covered Termination" means any termination of the
Executive's employment during the Employment Period where the Notice of
Termination is delivered on or the Termination Date is any date prior to the end
of the Employment Period.
(h) Employment Period. Subject to Subsection 2(b) hereof, for purposes
of this Agreement, the term "Employment Period" means a period commencing on the
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date of a Change in Control of the Company, and ending at 11:59 p.m. Central
Time on the earlier of the third anniversary of such date or the Executive's
Normal Retirement Date.
(i) Good Reason. For purposes of this Agreement, the Executive shall
have "Good Reason" for termination of employment in connection with a Change in
Control of the Company in the event of:
(i) any breach of this Agreement by the Employer, including
specifically any breach by the Employer of the agreements contained in
Sections 4, 5, and 6 hereof, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith that the Employer
remedies promptly after receipt of notice thereof given by the
Executive;
(ii) any reduction in the Executive's base salary, percentage of
base salary available as incentive compensation or bonus opportunity or
benefits, in each case relative to those most favorable to the Executive
in effect at any time during the 180-day period prior to the Change in
Control or, to the extent more favorable to the Executive, those in
effect at any time during the Employment Period;
(iii) the removal of the Executive from, or any failure to
reelect or reappoint the Executive to, any of the positions held with
the Employer on the date of the Change in Control of the Company or any
other positions with the Employer to which the Executive shall
thereafter be elected, appointed or assigned, except in the event that
such removal or failure to reelect or reappoint relates to the
termination by the Employer of
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the Executive's employment for Cause or by reason of disability pursuant to
Section 12 hereof;
(iv) a good faith determination by the Executive that there has
been a significant adverse change, without the Executive's written
consent, in the Executive's working conditions or status with the
Employer relative to the most favorable working conditions or status in
effect during the 180-day period prior to the Change in Control of the
Company, or, to the extent more favorable to the Executive, those in
effect at any time during the Employment Period, including but not
limited to (A) a significant change in the nature or scope of the
Executive's authority, powers, functions, duties or responsibilities, or
(B) a significant reduction in the level of support services, staff,
secretarial and other assistance, office space and accoutrements but
excluding for this purpose an isolated, insubstantial and inadvertent
event not occurring in bad faith that the Employer remedies promptly
after receipt of notice thereof given by the Executive;
(v) failure by the Company to obtain the Agreement referred to
in Section 17(a) hereof as provided therein; or
(vi) any voluntary termination of employment by the Executive
where the Notice of Termination is delivered during the 30 days
following the first anniversary of the Change in Control of the Company.
(j) Normal Retirement Date. For purposes of this Agreement, the term
"Normal Retirement Date" means "Normal Retirement Date" as defined in the
primary qualified defined benefit pension
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plan applicable to the Executive, or any successor plan, as in effect on the
date of the Change in Control of the Company.
(k) Person. For purposes of this Agreement, the term "Person" shall mean
any individual, firm, partnership, corporation or other entity, including any
successor (by merger or otherwise) of such entity, or a group of any of the
foregoing acting in concert.
(l) Termination Date. For purposes of this Agreement, except as
otherwise provided in Subsection 2(b), Subsection 10(b), and Subsection 17(a)
hereof, the term "Termination Date" means (i) if the Executive's employment is
terminated by the Executive's death, the date of death; (ii) if the Executive's
employment is terminated by reason of voluntary early retirement, as agreed in
writing by the Employer and the Executive, the date of such early retirement
which is set forth in such written agreement; (iii) if the Executive's
employment is terminated for purposes of this Agreement by reason of disability
pursuant to Section 12 hereof, the earlier of thirty days after the Notice of
Termination is given or one day prior to the end of the Employment Period; (iv)
if the Executive's employment is terminated by the Executive voluntarily (other
than for Good Reason), the date the Notice of Termination is given; and (v) if
the Executive's employment is terminated by the Employer (other than by reason
of disability pursuant to Section 12 hereof) or by the Executive for Good
Reason, the earlier of thirty days after the Notice of Termination is given or
one day prior to the end of the Employment Period. Notwithstanding the
foregoing,
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(1) If termination is for Cause pursuant to Subsection 1(d)(iii)
of this Agreement and if the Executive has cured the conduct constituting
such Cause as described by the Employer in its Notice of Termination
within such thirty-day or shorter period, then the Executive's employment
hereunder shall continue as if the Employer had not delivered its Notice
of Termination.
(2) If the Executive shall in good faith give a Notice of
Termination for Good Reason and the Employer notifies the Executive that
a dispute exists concerning the termination within the fifteen-day
period following receipt thereof, then the Executive may elect to
continue his or her employment during such dispute and the Termination
Date shall be determined under this paragraph. If the Executive so
elects and it is thereafter determined that Good Reason did exist, the
Termination Date shall be the earliest of (i) the date on which the
dispute is finally determined, either (x) by mutual written agreement of
the parties or (y) in accordance with Section 22 hereof, (ii) the date
of the Executive's death or (iii) one day prior to the end of the
Employment Period. If the Executive so elects and it is thereafter
determined that Good Reason did not exist, then the employment of the
Executive hereunder shall continue after such determination as if the
Executive had not delivered the Notice of Termination asserting Good
Reason and there shall be no Termination Date arising out of such
Notice. In either case, this Agreement continues, until the Termination
Date, if any, as if the Executive had not delivered the Notice of
Termination except that, if it is finally determined that Good Reason
did exist, the Executive shall in no case be denied the benefits
described in Subsection 8(b) and Section 9 hereof (including a
Termination
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Payment) based on events occurring after the Executive delivered his
Notice of Termination.
(3) Except as provided in Subsection 1(l)(2) above, if the party
receiving the Notice of Termination notifies the other party that a
dispute exists concerning the termination within the appropriate period
following receipt thereof and it is finally determined that the reason
asserted in such Notice of Termination did not exist, then (i) if such
Notice was delivered by the Executive, the Executive will be deemed to
have voluntarily terminated his employment and the Termination Date
shall be the earlier of the date fifteen days after the Notice of
Termination is given or one day prior to the end of the Employment
Period and (ii) if delivered by the Company, the Company will be deemed
to have terminated the Executive other than by reason of death,
disability or Cause.
2. Termination or Cancellation Prior to Change in Control.
(a) Subject to Subsection 2(b) hereof, the Employer and the Executive
shall each retain the right to terminate the employment of the Executive at any
time prior to a Change in Control of the Company. Subject to Subsection 2(b)
hereof, in the event the Executive's employment is terminated prior to a Change
in Control of the Company, this Agreement shall be terminated and cancelled and
of no further force and effect, and any and all rights and obligations of the
parties hereunder shall cease.
(b) Anything in this Agreement to the contrary notwithstanding, if a
Change in Control of the Company occurs and if the Executive's employment with
the Employer is terminated (other than a termination due to the Executive's
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death or as a result of the Executive's disability) during the period of 180
days prior to the date on which the Change in Control of the Company occurs, and
if it is reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has taken steps
reasonably calculated to effect a Change in Control of the Company or (ii)
otherwise arose in connection with or in anticipation of a Change in Control of
the Company, then for all purposes of this Agreement such termination of
employment shall be deemed a "Covered Termination," "Notice of Termination"
shall be deemed to have been given, and the "Employment Period" shall be deemed
to have begun on the date of such termination which shall be deemed to be the
"Termination Date" and the date of the Change of Control of the Company for
purposes of this Agreement.
3. Employment Period. If a Change in Control of the Company occurs when
the Executive is employed by the Employer, the Employer will continue thereafter
to employ the Executive during the Employment Period, and the Executive will
remain in the employ of the Employer in accordance with and subject to the terms
and provisions of this Agreement. Any termination of the Executive's employment
during the Employment Period, whether by the Company or the Employer, shall be
deemed a termination by the Company for purposes of this Agreement.
4. Duties. During the Employment Period,
the Executive shall, in the same capacities and positions held by the Executive
at the time of the Change in Control of the Company or in such other capacities
and positions as may be agreed to by the Employer and the Executive in writing,
devote the Executive's best efforts and all of the Executive's business time,
attention and skill to the business and affairs of the Employer, as such
business and affairs now exist and as they may hereafter be conducted. The
services which are to be performed by the Executive hereunder are to be rendered
in the same metropolitan area in which the Executive was employed at the date
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of such Change in Control of the Company, or in such other place or places as
shall be mutually agreed upon in writing by the Executive and the Employer from
time to time. Without the Executive's consent, the Executive shall not be
required to be absent from such metropolitan area more than 45 days in any
fiscal year of the Company.
5. Compensation. During the Employment Period, the Executive shall be
compensated as follows:
(a) The Executive shall receive, at reasonable intervals (but not less
often than monthly) and in accordance with such standard policies as may be in
effect immediately prior to the Change in Control of the Company, an annual base
salary in cash equivalent of not less than twelve times the Executive's highest
monthly base salary for the twelve-month period immediately preceding the month
in which the Change in Control of the Company occurs or, if higher, annual base
salary at the rate in effect immediately prior to the Change in Control of the
Company (which base salary shall, unless otherwise agreed in writing by the
Executive, include the current receipt by the Executive of any amounts which,
prior to the Change in Control of the Company, the Executive had elected to
defer, whether such compensation is deferred under Section 401(k) of the Code or
otherwise), subject to adjustment as hereinafter provided in Section 6 (such
salary amount as adjusted upward from time to time is hereafter referred to as
the "Annual Base Salary").
(b) The Executive shall receive fringe benefits at least equal in value
to the highest value of such benefits provided for the Executive at any time
during the 180-day period immediately prior to the Change in Control of the
Company or, if more favorable to the Executive, those provided generally at any
time during the Employment Period to any executives of the Employer of
comparable status and position to the Executive; and shall be reimbursed, at
such intervals and in accordance with
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such standard policies that are most favorable to the Executive that were in
effect at any time during the 180-day period immediately prior to the Change in
Control of the Company, for any and all monies advanced in connection with the
Executive's employment for reasonable and necessary expenses incurred by the
Executive on behalf of the Employer, including travel expenses.
(c) The Executive and/or the Executive's family, as the case may be,
shall be included, to the extent eligible thereunder (which eligibility shall
not be conditioned on the Executive's salary grade or on any other requirement
which excludes persons of comparable status to the Executive unless such
exclusion was in effect for such plan or an equivalent plan at any time during
the 180-day period immediately prior to the Change in Control of the Company),
in any and all plans providing benefits for the Employer's salaried employees in
general, including but not limited to group life insurance, hospitalization,
medical, dental, profit sharing and stock bonus plans; provided, that, (i) in no
event shall the aggregate level of benefits under such plans in which the
Executive is included be less than the aggregate level of benefits under plans
of the Employer of the type referred to in this Subsection 5(c) in which the
Executive was participating at any time during the 180-day period immediately
prior to the Change in Control of the Company and (ii) in no event shall the
aggregate level of benefits under such plans be less than the aggregate level of
benefits under plans of the type referred to in this Subsection 5(c) provided at
any time after the Change in Control of the Company to any executive of the
Employer of comparable status and position to the Executive.
(d) The Executive shall annually be entitled to not less than the amount
of paid vacation and not fewer than the highest number of paid holidays to which
the Executive was entitled annually at any time during the 180-day period
immediately prior to the Change in Control
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of the Company or such greater amount of paid vacation and number of paid
holidays as may be made available annually to other executives of the Employer
of comparable status and position to the Executive at any time during the
Employment Period.
(e) The Executive shall be included in all plans providing additional
benefits to executives of the Employer of comparable status and position to the
Executive, including but not limited to deferred compensation, split-dollar life
insurance, supplemental retirement, stock option, stock appreciation, stock
bonus and similar or comparable plans; provided, that, (i) in no event shall the
aggregate level of benefits under such plans be less than the highest aggregate
level of benefits under plans of the Employer of the type referred to in this
Subsection 5(e) in which the Executive was participating at any time during the
180-day period immediately prior to the Change in Control of the Company; (ii)
in no event shall the aggregate level of benefits under such plans be less than
the aggregate levels of benefits under plans of the type referred to in this
Subsection 5(e) provided at any time after the Change in Control of the Company
to any executive of the Employer comparable in status and position to the
Executive; and (iii) the Employer's obligation to include the Executive in bonus
or incentive compensation plans shall be determined by Subsection 5(f) hereof.
(f) To assure that the Executive will have an opportunity to earn
incentive compensation after a Change in Control of the Company, the Executive
shall be included in a bonus plan of the Employer which shall satisfy the
standards described below (such plan, the "Bonus Plan"). Bonuses under the Bonus
Plan shall be payable with respect to achieving such financial or other goals
reasonably related to the business of the Employer as the Employer shall
establish (the "Goals"), all of which Goals shall be attainable, prior to the
end of the Employment Period, with approximately the same degree of probability
as the most attainable goals under the
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Employer's bonus plan or plans as in effect at any time during the 180-day
period immediately prior to the Change in Control of the Company (whether one or
more, the "Company Bonus Plan") and in view of the Employer's existing and
projected financial and business circumstances applicable at the time. The
amount of the bonus (the "Bonus Amount") that the Executive is eligible to earn
under the Bonus Plan shall be no less than the amount of the Executive's maximum
award provided in such Company Bonus Plan (such bonus amount herein referred to
as the "Targeted Bonus"), and in the event the Goals are not achieved such that
the entire Targeted Bonus is not payable, the Bonus Plan shall provide for a
payment of a Bonus Amount equal to a portion of the Targeted Bonus reasonably
related to that portion of the Goals which were achieved. Payment of the Bonus
Amount shall not be affected by any circumstance occurring subsequent to the end
of the Employment Period, including termination of the Executive's employment.
6. Annual Compensation Adjustments. During the Employment Period, the
Board of Directors of the Company (or an appropriate committee thereof) will
consider and appraise, at least annually, the contributions of the Executive to
the Company, and in accordance with the Company's practice prior to the Change
in Control of the Company, due consideration shall be given to the upward
adjustment of the Executive's Annual Base Salary, at least annually, (i)
commensurate with increases generally given to other executives of the Company
of comparable status and position to the Executive, and (ii) as the scope of the
Company's operations or the Executive's duties expand.
7. Termination For Cause or Without Good Reason. If there is a Covered
Termination for Cause or due to the Executive's voluntarily terminating his or
her employment other than for Good Reason (any such terminations to be subject
to the procedures set forth in
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Section 13 hereof), then the Executive shall be entitled to receive only Accrued
Benefits pursuant to Section 9(a) hereof.
8. Termination Giving Rise to a Termination Payment. (a) If there is a
Covered Termination by the Executive for Good Reason, or by the Company other
than by reason of (i) death, (ii) disability pursuant to Section 12 hereof, or
(iii) Cause (any such terminations to be subject to the procedures set forth in
Section 13 hereof), then the Executive shall be entitled to receive, and the
Company shall promptly pay, Accrued Benefits and, in lieu of further base salary
for periods following the Termination Date, as liquidated damages and additional
severance pay and in consideration of the covenant of the Executive set forth in
Subsection 14(a) hereof, the Termination Payment pursuant to Subsection 9(b)
hereof.
(b) If there is a Covered Termination and the Executive is entitled to
Accrued Benefits and the Termination Payment, then the Company shall provide to
the Executive the following additional benefits:
(i) The Executive shall receive, at the expense of the Company,
outplacement services, on an individualized basis at a level of service
commensurate with the Executive's status with the Company immediately
prior to the date of the Change in Control of the Company (or, if
higher, immediately prior to the termination of the Executive's
employment), provided by a nationally recognized executive placement
firm selected by the Company; provided that the cost to the Company of
such services shall not exceed 10% of the Executive's Annual Base
Salary.
(ii) Until the earlier of the end of the Employment Period or
such time as the Executive has obtained new employment and is covered by
benefits which in the aggregate are at least equal in value to the
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following benefits, the Executive shall continue to be covered, at the expense
of the Company, by the same or equivalent life insurance, hospitalization,
medical and dental coverage as was required hereunder with respect to the
Executive immediately prior to the date the Notice of Termination is given.
(iii) The Company shall cause the Executive to be fully and immediately vested
in his accrued benefit under any supplemental executive retirement plan of the
Employer providing benefits for the Executive (the "SERP") and in any defined
contribution retirement plan of the Employer. In addition, the Company shall
cause the Executive to be deemed to have satisfied any minimum years of service
requirement under the SERP for subsidized early retirement benefits regardless
of the Executive's age and service at the Termination Date; provided, however,
that SERP benefits will be based on service to date with no additional credit
for service or age beyond such Termination Date.
(iv) The Company shall cause all restrictions on restricted
stock awards made to the Executive to lapse such that the Executive is
fully and immediately vested in his or her restricted stock.
(v) The Company shall cause all stock options granted to the
Executive pursuant to the Company's stock option plan(s) to be fully
vested.
(vi) The Company shall cause all performance plan awards granted
to the Executive pursuant to any long-term incentive plan
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maintained by the Company to be paid out at target, as if all
performance requirements had been satisfied, on a pro rata basis based
on the completed portion of each award cycle; provided, however, no
payment of plan awards will occur from any award cycle that has been in
effect less than six (6) months.
(vii) The Company shall reimburse the Executive for up to
$15,000 in tax preparation assistance fees for the tax year in which the
Termination Payment is made.
9. Payments Upon Termination.
(a) Accrued Benefits. For purposes of this Agreement, the Executive's
"Accrued Benefits" shall include the following amounts, payable as described
herein: (i) all base salary for the time period ending with the Termination
Date; (ii) reimbursement for any and all monies advanced in connection with the
Executive's employment for reasonable and necessary expenses incurred by the
Executive on behalf of the Employer for the time period ending with the
Termination Date; (iii) any and all other cash earned through the Termination
Date and deferred at the election of the Executive or pursuant to any deferred
compensation plan then in effect; (iv) a lump sum payment of the bonus or
incentive compensation otherwise payable to the Executive with respect to the
year in which termination occurs under all bonus or incentive compensation plan
or plans in which the Executive is a participant; and (v) all other payments and
benefits to which the Executive (or in the event of the Executive's death, the
Executive's surviving spouse or other beneficiary) may be entitled as
compensatory fringe benefits or under the terms of the Employment Agreement
dated as of March 29, 1999 between the Company and the Executive or any benefit
plan of the Employer, excluding severance payments under any Employer severance
policy, practice or
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agreement in effect immediately prior to the Change in Control of the Company.
Payment of Accrued Benefits shall be made promptly in accordance with the
Company's prevailing practice with respect to Subsections 9(a)(i) and (ii) or,
with respect to Subsections 9(a)(iii), (iv) and (v), pursuant to the terms of
the benefit plan or practice establishing such benefits.
(b) Termination Payment.
(i) The Termination Payment shall be an amount equal to (A) the
Executive's Annual Base Salary (determined as of the time of the Change
in Control of the Company or, if higher, immediately prior to the date
the Notice of Termination is given) plus (B) an amount equal to the
greater of the Executive's target bonus for the year in which the
Termination Date occurs or the bonus the Executive received in the year
prior to the Change in Control of the Company (the aggregate amount set
forth in (A) and (B) hereof shall hereafter be referred to as "Annual
Cash Compensation"), times (C) the number of years or fractional portion
thereof remaining in the Employment Period determined as of the
Termination Date; provided, however, that such amount shall not be less
than the greater of (i) the amount of the Executive's Annual Cash
Compensation or (ii) the severance benefits to which the Executive would
have been entitled under the Company's severance policies and practices
in effect immediately prior to the Change in Control of the Company. The
Termination Payment shall be paid to the Executive in cash equivalent
ten (10) business days after the Termination Date. Such lump sum payment
shall not be reduced by any present value or similar factor, and the
Executive shall not be required to
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mitigate the amount of the Termination Payment by securing other
employment or otherwise, nor will such Termination Payment be reduced by
reason of the Executive securing other employment or for any other
reason. The Termination Payment shall be in lieu of, and acceptance by
the Executive of the Termination Payment shall constitute the
Executive's release of any rights of Executive to, any other severance
payments under any Company severance policy, practice or agreement. The
Company shall bear up to $10,000 in the aggregate of fees and expenses
of consultants and/or legal or accounting advisors engaged by the
Executive to advise the Executive as to matters relating to the
computation of benefits due and payable under this Subsection 9(b).
(ii) Notwithstanding any other provision of this Agreement, if
any portion of any payment under this Agreement, or under any other
agreement with or plan of the Employer (in the aggregate "Total
Payments"), would constitute an "excess parachute payment," the Company
shall pay Executive an additional amount (the "Gross-Up Payment") such
that the net amount retained by Executive after deduction of any excise
tax imposed under Section 4999 of the Code, any interest charges or
penalties in respect of the imposition of such excise tax (but not any
federal, state or local income tax, or employment tax) on the Total
Payments, and any federal, state and local income tax, employment tax,
and excise tax upon the payment provided for by this Subsection
9(b)(ii), shall be equal to the Total Payments. For purposes of
determining the amount of the Gross-Up
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Payment, Executive shall be deemed to pay federal income tax and
employment taxes at the highest marginal rate of federal income and
employment taxation in the calendar year in which the Gross-Up Payment
is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of Executive's domicile for
income tax purposes on the date the Gross-Up Payment is made, net of the
maximum reduction in federal income taxes that may be obtained from the
deduction of such state and local taxes.
(iii) For purposes of this Agreement, the terms "excess
parachute payment" and "parachute payments" shall have the meanings
assigned to them in Section 280G of the Code and such "parachute
payments" shall be valued as provided therein. Present value for
purposes of this Agreement shall be calculated in accordance with
Section 1274(b)(2) of the Code (or any successor provision). Promptly
following a Covered Termination or notice by the Company to the
Executive of its belief that there is a payment or benefit due the
Executive which will result in an excess parachute payment as defined in
Section 280G of the Code, the Executive and the Company, at the
Company's expense, shall obtain the opinion (which need not be
unqualified) of nationally recognized tax counsel ("National Tax
Counsel") selected by the Company's independent auditors and reasonably
acceptable to the Executive (which may be regular outside counsel to the
Company), which opinion sets forth (i) the amount of the Base Period
Income, (ii) the amount and present value of Total Payments,
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(iii) the amount and present value of any excess parachute payments, and
(iv) the amount of any Gross-Up Payment. As used in this Agreement, the
term "Base Period Income" means an amount equal to the Executive's
"annualized includible compensation for the base period" as defined in
Section 280G(d)(1) of the Code. For purposes of such opinion, the value
of any noncash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
principles of Section 280G(d)(3) and (4) of the Code (or any successor
provisions), which determination shall be evidenced in a certificate of
such auditors addressed to the Company and the Executive. The opinion of
National Tax Counsel shall be addressed to the Company and the Executive
and shall be binding upon the Company and the Executive. If such
National Tax Counsel so requests in connection with the opinion required
by this Subsection 9(b) of Section 9, the Executive and the Company
shall obtain, at the Company's expense, and the National Tax Counsel may
rely on, the advice of a firm of recognized executive compensation
consultants as to the reasonableness of any item of compensation to be
received by the Executive solely with respect to its status under
Section 280G of the Code and the regulations thereunder. Within five (5)
days after the National Tax Counsel's opinion is received by the Company
and the Executive, the Company shall pay (or cause to be paid) or
distribute (or cause to be distributed) to or for the benefit of
Executive such amounts as are then due to Executive under this
Agreement.
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(iv) In the event that upon any audit by the Internal Revenue
Service, or by a state or local taxing authority, of the Total Payments
or Gross-Up Payment, a change is finally determined to be required in
the amount of taxes paid by Executive, appropriate adjustments shall be
made under this Agreement such that the net amount which is payable to
the Executive after taking into account the provisions of Section 4999
of the Code shall reflect the intent of the parties as expressed in this
Section 9, in the manner determined by the National Tax Counsel.
(v) The Company agrees to bear all costs associated with, and to
indemnify and hold harmless, the National Tax Counsel of and from any
and all claims, damages, and expenses resulting from or relating to its
determinations pursuant to this Subsection 9(b), except for claims,
damages or expenses resulting from the gross negligence or willful
misconduct of such firm.
10. Death. (a) Except as provided in Subsection 10(b) hereof, in the
event of a Covered Termination due to the Executive's death, the Executive's
estate, heirs and beneficiaries shall receive all the Executive's Accrued
Benefits through the Termination Date.
(b) In the event the Executive dies after a Notice of Termination is
given (i) by the Company or (ii) by the Executive for Good Reason, the
Executive's estate, heirs and beneficiaries shall be entitled to the benefits
described in Subsection 10(a) hereof and, subject to the provisions of this
Agreement, to such Termination Payment as the Executive would have been entitled
to had the Executive lived. For purposes of this Subsection 10(b), the
Termination Date shall be the earlier of thirty days following the giving of the
Notice of Termination, subject to
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extension pursuant to Subsection 1(l) hereof, or one day prior to the end of the
Employment Period.
11. Retirement. If, during the Employment Period, the Executive and the
Employer shall execute an agreement providing for the early retirement of the
Executive from the Employer, or the Executive shall otherwise give notice that
he is voluntarily choosing to retire early from the Employer, the Executive
shall receive Accrued Benefits through the Termination Date; provided, that if
the Executive's employment is terminated by the Executive for Good Reason or by
the Company other than by reason of death, disability or Cause and the Executive
also, in connection with such termination, elects voluntary early retirement,
the Executive shall also be entitled to receive a Termination Payment pursuant
to Subsection 8(a) hereof.
12. Termination for Disability. If, during the Employment Period, as a
result of the Executive's disability due to physical or mental illness or injury
(regardless of whether such illness or injury is job-related), the Executive
shall have been absent from the Executive's duties hereunder on a full-time
basis for a period of six consecutive months and, within thirty days after the
Company notifies the Executive in writing that it intends to terminate the
Executive's employment (which notice shall not constitute the Notice of
Termination contemplated below), the Executive shall not have returned to the
performance of the Executive's duties hereunder on a full-time basis, the
Company may terminate the Executive's employment for purposes of this Agreement
pursuant to a Notice of Termination given in accordance with Section 13 hereof.
If the Executive's employment is terminated on account of the Executive's
disability in accordance with this Section, the Executive shall receive Accrued
Benefits in accordance with Subsection 9(a) hereof and shall remain eligible for
all benefits provided by any long term disability programs of the Company in
effect at the time of such termination.
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13. Termination Notice and Procedure. Any Covered Termination by the
Company or the Executive (other than a termination of the Executive's employment
that is a Covered Termination by virtue of Subsection 2(b) hereof) shall be
communicated by a written notice of termination ("Notice of Termination") to the
Executive, if such Notice is given by the Company, and to the Company, if such
Notice is given by the Executive, all in accordance with the following
procedures and those set forth in Section 23 hereof:
(a) If such termination is for disability, Cause or Good Reason, the
Notice of Termination shall indicate in reasonable detail the facts and
circumstances alleged to provide a basis for such termination.
(b) Any Notice of Termination by the Company shall have been approved,
prior to the giving thereof to the Executive, by a resolution duly adopted by a
majority of the directors of the Company (or any successor corporation) then in
office.
(c) If the Notice is given by the Executive for Good Reason, the
Executive may cease performing his duties hereunder on or after the date fifteen
days after the delivery of Notice of Termination and shall in any event cease
employment on the Termination Date. If the Notice is given by the Company, then
the Executive may cease performing his duties hereunder on the date of receipt
of the Notice of Termination, subject to the Executive's rights hereunder.
(d) The Executive shall have thirty days, or such longer period as the
Company may determine to be appropriate, to cure any conduct or act, if curable,
alleged to provide grounds for termination of the Executive's employment for
Cause under this Agreement pursuant to Subsection 1(d) (iii) hereof.
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(e) The recipient of any Notice of Termination shall personally deliver
or mail in accordance with Section 23 hereof written notice of any dispute
relating to such Notice of Termination to the party giving such Notice within
fifteen days after receipt thereof; provided, however, that if the Executive's
conduct or act alleged to provide grounds for termination by the Company for
Cause is curable, then such period shall be thirty days. After the expiration of
such period, the contents of the Notice of Termination shall become final and
not subject to dispute.
14. Further Obligations of the Executive.
(a) Competition. The Executive agrees that, in the event of any Covered
Termination where the Executive is entitled to Accrued Benefits and the
Termination Payment, the Executive shall not, for a period expiring one year
after the Termination Date, without the prior written approval of the Company's
Board of Directors, participate in the management of, be employed by or own any
business enterprise at a location within the United States that engages in
substantial competition with the Company or its subsidiaries, where such
enterprise's revenues from any competitive activities amount to 10% or more of
such enterprise's net revenues and sales for its most recently completed fiscal
year; provided, however, that nothing in this Subsection 14(a) shall prohibit
the Executive from owning stock or other securities of a competitor amounting to
less than five percent of the outstanding capital stock of such competitor.
(b) Confidentiality. During the Executive's employment by the Company
and for a period of five (5) years thereafter, the Executive shall hold in
confidence and not directly or indirectly disclose or use or copy or make lists
of any confidential information or proprietary data of the Company (including
that of the Employer), except to the extent authorized in writing by the Board
of Directors of the Company or required by any court or administrative agency,
other than to an employee of the Company or a person to whom disclosure is
reasonably
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necessary or appropriate in connection with the performance by the Executive of
duties as an executive of the Company. Confidential information shall not
include any information known generally to the public or any information of a
type not otherwise considered confidential by persons engaged in the same
business or a business similar to that of the Company. All records, files,
documents and materials, or copies thereof, relating to the business of the
Company which the Executive shall prepare, or use, or come into contact with,
shall be and remain the sole property of the Company and shall be promptly
returned to the Company upon termination of employment with the Company.
15. Expenses and Interest. If, after a Change in Control of the Company,
(i) a dispute arises with respect to the enforcement of the Executive's rights
under this Agreement or (ii) any legal or arbitration proceeding shall be
brought to enforce or interpret any provision contained herein or to recover
damages for breach hereof, in either case so long as, and to the extent that,
the Executive prevails in such proceeding, the Executive shall recover from the
Company the reasonable attorneys' fees and necessary costs and disbursements
incurred as a result of the dispute, legal or arbitration proceeding as to which
the Executive has prevailed ("Expenses"), and prejudgment interest on any money
judgment or arbitration award obtained by the Executive calculated at the rate
of interest announced by Firstar Bank Milwaukee, N.A., Milwaukee, Wisconsin,
from time to time at its prime or base lending rate from the date that payments
to him or her should have been made under this Agreement. Any dispute as to the
reasonableness of the Expenses incurred, or the extent to which the Executive
has prevailed, shall be resolved by the presiding officer (arbitrator or judge)
in the forum in which the substantive issues are finally resolved.
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16. Payment Obligations Absolute. The Company's obligation during and
after the Employment Period to pay the Executive the amounts and to make the
benefit and other arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including, without
limitation, any setoff, counterclaim, recoupment, defense or other right which
the Company may have against him or anyone else. Except as provided in Section
15 of this Agreement, all amounts payable by the Company hereunder shall be paid
without notice or demand. Each and every payment made hereunder by the Company
shall be final, and the Company will not seek to recover all or any part of such
payment from the Executive, or from whomsoever may be entitled thereto, for any
reason whatsoever.
17. Successors. (a) If the Company sells, assigns or transfers all or
substantially all of its business and assets to any Person or if the Company
merges into or consolidates or otherwise combines (where the Company does not
survive such combination) with any Person (any such event, a "Sale of
Business"), then the Company shall assign all of its right, title and interest
in this Agreement as of the date of such event to such Person, and the Company
shall cause such Person, by written agreement in form and substance reasonably
satisfactory to the Executive, to expressly assume and agree to perform from and
after the date of such assignment all of the terms, conditions and provisions
imposed by this Agreement upon the Company. Failure of the Company to obtain
such agreement prior to the effective date of such Sale of Business shall be a
breach of this Agreement constituting "Good Reason" hereunder, except that for
purposes of implementing the foregoing the date upon which such Sale of Business
becomes effective shall be deemed the Termination Date. In case of such
assignment by the Company and of assumption and agreement by such Person, as
used in this Agreement, "Company" shall thereafter mean such Person which
executes and delivers the agreement provided for in this Section 17 or which
otherwise
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becomes bound by all the terms and provisions of this Agreement by operation of
law, and this Agreement shall inure to the benefit of, and be enforceable by,
such Person. The Executive shall, in his or her discretion, be entitled to
proceed against any or all of such Persons, any Person which theretofore was
such a successor to the Company and the Company (as so defined) in any action to
enforce any rights of the Executive hereunder. Except as provided in this
Subsection 17(a), this Agreement shall not be assignable by the Company. This
Agreement shall not be terminated by the voluntary or involuntary dissolution of
the Company.
(b) This Agreement and all rights of the Executive shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, heirs and beneficiaries. All amounts
payable to the Executive under Sections 7, 8, 9, 10, 11, 12 and 15 hereof if the
Executive had lived shall be paid, in the event of the Executive's death, to the
Executive's estate, heirs and representatives; provided, however, that the
foregoing shall not be construed to modify any terms of any benefit plan of the
Employer, as such terms are in effect on the date of the Change in Control of
the Company, that expressly govern benefits under such plan in the event of the
Executive's death.
18. Severability. The provisions of this Agreement shall be regarded as
divisible, and if any of said provisions or any part hereof are declared invalid
or unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts hereof and the
applicability thereof shall not be affected thereby.
19. Contents of Agreement; Waiver of Rights; Amendment. Except for the
Employment Agreement dated as of March 29, 1999 between the Company and the
Executive, this Agreement sets forth the entire understanding between the
parties hereto with respect to the subject matter hereof and shall supersede in
all respects, and the Executive hereby waives all rights under, any prior or
other agreement or understanding
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between the parties with respect to such subject matter, including, but not
limited to the Key Executive Employment and Severance Agreement dated as of June
25, 1994 between the Company and the Executive. This Agreement may not be
amended or modified at any time except by written instrument executed by the
Company and the Executive.
20. Withholding. The Company shall be entitled to withhold from amounts
to be paid to the Executive hereunder any federal, state or local withholding or
other taxes or charges which it is from time to time required to withhold;
provided, that the amount so withheld shall not exceed the minimum amount
required to be withheld by law. The Company shall be entitled to rely on an
opinion of the National Tax Counsel if any question as to the amount or
requirement of any such withholding shall arise.
21. Certain Rules of Construction. No party shall be considered as being
responsible for the drafting of this Agreement for the purpose of applying any
rule construing ambiguities against the drafter or otherwise. No draft of this
Agreement shall be taken into account in construing this Agreement. Any
provision of this Agreement which requires an agreement in writing shall be
deemed to require that the writing in question be signed by the Executive and an
authorized representative of the Company.
22. Governing Law; Resolution of Disputes. This Agreement and the rights
and obligations hereunder shall be governed by and construed in accordance with
the laws of the State of Wisconsin. Any dispute arising out of this Agreement
shall, at the Executive's election, be determined by arbitration under the rules
of the American Arbitration Association then in effect (in which case both
parties shall be bound by the arbitration award) or by litigation. Whether the
dispute is to be settled by arbitration or litigation, the venue for the
arbitration or litigation shall be
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Madison, Wisconsin or, at the Executive's election, if the Executive is not then
residing or working in the Madison, Wisconsin metropolitan area, in the judicial
district encompassing the city in which the Executive resides; provided, that,
if the Executive is not then residing in the United States, the election of the
Executive with respect to such venue shall be either Madison, Wisconsin or in
the judicial district encompassing that city in the United States among the
thirty cities having the largest population (as determined by the most recent
United States Census data available at the Termination Date) which is closest to
the Executive's residence. The parties consent to personal jurisdiction in each
trial court in the selected venue having subject matter jurisdiction
notwithstanding their residence or situs, and each party irrevocably consents to
service of process in the manner provided hereunder for the giving of notices.
23. Notice. Notices given pursuant to this Agreement shall be in writing
and, except as otherwise provided by Subsection 13(d) hereof, shall be deemed
given when actually received by the Executive or actually received by the
Company's Corporate Secretary or any officer of the Company other than the
Executive. If mailed, such notices shall be mailed by United States registered
or certified mail, return receipt requested, addressee only, postage prepaid, if
to the Company, to Interstate Energy Corporation (d/b/a Alliant Energy
Corporation), Attention: Corporate Secretary (or President, if the Executive is
then Corporate Secretary), 222 West Washington Avenue, P.O. Box 2568, Madison,
Wisconsin 53701-2568, or if to the Executive, at the address set forth below the
Executive's signature to this Agreement, or to such other address as the party
to be notified shall have theretofore given to the other party in writing.
24. No Waiver. No waiver by either party at any time of any breach by
the other party of, or compliance with, any condition or provision of this
Agreement to be performed
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by the other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or any prior or subsequent time.
25. Headings. The headings herein contained are for reference only and
shall not affect the meaning or interpretation of any provision of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
INTERSTATE ENERGY CORPORATION
By:
Its:
Attest:
Its:
EXECUTIVE:
/s/Erroll B. Davis, Jr. (SEAL)
Address:
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Exhibit 10.3
KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT
THIS AGREEMENT, made and entered into as of the _____ day of ________,
____ by and between Interstate Energy Corporation (d/b/a Alliant Energy
Corporation), a Wisconsin corporation (hereinafter referred to as the
"Company"), and [Executive Name] (hereinafter referred to as "Executive").
W I T N E S S E T H
WHEREAS, the Executive is employed by the Company and/or a subsidiary of
the Company (hereinafter referred to collectively as the "Employer") in a key
executive capacity and the Executive's services are valuable to the conduct of
the business of the Company;
WHEREAS, the Company desires to continue to attract and retain dedicated
and skilled management employees in a period of industry consolidation,
consistent with achieving the best possible value for its shareowners in any
change in control of the Company;
WHEREAS, the Company recognizes that circumstances may arise in which a
change in control of the Company occurs, through acquisition or otherwise,
thereby causing a potential conflict of interest between the Company's needs for
the Executive to remain focused on the Company's business and for the necessary
continuity in management prior to and following a change in control, and the
Executive's reasonable personal concerns regarding future employment with the
Employer and economic protection in the event of loss of employment as a
consequence of a change in control;
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WHEREAS, the Company and the Executive are desirous that any proposal for
a change in control or acquisition of the Company will be considered by the
Executive objectively and with reference only to the best interests of the
Company and its shareowners;
WHEREAS, the Executive will be in a better position to consider the
Company's best interests if the Executive is afforded reasonable economic
security, as provided in this Agreement, against altered conditions of
employment which could result from any such change in control or acquisition;
WHEREAS, the Executive possesses intimate knowledge of the business and
affairs of the Company and has acquired certain confidential information and
data with respect to the Company; and
WHEREAS, the Company desires to insure, insofar as possible, that it will
continue to have the benefit of the Executive's services and to protect its
confidential information and goodwill.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto mutually
covenant and agree as follows:
1. Definitions.
(a) Act. For purposes of this Agreement, the term "Act" means the
Securities Exchange Act of 1934, as amended.
(b) Affiliate and Associate. For purposes of this Agreement, the terms
"Affiliate" and "Associate" shall have the respective meanings ascribed to such
terms in Rule l2b-2 of the General Rules and Regulations under the Act.
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(c) Beneficial Owner. For purposes of this Agreement, a Person shall be
deemed to be the "Beneficial Owner" of any securities:
(i) which such Person or any of such Person's Affiliates or
Associates has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding, or upon the exercise of conversion rights,
exchange rights, rights, warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, (A) securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such
Person's Affiliates or Associates until such tendered securities are
accepted for purchase, or (B) securities issuable upon exercise of Rights
issued pursuant to the terms of the Company's Rights Agreement, dated as
of January 20, 1999, between Interstate Energy Corporation and Firstar
Bank Milwaukee, N.A., as amended from time to time (or any successor to
such Rights Agreement), at any time before the issuance of such
securities;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of
or has "beneficial ownership" of (as determined pursuant to Rule l3d-3 of
the General Rules and Regulations under the Act), including pursuant to
any agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security under this Subsection 1(c)(ii) as a result of an
agreement,
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arrangement or understanding to vote such security if the agreement,
arrangement or understanding: (A) arises solely from a revocable proxy or
consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
rules and regulations under the Act and (B) is not also then reportable
on a Schedule l3D under the Act (or any comparable or successor report);
or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting (except pursuant to a revocable
proxy as described in Subsection 1(c) (ii) above) or disposing of any
voting securities of the Company.
(d) Cause. "Cause" for termination by the Employer of the Executive's
employment in connection with a Change in Control of the Company shall, for
purposes of this Agreement, be limited to (i) the engaging by the Executive in
intentional conduct not taken in good faith which has caused demonstrable and
serious financial injury to the Employer, as evidenced by a determination in a
binding and final judgment, order or decree of a court or administrative agency
of competent jurisdiction, in effect after exhaustion or lapse of all rights of
appeal, in an action, suit or proceeding, whether civil, criminal,
administrative or investigative; (ii) conviction of a felony (as evidenced by
binding and final judgment, order or decree of a court of competent
jurisdiction, in effect after exhaustion of all rights of appeal) which
substantially impairs the Executive's ability to perform his duties or
responsibilities; and (iii) continuing willful and unreasonable refusal by the
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Executive to perform the Executive's duties or responsibilities (unless
significantly changed without the Executive's consent).
(e) Change in Control of the Company. A "Change in Control of the
Company" shall be deemed to have occurred if an event set forth in any one of
the following paragraphs shall have occurred:
(i) any Person (other than (A) the Company or any of its
subsidiaries, (B) a trustee or other fiduciary holding securities under
any employee benefit plan of the Company or any of its subsidiaries, (C)
an underwriter temporarily holding securities pursuant to an offering of
such securities or (D) a corporation owned, directly or indirectly, by
the shareowners of the Company in substantially the same proportions as
their ownership of stock in the Company ("Excluded Persons")) is or
becomes the Beneficial Owner, directly or indirectly, of securities of
the Company (not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or its
Affiliates after November 18, 1998, pursuant to express authorization by
the Board that refers to this exception) representing 20% or more of
either the then outstanding shares of common stock of the Company or the
combined voting power of the Company's then outstanding voting
securities; or
(ii) the following individuals cease for any reason to constitute
a majority of the number of directors of the Company then serving: (A)
individuals who, on November 18, 1998, constituted the Board and (B) any
new director (other than a director whose initial assumption of
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office is in connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating to the
election of directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A under the Act) whose appointment or election by
the Board or nomination for election by the Company's shareowners was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors on November 18, 1998, or whose
appointment, election or nomination for election was previously so
approved (collectively the "Continuing Directors"); provided, however,
that individuals who are appointed to the Board pursuant to or in
accordance with the terms of an agreement relating to a merger,
consolidation, or share exchange involving the Company (or any direct or
indirect subsidiary of the Company) shall not be Continuing Directors for
purposes of this Agreement until after such individuals are first
nominated for election by a vote of at least two-thirds (2/3) of the then
Continuing Directors and are thereafter elected as directors by the
shareowners of the Company at a meeting of shareowners held following
consummation of such merger, consolidation, or share exchange; and,
provided further, that in the event the failure of any such persons
appointed to the Board to be Continuing Directors results in a Change in
Control of the Company, the subsequent qualification of such persons as
Continuing Directors shall not alter the fact that a Change in Control of
the Company occurred; or
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(iii) the shareowners of the Company approve a merger,
consolidation or share exchange of the Company with any other corporation
or approve the issuance of voting securities of the Company in connection
with a merger, consolidation or share exchange of the Company (or any
direct or indirect subsidiary of the Company) pursuant to applicable
stock exchange requirements, other than (A) a merger, consolidation or
share exchange which would result in the voting securities of the Company
outstanding immediately prior to such merger, consolidation or share
exchange continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or any
parent thereof) at least 50% of the combined voting power of the voting
securities of the Company or such surviving entity or any parent thereof
outstanding immediately after such merger, consolidation or share
exchange, or (B) a merger, consolidation or share exchange effected to
implement a recapitalization of the Company (or similar transaction) in
which no Person (other than an Excluded Person) is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its Affiliates after
November 18, 1998, pursuant to express authorization by the Board that
refers to this exception) representing 20% or more of either the then
outstanding shares of common stock of the Company or the combined voting
power of the Company's then outstanding voting securities; or
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(iv) the shareowners of the Company approve a plan of complete
liquidation or dissolution of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets (in one transaction or a series of related transactions within any
period of 24 consecutive months), other than a sale or disposition by the
Company of all or substantially all of the Company's assets to an entity
at least 75% of the combined voting power of the voting securities of
which are owned by Persons in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, no "Change in Control of the Company" shall be
deemed to have occurred if there is consummated any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to own, directly or indirectly, in the same proportions as
their ownership in the Company, an entity that owns all or substantially all of
the assets or voting securities of the Company immediately following such
transaction or series of transactions.
(f) Code. For purposes of this Agreement, the term "Code" means the
Internal Revenue Code of 1986, including any amendments thereto or successor tax
codes thereof.
(g) Covered Termination. Subject to Subsection 2(b) hereof, for purposes
of this Agreement, the term "Covered Termination" means any termination of the
Executive's employment during the Employment Period where the Notice of
Termination is delivered on or the Termination Date is any date prior to the end
of the Employment Period.
(h) Employment Period. Subject to Subsection 2(b) hereof, for purposes of
this Agreement, the term "Employment Period" means a period commencing on the
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date of a Change in Control of the Company, and ending at 11:59 p.m. Central
Time on the earlier of the third anniversary of such date or the Executive's
Normal Retirement Date.
(i) Good Reason. For purposes of this Agreement, the Executive shall have
"Good Reason" for termination of employment in connection with a Change in
Control of the Company in the event of:
(i) any breach of this Agreement by the Employer, including
specifically any breach by the Employer of the agreements contained in
Sections 4, 5, and 6 hereof, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith that the Employer remedies
promptly after receipt of notice thereof given by the Executive;
(ii) any reduction in the Executive's base salary, percentage of
base salary available as incentive compensation or bonus opportunity or
benefits, in each case relative to those most favorable to the Executive
in effect at any time during the 180-day period prior to the Change in
Control or, to the extent more favorable to the Executive, those in
effect at any time during the Employment Period;
(iii) the removal of the Executive from, or any failure to reelect
or reappoint the Executive to, any of the positions held with the
Employer on the date of the Change in Control of the Company or any other
positions with the Employer to which the Executive shall thereafter be
elected, appointed or assigned, except in the event that such removal or
failure to reelect or reappoint relates to the termination by the
Employer of
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the Executive's employment for Cause or by reason of disability pursuant
to Section 12 hereof;
(iv) a good faith determination by the Executive that there has
been a significant adverse change, without the Executive's written
consent, in the Executive's working conditions or status with the
Employer relative to the most favorable working conditions or status in
effect during the 180-day period prior to the Change in Control of the
Company, or, to the extent more favorable to the Executive, those in
effect at any time during the Employment Period, including but not
limited to (A) a significant change in the nature or scope of the
Executive's authority, powers, functions, duties or responsibilities, or
(B) a significant reduction in the level of support services, staff,
secretarial and other assistance, office space and accoutrements but
excluding for this purpose an isolated, insubstantial and inadvertent
event not occurring in bad faith that the Employer remedies promptly
after receipt of notice thereof given by the Executive; or
(v) failure by the Company to obtain the Agreement referred to in
Section 17(a) hereof as provided therein.
(j) Normal Retirement Date. For purposes of this Agreement, the term
"Normal Retirement Date" means "Normal Retirement Date" as defined in the
primary qualified defined benefit pension plan applicable to the Executive, or
any successor plan, as in effect on the date of the Change in Control of the
Company.
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(k) Person. For purposes of this Agreement, the term "Person" shall mean
any individual, firm, partnership, corporation or other entity, including any
successor (by merger or otherwise) of such entity, or a group of any of the
foregoing acting in concert.
(l) Termination Date. For purposes of this Agreement, except as otherwise
provided in Subsection 2(b), Subsection 10(b), and Subsection 17(a) hereof, the
term "Termination Date" means (i) if the Executive's employment is terminated by
the Executive's death, the date of death; (ii) if the Executive's employment is
terminated by reason of voluntary early retirement, as agreed in writing by the
Employer and the Executive, the date of such early retirement which is set forth
in such written agreement; (iii) if the Executive's employment is terminated for
purposes of this Agreement by reason of disability pursuant to Section 12
hereof, the earlier of thirty days after the Notice of Termination is given or
one day prior to the end of the Employment Period; (iv) if the Executive's
employment is terminated by the Executive voluntarily (other than for Good
Reason), the date the Notice of Termination is given; and (v) if the Executive's
employment is terminated by the Employer (other than by reason of disability
pursuant to Section 12 hereof) or by the Executive for Good Reason, the earlier
of thirty days after the Notice of Termination is given or one day prior to the
end of the Employment Period. Notwithstanding the foregoing,
(1) If termination is for Cause pursuant to Subsection
1(d)(iii) of this Agreement and if the Executive has cured the
conduct constituting such Cause as described by the Employer in
its Notice of Termination within such thirty-day or shorter
period, then the Executive's employment hereunder shall continue
as if the Employer had not delivered its Notice of Termination.
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(2) If the Executive shall in good faith give a Notice of
Termination for Good Reason and the Employer notifies the
Executive that a dispute exists concerning the termination within
the fifteen-day period following receipt thereof, then the
Executive may elect to continue his or her employment during such
dispute and the Termination Date shall be determined under this
paragraph. If the Executive so elects and it is thereafter
determined that Good Reason did exist, the Termination Date shall
be the earliest of (i) the date on which the dispute is finally
determined, either (x) by mutual written agreement of the parties
or (y) in accordance with Section 22 hereof, (ii) the date of the
Executive's death or (iii) one day prior to the end of the
Employment Period. If the Executive so elects and it is thereafter
determined that Good Reason did not exist, then the employment of
the Executive hereunder shall continue after such determination as
if the Executive had not delivered the Notice of Termination
asserting Good Reason and there shall be no Termination Date
arising out of such Notice. In either case, this Agreement
continues, until the Termination Date, if any, as if the Executive
had not delivered the Notice of Termination except that, if it is
finally determined that Good Reason did exist, the Executive shall
in no case be denied the benefits described in Subsection 8(b) and
Section 9 hereof (including a Termination Payment) based on events
occurring after the Executive delivered his Notice of Termination.
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(3) Except as provided in Subsection 1(l)(2), above, if the
party receiving the Notice of Termination notifies the other party
that a dispute exists concerning the termination within the
appropriate period following receipt thereof and it is finally
determined that the reason asserted in such Notice of Termination
did not exist, then (i) if such Notice was delivered by the
Executive, the Executive will be deemed to have voluntarily
terminated his employment and the Termination Date shall be the
earlier of the date fifteen days after the Notice of Termination
is given or one day prior to the end of the Employment Period and
(ii) if delivered by the Company, the Company will be deemed to
have terminated the Executive other than by reason of death,
disability or Cause.
2. Termination or Cancellation Prior to Change in Control.
(a) Subject to Subsection 2(b) hereof, the Employer and the Executive
shall each retain the right to terminate the employment of the Executive at any
time prior to a Change in Control of the Company. Subject to Subsection 2(b)
hereof, in the event the Executive's employment is terminated prior to a Change
in Control of the Company, this Agreement shall be terminated and cancelled and
of no further force and effect, and any and all rights and obligations of the
parties hereunder shall cease.
(b) Anything in this Agreement to the contrary notwithstanding, if a
Change in Control of the Company occurs and if the Executive's employment with
the Employer is terminated (other than a termination due to the Executive's
death or as a result of the Executive's disability) during the period of 180
days prior to the date on which the Change in Control of the Company occurs, and
if it is reasonably demonstrated by the Executive that such termination of
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employment (i) was at the request of a third party who has taken steps
reasonably calculated to effect a Change in Control of the Company or (ii)
otherwise arose in connection with or in anticipation of a Change in Control of
the Company, then for all purposes of this Agreement such termination of
employment shall be deemed a "Covered Termination," "Notice of Termination"
shall be deemed to have been given, and the "Employment Period" shall be deemed
to have begun on the date of such termination which shall be deemed to be the
"Termination Date" and the date of the Change of Control of the Company for
purposes of this Agreement.
3. Employment Period. If a Change in Control of the Company occurs when
the Executive is employed by the Employer, the Employer will continue thereafter
to employ the Executive during the Employment Period, and the Executive will
remain in the employ of the Employer in accordance with and subject to the terms
and provisions of this Agreement. Any termination of the Executive's employment
during the Employment Period, whether by the Company or the Employer, shall be
deemed a termination by the Company for purposes of this Agreement.
4. Duties. During the Employment Period, the Executive shall, in the same
capacities and positions held by the Executive at the time of the Change in
Control of the Company or in such other capacities and positions as may be
agreed to by the Employer and the Executive in writing, devote the Executive's
best efforts and all of the Executive's business time, attention and skill to
the business and affairs of the Employer, as such business and affairs now exist
and as they may hereafter be conducted. The services which are to be performed
by the Executive hereunder are to be rendered in the same metropolitan area in
which the Executive was employed at the date of such Change in Control of the
Company, or in such other place or places as shall be mutually agreed upon in
writing by the Executive and the Employer from time to time. Without the
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Executive's consent, the Executive shall not be required to be absent from such
metropolitan area more than 45 days in any fiscal year of the Company.
5. Compensation. During the Employment Period, the Executive shall be
compensated as follows:
(a) The Executive shall receive, at reasonable intervals (but not less
often than monthly) and in accordance with such standard policies as may be in
effect immediately prior to the Change in Control of the Company, an annual base
salary in cash equivalent of not less than twelve times the Executive's highest
monthly base salary for the twelve-month period immediately preceding the month
in which the Change in Control of the Company occurs or, if higher, annual base
salary at the rate in effect immediately prior to the Change in Control of the
Company (which base salary shall, unless otherwise agreed in writing by the
Executive, include the current receipt by the Executive of any amounts which,
prior to the Change in Control of the Company, the Executive had elected to
defer, whether such compensation is deferred under Section 401(k) of the Code or
otherwise), subject to adjustment as hereinafter provided in Section 6 (such
salary amount as adjusted upward from time to time is hereafter referred to as
the "Annual Base Salary").
(b) The Executive shall receive fringe benefits at least equal in value
to the highest value of such benefits provided for the Executive at any time
during the 180-day period immediately prior to the Change in Control of the
Company or, if more favorable to the Executive, those provided generally at any
time during the Employment Period to any executives of the Employer of
comparable status and position to the Executive; and shall be reimbursed, at
such intervals and in accordance with such standard policies that are most
favorable to the Executive that were in effect at any time during the 180-day
period immediately prior to the Change in Control of
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the Company, for any and all monies advanced in connection with the Executive's
employment for reasonable and necessary expenses incurred by the Executive on
behalf of the Employer, including travel expenses.
(c) The Executive and/or the Executive's family, as the case may be,
shall be included, to the extent eligible thereunder (which eligibility shall
not be conditioned on the Executive's salary grade or on any other requirement
which excludes persons of comparable status to the Executive unless such
exclusion was in effect for such plan or an equivalent plan at any time during
the 180-day period immediately prior to the Change in Control of the Company),
in any and all plans providing benefits for the Employer's salaried employees in
general, including but not limited to group life insurance, hospitalization,
medical, dental, profit sharing and stock bonus plans; provided, that, (i) in no
event shall the aggregate level of benefits under such plans in which the
Executive is included be less than the aggregate level of benefits under plans
of the Employer of the type referred to in this Subsection 5(c) in which the
Executive was participating at any time during the 180-day period immediately
prior to the Change in Control of the Company and (ii) in no event shall the
aggregate level of benefits under such plans be less than the aggregate level of
benefits under plans of the type referred to in this Subsection 5(c) provided at
any time after the Change in Control of the Company to any executive of the
Employer of comparable status and position to the Executive.
(d) The Executive shall annually be entitled to not less than the amount
of paid vacation and not fewer than the highest number of paid holidays to which
the Executive was entitled annually at any time during the 180-day period
immediately prior to the Change in Control of the Company or such greater amount
of paid vacation and number of paid holidays as may be
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made available annually to other executives of the Employer of comparable status
and position to the Executive at any time during the Employment Period.
(e) The Executive shall be included in all plans providing additional
benefits to executives of the Employer of comparable status and position to the
Executive, including but not limited to deferred compensation, split-dollar life
insurance, supplemental retirement, stock option, stock appreciation, stock
bonus and similar or comparable plans; provided, that, (i) in no event shall the
aggregate level of benefits under such plans be less than the highest aggregate
level of benefits under plans of the Employer of the type referred to in this
Subsection 5(e) in which the Executive was participating at any time during the
180-day period immediately prior to the Change in Control of the Company; (ii)
in no event shall the aggregate level of benefits under such plans be less than
the aggregate levels of benefits under plans of the type referred to in this
Subsection 5(e) provided at any time after the Change in Control of the Company
to any executive of the Employer comparable in status and position to the
Executive; and (iii) the Employer's obligation to include the Executive in bonus
or incentive compensation plans shall be determined by Subsection 5(f) hereof.
(f) To assure that the Executive will have an opportunity to earn
incentive compensation after a Change in Control of the Company, the Executive
shall be included in a bonus plan of the Employer which shall satisfy the
standards described below (such plan, the "Bonus Plan"). Bonuses under the Bonus
Plan shall be payable with respect to achieving such financial or other goals
reasonably related to the business of the Employer as the Employer shall
establish (the "Goals"), all of which Goals shall be attainable, prior to the
end of the Employment Period, with approximately the same degree of probability
as the most attainable goals under the Employer's bonus plan or plans as in
effect at any time during the 180-day period immediately
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prior to the Change in Control of the Company (whether one or more, the "Company
Bonus Plan") and in view of the Employer's existing and projected financial and
business circumstances applicable at the time. The amount of the bonus (the
"Bonus Amount") that the Executive is eligible to earn under the Bonus Plan
shall be no less than the amount of the Executive's maximum award provided in
such Company Bonus Plan (such bonus amount herein referred to as the "Targeted
Bonus"), and in the event the Goals are not achieved such that the entire
Targeted Bonus is not payable, the Bonus Plan shall provide for a payment of a
Bonus Amount equal to a portion of the Targeted Bonus reasonably related to that
portion of the Goals which were achieved. Payment of the Bonus Amount shall not
be affected by any circumstance occurring subsequent to the end of the
Employment Period, including termination of the Executive's employment.
6. Annual Compensation Adjustments. During the Employment Period, the
Board of Directors of the Company (or an appropriate committee thereof) will
consider and appraise, at least annually, the contributions of the Executive to
the Company, and in accordance with the Company's practice prior to the Change
in Control of the Company, due consideration shall be given to the upward
adjustment of the Executive's Annual Base Salary, at least annually, (i)
commensurate with increases generally given to other executives of the Company
of comparable status and position to the Executive, and (ii) as the scope of the
Company's operations or the Executive's duties expand.
7. Termination For Cause or Without Good Reason. If there is a Covered
Termination for Cause or due to the Executive's voluntarily terminating his or
her employment other than for Good Reason (any such terminations to be subject
to the procedures set forth in Section 13 hereof), then the Executive shall be
entitled to receive only Accrued Benefits pursuant to Subsection 9(a) hereof.
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8. Termination Giving Rise to a Termination Payment. (a) If there is a
Covered Termination by the Executive for Good Reason, or by the Company other
than by reason of (i) death, (ii) disability pursuant to Section 12 hereof, or
(iii) Cause (any such terminations to be subject to the procedures set forth in
Section 13 hereof), then the Executive shall be entitled to receive, and the
Company shall promptly pay, Accrued Benefits and, in lieu of further base salary
for periods following the Termination Date, as liquidated damages and additional
severance pay and in consideration of the covenant of the Executive set forth in
Subsection 14(a) hereof, the Termination Payment pursuant to Subsection 9(b)
hereof.
(b) If there is a Covered Termination and the Executive is entitled to
Accrued Benefits and the Termination Payment, then the Company shall provide to
the Executive the following additional benefits:
(i) The Executive shall receive, at the expense of the Company,
outplacement services, on an individualized basis at a level of service
commensurate with the Executive's status with the Company immediately
prior to the date of the Change in Control of the Company (or, if higher,
immediately prior to the termination of the Executive's employment),
provided by a nationally recognized executive placement firm selected by
the Company; provided that the cost to the Company of such services shall
not exceed 10% of the Executive's Annual Base Salary.
(ii) Until the earlier of the end of the Employment Period or such
time as the Executive has obtained new employment and is covered by
benefits which in the aggregate are at least equal in value to the
following benefits, the Executive shall continue to be covered, at the
expense of the
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Company, by the same or equivalent life insurance, hospitalization,
medical and dental coverage as was required hereunder with respect to the
Executive immediately prior to the date the Notice of Termination is
given.
(iii) The Company shall cause the Executive to be fully and
immediately vested in his accrued benefit under any supplemental
executive retirement plan of the Employer providing benefits for the
Executive (the "SERP") and in any defined contribution retirement plan of
the Employer. In addition, the Company shall cause the Executive to be
deemed to have satisfied any minimum years of service requirement under
the SERP for subsidized early retirement benefits regardless of the
Executive's age and service at the Termination Date; provided, however,
that SERP benefits will be based on service to date with no additional
credit for service or age beyond such Termination Date.
(iv) The Company shall cause all restrictions on restricted stock
awards made to the Executive to lapse such that the Executive is fully
and immediately vested in his or her restricted stock.
(v) The Company shall cause all stock options granted to the
Executive pursuant to the Company's stock option plan(s) to be fully
vested.
(vi) The Company shall cause all performance plan awards granted
to the Executive pursuant to any long-term incentive plan maintained by
the Company to be paid out at target, as if all performance requirements
had been satisfied, on a pro rata basis based on the completed
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portion of each award cycle; provided, however, no payment of plan awards
will occur from any award cycle that has been in effect less than six (6)
months.
(vii) The Company shall reimburse the Executive for up to $15,000
in tax preparation assistance fees for the tax year in which the
Termination Payment is made.
9. Payments Upon Termination.
(a) Accrued Benefits. For purposes of this Agreement, the Executive's
"Accrued Benefits" shall include the following amounts, payable as described
herein: (i) all base salary for the time period ending with the Termination
Date; (ii) reimbursement for any and all monies advanced in connection with the
Executive's employment for reasonable and necessary expenses incurred by the
Executive on behalf of the Employer for the time period ending with the
Termination Date; (iii) any and all other cash earned through the Termination
Date and deferred at the election of the Executive or pursuant to any deferred
compensation plan then in effect; (iv) a lump sum payment of the bonus or
incentive compensation otherwise payable to the Executive with respect to the
year in which termination occurs under all bonus or incentive compensation plan
or plans in which the Executive is a participant; and (v) all other payments and
benefits to which the Executive (or in the event of the Executive's death, the
Executive's surviving spouse or other beneficiary) may be entitled as
compensatory fringe benefits or under the terms of any benefit plan of the
Employer, excluding severance payments under any Employer severance policy,
practice or agreement in effect immediately prior to the Change in Control of
the Company. Payment of Accrued Benefits shall be made promptly in accordance
with the Company's prevailing practice
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with respect to Subsections 9(a)(i) and (ii) or, with respect to Subsections
9(a)(iii), (iv) and (v), pursuant to the terms of the benefit plan or practice
establishing such benefits.
(b) Termination Payment.
(i) The Termination Payment shall be an amount equal to (A) the
Executive's Annual Base Salary (determined as of the time of the Change
in Control of the Company or, if higher, immediately prior to the date
the Notice of Termination is given) plus (B) an amount equal to the
greater of the Executive's target bonus for the year in which the
Termination Date occurs or the bonus the Executive received in the year
prior to the Change in Control of the Company (the aggregate amount set
forth in (A) and (B) hereof shall hereafter be referred to as "Annual
Cash Compensation"), times (C) the number of years or fractional portion
thereof remaining in the Employment Period determined as of the
Termination Date; provided, however, that such amount shall not be less
than the greater of (i) the amount of the Executive's Annual Cash
Compensation or (ii) the severance benefits to which the Executive would
have been entitled under the Company's severance policies and practices
in effect immediately prior to the Change in Control of the Company. The
Termination Payment shall be paid to the Executive in cash equivalent ten
(10) business days after the Termination Date. Such lump sum payment
shall not be reduced by any present value or similar factor, and the
Executive shall not be required to mitigate the amount of the Termination
Payment by securing other employment or otherwise, nor will such
Termination Payment be reduced by
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reason of the Executive securing other employment or for any other
reason. The Termination Payment shall be in lieu of, and acceptance by
the Executive of the Termination Payment shall constitute the Executive's
release of any rights of Executive to, any other severance payments under
any Company severance policy, practice or agreement. The Company shall
bear up to $10,000 in the aggregate of fees and expenses of consultants
and/or legal or accounting advisors engaged by the Executive to advise
the Executive as to matters relating to the computation of benefits due
and payable under this Subsection 9(b).
(ii) Notwithstanding any other provision of this Agreement, if any
portion of any payment under this Agreement, or under any other agreement
with or plan of the Employer (in the aggregate "Total Payments"), would
constitute an "excess parachute payment," the Company shall pay Executive
an additional amount (the "Gross-Up Payment") such that the net amount
retained by Executive after deduction of any excise tax imposed under
Section 4999 of the Code, any interest charges or penalties in respect of
the imposition of such excise tax (but not any federal, state or local
income tax, or employment tax) on the Total Payments, and any federal,
state and local income tax, employment tax, and excise tax upon the
payment provided for by this Subsection 9(b)(ii), shall be equal to the
Total Payments. For purposes of determining the amount of the Gross-Up
Payment, Executive shall be deemed to pay federal income tax and
employment taxes at the highest marginal rate of federal income and
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employment taxation in the calendar year in which the Gross-Up Payment is
to be made and state and local income taxes at the highest marginal rate
of taxation in the state and locality of Executive's domicile for income
tax purposes on the date the Gross-Up Payment is made, net of the maximum
reduction in federal income taxes that may be obtained from the deduction
of such state and local taxes.
(iii) For purposes of this Agreement, the terms "excess parachute
payment" and "parachute payments" shall have the meanings assigned to
them in Section 280G of the Code and such "parachute payments" shall be
valued as provided therein. Present value for purposes of this Agreement
shall be calculated in accordance with Section 1274(b)(2) of the Code (or
any successor provision). Promptly following a Covered Termination or
notice by the Company to the Executive of its belief that there is a
payment or benefit due the Executive which will result in an excess
parachute payment as defined in Section 280G of the Code, the Executive
and the Company, at the Company's expense, shall obtain the opinion
(which need not be unqualified) of nationally recognized tax counsel
("National Tax Counsel") selected by the Company's independent auditors
and reasonably acceptable to the Executive (which may be regular outside
counsel to the Company), which opinion sets forth (i) the amount of the
Base Period Income, (ii) the amount and present value of Total Payments,
(iii) the amount and present value of any excess parachute payments, and
(iv) the amount of any Gross-Up Payment. As used in this Agreement, the
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term "Base Period Income" means an amount equal to the Executive's
"annualized includible compensation for the base period" as defined in
Section 280G(d)(1) of the Code. For purposes of such opinion, the value
of any noncash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
principles of Section 280G(d)(3) and (4) of the Code (or any successor
provisions), which determination shall be evidenced in a certificate of
such auditors addressed to the Company and the Executive. The opinion of
National Tax Counsel shall be addressed to the Company and the Executive
and shall be binding upon the Company and the Executive. If such National
Tax Counsel so requests in connection with the opinion required by this
Subsection 9(b), the Executive and the Company shall obtain, at the
Company's expense, and the National Tax Counsel may rely on, the advice
of a firm of recognized executive compensation consultants as to the
reasonableness of any item of compensation to be received by the
Executive solely with respect to its status under Section 280G of the
Code and the regulations thereunder. Within five (5) days after the
National Tax Counsel's opinion is received by the Company and the
Executive, the Company shall pay (or cause to be paid) or distribute (or
cause to be distributed) to or for the benefit of Executive such amounts
as are then due to Executive under this Agreement.
(iv) In the event that upon any audit by the Internal Revenue
Service, or by a state or local taxing authority, of the Total Payments
or Gross-Up Payment, a change is finally determined to be
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required in the amount of taxes paid by Executive, appropriate
adjustments shall be made under this Agreement such that the net amount
which is payable to the Executive after taking into account the
provisions of Section 4999 of the Code shall reflect the intent of the
parties as expressed in this Section 9, in the manner determined by the
National Tax Counsel.
(v) The Company agrees to bear all costs associated with, and to
indemnify and hold harmless, the National Tax Counsel of and from any and
all claims, damages, and expenses resulting from or relating to its
determinations pursuant to this Subsection 9(b), except for claims,
damages or expenses resulting from the gross negligence or willful
misconduct of such firm.
10. Death. (a) Except as provided in Subsection 10(b) hereof, in the
event of a Covered Termination due to the Executive's death, the Executive's
estate, heirs and beneficiaries shall receive all the Executive's Accrued
Benefits through the Termination Date.
(b) In the event the Executive dies after a Notice of Termination is
given (i) by the Company or (ii) by the Executive for Good Reason, the
Executive's estate, heirs and beneficiaries shall be entitled to the benefits
described in Subsection 10(a) hereof and, subject to the provisions of this
Agreement, to such Termination Payment as the Executive would have been entitled
to had the Executive lived. For purposes of this Subsection 10(b), the
Termination Date shall be the earlier of thirty days following the giving of the
Notice of Termination, subject to extension pursuant to Subsection 1(l) hereof,
or one day prior to the end of the Employment Period.
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11. Retirement. If, during the Employment Period, the Executive and the
Employer shall execute an agreement providing for the early retirement of the
Executive from the Employer, or the Executive shall otherwise give notice that
he is voluntarily choosing to retire early from the Employer, the Executive
shall receive Accrued Benefits through the Termination Date; provided, that if
the Executive's employment is terminated by the Executive for Good Reason or by
the Company other than by reason of death, disability or Cause and the Executive
also, in connection with such termination, elects voluntary early retirement,
the Executive shall also be entitled to receive a Termination Payment pursuant
to Subsection 8(a) hereof.
12. Termination for Disability. If, during the Employment Period, as a
result of the Executive's disability due to physical or mental illness or injury
(regardless of whether such illness or injury is job-related), the Executive
shall have been absent from the Executive's duties hereunder on a full-time
basis for a period of six consecutive months and, within thirty days after the
Company notifies the Executive in writing that it intends to terminate the
Executive's employment (which notice shall not constitute the Notice of
Termination contemplated below), the Executive shall not have returned to the
performance of the Executive's duties hereunder on a full-time basis, the
Company may terminate the Executive's employment for purposes of this Agreement
pursuant to a Notice of Termination given in accordance with Section 13 hereof.
If the Executive's employment is terminated on account of the Executive's
disability in accordance with this Section, the Executive shall receive Accrued
Benefits in accordance with Subsection 9(a) hereof and shall remain eligible for
all benefits provided by any long term disability programs of the Company in
effect at the time of such termination.
13. Termination Notice and Procedure. Any Covered Termination by the
Company or the Executive (other than a termination of the Executive's employment
that is a
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Covered Termination by virtue of Subsection 2(b) hereof) shall be communicated
by a written notice of termination ("Notice of Termination") to the Executive,
if such Notice is given by the Company, and to the Company, if such Notice is
given by the Executive, all in accordance with the following procedures and
those set forth in Section 23 hereof:
(a) If such termination is for disability, Cause or Good Reason, the
Notice of Termination shall indicate in reasonable detail the facts and
circumstances alleged to provide a basis for such termination.
(b) Any Notice of Termination by the Company shall have been approved,
prior to the giving thereof to the Executive, by a resolution duly adopted by a
majority of the directors of the Company (or any successor corporation) then in
office.
(c) If the Notice is given by the Executive for Good Reason, the
Executive may cease performing his duties hereunder on or after the date fifteen
days after the delivery of Notice of Termination and shall in any event cease
employment on the Termination Date. If the Notice is given by the Company, then
the Executive may cease performing his duties hereunder on the date of receipt
of the Notice of Termination, subject to the Executive's rights hereunder.
(d) The Executive shall have thirty days, or such longer period as the
Company may determine to be appropriate, to cure any conduct or act, if curable,
alleged to provide grounds for termination of the Executive's employment for
Cause under this Agreement pursuant to Subsection 1(d) (iii) hereof.
(e) The recipient of any Notice of Termination shall personally deliver
or mail in accordance with Section 23 hereof written notice of any dispute
relating to such Notice of Termination to the party giving such Notice within
fifteen days after receipt thereof; provided,
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however, that if the Executive's conduct or act alleged to provide grounds for
termination by the Company for Cause is curable, then such period shall be
thirty days. After the expiration of such period, the contents of the Notice of
Termination shall become final and not subject to dispute.
14. Further Obligations of the Executive.
(a) Competition. The Executive agrees that, in the event of any Covered
Termination where the Executive is entitled to Accrued Benefits and the
Termination Payment, the Executive shall not, for a period expiring one year
after the Termination Date, without the prior written approval of the Company's
Board of Directors, participate in the management of, be employed by or own any
business enterprise at a location within the United States that engages in
substantial competition with the Company or its subsidiaries, where such
enterprise's revenues from any competitive activities amount to 10% or more of
such enterprise's net revenues and sales for its most recently completed fiscal
year; provided, however, that nothing in this Subsection 14(a) shall prohibit
the Executive from owning stock or other securities of a competitor amounting to
less than five percent of the outstanding capital stock of such competitor.
(b) Confidentiality. During the Executive's employment by the Company and
for a period of five (5) years thereafter, the Executive shall hold in
confidence and not directly or indirectly disclose or use or copy or make lists
of any confidential information or proprietary data of the Company (including
that of the Employer), except to the extent authorized in writing by the Board
of Directors of the Company or required by any court or administrative agency,
other than to an employee of the Company or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance by the
Executive of duties as an executive of the Company. Confidential information
shall not include any information known generally to the public or any
information of a type not otherwise considered confidential by
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persons engaged in the same business or a business similar to that of the
Company. All records, files, documents and materials, or copies thereof,
relating to the business of the Company which the Executive shall prepare, or
use, or come into contact with, shall be and remain the sole property of the
Company and shall be promptly returned to the Company upon termination of
employment with the Company.
15. Expenses and Interest. If, after a Change in Control of the Company,
(i) a dispute arises with respect to the enforcement of the Executive's rights
under this Agreement or (ii) any legal or arbitration proceeding shall be
brought to enforce or interpret any provision contained herein or to recover
damages for breach hereof, in either case so long as, and to the extent that,
the Executive prevails in such proceeding, the Executive shall recover from the
Company the reasonable attorneys' fees and necessary costs and disbursements
incurred as a result of the dispute, legal or arbitration proceeding as to which
the Executive has prevailed ("Expenses"), and prejudgment interest on any money
judgment or arbitration award obtained by the Executive calculated at the rate
of interest announced by Firstar Bank Milwaukee, N.A., Milwaukee, Wisconsin,
from time to time at its prime or base lending rate from the date that payments
to him or her should have been made under this Agreement. Any dispute as to the
reasonableness of the Expenses incurred, or the extent to which the Executive
has prevailed, shall be resolved by the presiding officer (arbitrator or judge)
in the forum in which the substantive issues are finally resolved.
16. Payment Obligations Absolute. The Company's obligation during and
after the Employment Period to pay the Executive the amounts and to make the
benefit and other arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including, without
limitation, any setoff, counterclaim, recoupment, defense or
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other right which the Company may have against him or anyone else. Except as
provided in Section 15 of this Agreement, all amounts payable by the Company
hereunder shall be paid without notice or demand. Each and every payment made
hereunder by the Company shall be final, and the Company will not seek to
recover all or any part of such payment from the Executive, or from whomsoever
may be entitled thereto, for any reason whatsoever.
17. Successors. (a) If the Company sells, assigns or transfers all or
substantially all of its business and assets to any Person or if the Company
merges into or consolidates or otherwise combines (where the Company does not
survive such combination) with any Person (any such event, a "Sale of
Business"), then the Company shall assign all of its right, title and interest
in this Agreement as of the date of such event to such Person, and the Company
shall cause such Person, by written agreement in form and substance reasonably
satisfactory to the Executive, to expressly assume and agree to perform from and
after the date of such assignment all of the terms, conditions and provisions
imposed by this Agreement upon the Company. Failure of the Company to obtain
such agreement prior to the effective date of such Sale of Business shall be a
breach of this Agreement constituting "Good Reason" hereunder, except that for
purposes of implementing the foregoing the date upon which such Sale of Business
becomes effective shall be deemed the Termination Date. In case of such
assignment by the Company and of assumption and agreement by such Person, as
used in this Agreement, "Company" shall thereafter mean such Person which
executes and delivers the agreement provided for in this Section 17 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law, and this Agreement shall inure to the benefit of, and be
enforceable by, such Person. The Executive shall, in his or her discretion, be
entitled to proceed against any or all of such Persons, any Person which
theretofore was such a successor to the Company and the Company (as so
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defined) in any action to enforce any rights of the Executive hereunder. Except
as provided in this Subsection 17(a), this Agreement shall not be assignable by
the Company. This Agreement shall not be terminated by the voluntary or
involuntary dissolution of the Company. (b) This Agreement and all rights of the
Executive shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, heirs and
beneficiaries. All amounts payable to the Executive under Sections 7, 8, 9, 10,
11, 12 and 15 hereof if the Executive had lived shall be paid, in the event of
the Executive's death, to the Executive's estate, heirs and representatives;
provided, however, that the foregoing shall not be construed to modify any terms
of any benefit plan of the Employer, as such terms are in effect on the date of
the Change in Control of the Company, that expressly govern benefits under such
plan in the event of the Executive's death.
18. Severability. The provisions of this Agreement shall be regarded as
divisible, and if any of said provisions or any part hereof are declared invalid
or unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts hereof and the
applicability thereof shall not be affected thereby.
19. Contents of Agreement; Waiver of Rights; Amendment. This Agreement
sets forth the entire understanding between the parties hereto with respect to
the subject matter hereof and shall supersede in all respects, and the Executive
hereby waives all rights under, any prior or other agreement or understanding
between the parties with respect to such subject matter, including, but not
limited to the [previous Key Executive Employment and Severance Agreement dated
as of _______ between Company and the Executive.] This Agreement may not be
amended or modified at any time except by written instrument executed by the
Company and the Executive.
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20. Withholding. The Company shall be entitled to withhold from amounts
to be paid to the Executive hereunder any federal, state or local withholding or
other taxes or charges which it is from time to time required to withhold;
provided, that the amount so withheld shall not exceed the minimum amount
required to be withheld by law. The Company shall be entitled to rely on an
opinion of the National Tax Counsel if any question as to the amount or
requirement of any such withholding shall arise.
21. Certain Rules of Construction. No party shall be considered as being
responsible for the drafting of this Agreement for the purpose of applying any
rule construing ambiguities against the drafter or otherwise. No draft of this
Agreement shall be taken into account in construing this Agreement. Any
provision of this Agreement which requires an agreement in writing shall be
deemed to require that the writing in question be signed by the Executive and an
authorized representative of the Company.
22. Governing Law; Resolution of Disputes. This Agreement and the rights
and obligations hereunder shall be governed by and construed in accordance with
the laws of the State of Wisconsin. Any dispute arising out of this Agreement
shall, at the Executive's election, be determined by arbitration under the rules
of the American Arbitration Association then in effect (in which case both
parties shall be bound by the arbitration award) or by litigation. Whether the
dispute is to be settled by arbitration or litigation, the venue for the
arbitration or litigation shall be Madison, Wisconsin or, at the Executive's
election, if the Executive is not then residing or working in the Madison,
Wisconsin metropolitan area, in the judicial district encompassing the city in
which the Executive resides; provided, that, if the Executive is not then
residing in the United States, the election of the Executive with respect to
such venue shall be either Madison, Wisconsin or in the judicial district
encompassing that city in the United States among the thirty cities having the
largest
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population (as determined by the most recent United States Census data
available at the Termination Date) which is closest to the Executive's
residence. The parties consent to personal jurisdiction in each trial court in
the selected venue having subject matter jurisdiction notwithstanding their
residence or situs, and each party irrevocably consents to service of process in
the manner provided hereunder for the giving of notices.
23. Notice. Notices given pursuant to this Agreement shall be in writing
and, except as otherwise provided by Subsection 13(d) hereof, shall be deemed
given when actually received by the Executive or actually received by the
Company's Corporate Secretary or any officer of the Company other than the
Executive. If mailed, such notices shall be mailed by United States registered
or certified mail, return receipt requested, addressee only, postage prepaid, if
to the Company, to Interstate Energy Corporation (d/b/a Alliant Energy
Corporation), Attention: Corporate Secretary (or President, if the Executive is
then Corporate Secretary), 222 West Washington Avenue, P.O. Box 2568, Madison,
Wisconsin 53701-2568, or if to the Executive, at the address set forth below the
Executive's signature to this Agreement, or to such other address as the party
to be notified shall have theretofore given to the other party in writing.
24. No Waiver. No waiver by either party at any time of any breach by the
other party of, or compliance with, any condition or provision of this Agreement
to be performed by the other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or any prior or subsequent
time.
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25. Headings. The headings herein contained are for reference only and
shall not affect the meaning or interpretation of any provision of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
INTERSTATE ENERGY CORPORATION
By:
Its:
Attest:
Its:
EXECUTIVE:
(SEAL)
Address:
Exhibit 10.4
KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT
THIS AGREEMENT, made and entered into as of the ______ day of _________,
____ by and between Interstate Energy Corporation (d/b/a Alliant Energy
Corporation), a Wisconsin corporation (hereinafter referred to as the
"Company"), and [Executive Name] (hereinafter referred to as "Executive").
W I T N E S S E T H
WHEREAS, the Executive is employed by the Company and/or a subsidiary of
the Company (hereinafter referred to collectively as the "Employer") in a key
executive capacity and the Executive's services are valuable to the conduct of
the business of the Company;
WHEREAS, the Company desires to continue to attract and retain dedicated
and skilled management employees in a period of industry consolidation,
consistent with achieving the best possible value for its shareowners in any
change in control of the Company;
WHEREAS, the Company recognizes that circumstances may arise in which a
change in control of the Company occurs, through acquisition or otherwise,
thereby causing a potential conflict of interest between the Company's needs for
the Executive to remain focused on the Company's business and for the necessary
continuity in management prior to and following a change in control, and the
Executive's reasonable personal concerns regarding future employment with the
Employer and economic protection in the event of loss of employment as a
consequence of a change in control;
<PAGE>
WHEREAS, the Company and the Executive are desirous that any proposal for
a change in control or acquisition of the Company will be considered by the
Executive objectively and with reference only to the best interests of the
Company and its shareowners;
WHEREAS, the Executive will be in a better position to consider the
Company's best interests if the Executive is afforded reasonable economic
security, as provided in this Agreement, against altered conditions of
employment which could result from any such change in control or acquisition;
WHEREAS, the Executive possesses intimate knowledge of the business and
affairs of the Company and has acquired certain confidential information and
data with respect to the Company; and
WHEREAS, the Company desires to insure, insofar as possible, that it will
continue to have the benefit of the Executive's services and to protect its
confidential information and goodwill.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto mutually
covenant and agree as follows:
1. Definitions.
(a) Act. For purposes of this Agreement, the term "Act" means the
Securities Exchange Act of 1934, as amended.
(b) Affiliate and Associate. For purposes of this Agreement, the terms
"Affiliate" and "Associate" shall have the respective meanings ascribed to such
terms in Rule l2b-2 of the General Rules and Regulations under the Act.
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(c) Beneficial Owner. For purposes of this Agreement, a Person shall be
deemed to be the "Beneficial Owner" of any securities:
(i) which such Person or any of such Person's Affiliates or
Associates has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding, or upon the exercise of conversion rights,
exchange rights, rights, warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, (A) securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such
Person's Affiliates or Associates until such tendered securities are
accepted for purchase, or (B) securities issuable upon exercise of Rights
issued pursuant to the terms of the Company's Rights Agreement, dated as
of January 20, 1999, between Interstate Energy Corporation and Firstar
Bank Milwaukee, N.A., as amended from time to time (or any successor to
such Rights Agreement), at any time before the issuance of such
securities;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of
or has "beneficial ownership" of (as determined pursuant to Rule l3d-3 of
the General Rules and Regulations under the Act), including pursuant to
any agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security under this subparagraph (ii) as a result of an
agreement,
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arrangement or understanding to vote such security if the agreement,
arrangement or understanding: (A) arises solely from a revocable proxy or
consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
rules and regulations under the Act and (B) is not also then reportable
on a Schedule l3D under the Act (or any comparable or successor report);
or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting (except pursuant to a revocable
proxy as described in Subsection 1(c) (ii) above) or disposing of any
voting securities of the Company.
(d) Cause. "Cause" for termination by the Employer of the Executive's
employment in connection with a Change in Control of the Company shall, for
purposes of this Agreement, be limited to (i) the engaging by the Executive in
intentional conduct not taken in good faith which has caused demonstrable and
serious financial injury to the Employer, as evidenced by a determination in a
binding and final judgment, order or decree of a court or administrative agency
of competent jurisdiction, in effect after exhaustion or lapse of all rights of
appeal, in an action, suit or proceeding, whether civil, criminal,
administrative or investigative; (ii) conviction of a felony (as evidenced by
binding and final judgment, order or decree of a court of competent
jurisdiction, in effect after exhaustion of all rights of appeal) which
substantially impairs the Executive's ability to perform his duties or
responsibilities; and (iii) continuing willful and unreasonable refusal by the
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Executive to perform the Executive's duties or responsibilities (unless
significantly changed without the Executive's consent).
(e) Change in Control of the Company. A "Change in Control of the
Company" shall be deemed to have occurred if an event set forth in any one of
the following paragraphs shall have occurred:
(i) any Person (other than (A) the Company or any of its
subsidiaries, (B) a trustee or other fiduciary holding securities under
any employee benefit plan of the Company or any of its subsidiaries, (C)
an underwriter temporarily holding securities pursuant to an offering of
such securities or (D) a corporation owned, directly or indirectly, by
the shareowners of the Company in substantially the same proportions as
their ownership of stock in the Company ("Excluded Persons")) is or
becomes the Beneficial Owner, directly or indirectly, of securities of
the Company (not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or its
Affiliates after November 18, 1998, pursuant to express authorization by
the Board that refers to this exception) representing 20% or more of
either the then outstanding shares of common stock of the Company or the
combined voting power of the Company's then outstanding voting
securities; or
(ii) the following individuals cease for any reason to constitute
a majority of the number of directors of the Company then serving: (A)
individuals who, on November 18, 1998, constituted the Board and (B) any
new director (other than a director whose initial assumption of
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office is in connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating to the
election of directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A under the Act) whose appointment or election by
the Board or nomination for election by the Company's shareowners was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors on November 18, 1998, or whose
appointment, election or nomination for election was previously so
approved (collectively the "Continuing Directors"); provided, however,
that individuals who are appointed to the Board pursuant to or in
accordance with the terms of an agreement relating to a merger,
consolidation, or share exchange involving the Company (or any direct or
indirect subsidiary of the Company) shall not be Continuing Directors for
purposes of this Agreement until after such individuals are first
nominated for election by a vote of at least two-thirds (2/3) of the then
Continuing Directors and are thereafter elected as directors by the
shareowners of the Company at a meeting of shareowners held following
consummation of such merger, consolidation, or share exchange; and,
provided further, that in the event the failure of any such persons
appointed to the Board to be Continuing Directors results in a Change in
Control of the Company, the subsequent qualification of such persons as
Continuing Directors shall not alter the fact that a Change in Control of
the Company occurred; or
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(iii) the shareowners of the Company approve a merger,
consolidation or share exchange of the Company with any other corporation
or approve the issuance of voting securities of the Company in connection
with a merger, consolidation or share exchange of the Company (or any
direct or indirect subsidiary of the Company) pursuant to applicable
stock exchange requirements, other than (A) a merger, consolidation or
share exchange which would result in the voting securities of the Company
outstanding immediately prior to such merger, consolidation or share
exchange continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or any
parent thereof) at least 50% of the combined voting power of the voting
securities of the Company or such surviving entity or any parent thereof
outstanding immediately after such merger, consolidation or share
exchange, or (B) a merger, consolidation or share exchange effected to
implement a recapitalization of the Company (or similar transaction) in
which no Person (other than an Excluded Person) is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its Affiliates after
November 18, 1998, pursuant to express authorization by the Board that
refers to this exception) representing 20% or more of either the then
outstanding shares of common stock of the Company or the combined voting
power of the Company's then outstanding voting securities; or
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(iv) the shareowners of the Company approve a plan of complete
liquidation or dissolution of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets (in one transaction or a series of related transactions within any
period of 24 consecutive months), other than a sale or disposition by the
Company of all or substantially all of the Company's assets to an entity
at least 75% of the combined voting power of the voting securities of
which are owned by Persons in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, no "Change in Control of the Company" shall be
deemed to have occurred if there is consummated any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to own, directly or indirectly, in the same proportions as
their ownership in the Company, an entity that owns all or substantially all of
the assets or voting securities of the Company immediately following such
transaction or series of transactions.
(f) Code. For purposes of this Agreement, the term "Code" means the
Internal Revenue Code of 1986, including any amendments thereto or successor tax
codes thereof.
(g) Covered Termination. Subject to Subsection 2(b) hereof, for purposes
of this Agreement, the term "Covered Termination" means any termination of the
Executive's employment during the Employment Period where the Notice of
Termination is delivered on or the Termination Date is any date prior to the end
of the Employment Period.
(h) Employment Period. Subject to Subsection 2(b) hereof, for purposes of
this Agreement, the term "Employment Period" means a period commencing on the
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date of a Change in Control of the Company, and ending at 11:59 p.m. Central
Time on the earlier of the second anniversary of such date or the Executive's
Normal Retirement Date.
(i) Good Reason. For purposes of this Agreement, the Executive
shall have "Good Reason" for termination of employment in connection with
a Change in Control of the Company in the event of:
(i) any breach of this Agreement by the Employer, including
specifically any breach by the Employer of the agreements
contained in Sections 4, 5, and 6 hereof, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith
that the Employer remedies promptly after receipt of notice
thereof given by the Executive;
(ii) any reduction in the Executive's base salary,
percentage of base salary available as incentive compensation or
bonus opportunity or benefits, in each case relative to those most
favorable to the Executive in effect at any time during the
180-day period prior to the Change in Control or, to the extent
more favorable to the Executive, those in effect at any time
during the Employment Period;
(iii) the removal of the Executive from, or any failure to
reelect or reappoint the Executive to, any of the positions held
with the Employer on the date of the Change in Control of the
Company or any other positions with the Employer to which the
Executive shall thereafter be elected, appointed or assigned,
except in the event that such removal or failure to reelect or
reappoint relates to the termination by the Employer of
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the Executive's employment for Cause or by reason of disability
pursuant to Section 12 hereof;
(iv) a good faith determination by the Executive that there
has been a significant adverse change, without the Executive's
written consent, in the Executive's working conditions or status
with the Employer relative to the most favorable working
conditions or status in effect during the 180-day period prior to
the Change in Control of the Company, or, to the extent more
favorable to the Executive, those in effect at any time during the
Employment Period, including but not limited to (A) a significant
change in the nature or scope of the Executive's authority,
powers, functions, duties or responsibilities, or (B) a
significant reduction in the level of support services, staff,
secretarial and other assistance, office space and accoutrements
but excluding for this purpose an isolated, insubstantial and
inadvertent event not occurring in bad faith that the Employer
remedies promptly after receipt of notice thereof given by the
Executive; or
(v) failure by the Company to obtain the Agreement referred
to in Subsection 17(a) hereof as provided therein.
(j) Normal Retirement Date. For purposes of this Agreement, the term
"Normal Retirement Date" means "Normal Retirement Date" as defined in the
primary qualified defined benefit pension plan applicable to the Executive, or
any successor plan, as in effect on the date of the Change in Control of the
Company.
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(k) Person. For purposes of this Agreement, the term "Person" shall mean
any individual, firm, partnership, corporation or other entity, including any
successor (by merger or otherwise) of such entity, or a group of any of the
foregoing acting in concert.
(l) Termination Date. For purposes of this Agreement, except as otherwise
provided in Subsection 2(b), Subsection 10(b), and Subsection 17(a) hereof, the
term "Termination Date" means (i) if the Executive's employment is terminated by
the Executive's death, the date of death; (ii) if the Executive's employment is
terminated by reason of voluntary early retirement, as agreed in writing by the
Employer and the Executive, the date of such early retirement which is set forth
in such written agreement; (iii) if the Executive's employment is terminated for
purposes of this Agreement by reason of disability pursuant to Section 12
hereof, the earlier of thirty days after the Notice of Termination is given or
one day prior to the end of the Employment Period; (iv) if the Executive's
employment is terminated by the Executive voluntarily (other than for Good
Reason), the date the Notice of Termination is given; and (v) if the Executive's
employment is terminated by the Employer (other than by reason of disability
pursuant to Section 12 hereof) or by the Executive for Good Reason, the earlier
of thirty days after the Notice of Termination is given or one day prior to the
end of the Employment Period. Notwithstanding the foregoing,
(1) If termination is for Cause pursuant to Subsection 1(d)(iii)
of this Agreement and if the Executive has cured the conduct constituting
such Cause as described by the Employer in its Notice of Termination
within such thirty-day or shorter period, then the Executive's employment
hereunder shall continue as if the Employer had not delivered its Notice
of Termination.
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(2) If the Executive shall in good faith give a Notice of
Termination for Good Reason and the Employer notifies the Executive that
a dispute exists concerning the termination within the fifteen-day period
following receipt thereof, then the Executive may elect to continue his
or her employment during such dispute and the Termination Date shall be
determined under this paragraph. If the Executive so elects and it is
thereafter determined that Good Reason did exist, the Termination Date
shall be the earliest of (i) the date on which the dispute is finally
determined, either (x) by mutual written agreement of the parties or (y)
in accordance with Section 22 hereof, (ii) the date of the Executive's
death or (iii) one day prior to the end of the Employment Period. If the
Executive so elects and it is thereafter determined that Good Reason did
not exist, then the employment of the Executive hereunder shall continue
after such determination as if the Executive had not delivered the Notice
of Termination asserting Good Reason and there shall be no Termination
Date arising out of such Notice. In either case, this Agreement
continues, until the Termination Date, if any, as if the Executive had
not delivered the Notice of Termination except that, if it is finally
determined that Good Reason did exist, the Executive shall in no case be
denied the benefits described in Sections 8(b) and 9 hereof (including a
Termination Payment) based on events occurring after the Executive
delivered his Notice of Termination.
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(3) If an opinion is required to be delivered pursuant to
Subsection 9(b)(ii) hereof and such opinion shall not have been
delivered, the Termination Date shall be the earlier of the date on which
such opinion is delivered or one day prior to the end of the Employment
Period.
(4) Except as provided in Subsection 1(l)(2) above, if the party
receiving the Notice of Termination notifies the other party that a
dispute exists concerning the termination within the appropriate period
following receipt thereof and it is finally determined that the reason
asserted in such Notice of Termination did not exist, then (1) if such
Notice was delivered by the Executive, the Executive will be deemed to
have voluntarily terminated his employment and the Termination Date shall
be the earlier of the date fifteen days after the Notice of Termination
is given or one day prior to the end of the Employment Period and (2) if
delivered by the Company, the Company will be deemed to have terminated
the Executive other than by reason of death, disability or Cause.
2. Termination or Cancellation Prior to Change in Control.
(a) Subject to Subsection 2(b) hereof, the Employer and the Executive
shall each retain the right to terminate the employment of the Executive at any
time prior to a Change in Control of the Company. Subject to Subsection 2(b)
hereof, in the event the Executive's employment is terminated prior to a Change
in Control of the Company, this Agreement shall be terminated and cancelled and
of no further force and effect, and any and all rights and obligations of the
parties hereunder shall cease.
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(b) Anything in this Agreement to the contrary notwithstanding, if a
Change in Control of the Company occurs and if the Executive's employment with
the Employer is terminated (other than a termination due to the Executive's
death or as a result of the Executive's disability) during the period of 180
days prior to the date on which the Change in Control of the Company occurs, and
if it is reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has taken steps
reasonably calculated to effect a Change in Control of the Company or (ii)
otherwise arose in connection with or in anticipation of a Change in Control of
the Company, then for all purposes of this Agreement such termination of
employment shall be deemed a "Covered Termination," "Notice of Termination"
shall be deemed to have been given, and the "Employment Period" shall be deemed
to have begun on the date of such termination which shall be deemed to be the
"Termination Date" and the date of the Change of Control of the Company for
purposes of this Agreement.
3. Employment Period. If a Change in Control of the Company occurs when
the Executive is employed by the Employer, the Employer will continue thereafter
to employ the Executive during the Employment Period, and the Executive will
remain in the employ of the Employer in accordance with and subject to the terms
and provisions of this Agreement. Any termination of the Executive's employment
during the Employment Period, whether by the Company or the Employer, shall be
deemed a termination by the Company for purposes of this Agreement.
4. Duties. During the Employment Period, the Executive shall, in the same
capacities and positions held by the Executive at the time of the Change in
Control of the Company or in such other capacities and positions as may be
agreed to by the Employer and the Executive in writing, devote the Executive's
best efforts and all of the Executive's business time, attention and
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skill to the business and affairs of the Employer, as such business and affairs
now exist and as they may hereafter be conducted. The services which are to be
performed by the Executive hereunder are to be rendered in the same metropolitan
area in which the Executive was employed at the date of such Change in Control
of the Company, or in such other place or places as shall be mutually agreed
upon in writing by the Executive and the Employer from time to time. Without the
Executive's consent, the Executive shall not be required to be absent from such
metropolitan area more than 45 days in any fiscal year of the Company.
5. Compensation. During the Employment Period, the Executive shall be
compensated as follows:
(a) The Executive shall receive, at reasonable intervals (but not less
often than monthly) and in accordance with such standard policies as may be in
effect immediately prior to the Change in Control of the Company, an annual base
salary in cash equivalent of not less than twelve times the Executive's highest
monthly base salary for the twelve-month period immediately preceding the month
in which the Change in Control of the Company occurs or, if higher, annual base
salary at the rate in effect immediately prior to the Change in Control of the
Company (which base salary shall, unless otherwise agreed in writing by the
Executive, include the current receipt by the Executive of any amounts which,
prior to the Change in Control of the Company, the Executive had elected to
defer, whether such compensation is deferred under Section 401(k) of the Code or
otherwise), subject to adjustment as hereinafter provided in Section 6 (such
salary amount as adjusted upward from time to time is hereafter referred to as
the "Annual Base Salary").
(b) The Executive shall receive fringe benefits at least equal in value
to the highest value of such benefits provided for the Executive at any time
during the 180-day period
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immediately prior to the Change in Control of the Company or, if more favorable
to the Executive, those provided generally at any time during the Employment
Period to any executives of the Employer of comparable status and position to
the Executive; and shall be reimbursed, at such intervals and in accordance with
such standard policies that are most favorable to the Executive that were in
effect at any time during the 180-day period immediately prior to the Change in
Control of the Company, for any and all monies advanced in connection with the
Executive's employment for reasonable and necessary expenses incurred by the
Executive on behalf of the Employer, including travel expenses.
(c) The Executive and/or the Executive's family, as the case may be,
shall be included, to the extent eligible thereunder (which eligibility shall
not be conditioned on the Executive's salary grade or on any other requirement
which excludes persons of comparable status to the Executive unless such
exclusion was in effect for such plan or an equivalent plan at any time during
the 180-day period immediately prior to the Change in Control of the Company),
in any and all plans providing benefits for the Employer's salaried employees in
general, including but not limited to group life insurance, hospitalization,
medical, dental, profit sharing and stock bonus plans; provided, that, (i) in no
event shall the aggregate level of benefits under such plans in which the
Executive is included be less than the aggregate level of benefits under plans
of the Employer of the type referred to in this Subsection 5(c) in which the
Executive was participating at any time during the 180-day period immediately
prior to the Change in Control of the Company and (ii) in no event shall the
aggregate level of benefits under such plans be less than the aggregate level of
benefits under plans of the type referred to in this Subsection 5(c) provided at
any time after the Change in Control of the Company to any executive of the
Employer of comparable status and position to the Executive.
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(d) The Executive shall annually be entitled to not less than the amount
of paid vacation and not fewer than the highest number of paid holidays to which
the Executive was entitled annually at any time during the 180-day period
immediately prior to the Change in Control of the Company or such greater amount
of paid vacation and number of paid holidays as may be made available annually
to other executives of the Employer of comparable status and position to the
Executive at any time during the Employment Period.
(e) The Executive shall be included in all plans providing additional
benefits to executives of the Employer of comparable status and position to the
Executive, including but not limited to deferred compensation, split-dollar life
insurance, supplemental retirement, stock option, stock appreciation, stock
bonus and similar or comparable plans; provided, that, (i) in no event shall the
aggregate level of benefits under such plans be less than the highest aggregate
level of benefits under plans of the Employer of the type referred to in this
Subsection 5(e) in which the Executive was participating at any time during the
180-day period immediately prior to the Change in Control of the Company; (ii)
in no event shall the aggregate level of benefits under such plans be less than
the aggregate levels of benefits under plans of the type referred to in this
Subsection 5(e) provided at any time after the Change in Control of the Company
to any executive of the Employer comparable in status and position to the
Executive; and (iii) the Employer's obligation to include the Executive in bonus
or incentive compensation plans shall be determined by Subsection 5(f) hereof.
(f) To assure that the Executive will have an opportunity to earn
incentive compensation after a Change in Control of the Company, the Executive
shall be included in a bonus plan of the Employer which shall satisfy the
standards described below (such plan, the "Bonus Plan"). Bonuses under the Bonus
Plan shall be payable with respect to achieving such
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financial or other goals reasonably related to the business of the Employer as
the Employer shall establish (the "Goals"), all of which Goals shall be
attainable, prior to the end of the Employment Period, with approximately the
same degree of probability as the most attainable goals under the Employer's
bonus plan or plans as in effect at any time during the 180-day period
immediately prior to the Change in Control of the Company (whether one or more,
the "Company Bonus Plan") and in view of the Employer's existing and projected
financial and business circumstances applicable at the time. The amount of the
bonus (the "Bonus Amount") that the Executive is eligible to earn under the
Bonus Plan shall be no less than the amount of the Executive's maximum award
provided in such Company Bonus Plan (such bonus amount herein referred to as the
"Targeted Bonus"), and in the event the Goals are not achieved such that the
entire Targeted Bonus is not payable, the Bonus Plan shall provide for a payment
of a Bonus Amount equal to a portion of the Targeted Bonus reasonably related to
that portion of the Goals which were achieved. Payment of the Bonus Amount shall
not be affected by any circumstance occurring subsequent to the end of the
Employment Period, including termination of the Executive's employment.
6. Annual Compensation Adjustments. During the Employment Period, the
Board of Directors of the Company (or an appropriate committee thereof) will
consider and appraise, at least annually, the contributions of the Executive to
the Company, and in accordance with the Company's practice prior to the Change
in Control of the Company, due consideration shall be given to the upward
adjustment of the Executive's Annual Base Salary, at least annually, (i)
commensurate with increases generally given to other executives of the Company
of comparable status and position to the Executive, and (ii) as the scope of the
Company's operations or the Executive's duties expand.
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7. Termination For Cause or Without Good Reason. If there is a Covered
Termination for Cause or due to the Executive's voluntarily terminating his or
her employment other than for Good Reason (any such terminations to be subject
to the procedures set forth in Section 13 hereof), then the Executive shall be
entitled to receive only Accrued Benefits pursuant to Subsection 9(a) hereof.
8. Termination Giving Rise to a Termination Payment. (a) If there is a
Covered Termination by the Executive for Good Reason, or by the Company other
than by reason of (i) death, (ii) disability pursuant to Section 12 hereof, or
(iii) Cause (any such terminations to be subject to the procedures set forth in
Section 13 hereof), then the Executive shall be entitled to receive, and the
Company shall promptly pay, Accrued Benefits and, in lieu of further base salary
for periods following the Termination Date, as liquidated damages and additional
severance pay and in consideration of the covenant of the Executive set forth in
Subsection 14(a) hereof, the Termination Payment pursuant to Subsection 9(b)
hereof.
(b) If there is a Covered Termination and the Executive is entitled to
Accrued Benefits and the Termination Payment, then the Company shall provide to
the Executive the following additional benefits:
(i) The Executive shall receive, at the expense of the Company,
outplacement services, on an individualized basis at a level of service
commensurate with the Executive's status with the Company immediately
prior to the date of the Change in Control of the Company (or, if higher,
immediately prior to the termination of the Executive's employment),
provided by a nationally recognized executive placement firm selected by
the Company; provided that the cost to the Company of such services shall
not exceed 10% of the Executive's Annual Base Salary.
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(ii) Until the earlier of the end of the Employment Period or such
time as the Executive has obtained new employment and is covered by
benefits which in the aggregate are at least equal in value to the
following benefits, the Executive shall continue to be covered, at the
expense of the Company, by the same or equivalent life insurance,
hospitalization, medical and dental coverage as was required hereunder
with respect to the Executive immediately prior to the date the Notice of
Termination is given.
(iii) The Company shall cause the Executive to be fully and
immediately vested in his accrued benefit under any supplemental
executive retirement plan of the Employer providing benefits for the
Executive (the "SERP") and in any defined contribution retirement plan of
the Employer. In addition, the Company shall cause the Executive to be
deemed to have satisfied any minimum years of service requirement under
the SERP for subsidized early retirement benefits regardless of the
Executive's age and service at the Termination Date; provided, however,
that SERP benefits will be based on service to date with no additional
credit for service or age beyond such Termination Date.
(iv) The Company shall cause all restrictions on restricted stock
awards made to the Executive to lapse such that the Executive is fully
and immediately vested in his or her restricted stock.
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(v) The Company shall cause all stock options granted to the
Executive pursuant to the Company's stock option plan(s) to be fully
vested.
(vi) The Company shall cause all performance plan awards granted
to the Executive pursuant to any long-term incentive plan maintained by
the Company to be paid out at target, as if all performance requirements
had been satisfied, on a pro rata basis based on the completed portion of
each award cycle; provided, however, no payment of plan awards will occur
from any award cycle that has been in effect less than six (6) months.
9. Payments Upon Termination.
(a) Accrued Benefits. For purposes of this Agreement, the Executive's
"Accrued Benefits" shall include the following amounts, payable as described
herein: (i) all base salary for the time period ending with the Termination
Date; (ii) reimbursement for any and all monies advanced in connection with the
Executive's employment for reasonable and necessary expenses incurred by the
Executive on behalf of the Employer for the time period ending with the
Termination Date; (iii) any and all other cash earned through the Termination
Date and deferred at the election of the Executive or pursuant to any deferred
compensation plan then in effect; (iv) a lump sum payment of the bonus or
incentive compensation otherwise payable to the Executive with respect to the
year in which termination occurs under all bonus or incentive compensation plan
or plans in which the Executive is a participant; and (v) all other payments and
benefits to which the Executive (or in the event of the Executive's death, the
Executive's surviving spouse or other beneficiary) may be entitled as
compensatory fringe benefits or under the terms of any benefit plan
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of the Employer, excluding severance payments under any Employer severance
policy, practice or agreement in effect immediately prior to the Change in
Control of the Company. Payment of Accrued Benefits shall be made promptly in
accordance with the Company's prevailing practice with respect to Subsections
(i) and (ii) or, with respect to Subsections (iii), (iv) and (v), pursuant to
the terms of the benefit plan or practice establishing such benefits.
(b) Termination Payment.
(i) Subject to the limits set forth in Subsection 9(b)(ii) hereof,
the Termination Payment shall be an amount equal to (A) the Executive's
Annual Base Salary (determined as of the time of the Change in Control of
the Company or, if higher, immediately prior to the date the Notice of
Termination is given) plus (B) an amount equal to the greater of the
Executive's target bonus for the year in which the Termination Date
occurs or the bonus the Executive received in the year prior to the
Change in Control of the Company (the aggregate amount set forth in (A)
and (B) hereof shall hereafter be referred to as "Annual Cash
Compensation"), times (C) the number of years or fractional portion
thereof remaining in the Employment Period determined as of the
Termination Date; provided, however, that such amount shall not be less
than the greater of (i) the amount of the Executive's Annual Cash
Compensation or (ii) the severance benefits to which the Executive would
have been entitled under the Company's severance policies and practices
in effect immediately prior to the Change in Control of the Company. The
Termination Payment shall be paid to the Executive in cash equivalent ten
(10) business days after the
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Termination Date. Such lump sum payment shall not be reduced by any
present value or similar factor, and the Executive shall not be required
to mitigate the amount of the Termination Payment by securing other
employment or otherwise, nor will such Termination Payment be reduced by
reason of the Executive securing other employment or for any other
reason. The Termination Payment shall be in lieu of, and acceptance by
the Executive of the Termination Payment shall constitute the Executive's
release of any rights of Executive to, any other severance payments under
any Company severance policy, practice or agreement. The Company shall
bear up to $10,000 in the aggregate of fees and expenses of consultants
and/or legal or accounting advisors engaged by the Executive to advise
the Executive as to matters relating to the computation of benefits due
and payable under this Subsection 9(b).
(ii) Notwithstanding any other provision of this Agreement, if any
portion of the Termination Payment or any other payment under this
Agreement, or under any other agreement with or plan of the Employer (in
the aggregate, "Total Payments"), would constitute an "excess parachute
payment," then the Total Payments to be made to the Executive shall be
reduced such that the value of the aggregate Total Payments that the
Executive is entitled to receive shall be One Dollar ($1) less than the
maximum amount which the Executive may receive without becoming subject
to the tax imposed by Section 4999 of the Code (or any successor
provision) or which the Company may pay without loss of deduction under
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Section 280G(a) of the Code (or any successor provision). For purposes of
this Agreement, the terms "excess parachute payment" and "parachute
payments" shall have the meanings assigned to them in Section 280G of the
Code (or any successor provision), and such "parachute payments" shall be
valued as provided therein. Present value for purposes of this Agreement
shall be calculated in accordance with Section 1274(b) (2) of the Code
(or any successor provision). Within forty days following a Covered
Termination or notice by the Company to the Executive of its belief that
there is a payment or benefit due the Executive which will result in an
excess parachute payment as defined in Section 280G of the Code (or any
successor provision), the Executive and the Company, at the Company's
expense, shall obtain the opinion (which need not be unqualified) of
nationally recognized tax counsel ("National Tax Counsel") selected by
the Company's independent auditors and reasonably acceptable to the
Executive (which may be regular outside counsel to the Company), which
opinion sets forth (A) the amount of the Base Period Income, (B) the
amount and present value of Total Payments and (C) the amount and present
value of any excess parachute payments determined without regard to the
limitations of this Subsection 9(b)(ii). As used in this Subsection
9(b)(ii), the term "Base Period Income" means an amount equal to the
Executive's "annualized includable compensation for the base period" as
defined in Section 280G(d)(l) of the Code. For purposes of such opinion,
the value of any noncash benefits or any deferred payment or benefit
shall be determined
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by the Company's independent auditors in accordance with the principles
of Sections 280G(d)(3) and (4) of the Code (or any successor provisions),
which determination shall be evidenced in a certificate of such auditors
addressed to the Company and the Executive. The opinion of National Tax
Counsel shall be addressed to the Company and the Executive and shall be
binding upon the Company and the Executive. If such National Tax Counsel
opinion determines that there would be an excess parachute payment, the
Termination Payment hereunder or any other payment or benefit determined
by such counsel to be includable in Total Payments shall be reduced or
eliminated as specified by the Executive in writing delivered to the
Company within thirty days of his receipt of such opinion or, if the
Executive fails to so notify the Company, then as the Company shall
reasonably determine, so that under the bases of calculations set forth
in such opinion there will be no excess parachute payment. If such
National Tax Counsel so requests in connection with the opinion required
by this Section, the Executive and the Company shall obtain, at the
Company's expense, and the National Tax Counsel may rely on, the advice
of a firm of recognized executive compensation consultants as to the
reasonableness of any item of compensation to be received by the
Executive solely with respect to its status under Section 280G of the
Code and the regulations thereunder.
(iii) If, notwithstanding the provisions of Subsection (ii) of
this Subsection 9(b) it is ultimately determined by a court or pursuant
to a
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final determination by the Internal Revenue Service that any portion of
Total Payments is subject to the tax (the "Excise Tax") imposed by
Section 4999 of the Code (or any successor provision), the Company shall
pay to the Executive an additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive after deduction of any
Excise Tax and any interest charges or penalties in respect of the
imposition of such Excise Tax (but not any federal, state or local income
tax) on the Total Payments, and any federal, state and local income tax
and Excise Tax upon the payment provided for by this Subsection (iii),
shall be equal to the Total Payments. For purposes of determining the
amount of the Gross-Up Payment, the Executive shall be deemed to pay
federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be made
and state and local income taxes at the highest marginal rates of
taxation in the state and locality of the Executive's domicile for income
tax purposes on the date the Gross-Up Payment is made, net of the maximum
reduction in federal income taxes which could be obtained from deduction
of such state and local taxes.
(iv) The Company agrees to bear all costs associated with, and to
indemnify and hold harmless, the National Tax Counsel of and from any and
all claims, damages, and expenses resulting from or relating to its
determinations pursuant to this Subsection 9(b), except for claims,
damages or expenses resulting from the gross negligence or willful
misconduct of such firm.
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10. Death. (a) Except as provided in Section 10(b) hereof, in the event
of a Covered Termination due to the Executive's death, the Executive's estate,
heirs and beneficiaries shall receive all the Executive's Accrued Benefits
through the Termination Date.
(b) In the event the Executive dies after a Notice of Termination is
given (i) by the Company or (ii) by the Executive for Good Reason, the
Executive's estate, heirs and beneficiaries shall be entitled to the benefits
described in Subsection 10(a) hereof and, subject to the provisions of this
Agreement, to such Termination Payment as the Executive would have been entitled
to had the Executive lived. For purposes of this Subsection 10(b), the
Termination Date shall be the earlier of thirty days following the giving of the
Notice of Termination, subject to extension pursuant to Subsection 1(l) hereof,
or one day prior to the end of the Employment Period.
11. Retirement. If, during the Employment Period, the Executive and the
Employer shall execute an agreement providing for the early retirement of the
Executive from the Employer, or the Executive shall otherwise give notice that
he is voluntarily choosing to retire early from the Employer, the Executive
shall receive Accrued Benefits through the Termination Date; provided, that if
the Executive's employment is terminated by the Executive for Good Reason or by
the Company other than by reason of death, disability or Cause and the Executive
also, in connection with such termination, elects voluntary early retirement,
the Executive shall also be entitled to receive a Termination Payment pursuant
to Subsection 8(a) hereof.
12. Termination for Disability. If, during the Employment Period, as a
result of the Executive's disability due to physical or mental illness or injury
(regardless of whether such illness or injury is job-related), the Executive
shall have been absent from the Executive's duties hereunder on a full-time
basis for a period of six consecutive months and, within thirty days after
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the Company notifies the Executive in writing that it intends to terminate the
Executive's employment (which notice shall not constitute the Notice of
Termination contemplated below), the Executive shall not have returned to the
performance of the Executive's duties hereunder on a full-time basis, the
Company may terminate the Executive's employment for purposes of this Agreement
pursuant to a Notice of Termination given in accordance with Section 13 hereof.
If the Executive's employment is terminated on account of the Executive's
disability in accordance with this Section, the Executive shall receive Accrued
Benefits in accordance with Subsection 9(a) hereof and shall remain eligible for
all benefits provided by any long term disability programs of the Company in
effect at the time of such termination.
13. Termination Notice and Procedure. Any Covered Termination by the
Company or the Executive (other than a termination of the Executive's employment
that is a Covered Termination by virtue of Subsection 2(b) hereof) shall be
communicated by a written notice of termination ("Notice of Termination") to the
Executive, if such Notice is given by the Company, and to the Company, if such
Notice is given by the Executive, all in accordance with the following
procedures and those set forth in Section 23 hereof:
(a) If such termination is for disability, Cause or Good Reason, the
Notice of Termination shall indicate in reasonable detail the facts and
circumstances alleged to provide a basis for such termination.
(b) Any Notice of Termination by the Company shall have been approved,
prior to the giving thereof to the Executive, by a resolution duly adopted by a
majority of the directors of the Company (or any successor corporation) then in
office.
(c) If the Notice is given by the Executive for Good Reason, the
Executive may cease performing his duties hereunder on or after the date fifteen
days after the
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delivery of Notice of Termination and shall in any event cease employment on the
Termination Date. If the Notice is given by the Company, then the Executive may
cease performing his duties hereunder on the date of receipt of the Notice of
Termination, subject to the Executive's rights hereunder.
(d) The Executive shall have thirty days, or such longer period as the
Company may determine to be appropriate, to cure any conduct or act, if curable,
alleged to provide grounds for termination of the Executive's employment for
Cause under this Agreement pursuant to Subsection 1(d) (iii) hereof.
(e) The recipient of any Notice of Termination shall personally deliver
or mail in accordance with Section 23 hereof written notice of any dispute
relating to such Notice of Termination to the party giving such Notice within
fifteen days after receipt thereof; provided, however, that if the Executive's
conduct or act alleged to provide grounds for termination by the Company for
Cause is curable, then such period shall be thirty days. After the expiration of
such period, the contents of the Notice of Termination shall become final and
not subject to dispute.
14. Further Obligations of the Executive.
(a) Competition. The Executive agrees that, in the event of any Covered
Termination where the Executive is entitled to Accrued Benefits and the
Termination Payment, the Executive shall not, for a period expiring one year
after the Termination Date, without the prior written approval of the Company's
Board of Directors, participate in the management of, be employed by or own any
business enterprise at a location within the United States that engages in
substantial competition with the Company or its subsidiaries, where such
enterprise's revenues from any competitive activities amount to 10% or more of
such enterprise's net revenues and sales for its most recently completed fiscal
year; provided, however, that nothing
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in this Subsection 14(a) shall prohibit the Executive from owning stock or other
securities of a competitor amounting to less than five percent of the
outstanding capital stock of such competitor.
(b) Confidentiality. During the Executive's employment by the Company and
for a period of five (5) years thereafter, the Executive shall hold in
confidence and not directly or indirectly disclose or use or copy or make lists
of any confidential information or proprietary data of the Company (including
that of the Employer), except to the extent authorized in writing by the Board
of Directors of the Company or required by any court or administrative agency,
other than to an employee of the Company or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance by the
Executive of duties as an executive of the Company. Confidential information
shall not include any information known generally to the public or any
information of a type not otherwise considered confidential by persons engaged
in the same business or a business similar to that of the Company. All records,
files, documents and materials, or copies thereof, relating to the business of
the Company which the Executive shall prepare, or use, or come into contact
with, shall be and remain the sole property of the Company and shall be promptly
returned to the Company upon termination of employment with the Company.
15. Expenses and Interest. If, after a Change in Control of the Company,
(i) a dispute arises with respect to the enforcement of the Executive's rights
under this Agreement or (ii) any legal or arbitration proceeding shall be
brought to enforce or interpret any provision contained herein or to recover
damages for breach hereof, in either case so long as, and to the extent that,
the Executive prevails in such proceeding, the Executive shall recover from the
Company the reasonable attorneys' fees and necessary costs and disbursements
incurred as a result of the dispute, legal or arbitration proceeding as to which
the Executive has prevailed
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("Expenses"), and prejudgment interest on any money judgment or arbitration
award obtained by the Executive calculated at the rate of interest announced by
Firstar Bank Milwaukee, N. A., Milwaukee, Wisconsin, from time to time at its
prime or base lending rate from the date that payments to him or her should have
been made under this Agreement. Any dispute as to the reasonableness of the
Expenses incurred, or the extent to which the Executive has prevailed, shall be
resolved by the presiding officer (arbitrator or judge) in the forum in which
the substantive issues are finally resolved.
16. Payment Obligations Absolute. The Company's obligation during and
after the Employment Period to pay the Executive the amounts and to make the
benefit and other arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including, without
limitation, any setoff, counterclaim, recoupment, defense or other right which
the Company may have against him or anyone else. Except as provided in Section
15 of this Agreement, all amounts payable by the Company hereunder shall be paid
without notice or demand. Each and every payment made hereunder by the Company
shall be final, and the Company will not seek to recover all or any part of such
payment from the Executive, or from whomsoever may be entitled thereto, for any
reason whatsoever.
17. Successors. (a) If the Company sells, assigns or transfers all or
substantially all of its business and assets to any Person or if the Company
merges into or consolidates or otherwise combines (where the Company does not
survive such combination) with any Person (any such event, a "Sale of
Business"), then the Company shall assign all of its right, title and interest
in this Agreement as of the date of such event to such Person, and the Company
shall cause such Person, by written agreement in form and substance reasonably
satisfactory to the Executive, to expressly assume and agree to perform from and
after the date of such assignment all
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of the terms, conditions and provisions imposed by this Agreement upon the
Company. Failure of the Company to obtain such agreement prior to the effective
date of such Sale of Business shall be a breach of this Agreement constituting
"Good Reason" hereunder, except that for purposes of implementing the foregoing
the date upon which such Sale of Business becomes effective shall be deemed the
Termination Date. In case of such assignment by the Company and of assumption
and agreement by such Person, as used in this Agreement, "Company" shall
thereafter mean such Person which executes and delivers the agreement provided
for in this Section 17 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law, and this Agreement shall inure
to the benefit of, and be enforceable by, such Person. The Executive shall, in
his or her discretion, be entitled to proceed against any or all of such
Persons, any Person which theretofore was such a successor to the Company and
the Company (as so defined) in any action to enforce any rights of the Executive
hereunder. Except as provided in this Subsection, this Agreement shall not be
assignable by the Company. This Agreement shall not be terminated by the
voluntary or involuntary dissolution of the Company.
(b) This Agreement and all rights of the Executive shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, heirs and beneficiaries. All amounts
payable to the Executive under Sections 7, 8, 9, 10, 11, 12 and 15 hereof if the
Executive had lived shall be paid, in the event of the Executive's death, to the
Executive's estate, heirs and representatives; provided, however, that the
foregoing shall not be construed to modify any terms of any benefit plan of the
Employer, as such terms are in effect on the date of the Change in Control of
the Company, that expressly govern benefits under such plan in the event of the
Executive's death.
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18. Severability. The provisions of this Agreement shall be regarded as
divisible, and if any of said provisions or any part hereof are declared invalid
or unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts hereof and the
applicability thereof shall not be affected thereby.
19. Contents of Agreement; Waiver of Rights; Amendment. This Agreement
sets forth the entire understanding between the parties hereto with respect to
the subject matter hereof and shall supersede in all respects, and the Executive
hereby waives all rights under, any prior or other agreement or understanding
between the parties with respect to such subject matter, including, but not
limited to the [previous Key Executive Employment and Severance Agreement dated
as of _______ between Company and the Executive.] This Agreement may not be
amended or modified at any time except by written instrument executed by the
Company and the Executive.
20. Withholding. The Company shall be entitled to withhold from amounts
to be paid to the Executive hereunder any federal, state or local withholding or
other taxes or charges which it is from time to time required to withhold;
provided, that the amount so withheld shall not exceed the minimum amount
required to be withheld by law. The Company shall be entitled to rely on an
opinion of the National Tax Counsel if any question as to the amount or
requirement of any such withholding shall arise.
21. Certain Rules of Construction. No party shall be considered as being
responsible for the drafting of this Agreement for the purpose of applying any
rule construing ambiguities against the drafter or otherwise. No draft of this
Agreement shall be taken into account in construing this Agreement. Any
provision of this Agreement which requires an agreement in
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writing shall be deemed to require that the writing in question be signed by the
Executive and an authorized representative of the Company.
22. Governing Law; Resolution of Disputes. This Agreement and the rights
and obligations hereunder shall be governed by and construed in accordance with
the laws of the State of Wisconsin. Any dispute arising out of this Agreement
shall, at the Executive's election, be determined by arbitration under the rules
of the American Arbitration Association then in effect (in which case both
parties shall be bound by the arbitration award) or by litigation. Whether the
dispute is to be settled by arbitration or litigation, the venue for the
arbitration or litigation shall be Madison, Wisconsin or, at the Executive's
election, if the Executive is not then residing or working in the Madison,
Wisconsin metropolitan area, in the judicial district encompassing the city in
which the Executive resides; provided, that, if the Executive is not then
residing in the United States, the election of the Executive with respect to
such venue shall be either Madison, Wisconsin or in the judicial district
encompassing that city in the United States among the thirty cities having the
largest population (as determined by the most recent United States Census data
available at the Termination Date) which is closest to the Executive's
residence. The parties consent to personal jurisdiction in each trial court in
the selected venue having subject matter jurisdiction notwithstanding their
residence or situs, and each party irrevocably consents to service of process in
the manner provided hereunder for the giving of notices.
23. Notice. Notices given pursuant to this Agreement shall be in writing
and, except as otherwise provided by Subsection 13(d) hereof, shall be deemed
given when actually received by the Executive or actually received by the
Company's Corporate Secretary or any officer of the Company other than the
Executive. If mailed, such notices shall be mailed by United States registered
or certified mail, return receipt requested, addressee only, postage prepaid, if
to
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the Company, to Interstate Energy Corporation (d/b/a Alliant Energy
Corporation), Attention: Corporate Secretary (or President, if the Executive is
then Corporate Secretary), 222 West Washington Avenue, P.O. Box 2568, Madison,
Wisconsin 53701-2568, or if to the Executive, at the address set forth below the
Executive's signature to this Agreement, or to such other address as the party
to be notified shall have theretofore given to the other party in writing.
24. No Waiver. No waiver by either party at any time of any breach by the
other party of, or compliance with, any condition or provision of this Agreement
to be performed by the other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or any prior or subsequent
time.
25. Headings. The headings herein contained are for reference only and
shall not affect the meaning or interpretation of any provision of this
Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
INTERSTATE ENERGY CORPORATION
By: _______________________________
Its: __________________________
Attest: __________________________
Its: _____________________
EXECUTIVE:
_______________________________(SEAL)
Address: ___________________________
___________________________
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT by and between Interstate Energy Corporation, a Wisconsin
corporation (the "Company"), and Erroll B. Davis, Jr. (the "Executive"),
originally dated as of the 21st day of April, 1998, is amended and restated as
of the 29th day of March, 1999.
W I T N E S S E T H T H A T
WHEREAS, the Company is party to an Agreement and Plan of Merger, as
amended (the "Merger Agreement") , dated November 10, 1995, by and among the
Company, IES Industries Inc., an Iowa corporation ("IES"), Interstate Power
Company, a Delaware corporation ("Interstate Power"), WPLH Acquisition Co., a
Wisconsin corporation and a wholly-owned subsidiary of the Company, and
Interstate Power Company, a Wisconsin corporation and a wholly-owned subsidiary
of Interstate; and
WHEREAS, the parties to the Merger Agreement wish to provide for the
orderly succession of management of the Company following the Effective Time (as
defined in the Merger Agreement); and
WHEREAS, the parties to the Merger Agreement further wish to provide for
the employment by the Company of the Executive, and the Executive wishes to
serve the Company and its subsidiaries, in the capacities and on the terms and
conditions set forth in this Agreement, as amended and restated.
NOW, THEREFORE, it is hereby agreed as follows:
1. Employment Period. The Company shall employ the Executive, and the
Executive shall serve the Company, on the terms and conditions set forth in this
Agreement, for an initial period (the "Initial Period") commencing at the
Effective Time and ending on the date immediately preceding the fifth
anniversary of the Effective Time. This Agreement thereafter will automatically
renew for successive terms of one (1) year each, unless either party hereto has
given sixty (60) days' advance written notice of its or his intent to allow the
term of this Agreement to expire. The term during which the Executive is
employed by the Company hereunder (including without limitation the Initial
Period) is hereafter referred to as the "Employment Period." Upon the
termination of the Employment Period the Executive will have the status of a
retired senior executive officer of the Company and shall be entitled to all of
the rights, privileges and benefits provided to such retired officers.
2. Position and Duties.
(a) During the first two (2) years of the Initial Period, the
Executive shall serve as President and Chief Executive Officer of the
Company and thereafter, until the end of the Employment Period, the
Executive shall serve as Chairman of the Board of Directors, President
and Chief Executive Officer of the Company; in each case with such duties
and responsibilities as are customarily assigned to such positions, and
such other duties and responsibilities not inconsistent therewith as
<PAGE>
may from time to time be assigned to him by the Board of Directors of the
Company (the "Board"). The Executive also shall continue to serve as a
member of the Board following the Effective Time, and the Board shall
propose the Executive for re-election to the Board throughout the
Employment Period.
(b) In addition to the responsibilities designated in paragraph
(a) of Section 2 above, during the three-year period following the
Effective Time, the Executive shall be entitled to serve as the Chief
Executive Officer of each entity which during such period is a subsidiary
of the Company and the Company shall cause the Executive to be appointed
or elected as the Chief Executive Officer of each such subsidiary. In his
capacity as the Chief Executive Officer of said subsidiaries, the
Executive shall have such duties and responsibilities as are customarily
assigned to such position, and such other duties and responsibilities not
inconsistent therewith as may from time to time be assigned to him by the
Board of Directors of each such subsidiary. During the Employment Period,
the Executive also shall serve as a member of the Board of Directors of
each of the Company's subsidiaries and the Company shall cause the
Executive to be appointed, elected or re-elected as such a director.
(c) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
shall devote reasonable attention and time during normal business hours
to the business and affairs of the Company and its affiliates and, to the
extent necessary to discharge the responsibilities assigned to the
Executive under this Agreement, use the Executive's reasonable best
efforts to carry out such responsibilities faithfully and efficiently. It
shall not be considered a violation of the foregoing for the Executive to
serve on corporate, industry, civic or charitable boards or committees,
so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the
Company and its affiliates in accordance with this Agreement.
(d) The Company's headquarters shall be located in Madison,
Wisconsin and the Executive shall reside in the general area of Madison,
Wisconsin. During the Employment Period, the Company also will provide
the Executive with a furnished apartment in the Cedar Rapids, Iowa area.
3. Compensation.
(a) Base Salary. The Executive's compensation during the
Employment Period shall be determined by the Board upon the
recommendation of the Compensation and Personnel Committee (or other
appropriate committee) of the Board, subject to the next sentence and
paragraph (b) of Section 3. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary") of not less
than his aggregate annual base salary from the Company and its
subsidiaries as in effect immediately before the Effective Time. The
Annual Base Salary shall be payable in accordance with the Company's
regular payroll practice for its senior executives, as in effect from
time to time. During the Employment Period, the Annual Base Salary shall
be reviewed for possible increase
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at least annually. Any increase in the Annual Base Salary shall not limit
or reduce any other obligation of the Company under this Agreement. The
Annual Base Salary shall not be reduced after any such increase, and the
term "Annual Base Salary" shall thereafter refer to the Annual Base
Salary as so increased.
(b) Incentive Compensation. During the Employment Period, the
Executive shall continue to participate in short-term incentive
compensation plans and long-term incentive compensation plans (the latter
to consist of plans offering stock options, restricted stock and other
long-term incentive compensation) offered by the Company and its present
or future affiliates which shall provide him with the opportunity to
earn, on a year-by-year basis, short-term and long-term incentive
compensation (the "Incentive Compensation") at least equal to the amounts
that he had the opportunity to earn immediately before the Effective
Time, and such compensation shall be payable in accordance with standards
(i.e., performance criteria, performance levels, etc.) which are no less
favorable to the Executive than those applicable with respect to the
Incentive Compensation payable to the Executive immediately before the
Effective Time.
(c) Other Benefits.
(i) Retirement Plan; Supplemental Retirement Plan. During
the Employment Period, the Executive shall participate in a
retirement plan and/or supplemental retirement plan (the "Defined
Benefit Arrangement") such that the aggregate value of the
retirement benefits that he and his spouse will receive at the end
of the Employment Period under all defined benefit plans of the
Company and its affiliates (whether qualified or not) will be not
less than the benefits he would have received (assuming his
employment through the end of the Employment Period) under the
Wisconsin Power and Light Company Retirement Plan and the
Supplemental Retirement Plan in which the Executive participated,
as in effect immediately prior to the Effective Time.
(ii) Executive Tenure Compensation Plan. During the
Employment Period, the Executive shall continue to participate in
the Wisconsin Power and Light Company Executive Tenure
Compensation Plan.
(iii) Life Insurance. During the Employment Period, the
Company shall provide the Executive with life insurance coverage
(the "Life Insurance Coverage") providing a death benefit to such
beneficiary or beneficiaries as the Executive may designate of not
less than three times his Annual Base Salary.
(iv) Additional Benefits. In addition, and without limiting
the generality of the foregoing, during the Employment Period and
thereafter: (A) the Executive shall be entitled to participate in
all applicable incentive, savings and retirement plans, practices,
policies and programs of the Company and its affiliates to the
same extent as other senior executives (or,
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where applicable, retired senior executives) of the Company, and
(B) the Executive and/or the Executive's family, as the case may
be, shall be eligible for immediate participation in (and without
any limitation for preexisting conditions), and shall receive all
benefits under, all applicable welfare benefit plans, practices,
policies and programs provided by the Company and its affiliates,
other than severance plans, practices, policies and programs but
including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life insurance, group
life insurance, accidental death and travel accident insurance
plans and programs, to the same extent as other senior executives
(or, where applicable, retired senior executives) of the Company,
provided, however, that the Executive's aggregate benefits as a
retired senior executive under the plans described in this clause
(B) shall not be less than the benefits provided by the Company
and its affiliates to its retired senior executive officers as of
the date of this Agreement.
(d) Perquisites. During the Employment Period, the Executive shall
be entitled to receive such perquisites as the Company may establish from
time to time which are commensurate with his position and at least
comparable to those received by other senior executives at the Company.
(e) Expense Reimbursement. The Company shall reimburse the
Executive for all reasonable and documented expenses incurred by the
Executive in the performance of the Executive's duties under this
Agreement.
4. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment
Period. The Company shall be entitled to terminate the Executive's
employment because of the Executive's Disability during the Employment
Period. "Disability" means that (i) the Executive has been unable, for a
period of 180 consecutive business days, to perform the Executive's
duties under this Agreement, as a result of physical or mental illness or
injury, and (ii) a physician selected by the Company or its insurers, and
acceptable to the Executive or the Executive's legal representative, has
determined that the Executive's incapacity is total and permanent. A
termination of the Executive's employment by the Company for Disability
shall be communicated to the Executive by written notice, and shall be
effective on the 30th day after receipt of such notice by the Executive
(the "Disability Effective Date"), unless the Executive returns to
full-time performance of the Executive's duties before the Disability
Effective Date.
(b) By the Company.
(i) The Company may terminate the Executive's employment during
the Employment Period for Cause or without Cause. "Cause" means:
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A. the willful and continued failure of the Executive
substantially to perform the Executive's duties under this
Agreement (other than as a result of physical or mental illness or
injury), after the Board delivers to the Executive a written
demand for substantial performance that specifically identifies
the manner in which the Board believes that the Executive has not
substantially performed the Executive's duties; or
B. illegal conduct or gross misconduct by the Executive, in
either case that is willful and results in material and
demonstrable damage to the business or reputation of the Company.
No act or failure to act on the part of the Executive shall be considered
"willful" unless it is done, or omitted to be done, by the Executive in
bad faith or without reasonable belief that the Executive's action or
omission was in the best interests of the Company. Any act or failure to
act that is based upon authority given pursuant to a resolution duly
adopted by the Board, or the advice of counsel for the Company, shall be
conclusively presumed to be done, or omitted to be done, by the Executive
in good faith and in the best interests of the Company.
(ii) A termination of the Executive's employment for Cause shall
be effected in accordance with the following procedures. The Company
shall give the Executive written notice ("Notice of Termination for
Cause") of its intention to terminate the Executive's employment for
Cause, setting forth in reasonable detail the specific conduct of the
Executive that it considers to constitute Cause and the specific
provision(s) of this Agreement on which it relies, and stating the date,
time and place of the Special Board Meeting for Cause. The "Special Board
Meeting for Cause" means a meeting of the Board called and held
specifically for the purpose of considering the Executive's termination
for Cause, that takes place not less than ten (10) and not more than
twenty (20) business days after the Executive receives the Notice of
Termination for Cause. The Executive shall be given an opportunity,
together with counsel, to be heard at the Special Board Meeting for
Cause. The Executive's termination for Cause shall be effective when and
if a resolution is duly adopted at the Special Board Meeting for Cause by
a two-thirds vote of the entire membership of the Board, excluding
employee directors, stating that in the good faith opinion of the Board,
the Executive is guilty of the conduct described in the Notice of
Termination for Cause, and that conduct constitutes Cause under this
Agreement.
(iii) A termination of the Executive's employment without Cause
shall be effected in accordance with the following procedures. The
Company shall give the Executive written notice ("Notice of Termination
without Cause") of its intention to terminate the Executive's employment
without Cause, stating the date, time and place of the Special Board
Meeting without Cause. The "Special Board Meeting without Cause" means a
-5-
<PAGE>
meeting of the Board called and held specifically for the purpose of
considering the Executive's termination without Cause, that takes place
not less than ten (10) and not more than twenty (20) business days after
the Executive receives the Notice of Termination without Cause. The
Executive shall be given an opportunity, together with counsel, to be
heard at the Special Board Meeting without Cause. The Executive's
termination without Cause shall be effective when and if a resolution is
duly adopted at the Special Board Meeting without Cause by a two-thirds
vote of the entire membership of the Board, excluding employee directors,
stating that the Executive is terminated without Cause.
(c) Good Reason.
(i) The Executive may terminate employment for Good Reason or
without Good Reason. "Good Reason" means:
A. the assignment to the Executive of any duties
inconsistent in any respect with paragraphs (a) and (b) of Section
2 of this Agreement, or any other action by the Company that
results in a diminution in the Executive's position, authority,
duties or responsibilities, other than an isolated, insubstantial
and inadvertent action that is not taken in bad faith and is
remedied by the Company promptly after receipt of notice thereof
from the Executive;
B. any failure by the Company to comply with any provision
of Section 3 of this Agreement, other than an isolated,
insubstantial and inadvertent failure that is not taken in bad
faith and is remedied by the Company promptly after receipt of
notice thereof from the Executive;
C. any requirement by the Company that the Executive's
services be rendered primarily at a location or locations other
than that provided for in paragraph (d) of Section 2 of this
Agreement;
D. any purported termination of the Executive's employment
by the Company for a reason or in a manner not expressly permitted
by this Agreement;
E. any failure by the Company to comply with paragraph (c)
of Section 11 of this Agreement; or
F. any other substantial breach of this Agreement by the
Company that either is not taken in good faith or is not remedied
by the Company promptly after receipt of notice thereof from the
Executive.
(ii) A termination of employment by the Executive for Good Reason
shall be effectuated by giving the Company written notice ("Notice
-6-
<PAGE>
of Termination for Good Reason") of the termination within six months of
the event constituting Good Reason, setting forth in reasonable detail
the specific conduct of the Company that constitutes Good Reason and the
specific provision(s) of this Agreement on which the Executive relies. A
termination of employment by the Executive for Good Reason shall be
effective on the fifth business day following the date when the Notice of
Termination for Good Reason is given, unless the notice sets forth a
later date (which date shall in no event be later than thirty (30) days
after the notice is given).
(iii) A termination of the Executive's employment by the Executive
without Good Reason shall be effected by giving the Company written
notice of the termination.
(d) Date of Termination. The "Date of Termination" means the date of the
Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company for Cause or without
Cause or by the Executive for Good Reason is effective, or the date on which the
Executive gives the Company notice of a termination of employment without Good
Reason, as the case may be.
5. Obligations of the Company upon Termination.
(a) By the Company other than for Cause, Death or Disability; by
the Executive for Good Reason. If, during the Employment Period, the
Company terminates the Executive's employment, other than for Cause,
Death, or Disability, or the Executive terminates employment for Good
Reason, the Company shall continue to provide the Executive with the
compensation and benefits set forth in paragraphs (a), (b) and (c) of
Section 3 as if he had remained employed by the Company pursuant to this
Agreement through the end of the Employment Period and then retired (at
which time he will be treated as eligible for and will be entitled to
receive all retiree welfare benefits and other benefits provided to
retired senior executives, as set forth in Section 3(c), with such
benefits being calculated for this purpose as though the Executive had
retired at age 62 with earnings on an annual basis during the years
between the Date of Termination and age 62 equal to the Executive's
earnings for the year immediately preceding the Date of Termination);
provided, that the Incentive Compensation for the period through the end
of the Employment Period shall be equal to the maximum Incentive
Compensation that the Executive would have been eligible to earn for such
period; provided, further that in lieu of stock options, restricted stock
and other stock-based awards, the Executive shall be paid cash equal to
the fair market value (without regard to any restrictions) of the stock
options, restricted stock and other stock-based awards that would
otherwise have been granted; and provided, further that to the extent any
benefits described in paragraph (c) of Section 3 cannot be provided
pursuant to the plan or program maintained by the Company for its
executives, the Company shall provide such benefits outside such plan or
program at no additional cost (including without limitation tax cost) to
the Executive and his family; and provided, finally, that during any
period when the Executive is eligible to receive benefits of the type
-7-
<PAGE>
described in clause (B) of paragraph (c)(iv) of Section 3 under another
employer-provided plan, the benefits provided by the Company under this
paragraph (a) of Section 5 may be made secondary to those provided under
such other plan. In addition to the foregoing, any restricted stock or
performance shares or units outstanding on the Date of Termination shall
be fully vested as of the Date of Termination and all options outstanding
on the Date of Termination shall be fully vested and exercisable and
shall remain in effect and exercisable through the end of their
respective terms, without regard to the termination of the Executive's
employment. The payments and benefits provided pursuant to this paragraph
(a) of Section 5 are intended as liquidated damages for a termination of
the Executive's employment by the Company other than for Cause or
Disability or for the actions of the Company leading to a termination of
the Executive's employment by the Executive for Good Reason, and shall be
the sole and exclusive remedy therefor.
(b) Death and Disability. If the Executive's employment is
terminated by reason of the Executive's death or Disability during the
Employment Period, the Company shall pay to the Executive or, in the case
of the Executive's death, to the Executive's designated beneficiaries
(or, if there is no such beneficiary, to the Executive's estate or legal
representative), in a lump sum in cash within thirty (30) days after the
Date of Termination, the sum of the following amounts (the "Accrued
Obligations"): (1) any portion of the Executive's Annual Base Salary
through the Date of Termination that has not yet been paid; (2) an amount
representing the Incentive Compensation for the period that includes the
Date of Termination, computed by assuming that the amount of all such
Incentive Compensation would be equal to the maximum amount of such
Incentive Compensation that the Executive would have been eligible to
earn for such period, and multiplying that amount by a fraction, the
numerator of which is the number of days in such period through the Date
of Termination, and the denominator of which is the total number of days
in the relevant period; (3) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon) that
has not yet been paid; and (4) any accrued but unpaid Incentive
Compensation and vacation pay. Any deferred compensation (together with
any accrued interest or earnings thereon, if any) that has not yet been
paid, will be paid in accordance with the terms and conditions applicable
to such deferred compensation.
(c) By the Company for Cause; By the Executive Other than for Good
Reason. If the Executive's employment is terminated by the Company for
Cause during the Employment Period, the Company shall pay the Executive
the Annual Base Salary through the Date of Termination and the amount of
any compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon), in each case to the extent not yet
paid, and the Company shall have no further obligations under this
Agreement, except as specified in Section 6 below. If the Executive
voluntarily terminates employment during the Employment Period, other
than for Good Reason, the Company shall pay the Accrued Obligations to
the Executive in a lump sum in cash within thirty (30) days of the Date
of Termination, and the Company shall have no further obligations under
this Agreement, except as specified in Section 6 below.
-8-
<PAGE>
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliates for which
the Executive may qualify, nor shall anything in this Agreement limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliates relating to subject matter
other than that specifically addressed herein. Vested benefits and other amounts
that the Executive is otherwise entitled to receive under the Incentive
Compensation program, the Defined Benefit Arrangement, the Life Insurance
Coverage, the Executive Tenure Compensation Plan, the Executive's Deferred
Compensation Plan(s), or any other plan, policy, practice or program of, or any
contract or agreement with, the Company or any of its affiliates on or after the
Date of Termination shall be payable in accordance with the terms of each such
plan, policy, practice, program, contract or agreement, as the case may be,
except as explicitly modified by this Agreement.
7. Full Settlement. The Company's obligation to make the payments
provided for in, and otherwise to perform its obligations under, this Agreement
shall not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action that the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement. The amounts payable by
the Company under this Agreement shall not be offset or reduced by any amounts
otherwise receivable or received by the Executive from any source, except as
specifically provided in paragraph (a) of Section 5 with respect to benefits
described in clause (B) of paragraph (c)(iv) of Section 3.
8. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies and
their respective businesses that the Executive obtains during the Executive's
employment by the Company or any of its affiliated companies and that is not
public knowledge (other than as a result of the Executive's violation of this
Section 8) ("Confidential Information"). The Executive shall not communicate,
divulge or disseminate Confidential Information at any time during or after the
Executive's employment with the Company, except with the prior written consent
of the Company or as otherwise required by law or legal process. In no event
shall any asserted violation of the provisions of this Section 8 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
9. Total Payments.
(a) Notwithstanding any other provision of this Agreement, if any
portion of any payment under this Agreement, or under any other agreement
with or plan of the Company (in the aggregate "Total Payments"), would
constitute an "excess parachute payment," the Company shall pay Executive
an additional amount (the "Gross-Up Payment") such that the net amount
retained by Executive after deduction of any excise tax imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), any interest charges or penalties in respect of the imposition
of such excise tax (but not any federal, state or local income tax, or
employment tax) on the Total Payments, and any federal, state and local
income tax, employment tax, and excise tax upon the payment provided for
by this paragraph (a) of Section 9, shall be equal to the Total Payments.
For purposes
-9-
<PAGE>
of determining the amount of the Gross-Up Payment, the Executive shall be
deemed to pay federal income tax and employment taxes at the highest
marginal rate of federal income and employment taxation in the calendar
year in which the Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's domicile for income tax purposes on the date
the Gross-Up Payment is made, net of the maximum reduction in federal
income taxes that may be obtained from the deduction of such state and
local taxes. For purposes of this Agreement, the terms "excess parachute
payment" and "parachute payments" shall have the meanings assigned to
them in Section 280G of the Code and such "parachute payments" shall be
valued as provided therein. Present value for purposes of this Agreement
shall be calculated in accordance with Section 1274(b)(2) of the Code (or
any successor provision). Promptly following the Date of Termination or
notice by the Company to the Executive of its belief that there is a
payment or benefit due the Executive which will result in an excess
parachute payment as defined in Section 280G of the Code, the Executive
and the Company, at the Company's expense, shall obtain the opinion
(which need not be unqualified) of nationally recognized tax counsel
("National Tax Counsel") selected by the Company's independent auditors
and reasonably acceptable to the Executive (which may be regular outside
counsel to the Company), which opinion sets forth (i) the amount of the
Base Period Income, (ii) the amount and present value of Total Payments,
(iii) the amount and present value of any excess parachute payments, and
(iv) the amount of any Gross-Up Payment. As used in this Agreement, the
term "Base Period Income" means an amount equal to the Executive's
"annualized includible compensation for the base period" as defined in
Section 280G(d)(1) of the Code. For purposes of such opinion, the value
of any noncash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
principles of Section 280G(d)(3) and (4) of the Code (or any successor
provisions), which determination shall be evidenced in a certificate of
such auditors addressed to the Company and the Executive. The opinion of
National Tax Counsel shall be addressed to the Company and the Executive
and shall be binding upon the Company and the Executive. If such National
Tax Counsel so requests in connection with the opinion required by this
paragraph (a) of Section 9, the Executive and the Company shall obtain,
at the Company's expense, and the National Tax Counsel may rely on, the
advice of a firm of recognized executive compensation consultants as to
the reasonableness of any item of compensation to be received by the
Executive solely with respect to its status under Section 280G of the
Code and the regulations thereunder. Within five (5) days after the
National Tax Counsel's opinion is received by the Company and the
Executive, the Company shall pay (or cause to be paid) or distribute (or
cause to be distributed) to or for the benefit of Executive such amounts
as are then due to Executive under this Agreement.
(b) In the event that upon any audit by the Internal Revenue
Service, or by a state or local taxing authority, of the Total Payments
or Gross-Up Payment, a change is finally determined to be required in the
amount of taxes paid by the Executive, appropriate adjustments shall be
made under this Agreement such that the net amount which is payable to
the Executive after taking into account the
-10-
<PAGE>
provisions of Section 4999 of the Code shall reflect the intent of the
parties as expressed in paragraph (a) above, in the manner determined by
the National Tax Counsel. The Company agrees to bear all costs associated
with, and to indemnify and hold harmless, the National Tax Counsel of and
from any and all claims, damages, and expenses resulting from or relating
to its determinations pursuant to this Section 9, except for claims,
damages or expenses resulting from the gross negligence or willful
misconduct of such firm.
10. Attorneys' Fees. The Company agrees to pay, as incurred, to the
fullest extent permitted by law, all legal fees and expenses that the Executive
may reasonably incur as a result of any contest (regardless of the outcome) by
the Company, the Executive or others of the validity or enforceability of or
liability under, or otherwise involving, any provision of this Agreement,
together with interest on any delayed payment at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the Code.
11. Successors.
(a) This Agreement is personal to the Executive and, without the
prior written consent of the Company, shall not be assignable by the
Executive. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly
to assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would have been required to perform it
if no such succession had taken place. As used in this Agreement,
"Company" shall mean both the Company as defined above and any such
successor that assumes and agrees to perform this Agreement, by operation
of law or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Wisconsin, without reference to
principles of conflict of laws. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications under this Agreement
shall be in writing and shall be given by hand delivery to the other
party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
-11-
<PAGE>
If to the Executive:
Erroll B. Davis, Jr.
7829 Noll Valley Road
Verona, Wisconsin 53593
If to the Company:
Interstate Energy Corporation
222 West Washington Avenue
P.O. Box 2568
Madison, Wisconsin 53701-2568
Attention: General Counsel
With a copy to:
Benjamin F. Garmer, III
c/o Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202-5367
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 12. Notices and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be
held invalid or unenforceable in part, the remaining portion of such
provision, together with all other provisions of this Agreement, shall
remain valid and enforceable and continue in full force and effect to the
fullest extent consistent with law.
(d) Notwithstanding any other provisions of this Agreement, the
Company may withhold from amounts payable under this Agreement all
federal, state, local and foreign taxes that are required to be withheld
by applicable laws or regulations.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provisions of, or to assert any right under, this
Agreement (including, without limitation, the right of Executive to
terminate employment for Good Reason pursuant to paragraph (c) of Section
4 of this Agreement) shall not be deemed to be a waiver of such provision
or right or of any other provision of or right under this Agreement.
(f) The Executive and the Company acknowledge that this Agreement
supersedes any other agreement between them concerning the subject matter
hereof, excluding the Key Executive Employment and Severance Agreement
between the Executive and the Company dated March 29, 1999, as in effect
on the date hereof
-12-
<PAGE>
or as hereafter amended from time to time (the "Severance Agreement");
provided, however, that to the extent that a payment or benefit to be
provided under this Agreement is similarly to be provided under the
Severance Agreement, the Company agrees to pay or provide to the
Executive that payment or benefit which provides the highest value to the
Executive, and the Executive agrees, in order to avoid duplication of
payments or benefits, that upon the receipt of any such highest value
payment or benefit under either this Agreement or the Severance
Agreement, as the case may be, he shall have no right to any similar
payment or benefit of lesser value under the other agreement.
(g) The rights and benefits of the Executive under this Agreement
may not be anticipated, assigned, alienated or subject to attachment,
garnishment, levy, execution or other legal or equitable process except
as required by law. Any attempt by the Executive to anticipate, alienate,
assign, sell, transfer, pledge, encumber or charge the same shall be
void. Payments hereunder shall not be considered assets of the Executive
in the event of insolvency or bankruptcy.
(h) This Agreement may be executed in several counterparts, each
of which shall be deemed an original, and said counterparts shall
constitute but one and the same instrument.
13. Effectiveness of Agreement. The effectiveness of the original
Agreement was subject to the consummation of the Merger (as defined in the
Merger Agreement), which was consummated April 21, 1998. The effectiveness of
this amended and restated Agreement is subject to the mutual written agreement
of the parties set forth below.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization of its Board of Directors, the Company has
caused this Agreement to be executed in its name and on its behalf, all as of
the day and year first above written.
/s/Erroll B. Davis, Jr.
Erroll B. Davis, Jr.
INTERSTATE ENERGY CORPORATION
By______________________________________
Name:
Title:
-13-
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1999 FINANCIAL STATEMENTS INCLUDED IN INTERSTATE ENERGY CORPORATION'S FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFRENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000352541
<NAME> INTERSTATE ENERGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,069,213
<OTHER-PROPERTY-AND-INVEST> 1,202,097
<TOTAL-CURRENT-ASSETS> 362,599
<TOTAL-DEFERRED-CHARGES> 159,066
<OTHER-ASSETS> 278,147
<TOTAL-ASSETS> 5,071,122
<COMMON> 779
<CAPITAL-SURPLUS-PAID-IN> 913,728
<RETAINED-EARNINGS> 777,716 <F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,692,223
24,431
89,102
<LONG-TERM-DEBT-NET> 1,545,251
<SHORT-TERM-NOTES> 50,027
<LONG-TERM-NOTES-PAYABLE> 56,975
<COMMERCIAL-PAPER-OBLIGATIONS> 64,000
<LONG-TERM-DEBT-CURRENT-PORT> 54,084
0
<CAPITAL-LEASE-OBLIGATIONS> 11,499
<LEASES-CURRENT> 12,146
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,471,384
<TOT-CAPITALIZATION-AND-LIAB> 5,071,122
<GROSS-OPERATING-REVENUE> 546,855
<INCOME-TAX-EXPENSE> 24,872 <F2>
<OTHER-OPERATING-EXPENSES> 453,868
<TOTAL-OPERATING-EXPENSES> 453,868
<OPERATING-INCOME-LOSS> 92,987
<OTHER-INCOME-NET> 8,705
<INCOME-BEFORE-INTEREST-EXPEN> 101,692
<TOTAL-INTEREST-EXPENSE> 33,400
<NET-INCOME> 43,420
1,676
<EARNINGS-AVAILABLE-FOR-COMM> 41,744
<COMMON-STOCK-DIVIDENDS> 38,834
<TOTAL-INTEREST-ON-BONDS> 90,353
<CASH-FLOW-OPERATIONS> 170,152
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
<FN>
<F1> Includes $237,434 of Accumulated Other Comprehensive Income.
<F2> Income tax expense is not included in Operating Expense in the
Consolidated Statements of Income.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1999 FINANCIAL STATEMENTS INCLUDED IN IES UTILITIES INC.'S FORM 10-Q 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,352,871
<OTHER-PROPERTY-AND-INVEST> 107,220
<TOTAL-CURRENT-ASSETS> 99,120
<TOTAL-DEFERRED-CHARGES> 15,201
<OTHER-ASSETS> 133,491
<TOTAL-ASSETS> 1,707,903
<COMMON> 33,427
<CAPITAL-SURPLUS-PAID-IN> 279,042
<RETAINED-EARNINGS> 245,626
<TOTAL-COMMON-STOCKHOLDERS-EQ> 558,095
0
18,320
<LONG-TERM-DEBT-NET> 551,086
<SHORT-TERM-NOTES> 9,694
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 51,140
0
<CAPITAL-LEASE-OBLIGATIONS> 11,427
<LEASES-CURRENT> 12,132
<OTHER-ITEMS-CAPITAL-AND-LIAB> 496,009
<TOT-CAPITALIZATION-AND-LIAB> 1,707,903
<GROSS-OPERATING-REVENUE> 209,265
<INCOME-TAX-EXPENSE> 10,216 <F1>
<OTHER-OPERATING-EXPENSES> 173,092
<TOTAL-OPERATING-EXPENSES> 173,092 <F1>
<OPERATING-INCOME-LOSS> 36,173
<OTHER-INCOME-NET> 1,706
<INCOME-BEFORE-INTEREST-EXPEN> 37,879
<TOTAL-INTEREST-EXPENSE> 13,204
<NET-INCOME> 14,459
229
<EARNINGS-AVAILABLE-FOR-COMM> 14,230
<COMMON-STOCK-DIVIDENDS> 43,976
<TOTAL-INTEREST-ON-BONDS> 42,615
<CASH-FLOW-OPERATIONS> 53,086
<EPS-PRIMARY> 0 <F2>
<EPS-DILUTED> 0 <F2>
<FN>
<F1> Income tax expense is not included in Operating Expense in the
Consolidated Statements of Income.
<F2> Earnings per share of common stock is not reflected because all common
shares are held by Interstate Energy Corporation.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1999 FINANCIAL STATEMENTS INCLUDED IN WISCONSIN POWER AND LIGHT COMPANY'S
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000107832
<NAME> WISCONSIN POWER AND LIGHT COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,221,777
<OTHER-PROPERTY-AND-INVEST> 165,733
<TOTAL-CURRENT-ASSETS> 92,550
<TOTAL-DEFERRED-CHARGES> 113,058
<OTHER-ASSETS> 74,788
<TOTAL-ASSETS> 1,667,906
<COMMON> 66,183
<CAPITAL-SURPLUS-PAID-IN> 199,438
<RETAINED-EARNINGS> 305,181
<TOTAL-COMMON-STOCKHOLDERS-EQ> 570,802
0
59,963
<LONG-TERM-DEBT-NET> 414,603
<SHORT-TERM-NOTES> 51,102
<LONG-TERM-NOTES-PAYABLE> 56,975
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 514,461
<TOT-CAPITALIZATION-AND-LIAB> 1,667,906
<GROSS-OPERATING-REVENUE> 202,990
<INCOME-TAX-EXPENSE> 15,505 <F1>
<OTHER-OPERATING-EXPENSES> 156,599
<TOTAL-OPERATING-EXPENSES> 156,599 <F1>
<OPERATING-INCOME-LOSS> 46,391
<OTHER-INCOME-NET> 5,267
<INCOME-BEFORE-INTEREST-EXPEN> 51,658
<TOTAL-INTEREST-EXPENSE> 9,865
<NET-INCOME> 26,288
828
<EARNINGS-AVAILABLE-FOR-COMM> 25,460
<COMMON-STOCK-DIVIDENDS> 14,588
<TOTAL-INTEREST-ON-BONDS> 33,060
<CASH-FLOW-OPERATIONS> 83,618
<EPS-PRIMARY> 0 <F2>
<EPS-DILUTED> 0 <F2>
<FN>
<F1> Income tax expense is not included in Operating Expense in the
Consolidated Statements of Income.
<F2> Earnings per share of common stock is not reflected because all common
shares are held by Interstate Energy Corporation.
</FN>
</TABLE>
