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
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1999 COMMISSION FILE NUMBER 1-3034
-------------------- -------
NORTHERN STATES POWER COMPANY
----------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 41-0448030
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
414 NICOLLET MALL, MINNEAPOLIS, MINNESOTA 55401
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (612) 330-5500
-----------------------------
NONE
- --------------------------------------------------------------------------------
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
-----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AT APRIL 30, 1999
- ------------------------------- -----------------------------
COMMON STOCK, $2.50 PAR VALUE 153,608,767 SHARES
<PAGE>
PART 1. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
- ---------------------------------
<TABLE>
<CAPTION>
NORTHERN STATES POWER COMPANY (MINNESOTA) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
---------------------------------------------
<S> <C> <C>
Three Months Ended
March 31
--------
1999 1998
---- ----
(Thousands of dollars)
UTILITY OPERATING REVENUES
Electric: Retail $505,561 $479,826
Sales for resale and other 51,295 41,745
Gas 186,327 179,831
Total 743,183 701,402
------- -------
UTILITY OPERATING EXPENSES
Fuel for electric generation 69,963 75,639
Purchased and interchange power 98,065 72,523
Cost of gas purchased and transported 112,178 113,582
Other operation 101,127 95,466
Maintenance 44,990 39,860
Administrative and general 30,563 37,779
Conservation and energy management 17,238 16,885
Depreciation and amortization 87,485 84,100
Taxes: Property and general 57,632 55,960
Current income 42,546 38,387
Deferred income (4,035) (5,623)
Investment tax credits recognized (2,223) (2,206)
Total 655,529 622,352
------- -------
UTILITY OPERATING INCOME 87,654 79,050
OTHER INCOME (EXPENSE)
Income (loss) from nonregulated businesses
- before interest and taxes (7,353) 4,380
Allowance for funds used during construction -
equity 3,175 1,745
Other utility income (deductions) - net (5,011) 705
Income tax benefits on nonregulated
operations and nonoperating items 16,142 14,026
------ ------
Total 6,953 20,856
----- ------
INCOME BEFORE FINANCING COSTS 94,607 99,906
FINANCING COSTS
Interest on utility long-term debt 23,965 25,266
Other utility interest and amortization 5,552 3,419
Nonregulated interest and amortization 12,141 12,278
Allowance for funds used during construction -
debt (3,310) (2,112)
------- -------
Total interest charges 38,348 38,851
Distributions on redeemable preferred
securities of subsidiary trust 3,938 3,938
---- -----
TOTAL FINANCING COSTS 42,286 42,789
------ ------
NET INCOME 52,321 57,117
PREFERRED STOCK DIVIDENDS 1,060 2,367
EARNINGS AVAILABLE FOR COMMON STOCK $51,261 $54,750
======= =======
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (000'S) 152,392 149,214
AVERAGE NUMBER OF COMMON AND POTENTIALLY DILUTIVE
SHARES OUTSTANDING (000'S) 152,553 149,467
EARNINGS PER AVERAGE COMMON SHARE - BASIC $0.34 $0.37
EARNINGS PER AVERAGE COMMON SHARE - DILUTED $0.34 $0.37
COMMON DIVIDENDS DECLARED PER SHARE $0.3575 $0.3525
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
--------------------------------------------------------
Balance at beginning of period $1,432,696 $1,364,875
Net income for period 52,321 57,117
Dividends declared:
Cumulative preferred stock (1,060) (2,367)
Common stock (54,547) (52,622)
-------- --------
Balance at end of period $1,429,410 $1,367,003
========== ==========
The Notes to Consolidated Financial Statements are an integral part of the
Statements of Income and Retained Earnings.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
<S> <C> <C>
Three Months Ended
March 31,
1999 1998
---- ----
(Thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $52,321 $57,117
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization 98,698 93,874
Nuclear fuel amortization 12,944 9,878
Deferred income taxes (5,529) (6,181)
Deferred investment tax credits recognized (2,237) (2,284)
Allowance for funds used during construction - equity (3,175) (1,745)
Distributions in excess of (less than) equity in earnings of unconsolidated affiliates 2,975 (11,019)
Cash provided by changes in certain working capital items 95,781 77,590
Cash provided by changes in other assets and liabilities 9,800 3,455
----- -----
Net cash provided by operating activities. 261,578 220,685
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (96,073) (74,814)
Increase (decrease) in construction payables 5,547 (500)
Allowance for funds used during construction - equity 3,175 1,745
Investment in external decommissioning fund (12,280) (10,497)
Equity investments, loans and deposits for nonregulated projects (23,145) (77,230)
Collection of loans made to nonregulated projects 6,030 55,079
Other investments - net (9,785) (7,469)
------- -------
Net cash used for investing activities (126,531) (113,686)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt - net issuances (repayments) 129,802 (134,971)
Proceeds from issuance of long-term debt - net - 252,781
Repayment of long-term debt (206,710) (9,818)
Proceeds from issuance of common stock - net 12,905 16,045
Redemption of preferred stock - (95,000)
Dividends paid (55,128) (55,994)
-------- --------
Net cash used for financing activities (119,131) (26,957)
--------- --------
Net increase in cash and cash equivalents 15,916 80,042
Cash and cash equivalents at beginning of period 42,364 54,765
------ ------
Cash and cash equivalents at end of period $58,280 $134,807
======= ========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of the
Statements of Cash Flows.
<PAGE>
<TABLE>
<CAPTION>
NORTHERN STATES POWER COMPANY (MINNESOTA) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
---------------------------------------
<S> <C> <C>
March 31, December 31,
1999 1998
---- ----
ASSETS (Thousands of dollars)
UTILITY PLANT
Electric $7,258,627 $7,199,843
Gas 885,730 884,182
Other 370,401 365,101
------- -------
Total 8,514,758 8,449,126
Accumulated provision for depreciation (4,236,127) (4,155,641)
Nuclear fuel 989,734 975,030
Accumulated provision for amortization (886,224) (873,281)
--------- ---------
Net utility plant 4,382,141 4,395,234
CURRENT ASSETS
Cash and cash equivalents 58,280 42,364
Customer accounts receivable - net 270,194 253,559
Unbilled utility revenues 102,585 139,098
Other receivables 55,980 105,116
Fossil fuel inventories - at average cost 45,306 58,806
Materials and supplies inventories - at average cost 112,455 110,267
Prepayments and other 49,219 44,855
------ ------
Total current assets 694,019 754,065
OTHER ASSETS
Equity investments in nonregulated projects 874,414 862,596
External decommissioning fund and other investments 503,400 479,402
Regulatory assets 311,694 331,940
Nonregulated property - net of accumulated depreciation 285,247 282,524
Notes receivable from nonregulated projects 113,048 106,427
Other long-term receivables 34,057 29,796
Intangible assets - net of accumulated amortization 96,108 95,915
Long-term prepayments and deferred charges 85,249 58,398
------ ------
Total other assets 2,303,217 2,246,998
--------- ---------
TOTAL ASSETS $7,379,377 $7,396,297
========== ==========
LIABILITIES AND EQUITY
CAPITALIZATION
Common stock equity:
Common stock and premium - authorized: 1999 350,000,000 and 1998 350,000,000
shares of $2.50 par value, issued shares:
1999 153,194,008 and 1998 152,696,971 $1,168,973 $1,156,067
Retained earnings 1,429,410 1,432,696
Leveraged common stock held by ESOP (16,749) (18,503)
Accumulated other comprehensive income (85,478) (89,014)
-------- --------
Total common stock equity 2,496,156 2,481,246
Cumulative preferred stock and premium - authorized
7,000,000 shares of $100 par value; outstanding shares: 1999 1,050,000 and
1998 1,050,000 without mandatory redemption 105,340 105,340
Mandatorily redeemable preferred securities of subsidiary trust - guaranteed
by NSP<F1> 200,000 200,000
Long-term debt 1,844,071 1,851,146
--------- ---------
Total capitalization 4,645,567 4,637,732
CURRENT LIABILITIES
Long-term debt due within one year 27,131 227,600
Other long-term debt potentially due within one year 141,600 141,600
Short-term debt 369,632 239,830
Accounts payable 256,839 271,799
Taxes accrued 226,497 170,274
Interest accrued 34,156 38,836
Dividends payable on common and preferred stocks 56,128 55,650
Accrued payroll, vacation and other 76,080 86,673
------ ------
Total current liabilities 1,188,063 1,232,262
OTHER LIABILITIES
Deferred income taxes 814,355 814,983
Deferred investment tax credits 125,993 128,444
Regulatory liabilities 392,285 372,239
Postretirement and other benefit obligations 127,754 129,514
Other long-term obligations and deferred income 85,360 81,123
------ ------
Total other liabilities 1,545,747 1,526,303
COMMITMENTS AND CONTINGENT LIABILITIES (SEE NOTE 4)
TOTAL LIABILITIES AND EQUITY $7,379,377 $7,396,297
========== ==========
The Notes to Consolidated Financial Statements are an integral part of the
Balance Sheets.
<FN>
<F1> The primary asset of NSP Financing I, a subsidiary trust of NSP, is $200
million principal amount of the Company's 7.875% Junior Subordinated Debentures due 2037.
</FN>
</TABLE>
<PAGE>
NORTHERN STATES POWER COMPANY (MINNESOTA) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the financial
position of Northern States Power Company (Minnesota) (NSP-Minnesota) and its
subsidiaries (collectively, NSP) as of March 31, 1999 and Dec. 31, 1998, the
results of its operations for the three months ended March 31, 1999 and 1998,
and its cash flows for the three months ended March 31, 1999 and 1998. Due to
the seasonality of NSP's electric and gas sales and variability of nonregulated
operations, operating results on a quarterly basis are not necessarily an
appropriate base from which to project annual results.
The accounting policies followed by NSP are set forth in Note 1 to the
financial statements in NSP's Annual Report on Form 10-K for the year ended Dec.
31, 1998 (1998 Form 10-K). The following notes should be read in conjunction
with such policies and other disclosures in the 1998 Form 10-K.
On April 22, 1998, NSP's Board of Directors authorized a two-for-one stock
split effective June 1, 1998. All financial information pertaining to earnings
per share and number of shares outstanding has been adjusted to reflect the
stock split.
1. PROPOSED BUSINESS COMBINATION
- -- -------------------------------
On March 24, 1999, NSP and New Century Energies, Inc. (NCE) entered into an
Agreement and Plan of Merger, providing for a strategic business combination of
NSP and NCE. For more discussion of this proposed business combination, see
Part II, Item 5 - Other Information of this report.
Preliminary joint proxy materials requesting shareholder approval were
filed with the Securities and Exchange Commission (SEC) on April 26, 1999. It
is expected that definitive proxy materials will be mailed in May 1999, to the
shareholders of NSP and NCE for their consideration at meetings scheduled for
June 28, 1999. During the summer of 1999, NSP and NCE anticipate filing merger
applications with the Federal Energy Regulatory Commission (FERC) and various
regulatory agencies in the states that NSP and NCE provide utility service.
The costs associated with the proposed merger are being deferred as a
component of Regulatory Assets based on NSP's plan to request amortization and
rate recovery over future periods. At March 31, 1999, NSP had deferred $5.4
million of merger costs.
2. BUSINESS DEVELOPMENTS
- -- ----------------------
NRG ENERGY, INC. (NRG) - In January 1999, NRG reached agreement to
purchase the Arthur Kill generating station and the Astoria gas turbine site for
$505 million from Consolidated Edison Co. These facilities, which are located in
New York, have a combined summer capacity rating of 1,456 MW. The acquisition is
expected to close in the second quarter of 1999, pending regulatory approvals.
In April 1999, NRG reached agreement to purchase the 1,700 MW oil and
gas-fired Oswego generating station for $91 million from Niagara Mohawk Power
and Rochester Gas and Electric. The facilities are located in New York. The
acquisition is expected to close in the fourth quarter of 1999, pending
regulatory approvals.
NRG, together with two other parties and the Chapter 11 trustees, filed a
plan with the United States Bankruptcy Court for the Middle District of
Louisiana to acquire 1,706 MW of fossil generating assets from Cajun electric
Power Cooperative of Baton Rouge, La., for approximately $1.2 billion. In
addition to the NRG plan, the bankruptcy court was considering one other plan
submitted by Southwestern Electric Power Co. In February 1999, the bankruptcy
court refused to confirm either of the proposed plans. NRG, its partner and the
Trustee, have submitted a revised plan and a confirmation hearing has been
scheduled for June of 1999.
INDEPENDENT TRANSMISSION COMPANY (ITC) - In April 1998, NSP announced its
intention to form an independent company unaffiliated with the rest of its
utility operations. As originally proposed, NSP anticipated divesting its
transmission assets as part of the formation of the ITC. In light of the
proposed merger with NCE, divestiture of transmission assets does not seem
feasible as it would appear to trigger adverse tax and accounting consequences.
Therefore, NSP is evaluating the feasibility of alternatives to divestiture of
its transmission assets, which may or may not include an ITC at this time.
In April 1998, Wisconsin Act 204 became law. Act 204 includes provisions
that require the Public Service Commission of Wisconsin (PSCW) to order a public
utility that owns transmission facilities in Wisconsin to transfer control of
its transmission facilities to an independent system operator (ISO) or divest
the public utility's interest in its transmission facilities to an independent
transmission owner (ITO) if the public utility has not already transferred
control to an ISO or divested to an ITO by June 30, 2000. Under certain
circumstances, the PSCW has authority to waive imposition of such an order on
June 30, 2000. At March 31, 1999, the net book value of NSP-Wisconsin's
transmission assets was approximately $150 million.
INDEPENDENT NUCLEAR GENERATING COMPANY - In February 1999, NSP, Wisconsin
Electric Power Co. and Wisconsin Public Service Corp. formalized their
cooperative nuclear alliance by establishing a nuclear management company. The
fourth member of the alliance, Alliant Energy, is seeking approval from the SEC
to join the management company at a later date. NSP does not intend to divest
its nuclear assets as part of establishing the nuclear management company.
UNION CONTRACT EXTENSION - In March 1999, NSP management and union business
managers reached agreement on a five year extension of the collective bargaining
agreement, subject to ratification by the union membership. On April 12, 1999,
the five International Brotherhood of Electric Workers local unions representing
NSP employees notified NSP that the membership had ratified the contract
extension, which will begin on Jan. 1, 2000.
VIKING EXPANSION PROJECT - In April 1999, Viking received approval from the
FERC to expand its transmission system in northwestern and central Minnesota by
installing 45 miles of 24-inch pipeline. The $21 million expansion is a result
of customers' requests and would increase the capacity of Viking's pipeline by 5
percent. Construction is expected to begin in the summer of 1999, with the
pipeline placed in service during the fourth quarter of 1999.
3. REGULATION AND RATE MATTERS
- -- ------------------------------
FERC TRANSMISSION RATE CASE - As discussed in NSP's 1998 Form 10-K, in
the first quarter of 1998, NSP filed wholesale electric point-to-point and
network integration transmission service (NTS) rate cases with the FERC. In
March 1999, NSP filed an offer of settlement which would resolve virtually all
issues in the two cases. The offer of settlement provides an approximate two
percent reduction in point-to-point rates, which combined with anticipated
reductions in non-firm discounting, is expected to have little or no impact on
annual revenue. In addition, the settlement calls for an annual increase of
approximately $1 million in ancillary service revenues. Finally, the settlement
places a cap on NSP's annual NTS payment liabilities to its five current NTS
customers at $10 million per year. All rates are effective Oct. 1, 1998. The
offer also includes a two or three year moratorium period on future transmission
rate changes. The length of the moratorium is based on whether NSP forms an ITC
or is ordered to join an ISO (two years), or voluntarily joins an ISO (three
years). All parties filed written comments generally recommending FERC approval
of the offer. NSP expects FERC approval later in 1999.
VIKING RATE CASE - In June 1998, Viking filed a rate case with the FERC,
requesting a $3 million annual rate increase. In March 1999, Viking filed an
agreement of settlement which would resolve all issues in the case. The
settlement would provide Viking an annual rate increase of approximately $1.3
million, or 6 percent, effective Jan. 1, 1999, and a four year phased rate
roll-in for the cost of Viking's 1996 and 1997 expansion projects. Viking
expects FERC approval later in 1999.
4. COMMITMENTS AND CONTINGENT LIABILITIES
- -- -----------------------------------------
CONSERVATION IMPROVEMENT PROGRAM (CIP) - In June 1998, the Minnesota
Department of Public Service (DPS) recommended the Minnesota Public Utility
Commission (MPUC) discontinue recovery of lost margins and load management
discounts from conservation programs for NSP and other Minnesota public
utilities. In November 1998, the MPUC approved continued recovery of lost
margins and load management discounts for 1998. However, the MPUC put Minnesota
utilities on notice that there may be significant changes, including elimination
of lost margin and load management discount recovery, pending the outcome of a
1999 study. In 1998, NSP recorded approximately $33 million, primarily in
electric revenue, from the conservation incentives under review by the MPUC. In
April 1999, NSP filed a revised conservation incentive plan which, if approved,
will result in recovery of approximately $27 million in 1999. The April filing
is in lieu of a previously planned work group report to the MPUC scheduled for
May 1999. In 1999, NSP is recording CIP revenues at its expected recovery
levels. NSP expects MPUC action by early fall of 1999.
NUCLEAR INSURANCE - The circumstances set forth in Note 14 to NSP's
financial statements in NSP's 1998 Form 10-K appropriately represent, in all
material respects, the current status of commitments and contingent liabilities
regarding public liability for claims resulting from any nuclear incident.
5. SHORT-TERM BORROWINGS
- -- ----------------------
As of March 31, 1999, NSP-Minnesota had a $300 million revolving credit
facility under a commitment fee arrangement. This facility provides short-term
financing in the form of bank loans, letters of credit and support for
commercial paper sales. NSP has regulatory approval for up to approximately
$604 million in short-term borrowing levels.
In addition to NSP-Minnesota lines, at March 31, 1999, commercial banks
provided credit lines of approximately $339 million to wholly owned subsidiaries
of NSP with approximately $33 million in borrowings outstanding. At March 31,
1999, approximately $71 million in letters of credit were outstanding, reducing
the credit lines available to subsidiaries to approximately $235 million.
At March 31, 1999, NSP-Minnesota had $337 million in short-term commercial
paper borrowings outstanding at a composite rate of 4.85 percent. NSP and its
subsidiaries had $370 million of short-term debt outstanding at a weighted
average interest rate of 4.91 percent on March 31, 1999.
6. SEGMENT INFORMATION
- -- --------------------
NSP has four reportable segments: Electric Utility, Gas Utility and two of
its wholly owned, nonregulated subsidiaries, NRG and EMI. Segment information
for the first quarter of 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
<S> <C> <C> <C>
Operating
Revenues from Inter- Segment
3 MOS. ENDED 3/31/99 External Segment Net Income
(Thousands of dollars) Customers Revenues (Loss)
- ------------------------------------------------- -------- ------
Electric Utility $556,654 $ 202 $35,951
Gas Utility 186,257 1,132 18,781
NRG 37,522 324 (940)
EMI 17,578 0 (1,512)
All Other 7,335 0 41
Reconciling Eliminations 0 (1,386) 0
- -------------------------
Consolidated Total <F1> $805,346 $272 $52,321
========================
<FN>
<F1>The consolidated total revenue amounts represent the sum of utility and
nonregulated amounts.
</FN>
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Operating
Revenues from Inter- Segment
3 MOS. ENDED 3/31/98 External Segment Net Income
(Thousands of dollars) Customers Revenues (Loss)
- ------------------------------------------------- -------- ------
Electric Utility $521,306 $ 266 $36,985
Gas Utility 179,771 1,061 15,222
NRG 24,169 353 6,089
EMI 11,286 0 (2,526)
All Other 7,168 0 1,347
Reconciling Eliminations 0 (1,355) 0
- -------------------------
Consolidated Total <F1> $743,700 $325 $57,117
========================
<FN>
<F1> The consolidated total revenue amounts represent the sum of utility and
nonregulated amounts.
</FN>
</TABLE>
7. OTHER COMPREHENSIVE INCOME
- -- ----------------------------
NSP's other comprehensive income consists of foreign currency translation
adjustments related to NRG's investments in international projects and changes
in the fair value of certain marketable securities. The other comprehensive
income for the first quarter of 1999 and 1998 are listed below.
Millions of Dollars 3 Mos. Ended
Increase / (decrease) in Equity 3/31/99 3/31/98
- ----------------------------------- ------- -------
Currency translation adjustments $1.6 $(3.2)
Unrealized loss - marketable securities:
Holding gain during period - net of tax 0.4 0.0
Loss realized during period - net of tax 1.5 0.0
--- ---
Total $3.5 ($3.2)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------
Except for the historical statements contained in this report, the matters
discussed in the following discussion and analysis are forward-looking
statements that are subject to certain risks, uncertainties and assumptions.
Such forward-looking statements are intended to be identified in this document
by the words "anticipate", "estimate", "expect", "objective", "possible",
"potential" and similar expressions. Actual results may vary materially.
Factors that could cause actual results to differ materially include, but are
not limited to:
- - general economic conditions, including their impact on capital
expenditures;
- - business conditions in the energy industry;
- - competitive factors;
- - unusual weather;
- - changes in federal or state legislation;
- - regulation;
- - issues relating to Year 2000 remediation efforts;
- - the higher degree of risk associated with NSP's nonregulated
businesses as compared to NSP's regulated business;
- - the items set forth below under "Factors Affecting Results of
Operations";
- - currency translation and transaction adjustments;
- - regulatory delays or conditions imposed by regulatory agencies in
approving the proposed merger with NCE;
- - and the other risk factors listed from time to time by NSP in reports
filed with the SEC, including Exhibit 99.01 to this report on Form
10-Q for the quarter ended March 31, 1999.
RESULTS OF OPERATIONS
On March 24,1999, NSP and NCE entered into an Agreement and Plan of Merger,
providing for a strategic business combination of NSP and NCE. For more
discussion of this proposed business combination, see Part II, Item 5 - Other
Information of this report. The following discussion and analysis is based on
the financial condition and operations of NSP and does not reflect the potential
effects of the combination between NSP and NCE.
NSP's earnings per share (diluted) for the periods ending March 31, 1999
and 1998 were as follows:
Earnings per share: 3 Mos. Ended
3/31/99 3/31/98
------- -------
Regulated $0.35 $0.33
Nonregulated (0.01) 0.04
------ ----
Total $0.34 $0.37
===== =====
FACTORS AFFECTING RESULTS OF OPERATIONS
- -------------------------------------------
In addition to items noted in the 1998 Form 10-K and the Notes to the
Financial Statements, the historical and future trends of NSP's operating
results are affected by the following factors:
ESTIMATED IMPACT OF WEATHER ON REGULATED EARNINGS - NSP estimates electric
and gas utility sales levels under normal weather conditions and analyzes the
approximate effect of variations from historical average temperatures on actual
sales levels. The following summarizes the estimated impact of weather on
actual utility operating results (in relation to sales under normal weather
conditions):
Increase (Decrease)
Earnings per Share Actual Actual Actual
For Periods Ending March 31: 1999 vs Normal 1998 vs Normal 1999 vs 1998
Quarter Ended ($0.04) ($0.07) $0.03
SALES GROWTH - The following table summarizes NSP's growth in actual
electric and gas sales and growth on a weather normalized (W/N) basis for the
3-month period ended March 31, 1999, as compared with the same period in 1998.
NSP's weather normalization process removes the estimated impact on sales of
temperature variations from historical averages.
3 Mos. Ended
Actual W/N
------ ---
Electric Residential 4.6% 2.1%
Electric Industrial and Commercial 2.1% 1.4%
Total Electric Retail 2.7% 1.6%
Electric Resale 37.5% NA
Total Gas Sales & Delivery 2.6% -0.1%
YEAR 2000 (Y2K) READINESS - To the extent allowed, the information in the
following section is designated as a "Year 2000 Readiness Disclosure." NSP is
incurring significant costs to modify or replace existing technology, including
computer software, for uninterrupted operation in the year 2000 and beyond as
discussed in NSP's 1998 Form 10-K.
NSP is on schedule for completion of its Y2K project.
- - On March 31, 1999, 91 percent of NSP's mission-critical systems and processes
were Y2K ready.
- - By June 30, 1999, NSP expects to complete essentially all Y2K efforts on
mission-critica systems and processes and to finalize contingency planning.
- - By Dec. 31, 1999, NSP expects to complete remediation of low-priority
applications and complete all Y2K testing and implementation.
Since the Y2K project started in 1996 and through March 31, 1999, NSP has
spent approximately $16.3 million for Y2K efforts, which (except for a portion
deferred for approved rate recovery) has been expensed as incurred. The
additional development and remediation costs necessary for NSP to prepare for
Y2K is estimated to be approximately $8 million.
ACCOUNTING CHANGE - In June 1998, the FASB issued Statement of Financial
Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement requires that all derivatives be recognized
at fair value in the balance sheet and all changes in fair value be recognized
currently in earnings or deferred as a component of other comprehensive income,
depending on the intended use of the derivative, its resulting designation and
its effectiveness. NSP plans to adopt this standard in 2000, as required. NSP
has not yet determined the potential impact of implementing this statement.
FIRST QUARTER 1999 VS. FIRST QUARTER 1998
- -----------------------------------------------
Utility Operating Results
- ---------------------------
ELECTRIC REVENUES for the first quarter of 1999 increased $35.3 million, or
6.8 percent, compared with 1998. The following table summarizes the change in
electric revenues for the first quarter.
Millions of dollars 1999 vs. 1998
-------------------
Retail sales growth (excluding weather impact) $8.6
Weather impact 5.8
Sales for resale 13.1
Conservation cost recovery (0.7)
Fuel cost recovery 6.9
Rate changes 2.0
Transmission and other (0.4)
-----
Total electric revenue increase $35.3
- ------------------------------------ =====
ELECTRIC MARGIN equals electric revenue minus production expenses which
includes electric fuel and purchased power costs. The table below summarizes
the change in electric margin for the first quarter.
Millions of dollars 1999 vs. 1998
-------------------
Retail sales growth (excluding weather impact) $7.0
Weather impact 4.8
Sales for resale 2.4
Conservation cost recovery (0.7)
Rate changes 2.0
Transmission and other (0.1)
-----
Total electric margin increase $15.4
- ----------------------------------- =====
GAS REVENUES for the first quarter of 1999 increased $6.5 million, or 3.6
percent, compared with 1998. The table below summarizes the change in gas
revenues for the first quarter.
Millions of dollars 1999 vs. 1998
-------------------
Sales growth (excluding weather impact) $8.1
Weather impact 3.3
Rate changes and conservation cost recovery 3.2
Black Mountain Gas acquisition 2.4
Purchased gas adjustment clause recovery (7.2)
Other (3.3)
-----
Total gas revenue increase $6.5
- ------------------------------- ====
GAS MARGIN equals gas revenue minus the cost of purchased gas. The table
below summarizes the change in gas margin for the first quarter.
Millions of dollars 1999 vs. 1998
-------------------
Sales growth (excluding weather impact) $0.6
Weather impact 3.3
Rate changes 2.6
Black Mountain Gas acquisition 1.6
Other (0.2)
-----
Total gas margin increase $7.9
- ------------------------------ ====
OTHER OPERATION, MAINTENANCE AND ADMINISTRATIVE AND GENERAL expenses
together increased $3.5 million, or 2.1 percent, compared with the first quarter
of 1998. The increases are primarily due to plant maintenance outages, an
increase in uncollectible accounts receivable and Y2K remediation efforts, which
were partially offset by lower administrative and general expenses.
DEPRECIATION AND AMORTIZATION expense increased $3.4 million, or 4.0
percent, compared with the first quarter of 1998. The increase is mainly due to
increased plant in service between the two periods.
OTHER UTILITY INCOME (EXPENSES) INCLUDING ALLOWANCE FOR FUNDS USED DURING
CONSTRUCTION (AFC) decreased $4.3 million mainly due to losses from marketable
securities and lower investment and other income.
Nonregulated Business Results
- -------------------------------
The following table summarizes NSP's nonregulated business results in the
aggregate, including consolidated subsidiaries and unconsolidated affiliates.
3 Mos. Ended
(Thousands of dollars, except EPS) 3/31/99 3/31/98
------- -------
Operating revenues $62,435 $42,623
Equity in project earnings 8,031 15,328
Operating and development expenses (78,626) (52,786)
Other income (expense) 807 (785)
--- -----
Income (loss) before interest & taxes (7,353) 4,380
Interest expense (12,141) (12,278)
Income tax benefit and credits 17,083 14,271
------ ------
Net income (loss) $(2,411) $6,373
- ------------------- ---------- --------
Nonregulated earnings (loss) per share $(0.01) $0.04
- ------------------------------------------ --------- -------
NSP's nonregulated operations include diversified businesses, as described
below.
- - NRG's primary business is independent power production, commercial and
industrial heating and cooling, and energy-related refuse-derived
fuel production.
- - EMI's primary business is custom energy services and sales.
- - Eloigne invests in affordable housing projects.
- - Seren Innovations is a communications and data services subsidiary.
The following table summarizes the earnings contributions of NSP's
nonregulated businesses:
3 Mos. Ended
3/31/99 3/31/98
------- -------
NRG ($0.01) $0.04
Eloigne Company 0.01 0.01
EMI, Inc. (0.01) (0.02)
Seren Innovations (0.01) 0.00
Other 0.01 0.01
---- ----
Total ($0.01) $0.04
======= =====
NRG - NRG's 1999 first quarter earnings decreased compared with 1998,
primarily due to a $4.5 million (net of tax) foreign currency transaction
adjustment (approximately 3 cents per share), relating to the Kladno project.
NRG owns 44.5 percent of Kladno, which is a 345 MW generating plant in the Czech
Republic scheduled to be fully operational in the third quarter of 1999.
SFAS No. 52 requires foreign currency gains and losses to flow through the
income statement if settlement of an obligation is in a currency other than the
local currency of the entity. A portion of the Kladno project debt is in
non-local currency (60 million in U.S. dollars and 92 million in German deutsche
marks as of March 31, 1999). The transaction adjustment is the result of a 20
percent decline in the Czech koruna against the U.S. dollar and a 10 percent
decline against the German deutsche mark since Dec. 31, 1998.
This adjustment is a current-period, non-operating, non-cash event. If the
value of the Czech koruna increases, NRG will record a corresponding gain on the
currency transaction adjustment. Subsequent transaction adjustments will be
reflected in NRG and NSP's ongoing quarterly results as a component of equity in
project earnings. Until project level debt is converted to local currency or
other hedges are implemented, Kladno may periodically experience both positive
and negative earnings variations due to fluctuations in currency rates. These
currency fluctuations are inherent to the debt structure of the project and not
indicative of the long-term earnings potential of the investment. Kladno is the
only project NRG has at this time with this type of debt structure.
In addition to the currency transaction loss, NRG's earnings declined in
the first quarter of 1999 compared with the first quarter of 1998, largely due
to lower earnings from the MIBRAG project and increased NRG operating expenses
in preparation for completion of several acquisitions later in 1999.
NRG is a public company and is subject to the informational reporting
requirements of the Securities Exchange Act of 1934. Further information about
NRG may be obtained from its Form 10-Q for the quarter ended March 31, 1999.
EMI - EMI's 1999 first quarter losses were less than first quarter 1998
losses, due to increased energy services margins.
SEREN - Seren is experiencing losses as it develops its broadband
communication services network in St. Cloud, Minn.
LIQUIDITY AND CAPITAL RESOURCES
For a discussion of available credit lines and short-term borrowings, see
Note 5 to the Financial Statements.
In February 1999, stock options for the purchase of 993,305 shares were
awarded under NSP's Executive Long-Term Incentive Award Stock Plan (the
Long-Term Plan). These options are not exercisable for approximately twelve
months after the award date. Effective in January 1999, stock options granted
to NSP officers vest at a rate of one-third each year for three years. As of
March 31, 1999, a total of 3,367,481 options were outstanding, which were
considered potentially dilutive common shares for calculating earnings per
share.
During the first quarter of 1999, NSP issued 497,037 new shares of common
stock under the Long-Term Plan (pursuant to the exercise of options and awards
granted in prior years), the Dividend Reinvestment and Stock Purchase Plan and
the Employee Stock Ownership Plan.
Also, NSP may consider a general common stock offering in 1999, depending
on corporate needs, capital structure objectives and business opportunities.
In November 1998, NSP-Minnesota filed with the SEC a $400 million universal
debt shelf registration. NSP-Minnesota currently has $50 million of registered,
but unissued, bonds remaining from its $300 million first mortgage bond shelf
registration, which was filed in October 1995. NSP-Minnesota will likely issue
long-term debt under these registrations during the second quarter of 1999. The
net proceeds are expected to be used for general corporate purposes, including
reduction of short-term debt levels.
In March 1999, NRG filed a shelf registration with the SEC for up to $500
million in debt securities. The net proceeds will be used to finance NRG's
equity investment in connection with pending acquisitions and for general
corporate purposes which may include financing the development and construction
of new facilities, working capital, debt reduction, capital expenditures and
potential acquisitions. NRG plans to issue approximately $300 million in debt
securities during the second quarter of 1999. In anticipation of this
transaction, NRG executed $100 million in 10-year treasury locks at 5.10 percent
interest with an effective yield of 5.19 percent.
In addition, the board of directors of NSP-Wisconsin authorized the issuance
of up to $80 million of long-term debt in 1999 or 2000. NSP-Wisconsin currently
expects to issue approximately $50 million of unsecured long-term debt in the
second half of 1999, primarily to reduce short-term debt levels.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
--------------------------
In the normal course of business, various lawsuits and claims have arisen
against NSP. Management, after consultation with legal counsel, has recorded an
estimate of the probable cost of settlement or other disposition for such
matters.
As previously reported in Item 3 of Part I of NSP's 1998 10-K, on June 8,
1998, NSP filed a complaint in the Court of Federal Claims against the
Department of Energy (DOE) requesting damages for the DOE's partial breach of
the Standard Contract. NSP requested damages in excess of $1 billion, which
consists of the costs of storage of spent nuclear fuel at the Prairie Island
nuclear generating plant, as well as anticipated costs related to the Private
Fuel Storage, LLC and the 1994 state legislation limiting the number of casks
that can be used to store spent nuclear fuel at Prairie Island. On April 6,
1999, the Court of Federal Claims dismissed NSP's complaint finding that the
Company is obligated to pursue its demand for monetary relief at the agency
level, i.e. through a claim for equitable adjustment under the Standard
Contract. NSP is analyzing its options, including an appeal of the Court's
decision.
See Notes 3 and 4 of the Financial Statements for further discussion of
legal proceedings, including Regulatory Matters and Commitments and Contingent
Liabilities, incorporated by reference.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------
NSP's Annual Meeting of Shareholders was held on April 28, 1999, for the purpose
of voting on the matters listed below. Proxies for the meeting were solicited
pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there
was no solicitation in opposition to management's solicitations. All of
management's nominees for directors as listed in the proxy statement were
elected. The voting results were as follows:
1. A proposal to elect three directors to Class I to serve until the 2002
Annual Meeting of Shareholders;
Election of Director Shares Voted For Withheld Authority
-------------------- ---------------- ------------------
W. John Driscoll 124,638,353 2,426,063
James J. Howard 124,098,712 2,965,704
Allan L. Schuman 124,660,541 2,403,875
2. A proposal to ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants for NSP for 1999;
Shares Voted For 125,440,111
Voted Against 700,149
Voted Abstain 924,156
3. A proposal to amend NSP's Restated Articles of Incorporation to remove
limitations of NSP's issuance of unsecured debt;
Common Class Only:
-------------------
Shares Voted For 100,324,281
Voted Against 8,558,358
Voted Abstain 2,913,507
Preferred Class Only:
----------------------
Shares Voted For 774,306
Voted Against 156,654
Voted Abstain 27,644
4. A proposal to amend NSP's Restated Articles of Incorporation to remove
provisions relating to series of preferred stock that have been redeemed;
Shares Voted For 106,140,754
Voted Against 3,157,806
Voted Abstain 2,497,590
ITEM 5. OTHER INFORMATION
--------------------------
PROPOSED BUSINESS COMBINATION
- -------------------------------
As previously reported in NSP's Current Report on Form 8-K, dated March
24, 1999, which was filed on March 25, 1999, NSP and New Century Energies, Inc.
(NCE), entered into an Agreement and Plan of Merger (the Merger Agreement),
providing for a strategic business combination of NSP and NCE. Pursuant to the
Merger Agreement, NCE will be merged with and into NSP, with NSP as the
surviving corporation in the merger (the Merger). Subject to the terms of the
Merger Agreement, at the time of the Merger, each share of NCE common stock (par
value $1.00 per share) (other than certain shares to be cancelled), together
with any associated preferred share purchase rights, will be converted into the
right to receive 1.55 shares of NSP common stock (par value $2.50 per share).
Cash will be paid in lieu of any fractional shares of NSP common stock which
holders of NCE common stock would otherwise receive.
Consummation of the Merger is subject to the satisfaction or waiver of
certain closing conditions, including, among others, approval by the
shareholders of NSP and NCE, approval or regulatory review by certain state
utilities regulators, the SEC, the FERC, the Nuclear Regulatory Commission and
the Federal Communications Commission, and expiration or termination of the
waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust
Improvements Act.
The merger is expected to be a tax-free, stock-for-stock exchange for
shareholders of both companies (except with respect to any cash received by NCE
shareholders in lieu of fractional shares), and to be accounted for as a pooling
of interests. NSP and NCE have agreed to certain undertakings and limitations
regarding the conduct of their respective businesses prior to the closing of the
transaction. At the time of the Merger, NSP will register as a holding company
under the public utility holding company act of 1935. The Merger is expected to
take from 12 to 18 months to complete.
The dividend payment level of the combined company after the Merger will be
determined by the board of directors of the combined company. However, NSP
anticipates that the combined company will adopt an initial dividend policy
which will maintain a dividend level equivalent to the current dividend for NCE
shareholders. Based on the conversion ratio of 1.55, the pro forma dividend for
the combined company would be $1.50 per share on an annual basis.
Pursuant to employment agreements, James J. Howard, chairman, president and
chief executive officer of NSP, will serve as chairman of the combined company
for one year following the Merger. Wayne H. Brunetti, vice chairman, president
and chief operating officer of NCE, will be president and chief executive
officer following the Merger and will assume the responsibilities of chairman
when James Howard retires.
Based on the number of common shares currently outstanding, NCE
shareholders will own approximately 54 percent of the common stock of the
combined company and NSP shareholders will own 46 percent.
NSP is expected to hold a special shareholders' meeting on June 28, 1999,
to vote on the Merger. All shareholders will receive a detailed proxy statement
prior to the meeting, which will explain in detail the terms of the Merger,
membership on the board of directors, employment arrangements and other matters
related to the Merger.
The Merger Agreement was filed as Exhibit 2.1 to NSP's March 24, 1999 Form
8-K, and is incorporated by reference.
The combined company will be created by first transferring NSP's utility
assets (other than investments in and assets of subsidiaries) into a newly
formed, wholly owned subsidiary (which is referred to in this report as New NSP
Utility Sub). At the same time, New NSP Utility Sub will assume all of NSP's
liabilities associated with the assets transferred. Then NCE will merge into
NSP, with NSP as the surviving corporate entity in the merger. The surviving
corporation, which is referred to herein as New Co., will be a holding company
for the combined assets and operations of NSP and NCE. If difficulties arise in
obtaining the approvals and consents required to transfer NSP's utility assets
to New NSP Utility Sub, NSP and NCE may negotiate a mutually acceptable
alternative.
NEW CO. PRO FORMA COMBINED CONDENSED INFORMATION
- ------------------------------------------------------
The unaudited pro forma condensed financial statements included in Exhibit
99.02 give effect to the merger using the pooling of interests method of
accounting. Under this accounting method, NSP's and NCE's balance sheets and
income statements are treated as if they have always been combined for
accounting and financial reporting purposes. These unaudited pro forma combined
condensed financial statements are based on the assumptions set forth in the
accompanying notes and should be read in conjunction with the historical
financial statements and related notes of NSP and NCE, which are included in the
Annual Reports on Form 10-K of the respective companies for the year ended Dec.
31, 1998.
The unaudited pro forma combined condensed balance sheets at March 31,
1999, assumes the merger had been completed on March 31, 1999. The unaudited
pro forma combined condensed statements of income for the three month periods
ended March 31, 1999 and March 31, 1998, assume the merger had been completed on
Jan. 1, 1998, the beginning of the earliest period presented.
The unaudited pro forma combined condensed financial statements do not
necessarily indicate what the combined company's financial position or operating
results would have been if the merger had been completed on the assumed
completion dates and they do not necessarily indicate future operating results
of the combined company.
NEW NSP UTILITY SUB PRO FORMA CONDENSED INFORMATION
- ----------------------------------------------------------
The unaudited pro forma financial information included in Exhibit 99.03
adjusts the historical financial statements of NSP after giving effect to the
transfer of ownership of all NSP utility assets (other than investments in and
assets of subsidiaries) to New NSP Utility Sub and the assumption by New NSP
Utility Sub of all of NSP's liabilities associated with the assets transferred.
This unaudited pro forma financial information is based on the assumptions set
forth in the accompanying notes.
The unaudited pro forma condensed balance sheets at March 31, 1999, assumes
the merger had been completed on March 31, 1999. The unaudited pro forma
condensed statements of income for the three month periods ended March 31, 1999
and March 31, 1998, assume the merger had been completed on January 1, 1998, the
beginning of the earliest period presented.
The unaudited pro forma condensed financial statements do not necessarily
indicate what New NSP Utility Sub's financial position or operating results
would have been if the merger had been completed on the assumed completion dates
and they do not necessarily indicate future operating results of New NSP Utility
Sub.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(A) EXHIBITS
The following Exhibits are filed with this report:
2.01 Agreement and Plan of Merger, dated as of March 24, 1999, by and
between Northern States Power Company and New Century Energies, Inc.
(Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K
(File No. 1-12907) of New Century Energies, Inc. dated March 24, 1999.)
3.01 Restated Articles of Incorporation, as amended.
10.01 Employment Agreement, dated as of March 24, 1999, among Northern
States Power Company, New Century Energies, Inc. and Wayne H. Brunetti
(Incorporated by reference to Exhibit 10.02 to Registration Statement No.
333-76989).
10.02 NSP 1999 Senior Executive Severance Policy.
23.01 Consent of Independent Public Accountants.
23.02 Consent of Independent Public Accountants.
27.01 Financial Data Schedule for the three months ended March 31,
1999.
99.01 Statement pursuant to Private Securities Litigation Reform Act of
1995.
99.02 New Co. Pro Forma Financial Information.
99.03 New NSP Utility Sub Pro Forma Financial Information.
99.04 Audited Financial Statements of New Century Energies, Inc. (Item
8 of Part II of New Century Energies, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, File No. 1-12907, and incorporated by
reference herein).
99.05 Unaudited Interim Financial Statements of New Century Energies,
Inc. (Item 1 of Part 1 of New Century Energies, Inc.'s Quarterly Report on Form
10-Q for the quarter ended March 31, 1999, File No. 1-12907, and incorporated by
reference herein).
(B) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed either during the three months
ended March 31, 1999, or between March 31, 1999 and the date of this report:
March 24, 1999 (Filed March 25, 1999) - Item 5 and 7. Other Events and
Financial Statements and Exhibits. Re: Disclosure of an agreement and plan of
merger between NSP and New Century Energies, Inc., subject to shareholder and
regulatory approval.
March 26, 1999 (Filed March 30, 1999) - Item 5 and 7. Other Events and
Financial Statements and Exhibits. Re: Disclosure of presentation materials used
in analysts' meeting in connection with the proposed merger of NSP and New
Century Energies, Inc.
April 6, 1999 (Filed April 8, 1999) - Item 5. Other Events. Re: Disclosure
of Court of Federal Claims' dismissal of NSP's complaint against the DOE for
damages relating to spent nuclear fuel storage.
April 23, 1999 (Filed April 23, 1999) - Item 5 and 7. Other Events and
Financial Statements and Exhibits. Re: Disclosure of pro forma condensed
financial statements reflecting the effect of the proposed merger between NSP
and New Century Energies, Inc.
.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHERN STATES POWER COMPANY
--------------------------------
(Registrant)
/s/
---
Roger D. Sandeen
Vice President and Controller
/s/
---
John P. Moore, Jr.
Vice President and Corporate Secretary
Date: May 13, 1999
--------------
Exhibit 3.01
------------
RESTATED ARTICLES OF INCORPORATION
OF
NORTHERN STATES POWER COMPANY
(A MINNESOTA CORPORATION)
ARTICLE I. NAME AND ADDRESS
The name of this corporation shall be Northern States Power Company. At the time
of the adoption of these Articles, the address of the registered office of the
Corporation is 414 Nicollet Mall, Minneapolis, Minnesota 55401.
ARTICLE II. PURPOSE
The corporation is organized for general business purposes, including but not
limited to acquiring, maintaining and operating facilities by or through which
the corporation can provide communication, transportation, water, light, heat,
or power to the public and to acquire and hold rights and franchises for the
occupation and use of property for providing public utility services.
ARTICLE III. DURATION
The period of duration of this Corporation shall be perpetual.
ARTICLE IV. DIRECTORS
1. NAMES OF DIRECTORS
The names and places of residence of directors of the Corporation at the time of
the adoption of these Restated Articles (this reference to "these Restated
Articles" refers to the Restated Articles filed on June 23, 1980)(1):
David A. Christensen, RR#3, Box 233, Sioux Falls, SD 57101
W. John Driscoll, 357 Salem Church Road, St. Paul, MN 55118
N. Bud Grossman, 3412 Oakridge Road, Apt. #210, Minnetonka, MN 55343
Dale L. Haakenstad, 1342 South Ninth, Fargo, ND 58102
Robert E. Haugan, 2 Shelby Place, St. Paul, MN 55116
Richard H. Magnuson, 2141 Doswell Avenue, St. Paul, MN 55108
Donald W. McCarthy, 2862 Gale Road, Wayzata, MN 55391
M.D. McVay, 2201 Isengard Road, Minnetonka, MN 55343
William G. Phillips, 2610 West Lafayette Road, Excelsior, MN 55331
G. M. Pieschel, Route 2, Box 78, Springfield, MN 56087
Margaret R. Preska, 10 Sumner Hills, Mankato, MN 56001
D. B. Reinhart, 2425 Main Street, LaCrosse, WI 54601
Dorothy J. Skwiera, 1260 West Larpenteur Avenue, Apt. #207,
St. Paul, MN 55113
(1) A listing of directors as of the date these Restated Articles of
Incorporation are being filed is no longer required by applicable law. The
information in Article IV, Section 1 is restated here as current law requires
a complete restatement of the articles of incorporation without amendment.
2. BOARD OF DIRECTORS
The management of this Corporation shall be vested in a Board of Directors
composed of not less than three (3) and not more than seventeen (17) members,
who shall be elected by the stockholders of the Corporation in the manner
provided by the Bylaws. It shall not be necessary that directors be
stockholders in the Corporation. The number of directors shall be fixed from
time to time by the Bylaws, and such number may be increased or decreased within
the above limits in such manner as may be provided by the Bylaws. Vacancies in
the Board caused by an increase in the number of directors or by death,
resignation, disqualification, or other cause, may be filled by the remaining
directors or by the stockholders at an annual or special meeting, as may be
provided by the Bylaws.
ARTICLE V. DESCRIPTION OF CAPITAL STOCK
The total authorized number of shares that may be issued by the Corporation and
that the Corporation will henceforth be authorized to have is three
hundred fifty-seven million (357,000,000) of the par value per share
hereinafter set forth.
A description of the classes of shares and a statement of the number of shares
in each class and the relative rights, voting power, and preferences granted to
and restrictions imposed upon the shares of each class are as follows:
1. AUTHORIZED NUMBER AND CLASSES OF SHARES
Such shares shall be divided into two classes to be designated, respectively,
Preferred Stock and Common Stock. The total authorized number of shares of
Preferred Stock is seven million (7,000,000) having a par value of one hundred
dollars ($100.00) per
<PAGE>
share, and the total authorized number of shares of Common Stock is three
hundred and fifty million (350,000,000) having a par value of two dollars and
fifty cents ($2.50) per share.
2. ISSUANCE AND TERMS OF PREFERRED STOCK
The Preferred Stock may be issued in series, each of which series shall have
such distinctive designation as may be fixed by the Board of Directors prior to
the issuance or allotment of any share of such series, provided that such
designation shall in each case include the words "Preferred Stock." The Board
of Directors is hereby authorized, within the limitations and restrictions
hereinafter stated, to fix from time to time, in respect of shares of Preferred
Stock at the time unallotted, the dividend rates and times of payment, the
redemption price, and liquidation price or preference as to assets in voluntary
liquidation of the shares of any series of Preferred Stock (except the series
designated "Cumulative Preferred Stock, $3.60 Series," in respect of which such
provisions are hereinafter set forth) and the number of shares constituting any
series of Preferred Stock.
3. PREFERENCES OF PREFERRED STOCK
A. DIVIDENDS
The holders of shares of Preferred Stock, irrespective of the series thereof,
shall be entitled to receive in preference to the Common Stock, when and as
declared by the Board of Directors of the Corporation, out of its net earnings
or surplus, cumulative dividends at such rate as shall have been fixed for the
series of which such shares are a part, and no more, payable to shareholders of
record on such dates and for such dividend periods as shall be fixed by the
Board of Directors of the Corporation. So long as dividends are in default in
whole or in part on a series of Preferred Stock for any prior dividend period
for such series of Preferred Stock, any dividends on the Preferred Stock shall
be divided among the outstanding series of Preferred Stock for which dividends
are accumulated and unpaid for any prior dividend period applicable thereto in
proportion to the aggregate amounts that then would be distributable to the
holders of Preferred Stock of each such series if all dividends accumulated
thereon and unpaid for all prior dividend periods applicable thereto were paid
and declared thereon. Dividends on each share of Preferred Stock shall begin to
accrue on the first day of the dividend period during which the original issue
of a certificate for such share shall occur; provided, however, that, in the
case of any series of Preferred Stock created after May 6, 1970, the Board of
Directors, in its discretion, may fix the date of original issue of the shares
of such series as the date from which dividends shall accrue.
B. LIQUIDATION AND DISSOLUTION
In the event of any distribution of assets of the Corporation other than by
dividends from net earnings or surplus, whether upon voluntary liquidation or
dissolution or upon involuntary liquidation or dissolution of the Corporation,
the holders of the shares of Preferred Stock shall be entitled, in preference to
the Common Stock, to one hundred dollars ($100) per share in the case of
involuntary liquidation or dissolution and to such amount per share in the case
of voluntary liquidation or dissolution (which may differ from that payable in
involuntary liquidation or dissolution) as shall have been fixed by the Board of
Directors for the shares of the series of which they are a part, plus in each
case an amount equal to all dividends accumulated and unpaid thereon, and no
more. The consolidation or merger of this Corporation with or into any other
corporation or corporations shall not be deemed to be a distribution of assets
or liquidation or dissolution of the Corporation within the meaning of any
provisions hereof.
If upon any such distribution of assets of the Corporation the assets
distributable among the holders of the Preferred Stock of all series shall be
insufficient to pay in full the amounts to which the holders of Preferred Stock
of all series are entitled under the foregoing provisions, the amount
distributable to the holders of all shares of Preferred Stock of all series
shall be apportioned among them ratably in proportion to the amounts to which
they are, respectively, entitled in accordance with such foregoing provisions.
C. DIVIDEND ARREARAGES
Dividends may be paid upon the Common Stock only when dividends have been paid,
or declared and set apart for payment in full, on the Preferred Stock of all
series from the date on which dividends thereon began to accrue to the beginning
of the current dividend periods, but whenever all such dividends have been paid,
or declared and funds set apart for the payment thereof in full, upon the
Preferred Stock of all series then dividends upon the Common Stock may be
declared, payable then or thereafter out of any net earnings or surplus then
remaining. The holders of Preferred Stock shall not be entitled to receive any
amounts upon any distribution of the assets of the Corporation other than by
dividends from net earnings or surplus in excess of the amount to which they
are, respectively, entitled in accordance with the foregoing provisions hereof,
but after the payment of such amounts in accordance with the provisions
hereinabove set forth, the holders of Common Stock, subject to the rights of
holders of stock of any other class hereafter authorized, shall receive all
further amounts in distribution of such assets of the Corporation.
4. REDEMPTION OF PREFERRED STOCK
The Corporation, at its option, may at any time and from time to time redeem the
whole or any part of the Preferred Stock of any series or all series, upon at
least thirty days' previous notice by mail or publication given to the holders
of record of the shares to be redeemed or upon such other period and form of
notice as shall be fixed by the Board of Directors in the resolution
establishing such series, by paying for each share to be redeemed the redemption
price which shall have been fixed, as herein provided, for the shares of the
series of which it is a part plus in each case an amount equal to the dividends
upon such shares so to be redeemed at the rate or rates fixed with respect to
such shares from the date or dates on which dividends on such shares began to
accrue to the date fixed for the redemption thereof less the amount of dividends
theretofore paid thereon, such payment to be made only on presentation and
surrender for cancellation of the certificate or certificates representing the
share or shares so called for redemption properly endorsed or assigned by the
owner of record thereof. If less than all the outstanding shares of the
Preferred Stock are to be redeemed, the shares to be redeemed shall be
determined by the Board of Directors of the Corporation, either by lot, or by
redemption pro rata, as the Board of Directors see fit. If the notice of
redemption hereinabove provided for shall have been given as hereinabove
provided and if on or before the redemption date specified in such notice funds
necessary for the redemption of the share or shares to be redeemed shall have
been set apart, as a trust fund, so as to be available therefor, then
notwithstanding that any certificate for the shares of Preferred Stock so to be
redeemed shall not have been surrendered for cancellation, the shares
represented thereby from and after the date of redemption so specified shall no
longer be deemed outstanding and the right to receive dividends thereon shall
cease to accrue and all rights of the holders of the shares to be redeemed as
shareholders of the Corporation, except the right to receive the redemption
price without interest upon endorsement and surrender of the certificates for
said shares so redeemed, shall cease and terminate.
5. VOTING RIGHTS
A. NUMBER OF VOTES
The holders of the Preferred Stock (other than Preferred Stock of the series
designated "Cumulative Preferred Stock, $3.60 Series") shall be entitled to one
vote for each share thereof held by them, the holders of Preferred Stock
heretofore or hereafter issued of the series designated "Cumulative Preferred
Stock, $3.60 Series" shall be entitled to three votes for each share thereof
held by them, and the holders of the Common Stock shall be entitled to one vote
for each share thereof held by them; provided, however, that:
(i) If and when dividends payable on the Preferred Stock of any series at
the time outstanding are in default in an amount equivalent to the amount
payable thereon during the immediately preceding twelve month period, and until
such default shall have been remedied as hereinafter provided, the preferred
shareholders, voting as a class and without regard to series, shall be entitled
to elect the smallest number of directors necessary to constitute a majority of
the full Board of Directors, and the common shareholders, voting separately as a
class, shall be entitled to elect the remaining directors of the Corporation.
Upon accrual of such special right of the Preferred Stock, a meeting of the
preferred and the common shareholders for the election of directors shall be
held upon notice promptly given as provided in the Bylaws for a special meeting
by the President or the Secretary of the Corporation. If within fifteen days
after the accrual of such special right of the Preferred Stock the President and
the Secretary of the Corporation shall fail to call such meeting, then such
meeting shall be held upon notice, as provided in the Bylaws for a special
meeting, given by the holders of not less than 1,000 shares of the Preferred
Stock after filing with the Corporation of notice of their intention to do so.
The terms of office of all persons who may be directors of the Corporation at
the time shall terminate upon the election of a majority of the Board of
Directors by the preferred shareholders, whether or not the common shareholders
shall at the time of such termination have elected the remaining directors of
the Corporation; thereafter during the continuance of such special right of the
Preferred Stock to elect a majority of the Board of Directors, the holders of
such stock, voting as a class, shall be entitled to elect a majority of the
Board of Directors and the holders of the Common Stock, voting separately as a
class, shall be entitled to elect the remaining directors of the corporation;
and all directors so elected, whether at such special meeting or any adjournment
thereof, or at any subsequent annual meeting for the election of directors, held
during the continuance of such special right, shall hold office until the next
succeeding annual election and until their respective successors, elected by the
preferred shareholders, voting as a class, and the common shareholders, voting
as a class, are elected and qualified, unless their terms of office shall be
sooner terminated as hereinafter provided. However, if and when all dividends
then in default on the Preferred Stock shall thereafter be paid (and such
dividends shall be declared and paid out of any funds legally available therefor
as soon as reasonably practicable), the Preferred Stock shall thereupon be
divested of such special right herein provided for to elect a majority of the
Board of Directors, but subject always to the same provisions for the vesting of
such special right in such stock in the case of any similar future default or
defaults, and the election of directors by the preferred and common
shareholders, voting without regard to class, shall take place at the next
succeeding annual meeting for the election of directors, or at any adjournment
thereof. The terms of office of all persons who may be directors of the
Corporation at the time of such divestment shall terminate upon the election of
the directors at such annual meeting or adjournment thereof.
B. FIRST MEETING FOR ELECTION OF DIRECTORS
At the first meeting for the election of directors after any accrual of the
special right of the preferred shareholders to elect a majority of the Board of
Directors, as provided above, and at any subsequent annual meeting for the
election of directors held during the continuance of such special right, the
presence in person or by proxy of the holders of record of a majority of the
outstanding shares of Preferred Stock without regard to series, shall be
necessary to constitute a quorum for the election of the directors whom the
preferred shareholders are entitled to elect, and the presence in person or by
proxy of the holders of record of a majority of the outstanding shares of Common
Stock shall be necessary to constitute a quorum for the election of the
directors whom the common shareholders are entitled to elect. If at any such
meeting there shall not be such a quorum of the preferred shareholders, the
meeting shall be adjourned from time to time without notice other than
announcement at the meeting until such quorum shall have been obtained; provided
that, if such quorum shall not have been obtained within ninety (90) days from
the date of such meeting as originally called (or, in the case of any annual
meeting held during the continuance of such special right, from the date fixed
for such annual meetings, the presence in person or by proxy of the holders of
record of one-third of the outstanding shares of the Preferred Stock, without
regard to series, shall then be sufficient to constitute a quorum for the
election of the directors whom such shareholders are then entitled to elect.
The absence of a quorum of the preferred shareholders as a class or of the
common shareholders as a class shall not, except as hereinafter provided for,
prevent or invalidate the election by the other class of shareholders of the
directors whom they are entitled to elect, if the necessary quorum of
shareholders of such other class is present in person or represented by proxy at
any such meeting or any adjournment thereof. However, at the first meeting for
the election of directors after any accrual of the special right of the
preferred shareholders to elect a majority of the Board of Directors, the
absence of a quorum of the preferred shareholders shall prevent the election of
directors by the common shareholders, until a quorum of the preferred
shareholders shall be obtained.
C. CUMULATIVE VOTING
The holders of shares of stock of any class entitled to vote at a meeting for
the election of directors shall have the right to cumulate their votes at such
election in the manner provided by the Minnesota Business Corporation Act.
6. SPECIAL VOTING RIGHTS OF PREFERRED STOCK
A. ACT REQUIRING MAJORITY VOTE OF PREFERRED STOCK
So long as any of the Preferred Stock is outstanding, the Corporation shall not,
without the consent (given in writing or by vote at a meeting duly called for
the purpose in accordance with the provisions of the Bylaws) of the holders of a
majority of the total number of shares of such stock, without regard to series,
present or represented by proxy at such meeting, at which meeting a quorum as
hereinafter provided shall be present or represented by proxy, merge or
consolidate with or into any other corporation or corporations, unless such
merger or consolidation, or the issuance of assumption of all securities to be
issued or assumed in connection with any such merger or consolidation, shall
have been ordered, approved, or permitted by the Securities and Exchange
Commission under the provisions of the Public Utility Holding Company Act of
1935 or by any successor commission or regulatory authority of the United States
of America having jurisdiction in the premises; provided that the provisions of
this Section 6(a) shall not apply to a purchase or other acquisition by the
Corporation of the franchises or other assets of another corporation, or
otherwise apply in any matter which does not involve a merger or consolidation.
B. QUORUM OF PREFERRED STOCKHOLDERS
For the purpose of this Section 6, the presence in person or by proxy of the
holders of record of a majority of the outstanding shares of Preferred Stock,
without regard to series, shall be necessary to constitute a quorum; provided,
that if such quorum shall not have been obtained at such meeting or at any
adjournment thereof within thirty (30) days from the date of such meeting as
originally called, the presence in person or by proxy of the holders of record
of one-third (1/3) of the outstanding shares of such stock, without regard to
series, shall then be sufficient to constitute a quorum; and provided further
that in the absence of a quorum, such meeting or any adjournment thereof may be
adjourned from time to time by the officer or officers of the Corporation who
shall have called the meeting (but at intervals of not less than seven days
unless all shareholders present or represented by proxy shall agree to a shorter
interval) without notice other than announcement at the meeting until a quorum
as above provided shall be obtained.
C. ACTS WHICH INCLUDE REDEMPTION OF PREFERRED STOCK
No vote or consent of the holders of any series of the Preferred Stock shall be
required, however, if, at or prior to the issue of any such securities
representing unsecured indebtedness, or such consolidation, merger, or sale,
provision is made for the redemption or other retirement of all shares of such
series then outstanding.
D. ADDITIONAL TO OTHER VOTING REQUIREMENTS
The provisions set forth in this Section 6 are in addition to any other vote
required by any provision of the Articles of Incorporation of the Corporation,
as amended, or applicable statute, and shall be so construed.
7. INCREASE IN AMOUNT OF PREFERRED STOCK
So long as any of the Preferred Stock is outstanding, the Corporation shall not,
without the consent (given by vote at a meeting duly called for the purpose in
accordance with the provisions of the Bylaws) of the holders of a majority of
the total number of shares of such stock then outstanding, without regard to
class or series, present or represented by proxy at such meeting, increase the
total authorized amount of Preferred Stock (other than as authorized by this
Article V) or authorize any other preferred stock ranking on a parity with the
Preferred Stock as to assets or dividends (other than through the
reclassification of then authorized but unissued shares of Preferred Stock into
shares of such other preferred stock).
8. ISSUANCE OF STOCK PREFERRED OVER PREFERRED STOCK
So long as any of the Preferred Stock is outstanding, the Corporation shall not,
without the consent (given by vote at a meeting duly called for the purpose in
accordance with the provisions of the Bylaws) of the holders of at least
sixty-six and two-thirds per cent (66 2/3%) of the total number of shares of
Preferred Stock, without regard to series, then outstanding, present or
represented by proxy at such meeting, authorize any class of stock which shall
be preferred as to assets or dividends over the Preferred Stock; or, without the
consent of the holders of at least sixty-six and two-thirds per cent (66 2/3%)
of the total number of shares of Preferred Stock then outstanding, given as
above provided in this Section 8, amend the Articles of Incorporation to change
the express terms and provisions of the Preferred Stock in any manner
substantially prejudicial to the holders thereof.
9. EFFECTING AND VALIDATING ADDITIONAL STOCK OR SECURITIES CONVERTIBLE INTO
STOCK
So long as any shares of Preferred Stock are outstanding, the consent of the
holders of at least two-thirds (2/3) of the Preferred Stock at the time
outstanding, voting as a class and without regard to series, given in person or
by proxy, either in writing or by vote at any meeting called for the purpose,
shall be necessary for effecting or validating the issue of any additional
shares of Preferred Stock (other than and not exceeding 275,000 shares of the
Cumulative Preferred Stock, $3.60 Series), or any shares of stock, or of any
security convertible into stock, of any class ranking on a parity with the
Preferred Stock, unless
(i) the net income of the Corporation (determined as hereinafter provided)
for any twelve consecutive calendar months within the fifteen calendar months
immediately preceding the month within which the issuance of such additional
shares is authorized by the Board of Directors of the Corporation shall have
been in the aggregate not less than one and one half times the sum of the
interest requirements for one year on all of the indebtedness of the Corporation
to be outstanding at the date of such proposed issue and the full dividend
requirements for one year on all shares of Preferred Stock, and all other stock,
if any, ranking prior to or on a parity with the Preferred Stock, to be
outstanding at the date of such proposed issue, including the shares then
proposed to be issued but excluding any such indebtedness and any such shares
proposed to be retired in connection with such proposed issue. For purposes of
calculating the dividend requirements for one year applicable to any series of
Preferred Stock proposed to be issued which will have dividends determined
according to an adjustable, floating or variable rate, the dividend rate used
shall be the higher of (A) the dividend rate applicable to such series of
Preferred Stock on the date of such calculation, or (B) the average dividend
rate payable on all series of Preferred Stock outstanding during the twelve
month period immediately preceding the date of such calculation. For purposes
of calculating the dividend or interest requirements for one year applicable to
any series of Preferred Stock or indebtedness outstanding at the date of such
proposed issue and having dividends or interest determined according to an
adjustable, floating or variable rate, the dividend or interest rate used shall
be: (A) if such series of Preferred Stock or indebtedness has been outstanding
for at least twelve months, the actual amount of dividends or interest paid on
account of such series of Preferred Stock or indebtedness for the twelve month
period immediately preceding the date of such calculation, or (B) if such series
of Preferred Stock or indebtedness has been outstanding for less than twelve
months, the higher of (1) the dividend or interest rate applicable to such
series of Preferred Stock or indebtedness on the date of such calculation or (2)
the average dividend or interest rate payable on all series of Preferred Stock
or indebtedness outstanding during the twelve month period immediately preceding
the date of such calculation. "Net income" for any period for the purpose of
this Section 9 shall be computed by adding to the net income of the Corporation
for said period, determined in accordance with generally accepted accounting
practices, as adjusted by action of the Board of Directors of the Corporation as
hereinafter provided, the amount deducted for interest before arriving at such
net income (adjusted as above provided). In determining such net income for any
period, there shall be deducted the provisions for depreciation and depletion as
recorded on such books or the minimum amount required therefor under the
provisions of any then existing trust indenture or supplements thereto of the
Corporation, whichever is larger. In the determination of such net income, the
Board of Directors of the Corporation may, in the exercise of due discretion,
make adjustments by way of increase or decrease in such net income to give
effect to changes therein resulting from any acquisition of properties or to any
redemption, acquisition, purchase, sale, or exchange of securities by the
Corporation either prior to the issuance of any shares of Preferred Stock, or
stock, or securities convertible into stock, ranking on a parity therewith then
to be issued or in connection therewith; and
(ii) the aggregate of the capital of the Corporation applicable to all stock
of any class ranking junior to the Preferred Stock, plus the surplus of the
Corporation, shall be not less than the aggregate amount payable upon
involuntary liquidation, dissolution, or winding up of the affairs of the
Corporation to the holders of all shares of Preferred Stock and of any shares of
stock of any class ranking on a parity therewith to be outstanding immediately
after such proposed issue, excluding from such computation all indebtedness and
stock to be retired through such proposed issue. No portion of the surplus of
the Corporation utilized to satisfy the foregoing requirements shall be
available for dividends (other than dividends payable in stock of any class
ranking junior to the Preferred Stock) or other distributions upon or in respect
of shares of stock of the Corporation of any class ranking junior to the
Preferred Stock for the purchase of shares of such junior stock until such
number of additional shares of Preferred Stock or of stock, or securities
convertible into stock, ranking on a parity with the Preferred Stock are retired
or until and to the extent that the capital applicable to such junior stock
shall have been increased.
10. DIVIDENDS ON COMMON STOCK
So long as any shares of the Preferred Stock are outstanding, the Corporation
shall not pay any dividends on its Common Stock (other than dividends payable in
Common Stock) or make any distribution on or purchase or otherwise acquire for
value any of its Common Stock (each such payment, distribution, purchase and/or
acquisition being herein referred to as a "Common Stock dividend"), except to
the extent permitted by the following provisions of this Section 10:
a. No Common Stock dividend shall be declared or paid in an amount which,
together with all other Common Stock dividends declared in the year ending on
(and including) the date of the declaration of such Common Stock dividend, would
in the aggregate exceed fifty per cent (50%) of the net income of the
Corporation for the period consisting of the twelve consecutive calendar months
ending on the last day of the second calendar month next preceding the
declaration of such Common Stock dividend after deducting from such net income,
dividends accruing on any preferred stock of the Corporation during such period,
if at the end of such period the ratio (herein referred to as the
"capitalization ratio") of the sum of (1) the capital represented by the Common
Stock (including premiums on capital stock) and (2) the surplus accounts, of the
Corporation, to the sum of (1) the total capital and (2) the surplus accounts,
of the Corporation (after adjustment of the surplus accounts to reflect payment
of such Common Stock dividend) would be less than twenty per cent (20%).
b. If such capitalization ratio, determined as aforesaid shall be twenty
per- cent (20%) or more, but less than twenty-five per cent (25%) no Common
Stock dividend shall be declared or paid in an amount which, together with all
other Common Stock dividends declared in the year ending on (and including) the
date of the declaration of such Common Stock dividend, would in the aggregate
exceed seventy-five per cent (75%) of the net income of the Corporation for the
period consisting of the twelve consecutive calendar months ending on the last
day of the second calendar month next preceding the declaration of such Common
Stock dividend after deducting from such net income, dividends accruing on any
preferred stock of the Corporation during such period; and
c. If such capitalization ratio, determined as aforesaid, shall be in excess
of twenty-five per cent (25%), no Common Stock dividend shall be declared or
paid which would reduce such capitalization ratio to less than twenty-five per
cent (25%) except to the extent permitted by the next preceding paragraphs (a)
and (b) hereof. For the purpose of this condition:
(i) The total capital of the Corporation shall be deemed to consist of the
aggregate of (1) the principal amount of all outstanding indebtedness of the
Corporation maturing more than one year after the date of issue thereof and (2)
the par value of or the stated capital applicable to all outstanding capital
stock (including premiums on capital stock) of all classes of the Corporation.
All indebtedness and capital stock owned by the Corporation shall be excluded in
determining total capital. Surplus accounts shall be deemed to include all
earned surplus, paid-in surplus, capital surplus, or any other surplus of the
Corporation.
(ii) Such surplus accounts upon which capitalization ratios are computed
shall be adjusted to eliminate (1) the amount, if any, by which fifteen per cent
(15%) of the gross operating revenues of the Corporation (calculated in the
manner provided in the covenants relating to payment of Common Stock dividends
embodied in the indentures and supplemental indentures securing the mortgage
bonds of the Corporation) for the entire period from July 1, 1946, to the end of
the second calendar month immediately preceding the date of the proposed payment
of Common Stock dividends exceeds the total amount expended by the Corporation
during such period for maintenance and repairs and the total provision made by
the Corporation during such period for depreciation, all as shown by the books
of the Corporation, and (2) any amounts on the books of the Corporation known or
estimated, if not known, to represent the excess, if any, of recorded value over
original cost of used and useful utility plant and other property, and any item
set forth on the asset side of the balance sheet of the Corporation as a result
of accounting convention, such as unamortized debt discount and expense, capital
stock discount and expense, and the excess, if any, of the aggregate amount
payable on involuntary dissolution, liquidation, or winding up of the
Corporation upon all outstanding shares of preferred stock of all series over
the aggregate stated or par value of such shares, unless any such amount or
item, as the case may be, is being amortized or is being provided for by a
reserve; and
(iii) In computing net income of the Corporation applicable to the Common
Stock of the Corporation for any particular twelve (12) months' period for the
purpose of this condition, operating expenses, among other things, shall include
the greater of (1) the provision for depreciation for such period as recorded on
the books of the Corporation or (2) the amount by which fifteen per cent (15%)
of the gross operating revenues of the Corporation for such period (calculated
in the manner provided in the above mentioned covenants relating to payment of
Common Stock dividends) exceeds the total amount expended by the Corporation
during such periods for maintenance and repairs as shown by the books of the
Corporation.
11. ACCEPTANCE OF SHARES
In consideration of the issue by the Corporation, and the acceptance by the
holders thereof, of shares of the capital stock of the Corporation, each and
every present and future holder of shares of the Preferred Stock, the Common
Stock and of any stock hereafter authorized of the Corporation shall be
conclusively deemed, by acquiring or holding such shares, to have expressly
consented to all and singular the terms and provisions of this Article V and to
have agreed that the voting rights of such holder and the restrictions and
qualifications thereof shall be as set forth in this Article.
12. OUTSTANDING STOCK OR EVIDENCE OF INDEBTEDNESS
No share of stock or evidence of indebtedness shall be deemed to be
"outstanding," as that term is used in this Article V, if, prior to or
concurrently with the event in reference to which a determination as to the
amount thereof outstanding is to be made, the requisite funds for the redemption
thereof shall be deposited in trust for that purpose and the requisite notice
for the redemption thereof shall be given or the depositary of such funds shall
be irrevocably authorized and directed to give or complete such notice of
redemption.
13. RIGHTS OF UNISSUED STOCK OR OTHER SECURITIES
No holder of any stock of the Corporation shall be entitled, as of right, to
purchase or subscribe for any part of any issued shares of stock of the
Corporation or for any additional shares of stock, of any class or series, which
may at any time be issued, whether now or hereafter authorized, or for any
rights, options, or warrants to purchase or receive shares of stock or for any
bonds, certificates of indebtedness, debentures, or other securities convertible
into shares of stock, or any class or series thereof; but any such unissued or
additional shares, rights, options, or warrants or convertible securities of the
Corporation may, from time to time, be issued and disposed of by the Board of
Directors to such persons, firms, corporations or associations, and upon such
terms, as the Board of Directors may, in its discretion, determine, without
offering any part thereof to any shareholders of any class or series then of
record; and any shares, rights, options or warrants or convertible securities
which the Board of Directors may at any time determine to offer to shareholders
for subscription may be offered to holders of shares of any class or series at
the time existing, to the exclusion of holders of shares of any or all other
classes or series at the time existing, in each case as the Board of Directors
may, in its discretion, determine.
14. SERIES OF PREFERRED STOCK
A. CUMULATIVE PREFERRED STOCK, $3.60 SERIES
Anything herein to the contrary notwithstanding, there shall be and is hereby
created a series of preferred stock which is hereby designated "Cumulative
Preferred Stock, $3.60 Series," dividends on which shares of Cumulative
Preferred Stock, $3.60 Series, shall be payable, if declared, on the 15th days
of January, April, July, and October of each year; which dividends shall be
cumulative from the first day of the respective quarter-yearly period in which
the respective shares of such series shall have been originally issued, the term
"quarter-yearly period" as used herein referred to the period from July 1, 1946,
to and including September 30, 1946, and thereafter to each quarter-yearly
period of three (3) consecutive months, beginning with October 1, 1946; the
dividend rate of which series is hereby fixed at Three Dollars and Sixty Cents
($3.60) per share per annum; the redemption price of the shares of which series
is hereby fixed at One Hundred and Five Dollars and Seventy Five Cents ($105.75)
per share in case of redemption on or prior to September 30, 1951; One Hundred
and Four Dollars and Seventy Five Cents ($104.75) per share in case of
redemption subsequent to September 30, 1951, and on or prior to September 30,
1956; and One Hundred and Three Dollars and Seventy Five Cents ($103.75) per
share in case of redemption subsequent to September 30, 1956, in each case plus
the amount payable thereon in accordance with the provisions hereof equal to the
cumulative dividends accrued and unpaid thereon; the amount which the shares of
such series are entitled to receive in preference to the Common Stock upon any
distribution of assets other than by dividends from net earnings or surplus upon
voluntary liquidation or dissolution of the Corporation is hereby fixed at the
then redemption price thereof, plus the amount payable thereon in accordance
with the provisions hereof equal to the cumulative dividends accrued and unpaid
thereon; the amount which the shares of such series are entitled to receive in
preference to the Common Stock upon any distribution of assets, other than by
dividends from net earnings or surplus, upon any involuntary liquidation or
dissolution of the Corporation is hereby fixed at One Hundred Dollars ($100) per
share, plus the amount payable thereon in accordance with the provisions hereof
equal to the cumulative dividends accrued and unpaid thereon.
B. CUMULATIVE PREFERRED STOCK, $4.10 SERIES
(i) There be and there hereby is created from the authorized and unallotted
shares of Preferred Stock of the Company, a new series of Preferred Stock of the
Company which is hereby designated "Cumulative Preferred Stock, $4.10 Series,"
and the number of shares constituting said new series is hereby fixed at 175,000
shares.
(ii) The dividend rate of the shares of said new series is hereby fixed at
$4.10 per share per annum; dividends on said shares shall be payable on the 15th
day of January, April, July and October for the quarter-yearly period ending
with the last day of the preceding month, when and as declared by the Board of
Directors.
(iii) The redemption price of the shares of said new series is hereby fixed
at $105.50 per share in case of redemption on or prior to December 31, 1955;
$104.50 per share in case of redemption subsequent to December 31, 1955 and on
or prior to December 31, 1960; $103.50 per share in case of redemption
subsequent to December 31, 1960 and on or prior to December 31, 1965; and
$102.50 per share in case of redemption subsequent to December 31, 1965; plus in
each case an amount equal to the dividends at the rate of $4.10 per share per
annum from the date dividends on the shares to be redeemed began to accrue to
the date fixed for redemption thereof less the amount of dividends theretofore
paid thereon.
(iv) The amount which the shares of said new series are entitled to receive
in preference to the Common Stock upon any distribution of assets, other than by
dividends from net earnings or surplus, upon any involuntary liquidation or
dissolution of the corporation is hereby fixed at $100 per share plus an amount
equal to all dividends accumulated and unpaid thereon and the amount which the
shares of said new series are entitled to receive in preference to the Common
Stock upon any distribution of assets, other than by dividends from net earnings
or surplus, upon voluntary liquidation or dissolution of the corporation is
hereby fixed as the then redemption price, including an amount equal to all
dividends accumulated and unpaid thereon.
C. CUMULATIVE PREFERRED STOCK, $4.08 SERIES
(i) There be and there hereby is created from the authorized and unallotted
shares of Preferred Stock of the Company, a new series of Preferred Stock of the
Company which is hereby designated "Cumulative Preferred Stock, $4.08 Series,"
and the number of shares constituting said new series is hereby fixed at 150,000
shares.
(ii) The dividend rate of the shares of said new series is hereby fixed at
$4.08 per share per annum; dividends on said shares shall be payable on the 15th
day of January, April, July and October for the quarter-yearly period ending
with the last day of the preceding month, when and as declared by the Board of
Directors.
(iii) The redemption price of the shares of said new series is hereby fixed
at $105 per share in case of redemption on or prior to December 31, 1959; $104
per share in case of redemption subsequent to December 31, 1959 and on or prior
to December 31, 1964; $103 per share in case of redemption subsequent to
December 31, 1964 and on or prior to December 31, 1969; and $102 per share in
case of redemption subsequent to December 31, 1969; plus in each case an amount
equal to the dividends at the rate of $4.08 per share per annum from the date
dividends on the shares to be redeemed began to accrue to the date fixed for
redemption thereof less the amount of dividends theretofore paid thereon.
(iv) The amount which the shares of said new series are entitled to receive
in preference to the Common Stock upon any distribution of assets, other than by
dividends from net earnings or surplus, upon voluntary liquidation or
dissolution of the corporation is hereby fixed as the then redemption price,
including an amount equal to all dividends accumulated and unpaid thereon.
D. CUMULATIVE PREFERRED STOCK, $4.11 SERIES
(i) There be and there hereby is created from the authorized and unallotted
shares of Preferred Stock of the Company, a new series of Preferred Stock of the
Company which is hereby designated "Cumulative Preferred Stock, $4.11 Series,"
and the number of shares constituting said new series is hereby fixed at 200,000
shares.
(ii) The dividend rate of the shares of said new series is hereby fixed at
$4.11 per share per annum; dividends on said shares shall be payable on the 15th
day of January, April, July and October for the quarter-yearly period ending
with the last day of the preceding month, when and as declared by the Board of
Directors.
(iii) The redemption prices of the shares of said new series are hereby
fixed at $105.732 per share in case of redemption on or prior to December 31,
1959; $104.732 per share in case of redemption subsequent to December 31, 1959
and on or prior to December 31, 1964; and $103.732 per share in case of
redemption subsequent to December 31, 1964; plus in each case an amount equal to
the dividends at the rate of $4.11 per share per annum from the date dividends
on the shares to be redeemed began to accrue to the date fixed for redemption
thereof less the amount of dividends theretofore paid thereon.
(iv) The amount which the shares of said new series are entitled to receive
in preference to the Common Stock upon any distribution of assets, other than by
dividends from net earnings or surplus, upon voluntary liquidation or
dissolution of the corporation is hereby fixed as the then redemption price,
plus an amount equal to all dividends accumulated and unpaid thereon.
E. CUMULATIVE PREFERRED STOCK, $4.16 SERIES
(i) There be and there hereby is created from the authorized and unallotted
shares of Preferred Stock of the Company, a new series of Preferred Stock of the
Company which is hereby designated "Cumulative Preferred Stock, $4.16 Series,"
and the number of shares constituting said new series is hereby fixed at 100,000
shares.
(ii) The dividend rate of the shares of said new series is hereby fixed at
$4.16 per share per annum; dividends on said shares shall be payable on the 15th
day of January, April, July and October for the quarter-yearly period ending
with the last day of the preceding month, when and as declared by the Board of
Directors.
(iii) The redemption prices of the shares of said new series are hereby
fixed at $106.25 per share in case of redemption on or prior to December 31,
1961; $105.75 per share in case of redemption subsequent to December 31, 1961
and on or prior to December 31, 1966; $104.75 per share in case of redemption
subsequent to December 31, 1966 and on or prior to December 31, 1971; and
$103.75 per share in case of redemption subsequent to December 31, 1971; plus in
each case an amount equal to the dividends at the rate of $4.16 per share per
annum from the date dividends on the shares to be redeemed began to accrue to
the date fixed for redemption thereof, less the amount of dividends theretofore
paid thereon.
(iv) The amount which the shares of said new series are entitled to receive
in preference to the Common Stock upon any distribution of assets, other than by
dividends from net earnings or surplus, upon voluntary liquidation or
dissolution of the corporation is hereby fixed as the then redemption price,
plus an amount equal to all dividends accumulated and unpaid thereon.
F. CUMULATIVE PREFERRED STOCK, $4.56 SERIES
(i) There be and there hereby is created from the authorized and unallotted
shares of Preferred Stock of the Company, a new series of Preferred Stock of the
Company which is hereby designated "Cumulative Preferred Stock, $4.56 Series,"
and the number of shares constituting said new series is hereby fixed at 150,000
shares.
(ii) The dividend rate of the shares of said new series is hereby fixed at
$4.56 per share per annum; dividends on said shares shall be payable on the 15th
day of January, April, July and October for the quarter-yearly period ending
with the last day of the preceding month, when and as declared by the Board of
Directors.
(iii) The redemption prices of the shares of said new series are hereby
fixed at $105.89 per share in case of redemption on or prior to December 31,
1969; $104.75 per share in case of redemption subsequent to December 31, 1969
and on or prior to December 31, 1974; $103.64 per share in case of redemption
subsequent to December 31, 1974 and on or prior to December 31, 1979; and
$102.47 per share in case of redemption subsequent to December 31, 1979; plus in
each case an amount equal to the dividends at the rate of $4.56 per share per
annum from the date dividends on the shares to be redeemed began to accrue to
the date fixed for redemption thereof, less the amount of dividends theretofore
paid thereon.
(iv) The amount which the shares of said new series are entitled to receive
in preference to the Common Stock upon any distribution of assets, other than by
dividends from net earnings or surplus, upon voluntary liquidation or
dissolution of the corporation is hereby fixed as the then redemption price,
including an amount equal to all dividends accumulated and unpaid thereon.
ARTICLE VI. LIMITATION OF DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the Corporation
or its shareholders for monetary damages for breach of fiduciary duty as a
director, except to the extent provided by applicable law for (i) liability
based on a breach of the duty of loyalty to the Corporation or the shareholders;
(ii) liability for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii) liability based on
the payment of an improper dividend or an improper repurchase of the
Corporation's stock under Section 559 of the Minnesota Business Corporation Act
(Minnesota Statues, Chap. 302A) or for liability arising under Section 80A.23 of
Minnesota Statutes for the unlawful sale of securities; (iv) liability for any
transaction from which the director derived an improper personal benefit; or (v)
liability for any act or omission occurring prior to the date this Article VI
becomes effective. If the Minnesota Business Corporation Act is further amended
to authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the Corporation in addition to
the limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by any amendment to the Minnesota Business Corporation
Act. Any repeal or modification of this Article by the shareholders of the
Corporation shall not adversely affect any limitation on the personal liability
of a director of the Corporation existing at the time of such repeal or
modification.
VII. AMENDMENT OF BYLAWS
Authority to make and alter the Bylaws of the Corporation is hereby vested in
the Board of Directors of the Corporation, subject to the power of the
stockholders to change or repeal such Bylaws; provided, however, the Board of
Directors shall not make or alter any bylaw fixing their number, qualifications,
classifications, or term of office.
EXHIBIT 10.02
-------------
NSP 1999 SENIOR EXECUTIVE SEVERANCE POLICY
------------------------------------------
INTRODUCTION
------------
Northern States Power Company, a Minnesota corporation ("NSP") and New
Century Energies, Inc., a Delaware corporation ("NCE") have entered into an
Agreement and Plan of Merger dated as of March 24, 1999 (the "Merger
Agreement"), whereby the NSP and NCE organizations will engage in a
merger-of-equals transaction (the "Combination"). The Board of Directors of NSP
recognizes that the pendency of the Combination, and the inevitable adjustments
that will occur during the transition period following the Combination, may
result in the loss or distraction of employees of the Corporation and its
Subsidiaries to the detriment of the Corporation and its shareholders.
The Board considers the avoidance of such loss and distraction to be
essential to protecting and enhancing the best interests of the Corporation and
its shareholders. The Board also believes that during the pendency of the
Combination and the transition period thereafter, the Board should be able to
receive and rely on disinterested service from employees without concern that
employees might be distracted or concerned by personal uncertainties and risks.
In addition, the Board believes that it is consistent with the Corporation's
employment practices and policies and in the best interests of the Corporation
and its shareholders to treat fairly its employees whose employment terminates
in connection with or following the Combination.
Accordingly, the Board has determined that appropriate steps should be taken to
assure the Corporation of the continued employment and attention and dedication
to duty of its employees and to seek to ensure the availability of their
continued service, notwithstanding the Combination.
Therefore, in order to fulfill the above purposes, the following plan has been
developed and is hereby adopted.
ARTICLE I
ESTABLISHMENT OF PLAN
---------------------
1.
As of the Effective Date, the Corporation hereby establishes a separation
compensation plan known as the NSP 1999 Senior Executive Severance Policy, as
set forth in this document.
ARTICLE II
DEFINITIONS
-----------
2.
As used herein the following words and phrases shall have the following
respective meanings unless the context clearly indicates otherwise. (In
addition, certain terms used in Section 4.5 of this Plan are defined in Section
4.5(c).)
(a) Annual Incentive Award. The highest amount a Participant received as an
- --- ----------------------
annual cash incentive award in any of the three calendar years prior to a
termination of employment entitling the Participant to a Separation Benefit.
(b) Annual Salary. The Participant's regular annual base salary immediately
- --- -------------
prior to his or her termination of employment, including compensation converted
to other benefits under a flexible pay arrangement maintained by the Corporation
or deferred pursuant to a written plan or agreement with the Corporation, but
excluding overtime pay, allowances, premium pay, compensation paid or payable
under any Corporation long-term or short-term incentive plan or any similar
payment.
(c) Board. The Board of Directors of NSP.
- --- -----
(d) Code. The Internal Revenue Code of 1986, as amended from time to time.
- --- ----
(e) Committee. The Corporate Management Committee of the Board or any
- --- ---------
successor to such committee.
(f) Corporation. NSP and any successor thereto.
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(g) Date of the Combination. The Effective Time, as defined in the Merger
- --- -----------------------
Agreement.
(h) Date of Termination. The date on which a Participant ceases to be an
- --- -------------------
Employee.
(i) Effective Date. The date of the Merger Agreement.
- --- ---------------
(j) Employee. Any full-time, regular-benefit, non-bargaining employee of an
- --- --------
Employer. The term shall exclude all individuals employed as independent
contractors, temporary employees, other benefit employees, non-benefit
employees, leased employees, even if it is subsequently determined that such
classification is incorrect.
(k) Employer. The Corporation or a Subsidiary which has adopted the Plan
- --- --------
pursuant to Article V hereof.
(l) Long-Term Incentive Award. The highest aggregate Value granted to a
- --- -------------------------
Participant in the form of Stock Awards during any of the three calendar years
prior to a termination of employment entitling the Participant to a Separation
Benefit.
(m) Multiple. For each Participant, the number set forth opposite the
- --- --------
Participant's name on Schedule 1 hereto.
(n) Participant. An individual who is designated as such pursuant to
- --- -----------
Section 3.1.
(o) Plan. The NSP 1999 Senior Executive Severance Policy.
- --- ----
(p) Release Agreement. An agreement substantially in the form set forth in
- --- -----------------
Exhibit A to this Plan, with such amendments as the Committee may determine to
be necessary in order for such agreement to constitute a valid release by the
Participant in question of all claims described therein.
(q) Separation Benefits. The payments and benefits described in Section 4.3
- --- -------------------
that are provided to qualifying Participants under the Plan.
(r) Separation Period. The period beginning on a Participant's Date of
- --- -----------------
Termination and ending upon expiration of a number of years equal to the
Participant's Multiple.
(s) Stock Award. An award of stock options, stock appreciation rights
- --- ------------
(other than in conjunction with a stock option) or restricted stock or a
performance award, in each case granted pursuant to the Corporation's Long-Term
Incentive Award Plan or any predecessor, successor or similar plan of the
Corporation.
(t) Subsidiary. Any corporation in which the Corporation, directly or
- --- ----------
indirectly, holds a majority of the voting power of such corporation's
outstanding shares of capital stock.
(u) Target Annual Incentive. The Annual Incentive Award that the
- --- -------------------------
Participant would have received for the year in which his or her Date of
Termination occurs, if the target goals had been achieved.
(v) Value. The Value of a Stock Award shall be the dollar value of such
- --- -----
award at the time of grant, as determined by the Committee in connection with
the grant of such Stock Award; it being understood that the Committee's
practice, as of the date of adoption of this Plan, is to determine (i) the value
of a Stock Award that is a stock option, stock appreciation right or similar
right that derives its value from the appreciation of the value of equity
securities using a modified version of the Black-Scholes option valuation
method, and (ii) the value of other Stock Awards based upon the fair market
value of the underlying equity securities.
ARTICLE III
ELIGIBILITY
-----------
3.
3.1 Participation. Each of the individuals named on Schedule 1 hereto shall
- --- -------------
be a Participant in the Plan. Schedule 1 may be amended by the Board from
time to time to add individuals as Participants.
3.2 Duration of Participation. A Participant shall only cease to be a
- --- --------------------------
Participant in the Plan as a result of an amendment or termination of the Plan
complying with Article VII of the Plan, or when he ceases to be an Employee of
any Employer, unless, at the time he ceases to be an Employee, such Participant
is entitled to payment of a Separation Benefit as provided in the Plan or there
has been an event or occurrence described in Section 4.2(a) which would enable
the Participant to terminate his employment and receive a Separation Benefit. A
Participant entitled to payment of a Separation Benefit or any other amounts
under the Plan shall remain a Participant in the Plan until the full amount of
the Separation Benefit and any other amounts payable under the Plan have been
paid to the Participant.
ARTICLE IV
SEPARATION BENEFITS
-------------------
4.1 Right to Separation Benefit. A Participant shall be entitled to receive
- --- ---------------------------
Separation Benefits in accordance with Section 4.3 if the Participant
ceases to be an Employee for any reason specified in Section 4.2(a).
4.2 Termination of Employment.
- --- ---------------------------
(a) Terminations Which Give Rise to Separation Benefits Under This Plan.
- --- -------------------------------------------------------------------
Except as set forth in subsection (b) below, a Participant shall be entitled to
Separation Benefits if, at any time before the third anniversary of the Date of
the Combination:
(i) the Participant ceases to be an Employee by action of the Employer or
any of its affiliates (excluding any transfer to another Employer);
(ii) the Participant's Annual Salary is reduced below the higher of (x) the
amount in effect on the Effective Date and (y) the highest amount in effect at
any time thereafter, and the Participant ceases to be an Employee by his or her
own action within 130 days after the occurrence of such reduction;
(iii) the Participant's duties and responsibilities are materially and
adversely diminished in comparison to the duties and responsibilities enjoyed by
the Participant on the Effective Date, and the Participant ceases to be an
Employee by his or her own action within 130 days after the occurrence after
such reduction;
(iv) the program of incentive compensation and retirement and welfare
benefits offered to the Participant (determined in the aggregate) is materially
and adversely diminished in comparison to the program of benefits enjoyed by the
Participant on the Effective Date, and the Participant ceases to be an Employee
by his or her own action within 130 days after the occurrence after such
reduction; or
(v) an Employer or any affiliate of an Employer sells or otherwise
distributes or disposes of the subsidiary, branch or other business unit in
which the Participant was employed before such sale, distribution or disposition
and the requirements of subsection (b)(iv) of this Section 4.2 are not met, and
the Participant ceases to be an Employee upon or within 130 days after such
sale, distribution or disposition.
With respect to a termination by the Participant pursuant to clause (ii), (iii),
(iv), or (v) of this Section 4.2(a), such termination shall be effective if and
only if the Participant has given written notice to his or her Employer of his
or her intent to terminate for such reason (stating the event(s) relied upon for
such termination and the provisions of this Section 4.2(a) relied upon) within
90 days of the date on which the event(s) first occurred, and the Employer or an
affiliate of the Employer, as the case may be, has failed to remedy such event
within the 30 day period following receipt of such notice.
(b) Terminations Which Do Not Give Rise to Separation Benefits Under This
- --- ---------------------------------------------------------------------
Plan. If a Participant's employment is terminated for Cause, death, disability,
- ----
retirement, or a qualified sale of business (as those terms are defined
below), or voluntarily by the Participant in the absence of an event described
in subsection (a)(ii), (iii) or (iv) of this Section 4.2, the Participant shall
not be entitled to Separation Benefits under the Plan.
(i) A termination for disability shall have occurred where a Participant is
terminated because of an illness or injury and the Participant has become
eligible to receive long-term disability benefits under, or would have become so
eligible if such Participant were covered by, the Corporation's long-term
disability plan, as it exists at the time of termination of employment.
(ii) A termination by retirement shall have occurred where a Participant's
termination is due to his voluntary late, normal or early retirement under a
pension plan sponsored by his Employer or its affiliates, as defined in such
plan.
(iii) A termination for Cause shall have occurred where a Participant is
terminated because of:
(A) the willful and continued failure of the Participant to perform
substantially the Participant's duties with the Corporation or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial performance
is delivered to the Participant by the Board or an elected officer of the
Corporation which specifically identifies the manner in which the Board or the
elected officer believes that the Participant has not substantially performed
the Participant's duties, or
(B) the willful engaging by the Participant in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Corporation.
For purposes of this provision, no act or failure to act, on the part of the
Participant, shall be considered "willful" unless it is done, or omitted to be
done, by the Participant in bad faith or without reasonable belief that the
Participant's action or omission was in the best interests of the Corporation.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board, or upon the advice of counsel for the Corporation,
shall be conclusively presumed to be done, or omitted to be done, by the
Participant in good faith and in the best interests of the Corporation.
(iv) A termination due to a qualified
sale of business shall have occurred where an Employer or an affiliate of an
Employer has sold, distributed or otherwise disposed of the subsidiary, branch
or other business unit in which the Participant was employed before such sale,
distribution or disposition and the Participant has been offered employment with
the purchaser of such subsidiary, branch or other business unit or the
corporation or other entity which is the owner thereof on substantially the same
terms and conditions under which he worked for the Employer (including, without
limitation, duties and responsibilities, and the aggregate of the Participant's
base salary and program of benefits). Such terms and conditions shall also
include, without limitation, a legally binding agreement or plan covering such
Participant, providing that upon a qualifying termination of employment with the
subsidiary, branch or business unit (or the corporation or other entity which is
the owner thereof) or any successor thereto of the kind described in Article VI
of this Plan, at any time before the third anniversary of the Date of the
Combination, the Participant's employer or any successor will pay to each such
former Participant an amount equal to the separation benefit and other benefits
that such former Participant would have received under the Plan had he been a
Participant at the time of such termination. For purposes of this subsection,
the new employer plan or agreement must treat service with any Employer
(irrespective of whether the Employer was an affiliate of the Corporation or the
Employee was a Participant at the time of such service) and the new employer as
continuous service for purposes of calculating separation benefits.
4.3 Separation Benefits.
- --- --------------------
(a) If a Participant's employment is terminated in circumstances entitling
him to a separation benefit as provided in Section 4.2(a), and the Participant
executes and does not revoke a Release Agreement, the Participant's Employer
shall pay such Participant, within fifteen days of the Date of Termination, or
if later, upon the date such Release Agreement becomes irrevocable, a cash lump
sum as set forth in subsection (b) below and the continued benefits set forth in
subsection (c) below, subject to Section 4.6 below. For purposes of
determining the benefits set forth in subsection (b) and (c), if the termination
of the Participant's employment is based upon a reduction of the Participant's
Annual Salary or benefits as described in subsection (ii) or (iii) of Section
4.2, such reduction shall be ignored.
(b) The cash lump sum referred to in Section 4.3(a) shall equal the
aggregate of the following amounts:
(i) the sum of (1) the Participant's Annual Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
Target Annual Incentive plus the Long-Term Incentive and (y) a fraction, the
numerator of which is the number of days in such year through the Date of
Termination, and the denominator of which is 365, and (3) any compensation
previously deferred by the Participant (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid and in full satisfaction of the rights of the Participant
thereto;
(ii) an amount equal to the product of (1) the Participant's Multiple and
(2) the sum of (x) the Participant's Annual Salary, (y) the higher of the Target
Annual Incentive or the Annual Incentive Award and (z) the Long-Term Incentive
Award;
(iii) an amount equal to the difference between (a) the actuarial equivalent
of the benefit under the Corporation's qualified defined benefit retirement plan
(the "Retirement Plan") and any excess or supplemental retirement plans in which
the Participant participates (together, the "SERP") which the Participant would
receive if his or her employment continued during the Separation Period,
assuming that the Participant's compensation during the Separation Period would
have been equal to his or her compensation as in effect immediately before the
termination or, if higher, on the Effective Date, and (b) the actuarial
equivalent of the Participant's actual benefit (paid or payable), if any, under
the Retirement Plan and the SERP as of the Date of Termination. The actuarial
assumptions used for purposes of determining actuarial equivalence shall be no
less favorable to the Participant than the most favorable of those in effect
under the Retirement Plan and the SERP on the Date of Termination and the
Effective Date; and
(iv) the sum of the additional contributions (other than pre-tax salary
deferral contributions by the Participant) that would have been made or credited
by the Company to the Participant's accounts under each qualified defined
contribution plan and non-qualified supplemental executive savings plan, if any,
that covered the Participant on the date the termination of employment occurred,
determined by assuming that:
(A) The Participant's employment had continued for the Separation Period;
(B) The Participant's rate of compensation being recognized by each plan
immediately prior to the Date of Termination had continued in effect during the
Separation Period;
(C) In the case of matching contributions, the Participant's rate of pre-tax
salary deferral contributions in effect for the last plan year beginning prior
to the Date of Termination had remained in effect throughout the Separation
Period; and
(D) In the case of discretionary contributions by the Company, the Company
continued to make such contributions during the Separation Period at the rate
that applied to the most recent plan year that ended prior to the Date of
Termination.
(c) The continued benefits referred to above shall be as follows:
(i) During the Separation Period, the Participant and his family shall be
provided with medical, dental and life insurance benefits as if the
Participant's employment had not been terminated; provided, however, that if the
Participant becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another employer-provided plan,
the medical and other welfare benefits described herein shall be secondary to
those provided under such other plan during such applicable period of
eligibility; and for purposes of determining eligibility (but not the time of
commencement of benefits) of the Participant for retiree medical, dental and
life insurance benefits under the Corporation's plans, practices, programs and
policies, the Participant shall be considered to have remained employed during
the Separation Period and to have retired on the last day of such period;
(ii) The Corporation shall, at its sole expense as incurred, provide the
Participant with outplacement services the scope and provider of which shall be
selected by the Participant in his or her sole discretion (but at a cost to the
Corporation of not more than $30,000);
(iii) The Corporation shall continue to provide the Participant with
financial planning counseling benefits through the second anniversary of the
Date of Termination, on the same terms and conditions as were in effect
immediately before the termination or, if more favorable, on the Effective Date;
and
(iv) The Corporation shall transfer to the Participant, at no cost to the
Participant, the title to the company car being used by the Participant as of
the Date of Termination.
To the extent any benefits described in this Section 4.3(c) cannot be provided
pursuant to the appropriate plan or program maintained for Employees, the
Employer shall provide such benefits outside such plan or program at no
additional cost (including without limitation tax cost) to the Participant.
Notwithstanding the foregoing, if a group insurance carrier refuses to provide
the coverage described in this Section 4.3(c) under its contract issued to the
Company, or if the Company reasonably determines that the coverage required
under this Section 4.3(c) would cause a welfare plan sponsored by the Company to
violate any provision of the Code prohibiting discrimination in favor of highly
compensated employees or key employees, the Company will use its best efforts to
obtain for the Participant an individual insurance policy providing comparable
coverage. However, if the Company determines in good faith that comparable
coverage cannot be obtained for less than two times the premium or premium
equivalent for such coverage under the Company welfare plan or plans, the
Company's sole obligation under this Section 4.3(c) with respect to that
coverage will be limited to paying the Participant a monthly amount equal to two
times the monthly premium or premium equivalent for that coverage under the
Company's plans.
4.4 Other Benefits Payable. The cash lump sum and continuing benefits
- --- -----------------------
described in Section 4.3 above shall be payable in addition to, and not in lieu
of, all other accrued or vested or earned but deferred compensation, rights,
options or other benefits which may be owed to a Participant upon or following
termination, including but not limited to accrued vacation or sick pay, amounts
or benefits payable under any bonus or other compensation plans, stock option
plan, stock ownership plan, stock purchase plan, life insurance plan, health
plan, disability plan or similar or successor plan, except as provided in
Section 4.6 below.
4.5 Certain Additional Payments or Reductions in Payments.
- --- -----------------------------------------------------------
(a) Gross-Up or Reduction. (i) In the event it shall be determined that
- --- ---------------------
any Payment would be subject to the Excise Tax, then except to the extent
provided below in this Section 4.5(a), the Participant shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Participant of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Participant retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(ii) Notwithstanding Section 4.5(a)(i), if it shall be determined that the
Participant is entitled to a Gross-Up Payment pursuant to Section 4.5(a)(i)
(before application of Sections 4.5(a)(ii), (iii) and (iv)), but that the
Parachute Value of the Payments does not exceed 110% of the Safe Harbor Amount,
then no Gross-Up Payment shall be made to the Participant and the Separation
Payments, in the aggregate, shall be reduced (but not below zero) such that the
Parachute Value of all Payments equals the Safe Harbor Amount, determined in
such a manner as to maximize the Value of all Payments actually made to the
Participant.
(iii) If it shall be determined that the Participant is entitled to a
Gross-Up Payment pursuant to Section 4.5(a)(i) and the Payments are not reduced
pursuant to Section 4.5(a)(ii), but one or more of the Payments that is
determined to be subject to the Excise Tax consists of the accelerated vesting
of a Stock Award, then the Gross-Up Payment shall be reduced by the portion
thereof that is allocable to such accelerated vesting. The allocation of the
Gross-Up Payment to the individual Payments shall be made on a pro-rata basis
using the methodology set forth in Q&A 38 of Proposed Treasury Regulations
Section 1.280G-1 or any comparable provision of any successor proposed or final
regulations under Sections 280G and 4999 of the Code.
(iv) If it shall be determined that a Participant is entitled to receive a
Gross-Up Payment after application of Sections 4.5(a)(i), (ii) and (iii), then a
determination shall be made whether it is possible to reduce the Separation
Payments (but not below zero) such that the Net After-Tax Amount of all the
Payments (taking into account such reduction) exceeds the Net After-Tax Amount
of all the Payments (not taking into account such reduction) plus the Gross-Up
Payment. If such a reduction is possible, then no Gross-Up Payment shall be
made and the aggregate Separation Payments shall be so reduced (but not below
zero); provided, that the reduction shall be made in such a manner as to
maximize the Value of all Payments actually made to the Participant.
(b) Procedures. (i) All determinations required to be made under Section
- --- ----------
4.5(a), including whether and when a Gross-Up Payment or a reduction in
Separation Payments is required, the amount of such Gross-Up Payment or
reduction, and the assumptions to be utilized in arriving at such determination,
shall be made by a nationally recognized public accounting firm selected by
the Corporation (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Corporation and the Participant within 15 business days
of the receipt of notice from the Participant that there has been a Payment, or
such earlier time as is requested by the Corporation; provided, that if the
Accounting Firm determines that a Participant's Separation Payments are required
to be reduced pursuant to Section 4.5(a)(ii) or (iv), and there is a choice to
be made as to which Separation Payments shall be reduced consistent with
maximizing the Value of all Payments to the Participant, the Participant shall
be permitted to make such choice, and the Accounting Firm shall supply the
Participant with all necessary information to make an informed choice. All fees
and expenses of the Accounting Firm shall be borne solely by the Corporation.
Any Gross-Up Payment, as determined pursuant to this Section 4.5, shall be paid
by the Corporation to the Participant within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Corporation and the Participant.
(ii) As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that amounts will have been paid or distributed by the
Corporation to or for the benefit of a Participant pursuant to this Plan
which should not have been so paid or distributed ("Overpayment") or that
additional amounts which will have not been paid or distributed by the
Corporation to or for the benefit of a Participant pursuant to this Plan could
have been so paid or distributed ("Underpayment"), in each case, consistent with
the requirements of this Section 4.5. In the event that the Accounting Firm,
based upon the assertion of a deficiency by the Internal Revenue Service against
either the Corporation or the Participant which the Accounting Firm believes has
a high probability of success determines that an Overpayment has been made, any
such Overpayment paid or distributed by the Corporation to or for the benefit of
a Participant shall be treated for all purposes as a loan to the Participant
which the Participant shall repay to the Corporation together with interest at
the applicable federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no such loan shall be deemed to have been made and no
amount shall be payable by a Participant to the Corporation if and to the extent
such deemed loan and payment would not either reduce the amount on which the
Participant is subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the Accounting Firm, based
upon controlling precedent or substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Corporation to or for the benefit of the Participant together with interest at
the applicable federal rate provided for in Section 7872(f)(2) of the Code.
(iii) The Participant shall notify the Corporation in writing of any claim
by the Internal Revenue Service that, if successful, could require the payment
by the Corporation of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days after the Participant is
informed in writing of such claim and shall apprise the Corporation of the
nature of such claim and the date on which such claim is requested to be paid.
The Participant shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the Corporation (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Corporation notifies the Participant in writing
prior to the expiration of such period that it desires to contest such claim,
the Participant shall:
(A) give the Corporation any information reasonably requested by the
Corporation relating to such claim,
(B) take such action in connection with contesting such claim as
the Corporation shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Corporation,
(C) cooperate with the Corporation in good faith in order to contest such
claim effectively, and
(D) permit the Corporation to participate in any proceedings relating to
such claim;
provided, however, that the Corporation shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Participant
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 4.5(b), the Corporation shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Participant to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Participant
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Corporation shall determine; provided, however, that if the
Corporation directs the Participant to pay such claim and sue for a refund, the
Corporation shall advance the amount of such payment to the Participant, on an
interest-free basis and shall indemnify and hold the Participant harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Participant with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Corporation's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Participant shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(iv) If, after the receipt by the Participant of an amount advanced by the
Corporation pursuant to Section 4.5(b)(iii), the Participant becomes entitled to
receive any refund with respect to such claim, the Participant shall
(subject to the Corporation's complying with the requirements of Section
4.5(b)(iii)) promptly pay to the Corporation the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Participant of an amount advanced by the Corporation
pursuant to Section 4.5(b)(iii), a determination is made that the Participant
shall not be entitled to any refund with respect to such claim and the
Corporation does not notify the Participant in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of the Gross-Up Payment required to be paid.
(c) Definitions. The following terms shall have the following meanings for
- --- -----------
purposes of this Section 4.5.
(i) "Excise Tax" shall mean the excise tax imposed by Section 4999 of the
Code, together with any interest or penalties imposed with respect to such
excise tax.
(ii) The "Net After-Tax Amount" of a Payment shall mean the Value of a
Payment net of all taxes imposed on a Participant with respect thereto under
Sections 1 and 4999 of the Code and applicable state and local law, determined
by applying the highest marginal rates that are expected to apply to the
Participant's taxable income for the taxable year in which the Payment is made.
(iii) "Parachute Value" of a Payment shall mean the present value as of the
date of the Combination of the portion of such Payment that constitutes a
"parachute payment" under Section 280G(b)(2), as determined by the Accounting
Firm for purposes of determining whether and to what extent the Excise Tax will
apply to such Payment.
(iv) A "Payment" shall mean any payment or distribution in the nature of
compensation to or for the benefit of a Participant, whether paid or payable
pursuant to this Plan or otherwise.
(v) The "Safe Harbor Amount" means the maximum Parachute Value of all
Payments that a Participant can receive without any Payments being subject to
the Excise Tax.
(vi) A "Separation Payment" shall mean a Payment paid or payable pursuant to
this Plan (disregarding this Section 4.5).
(vii) "Value" of a Payment shall mean the economic present value of a
Payment as of the date of the Combination, as determined by the Accounting Firm
using the discount rate required by Section 280G(d)(4) of the Code.
ARTICLE V
PARTICIPATING EMPLOYERS
-----------------------
This Plan may be adopted by any Subsidiary of the Corporation. Upon such
adoption, the Subsidiary shall become an Employer hereunder and the provisions
of the Plan shall be fully applicable to the Employees of that Subsidiary who
are Participants pursuant to Section 3.1.
ARTICLE VI
SUCCESSOR TO CORPORATION
------------------------
This Plan shall bind any successor of the Corporation, its assets or its
businesses (whether direct or indirect, by purchase, merger, consolidation or
otherwise), in the same manner and to the same extent that the Corporation would
be obligated under this Plan if no succession had taken place.
In the case of any transaction in which a successor would not by the foregoing
provision or by operation of law be bound by this Plan, the Corporation shall
require such successor expressly and unconditionally to assume and agree to
perform the Corporation's obligations under this Plan, in the same manner and to
the same extent that the Corporation would be required to perform if no such
succession had taken place. The term "Corporation," as used in this Plan, shall
mean the Corporation as hereinbefore defined and any successor or assignee to
the business or assets which by reason hereof becomes bound by this Plan.
ARTICLE VII
DURATION, AMENDMENT AND TERMINATION
-----------------------------------
7.1 Duration. If the Combination has not occurred, this Plan shall expire
- --- --------
five years from the Effective Date, unless extended for an additional period or
periods by resolution adopted by the Board. If the Combination occurs, this
Plan shall continue in full force and effect and shall not terminate or expire
until after all Participants who become entitled to any payments hereunder shall
have received such payments in full and all payments and adjustments
required to be made pursuant to Section 4.5 have been made.
7.2 Amendment. Except as provided in Section 7.1, the Plan shall not be
- --- ---------
subject to amendment, change, substitution, deletion, revocation or termination
in any respect which adversely affects the rights of Participants; provided,
that this Plan may be amended if and to the extent necessary to permit the use
of the "pooling of interests" accounting method with respect to the Combination
(assuming that such accounting method is otherwise applicable to the
Combination).
7.3 Form of Amendment. The form of any amendment of the Plan shall be a
- --- -----------------
written instrument signed by a duly authorized officer or officers of the
Corporation, certifying that the amendment has been approved by the Board.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 Indemnification. If a Participant institutes any legal action in
- --- ---------------
seeking to obtain or enforce, or is required to defend in any legal action the
validity or enforceability of, any right or benefit provided by this Plan, the
Corporation or the Employer will pay for all reasonable legal fees and expenses
incurred (as incurred) by such Participant, regardless of the outcome of such
action.
8.2 Employment Status. This Plan does not constitute a contract of
- --- ------------------
employment or impose on the Participant or the Participant's Employer any
obligation to retain the Participant as an Employee, to change the status of the
Participant's employment, or to change the Corporation's policies or those of
its Subsidiaries regarding termination of employment.
8.3 Claim Procedure. If an Employee or former Employee makes a written
- --- ---------------
request alleging a right to receive benefits under this Plan or alleging a right
to receive an adjustment in benefits being paid under the Plan, the Corporation
shall treat it as a claim for benefit. All claims for benefit under the Plan
shall be sent to the Human Resources Department of the Corporation and must be
received within 30 days after termination of employment. If the Corporation
determines that any individual who has claimed a right to receive benefits, or
different benefits, under the Plan is not entitled to receive all or any part of
the benefits claimed, it will inform the claimant in writing of its
determination and the reasons therefor in terms calculated to be understood by
the claimant. The notice will be sent within 90 days of the claim unless the
Corporation determines additional time, not exceeding 90 days, is needed. The
notice shall make specific reference to the pertinent Plan provisions on which
the denial is based, and describe any additional material or information is
necessary. Such notice shall, in addition, inform the claimant what procedure
the claimant should follow to take advantage of the review procedures set forth
below in the event the claimant desires to contest the denial of the claim. The
claimant may within 90 days thereafter submit in writing to the Corporation a
notice that the claimant contests the denial of his or her claim by the
Corporation and desires a further review. The Corporation shall within 60 days
thereafter review the claim and authorize the claimant to appear personally and
review pertinent documents and submit issues and comments relating to the claim
to the persons responsible for making the determination on behalf of the
Corporation. The Corporation will render its final decision with specific
reasons therefor in writing and will transmit it to the claimant within 60 days
of the written request for review, unless the Corporation determines additional
time, not exceeding 60 days, is needed, and so notifies the Participant. If the
Corporation fails to respond to a claim filed in accordance with the foregoing
within 60 days or any such extended period, the Corporation shall be deemed to
have denied the claim.
8.4 Validity and Severability. The invalidity or unenforceability of any
- --- -------------------------
provision of the Plan shall not affect the validity or enforceability of any
other provision of the Plan, which shall remain in full force and effect, and
any prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
8.5 Governing Law. The validity, interpretation, construction and
- --- --------------
performance of the Plan shall in all respects be governed by the laws of
Minnesota, without reference to principles of conflict of law, except to the
extent pre-empted by federal law.
8.6 Withholding. The Corporation may withhold from any and all amounts
- --- -----------
payable under this Plan all federal, state, local and foreign taxes that may be
required to be withheld by applicable laws or regulations.
SCHEDULE I
PARTICIPANTS
NAME MULTIPLE
---- --------
David H. Peterson 2.5
Edward J. McIntyre 2.5
Paul E. Anders 2.5
Loren L. Taylor 2.5
Gary R. Johnson 2.5
Michael D. Wadley 2.5
John A. Noer 2.5
Keith H. Wietecki 2.5
Cyndi L. Lesher 2.5
Thomas A. Micheletti 2.5
Roger D. Sandeen 2.5
Jerome L. Larsen 2.5
Grady P. Butts 2.5
Paul E. Pender 2.5
John P. Moore, Jr. 2.5
David M. Sparby 2.5
EXHIBIT A
FORM OF RELEASE AGREEMENT
THIS AGREEMENT is entered into this ___ day of ________, 19___ by and
between Northern States Power Company (the "Company"), a Minnesota corporation,
and ________________ (the "Participant").
WHEREAS, the Participant has become entitled to receive Separation Benefits
under the NSP 1999 Senior Executive Severance Policy (the "Policy") on the
condition that the Participant enter into this Release Agreement; and
NOW, THEREFORE, in consideration of the Covenant Consideration, the
Participant, intending to be legally bound, agrees as follows:
1. ACKNOWLEDGMENT.
--------------
(a) The Participant understands and agrees that, in addition to the
Participant's below-described exposure to the Company's Confidential Information
or Trade Secrets, the Participant may, in his capacity as an employee, at times
meet with the Company's customers and suppliers, and that as a consequence of
using and associating with the Company's name, goodwill, and professional
reputation, the Participant will be in a position to develop personal and
professional relationships with the Company's past, current, and prospective
customers and suppliers. The Participant further acknowledges that during the
course and as a result of employment by the Company, the Participant may be
provided certain specialized training or know-how. The Participant understands
and agrees that this goodwill and reputation, as well as the Participant's
knowledge of Confidential Information or Trade Secrets and specialized training
and know-how, could be used unfairly in competition against the Company.
(b) Accordingly, the Participant agrees that during the period of one year
after the Date of Termination (the "Covenant Period"), the Participant shall
not:
(i) Directly or indirectly solicit, service, contract with, or
otherwise engage any past (one (1) year prior), existing or prospective
customer, client, or account who then has a relationship with the Company for
current or prospective business on behalf of an individual or entity that is
engaged in a Competing Business (as defined below), or on the Participant's own
behalf for a Competing Business; the term "Competing Business" meaning for
purposes of this clause (i) a business or enterprise that is engaged in the
business of generation, purchase, transmission, distribution, or sale of
electricity, or in the purchase, transmission, distribution, sale or
transportation of natural gas within the States of Colorado, Kansas, Minnesota,
New Mexico, North Dakota, Oklahoma, South Dakota, Texas, Wisconsin or Wyoming;
and the Participant and the Company agree that this provision is reasonably
enforced with reference to the foregoing states to the extent applicable to such
relationships with the Company;
(ii) Cause or attempt to cause any existing or prospective customer, client,
or account, who then has a relationship with the Company for current or
prospective business, to divert, terminate, limit or in any manner modify, or
fail to enter into any actual or potential business relationship with the
Company; and the Participant and the Company agree that this clause (ii) is
reasonably enforced with reference to any geographic area applicable to such
relationships with the Company; and
(iii) Directly or indirectly solicit, employ or conspire with others to
employ any of the Company's employees; the term "employ" for purposes of this
clause (iii) meaning to enter into an arrangement for services as a full-time or
part-time employee, independent contractor, consultant, agent or otherwise; and
the Participant and the Company agree that this clause (iii) is reasonably
enforced as to any geographic area.
(c) The Participant further agrees to inform any new employer or other
person or entity with whom the Participant enters into a business relationship
during the Covenant Period, before accepting such employment or entering into
such a business relationship, of the existence of this Agreement and give such
employer, person or other entity a copy of this Agreement.
2. RETURN OF PROPERTY. The Participant agrees that upon the Date of
--------------------
Termination, the originals and all copies of any and all documents (including
computer data, diskettes, programs, or printouts) that contain any customer
information, financial information, product information, or other information
that in any way relates to the Company, its products or services, its clients,
its suppliers, or other aspects of its business that are in the Participant's
possession shall be immediately returned to the Company. The Participant
further agrees to not retain any summary of such information.
3. CONFIDENTIAL INFORMATION/TRADE SECRETS.
----------------------------------------
(a) The Participant acknowledges that during the course and as a result of
his or her employment, the Participant may receive or otherwise have access to,
or contribute to the production of, Confidential Information or Trade Secrets.
"Confidential Information or Trade Secrets" means information that is
proprietary to or in the unique knowledge of the Company (including information
discovered or developed in whole or in part by the Participant); the Company's
business methods and practices; or information that derives independent economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use, and is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy. It includes, among
other things, strategies, procedures, manuals, confidential reports, lists of
clients, customers, suppliers, past, current or possible future products or
services, and information concerning research, development, accounting,
marketing, selling or leases and the prices or charges paid by the Company's
customers to the Company, or by the Company to its suppliers. The Participant
acknowledges his continuing agreement to abide by the terms of the NSP Code of
Conduct.
(b) The Participant further acknowledges and appreciates that any
Confidential Information or Trade Secret constitutes a valuable asset of the
Company and that the Company intends any such information to remain secret and
confidential. The Participant therefore specifically agrees that except to the
extent required by the Participant's duties to the Company or as permitted by
the express written consent of the Board of Directors, the Participant shall
never, either during employment with the Company or at any time thereafter,
directly or indirectly use, discuss or disclose any Confidential Information or
Trade Secrets of the Company or otherwise use such information to his or her own
or a third party's benefit.
4. CONSIDERATION. The Participant and the Company agree that the above
-------------
provisions of this Agreement are reasonable and necessary for the protection of
the Company and its business. In exchange for the Participant's agreement to be
bound by the terms of this Agreement, the Company has provided the Participant
the Separation Benefits under the Policy. The Participant accepts and
acknowledges the adequacy of such consideration for this Agreement.
5. REMEDIES FOR BREACH. The Participant acknowledges that a breach of the
-------------------
above provisions of this Agreement will cause the Company irreparable harm that
would not be fully remedied by monetary damages. Accordingly, the Participant
agrees that the Company shall, in addition to the requirement to return the
Covenant Consideration to the Company and any relief afforded by law, be
entitled to injunctive relief. The Participant agrees that both damages at law
and injunctive relief shall be proper modes of relief and are not to be
considered alternative remedies.
6. RELEASE.
-------
(a) In consideration of the Separation Benefits, the Participant does
hereby fully and completely release and waive any and all claims, complaints,
causes of action or demands of whatever kind which the Participant has or may
have against the Company and its predecessors, successors, subsidiaries and
affiliates and all officers, employees and agents of those persons and companies
arising out of any actions, conduct, decisions, behavior or events occurring to
the date of his or her execution of this Release of which the Participant is or
has been made aware or has been reasonably put on notice.
(b) The Participant understands and accepts that this release specifically
covers but is not limited to any and all claims, complaints, causes of action or
demands of whatever kind which the Participant has or may have against the
above-referenced released parties relating in any way to the terms, conditions
and circumstances of his or her employment to date, whether based on statutory,
regulatory or common law claims for employment discrimination, including but not
limited to race, color, sex, age or reprisal discrimination, arising under the
Federal Civil Rights Act of 1964, as amended, Executive Order 11246, the Age
Discrimination in Employment Act, as amended, the Minnesota Human Rights Act or
any other administrative order, federal or state statute or local ordinance,
wrongful discharge, breach of contract, breach of any express or implied
promise, misrepresentation, fraud, reprisal, retaliation, breach of public
policy, infliction of emotional distress, defamation, promissory estoppel,
invasion of privacy, negligence, or any other theory, whether legal or
equitable; except that this release will not impair any existing rights the
Participant may have under any presently existing pension, retirement or
employee benefit plan of the Company.
(c) By signing below, the Participant acknowledges that he or she fully
understands and accepts the terms of this release, and represents and agrees
that his or her signature is freely, voluntarily and knowingly given and that he
or she has been provided a full opportunity to review and reflect on the terms
of this release for at least [21] [45] days and to seek the advice of legal
counsel of his or her choice, which advice the Participant has been encouraged
to obtain.
7. THE PARTICIPANT'S ACKNOWLEDGMENT OF REVIEW; RIGHT TO REVOKE.
------------------------------------------------------------------
(a) The Participant represents that the Participant has carefully read
and fully understands all provisions of this Agreement and that the Participant
has had a full opportunity to review this Agreement before signing and to have
all the terms of this Agreement explained to him or her by counsel.
(b) This Agreement may be revoked by the Participant by written notice given
to [INSERT ADDRESS] within 15 business days after being signed by the
Participant.
8. GENERAL PROVISIONS. The Participant and the Company acknowledge and
------------------
agree as follows:
(a) This Agreement contains the entire understanding of the parties with
regard to all matters contained herein. There are no other agreements,
conditions, or representations, oral or written, express or implied, with regard
to such matters;
(b) This Agreement may be amended or modified only by a writing signed by
both parties;
(c) Waiver by either the Company or the Participant of a breach of any
provision, term or condition hereof shall not be deemed or construed as a
further or continuing waiver thereof or a waiver of any breach of any other
provision, term or condition of this Agreement;
(d) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns. 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, "the Company" shall mean
the Company and its affiliates or assigns and any such successor that assumes
and agrees to perform this Agreement, by operation of law or otherwise. No
assignment of this Agreement shall be made by the Participant, and any purported
assignment shall be null and void;
(e) If any court finds any provision or part of this Agreement to be
unreasonable, in whole or in part, such provision shall be deemed and construed
to be reduced to the maximum duration, scope or subject matter allowable under
applicable law. Any invalidation of any provision or part of this Agreement
will not invalidate any other part of this Agreement;
(f) This Agreement will be construed and enforced in accordance with the
laws and legal principles of the State of Minnesota. The Participant consents
to the jurisdiction of the Minnesota courts for the enforcement of this
Agreement; and
(g) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
THIS AGREEMENT IS INTENDED TO BE A LEGALLY BINDING DOCUMENT FULLY ENFORCEABLE IN
ACCORDANCE WITH ITS TERMS. IF IN DOUBT, SEEK COMPETENT LEGAL ADVICE BEFORE
SIGNING.
_________________________________________________ ________________________
(The Participant) Date
NORTHERN STATES POWER COMPANY
By_______________________________________________ ________________________
Date
Its_________________________________________
The Participant acknowledges that he or she has received a copy of this
Agreement.
Exhibit 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report on New Century Energies, Inc. dated February 23,
1999, included in the New Century Energies, Inc. Combined Annual Report on Form
10-K as of December 31, 1998, into Northern States Power Company Registration
Statement No. 333-000415 on Form S-3 (relating to the Northern States Power
Company Dividend Reinvestment and Stock Purchase Plan), Registration Statement
No. 2-61264 on Form S-8 (relating to the Northern States Power Company Employee
Stock Ownership Plan), Registration Statement No. 33-38700 on Form S-8 (relating
to the Northern States Power Company Long-Term Incentive Award Stock Plan),
Registration Statement No. 333-63243 on Form S-3 (relating to the Northern
States Power Company $300,000,000 Principal Amount of First Mortgage Bonds) and
Registration Statement No. 333-67675 on Form S-3 (relating to Northern States
Power Company $400,000,000 Principal Amount of Debt Securities).
/s/
ARTHUR ANDERSEN LLP
Denver, Colorado
May 13, 1999
Exhibit 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
Northern States Power Company
We are aware that Northern States Power Company has incorporated by
reference in its Registration Statement No. 333-000415 on Form S-3 (relating to
the Northern States Power Company Dividend Reinvestment and Stock Purchase
Plan), Registration Statement No. 2-61264 on Form S-8 (relating to the Northern
States Power Company Employee Stock Ownership Plan), Registration Statement No.
33-38700 on Form S-8 (relating to the Northern States Power Company Long-Term
Incentive Award Stock Plan), Registration Statement No. 33-63243 on Form S-3
(relating to the Northern States Power Company $300,000,000 Principal Amount of
First Mortgage Bonds) and Registration Statement No. 333-67675 on Form S-3
(relating to Northern States Power Company $400,000,000 Principal Amount of Debt
Securities), the New Century Energies, Inc. Form 10-Q for the quarter ended
March 31, 1999, which includes our report dated May 13, 1999, covering the
unaudited interim financial information of New Century Energies, Inc. contained
therein. Pursuant to Regulation C of the Securities Act of 1933, that report is
not considered a part of the registration statements prepared or certified by
our Firm or a report prepared or certified by our Firm within the meaning of
Sections 7 and 11 of the Act.
Very truly yours,
/s/
ARTHUR ANDERSEN LLP
Denver, Colorado
May 13, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,382,141
<OTHER-PROPERTY-AND-INVEST> 1,617,052
<TOTAL-CURRENT-ASSETS> 694,019
<TOTAL-DEFERRED-CHARGES> 311,694
<OTHER-ASSETS> 374,472
<TOTAL-ASSETS> 7,379,377
<COMMON> 382,985
<CAPITAL-SURPLUS-PAID-IN> 785,988
<RETAINED-EARNINGS> 1,429,410
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,496,156<F1>
200,000
105,340
<LONG-TERM-DEBT-NET> 1,844,071
<SHORT-TERM-NOTES> 32,632
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 337,000
<LONG-TERM-DEBT-CURRENT-PORT> 168,731
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,093,220<F1>
<TOT-CAPITALIZATION-AND-LIAB> 7,379,377
<GROSS-OPERATING-REVENUE> 743,183
<INCOME-TAX-EXPENSE> 20,146<F2>
<OTHER-OPERATING-EXPENSES> 619,241
<TOTAL-OPERATING-EXPENSES> 655,529
<OPERATING-INCOME-LOSS> 87,654
<OTHER-INCOME-NET> (13,127)<F3>
<INCOME-BEFORE-INTEREST-EXPEN> 94,607
<TOTAL-INTEREST-EXPENSE> 38,348
<NET-INCOME> 52,321
1,060
<EARNINGS-AVAILABLE-FOR-COMM> 51,261
<COMMON-STOCK-DIVIDENDS> 54,547
<TOTAL-INTEREST-ON-BONDS> 32,438
<CASH-FLOW-OPERATIONS> 261,578
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
<FN>
<F1>($102,227) thousand of Common Stockholders' Equity is classified as Other
Items-Capitalization and Liabilities. This represents the net of leveraged
common stock held by the Employee Stock Ownership Plan and the currency
translation adjustments.
<F2>($16,142) thousand of nonregulated and nonoperating income tax benefit is
classified as Income Tax Expense. The financial statement presentation
includes them as a component of Other Income (Expense).
<F3>Includes Income from Nonregulated Businesses - Before Interest and Taxes,
Allowance for Funds Used During Construction-Equity, Other Utility Income
(Deductions)-Net and Distributions on redeemable preferred securities of
subsidiary trust.
</FN>
</TABLE>
EXHIBIT 99.01
- --------------
Northern States Power Company Cautionary Factors
The Private Securities Litigation Reform Act of 1995 (the Act) provides a
new "safe harbor" for forward-looking statements to encourage such disclosures
without the threat of litigation providing those statements are identified as
forward-looking and are accompanied by meaningful, cautionary statements
identifying important factors that could cause the actual results to differ
materially from those projected in the statement. Forward-looking statements
have been and will be made in written documents and oral presentations of
Northern States Power Company (NSP). Such statements are based on management's
beliefs as well as assumptions made by and information currently available to
management. When used in NSP's documents or oral presentations, the words
"anticipate", "estimate", "expect", "objective", "possible", "potential" and
similar expressions are intended to identify forward-looking statements. In
addition to any assumptions and other factors referred to specifically in
connection with such forward-looking statements, factors that could cause NSP's
actual results to differ materially from those contemplated in any
forward-looking statements include, among others, the following:
- - Economic conditions, including inflation rates and monetary fluctuations;
- - Trade, monetary, fiscal, taxation and environmental policies of
governments, agencies and similar organizations in geographic areas where NSP
has a financial interest;
- - Customer business conditions, including demand for their products or
services and supply of labor and materials used in creating their products and
services;
- - Financial or regulatory accounting principles or policies imposed by the
Financial Accounting Standards Board, the Securities and Exchange Commission,
the Federal Energy Regulatory Commission and similar entities with regulatory
oversight;
- - Availability or cost of capital such as changes in: interest rates; market
perceptions of the utility industry, NSP or any of its subsidiaries; or security
ratings;
- - Factors affecting utility and nonutility operations such as unusual
weather conditions; catastrophic weather-related damage; unscheduled generation
outages, maintenance or repairs; unanticipated changes to fossil fuel, nuclear
fuel or gas supply costs or availability due to higher demand, shortages,
transportation problems or other developments; nuclear or environmental
incidents; or electric transmission or gas pipeline system constraints;
- - Employee workforce factors, including loss or retirement of key
executives, collective bargaining agreements with union employees, or work
stoppages;
- - Increased competition in the utility industry, including: industry
restructuring initiatives; transmission system operation and/or administration
initiatives; recovery of investments made under traditional regulation; nature
of competitors entering the industry; retail wheeling; a new pricing structure;
and former customers entering the generation market;
- - Rate-setting policies or procedures of regulatory entities, including
environmental externalities, which are values established by regulators
assigning environmental costs to each method of electricity generation when
evaluating generation resource options;
- - Nuclear regulatory policies and procedures, including operating
regulations and spent nuclear fuel storage;
- - Social attitudes regarding the utility and power industries;
- - Cost and other effects of legal and administrative proceedings,
settlements, investigations and claims;
- - Technological developments that result in competitive disadvantages and
create the potential for impairment of existing assets;
- - Factors associated with nonregulated investments, including conditions of
final legal closing, foreign government actions, foreign economic and currency
risks, political instability in foreign countries, partnership actions,
competition, operating risks, dependence on certain suppliers and customers,
domestic and foreign environmental and energy regulations;
- - Most of the current project investments made by NSP's subsidiary NRG
Energy, Inc. (NRG) consist of minority interests, and a substantial portion of
future investments may take the form of minority interests, which limits NRG's
ability to control the development or operation of the project;
- - regulatory delays or conditions imposed by regulatory agencies in
approving the proposed merger with NCE;
- - Factors associated with Y2k compliance that might cause material
differences from the expectations disclosed include, but are not limited to, the
availability of key Y2K personnel, NSP's ability to locate and correct all
relevant computer codes, the readiness of third parties, and NSP's ability to
respond to unforeseen Y2K complications. Such material differences could result
in, among other things, business disruptions, operational problems, financial
loss, legal liability and similar risks;
- - Other business or investment considerations that may be disclosed from
time to time in NSP's Securities and Exchange Commission filings or in other
publicly disseminated written documents.
NSP undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The foregoing review of factors pursuant to the Act should not be construed as
exhaustive or as any admission regarding the adequacy of disclosures made by the
Company prior to the effective date of the act.
Exhibit 99.02
<TABLE>
<CAPTION>
New Co.
Unaudited Pro Forma Combined Condensed Statements of Income
Quarter Ended March 31, 1999
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
(Note 2)
NSP NCE Reporting Pro Forma Pro Forma
(as Reported) (as Reported) Adjustments Adjustments Combined
Operating Revenues
Electric $556,856 $628,706 ($14,011) $0 $1,171,551
Gas 186,327 347,688 (88,304) 0 445,711
Nonregulated and Other Revenue 0 15,029 164,750 0 179,779
Earnings From Equity Investments 0 0 23,842 0 23,842
Total Operating Revenues 743,183 991,423 86,277 0 1,820,883
Operating Expenses
Electric Fuel and Purchased Power 168,028 295,269 (13,627) 0 449,670
Cost of Gas Sold and Transported 112,178 261,631 (83,495) 0 290,314
Other Operation and Maintenance 193,918 150,109 (20,683) 0 323,344
Depreciation and Amortization 87,485 69,502 (2,124) 0 154,863
Taxes Other than Income Taxes 57,632 37,620 (592) 0 94,660
Income Taxes - Utility 36,288 0 (36,288) 0 0
Nonregulated Operating Expenses 0 0 199,147 0 199,147
Total Operating Expenses 655,529 814,131 42,338 0 1,511,998
Operating Income 87,654 177,292 43,939 0 308,885
Other Income (Expense)
Income from Nonregulated Businesses
Before Interest and Taxes (7,353) 0 7,353 0 0
Equity Earnings From Unconsolidated
Subsidiaries 0 15,811 (15,811) 0 0
Other Income (Deductions) - net (1,836) (3,542) 807 0 (4,571)
Income Taxes on Nonregulated &
Nonoperating Items 16,142 0 (16,142) 0 0
Total Other Income (Expense) 6,953 12,269 (23,793) 0 (4,571)
Financing Costs
Interest Charges 38,348 45,383 0 0 83,731
Distributions on Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts 3,938 5,763 0 0 9,701
Dividends & Redemption Premiums on Preferred
Stock of Subsidiaries 0 0 0 0 0
Total Financing Costs 42,286 51,146 0 0 93,432
Income before Income Taxes 52,321 138,415 20,146 0 210,882
Income Taxes 0 37,115 20,146 0 57,261
Net Income 52,321 101,300 0 0 153,621
Preferred Stock Dividends & Redemption Premiums
of NSP 1,060 0 0 0 1,060
Earnings Available for Common Shareholders $51,261 $101,300 $0 $0 $152,561
Average Common Shares Outstanding (Note 1) 152,392 114,681 0 63,075 330,148
Average Common and Potentially Diluted Shares
Outstanding (Note 1) 152,553 114,743 0 63,109 330,405
Earnings Per Share - Basic $0.34 $0.88 $0.46
Earnings Per Share - Diluted $0.34 $0.88 $0.46
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements
</TABLE>
<PAGE>
Exhibit 99.02
<TABLE>
<CAPTION>
New Co.
Unaudited Pro Forma Combined Condensed Statements of Income
Quarter Ended March 31, 1998
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
(Note 2)
NSP NCE Reporting Pro Forma Pro Forma
(as Reported) (as Reported) Adjustments Adjustments Combined
Operating Revenues
Electric $521,571 $599,988 ($15,364) $0 $1,106,195
Gas 179,831 319,707 (48,476) 0 451,062
Nonregulated and Other Revenue 0 19,809 106,463 0 126,272
Earnings From Equity Investments 0 0 19,080 0 19,080
Total Operating Revenues 701,402 939,504 61,703 0 1,702,609
Operating Expenses
Electric Fuel and Purchased Power 148,162 289,783 (15,142) 0 422,803
Cost of Gas Sold and Transported 113,582 224,912 (43,348) 0 295,146
Other Operation and Maintenance 189,990 147,681 (18,076) 0 319,595
Depreciation and Amortization 84,100 62,418 (1,466) 0 145,052
Taxes Other than Income Taxes 55,960 32,873 (595) 0 88,238
Income Taxes - Utility 30,558 0 (30,558) 0 0
Nonregulated Operating Expenses 0 0 131,413 0 131,413
Total Operating Expenses 622,352 757,667 22,228 0 1,402,247
Operating Income 79,050 181,837 39,475 0 300,362
Other Income (Expense)
Income from Nonregulated Businesses Before
Interest and Taxes 4,380 0 (4,380) 0 0
Equity Earnings From Unconsolidated
Subsidiaries 0 3,752 (3,752) 0 0
Other Income (Deductions) - net 2,450 (2,968) (785) 0 (1,303)
Income Taxes on Nonregulated & Nonoperating
Items 14,026 0 (14,026) 0 0
Total Other Income (Expense) 20,856 784 (22,943) 0 (1,303)
Financing Costs
Interest Charges 38,851 44,461 0 0 83,312
Distributions on Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts 3,938 1,963 0 0 5,901
Dividends & Redemption Premiums on Preferred
Stock of Subsidiaries 0 2,929 0 0 2,929
Total Financing Costs 42,789 49,353 0 0 92,142
Income before Income Taxes 57,117 133,268 16,532 0 206,917
Income Taxes 0 47,119 16,532 0 63,651
Net Income 57,117 86,149 0 0 143,266
Preferred Stock Dividends & Redemption
Premiums of NSP 2,367 0 0 0 2,367
Earnings Available for Common Shareholders $54,750 $86,149 $0 $0 $140,899
Average Common Shares Outstanding (Note 1) 149,214 110,973 0 61,035 321,222
Average Common and Potentially Diluted
Shares Outstanding (Note 1) 149,467 111,134 0 61,124 321,725
Earnings Per Share - Basic $0.37 $0.78 $0.44
Earnings Per Share - Diluted $0.37 $0.78 $0.44
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements
</TABLE>
<PAGE>
Exhibit 99.02
<TABLE>
<CAPTION>
New Co.
Unaudited Pro Forma Combined Condensed Balance Sheets
March 31, 1999
(In thousands)
<S> <C> <C> <C> <C> <C>
NSP NCE Reporting Pro Forma Pro Forma
(as Reported) (as Reported) Adjustments Adjustments
Combined
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Electric (Note 3) $7,258,627 $7,116,116 ($121,849) $0 $14,252,894
Gas (Note 3) 885,730 1,220,178 (7,709) 0 2,098,199
Other (Note 3) 370,401 1,003,126 542,316 0 1,915,843
Total Property, Plant and Equipment 8,514,758 9,339,420 412,758 0 18,266,936
Accumulated Provision for Depreciation (Note 3) (4,236,127) (3,410,190) (127,511) 0 (7,773,828)
Nuclear Fuel - Net 103,510 0 0 0 103,510
Net Property, Plant and Equipment 4,382,141 5,929,230 285,247 0 10,596,618
CURRENT ASSETS
Cash and Cash Equivalents 58,280 84,817 0 0 143,097
Accounts Receivable - Net 326,174 323,767 0 0 649,941
Accrued Unbilled Utility Revenues 102,585 113,400 0 0 215,985
Fuel and Gas Inventories 45,306 58,869 0 0 104,175
Material and Supplies Inventories 112,455 70,552 0 0 183,007
Prepayments and Other 49,219 105,822 0 0 155,041
Total Current Assets 694,019 757,227 0 0 1,451,246
OTHER ASSETS
Equity Investments 874,414 347,911 0 0 1,222,325
External Decommissioning Fund and Other
Investments 503,400 71,152 0 0 574,552
Regulatory Assets 311,694 375,476 0 0 687,170
Nonregulated Property - Net (Note 3) 285,247 0 (285,247) 0 0
Other 328,462 213,396 0 0 541,858
Total Other Assets 2,303,217 1,007,935 (285,247) 0 3,025,905
TOTAL ASSETS $7,379,377 $7,694,392 $0 $0 $15,073,769
LIABILITIES AND EQUITY
CAPITALIZATION
Common Stock (Note 1) $382,985 $114,925 0 330,409 $828,319
Other Stockholder's Equity (Note 1) 2,113,171 2,541,922 0 (330,409) 4,324,684
Total Common Stockholder's Equity 2,496,156 2,656,847 0 0 5,153,003
Preferred Stockholder's Equity 105,340 0 0 0 105,340
Mandatorily Redeemable Preferred Securities
of Subsidiary Trusts 200,000 294,000 0 0 494,000
Long-Term Debt 1,844,071 2,304,985 0 0 4,149,056
Total Capitalization 4,645,567 5,255,832 0 0 9,901,399
CURRENT LIABILITIES
Current Portion of Long-Term Debt 168,731 124,477 0 0 293,208
Short-Term Debt 369,632 408,900 0 0 778,532
Accounts Payable 256,839 255,555 0 0 512,394
Taxes Accrued 226,497 133,954 0 0 360,451
Other Accrued Liabilites 166,364 284,176 0 0 450,540
Total Current Liabilities 1,188,063 1,207,062 0 0 2,395,125
OTHER LIABILITIES
Deferred Income Taxes 814,355 954,295 0 0 1,768,650
Deferred Investment Tax Credits 125,993 99,650 0 0 225,643
Regulatory Liabilities 392,285 0 0 0 392,285
Other Liabilities and Deferred Credits 213,114 177,553 0 0 390,667
Total Other Liabilities 1,545,747 1,231,498 0 0 2,777,245
TOTAL EQUITY AND LIABILITIES $7,379,377 $7,694,392 $0 $0 $15,073,769
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
</TABLE>
<PAGE>
EXHIBIT 99.02
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NEW CO.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. The unaudited pro forma combined condensed financial statements reflect
the conversion of each NCE Share into 1.55 shares of common stock of the
combined company and the continuation of each NSP Common Share outstanding as
one share of common stock of the combined company ($2.50 par value), as provided
in the merger agreement. The unaudited pro forma combined condensed financial
statements are presented as if the companies were combined during all periods
included therein.
2. The unaudited pro forma combined condensed income statements reflect
certain reclassifications to conform the presentation of operating results.
These reporting adjustments include: (a) separate presentation of nonregulated
revenues and equity earnings in Operating Revenues; (b) separate presentation of
all nonregulated expenses, including project write-downs, in Operating Expenses;
(c) presentation of nonregulated interest and other income, including gains from
project sales, in Other Income (Deductions) - Net; and (d) presentation of all
income taxes (regulated and nonregulated) on a single line before arriving at
Net Income.
3. The unaudited pro forma combined condensed balance sheet reflects
reporting adjustments to conform the presentation of: (a) investments and
deferred charges (in Other Assets); and (b) nonregulated property (in Property,
Plant and Equipment) and (c) construction work in progress (in Other Property,
Plant and Equipment).
4. The allocation of the estimated cost savings resulting from the merger to
NSP, NCE and their customers, net of the costs incurred to achieve such savings,
will be subject to regulatory review and approval. At the time the merger
agreement was signed, cost savings resulting from the Merger were estimated to
be approximately $1.1 billion over a ten-year period, net of transaction costs
(including fees for financial advisors, attorneys, accountants, filings and
printing) and net of costs to achieve the savings. None of the estimated cost
savings, the costs to achieve such savings, or the transaction costs have been
reflected as pro forma adjustments in the unaudited pro forma combined condensed
financial statements. Nonrecurring costs directly attributable to the merger
are expected to be deferred and amortized to expense in periods subsequent to
the consummation of the merger consistent with the anticipated recovery in
rates. Accordingly, no pro forma adjustments have been made to retained
earnings.
5. Intercompany transactions (including purchased and exchanged power
transactions) between NSP and NCE during the periods presented were not material
and, accordingly, no pro forma adjustments were made to eliminate such
transactions.
Exhibit 99.03
<TABLE>
<CAPTION>
New NSP (Utility Sub)
Unaudited Pro Forma Condensed Income Statement
Quarter Ended March 31, 1999
(In thousands)
<S> <C> <C> <C> <C>
NSP See Pro Forma Pro Forma
(As Reported) Notes Adjustments New NSP
Utility Operating Revenues
Electric $556,856 2,4 ($34,509) $522,347
Gas 186,327 2,4 (41,776) 144,551
Total 743,183 (76,285) 666,898
Utility Operating Expenses
Electric Production-Fuel and Purchased Power 168,028 2,4 9,723 177,751
Cost of Gas Purchased and Transported 112,178 2,4 (22,013) 90,165
Other Operation and Maintenance 193,918 2,4 (16,263) 177,655
Depreciation and Amortization 87,485 2 (11,113) 76,372
Property and General Taxes 57,632 2 (4,451) 53,181
Income Taxes 36,288 2 (10,696) 25,592
Total 655,529 (54,813) 600,716
Utility Operating Income 87,654 (21,472) 66,182
Other Income (Expense)
Income from Nonregulated Businesses
- Before Interest & Taxes (7,353) 2,3 8,179 826
Other Utility Income (Deductions) (1,836) 2,3 717 (1,119)
Income Taxes on Nonregulated
Operations & Nonoperating Items 16,142 2,3 (17,498) (1,356)
Total 6,953 (8,602) (1,649)
Income Before Financing Costs 94,607 (30,074) 64,533
Financing Costs
Total Interest Charges 38,348 2,3 (13,499) 24,849
Distributions on Redeemable Preferred
Securities of Subsidiary Trust 3,938 2,3 (3,938) 0
Total 42,286 (17,437) 24,849
Net Income 52,321 (12,637) 39,684
Preferred Stock Dividends & Redemption Premiums 1,060 2,3 (1,060) 0
Earnings Available for Common Stock $51,261 ($11,577) $39,684
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
</TABLE>
<PAGE>
Exhibit 99.03
<TABLE>
<CAPTION>
New NSP (Utility Sub)
Unaudited Pro Forma Condensed Income Statement
Quarter Ended March 31, 1998
(In thousands)
<S> <C> <C> <C> <C>
NSP See Pro Forma Pro Forma
(As Reported) Notes Adjustments New NSP
Utility Operating Revenues
Electric $521,571 2,4 ($29,131) $492,440
Gas 179,831 2,4 (36,155) 143,676
Total 701,402 (65,286) 636,116
Utility Operating Expenses
Electric Production-Fuel and Purchased Power 148,162 2,4 8,567 156,729
Cost of Gas Purchased and Transported 113,582 2,4 (19,146) 94,436
Other Operation and Maintenance 189,990 2,4 (14,738) 175,252
Depreciation and Amortization 84,100 2 (9,999) 74,101
Property and General Taxes 55,960 2 (4,405) 51,555
Income Taxes 30,558 2 (7,591) 22,967
Total 622,352 (47,312) 575,040
Utility Operating Income 79,050 (17,974) 61,076
Other Income (Expense)
Income from Nonregulated Businesses
- Before Interest & Taxes 4,380 2,3 (3,650) 730
Other Utility Income (Deductions) 2,450 2,3 790 3,240
Income Taxes on Nonregulated
Operations & Nonoperating Items 14,026 2,3 (13,079) 947
Total 20,856 (15,939) 4,917
Income Before Financing Costs 99,906 (33,913) 65,993
Financing Costs
Total Interest Charges 38,851 2,3 (13,507) 25,344
Distributions on Redeemable Preferred
Securities of Subsidiary Trust 3,938 2,3 (3,938) 0
Total 42,789 (17,445) 25,344
Net Income 57,117 (16,468) 40,649
Preferred Stock Dividends & Redemption Premiums 2,367 2,3 (2,367) 0
Earnings Available for Common Stock $54,750 ($14,101) $40,649
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
</TABLE>
<PAGE>
Exhibit 99.03
<TABLE>
<CAPTION>
New NSP (Utility Sub)
Unaudited Pro Forma Condensed Balance Sheet
March 31, 1999
(In thousands)
<S> <C> <C> <C> <C>
NSP See Pro Forma Pro Forma
(As Reported) Notes Adjustments New NSP
ASSETS
UTILITY PLANT
Electric $7,258,627 2 ($979,733) $6,278,894
Gas 885,730 2 (282,937) 602,793
Other 370,401 2 (82,496) 287,905
Total 8,514,758 (1,345,166) 7,169,592
Accumulated Provision for Depreciation (4,236,127) 2 554,180 (3,681,947)
Nuclear Fuel - Net 103,510 0 103,510
Net Utility Plant 4,382,141 (790,986) 3,591,155
CURRENT ASSETS
Cash and Cash Equivalents 58,280 2 (38,923) 19,357
Accounts Receivable - Net 326,174 2,3,4 (80,757) 245,417
Accrued Unbilled Utility Revenues 102,585 2 (14,033) 88,552
Fossil Fuel Inventories 45,306 2 (7,189) 38,117
Material and Supplies Inventories 112,455 2 (13,791) 98,664
Prepayments and Other 49,219 2 (18,643) 30,576
Total Current Assets 694,019 (173,336) 520,683
OTHER ASSETS
Equity Investments in Nonregulated Projects 874,414 2,3 (874,414) 0
External Decommissioning Fund and Other Investments 503,400 0 503,400
Regulatory Assets 311,694 2 (42,912) 268,782
Nonregulated Property - Net 285,247 2,3 (264,363) 20,884
Intangible Assets and Other 328,462 2 (244,789) 83,673
Total Other Assets 2,303,217 (1,426,478) 876,739
TOTAL ASSETS $7,379,377 ($2,390,800) $4,988,577
LIABILITIES AND EQUITY
CAPITALIZATION
Common Stockholder's Equity $2,496,156 1,2 ($1,064,931) $1,431,225
Preferred Stockholder's Equity 105,340 2,3 (105,340) 0
Mandatorily Redeemable Preferred Securities of Subsidiary Trust 200,000 2,3 (200,000) 0
Long-Term Debt 1,844,071 2,3 (608,857) 1,235,214
Total Capitalization 4,645,567 (1,979,128) 2,666,439
CURRENT LIABILITIES
Current Portion of Long-Term Debt 168,731 2,3 (23,431) 145,300
Short-Term Debt 369,632 2,3 (66,360) 303,272
Accounts Payable 256,839 2,4 (34,626) 222,213
Taxes Accrued 226,497 2 (5,673) 220,824
Other Accrued Liabilities 166,364 2 (39,004) 127,360
Total Current Liabilities 1,188,063 (169,094) 1,018,969
OTHER LIABILITIES
Deferred Income Taxes 814,355 2 (138,528) 675,827
Deferred Investment Tax Credits 125,993 2 (19,299) 106,694
Regulatory Liabilities 392,285 2 (21,642) 370,643
Other Long-Term Obligations and Deferred Income 213,114 2 (63,109) 150,005
Total Other Liabilities 1,545,747 (242,578) 1,303,169
TOTAL LIABILITIES AND EQUITY $7,379,377 ($2,390,800) $4,988,577
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
</TABLE>
EXHIBIT 99.03
- --------------
NEW NSP UTILITY SUB
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
1. Just before or at the time the merger is completed, NSP will contribute
all of its utility assets (other than investments in and assets of subsidiaries)
to a newly formed, wholly owned utility operating subsidiary, New NSP Utility
Sub, which will be a Minnesota corporation. At the same time, the new
subsidiary will assume all of NSP's liabilities associated with the assets that
it receives in the contribution. NSP's preferred stock and trust-originated
preferred securities will remain in the holding company New Co.
Common stock of New NSP Utility Sub, at a par value and share level which have
not yet been determined, will be wholly owned by the holding company New Co.
The resulting New NSP Utility Sub capitalization will therefore include
short-term debt, first mortgage bonds and other long-term debt associated with
utility operations, and common equity issued to the holding company New Co. (net
of adjustments described in Note 2).
2. The assets, liabilities, equity and results of operations of all
subsidiaries of NSP have been eliminated from consolidated NSP amounts to
reflect the transfer of ownership and control of such subsidiaries to the
holding company New Co. as a result of the merger. New Co.'s equity investment
in New NSP Utility Sub, and the corresponding common equity of New NSP Utility
Sub, are assumed to reflect the reduction in New NSP Utility Sub net assets
related to the transfer of ownership of investments in NSP subsidiaries to the
holding company New Co. as a result of the merger.
3. NSP financing of subsidiary capital and cash flow requirements has been
adjusted to reflect the transfer of such items to the holding company New Co.,
except for immaterial financing of refuse-derived fuel operations previously
transferred to NRG Energy, Inc. Pro forma adjustments reflect the elimination
of (a) notes receivable and advances from subsidiaries; (b) NSP debt incurred to
finance the notes and advances; (c) interest income earned on the notes and
advances; and (d) interest expense accrued on the debt incurred to finance the
notes and advances.
4. After the merger, NSP-Minnesota will not retain ownership of subsidiaries
currently being consolidated. Consequently, intercompany transactions between
NSP and its current subsidiaries have not been eliminated in the pro forma
financial statements.
The most significant intercompany transactions are power sales to and purchases
from the Wisconsin Company pursuant to an interchange agreement with NSP.
Although the interchange pricing and cost sharing arrangements may be
restructured as a result of the merger, at this time the amount of any changes
to interchange power purchases or sales is expected to be immaterial.
Consequently, no pro forma adjustments have been made to operating revenues,
operating expenses, or accounts receivable from (or payable to) associated
companies for the effects of interchange restructuring.
5. The allocation between NSP and NCE and their customers of the estimated
cost savings resulting from the merger, net of the costs incurred to achieve
such savings, will be subject to regulatory review and approval. None of these
estimated cost savings, the costs to achieve such savings, or the transaction
costs have been reflected in the pro forma condensed financial statements.
