<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-17736
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ESELCO, INC.
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(Exact name of registrant as specified in its charter)
MICHIGAN 38-2785176
- ---------------------- ----------------------
State of Incorporation (I.R.S. Employer
Identification Number)
725 East Portage Avenue
Sault Ste. Marie, Michigan 49783
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(906) 632-2221
----------------------------------------------------
(Registrant's telephone number, including area code)
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
------- -------
1,593,180 shares of Common Stock, par value $.01 per share,
outstanding as of June 30, 1997
<PAGE>
PART I. -- FINANCIAL INFORMATION
ITEM 1. -- FINANCIAL STATEMENTS
E S E L C O, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS:
ELECTRIC PLANT, at original cost $73,852,064 $71,802,321
Less - Accumulated depreciation 31,041,007 29,671,038
----------- -----------
$42,811,057 $42,131,283
Asset acquired under capital lease 2,815,065 2,851,622
----------- -----------
$45,626,122 $44,982,883
----------- -----------
CURRENT ASSETS:
Cash $74,844 $293,883
Accounts receivable, less reserve of $39,151
and $32,000 respectively 3,701,942 2,999,783
Unbilled revenue 1,474,430 1,693,826
Materials and supplies, at average cost 1,305,028 1,148,046
Prepayments 1,293,987 1,966,932
----------- -----------
$7,850,231 $8,102,470
----------- -----------
OTHER ASSETS:
Debt expense, being amortized $25,372 $28,972
Regulatory asset 3,334,381 3,510,181
Other 891,762 531,193
----------- -----------
$4,251,515 $4,070,346
----------- -----------
$57,727,868 $57,155,721
----------- -----------
STOCKHOLDERS' INVESTMENT AND LIABILITIES:
CAPITALIZATION (See Statement):
Common Equity $21,454,303 $20,234,722
Preferred stock 0 0
Long-term debt (less current portion) 14,958,420 16,898,187
----------- -----------
$36,412,723 $37,132,909
----------- -----------
OTHER NONCURRENT LIABILITIES:
Obligation under capital lease $2,733,956 $2,775,905
----------- -----------
CURRENT LIABILITIES:
Notes payable $741,500 $1,119,000
Current portion of long-term debt 3,300,660 2,877,323
Current portion of lease obligation 81,109 75,717
Accounts payable 3,331,196 2,143,082
Dividends declared 446,090 415,960
Accrued taxes 1,455,259 1,754,101
Current deferred income taxes 61,955 66,755
Accrued interest 164,773 166,215
Other 306,214 270,116
----------- -----------
$9,888,756 $8,888,269
----------- -----------
DEFERRED CREDITS:
Deferred income taxes $4,316,446 $4,454,626
Net regulatory liability 1,199,526 1,193,526
Unamortized investment tax credit 839,581 873,181
Other 2,336,880 1,837,305
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$8,692,433 $8,358,638
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$57,727,868 $57,155,721
----------- -----------
----------- -----------
</TABLE>
1
<PAGE>
E S E L C O, INC.
CONSOLIDATED STATEMENT OF CAPITALIZATION
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------------- ----------------
AMOUNT % AMOUNT $
----------- ---- ---------- ----
<S> <C> <C> <C> <C>
COMMON EQUITY:
COMMON STOCK, par value $.01 per share
1997 1996
--------- ---------
Authorized shares 9,840,000 3,000,000
--------- ---------
--------- ---------
Outstanding shares 1,593,180 1,540,592 $15,932 $15,406
--------- ---------
--------- ---------
Capital surplus 19,256,710 17,331,579
Retained earnings 3,176,178 4,204,585
Unearned compensation - ESOP and
Restricted Stock Bonus Plan (994,517) (1,316,848)
---------- ----------
$21,454,303 59% $20,234,722 54%
---------- ----------
PREFERRED STOCK, value $.01
per share, authorized 160,000 shares $0 0% $0 0%
---------- ----------
LONG-TERM DEBT of Subsidiaries (less current portion)
First Mortgage Bonds: $0 $855,000
Series D, 7.00%, due 1998 900,000 1,200,000
Series F, 10.31%, due 2001 4,070,000 4,440,000
Series G, 10.25%, due 2009 1,200,000 1,500,000
Series H, 7.90%, due 2002 5,567,000 5,355,000
Energy Thrift Notes, 5.8%-10%, due 1998-2007
Equipment Loan, Floating Rate, due 1998 119,382 147,786
ESOP Loans of the Corporation,
floating rate, due 2000-2001 230,336 421,110
Term Loan, floating rate, due 1999 2,871,702 2,979,291
---------- ----------
$14,958,420 41% $16,898,187 46%
---------- --- ---------- ---
TOTAL CAPITALIZATION $36,412,723 100% $37,132,909 100%
---------- --- ---------- ---
---------- --- ---------- ---
</TABLE>
2
<PAGE>
E S E L C O, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
The Three Months The Six Months The Twelve Months
Ended June 30, Ended June 30, Ended June 30,
-------------------- ------------------- ---------------------
1997 1996 1997 1996 1997 1996
------ ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES $9,429,787 $8,947,935 $19,345,122 $18,725,187 $38,119,866 $37,503,321
---------- ---------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Operation - Purchased power $4,270,580 $4,346,701 $9,244,697 $9,667,957 $18,427,775 $19,581,393
- Other 1,854,521 1,621,286 3,768,765 3,309,360 7,202,678 6,335,548
Maintenance 546,732 539,001 1,063,837 1,149,176 2,056,820 2,079,690
Depreciation and amortization 700,229 646,931 1,400,438 1,315,826 2,699,007 2,552,495
Property and other taxes 400,312 397,268 805,066 766,236 1,595,181 1,559,438
Income taxes 381,200 302,400 686,400 525,400 1,408,196 1,212,584
---------- ---------- ----------- ----------- ----------- -----------
Total operating expenses $8,157,574 $7,853,587 $16,969,203 $16,733,955 $33,389,657 $33,321,148
---------- ---------- ----------- ----------- ----------- -----------
Net operating income $1,272,213 $1,094,348 $2,375,919 $1,991,232 $4,730,209 $4,182,173
---------- ---------- ----------- ----------- ----------- -----------
OTHER INCOME (DEDUCTIONS), NET ($15,048) ($30,304) ($30,961) ($46,722) ($31,833) ($58,568)
---------- ---------- ----------- ----------- ----------- -----------
ALLOWANCE FOR FUNDS USED
DURING CONSTRUCTION $39,900 $0 $79,800 $0 $79,800 $0
---------- ---------- ----------- ----------- ----------- -----------
INTEREST CHARGES:
Interest on long-term debt $393,545 $338,136 $784,053 $665,198 $1,486,242 $1,312,592
Other interest 33,776 40,827 48,999 63,314 118,141 207,748
---------- ---------- ----------- ----------- ----------- -----------
Total interest charges $427,321 $378,963 $833,052 $728,512 $1,604,383 $1,520,340
---------- ---------- ----------- ----------- ----------- -----------
NET INCOME AVAILABLE FOR
COMMON STOCK $869,744 $685,081 $1,591,706 $1,215,998 $3,173,793 $2,603,265
---------- ---------- ----------- ----------- ----------- -----------
EARNINGS PER AVERAGE SHARE OF
COMMON STOCK $0.55 $0.44 $1.00 $0.79 $2.00 $1.70
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
CASH DIVIDENDS DECLARED PER
SHARE OF COMMON STOCK $0.28 $0.26 $0.55 $0.52 $1.08 $1.01
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
AVERAGE COMMON SHARES OUTSTANDING 1,593,180 1,539,538 1,591,251 1,535,473 1,583,419 1,528,305
---------- ---------- ----------- ----------- ----------- -----------
---------- ---------- ----------- ----------- ----------- -----------
</TABLE>
3
<PAGE>
E S E L C O, INC.
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
NET CASH FLOWS FROM (USED BY):
OPERATING ACTIVITIES:
Net income $1,591,706 $1,215,998
Noncash expenses, revenue, losses and gains
included in income
Depreciation and amortization 1,437,137 1,364,353
Deferred taxes and charge equivalent to
investment tax credit, net of amortization (170,580) 446,388
Net decrease (increase) in receivables and
unbilled revenue (482,763) 691,626
Net decrease (increase) in materials and
supplies and prepayments 515,963 862,039
Net increase (decrease) in accounts payable,
accrued taxes, and other current liabilities 925,370 (1,846,409)
Increase (decrease) in interest accrued
but not paid (1,442) (92,138)
Other 410,583 86,578
---------- ----------
Net cash from operating activities $4,225,974 $2,728,435
---------- ----------
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment ($2,170,664) ($1,605,611)
Proceeds from disposals of property, plant
and equipment 57,353 16,120
---------- ----------
Net cash used by investing activities ($2,113,311) ($1,589,491)
---------- ----------
FINANCING ACTIVITIES:
Proceeds of short-term debt $3,576,000 $5,923,500
Payments to settle short-term debt (3,953,500) (7,252,500)
Issuance of long-term debt (net) 534,000 1,609,000
Payments on long-term debt (1,815,699) (1,241,679)
Proceeds from sale of common stock 206,844 405,664
Dividends paid (879,347) (803,460)
---------- ----------
Net cash used by financing activities ($2,331,702) ($1,359,475)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ($219,039) ($220,531)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 293,883 302,845
---------- ----------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $74,844 $82,314
---------- ----------
---------- ----------
INTEREST PAID $897,955 $881,358
---------- ----------
---------- ----------
INCOME TAXES PAID $330,000 $645,000
---------- ----------
---------- ----------
</TABLE>
4
<PAGE>
ESELCO, INC.
NOTES TO FINANCIAL STATEMENTS
(1) These consolidated financial statements include the accounts of ESELCO,
Inc. (ESELCO) and its wholly owned subsidiaries, Edison Sault Electric
Company (Edison Sault), ESEG, Inc. and Northern Tree Service, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation. The consolidated financial statements as of June 30, 1997
and 1996 included herein, which are unaudited, reflect, in the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the results of operations for the
periods presented. Sales of electricity by Edison Sault, ESELCO's major
subsidiary, are affected to some degree by variations in weather
conditions, and results of operations for interim periods are not
necessarily indicative of results to be expected for the entire year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and regulations
of the Securities and Exchange Commission, although ESELCO believes that
the disclosures which are made are adequate to make the information
presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and the notes thereto included in ESELCO, Inc. 1996 Annual
Report on Form 10K, which incorporates by reference the financial
statements in the 1996 Annual Report to Shareholders.
(2) On March 12, 1997, the Board of Directors of ESELCO declared a 3% stock
dividend for shareholders of record May 1, 1997. The outstanding number of
common shares of ESELCO previously reported in the Consolidated Statement
of Capitalization in the Form 10-Q for the period ended March 31, 1997 to
reflect the effect of this 3% stock dividend did not take into account the
reduction for the number of fractional shares for which ESELCO was to pay
cash in lieu of fractional shares. Accordingly, after taking into account
this reduction, the number of shares outstanding after the 3% stock
dividend was declared and cash was paid in lieu of fractional shares is
1,593,180 shares.
(3) On August 22, 1995, Edison Sault filed an application with the Michigan
Public Service Commission (MPSC) for authority to implement price cap
regulation. In the application Edison Sault proposed that its base rates
be capped at present levels, that its existing power supply cost recovery
(PSCR) factor be rolled into base rates, and that its existing PSCR Clause
be suspended. Edison Sault published the required notice of opportunity to
comment or request a hearing. No comments were received and on
September 21, 1995, the MPSC approved Edison Sault's application subject to
the modification that Edison Sault give 30 days notice rather than 2 weeks
notice for rate decreases and that Edison Sault file an
5
<PAGE>
application by October 1, 2000, to address its experience under the price
cap mechanism. With the latter modification the price cap authorization
represents an experimental regulatory mechanism. The order also allows
Edison Sault to file an application seeking an increase in rates only under
extraordinary circumstances.
On October 23, 1995, the Attorney General for the State of Michigan filed
an intervention and petition for rehearing in Edison Sault's price cap
order. The Attorney General's intervention was based on the grounds that
the MPSC did not have authority to approve price cap regulation. On
December 21, 1995, the MPSC rejected the Attorney General's petition for
rehearing. On January 19, 1996, the Attorney General filed an appeal with
the Michigan Court of Appeals.
Legal counsel for Edison Sault believes that the Attorney General's appeal
is without merit and that Edison Sault will prevail. A decision in this
case is not expected until mid to late 1997. Edison Sault implemented the
price cap order on January 1, 1996.
(4) In 1993, Edison Sault received notification from the U.S. Environmental
Protection Agency (U.S. EPA) that it was being named a "Potentially
Responsible Party" at the Manistique River/Harbor Area of Concern (AOC) in
Manistique, Michigan. There were a number of other potentially responsible
parties, some of whom have been notified by the U.S. EPA.
The U.S. EPA, in conjunction with the Michigan Department of Natural
Resources, identified the Manistique River and Harbor as an "Area of
Concern" (AOC) due to PCBs which have been found in that area. An
Environmental Engineering/Cost Analysis (EECA) was submitted to the
U.S. EPA which provided an analysis of various methods of remediation for
the harbor. The EECA presented six alternatives of remediation action and
ultimately recommended a remediation method of in-place capping.
Management believed this to be the most prudent course of action. Although
the total ultimate cost of specific remedial action and Edison Sault's
potential liability were not known at that time, management had estimated
Edison Sault's minimum cost of this remedy to be $2.9 million. That figure
represented an increase of $1.9 million from the amount recorded during
1994. Certain other expenditures for investigation of any necessary
remedial action were incurred and are reflected in the accompanying
financial statements.
During 1995 and 1996, the U.S. EPA agreed to allow the PRPs to remediate
the harbor through in-place capping at a total cost of $6.4 million, with
the Edison Sault portion costing $3.2 million. Through further
negotiations, the U.S. EPA and the PRPs agreed to a cash-out settlement
whereby the PRPs would pay to the U.S. EPA the $6.4 million cost of capping
for the right to be absolved from any future legal actions concerning PCB
pollution. To effect this settlement, an Administrative Order on Consent
was executed by all parties in December, 1996 with payments made to the
U.S. EPA prior to year-end 1996.
To date, Edison Sault has incurred a total cost of $3.6 million on this
project. Edison Sault filed an action on February 4, 1997 in the Circuit
Court for the County of Schoolcraft,
6
<PAGE>
Michigan against certain insurance carriers to recover unreimbursed defense
costs and expenses associated with defending this matter of approximately
$350,000 and indemnification for its costs of approximately $3.2 million in
settling the matter with the U.S. EPA and obtaining a release of the
property damage claims asserted by the U.S. EPA. The certainty and
magnitude of any insurance recovery is unknown at this time. On April 28,
1997, Michigan Mutual Insurance Company filed a counterclaim for
approximately $1.7 million for previously paid defense costs. Legal counsel
for Edison Sault believes, based on the information currently available,
that the counterclaim lacks merit.
In November 1993, the MPSC issued an order authorizing Edison Sault to
defer and amortize, over a period not to exceed ten years, environmental
assessment and remediation costs associated with the Manistique River AOC.
Therefore, Edison Sault has recorded a regulatory asset in the amount of
$3.2 million, plus unreimbursed costs of $350,000, for a total of
$3.55 million, which it began amortizing in 1997.
(5) On May 14, 1997 ESELCO, Inc. and Wisconsin Energy Corporation (Wisconsin
Energy) announced that they had entered into a definitive agreement
regarding the acquisition of ESELCO by Wisconsin Energy. The terms of the
definitive agreement were approved by both companies' boards. Upon
completion of the acquisition, ESELCO would continue to operate from Sault
Ste. Marie, Michigan.
All outstanding shares of ESELCO common stock would be converted into
shares of Wisconsin Energy common stock based on a value of $44.50 for each
share of ESELCO common stock in a transaction proposed to be structured as
a tax-free reorganization. The total purchase price would be approximately
$71.0 million. The exact number of shares of Wisconsin Energy common stock
to be issued in the transaction would be determined by dividing $44.50 by
the average closing prices of Wisconsin Energy common stock for the ten
trading days immediately preceding the closing date. Pursuant to the
definitive agreement, Wisconsin Energy will be paid a fee of $2.0 million
if ESELCO consummates or enters into an agreement with respect to, a
business combination with a party unrelated to Wisconsin Energy or ESELCO
terminates the definitive agreement to pursue a business combination with a
party unrelated to Wisconsin Energy prior to the end of the period
specified in the agreement.
The transaction is contingent upon several conditions, including the
approval by the shareholders of ESELCO, receipt of all appropriate
regulatory approvals and the effectiveness of a registration statement to
be filed with the Securities and Exchange Commission covering the Wisconsin
Energy shares to be issued in the transaction. Shareholders of ESELCO will
be provided a proxy statement describing the terms of the transaction prior
to being asked to vote on the transaction at a special meeting of
shareholders, which is expected to take place later in 1997. There can be
no assurance that the conditions will be satisfied or that the transaction
will be consummated.
7
<PAGE>
ESELCO, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Operating revenues for the second quarter of 1997 were 5% higher than the
corresponding period in 1996, while total kilowatthour sales increased 2%.
Residential and resale sales are up about 2% while industrial sales were up 4%
based on increased sales to three of our four industrial customers. Commercial
sales were the same as last year.
Purchased power expense decreased 2% because of increased hydro generation
and lower costs of power purchased from Consumers Power Company.
Other operating and maintenance expenses increased 11% during the second
quarter of 1997 due to an increase in payroll and associated employee benefits
costs as well as the ten year write-off of costs associated with the Manistique
Harbor EPA Project.
Depreciation and amortization expenses increased 8% due to Edison Sault's
ongoing construction program.
Income taxes increased $79,000 due to the increase in taxable income.
Interest expense increased 13%, primarily due to an increase in borrowings
which included a term loan to cover the payment to the U.S. EPA in connection
with the Manistique Harbor EPA Project.
Based on the above changes, net income available for common stock increased
27% from last year.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Operating revenues for the first half of 1997 were 3% higher than last
year, while total kilowatthour sales increased 1%. Residential and commercial
sales are down from last year reflecting warmer weather in 1997. Industrial
sales were up 3% based on increased sales to three of our four industrial
customers. Resale sales are up slightly, however, revenue is higher due to the
pass through of cost from the new Consumers Power Company purchased power
contract.
8
<PAGE>
Purchased power expense decreased 4% due to lower requirements resulting
from a net increase in hydro generation.
Other operating and maintenance expenses increased 8% during the first half
of 1997 due to an increase in payroll and associated employee benefits costs as
well as the ten year write-off of costs associated with the Manistique Harbor
EPA Project.
Income taxes increased $161,000 due to the increase in taxable income.
Interest expense increased 14%, primarily due to an increase in borrowings
which included a term loan to cover the payment to the U.S. EPA in connection
with the Manistique Harbor EPA Project.
Based on the above changes, net income available for common stock increased
31% from last year.
TWELVE MONTHS ENDED JUNE 30, 1997 AND 1996
Operating revenues during the current twelve month period were 2% higher
than a year ago. Total electric sales increased 1% during the current twelve
month period. Residential and commercial sales were down during the period
while industrial sales increased a net of 2%. Resale sales were up 3% for the
period.
Purchased power expense decreased 6% due to decreased requirements
reflecting an increase in hydro generation. In addition, higher cost energy
purchases were replaced with lower cost energy from American Electric Power
Company during the period.
Other operating and maintenance expenses were up 10% during the current
twelve month period, due to increased payroll and associated employee benefit
costs and higher water costs reflecting higher rates and additional water
available for generation at Edison Sault's hydro plant. In addition, the
current period includes the write off of costs associated with the Manistique
Harbor EPA Project.
Depreciation and amortization expenses increased 6% due to Edison Sault's
ongoing construction program.
Based on an increase in taxable income, income taxes increased 16% during
the period.
Based on the above changes, net income available for common stock increased
22% from the prior twelve month period.
9
<PAGE>
LIQUIDITY AND CAPITAL COMMITMENTS
INVESTING ACTIVITIES ESELCO invested $2,171,000 in property, plant, and
equipment in the six month period ending June 30, 1997. For the same period in
1996, ESELCO invested approximately $1,606,000 in property, plant, and
equipment.
Investment expenditures during both periods included costs associated with
the planned construction of a new 138 KV interconnection with Wisconsin Electric
Power Company. This project has a planned completion date of 1999. Edison
Sault's projected share of the cost of this project is $9.3 to $13.0 million.
Most of these expenditures are expected to be made in late 1997 and 1998.
In December, 1996 ESEG, Inc. ("ESEG") signed a purchase agreement with
Consumers Power Company for the purchase of a 138 KV submarine circuit across
the Straits of Mackinac. Since 1990, Edison Sault has leased these cables at an
annual net lease cost of approximately $466,000. ESEG, a wholly-owned
subsidiary of ESELCO, has been an inactive subsidiary of ESELCO. ESEG will
lease the cables to Edison Sault under an operating lease arrangement. The
purchase and lease are subject to approval by the Federal Energy Regulatory
Commission (FERC). The cost of the purchase, which is expected to be
consummated in 1997, will be approximately $3.8 million.
CASH PROVIDED BY OPERATING AND FINANCE ACTIVITIES Cash provided by operating
activities for the six month periods ending June 30, 1997, and June 30, 1996,
totalled $4,226,000 and $2,728,000, respectively. After payment of dividends,
internal sources of funds exceeded the capital requirements of ESELCO for the
six months ending June 30, 1997. Dividend payments for the six months ending
June 30, 1997, totalled $897,000 which represented a 56% payout ratio. For the
same period in 1996, dividends totalled $803,000 which represented a 66%
dividend payout ratio.
During 1996, Edison Sault borrowed $3.2 million under a bank term loan
agreement. The proceeds from this loan were used for payment to the U.S. EPA in
settlement of the Manistique Harbor Project. In addition, ESEG has arranged
bank secured term loan financing for its planned acquisition of the 138 KV
submarine cables described above.
Edison Sault has authority to issue up to $10 million in short-term
obligations. Included in this authority is a line of credit in the amount of
$4 million at the prime rate. In addition, Edison Sault has authority to issue
short-term thrift notes to Michigan residents. Edison Sault's short-term
financing requirements relate primarily to financing customer accounts
receivable, unbilled revenue resulting from cycle billing, and capital
expenditures until permanently financed.
At June 30, 1997, Edison Sault had approximately $7.8 million of unused
bank line of credit and additional energy thrift notes. These two sources of
short-term financing should be sufficient to meet Edison Sault's short-term
capital requirements.
10
<PAGE>
ESELCO's shareholders reinvested approximately $207,000 through the
dividend reinvestment plan (DRP) in the first half of 1997. For the six month
period ending June 30, 1996, the DRP provided $406,000 of capital.
Effective March 24, 1997 the Board of Directors of ESELCO, Inc. declared
the suspension of the DRP. The DRP has been suspended pending the potential
acquisition of ESELCO, Inc. by Wisconsin Energy Corporation.
At June 30, 1997, the long-term portion of first mortgage bonds totalled
$6,170,000 which is a decrease of $1,825,000 from the December 31, 1996 amount.
First mortgage bonds are secured by the utility plant of Edison Sault. At
December 31, 1996, there was approximately $10.4 million of unutilized bond
financing capability resulting from plant additions and bond retirements.
Edison Sault also has authority to issue up to $10 million in long-term
energy thrift notes to Michigan residents. At June 30, 1997, the long-term
portion of energy thrift notes outstanding was $5,567,000 which is an increase
of $212,000 over the December 31, 1996 amount.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 4 of the Notes to Financial Statements in Item 1 Part I
herein. Edison Sault filed an action on February 4, 1997 in the Circuit
Court for the County of Schoolcraft, Michigan against certain insurance
carriers to recover unreimbursed defense costs and expenses associated with
defending this matter of approximately $350,000 and indemnification for its
costs of approximately $3.2 million in settling the matter with the
U.S. EPA and obtaining a release of the property damage claims asserted by
the U.S. EPA. The certainty and magnitude of any insurance recovery is
unknown at this time. On April 28, 1997, Michigan Mutual Insurance Company
filed a counterclaim for approximately $1.7 million for previously paid
defense costs. Legal counsel for Edison Sault believes, based on the
information currently available, that the counterclaim lacks merit.
Item 2. Changes in Securities
(c) On July 31, 1997, ESELCO sold thirty-six shares of ESELCO Common
Stock, par value of $.01 per share, to an existing shareholder of ESELCO in
a private placement pursuant to Section 4(2) of the Securities Act of 1933
and/or Regulation D thereunder. The Common Stock was sold directly by
ESELCO without the use of an underwriter or placement agent. The aggregate
offering price of the Common Stock was $1,373.92.
Item 4. Submission of Matters to a Vote of Security Holders.
At ESELCO's Annual Meeting of Stockholders held on May 6, 1997 the
Board of Directors' nominees listed below were elected as directors, each
for a term expiring in 2000, by the indicated votes and percentages cast
for and withheld with respect to each nominee. There was no solicitation
in opposition to the nominees proposed in the proxy statement and there
were no abstentions or broker non-votes with respect to the election of
directors.
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Name of Nominee For Withheld
---------------------------------------------------------------------
William R. Gregory 1,259,540 (81%) 10,885 (1%)
---------------------------------------------------------------------
James S. Clinton 1,195,403 (77%) 10,885 (1%)
---------------------------------------------------------------------
---------------------------------------------------------------------
An Amendment to ESELCO's Articles of Incorporation to increase the
number of authorized common shares from 3,000,000 to 9,840,000 shares was
approved by the Shareholders by a vote of 1,046,709 shares FOR and 213,589
shares AGAINST such approval. There were 36,096 abstentions and no broker
non-votes with respect to such matter.
Of the 1,547,345 shares of common stock outstanding and entitled to
vote on the record date of March 20, 1997, 84% of the shares were
represented at the meeting.
Further information regarding these matters, including the name of
each other director whose term of office as a director continued after the
meeting and will expire in 1998 and 1999 is contained in ESELCO's Proxy
Statement dated March 31, 1997 with respect to the Annual Meeting of
Stockholders held on May 6, 1997.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits.
<TABLE>
<CAPTION>
Filed
Exhibit ----------------------
No. Description of Exhibit Herewith By Reference
- ------- -------------------------------------------- -------- ------------
<S> <C> <C> <C>
(2) Amended and Restated Agreement and Plan of
Reorganization by and among Wisconsin Energy
Corporation and ESELCO, Inc. and ESL Acquisition, *
Inc., dated as of May 13, 1997, as amended and
restated as of July 11, 1997
(3) (a) Articles of Incorporation as filed on
January 6, 1989 *
(b) Amendment to Articles of Incorporation as
filed on August 7, 1997 *
(c) Bylaws *
(4) Instruments defining the rights of
security holders, including indentures:
(a) Mortgage and Deed of Trust as of March 1,
1952. (1) *
(b) Supplemental Indenture dated as of
February 1, 1957. (1) *
(c) Second Supplemental Indenture dated as of
January 1, 1964. (1) *
(d) Third Supplemental Indenture dated as of
February 1, 1968. (1) *
(e) Fourth Supplemental Indenture dated as of
September 15, 1975. (1) *
(f) Fifth Supplemental Indenture dated as of
October 1, 1986. (2) *
(g) Sixth Supplemental Indenture dated as of
April 1, 1989. (4) *
(h) Seventh Supplemental Indenture dated as of
February 15, 1992. (5) *
(i) Debenture Indenture dated as of August 1,
1973. (1) *
(j) Form of Long-Term Energy Thrift Note. (3) *
(10) (a) Form of Executive Severance Agreement *
(b) 1996 ESELCO, Inc. Restricted Stock Bonus Plan *
(c) ESELCO, Inc. Director's Retirement Plan, as
amended January 1, 1995 *
(d) Edison Sault Electric Company Director's Fee
Deferral Plan, October 1, 1989 *
(e) Edison Sault Electric Company ESELCO Director's
Fee Deferral Plan, January 1, 1986 *
(f) Supplemental Executive Retirement Plan of
Edison Sault Electric Company, as amended as
of August 17, 1995 *
(27) Financial Data Schedule *
</TABLE>
13
<PAGE>
Key to Exhibits Incorporated by Reference:
1 Filed with the Company's Registration Statement, Form S-16,
No. 2-67191, filed April 2, 1980.
2 Filed with the Company's Form 10-K for 1986, dated March 30, 1987,
File No. 0-1158.
3 Filed with the Company's Registration Statement, Amendment No. 2 to
Form S-3, No. 2-67191, filed February 16, 1988.
4 Filed with the Company's Form 10-Q for June 30, 1989, dated
August 11, 1989, File No. 0-17736.
5 Filed with the Company's Form 10-Q for March 31, 1992, dated May 13,
1992, File No. 0-17736.
Item 6. (b) Reports on Form 8-K
The following reports on Form 8-K were filed during the three
months ended June 30, 1997.
Item Reported Financial Statements Filed Date of Report
------------- -------------------------- --------------
5. Other Events No May 13, 1997
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.
ESELCO, INC.
(Registrant)
/s/ William R. Gregory
Date August 11, 1997 ----------------------------------------
WILLIAM R. GREGORY
Its President
/s/ David R. Hubbard
Date August 11, 1997 ----------------------------------------
DAVID R. HUBBARD
Its Vice President-Finance
14
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
WISCONSIN ENERGY CORPORATION
AND
ESELCO, INC.
AND
ESL ACQUISITION, INC.
<PAGE>
DATED AS OF MAY 13, 1997
AS AMENDED AND RESTATED AS OF
JULY 11, 1997
<PAGE>
TABLE OF CONTENTS
RECITALS 1
ARTICLE I DEFINITIONS
1.1 Accounts 1
1.2 Acquisition 2
1.3 Affiliates 2
1.4 Affiliate Letter 2
1.5 Agreement 2
1.6 Buildings 2
1.7 Certificate of Merger 2
1.8 Closing 2
1.9 Closing Date 2
1.10 Code 3
1.11 Confidentiality Agreement 3
1.12 Contracts 3
1.13 Disclosure Schedule 3
1.14 Edison Sault 3
1.15 Employee Benefit Plans 3
1.16 Equipment 3
1.17 ERISA 4
1.18 ESEG 4
1.19 ESELCO 4
1.20 ESELCO Closing Certificate 4
1.21 ESELCO Common Stock 4
1.22 ESELCO Companies 4
1.23 ESELCO Counsel Opinion 4
1.24 ESELCO DRIP 4
1.25 ESELCO Material Adverse Effect 4
1.26 ESELCO Special Meeting 4
1.27 ESELCO Stockholders 4
1.28 ESELCO SEC Reports 5
1.29 Exchange Act 5
1.30 Existing Contracts 5
1.31 Existing Indebtedness 5
1.32 Existing Insurance Policies 5
1.33 Existing Investments 5
1.34 Existing Liens 6
<PAGE>
1.35 Existing Litigation 6
1.36 Existing Permits 6
1.37 Existing Plans 6
1.38 Existing Real Estate 6
1.39 FERC 6
1.40 HSR Act 6
1.41 Indebtedness 7
1.42 Investment 7
1.43 Knowledge of ESELCO 7
1.44 Law 7
1.45 Letter of Intent 7
1.46 Lien 7
1.47 MDCI 8
1.48 MPSC 8
1.49 Merger 8
1.50 NTS 8
1.51 Permitted Liens 8
1.52 Person 8
1.53 Plan of Merger 8
1.54 Proxy Statement 8
1.55 PUHCA 8
1.56 Registration Statement 8
1.57 SEC 9
1.58 Securities Act 9
1.59 Subsidiary 9
1.60 Wisconsin Energy 9
1.61 Wisconsin Energy Closing Certificate 9
1.62 Wisconsin Energy Counsel Opinion 9
1.63 Wisconsin Energy Common Stock 9
1.64 Wisconsin Energy SEC Reports 9
1.65 Other Terms 10
ARTICLE II THE MERGER
2.1 The Merger 11
2.2 Effective Time of Merger 11
2.3 Articles of Incorporation of Surviving Corporation 11
2.4 Bylaws of Surviving Corporation 11
2.5 Directors and Officers of Surviving Corporation 12
2.6 Conversion of ESELCO Common Stock 12
2.7 Conversion of Acquisition Common Stock 12
2.8 Exchange of ESELCO Certificates 13
2.9 Stock Transfer Books 16
2.10 Reorganization; Pooling 16
2.11 Dissenters' Rights 17
- ii -
<PAGE>
ARTICLE III OTHER AGREEMENTS
3.1 Proxy Statement and Registration Statement 17
3.2 Approval of ESELCO Stockholders 17
3.3 Access 18
3.4 Disclosure Schedule 18
3.5 Duties Concerning Representations 19
3.6 Deliveries of Information; Consultation 20
3.7 Affiliates; Accounting and Tax Treatment 21
3.8 Other Transactions 22
3.9 Letter of ESELCO's Accountants 24
3.10 Letter of Wisconsin Energy's Accountants 25
3.11 Legal Conditions to Merger 25
3.12 Stock Exchange Listing 25
3.13 Public Announcements 25
3.14 Indemnification and Insurance 26
3.15 Employment Matters 26
- iii -
<PAGE>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ESELCO
4.1 Organization; Business 31
4.2 Capitalization 33
4.3 Authorization; Enforceability 34
4.4 No Violation or Conflict 34
4.5 Title to Assets 34
4.6 Litigation 35
4.7 ESELCO SEC Reports and Books and Records 35
4.8 Absence of Certain Changes 36
4.9 Buildings and Equipment 36
4.10 Existing Contracts 37
4.11 Performance of Contracts 38
4.12 Contingent and Undisclosed Liabilities 38
4.13 Existing Insurance Policies 38
4.14 Employee Benefit Plans 38
4.15 No Violation of Law 40
4.16 Brokers 40
4.17 Taxes 40
4.18 Existing Real Estate 41
4.19 Governmental Approvals 42
4.20 No Pending Other Transactions 42
4.21 Investments 42
4.22 Labor Matters 43
4.23 Indebtedness 43
4.24 Subsidiaries 43
4.25 Existing Permits 44
4.26 Disclosure 44
4.27 Information Supplied 44
4.28 Vote Required 44
4.29 Accounting Matters 44
4.30 Opinion of Financial Advisor 45
4.31 Environmental Protection 45
4.32 Accounts 47
4.33 Customers 47
ARTICLE V REPRESENTATIONS AND WARRANTIES OF
WISCONSIN ENERGY AND ACQUISITION
5.1 Organization 48
5.2 Capitalization 48
5.3 Authorization; Enforceability 49
5.4 No Violation or Conflict 49
5.5 Litigation 49
5.6 Wisconsin Energy SEC Reports 49
5.7 Brokers 50
- iv -
<PAGE>
5.8 Governmental Approvals 50
5.9 Disclosure 50
5.10 Information Supplied 51
ARTICLE VI CONDUCT OF BUSINESS BY THE ESELCO COMPANIES
PENDING THE MERGER
6.1 Carry on in Regular Course 51
6.2 Use of Assets 52
6.3 No Default 52
6.4 Existing Insurance Policies 52
6.5 Employment Matters 52
6.6 Contracts and Commitments 52
6.7 Indebtedness; Investments 52
6.8 Preservation of Relationships 52
6.9 Compliance with Laws 52
6.10 Taxes 52
6.11 Amendments 53
6.12 Dividends; Redemptions; Issuance of Stock 53
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
WISCONSIN ENERGY AND ACQUISITION
7.1 Compliance with Agreement 54
7.2 Proceedings and Instruments Satisfactory 54
7.3 No Litigation 54
7.4 Representations and Warranties of ESELCO 54
7.5 No ESELCO Material Adverse Effect 54
7.6 Approval of ESELCO Stockholders; Certificate of Merger 55
7.7 Deliveries at Closing 55
7.8 Other Documents 55
7.9 Governmental Approvals 55
7.10 Listing 56
7.11 Tax Opinion 56
7.12 Accountant Letters 56
7.13 Pooling Opinion 57
7.14 Affiliate Letters 57
7.15 Fractional Shares 57
ARTICLE VIII CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF ESELCO
8.1 Compliance with Agreement 58
8.2 Proceedings and Instruments Satisfactory 58
8.3 No Litigation 58
8.4 Representations and Warranties of Wisconsin Energy and Acquisition 58
8.5 Approval of ESELCO Stockholders; Certificate of Merger 58
- v -
<PAGE>
8.6 Deliveries at Closing 59
8.7 Other Documents 59
8.8 Governmental Approvals 59
8.9 Tax Opinion 59
8.10 Accountant Letters 60
8.11 No Material Adverse Change 60
8.12 Listing 60
ARTICLE IX TERMINATION; MISCELLANEOUS
9.1 Termination 60
9.2 Rights on Termination; Waiver 61
9.3 Survival of Representations, Warranties and Covenants 62
9.4 Entire Agreement; Amendment 62
9.5 Expenses 62
9.6 Governing Law 63
9.7 Assignment 63
9.8 Notices 63
9.9 Counterparts; Headings 64
9.10 Interpretation 64
9.11 Severability 65
9.12 Specific Performance 65
9.13 No Reliance 65
9.14 Exhibits and Disclosure Schedule 65
9.15 Further Assurances 65
SIGNATURES 66
EXHIBITS:
1. Form of Affiliate Letter
2. Form of ESELCO Closing Certificate
3. Form of ESELCO Counsel Opinion
4. Form of Plan of Merger
5. Form of Wisconsin Energy Closing Certificate
6. Form of Wisconsin Energy Counsel Opinion
- vi -
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION is
made as of this 13th day of May, 1997 as amended and restated as of July 11,
1997 by and among WISCONSIN ENERGY CORPORATION, ESELCO, INC. AND ESL
ACQUISITION, INC.
RECITALS
WHEREAS, the respective Boards of Directors of Wisconsin Energy,
ESELCO and Acquisition have: (a) determined that the merger of Acquisition
with and into ESELCO pursuant to, and subject to all of the terms and
conditions of, this Agreement is advisable, fair and in the best interests of
Wisconsin Energy, ESELCO and Acquisition and their respective shareholders;
and (b) approved the Merger, this Agreement and the transactions contemplated
by this Agreement; and
WHEREAS, the Board of Directors of ESELCO has directed that this
Agreement and the transactions described in this Agreement be submitted for
approval at the ESELCO Special Meeting.
NOW, THEREFORE, in consideration of the Recitals and of the mutual
covenants, conditions and agreements set forth herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed that:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have
the meanings specified:
1.1 ACCOUNTS. "Accounts" shall mean all accounts receivable, notes
and associated rights owned by any of the ESELCO Companies.
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<PAGE>
1.2 ACQUISITION. "Acquisition" shall mean ESL Acquisition, Inc., a
Michigan corporation and a wholly-owned subsidiary of Wisconsin Energy.
1.3 AFFILIATES. "Affiliates" shall mean all Persons who are
affiliates of ESELCO for purposes of Rule 145 under the Securities Act.
1.4 AFFILIATE LETTER. "Affiliate Letter" shall mean a letter from
each Affiliate in substantially the form of Exhibit 1 attached to this
Agreement.
1.5 AGREEMENT. "Agreement" shall mean this Amended and Restated
Agreement and Plan of Reorganization, together with the Exhibits attached
hereto and together with the Disclosure Schedule, as the same may be amended
from time to time in accordance with the terms hereof.
1.6 BUILDINGS. "Buildings" shall mean all buildings, fixtures,
structures and improvements used by any of the ESELCO Companies and located
on the Existing Real Estate.
1.7 CERTIFICATE OF MERGER. "Certificate of Merger" shall
mean a Certificate of Merger in a form approved for filing with the
MDCI which shall have the executed Plan of Merger attached thereto.
1.8 CLOSING. "Closing" shall mean the conference to be
held at 10:00 A.M., Central Time, on the Closing Date at the offices
of Quarles & Brady, 411 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, or such other time and place as the parties may mutually agree
to in writing, at which the transactions contemplated by this
Agreement shall be consummated.
1.9 CLOSING DATE. "Closing Date" shall mean:
(a) December 30, 1997; or
(b) if all of the consents and approvals specified in
Sections 7.9 and 8.8 of this Agreement have not been received on or
before December 23, 1997, that date which is five (5) business days
after receipt of the last of such consents and approvals, subject in
each case to the provisions of Section 9.1(g) of this Agreement; or
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<PAGE>
(c) such other date as the parties may mutually agree
to in writing.
1.10 CODE. "Code" shall mean the Internal Revenue Code of
1986, as the same may be in effect from time to time.
1.11 CONFIDENTIALITY AGREEMENT. "Confidentiality Agreement"
shall mean the letter agreement between Wisconsin Energy and ESELCO
dated January 16, 1997 as amended by this Agreement.
1.12 CONTRACTS. "Contracts" shall mean all of the
contracts, agreements and leases, written or oral, to which any of the
ESELCO Companies is a party or by which any of the ESELCO Companies is
bound.
1.13 DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean
the Disclosure Schedule dated May 13, 1997 delivered by ESELCO to
Wisconsin Energy and as the same may be amended from time to time
after May 13, 1997 and prior to the Closing Date in accordance with
the terms of this Agreement.
1.14 EDISON SAULT. "Edison Sault" shall mean Edison Sault
Electric Company, a Michigan corporation and a wholly-owned subsidiary
of ESELCO.
1.15 EMPLOYEE BENEFIT PLANS. "Employee Benefit Plans" shall
mean any pension plan, profit sharing plan, bonus plan, incentive
compensation plan, stock ownership plan, stock purchase plan, stock
option plan, stock appreciation plan, employee benefit plan, employee
benefit policy, retirement plan, fringe benefit program, insurance
plan, severance plan, disability plan, health care plan, sick leave
plan, death benefit plan, or any other plan or program to provide
retirement income, fringe benefits or other benefits to former or
current employees of any of the ESELCO Companies.
1.16 EQUIPMENT. "Equipment" shall mean all machinery,
toolings, equipment, boilers, furniture, fixtures, motor vehicles,
furnishings, molds, parts, tools, dies, jigs, patterns, machine tools,
office equipment, computers, construction in progress and other items
of tangible personal property owned by any of the ESELCO Companies
which are either presently used, or are used on the Closing Date, by
any of the ESELCO Companies in the conduct of its business.
-3-
<PAGE>
1.17 ERISA. "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as the same may be in effect from time to
time.
1.18 ESEG. "ESEG" shall mean ESEG, Inc., a Michigan
corporation and a wholly-owned subsidiary of ESELCO.
1.19 ESELCO. "ESELCO" shall mean ESELCO, Inc., a Michigan
corporation.
1.20 ESELCO CLOSING CERTIFICATE. "ESELCO Closing
Certificate" shall mean the Closing Certificate of ESELCO in
substantially the form of Exhibit 2 attached to this Agreement.
1.21 ESELCO COMMON STOCK. "ESELCO Common Stock" shall mean
all of the issued and outstanding shares of common stock, $0.01 par
value, of ESELCO.
1.22 ESELCO COMPANIES. "ESELCO Companies" shall mean
ESELCO, Edison Sault, ESEG and NTS.
1.23 ESELCO COUNSEL OPINION. "ESELCO Counsel Opinion" shall
mean an opinion of Kutak Rock in substantially the form of Exhibit 3
attached to this Agreement.
1.24 ESELCO DRIP. "ESELCO DRIP" shall mean ESELCO's
Dividend Reinvestment and Common Stock Purchase Plan.
1.25 ESELCO MATERIAL ADVERSE EFFECT. "ESELCO Material
Adverse Effect" shall mean any event, condition or fact which is, or
reasonably may be expected to be, materially adverse to the financial
condition, properties, business, results of operations or prospects of
the ESELCO Companies taken as a whole.
1.26 ESELCO SPECIAL MEETING. "ESELCO Special Meeting" shall
mean a special meeting of the ESELCO Stockholders for the purpose of
approving the Merger, this Agreement and the transactions contemplated
by this Agreement and for such other purposes as may be necessary or
desirable.
1.27 ESELCO STOCKHOLDERS. "ESELCO Stockholders" shall mean
all Persons owning shares of ESELCO Common Stock on the relevant date.
-4-
<PAGE>
1.28 ESELCO SEC REPORTS. "ESELCO SEC Reports" shall mean:
(a) Reports on Form 10-Q for the quarters ended March
31, 1994, June 30, 1994, September 30, 1994, March 31, 1995, June 30,
1995, September 30, 1995, March 31, 1996, June 30, 1996, September 30,
1996 and March 31, 1997;
(b) Reports on Form 10-K for the years ended December
31, 1993, 1994, 1995 and 1996;
(c) Proxy Statements dated April 1, 1994, April 3,
1995, April 1, 1996 and March 28, 1997;
(d) Reports on Form 8-K dated January 23, 1997, March
25, 1997 and May 13, 1997;
(e) Form U-3A-2 for the years ended December 31, 1995
and 1996; and
(f) all other reports, registration statements,
definitive proxy statements, prospectuses, and amendments thereto
filed by any of the ESELCO Companies with the SEC after the date of
this Agreement and prior to the Effective Time of Merger.
1.29 EXCHANGE ACT. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as the same may be in effect from time to time.
1.30 EXISTING CONTRACTS. "Existing Contracts" shall mean
those Contracts which are listed and briefly described on the
Disclosure Schedule.
1.31 EXISTING INDEBTEDNESS. "Existing Indebtedness" shall
mean all Indebtedness of each of the ESELCO Companies, all of which is
listed and briefly described on the Disclosure Schedule.
1.32 EXISTING INSURANCE POLICIES. "Existing Insurance
Policies" shall mean all of the insurance policies currently in effect
and owned by any of the ESELCO Companies, all of which are listed and
briefly described on the Disclosure Schedule.
1.33 EXISTING INVESTMENTS. "Existing Investments" shall
mean all Investments of each of the ESELCO Companies, all
-5-
<PAGE>
of which are listed and briefly described on the Disclosure Schedule.
1.34 EXISTING LIENS. "Existing Liens" shall mean all Liens
affecting any of the assets and properties of any of the ESELCO
Companies on the date of this Agreement, all of which are listed and
briefly described on the Disclosure Schedule.
1.35 EXISTING LITIGATION. "Existing Litigation" shall mean
all pending or, to the Knowledge of ESELCO, threatened suits, audit
inquiries, charges, workers compensation claims, product warranty
claims, litigation, arbitrations, proceedings, governmental
investigations, citations and actions of any kind against any of the
ESELCO Companies, all of which are listed and briefly described on the
Disclosure Schedule.
1.36 EXISTING PERMITS. "Existing Permits" shall mean all
licenses, permits, approvals, franchises, qualifications, certificates
of convenience and necessity, permissions, agreements, rate and other
orders and governmental authorizations required for the conduct of the
business of any of the ESELCO Companies, all of which are listed and
briefly described on the Disclosure Schedule.
1.37 EXISTING PLANS. "Existing Plans" shall mean all
Employee Benefit Plans of each of the ESELCO Companies, all of which
are listed and briefly described on the Disclosure Schedule.
1.38 EXISTING REAL ESTATE. "Existing Real Estate" shall
mean those parcels of real property described in the Disclosure
Schedule which: (a) includes those parcels owned in fee simple title
by any of the ESELCO Companies; and (b) excludes easements and any
other real estate interests owned by any of the ESELCO Companies
relating to the distribution and transmission of electricity in the
ordinary course of business.
1.39 FERC. "FERC" shall mean the Federal Energy Regulatory
Commission.
1.40 HSR ACT. "HSR Act" shall mean the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as the same may be in effect from
time to time.
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<PAGE>
1.41 INDEBTEDNESS. "Indebtedness" shall mean any liability
or obligation of any of the ESELCO Companies, whether primary or
secondary or absolute or contingent: (a) for borrowed money; or (b)
evidenced by notes, bonds, debentures or similar instruments; or (c)
secured by Liens on any assets of any of the ESELCO Companies.
1.42 INVESTMENT. "Investment" by any of the ESELCO
Companies shall mean: (a) any transfer or delivery of cash, stock or
other property or thing of value in exchange for indebtedness, stock
or any other security of another Person; (b) any loan or advance to,
or capital contribution in, any other Person; (c) any guaranty,
creation or assumption of any liability or obligation of any other
Person; and (d) any investments in any fixed property or fixed assets
other than fixed properties and fixed assets acquired and used in the
ordinary course of the business.
1.43 KNOWLEDGE OF ESELCO. "Knowledge of ESELCO" shall mean
actual knowledge of any one or more of the following named Persons and
knowledge that any one or more of the following named Persons should
have acquired in the ordinary course of performance of that Person's
duties as a director, officer or employee of any of the ESELCO
Companies: Thomas S. Nurnberger, William R. Gregory, Allan L. Grauer,
James S. Clinton, David K. Easlick, Donald Sawruk, David R. Hubbard,
James L. Beedy, Steven L. Boeckman, Donald C. Wilson, Ernest H. Maas,
David H. Jirikovic and Paul A. Schemanski.
1.44 LAW. "Law" shall mean any federal, state, local or
other law, rule, regulation or governmental requirement of any kind,
and the rules, regulations and orders promulgated thereunder by any
regulatory agencies or other Persons.
1.45 LETTER OF INTENT. "Letter of Intent" shall mean the
Letter of Intent by and between Wisconsin Energy and ESELCO dated
March 24, 1997.
1.46 LIEN. "Lien" shall mean, with respect to any asset:
(a) any mortgage, pledge, lien, covenant, lease or security interest;
and (b) the interest of a vendor or lessor under any conditional sale
agreement, financing lease or other title retention agreement relating
to such asset.
-7-
<PAGE>
1.47 MDCI. "MDCI" shall mean The Michigan Department of
Consumer and Industry Services-Corporation, Securities and Land
Development Bureau.
1.48 MPSC. "MPSC" shall mean The Michigan Public Service
Commission.
1.49 MERGER. "Merger" shall mean the merger of Acquisition
with and into ESELCO pursuant to this Agreement.
1.50 NTS. "NTS" shall mean Northern Tree Service, Inc., a
Michigan corporation and a wholly-owned subsidiary of ESELCO.
1.51 PERMITTED LIENS. "Permitted Liens" shall mean those of
the Existing Liens which are expressly noted as Permitted Liens on the
Disclosure Schedule.
1.52 PERSON. "Person" shall mean a natural person,
corporation, trust, partnership, governmental entity, agency or branch
or department thereof, or any other legal entity.
1.53 PLAN OF MERGER. "Plan of Merger" shall mean the Plan
of Merger between ESELCO and Acquisition in substantially the form of
Exhibit 4 attached to this Agreement.
1.54 PROXY STATEMENT. "Proxy Statement" shall mean the
proxy statement of ESELCO to be filed with the SEC and to be
distributed to the ESELCO Stockholders in connection with the ESELCO
Special Meeting and the approval of the Merger by the ESELCO
Stockholders, which shall also constitute the prospectus of Wisconsin
Energy filed as a part of the Registration Statement.
1.55 PUHCA. "PUHCA" shall mean the Public Utility Holding
Company Act of 1935, as the same may be in effect from time to time.
1.56 REGISTRATION STATEMENT. "Registration Statement" shall
mean a registration statement on Form S-4 to be filed under the
Securities Act by Wisconsin Energy in connection with the Merger for
purposes of registering the shares of Wisconsin Energy Common Stock to
be issued in the Merger pursuant to Article II of this Agreement.
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<PAGE>
1.57 SEC. "SEC" shall mean the Securities and Exchange
Commission.
1.58 SECURITIES ACT. "Securities Act" shall mean the
Securities Act of 1933, as the same may be in effect from time to
time.
1.59 SUBSIDIARY. "Subsidiary" shall mean any corporation,
at least a majority of the outstanding capital stock of which (of any
class or classes, however designated, having ordinary voting power for
the election of at least a majority of the board of directors of such
corporation) shall at the time be owned by the relevant Person
directly or through one or more corporations which are themselves
Subsidiaries.
1.60 WISCONSIN ENERGY. "Wisconsin Energy" shall mean
Wisconsin Energy Corporation, a Wisconsin corporation.
1.61 WISCONSIN ENERGY CLOSING CERTIFICATE. "Wisconsin
Energy Closing Certificate" shall mean the Closing Certificate of
Wisconsin Energy in substantially the form of Exhibit 5 attached to
this Agreement.
1.62 WISCONSIN ENERGY COUNSEL OPINION. "Wisconsin Energy
Counsel Opinion" shall mean the opinion of Quarles & Brady in
substantially the form of Exhibit 6 attached to this Agreement.
1.63 WISCONSIN ENERGY COMMON STOCK. "Wisconsin Energy
Common Stock" shall mean shares of the common stock, $.01 par value,
of Wisconsin Energy.
1.64 WISCONSIN ENERGY SEC REPORTS. "Wisconsin Energy SEC
Reports" shall mean:
(a) Reports on Form 10-Q for the quarters ended March
31, 1994, June 30, 1994, September 30, 1994, March 31, 1995, June 30,
1995, September 30, 1995, March 31, 1996, June 30, 1996, September 30,
1996 and March 31, 1997;
(b) Reports on Form 10-K for the years ended December
31, 1993, 1994, 1995 and 1996;
(c) Proxy Statements dated March 22, 1994, April 10,
1995, August 7, 1995, April 13, 1996 and March 14, 1997;
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(d) Reports on Form 8-K dated February 1, 1994, May 3,
1995, September 25, 1995 and May 22, 1997; and
(e) all documents filed by Wisconsin Energy with the
SEC after the date of this Agreement and prior to the Effective Time
of Merger pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act.
1.65 OTHER TERMS. The Following terms shall have the
meanings specified in the following noted Sections of this Agreement:
TERM SECTION
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1986 Fee Deferral Plan 3.15
1989 Fee Deferral Plan 3.15
Average Wisconsin Energy Price 2.6
CERCLA 4.31
Changeover Date 3.15
Disclosure Schedule Change 3.4
Edison Sault Management Plan 3.15
Effective Time of Merger 2.2
Environmental Claim 4.31
Environmental Hazardous Material 4.31
Environmental Laws 4.31
Environmental Permits 4.31
Environmental Release 4.31
ESELCO Certificates 2.8
ESELCO Director Plan 3.15
ESELCO Retiree Health Plan 3.15
Exchange Agent 2.8
Exchange Fund 2.8
Extended Period 3.15
Indemnified Parties 3.14
Initial Termination Date 9.1
Exchange Ratio 2.6
Other Offer 3.8
Other Transaction 3.8
Retirement Account Plan 3.15
SERP 3.15
Special Date 3.8
Special Event 3.8
Special Fee 3.8
Surviving Corporation 2.1
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Wisconsin Energy Directors' Plan 3.15
ARTICLE II
THE MERGER
2.1 THE MERGER. This Agreement provides for the merger of
Acquisition with and into ESELCO, whereby each outstanding share of
ESELCO Common Stock will be converted into shares of Wisconsin Energy
Common Stock as described in this Agreement. As of the Effective Time
of Merger, Acquisition will be merged with and into ESELCO, which
shall be the surviving corporation in the Merger (the "Surviving
Corporation") and shall continue to be governed by the Laws of the
State of Michigan, and the separate existence of Acquisition shall
thereupon cease. The Merger shall be pursuant to the provisions of,
and shall be with the effects provided in, the Michigan Business
Corporation Act.
2.2 EFFECTIVE TIME OF MERGER. The consummation of the
Merger shall be effected as promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VII and
Article VIII of this Agreement and Acquisition and ESELCO will cause
the Certificate of Merger and the Plan of Merger to be executed,
delivered and filed with the MDCI. The Merger shall become effective
at: (a) if the Closing occurs on or prior to December 30, 1997,
12:01 A.M. on January 1, 1998; or (b) if the Closing occurs after
December 30, 1997, the date and time of the filing of the Certificate
of Merger and the Plan of Merger with the MDCI. The date and time on
which the Merger shall become effective is referred to in this
Agreement as the "Effective Time of Merger".
2.3 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION.
The Articles of Incorporation of ESELCO as in effect immediately prior
to the Effective Time of Merger shall be the Articles of Incorporation
of the Surviving Corporation until amended in accordance with Law.
2.4 BYLAWS OF SURVIVING CORPORATION. The Bylaws of ESELCO
as in effect immediately prior to the Effective Time of Merger shall
be the Bylaws of the Surviving Corporation until amended in accordance
with Law.
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2.5 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The
duly qualified and acting directors and officers of Acquisition
immediately prior to the Effective Time of Merger shall be the
directors and officers of the Surviving Corporation, to hold office as
provided in the Bylaws of the Surviving Corporation.
2.6 CONVERSION OF ESELCO COMMON STOCK.
(a) DEFINITIONS. As used in this Agreement, the
following terms shall have the meanings specified:
(i) "Average Wisconsin Energy Price" shall mean
the average of the closing sale price per share of Wisconsin Energy
Common Stock as reported on the New York Stock Exchange - Composite
Transactions on each of the ten (10) consecutive trading days ending
with the trading day immediately preceding the Closing Date.
(ii) "Exchange Ratio" shall mean that number
(carried to the fourth decimal place) obtained by dividing: (A)
$44.50; by (B) the Average Wisconsin Energy Price.
(b) CONVERSION. At the Effective Time of Merger, and
without any action on the part of the holders thereof:
(i) Each share of ESELCO Common Stock issued and
outstanding at the Effective Time of Merger shall be converted into
that number of shares of Wisconsin Energy Common Stock as is equal to
the Exchange Ratio on the terms and conditions set forth in this
Agreement; subject to the provisions of Section 2.8(e) of this
Agreement concerning cash being paid for fractional shares.
(ii) Any shares of capital stock of ESELCO that
are owned by any of the ESELCO Companies at the Effective Time of
Merger shall be cancelled and retired and cease to exist and no
Wisconsin Energy Common Stock or other consideration shall be issued
or delivered in exchange therefor.
2.7 CONVERSION OF ACQUISITION COMMON STOCK. At the Effective Time
of Merger, and without any action on the part of the holders thereof, each
share of common stock of Acquisition
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issued and outstanding at the Effective Time of Merger shall be converted into
one (1) share of ESELCO Common Stock.
2.8 EXCHANGE OF ESELCO CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time of Merger,
Wisconsin Energy shall act as the exchange agent for, or shall deposit, or
shall cause to be deposited, with a bank or trust company designated by
Wisconsin Energy (in either case, the "Exchange Agent"), for the benefit of
the holders of shares of ESELCO Common Stock, for exchange in accordance with
this Article II of this Agreement through the Exchange Agent, certificates
representing the shares of Wisconsin Energy Common Stock (such certificates
for shares of Wisconsin Energy Common Stock, together with any dividends or
distributions with respect thereto and together with any cash for fractional
share interests made pursuant to Section 2.8(e) of this Agreement, being
hereinafter referred to as the "Exchange Fund") issuable pursuant to Section
2.6 of this Agreement in exchange for outstanding shares of ESELCO Common
Stock.
(b) EXCHANGE PROCEDURES.
(i) As soon as reasonably practicable after the Effective
Time of Merger, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time of
Merger represented outstanding shares of ESELCO Common Stock (the "ESELCO
Certificates"): (A) a letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the ESELCO
Certificates shall pass, only upon delivery of the ESELCO Certificates to the
Exchange Agent and which shall be in such form and have such other provisions
as Wisconsin Energy may reasonably specify; and (B) instructions to effect
the surrender of the ESELCO Certificates in exchange for certificates
representing shares of Wisconsin Energy Common Stock.
(ii) Upon surrender of an ESELCO Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, and with such other documents as the Exchange Agent may
reasonably require, the holder of such ESELCO Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of
whole shares of Wisconsin Energy Common Stock to which such holder is
entitled in respect of such ESELCO Certificate pursuant to the provisions
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of this Article II of this Agreement plus any cash in lieu of any fractional
share interest in accordance with Section 2.8(e) of this Agreement, and the
ESELCO Certificate so surrendered shall forthwith be cancelled; provided,
however, that fractional share interests of any one holder shall be
aggregated to maximize the number of whole shares of Wisconsin Energy Common
Stock to be issued and minimize the fractional interests to be paid in cash
as provided in Section 2.8(e) of this Agreement.
(iii) In the event of a transfer of ownership of shares of
ESELCO Common Stock which is not registered in the transfer records of
ESELCO, a certificate representing the proper number of shares of Wisconsin
Energy Common Stock may be issued to the transferee if the ESELCO Certificate
which represented such shares of ESELCO Common Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have
been paid.
(iv) Until surrendered as contemplated by this
Section 2.8 of this Agreement, each ESELCO Certificate shall be deemed
at all times after the Effective Time of Merger to represent only the
right to receive upon surrender a certificate representing shares of
Wisconsin Energy Common Stock and cash in lieu of any fractional share
interest as contemplated by Section 2.8(e) of this Agreement.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES.
No dividends or other distributions declared or made after the
Effective Time of Merger with respect to Wisconsin Energy Common Stock
with a record date after the Effective Time of Merger shall be paid to
the holder of any unsurrendered ESELCO Certificate with respect to the
shares of Wisconsin Energy Common Stock represented thereby, and no
cash payment in lieu of a fractional share shall be paid to any such
holder pursuant to Section 2.8(e) of this Agreement, until the holder
of such ESELCO Certificate shall surrender such ESELCO Certificate.
Subject to the effect of any applicable Law, following surrender of
any such ESELCO Certificate, there shall be paid to the holder of the
certificate representing whole shares of Wisconsin Energy Common Stock
issued in exchange therefor, without interest: (i) promptly, the
amount of any cash payable with respect to a fractional share interest
to which such holder is entitled pursuant to Section 2.8(e) of this
Agreement and the amount of dividends or other distributions with a
record date after the
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Effective Time of Merger theretofore paid with respect to such whole shares
of Wisconsin Energy Common Stock; and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time of Merger but prior to surrender and a payment date occurring
after surrender payable with respect to such whole shares of Wisconsin Energy
Common Stock.
(d) NO FURTHER RIGHTS IN ESELCO COMMON STOCK. All
shares of Wisconsin Energy Common Stock issued upon conversion of the
ESELCO Common Stock in accordance with the terms of this Agreement
(and any cash paid pursuant to Section 2.8(e) of this Agreement) shall
be deemed to have been issued (and paid) in full satisfaction of all
rights pertaining to the ESELCO Common Stock.
(e) NO FRACTIONAL SHARES. No fractional shares of
Wisconsin Energy Common Stock shall be issued in the Merger. All
fractional share interests of a holder of more than one ESELCO
Certificate at the Effective Time of Merger shall be aggregated. If a
fractional share interest results after such aggregation, each holder
of a fractional share interest shall be paid an amount in cash equal
to the product obtained by multiplying such fractional share interest
by the Average Wisconsin Energy Price. As soon as practicable after
the determination of the amount of cash, if any, to be paid to holders
of fractional share interests, the Exchange Agent shall notify
Wisconsin Energy and Wisconsin Energy shall make available such
amounts to such holders subject to and in accordance with the terms of
Section 2.8(c) of this Agreement.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the
Exchange Fund which remains undistributed to the ESELCO Stockholders
as of a date which is six months after the Effective Time of Merger
shall be delivered to Wisconsin Energy, upon demand, and any ESELCO
Stockholders who have not theretofore complied with this Article II of
this Agreement shall thereafter look only to Wisconsin Energy for
payment of their claim for shares of Wisconsin Energy Common Stock,
any cash in lieu of fractional share interests and any dividends or
distributions with respect to Wisconsin Energy Common Stock.
(g) NO LIABILITY. Neither the Exchange Agent nor any
party to this Agreement shall be liable to any ESELCO Stockholder for
any shares of ESELCO Common Stock or Wisconsin
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Energy Common Stock (or dividends or distributions with respect thereto) or
cash delivered to a public official pursuant to any abandoned property,
escheat or similar Law.
(h) WITHHOLDING RIGHTS. Wisconsin Energy shall be
entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any ESELCO Stockholder such
amounts as Wisconsin Energy is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision
of state, local or foreign tax Law. To the extent that amounts are so
withheld by Wisconsin Energy, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the ESELCO
Stockholder in respect of which such deduction and withholding was
made by Wisconsin Energy.
(i) BOOK ENTRY. Notwithstanding any other provision
of this Agreement, the letter of transmittal referred to in Section
2.8(b) of this Agreement may, at the option of Wisconsin Energy,
provide for the ability of a holder of one or more ESELCO Certificates
to elect that Wisconsin Energy Common Stock to be received in exchange
for the ESELCO Common Stock formerly represented by such surrendered
ESELCO Certificates be issued in uncertificated form or to elect that
such Wisconsin Energy Common Stock be credited to an account
established under the dividend reinvestment and stock purchase plan of
Wisconsin Energy.
2.9 STOCK TRANSFER BOOKS. At the Effective Time of Merger,
the stock transfer books of ESELCO shall be closed and there shall be
no further registration of transfers of shares of ESELCO Common Stock
thereafter on the records of ESELCO. From and after the Effective
Time of Merger, the holders of ESELCO Certificates outstanding
immediately prior to the Effective Time of Merger shall cease to have
any rights with respect to such shares of ESELCO Common Stock except
as otherwise provided in this Agreement or by Law.
2.10 REORGANIZATION; POOLING. The parties intend that this
Agreement be a plan of reorganization within the meaning of Section
368(a) of the Code and that the Merger be a tax free reorganization
under Section 368(a) of the Code and that the Merger qualify for
pooling of interests accounting treatment.
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2.11 DISSENTERS' RIGHTS. The parties are proceeding on the basis
that the ESELCO Stockholders shall have no dissenters' or appraisal rights in
connection with the Merger and the transactions described in this Agreement
based on Section 450.1762(2)(b) of the Michigan Business Corporation Act.
ARTICLE III
OTHER AGREEMENTS
3.1 PROXY STATEMENT AND REGISTRATION STATEMENT. Wisconsin Energy
and ESELCO will prepare and file with the SEC the Registration Statement and
the Proxy Statement as soon as reasonably practicable after the date of this
Agreement. Wisconsin Energy and ESELCO shall use reasonable efforts to cause
the Registration Statement to be declared effective under the Securities Act
as promptly as practicable after such filing. Wisconsin Energy and ESELCO
shall also take such action as may be reasonably required to cause the shares
of Wisconsin Energy Common Stock issuable pursuant to the Merger to be
registered or to obtain an exemption from registration under applicable state
"blue sky" or securities Laws; provided, however, that Wisconsin Energy shall
not be required to qualify as a foreign corporation or to file any general
consent to service of process under the Laws of any jurisdiction or to comply
with any other requirements deemed by Wisconsin Energy to be unduly
burdensome. Each party to this Agreement will furnish to the other parties
all information concerning itself as each such other party or its counsel may
reasonably request and which is required or customary for inclusion in the
Proxy Statement and the Registration Statement.
3.2 APPROVAL OF ESELCO STOCKHOLDERS. ESELCO shall as soon as
reasonably practicable: (a) take all steps necessary duly to call, give
notice of, convene and hold the ESELCO Special Meeting; (b) distribute the
Proxy Statement, which shall also constitute the prospectus of Wisconsin
Energy included in the Registration Statement, to the ESELCO Stockholders in
accordance with applicable Federal and state Law and with its Articles of
Incorporation and Bylaws; (c) subject to the provisions of Section 3.8(d) of
this Agreement, recommend to the ESELCO Stockholders the approval of this
Agreement and the transactions contemplated by this Agreement and such other
matters as may be submitted to the ESELCO Stockholders in connection with this
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Agreement; and (d) cooperate and consult with Wisconsin Energy with respect
to each of the foregoing matters.
3.3 ACCESS.
(a) ACCESS. Upon reasonable notice, ESELCO shall, and
shall cause Edison Sault, ESEG and NTS to, afford to the agents,
accountants, attorneys and representatives of Wisconsin Energy
reasonable access to all of its books, records, financial information,
facilities, key personnel and other documents and materials; provided
that such access shall be upon reasonable notice and during normal
business hours
of the ESELCO Companies.
(b) CONFIDENTIALITY AGREEMENT. ESELCO and Wisconsin
Energy agree that the provisions of the Confidentiality Agreement
shall remain in full force and effect; provided that: (i) the phrase
"three years from the date hereof" in the second full paragraph on
page 2 of the Confidentiality Agreement is amended to read as follows:
"beginning on January 16, 1997 and ending on that date which is the
later of January 16, 1999 or that date which is one year after the
termination of the Amended and Restated Agreement and Plan of
Reorganization between ESELCO and Wisconsin Energy"; and (ii) at the
Effective Time of Merger, the Confidentiality Agreement shall be
deemed to have terminated without further action by the parties.
3.4 DISCLOSURE SCHEDULE.
(a) DISCLOSURE SCHEDULE. On May 13, 1997, ESELCO
delivered to Wisconsin Energy the Disclosure Schedule, which was
accompanied by a certificate signed by the President and Chief
Executive Officer and the Secretary of ESELCO stating the Disclosure
Schedule was delivered pursuant to this Agreement and was the
Disclosure Schedule referred to in this Agreement. The Disclosure
Schedule is deemed to constitute an integral part of this Agreement
and to modify the representations, warranties, covenants or agreements
of ESELCO contained in this Agreement.
(b) UPDATES. Prior to the Closing Date, ESELCO shall
update the Disclosure Schedule on a monthly basis by written notice to
Wisconsin Energy to reflect any matters which have occurred from and
after the date of this Agreement which, if existing on the date of
this Agreement, would have been required to be described in the
Disclosure Schedule. If requested by
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Wisconsin Energy within 14 calendar days after receipt of an update to the
Disclosure Schedule, ESELCO shall meet and discuss with Wisconsin Energy any
change in the Disclosure Schedule made by ESELCO which, in the reasonable
judgment of Wisconsin Energy, has or may have an ESELCO Material Adverse
Effect or which may be materially adverse in any manner to Wisconsin Energy
(a "Disclosure Schedule Change"). If the parties cannot resolve any
differences regarding a Disclosure Schedule Change within a reasonable period
of time (not to exceed 30 calendar days after receipt of an update to the
Disclosure Schedule) Wisconsin Energy may terminate this Agreement. If
Wisconsin Energy does not terminate this Agreement pursuant to this Section
3.4(b) of this Agreement, the relevant Disclosure Schedule Changes shall be
deemed to be accepted by Wisconsin Energy and Wisconsin Energy shall no
longer have any right to terminate this Agreement based on such Disclosure
Schedule Changes except to the extent otherwise provided in Section 7.5 of
this Agreement with respect to such Disclosure Schedule Change.
3.5 DUTIES CONCERNING REPRESENTATIONS. Each party to this
Agreement shall: (a) to the extent within its control, use reasonable
efforts to cause all of its representations and warranties contained
in this Agreement to be true and correct in all respects at the
Effective Time of Merger with the same force and effect as if such
representations and warranties had been made at and as of the
Effective Time of Merger; and (b) use reasonable efforts to obtain any
third party consents or approvals required by this Agreement and to
cause all of the conditions precedent set forth in Articles VII and
VIII of this Agreement to be satisfied.
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3.6 DELIVERIES OF INFORMATION; CONSULTATION. From time to
time prior to the Effective Time of Merger:
(a) DELIVERIES BY ESELCO. ESELCO shall furnish
promptly to Wisconsin Energy: (i) a copy of each report, schedule and
other document filed by it or received by it pursuant to the
requirements of federal or state securities Laws or any other
applicable Laws promptly after such documents are available; (ii) the
monthly consolidated and consolidating financial statements of the
ESELCO Companies (as prepared by ESELCO in accordance with its normal
accounting procedures) promptly after such financial statements are
available; (iii) a summary of any action taken by the Board of
Directors, or any committee thereof, of any of the ESELCO Companies;
and (iv) all other information concerning the business, properties and
personnel of any of the ESELCO Companies as Wisconsin Energy may
reasonably request.
(b) DELIVERIES BY WISCONSIN ENERGY. Wisconsin Energy
shall promptly furnish to ESELCO a copy of each report, schedule and
other document filed by Wisconsin Energy with the SEC pursuant to the
requirements of federal securities Laws promptly after such documents
are available.
(c) CONSULTATION. ESELCO shall, and shall cause
Edison Sault, ESEG and NTS to, confer and consult with representatives
of Wisconsin Energy and its Subsidiaries on a regular and frequent
basis to report on operational matters, environmental remediations and
other environmental matters and the general status of ongoing business
operations of the ESELCO Companies.
(d) REGULATORY MATTERS. ESELCO shall, and shall cause
Edison Sault, ESEG and NTS to, discuss with Wisconsin Energy any
changes in the rates, charges, standards of service or accounting of
any of the ESELCO Companies from those in effect on the date of this
Agreement and consult with Wisconsin Energy prior to making any filing
(or amendment thereto), or effecting any agreement, commitment,
arrangement or consent, whether written or oral, formal or informal,
with respect thereto.
(e) FRANCHISES, ETC. ESELCO shall, and shall cause Edison
Sault, ESEG and NTS to, use all reasonable efforts to maintain in effect and
renew all existing franchises,
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certificates of convenience and necessity and other permits, as the case may
be, pursuant to which any of the ESELCO Companies operates in its service
territories. ESELCO shall notify Wisconsin Energy promptly in the event that
it becomes aware of: (i) any problem, complaint or proceeding which could
result in the termination or non-renewal of any such franchise, certificate
of convenience and necessity or permit; or (ii) any significant complaint to
the MPSC or any of the ESELCO Companies by a customer of any of the ESELCO
Companies or by any other Person concerning the rates, billings, service or
any other matter relating to the business of any of the ESELCO Companies.
(f) LITIGATION. Each party to this Agreement shall
provide prompt notice to the other parties of any litigation,
arbitration, proceeding, governmental investigation, citation or
action of any kind which may be commenced, threatened or proposed by
any Person concerning the legality, validity or propriety of the
transactions contemplated by this Agreement. If any such litigation
is commenced against any party to this Agreement, the parties shall
cooperate in all respects in connection with such litigation and
Wisconsin Energy shall have the right to assume the defense thereof at
its cost and expense and, if Wisconsin Energy does assume such
defense, it shall confer regularly with ESELCO and shall not settle
any such litigation without the prior consent of ESELCO, which consent
shall not be unreasonably withheld.
(g) DELIVERY OF ESELCO STOCKHOLDER LIST. ESELCO
shall: (a) deliver to Wisconsin Energy a list of all outstanding
options to acquire any shares of ESELCO Common Stock, the names of the
Persons holding such options and the terms and conditions of each such
option; (b) deliver to Wisconsin Energy a list of all outstanding
restricted shares of ESELCO Common Stock, the names of the Persons
holding such shares and the terms and conditions of each such
arrangement; and (c) after the approval of this Agreement by the
ESELCO Stockholders at the ESELCO Special Meeting, arrange to have its
transfer agent deliver to Wisconsin Energy or its designee a true and
complete list setting forth the names and addresses of the ESELCO
Stockholders, their holdings of stock as of the latest practicable
date, and such other shareholder information as Wisconsin Energy may
request.
3.7 AFFILIATES; ACCOUNTING AND TAX TREATMENT. ESELCO shall
advise the Affiliates of the resale restrictions imposed by applicable
securities Laws and required to cause the Merger to
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qualify for pooling-of-interests accounting treatment, and shall obtain from
each Affiliate an executed Affiliate Letter. ESELCO shall obtain an executed
Affiliate Letter from any Person who becomes an Affiliate of ESELCO after the
date of this Agreement and on or prior to the Effective Time of Merger.
ESELCO and Wisconsin Energy will each use its respective reasonable best
efforts to cause the Merger to qualify for pooling-of-interests accounting
treatment and as a reorganization under Section 368(a) of the Code.
3.8 OTHER TRANSACTIONS.
(a) DEFINITIONS. As used in this Agreement, the
following terms shall have the meanings specified:
(i) "Other Offer" shall mean any inquiry,
proposal or offer relating in any manner to an Other Transaction.
(ii) "Other Transaction" shall mean any of the following
on or prior to the Special Date, other than the Merger as contemplated by
this Agreement: (A) a merger, consolidation, share exchange, exchange of
securities, reorganization, business combination or other similar transaction
involving any of the ESELCO Companies; (B) a sale, transfer or other
disposition of all or a significant portion of the assets of any of the
ESELCO Companies in a single transaction or series of related transactions;
(C) a sale of, or tender offer or exchange offer for, or acquisition by any
Person or group of beneficial owners of, a substantial interest in the
outstanding capital stock of any of the ESELCO Companies in a single
transaction or series of related transactions; or (D) a public announcement
of a proposal, plan, intention or agreement to do any of the foregoing.
(iii) "Special Date" shall mean that date which is the
later of: (A) January 16, 1999; or (B) six (6) months after the date of
termination of this Agreement.
(iv) "Special Event" shall mean any of the following to
occur on or prior to the Special Date: (A) a Person unrelated to Wisconsin
Energy has consummated, or has publicly announced or proposed (and
subsequently consummates after the Special Date), an Other Transaction; or
(B) any of the ESELCO Companies has entered into an agreement with respect to
an Other
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Transaction; or (C) ESELCO shall have terminated this Agreement for the
purpose of pursuing an Other Offer or Other Transaction.
(b) TERMINATION OF DISCUSSIONS. ESELCO shall
immediately cease and cause to be terminated all existing discussions
and negotiations, if any, with any parties conducted prior to the date
of this Agreement with respect to any Other Transaction, except that
ESELCO may notify such other parties that the discussions and
negotiations are terminated.
(c) NON SOLICITATION. ESELCO shall not, and shall not
permit its Subsidiaries or officers, directors, employees, agents or
other representatives of any of the ESELCO Companies (including,
without limitation, any investment banker, attorney or accountant
retained or engaged by any of the ESELCO Companies) to, solicit,
initiate, facilitate, encourage, negotiate with respect to, discuss or
agree to, any Other Offer or any Other Transaction, except to the
extent required by the fiduciary duties of ESELCO's officers and Board
of Directors under applicable Law if so advised by a written opinion
of outside counsel. ESELCO shall notify Wisconsin Energy orally and
in writing within twenty-four (24) hours following receipt by the
Chairman of the Board or President of ESELCO of any Other Offer,
including the terms and conditions of any such Other Offer and the
Person making such Other Offer, except to the extent that ESELCO may
be prohibited from so doing by a Contract entered into prior to March
24, 1997. ESELCO shall give Wisconsin Energy five (5) calendar days
prior notice and an opportunity to negotiate with ESELCO before
entering into, executing or agreeing to any Other Offer or Other
Transaction. Nothing in this Section 3.8 of this Agreement shall
prohibit ESELCO from taking and disclosing to the ESELCO Stockholders
a position contemplated by Rule 14e-2(a) under the Exchange Act with
respect to an Other Transaction by means of a tender offer.
(d) TERMINATION. ESELCO may, by notice to Wisconsin
Energy at any time prior to the Effective Time of Merger, terminate
this Agreement if ESELCO enters into, executes or agrees to an Other
Offer or Other Transaction following a determination by the Board of
Directors of ESELCO on the written advice of counsel that such action
is required by its fiduciary duties under applicable Law and
compliance by ESELCO with the provisions of Section 3.8(c) of this
Agreement.
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(e) SPECIAL FEE. In order to induce Wisconsin Energy
to enter into this Agreement and to compensate Wisconsin Energy for
the time and expenses incurred in connection with this Agreement and
the Merger and the losses suffered by Wisconsin Energy from foregone
opportunities, ESELCO shall pay a "Special Fee" equal to $2,000,000 to
Wisconsin Energy in immediately available funds within five (5)
business days after the occurrence of a Special Event.
(f) TERMINATION OF SECTION 3.8(E). There shall be no
Special Fee payable as a result of a Special Event which occurs after
this Agreement is terminated:
(i) by Wisconsin Energy and ESELCO pursuant to
Section 9.1(a) of this Agreement; or
(ii) by Wisconsin Energy pursuant to Section
9.1(b) of this Agreement based on a failure of either or both of the
conditions specified in Section 7.4 or 7.5 of this Agreement except if
such failure of condition results from any wilful or intentional acts
of any of the ESELCO Companies; or
(iii) by Wisconsin Energy pursuant to Section
9.1(f) of this Agreement.
3.9 LETTER OF ESELCO'S ACCOUNTANTS. ESELCO shall use its
reasonable best efforts to cause to be delivered to Wisconsin Energy a letter
of Arthur Andersen LLP, ESELCO's independent auditors, dated a date within
two business days before the date on which the Registration Statement shall
become effective and addressed to Wisconsin Energy, in form and substance
reasonably satisfactory to Wisconsin Energy and customary in scope and
substance for cold comfort letters delivered by
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independent public accountants in connection with registration statements
similar to the Registration Statement.
3.10 LETTER OF WISCONSIN ENERGY'S ACCOUNTANTS. Wisconsin
Energy shall use its reasonable best efforts to cause to be delivered
to ESELCO a letter of Price Waterhouse LLP, Wisconsin Energy's
independent auditors, dated a date within two business days before the
date on which the Registration Statement shall become effective and
addressed to ESELCO, in form and substance reasonably satisfactory to
ESELCO and customary in scope and substance for cold comfort letters
delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
3.11 LEGAL CONDITIONS TO MERGER. Each party to this
Agreement will: (a) take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on it with
respect to the Merger (including making all filings and requests in
connection with approvals of or filings with any governmental entity
as described in Sections 7.9 and 8.8 of this Agreement and furnishing
all information required in connection therewith); (b) promptly
cooperate with and furnish information to the other parties in
connection with any such requirements imposed upon any of them in
connection with the Merger; and (c) take all reasonable actions
necessary to obtain (and will cooperate with the other parties in
obtaining) any consent, authorization, order or approval of, or any
exemption by, any governmental entity or other public or private
Person, required to be obtained or made by the parties to this
Agreement in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement.
3.12 STOCK EXCHANGE LISTING. Wisconsin Energy shall use its
reasonable best efforts to cause the shares of Wisconsin Energy Common
Stock to be issued in the Merger to be approved for listing on the New
York Stock Exchange, subject to official notice of issuance.
3.13 PUBLIC ANNOUNCEMENTS. Subject to each party's
disclosure obligations imposed by Law, ESELCO, Acquisition and
Wisconsin Energy will cooperate with each other in the development and
distribution of all news releases and other public information
disclosures with respect to this Agreement or any of the transactions
contemplated hereby and, except as may be required by Law, shall not
issue any public announcement or statement with respect thereto prior
to consultation with the other parties.
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3.14 INDEMNIFICATION AND INSURANCE.
(a) INDEMNIFICATION. From and after the Effective
Time of Merger, Wisconsin Energy shall cause ESELCO (and successors to
ESELCO) to indemnify and hold harmless each present and former
employee, agent, director or officer of any of the ESELCO Companies
and the heirs, successors and assigns of such Persons (the
"Indemnified Parties") against any amounts incurred by such
Indemnified Parties, including without limitation, losses, claims,
damages, liabilities, costs, expenses (including reasonable attorneys
fees incurred in defense or otherwise), judgments and amounts paid in
settlement, in connection with any claim, action, suit, proceeding or
investigation arising out of or relating to the transactions described
in this Agreement and any which arise out of or relate to an
Indemnified Party having served as a committee member, director,
officer, employee or agent of any of the ESELCO Companies, or as a
trustee or fiduciary of any Employee Benefit Plans or otherwise on
behalf of any of the ESELCO Companies, whether asserted or commenced
prior to or after the Effective Time of Merger. Such indemnification
shall be in accordance with, and substantially equivalent to, the
indemnification provided from time to time by Subsidiaries of
Wisconsin Energy to employees, agents, directors and officer of
Subsidiaries of Wisconsin Energy.
(b) INSURANCE. For at least three (3) years from and
after the Effective Time of Merger, Wisconsin Energy shall maintain,
or shall cause to be maintained, in effect directors and officers
insurance covering those Persons covered by ESELCO's directors and
officers insurance as of the date of this Agreement. This directors
and officers insurance shall be not less in terms of coverage and
amount as the insurance that ESELCO has in effect covering officers
and directors on the date of this Agreement.
3.15 EMPLOYMENT MATTERS.
(a) EDISON SAULT MANAGEMENT PENSION PLAN. Within a
reasonable period of time after the Effective Time of Merger,
Wisconsin Energy shall cause the Pension Plan for Management Employees
of Edison Sault (the "Edison Sault Management Plan") to be merged into
the Wisconsin Electric Power Company Retirement Account Plan (the
"Retirement Account Plan") and the Retirement Account Plan to be
amended to provide that
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employees of Edison Sault who were covered under the Edison Sault Management
Plan and who became covered under the Retirement Account Plan by reason of
such merger and who subsequently terminate on or prior to December 31, 2010
with a 100% fully vested interest shall be entitled to an accrued pension
benefit not less than what they would have received had the provisions of the
Edison Sault Management Plan as in existence as of the Effective Time of
Merger continued to apply to them (except that Wisconsin Energy reserves the
right to provide all or part of such accrued pensions benefits by means of a
non-qualified pension plan to the extent necessary to maintain, in the
reasonable judgment of Wisconsin Energy, the tax qualified status of the
Retirement Account Plan).
(b) EDISON SAULT EMPLOYEE INCENTIVE INVESTMENT AND
STOCK OWNERSHIP PLAN. Within a reasonable period of time after the
Effective Time of Merger, Wisconsin Energy shall cause the Employee
Incentive Investment and Stock Ownership Plan of Edison Sault to be
merged into the Wisconsin Electric Power Company Employees Savings
Plan and shall extend such Savings Plan to the employees of the ESELCO
Companies.
(c) SPECIAL EARLY RETIREMENT WINDOW PROGRAM. Prior to
or after the Effective Time of Merger, but prior to the merger of any
defined benefit pension plan of Edison Sault which is used in
connection with a special voluntary early window program, Edison Sault
may proceed with a special voluntary early retirement window program
in accordance with the program described in the Disclosure Schedule.
(d) SEVERANCE AGREEMENTS. After the Effective Time of
Merger, Wisconsin Energy shall cause Edison Sault to honor all
obligations which may be incurred by Edison Sault under the nine
Executive Severance Agreements identified on the Disclosure Schedule,
subject to the terms thereof, which would cause such obligations to
expire regarding any individual who elected a special early retirement
benefit under the program described in Section 3.15(c) of this
Agreement.
(e) COMPANY CARS. After the Effective Time of Merger,
Wisconsin Energy will cause the ESELCO Companies to continue a company car
policy with respect to those employees who are determined from time-to-time
to have an operational need therefor and regarding the other individuals who
are currently provided with company cars as of the Effective Time of Merger,
to
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allow them to either continue to use the same until the end of the useful
life thereof, with an option at the end of such useful life to buy the same
at the lower of book or market value, or to elect to discontinue use of the
same and receive such increase in compensation as is determined to be
appropriate in the sole discretion of the employer.
(f) RETIREE HEALTH CARE PLAN. After the Effective Time of
Merger, Wisconsin Energy will cause the retiree health care program then in
effect at the ESELCO Companies (the "ESELCO Retiree Health Plan") to be
continued, subject to and in accordance with its terms (including any
reserved right to amend or terminate the same), with respect to individuals
who were already retired at such time and with respect to those who retire or
otherwise terminate from the service of the ESELCO Companies in such manner
as to entitle them to benefit from such program, until at least one year from
the Effective Time of Merger (the "Changeover Date"), with such individuals
(both those already retired and those who subsequently retire) to pay
forty-five percent (45%) of the cost thereof, except for the classes of
individuals identified in the Disclosure Schedule who will only be obligated
to pay forty percent (40%). From the Changeover Date until December 31, 2004
(the "Extended Period"), Wisconsin Energy will cause the ESELCO Companies to
continue the same program of benefits and, at least for purposes of measuring
retiree contributions, at the same total premium costs, with both such
benefits and costs to be subject to change from time to time as would occur
pursuant to the underlying health insurance contracts in effect immediately
prior to the Changeover Date (whether or not those insurance contracts are
actually continued in force), and retiree contributions shall be fifty
percent (50%) of such costs. During the Extended Period, Wisconsin Energy
may in its discretion cause the ESELCO Companies to provide such benefits
either by a continuation of the health insurance contracts in effect
immediately prior to the Changeover Date under the ESELCO Retiree Health
Plan, use of a self-insured arrangement, or otherwise.
(g) OTHER BENEFITS. Within a reasonable period of time after
the Effective Time of Merger and subject to the collective bargaining
obligations of Edison Sault, Wisconsin Energy shall cause other benefit plans
and programs substantially similar to those in effect at Wisconsin Electric
Power Company for employees generally (including severance benefits) to be
extended to employees of the ESELCO Companies and shall extend
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past service credit for purposes of eligibility to participate, vesting and
benefit accruals under such benefit plans and programs for service with the
ESELCO Companies before the Effective Time of Merger, provided that such
crediting of service shall not operate to duplicate any benefit or the
funding of any benefit, and provided further that any vacation entitlements
in existence at the Effective Time of Merger under any policy of the ESELCO
Companies with respect to officers shall not be decreased after the Effective
Time of Merger.
(h) RELOCATION EXPENSES FOR TRANSFERRED MANAGEMENT EMPLOYEES.
Wisconsin Energy will cause the ESELCO Companies to establish a special
relocation expense reimbursement plan for such of the management employees of
Edison Sault as are requested to relocate as a result of the transactions
described in this Agreement substantially similar to such program as may then
be in effect at Wisconsin Electric Power Company.
(i) SERP. Edison Sault shall take all necessary actions to
terminate the Supplemental Executive Retirement Plan of Edison Sault Electric
Company (the "SERP"), as of the Effective Time of Merger and shall continue
to remain obligated to pay benefits in the amount earned under the SERP as of
the termination date to those participants who would be eligible to receive
benefits if their employment had been then terminated. Edison Sault shall
obtain the consent of each other current participant who may have earned
benefits under the SERP but who would not be eligible to receive such
benefits if his employment had terminated on the date of termination of the
SERP to receipt of an immediate single lump sum distribution of reasonably
equivalent actuarial value in lieu of and in complete satisfaction of any
other obligation to such individual under the SERP (with such lump sum to be
increased to take into account the tax impact thereof, assuming the maximum
combined federal, Michigan and employee Medicare tax rates in effect as of
the Effective Time of Merger, net of the federal income tax benefit of the
state tax, the intent of such increase being to leave each such individual
with an amount which, after payment of such taxes under the assumption above,
would be equal to such single lump sum distribution.
(j) DIRECTOR'S RETIREMENT PLAN. ESELCO shall take all
necessary actions to terminate the ESELCO, Inc. Director's Retirement Plan
(the "ESELCO Director Plan") as of the Effective Time of Merger. After the
Effective Time of Merger,
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Wisconsin Energy shall cause ESELCO to continue to honor all obligations
under the ESELCO Director Plan as in effect at such termination.
(k) DIRECTOR'S FEE DEFERRAL PLANS. (i) With respect
to the Edison Sault Electric Company Director's Fee Deferral Plan
effective as of October 1, 1989 (the "1989 Fee Deferral Plan"), ESELCO
shall cause Edison Sault to take all necessary actions to discontinue
recognizing further fee deferrals and to amend such Plan as of the
Effective Time of Merger as follows:
(A) to provide that all future earnings on the deferred fee
account balances will be identical to the interest rates or
other methods allowed to participants under the Wisconsin
Energy Directors' Deferred Compensation Plan (the "Wisconsin
Energy Directors' Plan") from time to time;
(B) to eliminate Section B(17) of Article I and Section B(3) of
Article III; and
(C) to make the methods of payment identical to the methods
allowed to participants and beneficiaries under the
Wisconsin Energy Directors' Plan.
ESELCO shall also cause Edison Sault to take all necessary actions,
simultaneously with the foregoing amendments, to terminate the 1989
Fee Deferral Plan as of the Effective Time of Merger. After the
Effective Time of Merger, Wisconsin Energy shall cause Edison Sault to
continue to honor all obligations under the 1989 Fee Deferral Plan, as
so amended and as in effect at such termination.
(ii) With respect to the Edison Sault Electric Company
ESELCO Director's Fee Deferral Plan as of January 1, 1986 (the "1986
Fee Deferral Plan"), ESELCO shall cause Edison Sault to take all
necessary actions to discontinue recognizing further fee deferrals and
to amend such Plan as of the Effective Time of Merger to eliminate
Section B(17) of Article I and Section B(3) of Article III. ESELCO
shall also cause Edison Sault to take all necessary actions,
simultaneously with the foregoing amendments, to terminate the 1986
Fee Deferral Plan, as of the Effective Time of Merger. After the
Effective Time of Merger, Wisconsin Energy shall cause Edison Sault to
continue to honor all obligations
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under the 1986 Fee Deferral Plan, as so amended and as in effect at such
termination.
(l) LABOR AGREEMENTS. Prior to and after the
Effective Time of Merger, Edison Sault shall, and after the Effective
Time of Merger, Wisconsin Energy shall cause Edison Sault to, continue
to honor all collective bargaining agreements to which it is a party,
subject to the terms thereof, it being acknowledged that the current
collective bargaining agreements in effect as of the date of execution
of this Agreement expire on October 21, 1998.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ESELCO
ESELCO hereby represents and warrants to Wisconsin Energy
and Acquisition that, except as set forth in the Disclosure Schedule:
4.1 ORGANIZATION; BUSINESS.
(a) ORGANIZATION. Each of the ESELCO Companies is a
corporation duly and validly organized and existing and in good
standing under the Laws of the State of Michigan. Each of the ESELCO
Companies is qualified to do business as a foreign corporation and is
in good standing in all other jurisdictions where the ownership or
leasing of property or the conduct of its business requires
qualification as a foreign corporation by it, except where the failure
to so qualify does not and will not have an ESELCO Material Adverse
Effect.
(b) CORPORATE POWER AND AUTHORITY. Each of the ESELCO
Companies has full corporate power and authority and all franchises,
permits, licenses, approvals, authorizations, registrations,
certificates of convenience and necessity, grants and orders necessary
to carry on its business as it is now conducted and to own, lease and
operate its assets and properties.
(c) REGULATION. ESELCO is an exempt holding company
under Section 3(a)(1) of PUHCA. Edison Sault is regulated as a public
utility in the State of Michigan and is not
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subject to regulation in any other state. ESELCO, ESEG and NTS are not
regulated as public utilities or subject to such regulation by any state.
(d) BUSINESS OF ESELCO. The only business conducted
by ESELCO is the ownership of the capital stock of, and providing
services to and guarantees for, Edison Sault, ESEG and NTS.
(e) BUSINESS OF EDISON SAULT. The only business
conducted by Edison Sault is the generation, distribution,
transmission and sale of electricity, and service incidental thereto,
to approximately 22,000 residential, commercial and industrial
customers in the Eastern portion of the Upper Peninsula of the State
of Michigan. Edison Sault conducts its business within its service
areas pursuant to rate schedules and applicable rules and regulations
of Edison Sault duly authorized and approved and filed with the MPSC.
(f) ASSETS OF EDISON SAULT. Edison Sault owns or has
the right to use all property, real or personal, tangible or
intangible, which it uses in the operation of its business and to
permit it to render electric utility services within the service areas
in which it carries on its business as it is now being conducted.
(g) BUSINESS OF ESEG. ESEG is currently inactive but,
upon appropriate FERC approval, the only business conducted by ESEG
will be the ownership of submarine cables under the Straits of
Mackinac which are leased to Edison Sault.
(h) BUSINESS OF NTS. The only businesses conducted by
NTS are the provision of tree removal and tree trimming services and
the ownership of a radio tower near Engadine, Michigan.
(i) ARTICLES OF INCORPORATION AND BYLAWS. Copies of
the Articles of Incorporation and Bylaws of each of the ESELCO
Companies, as amended, certified by the Secretary of ESELCO as of the
date of this Agreement, are being delivered by ESELCO to Wisconsin
Energy contemporaneously with the execution and delivery of this
Agreement and such copies are complete and correct copies of such
documents in effect as of the date of this Agreement.
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4.2 CAPITALIZATION.
(a) CAPITALIZATION OF ESELCO. The entire authorized
capital stock of ESELCO consists of: (i) 3,000,000 shares of Common
Stock (which will be increased to 9,840,000 shares under an amendment
to ESELCO's Articles of Incorporation to be voted upon at ESELCO's
1997 Annual Meeting of Stockholders), $0.01 par value, of which
1,593,180 shares will be issued and outstanding following payment of
ESELCO's 3% stock dividend which was declared on March 13, 1997 and is
payable on May 15, 1997, and none of such shares are held by any of
the ESELCO Companies; and (ii) 160,000 shares of Preferred Stock,
$0.01 par value, none of which are issued and outstanding.
(b) CAPITALIZATION OF EDISON SAULT. The entire
authorized capital stock of Edison Sault consists of: (i) 3,000,000
shares of Common Stock, $1.00 par value, of which 673,929 shares are
issued and outstanding, all of which are owned by ESELCO; and (ii)
160,000 shares of Preferred Stock, $25.00 par value, none of which are
issued and outstanding.
(c) CAPITALIZATION OF ESEG. The entire authorized
capital stock of ESEG consists of 100 shares of Common Stock, $0.01
par value, of which 100 shares are issued and outstanding, all of
which are owned by ESELCO.
(d) CAPITALIZATION OF NTS. The entire authorized
capital stock of NTS consists of 100 shares of Common Stock, $0.01 par
value, of which 100 shares are issued and outstanding, all of which
are owned by ESELCO.
(e) OUTSTANDING CAPITAL STOCK. All of the outstanding
capital stock of each of the ESELCO Companies is duly authorized,
validly issued, fully paid and nonassessable and free of preemptive
rights. There are no options, warrants, conversion rights or other
rights to subscribe for or purchase, or other contracts with respect
to, any capital stock of any of the ESELCO Companies.
(f) ESELCO DRIP. The ESELCO DRIP has been suspended
in accordance with its terms by ESELCO effective as of May 15, 1997
and will be terminated at the Effective Time of Merger. All shares of
ESELCO Common Stock held in the ESELCO DRIP have been or will be
properly allocated to the accounts of Persons who were participants in
the ESELCO DRIP, are recorded in
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book-entry form and, subject to earlier withdrawal in accordance with the
terms of the ESELCO DRIP, will be held in the ESELCO DRIP until the Effective
Time of Merger. All shares of ESELCO Common Stock held in the ESELCO DRIP at
the Effective Time of Merger shall be converted into shares of Wisconsin
Energy Common Stock as provided in Section 2.6 of this Agreement. If
Wisconsin Energy provides such an election pursuant to Section 2.8(i) of this
Agreement, participants in the ESELCO DRIP who elect to have such Wisconsin
Energy Common Stock credited to accounts established for them under Wisconsin
Energy's dividend reinvestment and stock purchase Plan shall have their
ESELCO DRIP shares converted into the number of whole shares and any
fractional share of Wisconsin Energy Common Stock resulting from the
application of the Exchange Ratio, instead of having any such fractional
share paid in cash as provided in Section 2.8(e) of this Agreement.
4.3 AUTHORIZATION; ENFORCEABILITY. The execution, delivery
and performance of this Agreement and all of the documents and
instruments required by this Agreement to be executed and delivered by
ESELCO are within the corporate power of ESELCO and: (a) have been
duly authorized by the unanimous vote of the Board of Directors of
ESELCO; and (b) upon the approval of the ESELCO Stockholders, shall be
duly authorized by all necessary corporate action. This Agreement is,
and the other documents and instruments required by this Agreement to
be executed and delivered by ESELCO will be, when executed and
delivered by ESELCO, the valid and binding obligations of ESELCO,
enforceable against ESELCO in accordance with their respective terms,
except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar Laws
generally affecting the rights of creditors and subject to general
equity principles.
4.4 NO VIOLATION OR CONFLICT. Subject to the receipt of
the approvals and consents described in Section 8.8 of this Agreement,
the execution, delivery and performance of this Agreement by ESELCO do
not and will not conflict with or violate any Law, the Articles of
Incorporation or Bylaws of any of the ESELCO Companies or any Existing
Contract.
4.5 TITLE TO ASSETS. Each of the ESELCO Companies owns
good and valid title to the assets and properties which it owns or
purports to own, free and clear of any and all Liens,
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except: (a) the Existing Liens on the date of this Agreement; and (b) the
Permitted Liens on the Closing Date.
4.6 LITIGATION. Except for the Existing Litigation: (a)
there is no litigation, arbitration, proceeding, governmental
investigation, citation or action of any kind pending or, to the
Knowledge of ESELCO, proposed or threatened, against or relating to
any of the ESELCO Companies, nor, to the Knowledge of ESELCO, is
there any basis for any such action; and (b) there are no actions,
suits or proceedings pending or, to the Knowledge of ESELCO, proposed
or threatened, against any of the ESELCO Companies by any Person which
question the legality, validity or propriety of the transactions
contemplated by this Agreement.
4.7 ESELCO SEC REPORTS AND BOOKS AND RECORDS.
(a) ESELCO SEC REPORTS. The ESELCO SEC Reports: (i)
include all reports, definitive proxy statements and amendments
thereto filed or required to be filed by ESELCO with the SEC since
January 1, 1994; and (ii) did not or will not, as the case may be,
contain as of their respective dates any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) FINANCIAL STATEMENTS. The audited consolidated
financial statements and unaudited consolidated interim financial
statements of ESELCO included in the ESELCO SEC Reports have been or
will be, as the case may be, prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except
as may be indicated therein or in the notes thereto and except with
respect to unaudited interim statements as permitted by Form 10-Q of
the SEC) and fairly present the consolidated financial position of the
ESELCO Companies as of the dates thereof and the results of their
operations and changes in financial position for the periods then
ended, subject, in the case of the unaudited consolidated interim
financial statements, to normal year-end and audit adjustments and any
other adjustments described therein.
(c) BOOKS AND RECORDS. The minute books of each of
the ESELCO Companies contain correct and complete records of all
actions taken by the stockholders and the Board of Directors
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(including committees of the Board) of each of the ESELCO Companies,
and all signatures contained therein are the true signatures of the
Persons whose signatures they purport to be. The share transfer books
of each of the ESELCO Companies are correct, complete and current in
all respects. The accounting books and records of each of the ESELCO
Companies: (i) are in all material respects correct and complete;
(ii) are current in a manner consistent with past practice; and (iii)
have recorded therein all the properties and assets and liabilities of
the ESELCO Companies. The accounting books and records of Edison
Sault have been kept and maintained in accordance with the Uniform
System of Accounts as prescribed by the MPSC. The Disclosure Schedule
sets forth the name of each bank in which each of the ESELCO Companies
has an account or safe deposit box or with which any of the ESELCO
Companies has an arrangement for safekeeping.
4.8 ABSENCE OF CERTAIN CHANGES. Since December 31, 1996
there has not been any:
(a) material adverse change in the financial
condition, properties, business or results of operations of the
ESELCO Companies taken as a whole;
(b) damage, destruction or loss (whether or not
covered by insurance) which has materially and adversely affected the
financial condition, properties, business or results of operations of
the ESELCO Companies taken as a whole;
(c) transactions by any of the ESELCO Companies
outside the ordinary course of business, except for the transactions
contemplated by this Agreement; or
(d) declaration or payment or setting aside the
payment of any dividend or any distribution in respect of the capital
stock of any of the ESELCO Companies or any direct or indirect
redemption, purchase or other acquisition of any such stock by any of
the ESELCO Companies.
4.9 BUILDINGS AND EQUIPMENT. The Buildings and the
Equipment: (a) are, taken as a whole, in good operating condition and
repair, reasonable wear and tear excepted; (b) are adequately insured
at normal competitive premium rates with the self insured retentions
specified on the Disclosure Schedule; (c) such assets and their use
conform in all respects to applicable
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Laws; and (d) no notice of any violation of any building, zoning or other Law
relating to such assets or their use has been received by any of the ESELCO
Companies.
4.10 EXISTING CONTRACTS. The Existing Contracts are the
only Contracts which constitute:
(a) a lease of, or agreement to purchase or sell, any capital
assets;
(b) any union labor contracts;
(c) any management, consulting, employment, personal
service, agency or other contract or contracts providing for
employment or rendition of services and which: (i) are in writing; or
(ii) create other than an at will employment relationship; or (iii)
provide for any commission, bonus, profit sharing, incentive,
retirement, consulting or additional compensation;
(d) any agreements or notes evidencing any
Indebtedness;
(e) an agreement for the storage, transportation,
treatment or disposal of any hazardous waste or hazardous byproduct;
(f) a power of attorney (whether revocable or
irrevocable) given to any Person by any of the ESELCO Companies that
is in force;
(g) an agreement by any of the ESELCO Companies not to
compete in any business or in any geographical area;
(h) an agreement restricting the right of any of the
ESELCO Companies to use or disclose any information in its possession;
(i) a partnership, joint venture or similar
arrangement;
(j) a license;
(k) an agreement or arrangement with any Affiliate; or
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(l) any other agreement which: (i) involves an amount
in excess of $10,000.00; or (ii) is not in the ordinary course of
business.
4.11 PERFORMANCE OF CONTRACTS. Each of the ESELCO Companies
has fully performed each term, covenant and condition of each Contract
which is to be performed by it at or before the date hereof. Each of
the Contracts is in full force and effect and constitutes the legal
and binding obligation of the relevant ESELCO Company and, to the
Knowledge of ESELCO, constitutes the legal and binding obligation of
the other parties thereto.
4.12 CONTINGENT AND UNDISCLOSED LIABILITIES. Except
pursuant to the deposit and collection of checks in the ordinary
course of business, none of the ESELCO Companies has guaranteed or
become a surety or is otherwise contingently liable for the obligation
of any other Person. None of the ESELCO Companies has any liabilities
of any nature except for those which: (a) are disclosed in the ESELCO
SEC Reports or in the Disclosure Schedule or in this Agreement; or (b)
arise in the ordinary course of business since December 31, 1996 and
are not required to be disclosed pursuant to this Agreement or the
Disclosure Schedule.
4.13 EXISTING INSURANCE POLICIES. All real and personal
property owned or leased by the ESELCO Companies has been and is being
insured against, and the ESELCO Companies maintain liability insurance
against, such insurable risks and in such amounts as set forth in the
Existing Insurance Policies. The Existing Insurance Policies
constitute all insurance coverage owned by the ESELCO Companies and
are in full force and effect and, to the Knowledge of Eselco, none of
the ESELCO Companies has received notice of and is not otherwise aware
of any cancellation or threat of cancellation of such insurance. No
property damage, personal injury or liability claims have been made,
or are pending, against any of the ESELCO Companies that are not
covered by insurance. Within the past two (2) years, no insurance
company has canceled any insurance (of any type) maintained by any of
the ESELCO Companies. To the Knowledge of ESELCO, the cost of any
insurance currently maintained by the ESELCO Companies will not
increase upon renewal other than increases which ESELCO reasonably
believes are consistent with the general upward trend in the cost of
obtaining insurance.
4.14 EMPLOYEE BENEFIT PLANS.
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(a) EXISTING PLANS. Except for the Existing Plans,
none of the ESELCO Companies maintain, nor is bound by, any Employee
Benefit Plan. All of the Existing Plans are in compliance in all
material respects with ERISA, the Code and all other applicable Laws.
All of the Existing Plans which are intended to meet the requirements
of Section 401(a) or 403(a) of the Code have been determined to be
"qualified" within the meaning of the Code, and there are no facts
which would adversely affect the qualified status of any of such
Existing Plans.
(b) CERTAIN MATTERS. With respect to each Existing
Plan which is subject to either Title IV of ERISA or Section 412 of
the Code, there is no amount of unfunded benefit liabilities as
defined in Section 4001(a)(18) of ERISA, there has occurred no failure
to meet the minimum funding standards of Section 412 of the Code,
there is no "accumulated funding deficiency" within the meaning of
Section 412 of the Code, no such Existing Plan has terminated or has
filed a Notice of Intent to terminate, the Pension Benefit Guaranty
Corporation has not instituted proceedings to terminate any such
Existing Plan and there is no outstanding liability under Section 4062
of ERISA.
(c) PROHIBITED TRANSACTIONS; REPORTABLE EVENTS. No
prohibited transaction within the meaning of Section 4975 of the Code
or Section 406 of ERISA or reportable event as described in Section
4043 of ERISA has occurred with respect to any of the Existing Plans.
(d) OTHER LIABILITIES. None of the ESELCO Companies
has any direct, indirect, actual or contingent liability with respect
to any of the Existing Plans other than to make payments to the
Existing Plans or benefit payments from the Existing Plans in
accordance with the terms thereof.
(e) MULTIEMPLOYER PLANS. None of the ESELCO Companies
is contributing to, nor has any of the ESELCO Companies contributed to
since September 2, 1974, any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
(f) CLAIMS. There are no pending, or to the Knowledge
of ESELCO, threatened claims with respect to any of the Existing
Plans, other than claims for benefits arising in the ordinary course
of business.
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4.15 NO VIOLATION OF LAW. Neither any of the ESELCO Companies nor
any of the assets of any of the ESELCO Companies violate or conflict with any
Law, or any decree, judgment or order, or any zoning, building line
restriction, planning, use or other similar restriction.
4.16 BROKERS. Except for fees to Pacific Economics Group, none of
the ESELCO Companies has incurred any brokers', finders' or any similar fee
in connection with the transactions contemplated by this Agreement.
4.17 TAXES.
(a) TAX RETURNS. Each of the ESELCO Companies has timely and
properly filed all federal, state, local and foreign tax returns (including
but not limited to income, single business, utility, franchise, sales,
payroll, employee withholding and social security and unemployment) which
were required to be filed. Each of the ESELCO Companies has paid or made
adequate provision, in reserves reflected in its financial statements
included in the ESELCO SEC Reports in accordance with generally accepted
accounting principles, for the payment of all taxes (including interest and
penalties) and withholding amounts owed by it or assessable against it. No
tax deficiencies have been proposed or assessed against any of the ESELCO
Companies and there is no basis in fact for the assessment of any tax or
penalty tax against any of the ESELCO Companies. No issue has been raised in
any prior tax audit which, by application of the same or similar principles,
could reasonably be expected upon a future tax audit to result in a proposed
deficiency for any period.
(b) AUDITS. The income tax returns of the ESELCO Companies
have been closed by audit by the Internal Revenue Service or by operation of
the applicable statute of limitations for all fiscal years through and
including December 31, 1992; the single business tax returns of the ESELCO
Companies have been closed by audit by the State of Michigan or by operation
of the applicable statute of limitations for all fiscal years through and
including December 31, 1994; and the sales and use tax returns of the ESELCO
Companies have been closed by audit by the State of Michigan for all periods
through and including April 30, 1996. None of the ESELCO Companies has
consented to any extension of the statute of limitation with respect to any
open tax returns.
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(c) TAX LIENS. There are no tax Liens upon any
property or assets of any of the ESELCO Companies except for Liens for
current taxes not yet due and payable.
(d) DELIVERY OF TAX RETURNS. As soon as practicable
after the date of this Agreement, ESELCO will deliver to Wisconsin
Energy correct and complete copies of all tax returns and reports of
each of the ESELCO Companies filed for all periods not barred by the
applicable statute of limitations. No examination or audit of any tax
return or report for any period not barred by the applicable statute
of limitations has occurred, no such examination is in progress and,
to the Knowledge of ESELCO, no such examination or audit is planned.
(e) EMPLOYMENT TAXES. Each of the ESELCO Companies
has properly withheld and timely paid all withholding and employment
taxes which it was required to withhold and pay relating to salaries,
compensation and other amounts heretofore paid to its employees or
other Persons. All Forms W-2 and 1099 required to be filed with
respect thereto have been timely and properly filed.
(f) TAX SHARING AGREEMENTS. None of the ESELCO
Companies is a party to any agreement relating to allocating or
sharing any taxes.
(g) EXCESS PARACHUTE PAYMENTS. None of the ESELCO
Companies is a party to any Contract that could result, on account of
the Merger, separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the
Code.
(h) LIABILITIES OF OTHER PERSONS. None of the ESELCO
Companies has any liability for taxes of any kind of any Person other
than the ESELCO Companies under any Contract, under Treasury
Regulations Section 1.1502-6 (or any similar provision of Law) as a
transferee or successor or otherwise.
4.18 EXISTING REAL ESTATE. The Existing Real Estate: (a)
constitutes all significant real property and improvements leased or
owned by any of the ESELCO Companies; (b) is not subject to any leases
or tenancies of any kind; (c) is not in the possession of any adverse
possessors; (d) has direct access to and from a public road or street;
(e) is used in a manner which
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is consistent with applicable Law; (f) is, and has been since the date of
possession thereof by the relevant ESELCO Company, in the peaceful possession
of the relevant ESELCO Company; and (g) is served by all water, sewer,
electrical, telephone, drainage and other utilities required for the normal
operations of the Buildings and the Existing Real Estate.
4.19 GOVERNMENTAL APPROVALS. No permission, approval,
determination, consent or waiver by, or any declaration, filing or
registration with, any governmental or regulatory authority is
required in connection with the execution, delivery and performance of
this Agreement by ESELCO and the consummation of the Merger, except
for: (a) the approvals described in Section 8.8 of this Agreement;
and (b) the filing of the Certificate of Merger as described in this
Agreement.
4.20 NO PENDING OTHER TRANSACTIONS. Except for this
Agreement, none of the ESELCO Companies is a party to or bound by any
agreement, undertaking or commitment with respect to an Other
Transaction.
4.21 INVESTMENTS. Except for the Existing Investments, none
of the ESELCO Companies owns, or has any right or obligation to
acquire, any Investment.
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4.22 LABOR MATTERS.
(a) EMPLOYEE MATTERS. There is no present or former
employee of any of the ESELCO Companies who has any claim against the
ESELCO Companies, (whether under Law, under any employee agreement or
otherwise) on account of or for: (i) overtime pay, other than
overtime pay for the current payroll period; (ii) wages or salaries,
other than wages or salaries for the current payroll period; or (iii)
vacations, sick leave, time off or pay in lieu of vacation, sick leave
or time off, other than vacation, sick leave or time off (or pay in
lieu thereof) earned in the twelve-month period immediately preceding
the date of this Agreement or incurred in the ordinary course of
business and appearing as a liability on the most recent financial
statements included in the ESELCO SEC Reports.
(b) EMPLOYEE CLAIMS. There are no pending and
unresolved claims by any Person against any of the ESELCO Companies
arising out of any statute, ordinance or regulation relating to
discrimination to employees or employee practices or occupational or
safety and health standards. There is no pending or, to the Knowledge
of ESELCO, threatened, nor has any of the ESELCO Companies ever
experienced any, labor dispute, strike or work stoppage which affects
or may affect the business of the ESELCO Companies or which may or
would interfere with the continued operation of any of the ESELCO
Companies.
(c) NLRB MATTERS. There is not now pending or, to the
Knowledge of ESELCO, threatened, any charge or complaint against any
of the ESELCO Companies by or before the National Labor Relations
Board or any representative thereof, or any comparable state agency or
authority. No union organizing activities are in process or
contemplated and no petitions have been filed for union organization
or representation of employees of any of the ESELCO Companies not
presently organized, and none of the ESELCO Companies has committed
any unfair labor practices which have not heretofore been corrected
and fully remedied.
4.23 INDEBTEDNESS. Except for the Existing Indebtedness,
none of the ESELCO Companies has any Indebtedness.
4.24 SUBSIDIARIES. The only Subsidiaries of ESELCO are
Edison Sault, ESEG and NTS. Each of Edison Sault, ESEG and NTS has no
Subsidiaries.
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4.25 EXISTING PERMITS. The Existing Permits constitute all
licenses, permits, approvals, franchises, qualifications, certificates
of convenience and necessity, permissions, agreements, rate orders and
governmental authorizations which the ESELCO Companies currently have
and need for the conduct of the business of the ESELCO Companies as
currently conducted.
4.26 DISCLOSURE. No statement of fact by ESELCO contained
in this Agreement, the Disclosure Schedule or the Proxy Statement, or
provided for inclusion in the Registration Statement, contains or will
contain any untrue statement of a material fact or omits or will omit
to state a material fact necessary in order to make the statements
herein or therein contained, in the light of the circumstances under
which they were made, not misleading as of the date to which it
speaks.
4.27 INFORMATION SUPPLIED. None of the information supplied
or to be supplied by ESELCO for inclusion or incorporation by
reference in: (a) the Registration Statement will, at the time the
Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading; and (b) the Proxy Statement will, at the date
mailed to the ESELCO Stockholders and at the time of the ESELCO
Special Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy
Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations
thereunder.
4.28 VOTE REQUIRED. The affirmative vote of the holders of
a simple majority of the outstanding shares of ESELCO Common Stock is
the only vote of the holders of any class or series of capital stock
or other securities of ESELCO necessary to approve the Merger, this
Agreement and the transactions contemplated by this Agreement.
4.29 ACCOUNTING MATTERS. Neither the ESELCO Companies nor
any of the Affiliates has taken or agreed to take or will take any
action that would prevent Wisconsin Energy from
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accounting for the business combination to be effected by the Merger as a
pooling-of-interests.
4.30 OPINION OF FINANCIAL ADVISOR. ESELCO has received the
opinion of Pacific Economics Group, dated the date of this Agreement,
to the effect that the consideration to be received in the Merger by
the ESELCO Stockholders is fair to the ESELCO Stockholders from a
financial point of view, and a copy of such opinion has been delivered
to Wisconsin Energy.
4.31 ENVIRONMENTAL PROTECTION.
(a) DEFINITIONS. As used in this Section 4.31 of this
Agreement:
(i) "Environmental Claim" shall mean any and all
administrative, regulatory or judicial actions, suits, demands, demand
letters, directives, claims, Liens, investigations, proceedings or
notices of noncompliance or violation (written or oral) by any Person
alleging potential liability (including, without limitation, potential
liability for enforcement, investigatory costs, cleanup costs,
governmental response costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from: (A) the presence, or
release into the environment, of any Environmental Hazardous Materials
at any location, whether or not owned by any of the ESELCO Companies;
or (B) circumstances forming the basis of any violation or alleged
violation, of any Environmental Law; or (C) any and all claims by any
Person seeking damages, contribution, indemnification, cost, recovery,
compensation or injunctive relief resulting from the presence or
Environmental Release of any Environmental Hazardous Materials.
(ii) "Environmental Hazardous Materials" shall mean: (A)
any petroleum or petroleum products, radioactive materials, asbestos in any
form that is or could become friable, urea formaldehyde foam insulation, and
transformers or other equipment that contain dielectric fluid containing
levels of polychlorinated biphenyls (PCBs) and radon gas; and (B) any
chemicals, materials or substances which are now defined as or included in
the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes,"
"toxic substances," "toxic pollutants," or words of similar import, under any
Environmental
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Law; and (C) any other chemical, material, substance or waste, exposure to
which is now prohibited, limited or regulated by any governmental authority.
(iii) "Environmental Laws" shall mean all federal, state,
local or foreign statute, Law, rule, ordinance, code, policy, rule of common
law and regulations relating to pollution or protection of human health or
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), including, without
limitation, Laws and regulations relating to Environmental Releases or
threatened Environmental Releases of Environmental Hazardous Materials, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Environmental
Hazardous Materials.
(iv) "Environmental Release" shall mean any release,
spill, emission, leaking, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the atmosphere, soil, surface water, groundwater
or property.
(b) ENVIRONMENTAL LAWS. Each of the ESELCO Companies: (i) is
in compliance with all applicable Environmental Laws; and (ii) has not
received any communication (written or oral), from a governmental authority,
that alleges that it is not in compliance with applicable Environmental Laws.
(c) ENVIRONMENTAL PERMITS. Each of the ESELCO Companies has
obtained all environmental, health and safety permits and governmental
authorizations (collectively, the "Environmental Permits") necessary for its
operations, and all such permits are in good standing and it is in compliance
with all terms and conditions of the Environmental Permits.
(d) ENVIRONMENTAL CLAIMS. There is no Environmental Claim
pending or, to the Knowledge of ESELCO, threatened, against any of the ESELCO
Companies or against any Person whose liability for any Environmental Claim
any of the ESELCO Companies has or may have retained or assumed either
contractually or by operation of Law, or against any real or personal
property or operations which any of the ESELCO Companies owns, leases or
manages.
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(e) ENVIRONMENTAL HAZARDOUS MATERIALS. There have been no
Environmental Releases of any Environmental Hazardous Material by any of the
ESELCO Companies or by any Person on real property owned, used, leased or
operated by any of the ESELCO Companies.
(f) OWNED PROPERTIES. No real property at any time owned,
operated, used or controlled by any of the ESELCO Companies is currently
listed on the National Priorities List or the Comprehensive Environmental
Response, Compensation and Liability Information System, both promulgated
under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), or on any comparable state list, and none
of the ESELCO Companies has received any written notice from any Person under
or relating to CERCLA or any comparable state or local Law.
(g) OFF-SITE PROPERTIES. To the Knowledge of ESELCO, no
off-site location at which any of the ESELCO Companies has disposed or
arranged for the disposal of any waste is listed on the National Priorities
List or on any comparable state list and none of the ESELCO Companies has
received any written notice from any Person with respect to any off-site
location, of potential or actual liability or a written request for
information from any Person under or relating to CERCLA or any comparable
state or local Law.
(h) COSTS. The Disclosure Schedule includes an estimate by
ESELCO of future costs to the ESELCO Companies of compliance with, and
environmental cleanup and response under, Environmental Laws.
4.32 ACCOUNTS. All Accounts have arisen from bona fide transactions
by the ESELCO Companies in the ordinary course of business and, to the extent
not previously collected, are fully collectible, subject to reserves as set
forth in the financial statements included in the ESELCO SEC Reports, and no
significant portion of the Accounts is or will be on the Closing Date subject
to any counterclaim or set off.
4.33 CUSTOMERS. Since January 1, 1996 there has been no
termination, cancellation or material curtailment of the business
relationship of any of the ESELCO Companies with any customer or group of
affiliated customers whose purchases individually or in the aggregate
constituted more than five
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percent (5%) of the consolidated revenues of the ESELCO Companies for the
fiscal year ended December 31, 1995, nor, to the Knowledge of ESELCO, any
notice of intent to so materially curtail.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
WISCONSIN ENERGY AND ACQUISITION
Wisconsin Energy and Acquisition hereby represent and
warrant to ESELCO that:
5.1 ORGANIZATION.
(a) ORGANIZATION. Each of Wisconsin Energy and
Acquisition is a corporation duly and validly organized and existing
under the Laws of the State of its incorporation and is qualified to
do business as a foreign corporation and is in good standing in all
jurisdictions where the ownership or leasing of property or the
conduct of its business requires qualification as a foreign
corporation.
(b) CORPORATE POWER AND AUTHORITY. Each of Wisconsin
Energy and Acquisition has full corporate power and authority and all
franchises, permits, licenses, approvals, authorizations,
registrations, certificates of convenience and necessity, grants and
orders necessary to carry on its business as it is now conducted and
to own, lease and operate its assets and properties.
5.2 CAPITALIZATION.
(a) CAPITALIZATION. The entire authorized capital
stock of Wisconsin Energy consists of: (i) 325,000,000 shares of
Common Stock, $.01 par value, of which 112,465,540 shares were issued
and outstanding on May 1, 1997; and (ii) 15,000,000 shares of
Preferred Stock, $.01 par value, none of which are issued and
outstanding.
(b) AUTHORIZATION. All of the shares of Wisconsin
Energy Common Stock to be issued pursuant to this Agreement will be,
when issued: (i) duly authorized, validly issued and fully paid; and
(ii) nonassessable, except as provided
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in Section 180.0622(2)(b) of the Wisconsin Business Corporation Law as
judicially interpreted.
5.3 AUTHORIZATION; ENFORCEABILITY. The execution, delivery and
performance of this Agreement by Wisconsin Energy and Acquisition and all of
the documents and instruments required by this Agreement to be executed and
delivered by Wisconsin Energy and Acquisition: (a) are within the corporate
power of Wisconsin Energy and Acquisition; (b) have been duly authorized by
all necessary corporate action by Wisconsin Energy and Acquisition; and (c)
do not require any approval of the shareholders of Wisconsin Energy. This
Agreement is, and the other documents and instruments required by this
Agreement to be executed and delivered by Wisconsin Energy and Acquisition
will be, when executed and delivered by Wisconsin Energy and Acquisition, the
valid and binding obligations of Wisconsin Energy and Acquisition,
enforceable against Wisconsin Energy and Acquisition in accordance with their
respective terms, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws
generally affecting the rights of creditors and subject to general equity
principles.
5.4 NO VIOLATION OR CONFLICT. Subject to the receipt of the
approvals and consents described in Section 7.9 of this Agreement, the
execution, delivery and performance of this Agreement by Wisconsin Energy and
Acquisition do not and will not conflict with or violate any Law, the
Restated Articles of Incorporation or Bylaws of Wisconsin Energy, the
Articles of Incorporation or Bylaws of Acquisition or any material contract
or agreement to which Wisconsin Energy or Acquisition is a party or by which
either of them is bound.
5.5 LITIGATION. To the knowledge of Wisconsin Energy, there are no
actions, suits or proceedings against Wisconsin Energy or Acquisition, or
both, by any Person which question the validity, legality or propriety of the
transactions contemplated by this Agreement.
5.6 WISCONSIN ENERGY SEC REPORTS.
(a) WISCONSIN ENERGY SEC REPORTS. The Wisconsin Energy SEC
Reports: (i) include all reports, definitive proxy statements and amendments
thereto filed or required to be filed by Wisconsin Energy with the SEC since
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January 1, 1994; and (ii) did not or will not, as the case may be, contain as
of their respective dates any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial statements of
Wisconsin Energy included in the Wisconsin Energy SEC Reports have been or
will be, as the case may be, prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be
indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q of the SEC) and fairly present
the consolidated financial position of Wisconsin Energy as of the dates
thereof and the consolidated results of its operations and changes in
financial position for the periods then ended, subject, in the case of the
unaudited consolidated interim financial statements, to normal year-end and
audit adjustments and any other adjustments described therein.
(c) CERTAIN AGREEMENT. Wisconsin Energy notified
ESELCO of the termination of the Amended and Restated Agreement and
Plan of Reorganization by and among Wisconsin Energy, Northern States
Power Company, Northern Power Wisconsin Corp. and WEC Sub Corp. dated
as of April 28, 1995 as amended and restated as of July 26, 1995.
5.7 BROKERS. Except for fees to Barr Devlin Associates,
neither Wisconsin Energy nor Acquisition has incurred any brokers',
finders' or any similar fee in connection with the transactions
contemplated by this Agreement.
5.8 GOVERNMENTAL APPROVALS. No permission, approval,
determination, consent or waiver by, or any declaration, filing or
registration with, any governmental or regulatory authority is
required in connection with the execution, delivery and performance of
this Agreement by Wisconsin Energy and Acquisition and the
consummation of the Merger, except for: (a) the approvals described
in Section 7.9 of this Agreement; and (b) the filing of the
Certificate of Merger as described in this Agreement.
5.9 DISCLOSURE. No statement of fact by Wisconsin Energy
or Acquisition contained in this Agreement or in any
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documents delivered by Wisconsin Energy or Acquisition to ESELCO for use in
the Proxy Statement or the Registration Statement contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements herein or therein
contained, in the light of the circumstances under which they were made, not
misleading as of the date to which it speaks.
5.10 INFORMATION SUPPLIED. None of the information supplied
or to be supplied by Wisconsin Energy for inclusion or incorporation
by reference in: (a) the Registration Statement will, at the time the
Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading; and (b) the Proxy Statement will, at the date
mailed to the ESELCO Stockholders and at the time of the ESELCO
Special Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy
Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations
thereunder, and the Registration Statement, including the Proxy
Statement insofar as it constitutes the prospectus of Wisconsin
Energy, will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations
thereunder.
ARTICLE VI
CONDUCT OF BUSINESS BY THE ESELCO COMPANIES
PENDING THE MERGER
Except with the written consent of Wisconsin Energy, from
and after the date of this Agreement and until the Effective Time of
Merger, ESELCO shall, and shall cause each of Edison Sault, ESEG and
NTS to:
6.1 CARRY ON IN REGULAR COURSE. Diligently carry on its
business in the regular course and substantially in the same manner as
heretofore and shall not make or institute any unusual
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or novel methods of purchase, sale, lease, management, accounting or
operation.
6.2 USE OF ASSETS. Use, operate, maintain and repair all
of its assets and properties in a normal business manner.
6.3 NO DEFAULT. Not do any act or omit to do any act, or
permit any act or omission to act, which will cause a breach of any of
the Contracts.
6.4 EXISTING INSURANCE POLICIES. Use reasonable efforts to
maintain all of the Existing Insurance Policies in full force and
effect.
6.5 EMPLOYMENT MATTERS. Not: (a) except as described in
the Disclosure Schedule, grant any increase in the rate of pay of any
of its employees; (b) institute or amend any Employee Benefit Plan; or
(c) enter into or modify any written employment arrangement with any
Person.
6.6 CONTRACTS AND COMMITMENTS. Not enter into any contract
or commitment or engage in any transaction not in the usual and
ordinary course of business and consistent with its normal business
practices and, except as described in the Disclosure Schedule, not
purchase, lease, sell or dispose of any capital asset.
6.7 INDEBTEDNESS; INVESTMENTS. Not: (a) make any
Investment; or (b) create, incur or assume any Indebtedness, except
for Indebtedness incurred in the ordinary course of business by the
ESELCO Companies as described in the Disclosure Schedule.
6.8 PRESERVATION OF RELATIONSHIPS. Use its reasonable best
efforts to preserve its business organization intact, to retain the
services of its present officers and key employees and to preserve the
goodwill of suppliers, customers, creditors and others having business
relationships with it.
6.9 COMPLIANCE WITH LAWS. Comply in all respects with all
applicable Laws.
6.10 TAXES. Timely and properly file all federal, state,
local and foreign tax returns which are required to be
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filed, and shall pay or make provision for the payment of all taxes owed by
it.
6.11 AMENDMENTS. Not amend its Articles of Incorporation or
Bylaws, except that ESELCO may amend its Articles of Incorporation to
increase the authorized number of shares of ESELCO Common Stock from
3,000,000 shares to 9,840,000.
6.12 DIVIDENDS; REDEMPTIONS; ISSUANCE OF STOCK. Not:
(a) except for ESELCO's 3% stock dividend payable to
ESELCO Stockholders on May 15, 1997, issue any additional shares of
stock of any class (including any shares of preferred stock) or grant
any warrants, options or rights to subscribe for or acquire any
additional shares of stock of any class;
(b) declare or pay any dividend or make any capital
or surplus distributions of any nature, except for: (i) cash dividends
by Edison Sault, ESEG or NTS to ESELCO; and (ii) regular quarterly
cash dividends by ESELCO on the outstanding ESELCO Common Stock with
usual record and payment dates not exceeding, during any fiscal year
of ESELCO, 106% of the cash dividends paid by ESELCO on the ESELCO
Common Stock during the immediately preceding fiscal year of ESELCO;
or
(c) directly or indirectly redeem purchase or
otherwise acquire, recapitalize or reclassify any of its capital stock
or liquidate in whole or in part.
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ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
WISCONSIN ENERGY AND ACQUISITION
Each and every obligation of Wisconsin Energy and Acquisition to be
performed on the Closing Date and at the Effective Time of Merger shall be
subject to the satisfaction prior to or at the Closing and as of the
Effective Time of Merger of the following express conditions precedent:
7.1 COMPLIANCE WITH AGREEMENT. ESELCO shall have performed and
complied in all material respects with all of its obligations under this
Agreement which are to be performed or complied with by it prior to or on the
Closing Date and as of the Effective Time of Merger.
7.2 PROCEEDINGS AND INSTRUMENTS SATISFACTORY. All proceedings,
corporate or other, to be taken in connection with the transactions
contemplated by this Agreement, and all documents incident thereto, shall be
reasonably satisfactory in form and substance to Wisconsin Energy, and ESELCO
shall have made available to Wisconsin Energy for examination the originals
or true and correct copies of all documents Wisconsin Energy may reasonably
request in connection with the transactions contemplated by this Agreement.
7.3 NO LITIGATION. No suit, action or other proceeding shall be
pending or threatened before any court in which the consummation of the
transactions contemplated by this Agreement is restrained or enjoined or in
which the relief requested is to restrain, enjoin or prohibit the
consummation of the transactions contemplated by this Agreement.
7.4 REPRESENTATIONS AND WARRANTIES OF ESELCO. The representations
and warranties made by ESELCO in this Agreement shall be true and correct in
all material respects when made, as of the Closing Date and as of the
Effective Time of Merger with the same force and effect as though said
representations and warranties had been made on the Closing Date, subject to
Section 3.4(b) of this Agreement with respect to the Closing Date and the
Effective Time of Merger.
7.5 NO ESELCO MATERIAL ADVERSE EFFECT. During the period from the
date of this Agreement to the Closing Date and as
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of the Effective Time of Merger there shall not have occurred, and there
shall not exist on the Closing Date and as of the Effective Time of Merger,
any ESELCO Material Adverse Effect, whether or not previously disclosed
pursuant to Section 3.4(b) of this Agreement.
7.6 APPROVAL OF ESELCO STOCKHOLDERS; CERTIFICATE OF MERGER.
This Agreement, the Merger and the transactions contemplated by this
Agreement shall have received the requisite approval and authorization
of the ESELCO Stockholders. The Certificate of Merger and the Plan of
Merger shall have been executed and delivered by ESELCO.
7.7 DELIVERIES AT CLOSING. ESELCO shall have delivered to
Wisconsin Energy the following documents, each properly executed and
dated the Closing Date: (a) the ESELCO Closing Certificate; and (b)
the ESELCO Counsel Opinion.
7.8 OTHER DOCUMENTS. ESELCO shall have delivered to
Wisconsin Energy such certificates and documents of officers of ESELCO
and public officials as shall be reasonably requested by Wisconsin
Energy to establish the existence of the ESELCO Companies and the due
authorization of this Agreement and the transactions contemplated by
this Agreement by ESELCO.
7.9 GOVERNMENTAL APPROVALS.
(a) REGULATORY APPROVALS. There shall have been
secured such permissions, approvals, determinations, consents and
waivers from all appropriate state and federal regulatory authorities,
including FERC and SEC, as may be required by Law or by such Persons:
(i) in order for Wisconsin Energy and Acquisition to consummate the
Merger and the transactions described in this Agreement; and (ii) so
that Wisconsin Energy is either an exempt holding company under PUHCA
or a registered holding company under PUHCA.
(b) REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective under the Securities Act
and shall not be the subject of any stop order or proceedings to
effect a stop order. The Wisconsin Energy Common Stock issuable
pursuant to the Merger shall have been registered or shall be exempt
from registration under applicable state "blue sky" or securities
Laws.
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(c) HSR ACT. All necessary requirements of the HSR
Act shall have been complied with and any "waiting periods" applicable
to the Merger and to the transactions described in this Agreement
which are imposed by the HSR Act shall have expired prior to the
Closing Date or shall have been terminated by the appropriate agency.
(d) EFFECT OF APPROVALS. No permission, approval,
determination, consent or waiver received pursuant to Sections 7.9(a),
7.9(b) or 7.9(c) of this Agreement shall contain any condition
applicable to the ESELCO Companies, Wisconsin Energy or Acquisition,
or any one or more of them, which is, in the reasonable judgment of
Wisconsin Energy, materially adverse in any manner to the ESELCO
Companies, Wisconsin Energy or Acquisition.
7.10 LISTING. Wisconsin Energy shall have received notice
from the New York Stock Exchange that the shares of Wisconsin Energy
Common Stock to be issued pursuant to this Agreement are approved for
listing on the New York Stock Exchange subject to official notice of
issuance.
7.11 TAX OPINION. Wisconsin Energy shall have received an
opinion of Quarles & Brady, counsel to Wisconsin Energy, to the effect
that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and
that Wisconsin Energy, Acquisition and ESELCO will each be a party to
that reorganization within the meaning of Section 368(b) of the Code,
dated on or about the date that is two business days prior to the date
the Proxy Statement is first mailed to ESELCO Stockholders, and such
opinion shall not have been withdrawn or modified in any material
respect as of the Closing Date and the Effective Time of Merger.
7.12 ACCOUNTANT LETTERS. Wisconsin Energy shall have
received a copy of each of the following letters from Arthur
Andersen LLP, each of which shall be in form and substance reasonably
satisfactory to Wisconsin Energy and shall contain information
concerning the financial condition of ESELCO: (a) the letter
described in Section 3.9 of this Agreement; (b) a similar letter dated
the date of the mailing of the Proxy Statement; and (c) a similar
letter dated the Closing Date.
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7.13 POOLING OPINION. Wisconsin Energy shall have received
an opinion from Price Waterhouse LLP to the effect that the Merger
qualifies for pooling-of-interests accounting treatment if consummated
in accordance with this Agreement.
7.14 AFFILIATE LETTERS. Wisconsin Energy shall have
received an Affiliate Letter from each Person who is an Affiliate.
7.15 FRACTIONAL SHARES. The aggregate of the fractional
share interests in Wisconsin Energy Common Stock to be paid in cash
pursuant to Section 2.8(e) of this Agreement shall not be more than 5%
of the maximum aggregate number of shares of Wisconsin Energy Common
Stock which could be issued as a result of the Merger.
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ARTICLE VIII
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF ESELCO
Each and every obligation of ESELCO to be performed on the
Closing Date and at the Effective Time of Merger shall be subject to
the satisfaction prior to or at the Closing and as of the Effective
Time of Merger of the following express conditions precedent:
8.1 COMPLIANCE WITH AGREEMENT. Wisconsin Energy and
Acquisition shall have performed and complied in all material respects
with all of their obligations under this Agreement which are to be
performed or complied with by them prior to or on the Closing Date and
as of the Effective Time of Merger.
8.2 PROCEEDINGS AND INSTRUMENTS SATISFACTORY. All
proceedings, corporate or other, to be taken in connection with the
transactions contemplated by this Agreement, and all documents
incident thereto, shall be reasonably satisfactory in form and
substance to ESELCO, and Wisconsin Energy and Acquisition shall have
made available to ESELCO for examination the originals or true and
correct copies of all documents which ESELCO may reasonably request in
connection with the transactions contemplated by this Agreement.
8.3 NO LITIGATION. No suit, action or other proceeding
shall be pending before any court in which the consummation of the
transactions contemplated by this Agreement is restrained or enjoined.
8.4 REPRESENTATIONS AND WARRANTIES OF WISCONSIN ENERGY AND
ACQUISITION. The representations and warranties made by Wisconsin
Energy and Acquisition in this Agreement shall be true and correct in
all material respects when made, as of the Closing Date and as of the
Effective Time of Merger with the same force and effect as though such
representations and warranties had been made on the Closing Date.
8.5 APPROVAL OF ESELCO STOCKHOLDERS; CERTIFICATE OF MERGER.
This Agreement, the Merger and the other transactions contemplated by
this Agreement shall have received the requisite approval and
authorization of the ESELCO Stockholders. The
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Certificate of Merger and the Plan of Merger shall have been executed and
delivered by Acquisition.
8.6 DELIVERIES AT CLOSING. Wisconsin Energy and
Acquisition shall have delivered to ESELCO the following documents,
each properly executed and dated the Closing Date: (a) the Wisconsin
Energy Closing Certificate; and (b) the Wisconsin Energy Counsel
Opinion.
8.7 OTHER DOCUMENTS. Wisconsin Energy shall have delivered
to ESELCO such certificates and documents of officers of Wisconsin
Energy and Acquisition and of public officials as shall be reasonably
requested by ESELCO to establish the existence of Wisconsin Energy and
Acquisition and the due authorization of this Agreement and the
transactions contemplated by this Agreement by Wisconsin Energy and
Acquisition.
8.8 GOVERNMENTAL APPROVALS.
(a) REGULATORY APPROVALS. There shall have been
secured such permissions, approvals, determinations, consents and
waivers from all appropriate state and federal regulatory authorities,
including FERC and SEC, as may be required by Law or by such Persons
in order for ESELCO to consummate the Merger and the transactions
described in this Agreement.
(b) REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective under the Securities Act
and shall not be the subject of any stop order or proceedings to
effect a stop order. The Wisconsin Energy Common Stock issuable
pursuant to the Merger shall have been registered or shall be exempt
from registration under applicable state "blue sky" or securities
Laws.
(c) HSR ACT. All necessary requirements of the HSR
Act shall have been complied with and any "waiting periods" applicable
to the Merger and to the transactions described in this Agreement
which are imposed by the HSR Act shall have expired prior to the
Closing Date or shall have been terminated by the appropriate agency.
8.9 TAX OPINION. ESELCO shall have received an opinion of
Quarles & Brady, counsel to Wisconsin Energy, to the effect that the
Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a)
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of the Code, and that Wisconsin Energy, Acquisition and ESELCO will each be a
party to that reorganization within the meaning of Section 368(b) of the
Code, dated on or about the date that is two business days prior to the date
the Proxy Statement is first mailed to ESELCO Stockholders, and such opinion
shall not have been withdrawn or modified in any material respect as of the
Closing Date and the Effective Time of Merger.
8.10 ACCOUNTANT LETTERS. ESELCO shall have received a copy of each
of the following letters from Price Waterhouse LLP, each of which shall be in
form and substance reasonably satisfactory to ESELCO and shall contain
information concerning the financial condition of Wisconsin Energy: (a) the
letter described in Section 3.10 of this Agreement; (b) a similar letter
dated the date of the mailing of the Proxy Statement; and (c) a similar
letter dated the Closing Date.
8.11 NO MATERIAL ADVERSE CHANGE. During the period from the date of
this Agreement to the Closing Date there shall not have occurred any event,
condition or fact which is continuing on the Closing Date and which is
materially adverse to the financial condition of Wisconsin Energy and the
Subsidiaries of Wisconsin Energy, taken as a whole.
8.12 LISTING. Wisconsin Energy shall have received notice from the
New York Stock Exchange that the shares of Wisconsin Energy Common Stock to
be issued pursuant to this Agreement are approved for listing on the New York
Stock Exchange subject to official notice of issuance.
ARTICLE IX
TERMINATION; MISCELLANEOUS
9.1 TERMINATION. This Agreement may be terminated and the
transactions contemplated by this Agreement may be abandoned at any time
prior to the Closing (whether before or after approval of this Agreement by
the ESELCO Stockholders), as follows:
(a) by mutual written agreement of Wisconsin Energy
and ESELCO;
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(b) by Wisconsin Energy if any of the conditions set
forth in Article VII of this Agreement shall not have been fulfilled
by the Closing;
(c) by ESELCO if any of the conditions set forth in
Article VIII of this Agreement shall not have been fulfilled by the
Closing;
(d) by Wisconsin Energy pursuant to Section 3.4(b) of
this Agreement;
(e) by ESELCO pursuant to Section 3.8(d) of this
Agreement; or
(f) by either Wisconsin Energy or ESELCO if the
Closing has not occurred on or before December 31, 1998 (the "Initial
Termination Date"), provided however that if on the Initial
Termination Date the conditions to the Closing set forth in Sections
7.9 and 8.8 of this Agreement shall not have been fulfilled, then the
Initial Termination Date shall be extended to June 30, 1999.
9.2 RIGHTS ON TERMINATION; WAIVER. If this Agreement is
terminated pursuant to Section 9.1 of this Agreement, all further
obligations of the parties under or pursuant to this Agreement shall
terminate without further liability of any party (including its
directors, officers, employees, agents, legal, accounting or financial
advisors or other representatives) to the others, provided that: (a)
the obligations of Wisconsin Energy and Acquisition contained in
Sections 3.3(b), 3.13, 9.2, 9.4, 9.5, 9.8, 9.12 and 9.13 of this
Agreement shall survive any such termination; (b) the obligations of
ESELCO contained in Sections 3.8(e) (except as described in Section
3.8(f) of this Agreement), 3.13, 9.2, 9.4, 9.5, 9.7, 9.8, 9.12 and
9.13 of this Agreement shall survive any such termination; and (c)
each party to this Agreement shall retain any and all remedies which
it may have for breach of contract provided by Law based on another
party's willful failure to comply with the terms of this Agreement.
If any of the conditions set forth in Article VII of this Agreement
have not been satisfied, Wisconsin Energy may nevertheless elect to
proceed with the consummation of the transactions contemplated by this
Agreement and if any of the conditions set forth in Article VIII of
this Agreement have not been satisfied, ESELCO may nevertheless elect
to proceed with the consummation of the transactions contemplated by
this Agreement.
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Any such election to proceed shall be evidenced by a certificate signed on
behalf of the waiving party by an officer of that party.
9.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties and covenants of the parties contained in this
Agreement (other than the covenants contained in Sections 2.8, 2.9, 2.10,
9.3, 9.4, 9.5, 9.8 and 9.15 of this Agreement) or made pursuant to this
Agreement shall terminate and be of no further force and effect at the
Effective Time of Merger and none of the parties shall have any liability or
obligation with respect thereto.
9.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the documents
referred to in this Agreement and required to be delivered pursuant to this
Agreement constitute the entire agreement among the parties pertaining to the
subject matter of this Agreement, and supersede the Letter of Intent and all
prior and contemporaneous agreements, understandings, negotiations and
discussions of the parties, whether oral or written, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter of this Agreement, except as specifically
set forth in this Agreement. This Agreement may be amended by the parties at
any time before or after approval of this Agreement by the ESELCO
Stockholders, except that after such approval, no amendment shall be made
without the further approval of the ESELCO Stockholders if any such
amendment: (a) changes the Exchange Ratio; or (b) materially adversely
affects the rights of the ESELCO Stockholders. No amendment, supplement,
modification, waiver or termination of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provision of this Agreement, whether or not similar, nor shall
such waiver constitute a continuing waiver unless otherwise expressly
provided.
9.5 EXPENSES. (a) All costs and expenses incurred in
connection with this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such expenses,
except that: (i) Wisconsin Energy shall pay the filing fee relating to
the filing required by the HSR Act; and (ii) those expenses incurred
in connection with printing the Proxy Statement and Registration
Statement, as well as the
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filing fee relating thereto, shall be shared equally by ESELCO, on the one
hand, and Wisconsin Energy, on the other hand.
(b) The Disclosure Schedule includes an estimate by
ESELCO of all costs and expenses incurred or to be incurred by ESELCO
in connection with the transactions contemplated by this Agreement
except for those costs shared by ESELCO pursuant to Section 9.5(a) of
this Agreement.
9.6 GOVERNING LAW. This Agreement shall be construed and
interpreted according to the Laws of the State of Michigan.
9.7 ASSIGNMENT. Prior to the Effective Time of Merger,
this Agreement shall not be assigned:
(a) by ESELCO except with the prior written consent of
Wisconsin Energy; and
(b) by Wisconsin Energy or Acquisition, except: (i)
with the prior written consent of ESELCO; or (ii) to a Subsidiary of
Wisconsin Energy; or (iii) in connection with a sale or transfer of
all or substantially all of the assets of Wisconsin Energy or a
reorganization, merger, tender offer, consolidation or similar
transaction affecting all or substantially all of the outstanding
equity interests of Wisconsin Energy.
9.8 NOTICES. All communications or notices required or
permitted by this Agreement shall be in writing and shall be deemed to
have been given at the earlier of the date when actually delivered to
an officer of a party by personal delivery or telephonic facsimile
transmission or when deposited in the United States mail, certified or
registered mail, postage prepaid, return receipt requested, and
addressed as follows, unless and until any of such parties notifies
the others in accordance with this Section of a change of address:
If to Wisconsin Energy or Wisconsin Energy Corporation
Acquisition: Attention: Calvin H. Baker
231 West Michigan Street
P.O. Box 2949
Milwaukee, WI 53201
Fax No: 414-221-5068
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<PAGE>
with a copy to:
Quarles & Brady
Attention: Patrick M. Ryan
411 East Wisconsin Avenue
Milwaukee, WI 53202
Fax No: 414-271-3552
If to ESELCO: ESELCO, Inc.
Attention: William R. Gregory
725 East Portage Avenue
Sault Ste. Marie, MI 49733
Fax No: 906-632-8444
with a copy to:
Kutak Rock
Attention: Joe E. Armstrong
The Omaha Building
1650 Farnam Street
Omaha, Nebraska 68102-2186
Fax No: 402-346-1148
9.9 COUNTERPARTS; HEADINGS. This Agreement may be executed
in several counterparts, each of which shall be deemed an original,
but such counterparts shall together constitute but one and the same
Agreement. The Table of Contents and Article and Section headings in
this Agreement are inserted for convenience of reference only and
shall not constitute a part hereof.
9.10 INTERPRETATION. Unless the context requires otherwise,
all words used in this Agreement in the singular number shall extend
to and include the plural, all words in the plural number shall extend
to and include the singular, and all words in any gender shall extend
to and include all genders. The language used in this Agreement shall
be deemed to be language chosen by the parties to this Agreement to
express their mutual intent. In the event an ambiguity or question of
intent or interpretation arises concerning the language of this
Agreement, this Agreement shall be construed as if drafted jointly by
the parties to this Agreement and no presumption or burden of proof
will arise favoring or disfavoring any party to this Agreement by
virtue of the authorship of any of the provisions of this Agreement.
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9.11 SEVERABILITY. If any provision, clause, or part of
this Agreement, or the application thereof under certain
circumstances, is held invalid, the remainder of this Agreement, or
the application of such provision, clause or part under other
circumstances, shall not be affected thereby unless such invalidity
materially impairs the ability of the parties to consummate the
transactions contemplated by this Agreement.
9.12 SPECIFIC PERFORMANCE. The parties agree that the
assets and business of the ESELCO Companies as a going concern
constitute unique property. There is no adequate remedy at Law for
the damage which any party might sustain for failure of the other
parties to consummate the Merger and the transactions contemplated by
this Agreement, and accordingly, each party shall be entitled, at its
option, to the remedy of specific performance to enforce the Merger
pursuant to this Agreement.
9.13 NO RELIANCE. Except for the parties to this Agreement
and any assignees permitted by Section 9.7 of this Agreement: (a) no
Person is entitled to rely on any of the representations, warranties
and agreements of the parties contained in this Agreement; and (b) the
parties assume no liability to any Person because of any reliance on
the representations, warranties and agreements of the parties
contained in this Agreement.
9.14 EXHIBITS AND DISCLOSURE SCHEDULE. If a document or
matter is disclosed in any Exhibit to this Agreement or in the
Disclosure Schedule, it shall be deemed to be disclosed for all
purposes of this Agreement without the necessity of specific
repetition or cross-reference. All capitalized terms used in any
Exhibit to this Agreement or in the Disclosure Schedule shall have the
definitions specified in this Agreement.
9.15 FURTHER ASSURANCES. If, at any time after the
Effective Time of Merger, any further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets,
properties, rights, privileges, powers and franchises of either
Acquisition or ESELCO, the officers of the Surviving Corporation are
fully authorized to take any such action in the name of Acquisition or
ESELCO.
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IN WITNESS WHEREOF, the parties have caused this Amended and
Restated Agreement and Plan of Reorganization to be duly executed as
of the day and year first above written.
WISCONSIN ENERGY CORPORATION
By ____________________________________
Richard A. Abdoo,
Chairman of the Board, President and
Chief Executive Officer
Attest:
_______________________________________
Thomas H. Fehring,
Assistant Secretary
ESELCO, INC
By ____________________________________
William R. Gregory, President and
Chief Executive Officer
Attest:
______________________________________
Donald C. Wilson, Secretary
ESL ACQUISITION, INC.
By ___________________________________
Richard A. Abdoo,
Chairman of the Board, President
and Chief Executive Officer
Attest:
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______________________________________
Thomas H. Fehring,
Assistant Secretary
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<PAGE>
EXHIBITS
TO
AGREEMENT AND PLAN
OF
REORGANIZATION
1. Form of Affiliate Letter
2. Form of ESELCO Closing Certificate
3. Form of ESELCO Counsel Opinion
4. Form of Plan of Merger
5. Form of Wisconsin Energy Closing Certificate
6. Form of Wisconsin Energy Counsel Opinion
<PAGE>
EXHIBIT 1
AFFILIATE LETTER
______________, 19__
_______________________
Name of Affiliate
Wisconsin Energy Corporation
231 W. Michigan Street
P.O. Box 2949
Milwaukee, WI 53201
Ladies and Gentlemen:
I have been advised that as of the date of the meeting of
stockholders of ESELCO, Inc. ("ESELCO") to vote on the transaction
described below, and as of the date hereof, I may be deemed an
"affiliate" (as that term is defined for purposes of Rule 145(c) and
(d) under the Securities Act of 1933, as amended (the "Act")) of
ESELCO. Pursuant to the terms of the Amended and Restated Agreement
and Plan of Reorganization dated as of May 13, 1997 as amended and
restated as of July 11, 1997 (the "Reorganization Agreement") among
ESELCO, Wisconsin Energy Corporation ("Wisconsin Energy") and ESL
Acquisition, Inc. ("Acquisition") Acquisition will be merged with and
into ESELCO in a transaction (the "Merger") in which I will receive
shares of $.01 par value common stock of Wisconsin Energy (the
"Shares") in exchange for shares of common stock of ESELCO which I own
at the "Effective Time of Merger" (as that term is defined in the
Reorganization Agreement).
In connection with the Merger, I represent and warrant to,
and agree with, Wisconsin Energy that:
1. I have carefully read this Affiliate Letter and
discussed its requirements and other applicable limitations upon the
sale, transfer or other disposition of the Shares, to the extent I
felt necessary, with my counsel or counsel for ESELCO.
<PAGE>
Wisconsin Energy Corporation
_____________________, 199___
Page 2
2. I have carefully read the Reorganization Agreement
relating to the Merger and discussed its requirements and its impact
upon my ability to sell, transfer or otherwise dispose of the Shares,
to the extent I felt necessary, with my counsel or counsel for ESELCO.
3. I have been informed by Wisconsin Energy that the
distribution by me of the Shares has not been registered under the Act
and that the Shares must be held by me indefinitely unless (i) such
distribution of the Shares has been registered under the Act, (ii) a
sale of the Shares is made in conformity with the volume and other
limitations of Rule 145 promulgated by the Securities and Exchange
Commission (the "Commission") under the Act (and otherwise in
accordance with Rule 144 under the Act if I am an affiliate of
Wisconsin Energy and if so required at the time), or (iii) some other
exemption from registration is available with respect to any such
proposed sale, transfer or other disposition of the Shares in the
opinion of counsel satisfactory to Wisconsin Energy. I agree that I
will not make any sale, transfer or other disposition of the Shares in
violation of the Act or the rules and regulations of the Commission
thereunder.
4. I understand that Wisconsin Energy is under no
obligation to register the sale, transfer or other disposition of the
Shares by me or on my behalf or to take any other action necessary in
order to make compliance with an exemption from registration
available, except for Wisconsin Energy's customary procedures in
connection with sales of its stock in conformity with Rule 145. By
accepting this Affiliate Letter, Wisconsin Energy agrees to exert its
best efforts to timely file with the Commission all of the reports it
is required to file under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
5. I also understand Wisconsin Energy may decline to
register any transfer of the Shares inconsistent with this Affiliate
Letter, that stop transfer instructions will be given to Wisconsin
Energy's transfer agent(s) with respect to the Shares
<PAGE>
Wisconsin Energy Corporation
_____________________, 199___
Page 3
and that there will be placed on the certificates for the Shares, or any
substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of
1933, as amended (the "Act"), applies and may be sold or otherwise
transferred only in compliance with the limitations of such Rule 145, or
upon receipt by Wisconsin Energy Corporation of an opinion of counsel
acceptable to it that some other exemption from registration under the
Act is available, or pursuant to a registration statement under the Act.
The shares represented by this certificate may not be sold or otherwise
transferred prior to the publication by Wisconsin Energy Corporation of
post-transaction combined financial results covering at least 30 days of
operations subsequent to [insert date of Effective Time of Merger under
the Reorganization Agreement]."
By accepting this Affiliate Letter, Wisconsin Energy agrees that upon
my request and delivery to the transfer agent(s) of such legended
certificates and after passage of the period referred to in the second
sentence of such legend, it will instruct the transfer agent(s) to
deliver to me substitute certificates of Wisconsin Energy common stock
with a legend consisting solely of the first sentence of the legend
set forth above.
6. I have no present plan or intention to sell, exchange
or otherwise dispose of the Shares to be received by me in the Merger.
7. I have not, within the 30 days prior to the date hereof,
sold, transferred, or otherwise disposed of, or reduced my risk
relative to, any shares of ESELCO or Wisconsin Energy capital stock
beneficially owned by me and, notwithstanding the other provisions
hereof, I will not sell, transfer, or otherwise dispose of, or reduce
my risk relative to, any Shares received by me in
<PAGE>
Wisconsin Energy Corporation
_____________________, 199___
Page 4
the Merger or any other shares of Wisconsin Energy capital stock which I may
beneficially own until after such time as financial results covering at least
30 days of post-Merger combined operations of Wisconsin Energy and ESELCO
have been published by Wisconsin Energy, in the form of a quarterly earnings
report, an effective registration statement filed with the Commission, a
report to the Commission on Form 10-K, 10-Q or 8-K, or other public filing or
announcement which includes the combined financial results of operations. I
understand that, until such time, Wisconsin Energy may refuse to register
such transfer and that stop transfer instructions will be given to Wisconsin
Energy's transfer agent(s) with respect to the Shares or such other shares of
Wisconsin Energy capital stock.
It is understood and agreed that this Affiliate Letter shall
terminate and be of no further force and effect and the legend set
forth in paragraph 5 above shall be removed by delivery of substitute
certificates without such legend, and the related stock transfer
restrictions shall be lifted forthwith, if the period of time
specified in paragraph 7 above has passed and:
(a) my Shares shall have been registered under the Act for
sale, transfer or other disposition by me or on my behalf; or
(b) I am not at the time (and, if clause (ii) below
applies, I have not been for at least the preceding three months) an
affiliate of Wisconsin Energy and have beneficially owned the Shares
for at least (i) one (1) year (or such other period as may be
prescribed by the Act, and the rules promulgated thereunder) and
Wisconsin Energy has filed with the Commission all of the reports it
is required to file under the Exchange Act, during the preceding
twelve (12) months, or (ii) two (2) years (or such other period as may
be prescribed by the Act and the rules thereunder) if the
aforementioned condition as to filing reports with the Commission has
not been met; or
<PAGE>
Wisconsin Energy Corporation
_____________________, 199___
Page 5
(c) Wisconsin Energy shall have received a letter from the
staff of the Commission, or an opinion of Quarles & Brady or other
counsel acceptable to Wisconsin Energy, to the effect that the stock
transfer restrictions and the legend are not required.
Very truly yours,
_____________________________
Accepted as of the ____ day of
________________, 19__.
WISCONSIN ENERGY CORPORATION
By: ___________________________
<PAGE>
EXHIBIT 2
ESELCO, INC.
CLOSING CERTIFICATE
I, _____________, do hereby certify that:
1. I am the duly elected, qualified and acting __________
of ESELCO, Inc., a Michigan corporation ("ESELCO").
2. I am familiar with the terms of the Amended and
Restated Agreement and Plan of Reorganization (the "Reorganization
Agreement"), dated as of May 13, 1997 as amended and restated as of
July 11, 1997, by and among ESELCO, ESL Acquisition, Inc., a Michigan
corporation ("Acquisition") and Wisconsin Energy Corporation, a
Wisconsin corporation ("Wisconsin Energy").
3. I make this Certificate pursuant to the provisions of
Section 7.7(a) of the Reorganization Agreement with the intention that
it shall be relied upon by Acquisition and Wisconsin Energy.
4. ESELCO has performed and complied in all material
respects with all of its obligations under the Reorganization
Agreement which are to be performed or complied with by it prior to or
on the date hereof.
5. The representations and warranties made by ESELCO in
the Reorganization Agreement are true and correct in all material
respects as of the date hereof with the same force and effect as
though said representations and warranties had been made on the date
hereof.
IN WITNESS WHEREOF, I have executed this Certificate in my
official capacity on this ____ day of _________, 199___.
ESELCO, INC.
By: _______________________________
<PAGE>
[LETTERHEAD]
EXHIBIT 3
________________, 199_
Wisconsin Energy Corporation
Attention: Calvin H. Baker
231 West Michigan Street
P.O. Box 2949
Milwaukee, Wisconsin 53201
Gentlemen and Ladies:
We have acted as counsel for ESELCO, Inc., a Michigan
corporation ("ESELCO"), in connection with the negotiation,
preparation, execution and delivery of the Amended and Restated
Agreement and Plan of Reorganization, dated as of May 13, 1997 as
amended and restated as of July 11, 1997 (the "Reorganization
Agreement"), by and among Wisconsin Energy Corporation ("Wisconsin
Energy"), ESL Acquisition, Inc. ("Acquisition") and ESELCO, and the
transactions contemplated thereby. We are furnishing this opinion at
the request of ESELCO pursuant to Section 7.7(b) of the Reorganization
Agreement. Capitalized terms not otherwise defined herein have the
meanings assigned to them in the Reorganization Agreement.
In rendering this opinion, we have examined such corporate
records, certificates, instruments and other documents of the ESELCO
Companies and questions and matters of law, as we have considered
necessary and appropriate for purposes of this opinion. In giving the
various opinions set forth below, we have, with respect to factual
matters, relied on certificates and similar documents furnished by
public officials and by officers of the ESELCO Companies (which
include a certification of ESELCO's officers of the accuracy of the
representations and warranties made by ESELCO in the Reorganization
Agreement).
<PAGE>
Wisconsin Energy Corporation
_____________________, 199___
Page 2
We have assumed that: (i) all certificates of public
officials examined by us are accurate; (ii) each document submitted to
us as an original is authentic and complete; (iii) each document
submitted to us as a certified or photostatic copy conforms to an
authentic original; (iv) each of the parties (other than ESELCO) to
the Reorganization Agreement has duly and validly executed and
delivered the Reorganization Agreement; (v) all signatures (other than
the signatures on behalf of ESELCO) on documents reviewed by us are
genuine; (vi) each person executing the Reorganization Agreement
(other than on behalf of ESELCO) on behalf of such party is authorized
to do so; (vii) the obligations of each party (other than ESELCO)
under the Reorganization Agreement are such party's legal, valid and
binding obligations, enforceable in accordance with the terms of the
Reorganization Agreement; (viii) the Reorganization Agreement
accurately describes and contains the mutual understanding of the
parties; and (ix) there are no oral or written statements or
agreements that purport to modify, amend or vary any of the terms of
the Reorganization Agreement.
Based upon the foregoing, and subject to the qualifications,
assumptions and limitations set forth herein, it is our opinion that:
1. Each of the ESELCO Companies is a corporation duly
incorporated, validly existing and in good standing under the Laws of
the State of Michigan, and has the requisite corporate power and
authority to carry on its business as now being conducted.
2. ESELCO has the necessary corporate power and authority
to enter into, execute and deliver the Reorganization Agreement, to
perform its obligations thereunder and to consummate the transactions
contemplated thereby.
3. The execution and delivery of the Reorganization Agreement by
ESELCO and the consummation by ESELCO of the
<PAGE>
Wisconsin Energy Corporation
_____________________, 199___
Page 3
transactions contemplated thereby have been duly authorized by all necessary
corporate action on the part of ESELCO.
4. The Reorganization Agreement has been duly executed and
delivered by ESELCO and constitutes a legal, valid and binding
obligation of ESELCO, enforceable against ESELCO in accordance with
its terms, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar Laws generally affecting the rights of creditors and subject
to general equity principles.
5. The execution and delivery of the Reorganization
Agreement by ESELCO, do not, and the performance of the Reorganization
Agreement by ESELCO will not, conflict with or violate: (a) the
Articles of Incorporation or Bylaws of ESELCO; or (b) any material
federal or Michigan state or local Law, rule, regulation, order or
governmental requirement applicable to any of the ESELCO Companies or
by which any of its properties is bound or affected.
6. The entire authorized capital stock of ESELCO consists
of: (a) 9,840,000 shares of Common Stock, $0.01 par value, of which
1,593,180 shares are issued and outstanding and no shares are held by
any of the ESELCO Companies; and (b) 160,000 shares of Preferred
Stock, $0.01 par value, none of which are issued and outstanding.
7. The entire authorized capital stock of Edison Sault
consists of: (a) 3,000,000 shares of Common Stock, $1.00 par value, of
which 673,929 shares are issued and outstanding, all of which are
owned by ESELCO; and (b) 160,000 shares of Preferred Stock, $25.00 par
value, none of which are issued and outstanding.
8. The entire authorized capital stock of ESEG consists of
100 shares of Common Stock, $0.01 par value, of
<PAGE>
Wisconsin Energy Corporation
_____________________, 199___
Page 4
which 100 shares are issued and outstanding, all of which are owned by ESELCO.
9. The entire authorized capital stock of NTS consists of
100 shares of Common Stock, $0.01 par value, of which 100 shares are
issued and outstanding, all of which are owned by ESELCO.
10. All of the issued and outstanding shares of capital
stock of each of the ESELCO Companies are duly authorized, validly
issued, fully paid and nonassessable and free of preemptive rights.
To our knowledge after due inquiry, there are no options, warrants,
conversion rights or other rights to subscribe for or purchase, or
other contracts with respect to, any capital stock of any of the
ESELCO Companies (except for the Reorganization Agreement).
11. The Proxy Statement (excluding the financial statements
and other financial and statistical information included or
incorporated by reference therein or omitted therefrom, and all
information about, or supplied or omitted by, Wisconsin Energy and
Acquisition for use in the Proxy Statement, as to all of which we do
not express any opinion), at the date it was first mailed to holders
of ESELCO Common Stock and at the time of the ESELCO Special Meeting,
complied as to form in all material respects with the requirements of
the Exchange Act and the rules and regulations thereunder.
We have participated in the preparation and filing of the
Proxy Statement and the Registration Statement and, in the course of
such preparation, in conferences with certain officers and employees
of the ESELCO Companies and representatives of Wisconsin Energy and
Acquisition with respect thereto. Although we have not independently
verified, and are not passing upon or assuming any responsibility for,
the accuracy, completeness or fairness of the statements contained or
incorporated by reference in the Proxy Statement or the Registration
Statement,
<PAGE>
Wisconsin Energy Corporation
_____________________, 199___
Page 5
during the course of such participation no facts have come to our attention
which would lead us to believe that the Proxy Statement, at the date it was
first mailed to holders of ESELCO Common Stock and at the time of the ESELCO
Special Meeting, contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or that the Registration Statement,
when it became effective, contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading (except that we do
not express any belief with respect to the financial statements and other
financial and statistical information included or incorporated by reference
therein or omitted therefrom, or any information about, or supplied or
omitted by, Wisconsin Energy or Acquisition for use in the Proxy Statement or
the Registration Statement).
Each of the opinions as to enforceability of any agreement
or instrument is: (a) subject to the limitations set forth in the
General Qualifications stated in the Legal Opinion Accord of the ABA
Section of Business Law (1991), which General Qualifications are
attached hereto as Schedule 1; and (b) subject to the qualification
that certain provisions of such documents may be unenforceable in
whole or in part, but the inclusion of such provisions does not affect
the validity of any such documents as a whole and each of such
documents contains legally adequate provisions for the realization of
the principal legal rights and benefits afforded by it.
We are attorneys licensed to practice law in the State of
Nebraska. In rendering this opinion, we have relied as to certain
matters of Michigan law on an opinion of Honigman Miller Schwartz and
Cohn, a copy of which is attached hereto. Such opinion is
satisfactory to us in form and substance and, in our opinion, both you
and we are justified in relying thereon.
<PAGE>
Wisconsin Energy Corporation
_____________________, 199___
Page 6
The opinions expressed herein are specifically limited to the present
internal Law of the State of Michigan and federal Law of the United States of
America, are given as of the date of this letter, are intended to apply only
to those facts and circumstances that exist as of the date hereof, and we
assume no obligation or responsibility to update or supplement this opinion
to reflect any facts or circumstances occurring after the date hereof that
would alter the opinions contained herein.
Whenever this opinion refers to matters within our
"knowledge" or "known to us," such reference is limited to facts
within our actual knowledge after inquiry of the attorneys who have
given substantive legal attention to the representation of the ESELCO
Companies and facts represented to us by officers of the ESELCO
Companies.
We call to your attention that Mr. Alan L. Grauer, Esq., a
Partner in our firm, is a director and officer of ESELCO and Edison
Sault. We also call to your attention that the attorneys in our firm
who are actively representing the ESELCO Companies on matters relating
to the Reorganization Agreement, and other attorneys in our firm who
are known to those persons to own shares of ESELCO Common Stock,
collectively beneficially owned approximately ________ shares of
ESELCO Common Stock on the __________, 1997 record date for the ESELCO
Special Meeting, of which Mr. Grauer owns _____ shares.
The opinions set forth above are delivered to you in
connection with the transactions described in the Reorganization
Agreement. This opinion letter is rendered solely for your
information and assistance in connection with such transactions
described in the Reorganization Agreement and may not be provided to,
or used or relied upon by, any other person or for any other purpose
without our prior written consent.
Very truly yours,
KUTAK ROCK
<PAGE>
EXHIBIT 4
PLAN OF MERGER
OF
ESL ACQUISITION, INC.
INTO
ESELCO, INC.
THIS PLAN OF MERGER (the "Plan of Merger") is made as of
this ____ day of _________, 199____ by and between ESL ACQUISITION,
INC., a Michigan corporation ("Acquisition") and ESELCO, INC., a
Michigan corporation ("ESELCO").
RECITALS
WHEREAS, ESELCO, Acquisition and Wisconsin Energy
Corporation, a Wisconsin corporation ("Wisconsin Energy"), are parties
to an Amended and Restated Agreement and Plan of Reorganization, dated
as of May 13, 1997 as amended and restated on July 11, 1997 (the
"Reorganization Agreement"), providing for, among other things, the
merger of Acquisition with and into ESELCO (the "Merger");
WHEREAS, the respective Boards of Directors of ESELCO and
Acquisition have determined that the Merger is advisable, fair and in
the best interests of ESELCO and Acquisition and their respective
shareholders, and, by resolutions duly adopted, have approved the
Merger, the Reorganization Agreement, including this Plan of Merger,
and the transactions contemplated thereby;
WHEREAS, the shareholders of ESELCO and Acquisition, by
resolutions duly adopted, have approved the Merger, the Reorganization
Agreement, including this Plan of Merger, and the transactions
contemplated thereby; and
-1-
<PAGE>
WHEREAS, Acquisition is a wholly owned subsidiary of
Wisconsin Energy and no approval of the Merger by the shareholders of
Wisconsin Energy is required by law or otherwise.
NOW, THEREFORE, in consideration of the Recitals and of the
mutual agreements and covenants set forth in this Plan of Merger and
for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, ESELCO and Acquisition hereby agree
as follows:
-2-
<PAGE>
ARTICLE I
CORPORATE EXISTENCE OF THE SURVIVING CORPORATION
At the Effective Time of Merger, Acquisition shall be merged
with and into ESELCO which shall be the surviving corporation. The
corporate identity, existence, purposes, powers, franchises,
privileges, assets, properties and rights of ESELCO (hereinafter
sometimes referred to as the "Surviving Corporation") shall continue
unaffected and unimpaired by the Merger and the corporate identity,
existence, purposes, powers, franchises, privileges, assets,
properties and rights of Acquisition shall be merged into the
Surviving Corporation and the Surviving Corporation shall be fully
vested therewith. The separate existence of Acquisition, except
insofar as otherwise specifically provided by law, shall cease at the
Effective Time of Merger whereupon Acquisition and the Surviving
Corporation shall be and become one single corporation.
ARTICLE II
ARTICLES OF INCORPORATION OF SURVIVING CORPORATION
The Articles of Incorporation of ESELCO as in effect
immediately prior to the Effective Time of Merger shall be the
Articles of Incorporation of the Surviving Corporation until amended
in accordance with law.
ARTICLE III
BYLAWS OF SURVIVING CORPORATION
The Bylaws of ESELCO as in effect immediately prior to the
Effective Time of Merger shall be the Bylaws of the Surviving
Corporation until amended in accordance with law.
-3-
<PAGE>
ARTICLE IV
DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
The duly qualified and acting directors and officers of
Acquisition immediately prior to the Effective Time of Merger shall be
the directors and officers of the Surviving Corporation, to hold
office as provided in the Bylaws of the Surviving Corporation.
-4-
<PAGE>
ARTICLE V
CONVERSION OF ESELCO STOCK
(a) At the Effective Time of Merger, and without any action
on the part of the holders thereof:
(i) Each share of Common Stock of ESELCO outstanding
at the Effective Time of Merger shall be converted into __________
shares of Common Stock of Wisconsin Energy on the terms and conditions
set forth in the Reorganization Agreement.
(ii) Any shares of capital stock of ESELCO that are
owned by ESELCO, Edison Sault Electric Company, ESEG, Inc. or Northern
Tree Service, Inc. at the Effective Time of Merger shall be cancelled
and retired and cease to exist and no Common Stock of Wisconsin Energy
or other consideration shall be issued or delivered in exchange
therefor.
(b) No fractional shares of Common Stock of Wisconsin
Energy shall be issued in the Merger. All fractional share interests
of a holder of more than one certificate representing shares of Common
Stock of Acquisition at the Effective Time of Merger shall be
aggregated. If a fractional share interest results after such
aggregation, each holder of a fractional share interest shall be paid
an amount in cash equal to the product obtained by multiplying such
fractional share interest by $_______.
(c) There are no shares of Preferred Stock of ESELCO issued
and outstanding and there will be no shares of Preferred Stock of
ESELCO issued and outstanding as of the Effective Time of Merger.
-5-
<PAGE>
ARTICLE VI
CONVERSION OF ACQUISITION STOCK
At the Effective Time of Merger, and without any action on the part
of the holders thereof, each share of Common Stock of Acquisition outstanding
at the Effective Time of Merger shall be converted into one (1) share of
Common Stock of ESELCO on the terms and conditions set forth in the
Reorganization Agreement.
-6-
<PAGE>
ARTICLE VII
EFFECT OF THE MERGER
At the Effective Time of Merger, the effect of the Merger
shall be as provided in the Michigan Business Corporation Act.
ARTICLE VIII
EFFECTIVE TIME OF MERGER
The Effective Time of Merger shall be ______________.
ARTICLE IX
CONDITIONS AND TERMINATION
The conditions specified in Articles VII and VIII of the
Reorganization Agreement shall constitute conditions precedent to the
obligations of ESELCO and Acquisition as therein provided and if by
reason of the provisions of Articles VII and VIII of the
Reorganization Agreement, either ESELCO or Acquisition is not
obligated to consummate the Merger contemplated by this Plan of
Merger, then the party not obligated may terminate this Plan of Merger
prior to the Effective Time of Merger by delivery to the other party
of written notice of termination prior to the Effective Time of
Merger, and thereupon this Plan of Merger shall be terminated without
further liability of either party in favor of the other except as
provided in the Reorganization Agreement.
ARTICLE X
REORGANIZATION
The parties intend that this Plan of Merger be a plan of
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended, and that the Merger be a tax free
reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended.
-7-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused
this Plan of Merger to be executed on its behalf on the day and year
first above written.
ESELCO, INC.
(Corporate Seal)
By:___________________________
Name: ____________________
Title: ___________________
Attest:
______________________________
Name: ________________________
Title: _______________________
ESL ACQUISITION, INC.
(Corporate Seal)
By: __________________________
Name: ____________________
Title: ___________________
Attest:
______________________________
Name: ________________________
Title: _______________________
-8-
<PAGE>
EXHIBIT 5
WISCONSIN ENERGY CORPORATION
CLOSING CERTIFICATE
I, ______________, do hereby certify that:
1. I am the duly elected, qualified and acting __________
of Wisconsin Energy Corporation, a Wisconsin corporation ("Wisconsin
Energy").
2. I am familiar with the terms of the Amended and
Restated Agreement and Plan of Reorganization (the "Reorganization
Agreement"), dated as of May 13, 1997 as amended and restated on
July 11, 1997 by and among Wisconsin Energy, ESL Acquisition, Inc., a
Michigan corporation ("Acquisition") and ESELCO, Inc., a Michigan
corporation ("ESELCO").
3. I make this Certificate pursuant to the provisions of
Section 8.6(a) of the Reorganization Agreement with the intention that
it shall be relied upon by ESELCO.
4. Wisconsin Energy and Acquisition have performed and
complied in all material respects with all of their obligations under
the Reorganization Agreement which are to be performed or complied
with by them prior to or on the date hereof.
5. The representations and warranties made by Wisconsin
Energy and Acquisition in the Reorganization Agreement are true and
correct in all material respects as of the date hereof with the same
force and effect as though said representations and warranties had
been made on the date hereof.
IN WITNESS WHEREOF, I have executed this Certificate in my
official capacity on this ____ day of ____________, 199___.
WISCONSIN ENERGY CORPORATION
By:____________________________
-1-
<PAGE>
[LETTERHEAD]
EXHIBIT 6
________________, 199___
ESELCO, Inc.
Attention: William R. Gregory
725 East Portage Avenue
Sault Ste. Marie, Michigan 49733
Gentlemen and Ladies:
We have acted as counsel for Wisconsin Energy Corporation, a
Wisconsin corporation ("Wisconsin Energy") and ESL Acquisition, Inc.,
a Michigan corporation ("Acquisition"), in connection with the
negotiation, preparation, execution and delivery of the Amended and
Restated Agreement and Plan of Reorganization, dated as of May 13,
1997 as amended and restated as of July 11, 1997 (the "Reorganization
Agreement"), by and among ESELCO, Inc. ("ESELCO"), Acquisition and
Wisconsin Energy, and the transactions contemplated thereby. We are
furnishing this opinion at the request of Wisconsin Energy and
Acquisition pursuant to Section 8.6(b) of the Reorganization
Agreement. Capitalized terms not otherwise defined herein have the
meanings assigned to them in the Reorganization Agreement.
In rendering this opinion, we have examined such corporate
records, certificates, instruments and other documents of Wisconsin
Energy and Acquisition, and questions and matters of law, as we have
considered necessary and appropriate for purposes of this opinion. In
giving the various opinions set forth below, we have, with respect to
factual matters, relied on certificates and similar documents
furnished by public officials and by officers of Wisconsin Energy and
Acquisition (which include a certification of Wisconsin Energy's and
Acquisition's officers of the accuracy of the representations and
warranties made by Wisconsin Energy and Acquisition in the
Reorganization Agreement).
<PAGE>
ESELCO, Inc.
_______________, 199__
Page 2
We have assumed that: (i) all certificates of public officials
examined by us are accurate; (ii) each document submitted to us as an
original is authentic and complete; (iii) each document submitted to us as a
certified or photostatic copy conforms to an authentic original; (iv) each of
the parties (other than Wisconsin Energy and Acquisition) to the
Reorganization Agreement has duly and validly executed and delivered the
Reorganization Agreement; (v) all signatures (other than the signatures on
behalf of Wisconsin Energy and Acquisition) on documents reviewed by us are
genuine; (vi) each person executing the Reorganization Agreement (other than
on behalf of Wisconsin Energy or Acquisition) on behalf of such party is
authorized to do so; (vii) the obligations of each party (other than
Wisconsin Energy or Acquisition) under the Reorganization Agreement are such
party's legal, valid and binding obligations, enforceable in accordance with
the terms of the Reorganization Agreement; (viii) the Reorganization
Agreement accurately describes and contains the mutual understanding of the
parties; (ix) there are no oral or written statements or agreements that
purport to modify, amend or vary any of the terms of the Reorganization
Agreement; and (x) the certificates for Wisconsin Energy Common Stock to be
delivered pursuant to the Reorganization Agreement will (A) conform to the
specimen thereof examined by us (including the facsimile signatures of the
officers of Wisconsin Energy thereon) and (B) have been duly countersigned by
a transfer agent or assistant transfer agent and a registrar for the
Wisconsin Energy Common Stock in accordance with the resolutions of the Board
of Directors of Wisconsin Energy authorizing the issuance thereof.
Based upon the foregoing, and subject to the qualifications,
assumptions and limitations set forth herein, it is our opinion that:
-2-
<PAGE>
ESELCO, Inc.
_______________, 199__
Page 3
1. Wisconsin Energy is a corporation duly incorporated,
validly existing and in active status (meaning that it has filed its
most recent required annual report and has not filed articles of
dissolution) under the Laws of the State of Wisconsin, and has the
requisite corporate power and authority to carry on its business as
now being conducted.
2. Acquisition is a corporation duly incorporated, validly
existing and in good standing under the Laws of the State of Michigan,
and has the requisite corporate power and authority to carry on its
business as now being conducted.
3. Each of Wisconsin Energy and Acquisition has the
necessary corporate power and authority to enter into, execute and
deliver the Reorganization Agreement, to perform its obligations
thereunder and to consummate the transactions contemplated thereby.
4. The execution and delivery of the Reorganization
Agreement by each of Wisconsin Energy and Acquisition and the
consummation by Wisconsin Energy and Acquisition of the transactions
contemplated thereby have been duly authorized by all necessary
corporate action on the part of Wisconsin Energy and Acquisition.
5. The Reorganization Agreement has been duly executed and
delivered by each of Wisconsin Energy and Acquisition and constitutes
a legal, valid and binding obligation of Wisconsin Energy and
Acquisition, enforceable against Wisconsin Energy and Acquisition in
accordance with its terms, except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar Laws generally affecting the rights of creditors
and subject to general equity principles.
-3-
<PAGE>
ESELCO, Inc.
_______________, 199__
Page 4
6. The execution and delivery of the Reorganization
Agreement by each of Wisconsin Energy and Acquisition do not, and the
performance of the Reorganization Agreement by Wisconsin Energy and
Acquisition will not, conflict with or violate: (a) the Restated
Articles of Incorporation or Bylaws of Wisconsin Energy or the
Articles of Incorporation or Bylaws of Acquisition; or (b) any
material federal, Wisconsin or Michigan state or local Law, rule,
regulation, order or governmental requirement applicable to Wisconsin
Energy or Acquisition or by which any of their respective properties
is bound or affected.
7. The shares of Wisconsin Energy Common Stock to be
issued pursuant to the Reorganization Agreement, as set forth in the
Reorganization Agreement, are duly authorized and, when issued as
contemplated by the Reorganization Agreement, will be validly issued,
fully paid and nonassessable (except as otherwise provided in Section
180.0622(2)(b) of the Wisconsin Business Corporation Law, as
judicially interpreted).
8. The Registration Statement has become effective under
the Securities Act and, to our knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending under
the Securities Act.
9. The Registration Statement (excluding the financial
statements and other financial and statistical information included or
incorporated therein or omitted therefrom, and all information about,
or supplied or omitted by, the ESELCO Companies for use in the
Registration Statement, as to all of which we do not express any
opinion), at the time it became effective under the Securities Act,
complied as to form in all material respects with the requirements of
the Securities Act and the rules and regulations thereunder.
-4-
<PAGE>
ESELCO, Inc.
_______________, 199__
Page 5
We have participated in the preparation and filing of the
Proxy Statement and the Registration Statement and, in the course of
such preparation, in conferences with certain officers and employees
of Wisconsin Energy and Acquisition and representatives of the ESELCO
Companies with respect thereto. Although we have not independently
verified, and are not passing upon or assuming any responsibility for,
the accuracy, completeness or fairness of the statements contained or
incorporated by reference in the Proxy Statement or the Registration
Statement, during the course of such participation no facts have come
to our attention which would lead us to believe that the Proxy
Statement, at the date it was first mailed to holders of ESELCO Common
Stock and at the time of the ESELCO Special Meeting, contained any
untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, or that the Registration Statement, when it
became effective, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading (except that
we do not express any belief with respect to the financial statements
and other financial and statistical information included or
incorporated by reference therein, or any information about, or
supplied by, ESELCO for use in the Proxy Statement or the Registration
Statement).
Each of the opinions as to enforceability of any agreement
or instrument is: (a) subject to the limitations set forth in the
General Qualifications stated in the Legal Opinion Accord of the ABA
Section of Business Law (1991), which General Qualifications are
attached hereto as Schedule 1; and (b) subject to the qualification
that certain provisions of such documents may be unenforceable in
whole or in part, but the inclusion of such provisions does not affect
the validity of any such documents as a whole and each of such
documents contains legally adequate provisions for the realization of
the principal legal rights and benefits afforded by it.
-5-
<PAGE>
ESELCO, Inc.
_______________, 199__
Page 6
We are attorneys licensed to practice law in the States of
Wisconsin, Arizona and Florida. In rendering this opinion, we have
relied as to certain matters of Michigan law on an opinion of
______________ & __________, a copy of which is attached hereto. Such
opinion is satisfactory to us in form and substance and, in our
opinion, both you and we are justified in relying thereon. The
opinions expressed herein are specifically limited to the present
internal Law of the States of Michigan and Wisconsin and federal Law
of the United States of America, are given as of the date of this
letter, are intended to apply only to those facts and circumstances
that exist as of the date hereof, and we assume no obligation or
responsibility to update or supplement this opinion to reflect any
facts or circumstances occurring after the date hereof that would
alter the opinions contained herein.
Whenever this opinion refers to matters within our
"knowledge" or "known to us," such reference is limited to facts
within our actual knowledge after inquiry of the attorneys who have
given substantive legal attention to the representation of Wisconsin
Energy and Acquisition and facts represented to us by officers of
Wisconsin Energy and Acquisition.
We call to your attention that Mr. Larry J. Martin, Esq., a
Partner in our Firm, is General Counsel of Wisconsin Energy and
certain of its Subsidiaries. We also call to your attention that
attorneys in our firm who are actively representing Wisconsin Energy
and Acquisition on matters relating to the Reorganization Agreement
collectively beneficially owned approximately ________ shares of
Wisconsin Energy Common Stock on the __________, 1997 record date for
the ESELCO Special Meeting.
-6-
<PAGE>
ESELCO, Inc.
_______________, 199__
Page 7
The opinions set forth above are delivered to you in
connection with the transactions described in the Reorganization
Agreement. This opinion letter is rendered solely for your
information and assistance in connection with such transactions
described in the Reorganization Agreement and may not be provided to,
or used or relied upon by, any other person or for any other purpose
without our prior written consent.
Very truly yours,
QUARLES & BRADY
-7-
<PAGE>
ESELCO, Inc.
_______________, 199__
Page 1
DISCLOSURE SCHEDULE
This Disclosure Schedule, dated May 12, 1997, is the Disclosure
Schedule to be delivered by ESELCO, Inc. ("ESELCO") pursuant to the Agreement
and Plan of Reorganization dated as of May 13, 1997 by and among ESELCO,
Wisconsin Energy Corporation and ESL Acquisition, Inc. (the "Reorganization
Agreement"). The terms used in this Disclosure Schedule have the definitions
specified in the Reorganization Agreement.
Attached hereto are the disclosure statements as to the following
matters referenced in the following Sections of the Reorganization Agreement:
ITEM DESCRIPTION
---- ------------
1.31 Existing Indebtedness
1.32 Existing Insurance Policies
1.33 Existing Investments
1.34 Existing Liens
1.35 Existing Litigation
1.36 Existing Permits
1.37 Existing Plans
1.38 Existing Real Estate
1.51 Permitted Liens
<PAGE>
3.15(c) Description Of Early Retirement Window Program
3.15(f) List of Persons at 45%
4.1(b) Corporate Power and Authority
4.2 Capitalization
4.7(c) Bank accounts and safekeeping arrangements
4.8(d) Declarations or payments of dividends since
December 31, 1996
-2-
<PAGE>
4.10 List and Description of Existing Contracts
4.13 Certain Existing Insurance Policies
4.22 Certain Labor Matters
4.25 Certain Existing Permits
4.31 Description of certain Environmental Matters
4.32 Certain Accounts Matters
6.5(a) Description of certain Employment Matters
6.7 Certain Additional Indebtedness
9.5 List and Description of Expenses
ESELCO, INC.
By:
-------------------------------------
William R. Gregory,
President and Chief Executive Officer
Attest:
------------------------------------------
Donald C. Wilson, Secretary
Receipt of an executed copy of the Disclosure Schedule is
hereby acknowledged on this 13th day of May, 1997.
-3-
<PAGE>
WISCONSIN ENERGY CORPORATION
By:__________________________________
Richard A. Abdoo,
Chairman of the Board,
President and Chief
Executive Officer
Attest:
_____________________________________
Ann Marie Brady, Secretary
-4-
<PAGE>
ARTICLES OF INCORPORATION
OF
ESELCO, INC.
These Articles of Incorporation are executed pursuant to the provisions of
Act 284, Public Acts of 1972.
ARTICLE I
The name of the Corporation is ESELCO, Inc.
ARTICLE II
The purpose or purposes for which the Corporation is organized is to engage
in any activity within the purposes for which corporations may be organized
under the Business Corporation Act of Michigan.
ARTICLE III
Part 1. AUTHORIZED CAPITAL STOCK
The total authorized capital stock is:
1. COMMON STOCK: 3,000,000 shares par value $.01 per share;
2. PREFERRED STOCK: 160,000 shares par value $.01 per share.
The statement of the designations and the voting and other powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, of the Common Stock and of the Preferred Stock is as follows:
Part 2. ISSUE OF PREFERRED STOCK IN SERIES
The shares of preferred Stock may be issued from time to time in one or
more series with such relative rights and preferences of the shares of any such
series as may be determined by the Board of Directors. The Board of Directors
is authorized to fix by resolution or resolutions adopted prior to the issuance
of any shares of each particular series of Preferred Stock, the designation,
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powers, preferences and relative, participating, optional and other rights, and
the qualifications, limitations and restrictions thereof, if any, of such
series, including, but without limiting the generality of the foregoing, the
following:
(a) The rate of dividend, if any;
(b) The price at, and the terms and conditions upon which, shares may be
redeemed;
(c) The rights, if any, of the holders of shares of the series upon
voluntary or involuntary liquidation, merger, consolidation, distribution or
sale of assets, dissolution or winding up of the Corporation;
(d) Sinking fund or redemption or repurchase provisions, if any, to be
provided for shares of the series;
(e) The terms and conditions upon which shares may be converted into
shares of other series or other capital stock, if issued with the privilege of
conversion; and
(f) The voting rights in the event of default in the payment of dividends
or under such other circumstances and upon such conditions as the Board of
Directors may determine.
Part 3. VOTING RIGHTS
The holders of shares of the Common Stock shall be entitled to one vote per
share upon each matter coming before any meeting of stockholders.
No holder of any share of any series of Preferred Stock shall be entitled
to vote for the election of directors or in respect of any other matter except
as may be required by the Michigan Business Corporation Act, as amended, or as
is permitted by the resolution or resolutions adopted by the Board of Directors
authorizing the issue of such series of Preferred Stock.
Part 4. PREEMPTIVE RIGHTS
Holders of neither the Preferred Stock nor the Common Stock shall have any
preemptive rights to subscribe for any additional shares of capital stock of any
class, or obligations or securities of any kind convertible into shares of
capital stock of any class, at any time issued by the Corporation.
Part 5. QUORUM, MAJORITY VOTE
Subject to the provisions of any law to the contrary, at any meeting of
shareholders the presence in person or by proxy of shareholders entitled to
cast a majority in number of votes shall be necessary and sufficient to
constitute a quorum for the transaction of any business, and a majority of the
votes cast at any duly constituted meeting shall be necessary and sufficient to
elect and pass any measure.
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Part 6. ISSUANCE OF STOCK
Except as may be provided by law, the shares of capital stock of any class
or series may be issued by the Corporation from time to time without action by
the shareholders, for such lawful considerations as may from time to time be
fixed by the Board of Directors.
ARTICLE IV
The address of the initial registered office is: 725 East Portage Avenue,
Sault Ste. Marie, Michigan 49783.
The name of the initial resident agent is Donald Sawruk.
ARTICLE V
The name and address of the incorporator is:
Name Business Address
---- ------------------
Edison Sault Electric Company, 725 East Portage Avenue
a Michigan corporation Sault Ste. Marie MI 49783
ARTICLE VI
When a compromise or arrangement or a plan of reorganization of this
Corporation is proposed between this Corporation and its creditors or any class
of them or between this Corporation and its shareholders or any class of them, a
court of equity jurisdiction within the state, on application of this
Corporation or of a creditor or shareholder thereof, or on application of a
receiver appointed for the Corporation, may order a meeting of the creditors or
class of creditors or of the shareholders or class of shareholders to be
affected by the proposed compromise or arrangement or reorganization, to be
summoned in such manner as the court directs. If a majority in number
representing 3/4 in value of the creditors or class of creditors, or of the
shareholders or class of shareholders to be affected by the proposed compromise
or arrangement or reorganization, agree to a compromise or arrangement or a
reorganization of this Corporation as a consequence of the compromise or
arrangement, the compromise or arrangement and the reorganization, if sanctioned
by the court to which the application has been made, shall be binding on all the
creditors or class of creditors, or on all the shareholders or class of
shareholders and also on this Corporation.
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ARTICLE VII
1. 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 for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for a violation of Section 551(1) of the Michigan
Business Corporation Act, or (iv) for any transaction from which the director
derived an improper personal benefit. In the event the Michigan Business
Corporation Act is hereafter amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Michigan Business Corporation Act, as so amended. Any
repeal, amendment or other modification of this section shall not adversely
affect any right or protection of any director of the Corporation existing at
the time of such repeal, amendment or other modification for or with respect to
any act or omission occurring prior to the time of such repeal, amendment or
other modification.
2. The Corporation shall indemnify any person against expenses (including
attorneys' fees), judgements, fines and amounts paid in settlement actually and
reasonably incurred by such person by reason of the fact that such person is or
was a director or officer of the Corporation, in connection with any threatened,
pending or completed action, suit or proceeding to the full extent allowed by
Sections 561, 562, 563 and 564 of the Michigan Business Corporation Act from
time to time in effect (including, where permitted and upon any undertaking
required, payment in advance of expenses); provided, however, that except with
respect to actions, suits or proceedings initiated by any such person to enforce
his or her rights to indemnification or advancement of expenses under this
Article or otherwise, the Corporation shall indemnify any such person in
connection with an action, suit or proceeding initiated by such person only if
such action, suit or proceeding was authorized or ratified by the Board of
Directors of the Corporation. "Proceeding" as used in this Article shall
include any proceeding within an action or suit.
3. Without limiting in any way Section 2 of this Article:
(a) The Corporation may, by action of or approval by its Board of
Directors, provide indemnification and/or advancement of expenses to employees
or agents of the Corporation who are not directors or officers in the same
manner and to the same extent as such rights are provided to directors and
officers pursuant to this Article.
(b) The indemnification and advancement of expenses provided by or granted
pursuant to this Article shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under these Articles of Incorporation, the Bylaws, contractual agreement, or
otherwise by law and shall continue as to a person who has ceased to be a
director or officer of the Corporation and shall inure to the benefit of the
heirs, executors and administrators of such person.
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ARTICLE VIII
The board of Directors of the Corporation shall be divided into three
classes: Class I, Class II and Class III. Such classes shall be as nearly
equal in number as possible. The term of office of the initial Class I
Directors shall expire at the Annual Meeting of Stockholders in 1988; the
term of office of the initial Class II Directors shall expire at the Annual
Meeting of Stockholders in 1989; and the term of office of the initial Class
III Directors shall expire at the Annual Meeting of Stockholders in 1990; or
in each case thereafter when their respective successors are elected and have
qualified. At each annual election held after the initial election of
Directors according to classes, the Directors chosen to succeed those whose
terms then expire, shall be identified as being of the same class as the
Directors they succeed and shall be elected for a term expiring at the third
succeeding Annual Meeting of Stockholders or in each case thereafter when
their respective successors are elected and have qualified. If the number of
Directors has changed, any increase or decrease in Directors shall be
apportioned among the classes so as to maintain all classes as nearly equal
in number as possible, but in no case shall a decrease in number of Directors
shorten the term of any incumbent Director.
A director may be removed by the affirmative vote of a majority of the
members of the Board of Directors then in office. A director also may be
removed by shareholders, but only for cause, at an annual meeting of
Shareholders and by the affirmative vote of a majority of the shares then
entitled to vote for the election of directors. For purposes of this Article,
cause for removal shall be construed to exist only if a director whose removal
is proposed has been convicted of a felony by a court of competent jurisdiction
and such conviction is no longer subject to appeal or has been adjudged by a
court of competent jurisdiction to be liable for willful misconduct in the
performance of his or her duty to the Corporation in a matter of substantial
importance to the Corporation and such adjudication is no longer subject to
appeal.
The provisions set forth in this Article may not be repealed or amended in
any respect unless such repeal or amendment is approved by the affirmative vote
or consent of the holders of not less than two-thirds (2/3) of all shares of
stock of the Corporation entitled to vote in elections of directors, considered
for purposes of this Article as one class.
Edison Sault Electric Company, a Michigan corporation, the incorporator,
hereby causes these Articles of Incorporation to be executed by its duly
authorized officer this 16th day of December, 1987.
EDISON SAULT ELECTRIC COMPANY,
a Michigan corporation
By /s/ William R. Gregory
------------------------------------
William R. Gregory
Its President
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RESOLUTION ADOPTED AT THE REGULAR MEETING OF THE
DIRECTORS OF ESELCO, INC., HELD DECEMBER 8, 1988
WHEREAS, the State of Michigan has recently adopted the Stacey, Bennett
and Randall Shareholder Equity Act, MCL 450.1790 et seq, 1988 PA 58 (the
"Act");
WHEREAS, the Act provides that it shall not apply before June 1, 1989 to
a domestic corporation unless that corporation's board adopts a resolution
electing to have the Act apply and files such resolution with the Department
of Commerce;
WHEREAS, the Act provides that the owner of control shares can vote such
shares, and any other shares he acquired within 90 days of his acquisition of
control shares, only to the extent that shareholders empower him to vote;
WHEREAS, the Act defines control shares to include shares obtained by a
person which would, but for the Act, cause that person, alone or as part of a
group, to have 20% or more of the voting power of a corporation;
WHEREAS, the Act does not apply to shares obtained pursuant to a merger
agreement, if the issuing corporation is a part to such agreement;
WHEREAS, the Board believes that the Act provides significant
protections to shareholders in the event of an attempted or successful
hostile takeover of the Company; and
WHEREAS, the Board believes that there is no reason to delay the
effectiveness of the Act to the Company.
NOW, THEREFORE, BE IT RESOLVED that the Stacey, Bennett and Randall
Shareholder Equity Act, MCL 450.1790 et seq, as adopted in 1988 PA 58, shall
apply to ESELCO, INC. on and after January 31, 1989;
FURTHER RESOLVED that the proper officers of the Company and counsel for
the Company take all appropriate action to effectuate the intent of the above
resolutions, including the filing of same with the Michigan Department of
Commerce on or before January 31, 1989.
FURTHER RESOLVED that these resolutions are adopted pursuant to Section
2 of the Act as codified at MCL 450.1368, note.
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E S E L C O, I N C.
C E R T I F I C A T I O N O F R E S O L U T I O N
I, DONALD SAWRUK, Secretary of the ESELCO, INC. a Michigan
corporation, having in my custody and possession the corporate
records and seal of the Company, do hereby certify that the attached
Resolution is a true and correct copy of the Resolution duly adopted
by the Board of Directors of the Company at a regular meeting of said
Board duly convened and held in accordance with the By-Laws of the
Company on December 8, 1988, at which meeting a quorum was present
and voting throughout; and said Resolution is in full force and
effect.
WITNESS my hand and the corporate seal of the Company this 19th
day of January, 1989.
/s/ Donald Sawruk
--------------------------------
DONALD SAWRUK
Secretary
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Amendment To Articles of Incorporation
As Amended August 7, 1997
Article III of the Articles of Incorporation is hereby amended to read as
follows:
Part I. AUTHORIZED CAPTIAL STOCK
The total authorized capital stock is:
1. COMMON STOCK: 9,840,000 shares;
2. PREFERRED STOCK: 160,000 shares.
The statement of the designations and the voting and other powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, of the Common Stock and of the Preferred Stock is as follows:
Part 2. ISSUE OF PREFERRED STOCK IN SERIES
The shares of Preferred Stock may be issued from time to time in one or
more series with such relative rights and preferences of the shares of any
such series as may be determined by the Board of Directors. The Board of
Directors is authorized to fix by resolution or resolutions adopted prior to
the issuance of any shares of each particular series of
Preferred Stock, the designation, powers, preferences and relative,
participating, optional and other rights, and the qualifications, limitations
and restrictions thereof, if any, of such series, including, but without
limiting the generality of the foregoing, the following:
(a) The rate of dividend, if any;
(b) The price at, and the terms and conditions upon which, shares may
be redeemed;
(c) The rights, if any, of the holders of shares of the series upon
voluntary or involuntary liquidation, merger, consolidation, distribution
or sale of assets, dissolution or winding up of the Corporation;
(d) Sinking fund or redemption or repurchase provisions, if any, to be
provided for shares of the series;
(e) The terms and conditions upon which shares may be converted into
shares of other series or other capital stock, if issued with the
privilege of conversion; and
(f) The voting rights in the event of default in the payment of
dividends or under such other circumstances and upon such conditions
as the Board of Directors may determine.
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ESELCO INC.
BY-LAWS
By-Laws adopted ______ __, 1987.
(as amended May 4, 1992, with date of amendment)
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TABLE OF CONTENTS
Date of Last
Amendment Page
------------ ----
ARTICLE I STOCKHOLDERS 1
Section 1. Annual Meeting of Stockholders - 1
Section 2. Special Meeting of Stockholders - 1
Section 3. Notice of Annual Meeting and Special Meeting
of Stockholders - 1
Section 4. Quorum of Stockholders - 1
Section 5. Order of Business at Annual Stockholder
Meeting - 2
Section 6. Order of Business at Special Meeting of
Stockholders - 2
ARTICLE II BOARD OF DIRECTORS - 2
Section 1. Number and Time of Holding Office - 2
Section 2. Vacancies - 2
Section 3. Place of Meetings - 3
Section 4. Annual Organization Meeting of Directors - 3
Section 5. Special Meetings of Board of Directors - 3
Section 6. Action by Unanimous Written Consent of
Board of Directors - 3
Section 7. Committees of Board of Directors - 3
Section 8. Quorum - 4
Section 9. Notices of Meetings of Board of Directors - 4
Section 10. Order of Business for Board of Directors Meetings - 4
Section 11. Compensation of Directors - 4
ARTICLE III OFFICERS - 4
Section 1. Officers - 4
Section 2. Terms of Office - 5
Section 3. Chairman of the Board of Directors - 5
Section 4. Vice Chairman of the Board of Directors - 5
Section 5. President - 5
Section 6. Vice Presidents - 6
Section 7. Secretary - 6
Section 8. Vice President - Finance - 6
Section 9. Treasurer - 6
Section 10. Assistant Secretary - Assistant Treasurer - 6
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TABLE OF CONTENTS
Date of Last
Amendment Page
------------ ----
ARTICLE IV STOCK AND TRANSFERS 7
Section 1. Certificates for Shares - 7
Section 2. Transferable Only on Books of Company - 7
Section 3. Registered Stockholders - 7
Section 4. Transfer Agent and Registrar - 7
Section 5. Regulations - 7
Section 6. Lost and Destroyed Certificates - 7
Section 7. Redemption of Control Shares Added 09/19/88 8
ARTICLE V FINANCE 8
Section 1. Moneys of the Company - 8
ARTICLE VI VOTING, ELECTIONS, PROXIES, RECORD
DATE AND INSPECTIONS 9
Section 1. Entitled to Vote - 9
Section 2. Record Date for Determination of Stockholders - 9
Section 3. Proxies - 9
Section 4. Inspectors - 9
ARTICLE VII NOTICES 10
Section 1. Notices - 10
ARTICLE VIII SEAL 10
Section 1. Seal - 10
ARTICLE IX AMENDMENTS 10
Section 1. Amendments - 10
A:\INDEXBY.ESE
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ESELCO INC.
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. ANNUAL MEETING OF STOCKHOLDER
The annual meeting of the Stockholders of the Company shall be held
annually at the registered office of the Company in the City of Sault Ste.
Marie, County of Chippewa, State of Michigan, or at such other place in the City
of Sault Ste. Marie, Michigan, as designated by the Board of Directors, at 10:00
o'clock in the forenoon (10 o'clock A.M.), Sault Ste. Marie, Michigan Time, on
the first Tuesday of May in each year, if not a legal holiday, and if a legal
holiday, then on the next succeeding business day not a legal holiday, for the
purpose of electing Directors and for the transaction of such other business as
may be brought before the meeting.
Section 2. SPECIAL MEETING OF STOCKHOLDERS
Special Meetings of the Stockholders of the Company shall be held at the
registered office of the Company in the City of Sault Ste. Marie, County of
Chippewa, State of Michigan, or at such other place in Sault Ste. Marie,
Michigan, as designated by the Board of Directors, whenever called by the Board
of Directors or by the Chairman of the Board of Directors, or by the President
of the Company.
Section 3. NOTICE OF ANNUAL MEETING AND SPECIAL MEETINGS OF STOCKHOLDERS
The Secretary of the Company shall not more than sixty (60) days and not
less than ten (10) days prior to the date of the Annual Meeting of the
Stockholders or the date designated for a Special Meeting of the Stockholders
give written notice of the time, place, and in case of special meetings, the
purpose or purposes of the meeting by mailing said notice as hereinafter
provided in Section 1, Article VII, to each Stockholder entitled to vote at said
meeting. No notice of adjourned meeting shall be required.
Section 4. QUORUM OF STOCKHOLDERS
A majority of the shares entitled to vote on a particular subject matter
shall constitute a quorum for such vote unless otherwise provided by law or
Articles of Incorporation. The action of a majority of said quorum shall be the
act of the Stockholders unless otherwise provided by law or the Articles of
Incorporation. Meetings at which a quorum is not present may be adjourned to
another date by a majority vote of the stock represented.
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Section 5. ORDER OF BUSINESS AT ANNUAL STOCKHOLDERS MEETING
The order of business at the annual Stockholders meeting shall be as
follows:
1. Calling of Roll.
2. Proof of Notice of Meeting.
3. Reading and approval of minutes of previous meetings.
4. Reports of Officers and Committees.
5. Election of Directors.
6. Unfinished Business.
7. Transaction of other business which may properly come before meeting.
8. Adjournment.
Section 6. ORDER OF BUSINESS AT SPECIAL MEETING OF STOCKHOLDERS
The order of business at Special Stockholders meetings shall be as follows:
1. Calling of Roll.
2. Proof of Notice of Meeting.
3. Transaction of business specified in Notice of Meeting.
4. Adjournment.
ARTICLE II
BOARD OF DIRECTORS
Section 1. NUMBER AND TIME OF HOLDING OFFICE
The business and affairs of the Company shall be managed and controlled by
a Board of Directors. The number of Directors constituting the entire Board
shall be five (5), which number may be increased or decreased from time to time
by vote by ballot of a majority of the entire Board to a number not greater than
seven (7) and not less than five (5); but no such decrease shall serve to
shorten the term of office of any incumbent Director. All Directors shall be
shareholders of at least one hundred (100) shares, owned of record and
beneficially on and after January 1, 1989. All Directors shall be elected as
hereinbefore provided and shall hold office until their successors shall be duly
elected and qualified.
Section 2. VACANCIES
Vacancies in the Board of Directors shall be filled by appointment made by
the remaining Directors. Each person so elected to fill a vacancy shall remain
a Director for the unexpired term of the Director whose vacancy he filled.
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Section 3. PLACE OF MEETINGS
The Directors shall hold their meetings at the registered office of the
Company in the City of Sault Ste. Marie, County of Chippewa, State of Michigan,
or at such other place within or without the State of Michigan as a majority of
the Directors may from time to time determine by resolution. Provided, however,
the annual organization meeting shall be held at the registered office of the
Company in the City of Sault Ste. Marie, Michigan.
Section 4. ANNUAL ORGANIZATION MEETING OF DIRECTORS
The Board of Directors, reflecting any new members elected at the annual
meeting of the Stockholders, shall convene within the same day and after the
adjournment of the annual Stockholders meeting for the purpose of electing
officers and transacting such other business as may properly come before the
meeting.
Section 5. SPECIAL MEETINGS OF BOARD OF DIRECTORS
Special meetings of the Board of Directors may be called by the Chairman of
the Board of Directors and shall be called by the President of the Company at
the written request of any three (3) members of the Board of Directors.
Section 6. ACTION BY UNANIMOUS WRITTEN CONSENT OF BOARD OF DIRECTORS
The Directors may severally and/or collectively consent in writing to any
action to be taken by the Company and such action shall be as valid corporate
action as though authorized at a meeting of the Board of Directors.
Section 7. COMMITTEES OF BOARD OF DIRECTORS
The Board may designate one (1) or more committees, to consist of two (2)
or more of the Directors of the corporation. The Board may designate one (1) or
more Directors as alternate members of a committee, who may replace an absent or
disqualified member at a meeting of the committee. Provided, that in the
absence or disqualification of a member of a committee, the members thereof
present at a meeting and not disqualified from voting, whether or not they
constitute a quorum, may unanimously appoint another member of the Board to act
at the meeting in place of such an absent or disqualified member.
A committee, and each member thereof, shall serve at the pleasure of the
Board, and the Committee shall have such authority as defined in the Resolution.
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Section 8. QUORUM
A quorum at any meeting of the Board of Directors shall consist of a
majority of the entire membership of the Board of Directors and the acts of a
majority of the Directors at any meeting a quorum is present shall be the acts
of the Board of Directors. Provided, that any meeting of the Board of Directors
at which a quorum is not present a majority of those Directors present may
adjourn the meeting from day to day or to a specific date when a quorum is
obtained.
Section 9. NOTICES OF MEETINGS OF BOARD OF DIRECTORS
The Secretary of the Company shall at least ten (10) days prior to any
regular or special meeting of the Board of Directors give written notice of the
time, place, and in the case of special meetings the purpose or purposes of the
meeting by making said notice as hereinafter provided in Section 1, Article VII,
to each Director. No notice of adjourned meetings need be given. Said notice
may be waived by telegram, radiogram, cablegram, or other writing by the
Directors either before or after the holding of said meeting.
Section 10. ORDER OF BUSINESS FOR BOARD OF DIRECTORS MEETINGS
1. Calling of Roll.
2. Proof of Notice of Meeting.
3. Reading and Disposal of any Unapproved Minutes of Former Meetings.
4. Reports of Officers and Committees.
5. Unfinished Business.
6. New Business.
7. Adjournment.
Section 11. COMPENSATION OF DIRECTORS
The Directors of the Company shall at their Annual Organizational Meeting
determine the compensation to be paid for regular services during their term of
office. Provided, however, a Director receiving compensation as an officer
shall receive no compensation under the provisions of this By-Law.
ARTICLE III
OFFICERS
Section 1. OFFICERS
The executive officers of the Company shall be a Chairman of the Board of
Directors, a Vice Chairman of the Board of Directors, a President, a Vice
President - Finance and one or more additional Vice Presidents, a Secretary, a
Treasurer, an Assistant Secretary, and an Assistant Treasurer, all of whom shall
be elected by the Board of Directors. The Chairman of the Board of Directors,
the Vice Chairman of the
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Board of Directors, and the President, shall be elected from the members of
the Board of Directors.
Any two (2) offices may be combined or held by the same person; and the
Board of Directors may combine such other offices as they shall deem proper and
necessary, provided, however, that the office of President and Vice President
shall not be combined.
The Board of Directors shall also appoint such other officers as they shall
deem necessary, who shall have such authority and shall perform such duties as
from time to time may be prescribed by the Board of Directors or by the By-Laws
of the Company.
The Board of Directors may in its discretion leave unfilled for any period
as it may determine, the office of Vice Chairman, the offices of such Vice
Presidents other than one and any and all Assistant Officers.
Section 2. TERM OF OFFICE
The officers of the Company shall be elected or appointed at the annual
organization meeting of the Directors and their term of office shall be for one
(1) year or until their successor is elected or appointed, unless the term is
terminated by removal from office.
Section 3. CHAIRMAN OF THE BOARD OF DIRECTORS
(Amended May 4, 1992)
The Chairman of the Board of Directors shall preside at all meetings of the
Stockholders and the Board of Directors. He shall be the chief policy officer
of the Company.
Section 4. VICE CHAIRMAN OF THE BOARD OF DIRECTORS
The Vice Chairman of the Board of Directors shall perform all the duties of
the Chairman of the Board of Directors in his absence or disability to act.
Section 5. PRESIDENT
(Amended May 4, 1992)
The President shall preside at all meetings of the Stockholders and the
Board of Directors at which the Chairman and Vice Chairman are absent or unable
to act. He shall be the chief operating and executive officer of the Company.
He shall execute in behalf of the Company, all instruments in relation to real
and personal property, bonds, stock, contracts, and instruments.
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Section 6. VICE PRESIDENTS
The Vice Presidents, other than the Vice President - Finance, shall perform
such duties and possess such powers as shall be assigned to them by resolution
of the Board of Directors. If there be more than one Vice President, the Board
of Directors may determine which one or more of the Vice Presidents shall
perform the duties of the President in his absence or disability. In the
absence of such determination by the Board of Directors, the Chairman of the
Board of Directors shall make such determination.
Section 7. SECRETARY
The Secretary shall keep the minutes of all meetings of the Stockholders,
Board of Directors and Executive Committee. He shall have the custody of the
seal of the Company and affix the same on all instruments where its use is
required. He shall give all notices required by statute, Articles of
Incorporation, By-Laws, and resolutions, and will execute with the President or
Vice President all instruments required to be executed on behalf of the Company
by two or more officers.
Section 8. VICE PRESIDENT - FINANCE
The Vice President - Finance shall be the chief fiscal officer of the
Company. He shall have general supervision of all fiscal affairs of the Company
including the books and accounts of the Company and shall submit to the Board of
Directors regular statements and reports in relation to the financial affairs of
the Company. He shall supervise all other fiscal officers of the Company.
Section 9. TREASURER
The Treasurer shall have the custody of all funds and evidences of
indebtedness of the Company and shall keep the regular books and accounts of the
Company, under the supervision and direction of the Vice President - Finance.
Section 10. ASSISTANT SECRETARY - ASSISTANT TREASURER
The Assistant Secretary in the absence or disability of the Secretary shall
perform the duties of the Secretary. The Assistant Treasurer in the absence or
disability of the Treasurer shall perform the duties of the Treasurer.
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ARTICLE IV
STOCK AND TRANSFERS
Section 1. CERTIFICATES FOR SHARES
A certificate of stock shall be signed by the Chairman of the Board, the
President or a Vice President and by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary certifying the number and class of shares
represented by such certificate. Such signatures may be facsimiles as provided
by law.
Section 2. TRANSFERABLE ONLY ON BOOKS OF COMPANY
Shares shall be transferable only on the books of the Company by the person
named in the certificate or by attorney lawfully constituted in writing, and
upon surrender of the certificate therefor. A record shall be made of every
such transfer and issue.
Section 3. REGISTERED STOCKHOLDERS
The Company shall have the right to treat the registered holder of any
shares as the absolute owner thereof, and shall not be bound to recognize any
equitable or other claim to, or interest in, such share on the part of any other
person, whether or not the Company shall have express or other notice thereof,
save as may be otherwise provided by law.
Section 4. TRANSFER AGENT AND REGISTRAR
The Board of Directors may appoint a Transfer Agent and a Registrar of
Transfers and may require all certificates of shares to bear the signature of
such Transfer Agent and of such Registrar of Transfers, or as the Board may
otherwise direct.
Section 5. REGULATIONS
The Board of Directors shall have power and authority to make all such
rules and regulations as the Board shall deem expedient regulating the issue,
transfer and registration of certificates for shares in this Company.
Section 6. LOST AND DESTROYED CERTIFICATES
New certificates shall be issued for alleged lost and destroyed
certificates of the common stock of Edison Sault Electric Company for one
hundred (100) shares or less upon the furnishings to the Company, as affidavit
of loss and agreement to fully indemnify the Edison Sault Electric Company from
any loss or damage it may suffer as a result of the issuance of said duplicate
certificates in such form as approved by general counsel for the Company.
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<PAGE>
New certificates for alleged lost or destroyed certificates of common
stock of the Edison Sault Electric Company in excess of one hundred (100) shares
shall be issued upon the furnishings to the Edison Sault Electric Company with
an affidavit of loss, as approved by General Counsel, and a surety bond
indemnifying the Company against loss occasioned by the issuance of said
duplicate certificate with a surety company authorized to do business in the
State of Michigan.
Section 7. REDEMPTION OF CONTROL SHARES
(Added September 19, 1988)
Consistent with the provisions of Section 799 of the Michigan Business
Corporation Act, MCL 450.1799, control shares of the Company acquired in a
control share acquisition, with respect to which no acquiring person statement
has been filed with the Company, are, at any time during the period ending sixty
(60) days after the last acquisition of control shares or the power to direct
the exercise of voting power of control shares by the acquiring person, subject
to redemption by the Company at the fair value of the shares pursuant to
procedures adopted by the Board of Directors.
After an acquiring person statement has been filed and after the meeting at
which the voting rights of the control shares acquired in a control share
acquisition are submitted to the shareholders, the shares are subject to
redemption by the Company at the fair value of the shares pursuant to procedures
adopted by the Board of Directors unless the shares are accorded full voting
rights by the shareholders as provided in Section 798 of the Michigan Business
Corporation Act.
ARTICLE V
FINANCE
Section 1. MONEYS OF THE COMPANY
The moneys of the Company shall be deposited in the name of the Company in
such banks or trust companies or any other investments as the Board of Directors
shall designate and shall be withdrawn on the account charged, by checks or
other legal authorizations signed by the Chairman of the Board, the Vice
Chairman of the Board, the President, or one of the Vice Presidents, and the
Treasurer, Secretary or Assistant Secretary, or such other officers as the Board
of Directors may designate.
Provided, however, that on vouchers for less than Five Thousand ($5,000.00)
Dollars, the signature of only one of the officers hereinbefore enumerated in
this section shall be required and; provided further, that on all payroll and
dividend checks a facsimile of only one of the officers hereinbefore enumerated
shall be required.
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<PAGE>
ARTICLE VI
VOTING, ELECTIONS, PROXIES,
RECORD DATE AND INSPECTORS
Section 1. ENTITLED TO VOTE
Except as the Articles of Incorporation and the statutes of the State of
Michigan otherwise provide, each Stockholder of the Company shall at every
meeting of the Stockholders be entitled to one (1) vote in person, or by proxy
for each share of stock of the Company held by the Stockholder subject, however,
to the full effect of the limitations imposed by the fixed record date for
determination of Stockholders as set forth in Section 2 of this Article. Voting
by Stockholders shall be by ballot.
Section 2. RECORD DATE FOR DETERMINATION OF STOCKHOLDERS
For the purpose of determining shareholders entitled to notice of and to
vote at a meeting of shareholders or an adjournment thereof, or to express
consent or to dissent from a proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of a dividend or allotment
of a right, or for the purpose of any action, the Board may fix, in advance, a
date as the record date for any such determination of shareholders. The date
shall not be more than sixty (60) days nor less than ten (10) days before the
date of the meeting, nor more than sixty (60) days before any other action.
Section 3. PROXIES
No proxy shall be operative unless and until subscribed by the Stockholder
in writing and filed with the Secretary of the Company.
Section 4. INSPECTORS
Whenever any Stockholder present at a meeting of Stockholders shall request
the appointment of inspectors, the Chairman of the meeting shall appoint three
(3) inspectors who need not be Stockholders, or the Chairman of the meeting may
in his discretion so appoint inspectors in the absence of said request. If the
right of any person to vote is challenged, the inspectors of election shall
determine the right. The inspectors shall receive and count the votes either
upon an election or for the decision of any question and shall determine the
result. The certificate of any vote by the inspectors shall be prima facie
evidence thereof.
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<PAGE>
ARTICLE VII
NOTICES
Section 1. NOTICES
All notices required to be given by any provisions of the By-Laws shall
state the authority pursuant to which they are issued and shall bear the written
or printed signature of the Secretary. Every notice shall be deemed served when
the same has been deposited in the United States Mail with postage fully paid,
plainly addressed to the intended recipient at his or her last address appearing
on the stock ledger of the Company.
ARTICLE VIII
SEAL
Section 1. SEAL
The corporate seal of the Company shall be in the form adopted by the Board
of Directors.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENTS
The Stockholders or Board of Directors may make and amend any By-Laws.
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<PAGE>
EDISON SAULT ELECTRIC COMPANY
EXECUTIVE SEVERANCE AGREEMENT
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
Edison Sault Electric Company, a Michigan corporation ("Company"), and
("Executive") enter into this Agreement
dated as of , 19 .
BACKGROUND
The Company considers maintaining a vital management group to be
essential to protecting and enhancing the best interests of the Company, its
shareholders, and its ratepayers. The Company recognizes that Executive's
contributions to the Company's success and growth have been substantial.
As in the case of many publicly held corporations, the Company
recognizes the possibility of a Change in Control of the Company. The
uncertainty and questions such a possibility raises may result in the departure
or distraction of management personnel to the detriment of the Company, its
shareholders, and its ratepayers. Accordingly, the Company's Board of
Directors ("Board") has determined that the Company should take appropriate
steps to reinforce and encourage Executive's continued attention and dedication
to Executive's assigned duties, without distraction in the face of the
potentially disturbing circumstances arising from the possibility of a Change in
Control.
This Agreement responds to the Board's concerns. It provides for
benefits to Executive if Executive's employment is terminated following a Change
in Control and is intended to induce Executive to remain in the Company's
employ. The resulting benefits to the Company, its shareholders and its
ratepayers, on the one hand, and to the Executive, on the other, constitute
adequate consideration for this Agreement.
TERMS
Therefore, the Company and Executive agree as follows, intending to be
legally bound:
1. EMPLOYMENT. Subject to this Agreement's terms, the Company
shall continue to employ Executive and Executive confirms his or her present
intention to remain in the Company's employ.
2. DURATION. This Agreement shall be effective for five (5) years
from its date. Unless Executive or the Company gives notice not to extend this
Agreement at least three (3) months before its expiration date, this Agreement
will automatically be extended for additional successive periods of one (1)
year. If a Change in Control of the Company
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<PAGE>
occurs, as defined in Section 4, this Agreement shall be effective for no
less than three (3) years after the Change in Control. This Agreement
expires, however, if:
(a) Executive gives three (3) months' notice of a desire to terminate the
Agreement or resigns before a Change in Control;
(b) Executive dies or becomes disabled, as defined in Section 5, except
as provided elsewhere in this Agreement; or
(c) Executive retires in accordance with the Company's normal retirement
policy as reflected in its Pension Plan for Management Employees or any
retirement agreement with Executive.
3. POSITION AND DUTIES. During this Agreement's term, Executive
shall serve on a full-time basis as the Company's President or such other
position as Executive and the Company mutually agree upon. Executive's powers
and responsibilities shall be those customarily incident to this office.
Consistent with Executive's past performance, Executive will diligently and
competently perform any reasonable duties in connection with the Company's
business and affairs which the Board or any superior officer may assign
Executive in accordance with the Company's Bylaws. Except to the extent
Executive agrees in writing, such duties and responsibilities shall be of
substantially the same character as those required by Executive's assigned
office and functions on this Agreement's date.
4. CHANGE IN CONTROL. A "Change in Control" of the Company shall
occur if:
(a) any "person" (as defined in Section 13(d) and 14(d) of the 1934
Securities Exchange Act) directly or indirectly becomes the "beneficial
owner" (as defined in Rule 13d-3 under the same act) of ESELCO, Inc.
securities representing thirty (30%) percent or more of the combined voting
power of ESELCO, Inc.'s then outstanding securities;
(b) any person other than ESELCO, Inc. becomes the beneficial owner of
more than 30% of the Company's then outstanding common stock; or
(c) the Board's composition (or that of the Board of Directors of ESELCO,
Inc.) changes such that two or more directors are elected who are not
nominated and approved by a majority of the Board, disregarding the vote of
those directors who were not nominated and approved by a majority of the
Board.
Securities which a person beneficially owns as a trustee under an employee
benefit plan of the Company or of ESELCO, Inc. constitute outstanding securities
but shall not be included when calculating the percentage that person
beneficially owns to the extent the beneficial ownership of such shares is due
solely to that person's status as trustee. Notwithstanding the above, a Change
in Control shall not occur through the shareholder approved reorganization
expected to be effective January 1, 1989.
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<PAGE>
5. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) After a Change in Control, the Company shall pay Executive the
Severance Benefits described in Section 6 if (i) the Company terminates
Executive's employment other than for cause or because of disability
continuing for 180 consecutive days or (ii) Executive resigns for good
reason. Executive shall give sixty (60) days' written notice of any
resignation for good reason. Except as provided in Section 6, however, the
Company shall not pay these Severance Benefits if Executive dies or retires
in accordance with the Company's normal retirement policy as reflected in
its Pension Plan for Management Employees or any retirement agreement with
Executive. The Company shall bear the burden of establishing the validity
of any termination for cause.
(b) "Cause" means: (i) Executive's willful and continued failure for a
significant period of time substantially to perform Executive's duties with
the Company after a specific written demand for substantial performance by
the Board, unless such failure results from Executive's disability; (ii)
Executive's willful conduct which is materially injurious to the Company;
or (iii) Executive's material misappropriation of Company funds or
property.
(c) An act or omission is "willful" if it is in bad faith and without
reasonable belief that it is in the Company's best interests.
(d) "Disability" shall have the meaning used in the Company's disability
insurance policy.
(e) "Good reason" means any of the following occurring without
Executive's written consent after a Change in Control:
(i) A significant change in Executive's position, duties, status or
responsibilities such that they become inconsistent with those
outlined in Section 3.
(ii) A reduction in Executive's base salary.
(iii) The Company's failure to continue any of the Company's employee
benefit plans in which Executive participates, without substituting
substantially similar plans or Company action which adversely affects
Executive's participation in or materially reduces Executive's
benefits under such plans. In the case of plans involving employer
matching contributions, good reason shall include reduction of Company
contributions to a level below the prior ten-year average.
(iv) The Company's requiring Executive's work place to be relocated
more than 25 miles from where it is on the date of this Agreement or
imposing duties on Executive which would make the continuance of
Executive's
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<PAGE>
principal residence unreasonably difficult or
inconvenient.
(f) "Good reason" also includes the Executive's good faith determination,
which shall be made in Executive's sole discretion and within one (1) year
of the Change in Control, that, as a result of the Change in Control,
Executive cannot continue to fulfill the responsibilities for which
Executive is employed.
6. SEVERANCE BENEFITS. The Company shall pay Executive Severance
Benefits in a lump sum within thirty (30) days from the date a duty to pay such
benefits accrues. This obligation shall survive Executive's death or disability
subsequent to such date. The amount of Severance Benefits shall be 2.99 times
Executive's "base amount" as defined in Section 280G of the Internal Revenue
Code of 1986 (the "Code"). (For this purpose, a Change in Control of ESELCO,
Inc. shall be treated as a Change in Control of the Company.) In any case,
Executive's Severance Benefits shall be reduced by the minimum amount necessary
to prevent such benefits (or such benefits and any other benefits to be paid
Executive by the Company) from being a "parachute payment" under Section 280G of
the Code. All such Severance Benefits shall be subject to any applicable
payroll or other taxes required by law to be withheld.
7. MITIGATION. Executive need not mitigate the amount of Severance
Benefits payable under Section 6 through other employment. Compensation earned
from other employment shall not reduce Executive's Severance Benefits.
8. SUCCESSORS.
(a) The Company will require any successor to substantially all of its
business or assets to assume and agree to perform this Agreement to the
same extent required of the Company. This Agreement shall be binding upon
and may be enforced by the Company's successors and assigns.
(b) This Agreement shall inure to the benefit of Executive's estate, which
may enforce it.
9. LEGAL FEES AND EXPENSES. The Company shall pay any legal fees
and expenses incurred by Executive following a Change in Control as a result of
this Agreement. Such fees or expenses shall include any fee or expense for
contesting or disputing termination by the Company or seeking to enforce, defend
or interpret any provision of this Agreement.
10. NOTICES. All notices under this Agreement shall be in writing.
11. MODIFICATION AND WAIVER. This Agreement may not be modified nor
any provision waived except by an agreement in writing signed by Executive and
the Company.
12. APPLICABLE LAW. This Agreement shall be governed by Michigan
law.
4
<PAGE>
13. SEVERABILITY. The invalidity or unenforceability of any
provision shall not affect the validity or enforceability of any other provision
of this Agreement.
WITNESSES: EDISON SAULT ELECTRIC COMPANY
________________________________ By: __________________________
_________________________________ EXECUTIVE
______________________________
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<PAGE>
__________ RS Control Number Date: May 7, 1996
____________________ Grantee
__________ Number of Shares (the "Shares")
1996 ESELCO, INC.
RESTRICTED STOCK BONUS PLAN
RESTRICTED STOCK AGREEMENT
Shares of Restricted Stock are hereby awarded on the date first shown
above, by ESELCO, Inc., (the "Holding Company"), to the above identified
individual (the "Grantee") in accordance with the following terms and
conditions:
Share Award
1. The Holding Company hereby awards the Grantee the number of shares
indicated above (the "Shares") of Common Stock ("Common Stock"), of the Holding
Company pursuant to the 1996 ESELCO, Inc., Restricted Stock Bonus Plan, as the
same may from time to time be amended (the "Plan"), and upon the terms and
conditions and subject to the restrictions therein and hereinafter set forth. A
copy of the Plan as currently in effect is incorporated herein by reference and
is provided herewith.
Restrictions on Transfer
2. Until vested, the Shares may not be sold, assigned, transferred,
pledged, or otherwise encumbered by the Grantee. The Shares will vest 100% upon
the occurrence of the 5th (fifth) anniversary date hereof. There shall be no
vesting prior to this time, except as expressly provided elsewhere in this
Agreement.
The Committee referred to in Section 3 of the Plan or its successor
(the "Committee") shall have the authority, in its discretion, to accelerate the
time at which any or all of the Shares shall vest, or to remove any or all of
such restrictions, whenever the Committee, in its sole discretion, may determine
that such action is appropriate by reason of changes to applicable tax or other
laws, or other changes in circumstances occurring after this share award.
Termination of Service
3. Except as provided in Section 7 below, at such time as the Grantee is
no longer employed by the Holding Company (or one of its Affiliates) for any
reason except death, total or
1
<PAGE>
partial disability, or retirement, all shares which at the time of such
termination of service are not vested shall upon such termination of service
be forfeited to the Holding Company.
In the event that the Grantee ceases to be employed by the Holding
Company (or one of its Affiliates) due to death, total or partial disability, or
retirement, the Committee may, in its sole discretion and without obligations,
review the possibility of accelerating vesting.
Certificates for the Shares
4. The Holding Company shall issue certificates in respect of the Shares
in the name of the Grantee, and shall hold such certificates on deposit for the
account of the Grantee until the Shares represented thereby are vested.
Certificates representing vested shares, and the related stock powers, as
provided for in Section 5 below, shall be promptly delivered to the Grantee when
and as vesting occurs. The certificates shall bear the following legend:
"The shares represented by this certificate
are RESTRICTED and thus they are not
freely tradeable. Compliance with certain
provisions of the Federal Securities Laws is
required before transfer."
Stock Powers
5. Simultaneously with his execution of this Agreement, the Grantee shall
execute stock powers in favor of the Holding Company with respect to the Shares
and he shall promptly deliver such stock powers to the Holding Company.
Grantee's Rights
6. Except as otherwise provided herein, the Grantee, as owner of the
Shares, shall have all rights of a stockholder, including, but not limited to,
the right to receive all dividends paid on the Shares and the right to vote the
Shares.
Adjustments Upon Changes in Capitalization or Certain Sales or Distributions
7. In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, or any other change in
the corporate structure of the Holding Company affecting Shares, or a sale by
the Holding Company of all or part of its assets other than in the normal course
business, or any distribution to stockholders other than a normal cash dividend,
the Board of Directors shall make appropriate adjustments in the number and kind
2
<PAGE>
of shares authorized by the Plan and any adjustments to outstanding Restricted
Stock Awards as it determines appropriate.
Delivery and Registration of Shares of Common Stock
8. The Holding Company's obligation to deliver shares of Common Stock
hereunder shall, if the Committee so requests, be conditioned upon the receipt
of a representation as to the investment intention of the Grantee or any other
person to whom such shares are to be delivered, in such form as the Committee
shall determine to be necessary or advisable to comply with the provisions of
the Securities Act of 1933, as amended, or any other federal, state, or local
securities regulation. It may be provided that any representation requirement
shall become inoperative upon a registration of such shares or other action
eliminating the necessity of such representation under such Securities Act or
other securities regulation. The Holding Company shall not be required to
deliver any shares under the Plan prior to (i) the admission of such shares to
listing on any stock exchange on which the shares of Common Stock may then be
listed, and (ii) the completion of such registration or other qualification of
such shares under any state or federal law, rule, or regulation, as the
Committee shall determine to be necessary or advisable.
Plan and Plan Interpretations as Controlling
9. The Shares hereby awarded and the terms and conditions herein set
forth are subject in all respects to the terms and conditions of the Plan, which
are controlling. All determinations and interpretations of the Committee shall
be binding and conclusive upon the Grantee or his legal representatives with
regard to any question arising hereunder or under the Plan.
Grantee Service
10. Nothing in this Agreement shall limit the right of the Holding Company
or any of its Affiliates to terminate the Grantee's service as a director,
officer, or employee, or otherwise impose upon the Holding Company or any of its
Affiliates any obligation to employ or accept the services of the Grantee.
Withholding and Social Security Taxes
11. Upon the vesting of any Shares (or at any such earlier time, if any,
that an election is made under Section 83(b) of the 1986 Internal Revenue
Code, or any successor provision thereto, to include the value of such Shares
in taxable income), the Holding Company or its Affiliate shall be entitled to
withhold from the Grantee's compensation an amount sufficient to fulfill its
or its Affiliate's withholding requirements for federal, state, and social
security taxes. Alternatively, the Holding Company or its Affiliate may
require the Grantee to pay the Holding Company or its
3
<PAGE>
Affiliate the amount of any taxes which the Holding Company or its Affiliate
is required to withhold with respect to the Shares or, in lieu thereof, to
retain or sell without notice a sufficient number of Shares to cover the
amount required to be withheld. The Holding Company's or its Affiliate's
method of satisfying its withholding obligations shall be solely in the
discretion of the Holding Company or its Affiliate, subject to applicable
federal, state, and local laws.
Grantee Acceptance
12. The Grantee shall signify his acceptance of the terms and conditions
of this Agreement by signing the signature page of the Notice of Award
accompanying this Agreement in the space provided, endorsing in blank the stock
powers provided herewith, and returning these documents (together with the
certificates for the shares) to the Holding Company. IF THE FULLY EXECUTED
DOCUMENTS, REQUIRED BY THIS PARAGRAPH TO BE RETURNED, HAVE NOT BEEN RECEIVED BY
THE HOLDING COMPANY WITHIN THIRTY (30) DAYS FROM THE DATE FIRST SHOWN ABOVE, THE
HOLDING COMPANY MAY REVOKE THIS AWARD, AND VOID ALL OBLIGATIONS UNDER THIS
AGREEMENT.
ESELCO, INC.
(the "Holding Company")
William R. Gregory
Director
4
<PAGE>
__________ RS Control Number Date: May 7, 1996
NOTICE OF AWARD
Dear Award Recipient:
At the direction of the Restricted Stock Bonus Plan Committee, appointed by
the Board of Directors of ESELCO, Inc., (the "Holding Company"), you are hereby
notified that the Committee has granted to you:
Restricted Stock
pursuant to the 1996 ESELCO, Inc., Restricted Stock Bonus Plan adopted by the
Board of Directors and ratified and approved by the Stockholders of the Holding
Company on May 7, 1996.
Enclosed are copies of the following documents governing your award:
A. 1996 ESELCO, Inc., Restricted Stock Bonus Plan; and
B. Restricted Stock Agreement
The following is a summary of certain provisions of the Plan and Agreement
which govern your award; however, this summary is qualified in its entirety by
reference to those documents.
Restricted Stock
The Restricted Stock granted to you will, upon vesting, entitle you to
shares of common stock of the Holding Company. The date of the grant of this
award is shown at the top of this page. On this date the fair market value (the
average of the quoted bid and ask price) of the Holding Company Common Stock was
$27.88 per share.
Please direct your attention to the provisions of the Restricted Stock
Agreement and Plan which govern the award of restricted stock to you. You will
observe that your shares are 100% vested on the 5th (fifth) anniversary date of
the grant of this award. There shall be no vesting prior to this time except as
expressly provided elsewhere in the Agreement.
The Restricted Stock Award is in all respects limited and conditioned, as
provided in the Restricted Stock Bonus Plan and the Restricted Stock Agreement.
These limitations and conditions, which apply to those shares which are not
vested, include the following:
A. Prior to vesting, the shares may not be sold, assigned,
transferred, pledged, or otherwise encumbered by you;
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<PAGE>
B. At such time as you are no longer employed by the Holding
Company, or any of its Affiliates, any non-vested
shares awarded hereunder at the time of your termination
shall be forfeited to the Holding Company as of the date
of such termination.
The Restricted Stock Award includes certain rights and conditions as
provided in the Restricted Stock Bonus Plan and the Restricted Stock Agreement.
These rights and conditions include the following:
A. Prior to vesting (as well as after vesting) you, as owner of
the Shares, shall have all rights of a stockholder,
including, but not limited to, the right to receive any
dividends paid on the Shares and the right to vote the
shares;
B. If you remain employed as of the 5th (fifth) anniversary of
this Award, all shares granted under this Agreement shall be
deemed fully vested.
I HEREBY CERTIFY THAT I HAVE READ AND BELIEVE THAT I UNDERSTAND THE TERMS
AND CONDITIONS OF THE FOLLOWING:
1996 ESELCO, INC., RESTRICTED STOCK BONUS PLAN, AND
RESTRICTED STOCK AGREEMENT
AND BY MY SIGNATURE BELOW I ACCEPT THE GRANTS AND AGREE TO BE BOUND BY THE TERMS
AND CONDITIONS OF THE ABOVE AGREEMENTS WITH RESPECT TO THE NUMBER OF SHARES
SHOWN BELOW.
Date: ____________________
ACCEPTED: _______________________________________
(Name and Date)
Signature:_______________________________________
(the "Participant")
_______________________________________
(Street Address)
_______________________________________
(City, State, and Zip Code)
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<PAGE>
The number of shares with respect to which Awards are provided by the
documents listed above is:
__________ Restricted Shares
__________ Document Control Number
Received by the Company on ____________________
(Date)
Signed: _______________________________________
Restricted Stock Bonus Plan Coordinator
Donald C. Wilson
Corporate Secretary
3
<PAGE>
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ESELCO, INC.
DIRECTOR'S RETIREMENT PLAN
Effective January 1, 1993
As Amended January 1, 1995
- -------------------------------------------------------------------------------
<PAGE>
ESELCO, INC.
DIRECTOR'S RETIREMENT PLAN
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
ARTICLE I DEFINITIONS
A. Purpose 1
B. Definitions 1
ARTICLE II PARTICIPATION AND CREDITED SERVICE
A. Purpose 3
B. Eligibility to Participate 3
C. Credited Service 3
ARTICLE III BENEFIT PAYMENTS
A. Purpose 4
B. Payment of Benefits 5
C. Amount and Duration of Benefits 5
D. Conditions to Receipt of Benefits 5
ARTICLE IV ADMINISTRATION OF PLAN
A. Purpose 7
B. Administrator 7
C. Committee 7
ARTICLE V AMENDMENT AND TERMINATION
A. Purpose 8
B. Amendment 8
C. Termination 8
ARTICLE VI MISCELLANEOUS
A. Purpose 9
B. Creditor Status 9
C. Non-alienation 9
D. Facility of Payment 9
E. No Guarantee of Retention 10
F. Cooperation 10
G. Governing Law 10
H. Merger 10
<PAGE>
ESELCO, INC.
DIRECTOR'S RETIREMENT PLAN
I. Limited Assignment 10
<PAGE>
ESELCO, INC.
DIRECTOR'S RETIREMENT PLAN
ARTICLE I DEFINITIONS
- ------------------------------------------------------------------------------
A. PURPOSE
Throughout this Plan, certain words are used frequently. Whenever a
word is capitalized, it will have the meaning defined in this Article
of the Plan unless the context clearly indicates otherwise.
B. DEFINITIONS
(1) "ACCRUED BENEFIT" means with respect to any date of determination
on or after January 1, 1995, the amount of the Fee then in
effect.
(2) "BENEFICIARY" means the person(s) so designated in writing by
the participant, or the participant's lawful spouse in the event
that a proper designation is not made by the participant. In the
event the participant is not survived by a lawful spouse and no
other Beneficiary has been designated, the participant's estate
shall be the Beneficiary.
(3) "BOARD" means the Board of Directors of ESELCO, Inc.
(4) "COMMITTEE" means the administrative committee, appointed by the
Board.
(5) "COMPANY" means ESELCO, Inc., and any subsidiary or affiliate of
ESELCO, Inc. which has adopted the Plan with the consent of the
Board.
(6) "CREDITED SERVICE" means the total period of time an individual
has served as a Director, determined in accordance with Article
II.
(7) "DIRECTOR" means any member of the Board who receives a fee for
service on the Board.
(8) "EARLY RETIREMENT DATE" means the date of the Director's actual
retirement after age fifty-five (55) and prior to his Normal
Retirement Date, provided the Director has at least fifteen (15)
years of Credited Service.
(9) "EFFECTIVE DATE" means January 1, 1993.
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<PAGE>
ARTICLE I DEFINITIONS (cont'd)
- -------------------------------------------------------------------------------
(10) "FEE" means the established level of annual fee paid to a
Director for services rendered to the Company as a Director,
excluding expense reimbursements.
(11) "NORMAL RETIREMENT DATE" means the later of
(a) the date the Director completes five (5) years of Credited
Service,
(b) the Director's sixty-fifth (65th) birthday, or
(c) the date of the Director's actual retirement after age
sixty-five (65).
(12) "PLAN" means the ESELCO, Inc. Director's Retirement Plan as set
forth herein.
(13) "PLAN ADMINISTRATOR" means the Vice President - Finance of
ESELCO, Inc., or his designee.
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<PAGE>
ARTICLE II PARTICIPATION AND CREDITED SERVICE
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A. PURPOSE
This Article describes when a Director becomes eligible to participate
in the Plan and presents issues related to the determination of
Credited Service.
B. ELIGIBILITY TO PARTICIPATE
Any Director is automatically eligible to participate in the Plan upon
the later of the Effective Date and the date he first becomes a
Director.
C. CREDITED SERVICE
Each eligible Director will receive one-twelfth (1/12) of a year of
Credited Service for each month during which he serves as a Director
for at least fifteen (15) days, including service prior to the
Effective Date.
In the event a Director incurs a break in service as a Director and
again resumes such service, his prior period of Credited Service shall
be added to his subsequent period of Credited Service for all Plan
purposes.
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<PAGE>
ARTICLE III BENEFIT PAYMENTS
- ------------------------------------------------------------------------------
A. PURPOSE
This Article describes the conditions under which benefits will be
paid under the Plan, and the amount and form of benefit payments.
B. PAYMENT OF BENEFITS
(1) RETIREMENT
Upon the Director's attainment of his Normal or Early Retirement
Date, the Plan Administrator will take steps to provide for the
payment of benefits in accordance with the provisions of Section
C of this Article III.
(2) DEATH
(a) PRIOR TO RETIREMENT:
In the event of the death of a Director prior to his Normal
or Early Retirement Date, his Beneficiary shall be entitled
to benefits hereunder, determined as if the Director had
retired on his date of death.
(b) AFTER RETIREMENT:
In the event of the death of a Director after his Normal or
Early Retirement Date, Plan benefits will continue to be
paid to his Beneficiary pursuant to Section C of this
Article III.
(3) TERMINATION OF SERVICE
A participant whose service as a Director is terminated for any
reason prior to becoming eligible for a Normal or Early
Retirement Benefit shall not be eligible to receive Plan
benefits.
-4-
<PAGE>
ARTICLE III BENEFIT PAYMENTS (cont'd)
C. AMOUNT AND DURATION OF BENEFITS
(1) BENEFIT AMOUNT:
Subject to paragraph (3) below, upon reaching his Normal or Early
Retirement Date and terminating service as a Director, a
participant shall be eligible to receive an annual retirement
benefit (payable monthly) equal to his Accrued Benefit.
(2) DURATION OF BENEFITS:
Such monthly retirement benefits shall continue to be paid up to
and including the earlier of:
(a) the receipt of one hundred and twenty (120) monthly
payments, or
(b) the receipt of monthly payments for a period of time equal
to the retired Director's months of Credited Service, if
less than one hundred and twenty (120).
(3) OPTIONAL FORMS OF PAYMENT
Subject to the approval of the Board of Directors upon
recommendation of the Plan Administrator, benefits payable
hereunder may be made in any other form of equivalent actuarial
value, determined in accordance with Section 1.16 of the Pension
Plan for Management Employees of Edison Sault Electric Company in
effect at the date of commencement.
D. CONDITIONS TO RECEIPT OF BENEFITS
Payments of benefits under this Plan are subject to the following
conditions:
(1) The retired Director shall not engage directly or indirectly in
any business which is competitive with the Company, unless such
condition is specifically waived by the Company. Breach of the
condition contained herein shall be deemed to occur immediately
upon a retired Director's engaging in competitive activity.
Payments suspended for breach of the condition shall not
thereafter be resumed whether or not the competitive activity
ceases. A retired Director shall be deemed to be engaged in such
a business indirectly if he is an employee, officer, director,
trustee, agent or partner of, or a consultant or advisor to or
for, a person, firm, corporation, association, trust or other
entity which is engaged in such a business or if he owns,
directly or indirectly, in excess of 5% of any such firm,
corporation, association, trust or other entity.
-5-
<PAGE>
ARTICLE III BENEFIT PAYMENTS (cont'd)
- ------------------------------------------------------------------------------
(2) In the event that a retired Director shall commit any wrongful
act, either directly or indirectly, against, and to the detriment
of, the Company, the Company shall have no further obligation to
make payments to the retired Director under this Plan.
-6-
<PAGE>
ARTICLE IV ADMINISTRATION OF PLAN
- ------------------------------------------------------------------------------
A. PURPOSE
This Article defines the responsibilities of the parties involved in
the administration of the Plan and establishes a claims and appeals
procedure to resolve disputes with Plan participants.
B. ADMINISTRATOR
The Company will be the administrator of the Plan. The Company may
delegate administrative responsibilities to others by action of its
Board of Directors and with notice to the persons or persons to whom
the delegation is made.
C. COMMITTEE
The Board may, but need not, appoint a Committee of not less than one
member to serve at the pleasure of the Board. Any member of the
Committee may resign upon written notice to the Board and the Board
may remove any member of the Committee for any reason.
(1) The Committee will act by a majority of its members by vote at a
meeting, or in writing without a meeting. If the Committee
cannot reach a decision on an issue, a temporary Committee member
will be appointed by unanimous vote of all Committee members to
decide the issue. In the event the Committee fails to agree on
the selection of a temporary Committee member, an arbitrator will
be selected by the American Arbitration Association in accordance
with its rules.
(2) The Committee may appoint from its members a chairman to preside
over meetings and a secretary (who need not be a member) to keep
records of meetings and activities of the Committee. The
Committee may also appoint one or more of its members to execute
any document on its behalf.
(3) The Committee will have all powers and authority to make rules
and regulations with respect to the Plan and to determine all
questions as to interpretation of the Plan provisions and/or the
rights or status of participants.
(4) The Committee will establish a reasonable procedure for the
filing of claims and the appeal by participants of any decision
of the Committee.
(5) If a Committee is not appointed by the Board, the duties and
responsibilities of the Committee will be carried out by the
Company.
-7-
<PAGE>
ARTICLE V AMENDMENT AND TERMINATION
- ------------------------------------------------------------------------------
A. PURPOSE
This Article establishes the circumstances under which the Plan can be
amended or terminated and how benefits will be distributed if the Plan
is terminated.
B. AMENDMENT
The Board reserves the right to amend the Plan at any time and for any
reason. No amendment will decrease or place further restrictions on a
Director's Accrued Benefit at the time of such amendment.
C. TERMINATION
(1) The Board reserves the right to terminate the Plan.
(2) The Plan will be automatically terminated upon the Company's
legal dissolution, adjudication as bankrupt or insolvent, upon a
general assignment for the benefit of creditors, or upon a
receiver being appointed.
(3) In the event of the termination of the Plan, any Director with
five (5) or more years of Credited Service will receive a benefit
at the earlier of his Normal or Early Retirement Date as provided
in Article III based on his Accrued Benefit immediately prior to
such termination. Any benefits in pay status at the time of Plan
termination to a retired Director will be continued in accordance
with the terms of the Plan.
-8-
<PAGE>
ARTICLE VI MISCELLANEOUS
- ------------------------------------------------------------------------------
A. PURPOSE
This Article describes the creditor status of participants, discusses
assignability of benefits, and other miscellaneous items.
B. CREDITOR STATUS
Plan participants will have no legal or equitable rights, interest or
claims in any property or asset of the Company, nor will they be
beneficiaries of, or have any rights, claims or interests in any life
insurance policies, annuity contract policies, or the proceeds
therefrom owned by or which may be acquired by the Company. Such
policies or other assets of the Company will not be held in trust for
the benefit of participants or held in any way as collateral security
for the fulfilling of the obligations of the Company under this Plan.
Any and all of the Company's assets and policies will be, and remain,
the general, unpledged, unrestricted assets of the Company. The
Company's obligation under the Plan will be merely that of an unfunded
and unsecured promise of the Company to pay money in the future.
C. NON-ALIENATION
Except as may be required by federal tax withholding rules and Section
I of this Article VI, benefits hereunder may not be assigned,
alienated, commuted, sold, transferred, mortgaged, hypothecated, or in
any other way encumbered.
D. FACILITY OF PAYMENT
If any individual entitled to a distribution under the Plan is
adjudged mentally incompetent, the Committee may in its discretion
make payments to such individual or to his legal representative or to
a relative or friend of the individual for his benefit. Any payment
of a benefit under this paragraph will be a complete discharge of any
liability for the making of such payment under the provisions of the
Plan.
-9-
<PAGE>
ARTICLE VI MISCELLANEOUS (cont'd)
- ------------------------------------------------------------------------------
E. NO GUARANTEE OF RETENTION
Nothing contained in this Plan will be construed to be a contract of
service between the Company and any Director, or as a guarantee of
continued retention of a Director by the Company.
F. COOPERATION
A participant will cooperate with the Committee by furnishing any and
all information requested by the Committee in order to facilitate
benefit payments and by taking any other action requested by the
Committee.
G. GOVERNING LAW
The Plan shall be construed in accordance with and governed by the
laws of the State of Michigan.
H. MERGER
The Company will not merge, consolidate, or combine with any other
business entity unless and until the obligations of the Company under
the terms of this Plan are provided for adequately.
I. LIMITED ASSIGNMENT
Each Participant shall have the right to assign benefits hereunder,
provided such assignment shall be limited to
(1) a trust of which only immediate members of the Participant's
family are beneficiaries, or
(2) a family limited partnership of which only immediate members
of the Participant's family are partners.
-10-
<PAGE>
EDISON SAULT ELECTRIC COMPANY
DIRECTOR'S FEE DEFERRAL PLAN
(DIRDEFPN.DIR) October 1, 1989
<PAGE>
EDISON SAULT ELECTRIC COMPANY
DIRECTOR'S FEE DEFERRAL PLAN
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS
A. Purpose 1
B. Definitions 1
ARTICLE II PARTICIPATION AND DEFERRAL AGREEMENTS
A. Purpose 2
B. Eligibility to Participate 2
C. Deferral Agreement 2
D. Amount of Deferral 3
E. Suspension of Participation 3
F. Additional Participation Agreements 3
ARTICLE III BENEFIT AND PAYMENTS
A. Purpose 3
B. Payment of Benefits 4
C. Calculation of Benefits 5
ARTICLE IV ADMINISTRATION OF PLAN
A. Purpose 6
B. Administrator 6
C. Committee 6
ARTICLE V TERMINATION AND AMENDMENT
A. Purpose 6
B. Amendment 6
C. Termination 6
ARTICLE VI MISCELLANEOUS
A. Purpose 7
B. Creditor Status 7
C. Non-alienation 7
D. Facility of Payment 7
E. Non-Guarantee of Employment 7
F. Cooperation 7
G. Governing Law 7
H. Merger 8
-(i)-
<PAGE>
EDISON SAULT ELECTRIC COMPANY
DIRECTOR'S FEE DEFERRAL PLAN
ARTICLE I DEFINITIONS
A. PURPOSE
Throughout this Plan, certain words are used frequently. Whenever a word
is capitalized, it will have the meaning defined in this Article of the
Plan unless the context clearly indicates otherwise.
B. DEFINITIONS
(1) "Anniversary Date" means January 1 of each Plan Year.
(2) "Beneficiary" means the person(s) so designated in writing by the
Participant, or the Participant's lawful spouse in the event that a
proper designation is not made by the Participant. In the event the
Participant is not survived by a lawful Spouse and no other
Beneficiary has been designated, the Participant's estate shall be the
Beneficiary.
(3) "Board" means the Board of Directors of the Employer.
(4) "Committee" means the administrative committee, if any, which may be
appointed by the Employer's Board of Directors to oversee the
administration of the Plan.
(5) "Deferral Agreement" means an agreement executed by a Director and
filed with the Committee prior to the beginning of a period for which
fees are to be deferred, pursuant to Article II of the Plan.
(6) "Deferred Fee" means the portion of a Director's Fee for any Plan
Year, or part thereof, that has been deferred pursuant to a Deferral
Agreement.
(7) "Director" means any member of the Board who receives a fee for
service on the Board.
(8) "Effective Date" means October 1, 1989.
(9) "Employer" means EDISON SAULT ELECTRIC COMPANY, and any subsidiary or
affiliate of Edison Sault Electric Company which has adopted the Plan
with the consent of the Board of Directors of Edison Sault Electric
Company.
(10) "Fee" means any compensation paid to a Director for services rendered
to the Employer as a Director.
(11) "Normal Retirement Date" means the date the Participant attains his or
her sixty-fifth (65th) birthday, or completes ten (10) years of
participation in the Plan, whichever is later.
1
<PAGE>
(12) "Participant" means a Director who elects to participate in the Plan
by filing a Deferral Agreement with the Committee on a timely basis.
(13) "Plan" means the EDISON SAULT ELECTRIC COMPANY DIRECTOR'S FEE DEFERRAL
PLAN as set forth herein.
(14) "Plan Year" means the twelve (12) month period commencing on January 1
and ending on December 31 of each calendar year.
(15) "Policy" means any insurance policy purchased by the Committee from a
legal reserve life insurance company authorized to do business in the
State of Michigan.
(16) "Termination of Service" means the termination of the Participant as a
Director of the Employer or any subsidiary or affiliate thereof.
Total Disability shall not be considered a Termination of Service.
(17) "Total Disability" means a disability, whether temporary or permanent,
which results from bodily injury, which is not self-inflicted, which
prevents a Participant from engaging in any occupation for
compensation or profit and which has existed continuously for a period
of at least six (6) months.
ARTICLE II PARTICIPATION AND DEFERRAL AGREEMENTS
A. PURPOSE
This Article describes when a Director becomes eligible to participate in
the Plan and what steps must be taken to actually participate.
B. ELIGIBILITY TO PARTICIPATE
Any Director of the Employer is eligible to participate in the Plan upon
the execution of a Deferral Agreement and the filing of such Deferral Agreement
with the Committee in accordance with Section C below.
C. DEFERRAL AGREEMENT
(1) Each eligible Director who wishes to participate in the Plan, must
execute a Deferral Agreement in the form approved by the Committee (a
copy of which is attached to this Plan). Except for the first Plan
Year, the Deferral Agreement must be executed and filed with the
Committee by November 30 of the Plan Year preceding the Plan Year for
which the Deferral Agreement is to be effective.
(2) For the first Plan Year commencing on the Effective Date, an eligible
Director who wishes to participate must execute a Deferral Agreement
not later than thirty (30) days after the date of adoption of the Plan
by the Board. Any such Deferral Agreement will apply only to Fees
which have not yet been earned by or paid to the Director.
(3) A Director who first becomes eligible during a Plan Year and who
wishes to participate must execute a Deferral Agreement not later than
thirty (30) days after the date the Committee notifies the Director of
eligibility for the Plan. Any such Deferral Agreement will apply only
to Fees for the Plan Year which have not yet been earned by or paid to
the Director.
2
<PAGE>
D. AMOUNT OF DEFERRAL
(1) A Participant may elect to defer all or any portion of the Fees which
are expected to be earned by the Participant over a period of time
stipulated in the Deferral Agreement.
(2) With the exception of fixed dollar amount, all such elections shall
automatically apply to any fee adjustment that become effective during
the applicable deferral period.
(3) The amount of Deferred Fees and the period of deferral will be
specified in the Deferral Agreement executed by the Director. A
Director will not be permitted to change the amount of Fees elected to
be deferred in any Deferral Agreement.
E. SUSPENSION OF PARTICIPATION
(1) An election by a Participant to enter into a Deferral Agreement will
be irrevocable; provided however, that a Participant may elect to
suspend the deferral of Fees after one (1) or more years of
participation. Any such election must be in writing and filed with
the Committee not later than the fifteenth (15th) day preceding the
regular Fee payment on which the suspension is to take effect.
(2) Upon the suspension of participation in the Plan by a Director, the
Committee will arrange to pay the Director a lump sum cash payment
equal to the amount of Deferred Fees under the Plan as of the date of
suspension, less any expenses incurred by the employer in providing
for the Fee deferral for the Participant. A Participant who has
suspended the deferral of Fees will not be permitted to execute a
subsequent Deferral Agreement to take effect prior to the Anniversary
Date next following the expiration of a period of twelve (12) months
from the date of suspension.
F. ADDITIONAL PARTICIPATION AGREEMENTS
At any time, the Committee in its sole discretion may permit a Participant
to enter into an additional Deferral Agreement by executing and filing with the
with the Committee such a Deferral Agreement prior to November 30 of the Plan
Year preceding the Plan Year for which the additional Deferral Agreement is to
be effective. Each additional Deferral Agreement will be subject to all of the
requirements of this Article II and will be treated as a completely separate
Deferral Agreement for all purposes under the Plan.
ARTICLE III BENEFIT PAYMENTS
A. PURPOSE
This Article describes the conditions under which benefits will be paid
under the Plan, and the form of benefit payments.
3
<PAGE>
B. PAYMENT OF BENEFITS
(1) NORMAL RETIREMENT
Upon the Participant's attainment of his or her Normal Retirement
Date, the Committee will take steps to provide for the payment of
monthly benefits in accordance with the provisions of Section C of
this Article III, with such payments to continue for a period of one
hundred and eighty (180) months, or until the death of the
Participant, if earlier.
(2) DEATH
(a) PRIOR TO NORMAL RETIREMENT: In the event of the death of a
Participant, or a terminated Participant whose benefit is being
deferred under Section B (4)(b) of this Article III, prior to his
or her Normal Retirement Date, the Committee will arrange to
commence monthly benefit payments to the Participant's
Beneficiary as of the first day of the month next following the
date of death in accordance with Section C below, with such
payments to continue for a period of one hundred and eighty (180)
months.
(b) AFTER NORMAL RETIREMENT: In the event of the death of a
Participant after his or her Normal Retirement Date and after the
commencement of monthly benefit payments, but prior to the
receipt of one hundred and eighty (180) monthly payments by the
Participant, the Committee will arrange to have monthly benefits
continued to the Participant's Beneficiary in accordance with
Section C below, with such monthly benefits to continue until a
total of one hundred and eighty (180) payments have been made to
the Participant and the Beneficiary together.
(3) TOTAL DISABILITY
In the event the Participant suffers a Total Disability where the
Participant no longer receives Fees, the Participant will not be required
to continue the deferral of Fees. Such disabled Participant will, however
be eligible to receive full retirement or death benefits to the same extent
as if the Participant had continued to defer Fees in accordance with the
Deferral Agreement.
(4) TERMINATION OF SERVICE
(a) WITH LESS THAN SIX (6) YEARS OF PARTICIPATION: If a Participant
with less than six (6) years of participation in the Plan incurs
a Termination of Service prior to his or her Normal Retirement
Date, for reasons other than death, Total Disability, or
Governmental Service, with or without cause, voluntarily or
involuntarily, and if the Participant's Termination of Employment
was not due to fraudulent or dishonest conduct (as determined by
the Committee), the Committee will arrange to pay the Director a
lump sum cash payment equal to the amount of Fees deferred under
the Plan, plus interest as determined by the Committee, less any
expenses incurred by the Employer in providing for the Fee
deferral for the Participant.
(b) WITH SIX (6) OR MORE YEARS OF PARTICIPATION: If a Participant
with six (6) or more years of participation in the Plan incurs a
Termination of service prior to his or her Normal Retirement
Date, for reasons other than, death, Total Disability, or
Governmental Service, with or without cause, voluntarily or
4
<PAGE>
involuntarily, and if the Participant's Termination of Employment
was not due to fraudulent or dishonest conduct (as determined by
the Committee), the Committee will arrange to pay the Director at
his or her Normal Retirement Date, the benefit specified in
Article III, Section B (1).
(5) GOVERNMENTAL SERVICE
In the event that a Participant becomes a member of a governmental
agency which has regulatory jurisdiction over the activities of the
Employer, the Participant will be deemed to have incurred a Termination of
Service and benefits will be paid in accordance with Section 4 above.
C. CALCULATION OF BENEFITS
(1) ACCOUNT BALANCES: At any time prior to the commencement of benefits,
a Participant's Deferred Fee account balance shall be equal to amounts
specified in the Deferral Agreement accumulated on a monthly basis,
assuming beginning-of-month deposit, with interest compounded monthly
at a rate equivalent to Edison's rate of return, as determined for the
Incentive Investment Stock Ownership Plan, for the immediately
preceding fiscal year.
(2) BENEFIT DETERMINATION: As of a Participant's Normal Retirement Date,
or other benefit commencement date if earlier, and as of every January
1 thereafter during the installment payment period, the monthly
benefit, payable as of the first day of each month until the next
January 1, shall be equal to the amount necessary to amortize the
Participant's account balance as of the determination date over the
remaining installment period, assuming beginning-of-month payments and
a compounded monthly interest rate equivalent to Edison's rate of
return, as determined for the Incentive Investment Stock Ownership
Plan, for the immediately preceding fiscal year.
ARTICLE IV ADMINISTRATION OF PLAN
A. PURPOSE
This Article defines the responsibilities of the parties involved in the
administration of the Plan and establishes a claims and appeals procedure to
resolve disputes with Plan Participants.
B. ADMINISTRATOR
The Employer will be the administrator of the Plan. The Employer may
delegate administrative responsibilities to others by action of its Board of
Directors and with notice to the person or persons to whom the delegation is
made.
C. COMMITTEE
The Board may, but need not, appoint a Committee of not less than one
member to serve at the pleasure of the Board. Any member of the Committee may
resign upon written notice to the Board and the Board may remove any member of
the Committee for any reason.
5
<PAGE>
(1) The Committee will act by a majority of its members by vote at a
meeting, or in writing without a meeting. If the Committee cannot
reach a decision on an issue, a temporary Committee member will be
appointed by unanimous vote of all Committee members to decide the
issue. In the event the Committee fails to agree on the selection of
a temporary Committee member, an arbitrator will be selected by the
American Arbitration Association in accordance with its rules.
(2) The Committee may appoint from its members a chairman to preside over
meetings and a secretary (who need not be a member) to keep records of
meetings and activities of the Committee. The Committee may also
appoint one or more of its members to execute any document on its
behalf.
(3) The Committee will have all powers and authority to make rules and
regulations with respect to the Plan and to determine all questions as
to interpretation of the Plan provisions and/or the rights or status
of Participants or Beneficiaries.
(4) The Committee will establish a reasonable procedure for the filing of
claims and the appeal by Participants of any decision of the
Committee.
(5) If a Committee is not appointed by the Board, the duties and
responsibilities of the Committee will be carried out by the Employer.
ARTICLE V TERMINATION AND AMENDMENT
A. PURPOSE
This Article establishes the circumstances under which the Plan can be
amended or terminated and how benefits will be distributed if the Plan is
terminated.
B. AMENDMENT
The Board reserves the right to amend the Plan at any time and for any
reason. No amendment will decrease or place further restrictions on a
Participant's accrued benefits at the time of such amendment.
C. TERMINATION
(1) The Board reserves the right to terminate the Plan or discontinue
recognizing further Fee deferrals any time.
(2) The Plan will be automatically terminated upon the Employer's legal
dissolution, adjudication as bankrupt or insolvent, upon a general
assignment for the benefit of creditors, upon receiver being
appointed.
(3) In the event of termination of the Plan, any Participant with six (6)
or more years of participation will receive a benefit at Normal
Retirement Date as provided in Article III, Section 4 (b). Any
Participant with less than six (6) years of participation will receive
a lump sum cash payment determined in accordance with Article III,
Section 4 (a). Any benefits in pay status at the time of Plan
termination to a retired Participant or Beneficiary will be continued
to such Participant or Beneficiary in accordance with the terms of the
Plan and any Deferral Agreement between the Participant and the
Employer.
6
<PAGE>
ARTICLE VI MISCELLANEOUS
A. PURPOSE
This Article describes the creditor status of Participants and
Beneficiaries, discusses assignability of benefits, and other miscellaneous
items.
B. CREDITOR STATUS
Participants and their Beneficiaries will have no legal or equitable
rights, interest or claims in any property or asset of the Employer, nor will
they be beneficiaries of, or have any rights, claims or interests in any life
insurance Policies, annuity contract Policies, or the proceeds therefrom owned
by or which may be acquired by the Employer. Such Policies or other assets of
the Employer will not be held in trust for the benefit of Participants or their
Beneficiaries or held in any way as collateral security for the fulfilling of
the obligations of the Employer under this Plan. Any and all of the Employer's
assets and Policies will be, and remain, the general, unpledged, unrestricted
assets of the Employer. The Employer's obligation under the Plan will be merely
that of an unfunded and unsecured promise of the Employer to pay money in the
future.
C. NON-ALIENATION
Except as may be required by federal tax withholding rules, benefits
hereunder may not be assigned, alienated, commuted, sold, transferred,
mortgaged, hypothecated, or in any other way encumbered.
D. FACILITY OF PAYMENT
If any individual entitled to a distribution under the Plan is a minor or
is adjudged mentally incompetent, the Committee may in its discretion make
payments to such individual or to his or her legal representative or to a
relative or friend of the individual for his or her benefit. Any payment of a
benefit under this paragraph will be a complete discharge of any liability for
the making of such payment under the provisions of the Plan.
E. NON-GUARANTEE OF EMPLOYMENT
Nothing contained in this Plan will be construed to be a contract of
service between the Employer and any Director, or as a guarantee of continued
retention of a Director by the Employer.
F. COOPERATION
A Participant will cooperate with the Committee by furnishing any and all
information requested by the Committee in order to facilitate benefit payments,
and by taking such physical examinations as the Committee may deem necessary,
and by taking any other action requested by the Committee.
G. GOVERNING LAW
The Plan shall be construed in accordance with and governed by the laws of
the State of Michigan.
7
<PAGE>
H. MERGER
The Employer will not merge, consolidate, or combine with any other
business entity unless and until the obligations of the Employer under the terms
of this Plan are provided for adequately.
8
<PAGE>
EDISON SAULT ELECTRIC COMPANY
ESELCO'S DIRECTOR'S FEE DEFERRAL PLAN
(DIRDEFPN.ELC) January 1, 1986
<PAGE>
EDISON SAULT ELECTRIC COMPANY
ESELCO DIRECTOR'S FEE DEFERRAL PLAN
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS
A. Purpose 1
B. Definitions 1
ARTICLE II PARTICIPATION AND DEFERRAL AGREEMENTS
A. Purpose 2
B. Eligibility to Participate 2
C. Deferral Agreement 2
D. Amount of Deferral 3
E. Suspension of Participation 3
F. Additional Participation Agreements 3
ARTICLE III BENEFIT AND PAYMENTS
A. Purpose 3
B. Payment of Benefits 4
ARTICLE IV ADMINISTRATION OF PLAN
A. Purpose 5
B. Administrator 5
C. Committee 5
ARTICLE V TERMINATION AND AMENDMENT
A. Purpose 6
B. Amendment 6
C. Termination 6
ARTICLE VI MISCELLANEOUS
A. Purpose 6
B. Creditor Status 6
C. Non-alienation 7
D. Facility of Payment 7
E. Non-Guarantee of Employment 7
F. Cooperation 7
G. Governing Law 7
H. Merger 7
-(i)-
<PAGE>
EDISON SAULT ELECTRIC COMPANY
ESELCO DIRECTOR'S FEE DEFERRAL PLAN
ARTICLE I
DEFINITIONS
A. PURPOSE.
Throughout this Plan, certain words are used frequently. Whenever a word is
capitalized, it will have the meaning defined in this Article of the Plan unless
the context clearly indicates otherwise.
B. DEFINITIONS.
(1) "Anniversary Date" means January 1 of each Plan Year.
2) "Beneficiary" means the person(s) so designated in writing by the
Participant, or the Participant's lawful spouse in the event that a proper
designation is not made by the Participant. In the event the Participant is not
survived by a lawful Spouse and no other Beneficiary has been designated, the
Participant's estate shall be the Beneficiary.
3) "Board" means the Board of Directors of the Employer.
4) "Committee" means the administrative committee, if any, which may
be appointed by the Employer's Board of Directors to oversee the
administration of the Plan.
5) "Deferral Agreement" means an agreement executed by a Director and
filed with the Committee prior to the beginning of a period for which fees are
to be deferred, pursuant to Article II of the Plan.
6) "Deferred Fee" means the portion of a Director's Fee for any Plan
Year, or part thereof, that has been deferred pursuant to a Deferral Agreement.
7) "Director" means any member of the Board who receives a fee for
service on the Board.
8) "Effective Date" means January 1, 1986.
9) "Employer" means EDISON SAULT ELECTRIC COMPANY, and any
subsidiary or affiliate of Edison Sault Electric Company which has adopted the
Plan with the consent of the Board of Directors of Edison Sault Electric
Company.
10) "Fee" means any compensation paid to a Director for services rendered
to the Employer as a Director.
11) "Normal Retirement Date" means the date the Participant attains his or
her sixty-fifth (65th) birthday, or completes ten (10) years of participation
in the Plan, whichever is later.
1
<PAGE>
12) "Participant" means a Director who elects to participate in the Plan
by filing a Deferral Agreement with the Committee on a timely basis.
13) "Plan" means the ESELCO DIRECTOR'S FEE DEFERRAL, PLAN as set forth
herein.
14) "Plan Year" means the twelve (12) month period commencing on January 1
and ending on December 31 of each calendar year.
15) "Policy" means any insurance policy purchased by the Committee from a
legal reserve life insurance company authorized to do business in the State of
Michigan.
16) "Termination of Service" means the termination of the Participant as a
Director of the Employer or any subsidiary or affiliate thereof. Total
Disability shall not be considered a Termination of Service.
17) "Total Disability" means a disability, whether temporary or permanent,
which results from bodily injury, which is not self-inflicted, which prevents a
Participant from engaging in any occupation for compensation or profit and which
has existed continuously for a period of at least six (6) months.
ARTICLE II
PARTICIPATION AND DEFERRAL AGREEMENTS
A. PURPOSE.
This Article describes when a Director becomes eligible to participate in
the Plan and what steps must be taken to actually participate.
B. ELIGIBILITY TO PARTICIPATE.
Any Director of the Employer is eligible to participate in the Plan upon
the execution of a Deferral Agreement and the filing of such Deferral Agreement
with the Committee in accordance with Section C. below.
C. DEFERRAL AGREEMENT.
1) Each eligible Director who wishes to participate in the Plan, must
execute a Deferral Agreement in the form approved by the Committee (a copy of
which is attached to this Plan). Except for the first Plan Year, the Deferral
Agreement must be executed and filed with the Committee by November 30 of the
Plan Year preceding the Plan Year for which the Deferral Agreement is
to be effective.
2) For the first Plan Year commencing on the Effective Date, an eligible
Director who wishes to participate must execute a Deferral Agreement not later
than 30 days after the date of adoption of the Plan by the Board. Any such
Deferral Agreement -- will apply only to Fees which have not yet been earned by
or paid to the Director.
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3) A Director who first becomes eligible during a Plan Year and who
wishes to participate must execute a Deferral Agreement not later than 30 days
after the date the Committee notifies the Director of eligibility for the Plan.
Any such Deferral Agreement will apply only to Fees for the Plan Year which have
not yet been earned by or paid to the Director.
D. AMOUNT OF DEFERRAL.
1) A Participant may elect to defer a dollar amount equal to all or any
portion of the Fees which are expected to be earned over a six (6) Plan Year
period by the Participant. A Participant will not be permitted to elect a
deferral of Fees which, in total, exceeds six (6) times the highest annual Fee
paid to the Director during the current and next preceding five
(5) Plan Years.
2) The amount of Deferred Fees will be specified in the Deferral
Agreement executed by the Director. A Director will not be permitted to change
the amount of Fees elected to be deferred in any Deferral Agreement.
E. SUSPENSION OF PARTICIPATION.
1) An election by a Participant to enter into a Deferral Agreement will
be irrevocable; provided however, that a Participant may elect to suspend the
deferral of Fees after one (1) or more years of participation. Any such election
must be in writing and filed with the Committee not later than the fifteenth
(15th) day preceding the regular Fee payment on which the suspension is to take
effect.
2) Upon the suspension of participation in the Plan by a Director, the
Committee will arrange to pay the Director a lump sum cash payment equal to the
amount of Deferred Fees under the Plan as of the date of suspension, less any
expenses incurred by the Employer in providing for the Fee deferral for the
Participant. A Participant who has suspended the deferral of Fees will not be
permitted to execute a subsequent Deferral Agreement to take effect prior to the
Anniversary Date next following the expiration of a period of twelve (12) months
from the date of suspension.
F. ADDITIONAL PARTICIPATION AGREEMENTS.
Upon the expiration of the first or any succeeding Deferral Agreement, the
Committee in its sole discretion may permit a Participant to enter into an
additional Deferral Agreement by executing and filing with the Committee such a
Deferral Agreement prior to November 30 of the Plan Year preceding the Plan Year
for which the additional Deferral Agreement is to be effective. Each additional
Deferral Agreement will be subject to all or the requirements of this Article II
and will be treated as a completely separate Deferral Agreement for all purposes
under the Plan.
ARTICLE III
BENEFIT PAYMENTS
A. PURPOSE.
This Article describes the conditions under which benefits will be paid
under the Plan, and
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the form of benefit payments.
B. PAYMENT OF BENEFITS.
1) NORMAL RETIREMENT:
Upon the Participant's attainment of his or her Normal Retirement Date, the
Committee will take steps to provide for the payment of monthly benefits in
accordance with the provisions of PARAG. of the Deferral Agreement, with such
payments to continue for a period of one hundred and eighty (180) months, or
until the death of the Participant, if earlier.
2) DEATH
(a) PRIOR TO NORMAL RETIREMENT: In the event of the death of a
Participant, or a terminated Participant whose benefit is being deferred
under Section B.(4)(b) of this Article III, prior to his or her Normal
Retirement Date, the Committee will arrange to commence monthly benefit
payments to the Participant's Beneficiary as of the first day of the month
next following the date of death in an amount specified in ~F. of the
Deferral Agreement, with such payments to continue for a period of one
hundred and eighty (180) months.
(b) AFTER NORMAL RETIREMENT: In the event of the death of a
Participant after his or her Normal Retirement Date and after the
commencement of monthly benefit payments, but prior to the receipt of one
hundred and eighty (180) monthly payments by the Participant, the Committee
will arrange to have monthly benefits continued to the Participant's
Beneficiary in the same amount as the Participant was receiving, with such
monthly benefits to continue until a total of one hundred and eighty (180)
payments have been made to the Participant and the Beneficiary together.
3) TOTAL DISABILITY:
In the event the Participant suffers a Total Disability where the
Participant no longer receives Fees, the Participant will not be required to
continue the deferral of Fees. Such disabled Participant will, however be
eligible to receive full retirement or death benefits to the same extent
as if the Participant had continued to defer Fees in accordance with the
Deferral Agreement until his or her Normal Retirement Date.
4) TERMINATION OF SERVICE:
(a) WITH LESS THAN 6 YEARS OF PARTICIPATION: If a Participant with
less than 6 years of participation in the Plan incurs a Termination of
Service prior to his or her Normal Retirement Date, for reasons other than,
death, Total Disability, or Governmental Service, with or without
cause, voluntarily or involuntarily, and if the Participant's Termination
of Employment was not due to fraudulent or dishonest conduct (as determined
by the Committee), the Committee will arrange to pay the Director a lump
sum cash payment equal to the amount of Fees deferred under the Plan, plus
interest as determined by the Committee, less any expenses incurred by the
Employer in providing for the Fee deferral for the Participant.
(b) WITH 6 OR MORE YEARS OF PARTICIPATION: If a Participant with
6 or more years of participation in the Plan incurs a Termination of
Service prior to his or her Normal Retirement Date, for reasons other than,
death, Total Disability or Governmental Service, with or without cause,
voluntarily or involuntarily, and if the Participant's Termination of
Employment was not due to fraudulent or dishonest conduct (as determined by
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the Committee), the Committee will arrange to pay the Director at his or
her Normal Retirement Date, the benefit specified in Article III
Section B.(l).
5) GOVERNMENTAL SERVICE: In the event that a Participant becomes a
member of a governmental agency which has regulatory jurisdiction over the
activities of the Employer, the Participant will be deemed to have incurred a
Termination of Service and benefits will be paid in accordance with Section
(4) above.
ARTICLE IV
ADMINISTRATION OF PLAN
A. PURPOSE.
This Article defines the responsibilities of the parties involved in the
administration of the Plan and establishes a claims and appeals procedure to
resolve disputes with Plan Participants.
B. ADMINISTRATOR.
The Employer will be the administrator of the Plan. The Employer may
delegate administrative responsibilities to others by action of its Board of
Directors and with notice to the person or persons to whom the delegation is
made.
C. COMMITTEE.
The Board may, but need not, appoint a Committee of not less than one
member to serve at the pleasure of the Board. Any member of the Committee may
resign upon written notice to the Board and the Board may remove any member of
the Committee for any reason.
1) The Committee will act by a majority of its members by vote at a
meeting, or in writing without a meeting. If the Committee cannot reach a
decision on an issue, a temporary Committee member will be appointed by
unanimous vote of all Committee members to decide the issue. In the event the
Committee fails to agree on the selection of a temporary Committee member, an
arbitrator will be selected by the American Arbitration Association in
accordance with its rules.
2) The Committee may appoint from its members chairman to preside over
meetings and a secretary (who need not be a member) to keep records of meetings
and activities of the Committee. The Committee may also appoint one or more of
its members to execute any document on its behalf.
3) The Committee will have all powers and authority to make rules and
regulations with respect to the Plan and to determine all questions as to
interpretation of the Plan provisions and/or the rights or status of
Participants or Beneficiaries.
4) The Committee will establish a reasonable procedure for the filing of
claims and the appeal by Participants of any decision of the Committee.
5) If a Committee is not appointed by the Board, the duties and
responsibilities of the Committee will be carried out by the Employer.
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ARTICLE V
TERMINATION AND AMENDMENT
A. PURPOSE.
This Article establishes the circumstances under which the Plan can
be amended or terminated and how benefits will be distributed if the Plan is
terminated.
B. AMENDMENT.
The Board reserves the right to amend the Plan at any time and for any
reason. No amendment will decrease or place further restrictions on a
Participant's accrued benefits at the time of such amendment.
C. TERMINATION.
(1) The Board reserves the right to terminate the Plan or discontinue
recognizing further Fee deferrals any time.
(2) The Plan will be automatically terminated upon the Employer's
legal dissolution, adjudication as bankrupt or insolvent, upon a general
assignment for the benefit of creditors, upon receiver being appointed.
(3) In the event of termination of the Plan, any Participant with six (6)
or more years of participation will receive a benefit at normal Retirement Date
as provided in Article III, Section (4)(b). Any Participant with less than six
(6) years of participation will receive a lump sum cash payment determined in
accordance with Article III, Section (4)(a). Any benefits in pay status at the
time of Plan termination to a retired Participant or Beneficiary will be
continued to such Participant or Beneficiary in accordance with the terms
of the Plan and any Deferral Agreement between the Participant and the Employer.
ARTICLE VI
MISCELLANEOUS
A. PURPOSE.
This Article describes the creditor status of Participants and
Beneficiaries, discusses assignability of benefits, and other miscellaneous
items.
B. CREDITOR STATUS.
Participants and their Beneficiaries will have no legal or equitable
rights, interest or claims in any property or asset of the Employer, nor will
they be beneficiaries of, or have any rights, claims or interests in any
life insurance Policies, annuity contract Policies, or the proceeds therefrom
owned by or which may be acquired by the Employer. Such Policies or other assets
of the Employer will not be held in trust for the benefit of Participants or
their Beneficiaries or held in any way as collateral security for the fulfilling
of the obligations of the Employer under this Plan. Any and all of the
Employer's assets and Policies will be, and remain, the general, unpledged,
unrestricted assets of the Employer. The Employer's obligation under the Plan
will
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be merely that of an unfunded and unsecured promise of the Employer to pay
money in the future.
C. NON-ALIENATION.
Except as may be required by federal tax withholding rules, benefits
hereunder may not be assigned, alienated, commuted, sold, transferred,
mortgaged, hypothecated, or in any other way encumbered.
D. FACILITY OF PAYMENT.
If any individual entitled to a distribution under the Plan is a minor or
is adjudged mentally incompetent, the Committee may in its discretion make
payments to such individual or to his or her legal representative or to a
relative or friend of the individual for his or her benefit. Any payment of a
benefit under this paragraph will be a complete discharge of any liability for
the making of such payment under the provisions of the Plan.
E. NON-GUARANTEE OF EMPLOYMENT.
Nothing contained in this Plan will be construed to be a contract of
service between the Employer and any Director, or as a guarantee of continued
retention of a Director by the Employer.
F. COOPERATION.
A Participant will cooperate with the Committee by furnishing any and all
information requested by the Committee in order to facilitate benefit
payments, and by taking such physical examinations as the Committee may deem
necessary, and by taking any other action requested by the Committee.
G. GOVERNING LAW.
The Plan shall be construed in accordance with and governed by the laws of
the State of Michigan.
H. MERGER.
The Employer will not merge, consolidate, or combine with any other
business entity unless and until the obligations of
the Employer under the terms of this Plan are provided for adequately.
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SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
OF
EDISON SAULT ELECTRIC COMPANY
Effective January 1, 1992
Amended as of August 17, 1995
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<PAGE>
TABLE OF CONTENTS
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PAGE
----
ARTICLE I Definitions 1
ARTICLE II Membership 5
ARTICLE III Amount and Payment of Benefits 6
ARTICLE IV Administration 9
ARTICLE V General Provisions 10
ARTICLE VI Amendment or Termination 13
APPENDIX
<PAGE>
INTRODUCTION
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The Supplemental Executive Retirement Plan of Edison Sault Electric Company
(hereinafter referred to as the "Plan") has been authorized by the Board of
Directors of Edison Sault Electric Company to be applicable effective on and
after January 1, 1992. The Plan is maintained by Edison Sault Electric Company
primarily for the purpose of providing pension benefits that would otherwise not
be allowable under applicable Internal Revenue Service regulations for a select
group of highly-compensated Company officers. The Plan reads as hereinafter set
forth.
<PAGE>
ARTICLE I
DEFINITIONS
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The following definitions, set forth in alphabetical order, are used throughout
the Plan. Whenever the words or phrases have initial capital letters in the
Plan, a special definition for those words or phrases is set forth below.
1.00 "APPENDIX" means the appendix attached to and made a part of this Plan as
applicable to the Designated Executive identified in such Appendix.
1.01 "AVERAGE FINAL COMPENSATION" means the average annual Compensation of a
Participant during the five full calendar years of employment affording
the highest such average, or the average of his Compensation for all full
calendar years of employment, if less than five.
1.02 "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company.
1.03 "CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
1.04 "COMMITTEE" shall mean the administrative committee appointed pursuant to
Article IV to administer the Plan.
1.05 "COMPANY" shall mean Edison Sault Electric Company or any successor by
merger, purchase or otherwise, with respect to its employees and any
other subsidiary or affiliated corporation which, with the approval of
the Board of Directors and subject to such conditions as it may impose,
adopts this Plan, and any successor or successors of any of them.
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ARTICLE I
DEFINITIONS
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1.06 "COMPENSATION" shall mean the total cash remuneration paid to a
Participant for services rendered to the Company, determined prior to any
pre-tax contributions under a qualified cash or deferred arrangement (as
defined under Section 401(k) of the Code and regulations thereunder), or
under a "cafeteria plan" (as defined under Section 125 of the Code and
regulations thereunder).
1.07 "DESIGNATED EXECUTIVE" shall mean any officer designated by the Board of
Directors as being eligible to participate in the Plan.
1.08 "EFFECTIVE DATE" shall mean January 1, 1992.
1.09 "EXCESS BENEFITS" shall mean the difference between;
(a) the normal form of benefit which would be payable to or on behalf
of the Participant under the Pension Plan as if those provisions
of the Pension Plan providing for the limitation of benefits in
accordance with Section 415 of the Code were inapplicable and,
(b) the normal form of benefit actually payable to or on behalf of
the Participant under the Pension Plan.
1.10 "NORMAL RETIREMENT DATE" shall mean the first day of the calendar month
coinciding with or immediately next following the Participant's 65th
birthday.
1.11 "PARTICIPANT" shall mean any Designated Executive included in the Plan as
provided in Article II.
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<PAGE>
ARTICLE I
DEFINITIONS
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1.12 "PENSION PLAN" shall mean the Pension Plan for Management Employees of
Edison Sault Electric Company.
1.13 "PLAN" shall mean the Supplemental Executive Retirement Plan of Edison
Sault Electric Company, as described herein or as hereafter amended.
1.14 "PRIOR SERVICE BENEFITS" shall mean any amount payable to a Designated
Executive pursuant to Section 3.02(c).
1.15 "PRIOR SERVICE CREDIT" shall mean additional service made available by
the Board of Directors with respect to previous employment deemed to be
of specific value to the Company and earned by Designated Executives
pursuant to Section 3.02(c)(ii).
1.16 "RETIREE" shall mean a Participant retired under the Pension Plan on a
normal, late or early retirement benefit.
1.17 "SERVICE" shall mean the period of a Participant's employment with the
Company, measured in years and months, with a month of Service being
credited for each calendar month of more than fifteen days of employment.
1.18 "SOCIAL SECURITY BENEFIT" shall mean the annual old-age or disability
insurance benefit which the Participant is entitled to receive under
Title II of the Social Security Act as in effect on the date he retires
or otherwise terminates employment, or which he would be entitled to
receive if he did not disqualify himself from receiving Social Security
Benefits
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<PAGE>
ARTICLE I
DEFINITIONS
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by entering into covered employment or for any other reason. In
the case of a normal or late retirement benefit, the Social Security
Benefit shall be computed on the assumption that the Participant will
receive no income after termination of employment, or age 65, if earlier,
which would be treated as wages for purposes of the Social Security Act.
In the case of an early retirement, the Social Security Benefit shall be
computed on the assumption that the Participant will continue to receive
compensation until age 65 which would be treated as wages for purposes of
the Social Security Act at the same rate as in effect on his termination
of service with no increase after that event in the maximum taxable wage
base. In computing any Social Security Benefit, no wage index adjustment
or cost-of-living adjustment shall be assumed with respect to any period
after the end of the calendar year in which the Participant retires or
terminates service. The Participant's Social Security Benefit shall be
determined on the basis of the his actual earnings, where available from
Company records, in conjunction with a salary increase assumption based
on the actual yearly change in national average wages as determined by
the Social Security Administration for all other years prior to
retirement or other termination of employment with the Company where
actual earnings are not so available.
1.19 "SUPPLEMENTAL BENEFITS" shall mean any amount payable to a Designated
Executive pursuant to Section 3.02(b).
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<PAGE>
ARTICLE II
MEMBERSHIP
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2.01 Every Designated Executive shall become a Participant on the later of the
Effective Date, or the date he is so designated by the Company.
2.02 A Designated Executive's participation in the Plan shall terminate if his
employment with the Company terminates, unless at that time the
Participant is a Retiree.
2.03 Through the adoption of an Appendix to this Plan, the Board of Directors
shall define each Designated Executive's level of Plan participation with
respect to his eligibility for Excess Benefits, Supplemental Benefits and
Prior Service Benefits.
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<PAGE>
ARTICLE III
AMOUNT AND PAYMENT OF BENEFITS
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3.01 Except as otherwise provided in Section 3.05 hereof, Plan benefits shall
be payable by the Company only with respect to Participants who become
Retirees. Such benefits shall be payable from the general assets of the
Company or from the trust the Company establishes for such purpose, or
from both, in monthly installments commencing on the first day of any
month commencing after the Participant's retirement under the Pension
Plan, and ceasing with the last monthly payment prior to the
Participant's death, subject to the provisions of Section 3.03 hereof.
3.02 BENEFITS UPON RETIREMENT
Subject to the provisions of the applicable Appendix, eligible
Designated Executives shall be eligible to receive Plan benefits equal
to the sum of (a), (b) and (c), below.
(a) EXCESS BENEFITS
In the event a Designated Executive who is eligible to receive an
early, normal or late retirement benefit from the Pension Plan is
also eligible to receive Excess Benefits as defined in Section
1.09, such Excess Benefits shall be payable in accordance with
Sections 3.03 and 3.04.
(b) SUPPLEMENTAL BENEFITS
In the event a Designated Executive retires and becomes eligible
to receive an early, normal or late retirement benefit from the
Pension Plan, such Designated Executive shall also be eligible to
receive Supplemental Benefits equal to (i) minus (ii), where,
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<PAGE>
ARTICLE III
AMOUNT AND PAYMENT OF BENEFITS
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(i) equals (aa) 1.6% of his Average Final Compensation
multiplied by Service to Normal Retirement Date (maximum
35 years), assuming no change in Compensation, minus (bb)
1.667% of his Social Security Benefits multiplied by
Credited Service to Normal Retirement Date (maximum 30
years), multiplied by (cc) the ratio of the Participant's
Service at the date of calculation to the Service he would
have at his Normal Retirement Date, assuming continued
membership in the Plan.
(ii) equals the sum of (aa) the normal form of benefit payable
to the Participant under the Pension Plan and (bb) his
Excess Benefits.
(c) PRIOR SERVICE BENEFITS
In the event a Designated Executive retires and becomes eligible
to receive an early, normal or late retirement benefit from the
Pension Plan, such Designated Executive shall also be eligible to
receive Prior Service Benefits based on an additional accrued
benefit equal to the product of (i) and (ii), where
(i) equals 1.6% of his Average Final Compensation,
(ii) equals up to five years of Prior Service Credit to be
earned concurrently with and in the same manner as Service
following the later of the Designated Executive's date of
hire, or a date to be established by the Board of
Directors.
3.03 FORM OF BENEFIT PAYMENTS
Except as provided in the following paragraph, the benefits payable to
or on behalf of a Participant as determined under Section 3.02 shall
be paid in the same form as the Participant's Pension Plan benefit,
except that in the event the Participant elects a level
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<PAGE>
ARTICLE III
AMOUNT AND PAYMENT OF BENEFITS
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income, Option C under the Pension Plan, the benefits payable under
this Plan shall be in the form of an Option A or an Option B
with his spouse as Co-pensioner.
Subject to the approval of the Board of Directors, a Participant
eligible to retire under the Plan may request to receive an optional
form of payment otherwise not provided for under this Section 3.03,
provided such option shall be actuarially equivalent to the benefit
otherwise payable hereunder, as determined in accordance with Section
1.15 of the Pension Plan in effect at the date of commencement.
3.04 TIME OF BENEFIT PAYMENTS
Benefits due under this Plan shall be paid coincident with the payment
date of benefits under the Pension Plan or at such other time or times
as the Committee in its discretion determines.
A Participant whose retirement benefit under the Pension Plan
commences prior to attaining his Normal Retirement Date but after
attaining age 55, shall receive his supplemental benefit commencing on
the date payments under the Pension Plan commence. In such case, the
annual amount of the Participant's supplemental benefit, prior to any
adjustment for a benefit payable in a form described in Section 3.03
hereof, shall be equal to the benefit determined under Section 3.02
hereof and otherwise payable at his Normal Retirement Date but reduced
in the same manner as his Pension Plan benefit.
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<PAGE>
ARTICLE III
AMOUNT AND PAYMENT OF BENEFITS
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3.05 REEMPLOYMENT
If a Retiree is restored to employment with the Company, the monthly
payments under the Plan shall be discontinued and, upon subsequent
retirement from employment with the Company, the Participant's
benefits under the Plan shall be reinstated. In the event the
employee again becomes a Participant, upon subsequent retirement or
other termination, his benefit shall be recomputed in accordance with
the above Sections, as applicable, and shall again become payable in
accordance with the provisions of the Plan.
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<PAGE>
ARTICLE IV
ADMINISTRATION
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The Plan shall be administered by the Compensation Committee of the Board of
Directors. The Committee shall keep a written record of its actions and
proceedings regarding the Plan and all dates, records, and documents relating to
the administration of the Plan.
The Committee is authorized to interpret the Plan, to make, modify, and rescind
such administrative rules as it deems necessary for the proper implementation of
the Plan, to make all other determinations necessary or advisable for the
administration of the Plan and to correct any deficit or supply any omission or
reconcile any inconsistency in the Plan in the manner and to the extent that the
Committee deems desirable to carry the Plan into effect.
Notwithstanding the foregoing the Committee may obtain advice from counsel,
actuaries, accountants or other consultants, who may, but need not be, counsel,
actuaries, accountants or other consultants to the Company, with respect to any
of the duties or obligations of the Committee hereunder, and the preparation of
any data or documentation required by the Committee in the performance of its
duties hereunder.
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<PAGE>
ARTICLE V
GENERAL PROVISIONS
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5.01 The establishment of the Plan shall not be construed as conferring any
legal rights upon any Designated Executive or other person for a
continuation of employment, nor shall it interfere with the rights of the
Company to discharge any Designated Executive and to treat him without
regard to the effect which such treatment might have upon him as a
Participant of the Plan.
5.02 In the event that the Committee shall find that a Participant is unable
to care for his affairs because of illness or accident, the Committee may
direct that any benefit payment due him, unless claim shall have been
made therefor by a duly appointed legal representative, be paid to his
spouse, a child, a parent or other blood relative, or to a person with
whom he reside, and any such payment so made shall be a complete
discharge of the liabilities of the Plan therefor.
5.03 The Company shall have the right to deduct from each payment to be made
under the Plan any required withholding taxes.
5.04 Subject to any applicable law, no benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any attempt to do so shall be void,
nor shall any such benefit be in any manner liable for or subject to the
debts, contracts, liabilities, engagements or torts of the Participant.
5.05 In the event that a Participant shall at any time be convicted for a
crime involving dishonesty or fraud on the part of such Participant in
his relationship with the Company, all benefits which would otherwise be
payable to him under the Plan shall be forfeited.
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<PAGE>
ARTICLE V
GENERAL PROVISIONS
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5.06 (a) All amounts payable in accordance with this Plan shall constitute
a general unsecured obligation of the Company. Such amounts, as
well as any administrative costs relating to the Plan, shall be
paid out of the general assets of the Company, to the extent not
paid by a grantor trust established pursuant to paragraph (b)
below.
(b) The Company may, for administrative reasons, establish a grantor
trust for the benefit of Plan Participants. The assets of said
trust will be held separate and apart from the other Company
funds and shall be used exclusively for the purposes set forth in
the Plan and the applicable trust agreement, subject to the
following conditions:
(i) the creation of said trust shall not cause the Plan to be
other than "unfunded" for purposes of Title I of the
Employee Retirement Income Security Act of 1974, as
amended;
(ii) the Company shall be treated as the "grantor" of said
trust for purposes of Section 671 and 677 of the Code; and
(iii) said trust agreement shall provide that its assets may be
used to satisfy claims of the Company's general creditors,
provided that the rights of such general creditors are
enforceable under federal and state law.
5.07 The Company may employ an insurance carrier to provide for the payment of
certain benefits hereunder. In no event may the use of an insurance
carrier result in the taxable income to a Designated Executive or his
beneficiary prior to the commencement of benefits hereunder.
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<PAGE>
ARTICLE V
GENERAL PROVISIONS
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5.08 The Plan is intended to constitute an unfunded deferred compensation
arrangement for a select group of management or highly compensated
employees and all rights hereunder shall be governed by and construed in
accordance with the laws of the State of Michigan.
5.09 The masculine pronoun shall mean the feminine wherever appropriate.
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<PAGE>
ARTICLE VI
AMENDMENT OR TERMINATION
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The Company reserves the right to modify or to amend, in whole or in part, or to
terminate, this Supplemental Executive Retirement Plan at any time. However, no
modification, amendment or termination of the Plan shall adversely affect the
right of any Participant to receive the benefits earned under the Plan as of the
later of the date the Plan is amended or terminated or the date such amendment
or termination is adopted.
-14-
<PAGE>
APPENDIX
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
OF
EDISON SAULT ELECTRIC COMPANY
1. The provisions of this Appendix shall apply to
(hereinafter referred to as the "Designated
Executive") and shall be effective , 19 .
2. Upon satisfying otherwise applicable eligibility criteria and subject to
all other Plan provisions, the Designated Executive shall be eligible to
receive:
a. ( ) Excess Benefits pursuant to Section 3.02(a).
b. ( ) Supplemental Benefits pursuant to Section 3.02(b).
c. ( ) Prior Service Benefits pursuant to Section 3.02(c) and
taking into account up to (i)
years of Prior Service Credit to be earned on an after
(ii) , 19 .
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
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<COMMON> 15,932
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<RETAINED-EARNINGS> 3,176,178
<TOTAL-COMMON-STOCKHOLDERS-EQ> 21,454,303
0
0
<LONG-TERM-DEBT-NET> 9,391,420
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<INCOME-TAX-EXPENSE> 686,400
<OTHER-OPERATING-EXPENSES> 16,282,803
<TOTAL-OPERATING-EXPENSES> 16,969,203
<OPERATING-INCOME-LOSS> 2,375,919
<OTHER-INCOME-NET> (30,961)
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0
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