SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission Registrant; State of Incorporation IRS Employer
file number Address; and Telephone Number Identification No.
- ----------- ---------------------------------- ------------------
1-11337 WPS RESOURCES CORPORATION 39-1775292
(A Wisconsin Corporation)
700 North Adams Street
P. O. Box 19001
Green Bay, WI 54307-9001
920-433-4901
1-3016 WISCONSIN PUBLIC SERVICE CORPORATION 39-0715160
(A Wisconsin Corporation)
700 North Adams Street
P. O. Box 19001
Green Bay, WI 54307-9001
920-433-1598
Securities registered pursuant to Section 12(b) of the Act:
- -----------------------------------------------------------
Title of Name of each exchange
each class on which registered
---------- ---------------------
WPS RESOURCES CORPORATION Common Stock, New York Stock Exchange
$1 par value
Rights to purchase New York Stock Exchange
Common Stock pursuant
to Rights Agreement
dated December 12, 1996
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Securities registered pursuant to Section 12(g) of the Act:
- -----------------------------------------------------------
WISCONSIN PUBLIC SERVICE CORPORATION
Preferred Stock, Cumulative, $100 par value
5.00% Series 6.76% Series
5.04% Series 6.88% Series
5.08% Series
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
State the aggregate market value of the voting stock held by nonaffiliates of
- -----------------------------------------------------------------------------
the Registrant.
- ---------------
WPS RESOURCES CORPORATION
$806,498,927 as of March 22, 1999
WISCONSIN PUBLIC SERVICE CORPORATION
None
Number of shares outstanding of each class of common stock, as of December 31,
- ------------------------------------------------------------------------------
1998
- ----
WPS RESOURCES CORPORATION Common Stock, $1 par value,
26,551,405 shares
WISCONSIN PUBLIC SERVICE CORPORATION Common Stock, $4 par value,
23,896,962 shares. WPS Resources
Corporation is the sole holder of
Wisconsin Public Service Corporation
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Definitive proxy statement for the WPS Resources Corporation Annual
Meeting of Shareholders on May 6, 1999 is incorporated into Parts I and
III.
<PAGE>
WPS RESOURCES CORPORATION
and
WISCONSIN PUBLIC SERVICE CORPORATION
FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1998
TABLE OF CONTENTS
GLOSSARY.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
PART I
1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A. GENERAL
WPS Resources Corporation . . . . . . . . . . . . . . . . . . 1
Wisconsin Public Service Corporation. . . . . . . . . . . . . 1
Upper Peninsula Power Company . . . . . . . . . . . . . . . . 2
Regulatory Oversight. . . . . . . . . . . . . . . . . . . . . 2
An Overview of Industry Restructuring . . . . . . . . . . . . 2
General. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Effect on Operations . . . . . . . . . . . . . . . . . . . 3
Regional Merger Activities. . . . . . . . . . . . . . . . . . 3
Year 2000 Compliance. . . . . . . . . . . . . . . . . . . . . 3
Forward-Looking Statements. . . . . . . . . . . . . . . . . . 4
B. ELECTRIC MATTERS
Electric Operations . . . . . . . . . . . . . . . . . . . . . 4
Generating Capacity . . . . . . . . . . . . . . . . . . . . . 4
Kewaunee Nuclear Power Plant. . . . . . . . . . . . . . . . . 5
General. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Steam Generator Replacement. . . . . . . . . . . . . . . . 6
Ownership. . . . . . . . . . . . . . . . . . . . . . . . . 6
Formation of a Nuclear Management Company. . . . . . . . . 7
Low-Level Radioactive Waste Storage. . . . . . . . . . . . 7
Depreciation and Decommissioning . . . . . . . . . . . . . 7
Fuel Supply . . . . . . . . . . . . . . . . . . . . . . . . . 8
Electric Generation Mix. . . . . . . . . . . . . . . . . . 8
Fuel Costs . . . . . . . . . . . . . . . . . . . . . . . . 8
Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Nuclear Fuel Cycle . . . . . . . . . . . . . . . . . . . . 9
Spent Nuclear Fuel Disposal. . . . . . . . . . . . . . . . 9
Funding Decontamination and Decommissioning of
Federal Facilities . . . . . . . . . . . . . . . . . . . 10
Regulatory Matters in the Wisconsin Jurisdiction . . . . . . 11
Industry Restructuring . . . . . . . . . . . . . . . . . . 11
Independent System Operator. . . . . . . . . . . . . . . . 11
Utility Affiliates . . . . . . . . . . . . . . . . . . . . 12
Advance Plan and Strategic Energy Assessment . . . . . . . 12
Supply Issues. . . . . . . . . . . . . . . . . . . . . . . 13
Customer Rates . . . . . . . . . . . . . . . . . . . . . . 13
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Regulatory Matters in the Michigan Jurisdiction . . . . . . . 13
Industry Restructuring . . . . . . . . . . . . . . . . . . 13
Customer Rates . . . . . . . . . . . . . . . . . . . . . . 14
Regulatory Matters in the FERC Jurisdiction . . . . . . . . . 14
Wholesale Status . . . . . . . . . . . . . . . . . . . . . 14
Industry Restructuring . . . . . . . . . . . . . . . . . . 15
Customer Rates . . . . . . . . . . . . . . . . . . . . . . 15
Transmission Interface . . . . . . . . . . . . . . . . . . 15
Hydroelectric Licenses . . . . . . . . . . . . . . . . . . 16
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . 16
Research and Development . . . . . . . . . . . . . . . . . 16
Customer Segmentation. . . . . . . . . . . . . . . . . . . 16
Electric Financial Summary. . . . . . . . . . . . . . . . . . 16
Electric Operating Statistics . . . . . . . . . . . . . . . . 17
Wisconsin Public Service Corporation . . . . . . . . . . . 17
Upper Peninsula Power Company. . . . . . . . . . . . . . . 18
C. GAS MATTERS
Wisconsin Public Service Corporation's Gas Market . . . . . . 19
Gas Supply. . . . . . . . . . . . . . . . . . . . . . . . . . 20
General. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Pipeline Capacity and Storage. . . . . . . . . . . . . . . 20
Supply Contracts . . . . . . . . . . . . . . . . . . . . . 21
Regulatory Matters in the Wisconsin Jurisdiction. . . . . . . 21
Industry Restructuring . . . . . . . . . . . . . . . . . . 21
Cost Recovery Mechanism. . . . . . . . . . . . . . . . . . 22
Customer Rates . . . . . . . . . . . . . . . . . . . . . . 22
Regulatory Matters in the Michigan Jurisdiction . . . . . . . 22
Industry Restructuring . . . . . . . . . . . . . . . . . . 22
Customer Rates . . . . . . . . . . . . . . . . . . . . . . 23
Regulatory Matters in the FERC Jurisdiction . . . . . . . . . 23
Gas Financial Summary . . . . . . . . . . . . . . . . . . . . 24
Gas Operating Statistics. . . . . . . . . . . . . . . . . . . 25
Wisconsin Public Service Corporation . . . . . . . . . . . 25
D. NONREGULATED BUSINESS ACTIVITIES
General . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
WPS Energy Services, Inc. . . . . . . . . . . . . . . . . . . 26
WPS Power Development, Inc. . . . . . . . . . . . . . . . . . 27
E. ENVIRONMENTAL MATTERS
General . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Air Quality . . . . . . . . . . . . . . . . . . . . . . . . . 28
Water Quality . . . . . . . . . . . . . . . . . . . . . . . . 29
Gas Plant Cleanup . . . . . . . . . . . . . . . . . . . . . . 29
Ash Disposal Site . . . . . . . . . . . . . . . . . . . . . . 30
F. CAPITAL REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . 30
G. EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
A. UTILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
WPSC's Facilities . . . . . . . . . . . . . . . . . . . . . . 32
UPPCO's Facilities. . . . . . . . . . . . . . . . . . . . . . 33
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B. NONREGULATED . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . 34
Spent Nuclear Fuel Disposal. . . . . . . . . . . . . . . . . . . 34
Funding Decontamination and Decommissioning of
Federal Facilities . . . . . . . . . . . . . . . . . . . . . 34
Environmental. . . . . . . . . . . . . . . . . . . . . . . . . . 34
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . 34
4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . . . . 35
A. EXECUTIVE OFFICERS OF WPS RESOURCES CORPORATION. . . . . . . . . 35
B. EXECUTIVE OFFICERS OF WISCONSIN PUBLIC SERVICE CORPORATION . . . 36
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . 38
WPS Resources Corporation Common Stock Two-Year Comparison . . . 38
Dividend Restrictions. . . . . . . . . . . . . . . . . . . . . . 38
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . 40
WPS RESOURCES CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1994 TO 1998)
A. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME . . . 40
B. CONSOLIDATED BALANCE SHEETS. . . . . . . . . . . . . . . . . . . 41
C. FINANCIAL STATISTICS . . . . . . . . . . . . . . . . . . . . . . 42
WISCONSIN PUBLIC SERVICE CORPORATION
COMPARATIVE FINANCIAL DATA AND FINANCIAL
STATISTICS (1996 TO 1998)
D. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . 43
E. FINANCIAL STATISTICS . . . . . . . . . . . . . . . . . . . . . . 44
UPPER PENINSULA POWER COMPANY
COMPARATIVE FINANCIAL DATA AND FINANCIAL
STATISTICS (1996 TO 1998)
F. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . 45
G. FINANCIAL STATISTICS . . . . . . . . . . . . . . . . . . . . . . 46
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION . . . . . . . . . . . . . . . . . . . . . . . 47
WPS RESOURCES CORPORATION . . . . . . . . . . . . . . . . . . . 47
WISCONSIN PUBLIC SERVICE CORPORATION. . . . . . . . . . . . . . 67
iii
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8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . 78
WPS RESOURCES CORPORATION
A. CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME, AND
RETAINED EARNINGS. . . . . . . . . . . . . . . . . . . . . . . . 78
B. CONSOLIDATED BALANCE SHEETS. . . . . . . . . . . . . . . . . . . 79
C. CONSOLIDATED STATEMENTS OF CAPITALIZATION. . . . . . . . . . . . 81
D. CONSOLIDATED STATEMENTS OF CASH FLOWS. . . . . . . . . . . . . . 82
E. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . 83
F. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . 110
WISCONSIN PUBLIC SERVICE CORPORATION
G. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME . . . 111
H. CONSOLIDATED BALANCE SHEETS. . . . . . . . . . . . . . . . . . . 112
I. CONSOLIDATED STATEMENTS OF CAPITALIZATION. . . . . . . . . . . . 114
J. CONSOLIDATED STATEMENTS OF CASH FLOWS. . . . . . . . . . . . . . 115
K. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS . . . . . . . . . . 116
L. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . 117
M. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . 118
9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . 119
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . . . . 119
11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . 119
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. . . 119
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . . 119
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . 120
DESCRIPTION OF DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . 122
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
SCHEDULE III - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
A. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . 130
B. STATEMENTS OF INCOME AND RETAINED EARNINGS . . . . . . . . . . . 131
C. BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . . . . . . 132
D. STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . . . . . . 133
E. NOTES TO PARENT COMPANY FINANCIAL STATEMENTS . . . . . . . . . . 134
iv
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EXHIBITS
2 Asset Purchase Agreement Among Maine Public Service
Company, Maine and New Brunswick Electrical Power
Company, Limited and WPS Power Development, Inc.
dated as of July 7, 1998 . . . . . . . . . . . . . . . . . . . . 135
3B-1 By-Laws of WPS Resources Corporation as in Effect
September 1, 1998. . . . . . . . . . . . . . . . . . . . . . . . 202
3B-2 By-Laws of Wisconsin Public Service Corporation as in
Effect September 1, 1998 . . . . . . . . . . . . . . . . . . . . 235
10F-1 WPS Resources Cororation Amended and Restated
Deferred Compensation Plan Effective January 1, 1999
WPS Resources Corporation . . . . . . . . . . . . . . . . . 266
11 Statement Regarding Computation of Per Share
Earnings
WPS Resources Corporation . . . . . . . . . . . . . . . . . 295
21 Subsidiaries of the Registrant . . . . . . . . . . . . . . . . . 296
23 Consent of Independent Public Accountants. . . . . . . . . . . . 297
24 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . 298
27 Financial Data Schedule
WPS Resources Corporation . . . . . . . . . . . . . . . . . 307
Wisconsin Public Service Corporation. . . . . . . . . . . . 308
v
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GLOSSARY
The following abbreviations and acronyms are used in the text of this
Form 10-K:
Btu. . . . . . . . . . . . . . . British thermal unit
ESI. . . . . . . . . . . . . . . WPS Energy Services, Inc.
FERC . . . . . . . . . . . . . . Federal Energy Regulatory Commission
ISO. . . . . . . . . . . . . . . Independent system operator
MPSC . . . . . . . . . . . . . . Michigan Public Service Commission
PDI. . . . . . . . . . . . . . . WPS Power Development, Inc.
PSCW . . . . . . . . . . . . . . Public Service Commission of Wisconsin
UPEN . . . . . . . . . . . . . . Upper Peninsula Energy Corporation
UPPCO. . . . . . . . . . . . . . Upper Peninsula Power Company
WPSR . . . . . . . . . . . . . . WPS Resources Corporation
WPSC . . . . . . . . . . . . . . Wisconsin Public Service Corporation
vi
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PART I
ITEM 1. BUSINESS
A. GENERAL
WPS RESOURCES CORPORATION
WPS Resources Corporation ("WPSR"), a Wisconsin Corporation, was
incorporated on December 3, 1993 and operates as a holding company with both
regulated utility and nonregulated business units. WPSR's principal
wholly-owned subsidiaries are: Wisconsin Public Service Corporation ("WPSC"),
a regulated electric and gas utility; Upper Peninsula Power Company ("UPPCO"),
a regulated electric utility; and WPS Energy Services, Inc. ("ESI") and
WPS Power Development, Inc. ("PDI"), both nonregulated subsidiaries. WPSC,
ESI, and PDI are Wisconsin corporations, while UPPCO is a Michigan
corporation. WPSC, UPPCO, ESI, and PDI represent approximately 61%, 6%, 33%,
and .5% of WPSR's consolidated revenues for 1998 and 84%, 8%, 5%, and 2% of
WPSR's consolidated assets at December 31, 1998, respectively. All of WPSR's
net income for 1998 was derived from WPSC and UPPCO.
Effective September 29, 1998, Upper Peninsula Energy Corporation
("UPEN") merged with and into WPSR, and UPPCO, UPEN's utility and major
subsidiary, as well as other nonregulated subsidiaries, became wholly-owned
subsidiaries of WPSR. Each of the 2,950,001 outstanding shares of UPEN common
stock (no par value) were converted into the right to receive 0.90 shares of
WPSR common stock ($1.00 par value), subject to adjustment for fractional
shares, as provided in the merger agreement.
On January 12, 1999, WPS Resources Capital Corporation was formed as a
wholly-owned subsidiary of WPSR. As an intermediate holding company,
WPS Resources Capital Corporation became the parent of ESI and PDI and a
vehicle to provide financing for ESI and PDI.
On a stand-alone basis, WPSR incurred a net loss in 1998 of
$2.0 million, compared with a net loss of $2.7 million in 1997. The 1998 and
1997 WPSR stand-alone losses were attributable primarily to expenses
associated with the merger with UPEN and increased interest expense resulting
from additional financing of subsidiary projects.
Within this report, the term "utility" refers to the regulated
activities of WPSC and UPPCO, while the term "nonutility" refers to the
activities of WPSC and UPPCO which are not regulated. The term "nonregulated"
refers to activities other than those of WPSC and UPPCO.
WISCONSIN PUBLIC SERVICE CORPORATION
At December 31, 1998, WPSC served 381,136 electric retail customers and
224,058 gas retail customers in an 11,000 square-mile service territory in
northeastern and central Wisconsin and an adjacent part of Upper Michigan.
Additionally, WPSC provides wholesale (full or partial requirements) electric
service, either directly or indirectly, to seven municipal utilities, three
electric cooperatives, ten investor-owned utilities, six marketers, and one
municipal joint action agency. Operating revenues in the year 1998 were
derived 97% from Wisconsin customers and 3% from Michigan customers. Of total
revenues in 1998, 75% were from electric operations and 25% were from gas
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operations. Of total electric revenues, 89% were from retail sales and 11%
were from wholesale sales.
WPSC's retail service areas are principally protected by indeterminate
permits secured by statute in Wisconsin and through franchises granted by
municipalities in Michigan.
UPPER PENINSULA POWER COMPANY
At December 31, 1998, UPPCO served 48,272 electric customers in a
4,000 square-mile area of primarily rural countryside in Upper Michigan.
Additionally, UPPCO provides wholesale (full or partial requirements) electric
service, either directly or indirectly, to five municipal utilities, two
electric cooperatives, and two investor-owned utilities. UPPCO derives 100%
of its revenues from electric operations. Of total revenues, 92% were from
retail sales and 8% were from wholesale sales.
REGULATORY OVERSIGHT
WPSR is exempt from registration under the Public Utility Holding
Company Act of 1935, as amended, but is subject to the various requirements
and prohibitions of the Wisconsin Public Utility Holding Company Act.
Utility rates, service, and securities issues of WPSC are subject to
regulation by the Public Service Commission of Wisconsin ("PSCW"); and WPSC
and UPPCO are both subject to the jurisdiction of the Michigan Public Service
Commission ("MPSC"). WPSC and UPPCO are also subject to regulation of their
wholesale electric rates, hydroelectric projects, and certain other matters by
the Federal Energy Regulatory Commission ("FERC"). Both WPSC and UPPCO are
subject to limited regulation by local authorities. WPSC and UPPCO follow
Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation," and, therefore, their financial
statements reflect the different ratemaking principles of the various
jurisdictions. The impacts of utility regulation also are reflected, through
consolidation, in the financial statements of WPSR. Utility revenues by
jurisdiction include: the PSCW 81%, the MPSC 11%, and the FERC 8%. The
operation of the Kewaunee Nuclear Power Plant is subject to the jurisdiction
of the Nuclear Regulatory Commission.
AN OVERVIEW OF INDUSTRY RESTRUCTURING
GENERAL
In April 1994, the FERC issued Order 888 on open access electric
transmission and stranded cost recovery due to wholesale competition.
Order 888 directs the creation of power pools and independent system operators
("ISOs") to meet the open access requirements and principles.
An ISO is an independent third party that would regulate on a "real-time"
basis the operation of the transmission systems in a defined geographic
area. With most ISOs, the transmission system assets may be retained by the
electric utilities. The ISO would monitor the generation, transmission, and
distribution systems, direct the operations of transmission facilities,
administer open access transmission tariffs, and direct generation redispatch.
Some believe that an ISO may also own transmission assets.
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An independent transmission company is an alternative to an ISO. An
independent transmission company would perform functions that are similar to
an ISO; however, an independent transmission company would also own the
transmission assets. The FERC has jurisdiction in setting prices for both
ISOs and independent transmission companies.
In April 1994, the FERC also issued Order 889 which requires that public
utilities develop a system to communicate information about their transmission
systems and services electronically to all potential customers at the same
time. WPSC is included in the system created by the Mid-America
Interconnected Network, commonly known as MAIN, one of the existing electric
reliability regions in the United States.
EFFECT ON OPERATIONS
Industry restructuring will create competitive markets which could make
the recovery of investment dollars in customer rates less certain.
Management, however, believes that its utility assets will continue to be
recoverable under such conditions.
Management expects that increased competition in a deregulated
environment will put greater emphasis on managing costs and put pressure on
operating margins at WPSC and UPPCO. Management also believes that no
significant changes to depreciable lives of WPSC's and UPPCO's capital assets
would be necessary in a competitive environment. At this time, management
cannot predict the ultimate results of deregulation.
REGIONAL MERGER ACTIVITIES
Industry restructuring has been accompanied by merger activity in the
region which could impact the competitive environment. Mergers and
acquisitions may be a means to gain an advantage in a competitive environment.
Recently, mergers have occurred between WPSR and UPEN, as previously
described, and between WPL Holdings, Inc., IES Industries, Inc., and
Interstate Power Company. Additionally, Wisconsin Energy Corporation acquired
ESELCO, Inc., the parent company of the Edison Sault Electric Company. No new
Wisconsin utility mergers or acquisitions were announced in 1998.
YEAR 2000 COMPLIANCE
The Year 2000 issue arises because date sensitive computer software or
embedded chips may not recognize a date using "00" as 2000. This may result
in system failures or disruption of operations.
WPSR has undertaken a program to assess the Year 2000 issue and to bring
computer systems into compliance by the year 2000. All systems, including
energy production and delivery systems, other embedded systems, and third
party systems of suppliers are being evaluated to identify and resolve
potential problems.
A Year 2000 plan has been developed and communicated to employees,
customers, suppliers, and other affected parties which includes awareness,
inventory and assessment, remediation, testing, and implementation. The
inventory and assessment phase has been completed. Action plans for
remediation have been completed. Five major systems of the company (customer
information, finance, human resources, materials management, and facility
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management) are currently Year 2000 compliant. Other critical systems are
expected to be compliant by the end of the first quarter of 1999. Worst case
scenarios and contingency plans are being developed.
The most recent estimated future internal labor and third party cost of
Year 2000 compliance is approximately $9.0 million. See further discussion
regarding Year 2000 compliance in MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION on page 72.
FORWARDING-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. The
statements speak of plans, goals, beliefs, or expectations of WPSR, WPSC, and
their subsidiaries, refer to estimates, or use similar terms. Although WPSR,
WPSC, and their subsidiaries believe that their 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 included in
this report 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 areas served by
WPSC, UPPCO, and ESI; the weather and other natural phenomena; the timing and
extent of changes in commodity prices and interest rates; conditions in the
capital markets; growth in opportunities for ESI and PDI; and the impact of
the Year 2000 issue.
A forward-looking statement speaks only as of the date on which such
statement is made, and WPSR does not undertake to update any forward-looking
statement to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for WPSR, WPSC, or
their subsidiaries to predict all such factors, nor can it assess the impact
of each such factor or the extent to which any factor, or combination of
factors, may cause results to differ materially from those contained in any
forward-looking statement.
B. ELECTRIC MATTERS
ELECTRIC OPERATIONS
The largest Wisconsin communities served by WPSC at the electric retail
level are the cities of Green Bay, Oshkosh, Wausau, and Stevens Point. The
largest Michigan community served by UPPCO at the electric retail level is the
area of Houghton/Hancock.
GENERATING CAPACITY
In 1998, WPSC reached a firm net design peak of 1,606 megawatts on
July 14. Net design peak relates to the 10:00 a.m. to 3:00 p.m. period which
is the period most relevant for capacity planning purposes. WPSC reached a
firm net actual peak of 1,685 megawatts on July 13. During the actual peak,
transactions outside WPSC included firm purchases of 132 megawatts and firm
sales of 38 megawatts. Planned generator capability for the 1998 summer
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period was 1,780 megawatts. WPSC's future supply reserves are estimated to be
above the planning criteria of 18% minimum reserves for 1999 and 2000.
See "UTILITY" in Part I, Item 2, PROPERTIES, at page 32 for information
concerning the generation facilities of WPSC and UPPCO.
During 1997, the PSCW authorized De Pere Energy LLC, an affiliate of
Polsky Energy Corporation, an independent power producer, to build the De Pere
Energy Center, a 179-megawatt combustion turbine generating facility that is
scheduled to be operational on June 1, 1999. The energy center will be
converted to a combined-cycle unit with a summer rating of 233 megawatts on or
after the fifth year of operation, pursuant to the requirements of WPSC's
25-year contract with De Pere Energy LLC to purchase capacity and energy from
the center. A combined-cycle unit is a type of combustion turbine in which
the hot exhaust gases pass through a heat recovery steam generator to produce
steam that drives a steam turbine generator which produces approximately
one-third of the power generated. WPSC will furnish the natural gas fuel for
the facility pursuant to existing gas tariffs. The energy center will be
operated by SkyGen Services LLC, an operating subsidiary of Polsky Energy
Corporation. See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Note 10,
Commitments and Contingencies, at page 101, regarding "Long-Term Power
Supply." WPSC has contracted for combustion turbine peaking capacity from the
De Pere Energy Center beginning June 1, 1999.
In 1998, 89% of UPPCO's total energy requirements were purchased; the
remainder was supplied by hydroelectric and combustion turbine facilities
owned by UPPCO. During 1998, UPPCO purchased firm power of 50 megawatts and
15 megawatts from Commonwealth Edison and WPSC, respectively. In addition,
UPPCO purchased non-firm power from WPSC, WP&L, and others. The purchase from
Commonwealth represented 50% of UPPCO's total energy requirements in 1998.
The purchase contracts are effective through December 31, 1999. UPPCO has
contracted for 65 megawatts of capacity and energy from WPSC for the years
2000, 2001, and 2002.
WPSC has begun construction of a 9-megawatt wind plant. The project
consists of 14 wind turbines installed on private farmlands located in the
Town of Lincoln in Kewaunee County, Wisconsin. The wind plant is expected to
be on-line by June 30, 1999 at an estimated cost of $10.3 million.
WPSC owns 33.1% of the outstanding capital stock of Wisconsin River
Power Company which owns and operates two dams and related hydroelectric
plants on the Wisconsin River having an aggregate installed capacity of
approximately 39 megawatts.
KEWAUNEE NUCLEAR POWER PLANT
GENERAL
The Kewaunee Nuclear Power Plant is a pressurized water reactor plant
with a name plate capacity of 562 megawatts. It is operated by WPSC and is
jointly owned by WPSC (41.2%), Wisconsin Power and Light Company (41.0%), and
Madison Gas and Electric Company (17.8%). The plant's operating license
expires in 2013.
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Kewaunee has achieved the Institute of Nuclear Power Operations' top
rating for the seventh time. The Institute of Nuclear Power Operations is an
industry group formed in 1979 to promote excellence in the nuclear industry.
STEAM GENERATOR REPLACEMENT
On April 7, 1998, the PSCW approved WPSC's application for the
replacement of the two steam generators at the Kewaunee Nuclear Power Plant.
The total cost of replacing the steam generators could be approximately
$90.7 million. Pending settlement of ownership issues with Madison Gas and
Electric Company, WPSC's share of the cost may be as much as $53.5 million.
The replacement work is being planned for mid-year of 2000 and will take
approximately 60 days.
On October 17, 1998, the plant was shut down for a planned maintenance
and refueling outage. Inspection of the plant's two steam generators showed
that the repairs made to the tubes in 1997 are holding up well and few
additional repairs were needed. In addition to the inspection and repair of
the steam generators, a major overhaul was performed on the main turbine
generator. After an outage duration of 42 days, the plant was restarted and
returned to service on November 27, 1998.
OWNERSHIP
On September 29, 1998, WPSC and Madison Gas and Electric Company
finalized an agreement in which WPSC will acquire Madison Gas and Electric
Company's 17.8% share of the Kewaunee Nuclear Power Plant. This agreement,
the closing of which is contingent upon regulatory approvals and steam
generator replacement, will give WPSC 59.0% ownership in the plant. The other
co-owner, Wisconsin Power and Light Company, will maintain its current
ownership interest in Kewaunee and will support the replacement of the steam
generators.
The agreement provides for WPSC to pay Madison Gas and Electric Company
its depreciated book value for its share of the plant. Madison Gas and
Electric Company will also provide to WPSC a fully funded decommissioning
account. WPSC will then assume responsibility for 59% of the costs of
decommissioning the plant. Madison Gas and Electric Company retains its
obligation for its share of the costs of final disposal of spent nuclear fuel
created up to the time of ownership transfer. The agreement also provides
Madison Gas and Electric Company an option to purchase power from WPSC for two
years following the date of ownership transfer. The amount of power involved
in this option is approximately equal to Madison Gas and Electric Company's
current share of the power generated by the plant.
WPSC has also entered into an agreement with Madison Gas and Electric
Company whereby WPSC will construct and operate for Madison Gas and Electric
Company an 83-megawatt combustion turbine at WPSC's West Marinette site in
northeastern Wisconsin. In entering this agreement, the utilities agreed that
the amount owed by WPSC to Madison Gas and Electric Company for the Kewaunee
Nuclear Power Plant asset transfer could be credited against the purchase
price of the combustion turbine. The construction of the combustion turbine
is expected to be completed in the second quarter of 2000. WPSC will supply
gas to this unit pursuant to existing gas tariffs. If, for some reason, the
Marinette station is not completed, the agreement calls for WPSC to pay for
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Madison Gas and Electric Company's share of the Kewaunee Nuclear Power Plant
with a combination of cash and notes.
FORMATION OF NUCLEAR MANAGEMENT COMPANY
On February 25, 1999, Northern States Power Company, Wisconsin Electric
Power Company, and WPSC announced the formation of a nuclear management
company. Alliant Energy, the parent company of Wisconsin Power and Light
Company, is seeking approval from the Securities and Exchange Commission to
join the management company at a later date. Combined, the four utilities
operate seven nuclear generating plants at five locations for a combined
generating capacity of approximately 3,760 megawatts, representing between 12%
and 25% of the electricity generated by the individual utilities.
The new company was formed to sustain long-term safety, optimize
reliability, and improve the operational performance of the individual nuclear
generating plants. Overall plant operations will continue to be provided by
the same plant personnel. The utilities will continue to own their respective
plants, be entitled to energy generated at the plants, and retain the
financial obligations for their safe operation, maintenance, and
decommissioning. Each utility will obtain required state or federal
regulatory approvals prior to its participation in the nuclear management
company.
LOW-LEVEL RADIOACTIVE WASTE STORAGE
The Midwest Compact Commission, on June 26, 1997, halted development in
Ohio of a six-state, regional disposal facility for low-level radioactive
waste. The Midwest Compact Commission, established to implement the federal
Low Level Radioactive Waste Policy Act of 1980, cited dwindling regional waste
volumes, continued access to existing disposal facilities, and potentially
high development costs as the primary reasons for the decision. The Midwest
Compact Commission continues to monitor the availability of disposal for the
low-level radioactive waste created by all Midwest generators. A site at
Barnwell, South Carolina, continues to be available for the storage of
low-level radioactive waste from the Kewaunee Nuclear Power Plant. In
addition, because of technology advances, waste compaction, and the reduction
of waste generated, the Kewaunee plant has on-site low-level radioactive waste
storage capacity sufficient to store the amount of low-level waste expected to
be generated over a 10-year period.
DEPRECIATION AND DECOMMISSIONING
In 1997, the PSCW directed the owners of the Kewaunee Nuclear Power
Plant to develop depreciation and decommissioning cost levels based on full
recovery by the end of 2002, whereas previous decommissioning estimates were
based on 2013, the year in which the operating license expires. The order was
prompted by the uncertainty regarding the expected useful life of the plant
without steam generator replacement. In 1998, after the approval of the
project to replace the steam generators, the PSCW ruled that, until the
replacement steam generators are installed, WPSC should continue to depreciate
and collect decommissioning funds at rates such that costs are recovered in
full by 2002. Once the replacement steam generators are installed, the PSCW
has directed WPSC to depreciate and collect decommissioning funds such that
costs are recovered in full by 2008. Further, the PSCW decided that an
accelerated depreciation method should be utilized for calculating
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depreciation expense. The steam generators are expected to be replaced by
mid-2000. A review of the depreciation and decommissioning costs and their
rate of recovery will be made in late 1999.
At December 31, 1998, the net carrying amount of WPSC's investment in
Kewaunee was approximately $35.2 million. The current cost of WPSC's share of
the estimated costs to decommission Kewaunee, assuming early retirement, is
$192.6 million. Decommissioning trust assets at December 31, 1998 totaled
$171.4 million. WPSC's customers in the Wisconsin jurisdiction are
responsible for approximately 91% of WPSC's share of the plant's costs.
During 1998, $8.2 million of depreciation expense related to
unrecovered plant investment was recognized compared with $7.5 million
recognized in 1997. During 1998, the decommissioning funding level was
$17.2 million compared with $16.1 million in 1997. Customer rates, which
became effective in the Wisconsin jurisdiction on February 21, 1997, are
designed to recover the accelerated plant depreciation and to provide funds
for decommissioning. The increase from 1997 to 1998 reflects the impact of a
full year's accrual at the higher rates.
During 1998, a new site-specific decommissioning cost study was
completed assuming shutdown of the plant in 2013. This study indicates WPSC's
share of Kewaunee decommissioning costs to be $190.7 million and forms the
basis for a revised decommissioning funding plan that reduces decommissioning
funding levels to $8.3 million starting in 1999.
Additional discussion of Kewaunee Nuclear Power Plant matters is
included in MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION at pages 60 and 65, and the NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS, Notes 1(h), 1(j), 1(k), and 10 at pages 85, 86, 87, and
102, respectively.
FUEL SUPPLY
ELECTRIC GENERATION MIX
WPSC's electric generation mix in 1998 compared with 1997 was: steam
plants (coal), 69.2%, up from 68.9%; steam plant (nuclear), 12.5%, up from
8.2%; hydro, 1.7%, down from 3.0%; combined natural gas and fuel oil, 1.8%, up
from 1.3%; and purchased power, 14.8%, down from 18.6%. Purchased power
represents short-term energy purchases.
FUEL COSTS
Fuel costs in 1998 compared with 1997, expressed in dollars per million
British thermal unit ("Btu"), were: nuclear, $0.42, down from $0.43; coal,
$1.04, down from $1.09; natural gas, $2.59, down from $2.96; and No. 2 fuel
oil, $3.89, down from $4.27.
COAL
WPSC's primary fuel source is coal. In 1998, 99% of this coal came from
Powder River Basin mines located in Wyoming and Montana. This coal is very
low in sulfur and meets the standards of the 1990 Clean Air Act for the
Year 2000 and beyond. Further, this coal is the least-cost coal for WPSC from
any of the subbituminous coal-producing regions in the United States.
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The majority of coal for WPSC's wholly-owned plants and the
jointly-owned Edgewater and Columbia plants is purchased under relatively
short-term contracts of up to three years duration. WPSC has one long-term
contract which covers approximately 16% of total requirements and has
take-or-pay obligations totaling $130.8 million for the years 1999 through
2016. Coal transportation for these plants is purchased under contracts of up
to five years duration. Over 90% of the coal transported to these plants is
moved under competitive transportation market conditions which are expected to
continue to yield competitive fuel costs for WPSC for the long term.
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Note 10, COMMITMENTS AND
CONTINGENCIES, at page 101, regarding "Coal Contracts."
NUCLEAR FUEL CYCLE
WPSC purchases uranium concentrates, conversion services, enrichment
services, and fabrication services for nuclear fuel assemblies at the Kewaunee
Nuclear Power Plant. New fuel assemblies replace used assemblies that are
removed from the reactor every 18 months and placed in storage at the plant
site pending removal by the United States Department of Energy.
Uranium concentrates, conversion services, and enrichment services are
purchased at spot market prices, through a bidding process, or using existing
contracts.
A uranium inventory policy requires that sufficient inventory exist for
up to two reactor reloads of fuel. As of December 31, 1998, 947,000 pounds of
yellowcake or its equivalent were held in inventory for the plant.
Two contracts are in place to provide conversion services for nuclear
fuel reloads in 2000 and 2001.
A fixed quantity of enrichment services are contracted for through the
year 2004. Additional enrichment services will be acquired under a contract
which is in effect for the life of the plant or by purchases on the spot
market.
Fuel fabrication services are contracted well into the next decade and
contain contractual clauses covering force majeure and termination provisions.
If, for any reason, the Kewaunee plant were forced to suspend operations
permanently, fuel-related obligations are as follows: (1) no financial
penalties associated with the present uranium supply, conversion service, and
enrichment agreements exist, and (2) the fuel fabrication contract contains
force majeure and termination for convenience provisions. As of the end of
1998, the maximum exposure would not be expected to exceed $274,000. Uranium
inventories could be sold on the spot market.
SPENT NUCLEAR FUEL DISPOSAL
The federal government has the responsibility to dispose of or
permanently store spent nuclear fuel. Spent nuclear fuel is currently being
stored at the Kewaunee Nuclear Power Plant. With minor plant modifications
planned for 2001, Kewaunee should have sufficient fuel storage capacity until
the end of its licensed life in 2013. Legislation is being considered on the
federal level to provide for the establishment of an interim storage facility.
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On January 31, 1998, the United States Department of Energy failed to
comply with its obligation to begin removing spent nuclear fuel as required by
the Nuclear Waste Policy Act of 1982. WPSC joined other utilities in a motion
to enforce the July 1996 mandate of the United States Court of Appeals for the
District of Columbia that the Department of Energy had an unconditional
obligation to begin accepting, transporting, and disposing of spent nuclear
fuel by January 31, 1998.
On May 5, 1998, the United States Court of Appeals for the District of
Columbia issued a decision denying the motion to enforce the Court's 1996
mandate. The denial centered on the question of whether the Department of
Energy could properly use the Nuclear Waste Fund as a source to pay damages
the utilities have incurred as a result of the Department of Energy's breach
of its obligation and the fact that the question is not ready for review. The
Court also indicated that certain items fall outside the scope of the Court's
mandate including (1) compelling the Department of Energy to submit a detailed
program for disposing of spent fuel from utilities and (2) declaring that the
utilities are relieved of their obligation to pay fees to the Nuclear Waste
Fund for a permanent spent fuel repository and are authorized to place such
fees into escrow until the Department of Energy commences with disposing of
spent fuel pursuant to its obligation. The scope of the Court's mandate was
limited to defining the nature of the Department of Energy's statutory
obligations and did not extend to requiring the Department of Energy to
perform under its contracts with the utilities. WPSC is currently evaluating
the decision to determine how to proceed with contract remedies.
FUNDING DECONTAMINATION AND DECOMMISSIONING OF FEDERAL FACILITIES
A surcharge was imposed by the Energy Policy Act of 1992 which requires
nuclear power companies to fund the decontamination and decommissioning of
certain Department of Energy facilities. Pursuant to the provisions of the
Energy Policy Act, WPSC is required to pay a surcharge on uranium enrichment
services purchased from the federal government prior to October 23, 1992.
WPSC's obligation is approximately $600,000 per year (adjusted for inflation)
through the year 2007.
WPSC and a number of other nuclear power companies sued the Department
of Energy in the United States Court of Federal Claims seeking a refund of the
previously paid decontamination and decommissioning surcharge payments. The
suits had been stayed pending the outcome of the petition for review filed
with the United States Supreme Court by Yankee Atomic Electric Company.
Yankee Atomic Electric Company contended that the government should not
have the power to impose retroactive financial liability, stating it was a
breach of the fixed-price enrichment contracts that Yankee Atomic Electric
Company signed prior to enactment of the Energy Policy Act of 1992. Yankee
Atomic Electric Company filed suit in the United States Court of Federal
Claims and received a favorable decision, only to have it overturned by the
Federal Circuit Court of Appeals in May 1997.
The United States Supreme Court, on June 26, 1998, declined to review
the decision of the United States Court of Appeals for the Federal Circuit,
thereby letting stand the decision that held that nuclear power companies must
pay a retroactive surcharge on enrichment services purchased from the
Department of Energy.
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Subsequent to the United States Supreme Court's refusal to grant review,
WPSC joined with a number of other nuclear power companies in challenging the
constitutionality of the Energy Policy Act of 1992 in a Federal District Court
in New York.
REGULATORY MATTERS IN THE WISCONSIN JURISDICTION
INDUSTRY RESTRUCTURING
In Wisconsin, electric reliability has replaced restructuring and retail
competition as the issue of current focus. The PSCW's first priority is to
develop the utility infrastructure necessary to assure reliable electric
service and to remove the barriers to competition at the wholesale level.
In 1998, the PSCW and the major utilities in Wisconsin, including
WPSC, made legislative proposals which address the planning and approval by
the PSCW of electric power generation and transmission facilities, regional
management of the transmission system, new electric power generation,
including the ownership and operation of wholesale merchant plants, new
electric power transmission facilities, out-of-state retail electric sales,
service standards for electric generation, transmission and distribution
facilities, and the allowable assets of public utility holding companies.
These proposals resulted in the enactment of the Electric Reliability Act
(1997 Wis. Laws 204).
INDEPENDENT SYSTEM OPERATOR
The Electric Reliability Act requires all Wisconsin utilities that own
transmission facilities to transfer control of the operation of their
transmission systems to a FERC-approved ISO or to divest their transmission
assets by June 30, 2000.
WPSC has been working with a number of groups that are attempting to
form ISO organizations. The Mid American Power Pool, one of ten National
Electric Reliability Council regions, attempted to develop an ISO that would
include utilities in portions of Illinois, Minnesota, North Dakota,
South Dakota, and Wisconsin. In late 1998, this effort failed to receive the
approval of current Mid American Power Pool members.
Another group of utilities is attempting to form what is known as the
"Midwest ISO." The group filed a FERC application for approval of its ISO in
mid-1998. The FERC approved the ISO in part, required a compliance filing for
certain issues, and set the rates for hearing. This ISO is presently the only
alternative to meet the requirements of the Electric Reliability Act requiring
Wisconsin utilities to join a FERC-approved ISO by June 30, 2000.
Northern States Power Company and Alliant Energy intend to file with the
FERC in the spring of 1999 for approval of an independent transmission
company. If approved, this independent transmission company could also meet
the requirements of the Electric Reliability Act.
In 1998, the PSCW reopened a docket to investigate and determine the
structure and benefits of ISOs. The PSCW considered several proposals
including the Midwest ISO and the Northern States Power Company independent
transmission company, as well as one known as the "Customer ISO" which was
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submitted by Wisconsin Public Power, Inc. The PSCW order established minimum
Wisconsin standards and approved the Customer ISO indicating that the Midwest
ISO, as formulated at that time, did not meet all of Wisconsin's standards.
The PSCW also rejected the Northern States Power Company independent
transmission company as being insufficiently developed, at that time, to
determine if it meets the Wisconsin standards.
UTILITY AFFILIATES
During 1998, the PSCW opened a docket to develop standards of conduct
between public utilities and their affiliates. This docket consists of three
phases. Phase I will develop policies on the extent that diversification into
nonutility activities by utilities should be regulated, limited, or prohibited
by the PSCW. Phase I will also form the basis for Phases II and III, which
will deal with administrative rulemaking and statutory revisions.
In Phase I, a heating, ventilating, and air conditioning alliance is
recommending a "separation" approach which restricts the types of allowable
activities that can be provided by utilities the costs of which can be
recovered in customers rates. Under the separation position, utilities may
only engage in activities that are considered to be essential utility
services, such as those required by law as well as those services that are
provided in response to circumstances which reasonably appear to endanger
public or individual human life, health, or safety. Other activities would be
allowable if they are: (1) related to utility business, (2) incidental to the
utility's business, (3) not provided by others in the market to any
significant degree, and (4) their costs can be reasonably allocated. The
costs associated with these other activities would not be recovered in
customer utility rates. The alliance's position is to restrict regulated
utilities to only the delivery of natural gas and electricity, with any other
services to be provided by nonregulated affiliates. Principal concerns being
considered include cross-subsidization practices and the shift of the cost of
competitive goods and services of the utility to utility customers.
The utilities' position is that an allocation method could be used.
This approach would allow utilities to engage in nonutility activities that
utilize the assets, operations, and expertise associated with the offering of
utility service, provided that the associated costs are determined on an
incremental basis and are not borne by utility ratepayers.
A PSCW order on Phase I is anticipated late in the first quarter of
1999.
ADVANCE PLAN AND STRATEGIC ENERGY ASSESSMENT
The PSCW's Advance Plan process required electric utilities to submit to
the PSCW, on a biennial basis, their plans for developing generation and
transmission resources for a 20-year period. Advance Plan 8 was filed with
the PSCW on January 15, 1998. An Advance Plan 8 order was issued by the PSCW
on January 19, 1999. The PSCW ordered that generation and transmission
planning continue, that certain reports and information be filed with the
PSCW, that a certain amount of generation from renewable sources be
constructed, that a state-wide wind siting study be funded, and that certain
requirements concerning electromagnetic fields be modified.
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The Electric Reliability Act repealed the Advance Plan process. In its
place, state law now requires that the PSCW biennially prepare a Strategic
Energy Assessment which will evaluate the reliability of Wisconsin's current
and future electric supply for a three-year forecasted period.
SUPPLY ISSUES
In late June of 1998, high temperatures, outages at out-of-state nuclear
units, tornado damage to significant transmission systems, and scarce
generation resources in the region resulted in unprecedented high prices for
wholesale energy. However, WPSC maintained its normal reserve levels and, for
the most part, was unaffected. The relatively warm summer and the addition of
market-based pricing in the wholesale market resulted in higher energy market
prices in 1998 and increased hours of economic buyouts or interruptions for
WPSC's large industrial customers who chose to be served at interruptible
rates. An economic buyout is an option given interruptible customers who wish
to continue to have service in lieu of interruption whereby the customers
choose to pay higher rates in return for which they receive continued service.
CUSTOMER RATES
In the Wisconsin jurisdiction, of the major investor-owned utilities,
WPSC is the low-cost electric provider (based on the Edison Electric Institute
Summer 1998 Typical Bill Rate Report) with rates being 84% of the state
average for residential rates, 79% for commercial rates, and 82% for large
industrial rates.
WPSC filed for increases in rates on April 1, 1998, in compliance with
the PSCW's biennial rate case schedule. On January 14, 1999, the PSCW ordered
a $26.9 million (or 6.3%) increase in electric rates for 1999, effective
January 15, 1999. The PSCW also allowed a 12.1% return on equity, an increase
from the previously authorized return of 11.8%.
The electric rates for 2000 will be determined by a rate case reopener
in the fall of 1999 to resolve several issues, including certain Kewaunee
Nuclear Power Plant issues regarding ownership, depreciation and
decommissioning cost recovery after steam generator replacement, the
construction of a combustion turbine for Madison Gas and Electric Company,
recovery of certain deferred Pulliam 3 generation costs, and anticipated
changes in fuel transportation contract costs.
The PSCW had approved the deferral of anticipated 1998 Kewaunee steam
generator repair costs. During the 1998 refueling outage, inspections found
little additional steam generator degradation, and a Nuclear Regulatory
Commission technical specification change resulted in minimal steam generator
repair costs during this refueling.
REGULATORY MATTERS IN THE MICHIGAN JURISDICTION
INDUSTRY RESTRUCTURING
On June 5, 1997, the MPSC ordered utilities under its jurisdiction to
file electric open access plans and related tariffs. This action followed two
years of public hearings and the inability to reach consensus among the
interested parties. The MPSC order called for generation open access in
increments of 2.5% of retail load each year starting in 1997 and ending in
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2001. Generation open access is the ability of customers to purchase electric
generation from any supplier and to use existing transmission and distribution
lines to transport the energy to the purchaser's facilities at the same price
that the local supplier would charge itself for such transportation services.
Based on MPSC orders, there would be full generation open access for retail
load in 2002.
Although the MPSC has issued a number of generation open access orders,
including orders requiring open access pilot programs in Lower Michigan,
little progress has been made on permanent open access in Michigan to date.
On February 2, 1999, the MPSC closed out its open access orders affecting the
Upper Peninsula utilities, including WPSC and UPPCO. On March 11, 1999, the
Michigan Supreme Court heard oral arguments on a challenge to the MPSC's
authority to order utilities to provide generation open access on a pilot
basis. A decision is expected, later in 1999, which could require the
enactment of enabling legislation before generation open access can be
implemented. The Upper Peninsula utilities, including WPSC and UPPCO, may
file an agreement with the MPSC this spring calling for open access for all
Upper Peninsula customers by January 1, 2002. This agreement may include a
condition setting the agreement aside if the Supreme Court decides the MPSC
does not have the authority to order open access.
CUSTOMER RATES
WPSC is the lowest cost provider of electric service in Michigan for all
customer classes. WPSC's electric rates are 80% of the Michigan residential
customer average rate and 87% of the large industrial average rate.
Other than power supply cost recovery, WPSC has not had an electric rate
increase in Michigan since 1987.
UPPCO's retail base rates are frozen until January 1, 2001 as part of
the merger agreement between WPSC and UPPCO. This rate freeze does not affect
power supply cost recovery. UPPCO is required to obtain MPSC approval each
year to recover projected power supply costs. Over or under recovery amounts
are deferred on UPPCO's balance sheet, and such deferrals are relieved as
refunds or additional billings are recorded.
REGULATORY MATTERS IN THE FERC JURISDICTION
WHOLESALE STATUS
WPSC procures, packages, markets, and sells electric energy, capacity,
ancillary services, and other associated energy-related products and services
primarily to municipal electric utilities and electric distribution
cooperatives. In 1998, WPSC provided 27 wholesale electric customers with
either all or a portion of their power supply needs. The customer mix in
1998 included seven municipal customers, three electric cooperatives, ten
investor-owned utilities, six marketers, and one municipal joint action
agency. The total wholesale sales for resale in 1998 were approximately 2.0
million megawatts of firm and various levels of interruptible service. The
total wholesale sales for resale represented 17% of WPSC's electric sales
volume in 1998 compared with 16% in 1997.
Forces that continue to influence the wholesale electric market are:
transmission availability, including transfer capability; the availability of
reliable and economically-priced capacity and energy in the region; changing
market participation (both suppliers and consumers); state and federal
regulatory and legislative agendas; and uncertainties regarding the timing and
pace of deregulation.
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INDUSTRY RESTRUCTURING
As part of the FERC's approval of the WPSR/UPEN merger, UPPCO's wheeling
tariff filed in response to FERC Order 888 was set for review and approval by
the FERC. Settlement discussions with the FERC staff have been ongoing since
mid-year 1998. The final tariff will result in a combined WPSC/UPPCO
document, with zonal rates for service to delivery points within each
utility's service area.
The FERC waiver of UPPCO's need to comply with Order 889 was rescinded
and, as a result, the power marketing and transmission operations functions
for UPPCO will be separated, using WPSC operating personnel.
CUSTOMER RATES
WPSC has not had a FERC wholesale rate case since 1987.
UPPCO's wholesale tariff rates include a base rate charge and are
subject to a fuel clause (such clause includes certain purchased power costs),
with a 30-day billing lag without reconciliation provisions. Most of UPPCO's
wholesale customers are now taking service under special contracts.
In 1998, the FERC approved WPSC's settlement with its wholesale
customers in regard to open access transmission rates filed in response to
FERC Order 888. The open access transmission rates settlement will be in
effect for two years beginning with their implementation in 1997. The FERC
also approved WPSC's request for authority to use market-based rates.
TRANSMISSION INTERFACE
Wisconsin Public Power, Inc. requested transmission service across the
WPSC and Wisconsin Power and Light Company portions of the constrained
Minnesota to eastern Wisconsin interface to serve five of Wisconsin Public
Power, Inc.'s municipal customers (Sturgeon Bay, Algoma, Eagle River,
New Holstein, and Two Rivers) in the Wisconsin Power and Light Company control
area. The interface is owned by Wisconsin Electric Power Company (52%),
Wisconsin Power and Light Company (28%), and WPSC (20%). Due to disagreements
between the parties as to who had rights to the use of the constrained
interface pursuant to the FERC's recently developed first-come, first-served
transmission scheduling process, complaints were filed by WPSC, Wisconsin
Public Power, Inc. and Madison Gas and Electric Company, who also joined the
complaint process in connection with previous applications. The FERC
determined that WPSC had legitimate network service contracts but had made an
error in applying its rights to extend use of the interface, and granted
Wisconsin Public Power, Inc. the requested interface capacity. Wisconsin
Public Power, Inc. eventually took the interface capacity from Wisconsin Power
and Light Company which was also under FERC orders to provide this
transmission service.
The complaint included a claim that WPSC used the Capacity Benefit
Margin in determining its available transmission capacity. Capacity Benefit
Margin is the use of the transmission system to provide reserve generation
capacity for reliability of the system. The FERC is expected to address this
issue on a national basis during 1999.
-15-
<PAGE>
HYDROELECTRIC LICENSES
All of WPSC's hydroelectric facility licenses, issued by FERC, are
current.
All of the licenses for UPPCO's hydroelectric facilities, except for
Bond Falls and Dead River, are current. In 1998, UPPCO reached agreement on
the term of a settlement agreement with federal and state agencies and special
interest groups with regard to the Bond Falls license. This agreement will
provide the basis for the new FERC license which will have a term of 40 years.
The new license is expected to be issued in 1999. The Dead River project
licensing is progressing. A long-term water lease agreement was reached with
the adjacent landowners. The FERC license for the Dead River project is
expected in the last quarter of 1999, with a 40-year term from August 1991,
the date the FERC claimed jurisdiction over the project.
OTHER MATTERS
RESEARCH AND DEVELOPMENT
Electric research and development expenditures totaled $1.5 million for
1998, $1.3 million for 1997, and $1.9 million for 1996. These expenditures
were made for WPSC sponsored projects and were primarily charged to electric
operations.
CUSTOMER SEGMENTATION
Twenty-eight paper mills account for 12% of WPSC's electric revenues.
There is no single customer, or small group of customers, the loss of which
would have a materially adverse effect on the electric business of WPSC under
the current regulatory environment.
ELECTRIC FINANCIAL SUMMARY
The following table sets forth the revenues, net income, and assets
attributable to electric utility operations:
ELECTRIC UTILITY OPERATIONS (WPSC AND UPPCO)
==============================================================================
(Thousands) Year Ended December 31
- ------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------
Consolidated Electric Operating Revenues $ 543,260 $ 536,885 $ 548,701
Net Income $ 50,488 $ 53,294 $ 59,907
Total Assets $1,117,438 $1,089,875 $1,095,996
==============================================================================
See Note 13 in Notes to Consolidated Financial Statements at pages 107 and
108. The consolidated electric operating revenues, above, reflect the
elimination of intercompany sales and do not agree with regulated electric
operating revenues shown in Note 13, Segments of Business, which do not
reflect such elimination.
-16-
<PAGE>
<TABLE>
ELECTRIC OPERATING STATISTICS
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
============================================================================================================
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues (Thousands)
Residential and farm $164,961 $163,766 $169,587
Small commercial and industrial 141,203 138,949 144,055
Large commercial and industrial 119,601 120,312 118,997
Resale and other 61,575 56,361 57,867
- ------------------------------------------------------------------------------------------------------------
Total $487,340 $479,388 $490,506
============================================================================================================
Kilowatt-hour sales (Thousands)
Residential and farm 2,627,496 2,565,432 2,570,397
Small commercial and industrial 3,004,134 2,876,832 2,761,278
Large commercial and industrial 3,977,829 3,943,275 3,744,153
Resale and other 1,990,705 1,873,788 1,936,014
- ------------------------------------------------------------------------------------------------------------
Total 11,600,164 11,259,327 11,011,842
============================================================================================================
Customers served (End of period)
Residential and farm 339,881 334,134 328,522
Small commercial and industrial 40,247 39,400 38,376
Large commercial and industrial 211 197 168
Resale and other 853 836 826
- ------------------------------------------------------------------------------------------------------------
Total 381,192 374,567 367,892
============================================================================================================
Annual average use (Kilowatt-hours)
Residential and farm 7,803 7,751 7,905
Small commercial and industrial 75,537 74,082 72,995
Large commercial and industrial 18,978,191 21,606,984 22,115,491
============================================================================================================
Average kilowatt-hour price (Cents)
Residential and farm 6.28 6.38 6.60
Small commercial and industrial 4.70 4.83 5.22
Large commercial and industrial 3.01 3.05 3.18
============================================================================================================
Production capacity (Summer - kilowatts)
Steam 1,307,800 1,326,000 1,325,400
Nuclear 205,200 212,200 213,800
Hydraulic 53,000 53,000 53,100
Combustion turbine 206,340 205,930 208,600
Other 7,800 7,800 4,200
Purchased capacity 14,750 14,750 27,250
- ------------------------------------------------------------------------------------------------------------
Total system capacity 1,794,890 1,819,680 1,832,350
============================================================================================================
Generation and purchases
(Thousands of kilowatt-hours)
Steam 8,513,537 8,213,518 7,956,378
Nuclear 1,526,702 973,485 1,305,751
Hydraulic 212,607 351,034 359,750
Purchases and other 1,994,826 2,327,334 2,050,762
- ------------------------------------------------------------------------------------------------------------
Total 12,247,672 11,865,371 11,672,641
============================================================================================================
Steam fuel costs
(Cents per million Btu)
Fossil 105.353 110.124 115.132
Nuclear 41.565 43.174 46.674
Total 95.735 103.093 105.439
- ------------------------------------------------------------------------------------------------------------
System peak - firm (kilowatts) 1,685,000 1,607,000 1,578,000
============================================================================================================
Annual load factor 78.35% 79.42% 78.20%
============================================================================================================
</TABLE>
-17-
<PAGE>
<TABLE>
ELECTRIC OPERATING STATISTICS
UPPER PENINSULA POWER COMPANY
<CAPTION>
===========================================================================================================
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues (Thousands)
Residential and farm $21,894 $22,626 $23,554
Small commercial and industrial 16,688 16,611 16,833
Large commercial and industrial 9,773 9,271 8,405
Resale and other 14,310 11,694 9,586
- -----------------------------------------------------------------------------------------------------------
Total $62,665 $60,202 $58,378
===========================================================================================================
Kilowatt-hour sales (Thousands)
Residential and farm 241,517 252,897 259,807
Small commercial and industrial 223,282 223,040 220,609
Large commercial and industrial 225,565 222,143 188,722
Resale and other 148,153 147,297 152,173
- -----------------------------------------------------------------------------------------------------------
Total 838,517 845,377 821,311
===========================================================================================================
Customers served (End of period)
Residential and farm 42,783 42,551 42,315
Small commercial and industrial 5,286 5,254 5,155
Large commercial and industrial 9 8 8
Resale and other 194 190 190
- -----------------------------------------------------------------------------------------------------------
Total 48,272 48,003 47,668
===========================================================================================================
Annual average use (Kilowatt-hours)
Residential and farm 5,646 5,945 6,140
Small commercial and industrial 42,239 42,454 42,800
Large commercial and industrial 25,062,778 26,708,834 23,072,194
===========================================================================================================
Average kilowatt-hour price (Cents)
Residential and farm 9.07 8.95 9.07
Small commercial and industrial 7.48 7.45 7.63
Large commercial and industrial 4.34 4.17 4.45
===========================================================================================================
Production capacity (Summer - kilowatts)
Steam 17,700 17,700 17,700
Hydraulic 30,000 30,000 30,000
Combustion turbine 55,000 55,000 55,000
Purchased capacity 55,000 65,000 65,000
- -----------------------------------------------------------------------------------------------------------
Total system capacity 157,700 167,700 167,700
===========================================================================================================
Generation and purchases
(Thousands of kilowatt-hours)
Steam 4,029 (298) (327)
Hydraulic 97,988 138,923 172,391
Purchases and other 5,230 795,599 722,614
- -----------------------------------------------------------------------------------------------------------
Total 107,247 934,224 894,678
===========================================================================================================
Steam fuel costs
(Cents per million Btu)
Fossil 2.67943 - -
- -----------------------------------------------------------------------------------------------------------
System peak - firm (kilowatts) 137,000 138,600 137,000
===========================================================================================================
Annual load factor 74.44% 73.23% 73.23%
===========================================================================================================
</TABLE>
-18-
<PAGE>
C. GAS MATTERS
WISCONSIN PUBLIC SERVICE CORPORATION'S GAS MARKET
As of December 31, 1998, WPSC provided natural gas distribution service
to 218,857 customers in 221 cities, villages, and towns in northeastern and
central Wisconsin, and 5,201 customers in and around the city of Menominee,
Michigan, for a total of 224,058 gas distribution customers. This represents
an increase of 5,759 customers, or 2.6%, compared to December 31, 1997. The
principal cities served by WPSC include Green Bay, Oshkosh, Sheboygan,
Two Rivers, Marinette, Stevens Point, and Rhinelander, all in Wisconsin, and
the city of Menominee in Michigan.
WPSC's gas distribution business has a significant seasonal component
and is impacted by varying weather conditions from year-to-year. In 1998,
66.0% of WPSC's gas sales and 58.3% of WPSC's total gas system throughput
(i.e., total gas delivered by WPSC--includes gas sales and gas delivered for
transportation customers) occurred during the five winter months of November
through March. Competition with other forms of energy exists in varying
degrees, particularly for large commercial and industrial customers who have
the ability to switch between natural gas and alternate fuels. WPSC offers
interruptible gas sales and gas transportation service for these customers to
enable them to reduce their energy costs and use natural gas instead of other
fuels. There are currently 282 gas transportation customers on the WPSC
system. These customers purchase their gas from other suppliers and contract
with WPSC to transport the gas from ANR Pipeline Company to the customer's
facilities. Another 134 customers still purchase their gas commodity from
WPSC but have elected to do so on an interruptible basis. Additional
customers are switching from firm system supply to either interruptible system
supply or transportation service each year as the economics and service
options become attractive for them.
WPSC's gas operations also provide interruptible gas service to WPSC's
electric operations for power generation in combustion turbine peaking
generators and for start-up, flame stabilization, and peaking use at WPSC's
Weston and Pulliam coal-fired steam plants.
Gas sales for customer-owned power generation use are provided on an
interruptible basis, with the power plants maintaining alternate fuel
capability. In 1999, WPSC will begin to provide interruptible gas supplies to
the De Pere Energy Center, and in 2000, WPSC will also provide interruptible
gas supplies to a combustion turbine owned by Madison Gas and Electric
Company.
Total gas deliveries by WPSC in 1998, including customer-owned gas
transported by WPSC, were 60,944,394 dekatherms, a 9.4% decrease as compared
with 1997 due to warmer than normal weather. A dekatherm is equivalent to
10 therms or 1 million Btu of energy. Of the total gas delivered,
26,557,300 dekatherms, or approximately 43.6%, was gas transported for
end-user transport customers.
WPSC's peak day gas throughput in 1998 occurred on January 13 with
390,971 dekatherms total gas throughput at an average Green Bay temperature of
minus 1.6 degrees Fahrenheit. This compares with WPSC's record gas system
throughput of 432,928 dekatherms set on February 2, 1996 at an average
Green Bay temperature of minus 23.8 degrees Fahrenheit.
-19-
<PAGE>
GAS SUPPLY
GENERAL
Since the implementation of FERC Order 636 in November 1993, WPSC has
had full responsibility for the design, acquisition, and management of gas
supplies and the pipeline transportation and storage services required to meet
the varying daily, seasonal, and annual load requirements of its customers.
WPSC manages a portfolio of gas supply contracts, pipeline transportation, and
storage services designed to reliably meet WPSC's varying load pattern at the
lowest reasonable cost.
PIPELINE CAPACITY AND STORAGE
WPSC is presently directly served by a single interstate pipeline,
ANR Pipeline Company. Because ANR Pipeline Company's pipeline system in
Wisconsin has reached its maximum capacity, and because lower prices are
generally available in other areas where there is competition for pipeline
services, WPSC is investigating potential suppliers of pipeline services in
addition to those offered by ANR Pipeline Company.
Previously, WPSC had contemplated the construction of natural gas
laterals to connect the WPSC gas distribution system to a proposed Viking
Voyageur gas pipeline. However, in May of 1998, that pipeline was placed on
hold at the FERC with the Viking Voyageur partners instead contemplating
replacing the proposed gas pipeline from Canada with a pipeline from Chicago
to Wisconsin. Subsequently, that project was withdrawn. However, similiar
projects are being studied by other third parties. At this time, it is not
known whether WPSC will be connecting to any pipeline from the Chicago area.
WPSC, however, continues to study various options to bring a competitive gas
pipeline into the WPSC gas service territory.
ANR Pipeline Company's system serving WPSC directly or indirectly
accesses three major gas producing areas of North America: (1) the Gulf of
Mexico, (2) the mid-continent areas of Oklahoma, Texas, and Kansas, and
(3) the Province of Alberta in western Canada. WPSC holds firm long-term
transportation capacity on ANR Pipeline Company in roughly equal proportions
from each of these three supply areas. The term of these ANR Pipeline Company
firm transportation contracts from the Gulf Coast and mid-continent areas
extends through October 2003. WPSC holds firm transportation capacity with
Viking Gas Transmission Company, to deliver gas on a firm basis from Viking
Gas Transmission Company's interconnection with TransCanada Pipelines at
Emerson, in the Canadian Province of Manitoba, to the interconnection with
ANR Pipeline Company at Marshfield, Wisconsin. The Canadian suppliers, from
whom WPSC purchases gas, hold firm capacity on TransCanada Pipelines from
Emerson back into the production areas in Alberta, Canada.
In 1998, WPSC entered into a project with Wisconsin Electric Power
Company - Gas Operations for construction of a pipeline. This jointly-owned
eight-inch pipeline is interconnected with Great Lakes Gas Transmission
Company in the Upper Peninsula of Michigan near Watersmeet and provides an
alternate source of supply into northern Wisconsin. In order to serve this
pipeline, WPSC modified and extended the term of portions of its existing
pipeline capacity and storage contracts with ANR Pipeline Company and added a
new transportation service on Great Lakes Transmission Company's pipeline to
-20-
<PAGE>
deliver up to 7,000 dekatherms per day into the jointly-owned pipeline system
during the winter periods.
Because of the substantial daily and seasonal swings in gas usage in
WPSC's service territory, WPSC also has contracted with ANR Pipeline Company
for firm underground storage capacity located in Michigan. There are no known
geological formations in Wisconsin capable of being developed into underground
storage facilities.
Besides providing WPSC the ability to manage significant changes in
daily gas demand, storage also provides WPSC the ability to purchase gas from
the production areas at high load factors, thus minimizing supply costs.
During the summer, gas purchased in excess of market demand is injected into
storage. During the winter, gas is withdrawn from storage and combined with
gas purchased in the production areas to meet the increased winter demand.
Gas from storage provides up to 65% of WPSC's supply on winter peak days,
approximately 34% of WPSC's winter sales volumes, and approximately 23% of
WPSC's total annual sales volumes. WPSC's total firm storage capacity with
ANR Pipeline Company is 11.3 million dekatherms.
For peak day needs, WPSC also contracts with third-party suppliers for
high deliverability storage in the Gulf Coast and/or mid-continent production
areas during the winter. This storage capacity provides a back-up supply of
gas into WPSC's transportation contracts when other supplies cannot be
delivered due to production supply losses caused by extremely cold weather in
the production areas.
SUPPLY CONTRACTS
WPSC contracts for firm term supplies with approximately 12 to 16
suppliers each year for gas produced in each of the 3 production areas. WPSC
initially designed its supply portfolio with terms ranging from one to ten
years so that only a portion of WPSC's supply contracts expired in any given
year. As long-term contracts expire, WPSC has been replacing them with
contracts of a one-year term or less due to the current uncertainty regarding
the role of the gas utility in continuing the gas supply function. This will
minimize potential stranded gas supply contract costs if retail gas
deregulation should proceed quickly in Wisconsin. WPSC's supply portfolio, as
of December 31, 1998, contained contracts with remaining terms ranging from
five months to five years.
Additional supplies are purchased on the monthly spot market as required
to supplement supplies from long-term firm contracts. WPSC has been an active
spot market purchaser since 1985 and has contracts in place with a number of
suppliers of spot market gas.
REGULATORY MATTERS IN THE WISCONSIN JURISDICTION
INDUSTRY RESTRUCTURING
During 1998, there was little progress on gas restructuring issues in
Wisconsin because the PSCW's primary focus was on electric reliability issues.
The PSCW has an ongoing investigation into gas industry restructuring.
Phase I of this investigation addresses the issues of unbundling rates,
pricing of contracted service in potential utility bypass situations, and
-21-
<PAGE>
separation of the gas distribution function from the gas supply function.
Phase II establishes standards of conduct regarding how gas utilities can
interact with their marketing affiliates. Phase III explores the issue of how
to determine when a competitive market exists for various segments of
customers. This investigation could find that a regulated utility in the
Wisconsin jurisdiction cannot sell natural gas in a market which is considered
to be competitive.
Because of the complexity of the issues involved, industry work groups
were formed to study particular issues and bring recommendations back to the
PSCW. The work groups will study issues regarding: (1) pipeline capacity,
(2) market-based pricing for interruptible customers, (3) end-user price
reporting, (4) marketer certification, (5) changes needed in the form of
legislation or administrative rules, and (6) essential natural gas services
and gas consumer protections. The study is expected to be completed in
November of 1999.
A separate docket was opened to assist the work group dealing with
essential natural gas services and gas consumer protection issues to ensure a
customer safety net in the transition to and within a restructured gas
industry environment. The work group's report is expected to be completed in
early 1999. Based on this report, the PSCW will forward recommendations to
the legislature for proposed changes in the law.
COST RECOVERY MECHANISM
The PSCW investigated alternatives to gas cost recovery mechanisms in
light of the evolving natural gas market. In November 1996, the PSCW issued
an order which gave gas utilities a choice between continuing under a modified
one-for-one gas cost recovery mechanism, or switching to a mechanism called
performance-based rates. Under performance-based rates, gas utilities may
keep a portion of any cost savings relative to a gas cost target value. WPSC
elected to continue under a modified one-for-one mechanism. This mechanism
returns all savings to customers and maintains appropriate regulatory
oversight. In December 1998, the PSCW issued an order authorizing WPSC's
modified one-for-one gas cost recovery mechanism with a start date of
January 1, 1999.
CUSTOMER RATES
On January 14, 1999, the PSCW authorized a $10.3 million, or 5.1%,
increase in WPSC's retail natural gas rates. The rates are effective
January 15, 1999. WPSC has among the lowest gas rates in Wisconsin with
rates being 93% of the state average for residential rates and 91% for
commercial rates.
WPSC anticipates filing an application with the PSCW on April 1, 2000,
for new gas rates to be effective for the years 2001 and 2002.
REGULATORY MATTERS IN THE MICHIGAN JURISDICTION
INDUSTRY RESTRUCTURING
The MPSC is also investigating the deregulation of retail gas markets
and expansion of gas transportation service in Michigan. The MPSC decided it
would be appropriate to conduct a series of pilot projects to test the
development of competitive retail gas markets in Michigan. Michigan's four
-22-
<PAGE>
largest gas utilities were approached by the MPSC regarding development and
implementation of pilot programs.
Because of the small size and limited number of customers in WPSC's
Michigan service territory and the service territories of two other utility
companies, the MPSC did not conduct pilot transportation programs for these
three utilities.
CUSTOMER RATES
WPSC has not had a natural gas rate case in Michigan since 1986.
REGULATORY MATTERS IN THE FERC JURISDICTION
WPSC's involvement in federal regulatory activities in the natural gas
area has been through the Wisconsin Distributor Group which is made up of
several Wisconsin gas utilities. Over the past several years, the Wisconsin
Distributor Group has participated in numerous dockets filed by ANR Pipeline
Company, Viking Gas Transmission Company, and the FERC. Although Wisconsin
Distributor Group members may file individual interventions, the bulk of the
interventions have been done through the group. Past successes by the
Wisconsin Distributor Group in various FERC dockets have resulted in
substantial refunds for natural gas customers in Wisconsin as well as lower
pipeline transportation rates charged by ANR Pipeline Company.
WPSC and Wisconsin Distributor Group are participating in several FERC
dockets as described below.
Viking Gas Transmission Company, supported by its incremental shippers,
is seeking rolled-in rate treatment for recent expansions on its pipeline
system in a rate case. The impact of this rate treatment would result in a
rate increase for existing shippers, such as WPSC, and a rate decrease for
incremental shippers. The Wisconsin Distributor Group and existing shippers
on Viking Gas Transmission Company's pipeline are proposing phase-in of system
expansion costs to minimize rate shock and minimize overall costs to their
customers.
In a notice of proposed rulemaking on short-term natural gas
transportation services, the FERC is seeking to eliminate cost-based
regulation in the short-term market and to foster competition as a way to
protect against the exercise of market power. The FERC's main focus has been
a proposed daily auction of pipeline capacity. Currently, the Wisconsin
Distributor Group and WPSC do not support the FERC's proposed mandatory
auction. Instead, the Wisconsin Distributor Group and WPSC believe increased
reporting and disclosure requirements may be enough to meet the FERC's goal of
stimulating competition.
In a notice of inquiry on regulation of interstate natural gas
transportation services, the FERC is seeking comments on its pricing policies
in the existing long-term market and on its pricing policies for new capacity.
The Wisconsin Distributor Group and WPSC support the FERC's efforts to
formulate pro-competitive, long-term pricing policies to ensure that the FERC
continues to fulfill its statutory obligation to protect consumers while also
encouraging the evolution of a competitive natural gas industry.
-23-
<PAGE>
GAS FINANCIAL SUMMARY
The following table sets forth the amounts of revenues, net income, and
assets attributable to gas utility operations:
GAS UTILITY OPERATIONS (WPSC)
==============================================================================
(Thousands) Year Ended December 31
- ------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------
Consolidated Gas Operating Revenues $165,111 $211,090 $211,357
Net Income $ 5,912 $ 7,878 $ 2,350
Total Assets $246,365 $246,842 $268,622
==============================================================================
See Note 13 in Notes to Consolidated Financial Statements at pages 107 and
108.
-24-
<PAGE>
<TABLE>
GAS OPERATING STATISTICS
WISCONSIN PUBLIC SERVICE CORPORATION
<CAPTION>
=================================================================================================
1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues (Thousands)
Residential $ 96,223 $122,782 $122,224
Small commercial and industrial 19,333 23,790 22,392
Large commercial and industrial 37,482 53,517 55,211
Other 12,073 11,001 11,530
- -------------------------------------------------------------------------------------------------
Total $165,111 $211,090 $211,357
=================================================================================================
Therms delivered (Thousands)
Residential 172,007 202,558 216,963
Small commercial and industrial 38,104 43,056 46,614
Large commercial and industrial 103,226 127,132 142,033
Other 29,182 21,148 9,709
- -------------------------------------------------------------------------------------------------
Total therm sales 342,519 393,894 415,319
Transportation 265,573 268,114 251,279
- -------------------------------------------------------------------------------------------------
Total 608,092 662,008 666,598
=================================================================================================
Customers served (End of period)
Residential 203,665 198,524 192,947
Small commercial and industrial 17,656 16,770 16,133
Large commercial and industrial 2,454 2,780 2,846
Other 1 1 1
Transportation customers 282 224 167
- -------------------------------------------------------------------------------------------------
Total 224,058 218,299 212,094
=================================================================================================
Average annual use (Therms)
Residential 858.0 1,037.3 1,146.6
Small commercial and industrial 2,207.5 2,619.4 2,937.2
Large commercial and industrial 40,792.7 45,558.7 51,882.4
=================================================================================================
Average therm price (Cents)
Residential 55.94 60.62 56.33
Small commercial and industrial 50.74 55.25 48.04
Large commercial and industrial 36.31 42.10 38.87
=================================================================================================
</TABLE>
-25-
<PAGE>
<PAGE>
D. NONREGULATED BUSINESS ACTIVITIES
GENERAL
The energy marketplace in the United States is moving toward
deregulation and a competitive, commodity-driven environment which is leading
to a significant change for vertically integrated utilities in general and for
WPSR specifically. WPSR has a strategy to participate nationally in both the
existing and the new energy marketplaces.
WPSR is transitioning from a monopoly environment to a competitive,
commodity-driven environment. This involves significant investment in
technical support systems such as billing, communications, software, and
hardware, in addition to addressing human resource issues relating to
training, hiring, and retaining qualified employees and also aligning benefit
and incentive packages with a competitive environment.
At the end of 1998, WPSR had two principal nonregulated subsidiaries:
ESI and PDI. These subsidiaries were formed in 1994 and 1995, respectively,
for the purpose of positioning WPSR strategically for participation in
nonregulated energy markets.
WPS ENERGY SERVICES, INC.
ESI is a diversified energy company. ESI targets retail energy sales
and related services in midwestern and eastern states with an emphasis on
serving commercial, industrial, and wholesale customers. Principal operations
are located in Illinois, Michigan, Ohio, and Wisconsin. ESI also is
participating in retail pilot projects in each of these states. Wholesale
energy sales and related services are provided nationwide.
ESI provides electric, natural gas, and alternate fuel products;
real-time energy management services; and project management and energy
utilization consulting.
The gas markets in which ESI participates are characterized by strong
competition, narrow margins, and volatile commodity and transportation prices.
ESI uses various financial instruments to minimize the risks present in energy
markets. See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES, Note 1(e) at page 84 regarding "Price Risk
Management Activities."
Revenues at ESI were $351.3 million in 1998 compared with
$189.4 million in 1997, an increase of 85.5%. Electric retail access has been
slow to develop in ESI's target market areas. ESI's strategy is to bring
electric products and services to existing gas customers.
ESI experienced a loss of $6.9 million in 1998 compared with a loss of
$4.9 million in 1997, an increase of 40.8%. The primary reasons for the loss
at ESI were increased electric and gas trading losses primarily due to market
volatility, and higher operating expenses due to expansion of the energy
trading business. Partially offsetting these factors was an increase in the
gas margin.
-26-
<PAGE>
WPS POWER DEVELOPMENT, INC.
PDI develops and owns electric generation projects and provides services
to the electric power generation industry nationwide. PDI's services include
acquisition and investment analysis, project development, engineering and
management services, and operations and maintenance services. PDI's areas of
expertise include cogeneration, distributed generation, generation from
renewables, and generation plant repowering projects.
An emerging trend in the restructuring of the electric utility industry
is the divestiture of generation facilities. PDI is continually monitoring
and assessing investment opportunities in this area. PDI owns a two-thirds
interest in the Stoneman Power Plant, a 55-megawatt merchant steam plant
located in Cassville, Wisconsin. The redevelopment of the plant as a
300-megawatt to 500-megawatt gas-fired combined cycle facility is planned for
the 2002 time period.
PDI was the successful bidder for the purchase of approximately
92 megawatts of hydroelectric and oil-fired facilities from Maine Public
Service Company. PDI is awaiting regulatory approvals required to conclude
this transaction. The asset acquisition is expected to close in the second
quarter of 1999.
In 1998, PDI entered into a joint venture with an affiliate of Earthco,
a Nevada corporation, to turn residue from coal mining at the Alabama Land &
Minerals site in Jasper County, Alabama into briquettes. The project began
operation in June 1998 and is eligible to receive federal tax credits because
of the briquette's status as a synthetic fuel.
PDI experienced a loss of $2.4 million in 1998 compared with a
$1.9 million loss in 1997, an increase of 26.3%. The increased loss at PDI
was primarily due to additional expenses incurred in 1998 for the start up of
new projects.
See MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION at page 65 for additional information regarding
nonregulated operations.
E. ENVIRONMENTAL MATTERS
GENERAL
WPSC is subject to regulation with regard to the impact of its
operations on air and water quality and solid waste disposal, and may be
subject to regulation with regard to other environmental considerations by
various federal, state, and local authorities. The application of federal and
state restrictions to protect the environment involves or may involve review,
certification, or issuance of permits by various federal and state
authorities, including the United States Environmental Protection Agency and
the Wisconsin Department of Natural Resources. Such restrictions
(particularly in regard to emissions into the air and water, and solid waste
disposal) may limit, prevent, or substantially increase the cost of the
operation of WPSC's generating facilities and may require substantial
investments in new equipment at existing installations. Such restrictions may
also require substantial additional investments for any new projects and may
-27-
<PAGE>
delay or prevent authorization and completion of the projects. WPSC cannot
forecast the effects of such regulation upon its generation, transmission, and
other facilities, or its operations, but WPSC believes that it is presently
meeting existing requirements.
AIR QUALITY
WPSC's generation plants are in compliance with all current sulfur
dioxide, nitrogen oxide, and particulate emission standards.
The Federal Clean Air Act Amendments of 1990, hereinafter referred to as
the Clean Air Act, required reductions in sulfur dioxide in 1995 (Phase I) to
meet limitations based on an emission rate of 2.5 pounds per Btu multiplied by
a historical generation baseline for Pulliam Unit 8 and Edgewater Unit 4
generation units. The Clean Air Act requires further reductions beginning in
the year 2000 (Phase II). The year 2000 limits are based on an emission rate
of 1.2 pounds per million Btu multiplied by a historical generation baseline
for all generation units. WPSC's generation facilities met the year 2000
standard in 1995. WPSC achieved compliance with Wisconsin and federal sulfur
dioxide emission limitations by switching to low sulfur coal.
Because of the emission allowance system included in the Clean Air Act,
operations during Phase I produce surplus allowances which will be available
to aid in compliance with the requirements of Phase II. To the extent WPSC
determines that it will have allowances available beyond its own requirements
in both Phase I and Phase II, it will consider the sale of the excess
allowances. The PSCW has ordered that profits from the sale of allowances be
used to benefit utility customers.
The Clean Air Act also requires the installation of low nitrogen oxide
burners on several units. Low nitrogen oxide burners were installed at
Pulliam Unit 8 early in 1994. Phase I of the Clean Air Act allows units
smaller than 100 megawatts, such as Pulliam Unit 7, to be designated Phase I
units, thus building up sulfur dioxide credits. Having made this election,
low nitrogen oxide burners were installed on Pulliam Unit 7 in 1994. Low
nitrogen oxide emissions from Pulliam Units 7 and 8 and Weston Unit 3 are
averaged with Weston Units 1 and 2. This averaging plan generates additional
emission allowances in Phase I and locks in Phase I nitrogen oxide limits for
these units. This should reduce Phase II compliance costs.
Expenditures of $1.0 million to $2.0 million for Phase II of the Acid
Rain Program are projected through 1999 to assure nitrogen oxide emission
compliance at the Pulliam and Weston plants.
In September of 1998, the Environmental Protection Agency required
certain states, including Wisconsin, to develop plans to reduce the emissions
of nitrogen oxides from sources within the state by May of 2003. On a
preliminary basis, WPSC projects potential capital costs of between
$37.0 million and $96.0 million to comply with possible future regulations.
The cumulative incremental annual operating and maintenance expense associated
with these possible future regulations projected to be incurred by 2010 range
from $29.0 million to $106.0 million. The costs will depend on the
state-specific compliance method to be adopted in the future as well as the
effectiveness of the various technologies available for nitrogen oxide
emission control. Under WPSC's current practice, the capital costs (as
reflected in depreciation expenses) and the annual operating costs are
-28-
<PAGE>
anticipated to be recovered through rates charged to customers. On
December 24, 1998, WPSC and five other parties filed a petition challenging
the Environmental Protection Agency's regulations that required Wisconsin to
prepare and submit the Nitrogen Oxide State Implementation Plan (Wisconsin
Paper Council v. U.S. Environmental Protection Agency, Case No. 98-4269 (7th
Cir. 1998)). On January 22, 1999, the State of Wisconsin moved to intervene
in the litigation and challenged the geographic scope of the rule (as applied
to Wisconsin) and the time by which nitrogen oxide controls must be
implemented by facilities in the state. No decisions have been rendered on
the merits of the case.
Toxic air provisions in the Act will not be applied until the
Environmental Protection Agency determines if those standards need to be
applied to utilities.
WATER QUALITY
WPSC is subject to regulation by the Environmental Protection Agency and
the Department of Natural Resources with respect to thermal and other
discharges into Lake Michigan and other waters of Wisconsin from WPSC's power
plants. Wastewater discharge permits with a term of five years were reissued
by the Department of Natural Resources to WPSC for the Kewaunee Nuclear Power
Plant in 1995 and for the Pulliam and Weston power plants in 1996. No new
permit conditions or associated material costs were imposed compared to
permits issued during earlier renewals. Revisions to state water quality
rules as a result of the Great Lakes Initiative should not result in any
significant changes when wastewater permits are reissued in 2000 for Kewaunee
and in 2001 for the Pulliam and Weston plants.
GAS PLANT CLEANUP
WPSC is investigating the cleanup of eight manufactured gas plant sites
which it previously operated in Green Bay, Two Rivers, Oshkosh, Marinette,
Sheboygan (two sites), Stevens Point, and Menominee (Michigan). In general,
WPSC is proceeding with these projects as the designated responsible party for
cleanup, although for two sites, Sheboygan II and Oshkosh, formal agreements
have been executed with the Department of Natural Resources covering the
investigation and restoration activities. The agreement for Sheboygan II
allows WPSC to work with Wisconsin on restoration. The site is not associated
with the larger Sheboygan River and Harbor Superfund site. The agreement for
Oshkosh was entered into in order to resolve a unilateral administrative order
that was issued by the Department of Natural Resources.
Work at the Stevens Point site was substantially completed in 1998 with
monitoring of the site continuing. Cleanup costs were within the range
expected for this site. Total costs of cleanup for the remaining seven sites,
as estimated by an environmental consultant, should be in the range of
$33.9 million to $41.0 million. The estimates assume removal of significantly
contaminated soil and groundwater treatment and monitoring for up to 25 years,
depending on site conditions. The cost estimates for five of the sites
include removal and disposal of contaminated river sediments. As remedial
feasibility studies and initial remedial activities are completed, remediation
cost estimates may be adjusted and these adjustments could be significant.
Other factors that can affect these estimates are changes in remedial
technology, regulatory requirements, and experience gained through cleanup
activities.
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<PAGE>
Expenditures for the gas plant sites are estimated to be made over the
next 32 years. An initial liability for cleanup of $41.7 million had been
established with an offsetting regulatory asset (i.e., a deferred charge).
Expenditures have reduced the liability to $39.0 million at December 31, 1998.
Based on discussions with regulators and a Wisconsin rate order, management
believes that these costs, but not the carrying costs associated with the
deferred charges, will be recoverable in future customer rates. WPSC filed
with and received an order from the MPSC authorizing WPSC to defer the
Michigan portion of these costs, using Wisconsin methods for future cost
recovery.
The cost estimates presented above do not take into consideration any
recovery from insurance carriers or other third parties which WPSC has
obtained. Insurance recoveries are deferred as a reduction to the regulatory
asset; therefore, neither adjustments to the estimated liability nor insurance
recoveries have an immediate impact on net income. To date, WPSC has received
insurance settlements of approximately $12.6 million, thereby reducing the
regulatory asset to $29.0 million at December 31, 1998.
ASH DISPOSAL SITE
The ash disposal site for UPPCO's John H. Warden Station was closed to
receiving ash in 1993. Subsequent groundwater testing indicated elevated
levels of boron and lithium. Supplemental remedial investigations were
performed and a revised remedial action plan was developed. The plan will be
submitted to the Michigan Department of Environmental Quality for approval in
1999. An estimated liability of $1.5 million and a regulatory asset of
$1.3 million has been recorded for future costs associated with this site.
F. CAPITAL REQUIREMENTS
WPSR's principal utility subsidiary, WPSC, makes large investments in
capital assets. Construction expenditures for WPSC are expected to be
approximately $250.0 million in the aggregate for the 1999 through 2001
period. This includes expenditures for the replacement of the Kewaunee
Nuclear Power Plant's steam generators.
In addition, other capital requirements for WPSC for the three-year
period include Kewaunee decommissioning trust fund contributions of
$16.8 million.
WPSC's agreement to purchase electricity from the De Pere Energy Center
will be accounted for as a capital lease. While not a capital expenditure,
the $77.8 million lease will affect the capital structure beginning in 1999.
WPSR's other utility subsidiary, UPPCO, will incur construction
expenditures of approximately $23.0 million for the period 1999 through 2001,
primarily for electric distribution improvements.
Investment expenditures for nonregulated projects are uncertain since
there are few firm commitments at this time. Approximately $38.0 million will
be incurred in 1999 to purchase generating units located in the State of Maine
and in the Canadian Province of New Brunswick. Financing for most
nonregulated projects is expected to be obtained through a subsidiary,
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<PAGE>
WPS Resources Capital Corporation, which was formed in January 1999 to obtain
funding for those projects.
WPSR will use internally-generated funds and short-term borrowing to
satisfy most of its capital requirements. WPSR may periodically issue
medium-term debt, additional long-term debt, and common stock to reduce
short-term debt and to maintain desired capitalization ratios.
The specific forms of financing, amounts, and timing will depend on the
availability of projects, market conditions, and other factors. At this time,
however, it is anticipated that common stock will be issued by WPSR in
mid-1999. WPSR began issuing new shares of common stock for the Stock
Investment Plan in January 1999. WPSR may also expand its leveraged employee
stock ownership plan during the three-year period.
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Note 10 at page 104
regarding "Future Utility Expenditures."
G. EMPLOYEES
At December 31, 1998, WPSR, including all of its subsidiaries, employed
2,673 persons. Of this number, 2,372 employees were employed by WPSC and 195
were employed by UPPCO.
Of the employees of WPSC, 1,876 were considered electric utility
employees and 496 were considered gas utility employees. Local 310 of the
International Union of Operating Engineers represents 1,184 of WPSC's
employees.
On April 24, 1998, WPSC signed a contract with IUOE Local 310. That
contract will expire on October 28, 2000.
Of the employees of UPPCO, 131 are represented by Local 510 of the
International Brotherhood of Electrical Workers, AFL-CIO. The current
collective bargaining agreements for Local 510 expire on April 30, 1999.
-31-
<PAGE>
ITEM 2. PROPERTIES
A. UTILITY
WPSC'S FACILITIES
The following table includes information about the electric generation
facilities of WPSC, including jointly-owned facilities:
Rated
Capacity (a)
Type Name Location Fuel (Kilowatts)
- ------------- ---------------- ------------- ----------- -------------
Steam Pulliam Green Bay, WI Coal 402,400 (b)
Weston Wausau, WI Coal or Gas 480,100 (c)
Kewaunee Kewaunee, WI Nuclear 210,500 (d)
Columbia -
Units No. 1 & 2 Portage, WI Coal 340,200 (d)
Edgewater
Unit No. 4 Sheboygan, WI Coal 110,700 (d)
---------
Total Steam 1,543,900
Hydro Various 68,400 (e)
(15 Plants)
Combustion Various Gas, Oil, 267,096 (f)
Turbine (8 Plants) or Diesel
& Diesel ---------
1,879,396
Total System =========
(a) Based on winter 1998-1999 capacity ratings.
(b) This plant has six units.
(c) This plant has three units. Two units burn only coal and the
other unit can burn coal or natural gas.
(d) These facilities are jointly-owned by WPSC, Wisconsin Power
and Light Company, and Madison Gas and Electric Company. The
Kewaunee Nuclear Power Plant is operated by WPSC. The
Columbia and Edgewater units are operated by Wisconsin Power
and Light Company. The capacity indicated is WPSC's portion
of total plant capacity based on the percent of ownership.
The Kewaunee Nuclear Power Plant's ownership is based on the
percent of ownership before the proposed acquisition by WPSC
of Madison Gas and Electric Company's share of the plant.
(e) Includes 12,900 kilowatts purchased from Wisconsin River Power
Company.
(f) WPSC and the Marshfield Electric and Water Department jointly
own 112,200 kilowatts of combustion turbine peaking capacity
which WPSC operates.
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<PAGE>
WPSC owns 56 transmission substations with a transformer capacity of
5,649,710 kilovolt-amperes, 111 distribution substations with a transformer
capacity of 3,018,420 kilovolt-amperes, 1,549 miles of electric transmission
lines, and 19,556 miles of electric distribution lines.
Gas properties include approximately 4,774 miles of main, 70 gate and
city regulator stations, and 209,419 lateral services. All gas facilities are
located in Wisconsin except for distribution facilities in and near the city
of Menominee, Michigan.
Substantially all of WPSC's utility plant is subject to a first mortgage
lien.
UPPCO'S FACILITIES
The following table includes information about the electric generation
facilities at UPPCO:
Rated
Capacity (a)
Type Name Location Fuel (Kilowatts)
- ------------- ---------------- ------------- ----------- ------------
Steam Warden (b) L'Anse, MI Coal/Gas 17,700
Hydro Various
(9 plants)(c) Hydro 37,910
Combustion Portage Houghton, MI Oil 27,500
Turbine Gladstone Gladstone, MI Oil 27,500
-------
Total System 110,610
=======
(a) Based on winter-rated capacity.
(b) The J. H. Warden station is capable of burning gas and/or
coal in any combination. The station was taken out of
service on January 1, 1994 and is in standby or inactive
reserve status.
(c) Included in the nine hydro plants are Escanaba 1, Escanaba 3
and Boney Falls, a total of 7,850 kilowatts. All energy
produced at these facilities is sold directly to a paper
industry customer located in Escanaba, Michigan.
UPPCO owns 806 miles of electric transmission and 2,753 miles of
electric distribution lines.
Substantially all of UPPCO's utility plant is subject to a first
mortgage lien.
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<PAGE>
B. NONREGULATED
The following table includes information about the jointly-owned
electric generation facilities of PDI:
Rated
Capacity
Type Name Location Fuel (Kilowatts)
- ----- -------------- ------------ ---- -----------
Steam Stoneman Cassville, WI Coal 55,000 (a)
(a) The Stoneman facility is owned by Mid-American Power, LLC.
PDI Stoneman, Inc. (a wholly-owned subsidiary of WPS Power
Development, Inc.) and B. M. Stoneman, Inc., (a wholly-owned
subsidiary of Burns and McDonnell) own 66-2/3% and 33-1/3%,
respectively, of Mid-American Power, LLC.
ITEM 3. LEGAL PROCEEDINGS
SPENT NUCLEAR FUEL DISPOSAL
See the section titled Spent Nuclear Fuel Disposal under Part I,
Item 1B, ELECTRIC MATTERS, Fuel Supply, at page 9 for a description of various
proceedings relating to spent nuclear fuel.
FUNDING DECONTAMINATION AND DECOMMISSIONING OF FEDERAL FACILITIES
See the section titled Funding Decontamination and Decommissioning of
Federal Facilities under Part I, Item 1B, ELECTRIC MATTERS, Fuel Supply, at
page 10 for a description of various proceedings relating to decontamination
and decommissioning liabilities.
ENVIRONMENTAL
See Part I, Item 1E, ENVIRONMENTAL MATTERS, at page 27 for a description
of various proceedings relating to environmental matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year.
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<PAGE>
ITEM 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about outside directors is omitted for the reason that such
information will be included in a proxy statement for the Annual Meeting of
Shareholders of WPSR which is scheduled to be held on May 6, 1999.
<TABLE>
A. EXECUTIVE OFFICERS OF WPS RESOURCES CORPORATION ("WPSR")
<CAPTION>
Current Position and Business Effective
Name and Age Experience During Past Five Years Date
- -------------------------- --------------------------------------------- ---------
<S> <C> <C>
Larry L. Weyers 53 Chairman, President, and Chief Executive
Officer 02-12-98
President and Chief Executive Officer 05-01-97
President and Chief Operating Officer 01-01-96
Patrick D. Schrickel 54 Executive Vice President 12-29-96
Vice President 12-09-93
Phillip M. Mikulsky 50 Senior Vice President-Development 02-12-98
Vice President-Development 09-01-95
Manager-System Operations 10-01-91 *
Director-System Operations 09-28-91 *
Daniel P. Bittner 55 Vice President and Chief Financial Officer 05-01-97
Vice President 12-29-96
Richard E. James 45 Vice President-Corporate Planning 12-29-96
Vice President-Corporate Planning 08-01-95 *
Assistant Vice President-Corporate Planning 05-09-94 *
Assistant Vice President-Rates and Economic
Evaluation 03-01-92 *
Thomas P. Meinz 52 Vice President-Public Affairs 02-12-98
Bernard J. Treml 49 Vice President-Human Resources 02-12-98
Neil A. Siikarla 51 Vice President 06-01-98
Treasurer, Northern States Power - Wisconsin 06-01-92
Glen R. Schwalbach 53 Assistant Vice President-Corporate Planning 12-29-96
Assistant Vice President-Corporate Planning 07-28-96 *
Assistant Vice President-Gas Engineering
and Supply 06-01-90 *
Francis J. Kicsar 59 Secretary 01-01-96
Ralph G. Baeten 55 Treasurer 12-09-93
Diane L. Ford 45 Controller and Chief Accounting Officer 05-01-97
Controller 12-15-93
Barth J. Wolf 41 Assistant Secretary and Manager-Legal Services 07-12-98
George R. Wiesner 41 Assistant Controller 12-15-96
Director-Financial Accounting ESI/PDI 08-25-96 *
Financial Reporting Supervisor 05-01-87 *
</TABLE>
* Identifies experience with Wisconsin Public Service Corporation ("WPSC")
for Richard E. James, Phillip M. Mikulsky, Glen R. Schwalbach, and
George R. Wiesner. The other listed officers of WPSR, except for
Neil A. Siikarla, are also officers of WPSC and their experience with
WPSC is indicated below.
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<PAGE>
<TABLE>
B. EXECUTIVE OFFICERS OF WISCONSIN PUBLIC SERVICE CORPORATION ("WPSC")
<CAPTION>
Current Position and Business Effective
Name and Age Experience During Past Five Years Date
- -------------------------- --------------------------------------------- ---------
<S> <C> <C>
Larry L. Weyers 53 Chairman and Chief Executive Officer 02-12-98
President and Chief Executive Officer 05-04-97
President and Chief Operating Officer 01-01-96
Senior Vice President-Power Supply and
Engineering 08-01-95
Vice President-Power Supply and Engineering 05-09-94
Vice President-Energy Supply 01-01-92
Patrick D. Schrickel 54 President and Chief Operating Officer 02-12-98
Executive Vice President 12-29-96
Senior Vice President-Finance and Corporate
Services 05-09-94
Senior Vice President-Operations 06-01-89
Daniel P. Bittner 55 Senior Vice President-Finance 05-17-98
Senior Vice President-Finance and Corporate
Services 12-29-96
Senior Vice President-Customer Service 05-09-94
Senior Vice President-Finance 03-01-92
Clark R. Steinhardt 57 Senior Vice President-Nuclear Power 06-01-91
Charles A. Schrock 45 Senior Vice President-Energy Supply 12-13-98
Vice President-Energy Supply 05-31-98
Manager-Kewaunee Nuclear Power Plant 02-20-95
Manager-Nuclear Engineering 10-01-91
Bradley W. Andress 44 Vice President-Marketing 09-01-98
Vice President-Marketing, Lund Holding Intrntl. 10-28-95
Vice President-Sales, Plastics Inc, Div.
of Newell 11-01-94
Vice President-Marketing, Anchor Plastics
Division of Newell 08-01-91
Ralph G. Baeten 55 Vice President-Treasurer 08-01-95
Treasurer 03-01-92
Mark L. Marchi 51 Vice President-Nuclear 12-13-98
Site Vice President-Kewaunee Nuclear Power Plant 05-03-98
Manager-Nuclear Business Group 02-20-95
Manager-Kewaunee Nuclear Power Plant 10-01-91
Thomas P. Meinz 52 Vice President-Public Affairs 02-12-98
Vice President-Power Supply and Engineering 02-23-97
Power Supply and Engineering Executive 01-14-96
Senior Corporate Planning Executive 05-09-94
Manager-System Planning and Licensing 03-01-91
Wayne J. Peterson 40 Vice President-Distribution and Customer
Service 02-12-98
Assistant Vice President-Customer Service 02-23-97
Manager-System Operations 10-01-95
Site Leader 10-01-94
Electric Superintendent 04-01-92
Bernard J. Treml 49 Vice President-Human Resources 05-09-94
Assistant Vice President-Human Resources 07-01-93
Francis J. Kicsar 59 Secretary 01-01-96
Assistant Secretary 03-01-92
Diane L. Ford 45 Controller 03-01-92
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Current Position and Business Effective
Name and Age Experience During Past Five Years Date
- -------------------------- --------------------------------------------- ---------
<S> <C> <C>
Barth J. Wolf 41 Assistant Secretary and Manager-Legal Services 07-12-98
Manager-Legal and Risk Management 05-19-96 *
Administrator-Risk Management 03-01-92 *
</TABLE>
NOTE: All ages for the officers of WPSR and WPSC are as of December 31,
1998. None of the executives listed above for WPSR or for WPSC are
related by blood, marriage, or adoption to any of the other officers
listed or to any director of the Registrant. Each officer
shall hold office until his or her successor shall have been duly
elected and qualified, or until his or her death, resignation,
disqualification, or removal. Clark R. Steinhardt retired on
January 31, 1999.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
WPS RESOURCES CORPORATION COMMON STOCK TWO-YEAR COMPARISON
Dividends
Share Data Per Share* Price Range
- ---------- --------- -----------------------
High Low
------- -------
1998
1st Quarter $ .485 33-13/16 32
2nd Quarter .485 34 29-15/16
3rd Quarter .495 35-3/4 31-5/8
4th Quarter .495 37-1/2 33
-----
Total $1.960
1997
1st Quarter $ .475 28-3/4 26-1/8
2nd Quarter .475 27-7/8 23-3/8
3rd Quarter .485 29-1/4 26-3/4
4th Quarter .485 34-1/4 28-1/16
-----
Total $1.920
* Dividend rates are those of WPS Resources Corporation.
DIVIDEND RESTRICTIONS
WPSC, WPSR's principal subsidiary, is restricted by a PSCW order to
paying normal common stock dividends of no more than 109% of the previous
year's common stock dividend without prior notice to the PSCW. Also,
Wisconsin law prohibits WPSC from making loans to WPSR and its nonregulated
subsidiaries and from guaranteeing their obligations.
At December 31, 1998, WPSR had $328.5 million of retained earnings
available for dividends.
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 $7.9 million of consolidated
retained earnings were available at December 31, 1998, for the payment of
common stock cash dividends by UPPCO.
WPSR made a $34.0 million equity infusion into WPSC during the second
quarter of 1998. In December 1998, WPSC paid to WPSR a special common
dividend of $20.0 million. The special dividend allowed WPSC's average common
equity capitalization ratio to remain at approximately 54.0%, the level
approved by the PSCW for ratemaking purposes.
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<PAGE>
COMMON STOCK
Listed: New York Stock Exchange
Ticker Symbol: WPS
Transfer Agent and Registrar: Firstar Bank Milwaukee, N.A.
P. O. Box 2077
Milwaukee, Wisconsin 53201
As of December 31, 1998, there were 26,319 common stock shareholders of
record.
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<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
WPS RESOURCES CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1994 TO 1998)
A. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<CAPTION>
=======================================================================================================================
Consolidated Statements of Income and Comprehensive Income
=======================================================================================================================
Year Ended December 31
(Thousands, except share amounts) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues
Electric utility $ 543,260 $536,885 $548,701 $550,105 $543,346
Gas utility 165,111 211,090 211,357 174,693 182,058
Nonregulated energy and other 355,365 187,862 156,391 56,155 10,921
- -----------------------------------------------------------------------------------------------------------------------
Total operating revenues 1,063,736 935,837 916,449 780,953 736,325
=======================================================================================================================
Operating expenses
Electric production fuels 110,809 107,988 105,449 105,085 111,240
Purchased power 56,447 63,947 55,844 59,339 58,570
Gas purchased for resale 105,908 147,755 149,388 116,253 126,351
Nonregulated energy cost of sales 346,663 182,863 155,133 53,983 10,663
Other operating expenses 172,876 165,982 183,768 169,067 164,981
Maintenance 52,813 44,325 51,782 54,658 53,988
Depreciation and decommissioning 86,274 83,441 70,762 71,345 61,879
Taxes other than income 31,902 31,375 31,671 30,555 30,577
- -----------------------------------------------------------------------------------------------------------------------
Total operating expenses 963,692 827,676 803,797 660,285 618,249
=======================================================================================================================
Operating income 100,044 108,161 112,652 120,668 118,076
- -----------------------------------------------------------------------------------------------------------------------
Other income and (deductions)
Allowance for equity funds
used during construction 173 154 255 180 116
Other, net 2,505 11,952 (903) 5,852 4,338
- -----------------------------------------------------------------------------------------------------------------------
Total other income and (deductions) 2,678 12,106 (648) 6,032 4,454
=======================================================================================================================
Income before interest expense 102,722 120,267 112,004 126,700 122,530
- -----------------------------------------------------------------------------------------------------------------------
Interest on long-term debt 23,987 26,273 25,494 26,839 27,404
Other interest 4,827 4,910 3,922 2,677 1,856
Allowance for borrowed funds
used during construction (177) (167) (299) (80) (149)
- -----------------------------------------------------------------------------------------------------------------------
Total interest expense 28,637 31,016 29,117 29,436 29,111
=======================================================================================================================
Distributions - preferred securities
of subsidiary trust 1,488 - - - -
=======================================================================================================================
Income before income taxes 72,597 89,251 82,887 97,264 93,419
Income taxes 23,445 31,106 27,216 33,494 32,157
Minority interest (611) (797) (348) - -
Preferred stock dividends of subsidiary 3,132 3,133 3,134 3,136 3,140
- -----------------------------------------------------------------------------------------------------------------------
Net income 46,631 55,809 52,885 60,634 58,122
=======================================================================================================================
Other comprehensive income - - - - -
=======================================================================================================================
Comprehensive income $ 46,631 $ 55,809 $ 52,885 $ 60,634 $ 58,122
=======================================================================================================================
Shares of common stock
Outstanding at December 31 26,502 26,518 26,537 26,551 26,551
Average 26,511 26,527 26,545 26,551 26,551
Basic and diluted earnings per
average share of common stock $1.76 $2.10 $1.99 $2.28 $2.19
Dividend per share of common stock (2) 1.96 1.92 1.88 1.84 1.80
=======================================================================================================================
</TABLE>
(1) These statements give effect to the merger with Upper Peninsula
Energy Corporation.
(2) Dividend rates are those of WPS Resources Corporation.
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<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
WPS RESOURCES CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1994 TO 1998)
B. CONSOLIDATED BALANCE SHEETS (1)
<CAPTION>
=======================================================================================================================
Consolidated Balance Sheets
=======================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------
At December 31 (Thousands) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Utility plant
Electric $1,715,882 $1,685,413 $1,639,490 $1,603,632 $1,567,346
Gas 267,892 251,603 240,791 228,346 202,903
- -----------------------------------------------------------------------------------------------------------------------
Total 1,983,774 1,937,016 1,880,281 1,831,978 1,770,249
Less - Accumulated depreciation
and decommissioning 1,206,123 1,113,142 1,028,266 977,163 913,423
- -----------------------------------------------------------------------------------------------------------------------
Total 777,651 823,874 852,015 854,815 856,826
Nuclear decommissioning trusts 171,442 134,108 100,570 82,109 64,147
Construction in progress 42,424 11,776 24,827 18,508 20,577
Nuclear fuel, net 18,641 19,062 19,381 14,275 19,417
- -----------------------------------------------------------------------------------------------------------------------
Net utility plant 1,010,158 988,820 996,793 969,707 960,967
=======================================================================================================================
Current assets 240,712 213,453 233,933 202,399 185,582
Net nonutility and nonregulated plant 41,235 28,188 28,470 9,033 5,878
Regulatory and other assets 218,282 205,343 204,120 212,769 186,544
- -----------------------------------------------------------------------------------------------------------------------
Total assets $1,510,387 $1,435,804 $1,463,316 $1,393,908 $1,338,971
=======================================================================================================================
=======================================================================================================================
Capitalization and Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Capitalization
Common stock equity $ 517,190 $ 518,764 $ 510,642 $ 505,178 $ 486,682
Preferred stock of subsidiaries 51,200 51,645 51,656 51,703 51,776
Long-term debt 393,921 347,015 349,054 350,098 353,679
- -----------------------------------------------------------------------------------------------------------------------
Total capitalization 962,311 917,424 911,352 906,979 892,137
=======================================================================================================================
Liabilities
Short-term borrowings 60,293 40,466 63,192 27,425 22,708
Deferred income taxes 122,642 131,197 135,904 141,518 131,541
Other liabilities and credits 365,141 346,717 352,868 317,986 292,585
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 548,076 518,380 551,964 486,929 446,834
=======================================================================================================================
Total capitalization and liabilities $1,510,387 $1,435,804 $1,463,316 $1,393,908 $1,338,971
=======================================================================================================================
</TABLE>
(1) These statements give effect to the merger with Upper Peninsula
Energy Corporation.
-41-
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
WPS RESOURCES CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1994 TO 1998)
C. FINANCIAL STATISTICS
<CAPTION>
===========================================================================================================
Year Ended December 31 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stock price $35-1/4 $33-13/16 $28-1/2 $34 $26-3/4
Book value per share $19.52 $19.56 $19.24 $19.03 $18.33
Return on average equity 9.0% 10.8% 10.3% 12.2% 12.0%
Number of common stock shareholders 26,319 27,369 27,922 28,416 29,629
Number of employees 2,673 2,902 3,032 3,002 3,077
- -----------------------------------------------------------------------------------------------------------
Capitalization ratios
Common equity including ESOP 53.8 56.6 56.0 55.7 54.6
Preferred stock of subsidiaries 5.3 5.6 5.7 5.7 5.8
Trust preferred securities of subsidiary trust 5.2 - - - -
Long-term debt of subsidiaries 35.7 37.8 38.3 38.6 39.6
- -----------------------------------------------------------------------------------------------------------
Weather information
Cooling degree days 519 255 352 808 519
Cooling degree days as a percent of normal 107.0% 53.3% 73.6% 170.1% 107.0%
Heating degree days 6,530 8,099 8,566 7,813 7,578
Heating degree days as a percent of normal 82.4% 101.6% 107.5% 98.0% 95.5%
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Dividends
Common Stock Comparison (by quarter) Per Share* High Low
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
1st quarter $ .485 33-13/16 32
2nd quarter .485 34 29-15/16
3rd quarter .495 35-3/4 31-5/8
4th quarter .495 37-1/2 33
-----
$1.96
- --------------------------------------------------------------------------------------------
1997
1st quarter $ .475 28-3/4 26-1/8
2nd quarter .475 27-7/8 23-3/8
3rd quarter .485 29-1/4 26-3/4
4th quarter .485 34-1/4 28-1/16
-----
$1.92
============================================================================================
</TABLE>
* Dividend rates are those of WPS Resources Corporation.
-42-
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
WISCONSIN PUBLIC SERVICE CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1996 TO 1998)
D. SELECTED FINANCIAL DATA
<CAPTION>
==========================================================================================================
(Millions) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $ 652.5 $ 690.5 $ 701.9
Net income 57.2 64.7 60.4
Total assets (at December 31) 1,267.6 1,234.0 1,258.9
Long-term debt, net (at December 31) 304.0 307.6 310.8
==========================================================================================================
</TABLE>
-43-
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
WISCONSIN PUBLIC SERVICE CORPORATION
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1996 TO 1998)
E. FINANCIAL STATISTICS
<CAPTION>
==========================================================================================================
(Millions) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Coverage
- ----------------------------------------------------------------------------------------------------------
Times interest earned before income taxes 4.48 4.48 4.36
Times interest earned after income taxes 3.29 3.30 3.21
Times interest and preferred dividends
earned after income taxes 2.93 2.97 2.88
==========================================================================================================
Capitalization ratios
Common equity including ESOP 57.6 56.0 55.3
Preferred stock 6.1 6.3 6.3
Long-term debt 36.3 37.7 38.4
==========================================================================================================
Percent long-term debt to net utility plant 33.5 34.7 34.8
==========================================================================================================
Average rate
Bonds 7.2 7.0 7.0
Preferred stock 6.1 6.1 6.1
==========================================================================================================
Number of preferred stock shareholders 2,501 2,734 2,965
==========================================================================================================
Weather information
Cooling degree days 519 255 352
Cooling degree days as a percent of normal 107.0% 53.3% 73.6%
Heating degree days 6,530 8,099 8,566
Heating degree days as a percent of normal 82.4% 101.6% 107.5%
==========================================================================================================
</TABLE>
-44-
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
UPPER PENINSULA POWER COMPANY
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1996 TO 1998)
F. SELECTED FINANCIAL DATA
<CAPTION>
==========================================================================================================
(Millions) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $ 62.7 $ 60.2 $ 58.4
Net income 3.5 3.7 5.2
Total assets (at December 31) 127.3 131.3 124.9
Long-term debt, net (at December 31) 38.8 38.9 39.0
==========================================================================================================
</TABLE>
-45-
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
UPPER PENINSULA POWER COMPANY
COMPARATIVE FINANCIAL STATEMENTS AND
FINANCIAL STATISTICS (1996 TO 1998)
G. FINANCIAL STATISTICS
<CAPTION>
==========================================================================================================
(Millions) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Coverage
- ----------------------------------------------------------------------------------------------------------
Times interest earned before income taxes 2.31 2.34 3.05
Times interest earned after income taxes 1.81 1.87 2.32
Times interest and preferred dividends
earned after income taxes - 1.87 2.31
==========================================================================================================
Capitalization ratios
Common equity 47.6 50.4 50.4
Preferred stock - 0.6 0.6
Long-term debt 52.4 49.0 49.0
==========================================================================================================
Percent long-term debt to net utility plant 38.2 37.9 37.5
==========================================================================================================
Average rate
Bonds 8.9 8.9 8.9
Preferred stock - 4.9 5.0
==========================================================================================================
Number of preferred stock shareholders - 48 53
==========================================================================================================
</TABLE>
-46-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS - WPS RESOURCES CORPORATION
WPS Resources Corporation ("WPSR") is a holding company. Approximately
69% of WPSR's assets at December 31, 1998, approximately 52% of its 1998
revenues, and 87% of its 1998 net income were derived from electric utility
operations. WPSR's wholly-owned subsidiaries include two regulated utilities,
Wisconsin Public Service Corporation ("WPSC"), an electric and gas utility,
and Upper Peninsula Power Company ("UPPCO"), an electric utility, and two
primary nonregulated subsidiaries, WPS Energy Services, Inc. ("ESI"), and
WPS Power Development, Inc. ("PDI").
1998 COMPARED WITH 1997
WPS RESOURCES CORPORATION OVERVIEW
WPSR's results of operations and financial position for 1998 and 1997
include the effects of the merger with Upper Peninsula Energy Corporation
("UPEN") which was effective September 29, 1998, and accounted for as a
pooling of interests. In accordance with the terms of the merger, each of the
2,950,001 outstanding shares of UPEN common stock (no par value) were
converted into 0.90 shares of WPSR common stock, subject to adjustment for
cash payments for fractional shares. In conjunction with this merger, WPSR
expensed transaction charges of approximately $1.6 million in 1998 and
$2.7 million in 1997. These merger transaction charges consist of the
following:
Merger Charges (Millions)
-----------------------------------------------------
1998 1997
-----------------------------------------------------
Investment Bankers $0.8 $0.9
Legal 0.7 0.9
Accounting - 0.2
Other 0.1 0.7
-----------------------------------------------------
Total $1.6 $2.7
=====================================================
In addition, UPPCO, UPEN's primary subsidiary, recorded severance costs
of $1.1 million and an additional $0.5 million in other merger-related
expenses in 1998.
WPSR consolidated operating revenues were $1.1 billion in 1998 compared
with $935.8 million in 1997, an increase of 13.7%. Net income was
$46.6 million in 1998 and $55.8 million in 1997, a decrease of 16.5%. Basic
and diluted earnings per share were $1.76 in 1998 compared with $2.10 in 1997,
a decrease of 16.2%. The primary reasons for the decrease in earnings, as
explained below, were the impact of unusually warm winter weather, the effects
of a full year electric rate decrease at WPSC, higher maintenance expenses at
WPSC, decreased other income, higher other operating expenses, and a decrease
in WPSC's gas margin. Partially offsetting these factors were an increase in
electric utility margins and an increase in nonregulated margins.
-47-
<PAGE>
OVERVIEW OF UTILITY OPERATIONS (WPSC AND UPPCO)
Revenues at WPSC were $652.5 million in 1998 compared with
$690.5 million in 1997, a decrease of 5.5%. Earnings were $54.1 million in
1998 and $61.6 million in 1997, a decrease of 12.2%. The primary reasons for
the decrease in earnings at WPSC were the impact of unusually warm winter
weather, increased maintenance expenses, a decrease in other income, an
increase in other operating expenses, and a decrease in the gas margin.
Partially offsetting these factors were an increase in the electric utility
margin and a decrease in interest expense.
Revenues at UPPCO were $62.7 million in 1998 compared with $60.2 million
in 1997, an increase of 4.2%. Earnings were $3.5 million in 1998 compared
with $3.7 million in 1997, a decrease of 5.4%. The primary reasons for the
decrease in earnings at UPPCO were higher maintenance and other operating
expenses partially offset by an increase in the electric margin.
ELECTRIC UTILITY OPERATIONS (WPSC AND UPPCO)
WPSR consolidated electric utility margins increased $11.1 million, or
3.0%, primarily due to increased kilowatt-hour ("kWh") sales of 3.0% to WPSC
customers as a result of a 103.5% increase in cooling degree days in 1998.
Partially offsetting the increase in electric margins in 1998 was the impact
on WPSC of a Public Service Commission of Wisconsin ("PSCW") rate order which
was effective for the entire year in 1998 but was only effective in 1997 for
the period after February 21, 1997. This order authorized an 8.1% electric
revenue reduction.
==========================================================================
WPSR Consolidated Electric Margins (Thousands)
- --------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------
Revenues $543,260 $536,885 $548,701
Fuel and purchased power 167,256 171,935 161,293
- --------------------------------------------------------------------------
Margin $376,004 $364,950 $387,408
==========================================================================
Sales in kWh (Thousands)* 12,172,432 11,993,358 11,828,788
==========================================================================
* Does not include UPPCO unbilled kWh.
WPSR consolidated electric utility revenues increased $6.4 million, or
1.2%, largely due to increased revenues of $4.8 million from WPSC's wholesale
customers and $1.5 million from WPSC's commercial and industrial customers as
a result of the warmer weather. Also included in 1998 electric revenues are
surcharge revenues at WPSC of $3.8 million related to the recovery of the
deferred costs for the 1997 Kewaunee Nuclear Power Plant ("Kewaunee") steam
generator repairs. Partially offsetting these increases to revenues were the
electric rate reduction and a $1.0 million refund of WPSC's transmission
revenues as the result of a 1998 Federal Energy Regulatory Commission ("FERC")
settlement related to open access transmission tariff rates.
-48-
<PAGE>
WPSR consolidated electric production fuel expense increased
$2.8 million, or 2.6%, primarily as a result of increased generation expense.
Kewaunee was out of service for the first six months of 1997 as the result of
an extended outage to repair steam generators, thus, in comparison, the higher
generation expense in 1998. WPSC is currently the operator and 41.2% owner of
Kewaunee.
WPSR consolidated purchased power expense decreased $7.5 million, or
11.7%, primarily due to decreased purchase requirements at WPSC in the first
half of 1998. Purchase requirements at WPSC in the first half of 1997 were
higher due to lack of production at Kewaunee in the first and second quarters
of 1997 as a result of an extended outage. Kewaunee was also off-line in 1998
for a six-week scheduled refueling outage. Also contributing to lower
purchased power expense at WPSC was a $1.2 million credit to purchased power
expense in the fourth quarter of 1998 related to the settlement of litigation
involving a contract with a power supplier.
The PSCW allows WPSC to pass changes in the cost of fuel and purchased
power, within a specified range, on to its customers through a fuel adjustment
clause.
GAS UTILITY OPERATIONS (WPSC)
WPSR consolidated gas margin decreased $4.1 million in 1998, or 6.5%,
primarily due to a 19.4% reduction in heating degree days.
==========================================================================
WPSR Consolidated Gas Margins (Thousands)
- --------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------
Revenues $165,111 $211,090 $211,357
Purchase costs 105,908 147,755 149,388
- --------------------------------------------------------------------------
Margin $ 59,203 $ 63,335 $ 61,969
==========================================================================
Volume in therms (Thousands) 608,092 662,008 666,598
==========================================================================
Gas operating revenues decreased $46.0 million, or 21.8%. This decrease
was due to unusually mild weather in 1998 resulting in lower gas therm sales
for 1998 of 8.1%. Also contributing to the decrease in gas operating revenues
was a reduction in revenues of $7.5 million for refunds from ANR Pipeline
Company which WPSC passed on to its gas customers in the second quarter of
1998.
Gas purchase costs decreased $41.8 million, or 28.3%. This decrease was
due to reduced customer demand as a result of the mild weather during 1998.
Also contributing to the decrease in gas costs was a $7.5 million refund from
ANR Pipeline Company which was credited to gas expense in the second quarter
of 1998. Under current regulatory practice, the PSCW allows WPSC to pass
changes in the cost of gas on to customers through a purchased gas adjustment
clause ("PGAC").
-49-
<PAGE>
OTHER UTILITY EXPENSES/INCOME (WPSC AND UPPCO)
Other operating expenses at WPSC increased $4.1 million, or 3.1%,
primarily due to higher benefit costs in 1998.
Other operating expenses at UPPCO increased $0.6 million, or 3.6%,
primarily as the result of the accrual of $1.1 million in merger-related
severance expense in 1998. Other operating expenses at UPPCO in 1997 included
costs incurred related to the termination of UPPCO's Presque Isle Plant
Operating Agreement with Wisconsin Electric Power Company ("WEPCO"). UPPCO
had staffed and operated WEPCO's Presque Isle Power Plant through December 31,
1997, at which time the operating agreement was terminated.
Maintenance expense at WPSC increased $7.8 million, or 18.6%, primarily
as a result of increased expenses at Kewaunee during the second and fourth
quarters of 1998. This increase was partly due to the recognition in the
second quarter of 1998 of the 1997 deferred expenses for Kewaunee steam
generator repairs. The PSCW approved deferral of the repairs in 1997, the
cost of which has been collected in the second quarter of 1998 through a
$3.8 million electric revenue surcharge. In addition, maintenance expense at
Kewaunee increased in the fourth quarter of 1998 due to a scheduled refueling
outage.
Depreciation and decommissioning expenses at WPSC increased
$2.4 million, or 3.1%, due to an increased plant base and to the accelerated
recovery of investment in Kewaunee and accelerated funding of Kewaunee
decommissioning costs. Accelerated recovery of investment and funding began
on February 21, 1997 and, therefore, was effective for all of 1998 but only a
portion of 1997.
Other income at WPSC decreased $5.8 million, or 46.3%, primarily due to
one-time gains on sales of nonutility property which occurred in 1997. These
gains represented an increase in earnings for 1997 of approximately $0.11 per
share.
OVERVIEW OF NONREGULATED OPERATIONS
Nonregulated operations primarily consist of the gas and electric sales
at ESI, an energy marketing subsidiary. Nonregulated operations also include
those of WPSR as a holding company and those of PDI which develops electric
generation projects, invests in generating projects, and provides services to
the electric power generation industry.
Nonregulated operations experienced a loss of $11.0 million in 1998
compared with a loss of $9.5 million in 1997. Although nonregulated margins
continue to grow, losses are being experienced due to gas and electric trading
losses and expenses associated with the expansion of customer base.
OVERVIEW OF WPS ENERGY SERVICES, INC.
Revenues at ESI were $351.3 million in 1998 compared with $189.4 million
in 1997, an increase of 85.5%. ESI experienced a loss of $6.9 million in 1998
compared with a loss of $4.9 million in 1997. The primary reasons for the
increased loss at ESI were increased electric and gas trading losses primarily
due to market volatility, and higher operating expenses due to expansion of
-50-
<PAGE>
the energy trading business. Partially offsetting these factors was an
increase in the gas margin.
NONREGULATED MARGINS (ESI)
Gas margins at ESI were $4.0 million in 1998 compared with $1.9 million
in 1997, an increase of 110.5%. Electric margins at ESI remained fairly
stable. Gas revenues at ESI were $330.0 million in 1998 compared with
$182.3 million in 1997, an increase of $147.7 million, or 81.0%. This
increase was the result of sales volume growth and expansion to additional
geographic areas. Electric revenues at ESI were $20.5 million in 1998 and
$6.4 million in 1997, an increase of $14.1 million, or 220.3%. This increase
was also the result of sales volume growth.
ESI's cost of sales were $346.4 million in 1998 and $186.6 million in
1997, an increase of $159.8 million, or 85.6%. This increase was primarily
due to increased gas purchases and purchased power of $145.6 million and
$14.2 million, respectively, as a result of customer growth and higher costs
of purchases.
OTHER NONREGULATED EXPENSES/INCOME (ESI)
Other operating expenses at ESI increased $1.1 million, or 13.6%, due to
expansion of the business. ESI experienced gas trading losses of $4.9 million
in 1998 and $1.4 million in 1997 largely due to market volatility. ESI also
experienced electric trading losses of $1.2 million in 1998 primarily due to
losses in the third quarter related to the unprecedented market volatility in
the electric trading market.
PRICE RISK MANAGEMENT ACTIVITIES (ESI)
WPSR has not experienced significant price risk activities at its
utility operations which are not recoverable through customer rates; however,
price risk is experienced at ESI.
ESI utilizes derivative financial and commodity instruments
("derivatives"), including futures and forward contracts, to reduce market
risk associated with fluctuations in the price of natural gas and electricity
sold under firm commitments with certain of its customers. ESI also utilizes
derivatives, including price swap agreements, call and put option contracts,
and futures and forward contracts, to manage market risk associated with a
portion of its anticipated supply requirements. In addition, ESI utilizes
derivatives, within specified guidelines, for trading purposes.
Gains or losses on derivatives associated with firm commitments are
recognized as adjustments to the cost of sales or to revenues when the related
transactions affect earnings. Gains and losses on derivatives associated with
forecasted transactions are recognized when such forecasted transactions
affect earnings. At December 31, 1998, $7.2 million in losses related to firm
commitments and forecasted transactions were deferred. If it is no longer
probable that a forecasted transaction will occur, any gain or loss on the
derivative instrument as of such date is immediately recognized in earnings.
Derivatives for trading purposes are marked to market each accounting period,
and gains and losses are recognized as a component of other income at that
time. In 1998 and 1997, trading losses of $6.1 million and $1.4 million,
respectively, were recognized.
-51-
<PAGE>
At December 31, 1998, ESI had outstanding 22.0 million notional
dekatherms of natural gas under futures and option agreements and 1.3 million
notional dekatherms of natural gas under basis swap agreements for purposes of
managing market risk. The financial instruments outstanding at December 31,
1998 expire at various times through August 2000. ESI has certain gas sales
commitments through August 2000 with a range of sale prices from $2.36 to
$2.38 per dekatherm and a range of associated gas purchase costs of $2.29 to
$2.31 per dekatherm.
As of December 31, 1998, the fair value of trading instruments included
assets of $0.7 million. Except for a minimal level of electric trading
instruments, financial instruments used for trading in 1998 and 1997 were
natural gas derivatives. At December 31, 1998, ESI had outstanding
13.6 million notional dekatherms of natural gas under futures and option
agreements and 1.6 million notional dekatherms of natural gas under basis swap
agreements for trading purposes.
============================================================================
Gas Commodity Position (contract amounts in millions)
- ----------------------------------------------------------------------------
Carrying Fair
Amount Value
- ----------------------------------------------------------------------------
Inventory $5.9 $5.9
Fixed-price purchase obligations $115.0
Fixed-price sales obligations $99.8
============================================================================
Related Derivatives
- ----------------------------------------------------------------------------
Expected Maturity
----------------- Fair
1999 2000 Total Value
- ----------------------------------------------------------------------------
Futures NYMEX - Hedging
Long (billion cubic feet) 34.8 2.2
Weighted average settlement price
(per dekatherm) $2.26 $2.32
Contract amount $78.8 $5.1 $83.9 $70.5
Short (billion cubic feet) 18.4 0.8
Weighted average settlement price
(per dekatherm) $2.18 $2.50
Contract amount $40.0 $2.1 $42.1 $35.9
- ----------------------------------------------------------------------------
Futures NYMEX - Trading
Long (billion cubic feet) 33.5
Weighted average settlement price
(per dekatherm) $2.28
Contract amount $76.3 $76.3 $61.0
Short (billion cubic feet) 37.0
Weighted average settlement price
(per dekatherm) $2.25
Contract amount $83.2 $83.2 $67.2
- ----------------------------------------------------------------------------
-52-
<PAGE>
============================================================================
Related Derivatives (continued)
- ----------------------------------------------------------------------------
Expected Maturity
----------------- Fair
1999 2000 Total Value
- ----------------------------------------------------------------------------
Fixed-Float Futures Swap - Hedging
Long (billion cubic feet) 7.2 3.4
Weighted average settlement price
(per dekatherm) $2.21 $2.28
Contract amount $15.9 $7.8 $23.7 $22.2
Short (billion cubic feet) 1.5 0.1
Weighted average settlement price
(per dekatherm) $2.12 $2.18
Contract amount $3.1 $0.3 $3.4 $3.0
- ----------------------------------------------------------------------------
Fixed-Float Futures Swap - Trading
Long (billion cubic feet) 6.0
Weighted average settlement price
(per dekatherm) $2.21
Contract amount $13.1 $13.1 $11.3
Short (billion cubic feet) 3.1 0.1
Weighted average settlement price
(per dekatherm) $2.15 $1.85
Contract amount $6.8 $0.2 $7.0 $6.0
- ----------------------------------------------------------------------------
Options - Hedging
Long calls (billion cubic feet) 0.6
Weighted average strike price
(per dekatherm) $2.46
Contract amount $1.6 $1.6 $0.2
Long puts (billion cubic feet) 0.6
Weighted average strike price
(per dekatherm) $1.87
Contract amount $1.1 $1.1 $0.0
Short calls (billion cubic feet) 0.7
Weighted average strike price
(per dekatherm) $2.43
Contract amount $1.7 $1.7 $0.2
Short puts (billion cubic feet) 0.8 0.5
Weighted average strike price
(per dekatherm) $2.25 $2.43
Contract amount $1.8 $1.1 $2.9 $0.3
- ----------------------------------------------------------------------------
-53-
<PAGE>
============================================================================
Related Derivatives (continued)
- ----------------------------------------------------------------------------
Expected Maturity
----------------- Fair
1999 2000 Total Value
- ----------------------------------------------------------------------------
Options - Trading
Long calls (billion cubic feet) 2.2
Weighted average strike price
(per dekatherm) $2.27
Contract amount $5.1 $5.1 $0.3
Long puts (billion cubic feet) 5.9
Weighted average strike price
(per dekatherm) $2.05
Contract amount $12.0 $12.0 $0.7
Short calls (billion cubic feet) 1.5
Weighted average strike price
(per dekatherm) $2.17
Contract amount $3.2 $3.2 $0.2
Short puts (billion cubic feet) 5.0 0.5
Weighted average strike price
(per dekatherm) $2.14 $2.30
Contract amount $10.7 $1.0 $11.7 $0.9
- ----------------------------------------------------------------------------
Basis Swaps - Hedging
Long (billion cubic feet) 12.2 0.9
Weighted average settlement price
(per dekatherm) $0.17 $0.29
Contract amount $2.1 $0.3 $2.4 $1.5
Short (billion cubic feet) 13.5 0.5
Weighted average settlement price
(per dekatherm) $0.20 $0.09
Contract amount $2.7 $2.7 $1.5
- ----------------------------------------------------------------------------
Basis Swaps - Trading
Long (billion cubic feet) 80.5 2.6
Weighted average settlement price
(per dekatherm) $0.25 $0.24
Contract amount $20.9 $0.6 $21.5 $9.3
Short (billion cubic feet) 82.1 3.8
Weighted average settlement price
(per dekatherm) $0.25 $0.23
Contract amount $20.4 $0.9 $21.3 $9.7
============================================================================
OTHER NONREGULATED OPERATIONS
Losses at PDI were $2.4 million in 1998 compared with $1.9 million in
1997. The increase in losses at PDI was primarily due to additional expenses
incurred in 1998 for the start-up of new projects. Other operating expenses
at PDI increased $1.1 million, or 25.4%, due to higher project expenses.
Other income at WPSR included a dividend on a venture capital investment of
-54-
<PAGE>
$2.0 million in the first quarter of 1998 compared with $0.2 million in the
first quarter of 1997.
1997 COMPARED WITH 1996
WPS RESOURCES CORPORATION OVERVIEW
WPSR consolidated operating revenues were $935.8 million in 1997 and
$916.4 million in 1996, an increase of 2.1%. Net income increased 5.5% to
$55.8 million in 1997 from $52.9 million in 1996. Basic and diluted earnings
per share were $2.10 in 1997 compared with $1.99 in 1996, an increase of 5.5%.
The primary reasons for the increase in earnings were decreased operating and
maintenance expenses, increased other income, an increased nonregulated energy
margin, and an increased gas utility margin. Partially offsetting these
factors were a decrease in the electric utility margin, an increase in
depreciation and decommissioning expense, and an increase in income tax
expense.
OVERVIEW OF UTILITY OPERATIONS (WPSC AND UPPCO)
Revenues at WPSC were $690.5 million in 1997 compared with
$701.9 million in 1996, a decrease of 1.6%. Earnings were $61.6 million in
1997 and $57.3 million in 1996, an increase of 7.5%. The primary reasons for
the increase in earnings at WPSC were a decrease in operating and maintenance
expenses, an increase in other income, and an increase in the gas utility
margin. Offsetting these factors were a decrease in the electric utility
margin, an increase in depreciation and decommissioning expense, and an
increase in income tax expense.
Revenues at UPPCO were $60.2 million in 1997 compared with $58.4 million
in 1996, an increase of 3.1%. Earnings were $3.7 million in 1997 and
$5.2 million in 1996, a decrease of 28.8%. The primary reason for the
decrease in earnings at UPPCO was a decrease in the electric utility margin.
ELECTRIC UTILITY OPERATIONS (WPSC AND UPPCO)
WPSR consolidated electric utility margins decreased $22.5 million, or
5.8%, primarily due to implementation of a PSCW rate order at WPSC which
authorized a $35.5 million, or 8.1%, electric revenue reduction. A second
factor contributing to decreased margins was increased replacement power costs
as a result of an extended outage at Kewaunee. A surcharge authorized by the
PSCW partially offset increases in replacement power costs in the latter part
of the first quarter and in the second quarter of 1997.
In spite of a 27.6% decrease in cooling degree days, WPSR consolidated
electric kWh sales increased by 1.5% primarily due to increased demand by
WPSC's commercial and industrial customers. WPSC's commercial and industrial
kWh sales increased 4.8%, while wholesale kWh sales decreased 3.4%. WPSR
consolidated electric utility revenues decreased $11.8 million, or 2.2%,
primarily due to the electric rate decrease at WPSC.
WPSR consolidated electric production fuel expense increased
$2.5 million, or 2.4%. Nuclear fuel expense at WPSC was $2.0 million lower
than in 1996 due to decreased generation at Kewaunee in the first and second
quarters of 1997 as a result of an extended outage. Steam fuel expense at
WPSC was higher by $1.0 million and combustion turbine generation expense was
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higher by $3.2 million due to increased generation requirements from these
sources during the extended outage at Kewaunee.
WPSR consolidated purchased power expense increased $8.1 million, or
14.5%, primarily due to increased purchase requirements and higher costs of
purchased power at WPSC during the extended outage at Kewaunee.
The PSCW allows WPSC to pass changes in the cost of fuel and purchased
power, within a specified range, on to its customers through a fuel adjustment
clause. WPSC is required to file an application to adjust rates either higher
or lower when costs are plus or minus 2% from forecasted costs on an annual
basis. The additional fuel costs in 1997 did not result in WPSC being outside
this 2% window.
GAS UTILITY OPERATIONS (WPSC)
WPSR consolidated gas margin increased $1.4 million, or 2.2%, primarily
due to WPSC's implementation of a PSCW rate order which authorized a
$5.7 million, or 2.7%, increase in gas revenues.
Gas operating revenues remained relatively stable reflecting the rate
increase offset by a 5.5% reduction in heating degree days. Gas revenues also
reflect a one-time reduction of $0.9 million in the first quarter of 1997 as a
result of a PSCW directive to change the accounting treatment for previous
customer line extensions. This reduction represented a decrease of
approximately $.02 per share after income tax effects.
Gas purchase costs showed a net decrease of $1.6 million, or 1.1%,
primarily due to reduced purchases because of decreased demand as a result of
the reduction in heating degree days. The PSCW allows WPSC to pass changes in
the cost of gas on to customers through a PGAC.
OTHER UTILITY EXPENSES/INCOME (WPSC AND UPPCO)
Other operating expenses at WPSC decreased $24.1 million, or 15.2%.
Cost saving initiatives and decreased amortization of deferred demand-side
management expenditures resulted in lower customer service and sales expenses
of $9.5 million. Administrative expenses decreased $5.8 million due to cost
saving measures and reduced postretirement medical, dental, and other benefit
expenses. Generation operating expenses were lower by $7.3 million primarily
as a result of the completion in 1996 of an amortization of deferred expenses
related to a previous coal contract settlement. Gas operating expenses
decreased $1.5 million as the result of a PSCW directive requiring gas
servicing revenues and expenses to be classified as other income and
deductions beginning in 1997.
Maintenance expense at WPSC decreased $7.1 million, or 14.5%. Electric
transmission and distribution expenses decreased $3.4 million as a result of
cost saving initiatives and less maintenance of overhead lines in 1997 due to
less storm damage. Maintenance expenses were $1.9 million lower at Kewaunee
in 1997 because Kewaunee was out of service in 1996 for scheduled maintenance.
Gas distribution expenses were lower by $0.9 million due to cost saving
initiatives and decreased maintenance activities. Steam costs decreased
$0.6 million at WPSC's coal-fired plants due to changes in maintenance
schedules as a result of the extended outage at Kewaunee.
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Depreciation and decommissioning expenses at WPSC increased
$12.0 million, or 18.8%, largely due to the accelerated recovery of investment
in Kewaunee and accelerated funding of Kewaunee decommissioning costs.
Other income at WPSC increased $7.5 million, or 141.7%, primarily due to
gains in 1997 on the sale of nonutility property of $4.8 million which
represented an increase of approximately $.11 per share after income tax
effects. Also included in other income in 1997 was interest of $2.2 million
resulting from an income tax audit settlement. Income tax expense increased
$1.9 million reflecting higher net income in 1997.
OVERVIEW OF NONREGULATED OPERATIONS
Nonregulated operations experienced a loss of $9.5 million in 1997
compared with a loss of $9.6 million in 1996. Operating losses at the
nonregulated subsidiaries were anticipated by management as the companies
developed infrastructure and financed additional working capital needed to
support growth. Losses were also incurred at the WPSR holding company in 1997
due to expenses incurred as a result of the merger with UPEN.
OVERVIEW OF WPS ENERGY SERVICES, INC.
Revenues at ESI were $189.4 million in 1997 compared with $161.8 million
in 1996, an increase of 17.1%.
ESI incurred a loss of $4.9 million in 1997 and a loss of $6.3 million
in 1996.
NONREGULATED MARGINS (ESI)
Gas margins at ESI were a positive $2.1 million in 1997 and a negative
$1.1 million in 1996, an increase of $3.2 million. In 1996, customer
commitments at ESI were not fully hedged during a period of volatile gas
commodity markets and certain gas suppliers defaulted which negatively
impacted margins. Electric margins at ESI increased $0.9 million in 1997.
Gas sales at ESI increased $26.2 million in 1997, or 17.1%, as a result
of customer growth. Electric sales at ESI increased $5.6 million in 1997, or
716.0%, also as a result of customer growth.
Gas purchases and purchased power expense increased $20.5 million and
$4.7 million, respectively, in 1997.
OTHER NONREGULATED EXPENSES/INCOME (ESI)
Other operating expenses at ESI increased $1.3 million, or 19.4%, due to
expansion of the business and the development of infrastructure as ESI
positions itself for the future. Although increased margins more than offset
other operating expenses, interest costs increased due to the financing of
additional working capital needed to support the growth of ESI.
ESI experienced trading losses of $1.4 million in 1997 and $2.5 million
in 1996.
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OTHER NONREGULATED OPERATIONS
PDI incurred a loss of $1.9 million in 1997 and a loss of $4.0 million
in 1996. Other operating expenses at PDI increased $0.4 million as a result
of expansion of the business and operation of the Stoneman Power Plant
("Stoneman"). Project revenues at PDI partially offset costs related to the
investigation of possible energy-related investments and a loss from Stoneman
operations. PDI also experienced a loss of $4.0 million in 1996 related to
the write-off of an investment in an industrial processing facility. This
write-off represented a decrease in 1996 earnings of $.09 per share after
income tax effects.
Other operating expenses at WPSR increased $2.7 million in 1997 due to
expenses associated with the UPEN merger.
BALANCE SHEET - WPSR
1998 COMPARED WITH 1997
Nuclear decommissioning trusts increased $37.3 million due to continued
funding and favorable investment returns. Construction in progress increased
$30.6 million largely as a result of construction expenditures related to the
Kewaunee steam generator replacement project, the combustion turbine project
at West Marinette, and the transmission line for the De Pere Energy Center
project. Customer receivables increased $21.1 million primarily as a result
of increased sales at ESI. Net nonutility and nonregulated plant increased
$13.0 million as a result of the acquisition of additional assets at PDI.
Investments and other assets increased $18.5 million primarily due to an
increased unrealized gain on the nuclear decommissioning trust at WPSC and an
increased unrealized loss on hedging activities at ESI.
Commercial paper increased $26.9 million due to increased operational
cash needs at WPSC and WPSR. Cash requirements exceeded internally generated
funds at both WPSC and WPSR. Accounts payable increased $25.7 million due to
increased payables at WPSC related to the 1998 Kewaunee refueling outage and
other construction projects, and higher payables at ESI as a result of
increased sales activity.
FINANCIAL CONDITION - WPSR
INVESTMENTS AND FINANCING
WPSR made a $34.0 million equity infusion into WPSC during the second
quarter of 1998. WPSC retired $50.0 million of first-mortgage bonds on
July 1, 1998 and issued $50.0 million of senior notes secured by
first-mortgage bonds on December 14, 1998. A special common stock dividend of
$20.0 million was paid by WPSC to WPSR in December 1998. The special dividend
allowed WPSC's average equity capitalization ratio to remain at approximately
54%, the level approved by the PSCW for ratemaking.
Short-term borrowings increased $26.9 million during 1998 as a result of
cash requirements in excess of internally generated funds. Pretax interest
coverage was 4.48 times for the 12 months ended December 31, 1998 for WPSC.
WPSC's bond ratings are AA+ (Standard & Poor's and Duff & Phelps) and Aa2
(Moody's).
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WPSR will use internally-generated funds and short-term borrowing to
satisfy most of its capital requirements. WPSR may periodically issue
additional long-term debt and common stock to reduce short-term debt and to
maintain desired capitalization ratios.
The specific forms of financing, amounts, and timing will depend on the
availability of projects, market conditions, and other factors. At this time,
however, it is anticipated that common stock will be issued by WPSR in
mid-1999. WPSR began issuing new shares of common stock for the Stock
Investment Plan in January 1999. WPSR may also expand its leveraged employee
stock ownership plan during the next three-year period.
WPSC makes large investments in capital assets. Construction
expenditures for WPSC are expected to be approximately $250.0 million in the
aggregate for the 1999 through 2001 period. This includes expenditures for
the replacement of Kewaunee steam generators.
In addition, other capital requirements for WPSC for the three-year
period will include Kewaunee decommissioning trust fund contributions of
$16.8 million.
WPSC's agreement to purchase electricity from the De Pere Energy Center,
a gas-fired cogeneration facility, will be accounted for as a capital lease.
The De Pere Energy Center lease will be capitalized at $77.8 million in 1999.
While not a capital expenditure, this will affect the capital structure.
UPPCO will incur construction expenditures of about $23.0 million in the
aggregate for the period 1999 through 2001, primarily for electric
distribution improvements.
Investment expenditures for nonregulated projects are uncertain since
there are few firm commitments at this time. Approximately $38.0 million will
be incurred in 1999 to purchase generating units located in the State of Maine
and the Canadian Province of New Brunswick. Financing for most nonregulated
projects is expected to be obtained through a new subsidiary, WPS Resources
Capital Corporation, which was formed in January 1999 to obtain funding for
those projects.
On July 30, 1998, WPSR Capital Trust I ("Trust"), a Delaware business
trust of which WPSR owns all of the outstanding $1.5 million trust common
securities, issued $50.0 million of trust preferred securities to the public.
The sole asset of the Trust is $51.5 million of WPSR subordinated debentures
due in 2038. The terms and interest payments on these debentures correspond
to the terms and distributions on the trust preferred securities.
REGULATORY
WPSC received a rate order in the Wisconsin jurisdiction on January 15,
1999. The impact is a $26.9 million increase in electric revenues and a
$10.3 million increase in gas revenues on an annual basis. The new rates will
be effective for 1999 and 2000. The PSCW authorized a 12.1% return on WPSC
equity for 1999 and 2000.
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MERGER
On September 29, 1998, UPEN merged with and into WPSR, and UPPCO, UPEN's
utility subsidiary, became a wholly-owned subsidiary of WPSR. The exchange of
stock qualifies as a tax-free transaction and the transaction has been
accounted for as a pooling of interests.
KEWAUNEE
On September 29, 1998, WPSC and Madison Gas and Electric Company
("MG&E") finalized an arrangement in which WPSC will acquire MG&E's 17.8%
share of Kewaunee. This agreement, the closing of which is contingent upon
regulatory approvals and steam generator replacement scheduled for the spring
of 2000, will give WPSC 59.0% ownership in Kewaunee.
The arrangement provides that the book value of MG&E's share of Kewaunee
at the time of the transfer could be credited against the purchase price of a
planned 83-megawatt, natural gas-fired, combustion-turbine electric generation
station to be built near Marinette, Wisconsin. WPSC had previously agreed to
build this station for MG&E. If, for some reason, the Marinette station is
not completed, the arrangement calls for WPSC to pay for MG&E's share of
Kewaunee with a combination of cash and notes.
MG&E has agreed to retain certain of its obligations related to the
period of time that it had been an owner of Kewaunee. MG&E will effectively
transfer its nuclear decommissioning funds to WPSC to pay for MG&E's share of
the currently estimated decommissioning costs of the plant at the closing for
the asset swap. WPSC and Wisconsin Power and Light Company, the joint owners
of the plant after the described change in ownership, will be responsible for
the decommissioning of the plant.
YEAR 2000 COMPLIANCE
The Year 2000 issue arises because software programs, computer hardware,
and equipment that have date sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
may result in system failures or other disruptions of operations.
WPSR and its subsidiary companies are committed to eliminating or
minimizing adverse effects of the Year 2000 computer compliance issue on their
business operations, including the products and services provided to
customers, and to maintaining WPSR's reputation as an efficient and reliable
supplier of energy. WPSR, however, is unable to guarantee that there will be
no adverse effects as a result of the Year 2000 computer compliance issue
because many aspects of compliance are beyond WPSR's direct control.
WPSR has undertaken a program to assess Year 2000 compliance and to
bring computer systems into compliance by the year 2000. All systems,
including energy production and delivery systems, other embedded systems, and
third party systems of suppliers are being evaluated to identify and resolve
potential problems.
A Year 2000 project plan which includes awareness, inventory and
assessment, remediation, testing, and implementation has been developed. The
formal awareness phase of the Year 2000 project which includes understanding
and communication of the issue to employees, customers, suppliers, and other
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affected parties has essentially been completed. The Year 2000 issue has been
communicated to WPSR employees and customers via several media. All WPSR
business unit leaders have been made aware of the Year 2000 project plan and
their roles in implementing the plan. Communication and response to Year 2000
inquiries continue.
The inventory and assessment phase which includes identification of all
information and non-information technology systems and of non-compliant
systems, applications, and hardware, has been completed. Action plans for
remediation, which includes modifications to bring systems into compliance,
and action plans for testing including validation of compliance have been
completed.
Modifications of major in-house supported systems to correct Year 2000
problems have been underway since 1996. WPSR's Information Technology
Department has identified five major systems. All of these systems (customer
information, finance, human resources, materials management, and facility
management) are currently Year 2000 compliant.
In addition, non-information technology systems have been identified and
ranked as to the risk posed by non-compliance. Non-information technology
systems include computer and embedded systems related to WPSR's power plant
operating, system operating, hydraulic, transmission, and other operating
functions. All systems ranked as "critical," "severe," or "high" are
scheduled to be Year 2000 compliant by the end of the first quarter of 1999.
WPSR has hired an external consulting group to monitor the progress of
its Year 2000 compliance activities. The consulting group's responsibilities
include performing a status check on WPSR's ability to achieve Year 2000
compliance.
In addition, WPSR is identifying, contacting, and assessing suppliers
and other business partners for Year 2000 readiness, as these external parties
may have the potential to impact WPSR's Year 2000 readiness. WPSR is also
working to address Year 2000 issues related to all joint ownership facilities.
At the present time, WPSR is not aware of problems that would materially
impact the company's operations. However, WPSR has no means of ensuring that
all third parties will be Year 2000 compliant in a timely manner, and the
inability of these parties to resolve successfully their Year 2000 issues
could have a material impact on the operations of WPSR's subsidiaries.
Due to fewer expenditures for hardware and software than originally
anticipated, the estimate of total Year 2000 project costs has been reduced to
$9.0 million. This estimate is considered reasonable and has been approved
for rate recovery by the PSCW. This estimate includes internal labor costs of
$4.5 million, software replacement costs for non-compliant products of
$2.0 million, and contract labor costs of $2.5 million. Expenditures for the
Year 2000 project incurred through December 31, 1998, are $2.2 million. Major
expenditures for hardware, software, and other equipment were made in the
fourth quarter of 1998 and additional expenditures will be made in the first
quarter of 1999.
The failure to correct a material Year 2000 problem could result in an
interruption in, or the failure of, certain normal business activities or
operations which could materially affect WPSR's results of operations.
However, due to the general uncertainty inherent in the Year 2000 issue, WPSR
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is unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on operations. A preliminary
identification of potential risks related to the failure to be in compliance
by the Year 2000 has been made. A better understanding of actual risks will
be developed during the remediation, testing, and contingency planning
processes. The development of WPSR's contingency planning process is intended
to minimize the problems associated with these risks.
WPSR is assessing the potential impact of failure to achieve Year 2000
compliance with respect to each of the following:
- Generation availability
- System monitoring and control functions
- Ability to restart generators that are out of service for planned or
unplanned outages
- Company-owned voice/data communications
- Transmission facilities
- System protection
- Critical operating data (i.e., generation plant data)
- Electric and gas distribution systems
- Pipelines' constraints to the supply or pressure of natural gas
- Major support systems
Contingency plans for dealing with Year 2000 issues will be developed by
April 1999 for each application that has been identified as "critical" or
"severe." In addition, a proposal for a "quick response team" concept has
been drafted, and a process for handling unexpected Year 2000 problems will be
formalized in early 1999. A most reasonably likely worst case Year 2000
scenario will be identified and addressed by a crisis management team in early
1999. The team plans to conduct a crisis management drill using a Year 2000
scenario.
TRENDS - WPSR
ACCOUNTING STANDARDS
WPSC and UPPCO follow Statement of Financial Accounting Standards
("SFAS") No. 71, "Accounting for the Effects of Certain Types of Regulation,"
and their financial statements reflect the effects of the different ratemaking
principles followed by the various jurisdictions regulating each utility. For
WPSC these include the PSCW, 89% of revenues; the Michigan Public Service
Commission ("MPSC"), 3% of revenues; and the FERC, 8% of revenues. In
addition, Kewaunee is regulated by the Nuclear Regulatory Commission.
Environmental matters are primarily governed by the United States
Environmental Protection Agency and the Wisconsin Department of Natural
Resources.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires all derivatives to be measured at fair value and recognized
as either assets or liabilities in the statement of financial position. The
accounting for changes in the fair value of a derivative is dependent upon the
use of the derivative and its resulting designation. Unless specific hedge
accounting criteria are met, changes in the derivative's fair value must be
recognized currently in earnings. This statement is effective for fiscal
periods beginning after June 15, 1999. WPSR will be adopting the requirements
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of this statement on January 1, 2000, and has not yet determined the method of
adoption or its impact. However, the requirements of this statement could
increase volatility in earnings and other comprehensive income.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This statement
requires the capitalization of certain costs related to software developed or
obtained for internal use. The statement is effective for periods beginning
after December 15, 1998. WPSR will be adopting the requirements of this
statement in January 1999. Although the total impact of WPSR's adoption of
this statement has not been determined, WPSC's adoption of this statement is
expected to result in a reduction in operating expenses which will be
considered in the ratemaking process. The capitalized software costs will
then be charged to amortization expense in future years.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting
on the Costs of Start-up Activities." This statement provides guidance on the
financial reporting of start-up costs and organization costs. Costs of
start-up activities and organization costs are required to be expensed as
incurred. The statement is effective for periods beginning after December 15,
1998. WPSR will be adopting the requirements of this statement in 1999 and
does not anticipate any material impact to its financial statements.
UTILITY RESTRUCTURING
Electric reliability issues have replaced restructuring and retail
competition issues in Wisconsin, and the PSCW announced that its first
priority is to develop the utility infrastructure necessary to assure reliable
electric service and to remove the barriers to competition at the wholesale
level. In 1998, the PSCW and the major utilities in Wisconsin, including
WPSC, made legislative proposals to address reliability and restructuring
concerns, including market power, among other issues. This resulted in the
Electric Reliability Bill (1997 Wis. Laws 204) ("Act 204"). Act 204 contains
provisions which relate to the planning and approval by the PSCW of electric
power generation and transmission facilities, the regional management of the
transmission system, new electric power generation, including the ownership
and operation of wholesale merchant plants, new electric power transmission
facilities, out-of-state retail electric sales, service standards for electric
generation, transmission, and distribution facilities, and the allowable
assets of public utility holding companies.
On June 5, 1997, the MPSC ordered utilities under its jurisdiction to
file electric open access plans and related tariffs. The MPSC order called
for generation open access in increments of 2.5% of retail load each year
starting in 1997 and ending in 2001. The MPSC order requires full generation
open access for retail load in 2002. WPSC and UPPCO submitted plans which
provide retail open access starting in 2000 when the MPSC order requires open
access for 10% of retail load. The plans then continue on the MPSC schedule
including full open access in 2002.
Should electric deregulation occur such that WPSC and UPPCO would no
longer qualify to reflect the effects of ratemaking under SFAS No. 71 in their
financial statements, no impairment of significant recorded assets or
reduction in reported equity is anticipated. WPSC and UPPCO do not have any
significant assets which are foreseen as being potentially stranded and no
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potential disparity between the depreciable lives of capital assets and those
lives applicable to a competitive environment has been identified. Increased
competition is likely to put pressure on electric utility margins. At this
time, however, management cannot predict the ultimate results of deregulation.
Part of electric utility restructuring involves establishing independent
system operators ("ISOs"). An ISO is an independent third party which
potentially owns the transmission facilities, oversees the operations of
transmission facilities, administers open access transmission tariffs, and
directs power dispatch. WPSC is working with several groups which are
attempting to form ISOs.
Both the PSCW and the MPSC continue to review gas industry
restructuring. In a current docket, the PSCW is addressing gas restructuring
issues including unbundling of rates, pricing of contracted services in
potential utility bypass situations, and the separation of gas utilities from
their nonregulated gas marketing affiliates. The MPSC is conducting pilot
studies to test the development of competitive retail gas markets in Michigan.
WPSC has historically recovered gas costs through a PGAC. The PSCW has
recently allowed utilities to select either an incentive gas cost recovery
mechanism or a modified one-for-one mechanism for gas cost recovery. WPSC has
selected the modified one-for-one gas cost recovery plan, and implementation
of the new mechanism, which is similar to the recovery received under the
existing PGAC, began in January 1999.
ENVIRONMENTAL
WPSC continues to investigate the environmental cleanup of eight
manufactured gas plant sites. The cleanup of WPSC's Stevens Point
manufactured gas plant site has been substantially completed with monitoring
of the site continuing. Costs of this cleanup were within the range expected
for this site. Future investigation and cleanup costs for the remaining seven
sites is estimated to be in the range of $33.9 million to $41.0 million.
These estimates may be adjusted in the future contingent upon remedial
technology, regulatory requirements, and experience gained through cleanup
activities.
An initial liability for cleanup of $41.7 million had been established
with an offsetting regulatory asset (deferred charge). Of this amount,
approximately $2.7 million has been spent to date. Management believes that
cleanup costs net of insurance recoveries, but not the carrying costs
associated with the cleanup expenditures, will be recoverable in current and
future customer rates. WPSC has received $12.6 million in insurance
recoveries which have been recorded as a reduction in the regulatory asset.
WPSC is in compliance with both the Phase I and II sulfur dioxide and
nitrogen oxide emission limits established by the Federal Clean Air Act
Amendments of 1990. Additional capital expenditures of $1.0 million to
$2.0 million are projected through 1999 for Wisconsin and for federal air
quality compliance. Management believes that all costs incurred for
additional compliance will be recoverable in future customer rates.
In late September 1998, the United States Environmental Protection
Agency ("EPA") required certain states, including Wisconsin to develop plans
to reduce the emissions of nitrogen oxides ("NOx") from sources within the
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state by late 2003. On a preliminary basis, WPSC projects potential capital
costs of between $37.0 million and $96.0 million to comply with possible
future regulations. The cumulative incremental annual operating and
maintenance expense associated with these possible future regulations
projected to be incurred by 2010 range from $29.0 million to $106.0 million.
The costs will depend on the state-specific compliance method to be adopted in
the future as well as the effectiveness of the various technologies available
for NOx emission control. Under WPSC's current practice, the capital costs
(as reflected in depreciation expenses) and the annual operating costs are
anticipated to be recovered through future customer rates.
On December 24, 1998, WPSC joined other parties in a petition
challenging the EPA's regulations that require Wisconsin to prepare and submit
a NOx implementation plan. On January 22, 1999, the State of Wisconsin
intervened in the litigation and challenged the geographic scope of the rule
and the required timing for implementation of NOx controls within the state.
No decisions have yet been rendered.
KEWAUNEE
On September 29, 1998, WPSC and MG&E finalized an arrangement in which
WPSC will acquire MG&E's 17.8% share of Kewaunee. This agreement, the closing
of which is contingent upon regulatory approval and steam generator
replacement scheduled for the spring of 2000, will give WPSC 59.0% ownership
in Kewaunee.
On October 17, 1998, Kewaunee was shut down for a planned maintenance
and refueling outage. Inspection of the plant's two steam generators showed
that the repairs made in 1997 were holding up well and few additional repairs
were needed. In addition to the inspection and repair of the steam
generators, a major overhaul was performed on the main turbine generator. The
plant was back in operation on November 27, 1998.
NONREGULATED ACTIVITIES
ESI incurred a $6.9 million loss in 1998 and a $4.9 million loss in
1997. A primary strategy for ESI is to gain market presence which is
reflected in a 117.1% growth in revenues during the three-year period 1996
through 1998, from $161.8 million in 1996 to $351.3 million in 1998. To
support this growth, significant expenditures were made for personnel
additions and system improvements. These expenditures, coupled with extreme
gas market volatility, contributed to the losses incurred at ESI. Gas market
volatility was reflected in the NYMEX gas futures prices per dekatherm which,
in 1998, ranged from a high of $2.73 to a low of $1.61. In 1997, gas futures
prices ranged from a high of $3.55 to a low of $1.82. Gas market volatility
has a direct impact on revenue and trading income.
PDI expects to improve the overall performance of its investment in
Stoneman due to a multi-year capacity sales agreement. Stoneman was also
grandfathered by the PSCW as a merchant plant which increases the probability
that PDI will repower the plant as a 300-megawatt to 500-megawatt gas-fired
combined cycle generating facility. Operational problems related to the
bonding process at ECO Coal Pelletization #12, LLC are being addressed with
expected resolution before the second quarter of 1999.
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IMPACT OF INFLATION - WPSR
WPSR's current financial statements are prepared in accordance with
generally accepted accounting principles and report operating results in terms
of historic cost. They provide a reasonable, objective, and quantifiable
statement of financial results; but they do not evaluate the impact of
inflation. Under rate treatment prescribed by utility regulatory commissions,
WPSC's and UPPCO's projected operating costs are recoverable in revenues.
Because forecasts are prepared assuming inflation, the majority of
inflationary effects on normal operating costs are recoverable in rates.
However, in these forecasts, WPSC and UPPCO are only allowed to recover the
historic cost of plant via depreciation.
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RESULTS OF OPERATIONS - WISCONSIN PUBLIC SERVICE CORPORATION
WPSC is a regulated electric and gas utility. Electric operations
accounted for 75% of 1998 revenues, while gas contributed 25% to 1998
revenues.
1998 COMPARED WITH 1997
WISCONSIN PUBLIC SERVICE CORPORATION OVERVIEW
Revenues at WPSC were $652.5 million in 1998 compared with
$690.5 million in 1997, a decrease of 5.5%. Earnings were $54.1 million in
1998 and $61.6 million in 1997, a decrease of 12.2%. The primary reasons for
the decrease in earnings at WPSC were the impact of unusually warm winter
weather, increased maintenance expenses, a decrease in other income, an
increase in other operating expenses, and a decrease in the gas margin.
Partially offsetting these factors were an increase in the electric utility
margin and a decrease in interest expense.
ELECTRIC UTILITY OPERATIONS
WPSC's electric utility margins increased $8.6 million, or 2.6%,
primarily due to increased kWh sales of 3.0% to WPSC customers as a result of
a 103.5% increase in cooling degree days in 1998. Partially offsetting the
increase in electric margins in 1998 was the impact of a PSCW rate order on
WPSC which was effective for the entire year in 1998 but was only effective in
1997 for the period after February 21, 1997. This order authorized an 8.1%
electric revenue reduction.
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WPSC Electric Margins (Thousands)
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1998 1997 1996
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Revenues $487,340 $479,388 $490,506
Fuel and purchased power 152,783 153,414 143,155
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Margin $334,557 $325,974 $347,351
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Sales in kWh (Thousands) 11,600,164 11,259,327 11,011,842
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Electric utility revenues increased $8.0 million, or 1.7%, largely due
to increased revenues of $4.8 million from WPSC's wholesale customers and
$1.5 million from WPSC's commercial and industrial customers as a result of
the warmer weather. Also included in 1998 electric revenues are surcharge
revenues at WPSC of $3.8 million related to the recovery of the deferred costs
for the 1997 Kewaunee steam generator repairs. Partially offsetting these
increases to revenues were the electric rate reduction and a $1.0 million
refund of WPSC's transmission revenues as the result of a FERC settlement
related to open access transmission tariff rates.
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Electric production fuel expense increased $2.9 million, or 2.7%,
primarily as a result of increased generation expense. Kewaunee was out of
service for the first six months of 1997 as the result of an extended outage
to repair steam generators, thus, in comparison, the higher generation expense
in 1998.
Purchased power expense decreased $3.5 million, or 7.7%, primarily due
to decreased purchase requirements in the first half of 1998. Purchase
requirements in the first half of 1997 were higher due to lack of production
at Kewaunee in the first and second quarters of 1997 as a result of an
extended outage. Also contributing to lower purchased power expense was a
$1.2 million credit to purchased power expense in the fourth quarter of 1998
related to the settlement of litigation involving a contract with a power
supplier.
The PSCW allows WPSC to pass changes in the cost of fuel and purchased
power, within a specified range, on to its customers through a fuel adjustment
clause.
GAS UTILITY OPERATIONS
WPSC's gas margin decreased $3.1 million in 1998, or 4.9%, primarily due
to a 19.4% reduction in heating degree days.
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WPSC Gas Margins (Thousands)
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1998 1997 1996
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Revenues $165,111 $211,090 $211,357
Purchase costs 104,608 147,493 149,388
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Margin $ 60,503 $ 63,597 $ 61,969
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Volume in therms (Thousands) 608,092 662,008 666,598
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Gas operating revenues decreased $46.0 million, or 21.8%. This decrease
was due to unusually mild weather in 1998 resulting in lower gas therm sales
for 1998 of 8.1%. Also contributing to the decrease in gas operating revenues
was a reduction in revenues of $7.5 million for refunds from ANR Pipeline
Company which WPSC passed on to its gas customers in the second quarter of
1998.
Gas purchase costs decreased $42.9 million, or 29.1%. This decrease was
due to reduced customer demand as a result of the mild weather during 1998.
Also contributing to the decrease in gas costs was a $7.5 million refund from
ANR Pipeline Company which was credited to gas expense in the second quarter
of 1998. Under current regulatory practice, the PSCW allows WPSC to pass
changes in the cost of gas on to customers through a PGAC.
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OTHER UTILITY EXPENSES/INCOME
Other operating expenses at WPSC increased $4.1 million, or 3.1%,
primarily due to higher benefit costs in 1998.
Maintenance expense increased $7.8 million, or 18.6%, primarily as a
result of increased expenses at Kewaunee during the second and fourth quarters
of 1998. This increase was partly due to the recognition in the second
quarter of 1998 of the 1997 deferred expenses for Kewaunee steam generator
repairs. The PSCW approved deferral of the repairs in 1997, the cost of which
has been collected in the second quarter of 1998 through a $3.8 million
electric revenue surcharge. In addition, maintenance expense at Kewaunee
increased in the fourth quarter of 1998 due to a scheduled refueling outage.
Depreciation and decommissioning expenses increased $2.4 million, or
3.1%, due to an increased plant base and to the accelerated recovery of
investment in Kewaunee and accelerated funding of Kewaunee decommissioning
costs. Accelerated recovery of investment and funding began on
February 21, 1997 and, therefore, was effective for all of 1998 but only a
portion of 1997.
Other income decreased $5.8 million, or 46.3%, primarily due to one-time
gains on sales of nonutility property which occurred in 1997. These gains
represented an increase in earnings for 1997 of approximately $0.11 per share.
1997 COMPARED WITH 1996
WISCONSIN PUBLIC SERVICE CORPORATION OVERVIEW
Revenues at WPSC were $690.5 million in 1997 compared with
$701.9 million in 1996, a decrease of 1.6%. Earnings were $61.6 million in
1997 and $57.3 million in 1996, an increase of 7.5%. The primary reasons for
the increase in earnings were a decrease in operating and maintenance
expenses, an increase in other income, and an increase in the gas utility
margin. Offsetting these factors were a decrease in the electric utility
margin, an increase in depreciation and decommissioning expense, and an
increase in income tax expense.
ELECTRIC UTILITY OPERATIONS
WPSC's electric utility margins decreased $21.4 million, or 6.2%,
primarily due to implementation of a PSCW rate order which authorized a
$35.5 million, or 8.1%, electric revenue reduction. A second factor
contributing to decreased margins was increased replacement power costs as a
result of an extended outage at Kewaunee. A surcharge authorized by the PSCW
partially offset increases in replacement power costs in the latter part of
the first quarter and in the second quarter of 1997.
In spite of a 27.6% decrease in cooling degree days, electric kWh sales
increased by 2.2% primarily due to increased demand by WPSC's commercial and
industrial customers. Commercial and industrial kWh sales increased 4.8%,
while wholesale kWh sales decreased 3.4%. Electric operating revenues
decreased $11.1 million, or 2.3%, primarily due to the electric rate decrease.
Electric production fuel expense increased $2.1 million, or 2.0%.
Nuclear fuel expense was $2.0 million lower than in 1996 due to decreased
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generation at Kewaunee in the first and second quarters of 1997 as a result of
an extended outage. Steam fuel expense was higher by $1.0 million and
combustion turbine generation expense was higher by $3.2 million due to
increased generation requirements from these sources during the extended
outage at Kewaunee.
Purchased power expense increased $8.1 million, or 21.6%, primarily due
to increased purchase requirements and higher costs of purchased power during
the extended outage at Kewaunee.
The PSCW allows WPSC to pass changes in the cost of fuel and purchased
power, within a specified range, on to its customers through a fuel adjustment
clause. WPSC is required to file an application to adjust rates either higher
or lower when costs are plus or minus 2% from forecasted costs on an annual
basis. The additional fuel costs in 1997 did not result in WPSC being outside
this 2% window.
GAS UTILITY OPERATIONS
WPSC's gas margin increased $1.4 million, or 2.2%, primarily due to the
implementation of a PSCW rate order which authorized a $5.7 million, or 2.7%,
increase in gas revenues.
Gas operating revenues remained relatively stable reflecting the rate
increase offset by a 5.5% reduction in heating degree days. Gas revenues also
reflect a one-time reduction of $0.9 million in the first quarter of 1997 as a
result of a PSCW directive to change the accounting treatment for previous
customer line extensions. This reduction represented a decrease of
approximately $.02 per share after income tax effects.
Gas purchase costs showed a net decrease of $1.6 million, or 1.1%,
primarily due to reduced purchases because of decreased demand as a result of
the reduction in heating degree days. The PSCW allows WPSC to pass changes in
the cost of gas on to customers through a PGAC.
OTHER UTILITY EXPENSES/INCOME
Other operating expenses decreased $24.1 million, or 15.2%. Cost saving
initiatives and decreased amortization of deferred demand-side management
expenditures resulted in lower customer service and sales expenses of
$9.5 million. Administrative expenses decreased $5.8 million due to cost
saving measures and reduced postretirement medical, dental, and other benefit
expenses. Generation operating expenses were lower by $7.3 million primarily
as a result of the completion in 1996 of an amortization of deferred expenses
related to a previous coal contract settlement. Gas operating expenses
decreased $1.5 million as the result of a PSCW directive requiring gas
servicing revenues and expenses to be classified as other income and
deductions beginning in 1997.
Maintenance expense decreased $7.1 million, or 14.5%. Electric
transmission and distribution expenses decreased $3.4 million as a result of
cost saving initiatives and less maintenance of overhead lines in 1997 due to
less storm damage. Maintenance expenses were $1.9 million lower at Kewaunee
in 1997 because Kewaunee was out of service in 1996 for scheduled maintenance.
Gas distribution expenses were lower by $0.9 million due to cost saving
initiatives and decreased maintenance activities. Steam costs decreased
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$0.6 million at WPSC's coal-fired plants due to changes in maintenance
schedules as a result of the extended outage at Kewaunee.
Depreciation and decommissioning expenses increased $12.0 million, or
18.8%, largely due to the accelerated recovery of investment in Kewaunee and
accelerated funding of Kewaunee decommissioning costs.
Other income increased $7.5 million, or 141.7%, primarily due to gains
in 1997 on the sale of nonutility property of $4.8 million which represented
an increase of approximately $.11 per share after income tax effects. Also
included in other income in 1997 was interest of $2.2 million resulting from
an income tax audit settlement. Income tax expense increased $1.9 million
reflecting higher net income in 1997.
BALANCE SHEET - WPSC
1998 COMPARED WITH 1997
Nuclear decommissioning trusts increased $37.3 million due to continued
funding and favorable investment returns. Construction in progress increased
$28.7 million largely as a result of construction expenditures related to the
Kewaunee steam generator replacement project, the combustion turbine project
at West Marinette, and the transmission line for the De Pere Energy Center
project.
Commercial paper increased $9.5 million due to increased operational
cash needs at WPSC. Cash requirements exceeded internally generated funds.
Accounts payable increased $14.2 million due to increased payables related to
the 1998 Kewaunee refueling outage and other construction projects, and other
long-term liabilities increased $20.2 million due to an increased liability
for postretirement health care and higher deposits from the joint owners of
Kewaunee as a result of the refueling outage.
FINANCIAL CONDITION - WPSC
INVESTMENTS AND FINANCING
WPSR made a $34.0 million equity infusion in WPSC during the second
quarter of 1998. WPSC retired $50.0 million of first-mortgage bonds on
July 1, 1998 and issued $50.0 million of senior notes secured by
first-mortgage bonds on December 14, 1998. A special common stock dividend of
$20.0 million was paid by WPSC to WPSR in December 1998. The special dividend
allowed WPSC's average equity capitalization ratio to remain at approximately
54%, the level approved by the PSCW for ratemaking.
Short-term borrowings increased $9.5 million during 1998 as a result of
cash requirements in excess of internally generated funds. Pretax interest
coverage was 4.48 times for the 12 months ended December 31, 1998. WPSC's
bond ratings are AA+ (Standard & Poor's and Duff & Phelps) and Aa2 (Moody's).
WPSC makes large investments in capital assets. Construction
expenditures for WPSC are expected to be approximately $250.0 million in the
aggregate for the 1999 through 2001 period. This includes expenditures for
the replacement of Kewaunee steam generators.
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In addition, other capital requirements for WPSC for the three-year
period include Kewaunee decommissioning trust fund contributions of
$16.8 million.
WPSC's agreement to purchase electricity from the De Pere Energy Center,
a gas-fired cogeneration facility, will be accounted for as a capital lease.
The De Pere Energy Center lease will be capitalized at $77.8 million in 1999.
At the same time, a capital lease obligation of the same amount will be
recorded which will affect WPSC's capital structure.
REGULATORY
WPSC received a rate order in the Wisconsin jurisdiction on January 15,
1999. The impact is a $26.9 million increase in electric revenues and a
$10.3 million increase in gas revenues on an annual basis. The new rates will
be effective for 1999 and 2000. The PSCW authorized a 12.1% return on WPSC
equity for 1999 and 2000.
KEWAUNEE
On September 29, 1998, WPSC and MG&E finalized an arrangement in which
WPSC will acquire MG&E's 17.8% share of Kewaunee. This agreement, the closing
of which is contingent upon regulatory approvals and steam generator
replacement scheduled for the spring of 2000, will give WPSC 59.0% ownership
in Kewaunee.
The arrangement provides that the book value of MG&E's share of Kewaunee
at the time of the transfer could be credited against the purchase price of a
planned 83-megawatt, natural gas-fired, combustion-turbine electric generating
station to be built near Marinette, Wisconsin. WPSC had previously agreed to
build this station for MG&E. If, for some reason, the Marinette station is
not completed, the arrangement calls for WPSC to pay for MG&E's share of
Kewaunee with a combination of cash and notes.
MG&E has agreed to retain certain of its obligations related to the
period of time that it had been an owner of Kewaunee. MG&E will effectively
transfer its nuclear decommissioning funds to WPSC to pay for MG&E's share of
the currently estimated decommissioning costs of the plant at the closing for
the asset swap. WPSC and Wisconsin Power and Light Company, the joint owners
of the plant after the described change in ownership, will be responsible for
the decommissioning of the plant.
YEAR 2000 COMPLIANCE
The Year 2000 issue arises because software programs, computer hardware,
and equipment that have date sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
may result in system failures or other disruptions of operations.
WPSC is committed to eliminating or minimizing adverse effects of the
Year 2000 computer compliance issue on its business operations, including the
products and services provided to customers, and to maintaining WPSC's
reputation as an efficient and reliable supplier of energy. WPSC, however, is
unable to guarantee that there will be no adverse effects as a result of the
Year 2000 computer compliance issue because many aspects of compliance are
beyond WPSC's direct control.
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WPSC has undertaken a program to assess Year 2000 compliance and to
bring computer systems into compliance by the year 2000. All systems,
including energy production and delivery systems, other embedded systems, and
third party systems of suppliers are being evaluated to identify and resolve
potential problems.
A Year 2000 project plan which includes awareness, inventory and
assessment, remediation, testing, and implementation has been developed. The
formal awareness phase of the Year 2000 project which includes understanding
and communication of the issue to employees, customers, suppliers, and other
affected parties has essentially been completed. The Year 2000 issue has been
communicated to WPSC employees and customers via several media. All WPSC
business unit leaders have been made aware of the Year 2000 project plan and
their roles in implementing the plan. Communication and response to Year 2000
inquiries continue.
The inventory and assessment phase which includes identification of all
information and non-information technology systems and of non-compliant
systems, applications, and hardware, has been completed. Action plans for
remediation, which include modifications to bring systems into compliance, and
action plans for testing including validation of compliance have been
completed.
Modifications of major in-house supported systems to correct Year 2000
problems have been underway since 1996. WPSC's Information Technology
Department has identified five major systems. All of these systems (customer
information, finance, human resources, materials management, and facility
management) are currently Year 2000 compliant.
In addition, non-information technology systems have been identified and
ranked as to the risk posed by non-compliance. Non-information technology
systems include computer and embedded systems related to WPSC's power plant
operating, system operating, hydraulic, transmission, and other operating
functions. All systems ranked as "critical," "severe," or "high" are
scheduled to be Year 2000 compliant by the end of the first quarter of 1999.
WPSC has hired an external consulting group to monitor the progress of
its Year 2000 compliance activities. The consulting group's responsibilities
include performing a status check on WPSC's ability to achieve Year 2000
compliance.
In addition, WPSC is identifying, contacting, and assessing suppliers
and other business partners for Year 2000 readiness, as these external parties
may have the potential to impact WPSC's Year 2000 readiness. WPSC is also
working to address Year 2000 issues related to all joint ownership facilities.
At the present time, WPSC is not aware of problems that would materially
impact the company's operations. However, WPSC has no means of ensuring that
all third parties will be Year 2000 compliant in a timely manner, and the
inability of these parties to successfully resolve their Year 2000 issues
could have a material impact on company operations.
Due to fewer expenditures for hardware and software than originally
anticipated, the estimate of total Year 2000 project costs has been reduced to
$9.0 million. This estimate is considered reasonable and has been approved
for rate recovery by the PSCW. This estimate includes internal labor costs of
$4.5 million, software replacement costs for non-compliant products of
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$2.0 million, and contract labor costs of $2.5 million. Expenditures for the
Year 2000 project incurred through December 31, 1998, are $2.2 million. Major
expenditures for hardware, software, and other equipment were made in the
fourth quarter of 1998 and additional expenditures will be made in the first
quarter of 1999.
The failure to correct a material Year 2000 problem could result in an
interruption in, or the failure of, certain normal business activities or
operations which could materially affect WPSC's results of operations.
However, due to the general uncertainty inherent in the Year 2000 issue, WPSC
is unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on operations. A preliminary
identification of potential risks related to the failure to be in compliance
by the Year 2000 has been made. A better understanding of actual risks will
be developed during the remediation, testing, and contingency planning
processes. The development of WPSC's contingency planning process is intended
to minimize the problems associated with these risks.
WPSC is assessing the potential impact of failure to achieve Year 2000
compliance with respect to each of the following:
- Generation availability
- System monitoring and control functions
- Ability to restart generators that are out of service for planned or
unplanned outages
- Company-owned voice/data communications
- Transmission facilities
- System protection
- Critical operating data (i.e., generation plant data)
- Electric and gas distribution systems
- Pipelines' constraints to the supply or pressure of natural gas
- Major support systems
Contingency plans for dealing with Year 2000 issues will be developed by
April 1999 for each application that has been identified as "critical" or
"severe." In addition, a proposal for a "quick response team" concept has
been drafted, and a process for handling unexpected Year 2000 problems will be
formalized in early 1999. A most reasonably likely worst case Year 2000
scenario will be identified and addressed by a crisis management team in early
1999. The team plans to conduct a crisis management drill using a Year 2000
scenario.
TRENDS - WPSC
ACCOUNTING STANDARDS
WPSC follows SFAS No. 71, "Accounting for the Effects of Certain Types
of Regulation," and its financial statements reflect the effects of the
different ratemaking principles followed by the various jurisdictions
regulating the utility. For WPSC these include the PSCW, 89% of revenues; the
MPSC, 3% of revenues; and the FERC, 8% of revenues. In addition, Kewaunee is
regulated by the Nuclear Regulatory Commission. Environmental matters are
primarily governed by the United States Environmental Protection Agency and
the Wisconsin Department of Natural Resources.
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In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires all derivatives to be measured at fair value and recognized
as either assets or liabilities in the statement of financial position. The
accounting for changes in the fair value of a derivative is dependent upon the
use of the derivative and its resulting designation. Unless specific hedge
accounting criteria are met, changes in the derivative's fair value must be
recognized currently in earnings. This statement is effective for fiscal
periods beginning after June 15, 1999. WPSC will be adopting the requirements
of this statement on January 1, 2000, and has not yet determined the method of
adoption or its impact. However, the requirements of this statement could
increase volatility in earnings and other comprehensive income.
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use."
This statement requires the capitalization of certain costs related to
software developed or obtained for internal use. The statement is effective
for periods beginning after December 15, 1998. WPSC will be adopting the
requirements of this statement in January 1999. While the total impact of
WPSC's adoption of this statement has not been determined, WPSC's adoption of
this statement is expected to result in a reduction in operating expenses
which will be considered in the ratemaking process. The capitalized software
costs will then be charged to amortization expense in future years.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting
on the Costs of Start-up Activities." This statement provides guidance on the
financial reporting of start-up costs and organization costs. Costs of
start-up activities and organization costs are required to be expensed as
incurred. The statement is effective for periods beginning after December 15,
1998. WPSC will be adopting the requirements of this statement in 1999 and
does not anticipate any material impact to its financial statements.
UTILITY RESTRUCTURING
Electric reliability issues have replaced restructuring and retail
competition issues in Wisconsin, and the PSCW announced that its first
priority is to develop the utility infrastructure necessary to assure reliable
electric service and to remove the barriers to competition at the wholesale
level. In 1998, the PSCW and the major utilities in Wisconsin, including
WPSC, made legislative proposals to address reliability and restructuring
concerns, including market power, among other issues. This resulted in the
Electric Reliability Bill (1997 Wis. Laws 204) ("Act 204"). Act 204 contains
provisions which relate to the planning and approval by the PSCW of electric
power generation and transmission facilities, the regional management of the
transmission system, new electric power generation, including the ownership
and operation of wholesale merchant plants, new electric power transmission
facilities, out-of-state retail electric sales, service standards for electric
generation, transmission, and distribution facilities, and the allowable
assets of public utility holding companies.
On June 5, 1997, the MPSC ordered utilities under its jurisdiction to
file electric open access plans and related tariffs. The MPSC order called
for generation open access in increments of 2.5% of retail load each year
starting in 1997 and ending in 2001. The MPSC order requires full generation
open access for retail load in 2002. WPSC submitted a plan which provides
retail open access starting in 2000 when the MPSC order requires open access
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for 10% of retail load. The plan then continues on the MPSC schedule
including full open access in 2002.
Should electric deregulation occur such that WPSC would no longer
qualify to reflect the effects of ratemaking under SFAS No. 71 in its
financial statements, no impairment of significant recorded assets or
reduction in reported equity is anticipated. WPSC does not have any
significant assets which are foreseen as being potentially stranded and no
potential disparity between the depreciable lives of capital assets and those
lives applicable to a competitive environment has been identified. Increased
competition is likely to put pressure on electric utility margins. At this
time, however, management cannot predict the ultimate results of deregulation.
Part of electric utility restructuring involves establishing ISOs. An
ISO is an independent third party which oversees the operations of
transmission facilities, administers open access transmission tariffs, and
directs power dispatch. WPSC is working with several groups which are
attempting to form ISOs.
Both the PSCW and the MPSC continue to review gas industry
restructuring. In a current docket, the PSCW is addressing gas restructuring
issues including unbundling of rates, pricing of contracted services in
potential utility bypass situations, and the separation of gas utilities from
their nonregulated gas marketing affiliates. The MPSC is conducting pilot
studies to test the development of competitive retail gas markets in Michigan.
WPSC has historically recovered gas costs through a PGAC. The PSCW has
recently allowed utilities to select either an incentive gas cost recovery
mechanism or a modified one-for-one mechanism for gas cost recovery. WPSC has
selected the modified one-for-one gas cost recovery plan and implementation of
the new mechanism, which is similar to the recovery received under the
existing PGAC, began in January 1999.
ENVIRONMENTAL
WPSC continues to investigate the environmental cleanup of eight
manufactured gas plant sites. The cleanup of WPSC's Stevens Point
manufactured gas plant site has been substantially completed with monitoring
of the site continuing. Costs of this cleanup were within the range expected
for this site. Future investigation and cleanup costs for the remaining seven
sites is estimated to be in the range of $33.9 million to $41.0 million.
These estimates may be adjusted in the future contingent upon remedial
technology, regulatory requirements, and experience gained through cleanup
activities.
An initial liability for cleanup of $41.7 million had been established
with an offsetting regulatory asset (deferred charge). Of this amount,
approximately $2.7 million has been spent to date. Management believes that
cleanup costs net of insurance recoveries, but not the carrying costs
associated with the cleanup expenditures, will be recoverable in current and
future customer rates. WPSC has received $12.6 million in insurance
recoveries which have been recorded as a reduction in the regulatory asset.
WPSC is in compliance with both the Phase I and II sulfur dioxide and
nitrogen oxide emission limits established by the Federal Clean Air Act
Amendments of 1990. Additional capital expenditures of $1.0 million to
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$2.0 million are projected through 1999 for Wisconsin and federal air quality
compliance. Management believes that all costs incurred for additional
compliance will be recoverable in future customer rates.
In late September 1998, the EPA required certain states, including
Wisconsin to develop plans to reduce the emissions of NOx from sources within
the state by late 2003. On a preliminary basis, WPSC projects potential
capital costs of between $37.0 million and $96.0 million to comply with
possible future regulations. The cumulative incremental annual operating and
maintenance expense associated with these possible future regulations
projected to be incurred by 2010 range from $29.0 million to $106.0 million.
The costs will depend on the state-specific compliance method to be adopted in
the future as well as the effectiveness of the various technologies available
for NOx emission control. Under WPSC's current practice, the capital costs
(as reflected in depreciation expenses) and the annual operating costs are
anticipated to be recovered through future customer rates.
On December 24, 1998, WPSC joined other parties in a petition
challenging the EPA's regulations that require Wisconsin to prepare and submit
a NOx implementation plan. On January 22, 1999, the State of Wisconsin
intervened in the litigation and challenged the geographic scope of the rule
and the required timing for implementation of NOx controls within the state.
No decisions have yet been rendered.
KEWAUNEE
On September 29, 1998, WPSC and MG&E finalized an arrangement in which
WPSC will acquire MG&E's 17.8% share of Kewaunee. This agreement, the closing
of which is contingent upon regulatory approval and steam generator
replacement scheduled for the spring of 2000, will give WPSC 59.0% ownership
in Kewaunee.
On October 17, 1998, Kewaunee was shut down for a planned maintenance
and refueling outage. Inspection of the plant's two steam generators showed
that the repairs made in 1997 were holding up well and few additional repairs
were needed. In addition to the inspection and repair of the steam
generators, a major overhaul was performed on the main turbine generator. The
plant was back in operation on November 27, 1998.
IMPACT OF INFLATION - WPSC
WPSC's current financial statements are prepared in accordance with
generally accepted accounting principles and report operating results in terms
of historic cost. They provide a reasonable, objective, and quantifiable
statement of financial results; but they do not evaluate the impact of
inflation. Under rate treatment prescribed by utility regulatory commissions,
WPSC's projected operating costs are recoverable in revenues. Because
forecasts are prepared assuming inflation, the majority of inflationary
effects on normal operating costs are recoverable in rates. However, in these
forecasts, WPSC is only allowed to recover the historic cost of plant via
depreciation.
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<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WPS RESOURCES CORPORATION
A. CONSOLIDATED STATEMENTS OF INCOME,
COMPREHENSIVE INCOME, AND RETAINED EARNINGS (1)
<CAPTION>
=================================================================================================
Year Ended December 31 (Thousands, except share amounts) 1998 1997 1996
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<S> <C> <C> <C>
Operating revenues
Electric utility $ 543,260 $536,885 $548,701
Gas utility 165,111 211,090 211,357
Nonregulated energy and other 355,365 187,862 156,391
- -------------------------------------------------------------------------------------------------
Total operating revenues 1,063,736 935,837 916,449
=================================================================================================
Operating expenses
Electric production fuels 110,809 107,988 105,449
Purchased power 56,447 63,947 55,844
Gas purchased for resale 105,908 147,755 149,388
Nonregulated energy cost of sales 346,663 182,863 155,133
Other operating expenses 172,876 165,982 183,768
Maintenance 52,813 44,325 51,782
Depreciation and decommissioning 86,274 83,441 70,762
Taxes other than income 31,902 31,375 31,671
- -------------------------------------------------------------------------------------------------
Total operating expenses 963,692 827,676 803,797
=================================================================================================
Operating income 100,044 108,161 112,652
- -------------------------------------------------------------------------------------------------
Other income and (deductions)
Allowance for equity funds used during construction 173 154 255
Other, net 2,505 11,952 (903)
- -------------------------------------------------------------------------------------------------
Total other income and (deductions) 2,678 12,106 (648)
=================================================================================================
Income before interest expense 102,722 120,267 112,004
- -------------------------------------------------------------------------------------------------
Interest on long-term debt 23,987 26,273 25,494
Other interest 4,827 4,910 3,922
Allowance for borrowed funds used during construction (177) (167) (299)
- -------------------------------------------------------------------------------------------------
Total interest expense 28,637 31,016 29,117
=================================================================================================
Distributions - preferred securities of subsidiary trust 1,488 - -
=================================================================================================
Income before income taxes 72,597 89,251 82,887
Income taxes 23,445 31,106 27,216
Minority interest (611) (797) (348)
Preferred stock dividends of subsidiaries 3,132 3,133 3,134
- -------------------------------------------------------------------------------------------------
Net income 46,631 55,809 52,885
=================================================================================================
Other comprehensive income - - -
=================================================================================================
Comprehensive income 46,631 55,809 52,885
=================================================================================================
Retained earnings at beginning of year 339,508 333,375 329,150
Cash dividends on common stock (50,985) (49,676) (48,660)
- -------------------------------------------------------------------------------------------------
Retained earnings at end of year $ 335,154 $339,508 $333,375
=================================================================================================
Average shares of common stock 26,511 26,527 26,545
Basic and diluted earnings per average share
of common stock $1.76 $2.10 $1.99
Dividend per share of common stock (2) 1.96 1.92 1.88
=================================================================================================
</TABLE>
(1) These statements give effect to the merger with Upper Peninsula
Energy Corporation.
(2) Dividend rates are those of WPS Resources Corporation.
The accompanying notes are an integral part of these statements.
-78-
<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WPS RESOURCES CORPORATION
B. CONSOLIDATED BALANCE SHEETS (1)
<CAPTION>
============================================================================================
Assets
- --------------------------------------------------------------------------------------------
At December 31 (Thousands) 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Utility plant
Electric $1,715,882 $1,685,413
Gas 267,892 251,603
- --------------------------------------------------------------------------------------------
Total 1,983,774 1,937,016
Less - Accumulated depreciation and decommissioning 1,206,123 1,113,142
- --------------------------------------------------------------------------------------------
Total 777,651 823,874
Nuclear decommissioning trusts 171,442 134,108
Construction in progress 42,424 11,776
Nuclear fuel, less accumulated amortization 18,641 19,062
- --------------------------------------------------------------------------------------------
Net utility plant 1,010,158 988,820
============================================================================================
Current assets
Cash and equivalents 7,134 8,495
Customer and other receivables, net of reserves 117,206 96,100
Accrued utility revenues 34,175 30,750
Fossil fuel, at average cost 13,152 10,622
Gas in storage, at average cost 20,795 22,080
Materials and supplies, at average cost 21,788 20,761
Prepayments and other 26,462 24,645
- --------------------------------------------------------------------------------------------
Total current assets 240,712 213,453
============================================================================================
Regulatory assets 70,041 79,849
Net nonutility and nonregulated plant 41,235 28,188
Pension assets 60,018 55,790
Investments and other assets 88,223 69,704
============================================================================================
Total $1,510,387 $1,435,804
============================================================================================
</TABLE>
(1) These statements give effect to the merger with Upper Peninsula
Energy Corporation.
-79-
<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WPS RESOURCES CORPORATION
B. CONSOLIDATED BALANCE SHEETS CONTINUED (1)
<CAPTION>
============================================================================================
Capitalization and Liabilities
- --------------------------------------------------------------------------------------------
At December 31 (Thousands) 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Capitalization
Common stock equity $ 517,190 $ 518,764
Preferred stock of subsidiary with no mandatory redemption 51,200 51,200
Preferred stock of subsidiary with mandatory redemption - 445
Company-obligated mandatorily redeemable trust preferred
securities of subsidiary trust holding solely WPSR
7.00% subordinated debentures 50,000 -
Long-term debt 343,037 347,015
- --------------------------------------------------------------------------------------------
Total capitalization 961,427 917,424
============================================================================================
Current liabilities
Long-term debt due within one year 884 260
Notes payable 12,703 19,500
Commercial paper 47,590 20,706
Accounts payable 115,490 89,747
Accrued taxes 2,838 10,114
Accrued interest 7,594 8,711
Other 9,095 12,415
- --------------------------------------------------------------------------------------------
Total current liabilities 196,194 161,453
============================================================================================
Long-term liabilities and deferred credits
Accumulated deferred income taxes 122,642 131,197
Accumulated deferred investment tax credits 27,150 29,461
Regulatory liabilities 50,474 56,487
Environmental remediation liabilities 40,478 40,848
Other long-term liabilities 112,022 98,934
- --------------------------------------------------------------------------------------------
Total long-term liabilities and deferred credits 352,766 356,927
============================================================================================
Commitments and contingencies (See Note 10) - -
============================================================================================
Total $1,510,387 $1,435,804
============================================================================================
</TABLE>
(1) These statements give effect to the merger with Upper Peninsula
Energy Corporation.
The accompanying notes are an integral part of these statements.
-80-
<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WPS RESOURCES CORPORATION
C. CONSOLIDATED STATEMENTS OF CAPITALIZATION (1)
<CAPTION>
=================================================================================================
At December 31 (Thousands, except share amounts) 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock equity
Common stock, $1 par value, 100,000,000 shares authorized;
26,551,405 shares outstanding $ 26,551 $ 26,551
Premium on capital stock 163,438 163,454
Retained earnings 335,154 339,508
Shares in deferred compensation trust, 49,477 and 33,430 shares
at an average cost of $30.42 and $28.44 per
share at December 31, 1998 and 1997, respectively (1,505) (951)
ESOP loan guarantees (6,448) (9,798)
- -------------------------------------------------------------------------------------------------
Total common stock equity 517,190 518,764
=================================================================================================
Preferred stock - Wisconsin Public Service Corporation
Cumulative, $100 par value, 1,000,000 shares authorized;
with no mandatory redemption
Series Shares Outstanding
------ ------------------
5.00% 132,000 13,200 13,200
5.04% 30,000 3,000 3,000
5.08% 50,000 5,000 5,000
6.76% 150,000 15,000 15,000
6.88% 150,000 15,000 15,000
- -------------------------------------------------------------------------------------------------
Total preferred stock of subsidiary with no mandatory redemption 51,200 51,200
=================================================================================================
Preferred stock - Upper Peninsula Power Company
Cumulative redeemable, $100 par value,
300,000 shares authorized (issuable in series),
issued and outstanding
Shares Outstanding
--------------------------------
Series 1998 1997
------ ---- ----
5.25% - 853 - 85
4.70% - 3,600 - 360
- -------------------------------------------------------------------------------------------------
Total preferred stock of subsidiary with mandatory redemption - 445
=================================================================================================
Company-obligated mandatorily redeemable trust
preferred securities of subsidiary trust
holding solely WPSR 7.00% subordinated debentures 50,000 -
=================================================================================================
Long-term debt
First mortgage bonds - Wisconsin Public Service Corporation
Series Year Due
------ --------
5-1/4% 1998 - 50,000
7.30% 2002 50,000 50,000
6.80% 2003 50,000 50,000
6-1/8% 2005 9,075 9,075
6.90% 2013 22,000 22,000
8.80% 2021 53,100 53,100
7-1/8% 2023 50,000 50,000
6.08% 2028 50,000 -
First mortgage bonds - Upper Peninsula Power Company
Series Year Due
------ --------
7.94% 2003 15,000 15,000
10.0% 2008 6,000 6,000
9.32% 2021 18,000 18,000
Installment sales contract for air pollution control
equipment - Upper Peninsula Power Company
Term Bonds Year Due
---------- --------
6.90% 1999 120 230
- -------------------------------------------------------------------------------------------------
Total 323,295 323,405
Unamortized discount and premium on bonds, net (817) (890)
- -------------------------------------------------------------------------------------------------
Total first mortgage bonds 322,478 322,515
- -------------------------------------------------------------------------------------------------
ESOP loan guarantees 6,448 9,798
Notes payable to bank, secured by nonregulated plant 10,943 10,710
Senior secured note 3,886 4,037
Other long-term debt 166 215
- -------------------------------------------------------------------------------------------------
Total long-term debt 343,921 347,275
Less amounts due within one year (884) (260)
- -------------------------------------------------------------------------------------------------
Net long-term debt 343,037 347,015
=================================================================================================
Total capitalization $961,427 $917,424
=================================================================================================
</TABLE>
(1) These statements give effect to the merger with Upper Peninsula
Energy Corporation.
The accompanying notes are an integral part of these statements.
-81-
<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WPS RESOURCES CORPORATION
D. CONSOLIDATED STATEMENTS OF CASH FLOWS (1)
<CAPTION>
=================================================================================================
Year Ended December 31 (Thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 46,631 $ 55,809 $ 52,885
Adjustments to reconcile net income to net cash from
operating activities
Depreciation and decommissioning 86,274 83,441 70,762
Amortization of nuclear fuel and other 16,257 14,665 28,691
Deferred income taxes (11,940) (6,220) (7,579)
Investment tax credit restored (2,311) (1,949) (1,961)
Allowance for equity funds used during construction (173) (154) (255)
Pension income (9,669) (12,548) (12,953)
Postretirement liability 4,491 6,424 8,047
Other, net (9,220) (7,535) 5,329
Changes in
Customer and other receivables (21,106) 17,343 (27,316)
Accrued utility revenues (3,425) 4,636 2,200
Fossil fuel inventory (2,530) (2,112) 477
Gas in storage 1,285 (2,093) (9,911)
Accounts payable 25,743 (10,794) 30,184
Accrued taxes (7,276) 1,937 (594)
Environmental remediation insurance recovery - 12,374 200
Miscellaneous current and accrued liabilities (4,004) (3,373) (4,352)
Gas refunds 684 (318) (6,175)
- -------------------------------------------------------------------------------------------------
Net cash from operating activities 109,711 149,533 127,679
=================================================================================================
Cash flows from (used for) investing activities
Construction of utility plant and nuclear fuel
expenditures (94,734) (58,258) (84,750)
Purchase of other property and equipment (16,075) (8,057) (29,441)
Decommissioning funding (17,239) (16,059) (8,978)
Purchase of investments and acquisitions - - (728)
Other 4,046 5,086 (270)
- -------------------------------------------------------------------------------------------------
Net cash used for investing activities (124,002) (77,288) (124,167)
=================================================================================================
Cash flows from (used for) financing activities
Issuance of long-term debt 50,233 1,789 15,296
Redemption of long-term debt (53,660) - (6,900)
Issuance of notes payable 196,353 97,260 145,525
Redemption of notes payable (203,150) (109,360) (129,625)
Issuance of mandatorily redeemable trust
preferred securities 50,000 - -
Issuance of commercial paper 2,157,808 700,540 345,339
Redemption of commercial paper (2,130,924) (711,184) (325,489)
Cash dividends on common stock (50,985) (49,698) (48,683)
Other (2,745) (1,139) (715)
- -------------------------------------------------------------------------------------------------
Net cash from (used for) financing activities 12,930 (71,792) (5,252)
=================================================================================================
Net increase (decrease) in cash and equivalents (1,361) 453 (1,740)
=================================================================================================
Cash and equivalents at beginning of year 8,495 8,042 9,782
=================================================================================================
Cash and equivalents at end of year $ 7,134 $ 8,495 $ 8,042
=================================================================================================
Cash paid during year for
Interest, less amount capitalized $ 26,879 $ 26,669 $ 26,146
Income taxes 44,553 37,366 34,210
Preferred stock dividends of subsidiary 3,132 3,133 3,134
=================================================================================================
</TABLE>
(1) These statements give effect to the merger with Upper Peninsula
Energy Corporation.
The accompanying notes are an integral part of these statements.
-82-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WPS RESOURCES CORPORATION AND
WISCONSIN PUBLIC SERVICE CORPORATION
E. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF OPERATIONS--WPS Resources Corporation ("WPSR") is a
holding company. Approximately 67% of WPSR's 1998 revenues, 92%
of WPSR's assets, and all of its 1998 net income were derived from
WPSR's utility subsidiaries. WPSR's primary wholly-owned
subsidiary, Wisconsin Public Service Corporation ("WPSC"), is an
electric and gas utility engaged in the supply and distribution of
electric power and natural gas in its franchised service
territory. WPSR's other wholly-owned utility subsidiary,
Upper Peninsula Power Company ("UPPCO"), is an electric utility
engaged in the supply and distribution of electric energy in the
Upper Peninsula of Michigan. WPSR also provides gas and electric
marketing and energy-related services in nonregulated markets
through its wholly-owned subsidiary, WPS Energy Services, Inc.
("ESI"). WPS Power Development, Inc. ("PDI"), another
wholly-owned subsidiary of WPSR, participates in the development
of electric generation projects, provides service to the electric
power generation industry, and owns a two-thirds interest in a
merchant generating plant, the Stoneman Power Plant ("Stoneman").
PDI also has signed agreements to purchase hydro, steam, and
diesel generation facilities from Maine Public Service Company
pending approval by the Maine Public Service Commission. WPSR's
other nonregulated subsidiaries include Upper Peninsula Building
Development Company and Penvest, Inc. In January 1999, WPSR
formed a new subsidiary, WPS Resources Capital Corporation, which
will obtain the financing for most nonregulated projects.
Effective September 29, 1998, Upper Peninsula Energy Corporation
("UPEN") merged with and into WPSR, and UPPCO, UPEN's major
subsidiary, became a wholly-owned subsidiary of WPSR. The
consolidated financial statements have been restated to give
effect to the merger as if the companies had been combined in the
earliest period presented. See Note 12 for additional information
related to the merger.
The term "utility" refers to the regulated activities of WPSC and
UPPCO, while the term "nonutility" refers to the activities of
WPSC and UPPCO which are not regulated. The term "nonregulated"
refers to activities other than those of WPSC and UPPCO.
(b) USE OF ESTIMATES--The preparation of WPSR's financial statements
is in conformity with generally accepted accounting principles.
Management may make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
-83-
<PAGE>
during the reporting period. Actual results could differ from
those estimates.
(c) ACQUISITIONS AND NONREGULATED INVESTMENTS--At ESI, the price paid
in excess of the fair value of identifiable assets acquired in
1995 is being amortized over a five-year period.
(d) CONSOLIDATION--WPSR consolidates all majority-owned subsidiaries.
All significant intercompany transactions and accounts have been
eliminated.
(e) PRICE RISK MANAGEMENT ACTIVITIES--WPSR has not experienced
significant price risk activities at its utility operations which
are not recoverable through customer rates, however, price risk is
experienced at ESI.
ESI utilizes derivative financial and commodity instruments
("derivatives"), including futures and forward contracts, to
reduce market risk associated with fluctuations in the price of
natural gas and electricity sold under firm commitments with
certain of its customers. ESI also utilizes derivatives,
including price swap agreements, call and put option contracts,
and futures and forward contracts, to manage market risk
associated with a portion of its anticipated supply requirements.
In addition, ESI utilizes derivatives, within specified
guidelines, for trading purposes.
Gains or losses on derivatives associated with firm commitments
are recognized as adjustments to the cost of sales or to revenues
when the related transactions affect earnings. Gains and losses
on derivatives associated with forecasted transactions are
recognized when such forecasted transactions affect earnings. At
December 31, 1998, $7.2 million in losses related to firm
commitments and forecasted transactions were deferred. If it is
no longer probable that a forecasted transaction will occur, any
gain or loss on the derivative instrument as of such date is
immediately recognized in earnings. Derivatives for trading
purposes are marked to market each accounting period, and gains
and losses are recognized as a component of other income at that
time. In 1998 and 1997, trading losses of $6.1 million and
$1.4 million, respectively, were recognized.
At December 31, 1998, ESI had outstanding 22.0 million notional
dekatherms of natural gas under futures and option agreements and
1.3 million notional dekatherms of natural gas under basis swap
agreements for purposes of managing market risk. The financial
instruments outstanding at December 31, 1998 expire at various
times through August 2000. ESI has certain gas sales commitments
through August 2000 with a range of sale prices from $2.36 to
$2.38 per dekatherm and a range of associated gas purchase costs
of $2.29 to $2.31 per dekatherm.
As of December 31, 1998, the fair value of trading instruments
included assets of $0.7 million. Except for a minimal level of
electric trading instruments, financial instruments used for
trading in 1998 and 1997 were natural gas derivatives. At
-84-
<PAGE>
December 31, 1998, ESI had outstanding 13.6 million notional
dekatherms of natural gas under futures and option agreements and
1.6 million notional dekatherms of natural gas under basis swap
agreements for trading purposes.
(f) UTILITY PLANT--Utility plant is stated at the original cost of
construction which includes an allowance for funds used during
construction ("AFUDC"). Approximately 50% of WPSC's retail
jurisdictional construction work in progress ("CWIP") expenditures
are subject to AFUDC using a rate based on WPSC's overall cost of
capital. Major new generating facilities earn AFUDC on total CWIP
expenditures. For 1998, WPSC's AFUDC retail rate was
approximately 10.4%.
AFUDC is recorded on WPSC's wholesale jurisdictional electric CWIP
at debt and equity percentages specified in the Federal Energy
Regulatory Commission ("FERC") Uniform System of Accounts. For
1998, WPSC's AFUDC wholesale rate was approximately 5.5%.
UPPCO has not had significant construction projects in recent
years and, therefore, has not capitalized AFUDC.
Substantially all of WPSC's and UPPCO's utility plant assets are
subject to first mortgage liens.
(g) PROPERTY ADDITIONS, MAINTENANCE, AND RETIREMENTS OF UTILITY
PLANT--The cost of renewals and betterments of units of property
(as distinguished from minor items of property) is capitalized as
an addition to the utility plant accounts. Except for land, no
gain or loss is recognized in connection with ordinary retirements
of utility property units. The cost of units of property retired,
sold, or otherwise disposed of, plus removal cost, less salvage,
are charged to the accumulated provision for depreciation.
Maintenance and repair costs and replacement and renewal costs
associated with items not qualifying as units of property are
generally charged to operating expense.
Nonutility property and nonregulated property follow a similar
policy except that gains and losses are recognized in connection
with retirements.
(h) DEPRECIATION--Straight-line composite depreciation expense is
recorded over the estimated useful life of utility property and
includes estimated salvage and cost of removal. Except for the
Kewaunee Nuclear Power Plant ("Kewaunee"), WPSC's rates approved
by the Public Service Commission of Wisconsin ("PSCW") on
January 1, 1994, and by the Michigan Public Service Commission
("MPSC") on January 1, 1994 remained in effect through 1998. New
rates have been approved by the PSCW to be effective January 1,
1999. The estimated effect of the new rates on 1999 depreciation
expense is a decrease of approximately $1.0 million.
UPPCO's depreciation rates approved by the MPSC on January 1, 1994
remain in effect through 2001. A new depreciation study will be
filed with the MPSC in late 2000, with new rates effective
January 1, 2002.
-85-
<PAGE>
Depreciation expense includes accruals for nuclear decommissioning
which are not included in the annual composite rates shown below.
An explanation of this item is included in Note 1(k).
============================================================
WPSR 1998 1997 1996
------------------------------------------------------------
Annual composite
depreciation rates
Electric 3.57% 3.55% 3.36%
Gas 3.26% 3.26% 3.35%
============================================================
WPSC
------------------------------------------------------------
Annual composite
depreciation rates
Electric 3.55% 3.52% 3.33%
Gas 3.26% 3.26% 3.35%
============================================================
Nonutility property and nonregulated property are depreciated
using straight-line depreciation. Most assets have depreciation
lives ranging from five to ten years.
Property at Stoneman is depreciated using various lives, certain
of which are as long as 40 years.
Depreciation for Kewaunee is presently being accrued based on a
1997 PSCW order allowing for full cost recovery of the remaining
unrecovered investment in Kewaunee by the end of 2002. The PSCW
depreciation rate order authorizing new rates for 1999 also
includes a change in methodology for recovery of Kewaunee
investment after new steam generators have been installed,
estimated to be mid-year 2000. At that time, the unrecovered
basis of Kewaunee, including the new steam generators, will be
recovered over an 8.5 year remaining life through 2008 using the
sum-of-the-years depreciation method.
(i) IMPAIRMENT--WPSR follows the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment
whenever circumstances indicate that the carrying amount of an
asset may not be recoverable. Impairment losses resulting from
application of this statement are reported in income in the period
in which the recognition criteria are first applied and met. This
statement does not have a material impact on the current carrying
amount of WPSR's assets.
(j) NUCLEAR FUEL--The cost of nuclear fuel is amortized to electric
production fuel expense based on the quantity of heat produced for
the generation of electric energy by Kewaunee. Costs amortized to
electric fuel expense (which assume no salvage values for uranium
and plutonium) include an amount for ultimate disposal and are
recovered through current customer rates. As required by the
-86-
<PAGE>
Nuclear Waste Policy Act of 1982, a contract has been signed with
the United States Department of Energy ("DOE") for the ultimate
storage of the fuel; and quarterly payments, based on generation,
are made to the DOE for fuel storage. Interim storage space for
spent nuclear fuel is provided at Kewaunee, and expenses
associated with this storage are recognized as current operating
costs. Currently, there is on-site storage capacity for spent
fuel through the year 2013. As of December 31, 1998 and 1997, the
accumulated provisions for nuclear fuel totaled $156.6 million and
$151.2 million, respectively.
(k) NUCLEAR DECOMMISSIONING--Nuclear decommissioning costs to date
have been accrued over the estimated service life of Kewaunee,
recovered currently from customers in rates, and deposited in
external trusts. Such costs totaled $17.2 million in 1998,
$16.1 million in 1997, and $9.0 million in 1996. The increase in
1997 was the result of the PSCW's approval of the acceleration of
Kewaunee depreciation and decommissioning funding as described in
Note 1(h).
Based on the standard cost escalation assumptions required by a
July 1994 PSCW order, the undiscounted amount of WPSC's
decommissioning costs forecasted to be expended between the years
2003 and 2039 is $614.0 million under the revised funding plan
which became effective in 1997. In developing the funding plan, a
long-term after-tax earnings rate of approximately 5.5% was
assumed.
WPSC's share of Kewaunee decommissioning is estimated to be
$192.6 million in current dollars based on a site-specific study.
The study, which was performed in 1992, uses immediate
dismantlement as the method of decommissioning beginning after a
dormant period extending from 2002 until 2015. As of December 31,
1998, the market value of the external nuclear decommissioning
trusts totaled $171.4 million. A new site-specific study, which
assumed shutdown in 2013, was completed during 1998 with WPSC's
share of Kewaunee decommissioning estimated to be $190.7 million.
Based on that study, WPSC's contributions for 1999 under the 1999
PSCW rate order will be $8.3 million.
Depreciation expense includes future decommissioning costs
collected in customer rates and an offsetting charge for earnings
from external trusts. As of December 31, 1998, the accumulated
provision for depreciation and decommissioning included
accumulated provisions for decommissioning totaling
$171.4 million. Realized trust earnings totaled $3.3 million,
$3.7 million, and $3.0 million, and unrealized trust earnings
totaled $16.8 million, $13.8 million, and $6.5 million for the
years ended December 31, 1998, 1997, and 1996, respectively.
Unrealized gains, net of tax, in external trusts are reflected as
an increase to the decommissioning reserve, since decommissioning
expense will be recognized as the gains are realized, in
accordance with regulatory requirements.
Investments in the nuclear decommissioning trusts are recorded at
market value. The investments classified as utility plant are
-87-
<PAGE>
presented net of related income tax effects on unrealized gains
and represent the amount of assets available to accomplish
decommissioning. The nonqualified trust investments designated to
pay income taxes when unrealized gains become realized are
classified as other assets. An offsetting regulatory liability
reflects the expected reduction in future rates as unrealized
gains in the nonqualified trust are realized.
(l) CASH AND EQUIVALENTS--WPSR considers short-term investments with
an original maturity of three months or less to be cash
equivalents.
(m) REVENUE AND CUSTOMER RECEIVABLES--WPSR accrues revenues related to
electric and gas service, including estimated amounts for service
rendered but not billed.
Automatic fuel adjustment clauses are used for FERC
wholesale-electric and MPSC retail-electric portions of WPSC's and
UPPCO's businesses.
The PSCW retail-electric portion of WPSC's business uses a "cost
variance range" approach. This range is based on a specific
estimated fuel cost for the forecast year. If WPSC's actual fuel
costs fall outside this range, a hearing may be held and an
adjustment to future rates may result. WPSC has a purchased gas
adjustment clause ("PGAC") which allows it to pass changes in the
cost of gas purchased from its suppliers on to system gas
customers, subject to PSCW and MPSC review. The continued use of
a PGAC for all Wisconsin utilities has been reexamined by the
PSCW, and utilities were given the choice between continuing under
a modified one-for-one gas cost recovery plan or switching to an
incentive gas cost recovery mechanism. The PSCW has approved a
modified one-for-one gas cost recovery plan for WPSC which is
similar to the gas cost recovery under the existing PGAC.
Implementation of the modified one-for-one gas cost recovery plan
began in January 1999.
Billings to UPPCO's customers under MPSC jurisdiction include base
rate charges and a power supply cost recovery ("PSCR") factor.
Approximately 40% of UPPCO's operating expense is power supply
costs. UPPCO receives MPSC approval each year to recover
projected power supply costs by establishment of PSCR factors.
These factors are subject to annual reconciliation to actual costs
and permit 100% recovery of allowed power supply costs. Any over
or under recovery is deferred on UPPCO's balance sheet, and such
deferrals are relieved as refunds or additional billings are made.
WPSC and UPPCO are required to provide service and grant credit to
customers within their service territories and are precluded from
discontinuing service to residential customers during certain
periods of the year. WPSC and UPPCO continually review their
customers' credit-worthiness and obtain deposits or refund
deposits accordingly.
Approximately 11% of WPSR's total revenues are from companies in
the paper products industry.
-88-
<PAGE>
(n) REGULATORY ASSETS AND LIABILITIES--WPSC and UPPCO are subject to
the provisions of SFAS No. 71, "Accounting for the Effects of
Certain Types of Regulation." Regulatory assets represent
probable future revenue associated with certain incurred costs
which will be recovered from customers through the ratemaking
process. Regulatory liabilities represent costs previously
collected that are refundable in future customer rates. The
following regulatory assets and liabilities were reflected in the
Consolidated Balance Sheets as of December 31:
============================================================
WPSR (Thousands) 1998 1997
------------------------------------------------------------
Regulatory assets
Demand-side management expenditures $23,860 $31,360
Environmental remediation costs
(net of insurance recoveries) 30,285 29,882
Coal and rail contract buy-out costs 616 2,293
Debt refinancing costs 1,810 2,078
Enrichment facility fee 5,056 5,544
Kewaunee steam generator
resleeving costs - 3,577
Other 8,414 5,115
------------------------------------------------------------
Total $70,041 $79,849
============================================================
Regulatory liabilities
Income tax related items $29,617 $32,596
Pensions - 2,443
Conservation costs (2,866) 6,491
Unrealized gain on decommissioning
trust 16,397 11,348
Kewaunee deferred revenue 4,009 2,518
Deferred gain on emission
allowance sales 3,304 1,352
Other 13 (261)
------------------------------------------------------------
Total $50,474 $56,487
============================================================
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<PAGE>
============================================================
WPSC (Thousands) 1998 1997
------------------------------------------------------------
Regulatory assets
Demand-side management expenditures $23,860 $31,360
Environmental remediation costs
(net of insurance recoveries) 29,021 29,249
Coal and rail contract buy-out costs 616 2,293
Debt refinancing costs 1,623 1,859
Enrichment facility fee 5,056 5,544
Kewaunee steam generator
resleeving costs - 3,577
Other 8,159 4,662
------------------------------------------------------------
Total $68,335 $78,544
============================================================
Regulatory liabilities
Income tax related items $22,734 $26,119
Pensions - 2,443
Conservation costs (2,866) 6,491
Unrealized gain on decommissioning
trust 16,397 11,348
Kewaunee deferred revenue 4,009 2,518
Deferred gain on emission
allowance sales 3,304 1,352
Other 13 8
------------------------------------------------------------
Total $43,591 $50,279
============================================================
As of December 31, 1998, the majority of WPSC's regulatory assets
are being recovered through rates charged to customers over
periods ranging from two to ten years. Recovery periods for
UPPCO's regulatory assets are up to 26 years. Carrying costs for
all WPSC's regulatory assets are being recovered except for those
associated with environmental costs. No carrying costs are being
recovered for UPPCO's regulatory assets. Based on prior and
current rate treatment of such costs, management believes it is
probable that WPSC and UPPCO will continue to recover from
ratepayers the regulatory assets described above.
See Notes 8 and 9 for specific information on pension and deferred
tax regulatory liabilities. See Note 10 for information on
environmental remediation deferred costs.
(o) INVESTMENTS AND OTHER ASSETS--Investments include ownership
interests in Wisconsin River Power Company and Wisconsin Valley
Improvement Company. Income related to these investments is
included in other income and deductions using the equity method of
accounting. Other assets include operating deposits for
jointly-owned plants, the cash surrender value of life insurance
policies, the long-term portion of energy conservation loans to
customers, and the decommissioning trust investments designated
for payment of income taxes.
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<PAGE>
(p) RECLASSIFICATIONS--Certain prior year financial statement amounts
have been reclassified to conform to current year presentation.
(q) RETIREMENT OF DEBT--Historically, gains or losses resulting from
the settlement of long-term utility debt obligations have been
deferred and amortized concurrent with rate recovery as required
by regulators.
(r) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--In June 1998, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
This statement requires all derivatives to be measured at fair
value and recognized as either assets or liabilities in the
statement of financial position. The accounting for changes in
the fair value of a derivative is dependent upon the use of the
derivative and its resulting designation. Unless specific hedge
accounting criteria are met, changes in the derivative's fair
value must be recognized currently in earnings. This statement is
effective for fiscal periods beginning after June 15, 1999. WPSR
will be adopting the requirements of this statement on
January 1, 2000, and has not yet determined the method of adoption
or its impact. However, the requirements of this statement could
increase volatility in earnings and other comprehensive income.
(s) INTERNALLY-DEVELOPED SOFTWARE--In March 1998, the American
Institute of Certified Public Accountants ("AICPA") issued
Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement
requires the capitalization of certain costs related to software
developed or obtained for internal use. The statement is
effective for periods beginning after December 15, 1998. WPSR
will be adopting the requirements of this statement in 1999.
While the total impact of WPSR's adoption of this statement has
not been determined, WPSC's adoption of this statement is expected
to result in a reduction in operating expenses, which has been
substantially considered in the ratemaking process. The
capitalized software costs will then be amortized to operating
expense in future years.
(t) COSTS OF START-UP ACTIVITIES--In April 1998, the AICPA issued
Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities." This statement provides guidance on the financial
reporting of start-up costs and organization costs. Costs of
start-up activities and organization costs are required to be
expensed as incurred. The statement is effective for periods
beginning after December 15, 1998. WPSR will be adopting the
requirements of this statement in 1999 and does not anticipate any
material impact to its financial statements.
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<PAGE>
NOTE 2--JOINTLY-OWNED UTILITY FACILITIES
Information regarding WPSC's share of major jointly-owned electric
generating facilities in service at December 31, 1998 is set forth
below:
<TABLE>
<CAPTION>
===========================================================================================
WPSC (Thousands, West Marinette Columbia Edgewater
except for percentages) Unit No. 33 Energy Center Unit No. 4 Kewaunee
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ownership 68% 31.8% 31.8% 41.2%
Plant capacity (Megawatts) 83.5 335.2 104.9 221.0
Utility plant in service $15,917 $112,307 $22,542 $133,099
Accumulated depreciation $ 2,774 $ 63,592 $13,504 $ 97,930
In-service date 1993 1975 and 1978 1969 1974
===========================================================================================
</TABLE>
WPSC's share of direct expenses for these plants is included in the
corresponding operating expenses in the consolidated statements of
income. WPSC has supplied its own financing for all jointly-owned
projects.
Upon closing of an agreement with Madison Gas and Electric Company
("MG&E"), which is contingent upon steam generator replacement, WPSC
will acquire MG&E's 17.8% share of Kewaunee. This will increase WPSC's
ownership in Kewaunee to 59.0%. See Note 10 for additional information
regarding Kewaunee.
NOTE 3--SHORT-TERM DEBT AND LINES OF CREDIT
To provide short-term borrowing flexibility and security for commercial
paper outstanding, WPSR and its subsidiaries maintain bank lines of
credit. Most of these lines of credit require a fee.
The information in the table below relates to short-term debt and lines
of credit for the years indicated:
<TABLE>
<CAPTION>
================================================================================================
(Thousands, except for percentages) 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
As of end of year
Commercial paper outstanding $47,590 $20,706 $31,350
Average discount rate on outstanding
commercial paper 4.84% 6.55% 5.73%
Notes payable outstanding $12,703 $19,500 $31,600
Average interest rate on notes payable 5.88% 7.06% 6.16%
Available lines of credit $62,102 $27,500 $55,900
================================================================================================
For the year
Maximum amount of short-term debt $102,033 $80,017 $75,250
Average amount of short-term debt $50,939 $37,609 $31,254
Average interest rate on short-term debt 5.93% 6.06% 5.18%
================================================================================================
</TABLE>
NOTE 4--LONG-TERM DEBT
First mortgage bonds are secured by utility plant assets. In July 1998,
WPSC retired the entire $50.0 million issue of the 5-1/4% First Mortgage
Bonds. In December 1998, WPSC issued $50.0 million of 6.08% senior
notes due in 2028 secured by a pledge of first mortgage bonds. The 1998
notes become unsecured if WPSC were to call all of its outstanding first
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<PAGE>
mortgage bonds. These notes would then be secured by WPSC's general
credit and not by WPSC's assets.
As of December 31, 1998, $8.1 million has been drawn against PDI's
revolving credit note of $11.5 million which is secured by the assets of
Stoneman. An additional $3.3 million, which is to be paid in the year
2000, has been committed against this note. The note, which is
guaranteed by WPSR, is due in the year 2000 or when the plant is
converted to a 300-megawatt to 500-megawatt gas-fired combined cycle
facility.
NOTE 5--COMPANY-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES
OF SUBSIDIARY TRUST
On July 30, 1998, WPSR Capital Trust I ("Trust"), a Delaware business
trust of which WPSR owns all of the outstanding trust common
securities, issued $50.0 million of trust preferred securities to the
public. The sole asset of the Trust is $51.5 million principal amount
of subordinated debentures due June 30, 2038, and bearing interest at
7.0% per annum, issued by WPSR. The terms and interest payments on
these debentures correspond to the terms and distributions on the trust
preferred securities. The Trust has been consolidated into the WPSR
financial statements. The interest payments are reflected as
distributions - preferred securities of subsidiary trust in the
Consolidated Statement of Income and are tax deductible by WPSR. WPSR
may elect to defer interest payments on the debentures for a period up
to 20 consecutive quarters, causing distributions on the trust preferred
securities to be deferred as well.
In case of a deferral, interest and distributions will continue to
accrue, along with quarterly compounding interest on the deferred
amounts. WPSR may redeem all or a portion of the debentures after
July 30, 2003, requiring an equal amount of trust securities to be
redeemed at face value plus accrued and unpaid distributions. WPSR has
entered into a limited guarantee of payment of distributions, redemption
payments, and payments in liquidation with respect to the trust
preferred securities. This guarantee, when considered together with
WPSR's obligations under the related debentures and indenture and the
applicable declaration of trust, provide a full and unconditional
guarantee by WPSR of amounts due on the outstanding trust preferred
securities.
NOTE 6--COMMON EQUITY
Under WPSR's Stock Investment Plan, WPSR's common stock has been
purchased in the open market to satisfy shareholder and employee
purchase requirements. Beginning in January 1999, WPSR began issuing
new shares for the Stock Investment Plan.
In December 1996, WPSR adopted a Shareholder Rights Plan designed to
enhance the ability of the Board of Directors to protect shareholders
and WPSR if efforts are made to gain control of WPSR in a manner that is
not in the best interests of WPSR and its shareholders. The plan gives
existing shareholders, under certain circumstances, the right to
purchase stock at a discounted price. The rights expire on December 11,
2006.
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<PAGE>
At December 31, 1998, WPSR had $328.5 million of retained earnings
available for dividends. WPSC is restricted by a PSCW order to paying
normal common stock dividends of no more than 109.0% of the previous
year's common stock dividend without PSCW approval. Also, Wisconsin law
prohibits WPSC from making loans to WPSR and its subsidiaries and from
guaranteeing their obligations.
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 $7.9 million of
consolidated retained earnings were available at December 31, 1998, for
the payment of common stock cash dividends by UPPCO.
WPSR made a $34.0 million equity infusion into WPSC during the second
quarter of 1998. In December 1998, WPSC paid to WPSR a special common
dividend of $20.0 million. The special dividend allowed WPSC's average
common equity capitalization ratio to remain at approximately 54.0%, the
level approved by the PSCW for ratemaking.
NOTE 7--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate such value:
Cash, Short-Term Investments, Energy Conservation Loans, Notes Payable,
and Outstanding Commercial Paper: The carrying amount approximates fair
value due to the short maturity of those investments and obligations.
Nuclear Decommissioning Trusts: The value of WPSC's nuclear
decommissioning trust investments is recorded at market value.
Long-Term Debt, Preferred Stock, and ESOP Loan Guarantees: The fair
value of WPSC's long-term debt, preferred stock, and ESOP loan
guarantees is estimated based on the quoted market price for the same or
similar issues or on the current rates offered to WPSC for debt of the
same remaining maturity.
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<PAGE>
The estimated fair values of WPSR's financial instruments as of
December 31 were:
<TABLE>
<CAPTION>
=================================================================================================
(Thousands) 1998 1997
-------------------------------------------------------------------------------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 7,134 $ 7,134 $ 8,495 $ 8,495
Energy conservation loans 7,810 7,810 7,195 7,195
Nuclear decommissioning
trusts - utility plant 171,442 171,442 134,108 134,108
Nuclear decommissioning
trusts - other assets 16,397 16,397 11,348 11,348
Notes payable 12,703 12,703 19,500 19,500
Commercial paper 47,590 47,590 20,706 20,706
ESOP loan guarantees 6,448 6,702 9,798 10,243
Trust preferred securities 50,000 50,250 - -
Long-term debt 337,473 366,038 337,477 360,506
Preferred stock 51,200 53,026 51,645 49,040
Gas commodity instruments 41,800 34,600 504 436
=================================================================================================
</TABLE>
NOTE 8--EMPLOYEE BENEFIT PLANS
WPSC and UPPCO have non-contributory retirement plans covering
substantially all employees under which annual contributions may be made
to an irrevocable trust established to provide retired employees with a
monthly payment if conditions relating to age and length of service have
been met. The WPSC pension plans are fully funded, and no contributions
were made in 1998, 1997, or 1996. The WPSC and UPPCO pension plans and
other benefit plans were merged effective December 31, 1998. The net
accrued benefit liability assumed by WPSC at December 31, 1998 was
$5.7 million.
WPSC and UPPCO also currently offer medical, dental, and life insurance
benefits to employees, retirees, and their dependents. The expenses for
active employees are expensed as incurred. The company funds these
benefits through irrevocable trusts as allowed for income tax purposes.
These funded amounts have been expensed and recovered through customer
rates. The non-administrative plan is a collectively bargained plan
and, therefore, is tax exempt. The investments in the trust covering
administrative employees are subject to federal unrelated business
income taxes at a 39.6% tax rate.
All pension costs and postretirement plan costs are accounted for under
SFAS Nos. 87 and 106, respectively, which require the cost of these
benefits to be accrued as expense over the period in which the employee
renders service. The transition obligation for current and future
retirees is recognized over 20 years beginning in 1993.
The following tables provide a reconciliation of the changes in the
plans' benefit obligations and fair value of assets over the three
one-year periods ending December 31, 1998, 1997, and 1996, and a
statement of the funded status as of December 31, of each year:
-95-
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================
(Thousands) 1998 1997 1996
-------------------------------------------------------------------------------------
Reconciliation of benefit obligation - pension
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Obligation at January 1 $350,669 $299,587 $301,840
Service cost 9,014 7,019 7,404
Interest cost 25,264 22,919 22,493
Participant contributions - - -
Plan amendments 5,762 7,224 -
Actuarial (gain) loss 26,085 28,989 (17,296)
Acquisitions - - -
Benefit payments (17,430) (15,911) (14,854)
Curtailments - 842 -
-------------------------------------------------------------------------------------
Obligation at December 31 $399,364 $350,669 $299,587
=====================================================================================
Reconciliation of benefit obligation - other
-------------------------------------------------------------------------------------
Obligation at January 1 $127,705 $116,354 $123,665
Service cost 3,874 3,500 3,816
Interest cost 9,126 9,496 9,594
Participant contributions - - -
Plan amendments - 6,803 -
Actuarial (gain) loss 2,599 34 (16,418)
Acquisitions - - -
Benefit payments (4,489) (4,174) (4,303)
Curtailments - (4,308) -
-------------------------------------------------------------------------------------
Obligation at December 31 $138,815 $127,705 $116,354
=====================================================================================
</TABLE>
-96-
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================
(Thousands) 1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reconciliation of fair value of plan
assets - pension
-------------------------------------------------------------------------------------
Fair value of plan assets at January 1 $537,756 $470,176 $431,130
Actual return on plan assets 89,618 79,731 51,833
Acquisitions - - -
Employer contributions 539 3,783 2,067
Participant contributions - - -
Plan expenses paid - (23) -
Benefit payments (17,430) (15,911) (14,854)
-------------------------------------------------------------------------------------
Fair value of plan assets at December 31 $610,483 $537,756 $470,176
-------------------------------------------------------------------------------------
Funded status at December 31 $211,119 $187,087 $170,589
Unrecognized transition (asset) obligation (13,467) (17,043) (20,620)
Unrecognized prior-service cost 19,336 15,523 9,467
Unrecognized (gain) loss (156,972) (132,227) (116,172)
-------------------------------------------------------------------------------------
Net amount recognized $ 60,016 $ 53,340 $ 43,264
=====================================================================================
Reconciliation of fair value of plan assets - other
-------------------------------------------------------------------------------------
Fair value of plan assets at January 1 $121,930 $104,367 $ 88,950
Actual return on plan assets 21,161 20,376 18,198
Acquisitions - - -
Employer contributions 1,239 1,361 1,522
Participant contributions - - -
Plan expenses paid - - -
Benefit payments (4,489) (4,174) (4,303)
-------------------------------------------------------------------------------------
Fair value of plan assets at December 31 $139,841 $121,930 $104,367
=====================================================================================
Funded status at December 31 $ 1,026 $ (5,776) $(11,986)
Unrecognized transition (asset) obligation 39,434 42,286 47,663
Unrecognized prior-service cost 4,259 4,583 (1,897)
Unrecognized (gain) loss (87,011) (78,496) (64,432)
-------------------------------------------------------------------------------------
Net amount recognized $(42,292) $(37,403) $(30,652)
=====================================================================================
</TABLE>
The net amounts recognized for 1997 and 1996 pension benefits have been
reduced for an additional unrecognized regulatory liability related to
pension costs. The entire regulatory liability was recognized by
year-end 1998.
The following table provides the amounts recognized in the statement of
financial position as of December 31 of each year:
-97-
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================
(Thousands) 1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prepaid benefit cost - pension
-------------------------------------------------------------------------------------
Prepaid benefit cost $ 60,016 $ 52,867 $ 43,877
Accrued benefit liability - (2,525) (2,208)
Intangible asset - 2,998 1,595
Accumulated other income - - -
-------------------------------------------------------------------------------------
Net amount recognized $ 60,016 $ 53,340 $ 43,264
=====================================================================================
Prepaid benefit cost - other
-------------------------------------------------------------------------------------
Prepaid benefit cost $ - $ - $ -
Accrued benefit liability (42,292) (37,403) (30,652)
Intangible asset - - -
Accumulated other income - - -
-------------------------------------------------------------------------------------
Net amount recognized $(42,292) $(37,403) $(30,652)
=====================================================================================
</TABLE>
The following table provides the components of net periodic benefit cost
for the plans for fiscal years 1998, 1997, and 1996:
<TABLE>
<CAPTION>
=====================================================================================
(Thousands) 1998 1997 1996
-------------------------------------------------------------------------------------
Net periodic benefit cost - pension
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 9,014 $ 7,019 $ 7,404
Interest cost 25,264 22,919 22,493
Expected return on plan assets (38,282) (33,883) (33,283)
Amortization of transition (asset) obligation (3,576) (3,576) (3,576)
Amortization of prior-service cost 1,950 921 1,023
Amortization of net (gain) loss (507) (781) (122)
-------------------------------------------------------------------------------------
Net periodic benefit cost $ (6,137) $ (7,381) $ (6,061)
Curtailment (gain) loss - 1,088 -
-------------------------------------------------------------------------------------
Net periodic benefit cost after curtailments $ (6,137) $ (6,293) $ (6,061)
=====================================================================================
Net periodic benefit cost - other
-------------------------------------------------------------------------------------
Service cost $ 3,874 $ 3,500 $ 3,816
Interest cost 9,126 9,496 9,594
Expected return on plan assets (7,356) (6,378) (6,076)
Amortization of transition (asset) obligation 2,852 3,010 3,010
Amortization of prior-service cost 324 324 (131)
Amortization of net (gain) loss (2,692) (2,196) (670)
-------------------------------------------------------------------------------------
Net periodic benefit cost $ 6,128 $ 7,756 $ 9,543
Curtailment (gain) loss - 356 -
-------------------------------------------------------------------------------------
Net periodic benefit cost after curtailments $ 6,128 $ 8,112 $ 9,543
=====================================================================================
</TABLE>
Under a contract with Wisconsin Electric Power Company ("WEPCO"), UPPCO
had operated WEPCO's Presque Isle Power Plant in Michigan since 1988.
This contract terminated on December 31, 1997, and all employees at the
plant became employees of WEPCO. In 1997, UPPCO recognized a
$1.1 million pension curtailment loss and a $0.4 million other benefit
plan curtailment loss from the termination of the Presque Isle Power
Plant operating agreement.
The assumptions used in the measurement of WPSR's benefit obligation are
shown in the following table:
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<PAGE>
<TABLE>
<CAPTION>
=====================================================================================
1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average assumptions as of December 31 - pension
-------------------------------------------------------------------------------------
Discount rate 6.75% 7.25% 7.75%
Expected return on plan assets 8.75% 8.75% 8.50%
Rate of compensation increase 5.50% 5.50% 5.50%
=====================================================================================
Weighted average assumptions as of December 31 - other
-------------------------------------------------------------------------------------
Discount rate 6.75% 7.25% 7.75%
Expected return on plan assets 8.75% 8.75% 8.50%
Rate of compensation increase N/A N/A N/A
=====================================================================================
</TABLE>
The assumed health care cost trend rates for 1998 are 8.0% for medical
and 7.5% for dental, both decreasing to 5.0% by the year 2006. Assumed
health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A 1.0% change in assumed health
care cost trend rates would have the following effects:
=======================================================================
1.0% 1.0%
(Thousands) Increase Decrease
-----------------------------------------------------------------------
Effect on total of service and interest
cost components of net periodic
postretirement health care benefit cost $ 2,521 $ (1,955)
Effect on the health care component
of the accumulated postretirement
benefit obligation $24,684 $(19,591)
=======================================================================
WPSC has a leveraged Employee Stock Ownership Plan and Trust ("ESOP")
that held 1,955,468 shares of WPSR common stock (market value of
approximately $68.9 million) at December 31, 1998. At that date, the
ESOP also had one loan guaranteed by WPSC and secured by common stock.
Principal and interest on the loan are to be paid using contributions
from WPSC and dividends on WPSR common stock held by the ESOP. Shares
in the ESOP are allocated to participants as the loan is repaid. Tax
benefits from dividends paid to the ESOP are recognized as a reduction
in WPSC's cost of providing service to customers. The PSCW has allowed
WPSC to include in cost of service an additional employer contribution
to the plan. The net effect of the tax benefits and of the employer
contribution is an approximately equal sharing of the tax benefits of
the program between customers and employees.
NOTE 9--INCOME TAXES
WPSR accounts for income taxes using the liability method as prescribed
by SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred income tax liabilities are established for all
temporary differences in the book and tax bases of assets and
liabilities based upon enacted tax laws and rates applicable to the
periods in which the taxes become payable. Taxes provided in prior
years at rates greater than current rates are being refunded to
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<PAGE>
customers prospectively as the temporary differences reverse. The net
regulatory liability totaled $29.6 million as of December 31, 1998.
As of December 31, 1998 and 1997, WPSR had the following significant
temporary differences that created deferred tax assets and liabilities:
===================================================================
(Thousands) 1998 1997
-------------------------------------------------------------------
Deferred tax assets
Plant related $ 76,400 $ 68,175
Customer advances 10,599 8,187
Conservation escrow (1,057) 2,859
Capital losses/state net operating losses 3,652 1,345
Employee benefits 28,021 22,772
Other 9,351 3,019
-------------------------------------------------------------------
Total $126,966 $106,357
===================================================================
Deferred tax liabilities
Plant related $210,418 $201,239
Demand-side management expenditures 9,421 12,383
Employee benefits 24,009 17,786
Other 5,760 6,146
-------------------------------------------------------------------
Total $249,608 $237,554
===================================================================
Net deferred tax liabilities $122,642 $131,197
===================================================================
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<PAGE>
Previously deferred investment tax credits are being amortized as a
reduction to income tax expense over the life of the related utility
plant. The components of income tax expense are set forth in the tables
below:
<TABLE>
<CAPTION>
=========================================================================================
(Thousands,
except for percentages) 1998 1997 1996
-----------------------------------------------------------------------------------------
Rate Amount Rate Amount Rate Amount
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax 35.0% $25,623 35.0% $31,525 35.0% $29,140
State income taxes, net 5.9 4,344 5.4 4,862 5.1 4,275
Investment tax credit restored (2.6) (1,924) (2.2) (1,949) (2.4) (1,961)
Rate difference on reversal
of income tax temporary
differences (2.4) (1,761) (2.1) (1,888) (1.9) (1,579)
Dividends paid to ESOP (1.9) (1,414) (1.5) (1,381) (1.7) (1,424)
Section 29 credits (1.0) (751) (0.2) (220) (0.3) (220)
Other differences, net (1.0) (672) 0.2 157 (1.1) (1,015)
-----------------------------------------------------------------------------------------
Effective income tax 32.0% $23,445 34.6% $31,106 32.7% $27,216
=========================================================================================
Current provision
Federal $29,492 $31,444 $28,478
State 7,779 7,527 7,729
-----------------------------------------------------------------------------------------
Total current provision 37,271 38,971 36,207
Deferred (benefit) provision (11,902) (5,916) (7,030)
Investment tax credit
restored, net (1,924) (1,949) (1,961)
-----------------------------------------------------------------------------------------
Total income tax expense $23,445 $31,106 $27,216
=========================================================================================
</TABLE>
NOTE 10--COMMITMENTS AND CONTINGENCIES
COAL CONTRACTS
To ensure a reliable, low-cost supply of coal, WPSC entered into a
long-term contract that has take-or-pay obligations totaling
$130.8 million from 1999 through 2016. The obligations are subject to
force majeure provisions which provide WPSC other options if the
specified coal does not meet emission limits which may be mandated in
future legislation. In the opinion of management, any amounts paid
under the take-or-pay obligations described above would be considered
costs of service subject to recovery in customer rates.
PURCHASED POWER
WPSC has several take-or-pay contracts for either capacity or energy
related to purchased power. These contracts total $68.2 million through
April 2003. UPPCO has purchased power contracts with external suppliers
for 50 megawatts totaling $12.3 million through 1999. Management
expects to recover these costs in future customer rates.
LONG-TERM POWER SUPPLY
In November 1995, WPSC signed a 25-year agreement to purchase power from
SkyGen Energy LLC, an independent power producer proposing to build a
cogeneration facility and sell electrical power to WPSC. In October
1997, the PSCW issued a Certificate of Public Convenience and Necessity
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authorizing construction of the project. Phase I of the project, which
is expected to be operational during 1999, will be accounted for as a
capitalized lease with the capitalized amount being approximately
$77.8 million. If Phase II becomes operational (Phase II is currently
projected to be operational within five years of the start of Phase I),
an additional plant asset of approximately $76.0 million will be
recorded.
FUTURE NONREGULATED COMMITMENTS
PDI has signed agreements with Maine Public Service Company to purchase,
for approximately $38.0 million, hydro, steam, and diesel units in the
State of Maine and in New Brunswick, Canada, with a total capacity of
approximately 92 megawatts. PDI is currently awaiting approval of the
purchase by the Maine Public Service Commission.
GAS COSTS
WPSC has natural gas supply and transportation contracts that require
total estimated demand payments of $186.2 million through October 2008.
In April 1992, the FERC issued Order No. 636 which required natural gas
pipelines to restructure their sales and transportation services. As a
result, WPSC was obligated to pay for a portion of ANR Pipeline
Company's transition costs through various FERC approved surcharges.
Though there may be additional transition costs, which could be
significant, the amount and timing of these costs are unknown at this
time. Management fully expects to recover these costs in future
customer rates since the PSCW and MPSC have allowed such recovery to
date.
NUCLEAR LIABILITY
The Price-Anderson Act provides for the payment of funds for public
liability claims arising out of a nuclear incident. In the event of a
nuclear incident involving any of the nation's licensed reactors, WPSC
is subject to a proportional assessment which is approximately
$36.3 million per incident, not to exceed $4.1 million per incident, per
calendar year. These amounts represent WPSC's 41.2% ownership share in
Kewaunee.
NUCLEAR PLANT OPERATION
On September 29, 1998, WPSC and MG&E finalized an arrangement in which
WPSC will acquire, at MG&E's book value, MG&E's 17.8% share of Kewaunee
including MG&E's decommissioning trust assets and assuming MG&E's share
of the decommissioning obligation. This agreement, the closing of which
is contingent upon regulatory approval and steam generator replacement
scheduled for the spring of 2000, will give WPSC 59.0% ownership in
Kewaunee.
The net book value of WPSC's share of Kewaunee at December 31, 1998 is
$35.2 million. In addition, the current cost of WPSC's share of the
estimated costs to decommission Kewaunee, assuming early retirement,
exceeds the trust assets at December 31, 1998 by $21.2 million. If
retired early, Kewaunee would be placed in a dormant state following the
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<PAGE>
transfer of spent fuel to temporary storage facilities. Under this
plan, Kewaunee would remain intact with minimal monitoring and
maintenance until physical decommissioning begins. Actual
decommissioning would probably not begin until approximately 2015. On
January 3, 1997, the PSCW accepted WPSC's recommendation to accelerate
recovery of the Wisconsin retail portion of both the current
undepreciated plant balance and the unfunded decommissioning costs over
a six-year period, 1997 through 2002. The PSCW depreciation rate order
authorizing new rates for 1999 includes a change in methodology for
recovery of Kewaunee investment after new steam generators have been
installed, estimated to be mid-year 2000. At that time, the unrecovered
basis of the Kewaunee plant, including the new steam generators, will be
recovered over an 8.5 year remaining life through 2008 using the
sum-of-the-years depreciation method.
On October 17, 1998, Kewaunee was shut down for a planned maintenance
and refueling outage. Inspection of the plant's two steam generators
showed that the repairs made in 1997 were holding up well and few
additional repairs were needed. In addition to the inspection and
repair of the steam generators, a major overhaul was performed on the
main turbine generator. The plant was back in operation on November 27,
1998.
CLEAN AIR REGULATIONS
WPSC is in compliance with both the Phase I and Phase II sulfur dioxide
and nitrogen oxide emission limits established by the Federal Clean Air
Act Amendments of 1990. Additional capital expenditures of $1.0 million
to $2.0 million are projected through 1999 for Wisconsin and federal air
quality compliance. Management believes that all costs incurred for
additional compliance will be recoverable in future customer rates.
In late September 1998, the United States Environmental Protection
Agency ("EPA") required certain states, including Wisconsin, to develop
plans to reduce the emissions of nitrogen oxides ("NOx") from sources
within the state by late 2003. On a preliminary basis, WPSC projects
potential capital costs of between $37.0 million and $96.0 million to
comply with possible future regulations. The cumulative incremental
annual operating and maintenance expense associated with these possible
future regulations projected to be incurred by 2010 range from
$29.0 million to $106.0 million. The costs will depend on the
state-specific compliance method to be adopted in the future as well as
the effectiveness of the various technologies available for NOx emission
control. Under WPSC's current practice, the capital costs (as reflected
in depreciation expenses) and the annual operating costs are anticipated
to be recovered through future customer rates.
On December 24, 1998, WPSC joined other parties in a petition
challenging the EPA's regulations that require Wisconsin to prepare and
submit a NOx implementation plan. On January 22, 1999, the State of
Wisconsin intervened in the litigation and challenged the geographic
scope of the rule and the required timing for implementation of NOx
controls within the state. No decisions have yet been rendered.
-103-
<PAGE>
MANUFACTURED GAS PLANT REMEDIATION
WPSC continues to investigate the environmental cleanup of eight
manufactured gas plant sites. The cleanup of WPSC's Stevens Point
manufactured gas plant site has been substantially completed with
monitoring of the site continuing. Costs of this cleanup were within
the range expected for this site. Future investigation and cleanup
costs for the remaining seven sites is estimated to be in the range of
$33.9 million to $41.0 million. These estimates may be adjusted in the
future contingent upon remedial technology, regulatory requirements, and
experience gained through cleanup activities.
An initial liability for cleanup of $41.7 million had been established
with an offsetting regulatory asset (deferred charge). Of this amount,
approximately $2.7 million has been spent to date. Management believes
that cleanup costs net of insurance recoveries, but not the carrying
costs associated with the cleanup expenditures, will be recoverable in
current and future customer rates. WPSC has received $12.6 million in
insurance recoveries which have been recorded as a reduction in the
regulatory asset.
FUTURE UTILITY EXPENDITURES
Management estimates 1999 utility plant construction expenditures at
WPSC to be approximately $107.4 million and construction expenditures at
UPPCO to be approximately $6.7 million. Demand-side management ("DSM")
expenditures at WPSC are estimated to be $11.1 million. No additional
DSM expenditures will be deferred in 1999, and the outstanding deferred
asset balance at December 31, 1998 of $23.9 million will be amortized
over the next four years consistent with rate recovery.
NOTE 11--REGULATORY ENVIRONMENT
WPSC received a rate order in the Wisconsin retail jurisdiction on
January 15, 1999. The impact is a $26.9 million increase in electric
revenues and a $10.3 million increase in gas revenues on an annual
basis. The new rates will be effective for 1999 and 2000. WPSC was
granted a 12.1% return on equity for 1999 and 2000.
UPPCO is subject to a rate freeze through 2000.
NOTE 12--MERGER WITH UPPER PENINSULA ENERGY CORPORATION
Effective September 29, 1998, UPEN merged with and into WPSR, and UPPCO,
UPEN's utility and major subsidiary, as well as UPEN's other
nonregulated subsidiaries, became wholly-owned subsidiaries of WPSR.
The merger qualifies as a tax-free transaction and the transaction has
been accounted for as a pooling of interests.
The foregoing consolidated financial statements have been restated to
give effect to the merger as if the companies had combined in the
earliest period presented. Certain adjustments have been made to
conform the presentation of UPEN's financial information with that of
WPSR. In accordance with the terms of the merger, each of the 2,950,001
outstanding shares of UPEN common stock (no par value) were converted
into the right to receive 0.90 shares of WPSR common stock. Taking into
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<PAGE>
account the cash paid for fractional shares, an additional 2,654,443
shares are being issued pursuant to the merger.
The summary below depicts selected unaudited financial data for 1998 and
1997 as reported prior to the consummation of the merger and restated to
reflect the effect of the merger under the pooling of interests method.
-105-
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================
Selected Restated Financial Data WPSR UPEN WPSR
(Quarterly Data, Unaudited) (prior to (prior to (restated
restatement restatement for pooling
(In thousands, except per share data) for pooling) for pooling) of interests)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter 1997
Operating revenues (1) $263,013 $16,303 $279,199
Net income $ 18,235 $ 1,924 $ 20,159
Average outstanding shares 23,880 2,969 26,534
Basic and diluted earnings per share $0.76 $0.65 $0.76
Second Quarter 1997
Operating revenues (1) $191,360 $13,796 $204,820
Net income $ 9,571 $ 666 $ 10,237
Average outstanding shares 23,875 2,969 26,529
Basic and diluted earnings per share $0.40 $0.22 $0.39
Third Quarter 1997
Operating revenues (1) $185,225 $14,893 $198,843
Net income $ 12,903 $ (147) $ 12,756
Average outstanding shares 23,870 2,954 26,524
Basic and diluted earnings per share $0.54 $ (0.05) $0.48
Fourth Quarter 1997
Operating revenues (1) $238,742 $15,112 $252,975
Net income $ 13,033 $ (376) $ 12,657
Average outstanding shares 23,866 2,950 26,520
Basic and diluted earnings per share $0.55 $(0.12) $0.47
Year-End December 31, 1997
Operating revenues (1) $878,340 $60,104 $935,837
Net income $ 53,742 $ 2,067 $ 55,809
Average outstanding shares 23,873 2,960 26,527
Basic and diluted earnings per share $2.25 $0.70 $2.10
First Quarter 1998
Operating revenues (1) $276,809 $15,573 $291,226
Net income $ 17,101 $ 851 $ 17,952
Average outstanding shares 23,862 2,950 26,516
Basic and diluted earnings per share $0.72 $0.29 $0.68
Second Quarter 1998
Operating revenues (1) $219,620 $13,889 $232,054
Net income $ 9,879 $ 586 $ 10,465
Average outstanding shares 23,858 2,950 26,512
Basic and diluted earnings per share $0.41 $0.20 $0.39
Third Quarter 1998
Operating revenues $247,928
Net income $ 11,799
Average outstanding shares 26,508
Basic and diluted earnings per share $0.45
Fourth Quarter 1998
Operating revenues $292,528
Net income $ 6,415
Average outstanding shares 26,505
Basic and diluted earnings per share $0.24
Year-End December 31, 1998
Operating revenues $1,063,736
Net income $ 46,631
Average outstanding shares 26,511
Basic and diluted earnings per share $1.76
===============================================================================================
</TABLE>
(1) Restatement includes adjustment for intercompany sales.
-106-
<PAGE>
NOTE 13--SEGMENTS OF BUSINESS
Effective December 31, 1998, WPSR adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." WPSR's
reportable segments are managed separately due to their different
operating and regulatory environments. WPSR's principal business
segments are the regulated electric utility operations of WPSC and UPPCO
and the regulated gas utility operations of WPSC. The other reportable
business segment, ESI, participates in nonregulated energy marketing
operations.
The tables below and on the following page present information for the
respective years pertaining to WPSR's operations segmented by lines of
business.
<TABLE>
<CAPTION>
================================================================================================
Nonutility and
Segments of Business (Thousands) Regulated Utilities Nonregulated Operations
- ------------------------------------------------------------------------------------------------
1998 Electric Gas ESI PDI and Other
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement
Operating revenues $ 550,004 $165,111 $351,258 $ 9,506
Depreciation and decommissioning 75,974 7,751 1,148 1,401
Other income (expense) 5,461 114 (5,765) 4,791
Interest expense 22,820 4,323 592 4,914
Income taxes 27,534 4,429 (4,783) (3,735)
Net income (loss) 50,488 5,912 (6,869) (2,900)
Balance Sheet
Total assets 1,117,438 246,365 71,839 175,123
Cash expenditures for
long-lived assets 64,444 30,537 291 15,537
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Reconciling WPSR
Eliminations Consolidated
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Income Statement
Operating revenues $ (12,143) $1,063,736
Depreciation and decommissioning - 86,274
Other income (expense) (1,923) 2,678
Interest expense (4,012) 28,637
Income taxes - 23,445
Net income (loss) - 46,631
Balance Sheet
Total assets (100,378) 1,510,387
Cash expenditures for
long-lived assets - 110,809
================================================================================================
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
================================================================================================
Nonutility and
Segments of Business (Thousands) Regulated Utilities Nonregulated Operations
- ------------------------------------------------------------------------------------------------
1997 Electric Gas ESI PDI and Other
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement
Operating revenues $ 539,590 $211,090 $189,404 $ 5,426
Depreciation and decommissioning 74,016 7,349 1,048 1,028
Other income (expense) 7,395 (701) (1,158) 6,402
Interest expense 25,266 4,841 905 2,265
Income taxes 29,461 4,211 (3,315) 749
Net income (loss) 53,294 7,878 (4,949) (414)
Balance Sheet
Total assets 1,089,875 246,842 44,779 75,836
Cash expenditures for
long-lived assets 48,592 14,592 78 3,053
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Reconciling WPSR
Eliminations Consolidated
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Income Statement
Operating revenues $ (9,673) $ 935,837
Depreciation and decommissioning - 83,441
Other income (expense) 168 12,106
Interest expense (2,261) 31,016
Income taxes - 31,106
Net income (loss) - 55,809
Balance Sheet
Total assets (21,528) 1,435,804
Cash expenditures for
long-lived assets - 66,315
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Nonutility and
Segments of Business (Thousands) Regulated Utilities Nonregulated Operations
- ------------------------------------------------------------------------------------------------
1996 Electric Gas ESI PDI and Other
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement
Operating revenues $ 548,884 $211,357 $161,838 $ 3,380
Depreciation and decommissioning 61,996 7,128 1,054 584
Other income (expense) 4,993 58 (2,411) (3,306)
Interest expense 24,339 4,229 774 1,533
Income taxes 31,655 2,499 (4,838) (2,100)
Net income (loss) 59,907 2,350 (6,307) (3,065)
Balance Sheet
Total assets 1,095,996 268,622 51,823 79,190
Cash expenditures for
long-lived assets 73,910 24,304 388 15,589
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Reconciling WPSR
Eliminations Consolidated
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Income Statement
Operating revenues $ (9,010) $ 916,449
Depreciation and decommissioning - 70,762
Other income (expense) 18 (648)
Interest expense (1,758) 29,117
Income taxes - 27,216
Net income (loss) - 52,885
Balance Sheet
Total assets (32,315) 1,463,316
Cash expenditures for
long-lived assets - 114,191
================================================================================================
</TABLE>
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<PAGE>
NOTE 14--QUARTERLY FINANCIAL INFORMATION (Unaudited) (1)
<TABLE>
<CAPTION>
======================================================================================================================
(Thousands, except for share amounts) Three Months Ended
- ----------------------------------------------------------------------------------------------------------------------
1998
March June September December Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $291,226 $232,054 $247,928 $292,528 $1,063,736
Net income $ 17,952 $ 10,465 $ 11,799 $ 6,415 $ 46,631
Average number of shares of common stock 26,516 26,512 26,508 26,505 26,511
Basic and diluted earnings per share $.68 $.39 $.45 $.24 $1.76
======================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------
1997
March June September December Total
- ----------------------------------------------------------------------------------------------------------------------
Operating revenues $279,199 $204,820 $198,843 $252,975 $ 935,837
Net income $ 20,159 $ 10,237 $12,756 $ 12,657 $ 55,809
Average number of shares of common stock 26,534 26,529 26,524 26,520 26,527
Basic and diluted earnings per share $.76 $.39 $.48 $.47 $2.10
======================================================================================================================
</TABLE>
(1) Schedule gives effect to the merger with Upper Peninsula
Energy Corporation.
Because of various factors which affect the utility business,
the quarterly results of operations are not necessarily comparable.
-109-
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WPS RESOURCES CORPORATION
F. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of WPS Resources Corporation:
We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of WPS Resources Corporation (a Wisconsin
corporation) and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income and retained
earnings and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company'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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
WPS Resources Corporation and subsidiaries as of December 31, 1998 and 1997,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 28, 1999
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<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
G. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<CAPTION>
================================================================================================================
Year Ended December 31 (Thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues
Electric $487,340 $479,388 $490,506
Gas 165,111 211,090 211,357
- ----------------------------------------------------------------------------------------------------------------
Total operating revenues 652,451 690,478 701,863
================================================================================================================
Operating expenses
Electric production fuels 110,443 107,538 105,418
Purchased power 42,340 45,876 37,737
Gas purchased for resale 104,608 147,493 149,388
Other operating expenses 138,232 134,113 158,167
Maintenance 49,425 41,661 48,734
Depreciation and decommissioning 78,206 75,819 63,835
Federal income taxes 23,642 26,460 25,267
Investment tax credit restored (1,742) (1,768) (1,778)
State income taxes 7,291 7,569 7,732
Gross receipts tax and other 26,403 26,396 26,869
- ----------------------------------------------------------------------------------------------------------------
Total operating expense 578,848 611,157 621,369
================================================================================================================
Operating income 73,603 79,321 80,494
- ----------------------------------------------------------------------------------------------------------------
Other income and (deductions)
Allowance for equity funds used during construction 173 129 139
Other, net 6,765 12,591 5,123
Income taxes (331) (1,110) (294)
- ----------------------------------------------------------------------------------------------------------------
Total other income and (deductions) 6,607 11,610 4,968
================================================================================================================
Income before interest expense 80,210 90,931 85,462
- ----------------------------------------------------------------------------------------------------------------
Interest expense
Interest on long-term debt 20,400 22,530 22,512
Other interest 2,801 3,759 2,688
Allowance for borrowed funds used during construction (177) (100) (128)
- ----------------------------------------------------------------------------------------------------------------
Total interest expense 23,024 26,189 25,072
================================================================================================================
Net income 57,186 64,742 60,390
================================================================================================================
Preferred stock dividend requirements 3,111 3,111 3,111
Earnings on common stock 54,075 61,631 57,279
================================================================================================================
Other comprehensive income - - -
================================================================================================================
Comprehensive income $ 54,075 $ 61,631 $ 57,279
================================================================================================================
</TABLE>
The accompanying WPS Resources Corporation notes are an integral part of
these statements.
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<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
H. CONSOLIDATED BALANCE SHEETS
<CAPTION>
===========================================================================================
Assets
- -------------------------------------------------------------------------------------------
At December 31 (Thousands) 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Utility plant
Electric $1,534,711 $1,506,470
Gas 267,892 251,603
- -------------------------------------------------------------------------------------------
Total 1,802,603 1,758,073
Less - Accumulated depreciation and decommissioning 1,120,058 1,032,149
- -------------------------------------------------------------------------------------------
Total 682,545 725,924
Nuclear decommissioning trusts 171,442 134,108
Construction in progress 35,996 7,266
Nuclear fuel, less accumulated amortization 18,641 19,062
- -------------------------------------------------------------------------------------------
Net utility plant 908,624 886,360
===========================================================================================
Current assets
Cash and equivalents 1,882 3,921
Customer and other receivables, net of reserves 63,193 55,893
Accrued utility revenues 30,877 30,750
Fossil fuel, at average cost 12,433 9,964
Gas in storage, at average cost 14,855 17,194
Materials and supplies, at average cost 20,054 18,793
Prepayments and other 19,491 20,155
- -------------------------------------------------------------------------------------------
Total current assets 162,785 156,670
===========================================================================================
Regulatory assets 68,335 78,544
Net nonutility plant 2,888 2,972
Pension assets 60,018 52,792
Investments and other assets 64,932 56,616
===========================================================================================
Total $1,267,582 $1,233,954
===========================================================================================
</TABLE>
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<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
H. CONSOLIDATED BALANCE SHEETS (CONTINUED)
<CAPTION>
==========================================================================================
Capitalization and Liabilities
- ------------------------------------------------------------------------------------------
At December 31 (Thousands) 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Capitalization
Common stock equity $ 481,708 $ 457,121
Preferred stock with no mandatory redemption 51,200 51,200
Long-term debt to parent 14,061 14,321
Long-term debt 289,972 293,298
- ------------------------------------------------------------------------------------------
Total capitalization 836,941 815,940
==========================================================================================
Current liabilities
Note payable 10,000 10,000
Commercial paper 25,000 15,500
Accounts payable 60,680 46,453
Accrued interest and taxes 2,590 11,315
Other 6,564 10,049
- ------------------------------------------------------------------------------------------
Total current liabilities 104,834 93,317
==========================================================================================
Long-term liabilities and deferred credits
Accumulated deferred income taxes 118,476 127,512
Accumulated deferred investment tax credits 24,772 26,901
Regulatory liabilities 43,591 50,279
Environmental remediation liabilities 39,028 40,215
Other long-term liabilities 99,940 79,790
- ------------------------------------------------------------------------------------------
Total long-term liabilities and deferred credits 325,807 324,697
==========================================================================================
Commitments and contingencies (See Note 10)
==========================================================================================
Total $1,267,582 $1,233,954
==========================================================================================
</TABLE>
The accompanying WPS Resources Corporation notes are an integral part of
these balance sheets.
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<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
I. CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
===============================================================================================
At December 31 (Thousands, except share amounts) 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock equity
Common stock $ 95,588 $ 95,588
Premium on capital stock 107,842 73,842
Retained earnings 284,726 297,489
ESOP loan guarantees (6,448) (9,798)
- -----------------------------------------------------------------------------------------------
Total common stock equity 481,708 457,121
===============================================================================================
Preferred stock
Cumulative, $100 par value, 1,000,000 shares authorized
with no mandatory redemption -
Series Shares Outstanding
------ ------------------
5.00% 132,000 13,200 13,200
5.04% 30,000 3,000 3,000
5.08% 50,000 5,000 5,000
6.76% 150,000 15,000 15,000
6.88% 150,000 15,000 15,000
- -----------------------------------------------------------------------------------------------
Total preferred stock 51,200 51,200
===============================================================================================
Long-term debt to parent
Series Year Due
------ --------
8.76% 2015 5,808 5,914
7.35% 2016 8,253 8,407
- -----------------------------------------------------------------------------------------------
Total long-term debt to parent 14,061 14,321
===============================================================================================
Long-term debt
First mortgage bonds
Series Year Due
------ --------
5-1/4% 1998 - 50,000
7.30% 2002 50,000 50,000
6.80% 2003 50,000 50,000
6-1/8% 2005 9,075 9,075
6.90% 2013 22,000 22,000
8.80% 2021 53,100 53,100
7-1/8% 2023 50,000 50,000
6.08% 2028 50,000 -
- -----------------------------------------------------------------------------------------------
Total 284,175 284,175
Unamortized discount and premium on bonds, net (817) (890)
- -----------------------------------------------------------------------------------------------
Total first mortgage bonds 283,358 283,285
- -----------------------------------------------------------------------------------------------
ESOP loan guarantees 6,448 9,798
Other long-term debt 166 215
- -----------------------------------------------------------------------------------------------
Total long-term debt 289,972 293,298
===============================================================================================
Total capitalization $836,941 $815,940
===============================================================================================
</TABLE>
The accompanying WPS Resources Corporation notes are an integral part of
these statements.
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<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
J. CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
==================================================================================================================
Year Ended December 31 (Thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 57,186 $ 64,742 $ 60,390
Adjustments to reconcile net income to net cash from
operating activities -
Depreciation and decommissioning 78,206 75,819 63,835
Amortization of nuclear fuel and other 15,634 14,665 27,687
Deferred income taxes (12,421) (5,846) (6,623)
Investment tax credit restored (2,129) (1,767) (1,778)
Allowance for equity funds used during construction (173) (129) (139)
Pension income (9,669) (11,432) (12,413)
Postretirement liability 9,743 4,952 7,150
Other, net (489) (9,046) 1,826
Changes in -
Customer and other receivables (7,300) 10,341 (4,078)
Accrued utility revenues (127) 4,576 2,260
Fossil fuel inventory (2,469) (1,740) 477
Gas in storage 2,339 (754) (6,537)
Accounts payable and accrued taxes 6,561 (13,883) 9,225
Environmental remediation insurance recovery - 12,374 200
Miscellaneous and accrued liabilities (5,019) (1,957) (1,015)
Gas refunds 684 (318) (6,175)
- ------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 130,557 140,597 134,292
==================================================================================================================
Cash flows from (used for) investing activities:
Construction of utility plant and nuclear fuel expenditure (89,544) (58,258) (84,750)
Decommissioning funding (17,239) (16,059) (8,978)
Purchase of other property and equipment (270) (111) (2,050)
Other 4,565 6,080 949
- ------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (102,488) (68,348) (94,829)
==================================================================================================================
Cash flows from (used for) financing activities:
Redemption of long term debt (53,659) - (6,900)
Proceeds from issuance of long-term debt 50,000 - -
Proceeds of long-term debt from parent - - 8,668
Proceeds from issuance of commercial paper 290,521 257,100 153,300
Redemptions of commercial paper (281,021) (270,600) (135,800)
Equity infusion from parent 34,000 - -
Preferred stock dividends (3,111) (3,111) (3,111)
Common stock dividends (66,838) (55,882) (55,926)
- ------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (30,108) (72,493) (39,769)
==================================================================================================================
Net increase (decrease) in cash and equivalents (2,039) (244) (306)
==================================================================================================================
Cash and equivalents at beginning of year 3,921 4,165 4,471
==================================================================================================================
Cash and equivalents at end of year $ 1,882 $ 3,921 $ 4,165
==================================================================================================================
Cash paid during year for:
Interest, less amount capitalized $ 20,905 $ 22,311 $ 22,100
Income taxes $ 48,781 $ 41,151 $ 35,662
==================================================================================================================
</TABLE>
The accompanying WPS Resources Corporation notes are an integral part of
these statements.
-115-
<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
K. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<CAPTION>
====================================================================================================
Year Ended December 31 (Thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $297,489 $291,740 $290,387
Add - Net income 57,186 64,742 60,390
- ----------------------------------------------------------------------------------------------------
354,675 356,482 350,777
- ----------------------------------------------------------------------------------------------------
Deduct -
Cash dividends declared on preferred stock
5.00% Series ($5.00 per share) 660 660 660
5.04% Series ($5.04 per share) 151 151 151
5.08% Series ($5.08 per share) 254 254 254
6.76% Series ($6.76 per share) 1,014 1,014 1,014
6.88% Series ($6.88 per share) 1,032 1,032 1,032
Dividends declared on common stock 46,838 45,882 44,926
Dividend to parent 20,000 10,000 11,000
- ----------------------------------------------------------------------------------------------------
69,949 58,993 59,037
- ----------------------------------------------------------------------------------------------------
Balance at end of year $284,726 $297,489 $291,740
====================================================================================================
</TABLE>
The accompanying WPS Resources Corporation notes are an integral part of
these statements.
-116-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
L. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Notes to Consolidated Financial Statements for Wisconsin Public Service
Corporation are incorporated in the Notes to Consolidated Financial
Statements for WPS Resources Corporation at page 83 of this report.
-117-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WISCONSIN PUBLIC SERVICE CORPORATION
M. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Wisconsin Public Service Corporation:
We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of Wisconsin Public Service Corporation (a
Wisconsin corporation) and subsidiary as of December 31, 1998 and 1997, and
the related consolidated statements of income, comprehensive income and
retained earnings and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company'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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Wisconsin Public Service Corporation and subsidiary as of December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 28, 1999
-118-
<PAGE>
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about WPSR's directors and those Class B directors seeking
re-election may be found on pages 4 and 5 of WPSR's March 22, 1999 Proxy
Statement. Such information is incorporated by reference as if fully set
forth herein.
Information regarding the executive officers, which is not a part of
WPSR's Proxy Statement, is set forth in Part I, Item 4A, at page 35.
ITEM 11. EXECUTIVE COMPENSATION
Information required under Item 11 regarding compensation paid by WPSR
to its Chief Executive Officer and other executive officers of WPSR may be
found in WPSR's March 22, 1999 Proxy Statement, which information is
incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning principal securities holders and securities
holdings of management which may be found on pages 2 and 3 of WPSR's March 22,
1999 Proxy Statement is incorporated by reference as if fully set forth
herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no transactions since the beginning of fiscal year
1998, or any currently proposed transactions, or series of similar
transactions, to which WPSR or any of its subsidiaries was or is to be party
in which the amount exceeds $60,000 and in which any director, executive
officer, any nominee for election as a director, any security holder owning of
record or beneficially more than 5% of the Common Stock of WPSR, or any member
of the immediate family of any of the foregoing persons had or will have a
direct material interest.
-119-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) The following financial consolidated statements are included
in Part II at Item 8 above:
Description Pages in 10-K
----------- -------------
WPS RESOURCES CORPORATION
Consolidated Statements of Income,
Comprehensive Income, and
Retained Earnings for the three years
ended December 31, 1998, 1997, and 1996 78
Consolidated Balance Sheets as of
December 31, 1998 and 1997 79
Consolidated Statements of Capitalization
as of December 31, 1998 and 1997 81
Consolidated Statements of Cash Flows for
the three years ended December 31, 1998, 1997,
and 1996 82
Notes to Consolidated Financial Statements 83
Report of Independent Public Accountants 110
WISCONSIN PUBLIC SERVICE CORPORATION
Consolidated Statements of Income and
Comprehensive Income for the three years
ended December 31, 1998, 1997, and 1996 111
Consolidated Balance Sheets as of
December 31, 1998 and 1997 112
Consolidated Statements of Capitalization
as of December 31, 1998 and 1997 114
Consolidated Statements of Cash Flows for
the three years ended December 31, 1998, 1997,
and 1996 115
Consolidated Statements of Retained Earnings 116
Notes to Consolidated Financial Statements 117
Report of Independent Public Accountants 118
-120-
<PAGE>
(2) Financial statement schedules.
The following financial statement schedules are included in
Part IV of this report. Schedules not included herein have
been omitted because they are not applicable or the required
information is shown in the financial statements or notes
thereto.
Description Pages in 10-K
----------- -------------
Schedule III - Condensed Parent
Company Only Financial Statements
A. Report of Independent Public 130
Accountants
B. Statements of Income and Retained
Earnings 131
C. Balance Sheets 132
D. Statements of Cash Flows 133
E. Notes to Parent Company Financial
Statements 134
(3) All exhibits, including those incorporated by reference.
-121-
<PAGE>
Exhibit
Number Description of Documents
- ------- ------------------------
2* Asset Purchase Agreement Among Maine Public Service Company, Main
and New Brunswick Electrical Power Company, Limited and WPS Power
Development, Inc. dated as of July 7, 1998.
3A-1 Restated Articles of Incorporation of WPS Resources Corporation.
(Incorporated by reference to Appendix B to Amendment No. 1 to the
Company's Registration Statement on Form S-4, filed February 28,
1994 [Reg. No. 33-52199]).
3A-2 Articles of Incorporation of Wisconsin Public Service Corporation
as effective May 26, 1972 and amended through May 31, 1988
(Incorporated by reference to Exhibit 3A to Form 10-K for the year
ended December 31, 1991); Articles of Amendment to Articles of
Incorporation dated June 9, 1993 (Incorporated by reference to
Exhibit 3 to Form 8-K filed June 10, 1993).
3B-1 By-Laws of WPS Resources Corporation as in effect September 1,
1998.
3B-2 By-Laws of Wisconsin Public Service Corporation as in effect
September 1, 1998.
4A Copy of Rights Agreement, dated December 12, 1996 between
WPS Resources Corporation and Firstar Trust Company (Incorporated
by reference to Exhibit 4.1 to Form 8-A filed December 13, 1996
[File No.1-11337]).
4B Copy of First Mortgage and Deed of Trust, dated as of January 1,
1941 from Wisconsin Public Service Corporation to First Wisconsin
Trust Company, Trustee (Incorporated by reference to Exhibit 7.01
- File No. 2-7229); Supplemental Indenture, dated as of
November 1, 1947 (Incorporated by reference to Exhibit 7.02 - File
No. 2-7602); Supplemental Indenture, dated as of November 1, 1950
(Incorporated by reference to Exhibit 4.04 - File No. 2-10174);
Supplemental Indenture, dated as of May 1, 1953 (Incorporated by
reference to Exhibit 4.03 - File No. 2-10716); Supplemental
Indenture, dated as of October 1, 1954 (Incorporated by reference
to Exhibit 4.03 - File No. 2-13572); Supplemental Indenture, dated
as of December 1, 1957 (Incorporated by reference to Exhibit 4.03
- File No. 2-14527); Supplemental Indenture, dated as of
October 1, 1963 (Incorporated by reference to Exhibit 2.02B - File
No. 2-65710); Supplemental Indenture, dated as of June 1, 1964
(Incorporated by reference to Exhibit 2.02B - File No. 2-65710);
Supplemental Indenture, dated as of November 1, 1967 (Incorporated
by reference to Exhibit 2.02B - File No. 2-65710); Supplemental
Indenture, dated as of April 1, 1969 (Incorporated by reference to
Exhibit 2.02B - File No. 2-65710); Fifteenth Supplemental
- -----------------------
* Schedules and exhibits to this document are not being filed
herewith. The registrant agrees to furnish supplementally a copy of any
such schedule or exhibit to the Securities and Exchange Commission upon
request.
-122-
<PAGE>
Exhibit
Number Description of Documents
- ------- ------------------------
Indenture, dated as of May 1, 1971 (Incorporated by reference to
Exhibit 2.02B - File No. 2-65710); Sixteenth Supplemental
Indenture, dated as of August 1, 1973 (Incorporated by reference
to Exhibit 2.02B - File No. 2-65710); Seventeenth Supplemental
Indenture, dated as of September 1, 1973 (Incorporated by
reference to Exhibit 2.02B - File No. 2-65710); Eighteenth
Supplemental Indenture, dated as of October 1, 1975 (Incorporated
by reference to Exhibit 2.02B - File No. 2-65710); Nineteenth
Supplemental Indenture, dated as of February 1, 1977 (Incorporated
by reference to Exhibit 2.02B - File No. 2-65710); Twentieth
Supplemental Indenture, dated as of July 15, 1980 (Incorporated by
reference to Exhibit 4B to Form 10-K for the year ended
December 31, 1980); Twenty-First Supplemental Indenture, dated as
of December 1, 1980 (Incorporated by reference to Exhibit 4B to
Form 10-K for the year ended December 31, 1980); Twenty-Second
Supplemental Indenture dated as of April 1, 1981 (Incorporated by
reference to Exhibit 4B to Form 10-K for the year ended
December 31, 1981); Twenty-Third Supplemental Indenture, dated as
of February 1, 1984 (Incorporated by reference to Exhibit 4B to
Form 10-K for the year ended December 31, 1983); Twenty-Fourth
Supplemental Indenture, dated as of March 15, 1984 (Incorporated
by reference to Exhibit 1 to Form 10-Q for the quarter ended
June 30, 1984); Twenty-Fifth Supplemental Indenture, dated as of
October 1, 1985 (Incorporated by reference to Exhibit 1 to
Form 10-Q for the quarter ended September 30, 1985); Twenty-Sixth
Supplemental Indenture, dated as of December 1, 1987 (Incorporated
by reference to Exhibit 4A-1 to Form 10-K for the year ended
December 31, 1987); Twenty-Seventh Supplemental Indenture, dated
as of September 1, 1991 (Incorporated by reference to Exhibit 4 to
Form 8-K filed September 18, 1991); Twenty-Eighth Supplemental
Indenture, dated as of July 1, 1992 (Incorporated by reference to
Exhibit 4B - File No. 33-51428); Twenty-Ninth Supplemental
Indenture, dated as of October 1, 1992 (Incorporated by reference
to Exhibit 4 to Form 8-K filed October 22, 1992); Thirtieth
Supplemental Indenture, dated as of February 1, 1993 (Incorporated
by reference to Exhibit 4 to Form 8-K filed January 27, 1993);
Thirty-First Supplemental Indenture, dated as of July 1, 1993
(Incorporated by reference to Exhibit 4 to Form 8-K filed July 7,
1993); Thirty-Second Supplemental Indenture, dated as of
November 1, 1993 (Incorporated by reference to Exhibit 4 to
Form 10-Q for the quarter ended September 30, 1993); Thirty-Third
Supplemental Indenture, dated as of December 1, 1998 (Incorporated
by reference to Exhibit 4D to Form 8-K filed December 18, 1998).
All references to periodic reports are to those of Wisconsin
Public Service Corporation (File No. 1-3016).
-123-
<PAGE>
Exhibit
Number Description of Documents
- ------- ------------------------
4C Amended and Restated Declaration of Trust of WPSR Capital Trust I
dated as of July 30, 1998 among WPS Resources Corporation as
sponsor, State Street Bank and Trust Company as Administrative
Trustee, First Union Trust Company, National Association, as
Delaware Trustee, and Daniel P. Bittner and Ralph G. Baeten, as
Administrative Trustees (Incorporated by reference to Exhibit 4.1
to Form 8-K filed August 6, 1998) (File No. 1-11337).
4D Indenture dated as of July 30, 1998, between WPS Resources
Corporation and State Street Bank and Trust Company, as trustee
(Incorporated by reference to Exhibit 4.2 to Form 8-K filed
August 6, 1998); First Supplemental Indenture dated as of July 30,
1998, between WPS Resources Corporation and State Street Bank and
Trust Company, as trustee (Incorporated by reference to
Exhibit 4.3 to Form 8-K filed August 6, 1998). References to
periodic reports are to those of WPS Resources Corporation. (File
No. 1-11337).
4E Trust Preferred Securities Guarantee Agreement dated as of
July 30, 1998, between WPS Resources Corporation and State Street
Bank and Trust Company, guarantee trustee (Incorporated by
reference to Exhibit 4.4 to Form 8-K filed August 6, 1998) (File
No. 1-11337).
4F Indenture, dated as of December 1, 1998, between Wisconsin Public
Service Corporation and Firstar Bank Milwaukee, N.A., National
Association (Incorporated by reference to Exhibit 4A to Form 8-K
filed December 18, 1998); First Supplemental Indenture, dated as
of December 1, 1998 between Wisconsin Public Service Corporation
and Firstar Bank Milwaukee, N.A., National Association
(Incorporated by reference to Exhibit 4C to Form 8-K filed
December 18, 1998). References to periodic reports are to those
of Wisconsin Public Service Corporation. (File No. 1-03016).
10A 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 in File No. 2-27308).
10B 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).
10C Settlement and Ownership Transfer Agreement dated September 29,
1998 between Wisconsin Public Service Corporation and Madison Gas
and Electric Company (Incorporated by reference to Exhibit 99-2 to
Form 8-K/A filed March 2, 1999) (File No. 1-03016).
-124-
<PAGE>
Exhibit
Number Description of Documents
- ------- ------------------------
10D-1 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).
10D-2 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]).
10D-3 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]).
10E 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).
10F 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]).
10G-1 Copy of Power Purchase Agreement Between De Pere Energy LLC and
Wisconsin Public Service Corporation dated November 8, 1995 and
amended by a Letter Agreement dated February 18, 1997.
(Incorporated by reference to Exhibit 10F-1 to the Form 10-K for
the year ended December 31, 1997 [File No. 1-3016]).
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10H-1 Copy of amended and restated WPS Resources Corporation Deferred
Compensation Plan for executives and non-employee directors,
effective January 1, 1999.
10H-2 Copy of Form of Executive Employment and Severance Agreement
entered into between WPS Resources Corporation and each of the
following: Ralph G. Baeten, Daniel P. Bittner, Diane L. Ford,
Richard E. James, Thomas P. Meinz, Phillip M. Mikulsky,
Wayne J. Peterson, Patrick D. Schrickel, Charles 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, filed July 25, 1997 [File
No. 1-11337]).
-125-
<PAGE>
Exhibit
Number Description of Documents
- ------- ------------------------
10H-3 Copy of WPS Resources Corporation Short-Term Variable Pay Plan
effective January 1, 1998. (Incorporated by reference to
Exhibit 10G-3 in the Form 10-K for the year ended December 31,
1997 [File No. 1-11337]).
-126-
<PAGE>
Exhibit
Number Description of Document Pages in 10-K
------- ----------------------- -------------
2* Asset Purchase Agreement Among Maine Public
Service Company, Maine and New Brunswick
Electrical Power Company, Limited and
WPS Power Development, Inc. dated as of
July 7, 1998 135
3B-1 By-Laws of WPS Resources Corporation as in
Effect September 1, 1998 202
3B-2 By-Laws of Wisconsin Public Service Corporation
as in Effect September 1, 1998 235
10F-1 WPS Resources Corporation Amended and Restated
Deferred Compensation Plan Effective January 1,
1999
WPS Resources Corporation 266
11 Statement Regarding Computation of Per Share
Earnings
WPS Resources Corporation 295
21 Subsidiaries of the Registrant 296
23 Consent of Independent Public Accountants 297
24 Powers of Attorney 298
27 Financial Data Schedule
WPS Resources Corporation 307
Wisconsin Public Service Corporation 308
- -----------------------
* Schedules and exhibits to this document are not being filed
herewith. The registrant agrees to furnish supplementally a copy of any
such schedule or exhibit to the Securities and Exchange Commission upon
request.
-127-
<PAGE>
<PAGE>
(b) Reports on Form 8-K
A Current Report on Form 8-K dated September 29, 1998 filed by
WPS Resources Corporation and Wisconsin Public Service Corporation
on October 6, 1998. The report included under Item 5 the
announcement of completion of the merger of Upper Peninsula Energy
Company and WPS Resources Corporation effective at the close of
business on September 29, 1998 and the finalization of an
arrangement for Wisconsin Public Service Corporation to buy
Madison Gas and Electric Company's share of the Kewaunee Nuclear
Power Plant.
A Current Report on Form 8-K dated December 10, 1998 and filed
December 11, 1998 by WPS Resources Corporation and Wisconsin
Public Service Corporation (1) transmitting a press release
announcing that unseasonably warm weather in November and early
December will have a negative impact on its fourth quarter
earnings and a Settlement and Ownership Transfer Agreement between
WPSC and Madison Gas and Electric Company regarding Kewaunee
ownership issues, (2) disclosing certain costs to comply with
Environmental Protection Agency nitrogen oxide regulations, and
(3) disclosing authorization by the WPSR Board of Directors to
issue up to one million shares for WPSR's Stock Investment Plan in
lieu of open market purchases. (A Current Report on Form 8-K/A
dated December 10, 1998 and filed on March 1, 1999 indicating that
portions of Exhibit 99-2, the settlement and ownership transfer
agreement between Wisconsin Public Service Corporation and Madison
Gas and Electric Company, had been omitted based upon a request
for confidential treatment. The non-public information has been
filed separately with the Securities and Exchange Commission.)
A Current Report on Form 8-K dated December 14, 1998 and filed
December 18, 1998 by Wisconsin Public Service Corporation
transmitting certain documents relating to the offering of Senior
Notes, 6.08% Series due December 1, 2028 (the "Senior Notes"),
registered with the Securities and Exchange Commission on Form S-3
(Reg. No. 333-67979).
-128-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
WPS RESOURCES CORPORATION
and
WISCONSIN PUBLIC SERVICE CORPORATION
(Registrants)
By /s/ L. L. Weyers
-------------------------------------------------------------------
L. L. Weyers L. L. Weyers
Chairman, President, and Chairman and
Chief Executive Officer Chief Executive Officer
WPS Resources Corporation Wisconsin Public Service Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ------------------------------------------------------------------------------
A. Dean Arganbright Director March 24, 1999
Michael S. Ariens Director
Richard A. Bemis Director
Daniel A. Bollom Director
M. Lois Bush Director
Clarence R. Fisher Director
Robert C. Gallagher Director By /s/ L. L. Weyers
Kathryn M. Hasselblad-Pascale Director --------------------------
James L. Kemerling Director L. L. Weyers
Attorney-in-Fact
/s/ L. L. Weyers Principal Executive March 24, 1999
- ---------------------------------Officer and Director
L. L. Weyers
/s/ D. P. Bittner Principal Financial March 24, 1999
- ---------------------------------Officer
D. P. Bittner
/s/ D. L. Ford Principal Accounting March 24, 1999
- ---------------------------------Officer
D. L. Ford
-129-
<PAGE>
SCHEDULE III - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
A. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULE III - CONDENSED PARENT COMPANY
ONLY FINANCIAL STATEMENTS
To the Board of Directors of WPS Resources Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of WPS Resources Corporation included in
this Form 10-K, and have issued our report thereon dated January 28, 1999.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Supplemental
Schedule III is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures
applied in our audit of the basic consolidated financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 28, 1999
-130-
<PAGE>
<TABLE>
SCHEDULE III - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
B. STATEMENTS OF INCOME AND RETAINED EARNINGS
<CAPTION>
=================================================================================================
Year Ended December 31 (Thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Equity in earnings of subsidiaries after dividends $(26,752) $ (1,195) $ (7,518)
Cash dividends from subsidiaries 75,370 59,679 59,916
- -------------------------------------------------------------------------------------------------
Income from subsidiaries 48,618 58,484 52,398
- -------------------------------------------------------------------------------------------------
Investment income and other 4,516 2,880 2,293
- -------------------------------------------------------------------------------------------------
Total income 53,134 61,364 54,691
=================================================================================================
Operating expenses 4,557 5,122 1,054
- -------------------------------------------------------------------------------------------------
Income before interest expense 48,577 56,242 53,637
Interest expense 2,914 583 457
- -------------------------------------------------------------------------------------------------
Income before income taxes 45,663 55,659 53,180
Income taxes (968) (150) 295
- -------------------------------------------------------------------------------------------------
Net Income 46,631 55,809 52,885
=================================================================================================
Retained earnings, beginning of year 339,508 333,375 329,150
Common stock dividend (50,985) (49,676) (48,660)
- -------------------------------------------------------------------------------------------------
Retained earnings at end of year $335,154 $339,508 $333,375
=================================================================================================
</TABLE>
-131-
<PAGE>
<TABLE>
SCHEDULE III - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
C. BALANCE SHEETS
<CAPTION>
=======================================================================================
At December 31 (Thousands) 1998 1997
- ---------------------------------------------------------------------------------------
Assets
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and equivalents $ 919 $ 23
Accounts receivable - affiliates 1,564 434
Other receivables 1,160 748
Notes receivable - affiliates (note 1) 25,091 4,498
- ---------------------------------------------------------------------------------------
Total current assets 28,734 5,703
=======================================================================================
Long-term notes receivable - affiliates (note 2) 15,538 15,950
=======================================================================================
Investments in subsidiaries, at equity
Wisconsin Public Service Corporation 481,707 457,121
WPS Energy Services, Inc. 13,124 4,495
WPS Power Development, Inc. 10,314 7
Upper Peninsula Power Company 35,260 40,283
Other 6,297 4,358
- ---------------------------------------------------------------------------------------
Total investments in subsidiaries, at equity 546,702 506,264
=======================================================================================
Net equipment 1,177 321
Other investments 4,442 3,330
Deferred income taxes 169 45
- ---------------------------------------------------------------------------------------
Total assets $596,762 $531,613
=======================================================================================
=======================================================================================
Liabilities and Capitalization
- ---------------------------------------------------------------------------------------
Current liabilities
Notes payable $ 22,590 $ 5,206
Commercial paper 2,400 -
Accounts payable - affiliates 1,545 5,303
Accounts payable 602 1,699
Dividends payable 749 626
Other 186 15
- ---------------------------------------------------------------------------------------
Total current liabilities 28,072 12,849
=======================================================================================
Other liabilities - -
=======================================================================================
Capitalization
Common stock, $1 par value, 100,000,000
shares authorized; 26,551,405 shares outstanding 26,551 26,551
Premium on capital stock 163,438 163,454
Retained earnings 335,154 339,508
ESOP loan guarantees (6,448) (9,798)
Shares in deferred compensation trust (1,505) (951)
Advances from affiliates 51,500 -
- ---------------------------------------------------------------------------------------
Total capitalization 568,690 518,764
=======================================================================================
Total liabilities and capitalization $596,762 $531,613
=======================================================================================
</TABLE>
-132-
<PAGE>
<TABLE>
SCHEDULE III - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
D. STATEMENTS OF CASH FLOWS
<CAPTION>
=================================================================================================
Year Ended December 31 (Thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating
Net income $ 46,631 $ 55,809 $ 52,885
Add equity in earnings of subsidiaries after dividends 26,752 1,195 7,518
Deferred income taxes (124) 7 46
Other - net (17) 3 1,883
Changes in other items
Receivables (1,542) (25) (442)
Accounts payable (4,855) 3,441 304
Other 295 (393) 51
- -------------------------------------------------------------------------------------------------
Net cash - operating 67,140 60,037 62,245
=================================================================================================
Investing
Notes receivable - affiliates (20,181) 10,809 (20,280)
Capital contributions - affiliates (62,340) (8,709) (6,434)
Investments - other (1,968) (54) (2,792)
- -------------------------------------------------------------------------------------------------
Net cash - investing (84,489) 2,046 (29,506)
=================================================================================================
Financing
Proceeds from short-term debt 196,050 537,970 333,975
Payments on short-term debt (193,650) (549,944) (319,314)
Proceeds from commercial paper 1,867,287 - -
Payments on commercial paper (1,849,903) - -
Proceeds from intercompany debt 50,000 - -
Purchase of deferred compensation stock (554) (507) (443)
Common stock dividends (50,985) (49,676) (48,660)
- -------------------------------------------------------------------------------------------------
Net cash - financing 18,245 (62,157) (34,442)
=================================================================================================
Net change in cash 896 (74) (1,703)
Cash, beginning of period 23 97 1,800
- -------------------------------------------------------------------------------------------------
Cash, end of period $ 919 $ 23 $ 97
=================================================================================================
</TABLE>
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SCHEDULE III - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
E. NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
The following are supplemental notes to the WPS Resources Corporation
(parent company only) financial statements and should be read in conjunction
with the WPS Resources Corporation Consolidated Financial Statements and
Notes thereto included herein:
SUPPLEMENTAL NOTES
Note 1 WPS Resources Corporation ("WPSR") has short-term notes receivable
from WPS Energy Services, Inc. ("ESI"), WPS Power Development,
Inc., and Upper Peninsula Power Company, Inc. for $10.0 million,
$4.0 million and $11.1 million, respectively. Notes payable of
$3.5 million bear interest at 6.9%. The balance of these notes
bear interest at the prime or commercial paper rates.
Note 2 WPSR has long-term notes receivable from Wisconsin Public Service
Corporation for $5.8 million and $8.3 million bearing interest at
8.76% and 7.35%, respectively. The notes are to be repaid in
monthly payments of $51,670 and $63,896 through January 2015 and
May 2016, respectively. WPSR also has a long-term note receivable
from ESI totaling $1.5 million and bearing interest at 7-7/8%.
The note is to be repaid in quarterly payments of $69,076 through
October 2005.
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EXHIBIT 2
ASSET PURCHASE AGREEMENT
AMONG
MAINE PUBLIC SERVICE COMPANY,
MAINE AND NEW BRUNSWICK
ELECTRICAL POWER COMPANY, LIMITED
AND
WPS POWER DEVELOPMENT, INC.
Dated As Of: July 7, 1998
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . .1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II PURCHASE AND SALE. . . . . . . . . . . . . . . . . 12
2.1 The Purchase and Sale. . . . . . . . . . . . . . . . 12
2.2 Excluded Assets. . . . . . . . . . . . . . . . . . . 12
2.3 Assumed Obligations. . . . . . . . . . . . . . . . . 13
2.4 Excluded Liabilities . . . . . . . . . . . . . . . . 15
ARTICLE III PURCHASE PRICE. . . . . . . . . . . . . . . . . . 18
3.1 Purchase Price . . . . . . . . . . . . . . . . . . . 18
3.2 Purchase Price Adjustment. . . . . . . . . . . . . . 18
3.3 Allocation of Purchase Price and Assumed
Obligations. . . . . . . . . . . . . . . . . . . . . 18
3.4 HST Election . . . . . . . . . . . . . . . . . . . . 19
3.5 Proration. . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV THE CLOSING. . . . . . . . . . . . . . . . . . . . 20
4.1 Time and Place of Closing. . . . . . . . . . . . . . 20
4.2 Payment of Purchase Price. . . . . . . . . . . . . . 20
4.3 Deliveries by the Sellers. . . . . . . . . . . . . . 20
4.4 Deliveries by the Buyer. . . . . . . . . . . . . . 22
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SELLERS . . . 23
5.1 Organization; Qualification. . . . . . . . . . . . . 23
5.2 Authority Relative to this Agreement . . . . . . . . 23
5.3 Consents and Approvals; No Violation . . . . . . . . 24
5.4 Reports. . . . . . . . . . . . . . . . . . . . . . . 25
5.5 Financial Statements . . . . . . . . . . . . . . . . 25
5.6 Undisclosed Liabilities. . . . . . . . . . . . . . . 25
5.7 Absence of Certain Changes or Events . . . . . . . . 25
5.8 Title to and Condition of Properties . . . . . . . . 26
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5.9 Leases . . . . . . . . . . . . . . . . . . . . . . . 27
5.10 Insurance. . . . . . . . . . . . . . . . . . . . . . 28
5.11 Environmental Matters. . . . . . . . . . . . . . . . 28
5.12 Labor Matters. . . . . . . . . . . . . . . . . . . . 29
5.13 ERISA; Benefit Plans.. . . . . . . . . . . . . . . . 29
5.14 Condemnation . . . . . . . . . . . . . . . . . . . . 31
5.15 Certain Contracts and Arrangements . . . . . . . . . 32
5.16 Legal Proceedings, etc . . . . . . . . . . . . . . . 32
5.17 Permits. . . . . . . . . . . . . . . . . . . . . . . 33
5.18 Regulation as a Utility. . . . . . . . . . . . . . . 33
5.19 Taxes. . . . . . . . . . . . . . . . . . . . . . . . 33
5.20 Sufficiency of Purchased Assets. . . . . . . . . . . 34
5.21 Buyer's Knowledge. . . . . . . . . . . . . . . . . . 34
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BUYER. . . . 34
6.1 Organization . . . . . . . . . . . . . . . . . . . . 34
6.2 Authority Relative to this Agreement . . . . . . . . 34
6.3 Consents and Approvals; No Violation . . . . . . . . 35
6.4 Regulation as a Utility. . . . . . . . . . . . . . . 36
6.5 Disclosure . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VII COVENANTS OF THE PARTIES. . . . . . . . . . . . . 36
7.1 Conduct of Business Relating to the Purchased
Assets . . . . . . . . . . . . . . . . . . . . . . . 36
7.2 Access to Information. . . . . . . . . . . . . . . . 38
7.3 Expenses . . . . . . . . . . . . . . . . . . . . . . 40
7.4 Further Assurances . . . . . . . . . . . . . . . . . 40
7.5 Public Statements. . . . . . . . . . . . . . . . . . 41
7.6 Consents and Approvals; Financing. . . . . . . . . . 41
7.7 Fees and Commissions . . . . . . . . . . . . . . . . 42
7.8 Tax Matters. . . . . . . . . . . . . . . . . . . . . 42
7.9 Supplements to Schedules . . . . . . . . . . . . . . 43
7.10 Employees. . . . . . . . . . . . . . . . . . . . . . 43
7.11 Risk of Loss . . . . . . . . . . . . . . . . . . . . 47
7.12 Real Estate Title; Title Insurance; Surveys. . . . . 48
7.13 Wyman Agreements . . . . . . . . . . . . . . . . . . 49
ARTICLE VIII CONDITIONS PRECEDENT . . . . . . . . . . . . . . 50
8.1 Conditions to Each Party's Obligations . . . . . . . 50
8.2 Conditions to Obligations of the Buyer . . . . . . . 50
8.3 Conditions to Obligations of the Sellers . . . . . . 52
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ARTICLE IX INDEMNIFICATION. . . . . . . . . . . . . . . . . . 53
9.1 Indemnification. . . . . . . . . . . . . . . . . . . 53
9.2 Defense of Claims. . . . . . . . . . . . . . . . . . 55
ARTICLE X TERMINATION AND ABANDONMENT . . . . . . . . . . . . 57
10.1 Termination. . . . . . . . . . . . . . . . . . . . . 57
10.2 Procedure and Effect of Termination. . . . . . . . . 57
ARTICLE XI MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . 58
11.1 Amendment and Modification . . . . . . . . . . . . . 58
11.2 Waiver of Compliance; Consents . . . . . . . . . . . 58
11.3 Notices. . . . . . . . . . . . . . . . . . . . . . . 58
11.4 Assignment . . . . . . . . . . . . . . . . . . . . . 59
11.5 Governing Law. . . . . . . . . . . . . . . . . . . . 59
11.6 Counterparts . . . . . . . . . . . . . . . . . . . . 60
11.7 Interpretation . . . . . . . . . . . . . . . . . . . 60
11.8 Schedules and Exhibits . . . . . . . . . . . . . . . 60
11.9 Entire Agreement . . . . . . . . . . . . . . . . . . 60
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<PAGE>
EXHIBITS:
Bill of Sale A
Buy-Back Agreement B
Continuing Site Agreement C
Instrument of Assumption (MPS Liabilities) D-1
Instrument of Assumption (MNB Liabilities) D-2
Interconnection Agreements E
Form of Opinion (Sellers' U.S. Counsel) G-1
Form of Opinion (Sellers' Canadian Counsel) G-2
Form of Opinion (Buyer's U.S. Counsel) H
SCHEDULES:
Canadian Personal Property 1.1(a)(7)(iii)
FERC Licenses 1.1(a)(32)
NEB Licenses 1.1(a)(51)
Permitted Encumbrances 1.1(a)(55)
Transferable Permits 1.1(a)(70)
U.S. Personal Property 1.1(a)(72)(iii)
Excluded Facilities and Equipment 2.2(d)
Qualifications and Licenses to do Business 5.1
Consents, Approvals, Violations, Defaults of Sellers 5.3
Undisclosed Liabilities 5.6
Material Changes and Events 5.7
Title Exceptions 5.8(a)
Condition of Assets 5.8(b)
Real Estate 5.8(c)
Real Property Leases 5.9
Insurance Exceptions 5.10
Environmental Permits, Agreements and Consent Order 5.11
Employment Claims and Exceptions 5.12
Benefit Plans 5.13(a)
ERISA Fundings Obligations and Exceptions 5.13(b)
Real Estate Condemnation 5.14
Contracts, Agreements, and Personal Property Leases 5.15(a)
Exception to Contractual Obligations 5.15(b)
Material Defaults 5.15(c)
Legal Proceedings 5.16
Material Permits (other than Environmental Permits)
Violations of Material Permits, Related Laws, Statutes, Etc. 5.17
Tax Exceptions 5.19
Consents, Approvals, Violations and Defaults of Buyer 6.3
Index of Disclosure Materials 6.5
Maintenance and Capital Expenditures 7.1
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Buyer's Environmental Testing 7.2
Employees 7.10(a)
Labor Agreements 7.10(b)
-v-
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<PAGE>
THIS ASSET PURCHASE AGREEMENT, dated as of July 7, 1998 (this
"Agreement"), by and among MAINE PUBLIC SERVICE COMPANY, a Maine corporation
("MPS"), MAINE AND NEW BRUNSWICK ELECTRICAL POWER COMPANY, LIMITED, a
New Brunswick corporation ("MNB", and together with MPS, the "Sellers"), and
WPS POWER DEVELOPMENT, INC., a Wisconsin corporation ("PDI" or the "Buyer"),
W I T N E S S E T H:
WHEREAS, the Buyer desires to purchase (or to cause its designee to
purchase), and the Sellers desire to sell, the U.S. Assets and the Canadian
Assets (each as defined herein and together, the "Purchased Assets"), and the
Buyer has agreed to assume (or to cause its designee to assume) the Assumed
Obligations (as defined herein), in each case upon the terms and conditions
hereinafter set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions.
(a) As used in this Agreement, the following terms have the
meanings specified in this Section 1.1(a).
(1) "Affiliate" has the meaning set forth in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act.
(2) "assessment" includes a reassessment.
(3) "Bill of Sale" means a bill of sale to be delivered by a
Seller at the Closing with respect to the Purchased Assets of such Seller
which constitute personal property and which are to be transferred at the
Closing, substantially in the form of Exhibit A hereto.
(4) "Business Day" means any day other than Saturday, Sunday
and any day which is a legal holiday or a day on which banking
institutions in Portland, Maine are authorized by law or other
governmental action to close.
(5) "Buy-Back Agreement" means the Buy-Back Agreement
substantially in the form of Exhibit B hereto, dated the date of the
Closing, pursuant to which the Buyer or its designee agrees to sell to
MPS, and MPS agrees to purchase from the Buyer or its designee, energy
and capacity as provided therein.
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<PAGE>
(6) "Buyer Representatives" means the Buyer's accountants,
employees, counsel, environmental consultants, financial advisors and
other authorized representatives.
(7) "Canadian Assets" means, subject to Section 2.2, all of
the right, title and interest in, to and under the real and personal
property, tangible or intangible, owned by either of the Sellers and
constituting the Tinker Generating Station or used principally for
generation purposes in connection with such dams and reservoirs and
which are located in Aroostook Junction, New Brunswick, or which
constitute transmission and distribution assets located in
New Brunswick, Canada, including, but not limited to, the
following assets owned by either of the Sellers:
(i) the Real Estate (including all buildings, structures,
fixtures and other improvements thereon, all applicable easements
and other access rights, and all other rights and privileges
belonging or appertaining thereto) described on Schedule 5.8(c) as
associated with the Canadian Assets (the "Canadian Real Property");
(ii) inventories of supplies, materials and critical
spares located on or in transit to the Canadian Real Property on
the Closing Date;
(iii) the machinery, equipment, vehicles, furniture and
other personal property located on the Canadian Real Property on the
Closing Date, including, without limitation, the items of personal
property included in Schedule 1.1(a)(7)(iii) as being associated
with the Canadian Assets, and all warranties against manufacturers
or vendors relating thereto, to the extent assignable to the Buyer
or its designee and subject to the receipt of any necessary
consents;
(iv) the contracts, agreements, and real and personal
property leases listed on Schedules 5.9, 5.15(a) and 7.10(b) as
being associated with the Canadian Assets;
(v) the Transferable Permits listed on
Schedule 1.1(a)(70) as being associated with the Canadian Assets;
and
(vi) all books, operating records, operating, safety and
maintenance manuals, engineering design plans, blueprints and
as-built plans, specifications, procedures and similar items
relating specifically to the aforementioned assets other than books
of account.
(8) "Capital Expenditures" means those capital expenditures
which are identified as capital expenditures with respect to the
Purchased Assets and in the amounts identified on Schedule 7.1.
(9) "Capital Improvements" means those modifications or
improvements to the Purchased Assets described on Schedule 7.1 as
associated with the Capital Expenditures.
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<PAGE>
(10) "Caribou Fossil Assets" means those portions of Caribou
Station relating to the generation of electricity through fossil fuels.
(11) "Caribou Hydro Assets" means those portions of the Caribou
Station relating to the generation of electricity through hydro power.
(12) "Caribou Station" means the electric generating facility
located in Caribou, within the County of Aroostook, Maine and known as
the Caribou Station.
(13) "CERCLA" means the Federal Comprehensive Environmental
Response, Compensation and Liability Act, as amended.
(14) "Closing" means the closing of the sale of the Purchased
Assets and the assumption of the Assumed Obligations as described in
Section 4.1 hereof.
(15) "Closing Date" means the actual date of the Closing.
(16) "Closing Documents" means, collectively, this Agreement,
the Bills of Sale, the Buy-Back Agreement, the Continuing Site
Agreement, the Instruments of Assumption, the Interconnection
Agreements, and each of the documents, instruments, certificates,
opinions, and agreements which are required to be delivered pursuant
hereto and thereto.
(17) "COBRA" means the health care continuation coverage
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1986,
as amended.
(18) "Code" means the Internal Revenue Code of 1986, as
amended.
(19) "Confidentiality Agreement" means the Confidentiality
Agreement, dated October 20, 1997, between MPS and PDI.
(20) "Continuing Site Agreement" means the Continuing
Site/Interconnection Agreement in substantially the form of Exhibit C
hereto, dated the date of the Closing, between MPS and the Buyer or its
designee.
(21) "DEP" means the Maine Department of Environmental
Protection.
(22) "designee of the Buyer", "Buyer's designee", "its
designee" (when referring to the Buyer), and any similar phrase, means
one or more wholly owned, direct or indirect subsidiaries of the Buyer
formed in a jurisdiction of the United States to own all title and
interests in and to the U.S. Assets, the Canadian Assets, or both.
(23) "Easements" means, with respect to the Purchased Assets,
the reservations of easements to be included in the deeds of conveyance
with respect to such assets, or, in the case of the Flo's Inn Station,
the easement to be granted to Buyer or its designee, substantially as
set forth in Schedule 5.8(c) hereto.
-3-
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<PAGE>
(24) "Encumbrances" means any mortgages, pledges, liens,
security interests, conditional and installment sale agreements,
activity and use limitations, conservation easements, deed restrictions,
encumbrances and charges of any kind.
(25) "Environmental Laws" means all federal, state, provincial,
foreign and local laws, regulations, rules, ordinances, codes, decrees,
judgments, directives, or judicial or administrative orders relating to
pollution or protection of the environment, natural resources or human
health and safety, including, without limitation, laws relating to
Releases or threatened Releases of Hazardous Substances (including,
without limitation, into or through ambient air, surface water,
groundwater, land surface and subsurface strata) or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage,
Release, transport or handling of Hazardous Substances, including
without limitation the Clean Water Act (United States), the Clean Air
Act (United States), the Resource Conservation and Recovery Act
(United States), the Toxic Substances Control Act (United States),
CERCLA (United States), Fisheries Act (Canada), Environmental Assessment
Act (Canada), Navigable Waters Protection Act (Canada), Clean Air
Environmental Act (New Brunswick, Canada), Clean Water Act
(New Brunswick, Canada), and Pesticides Control Act (New Brunswick,
Canada), in each case as amended, and their state or provincial and
local counterparts.
(26) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
(27) "ERISA Affiliate" means any corporation that is or ever
has been a member of a controlled group of corporations with the
Sellers, any trade or business (whether or not incorporated) that is or
ever has been under common control with the Sellers, any member of a
current or former affiliated service group including the Sellers, and
any entity that is or ever has been required to be treated as a single
employer with the Sellers, under Section 414(b), (c), (m), or (o) of the
Code.
(28) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(29) "Excise Tax Act (Canada)" means the Excise Tax Act, R.S.C
1985 c.E-15, as amended.
(30) "Federal Power Act" means the Federal Power Act of 1935.
(31) "FERC" means the Federal Energy Regulatory Commission.
(32) "FERC Licenses" means the licenses identified in
Schedule 1.1(a)(32) hereto.
(33) "Flo's Inn Station" means the electric generating
facilities located in Presque Isle, within the County of Aroostook,
Maine and known as the Flo's Inn Generating Station.
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<PAGE>
(34) "generally accepted accounting principles" means generally
accepted accounting principles in the United States.
(35) "Hazardous Substances" means (a) any petrochemical or
petroleum products, oil or coal ash, radioactive materials, radon gas,
asbestos in any form that is or could become friable, urea formaldehyde
foam insulation and transformers or other equipment that contain
dielectric fluid which may contain levels of polychlorinated biphenyls;
(b) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances", "hazardous wastes", "hazardous
materials", "restricted hazardous materials", "extremely hazardous
substances", "toxic substances", "contaminants" or "pollutants" or words
of similar meaning and regulatory effect; or (c) any other chemical,
material or substance, exposure to which is prohibited, limited or
regulated by any applicable Environmental Law.
(36) "HIPAA" means the Health Insurance Portability and
Accountability Act of 1996, as amended.
(37) "Holding Company Act" means the Public Utility Holding
Company Act of 1935, as amended.
(38) "Houlton Station" means the electric generating facilities
located in Houlton, Maine and known as the Houlton Station.
(39) "HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
(40) "HST" means the tax levied under Part IX of the Excise Tax
Act (Canada).
(41) "Income Tax" means any federal, state, provincial, local
or foreign Tax (a) based upon, measured by or calculated with respect to
net income, profits or receipts (including, without limitation, capital
gains Taxes and minimum Taxes) or (b) based upon, measured by or
calculated with respect to multiple bases (including, without
limitation, corporate franchise taxes) if one or more of the bases on
which such Tax may be based, measured by or calculated with respect to,
is described in clause (a), in each case together with any interest,
penalties, or additions to such Tax.
(42) "Indentures" means:
(i) the Indenture of Mortgage and Deed of Trust, dated as
of October 1, 1945, between MPS and First Trust of Illinois
(successor to Continental Illinois National Bank and Trust
Company of Chicago), as Trustee, as supplemented; and
(ii) the Indenture of Second Mortgage and Deed of Trust,
dated as of October 1, 1985, between MPS and IBJ Schroder Bank
& Trust Company (successor to J. Henry Schroder Bank & Trust
Company), as Trustee, as supplemented.
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<PAGE>
(43) "Instruments of Assumption" means the Instrument of
Assumption substantially in the form of Exhibit D-1 hereto relating to
the assumption by the Buyer or its designee of the liabilities and
obligations of MPS described therein and the Instrument of Assumption
substantially in the form of Exhibit D-2 hereto relating to the
assumption by the Buyer or its designee of the liabilities and
obligations of MNB described therein, in each case, to be delivered at
the Closing.
(44) "Interconnection Agreements" means the Interconnection
Agreements substantially in the form of Exhibit E, dated the date of the
Closing, between MPS and the Buyer or its designee.
(45) "Knowledge", "to the knowledge of", and any similar
phrase, (i) when referring to the Sellers, means the actual and
conscious knowledge of the following members of management of MPS:
Paul R. Cariani, Frederick C. Bustard, Stephen A. Johnson,
Edward Howard, Larry E. LaPlante, David Holabird, or Peter Louridas
after reasonable inquiry by them of selected employees of the Sellers
whom they believe, in good faith, to be the persons generally
responsible for the subject matters to which the knowledge is pertinent;
and (ii) when referring to Buyer, the actual and conscious knowledge of
the following persons: Gerald L. Mroczkowski, Richard J. Suslick,
Keith M. Uffelman, Richard R. Heidel, Thomas G. Balzola,
Lisa M. Cribben, and Gregory W. Egtvedt, after reasonable inquiry
by them of selected employees of Buyer whom they believe, in good faith,
to be the persons generally responsible for the subject matters to which
the knowledge is pertinent.
(46) "Labor Agreement" means a collective bargaining agreement
or other employment-related agreement identified on Schedule 7.10(b).
(47) "Maintenance Expenditures" means those maintenance
expenditures which are identified as maintenance expenditures with
respect to the Purchased Assets and in the amounts identified on
Schedule 7.1.
(48) "Maintenance and Capital Expenditures Amount" means the
aggregate amount of all funds actually expended on, or for which
liabilities were accrued in accordance with generally accepted accounting
principles applied on a consistent basis with respect to, Maintenance
Expenditures and Capital Expenditures by the Sellers, if any, during the
period beginning on the date hereof and ending on the Closing Date, but
not in excess of the aggregate amount set forth in Schedule 7.1.
(49) "Material Adverse Effect" means any change or changes in,
or effect on, the Purchased Assets, the operation, maintenance or
condition (financial or otherwise) of the Purchased Assets, or the
business of the Sellers in connection therewith after the date of this
Agreement, or any change or changes in, or effect on, the Assumed
Obligations after the date of this Agreement, in each case that is,
individually, or in the aggregate are materially adverse to the
Purchased Assets, the operation, maintenance, or condition (financial or
otherwise) of the Purchased Assets, the business of the Sellers, or the
intended business of the Buyer as contemplated herein in connection
therewith, or to the
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Assumed Obligations, taken as a whole, other than (i) any change or
effect resulting from changes in the international, national, U.S.,
Canadian, regional or local wholesale or retail markets for electric
power, (ii) any change or effect resulting from changes in the
international, national, U.S., Canadian, regional or local markets for
any fuel used at the Purchased Assets, (iii) any change or effect
resulting from changes in the North American, national, U.S., Canadian,
regional or local electric transmission systems, (iv) any changes or
effects resulting from changes in U.S., Canadian, state, provincial or
local laws, regulations or ordinances affecting the Purchased Assets,
and (v) any materially adverse change in or effect on the Purchased
Assets, the operation, maintenance or condition (financial or otherwise)
of the Purchased Assets, the business of the Sellers (or of the Buyer
after the Closing, as the case may be) in connection therewith, or the
Assumed Obligations which is cured (including by the payment of money) by
the Sellers to the reasonable satisfaction of the Buyer before the
Termination Date. Notwithstanding the foregoing, the term "Material
Adverse Effect" with respect to matters affecting the Real Estate and the
Easements shall be measured not from the date of this Agreement but shall
initially be measured without reference to any time period and, with
respect to matters identified after the sixty-day period referred to in
Section 7.12(b), shall be measured from the effective date of the title
insurance commitments delivered on the Initial Title Review Date referred
to in Section 7.12(a).
(50) "Millinocket Facility" means the hydro electric storage
dam located on Millinocket Lake in the unorganized territory, T7 R9 WELS,
Piscataquis County, Maine and known as the Millinocket Facility.
(51) "NEB Licenses" means the licenses, permits and
certificates identified in Schedule 1.1(a)(51) hereto.
(52) "NPDES" means the National Pollutant Discharge Elimination
System.
(53) "Pension Benefits Act" means the Pension Benefits Act,
S.N.B. 1987, C. P- 5.1.
(54) "Permits" means all licenses, permits, exemptions,
approvals and authorizations of any nature issued by any local, state,
provincial, federal or foreign governmental agency applicable to the
construction, ownership, operation, maintenance or repair of the
Purchased Assets or any part thereof or to the performance of the Assumed
Obligations.
(55) "Permitted Encumbrances" means (i) those Encumbrances set
forth in Schedule 1.1(a)(55); (ii) the Easements; (iii) those exceptions
to title to the Purchased Assets listed in Schedule 5.8(a); (iv) all
exceptions, restrictions, easements, charges, rights of way and monetary
and non-monetary encumbrances which are set forth in the FERC Licenses
and the NEB Licenses, except for such Encumbrances that secure
indebtedness; (v) with respect to any date before the Closing Date,
Encumbrances created by the Indentures; (vi) statutory liens for current
taxes or assessments not yet due or delinquent or, with respect to any
date before the Closing Date, the validity of which is being
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contested in good faith by appropriate proceedings; (vii) mechanics',
carriers', workers', repairers' and other similar liens arising or
incurred in the ordinary course of business relating to obligations as
to which there is no default on the part of the Sellers or, with respect
to any date before the Closing Date, the validity of which is being
contested in good faith by appropriate proceedings; (viii) zoning,
entitlement, conservation restriction and other land use and
environmental regulations by governmental authorities which do not
materially detract from the value of the Purchased Assets as currently
used or materially interfere with the present use of the Purchased Assets
or, individually or in the aggregate, create a Material Adverse Effect;
and (ix) such other liens, imperfections in or failure of title, charges,
easements, restrictions and encumbrances which do not materially detract
from the value of the Purchased Assets as currently used or materially
interfere with the present use of the Purchased Assets and neither secure
indebtedness, nor individually or in the aggregate create a Material
Adverse Effect.
(56) "Person" means any individual, partnership, limited
liability company, joint venture, corporation, trust, unincorporated
organization or governmental entity or any department or agency thereof.
(57) "Proprietary Information" has the meaning referred to in
Section 7.2(b).
(58) "PUC" means the Maine Public Utilities Commission.
(59) "Release" means release, spill, leak, discharge, dispose
of, pump, pour, emit, empty, inject, leach, dump or allow to escape into
or through the environment.
(60) "SEC" means the Securities and Exchange Commission.
(61) "Securities Act" means the Securities Act of 1933, as
amended.
(62) "Sellers' Agreements" means those agreements listed on
Schedules 5.9 and 5.15(a) and the Labor Agreements.
(63) "Sellers' Employee Transition Plan" means the Sellers'
Employee Transition Plan in the form approved by the Buyer and the PUC on
or before the Closing Date.
(64) "Sellers' Representatives" means the Sellers' accountants,
employees, counsel, financial advisors and other authorized
representatives.
(65) "Squa Pan Station" means the hydro-electric facility
located in Masardis, within the County of Aroostook, Maine and known as
Squa Pan Station.
(66) "Subsidiary" when used in reference to any other Person
means any entity of which outstanding securities having ordinary voting
power to elect a majority of the Board of Directors or other Persons
performing similar functions of such entity are owned directly or
indirectly by such other Person.
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(67) "Tax" or "Taxes" means all taxes, charges, fees, levies,
penalties or other assessments imposed by any United States or foreign
federal, state, provincial, or local taxing authority, including, but not
limited to, HST, income, excise, property, sales, transfer, franchise,
payroll, withholding, social security or other taxes, including any
interest, penalties or additions attributable thereto.
(68) "Tax Return" means any return, report, information return
or other document (including any related or supporting information)
required to be supplied to any authority with respect to Taxes.
(69) "Tinker Generating Station" means the hydroelectric
facility located in Aroostook Junction, New Brunswick, Canada and known
as the Tinker Generating Station, together with the related diesel
generating assets and the transmission and distribution facilities owned
by MNB and located in New Brunswick, Canada.
(70) "Transferable Permits" means those Permits and
Environmental Permits and any applications pertaining thereto set forth
in Schedule 1.1(a)(70), to the extent assignable to the Buyer or its
designee and subject to the receipt of any necessary consents and
approvals.
(71) "Transferring Employee Records" means all personnel files
related to the Sellers' personnel who will become employees of the Buyer.
(72) "U.S. Assets" means, subject to the Easements in favor of
MPS and Section 2.2, all of Sellers' right, title and interest in, to and
under the real and personal property, tangible or intangible, and
constituting the Flo's Inn Station, the Houlton Station, the Millinocket
Facility, the Squa Pan Station and the Caribou Station or used
principally for generation purposes in connection with the Flo's Inn
Station, the Houlton Station, the Millinocket Facility, the Squa Pan
Station or the Caribou Station, or used principally in connection with
the Tinker Generating Station, but not including any of MPS's
transmission and distribution assets, and including MPS's entire interest
in the Wyman Station, and, in the case of any hydroelectric facilities,
including any generating assets which are located within the applicable
FERC project license boundary, and together with, in each case, all of
MPS's right, title and interest under any private and special laws of
Maine relating to any of the U.S. Assets or the Canadian Assets,
including, but not limited to, the following assets owned by MPS or MNB:
(i) the Real Estate (including all buildings, structures,
fixtures and other improvements thereon, all applicable easements
and other access rights and all other rights and privileges
belonging or appertaining thereto) described on Schedule 5.8(c) as
associated with the Millinocket Facility, the Squa Pan Station, the
Flo's Inn Station, the Caribou Station, or the Tinker Generating
Station, but not the Houlton Station, and, with respect to the
Flo's Inn Station, only to the extent of the Easement therefor (the
"U.S. Real Property");
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(ii) all inventories of fuels, supplies, materials and
critical spares located on or in transit to the U.S. Real Property
on the Closing Date;
(iii) the machinery, equipment, vehicles, furniture and
other personal property located on the U.S. Real Property or the
Houlton Station on the Closing Date, including, without limitation,
the items of personal property included in Schedule 1.1(a)(72)(iii)
as being associated with any of the Flo's Inn Station, the Houlton
Station, the Millinocket Facility, the Squa Pan Station or the
Caribou Station, and all warranties against manufacturers or vendors
relating thereto, to the extent assignable to the Buyer or its
designee and subject to the receipt of any necessary consents;
(iv) the contracts, agreements, and real and personal
property leases listed on Schedules 5.9, 5.15(a) and 7.10(b) as
being associated with any of the Flo's Inn Station, the Millinocket
Facility, the Squa Pan Station or the Caribou Station;
(v) the Transferable Permits listed on
Schedule 1.1(a)(70) as being associated with any of the Flo's Inn
Station, the Millinocket Facility, the Squa Pan Station or the
Caribou Station;
(vi) all books, operating records, operating, safety and
maintenance manuals, engineering design plans, blueprints and
as-built plans, specifications, procedures and similar items of the
Sellers relating specifically to the aforementioned assets other
than books of account; and
(vii) MPS's entire interest in Unit 4 of Wyman Station, as
affected by the Wyman Agreements, and MPS's associated rights in and
to the categories of assets disclosed in clauses (i) through (vi)
hereof relating to Unit 4 of Wyman Station.
(73) "WARN Act" means the Federal Worker Adjustment Retraining
and Notification Act of 1988.
(74) "Wyman Agreements" means (i) the William F. Wyman Unit
No. 4 Agreement for Joint Ownership, Construction and Operation, dated
as of November 1, 1974, by and among Central Maine Power Company,
Bangor Hydro-Electric Company, MPS, Boston Edison Company, Fitchburg Gas
and Electric Light Company, Montaup Electric Company, New England Power
Company, New Bedford Gas and Edison Light Company, Newport Electric
Corporation, Public Service Company of New Hampshire, Central Vermont
Public Service Corporation, Green Mountain Power Corporation, City of
Burlington Electric Department, Village of Lyndonville Electric
Department, and Massachusetts Municipal Wholesale Electric Company, as
amended by Amendments Nos. 1, 2 and 3 dated, respectively, June 30, 1975,
August 16, 1976, and December 31, 1978, and (ii) the
William F. Wyman Unit No. 4 Transmission Agreement, dated as of November
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1, 1974, by and among MPS and the other parties to the agreement
described in clause (i) above.
(75) "Wyman Station" means the electric generating facilities
known as the W.F. Wyman Station and located in Yarmouth, Maine.
(b) Each of the following terms has the meaning specified in the
Section set forth opposite such term:
Term Section
Adjustment Amount 3.2(a)
Adjustment Statement 3.2(a)
Assumed Obligations 2.3(b)
Benefit Plans 5.13(a)
Buyer Benefit Plans 7.10(e)
Buyer Required Regulatory Approvals 6.3(b)
Buyer's Window 7.10(a)
Buyer's 401(k) Plan 7.10(f)
Closing 4.1
Closing Date 4.1
Conditions 4.1
Direct Claim 9.2(c)
Employees 7.10(a)
Environmental Permits 5.11(a)
ERISA Affiliate Plans 2.4(10)
Excluded Assets 2.2
Excluded Liabilities 2.4
Final Order 8.1(c)
IBEW 7.10(a)
IBEW Agreements 7.10(b)
Indemnifiable Loss 9.1(a)
Indemnifying Party 9.1(d)
Indemnitee 9.1(c)
Independent Appraiser 3.3
Inventory Adjustment Amount 3.2(a)
Inventory Survey 3.2(a)
Observers 7.1(d)(1)
Pension Plans 5.13(a)
Purchased Assets Recitals
Purchase Price 3.1
Real Estate 5.8(c)
Replacement Welfare Plans 7.10(d)
Required Permits 5.17
Sellers Balance Sheets 5.5
Sellers Required Regulatory Approvals 5.3(b)
Sellers' Non-Union 401(k) Plan 7.10(f)
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Termination Date 10.l(b)
Third Party Claim 9.2(a)
Transferred Employees 7.10(a)
Transferred IBEW Employees 7.10(b)
Transferred Non-Union Employees 7.10(c)
Transition Committee 7.1(c)
Welfare Plans 5.13(a)
ARTICLE II
PURCHASE AND SALE
2.1 The Purchase and Sale.
(a) Upon the terms and subject to the satisfaction of the conditions
contained in this Agreement, at the Closing the Sellers will sell, assign,
convey, transfer and deliver to the Buyer or its designee, and the Buyer or
its designee will purchase and acquire from Seller, free and clear of all
Encumbrances (except for Permitted Encumbrances) all of the Sellers' right,
title and interest in, to and under the real and personal property, tangible
or intangible, owned by the Sellers and constituting the Purchased Assets.
(b) At the Closing, the Buyer or its designee and MPS will execute and
deliver to one another the Buy-Back Agreement, the Continuing Site Agreement,
and the Interconnection Agreements.
2.2 Excluded Assets. Notwithstanding any provision herein to the
contrary, the Purchased Assets shall not include the following assets of the
Sellers (herein referred to as the "Excluded Assets"):
(a) all cash, cash equivalents, bank deposits, accounts receivable, and
any income, sales, payroll or other tax receivables;
(b) certificates of deposit, shares of stock, securities, bonds,
debentures, evidences of indebtedness, and except in respect of MPS's interest
in the Wyman Station, interests in joint ventures, partnerships, limited
liability companies and other entities;
(c) the names Maine Public Service Company, Maine and New Brunswick
Electrical Power Company Limited, or any related or similar names, and any
trade names, trademarks, service marks, copyrights or logos;
(d) the transmission, distribution, substation and communication
facilities and related support equipment, including but not limited to those
described or referred to in Schedule 2.2(d), other than any transmission and
distribution assets owned by MNB and located in Canada;
(e) any refund, credit or other amount due (i) related to real or
personal property Taxes paid prior to the Closing Date in respect of the
Purchased Assets, whether such refund is
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received as a payment or as a credit against future real or personal property
Taxes payable, or (ii) arising under any Sellers' Agreement and relating to a
period before the Closing Date;
(f) all personnel records other than Transferring Employee Records;
(g) the real property interests associated with the Houlton Station; and
(h) the portion of the Caribou Facility consisting of the real property
under and near the electrical substations and related equipment at the
Caribou Station being retained by MPS, being approximately 0.27 acres
between the diesel plant and the filter plant, the exact description of which
portion shall be agreed upon by MPS and Buyer.
2.3 Assumed Obligations.
(a) On the Closing Date, the Buyer shall deliver to the Sellers the
Instruments of Assumption pursuant to which the Buyer or its designee shall
assume and agree to discharge all of the liabilities and obligations of the
Sellers, direct or indirect, known or unknown, absolute or contingent, which
relate to Purchased Assets, other than the Excluded Liabilities, in accordance
with the respective terms and subject to the respective conditions thereof,
including without limitation, the following liabilities and obligations:
(1) all liabilities and obligations of the Sellers under (a) the
Sellers' Agreements (other than the Labor Agreements) and the
Transferable Permits associated with the Purchased Assets in accordance
with the terms thereof, (b) the contracts, leases and other agreements
entered into by the Sellers with respect to the Purchased Assets which
would be required to be disclosed on Schedule 5.15(a) but for the
exception provided in clause (iii) of Section 5.15(a) of this Agreement,
in accordance with the terms thereof, and (c) the contracts, leases and
other agreements entered into by the Sellers with respect to the
Purchased Assets after the date hereof consistent with the terms of this
Agreement; except in each case, to the extent such liabilities and
obligations, but for a breach or default by the Sellers, would have been
paid, performed or otherwise discharged on or prior to the Closing Date
or to the extent the same arise out of any such breach or default or out
of any event which after the giving of notice would constitute a default;
(2) except in respect of any of the liabilities or obligations
described in Section 2.4, any liability, obligation or responsibility
under or related to former, current or future Environmental Laws or the
common law, whether such liability or obligation or responsibility is
known or unknown, contingent or accrued, arising as a result of or in
connection with (a) any violation or alleged violation of any
Environmental Law after the Closing Date, with respect to the ownership
or operation of the Purchased Assets; (b) compliance with applicable
Environmental Laws after the Closing Date with respect to the ownership
or operation of the Purchased Assets; (c) loss of life, injury to persons
or property or damage to natural resources caused (or allegedly caused)
by the presence or Release of Hazardous Substances at, on, in, under, or
migrating from the Purchased Assets after the Closing Date, including,
but not limited to, Hazardous Substances
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contained in building materials at the Purchased Assets or in the soil,
surface water, sediments, groundwater, landfill cells, or in other
environmental media at the Purchased Assets; (d) loss of life, injury to
persons or property or damage to natural resources caused (or allegedly
caused) by the off-site disposal, storage, transportation, discharge,
Release, recycling, or the arrangement for such activities, of Hazardous
Substances, after the Closing Date, in connection with the ownership or
operation of the Purchased Assets; (e) the investigation and/or
remediation of Hazardous Substances that are present or have been
Released at, on, in, under, or migrating from the Purchased Assets after
the Closing Date, including, but not limited to, Hazardous Substances
contained in building materials at the Purchased Assets or in the soil,
surface water, sediments, groundwater, landfill cells, or in other
environmental media at the Purchased Assets; (f) the investigation and/or
remediation of Hazardous Substances that are disposed, stored,
transported, discharged, Released, recycled, or the arrangement of such
activities, after the Closing Date, in connection with the ownership or
operation of the Purchased Assets, at any off-site location; and (g) any
violation or alleged violation of Environmental Law, and any loss of
life, injury to persons or property or damage to natural resources caused
(or allegedly caused) by (i) acts by the Buyer or its designee or their
respective employees, invitees or agents at any of the Purchased Assets
on or after the date of this Agreement and prior to the Closing Date;
(ii) acts or omissions by a party other than a Seller or its employees,
invitees or agents at any of the Purchased Assets after the Closing Date
which cause a condition not in violation of an Environmental Law or not
in need of remediation under an Environmental Law on the Closing Date to
be in violation of such Environmental Law or in need of remediation under
such Environmental Law (including, without limitation, the Release or
destabilization of Hazardous Substances which are in a stable or
contained state and are in compliance with all applicable Environmental
Laws on the Closing Date); or (iii) acts or omissions by a party other
than a Seller or its employees, invitees or agents at any of the
Purchased Assets after the Closing Date that exacerbate or aggravate any
condition in violation of an Environmental Law or in need of remediation
under an Environmental Law on the Closing Date, to the extent of any such
exacerbation or aggravation; provided, however, that the mere discovery
by the Buyer of a condition in violation of an Environmental Law or in
need of remediation under an Environmental Law on the Closing Date
(including, without limitation, the discovery of a Hazardous Substance
in violation of an Environmental Law or in need of remediation under an
Environmental Law), in and of itself and without any other act or
omission by the Buyer, shall not be included in this subclause (g);
(3) all liabilities and obligations associated with the Purchased
Assets in respect of Taxes for which the Buyer is liable pursuant to
Section 3.5;
(4) any liabilities and obligations associated with the Purchased
Assets for which the Buyer has indemnified the Sellers pursuant to
Section 9.1;
(5) all liabilities and obligations with respect to the Employees
of either of the Sellers to be employed at the Purchased Assets after the
Closing Date for which the Buyer is responsible pursuant to Section 7.10;
and
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(6) with respect to the Purchased Assets, any Tax that may be
imposed by any state or local government on the ownership, sale,
operation or use of the Purchased Assets for any period after the Closing
Date.
(b) All of the foregoing liabilities and obligations to be assumed by
the Buyer or its designee under Section 2.3(a) (excluding any Excluded
Liabilities) are referred to herein as the "Assumed Obligations." It is
understood and agreed that nothing in this Section 2.3 shall constitute a
waiver or release of any claims arising out of the contractual relationships
between the Sellers and the Buyer or its designee.
2.4 Excluded Liabilities. Except as otherwise specifically provided in
this Agreement, neither the Buyer nor its designee shall assume or be
obligated to pay, perform, or otherwise discharge any of the following
liabilities or obligations:
(1) any liabilities or obligations of the Sellers in respect of any
Excluded Assets or other assets of the Sellers which are not Purchased
Assets;
(2) any liabilities or obligations of the Sellers in respect of
Taxes for any period on or before the Closing Date;
(3) any liability, obligation or responsibility under or related to
former, current or future Environmental Laws or the common law, whether
such liability or obligation or responsibility is known or unknown,
contingent or accrued, arising as a result of or in connection with
(a) any violation or alleged violation by either of the Sellers of any
environmental Law, on or before the Closing Date, arising from the use,
operation, or maintenance of the Purchased Assets by the Sellers; (b)
compliance by either of the Sellers with applicable Environmental Laws on
or before the Closing Date arising from the use, operation, or
maintenance of the Purchased Assets by the Sellers; (c) loss of life,
injury to persons or property or damage to natural resources caused (or
allegedly caused) by the presence, due to or resulting from any act or
omission of either of the Sellers, or Release by either of the Sellers of
Hazardous Substances at, on, in, under, adjacent to or migrating from the
Purchased Assets on or before the Closing Date, including, but not
limited to, Hazardous Substances contained in building materials at or
adjacent to the Purchased Assets or in the soil, surface water,
sediments, groundwater, landfill cells, or in other environmental media
at the Purchased Assets; (d) loss of life, injury to persons or property
or damage to natural resources caused (or allegedly caused) by the
off-site disposal, storage, transportation, discharge, Release,
recycling, or the arrangement for such activities, of Hazardous
Substances, by either of the Sellers on or before the Closing Date, in
connection with the ownership or operation of the Purchased Assets;
(e) the investigation and/or remediation by either of the Sellers of
Hazardous Substances that are present or have been Released on or before
the Closing Date at, on, in, under, adjacent to or migrating from
the Purchased Assets, including, but not limited to, Hazardous Substances
contained in building materials at the Purchased Assets or in the soil,
surface water, sediments, groundwater, landfill cells or in other
environmental media at or adjacent to the Purchased Assets; (f) the
investigation and/or remediation by either of the Sellers of Hazardous
Substances that are disposed, stored, transported, discharged,
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Released, recycled, or the arrangement of such activities, on or before
the Closing Date, in connection with the ownership or operation of the
Purchased Assets, at any off-site location; or (g) any of the
circumstances described in subclauses (a) through (f) above if committed,
done, or caused by, or due to or resulting from any act or omission of,
any party other than the Sellers (other than the Buyer or its designee or
their respective employees, invitees or agents) if the Sellers have
knowledge thereof (notwithstanding the Buyer's knowledge thereof) on or
prior to the Closing Date; the Sellers agree and acknowledge that the
Excluded Liabilities described in this Section 2.4(3) shall include,
without limitation, the liabilities disclosed in Schedule 5.11, as
amended from time to time pursuant to Section 7.9, and any liabilities of
the nature described in subclauses (a) through (g) above discovered by
the Buyer in accordance with this Agreement and disclosed to the Sellers
prior to the Closing Date, other than any of the foregoing that was
committed, done or caused by or due to or resulting from any act of the
Buyer or its employees, invitees or agents;
(4) any liabilities, obligations or responsibilities relating to
the following, provided, however, that the Buyer or its designee may have
responsibility therefor under an Easement, an Interconnection Agreement,
the Continuing Site Agreement or otherwise than as an Assumed Obligation:
(a) the property, equipment or machinery retained by either Seller and
kept within the switchyards and substations for which the Sellers will
retain an Easement, (b) the transmission lines delineated in the
Easements or (c) any of Sellers' operations on, or usage of, the
Easements, including, without limitation, liabilities, obligations or
responsibilities arising as a result of or in connection with (1) any
violation or alleged violation by either of the Sellers of any
Environmental Law or (2) loss of life, injury to persons or property or
damage to natural resources;
(5) any liabilities or obligations required to be accrued by the
Sellers in accordance with generally accepted accounting principles and
the FERC Uniform System of Accounts on or before the Closing Date with
respect to liabilities related to the Purchased Assets;
(6) any liabilities or obligations (a) relating to any claim,
action, suit or proceeding pending against either of the Sellers as of
the Closing Date, notwithstanding the disclosure thereof in any Schedule,
or any subsequent claim, action, suit or proceeding arising out of or
relating to such pending matters, (b) resulting from any act or omission
of either of the Sellers occurring on or prior to the Closing Date,
(c) resulting from the use, operation, or maintenance of the Purchased
Assets by either of the Sellers on or prior to the Closing Date, or
(d) resulting from property damage or personal injuries (including death)
arising in connection with the use, operation, or maintenance of the
Purchased Assets by either of the Sellers on or prior to the Closing
Date;
(7) any fines or penalties imposed by a governmental agency
resulting from (A) an investigation or proceeding pending on or prior to
the Closing Date or (B) illegal acts, willful misconduct or gross
negligence of the Sellers prior to the Closing Date;
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(8) any payment obligations of the Sellers for goods delivered or
services rendered prior to the Closing;
(9) any liabilities or obligations imposed upon, assumed or
retained by the Sellers or any of their Affiliates pursuant to any of the
Closing Documents;
(10) any liabilities, obligations or responsibilities relating to
any Benefit Plan (as defined in Section 5.13(a) hereof), or to any
"employee pension benefit plan", as defined in Section 3(2) of ERISA, or
to any "pension plan", as defined in Section 1(1) of the Pension Benefits
Act, whether or not terminated, established, maintained or contributed to
by any of the Sellers or any of their ERISA Affiliates at any time or to
which any of the Sellers or any of their ERISA Affiliates are or have
been obligated to contribute to at any time ("ERISA Affiliate Plan");
including any liability (A) to the Pension Benefit Guaranty Corporation
under Title IV of ERISA; (B) relating to a multiemployer plan; (C) with
respect to non-compliance with COBRA or HIPAA; (D) with respect to
noncompliance with any other applicable provision of the Code, ERISA, or
the Pension Benefits Act or any other applicable laws; or (E) with
respect to any suit, proceeding or claim which is brought against the
Buyer with respect to any Benefit Plan or ERISA Affiliate Plan, against
any Benefit Plan or ERISA Affiliate Plan, or against any fiduciary or
former fiduciary of any such Benefit Plan or ERISA Affiliate Plan; and
(11) any liabilities, obligations or responsibilities relating to
the employment or termination of employment by the Sellers of any
individual (including, but not limited to, any employee of the Sellers),
except as expressly assumed by the Buyer pursuant to Section 7.10.
All such liabilities and obligations not being assumed pursuant to this
Section 2.4 are herein called the "Excluded Liabilities".
The parties agree and acknowledge that the Sellers shall be entitled
exclusively to control, at Sellers' sole cost and expense, any litigation,
administrative or regulatory proceeding, and any investigation or remediation
activities (including without limitation any environmental mitigation or
remediation activities), arising out of or related to any Excluded
Liabilities, and the Buyer agrees promptly to notify the Sellers of the
institution or commencement of any of the foregoing if and when Buyer obtains
knowledge thereof, and to cooperate fully, at Sellers' sole cost and expense,
with the Sellers in connection therewith; provided, that all such remediation
activities conducted after the Closing Date shall be coordinated with the
Buyer and conducted in a manner as not to interfere unreasonably with Buyer's
activities at the Purchased Assets (including, without limitation, Buyer's
operation and maintenance of the Purchased Assets).
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ARTICLE III
PURCHASE PRICE
3.1 Purchase Price. The purchase price for the Purchased Assets shall
be an amount equal to the sum of (a) $37,425,000, and (b) the Adjustment
Amount (collectively, the "Purchase Price").
3.2 Purchase Price Adjustment.
(a) Within ten (10) Business Days after the Closing, the Sellers shall
prepare and deliver to the Buyer a statement (the "Adjustment Statement")
which reflects (i) the net book value, as reflected on the books of the
Sellers as of the Closing Date of all fuel inventory (FERC account no. 151)
used at or in connection with the Purchased Assets except the Wyman Station
(the "Inventory Adjustment Amount"), and (ii) the Maintenance and Capital
Expenditures Amount. The Inventory Adjustment Amount and the Maintenance and
Capital Expenditures Amount for the Closing are referred to collectively as
the "Adjustment Amount." The Inventory Adjustment Amount will be based on a
fuel inventory survey conducted within five days prior to the Closing Date
consistent with current inventory procedures of the Sellers (the "Inventory
Survey"). The Sellers will permit an employee, or representative, of the
Buyer to observe the Inventory Survey. The Adjustment Statement shall be
prepared using the same generally accepted accounting principles, policies and
methods as the Sellers have historically used in connection with the
calculation of the items reflected on such Adjustment Statement. The Buyer
agrees to cooperate with the Sellers in connection with the preparation of the
Adjustment Statement and related information, and shall provide to the Sellers
such books, records and information as may be reasonably requested from time
to time.
(b) Within ten (10) Business Days after the Buyer's receipt of the
Adjustment Statement, the Buyer shall pay to MPS on behalf of the Sellers an
amount equal to the Adjustment Amount.
(c) The Purchase Price reflects Buyer's intent to use the diesel
generating facilities that are included within the Caribou Station on a
regular basis. Nevertheless, the permit that governs the discharge of cooling
water from those diesel generating facilities includes limits that inhibit
such use during periods of low water flow and warm weather. MPS agrees that,
unless MPS is able, prior to the Closing Date, to obtain modifications to such
permit that would allow Buyer to use such facilities without such an
inhibition, such modifications to be reasonably satisfactory to Buyer, then
the Purchase Price shall be reduced by One Hundred Thousand Dollars
($100,000).
3.3 Allocation of Purchase Price and Assumed Obligations. The Buyer and
the Sellers shall use their good faith best efforts to agree upon an
allocation among the Purchased Assets of the sum of the Purchase Price and the
Assumed Obligations consistent with Section 1060 of the Code and the Treasury
Regulations thereunder within 180 days after the date of this Agreement but in
no event less than 30 days prior to the Closing. The Buyer and the Sellers
may jointly agree to obtain the services of an independent engineer or
appraiser (the "Independent
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Appraiser") to assist the parties in determining the fair value of the
Purchased Assets for purposes of such allocation. If such an appraisal is
made, both the Buyer and the Sellers agree to accept the Independent
Appraiser's determination of the fair value of the Purchased Assets. The
parties shall jointly select the Independent Appraiser. The cost of the
appraisal shall be borne equally by the Buyer and the Sellers. Each of the
Buyer and the Sellers agrees to file Internal Revenue Service Form 8594, and
all federal, state, local and foreign Tax Returns, in accordance with such
agreed allocation. Each of the Buyer and the Sellers shall report the
transactions contemplated by the Agreement for federal and provincial Income
Tax and all other tax purposes in a manner consistent with the allocation
determined pursuant to this Section 3.3. Each of the Buyer and the Sellers
agrees to provide the other promptly with any other information required to
complete Form 8594. Each of the Buyer and the Sellers shall notify and
provide the other with reasonable assistance in the event of an examination,
audit or other proceeding regarding the agreed upon allocation of the Purchase
Price and the Assumed Obligations hereunder.
3.4 HST Election. The Buyer and the Sellers agree to execute jointly
in the statutorily prescribed form, and the Buyer will file within the time
required by subsection 167(1.1) of the Excise Tax Act (Canada), an election
under subsection 167(1) of the Excise Tax Act (Canada) that no HST be payable
with respect to the purchase and sale of the Canadian Assets hereunder.
3.5 Proration.
(a) The Buyer and the Sellers agree that all of the items normally
prorated, including those listed below, relating to the business and operation
of the Purchased Assets will be prorated as of the Closing Date, with the
Sellers liable to the extent such items relate to any time period prior to and
on the Closing Date, and the Buyer liable to the extent such items relate to
periods subsequent to the Closing Date:
(1) personal property, real estate, occupancy, sewerage and
water Taxes, assessments and other charges, if any, on or with respect to
the business and operation of the Purchased Assets;
(2) rent, Taxes and all other items payable under any of the
Sellers' Agreements assigned to and assumed by the Buyer hereunder which
are associated with the Purchased Assets;
(3) any permit, license, registration, compliance, or
assurance fees or other fees with respect to any Transferable Permit
associated with the Purchased Assets;
(4) sewer rents and charges for water, telephone, electricity
and other utilities; and
(5) rent under any leases of real or personal property
included in the Purchased Assets, including the leases described in
Schedule 5.9.
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(b) In connection with the prorations referred to in clause (a) above,
in the event that actual figures are not available at the Closing Date, the
proration shall be based upon the actual Taxes or fees for the preceding year
(or appropriate period) for which actual Taxes or fees are available and such
Taxes or fees shall be reprorated upon request of either the Sellers, on one
hand, or the Buyer, on the other hand, made within sixty (60) days after the
date that the actual amounts become available. The Sellers and the Buyer
agree to furnish each other with such documents and other records as may be
reasonably requested in order to confirm all adjustment and proration
calculations made pursuant to this Section 3.5.
ARTICLE IV
THE CLOSING
4.1 Time and Place of Closing. Upon the terms and subject to the
satisfaction of the conditions contained in Article VIII of this Agreement
(the "Conditions"), the closing of the sale of the Purchased Assets
contemplated by this Agreement (the "Closing") will take place at the offices
of Verrill & Dana, LLP, One Portland Square, Portland, Maine 04112 at 10:00
A.M. (local time) on such Business Day as the parties may agree, which date is
as soon as practicable, but no later than fifteen (15) Business Days following
the date on which all of the Conditions have been satisfied or waived; or at
such other place or time as the parties may agree. The date and time at which
the Closing actually occurs is hereinafter referred to as the "Closing Date."
4.2 Payment of Purchase Price.
(a) Upon the terms and subject to the satisfaction of the conditions
contained in this Agreement, in consideration of the aforesaid sale,
assignment, conveyance, transfer and delivery of the Purchased Assets, the
Buyer will pay or cause to be paid to the Sellers, as MPS may direct, at the
Closing an amount in United States dollars equal to $37,425,000, by wire
transfer of immediately available funds or by such other means as are agreed
upon by the Sellers and the Buyer.
(b) The Buyer shall pay the Adjustment Amount in accordance with
Section 3.2.
4.3 Deliveries by the Sellers. At the Closing, the Sellers will deliver
the following to the Buyer:
(a) One or more Bills of Sale, duly executed by the appropriate Seller
for the personal property included in the Purchased Assets;
(b) All consents, waivers or approvals obtained by the Seller with
respect to the Purchased Assets, the transfer of any Transferable Permit
related to the Purchased Assets, or the consummation of the transactions
connected to the sale of the Purchased Assets, contemplated by this Agreement,
to the extent specifically required hereunder;
(c) Opinions of counsel and certificates (as contemplated by
Section 8.2) with respect to the Purchased Assets;
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(d) For the conveyance of the U.S. Real Property, one or more quit-claim
with covenant deeds to the Buyer or its designee, reserving the applicable
Easements, or, with respect to the Flo's Inn Station, an Easement in favor of
Buyer or its designee, in each case duly executed and acknowledged by the
appropriate Seller and in recordable form, together with a certificate of
Maine residency of MPS sufficient to relieve Buyer, its designee and their
representatives of any Maine withholding obligation relating to the sale of
the U.S. Real Property;
(e) For the conveyance of the Canadian Real Property, one or more deeds
to the Buyer or its designee utilizing Form A13 as prescribed by the Standard
Forms of Conveyances Act (New Brunswick, Canada) duly executed and
acknowledged by the appropriate Seller;
(f) The Continuing Site Agreement, the Buy-Back Agreement, and the
Interconnection Agreements, each duly executed by MPS;
(g) All Permits and Environmental Permits transferable to the Buyer or
its designee pursuant to this Agreement;
(h) All releases necessary to terminate and discharge any Encumbrances
(other than Permitted Encumbrances) on the Purchased Assets;
(i) Appropriate assignments necessary to transfer to the Buyer or its
designee all contracts and other intangible assets included in the Purchased
Assets;
(j) Originals of all books and records included in the Purchased Assets;
(k) All such other instruments of assignment or conveyance as shall, in
the reasonable opinion of the Buyer and its counsel, be necessary to transfer
to the Buyer or its designee the Purchased Assets, in accordance with this
Agreement and, where necessary or desirable, in recordable form;
(l) A copy of the resolutions of the Board of Directors of each of the
Sellers authorizing and approving this Agreement and each of the Closing
Documents to which it is a party and the consummation of the transactions
contemplated hereby and thereby, in each case certified by the secretary of
the respective Seller;
(m) A copy of the articles of incorporation and by-laws (or equivalent
charter documents) of each of the Sellers, in each case certified by the
secretary of the respective Seller, and a copy of the articles of
incorporation (or equivalent charter document(s)) of each Seller certified by
the Secretary of State of Maine, with respect to MPS, and the director of
Corporate and Trust Affairs of New Brunswick, Canada, with respect to MNB;
(n) Certificates by the secretary of each Seller as to the incumbency of
each person executing any Closing Document on behalf of such Seller;
(o) Such affidavits and, to the extent consistent with and not in
addition to the terms hereof, indemnities reasonably requested by Buyer's
title insurance company; and
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(p) Such other agreements, documents, instruments and writings as are
required to be delivered by the Sellers at or prior to the Closing Date
pursuant to this Agreement or otherwise required in connection herewith.
In addition to the foregoing, MPS shall, on the Closing Date or on such other
date after the Closing Date as the parties may specify in writing, dismantle,
crate and deliver, at Buyer's sole cost and expense, the Purchased Assets
constituting personal property at the Houlton Station, to a location
designated by Buyer in writing not less than thirty (30) days prior to the
Closing Date.
4.4 Deliveries by the Buyer. At the Closing, the Buyer will deliver the
following to the Sellers:
(a) The portion of the Purchase Price referred to in Section 4.2(a), by
wire transfer of immediately available U.S. funds, or by such other means as
are agreed upon by the Sellers and the Buyer;
(b) Opinions of counsel and certificates (as contemplated by
Section 8.3) with respect to the Purchased Assets;
(c) The Instruments of Assumption with respect to the Assumed
Obligations, duly executed by the Buyer or its designee;
(d) All such other instruments of assumption as shall, in the reasonable
opinion of the Sellers and its counsel, be necessary for the Buyer or its
designee to assume the Assumed Obligations related to the Purchased Assets in
accordance with this Agreement;
(e) A copy of the resolutions of the Board of Directors (or similar
governing board) of each of the Buyer and its designees authorizing and
approving this Agreement and each of the Closing Documents to which it is a
party and the consummation of the transactions contemplated hereby and
thereby, certified by the secretary (or similar officer) of the Buyer or its
designee, as the case may be;
(f) A copy of the articles of incorporation and by-laws (or equivalent
charter documents) of each of the Buyer and its designees, certified by its
secretary (or similar officer), and a copy of the articles of incorporation
(or equivalent charter documents) of each of the Buyer and its designees,
certified by the Wisconsin Department of Financial Institutions, or by the
similar authority in any jurisdiction of organization other than Wisconsin;
(g) A certificate by the secretary (or similar officer), of each of the
Buyer, and its designees, as to the incumbency of each person executing any
Closing Document on behalf of Buyer or its designee, as the case may be; and
(h) Such other agreements, documents, instruments and writings as are
required to be delivered by the Buyer, or its designee, at or prior to the
Closing Date pursuant to this Agreement or otherwise required in connection
herewith.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each of the Sellers, for itself, represents and warrants to the Buyer as
follows, as of the date hereof and on and as of the Closing Date:
5.1 Organization; Qualification. MPS is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maine and
has all requisite corporate power and authority to own, lease, and operate its
properties and to carry on its business as is now being conducted. MNB is a
corporation duly organized, validly existing and in good standing under the
laws of the Province of New Brunswick, Canada and has all requisite corporate
power and authority to own, lease, and operate its properties and to carry on
its business as is now being conducted. MPS owns directly 100% of the issued
and outstanding capital stock of MNB. The Sellers are duly qualified or
licensed to do business as foreign corporations and are in good standing in
each jurisdiction in which the property owned, leased or operated by them or
the nature of the business conducted by them makes such qualification
necessary, except in each case in those jurisdictions where the failure to be
so duly qualified or licensed and in good standing would not create a Material
Adverse Effect. The states, provinces, and other jurisdictions in which the
Sellers are qualified or licensed to do business are listed in Schedule 5.1.
5.2 Authority Relative to this Agreement. Each of the Sellers has full
corporate power and authority to execute and deliver this Agreement and each
of the other Closing Documents to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by
each Seller of this Agreement and each of the other Closing Documents to which
it is a party and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by the Board of Directors of MPS
and by the Board of Directors of MNB and its sole shareholder, and no other
corporate proceedings on the part of either Seller are necessary to authorize
this Agreement or any of the other Closing Documents to which it is a party or
to consummate the transactions contemplated hereby or thereby. No notice to,
meeting of, action by, or approval of the shareholders of MPS is necessary to
authorize the execution and delivery of this Agreement or any of the other
Closing Documents to which MPS is a party, or to consummate the transactions
contemplated hereby or thereby. No preferred stock of MPS is issued and
outstanding. Each of this Agreement and the other Closing Documents to which
either Seller is a party has been duly and validly executed and delivered by
such Seller, and assuming that each of this Agreement and such other Closing
Documents constitutes a valid and binding agreement of the Buyer, subject to
the receipt of the Sellers Required Regulatory Approvals and the Buyer
Required Regulatory Approvals, constitutes a valid and binding agreement of
such Seller enforceable against such Seller in accordance with its terms,
except that such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and by general principles of
equity.
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5.3 Consents and Approvals; No Violation.
(a) Except as set forth in Schedule 5.3, and other than obtaining the
Sellers Required Regulatory Approvals and the Buyer Required Regulatory
Approvals, neither the execution and delivery of this Agreement and the other
Closing Documents by the Sellers nor the consummation of the transactions
contemplated hereby or thereby (including, without limitation, the sale by the
Sellers of the Purchased Assets pursuant to this Agreement and the other
Closing Documents) will (i) conflict with or result in any breach of any
provision of the respective organizational documents or bylaws of the Sellers,
(ii) require any consent, approval, authorization or permit of, or filing with
or notification to, any governmental or regulatory authority, except (x) where
the failure to obtain such consent, approval, authorization or permit, or to
make such filing or notification, would not, individually or in the aggregate,
create a Material Adverse Effect or (y) for those requirements which become
applicable to the Sellers as a result of the specific regulatory status of the
Buyer (or any of its Affiliates) or as a result of any other facts that
specifically relate to the business or activities in which the Buyer (or any
of its Affiliates) is or proposes to be engaged; (iii) result in or constitute
a default (or an event which, with notice or lapse of time, or both, would
constitute a default), or give rise to any right of termination, cancellation
or acceleration, or result in the creation of any Encumbrance upon any of the
assets of the Sellers, under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, agreement or other instrument or
obligation to which either of the Sellers is a party or by which either of the
Sellers, or any of the Purchased Assets may be bound, except for such defaults
(or events which, with notice or lapse of time, or both, would constitute a
default), or rights of termination, cancellation or acceleration as to which
requisite waivers or consents have been obtained or which, in the aggregate,
would not, individually or in the aggregate, create a Material Adverse Effect;
or (iv) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to either of the Sellers, or any of their assets, which
violation, individually or in the aggregate, would create a Material Adverse
Effect.
(b) Except as set forth in Schedule 5.3 and except for (i) any required
approvals under the Federal Power Act, (ii) (A) notice by MPS to, and an order
by, the PUC approving the transactions contemplated by this Agreement, (B) the
approval by the Lieutenant-Governor in Council of New Brunswick of the
transactions involving MNB and its assets contemplated by this Agreement,
(iii) the approval, if required, of the SEC pursuant to the Holding Company
Act, (iv) the approval, if required, of the National Energy Board of Canada
and the Board of Commissioners of Public Utilities of the Province of New
Brunswick, Canada and (v) the approval, if required, of the State of Maine
with respect to the inclusion within the Purchased Assets of any rights,
franchises, privileges or similar assets of the Sellers deriving from any
private and special laws or other legislative grant or charter (the filings
and approvals referred to in clauses (i) through (v) are collectively referred
to as the "Sellers Required Regulatory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of any
governmental or regulatory body or authority is necessary for the consummation
by the Sellers of the transactions contemplated under this Agreement and the
other Closing Documents, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not obtained or made,
will not, individually or in the aggregate, create a Material Adverse Effect.
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5.4 Reports. Since January 1, 1994, the Sellers have filed or caused to
be filed with the SEC, the applicable state, provincial or local utility
commissions or regulatory bodies, or the FERC, as the case may be, all
material forms, statements, reports and documents (including all exhibits,
amendments and supplements thereto) required to be filed by the Sellers with
respect to the business and operations of the Sellers as it relates to the
Purchased Assets under each of the Securities Act, the Exchange Act, the
applicable State and provincial public utility laws, the Federal Power Act
(United States), the Holding Company Act (United States), the Business
Corporations Act (New Brunswick, Canada) and the National Energy Board Act
(Canada), and the respective rules and regulations thereunder, all of which
complied in all material respects with all applicable requirements of the
appropriate act and the rules and regulations thereunder in effect on the date
each such report was filed, and there were no material misstatements or
omissions contained in such reports as of the respective dates thereof, in
each case with respect to the Purchased Assets.
5.5 Financial Statements. The Sellers have made available to the Buyer
their balance sheets, as of March 31, 1997 and March 31, 1998, and the related
statements of income and cash flows for the years then ended (including the
notes related thereto). Such balance sheets (including the related statements
of income and cash flows and the related notes thereto) are referred to herein
as the "Sellers Balance Sheets". Each of the Sellers Balance Sheets is
complete and accurate, has been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, except as otherwise noted
therein, and presents fairly, as of the date thereof, the financial position
of such Seller in conformity with generally accepted accounting principles
applied on a consistent basis, except as otherwise noted therein.
5.6 Undisclosed Liabilities. Except as set forth in Schedule 5.6, the
Sellers have no liabilities or obligations relating to the Purchased Assets,
the operation or maintenance of the Purchased Assets, or the business of the
Sellers in connection therewith, secured or unsecured (whether absolute,
accrued, contingent or otherwise, and whether due or to become due), which are
not accrued or reserved against in the Sellers Balance Sheets as of March 31,
1998 (the "Sellers Recent Balance Sheets") or disclosed in the notes thereto
in accordance with generally accepted accounting principles, except commercial
liabilities and obligations incurred since the date of the Sellers Recent
Balance Sheets in the ordinary course of business and consistent with past
practice and none of which has or will have a Material Adverse Effect. Except
as set forth in Schedule 5.6, the Sellers have no knowledge of any basis for
the assertion against the Sellers or any successor in interest thereto of any
liability or obligation relating to the Purchased Assets, the operation of the
Purchased Assets, or the business of the Sellers in connection therewith, and
to the knowledge of the Sellers there are no circumstances, conditions,
happenings, events or arrangements, contractual or otherwise, which may give
rise to any such liabilities or obligations, except commercial liabilities and
obligations incurred in the ordinary course of business consistent with past
practice.
5.7 Absence of Certain Changes or Events. Except (i) as set forth in
Schedule 5.7, or in the reports, schedules, registration statements and
definitive proxy statements filed by MPS with the SEC and (ii) as otherwise
contemplated by this Agreement, since the date of the Sellers Recent Balance
Sheets there has not been (a) any Material Adverse Effect; (b) any damage,
destruction or casualty loss, whether covered by insurance or not, which,
individually or in the
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aggregate, create a Material Adverse Effect; (c) any entry into any agreement,
commitment or transaction (including, without limitation, any borrowing,
capital expenditure or capital financing, any amendment or termination of any
contract or agreement, or any waiver of material rights) by the Sellers with
respect to the Purchased Assets, except agreements, commitments or
transactions in the ordinary course of business consistent with past practice
that individually or in the aggregate are not material to the Purchased
Assets, the operation or maintenance of the Purchased Assets, or the business
of the Sellers in connection therewith, and except agreements, commitments or
transactions that do not extend beyond the Closing Date with respect to the
Purchased Assets; (d) any change by the Sellers, with respect to the Purchased
Assets, in accounting methods, principles or practices except as required or
permitted by generally accepted accounting principles; (e) any increase in the
compensation, salaries or wages payable to or to become payable to any
Employee (including, without limitation, any increase or change pursuant to
any bonus, pension, profit sharing, retirement or other plan or commitment),
or any bonus or other employee benefit granted, made or accrued to or for the
benefit of any Employee, other than in the ordinary course of business
consistent with past practice; (f) any loan or advance (other than advances to
Employees in the ordinary course of business for travel and entertainment in
accordance with past practice) to any Person including, but not limited to,
any Employee; or (g) any sale, lease, or other transfer or disposition of any
properties or assets of the Sellers related to the Purchased Assets, the
operation or maintenance of the Purchased Assets, or the business of the
Sellers in connection with the Purchased Assets, other than transfers or
dispositions in the ordinary course of business consistent with past practice,
and other than dispositions of obsolete or unusable property, that
individually or in the aggregate are not material to the Purchased Assets, the
operation or maintenance of the Purchased Assets or the business of the
Sellers in connection therewith.
5.8 Title to and Condition of Properties.
(a) Marketable Title. Except as set forth in Schedule 5.8(a) and except
for other Permitted Encumbrances, the Sellers have and at Closing Buyer or its
designee will receive (i) good and marketable title to all of the Real Estate,
free and clear of all Encumbrances and (ii) good and valid title to all of the
personal property included within the Purchased Assets, free and clear of all
Encumbrances. The foregoing representation with respect to title to the Real
Estate shall expire upon consummation of the Closing and thereafter Buyer
shall, with respect to such matters, rely upon the covenants set forth in the
deeds for the Real Estate and upon title insurance with respect to the U.S.
Real Property, and similar third-party assurances with respect to the Canadian
Real Property. Except for the Sellers Required Regulatory Approvals and the
Buyer Required Regulatory Approvals, none of the Purchased Assets are subject
to any restrictions with respect to the transferability thereof.
(b) Condition. Except as set forth in Schedule 5.8(b), the tangible
assets at each station, taken as a whole (real and personal), constituting
Purchased Assets (i) are in good operating and usable condition and repair,
free from any defects (except ordinary wear and tear, in light of their
respective ages and historical usages, and except such minor defects as do not
interfere with the use thereof in the conduct of the normal operation and
maintenance of the Purchased Assets); and (ii) have been maintained consistent
with the standards generally followed in the industry. The Buyer acknowledges
that an item is not defective merely because it breaks or
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otherwise fails after a reasonable amount of time has passed or after it has
provided a reasonable amount of usage.
(c) Real Estate. Schedule 5.8(c) sets forth all real property owned,
leased, used or occupied by Sellers and included in the Purchased Assets (the
"Real Estate"), including a description of all land, exhibits indicating the
location thereof, and all Encumbrances, easements or rights of way of record
(or, if not of record, of which Sellers have notice or knowledge) granted on
or appurtenant to or otherwise affecting such Real Estate, the zoning
classification thereof, and all plants, buildings or other structures located
thereon. Except with respect to the Millinocket Facility, which has no deeded
access rights but depends upon custom and usage as described in Schedule
5.8(c), no fact or condition exists which would prohibit or adversely affect
the ordinary rights of access to and from the Real Estate from and to the
existing highways and roads and there is no pending or threatened restriction
or denial, governmental or otherwise, upon such ingress or egress. Except as
set forth on Schedule 5.8(c), Sellers' occupation and use of the Real Estate
is in material compliance with all applicable laws and regulations. Except as
set forth on Schedule 5.8(c), there is not (i) any claim of adverse possession
or prescriptive rights involving any of the Real Estate, (ii) any structure
located on any Real Estate which encroaches on or over the boundaries of
neighboring or adjacent properties or (iii) any structure of any other party
which encroaches on or over the boundaries of any of such Real Estate. Except
as indicated in Schedule 5.8(c), none of the Real Estate is located in a flood
plain, flood hazard area, wetland or lakeshore erosion area within the meaning
of any applicable order, decree, statute, rule, or regulation. No public
improvements have been commenced and to the knowledge of the Sellers none are
planned which in either case may result in special assessments against any of
the Real Estate or otherwise create a Material Adverse Effect. No portion of
any of the Real Estate has been used as a landfill or for storage or landfill
of hazardous or toxic materials. Except as set forth on Schedule 5.8(c), the
Sellers have no knowledge of any (i) planned or proposed increase in assessed
valuations of any Real Estate, (ii) order, writ, injunction, or decree
requiring repair, alteration, or correction of any existing condition
affecting any Real Estate or the systems or improvements thereat, (iii)
condition or defect which could give rise to an order of the sort referred to
in "(ii)" above, or (iv) underground storage tanks, or any structural,
mechanical, or other defects of material significance affecting any Real
Estate or the systems or improvements thereat (including, but not limited to,
inadequacy for normal use of mechanical systems or disposal or water systems
at or serving the Real Estate).
(d) No Certified Survey Map Required. No certified survey map or other
state, municipal, or other governmental approval regarding the division,
platting, or mapping of real estate is required as a prerequisite to the
conveyance by the Sellers to Buyer (or as a prerequisite to the recording of
any conveyance document) of any Real Estate pursuant to the terms hereof.
5.9 Leases. Schedule 5.9 lists, as of the date of this Agreement, all
real property leases under which the Sellers are a lessee or lessor and which
(x) relate to the Purchased Assets, the operation or maintenance of the
Purchased Assets, or the business of the Sellers in connection therewith and
(y) (i) provide for annual payments of more than $1,000 or (ii) are material
to the operation or condition (financial or otherwise) of the Purchased Assets
or the business of the Sellers in connection therewith. Except as set forth
in Schedule 5.9, all such leases are valid, binding and enforceable in
accordance with their terms, and are in full force and effect; there are
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no existing material defaults by the Sellers or, to the Sellers' knowledge,
any other party thereunder; and no event has occurred which (whether with or
without notice, lapse of time or both) would constitute a material default by
the Sellers or, to the Sellers' knowledge, any other party thereunder, or
would cause the acceleration of any of the Sellers' obligations thereunder or
result in the creation of any Encumbrance on any of the Purchased Assets, or
would give rise to an automatic termination, or the right of discretionary
termination, thereof.
5.10 Insurance. Except as set forth in Schedule 5.10, all material
policies of fire, liability, worker's compensation and other forms of
insurance owned or held by the Sellers (including self insurance) with respect
to the Purchased Assets, the operation or maintenance of the Purchased Assets,
or the business of the Sellers in connection therewith, are in full force and
effect, all premiums with respect thereto covering all periods up to and
including the date as of which this representation is being made have been
paid (other than retroactive premiums which may be payable with respect to
comprehensive general liability and worker's compensation insurance policies),
and no notice of cancellation or termination has been received with respect to
any such policy which was not replaced on substantially similar terms prior to
the date of such cancellation. Except as set forth on Schedule 5.10, there is
no claim by the Sellers pending under any such policies as to which coverage
has been questioned, denied or disputed by the underwriters of such policies,
and the Sellers know of no basis for denial of any claim under any such
policy. Except as set forth on Schedule 5.10, neither of the Sellers has
received any written notice from or on behalf of any insurance carrier issuing
any such policy that insurance rates therefor will hereafter be substantially
increased (except to the extent that insurance rates may be increased for all
similarly situated risks) or that there will hereafter be a cancellation or an
increase in a deductible (or an increase in premiums in order to maintain an
existing deductible) or nonrenewal of any such policy. Except as described in
Schedule 5.10, the Sellers have not been refused any insurance with respect to
the Purchased Assets, the operation or maintenance of the Purchased Assets, or
the business of the Sellers in connection therewith, nor has their coverage
been limited by any insurance carrier to which they have applied for any such
insurance or with which they have carried insurance during the last twelve
months.
5.11 Environmental Matters. Except as disclosed in Schedule 5.11 or in
any public filing by MPS pursuant to the Securities Act or the Exchange Act:
(a) The Sellers hold, and are in compliance with, all of the permits,
licenses and governmental authorizations identified in Schedule 5.11, which
are all of the permits, licenses and governmental authorizations required for
the Sellers to own, operate, maintain, and engage in business related to the
Purchased Assets under applicable Environmental Laws (collectively, the
"Environmental Permits"), and the Sellers are otherwise in compliance with all
applicable Environmental Laws with respect to the Purchased Assets, the
operation or maintenance of the Purchased Assets, or the business of the
Sellers in connection with the Purchased Assets, except for such failures to
hold or comply with required Environmental Permits, or such failures to be in
compliance with applicable Environmental Laws which, individually or in the
aggregate, are not reasonably likely to create a Material Adverse Effect.
(b) The Sellers have not received any written request for information or
been notified that they are a potentially responsible party under CERCLA or
any other Environmental Law, or
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are potentially subject to any judgment, rule, order, writ, injunction, or
decree of any court, governmental or regulatory authority under the Clean
Environment Act (New Brunswick, Canada) or the Clean Water Act (New Brunswick,
Canada), and there are no claims, actions, proceedings or investigations
pending or, to the knowledge of Sellers, threatened against Sellers before any
court, governmental or regulatory authority or body acting in an adjudicative
capacity relating in any way to any Environmental Laws.
(c) The Sellers have not entered into or agreed to any consent decree or
order, and are not subject to any outstanding judgment, decree, or judicial
order relating to compliance with any Environmental Law or to investigation or
cleanup of Hazardous Substances under any Environmental Law. The
representations and warranties made in this Section 5.11 are the Sellers'
exclusive representations and warranties relating to environmental matters.
5.12 Labor Matters. All collective bargaining agreements to which the
Sellers are a party or are subject and which relate to the operation or
maintenance of the Purchased Assets or the business of the Sellers in
connection therewith are identified in Schedule 7.10(b). Solely (in each of
the following clauses (a) through (f)) with respect to the operation or
maintenance of the Purchased Assets or the business of the Sellers in
connection therewith, except to the extent set forth in Schedule 5.12 and
except for such matters as will not, individually or in the aggregate, create
a Material Adverse Effect (a) the Sellers are in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and are not engaged in any
unfair labor practice; (b) there is no unfair labor practice charge or
complaint pending or, to the knowledge of the Sellers, threatened against the
Sellers; (c) there is no labor strike, dispute, slowdown or stoppage actually
pending or, to the Sellers' knowledge threatened against or affecting the
Sellers; (d) no question concerning representation has been raised or, to the
knowledge of Sellers, is threatened respecting the employees of the Sellers;
(e) no arbitration proceeding arising out of or under collective bargaining
agreements is pending against the Sellers; and (f) there are no administrative
charges or court complaints against the Sellers concerning alleged employment
discrimination or other employment related matters pending or, to the
knowledge of Sellers, threatened before the U.S. Equal Employment Opportunity
Commission, any administrative tribunals in New Brunswick governing human
rights matters, or any governmental or regulatory body or authority.
5.13 ERISA; Benefit Plans.
(a) Schedule 5.13(a) lists (i) all "employee pension benefit plans", as
defined in Section 3(2) of ERISA, and all "pension plans", as defined in
Section 1(1) of the Pension Benefits Act, including multiemployer plans (of
which none exist), established, maintained or contributed to (or previously
maintained or contributed to within the last six fiscal years) by the Sellers
or any of their ERISA Affiliates for the benefit of current or former
employees employed at the Purchased Assets, for the operation or maintenance
of the Purchased Assets, or in connection with the business of Sellers
relating to the Purchased Assets ("Pension Plans"); (ii) all "employee welfare
benefit plans", as defined in Section 3(1) of ERISA, established, maintained
or contributed to (or previously maintained or contributed to within the last
six fiscal years) by the Sellers or any of their ERISA Affiliates for the
benefit of current or former employees employed at the Purchased Assets, for
the operation or maintenance of the Purchased Assets, or in connection with
the
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business of Sellers relating to the Purchased Assets ("Welfare Plans"); and
(iii) all bonus, compensation or other fringe benefit plans, programs, and
arrangements established, maintained or contributed to (or previously
maintained or contributed to within the last six fiscal years) by the Sellers
or any of their ERISA Affiliates for the benefit of current or former
employees employed at the Purchased Assets, for the operation or maintenance
of the Purchased Assets, or in connection with the business of Sellers
relating to the Purchased Assets, without regard to the coverage of any such
plan, program or arrangement by ERISA or any provision of the Code. The
plans, programs and arrangements listed on Schedule 5.13(a) are collectively
referred to herein as the "Benefit Plans". Accurate and complete copies of
all Benefit Plans and all material employee communications of general
application related to such Benefit Plans have been made available to the
Buyer.
(b) Except as set forth in Schedule 5.13(b):
(1) No Pension Plan and no ERISA Affiliate Plan has ever
incurred an "accumulated funding deficiency", as defined in Section 302
of ERISA and Section 412 of the Code, whether or not waived, nor
incurred a "solvency deficiency", as defined in Section 2 of the General
Regulation - Pension Benefits Act, NB Reg. 91-195, as amended;
(2) None of the Sellers nor any ERISA Affiliate has incurred
any liability to the Pension Benefit Guaranty Corporation under
Sections 4062, 4063, 4064 or 4069 of ERISA in connection with any
Pension Plan that is subject to Title IV of ERISA, and none of the
Purchased Assets is subject or potentially subject to a lien under
Section 4068 of ERISA;
(3) No Pension Plan and no ERISA Affiliate Plan, and no trust
created under any such plan, has been terminated or has commenced
voluntary or involuntary termination proceedings under Sections 4041 or
4042 of ERISA or has experienced a "reportable event" as defined in
Section 4043 of ERISA or has been wound up or commenced voluntary or
involuntary wind up proceedings under Sections 60 or 61 of the Pension
Benefits Act; and
(4) The Internal Revenue Service has issued a letter for each
Pension Plan that is intended to be qualified determining that such plan
is exempt from United States Federal Income Tax under Sections 401(a) and
501(a) of the Code. To the Sellers' knowledge, there has been no
occurrence since the date of any such determination letter that has
adversely affected (or might reasonably be expected to adversely affect)
such qualification and each Pension Plan in form and in operation is in
compliance in all respects with all applicable provisions of ERISA and
the Code. The Minister of National Revenue has registered each Pension
Plan provided for employees of the Sellers employed in New Brunswick,
Canada, pursuant to the provisions of the Income Tax Act (Canada). Each
Pension Plan in form and operation is in material compliance with
applicable provisions of the Pension Benefits Act and the Income Tax Act
(Canada).
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(5) All contributions or payments required to be made as of or
before the Closing Date by the Sellers to, for, or in respect of the
Benefit Plans, the IBEW Agreements, and the Pension Benefits Act have
been made.
(c) None of the Sellers nor any ERISA Affiliate has engaged in any
transaction to avoid or evade liability within the meaning of Section 4069(b)
of ERISA. No Benefit Plan and no ERISA Affiliate Plan is a "multiemployer
plan", as defined in Section 4001(a)(3) of ERISA or Section 1(1) of the
Pension Benefits Act, or a single-employer plan under multiple controlled
groups, within the meaning of Sections 4063-64 of ERISA.
(d) Each Welfare Plan has been maintained in accordance with the
requirements of ERISA and other applicable law. In addition, each of the
Sellers that maintains a "group health plan" within the meaning of Section
5000(b)(1) of the Code has materially complied in good faith with the
applicable requirements of COBRA and HIPAA.
(e) Except as set forth in Schedule 5.13(b), none of the Sellers, any
ERISA Affiliate, any Benefit Plan that is subject to ERISA, Section 4975 of
the Code, or the Pension Benefits Act, or any fiduciary, party in interest,
disqualified person, affiliate or related person, with respect to any Benefit
Plan has engaged or caused any such Benefit Plan to engage in any transaction
prohibited by Section 406 or Section 407(a) of ERISA or Section 4975 of the
Code, unless an appropriate exemption or exemptions have been obtained
therefor under Section 408 of ERISA and Section 4975 of the Code, or
prohibited by Section 44 of the General Regulation - Pension Benefits Act, NB
Reg. 91-195, as amended.
(f) With the exception of routine claims for benefits, including
associated appeals and disputes of denied claims, arising in the ordinary
course of administration of the Benefit Plans, no material claims,
assessments, investigations, or proceedings in arbitration or litigation, or
by or before the Superintendent of Pensions of the Province of New Brunswick
or the Labour and Employment Board (New Brunswick), relating to or arising
under any Benefit Plan are pending or, to the knowledge of Sellers, threatened
against any Seller, any ERISA Affiliate, any Benefit Plan, or any trust or
other funding arrangement created under or established as part of any Benefit
Plan, or against any trustee, fiduciary, custodian, administrator, or any
other Person, and the Sellers have no basis to anticipate that any such claim
or claims exist.
(g) Except as set forth on Schedule 5.13(a), Seller does not maintain,
provide or contribute to a post-retirement welfare benefit plan (including,
without limitation, post-retirement medical benefits for or on behalf of
current or former employees employed at the Purchased Assets, for the
operation and maintenance of the Purchased Assets, or in connection with the
business of Sellers relating to the Purchased Assets).
5.14 Condemnation. Except as set forth in Schedule 5.14, neither the
whole nor any part of the Real Estate or any other real property or rights
leased, used or occupied by the Sellers in connection with the ownership or
operation of the Purchased Assets is subject to any outstanding order by any
public authority to be sold, or any pending suit for condemnation or other
taking by any public authority, and to the knowledge of Sellers, no such
condemnation or other taking has been threatened.
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5.15 Certain Contracts and Arrangements.
(a) Except (i) as listed in Schedule 5.15(a) or 7.10(b), (ii) for
contracts, agreements, personal property leases, commitments, understandings
or instruments under which all rights, benefits, duties and obligations,
contingent or otherwise, of any party or beneficiary will expire on or prior
to the Closing Date, and (iii) for agreements with suppliers entered into in
the ordinary course of business that in each case (x) do not provide for
annual payments of more than $1,000 and (y) are not material to the operation
or condition (financial or otherwise) of the Purchased Assets or the business
of the Sellers in connection therewith, the Sellers are not a party to any
written contract (including, without limitation, any employment contract),
agreement, personal property lease, commitment, understanding or instrument
relating to the business or operations of the Purchased Assets. Accurate and
complete copies of all Sellers' Agreements have been made available to Buyer.
(b) Except as disclosed in Schedule 5.15(b), each Sellers' Agreement (i)
constitutes a valid and binding obligation of MPS or MNB, and to the knowledge
of the Sellers constitutes a valid and binding obligation of the other parties
thereto, (ii) is in full force and effect, and no notice of termination has
been delivered by any party thereunder, and (iii) may be transferred to the
Buyer pursuant to this Agreement and will continue in full force and effect
thereafter, in each case without breaching the terms thereof or resulting in
the forfeiture or impairment of any rights thereunder. Without limitation of
the foregoing, (i) no consent of The Perth-Andover Electric Light Commission
is required for the valid transfer and assignment to the Buyer of the
Agreement between MNB and The Perth-Andover Electric Light Commission dated
December 7, 1993 (which became effective on January 2, 1995), and (ii) no
consent of any other Owner of the Wyman Station is required for the valid
transfer and assignment to the Buyer of MPS's right, title and interest in and
to the Wyman Agreements and such transfer and assignment will not give rise to
any right of first refusal in favor of any other such Owner under any of the
Wyman Agreements.
(c) Except as set forth in Schedule 5.15(c), there is not, under any of
the Sellers' Agreements, any default or event which, with notice or lapse of
time or both, would (i) constitute a default on the part of any of the parties
thereto, except such events of default and other events as to which requisite
waivers or consents have been obtained or which would not, individually or in
the aggregate, create a Material Adverse Effect, (ii) would give rise to an
automatic termination, or the right of discretionary termination, thereof, or
(iii) would cause the acceleration of any of the Sellers' obligations or
result in the creation of any Encumbrance on any of the Purchased Assets.
5.16 Legal Proceedings, etc. Except as set forth in Schedule 5.16 or in
any public filing made by MPS pursuant to the Securities Act or the Exchange
Act, there are no claims, actions, proceedings or investigations pending or,
to the knowledge of Sellers, threatened against or relating to the Sellers
before any court, governmental or regulatory authority or body acting in an
adjudicative capacity, which, if adversely determined, individually or in the
aggregate, would create a Material Adverse Effect. Except as set forth in
Schedule 5.16 or in any public filing made by MPS pursuant to the Securities
Act or the Exchange Act, the Sellers are not subject to any outstanding
judgment, rule, order, writ, injunction or decree of any court, governmental
or
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regulatory authority which, individually or in the aggregate, would create a
Material Adverse Effect.
5.17 Permits. All permits, licenses, franchises and other governmental
authorizations, consents and approvals, other than the Environmental Permits,
necessary to own or otherwise utilize, operate or maintain, or engage in the
business of the Sellers in connection with, the Purchased Assets as presently
conducted, are identified in Schedule 5.17 (collectively, the "Required
Permits"). Except as set forth in Schedule 5.17, the Sellers have not
received any written notification that they are, or in the future may be
considered to be, in violation of any of the Required Permits, or any law,
statute, order, rule, regulation, ordinance or judgment of any governmental or
regulatory body or authority applicable to any Required Permits, except for
notifications of violations which would not, individually or in the aggregate,
create a Material Adverse Effect. The Sellers are in compliance with all
Required Permits, laws, statutes, orders, rules, regulations, ordinances, or
judgments of any governmental or regulatory body or authority applicable to
it, except for violations which, individually or in the aggregate, do not
create a Material Adverse Effect.
5.18 Regulation as a Utility. MPS is an exempt public utility holding
company within the meaning of the Holding Company Act. MPS is subject to
regulation in the United States as a public utility or public service company
(or similar designation other than as an Exempt Wholesale Generator within the
meaning of the Holding Company Act) only by FERC and the PUC; MPS is not
subject to regulation in Canada. MNB is subject to regulation in Canada as a
public utility only by the New Brunswick Board of Commissioners of Public
Utilities, and is subject to regulation by the National Energy Board with
respect to the international export of electricity and the construction and
operation of international power transmission lines and infrastructure; MNB is
not subject to regulation in the United States.
5.19 Taxes. With respect to the Purchased Assets and the business of the
Sellers associated with the Purchased Assets, (i) all Tax Returns required to
be filed other than those Tax Returns the failure of which to file would not
create a Material Adverse Effect have been filed and, in each case when filed,
were true, complete and correct in all material respects, and (ii) all
material Taxes shown to be due on such Tax Returns have been paid in full.
Except as set forth in Schedule 5.19, no notice of deficiency or assessment
has been received from any taxing authority with respect to liabilities for
Taxes of the Sellers in respect of the Purchased Assets (nor to the knowledge
of Sellers has any such taxing authority threatened to issue such notice or
assessment), which have not been fully paid or finally settled, and any such
deficiency shown in such Schedule 5.19 is being contested in good faith
through appropriate proceedings. Except as set forth in Schedule 5.19, there
are no outstanding agreements or waivers extending the applicable statutory
periods of limitation for Taxes associated with the Purchased Assets for any
period. Schedule 5.19 sets forth the taxing jurisdictions in which the
Sellers own assets or conduct business that require a notification to a taxing
authority of the transactions contemplated by this Agreement, if the failure
to make such notification, or obtain Tax clearances in connection therewith,
would either require the Buyer to withhold any portion of the Purchase Price
or would subject Buyer to any liability for any Taxes of the Sellers.
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5.20 Sufficiency of Purchased Assets. The Purchased Assets constitute
all of Sellers' generation assets, other than MPS's Power Purchase Agreement
with Wheelabrator-Sherman Energy Company (successor to Signal-Sherman Energy
Company, assignee of Sherman Power Company), and the real property that is
included within the Houlton Station, and, together with the Continuing Site
Agreement and the Interconnection Agreements, are sufficient to allow Buyer,
after the Closing, if it has obtained all necessary governmental approvals, to
deliver the output of such generation assets to MPS's transmission system at
the respective interconnection points specified in the Interconnection
Agreements. Without limiting the foregoing, the Purchased Assets shall
include all of MPS's right, title and interest under any private and special
laws of Maine that relate to the Purchased Assets. As of the Closing Date,
the Purchased Assets will meet the standards with respect thereto contained in
the Interconnection Agreements and the Continuing Site Agreement. Sellers
have reviewed, and are reviewing, their business operations and assets with
respect to Year 2000 compliance and, to the best of the Sellers' knowledge,
the Purchased Assets do not include any material assets that are not Year 2000
compliant.
5.21 Buyer's Knowledge. The Sellers shall be deemed to have disclosed
hereunder, as if they had set it forth on a schedule hereto, any facts and
circumstances known to Buyer as of the date of this Agreement, whether known
to Buyer through independent means or through review of Sellers' facilities
and records, even if such matter is not listed on any Schedule attached
hereto.
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN THIS
ARTICLE V, THE PURCHASED ASSETS ARE BEING SOLD AND TRANSFERRED "AS IS, WHERE
IS," AND THE SELLERS ARE NOT MAKING ANY OTHER REPRESENTATIONS OR WARRANTIES,
WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, CONCERNING SUCH PURCHASED
ASSETS, INCLUDING, IN PARTICULAR, ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND
DISCLAIMED.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers as follows as of the
date hereof and on and as of the Closing Date:
6.1 Organization. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Wisconsin and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as is now being conducted.
6.2 Authority Relative to this Agreement. The Buyer has full corporate
power and authority to execute and deliver this Agreement and each of the
other Closing Documents to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by
Buyer of this Agreement and each of the other Closing Documents to which it is
a party and the consummation of the transactions contemplated hereby and
thereby
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have been duly and validly authorized by the Board of Directors of the Buyer
and no other corporate proceedings on the part of the Buyer are necessary to
authorize this Agreement or to consummate the transactions contemplated
hereby. Each of this Agreement and the other Closing Documents to which Buyer
is a party has been duly and validly executed and delivered by the Buyer, and
assuming that each of this Agreement and such other Closing Documents
constitutes a valid and binding agreement of the Sellers, subject to the
receipt of the Buyer Required Regulatory Approvals and the Sellers Required
Regulatory Approvals, constitutes a valid and binding agreement of the Buyer,
enforceable against the Buyer in accordance with its terms, except that such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium
or other similar laws affecting or relating to enforcement of creditors'
rights generally or general principles of equity.
6.3 Consents and Approvals; No Violation.
(a) Except as set forth in Schedule 6.3, and other than obtaining the
Buyer Required Regulatory Approvals and the Sellers Required Regulatory
Approvals, neither the execution and delivery of this Agreement and the other
Closing Documents by the Buyer nor the consummation of the transactions
contemplated hereby or thereby (including, without limitation, the purchase by
the Buyer or its designee of the Purchased Assets and the assumption by the
Buyer or its designee of the Assumed Obligations pursuant to this Agreement
and the other Closing Documents) will (i) conflict with or result in any
breach of any provision of the Certificate of Incorporation or Bylaws (or
other similar governing documents) of the Buyer, (ii) require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, or (iii) result in a default (or give
rise to any right of termination, cancellation or acceleration) under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
agreement, lease or other instrument or obligation to which the Buyer or any
of its subsidiaries is a party or by which any of their respective assets may
be bound, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained.
(b) Except as set forth in Schedule 6.3 and except for (i) qualification
of the Buyer and/or each of its designees as an exempt wholesale generator
under the Energy Policy Act of 1992, without restriction, including no
restriction on sales to Affiliates, (ii) authorization to sell power under
Section 205 of the Federal Power Act, (iii) approval by FERC, under Part I of
the Federal Power Act, of the transfer of FERC project licenses related to,
and necessary to operate, the Purchased Assets as currently operated, and
approval by FERC of market-based rates for Buyer or its designees (or,
alternatively, a disclaimer by FERC of jurisdiction under the Federal Power
Act as to wholesale sales and either the approval by the State of Maine of
market-based rates or a disclaimer by the State of Maine of jurisdiction over
wholesale sales by Buyer or its designees), (iv) approval by the SEC pursuant
to Section 9(a)(1) of the Holding Company Act if WPS Resources Corporation is
required to register as a public utility holding company under the Holding
Company Act prior to the Closing Date, (v) approval of the Department of
Energy, Economic Regulatory Administration to export electricity to Canada
from the United States, (vi) approval of the Superintendent of Pensions of the
Province of New Brunswick of the establishment of any pension plan by Buyer or
its designee in respect of its Canadian employees, (vii) any PUC approval or
approval by the Lieutenant-Governor in Council of New Brunswick or
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the approval of the Board of Commissioners of Public Utilities of the Province
of New Brunswick necessary for the Sellers to transfer any Purchased Assets in
Maine or New Brunswick and for the Buyer or its designee to purchase the
Purchased Assets or assume the Assumed Obligations in Maine or New Brunswick,
and (viii) any necessary approval of the National Energy Board to export
electricity from Canada to the United States and to operate international
power transmission infrastructure as currently carried on in the conduct of
the business of MNB in connection with the Purchased Assets (the filings and
approvals referred to in clauses (i) through (viii) are collectively referred
to as the "Buyer Required Regulatory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of any
governmental or regulatory body or authority is necessary for the consummation
by the Buyer of the transactions contemplated hereby.
6.4 Regulation as a Utility. The Buyer is not subject to regulation as
a public utility or public service company (or similar designation other than
as an Exempt Wholesale Generator within the meaning of the Holding Company
Act) by the United States, any State of the United States, any foreign country
or any municipality or any political subdivision of the foregoing.
6.5 Disclosure. Buyer has reviewed all materials identified on Schedule
6.5 in the form provided by Sellers to Buyer, and has had the opportunity to
ask questions of Sellers' officers and employees and to undertake such review
as it has deemed necessary or advisable with respect to the Purchased Assets,
the Assumed Obligations and Sellers' operations.
ARTICLE VII
COVENANTS OF THE PARTIES
7.1 Conduct of Business Relating to the Purchased Assets.
(a) Except as described in Schedule 7.1, during the period from the date
of this Agreement to the Closing Date, the Sellers will operate the Purchased
Assets and related businesses in the usual, regular and ordinary course
consistent with good industry practice and shall use all commercially
reasonable efforts to preserve intact the Purchased Assets and the businesses
related thereto, and endeavor to preserve the goodwill and relationships with
customers, suppliers and others having business dealings with them. Without
limiting the generality of the foregoing, and, except as contemplated in this
Agreement or as described in Schedule 7.1, prior to the Closing Date, without
the prior written consent of the Buyer, the Sellers will not with respect to
the Purchased Assets and related businesses, except in each case in the
ordinary course of the Sellers' businesses:
(1) except for (1) Permitted Encumbrances and (2) indebtedness
constituting Excluded Liabilities that does not create an Encumbrance on
the Purchased Assets that will continue beyond the Closing Date, create,
incur, assume or suffer to exist any indebtedness for borrowed money
(including obligations in respect of capital leases);
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(2) make any material change in the levels of fuel inventory
and stores inventory customarily maintained by the Sellers with respect
to the Purchased Assets, other than consistent with good industry
practice;
(3) sell, lease (as lessor), transfer or otherwise dispose of,
any of the Purchased Assets, other than assets used, consumed or replaced
in the ordinary course of business consistent with good industry
practice;
(4) terminate, extend or otherwise materially amend any of the
Sellers' Agreements, any other contracts, agreements, personal property
leases, commitments, understandings, instruments, or real property leases
to the extent any such extension or amendment would require such item to
be disclosed on Schedule 5.9 or 5.15(a), or waive any material default
by, or release, settle or compromise any material claim against, any
other party thereto;
(5) enter into, terminate, extend or otherwise amend any real
or personal property Tax agreement, treaty or settlement;
(6) execute, enter into, terminate or otherwise amend any of
the Required Permits or the Environmental Permits, other than routine
renewals or non-material modifications or amendments; and
(7) with respect to the Purchased Assets and related
businesses, (x) amend in a material, adverse way, or cancel any liability
or casualty insurance policies related thereto, (y) compromise, settle,
withdraw, release or abate any material claims made or accruing
thereunder or (z) fail to maintain by self insurance or with financially
responsible insurance companies insurance in such amounts and against
such risks and losses as are customary for such assets and businesses.
(b) Notwithstanding anything in Section 7.1(a) to the contrary, the
Sellers may, in their sole discretion, make (i) Maintenance Expenditures and
Capital Expenditures (provided that the Buyer shall not be liable for any such
expenditures in excess of the Maintenance and Capital Expenditures Amount),
and (ii) at the Sellers' expense, such other maintenance and capital
expenditures as the Sellers deem necessary.
(c) A committee comprised of one Person designated by the Sellers and
one Person designated by the Buyer, and such additional Persons as may be
appointed by the Persons originally appointed to such committee (the
"Transition Committee") will be established as soon after execution of this
Agreement as is practicable to examine the business issues affecting the
Purchased Assets and related businesses of the Sellers after the date hereof,
giving emphasis to cooperation between the Buyer and the Sellers after the
execution of this Agreement. From time to time, the Transition Committee
shall report its findings to the senior management of each of MPS and the
Buyer.
(d) Between the date of this Agreement and the Closing Date, in the
interest of cooperation between the Sellers and the Buyer and to permit
informed action by the Buyer
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regarding its rights pursuant to Section 7.1(a) to grant, consent or to waive
prohibitions or limitations under Section 7.1(a), the parties agree as
follows. At the sole responsibility and expense of the Buyer, the Sellers
will permit designated employees ("Observers") of the Buyer to observe all
operations of the Sellers that relate to the Purchased Assets and related
businesses, and to observe discussions with third parties relating solely to
the Purchased Assets (not including discussions with legal counsel or
accountants), and such observation will be permitted on a cooperative basis in
the presence of personnel of the Sellers but not restricted to the normal
business hours of the Sellers; provided, however, that such Observers and
their actions shall not unreasonably interfere with the operation of the
Sellers' business. The Buyer's Observers may recommend or suggest actions be
taken or not be taken by the Sellers; provided, however, that the Sellers will
be under no obligation to follow any such recommendations or suggestions and
the Sellers shall be entitled, subject to this Agreement, to conduct their
business in accordance with their own judgment and discretion. The Buyer's
Observers shall have no authority to bind or make agreements on behalf of the
Sellers; to conduct discussions with or make representations to third parties
on behalf of the Sellers; or to issue instructions to or direct or exercise
authority over the Sellers or any of the Sellers' officers, employees,
advisors or agents.
7.2 Access to Information.
(a) Between the date of this Agreement and the Closing Date, the Sellers
will, during ordinary business hours and upon reasonable notice (i) give the
Buyer and the Buyer Representatives reasonable access to all books, records,
plants, offices and other facilities and properties constituting the Purchased
Assets or relating to the Assumed Obligations to which the Buyer is not denied
access by law; (ii) permit the Buyer to make such reasonable inspections
thereof as the Buyer may reasonably request; (iii) furnish the Buyer with such
financial and operating data and other information with respect to the
Purchased Assets or the Assumed Obligations as the Buyer may from time to time
reasonably request; (iv) furnish the Buyer a copy of each material report,
schedule or other document filed or received by them with respect to the
Purchased Assets or the Assumed Obligations with the SEC, PUC, DEP, FERC, the
National Energy Board, the Board of Commissioners of Public Utilities of the
Province of New Brunswick, or the Superintendent of Pensions of the Province
of New Brunswick; provided, however, that (A) any such investigation shall be
conducted in such a manner as not to interfere unreasonably with the operation
of the Purchased Assets, (B) the Sellers shall not be required to take any
action which would constitute a waiver of the attorney-client privilege and
(C) the Sellers need not supply the Buyer with any information which the
Sellers are under a legal obligation not to supply. Notwithstanding anything
in this Section 7.2 to the contrary, (i) the Sellers will only furnish or
provide such access to Transferring Employee Records and personnel and medical
records as is permitted or required by law, legal process or subpoena and (ii)
the Buyer shall not have the right to perform or conduct any environmental
sampling or testing at, in, on, or underneath the Purchased Assets, except as
set forth on Schedule 7.2 hereof.
(b) All information furnished to or obtained by the Buyer and the
Buyer's Representatives pursuant to this Section 7.2 shall be subject to the
provisions of the Confidentiality Agreement and shall be treated as
"Proprietary Information" (as defined in the Confidentiality Agreement).
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(c) For a period of six years after the Closing Date, each party and
their representatives shall have reasonable access to all of the books and
records of the Purchased Assets, including all Transferring Employee Records
or other personnel and medical records permitted or required by law, legal
process or subpoena, in the possession of the other party or parties to the
extent that such access may reasonably be required by such party in connection
with the Assumed Obligations or the Excluded Liabilities, or other matters
relating to or affected by the operation of the Purchased Assets. Such access
shall be afforded by the party or parties in possession of such books and
records upon receipt of reasonable advance notice and during normal business
hours. The party or parties exercising this right of access shall be solely
responsible for any costs or expenses incurred by it or them pursuant to this
Section 7.2(c). If the party or parties in possession of such books and
records shall desire to dispose of any such books and records upon or prior to
the expiration of such six-year period, such party or parties shall, prior to
such disposition, give the other party or parties a reasonable opportunity at
such other party's or parties' expense, to segregate and remove such books and
records as such other party or parties may select.
(d) Notwithstanding the terms of the Confidentiality Agreement and
Section 7.2(b) above, the parties agree that prior to the Closing the Buyer
may reveal or disclose Proprietary Information to any other Persons in
connection with financing, and risk management if reasonably necessary, of or
with respect to the Purchased Assets, and to such Persons with whom the Buyer
expects it may have business dealings regarding the Purchased Assets from and
after the Closing Date, and, to the extent that the Sellers consent (which
consent shall not be unreasonably withheld) to existing and potential
customers and suppliers, in each case only so long as such other parties enter
into confidentiality agreements in favor of MPS on terms satisfactory to MPS.
(e) Except as required by law, unless otherwise agreed to in writing by
the Buyer, for a period commencing on the Closing Date and terminating three
years after such date the Sellers shall keep (i) all Proprietary Information
confidential and not disclose or reveal any Proprietary Information to any
Person other than Sellers' Representatives who are actively and directly
participating in the transactions contemplated hereby or who otherwise need to
know the Proprietary Information for such purpose and to cause those Persons
to observe the terms of this Section 7.2(e) and (ii) not to use Proprietary
Information for any purpose other than consistent with the terms of this
Agreement and the other Closing Documents. The Sellers shall continue to hold
all Proprietary Information according to the same internal security procedures
and with the same degree of care regarding its secrecy and confidentiality as
currently applicable thereto. The Sellers shall notify the Buyer of any
unauthorized disclosure to third parties that it discovers, and shall endeavor
to prevent any further such disclosures. The Sellers shall be responsible for
any breach of the terms of this Section 7.2(e) by the Sellers or the Sellers'
Representatives.
After the Closing Date, in the event that the Sellers are requested
pursuant to, or required by, applicable law or regulation or by legal process
to disclose any Proprietary Information, or any other information concerning
the Purchased Assets, or the transactions contemplated hereby, the Sellers
shall provide the Buyer with prompt notice of such request or requirement in
order to enable the Buyer to seek an appropriate protective order or other
remedy, to consult with the Sellers with respect to taking steps to resist or
narrow the scope of such request or legal process, or to waive compliance, in
whole or in
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part, with the terms of this Section 7.2(e). The Sellers agree not to oppose
any action by the Buyer to obtain a protective order or other appropriate
remedy after the Closing Date. In the event that no such protective order or
other remedy is obtained, or that the Buyer waives compliance with the terms
of this Section 7.2(e), the Sellers shall furnish only that portion of the
Proprietary Information which the Sellers are advised by counsel is legally
required. In any such event the Sellers shall use their reasonable best
efforts to ensure that all Proprietary Information and other information that
is so disclosed will be accorded confidential treatment.
(f) The parties agree that the Confidentiality Agreement will terminate,
without further act or evidence by the parties, upon consummation of the
Closing.
7.3 Expenses. Except to the extent specifically provided herein,
whether or not the transactions contemplated hereby are consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the party incurring such costs and
expenses.
7.4 Further Assurances.
(a) Subject to the terms and conditions of this Agreement, each of the
parties hereto will use its best efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the sale of the Purchased Assets pursuant to this Agreement,
including without limitation using its best efforts to ensure satisfaction of
the conditions precedent to each party's obligations hereunder.
Notwithstanding anything in the previous sentence to the contrary, the Sellers
and the Buyer shall use their commercially reasonable efforts to obtain all
Permits and Environmental Permits necessary for the Buyer to own, operate and
maintain the Purchased Assets and to deliver the output thereof to MPS's
transmission system at the respective interconnection points specified in the
Interconnection Agreements. Neither of the parties hereto will, without prior
written consent of the other party, take or fail to take any action, which
would reasonably be expected to prevent or materially impede, interfere with
or delay the transactions contemplated by this Agreement. From time to time
after the date hereof, without further consideration, the Sellers will, at
their own expense, execute and deliver such documents to the Buyer or its
designee as the Buyer may reasonably request in order to more effectively vest
in the Buyer the Sellers' title to the Purchased Assets subject only to
Permitted Encumbrances. Without limiting the foregoing, the Sellers shall
cooperate with the Buyer in the Buyer's efforts to cure or remove any defects
or Encumbrances existing with respect to the Real Estate that the Buyer
reasonably deems objectionable; provided, however, that in connection
therewith the Sellers shall not be under any obligation to initiate legal
action or to incur expense other than reasonable administrative and
out-of-pocket expenses. From time to time after the date hereof, the Buyer
will, at its own expense, execute and deliver such documents to the Sellers as
the Sellers may reasonably request in order to more effectively consummate the
sale of the Purchased Assets pursuant to this Agreement.
(b) To the extent that the Sellers' rights under any Sellers' Agreement
may not be assigned without the consent of another Person which consent has
not been obtained, this Agreement shall not constitute an agreement to assign
the same if an attempted assignment would
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constitute a breach thereof or be unlawful, and the Sellers, at their expense,
shall use their commercially reasonable efforts to obtain any such required
consents as promptly as possible. The Sellers and the Buyer agree that if any
consent to an assignment of any Sellers' Agreement shall not be obtained or if
any attempted assignment would be ineffective or would impair the Buyer's or
its designee's rights and obligations under the Sellers' Agreement in question
so that the Buyer or its designee would not in effect acquire the benefit of
all such rights and obligations, the Sellers, to the maximum extent permitted
by law and such Sellers' Agreement, shall after the Closing (assuming that the
Buyer, in its sole and absolute discretion, waives in writing the condition
precedent to Closing set forth in Section 8.2(k)), appoint the Buyer or its
designee to be the Sellers' representative and agent with respect to such
Sellers' Agreement, and the Sellers shall, to the maximum extent permitted by
law and such Sellers' Agreement, enter into such reasonable arrangements with
the Buyer or its designee as are necessary to provide the Buyer or its
designee with the benefits and obligations of such Sellers' Agreement. The
Sellers and the Buyer shall cooperate and shall each use their commercially
reasonable efforts after the Closing to obtain an assignment of such Sellers'
Agreement to the Buyer or its designee.
7.5 Public Statements. The parties shall consult with each other prior
to issuing any public announcement, statement or other disclosure with respect
to this Agreement or the transactions contemplated hereby and shall not issue
any such public announcement, statement or other disclosure prior to such
consultation, except as may be required by law and except that the parties may
make public announcements, statements or other disclosures with respect to
this Agreement and the transactions contemplated hereby to the extent and
under the circumstances in which the parties are expressly permitted by the
Confidentiality Agreement to make disclosures of "Proprietary Information" (as
defined in the Confidentiality Agreement).
7.6 Consents and Approvals; Financing.
(a) The Sellers and the Buyer agree that there is no need to file with
the Federal Trade Commission or the United States Department of Justice any
notifications under the HSR Act and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby.
(b) The Sellers and the Buyer shall cooperate with each other and (i)
promptly prepare and file all necessary documentation, (ii) effect all
necessary applications, notices, petitions and filings and execute all
agreements and documents, (iii) use all commercially reasonable efforts to
obtain the transfer or reissuance to the Buyer of all necessary Transferable
Permits, consents, approvals and authorizations of all governmental bodies and
(iv) use all commercially reasonable efforts to obtain all necessary consents,
approvals and authorizations of all other parties, in the case of each of the
foregoing clauses (i), (ii), (iii) and (iv), necessary or advisable to
consummate the transactions contemplated by this Agreement (including, without
limitation, the Sellers Required Regulatory Approvals and the Buyer Required
Regulatory Approvals) or required by the terms of any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument to which the Sellers or the Buyer is a party or by
which any of them is bound. Each of the Sellers and the Buyer shall have the
right to review in advance all characterizations of the information relating
to the transactions contemplated by this
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Agreement which appear in any filing made in connection with the transactions
contemplated hereby.
(c) The Sellers and the Buyer shall cooperate with each other and
promptly prepare and file notifications with, and request Tax clearances from,
state, provincial and local taxing authorities in jurisdictions in which a
portion of the Purchase Price may be required to be withheld or in which the
Buyer would otherwise be liable for any Tax liabilities of the Sellers
pursuant to such state and local Tax law.
(d) Notwithstanding anything herein to the contrary, the Sellers shall
use all commercially reasonable efforts to assist Buyer in obtaining all third
party consents (including, without limitation, consents to the collateral
assignment in favor of the Buyer's lenders of contracts or agreements included
in the Purchased Assets), agreements, certificates, opinions, and other
documents or instruments reasonably requested by the Buyer's lenders in
connection with the financing, on a non- or limited recourse basis or
otherwise, of Buyer's acquisition of the Purchased Assets hereunder, all of
which shall be at Buyer's sole cost and expense to the extent that any such
items are not otherwise required of Sellers hereunder or under any of the
Closing Documents. From time to time after the date hereof, without further
consideration, the Sellers will, at their own expense, execute and/or deliver
such consents (including, without limitation, consents to the collateral
assignment in favor of the Buyer's lenders of the Closing Documents),
agreements, certificates, opinions, and other documents or instruments to the
Buyer's lenders as the Buyer's lenders may reasonably request in connection
with the financing, on a non- or limited recourse basis or otherwise, of
Buyer's acquisition of the Purchased Assets hereunder. Sellers acknowledge
that Buyer intends to obtain financing, on a non- or limited recourse basis or
otherwise and on terms and conditions acceptable to Buyer, of Buyer's
acquisition of the Purchased Assets hereunder and Buyer confirms that
obtaining such financing is not a condition precedent to its obligations
hereunder.
7.7 Fees and Commissions. The Sellers and the Buyer each represent and
warrant to the other that no broker, finder or other Person is entitled to any
brokerage fees, commissions or finder's fees in connection with the
transaction contemplated hereby by reason of any action taken by the party
making such representation. The Sellers and the Buyer will pay to the other
or otherwise discharge, and will indemnify and hold the other harmless from
and against, any and all claims or liabilities for all brokerage fees,
commissions and finder's fees incurred by reason of any action taken by such
party.
7.8 Tax Matters.
(a) All transfer and sales taxes incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by the
Sellers, other than Maine real estate transfer taxes which shall be paid
equally by Buyer and MPS, and MPS, at its own expense, will file, to the
extent required by applicable law, all necessary Tax Returns and other
documentation with respect to all such transfer or sales taxes, and, if
required by applicable law, the Buyer will join in the execution of any such
Tax Returns or other documentation. Prior to the Closing Date, MPS will
provide to the Buyer, to the extent possible, an appropriate certificate of no
Tax
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incurred in connection with this Agreement and the transactions contemplated
hereby, from each applicable taxing authority.
(b) With respect to Taxes to be prorated in accordance with Section 3.5
of this Agreement only, the Buyer shall prepare and timely file all Tax
Returns required to be filed after the Closing with respect to the Purchased
Assets, if any, for the period in which such Taxes must be reported, and shall
duly and timely pay all such Taxes shown to be due on such Tax Returns. The
Buyer's preparation of any such Tax Returns shall be subject to the Sellers'
approval, which approval shall not be unreasonably withheld. The Buyer shall
make such Tax Returns available for the Sellers' review and approval no later
than fifteen (15) Business Days prior to the due date for filing such Tax
Return. Within ten (10) Business Days after receipt of such Tax Return, the
Sellers shall pay to the Buyer their proportionate share of the amount shown
as due on such Tax Return determined in accordance with Section 3.5 of this
Agreement.
(c) Each of the Buyer and the Sellers shall provide the other with such
assistance as may reasonably be requested by the other party in connection
with the preparation of any Tax Return, any audit or other examination by any
taxing authority, or any judicial or administrative proceedings relating to
liability for Taxes, and each will retain and provide the requesting party
with any records or information which may be relevant to such return, audit or
examination, proceedings or determination. Any information obtained pursuant
to this Section 7.8(c) or pursuant to any other Section hereof providing for
the sharing of information or review of any Tax Return or other schedule
relating to Taxes shall be kept confidential by the parties hereto.
7.9 Supplements to Schedules. Prior to the Closing Date, the Sellers
and the Buyer shall supplement or amend the Schedules referenced in this
Agreement with respect to any matter relating to the subject matter thereof
hereafter arising which, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in such
Schedules. No supplement or amendment of any Schedule made pursuant to this
Section shall be deemed to cure any breach of, or expand or limit the scope
of, or otherwise modify or affect any representation or warranty made in this
Agreement unless the parties agree thereto in writing.
7.10 Employees.
(a) During the period beginning on the date of this Agreement and ending
on the Closing Date (the "Buyer's Window"), the Buyer or its designee may
offer employment, effective as of the Closing Date, to employees of the
Sellers who are presently employed principally in connection with the
ownership, operation, or maintenance of the Purchased Assets, and who are
assigned to the departments listed in Schedule 7.10(a) and listed individually
in such Schedule 7.10(a) (all such employees hereinafter referred to
individually as an "Employee" and collectively as "Employees"); provided,
however, that if any such individual ceases to be employed by either of the
Sellers after the date hereof, Buyer or its designee may offer employment
during the Buyer's Window, effective as of the Closing Date, to any individual
or individuals who, in general, performs the functions and duties of such
departed individual (and any such replacement individual or individuals, as
the case may be, shall be deemed an "Employee" for the purposes of this
Section 7.10).
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All such offers of employment shall be made (i) in accordance with all
applicable laws and regulations, and (ii) for Employees represented by the
International Brotherhood of Electrical Workers ("IBEW"), in accordance with
the applicable IBEW Agreements (or any replacement or extension thereof as in
effect at such time). (Each person who becomes employed by the Buyer or its
designee as of the Closing Date pursuant to this Section 7.10 shall be
referred to herein as a "Transferred Employee.")
During the Buyer's Window, the Sellers will refrain from offering
post-Closing employment to any of the Employees without the prior consent of
the Buyer, other than those Employees who the Buyer indicates in writing it
does not intend to hire. Buyer shall in good faith notify Seller as soon as
possible regarding those employees who the Buyer does not intend to offer
employment. The Buyer shall not solicit, directly or indirectly, for
employment any employees of the Sellers at any time beginning on the date
hereof and up to and including the second anniversary of the Closing Date,
other than offers to Employees made during the Buyer's Window.
Subject to the provisions set forth below, the Sellers shall not, at any
time beginning at the end of the Buyer's Window and ending on the second
anniversary of the Closing Date, solicit, directly or indirectly, for
employment any Employee who accepted a position with the Buyer or its designee
within the Buyer's Window. In the event the Buyer or its designee decides to
terminate the employment of one or more of the Transferred Employees on or
before 12 months following the Closing Date, Buyer or its designee shall
provide Sellers with at least seventy-five (75) days advance written notice,
following which Sellers shall have the right to offer employment to any such
affected Transferred Employee, such employment to commence no sooner than the
effective date of the Transferred Employee's employment termination with Buyer
or its designee, as the case may be.
With respect to any Employee who does not receive an offer of employment
from the Buyer or its designee, the Sellers shall be responsible for providing
such Employees with any benefits under the Sellers' Employee Transition Plan,
which such Employees may be entitled to receive under the terms of said Plan.
If, for any reason, any Employee has received severance benefits under the
Sellers' Employee Transition Plan and is subsequently employed by Buyer at any
time on or before the one (1) year anniversary of the Closing Date, Buyer
shall reimburse the Sellers for the cost of any such severance benefits,
whether such severance benefits are provided in cash or in kind.
(b) Schedule 7.10(b) sets forth all of the collective bargaining
agreements, and amendments thereto, to which the Sellers are a party with the
IBEW in connection with the Purchased Assets (the "IBEW Agreements"). With
respect to Transferred Employees who are included in the collective bargaining
units covered by the IBEW Agreements (the "Transferred IBEW Employees"), as of
the Closing Date the Buyer or its designee will assume the IBEW Agreements as
they relate to Transferred IBEW Employees. The Buyer or its designee shall
comply with all applicable obligations under the IBEW Agreements and will
accept and fulfill all obligations under the IBEW Agreements, together with
any revisions and/or extensions thereto, including, but not limited to, the
obligation of Buyer or its designee to recognize the IBEW as the collective
bargaining agent for the Transferred IBEW Employees. Transferred IBEW
Employees
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shall be given credit for prior service with the Sellers for all purposes
under the IBEW Agreements.
(c) For the period commencing on the Closing Date and ending
December 31, 2001, the Buyer or its designee shall provide all Transferred
Employees who remain in its employ and who are not IBEW Employees
("Transferred Non-Union Employees") with total salary, benefits and
opportunities for bonuses which is, in the aggregate, comparable to the total
salary, benefits and opportunities for bonuses provided to such Employees by
the Sellers immediately prior to the Closing Date. Nothing herein shall be
deemed to guarantee a Transferred Employee continued employment with the Buyer
or its designee for any definite period of time.
(d) As of the Closing Date, all Transferred Employees shall, except as
otherwise provided in this Section 7.10 or required by applicable law, cease
to participate in the Welfare Plans and shall commence to participate in the
employee welfare benefit plans, programs, and arrangements of the Buyer and
its Affiliates, without regard to the coverage of any such plan, program, or
arrangement by ERISA or any provision of the Code (the "Replacement Welfare
Plans") on at least the same terms and conditions as similarly situated
employees of the Buyer. The Buyer shall (i) waive or cause to be waived,
except to the extent that such waiver is precluded by applicable law, any
waiting period, probationary period, pre-existing condition exclusion,
evidence of insurability requirement, or similar condition with respect to
Transferred Employees under the Replacement Welfare Plans, other than, but
only to the extent of, any waiting period, probationary period, pre-existing
condition exclusion, evidence of insurability requirement, or similar
condition that was in effect with respect to any such Transferred Employee
under a Welfare Plan of the Seller and that had not been satisfied by such
individual as of the Closing Date, and (ii) provide each such Transferred
Employee with credit for satisfaction of any deductible, co-payment, or
similar out-of-pocket payment requirement under the Replacement Welfare Plans
to the extent of the deductible, co-payments, and similar out-of- pocket
payments paid prior to the Closing Date under the Sellers' Welfare Plans (on a
pro-rata basis in the event of a difference in plan years).
(e) The Buyer shall credit the service of each Transferred Non-Union
Employee with the Sellers and their Affiliates, including, without limitation,
accrued vacation and sick time, for purposes of eligibility, participation,
vesting, and accrual of or entitlement to benefits under all employee benefit
plans, programs, and arrangements of the Buyer and its Affiliates, without
regard to the coverage of any such plan, program, or arrangement by ERISA or
any provision of the Code ("Buyer Benefit Plans") in which they become
participants to the same extent as if such service had been performed for the
Buyer or its designee; provided that the benefits provided under the Buyer
Benefit Plans may be offset by the nonforfeitable benefits previously provided
by the Sellers or the Sellers' Benefit Plans with respect to the same period
of service.
(f) Each Transferred Non-Union Employee who is eligible to participate
in the Maine Public Service Company Non-Union Retirement Savings Plan
("Sellers' Non-Union 401(k) Plan") immediately before the Closing Date shall
be eligible to participate in Wisconsin Public Service Corporation
Administrative Employees' Savings Plan, a tax-qualified defined contribution
plan including a cash-or-deferred arrangement of the Buyer or one of its
Affiliates ("Buyer's 401(k) Plan") as of the Closing Date. The Buyer shall
take any and all necessary action to cause the
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trustee of a tax-qualified defined contribution plan of the Buyer or one of
its Affiliates, if requested to do so by a Transferred Non-Union Employee, to
accept a direct "rollover" of all or a portion of said employee's distribution
from the Sellers' Non-Union 401(k) Plan.
(g) The Buyer shall make (or cause to be made) any and all amendments to
its employee benefit plans, programs, and arrangements necessary to give
effect to its obligations under this Agreement, which amendments shall be
effective as of the Closing Date and delivered to the Sellers within a
reasonable time after the Closing Date.
(h) Provided Buyer has given Sellers at least seventy-five (75) days
advance written notice and Sellers have not extended an offer of comparable
employment, the Buyer shall pay to each Transferred Employee whose employment
is involuntarily terminated by the Buyer or its designee within 12 months
after the Closing Date, (except where such employment is terminated for cause,
unless such cause is beyond the control of the Transferred Employee as in the
case of a layoff for lack of work), the severance benefits that would have
been provided to such individual upon such termination by the Sellers under
the Sellers' Employee Transition Plan to the extent identified as to nature
and amount in the Sellers' Employee Transition Plan, had such individual
remained continuously employed by the Sellers and had been eligible under, and
covered by, such plan on the date of such termination; the Seller will
reimburse Buyer for the cost of such severance benefits. With respect to each
Transferred Employee whose employment is involuntarily terminated by the Buyer
or its designee on or after 12 months following the Closing Date but on or
before December 31, 2001 (except where such employment is terminated for
cause, unless such cause is beyond the control of the Transferred Employee as
in the case of a layoff for lack of work), Buyer or its designees shall pay
the severance benefits that would have been provided to such individual upon
such termination by the Sellers under the Sellers' Employee Transition Plan to
the extent identified as to nature and amount in the Sellers' Employee
Transition Plan, had such individual remained continuously employed by the
Sellers and had been eligible under, and covered by, such plan on the date of
such termination.
(i) Subject to the other provisions of this Section 7.10, and except as
specifically provided to the contrary in this Agreement:
(1) The Sellers, and not the Buyer or its designee, shall be
responsible and shall assume any and all liability for (A) all compensation,
benefits, and perquisites of any kind due any Transferred Employee on account
of employment by the Sellers before the Closing Date, or the termination of
employment by the Sellers, including, but not limited to, continuation of
health care coverage pursuant to COBRA and compliance with HIPAA; and (B) all
notices, payments, fines, taxes or assessments due to any governmental
authority pursuant to any applicable foreign, federal, state, provincial or
local law, common law, statute, rule or regulation with respect to the
employment, discharge or layoff of employees employed at the Purchased Assets,
including, but not limited to, the WARN Act, the Employment Standards Act (New
Brunswick), and any rules or regulations that have been issued in connection
with any of the foregoing.
(2) The Buyer, and not the Sellers, shall be responsible and shall
assume any and all liability for (A) all compensation, benefits, and
perquisites of any kind due any Transferred Employee on account of employment
by the Buyer or its designee on and after the Closing Date,
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or the termination of employment by the Buyer or its designee, including, but
not limited to, continuation of health care coverage pursuant to COBRA and
compliance with HIPAA; and (B) all notices, payments, fines, taxes or
assessments due to any governmental authority pursuant to any applicable
foreign, federal, state, provincial or local law, common law, statute, rule or
regulation with respect to the employment, discharge or layoff of Transferred
Employees by the Buyer or its designee, including, but not limited to, the
WARN Act, the Employment Standards Act (New Brunswick), and any rules or
regulations that have been issued in connection with any of the foregoing.
(j) The Sellers acknowledge that the benefits identified in the Sellers'
Employee Transition Plan are intended to cover all benefits that the
Transferred Employees are entitled to by law and the IBEW Agreements. In the
event that any Transferred Employee successfully claims in a court of
competent jurisdiction that, under applicable law or the IBEW Agreements,
severance benefits are due to such Transferred Employee in addition to those
benefits identified as to nature and amount in the Sellers' Employee
Transition Plan, then the Sellers shall pay directly or reimburse the Buyer
for costs and expenses related to any additional benefits actually paid to
such Transferred Employee (as well as costs and expenses associated with
defending such action brought by such Transferred Employee) by the Buyer or
its Affiliates; provided however, that the Sellers shall only be required to
make any such payment or reimbursement if such benefits (A) arise out of such
Transferred Employee's employment with the Sellers, and (B) are not due to
some act or omission by the Buyer or any of its Affiliates. The Buyer and the
Sellers agree that the terms of Section 9.2 hereof shall apply to this Section
7.10(j) as if set forth herein.
7.11 Risk of Loss.
(a) From the date hereof through the Closing Date, all risk of loss or
damage to the property included in the Purchased Assets shall be borne by the
Sellers.
(b) If, before the Closing Date all or any portion of the Purchased
Assets are taken by eminent domain or expropriation or become the subject of a
pending or (to the knowledge of the Sellers) contemplated taking which has not
been consummated, the Sellers shall notify the Buyer promptly in writing of
such fact. If such taking would create a Material Adverse Effect, the Buyer
and the Sellers shall negotiate in good faith to settle the loss resulting
from such taking (including, without limitation, by making a fair and
equitable adjustment to the Purchase Price) and, upon such settlement,
consummate the transaction contemplated by this Agreement pursuant to the
terms of this Agreement. If no such settlement is reached within sixty (60)
days after the Sellers have notified the Buyer of such taking, then the Buyer
or the Sellers may terminate this Agreement pursuant to Section 10.1(f).
(c) If, before the Closing Date all or any material portion of the
Purchased Assets are damaged or destroyed by fire or other casualty, the
Sellers shall notify the Buyer promptly in writing of such fact. If such
damage or destruction would create a Material Adverse Effect and the Sellers
have not notified Buyer of their intention to cure such damage or destruction
within fifteen (15) days after its occurrence, the Buyer and the Sellers shall
negotiate in good faith to settle the loss resulting from such casualty
(including, without limitation, by making a fair and equitable adjustment to
the Purchase Price) and, upon such settlement, consummate the
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transactions contemplated by this Agreement pursuant to the terms of this
Agreement. If (i) no such settlement is reached within sixty (60) days after
the Sellers have notified the Buyer of such casualty, or (ii) Sellers have
notified Buyer of their intention to cure in accordance with the preceding
sentence, but (x) Sellers have not proceeded diligently and in good faith to
promptly cure such damage or destruction, or (y) such cure is not completed to
Buyer's reasonable satisfaction not less than 60 days prior to the Termination
Date, then the Buyer or the Sellers may terminate this Agreement pursuant to
Section 10.1(f).
7.12 Real Estate Title; Title Insurance; Surveys.
(a) Buyer is currently in the process of obtaining title insurance
commitments, and Sellers are currently in the process of obtaining surveys,
for the Real Estate. Both parties shall diligently pursue the completion of
such matters and each agrees to cooperate with the other toward the goal of
providing a complete set of surveys and title insurance commitments for the
Real Estate meeting the requirements of this Section 7.12 as soon as is
practicable but in any event within sixty (60) days after the date hereof.
The date on which such materials are completed shall be referred to as the
"Initial Title Review Date".
(b) Within sixty (60) days after the Initial Title Review Date, the
Buyer shall notify the Sellers in writing of any defects in title that would
make the Sellers unable to convey good and marketable title to the Real Estate
free of Encumbrances other than Permitted Encumbrances, whether such defects
are disclosed herein or in the surveys and title commitments referred to above
(any of which is called herein a "Defect of Title"). The Buyer shall be
deemed to have waived any objection to any Defect of Title that existed as of
the effective date of the title insurance commitments that are provided on the
Initial Title Review Date if the Buyer fails to notify the Sellers of such
Defect of Title within such sixty-day period. If Sellers notify Buyer that
they are, despite reasonable efforts, unable to cure a Defect of Title
(including obtaining affirmative coverage through Buyer's title insurance
company) then Buyer shall elect, within thirty (30) days after receipt of
Seller's notice, either (i) to accept title to the Real Estate subject to the
uncured Defects of Title, or (ii) if such uncured Defect of Title constitutes
a Material Adverse Effect, to terminate this Agreement in accordance with
Section 10.1(e); Buyer's failure to so elect within such time period shall
constitute an election to accept title subject to such uncured Defect of
Title. With respect to any Defect of Title that does not exist on the
effective date of the title insurance commitments that are provided on the
Initial Title Review Date, but which arises prior to Closing, the Buyer shall
notify the Sellers in writing of any such Defect of Title on or prior to the
Closing. The Sellers shall have, at their option, a period of not more than
90 days after receipt of any such notice within which to remedy or cure any
such Defect of Title to the reasonable satisfaction of the Buyer. If the
Sellers elect to remedy or cure such Defect of Title, then the Closing shall
be extended, if necessary, to a date that is not more than five (5) business
days after the expiration of such 90-day period. If such Defect of Title is
not corrected or remedied to the reasonable satisfaction of the Buyer within
such 90-day period, the Buyer shall elect, by written notice to the Sellers
within ten (10) days after the expiration of such 90-day period, either (i) to
accept title to the Real Estate subject to the uncured Defects of Title, or
(ii) if such uncured Defect of Title constitutes a Material Adverse Effect, to
terminate this Agreement in accordance with Section 10.1(e); Buyer's failure
to so elect within such time period shall constitute an election to accept
title subject to such uncured Defect of Title. Sellers shall have the option
to
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provide affirmative title insurance coverage over (which Buyer, at Sellers'
expense, shall assist in attempting to obtain and provided that Sellers are
responsible for any increase in cost attributable to such coverage), or to
indemnify Buyer pursuant to Section 9.1 against, one or more uncured Defects
of Title. Any such indemnification shall be subject to the limitations of
Section 9.1(g)(2) and (3), but shall not be subject to the time limitations of
Section 9.1 (g)(1). Notwithstanding the prior two sentences, Buyer shall not
be required to accept an indemnity from Sellers with respect to any Defects of
Title.
(c) The title insurance commitments referred to herein shall be issued
by a title insurance company or companies reasonably satisfactory to Buyer,
agreeing to issue to Buyer or its designee standard form owner's policies of
title insurance with respect to all Real Estate, together with a copy of each
document to which reference is made in such commitments. To the extent that
title insurance is not available for the Canadian Real Estate, then Buyer
shall obtain the equivalent thereof commonly used for commercial transactions
in New Brunswick, Canada. Such policies shall be standard ALTA form 1992
owner's policies (or the Canadian equivalent in respect of the Canadian Real
Estate) in the full amount of the fair value of the Real Estate allocated
respectively to each subject parcel of Real Estate under Section 3.3 hereof,
insuring good and marketable title thereto (expressly including all easements
and other appurtenances). All policies shall insure title in full accordance
with the representations and warranties set forth herein and shall be subject
only to such conditions and exceptions as shall be reasonably acceptable to
Buyer and shall contain such endorsements as Buyer shall reasonably request.
(d) The surveys of the Real Estate shall be prepared in accordance with
ALTA/ACSM 1997 standards, or the Canadian equivalent in respect of the
Canadian Real Estate, each detailing the legal description, the perimeter
boundaries, all improvements located thereon, all easements and encroachments
affecting each such parcel of Real Estate and such other matters as may be
reasonably requested by Buyer or the title insurance companies, each
containing a surveyor certificate reasonably acceptable to Buyer and the title
insurance companies, and each prepared by a registered land surveyor in the
jurisdiction where the Real Estate is located reasonably satisfactory to
Buyer.
(e) Sellers and Buyer agree to use the descriptions set forth in the
surveys referred to above, once they have been accepted by Buyer, as the deed
descriptions for the Real Estate.
(f) Sellers and Buyer agree that the aggregate out-of-pocket cost of
obtaining the title insurance commitments and final policy coverage (and the
Canadian equivalent), and the surveys referred to in this Section 7.12 shall
be paid half by the Sellers and half by the Buyer and that Sellers and Buyer
intend to rely upon such surveys for all matters relating to real property
descriptions and the status of title, except as otherwise provided in Section
7.12(b), and that such surveys shall run to the benefit of Sellers and Buyer.
Furthermore, Buyer agrees that it shall not pursue the Sellers under their
deeds to the Real Estate until it has first obtained whatever it may be owed
under its owner's title insurance policies with respect to such claims.
7.13 Wyman Agreements. MPS agrees that it shall deliver any notices to
the Owners (as defined in the Wyman Agreements) required under the Wyman
Agreements as a result of the proposed transfer to Buyer or its designee of
MPS's interest thereunder.
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ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions to Each Party's Obligations. The respective obligations
of each party to consummate the transactions contemplated hereunder shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) No preliminary or permanent injunction or other order or decree by
any national, federal, provincial or state court which prevents the
consummation of the sale of the Purchased Assets or the assumption of the
Assumed Obligations contemplated hereby shall have been issued and remain in
effect (each party agreeing to use its reasonable best efforts to have any
such injunction, order or decree lifted) and no statute, rule or regulation
shall have been enacted by any national, federal, provincial or state
government or governmental agency in the United States or Canada which
prohibits the consummation of the sale of the Purchased Assets or the
assumption of the Assumed Obligations;
(b) All national, federal, provincial, state, and local government
consents and approvals required for the consummation of the sale of the
Purchased Assets and the assumption of the Assumed Obligations contemplated
hereby, the Sellers Required Regulatory Approvals and the Buyer Required
Regulatory Approvals shall have been obtained or become Final Orders (a "Final
Order" for all purposes of this Agreement means a final order after all
opportunities for rehearing are exhausted (whether or not any appeal thereof
is pending) that has not been revised, stayed, enjoined, set aside, annulled
or suspended, with respect to which any required waiting period has expired;
and as to which all conditions to effectiveness prescribed therein or
otherwise by law, regulation or order have been satisfied) and such Final
Orders shall not impose materially adverse terms or conditions; and
(c) All consents and approvals for the consummation of the sale of the
Purchased Assets and the assumption of the Assumed Obligations contemplated
hereby required under the terms of any note, bond, mortgage, indenture,
contract or other agreement (except the Sellers' Agreements) to which the
Sellers or any of their subsidiaries, are a party shall have been obtained,
other than those which if not obtained, would not, in the aggregate, create a
Material Adverse Effect.
8.2 Conditions to Obligations of the Buyer. The obligation of the Buyer
to consummate the transactions contemplated hereunder shall be subject to the
fulfillment at or prior to the Closing Date of the following additional
conditions:
(a) There shall not have occurred and be continuing a Material Adverse
Effect;
(b) The Sellers shall have performed and complied with in all material
respects all covenants and agreements contained in this Agreement and the
other Closing Documents which are required to be performed and complied with
by the Sellers on or prior to the Closing Date, and the representations and
warranties of the Sellers set forth in this Agreement and in the other Closing
Documents shall be true and correct in all material respects as of the date
hereof or
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thereof, as the case may be, and as of the Closing Date as though made at and
as of the Closing Date; provided, however, a failure of this condition shall
not constitute a failure for purposes of consummating the Closing unless such
failure materially and adversely affects the Purchased Assets, or Buyer's
ability to finance the acquisition of the Purchased Assets or to operate the
Purchased Assets;
(c) There shall be no Encumbrances on the Purchased Assets, other than
Permitted Encumbrances;
(d) The Buyer shall have received certificates from authorized officers
of the Sellers, dated the Closing Date, to the effect that, to such officers'
knowledge, the conditions set forth in Sections 8.2(a), (b) and (c) have been
satisfied;
(e) MPS shall have assigned to the Buyer or its designee all of its
rights and obligations in the IBEW Agreements as they relate to the
Transferred IBEW Employees, to be employed at or in conjunction with the U.S.
Assets after the Closing Date;
(f) MNB shall have assigned to the Buyer or its designee all of its
rights and obligations in the IBEW Agreements as they relate to the
Transferred IBEW Employees to be employed at or in conjunction with the
Canadian Assets after the Closing Date;
(g) The Buyer shall have received an opinion from Verrill & Dana, LLP,
or other counsel reasonably acceptable to Buyer, dated the Closing Date and
substantially in the form of Exhibit G-1. As to any matter contained in such
opinion which involves the laws of any jurisdiction other than the Federal
laws of the United States or the laws of the State of Maine, such counsel may
rely upon opinions of counsel admitted in such other jurisdictions. Any
opinions relied upon by such counsel as aforesaid shall be delivered together
with the opinion of such counsel. Such opinion may expressly rely as to
matters of fact upon certificates furnished by MPS and appropriate officers
and directors of MPS and by public officials;
(h) The Buyer shall have received an opinion from Clark, Drummie &
Company, dated the Closing Date and substantially in the form of Exhibit G-2.
As to any matter contained in such opinion which involves the laws of any
jurisdiction other than the national laws of Canada or the laws of the
Province of New Brunswick, such counsel may rely upon opinions of counsel
admitted in such other jurisdictions. Any opinions relied upon by such
counsel as aforesaid shall be delivered together with the opinion of such
counsel. Such opinion may expressly rely as to matters of fact upon
certificates furnished by the Sellers and appropriate officers and directors
of the Sellers and by public officials;
(i) The Buyer or its designee shall have obtained an interconnection
agreement, in form and substance reasonably satisfactory to the Buyer, with
New Brunswick Power Company, on or before September 30, 1998, for the benefit
of the Tinker Generating Facility and the transmission lines associated
therewith, and such agreement shall be in full force and effect;
(j) The Buyer shall have obtained all Permits and Environmental Permits
necessary for the Buyer or its designee to own, operate and maintain the
Purchased Assets and to deliver the
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output thereof to MPS's transmission system at the respective interconnection
points specified in the Interconnection Agreements, and to perform its
covenants and agreements hereunder and under the other Closing Documents;
(k) All consents and approvals for the consummation of the sale of the
Purchased Assets (including, without limitation, the assignment of the
Sellers' rights, benefits, and interests under the Sellers' Agreements to the
Buyer or its designee) and the assumption of the Assumed Obligations
contemplated hereby required under the terms of any of the Sellers' Agreements
shall have been obtained by the Sellers;
(l) The Buyer shall have received, for delivery to Buyer's lenders, all
consents (including, without limitation, consents to the collateral assignment
in favor of the Buyer's lenders of the Closing Documents and/or of contracts
or agreements included in the Purchased Assets), agreements, certificates,
opinions, and other documents or instruments by or on behalf of the Sellers as
may have been reasonably requested by the Buyer's lenders in connection with
the financing, on a non- or limited recourse basis or otherwise, of Buyer's
acquisition of the Purchased Assets hereunder; and
(m) The Buyer shall have received the certificate or certificates from
each applicable taxing authority required pursuant to Section 7.8(a).
8.3 Conditions to Obligations of the Sellers. The obligation of the
Sellers to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment at or prior to the Closing Date of the following
additional conditions:
(a) The Buyer shall have performed in all material respects its
covenants and agreements contained in this Agreement and the other Closing
Documents which are required to be performed on or prior to the Closing Date;
(b) The representations and warranties of the Buyer which are set forth
in this Agreement and the other Closing Documents shall be true and correct in
all material respects as of the date hereof or thereof, as the case may be,
and as of the Closing Date as though made at and as of the Closing Date;
(c) The Sellers shall have received a certificate from an authorized
officer of the Buyer, dated the Closing Date, to the effect that, to such
officer's knowledge, the conditions set forth in Sections 8.3(a) and (b) have
been satisfied;
(d) The Buyer or its designee shall have assumed, as set forth in
Section 7.10, all of the applicable obligations under the IBEW Agreements as
they relate to Transferred IBEW Employees to be employed at or in conjunction
with the Purchased Assets after the Closing Date;
(e) The Sellers shall have received an opinion from Foley & Lardner,
counsel for the Buyer, dated the Closing Date and substantially in the form of
Exhibit H. As to any matter contained in such opinion which involves the laws
of any jurisdiction other than the federal laws of the United States and
the State of Wisconsin, such counsel may rely upon opinions of counsel
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admitted in such other jurisdictions. Any opinions relied upon by such
counsel as aforesaid shall be delivered together with the opinion of such
counsel. Such opinion may expressly rely as to matters of facts upon
certificates furnished by appropriate officers and directors of the Buyer and
its subsidiaries and by public officials.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification.
(a) The Sellers will jointly and severally indemnify, defend and hold
harmless the Buyer from and against any and all claims, demands or suits (by
any Person), losses, liabilities, damages (including consequential or special
damages), obligations, payments, costs and expenses (including, without
limitation, the costs and expenses of any and all actions, suits, proceedings,
assessments, judgments, settlements and compromises relating thereto and
reasonable attorneys' fees and reasonable disbursements in connection
therewith) (each, an "Indemnifiable Loss"), asserted against or suffered by
the Buyer relating to, resulting from or arising out of (i) any breach by the
Sellers of any covenant or agreement of the Sellers contained in this
Agreement or in any of the Closing Documents or the inaccuracy or breach as of
the date hereof or thereof, as the case may be, or on the Closing Date of any
representation or warranty of the Sellers in this Agreement or in any of the
Closing Documents, or (ii) the Excluded Liabilities. Notwithstanding the
foregoing, the Sellers shall have no liability hereunder after the Closing
Date with respect to the condition of title of the Real Estate, except as set
forth in the deeds to the Real Estate delivered to the Buyer at the Closing.
Furthermore, Buyer agrees that it shall pursue Sellers under their deeds for
the Real Estate only after it has obtained whatever it may be owed under its
owner's title insurance policies with respect to such claims.
(b) The Buyer will indemnify, defend and hold harmless the Sellers from
and against any and all Indemnifiable Losses asserted against or suffered by
the Sellers relating to, resulting from or arising out of (i) any breach by
the Buyer or its designee of any covenant or agreement of the Buyer or its
designee contained in this Agreement or in any of the Closing Documents or the
inaccuracy or breach as of the date hereof or thereof, as the case may be, or
on the Closing Date of any representation or warranty of the Buyer in this
Agreement or in any of the Closing Documents, (ii) the Assumed Obligations
(including those that are assumed by Buyer's designee), or (iii) any actions
of the Observers.
(c) Any Person entitled to receive indemnification under this Agreement
(an "Indemnitee") having a claim under these indemnification provisions shall
make a good faith effort to recover all losses, damages, costs and expenses
from insurers of such Indemnitee under applicable insurance policies so as to
reduce the amount of any Indemnifiable Loss hereunder. The amount of any
Indemnifiable Loss shall be reduced by any amounts actually and irrevocably
recovered by the Indemnitee with respect to such claim or the underlying facts
under insurance policies, (i) net of any increase that will occur, or is
reasonably likely to occur, in insurance premiums payable by the Indemnitee,
whether by retrospective premium adjustments or any other premium increase
under the policy or policies under which the claim is made or any other
policy,
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where the increase results directly from filing the insurance claim and (ii)
less, dollar for dollar, the amount by which the insurance claim when filed or
at any time during the applicable policy period, either singly or in the
aggregate with all other claims made under the applicable policy or policies,
exceeds the policy coverage limit; provided, however, that this subsection
shall apply only if this provision does not constitute an improper waiver of
the insurer's rights of subrogation against the Indemnifying Party. Nothing
contained in this Section 9.1(c) shall be deemed to create an obligation of
any party hereto to maintain any form or level of insurance after the Closing,
to name any other party as an additional insured or to obtain approval for any
waiver of rights of subrogation.
(d) The expiration, termination or extinguishment of any representation,
warranty, covenant or agreement, or the time within which to make a claim
hereunder with respect thereto, shall not affect the parties' obligations
under this Section 9.1 if the Indemnitee provided the Person required to
provide indemnification under this Agreement (the "Indemnifying Party") with
proper notice of the claim or event for which indemnification is sought prior
to such expiration, termination or extinguishment.
(e) The rights and remedies of the Sellers and the Buyer under this
Article IX are exclusive and in lieu of any and all other rights and remedies
which the Sellers and the Buyer may have under this Agreement or otherwise for
monetary relief with respect to (i) any breach or failure to perform any
covenant or agreement or representation or warranty set forth in this
Agreement or (ii) the Assumed Obligations or the Excluded Liabilities, as the
case may be, provided, however, that the foregoing limitation shall not apply
to the parties' respective obligations after the Closing Date under the
Buy-Back Agreement, the Continuing Site Agreement, the Interconnection
Agreements or the Instruments of Assumption.
(f) Buyer and Sellers each agree that notwithstanding any provisions in
this Agreement to the contrary, all parties to this Agreement retain their
remedies at law or in equity with respect to willful, knowing or intentional
breaches of this Agreement, including a failure to consummate the Closing
hereunder when and if required to do so.
(g) Except for any willful, knowing or intentional breach or
misrepresentation, as to which claims may be brought without limitation as to
time or amount:
(1) Any claim or action shall be brought under this Article IX for
breach of a representation or warranty within two (2) years after the
Closing Date. Regardless of the foregoing, however, or any other
provision of this Agreement: (A) there shall be no time limitation
hereunder on claims or actions brought for breach of any representation
or warranty made in or pursuant to Sections 5.1, 5.2, 5.3, 6.1, 6.2 or
6.3; (B) a claim or action brought for breach of any representation or
warranty made in or pursuant to Section 5.11 hereof must be brought
within five (5) years after the Closing Date; (C) any claim or action
brought for breach of any representation or warranty made in or pursuant
to Section 5.19 may be brought at any time until the underlying tax
obligation is barred by the applicable period of limitation under
federal, state and foreign laws relating thereto (as such period may be
extended by waiver) and (D) there shall be no time limitation
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hereunder for claims against Sellers under the deeds to the Real Estate
or with respect to any indemnity given by the Sellers to cure a Title
Defect pursuant to Section 7.12;
(2) An Indemnitee shall not be entitled to indemnification under
this Article IX for breach of a representation or warranty unless the
aggregate of the Indemnifying Party's indemnification obligations to the
Indemnitee pursuant to this Article IX (but for this Section 9.1(g)(2))
exceeds $100,000; but in such event, the Indemnified Party shall be
entitled to indemnification for amounts in excess thereof; and
(3) An Indemnifying Party's aggregate indemnification
obligations under this Article IX for breach of a representation or
warranty shall not exceed $3,000,000.
9.2 Defense of Claims.
(a) If any Indemnitee receives notice of the assertion of any claim or
of the commencement of any claim, action, or proceeding made or brought by any
Person who is not a party to this Agreement or any Affiliate of a party to
this Agreement (a "Third Party Claim") with respect to which indemnification
is to be sought from an Indemnifying Party, the Indemnitee will give such
Indemnifying Party reasonably prompt written notice thereof, but in any event
not later than sixty (60) days after receipt of notice thereof. Such notice
shall specify this Section of this Agreement, describe the nature of the Third
Party Claim in reasonable detail and will indicate the estimated amount, if
practicable, of the Indemnifiable Loss that has been or may be sustained by
the Indemnitee. The Indemnifying Party will have the right to participate in
or, by giving written notice to the Indemnitee, to elect to assume the defense
of any Third Party Claim at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, and the Indemnitee will cooperate in good
faith in such defense.
(b) If within thirty (30) days after an Indemnitee provides written
notice to the Indemnifying Party of any Third Party Claim the Indemnitee
receives written notice from the Indemnifying Party that such Indemnifying
Party has elected to assume the defense of such Third Party Claim as provided
in the last sentence of Section 9.2(a), the Indemnifying Party will not be
liable for any legal expenses subsequently incurred by the Indemnitee in
connection with the defense thereof. If the Indemnifying Party fails to
defend a Third Party Claim actively and in good faith within a reasonable
period of time after receipt of written notice from the Indemnitee to such
effect, specifying that the Indemnitee intends to invoke its rights under this
Section, the Indemnitee may assume the defense of such claim, or compromise or
settle such claim, for the account and risk of the Indemnifying Party, and the
Indemnifying Party will be bound by all such actions of the Indemnitee and
liable for all reasonable expenses thereof. Without the prior written consent
of the Indemnitee, the Indemnifying Party will not enter into any settlement
of any Third Party Claim which would lead to liability or create any financial
or other obligation on the part of the Indemnitee for which the Indemnitee is
not entitled to indemnification hereunder. If a firm offer is made to settle
a Third Party Claim without leading to liability or the creation of a
financial or other obligation on the part of the Indemnitee for which the
Indemnitee is not entitled to indemnification hereunder and the Indemnifying
Party desires to accept and agree to such offer, the Indemnifying Party will
give written notice to the Indemnitee to that effect. If the Indemnitee fails
to consent to such firm offer within ten (10) days after its receipt of such
notice,
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the Indemnitee may continue to contest or defend such Third Party Claim and,
in such event, the maximum liability of the Indemnifying Party as to such
Third Party Claim will be the amount of such settlement offer, plus reasonable
costs and expenses paid or incurred by the Indemnitee up to the date of
such notice.
(c) Any claim by an Indemnitee on account of an Indemnifiable Loss which
does not result from a Third Party Claim (a "Direct Claim") will be asserted
by giving the Indemnifying Party reasonably prompt written notice thereof, but
in any event not later than sixty (60) days after the Indemnitee becomes aware
of such claim, stating the nature of such claim in reasonable detail,
specifying this Section of this Agreement and indicating the estimated amount,
if practicable, and the Indemnifying Party will have a period of thirty (30)
days within which to respond to such Direct Claim. If the Indemnifying Party
does not respond within such thirty (30) day period, the Indemnifying Party
will be deemed to have accepted such claim. If the Indemnifying Party rejects
such claim, the Indemnitee will be free to seek enforcement of its rights to
indemnification under this Agreement.
(d) If the amount of any Indemnifiable Loss, at any time subsequent to
the making of an indemnity payment in respect thereof, is reduced by recovery,
settlement or otherwise under or pursuant to any insurance coverage, or
pursuant to any claim, recovery, settlement or payment by or against any other
entity, the amount of such reduction, less any costs, expenses or premiums
incurred in connection therewith, will promptly be repaid by the Indemnitee to
the Indemnifying Party. Upon making any indemnity payment, the Indemnifying
Party will, to the extent of such indemnity payment, be subrogated to all
rights of the Indemnitee against any third party in respect of the
Indemnifiable Loss to which the indemnity payment relates; provided, however,
that (i) the Indemnifying Party will then be in compliance with its
obligations under this Agreement in respect of such Indemnifiable Loss and
(ii) until the Indemnitee recovers full payment of its Indemnifiable Loss, any
and all claims of the Indemnifying Party against any such third party on
account of said indemnity payment is hereby made expressly subordinated and
subjected in right of payment to the Indemnitee's rights against such third
party. Without limiting the generality or effect of any other provision
hereof, each such Indemnitee and Indemnifying Party will duly execute upon
request all instruments reasonably necessary to evidence and perfect the
above-described subrogation and subordination rights, and otherwise cooperate
in the prosecution of such claims at the direction of the Indemnifying Party.
Nothing in this Section 9.2(d) shall be construed to require any party hereto
to obtain or maintain any insurance coverage.
(e) A failure to give timely notice as provided in this Section 9.2 will
not affect the rights or obligations of any party hereunder except if, and
only to the extent that, as a result of such failure, the party which was
entitled to receive such notice was actually prejudiced as a result of such
failure.
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ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Termination.
(a) This Agreement may be terminated at any time prior to the Closing
Date by mutual written consent of the Sellers and the Buyer.
(b) This Agreement may be terminated by the Sellers or the Buyer if the
Closing contemplated hereby shall have not occurred on or before the first
anniversary of the date of this Agreement (the "Termination Date"); provided
that the right to terminate this Agreement under this Section 10.1(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
Closing to occur on or before such date; and provided, further, that if on the
first anniversary of the date of this Agreement the conditions to the Closing
set forth in Section 8.1(c) shall not have been fulfilled but all other
conditions to the Closing shall be fulfilled or shall be capable of being
fulfilled, then the Termination Date shall be the day which is eighteen months
from the date of this Agreement.
(c) This Agreement may be terminated by either the Sellers or the Buyer
if (i) any governmental or regulatory body, the consent of which is a
condition to the obligations of the Sellers and the Buyer to consummate the
Closing, shall have determined not to grant its or their consent and all
appeals of such determination shall have been taken and have been
unsuccessful, (ii) one or more courts of competent jurisdiction in the United
States or Canada or any state or province shall have issued an order, judgment
or decree permanently restraining, enjoining or otherwise prohibiting the
Closing, and such order, judgment or decree shall have become final and
nonappealable or (iii) any statute, rule or regulation shall have been enacted
by any state or province or federal government or governmental agency in the
United States or Canada which prohibits the consummation of the Closing.
(d) This Agreement may be terminated by the Sellers if there has been a
material violation or breach by the Buyer of any agreement, representation or
warranty contained in this Agreement which has rendered the satisfaction of
any condition to the obligations of the Sellers to effect the Closing
impossible and such violation or breach has not been waived by the Sellers.
(e) This Agreement may be terminated by the Buyer if there has been a
material violation or breach by either Seller of any agreement, representation
or warranty contained in this Agreement or in any of the other Closing
Documents which has rendered the satisfaction of any condition to the
obligations of the Buyer to effect the Closing impossible and such violation
or breach has not been waived by the Buyer in writing.
(f) This Agreement may be terminated by either of the Sellers or the
Buyer in accordance with the provisions of Section 7.11(b) or (c).
10.2 Procedure and Effect of Termination. In the event of termination of
this Agreement and abandonment of the transactions contemplated hereby by
either or both of the
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parties pursuant to Section 10.1, written notice thereof shall forthwith be
given by the terminating party to the other party and this Agreement shall
terminate and the transactions contemplated hereby shall be abandoned, without
further action by any of the parties hereto. If this Agreement is terminated
as provided herein:
(a) Said termination shall be the sole remedy of the parties hereto with
respect to breaches of any agreement, representation or warranty contained in
this Agreement and none of the parties hereto nor any of their respective
trustees, directors, officers or Affiliates, as the case may be, shall have
any liability or further obligation to the other party or any of their
respective trustees, directors, officers or Affiliates, as the case may be,
pursuant to this Agreement, except in each case as stated in this Section 10.2
and in Sections 7.2(b), 7.3 and 7.7; and
(b) All filings, applications and other submissions made pursuant to
this Agreement, to the extent practicable, shall be withdrawn from the agency
or other Person to which they were made.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement
of the Sellers and the Buyer.
11.2 Waiver of Compliance; Consents. Except as otherwise provided in
this Agreement, any failure of any of the parties to comply with any
obligation, covenant, agreement or condition herein may be waived by the party
entitled to the benefits thereof only by a written instrument signed by the
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
11.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given and received if delivered personally or by
facsimile transmission or mailed by overnight courier or by registered or
certified U.S. mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice; provided that notices of a change of
address shall be effective only upon receipt thereof):
(a) If to the Sellers, to:
Maine Public Service Company
209 State Street
P.O. Box 1209
Presque Isle, Maine 04769
Facsimile: (207) 764-6586
Attention: Frederick C. Bustard
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with a copy to:
Verrill & Dana, LLP
One Portland Square
Portland, ME 04112
Facsimile: (207) 744-7499
Attention: Mark K. Googins, Esq.
(b) if to the Buyer, to:
WPS Power Development, Inc.
677 Baeten Road
Green Bay, Wisconsin 54304
Facsimile: (920) 490-5999
Attention: Gerald L. Mroczkowski
with a copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Facsimile: (414) 297-4900
Attention: Edward J. Hammond, Esq.
11.4 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
party hereto, including by operation of law without the prior written consent
of the other party, nor is this Agreement intended to confer upon any other
Person except the parties hereto any rights or remedies hereunder; except,
however, notwithstanding the foregoing, and in addition to (but without
limitation of) Sellers' agreements and covenants set forth in Section 7.6(d)
hereof, the Sellers agree that this Agreement, and each of the other Closing
Documents, may be collaterally assigned at any time without the Sellers'
consent in favor of the Buyer's lenders as security in connection with the
financing, on a non- or limited recourse basis or otherwise, of Buyer's
acquisition of the Purchased Assets hereunder. Notwithstanding the foregoing,
no provision of this Agreement shall create any third party beneficiary rights
in any employee or former employee of the Sellers (including any beneficiary
or dependent thereof) in respect of continued employment or resumed
employment, and no provision of this Agreement shall create any rights in any
such Persons in respect of any benefits that may be provided, directly or
indirectly, under any employee benefit plan, program or arrangement except as
expressly provided for thereunder. To the extent that a Buyer's designee is
the party that is involved with any of the Purchased Assets after the Closing
Date, then any obligations of Buyer hereunder for the period after the Closing
Date shall also be an obligation of such designee.
11.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maine (regardless of the laws that
might otherwise
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govern under applicable Maine principles of conflicts of law) as to all
matters, including but not limited to matters of validity, construction,
effect, performance and remedies.
11.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.7 Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
11.8 Schedules and Exhibits. All Exhibits and Schedules referred to
herein are intended to be and hereby are specifically made a part of this
Agreement.
11.9 Entire Agreement. This Agreement, the Confidentiality Agreement,
the Buy-Back Agreement, the Continuing Site Agreement, the Interconnection
Agreements, the Instruments of Assumption, the other Closing Documents, and
the Exhibits, Schedules, documents, certificates and instruments referred to
herein or therein, embody the entire agreement and understanding of the
parties hereto in respect of the transactions contemplated by this Agreement.
There are no restrictions, promises, representations, warranties, covenants or
undertakings, other than those expressly set forth or referred to herein or
therein. It is expressly acknowledged and agreed that there are no
restrictions, promises, representations, warranties, covenants or undertakings
contained in any material made available to the Buyer pursuant to the terms of
the Confidentiality Agreement (including the Offering Memorandum, dated
September, 1997, and the Bidder's Questions and Updated Document Index letter
dated December 29, 1997, previously made available to the Buyer by the
Sellers). This Agreement supersedes all prior agreements and understandings
between the parties with respect to such transactions other than the
Confidentiality Agreement.
[the remainder of this page is intentionally blank]
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IN WITNESS WHEREOF, the Sellers and the Buyer have caused
this agreement to be signed by their respective duly authorized
officers as of the date first above written.
MAINE PUBLIC SERVICE COMPANY
By: /s/ Paul R. Cariani
Name: Paul R. Cariani
Title: President
MAINE AND NEW BRUNSWICK
ELECTRICAL POWER COMPANY,
LIMITED
By: /s/ Paul R. Cariani
Name: Paul R. Cariani
Title: President
WPS POWER DEVELOPMENT, INC.
By: /s/ Gerald L. Mroczkowski
Name: Gerald L. Mroczkowski
Title: Vice President
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EXHIBIT 3B-1
WPS RESOURCES CORPORATION
BY-LAWS
AS IN EFFECT SEPTEMBER 1, 1998
ARTICLE I. OFFICES
1. PRINCIPAL OFFICE
The principal office of the Corporation in the State of Wisconsin shall
be in the City of Green Bay. The Corporation may also have offices at
such other places, within and outside of the State of Wisconsin, as the
Board of Directors may designate or as the business of the Corporation
may require.
2. REGISTERED OFFICE
The Board of Directors shall designate the registered office of the
Corporation and may change such registered office by resolution.
ARTICLE II. SHAREHOLDERS
1. ANNUAL MEETING
The annual meeting of the shareholders for the election of directors and
for the transaction of such other business as may properly be brought
before the meeting shall be held each year not later than the fourth
Tuesday in May, on the date designated by the Board of Directors and
specified in the notice of meeting. If the election of directors shall
not be held on the day designated for any annual meeting of the
shareholders, or at any adjournment thereof, the Board of Directors
shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as convenient.
2. SPECIAL MEETINGS
Special meetings of the shareholders may be called by the Chairman of
the Board of Directors or the President or the Secretary, or by
resolution of the Board of Directors. The Corporation shall call a
special meeting of shareholders 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 special meeting sign, date, and deliver to
the Corporation one or more written demands for the meeting describing
one or more purposes for which it is to be held. The Corporation shall
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give notice of such a special meeting within 30 days after the date that
the demand is delivered to the Corporation.
3. PLACE OF MEETING
Each meeting of shareholders, annual or special, shall be held at the
principal office of the Corporation unless another place, either within
or without the State of Wisconsin, has been designated by the Board of
Directors and specified in the notice of such meeting, but any meeting
of shareholders may be adjourned to reconvene at any place designated by
a majority of the shares represented at such meeting.
4. NOTICE OF MEETINGS
Written notice stating the date, time, and place of the meeting and, in
case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered not less than 10 nor more than 60 days
before the date of the meeting (unless a different time is provided by
the Wisconsin Business Corporation Law or the Articles of Incorporation)
to each shareholder of record entitled to vote at such meeting and to
such other persons as required by the Wisconsin Business Corporation
Law. Such notice shall be given by or at the direction of the officer
or persons calling the meeting and shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
shareholder of record at his or her address as it appears in the records
of the Corporation. If any meeting of the shareholders is adjourned to
another time or place, no notice of such adjourned meeting need be given
other than by announcement thereof at the meeting at which such
adjournment is taken; provided, however, that if a new record date for
an adjourned meeting is or must be fixed, the Corporation shall give
notice of the adjourned meeting to persons who are shareholders as of
the new record date.
5. WAIVER OF NOTICE
A shareholder may waive any notice required by the Wisconsin Business
Corporation Law, the Articles of Incorporation or these By-laws before
or after the date and time stated in the notice. The waiver shall be in
writing and signed by the shareholder entitled to the notice, contain
the same information that would have been required in the notice under
applicable provisions of the Wisconsin Business Corporation Law (except
that the time and place of meeting need not
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be stated) and be delivered to the Corporation for inclusion in the
corporate records. A shareholder's attendance at a meeting, in person
or by proxy, waives objection to all of the following:
a. Lack of notice or defective notice of the meeting, unless the
shareholder at the beginning of the meeting or promptly upon
arrival objects to holding the meeting or transacting business at
the meeting; and
b. Consideration of a particular matter at the meeting that is not
within the purpose described in the meeting notice, unless the
shareholder objects to considering the matter when it is
presented.
6. FIXING OF RECORD DATE
The Board of Directors may fix in advance a date as the record date for
the purpose of determining shareholders entitled to notice of and to
vote at any meeting of shareholders, shareholders entitled to demand a
special meeting as contemplated by Section 2 of this Article II,
shareholders entitled to take any other action, or shareholders for any
other purpose. Such record date shall not be more than 70 days prior to
the date on which the particular action, requiring such determination of
shareholders, is to be taken. If no record date is fixed by the Board
of Directors or by the Wisconsin Business Corporation Law for the
determination of shareholders entitled to notice of and to vote at a
meeting of shareholders, the record date shall be the close of business
on the day before the first notice is given to shareholders. If no
record date is fixed by the Board of Directors or by the Wisconsin
Business Corporation Law for the determination of shareholders entitled
to demand a special meeting as contemplated in Section 2 of this
Article II, the record date shall be the date that the first shareholder
signs the demand. Except as provided by the Wisconsin Business
Corporation Law for a court-ordered adjournment, a determination of
shareholders entitled to notice of and to vote at a meeting of
shareholders is effective for any adjournment of such meeting unless the
Board of Directors fixes a new record date, which it shall do if the
meeting is adjourned to a date more than 120 days after the date fixed
for the original meeting. The record date for determining shareholders
entitled to a distribution (other than a distribution involving a
purchase, redemption, or other acquisition of the Corporation's shares)
or a share dividend is the date on which the Board of Directors
authorized the distribution or share dividend, as the case may be,
unless the Board of Directors fixes a different record date.
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7. SHAREHOLDERS' LIST FOR MEETINGS
After a record date for a special or annual meeting of shareholders has
been fixed, the Corporation shall prepare a list of the names of all of
the shareholders entitled to notice of the meeting. The list shall be
arranged by class or series of shares, if any, and show the address of
and number of shares held by each shareholder. Such list shall 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 the date of the meeting, at the Corporation's principal
office or at a place identified in the meeting notice in the city where
the meeting will be held. A shareholder or his or her agent may, on
written demand, inspect and, subject to the limitations imposed by the
Wisconsin Business Corporation Law, copy the list, during regular
business hours and at his or her expense, during the period that it is
available for inspection pursuant to this Section. The Corporation
shall make the shareholders' list available at the meeting and any
shareholder or his or her agent or attorney may inspect the list at any
time during the meeting or any adjournment thereof. Refusal or failure
to prepare or make available the shareholders' list shall not affect the
validity of any action taken at a meeting of shareholders.
8. QUORUM AND VOTING REQUIREMENTS
Shares entitled to vote as a separate voting group may take action on a
matter at a meeting only if a quorum of those shares exists with respect
to that matter. The holders of a majority of the shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at a
meeting of shareholders. Once a share is represented for any purpose at
a meeting, other than for the purpose of objecting to holding the
meeting or transacting business at the meeting, it is considered present
for purposes of determining whether a quorum exists for the remainder of
the meeting and for any adjournment of that meeting unless a new record
date is or must be set for the adjourned meeting. If a quorum exists,
except in the case of the election of directors, action on a matter
shall be approved if the votes cast within the voting group favoring the
action exceed the votes cast opposing the action, unless the Articles of
Incorporation or the Wisconsin Business Corporation Law requires a
greater number of affirmative votes. Unless otherwise provided in the
Articles of Incorporation, each director shall be elected by a plurality
of the votes cast by the shares entitled to vote in the election of
directors at a meeting at which a quorum is present. Though less than a
quorum of the outstanding votes of a voting group are represented at a
meeting, a majority of the votes so represented may adjourn the meeting
from time to time without further notice. At such adjourned meeting at
which a
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quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified.
9. PROXIES
At all meetings of shareholders, a shareholder may vote his or her
shares in person or by proxy. A shareholder may appoint a proxy to vote
or otherwise act for the shareholder by signing an appointment form,
either personally or by his or her attorney-in-fact. An appointment of
a proxy is effective when received by the Secretary or other officer or
agent of the Corporation authorized to tabulate votes. An appointment
is valid for 11 months from the date of its signing unless a different
period is expressly provided in the appointment form.
10. ACCEPTANCE OF INSTRUMENTS SHOWING SHAREHOLDER ACTION
If the name signed on a vote, consent, waiver, or proxy appointment
corresponds to the name of a shareholder, the Corporation, if acting in
good faith, may accept the vote, consent, waiver, or proxy appointment
and give it effect as the act of a shareholder. If the name signed on a
vote, consent, waiver, or proxy appointment does not correspond to the
name of a shareholder, the Corporation, if acting in good faith, may
accept the vote, consent, waiver, or proxy appointment and give it
effect as the act of the shareholder if any of the following apply:
a. The shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity.
b. The name purports to be that of a personal representative,
administrator, executor, guardian, or conservator representing the
shareholder and, if the Corporation requests, evidence of
fiduciary status acceptable to the Corporation is presented with
respect to the vote, consent, waiver, or proxy appointment.
c. The name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the Corporation requests,
evidence of this status acceptable to the Corporation is presented
with respect to the vote, consent, waiver, or proxy appointment.
d. The name signed purports to be that of a pledgee, beneficial
owner, or attorney-in-fact of the shareholder and, if the
Corporation requests, evidence acceptable to the Corporation of
the signatory's authority to sign
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for the shareholder is presented with respect to the vote, consent,
waiver, or proxy appointment.
e. Two or more persons are the shareholders as co-tenants or
fiduciaries and the name signed purports to be the name of at
least one of the co-owners and the person signing appears to be
acting on behalf of all co-owners.
The Corporation may reject a vote, consent, waiver, or proxy appointment
if the Secretary or other officer or agent of the Corporation who is
authorized to tabulate votes, acting in good faith, has reasonable basis
for doubt about the validity of the signature on it or about the
signatory's authority to sign for the shareholder.
ARTICLE III. BOARD OF DIRECTORS
1. GENERAL POWERS
The business and affairs of the Corporation shall be managed by its
Board of Directors. The Board shall determine the nature and character
of the business to be conducted by the Corporation and the method of
doing so; what employees, agents, and officers shall be employed and
their compensation; and what purchases or contracts for purchase shall
be made. The Board may delegate any of its aforesaid powers to
committees or to officers, agents, or employees as it may from time to
time determine.
2. NUMBER OF DIRECTORS
The number of directors of the Corporation shall be ten, divided into
three classes: Class A - 4 members, Class B - 3 members, and Class C -
3 members.
3. TERM
At the 1994 annual meeting of shareholders, the directors of Class A
shall be elected for a term to expire at the first annual meeting of
shareholders after their election, and until their successors are
elected and qualify, the directors of Class B shall be elected for a
term to expire at the second annual meeting of shareholders after their
election, and until their successors are elected and qualify, and the
directors of Class C shall be elected for a term to expire at the third
annual meeting of shareholders after their election and until their
successors are elected and qualify. At each annual meeting of
shareholders
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after the 1994 annual meeting of shareholders, the successors to the
class of directors whose terms shall expire at the time of such annual
meeting shall be elected to hold office until the third succeeding
annual meeting of shareholders, and until their successors are elected
and qualify.
4. QUALIFICATIONS
No director shall be eligible for re-election after attaining the age of
70 years. Directors need not be shareholders of the Corporation or
residents of the State of Wisconsin.
5. MEETINGS
The Board of Directors shall hold its meetings at such place or places,
within or without the State of Wisconsin, as the Board may from time to
time determine.
a. A meeting of the Board of Directors, to be known as the annual
meeting, may be held, without notice, immediately after and at the
same place as the annual meeting of the shareholders at which such
Board is elected, for the purpose of electing the officers of the
Corporation and to transact such other business as may come before
the Board. Such annual meeting may be held at a different place
than the annual meeting of shareholders and/or on a date
subsequent to the annual meeting of shareholders, if notice of such
different place and/or date has been given to or waived by all the
directors.
b. Regular meetings of the Board of Directors may be held without
call and without notice, at such times and in such places as the
Board may by resolution from time to time determine.
c. Special meetings of the Board of Directors may be called at any
time by the Chairman of the Board or the Chief Executive Officer
and shall be called by the Secretary of the Corporation upon the
written request of three or more directors.
6. NOTICE; WAIVER
Notice of each special meeting of the Board of Directors shall be given
by written notice delivered or communicated in person, by telegraph,
teletype, facsimile or other form of wire or wireless communication, or
by mail or private carrier, to each director at his or her business
address or at such other address as such director shall have designated
in writing filed with the Secretary, in each case not
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less than 48 hours prior to the meeting. The notice need not prescribe
the purpose of the special meeting of the Board of Directors or the
business to be transacted at such meeting. If mailed, such notice shall
be deemed to be effective when deposited in the United States mail so
addressed, with postage thereon prepaid. If notice is given by telegram,
such notice shall be deemed to be effective when the telegram is
delivered to the telegraph company. If notice is given by private
carrier, such notice shall be deemed to be effective when delivered to
the private carrier. Whenever any notice whatever is required to be
given to any director of the Corporation under the Articles of
Incorporation or these By-laws or any provision of the Wisconsin
Business Corporation Law, a waiver thereof in writing, signed at any
time, whether before or after the date and time of meeting, by the
director entitled to such notice shall be deemed equivalent to the
giving of such notice. The Corporation shall retain any such waiver
as part of the permanent corporate records. A director's attendance
at or participation in a meeting waives any required notice to him or
her of the meeting unless the director at the beginning of the meeting
or promptly upon his or her arrival objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or
assent to action taken at the meeting.
7. QUORUM
Except as otherwise provided by the Wisconsin Business Corporation Law
or by the Articles of Incorporation or these By-laws, a majority of the
number of directors specified in Section 2 of Article III of these
By-laws shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors. Except as otherwise provided by the
Wisconsin Business Corporation Law, the Articles of Incorporation, or
these By-laws, a quorum of any committee of the Board of Directors
created pursuant to Section 13 hereof shall consist of a majority of the
number of directors appointed to serve on the committee. A majority of
the directors present (though less than such quorum) may adjourn any
meeting of the Board of Directors or any committee thereof, as the case
may be, from time to time without further notice.
8. MANNER OF ACTING
The affirmative vote of a majority of the directors present at a meeting
of the Board of Directors or a committee thereof at which a quorum is
present shall be the act of the Board of Directors or such committee, as
the case may be, unless the Wisconsin Business Corporation Law, the
Articles of Incorporation, or these By-laws require the vote of a
greater number of directors.
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9. MINUTES OF MEETINGS
Minutes of any regular or special meeting of the Board of Directors
shall be prepared and distributed to each director.
10. VACANCIES
Vacancies occurring in the Board of Directors shall be filled in the
manner provided in Article 5 of the Articles of Incorporation.
11. COMPENSATION
The Board of Directors, irrespective of any personal interest of any of
its members, may establish reasonable compensation of all directors for
services to the Corporation as directors, officers, or otherwise, or may
delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or delegate authority
to an appropriate committee to provide for reasonable pensions,
disability or death benefits, and other benefits or payments, to
directors, officers, and employees and to their estates, families,
dependents, or beneficiaries on account of prior services rendered by
such directors, officers, and employees to the Corporation.
12. PRESUMPTION OF ASSENT
A director who is present and is announced as present at a meeting of
the Board of Directors or any committee thereof created in accordance
with Section 13 of this Article III, when corporate action is taken,
assents to the action taken unless any of the following occurs:
a. The director objects at the beginning of the meeting or promptly
upon his or her arrival to holding the meeting or transacting
business at the meeting;
b. The director's dissent or abstention from the action taken is
entered in the minutes of the meeting; or
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c. The director delivers written notice that complies with the
Wisconsin Business Corporation Law of his or her dissent or
abstention to the presiding officer of the meeting before its
adjournment or to the Corporation immediately after adjournment of
the meeting.
Such right of dissent or abstention shall not apply to a director who
votes in favor of the action taken.
13. COMMITTEES
The Board of Directors by resolution adopted by the affirmative vote of
a majority of all of the directors then in office may create one or more
committees, appoint members of the Board of Directors to serve on the
committees and designate other members of the Board of Directors to
serve as alternates. Each committee shall have two or more members who
shall, unless otherwise provided by the Board of Directors, serve at the
pleasure of the Board of Directors. A committee may be authorized to
exercise the authority of the Board of Directors, except that a
committee may not do any of the following:
a. Authorize distributions;
b. Approve or propose to shareholders action that the Wisconsin
Business Corporation Law requires to be approved by shareholders;
c. Fill vacancies on the Board of Directors or, unless the Board of
Directors provides by resolution that vacancies on a committee
shall be filled by the affirmative vote of the remaining committee
members, on any Board committee;
d. Amend the Corporation's Articles of Incorporation;
e. Adopt, amend, or repeal By-laws;
f. Approve a plan of merger not requiring shareholder approval;
g. Authorize or approve reacquisition of shares, except according to
a formula or method prescribed by the Board of Directors; and
h. Authorize or approve the issuance or sale or contract for sale of
shares, or determine the designation and relative rights,
preferences and limitations of a class or series of shares, except
that the Board of Directors may authorize a committee to do so
within limits prescribed by the Board of
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Directors. Unless otherwise provided by the Board of Directors in
creating the committee, a committee may employ counsel,
accountants, and other consultants to assist it in the exercise of
its authority.
14. TELEPHONIC MEETINGS
Except as herein provided and notwithstanding any place set forth in the
notice of the meeting or these By-laws, members of the Board of
Directors (and any committees thereof created pursuant to Section 13 of
this Article III) may participate in regular or special meetings by, or
through the use of, any means of communication by which all participants
may simultaneously hear each other, such as by conference telephone. If
a meeting is conducted by such means, then at the commencement of such
meeting the presiding officer shall inform the participating directors
that a meeting is taking place at which official business may be
transacted. Any participant in a meeting by such means shall be deemed
present in person at such meeting. Notwithstanding the foregoing, no
action may be taken at any meeting held by such means on any particular
matter which the presiding officer determines, in his or her sole
discretion, to be inappropriate under the circumstances for action at a
meeting held by such means. Such determination shall be made and
announced in advance of such meeting.
15. ACTION WITHOUT MEETING
Any action required or permitted by the Wisconsin Business Corporation
Law to be taken at a meeting of the Board of Directors or a committee
thereof created pursuant to Section 13 of this Article III may be taken
without a meeting if the action is taken by all members of the Board or
of the committee. The action shall be evidenced by one or more written
consents describing the action taken, signed by each director or
committee member, and retained by the Corporation. Such action shall be
effective when the last director or committee member signs the consent,
unless the consent specifies a different effective date.
ARTICLE IV. OFFICERS
1. PRINCIPAL OFFICERS
The principal officers of the Corporation required by statute shall be a
President, such number of Vice Presidents as may be elected by the Board
of Directors, a Secretary, and a Treasurer. The Board of Directors may
elect from among the directors a Chairman of the Board of Directors and
a Vice Chairman of the Board
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of Directors, may designate such Chairman, Vice Chairman, or any
principal officer as the Chief Executive Officer, may elect such
assistant secretaries and assistant treasurers and other officers as
it shall deem necessary, and may prescribe by resolution their
respective powers and duties.
2. PRESIDENT
The President shall be elected by the directors. Unless the Board of
Directors otherwise prescribes, he or she shall be the Chief Executive
Officer of the Corporation. In the event that the President is not the
Chief Executive Officer, he or she shall have such powers and duties as
the Board of Directors may prescribe.
3. CHAIRMAN OF THE BOARD OF DIRECTORS
If a Chairman of the Board of Directors shall be elected, he or she
shall preside as Chairman of all meetings of the shareholders and of the
Board of Directors. He or she shall have such other authority as the
Board may from time to time prescribe. If there is no Chairman of the
Board, or in the absence of the Chairman, the presiding officer at
meetings of the shareholders, and of the Board of Directors shall be
another officer in the following order of priority: Vice Chairman of
the Board of Directors, President and Vice Presidents (subject, however,
to Section 5 of this Article).
4. CHIEF EXECUTIVE OFFICER
The Chief Executive Officer shall exercise active supervision over the
business, property, and affairs of the Corporation.
a. The Chief Executive Officer shall have authority, subject to such
rules as may be prescribed from time to time by the Board or its
committees, to appoint agents or employees other than those
elected by the Board, to prescribe their powers and duties, and to
delegate such authority as he or she may see fit. Any agent or
employee not elected by the Board shall hold office at the
discretion of the Chief Executive Officer or other officer
employing him.
b. The Chief Executive Officer is authorized to sign, execute, and
acknowledge, on behalf of the Corporation, all deeds, mortgages,
bonds, notes, debentures, contracts, leases, reports and other
documents and instruments, except where the signing and execution
thereof by some other officer or agent shall be expressly
authorized and directed by law or
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by the Board or by these By-laws. Unless otherwise provided by
law or by the Board, the Chief Executive Officer may authorize
any officer, employee, or agent to sign, execute, and acknowledge,
on behalf of the Corporation, and in his or her place and stead,
all such documents and instruments.
c. Unless otherwise ordered by the Board of Directors, the Chief
Executive Officer, or a proxy appointed by him, shall have full
power and authority, in the name of and on behalf of the
Corporation, to attend, act, and vote at any meeting of the
shareholders of any other corporation in which the Corporation may
hold shares of stock. At any such meeting, he or she shall
possess and may exercise any and all rights and powers incident to
the ownership of shares of stock.
d. The Chief Executive Officer shall have such other powers and
perform such other duties as are incident to the office of Chief
Executive Officer and as may be prescribed by the Board.
5. VICE PRESIDENTS
In the absence of the President or during his or her inability or
refusal to act, his or her powers and duties shall temporarily devolve
upon such Vice Presidents or other officers as shall be designated by
the Board of Directors or, if not designated by the Board, by the Chief
Executive Officer or other officer to whom such power may be delegated
by the Board; provided, that no Vice President or other officer shall
--------
act as a member or chairman of any committee of the Board of Directors
of which the President is a member or chairman, except at the direction
of the Board.
a. Each Vice President shall have such powers and perform such other
duties as may be assigned to him by the Board or by the President,
including the power to sign, execute, and acknowledge all
documents and instruments referred to in Section 4 of this
Article.
b. The Board may assign to any Vice President, general supervision
and charge over any branch of the business and affairs of the
Corporation, subject to such limitations as it may elect to
impose.
c. The Board of Directors may, if it chooses, designate one or more
of the Vice Presidents "Executive Vice President" with such powers
and duties as the Board shall prescribe.
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6. SECRETARY
The Secretary shall attend, and keep the minutes of meetings of the
shareholders, of the Board of Directors and, unless otherwise directed
by any such committee, of all committees, in books provided for that
purpose; shall have custody of the corporate records and seal; shall see
that notices are given and records and reports properly kept and filed
as required by law or by these By-laws; and, in general, shall have such
other powers and perform such other duties as are incident to the office
of Secretary and as may be assigned to him or her by the Board of
Directors or the Chief Executive Officer.
7. ASSISTANT SECRETARIES
In the absence of the Secretary, or during his or her inability or
refusal to act, his or her powers and duties shall temporarily devolve
upon such one of the Assistant Secretaries as the President or the Board
of Directors may direct. The Assistant Secretaries shall have such
other powers and perform such other duties as may be assigned to them by
the Board, the Chief Executive Officer, or the Secretary.
8. TREASURER
The Treasurer shall have charge and custody of the funds, securities,
and other evidences of value of the Corporation, and shall keep and
deposit them as required by the Board of Directors. He or she shall
keep proper accounts of all receipts and disbursements and of the
financial transactions of the Corporation. He or she shall render
statements of such accounts and of money received and disbursed by him
or her and of property and money belonging to the Corporation as
required by the Board. The Treasurer shall have such other powers and
perform such other duties as are incident to the office of Treasurer and
as from time to time may be prescribed by the Board or the Chief
Executive Officer.
9. ASSISTANT TREASURERS
In the absence of the Treasurer, or during his or her inability or
refusal to act, his or her powers and duties shall temporarily devolve
upon such one of the Assistant Treasurers as the President or the Board
of Directors may direct. The Assistant Treasurers shall have such other
powers and perform such other duties as from time to time may be
assigned to them, respectively, by the Board, the Chief Executive
Officer, or the Treasurer.
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10. OTHER ASSISTANTS AND ACTING OFFICERS
The Board of Directors shall have the power to appoint any person to act
as assistant to any officer, or as agent for the Corporation in his or
her stead, or to perform the duties of such officer whenever for any
reason it is impracticable for such officer to act personally, and such
assistant or acting officer or other agent so appointed by the Board of
Directors or an authorized officer shall have the power to perform all
the duties of the office to which he or she is so appointed to be an
assistant, or as to which he or she is so appointed to act, except as
such power may be otherwise defined or restricted by the Board of
Directors.
11. COMPENSATION
The salaries or other compensation of all officers elected as provided
under Section 1 of this Article (other than assistant officers) shall be
fixed from time to time by the Board of Directors. The salaries or
other compensation of all other agents and employees of the Corporation
shall be fixed from time to time by the Chief Executive Officer, but
only within such limits as to amount, and in accordance with such other
conditions as may be prescribed by or under the authority of the Board
of Directors.
12. TENURE
Each officer shall hold office until his or her successor shall have
been duly elected and qualified, or until his or her death, resignation,
disqualification, or removal. Any officer, agent, or employee may be
removed, with or without cause, at any time by the Board of Directors
notwithstanding the contract rights, if any, of the officer removed.
The appointment of an officer does not of itself create contract rights.
13. RESIGNATION
An officer may resign at any time by delivering notice to the
Corporation that complies with the Wisconsin Business Corporation Law.
The resignation shall be effective when the notice is delivered, unless
the notice specifies a later effective date and the Corporation accepts
the later effective date.
14. VACANCIES
Any vacancy in any office may be filled by the Board of Directors for
the unexpired portion of the term. If a resignation of an officer is
effective at a later date as contemplated by Section 13 of this
Article IV, the Board of Directors may
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fill the pending vacancy before the effective date if the Board provides
that the successor may not take office until the effective date.
15. REASSIGNMENT OF DUTIES
In case of the absence or disability of any officer of the Corporation,
or for any other reason deemed sufficient by the Board of Directors, the
Board may reassign or delegate the powers and duties, or any of them, to
any other officer, director, or person it may select.
ARTICLE V. CERTIFICATES FOR AND TRANSFER OF SHARES
1. FORM
Certificates representing shares of the Corporation shall be in such
form as shall be determined by the Board of Directors. All certificates
for shares shall be consecutively numbered or otherwise identified. The
name and address of the person to whom the shares represented thereby
are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the Corporation. All
certificates surrendered for the transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except in
case of a lost or destroyed certificate provided for in Section 4 of
this Article V or a certificate for shares transferred in compliance
with the escheat laws of any state.
2. SIGNATURES
Certificates representing shares of the Corporation shall be signed by
the President or a Vice President and by the Secretary or an Assistant
Secretary; and may be sealed with the seal of the Corporation (which may
be a facsimile) and countersigned and registered in such manner, if any,
as the Board of Directors may prescribe. Whenever any certificate is
manually signed on behalf of a transfer agent, or a registrar, other
than the Corporation itself or an employee of the Corporation, the
signatures of the President, Vice President, Secretary, or Assistant
Secretary, upon such certificate may be facsimiles. In case any officer
who has signed, or whose facsimile signature has been placed upon such
certificate, ceases to be such officer before such certificate is
issued, it may be issued with the same effect as if he or she were such
officer at the date of its issue.
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3. RESTRICTIONS ON TRANSFER
The face or reverse side of each certificate representing shares shall
bear a conspicuous notation of any restriction imposed by the
Corporation upon the transfer of such shares.
4. LOST, DESTROYED, OR STOLEN CERTIFICATES
Where the owner claims that his or her certificate for shares has been
lost, destroyed, or wrongfully taken, a new certificate shall be issued
in place thereof if the owner:
a. So requests before the Corporation has notice that such shares
have been acquired by a bona fide purchaser;
b. Files with the Corporation a sufficient indemnity bond; and
c. Satisfies such other reasonable requirements as may be prescribed
by or under the authority of the Board of Directors.
5. TRANSFER OF SHARES
Prior to due presentment of a certificate for shares for registration of
transfer the Corporation may treat the registered owner of such shares
as the person exclusively entitled to vote, to receive notifications,
and otherwise to have and exercise all the rights and powers of an
owner. Where a certificate for shares is presented to the Corporation
with a request to register for transfer, the Corporation shall not be
liable to the owner or any other person suffering loss as a result of
such registration of transfer if:
a. There were on or with the certificate the necessary endorsements;
and
b. The Corporation had no duty to inquire into adverse claims or has
discharged any such duty.
The Corporation may require reasonable assurance that said endorsements
are genuine and effective and compliance with such other regulations as
may be prescribed by or under the authority of the Board of Directors.
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6. CONSIDERATION FOR SHARES
The Board of Directors may authorize shares to be issued for
consideration consisting of any tangible or intangible property or
benefit to the Corporation, including cash, promissory notes, services
performed, contracts for services to be performed or other securities of
the Corporation. Before the Corporation issues shares, the Board of
Directors shall determine that the consideration received or to be
received for the shares to be issued is adequate. The determination of
the Board of Directors is conclusive insofar as the adequacy of
consideration for the issuance of shares relates to whether the shares
are validly issued, fully paid, and nonassessable. The Corporation may
place in escrow shares issued in whole or in part for a contract for
future services or benefits, a promissory note, or otherwise for
property to be issued in the future, or make other arrangements to
restrict the transfer of the shares, and may credit distributions in
respect of the shares against their purchase price, until the services
are performed, the benefits or property are received, or the promissory
note is paid. If the services are not performed, the benefits or
property are not received, or the promissory note is not paid, the
Corporation may cancel, in whole or in part, the shares escrowed or
restricted and the distributions credited.
7. OTHER RULES
The Board of Directors shall have the power and authority to make all
such further rules and regulations not inconsistent with the statutes of
the State of Wisconsin as it may deem expedient concerning the issue,
transfer, and registration of certificates representing shares of the
Corporation, including the appointment and designation of Transfer
Agents and Registrars.
ARTICLE VI. INDEMNIFICATION OF OFFICERS AND DIRECTORS
1. MANDATORY INDEMNIFICATION
a. In all cases other than those set forth in Section 1b hereof,
subject to the conditions and limitations set forth hereinafter in
this Article VI, the Corporation shall indemnify and hold harmless
any person who is or was a party, or is threatened to be made a
party, to any Action (see Section 16 of this Article VI for
definitions of capitalized terms used herein) by reason of his or
her status as an Executive, and/or as to acts performed in the
course of such Executive's duties to the Corporation and/or an
Affiliate, against Liabilities and reasonable Expenses incurred by
or on behalf of an Executive in connection with any Action,
including, without limitation, in
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connection with the investigation, defense, settlement or appeal
of any Action; provided, pursuant to Section 3 of this Article VI,
that it is not determined by the Authority, or by a court, that
the Executive engaged in misconduct which constitutes a Breach of
Duty.
b. To the extent an Executive has been successful on the merits or
otherwise in connection with any Action, including, without
limitation, the settlement, dismissal, abandonment, or withdrawal
of any such Action where the Executive does not pay, incur, or
assume any material Liabilities, or in connection with any claim,
issue, or matter therein, he or she shall be indemnified by the
Corporation against reasonable Expenses incurred by or on behalf
of him or her in connection therewith. The Corporation shall pay
such Expenses to the Executive (net of all Expenses, if any,
previously advanced to the Executive pursuant to Section 2 of this
Article VI), or to such other person or entity as the Executive
may designate in writing to the Corporation, within ten days after
the receipt of the Executive's written request therefor, without
regard to the provisions of Section 3 of this Article VI. In the
event the Corporation refuses to pay such requested Expenses, the
Executive may petition a court to order the Corporation to make
such payment pursuant to Section 4 of this Article VI.
c. Notwithstanding any other provision contained in this Article VI
to the contrary, the Corporation shall not:
(1) Indemnify, contribute, or advance Expenses to an Executive
with respect to any Action initiated or brought voluntarily
by the Executive and not by way of defense, except with
respect to Actions:
(a) brought to establish or enforce a right to
indemnification, contribution, and/or an advance of
Expenses under Section 4 of this Article VI, under the
Statute as it may then be in effect or under any other
statute or law or otherwise as required;
(b) initiated or brought voluntarily by an Executive to
the extent such Executive is successful on the merits
or otherwise in connection with such an Action in
accordance with and pursuant to Section 1b of this
Article VI; or
(c) as to which the Board determines it to be appropriate.
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(2) indemnify the Executive under this Article VI for any
amounts paid in settlement of any Action effected without
the Corporation's written consent.
The Corporation shall not settle in any manner which would impose
any Liabilities or other type of limitation on the Executive
without the Executive's written consent. Neither the Corporation
nor the Executive shall unreasonably withhold their consent to any
proposed settlement.
d. An Executive's conduct with respect to an employee benefit plan
sponsored by or otherwise associated with the Corporation and/or
an Affiliate for a purpose he or she reasonably believes to be in
the interests of the participants in and beneficiaries of such
plan is conduct that does not constitute a breach or failure to
perform his or her duties to the Corporation or an Affiliate, as
the case may be.
2. ADVANCE FOR EXPENSES
a. The Corporation shall pay to an Executive, or to such other person
or entity as the Executive may designate in writing to the
Corporation, his or her reasonable Expenses incurred by or on
behalf of such Executive in connection with any Action, or claim,
issue, or matter associated with any such Action, in advance of
the final disposition or conclusion of any such Action (or claim,
issue, or matter associated with any such Action), within ten days
after the receipt of the Executive's written request therefor;
provided, the following conditions are satisfied:
(1) The Executive has first requested an advance of such
Expenses in writing (and delivered a copy of such request to
the Corporation) from the insurance carrier(s), if any, to
whom a claim has been reported under an applicable insurance
policy purchased by the Corporation and each such insurance
carrier, if any, has declined to make such an advance;
(2) The Executive furnishes to the Corporation an executed
written certificate affirming his or her good faith belief
that he or she has not engaged in misconduct which
constitutes a Breach of Duty; and
(3) The Executive furnishes to the Corporation an executed
written agreement to repay any advances made under this
Section 2 if it is ultimately determined that he or she is
not entitled to be
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indemnified by the Corporation for such Expenses pursuant to
this Article VI.
b. If the Corporation makes an advance of Expenses to an Executive
pursuant to this Section 2, the Corporation shall be subrogated to
every right of recovery the Executive may have against any
insurance carrier from whom the Corporation has purchased
insurance for such purpose.
3. DETERMINATION OF RIGHT TO INDEMNIFICATION
a. Except as otherwise set forth in this Section 3 or in Section 1c
of this Article VI, any indemnification to be provided to an
Executive by the Corporation under Section 1a of this Article VI
upon the final disposition or conclusion of any Action, or any
claim, issue, or matter associated with any such Action, unless
otherwise ordered by a court, shall be paid by the Corporation to
the Executive (net of all Expenses, if any, previously advanced to
the Executive pursuant to Section 2 of this Article VI), or to
such other person or entity as the Executive may designate in
writing to the Corporation, within 60 days after the receipt of
the Executive's written request therefor. Such request shall
include an accounting of all amounts for which indemnification is
being sought. No further corporate authorization for such payment
shall be required other than this Section 3.
b. Notwithstanding the foregoing, the payment of such requested
indemnifiable amounts pursuant to Section 1a of this Article VI
may be denied by the Corporation if:
(1) the Board by a majority vote thereof determines that the
Executive has engaged in misconduct which constitutes a
Breach of Duty; or
(2) a majority of the directors of the Corporation are a party
in interest to such Action.
c. In either event of nonpayment pursuant to Section 3b of this
Article VI, the Board shall immediately authorize and direct, by
resolution, that an independent determination be made as to
whether the Executive has engaged in misconduct which constitutes
a Breach of Duty and, therefore, whether indemnification of the
Executive is proper pursuant to this Article VI.
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d. Such independent determination shall be made, at the option of the
Executive(s) seeking indemnification, by:
(1) A panel of three arbitrators (selected as set forth below in
Section 3f from the panels of arbitrators of the American
Arbitration Association) in Milwaukee, Wisconsin, in
accordance with the Commercial Arbitration Rules then
prevailing of the American Arbitration Association;
(2) An independent legal counsel mutually selected by the
Executive(s) seeking indemnification and the Board by a
majority vote of a quorum thereof consisting of directors
who were not parties in interest to such Action (or, if such
quorum is not obtainable, by the majority vote of the entire
Board); or
(3) A court in accordance with Section 4 of this Article VI.
e. In any such determination there shall exist a rebuttable
presumption that the Executive has not engaged in misconduct which
constitutes a Breach of Duty and is, therefore, entitled to
indemnification hereunder. The burden of rebutting such
presumption by clear and convincing evidence shall be on the
Corporation.
f. If a panel of arbitrators is to be employed hereunder, one of such
arbitrators shall be selected by the Board by a majority vote of a
quorum thereof consisting of directors who were not parties in
interest to such Action or, if such quorum is not obtainable, by
an independent legal counsel chosen by the majority vote of the
entire Board, the second by the Executive(s) seeking
indemnification, and the third by the previous two arbitrators.
g. The Authority shall make its independent determination hereunder
within 60 days of being selected and shall simultaneously submit a
written opinion of its conclusions to both the Corporation and the
Executive.
h. If the Authority determines that an Executive is entitled to be
indemnified for any amounts pursuant to this Article VI, the
Corporation shall pay such amounts to the Executive (net of all
Expenses, if any, previously advanced to the Executive pursuant to
Section 2 of this Article VI), including interest thereon as
provided in Section 6c of this Article VI, or such other person or
entity as the Executive may designate in writing to the
Corporation, within ten days of receipt of such opinion.
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i. Except with respect to any judicial determination pursuant to
Section 4 of this Article VI, the Expenses associated with the
indemnification process set forth in this Section 3 of this
Article VI, including, without limitation, the Expenses of the
Authority selected hereunder, shall be paid by the Corporation.
4. COURT-ORDERED INDEMNIFICATION AND ADVANCE FOR EXPENSES
a. An Executive may, either before or within two years after a
determination, if any, has been made by the Authority, petition
the court before which such Action was brought or any other court
of competent jurisdiction to independently determine whether or
not he or she has engaged in misconduct which constitutes a Breach
of Duty and is, therefore, entitled to indemnification under the
provisions of this Article VI. Such court shall thereupon have
the exclusive authority to make such determination unless and
until such court dismisses or otherwise terminates such proceeding
without having made such determination. An Executive may petition
a court under this Section 4 either to seek an initial
determination by the court as authorized by Section 3d of this
Article VI or to seek review by the court of a previous adverse
determination by the Authority.
b. The court shall make its independent determination irrespective of
any prior determination made by the Authority; provided, however,
that there shall exist a rebuttable presumption that the Executive
has not engaged in misconduct which constitutes a Breach of Duty
and is, therefore, entitled to indemnification hereunder. The
burden of rebutting such presumption by clear and convincing
evidence shall be on the Corporation.
c. In the event the court determines that an Executive has engaged in
misconduct which constitutes a Breach of Duty, it may nonetheless
order indemnification to be paid by the Corporation if it
determines that the Executive is fairly and reasonably entitled to
indemnification in view of all of the circumstances of such
Action.
d. In the event the Corporation does not:
(1) Advance Expenses to the Executive within ten days of such
Executive's compliance with Section 2 of this Article VI; or
(2) Indemnify an Executive with respect to requested Expenses
under Section 1b of this Article VI within ten days of such
Executive's written request therefor, the Executive may
petition the court before
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which such Action was brought, if any, or any other court of
competent jurisdiction to order the Corporation to pay such
reasonable Expenses immediately. Such court, after giving any
notice it considers necessary, shall order the Corporation to
pay such Expenses if it determines that the Executive has
complied with the applicable provisions of Section 2 of this
Article VI or 1b of this Article VI, as the case may be.
e. If the court determines pursuant to this Section 4 that the
Executive is entitled to be indemnified for any Liabilities and/or
Expenses, or to the advance of Expenses, unless otherwise ordered
by such court, the Corporation shall pay such Liabilities and/or
Expenses to the Executive (net of all Expenses, if any, previously
advanced to the Executive pursuant to Section 2 of this
Article VI), including interest thereon as provided in Section 6c
of this Article VI, or to such other person or entity as the
Executive may designate in writing to the Corporation, within
ten days of the rendering of such determination.
f. An Executive shall pay all Expenses incurred by such Executive in
connection with the judicial determination provided in this
Section 4, unless it shall ultimately be determined by the court
that he or she is entitled, in whole or in part, to be indemnified
by, or to receive an advance from, the Corporation as authorized
by this Article VI. All Expenses incurred by an Executive in
connection with any subsequent appeal of the judicial
determination provided for in this Section 4 shall be paid by the
Executive regardless of the disposition of such appeal.
5. TERMINATION OF AN ACTION IS NONCONCLUSIVE
The adverse termination of any Action against an Executive by judgment,
order settlement, conviction, or upon a plea of no contest or its
equivalent, shall not, of itself, create a presumption that the
Executive has engaged in misconduct which constitutes a Breach of Duty.
6. PARTIAL INDEMNIFICATION; REASONABLENESS; INTEREST
a. If it is determined by the Authority, or by a court, that an
Executive is entitled to indemnification as to some claims,
issues, or matters, but not as to other claims, issues, or
matters, involved in any Action, the Authority, or the court,
shall authorize the proration and payment by the Corporation of
such Liabilities and/or reasonable Expenses with respect to which
indemnification is sought by the Executive, among such claims,
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issues, or matters as the Authority, or the court, shall deem
appropriate in light of all of the circumstances of such Action.
b. If it is determined by the Authority, or by a court, that certain
Expenses incurred by or on behalf of an Executive are for whatever
reason unreasonable in amount, the Authority, or the court, shall
nonetheless authorize indemnification to be paid by the
Corporation to the Executive for such Expenses as the Authority,
or the court, shall deem reasonable in light of all of the
circumstances of such Action.
c. Interest shall be paid by the Corporation to an Executive, to the
extent deemed appropriate by the Authority, or by a court, at a
reasonable interest rate, for amounts for which the Corporation
indemnifies or advances to the Executive.
7. INSURANCE; SUBROGATION
a. The Corporation may purchase and maintain insurance on behalf of
any person who is or was an Executive of the Corporation, and/or
is or was serving as an Executive of an Affiliate, against
Liabilities and/or Expenses asserted against him or her and/or
incurred by or on behalf of him or her in any such capacity, or
arising out of his or her status as such an Executive, whether or
not the Corporation would have the power to indemnify him or her
against such Liabilities and/or Expenses under this Article VI or
under the Statute as it may then be in effect. Except as
expressly provided herein, the purchase and maintenance of such
insurance shall not in any way limit or affect the rights and
obligations of the Corporation and/or any Executive under this
Article VI. Such insurance may, but need not, be for the benefit
of all Executives of the Corporation and those serving as an
Executive of an Affiliate.
b. If an Executive shall receive payment from any insurance carrier
or from the plaintiff in any Action against such Executive in
respect of indemnified amounts after payments on account of all or
part of such indemnified amounts have been made by the Corporation
pursuant to this Article VI, such Executive shall promptly
reimburse the Corporation for the amount, if any, by which the sum
of such payment by such insurance carrier or such plaintiff and
payments by the Corporation to such Executive exceeds such
indemnified amounts; provided, however, that such portions, if
any, of such insurance proceeds that are required to be reimbursed
to the insurance carrier under the terms of its insurance policy,
such as
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deductible, retention, or co-insurance amounts, shall not be
deemed to be payments to such Executive hereunder.
c. Upon payment of indemnified amounts under this Article VI, the
Corporation shall be subrogated to such Executive's rights against
any insurance carrier in respect of such indemnified amounts and
the Executive shall execute and deliver any and all instruments
and/or documents and perform any and all other acts or deeds which
the Corporation shall deem necessary or advisable to secure such
rights. The Executive shall do nothing to prejudice such rights
of recovery or subrogation.
8. WITNESS EXPENSES
The Corporation shall advance or reimburse any and all reasonable
Expenses incurred by or on behalf of an Executive in connection with his
or her appearance as a witness in any Action at a time when he or she
has not been formally named a defendant or respondent to such an Action,
within ten days after the receipt of an Executive's written request
therefor.
9. CONTRIBUTION
a. Subject to the limitations of this Section 9, if the indemnity
provided for in Section 1 of this Article VI is unavailable to an
Executive for any reason whatsoever, the Corporation, in lieu of
indemnifying the Executive, shall contribute to the amount
incurred by or on behalf of the Executive, whether for Liabilities
and/or for reasonable Expenses in connection with any Action in
such proportion as deemed fair and reasonable by the Authority, or
by a court, in light of all of the circumstances of any such
Action, in order to reflect:
(1) The relative benefits received by the Corporation and the
Executive as a result of the event(s) and/or transaction(s)
giving cause to such Action; and/or
(2) The relative fault of the Corporation (and its other
Executives, employees, and/or agents) and the Executive in
connection with such event(s) and/or transaction(s).
b. The relative fault of the Corporation (and its other Executives,
employees, and/or agents), on the one hand, and of the Executive,
on the other hand, shall be determined by reference to, among
other things, the parties'
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relative intent, knowledge, access to information, and opportunity
to correct or prevent the circumstances resulting in such
Liabilities and/or Expenses. The Corporation agrees that it
would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro rata allocation or any other
method of allocation which does not take account of the foregoing
equitable considerations.
c. An Executive shall not be entitled to contribution from the
Corporation under this Section 9 in the event it is determined by
the Authority, or by a court, that the Executive has engaged in
misconduct which constitutes a Breach of Duty.
d. The Corporation's payment of, and an Executive's right to,
contribution under this Section 9 shall be made and determined in
accordance with and pursuant to the provisions in Sections 3
and/or 4 of this Article VI relating to the Corporation's payment
of, and the Executive's right to, indemnification under this
Article VI.
10. INDEMNIFICATION OF EMPLOYEES
Unless otherwise specifically set forth in this Article VI, the
Corporation shall indemnify and hold harmless any person who is or was a
party, or is threatened to be made a party to any Action by reason of
his or her status as, or the fact that he or she is or was an employee
or authorized agent or representative of the Corporation and/or an
Affiliate as to acts performed in the course and within the scope of
such employee's, agent's, or representative's duties to the Corporation
and/or an Affiliate, in accordance with and to the fullest extent
permitted by the Statute as it may then be in effect.
11. SEVERABILITY
If any provision of this Article VI shall be deemed invalid or
inoperative, or if a court of competent jurisdiction determines that any
of the provisions of this Article VI contravene public policy, this
Article VI shall be construed so that the remaining provisions shall not
be affected, but shall remain in full force and effect, and any such
provisions which are invalid or inoperative or which contravene public
policy shall be deemed, without further Action or deed by or on behalf
of the Corporation, to be modified, amended, and/or limited, but only to
the extent necessary to render the same valid and enforceable, and the
Corporation shall indemnify an Executive as to Liabilities and
reasonable Expenses with respect to any Action to the full extent
permitted by any
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applicable provision of this Article VI that shall not have been
invalidated and to the full extent otherwise permitted by the
Statute as it may then be in effect.
12. NONEXCLUSIVITY OF ARTICLE VI
The right to indemnification, contribution, and advancement of Expenses
provided to an Executive by this Article VI shall not be deemed
exclusive of any other rights to indemnification, contribution, and/or
advancement of Expenses which any Executive or other employee or agent
of the Corporation and/or of an Affiliate may be entitled under any
charter provision, written agreement, resolution, vote of shareholders
or disinterested directors of the Corporation or otherwise, including,
without limitation, under the Statute as it may then be in effect, both
as to acts in his or her official capacity as such Executive or other
employee or agent of the Corporation and/or of an Affiliate or as to
acts in any other capacity while holding such office or position,
whether or not the Corporation would have the power to indemnify,
contribute, and/or advance Expenses to the Executive under this
Article VI or under the Statute; provided that it is not determined that
the Executive or other employee or agent has engaged in misconduct which
constitutes a Breach of Duty.
13. NOTICE TO THE CORPORATION; DEFENSE OF ACTIONS
a. An Executive shall promptly notify the Corporation in writing upon
being served with or having actual knowledge of any citation,
summons, complaint, indictment, or any other similar document
relating to any Action which may result in a claim of
indemnification, contribution, or advancement of Expenses
hereunder, but the omission so to notify the Corporation will not
relieve the Corporation from any liability which it may have to
the Executive otherwise than under this Article VI unless the
Corporation shall have been irreparably prejudiced by such
omission.
b. With respect to any such Action as to which an Executive notifies
the Corporation of the commencement thereof:
(1) The Corporation shall be entitled to participate therein at
its own expense; and
(2) Except as otherwise provided below, to the extent that it
may wish, the Corporation (or any other indemnifying party,
including any insurance carrier, similarly notified by the
Corporation or the Executive) shall be entitled to assume
the defense thereof, with
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counsel selected by the Corporation (or such other
indemnifying party) and reasonably satisfactory to the
Executive.
c. After notice from the Corporation (or such other indemnifying
party) to the Executive of its election to assume the defense of
an Action, the Corporation shall not be liable to the Executive
under this Article VI for any Expenses subsequently incurred by
the Executive in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below.
The Executive shall have the right to employ his or her own
counsel in such Action but the Expenses of such counsel incurred
after notice from the Corporation (or such other indemnifying
party) of its assumption of the defense thereof shall be at the
expense of the Executive unless:
(1) The employment of counsel by the Executive has been
authorized by the Corporation;
(2) The Executive shall have reasonably concluded that there may
be a conflict of interest between the Corporation (or such
other indemnifying party) and the Executive in the conduct
of the defense of such Action; or
(3) The Corporation (or such other indemnifying party) shall not
in fact have employed counsel to assume the defense of such
Action, in each of which cases the Expenses of counsel shall
be at the expense of the Corporation. The Corporation shall
not be entitled to assume the defense of any Derivative
Action or any Action as to which the Executive shall have
made the conclusion provided for in clause (2) above.
14. CONTINUITY OF RIGHTS AND OBLIGATIONS
The terms and provisions of this Article VI shall continue as to an
Executive subsequent to the Termination Date and such terms and
provisions shall inure to the benefit of the heirs, estate, executors,
and administrators of such Executive and the successors and assigns of
the Corporation, including, without limitation, any successor to the
Corporation by way of merger, consolidation, and/or sale or disposition
of all or substantially all of the assets or capital stock of the
Corporation. Except as provided herein, all rights and obligations of
the Corporation and the Executive hereunder shall continue in full force
and effect despite the subsequent amendment or modification of the
Corporation's Articles of Incorporation, as such are in effect on the
date hereof, and such rights and
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obligations shall not be affected by any such amendment or modification,
any resolution of directors or shareholders of the Corporation, or by
any other corporate action which conflicts with or purports to amend,
modify, limit, or eliminate any of the rights or obligations of the
Corporation and/or of the Executive hereunder.
15. AMENDMENT
This Article VI may only be altered, amended, or repealed by the
affirmative vote of a majority of the shareholders of the Corporation so
entitled to vote; provided, however, that the Board may alter or amend
this Article VI without such shareholder approval if any such alteration
or amendment:
a. Is made in order to conform to any amendment or revision of the
Wisconsin Business Corporation Law, including, without limitation,
the Statute, which
(1) Expands or permits the expansion of an Executive's right to
indemnification thereunder;
(2) Limits or eliminates, or permits the limitation or
elimination, of liability of the Executives; or
(3) Is otherwise beneficial to the Executives; or
b. In the sole judgment and discretion of the Board, does not
materially adversely affect the rights and protections of the
shareholders of the Corporation.
Any repeal, modification, or amendment of this Article VI shall not
adversely affect any rights or protections of an Executive existing
under this Article VI immediately prior to the time of such repeal,
modification, or amendment and any such repeal, modification, or
amendment shall have a prospective effect only.
16. CERTAIN DEFINITIONS
The following terms as used in this Article VI shall be defined as
follows:
a. "Action(s)" shall include, without limitation, any threatened,
pending, or completed action, claim, litigation, suit, or
proceeding, whether civil, criminal, administrative, arbitrative,
or investigative, whether predicated on foreign, Federal, state,
or local law, whether brought under and/or
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predicated upon the Securities Act of 1933, as amended, and/or the
Securities Exchange Act of 1934, as amended, and/or their
respective state counterparts and/or any rule or regulation
promulgated thereunder, whether a Derivative Action and whether
formal or informal.
b. "Affiliate" shall include, without limitation, any corporation,
partnership, joint venture, employee benefit plan, trust, or other
similar enterprise that directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common
control with, the Corporation.
c. "Authority" shall mean the panel of arbitrators or independent
legal counsel selected under Section 3 of this Article VI.
d. "Board" shall mean the Board of Directors of the Corporation.
e. "Breach of Duty" shall mean the Executive breached or failed to
perform his or her duties to the Corporation or an Affiliate, as
the case may be, and the Executive's breach of or failure to
perform those duties constituted:
(1) A willful failure to deal fairly with the Corporation (or an
Affiliate) or its shareholders in connection with a matter
in which the Executive has a material conflict of interest;
(2) A violation of the criminal law, unless the Executive:
(a) Had reasonable cause to believe his or her conduct was
lawful; or
(b) Had no reasonable cause to believe his or her conduct
was unlawful;
(3) A transaction from which the Executive derived an improper
personal profit (unless such profit is determined to be
immaterial in light of all the circumstances of the Action);
or
(4) Willful misconduct.
f. "Derivative Action" shall mean any Action brought by or in the
right of the Corporation and/or an Affiliate.
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g. "Executive(s)" shall mean any individual who is, was, or has
agreed to become a director and/or officer of the Corporation
and/or an Affiliate.
h. "Expenses" shall include, without limitation, all expenses, fees,
costs, charges, attorneys' fees and disbursements, other
out-of-pocket costs, reasonable compensation for time spent by the
Executive in connection with the Action for which he or she is not
otherwise compensated by the Corporation, any Affiliate, any third
party or other entity, and any and all other direct and indirect
costs of any type or nature whatsoever.
i. "Liabilities" shall include, without limitation, judgments,
amounts incurred in settlement, fines, penalties and, with respect
to any employee benefit plan, any excise tax or penalty incurred
in connection therewith, and any and all other liabilities of
every type or nature whatsoever.
j. "Statute" shall mean Wisconsin Business Corporation Law
Sections 180.0850-180.0859 (or any successor provisions).
k. "Termination Date" shall mean the date an Executive ceases, for
whatever reason, to serve in an employment relationship with the
Company and/or any Affiliate.
ARTICLE VII. SEAL
BOARD OF DIRECTORS
The Board of Directors shall provide a corporate seal which shall be circular
in form and shall have inscribed thereon the words "WPS RESOURCES CORPORATION,
CORPORATE SEAL." The continued use for any purpose of any former corporate
seal or facsimile thereof shall have the same effect as the use of the
corporate seal or facsimile thereof in the form provided by the preceding
sentence.
ARTICLE VIII. AMENDMENTS
1. The Board of Directors shall have authority to adopt, amend, or repeal
the By-laws of this Corporation 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 By-law or to
reinstate any By-law repealed by the
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shareholders unless the shareholders shall hereafter confer such
authority upon the Board of Directors.
2. The shareholders shall have power to adopt, amend, or repeal any of the
By-laws of the Corporation, at any regular or special meeting of the
shareholders, in accordance with the provisions of Article II of these
By-laws. There shall be included in the notice of such regular or
special meeting a statement of the nature of any amendment that is
proposed for the consideration of the shareholders by the holders of at
least 5% of the voting stock of the Corporation in a writing delivered
to the Secretary of the Corporation not less than 90 days prior to the
date of such meeting or by the Board of Directors.
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EXHIBIT 3B-2
WISCONSIN PUBLIC SERVICE CORPORATION
BY-LAWS
AS IN EFFECT SEPTEMBER 1, 1998
ARTICLE I. OFFICES
1. PRINCIPAL OFFICE
The principal office of the Corporation in the State of Wisconsin shall
be in the City of Green Bay. The Corporation may also have offices at
such other places, within and outside of the State of Wisconsin, as the
Board of Directors may designate or as the business of the Corporation
may require.
2. REGISTERED OFFICE
The Board of Directors shall designate the registered office of the
Corporation and may change such registered office by resolution.
ARTICLE II. SHAREHOLDERS
1. ANNUAL MEETING
The annual meeting of the shareholders for the election of directors and
for the transaction of such other business as may properly be brought
before the meeting shall be held each year not later than the fourth
Tuesday in May, on the date designated by the Board of Directors and
specified in the notice of meeting. If the election of directors shall
not be held on the day designated for any annual meeting of the
shareholders, or at any adjournment thereof, the Board of Directors shall
cause the election to be held at a special meeting of the shareholders as
soon thereafter as convenient.
2. SPECIAL MEETINGS
Special meetings of the shareholders may be called by the Chairman of the
Board of Directors, the President, the Secretary, or by resolution of the
Board of Directors. The Corporation shall call a special meeting of
shareholders 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 special meeting sign, date, and deliver to the Corporation one
or more written demands for the meeting describing one or more purposes
for which it is to be held. The Corporation shall give notice of such a
special meeting within 30 days after the date that the demand is
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delivered to the Corporation. If the holders of the Preferred Stock
shall become entitled, as provided by Article II of the Articles of
Incorporation, to elect members of the Board of Directors, special
meetings of the shareholders shall be held upon call as provided in said
Article III.
3. PLACE OF MEETING
Each meeting of shareholders, annual or special, shall be held at the
principal office of the Corporation unless another place, either within
or without the State of Wisconsin, has been designated by the Board of
Directors and specified in the notice of such meeting, but any meeting of
shareholders may be adjourned to reconvene at any place designated by a
majority of the shares represented at such meeting.
4. NOTICE OF MEETINGS
Written notice stating the date, time, and place of the meeting and, in
case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered not less than 10 nor more than 60 days
before the date of the meeting (unless a different time is provided by
the Wisconsin Business Corporation Law or the Articles of Incorporation)
to each shareholder of record entitled to vote at such meeting and to
such other persons as required by the Wisconsin Business Corporation Law.
Such notice shall be given by or at the direction of the officer or
persons calling the meeting and shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
shareholder of record at his address as it appears in the records of the
Corporation.
a. If any meeting of the shareholders is adjourned to another time or
place, no notice of such adjourned meeting need be given other than
by announcement thereof at the meeting at which such adjournment is
taken; provided, however, that if a new record date for an adjourned
meeting is or must be fixed, the Corporation shall give notice of
the adjourned meeting to persons who are shareholders as of the new
record date.
b. In connection with the election of members of the Board of Directors
by the holders of the Preferred Stock pursuant to Article III of the
Articles of Incorporation, the Corporation shall prepare and mail to
the holders of record of Preferred Stock such proxy forms,
communications, and documents as may be deemed appropriate and as
may be required by any governmental authority having jurisdiction
thereof.
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5. WAIVER OF NOTICE
A shareholder may waive any notice required by the Wisconsin Business
Corporation Law, the Articles of Incorporation, or these By-laws before
or after the date and time stated in the notice. The waiver shall be in
writing and signed by the shareholder entitled to the notice, contain the
same information that would have been required in the notice under
applicable provisions of the Wisconsin Business Corporation Law (except
that the time and place of meeting need not be stated), and be delivered
to the Corporation for inclusion in the corporate records. A
shareholder's attendance at a meeting, in person or by proxy, waives
objection to all of the following:
a. Lack of notice or defective notice of the meeting, unless the
shareholder at the beginning of the meeting or promptly upon arrival
objects to holding the meeting or transacting business at the
meeting.
b. Consideration of a particular matter at the meeting that is not
within the purpose described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.
6. FIXING OF RECORD DATE
The Board of Directors may fix in advance a date as the record date for
the purpose of determining shareholders entitled to notice of and to vote
at any meeting of shareholders, shareholders entitled to demand a special
meeting as contemplated by Section 2 of this Article II, shareholders
entitled to take any other action, or shareholders for any other purpose.
Such record date shall not be more than 70 days prior to the date on
which the particular action, requiring such determination of
shareholders, is to be taken. If no record date is fixed by the Board of
Directors or by the Wisconsin Business Corporation Law for the
determination of shareholders entitled to notice of and to vote at a
meeting of shareholders, the record date shall be the close of business
on the day before the first notice is given to shareholders. If no
record date is fixed by the Board of Directors or by the Wisconsin
Business Corporation Law for the determination of shareholders entitled
to demand a special meeting as contemplated in Section 2 of this Article
II, the record date shall be the date that the first shareholder signs
the demand. Except as provided by the Wisconsin Business Corporation Law
for a court-ordered adjournment, a determination of shareholders entitled
to notice of and to vote at a meeting of shareholders is effective for
any adjournment of such meeting unless the Board of Directors fixes a new
record date, which it shall do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting. The record
date for determining shareholders entitled to a distribution (other than
a distribution involving a purchase, redemption, or other acquisition of
the Corporation's shares) or a share dividend is the date on which
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the Board of Directors authorized the distribution or share dividend,
as the case may be, unless the Board of Directors fixes a different
record date.
7. SHAREHOLDERS' LIST FOR MEETINGS
After a record date for a special or annual meeting of shareholders has
been fixed, the Corporation shall prepare a list of the names of all of
the shareholders entitled to notice of the meeting. The list shall be
arranged by class or series of shares, if any, and show the address of
and number of shares held by each shareholder. Such list shall 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 the date of the meeting, at the Corporation's principal
office or at a place identified in the meeting notice in the city where
the meeting will be held. A shareholder or his or her agent may, on
written demand, inspect, and, subject to the limitations imposed by the
Wisconsin Business Corporation Law, copy the list, during regular
business hours and at his or her expense, during the period that it is
available for inspection pursuant to this Section. The Corporation shall
make the shareholders' list available at the meeting and any shareholder
or his or her agent or attorney may inspect the list at any time during
the meeting or any adjournment thereof. Refusal or failure to prepare or
make available the shareholders' list shall not affect the validity of
any action taken at a meeting of shareholders.
8. QUORUM AND VOTING REQUIREMENTS
Shares entitled to vote as a separate voting group may take action on a
matter at a meeting only if a quorum of those shares exists with respect
to that matter. The holders of a majority of the shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at a
meeting of shareholders. Once a share is represented for any purpose at
a meeting, other than for the purpose of objecting to holding the meeting
or transacting business at the meeting, it is considered present for
purposes of determining whether a quorum exists for the remainder of the
meeting and for any adjournment of that meeting unless a new record date
is or must be set for the adjourned meeting. If a quorum exists, except
in the case of the election of directors, action on a matter shall be
approved if the votes cast within the voting group favoring the action
exceed the votes cast opposing the action, unless the Articles of
Incorporation or the Wisconsin Business Corporation Law requires a
greater number of affirmative votes. Unless otherwise provided in the
Articles of Incorporation, each director shall be elected by a plurality
of the votes cast by the shares entitled to vote in the election of
directors at a meeting at which a quorum is present. Though less than a
quorum of the outstanding votes of a voting group are represented at a
meeting, a majority of the votes so represented may adjourn the meeting
from time to time without further notice. At such adjourned meeting at
which a quorum shall be present or represented, any
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business may be transacted which might have been transacted at the
meeting as originally notified.
9. PROXIES
At all meetings of shareholders, a shareholder may vote his or her shares
in person or by proxy. A shareholder may appoint a proxy to vote or
otherwise act for the shareholder by signing an appointment form, either
personally or by his or her attorney-in-fact. An appointment of a proxy
is effective when received by the Secretary, other officer, or agent of
the Corporation authorized to tabulate votes. An appointment is valid
for 11 months from the date of its signing unless a different period is
expressly provided in the appointment form.
10. ACCEPTANCE OF INSTRUMENTS SHOWING SHAREHOLDER ACTION
If the name signed on a vote, consent, waiver, or proxy appointment
corresponds to the name of a shareholder, the Corporation, if acting in
good faith, may accept the vote, consent, waiver, or proxy appointment
and give it effect as the act of a shareholder. If the name signed on a
vote, consent, waiver, or proxy appointment does not correspond to the
name of a shareholder, the Corporation, if acting in good faith, may
accept the vote, consent, waiver, or proxy appointment and give it effect
as the act of the shareholder if any of the following apply:
a. The shareholder is an entity and the name signed purports to be that
of an officer or agent of the entity.
b. The name purports to be that of a personal representative,
administrator, executor, guardian, or conservator representing the
shareholder and, if the Corporation requests, evidence of fiduciary
status acceptable to the Corporation is presented with respect to
the vote, consent, waiver, or proxy appointment.
c. The name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the Corporation requests,
evidence of this status acceptable to the Corporation is presented
with respect to the vote, consent, waiver, or proxy appointment.
d. The name signed purports to be that of a pledgee, beneficial owner,
or attorney-in-fact of the shareholder and, if the Corporation
requests, evidence acceptable to the Corporation of the signatory's
authority to sign for the shareholder is presented with respect to
the vote, consent, waiver, or proxy appointment.
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e. Two or more persons are the shareholders as co-tenants or
fiduciaries and the name signed purports to be the name of at least
one of the co-owners and the person signing appears to be acting on
behalf of all co-owners.
The Corporation may reject a vote, consent, waiver, or proxy appointment
if the Secretary, other officer, or agent of the Corporation who is
authorized to tabulate votes, acting in good faith, has reasonable basis
for doubt about the validity of the signature on it or about the
signatory's authority to sign for the shareholder.
ARTICLE III. BOARD OF DIRECTORS
1. GENERAL POWERS
The business and affairs of the Corporation shall be managed by its Board
of Directors. The Board shall determine the nature and character of the
business to be conducted by the Corporation and the method of doing so;
what employees, agents, and officers shall be employed and their
compensation; and what purchases or contracts for purchase shall be made.
The Board may delegate any of its aforesaid powers to committees or to
officers, agents, or employees as it may from time to time determine.
2. NUMBER OF DIRECTORS
The number of directors of the Corporation shall be ten, divided into
three classes: Class A - 4 members, Class B - 3 members, and
Class C - 3 members.
3. TERM
At the 1988 annual meeting of shareholders, the directors of Class A
shall be elected for a term to expire at the first annual meeting of
shareholders after their election, and until their successors are elected
and qualify, the directors of Class B shall be elected for a term to
expire at the second annual meeting of shareholders after their election,
and until their successors are elected and qualify, and the directors of
Class C shall be elected for a term to expire at the third annual meeting
of shareholders after their election and until their successors are
elected and qualify. At each annual meeting of shareholders after the
1988 annual meeting of shareholders, the successors to the class of
directors whose terms shall expire at the time of such annual meeting
shall be elected to hold office until the third succeeding annual meeting
of shareholders, and until their successors are elected and qualify.
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4. QUALIFICATIONS
No director elected to such office for the first time after January 1,
1972 shall be eligible for re-election after attaining the age of 70
years. Directors need not be shareholders of the Corporation or
residents of the State of Wisconsin.
5. MEETINGS
The Board of Directors shall hold its meetings at such place or places,
within or without the State of Wisconsin, as the Board may from time to
time determine.
a. A meeting of the Board of Directors, to be known as the annual
meeting, may be held, without notice, immediately after and at the
same place as the annual meeting of the shareholders at which such
Board is elected, for the purpose of electing the officers of the
Corporation and to transact such other business as may come before
the Board. Such annual meeting may be held at a different place
than the annual meeting of shareholders and/or on a date subsequent
to the annual meeting of shareholders, if notice of such different
place and/or date has been given to or waived by all the directors.
b. Regular meetings of the Board of Directors may be held without call
and without notice, at such times and in such places as the Board
may by resolution from time to time determine.
c. Special meetings of the Board of Directors may be called at any time
by the Chairman of the Board or the Chief Executive Officer and
shall be called by the Secretary of the Corporation upon the written
request of three or more directors.
6. NOTICE; WAIVER
Notice of each special meeting of the Board of Directors shall be given
by written notice delivered or communicated in person, by telegraph,
teletype, facsimile, or other form of wire or wireless communication, or
by mail or private carrier, to each director at his business address or
at such other address as such director shall have designated in writing
filed with the Secretary, in each case not less than 48 hours prior to
the meeting. The notice need not prescribe the purpose of the special
meeting of the Board of Directors or the business to be transacted at
such meeting. If mailed, such notice shall be deemed to be effective
when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice is given by telegram, such notice shall be
deemed to be effective when the telegram is delivered to the telegraph
company. If notice is given by private carrier, such notice shall be
deemed to be effective when delivered to the private carrier. Whenever
any notice whatever is required to be given to any director of the
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Corporation under the Articles of Incorporation, these By-laws, or any
provision of the Wisconsin Business Corporation Law, a waiver thereof in
writing, signed at any time, whether before or after the date and time of
meeting, by the director entitled to such notice shall be deemed
equivalent to the giving of such notice. The Corporation shall retain
any such waiver as part of the permanent corporate records. A director's
attendance at or participation in a meeting waives any required notice to
him or her of the meeting unless the director at the beginning of the
meeting or promptly upon his or her arrival objects to holding the
meeting or transacting business at the meeting and does not thereafter
vote for or assent to action taken at the meeting.
7. QUORUM
Except as otherwise provided by the Wisconsin Business Corporation Law,
by the Articles of Incorporation, or these By-laws, a majority of the
number of directors specified in Section 2 of Article III of these
By-laws shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors. Except as otherwise provided by the
Wisconsin Business Corporation Law, by the Articles of Incorporation, or
by these By-laws, a quorum of any committee of the Board of Directors
created pursuant to Section 13 hereof shall consist of a majority of the
number of directors appointed to serve on the committee. A majority of
the directors present (though less than such quorum) may adjourn any
meeting of the Board of Directors or any committee thereof, as the case
may be, from time to time without further notice.
8. MANNER OF ACTING
The affirmative vote of a majority of the directors present at a meeting
of the Board of Directors or a committee thereof at which a quorum is
present shall be the act of the Board of Directors or such committee, as
the case may be, unless the Wisconsin Business Corporation Law, the
Articles of Incorporation, or these By-laws require the vote of a greater
number of directors.
9. MINUTES OF MEETINGS
Minutes of any regular or special meeting of the Board of Directors shall
be prepared and distributed to each director.
10. VACANCIES
Vacancies occurring in the Board of Directors shall be filled in the
manner provided in Article V of the Articles of Incorporation.
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11. COMPENSATION
The Board of Directors, irrespective of any personal interest of any of
its members, may establish reasonable compensation of all directors for
services to the Corporation as directors, officers, or otherwise, or may
delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or delegate authority
to an appropriate committee to provide for reasonable pensions,
disability, or death benefits, and other benefits or payments, to
directors, officers, and employees, and to their estates, families,
dependents, or beneficiaries on account of prior services rendered by
such directors, officers, and employees to the Corporation.
12. PRESUMPTION OF ASSENT
A director who is present and is announced as present at a meeting of the
Board of Directors or any committee thereof created in accordance with
Section 13 of this Article III, when corporate action is taken, assents
to the action taken unless any of the following occurs:
a. The director objects at the beginning of the meeting or promptly
upon his or her arrival to holding the meeting or transacting
business at the meeting.
b. The director's dissent or abstention from the action taken is
entered in the minutes of the meeting.
c. The director delivers written notice that complies with the
Wisconsin Business Corporation Law of his or her dissent or
abstention to the presiding officer of the meeting before its
adjournment or to the Corporation immediately after adjournment of
the meeting.
Such right of dissent or abstention shall not apply to a director who
votes in favor of the action taken.
13. COMMITTEES
The Board of Directors by resolution adopted by the affirmative vote of a
majority of all of the directors then in office may create one or more
committees, appoint members of the Board of Directors to serve on the
committees, and designate other members of the Board of Directors to
serve as alternates. Each committee shall have two or more members who
shall, unless otherwise provided by the Board of Directors, serve at the
pleasure of the Board of Directors. A committee
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may be authorized to exercise the authority of the Board of Directors,
except that a committee may not do any of the following:
a. Authorize distributions.
b. Approve or propose to shareholders action that the Wisconsin
Business Corporation Law requires to be approved by shareholders.
c. Fill vacancies on the Board of Directors or, unless the Board of
Directors provides by resolution that vacancies on a committee shall
be filled by the affirmative vote of the remaining committee
members, on any Board committee.
d. Amend the Corporation's Articles of Incorporation.
e. Adopt, amend, or repeal By-laws.
f. Approve a plan of merger not requiring shareholder approval.
g. Authorize or approve reacquisition of shares, except according to a
formula or method prescribed by the Board of Directors.
h. Authorize or approve the issuance or sale or contract for sale of
shares, or determine the designation and relative rights,
preferences and limitations of a class or series of shares, except
that the Board of Directors may authorize a committee to do so
within limits prescribed by the Board of Directors. Unless
otherwise provided by the Board of Directors in creating the
committee, a committee may employ counsel, accountants, and other
consultants to assist it in the exercise of its authority.
14. TELEPHONIC MEETINGS
Except as herein provided and notwithstanding any place set forth in the
notice of the meeting or these By-laws, members of the Board of Directors
(and any committees thereof created pursuant to Section 13 of this
Article III) may participate in regular or special meetings by, or
through the use of, any means of communication by which all participants
may simultaneously hear each other, such as by conference telephone. If
a meeting is conducted by such means, then at the commencement of such
meeting the presiding officer shall inform the participating directors
that a meeting is taking place at which official business may be
transacted. Any participant in a meeting by such means shall be deemed
present in person at such meeting. Notwithstanding the foregoing, no
action may be taken at any meeting held by such means on any particular
matter which the presiding officer determines, in his or her sole
discretion, to be inappropriate
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under the circumstances for action at a meeting held by such means. Such
determination shall be made and announced in advance of such meeting.
15. ACTION WITHOUT MEETING
Any action required or permitted by the Wisconsin Business Corporation
Law to be taken at a meeting of the Board of Directors or a committee
thereof created pursuant to Section 13 of this Article III may be taken
without a meeting if the action is taken by all members of the Board or
of the committee. The action shall be evidenced by one or more written
consents describing the action taken, signed by each director or
committee member and retained by the Corporation. Such action shall be
effective when the last director or committee member signs the consent,
unless the consent specifies a different effective date.
ARTICLE IV. OFFICERS
1. PRINCIPAL OFFICERS
The principal officers of the Corporation required by statute shall be a
President, such number of Vice Presidents as may be elected by the Board
of Directors, a Secretary, and a Treasurer. The Board of Directors may
elect from among the directors a Chairman of the Board of Directors and a
Vice Chairman of the Board of Directors, may designate such Chairman,
Vice Chairman, or any principal officer as the Chief Executive Officer,
may elect such Assistant Secretaries and Assistant Treasurers and other
officers as it shall deem necessary, and may prescribe by resolution
their respective powers and duties.
2. PRESIDENT
The President shall be elected by the directors. Unless the Board of
Directors otherwise prescribes, he or she shall be the Chief Executive
Officer of the Corporation. In the event that the President is not the
Chief Executive Officer, he or she shall have such powers and duties as
the Board of Directors may prescribe.
3. CHAIRMAN OF THE BOARD OF DIRECTORS
If a Chairman of the Board of Directors shall be elected, he or she shall
preside as Chairman of all meetings of the shareholders and of the Board
of Directors. He or she shall have such other authority as the Board may
from time to time prescribe. If there is no Chairman of the Board, or in
the absence of the Chairman, the presiding officer at meetings of the
shareholders, and of the Board of Directors shall be another officer in
the following order of priority: Vice Chairman of the
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Board of Directors, President, and Vice Presidents (subject, however, to
Section 5 of this Article).
4. CHIEF EXECUTIVE OFFICER
The Chief Executive Officer shall exercise active supervision over the
business, property, and affairs of the Corporation.
a. The Chief Executive Officer shall have authority, subject to such
rules as may be prescribed from time to time by the Board or its
committees, to appoint agents or employees other than those elected
by the Board, to prescribe their powers and duties, and to delegate
such authority as he or she may see fit. Any agent or employee not
elected by the Board shall hold office at the discretion of the
Chief Executive Officer or other officer employing him.
b. The Chief Executive Officer is authorized to sign, execute, and
acknowledge, on behalf of the Corporation, all deeds, mortgages,
bonds, notes, debentures, contracts, leases, reports, and other
documents and instruments, except where the signing and execution
thereof by some other officer or agent shall be expressly authorized
and directed by law or by the Board or by these By-laws. Unless
otherwise provided by law or by the Board, the Chief Executive
Officer may authorize any officer, employee, or agent to sign,
execute, and acknowledge, on behalf of the Corporation, and in his
place and stead, all such documents and instruments.
c. Unless otherwise ordered by the Board of Directors, the Chief
Executive Officer, or a proxy appointed by him, shall have full
power and authority, in the name of and on behalf of the
Corporation, to attend, act, and vote at any meeting of the
shareholders of any other corporation in which the Corporation may
hold shares of stock. At any such meeting, he or she shall possess
and may exercise any and all rights and powers incident to the
ownership of shares of stock.
d. The Chief Executive Officer shall have such other powers and perform
such other duties as are incident to the office of Chief Executive
Officer and as may be prescribed by the Board.
5. VICE PRESIDENTS
In the absence of the President or during his inability or refusal to
act, his powers and duties shall temporarily devolve upon such Vice
Presidents or other officers as shall be designated by the Board of
Directors or, if not designated by the Board, by the Chief Executive
Officer or other officer to whom such power may be
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delegated by the Board; provided, that no Vice President or other officer
--------
shall act as a member or chairman of any committee of the Board of
Directors of which the President is a member or chairman, except at the
direction of the Board.
a. Each Vice President shall have such powers and perform such other
duties as may be assigned to him or her by the Board or by the
President, including the power to sign, execute, and acknowledge all
documents and instruments referred to in Section 4 of this Article.
b. The Board may assign to any Vice President, general supervision and
charge over any branch of the business and affairs of the
Corporation, subject to such limitations as it may elect to impose.
c. The Board of Directors may, if it chooses, designate one or more of
the Vice Presidents "Executive Vice President" with such powers and
duties as the Board shall prescribe.
6. SECRETARY
The Secretary shall attend, and keep the minutes of, meetings of the
shareholders, the Board of Directors and, unless otherwise directed by
any such committee, all committees, in books provided for that purpose;
shall have custody of the corporate records and seal; shall see that
notices are given and records and reports properly kept and filed as
required by law or by these By-laws; and, in general, shall have such
other powers and perform such other duties as are incident to the office
of Secretary and as may be assigned to him or her by the Board of
Directors or the Chief Executive Officer.
7. ASSISTANT SECRETARIES
In the absence of the Secretary, or during his or her inability or
refusal to act, his powers and duties shall temporarily devolve upon such
one of the Assistant Secretaries as the President or the Board of
Directors may direct. The Assistant Secretaries shall have such other
powers and perform such other duties as may be assigned to them by the
Board, the Chief Executive Officer, or the Secretary.
8. TREASURER
The Treasurer shall have charge and custody of the funds, securities, and
other evidences of value of the Corporation, and shall keep and deposit
them as required by the Board of Directors. He or she shall keep proper
accounts of all receipts and disbursements and of the financial
transactions of the Corporation. He or she shall render statements of
such accounts and of money received and disbursed by him or her and of
property and money belonging to the Corporation
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as required by the Board. The Treasurer shall have such other powers and
perform such other duties as are incident to the office of Treasurer and
as from time to time may be prescribed by the Board or the Chief
Executive Officer.
9. ASSISTANT TREASURERS
In the absence of the Treasurer, or during his or her inability or
refusal to act, his or her powers and duties shall temporarily devolve
upon such one of the Assistant Treasurers as the President or the Board
of Directors may direct. The Assistant Treasurers shall have such other
powers and perform such other duties as from time to time may be assigned
to them, respectively, by the Board, the Chief Executive Officer, or the
Treasurer.
10. OTHER ASSISTANTS AND ACTING OFFICERS
The Board of Directors shall have the power to appoint any person to act
as assistant to any officer, or as agent for the Corporation in his or
her stead, or to perform the duties of such officer whenever for any
reason it is impracticable for such officer to act personally, and such
assistant or acting officer or other agent so appointed by the Board of
Directors or an authorized officer shall have the power to perform all
the duties of the office to which he or she is so appointed to be an
assistant, or as to which he or she is so appointed to act, except as
such power may be otherwise defined or restricted by the Board of
Directors.
11. COMPENSATION
The salaries or other compensation of all officers elected as provided
under Section 1 of this Article (other than assistant officers) shall be
fixed from time to time by the Board of Directors. The salaries or other
compensation of all other agents and employees of the Corporation shall
be fixed from time to time by the Chief Executive Officer, but only
within such limits as to amount, and in accordance with such other
conditions as may be prescribed by or under the authority of the Board of
Directors.
12. TENURE
Each officer shall hold office until his successor shall have been duly
elected and qualified, or until his death, resignation, disqualification,
or removal. Any officer, agent, or employee may be removed, with or
without cause, at any time by the Board of Directors notwithstanding the
contract rights, if any, of the officer removed. The appointment of an
officer does not of itself create contract rights.
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13. RESIGNATION
An officer may resign at any time by delivering notice to the Corporation
that complies with the Wisconsin Business Corporation Law. The
resignation shall be effective when the notice is delivered, unless the
notice specifies a later effective date, and the Corporation accepts the
later effective date.
14. VACANCIES
Any vacancy in any office may be filled by the Board of Directors for the
unexpired portion of the term. If a resignation of an officer is
effective at a later date as contemplated by Section 13 of this Article
IV, the Board of Directors may fill the pending vacancy before the
effective date if the Board provides that the successor may not take
office until the effective date.
15. REASSIGNMENT OF DUTIES
In case of the absence or disability of any officer of the Corporation,
or for any other reason deemed sufficient by the Board of Directors, the
Board may reassign or delegate the powers and duties, or any of them, to
any other officer, director, or person it may select.
ARTICLE V. CERTIFICATES FOR AND TRANSFER OF SHARES
1. FORM
Certificates representing shares of the Corporation shall be in such form
as shall be determined by the Board of Directors. All certificates for
shares shall be consecutively numbered or otherwise identified. The name
and address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on
the stock transfer books of the Corporation. All certificates
surrendered for the transfer shall be cancelled, and no new certificate
shall be issued until the former certificate for a like number of shares
shall have been surrendered and cancelled, except in case of a lost or
destroyed certificate provided for in Section 4 of this Article V or a
certificate for shares transferred in compliance with the escheat laws of
any state.
2. SIGNATURES
Certificates representing shares of the Corporation shall be signed by
the President or a Vice President and by the Secretary or an Assistant
Secretary; and may be sealed with the seal of the Corporation (which may
be a facsimile) and countersigned and registered in such manner, if any,
as the Board of Directors
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may prescribe. Whenever any certificate is manually signed on behalf of
a transfer agent or a registrar, other than the Corporation itself or an
employee of the Corporation, the signatures of the President, Vice
President, Secretary, or Assistant Secretary, upon such certificate may
be facsimiles. In case any officer who has signed, or whose facsimile
signature has been placed upon such certificate, ceases to be such
officer before such certificate is issued, it may be issued with the
same effect as if he or she were such officer at the date of its issue.
3. RESTRICTIONS ON TRANSFER
The face or reverse side of each certificate representing shares shall
bear a conspicuous notation of any restriction imposed by the Corporation
upon the transfer of such shares.
4. LOST, DESTROYED, OR STOLEN CERTIFICATES
Where the owner claims that his certificate for shares has been lost,
destroyed, or wrongfully taken, a new certificate shall be issued in
place thereof if the owner:
a. So requests before the Corporation has notice that such shares have
been acquired by a bona fide purchaser.
b. Files with the Corporation a sufficient indemnity bond.
c. Satisfies such other reasonable requirements as may be prescribed by
or under the authority of the Board of Directors.
5. TRANSFER OF SHARES
Prior to due presentment of a certificate for shares for registration of
transfer, the Corporation may treat the registered owner of such shares
as the person exclusively entitled to vote, to receive notifications, and
otherwise to have and exercise all the rights and powers of an owner.
Where a certificate for shares is presented to the Corporation with a
request to register for transfer, the Corporation shall not be liable to
the owner or any other person suffering loss as a result of such
registration of transfer if:
a. There were on or with the certificate the necessary endorsements
b. The Corporation had no duty to inquire into adverse claims or has
discharged any such duty.
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The Corporation may require reasonable assurance that said endorsements
are genuine and effective and compliance with such other regulations as
may be prescribed by or under the authority of the Board of Directors.
6. CONSIDERATION FOR SHARES
The Board of Directors may authorize shares to be issued for
consideration consisting of any tangible or intangible property or
benefit to the Corporation, including cash, promissory notes, services
performed, contracts for services to be performed, or other securities of
the Corporation. Before the Corporation issues shares, the Board of
Directors shall determine that the consideration received or to be
received for the shares to be issued is adequate. The determination of
the Board of Directors is conclusive insofar as the adequacy of
consideration for the issuance of shares relates to whether the shares
are validly issued, fully paid, and nonassessable. The Corporation may
place in escrow shares issued in whole or in part for a contract for
future services or benefits, a promissory note, or otherwise for property
to be issued in the future, or make other arrangements to restrict the
transfer of the shares, and may credit distributions in respect of the
shares against their purchase price, until the services are performed,
the benefits or property are received, or the promissory note is paid.
If the services are not performed, the benefits or property are not
received or the promissory note is not paid, the Corporation may cancel,
in whole or in part, the shares escrowed or restricted and the
distributions credited.
7. OTHER RULES
The Board of Directors shall have the power and authority to make all
such further rules and regulations not inconsistent with the statutes of
the State of Wisconsin as it may deem expedient concerning the issue,
transfer, and registration of certificates representing shares of the
Corporation, including the appointment and designation of Transfer Agents
and Registrars.
ARTICLE VI. INDEMNIFICATION OF OFFICERS AND DIRECTORS
1. MANDATORY INDEMNIFICATION
a. In all cases other than those set forth in Section 1b hereof,
subject to the conditions and limitations set forth hereinafter in
this Article VI, the Corporation shall indemnify and hold harmless
any person who is or was a party, or is threatened to be made a
party, to any Action (see Section 16 of this Article VI for
definitions of capitalized terms used herein) by reason of his or
her status as an Executive, and/or as to acts performed in the
course of such Executive's duties to the Corporation and/or an
Affiliate, against
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Liabilities and reasonable Expenses incurred by or on behalf of an
Executive in connection with any Action, including, without
limitation, in connection with the investigation, defense,
settlement, or appeal of any Action; provided, pursuant to
Section 3 of this Article VI, that it is not determined by the
Authority or by a court, that the Executive engaged in misconduct
which constitutes a Breach of Duty.
b. To the extent an Executive has been successful on the merits or
otherwise in connection with any Action, including, without
limitation, the settlement, dismissal, abandonment, or withdrawal of
any such Action where the Executive does not pay, incur, or assume
any material Liabilities, or in connection with any claim, issue or
matter therein, he or she shall be indemnified by the Corporation
against reasonable Expenses incurred by or on behalf of him or her
in connection therewith. The Corporation shall pay such Expenses to
the Executive (net of all Expenses, if any, previously advanced to
the Executive pursuant to Section 2 of this Article VI), or to such
other person or entity as the Executive may designate in writing to
the Corporation, within ten days after the receipt of the
Executive's written request therefor, without regard to the
provisions of Section 3 of this Article VI. In the event the
Corporation refuses to pay such requested Expenses, the Executive
may petition a court to order the Corporation to make such payment
pursuant to Section 4 of this Article VI.
c. Notwithstanding any other provision contained in this Article VI to
the contrary, the Corporation shall not:
(1) Indemnify, contribute or advance Expenses to an Executive with
respect to any Action initiated or brought voluntarily by the
Executive and not by way of defense, except with respect to
Actions:
(a) Brought to establish or enforce a right to indemnification,
contribution and/or an advance of Expenses under Section 4
of this Article VI, under the Statute as it may then be in
effect or under any other statute or law or otherwise as
required;
(b) Initiated or brought voluntarily by an Executive to the
extent such Executive is successful on the merits or
otherwise in connection with such an Action in accordance
with and pursuant to Section 1b of this Article VI; or
(c) As to which the Board determines it to be appropriate.
(2) Indemnify the Executive under this Article VI for any amounts
paid in settlement of any Action effected without the
Corporation's written consent.
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The Corporation shall not settle in any manner which would impose
any Liabilities or other type of limitation on the Executive without
the Executive's written consent. Neither the Corporation nor the
Executive shall unreasonably withhold their consent to any proposed
settlement.
d. An Executive's conduct with respect to an employee benefit plan
sponsored by or otherwise associated with the Corporation and/or an
Affiliate for a purpose he or she reasonably believes to be in the
interests of the participants in and beneficiaries of such plan is
conduct that does not constitute a breach or failure to perform his
or her duties to the Corporation or an Affiliate, as the case may
be.
2. ADVANCE FOR EXPENSES
a. The Corporation shall pay to an Executive, or to such other person
or entity as the Executive may designate in writing to the
Corporation, his or her reasonable Expenses incurred by or on behalf
of such Executive in connection with any Action, claim, issue, or
matter associated with any such Action, in advance of the final
disposition or conclusion of any such Action (or claim, issue, or
matter associated with any such Action), within ten days after the
receipt of the Executive's written request therefor; provided, the
following conditions are satisfied:
(1) The Executive has first requested an advance of such Expenses
in writing (and delivered a copy of such request to the
Corporation) from the insurance carrier(s), if any, to whom a
claim has been reported under an applicable insurance policy
purchased by the Corporation and each such insurance carrier,
if any, has declined to make such an advance;
(2) The Executive furnishes to the Corporation an executed written
certificate affirming his or her good faith belief that he or
she has not engaged in misconduct which constitutes a Breach of
Duty; and
(3) The Executive furnishes to the Corporation an executed written
agreement to repay any advances made under this Section 2 if it
is ultimately determined that he or she is not entitled to be
indemnified by the Corporation for such Expenses pursuant to
this Article VI.
b. If the Corporation makes an advance of Expenses to an Executive
pursuant to this Section 2, the Corporation shall be subrogated to
every right of recovery the Executive may have against any insurance
carrier from whom the Corporation has purchased insurance for such
purpose.
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3. DETERMINATION OF RIGHT TO INDEMNIFICATION
a. Except as otherwise set forth in this Section 3 or in Section 1c of
this Article VI, any indemnification to be provided to an Executive
by the Corporation under Section 1a of this Article VI upon the
final disposition or conclusion of any Action, claim, issue, or
matter associated with any such Action, unless otherwise ordered by
a court, shall be paid by the Corporation to the Executive (net of
all Expenses, if any, previously advanced to the Executive pursuant
to Section 2 of this Article VI), or to such other person or entity
as the Executive may designate in writing to the Corporation, within
60 days after the receipt of the Executive's written request
therefor. Such request shall include an accounting of all amounts
for which indemnification is being sought. No further corporate
authorization for such payment shall be required other than this
Section 3.
b. Notwithstanding the foregoing, the payment of such requested
indemnifiable amounts pursuant to Section 1a of this Article VI may
be denied by the Corporation if:
(1) The Board by a majority vote thereof determines that the
Executive has engaged in misconduct which constitutes a Breach
of Duty; or
(2) A majority of the directors of the Corporation are a party in
interest to such Action.
c. In either event of nonpayment pursuant to Section 3b of this
Article VI, the Board shall immediately authorize and direct, by
resolution, that an independent determination be made as to whether
the Executive has engaged in misconduct which constitutes a Breach
of Duty and, therefore, whether indemnification of the Executive is
proper pursuant to this Article VI.
d. Such independent determination shall be made, at the option of the
Executive(s) seeking indemnification, by:
(1) A panel of three arbitrators (selected as set forth below in
Section 3f of this Article VI from the panels of arbitrators of
the American Arbitration Association) in Milwaukee, Wisconsin,
in accordance with the Commercial Arbitration Rules then
prevailing of the American Arbitration Association;
(2) An independent legal counsel mutually selected by the
Executive(s) seeking indemnification and the Board by a
majority vote of a quorum thereof consisting of directors who
were not parties in interest to such Action (or, if such
quorum is not obtainable, by the majority vote of the entire
Board); or
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(3) A court in accordance with Section 4 of this Article VI.
e. In any such determination there shall exist a rebuttable presumption
that the Executive has not engaged in misconduct which constitutes a
Breach of Duty and is, therefore, entitled to indemnification
hereunder. The burden of rebutting such presumption by clear and
convincing evidence shall be on the Corporation.
f. If a panel of arbitrators is to be employed hereunder, one of such
arbitrators shall be selected by the Board by a majority vote of a
quorum thereof consisting of directors who were not parties in
interest to such Action or, if such quorum is not obtainable, by an
independent legal counsel chosen by the majority vote of the entire
Board, the second by the Executive(s) seeking indemnification, and
the third by the previous two arbitrators.
g. The Authority shall make its independent determination hereunder
within 60 days of being selected and shall simultaneously submit a
written opinion of its conclusions to both the Corporation and the
Executive.
h. If the Authority determines that an Executive is entitled to be
indemnified for any amounts pursuant to this Article VI, the
Corporation shall pay such amounts to the Executive (net of all
Expenses, if any, previously advanced to the Executive pursuant to
Section 2 of this Article VI), including interest thereon as
provided in Section 6c of this Article VI, or such other person or
entity as the Executive may designate in writing to the Corporation,
within ten days of receipt of such opinion.
i. Except with respect to any judicial determination pursuant to
Section 4 of this Article VI, the Expenses associated with the
indemnification process set forth in this Section 3 of this Article
VI, including, without limitation, the Expenses of the Authority
selected hereunder, shall be paid by the Corporation.
4. COURT-ORDERED INDEMNIFICATION AND ADVANCE FOR EXPENSES
a. An Executive may, either before or within two years after a
determination, if any, has been made by the Authority, petition the
court before which such Action was brought or any other court of
competent jurisdiction to independently determine whether or not he
or she has engaged in misconduct which constitutes a Breach of Duty
and is, therefore, entitled to indemnification under the provisions
of this Article VI. Such court shall thereupon have the exclusive
authority to make such determination unless and until such court
dismisses or otherwise terminates such proceeding without having
made such determination. An Executive may petition a court under
this Section 4 either to seek an initial determination by the court
as
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authorized by Section 3d of this Article VI or to seek review by
the court of a previous adverse determination by the Authority.
b. The court shall make its independent determination irrespective of
any prior determination made by the Authority; provided, however,
that there shall exist a rebuttable presumption that the Executive
has not engaged in misconduct which constitutes a Breach of Duty and
is, therefore, entitled to indemnification hereunder. The burden of
rebutting such presumption by clear and convincing evidence shall be
on the Corporation.
c. In the event the court determines that an Executive has engaged in
misconduct which constitutes a Breach of Duty, it may nonetheless
order indemnification to be paid by the Corporation if it determines
that the Executive is fairly and reasonably entitled to
indemnification in view of all of the circumstances of such Action.
d. In the event the Corporation does not:
(1) Advance Expenses to the Executive within ten days of such
Executive's compliance with Section 2 of this Article VI; or
(2) Indemnify an Executive with respect to requested Expenses under
Section 1b of this Article VI within ten days of such
Executive's written request therefore, the Executive may
petition the court before which such Action was brought, if
any, or any other court of competent jurisdiction to order the
Corporation to pay such reasonable Expenses immediately.
Such court, after giving any notice it considers necessary, shall
order the Corporation to pay such Expenses if it determines that the
Executive has complied with the applicable provisions of Section 2
of this Article VI or Section 1b of this Article VI, as the case may
be.
e. If the court determines pursuant to this Section 4 of this Article
VI that the Executive is entitled to be indemnified for any
Liabilities and/or Expenses, or to the advance of Expenses, unless
otherwise ordered by such court, the Corporation shall pay such
Liabilities and/or Expenses to the Executive (net of all Expenses,
if any, previously advanced to the Executive pursuant to Section 2
of this Article VI), including interest thereon as provided in
Section 6c of this Article VI, or to such other person or entity as
the Executive may designate in writing to the Corporation, within
ten days of the rendering of such determination.
f. An Executive shall pay all Expenses incurred by such Executive in
connection with the judicial determination provided in this
Section 4 of this
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Article VI, unless it shall ultimately be determined by the court
that he or she is entitled, in whole or in part, to be indemnified
by, or to receive an advance from, the Corporation as authorized by
this Article VI. All Expenses incurred by an Executive in connection
with any subsequent appeal of the judicial determination provided for
in this Section 4 of this Article VI shall be paid by the Executive
regardless of the disposition of such appeal.
5. TERMINATION OF AN ACTION IS NONCONCLUSIVE
The adverse termination of any Action against an Executive by judgment,
order settlement, conviction, or upon a plea of no contest or its
equivalent, shall not, of itself, create a presumption that the Executive
has engaged in misconduct which constitutes a Breach of Duty.
6. PARTIAL INDEMNIFICATION; REASONABLENESS; INTEREST
a. If it is determined by the Authority, or by a court, that an
Executive is entitled to indemnification as to some claims, issues,
or matters, but not as to other claims, issues, or matters, involved
in any Action, the Authority, or the court, shall authorize the
proration and payment by the Corporation of such Liabilities and/or
reasonable Expenses with respect to which indemnification is sought
by the Executive, among such claims, issues, or matters as the
Authority, or the court, shall deem appropriate in light of all of
the circumstances of such Action.
b. If it is determined by the Authority, or by a court, that certain
Expenses incurred by or on behalf of an Executive are for whatever
reason unreasonable in amount, the Authority, or the court, shall
nonetheless authorize indemnification to be paid by the Corporation
to the Executive for such Expenses as the Authority, or the court,
shall deem reasonable in light of all of the circumstances of such
Action.
c. Interest shall be paid by the Corporation to an Executive, to the
extent deemed appropriate by the Authority, or by a court, at a
reasonable interest rate, for amounts for which the Corporation
indemnifies or advances to the Executive.
7. INSURANCE; SUBROGATION
a. The Corporation may purchase and maintain insurance on behalf of any
person who is or was an Executive of the Corporation, and/or is or
was serving as an Executive of an Affiliate, against Liabilities
and/or Expenses asserted against him or her and/or incurred by or on
behalf of him or her in any such capacity, or arising out of his or
her status as such an Executive,
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whether or not the Corporation would have the power to indemnify him
or her against such Liabilities and/or Expenses under this Article VI
or under the Statute as it may then be in effect. Except as
expressly provided herein, the purchase and maintenance of such
insurance shall not in any way limit or affect the rights and
obligations of the Corporation and/or any Executive under this
Article VI. Such insurance may, but need not, be for the benefit of
all Executives of the Corporation and those serving as an Executive
of an Affiliate.
b. If an Executive shall receive payment from any insurance carrier or
from the plaintiff in any Action against such Executive in respect
of indemnified amounts after payments on account of all or part of
such indemnified amounts have been made by the Corporation pursuant
to this Article VI, such Executive shall promptly reimburse the
Corporation for the amount, if any, by which the sum of such payment
by such insurance carrier or such plaintiff and payments by the
Corporation to such Executive exceeds such indemnified amounts;
provided, however, that such portions, if any, of such insurance
proceeds that are required to be reimbursed to the insurance carrier
under the terms of its insurance policy, such as deductible,
retention, or co-insurance amounts, shall not be deemed to be
payments to such Executive hereunder.
c. Upon payment of indemnified amounts under this Article VI, the
Corporation shall be subrogated to such Executive's rights against
any insurance carrier in respect of such indemnified amounts; and
the Executive shall execute and deliver any and all instruments
and/or documents and perform any and all other acts or deeds which
the Corporation shall deem necessary or advisable to secure such
rights. The Executive shall do nothing to prejudice such rights of
recovery or subrogation.
8. WITNESS EXPENSES
The Corporation shall advance or reimburse any and all reasonable
Expenses incurred by or on behalf of an Executive in connection with his
or her appearance as a witness in any Action at a time when he or she has
not been formally named a defendant or respondent to such an Action,
within ten days after the receipt of an Executive's written request
therefore.
9. CONTRIBUTION
a. Subject to the limitations of this Section 9, if the indemnity
provided for in Section 1 of this Article VI is unavailable to an
Executive for any reason whatsoever, the Corporation, in lieu of
indemnifying the Executive, shall contribute to the amount incurred
by or on behalf of the Executive, whether
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for Liabilities and/or for reasonable Expenses in connection with
any Action in such proportion as deemed fair and reasonable by the
Authority, or by a court, in light of all of the circumstances of
any such Action, in order to reflect:
(1) The relative benefits received by the Corporation and the
Executive as a result of the event(s) and/or transaction(s)
giving cause to such Action; and/or
(2) The relative fault of the Corporation (and its other
Executives, employees, and/or agents) and the Executive
in connection with such event(s) and/or transaction(s).
b. The relative fault of the Corporation (and its other Executives,
employees, and/or agents), on the one hand, and of the Executive, on
the other hand, shall be determined by reference to, among other
things, the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent the circumstances
resulting in such Liabilities and/or Expenses. The Corporation
agrees that it would not be just and equitable if contribution
pursuant to this Section 9 were determined by pro rata allocation or
any other method of allocation which does not take account of the
foregoing equitable considerations.
c. An Executive shall not be entitled to contribution from the
Corporation under this Section 9 in the event it is determined by
the Authority, or by a court, that the Executive has engaged in
misconduct which constitutes a Breach of Duty.
d. The Corporation's payment of, and an Executive's right to,
contribution under this Section 9 shall be made and determined in
accordance with and pursuant to the provisions in Sections 3 and/or
4 of this Article VI relating to the Corporation's payment of, and
the Executive's right to, indemnification under this Article VI.
10. INDEMNIFICATION OF EMPLOYEES
Unless otherwise specifically set forth in this Article VI, the
Corporation shall indemnify and hold harmless any person who is or was a
party, or is threatened to be made a party to any Action by reason of his
or her status as, or the fact that he or she is or was an employee or
authorized agent or representative of the Corporation and/or an Affiliate
as to acts performed in the course and within the scope of such
employee's, agent's, or representative's duties to the Corporation and/or
an Affiliate, in accordance with and to the fullest extent permitted by
the Statute as it may then be in effect.
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11. SEVERABILITY
If any provision of this Article VI shall be deemed invalid or
inoperative, or if a court of competent jurisdiction determines that any
of the provisions of this Article VI contravene public policy, this
Article VI shall be construed so that the remaining provisions shall not
be affected, but shall remain in full force and effect, and any such
provisions which are invalid or inoperative or which contravene public
policy shall be deemed, without further Action or deed by or on behalf of
the Corporation, to be modified, amended, and/or limited, but only to the
extent necessary to render the same valid and enforceable, and the
Corporation shall indemnify an Executive as to Liabilities and reasonable
Expenses with respect to any Action to the full extent permitted by any
applicable provision of this Article VI that shall not have been
invalidated and to the full extent otherwise permitted by the Statute as
it may then be in effect.
12. NONEXCLUSIVITY OF ARTICLE VI
The right to indemnification, contribution, and advancement of Expenses
provided to an Executive by this Article VI shall not be deemed exclusive
of any other rights to indemnification, contribution, and/or advancement
of Expenses which any Executive or other employee or agent of the
Corporation and/or of an Affiliate may be entitled under any charter
provision, written agreement, resolution, vote of shareholders, or
disinterested directors of the Corporation or otherwise, including,
without limitation, under the Statute as it may then be in effect, both
as to acts in his or her official capacity as such Executive or other
employee or agent of the Corporation and/or of an Affiliate or as to acts
in any other capacity while holding such office or position, whether or
not the Corporation would have the power to indemnify, contribute, and/or
advance Expenses to the Executive under this Article VI or under the
Statute; provided that it is not determined that the Executive or other
employee or agent has engaged in misconduct which constitutes a Breach of
Duty.
13. NOTICE TO THE CORPORATION; DEFENSE OF ACTIONS
a. An Executive shall promptly notify the Corporation in writing upon
being served with or having actual knowledge of any citation,
summons, complaint, indictment, or any other similar document
relating to any Action which may result in a claim of
indemnification, contribution, or advancement of Expenses hereunder,
but the omission so to notify the Corporation will not relieve the
Corporation from any liability which it may have to the Executive
otherwise than under this Article VI unless the Corporation shall
have been irreparably prejudiced by such omission.
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b. With respect to any such Action as to which an Executive notifies
the Corporation of the commencement thereof:
(1) The Corporation shall be entitled to participate therein at its
own expense; and
(2) Except as otherwise provided below, to the extent that it may
wish, the Corporation (or any other indemnifying party,
including any insurance carrier, similarly notified by the
Corporation or the Executive) shall be entitled to assume the
defense thereof, with counsel selected by the Corporation (or
such other indemnifying party) and reasonably satisfactory to
the Executive.
c. After notice from the Corporation (or such other indemnifying party)
to the Executive of its election to assume the defense of an Action,
the Corporation shall not be liable to the Executive under this
Article VI for any Expenses subsequently incurred by the Executive
in connection with the defense thereof other than reasonable costs
of investigation or as otherwise provided below. The Executive
shall have the right to employ his or her own counsel in such Action
but the Expenses of such counsel incurred after notice from the
Corporation (or such other indemnifying party) of its assumption of
the defense thereof shall be at the expense of the Executive unless:
(1) The employment of counsel by the Executive has been authorized
by the Corporation;
(2) The Executive shall have reasonably concluded that there may be
a conflict of interest between the Corporation (or such other
indemnifying party) and the Executive in the conduct of the
defense of such Action; or
(3) The Corporation (or such other indemnifying party) shall not
in fact have employed counsel to assume the defense of such
Action, in each of which cases the Expenses of counsel shall
be at the expense of the Corporation.
The Corporation shall not be entitled to assume the defense of any
Derivative Action or any Action as to which the Executive shall have
made the conclusion provided for in clause (2) above.
14. CONTINUITY OF RIGHTS AND OBLIGATIONS
The terms and provisions of this Article VI shall continue as to an
Executive subsequent to the Termination Date and such terms and
provisions shall inure to
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the benefit of the heirs, estate, executors, and administrators of such
Executive and the successors and assigns of the Corporation, including,
without limitation, any successor to the Corporation by way of merger,
consolidation, and/or sale or disposition of all or substantially all of
the assets or capital stock of the Corporation. Except as provided
herein, all rights and obligations of the Corporation and the Executive
hereunder shall continue in full force and effect despite the subsequent
amendment or modification of the Corporation's Articles of Incorporation,
as such are in effect on the date hereof, and such rights and obligations
shall not be affected by any such amendment or modification, any
resolution of directors or shareholders of the Corporation, or by any
other corporate action which conflicts with or purports to amend, modify,
limit, or eliminate any of the rights or obligations of the Corporation
and/or of the Executive hereunder.
15. AMENDMENT
This Article VI may only be altered, amended, or repealed by the
affirmative vote of a majority of the shareholders of the Corporation so
entitled to vote; provided, however, that the Board may alter or amend
this Article VI without such shareholder approval if any such alteration
or amendment:
a. Is made in order to conform to any amendment or revision of the
Wisconsin Business Corporation Law, including, without limitation,
the Statute, which:
(1) Expands or permits the expansion of an Executive's right to
indemnification thereunder;
(2) Limits or eliminates, or permits the limitation or elimination,
of liability of the Executives; or
(3) Is otherwise beneficial to the Executives; or
b. in the sole judgment and discretion of the Board, does not
materially adversely affect the rights and protections of the
shareholders of the Corporation.
Any repeal, modification, or amendment of this Article VI shall not
adversely affect any rights or protections of an Executive existing under
this Article VI immediately prior to the time of such repeal,
modification, or amendment and any such repeal, modification, or
amendment shall have a prospective effect only.
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16. CERTAIN DEFINITIONS
The following terms as used in this Article VI shall be defined as
follows:
a. "Action(s)" shall include, without limitation, any threatened,
pending, or completed action, claim, litigation, suit, or
proceeding, whether civil, criminal, administrative, arbitrative, or
investigative, whether predicated on foreign, federal, state, or
local law, whether brought under and/or predicated upon the
Securities Act of 1933, as amended, and/or the Securities Exchange
Act of 1934, as amended, and/or their respective state counterparts,
and/or any rule or regulation promulgated thereunder, whether a
Derivative Action, and whether formal or informal.
b. "Affiliate" shall include, without limitation, any corporation,
partnership, joint venture, employee benefit plan, trust, or other
similar enterprise that directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common
control with, the Corporation.
c. "Authority" shall mean the panel of arbitrators or independent legal
counsel selected under Section 3 of this Article VI.
d. "Board" shall mean the Board of Directors of the Corporation.
e. "Breach of Duty" shall mean the Executive breached or failed to
perform his or her duties to the Corporation or an Affiliate, as the
case may be, and the Executive's breach of or failure to perform
those duties constituted:
(1) A willful failure to deal fairly with the Corporation (or an
Affiliate) or its shareholders in connection with a matter in
which the Executive has a material conflict of interest;
(2) A violation of the criminal law, unless the Executive:
(a) Had reasonable cause to believe his or her conduct was
lawful; or
(b) Had no reasonable cause to believe his or her conduct was
unlawful;
(3) A transaction from which the Executive derived an improper
personal profit (unless such profit is determined to be
immaterial in light of all the circumstances of the Action); or
(4) Willful misconduct.
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f. "Derivative Action" shall mean any Action brought by or in the right
of the Corporation and/or an Affiliate.
g. "Executive(s)" shall mean any individual who is, was, or has agreed
to become a director and/or officer of the Corporation and/or an
Affiliate.
h. "Expenses" shall include, without limitation, all expenses, fees,
costs, charges, attorneys' fees and disbursements, other
out-of-pocket costs, reasonable compensation for time spent by the
Executive in connection with the Action for which he or she is not
otherwise compensated by the Corporation, any Affiliate, any third
party or other entity, and any and all other direct and indirect
costs of any type or nature whatsoever.
i. "Liabilities" shall include, without limitation, judgments, amounts
incurred in settlement, fines, penalties, and, with respect to any
employee benefit plan, any excise tax or penalty incurred in
connection therewith, and any and all other liabilities of every
type or nature whatsoever.
j. "Statute" shall mean Wisconsin Business Corporation Law Sections
180.0850-180.0859 (or any successor provisions).
k. "Termination Date" shall mean the date an Executive ceases, for
whatever reason, to serve in an employment relationship with the
Company and/or any Affiliate.
ARTICLE VII. SEAL
BOARD OF DIRECTORS
The Board of Directors shall provide a corporate seal which shall be circular
in form and shall have inscribed thereon the words "WISCONSIN PUBLIC SERVICE
CORPORATION, GREEN BAY, WIS., CORPORATE SEAL." The continued use for any
purpose of any former corporate seal or facsimile thereof shall have the same
effect as the use of the corporate seal or facsimile thereof in the form
provided by the preceding sentence.
ARTICLE VIII. AMENDMENTS
1. The Board of Directors shall have authority to adopt, amend, or repeal
the By-laws of this Corporation 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
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power to amend any By-law adopted or amended by the shareholders after
May 23, 1972, or to reinstate any By-law repealed by the shareholders
after May 23, 1972, unless the shareholders shall hereafter confer such
authority upon the Board of Directors.
2. The shareholders shall have power to adopt, amend, or repeal any of the
By-laws of the Corporation, at any regular or special meeting of the
shareholders, in accordance with the provisions of Article II of these
By-laws. There shall be included in the notice of such regular or
special meeting a statement of the nature of any amendment that is
proposed for the consideration of the shareholders by the holders of at
least 5% of the voting stock of the Corporation in a writing delivered to
the Secretary of the Corporation not less than 90 days prior to the date
of such meeting or by the Board of Directors.
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EXHIBIT 10F-1
WPS RESOURCES CORPORATION
DEFERRED COMPENSATION PLAN
As Amended and Restated Effective January 1, 1999
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WPS RESOURCES CORPORATION
DEFERRED COMPENSATION PLAN
WPS Resources Corporation Deferred Compensation Plan (the "Plan")
has been established effective January 1, 1996 to promote the best interests
of WPS Resources Corporation (the "Company") and the stockholders of the
Company by (1) attracting and retaining well-qualified persons for service as
non-employee directors of the Company and designated subsidiaries or
affiliates; and (2) attracting and retaining key management employees
possessing a strong interest in the successful operation of the Company and
its subsidiaries or affiliates and encouraging their continued loyalty,
service and counsel to the Company and its subsidiaries or affiliates. This
Plan replaces Deferred Compensation Plans 008, 009, 010 and 011 previously
maintained by the Wisconsin Public Service Corporation.
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ARTICLE I. DEFINITIONS AND CONSTRUCTION
Section 1.01. Definitions. The following terms have the meanings
--------------------------
indicated below unless the context in which the term is used clearly indicates
otherwise:
(a) "Account" means the recordkeeping account or accounts
maintained by a Participating Employer for each Participant, including to
extent applicable to any such Participant, Reserve Account A, Reserve Account
B and the Stock Account.
(b) An "Affiliate" of, or a person "affiliated" with, a specified
person is a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, the person specified and the term "Associate" used to indicate a
relationship with any person, means (i) any corporation or organization (other
than the registrant or a majority-owned subsidiary of the registrant) of which
such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities, (ii)
any trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar
fiduciary capacity, and (iii) any relative or spouse of such person, or any
relative of such spouse, who has the same home as such person or who is a
director or officer of the registrant or any of its parents or subsidiaries.
(c) A person shall be deemed to be the "Beneficial Owner" of any
securities:
(i) which such Person or any of such Person's Affiliates or
Associates has the right to acquire (whether such right is
exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement, arrangement or
understanding, or upon the exercise of conversion rights,
exchange rights, rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the
-------- -------
Beneficial Owner of, or to beneficially own, (A) securities
tendered pursuant to a tender or exchange offer made by or
on behalf of such Person or any of such Person's Affiliates
or Associates until such tendered securities are accepted
for purchase or (B) securities issuable upon exercise of
Rights pursuant to the terms of the Company's Rights
Agreement with Firstar Trust Company, dated as of
December 12, 1996, as amended from time to time (or
any successor to such Rights Agreement) at any time
before the issuance of such securities;
(ii) which such Person or any of such Person's Affiliates
or Associates, directly or indirectly, has the right
to vote or dispose of or has "beneficial ownership" of
(as determined pursuant to Rule 13d-3 of the General
Rules
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and Regulations under the Act), including pursuant to any
agreement, arrangement or understanding; provided,
--------
however, that a Person shall not be deemed the Beneficial
-------
Owner of, or to beneficially own, any security under
this subparagraph (ii) as a result of an agreement,
arrangement or understanding to vote such security if
the agreement, arrangement or understanding: (A)
arises solely from a revocable proxy or consent given
to such Person in response to a public proxy or
consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations
under the Act and (B) is not also then reportable on a
Schedule 13D under the Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person with which such Person or any of
such Person's Affiliates or Associates has any
agreement, arrangement or understanding for the
purpose of acquiring, holding, voting (except pursuant
to a revocable proxy as described in Section
1.01(c)(ii) above) or disposing of any voting
securities of the Company.
(d) "Beneficiary" means the person or entity designated by the
Participant to be his beneficiary for purposes of this Plan. If a valid
designation of Beneficiary is not in effect at time of the death of a
Participant, the estate of the Participant is deemed to be the sole
Beneficiary. If a Beneficiary dies while entitled to receive distributions
from the Plan, any remaining payments shall be paid to the estate of the
Beneficiary. Beneficiary designations shall be in writing, filed with the
Secretary, and in such form as the Secretary may prescribe for this purpose.
(e) "Board" means the Board of Directors of the Company.
(f) "Bonus Deferral" means amounts credited, in accordance with an
Executive's election under Section 8.02(b) of the WPS Resources Corporation
Short-Term Variable Pay Plan, to an Executive's Stock Account in lieu of the
payment of an equal amount as a current cash bonus.
(g) A "Change in Control of the Company" shall be deemed to have
occurred if:
(i) any Person (other than any employee benefit plan of
the Company or of any subsidiary of the Company, any
Person organized, appointed or established pursuant to
the terms of any such benefit plan or any trustee,
administrator or fiduciary of such a plan) is or
becomes the Beneficial Owner of securities of the
Company
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representing at least 30% of the combined voting
power of the Company's then outstanding
securities;
(ii) one-half or more of the members of the Board are not
Continuing Directors;
(iii) there shall be consummated any merger, consolidation,
or reorganization of the Company with any other
corporation as a result of which less than 50% of the
outstanding voting securities of the surviving or
resulting entity are owned by the former shareholders
of the Company other than a shareholder who is an
Affiliate or Associate of any party to such
consolidation or merger;
(iv) there shall be consummated (x) any merger of the
Company or share exchange involving the Company in
which the Company is not the continuing or surviving
corporation other than a merger of the Company in
which each of the holders of the Company's Common
Stock immediately prior to the merger have the same
proportionate ownership of common stock of the
surviving corporation immediately after the merger;
(v) there shall be consummated any sale, lease, exchange
or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of
the assets of the Company to a Person which is not a
wholly owned subsidiary of the Company; or
(vi) the shareholders of the Company approve any plan or
proposal for the liquidation or dissolution of the
Company.
(h) "Code" means the Internal Revenue Code of 1986, as interpreted
by regulations and rulings issued pursuant thereto, all as amended and in
effect from time to time.
(i) "Company" means WPS Resources Corporation, a Wisconsin
corporation, or any successor corporation.
(j) "Compensation" means (i) for a Director, the Retainer Fee and
(ii) for an Executive the base salary or wage payable by a Participating
Employer for services performed, including elective contributions to a Section
125, 129 or 401(k) arrangement or Voluntary Deferrals to this Plan, but
excluding extraordinary payments such as overtime, bonuses, meal allowances,
reimbursed expenses, termination pay, moving pay, commuting expenses,
Mandatory Deferrals to this Plan or other non-elective deferred compensation
payments or accruals, stock options, the value of employer-provided fringe
benefits or coverage, and any
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contributions on behalf of the Executive paid by a Participating Employer to a
survivor's income benefit plan or any other employee benefit plan within the
meaning of ERISA, all determined in accordance with such uniform rules,
regulations or standards as may be prescribed by the Compensation Committee.
(k) "Compensation Committee" means the Compensation Committee of
the Board, which functions as the joint Compensation Committee for the Company
and for Wisconsin Public Service Corporation.
(l) "Continuing Director" means (i) any member of the Board of
Directors of the Company who was a member of such Board on May 1, 1997,
(ii) any successor of a Continuing Director who is recommended to succeed a
Continuing Director by a majority of the Continuing Directors then on such
Board and (iii) additional directors elected by a majority of the Continuing
Directors then on such Board.
(m) "Director" means a non-employee director of a Participating
Employer who has been designated by the Compensation Committee as covered
under or being eligible to participate in the Plan.
(n) "ERISA" means the Employee Retirement Income Security Act of
1974, as interpreted by regulations and rulings issued pursuant thereto, all
as amended and in effect from time to time.
(o) "Executive" means a common law employee of a Participating
Employer who has been designated by the Compensation Committee as covered
under or otherwise being eligible to participate in this Plan.
(p) "Mandatory Deferral" means the amount which may from time to
time be credited to the Stock Account of an Executive in accordance with
Section 3.01 and for which the Executive does not receive the option between
receiving such amount as current cash compensation and deferring such amount
into the Plan.
(q) "Participant" means either a Director or Executive who is
participating in or eligible to participate in the Plan.
(r) "Participating Employer" means Company and any direct or
indirect subsidiary of the Company that, with the consent of the Compensation
Committee, adopts the Plan for the benefit of one or more Executives or
Directors.
(s) "Person" means any individual, firm, partnership, corporation
or other entity, including any successor (by merger or otherwise) of such
entity, or a group of any of the foregoing acting in concert.
(t) "Retainer Fee" means those fees paid by a Participating
Employer to non-employee directors for services rendered on the Board or any
committee of the Board, or for
5
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service on the board of directors of a subsidiary or affiliate, including
attendance fees and fees for serving as committee chair.
(u) "Secretary" means the Secretary of the Company (or his
delegate).
(v) "Trust" means the WPS Resources Corporation Deferred
Compensation Trust or other funding vehicle which may from time to time be
established, as amended and in effect from time to time.
(w) "Voluntary Deferrals" means amounts (other than Bonus
Deferrals) credited, in accordance with a Participant's election, to his
Account in lieu of the payment of an equal amount of current Compensation.
(x) "WPS Resources Stock" means the common stock, $1.00 par value,
of the Company.
(y) "WPS Resources Stock Units" means the hypothetical shares of
common stock, $1.00 par value, of the Company, that may be credited (i) to the
Stock Account of an Executive as a result of Mandatory Deferrals or Bonus
Deferrals, or (ii) to the Stock Account of either a Director or Executive as a
result of Voluntary Deferrals.
Section 1.02. Construction and Applicable Law. (a) Wherever any words
----------------------------------------------
are used in the masculine, they shall be construed as though they were used in
the feminine in all cases where they would so apply; and wherever any words
are use in the singular or the plural, they shall be construed as though they
were used in the plural or the singular, as the case may be, in all cases
where they would so apply. Titles of articles and sections are for general
information only, and the Plan is not to be construed by reference to such
items.
This Plan, as applied to Executives, is intended to be a plan of
deferred compensation maintained for a select group of management or highly
compensated employees as that term is used in ERISA, and shall be interpreted
so as to comply with the applicable requirements thereof. In all other
respects, the Plan is to be construed and its validity determined according to
the laws of the State of Wisconsin to the extent such laws are not preempted
by federal law. In case any provision of the Plan is held illegal or invalid
for any reason, the illegality or invalidity will not affect the remaining
parts of the Plan, but the Plan shall, to the extent possible, be construed
and enforced as if the illegal or invalid provision had never been inserted.
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ARTICLE II. PLAN ACCOUNTS
Section 2.01. Establishment of Accounts. One or more of the following
----------------------------------------
Accounts (as applicable) will be established in the name of each Participant
who (i) is identified on Schedule A as being eligible to participate in either
the Voluntary Deferral component of the Plan or the Mandatory Deferral
component of the Plan or in both the Voluntary Deferral and Mandatory Deferral
components of the Plan, or (ii) is eligible for and has elected to make Bonus
Deferrals in accordance with the procedures specified in Section 8.02(b) of
the WPS Resources Corporation Short-Term Variable Pay Plan:
(a) Reserve Account A
(b) Reserve Account B
(c) Stock Account.
Section 2.02. Reserve Account A. (a) This Account will be credited
--------------------------------
with the reserve account balance accumulated by a Participant as of
December 31, 1995 under the prior deferred compensation program of Wisconsin
Public Service Corporation. Except for attributed earnings as described
below, no further "contributions" or credits of any kind will be made to this
Account on behalf of a Participant.
(b) As of the end of each Plan Year, the Account will be credited
with an interest equivalent on the balance in the Account from time to time
during the year. The annual interest equivalent will be the sum (on a
non-compounded basis) of the attributed earnings for each month during the
year based on the Account balance as of the last day of the month. Unless
modified by the Compensation Committee, the interest equivalent rate for any
month will be the greater of:
(i) one-half of one percent (0.5%); or
(ii) one-twelfth (1/12) of the return on common
shareholders' equity (ROE). For the months of April
through September, ROE means the consolidated return
on equity of the Company and all subsidiaries for the
twelve (12) months ended on the preceding March 31 as
calculated pursuant to the Company's standard
accounting procedure for financial reporting to
shareholders. For the months October through March,
ROE means return on equity as described above for the
twelve (12) months ended on the preceding
September 30.
(c) The Compensation Committee may revise the interest equivalent
rate described in Section 2.02(b) above or the manner in which it is
calculated, but in no event shall the rate
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be less than six percent (6%) per annum. Any such revised rate shall be
effective with the calendar month following such action by the Compensation
Committee.
(d) Notwithstanding Sections 2.02(b) and (c), in the event of a
Change in Control, the rate of interest equivalent for each month following
the Change in Control for which attributed earnings are required to be
calculated shall be the greater of (A) the rate of interest equivalent
otherwise applicable under Section 2.02(b) and (c) above calculated based upon
the consolidated return on common shareholders equity of the Company
(including for this purpose any successor corporation that is the survivor of
a merger with the Company or any successor to that corporation) and all
subsidiaries, and (B) a rate equal to two (2) percentage points above the
prime lending rate at Firstar Bank Milwaukee, Milwaukee, Wisconsin (or any
successor thereto) as of the last business day of that month. The minimum
rate of interest equivalent under clause (B) above shall not apply with
respect to any Participant who terminates employment under circumstances
entitling the Participant to benefits under a Key Executive Employment and
Severance Agreement in effect between the Company and such Participant.
Section 2.03. Reserve Account B. (a) This Account shall be credited
--------------------------------
with Voluntary Deferrals made after December 31, 1995 which a Participant
elects to allocate to this Account in accordance with Section 3.02(c)(ii).
(b) As of the end of each Plan Year, the Account will be credited
with an interest equivalent on the balance in the Account from time to time
during the year. The annual interest equivalent will be the sum (on a
non-compounded basis) of the attributed earnings for each month during the
year based on the Account balance as of the last day of each month. Unless
modified by the Compensation Committee, the interest equivalent rate for any
month will be the greater of:
(i) one-half of one percent (0.5%); or
(ii) seventy percent (70%) of one-twelfth (1/12) of the
return on common shareholders equity (ROE). For the
months of April through September, ROE means the
consolidated return on equity of the Company and all
subsidiaries for the twelve (12) months ended on the
preceding March 31 as calculated pursuant to the
Company's standard accounting procedure for financial
reporting to shareholders. For the months October
through March, ROE means return on equity as described
above for the twelve (12) months ended on the
preceding September 30.
(c) The Compensation Committee may revise the interest equivalent
rate described in Section 2.03(b) above or the manner in which it is
calculated, but in no event shall the rate be less than six percent (6%) per
annum. Any such revised rate shall be effective with the calendar month
following such action by the Compensation Committee.
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(d) Notwithstanding Sections 2.03(b) and (c), in the event of a
Change in Control, the rate of interest equivalent for each month following
the Change in Control for which attributed earnings are required to be
calculated shall be the greater of (A) the rate of interest equivalent
otherwise applicable under Section 2.03(b) and (c) above calculated based upon
the consolidated return on common shareholders equity of the Company
(including for this purpose any successor corporation that is the survivor of
a merger with the Company or any successor to that corporation) and all
subsidiaries, and (B) a rate equal to two (2) percentage points above the
prime lending rate at Firstar Bank Milwaukee, Milwaukee, Wisconsin (or any
successor thereto) as of the last business day of that month. The minimum rate
of interest equivalent under clause (B) above shall not apply with respect to
any Participant who terminates employment under circumstances entitling the
Participant to benefits under a Key Executive Employment and Severance
Agreement in effect between the Company and such Participant. Further, in the
case of any other Participant, the minimum rate of interest equivalent under
clause (B) shall cease to apply on the third anniversary of the Change in
Control in the event that the Participant is actively employed by the Company
(or any successor thereto or affiliate thereof) on such date.
Section 2.04. Stock Account. (a) This Account shall be credited with
----------------------------
(i) all Mandatory Deferrals made after December 31, 1995, (ii) those Voluntary
Deferrals made after December 31, 1995 which a Participant, in accordance with
Section 3.02(c)(ii), elects to allocate to this Account, and (iii) all Bonus
Deferrals.
(b) As of the end of each month, all Voluntary Deferrals, Mandatory
Deferrals, and Bonus Deferrals made by or on behalf of a Participant during
that month and allocated to the Participant's Stock Account (the "Convertible
Amount") shall be converted, for recordkeeping purposes, into whole and
fractional WPS Resources Stock Units, with fractional units calculated to four
decimal places. The conversion shall be accomplished by dividing each
Participant's Convertible Amount by the average purchase price of all shares
of WPS Resources Stock purchased during that month by or on behalf of the
Trust and the WPS Resources Corporation Stock Investment Plan. Likewise, any
dividends that would have been payable on the WPS Resources Stock Units
credited to a Participant's Stock Account had such Units been actual shares of
WPS Resources Stock shall be converted, for recordkeeping purposes, into whole
and fractional WPS Resources Stock Units based on the average purchase price
of all shares of WPS Resources Stock purchased by or on behalf of the Trust
and the WPS Resources Corporation Stock Investment Plan during the month in
which the dividend is paid.
Section 2.05. Accounts are For Recordkeeping Purposes Only. The Plan
-----------------------------------------------------------
Accounts described in this Article II above serve solely as a device for
determining the amount of benefits accumulated by a Participant under the
Plan, and shall not constitute or imply an obligation on the part of a
Participating Employer to fund such benefits. In any event, the Company may,
in its discretion, set aside assets equal to part or all of such account
balances and invest such assets in Company stock, life insurance or any other
investment deemed appropriate. Any such assets, including WPS Resources Stock
and any other assets held under the Trust, shall be and remain the sole
property of the Company and except to the extent that
9
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<PAGE>
the Trust authorizes a Participant to direct the trustee with respect to the
voting of WPS Resources Stock held in the Trust, a Participant shall have no
proprietary rights of any nature whatsoever with respect to such assets.
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ARTICLE III. MANDATORY AND VOLUNTARY DEFERRALS
Section 3.01. Mandatory Deferrals. The Compensation Committee may,
----------------------------------
from time to time, authorize a Mandatory Deferral to be made on behalf of
covered Executives. The authorization of any such contribution, the
Executives entitled to the contribution, and the amount to be credited to each
eligible Executive, shall be determined by the Compensation Committee in its
sole discretion; provided that the maximum Mandatory Deferral for any year
shall not exceed thirty percent (30%) of an Executive's Compensation for the
year. Any Mandatory Deferral will be credited to an eligible Executive's
Stock Account and converted into WPS Resources Stock Units in accordance with
Section 2.04.
Section 3.02. Election to Make Voluntary Deferrals. (a) A Participant
---------------------------------------------------
may elect to make Voluntary Deferrals by submitting a properly completed and
signed election form to the Secretary on or before December 20, 1995. If the
Participant so elects, Voluntary Deferrals will commence with respect to
Compensation earned by a Participant on or after January 1, 1996.
Notwithstanding the foregoing, if, as of January 1, 1996, the Participant has
in effect an election under the prior deferred compensation program maintained
by Wisconsin Public Service Corporation and does not file an election with the
Secretary in accordance with this Section 3.02(a), the prior election shall be
deemed the Participant's initial election under this Plan.
(b) If a Director or Executive first becomes eligible to
participate in the Plan following the election period described in Section
3.02(a) above (such as, for example, a Director who commences service or an
Executive who is newly designated by the Compensation Committee as being
eligible) the initial deferral election may be made within thirty (30) days of
the date that such person first becomes eligible under the Plan, and shall be
effective with respect to Compensation earned by the Participant in the first
payroll commencing on or after the date on which the deferral election is
made.
(c) A Participant's election shall be in such form as the Secretary
may prescribe, and shall specify:
(i) The percentage or dollar amount of Compensation to be
deferred as a Voluntary Deferral. A Director may
elect to defer all or any part of his Compensation, in
whole dollar amounts or in increments of one percent
(1%). An Executive may, without the consent of the
Compensation Committee, elect to defer a portion of
his Compensation, in whole dollar amounts or in
increments of one percent (1%), provided that the
amount or percentage elected does not exceed thirty
percent (30%) of the Executive's Compensation. An
Executive may elect to defer more than thirty percent
(30%) of Compensation only if the Compensation
Committee has approved the Executive's specific
deferral percentage or amount.
11
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<PAGE>
(ii) Whether the Voluntary Deferrals are to be credited to
the Participant's Reserve Account (Reserve Account B)
or the Participant's Stock Account. If the
Participant desires to allocate Voluntary Deferrals to
both his Reserve and Stock Accounts, the election must
further specify the portion of the Voluntary
Deferrals, in whole dollar amounts or in increments of
one percent (1%), to be allocated to each Account.
(d) An election shall be deemed made only when it is received by
the Secretary, and shall remain in effect until modified by the Participant in
accordance with Section 3.03 below or otherwise revoked in accordance with
Plan rules.
Section 3.03. Revision or Modification of Voluntary Deferral Election.
----------------------------------------------------------------------
(a) A Participant's initial election under Section 3.02 (including an election
not to make Voluntary Deferrals) shall remain in effect from year to year
unless revised or modified by the Participant in accordance with this Section
3.03 or otherwise revoked in accordance with Plan rules.
(b) A Participant may modify his then current election (including
an election not to make Voluntary Deferrals) by filing a revised election
form, properly completed and signed, with the Secretary. The revised election
will be effective with respect to Compensation earned by the Participant in
the first payroll period commencing on or after the date on which the revised
election is received by the Secretary.
(c) An election shall be deemed revised in accordance with this
Section 3.03 only when the revised election is received by the Secretary, and
once effective, the revised election shall remain in effect until further
revised in accordance with this Section 3.03 or otherwise revoked in
accordance with Plan rules. Revised elections are prospectively effective
with respect to Compensation earned on or after the applicable effective date
described in Section 3.03(b) and (c) above. A revised election does not
operate to modify or otherwise reallocate the amounts deferred prior to the
effective date of the revised election.
Section 3.04. Involuntary Termination of Voluntary Deferral Elections.
----------------------------------------------------------------------
A deferral election shall be automatically revoked upon termination of service
as a Director (in the case of a Director) or termination of employment (in the
case of an Executive). In addition, an Executive's deferral election shall
terminate on the first day of the Plan Year following the date that the
Compensation Committee determines that the Executive is no longer eligible to
participate in the Plan, including any such action that may be necessary in
order for the Plan to qualify under ERISA, with respect to Executive
employees, as a plan of deferred compensation for a select group of management
or highly compensated employees.
12
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<PAGE>
ARTICLE IV. DISTRIBUTION OF RESERVE ACCOUNT A,
RESERVE ACCOUNT B AND STOCK ACCOUNTS
Section 4.01. Distribution Election. (a) The distribution election (if
------------------------------------
any) made by a Participant under the prior deferred compensation program
maintained by Wisconsin Public Service Corporation shall be his distribution
election under this Plan unless and until modified in accordance with Section
4.02 below.
(b) A new Participant shall, at the time he commences participation
in the Plan, make a distribution election with respect to his Account. The
election shall be in such form as the Secretary may prescribe, and shall
specify the distribution commencement date, the distribution period, the
method of distributing earnings credited to the Account, and the distribution
method applicable following the Participant's death. Any such election shall
be consistent with the following rules (or where the Participant fails to make
a selection, in accordance with the default rules set forth below):
(i) Distribution Commencement Date. Unless the Participant
------------------------------
has selected a later commencement date (which in no
event shall be later than the first distribution
period following the Participant's attainment of age
72), distribution of a Participant's Accounts will
commence within 60 days following the end of the
calendar year in which occurs the Participant's
retirement or termination of employment or service.
For purposes of this Plan, a participating Executive
who is disabled shall be deemed to have retired or
terminated at the conclusion of benefits under all
disability income plans sponsored by a Participating
Employer or to which a Participating Employer
contributes. Further, a participating Executive who
ceases employment with a Participating Employer in
connection with an early retirement (reduction in
force) program sponsored by the Participating Employer
shall, if a participant in the Wisconsin Public
Service Administrative Employees Retirement Plan, be
deemed to have retired upon commencement of retirement
benefits under such plan.
(ii) Distribution Period. Distributions will be made in 1, 3,
-------------------
6, 9, 12 or 15 annual installments, as elected by the
Participant.
(iii) Method of Calculating Annual Distribution Amount. Unless
------------------------------------------------
the Participant elects the Alternate Distribution
Method, the amount to be distributed to the
Participant each year during the distribution period
will be
13
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<PAGE>
determined under the Regular Distribution Method. The
Regular and Alternate Distribution Methods are described
in more detail in Section 4.03.
(iv) Distribution of Remaining Account Following Participant's
---------------------------------------------------------
Death. In the event of the Participant's death, the
-----
Participant's remaining undistributed interest will be
distributed to the Beneficiary designated by the
Participant in either a single sum payment or in
installments, as elected by the Participant. If the
Participant has elected that death benefits be paid in
a single sum, the payment shall be made no later than
March 1 following the calendar year in which occurs
the Participant's death. If the Participant has
elected that death benefits be paid in installments,
(A) any installments previously commenced to the
Participant shall continue to the Beneficiary and (B)
if installment distributions had not commenced as of
the date of the Participant's death, payments over the
installment period elected by the Participant shall
commence to the Beneficiary no later than March 1
following the calendar year in which occurs the
Participant's death.
(c) A distribution election shall be deemed made only when it is
received by the Secretary, and shall remain in effect until modified by the
Participant in accordance with Section 4.02 below or otherwise revoked in
accordance with Plan rules.
Section 4.02. Modified Distribution Election. A Participant may from
---------------------------------------------
time to time modify his distribution election by filing a revised distribution
election, properly completed and signed, with the Secretary. However, a
revised distribution election will be given effect only if the Participant
remains employed by (or in the case of a Director, continues service on the
Board or the board of directors of a Participating Employer) for twenty-four
(24) consecutive months following the date that the revised election is
received by the Secretary.
Section 4.03. Calculation of Annual Distribution Amount. (a) For any
--------------------------------------------------------
Participant whose retirement date was prior to January 1, 1996, distribution
will continue to be calculated under the distribution method applicable to
such Participant at the time his distributions commenced under the terms of
the prior deferred compensation program maintained by Wisconsin Public Service
Corporation.
(b) For any Participant whose retirement date is after December 31,
1995, unless the Participant has selected the Alternate Distribution Option,
the annual distribution amount shall be separately calculated for the
Participant's interest (if any) in Reserve Account A, Reserve Account B and
the Stock Account.
14
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<PAGE>
(i) The annual distribution amount for Reserve Account A
and Reserve Account B shall be determined by dividing
the balance in each Account as of January 1 of the
year for which the distribution is being made by the
number of installment payments remaining to be made under
the distribution period selected by the Participant.
Distributions from Reserve Account A and Reserve
Account B shall be made in cash. The amount of any
distribution under this Section 4.03(b)(i) will be
charged pro-rata against the Participant's interest in
Reserve Account A and B.
(ii) The annual distribution amount for the Stock Account
shall be determined on a share basis by dividing the
number of WPS Resources Stock Units credited to the
Participant's Stock Account as of January 1 of the
year for which the distribution is being made by the
number of installment payments remaining to be made
under the distribution period selected by the
Participant, and then rounding the quotient obtained
for all but the final installment to the next lowest
whole number of WPS Resources Stock Units. The
Committee will then distribute to the Participant
shares of WPS Resources Stock and/or cash equal to the
annual distribution amount. For any portion of the
distribution that the Committee elects to satisfy by
making a cash payment to the Participant, the cash
payment shall be determined by multiplying the annual
distribution amount (or the portion of the annual
distribution amount being satisfied in cash) by the
closing price of WPS Resources Stock on January 21 of
the year in which the distribution is being made, as
such share price is reported in the Wall Street
Journal's New York Stock Exchange Composite
Transactions listing. If January 21 falls on a
Saturday, Sunday or holiday, the calculation of the
cash portion of the distributions will be made based
upon the closing price as reported for the immediately
preceding business day.
(c) For any Participant whose retirement date is after December 31,
1995 and who has selected the Alternate Distribution Method, the annual
distribution amount shall be separately calculated for the Participant's
interest (if any) in Reserve Account A, Reserve Account B and the Stock
Accounts of January 1 of the year in which distributions commence. The annual
distribution amounts, once calculated, shall not thereafter be recalculated.
15
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<PAGE>
(i) For the year in which distribution commences, the
annual distribution amount for Reserve Account A and
Reserve Account B shall be determined by dividing the
balance in each Account as of January 1 of the year in
which distribution commences by the number of
installment payments selected by the Participant. For
each succeeding distribution year, the Participant
shall be entitled to a distribution equal to the
annual distribution amount calculated in accordance with
the preceding sentence, plus all interest equivalent
credited to the Account during the preceding calendar
year. Distributions from Reserve Account A and Reserve
Account B shall be made in cash. The amount of any
distribution under this Section 4.03(c)(i) will be charged
pro-rata against the Participant's interest in Reserve
Account A and B.
(ii) For the year in which distribution commences, the
annual distribution amount for the Stock Account shall
be determined on a share basis by dividing the number
of WPS Resources Stock Units credited to the
Participant's Stock Account as of January 1 of the
year in which distribution commences by the number of
installment payments selected by the Participant, and
then rounding the quotient obtained for all but the
final installment to the next lowest whole number of
WPS Resources Stock Units. For each succeeding
distribution year, the Participant shall be entitled
to distribution of the number of WPS Resources Stock
Units determined in accordance with the preceding
sentence, plus all additional WPS Resources Stock
Units credited to the Stock Account during the
preceding calendar year on account of the assumed
reinvestment of dividends, disregarding for all but
the final installment any fractional WPS Resources
Stock Units. The Committee will then distribute to
the Participant shares of WPS Resources Stock and/or
cash equal to the number of WPS Resources Stock Units
required to be distributed for that year. For any
portion of the distribution that the Committee elects
to satisfy by making a cash payment to the
Participant, the cash payment shall be determined by
multiplying the distribution amount (or the portion of
the distribution amount being satisfied in cash) by
the closing price of WPS Resources Stock on January 21
of the year in which the distribution is being made,
as such share price is
16
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<PAGE>
reported in the Wall Street Journal's New York Stock
Exchange Composite Transactions listing. If January 21
falls on a Saturday, Sunday or holiday, the calculation of
the cash portion of the distributions will be made based
upon the closing price as reported for the immediately
preceding business day.
Section 4.04. Time of Distribution. WPS Resources Stock distributed to
-----------------------------------
a Participant shall be distributed on January 22 (or if January 22 falls on a
Saturday, Sunday or holiday, the immediately following business day). For
distribution and tax reporting purposes, the value of WPS Resources Stock
distributed shall equal the number of shares distributed multiplied by the
closing price of WPS Resources Stock on January 21 (or if January 21 falls on
a Saturday, Sunday or holiday, the immediately preceding business day) of the
year in which the distribution is being made as reported in the Wall Street
Journal's New York Stock Exchange Composite Transaction listing. The cash
portion of any distribution will be made no later than March 1 of the year for
which the distribution is being made.
Section 4.05. Other Distribution Rules. (a) Subject to adjustment as
---------------------------------------
provided in paragraph (c) of this Section 4.05, the total number of authorized
but previously unissued shares of WPS Stock which may be distributed to
Participants pursuant to the Plan shall be one hundred thousand (100,000),
which number shall not be reduced by or as a result of (i) any cash
distributions pursuant to the Plan or (ii) the distribution to Participants
pursuant to the Plan of any outstanding shares of WPS Stock purchased by or on
behalf of the Trust.
(b) The amount actually distributed to the Participant will be
reduced by applicable income tax withholding. Unless the Participant has made
a contrary election, income tax on the entire annual distribution amount will
be withheld from the cash portion of the distribution, and WPS Resources Stock
will be used to satisfy withholding obligations only to the extent that the
cash portion of the distribution is insufficient for this purpose.
(c) In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, split-up, share
combination or other change in the corporate structure of the Company or a
Participating Employer affecting WPS Stock, such adjustment shall be made in
the number and class of shares which may be distributed pursuant to the Plan
as may be determined to be appropriate and equitable by the Compensation
Committee in its sole discretion.
17
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<PAGE>
ARTICLE V. SPECIAL DEATH BENEFIT FOR PARTICIPANTS
WHO DIE WHILE MAKING VOLUNTARY AND MANDATORY DEFERRALS
Section 5.01. Eligibility. If an Executive who is identified in
--------------------------
Schedule B (as from time to time amended by the Compensation Committee) dies
prior to attainment of age sixty-five (65) and while employed by a
Participating Employer, and if at the time of the Executive's death Voluntary
or Mandatory Deferrals were being made by or on behalf of the Executive, then
a special death benefit shall be paid to the Executive's Beneficiary. This
special death benefit is in addition to any other death benefit payable under
the Plan.
Section 5.02. Calculation of Special Death Benefit Amount. The special
----------------------------------------------------------
death benefit shall be an amount equal to the lesser of one million dollars
($1,000,000) or the sum of (a), (b), (c) and (d) below.
(a) The difference between (i) the Voluntary Deferrals (not in
excess of twenty percent (20%) of Compensation) and Mandatory Deferrals that
would have been made by or on behalf of the Executive during the month in
which occurs the Executive's death, assuming, for this purpose that the
Executive had lived, and (ii) the Voluntary Deferrals of the Mandatory
Deferrals actually made during such month;
(b) The product obtained by multiplying (i) the Voluntary Deferrals
(not in excess of twenty percent (20%) of Compensation) and Mandatory
Deferrals made by or on behalf of the Executive during the month prior to the
month in which occurs the Executive's death, and (ii) the number of full
calendar months, inclusive, from the month following the month in which occurs
the Executive's death to the month preceding the month in which the Executive
would have attained age sixty-two (62) had he lived;
(c) In the event the Executive's birthday is other than the first
day of a calendar month, for the month in which the Executive would have
attained age sixty-two (62), the product obtained by multiplying (i) the
Voluntary Deferrals (not in excess of twenty percent (20%) of Compensation)
and the Mandatory Deferrals made by or on behalf of the Executive during the
month prior to the month in which occurs the Executive's death, and (ii) a
fraction, the numerator of which is the number of days in such month prior to
the Executive's sixty-second (62nd) birthday and the denominator of which is
the total number of days in the month;
(d) A projected earnings factor equal to the amount of interest
equivalent that would have accumulated on the amounts described in (a), (b)
and (c) above. The projected earnings factor shall be calculated using the
interest equivalent rate that was in effect under Reserve Account B for the
month prior to the month in which occurs the Executive's death. The
calculation shall assume that the Voluntary and Mandatory Deferrals described
in (a), (b) and (c) above were credited to Reserve Account B on a monthly
basis assuming that the Executive had lived and continued to make Voluntary
and Mandatory Deferrals. The interest equivalent shall be compounded in the
same manner as the Executive's actual Reserve Account balance, i.e., the
annual interest equivalent calculated as of the end of each Plan Year will be
the sum
18
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<PAGE>
(on a non-compounded basis) of the attributed earnings for each month during
the year based on the Account balance as of the last day of the month.
Section 5.03. Payment of Special Death Benefit. (a) The special death
-----------------------------------------------
benefit calculated in accordance with Section 5.02 above shall be paid to the
Executive's Beneficiary in fifteen (15) annual installments, with the first
installment commencing within sixty (60) days of the Executive's death. The
benefit calculated under Section 5.02 is a fixed amount which does not accrue
earnings or interest equivalent on the undistributed balance.
19
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<PAGE>
ARTICLE VI. SUPPLEMENTAL RETIREMENT BENEFIT
Section 6.01. Supplemental Retirement Benefit. (a) An Executive who
----------------------------------------------
at the time of his retirement or termination of employment is identified in
Schedule C shall be entitled to a supplemental retirement benefit if the
Executive:
(i) retires from a Participating Employer on or after
attainment of age fifty-eight (58); or
(ii) terminates employment with a Participating Employer on
or after the attainment of age fifty (50) provided
that the Executive has completed ten (10) or more
years of service with a Participating Employer; or
(iii) terminates employment with a Participating Employer
prior to satisfaction of the requirements specified in
Section 6.01(a)(i) or (ii) above but with the advance
written approval of the Compensation Committee.
(b) An Executive who at the time of his termination of employment
is identified in Schedule C shall be entitled to a reduced supplemental
benefit if the Executive terminates employment from a Participating Employer
after attainment of age fifty (50) but prior to satisfying the requirements of
Section 6.01(a) above.
Section 6.02. Amount of Supplemental Benefit. (a) An Executive who
---------------------------------------------
qualifies for the supplemental retirement benefit under Section 6.01(a) above
shall receive a monthly amount equal to twenty percent (20%) [in the case of
an Executive identified in Part I of Schedule C] or ten percent (10%) [in the
case of an Executive identified in Part II of Schedule C] of the Executive's
"average monthly compensation".
(b) An Executive who qualifies for the supplemental retirement
benefit under Section 6.01(b) above shall receive a monthly amount equal to
the product obtained by multiplying (i) the monthly benefit determined under
Section 6.02(a) above, by (ii) a fraction, the numerator of which is the
Executive's years of service with a Participating Employer (including
fractional years) and the denominator of which is ten (10).
(c) The Executive's "average monthly compensation" is the
Executive's "compensation", expressed on a monthly basis, during whichever
period of thirty-six (36) consecutive months of employment produces the
highest average. For this purpose, "compensation" shall have the same meaning
as under the Wisconsin Public Service Corporation Administrative Employees'
Retirement Plan with the exception that (i) Voluntary Deferrals and Mandatory
Deferrals made by or on behalf of the Executive during the relevant period
will be included in the Executive's compensation and (ii) the compensation
limitation specified in Section 401(a)(17) of the Internal Revenue Code shall
not apply.
20
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<PAGE>
Section 6.03. Commencement and Duration of Supplemental Retirement
-------------------------------------------------------------------
Benefits. Monthly payments calculated in accordance with Section 6.02 above
- --------
will commence to the Executive with a payment for the month following the
later to occur of (i) the month in which the Executive retires or terminates
employment, or (ii) the month in which the Executive attains age fifty-eight
(58). Monthly payments to the Executive shall continue until the earlier to
occur of (a) the month in which occurs the Executive's death, or (b) one
hundred twenty (120) monthly payments have been made.
Section 6.04. Death After Benefit Commencement But Prior to Receipt of
-----------------------------------------------------------------------
120 Monthly Payments. If the Executive dies after his supplemental retirement
- --------------------
benefit has commenced but before receipt of 120 payments, and if the Executive
leaves a surviving spouse to whom the Executive was lawfully married on the
date of his death, the surviving spouse shall receive monthly payments equal
to fifty percent (50%) of the amount of the benefit that was being paid to the
Executive. This benefit will commence with a payment for the month following
the month in which occurs the death of the Executive and shall continue until
the earlier to occur of (a) the month in which occurs the death of the
surviving spouse, or (b) a total of one hundred twenty (120) monthly payments
have been made to either the Executive or the surviving spouse.
Section 6.05. Death Prior to Benefit Commencement. If the Executive
--------------------------------------------------
dies prior to commencement of his supplemental retirement benefit, and if the
Executive leaves a surviving spouse to whom the Executive was lawfully married
on the date of his death, the surviving spouse shall receive monthly payments
equal to fifty percent (50%) of the amount that would have been paid to the
Executive (disregarding, in the case of an Executive who dies while actively
employed, the age and service conditions described in Section 6.01 above but
with the benefit amount calculated without assuming any salary increases).
This benefit will commence with a payment for the month following the month in
which occurs the death of the Executive and shall continue until the earlier
to occur of (a) the month in which occurs the death of the surviving spouse,
or (b) one hundred twenty (120) monthly payments have been made.
Section 6.06. Special Rules Applicable Upon a Change in Control. In
----------------------------------------------------------------
the event of a Change in Control and unless otherwise waived by the Executive,
an Executive who is identified in Schedule C and who is actively employed on
the Change in Control date shall be entitled to receive a supplemental
retirement benefit whether or not the Executive has satisfied the eligibility
conditions set forth in Section 6.01. The supplemental retirement benefit
shall commence to the Executive with a payment for the month following the
month in which the Executive retires or otherwise terminates employment
following the Change in Control, and shall continue until the earlier to occur
of (a) the Executive's death, or (b) one hundred twenty (120) monthly payments
have been made; provided that the Executive, in accordance with rules
prescribed by the Committee but in no event after the Executive's termination
of employment, may waive the application of this sentence in which case the
rules of Section 6.03 shall govern the distribution of the Executive's
benefit. If the Executive dies after benefit commencement but prior to
receiving one hundred twenty (120) monthly payments, or if the Executive dies
prior to benefit commencement, the provisions of Sections 6.04 and 6.05 shall
apply.
21
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<PAGE>
ARTICLE VII. PROTECTION OF QUALIFIED RETIREMENT PLAN BENEFIT
Section 7.01. Pension Equalization Benefit. (a) In the case of an
-------------------------------------------
Executive who is identified on Schedule D ( as from time to time amended by
the Compensation Committee) and who participates in the Wisconsin Public
Service Corporation Administrative Employees' Retirement Plan ("Retirement
Plan"), a monthly benefit shall be paid to the Executive during his lifetime,
and if applicable, to his surviving spouse following the Executive's death, a
monthly amount equal to the difference between:
(i) The monthly benefit that would have been payable to or
on behalf of the Participant under the Retirement Plan
had the Participant's (A) compensation for Retirement
Plan purposes been calculated prior to reduction for
Voluntary and Mandatory Deferrals made to this Plan
and without regard to the compensation limitation
described in Section 401(a)(17) of the Code, and (B)
benefit been calculated without regard to the maximum
benefit limitation described in Section 415 of the
Internal Revenue Code; and
(ii) The monthly benefit actually payable to or on behalf
of the Executive under the Retirement Plan.
(b) Payments under this Section 7.01 shall cease when all benefits
payable to or on behalf of the Executive under the Retirement Plan are
discontinued.
22
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<PAGE>
ARTICLE VIII. RULES WITH RESPECT TO WPS RESOURCES STOCK
AND WPS RESOURCES STOCK UNITS
Section 8.01. Transactions Affecting WPS Resources Stock. In the
---------------------------------------------------------
event of any merger, share exchange, reorganization, consolidation,
recapitalization, stock dividend, stock split or other change in corporate
structure affecting WPS Resources Stock, appropriate adjustments shall be made
to the WPS Resources Stock Units (if any) credited to the Stock Account of
each Participant.
Section 8.02. No Shareholder Rights With Respect to WPS Resources Stock
------------------------------------------------------------------------
Units. Participants shall have no rights as a stockholder pertaining to
- -----
WPS Resources Stock Units credited to their Stock Account. No WPS Resources
Stock Unit nor any right or interest of a Participant under the Plan in any
WPS Resources Stock Unit may be assigned, encumbered, or transferred, except
by will or the laws of descent and distribution. The rights of a Participant
hereunder with respect to any WPS Resources Stock Unit are exercisable during
the Participant's lifetime only by him or his guardian or legal
representative.
23
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<PAGE>
ARTICLE IX. PARTICIPATING EMPLOYERS
Section 9.01. Responsibility for Benefits. Each Participating Employer
------------------------------------------
shall be responsible for providing all benefits under the Plan that became
payable to a Participant who is or was employed by (or serves or served on the
board of directors of) that Participating Employer. To the extent that a
Participant is or was employed by two or more Participating Employers, each
such Participating Employer shall be responsible for providing the portion of
the Participant's benefits accrued while in the employ of that employer.
24
-290-
<PAGE>
ARTICLE X. PROVISIONS
Section 10.01. Administration. The Compensation Committee shall
------------------------------
administer and interpret the Plan and supervise preparation of Participant
elections, forms, and any amendments thereto. To the extent necessary to
comply with applicable conditions of Rule 16b-3, the Compensation Committee
shall consist of not less than two members of the Board, each of whom is also
a director of Parent and qualifies as a "non-employee director" for purposes
of Rule 16b-3. If at any time the Compensation Committee shall not be in
existence or not be composed of members of the Board who qualify as
"non-employee directors", then all determinations affecting Participants who
are subject to Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act") shall be made by the full Board. The Board may, in its
discretion, delegate to the Secretary or another committee of the Board any or
all of the authority and responsibility of the Compensation Committee with
respect to participation by Participants other than Participants who are
subject to Section 16 of the Exchange Act at the time any such delegated
authority or responsibility is exercised. Interpretation of the Plan shall be
within the sole discretion of the Compensation Committee and shall be final
and binding upon each Participant and Beneficiary. The Compensation
Committee, and the Secretary with respect to matters assigned to him under
this Plan or delegated to him by the Compensation Committee, may adopt and
modify rules and regulations relating to the Plan as it deems necessary or
advisable for the administration of the Plan. If the Secretary shall also be
a Participant or Beneficiary, any determinations affecting the Secretary's
participation in the Plan shall be made by the Compensation Committee.
Section 10.02. Compliance With Securities Exchange Act. Transactions
-------------------------------------------------------
under the Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successor under the Exchange Act. The Plan shall be administered
by the Compensation Committee so that transactions under the Plan will be
exempt from Section 16 of the Exchange Act pursuant to regulations and
interpretations issued from time to time by the Securities and Exchange
Commission.
Section 10.03. Participant Rights Unsecured. (a) The right of a
--------------------------------------------
Participant or his Beneficiary to receive a distribution hereunder shall be an
unsecured claim, and neither the Participant nor any Beneficiary shall have
any rights in or against any amount credited to his Account or any other
specific assets of a Participating Employer. The right of a Participant or
Beneficiary to the payment of benefits under this Plan shall not be assigned,
encumbered, or transferred, except by will or the laws of descent and
distribution. The rights of a Participant hereunder are exercisable during
the Participant's lifetime only by him or his guardian or legal
representative.
(b) The Company may authorize the creation of a trust or other
arrangements to assist in meeting the obligations created under the Plan.
However, any liability to any person with respect to the Plan shall be based
solely upon any contractual obligations that may be created pursuant to the
Plan. No obligation of a Participating Employer shall be deemed to be secured
by any pledge of, or other encumbrance on, any property of a Participating
Employer.
25
-291-
<PAGE>
Nothing contained in this Plan and no action taken pursuant to its
terms shall create or be construed to create a trust of any kind, or a
fiduciary relationship between a Participating Employer and any Participant or
Beneficiary, or any other person.
(c) If, after a Change in Control, (i) a dispute arises with
respect to the enforcement of the Participant's rights under the Plan, or (ii)
any legal proceeding shall be brought to enforce or interpret any provision
contained in the Plan or to recover damages for breach of the Plan, in either
case so long as the Participant is not acting in bad faith or otherwise
pursuing a course of action that a reasonable person would determine to be
frivolous, the Participant shall recover from the Company any reasonable
attorneys' fees and necessary costs and disbursements incurred as a result of
such dispute or legal proceeding ("Expenses"), and prejudgment interest on
any money judgment obtained by the Participant calculated at the rate of
interest announced by Firstar Bank Milwaukee, Milwaukee, Wisconsin (or any
successor thereto), from time to time as its prime or base lending rate from
the date that payments to the Participant should have been made under this
Plan. Within ten (10) days after the Participant's written request therefor,
the Company shall pay to the Participant, or such other person or entity as
the Participant may designate in writing to the Company, the Participant's
Expenses in advance of the final disposition or conclusion of any such dispute
or legal proceeding. In the case of a deceased Participant, this Section
10.03(c) shall apply with respect to the Participant's Beneficiary or estate.
Section 10.04. Income Tax Withholding. Subject to Section 4.04(c), no
--------------------------------------
later than the date as of which an amount first becomes includible in the
gross income of the Participant for Federal income tax purposes, the
Participant shall pay or make arrangements satisfactory to the Compensation
Committee regarding the payment of, any Federal, state, local or foreign taxes
of any kind required by law to be withheld with respect to such amount.
Section 10.05. Establishment, Amendment or Termination of Plan.
---------------------------------------------------------------
(a) There shall be no time limit on the duration of the Plan.
Except as provided in Section 10.05(b) below, the Board (or where specified
herein, the Compensation Committee) may at any time amend or terminate the
Plan; provided, however, that no amendment or termination may reduce or
eliminate any Account balance accrued or credited on behalf of a Participant
based on Mandatory Deferrals, Voluntary Deferrals and Bonus Deferrals already
made or reduce or eliminate benefits accrued or credited based upon service
already rendered.
(b) Upon and following the occurrence of a Change in Control:
(i) The Board may at any time amend the Plan consistent
with Section 10.05(a) to (A) modify the terms and
conditions applicable to (or otherwise eliminate)
Bonus Deferrals, Mandatory Deferrals and Voluntary
Deferrals made (or that in the absence of the
amendment would have been made) on or after the
Amendment Date, or (B) modify the terms and conditions
applicable to (or otherwise eliminate) the accrual of
benefits, with respect
26
-292-
<PAGE>
to periods on or after the Amendment Date, under the
supplemental benefits described in Articles VI and VII of
the Plan.
(ii) Any amendment to the Plan or action to terminate the
Plan that is not described in Section 10.05(b)(i)
above, including, without limitation, an amendment
that would affect the crediting of interest equivalent
with respect to Bonus Deferrals, Mandatory Deferrals
and Voluntary Deferrals made prior to the Amendment
Date and any amendment that would affect the
supplemental benefits described in Articles VI and VII
that have accrued through the Amendment Date, shall be
effective only with the written consent of the
Participant (or in the case of a deceased Participant,
the Participant's Beneficiary).
(c) The term "Amendment Date" means the date on which an amendment
to the Plan is validly adopted or the date on which the amendment is or
purports to be effective, whichever is later.
Section 10.06. Administrative Expenses. Costs of establishing and
---------------------------------------
administering the Plan will be paid by the Participating Employers.
Section 10.07. Effect on Other Employee Benefit Plans. Voluntary
------------------------------------------------------
Deferrals, Mandatory Deferrals and Bonus Deferrals credited to a Participant's
Account under this Plan shall not be considered "compensation" for the purpose
of computing benefits under any qualified retirement plan maintained by a
Participating Employer, but shall be considered compensation for welfare
benefit plans, such as life and disability insurance programs sponsored by a
Participating Employer.
Section 10.08. Successor and Assigns. This Plan shall be binding upon
-------------------------------------
and inure to the benefit of the Company and Participating Employers, their
successors and assigns and the Participants and their heirs, executors,
administrators, and legal representatives.
Section 10.09. Maximum Payment Limitation. Notwithstanding any other
------------------------------------------
provision of this Plan, if any portion of the payments or benefits described
in this Plan or under any other agreement with or plan of the Company (in the
aggregate, "Total Payments"), would constitute an "excess parachute payment",
then the Total Payments to be made to the Participant shall be reduced such
that the value of the aggregate Total Payments that the Participant is
entitled to receive shall be one dollar ($1) less than the maximum amount
which the Participant may receive without becoming subject to the tax imposed
by Section 4999 of the Code (or any successor provision) or which the Company
may pay without loss of deduction under Section 280G(a) of the Code (or any
successor provision); provided that this Section 10.09 shall not apply in the
case of a Participant who has in effect a valid employment contract providing
that the Total Payments to the Participant shall be determined without regard
to the maximum amount allowable under Section 280G of the Code (or any
successor provision). The terms
27
-293-
<PAGE>
"excess parachute payment" and "parachute payment" shall have the meanings
assigned to them in Section 280G of the Code (or any successor provision), and
such "parachute payments" shall be valued as provided therein. Present value
shall be calculated in accordance with Section 280G(d)(4) of the Code (or any
successor provision). Within forty days following delivery of notice by the
Company to the Participant of its belief that there is a payment or benefit
due the Participant which will result in an excess parachute payment as
defined in Section 280G of the Code (or any successor provision), the
Participant and the Company, at the Company's expense, shall obtain the
opinion (which need not be unqualified) of nationally recognized tax counsel
selected by the Company's independent auditors and acceptable to the
Participant in his sole discretion (which may be regular outside counsel to
the Company), which opinion sets forth (A) the amount of the Base Period
Income, (B) the amount and present value of Total Payments and (C) the amount
and present value of any excess parachute payments determined without regard
to the limitations of this Section 10.09. As used in this Section 10.09, the
term "Base Period Income" means an amount equal to the Participant's
"annualized includible compensation for the base period" as defined in Section
280G(d)(1) of the Code (or any successor provision). For purposes of such
opinion, the value of any noncash benefits or any deferred payment or benefit
shall be determined by the Company's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code (or any successor
provisions), which determination shall be evidenced in a certificate of such
auditors addressed to the Company and the Participant. Such opinion shall be
addressed to the Company and the Participant and shall be binding upon the
Company and the Participant. If such opinion determines that there would be
an excess parachute payment, the payments hereunder that are includible in
Total Payments or any other payment or benefit determined by such counsel to
be includible in Total Payments shall be reduced or eliminated as specified by
the Participant in writing delivered to the Company within thirty days of his
receipt of such opinion or, if the Participant fails to so notify the Company,
then as the Company shall reasonably determine, so that under the bases of
calculations set forth in such opinion there will be no excess parachute
payment. If such legal counsel so requests in connection with the opinion
required by this Section 10.09, the Participant and the Company shall obtain,
at the Company's expense, and the legal counsel may rely on in providing the
opinion, the advice of a firm of recognized executive compensation consultants
as to the reasonableness of any item of compensation to be received by the
Participant. If the provisions of Sections 280G and 4999 of the Code (or any
successor provisions) are repealed without succession, then this Section 10.09
shall be of no further force or effect.
28
-294-
<PAGE>
<TABLE>
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
WPS RESOURCES CORPORATION
<CAPTION>
============================================================================================================
INFORMATION WITH RESPECT TO THE COMPUTATION
OF EARNINGS PER SHARE OF COMMON STOCK Three Months Ended Twelve Months Ended
(Thousands) December 31 December 31
1998 1997 1998 1997
============================================================================================================
<S> <C> <C> <C> <C>
Shares of common stock at beginning of period 26,506 26,522 26,518 26,538
Shares of common stock purchased for deferred
compensation trust -
Date of deferred Number
compensation trust purchase of Shares
- --------------------------- ---------
January 20, 1998 1 1
February 23, 1998 1 1
March 23, 1998 2 2
April 20, 1998 1 1
May 20, 1998 1 1
June 23, 1998 2 2
July 20, 1998 1 1
August 21, 1998 1 1
September 21, 1998 2 2
October 20, 1998 1 1 1
November 20, 1998 1 1 1
December 22, 1998 2 2 2
January 20, 1997 2 2
February 20, 1997 1 1
March 20, 1997 2 2
April 21, 1997 2 2
May 20, 1997 2 2
June 20, 1997 2 2
July 21, 1997 2 2
August 20, 1997 1 1
September 23, 1997 2 2
October 21, 1997 1 1 1
November 20, 1997 1 1 1
December 22, 1997 1 1 1
- ------------------------------------------------------------------------------------------------------------
Shares of common stock at end of period 26,502 26,519 26,502 26,519
============================================================================================================
Computation of daily weighted average
shares:
Shares of common stock at
beginning of period -
Number Number
of of
Days Shares
------ ------
December 31, 1997 20 26,522 530,440
December 31, 1997 19 26,538 504,222
December 31, 1998 19 26,506 503,614
December 31, 1998 19 26,518 503,842
Shares of common stock after
purchase for deferred compensation trust -
Number Number
of of
Days Shares
------ ------
December 31, 1997 31 26,536 822,616
December 31, 1997 28 26,534 742,952
December 31, 1997 32 26,532 849,024
December 31, 1997 29 26,531 769,399
December 31, 1997 31 26,529 822,399
December 31, 1997 31 26,527 822,337
December 31, 1997 30 26,525 795,750
December 31, 1997 34 26,524 901,816
December 31, 1997 28 26,522 742,616
December 31, 1997 30 26,521 795,630 795,630
December 31, 1997 32 26,520 848,640 848,640
December 31, 1997 10 26,519 265,190 265,190
December 31, 1998 34 26,517 901,578
December 31, 1998 28 26,516 742,448
December 31, 1998 28 26,514 742,392
December 31, 1998 30 26,513 795,390
December 31, 1998 34 26,512 901,408
December 31, 1998 27 26,510 715,770
December 31, 1998 32 26,509 848,288
December 31, 1998 31 26,508 821,748
December 31, 1998 29 26,506 768,674
December 31, 1998 31 26,505 821,655 821,655
December 31, 1998 32 26,504 848,128 848,128
December 31, 1998 10 26,502 265,020 265,020
- ------------------------------------------------------------------------------------------------------------
Total days - weighted 2,438,417 2,439,900 9,676,341 9,682,591
============================================================================================================
Average number of shares of common
stock based on daily
weighted average computations 26,505 26,521 26,511 26,528
============================================================================================================
Earnings on common stock, as set forth
in statements of income $6,415 $12,657 $46,631 $55,809
============================================================================================================
Earnings per share of common stock based on
weighted average shares $0.24 $0.47 $1.76 $2.10
============================================================================================================
</TABLE>
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<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Status as of
Name Incorporation December 31, 1998(6)
- -------------------------------------- ------------- --------------------
Wisconsin Public Service
Corporation (1) Wisconsin Active
WPS Leasing, Inc. (2) Wisconsin Active
WPS Energy Services, Inc. (1) Wisconsin Active
WPS Power Development, Inc. (1) Wisconsin Active
WPS Visions, Inc. (1) Wisconsin Active
PDI Operations, Inc. (3) Wisconsin Active
PDI Stoneman, Inc. (3) Wisconsin Active
Upper Peninsula Power Company (1) Michigan Active
Upper Peninsula Building
Development Company (1) Michigan Active
Penvest, Inc. (1) Michigan Active
Wisconsin Woodgas LLC (3) Wisconsin Active
PDI New England, Inc. (3) Wisconsin Active
PDI Canada, Inc. (3) Wisconsin Active
Mid-American Power, LLC (4) Wisconsin Active
ECO Coal Pelletization #12, LLC (5) Wisconsin Active
WPSR Capital Trust I (1) Delaware Active
- ----------------
(1) Wholly-owned subsidiary of WPS Resources Corporation.
(2) Wholly-owned subsidiary of Wisconsin Public Service Corporation.
(3) Wholly-owned subsidiary of WPS Power Development, Inc.
(4) PDI Stoneman, Inc. owns 66-2/3% of this subsidiary.
(5) WPS Power Development, Inc. owns 66-2/3% of this subsidiary.
(6) WPS Resources Capital Corporation, a wholly-owned subsidiary of
WPS Resources Corporation, was formed on January 12, 1999 and became the
parent of WPS Energy Services, Inc. and WPS Power Development, Inc.
Additionally, WPS Nuclear Corporation, a wholly-owned subsidiary of
WPS Resources Corporation, was formed on February 23, 1999.
-296-
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K into WPS Resources Corporation's
previously filed Registration Statement Files No. 33-47172, No. 33-61991,
No. 33-65167, and No. 333-63101, and Wisconsin Public Service Corporation's
previously filed Registration Statement Files No. 33-35050 and No. 333-67979.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 24, 1999
-297-
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 1999 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and F. J. Kicsar or any one of them, as
attorney, with full power to act for the undersigned and in the name, place
and stead of the undersigned, to sign the name of the undersigned as Director
to said annual report on Form 10-K and any and all amendments to said annual
report, hereby ratifying and confirming all that said attorney may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
24th day of March, 1999.
(SEAL)
/s/ A. Dean Arganbright
------------------------
Director
-298-
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 1999 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and F. J. Kicsar or any one of them, as
attorney, with full power to act for the undersigned and in the name, place
and stead of the undersigned, to sign the name of the undersigned as Director
to said annual report on Form 10-K and any and all amendments to said annual
report, hereby ratifying and confirming all that said attorney may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
24th day of March, 1999.
(SEAL)
/s/ Michael S. Ariens
------------------------
Director
-299-
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 1999 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and F. J. Kicsar or any one of them, as
attorney, with full power to act for the undersigned and in the name, place
and stead of the undersigned, to sign the name of the undersigned as
Director to said annual report on Form 10-K and any and all amendments to said
annual report, hereby ratifying and confirming all that said attorney may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
24th day of March, 1999.
(SEAL)
/s/ Richard A. Bemis
------------------------
Director
-300-
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 1999 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and F. J. Kicsar or any one of them, as
attorney, with full power to act for the undersigned and in the name, place
and stead of the undersigned, to sign the name of the undersigned as
Director to said annual report on Form 10-K and any and all amendments to said
annual report, hereby ratifying and confirming all that said attorney may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
24th day of March, 1999.
(SEAL)
/s/ Daniel A. Bollom
------------------------
Director
-301-
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 1999 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and F. J. Kicsar or any one of them, as
attorney, with full power to act for the undersigned and in the name, place
and stead of the undersigned, to sign the name of the undersigned as
Director to said annual report on Form 10-K and any and all amendments to said
annual report, hereby ratifying and confirming all that said attorney may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
24th day of March, 1999.
(SEAL)
/s/ M. Lois Bush
------------------------
Director
-302-
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 1999 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and F. J. Kicsar or any one of them, as
attorney, with full power to act for the undersigned and in the name, place
and stead of the undersigned, to sign the name of the undersigned as
Director to said annual report on Form 10-K and any and all amendments to said
annual report, hereby ratifying and confirming all that said attorney may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
24th day of March, 1999.
(SEAL)
/s/ Clarence R. Fisher
------------------------
Director
-303-
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 1999 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and F. J. Kicsar or any one of them, as
attorney, with full power to act for the undersigned and in the name, place
and stead of the undersigned, to sign the name of the undersigned as
Director to said annual report on Form 10-K and any and all amendments to said
annual report, hereby ratifying and confirming all that said attorney may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
24th day of March, 1999.
(SEAL)
/s/ Robert C. Gallagher
------------------------
Director
-304-
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 1999 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and F. J. Kicsar or any one of them, as
attorney, with full power to act for the undersigned and in the name, place
and stead of the undersigned, to sign the name of the undersigned as
Director to said annual report on Form 10-K and any and all amendments to said
annual report, hereby ratifying and confirming all that said attorney may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
24th day of March, 1999.
(SEAL)
/s/ Kathryn Hasselblad-Pascale
-----------------------------
Director
-305-
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, WPS RESOURCES CORPORATION, a Wisconsin corporation
(hereinafter referred to as "WPSR") and WISCONSIN PUBLIC SERVICE CORPORATION,
a Wisconsin corporation (hereinafter referred to as "WPSC"), will file on or
before the due date of March 31, 1999 with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, a
combined annual report on Form 10-K, and
WHEREAS, the undersigned is a Director of WPSR and WPSC;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
L. L. Weyers, P. D. Schrickel, and F. J. Kicsar or any one of them, as
attorney, with full power to act for the undersigned and in the name, place
and stead of the undersigned, to sign the name of the undersigned as
Director to said annual report on Form 10-K and any and all amendments to said
annual report, hereby ratifying and confirming all that said attorney may or
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this document this
24th day of March, 1999.
(SEAL)
/s/ James L. Kemerling
------------------------
Director
-306-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000916863
<NAME> WPS RESOURCES CORPORATION
<SUBSIDIARY>
<NUMBER> 1
<NAME> WISCONSIN PUBLIC SERVICE CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,010,158
<OTHER-PROPERTY-AND-INVEST> 41,235
<TOTAL-CURRENT-ASSETS> 240,712
<TOTAL-DEFERRED-CHARGES> 70,041
<OTHER-ASSETS> 148,241
<TOTAL-ASSETS> 1,510,387
<COMMON> 26,551
<CAPITAL-SURPLUS-PAID-IN> 163,438
<RETAINED-EARNINGS> 327,201
<TOTAL-COMMON-STOCKHOLDERS-EQ> 517,190
0
51,200
<LONG-TERM-DEBT-NET> 343,037
<SHORT-TERM-NOTES> 12,703
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 47,590
<LONG-TERM-DEBT-CURRENT-PORT> 884
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 537,783
<TOT-CAPITALIZATION-AND-LIAB> 1,510,387
<GROSS-OPERATING-REVENUE> 1,063,736
<INCOME-TAX-EXPENSE> 23,445
<OTHER-OPERATING-EXPENSES> 963,692
<TOTAL-OPERATING-EXPENSES> 963,692<F1>
<OPERATING-INCOME-LOSS> 100,044<F2>
<OTHER-INCOME-NET> 2,678
<INCOME-BEFORE-INTEREST-EXPEN> 102,722<F3>
<TOTAL-INTEREST-EXPENSE> 30,125
<NET-INCOME> 49,763<F4>
3,132
<EARNINGS-AVAILABLE-FOR-COMM> 46,631
<COMMON-STOCK-DIVIDENDS> 50,985
<TOTAL-INTEREST-ON-BONDS> 26,879
<CASH-FLOW-OPERATIONS> 109,711
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.76
<FN>
<F1>Operating expenses exclude income taxes of $23,445.
<F2>Operating income is before income taxes of $23,445.
<F3>Income before interest expense is before income taxes of $23,445.
<F4>Net income includes deduction for minority interest of $(611).
</FN>
<PAGE>
</TABLE>
