As filed with the Securities and Exchange Commission on November 21, 1997
Registration No. 333-34401
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
___________________
WPS Resources Corporation
(Exact name of registrant as specified in its charter)
Wisconsin 4911 39-1775292
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification
organization) Classification Code No.)
Number)
WPS Resources Corporation
700 North Adams Street
Green Bay, Wisconsin 54307
(920) 433-1050
(Name, address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
_______________________
Larry L. Weyers
President and Chief Executive Officer
WPS Resources Corporation
700 North Adams Street
Green Bay, Wisconsin 54307
(920) 433-1466
________________
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
______________________________
Copies to:
Michael S. Nolan, Esq. Richard S. Green, Esq.
Marc J. Marotta, Esq. Sean S. Macpherson, Esq.
Foley & Lardner Reid & Priest LLP
777 East Wisconsin Avenue 40 West 57th Street
Milwaukee, Wisconsin 53202-5367 New York, New York
10019-4097
______________________________
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective
and satisfaction or waiver of all other conditions to the merger (the
"Merger") of Upper Peninsula Energy Corporation ("UPEN") with and into WPS
Resources Corporation ("WPS") as described in the Agreement and Plan of
Merger, dated as of July 10, 1997 (the "Merger Agreement") attached as
Appendix A to the Proxy Statement/Prospectus forming part of this
Registration Statement.
______________________________
If any of the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. [_]
______________________________
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
[UPPER PENINSULA ENERGY CORPORATION LETTERHEAD]
________________, 1997
Dear Shareholder:
On behalf of the Board of Directors, it is my pleasure to invite
you to a Special Meeting of Shareholders of Upper Peninsula Energy
Corporation ("UPEN"), which is being held in connection with the proposed
merger (the "Merger") of UPEN with WPS Resources Corporation ("WPS").
This meeting will provide you with the opportunity to participate in
shaping the future direction of your company and the future course of your
investment. The meeting will be held on Thursday, January 29, 1998 at the
corporate offices of UPEN, 600 Lakeshore Drive, Houghton, Michigan 49931,
at 2:00 p.m., Eastern Time.
At this important meeting, you will be asked to approve the
Agreement and Plan of Merger between WPS and UPEN (the "Merger Agreement")
pursuant to which UPEN will be merged into WPS, and each issued and
outstanding share of Common Stock, without par value, of UPEN ("UPEN
Common Stock") will be converted into 0.9 of a share of Common Stock, par
value $1.00 per share, of WPS ("WPS Common Stock"). The shares of WPS
Common Stock to be issued to holders of UPEN Common Stock in the proposed
merger would represent approximately 10% of the shares of WPS Common Stock
anticipated to be outstanding immediately after the effective time of the
Merger.
As I have indicated to you on a number of occasions, change in
the electric utility industry continues to accelerate, and will continue
to become increasingly competitive. The Merger will combine UPEN's
electric utility subsidiary, Upper Peninsula Power Company ("UPPCO"), with
a strong, well-managed company, which we have come to know well and
respect, and should enable UPPCO to serve its customers more effectively
over the coming years than it could on a stand alone basis.
Your Board of Directors has carefully considered the terms and
conditions included in the Merger Agreement and the effects of the Merger
on the business and prospects of UPEN and UPPCO, and is in full agreement
that entering into the Merger Agreement was the right decision, and will
be beneficial to UPEN and UPPCO and the value of your investment in UPEN
Common Stock. In addition, the Board of Directors has received the
opinion of its financial advisor, Wasserstein Perella & Co., Inc., to the
effect that the ratio for conversion of UPEN Common Stock into shares of
WPS Common Stock is fair, from a financial point of view to the holders of
UPEN Common Stock. Accordingly, the Board of Directors has adopted the
Merger Agreement and the transactions contemplated thereby.
A copy of the Merger Agreement and more detailed information
concerning the Merger and the transactions contemplated thereby, together
with financial and other information concerning the businesses of WPS and
UPEN, are included in the Proxy Statement/Prospectus that accompanies this
letter. I urge you to review this material carefully.
Your Board of Directors has unanimously adopted the Merger
Agreement and recommends that holders of UPEN Common Stock vote FOR
approval of the Merger Agreement at the Special Meeting.
The affirmative vote of the holders of a majority of the shares
of UPEN Common Stock outstanding and entitled to vote is required to
approve the Merger. Failure to vote has the same effect as a vote against
the Merger. I urge you to sign, date and mail the enclosed proxy card at
your earliest convenience, even if you plan to attend the Special Meeting
in person. Your vote is important, no matter how many shares you own.
You retain the option to revoke your proxy at any time, or to vote your
shares personally if you attend the Special Meeting in person.
Assuming the optimal schedule to obtain regulatory approvals, we
do not anticipate that the proposed Merger will be consummated until some
time in 1998. Please do not send in your stock certificates at this time.
This is a major step in the history of UPEN and UPPCO, but one
that your Board of Directors believes is critical to assure the best
possible future for all who share a stake in UPEN and UPPCO.
Thank you for your continued support.
Sincerely,
Clarence R. Fisher
Chairman of the Board,
President and Chief
Executive Officer
<PAGE>
UPPER PENINSULA ENERGY CORPORATION
600 Lakeshore Drive
Houghton, Michigan 49931
__________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 29, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Upper Peninsula Energy Corporation ("UPEN") will be held at the corporate
offices of UPEN, 600 Lakeshore Drive, Houghton, Michigan 49931, at 2:00
p.m., Eastern Time, on January 29, 1998 for the following purposes:
1. To consider and vote upon a proposal to approve the
Agreement and Plan of Merger, by and between WPS Resources
Corporation ("WPS") and UPEN, dated as of July 10, 1997 (the "Merger
Agreement") and the transactions contemplated thereby, pursuant to
which UPEN will be merged with and into WPS, with WPS to be the
surviving corporation, and whereby each issued and outstanding share
of common stock, without par value, of UPEN will be converted into
the right to receive nine-tenths (0.9) of a share of duly authorized,
validly issued, fully paid and nonassessable (except as otherwise
provided in the Wisconsin Business Corporation Law) common stock, par
value $1.00 per share, of WPS (the "WPS Common Stock"), including, if
applicable, associated rights to purchase shares of WPS Common Stock
pursuant to the terms of that certain Rights Agreement between WPS
and Firstar Trust Company, as Rights Agent thereunder, dated as of
December 12, 1996. The Merger Agreement and the transactions
contemplated thereby are described in the accompanying Proxy
Statement/Prospectus.
2. To act upon any matters incidental to the conduct of the
Special Meeting which may properly arise.
The Board of Directors has fixed the close of business on December 5,
1997 as the record date for the determination of shareholders entitled to
notice of and to vote at the Special Meeting or any adjournment or
postponement thereof.
All shareholders are cordially invited to attend the Special Meeting
in person. Shareholders who cannot be present at the Special Meeting are
urged to sign, date and mail the enclosed form of proxy to UPEN in the
enclosed postage paid envelope as promptly as practicable. YOUR VOTE IS
IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
If you have any questions related to the proposed merger, please call
906/487-5084.
By Order of the Board of Directors
BURTON C. AROLA, Secretary
Houghton, Michigan
[Proxy Statement Date]
<PAGE>
PROXY STATEMENT
OF
UPPER PENINSULA ENERGY CORPORATION
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 29, 1998
_______________
PROSPECTUS
OF
WPS RESOURCES CORPORATION
_______________
This Proxy Statement/Prospectus relates to the proposed merger
(the "Merger") of Upper Peninsula Energy Corporation, a Michigan
corporation ("UPEN"), with and into WPS Resources Corporation, a Wisconsin
corporation ("WPS"), and is being furnished to the shareholders of UPEN in
connection with the solicitation of proxies by the UPEN Board of Directors
(the "UPEN Board") for use at the special meeting of UPEN shareholders
(the "Special Meeting") to be held on January 29, 1998 at 2:00 p.m.,
Eastern Time, at the corporate offices of UPEN, 600 Lakeshore Drive,
Houghton, Michigan 49931, and at any adjournment or postponement thereof.
This Proxy Statement/Prospectus is first being mailed to shareholders of
UPEN on or about December 19, 1997.
This Proxy Statement/Prospectus constitutes a prospectus of WPS
with respect to up to 2,655,001 shares of the Common Stock, $1.00 par
value per share, of WPS ("WPS Common Stock"), including, if applicable,
associated rights ("Rights") to purchase shares of WPS Common Stock
pursuant to that certain Rights Agreement between WPS and Firstar Trust
Company, as Rights Agent thereunder, dated as of December 12, 1996 (the
"WPS Rights Agreement"), to be issued pursuant to an Agreement and Plan of
Merger, dated as of July 10, 1997, by and between WPS and UPEN, including
the related Plan of Merger between WPS and UPEN (together, the "Merger
Agreement"). Until the Distribution Date, as defined in the Rights
Agreement, any references in this Proxy Statement/Prospectus to WPS Common
Stock shall be deemed to include the associated Rights. WPS has filed a
Registration Statement on Form S-4 (such Registration Statement and all
exhibits relating thereto and any amendments thereof, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with the Securities and Exchange Commission (the "Commission")
covering the shares of WPS Common Stock to be issued in connection with
the Merger.
The Merger Agreement provides that each outstanding share of
common stock, without par value, of UPEN ("UPEN Common Stock") (other than
UPEN Common Stock owned by UPEN or WPS or any of their respective
subsidiaries, all of which shall be cancelled and cease to exist) will,
upon consummation of the Merger, be converted into the right to receive
0.9 of a share of WPS Common Stock.
WPS Common Stock is traded on the New York Stock Exchange (the
"NYSE") and the Chicago Stock Exchange (the "CSE") under the symbol "WPS."
On November 19, 1997, the closing sales price for WPS Common Stock as
reported on the NYSE Composite Transactions reporting system was $29-3/8
per share.
This Proxy Statement/Prospectus and the accompanying form of
proxy are first being mailed to shareholders of UPEN on or about December
19, 1997. A shareholder who has given a proxy may revoke it at any time
prior to its exercise. See "THE UPEN SPECIAL MEETING-Record Date; Vote
Required; Proxies."
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
_______________
This Proxy Statement/Prospectus does not cover any resale of the
securities to be received by shareholders of UPEN upon consummation of the
proposed transaction, and no person is authorized to make any use of this
Proxy Statement/Prospectus in connection with any such resale.
The date of this Proxy Statement/Prospectus is __________, 1997.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROXY STATEMENT/PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS, IN ANY JURISDICTION, TO OR FROM ANY PERSON TO WHOM
OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER
IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES PURSUANT TO
THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF WPS, UPEN OR
IN THE INFORMATION SET FORTH HEREIN SINCE THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS.
FORWARD LOOKING STATEMENTS
This Proxy Statement/Prospectus includes forward-looking
statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act. Although each of WPS and UPEN believes
that its expectations are based on reasonable assumptions, no assurance
can be given that actual results may not differ materially from those in
the forward-looking statements herein for reasons that include: the speed
and degree to which competition enters the electric and natural gas
industries; state and federal legislative and regulatory initiatives that
increase competition, affect cost and investment recovery and have an
impact on rate structures; the economic climate and industrial, commercial
and residential growth in the service territories of WPS and UPEN; the
weather and other natural phenomena; the timing and extent of changes in
commodity prices and interest rates; conditions of the capital markets and
equity markets; growth in opportunities for subsidiaries of WPS and UPEN;
and the ability of WPS and UPEN to achieve the goals described in "THE
MERGER--Reasons for the Merger," in each case during the periods covered
by the forward-looking statements.
AVAILABLE INFORMATION
WPS and UPEN are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and,
in accordance therewith, each files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and may be available at the
following regional offices of the Commission: Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and New York Regional Office, Seven World Trade Center, Suite 1300,
New York, New York 10048. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that
file electronically with the Commission, including WPS and UPEN. The
address of the Commission's web site is http://www.sec.gov. In addition,
material filed by WPS can be inspected at the offices of the NYSE, 20
Broad Street, New York, New York, 10005, and the CSE, 440 South LaSalle
Street, Chicago, Illinois 60605, on which the shares of WPS Common Stock
are listed. Material filed by UPEN can be inspected at the offices of the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
This Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement, of which this Proxy
Statement/Prospectus is a part, which WPS has filed with the Commission
under the Securities Act. Reference is made to such Registration
Statement for further information with respect to WPS and the securities
of WPS offered hereby. Statements contained herein concerning the
provisions of documents are necessarily summaries of such documents, and
each statement is qualified in its entirety by reference to the copy of
the applicable document filed with the Commission or attached as an
appendix hereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by UPEN with the Commission (File
No. 0-17427) pursuant to the Exchange Act hereby are incorporated by
reference into this Proxy Statement/Prospectus.
1. UPEN's current report on Form 8-K dated July 18, 1997.
2. UPEN's quarterly reports on Form 10-Q for the quarters
ended March 31, June 30 and September 30, 1997,
respectively.
3. UPEN's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "UPEN 1996 10-K").
4. The portions of UPEN's Proxy Statement filed in connection
with UPEN's Annual Meeting of Shareholders held on April
22, 1997 that have been incorporated by reference into the
UPEN 1996 10-K.
The following documents filed by WPS with the Commission (File
No. 1-11337) pursuant to the Exchange Act hereby are incorporated by
reference into this Proxy Statement/Prospectus.
1. WPS' current reports on Form 8-K dated March 10, 1997 and
June 7, 1997.
2. WPS' quarterly reports on Form 10-Q for the quarters ended
March 31, June 30 and September 30, 1997, respectively;
3. WPS' Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
4. WPS' Proxy Statement filed in connection with WPS' Annual
Meeting of Shareholders held on May 1, 1997;
5. The description of WPS Common Stock contained in WPS'
Registration Statement on Form 8-B filed on June 1, 1994;
6. WPS's Current Report on Form 8-K dated October 20, 1997;
and
7. The description of WPS' Rights contained in WPS'
Registration Statement on Form 8-A filed on December 13,
1996.
All reports and other documents filed by WPS or UPEN pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date hereof and prior to the consummation of the Merger shall be deemed to
be incorporated by reference herein and to be a part hereof from the date
of filing of such reports and documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus and the Registration Statement of which it is a part
to the extent that a statement contained herein, or in any other
subsequently filed document that also is incorporated or deemed to be
incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
All information contained in this Proxy Statement/Prospectus
with respect to WPS has been provided by WPS. All information contained
in this Proxy Statement/Prospectus with respect to UPEN has been provided
by UPEN.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF
THESE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE
WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, INCLUDING ANY BENEFICIAL OWNER, UPON WRITTEN OR ORAL REQUEST
TO, IN THE CASE OF DOCUMENTS RELATING TO UPEN, UPPER PENINSULA ENERGY
CORPORATION, 600 LAKESHORE DRIVE, HOUGHTON, MICHIGAN 49931-0130,
ATTENTION: BURTON C. AROLA (TELEPHONE NO. 906/487-5000), OR, IN THE CASE
OF DOCUMENTS RELATING TO WPS, WPS RESOURCES CORPORATION, P. O. Box 19001,
700 NORTH ADAMS STREET, GREEN BAY, WISCONSIN 54307, ATTENTION: FRANCIS J.
KICSAR (TELEPHONE NO. 920/433-1466). IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JANUARY 20, 1998.
TABLE OF CONTENTS
FORWARD LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . 2
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . 3
SUMMARY OF PROXY STATEMENT/PROSPECTUS . . . . . . . . . . . . . . . . 8
THE PARTIES TO THE MERGER . . . . . . . . . . . . . . . . . . . . . . 8
WPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
UPEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
THE UPEN SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . 8
PLACE, TIME AND DATE . . . . . . . . . . . . . . . . . . . . . . 8
RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . . . 9
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING . . . . . . . . 9
VOTE REQUIRED . . . . . . . . . . . . . . . . . . . . . . . . . 9
NO DISSENTER'S RIGHTS . . . . . . . . . . . . . . . . . . . . . 9
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
EFFECTIVE TIME . . . . . . . . . . . . . . . . . . . . . . . . . 9
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES . 9
BACKGROUND OF THE MERGER . . . . . . . . . . . . . . . . . . . . 10
RECOMMENDATION OF THE UPEN BOARD; UPEN REASONS FOR THE MERGER . 10
WPS REASONS FOR THE MERGER . . . . . . . . . . . . . . . . . . . 11
OPINION OF UPEN'S FINANCIAL ADVISOR . . . . . . . . . . . . . . 11
INTERESTS OF CERTAIN UPEN DIRECTORS . . . . . . . . . . . . . . 11
MATERIAL FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . 12
ACCOUNTING TREATMENT . . . . . . . . . . . . . . . . . . . . . . 12
REQUIRED REGULATORY APPROVALS AND OTHER REGULATORY MATTERS . . . 12
FEDERAL SECURITIES LAW CONSEQUENCES . . . . . . . . . . . . . . 13
CERTAIN OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . 13
TERMINATION; FEES AND EXPENSES . . . . . . . . . . . . . . . . . 14
COMPARISON OF SHAREHOLDER RIGHTS . . . . . . . . . . . . . . . . . . 15
MARKET PRICE AND DIVIDEND INFORMATION . . . . . . . . . . . . . . . . 16
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA . . . . . . . . . . . . . . . 17
SELECTED HISTORICAL FINANCIAL DATA . . . . . . . . . . . . . . . 17
WPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
UPEN . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA . 20
COMPARATIVE PER SHARE DATA . . . . . . . . . . . . . . . . . . . . . 21
THE UPEN SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . 22
PLACE, TIME AND DATE . . . . . . . . . . . . . . . . . . . . . . 22
RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . . . 22
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING . . . . . . . . 22
VOTE REQUIRED . . . . . . . . . . . . . . . . . . . . . . . . . 22
NO DISSENTER'S RIGHTS . . . . . . . . . . . . . . . . . . . . . 22
PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
EFFECTIVE TIME; CONDITIONS TO THE MERGER . . . . . . . . . . . . 23
CONVERSION OF SHARES . . . . . . . . . . . . . . . . . . . . . . 23
BACKGROUND OF THE MERGER . . . . . . . . . . . . . . . . . . . . 23
RECOMMENDATIONS OF THE UPEN BOARD; UPEN REASONS FOR THE MERGER . 27
OPINION OF UPEN'S FINANCIAL ADVISOR . . . . . . . . . . . . . . 29
WPS REASONS FOR THE MERGER . . . . . . . . . . . . . . . . . . . 33
INTERESTS OF CERTAIN UPEN DIRECTORS . . . . . . . . . . . . . . 33
OPERATIONS OF UPPCO AFTER THE MERGER . . . . . . . . . . . . . . 33
MATERIAL FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . 33
ACCOUNTING TREATMENT . . . . . . . . . . . . . . . . . . . . . . 35
REQUIRED REGULATORY APPROVALS AND OTHER REGULATORY MATTERS . . . 35
FEDERAL SECURITIES LAW CONSEQUENCES . . . . . . . . . . . . . . 39
NO DISSENTERS' RIGHTS . . . . . . . . . . . . . . . . . . . . . 39
CERTAIN OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . 39
TRANSACTIONS BETWEEN UPPCO AND SUBSIDIARIES OF WPS . . . . . . . 40
THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 40
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
EFFECTIVE TIME . . . . . . . . . . . . . . . . . . . . . . . . . 41
TERMS OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . 41
FRACTIONAL SHARES . . . . . . . . . . . . . . . . . . . . . . . 41
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES . 41
CONDITIONS TO CONSUMMATION OF THE MERGER . . . . . . . . . . . . 42
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 43
CONDUCT OF BUSINESS PENDING THE MERGER . . . . . . . . . . . . . 44
NO SOLICITATION OF TRANSACTIONS . . . . . . . . . . . . . . . . 45
EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . 45
"POOLING OF INTERESTS" ACCOUNTING TREATMENT . . . . . . . . . . 46
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 46
CERTAIN OTHER COVENANTS . . . . . . . . . . . . . . . . . . . . 47
TERMINATION; FEES AND EXPENSES . . . . . . . . . . . . . . . . . 47
AMENDMENT; WAIVER . . . . . . . . . . . . . . . . . . . . . . . 49
ADVISORY BOARD . . . . . . . . . . . . . . . . . . . . . . . . . 49
FISHER EMPLOYMENT CONTRACT . . . . . . . . . . . . . . . . . . . 49
OPERATIONS OF UPPCO AFTER THE MERGER . . . . . . . . . . . . . . 49
PERSONNEL MATTERS . . . . . . . . . . . . . . . . . . . . . . . 50
PARTIES TO THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . 50
WPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
UPEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF UPEN'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . 50
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . 50
FUTURE OUTLOOK . . . . . . . . . . . . . . . . . . . . . . . . . 52
LIQUIDITY AND CAPITAL RESOURCES . . . . . . . . . . . . . . . . 53
DESCRIPTION OF WPS CAPITAL STOCK . . . . . . . . . . . . . . . . . . 54
AUTHORIZED CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . 54
WPS COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . 54
CERTAIN STATUTORY AND OTHER PROVISIONS . . . . . . . . . . . . . 55
COMMON STOCK PURCHASE RIGHTS . . . . . . . . . . . . . . . . . . 56
RESTRICTION ON DIVIDENDS PAYABLE BY WPSC TO WPS;
LIMITATIONS ON CAPITAL STRUCTURE . . . . . . . . . . . . . 56
COMPARISON OF RIGHTS OF SHAREHOLDERS OF WPS AND UPEN . . . . . . . . 57
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
AUTHORIZED CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . 57
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . 57
SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION
BY WRITTEN CONSENT . . . . . . . . . . . . . . . . . . . . 57
BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . 58
REMOVAL OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . 58
VACANCIES ON THE BOARD OF DIRECTORS . . . . . . . . . . . . . . 58
LIMITATION OF LIABILITY; INDEMNIFICATION . . . . . . . . . . . . 59
AMENDMENTS TO ARTICLES OF INCORPORATION . . . . . . . . . . . . 60
AMENDMENTS TO BYLAWS . . . . . . . . . . . . . . . . . . . . . . 60
TAKEOVER STATUTES AND RELATED PROVISIONS . . . . . . . . . . . . 61
CERTAIN OTHER SUPERMAJORITY VOTING PROVISIONS . . . . . . . . . 63
RIGHTS PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . 63
INSPECTION OF BOOKS, RECORDS AND STOCKHOLDERS LIST . . . . . . . 66
LIABILITY OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . 66
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . 66
CERTAIN SHAREHOLDERS OF UPEN . . . . . . . . . . . . . . . . . . 66
CERTAIN SHAREHOLDERS OF WPS . . . . . . . . . . . . . . . . . . 67
MANAGEMENT OF THE SURVIVING CORPORATION AND EXECUTIVE COMPENSATION . 67
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ACCOUNTANTS REPRESENTATIVES . . . . . . . . . . . . . . . . . . . . . 68
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
INDEX TO UPEN FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . F-1
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION . . . . . . . . . F-22
APPENDIX A - AGREEMENT AND PLAN OF MERGER . . . . . . . . . . . . . . A-1
APPENDIX B - WASSERSTEIN PERELLA & CO., INC. OPINION . . . . . . . . B-1
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS . . . . . . . . . . II-1
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-5
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-6
SUMMARY OF PROXY STATEMENT/PROSPECTUS
The following is a brief summary of certain information
contained elsewhere in this Proxy Statement/Prospectus. This summary does
not contain a complete statement of all material information relating to
the Merger Agreement and the Merger and is subject to, and is qualified in
its entirety by, the more detailed information and financial statements
contained or incorporated by reference in this Proxy Statement/Prospectus.
UPEN shareholders should read carefully this Proxy Statement/Prospectus in
its entirety. Certain capitalized terms used in this summary are defined
elsewhere in this Proxy Statement/Prospectus.
THE PARTIES TO THE MERGER
WPS
WPS is a holding company whose principal subsidiary is Wisconsin
Public Service Corporation ("WPSC"), a regulated electric and gas utility.
At June 30, 1997, WPSC served 370,000 electric retail customers and
214,000 gas retail customers in an 11,000 square mile service territory in
Northeastern Wisconsin and Upper Michigan. Additionally, WPSC provides
wholesale (full or partial requirements) electric service, either directly
or indirectly, to 12 municipal utilities, three Rural Electrification
Administration financed electric cooperatives, and a privately-held
utility. WPS also owns two non-utility subsidiaries, WPS Energy Services,
Inc. ("ESI") and WPS Power Development, Inc. ("PDI"). For fiscal year
1996, WPSC, ESI and PDI represented approximately 82%, 18% and 0.2%,
respectively, of WPS' consolidated revenues and 95%, 4% and 1%,
respectively, of WPS' consolidated assets. The mailing address and
telephone number of the principal executive offices of WPS are 700 North
Adams Street, Green Bay, Wisconsin 54307, (920) 433-1466. See "PARTIES TO
THE MERGER-WPS."
UPEN
UPEN is a holding company incorporated under the laws of the
State of Michigan. UPEN's principal subsidiary, Upper Peninsula Power
Company ("UPPCO"), is an electric utility engaged in the generation,
purchase, transmission, distribution and sale of electric energy in the
Upper Peninsula of Michigan. UPPCO serves approximately 48,000 customers
in two-thirds of Michigan's Upper Peninsula. UPPCO's service area covers
approximately 4,460 square miles of primarily rural countryside. UPPCO
furnishes energy to 99 communities and adjacent areas and provides energy
for resale to two other investor-owned electric utilities, two
cooperatives and four municipalities. The main industries in UPPCO's
service area are forest products, iron mining and processing, tourism and
small manufacturing.
UPEN has two other subsidiaries, Upper Peninsula Building
Development Company, which owns the corporate headquarters building and
leases it to UPPCO, and PENVEST, Incorporated, which explores investment
opportunities in telecommunications, engineering services, and other non-
regulated businesses. The mailing addresses and telephone number of the
principal executive offices of UPEN are 600 Lakeshore Drive, Houghton,
Michigan 49931-0130, (906) 487-5000. See "PARTIES TO THE MERGER-UPEN."
THE UPEN SPECIAL MEETING
PLACE, TIME AND DATE
The UPEN Special Meeting will be held on January 29, 1998 at the
corporate offices of UPEN, 600 Lakeshore Drive, Houghton, Michigan 49931
commencing at 2:00 p.m., Eastern Time, and at any such time as may be
specified upon any adjournments or postponements thereof. See "THE UPEN
SPECIAL MEETING."
RECORD DATE
The holders of record of shares of UPEN Common Stock at the
close of business on December 5, 1997 (the "Record Date") are entitled to
notice of, and to vote at, the UPEN Special Meeting. See "THE UPEN
SPECIAL MEETING."
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the UPEN Special Meeting, holders of shares of UPEN Common
Stock will vote upon a proposal to approve the Merger Agreement and the
transactions contemplated thereby. Holders of shares of UPEN Common Stock
will also consider and vote upon any matters incidental to the conduct of
the UPEN Special Meeting which may properly arise. See "THE UPEN SPECIAL
MEETING."
VOTE REQUIRED
The affirmative vote of the holders of at least a majority of
the outstanding shares of UPEN Common Stock is required to approve the
Merger. Approval of the Merger by the holders of shares of UPEN Common
Stock is a condition to, and required for, the consummation of the Merger.
The directors, executive officers and affiliates of UPEN hold in the
aggregate less than 1% of the issued and outstanding shares of UPEN Common
Stock entitled to vote at the Special Meeting. See "THE UPEN SPECIAL
MEETING."
NO DISSENTER'S RIGHTS
Under Michigan law, holders of UPEN Common Stock will not be
entitled to dissenter's rights in connection with the Merger.
THE MERGER
GENERAL
The Merger Agreement contemplates that at the Effective Time (as
hereinafter defined), UPEN will be merged with and into WPS, the separate
corporate existence of UPEN will cease and WPS will be the surviving
corporation. See "THE MERGER AGREEMENT-Terms of the Merger."
EFFECTIVE TIME
The Merger will become effective upon the filing of Articles of
Merger ("Articles of Merger") with the Department of Financial
Institutions of the State of Wisconsin and a Certificate of Merger
("Merger Certificate") with the Department of Consumer and Industry
Services of the State of Michigan or such later time as WPS and UPEN may
agree upon and set forth in the Articles of Merger and Merger Certificate
(the "Effective Time"). The Effective Time is currently expected to occur
on or shortly after the satisfaction or waiver of the conditions precedent
to the Merger set forth in the Merger Agreement. See "THE MERGER-
Effective Time."
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
At the Effective Time, each share of UPEN Common Stock
outstanding immediately prior to the Effective Time (other than UPEN
Common Stock owned by UPEN or WPS or any of their respective subsidiaries,
all of which will be cancelled and cease to exist) will, upon consummation
of the Merger, be converted into the right to receive 0.9 of a share of
WPS Common Stock (the "Merger Consideration"). The ratio for converting
UPEN Common Stock into WPS Common Stock is referred to herein as the
"Exchange Ratio." Based on 2,950,001 shares of UPEN Common Stock
outstanding on July 10, 1997, WPS would issue up to 2,655,001 shares of
WPS Common Stock in the Merger. See "THE MERGER AGREEMENT-Conversion of
Shares; Procedures for Exchange of Certificates."
No fractional shares of WPS Common Stock will be issued upon the
surrender of certificates representing UPEN Common Stock pursuant to the
Merger. Instead, the Merger Agreement provides that holders of
certificates representing shares of UPEN Common Stock who otherwise would
be entitled to fractional shares of WPS Common Stock will receive cash as
set forth in the Merger Agreement. See "THE MERGER AGREEMENT-Fractional
Shares."
As soon as practicable after the Effective Time, the Firstar
Trust Company, a third-party exchange agent selected by WPS (the "Exchange
Agent"), will mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of UPEN Common Stock that were converted into the right
to receive shares of WPS Common Stock (a) a letter of transmittal (which
letter will specify that delivery shall be effected, and risk of loss and
title to such certificates will pass, only upon actual delivery of the
certificates to the Exchange Agent) and (b) instructions for use in
effecting the surrender of the certificates in exchange for certificates
representing WPS Common Stock.
Until surrendered, each certificate of UPEN Common Stock
eligible for conversion shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the
certificate representing WPS Common Stock and cash in lieu of any
fractional shares of WPS Common Stock.
No dividends or other distributions that are declared or made on
WPS Common Stock will be paid to any person entitled to receive
certificates representing WPS Common Stock until such person surrenders
his or her certificates representing UPEN Common Stock. See "THE MERGER
AGREEMENT-Surrender and Payment."
BACKGROUND OF THE MERGER
For a description of the background of the Merger, see "THE
MERGER--Background of the Merger."
RECOMMENDATION OF THE UPEN BOARD; UPEN REASONS FOR THE MERGER
The Board of Directors of UPEN (the "UPEN Board") believes that
the Merger is in the best interests of UPEN, and that the terms of the
Merger are fair to, and in the best interests of, the holders of UPEN
Common Stock and offer the holders of UPEN Common Stock better financial
prospects for the future than would be available to UPEN on a stand-alone
basis.
The UPEN Board has unanimously adopted the Merger Agreement and
the transactions contemplated thereby, and recommends that holders of UPEN
Common Stock vote to approve the Merger Agreement and the transactions
contemplated thereby. The UPEN Board adopted the Merger Agreement based
upon a number of factors, which are described under "THE MERGER-
Recommendation of the UPEN Board; UPEN Reasons for the Merger." In
considering the recommendation of the UPEN Board, holders of UPEN Common
Stock should be aware that certain members of the UPEN Board (including,
without limitation, Clarence R. Fisher, the Chairman of the Board,
President and Chief Executive Officer of UPEN) have certain interests in
the Merger that are in addition to the interests of holders of UPEN Common
Stock generally. The UPEN Board was aware of these interests and
considered them, among other matters, in approving the Merger Agreement
and the transactions contemplated thereby, including the Merger. See "THE
MERGER-Interest of Certain UPEN Directors" and THE MERGER-Certain Other
Agreements."
WPS REASONS FOR THE MERGER
For the reasons WPS has determined to engaged in the Merger, see
"THE MERGER-WPS Reasons for the Merger."
OPINION OF UPEN'S FINANCIAL ADVISOR
On July 10, 1997, Wasserstein Perella & Co., Inc. ("Wasserstein
Perella") delivered to the UPEN Board its written opinion to the effect
that, as of the date of such opinion and based upon the procedure and
subject to the assumptions made, matters considered and the limitations
discussed therein, the Exchange Ratio is fair, from a financial point of
view, to the holders of UPEN Common Stock. A copy of the opinion of
Wasserstein Perella is attached to this Proxy Statement/Prospectus as
Appendix B and should be read in its entirety. See "THE MERGER-Opinion of
UPEN's Financial Advisor."
INTERESTS OF CERTAIN UPEN DIRECTORS
Clarence R. Fisher, Chairman of the Board of Directors,
President and Chief Executive Officer of UPEN and UPPCO, has entered into
an employment contract with UPPCO which will become effective at the
Effective Time. This employment contract was negotiated between Mr.
Fisher and WPS concurrently with the discussions regarding the Merger.
This contract is designed to provide for an orderly integration of
management of UPPCO following the Effective Time and provides that Mr.
Fisher will serve as the President and Chief Executive Officer of UPPCO
(and if UPPCO is merged into WPSC, as the Chief Operating Officer of the
Upper Peninsula Region of WPSC) for a period of three years commencing at
the Effective Time, and that for two years thereafter UPPCO shall employ
Mr. Fisher as a consultant. During the initial three-year employment
period, Mr. Fisher will receive an annual salary of $216,000 (an amount
equal to Mr. Fisher's current salary increased by $6,000 to include
certain benefits), subject to upward adjustment pursuant to WPS' executive
compensation policy then in effect but in no event will such increase be
less than the percentage increase in the Consumer Price Index - For All
Urban Consumers for the preceding year. During the two-year consulting
period following Mr. Fisher's initial three year employment period, Mr.
Fisher will receive an annual consulting fee equal to 50% of his aggregate
salary for the last 12 months of his employment period. See "THE MERGER
AGREEMENT-Operation of UPPCO After the Merger" and "THE MERGER AGREEMENT-
Fisher Employment Contract." Mr. Fisher also entered into an agreement
with UPPCO pursuant to which he received additional cash compensation in
an amount equal to 63.4% of his base salary in consideration for his
employment and cooperation with respect to facilitation of the Merger.
See "THE MERGER AGREEMENT-Certain Other Agreements." Rodger T. Ederer, a
director of UPEN, provides legal services to UPEN and its subsidiaries,
and will be delivering an opinion concerning certain Michigan state
regulatory matters in connection with the Merger. During 1996, Mr. Ederer
received a total of $99,181 in fees from UPEN for legal services provided.
All six directors of UPEN were advised of the interests of Messrs. Fisher
and Ederer in the transaction at the time the Board considered the Merger
Agreement and the UPEN Board voted unanimously for the adoption of the
Merger Agreement and the Merger. The Merger Agreement provides for the
creation of an advisory board (the "Advisory Board") to assist the Board
of Directors of UPPCO in connection with the transition in the management
of UPPCO's operations. Five persons serving as outside directors of UPEN
prior to the Effective Time will be offered the opportunity to serve on
the Advisory Board for two-year terms at a fee of $10,000 per year. See
"THE MERGER AGREEMENT-Advisory Board."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a reorganization under the
Internal Revenue Code of 1986, as amended (the "Code"), so that no gain or
loss would be recognized by WPS, UPEN or the shareholders of UPEN or WPS,
except for gain or loss attributable to cash received in lieu of
fractional shares of WPS Common Stock. At the closing of the Merger
pursuant to the Merger Agreement (the "Closing"), Reid & Priest LLP,
counsel to UPEN, will have delivered to UPEN its opinion and Foley &
Lardner, counsel to WPS, will have delivered to WPS its opinion, both
opinions dated as of the Effective Time, that, among other things, the
Merger will qualify as a reorganization within the meaning of Section
368(a) of the Code. See "THE MERGER-Material Federal Income Tax
Consequences."
Reid & Priest LLP and Foley & Lardner have filed opinions as
exhibits to the registration statement which includes this Proxy
Statement/Prospectus. In the opinion of Reid & Priest LLP, counsel to
UPEN, the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. In the opinion of Foley & Lardner, counsel to
WPS, the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. The opinions of Reid & Priest LLP and Foley &
Lardner are based on current law, the information contained in this Proxy
Statement/Prospectus and certain representations as to factual matters
made by UPEN, WPS and certain shareholders (the "Specified Shareholders")
of UPEN.
WPS's obligation to effect the Merger is conditioned on, among
other things, the delivery at the Closing of an opinion to WPS from
Foley & Lardner, and UPEN's obligation to effect the Merger is conditioned
on, among other things, the delivery at the Closing of an opinion from
Reid & Priest LLP, each such opinion substantially to the effect that, for
federal income tax purposes, the Merger constitutes a tax-free
reorganization within the meaning of Section 368(a) of the Code. WPS and
UPEN may each waive the delivery of such opinions as conditions to
closing. However, in the event that, in the opinion of WPS or UPEN or
their respective counsel, such waiver would constitute a material event
for UPEN common shareholders, including, without limitation, that the
Merger does not constitute a tax-free reorganization within the meaning of
Section 368(a) of the Code, the approval of the UPEN common shareholders
will be resolicited.
ACCOUNTING TREATMENT
The Merger will be treated by WPS as a "pooling of interests"
for accounting and financial reporting purposes. The receipt of an
opinion from Arthur Andersen LLP, the independent public accountants of
WPS, confirming that the Merger will be accounted for as a "pooling of
interests" transaction pursuant to generally accepted accounting
principles ("GAAP") and applicable Commission regulations is a condition
to the consummation of the Merger. See "THE MERGER-Accounting Treatment"
and "THE MERGER AGREEMENT-Conditions to Consummation of the Merger."
REQUIRED REGULATORY APPROVALS AND OTHER REGULATORY MATTERS
The approval of the Federal Energy Regulatory Commission
("FERC") under the Federal Power Act and the Securities and Exchange
Commission under the Public Utility Holding Company Act of 1935 ("PUHCA"),
as well as the expiration of the applicable waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") are
required in order to consummate the Merger.
Although the parties believe that they will receive the
requisite regulatory approvals for the Merger, there can be no assurance
as to the timing of such approvals or the ability of the parties to obtain
such approvals on satisfactory terms or otherwise. Assuming each such
regulatory approval is obtained in the optimal time for such action, the
Merger is not expected to be consummated until at least the second or
third quarter of 1998.
It is a condition to the consummation of the Merger that such
approvals be obtained pursuant to final orders and on terms and conditions
which do not have, in the aggregate, or insofar as reasonably can be
foreseen, would not have, a material adverse effect on the business,
assets, financial condition or results of operations of WPS or UPEN.
There can be no assurance that any such approvals will not contain terms
or conditions which cause such approvals to fail to satisfy such
condition to the consummation of the Merger. See "THE MERGER AGREEMENT-
Required Regulatory Approvals and Other Regulatory Matters" and "THE
MERGER AGREEMENT-Conditions to Consummation of the Merger" with respect to
the approvals noted above and other filings and actions which also
constitute conditions to the consummation of the Merger.
Because the Merger as structured does not involve the merger of
either UPPCO, a Michigan utility corporation, or WPSC, a Wisconsin utility
corporation, and because no new Wisconsin utility holding company will be
created, WPS and UPEN do not believe that any Public Service Commission of
Wisconsin (the "Wisconsin Commission") or Michigan Public Service
Commission (the "Michigan Commission") approvals are required with respect
to the Merger in its proposed format. However, in light of developments
in pending proceedings before the Wisconsin Commission relating to other
Wisconsin utility business combination transactions, WPS and UPEN may seek
confirmation of that conclusion from the Wisconsin Commission and the
Michigan Commission. If such confirmation is not received, the Merger
Agreement provides that WPS and UPEN will use their respective best
efforts to adopt an alternative transaction structure that preserves the
material benefits of the Merger but enables WPS and UPEN to obtain all
necessary approvals, including state regulatory approvals.
The State of Wisconsin will continue to have jurisdiction to
review and regulate all costs projected to be incurred by WPSC for
potential recovery in rates in Wisconsin, and will regulate all affiliate
dealings between WPSC and all of its affiliates, including UPPCO. The
Michigan Commission will continue to have jurisdiction to consider and
regulate the reasonableness of all costs allowed to be reflected in
UPPCO's retail rates in Michigan.
WPS is currently exempt from the registration and other
requirements of PUHCA, other than from Section 9(a)(2) thereof. WPS will
request the Commission to reaffirm, taking into account the Merger, WPS'
status as an exempt holding company pursuant to Section 3(a)(1) of PUHCA.
See "THE MERGER-Required Regulatory Approvals and Other Regulatory
Matters - Public Utility Holding Company Act of 1935." WPS is and will
remain a public utility holding company under the Wisconsin Holding
Company Act and as such will remain subject for certain purposes to the
jurisdiction of the Wisconsin Commission. See "THE MERGER-Required
Regulatory Approvals and Other Regulatory Matters - State Regulatory
Matters."
FEDERAL SECURITIES LAW CONSEQUENCES
All WPS Common Stock issued in connection with the Merger will
be freely transferable, except that any WPS Common Stock received by
persons who are deemed to be "affiliates" (as such term is defined under
the Securities Act) of WPS or UPEN will be subject to certain limitations
on transfer. See "THE MERGER-Federal Securities Law Consequences."
CERTAIN OTHER AGREEMENTS
The Merger Agreement requires UPEN to identify in writing to WPS
prior to the date of closing of the Merger (the "Closing Date") any
persons who are, or are deemed to be, affiliates of UPEN, and to use
reasonable efforts to have such persons execute and deliver, prior to the
Closing Date, affiliates' letters in which they will make certain
representations about their intentions to hold the shares of UPEN Common
Stock for a period beginning on the date 30 days prior to consummation of
the Merger as well as shares of WPS Common Stock to be received in the
Merger until such time as WPS shall have published an earnings report
covering at least 30 days of post-Merger combined operations and agreed to
certain other restrictions on resale of such shares of WPS Common Stock.
The representations and restrictions on resale are intended to preserve
the characterization of the Merger for federal income tax purposes as a
reorganization, to comply with the requirements for "pooling of interests"
accounting treatment and to comply with restrictions on resale of
securities imposed by federal securities laws.
Immediately prior to the execution and delivery of the Merger
Agreement, each of UPEN's five outside directors surrendered the 100
shares of UPEN Common Stock issued to each of them as compensation for
services as directors of UPEN, and the ten officers and employees of UPPCO
(the "Incentive Plan Participants") who received an aggregate of 18,714
shares of restricted stock and options to acquire an aggregate of 9,311
shares of UPEN Common Stock under UPEN's 1995 Long Term Stock Incentive
Plan surrendered such restricted stock and options.
Immediately prior to the execution and delivery of the Merger
Agreement, UPPCO also entered into agreements with each of the Incentive
Plan Participants pursuant to which UPPCO agreed to make a one-time
payment to the Incentive Plan Participants (including Mr. Fisher) in
amounts ranging from 46.5% to 63.4% of their respective base salaries (an
aggregate of $533,208) on or before August 10, 1997, in consideration for
the continued employment and cooperation of such Incentive Plan
Participants with respect to facilitation of the Merger and the smooth
transition of operations after the Effective Time. Such agreements
provide that if the employment of an Incentive Plan Participant is
terminated under other than specified conditions, such Incentive Plan
Participant will be required to repay to UPPCO a pro rata portion of such
additional cash compensation based upon the percentage of the period
between July 10, 1997 and July 31, 1998 during which such Incentive Plan
Participant no longer continued to be employed by UPPCO. See "THE MERGER-
Certain Other Agreements."
See "THE MERGER-Transactions between UPPCO and Subsidiaries of
WPS" for a discussion of certain agreements entered into in the ordinary
course of business by UPPCO with WPSC and with ESI.
TERMINATION; FEES AND EXPENSES
The Merger Agreement may be terminated in certain circumstances,
whether before or after approval and adoption of the Merger Agreement by
the shareholders of UPEN, including: by mutual written consent of WPS and
UPEN; by either party, in certain circumstances, if the Merger is not
consummated by December 31, 1998 (which date may under certain
circumstances be extended to June 30, 1999); by either party if the
requisite UPEN shareholder approval is not obtained; by either party if
any law or regulation is adopted which prohibits the Merger or if any
court of competent jurisdiction in the United States issues a final order
prohibiting the Merger; by a non-breaching party if there occurs a
material breach of the Merger Agreement which is not cured within 20 days;
by UPEN, upon two days written notice, under certain circumstances, as a
result of the acceptance of a third party tender offer or business
combination proposal. The Merger Agreement requires that the following
termination fees be paid in certain circumstances, including if, in
certain circumstances, a business combination proposal with a third party
is not rejected or withdrawn: $3,000,000 if the termination occurs on or
before January 10, 1998; $4,500,000 if the termination occurs after
January 10, 1998 but on or before July 10, 1998; and $6,000,000 if the
termination occurs after July 10, 1998. See "THE MERGER AGREEMENT-
Termination; Fees and Expenses."
The Merger Agreement provides that except under the
circumstances in which a termination fee is payable by one of the parties,
all expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses.
COMPARISON OF SHAREHOLDER RIGHTS
The rights of the shareholders of UPEN currently are governed by
the Michigan Business Corporation Act (the "MBCA"), the Articles of
Incorporation of UPEN, as amended (the "UPEN Articles") and the Bylaws of
UPEN, as amended ("the UPEN Bylaws"). Upon consummation of the Merger,
the shareholders of UPEN will become shareholders of WPS, and their rights
as shareholders of WPS will be governed by the Wisconsin Business
Corporation Law (the "WBCL"), the Restated Articles of Incorporation of
WPS, as amended (the "WPS Articles"), the Bylaws of WPS, as amended (the
"WPS Bylaws") and the WPS Rights Agreement. For a discussion of the
various differences between the rights of shareholders of UPEN and the
rights of shareholders of WPS, see "COMPARISON OF SHAREHOLDER RIGHTS."
MARKET PRICE AND DIVIDEND INFORMATION
The WPS Common Stock is listed on NYSE and the CSE. The UPEN
Common Stock is listed on the Nasdaq National Market System ("NASDAQ").
The following table sets forth, for the periods indicated, the high and
low sales prices of WPS Common Stock and UPEN Common Stock as reported by
the exchanges on which they are respectively listed and dividends declared
on each.
<TABLE>
<CAPTION>
WPS Price Per
Equivalent Share
WPS UPEN of UPEN*
High Low Dividends High Low Dividends High Low
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994
First Quarter . . 33-5/8 28 $.445 20-1/4 16-3/4 $.2925 30.26 25.20
Second Quarter . . 30-3/4 27-3/8 .445 18-1/2 16-1/4 .2925 27.68 24.64
Third Quarter . . 30-3/8 27 .455 19-1/8 16-1/2 .3000 27.34 24.30
Fourth Quarter . . 28-3/8 26-1/4 .455 17 15 .3000 25.54 23.63
1995
First Quarter . . 29-3/4 26-3/4 .455 17 16 .3000 26.78 24.08
Second Quarter . . 29-7/8 27-7/8 .455 17-3/4 16 .3000 26.89 25.09
Third Quarter . . 30-3/4 28-1/8 .465 18-1/4 17-1/4 .3125 27.68 25.31
Fourth Quarter . . 34-1/4 30-1/4 .465 19-1/2 18 .3125 30.83 27.23
1996
First Quarter . . 34-3/8 31-7/8 .465 20-3/4 17-1/2 .3125 30.94 28.69
Second Quarter . . 33-1/2 30-1/8 .465 19-3/4 17 .3125 30.15 27.11
Third Quarter . . 32-1/8 30-3/8 .475 20 17-1/2 .3125 28.91 27.34
Fourth Quarter . . 30-5/8 28-1/4 .475 19-1/4 16 .3200 27.56 25.43
1997
First Quarter . . 28-3/4 26 .475 20 16-1/2 .3200 25.88 23.40
Second Quarter . . 27-7/8 23-3/8 .475 20-1/2 17 .3200 25.09 21.04
Third Quarter . . 29-1/4 26-3/4 .485 24-1/6 18-1/4 .3200 26.33 24.08
Fourth Quarter
(through November
19, 1997) . . . . 29-1/8 28-1/16 .485 24-3/4 22-1/2 .3200 26.21 25.26
</TABLE>
______________________________
* Calculated by multiplying the WPS Common Stock price per share by
the Exchange Ratio of 0.9 shares of WPS Common Stock for each share of
UPEN Common Stock.
On July 10, 1997, the last full trading day before the public
announcement of the execution and delivery of the Merger Agreement, the
high, low and closing sales prices per share of (i) WPS Common Stock on
the NYSE Composite Tape were 27-7/16, 27-1/4 and 27-3/8, respectively, and
(ii) UPEN Common Stock on NASDAQ were 18-1/4, 18-1/4, and 18-1/4,
respectively.
On November 19, 1997, the most recent date for which it was
practicable to obtain market price data prior to printing this Proxy
Statement/Prospectus, the high, low and closing sales prices per share of
WPS Common Stock on the NYSE Composite Tape were 29-3/8, 29-1/16, and 29-
3/8, respectively, and the high, low and closing sales prices per share of
UPEN Common Stock on NASDAQ were 24-3/8, 23-3/4, and 23-3/4, respectively.
If the Merger had been consummated on that date, the market value of the
number of shares of WPS Common Stock into which each share of UPEN Common
Stock would have been converted, based on the Exchange Ratio of 0.9, would
have been _____.
The market prices of WPS Common Stock and UPEN Common Stock are
subject to fluctuation. WPS shareholders and UPEN shareholders are urged
to obtain current market quotations for WPS Common Stock and UPEN Common
Stock.
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA
The summary below sets forth selected historical financial data
for WPS and UPEN. The WPS financial data should be read in conjunction
with the consolidated financial statements and notes thereto contained in
the WPS documents incorporated by reference herein. The UPEN financial
data should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this Proxy Statement/Prospectus and in the
UPEN documents incorporated by reference herein. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and "INDEX TO UPEN FINANCIAL STATEMENTS."
WPS
The selected historical consolidated year-end financial data of
WPS set forth below have been derived from the consolidated financial
statements of WPS for each of the five fiscal years in the period ended
December 31, 1996. The selected historical consolidated nine-month-end
financial data of WPS set forth below have been derived from the
consolidated financial statements of WPS for the nine-month period ended
September 30, 1997. The consolidated financial statements for each of the
five years in the period ended December 31, 1996 have been audited by
Arthur Andersen LLP, independent public accountants. The consolidated
financial statements for the nine-month period ended September 30, 1997
are unaudited. In the opinion of WPS management, such unaudited data
include all adjustments, consisting only of normal recurring accruals,
necessary for fair presentation.
WPS Summary Financial Data
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
9 Months Ended Years Ended December 31,
September 30,
1997 1996 1995 1994 1993 1992
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Operating revenues $639,598 $858,254 $719,848 $673,795 $680,632 $634,802
Preferred stock
dividend of
subsidiary 2,333 3,111 3,111 3,111 3,311 3,237
Net income 40,709 47,755 55,343 52,691 58,889 54,765
Earnings per average
share of common
stock outstanding $1.71 $2.00 $2.32 $2.21 $2.47 $2.35
Cash dividends $1.44 $1.88 $1.84 $1.80 $1.76 $1.72
Balance Sheet Data:
Total assets $1,265,028 $1,330,664 $1,266,743 $1,217,275 $1,198,841 $1,145,550
Short-term borrowings 29,230 57,950 26,500 22,500 21,000 20,000
Long-term debt of
subsidiary 305,442 305,788 306,590 309,945 314,225 321,498
Preferred stock of
subsidiary with no
mandatory redemption 51,200 51,200 51,200 51,200 51,200 51,200
Common stock equity 474,964 467,524 463,441 446,540 433,724 413,226
Book value per share $19.90 $19.56 $19.39 $18.69 $18.18 $17.33
Market Data - Common
Stock:
Closing market price
per share $28-15/16 $28-1/2 $34 $26-3/4 $33-5/8 $31-3/4
</TABLE>
<PAGE>
UPEN
The selected historical year-end financial data of UPEN set forth
below have been derived from the financial statements of UPEN for each of
the five fiscal years in the period ended December 31, 1996. The selected
historical nine-month financial data of UPEN set forth below have been
derived from the financial statements of UPEN for the nine-month period
ended September 30, 1997. The financial statements for each of the five
years in the period ended December 31, 1996 have been audited by Deloitte
& Touche LLP, independent auditors. The financial statements for the
nine-month period ended September 30, 1997 are unaudited. In the opinion
of UPEN management, such unaudited data include all adjustments,
consisting of only normal recurring accruals, necessary for fair
presentation.
UPEN Summary Financial Data
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
9 Months Ended Years Ended December 31,
September 30,
1997 1996 1995 1994 1993 1992
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Operating revenues $44,992 $58,302 $61,105 $62,530 $61,471 $61,452
Preferred stock dividend
of subsidiary 17 23 25 29 33 36
Net income 2,443 5,130 5,291 5,431 6,811 3,668
Earnings per average
share of common stock $0.82 $1.73 $1.78 $1.82 $2.24 $1.21
Cash dividends $0.96 $1.26 $1.23 $1.19 $1.17 $1.16
Balance Sheet Data:
Total Assets $135,127 $133,678 $128,384 $123,181 $124,440 $118,956
Short-term borrowings 9,853 5,242 925 208 214 4,715
Long-term debt of
subsidiaries 43,083 43,266 43,508 43,734 43,942 39,057
Preferred stock of
subsidiary with no
mandatory redemption 445 456 503 576 649 726
Common stock equity 42,303 43,118 41,737 40,142 38,697 36,473
Book value per share $14.34 $14.52 $14.06 $13.52 $12.92 $11.97
Market Data - Common
Stock:
Closing market price
per share $23-1/8 $17-1/4 $18-1/2 $15-1/2 $19-1/4 $18
</TABLE>
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following selected unaudited pro forma combined condensed
financial data combines the historical consolidated balance sheets and
statements of income of WPS and UPEN, including their respective
subsidiaries, after giving effect to the Merger, assuming the Merger had
been effective for all periods presented. These statements are prepared
on the basis of accounting for the Merger as a "pooling of interests" and
are based on the assumptions set forth in the notes thereto. The
following information is not necessarily indicative of the financial
position or operating results that would have occurred had the Merger been
consummated on the dates as of which, or at the beginning of the periods
for which, the Merger is being given effect, nor is it necessarily
indicative of future operating results or financial position. See
"UNAUDITED PRO FORMA COMBINED FINANCIAL DATA."
Pro Forma Financial Data
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
9 Months Ended Years Ended December 31,
September 30,
1997 1996 1995 1994
<S> <C> <C> <C> <C>
Income Statement Data:
Operating revenues $684,590 $916,556 $780,953 $736,325
Preferred dividend
requirements of subsidiaries 2,350 3,134 3,136 3,140
Net income 43,152 52,885 60,634 58,122
Earnings per common
share(a)(c) 1.63 1.99 2.28 2.19
Cash dividends declared per
common share(c) 1.40 1.83 1.79 1.75
Equivalent UPEN Pro Forma per
Share Data:(d)
Earnings per common share(a) $1.47 $1.79 $2.05 $1.97
Cash dividends declared per
common share(e) 1.26 1.65 1.61 1.58
Balance Sheet Data:
Total assets $1,399,339 $1,463,115 $1,393,908 $1,338,971
Long-term debt 348,525 349,054 350,098 353,679
Short-term debt(b) 39,083 63,192 27,425 22,708
Preferred stock - Not subject
to mandatory redemption 51,645 51,656 51,703 51,776
Common stock equity 516,967 508,424 50,2778 484,282
Book value per common share(f) 19.48 19.14 18.92 18.23
Equivalent UPEN Pro Forma per
Share Data:(d)
Book value per common share(f) 17.53 17.23 17.03 16.41
Notes to Pro Forma Financial Data
(a) Per share amounts for net income were computed based on the weighted
average shares outstanding during the period.
(b) Includes bank and other notes payable, commercial paper borrowings
and current portion of long-term debt.
(c) Pro forma per common share amounts give effect to the conversion of
each share of UPEN Common Stock outstanding into 0.9 shares of WPS
Common Stock. See "THE MERGER." Pro forma earnings per common share
amounts do not, however, give effect to the potential cost savings of
the transaction or the costs to achieve such savings. Pro forma book
value per share data has been reduced for the estimated transaction
costs. For a description of the potential cost savings, see "THE
MERGER-Recommendations of the UPEN Board; UPEN Reasons for the
Merger."
(d) Represents the pro forma equivalent of one share of UPEN Common Stock
calculated by multiplying the pro forma information by the conversion
ratio of 0.9 shares of WPS Common Stock for each share of UPEN Common
Stock.
(e) Pursuant to Commission requirements, calculated based on historical
dividends paid by WPS and UPEN combined. Assumes that WPS will
retain its common share dividend payment level currently in effect.
(f) Per share amounts for book value were computed based on the number of
shares outstanding as of the end of the period presented.
</TABLE>
COMPARATIVE PER SHARE DATA
Set forth below are certain data per common share of WPS and
UPEN on an historical basis, an unaudited pro forma combined basis for
WPS, and an equivalent unaudited pro forma basis for UPEN. The unaudited
WPS pro forma combined basis was derived by giving effect to the Merger
under the "pooling of interests" method of accounting for business
combinations. The equivalent unaudited pro forma data for UPEN was
calculated by multiplying the unaudited WPS pro forma combined per common
share data by the Exchange Ratio of 0.9 share of WPS Common Stock for each
share of UPEN Common Stock.
This information should be read in conjunction with the
historical financial statements of WPS incorporated by reference in this
Proxy Statement/Prospectus and the historical financial statements of UPEN
included and incorporated by reference in this Proxy Statement/Prospectus.
Nine Months
Ended Year Ended
September 30, December 31,
1997 1996 1995 1994
(unaudited)
WPS
Historical per common
share data:
Net income(a) $1.71 $ 2.00 $ 2.32 $ 2.21
Book value(b) 19.90 19.56 19.39 18.69
Cash dividends 1.44 1.88 1.84 1.80
UPEN
Historical per common
share data:
Net income(a) $ 0.82 $ 1.73 $ 1.78 $ 1.82
Book value(b) 14.34 14.52 14.06 13.52
Cash dividends 0.96 1.26 1.23 1.19
WPS
Unaudited pro forma
combined per common
share data:
Net income(a) $ 1.63 $ 1.99 $ 2.28 $ 2.19
Book value(b) 19.48 19.14 18.92 18.23
Cash dividends(c)(d) 1.40 1.83 1.79 1.75
UPEN
Equivalent, unaudited
pro forma per common
share data:
Net income(a) $ 1.47 $ 1.79 $ 2.05 $ 1.97
Book value(b) 17.53 17.23 17.03 16.41
Cash dividends(d) 1.26 1.65 1.61 1.58
____________________
(a) Per share amounts for net income were computed based on the weighted
average shares outstanding during the period. Net income per share
amounts for the nine months ended September 30, 1996 are: $1.84 (WPS),
$1.25 (UPEN), $1.80 (WPS pro forma combined) and $1.62 (UPEN equivalent
pro forma).
(b) Per share amounts for book value were computed based on the number of
shares outstanding as of the end of the period presented.
(c) The payout ratio (ratio of cash dividends to net income) of WPS and
UPEN combined would be .895, based upon the WPS current quarterly dividend
of $0.485 and unaudited pro forma combined net income for the nine months
ended September 30, 1997, and giving effect to the number of shares to be
outstanding following the merger. Such ratio should not be viewed as
indicative of payout ratios for future periods.
(d) Pursuant to Commission requirements based on historical dividends
paid by WPS and UPEN combined. If based upon the WPS current quarterly
dividend of $0.485 per share, the equivalent cash dividend per share of
UPEN Common Stock would be $0.4365 ($1.746 annualized).
THE UPEN SPECIAL MEETING
PLACE, TIME AND DATE
The UPEN Special Meeting will be held on January 29, 1998 at the
corporate offices of UPEN, 600 Lakeshore Drive, Houghton, Michigan 49931
commencing at 2:00 p.m., Eastern Time, and at any such time as may be
specified upon any adjournments or postponements thereof. This Proxy
Statement/Prospectus is being sent to holders of UPEN Common Stock,
accompanied by a form of proxy, which is being solicited by the UPEN Board
for use at the UPEN Special Meeting and at any and all adjournments or
postponements thereof.
RECORD DATE
The UPEN Board has fixed the close of business on December 5,
1997 (the "Record Date") as the date for determining holders of UPEN
Common Stock who will be entitled to notice of, and to vote at, the
Special Meeting. Only holders of record of UPEN Common Stock at the close
of business on the Record Date will be entitled to notice of, and to vote
at, the Special Meeting. As of the Record Date, there were a total of
2,950,001 shares of UPEN Common Stock outstanding and entitled to vote at
the Special Meeting.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the UPEN Special Meeting, holders of shares of UPEN
Common Stock will vote upon a proposal to approve the Merger Agreement and
the transactions contemplated thereby. Holders of shares of UPEN Common
Stock will also consider and vote upon any matters incidental to the
conduct of the UPEN Special Meeting which may properly arise. The UPEN
Board knows of no business that will be presented for consideration at the
UPEN Special Meeting other than the matters described in this Proxy
Statement/Prospectus.
VOTE REQUIRED
Approval of the Merger by the holders of UPEN Common Stock is a
condition to, and required for consummation of, the Merger.
The affirmative vote of the holders of at least a majority of
the outstanding shares of UPEN Common Stock is required to approve the
Merger. For this purpose, holders of shares of UPEN Common Stock will be
entitled to one vote per share. Votes may be cast in person or by
properly executed proxy. The directors, executive officers and affiliates
of UPEN hold in the aggregate less than 1% of the issued and outstanding
shares of UPEN Common Stock entitled to vote at the UPEN Special Meeting.
In the tabulation of votes, abstentions and "non-votes" (i.e.,
shares held by brokers, fiduciaries or other nominees which are not
permitted to vote due to the absence of instructions from beneficial
owners) will have the same effect as negative votes.
NO DISSENTER'S RIGHTS
Under Michigan law, holders of UPEN Common Stock will not be
entitled to dissenter's rights in connection with the Merger.
PROXIES
Shares of UPEN Common Stock represented by properly executed
proxies received prior to or at the UPEN Special Meeting will, unless such
proxies have been revoked, be voted in accordance with the instructions
indicated in the proxies. If no instructions are indicated on a properly
executed proxy, the shares will be voted FOR the Merger and will also
confer authority on UPEN management to so adjourn the UPEN Special
Meeting. Failure to vote (either by returning the proxy or, in the
alternative, by voting affirmatively in person at the UPEN Special
Meeting) will have the effect of a vote against the Merger.
Any proxy given pursuant to this solicitation or otherwise may
be revoked by the person giving it at any time before it is voted (i) by
delivering to the Secretary of UPEN at 600 Lakeshore Drive, Houghton,
Michigan 49931, on or before the taking of the vote at the UPEN Special
Meeting, a written notice of revocation bearing a later date than the
proxy relating to the same shares or (ii) by attending the UPEN Special
Meeting and voting in person. Attendance at the UPEN Special Meeting will
not in itself constitute the revocation of the proxy.
If any other matters are properly presented at the UPEN Special
Meeting for consideration, the persons named in the proxy or acting
thereunder will have discretion to vote on such matters in accordance with
their best judgment; provided, however, that the persons named in the
proxy will not have the discretion to vote such proxy to adjourn the
meeting to solicit additional votes FOR the Merger if such proxy is marked
as a vote AGAINST the Merger.
The cost of soliciting proxies from holders of UPEN Common Stock
will be borne by UPEN. In addition to soliciting proxies by mail,
officers and employees of UPEN, without receiving additional compensation
therefor, may solicit proxies by telephone, by telegram or in person.
UPEN will also make arrangements with brokerage firms and other
custodians, nominees and fiduciaries to send proxy materials to their
principals. UPEN has retained Corporate Investor Communications, Inc. to
assist in the solicitation of proxies and the fee paid to such firm is not
expected to exceed $7,500, plus reimbursement for reasonable out-of-pocket
costs and expenses.
THE MERGER
GENERAL
The Merger is to be effected pursuant to the Merger Agreement by
and between WPS and UPEN. The Merger Agreement contemplates that, at the
Effective Time, UPEN will be merged with and into WPS, the separate
corporate existence of UPEN will cease and WPS will be the surviving
corporation.
EFFECTIVE TIME; CONDITIONS TO THE MERGER
The Merger will be consummated on the second business day, or at
such other time as WPS and UPEN shall agree upon, after the Merger
Agreement receives the requisite approval of the shareholders of UPEN, as
well as the requisite regulatory approvals, and all other conditions to
the Merger have been met or waived. See "THE MERGER AGREEMENT-Conditions
to the Consummation of the Merger." The Merger will become effective at
the Effective Time as specified in the Articles of Merger and Merger
Certificate filed pursuant to the WBCL and the MBCA, or, absent such
specification, upon such filing.
CONVERSION OF SHARES
At the Effective Time, pursuant to the Merger Agreement, each
issued and outstanding share of UPEN Common Stock (other than UPEN Common
Stock owned by UPEN or WPS or any of their respective subsidiaries, all of
which will be canceled and cease to exist) shall be converted into the
right to receive 0.9 of a share of duly authorized, validly issued, fully
paid and nonassessable (except as otherwise provided under the WBCL) WPS
Common Stock. See "THE MERGER AGREEMENT-Conversion of Shares; Procedures
for Exchange of Certificates." Also see "COMPARISON OF SHAREHOLDER
RIGHTS-WPS Common Stock."
BACKGROUND OF THE MERGER
At a meeting of the UPEN Board held on January 23, 1996, UPEN's
management, as part of UPEN's regular practice of advising the Board on
changes in the electric utility industry, reviewed with the UPEN Board the
progress that UPEN had made in implementing its existing strategic plan,
discussed UPEN's long term prospects in light of the prospects for
electric utility industry in Michigan restructuring and industry
developments nationwide. The Directors also considered possible
combinations of UPEN with certain other utilities in the region. At the
conclusion of the meeting, it was the consensus of the Board that
consistent with advancing the prospects of UPEN and its utility
subsidiary, Upper Peninsula Power Company ("UPPCO"), it would be
appropriate for Mr. Clarence R. Fisher, the Chairman of the Board,
President and Chief Executive Officer of UPEN and UPPCO, to inquire of
other utilities concerning issues of common interest, including the
potential for a negotiated business combination on favorable terms. The
UPEN Board also authorized Mr. Fisher to explore retaining an investment
banking firm to advise UPEN in this regard. Subsequently, UPEN engaged
Wasserstein Perella to act as UPEN's exclusive financial advisor.
Following the meeting of the UPEN Board, Mr. Fisher contacted
WPS, ESELCO Inc. ("ESELCO"), and a gas utility company in the region (the
"Gas Utility") regarding the potential interest of those companies in
exploring a business combination with UPEN.
On February 9, 1996, Mr. Fisher met with Mr. Daniel A. Bollom,
then Chairman of the Board and Chief Executive Officer of WPS, and Mr.
Patrick D. Schrickel, then Senior Vice President-Finance of WPS, to
inquire whether WPS would have any interest in acquiring UPEN. Mr. Bollom
suggested that the two companies exchange financial and operating
information. On March 22, 1996, WPS and UPEN entered into a
Confidentiality Agreement.
During February 1996, Mr. Fisher also had separate meetings with
Mr. William Gregory, the President of ESELCO, and with an executive
officer of the Gas Utility to discuss the prospects of a business
combination with UPEN.
During the second quarter of 1996, Mr. Bollom indicated to Mr.
Fisher that WPS desired to investigate UPEN. On July 17, 1996, Messrs.
Bollom and Fisher met with Mr. William Gregory to discuss the prospects of
a business combination involving multiple companies. Separately, Messrs.
Fisher and Gregory again discussed the prospects of a combination of UPEN
and ESELCO, but such a combination did not appear to be mutually
attractive because UPEN and ESELCO combined would still be too small to
compete in a deregulated environment, and because a business combination
transaction would result in unacceptable dilution of the interests of UPEN
stockholders. The discussions with ESELCO did not progress beyond this
preliminary stage, and no multiple party discussions occurred.
On October 2, 1996, the UPEN Board met in Detroit, Michigan. At
that meeting, Reid & Priest LLP, counsel for UPEN, reviewed the duties of
directors in the business combination context, and representatives of
Wasserstein Perella discussed generally the role of the financial advisor
in connection with any business combination, and discussed generally
methodologies that might be employed in assessing the fairness, from a
financial point of view, of the terms of any potential transaction. At
that meeting, management of UPEN also reviewed with the Board the long-
term financial forecast for UPEN, noting that the deferral or absence of
rate increases could have an adverse effect upon UPEN's earnings. At the
conclusion of management's presentation, the UPEN Board authorized
management to continue to pursue potential business combination
opportunities.
On December 20, 1996, shortly following meetings in which the
chief executive officer of the Gas Utility expressed interest in exploring
a business combination, UPEN and the Gas Utility entered into a
Confidentiality Agreement.
At meetings held on January 10 and 30, 1997, Messrs. Fisher and
Arola and senior executive officers of the Gas Utility generally reviewed
their existing operations and strategic plans, as well as the exchange of
information and the process of developing an acquisition structure,
regulatory, and transition management issues, and a timetable for
exchanging additional information and identifying potential acquisition
savings. During February and March of 1997, UPEN and the Gas Utility
analyzed the potential savings that might be achieved in a business
combination between them.
On February 10, 1997, Messrs. Fisher and Arola, accompanied by
counsel, met in Detroit with Messrs. Larry L. Weyers and Patrick D.
Schrickel, the President and Chief Operating Officer and Executive Vice
President, respectively, of WPS, who were accompanied by Foley & Lardner,
counsel for WPS. At this meeting, the parties discussed the respective
businesses, operations, earnings, and prospects of WPS and UPEN (including
the potential impact of industry restructuring), and identified certain
preliminary personnel and transition issues that might arise in a business
combination transaction. The UPEN representatives also indicated that the
UPEN Board would be likely to desire more detailed information concerning
current developments with respect to WPS's nuclear operations and the
prospects of WPS's non-regulated subsidiaries, ESI and PDI.
On February 28, 1997, the UPEN Board met in Detroit, and after a
review by counsel of the legal duties of the Board, management presented
general information concerning the business and operations of WPS and the
Gas Utility, as well as management's preliminary assessment of how UPPCO
would operate combined with WPS or the Gas Utility. Management also
briefed the Board concerning developments in the electric utility industry
generally, and advised the Board that on January 20, 1997, ESELCO had
announced that it was engaged in discussions with one or more other
parties concerning a business combination. Representatives of Wasserstein
Perella also presented a financial overview of both WPS and the Gas
Utility, including information concerning revenues, assets, types and
number of customers, financial and market performance, and rate
statistics. The Wasserstein Perella representatives also reviewed the
general methodologies that Wasserstein Perella might employ in analyzing
the terms of a combination of UPEN with WPS or the Gas Utility from a
financial point of view.
On March 23, 1997, ESELCO announced that it had entered into a
letter of intent to be acquired by Wisconsin Energy Corporation ("WEC").
On March 25, 1997, the WPS Board considered the possibility of a
business combination of WPS and UPEN and authorized management of WPS to
make an acquisition proposal to UPEN.
On March 27, 1997, Messrs. Fisher and Arola met with Messrs.
Weyers and Schrickel in Green Bay, Wisconsin. At that meeting, the WPS
representatives delivered to the UPEN representatives a letter outlining
the general terms (other than price) under which WPS would be interested
in pursuing the acquisition of UPEN, and generally discussing the factors
that would support the proposed acquisition. WPS representatives also
delivered an initial draft of a Merger Agreement and certain related
transaction documents, including a stock option agreement pursuant to
which UPEN would grant to WPS an option to acquire a number of shares of
UPEN Common Stock equal to approximately 19.9% of the outstanding shares
at current market prices in effect at the time of the execution of a
Merger Agreement with WPS. The representatives of WPS also generally
indicated a potential range of exchange ratios that would provide to
holders of UPEN Common Stock shares of WPS Common Stock valued at
approximately $22 to $23 per share.
On April 3, 1997, the UPEN Board met in Houghton, Michigan to
discuss the WPS March 27 proposal. At the meeting, management noted the
substantial premium over recent market prices of ESELCO common stock at
which WEC was proposing to acquire ESELCO, and, in response to questions
from directors, expressed uncertainty regarding the price at which WPS
might offer to acquire UPEN. At the conclusion of the discussion, the
Board authorized management to inquire whether WEC would have any interest
in acquiring UPEN.
After the April 3, 1997 meeting of the UPEN Board, Wasserstein
Perella contacted Barr Devlin Associates, the financial advisors to WEC,
to inquire whether WEC would be interested in exploring the acquisition of
UPEN on an expedited basis. On April 10, 1997, Mr. Richard Abdoo, the
Chief Executive Officer of WEC, called Wasserstein Perella to advise that
WEC might be interested in acquiring UPEN so long as WEC received a fair
opportunity to develop and present a proposal, and, after receiving
assurances that such an opportunity would be available, requested that
counsel for UPEN deliver a form of Confidentiality Agreement for execution
by WEC, which was done.
On April 24, 1997, at a meeting in Detroit, after presenting to
UPEN a general outline of the structure of a proposed business combination
with UPEN and certain regulatory and operating arrangements, the Gas
Utility and its representatives preliminarily suggested that holders of
UPEN Common Stock might receive shares of common stock of the Gas Utility
in a merger between them valued at approximately $25 per share of UPEN
Common Stock. UPEN and its financial advisors observed that the potential
exchange ratio indicated by such preliminary valuation would not pre-empt
other possible transactions and in particular expressed concern that the
indicated dividends on the shares of common stock of the Gas Utility that
would be received by the holders of UPEN Common Stock in a combination
with the Gas Utility would be less than the dividends currently payable on
shares of UPEN Common Stock. The parties agreed, however, that the
discussions had the potential to continue.
On April 25, 1997, Wasserstein Perella advised WEC that unless
WEC executed and returned the Confidentiality Agreement with UPEN on or
before April 29, 1997, UPEN's invitation to WEC to conduct discussions
with UPEN would be withdrawn. On April 29, 1997, WEC's financial advisor
advised Wasserstein Perella that WEC did not wish to enter into the
Confidentiality Agreement with UPEN and would not pursue further the
acquisition of UPEN.
On May 5, 1997, at a meeting of the UPEN Board held by
conference telephone, management advised the Board of WEC's lack of
interest in acquiring UPEN, and reviewed the progress of discussions with
WPS and the Gas Utility. After extensive discussion, the UPEN Board,
expressing a desire to expedite the conclusion of business combination
discussions, and in order to effectively identify one party with which to
negotiate a possible definitive agreement, instructed Wasserstein Perella
to solicit formal proposals from WPS and the Gas Utility by not later than
May 20, 1997. Letters soliciting proposals were sent to WPS and the Gas
Utility on May 8, 1997.
On May 9, 1997, the Gas Utility notified UPEN by letter that it
would not submit a proposal and was terminating its discussions with UPEN.
On May 19 and 20, 1997, the WPS Board authorized WPS management
to submit a written proposal on terms believed to be more favorable to
UPEN.
On May 20, 1997, WPS submitted a written proposal supplementing
its March 27, 1997 letter, and proposed that UPEN be merged with WPS in a
transaction in which each share of UPEN Common Stock would be converted
into the right to receive 0.875 shares of WPS Common Stock, subject to
adjustment such that the market value of the WPS Common Stock issued to
holders of UPEN Common Stock in the merger would be at least $22.53 per
share of UPEN Common Stock.
At a meeting held on May 27, 1997, the UPEN Board discussed
whether it would be appropriate for UPEN to seek to reopen the discussions
with the Gas Utility, in light of the information then available. Because
the Gas Utility had indicated that it was prepared to negotiate with UPEN
only on an exclusive basis, and because of the potential adverse impact on
the level of dividends that would be received by the holders of UPEN
Common Stock in a combination with the Gas Utility, the UPEN Board
concluded that it did not appear to be productive for UPEN to seek to
reopen discussions with the Gas Utility. Management and counsel then
reviewed the material terms of the WPS proposal.
The financial advisors reviewed generally with the UPEN Board
the potential increased dividends that would be received by holders of
UPEN Common Stock in a merger with WPS, and the overall financial strength
and performance of WPS. The financial advisors also questioned whether
the terms included in the WPS proposal were necessarily the best that UPEN
might be able to obtain.
On June 9, 1997, Messrs. Fisher and Arola, accompanied by UPEN's
counsel and financial advisors, met with Mr. Schrickel and WPS's financial
advisors and counsel to discuss proposed modifications to the proposed
financial terms, but were unable to reach agreement concerning a potential
exchange ratio.
On June 10, 1997, in the course of a meeting concerning other
matters, Mr. Fisher inquired of Mr. John Noer, the President of Northern
States Power Company's Wisconsin subsidiary whether NSP would have any
interest in acquiring UPEN. Shortly thereafter, Mr. Noer advised Mr.
Fisher that NSP would not be in a position to initiate discussions with
UPEN at that time.
On June 17, 1997, UPEN proposed to WPS a revised exchange ratio
of 0.885 of a share of WPS Common Stock for each share of UPEN Common
Stock, subject to an adjustment such that the market value of WPS Common
Stock issued to holders of UPEN Common Stock in the Merger would be at
least $24.00 per share of UPEN Common Stock. On June 19, 1997, WPS
proposed a fixed exchange ratio of 0.9 of a share of WPS Common Stock for
each share of UPEN Common Stock.
On June 26, 1997, Messrs. Fisher and Arola, accompanied by
counsel, met in Detroit with Mr. Schrickel and counsel for WPS to discuss
various provisions of a potential Merger Agreement (other than the
exchange ratio). In the course of that meeting, the parties also
discussed the terms of a potential employment agreement with Mr. Fisher,
as well as management and personnel issues.
The UPEN Board met on July 2, 1997, to review the progress of
the negotiations with WPS. At that meeting, management advised the
directors concerning the revised exchange ratio now being proposed by WPS,
as well as the progress of the discussions regarding other provisions of
the proposed Merger Agreement. The financial advisors then made an oral
presentation reviewing the proposed exchange ratio in the context of
certain financial factors, including premium to current market, and in the
context of the historical ranges of the market prices of UPEN Common Stock
and WPS Common Stock, and the potential accretion in dividends and
earnings per share indicated by the proposed exchange ratio. In response
to questions from directors, management advised that it would be unlikely
that UPEN, as currently operated, could achieve equivalent financial
results on a stand alone basis. Counsel then presented an executive
summary of the terms of the Merger Agreement as then being proposed. A
revised draft of the Merger Agreement delivered on July 3, 1997, was
circulated to the directors on July 7, 1997, and representatives of UPEN
and WPS completed negotiations of the Merger Agreement and the proposed
Employment Agreement with Mr. Fisher between July 3 and July 9, 1997.
On July 10, 1997, the UPEN Board met in Green Bay, Wisconsin, to
review and consider the proposed definitive Merger Agreement. At that
meeting, the Board reviewed the terms and provisions of the Merger
Agreement and the Employment Agreement with Mr. Fisher in detail.
Wasserstein Perella presented its opinion to the effect that the exchange
ratio of WPS Common Stock for UPEN Common Stock proposed in the Merger was
fair, from a financial point of view to the holders of UPEN Common Stock,
and the analysis underlying such opinion. Management then presented its
recommendation that the UPEN Board approve the Merger Agreement and
answered questions from directors. After meeting in executive session,
the Board of Directors voted unanimously to adopt the Merger Agreement and
recommend that holders of UPEN Common Stock vote in favor of approval of
the Merger Agreement.
The Board of Directors of WPS met on July 10, 1997, and after
considering the proposed Merger Agreement, approved the execution of the
Merger Agreement, and the Merger Agreement was executed by WPS and UPEN
the same day.
RECOMMENDATIONS OF THE UPEN BOARD; UPEN REASONS FOR THE MERGER
The UPEN Board believes that the Merger is in the best interests
of UPEN, and that the terms of the Merger are fair to, and in the best
interests of, the holders of UPEN Common Stock and offer the holders of
UPEN Common Stock better financial prospects for the future than would be
available to UPEN on a stand-alone basis.
In the course of the discussions between UPEN and WPS,
representatives of WPS estimated that, if the Merger were consummated, WPS
could achieve total cost savings of approximately $56 million, net of
costs of achieving those savings but excluding transaction costs, in the
10 years following the consummation of the Merger. It is currently
anticipated that such cost savings will result primarily from the
consolidation of administrative, engineering and accounting functions, as
well as in other support services areas. Although the managements of UPEN
and WPS believe that the assumptions underlying the estimates of cost
savings are reasonable, the achievement of such cost savings will depend
upon numerous factors beyond the control of either WPS or UPEN. The
allocation of the benefits and cost savings among shareholders and
ratepayers will depend on the results of regulatory proceedings in the
various jurisdictions in which WPSC and UPPCO operate their businesses.
In its deliberations concerning the Merger, the UPEN Board
considered the following factors: (i) UPEN's businesses, operations,
assets, management, geographical location, size and prospects; (ii)
current industry, market and regulatory conditions and trends,
particularly in Michigan, and the impact of such trends upon UPPCO's
ability to operate effectively over the long term in a substantially
deregulated environment, because the potential restructuring of the
utility industry in Michigan was creating increased uncertainty as to
whether UPPCO would be able to charge rates in the future that would
enable UPPCO to continue to operate at a satisfactory level of
profitability, and because UPPCO would not be likely to possess the human
and financial resources to provide value-added services to customers on a
stand-alone basis; (iii) the ability of UPEN to provide a wider range of
services to customers if it combined with a larger organization; (iv) the
greater financial and operating resources and strength of WPS; (v) the
past operating relationships between UPPCO and WPSC (see "THE MERGER--
Transactions between UPPCO and Subsidiaries of WPS"), which had enabled
the two companies to become familiar with their respective operations and
corporate cultures on a day-to-day basis, and which caused the UPEN Board
to conclude that the two companies' corporate cultures and visions for the
future of the energy business in the Upper Peninsula of Michigan were
compatible; (vi) the due diligence investigation of WPS's operations,
including its nuclear operations, which due diligence investigation
suggested that despite the suspension of operations at the Kewaunee
nuclear power plant between September 1996 and June 1997, the plant's
long-term operational prospects did not appear to present a material
financial risk over the long term to the holders of UPEN Common Stock if
the Merger were consummated; (vii) the strategic alternatives available to
UPEN (see "THE MERGER--Background of the Merger"); (viii) the current and
historical market prices of and dividends on UPEN Common Stock and WPS
Common Stock (see "SUMMARY-MARKET PRICE AND DIVIDEND INFORMATION"); (ix)
the premium that holders of UPEN Common Stock would receive in the Merger
over both the market price and book value of UPEN Common Stock at the time
of the execution of the Merger Agreement; (x) the increased investment
liquidity that would be afforded to holders of UPEN Common Stock by
holding WPS Common Stock instead of holding UPEN Common Stock; (xi) the
treatment of the Merger as a reorganization under Section 368(a) of the
Code and the treatment of the Merger as a pooling of interests for
accounting purposes; (xii) the prospects of consummating the Merger
successfully, including, in particular, the ability to obtain required
regulatory approvals on a timely basis; (xiii) the terms and conditions of
the Merger Agreement (see "THE MERGER AGREEMENT") which were viewed as a
fair and reasonable basis for pursuing the Merger; and (xiv) the opinion
of Wasserstein Perella and the supporting analysis (see "OPINION OF UPEN'S
FINANCIAL ADVISOR").
In determining to adopt the Merger Agreement, the UPEN Board
considered the information and analyses as a whole in light of their
knowledge of UPEN, WPS, and their respective businesses and the Board's
own business experience. The UPEN Board did not assign any relative or
specific weights to the foregoing factors, and individual directors may
have ascribed differing weights to different factors. Throughout its
deliberations, the UPEN Board received the advice of special counsel.
THE UPEN BOARD HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY, BELIEVES THAT THE TERMS OF THE
MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF UPEN AND ITS SHAREHOLDERS
AND RECOMMENDS THAT HOLDERS OF UPEN COMMON STOCK VOTE TO APPROVE THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
In considering the recommendation of the UPEN Board concerning
the Merger Agreement, holders of UPEN Common Stock should be aware that
certain members of the UPEN Board (including, without limitation, Clarence
R. Fisher) have certain interests in the Merger that are in addition to
those of the holders of UPEN Common Stock generally. The UPEN Board was
aware of these interests and considered them, among other matters, in
adopting the Merger Agreement and the transactions contemplated thereby,
including the Merger. See "INTERESTS OF CERTAIN UPEN DIRECTORS," "CERTAIN
OTHER AGREEMENTS" and "THE MERGER AGREEMENT-Operations of UPPCO After The
Merger."
OPINION OF UPEN'S FINANCIAL ADVISOR
Wasserstein Perella has acted as financial advisor to UPEN in
connection with the Merger and has assisted the UPEN Board in its
examination of the fairness, from a financial point of view, of the ratio
of 0.9 of a share of WPS Common Stock to be issued in the Merger for each
share of UPEN Common Stock. As described herein, Wasserstein Perella's
opinion dated July 10, 1997 (together with the related presentations) to
the UPEN Board was only one of the many factors taken into consideration
by the UPEN Board in determining to adopt and approve the Merger
Agreement.
The full text of Wasserstein Perella's written opinion dated
July 10, 1997, which sets forth the assumptions made, matters considered
and limitations on review undertaken, is attached as Appendix B to this
Proxy Statement/Prospectus and is incorporated herein by reference.
Wasserstein Perella's opinion is directed to the UPEN Board and addresses
the fairness of the exchange ratio from a financial point of view to the
holders of UPEN Common Stock. It does not address any other aspect of the
Merger or any related transaction and does not constitute a recommendation
to any holder as to how such holder should vote at the Special Meeting.
The summary of the opinion of Wasserstein Perella set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full
text of such opinion.
In connection with its opinion, Wasserstein Perella reviewed the
Merger Agreement, and also reviewed certain publicly available business
and financial information relating to UPEN and WPS for recent years and
interim periods through the date of the opinion. Wasserstein Perella also
reviewed and analyzed certain internal financial and operating
information, including financial forecasts, analyses and projections
prepared by UPEN and WPS and provided to Wasserstein Perella for purposes
of its analysis, and also met with the respective managements of UPEN and
WPS to review and discuss such information and, among other matters, the
respective businesses, operations, assets, financial condition and future
prospects of UPEN and WPS. Wasserstein Perella also reviewed and
considered certain financial and stock market data relating to UPEN and
WPS, and compared that data with similar data for other publicly held
companies that Wasserstein Perella believed may be relevant or comparable
in certain respects to UPEN and WPS or one or more of their respective
businesses or assets, and the financial terms of certain recent
acquisitions and business combinations in the United States electric
utility industry specifically, and in other industries generally, believed
to be reasonably comparable to the Merger or otherwise relevant to its
inquiry. Wasserstein Perella also performed such other studies, analyses,
and investigations and reviewed such other information that Wasserstein
Perella deemed relevant.
In connection with its review, Wasserstein Perella did not
assume any responsibility for independent verification of any of the
information provided to or discussed with Wasserstein Perella and assumed
and relied upon the accuracy and completeness of such information. With
respect to the financial projections, forecasts, and analyses, Wasserstein
Perella assumed that such forecasts were reasonably prepared in good faith
and on bases reflecting the best currently available judgments of the
managements of UPEN and WPS. In addition, Wasserstein Perella did not
review any of the books and records of UPEN and WPS, and did not assume
any responsibility for conducting a physical inspection of the properties
or facilities of UPEN or WPS, or for making or obtaining an independent
valuation of the assets or liabilities of UPEN or WPS.
Wasserstein Perella also assumed that the Merger will qualify as
a reorganization within the meaning of Section 368(a) of the Code, and
will be recorded as a pooling of interests for accounting purposes. In
addition, Wasserstein Perella also assumed that the Merger will be
consummated on the terms set forth in the Merger Agreement, without
material waiver or modification. Wasserstein Perella's opinion was
necessarily based upon market and economic conditions as they existed and
could be evaluated by it on the date of its opinion, and Wasserstein
Perella expressed no opinion as to the prices or trading ranges in which
the securities of UPEN or WPS will actually trade at any time.
In preparing its opinion for the UPEN Board of Directors,
Wasserstein Perella preformed a variety of financial and comparative
analyses, including those described below. A summary of the analyses
performed by Wasserstein Perella is set forth below. The preparation of a
fairness opinion is a complex analytic process involving various
determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances, and therefore, such an opinion is not readily susceptible
to partial or summary description. No company, business or transaction
used in such analysis as a comparison is identical to UPEN, WPS or the
Merger, nor is an evaluation of the results of such analyses entirely
mathematical; rather, it involves complex considerations and judgments
concerning financial and operating characteristics and other factors that
could affect the acquisition, public trading or other values of the
companies, business segments, or transactions being analyzed. The
estimates included in such analyses and the range of valuations resulting
from any particular analysis are not necessarily indicative of actual
values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by such
analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at
which businesses, companies or securities actually may be sold.
Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty.
In reaching its opinion, Wasserstein Perella made qualitative
judgments regarding the significance and relevance of each analysis and
factor considered by it. Accordingly, Wasserstein Perella believes that
its analyses must be considered as a whole and that selecting portions of
its analyses and factors, without considering all analyses and factors,
could create an incomplete view of the processes underlying such analyses
and its opinion. In its analyses, Wasserstein Perella made numerous
assumptions with respect to UPEN, WPS, industry performance and with
respect to regulatory, general business, economic, market and financial
conditions, as well as other matters, many of which are beyond the control
of UPEN and WPS, and involve the application of complex methodologies and
judgments.
The following is a summary of material financial and comparative
analyses performed by Wasserstein Perella in arriving at its July 10, 1997
opinion and presented to the Board of Directors of UPEN. The Wasserstein
Perella opinion is based upon Wasserstein Perella's consideration of the
collective results of such analyses, together with the other factors
referred to in its opinion letter.
Analysis of Selected Publicly Traded Comparable Companies
Wasserstein Perella identified certain smaller electric utility
companies deemed comparable to UPEN. The companies were: Black Hills
Corporation, Empire District Electric Company, Florida Public Utilities
Company, Green Mountain Power Corporation, and St. Joseph Light & Power
Company. Certain financial, operating and market valuation
characteristics of these companies were analyzed and the multiples were
applied to the analogous characteristics of UPEN to derive an implied
equity valuation for UPEN and valuation per share of UPEN Common Stock.
Based upon the last twelve months' operating data, the price to earnings
ratio, market to book ratio, dividend yield, dividend payout ratio, ratio
of firm value or enterprise value (defined as market value plus debt plus
preferred stock less cash) to earnings before interest, taxes,
depreciation and amortization ("EBITDA") and earnings before interest and
taxes ("EBIT") ranged from 11.9x to 14.5x (median 13.5x), 1.07x to 2.12x
(median 1.33x), 4.9% to 8.9% (median 6.1%), 66.7% to 109.4% (median
80.5%), 5.8x to 7.8x (median 6.3x), and 9.2x to 11.4x (median 9.8x),
respectively, for the comparable companies, as compared to 10.1x, 1.23x,
7.0%, 70.7%, 5.7x and 8.4x for UPEN. On a forward looking basis, the
price to earnings multiples for the comparable companies for the years
ended December 31, 1997, and December 31, 1998, ranged from 12.0x to 13.5x
(median 12.4x) and 11.7x to 12.5x (median 12.1x), compared to 12.8x and
13.1x, respectively, for UPEN. Projected price to earnings multiples were
based on IBES estimates. Estimates may not have been available for all
companies used in this analysis. The application of these multiple ranges
to the comparable operating and financial data for UPEN suggested an
implied per share valuation for UPEN ranging from a low of $15.89 to a
high of $31.49 per share. Wasserstein Perella suggested a summary range
of $19.50 to $24.00 per share (which excluded certain high and low
multiples which Wasserstein Perella believed to be outliers based upon the
range of other multiples and therefore not comparable), in comparison to
an implied valuation of $24.53 (based upon the closing price of WPS Common
Stock on July 8, 1997 of $27.25 per share).
Analysis of Selected Comparable Acquisitions
Wasserstein Perella identified a group of recent merger and
acquisition transactions in the electric utility industry and reviewed
offer price to market price, offer price to book value, offer price to
earnings per share, firm value to EBITDA, and firm value to EBIT for these
transactions. The ratios resulting from this analysis ranged from 1.22x
to 1.68x (median 1.40x), 1.64x to 3.48x (median 2.26x), 13.6x to 24.5x
(median 17.6x), 6.5x to 13.2x (median 7.7x), and 9.7x to 21.1x (median
11.2x), respectively, for the comparable acquisitions, as compared to
1.34x, 1.65x, 13.5x, 6.8x, and 9.9x, respectively, for UPEN in the Merger
(based upon the closing price of WPS Common Stock of $27.25 per share on
July 8, 1997). The application of these analyses suggested an implied per
share valuation for UPEN ranging from a low of $22.27 to a high of $70.12
per share. Wasserstein Perella suggested a summary range of $23.00 to
$28.00 per share (which excluded certain high and low multiples which
Wasserstein Perella believed to be outliers based upon the range of other
multiples and therefore not comparable). Wasserstein Perella also
considered the dividend accretion to be realized by shareholders of the
acquired companies in conducting its analysis. The accretion and dilution
in the transactions analyzed ranged from dividend dilution of 30.2% to
dividend accretion of 262.8% (median dividend accretion of 63.9%), as
compared to dividend accretion of 34.0% for UPEN in the Merger (based upon
the closing price of WPS Common Stock of $27.25 per share on July 8,
1997). The recent merger and acquisition transactions in the electric
utility industry that were included in this analysis were Union Electric
Co./CIPSCO Inc. (August 14, 1995), WPL Holdings Inc./Interstate Power Co.
(November 11, 1995), Enron Corp./Portland General Corporation (July 22,
1996), Texas Utilities Corp./ ENSERCH Corp. (April 15, 1996), Houston
Industries Inc./ NorAm Energy Corp. (August 12, 1996), TECO Energy/ Lykes
Energy (January 22, 1996), and WEC/ESELCO (March 25, 1997). In making its
final determination employing this analysis, Wasserstein Perella believed
the multiples for the acquisition of ESELCO by WEC to be outliers based
upon the range of other multiples and therefore not comparable.
Discounted Cash Flow Analysis
Wasserstein Perella determined a range of implied equity values
using a discounted cash flow ("DCF") analysis, using projections provided
to Wasserstein Perella by management of UPEN.
The DCF analysis was based upon the discount to present value,
assuming discount rates ranging from 8.00% to 8.50% of the projected free
cash flow of UPEN for the years 1997 through 2005, and its projected
terminal value in 2005 based upon a range of multiples of EBIT ranging
from 11.00x to 11.50x and multiples of EBITDA ranging from 6.75x to 7.25x,
and utilizing a perpetuity growth rate of free cash flow ranging from
0.50% to 1.50%. Based upon these analyses, Wasserstein Perella determined
a range of values for UPEN Common Stock of $15.98 to $20.46 per share.
WPS Valuation Analysis
Wasserstein Perella also derived an implied valuation for shares
of WPS Common Stock in comparison to companies considered to be
appropriate peers of WPS, namely WPL Holdings, Inc., Wisconsin Energy
Corporation, Northern States Power Company and Madison Gas & Electric
Company. This analysis was performed in a manner similar to the analysis
of selected publicly traded comparable companies with respect to UPEN
described above. Based upon the last twelve months' operating data, the
price to earnings ratio, market to book ratio, dividend yield, dividend
payout ratio, ratio of firm value to EBITDA and EBIT ranged from 13.3x to
14.0x (median 13.6x), 1.40x to 1.79x (median 1.56x), 5.3% to 7.2% (median
6.2%), 73.0% to 97.1% (median 84.3%), 6.7x to 7.3x (median 7.0x), and
11.1x to 11.4x (median 11.4x), respectively, for the comparable companies,
as compared to 11.9x, 1.37x, 7.0%, 83.3%, 5.8x and 9.3x for WPS. On a
forward looking basis, the price to earnings multiples for the comparable
companies for the years ended December 31, 1997, and December 31, 1998,
ranged from 12.2x to 13.8x (median 13.2x) and 11.5x to 13.0x (median
12.4x), compared to 12.1x and 11.4x, respectively, for WPS. Projected
price to earnings multiples were based on IBES estimates. Estimates may
not have been available for all companies used in this analysis. The
application of this analysis suggested an implied per share valuation for
WPS ranging from a low of $23.65 to a high of $38.37 per share.
Pro Forma Combination and Contribution Analyses
Wasserstein Perella analyzed certain pro forma effects which
could result from the Merger, based upon financial forecasts provided by
the managements of UPEN and WPS for each of the five years ended December
31, 2002, and based upon certain assumptions, including the assumption
that the Merger will qualify for "pooling of interests" treatment for
financial accounting purposes. The management of WPS also provided to
Wasserstein Perella its projections of aggregate synergies and savings of
approximately $56 million expected to result from the Merger (see "WPS
Reasons for the Merger"). This analysis indicated that the Merger would
provide accretion of earnings per share for holders of UPEN Common Stock
ranging from approximately 37% in 1998 to 78.8% in 2002, while producing
estimated earnings accretion or dilution ranging from approximately 1.0%
dilution to 1.3% accretion respectively to holders of WPS Common Stock.
The analysis also indicated potential dividends per share accretion of
approximately 34.0% to 35.3% for holders of UPEN Common Stock.
Wasserstein Perella also calculated the contribution of selected
market values and financial attributes of each of WPS and UPEN to the
combined company. Based upon the current market value of the two
companies combined without giving effect to the proposed Merger, the
current market value of the two companies combined valuing UPEN at an
implied price of $24.53 per share, the pro forma net income of the two
companies combined and the pro forma book value of the two companies
combined, the contribution of UPEN to the two companies combined was 7.7%
and 10.1% and ranged from 5.8% to 9.3% and 8.3% to 8.4%, respectively,
using the financial forecasts provided by the respective managements of
UPEN and WPS, and assuming (i) no increase in UPPCO rates during the
relevant period, (ii) no repurchase by UPEN of any shares of UPEN Common
Stock during the relevant period, and (iii) UPEN's earning 8% interest on
cash balances during the relevant period.
Wasserstein Perella also calculated the contribution of selected
enterprise values and related financial attributes of each of WPS and UPEN
to the combined company. Based upon the current enterprise value of the
two companies combined without giving effect to the proposed Merger, the
current enterprise value of the two companies combined valuing UPEN at an
implied price of $24.53 per share, the pro forma EBITDA of the two
companies combined and the pro forma EBIT of the two companies combined,
the contribution of UPEN to the two companies combined was 9.0% and 10.5%
and ranged from 6.5% to 9.9% and 6.7% and 11.6%, respectively, using the
financial forecasts provided by the respective managements of UPEN and
WPS, and giving effect to the assumptions described above.
Wasserstein Perella is an internationally known investment
banking firm and, as a regular part of its investment banking business, is
regularly engaged in the valuation of businesses and securities in
connection with mergers and acquisitions. The UPEN Board selected
Wasserstein Perella because of its experience and expertise.
Pursuant to the terms of its engagement, UPEN has agreed to pay
Wasserstein Perella for its financial advisory services fees payable as
follows: (i) a $100,000 retainer fee, payable upon the signing of the
engagement letter with Wasserstein Perella and each subsequent anniversary
of the engagement; (ii) a fee of $250,000 payable upon Wasserstein
Perella's delivery of its fairness opinion; (iii) a transaction fee of
$1,275,000 (against which the retainer fee described in clause (i) will be
credited), of which (A) $358,333 was payable upon the execution of the
Merger Agreement; (B) $358,333 will be payable upon the approval of the
Merger Agreement by the holders of UPEN Common Stock; and (C) $358,333
will be payable upon the closing of the Merger. UPEN has also agreed to
reimburse Wasserstein Perella for its out of pocket expenses, including
the fees and expenses of legal counsel and any other advisor retained by
Wasserstein Perella, and to indemnify Wasserstein Perella against certain
liabilities, including liabilities under the federal securities laws or to
contribute to payments Wasserstein Perella may be required to make in
respect thereof.
In the ordinary course of business, Wasserstein Perella may
actively trade in the debt and equity securities of UPEN and WPS for its
own account and for the accounts of customers, and accordingly, may at any
time hold a long or short position is such securities.
WPS REASONS FOR THE MERGER
The WPS Board believes the Merger is in the best interest of WPS
and its shareholders because the consideration to be paid reflects the
value that will result from the efficiencies and other opportunities to be
realized in the Merger. WPS management estimates that if the Merger were
consummated, WPS could achieve total cost savings, primarily from the
consolidation of administrative, engineering and accounting functions as
well as other support services, of approximately $56 million, net of costs
of achieving those savings but excluding transaction costs, in the ten
years following the consummation of the Merger. Although WPS management
believes that the assumptions underlying the estimates of cost savings are
reasonable, the achievement of such cost savings will depend upon numerous
factors beyond the control of WPS. The allocation of the benefits and
cost savings among shareholders and ratepayers will depend on the results
of regulatory proceedings in the various jurisdictions in which WPSC and
UPPCO operate their businesses. WPSC has existing utility operations in
the Upper Peninsula of Michigan, and much of the WPSC service territory is
similar demographically and topographically to the UPEN service territory.
WPS management believes that the Merger constitutes an attractive business
opportunity for WPS which, although limited by the size of UPEN relative
to that of WPS, will nevertheless result in economic and operational
synergies between UPPCO and WPSC which will permit WPS to achieve higher
earnings from the utility operations with lower aggregate rates than would
be achievable by UPEN and WPS on a stand-alone basis. WPS believes that
the Merger creates the potential for WPSC and UPEN to reduce their bundled
energy costs on an aggregate basis. WPS already provides services to
UPPCO. See the discussion at "Transactions Between UPPCO and Subsidiaries
of WPS". WPS management believes the Merger will permit WPS to extend the
reach of its "core" competencies to operate distribution and transmission
systems and to spread its overhead over an increased volume of sales. WPS
management also believes the Merger will position WPS to participate in
potential transmission investments creating ties between the Upper
Peninsula of Michigan and lower Michigan, Wisconsin and Canada.
INTERESTS OF CERTAIN UPEN DIRECTORS
Clarence R. Fisher, Chairman of the Board of Directors,
President and Chief Executive Officer of UPEN and UPPCO, has entered into
an employment contract with UPPCO which will become effective at the
Effective Time. This employment contract was negotiated between Mr.
Fisher and WPS concurrently with the discussions regarding Merger. This
contract is designed to provide for an orderly integration of management
of UPPCO following the consummation of the Merger. See "THE MERGER-
Operations of UPPCO After the Merger" and "THE MERGER AGREEMENT--Fisher
Employment Contract." Mr. Fisher also entered into an agreement with
UPPCO pursuant to which he received additional cash compensation in an
amount equal to 63.4% of his base salary in consideration for his
continued employment and cooperation with respect to facilitation of the
Merger. See "THE MERGER-Certain Other Agreements." Rodger T. Ederer, a
director of UPEN, provides legal services to UPEN and its subsidiaries,
and will be delivering an opinion concerning certain Michigan state
regulatory matters in connection with the Merger. During 1996, Mr. Ederer
received a total of $99,181 in fees from UPEN for legal services provided.
All six directors of UPEN were advised of the interests of Messrs. Fisher
and Ederer in the transaction at the time the Board considered the Merger
Agreement and the Board voted unanimously for the adoption of the Merger
Agreement and the Merger. Five persons serving as outside directors of
UPEN immediately prior to the Effective Time will be offered the
opportunity to serve on the Advisory Board for two-year terms at $10,000
per year. See "THE MERGER AGREEMENT-Advisory Board."
OPERATIONS OF UPPCO AFTER THE MERGER
For a discussion of operations of UPPCO following the Merger,
see "THE MERGER AGREEMENT-Operations of UPPCO After the Merger."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences of the Merger to UPEN, WPS and the holders of UPEN and WPS
Common Stock. This discussion is based on the current provisions of the
Code, applicable Treasury Regulations, judicial decisions, and
administrative rulings and practice. Changes in any of the foregoing
could alter the conclusions reached herein, and such changes may have
retroactive effect. The tax treatment of a shareholder may vary depending
upon his or her particular situation, and certain shareholders (including
individuals who hold restricted stock or stock options or who otherwise
received compensation for services in the form of stock, options or other
interests in UPEN, insurance companies, tax-exempt organizations,
financial institutions, broker-dealers and foreign persons or entities)
may be subject to special rules not discussed below.
EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER TAX ADVISER AS
TO THE PARTICULAR TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF
ANY CHANGES IN APPLICABLE TAX LAWS.
Reid & Priest LLP is of the opinion that: (1) the Merger will
constitute a reorganization within the meaning of Section 368(a) of the
Code; (2) WPS and UPEN will each be "a party to a reorganization" within
the meaning of Section 368(b) of the Code; (3) no gain or loss will be
recognized by UPEN pursuant to the Merger; (4) each holder of UPEN Common
Stock who exchanges those shares solely for shares of WPS Common Stock
pursuant to the Merger (the "Exchanging UPEN Shareholders") will not
recognize any gain or loss as a result of the Merger; (5) the aggregate
tax basis of the WPS Common Stock received by each Exchanging UPEN
Shareholder will be the same as the aggregate tax basis of the stock
exchanged therefor; and (6) the holding period of the WPS Common Stock
received by each Exchanging UPEN Shareholder will include the period for
which the stock exchanged therefor was held, provided that such stock is
held as a capital asset at the effective time of the Merger.
Reid & Priest LLP is also of the opinion that the payment of
cash to an Exchanging UPEN Shareholder in lieu of issuing fractional
shares of WPS Common Stock will be treated as if the fractional share was
distributed pursuant to the Merger and then redeemed by WPS. The cash
payment will be treated as having been received in a distribution in full
payment in exchange for the fractional share. The Exchanging UPEN
Shareholder will recognize gain or loss equal to the difference between
(i) the cash payment, and (ii) the portion of the Exchanging UPEN
Shareholder's basis in the UPEN Common Stock which is allocable to the
fractional share. This gain or loss will be capital gain or loss,
provided that such stock is held as a capital asset at the effective time
of the Merger.
In the opinion of Foley & Lardner, counsel to WPS, the Merger
will qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Code. No gain or loss will be recognized to WPS or
its shareholders upon consummation of the Merger and there will be no
change to the tax basis and holding period of the WPS Common Stock of WPS
shareholders.
The opinions of Reid & Priest LLP and Foley & Lardner are
based on current law, the information contained in this Proxy
Statement/Prospectus and certain representations as to factual matters
made by UPEN, WPS and certain shareholders (the "Specified Shareholders")
of UPEN. These opinions have been filed with the Commission as exhibits
to the registration statement which includes this Proxy
Statement/Prospectus. Any inaccuracy or change with respect to such
information or representations, or any past or future actions by UPEN,
WPS, or the Specified Shareholders contrary to such representations, could
adversely affect the conclusions reached herein.
An opinion of counsel is not binding on the Internal Revenue
Service or the courts, and only represents such counsel's best judgment.
The parties have not and will not request a ruling from the Internal
Revenue Service in connection with the federal income tax consequences of
the Merger. If the Internal Revenue Service successfully challenges the
status of the Merger as a tax-free reorganization, holders of UPEN Common
Stock will be treated as if they sold their UPEN Common Stock in a taxable
transaction. In such event, each holder of UPEN Common Stock would
recognize gain or loss equal to the difference between the holder's tax
basis in the shares of the UPEN Common Stock surrendered in the Merger and
the fair market value, at the Effective Time, of the WPS Common Stock
received in exchange therefor (plus any cash received for fractional
shares of WPS Common Stock).
WPS's obligation to effect the Merger is conditioned on, among
other things, the delivery at the Closing of an opinion to WPS from
Foley & Lardner, and UPEN's obligation to effect the Merger is conditioned
on, among other things, the delivery at the Closing of an opinion from
Reid & Priest LLP, each such opinion substantially to the effect that, for
federal income tax purposes, the Merger constitutes a tax-free
reorganization within the meaning of Section 368(a) of the Code. WPS and
UPEN may each waive the delivery of such opinions as conditions to
closing. However, in the event that, in the opinion of WPS or UPEN or
their respective counsel, such waiver would constitute a material event
for UPEN common shareholders, including, without limitation, that the
Merger does not constitute a tax-free reorganization within the meaning of
Section 368(a) of the Code, the approval of the UPEN common shareholders
will be resolicited.
ACCOUNTING TREATMENT
The Merger will be treated by WPS as a "pooling of interests"
for accounting and financial reporting purposes. Under this method of
accounting, the recorded assets and liabilities of WPS and UPEN will be
carried forward to the combined corporation at their recorded amounts,
subject to any adjustments required to conform the accounting policies of
the companies; income of the combined corporation will include income of
WPS and UPEN for the entire fiscal year in which the Merger occurs; and
the reported income of the separate corporations for prior periods will be
combined and restated as income of the combined corporation.
The Merger Agreement provides that a condition to the obligation
of WPS to consummate the Merger is the receipt by WPS of an opinion from
Arthur Andersen LLP stating that the Merger will be accounted for as a
"pooling of interests" transaction pursuant to GAAP and applicable
Commission regulations.
REQUIRED REGULATORY APPROVALS AND OTHER REGULATORY MATTERS
Although the parties believe that they will receive the
requisite regulatory approvals and clearances for the Merger that are
summarized below, there can be no assurance as to the timing of such
approvals or clearances or the ability of the parties to obtain such
approvals and clearances on satisfactory terms or otherwise. It is a
condition to consummation of the Merger that such approvals be obtained
pursuant to final orders which shall not impose terms and conditions
which, in the aggregate have, or insofar as reasonably can be foreseen,
would have, a material adverse effect on the business, assets, financial
condition or results of operation of WPS or UPEN. There can be no
assurance that any such approvals will not contain terms or conditions
which cause such approvals to fail to satisfy such condition to the
consummation of the Merger. Assuming each such regulatory approval is
obtained in the optimal time for such action, the Merger is not expected
to be consummated until at least the second or third quarter of 1998.
Federal Power Act
Section 203 of the Federal Power Act requires FERC approval
before a public utility can sell, lease or otherwise dispose of all its
jurisdictional facilities, or any part thereof having a value in excess of
$50,000, or merge or consolidate such facilities, directly or indirectly,
with those of any other person, or purchase, acquire, or take any security
of any other public utility. Because UPPCO is a "public utility" under
the Federal Power Act, FERC's approval under Section 203 is required
before WPS and UPEN may consummate the Merger. Section 203 provides that
FERC is required to grant its approval if the Merger is found to be
"consistent with the public interest."
FERC has stated in a recent Policy Statement that, in analyzing
a merger under Section 203, it will evaluate the following criteria: (i)
the effect of the merger on competition in wholesale electric power
markets, utilizing an initial screening approach derived from the
Department of Justice/Federal Trade Commission Horizontal Merger
Guidelines to determine if a merger will result in an increase in an
applicant's market power; (ii) the effect of the merger on the applicants'
ratepayers; and (iii) the effect of the merger on state and federal
regulation of the applicants. WPS and UPEN anticipate jointly filing a
Section 203 application seeking approval of the Merger with FERC in late
fall of 1997. FERC is expected to rule on the application during 1998.
Hart-Scott-Rodino Antitrust Improvements Act of 1976 - Premerger
Notification
The HSR Act, and the rules and regulations thereunder, provide
that certain transactions (including the Merger) may not be consummated
until certain information has been submitted to the Antitrust Division of
the United States Department of Justice (the "Antitrust Division") and the
Federal Trade Commission (the "FTC") and specified HSR Act waiting period
requirements have been satisfied. WPS and UPEN plan to file notifications
under the HSR Act on or about the same time as the Section 203 application
is filed with FERC. The waiting period under the HSR Act relating to
these filings will terminate 30 days following the initial filing, unless
additional information is requested. The termination of the HSR Act
waiting period does not preclude the Antitrust Division or the FTC from
challenging the Merger on antitrust grounds. There can be no assurance
that such a challenge, if made, would not be successful. Neither WPS nor
UPEN believes that the Merger will violate Federal antitrust laws. If the
Merger is not consummated within 12 months after the termination of the
initial HSR Act waiting period, WPS and UPEN would be required to submit
new information to the Antitrust Division and the FTC, and a new HSR Act
waiting period would have to expire or be earlier terminated before the
Merger could be consummated.
Public Utility Holding Company Act of 1935
WPS is required to obtain Commission approval under
Section 9(a)(2) of the PUHCA in connection with the Merger.
Section 9(a)(2) of the PUHCA provides that it is unlawful for any person
to acquire any security of any public utility company if that person
owned, or by virtue of that transaction will come to own, 5% or more of
the voting securities of that public utility company and of any other
public utility company, without the prior approval of the Commission. An
application for approval of the Merger will be filed by WPS at the
appropriate time. Under the applicable standards of the PUHCA, the
Commission is directed to approve a proposed acquisition unless it finds
that (i) the acquisition would tend towards detrimental interlocking
relations or a detrimental concentration of control, (ii) the
consideration to be paid in connection with the acquisition is not
reasonable, (iii) the acquisition would unduly complicate the capital
structure of the applicant's holding company system or would be
detrimental to the public interest or the interest of investors or
consumers or the proper functioning of the applicant's holding company
system, or (iv) the acquisition would violate applicable state law. In
order to approve a proposed acquisition, the Commission must also find
that the acquisition would tend towards the economical and efficient
development of an integrated public utility system and would otherwise
conform to the PUHCA's integration and corporate simplification standards.
WPS is currently exempt from the registration and other
requirements of the PUHCA, other than from Section 9(a)(2) thereof,
pursuant to an order of the Commission under Section 3(a)(1) of the PUHCA.
The basis of the exemption under Section 3(a)(1) is that WPS and its
public utility subsidiaries from which it receives any material amount of
its income are predominantly intrastate in character and carry on their
businesses substantially in a single state in which they are organized
(Wisconsin). UPEN is also currently exempt from the registration and
other requirements of PUHCA, other than from Section 9(a)(2) thereof. The
basis of the exemption under Section 3(a)(1) is that UPEN and its public
utility subsidiaries from which it receives any material amount of its
income are predominantly intrastate in character and carry on their
businesses substantially in a single state in which they are organized
(Michigan).
WPS will file an application with the Commission under Sections
9(a)(2) and 10 of PUHCA requesting the Commission's approval for WPS to
acquire indirectly the outstanding common stock of UPPCO, which is held by
UPEN, pursuant to the Merger and also to have the Commission reaffirm,
taking into account the Merger, WPS' status as an exempt holding company
pursuant to Section 3(a)(1) of PUHCA.
If the Commission were to decline to reaffirm WPS' post-Merger
status as an exempt holding company under the circumstances currently
contemplated (i.e., UPPCO retaining its separate corporate existence as a
subsidiary of WPS), WPS would seek the necessary regulatory approvals
(including the approvals of the Wisconsin Commission and the Michigan
Commission) to the merger of UPPCO with and into WPSC immediately
following the Merger and cause UPPCO to be so merged into WPSC. The
management of WPS believes that such action would, if required, enhance
WPS' ability to maintain its status as an exempt holding company under
PUHCA following the Merger.
If WPS were required to register under PUHCA, WPS would become
subject to numerous restrictions imposed by PUHCA on the operations of a
registered holding company and its subsidiaries and affiliates. Subject
to limited exceptions, Commission approval is required under PUHCA for a
registered holding company or any of its subsidiaries to: (i) issue
securities, (ii) acquire utility assets from a third person, (iii) acquire
any securities of another public utility, (iv) amend its articles of
incorporation, or (v) acquire stock, extend credit, pay dividends, lend
money or invest in any manner in any other businesses. PUHCA also limits
the ability of registered holding companies to engage in non-utility
ventures and regulates holding company system service companies and the
rendering of services by holding company affiliates to the system's
utilities. WPS and UPEN believe the foregoing restrictions and
limitations imposed by PUHCA in its current form may limit possible
operations of WPS following the Merger. In addition, the Commission
historically has interpreted PUHCA to preclude registered holding
companies, with limited exceptions, from owning both electric and gas
utility systems, although the Commission has recently recommended that
registered holding companies be allowed to hold both gas and electric
utility operations if the affected states agree. If WPSC were required to
divest its gas utility properties, such a required divestiture could,
under certain circumstances, be at a price below fair market value or
otherwise on terms deemed unsatisfactory by WPS and could have a
materially adverse effect on the operations, earnings and financial
condition of WPS. It is not possible to predict whether the restrictions
resulting from losing exempt status and being required to register under
PUHCA would have a material adverse effect in the business, assets,
financial condition or results of operation of WPS or UPEN.
On June 20, 1995, the Commission issued a series of new proposed
regulations that are designed, among other things, to ease the
restrictions on and regulation of the activities of registered holding
companies, including investment by registered holding companies in
non-utility businesses. On March 24, 1997, Rule 58 under PUHCA was
amended to exempt from the requirements of prior approval by the
Commission under Section 9(a) of PUHCA the acquisition of securities of
certain varieties of "energy related companies" subject to aggregate
investment limits by registered companies. In June, 1995, the
Commission's Division of Investment Management (the "Division") issued a
report of legislative and administrative recommendations, including the
Division's preferred recommendation that Congress repeal PUHCA, subject to
the transfer of certain authority over the books and records of registered
holding companies to state utility commissions and to the FERC. The
report also recommended liberalizing the Commission's interpretation of
the PUHCA to permit the registered holding companies to own both electric
and gas utility systems where the affected states concur. Legislation to
repeal PUHCA has been introduced in both houses of Congress and is
pending. There is no assurance that the legislation to repeal the PUHCA
will be enacted or that regulations proposed by the Commission (other than
amended Rule 58) will be implemented or that the recommendations made in
the Division's report will be adopted.
State Regulatory Matters
Because the Merger as structured does not involve the merger of
either UPPCO, a Michigan utility corporation, or WPSC, a Wisconsin utility
corporation, and because no new Wisconsin utility holding company will be
created, WPS and UPEN do not believe that any Wisconsin Commission or
Michigan Commission approvals are required with respect to the Merger in
its proposed format. However, in light of developments in pending
proceedings before the Wisconsin Commission relating to other Wisconsin
utility business combination transactions, WPS and UPEN may seek
confirmation of that conclusion from the Wisconsin Commission and the
Michigan Commission. If such confirmation is not received, the Merger
Agreement provides that WPS and UPEN will use their best efforts to adopt
an alternative transaction structure that preserves the material benefits
of the Merger but enables WPS and UPEN to obtain all necessary regulatory
approvals, including state regulatory approvals.
The State of Wisconsin will continue to have jurisdiction to
review and regulate all costs projected to be incurred by WPSC for
potential recovery in rates in Wisconsin, and will regulate all affiliate
dealings between WPSC and all of its affiliates, including UPPCO. The
Michigan Commission will continue to have jurisdiction to consider and
regulate the reasonableness of all costs allowed to be reflected in
UPPCO's retail rates in Michigan.
WPS will remain a public utility holding company under the
Wisconsin Holding Act and will remain subject for certain purposes to the
jurisdiction of the Wisconsin Commission. The following is a brief
summary of certain provisions of the Wisconsin Holding Company Act that
will continue to apply to WPS after the Effective Time.
The Wisconsin Holding Company Act prohibits any person from
forming a public utility holding company or acquiring or holding more than
10% of the outstanding voting securities of a public utility holding
company, without Wisconsin Commission approval. The Wisconsin Commission,
if it finds the capital of any public utility affiliate will be impaired
by payment of a dividend, may order the utility affiliate to limit or
cease payment of dividends to the public utility holding company. Various
transactions by a public utility affiliate with others in the public
utility holding system are prohibited, including lending money,
guaranteeing obligations, combined advertising, providing utility service
on terms different from those for other consumers in the same class, and,
without Wisconsin Commission approval, certain sales or leases of real
property and use of services of utility employees. The Wisconsin Holding
Company Act prohibits (i) any public utility affiliate from providing any
non-utility product or service in a manner or at a price that unfairly
discriminates against any competing provider; (ii) any non-utility
activity from being subsidized materially by the customers of any public
utility in the system; (iii) the operation of the system in any way which
materially impairs the credit, ability to acquire capital on reasonable
terms or ability to provide safe, reasonable, reliable and adequate
utility service, of any public utility affiliate in the system; (iv) any
transfer by a public utility affiliate to any other system company of any
confidential public utility information, including customer lists, for any
non-utility purpose, unless the Wisconsin Commission has approved the
transfer; and (v) any termination of the system's interest in a public
utility affiliate without Wisconsin Commission approval. Other statutory
provisions in addition to the Wisconsin Holding Company Act include
requirements for submission to the Wisconsin Commission for approval of
certain contracts or other arrangements for furnishing property or
services between a public utility and an affiliate.
The Wisconsin Holding Company Act also limits non-utility
diversification, in that, stated generally, the net book value of the
assets of all non-utility affiliates may not exceed the sum of 25% of the
net book value of the assets of all electric utility affiliates and a
percentage, to be determined by the Wisconsin Commission (but not less
than 25%), of the net book value of the assets of all other public utility
affiliates.
In addition, the Wisconsin Holding Company Act requires the
Wisconsin Commission to periodically investigate the impact of the
operation of every holding company system on every public utility
affiliate in the system and to determine whether each non-utility
affiliate does, or can reasonably be expected to do, at least one of the
following: (i) substantially retain, attract or promote business activity
or employment or provide capital to businesses within the service
territory of any public utility affiliate or certain others, (ii) increase
or promote energy conservation or develop, produce or sell renewable
energy products or equipment, (iii) conduct a business that is
functionally related to the provision of utility service or to the
development or acquisition of energy resources, and (iv) develop or
operate commercial or industrial parks in the service territory of any
public utility affiliate. WPS believes that its existing non-utility
businesses meet the requirements of the Wisconsin Holding Company Act.
The Wisconsin Commission also is authorized to order a holding company to
terminate its interest in a public utility affiliate if the Wisconsin
Commission finds that, based upon clear and convincing evidence,
termination of the interest is necessary to protect the interest of
utility investors in a financially healthy utility and the interest of
consumers in reasonably adequate utility service at a just and reasonable
price.
Given WPS's experience under the Wisconsin Holding Company Act,
WPS does not expect the restrictions of the Wisconsin Holding Company Act
to have a materially adverse effect upon WPS following the Merger.
UPPCO's utility operations would remain subject to regulation by
the Michigan Commission following the Effective Time.
Other
Additional consents from and notifications to governmental
agencies may be required in connection with the Merger. At the present
time, neither WPS nor UPEN anticipates any material difficulties in
obtaining such consents or furnishing such notifications.
FEDERAL SECURITIES LAW CONSEQUENCES
All WPS Common Stock issued in connection with the Merger will
be freely transferable, except that any WPS Common Stock received by
persons who are deemed to be affiliates of WPS or UPEN prior to the Merger
may be sold by them only in transactions permitted by the resale
provisions of Rule 145 under the Securities Act with respect to affiliates
of UPEN or as otherwise permitted under the Securities Act. Persons who
may be deemed to be affiliates of UPEN generally include individuals or
entities that control, are controlled by, or are under common control
with, such party and may include certain officers and directors of such
party as well as principal shareholders of such party.
Affiliates may not sell their shares of WPS Common Stock
acquired in connection with the Merger, except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with Rule 145 (or Rule 144 under the Securities Act in the case
of persons who become affiliates of WPS) or another applicable exemption
from the registration requirements of the Securities Act. In general,
under Rule 145, for one year following the Effective Time an affiliate
(together with certain related persons) would be entitled to sell shares
of WPS Common Stock acquired in connection with the Merger only through
unsolicited "broker transactions" or in transactions directly with a
"market maker," as such terms are defined in Rule 144. Additionally, the
number of shares to be sold by an affiliate (together with certain related
persons and certain persons acting in concert) within any three-month
period for purposes of Rule 145 may not exceed the greater of 1% of the
outstanding shares of WPS Common Stock or the average weekly trading
volume of such stock during the four calendar weeks preceding such sale.
Rule 145 would only remain available, however, to affiliates if WPS
remained current with its informational filings with the Commission under
the Exchange Act. One year after the Effective Time, an affiliate would
be able to sell such shares of WPS Common Stock without such manner of
sale or volume limitations provided that WPS was current with its Exchange
Act informational filings and such affiliate was not then an affiliate of
WPS. Two years after the Effective Time, an Affiliate would be able to
sell such shares of WPS Common Stock without any restrictions so long as
such Affiliate had not been an Affiliate of WPS for at least three months
prior thereto.
NO DISSENTERS' RIGHTS
Under Michigan law, holders of UPEN Common Stock will not be
entitled to dissenter's rights in connection with the Merger.
CERTAIN OTHER AGREEMENTS
The Merger Agreement requires UPEN to identify in writing to WPS
prior to the Closing Date any persons who are, or are deemed to be,
affiliates of UPEN, and to use reasonable efforts to have such persons
execute and deliver, prior to the Closing Date, affiliates' letters in
which they will make certain representations about their intentions to
hold the shares of UPEN Common Stock for a period beginning on the date 30
days prior to consummation of the Merger as well as shares of WPS Common
Stock to be received in the Merger until such time as WPS shall have
published an earnings report covering at least 30 days of post-Merger
combined operations and agreed to certain other restrictions on resale of
such shares of WPS Common Stock. The representations and restrictions on
resale are intended to preserve the characterization of the Merger for
federal income tax purposes as a reorganization, to comply with the
requirements for "pooling of interests" accounting treatment and to comply
with restrictions on resale of securities imposed by federal securities
laws.
Immediately prior to the execution and delivery of the Merger
Agreement, each of UPEN's five outside directors surrendered the 100
shares of UPEN Common Stock issued to each of them as compensation for
services pursuant to the UPEN 1995 Directors' Stock Plan, and the
Incentive Plan Participants who received an aggregate of 18,714 shares of
restricted stock and options to acquire an aggregate of 9,311 shares of
UPEN Common Stock under UPEN's 1995 Long Term Stock Incentive Plan
surrendered such restricted stock and options.
Immediately prior to the execution and delivery of the Merger
Agreement, UPPCO also entered into agreements with each of the Incentive
Plan Participants pursuant to which UPPCO agreed to make a one-time
payment to the Incentive Plan Participants (including Mr. Fisher)
additional cash compensation in amounts ranging from 46.5% to 63.4% of
their base salaries (an aggregate of $533,208) on or before August 10,
1997 in consideration for the continued employment and cooperation of such
Incentive Plan Participants with respect to facilitation of the Merger and
the smooth transition of operations after the Effective Time. The
respective agreements provide, among other things, that if the employment
by UPPCO of an Incentive Plan Participant terminates prior to July 31,
1998, unless such termination was (i) without the consent of such
Incentive Plan Participant, other than for Cause, as defined in such
agreements, or (ii) by reason of the voluntary termination by such
Incentive Plan Participant of his or her employment following a material
reduction in duties, a reduction in base salary or a substantial reduction
in the value of benefits currently provided to such Incentive Plan
Participant, then such Incentive Plan Participant will be required to pay
to UPPCO a pro rata portion of the additional cash compensation based upon
the percentage of the period between July 10, 1997 and July 31, 1998
during which such Incentive Plan Participant no longer continued to be
employed by UPPCO.
TRANSACTIONS BETWEEN UPPCO AND SUBSIDIARIES OF WPS
Since January 1, 1994, UPPCO has entered into certain agreements
with WPSC and with ESI. These agreements were entered into on an arm's
length basis in the ordinary course of business of UPPCO independent from
the discussions between UPEN and WPS leading to the execution and delivery
of the Merger Agreement.
In March 1994, UPPCO and WPSC entered into a Coordination Sales
Tariff pursuant to which UPPCO has agreed to purchase, on a tariff basis,
certain power and energy from WPSC, including negotiated capacity and
energy, general purpose energy and emergency energy.
In 1996, UPPCO and WPSC entered into the following agreements:
(a) a System Capacity and Energy Exchange Agreement pursuant to which WPSC
provides regulating services to UPPCO; (b) a Trouble Orders and Call Out
Service Agreement pursuant to which WPSC provides to UPPCO after hours
call handling and service crew dispatch services; (c) a System Control
Agreement pursuant to which WPSC provides generation and transmission
dispatch services to UPPCO; (d) a Customer Call Center Agreement pursuant
to which WPSC has agreed to share WPSC's customer call center systems and
services with UPPCO; (e) an Electric Service Agreement pursuant to which
WPSC has agreed to purchase certain power and energy from UPPCO, including
negotiated capacity and energy, general purpose energy and emergency
energy; and (f) a Partial Requirements Service Agreement pursuant to which
UPPCO has agreed, beginning on January 1, 1998, to purchase from WPSC, on
a tariff basis, part of its energy requirements (replacing the System
Capacity and Energy Exchange Agreement described above).
In addition, in 1996, UPPCO and ESI entered into an Electric
Service Agreement pursuant to which UPPCO agreed to purchase certain power
and energy from ESI, including negotiated capacity and energy, general
purpose energy and emergency energy.
THE MERGER AGREEMENT
The following description of the Merger Agreement does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached hereto as Appendix A and is
incorporated herein by reference. Shareholders of UPEN are urged to read
the Merger Agreement in its entirety.
THE MERGER
The Merger Agreement provides that, subject to the approval and
adoption of the Merger Agreement by the shareholders of UPEN and the
satisfaction or waiver of the other conditions to the Merger, UPEN will be
merged with and into WPS in accordance with the WBCL and the MBCA,
whereupon the separate existence of UPEN will cease and WPS will be the
surviving corporation. At the Effective Time, the conversion of UPEN
Common Stock pursuant to the Merger Agreement will be effected as
described below. The WPS Articles and WPS Bylaws will survive the Merger.
The directors of WPS immediately prior to the Effective Time will remain
directors of WPS following the Effective Time, provided that WPS Board of
Directors will be increased by one member to be designated by the UPEN
Board subject to acceptance by the WPS Board of Directors. It is expected
that Clarence R. Fisher, the Chairman of the Board, Chief Executive
Officer and President of UPEN, will be the person designated by the UPEN
Board to fill such position on the WPS Board. Such directors will serve
until their successors are duly elected or appointed and qualified. The
officers of WPS immediately prior to the Effective Time will be the
officers of WPS following the Effective Time and until their respective
successors are duly elected or appointed and qualified.
EFFECTIVE TIME
Following the approval and adoption of the Merger Agreement and
subject to satisfaction or waiver of the terms and conditions to closing,
contained in the Merger Agreement, the Merger will become effective at the
time specified in the Articles of Merger and the Merger Certificate filed
with the Department of Financial Institutions of the State of Wisconsin
and the Department of Consumer and Industry Services of the State of
Michigan, respectively, or absent such specification upon such filing.
The filing of the Articles of Merger and the Merger Certificate will be
made on the second business day after all conditions contemplated by the
Merger Agreement have been satisfied or waived or at such other time, date
and place as WPS and UPEN shall mutually agree.
TERMS OF THE MERGER
At the Effective Time:
(a) each share of UPEN Common Stock held in UPEN's treasury or
by any subsidiary of UPEN or held by WPS or any of its subsidiaries
immediately prior to the Effective Time will be cancelled, retired and
cease to exist and no shares of WPS Common Stock will be delivered with
respect thereto, and
(b) each remaining outstanding share of UPEN Common Stock shall
be converted into the right to receive 0.9 of a fully paid and
nonassessable (except as otherwise provided in Section 180.0622(2)(b) of
the WBCL (see "DESCRIPTION OF WPS CAPITAL STOCK--Common Stock")) share of
WPS Common Stock, except that cash will be paid in lieu of any fractional
share of WPS Common Stock.
Each share of WPS Common Stock issued to UPEN shareholders in
the Merger will include, if then applicable, a Right issued pursuant to
the WPS Rights Agreement. See "COMPARISON OF SHAREHOLDER RIGHTS-WPS
Rights Agreement" and "DESCRIPTION OF WPS CAPITAL STOCK-Common Stock
Purchase Rights."
At the Effective Time, present holders of UPEN Common Stock will
cease to have any rights as holders of such shares, but will have the
right to receive shares of WPS Common Stock and cash in lieu of any
fractional shares of WPS Common Stock. After the Effective Time, the
stock transfer books of UPEN will be closed and there shall be no further
transfers of UPEN Common Stock. See "THE MERGER-Conversion of Shares;
Procedures for Exchange of Certificates" and "COMPARISON OF SHAREHOLDER
RIGHTS."
FRACTIONAL SHARES
Fractional shares of WPS Common Stock will not be issued in
connection with the Merger. In lieu of any such fractional share, each
holder of UPEN Common Stock who would otherwise have been entitled to a
fraction of a share of WPS Common Stock upon surrender of certificates for
exchange will be paid in cash (without interest) in an amount determined
by multiplying the average of the last reported sales price per share of
WPS Common Stock as reported on the NYSE Composite Transactions reporting
system for the last ten trading days prior to and including the last
trading day prior to the Effective Time on which WPS Common Stock was
traded on the NYSE by the fractional share interest (rounded to the
nearest thousandth) to which such holder would otherwise be entitled.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
As soon as practicable following the Effective Time, WPS will
deposit with the Exchange Agent, or such other agent as may be appointed
by WPS and approved by UPEN, certificates representing the appropriate
number of shares of WPS Common Stock (and cash to be paid in lieu of
fractional shares of WPS Common Stock) issuable in connection with the
Merger. As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of UPEN Common Stock a
letter of transmittal and instructions for surrendering the certificates
representing shares of UPEN Common Stock, and each holder of UPEN Common
Stock will be entitled to receive, upon surrender to the Exchange Agent
(or such other agent as may be appointed by agreement of WPS and UPEN) of
one or more certificates representing such stock, certificates
representing the number of shares of WPS Common Stock into which such
shares are converted in the Merger and cash in consideration of fractional
shares of WPS Common Stock, as described above. WPS Common Stock into
which UPEN Common Stock will be converted in the Merger shall be deemed to
have been issued at the Effective Time.
No dividends or other distributions that are declared or made on
WPS Common Stock with a record date after the Effective Time will be paid
to persons entitled to receive certificates representing WPS Common Stock
until such persons surrender their certificates representing such UPEN
Common Stock. Upon such surrender, there shall be paid to the person in
whose name the certificates representing such WPS Common Stock shall be
issued any dividends or other distributions which shall have become
payable with respect to such WPS Common Stock in respect of a record date
after the Effective Time. In no event shall the person entitled to
receive such dividends be entitled to receive interest on such dividends.
In the event that any certificates representing shares of WPS Common Stock
are to be issued in a name other than that in which the certificates
representing shares of UPEN Common Stock surrendered in exchange therefor
are registered, it shall be a condition of such exchange that the person
requesting such exchange present to the Exchange Agent such certificates
with all documents required to evidence and effect such transfer and
evidence that any applicable stock transfer taxes have been paid.
Notwithstanding the foregoing, neither WPS nor UPEN shall be liable to any
holder of shares of UPEN Common Stock or WPS Common Stock, as the case my
be, for any shares of WPS Common Stock (or dividends thereon) or cash in
lieu of fractional shares of WPS Common Stock delivered to a public
official pursuant to any applicable abandoned property escheat or similar
law.
Detailed instructions, including a transmittal letter, will be
mailed to shareholders as soon as reasonably practicable following the
Effective Time as to the method of exchanging certificates formerly
representing shares of UPEN Common Stock for certificates representing
shares of WPS Common Stock. See "THE MERGER-Conversion of Shares;
Procedures for Exchange of Certificates." Shareholders should not send
certificates representing their shares to UPEN or, prior to receipt of the
transmittal letter, to the Exchange Agent.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of each of WPS and UPEN to effect the
Merger are subject to the satisfaction at or prior to the Closing Date of
the following conditions:
(a) the Merger Agreement shall have been approved by the
requisite vote of the shareholders of UPEN; (b) no temporary restraining
order or preliminary or permanent injunction or other order by any Federal
or state court shall have been issued preventing the consummation of the
Merger, and the Merger and the other transactions contemplated by the
Merger Agreement shall not have been prohibited under any applicable
Federal or state law or regulation; (c) any waiting period applicable to
the Merger under the HSR Act shall have terminated or expired and any
other governmental or regulatory approvals required with respect to the
transactions contemplated by the Merger Agreement including, but not
limited to, the approval of FERC under Section 203 of the Federal Power
Act and of the Commission under PUHCA, shall have been obtained and such
approvals shall become final and shall not have imposed terms or
conditions which, in the aggregate have, or insofar as reasonably can be
foreseen would have, a material adverse effect on the business, assets,
financial condition or results of operation of WPS or UPEN or which would
be materially inconsistent with the agreements of WPS and UPEN contained
in the Merger Agreement; (d) the Registration Statement shall have become
effective under the Securities Act and no stop order suspending such
effectiveness shall be in effect; and (e) the shares of WPS Common Stock
issuable to UPEN shareholders in the Merger shall have been authorized for
listing on the NYSE and CSE upon official notice of issuance.
The obligation of UPEN to effect the Merger is subject to the
satisfaction at or prior to the Closing Date of the following conditions:
(a) the accuracy of the representations and warranties of WPS
contained in the Merger Agreement as of the date of the Merger Agreement
and as of the Closing Date (except as would not be reasonably likely to
result in a material adverse effect); (b) the performance in all material
respects of all obligations of WPS required to be performed under the
Merger Agreement; (c) the receipt by UPEN of a certificate of an officer
of WPS that certain conditions set forth in the Merger Agreement have been
satisfied; (d) the receipt by UPEN of an opinion of its counsel dated as
of the Closing Date to the effect that the Merger will be treated as a
tax-free reorganization under Section 368(a) of the Code; (e) the receipt
by UPEN of an opinion of legal counsel to WPS as to certain matters
(substantially in the form set forth in an exhibit to the Merger
Agreement); (f) the absence of any event that would result in any right or
entitlement of WPS shareholders under the WPS Rights Agreement which in
UPEN`s reasonable judgment would have, or be reasonably likely to result
in, a material adverse effect on WPS or materially change the number of
outstanding equity securities of WPS, and the WPS Rights not having become
nonredeemable by any action of the WPS Board of Directors; and (g) the
absence of any material adverse effect on the business, assets, condition
(financial or otherwise) or results of operation of WPS and its
subsidiaries taken as a whole and the absence of any facts or conditions
(other than facts or conditions of general applicability to electric or
gas utility companies in the region in which WPS conducts its utility
operations) which have, or insofar as reasonably can be foreseen would
have, such a materially adverse effect.
The obligations of WPS to effect the Merger are subject to the
satisfaction at or prior to the Closing Date of the following conditions:
(a) the accuracy of the representations and warranties of UPEN
contained in the Merger Agreement as of the date of the Merger Agreement
and as of the Closing Date (except as would not be reasonably likely to
result in a material adverse effect); (b) the performance in all material
respects of all obligations of UPEN required to be performed under the
Merger Agreement; (c) the receipt by WPS of a certificate of an officer
of UPEN that certain conditions set forth in the Merger Agreement have
been satisfied; (d) the receipt by WPS of an opinion of its counsel dated
as of the Closing Date to the effect that the Merger will be treated as a
tax-free reorganization under Section 368(a) of the Code; (e) the receipt
by WPS of an opinion of legal counsel to UPEN as to certain matters
(substantially in the form attached as an exhibit to the Merger
Agreement); (f) the receipt by WPS of a letter from its independent
accountants stating that the transactions effected pursuant to the Merger
Agreement will qualify as a pooling of interests transaction pursuant to
generally accepted accounting principles and applicable Commission
regulations; (g) the receipt by WPS of letter agreements relating to
trading in securities of UPEN and WPS (substantially in the form attached
as an exhibit to the Merger Agreement) duly executed by each affiliate of
UPEN; and (h) the absence of any material adverse effect on the business,
assets, condition (financial or otherwise) or results of operation of
UPEN and its subsidiaries taken as a whole and the absence of any facts or
conditions (other than facts or conditions of general applicability to
electric utility companies in the Upper Peninsula of Michigan including,
but not limited to, "open access" or other general restructuring orders or
legislation) which have, or insofar as reasonably can be foreseen would
have, such a materially adverse effect.
There can be no assurance that all of the conditions to the
Merger will be satisfied Any of the foregoing conditions can be waived by
the respective parties for whose benefit they are intended (see
"Amendment; Waiver").
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and
warranties of WPS and UPEN relating to, among other things, the following
matters (which representations and warranties are subject, in certain
cases, to specified exceptions):
(a) the due organization, power and standing of, and similar
corporate matters with respect to, each of UPEN and WPS; (b) each of
UPEN's and WPS' capitalization; (c) the authorization, execution, delivery
and enforceability of the Merger Agreement by each such party and the
consummation of the transactions contemplated thereby; (d) reports and
other documents filed with the Commission since January 1, 1994, from each
of UPEN and WPS, and the accuracy of the information contained therein;
(e) the absence of any material untrue statements in the Registration
Statement and this Proxy Statement/Prospectus; (f) the absence of any
conflict with each of UPEN's and WPS's corporate charter and bylaws and
compliance with applicable laws; (g) governmental or regulatory
authorizations, consents or approvals required to consummate the Merger;
(h) the absence of any breach, default or violation of each of UPEN's and
WPS' corporate charter or bylaws, and of any applicable law or of any
obligation by which UPEN or WPS is bound; (i) the absence of any material
undisclosed liabilities by UPEN; (j) the absence of certain changes or
events having a material adverse effect on the business, results of
operations, condition (financial or otherwise) or prospects of UPEN or
WPS; (k) the absence of any litigation having a material adverse effect on
UPEN or WPS; (l) compliance with laws and regulations, a violation of
which could have a material adverse effect on UPEN or WPS; (m) UPEN's
employee benefit plans and compliance in all material respects with
statutes governing their administration; (n) the disclosure of any
acceleration of benefits under any UPEN employee benefit plans pursuant to
the transactions contemplated by the Merger Agreement; (o) UPEN's labor
union contracts; (p) material compliance by UPEN with environmental laws
and the absence of environmental claims which would have a material
adverse effect on UPEN; (q) compliance by UPEN with tax laws and
regulations, including the absence of tax delinquencies; (r) the absence
of actions taken by UPEN or WPS that would prevent WPS from accounting for
the transactions to be effected pursuant to the Merger Agreement as a
"pooling of interests" in accordance with generally accepted accounting
principles and applicable Commission regulations; (s) the receipt of an
opinion of Wasserstein Perella, UPEN's financial adviser; and (t) the
absence of any brokerage, finders' or other fees associated with the
Merger payable to any broker, finder or investment banker (other than
fees payable to Robert W. Baird & Co., Incorporated and Wasserstein
Perella).
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, UPEN has agreed that, during
the period from the date of the Merger Agreement until the Effective Time,
except as expressly contemplated or permitted by the Merger Agreement or
as otherwise consented to in writing by WPS, it will (and will cause its
subsidiaries to), subject to certain exceptions specified therein, among
other things: (a) carry on its business in the ordinary course consistent
with prior practice; (b) not declare or pay any dividends on or make other
distributions in respect of any of its capital stock, other than to such
party or its wholly-owned subsidiaries and regular quarterly dividends to
be paid on UPPCO Common Stock not to exceed in any quarter the dividends
for the last quarter preceding the execution of the Merger Agreement; (c)
not effect certain other changes in its capitalization other than
redeeming capital stock in accordance with the terms thereof; (d) not
issue or encumber any capital stock rights, warrants, options or
convertible or similar securities other than intercompany issuances; (e)
not amend its articles of incorporation, by-laws or regulations or similar
corporate documents; (f) not engage in material acquisitions; (g) not
enter into any written commitments for the purchase or sale of sulfur
dioxide emission allowances as provided for by the Clean Air Act
Amendments of 1990 in excess of an aggregate of $50,000; (h) not make any
capital expenditures in excess of $250,000 in the aggregate over the
amounts budgeted by UPEN for capital expenditures; (i) not sell, lease,
encumber or otherwise dispose of material assets in an aggregate amount
equaling or exceeding $250,000, other than dispositions and encumbrances
in the ordinary course of business consistent with past practice; (j) not
incur indebtedness (or guarantees thereof), other than (i) short-term
indebtedness in the ordinary course of business consistent with prior
practice, (ii) long-term indebtedness not aggregating more than $250,000,
(iii) arrangements between UPEN and its subsidiaries or among its
subsidiaries, or (iv) in connection with the refunding of existing
indebtedness at a lower cost of funds; (k) not enter into, adopt or amend
or increase the amount or accelerate the payment or vesting of any benefit
or amount payable under, any employee benefit plan or other contract,
agreement, commitment, arrangement, plan or policy, except for normal
increases in the ordinary course of business consistent with past practice
that in the aggregate do not result in a material increase in benefits or
compensation expense to UPEN or any of its subsidiaries (l) not engage in
any activity which would cause a change in its status or that of its
subsidiaries under PUHCA; (m) not commence construction of or obligate
itself to purchase any additional generating, transmission or delivery
capacity in an amount in excess of $250,000, other than in the ordinary
course of business consistent with past practice or pursuant to tariffs on
file with the FERC; (n) not make any material change in their accounting
methods other than as required by law or in accordance with generally
accepted accounting principles; (o) not take any action to prevent WPS
from accounting for the transactions to be effected pursuant to the Merger
Agreement as a pooling of interests; (p) not take any action that would
adversely affect the status of the Merger as a tax-free transaction; (q)
not enter into agreements with affiliates (other than wholly-owned
subsidiaries) other than on an arms'-length basis; (r) cooperate with WPS,
provide reasonable access to its books and records and notify WPS of any
significant changes; (s) to take any action that is likely to jeopardize
the qualification of UPPCO's outstanding revenue bonds as exempt facility
bonds or as tax-exempt industrial development bonds; (t) refrain from
taking specified actions relating to certain tax matters; (u) not
discharge or satisfy any claims, liabilities or obligations, other than
discharges in the ordinary course of business or in accordance with their
terms, of liabilities reflected in the most recent consolidated financial
statements of UPEN (v) not except in the ordinary course of business,
change the status of any of its material contracts or agreements or waive,
release or assign any material rights or claims; and (w) maintain adequate
insurance and use reasonable efforts to maintain all existing governmental
permits.
The Merger Agreement provides that if the parties are unable to
obtain the necessary statutory approvals which are necessary to effect the
business combination in the form contemplated by the Merger Agreement, and
the adoption of an alternative structure (that otherwise substantially
preserves for WPS and UPEN the economic benefits of the Merger would
result in such conditions being satisfied or waived), then the parties
shall use their respective best efforts to effect a business combination
among themselves by means of a mutually agreed upon structure other than
the Merger that so preserves such benefits.
NO SOLICITATION OF TRANSACTIONS
UPEN has agreed that it will not, and will use its best efforts
to cause its subsidiaries not to, permit any of its or their respective
officers, directors, employees, representatives or agents to, directly or
indirectly, initiate, solicit or take any action to facilitate the making
of any offer or proposal which constitutes or is reasonably likely to lead
to participation in any Business Combination Proposal (as hereinafter
defined), or, in the event of an unsolicited Business Combination
Proposal, except to the extent required by their fiduciary duties under
applicable law if so advised in a written opinion of outside counsel,
engage in negotiations or provide any information or data to any person
relating to any Business Combination Proposal. UPEN will promptly notify
WPS in the event it receives any inquiry, offer or proposal concerning a
Business Combination Proposal including the terms and conditions thereof
and the identity of the party making it; and will take reasonable steps to
keep WPS informed of the status and details of such inquiry, offer or
proposal and give WPS advance notice of any agreement to be entered into
with or information to be supplied to any person relating to any Business
Combination Proposal.
"Business Combination Proposal" means any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving UPEN or any of its material subsidiaries, or any proposal or
offer to acquire in any manner, directly or indirectly, a substantial
equity interest in or a substantial portion of the assets of UPEN or any
of its material subsidiaries other than pursuant to the transactions
contemplated by the Merger Agreement.
EMPLOYEE BENEFIT PLANS
General
UPEN and its subsidiaries maintain a number of employee benefit
plans and compensation arrangements (collectively, the "UPEN Benefit
Plans") in which eligible employees of UPEN and its affiliates
participate. Following the Effective Time, the UPEN Benefit Plans will
continue for an indeterminate period of time. During this period,
consideration will be given to the future design and operation of the
employee benefit and compensation programs for employees of WPS, WPSC and
UPPCO. In addition, WPS and UPEN have agreed that except with respect to
Mr. Clarence Fisher, the President and Chief Executive Officer of UPEN,
the "change of control" or similar provisions in existing employment,
termination or severance agreements or under the terms of any employee
benefit plan will be honored in accordance with their terms (including
modifications adopted on or prior to the date of the Merger Agreement to
confirm that the total amount of "change of control" payments would not
exceed the limits of Section 280G of the Code). Mr. Fisher will
relinquish certain "change of control" benefits at the Effective Time as
part of an employment agreement that he executed coincident with the
execution of the Merger Agreement. See "-Fisher Employment Contract."
Termination Agreements
UPPCO has entered into Termination Agreements with a select
group of management personnel of UPEN and UPPCO, including the following
officers of UPEN and UPPCO: Clarence R. Fisher, Chairman of the Board,
President and Chief Executive Officer of both UPEN and UPPCO, Burton C.
Arola, Vice President, Treasurer and Secretary of UPEN and Vice President-
Finance, Treasurer and Secretary of UPPCO, Neil D. Nelson, Vice President-
Operations of UPPCO, and Philip L. LeFebvre, Assistant Secretary and
Assistant Treasurer of UPEN and UPPCO. Under the terms of such
Termination Agreements following the occurrence of a "Change of Control"
of UPEN (which would include the approval of the Merger by the holders of
UPEN Common Stock), if the participant's employment is terminated without
Cause (as defined in such Termination Agreements), other than due to
Retirement or Disability (as such terms are defined in such Termination
Agreements), or by the participant for Good Reason (as defined in such
Termination Agreements), which includes a determination by the participant
in good faith within one year following the "Change of Control" that such
participant can no longer continue to fulfill the responsibilities for
which such participant was employed, then the participant will be entitled
to receive severance payment equal to the maximum amount allowable such
that such payment, when combined with any other payment or benefit under
any other agreement or plan of UPEN or any of its affiliates or
subsidiaries, will not constitute an "excess parachute payment" for
purposes of Section 280G of the Code. The amount to which a participant
would be entitled under such participant's Termination Agreement will,
therefore, depend upon the total combination of benefits to which such
participant would be entitled following a "Change of Control" of UPEN.
Without giving effect to reductions by reason of the receipt of other
benefits, a participant's severance payment would be an amount not to
exceed three times such participant's average annual wage over the
previous five years.
Supplemental Retirement Plan
UPPCO also maintains a Supplemental Retirement Plan (the "SERP")
for a select group of employees, including the officers of UPEN and UPPCO
named above as being parties to Termination Agreements, providing for an
annual retirement supplement for life, but not to exceed 15 years, equal
to 0.5% times final annual salary times years of service. Under normal
conditions, a beneficiary of the SERP must continue to be employed through
age 60 in order to qualify for supplemental benefits under the SERP. The
SERP provides, however, that participants will receive full eligibility
for full benefits following a Change of Control of UPEN (which would
include the Merger). The SERP also provides to participants who retire
following a Change in Control with reduced benefits under UPPCO's Pension
Plan due to failure to meet full eligibility requirements an additional
benefit equal to the amount of the reduction in Pension Plan benefits.
The benefits payable to a participant under the SERP are also subject to
the further limitation that such benefits, when combined with any other
payment or benefit under any other agreement or plan of UPEN or any of its
affiliates or subsidiaries, shall not constitute an "excess parachute
payment" for purposes of Section 280G of the Code.
"POOLING OF INTERESTS" ACCOUNTING TREATMENT
UPEN has agreed to use all reasonable efforts to obtain from any
UPEN affiliate an Affiliate Letter agreement stating, among other things,
that such affiliate will not sell or otherwise reduce his or her risk in
UPEN Common Stock from and after the date 30 days prior to consummation of
the Merger and will not sell or otherwise reduce his or her risk in any
WPS Common Stock received in the Merger until such time as a quarterly
earnings report covering at least 30 days of post-Merger operations has
been published. The Merger Agreement provides that if any UPEN affiliate
refuses to provide such written agreement, WPS will be entitled to place
restrictive legends on the certificates evidencing the WPS Common Stock to
be received by such affiliate pursuant to the Merger Agreement, and to
issue appropriate stock transfer instructions to the transfer agent for
WPS Common Stock. UPEN has agreed that it will not take any action which
would or would be reasonably likely to, prevent WPS from accounting for
the transactions to be effected pursuant to the Merger Agreement as a
pooling of interests in accordance with generally accepted accounting
principles and applicable Commission regulations and UPEN has agreed to
use all reasonable efforts to achieve such result.
INDEMNIFICATION
The Merger Agreement provides that, to the extent, if any, not
provided by an existing right of indemnification or other agreement or
policy, from and after the Effective Time, WPS will, to the fullest extent
permitted by applicable law, indemnify, defend and hold harmless each
person who was at, or who had been at any time prior to, the date of the
Merger Agreement, or who becomes prior to the Effective Time, an officer,
director or employee of UPEN or any UPEN subsidiary (the "Indemnified
Parties") against all losses, expenses (including reasonable attorney's
fees and expenses), claims, damages or liabilities or, subject to the
proviso of the next succeeding sentence, amounts paid in settlement,
arising out of actions or omissions occurring at or prior to the Effective
Time (and whether asserted or claimed prior to, at or after the Effective
Time) that are, in whole or in part, based on or arising out of the fact
that such person is or was a director, officer or employee of UPEN or any
UPEN subsidiary, and all such indemnified liabilities to the extent they
are based on or arise out of or pertain to the transactions contemplated
by the Merger Agreement. In the event of any such loss, expense, claim,
damage or liability (whether or not arising before the Effective Time);
(i) WPS will pay the reasonable fees and expenses of counsel selected by
the Indemnified Parties, which counsel will be reasonably satisfactory to
WPS and otherwise advance to such Indemnified Party upon request
reimbursement of documented expenses reasonably incurred, (ii) WPS will
cooperate in the defense of any such matter and (iii) any determination
required to be made with respect to whether an Indemnified Party's conduct
complies with the standards set forth under Wisconsin law and the WPS
Restated Articles of Incorporation or By-Laws will be made by independent
counsel mutually acceptable to WPS and the Indemnified Party; provided,
however, that WPS will not be liable for any settlement effected without
its written consent (which consent shall not be unreasonably withheld).
The Merger Agreement further provides that the Indemnified Parties as a
group may retain only one law firm with respect to each unrelated matter
except to the extent there is, in the opinion of counsel to an Indemnified
Party, under applicable standards of professional conduct, a conflict on
any significant issue between positions of such Indemnified Party and any
other Indemnified Party or Indemnified Parties.
In addition, the Merger Agreement requires that for a period of
six years after the Effective Time, WPS will cause to be maintained in
effect policies of directors' and officers' liability insurance maintained
by UPEN for the benefit of those persons who were covered by such policies
as of the date of the Merger Agreement on terms no less favorable than the
terms of such insurance coverage, provided that WPS will not be required
to expend in any year an amount in excess of 250% of the annual aggregate
premiums currently paid by UPEN for such insurance and, provided further
that if the annual premiums of such insurance coverage exceed such amount,
WPS shall be obligated to obtain a policy with the best coverage
available, in the reasonable judgment of the WPS Board of Directors, for a
cost not exceeding such amount. Also, the Merger Agreement provides that
to the fullest extent allowed by law, from and after the Effective Time,
all rights to indemnification existing in favor of the employees, agents,
directors and officers of UPEN and the UPEN subsidiaries with respect to
their activities as such prior to the Effective Time, as provided in their
respective articles of incorporation and bylaws in effect on the date of
the Merger Agreement or otherwise in effect on the date of the Merger
Agreement will survive the Merger and will continue in full force and
effect for a period of not less than six years from the Effective Time.
CERTAIN OTHER COVENANTS
WPS and UPEN have agreed to take certain other actions with
respect to the Merger, including (a) each using its best efforts to have
the Registration Statement declared effective as promptly as practicable
after the filing of such with the Commission; (b) WPS will take any
required action under state securities laws with respect to the issuance
of WPS Common Stock pursuant to the Merger; (c) UPEN will take all action
necessary to hold a meeting of shareholders as promptly as practicable to
approve the Merger; (d) WPS and UPEN will give the other reasonable access
to, and permit reasonable inspection of, properties, books, contracts,
commitments and records of itself and its subsidiaries; (e) WPS and UPEN
will use all commercially reasonable efforts to obtain all necessary
permits, consents, approvals and authorizations necessary or advisable to
consummate the Merger (including but not limited to preparing filings
under the HSR Act, the Federal Power Act, and PUHCA); (f) WPS and UPEN
will cooperate with each other in the development and distribution of news
releases or other public information disclosures with respect to the
Merger Agreement or any transactions contemplated thereby and will not
issue any announcement or statements with respect to the Merger Agreement
without the other party's consent; and (g) WPS and UPEN will give prompt
notice to one another of any significant change in the other's business,
properties, assets, condition (financial or other), results of operations
or prospects and advise the other party of any event which has, or insofar
as reasonably can be foreseen, is reasonably likely to result in, a
material adverse effect on UPEN (in the case of UPEN) or WPS (in the case
of WPS).
TERMINATION; FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the
Closing Date, whether before or after approval of the Merger Agreement by
the shareholders of UPEN: (a) by mutual consent of WPS and UPEN; (b) by
WPS or UPEN if any law or regulation is adopted which prohibits the
Merger; or if any court of competent jurisdiction within the United States
issues a final order enjoining or prohibiting the Merger; (c) if the
Merger shall not have been consummated by December 31, 1998 (the "Initial
Termination Date") (provided the terminating party's failure to fulfill
its obligations under the Merger Agreement is not the reason that the
Merger has not been consummated); provided that if on the Initial
Termination Date the required statutory approvals required in connection
with the Merger have not been obtained, then the Initial Termination Date
shall be extended to June 30, 1999; or (d) by WPS or UPEN if the approval
of the UPEN shareholders of the Merger shall not have been obtained at a
duly held meeting thereof.
The Merger Agreement may be terminated by UPEN at any time prior
to the Closing Date, whether before or after approval of the Merger
Agreement by the shareholders of UPEN, if (a) any representations or
warranties of WPS are breached which, individually or in the aggregate,
would have a material adverse effect on WPS, and have not been remedied
within 20 days after receipt by WPS of written notice from UPEN; (b)
failure by WPS or its subsidiaries to comply with, in all material
respects, their other agreements and covenants in the Merger Agreement,
which failure has not been remedied within 20 days after receipt by WPS of
written notice from UPEN; (c) the Board of Directors of WPS withdraws or
modifies its adoption of the Merger Agreement or the Merger in any manner
materially adverse to UPEN or shall fail to reaffirm such adoption upon
UPEN's request or resolves to withdraw or modify or fail to reaffirm such
adoption, or (d) upon two days prior written notice to WPS, if as a result
of a tender offer by a party other than WPS or any written offer or
proposal with respect to a merger, sale of a material portion of its
assets or other business combination (each, a "Business Combination") by a
party other than WPS, the UPEN Board determines in good faith (after
negotiating with WPS to make adjustments in the terms and conditions of
the Merger Agreement which would enable UPEN to proceed with the
transactions contemplated by the Merger Agreement and after being so
advised by a written opinion of outside counsel) that its fiduciary
obligations under applicable law required that such tender offer or other
written offer or proposal be accepted.
The Merger Agreement may be terminated by WPS at any time prior
to the Effective Time, whether before or after approval of the Merger
Agreement by the shareholders of UPEN, if (a) any representations or
warranties of UPEN are breached which, individually or in the aggregate,
would have a material adverse effect on UPEN, and have not been remedied
within 20 days after receipt by UPEN of written notice from WPS; (b)
failure by UPEN and/or its subsidiaries to comply with its covenants in
the Merger Agreement with respect to dividends and security issuances
pending the Merger or the failure by UPEN or its subsidiaries to comply
with, in all material respects, the other agreements and covenants in the
Merger Agreement, which failure has not been cured within 20 days after
receipt by UPEN of written notice by WPS; (c) the UPEN Board withdraws or
modifies its adoption of the Merger in a manner materially adverse to WPS
or shall fail to reaffirm such adoption or recommendation upon WPS's
request; or (d) the UPEN Board adopts or recommends any Business
Combination involving UPEN other than the Merger or any tender offer for
the shares of capital stock of UPEN in each case by or involving a party
other than WPS.
If the Merger Agreement is terminated as a result of (a) a
breach of any representations or warranties on the part of WPS which
individually or in the aggregate have a material adverse effect on WPS,
and such breach or breaches shall not have been remedied within 20 days
after receipt of notice by WPS; (b) failure by WPS to perform or comply
with, in all material respects, its covenants or agreements under the
Merger Agreement and WPS has not remedied such failure within 20 days
after receipt of notice by WPS; (c) a breach of any representations or
warranties on the part of UPEN which individually or in the aggregate have
a material adverse effect, and such breach or breaches shall not have been
remedied within 20 days after receipt of notice by UPEN; or (d) a failure
by UPEN and of its subsidiaries to perform or comply with its covenants
with respect to dividends and security issuances pending the Merger or
failure of UPEN and/or its subsidiaries to perform or comply with, in all
material respects, any of the other covenants or agreements under the
Merger Agreement and UPEN has not remedied such failure within 20 days
after receipt of notice by UPEN, then the breaching party is obligated to
pay promptly to the non-breaching party in cash $3,000,000 if the
termination occurs on or before January 10, 1998; $4,500,000 if the
termination occurs after January 10, 1998 but on or before July 10, 1998;
and $6,000,000 if the termination occurs after July 10, 1998.
In addition, if the Merger Agreement is terminated due to (a)
UPEN's acceptance of a tender offer or Business Combination offer or
proposal; (b) failure of UPEN's shareholders to approve the Merger in
accordance with the MBCA or (c) as a result of UPEN's breach of its
covenant to take certain actions to secure shareholder approval as set
forth in the Merger Agreement and (i) at the time of termination or prior
to the Special Meeting of UPEN shareholders to consider and vote upon the
Merger, there shall have been a third-party tender offer for shares of, or
a third-party offer or proposal with respect to a Business Combination
involving UPEN, which at the time of such termination or of the Special
Meeting of UPEN shareholders shall not have been rejected or withdrawn and
(ii) within 2-1/2 years of any such termination UPEN becomes a subsidiary
or affiliate of such offeror or accepts a written offer to consummate or
consummates a Business Combination with such offeror or an affiliate
thereof, then UPEN will pay to WPS an aggregate termination fee of
$3,000,000 if the termination shall have occurred on or before January 10,
1998; $4,500,000 if the termination shall have occurred after January 10,
1998, and on or before July 10, 1998, and $6,000,000 if the termination
shall have occurred at any time after July 10, 1998.
In the event one party fails to pay the other party the
termination fees due under the Merger Agreement, the defaulting party will
be obligated to pay the other party's costs and expenses in connection
with any action taken to collect payment, together with interest. In all
other cases, WPS and UPEN will each bear their own expenses.
AMENDMENT; WAIVER
The Merger Agreement provides that it may be amended by action
of the boards of directors of the parties thereto at any time before or
after approval of the Merger by the shareholders of UPEN, provided that,
after such approval, no amendment shall alter or change the amount or kind
of shares, rights or the treatment of UPEN shareholders under the Merger
Agreement or alter or change the terms and conditions of the Merger
Agreement if any of the alterations or changes would alone or in the
aggregate materially adversely affect the rights of holders of WPS and
UPEN Common Stock. The Merger Agreement may not be amended except by an
instrument in writing signed on behalf of each of WPS and UPEN.
At any time prior to the Effective Time, the parties to the
Merger Agreement may (i) extend the time for the performance of any of the
obligations or other acts of the other parties thereto; (ii) waive any
inaccuracies in the representations and warranties contained therein or in
any documents delivered pursuant thereto; or (iii) waive compliance with
any of the agreements or conditions contained therein, to the extent
permitted by applicable law. Any agreement on the part of a party to the
Merger Agreement to any such extension or waiver shall be valid if set
forth in an instrument in writing signed on behalf of such party.
ADVISORY BOARD
The Merger Agreement provides that promptly following the
Effective Time, WPS shall cause an Advisory Board to be appointed to
assist the Board of Directors of UPPCO in connection with the transition
in the management of UPPCO's operations contemplated by the Merger
Agreement. Each member of the Advisory Board shall be appointed for a
term of two years. Five persons serving as outside directors of UPEN,
immediately prior to the Effective Time, will be offered the opportunity
to serve on such Advisory Board. Each member of the Advisory Board will
receive a fee of $10,000 per annum for serving on such Board.
FISHER EMPLOYMENT CONTRACT
UPPCO entered into an employment agreement with Clarence R.
Fisher, the current Chairman of the Board, President and Chief Executive
Officer of UPEN and UPPCO (the "Fisher Employment Contract") at the time
of the execution of the Merger Agreement. The Fisher Employment Contract
will become effective at the Effective Time. The Fisher Employment
Contract provides that Mr. Fisher will serve as the President and Chief
Executive Officer of UPPCO (and if UPPCO is merged into WPSC, as the Chief
Operating Officer of the Upper Peninsula Region of WPSC) for a period of
three years commencing at the Effective Time, and that for two years
thereafter UPPCO shall employ Mr. Fisher as a consultant. During the
initial three-year employment period, Mr. Fisher will receive an annual
salary of $216,000 (an amount equal to Mr. Fisher's current salary
increased by $6,000 to include certain benefits), subject to upward
adjustment pursuant to WPS' executive compensation policy then in effect
but in no event will such increase be less than the percentage increase in
the Consumer Price Index - For All Urban Consumers for the preceding year.
During the two-year consulting period following Mr. Fisher's initial three
year employment period, Mr. Fisher will receive an annual consulting fee
equal to 50% of his aggregate salary for the last 12 months of his
employment period. At the Effective Time, the Fisher Employment Contract
will supersede Mr. Fisher's other agreements with UPEN and UPPCO regarding
his employment and compensation, including any "change of control"
severance arrangements. Mr. Fisher may terminate the Fisher Employment
Contract if, among other things, he is not elected to the Board of
Directors of WPS for the period commencing with the Effective Time and
ending on the third anniversary of the Effective Time. See also "THE
MERGER-Interests of Certain UPEN Directors and Operations of UPPCO After
The Merger."
OPERATIONS OF UPPCO AFTER THE MERGER
The parties have agreed in the Merger Agreement that during the
three year period following the Effective Time, to the extent reasonably
practicable and consistent with the past practices of WPS, WPS will cause
supplies and services for UPPCO to be purchased from vendors located in
the service area of UPPCO, so long as the goods and services available and
prices and fees charged by such vendors are reasonably competitive with
alternative vendors outside such service area and the quality of such
supplies and services is reasonably comparable to that of such alternative
vendors. In addition, the parties agreed that during the period ending
five years after the Effective Time, WPS will provide or cause its
subsidiaries to provide, charitable contributions and community support
within the service area of UPPCO at aggregate levels not less than the
average annual level of total charitable contributions and community
support provided by UPEN and its subsidiaries during the three calendar
years immediately prior to the date of the Merger Agreement.
PERSONNEL MATTERS
Subject to applicable collective bargaining agreements, WPS has
agreed to offer employment opportunities to employees of UPPCO on terms
and conditions consistent with the employment opportunities offered to
employees of WPS or its subsidiaries. To the extent that any of such
employees are transferred from UPPCO to any affiliate or subsidiary of
WPS, WPS will provide relocation assistance and benefits to such employees
on terms comparable to those offered by WPS to its own employees. WPS has
also agreed, pursuant to the Merger Agreement, that to the extent that any
reductions in work force are deemed to be required, such reductions will
be made on a fair and equitable basis, in light of the circumstances and
objectives to be achieved giving appropriate consideration to previous
work history, job experience and qualifications, and treating all
employees equally, without regard to whether prior employment was with WPS
or any of its subsidiaries. WPS and UPEN have agreed to consult with each
other with respect to the retention of personnel pending the Effective
Time.
Other than the agreements made by UPPCO with certain of its
officers and key employees to continue their employment with UPPCO and to
cooperate with respect to the facilitation of the Merger (see "THE MERGER-
-Certain Other Agreements") and the employment agreement with Mr. Fisher
(see "Fisher Employment Contract"), no other arrangements have been made
with any officer of UPEN or UPPCO concerning their continued employment
following the Effective Time.
PARTIES TO THE MERGER
WPS
WPS is a holding company whose principal subsidiary is WPSC, a
regulated electric and gas utility. At June 30, 1997, WPSC served 370,000
electric retail customers and 214,000 gas retail customers in an 11,000
square mile service territory in Northeastern Wisconsin and Upper
Michigan. Additionally, WPSC provides wholesale (full or partial
requirements) electric service, either directly or indirectly, to 12
municipal utilities, three Rural Electrification Administration financed
electric cooperatives, and a privately-held utility. WPS also owns two
non-regulated subsidiaries, ESI and PDI. For fiscal year 1996, WPSC, ESI
and PDI represented approximately 82%, 18% and 0.2% of WPS' consolidated
revenues and 95%, 4% and 1% of WPS' consolidated assets, respectively.
UPEN
UPEN is a holding company incorporated under the laws of the
State of Michigan in 1988. UPEN's principal subsidiary, UPPCO, is an
electric utility engaged in the generation, purchase, transmission,
distribution and sale of electric energy in the Upper Peninsula of
Michigan. UPPCO serves approximately 48,000 customers in two-thirds of
Michigan's Upper Peninsula. UPPCO's service area covers approximately
4,460 square miles of primarily rural countryside. UPPCO furnishes energy
to 99 communities and adjacent areas and provides energy for resale to two
other investor-owned electric utilities, two cooperatives and four
municipalities. The main industries in UPPCO's service area are forest
products, iron mining and processing, tourism and small manufacturing.
UPEN has two other subsidiaries, Upper Peninsula Building
Development Company, which owns the corporate headquarters building and
leases it to UPPCO and PENVEST, Incorporated, which explores investment
opportunities in telecommunications, engineering services and other non-
regulated businesses.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF UPEN'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
UPEN is the parent of UPPCO, an electric utility, and two
nonutility subsidiaries. The utility operations of UPPCO are the primary
source of earnings.
Earnings
Earnings per share in 1996 were $1.73 compared with $1.78 in
1995 and $1.82 in 1994. The 2.8% decrease in earnings in 1996 is
attributable to a full-year impact of a 5.7% reduction in retail rates in
April 1995 and a decline in large-industrial sales, offset by a reduction
of maintenance expenditures. Earnings declined slightly in 1995 as a 7.7%
reduction in operation and maintenance expense, exclusive of power supply
costs, combined with a 1.0% increase in energy sales, offset the April
rate decrease. Earnings per share for the nine months ended September 30,
1997 were $.82 compared to $1.25 for the same period in 1996, due to the
expenses related to the merger.
Sales and Revenues
The majority of operating revenues come from the sale of
electricity based on rates authorized by the Michigan Commission and the
FERC. Over the past three years, approximately 90% of energy sales
revenues were under the jurisdiction of the Michigan Commission.
Fluctuations in revenues occur because of changes in rates,
power supply costs, number of customers, weather, and energy-consumption
trends. Power supply cost recovery matches fuel and purchased-power cost
changes and does not affect earnings.
In 1996, operating revenues were 4.6% lower than in 1995 because
of lower power supply costs, reduced sales, and the April 1995 retail rate
reduction. Operating revenues in 1995 were 2.3% lower than in 1994. The
April 1995 rate reduction and a slight decrease in power supply costs were
the major reasons for the lower 1995 revenues. Operating revenues for the
nine months ended September 30, 1997 increased 3.5% compared to the same
period in 1996, mainly due to an increase on the unit cost of power supply
and higher emergency sales to large industrial customers.
Sales of electric energy accounted for 93.1% of operating
revenues in 1996. Electric sales in 1996, 1995, and 1994 were 821,311
MWh, 846,951 MWh, and 838,518 MWh, which included 12,370 MWh, 39,816 MWh,
and 31,793 MWh, respectively, sold at a non-firm emergency rate
established in 1993 for certain large-industrial customers.
Excluding emergency sales, 1996 and 1995 energy sales were up
0.2% and 0.4%, respectively. In the past two years, there has been a
general rise in sales, with the exception of large industrials due in
large part to the closure of the K.I. Sawyer Air Force Base in September
1995. Small-commercial sales continue to lead the way, rising by 2.4% in
1996 following a 4.1% gain in 1995.
Sales to K.I. Sawyer Air Force Base accounted for $672,000,
$1,406,000, and $2,783,000 of revenues in 1996, 1995, and 1994,
respectively. New load continues to develop on the base site.
Customers with firm energy requirements exceeding 20,000 MWh in
either of the past two years were:
1996 1995 %
MWh MWh Change
Stone Container Corporation 62,053 70,180 -11.6
City of Gladstone 30,471 30,042 1.4
Michigan Technological University 25,992 25,926 0.3
City of Negaunee 22,741 22,551 0.8
Ontonagon R.E.A. 20,825 19,922 4.5
Lakehead Pipeline Company 17,970 21,047 -14.6
K.I. Sawyer Air Force Base 12,749 26,970 -52.7
Operating Expenses
Operating expenses decreased 4.5% in 1996 following a 2.6%
decline in 1995.
Power supply costs (fuel and purchased power) accounted for
37.0%, 38.7%, and 38.1% of operating expenses in 1996, 1995, and 1994,
respectively. Power supply costs change depending on overall system
energy requirements, unit production costs for generation, and purchased-
power rates. Purchased power represented 80.8%, 84.1%, and 84.8% of
output to lines in 1996, 1995, and 1994, respectively. The decrease in
the percentage of UPPCO's energy requirements purchased in 1996 was due to
a 23.1% increase in hydro generation resulting from record snowfalls and a
late spring.
Power supply costs decreased 8.7% and 1.0% in 1996 and 1995,
respectively. These costs on a per-unit basis decreased 8.2% in 1996
because of a higher hydro generation and reduced purchased-power costs.
In 1995, power supply costs decreased 1.6% on a per-unit basis, more than
offsetting increased energy requirements. Power supply costs for the nine
months ended September 30, 1997 were 17.5% higher as compared to the same
period in 1996 due to a rise in the average unit cost of power supply
resulting from higher unit cost power purchases and a decrease of 14.8% in
hydro generation.
Other operation expenses were 1.6% higher in 1996 as the reduced
costs associated with fewer employees were offset by increased outside
service needs associated with such areas as the changing regulatory
climate and other strategic or operational changes. In 1995, other
operation expenses were 9.0% lower as a result of reduced employment
levels and associated benefit costs. For the nine months ended September
30, 1997, other operation and maintenance expenses decreased 4.9% as
compared to the same period in 1996 due mainly to efficiencies recognized
from the implementation of a customer call center and a lower level of
expense in all other areas of operation.
In 1996, maintenance expenses decreased 23.6% because of reduced
tree-trimming and production-plant expenditures. Maintenance expenses
were 2.7% lower in 1995 despite additional tree-trimming and production-
plant expenditures because of ash-site closure costs in 1994.
Depreciation and amortization expense, which is normally a
function of plant in service, decreased 2.3% in 1996 following a 3.7%
increase in 1995. The decrease in the current year was due to an increase
in the estimated service life of the Victoria hydro facility.
Depreciation expense decreased 2.6% in the nine-month period ended
September 30, 1997 as compared to the same period in 1996 due to lower
depreciation rates on the hydro plant accounts.
Ad Valorem taxes increased 6.8% and 4.5% in 1996 and 1995,
respectively, due to additional plant in service. Ad valorem taxes
increased 6.0% for the nine-month period ended September 30, 1997 as
compared to the same period in 1996 due to an increase in electric plant
in service. Other taxes decreased 7.2% in the current nine-month period
as compared to the same period in 1996 due to lower payroll related taxes
reflecting fewer employees.
Total interest charges increased slightly in 1996 due to
additional short-term borrowing requirements. In 1995, interest charges
remained relatively unchanged, as most cash needs were satisfied
internally.
FUTURE OUTLOOK
In Michigan, the implementation of customer choice has been
studied for several years. Governor John Engler requested the Michigan
Commission to refine and act upon a "blueprint for competition" issued in
January 1996. In December 1996, commission staff issued a report that
recommends a restructuring approach that would allow customers to choose
their electric power supplier over a phase-in period through 2003.
The Michigan Commission staff report provides utilities the
opportunity to recover stranded costs through a transition charge for
customers who choose alternative energy suppliers. Concepts such as a
performance-based cost-recovery system, rate-reduction bonds, and service-
reliability standards are also addressed in the report.
The Michigan Commission has not yet acted on the staff proposal,
which is also subject to public comment. While UPEN believes that the
issues will be debated by interest groups with opposing needs, it appears
that customer choice will be available to some degree in Michigan in the
near future.
In its order 888, FERC required each utility with transmission
lines that could potentially be used for buying or selling wholesale
energy to file an Open-Access Tariff for transmission services. This
tariff "unbundles" or isolates transmission services from the complete
delivery packages that make up most utility rates. Order 888 also defines
the terms, conditions, and rates for transmission services to be provided
by transmission-system owners. UPPCO filed its tariff on January 31,
1997.
Another FERC order would have required UPPCO to separate its
power marketing function from its transmission operations and planning
function and to post its transmission capacity availability and tariff
rates on an electronic bulletin board via the Internet. UPPCO requested
and was granted a waiver from these requirements because of its small size
and the additional expense involved with compliance.
UPPCO cannot predict with any certainty the final outcome of
deregulation efforts nor their effect on UPPCO. However, because of
UPPCO's relatively limited energy sales growth projections and the ever-
increasing competitive nature of the electric business, it will continue
to concentrate on efforts to reduce costs and develop a more efficient
organization to improve its competitive position.
Management believes that UPPCO meets the criteria of Statement
of Financial Accounting Standards No. 71 (SFAS 71), "Accounting for the
Effects of Certain Types of Regulation," and that all regulatory assets
are probable of recovery. Should UPPCO no longer meet the criteria of
SFAS 71, such regulatory assets would be removed.
UPPCO's work force involved in regulated utility activities has
decreased by 25.2% over the last three years, from 250 employees at the
beginning of 1994 to 187 at December 31, 1996. In addition to normal
retirements, these reductions were accomplished through voluntary
retirements, severance programs, and layoffs. UPPCO believes that it is
near the employee complement needed for the future, and further cost
reductions will likely come through workplace efficiencies and operational
changes.
UPEN has entered into an agreement with the Michigan Department
of Natural Resources to monitor groundwater surrounding the John H. Warden
Station ash landfill, which was closed in 1994. Such monitoring is to be
performed over a 30-year period. At December 31, 1996, UPEN has recorded
an estimated liability of $689,000 offset by a regulatory asset of
$689,000 being amortized over the monitoring period.
Under contract with Wisconsin Electric Power Company ("WEPCO"),
UPPCO has staffed and operated WEPCO's Presque Isle Power Plant located in
Marquette, Michigan, since 1988. Under the terms of the agreement, UPPCO
receives a management fee plus reimbursement for all costs associated with
labor and other services provided. In December 1996, WEPCO gave
notification that it intends to terminate the contract on December 31,
1997. The terms of the agreement call for all UPPCO employees at the
plant to be offered employment by WEPCO. UPPCO and WEPCO representatives
have begun efforts to ensure an orderly transition. UPPCO management
believes that this action will not have a material adverse effect on its
financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
UPEN's cash needs are principally for construction expenditures
and debt retirement. Cash is generated through internal operations and
external financing.
To meet short-term cash needs, credit agreements are maintained
with certain banks. These agreements are reviewed annually in the second
quarter of the year. When short-term borrowings grow beyond normal
seasonal requirements, they are replaced with long-term financing. UPEN
had $5,000,000 of short-term notes outstanding at December 31, 1996, and
had $5,500,000 of unused lines of credit available at or below the prime
rate. UPEN had $9,600,000 of short-term notes outstanding at September
30, 1997, and had $3,900,000 of unused lines of credit available at or
below the prime rate.
Substantial cash flows are generated annually from operating
activities. Net cash from this source was $11,475,000 in 1996,
$13,101,000 in 1995, and $11,052,000 in 1994.
During the three-year period 1994 through 1996, there were no
long-term financing activities. In 1994, UPEN repurchased 25,000 common
shares on the open market for $443,000.
Investment activities in 1996, 1995, and 1994 totalled
$30,156,000 of capital expenditures, of which $7,298,000 was spent on a
transmission line project (Chandler) to improve service to Delta County.
Other utility expenditures were primarily for distribution and
transmission improvements, new service requests, and equipment
replacement.
Utility capital expenditures are expected to be $3,900,000 in
1997. Cash requirements will be met primarily with short-term borrowings
and internally generated funds.
In 1998 through 2001, UPEN is forecasting $22,000,000 of capital
expenditures for system improvements and replacements. UPEN estimates
that almost all cash requirements will be internally generated.
Due to its capital-intensive nature, the utility industry is
influenced by inflation. UPPCO's current utility regulation recognizes
only original-cost rate base. However, assuming the continued ability to
bill customers for increases in power supply costs and the receipt of
adequate and timely rate relief, UPPCO will recover cost escalations
caused by inflation.
DESCRIPTION OF WPS CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The aggregate number of shares of WPS capital stock which WPS
has authority to issue is One Hundred Million (100,000,000), consisting of
one class only, designated as "Common Stock," with a par value of one
dollar ($1.00) per share. As of September 30, 1997, 23,877,567 shares of
WPS Common Stock were issued and outstanding.
WPS COMMON STOCK
Dividend and Liquidation Rights
All shares of WPS Common Stock will participate equally with
respect to dividends and rank equally upon liquidation subject to the
rights of holders of any prior ranking stock which may be subsequently
authorized and issued. In the event of liquidation, dissolution or
winding up of WPS,the owners of WPS Common Stock are entitled to receive
pro rata the assets and funds of WPS remaining after satisfaction of all
creditors of WPS and payment of all amounts to which owners of prior
ranking stock, if any, then outstanding may be entitled.
Voting Rights
Except as hereinafter set forth and subject to Section 180.1150
of the WBCL (described under "Certain Statutory and Other Provisions"
below), every holder of WPS Common Stock has one vote for each share.
No shareholder of WPS has cumulative voting rights which means
that the holders of shares entitled to exercise more than 50% of the
voting power of shares entitled to vote, represented in person or by proxy
at a meeting at which a quorum (a majority of the shares entitled to vote)
is represented, are entitled to elect all of the directors to be elected.
Under the WPS Articles and By-Laws, the WPS Board of Directors is divided
into three classes of three directors each. One class is elected each
year for a three-year term.
Article 5 of WPS' Articles provides that, subject to the
exception discussed below, a director may be removed only for cause by the
affirmative vote of shareholders possessing a majority of the voting power
of the then outstanding shares of voting stock. As defined in Article 5,
"cause" exists only if the 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 direct appeal or such director has been
adjudged to be liable for negligence or misconduct in the performance of
his duty to WPS in a matter which has a materially adverse effect on the
business of WPS, and such adjudication is no longer subject to direct
appeal. Article 5 also provides for the removal of a director by the
shareholders without cause when such removal is recommended by the
"Requisite Vote" of the directors and approved by the affirmative vote of
shareholders possessing a majority of the voting power of the then
outstanding shares of voting stock. The term "Requisite Vote" is defined
as the affirmative vote of at least two-thirds of the directors then in
office plus one director. Unless "cause" is established or removal is
recommended by the Requisite Vote of the directors, a director may not be
removed from office even if shareholders possessing a majority of the
voting power favor such action. Additionally, pursuant to Article 5,
vacancies on the Board, including those resulting from the removal of a
director, may be filled for the unexpired portion of the director's term
by the majority vote of the remaining members of the Board.
Article 5 of WPS' Articles provides that those sections of
Article III of WPS' By-Laws which set forth the general powers, number,
qualifications and classification of directors may be amended, altered,
changed or repealed only by the affirmative vote of shareholders
possessing at least 75% of the voting power of the then outstanding shares
of WPS Common Stock generally possessing voting rights in the election of
directors, or by the Requisite Vote of the directors. Article 5 of WPS'
Articles provides that Article 5 may itself be amended, altered, changed
or repealed only by the affirmative vote of shareholders possessing at
least 75% of the voting power of the then outstanding shares of WPS Common
Stock generally possessing voting rights in the election of directors.
CERTAIN STATUTORY AND OTHER PROVISIONS
Statutory Provisions
Section 180.1150 of the WBCL provides that the voting power of
shares of an "issuing public corporation," which includes WPS, which are
held by any person holding in excess of 20% of the voting power in the
election of directors of the issuing public corporation's shares shall be
limited to 10% of the full voting power of such excess shares. This
statutory voting restriction will not be applicable to shares acquired
directly from WPS, to shares acquired in a transaction incident to which
shareholders of WPS vote to restore the full voting power of such shares
(either before or after the acquisition of the shares) and under certain
other circumstances.
Except as may otherwise be provided by law, the requisite
affirmative vote of shareholders for certain significant corporate
actions, including a merger or share exchange with another corporation,
sale of all or substantially all of the corporate property and assets, or
voluntary liquidation, is a majority of all the votes entitled to be cast
on the transaction by each voting group of outstanding shares entitled to
vote thereon. Sections 180.1130 through 180.1134 of the WBCL provide
generally that, in addition to the vote otherwise required by law or the
articles of incorporation of an "issuing public corporation," certain
business combinations not meeting certain adequacy-of-price standards
specified in the statute must be approved by (a) the holders of at least
80% of the votes entitled to be cast and (b) two-thirds of the votes
entitled to be cast by the corporation's outstanding voting shares owned
by persons other than a "significant shareholder" who is a party to the
transaction or an affiliate or associate thereof. Section 180.1130
defines "business combination" to include, subject to certain exceptions,
a merger or share exchange of the issuing public corporation (or any
subsidiary thereof) with, or the sale or other disposition of
substantially all assets of the issuing public corporation to, any
significant shareholder or affiliate thereof. "Significant shareholder"
is defined generally to mean a person that is the beneficial owner of 10%
or more of the voting power of the outstanding voting shares of the
issuing public corporation.
Sections 180.1140 through 180.1145 of the WBCL provides that a
"resident domestic corporation," such as WPS, may not engage in a
"business combination" with an "interested stockholder" (e.g., a person
beneficially owning 10% or more the aggregate voting power of the stock of
such corporation) within three years after the date (the "stock
acquisition date") on which the interested stockholder acquired his or her
10% or greater interest, unless the business combination (or the
acquisition of the 10% or greater interest) was approved before the stock
acquisition date by the corporation's board of directors. If the
interested stockholder fails to obtain such approval by the board of
directors, then even after such three-year period, a business combination
with the interested stockholder may be consummated only with the approval
of the holders of a majority of the voting stock not beneficially owned by
such interested stockholder, unless the combination satisfies certain
adequacy-of-price standards intended to provide a fair price for shares
held by non-interested shareholders.
The above sections of the WBCL and certain provisions of the WPS
Articles and By-Laws, could have the effect, among others, of discouraging
takeover proposals for WPS or impeding a business combination between WPS
and a major shareholder of WPS.
Section 196.795 of the Wisconsin Statutes states that no person
may hold or acquire directly or indirectly more than 10% of the
outstanding voting securities of a public utility holding company with the
unconditional power to vote such securities unless the PSCW determines,
after investigation and an opportunity for hearing, that such holding or
acquisition is in the best interests of utility customers, investors and
the public.
Preemptive Rights
No holder of WPS Common Stock has any preemptive or subscription
rights.
Conversion Rights, Redemption Provisions and Sinking Fund
Provisions
WPS Common Stock is not convertible, is not redeemable and has
no sinking fund.
Liability to Further Calls or to Assessment
The shares of WPS Common Stock issued pursuant to the Merger
will be fully-paid and non-assessable by WPS, except for certain statutory
personal liability which may be imposed upon shareholders under Section
180.0622(2)(b) of the WBCL. The substantially identical predecessor to
such statute has been judicially interpreted to mean that shareholders of
a Wisconsin corporation are subject to personal liability, up to an amount
equal to the consideration for which their shares were issued (instead of
the aggregate par value in the case of shares with par value, as the
statute states), for all debts owing to employees of the corporation for
services performed for the corporation, but not exceeding six months
service in any one case. The provisions of this Section of the WBCL are
presently applicable to the shares of capital stock of the Company.
COMMON STOCK PURCHASE RIGHTS
On December 12, 1996, the Board of Directors of WPS approved the
issuance to shareholders as of December 16, 1996, of a dividend of one
Right for each outstanding share of WPS Common Stock. The Rights are not
presently exercisable, but ten days after a person or group acquires 15%
or more of WPS Common Stock or ten business days (subject to extension)
after a person or group announces a tender offer to acquire at least 15%
of the WPS Common Stock, the Rights will become exercisable. Such Rights
will entitle each holder of Common Stock of WPS to purchase one share of
authorized but unissued Common Stock of WPS for each Right. The exercise
price of each Right is $85. Upon the acquisition by any person or group
of 15% or more of the Common Stock of WPS, each Right, other than Rights
held by an acquiring party, will entitle the holder to purchase, at the
exercise price, Common Stock of WPS having a market value of two times the
exercise price. The Rights Agreement excludes from the effects thereof
the inadvertent acquisition of 15% or more of WPS Common Stock, provided
there is prompt divestment to less than 15%. The Rights may be redeemed
or may under certain circumstances, be exchanged for shares of Common
Stock of WPS, all as provided and subject to the limitations set forth in
the agreement setting forth the terms of the Rights; otherwise, such
rights expire on December 11, 2006. None of the shareholders or
percentages of outstanding shares reported in this Proxy
Statement/Prospectus reflect the Rights or shares of Common Stock which
may be purchased upon the exercise of the Rights. See also "COMPARISON OF
RIGHTS OF SHAREHOLDERS OF WPS AND UPEN--WPS Rights Plan."
RESTRICTION ON DIVIDENDS PAYABLE BY WPSC TO WPS;
LIMITATIONS ON CAPITAL STRUCTURE
WPSC is restricted by an order of the Wisconsin Commission to
paying normal common stock dividends of no more than 109% of the previous
year's common stock dividend. WPSC must maintain a capital structure
(i.e., the percentages by which each of common stock, preferred stock and
debt constitute the total capital invested in a utility) which has a
common equity range of 47% to 52%. Each of these limitations may be
modified by a future order of the Wisconsin Commission.
COMPARISON OF RIGHTS OF SHAREHOLDERS OF WPS AND UPEN
GENERAL
Upon consummation of the Merger, the shareholders of UPEN will
become shareholders of WPS, and their rights will be governed by the WPS
Articles and the WPS Bylaws which differ in certain material respects from
the UPEN Articles and UPEN Bylaws. As shareholders of WPS, the rights of
former UPEN shareholders will be governed by Wisconsin law (including the
WBCL) rather than Michigan law (including the MBCA) which currently
governs such rights. Certain significant differences between the current
rights of UPEN shareholders and the rights of WPS shareholders following
consummation of the Merger are described below.
The following discussion is not intended to be complete and is
qualified in its entirety by reference to the WPS Articles and the WPS
Bylaws, each of which is available for inspection at the principal
executive offices of WPS, the UPEN Articles and the UPEN Bylaws, each of
which is available for inspection at the principal executive offices of
UPEN, and the WBCL and the MBCA.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of UPEN currently consists of
5,000,000 shares of UPEN Common Stock, without par value (of which
2,950,001 shares were issued and outstanding as of July 10, 1997) and
500,000 shares of Preferred Stock, without par value (of which none are
issued and outstanding).
The authorized capital stock of WPS currently consists of
100,000,000 shares of WPS Common Stock of which 23,896,962 shares were
issued and outstanding as of July 10,1997.
VOTING RIGHTS
Both the WPS Articles and the UPEN Articles grant the holders of
Common Stock the exclusive right to vote for the election of directors and
for all other purposes, except as may be otherwise provided therein or by
applicable law. Under both the WBCL and the MBCA, shareholders are
entitled to cumulate their voting power only if such right is expressly
granted in a corporation's articles of incorporation. Neither the WPS
Articles nor the UPEN Articles grant such right to shareholders.
SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION
BY WRITTEN CONSENT
The WBCL provides that special meetings of shareholders shall be
held if called by the board of directors or any other persons authorized
to do so by the articles of incorporation or bylaws or upon the demand of
the holders of at least 10% of all votes entitled to be cast on an issue
proposed to be considered at such meeting. Under the WPS Bylaws, special
meetings of shareholders may be called by the President, the Chairman of
the Board, or by Resolution of the Board of Directors and shall be called
in the event that the holders of at least 10% of all the votes entitled to
be cast on any issue proposed to be considered at the proposed meeting
sign, date, and deliver to the corporation one or more written demands for
a the meeting describing one or more purposes for which it is to be held.
Notice of special meetings must be given within 30 days after the date
that the demand is delivered to WPS and not less than 10 nor more than 60
days before the date of the meeting.
The MBCA provides that a special meeting of shareholders may be
called by the board, or by officers, directors or shareholders as provided
in the bylaws. Under the UPEN Bylaws, special meetings of shareholders
may be called by the Chairman of the Board, President, the Board of
Directors or at the request in writing by shareholders owning a majority
in amount of the entire capital stock of the corporation issued and
outstanding and entitled to vote. The MBCA further provides that upon
application of the holders of not less than 10% of all the shares entitled
to vote at a meeting, the circuit court of the county in which the
principal place of business or registered office is located, for good
cause shown, may order a special meeting of shareholders. Consistent with
the MBCA, the UPEN Bylaws provide that notice of special meeting be given
no less than 10 nor more than 60 days prior to the date of the meeting. A
special meeting ordered by the circuit court must be called in accordance
with the court order.
The WBCL provides that shareholders may take action without a
meeting and without board action by unanimous written consent of all
shareholders entitled to vote, or, if the articles of incorporation so
provide, by shareholders who would be entitled to vote at a meeting those
shares with voting power to cast not less than the minimum number, or, in
the case of voting by voting groups, numbers of votes that would be
necessary to authorize or take the action at a meeting at which all shares
entitled to vote were present and voted, except elections of directors for
which shareholders may vote cumulatively.
The MBCA provides that any action required or permitted to be
taken at a meeting of shareholders may be taken without a meeting, without
prior notice and without a vote if before or after the action the
shareholders entitled to vote unanimously consent in writing. The MBCA
also provides that a corporation's articles of incorporation may provide
for action by consent by the number of shares that would be required to
take such action at a meeting.
Neither the WPS Articles or the UPEN's Articles contain
provisions with respect to shareholder action without a meeting.
BOARD OF DIRECTORS
The UPEN Bylaws provide that the number of directors of UPEN
shall be not less than six (6) nor more than seven (7), except when the
offices of Chairman of the Board of Directors and President are held by
different persons, during which times such number may be no more than
eight (8).
The WPS Bylaws provide that the number of directors of WPS shall
be nine (9).
The UPEN Articles and the WPS Bylaws each provide that the board
of directors will be divided into three classes, and each class will
generally serve for a term of three (3) years. The term of one class of
directors expires annually, so it is only possible to elect one class of
the board of directors in any one year.
REMOVAL OF DIRECTORS
The WBCL and MBCA both provide for the removal of directors by
the shareholders with or without cause, unless the articles of
incorporation provide that directors may be removed only for cause. The
UPEN Articles provide that at a meeting of the shareholders called for the
purpose of removing a director, the shareholders may vote to remove such
director from office for cause; provided, however, that the shareholders
may only vote once to remove a director during such director's term, if
such director's term is three years or less. The WPS Articles generally
provide that any director may be removed from office only for cause and
only by the affirmative vote of the holders of at least a majority of the
voting power of the then outstanding shares of all classes of stock of the
corporation generally possessing voting rights in the election for
Directors, considered for this purpose as one class; provided, however,
that if the Board of Directors by a resolution adopted by the requisite
vote recommends removal of a director, the shareholders may remove such
director by the foregoing vote without cause.
Under the WBCL, a director may be removed by the shareholders
only at a special meeting called expressly for that purpose.
VACANCIES ON THE BOARD OF DIRECTORS
The MBCA and the WBCL both provide that unless the articles of
incorporation provide otherwise, a vacancy may be filled by the
shareholders, the board of directors, or if the directors remaining in
office constitute fewer than a quorum of the board, the directors, by the
affirmative vote of a majority of all directors remaining in office. A
vacancy that will occur at a specific later date, because of a resignation
effective at a later date may be filled before the vacancy occurs, but the
new directors may not take office until the vacancy occurs.
The WBCL further provides that if the vacant office was held by
a director elected by a voting group of shareholders, only the holders of
shares of that voting group may vote to fill the vacancy if it is filled
by the shareholders, and only the remaining directors elected by that
voting group may vote to fill the vacancy if it is filled by the
directors. The MBCA similarly provides that if the holders of any
class(es) of stock or series are entitled to elect one or more directors
to the exclusion of other shareholders, only the holders of shares of that
class(es) or series of shares may vote to fill the vacancy if it is filled
by shareholders, and only the remaining directors elected by that class or
series then in office, whether or not those directors constitute a quorum,
may vote to fill the vacancy if it is filled by the directors.
The UPEN Articles do not address the filling of vacancies on the
board of directors. The UPEN Bylaws provide that vacancies in the board
of directors shall be filled by the remaining directors. Any director so
elected shall serve until his successor is elected by the shareholders at
the next annual meeting of the shareholders or at any special meeting
called for that purpose. The WPS Articles provide that any vacancy
occurring in the Board of Directors, including a vacancy caused by an
increase in the number of Directors, may be filled by the affirmative vote
of a majority of Directors then in office, though less than a quorum of
the Board of Directors, or by a sole remaining Director. Any director so
elected to fill a vacancy shall hold office until the next election of the
class to which such director is elected and until a successor shall have
been elected and qualified.
LIMITATION OF LIABILITY; INDEMNIFICATION
The MBCA provides that a corporation may indemnify a person who
was or is a party or is threatened to be made a party to a threatened,
pending or completed action or suit by the reason that such person is or
was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation against actual and reasonable
expenses if the individual acted in good faith and in a manner he or she
believed to be in the best interests of the corporation or its
shareholders; provided that the corporation determines in each case that
the person has met the applicable standard of conduct set forth in the
MBCA and upon an evaluation of the reasonableness of expenses and amounts
paid in settlement. The MBCA further provides that to the extent a person
is successful on the merits or otherwise in defense of an action, he shall
be indemnified against actual and reasonable expenses incurred by him in
connection with the action. In addition, a corporation may pay for or
reimburse the reasonable expenses incurred by a director who is a party to
a proceeding in advance of the final disposition of the proceeding,
subject to certain conditions.
Under the MBCA, the determination of a persons right to
indemnification must be made in the following ways: (a) by a majority vote
of a quorum of the board consisting of directors who are not parties or
threatened to be made parties to the action, suit, or proceeding; (b) if a
quorum cannot be obtained under subdivision (a), by majority vote of a
committee duly designated by the board and consisting solely of 2 or more
directors not at the time parties or threatened to be made parties to the
action, suit, or proceeding; (c) by independent legal counsel in a written
opinion, which counsel shall be selected in one of the following ways: (i)
by the board or its committee in the manner prescribed in subdivision (a)
or (b); (ii) if a quorum of the board cannot be obtained under subdivision
(a) and a committee cannot be designated under subdivision (b), by the
board; (d) by all independent directors (as defined in Section 107(3) of
the MBCA) who are not parties or threatened to be made parties to the
action, suit, or proceeding; or (e) by the shareholders, but shares held
by directors, officers, employees, or agents who are parties or threatened
to be made parties to the action, suit, or proceeding may not be voted.
The UPEN Articles provide that a director of UPEN shall not be
personally liable to the Corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director except for certain
actions enumerated in the UPEN Articles. The UPEN Articles further
provide that UPEN shall indemnify any and all of its directors and
officers, or former directors and officers, or any individual who is or
was serving at the Corporation's request as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise (whether for profit or not).
The WBCL provides that a corporation shall indemnify a director
or officer, to the extent he or she has been successful on the merits or
otherwise in the defense of a proceeding, for all reasonable expenses
incurred in the proceeding if the director or officer was a party because
he or she is a director or officer of the corporation. In cases not
covered by the above, a corporation shall indemnify a director or officer
against liability incurred by a director or officer in a proceeding to
which the director officer was a party because he or she is a director or
officer of the corporation, unless liability was incurred because the
director or officer breached or failed to perform a duty that he or she
owes to the corporation and the breach constitutes a wilful failure to
deal fairly with the corporation or its shareholders in connection with
that matter in which the director or officer has a material conflict of
interest, a violation of criminal law, unless the director or officer had
reasonable cause to believe that his or her conduct was lawful or no
reasonable cause to believe that his or her conduct was unlawful, a
transaction form which the director or officer derived an improper
personal profit or wilful misconduct. A corporation shall indemnify an
employee who is not a director or officer, to the extent such employee has
been successful on the merits or otherwise in defense of a proceeding, for
all reasonable expenses incurred because he or she was an employee of the
corporation. A corporation may indemnify and allow reasonable expenses of
an employee or agent who is not a director or an officer of the
corporation to the extent provided by the articles of incorporation or
bylaws, by general or specific action of the board of directors or by
contract.
The WBCL further provides that unless otherwise provided by the
articles of incorporation or bylaws or by written agreement between the
director or officer and the corporation,the director or officer seeking
indemnification shall select one of the following means for determining
his or her right to indemnification: (a) by a majority vote of a quorum
of the board consisting of directors who are not parties to the same or
related proceedings; if a quorum of disinterested directors cannot be
obtained, by majority vote of a committee duly appointed by the board and
consisting solely of 2 or more directors not at the time parties to the
same or related proceedings; (b) by independent legal counsel selected by
a quorum of the board or its committee in the manner prescribed in
subdivision (a) or if unable to obtain such a quorum or committee, by a
majority vote of the full board; (c) by a panel of 3 arbitrators
consisting of one arbitrator selected by those directors entitled under
subdivision (b) to select independent legal counsel, one arbitrator
selected by the director or officer seeking indemnification and one
arbitrator selected by the 2 arbitrators previously selected; (d) by an
affirmative vote of shares as provided under the WBCL; (e) by a court
order under the WBCL; and (f) by any other method provided for in any
additional right to indemnification permitted under the WBCL.
The WPS Bylaws provide that WPS shall indemnify and hold
harmless any person who is or was a party or threatened to be made a party
to any action by reason of his status as a director or officer of WPS or
an Affiliate (an "Executive") and/or by reason of acts performed in the
course of such Executive's duties to WPS and/or an Affiliate against
liabilities and reasonable expenses incurred by or on behalf of such
Executive in connection with any action to the extent such Executive has
been successful on the merits or otherwise in connection with such action.
WPS will not indemnify an Executive if the action was initiated or brought
voluntarily by the Executive, subject to certain exceptions enumerated in
the WPS Bylaws. WPS is required to pay any expenses incurred by a director
or officer in defending such an action, in advance of the final
disposition of such action, following the satisfaction of certain
conditions.
AMENDMENTS TO ARTICLES OF INCORPORATION
The MBCA provides that, amendments to articles of incorporation
must generally be approved by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote thereon, and, in
addition, if any class or series of shares is entitled to vote thereon as
a class, the affirmative vote of a majority of the outstanding shares of
each such class or series, unless the articles of incorporation or
specific amendments prescribed in the MBCA require a greater proportion.
The WBCL generally requires the approval of a majority of the votes
entitled to be cast on the amendment by each voting group with respect to
which the amendment would create dissenters' rights and a majority of
votes of every other voting group entitled to vote on the amendment,
unless the articles of incorporation, bylaws adopted under authority
granted in the articles of incorporation or the WBCL require a greater
proportion.
UPEN's governing documents do not address amendments to the
articles of incorporation. The WPS Articles provide that certain
provisions with respect to the powers, removal and the filling of
vacancies on the Board of Directors may only be amended, altered, changed
or repealed by the affirmative vote of shareholders possessing at least
three-fourths of the voting power of the then outstanding shares of all
classes of stock of the corporation generally possessing voting rights in
elections for Directors, considered for this purpose as one class.
AMENDMENTS TO BYLAWS
The MBCA provides that the shareholders or the board of
directors may amend, repeal or adopt bylaws unless the articles of
incorporation or the bylaws reserve this power exclusively to the
shareholders or provide that the board of directors may not alter or
repeal the bylaws. UPEN's governing documents permit amendment by either
the shareholders or directors of UPEN by majority vote at any regular or
special meeting, subject to prior notice being given of the proposed
amendment, however, the UPEN Articles provide that the Board of Directors
shall not make or alter the Bylaws fixing their qualifications,
classifications or term of office.
The WBCL permits shareholders and the board of directors to
amend, repeal or adopt the bylaws, provided, with respect to the board of
directors, the articles of incorporation nor the WBCL reserves this power
exclusively to the shareholders or the shareholders in adopting, amending
or repealing a particular bylaw provide within the bylaws that the board
of directors may not amend, repeal or readopt that bylaw. The WBCL
additionally provides that if authorized by the articles of incorporation,
shareholders may amend or adopt a bylaw that fixes a greater or lower
quorum requirement or greater voting requirement for shareholders than is
provided in the WBCL. Such adoption or amendment must meet the same
quorum and voting requirements then in effect. Such bylaw fixing a
greater or lower quorum requirement or a greater voting requirement as
described above, may not be adopted, amended or repealed by a the board of
directors. A bylaw that fixes a greater or lower quorum requirement or a
greater voting requirement for the board of directors may be amended or
repealed by shareholders, only if originally adopted by shareholders, or
shareholders or the board of directors if originally adopted by the board
of directors. A bylaw fixing a greater or lower quorum requirement or a
greater voting requirement for the board of directors may provide that it
may be amended or repealed only be a specified vote of either shareholders
or the board of directors. Action by the board of directors to adopt or
amend a bylaw changing the quorum or voting requirements for the board of
directors must meet the same quorum and voting requirements then in
effect, unless a different voting requirement is specified by the WBCL.
The WPS Bylaws provide that the Board of Directors shall have
authority to adopt, amend, or repeal the Bylaws upon affirmative vote of a
majority of the total number of directors at a meeting of the Board, the
notice of which shall have included notice of the proposed amendment; but
the Board of Directors shall have no power to amend any bylaw or to
reinstate any bylaw repealed by the shareholders unless the shareholders
confer such authority upon the Board of Directors. The WPS Bylaws further
provide that by the affirmative vote of a majority of shareholders
entitled to vote thereon, the shareholders have power to adopt, amend, or
repeal any of the WPS Bylaws, at any regular or special meeting of the
shareholders, provided, however, that the holders of at least 5% of the
voting stock or the Board of Directors include in the notice of such
regular or special meetings a statement of the nature of any amendment
that is proposed for the consideration of the shareholders.
The WPS Articles further limit the authority of the Board of
Directors to amend certain bylaws covering the power, number, term and
qualification of the members of the Board. Specifically, the WPS Articles
provide that any amendment alteration, change or repeal of these bylaws
must have the affirmative vote of shareholders possessing at least three-
fourths of the voting power of the then outstanding shares of all classes
generally possessing voting rights in elections for Directors, considered
for this purpose as one class; provided, however, that the Board of
Directors, by a resolution adopted by the affirmative vote of at least
two-thirds of the Directors then in office plus one Director, may amend,
alter, change or repeal such bylaws without the vote of shareholders.
TAKEOVER STATUTES AND RELATED PROVISIONS
Sections 180.1140 to 180.1144 of the WBCL (the "Wisconsin
Business Combination Statute") regulate a broad range of "business
combinations between a Wisconsin corporation and an "interested
stockholder." The Wisconsin Business Combination Statute defines a
"business combination" to include a merger or a share exchange, sale,
lease exchange, mortgage pledge transfer, or other disposition of assets
equal to at least 5% of the market value of the stock or assets of a
corporation or 10% of its earning power, or issuance of stock or rights to
purchase stock with a market value equal to at least 5% of the outstanding
stock, adoption of a plan of liquidation, and certain other transactions
involving an "interested stockholder." An "interested stockholder" is
defined as a person who beneficially owns, directly or indirectly, 10% of
the voting power of the outstanding voting stock of a corporation or who
is an affiliate or associate of the corporation and beneficially owned
10% of the voting power of the then outstanding voting stock within the
last three years. The Wisconsin Business Combination Statute prohibits a
corporation from engaging in a business combination (other than a business
combination of a type specifically excluded from the coverage of the
statue) with an interested stockholder for a period of three years
following the date such person becomes an interested stockholder, unless
the board of directors approved the business combination or the
acquisition of the stock that resulted in a person becoming an interested
stockholder before such acquisition. Business combinations after the
three-year period following the stock acquisition date are permitted only
if (a) the board of directors approved the acquisition of the stock prior
to the acquisition date, (b) the business combination is approved by a
majority of the outstanding voting stock not beneficially owned by the
interested stockholder, or (c) the consideration to be received by
shareholders meets certain requirements of the Wisconsin Business
Combination Statute with respect to form and amount.
In addition, the WBCL provides that certain mergers, share
exchange or sales, leases, exchanges or other dispositions of assets in a
transaction involving a "significant shareholder" are subject to a
supermajority vote of shareholders, in addition to any approval otherwise
required (the "Wisconsin Fair Price Statute"). A "significant
shareholder" is defined as a person who beneficially owns, directly or
indirectly, 10% or more of the voting stock of a corporation or an
affiliate of the corporation which beneficially owned, directly or
indirectly, 10% or more of the voting stock of a corporation within the
last two years. Certain transactions with a significant shareholder must
be approved by 80% of the voting power of the corporations' stock and at
least two-thirds of the voting power of the corporation's stock not
beneficially held by the significant shareholder must be approved by 80%
of the voting power of the corporation's stock and at least two-thirds of
the voting power of the corporation stock not beneficially held by the
significant shareholder who is a party to the relevant transaction or any
of its affiliates or associates, in each case voting together as a single
group, unless the following fair price standards have been met: (a) the
aggregate value of the per share consideration is equal to the higher of
(i) the highest price paid for any common shares of the corporation by the
significant shareholder in the transaction in which it became a
significant shareholder or within two years before the date of the
transaction, (ii) the market value of the corporation's shares on the date
of commencement of any tender offer by the significant shareholder, the
date on which the person became a significant shareholder or the date of
the first public announcement of the proposed transaction, whichever is
higher, or (iii) the highest liquidation or dissolution distribution to
which holders of the shares would be entitled, and (b) either cash, or the
form of consideration used by the significant shareholder to acquire the
largest number of shares, if offered.
Under Section 180.1150 (the "Wisconsin Control Share Statute")
of the WBCL the voting power of shares, including shares issuable upon
conversion of securities or exercise of options or warrants of an "issuing
public corporation" held by any person or persons acting as a group in
excess of 20% of the voting power in the election of directors is limited
to 10% of the fully voting power of those shares. This restriction does
not apply to shares acquired directly from the issuing public corporation
in certain specified transactions, or in a transaction in which the
corporation's shareholders have approved restoration of the full voting
power of the otherwise restricted shares.
Finally, Section 180.1134 (the "Wisconsin Defensive Action
Restrictions") of the WBCL provides that, in addition to the vote
otherwise required by law or the articles of incorporation of an issuing
public corporation, the approval of the holders of a majority of the
shares entitled to vote is required before such corporation can take
certain action while a takeover offer is being made or after a takeover
offer has been publicly announced and before it is concluded. Under the
Wisconsin Defensive Action Restrictions, shareholder approval is required
for the corporation to (a) acquire more than 5% of the outstanding voting
shares at a price above the market price from any individual or
organization that owns more than 3% of the outstanding voting shares and
has held such shares for less than two years, unless a similar offer is
made to acquire all voting shares or (b) sell or option assets of the
corporation which amount to at least 10% of the market value of the
corporation, unless the corporation has at least three independent
directors or a majority of the independent directors vote not to have this
provision apply to the corporation. The restrictions described in clause
(a) above may have the effect of deterring a shareholder from acquiring
shares of WPS with the goal of seeking to have WPS repurchase such shares
at a premium over the market price.
Chapter 7A of the MBCA (the "Michigan Fair Price Act")
establishes supermajority and fair price provisions for certain "business
combinations." The provisions of the Michigan Fair Price Act apply to any
Michigan corporation that: (i) has one hundred or more beneficial owners
of its common stock; and (ii) did not have any beneficial owner of
10 percent or more of a class of common stock at the time the Fair Price
Act became effective.
The Michigan Fair Price Act provides that a supermajority vote
of 90 percent of the shareholders and no less than 2/3 of the votes of
noninterested shareholders must approve a "business combination." The
Michigan Fair Price Act defines a "business combination" to encompass any
merger, consolidation, share exchange, sale of assets, stock issue,
liquidation or reclassification of securities involving an "interested
shareholder" or certain "affiliates." An "interested shareholder" is
generally any person who beneficially owns 10 percent or more of the
outstanding voting shares of the corporation. An "affiliate" is a person
who directly or indirectly controls, is controlled by, or is under common
control with a specified person.
The supermajority vote required by the Michigan Fair Price Act
does not apply to business combinations that satisfy certain conditions.
These conditions include, among others, that: (i) the purchase price to be
paid for the shares of the corporation is at least equal to the highest of
either (a) the market value of the shares or (b) the highest per share
price paid by the interested shareholder within the preceding two-year
period or in the transaction in which the shareholder became an interested
shareholder; (ii) once becoming an interested shareholder, the person does
not become the beneficial owner of any additional shares of the
corporation except as part of the transaction which resulted in the
interested shareholder becoming an interested shareholder or by virtue of
proportionate stock splits or stock dividends; (iii) once becoming an
interested shareholder, the person does not receive the benefit, directly
or indirectly, except proportionately as a shareholder, of any loans,
advances, guarantees, pledges or other financial assistance provided by
the corporation or any of its subsidiaries; and (iv) there has been at
least five years between the date the person became an interested
shareholder and the date the business combination is consummated.
The requirements of the Michigan Fair Price Act do not apply to
business combinations with an interested shareholder that the board of
directors has approved or exempted, specifically, generally or generally
by types, from the requirements of the Michigan Fair Price Act by
resolution prior to the time that the interested shareholder first became
an interested shareholder.
As is the case under the WBCL, the MBCA contains a control share
statute (the "Michigan Control Share Act") which denies voting rights to
"control shares" acquired in "control share acquisitions" unless the
corporation's shareholders approve a resolution granting such rights which
resolution must be approved by a majority of (a) all outstanding shares
entitled to vote on the resolution and (b) all such shares excluding those
which may be voted by the acquiring person, any officer of the corporation
or any employee of the corporation who is also a director. "Control
shares" are shares of an "issuing public corporation" which, when added to
all other shares owned or which may be voted by a person, would entitle
that person alone or as part of a group to control voting power in the
election of directors within any of the following ranges: 1/5 or more but
less than 1/3 of the voting power; 1/3 or more but less than a majority
and a majority or more. A "control share acquisition" is the acquisition
of ownership or the power to direct the voting of control shares. Shares
acquired within a 90-day period or pursuant to a plan to make a control
share acquisition, are considered to be acquired in the same acquisition.
However, if voting rights for control shares have previously been
authorized by shareholders under the Michigan Control Share Act, or if
previous acquisitions were exempt from such Act, additional acquisitions
of shares by the same person will not constitute control share
acquisitions until the next threshold level is passed. Procedures for
making a control share acquisition are set forth in the Michigan Control
Share Act.
Neither the governing documents of WPS or UPEN contain any
provisions exempting or modifying the application of any of the takeover
statutes and related provisions discussed under this heading.
CERTAIN OTHER SUPERMAJORITY VOTING PROVISIONS
In addition to the supermajority voting provisions previously
described, the WPS Restated Article also contain certain other
supermajority voting provisions requiring the affirmative vote of not less
than three-fourths of the voting power of the then outstanding shares of
all classes possessing voting rights in election for directors to effect
any change, amendment, alteration or repeal of the provisions of Article 5
of the WPS Articles or Article III, Sections 1, 2, 3 and 4 of the WPS
Bylaws relating to the general powers, number and classification of
Directors; provided that the Board of Directors may make such change,
amendment, alteration or repeal of Article III, Sections 1, 2, 3 and 4
with the affirmative vote of at least two-thirds of the Directors then in
office plus one Director, without the vote of shareholders. The UPEN
Bylaws do not contain similar supermajority voting provisions.
RIGHTS PLAN
On December 12, 1996, WPS declared a dividend of one common
share purchase right (a "Right") for each outstanding share of common
stock, $1.00 par value (the "Common Shares"), of WPS which dividend was
paid on December 16, 1996 to the shareholders of record on that date (the
"Record Date"). Each Right entitles the registered holder to purchase from
WPS one Common Share of WPS at a price of $85 per Common Share, subject to
adjustment (the "Purchase Price"). The description and terms of the Rights
are set forth in a Rights Agreement (the "Rights Agreement") between WPS
and Firstar Trust Company, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons
(other than WPS, a subsidiary of WPS or of an employee benefit plan of WPS
or a subsidiary) (an "Acquiring Person") has acquired beneficial ownership
of 15% or more of the outstanding Common Shares (the "Shares Acquisition
Date") or (ii) 10 business days (or such later date as may be determined
by action of WPS's Board of Directors prior to such time as any person
becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person
or group (other than WPS, a subsidiary of WPS or an employee benefit plan
of WPS or of a subsidiary) of 15% or more of such outstanding Common
Shares (the earlier of such dates being called the "Distribution Date"),
the Rights will be evidenced, with respect to any of the Common Share
certificates outstanding as of the Record Date, by such Common Share
certificate. Any person or group of affiliates or associated persons who,
at the close of business on December 12, 1996, was the beneficial owner of
at least 3,584,545 Common Shares (which number of shares constituted 15%
of the number of Common Shares outstanding on such date) will not be
deemed an "Acquiring Person" unless such person or group of affiliated or
associated persons acquires beneficial ownership of additional Common
Shares at any time that such person or group of affiliated or associated
persons is or thereby becomes the beneficial owner of 15% or more of the
Common Shares then outstanding.
The Rights Agreement provides that, until the Distribution Date,
the Rights will be transferred with and only with the Common Shares. Until
the Distribution Date (or earlier redemption or expiration of the Rights),
new Common Share certificates issued after the Record Date, upon transfer
or new issuance of Common Shares, will contain a notation incorporating
the Rights Agreement by reference. Until the Distribution Date (or earlier
redemption or expiration of the Rights), the surrender for transfer of any
certificates for Common Shares, outstanding as of the Record Date, even
without such notation, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate. As soon
as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of
record of the Common Shares as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence
the Rights.
The Rights are not exercisable until the Distribution Date. The
Rights will expire on December 11, 2006 (the "Final Expiration Date"),
unless the Rights are earlier redeemed or exchanged by WPS, in each case
as described below.
The Purchase Price payable, and the number of Common Shares or
other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the
event of a stock dividend on, or a subdivision, combination or
reclassification of, the Common Shares, (ii) upon the grant to holders of
the Common Shares of certain rights or warrants to subscribe for or
purchase Common Shares at a price, or securities convertible into
Preferred Shares with a conversion price, less than the then current
market price of the Common Shares or (iii) upon the distribution to
holders of the Common Shares of evidences of indebtedness or assets
(excluding regular quarterly cash dividends or dividends payable in Common
Shares) or of subscription rights or warrants (other than those referred
to above).
In the event that any person becomes an Acquiring Person (a
"Flip-In Event"), each holder of a Right (other than the Acquiring Person)
will thereafter have the right to receive upon exercise that number of
Common Shares (or, in certain circumstances cash, property or other
securities of WPS or a reduction in the Purchase Price) having a market
value of two times the then current Purchase Price. Notwithstanding any of
the foregoing, following the occurrence of a Flip-In Event all Rights that
are, or (under certain circumstances specified in the Rights Agreement)
were, or subsequently become beneficially owned by an Acquiring Person,
related persons and transferees will be null and void. For example, if at
the time of such transaction the Common Shares were trading at $34 per
share and the exercise price of the Rights at such time were $85 per
Right, each Right would thereafter be exercisable at $85 for 5 Common
Shares (i.e., the number of shares that could be purchased in the open
market for $170, or two times the exercise price of the Rights).
In the event that, at any time following the Shares Acquisition
Date, (i) WPS is acquired in a merger or other business combination
transaction or (ii) 50% or more of its consolidated assets or earning
power are sold (the events described in clauses (i) and (ii) are herein
referred to as "Flip-Over Events"), proper provision will be made so that
each holder of a Right will thereafter have the right to receive, upon the
exercise thereof at the then current Purchase Price, that number of shares
of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the then current
Purchase Price. For example, if at the time of such transaction the
acquiring company's common stock were trading at $40 per share and the
exercise price of the Rights at such time were $85 per Right, each Right
would thereafter be exercisable at $85 for 4.25 shares (i.e., the number
of shares that could be purchased for $170 in the open market, or two
times the exercise price of the Rights) of the acquiring company's common
stock.
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at
least 1% in such Purchase Price. No fractional Common Shares will be
issued. In lieu thereof, an adjustment in cash will be made based on the
market price of the Common Shares on the last trading day prior to the
date of exercise.
The Purchase Price is payable by certified check, cashier's check, bank
draft or money order or, if so provided by WPS, the Purchase Price
following the occurrence of a Flip-In Event and until the first occurrence
of a Flip-Over Event may be paid in Common Shares having an equivalent
value.
At any time after a person becomes an Acquiring Person and prior
to the acquisition by any Acquiring Person of 50% or more of the
outstanding Common Shares, the Board of Directors of WPS may exchange the
Rights (other than Rights owned by any Acquiring Person which have become
void), in whole or in part, at an exchange ratio of one Common Share, (or
of a share of a class or series of preferred stock of WPS having
equivalent rights, preferences and privileges), per Right (subject to
adjustment).
At any time prior to a person becoming an Acquiring Person, the
Board of Directors of WPS may redeem the Rights in whole, but not in part,
at a price of $.001 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the
Rights will terminate and the only right of the holders of Rights will be
to receive the Redemption Price.
Other than provisions relating to the Redemption Price or Final
Expiration Date, the terms of the Rights may be amended by the Board of
Directors of WPS without the consent of the holders of the Rights,
including an amendment to lower the threshold for exercisability of the
Rights from 15% to not less than 10%, with appropriate exceptions for any
person then beneficially owning a percentage of the number of Common
Shares then outstanding equal to or in excess of the new threshold, except
that from and after the Distribution Date no such amendment may adversely
affect the interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a shareholder of WPS, including, without limitation, the
right to vote or to receive dividends. While distribution of the Rights
will not constitute a taxable event to the shareholders or WPS, the
shareholders may, depending on the circumstances, recognize taxable income
in the event that the Rights become exercisable for Common Shares (or
other consideration) of WPS or for common stock of the acquiring company,
as set forth above.
As of December 12, 1996, there were 23,896,962 Common Shares
issued and outstanding. Each outstanding Common Share on December 16, 1996
received one Right. As long as the Rights are attached to the Common
Shares, WPS will issue one Right for each Common Share which becomes
outstanding between December 16, 1996 and the Distribution Date so that
all such shares will have attached Rights.
The Rights have certain anti-takeover effects. The Rights will
cause substantial dilution to a person or group that attempts to acquire
WPS without conditioning the offer on redemption of the Rights or on a
substantial number of Rights being acquired. The Rights should not
interfere with any merger or other business combination approved by the
Board of Directors of WPS prior to the time that the Rights may not be
redeemed (as described above) since the Board of Directors may, at its
option, at any time until the Shares Acquisition Date redeem all but not
less than all the then outstanding Rights at $.001 per Right. The Rights
are designed to provide additional protection against abusive takeover
tactics such as offers for all shares at less than full value or at an
inappropriate time (in terms of maximizing long-term shareholder value),
partial tender offers and selective open-market purchases. The Rights are
intended to assure that WPS's Board of Directors has the ability to
protect shareholders and WPS if efforts are made to gain control of WPS in
a manner that is not in the best interests of WPS and its shareholders.
The Rights Agreement is attached as Exhibit 4.1 to WPS's Form 8-
A filed December 13, 1996 (File No. 1-11337), which form is incorporated
by reference in the Registration Statement of which this Proxy
Statement/Prospectus forms a part. The foregoing description of the
Rights does not purport to be complete and is qualified in its entirety by
reference to the Rights Agreement and the form of Rights Certificate
attached thereto.
UPEN does not have a shareholders rights plan at the date of
this Proxy Statement/Prospectus.
INSPECTION OF BOOKS, RECORDS AND STOCKHOLDERS LIST
The MBCA permits any shareholder, upon five business days' prior
written request, to inspect and copy during regular business hours various
corporate books and records of the corporation; provided, that such
request meets the requirements specified by law. The UPEN Bylaws provide
that at least ten days before every election of Directors, a complete list
of the Shareholders entitled to vote at said election shall be open at the
place where said election is to be held for examination by any registered
shareholder entitled to vote at such election and holding in the aggregate
at least two percent of the outstanding capital stock. Additionally, any
registered shareholder may inspect the list at the time and place of the
election.
The WBCL permits any shareholder, upon five business days' prior
written request, to inspect and copy during regular business hours at the
corporation's principal office, the corporation's bylaws, as then in
effect; provided, that such request meets the requirements specified by
law. A shareholder who has been the shareholder of record for at least
six months or a person holding at least 5% of all outstanding shares, upon
five days' prior written request, may inspect and copy, during regular
business hours at a reasonable location specified by the corporation, any
excerpts of minutes or records that the corporation is required to keep as
permanent records by law, the accounting records of the corporation and
the record of shareholders. The WPS Bylaws provide that the shareholders'
list must be available for inspection by any shareholder beginning two
business days after notice of the meeting is given for which the list was
prepared and continuing to be available up to and through such meeting at
the corporation's principal office or at a place identified in the notice
of such meeting located in the city where the meeting will be held.
LIABILITY OF SHAREHOLDERS
The WBCL provides that the shareholders of every corporation are
personally liable to an amount equal to the par value of shares owned by
them respectively, and to the consideration for which their shares without
par value were issued, for all debts owing to employees of the corporation
for services performed for such corporation, but not exceeding six months'
services in any one case.
The MBCA provides that unless otherwise provided in the articles
of incorporation, a shareholder is not personally liable for the acts or
debts of the corporation except that he or she may become personally
liable by reason of his or her own acts or conduct. The UPEN Articles do
not contain provisions making UPEN shareholders personally liable for any
of the debts or acts of UPEN.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN SHAREHOLDERS OF UPEN
To the knowledge of UPEN, no person, firm, corporation, or group
owned, of record or beneficially, more than five percent of the
outstanding Common Stock of UPEN on November 20, 1997.
The following table sets forth certain information regarding the
beneficial ownership of the UPEN Common Stock as of July 17, 1997 by:
(a) UPEN Directors; (b) UPEN's Chief Executive Officer and certain other
Executive Officers and (c) the Executive Officers and Directors of UPEN as
a group. Except as otherwise described in the notes below, the following
beneficial owners have sole voting power and sole investment power with
respect to all common stock set forth opposite their names:
Number of
Name of Beneficial Common Stock Shares Percent(b)
Owner Beneficially Owned(a) of Class
Clarence R. Fisher 5,859 *
Samuel S. Benedict 800 *
Rodger T. Ederer 452 *
Thomas M. Strong 285 *
Leonard Angeli 140 *
Robert A. Ubbelohde 100 *
Neil D. Nelson 1,677(c) *
Burton C. Arola 2,081 *
Executive Officers and
Directors as a
Group -- (8 persons) 11,394 *
(a) Each of the beneficial owners identified above has sole voting and
investment power as to all of the shares shown in this column as
beneficially owned, with the exception of those held by certain
officers and Directors jointly with their spouses or directly by
their spouses, minor children, or certain other relatives or
relatives of their spouses.
(b) Asterisk indicates less than one percent.
(c) Mr. Nelson's spouse owns sole voting and investment power as to 1,507
shares. Mr. Nelson disclaims any beneficial interest in said shares.
CERTAIN SHAREHOLDERS OF WPS
The information required herein is hereby incorporated by
reference to WPS' annual report on Form 10-K for the fiscal year ended
December 31, 1996.
MANAGEMENT OF THE SURVIVING CORPORATION AND EXECUTIVE COMPENSATION
The Merger Agreement provides that the WPS Board will take such
action as is necessary to increase the size of the WPS Board by one
director as of the Effective Time, and that the UPEN Board will designate
a person, acceptable to the WPS Board, to fill such position. The Fisher
Employment Contract provides that Mr. Fisher may terminate the Fisher
Employment Contract if, among other things, he is not the designee elected
to the Board of Directors of WPS for the period commencing with the
Effective Time and ending on the third anniversary of the Effective Time.
The information required herein is hereby incorporated by
reference to (i) WPS's annual report on Form 10-K for the fiscal year
ended December 31, 1996; (ii) the UPEN 1996 10-K and (iii) the portions of
UPEN's Proxy Statement filed in connection with UPEN's Annual Meeting of
Stockholders held on April 22, 1997 that have been incorporated by
reference into the UPEN 1996 10-K.
LEGAL MATTERS
Certain legal matters with respect to the validity of the
securities offered hereby and the Merger will be passed upon for WPS by
Foley & Lardner, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
Certain legal matters in connection with the Merger will be passed upon
for UPEN by Reid & Priest LLP, 40 West 57th Street, New York, New York
10019.
ACCOUNTANTS REPRESENTATIVES
It is expected that representatives of Deloitte & Touche LLP,
UPEN's independent accountants, will be present at the UPEN Special
Meeting to respond to appropriate questions of shareholders and to make a
statement if they desire.
EXPERTS
The consolidated financial statements incorporated by reference
in this Proxy Statement/Prospectus from the Annual Report on Form 10-K of
WPS for the year ended December 31, 1996, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
with respect thereto, and is incorporated herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving
said reports.
The consolidated financial statements included and incorporated
in this Proxy Statement/Prospectus by reference to the Annual Report on
Form 10-K of UPEN for the year ended December 31, 1996 have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
which are included and incorporated herein by reference from the Annual
Report, and have been so included and incorporated in reliance on the
reports of such firm given on their authority as experts in auditing and
accounting.
OTHER MATTERS
It is not expected that any matters other than those described
in this Proxy Statement/Prospectus will be brought before the Special
Meeting. If any other matters are presented, however, it is the intention
of the persons named in the UPEN proxy to vote the proxy in accordance
with the discretion of the persons named in such proxy.
<PAGE>
INDEX TO UPEN FINANCIAL STATEMENTS
Page
Audited Year End Financial Statements
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . F-4
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Changes in Common Equity . . . . . . . . . F-7
Consolidated Statements of Capitalization . . . . . . . . . . . . . . F-8
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-9
Unaudited Interim Financial Statements
Consolidated Statements of Income for Nine Months Ended
September 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . F-18
Consolidated Statements of Cash Flow for Nine Months Ended
September 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . F-19
Consolidated Balance Sheets at September 30, 1997 and December 31,
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-20
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of Upper Peninsula Energy Corporation
We have audited the accompanying consolidated balance sheets and
statements of capitalization of Upper Peninsula Energy Corporation
("UPEN") and its subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in common equity and
cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of UPEN's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of UPEN and its subsidiaries
as of December 31, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Chicago, Illinois
February 7, 1997
<PAGE>
UPPER PENINSULA ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
Year Ended December 31 1996 1995 1994
Operating Revenues . . . . . . . . $58,302 $61,105 $62,530
------- -------- -------
Operating Expenses:
Operation - Power Supply Costs . 18,245 19,973 20,168
- Other . . . . . . . . 14,863 14,622 16,064
Maintenance . . . . . . . . . . . 2,976 3,897 4,005
Depreciation and Amortization . . 5,584 5,718 5,514
Federal Income Tax Expense . . . 2,778 2,745 2,688
Taxes Other Than Federal Income
Taxes . . . . . . . . . . . . . 4,803 4,634 4,514
------- -------- -------
Total . . . . . . . . . . 49,249 51,589 52,953
------- -------- -------
Operating Income . . . . . . . . . 9,053 9,516 9,577
------- -------- -------
Other Income (Deductions):
Interest Income . . . . . . . . . 84 57 46
Allowance for Equity Funds Used
During Construction . . . . . . 116 10 8
Other . . . . . . . . . . . . . . 97 (285) (181)
Federal Income Taxes . . . . . . (80) 59 57
------- -------- -------
Total . . . . . . . . . . 217 (159) (70)
------- -------- -------
Income Before Interest Charges . . 9,270 9,357 9,507
Interest Charges:
Interest on Long-Term Debt . . . 3,887 3,905 3,922
Amortization of Debt Expense . . 75 75 75
Other Interest Expense . . . . . 326 73 60
Allowance for Borrowed Funds Used
During Construction . . . . . . (171) (12) (10)
------- -------- -------
Total . . . . . . . . . . 4,117 4,041 4,047
------- -------- -------
Income Before Dividends on Preferred
Stock of Subsidiary . . . . . . . 5,153 5,316 5,460
Dividends on Preferred Stock of
Subsidiary . . . . . . . . . . . 23 25 29
------- -------- -------
Net Income . . . . . . . . . . . . $ 5,130 $ 5,291 $ 5,431
======= ======= =======
Average Number of Common Shares
Outstanding . . . . . . . . . . . 2,969,215 2,969,215 2,981,996
Earnings Per Common Share . . . . . $1.73 $1.78 $1.82
The accompanying notes are an integral part of these financial statements.
<PAGE>
UPPER PENINSULA ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Year Ended December 31 1996 1995 1994
Cash Flows from Operating Activities:
Net Income . . . . . . . . . . . . $ 5,130 $ 5,291 $ 5,431
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and Amortization . . . 5,584 5,718 5,514
Dividends on Preferred Stock of
Subsidiary . . . . . . . . . . . . 23 25 29
Allowance for Equity Funds Used
During Construction . . . . . . . (116) (10) (8)
Deferred Federal Income Taxes . . . 136 658 207
Investment Tax Credit . . . . . . . (183) (184) (183)
Prepaid and Accrued Pension . . . . (540) 308 (1,277)
Other . . . . . . . . . . . . . . . 1,716 798 1,929
Changes in Current Assets and
Liabilities:
Accounts Receivable . . . . . . . . 350 (600) 751
Inventories . . . . . . . . . . . . 135 87 110
Prepayments . . . . . . . . . . . . 55 268 (110)
Accrued Ad Valorem Taxes . . . . . (200) (140) (255)
Accounts Payable and Accrued
Accounts . . . . . . . . . . . . . (615) 882 (1,086)
Cash Flows from Operating Activities 11,475 13,101 11,052
------ ------- -------
Cash Flows from Investing Activities:
Plant and Property Additions
(excluding Allowance for Funds
Used During Construction) . . . . (13,010) (9,560) (7,586)
Allowance for Borrowed Funds Used
During Construction . . . . . . . (171) (12) (10)
Other-Net . . . . . . . . . . . . . 250 78 (142)
------ ------- -------
Cash Flows from Investing Activities (12,931) (9,494) (7,738)
------- ------- -------
Cash Flows from Financing Activities:
Repurchase of Common Stock . . . . (443)
Issuance of Common Stock . . . . . (8)
Retirement of Long-Term Debt and
Preferred Stock . . . . . . . . . (272) (282) (287)
Dividends . . . . . . . . . . . . . (3,757) (3,663) (3,565)
Increase in Notes Payable . . . . . 4,300 700
------ ------- -------
Cash Flows from Financing Activities 271 (3,245) (4,303)
------- ------- -------
Net Increase (Decrease) in Cash and
Cash Equivalents . . . . . . . . . . (1,185) 362 (989)
Cash and Cash Equivalents at the
Beginning of the Year . . . . . . . . 3,249 2,887 3,876
------- ------ ------
Cash and Cash Equivalents at the End
of the Year . . . . . . . . . . . . . $ 2,064 $ 3,249 $ 2,887
======= ====== ======
Supplemental Cash Flow Information:
Interest Paid . . . . . . . . . . . $ 4,163 $ 4,077 $ 4,005
Income Taxes Paid . . . . . . . . . $ 2,475 $ 2,150 $ 2,986
The accompanying notes are an integral part of these financial statements.
<PAGE>
UPPER PENINSULA ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31 1996 1995
ASSETS
Utility Plant:
Electric Plant in Service:
Production . . . . . . . . . . . . . $ 35,556 $ 35,766
Transmission . . . . . . . . . . . . 43,960 43,319
Distribution . . . . . . . . . . . . 71,175 68,268
General . . . . . . . . . . . . . . . 14,695 15,153
------- -------
Total Electric Plant in Service . . 165,386 162,506
Less Accumulated Depreciation and
Amortization . . . . . . . . . . . . . . 75,970 71,736
-------- --------
Net Electric Plant in Service . . . 89,416 90,770
Construction Work in Progress . . . . . . 14,526 10,045
-------- --------
Net Utility Plant . . . . . . . . . 103,942 100,815
-------- --------
Other Property and Investments . . . . . 9,942 5,726
-------- --------
Current Assets:
Cash and Cash Equivalents . . . . . . . 2,064 3,249
Accounts Receivable:
Electric (less allowance for doubtful
accounts of $65 in 1996 and $86 in
1995) . . . . . . . . . . . . . . . 4,492 4,540
Other . . . . . . . . . . . . . . . . 1,984 1,655
Revenue Receivable - Power Supply Cost
Recovery - Net . . . . . . . . . . . 631
Inventories - at average cost:
Materials and Supplies . . . . . . . 2,030 2,176
Fuel . . . . . . . . . . . . . . . . 274 263
Prepayments . . . . . . . . . . . . . . 305 360
Accrued Ad Valorem Taxes . . . . . . . 3,640 3,440
Deferred Federal Income Taxes . . . . . 1,227 1,219
-------- --------
Total . . . . . . . . . . . . . . . 16,016 17,533
-------- --------
Deferred Debits and Other Assets:
Unamortized Debt Expense . . . . . . . 508 550
Intangible Pension Plan Asset . . . . . 1,595 1,821
Other . . . . . . . . . . . . . . . . . 1,675 1,939
-------- --------
Total . . . . . . . . . . . . . . . 3,778 4,310
-------- --------
$ 133,678 $ 128,384
========= =======
The accompanying notes are an integral part of these financial
statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS (cont'd)
(Thousands of Dollars)
December 31 1996 1995
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock Equity . . . . . . . . . . $ 43,118 $ 41,737
Redeemable Preferred Stock (of Upper
Peninsula Power Company . . . . . . . 456 503
Long-Term Debt, less current maturities 43,266 43,508
-------- ---------
Total . . . . . . . . . . . . . . . 86,840 85,748
-------- ---------
Current Liabilities:
Long-Term Debt Due Within One Year . . 242 225
Notes Payable . . . . . . . . . . . . . 5,000 700
Accounts Payable . . . . . . . . . . . 4,182 5,318
Accrued Accounts:
Taxes - Ad Valorem . . . . . . . . . 6,212 5,806
- Other . . . . . . . . . . . . 27 147
Wages and Benefits . . . . . . . . . 2,934 3,324
Interest . . . . . . . . . . . . . . 965 871
Dividends . . . . . . . . . . . . . . 4 4
Revenue Payable - Power Supply Cost
Recovery - Net . . . . . . . . . . . 531
-------- --------
Total . . . . . . . . . . . . . . . 20,097 16,395
-------- --------
Deferred Credits:
Deferred Federal Income Taxes . . . . . 6,923 6,779
Unamortized Investment Tax Credit . . . 2,742 2,925
Customer Advances for Construction . . 1,591 1,283
Accrued Pension . . . . . . . . . . . . 3,303 4,069
Regulatory Liabilities . . . . . . . . 5,904 5,355
Postretirement Health and Life . . . . 3,780 2,883
Other . . . . . . . . . . . . . . . . . 2,498 2,947
-------- --------
Total . . . . . . . . . . . . . . . 26,741 26,241
-------- --------
Commitments and Contingencies . . . . . . $ 133,678 $ 128,384
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY
(Thousands of Dollars)
Common Common Total
Stock Stock Paid-In Retained Common
Shares Par Value Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 . . . . . 2,994,215 $ 15 $22,046 $16,636 $38,697
Stock Purchase Plan for
Employees-Cost of Market
Repurchase . . . . . . . . . . . . (8) (8)
Repurchase of Common Stock . . . . . (25,000) (443) (443)
Discount on the Purchase of
Redeemable Preferred Stock . . . . 1 1
Net income . . . . . . . . . . . . . 5,431 5,431
Common Dividends - $1.19
per share . . . . . . . . . . . . . (3,536) (3,536)
--------- -------- -------- --------- --------
Balance at December 31, 1994 . . . . . 2,969,215 15 21,596 18,531 40,142
Stock Purchase Plan for
Employees-Cost of
Market Repurchase . . . . . . . . (60) (60)
Discount on the Purchase of
Redeemable Preferred Stock . . . . 1 1
Net Income . . . . . . . . . . . . . 5,291 5,291
Common Dividends - $1.23
per share . . . . . . . . . . . . . (3,637) (3,637)
--------- -------- -------- --------- --------
Balance at December 31, 1995 . . . . . 2,969,215 15 21,537 20,185 41,737
Stock Purchase Plan for
Employees-Cost of Market
Repurchase . . . . . . . . . . . (15) (15)
Change to No Par Value
Common Stock . . . . . . . . . . . (15) 15
Net Income . . . . . . . . . . . . . 5,130 5,130
Common Dividends - $1.26
per share . . . . . . . . . . . . . (3,734) (3,734)
--------- -------- -------- --------- --------
Balance at December 31, 1996 . . . . . 2,969,215 $0 $21,537 $21,581 $43,118
========= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Thousands of Dollars)
December 31 1996 1995
COMMON STOCK EQUITY
Common Stock - No Par Value in 1996 and
$ .005 par value in 1995, authorized
5,000,000 shares, issued and outstanding:
2,969,215 shares (a) . . . . . . . . . .$ 0 $ 15
Paid-In Capital . . . . . . . . . . . . . . 21,537 21,537
Retained Earnings . . . . . . . . . . . . . 21,581 20,185
------- -------
Total Common Stock Equity . . . . . . . 43,118 41,737
------- -------
PREFERRED STOCK-UPPER PENINSULA POWER COMPANY
Cumulative Redeemable Preferred Stock -
$100 Par Value, authorized 300,000 shares
(issuable in series), issued and
outstanding:
5-1/4% Series - 964 shares in 1996
and 979 shares in 1995 . . . . . . 96 98
4.70% Series - 3,600 shares in 1996
and 4,050 shares in 1995 . . . . . 360 405
------- -------
Total Preferred Stock . . . . . . . . 456 503
------- -------
LONG-TERM DEBT
UPPER PENINSULA POWER COMPANY
First Mortgage Bonds:
7.94% Series due 2003 . . . . . . . . . 15,000 15,000
10% Series due 2008 . . . . . . . . . . 6,000 6,000
9.32% Series due 2021 . . . . . . . . . 18,000 18,000
Installment Sales Contract for Air
Pollution Control Equipment:
6.90% Term Bonds due 1999 . . . . . . 335 435
UPPER PENINSULA BUILDING DEVELOPMENT COMPANY
Senior Secured Note:
9.25% Note due 2011 . . . . . . . . . . . 4,173 4,298
-------- --------
Total . . . . . . . . . . . . . . . . . 43,508 43,733
Less - Amounts due within one year . 242 225
-------- --------
Total Long-Term Debt . . . . . . . . . . 43,266 43,508
-------- --------
TOTAL CAPITALIZATION . . . . . . . . . . . . $ 86,840 $ 85,748
======== ========
(a) Common Stock Changed to No Par Value in July 1996.
The accompanying notes are an integral part of these financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF UPPER PENINSULA ENERGY
CORPORATION
1. Summary of Significant Accounting Policies
General
The consolidated financial statements include the accounts of Upper
Peninsula Energy Corporation (UPEN), a holding Company incorporated in
1988 under the laws of the State of Michigan, and its wholly owned
subsidiaries (Company). All significant intercompany balances and
transactions have been eliminated in consolidation.
UPEN's principal subsidiary, Upper Peninsula Power Company (UPPCO), is the
primary source of earnings. UPPCO, incorporated in 1947 under the laws of
the State of Michigan, is an electric utility engaged in the generation,
purchase, transmission, distribution, and sale of electric energy in the
Upper Peninsula of Michigan.
UPPCO supplies electric energy to approximately 48,000 customers in two-
thirds of Michigan's Upper Peninsula. UPPCO's service territory covers
4,460 square miles and has a population of about 130,000. Its service
area is contiguous except for a small area around the city of Iron River
near the northeastern Wisconsin border.
UPEN has two other subsidiaries. Upper Peninsula Building Development
Company owns the corporate headquarters building and leases it to UPPCO
under a twenty-year renewable lease. PENVEST, Inc., was formed to
investigate opportunities in telecommunications, engineering services, and
other non-regulated businesses.
The accounting records of UPPCO are maintained in accordance with the
Uniform System of Accounts prescribed by the Federal Energy Regulatory
Commission (FERC) and the Michigan Public Service Commission (MPSC).
Utility Plant
Plant is stated at original cost. The cost of property additions,
including replacements of units of property and betterments, is
capitalized. Cost includes contract labor, Company labor, materials,
allowance for funds used during construction, and overheads. Expenditures
for maintenance and repairs of property and costs of replacing items
determined to be less than units of property are charges to operating
expenses. The original cost of property and the cost of removal, less
salvage, are charged to accumulated provision for depreciation when the
property is retired. Substantially all utility property is subject to
lien and collateralized under first mortgage bonds.
Regulatory Assets and Liabilities
UPPCO is subject to the provisions of Statement of Financial Accounting
Standard No. 71 (SFAS 71), "Accounting for the Effects of Certain Types of
Regulation." Regulatory assets represent probable future revenue
associated with certain costs that will be recovered from customers
through the ratemaking process. All regulatory assets are earning a rate
of return. Regulatory liabilities represent amounts previously collected
from customers that are refundable in future rates.
The following regulatory assets and (liabilities) were reflected in the
Consolidated Balance Sheets as of December 31:
(Thousands of Dollars)
1996 1995
Regulatory Assets:
Loss on Reacquired Debt . . . $ 252 $285
Retiree Health Care . . . . . 483 514
Warden Ash Site Groundwater
Monitoring . . . . . . . . 689 754
------ ------
Total $1,424 $1,553
====== ======
Regulatory Liabilities:
Investment Tax Credit . . . . $(1,412) $(1,507)
Tax Rate Changes . . . . . . (4,492) (3,848)
------ ------
Total $(5,904) $(5,355)
====== ======
Based on prior and current rate treatment of costs, management believes it
is probable that UPPCO will continue to recover from ratepayers the
deferred charges described above.
Allowance for Funds Used During Construction (AFUDC)
AFUDC is defined in the applicable regulatory system of accounts as the
net cost, during the period of construction, of borrowed funds used for
construction purposes and a reasonable rate on equity funds when so used.
Allowance for borrowed funds used during construction also includes
interest capitalized on qualifying assets of nonutility subsidiaries. The
cost-of-borrowed-funds element of AFUDC is reported as a reduction of
interest expense, and the noncash equity portion is reported as other
income. AFUDC was capitalized on utility construction at a rate of 8.93%
in 1996, 1995, and 1994, as ordered by the MPSC.
Depreciation and Amortization
For financial statement purposes, the original cost of utility property is
depreciated by the straight-line method over its estimated service life.
UPPCO's depreciation for book purposes, approved by the MPSC and
calculated during each of the years ended December 31, 1996, 1995, and
1994, was equivalent to approximately 3.5% of depreciable plant in 1996
and 3.7% in 1995 and 1994. For income tax purposes, accelerated methods
of depreciation are utilized.
Debt expense is amortized over the lives of the remaining debt issues.
Inventories
All inventories are valued at average cost.
Income Taxes
Deferred federal income taxes are provided for significant temporary
differences between book and taxable income.
Investment tax credits used to offset federal income taxes are being
amortized ratably over the estimated service lives of the related
properties.
Revenue and Expense Recognition
UPPCO utilizes monthly cycle billing and records revenue based on bills
rendered. Revenue is not accrued for energy delivered but unbilled at the
end of the year. Cost of service rendered is recognized as incurred.
UPPCO is required under Public Act 304 to receive MPSC approval each year
to recover projected fuel and purchased-power costs ("power supply costs")
by establishment of power supply cost recovery (PSCR) factors. These
factors are subject to annual reconciliation to actual costs and permit
100% recovery of power supply costs. Any over-or-under-recovery is
deferred on the consolidated balance sheets, and such deferrals are
relieved as refunds or additional billings are made.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Statements of Cash Flows
For purposes of the statements of cash flows, all highly liquid
investments with original maturities of three months or less are
considered to be cash equivalents.
Reclassification
Certain items previously reported have been reclassified to conform to
current presentation in the financial statements.
2. Compensating Balances and Short-Term Borrowings
(Thousands of Dollars)
Short-term borrowings were as
follows:
1996 1995
Maximum amount of short-term
borrowings outstanding during
the year . . . . . . . . . . . . $ 5,800 $ 1,700
======== ========
Average amount outstanding during
the year . . . . . . . . . . . . $ 3,405 $ 495
======== ========
Weighted-average interest rate
during the year . . . . . . . . 8.05% 8.82%
Weighted-average interest rate on
short-term borrowings
outstanding at year-end . . . . 8.00% 8.25%
Notes outstanding at December 31 $ 5,000 $ 700
The Company's unused lines of credit available at December 31, 1996,
totalled $5,500,000. During the past three years, portions of demand
deposits maintained in lending banks were deemed to constitute
compensating balances but were not legally restricted. Because such
compensating amounts are based on average daily balances, cash is not
restricted as of any one day.
3. Other Accounts Receivable
Under contract with Wisconsin Electric Power Company (WEPCO), UPPCO staffs
and operates WEPCO's Presque Isle Power Plant located in Marquette,
Michigan. Under the terms of the contract, UPPCO receives a management
fee plus reimbursement for all costs associated with labor and other
services provided. UPPCO had current receivables from WEPCO at year-end
1996 and 1995 of approximately $1,165,000 and $1,035,000, respectively, in
connection with the above. UPPCO also has other contracts with WEPCO
generally relating to wheeling, dispatching, and transmission maintenance.
In December 1996, WEPCO gave notification of termination of the Presque
Isle Power Plant Operating Agreement effective December 31, 1997. Company
management believes that this action will not have a material adverse
effect on its financial position or results of operations.
4. Common Stock
On December 31, 1996, there were approximately 425 employees eligible to
participate in the employee stock purchase plan. On June 1, 1996, 172
employees purchased 7,424 shares at $17.55 per share, and on December 1,
1996, 159 employees purchased 6,640 shares at $17.10 per share.
A Dividend Reinvestment and Common Stock Purchase Plan (DRIP) provides for
automatic reinvestment of common dividends and allows shareholders
quarterly optional cash payments, within specific limits, for the purchase
of additional shares under the plan. Shares of common stock for the above
plans are purchased on the open market.
5. Dividend Restriction
UPPCO's indentures relating to first mortgage bonds contain certain
limitations on the payment of cash dividends on common stock. Under the
most restrictive of these provisions, approximately $15,659,000 of
consolidated retained earnings was available at December 31, 1996, for the
payment of common stock cash dividends by UPEN.
6. Preferred and Preference Stock
UPPCO is obligated under the terms of the Preferred Stock Purchase
Agreements of the 5-1/4% and 4.70% of redeemable preferred stocks to
annually offer to purchase, at prices not to exceed $100 per share plus
accrued dividends, 3% of the maximum number of shares of each series
issued, less any shares theretofore purchased as a purchase-fund credit
for such year, and will offer to purchase, at $100 per share plus accrued
dividends at May 1, 2002, all of the shares then outstanding under the
above redeemable preferred stock issues. All shares so purchased and
surrendered shall be cancelled and shall not be reissued. Maximum annual
purchase-fund requirements as to outstanding shares of redeemable
preferred stock are $75,000 for 1997 through 2001. At December 31, 1996,
the optional redemption prices per share of the 5-1/4% and 4.70% shares
were $105.00 and $101.00, respectively.
UPPCO has 1,000,000 shares of authorized but unissued $1 par value
preference stock, which may be divided into and issued in one or more
series from time to time as UPPCO's Board of Directors may direct. The
preference stock shall be junior to the preferred stock but in preference
to the common stock.
UPEN has 500,000 shares of authorized but unissued $.01 par value
preferred stock, which may be divided into and issued in one or more
series from time to time as UPEN's Board of Directors may direct.
7. Long-Term Debt
Amounts of long-term debt due in each of the five years subsequent to
December 31, 1996, aggregate approximately $242,000 for 1997, $260,000 for
1998, $884,000 for 1999, $719,000 for 2000, and $683,000 for 2001.
As of December 31, 1996, the market value of UPEN's long-term debt was
$47.4 million. This debt has a recorded value of $43.5 million.
8. Federal Income Taxes
Federal income taxes comprise the following:
(Thousands of Dollars)
Year Ended December 31
1996 1995 1994
Federal income tax - current $ 2,276 $ 2,353 $ 2,664
Deferred taxes - net . . . . 685 576 207
Investment tax credit
deferred . . . . . . . . . . (183) (184) (183)
------- ------- --------
Total federal income tax
expense - operations . . . . 2,778 2,745 2,688
Federal income tax expense -
other income - current . . . 80 (59) (57)
------- ------- -------
Total federal income tax
expense . . . . . . . . . . $ 2,858 $ 2,686 $ 2,631
======= ======= =======
Federal income tax expense applicable to current operations differs from
the amount computed by applying the statutory rate on book income subject
to tax for the following reasons:
(Thousands of Dollars)
Year Ended December 31
1996 1995 1994
Income tax at "statutory rate" $ 2,804 $ 2,801 $ 2,832
Increases (reductions) in tax
resulting from:
Investment tax credit
amortization . . . . . . . . (183) (184) (183)
Overheads capitalized on
books . . . . . . . . . . . (8) (9) (10)
Depreciation . . . . . . . . 241 101 123
Miscellaneous items . . . . . 4 (23) (131)
------ ------ ------
Total federal income tax
expense . . . . . . . . . . . $ 2,858 $ 2,686 $ 2,631
====== ====== ======
Effective income tax rate . . . 35.7% 33.6% 32.5%
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax
effects of significant items included in the Company's net deferred tax
liability as of December 31, 1996 and 1995, are as follows:
(Thousands of Dollars)
1996 1995
Current:
Employee benefits . . . . . $ 860 $ 1,104
Unbilled revenue . . . . . 511 614
Property Taxes . . . . . . (414) (399)
Other . . . . . . . . . . . 270 (100)
------- -------
1,227 1,219
------- -------
Noncurrent:
Depreciation . . . . . . . (10,216) (10,327)
Investment tax credit . . . 1,413 1,507
Employee benefits . . . . . 1,966 2,138
Other . . . . . . . . . . . (86) (97)
------ ------
(6,923) (6,779)
------ ------
Total deferred taxes . . . . $ (5,696) $ (5,560)
====== ======
9. Retirement Benefits
UPPCO has a noncontributory, defined-benefit pension plan, as amended,
covering full-time employees, subject to age and period-of-employment
conditions, that provides benefits based on years of service and employee
compensation. The current funding policy is to contribute to the plan
amounts necessary to comply with the funding provision of the Employee
Retirement Income Security Act of 1974 (ERISA). Contributions of
$2,099,000, $1,385,000 and $3,500,000, were made in 1996, 1995, and 1994,
respectively.
UPPCO has a noncontributory supplemental retirement plan for certain
senior management employees that provides for benefit payments over a
fifteen-year period to the participant upon retirement or to the
participant's spouse upon death prior to retirement. This retirement plan
is not funded, and benefits are paid by UPPCO from its general assets.
Net periodic pension cost for accounting purposes for 1996, 1995, and 1994
included the following components:
(Thousands of Dollars)
Year Ended December 31
1996 1995 1994
Service cost-benefits earned
during period . . . . . . . . . $ 1,055 $ 920 $ 1,323
Interest cost on projected
benefit obligation . . . . . . . 3,511 3,453 3,278
Actual return on assets . . . . . (3,589) (6,259) 426
Net amortization and deferral . . 708 3,736 (2,651)
------- ------- -------
Net periodic pension cost . . . . $ 1,685 $ 1,850 $ 2,376
======= ======= =======
Net periodic pension expense includes amounts charged to WEPCO in
connection with the operation of the Presque Isle Power Plant of $516,000,
$673,000, and $849,000, for 1996, 1995, and 1994, respectively.
A reconciliation of the funded status of the plans to the amounts
recognized in the December 31 financial statements follows:
(Thousands of Dollars)
Funded Plan December 31
Restated Pension Plan 1996 1995
Vested benefit obligation . . . . . . $ 38,457 $ 36,571
======= =======
Accumulated benefit obligation . . . $ 42,436 $ 40,208
======= =======
Projected benefit obligation . . . . $ 47,319 46,652
Plan assets at fair value . . . . . . 40,228 37,174
------- -------
Projected benefit obligation in excess
of plan assets . . . . . . . . . . . (7,091) (9,478)
Unrecognized net assets existing at
January 1, 1987, being amortized over
15.7 years . . . . . . . . . . . . . (629) (741)
Unrecognized prior service cost . . . 2,213 2,470
Unrecognized net loss . . . . . . . . 4,894 6,536
------- -------
Accrued pension cost . . . . . . . . $ (613) $ (1,213)
======= =======
Required minimum liability . . . . . $ 1,595 $ 1,821
======= =======
(Thousands of Dollars)
Unfunded Plan December 31
Supplemental Retirement Plan 1996 1995
Vested benefit obligation . . . . . . $ 949 $ 952
======= =======
Accumulated benefit obligation . . . $ 1,340 $ 1,453
======= =======
Projected benefit obligation - not
funded . . . . . . . . . . . . . . . $(1,563) $(1,641)
Unrecognized net obligation existing
at January 1, 1987, being amortized
over 15 years . . . . . . . . . . . 125 150
Unfunded prior service cost . . . . . 196 251
Unrecognized net loss . . . . . . . . 145 205
------- -------
Accrued pension cost . . . . . . . . $ (1,097) $ (1,035)
======= =======
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligations were 7.5% and 4.0% for 1996 and 7.5% and
5.0% for 1995. The expected long-term rate of return on assets was 8.5%.
Plan assets consist principally of common stock of public companies,
corporate bonds, and U.S. government securities. Figures reported include
benefits of UPPCO employees assigned to the Presque Isle Power Plant.
UPPCO had a sick leave payback provision in its contract with bargaining
unit employees that provided for a lump-sum payment of accumulated sick
days upon termination at the then-current wage rate up to a maximum of 100
days. This provision was changed in 1995 wherein the number of days and
wage rate were capped at the May 1, 1995, level, and the payment is due
only upon retirement. New hires will receive no such payments.
Therefore, in 1995 a curtailment gain of $168,000 was realized.
10. Postretirement Benefits Other Than Pension
UPPCO provides certain health care and life insurance benefits for retired
employees. Statement of Financial Accounting Standards No. 106 (SFAS
106), "Employer's Accounting for Postretirement Benefits Other Than
Pensions," requires the accrual of the cost of certain postretirement
benefits other than pensions over the active service life of the employee.
UPPCO previously recorded these costs on the pay-as-you-go (cash) basis.
Effective January 1, 1993, UPPCO adopted SFAS 106. In 1993 UPPCO received
MPSC approval in a general rate order to defer $574,000 in 1993 SFAS 106
postretirement health care costs as a regulatory asset to be amortized
over 19 years to match rate recovery.
Net periodic postretirement benefits for accounting purposes in 1996 and
1995 included the following components:
(Thousands of Dollars)
Year Ended December 31
1996 1995 1994
Service cost-benefits earned
during the period . . . . . . . $ 203 $ 169 $ 259
Interest cost on accumulated
postretirement benefit
obligation . . . . . . . . . . . 1,107 946 1,006
Actual return on assets . . . . . (63) (42) 0
Net amortization and deferral . . 605 547 615
------- ------- ------
Net cost . . . . . . . . . . . . $1,852 $1,620 $1,880
======= =======
Net periodic postretirement expense includes amounts charged to WEPCO in
connection with the operation of the Presque Isle Power Plant of $564,000,
$519,000, and $607,000 for 1996, 1995, and 1994, respectively.
A reconciliation of the funded status of the plan to the amounts
recognized in the December 31 financial statements follows:
(Thousands of Dollars)
Year Ended December 31
1996 1995
Accumulated postretirement benefit
obligation:
Retirees . . . . . . . . . . . . . . . $ (6,321) $ (5,302)
Fully eligible active plan participants (5,637) (4,145)
Other active plan participants . . . . (3,265) (2,943)
------- -------
Total . . . . . . . . . . . . . (15,223) (12,390)
Plan assets at fair value . . . . . . . . 620 557
------- -------
Accumulated postretirement benefit
obligation in excess of plan assets . . (14,603) (11,833)
Unrecognized obligation (asset) at
transition . . . . . . . . . . . . . . . 9,210 9,786
Unrecognized net gain from past experience
different from that assumed . . . . . . 1,613 (836)
------- -------
Accrued postretirement benefit cost . . . $ (3,780) $ (2,883)
======= =======
For measurement purposes, a 10.4% and 6.1% annual rate of increase in the
per capita cost of covered health care benefits for participants under age
65 and over age 65, respectively, were assumed for 1996; both of the rates
were assumed to decrease gradually to 5.5% for 2005 and remain at that
level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rate by one (1) percentage point per year
would increase the accumulated postretirement benefit obligation as of
December 31, 1996, by $2,186,650 and the aggregate of the service cost and
the interest cost components of the net periodic postretirement benefit
cost for the year then ended by $187,744.
The obligations disclosed as of December 31, 1996 and 1995, used a
discount rate of 7.5% to measure the accumulated postretirement benefit
obligation.
11. Commitments and Contingencies
UPPCO has a service schedule to a purchase-power agreement with WEPCO that
entitles UPPCO to purchase 65 MW of capacity through 1997. UPPCO pays
$413,000 per month for this entitlement.
The Company is subject to various unresolved legal matters that arose in
the normal course of business. Although it is not possible to predict the
outcome of these legal actions, Company management believes that these
actions will not have a material adverse effect on its financial position
or results of operations.
Cost of the construction program for 1997 is estimated to be $3,900,000.
In connection therewith, certain commitments have been made.
12. Quarterly Information (Unaudited)
The quarterly information has not been audited but in the opinion of the
Company reflects all adjustments necessary for the fair statement of
results of operations for each period.
(Thousands of Dollars)
Quarter Ended
March 31 June 30 Sept. 30 Dec. 31
1996
Operating revenues . . $15,572 $13,810 $14,079 $14,841
Operating income . . . $ 2,675 $ 2,031 $ 2,012 $ 2,335
Net income . . . . . . $ 1,695 $ 1,012 $ 1,002 $ 1,421
Earnings per share . . .57 .34 .34 .48
1995
Operating revenues . . $16,757 $14,523 $14,906 $14,919
Operating income . . . $ 3,541 $ 2,299 $ 2,125 $ 1,551
Net income . . . . . . $ 2,536 $ 1,286 $ 1,102 $ 367
Earnings per share . . .85 .44 .37 .12
The lower net income in the fourth quarter of 1995 reflects an increase in
scheduled maintenance expenditures.
<PAGE>
UPPER PENINSULA ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended
September 30
(Unaudited)
1997 1996
(Thousands of Dollars)
Operating Revenues . . . . . . . . . . $ 44,992 $ 43,461
------- -------
Operating Expenses:
Operation - Power Supply Costs . . 15,573 13,252
- Other . . . . . . . . . 12,029 11,012
Maintenance . . . . . . . . . . . . . 2,020 2,232
Depreciation and Amortization . . . . 4,399 4,515
Federal Income Tax Expense . . . . . 1,684 2,119
Taxes Other Than Federal Income Taxes-
Ad Valorem . . . . . . . . . . . . 2,716 2,562
Other . . . . . . . . . . . . . . 975 1,051
------- -------
Total . . . . . . . . . . . . 39,396 36,743
------- -------
Operating Income . . . . . . . . . . . 5,596 6,718
------- -------
Other Income (Deductions):
Interest Income . . . . . . . . . . . 173 57
Other . . . . . . . . . . . . . . . . 202 63
Federal Income Tax Expense . . . . . (159) (22)
------- -------
Total . . . . . . . . . . . . 216 98
------- -------
Income Before Interest Charges . . . . 5,812 6,816
------- -------
Interest Charges:
Interest on Long-Term Debt . . . . . 2,903 2,917
Amortization of Debt Expense . . . . 56 56
Other Interest Expense . . . . . . . 393 117
------- ------
Total . . . . . . . . . . . . 3,352 3,090
------- ------
Income Before Dividends on Preferred
Stock of Subsidiary . . . . . . . . . 2,460 3,726
Dividends on Preferred Stock of
Subsidiary . . . . . . . . . . . . . . 17 17
------- ------
Net Income . . . . . . . . . . . . . . $ 2,443 $ 3,709
======= =======
Average Number of Common Shares
Outstanding . . . . . . . . . . . . . 2,964,007 2,969,215
Earnings Per Share of Common Stock . . $0.82 $1.25
Dividends Paid Per Share of Common Stock $0.96 $0.94
See Notes to Consolidated Financial Statements
<PAGE>
UPPER PENINSULA ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30
(Unaudited)
1997 1996
(Thousands of Dollars)
Cash Flows form Operating Activities:
Net Income . . . . . . . . . . . . . . . . $ 2,443 $ 3,709
Adjustments to Reconcile Net Income to Net
Cash Flows from Operating Activities:
Depreciation and Amortization . . . . . 4,399 4,515
Dividends on Preferred Stock of
Subsidiary . . . . . . . . . . . . . . 17 17
Allowance for Equity Funds Used During
Construction . . . . . . . . . . . . . (37) (69)
Deferred Federal Income Taxes and
Investment Tax Credit . . . . . . . . 676 127
Prepaid and Accrued Pension . . . . . . (2,007) (449)
Other . . . . . . . . . . . . . . . . . 1,299 823
Changes in Assets and Liabilities:
Accounts Receivable . . . . . . . . . . (860) 1,336
Inventories . . . . . . . . . . . . . . (48) (122)
Prepayments . . . . . . . . . . . . . . (222) (119)
Accrued Ad Valorem Taxes . . . . . . . . (133) (126)
Accounts Payable and Accrued Accounts . . . (1,588) (1,712)
------- -------
Cash Flows From Operating
Activities . . . . . . . . . . . 3,939 7,930
------- -------
Cash Flows from Investing Activities:
Plant and Property Additions (excluding
Allowance for Borrowed Funds Used During
Construction) . . . . . . . . . . . . . . (4,811) (9,382)
Allowance for Borrowed Funds Used During
Construction . . . . . . . . . . . . . . (55) (91)
Other - Net . . . . . . . . . . . . . . . . (80) (96)
------- ------
Cash Flows from Investing
Activities . . . . . . . . . . . (4,946) (9,569)
------- ------
Cash Flows From Financing Activities:
Repurchase of Common Stock . . . . . . . . (379)
Retirement of Long-Term Debt and Preferred
Stock . . . . . . . . . . . . . . . . . . (183) (208)
Dividends . . . . . . . . . . . . . . . . . (2,867) (2,801)
Issuance of Notes Payable . . . . . . . . . 4,600 3,500
------- -------
Cash Flows from Financing
Activities . . . . . . . . . . . 1,171 491
------- -------
Net Increase (Decrease) in Cash and Cash
Equivalents . . . . . . . . . . . . . . . . 164 (1,148)
Cash and Cash Equivalents at the Beginning of
Period . . . . . . . . . . . . . . . . . . . 2,064 3,249
------- -------
Cash and Cash Equivalents at the End of
Period . . . . . . . . . . . . . . . . . . . $2,228 $2,101
======= =======
Supplemental Cash Flows Information:
Interest Paid . . . . . . . . . . . . . . . $3,042 $2,725
======= =======
Income Taxes Paid . . . . . . . . . . . . . $ 950 $1,475
======= =======
See Notes to Consolidated Financial Statements
<PAGE>
UPPER PENINSULA ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30
1997 December 31
ASSETS (Unaudited) 1996
(Thousands of Dollars)
Utility Plant:
Electric Plant in Service . . . . . $164,920 $165,386
Less Accumulated Depreciation and
Amortization . . . . . . . . . . 79,656 75,970
------- -------
Net Electric Plant in Service . 85,264 89,416
Construction Work in Progress . . . 17,663 14,526
------- -------
Net Utility Plant . . . . . . . 102,927 103,942
------- -------
Other Property and Investments . . . 11,371 9,942
------- -------
Current Assets:
Cash and Cash Equivalents . . . . . 2,228 2,064
Accounts Receivable (less allowance
for doubtful accounts of $64 in
1997 and $65 in 1996) . . . . . . 6,797 6,476
Revenue Receivable - Power Supply
Cost Recovery-Net . . . . . . . . 539
Inventories-at average cost:
Materials and Supplies . . . . . 2,075 2,030
Fuel . . . . . . . . . . . . . . 277 274
Prepayments . . . . . . . . . . . . 527 305
Accrued Ad Valorem Taxes . . . . . 3,773 3,640
Deferred Federal Income Taxes . . . 816 1,227
------- -------
Total . . . . . . . . . . . 17,032 16,016
------- -------
Deferred Debits and Other Assets:
Unamortized Debt Expense (being
amortized over the lives of debt
issues) . . . . . . . . . . . . . 476 508
Intangible Pension Plan Asset . . . 1,595 1,595
Other . . . . . . . . . . . . . . . 1,726 1,675
------- -------
Total . . . . . . . . . . . 3,797 3,778
------- -------
$135,127 $133,678
======= =======
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock and Paid-In Capital . $ 21,129 $ 21,537
Retained Earnings . . . . . . . . . 21,174 21,581
------- -------
Total Common Equity . . . . 42,303 43,118
Redeemable Preferred Stock . . . . 445 456
Long-Term Debt, less current
maturities . . . . . . . . . . . 43,083 43,266
------- -------
Total Capitalization . . . 85,831 86,840
------- -------
Current Liabilities:
Long-Term Debt Due Within One Year 253 242
Notes Payable . . . . . . . . . . . 9,600 5,000
Accounts Payable . . . . . . . . . 3,154 4,182
Accrued Accounts:
Taxes - Ad Valorem . . . . . . 5,262 6,212
- Other . . . . . . . . . 293 27
Wages and Benefits . . . . . . . . 3,280 2,934
Interest . . . . . . . . . . . . . 1,275 965
Revenue Payable-Power Supply Cost
Recovery-Net . . . . . . . . . . 531
Dividends . . . . . . . . . . . . . 4 4
------- -------
Total . . . . . . . . . . . 23,121 20,097
------- -------
CONSOLIDATED BALANCE SHEETS (continued)
September 30
1997 December 31
LIABILITIES (Unaudited) 1996
(Thousands of Dollars)
Deferred Credits:
Deferred Federal Income Taxes . . . 7,324 6,923
Unamortized Investment Tax Credit . 2,606 2,742
Customer Advances for Construction 1,950 1,591
Accrued Pensions . . . . . . . . . 1,296 3,303
Regulatory Liabilities . . . . . . 5,904 5,904
Postretirement Health and Life . . 4,473 3,780
Other . . . . . . . . . . . . . . . 2,622 2,498
-------- --------
Total . . . . . . . . . . . 26,175 26,741
-------- --------
Commitments and Contingencies . . . .
-------- --------
$135,127 $133,678
======== ========
See Notes to Consolidated Financial Statements
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Accounting Policies
The accompanying unaudited financial statements have been
prepared in accordance with the summary of significant accounting
policies set forth in the Notes to Consolidated Financial
Statements of Upper Peninsula Energy Corporation appearing herein
on pages F-7 to F-17.
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
In the opinion of management, the information furnished
reflects all adjustments of a normal recurring nature which are
necessary for a fair statement of results for the interim periods
presented. Operating results for the nine months ended
September 30, 1997 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1997.
Certain items previously reported have been reclassified to
conform to the current presentation in the financial statements.
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma financial information
combines the historical consolidated balance sheets and statements of
income of WPS and UPEN, including their respective subsidiaries, after
giving effect to the Merger. The unaudited pro forma combined balance
sheet at September 30, 1997, gives effect to the Merger as if it had
occurred at September 30, 1997. The unaudited pro forma combined
statements of income for each of the three years in the periods ended
December 31, 1996, 1995, and 1994, and the nine-month periods ended
September 30, 1997 and 1996, give effect to the Merger as if it had
occurred at January 1, 1994. These statements are prepared on the basis
of accounting for the Merger as pooling of interests and are based on the
assumptions set forth in the notes thereto. In addition, the pro forma
financial information does not give effect to the anticipated cost savings
or the costs to be incurred to achieve such savings. The pro forma
balance sheet at September 30, 1997, however, does reflect the estimated
transaction costs to effect the Merger.
The following pro forma financial information has been
prepared from, and should be read in conjunction with, the historical
consolidated financial statements and related notes thereto of WPS and
UPEN, incorporated by reference herein. The following information is not
necessarily indicative of the financial position or operating results that
would have occurred had the Merger been consummated on the date, or at the
beginning of the periods, for which the Merger is being given effect nor
is it necessarily indicative of future operating results or financial
position. In addition, due to the effect of weather on sales and other
factors which are characteristic of public utility operations, financial
results for the nine-month periods ended September 30, 1997 and 1996 are
not necessarily indicative of trends for any twelve month period.
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 1997
(in thousands)
<CAPTION>
WPS UPEN Pro Forma Pro Forma
ASSETS (As Reported) (As Reported) Adjustments Combined
<S> <C> <C> <C> <C>
Utility plant
Electric $1,501,349 $164,920 $1,666,269
Gas 250,834 -- 250,834
--------- ------- -------- ---------
Total 1,752,183 164,920 0 1,917,103
Less-Accumulated depreciation and
decommissioning 1,014,633 79,656 1,094,289
--------- ------- -------- ---------
Total 737,550 85,264 0 822,814
Nuclear decommissioning trusts 126,116 -- 126,116
Construction in progress 8,317 17,663 25,980
Nuclear fuel, less accumulated
amortization 19,274 -- 19,274
---------- ------- -------- ---------
Net utility plant 891,257 102,927 0 994,184
========== ======= ======== =========
Current assets
Cash and equivalents 3,810 2,228 6,038
Customer and other receivables, net
of reserves 68,045 7,336 75,381
Accrued utility revenues 19,004 -- 19,004
Fossil fuel, at average cost 9,887 277 10,164
Gas in storage, at average cost 22,512 -- 22,512
Materials and supplies, at average
cost 19,309 2,075 21,384
Prepayments and other (Note 4) 15,261 5,116 (816) 19,561
---------- -------- -------- ----------
Total current assets 157,828 17,032 (816) 174,044
========== ======== ======== ==========
Regulatory assets 81,882 1,338 83,220
Net non-utility and non-regulated
plant 19,027 11,371 30,398
Investments and other assets 115,034 2,459 117,493
--------- -------- -------- ---------
Total $1,265,028 $135,127 ($816) $1,399,339
========= ======== ======== =========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial
Statements.
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 1997
(in thousands)
<CAPTION>
WPS UPEN Pro Forma Pro Forma
CAPITALIZATION AND LIABILITIES (As Reported) (As Reported) Adjustments Combined
<S> <C> <C> <C> <C>
Capitalization
Common stock equity (Note 5) $474,964 $42,303 ($300) $516,967
Preferred stock of subsidiary with no
mandatory redemption 51,200 445 51,645
Long-term debt 305,442 43,083 348,525
------- ------- ------- -------
Total capitalization 831,606 85,831 (300) 917,137
======= ======= ======= =======
Current liabilities
Notes payable 10,000 9,853 19,853
Commercial paper 19,230 -- 19,230
Accounts payable 61,323 3,154 300 64,777
Accrued taxes 4,180 5,555 9,735
Accrued interest 5,238 1,275 6,513
Other 7,163 3,284 10,447
-------- ------- -------- --------
Total current liabilities 107,134 23,121 300 130,555
======== ======= ======== ========
Long-term liabilities and deferred
credits
Accumulated deferred income taxes (Note
4) 125,873 7,324 (816) 132,381
Accumulated deferred investment tax
credits 27,343 2,606 29,949
Regulatory liabilities 47,664 5,904 53,568
Environmental remediation liabilities 40,286 650 40,936
Other long-term liabilities 85,865 9,691 95,556
-------- -------- -------- --------
Total long-term liabilities and deferred
credits 327,031 26,175 (816) 352,390
======== ======== ======== ========
Minority interest (743) -- (743)
Commitments and contingencies 0
--------- -------- -------- ---------
Total $1,265,028 $135,127 ($816) $1,399,339
========= ======== ======== =========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial
Statements.
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(in thousands, except per share amounts)
<CAPTION>
WPS UPEN Pro Forma Pro Forma
(As Reported) (As Reported) Adjustments Combined
<S> <C> <C> <C> <C>
Operating revenues
Electric utility $365,635 $41,937 $407,572
Gas utility 149,424 -- 149,424
Non-regulated energy and other 124,539 3,055 127,594
--------- --------- --------- ---------
Total operating revenues 639,598 44,992 0 684,590
========= ========= ========= =========
Operating expenses
Electric production fuels 80,603 -- 80,603
Purchased power 38,645 15,573 54,218
Gas purchased for resale 104,616 -- 104,616
Non-regulated energy cost of sales 119,778 -- 119,778
Other operating expenses 110,113 12,029 122,142
Maintenance 32,580 2,020 34,600
Depreciation and decommissioning 57,713 4,399 62,112
Federal income tax (Note 4) -- 1,684 (1,684) --
Taxes other than income 20,271 3,691 23,962
---------- -------- --------- ---------
Total operating expenses 564,319 39,396 (1,684) 602,031
========== ======== ========= =========
Operating income 75,279 5,596 1,684 82,559
---------- -------- --------- ---------
Other income
Allowance for equity funds used
during construction 102 37 139
Other, net 8,243 179 8,422
---------- -------- --------- ---------
Total other income 8,345 216 0 8,561
========== ======== ========= =========
Income before interest expense 83,624 5,812 1,684 91,120
---------- -------- --------- ---------
Interest on long-term debt 16,835 2,903 19,738
Other interest 2,434 504 2,938
Allowance for borrowed funds used
during construction (89) (55) (144)
---------- -------- --------- ---------
Total interest expense 19,180 3,352 0 22,532
========== ======== ========= =========
Income before income taxes 64,444 2,460 1,684 68,588
Income taxes (Note 4) 22,011 -- 1,684 23,695
Minority interest (609) -- (609)
Preferred stock dividends of
subsidiary 2,333 17 2,350
---------- -------- --------- ---------
Net income 40,709 2,443 0 43,152
========== ======== ========= =========
Average shares of common stock (Note
1) 23,875 2,964 (296) 26,543
Earnings per average share of common
stock $1.71 $0.82 $1.63
========== ======== ========= =========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial
Statements.
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(in thousands, except per share amounts)
<CAPTION>
WPS UPEN Pro Forma Pro Forma
(As Reported) (As Reported) Adjustments Combined
<S> <C> <C> <C> <C>
Operating revenues
Electric utility $368,814 $40,377 $409,191
Gas utility 144,402 -- 144,402
Non-regulated energy and other 98,982 3,084 102,066
-------- -------- --------- ---------
Total operating revenues 612,198 43,461 0 655,659
======== ======== ========= =========
Operating expenses
Electric production fuels 78,316 -- 78,316
Purchased power 26,205 13,252 39,457
Gas purchased for resale 100,146 -- 100,146
Non-regulated energy cost of sales 99,236 -- 99,236
Other operating expenses 121,810 11,012 132,822
Maintenance 33,198 2,232 35,430
Depreciation and decommissioning 48,716 4,515 53,231
Federal income tax (Note 4) -- 2,119 (2,119) --
Taxes other than income 20,198 3,613 23,811
--------- -------- -------- --------
Total operating expenses 527,825 36,743 (2,119) 562,449
========= ======== ======== ========
Operating income 84,373 6,718 2,119 93,210
--------- -------- -------- --------
Other income
Allowance for equity funds used
during construction 105 69 174
Other, net 2,701 29 2,730
--------- -------- -------- --------
Total other income 2,806 98 0 2,904
========= ======== ======== ========
Income before interest expense 87,179 6,816 2,119 96,114
--------- -------- -------- --------
Interest on long-term debt 16,187 2,917 19,104
Other interest 2,017 264 2,281
Allowance for borrowed funds used
during construction (92) (91) (183)
--------- --------- -------- --------
Total interest expense 18,112 3,090 0 21,202
========= ========= ======== ========
Income before income taxes 69,067 3,726 2,119 74,912
Income taxes (Note 4) 22,709 -- 2,119 24,828
Preferred stock dividends of
subsidiary 2,333 17 2,350
--------- --------- -------- --------
Net income 44,025 3,709 0 47,734
========= ========= ======== ========
Average shares of common stock (Note
1) 23,893 2,969 (297) 26,565
Earnings per average share of common
stock $1.84 $1.25 $1.80
======= ======= ======== =======
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial
Statements.
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
(in thousands, except per share amounts)
<CAPTION>
WPS UPEN Pro Forma Pro Forma
(As Reported) (As Reported) Adjustments Combined
<S> <C> <C> <C> <C>
Operating revenues
Electric utility $490,506 $54,258 $544,764
Gas utility 211,357 -- 211,357
Non-regulated energy and other 156,391 4,044 160,435
-------- -------- -------- --------
Total operating revenues 858,254 58,302 0 916,556
======== ======== ======== ========
Operating expenses
Electric production fuels 105,418 -- 105,418
Purchased power 37,737 18,245 55,982
Gas purchased for resale 149,388 -- 149,388
Non-regulated energy cost of sales 157,612 -- 157,612
Other operating expenses 168,905 14,863 183,768
Maintenance 48,806 2,976 51,782
Depreciation and decommissioning 65,178 5,584 70,762
Federal income tax (Note 4) -- 2,778 (2,778) --
Taxes other than income 26,868 4,803 31,671
-------- -------- -------- --------
Total operating expenses 759,912 49,249 (2,778) 806,383
======== ======== ======== ========
Operating income 98,342 9,053 2,778 110,173
-------- -------- -------- --------
Other income
Allowance for equity funds used during
construction 139 116 255
Other, net 1,395 101 1,496
--------- -------- -------- --------
Total other income 1,534 217 0 1,751
========= ======== ======== ========
Income before interest expense 99,876 9,270 2,778 111,924
--------- -------- -------- --------
Interest on long-term debt 21,532 3,962 25,494
Other interest 3,596 326 3,922
Allowance for borrowed funds used
during construction (128) (171) (299)
--------- -------- -------- --------
Total interest expense 25,000 4,117 0 29,117
========= ======== ======== ========
Income before income taxes 74,876 5,153 2,778 82,807
Income taxes (Note 4) 24,358 -- 2,778 27,136
Minority interest (348) -- (348)
Preferred stock dividends of
subsidiary 3,111 23 3,134
--------- -------- -------- --------
Net income 47,755 5,130 0 52,885
========= ======== ======== ========
Average shares of common stock (Note
1) 23,891 2,969 (297) 26,563
Earnings per average share of common
stock $2.00 $1.73 $1.99
======= ======= ====== ======
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial
Statements.
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
(in thousands, except per share amounts)
<CAPTION>
WPS UPEN Pro Forma Pro Forma
(As Reported) (As Reported) Adjustments Combined
<S> <C> <C> <C> <C>
Operating revenues
Electric utility $489,000 57,266 $546,266
Gas utility 174,693 -- 174,693
Non-regulated energy and other 56,155 3,839 59,994
-------- -------- ------- --------
Total operating revenues 719,848 61,105 0 780,953
======== ======== ======= ========
Operating expenses
Electric production fuels 104,858 -- 104,858
Purchased power 39,593 19,973 59,566
Gas purchased for resale 116,253 -- 116,253
Non-regulated energy cost of sales 53,983 -- 53,983
Other operating expenses 154,445 14,622 169,067
Maintenance 50,761 3,897 54,658
Depreciation and decommissioning 65,627 5,718 71,345
Federal income tax (Note 4) -- 2,745 (2,745) --
Taxes other than income 25,921 4,634 30,555
-------- -------- -------- --------
Total operating expenses 611,441 51,589 (2,745) 660,285
======== ======== ======== ========
Operating income 108,407 9,516 2,745 120,668
-------- -------- -------- --------
Other income
Allowance for equity funds used
during construction 170 10 180
Other, net 6,080 (169) 5,911
--------- -------- -------- --------
Total other income 6,250 (159) 0 6,091
========= ======== ======== ========
Income before interest expense 114,657 9,357 2,745 126,759
--------- -------- -------- --------
Interest on long-term debt 22,859 3,980 26,839
Other interest 2,604 73 2,677
Allowance for borrowed funds used
during construction (68) (12) (80)
--------- -------- --------- --------
Total interest expense 25,395 4,041 0 29,436
========= ======== ========= ========
Income before income taxes 89,262 5,316 2,745 97,323
Income taxes (Note 4) 30,808 -- 2,745 33,553
Preferred stock dividends of
subsidiary 3,111 25 3,136
--------- -------- --------- --------
Net income 55,343 5,291 0 60,634
========= ======== ========= ========
Average shares of common stock
(Note 1) 23,897 2,969 (297) 26,569
Earnings per average share of
common stock $2.32 $1.78 $2.28
====== ====== ======== ======
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial
Statements.
<PAGE>
<TABLE>
WPS RESOURCES CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1994
(in thousands, except per share amounts)
<CAPTION>
WPS UPEN Pro Forma Pro Forma
(As Reported) (As Reported) Adjustments Combined
<S> <C> <C> <C> <C>
Operating revenues
Electric utility $480,816 $59,308 $540,124
Gas utility 182,058 -- 182,058
Non-regulated energy and other 10,921 3,222 14,143
-------- -------- -------- --------
Total operating revenues 673,795 62,530 0 736,325
======== ======== ======== ========
Operating expenses
Electric production fuels 111,011 -- 111,011
Purchased power 38,631 20,168 58,799
Gas purchased for resale 126,351 -- 126,351
Non-regulated energy cost of sales 10,663 -- 10,663
Other operating expenses 148,917 16,064 164,981
Maintenance 49,983 4,005 53,988
Depreciation and decommissioning 56,365 5,514 61,879
Federal income tax (Note 4) -- 2,688 (2,688) --
Taxes other than income 26,063 4,514 30,577
-------- -------- -------- --------
Total operating expenses 567,984 52,953 (2,688) 618,249
======== ======== ======== ========
Operating income 105,811 9,577 2,688 118,076
-------- -------- -------- --------
Other income
Allowance for equity funds used
during construction 108 8 116
Other, net 4,473 (78) 4,395
-------- ------- --------- ---------
Total other income 4,581 (70) 0 4,511
======== ======= ========= =========
Income before interest expense 110,392 9,507 2,688 122,587
-------- ------- --------- ---------
Interest on long-term debt 23,407 3,997 27,404
Other interest 1,796 60 1,856
Allowance for borrowed funds used
during construction (139) (10) (149)
-------- -------- --------- ---------
Total interest expense 25,064 4,047 0 29,111
======== ======== ========= =========
Income before income taxes 85,328 5,460 2,688 93,476
Income taxes (Note 4) 29,526 -- 2,688 32,214
Preferred stock dividends of
subsidiary 3,111 29 3,140
-------- -------- --------- ---------
Net income 52,691 5,431 0 58,122
======== ======== ========= =========
Average shares of common stock
(Note 1) 23,897 2,982 (298) 26,581
Earnings per average share of
common stock $2.21 $1.82 $2.19
====== ====== ======== ======
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Financial
Statements.
<PAGE>
WPS RESOURCES CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
1. The pro forma combined financial statements reflect the conversion of
each share of UPEN Common Stock (no par value) outstanding into 0.90
shares of WPS Common Stock ($1.00 par value), as provided in the
Merger Agreement. The pro forma combined statements of income are
presented as if the companies had combined at January 1, 1994. The
pro forma combined balance sheet is presented as if the companies had
combined at September 30, 1997.
2. Estimated cost savings and the cost to achieve such savings have not
been reflected in the pro forma combined financial statements.
Transaction costs are currently estimated to be approximately
$2,400,000 (including fees for financial advisors, attorneys,
accountants, consultants, filings, and printing). Estimated
transaction costs to be incurred after September 30, 1997, have been
reflected in the pro forma balance sheet at September 30, 1997
reducing common stock equity by $300,000.
3. Intercompany transactions (including purchased and exchange power
transactions) between WPS and UPEN during the periods presented were
included in the determination of regulated rates and were not
material. Accordingly, no pro forma adjustments were made to
eliminate such transactions.
4. Accounting principles have been consistently applied in the financial
statement presentations for WPS and UPEN with one exception. UPEN
does not include unbilled electric revenues in its calculation of
total revenues. WPS accrues unbilled revenues. The impact of this
difference in accounting principles does not have a material impact
on the unaudited pro forma combined financial statements as
presented, and accordingly, no adjustments have been made to conform
accounting principles. A pro forma adjustment has been made to
conform the presentation of current deferred income taxes in the pro
forma combined balance sheet into one net amount. A pro forma
adjustment has been made to conform the presentation of income taxes
in the pro forma combined statements of income. Other minor
reclassifications have been made to the balance sheet and statements
of income of UPEN to align with the financial statement presentation
of WPS.
<PAGE>
APPENDIX A - AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER,
By and Between
WPS RESOURCES CORPORATION
and
UPPER PENINSULA ENERGY CORPORATION
Dated as of July 10, 1997
TABLE OF CONTENTS
Page
ARTICLE I - THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Effects of the Merger . . . . . . . . . . . . . . . . . 2
Section 1.3 Effective Time of the Merger . . . . . . . . . . . . . . 2
ARTICLE II - TREATMENT OF SHARES . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Effect of the Merger on Capital Stock . . . . . . . . . 2
(a) Cancellation of Certain Common Stock . . . . . . . . . . . . 2
(b) Conversion of Certain Common Stock . . . . . . . . . . . . . 3
Section 2.2 Issuance of New Certificates . . . . . . . . . . . . . . 3
(a) Deposit with Exchange Agent . . . . . . . . . . . . . . . . . 3
(b) Issuance Procedures . . . . . . . . . . . . . . . . . . . . . 3
(c) Distributions with Respect to Unsurrendered Shares . . . . . 4
(d) No Fractional Securities . . . . . . . . . . . . . . . . . . 5
(e) Closing of UPEN Common Stock Transfer Books . . . . . . . . . 5
(f) Termination of Duties of Exchange Agent . . . . . . . . . . . 6
ARTICLE III - THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.1 The Closing . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF WPS . . . . . . . . . . 6
Section 4.1 Organization and Qualification . . . . . . . . . . . . . 6
Section 4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . 7
Section 4.3 Authority; Non-contravention; Statutory
Approvals; Compliance . . . . . . . . . . . . . . . . . 8
(a) Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(b) Non-contravention . . . . . . . . . . . . . . . . . . . . . . 8
(c) Statutory Approvals . . . . . . . . . . . . . . . . . . . . . 9
(d) Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.4 Reports and Financial Statements . . . . . . . . . . . . 10
Section 4.5 Absence of Certain Changes or Events . . . . . . . . . . 11
Section 4.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.7 Registration Statement and Proxy Statement . . . . . . . 12
Section 4.8 Regulation as a Utility . . . . . . . . . . . . . . . . 12
Section 4.9 Vote Not Required . . . . . . . . . . . . . . . . . . . 12
Section 4.10 Ownership of UPEN Common Stock . . . . . . . . . . . . . 12
Section 4.11 WPS Rights Agreement . . . . . . . . . . . . . . . . . . 13
Section 4.12 Accounting Matters . . . . . . . . . . . . . . . . . . . 13
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF UPEN . . . . . . . . . . 13
Section 5.1 Organization and Qualification . . . . . . . . . . . . . 13
Section 5.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.3 Capitalization . . . . . . . . . . . . . . . . . . . . . 15
Section 5.4 Authority; Non-contravention; Statutory
Approvals; Compliance . . . . . . . . . . . . . . . . . 15
(a) Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Non-contravention . . . . . . . . . . . . . . . . . . . . . . 16
(c) Statutory Approvals . . . . . . . . . . . . . . . . . . . . . 16
(d) Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.5 Reports and Financial Statements . . . . . . . . . . . . 18
Section 5.6 Absence of Certain Changes or Events . . . . . . . . . . 18
Section 5.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.8 Registration Statement and Proxy Statement . . . . . . . 19
Section 5.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . 20
(a) Filing of Timely Tax Returns . . . . . . . . . . . . . . . . 20
(b) Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . 20
(c) Tax Reserves . . . . . . . . . . . . . . . . . . . . . . . . 20
(d) Tax Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(e) Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . 20
(f) Extensions of Time for Filing Tax Returns . . . . . . . . . . 20
(g) Waivers of Statute of Limitations . . . . . . . . . . . . . . 20
(h) No Assessments . . . . . . . . . . . . . . . . . . . . . . . 20
(i) Audit, Administrative and Court Proceedings . . . . . . . . . 21
(j) Powers of Attorney . . . . . . . . . . . . . . . . . . . . . 21
(k) Tax Rulings . . . . . . . . . . . . . . . . . . . . . . . . . 21
(l) Availability of Tax Returns . . . . . . . . . . . . . . . . . 21
(m) Tax Sharing Agreements . . . . . . . . . . . . . . . . . . . 21
(n) Code Section 280G . . . . . . . . . . . . . . . . . . . . . . 21
(o) Liability for Others . . . . . . . . . . . . . . . . . . . . 21
(p) Certain Definitions . . . . . . . . . . . . . . . . . . . . . 21
Section 5.10 Employee Matters; ERISA . . . . . . . . . . . . . . . . 22
(a) Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Contributions . . . . . . . . . . . . . . . . . . . . . . . . 22
(c) Multiemployer Pension Plans . . . . . . . . . . . . . . . . . 22
(d) Title IV of ERISA . . . . . . . . . . . . . . . . . . . . . . 22
(e) Qualification; Compliance . . . . . . . . . . . . . . . . . . 23
(f) Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 24
(g) Welfare Plans . . . . . . . . . . . . . . . . . . . . . . . . 24
(h) Documents made Available . . . . . . . . . . . . . . . . . . 24
(i) Payments Resulting from Merger . . . . . . . . . . . . . . . 25
(j) Labor Agreements . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.11 Environmental Protection . . . . . . . . . . . . . . . . 26
(a) Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) Environmental Permits . . . . . . . . . . . . . . . . . . . . 26
(c) Environmental Claims . . . . . . . . . . . . . . . . . . . . 27
(d) Releases . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(e) Predecessors . . . . . . . . . . . . . . . . . . . . . . . . 27
(f) Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 27
(g) Certain Definitions . . . . . . . . . . . . . . . . . . . . . 27
Section 5.12 Regulation as a Utility . . . . . . . . . . . . . . . . 29
Section 5.13 Vote Required . . . . . . . . . . . . . . . . . . . . . 29
Section 5.14 Accounting Matters . . . . . . . . . . . . . . . . . . . 29
Section 5.15 Applicability of Certain Michigan Law, Etc . . . . . . . 29
Section 5.16 Opinion of Financial Advisor . . . . . . . . . . . . . . 29
Section 5.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.18 Ownership of WPS Common Stock . . . . . . . . . . . . . 30
Section 5.19 Title to Assets . . . . . . . . . . . . . . . . . . . . 30
Section 5.20 No Violation of Law; Buildings and Equipment . . . . . . 30
Section 5.21 Existing Contracts . . . . . . . . . . . . . . . . . . . 30
Section 5.22 Performance of Contracts . . . . . . . . . . . . . . . . 31
Section 5.23 Contingent and Undisclosed Liabilities . . . . . . . . . 31
ARTICLE VI - CONDUCT OF BUSINESS BY UPEN PENDING THE MERGER . . . . . . 32
Section 6.1 Covenants of the Parties . . . . . . . . . . . . . . . . 32
Section 6.2 Ordinary Course of Business . . . . . . . . . . . . . . 32
Section 6.3 Dividends . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.4 Issuance of Securities . . . . . . . . . . . . . . . . . 33
Section 6.5 Charter Documents . . . . . . . . . . . . . . . . . . . 33
Section 6.6 No Acquisitions . . . . . . . . . . . . . . . . . . . . 34
Section 6.7 Capital Expenditures and Emission Allowances . . . . . . 34
Section 6.8 No Dispositions . . . . . . . . . . . . . . . . . . . . 34
Section 6.9 Indebtedness . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.10 Compensation, Benefits . . . . . . . . . . . . . . . . . 34
Section 6.11 1935 Act . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 6.12 Transmission, Generation, Power Purchases . . . . . . . 35
Section 6.13 Accounting . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.14 Affiliate Transactions . . . . . . . . . . . . . . . . . 36
Section 6.15 Tax-exempt Status . . . . . . . . . . . . . . . . . . . 36
Section 6.16 Tax Matters . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.17 Discharge of Liabilities . . . . . . . . . . . . . . . . 37
Section 6.18 Contracts . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.20 Permits . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VII - ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . 37
Section 7.1 Access to Information . . . . . . . . . . . . . . . . . 37
Section 7.2 Proxy Statement and Registration Statement . . . . . . . 38
Section 7.3 Regulatory Matters . . . . . . . . . . . . . . . . . . . 39
(a) HSR Filings . . . . . . . . . . . . . . . . . . . . . . . . . 39
(b) Other Regulatory Approvals . . . . . . . . . . . . . . . . . 39
Section 7.4 Shareholder Approval . . . . . . . . . . . . . . . . . . 39
(a) Approval of UPEN Shareholders . . . . . . . . . . . . . . . . 39
(b) Meeting Date . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.5 Director and Officer Indemnification . . . . . . . . . . 40
(a) Indemnification . . . . . . . . . . . . . . . . . . . . . . . 40
(b) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(c) Successors . . . . . . . . . . . . . . . . . . . . . . . . . 41
(d) Survival of Indemnification . . . . . . . . . . . . . . . . . 41
(e) Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.6 Disclosure Schedules . . . . . . . . . . . . . . . . . . 42
Section 7.7 Public Announcements . . . . . . . . . . . . . . . . . . 42
Section 7.8 Rule 145 Affiliates . . . . . . . . . . . . . . . . . . 42
Section 7.9 Employee Agreements. . . . . . . . . . . . . . . . . . . 43
Section 7.10 Employee Benefit Plans . . . . . . . . . . . . . . . . . 44
Section 7.11 No Solicitations . . . . . . . . . . . . . . . . . . . . 44
Section 7.12 WPS Board of Directors . . . . . . . . . . . . . . . . . 45
(a) WPS Board of Directors . . . . . . . . . . . . . . . . . . . 45
(b) UPPCO Advisory Board . . . . . . . . . . . . . . . . . . . . 45
Section 7.13 Employment Contract . . . . . . . . . . . . . . . . . . 45
Section 7.14 Operations Following the Effective Time . . . . . . . . 45
(a) Relationships with Local Suppliers . . . . . . . . . . . . . 45
(b) Charitable and Community Support Activities . . . . . . . . . 46
Section 7.15 Workforce Matters . . . . . . . . . . . . . . . . . . . 46
Section 7.16 Expenses . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.17 Further Assurances . . . . . . . . . . . . . . . . . . . 46
Section 7.18 Charter and By-law Amendments . . . . . . . . . . . . . 47
Section 7.19 Pooling; Long Term Stock Incentive Plan . . . . . . . . 47
Section 7.20 Tax-free Status . . . . . . . . . . . . . . . . . . . . 47
Section 7.21 Cooperation, Notification . . . . . . . . . . . . . . . 47
Section 7.22 Third-party Consents . . . . . . . . . . . . . . . . . . 48
ARTICLE VIII - CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.1 Conditions to each Party's Obligation to
Effect the Merger . . . . . . . . . . . . . . . . . . . 48
(a) Shareholder Approval . . . . . . . . . . . . . . . . . . . . 48
(b) No Injunction . . . . . . . . . . . . . . . . . . . . . . . . 48
(c) Registration Statement . . . . . . . . . . . . . . . . . . . 49
(d) Listing of Shares . . . . . . . . . . . . . . . . . . . . . . 49
(e) Statutory Approvals . . . . . . . . . . . . . . . . . . . . . 49
Section 8.2 Further Conditions to Obligation of UPEN to
Effect the Merger . . . . . . . . . . . . . . . . . . . 50
(a) Performance of Obligations of WPS . . . . . . . . . . . . . . 50
(b) Representations and Warranties . . . . . . . . . . . . . . . 50
(c) Closing Certificates . . . . . . . . . . . . . . . . . . . . 50
(d) Material Adverse Effect . . . . . . . . . . . . . . . . . . . 50
(e) Tax Opinions . . . . . . . . . . . . . . . . . . . . . . . . 50
(f) Required Consents . . . . . . . . . . . . . . . . . . . . . . 51
(g) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . 51
(h) Trigger of WPS Rights . . . . . . . . . . . . . . . . . . . . 51
Section 8.3 Further Conditions to Obligation of WPS to
Effect the Merger . . . . . . . . . . . . . . . . . . . 51
(a) Performance of Obligations of UPEN . . . . . . . . . . . . . 51
(b) Representations and Warranties . . . . . . . . . . . . . . . 51
(c) Closing Certificates . . . . . . . . . . . . . . . . . . . . 52
(d) Material Adverse Effect . . . . . . . . . . . . . . . . . . . 52
(e) Tax Opinions . . . . . . . . . . . . . . . . . . . . . . . . 52
(f) Required Consents . . . . . . . . . . . . . . . . . . . . . . 52
(g) Affiliate Agreements . . . . . . . . . . . . . . . . . . . . 52
(h) Pooling . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(i) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE IX - TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . 53
Section 9.1 Termination . . . . . . . . . . . . . . . . . . . . . . 53
Section 9.2 Effect of Termination . . . . . . . . . . . . . . . . . 55
Section 9.3 Termination Fee . . . . . . . . . . . . . . . . . . . . 55
(a) Termination Fee Upon Breach . . . . . . . . . . . . . . . . 55
(b) Additional Termination Fee . . . . . . . . . . . . . . . . . 56
(c) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE X - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . 58
Section 10.1 Non-survival; Effect of Representations and
Warranties . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.2 Brokers . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.4 Miscellaneous . . . . . . . . . . . . . . . . . . . . . 59
Section 10.5 Interpretation . . . . . . . . . . . . . . . . . . . . . 60
Section 10.6 Counterparts; Effect . . . . . . . . . . . . . . . . . . 60
Section 10.7 Binding Effect; Benefits . . . . . . . . . . . . . . . . 60
Section 10.8 Enforcement . . . . . . . . . . . . . . . . . . . . . . 60
THIS AGREEMENT AND PLAN OF MERGER, dated as of July 10, 1997
(this "Agreement"), by and between WPS Resources Corporation, a
corporation incorporated under the laws of the State of Wisconsin ("WPS")
and UPPER PENINSULA ENERGY CORPORATION, a corporation incorporated under
the laws of the State of Michigan ("UPEN"),
W I T N E S S E T H:
WHEREAS, WPS and UPEN have determined that it would be in their
respective best interests and in the interests of their respective
shareholders to effect the transactions contemplated by this Agreement;
WHEREAS, in furtherance thereof, the respective Boards of
Directors of WPS and UPEN have approved this Agreement and the Merger (as
defined in Section 1.1 below) on the terms and conditions set forth in
this Agreement;
WHEREAS, for Federal income tax purposes, it is intended that
the transaction contemplated herein will be a reorganization described in
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations thereunder, and that the parties hereto and
their respective shareholders will recognize no gain or loss for Federal
income tax purposes as a result of the consummation of the Merger;
WHEREAS, for accounting purposes, it is intended that the Merger
will be accounted for as a pooling of interests in accordance with
generally accepted accounting principles applied on a consistent basis
("GAAP") and applicable regulations of the Securities and Exchange
Commission (the "SEC");
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein,
the parties hereto, intending to be legally bound hereby, agree as
follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the
conditions of this Agreement:
(a) at the Effective Time UPEN shall be merged with and into
WPS (the "Merger") in accordance with the laws of the States of Wisconsin
and Michigan;
(b) WPS shall be the surviving corporation of the Merger and
shall continue its corporate existence under the laws of the State of
Wisconsin; and
(c) the effects and the consequences of the Merger shall be as
set forth in Section 1.2.
Section 1.2 Effects of the Merger. At the Effective Time,
(a) the Restated Articles of Incorporation of WPS, as in effect
immediately prior to the Effective Time shall be the Restated Articles of
Incorporation of WPS as the surviving corporation in the Merger until
thereafter amended, and
(b) the By-laws of WPS, as in effect immediately prior to the
Effective Time, shall be the By-laws of WPS as the surviving corporation
in the Merger until thereafter amended.
Subject to the foregoing, the additional effects of the Merger shall be as
provided in the applicable provisions of the Wisconsin Business
Corporation Law (the "WBCL") and the Michigan Business Corporation Act
(the "MBCA").
Section 1.3 Effective Time of the Merger. On the Closing
Date (as hereinafter defined), articles of merger and a certificate of
merger together with a Plan of Merger in substantially the form attached
hereto as Exhibit 1.3, which Plan of Merger is incorporated by reference
herein and deemed a part hereof (the "Plan of Merger"), complying with the
requirements of the WBCL and the MBCA, shall be executed by WPS and UPEN
and shall be filed by WPS and UPEN, as appropriate, with the Department of
Financial Institutions of the State of Wisconsin pursuant to the WBCL and
the Department of Consumer and Industry Services of the State of Michigan
pursuant to the MBCA. The Merger shall become effective at the time (the
"Effective Time") specified in the appropriate articles of merger and
certificate of merger filed with respect to the Merger, or absent such
specification upon such filing.
ARTICLE II
TREATMENT OF SHARES
Section 2.1 Effect of the Merger on Capital Stock. At the
Effective Time, by virtue of the Merger and without any action on the part
of any holder of any capital stock of WPS or UPEN:
(a) Cancellation of Certain Common Stock.
Each share of Common Stock, without par value, of UPEN (the
"UPEN Common Stock") that is owned by UPEN or WPS or any of their
respective Subsidiaries (as hereinafter defined) shall be canceled
and shall cease to exist.
(b) Conversion of Certain Common Stock.
(i) Each issued and outstanding share of UPEN Common Stock
(but excluding shares canceled pursuant to Section 2.1(a)) shall be
converted into the right to receive nine-tenths (.9) of a share of
duly authorized, validly issued, fully paid and nonassessable (except
as otherwise provided in Section 180.0622(2)(b) of the WBCL) Common
Stock, par value $1.00 per share, of WPS ("WPS Common Stock"),
including if applicable, associated rights (the "WPS Rights") to
purchase shares of WPS Common Stock pursuant to the terms of that
certain Rights Agreement between WPS and Firstar Trust Company, as
Rights Agent thereunder, dated as of December 12, 1996 (the "WPS
Rights Agreement"). Until the Distribution Date (as defined in the
WPS Rights Agreement) all references in this Agreement to WPS Common
Stock shall be deemed to include the associated WPS Rights.
(ii) Upon such conversions and except as otherwise
provided in Section 2.2, all such shares of UPEN Common Stock shall
be canceled and cease to exist, and each holder of a certificate
formerly representing any such shares of UPEN Common Stock shall
cease to have rights with respect thereto, except the right to
receive the shares of WPS Common Stock to be issued in consideration
therefor upon the surrender of such certificate in accordance with
Section 2.3 and any cash in lieu of fractional shares of WPS Common
Stock.
Section 2.2 Issuance of New Certificates.
(a) Deposit with Exchange Agent. As soon as practicable after
the Effective Time, WPS shall deposit with Firstar Trust Company,
Milwaukee, Wisconsin, or other appropriate entity mutually agreeable to
WPS and UPEN (the "Exchange Agent"), certificates representing shares of
WPS Common Stock required to effect the issuance referred to in
Section 2.1, together with cash payable in respect of fractional shares
pursuant to Section 2.2(d).
(b) Issuance Procedures.
(i) As soon as practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate
or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of UPEN Common Stock
(the "Converted Common Shares"), that were converted into the right
to receive shares of WPS Common Stock pursuant to Section 2.1 and the
Plan of Merger, (A) a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon actual delivery of the
Certificates to the Exchange Agent), and (B) instructions for use in
effecting the surrender of the Certificates in exchange for
certificates representing WPS Common Stock.
(ii) Upon surrender of a Certificate to the Exchange Agent
for cancellation (or to such other agent or agents as may be
appointed by agreement of WPS and UPEN), together with a duly
executed letter of transmittal and such other documents as the
Exchange Agent shall require, the holder of such Certificate shall be
entitled to receive a certificate representing that number of whole
shares of WPS Common Stock which such holder has the right to receive
pursuant to the provisions of this Article II and the Plan of Merger.
In the event of a transfer of ownership of Converted Common Shares
which is not registered in the transfer records of UPEN, a
certificate representing the proper number of shares of WPS Common
Stock may be issued to a transferee if the Certificate representing
such Converted Common Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such
transfer and by evidence satisfactory to the Exchange Agent that any
applicable stock transfer taxes have been paid. If any Certificate
shall have been lost, stolen, mislaid or destroyed, upon receipt of
(i) an affidavit of that fact from the holder claiming such
Certificate to be lost, mislaid, stolen or destroyed, (ii) such bond,
security or indemnity as WPS or the Exchange Agent may reasonably
require, and (iii) any other documentation necessary to evidence and
effect the bona fide exchange thereof, the Exchange Agent shall issue
to such holder a certificate representing the number of shares of WPS
Common Stock into which the shares represented by such lost, stolen,
mislaid or destroyed Certificate shall have been converted.
(iii) Until surrendered as contemplated by this Section 2.2,
each Certificate shall be deemed at any time after the Effective Time
to represent only the right to receive upon such surrender the
certificate representing WPS Common Stock and cash in lieu of any
fractional shares of WPS Common Stock contemplated by this
Section 2.2.
(c) Distributions with Respect to Unsurrendered Shares.
(i) No dividends or other distributions declared or made
after the Effective Time with respect to shares of WPS Common Stock
with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of
WPS Common Stock to be delivered upon surrender thereof and no cash
payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 2.2(d) until the holder of record of such
Certificate (or a transferee as described in Section 2.2(b)) shall
surrender such Certificate.
(ii) Subject to the effect of unclaimed property, escheat
and other applicable laws, following surrender of any such
Certificate, there shall be paid to the record holder (or a
transferee as described in Section 2.2(b)) thereof the certificates
representing whole shares of WPS Common Stock issued in consideration
therefor, without interest,
(A) at the time of such surrender, the amount of cash
in lieu of a fractional share of WPS Common Stock to which such
holder (or transferee) is entitled pursuant to Section 2.2(d)
and the amount of dividends or other distributions with a record
date after the Effective Time which theretofore became payable
but which were not paid by reason of Section 2.2(c)(i) with
respect to such whole shares of WPS Common Stock, and
(B) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole
shares of WPS Common Stock.
(d) No Fractional Securities.
(i) Notwithstanding any other provision of this Agreement,
no certificates or scrip representing fractional shares of WPS Common
Stock shall be issued upon the surrender for exchange of Certificates
and such fractional shares shall not entitle the owner thereof to
vote as, or to any other rights of, a holder of WPS Common Stock.
(ii) A holder of UPEN Common Stock who would otherwise have
been entitled to receive a fractional share of WPS Common Stock shall
be entitled to receive a cash payment in lieu of such fractional
share in an amount equal to the product (rounded to the nearest cent)
of such fraction (rounded to the nearest thousandth) multiplied by
the average of the last reported sales price, per share of WPS Common
Stock as reported in the New York Stock Exchange ("NYSE") Composite
Transactions as reported in The Wall Street Journal for the last ten
trading days prior to and including the last trading day prior to the
Effective Time on which WPS Common Stock was traded on the NYSE,
without any interest thereon.
(e) Closing of UPEN Common Stock Transfer Books. From and
after the Effective Time, the stock transfer books of UPEN with respect to
shares of UPEN Common Stock issued and outstanding prior to the Effective
Time shall be closed and no transfer of any such shares shall thereafter
be made. If, after the Effective Time, Certificates are presented to WPS,
they shall be canceled and exchanged for certificates representing the
appropriate number of shares of WPS Common Stock as provided in this
Section 2.2.
(f) Termination of Duties of Exchange Agent. Any certificates
representing WPS Common Stock deposited with the Exchange Agent pursuant
to Section 2.2(a) and not exchanged within one year after the Effective
Time pursuant to this Section 2.2 shall be returned by the Exchange Agent
to WPS, which shall thereafter act as Exchange Agent. All funds held by
the Exchange Agent for payment to the holders of unsurrendered
Certificates and unclaimed at the end of one year from the Effective Time
shall be returned to WPS, after which time any holder of unsurrendered
Certificates shall look as a general unsecured creditor only to WPS for
payment of such funds to which such holder may be due, subject to
applicable law. WPS shall not be liable to any person for such shares or
funds delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
ARTICLE III
THE CLOSING
Section 3.1 The Closing. The closing of the Merger (the
"Closing") shall take place at the offices of Foley & Lardner, 777 East
Wisconsin Avenue, Milwaukee, Wisconsin, at 10:00 a.m. (Milwaukee,
Wisconsin local time) on the second business day immediately following the
date on which the last of the conditions set forth in Article VIII hereof
is fulfilled or waived, or at such other time and date and place as WPS
and UPEN shall mutually agree (the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WPS
WPS represents and warrants to UPEN as follows:
Section 4.1 Organization and Qualification.
(a) Except as set forth in Section 4.1 of the Disclosure
Schedule to this Agreement prepared and delivered by WPS (the "WPS
Disclosure Schedule"), each of WPS and the WPS Subsidiaries (as
hereinafter defined) is a corporation duly organized, validly existing and
in good standing (to the extent applicable) under the laws of its
respective jurisdiction of incorporation or organization, has all
requisite corporate power and authority, and has been duly authorized by
all necessary approvals and orders to own, lease and operate its assets
and properties to the extent owned, leased and operated and to carry on
its business as it is now being conducted and is duly qualified and in
good standing (to the extent applicable) to do business in each respective
jurisdiction in which the nature of its business or the ownership or
leasing of its assets and properties makes such qualification necessary,
other than in such jurisdictions where the failure to be so qualified and
in good standing would not, when taken together with all other such
failures, have a WPS Material Adverse Effect.
(b) As used in this Agreement,
(i) "Subsidiary" of a person shall mean any corporation or
other entity (including partnerships and other business associations)
of which at least a majority of the outstanding capital stock or
other voting securities having voting power under ordinary
circumstances to elect directors or similar members of the governing
body of such corporation or entity shall at the time be held,
directly or indirectly, by such person or entity;
(ii) "WPS Subsidiary" shall mean any Subsidiary of WPS.
(iii) "WPS Material Adverse Effect" shall mean a material
adverse effect on the business, operations, properties, assets,
condition (financial or otherwise), or the results of operations of
WPS and the WPS Subsidiaries taken as a whole or on the consummation
of the transactions contemplated hereby.
Section 4.2 Capitalization.
(a) The authorized capital stock of WPS consists of 100,000,000
shares of WPS Common Stock of which 23,896,962 shares were issued and
outstanding as of June 30, 1997;
(b) All of the issued and outstanding shares of WPS Common
Stock are, and any shares of WPS Common Stock issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, nonassessable
(except as otherwise provided in Section 180.0622(2)(b) of the WBCL) and
free of preemptive rights.
(c) Except as set forth on Section 4.2(c) of the WPS Disclosure
Schedule, as of the date hereof, there are no outstanding subscriptions,
options, calls, contracts, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating WPS to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of WPS Common Stock, or
obligating WPS to grant, extend or enter any such agreement or commitment,
other than the WPS Rights Agreement.
Section 4.3 Authority; Non-contravention; Statutory
Approvals; Compliance.
(a) Authority. WPS has all requisite corporate power and
authority to enter into this Agreement, and, subject to the applicable WPS
Required Statutory Approvals (as hereinafter defined), to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation by WPS of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of WPS. This Agreement has been duly and validly executed and
delivered by WPS and, assuming the due authorization, execution and
delivery hereof by UPEN, constitutes the valid and binding obligation of
WPS enforceable against it in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally, and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which
any proceeding therefor may be brought.
(b) Non-contravention. Except as set forth in
Section 4.3(b) of the WPS Disclosure Schedule, the execution and delivery
of this Agreement by WPS do not, and the consummation of the transactions
contemplated hereby will not violate, conflict with, or result in a breach
of any provision of, or constitute a default (with or without notice or
lapse of time or both) under, or result in the termination or modification
of, or accelerate the performance required by, or result in a right of
termination, cancellation, or acceleration of any obligation or the loss
of a benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
WPS or any of the WPS Subsidiaries or (any such violation, conflict,
breach, default, termination, modification, cancellation, acceleration,
loss or creation, a "Violation" with respect to WPS, such term when used
in Article V having a correlative meaning with respect to UPEN) pursuant
to any provisions of:
(i) the Articles of Incorporation, By-laws or similar
governing documents of WPS or any of the WPS Subsidiaries;
(ii) subject to obtaining the WPS Required Statutory
Approvals, any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any
Governmental Authority (as hereinafter defined) applicable to WPS or
any of the WPS Subsidiaries or any of their respective properties or
assets; or
(iii) subject to obtaining the third-party consents set
forth in Section 4.3(b) of the WPS Disclosure Schedule (the "WPS
Required Consents") any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or
other instrument, obligation or agreement of any kind to which WPS or
any of the WPS Subsidiaries is a party or by which it or any of its
properties or assets may be bound or affected,
excluding from the foregoing clauses (ii) and (iii) such Violations which,
in the aggregate do not, and insofar as reasonably can be foreseen, would
not, have a WPS Material Adverse Effect.
(c) Statutory Approvals. No declaration, filing or
registration with, or notice to or authorization, consent or approval of,
any court, Federal, state, local or foreign governmental or regulatory
body (including a stock exchange or other self-regulatory body) or
authority (each, a "Governmental Authority") is necessary for the
execution and delivery of this Agreement by WPS or the consummation by WPS
of the transactions contemplated hereby, the failure to obtain, make or
give which would have, in the aggregate, a WPS Material Adverse Effect,
except as described in Section 4.3(c) of the WPS Disclosure Schedule (the
"WPS Required Statutory Approvals," it being understood that references in
this Agreement to "obtaining" such WPS Required Statutory Approvals shall
mean making such declarations, filings or registrations; giving such
notices; obtaining such authorizations, consents or approvals; and having
such waiting periods expire as are necessary to avoid a violation of law).
(d) Compliance.
(i) Except as set forth in Section 4.3(d) of the WPS
Disclosure Schedule, or as disclosed in the WPS SEC Reports (as
hereinafter defined) filed prior to the date hereof, neither WPS nor
any of the WPS Subsidiaries is in violation of, is under
investigation with respect to any violation of, or has been given
notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance or judgment (including, without
limitation, any applicable environmental law, ordinance or
regulation) of any Governmental Authority, except for violations
which, in the aggregate do not, and insofar as reasonably can be
foreseen, would not, have a WPS Material Adverse Effect.
(ii) Except as set forth in Section 4.3(d) of the WPS
Disclosure Schedule, WPS and the WPS Subsidiaries have all permits,
licenses, franchises and other governmental authorizations, consents
and approvals (collectively, the "Permits") necessary to conduct
their businesses as presently conducted, except those the failure of
which to obtain, in the aggregate do not, and insofar as reasonably
can be foreseen, would not, have a WPS Material Adverse Effect.
(iii) Except as set forth in Section 4.3(d) of the WPS
Disclosure Schedule, each of WPS and the WPS Subsidiaries is not in
breach, Violation or default in the performance or observance of any
term or provision of, and no event has occurred which, with lapse of
time or action by a third party, could result in a default under,
(A) its Articles of Incorporation or By-laws, or
(B) any contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval
or other instrument to which it is a party or by which it is
bound or to which any of its property is subject, except for
breaches, violations or defaults which, in the aggregate do not,
and insofar as reasonably can be foreseen, would not, have a WPS
Material Adverse Effect.
Section 4.4 Reports and Financial Statements.
(a) The filings required to be made by WPS and the WPS
Subsidiaries since January 1, 1994 under the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Public Utility Holding Company Act of
1935, as amended (the "1935 Act"), the Federal Power Act (the "Power
Act"), the Atomic Energy Act of 1954, as amended (the "Atomic Energy Act")
and applicable state laws and regulations have been filed with the SEC,
the Federal Energy Regulatory Commission (the "FERC"), the Nuclear
Regulatory Commission (the "NRC"), the Department of Energy (the "DOE") or
any appropriate state public utilities commission, as the case may be,
including all forms, statements, reports, agreements (oral or written) and
all documents, exhibits, amendments and supplements appertaining thereto,
and complied, as of their respective dates, in all material respects with
all applicable requirements of the appropriate statute and the rules and
regulations thereunder.
(b) WPS has made available to UPEN a true and complete copy of
each form, report, schedule, registration statement and definitive proxy
statement filed by each of WPS and its subsidiary, Wisconsin Public
Service Corporation ("WPSC") with the SEC since January 1, 1994 (as such
documents have since the time of their filing been amended or
supplemented, the "WPS SEC Reports") and each other filing described in
Section 4.4(a). As of their respective dates, the WPS SEC Reports did not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(c) The audited consolidated financial statements and unaudited
interim financial statements of WPS and WPSC, as the case may be, included
in the WPS SEC Reports (collectively, the "WPS Financial Statements") have
been prepared in accordance with GAAP (except as may be indicated therein
or in the notes thereto and except with respect to unaudited statements as
permitted by Form 10-Q under the Exchange Act) and fairly present in all
material respects the financial position of WPS or WPSC, as the case may
be, as of the dates thereof and the results of its operations and cash
flows for the periods then ended, subject, in the case of the unaudited
interim financial statements, to normal, recurring audit adjustments.
(d) True, accurate and complete copies of the Restated Articles
of Incorporation and By-laws of WPS and the WPS Rights Agreement, as in
effect on the date hereof, have been delivered to UPEN.
Section 4.5 Absence of Certain Changes or Events. Except as
disclosed in the WPS and WPSC SEC Reports filed prior to the date hereof
or as set forth in Section 4.5 of the WPS Disclosure Schedule, since
December 31, 1996, WPS and each of the WPS Subsidiaries have conducted
their businesses only in the ordinary course of their respective
businesses consistent with past practice and there has not been, and no
facts or conditions exist (other than facts or conditions of general
applicability to electric and gas utility companies in the region in which
WPS operates) which, in the aggregate have, or insofar as reasonably can
be foreseen, would have, a WPS Material Adverse Effect.
Section 4.6 Litigation. Except as disclosed in the WPS SEC
Reports filed prior to the date hereof or as set forth in Section 4.6 of
the WPS Disclosure Schedule,
(a) there are no claims, suits, actions or proceedings pending
or, to the knowledge of WPS, threatened, nor are there, to the knowledge
of WPS, any investigations or reviews pending or threatened against,
relating to or affecting WPS or any of the WPS Subsidiaries;
(b) there have not been any developments since December 31,
1996 with respect to such disclosed claims, suits, actions, proceedings,
investigations or reviews; and
(c) there are no judgments, decrees, injunctions, rules or
orders of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to WPS or any of
the WPS Subsidiaries, which, when taken together with any other
nondisclosures of matters described in clauses (a), (b) and (c), have, or
insofar as reasonably can be foreseen, would have, a WPS Material
Adverse Effect.
Section 4.7 Registration Statement and Proxy Statement.
(a) None of the information supplied or to be supplied by or on
behalf of WPS for inclusion or incorporation by reference in:
(i) the registration statement on Form S-4 to be filed
with the SEC by WPS in connection with the issuance of shares of WPS
Common Stock in the Merger (the "Registration Statement") will, at
the time the Registration Statement is filed with the SEC and at the
time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading; and
(ii) the proxy statement, in definitive form, relating to
the meeting of UPEN shareholders to be held in connection with the
Merger (the "Proxy Statement") will, at the date mailed to such
shareholders and, as the same may be amended or supplemented, at the
time of the meeting of UPEN shareholders to be held in connection
with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(b) The Registration Statement will comply as to form in all
material respects with the provisions of the Securities Act and the
applicable rules and regulations thereunder.
Section 4.8 Regulation as a Utility.
(a) WPSC is regulated as a public utility in the States of
Wisconsin and Michigan. Except as set forth in Section 4.8 of the WPS
Disclosure Schedule, neither WPS nor any "subsidiary company" or
"affiliate" of WPS is subject to regulation as a public utility or public
service company (or similar designation) by any other state in the United
States or any foreign country. WPS is an exempt holding company under
Section 3(a)(1) of the 1935 Act.
(b) As used in this Section 4.8 and in Section 5.12, the terms
"subsidiary company" and "affiliate" shall have the respective meanings
ascribed to them in the 1935 Act.
Section 4.9 Vote Not Required. The approval by the holders
of WPS Common Stock is not required for any of the transactions
contemplated by this Agreement.
Section 4.10 Ownership of UPEN Common Stock. Except as set
forth in Section 4.10 of the WPS Disclosure Schedule, WPS does not
"beneficially own" (as such term is defined for purposes of Section 13(d)
of the Exchange Act) any shares of UPEN Common Stock.
Section 4.11 WPS Rights Agreement. Assuming the accuracy of
the representations contained in Section 5.18, the consummation of the
transactions contemplated by this Agreement will not result in the
triggering of any right or entitlement of WPS shareholders under the WPS
Rights Agreement.
Section 4.12 Accounting Matters. Neither WPS, nor to WPS's
knowledge, WPS's Affiliates has taken or agreed to take any action that
would prevent WPS from accounting for the transactions contemplated by
this Agreement as a pooling of interests in accordance with GAAP and
applicable SEC regulations.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF UPEN
UPEN represents and warrants to WPS as follows:
Section 5.1 Organization and Qualification.
(a) Except as set forth in Section 5.1 of the Disclosure
Schedule to this Agreement prepared and delivered by UPEN (the "UPEN
Disclosure Schedule"), each of UPEN and the UPEN Subsidiaries (as
hereinafter defined) is a corporation duly organized, validly existing and
in good standing (to the extent applicable) under the laws of its
respective jurisdiction of incorporation or organization, has all
requisite corporate power and authority, and has been duly authorized by
all necessary approvals and orders to own, lease and operate its assets
and properties to the extent owned, leased and operated and to carry on
its business as it is now being conducted and is duly qualified and in
good standing (to the extent applicable) to do business in each respective
jurisdiction in which the nature of its business or the ownership or
leasing of its assets and properties makes such qualification necessary,
other than in such jurisdictions where the failure to be so qualified and
in good standing would not, when taken together with all other such
failures, have an "UPEN Material Adverse Effect."
(b) As used in this Agreement, "UPEN Material Adverse Effect"
shall mean a material adverse effect on the business, operations,
properties, assets, condition (financial or otherwise), or the results of
operations of UPEN and the UPEN Subsidiaries taken as a whole or on the
consummation of the transactions contemplated hereby.
Section 5.2 Subsidiaries.
(a) Section 5.2 of the UPEN Disclosure Schedule sets forth a
description as of the date hereof, of all UPEN Subsidiaries and UPEN Joint
Ventures, including (i) the name of each such entity and UPEN's interest
therein, and (ii) a brief description of the principal line or lines of
business conducted by each such entity.
(b) Except as set forth in Section 5.2 of the UPEN Disclosure
Schedule, none of the UPEN Subsidiaries is a "public utility company," a
"holding company," a "subsidiary company" or an "affiliate" of any public
utility company within the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8) or
2(a)(11) of the 1935 Act, respectively.
(c) Except as set forth in Section 5.2 of the UPEN Disclosure
Schedule, all of the issued and outstanding shares of capital stock of
each UPEN Subsidiary are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights, and, except for the
outstanding shares of Upper Peninsula Power Co., a Michigan corporation
("UPPCO") preferred stock, are owned, directly or indirectly, by UPEN free
and clear of any liens, claims, encumbrances, security interests,
equities, charges and options of any nature whatsoever, and there are no
outstanding subscriptions, options, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under
any outstanding security, instrument or other agreement, obligating any
such UPEN Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of its capital stock, or granting to
any person other than UPEN or an UPEN Subsidiary any right to participate
in its dividends or earnings or obligating it to grant, extend or enter
into any such agreement or commitment.
(d) As used in this Agreement,
(i) "UPEN Subsidiary" shall mean any Subsidiary of UPEN;
and
(ii) "Joint Venture" of a person or entity shall mean any
corporation or other entity (including partnerships and other
business associations) that is not a Subsidiary of such person or
entity, in which such person or one or more of its Subsidiaries owns
directly or indirectly an equity interest, other than equity
interests held for passive investment purposes which are less than 5%
of each class of the outstanding voting securities or equity
interests of any such entity; and
(iii) "UPEN Joint Venture" shall mean any Joint Venture of
UPEN or any UPEN Subsidiary.
Section 5.3 Capitalization.
(a) The authorized capital stock of UPEN consists of
(i) 5,000,000 shares of UPEN Common Stock of which
2,950,001 shares were issued and outstanding as of the date hereof,
and
(ii) 500,000 shares of Preferred Stock, without par value,
none of which are issued or outstanding.
(b) The authorized capital stock of UPEN's Subsidiary, UPPCO,
("UPPCO") consists of
(i) 3,000,000 shares of common stock, par value $1.00 per
share of which 1,473,936 shares are issued and outstanding as of the
date hereof ("UPPCO Common Stock"), and
(ii) 300,000 shares of Preferred Stock, $100 par value of
which 4,507 shares were issued and outstanding as of the date hereof.
(iii)1,000,000 shares of preference stock, par value $1.00
per share, none of which are issued or outstanding.
(c) All of the issued and outstanding shares of UPEN Common
Stock and UPPCO Common Stock are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights.
(d) Except as set forth in Section 5.3 of the UPEN Disclosure
Schedule, as of the date hereof, there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating UPEN or any of the UPEN
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of the capital stock of UPEN, or obligating
UPEN to grant, extend or enter into any such agreement or commitment.
Section 5.4 Authority; Non-contravention; Statutory
Approvals; Compliance.
(a) Authority. UPEN has all requisite corporate power and
authority to enter into this Agreement and, subject to the applicable UPEN
Shareholders' Approval (as hereinafter defined) and the applicable UPEN
Required Statutory Approvals (as hereinafter defined), to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation by UPEN of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of UPEN, subject to obtaining the applicable UPEN Shareholders'
Approval. This Agreement has been duly and validly executed and delivered
by UPEN and, assuming the due authorization, execution and delivery hereof
and thereof by WPS, constitutes the valid and binding obligation of UPEN
enforceable against it in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally, and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which
any proceeding therefor may be brought.
(b) Non-contravention. Except as set forth in
Section 5.4(b) of the UPEN Disclosure Schedule, the execution and delivery
of this Agreement by UPEN do not, and the consummation of the transactions
contemplated hereby will not, result in a Violation pursuant to any
provisions of:
(i) the Articles of Incorporation, By-laws or similar
governing documents of UPEN or any of the UPEN Subsidiaries or the
UPEN Joint Ventures;
(ii) subject to obtaining the UPEN Required Statutory
Approvals and the receipt of the UPEN Shareholders' Approval, any
statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any Governmental Authority
applicable to UPEN or any of UPEN Subsidiaries or UPEN Joint Ventures
or any of their respective properties or assets, or
(iii) subject to obtaining the third-party consents set
forth in Section 5.4(b) of the UPEN Disclosure Schedule (the "UPEN
Required Consents"), any material note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to
which UPEN or any of the UPEN Subsidiaries or UPEN Joint Ventures is
a party or by which it or any of its properties or assets may be
bound or affected,
excluding from the foregoing clauses (ii) and (iii) such violations which,
in the aggregate do not, and insofar as reasonably can be foreseen, would
not, have an UPEN Material Adverse Effect.
(c) Statutory Approvals. No declaration, filing or
registration with, or notice to or authorization, consent or approval of,
any Governmental Authority is necessary for the execution and delivery of
this Agreement or the consummation by UPEN of the transactions
contemplated hereby, except as described in this Agreement or
Section 5.4(c) of the UPEN Disclosure Schedule (the "UPEN Required
Statutory Approvals", the failure to obtain, make or give which would
have, in the aggregate, a UPEN Material Adverse Effect, it being
understood that references in this Agreement to "obtaining" such UPEN
Required Statutory Approvals shall mean making such declarations, filings
or registrations; giving such notices; obtaining such authorizations,
consents or approvals; and having such waiting periods expire as are
necessary to avoid a violation of law).
(d) Compliance.
(i) (A) Except as set forth in Section 5.4(d),
Section 5.10 or Section 5.11 of the UPEN Disclosure Schedule, or as
disclosed in the UPEN SEC Reports (as hereinafter defined) filed
prior to the date hereof, neither UPEN nor any of the UPEN
Subsidiaries nor, to the knowledge of UPEN, any UPEN Joint Venture,
is in violation of, is under investigation with respect to any
violation of, or has been given notice or been charged with any
violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental
law, ordinance or regulation) of any Governmental Authority, except
for violations which, in the aggregate do not, and insofar as
reasonably can be foreseen, would not, have an UPEN Material Adverse
Effect.
(B) For purposes of this Agreement "knowledge" shall
mean, with respect to any party hereto, the actual knowledge after
due inquiry of principal executive officers of such party.
(ii) Except as set forth in Section 5.4(d) or in
Section 5.11 of the UPEN Disclosure Schedule, UPEN and the UPEN
Subsidiaries and UPEN Joint Ventures have all Permits necessary to
conduct their businesses as presently conducted, except those the
failure of which to obtain, in the aggregate do not, and insofar as
reasonably can be foreseen, would not, have an UPEN Material Adverse
Effect.
(iii) Except as set forth in Section 5.4(d) of the UPEN
Disclosure Schedule, each of UPEN and the UPEN Subsidiaries and UPEN
Joint Ventures is not in breach, violation, or default in the
performance or observance of any term or provision of, and no event
has occurred which, with lapse of time or action by a third party,
could result in a default under,
(A) its Articles of Incorporation or By-laws, or
(B) any contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval
or other instrument to which it is a party or by which it is
bound or to which any of its property is subject, except for
breaches, violations or defaults which, in the aggregate do not,
and insofar as reasonably can be foreseen, would not, have an
UPEN Material Adverse Effect.
Section 5.5 Reports and Financial Statements.
(a) The filings required to be made by UPEN and the UPEN
Subsidiaries since January 1, 1994 under the Securities Act, the Exchange
Act, the 1935 Act, the Power Act, and applicable state laws and
regulations have been filed with the SEC, the FERC, or any appropriate
state public utilities commission, as the case may be, including all
forms, statements, reports, agreements (oral or written) and all
documents, exhibits, amendments and supplements appertaining thereto, and
complied, as of their respective dates, in all material respects with all
applicable requirements of the appropriate statute and the rules and
regulations thereunder.
(b) UPEN has made available to WPS a true and complete copy of
each form, report, schedule, registration statement and definitive proxy
statement filed by each of UPEN and UPPCO with the SEC since January 1,
1994 (as such documents have since the time of their filing been amended
or supplemented, the "UPEN SEC Reports") and each other filing described
in Section 5.5(a). As of their respective dates, the UPEN SEC Reports did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(c) The audited consolidated financial statements and unaudited
interim financial statements of UPEN, included in the UPEN SEC Reports
(collectively, the "UPEN Financial Statements") have been prepared in
accordance with GAAP (except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements as permitted by
Form 10-Q under the Exchange Act) and fairly present in all material
respects the financial position of UPEN, as of the dates thereof and the
results of its operations and cash flows for the periods then ended,
subject, in the case of the unaudited interim financial statements, to
normal, recurring audit adjustments.
(d) True, accurate and complete copies of the Articles of
Incorporation and By-laws of UPEN, as in effect on the date hereof, have
been delivered to WPS.
Section 5.6 Absence of Certain Changes or Events. Except as
disclosed in the UPEN SEC Reports filed prior to the date hereof or as set
forth in Section 5.6 of the UPEN Disclosure Schedule, since December 31,
1996, UPEN and each of the UPEN Subsidiaries and UPEN Joint Ventures have
conducted their businesses only in the ordinary course of their respective
businesses consistent with past practice and there has not been, and no
facts or conditions exist (other than facts or conditions of general
applicability to electric utility companies in the Upper Peninsula of
Michigan, including, but not limited to, "open access" or other general
utility industry restructuring orders or legislation) which, in the
aggregate have or, insofar as reasonably can be foreseen, would have, an
UPEN Material Adverse Effect.
Section 5.7 Litigation. Except as disclosed in the UPEN SEC
Reports filed prior to the date hereof or as set forth in Section 5.7,
Section 5.9 or Section 5.11 of the UPEN Disclosure Schedule,
(a) there are no claims, suits, actions or proceedings pending
or, to the knowledge of UPEN, threatened, nor are there, to the
knowledge of UPEN, any investigations or reviews pending or
threatened against, relating to or affecting UPEN or any of the UPEN
Subsidiaries and, to the knowledge of UPEN, the UPEN Joint Ventures;
(b) there have not been any developments since December 31,
1996 with respect to such disclosed claims, suits, actions,
proceedings, investigations or reviews; and
(c) there are no judgments, decrees, injunctions, rules or
orders of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to UPEN or
any of the UPEN Subsidiaries and, to the knowledge of UPEN, or the
UPEN Joint Ventures,
which, when taken together with any other nondisclosures of matters
described in clauses (a), (b) and (c), have, or insofar as reasonably can
be foreseen, would have, an UPEN Material Adverse Effect.
Section 5.8 Registration Statement and Proxy Statement.
(a) None of the information supplied or to be supplied by or on
behalf of UPEN for inclusion or incorporation by reference in:
(i) the Registration Statement will, at the time the
Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, not misleading, and
(ii) the Proxy Statement will, at the date mailed to
shareholders and, as the same may be amended or supplemented, at the
time of the meeting of shareholders to be held in connection with the
Merger, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
(b) The Proxy Statement will comply as to form in all material
respects with the provisions of the Securities Act and the Exchange Act,
respectively, and the applicable rules and regulations thereunder.
Section 5.9 Tax Matters. Except as set forth in Section 5.9
of the UPEN Disclosure Schedule:
(a) Filing of Timely Tax Returns. UPEN and each of the UPEN
Subsidiaries have filed (or there has been filed on its behalf) all Tax
Returns required to be filed by each of them under applicable law. All
such Tax Returns were and are in all material respects true, complete and
correct and filed on a timely basis.
(b) Payment of Taxes. UPEN and each of the UPEN Subsidiaries
have, within the time and in the manner prescribed by law, paid all Taxes
that are currently due and payable except for those contested in good
faith and for which adequate reserves have been established on their books
and records.
(c) Tax Reserves. UPEN and the UPEN Subsidiaries have
established on their books and records reserves adequate to pay all Taxes
and reserves for deferred income taxes in accordance with GAAP.
(d) Tax Liens. There are no Tax liens upon the assets of UPEN
or any of the UPEN Subsidiaries except liens for Taxes not yet due.
(e) Withholding Taxes. UPEN and each of the UPEN Subsidiaries
have complied in all material respects with the provisions of the Code
relating to the withholding of Taxes, as well as similar provisions under
any other laws, and have, within the time and in the manner prescribed by
law, withheld from employee wages and paid over to the proper governmental
authorities all amounts required.
(f) Extensions of Time for Filing Tax Returns. Neither UPEN
nor any of the UPEN Subsidiaries has requested any extension of time
within which to file any Tax Return, which Tax Return has not since been
timely filed.
(g) Waivers of Statute of Limitations. Neither UPEN nor any of
the UPEN Subsidiaries has executed any outstanding waivers or comparable
consents regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns.
(h) No Assessments. No deficiency for any Taxes has been
proposed, asserted or assessed against UPEN or any of the UPEN
Subsidiaries that has not been resolved and paid in full.
(i) Audit, Administrative and Court Proceedings. No audits or
other administrative proceedings or court proceedings are presently
pending with regard to any Taxes or Tax Returns of UPEN or any of the UPEN
Subsidiaries.
(j) Powers of Attorney. No power of attorney currently in
force has been granted by UPEN or any of the UPEN Subsidiaries concerning
any Tax matter.
(k) Tax Rulings. Neither UPEN nor any of the UPEN Subsidiaries
has received a Tax Ruling or entered into a Closing Agreement with any
taxing authority that would have a continuing adverse effect after the
Closing Date.
(l) Availability of Tax Returns. For the three years ended
December 31, 1995 UPEN has made available to WPS complete and accurate
copies of (i) all Tax Returns, and any amendments thereto, filed by UPEN
or any of the UPEN Subsidiaries, (ii) all audit reports received from any
taxing authority relating to any Tax Return filed by UPEN or any of the
UPEN Subsidiaries, and (iii) any Closing Agreements entered into by UPEN
or any of the UPEN Subsidiaries with any taxing authority.
(m) Tax Sharing Agreements. Except for agreements among
members of the UPEN consolidated group, neither UPEN nor any UPEN
Subsidiary is a party to any agreement relating to allocating or sharing
of Taxes.
(n) Code Section 280G. Except as set forth in Section 5.9(n)
of the UPEN Disclosure Schedule, neither UPEN nor any of the UPEN
Subsidiaries is a party to any agreement, contract, or arrangement that
could result, on account of the transactions contemplated hereunder,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(o) Liability for Others. None of UPEN or any of the UPEN
Subsidiaries has any liability for Taxes of any person other than UPEN and
the UPEN Subsidiaries (i) under Treasury Regulations Section 1.1502-6 (or
any similar provision of state, local or foreign law) as a transferee or
successor, (ii) by contract, or (iii) otherwise.
(p) Certain Definitions. As used in this Agreement:
(i) "Taxes" means any Federal, state, county, local or
foreign taxes, charges, fees, levies, or other assessments, including
all net income, gross income, sales and use, ad valorem, transfer,
gains, profits, excise, franchise, real and personal property, gross
receipts, capital stock, production, business and occupation,
disability, employment, payroll, license, estimated, stamp, custom
duties, severance or withholding taxes or charges imposed by any
governmental entity, and includes any interest and penalties (civil
or criminal) on or additions to any such taxes;
(ii) "Tax Return" means a report, return or other
information required to be supplied to a governmental entity with
respect to Taxes including, where permitted or required, combined or
consolidated returns for a group of entities;
(iii) "Tax Ruling" means a written ruling of a taxing
authority relating to Taxes; and
(iv) "Closing Agreement" means a written and legally
binding agreement with a taxing authority relating to Taxes.
Section 5.10 Employee Matters; ERISA.
(a) Benefit Plans. Section 5.10(a) of the UPEN Disclosure
Schedule contains a true and complete list of each employee benefit plan,
fund program, contract, policy or arrangement covering employees, former
employees or directors of UPEN and each of the UPEN Subsidiaries or their
beneficiaries, or providing benefits to such persons in respect of
services provided to any such entity, including, but not limited to,
employee benefit plans within the meaning of Section 3(3) of ERISA and any
severance or change in control agreement (collectively, the "UPEN Benefit
Plans"). For the purposes of this Section 5.10 only, the term "UPEN"
shall be deemed to include the predecessors of such company.
(b) Contributions. Except as set forth in Section 5.10(b) of
the UPEN Disclosure Schedule, all material contributions and other
payments required to be made by UPEN or any of the UPEN Subsidiaries to
any UPEN Benefit Plan (or to any person pursuant to the terms thereof)
have been made or the amount of such payment or contribution obligation
has been reflected in the UPEN Financial Statements.
(c) Multiemployer Pension Plans. Neither UPEN nor any UPEN
Subsidiary nor any member of a controlled group (as defined in Section
401(a)(14) of ERISA, disregarding the reference to single employer plans)
that includes UPEN or any UPEN Subsidiary contributes to or is obligated
to contribute to, or has during the past ten (10) years contributed to or
been obligated to contribute to, a multiemployer pension plan (as defined
in Section 4011(a)(3) of ERISA).
(d) Title IV of ERISA. With respect to each UPEN Benefit Plan
and any other plan, fund or program maintained or contributed to during
the past ten (10) years by UPEN or any UPEN Subsidiary or any member of a
controlled group (as defined in Section 401(a)(14) of ERISA) that includes
UPEN or an UPEN Subsidiary and that is subject to Title IV of ERISA:
(i) no such plan has been terminated so as to subject,
directly or indirectly, UPEN or any UPEN Subsidiary to any liability,
contingent or otherwise, or the imposition of any lien under Title IV
of ERISA on the assets of UPEN or any UPEN Subsidiary;
(ii) no proceeding has been initiated or threatened by any
person (including the Pension Benefit Guaranty Corporation ("PBGC"))
to terminate any such plan;
(iii) to the knowledge of UPEN, no condition or event
exists or is expected to occur that could subject, directly or
indirectly, UPEN or any UPEN Subsidiary to any liability, contingent
or otherwise, or the imposition of any lien under Title IV of ERISA
on the assets of UPEN or any UPEN Subsidiary, whether to the PBGC or
to any other person or otherwise;
(iv) if any such plan were to be terminated, no assets of
UPEN or any UPEN Subsidiary would be subject, directly or indirectly,
to any liability, contingent or otherwise, or the imposition of any
lien under Title IV of ERISA other than for the payment of benefits
in the ordinary course of business;
(v) no "reportable event" (as defined in Section 4043 of
ERISA other than a reportable event with respect to which the 30-day
notice to the PBGC has been waived) has occurred with respect to any
such plan; and
(vi) no such plan which is subject to Section 302 of ERISA
or Section 412 of the Code has incurred an "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of
the Code), whether or not such deficiency has been waived.
(e) Qualification; Compliance. Except as set forth in Section
5.10(e) of the UPEN Disclosure Schedule, each of the UPEN Benefit Plans
intended to be "qualified" within the meaning of Section 401(a) of the
Code has been determined by the IRS to be so qualified as to form, and, to
the knowledge of UPEN, no circumstances exist that are reasonably expected
by UPEN to result in the revocation of any such determination. To the
knowledge of UPEN, UPEN is in compliance in all respects with, and each of
the UPEN Benefit Plans is and has been operated in accordance with the
term of such plan and in all respects in compliance with, all applicable
laws, rules and regulations governing each such plan, including, without
limitation, ERISA and the Code, except for any violations that, in the
aggregate do not, and insofar as reasonably can be foreseen, would not,
give rise to an UPEN Material Adverse Effect. To the knowledge of UPEN,
each UPEN Benefit Plan (and where applicable, its related trust) intended
to provide for the deferral of income, the reduction of salary or other
compensation, or to afford other income tax benefits, complies in all
material respects with the requirements of the applicable provisions of
the Code or other laws, rules and regulations required to provide such
income tax benefits.
(f) Liabilities. With respect to the UPEN Benefit Plans,
individually and in the aggregate, no event has occurred, and, to the
knowledge of UPEN, there does not now exist any condition or set of
circumstances that could subject UPEN or any of the UPEN Subsidiaries to
any liability arising under the Code, ERISA or any other applicable law
(including, without limitation, any liability of any kind whatsoever,
whether direct or indirect, contingent, inchoate or otherwise, to any such
plan or the PBGC), or under any indemnity agreement to which UPEN is
subject, which liability, excluding liability for PBGC premiums, benefit
claims and funding obligations payable in the ordinary course, has, or
insofar as reasonably can be foreseen, would have, an UPEN Material
Adverse Effect.
(g) Welfare Plans. Except as set forth in Section 5.10(g) of
the UPEN Disclosure Schedule, (i) none of the UPEN Benefit Plans that are
"welfare plans" within the meaning of Section 3(1) of ERISA, provides for
any benefits (and neither UPEN nor any UPEN Subsidiary has any obligation
to provide benefits) payable to or on behalf of any employee or director
after termination of employment or service, as the case may be, other than
elective continuation coverage required to be provided under Section 4980B
of the Code or Part 6 of Title I of ERISA or coverage which expires at the
end of the calendar month following such event, and (ii) with respect to
each UPEN Benefit Plan (or other plan, contract or arrangement under which
UPEN or any UPEN Subsidiary has an obligation to provide benefits)
identified in Section 5.10(g) of the UPEN Disclosure Schedule as providing
welfare benefits payable to or on behalf of any employee or director after
termination of employment or service, UPEN or the applicable UPEN
Subsidiary may at any time amend, modify or terminate such benefits.
(h) Documents made Available. UPEN has made available to WPS a
true and correct copy of each collective bargaining agreement to which
UPEN or any of the UPEN Subsidiaries is a party or under which UPEN or any
of the UPEN Subsidiaries has obligations and, with respect to each UPEN
Benefit Plan, where applicable,
(i) such current plan and summary plan description,
(ii) the most recent annual report filed with the IRS,
(iii) each current related trust agreement, insurance
contract, service provider or investment management agreement
(including all amendments to each such document),
(iv) the most recent determination of the IRS with respect
to the qualified status of such UPEN Benefit Plan, and
(v) the most recent actuarial report or valuation.
(i) Payments Resulting from Merger. Except as set forth in
Section 5.10(i) of the UPEN Disclosure Schedule:
(i) The consummation or announcement of any transaction
contemplated by this Agreement will not (either alone or upon the
occurrence of any additional or further acts or events) result in any
(A) payment (whether of severance pay or otherwise)
becoming due from UPEN or any of the UPEN Subsidiaries to any
officer, employee, former employee or director thereof or to the
trustee under any "rabbi trust" or similar arrangement that
would not have been paid without regard to such consummation or
announcement or
(B) benefit under any UPEN Benefit Plan being
established or becoming accelerated, vested or payable; and
(ii) neither UPEN nor any of the UPEN Subsidiaries is a
party to
(A) any management, employment, deferred compensation,
severance (including any payment, right or benefit resulting
from a change in control), bonus or other contract for personal
services with any officer, director or employee,
(B) any consulting contract with any person who prior
to entering into such contract was a director or officer of
UPEN, or
(C) any material plan, agreement, arrangement or
understanding similar to any of the foregoing.
(j) Labor Agreements. Except as set forth in Section 5.10(j)
of the UPEN Disclosure Schedule, as of the date hereof, neither UPEN nor
any of the UPEN Subsidiaries is a party to any collective bargaining
agreement or other labor agreement with any union or labor organization.
To the knowledge of UPEN, as of the date hereof, there is no current union
representation question involving employees of UPEN or any of the UPEN
Subsidiaries, nor does UPEN know of any activity or proceeding of any
labor organization (or representative thereof) or employee group to
organize any such employees. Except as disclosed in the UPEN SEC Reports
filed prior to the date hereof or in Section 5.10(j) of the UPEN
Disclosure Schedule,
(i) there is no material unfair labor practice, employment
discrimination or other complaint against UPEN or any of the UPEN
Subsidiaries pending, or to the knowledge of UPEN, threatened,
(ii) there is no strike, lockout or material dispute,
slowdown or work stoppage pending, or to the knowledge of UPEN,
threatened, against or involving UPEN or any of the UPEN
Subsidiaries, and
(iii) there is no material proceeding, claim, suit, action
or governmental investigation pending or, to the knowledge of UPEN,
threatened, in respect of which any director, officer, employee or
agent of UPEN or any of the UPEN Subsidiaries is or may be entitled
to claim indemnification from UPEN or such UPEN Subsidiary pursuant
to their respective Articles of Incorporation or By-laws.
Section 5.11 Environmental Protection. Except as set forth in
Section 5.11 of the UPEN Disclosure Schedule or in the UPEN SEC Reports
filed prior to the date hereof:
(a) Compliance.
(i) Each of UPEN and the UPEN Subsidiaries and UPEN Joint
Ventures is in compliance with all applicable Environmental Laws,
except where the failure to be in compliance, in the aggregate does
not, and insofar as reasonably can be foreseen, would not, have an
UPEN Material Adverse Effect; and
(ii) neither UPEN nor any of the UPEN Subsidiaries and UPEN
Joint Ventures has received any communication (written or oral) from
any person or Governmental Authority that alleges that UPEN or any of
the UPEN Subsidiaries and UPEN Joint Ventures is not in such
compliance with applicable Environmental Laws.
(b) Environmental Permits. Each of UPEN and the UPEN
Subsidiaries has obtained all Environmental Permits necessary for the
construction of their facilities and the conduct of their operations, as
applicable, and all such Environmental Permits are in good standing or,
where applicable, a renewal application has been timely filed and is
pending agency approval, and UPEN and the UPEN Subsidiaries are in
compliance with all terms and conditions of the Environmental Permits,
except where the failure to be in such compliance, in the aggregate does
not, and insofar as reasonably can be foreseen, would not, have an UPEN
Material Adverse Effect.
(c) Environmental Claims. There is no material Environmental
Claim pending
(i) against UPEN or any of the UPEN Subsidiaries or UPEN
Joint Ventures,
(ii) against any person or entity whose liability for any
Environmental Claim UPEN or any of the UPEN Subsidiaries has or may
have retained or assumed either contractually or by operation of law,
or
(iii) against any real or personal property or operations
which UPEN or any of the UPEN Subsidiaries owns, leases or manages,
in whole or in part.
(d) Releases. To the knowledge of UPEN, there have not been
any material Releases of any Hazardous Material that would be reasonably
likely to form the basis of any material Environmental Claim against UPEN
or any of the UPEN Subsidiaries, or against any person or entity whose
liability for any material Environmental Claim UPEN or any of the UPEN
Subsidiaries has or may have retained or assumed either contractually or
by operation of law.
(e) Predecessors. To the knowledge of UPEN, with respect to
any predecessor of UPEN or any of the UPEN Subsidiaries, there is no
material Environmental Claim pending or threatened, and there has been no
Release of Hazardous Materials that would be reasonably likely to form the
basis of any material Environmental Claim.
(f) Disclosure. UPEN has disclosed to WPS all material facts
which UPEN reasonably believes form the basis of a material Environmental
Claim arising from
(i) the cost of UPEN pollution control equipment currently
required or known to be required in the future;
(ii) current UPEN remediation costs or UPEN remediation
costs known to be required in the future; or
(iii) any other environmental matter affecting UPEN or the
UPEN Subsidiaries or UPEN Joint Ventures.
(g) Certain Definitions. As used in this Agreement:
(i) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices of
noncompliance, liability or violation (written or oral) by any person
or entity (including any Governmental Authority) alleging potential
liability (including, without limitation, potential responsibility or
liability for enforcement, investigatory costs, cleanup costs,
governmental response costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries or penalties)
arising out of, based on or resulting from
(A) the presence, or Release or threatened Release
into the environment, of any Hazardous Materials at any
location, whether or not owned, operated, leased or managed by
UPEN or any of the UPEN Subsidiaries or UPEN Joint Ventures (as
hereinafter defined); or
(B) circumstances forming the basis of any violation,
or alleged violation, of any Environmental Law; or
(C) any and all claims by any third party seeking
damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from the presence or
Release of any Hazardous Materials;
(ii) "Environmental Laws" means all Federal, state and
local laws, rules and regulations relating to pollution, the
environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata) or protection
of human health as it relates to the environment including, without
limitation, laws and regulations relating to Releases or threatened
Releases of Hazardous Materials, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials;
(iii) "Hazardous Materials" means (a) any petroleum
products, radioactive materials, asbestos in any form that is or
could become friable, urea formaldehyde foam insulation, and
transformers or other equipment that contain dielectric fluid
containing polychlorinated biphenyls; and (b) any chemicals,
materials or substances which are now defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," or words of similar
import, under any Enviromental Law; and (c) any other chemical,
material, substance or waste, exposure to which is now prohibited,
limited or regulated under any Environmental Law in a jurisdiction in
which UPEN or any of the UPEN Subsidiaries or UPEN Joint Ventures
operates; and
(iv) "Release" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching or
migration into the atmosphere, soil, surface water, groundwater or
property.
Section 5.12 Regulation as a Utility. UPPCO is regulated as a
public utility in the State of Michigan and in no other state. Except as
set forth in Section 5.12 of the UPEN Disclosure Schedule, neither UPEN
nor any "subsidiary company" or "affiliate" (as such terms are defined in
the 1935 Act) of UPEN is subject to regulation as a public utility or
public service company (or similar designation) by any other state in the
United States or any foreign country. UPEN is an exempt holding company
under Section 3(a)(1) of the 1935 Act.
Section 5.13 Vote Required. The approval by the holders of a
majority of the votes entitled to be cast by all holders of UPEN Common
Stock (the "UPEN Shareholders' Approval") to approve the UPEN Merger, is
the only vote of the holders of any class or series of capital stock of
UPEN required for any of the transactions required by this Agreement.
Section 5.14 Accounting Matters.
(a) Neither UPEN nor, to UPEN's knowledge, any of its
Affiliates has taken or agreed to take any action that would prevent WPS
from accounting for the transactions to be effected pursuant to this
Agreement as a pooling of interests in accordance with GAAP and applicable
SEC regulations.
(b) As used in this Agreement (except as specifically otherwise
defined):
(i) "Affiliate" means, as to any person, any other person
which directly or indirectly controls, or is under common control
with, or is controlled by, such person; and
(ii) "control" (including, with its correlative meanings,
"controlled by" and "under common control with") means possession,
directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
Section 5.15 Applicability of Certain Michigan Law, Etc.
Assuming the representations and warranties of WPS made in Sections 4.10
are correct, none of the "control share" or "business combination"
provisions of the MBCA, or any other takeover related provisions of the
MBCA (or, to the knowledge of UPEN, similar Michigan state statute) the
Articles of Incorporation or By-laws of UPEN is applicable to the
transaction contemplated by this Agreement.
Section 5.16 Opinion of Financial Advisor. UPEN has received
the written opinion of Wasserstein Perella & Co., Inc. to the effect that,
as of the date hereof, the consideration to be received by the holders of
shares of UPEN Common Stock in the Merger is fair from a financial point
of view to such holders.
Section 5.17 Insurance. Except as set forth in Section 5.17
of the UPEN Disclosure Schedule, each of UPEN and the UPEN Subsidiaries
is, and has been continuously since January 1, 1990, insured with
financially responsible insurers in such amounts and against such risks
and losses as are customary in all material respects for companies
conducting the business conducted by UPEN and the UPEN Subsidiaries during
such time period. Except as set forth in Section 5.17 of the UPEN
Disclosure Schedule, neither UPEN nor any of the UPEN Subsidiaries has
received any notice of cancellation or termination with respect to any
material insurance policy of UPEN or any of the UPEN Subsidiaries. The
insurance policies of UPEN and each of the UPEN Subsidiaries are valid and
enforceable policies in all material respects.
Section 5.18 Ownership of WPS Common Stock. Except as set
forth in Section 5.18 of the UPEN Disclosure Schedule, UPEN does not
"beneficially own" (as such term is defined for purposes of Section 13(d)
of the Exchange Act) any shares of WPS Common Stock.
Section 5.19 Title to Assets. Except as set forth in Section
5.19 of the UPEN Disclosure Schedule, UPEN or an UPEN Subsidiary owns good
and valid title to the assets and properties which UPEN or such UPEN
Subsidiary owns or purports to own, free and clear of any and all liens
and encumbrances.
Section 5.20 No Violation of Law; Buildings and Equipment.
(a) Except as set forth in Section 5.20 of the UPEN Disclosure
Schedule, neither UPEN nor any UPEN Subsidiary nor any of the assets of
UPEN or any UPEN Subsidiary violates or conflicts with any law,
governance, regulation, judgment or order or any zoning, building line
restrictions, planning, use or other similar restriction.
(b) Except as set forth in Section 5.20 of the UPEN Disclosure
Schedule, (i) the buildings and equipment owned by UPEN or any UPEN
Subsidiary are in good operating condition and repair, reasonable wear and
tear excepted; (ii) such assets and their use conform in all respects to
applicable laws, ordinances and governmental regulations and (iii) no
written notice of any violation of any building, zoning or other law or
governmental regulation relating to such assets or their use has been
received by UPEN or any UPEN Subsidiary.
Section 5.21 Existing Contracts. Set forth in Section 5.21 of
the UPEN Disclosure Schedule are all contracts to which UPEN or any UPEN
Subsidiary is a party which constitute:
(a) a lease of, or agreement to purchase or sell, any capital
assets in excess of $250,000;
(b) any union labor contracts;
(c) any management, consulting, employment, personal service,
agency or other 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 UPEN or any UPEN Subsidiary that is in force;
(g) an agreement by UPEN or an UPEN Subsidiary not to compete
in any business or in any geographical area;
(h) an agreement restricting the right of UPEN or any UPEN
Subsidiary 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
(l) any other agreement which: (i) involves an amount in
excess of $50,000.00; or (ii) is not in the ordinary course of business of
UPEN or an UPEN Subsidiary.
Section 5.22 Performance of Contracts. UPEN and the UPEN
Subsidiary have complied in all material respects with 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 UPEN or an UPEN Subsidiary and to the knowledge of
UPEN, constitutes the legal and binding obligation of the other parties
thereto.
Section 5.23 Contingent and Undisclosed Liabilities. Except
pursuant to the deposit and collection of checks in the ordinary course of
business, neither UPEN nor any UPEN Subsidiary has guaranteed or become a
surety or is otherwise contingently liable for the obligation of any other
Person. Neither UPEN nor any UPEN Subsidiary has any liabilities of any
nature except for those which: (a) are disclosed in the UPEN SEC Reports
or in the UPEN Disclosure Schedule or in this Agreement; or (b) arose in
the ordinary course of business since December 31, 1996 and are not
required to be disclosed pursuant to this Agreement or the UPEN Disclosure
Schedule.
ARTICLE VI
CONDUCT OF BUSINESS BY UPEN PENDING THE MERGER
Section 6.1 Covenants of the Parties. After the date hereof
and prior to the Effective Time or earlier termination of this Agreement,
UPEN agrees as set forth in this Article VI, as to itself and to each of
the UPEN Subsidiaries, except as expressly contemplated or permitted in
this Agreement, or to the extent WPS shall otherwise consent in writing.
Section 6.2 Ordinary Course of Business. UPEN shall, and
shall cause its Subsidiaries to, carry on their respective businesses in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and use all commercially reasonable efforts to
preserve intact their present business organizations and goodwill,
preserve the goodwill and relationships with customers, suppliers and
others having business dealings with them and, subject to prudent
management of workforce needs and ongoing programs currently in force,
keep available the services of their present officers and employees.
Except as set forth in Section 6.2 of the UPEN Disclosure Schedule, UPEN
shall not, nor shall UPEN permit any of its Subsidiaries to, enter into a
new line of business, or make any change in the line of business it
engages in as of the date hereof involving any material investment of
assets or resources or any material exposure to liability or loss to UPEN
and its Subsidiaries taken as a whole or take any action that would make
it materially less likely that WPS can obtain the WPS Required Statutory
Approvals or that UPEN can obtain the UPEN Required Statutory Approvals.
Section 6.3 Dividends. UPEN shall not, nor shall UPEN permit
any of its Subsidiaries to,
(a)(i) declare or pay any dividends (including dividends
payable in capital stock) on or make other distributions in respect
of any of their capital stock other than
(A) to UPEN or its wholly-owned Subsidiaries,
(B) regular quarterly cash dividends on UPEN Common
Stock, with usual record and payment dates, during any fiscal
year, which quarterly dividends shall not exceed the dividend
per share paid in the last quarter preceding the execution of
this Agreement, and
(C) dividends required to be paid on UPPCO Preferred
Stock in accordance with the terms thereof; or
(ii) split, combine or reclassify any of their capital
stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of, or in substitution for, shares
of their capital stock; or
(iii) redeem, repurchase or otherwise acquire any shares
of their capital stock, other than
(A) redemptions or repurchases in accordance with the
terms of such capital stock,
(B) in connection with intercompany purchases of
capital stock,
(C) for the purpose of funding dividend reinvestment
and employee stock purchase plans in accordance with past
practice, or
(D) as set forth on Section 6.3(a)(iii) of the UPEN
Disclosure Schedule.
Section 6.4 Issuance of Securities. (a) UPEN shall not, nor
shall UPEN permit any of its Subsidiaries to, issue, agree to issue,
deliver, sell, award, pledge, dispose of or otherwise encumber or
authorize or propose the issuance, delivery, sale, award, pledge, disposal
or other encumbrance of, any shares of their capital stock of any class or
any securities convertible into or exchangeable for, or any rights,
warrants or options (including but not limited to, options granted under
the UPPCO Long Term Stock Incentive Plan) to acquire, any such shares or
convertible or exchangeable securities, other than issuances by an UPEN
Subsidiary to UPEN or to a wholly-owned Subsidiary of UPEN.
(b) UPEN shall promptly furnish to WPS such information as
may be reasonably requested including financial information and take
such action as may be reasonably necessary and otherwise fully
cooperate with in the preparation of any registration statement under
the Securities Act and other documents necessary in connection with
issuance of securities as contemplated by this Section 6.4, subject
to obtaining customary indemnities.
Section 6.5 Charter Documents. Except as set forth in
Section 6.5 of the UPEN Disclosure Schedule and except as contemplated
herein, UPEN shall not amend or propose to amend its articles of
incorporation, by-laws or regulations, or similar organic documents.
Section 6.6 No Acquisitions. Except as set forth in Section
6.6 of the UPEN Disclosure Schedule UPEN shall not, nor shall UPEN permit
any of its Subsidiaries to, acquire, or publicly propose to acquire, or
agree to acquire, by merger or consolidation with, or by purchase or
otherwise, a substantial equity interest in or a substantial portion of
the assets of, any business or any corporation, partnership, association
or other business organization or division thereof, nor shall UPEN acquire
or agree to acquire a material amount of assets other than in the ordinary
course of business consistent with past practice.
Section 6.7 Capital Expenditures and Emission Allowances.
Except as set forth in Section 6.7 of the UPEN Disclosure Schedule, or as
required by law, UPEN shall not, nor shall UPEN permit any of its
Subsidiaries to, (i) make capital expenditures in excess of $250,000 over
the amount budgeted by UPEN for capital expenditures as set forth in
Section 6.7 of the UPEN Disclosure Schedule, or (ii) enter into written
commitments for the purchase or sale of sulfur dioxide emission allowances
as provided for by the Clean Air Act Amendments of 1990, in excess
(singularly or in the aggregate) of $250,000.
Section 6.8 No Dispositions. Except as set forth in Section
6.8 of the UPEN Disclosure Schedule, other than dispositions by UPEN and
its Subsidiaries of assets having a fair market value (singularly or in
the aggregate) of less than $250,000 UPEN shall not, nor shall UPEN permit
any of its Subsidiaries to, sell, lease, license, encumber or otherwise
dispose of, any of its assets, other than encumbrances or dispositions in
the ordinary course of its business consistent with past practice.
Section 6.9 Indebtedness. Except as contemplated by this
Agreement, UPEN shall not, nor shall UPEN permit any of its Subsidiaries
to, incur or guarantee any indebtedness (including any debt borrowed or
guaranteed or otherwise assumed including, without limitation, the
issuance of debt securities or warrants or rights to acquire debt) or
enter into any "keep well" or other agreement to maintain any financial
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing other than (i) short-term
indebtedness in the ordinary course of business consistent with past
practice (such as the issuance of commercial paper or the use of existing
credit facilities); (ii) long-term indebtedness not aggregating more than
$250,000; (iii) arrangements between UPEN and its Subsidiaries or among
its Subsidiaries; (iv) as set forth in Section 6.9 of the UPEN Disclosure
Schedule; or (v) in connection with the refunding of existing indebtedness
at a lower cost of funds.
Section 6.10 Compensation, Benefits. Except as set forth in
Section 6.10 of the UPEN Disclosure Schedule, or as may be required by
applicable law or as contemplated by this Agreement, UPEN shall not, and
UPEN shall use its best efforts to prevent any of its Subsidiaries from
taking any action to,
(a) enter into, adopt or amend or increase the amount or
accelerate the payment or vesting of any benefit or amount payable under,
any employee benefit plan or other contract, agreement, commitment,
arrangement, plan or policy maintained by, contributed to or entered into
by UPEN or any of its Subsidiaries, or increase, or enter into any
contract, agreement, commitment or arrangement to increase in any manner,
the compensation or fringe benefits, or otherwise to extend, expand or
enhance the engagement, employment or any related rights, of any director,
officer or other employee of such party or any of its Subsidiaries, except
for normal increases in the ordinary course of business consistent with
past practice that, in the aggregate, would not result in a material
increase in benefits or compensation expense to UPEN or any of its
Subsidiaries, or
(b) enter into or amend any employment, severance or special
pay arrangement with respect to the termination of employment or other
similar contract, agreement or arrangement with any director or officer or
other employee, except as set forth in Section 6.10 of the UPEN Disclosure
Schedule or otherwise in the ordinary course of business consistent with
past practice that would not result in a material increase in benefits or
compensation expense to UPEN or its subsidiaries.
(c) Notwithstanding the foregoing, UPPCO shall be permitted to
enter into negotiations with respect to, and to execute and deliver, new
collective bargaining agreements in the ordinary course of business after
consultation with WPS.
Section 6.11 1935 Act. Except as set forth in Section 6.11 of
the UPEN Disclosure Schedule, UPEN shall not, nor shall UPEN permit any of
its Subsidiaries to, except as required or contemplated by this Agreement,
engage in any activities which would cause a change in its status, or that
of its Subsidiaries, under the 1935 Act, or that would impair the ability
of WPS to claim an exemption pursuant to its order under Section 3(a)(1)
of the 1935 Act or that would impair the ability of UPEN to claim an
exemption under Section 3(a)(1) of the 1935 Act prior to the Effective
Time, other than (i) the application to the SEC under the 1935 Act
contemplated by this Agreement for approval to the extent required of the
transactions contemplated hereby and (ii) the registration of WPS pursuant
to the 1935 Act if required by the provisions thereof.
Section 6.12 Transmission, Generation, Power Purchases. (a)
Except as required pursuant to tariffs on file with the FERC as of the
date hereof, in the ordinary course of business consistent with past
practice, or as set forth in Section 6.12 of the UPEN Disclosure Schedule,
UPEN shall not, nor shall UPEN permit any of its Subsidiaries to,
(i) commence construction of any additional generating,
transmission or delivery capacity, or
(ii) obligate itself to purchase or otherwise acquire, or
to sell or otherwise dispose of, or to share, any additional
generating, transmission or delivery capacity,
in an amount in excess of $250,000 except as set forth in the budgets or
forecasts of UPEN prepared in October 1996 which budgets or forecasts have
been made available to WPS.
(b) UPEN will not permit UPPCO to enter into any power purchase
agreements for a term of more than one year unless previously approved in
writing by WPS.
Section 6.13 Accounting. Except as set forth in Section 6.13
of the UPEN Disclosure Schedule, UPEN shall not, nor shall UPEN permit any
of its Subsidiaries to, make any changes in their accounting methods,
except as required by law, rule, regulation or GAAP.
Section 6.14 Affiliate Transactions. Except as set forth in
Section 6.14 of the UPEN Disclosure Schedule, UPEN shall not, nor shall
UPEN permit any of its Subsidiaries or, within the exercise of its best
efforts, its Joint Ventures to, enter into any material agreement or
arrangement with any of their respective Affiliates (other than
wholly-owned Subsidiaries) on terms materially less favorable to UPEN than
could reasonably be expected to have been obtained with an unaffiliated
third party on an arm's-length basis.
Section 6.15 Tax-exempt Status. UPEN shall not, nor shall
UPEN permit any Subsidiary to take any action that would be reasonably
likely to jeopardize the qualification of UPPCO's outstanding revenue
bonds which qualify on the date hereof under Section 142(a) of the Code as
"exempt facility bonds" or as tax-exempt industrial development bonds
under Section 103(b)(4) of the Internal Revenue Code of 1954, as amended,
prior to the enactment of the Tax Reform Act of 1986.
Section 6.16 Tax Matters. Except as set forth in Section 6.17
of the UPEN Disclosure Schedule, UPEN shall not make or rescind any
material express or deemed election relating to Taxes, settle or
compromise any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, or
change any of its methods of reporting income or deductions for Federal
income Tax purposes from those historically employed.
Section 6.17 Discharge of Liabilities. UPEN shall not, nor
shall UPEN permit its Subsidiaries to, pay, discharge or satisfy any
material claims, liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge
or satisfaction, in the ordinary course of business consistent with past
practice (which includes the payment of final and unappealable judgments)
or in accordance with their terms, of liabilities reflected or reserved
against in, or contemplated by, the most recent consolidated financial
statements (or the notes thereto) of UPEN included in UPEN's reports filed
with the SEC, or incurred in the ordinary course of business consistent
with past practice.
Section 6.18 Contracts. UPEN shall not, nor shall UPEN permit
its Subsidiaries or, within the exercise of its best efforts, its Joint
Ventures to, except in the ordinary course of business consistent with
past practice, modify, amend, terminate, renew or fail to use reasonable
business efforts to renew any material contract or agreement to which UPEN
or any Subsidiary of UPEN is a party or waive, release or assign any
material rights or claims.
Section 6.19 Insurance. UPEN shall, and shall cause its
Subsidiaries to, maintain with financially responsible insurance companies
insurance coverage in such amounts and against such risks and losses as
are customary for companies engaged in the electric utility industry and
employing methods of generating electric power and fuel sources similar to
those methods employed and fuels used by UPEN or its Subsidiaries.
Section 6.20 Permits. UPEN shall, and shall cause its
Subsidiaries to, use reasonable efforts to maintain in effect all existing
Permits pursuant to which UPEN or its Subsidiaries operate.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information.
(a) Upon reasonable notice, each party shall, and shall cause
its Subsidiaries and, shall use its best efforts to cause, its Joint
Ventures to, afford to the officers, directors, employees, accountants,
counsel, investment bankers, financial advisors and other representatives
of the other party (collectively, "Representatives") reasonable access,
during normal business hours throughout the period prior to the Effective
Time, to all of its properties, books, contracts, commitments and records
(including, but not limited to, Tax Returns) and, during such period, each
party shall, and shall cause its Subsidiaries to, furnish promptly to the
other party
(i) access to each report, schedule and other document
filed or received by it or any of its Subsidiaries and, within the
exercise of its best efforts, its Joint Ventures pursuant to the
requirements of Federal or state securities laws or filed with or
sent to the SEC, the FERC, the NRC, the DOE, the Department of
Justice, the Federal Trade Commission, the Public Service Commission
of Wisconsin, the Michigan Public Service Commission or any other
Federal or state regulatory agency or commission, and
(ii) access to all information concerning itself, its
Subsidiaries and, within the exercise of its best efforts, its Joint
Ventures, directors, officers and shareholders and such other matters
as may be reasonably requested by any other party in connection with
any filings, applications or approvals required or contemplated by
this Agreement or for any other reason related to the transactions
contemplated by this Agreement.
(b) Each party shall, and shall cause its Subsidiaries and
Representatives, and shall use its best efforts to cause its Joint
Ventures to, continue to hold in confidence all documents and information
concerning the others furnished to it in connection with the transactions
contemplated by this Agreement in accordance with the Confidentiality
Agreement, dated March 22, 1996, between WPS and UPEN, as it may be
amended from time to time (the "Confidentiality Agreement").
Section 7.2 Proxy Statement and Registration Statement. The
parties will prepare and file with the SEC as soon as reasonably
practicable after the date hereof the Registration Statement and the Proxy
Statement (together, the "Proxy/Registration Statement"). The parties
hereto shall each use reasonable efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
practicable after such filing. Each party hereto shall also take such
action as may reasonably be required to cause the shares of WPS Common
Stock issuable in connection with the Merger to be registered (or to
obtain an exemption from registration) under applicable state "blue sky"
or securities laws; provided, however, that no party shall be required to
register or qualify as a foreign corporation or to take other action which
would subject it to service of process in any jurisdiction where it will
not be, following the Merger, so subject. Each of the parties hereto
shall furnish all information concerning itself which is required or
customary for inclusion in the Proxy/Registration Statement. The parties
shall use reasonable efforts to cause the shares of WPS Common Stock
issuable in the Merger to be approved for listing on the NYSE subject only
to official notice of issuance. The information provided by any party
hereto for use in the Proxy/Registration Statement shall be true and
correct in all material respects without omission of any material fact
which is required to make such information not false or misleading. No
representation, covenant or agreement is made by any party hereto with
respect to information supplied by any other party for inclusion in the
Proxy/Registration Statement.
Section 7.3 Regulatory Matters.
(a) HSR Filings. Each party hereto shall file or cause to be
filed with the Federal Trade Commission and the Department of Justice any
notifications required to be filed by itself or its respective "ultimate
parent" company under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the rules and regulations
promulgated thereunder with respect to the transactions contemplated
hereby. Such parties will use all commercially reasonable efforts to make
such filings as promptly as reasonably practicable after the date hereof,
and to respond promptly to any requests for additional information made by
either of such agencies.
(b) Other Regulatory Approvals. Each party hereto shall
cooperate and use its best efforts to prepare and file promptly all
necessary documentation, to effect all necessary applications, notices,
petitions, filings and other documents, and to use all commercially
reasonable efforts to obtain all necessary permits, consents, approvals
and authorizations of all Governmental Authorities necessary or advisable
to consummate the Merger, including, without limitation, the WPS Required
Statutory Approvals and the UPEN Required Statutory Approvals. Each party
shall have the right to review and approve in advance all of the
information concerning such party which appears in any filing made in
connection with the transactions contemplated by this Agreement and the
Merger. WPS shall allow UPEN and its counsel a meaningful opportunity to
consult with WPS with respect to, and to participate with WPS in, the
efforts to obtain all necessary approvals from Governmental Authorities in
connection with the transactions contemplated by this Agreement and the
Merger (including, but not limited to, the FERC), it being understood that
all positions taken in the filings with such Governmental Authorities
shall be consistent with one another and consistent with this Agreement.
Section 7.4 Shareholder Approval.
(a) Approval of UPEN Shareholders. Subject to the provisions
of Section 7.4(b), UPEN shall, as soon as reasonably practicable after the
date hereof
(i) take all steps necessary to duly call, give notice of,
convene and hold a special meeting of its shareholders (the "UPEN
Special Meeting") for the purpose of securing the UPEN Shareholders'
Approval,
(ii) distribute to its shareholders the Proxy
Statement/Prospectus in accordance with applicable Federal and state
law and with its Articles of Incorporation and By-laws,
(iii) subject to the fiduciary duties of its Board of
Directors, recommend to its shareholders the approval of the Merger,
this Agreement and the transactions contemplated hereby, and
(iv) cooperate and consult with WPS, including obtaining
the prior approval of WPS for proxy references discussing WPS and/or
its advisors with respect to each of the foregoing matters.
(b) Meeting Date. The UPEN Special Meeting shall be held on
such date as UPEN shall determine after consultation with WPS.
Section 7.5 Director and Officer Indemnification.
(a) Indemnification. To the extent, if any, not provided by an
existing right of indemnification or other agreement or policy, from and
after the Effective Time, WPS shall, to the fullest extent permitted by
applicable law, indemnify, defend and hold harmless each person who is
now, or has been at any time prior to the date hereof, or who becomes
prior to the Effective Time, an officer, director or employee of UPEN or
of any UPEN Subsidiary (each an "Indemnified Party" and collectively, the
"Indemnified Parties") against
(i) all losses, expenses (including reasonable attorney's
fees and expenses), claims, damages or liabilities or, subject to the
proviso of the next succeeding sentence, amounts paid in settlement,
arising out of actions or omissions occurring at or prior to the
Effective Time (and whether asserted or claimed prior to, at or after
the Effective Time) that are, in whole or in part, based on or
arising out of the fact that such person is or was a director,
officer or employee of UPEN or of any UPEN Subsidiary (the
"Indemnified Liabilities"), and
(ii) all Indemnified Liabilities to the extent that they
are based on or arise out of or pertain to the transactions
contemplated by this Agreement.
In the event of any such loss, expense, claim, damage or liability
(whether or not arising before the Effective Time),
(A) WPS shall pay the reasonable fees and expenses of
counsel selected by the Indemnified Parties, which counsel shall
be reasonably satisfactory to WPS, promptly after statements
therefor are received and otherwise advance to such Indemnified
Party upon request reimbursement of documented expenses
reasonably incurred,
(B) WPS will cooperate in the defense of any such
matter, and
(C) any determination required to be made with
respect to whether an Indemnified Party's conduct complies with
the standards set forth under Sections 180.0850 through 180.0859
of the WBCL and the Restated Articles of Incorporation or
By-laws of WPS (as the same shall be amended from time to time)
shall be made by independent counsel mutually acceptable to WPS
and the Indemnified Party; provided, however, that WPS shall not
be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld).
The Indemnified Parties as a group may retain only one law firm
with respect to each related matter except to the extent that there is, in
the sole opinion of counsel to an Indemnified Party, under applicable
standards of professional conduct, a conflict on any significant issue
between positions of such Indemnified Party and any other Indemnified
Party or Indemnified Parties.
(b) Insurance. For a period of six years after the Effective
Time, WPS shall (i) cause to be maintained in effect policies of
directors' and officers' liability insurance maintained by UPEN for the
benefit of those persons who are currently covered by such policies on
terms no less favorable than the terms of such current insurance coverage
or (ii) obtain new policies of such insurance with respect to such
obligations at least as favorable as the most favorable coverage offered
by policies currently maintained by UPEN and WPS; provided, however, that
WPS shall not be required to expend in any year an amount in excess of
250% of the annual aggregate premiums currently paid by UPEN for such
insurance; and provided, further, that if the annual premiums of such
insurance coverage exceed such amount, WPS shall be obligated to obtain a
policy with the best coverage available, in the reasonable judgment of the
Board of Directors of WPS, for a cost not exceeding such amount.
(c) Successors. In the event WPS or any of its successors or
assigns (i) consolidates with or merges into any other person and shall
not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers all or substantially all of its
properties and assets to any person, then and in either such case, proper
provisions shall be made so that the successors and assigns of WPS shall
assume the obligations set forth in this Section 7.5.
(d) Survival of Indemnification. To the fullest extent
permitted by law, from and after the Effective Time, all rights to
indemnification as of the date hereof in favor of the employees, agents,
directors and officers of UPEN and the UPEN Subsidiaries with respect to
their activities as such prior to the Effective Time, as provided in their
respective articles of incorporation and by-laws in effect on the date
thereof, or otherwise in effect on the date hereof, shall survive the
Merger and shall continue in full force and effect for a period of not
less than six years from the Effective Time.
(e) Benefit. The provisions of this Section 7.5 are intended
to be for the benefit of, and shall be enforceable by, each Indemnified
Party, his or her heirs and his or her representatives.
Section 7.6 Disclosure Schedules. On the date hereof,
(a) UPEN has delivered to WPS a UPEN Disclosure Schedule,
accompanied by a certificate signed by the chief financial officer of UPEN
stating the UPEN Disclosure Schedule is being delivered pursuant to this
Section 7.6(a).
(b) WPS has delivered to UPEN a WPS Disclosure Schedule,
accompanied by a certificate signed by the chief financial officer of WPS
stating the WPS Disclosure Schedule is being delivered pursuant to this
Section 7.6(b).
(c) The WPS Disclosure Schedule and the UPEN Disclosure
Schedule are collectively referred to herein as the "Disclosure
Schedules."
(d) The Disclosure Schedules constitute an integral part of
this Agreement and modify the respective representations, warranties,
covenants or agreements of the parties hereto contained herein to the
extent that such representations, warranties, covenants or agreements
expressly refer to the Disclosure Schedules. Anything to the contrary
contained herein or in the Disclosure Schedules notwithstanding, any and
all statements, representations, warranties or disclosures set forth in
the Disclosure Schedules shall be deemed to have been made on and as of
the date hereof.
Section 7.7 Public Announcements. Subject to each party's
disclosure obligations imposed by law, WPS and UPEN will cooperate with
each other in the development and distribution of all news releases and
other public information disclosures with respect to this Agreement or any
of the transactions contemplated hereby and shall not issue any public
announcement or statement with respect hereto or thereto without the
consent of the other party (which consent shall not be unreasonably
withheld).
Section 7.8 Rule 145 Affiliates. Within 30 days before the
Closing Date, UPEN shall identify in a letter to WPS all persons who are,
and to such person's knowledge who will be at the Closing Date,
"affiliates" of UPEN, as such term is used in Rule 145 under the
Securities Act (or otherwise under applicable SEC accounting releases with
respect to pooling-of-interests accounting treatment). UPEN shall use all
reasonable efforts to cause its affiliates (including any person who may
be deemed to have become an affiliate after the date of the letter
referred to in the prior sentence) to deliver to WPS on or prior to the
Closing Date a written agreement substantially in the form attached as
Exhibit 7.8 (an "Affiliate Agreement"). If any affiliate refuses to
provide such a written agreement, WPS shall, in lieu of receipt of such
written agreement, be entitled to place restrictive legends on the
certificates evidencing that WPS Common Stock to be received by such
affiliate pursuant to the terms of this Agreement, and to issue
appropriate stock transfer instructions to the transfer agent for WPS
Common Stock, to the effect that the shares of WPS Common Stock received
or to be received by such affiliate pursuant to the terms of this
Agreement may only be sold, transferred or otherwise conveyed, and the
holder thereof may only reduce such holder's interest in or risk relating
to such shares of WPS Common Stock, pursuant to an effective registration
statement under the Securities Act, in compliance with Rule 145, as
amended from time to time, or in a transaction which, in the opinion of
legal counsel satisfactory to WPS, is exempt from the registration
requirements of the Securities Act. The restrictive legends provided for
herein shall to the extent necessary also provide that the shares of WPS
Common Stock received or to be received by the affiliate be held for the
requisite period to insure that the Merger will be accounted for as a
pooling under generally accepted accounting principles. The foregoing
restrictions on the transferability of WPS Common Stock shall apply to all
purported sales, transfers and other conveyances of the shares of WPS
Common Stock received or to be received by such affiliate pursuant to this
Agreement and to all purported reductions in the interest in or risks
relating to such shares of WPS Common Stock, whether or not such affiliate
has exchanged the certificates previously evidencing such affiliates'
shares of UPEN Common Stock for certificates evidencing shares of WPS
Common Stock into which such shares were converted. The Proxy Statement
and the Registration Statement shall disclose the foregoing in a
reasonably prominent manner.
Section 7.9 Employee Agreements. Subject to Section 7.10,
WPS and its Subsidiaries shall honor, without modification, all contracts,
agreements, collective bargaining agreements and commitments of UPEN and
the UPEN Subsidiaries prior to the date hereof which apply to any current
or former employee or current or former director of UPEN and the UPEN
Subsidiaries; provided, however, that this undertaking is not intended to
prevent WPS from enforcing such contracts, agreements, collective
bargaining agreements and commitments in accordance with their terms,
including, without limitation, any reserved right to amend, modify,
suspend, revoke or terminate any such contract, agreement, collective
bargaining agreement or commitment.
Section 7.10 Employee Benefit Plans. Subject to Section 6.10,
each of the UPEN Benefit Plans in effect at the date hereof shall be
maintained in effect with respect to the employees or former employees of
UPEN and any of its Subsidiaries who are covered by any such Benefit Plan
immediately prior to the Closing Date (the "Affiliated Employees") until
WPS otherwise determines after the Effective Time; provided, however, that
nothing herein contained shall limit any reserved right contained in any
such UPEN Benefit Plan, to amend, modify, suspend, revoke or terminate any
such plan. Without limitation of the foregoing, each participant of any
such UPEN Benefit Plan shall receive credit for purposes of eligibility to
participate and vesting, under a benefit plan of WPS or any of its
Subsidiaries or Affiliates for service credited for the corresponding
purpose under such benefit plan; provided, however, that such crediting of
service shall not operate to duplicate any benefit to any such participant
or the funding for any such benefit. Any person hired by WPS or any of
its Subsidiaries after the Closing Date who was not employed by any party
hereto or its Subsidiaries immediately prior to the Closing Date shall be
eligible to participate in such benefit plans maintained, or contributed
to, by WPS or the Subsidiary, for employees of the division or operation
in which such person is employed, provided that such person meets the
eligibility requirements of the applicable plan.
Section 7.11 No Solicitations.
(a) UPEN shall not, and shall use its best efforts to cause its
Subsidiaries not to, permit any of its Representatives, directly or
indirectly initiate, solicit or encourage, or take any action to
facilitate the making of any offer or proposal which constitutes or is
reasonably likely to lead to, any Business Combination Proposal (as
hereinafter defined), or, in the event of an unsolicited Business
Combination Proposal, except to the extent required by their fiduciary
duties under applicable law if so advised in a written opinion of outside
counsel, engage in negotiations or provide any information or data to any
person relating to any Business Combination Proposal.
(b) UPEN shall notify WPS orally and in writing of any such
inquiries, offers or proposals (including, without limitation, the terms
and conditions of any such proposal and the identity of the person making
it), within 24 hours of the receipt thereof, shall take reasonable steps
to keep WPS informed of the status and details of any such inquiry, offer
or proposal, and shall give WPS five days' advance notice of any agreement
to be entered into with or any information to be supplied to any person
making such inquiry, offer or proposal. UPEN shall immediately cease and
cause to be terminated all existing discussions and negotiations, if any,
with any parties conducted heretofore with respect to any Business
Combination Proposal.
(c) As used in this Section 7.11, "Business Combination
Proposal" shall mean any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving UPEN or any of its
material Subsidiaries, or any proposal or offer (in each case, whether or
not in writing and whether or not delivered to the shareholders of UPEN
generally) to acquire in any manner, directly or indirectly, a substantial
equity interest in or a substantial portion of the assets of UPEN or any
of its material Subsidiaries, other than pursuant to the transactions
contemplated by this Agreement.
(d) Nothing contained herein shall prohibit UPEN from taking
and disclosing to its shareholders a position contemplated by Rule
14e-2(a) under the Exchange Act with respect to a Business Combination
Proposal made by means of a tender offer.
Section 7.12 WPS Board of Directors; UPPCO Advisory Board.
(a) WPS Board of Directors. WPS's Board of Directors will take
such action as may be necessary to cause the number of directors
comprising the full Board of Directors of WPS at the Effective Time to be
increased by one member, the class thereof the then current term of which
extends for the longest time beyond the Effective Time to be increased by
one member and to fill the vacancy thereby created by electing to the WPS
Board of Directors a person previously designated by the UPEN Board of
Directors and acceptable to the WPS Board of Directors. The directors
shall continue to be divided into three classes of approximately equal
size. All of the directors of WPS in office immediately preceding the
Effective Time shall continue to be directors of WPS thereafter until
their respective successors have been duly elected and qualified.
Notwithstanding the foregoing, if, prior to the Effective Time, such
designee shall decline or be unable to serve, the Board of Directors of
UPEN shall designate another person to serve in such person's stead.
(b) UPPCO Advisory Board. Promptly following the Effective
Time, WPS shall cause an advisory board to be appointed to assist the
Board of Directors of UPPCO or of any successor thereto to accomplish the
transition in the management of UPPCO's operations contemplated by this
Agreement. Such advisory shall be appointed for a term of two years, and
five persons serving as outside directors of UPEN immediately prior to the
effective time will be offered the opportunity to serve on such advisory
board. Each member of the advisory board will receive a fee of $10,000
per annum for serving on such board.
Section 7.13 Employment Contract. At the Effective Time, WPS
shall cause UPPCO to enter into an employment agreement with Clarence R.
Fisher in the form of Exhibit 7.13 hereto.
Section 7.14 Operations Following the Effective Time.
(a) Relationships with Local Suppliers. During the period
ending three years after the Effective Time, to extent reasonably
practicable and consistent with the past practices of WPS, WPS shall cause
supplies and services for UPPCO to be purchased from vendors located in
the service area of UPPCO, so long as goods and services available and
prices and fees charged by such vendors are reasonably competitive with
alternative vendors outside such service area and the quality of such
supplies and services is reasonably comparable to that of such alternative
vendors.
(b) Charitable and Community Support Activities. During the
period ending five years after the Effective Time, WPS shall provide, or
shall cause its Subsidiaries (including, but not limited to, UPPCO) to
provide, charitable contributions and community support within the service
area of UPPCO at aggregate levels not less than the average annual level
of total charitable contributions and community support provided by UPEN
and its Subsidiaries during the three calendar years immediately prior to
the date of this Agreement.
Section 7.15 Workforce Matters. Subject to applicable
collective bargaining agreements, WPS will offer employment opportunities
to employees of UPPCO on terms and conditions consistent with the
employment opportunities offered to employees of WPS or its subsidiaries.
To the extent that any of such employees are transferred from UPPCO to any
affiliate or subsidiary of WPS, WPS will provide relocation assistance and
benefits to such employees on terms comparable to those offered by WPS to
its own employees. To the extent that any reductions in workforce are
deemed to be required, such reductions shall be made on a fair and
equitable basis, in light of the circumstances and the objective to be
achieved giving appropriate consideration to previous work history, job
experience, and qualifications, and treating all employees equally,
without regard to whether prior employment was with WPS or any of its
Subsidiaries. WPS and UPEN will consult with each other with respect to
the retention of personnel pending the Effective Time.
Section 7.16 Expenses. Subject to Section 9.3, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
Section 7.17 Further Assurances. Each party will, and will
cause its Subsidiaries and, will use its best efforts to cause its Joint
Ventures to, execute such further documents and instruments and take such
further actions as may reasonably be requested by the terms hereof. The
parties expressly acknowledge and agree that, although it is their current
intention to effect a business combination between themselves in the form
contemplated by this Agreement, it may be preferable to effectuate such a
business combination by means of an alternative structure in light of the
conditions set forth in Section 8.1(e), Section 8.2(e), Section 8.2(f),
Section 8.3(e) and Section 8.3(f). Accordingly, if the only conditions to
the parties' obligations to consummate the Merger which are not satisfied
or waived are receipt of any one or more of the WPS Required Consents, WPS
Required Statutory Approvals, UPEN Required Consents, UPEN Required
Statutory Approvals or the opinions referred to in Sections 8.2(e) and
8.3(e), and the adoption of an alternative structure (that otherwise
substantially preserves for WPS and UPEN the economic and other material
benefits of the Merger) would result in such conditions being satisfied or
waived, then the parties shall use their respective best efforts to effect
a business combination among themselves by means of a mutually agreed upon
structure other than the Merger that so preserves such benefits; provided
that, prior to closing any such restructured transaction, all material
third party and Governmental Authority declarations, filings,
registrations, notices, authorizations, consents or approvals necessary to
effect such alternative business combination shall have been obtained and
all other conditions to the parties' obligations to consummate the Merger,
as applied to such alternative business combination, shall have been
satisfied or waived.
Section 7.18 Charter and By-law Amendments. Prior to the
Closing, WPS shall cause its By-laws to be amended as contemplated in
Section 7.12.
Section 7.19 Pooling; Long Term Stock Incentive Plan. UPEN
shall not, nor shall UPEN permit any of its Subsidiaries or, within the
exercise of its best efforts, its Joint Ventures to, take any action which
would, or would be reasonably likely to, prevent WPS from accounting for
the transactions to be effected pursuant to this Agreement as a pooling of
interests in accordance with GAAP and applicable SEC regulations, and UPEN
shall use all reasonable efforts to achieve such result (including taking
such actions as may be necessary to cure any facts or circumstances that
could prevent such transactions from qualifying for pooling-of-interests
accounting treatment).
Section 7.20 Tax-free Status. Neither party shall, nor shall
either party permit any of its Subsidiaries or, within the exercise of its
best efforts, its Joint Ventures to, take any actions which would, or
would be reasonably likely to, adversely affect the status of the Merger
as a reorganization under Section 368(a) of the Code, and each party
hereto shall use all reasonable efforts to achieve such result.
Section 7.21 Cooperation, Notification. Each party shall, and
shall cause its Subsidiaries and shall use its best efforts to cause, its
Joint Ventures to
(a) cause its appropriate representatives to confer on a
regular and frequent basis with one or more representatives of the other
party to discuss, subject to applicable law, material operational matters
and the general status of its ongoing operations;
(b) promptly notify the other party of any significant changes
in its business, properties, assets, condition (financial or other),
results of operations or prospects;
(c) advise the other party of any change or event which has,
had or, insofar as reasonably can be foreseen, is reasonably likely to
result in, in the case of WPS, a WPS Material Adverse Effect or in the
case of UPEN, an UPEN Material Adverse Effect; and
(d) promptly provide the other party with copies of all filings
made by such party or any of its Subsidiaries with any state or Federal
court, administrative agency, commission or other Governmental Authority
in connection with this Agreement and the transactions contemplated
hereby.
Section 7.22 Third-party Consents.
(a) WPS shall, and shall cause its Subsidiaries to, use all
commercially reasonable efforts to obtain all WPS Required Consents. WPS
shall promptly notify UPEN of any failure or prospective failure to obtain
any such consents and, if requested by UPEN, shall provide copies of all
WPS Required Consents obtained by WPS to UPEN.
(b) UPEN shall, and shall cause its Subsidiaries to, use all
commercially reasonable efforts to obtain all UPEN Required Consents.
UPEN shall promptly notify WPS of any failure or prospective failure to
obtain any such consents and, if requested by WPS, shall provide copies of
all UPEN Required Consents obtained by UPEN to WPS.
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to each Party's Obligation to Effect
the Merger. The respective obligations of each party to effect the Merger
shall be subject to the satisfaction on or prior to the Closing Date of
the following conditions, except, to the extent permitted by applicable
law, that such conditions may be waived in writing pursuant to Section 9.5
by the joint action of the parties hereto:
(a) Shareholder Approval. The UPEN Shareholders' Approval
shall have been obtained.
(b) No Injunction. No temporary restraining order or
preliminary or permanent injunction or other order by any Federal or state
court preventing consummation of the Merger shall have been issued and be
continuing in effect, and the Merger and the other transactions
contemplated hereby shall not have been prohibited under any applicable
Federal or state law or regulation.
(c) Registration Statement. The Registration Statement shall
have become effective in accordance with the provisions of the Securities
Act, and no stop order suspending such effectiveness shall have been
issued and remain in effect.
(d) Listing of Shares. The shares of WPS Common Stock issuable
in the Merger pursuant to Article II shall have been approved for listing
on the NYSE and the Chicago Stock Exchange subject only to official notice
of issuance.
(e) Statutory Approvals.
(i) The WPS Required Statutory Approvals and the UPEN
Required Statutory Approvals, including the expiration or termination
of any applicable waiting periods under the HSR Act and the continued
effectiveness of clearance of the Merger under the HSR Act shall have
been obtained at or prior to the Effective Time, such approvals shall
have become Final Orders (as hereinafter defined) and such Final
Orders shall not impose terms or conditions which, in the aggregate
have, or insofar as reasonably can be foreseen, would have, a
material adverse effect on the business, assets, financial condition
or results of operations of WPS or UPEN, as the case may be, or which
would be materially inconsistent with the agreements of the parties
contained herein.
(ii) As used in this Agreement, "Final Order" means action
by the relevant regulatory authority which has not been reversed,
stayed, enjoined, set aside, annulled or suspended, with respect to
which any waiting period prescribed by law before the transactions
contemplated hereby may be consummated has expired, and as to which
all conditions to the consummation of such transactions prescribed by
law, regulation or order have been satisfied.
Section 8.2 Further Conditions to Obligation of UPEN to
Effect the Merger. The obligation of UPEN to effect the Merger shall be
further subject to the satisfaction, on or prior to the Closing Date, of
the following conditions, except as may be waived by UPEN in writing
pursuant to Section 9.5:
(a) Performance of Obligations of WPS. WPS (and/or its
appropriate Subsidiaries) will have performed in all material respects
their agreements and covenants contained in or contemplated by this
Agreement.
(b) Representations and Warranties. The representations and
warranties of WPS set forth in this Agreement shall be true and correct
(i) on and as of the date hereof and (ii) on and as of the Closing Date
with the same effect as though such representations and warranties had
been made on and as of the Closing Date (except for representations and
warranties that expressly speak only as of a specific date or time other
than the date hereof or the Closing Date which need only be true and
correct as of such date or time) except in each of cases (i) and (ii) for
such failures of representations or warranties to be true and correct
(without regard to any materiality qualifications contained therein)
which, individually or in the aggregate do not, and insofar as reasonably
can be foreseen, would not, result in a WPS Material Adverse Effect.
(c) Closing Certificates. UPEN shall have received a
certificate signed by the chief financial officer of WPS, dated the
Closing Date, to the effect that, to such officer's knowledge, the
conditions set forth in Section 8.2(a) and Section 8.2(b) with respect to
WPS have been satisfied.
(d) Material Adverse Effect. No WPS Material Adverse Effect
shall have occurred, and there shall exist no facts or conditions (other
than facts or conditions of general applicability to electric or gas
utility companies in the region in which WPS conducts its utility
operations) which have, or insofar as reasonably can be foreseen, would
have a WPS Material Adverse Effect.
(e) Tax Opinions.
(i) UPEN shall have received an opinion of Reid & Priest
LLP dated as of the Closing Date, to the effect that the Merger will
be treated as a tax-free reorganization under Section 368(a) of the
Code, and
(ii) UPEN and Reid & Priest LLP shall have had the
opportunity to review the tax opinions of WPS's counsel received
pursuant to Sections 8.3(e)(i), including the representations,
covenants or other matters in reliance on which the opinions are
being rendered, and shall be reasonably satisfied with the
completeness and accuracy of said opinions.
(f) Required Consents. The WPS Required Consents, the failure
of which to obtain would have a WPS Material Adverse Effect shall have
been obtained.
(g) Legal Opinion. UPEN shall have received an opinion of
Foley & Lardner substantially in the form of Exhibit 8.2(g).
(h) Trigger of WPS Rights. No event has occurred that would
result in the triggering of any right or entitlement or WPS shareholders
under the WPS Rights Agreement, including a "flip in" or "flip over" or
similar event commonly described in such rights plans has occurred, which,
in the reasonable judgment of UPEN, would have or be reasonably likely to
result in a WPS Material Adverse Effect or materially change the number of
outstanding equity securities of WPS, and the WPS Rights shall not have
become nonredeemable by any action of the WPS Board of Directors.
Section 8.3 Further Conditions to Obligation of WPS to Effect
the Merger. The obligation of WPS to effect the Merger shall be further
subject to the satisfaction, on or prior to the Closing Date, of the
following conditions, except as may be waived by WPS in writing pursuant
to Section 9.5:
(a) Performance of Obligations of UPEN. UPEN (and/or its
appropriate Subsidiaries) will have performed their agreements and
covenants contained in Sections 6.3 and 6.4 and will have performed in all
material respects their other agreements and covenants contained in or
contemplated by this Agreement required to be performed by it at or prior
to the Effective Time.
(b) Representations and Warranties. The representations and
warranties of UPEN set forth in this Agreement shall be true and correct
(i) on and as of the date hereof and (ii) on and as of the Closing Date
with the same effect as though such representations and warranties had
been made on and as of the Closing Date (except for representations and
warranties that expressly speak only as of a specific date or time other
than the date hereof or the Closing Date which need only be true and
correct as of such date or time) except in each of cases (i) and (ii) for
such failures of representations or warranties to be true and correct
(without regard to any materiality qualifications contained therein)
which, individually or in the aggregate do not, and insofar as reasonably
can be foreseen, would not, result in an UPEN Material Adverse Effect.
(c) Closing Certificates. WPS shall have received a
certificate signed by the chief executive officer or chief financial
officer of UPEN, dated the Closing Date, to the effect that, to such
officer's knowledge, the conditions set forth in Section 8.3(a) and
Section 8.3(b) with respect to UPEN have been satisfied.
(d) Material Adverse Effect. No UPEN Material Adverse Effect
shall have occurred, and there shall exist no facts or conditions (other
than facts or conditions of general applicability to electric utility
companies in the Upper Peninsula of Michigan including, but not limited
to, "open access" or other general restructuring orders or legislation
which have, or insofar as reasonably can be foreseen, would have an UPEN
Material Adverse Effect.
(e) Tax Opinions.
(i) WPS shall have received an opinion of Foley & Lardner
dated as of the Closing Date, to the effect that the Merger will be
treated as a tax-free reorganization under Section 368(a) of the
Code; and
(ii) WPS and Foley & Lardner shall have had the
opportunity to review the tax opinions of tax counsel, as set forth
in Section 8.2(e)(i), including the representations, covenants or
other matters in reliance on which the opinions are being rendered,
and shall be reasonably satisfied with the completeness and accuracy
of said opinions.
(f) Required Consents. The UPEN Required Consents, the failure
of which to obtain would have an UPEN Material Adverse Effect, shall have
been obtained.
(g) Affiliate Agreements. WPS shall have received Affiliate
Agreements, duly executed by each Affiliate of UPEN, substantially in the
form of Exhibit 7.8, as provided in Section 7.8, or shall be satisfied by
the alternative stock legend process described at Section 7.8 hereof.
(h) Pooling. WPS shall have received a letter of its
independent public accountants, dated the Closing Date, in form and
substance reasonably satisfactory to WPS, stating that the transactions
effected pursuant to this Agreement will qualify as a pooling of interests
transaction pursuant to GAAP and applicable SEC regulations.
(i) Legal Opinion. WPS shall have received an opinion of Reid
& Priest LLP substantially in the form of Exhibit 8.3(i) hereto.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated at
any time prior to the Closing Date, whether before or after approval by
the shareholders of UPEN contemplated by this Agreement:
(a) by mutual written consent of WPS and UPEN;
(b) by either party hereto, by written notice to the other
party, if the Effective Time shall not have occurred on or before December
31, 1998 (the "Initial Termination Date"); provided, however, that the
right to terminate the Agreement under this Section 9.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Initial Termination Date; and
provided, further, that if on the Initial Termination Date the conditions
to the Closing set forth in Sections 8.1(e), 8.2(f) and/or 8.3(f) shall
not have been fulfilled but all other conditions to the Closing shall be
fulfilled or shall be capable of being fulfilled, then the Initial
Termination Date shall be extended to June 30, 1999;
(c) by either party hereto, by written notice to the other
parties, if the UPEN Shareholders' Approval shall not have been obtained
at a duly held UPEN meeting thereof, including any adjournments thereof;
(d) by either party hereto, if any state or Federal law, order,
rule or regulation is adopted or issued, which has the effect, as
supported by the written opinion of outside counsel for such party, of
prohibiting the Merger or by either party hereto if any court of competent
jurisdiction in the United States or any State shall have issued an order,
judgment or decree permanently restraining, enjoining or otherwise
prohibiting the Merger, and such order, judgment or decree shall have
become final and nonappealable;
(e) by UPEN, upon two days' prior notice to WPS, if, as a
result of a tender offer by a party other than WPS or any WPS Affiliate or
any written offer or proposal with respect to a merger, sale of a material
portion of its assets or other business combination (each, a "Business
Combination") by a party other than WPS or any WPS Affiliates, the Board
of Directors of UPEN determines in good faith that its fiduciary
obligations under applicable law require that such tender offer or other
written offer or proposal be accepted; provided, however, that
(i) the Board of Directors of UPEN shall have been advised
in a written opinion of outside counsel that after giving due
consideration to a binding commitment to consummate an agreement of
the nature of this Agreement entered into in the proper exercise of
its applicable fiduciary duties, and after giving due consideration
to all concessions which may be offered by WPS in negotiations
entered into pursuant to clause (ii) below, such fiduciary duties
would require the directors to reconsider such commitment as a result
of such tender offer or other written offer or proposal; and
(ii) prior to any such termination, UPEN shall, and shall
cause its respective financial and legal advisors to, negotiate with
WPS to make such adjustments in the terms and conditions of this
Agreement as would enable UPEN to proceed with the transactions
contemplated herein on such adjusted terms;
(f) by UPEN, by written notice to WPS, if
(i) there exists any breach or breaches of the
representations and warranties of WPS made herein as of the date
hereof which breaches, individually or in the aggregate have or,
insofar as reasonably can be foreseen, would have, a WPS Material
Adverse Effect, and such breaches shall not have been remedied within
20 days after receipt by WPS, of notice in writing from UPEN,
specifying the nature of such breaches and requesting that they be
remedied;
(ii) WPS (and/or its appropriate Subsidiaries) shall have
failed to perform and comply with, in all material respects, their
other agreements and covenants hereunder and such failure to perform
or comply shall not have been remedied within 20 days after receipt
by WPS, of notice in writing from UPEN, specifying the nature of such
failure and requesting that it be remedied; or
(iii) the Board of Directors of WPS or any committee
thereof:
(A) shall withdraw or modify in any manner materially
adverse to UPEN its approval or recommendation of this
Agreement, or the Merger, or
(B) shall fail to reaffirm such approval or
recommendation upon UPEN's request, or
(C) shall resolve to take any of the actions
specified in clause (A) or (B);
(g) by WPS, by written notice to UPEN, if
(i) there exists any breach or breaches of the
representations and warranties of UPEN made herein as of the date
hereof which breaches, individually or in the aggregate have or,
insofar as reasonably can be foreseen, would have, an UPEN Material
Adverse Effect, and such breaches shall not have been remedied within
20 days after receipt by UPEN, of notice in writing from WPS,
specifying the nature of such breaches and requesting that they be
remedied;
(ii) UPEN (and/or its appropriate Subsidiaries shall not
have performed and complied with its agreements and covenants
contained in Sections 6.3 and 6.4 or shall have failed to perform and
comply with, in all material respects, its other agreements and
covenants hereunder, and such failure to perform or comply shall not
have been remedied within 20 days after receipt by UPEN, of notice in
writing from WPS, specifying the nature of such failure and
requesting that it be remedied; or
(iii) the Board of Directors of UPEN or any committee
thereof:
(A) shall withdraw or modify in any manner materially
adverse to WPS its approval or recommendation of this Agreement,
or the Merger,
(B) shall fail to reaffirm such approval or
recommendation upon WPS's request,
(C) shall approve or recommend any Business
Combination involving UPEN other than the Merger or any tender
offer for the shares of capital stock of UPEN, in each case by
or involving a party other than WPS or any of its Affiliates or
(D) shall resolve to take any of the actions
specified in clause (A), (B) or (C).
Section 9.2 Effect of Termination. Subject to Section
10.1(b), in the event of termination of this Agreement by WPS or UPEN
pursuant to Section 9.1 there shall be no liability on the part of either
WPS or UPEN or their respective officers or directors hereunder, except
that Section 7.1(b), Section 7.16, Section 9.3, Section 10.2 and Section
10.8 shall survive the termination.
Section 9.3 Termination Fee.
(a) Termination Fee Upon Breach. If this Agreement is
terminated at such time that this Agreement is terminable pursuant to one
(but not both) of (x) Section 9.1(f)(i) or (ii) or (y) Section 9.1(g)(i)
or (ii), then the breaching party shall promptly (but no later than five
business days after receipt of notice from the non-breaching party) pay to
the non-breaching party in cash $3,000,000 if the termination occurs on or
before January 10, 1998; $4,500,000 if the termination occurs after
January 10, 1998 but on or before July 10, 1998; and $6,000,000 if the
termination occurs at any time after July 10, 1998; provided, however,
that, if this Agreement is terminated by a party as a result of a willful
breach of this Agreement by the other party, the non-breaching party may
pursue any other remedies available to it at law or in equity, and its
recovery shall not be limited to the applicable amount previously
specified and the non-breaching party shall be entitled to such additional
amounts as it may be entitled to receive at law or in equity, provided,
however, that such termination damages shall be reduced by any amount paid
pursuant to the liquidated damage amounts defined herein.
(b) Additional Termination Fee. If
(i) this Agreement
(A) is terminated by UPEN pursuant to Section 9.1(e),
(B) is terminated following a failure of the
shareholders of UPEN to grant the necessary approvals described
in Section 5.13 or
(C) is terminated as a result of UPEN's material
breach of Section 7.4, and
(ii) at the time of such termination or prior to the
meeting of UPEN's shareholders there shall have been a third-party
tender offer for shares of, or a third-party offer or proposal with
respect to a Business Combination involving, UPEN or any of its
Affiliates which, at the time of such termination or of the meeting
of UPEN's shareholders, shall not have been (A) rejected by UPEN and
its board of directors or (B) withdrawn by the third party, and
(iii) within two and one-half years of any such
termination described in clause (i) above, UPEN becomes a Subsidiary
of such offeror or a Subsidiary of an Affiliate of such offeror or
accepts a written offer to consummate or consummates a Business
Combination with such offeror or an Affiliate thereof,
then UPEN (jointly and severally with its Affiliates), at the closing
(and as a condition to the closing) of UPEN becoming such a
Subsidiary or of such Business Combination, will pay to WPS in cash
an aggregate termination fee of $3,000,000 if the termination shall
have occurred on or before January 10, 1998; $4,500,000 if the
termination shall have occurred after January 10, 1998, and on or
before July 10, 1998; and $6,000,000 if the termination shall have
occurred at any time after July 10, 1998.
(c) Expenses. The parties agree that the agreements contained
in this Section 9.3 are an integral part of the transactions contemplated
by the Agreement and the termination fees constitute liquidated damages
(subject to the proviso to Section 9.3(a)) and are not penalties. If one
party fails to promptly pay to the other party any fee due hereunder, the
defaulting party shall pay the costs and expenses (including legal fees
and expenses) in connection with any action, including the filing of any
lawsuit or other legal action, taken to collect payment, together with
interest on the amount of any unpaid fee at the publicly announced prime
rate of Firstar Bank Milwaukee N.A. from the date such fee was required to
be paid.
Section 9.4 Amendment.
(a) This Agreement may be amended by the Boards of Directors of
the parties hereto, at any time before or after approval hereof by the
shareholders of UPEN and prior to the Effective Time, but after such
approval, no such amendment shall
(i) alter or change the amount or kind of shares, rights
or any of the proceedings of the treatment of shares under Article
II, or
(ii) alter or change any of the terms and conditions of
this Agreement if any of the alterations or changes, alone or in the
aggregate, would materially adversely affect the rights of holders of
WPS and UPEN Common Stock.
(b) This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
Section 9.5 Waiver.
(a) At any time prior to the Effective Time, the parties hereto
may
(i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant
hereto and
(iii) waive compliance with any of the agreements or
conditions contained herein, to the extent permitted by applicable
law.
(b) Any agreement on the part of a party hereto to any such
extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-survival; Effect of Representations and
Warranties.
(a) All representations, warranties and agreements in this
Agreement shall not survive the Merger, except as otherwise provided in
this Agreement and except for the agreements contained in this Section
10.1 and in Article II, Section 7.5 (Director and Officer
Indemnification), Section 7.9 (Employee Agreements), Section 7.10
(Employee Benefit Plans), Section 7.12 (a) (WPS Board of Directors),
Section 7.12(b) (UPPCO Advisory Board), Section 7.13 (Employment
Contract), Section 7.16 (Expenses), Section 10.2 (Brokers) and Section
10.7 (Parties in Interest).
(b) No party may assert a claim for breach of any
representation or warranty contained in this Agreement (whether by direct
claim or counterclaim) except in connection with the termination of this
Agreement pursuant to Section 9.1(f)(i) or Section 9.1(g)(i) (or pursuant
to any other subsection of Section 9.1 if the terminating party would have
been entitled to terminate this Agreement pursuant to Section 9.1(f)(i) or
Section 9.1(g)(i)).
Section 10.2 Brokers.
(a) WPS represents and warrants that, except for Robert W.
Baird & Co. Incorporated, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in
connection with the Merger, or the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of WPS.
(b) UPEN represents and warrants that, except for Wasserstein
Perella & Co., Inc., whose fees have been disclosed to WPS prior to the
date hereof, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of UPEN.
Section 10.3 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if (i) delivered
personally, (ii) sent by reputable overnight courier service,
(iii) telecopied (which is confirmed), or (iv) five days after being
mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) If to WPS, to: WPS Resources Corporation
700 North Adams Street
P.O. Box 19001
Green Bay, WI 54307-9001
Attention: Larry L. Weyers
President and Chief
Executive Officer
Telephone: (414) 433-1334
Telecopy: (414) 433-1693
with a copy to: Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202-5367
Attention: Allen W. Williams, Jr., Esq.
Telephone: (414) 297-5829
Telecopy: (414) 297-4900
(b) If to UPEN, to: Upper Peninsula Energy Corporation
600 Lake Shore Drive
Houghton, MI 49931
Attention: Clarence R. Fisher, Chairman of the
Board, President and Chief
Executive Officer
Telephone: (906) 487-5000
Telecopy: (906) 487-5056
with a copy to: Reid & Priest LLP
40 West 57th Street
New York, NY 10019-4097
Attention: Richard S. Green, Esq.
Telephone: (212) 603-2000
Telecopy: (212) 603-2001
Section 10.4 Miscellaneous. This Agreement (including the
documents and instruments referred to herein)
(a) constitutes the entire agreement and supersedes all other
prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof other
than the Confidentiality Agreement;
(b) shall not be assigned by operation of law or otherwise; and
(c) shall be governed by and construed in accordance with the
laws of the State of Wisconsin applicable to contracts executed in and to
be fully performed in such State, without giving effect to its conflicts
of law rules or principles except to the extent the provisions of this
Agreement (including the documents or instruments referred to herein) are
expressly governed by or derive their authority from the MBCA.
Section 10.5 Interpretation. When a reference is made in this
Agreement to Sections or Exhibits, such reference shall be to a Section or
Exhibit of this Agreement, respectively, unless otherwise indicated. The
table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
to be followed by the words "without limitation."
Section 10.6 Counterparts; Effect. This Agreement may be
executed in one or more counterparts, each of which shall be deemed to be
an original, but all of which shall constitute one and the same agreement.
Section 10.7 Binding Effect; Benefits. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns; except as provided in Section 7.5(e)
nothing in this Agreement, express or implied, shall confer upon any
person, other than the parties hereto and their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
Section 10.8 Enforcement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof,
this being in addition to any other remedy to which they are entitled at
law or in equity.
IN WITNESS WHEREOF, WPS and UPEN have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the
date first written above.
WPS RESOURCES CORPORATION
Attest:
By: /s/ R. G. Baeten, Treasurer By: /s/ Larry L. Weyers
Name:
Title: President & CEO
UPPER PENINSULA ENERGY CORPORATION
Attest:
By: /s/ B. C. Arola, Sec. By: /s/Clarence R. Fisher Pres & CEO
Name:
Title:
<PAGE>
Exhibit 1.3 to Merger Agreement
PLAN OF MERGER
THIS PLAN OF MERGER, dated as of July 10, 1997 (the "Plan of
Merger"), is entered into by and between WPS Resources Corporation, a
Wisconsin corporation ("WPS Resources"), and Upper Peninsula Energy
Corporation, a Michigan corporation ("UPEN"). This Plan of Merger is
being entered into pursuant to an Agreement and Plan of Merger, dated as
of July 10, 1997, (the "Merger Agreement"), between WPS Resources and
UPEN. The Merger Agreement, provides for the merger of UPEN with and into
WPS Resources (the "Merger").
NOW, THEREFORE, in consideration of the premises and the
agreements herein contained, the parties hereto, intending to be legally
bound hereby, agree to as follows:
ARTICLE I
THE MERGER
1.01. The Merger. Subject to the terms and conditions of
the Merger Agreement and this Plan of Merger, UPEN shall be merged with
and into WPS Resources in accordance with and with the effect as provided
in the Wisconsin Business Corporation Law (the "WBCL") and the Michigan
Business Corporation Act (the "MBCA"). WPS Resources shall be the
surviving corporation in the Merger (sometimes hereafter referred to as
the "Surviving Corporation") and shall continue its corporate existence
under the laws of the State of Wisconsin. The separate corporate
existence of UPEN shall cease.
1.02. Effective Time of the Merger. Subject to the
provisions of the Merger Agreement and this Plan of Merger, articles of
merger (the "Articles of Merger") and a certificate of merger shall be
duly prepared and executed by or on behalf of UPEN and WPS Resources and
thereafter delivered to Department of Financial Institutions of the State
of Wisconsin and the Department of Commerce of the State of Michigan as
appropriate for filing, as provided in the WBCL and the MBCA, on the
Closing Date (as defined in the Merger Agreement). The Merger shall
become effective at the time specified in the Articles of Merger filed
with the Department of Financial Institutions of the State of Wisconsin
and the Department of Consumer and Industry Services of the State of
Michigan (the "Effective Time"), or absent such specification upon such
filing.
1.03. Restated Articles of Incorporation and By-laws of the
Surviving Corporation. At the Effective Time, the Restated Articles of
Incorporation of WPS Resources and the By-laws of WPS Resources in effect
immediately prior to the Effective Time shall be the Restated Articles of
Incorporation and the By-laws, respectively, of the Surviving Corporation.
1.04. Directors and Officers of the Surviving Corporation.
Except as otherwise provided the Merger Agreement, the directors and
officers of WPS Resources at the Effective Time shall, from and after the
Effective Time, continue as the directors and officers, respectively, of
the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or
removal.
1.05. Outstanding Shares. The designation and number of
outstanding shares of WPS Resources is as set forth in Section 4.2 of the
Merger Agreement. The designation and number of outstanding shares of
UPEN is as set forth in Section 5.3 of the Merger Agreement, and the vote
required on the part of the shareholders of UPEN with respect to the
Merger is as set forth in Section 5.13 of the Merger Agreement. The
number of outstanding shares of WPS Resources and of UPEN is subject to
change before the Effective Time, as provided in the Merger Agreement,
but, in the case of UPEN, subject to the limitations contained therein
(including, but not limited to, Sections 6.3 and 6.4 thereof), and,
additionally shares of WPS Resources may be issued or retired as may be
approved by its Board of Directors.
ARTICLE II
CONVERSION OF SHARES
2.01. Cancellation and Conversion of UPEN Common Stock. At
the Effective Time, in accordance with the terms and conditions set forth
in the Merger Agreement, and by virtue of the Merger and without any
action on the part of any holder of shares of Common Stock, without par
value of UPEN ("UPEN Common Stock"):
(a) Cancellation of Certain UPEN Common Stock. Each share of
UPEN Common Stock that is owned by UPEN or WPS Resources or any of their
respective subsidiaries shall be canceled and cease to exist, and no
consideration shall be delivered in exchange therefor.
(b) Conversion of Certain UPEN Common Stock. Each share of
UPEN Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares canceled pursuant to Section 2.01(a)
shall be converted into the right to receive nine tenths (0.9) of a share
of Common Stock, $1.00 par value, of WPS Resources ("WPS Resources Common
Stock"), including, if applicable, the associated rights to purchase
shares of WPS Resources Common Stock (the "Rights") pursuant that certain
Rights Agreement between WPS Resources and Firstar Trust Company, as
Rights Agent thereunder, dated December 12, 1996 (the "Rights Agreement").
Until the Distribution Date (as defined in the Rights Agreement), all
references in this Plan of Merger to the WPS Resources Common Stock shall
be deemed to include the associated Rights.
(c) No Fractional Shares. Notwithstanding any other provision
of this Plan of Merger to the contrary, no certificates or scrip
representing fractional shares of WPS Resources Common Stock shall be
issued in the Merger, and such fractional shares shall not entitle the
owner thereof to vote as, or to any rights of, a holder of, WPS Resources
Common Stock. In lieu of any such fractional shares, a holder of UPEN
Common Stock who would otherwise have been entitled to a fractional share
of WPS Resources Common Stock shall receive a cash payment in an amount
equal to the product (rounded to the nearest cent) of such fraction
(rounded to the nearest thousandth) multiplied by the average of the last
reported sales price, per share of WPS Resources Common Stock as reported
in the New York Stock Exchange ("NYSE") Composite Tape transactions as
reported in The Wall Street Journal for the last ten trading days prior to
and including the last trading day prior to the Effective Time on which
WPS Resources Common Stock was traded on the NYSE, without any interest
thereon.
2.02. WPS Resources Common Stock. The shares of WPS
Resources Common Stock issued and outstanding immediately prior to the
Effective Time shall not be affected in any manner by virtue of the
Merger.
ARTICLE III
CONDITIONS; TERMINATION
3.01. Conditions to the Merger. Consummation of the Merger
is conditioned upon the satisfaction or waiver of the conditions precedent
set forth in Article VIII of the Merger Agreement.
3.02. Termination. This Plan of Merger shall terminate
forthwith in the event that the Merger Agreement shall be terminated as
therein provided. In the event of the termination of this Plan of Merger
as provided above, this Plan of Merger shall forthwith become void and
there shall be no liability on the part of any of the parties hereto,
except as otherwise provided in the Merger Agreement.
ARTICLE IV
GENERAL PROVISIONS
4.01. Counterparts. This Plan of Merger may be executed in
counterparts, each of which shall constitute one and the same instrument.
4.02. Headings. The headings in this Plan of Merger are
inserted for convenience only and shall not constitute a part hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Plan of
Merger to be duly executed as of the date first above written.
WPS RESOURCES CORPORATION
("WPS Resources")
By: /s/ P. D. Schrickel, EVP
Attest: /s/ R. G. Baeten, Treasurer
UPPER PENINSULA ENERGY CORPORATION
("UPEN")
By: /s/ Clarence R. Fisher, Pres & CEO
Attest: /s/ B. C. Arola, Sec.
<PAGE>
APPENDIX B - WASSERSTEIN PERELLA & CO., INC. OPINION
[Letterhead of Wasserstein Perella & Co., Inc.]
July 10, 1997
Board of Directors
Upper Peninsula Energy Corporation
600 Lakeshore Drive
Houghton, MI 49931-0130
Members of the Board:
You have asked us to advise you with respect to the fairness,
from a financial point of view, to the holders of the common stock without
par value (the "Shares") of Upper Peninsula Energy Corporation (the
"Company") of the Exchange Ratio (as defined below) provided for pursuant
to the terms of the Agreement and Plan of Merger, dated as of July 10,
1997 (the "Merger Agreement"), by and between the Company and WPS
Resources Corporation ("Acquiror"). The Merger Agreement provides for,
among other things, a merger of the Company with and into the Acquiror
(the "Transaction") pursuant to which each outstanding Share will be
converted into the right to receive 0.900 shares of common stock, par
value $1.00 per share, of the Acquiror (the "Exchange Ratio").
In connection with rendering our opinion, we have reviewed the
Merger Agreement. We have also reviewed and analyzed certain publicly
available business and financial information relating to the Company and
the Acquiror for recent years and interim periods to date, as well as
certain internal financial and operating information, including financial
forecasts, analyses and projections prepared by the Company and the
Acquiror and provided to us for purposes of our analysis, and we have met
with management of the Company and the Acquiror to review and discuss such
information and, among other matters, the Company's and the Acquiror's
respective businesses, operations, assets, financial condition and future
prospects.
We have reviewed and considered certain financial and stock
market data relating to the Company and the Acquiror, and we have compared
that data with similar date for certain other companies, the securities of
which are publicly traded, that we believe may be relevant or comparable
in certain respects to the Company and the Acquiror or one or more of
their respective businesses or assets, and we have reviewed and considered
the financial terms of certain recent acquisitions and business
combination transactions in the US electric utility industry specifically,
and in other industries generally, that we believe to be reasonably
comparable to the Transaction or otherwise relevant to our inquiry. We
have also performed such other studies, analyses and investigations and
reviewed such other information as we considered appropriate for purposes
of this opinion.
In our review and analysis and in formulating our opinion, we
have assumed and relied upon the accuracy and completeness of all the
financial and other information provided to or discussed with us or
publicly available, and we have not assumed any responsibility for
independent verification of any of such information. We have also relied
upon the reasonableness and accuracy of the financial projections,
forecasts and analyses provided to us and we have assumed, without your
consent, that such projections, forecasts and analyses were reasonably
prepared in good faith and on bases reflecting the best currently
available judgments and estimates of the Company's and the Acquiror's
managements, and we express no opinion with respect to such projections,
forecasts and analyses or the assumptions upon which they are based. We
have not reviewed any of the books and records of the Company or the
Acquiror, or assumed any responsibility for conducting a physical
inspection of the properties or facilities of the Company or the Acquiror,
or for making or obtaining an independent valuation or appraisal of the
assets or liabilities of the Company or the Acquiror. We note that the
Transaction is intended to qualify as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended, and we
have assumed that the Transaction will so qualify. You have informed us,
and we have assumed, that the Transaction will be recorded as a
pooling-of-interests under generally accepted accounting principles. We
have assumed that the transactions described in the Merger Agreement will
be consummated on the terms set forth therein, without material waiver or
modification. Our opinion is necessarily based on economic and market
conditions and other circumstances as they exist and can be evaluated by
us as of the date hereof. We are not expressing any opinion as to the
prices or trading ranges in which the securities of the Company or the
Acquiror will actually trade at any time.
We are acting as financial advisor to the Company in connection
with the proposed Transaction and will receive a fee for our services, a
major portion of which is contingent upon the consummation of the
Transaction, as well as a fee for rendering this opinion. In the ordinary
course of our business, we may actively trade the debt and equity
securities of the Company and the Acquiror for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
Our opinion addresses only the fairness from a financial point
of view to the holders of Shares of the Company of the Exchange Ratio, and
we do not express any views on any other terms of the Transaction.
Specifically, our opinion does not address the Company's underlying
business decision to effect the transactions contemplated by the Merger
Agreement.
It is understood that this letter is for the benefit and use of
the Board of Directors of the Company in its consideration of the
Transaction and except for inclusion in its entirety in a registration
statement or proxy statement or both relating to the Transaction, may not
be quoted, used or reproduced for any other purpose without or prior
written consent. This opinion does not constitute a recommendation to any
shareholder with respect to how such holder should vote with respect to
the Transaction, and should not be relied upon by any shareholder as such.
Based upon and subject to the foregoing, including the various
assumptions and limitations set forth herein, it is our opinion that as of
the date hereof, the Exchange Ratio provided for pursuant to the Merger
Agreement is fair to holders of Shares of the Company from a financial
point of view.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Wisconsin Business Corporation Law and the By-Laws of WPS
permit indemnification of WPS's directors and officers in a variety of
circumstances, which may include liabilities under the Securities Act of
1933. In addition, WPS has purchased insurance permitted by the law of
Wisconsin on behalf of directors, officers, employees or agents which may
cover liabilities under the Securities Act.
The Merger Agreement provides that, to the extent not prohibited
by law, all rights of indemnification in favor of current or former
directors or officers of UPEN as provided in the Articles of Incorporation
or By-laws of UPEN for acts or omissions occurring prior to the Effective
Time, will continue in full force and effect for a period of not less than
six years from the Effective Time. The Merger Agreement also provides
that, to the extent permitted by law and not provided by an existing right
of indemnification or other agreement or policy, WPS shall indemnify,
defend and hold harmless all current or former directors or officers of
UPEN for acts or omissions occurring prior to the Effective Time that are,
in whole or in part, based on or arising out of the fact that such person
is or was a director, officer or employee of UPEN or of any UPEN
subsidiary or that are based on or arise out of or pertain to the
transactions contemplated by the Merger Agreement, and that for a period
of six years from the Effective Time, WPS will cause to be maintained,
UPEN's directors' and officers' insurance and indemnification policy to
the extent that it provides coverage for events occurring prior to the
Effective Time for directors and officers of UPEN who were covered under
such policy as in effect on July 10, 1997, or obtain new policies of such
insurance at least as favorable as the most favorable coverage offered by
policies currently maintained by UPEN and WPS, so long as the annual
premium would not be in excess of 250% of the aggregate premiums paid by
UPEN for such insurance as of July 10, 1997, and provided that if the
annual premiums of such insurance coverage exceed such amount, WPS shall
be obligated to obtain a policy with the best coverage available, in the
reasonable judgment of the Board of Directors of WPS, for a cost not
exceeding such amount.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NO. DESCRIPTION
2.1 Agreement and Plan of Merger, dated as of July 10, 1997, by and
among WPS and UPEN (included as Appendix A to the Proxy
Statement/Prospectus forming part of this Registration
Statement).
3(a) Restated Articles of Incorporation of WPS. (Incorporated by
reference from Appendix B to Amendment No. 1 to WPS'S
Registration Statement on Form S-4, filed February 28, 1994
[Reg. No. 33-52199])
3(b) By-Laws of WPS as in effect July 11, 1996. (Incorporated by
reference to Exhibit 3(ii) to Form 10-Q for the quarter ended
September 30, 1996 [File No. 1-11337]).
4 Copy of Rights Agreement, dated December 12, 1996 between WPS
and Firstar Trust Company (Incorporated by reference to Exhibit
4.1 to Form 8-A filed December 13, 1996 [File No. 1-11337]).
5 Opinion of Foley & Lardner, counsel for WPS, regarding validity
of Securities being registered.
8(a) Opinion of Foley & Lardner, regarding certain federal income tax
matters.
8(b) Opinion of Reid & Priest LLP, regarding certain federal income
tax matters.
10(a)(1) Form of Employment Contract by and between Clarence R. Fisher
and Upper Peninsula Power Company.
10(a)(2) Copy of Joint Power Supply Agreement among Wisconsin Public
Service Corporation, Wisconsin Power and Light Company, and
Madison Gas and Electric Company, dated February 2, 1967
(Incorporated by reference to Exhibit 4.09 [File No. 2-27308]).
10(b) Copy of Joint Power Supply Agreement (Exclusive of Exhibits)
among Wisconsin Public Service Corporation, Wisconsin Power and
Light Company, and Madison Gas and Electric Company dated
July 26, 1973 (Incorporated by reference to Exhibit 5.04A in
File No. 2-48781).
10(c) Copy of Basic Generating Agreement, Unit 4, Edgewater Generating
Station, dated June 5, 1967, between Wisconsin Power and Light
Company and Wisconsin Public Service Corporation (Incorporated
by reference to Exhibit 4.10 in File No. 2-27308).
10(c)(1) Copy of Agreement for Construction and Operation of Edgewater 5
Generating Unit, dated February 24, 1983, between Wisconsin
Power and Light Company, Wisconsin Electric Power Company, and
Wisconsin Public Service Corporation (Incorporated by reference
to Exhibit 10C-1 to Form 10-K of Wisconsin Public Service
Corporation for the year ended December 31, 1983 [File No. 1-
3016]).
10(c)(2) Amendment No. 1 to Agreement for Construction and Operation of
Edgewater 5 Generating Unit, dated December 1, 1988
(Incorporated by reference to Exhibit 10C-2 to Form 10-K of
Wisconsin Public Service Corporation for the year ended December
31, 1988 [File No. 1-3016]).
10(d) Copy of revised Agreement for Construction and Operation of
Columbia Generating Plant among Wisconsin Public Service
Corporation, Wisconsin Power and Light Company, and Madison Gas
and Electric Company, dated July 26, 1973 (Incorporated by
reference to Exhibit 5.07 in File No. 2-48781).
10(e) Copy of Guaranty and Agreements and Note Agreements for
Wisconsin Public Service Corporation Employee Stock Ownership
Plan and Trust (ESOP) dated November 1, 1990 (Incorporated by
reference to Exhibits 10.1 and 10.2 to Form 8-K of Wisconsin
Public Service Corporation filed November 2, 1990 [File No. 1-
3016]).
10(f)(1) Copy of WPS Resources Corporation Deferred Compensation Plan.
(Incorporated by reference to Exhibit 10.5 to Form 10-Q for the
quarter ended June 30, 1997 [File No. 1-1137]).
10(f)(2) Copy of Form of Executive Employment and Severance Agreement
entered into between WPS Resources Corporation and each of Ralph
G. Baeten, Daniel P. Bittner, Diane L. Ford, Richard E. James,
Thomas P. Meinz, Phillip M. Mikulsky, Wayne J. Peterson, Patrick
D. Schrickel, Charlie A. Schrock, Clark R. Steinhardt, Bernard
J. Treml and Larry L. Weyers. (Incorporated by reference to
Exhibit 10.6 to Form 10-Q for the quarter ended June 30, 1997
[File No. 1-1137]).
21 Subsidiaries of the Registrant. (Incorporated by reference to
Exhibit 21 of WPS Resources Corporation--Wisconsin Public
Service Corporation Form 10-K filed March 7, 1997 [File No. 1-
11337]).
23(a) Consent of Arthur Andersen LLP with respect to WPS.
23(b) Consent of Deloitte & Touche LLP with respect to UPEN.
23(c) Consent of Wasserstein Perella & Co., Inc.
24 Powers of Attorney.
99.1 Form of Proxy to be used in connection with the Special Meeting
of Shareholders of UPEN.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) That, for purposes of determining any liability under
the Securities Act, each filing of the registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in this Registration Statement shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the registrant undertakes
that such reoffering prospectus will contain the information called for by
the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for
by the other Items of the applicable form.
(6) That every prospectus (i) that is filed pursuant to
paragraph (5) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to this Registration Statement and will
not be used until such amendment is effective, and that, for the purposes
of determining any liability under the Securities Act, each such post-
effective amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(7) To respond to requests for information that is
incorporated by reference into the Proxy Statement/Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt
of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained
in documents filed subsequent to the effective date of this Registration
Statement through the date of responding to the request.
(8) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in this
Registration Statement when it became effective.
Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF GREEN BAY, STATE OF WISCONSIN, ON NOVEMBER 21, 1997.
WPS RESOURCES CORPORATION
By: /s/ Larry L. Weyers
Larry L. Weyers
President and Chief Executive
Officer
__________________________________
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.*
/s/ Larry L. Weyers
Larry L. Weyers
President and Chief Executive Officer
(Principal Executive Officer and Director)
/s/ Daniel P. Bittner
Daniel P. Bittner
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Diane L. Ford
Diane L. Ford
Controller
(Principal Accounting Officer)
A. Dean Arganbright
Michael S. Ariens
Richard A. Bemis
Sister M. Lois Bush By /s/ Larry L. Weyers
Robert S. Gallagher Larry L. Weyers
Kathryn M. Hasselblad-Pascale Attorney-in-Fact
James L. Kemerling
Daniel A. Bollom
* Each of the above signatures is affixed as of November 21, 1997
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
2.1 Agreement and Plan of Merger, dated as of
July 10, 1997, by and among WPS and UPEN
(included as Appendix A to the Proxy
Statement/Prospectus forming part of this
Registration Statement). *
3(a) Restated Articles of Incorporation of WPS.
(Incorporated by reference from Appendix B
to Amendment No. 1 to WPS'S Registration
Statement on Form S-4, filed February 28,
1994 [Reg. No. 33-52199])
3(b) By-Laws of WPS as in effect July 11, 1996.
(Incorporated by reference to Exhibit 3(ii)
to Form 10-Q for the quarter ended September
30, 1996 [File No. 1-11337]).
4 Copy of Rights Agreement, dated December 12,
1996 between WPS and Firstar Trust Company
(Incorporated by reference to Exhibit 4.1 to
Form 8-A filed December 13, 1996 [File
No. 1-11337]).
5 Opinion of Foley & Lardner, counsel for WPS,
regarding validity of Securities being
registered. *
8(a) Opinion of Foley & Lardner, regarding
certain federal income tax matters. *
8(b) Opinion of Reid & Priest LLP, regarding
certain federal income tax matters.
10(a)(1) Form of Employment Contract by and between
Clarence R. Fisher and Upper Peninsula Power
Company. *
10(a)(2) Copy of Joint Power Supply Agreement among
Wisconsin Public Service Corporation,
Wisconsin Power and Light Company, and
Madison Gas and Electric Company, dated
February 2, 1967 (Incorporated by reference
to Exhibit 4.09 [File No. 2-27308]).
10(b) Copy of Joint Power Supply Agreement
(Exclusive of Exhibits) among Wisconsin
Public Service Corporation, Wisconsin Power
and Light Company, and Madison Gas and
Electric Company dated July 26, 1973
(Incorporated by reference to Exhibit 5.04A
in File No. 2-48781).
10(c) Copy of Basic Generating Agreement, Unit 4,
Edgewater Generating Station, dated June 5,
1967, between Wisconsin Power and Light
Company and Wisconsin Public Service
Corporation (Incorporated by reference to
Exhibit 4.10 in File No. 2-27308).
10(c)(1) Copy of Agreement for Construction and
Operation of Edgewater 5 Generating Unit,
dated February 24, 1983, between Wisconsin
Power and Light Company, Wisconsin Electric
Power Company, and Wisconsin Public Service
Corporation (Incorporated by reference to
Exhibit 10C-1 to Form 10-K of Wisconsin
Public Service Corporation for the year
ended December 31, 1983 [File No. 1-3016]).
10(c)(2) Amendment No. 1 to Agreement for
Construction and Operation of Edgewater 5
Generating Unit, dated December 1, 1988
(Incorporated by reference to Exhibit 10C-2
to Form 10-K of Wisconsin Public Service
Corporation for the year ended December 31,
1988 [File No. 1-3016]).
10(d) Copy of revised Agreement for Construction
and Operation of Columbia Generating Plant
among Wisconsin Public Service Corporation,
Wisconsin Power and Light Company, and
Madison Gas and Electric Company, dated July
26, 1973 (Incorporated by reference to
Exhibit 5.07 in File No. 2-48781).
10(e) Copy of Guaranty and Agreements and Note
Agreements for Wisconsin Public Service
Corporation Employee Stock Ownership Plan
and Trust (ESOP) dated November 1, 1990
(Incorporated by reference to Exhibits 10.1
and 10.2 to Form 8-K of Wisconsin Public
Service Corporation filed November 2, 1990
[File No. 1-3016]).
10(f)(1) Copy of WPS Resources Corporation Deferred
Compensation Plan. (Incorporated by
reference to Exhibit 10.5 to Form 10-Q for
the quarter ended June 30, 1997 [File No. 1-
1137]).
10(f)(2) Copy of Form of Executive Employment and
Severance Agreement entered into between WPS
Resources Corporation and each of Ralph G.
Baeten, Daniel P. Bittner, Diane L. Ford,
Richard E. James, Thomas P. Meinz, Phillip
M. Mikulsky, Wayne J. Peterson, Patrick D.
Schrickel, Charlie A. Schrock, Clark R.
Steinhardt, Bernard J. Treml and Larry L.
Weyers. (Incorporated by reference to
Exhibit 10.6 to Form 10-Q for the quarter
ended June 30, 1997 [File No. 1-1137]).
21 Subsidiaries of the Registrant.
(Incorporated by reference to Exhibit 21 of
WPS Resources Corporation--Wisconsin Public
Service Corporation Form 10-K filed March 7,
1997 [File No. 1-11337]).
23(a) Consent of Arthur Andersen LLP with respect
to WPS.
23(b) Consent of Deloitte & Touche LLP with
respect to UPEN.
23(c) Consent of Wasserstein Perella & Co., Inc. *
24 Powers of Attorney. *
99.1 Form of Proxy to be used in connection with
the Special Meeting of Shareholders of
UPEN.
______________
* Previously Filed
EXHIBIT 8(b)
New York, New York
November 5, 1997
Upper Peninsula Energy Corporation
600 Lake Shore Drive
Houghton, Michigan 49931
RE: Agreement and Plan of Merger, By and Between WPS Resources
Corporation and Upper Peninsula Energy Corporation Dated as
of July 10, 1997
Ladies & Gentlemen:
You have requested our opinion as to certain federal income tax
consequences resulting upon the consummation of the merger of WPS
Resources Corporation ("WPS") and Upper Peninsula Energy Corporation
("UPEN") which will be consummated pursuant to an Agreement and Plan of
Merger, By and Between WPS Resources Corporation and Upper Peninsula
Energy Corporation Dated as of July 10, 1997 (hereinafter the "Merger" and
the "Merger Agreement" respectively). Unless otherwise defined herein,
capitalized terms shall have the meanings ascribed to them in the Merger
Agreement. This opinion is being furnished in accordance with Section
8.2(e) of the Merger Agreement.
The opinions expressed herein are based solely upon current law,
including the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury Regulations promulgated or proposed thereunder,
current positions of the Internal Revenue Service contained in published
Revenue Rulings and Revenue Procedures, other current administrative
positions of the Internal Revenue Service and existing judicial decisions,
all as of the date hereof. It should be noted that such statutes,
regulations, judicial decisions and administrative interpretations are
subject to change or modification at any time, which change may have
retroactive effect. Such a change in authorities upon which our opinion
is based could affect our conclusions reached in rendering this opinion.
In addition, this opinion does not apply to certain special classes of
taxpayers, including, without limitation, foreign corporations, tax exempt
entities, and persons who acquired UPEN Common Stock pursuant to the
exercise of employee stock options or rights or otherwise as compensation.
In connection with the rendering of this opinion, we have
reviewed the Merger Agreement, the Proxy Statement/Prospectus forming a
part of the Registration Statement filed with the Securities and Exchange
Commission by WPS and UPEN in respect of the Merger (the "Registration
Statement"), and related documents and other materials as we have deemed
relevant to the rendering of our opinion. In addition, we have assumed
that we will receive, prior to the Effective Time, representations to be
made by WPS and UPEN, in the form attached hereto and we have relied upon
the accuracy of the statements contained therein. We have also assumed
that all documents we have reviewed are true and accurate, accurately
reflect the originals and have been or will be properly executed, and that
all actions conducted or to be conducted in connection with the Merger
Agreement and the transactions contemplated thereby have been and will be
conducted in the manner provided in such document. Further, we have also
assumed that the Merger of WPS and UPEN will qualify as a "statutory
merger or consolidation" under applicable state laws.
We are members of the bar of the State of New York and are not
admitted to practice law in any other jurisdiction. Accordingly, we
express no opinion with respect to the laws of any other jurisdiction
other than the federal laws of the United States of America in respect of
the opinions set forth herein.
Based on and subject to the foregoing, it is our opinion that:
(1) The Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code. WPS and UPEN will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
(2) No gain or loss will be recognized by UPEN pursuant to the
Merger.
(3) Each holder of UPEN Common Stock who exchanges those shares
solely for shares of WPS Common Stock pursuant to the Merger (the
"Exchanging UPEN Shareholders") will not recognize any gain or loss as a
result of the Merger.
(4) The aggregate tax basis of the WPS Common Stock received by each
Exchanging UPEN Shareholder will be the same as the aggregate tax basis of
the stock exchanged therefor.
(5) The holding period of the WPS Common Stock received by each
Exchanging UPEN Shareholder will include the period for which the stock
exchanged therefor was held, provided that such stock is held as a capital
asset at the effective time of the Merger.
(6) The payment of cash to an Exchanging UPEN Shareholder in lieu of
issuing fractional shares of WPS Common Stock will be treated as if the
fractional share was distributed pursuant to the Merger and then redeemed
by WPS. The cash payment will be treated as having been received in a
distribution in full payment in exchange for the fractional share. The
Exchanging UPEN Shareholder will recognize gain or loss equal to the
difference between (i) the cash payment, and (ii) the portion of the
Exchanging UPEN Shareholder's basis in the UPEN Common Stock which is
allocable to the fractional share. This gain or loss will be capital gain
or loss, provided that such stock is held as a capital asset at the
effective time of the Merger.
Further, we are of the opinion that the statements set forth under
the caption "THE MERGER-MATERIAL FEDERAL INCOME TAX CONSEQUENCES" in the
Registration Statement and attributed to Reid & Priest LLP, constitute an
accurate description, in general terms, of the material United States
federal income tax consequences of the Merger. The discussion set forth
therein, to the extent attributed to Reid & Priest LLP, reflects the
opinion of Reid & Priest LLP.
Except as set forth above, we express no opinion with respect to
the Merger. This opinion is for your information and is not to be quoted
in whole or in part, summarized or otherwise referred to, nor is it to be
filed with or supplied to any governmental agency or other person without
our written consent. This opinion is as of the date hereof. We disclaim
any responsibility to update or supplement this opinion to reflect any
events or state of facts which may hereafter come to our attention, or any
changes in statutes or regulations or any other legal authorities which
may hereafter occur.
We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as Exhibit 8(b) to the Registration
Statement. We also consent to the discussion of this opinion and the
reference to our firm under the heading "THE MERGER-MATERIAL FEDERAL
INCOME TAX CONSEQUENCES" in the Proxy Statement/Prospectus that
constitutes part of the Registration Statement.
Very truly yours,
/s/ Reid & Priest LLP
REID & PRIEST LLP
EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated January
28, 1997, included in WPS Resources Corporation's Form 10-K for the year
ended December 31, 1996, and to all references to our Firm included in
this registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
November 21, 1997
Exhibit 23(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Amendment No. 2 to Registration Statement
No. 333-34401 of WPS Resources Corporation on Form S-4 of our reports
dated February 7, 1997, included and incorporated by reference in the
Annual Report on Form 10-K of Upper Peninsula Energy Corporation ("UPEN")
for the year ended December 31, 1996, and to the use of our report dated
February 7, 1997 appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the
headings "Selected Financial Data" of UPEN and "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
November 21, 1997
Davenport, Iowa
EXHIBIT 99.1
UPPER PENINSULA ENERGY CORPORATION
600 Lakeshore Drive
P.O. Box 130
Houghton, MI 49931-0130
SOLICITED BY THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF SHAREHOLDERS ON JANUARY 29, 1998
The undersigned hereby appoints Clarence R. Fisher and Burton C. Arola as
Proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated on the reverse
side, all the shares of common stock of UPPER PENINSULA ENERGY CORPORATION
held of record by the undersigned on December 5, 1997, at the Special
Meeting of Shareholders to be held on January 29, 1998, or at any
adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS GIVEN WITH
RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE VOTED "FOR" SUCH
PROPOSAL.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES OF AMERICA.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
UPPER PENINSULA 1. Proposal to approve the Agreement
ENERGY CORPORATION and Plan of Merger, by and between
WPS Resources Corporation and Upper
Peninsula Energy Corporation, dated
as of July 10, 1997, and the
transactions contemplated thereby.
For Against Abstain
[ ] [ ] [ ]
2. In their discretion, the proxies
are authorized to vote upon any
matters incidental to the conduct
of the Special Meeting which may
properly arise.
For Against Abstain
[ ] [ ] [ ]
If joint account, each owner must sign.
Shareholder, please sign this proxy
exactly as your name(s) appear(s) to the
left, including the title "Executor",
"trustee", etc., if the same is
indicated. If stock is held by a
corporation, this proxy should be
executed by a proper officer thereof.
Please be sure to sign and Date __________
date this Proxy.
_____________________________ _____________________
Shareholder sign here Co-owner sign here
Mark box at right if an address
change or comment has been noted
on the reverse side of this
card. [ ]
