-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q85ndRHCRXxNZ3nFQAEhyjEVHjJZlVnA1H+hJyfZRiZksNP7qHE/7Y5C6k3++DK0 Fibr3hepdKHMBPwDzXF0Mg== 0000897069-98-000262.txt : 19980506 0000897069-98-000262.hdr.sgml : 19980506 ACCESSION NUMBER: 0000897069-98-000262 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19980421 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980505 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERSTATE ENERGY CORP CENTRAL INDEX KEY: 0000352541 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 391380265 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-09894 FILM NUMBER: 98610772 BUSINESS ADDRESS: STREET 1: 222 W WASHINGTON AVE CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082523311 MAIL ADDRESS: STREET 1: P O BOX 2568 CITY: MADISON STATE: WI ZIP: 53701-2568 FORMER COMPANY: FORMER CONFORMED NAME: WPL HOLDINGS INC DATE OF NAME CHANGE: 19920703 8-K 1 INTERSTATE ENERGY COPORATION SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________ FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 _______________________ Date of Report (Date of earliest event reported): April 21, 1998 Interstate Energy Corporation (Exact name of registrant as specified in its charter) Wisconsin 1-9894 39-1380265 (State or other (Commission File (IRS Employer jurisdiction of Number) Identification No.) incorporation) 222 West Washington Avenue, Madison, Wisconsin 53703 (Address of principal executive offices, including zip code) (608) 252-3311 (Registrant's telephone number) WPL Holdings, Inc. (Former name or former address, if changed since last report) Item 2. Acquisition or Disposition of Assets. On April 21, 1998, following receipt of final regulatory approval, the three-way business combination (the "Merger") between WPL Holdings, Inc., a holding company incorporated under the laws of the State of Wisconsin ("WPLH"), IES Industries Inc., a holding company incorporated under the laws of the State of Iowa ("IES"), and Interstate Power Company, an operating public utility incorporated under the laws of the State of Delaware ("IPC"), was consummated in accordance with the terms of an Agreement and Plan of Merger, dated as of November 10, 1995 (as amended on May 22, 1996 and August 16, 1996) by and among WPLH, IES and IPC, among others (the "Merger Agreement"). In the Merger, WPLH, as the surviving holding company, changed its name to Interstate Energy Corporation (the "Company") and is currently doing business as Alliant Corporation. Pursuant to the terms of the Merger Agreement, IES was merged with and into the Company and each outstanding share of IES common stock was converted into the right to receive 1.14 shares of Company common stock. Similarly, an acquisition subsidiary of the Company was merged with and into IPC (with IPC as the surviving corporation) and each outstanding share of IPC common stock was converted into the right to receive 1.11 shares of Company common stock. At the effective time of the Merger, there were 30,761,923 and 9,768,907 shares of IES common stock and IPC common stock outstanding, respectively. All outstanding shares of WPLH common stock remain unchanged and outstanding as shares of Company common stock following the Merger. In this Current Report on Form 8-K, unless the context otherwise requires, all references to the Company's common stock include the rights to purchase shares of such common stock pursuant to the terms of the Rights Agreement between the Company and Morgan Shareholders Services Trust Company, as Rights Agent thereunder, dated as of February 22, 1989. As a result of the Merger, IES Utilities Inc. and IPC joined Wisconsin Power and Light Company as the operating public utility subsidiaries of the Company. The outstanding shares of preferred stock of IES Utilities Inc., IPC and Wisconsin Power and Light Company were unaffected by the Merger. In connection with the Merger, the Company filed an application to become and is now a registered public utility holding company under the Public Utility Holding Company Act of 1935, as amended. The Merger will be accounted for as a pooling of interests for accounting purposes. Following consummation of the Merger, the holding companies for the nonregulated businesses of the Company and IES were merged. The resulting company, known as Alliant Industries Inc., is now the parent holding company of substantially all of the Company's nonregulated businesses. The Merger Agreement and the amendments thereto are filed as exhibits to this Current Report on Form 8-K and are incorporated herein by reference. The discussion above is qualified in its entirety by reference to that agreement and the amendments thereto. In connection with the Merger, the Company entered into employment agreements (the "Employment Agreements") with (i) Lee Liu, who will serve as Chairman of the Board of the Company; and (ii) Erroll B. Davis, Jr., who will serve as President and Chief Executive Officer of the Company and as Chief Executive Officer of the Company's subsidiaries. It is anticipated that the Company will also enter into a consulting agreement with Wayne H. Stoppelmoor, who will serve as Vice Chairman of the Company. In addition, IPC entered into an employment agreement with Michael R. Chase, who will serve as President of IPC. The Employment Agreements are filed as exhibits to this Current Report on Form 8-K and are incorporated herein by reference. Pursuant to the terms of the Merger Agreement, the Board of Directors of the Company was reconstituted. The current directors of the Company are: Alan B. Arends Milton E. Neshek Erroll B. Davis, Jr. Jack R. Newman Rockne G. Flowers Judith D. Pyle Joyce L. Hanes Robert D. Ray Lee Liu David Q. Reed Katharine C. Lyall Robert W. Schlutz Arnold M. Nemirow Wayne H. Stoppelmoor Anthony R. Weiler The current executive officers of the Company are: Erroll B. Davis, Jr. - President and Chief Executive Officer William D. Harvey - Executive Vice President-Generation Thomas M. Walker - Executive Vice President and Chief Financial Officer Michael R. Chase - Executive Vice President- Corporate Services James E. Hoffman - Executive Vice President- Business Development Eliot G. Protsch - Executive Vice President-Energy Delivery John E. Ebright - Vice President-Controller Edward M. Gleason - Vice President, Treasurer and Corporate Secretary Donald D. Jannette - Assistant Corporate Secretary John E. Kratchmer - Assistant Controller Susan J. Kosmo - Assistant Controller Item 7. Financial Statements and Exhibits. (a) Financial Statements of Businesses Acquired (1) IES Industries Inc. Audited Consolidated Financial Statements (incorporated by reference to IES Industries Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (Commission File No. 1-9187)): Report of Independent Public Accountants Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995 Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements (2) Interstate Power Company Audited Financial Statements (incorporated by reference to Interstate Power Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (Commission File No. 1-3632)): Report of Independent Auditors Statements of Income for the years ended December 31, 1997, 1996 and 1995 Balance Sheets as of December 31, 1997 and 1996 Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 Notes to Financial Statements (b) Pro Forma Financial Information The unaudited pro forma financial information included herein relates to the three-way business combination (the "Merger") between WPL Holdings, Inc., a holding company incorporated under the laws of the State of Wisconsin ("WPLH"), IES Industries Inc., a holding company incorporated under the laws of the State of Iowa ("IES"), and Interstate Power Company, an operating public utility incorporated under the laws of the State of Delaware ("IPC"), which was consummated on April 21, 1998. In the Merger, WPLH, as the surviving holding company, changed its name to Interstate Energy Corporation (the "Merged Company") and is currently doing business as Alliant Corporation. The unaudited pro forma combined balance sheet at December 31, 1997 gives effect to the Merger as if it had occurred on December 31, 1997. The unaudited pro forma combined statements of income for each of the three years in the period ended December 31, 1997 gives effect to the Merger as if it had occurred on January 1, 1995. These statements are prepared on the basis of accounting for the Merger as a pooling of interests and are based on the assumptions set forth in the notes thereto. In addition, the pro forma financial information does not give effect to the expected synergies resulting from the Merger or the costs to be incurred to achieve such synergies. The pro forma financial information, however, does reflect the transition costs to effect the Merger. The historical data for WPLH have been adjusted to reflect the restatement of such data to account for certain discontinued operations as discussed in Note 6. The following pro forma financial information has been prepared from, and should be read in conjunction with, the historical consolidated financial statements and related notes thereto of WPLH, IES and IPC. The following information is not necessarily indicative of the financial position or operating results that would have occurred had the Merger been consummated on the date, or at the beginning of the period, for which the Merger is being given effect nor is it necessarily indicative of future operating results or financial position.
INTERSTATE ENERGY CORPORATION UNAUDITED PRO FORMA COMBINED BALANCE SHEET 12/31/97 (In thousands) Pro Forma ASSETS WPLH IES IPC Adjustments Pro Forma (As Reported) (As Reported) (As Reported) (See Note 1) Combined UTILITY PLANT Electric $1,790,641 $2,072,866 $869,715 $- $4,733,222 Gas 237,856 187,098 70,201 - 495,155 Other 220,679 145,716 - - 366,395 ----------- --------- -------- -------- ---------- Total 2,249,176 2,405,680 939,916 - 5,594,772 Less: Accumulated provision for depreciation 1,065,726 1,115,261 450,595 - 2,631,582 Construction work in progress 42,312 38,923 5,276 - 86,511 Nuclear fuel--net 19,046 36,731 - - 55,777 ---------- -------- -------- --------- ---------- Net utility plant 1,244,808 1,366,073 494,597 - 3,105,478 OTHER PROPERTY, PLANT AND EQUIPMENT ---NET AND OTHER INVESTMENTS 139,548 319,657 4,746 (125) 463,826 CURRENT ASSETS Cash and cash equivalents 13,987 10,143 2,897 302 27,329 Accounts receivable --- net 78,082 52,295 27,061 12,489 169,927 Fossil fuel inventories, at average cost 18,857 10,579 11,220 - 40,656 Materials and supplies, at average cost 19,274 24,274 6,297 - 49,845 Prepayments and other 42,808 69,920 15,035 (3,278) 124,485 --------- ---------- -------- ------- -------- Total current assets 173,008 167,211 62,510 9,513 412,242 EXTERNAL DECOMMISSIONING FUND 112,356 77,882 - - 190,238 INVESTMENT IN MCLEODUSA INC. 0 326,582 1,440 - 328,022 DEFERRED CHARGES AND OTHER 192,087 199,814 75,456 (15,442) 451,915 ---------- --------- -------- ------- --------- TOTAL ASSET $1,861,807 $2,457,219 $638,749 ($6,054) $4,951,721 ========== ========= ======== ======= ========= CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Stock Equity: Common stock $308 $- $34,163 ($33,706) $765 Other stockholders' equity 607,275 818,133 181,457 23,204 1,630,069 ---------- -------- -------- -------- --------- Total common stock equity 607,583 818,133 215,620 (10,502) 1,630,834 Preferred stock not mandatorily redeemable 59,963 18,320 10,819 - 89,102 Preferred stock mandatory sinking fund - - - - 24,267 Long-term debt---net 457,520 845,189 165,194 - 1,467,903 ---------- -------- -------- -------- ---------- Total capitalization 1,125,066 1,681,642 415,900 (10,502) 3,212,106 CURRENT LIABILITIES Current maturities, sinking funds, and capital lease obligations 11,528 13,684 6,314 - 31,526 Commercial paper, notes payable and other 123,095 - 33,500 - 156,595 Variable rate demand bonds 56,975 - - - 56,975 Accounts payable and accruals 91,175 78,702 13,208 9,549 192,634 Taxes accrued 412 62,432 16,014 65 78,923 Other accrued liabilities 55,987 67,174 12,445 15,532 151,138 --------- -------- -------- --------- ---------- Total current liabilities 339,172 221,992 81,481 25,146 667,791 OTHER LIABILITIES Deferred income taxes 253,519 372,837 104,670 (2,800) 728,226 Deferred investment tax credits 35,039 31,838 15,985 - 82,862 Accrued environmental remediation costs 9,238 46,989 5,794 - 62,021 Capital lease obligations - 23,548 86 - 23,634 Other liabilities and deferred credits 99,773 78,373 14,833 (17,898) 175,081 --------- --------- -------- --------- --------- Total other liabilities 397,569 553,585 141,368 (20,698) 1,071,824 --------- --------- -------- --------- ---------- TOTAL CAPITALIZATION AND LIABILITIES $1,861,807 $2,457,219 $638,749 ($6,054) $4,951,721 ========== ========== ======== ========== ========== See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
INTERSTATE ENERGY CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 (In thousands, except per share amounts) Operating Revenues Pro Forma WPLH IES IPC Adjustments Pro Forma (As Reported) (As Reported) (As Reported) (See Note 1) Combined Electric utility $634,143 $604,270 $277,340 $- $1,515,753 Gas utility 155,883 183,517 54,507 - 393,907 Other 129,229 142,912 - 118,826 390,967 --------- --------- -------- -------- --------- Total operating revenues 919,255 930,699 331,847 118,826 2,300,627 Operating Expenses Electric and steam production fuels 116,812 108,344 55,402 - 280,558 Purchased power 125,438 74,098 56,770 - 256,306 Cost of gas sold 99,267 126,631 33,324 - 259,222 Other operation 254,796 231,481 64,685 119,306 670,268 Maintenance 48,058 57,185 17,782 96 123,121 Depreciation and amortization 111,289 114,122 31,676 245 257,332 Taxes other than income taxes 34,988 51,701 16,708 - 103,397 --------- --------- -------- -------- --------- Total operating expenses 790,648 763,562 276,347 119,647 1,950,204 --------- --------- -------- -------- --------- Operating Income 128,607 167,137 55,500 (821) 350,423 Other Income (Expense) Allowance for funds used during construction 2,775 2,309 190 - 5,274 Other income and deductions, net 4,432 1,850 6,772 856 13,910 --------- -------- -------- -------- --------- Total other income (expense) 7,207 4,159 6,962 856 19,184 Interest Charges 42,535 64,383 15,610 35 122,563 Income from Continuing Operations before Income Taxes and Preferred Dividends 93,279 106,913 46,852 - 247,044 Income Taxes 28,715 39,662 17,684 - 86,061 Preferred Dividends of Subsidiaries (Note 2) 3,310 914 2,469 - 6,693 --------- -------- -------- --------- --------- Income from Continuing Operations $61,254 $66,337 $26,699 $- $154,290 ========= ======== ======== ========= ========= Average Common Shares Outstanding 30,782 30,380 9,725 5,323 76,210 Earnings per Share of Common Stock from Continuing Operations (Basic and diluted) $1.99 $2.18 $2.74 N/A $2.02 ========= ======== ======== ========= ======== See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
INTERSTATE ENERGY CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 (In thousands, except per share amounts) Pro Forma WPLH IES IPC Adjustments Pro Forma (As Reported) (As Reported) (As Reported) (See Note 1) Combined Operating Revenues Electric utility $589,482 $574,273 $276,620 $- $1,440,375 Gas utility 165,627 273,979 49,464 (113,115) 375,955 Other 177,735 125,660 - 113,115 416,510 --------- --------- --------- -------- ---------- Total operating revenues 932,844 973,912 326,084 - 2,232,840 Operating Expenses Electric and steam production fuels 114,470 84,579 57,560 - 256,609 Purchased power 81,108 88,350 61,556 - 231,014 Cost of gas sold 104,830 217,351 31,617 (113,474) 240,324 Other operation 317,608 212,501 51,707 113,474 695,290 Maintenance 46,492 49,001 16,164 - 111,657 Depreciation and amortization 90,683 107,393 31,087 - 229,163 Taxes other than income taxes 34,603 48,171 16,064 - 98,838 --------- -------- --------- -------- --------- Total operating expenses 789,794 807,346 265,755 - 1,862,895 --------- -------- --------- -------- --------- Operating Income 143,050 166,566 60,329 - 369,945 Other Income (Expense) Allowance for funds used during construction 3,208 2,103 263 - 5,574 Other income and deductions, net 14,098 (4,591) 2,336 - 11,843 --------- -------- --------- -------- --------- Total other income (expense) 17,306 (2,488) 2,599 - 17,417 Interest Charges 42,027 54,822 16,472 - 113,321 --------- -------- --------- --------- --------- Income from Continuing Operations before Income Taxes and Preferred Dividends 118,329 109,256 46,456 - 274,041 Income Taxes 41,814 47,435 18,133 - 107,382 Preferred Dividends of Subsidiaries (Note 2) 3,310 914 2,463 - 6,687 --------- -------- --------- --------- --------- Income from Continuing Operations (Notes 3 and 6) $73,205 $60,907 $25,860 $- $159,972 ========= ======== ========= ========= ========= Average Common Shares Outstanding 30,790 29,861 9,594 5,236 75,481 Earnings per Share of Common Stock from Continuing Operations (Basic and diluted) $2.38 $2.04 $2.69 N/A $2.12 ========= ======== ========= ========= ========= See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
INTERSTATE ENERGY CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 (In thousands, except per share amounts) Pro Forma WPLH IES IPC Adjustments Pro Forma (As Reported) (As Reported) (As Reported) (See Note 1) Combined Operating Revenues Electric utility $546,324 $560,471 $274,873 $- $1,381,668 Gas utility 139,165 190,339 43,669 (53,047) 320,126 Other 121,766 100,200 - 53,047 275,013 -------- -------- -------- -------- ---------- Total operating revenues 807,255 851,010 318,542 - 1,976,807 Operating Expenses Electric and steam production fuels 116,488 96,256 62,164 - 274,908 Purchased power 44,940 66,874 57,566 - 169,380 Cost of gas sold 84,002 141,716 25,888 (50,519) 201,087 Other operation 252,722 199,768 44,581 50,519 547,590 Maintenance 42,043 46,093 14,881 - 103,017 Depreciation and amortization 86,319 97,958 29,560 - 213,837 Taxes other than income taxes 34,188 49,011 15,990 - 99,189 -------- -------- -------- -------- --------- Total operating expenses 660,702 697,676 250,630 - 1,609,008 -------- -------- -------- -------- --------- Operating Income 146,553 153,334 67,912 - 367,799 Other Income (Expense) Allowance for funds used during construction 2,088 3,424 341 - 5,853 Other income and deductions, net 5,954 1,548 (4,008) - 3,494 -------- ------- ------- -------- --------- Total other income (expense) 8,042 4,972 (3,667) - 9,347 Interest Charges 43,559 50,727 17,136 - 111,422 -------- ------- ------- -------- --------- Income from Continuing Operations before Income Taxes and Preferred Dividends 111,036 107,579 47,109 - 265,724 Income Taxes 36,108 42,489 19,453 - 98,050 Preferred Dividends of Subsidiaries (Note 2) 3,310 914 2,458 - 6,682 -------- ------- ------- -------- -------- Income from Continuing Operations (Note 6) $71,618 $64,176 $25,198 $- $160,992 ======== ======= ======= ======== ======== Average Common Shares Outstanding 30,774 29,202 9,564 5,140 74,680 Earnings per Share of Common Stock from Continuing Operations (Basic and diluted) $2.33 $2.20 $2.63 N/A $2.16 ======== ======= ======= ======== ======== See accompanying Notes to Unaudited Pro Forma Combined Financial Statements
INTERSTATE ENERGY CORPORATION NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 1. Pro Forma Adjustments
December 31, 1997 BALANCE SHEET Merged Company Consolidation Eliminations Common IPC IES Merger of for Stock Unbilled Pension Transaction Total IEA-HES LLC IEA-HES LLC Adjustment Revenues Liability Costs Pro Forma (Note 1 (a)) (Note 1 (b)) (Note 1 (c)) (Note 1 (d)) (Note 1 (e)) (Note 1 (g)) Adjustments ASSETS OTHER PROPERTY, PLANT AND EQUIP ---NET AND OTHER INVESTMENTS $3,458 ($3,583) $ - $ - $ - $ - ($125) CURRENT ASSETS Cash and cash equivalents 3,308 (3,006) - - - - 302 Accounts receivable ---net 8,932 (1,965) - 5,522 - - 12,489 Prepayments and other 2 - - (3,280) - - (3,278) -------- -------- -------- -------- -------- -------- -------- Total current assets 12,242 (4,971) - 2,242 - - 9,513 DEFERRED CHARGES AND OTHER - - - 2,456 (17,898) - (15,442) -------- -------- -------- -------- -------- -------- -------- TOTAL ASSETS $15,700 ($8,554) $ - $4,698 ($17,898) $ - ($6,054) ======== ======== ======== ======== ======== ======== ======== CAPITALIZATION AND LIABILITIES CAPITALIZATION Common Stock Equity: Common stock $ - $ - ($33,706) $ - $ - $ - ($33,706) Other stockholders' equity 3,583 (3,583) 33,706 4,698 - (15,200) 23,204 -------- -------- -------- -------- -------- --------- -------- Total common stock equity 3,583 (3,583) - 4,698 - (15,200) (10,502) CURRENT LIABILITIES Accounts payable and accruals 11,514 (1,965) - - - - 9,549 Taxes accrued 65 - - - - - 65 Other accrued liabilities 538 (3,006) - - - 18,000 15,532 -------- -------- -------- -------- -------- -------- -------- Total current liabilities 12,117 (4,971) - - - 18,000 25,146 OTHER LIABILITIES Deferred income taxes - - - - - (2,800) (2,800) Other liabilities and deferred credits - - - - (17,898) - (17,898) -------- -------- -------- -------- -------- -------- -------- Total other liabilities - - - - (17,898) (2,800) (20,698) -------- -------- -------- -------- -------- -------- -------- TOTAL CAPITALIZATION AND LIAB. $15,700 ($8,554) $ - $4,698 ($17,898) $ - ($6,054) ======== ======== ======== ======== ======== ======== ======== Merged 1997 INCOME STATEMENT Consolidation Eliminations Company of for Common Stock Total IEA-HES LLC IEA-HES LLC Adjustment Pro Forma (Note 1 (a)) (Note 1 (b)) (Note 1 (c)) Adjustments OPERATING REVENUES: Gas utility $ - $ - $ - $ - Other 118,826 - - 118,826 ------- ------- -------- ------- Total operating revenues 118,826 - - 118,826 OPERATING EXPENSES: Cost of gas sold - - - - Other operation 119,306 - - 119,306 Maintenance 96 - - 96 Depreciation and amortization 245 - - 245 ------- -------- -------- ------- Total operating expenses 119,647 - - 119,647 OPERATING INCOME (821) - - (821) OTHER INCOME (EXPENSE) Other income and deductions, net 61 795 - 856 ------- -------- -------- -------- Total other income (expense) 61 795 - 856 INTEREST CHARGES 35 - - 35 ------- -------- -------- -------- INCOME FROM CONTINUING OPER. ($795) $795 $ - $ - ======= ======== ======== ======== AVERAGE COMMON SHARES - - 5,323 5,323 1996 INCOME STATEMENT Merged Company Common Stock IEA Total Adjustment Gas Activity Pro Forma (Note 1 (c)) (Note 1 (f)) Adjustments OPERATING REVENUES: Gas utility $ - ($113,115) ($113,115) Other - 113,115 113,115 ------- --------- --------- Total operating revenues - - - OPERATING EXPENSES: Cost of gas sold - (113,474) (113,474) Other operation - 113,474 113,474 -------- -------- --------- Total operating expenses - - - -------- -------- --------- INCOME FROM CONTINUING OPERATIONS $ - $ - $ - ======== ======== ========= AVERAGE COMMON SHARES 5,236 - 5,236 1995 INCOME STATEMENT Merged Company Common Stock IEA Total Adjustment Gas Activity Pro Forma (Note 1 (c)) (Note 1 (f)) Adjustments OPERATING REVENUES: Gas utility $ - ($53,047) ($53,047) Other - 53,047 53,047 -------- -------- --------- Total operating revenues - - - OPERATING EXPENSES: Cost of gas sold - (50,519) (50,519) Other operation - 50,519 50,519 -------- -------- --------- Total operating expenses - - - -------- -------- --------- INCOME FROM CONTINUING OPERATIONS $ - $ - $ - ======== ======== ========= AVERAGE COMMON SHARES 5,140 - 5,140
(a) Consolidation of IEA-HES L.L.C. In January 1997, IES and WPLH formed a gas marketing joint venture named IEA-HES L.L.C. Pursuant to the applicable accounting rules, IES and WPLH each accounted for this joint venture in 1997 under the equity method of accounting with their investment recorded on the balance sheet in "Other Property, Plant and Equipment -- Net and Other Investments" and their allocated portion of earnings on the income statement in "Other Income and Deductions, Net". This pro forma adjustment reflects the financial results of IEA-HES L.L.C. as a consolidated subsidiary. (b) Eliminations for IEA-HES L.L.C. This pro forma adjustment reflects the elimination of intercompany balances of IEA-HES L.L.C. and also eliminates the equity investments of IES and WPLH and their allocated portion of revenues and expenses. (c) Merged Company Common Stock Adjustment The pro forma combined financial statements reflect the conversion of each share of IES Common Stock (no par value) outstanding into 1.14 shares of Merged Company Common Stock ($.01 par value) and the conversion of each share of IPC Common Stock ($3.50 par value) into 1.11 shares of Merged Company Common Stock ($.01 par value), and the continuation of each share of WPLH Common Stock ($.01 par value) outstanding as one share of Merged Company Common Stock, as provided in the Merger Agreement. The pro forma adjustment to common stock equity restates the common stock account to equal par value for all shares to be issued ($.01 par value per share of Merged Company Common Stock) and reclassifies the excess to other stockholders' equity. The average number of shares of common stock used for calculating per share amounts is based on the exchange ratios shown below.
As As Exchange reported Pro forma As Reported Pro forma reported Pro forma Ratio 12/31/97 12/31/97 12/31/96 12/31/96 12/31/95 12/31/95 WPLH N/A 30,782 30,782 30,790 30,790 30,774 30,774 IES 1.14 30,380 34,633 29,861 34,042 29,202 33,290 IPC 1.11 9,725 10,795 9,594 10,649 9,564 10,616
The number of shares of common stock at December 31, 1997 used for calculating the par value of common stock is based on the exchange ratios shown below. As Exchange reported Pro forma Ratio 12/31/97 12/31/97 WPLH N/A 30,789 30,789 IES 1.14 30,577 34,858 IPC 1.11 9,761 10,835 (d) IPC Unbilled Revenues The financial results of IPC do not include accrued revenues for services rendered but unbilled at month-end. The pro forma adjustment reflects the impact of adopting unbilled revenues, including the tax impact of the adoption. The change is being implemented to conform to the method currently utilized by WPLH and IES. (e) IES Pension Liability The accrued pension liability (and offsetting regulatory asset), included in the financial results of IES, was calculated using a five-year smoothed method of recognizing deferred asset gains. The pro forma adjustment reflects a change to the straight market value method which recognizes deferred asset gains sooner. The change is being implemented to conform to the method currently utilized by WPLH and IPC. (f) IEA Gas Activity The gas revenues and cost of gas sold of Industrial Energy Applications, Inc. (IEA), a subsidiary of IES, for 1996 and 1995 have been reclassed into "Other" operating revenues and "Other operation" expenses, respectively, consistent with the 1997 presentation. (g) Merger Transaction Costs The merger partners estimate they will incur an additional $18 million of merger-related transaction costs in the first six months of 1998. These costs include fees for financial advisors, attorneys and accountants as well as separation costs relating to various officers of the merger partners who have left the company under the terms of their respective change of control agreements. These costs have been reflected in the pro forma balance sheet at December 31, 1997 such that accrued liabilities have been increased by $18 million, other stockholders' equity has been reduced by the net of tax amount and the applicable income tax deduction has been recorded in deferred income taxes. 2. Preferred Stock Dividends of IPC The Preferred Stock Dividends of IPC have been reclassified in the unaudited pro forma combined statements as "Preferred Dividends of Subsidiaries" and deducted in the determination of income from continuing operations which reflects the holding company structure of the Merged Company. 3. Nonrecurring Material Items Included in Historical Financial Results IES's income from continuing operations for the year ended December 31, 1996 included costs incurred relating to its successful defense of a hostile takeover attempt mounted by MidAmerican Energy Company. The after-tax impact on income from continuing operations was a decrease of $4.6 million. Nonrecurring items affecting WPLH's performance for the year ended December 31, 1996 included the impact of the sale of a combustion turbine and the sale of WPLH's assisted-living real estate investments. The after-tax impact of these items on continuing operations was an increase of $5.9 million. 4. Estimated Costs and Cost Savings of Proposed Merger The allocation between WPLH, IES and IPC and their customers of the estimated cost savings of approximately $749 million over ten years resulting from the Merger, net of the costs incurred to achieve such savings, will be subject to regulatory review and approval. Costs arising from the Merger are currently estimated to be approximately $78 million. Approximately $22 million of these costs had been incurred through December 31, 1997 and are reflected in results of operations. The estimate of potential cost savings constitutes a forward-looking statement and actual results may differ materially from this estimate. The estimate is necessarily based upon various assumptions that involve judgments with respect to, among other things, future national and regional economic and competitive conditions, technological developments, inflation rates, regulatory treatment, weather conditions, financial market conditions, future business decisions and other uncertainties. No assurance can be given that the estimated cost savings will actually be realized. None of the estimated cost savings have been reflected in the unaudited pro forma combined financial statements. The only merger-related costs that have been reflected in the pro forma combined financial statements are the $22 million of costs incurred through December 31, 1997 and the $18 million of transaction costs discussed in Note 1(g). The remaining costs to be incurred to achieve the cost savings have not been included in the pro forma combined financial statements. 5. Intercompany Transactions Intercompany transactions (including purchased and exchange power transactions) between WPLH, IES and IPC during the periods presented were included in the determination of regulated rates and/or were not material. Accordingly, no pro forma adjustments were made to eliminate such transactions. 6. Discontinued Operations The financial statements of WPLH reflect the discontinuance of operations of its utility energy and marketing consulting business in 1995. The discontinuance of this business resulted in a pre-tax loss in the fourth quarter of 1995 of $7.7 million. The after-tax loss on disposition was $11.0 million reflecting the associated tax expense on disposition due to the non-deductibility of the carrying value of goodwill at sale. During 1996, WPLH recognized an additional loss of $1.3 million, net of applicable income tax benefit, associated with the final disposition of the business. Operating revenues, operating expenses, other income and expense and income taxes for the discontinued operations for the time periods presented have been excluded from income from continuing operations. Interest expense has been adjusted for the amounts associated with direct obligations of the discontinued operations. (c) Exhibits. The exhibits listed in the accompanying Exhibit Index are filed as part of this Current Report on Form 8-K. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERSTATE ENERGY CORPORATION Date: May 5, 1998. By: /s/ Thomas M. Walker Thomas M. Walker Executive Vice President and Chief Financial Officer INTERSTATE ENERGY CORPORATION EXHIBIT INDEX TO FORM 8-K Dated April 21, 1998 Exhibit (2.1) Agreement and Plan of Merger, dated as of November 10, 1995, by and among WPL Holdings, Inc., IES Industries Inc., Interstate Power Company and AMW Acquisition, Inc. [Incorporated by reference to Exhibit (2.1) to WPL Holdings, Inc.'s Current Report on Form 8-K, dated November 10, 1995] (2.2) Amendment No. 1 to Agreement and Plan of Merger and Stock Option Agreements, dated as of May 22, 1996, by and among WPL Holdings, Inc., IES Industries Inc., Interstate Power Company, a Delaware corporation, AMW Acquisition, Inc., WPLH Acquisition Co. and Interstate Power Company, a Wisconsin corporation [Incorporated by reference to Exhibit (2.1) to WPL Holdings, Inc.'s Current Report on Form 8-K, dated May 22, 1996] (2.3) Amendment No. 2 to Agreement and Plan of Merger, dated as of August 16, 1996, by and among WPL Holdings, Inc., IES Industries Inc., Interstate Power Company, a Delaware corporation, WPLH Acquisition Co. and Interstate Power Company, a Wisconsin corporation [Incorporated by reference to Exhibit (2.1) to WPL Holdings, Inc.'s Current Report on Form 8-K, dated August 16, 1996.] (3.1) Amendments to the Restated Articles of Incorporation of Interstate Energy Corporation (3.2) Restated Articles of Incorporation of Interstate Energy Corporation, as amended (3.3) By-laws of Interstate Energy Corporation (10.1) Employment Agreement, dated as of April 21, 1998, by and between Interstate Energy Corporation and Erroll B. Davis, Jr. (10.2) Employment Agreement, dated as of April 21, 1998, by and between Interstate Energy Corporation and Lee Liu (10.3) Employment Agreement, dated as of April 21, 1998, by and between Interstate Power Company and Michael R. Chase (23.1) Consent of Arthur Andersen LLP, IES Industries Inc.'s independent public accountants (23.2) Consent of Deloitte & Touche, Interstate Power Company's independent public accountants EX-3.1 2 Amendments to the Restated Articles of Incorporation of Interstate Energy Corporation (the "Corporation") A. Article I of the Restated Articles of Incorporation of the Corporation was amended, effective April 21, 1998, to provide in its entirety as follows: The name of the corporation is Interstate Energy Corporation. B. Article IV of the Restated Articles of Incorporation of the Corporation was amended, effective April 20, 1998, to provide as follows: The corporation shall have authority to issue two hundred million (200,000,000) shares of common stock, $.01 par value. EX-3.2 3 RESTATED ARTICLES OF INCORPORATION OF INTERSTATE ENERGY CORPORATION, AS AMENDED These Restated Articles of Incorporation supersede and take the place of the existing Articles of Incorporation and all prior amendments thereto. ARTICLE I The name of the corporation is Interstate Energy Corporation. ARTICLE II The period of existence of the corporation shall be perpetual. ARTICLE III The corporation is organized for the purpose of engaging in any lawful activities within the purposes for which corporations may be organized under Chapter 180 of the Wisconsin Statutes, as amended from time to time. ARTICLE IV The corporation shall have authority to issue two hundred million (200,000,000) shares of common stock, $.01 par value. ARTICLE V No holder of any capital stock of the corporation shall have any preemptive right to purchase, acquire to subscribe to any capital stock or other securities issued or sold by the Corporation, including any such capital stock or securities now or hereafter authorized. ARTICLE VI The address of the initial registered office of the Corporation is 222 West Washington Avenue, P.O. Box 2568, Madison, Wisconsin 53701- 2568, and the name of the registered agent of the Corporation at such address is Edward M. Gleason. ARTICLE VII The corporation reserves the right to increase or decrease its authorized capital stock or any class or series thereof, or to reclassify the same. ARTICLE VIII The number of directors constituting the Board of Directors shall be as fixed from time to time by the Bylaws of the Corporation, but shall not be less than seven (7). Each director shall be a stockholder of the Corporation. The directors of the Corporation shall be divided into three classes as nearly equal in number as possible, to serve for staggered three-year terms or until their respective successors are duly elected and qualified. The initial directors of the Corporation shall be those persons who, at the time of the effectiveness of the merger of the Corporation's subsidiary, WPL Acquisitions, Inc., into the Corporation's subsidiary, Wisconsin Power and Light Company, are serving as directors of Wisconsin Power and Light Company, each to hold office for the term for which such person was elected a director of Wisconsin Power and Light Company. Beginning with the Corporation's annual meeting of stockholders in 1988, the successors of the class of directors whose terms shall then expire shall be elected to hold office for a term expiring at the third annual meeting of stockholders after their election or until their respective successors are duly elected and qualified. If, at any annual meeting of stockholders, directors of more than one class are to be elected, each class of directors to be elected at such meeting shall be nominated and voted for in a separate election. Any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, shall be filled until the next succeeding annual meeting of stockholders by the majority vote of the directors then in office, even if less than a quorum. EX-3.3 4 BYLAWS OF INTERSTATE ENERGY CORPORATION (Effective as of April 21, 1998) ARTICLE I OFFICES Section 1.1 PRINCIPAL AND BUSINESS OFFICES. - The Corporation may have such principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the Corporation may require from time to time. Section 1.2 REGISTERED OFFICE. - The registered office of the Corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin, and the address of the registered office may be changed from time to time by the Board of Directors or by the registered agent. The business office of the registered agent of the Corporation shall be identical to such registered office. ARTICLE II SEAL Section 2.1 CORPORATE SEAL. - The corporate seal shall have inscribed thereon the name of the Corporation and the words "CORPORATE SEAL, WISCONSIN." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced. ARTICLE III SHAREOWNERS Section 3.1. ANNUAL MEETING. - The Annual Meeting of Shareowners shall be held at such date and time as the Board of Directors may determine. The Board of Directors may designate any place, either within or without the State of Wisconsin, as the place for the Annual Meeting. If no designation is made, the place of the Annual Meeting shall be the principal office of the Corporation. The Annual Meeting shall be held for the purposes of electing Directors and of transacting such other business as may properly come before the meeting. Section 3.2 SPECIAL MEETINGS. - Special Meetings of the Shareowners may be called by the Board of Directors or the Chief Executive Officer. The Corporation shall call a Special Meeting of Shareowners in the event that the holders of at least ten percent (10%) of all of the votes entitled to be cast on any issue request a special meeting be held. Section 3.3 NOTICE OF MEETINGS - WAIVER. - Notice of the time and place of each Annual or Special Meeting of Shareowners shall be sent by mail to the recorded address of each shareowner not less than ten (10) days nor more than sixty (60) days before the date of the meeting, except in cases where other special method of notice may be required by statute, in which case the statutory method shall be followed. The notice of a Special Meeting shall state the purpose of the meeting. If an Annual or Special Meeting of shareowners is adjourned to a different date, time or place, the Corporation shall not be required to give notice of the new date, time or place if the new date, time or place is announced at the meeting before adjournment; 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 shareowners as of the new record date. Notice of any meeting of the shareowners may be waived by any shareowner. Section 3.4 FIXING OF RECORD DATE. - For the purpose of determining shareowners entitled to notice of, or to vote at, any meeting of shareowners, or at any adjournment thereof, or shareowners entitled to receive payment of any dividend, or in order to make a determination of shareowners for any other lawful action, the Board of Directors may fix, in advance, a record date for such determination of shareowners. Such date in case of a meeting of shareowners or other lawful action shall not be more than seventy (70) days prior to the date of such meeting or lawful action. If no record date is fixed by the Board of Directors or by statute for the determination of shareowners entitled to demand a special meeting as contemplated in Section 3.2 hereof, the record date shall be the date that the first shareowner signs the demand. When a determination of shareowners entitled to vote at any meeting of shareowners has been made as provided in this section, such determination shall apply to any adjournment thereof unless the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting in which event the Board of Directors must fix a new record date. Section 3.5 SHAREOWNER LIST. - The Corporation shall have available, beginning two (2) days after the notice of the meeting is given for which the list was prepared and continuing to the date of the meeting, a complete record of each shareowner entitled to vote at such meeting, or any adjournment thereof, showing the address of and number of shares held by each shareowner. The shareowner list shall be available for inspection by any shareowner during normal business hours at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. The Corporation shall make the shareowners' list available at the meeting and any shareowner or his agent or attorney may inspect the list at any time the meeting or any adjournment thereof. Section 3.6 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. A majority of the outstanding shares entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum for action on that matter. If a quorum exists, except in the case of the election of directors, action on a matter shall be approved if the votes cast favoring the action exceed the votes cast opposing the action, unless the Corporation's Articles of Incorporation, any Bylaw adopted under authority granted in the Articles of Incorporation or statute requires a greater number of affirmative votes. Directors 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 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 business may be transacted which might have been transacted at the meeting as originally notified. Section 3.7 CONDUCT OF MEETING. - The Chairperson of the Board shall preside at each meeting of shareowners. In the absence of the Chairperson of the Board, such persons, in the following order, shall act as chair of the meeting; the Vice Chairperson of the Board the Chief Executive Officer, the President, any Vice President, the Director in attendance with the longest tenure in that office. The Secretary, or if absent, an Assistant Secretary, of the Company shall act as Secretary of each shareowner meeting. Section 3.8 PROXIES. - Any shareowner having the right to vote at a meeting of shareowners may exercise such right by voting in person or by proxy at such meeting. Such proxies shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. Section 3.9 VOTING OF SHARES. - Except as provided in the Articles of Incorporation or statute, each outstanding share entitled to vote shall be entitled to one (1) vote upon each matter submitted to a vote at a meeting of shareowners. Section 3.10 VOTING OF SHARES BY CERTAIN HOLDERS. - Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by such person, either in person or by proxy, without a transfer of such shares into that person's name. Shares standing in the name of a trustee may be voted by such trustee, either in person or by proxy, without a transfer of such shares into the trustee's name. The Corporation may request evidence of such fiduciary status with respect to the vote, consent, waiver, or proxy appointment. Shares standing in the name of a receiver or trustee in bankruptcy may be voted by such receiver or trustee, and shares held by or under the control of a receiver may be voted by such receiver without the transfer of the shares into such person's name if authority so to do is contained in an appropriate order of the court by which such receiver was appointed. A pledgee, beneficial owner, or attorney-in-fact of the shares held in the name of a shareholder shall be entitled to vote such shares. The Corporation may request evidence of such signatory's authority to sign for the shareholder with respect to the vote, consent, waiver, or proxy appointment. Neither treasury shares nor shares held by another corporation, if a majority of the shares entitled to vote for the election of Directors of such other corporation is held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. ARTICLE IV BOARD OF DIRECTORS Section 4.1 GENERAL POWER. - The business and affairs of the Corporation shall be managed by its Board of Directors. Section 4.2 NUMBER. CLASSES & TERM. - The number of Directors of the Corporation shall be fifteen (15). The Directors of the Corporation shall be divided into three classes, hereinafter referred to as "Class I," "Class II," and "Class III" with each class having five (5) Directors. The initial Class I Directors shall consist of two (2) directors selected by each of IES Industries Inc. ("IES") and WPL Holdings Inc. ("WPLH") and one (1) selected by Interstate Power Company ("IPC"); the initial Class II Directors shall consist of two (2) directors selected by each of IES and WPLH and one (1) selected by IPC; and the initial Class III Directors shall consist of two (2) directors selected by each of IES and WPLH and one (1) selected from IPC. The initial term of Class I Directors shall expire at the first annual meeting of Shareowners of the Corporation, the initial term of Class II Directors shall expire at the second annual meeting of Shareowners of the Corporation and the initial term of Class III Directors shall expire at the third annual meeting of Shareowners of the Corporation. At each annual shareowner meeting after the first annual shareowner meeting, directors to replace those of a Class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been duly qualified and elected. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable. Section 4.3 CHAIRPERSON OF THE BOARD. - The Chairperson of the Board if not designated as the Chief Executive Officer of the Company shall assist the Board in the formulation of policies and may make recommendations therefore. Information as to the affairs of the Company in addition to that contained in the regular reports shall be furnished to him or her on request. He or she may make suggestions and recommendations to the Chief Executive Officer regarding any matters relating to the affairs of the Company and shall be available for consultation and advice. Section 4.4 VICE CHAIRPERSON OF THE BOARD. - The Vice Chairperson of the Board shall assist the Board in the formulation of policies and make recommendations therefore. The Vice Chairperson shall have such other powers and duties as may be prescribed for him or her by the Chairperson of the Board or the Board of Directors. In the absence of or the inability of the Chairperson of the Board to act as Chairperson of the Board, the Vice Chairperson of the Board shall assume the powers and duties of the Chairperson of the Board. Section 4.5 QUALIFICATIONS AND REMOVAL. - No person who has attained 70 years of age shall be eligible for election or re-election to the Board of Directors. Any Director who has attained seventy (70) years of age shall resign from the Board of Directors effective as of the next annual Meeting of Shareowners. For a period of five (5) years following the formation of the Corporation, no person, except any of the initial Directors selected pursuant to Section 4.2 hereof, who is an executive officer or employee of the Corporation or any of its subsidiaries shall be eligible to serve as a Director of the Corporation; provided, however, that any individual serving as Chief Executive Officer of the Corporation shall be eligible to serve as a Director of the Corporation. In the event the Chief Executive Officer resigns or retires from his or her office or employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that the Chief Executive Officer is removed from his or her office by the Board of Directors, or is involuntarily terminated from employment with the Corporation, he or she shall simultaneously submit his or her resignation from the Board of Directors. In the event that a Director experiences a change in their principal occupation or primary business affiliation, the Director must submit their resignation from the Board to the Nominating and Governance Committee. The Nominating and Governance Committee shall recommend to the Board of Directors whether the Board should accept such resignation. If the Nominating and Governance Committee recommends acceptance of the resignation, an affirmative vote of two-thirds of the remaining Directors holding office is required to affirm the Nominating and Governance Committee's recommendation. A resignation may be tendered by any Director at any meeting of the shareholders or of the Board of Directors, who shall at such meeting accept the same. Section 4.6 REGULAR MEETINGS. - Regular meetings of the Board of Directors shall be held at such time and place as may be determined by the Board of Directors, but in no event shall the Board meet less than once a year. Section 4.7 SPECIAL MEETINGS. - Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer or any two (2) Directors. The Chief Executive Officer or Secretary may fix any place, either within or without the State of Wisconsin, whether in person or by telecommunications, as the place for holding any special meeting. Section 4.8 NOTICE; WAIVER. - Notice of any meeting of the Board of Directors, unless otherwise provided pursuant to Section 4.6, shall be given at least forty-eight (48) hours prior to the meeting by written notice delivered personally or mailed to each Director at such address designed by each Director, by telegram or other form of wire or wireless communication. The notice need not describe the purpose of the meeting of the Board of Directors or the business to be transacted at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage prepared. Any Director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of business because the meeting is not lawfully called or convened. Section 4.9 QUORUM. - A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting to some other day without further notice. Section 4.10 MEETING PARTICIPATION. - (a) Any or all members of the Board of Directors, or any committee thereof, may participate in a regular or special meeting by, or to conduct the meeting through, the use of any means of communication by which any of the following occurs: 1) All participating directors may simultaneously hear each other during the meeting. 2) All communication during the meeting is immediately transmitted to each participating director, and each participating director is able to immediately send messages to all other participating directors. (b) If a meeting is conducted by the means of communication described herein, all participating directors shall be informed that a meeting is taking place at which official business may be transacted. (c) A director participating in a meeting by means of such communication is deemed to be present in person at the meeting. Section 4.11 ACTION WITHOUT MEETING. - Any action required or permitted to be taken at any meeting of the Directors of the Corporation or of any committee of the Board may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the Directors or all of the members of the Committee of Directors, as the case may be. Such consent shall have the same force and effect as a unanimous vote at a meeting and shall be filed with the Secretary of the Corporation to be included in the official records of the Corporation. The action taken is effective when the last Director signs the consent unless the consent specifies a different effective date. Section 4.12 PRESUMPTION OF ASSENT. - A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) the Director objects at the beginning of the meeting or promptly upon arrival to the holding of or transacting business at the meeting, (b) the Director's dissent or abstention shall be entered in the minutes of the meeting, (c) the Director shall file a written dissent or abstention to such action with the presiding officer of the meeting before the adjournment thereof or shall forward such dissent or abstention by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting, or (d) the Director shall file a written notice to the Secretary of the Corporation promptly after receiving the minutes of the meeting that the minutes failed to show the Director's dissention or abstention from the action taken. Such right to dissent or abstain shall not apply to a Director who voted in favor of such action. Section 4.13 VACANCIES. - Except as provided below, any vacancy occurring in the Board of Directors or on any Committee of the Board of Directors and any directorship to be filled by reason of an increase in the number of Directors may be filled by the affirmative vote of a majority of the Directors then in office, even if less than a quorum of the Board of Directors. For a period of time commencing on formation of Interstate Energy Corporation and expiring on the date of the third annual meeting of shareowners of the Corporation, the initially appointed IES, IPC and WPLH directors, each as a separate group, shall be entitled to nominate those persons who will be eligible to be appointed, elected or re-elected as IES, IPC and WPLH Directors. The Director or Directors so chosen shall hold office until the next election of the Class for which such Director or Directors shall have been chosen and until their successors shall have been duly elected and qualified..) Section 4.14 COMPENSATION. - Compensation and expenses for attendance at a regular or special meeting of the Board of Directors, or at any committee meeting, shall be payable in such amounts as determined from time to time by the Board of Directors. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Directors who are full time employees or officers of the Corporation shall not receive any compensation. ARTICLE V COMMITTEES Section 5.1 COMMITTEES. - The Board of Directors may, by resolution passed by a majority of the whole Board, designate from their number various Committees from time to time as corporate needs may dictate. The Committees may make their own rules of procedure and shall meet where and as provided by such rules, or by resolution of the Board of Directors. A majority of the members of the Committee shall constitute a quorum for the transaction of business. Each Committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. The Committee may be authorized by the Board of Directors to perform specified functions, except that a committee may not do any of the following: (a) authorize distributions; (b) approve or propose to shareowners action that the Wisconsin Business Corporation Law requires to be approved by shareowners; (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 bylaws; (f) approve a plan of merger not requiring shareowner 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 Directors. Section 5.2 EXECUTIVE COMMITTEE. An Executive Committee is hereby established and shall consist of at least three (3) members, including the Chairman of the Board. The Executive Committee shall possess all the powers and authority of the Board of Directors when said Board of Directors is not in session, except for the powers and authorities set forth in Section 5.1. Section 5.3 AUDIT COMMITTEE. - An Audit Committee is hereby established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The members of the Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.4 COMPENSATION AND PERSONNEL COMMITTEE - A Compensation and Personnel Committee is hereby established and shall consist of at least three (3) Directors who are not and never have been officers, employees or legal counsel of the Company. The Chairperson and the members of the Compensation and Personnel Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at such times as it determines, but at least twice each year, and shall meet at the request of the Chairman of the Board, the Chief Executive Officer, or any Committee member. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. Section 5.5 NOMINATING AND GOVERNANCE COMMITTEE. - A Nominating and Governance Committee shall be established and shall consist of at least three (3) Directors, all of whom shall be outside members of the Board of Directors. The Chairperson and the members of the Nominating and Governance Committee shall be elected annually by a majority vote of the members of the Board of Directors. Said Committee shall meet at the call of any one of its members, but in no event shall it meet less than once a year. Subsequent to each such Committee meeting, a report of the actions taken by such Committee shall be made to the Board of Directors. ARTICLE VI OFFICERS Section 6.1 OFFICERS. - The Board of Directors shall elect a Chief Executive Officer, a President, such number of Vice Presidents with such designations as the Board of Directors at the time may decide upon, a Secretary, a Treasurer and a Controller. The Chief Executive Officer may appoint such other officers and assistant officers as may be deemed necessary. The same person may simultaneously hold more than one such office. Section 6.2 TERM OF OFFICERS. - All Officers, unless sooner removed, shall hold their respective offices until their successors, willing to serve, shall have been elected but any Officer may be removed from Office at any time by the Board of Directors. Section 6.3 REMOVAL OF OFFICERS. - Any officer may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer shall not of itself create contract rights. Section 6.4 CHIEF EXECUTIVE OFFICER. - Subject to the control of the Board of Directors the Chief Executive Officer designated by the Board of Directors shall have and be responsible for the general management and direction of the business of the Corporation, shall establish the lines of authority and supervision of the Officers and employees of the Corporation, shall have the power to appoint and remove and discharge any and all agents and employees of the Corporation not elected or appointed directly by the Board of Directors, and shall assist the Board in the formulation of policies of the Corporation. The Chairperson of the Board, if Chief Executive Officer, may delegate any part of his or her duties to the President, or to one or more of the Vice Presidents of the Corporation. Section 6.5 PRESIDENT. - The President, when he or she is not designated as and does not have the powers of the Chief Executive Officer, shall have such other powers and duties as may from time to time be prescribed by the Board of Directors or be delegated to him or her by the Chairperson of the Board or the Chief Executive Officer. Section 6.6 VICE PRESIDENTS. - The Vice Presidents shall have such powers and duties as may be prescribed for him or her by the Board of Directors and the Chief Executive Officer. In the absence of or in the event of the death of the Chief Executive Officer and the President, the inability or refusal to act, or in the event for any reason it shall be impracticable for Chief Executive Officer and the President to act personally, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the Chief Executive Officer and the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer and the President. The execution of any instrument of the Corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the Chief Executive Officer and the President. Section 6.7 SECRETARY. - The Secretary shall attend all meetings of the Board of Directors, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall be responsible for the custody and care of the corporate seal, corporate records and minute books of the Corporation, and of all other books, documents and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Secretary, or shall be placed in his or her custody by the Chief Executive Officer or by the Board of Directors. He or she shall also act as Secretary of all shareowners' meetings, and keep a record thereof. He or she shall, except as may be otherwise required by statute or by these bylaws, sign, issue and publish all notices required for meetings of shareowners and of the Board of Directors. He or she shall be responsible for the custody of the stock books of the Corporation and shall keep a suitable record of the addresses of shareowners. He or she shall also be responsible for the collection, custody and disbursement of the funds received for dividend reinvestment. He or she shall sign stock certificates, bonds and mortgages, and all other documents and papers to which his or her signature may be necessary or appropriate, shall affix the seal of the Corporation to all instruments requiring the seal, and shall have such other powers and duties as are commonly incidental to the office of Secretary, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.8 TREASURER. - The Treasurer shall have charge of, and be responsible for, the collection, receipt, custody and disbursement of the funds of the Corporation, and shall deposit its funds in the name of the Corporation in such banks or trust companies as he or she shall designate and shall keep a proper record of cash receipts and disbursements. He or she shall be responsible for the custody of such books, receipted vouchers and other books and papers as in the practical business operation of the Corporation shall naturally belong in the office or custody of the Treasurer, or shall be placed in his or her custody by the President, or by the Board of Directors. He or she shall sign checks, drafts, and other paper providing for the payment of money by the Corporation for operating purposes in the usual course or business. He or she may, in the absence of the Secretary and Assistant Secretaries sign stock certificates. The Treasurer shall have such other powers and duties as are commonly incidental to the office of Treasurer, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.9 CONTROLLER. - The Controller shall be the principal accounting Officer of the Corporation. He or she shall have general supervision over the books of accounts of the Corporation. He or she shall examine the accounts of all Officers and employees from time to time and as often as practicable, and shall see that proper returns are made of all receipts from all sources. All bills, properly made in detail and certified, shall be submitted to him or her, and he or she shall audit and approve the same if found satisfactory and correct, but he or she shall not approve any voucher unless charges covered by the voucher have been previously approved through work orders, requisition or otherwise by the head of the department in which it originated, or unless he or she shall be otherwise satisfied of its propriety and correctness. He or she shall have full access to all minutes, contracts, correspondence and other papers and records of the Corporation relating to its business matters, and shall be responsible for the custody of such books and documents as shall naturally belong in the custody of the Controller and as shall be placed in his or her custody by the President or by the Board of Directors. The Controller shall have such other powers and duties as are commonly incidental to the office of Controller, or as may be prescribed for him or her by the President or by the Board of Directors. Section 6.10 ASSISTANT OFFICERS. - The Assistant Secretaries, Assistant Treasurers, Assistant Controllers, and other Assistant Officers shall respectively assist the Secretary, Treasurer, Controller, and other Officers of the Corporation in the performance of the respective duties assigned to such principal Officer, and in assisting his or her principal Officer each assistant Officer shall to that extent and for such purpose have the same powers as his or her principal Officer. The powers and duties of any such principal Officer shall temporarily devolve upon an assistant Officer in case of the absence, disability, death, resignation or removal from office of such principal Officer. ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 7.1 CERTIFICATES FOR SHARES. - Each certificate representing shares of the Corporation shall state upon the fact (a) that the Corporation is organized under the laws of the State of Wisconsin, (b) the name of the person to whom issued, (c) the number and class of shares, and the designation of the series, if any, which such certificate represents, and (d) the par value of each share, if any, and each such certificate shall otherwise be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board, or the Chief Executive Officer or the President and by the Secretary or an Assistant Secretary and shall be sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent and registrar. In case any officer or other authorized person who has signed or whose facsimile signature has been placed upon such certificate for the Corporation shall have ceased to be such officer or employee or agent before such certificate is issued, it may be issued by the Corporation with the same effect as if such person where an officer or employee or agent at the date of its issue. Each certificate for shares shall be consecutively numbered or otherwise identified. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. Section 7.2. TRANSFER OF SHARES. - Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by such person's legal representative, who shall furnish proper evidence of authority to transfer, or authorized attorney, by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. Subject to the provisions of Section 3.10 of Article III of these Bylaws, the person in whose name shares stand on the books of the Corporation shall be treated by the Corporation as the owner thereof for all purposes, including all rights deriving from such shares, and the Corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares, on the part of any other person, including (without limitation) a purchaser, assignee or transferee of such shares, or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Except as provided in said Section 3.10 hereof, no such purchaser, assignee, transferee or other person shall be entitled to receive notice of the meetings of shareholders, to vote at such meetings, to examine the complete record of the shareholders entitled to vote at meetings, or to own, enjoy or exercise any other property or rights deriving from such shares against the Corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares. Section 7.3 LOST, DESTROYED OR STOLEN CERTIFICATES. - When the owner claims that certificates for shares have 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 if required by the Corporation and (c) satisfies such other reasonable requirements as may be provided by the Corporation. Section 7.4 STOCK REGULATIONS. - The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with law as it may deem expedient concerning the issue, transfer and registration of shares of the Corporation. ARTICLE VIII INDEMNIFICATION AND LIABILITY OF DIRECTOR AND OFFICERS Section 8.1 INDEMNIFICATION. - The Corporation shall, to the fullest extent permitted or required by Sections 180.0850 to 180.0859, inclusive, of the Wisconsin Business Corporation Law, including any amendments thereto (but in the case of any such amendment, only to the extent such amendment permits or requires the corporation to provide broader indemnification rights than prior to such amendment), indemnify its Directors, Officers, employees and agents against any and all Liabilities, and advance any and all reasonable Expenses, incurred thereby in any Proceeding to which any such Director, Officer, employee or agent is a Party because he or she is or was a Director, Officer, employee or agent of the Corporation. The rights to indemnification granted hereunder shall not be deemed exclusive of any other rights to indemnification against Liabilities or the advancement of Expenses which a Director, Officer, employee or agent may be entitled under any written agreement, Board resolution, vote of shareowners, the Wisconsin Business Corporation Law or otherwise. The Corporation may, but shall not be required to, supplement the foregoing rights to indemnification against Liabilities and advancement of Expenses under this Section 8.1 by the purchase of insurance on behalf of any one or more of such Directors, Officers, employees or agents, whether or not the Corporation would be obligated to indemnify or advance Expenses to such Director, Officer, employee or agent under this Section 8.1. All capitalized terms used in this Article VIII and not otherwise defined herein shall have the meaning set forth in Section 180.0850 of the Wisconsin Business Corporation Law. ARTICLE IX MISCELLANEOUS Section 9.1 FISCAL YEAR. - The fiscal year of the Corporation shall be the calendar year. Section 9.2 DIVIDENDS. - Subject to the provisions of law or the Articles of Incorporation, the Board of Directors may, at any regular or special meeting, declare dividends upon the capital stock of the Corporation payable out of surplus (whether earned or paid-in) or profits as and when they deem expedient. Before declaring any dividend there may be set apart out of surplus or profits such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the directors shall deem conducive to the interests of the Corporation. Section 9.3 CONTRACTS, CHECKS, DRAFTS, DEEDS, LEASES AND OTHER INSTRUMENTS. - All contracts, checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. The Board may authorize by resolution any officer or officers to enter into and execute any contract or instrument of indebtedness in the name of the Corporation, and such authority may be general or confined to specific instances. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks or other depositories as the Treasurer may authorize. All contracts, deeds, mortgages, leases or instruments that require the corporate seal of the Corporation to be affixed thereto shall be signed by the President or a Vice President, and by the Secretary, or an Assistant Secretary, or by such other officer or officers, or person or persons, as the Board of Directors may be resolution prescribe. Section 9.4 VOTING OF SHARES OWNED BY THE CORPORATION. - Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of such other corporation by the Chief Executive Officer of the Corporation, if present, or if absent by any other officer of the Corporation who may be present. Whenever, in the judgment of the Chief Executive Officer, or if absent, of any officer, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned by the Corporation, such proxy or consent shall be executed in the name of the Corporation by the Chief Executive Officer or one of the officers of the Corporation and shall be attested by the Secretary or an Assistant Secretary of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by such other corporation and owned by the Corporation in the same manner as such share or shares might be voted by the Corporation. ARTICLE X AMENDMENT OR REPEAL OF BYLAWS Section 10.1 AMENDMENTS BY BOARD OF DIRECTORS. - Except as otherwise provided by the Wisconsin Business Corporation Law or the Articles of Incorporation, these Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors by the affirmative vote of a majority of the number of directors present at any meeting at which a quorum is in attendance; provided, however, that the shareowners in adopting, amending or repealing a particular bylaw may provide therein that the Board of Directors may not amend, repeal or readopt that bylaw. Section 10.2 IMPLIED AMENDMENT. - Any action taken or authorized by the shareowners or by the Board of Directors which would be inconsistent with the Bylaws then in effect but which is taken or authorized by affirmative vote of not less than the number of shares or the number of directors required to amend the Bylaws so that the Bylaws would be consistent with such action shall be given the same effect as though the Bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. EX-10.1 5 As Executed EMPLOYMENT AGREEMENT THIS AGREEMENT by and between Interstate Energy Corporation, a Wisconsin corporation (the "Company"), and Erroll B. Davis, Jr. (the "Executive"), dated as of the 21st day of April, 1998. W I T N E S S E T H T H A T WHEREAS, the Company is party to an Agreement and Plan of Merger, as amended (the "Merger Agreement"), dated November 10, 1995, by and among the Company, IES Industries Inc., an Iowa corporation ("IES"), Interstate Power Company, a Delaware corporation ("Interstate Power"), WPLH Acquisition Co., a Wisconsin corporation and a wholly-owned subsidiary of the Company, and Interstate Power Company, a Wisconsin corporation and a wholly-owned subsidiary of Interstate; and WHEREAS, the parties to the Merger Agreement wish to provide for the orderly succession of management of the Company following the Effective Time (as defined in the Merger Agreement); and WHEREAS, the parties to the Merger Agreement further wish to provide for the employment by the Company of the Executive, and the Executive wishes to serve the Company and its subsidiaries, in the capacities and on the terms and conditions set forth in this Agreement. NOW, THEREFORE, it is hereby agreed as follows: 1. Employment Period. The Company shall employ the Executive, and the Executive shall serve the Company, on the terms and conditions set forth in this Agreement, for an initial period (the "Initial Period") commencing at the Effective Time and ending on the date immediately preceding the fifth anniversary of the Effective Time. This Agreement thereafter will automatically renew for successive terms of one (1) year each, unless either party hereto has given sixty (60) days' advance written notice of its or his intent to allow the term of this Agreement to expire. The term during which the Executive is employed by the Company hereunder (including without limitation the Initial Period) is hereafter referred to as the "Employment Period." Upon the termination of the Employment Period the Executive will have the status of a retired senior executive officer of the Company and shall be entitled to all of the rights, privileges and benefits provided to such retired officers. 2. Position and Duties. (a) During the first two (2) years of the Initial Period, the Executive shall serve as President and Chief Executive Officer of the Company and thereafter, until the end of the Employment Period, the Executive shall serve as Chairman of the Board of Directors, President and Chief Executive Officer of the Company; in each case with such duties and responsibilities as are customarily assigned to such positions, and such other duties and responsibilities not inconsistent therewith as may from time to time be assigned to him by the Board of Directors of the Company (the "Board"). The Executive also shall continue to serve as a member of the Board following the Effective Time, and the Board shall propose the Executive for re-election to the Board throughout the Employment Period. (b) In addition to the responsibilities designated in paragraph (a) of Section 2 above, during the three-year period following the Effective Time, the Executive shall be entitled to serve as the Chief Executive Officer of each entity which during such period is a subsidiary of the Company and the Company shall cause the Executive to be appointed or elected as the Chief Executive Officer of each such subsidiary. In his capacity as the Chief Executive Officer of said subsidiaries, the Executive shall have such duties and responsibilities as are customarily assigned to such position, and such other duties and responsibilities not inconsistent therewith as may from time to time be assigned to him by the Board of Directors of each such subsidiary. During the Employment Period, the Executive also shall serve as a member of the Board of Directors of each of the Company's subsidiaries and the Company shall cause the Executive to be appointed, elected or re-elected as such a director. (c) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote reasonable attention and time during normal business hours to the business and affairs of the Company and its affiliates and, to the extent necessary to discharge the responsibilities assigned to the Executive under this Agreement, use the Executive's reasonable best efforts to carry out such responsibilities faithfully and efficiently. It shall not be considered a violation of the foregoing for the Executive to serve on corporate, industry, civic or charitable boards or committees, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company and its affiliates in accordance with this Agreement. (d) The Company's headquarters shall be located in Madison, Wisconsin and the Executive shall reside in the general area of Madison, Wisconsin. During the Employment Period, the Company also will provide the Executive with a furnished apartment in the Cedar Rapids, Iowa area. 3. Compensation. (a) Base Salary. The Executive's compensation during the Employment Period shall be determined by the Board upon the recommendation of the Compensation and Personnel Committee (or other appropriate committee) of the Board, subject to the next sentence and paragraph (b) of Section 3. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary") of not less than his aggregate annual base salary from the Company and its subsidiaries as in effect immediately before the Effective Time. The Annual Base Salary shall be payable in accordance with the Company's regular payroll practice for its senior executives, as in effect from time to time. During the Employment Period, the Annual Base Salary shall be reviewed for possible increase at least annually. Any increase in the Annual Base Salary shall not limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any such increase, and the term "Annual Base Salary" shall thereafter refer to the Annual Base Salary as so increased. (b) Incentive Compensation. During the Employment Period, the Executive shall continue to participate in short-term incentive compensation plans and long-term incentive compensation plans (the latter to consist of plans offering stock options, restricted stock and other long-term incentive compensation) offered by the Company and its present or future affiliates which shall provide him with the opportunity to earn, on a year-by-year basis, short-term and long-term incentive compensation (the "Incentive Compensation") at least equal to the amounts that he had the opportunity to earn immediately before the Effective Time, and such compensation shall be payable in accordance with standards (i.e., performance criteria, performance levels, etc.) which are no less favorable to the Executive than those applicable with respect to the Incentive Compensation payable to the Executive immediately before the Effective Time. (c) Other Benefits. (i) Retirement Plan; Supplemental Retirement Plan. During the Employment Period, the Executive shall participate in a retirement plan and/or supplemental retirement plan (the "Defined Benefit Arrangement") such that the aggregate value of the retirement benefits that he and his spouse will receive at the end of the Employment Period under all defined benefit plans of the Company and its affiliates (whether qualified or not) will be not less than the benefits he would have received (assuming his employment through the end of the Employment Period) under the Wisconsin Power and Light Company Retirement Plan and the Supplemental Retirement Plan in which the Executive participates, as in effect immediately prior to the Effective Time. (ii) Executive Tenure Compensation Plan. During the Employment Period, the Executive shall continue to participate in the Wisconsin Power and Light Company Executive Tenure Compensation Plan. (iii) Life Insurance. During the Employment Period, the Company shall provide the Executive with life insurance coverage (the "Life Insurance Coverage") providing a death benefit to such beneficiary or beneficiaries as the Executive may designate of not less than three times his Annual Base Salary. (iv) Additional Benefits. In addition, and without limiting the generality of the foregoing, during the Employment Period and thereafter: (A) the Executive shall be entitled to participate in all applicable incentive, savings and retirement plans, practices, policies and programs of the Company and its affiliates to the same extent as other senior executives (or, where applicable, retired senior executives) of the Company, and (B) the Executive and/or the Executive's family, as the case may be, shall be eligible for immediate participation in (and without any limitation for preexisting conditions), and shall receive all benefits under, all applicable welfare benefit plans, practices, policies and programs provided by the Company and its affiliates, other than severance plans, practices, policies and programs but including, without limitation, medical, prescription, dental, disability, salary continuance, employee life insurance, group life insurance, accidental death and travel accident insurance plans and programs, to the same extent as other senior executives (or, where applicable, retired senior executives) of the Company, provided, however, that the Executive's aggregate benefits as a retired senior executive under the plans described in this clause (B) shall not be less than the benefits provided by the Company and its affiliates to its retired senior executive officers as of the date of this Agreement. (d) Perquisites. During the Employment Period, the Executive shall be entitled to receive such perquisites as the Company may establish from time to time which are commensurate with his position and at lease comparable to those received by other senior executives at the Company. (e) Expense Reimbursement. The Company shall reimburse the Executive for all reasonable and documented expenses incurred by the Executive in the performance of the Executive's duties under this Agreement. 4. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. The Company shall be entitled to terminate the Executive's employment because of the Executive's Disability during the Employment Period. "Disability" means that (i) the Executive has been unable, for a period of 180 consecutive business days, to perform the Executive's duties under this Agreement, as a result of physical or mental illness or injury, and (ii) a physician selected by the Company or its insurers, and acceptable to the Executive or the Executive's legal representative, has determined that the Executive's incapacity is total and permanent. A termination of the Executive's employment by the Company for Disability shall be communicated to the Executive by written notice, and shall be effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), unless the Executive returns to full-time performance of the Executive's duties before the Disability Effective Date. (b) By the Company. (i) The Company may terminate the Executive's employment during the Employment Period for Cause or without Cause. "Cause" means: A. the willful and continued failure of the Executive substantially to perform the Executive's duties under this Agreement (other than as a result of physical or mental illness or injury), after the Board delivers to the Executive a written demand for substantial performance that specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties; or B. illegal conduct or gross misconduct by the Executive, in either case that is willful and results in material and demonstrable damage to the business or reputation of the Company. No act or failure to act on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act or failure to act that is based upon authority given pursuant to a resolution duly adopted by the Board, or the advice of counsel for the Company, shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. (ii) A termination of the Executive's employment for Cause shall be effected in accordance with the following procedures. The Company shall give the Executive written notice ("Notice of Termination for Cause") of its intention to terminate the Executive's employment for Cause, setting forth in reasonable detail the specific conduct of the Executive that it considers to constitute Cause and the specific provision(s) of this Agreement on which it relies, and stating the date, time and place of the Special Board Meeting for Cause. The "Special Board Meeting for Cause" means a meeting of the Board called and held specifically for the purpose of considering the Executive's termination for Cause, that takes place not less than ten (10) and not more than twenty (20) business days after the Executive receives the Notice of Termination for Cause. The Executive shall be given an opportunity, together with counsel, to be heard at the Special Board Meeting for Cause. The Executive's termination for Cause shall be effective when and if a resolution is duly adopted at the Special Board Meeting for Cause by a two-thirds vote of the entire membership of the Board, excluding employee directors, stating that in the good faith opinion of the Board, the Executive is guilty of the conduct described in the Notice of Termination for Cause, and that conduct constitutes Cause under this Agreement. (iii) A termination of the Executive's employment without Cause shall be effected in accordance with the following procedures. The Company shall give the Executive written notice ("Notice of Termination without Cause") of its intention to terminate the Executive's employment without Cause, stating the date, time and place of the Special Board Meeting without Cause. The "Special Board Meeting without Cause" means a meeting of the Board called and held specifically for the purpose of considering the Executive's termination without Cause, that takes place not less than ten (10) and not more than twenty (20) business days after the Executive receives the Notice of Termination without Cause. The Executive shall be given an opportunity, together with counsel, to be heard at the Special Board Meeting without Cause. The Executive's termination without Cause shall be effective when and if a resolution is duly adopted at the Special Board Meeting without Cause by a two-thirds vote of the entire membership of the Board, excluding employee directors, stating that the Executive is terminated without Cause. (c) Good Reason. (i) The Executive may terminate employment for Good Reason or without Good Reason. "Good Reason" means: A. the assignment to the Executive of any duties inconsistent in any respect with paragraphs (a) and (b) of Section 2 of this Agreement, or any other action by the Company that results in a diminution in the Executive's position, authority, duties or responsibilities, other than an isolated, insubstantial and inadvertent action that is not taken in bad faith and is remedied by the Company promptly after receipt of notice thereof from the Executive; B. any failure by the Company to comply with any provision of Section 3 of this Agreement, other than an isolated, insubstantial and inadvertent failure that is not taken in bad faith and is remedied by the Company promptly after receipt of notice thereof from the Executive; C. any requirement by the Company that the Executive's services be rendered primarily at a location or locations other than that provided for in paragraph (d) of Section 2 of this Agreement; D. any purported termination of the Executive's employment by the Company for a reason or in a manner not expressly permitted by this Agreement; E. any failure by the Company to comply with paragraph (c) of Section 11 of this Agreement; or F. any other substantial breach of this Agreement by the Company that either is not taken in good faith or is not remedied by the Company promptly after receipt of notice thereof from the Executive. (ii) A termination of employment by the Executive for Good Reason shall be effectuated by giving the Company written notice ("Notice of Termination for Good Reason") of the termination within six months of the event constituting Good Reason, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which the Executive relies. A termination of employment by the Executive for Good Reason shall be effective on the fifth business day following the date when the Notice of Termination for Good Reason is given, unless the notice sets forth a later date (which date shall in no event be later than thirty (30) days after the notice is given). (iii) A termination of the Executive's employment by the Executive without Good Reason shall be effected by giving the Company written notice of the termination. (d) Date of Termination. The "Date of Termination" means the date of the Executive's death, the Disability Effective Date, the date on which the termination of the Executive's employment by the Company for Cause or without Cause or by the Executive for Good Reason is effective, or the date on which the Executive gives the Company notice of a termination of employment without Good Reason, as the case may be. 5. Obligations of the Company upon Termination. (a) By the Company other than for Cause, Death or Disability; by the Executive for Good Reason. If, during the Employment Period, the Company terminates the Executive's employment, other than for Cause, Death, or Disability, or the Executive terminates employment for Good Reason, the Company shall continue to provide the Executive with the compensation and benefits set forth in paragraphs (a), (b) and (c) of Section 3 as if he had remained employed by the Company pursuant to this Agreement through the end of the Employment Period and then retired (at which time he will be treated as eligible for and will be entitled to receive all retiree welfare benefits and other benefits provided to retired senior executives, as set forth in Section 3(c), with such benefits being calculated for this purpose as though the Executive had retired at age 62 with earnings on an annual basis during the years between the Date of Termination and age 62 equal to the Executive's earnings for the year immediately preceding the Date of Termination); provided, that the Incentive Compensation for the period through the end of the Employment Period shall be equal to the maximum Incentive Compensation that the Executive would have been eligible to earn for such period; provided, further that in lieu of stock options, restricted stock and other stock-based awards, the Executive shall be paid cash equal to the fair market value (without regard to any restrictions) of the stock options, restricted stock and other stock-based awards that would otherwise have been granted; and provided, further that to the extent any benefits described in paragraph (c) of Section 3 cannot be provided pursuant to the plan or program maintained by the Company for its executives, the Company shall provide such benefits outside such plan or program at no additional cost (including without limitation tax cost) to the Executive and his family; and provided, finally, that during any period when the Executive is eligible to receive benefits of the type described in clause (B) of paragraph (c)(iv) of Section 3 under another employer-provided plan, the benefits provided by the Company under this paragraph (a) of Section 5 may be made secondary to those provided under such other plan. In addition to the foregoing, any restricted stock outstanding on the Date of Termination shall be fully vested as of the Date of Termination and all options outstanding on the Date of Termination shall be fully vested and exercisable and shall remain in effect and exercisable through the end of their respective terms, without regard to the termination of the Executive's employment. The payments and benefits provided pursuant to this paragraph (a) of Section 5 are intended as liquidated damages for a termination of the Executive's employment by the Company other than for Cause or Disability or for the actions of the Company leading to a termination of the Executive's employment by the Executive for Good Reason, and shall be the sole and exclusive remedy therefor. (b) Death and Disability. If the Executive's employment is terminated by reason of the Executive's death or Disability during the Employment Period, the Company shall pay to the Executive or, in the case of the Executive's death, to the Executive's designated beneficiaries (or, if there is no such beneficiary, to the Executive's estate or legal representative), in a lump sum in cash within thirty (30) days after the Date of Termination, the sum of the following amounts (the "Accrued Obligations"): (1) any portion of the Executive's Annual Base Salary through the Date of Termination that has not yet been paid; (2) an amount representing the Incentive Compensation for the period that includes the Date of Termination, computed by assuming that the amount of all such Incentive Compensation would be equal to the maximum amount of such Incentive Compensation that the Executive would have been eligible to earn for such period, and multiplying that amount by a fraction, the numerator of which is the number of days in such period through the Date of Termination, and the denominator of which is the total number of days in the relevant period; (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) that has not yet been paid; and (4) any accrued but unpaid Incentive Compensation and vacation pay. Any deferred compensation (together with any accrued interest or earnings thereon, if any) that has not yet been paid, will be paid in accordance with the terms and conditions applicable to such deferred compensation. (c) By the Company for Cause; By the Executive Other than for Good Reason. If the Executive's employment is terminated by the Company for Cause during the Employment Period, the Company shall pay the Executive the Annual Base Salary through the Date of Termination and the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon), in each case to the extent not yet paid, and the Company shall have no further obligations under this Agreement, except as specified in Section 6 below. If the Executive voluntarily terminates employment during the Employment Period, other than for Good Reason, the Company shall pay the Accrued Obligations to the Executive in a lump sum in cash within thirty (30) days of the Date of Termination, and the Company shall have no further obligations under this Agreement, except as specified in Section 6 below. 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliates for which the Executive may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliates relating to subject matter other than that specifically addressed herein. Vested benefits and other amounts that the Executive is otherwise entitled to receive under the Incentive Compensation program, the Defined Benefit Arrangement, the Life Insurance Coverage, the Executive Tenure Compensation Plan, the Executive's Deferred Compensation Plan(s), or any other plan, policy, practice or program of, or any contract or agreement with, the Company or any of its affiliates on or after the Date of Termination shall be payable in accordance with the terms of each such plan, policy, practice, program, contract or agreement, as the case may be, except as explicitly modified by this Agreement. 7. Full Settlement. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The amounts payable by the Company under this Agreement shall not be offset or reduced by any amounts otherwise receivable or received by the Executive from any source, except as specifically provided in paragraph (a) of Section 5 with respect to benefits described in clause (B) of paragraph (c)(iv) of Section 3. 8. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies and their respective businesses that the Executive obtains during the Executive's employment by the Company or any of its affiliated companies and that is not public knowledge (other than as a result of the Executive's violation of this Section 8) ("Confidential Information"). The Executive shall not communicate, divulge or disseminate Confidential Information at any time during or after the Executive's employment with the Company, except with the prior written consent of the Company or as otherwise required by law or legal process. In no event shall any asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 9. Limitation on Payments. (a) Notwithstanding any other provision of this Agreement, if any portion of any payment under this Agreement, or under any other agreement with or plan of the Company or its affiliates (in the aggregate "Total Payments"), would constitute an "excess parachute payment," then the Total Payments to be made to the Executive shall be reduced such that the value of the aggregate Total Payments that the Executive is entitled to receive shall be One Dollar ($1) less than the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 (or any successor provision) of the Internal Revenue Code of 1986, as amended (the "Code") or which the Company may pay without loss of deduction under Section 280G(a) of the Code (or any successor provision). For purposes of this Agreement, the terms "excess parachute payment" and "parachute payments" shall have the meanings assigned to them in Section 280G of the Code (or any successor provision), and such "parachute payments" shall be valued as provided therein. Present value for purposes of this Agreement shall be calculated in accordance with Section 1274(b)(2) of the Code (or any successor provision). Within fifteen (15) days following the Date of Termination or notice by the Company to the Executive of its belief that there is a payment or benefit due the Executive which will result in an excess parachute payment as defined in Section 280G of the Code (or any successor provision), the Executive and the Company, at the Company's expense, shall obtain the opinion (which need not be unqualified) of nationally recognized tax counsel selected by the Company's independent auditors and acceptable to the Executive in his sole discretion (which may be regular outside counsel to the Company), which opinion sets forth (i) the amount of the Base Period Income, (ii) the amount and present value of Total Payments and (iii) the amount and present value of any excess parachute payments determined without regard to the limitations of this paragraph (a) of Section 9. As used in this Agreement, the term "Base Period Income" means an amount equal to the Executive's "annualized includible compensation for the base period" as defined in Section 280G(d)(1) of the Code (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 Executive. Such opinion shall be dated as of the Date of Termination and addressed to the Company and the Executive and shall be binding upon the Company and the Executive. If such opinion determines that there would be an excess parachute payment, any payment or benefit determined by such counsel to be includible in Total Payments shall be reduced or eliminated as specified by the Executive in writing delivered to the Company within thirty (30) days of his receipt of such opinion or, if the Executive fails to so notify the Company, then as the Company shall reasonably determine, so that under the bases of calculations set forth in such opinion there will be no excess parachute payment. If such legal counsel so requests in connection with the opinion required by this paragraph (a) of Section 9, the Executive and the Company shall obtain, at the Company's expense, and the 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 Executive. If the provisions of Sections 280G and 4999 of the Code (or any successor provisions) are repealed without succession, then this paragraph (a) of Section 9 shall be of no further force or effect. (b) If, notwithstanding the provisions of paragraph (a) of Section 9, it is ultimately determined by a court or pursuant to a final determination by the Internal Revenue Service that any portion of Total Payments is subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any successor provision), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive after deduction of any Excise Tax and any interest charges or penalties in respect of the imposition of such Excise Tax (but not any federal, state or local income tax) on the Total Payments, and any federal, state and local income tax and Excise Tax upon the payment provided for by this paragraph (b) of Section 9, shall be equal to the Total Payments. For purposes of determining the amount of the Gross- Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of the Executive's domicile for income tax purposes on the date the Gross-Up Payment is made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. 10. Attorneys' Fees. The Company agrees to pay, as incurred, to the fullest extent permitted by law, all legal fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of the outcome) by the Company, the Executive or others of the validity or enforceability of or liability under, or otherwise involving, any provision of this Agreement, together with interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Code. 11. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean both the Company as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Wisconsin, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Erroll B. Davis, Jr. 7829 Noll Valley Road Verona, Wisconsin 53593 If to the Company: Interstate Energy Corporation 222 West Washington Avenue P.O. Box 2568 Madison, Wisconsin 53701-2568 Attention: General Counsel With a copy to: Benjamin F. Garmer, III c/o Foley & Lardner 777 East Wisconsin Avenue Milwaukee, WI 53202-5367 or to such other address as either party furnishes to the other in writing in accordance with this paragraph (b) of Section 12. Notices and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. (d) Notwithstanding any other provisions of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. (e) The Executive's or the Company's failure to insist upon strict compliance with any provisions of, or to assert any right under, this Agreement (including, without limitation, the right of Executive to terminate employment for Good Reason pursuant to paragraph (c) of Section 4 of this Agreement) shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. (f) The Executive and the Company acknowledge that this Agreement supersedes any other agreement between them concerning the subject matter hereof, excluding the agreement between the Executive and the Company dated June 25, 1994, as in effect on the date hereof or as hereafter amended from time to time (the "Severance Agreement"); provided, however, that to the extent that a payment or benefit to be provided under this Agreement is similarly to be provided under the Severance Agreement, the Company agrees to pay or provide to the Executive that payment or benefit which provides the highest value to the Executive, and the Executive agrees, in order to avoid duplication of payments or benefits, that upon the receipt of any such highest value payment or benefit under either this Agreement or the Severance Agreement, as the case may be, he shall have no right to any similar payment or benefit of lesser value under the other agreement. (g) The rights and benefits of the Executive under this Agreement may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. (h) This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. 13. Effectiveness of Agreement. The effectiveness of this Agreement is subject to the consummation of the Merger (as defined in the Merger Agreement). If for any reason the Merger is not consummated in accordance with the terms of the Merger Agreement, this Agreement shall be null and void, ab initio. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization of its Board of Directors, the Company has caused this Agreement to be executed in its name and on its behalf, all as of the day and year first above written. /s/ Erroll B. Davis, Jr. Erroll B. Davis, Jr. INTERSTATE ENERGY CORPORATION By /s/ E. M. Gleason Vice President EX-10.2 6 As Executed EMPLOYMENT AGREEMENT THIS AGREEMENT by and between Interstate Energy Corporation, a Wisconsin corporation (the "Company"), and Lee Liu (the "Executive"), dated as of the 21st day of April, 1998. WHEREAS, WPL Holdings, Inc., IES Industries Inc. ("IES Industries"), Interstate Power Company, a Delaware corporation, WPLH Acquisition Co. and Interstate Power Company, a Wisconsin corporation (collectively, the "Merger Parties"), have entered into an Agreement and Plan of Merger dated as of November 10, 1995, as amended (the "Merger Agreement"); and WHEREAS, the Merger Parties wish to provide for the orderly succession of management of the Company following the Effective Time (as defined in the Merger Agreement); and WHEREAS, the Merger Parties further wish to provide for the employment by the Company of the Executive, and the Executive wishes to serve the Company, in the capacities and on the terms and conditions set forth in this Agreement: NOW, THEREFORE, it is hereby agreed as follows: 1. Employment Period. The Company shall employ the Executive, and the Executive shall serve the Company as an employee and officer of the Company, on the terms and conditions set forth in this Agreement, for the period commencing on the Effective Time and ending on the date immediately preceding the second anniversary of the Effective Time (the "Employment Period"). Upon the termination of the Employment Period the Executive will have the status of a retired senior executive officer of the Company and shall be entitled to all of the rights, privileges and benefits provided to such retired officers. 2. Position and Duties. (a) Title. During the Employment Period, the Executive shall serve as Chairman of the Board of Directors (the "Board") of the Company ("Chairman"). Upon termination of the Employment Period, the Executive shall continue to be eligible to serve as a director of the Company. (b) Duties. During the Employment Period, the Executive shall perform the normal and ordinary duties of Chairman and shall serve, together with the Vice Chairman of the Board and the Chief Executive Officer, as a member of the senior executive team of the Company charged with responsibility for developing and implementing programs to achieve the corporate integration and restructuring of the Merger Parties following the Effective Time. In addition, he will have involvement, as appropriate, in government regulatory initiatives, will be involved in major economic development initiatives of the Company and will serve in such other capacities and will perform such other functions consistent with his status as Chairman as may be reasonably assigned by the Board from time to time. The Executive shall devote the necessary time and effort required to perform the above described duties. (c) Office. The Executive's services hereunder shall be performed primarily at the existing executive offices of IES Industries located in Cedar Rapids, Iowa, subject to such business travel as shall be necessary and appropriate. 3. Compensation. (a) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary") of not less than Four Hundred Thousand Dollars ($400,000), payable in accordance with the Company's regular payroll practice for its senior executives, as in effect from time to time. During the Employment Period, the Annual Base Salary shall be reviewed for possible increase at least annually. Any increase in the Annual Base Salary shall not limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any such increase, and the term "Annual Base Salary" shall thereafter refer to the Annual Base Salary as so increased. (b) Incentive Compensation. During the Employment Period, the Executive shall participate in such short-term incentive compensation plans and long-term incentive compensation plans as shall be decided upon in the discretion of the Compensation Committee of the Board (the "Compensation Committee") (the latter to consist of plans offering stock options, restricted stock and/or other long-term incentive compensation), providing him with the opportunity to earn, on an annualized basis, short- term and long-term incentive compensation (collectively, the "Incentive Compensation") not less than the aggregate amount of the incentive compensation that the Executive had an opportunity to earn under IES Industries' Management Incentive Compensation Plan (the "MICP") and Long- Term Incentive Plan (the "LTIP") in respect of the calendar year ended immediately prior to the Effective Time, and such Incentive Compensation shall be payable in accordance with standards (i.e., performance criteria, performance levels, etc.) which are no less favorable to the Executive than those applicable with respect to the amounts that were payable to the Executive under each of the MICP and the LTIP in respect of the calendar year ended immediately prior to the Effective Time. (c) Other Benefits. In addition, and without limiting the generality of the foregoing, during the Employment Period and thereafter: (A) the Executive shall be entitled to participate in all applicable incentive, savings and retirement plans, practices, policies and programs of the Company and its affiliates to the same extent as other senior executives (or, where applicable, retired senior executives) of the Company, (B) the Executive and/or the Executive's family, as the case may be, shall be eligible for immediate participation in (and without any limitation for pre-existing conditions), and shall receive all benefits under, all applicable welfare benefit plans, practices, policies and programs provided by the Company and its affiliates, including, without limitation, medical, prescription, dental, disability, salary continuance, accidental death and travel insurance plans and programs, to the same extent as other senior executives (or, where applicable, retired senior executives) of the Company, provided, however that the Executive's aggregate benefits as a retired senior executive under the plans described in this clause (B) shall not be less than the benefits provided by IES Industries to its retired senior executive officers as of the date of this Agreement and (C) the Company shall maintain, at no cost to the Executive, life insurance on the life of the Executive payable to one or more beneficiaries designated by the Executive in an amount not less than the aggregate amount of the life insurance provided to the Executive by IES Industries immediately prior to the Effective Time. (d) Perquisites. During the Employment Period, the Executive shall be entitled to receive such perquisites as the Company may establish from time to time which are commensurate with his position and at least comparable to those received by other senior executives at the Company. (e) Expense Reimbursement. The Company shall reimburse the Executive for all reasonable and documented expenses incurred by the Executive in the performance of the Executive's duties under this Agreement. (f) Supplemental Retirement Benefit. The Executive and IES Industries have entered into that certain Amended and Restated Supplemental Retirement Agreement dated February 1, 1993, as amended (the "Supplemental Retirement Agreement"). The Company shall assume, honor and perform the obligations of IES Industries under the Supplemental Retirement Agreement (as amended as set forth below). In addition, the Company and the Executive agree that as of the Effective Time the terms of the Supplemental Retirement Agreement shall be amended as provided below. (Capitalized terms used below in this Section 3(f) which are not otherwise specifically defined in this Agreement shall have the meanings ascribed to such terms in the Supplemental Retirement Agreement as amended hereby). The Supplemental Retirement Agreement shall be amended as follows: (i) the term "Annual Salary" as defined in Section 2.1 of the Supplemental Retirement Agreement for purposes of calculating the benefit payable to the Executive and his Designated Beneficiary under the Supplemental Retirement Agreement shall be modified so that "Annual Salary" shall be the sum of (A) the Executive's Annual Base Salary and (B) an amount equal to the average of the annual incentive awards payable to the Executive under the IES Industries MICP in respect of each of the three (3) consecutive annual performance periods ended immediately prior to the Effective Time of the Merger; (ii) the Executive shall be fully vested in and entitled to receive, at Normal Retirement Age, the full amount of his Normal Retirement Benefit under the Supplemental Retirement Agreement, as amended hereby, and the Executive shall be deemed to have attained Normal Retirement Age for all purposes under the Supplemental Retirement Agreement as of the date on which he ceases, for any reason, to receive the compensation and benefits set forth in paragraphs (a), (b) and (c) of Section 3 of this Agreement; (iii) Sections 3.2, 3.3 and 4.1 of the Supplemental Retirement Agreement shall be amended to provide that in the event of the Executive's death at any time on or after the Effective Time, the Executive's Designated Beneficiary shall receive monthly Supplemental Benefit payments or Death Benefit payments, as the case may be, for a period of months that, when added to the number of months, if any, during which the Executive received monthly benefits under the Supplemental Retirement Agreement, will be equal to one hundred eighty (180) months; and (iv) for purposes of Section 9.1 of the Supplemental Retirement Agreement, in the event of the Executive's death, the Executive shall be treated as receiving the Supplemental Benefit portion of the Normal Retirement Benefit at the time of death regardless of whether he was actually receiving such Supplemental Benefit at such time. The foregoing modifications to the terms of the Supplemental Retirement Agreement shall take effect as of the Effective Time. As soon as practicable following the Effective Time (but in no event later than 60 days after the Effective Time), the Company and the Executive shall take all actions necessary to execute a formal amendment to the Supplemental Retirement Agreement incorporating the modifications set forth above. Until the time that such a formal amendment is properly executed, the provisions of this Section 3(f) shall serve and be construed, for all intents and purposes, as an amendment to the terms of the Supplemental Retirement Agreement, and the obligations of the Company thereunder shall be governed by the terms of the Supplemental Retirement Agreement as so amended. 4. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. The Company shall be entitled to terminate the Executive's employment because of the Executive's Disability during the Employment Period. "Disability" means that (i) the Executive has been unable, for a period of one hundred and eighty (180) consecutive business days, to perform the Executive's duties under this Agreement, as a result of physical or mental illness or injury, and (ii) a physician selected by the Company or its insurers, and acceptable to the Executive or the Executive's legal representative, has determined that the Executive's incapacity is total and permanent. A termination of the Executive's employment by the Company for Disability shall be communicated to the Executive by written notice and shall be effective on the thirtieth (30th) day after receipt of such notice by the Executive (the "Disability Effective Date"), unless the Executive returns to full-time performance of the Executive's duties before the Disability Effective Date. (b) By the Company. (i) The Company may terminate the Executive's employment during the Employment Period for Cause or without Cause. "Cause" means: A. the willful and continued failure of the Executive substantially to perform the Executive's duties under this Agreement (other than as a result of physical or mental illness or injury), after the Board of Directors of the Company (the "Board") delivers to the Executive a written demand for substantial performance that specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties; or B. illegal conduct or gross misconduct by the Executive, in either case that is willful and results in material and demonstrable damage to the business or reputation of the Company. No act or failure to act on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act or failure to act that is based upon authority given pursuant to a resolution duly adopted by the Board, or the advice of counsel for the Company, shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. (ii) A termination of the Executive's employment for Cause shall be effected in accordance with the following procedures. The Company shall give the Executive written notice ("Notice of Termination for Cause") of its intention to terminate the Executive's employment for Cause, setting forth in reasonable detail the specific conduct of the Executive that it considers to constitute Cause and the specific provision(s) of this Agreement on which it relies, and stating the date, time and place of the Board Meeting for Cause. The "Board Meeting for Cause" means a meeting of the Board at which the Executive's termination for Cause will be considered, that takes place not less than ten (10) and not more than twenty (20) business days after the Executive receives the Notice of Termination for Cause. The Executive shall be given an opportunity, together with counsel, to be heard at the Board Meeting for Cause. The Executive's termination for Cause shall be effective when and if a resolution is duly adopted at the Board Meeting for Cause by a two- thirds vote of the entire membership of the Board, excluding employee directors, stating that in the good faith opinion of the Board, the Executive is guilty of the conduct described in the Notice of Termination for Cause, and that conduct constitutes Cause under this Agreement. (iii) A termination of the Executive's employment without Cause shall be effected in accordance with the following procedures. The Company shall give the Executive written notice ("Notice of Termination Without Cause") of its intention to terminate the Executive's employment without Cause, stating the date, time and place of the Board Meeting without Cause. The "Board Meeting without Cause" means a meeting of the Board at which the Executive's termination without Cause will be considered, that takes place not less than ten (10) and not more than twenty (20) business days after the Executive receives the Notice of Termination without Cause. The Executive shall be given an opportunity, together with counsel, to be heard at the Board Meeting without Cause. The Executive's termination without Cause shall be effective when and if a resolution is duly adopted at the Board Meeting without Cause by a two- thirds vote of the entire membership of the Board, excluding employee directors, stating that the Executive is terminated without Cause. (c) Good Reason. (i) The Executive may terminate employment for Good Reason or without Good Reason. "Good Reason" means: A. the assignment to the Executive of any duties inconsistent in any respect with paragraphs (a) and (b) of Section 2 of this Agreement, or any other action by the Company that results in a diminution in the Executive's position, authority, duties or responsibilities, other than an isolated, insubstantial and inadvertent action that is not taken in bad faith and is remedied by the Company promptly after receipt of notice thereof from the Executive; B. any failure by the Company to comply with any provision of Section 3 of this Agreement, other than an isolated, insubstantial and inadvertent failure that is not taken in bad faith and is remedied by the Company promptly after receipt of notice thereof from the Executive; C. any requirement by the Company that the Executive's services be rendered primarily at a location or locations other than that provided for in paragraph (c) of Section 2 of this Agreement. D. any purported termination of the Executive's employment by the Company for a reason or in a manner not expressly permitted by this Agreement; E. any failure by the Company to comply with paragraph (c) of Section 12 of this Agreement; or F. any other substantial breach of this Agreement by the Company that either is not taken in good faith or is not remedied by the Company promptly after receipt of notice thereof from the Executive. (ii) A termination of employment by the Executive for Good Reason shall be effectuated by giving the Company written notice ("Notice of Termination for Good Reason") of the termination within six (6) months of the event constituting Good Reason, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which the Executive relies. A termination of employment by the Executive for Good Reason shall be effective on the fifth (5th) business day following the date when the Notice of Termination for Good Reason is given, unless the notice sets forth a later date (which date shall in no event be later than thirty (30) days after the notice is given). (iii) A termination of the Executive's employment by the Executive without Good Reason shall be effected by giving the Company written notice of the termination. (d) Date of Termination. The "Date of Termination" means the date of the Executive's death, the Disability Effective Date, the date on which the termination of the Executive's employment by the Company for Cause or without Cause or by the Executive for Good Reason is effective, or the date on which the Executive gives the Company notice of a termination of employment without Good Reason, as the case may be. 5. Obligations of the Company Upon Termination. (a) By the Company other than for Cause, Death or Disability; by the Executive for Good Reason. If, during the Employment Period, the Company terminates the Executive's employment, other than for Cause, Death or Disability, or the Executive terminates employment for Good Reason, the Company shall continue to provide the Executive with the compensation and benefits set forth in paragraphs (a), (b) and (c) of Section 3 as if he had remained employed by the Company pursuant to this Agreement through the end of the Employment Period and then retired (at which time he will be treated as eligible for all retiree welfare benefits and other benefits provided to retired senior executives, as set forth in Sections 3(c) and (f)); PROVIDED, that the Incentive Compensation for such period shall be equal to the maximum Incentive Compensation that the Executive would have been eligible to earn for such period; PROVIDED, further that in lieu of stock options, restricted stock and other stock-based awards, the Executive shall be paid cash equal to the fair market value (without regard to any restrictions) of the stock options, restricted stock and other stock-based awards that would otherwise have been granted; PROVIDED, further, that to the extent any benefits described in paragraph (c) of Section 3 cannot be provided pursuant to a plan or program maintained by the Company for its executives, the Company shall provide such benefits outside such plan or program at no additional cost (including without limitation tax cost) to the Executive and his family; and PROVIDED, finally, that during any period when the Executive is eligible to receive benefits of the type described in clause (B) of paragraph (c) of Section 3 under another employer-provided plan, the benefits provided by the Company under this paragraph (a) of Section 5 may be made secondary to those provided under such other plan. In addition to the foregoing, any restricted stock outstanding on the Date of Termination shall be fully vested as of the Date of Termination and all options outstanding on the Date of Termination shall be fully vested and exercisable and shall remain in effect and exercisable through the end of their respective terms, without regard to the termination of the Executive's employment. The payments and benefits provided pursuant to this paragraph (a) of Section 5 are intended as liquidated damages for a termination of the Executive's employment by the Company other than for Cause or Disability or for the actions of the Company leading to a termination of the Executive's employment by the Executive for Good Reason, and shall be the sole and exclusive remedy therefor. (b) Death and Disability. If the Executive's employment is terminated by reason of the Executive's death or Disability during the Employment Period, the Company shall pay to the Executive or, in the case of the Executive's death, to the Executive's designated beneficiaries (or, if there is no such beneficiary, to the Executive's surviving spouse, or if the Executive is not survived by a spouse, to the Executive's estate or legal representative), in a lump sum in cash within thirty (30) days after the Date of Termination, the sum of the following amounts (the "Accrued Obligations"): (1) any portion of the Executive's Annual Base Salary through the Date of Termination that has been earned but not yet been paid; (2) an amount representing the Incentive Compensation for the period that includes the Date of Termination, computed by assuming that the amount of all such Incentive Compensation would be equal to the maximum amount of such Incentive Compensation that the Executive would have been eligible to earn for such period, and multiplying that amount by a fraction, the numerator of which is the number of days in such period through the Date of Termination, and the denominator of which is the total number of days in the relevant period; (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) that has not yet been paid; and (4) any accrued but unpaid Incentive Compensation and vacation pay. Any deferred compensation (together with any accrued interest or earnings thereon, if any) that has not yet been paid, will be paid in accordance with the terms and conditions applicable to such deferred compensation. (c) By the Company for Cause; by the Executive other than for Good Reason. If the Executive's employment is terminated by the Company for Cause during the Employment Period, the Company shall pay the Executive the Annual Base Salary through the Date of Termination and the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon), in each case to the extent not yet paid, and the Company shall have no further obligations under this Agreement, except as specified in Section 6 below. If the Executive voluntarily terminates employment during the Employment Period, other than for Good Reason, the Company shall pay the Accrued Obligations to the Executive in a lump sum in cash within thirty (30) days of the Date of Termination, and the Company shall have no further obligations under this Agreement, except as specified in Section 6 below. 6. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company for which the Executive may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliates relating to subject matter other than that specifically addressed herein. Vested benefits and other amounts that the Executive is otherwise entitled to receive under the Incentive Compensation, the deferred compensation and other benefit programs listed in paragraph (c) of Section 3, or any other plan, policy, practice or program of, or any contract or agreement with, the Company or any of its affiliates on or after the Date of Termination shall be payable in accordance with the terms of each such plan, policy, practice, program, contract or agreement, as the case may be, except as explicitly modified by this Agreement. 7. Full Settlement. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The amounts payable by the Company under this Agreement shall not be offset or reduced by any amounts otherwise receivable or received by the Executive from any source, except as specifically provided in paragraph (a) of Section 5 with respect to benefits described in clause (B) of paragraph (c) of Section 3. 8. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies and their respective businesses that the Executive obtains during the Executive's employment by the Company or any of its affiliated companies and that is not public knowledge (other than secret or confidential information, knowledge or data which becomes public knowledge as a result of the Executive's violation of this Section 8) ("Confidential Information"). The Executive shall not communicate, divulge or disseminate Confidential Information at any time during or after the Executive's employment with the Company, except with the prior written consent of the Company or as otherwise required by law or legal process. In no event shall any asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 9. Limitation on Payments. (a) Notwithstanding any other provision of this Agreement, if any portion of any payment under this Agreement, or under any other agreement with or plan of the Company or its affiliates (in the aggregate "Total Payments"), would constitute an "excess parachute payment," then the Total Payments to be made to the Executive shall be reduced such that the value of the aggregate Total Payments that the Executive is entitled to receive shall be One Dollar ($1) less than the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 (or any successor provision) of the Internal Revenue Code of 1986, as amended (the "Code") or which the Company may pay without loss of deduction under Section 280G(a) of the Code (or any successor provision). For purposes of this Agreement, the terms "excess parachute payment" and "parachute payments" shall have the meanings assigned to them in Section 280G of the Code (or any successor provision), and such "parachute payments" shall be valued as provided therein. Present value for purposes of this Agreement shall be calculated in accordance with Section 1274(b)(2) of the Code (or any successor provision). Within fifteen (15) days following the Date of Termination or notice by the Company to the Executive of its belief that there is a payment or benefit due the Executive which will result in an excess parachute payment as defined in Section 280G of the Code (or any successor provision), the Executive and the Company, at the Company's expense, shall obtain the opinion (which need not be unqualified) of nationally recognized tax counsel selected by the Company's independent auditors and acceptable to the Executive in his sole discretion (which may be regular outside counsel to the Company), which opinion sets forth (i) the amount of the Base Period Income, (ii) the amount and present value of Total Payments and (iii) the amount and present value of any excess parachute payments determined without regard to the limitations of this paragraph (a) of Section 9. As used in this Agreement, the term "Base Period Income" means an amount equal to the Executive's "annualized includible compensation for the base period" as defined in Section 280G(d)(1) of the Code (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 Executive. Such opinion shall be dated as of the Date of Termination and addressed to the Company and the Executive and shall be binding upon the Company and the Executive. If such opinion determines that there would be an excess parachute payment, any payment or benefit determined by such counsel to be includible in Total Payments shall be reduced or eliminated as specified by the Executive in writing delivered to the Company within thirty (30) days of his receipt of such opinion or, if the Executive fails to so notify the Company, then as the Company shall reasonably determine, so that under the bases of calculations set forth in such opinion there will be no excess parachute payment. If such legal counsel so requests in connection with the opinion required by this paragraph (a) of Section 9, the Executive and the Company shall obtain, at the Company's expense, and the 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 Executive. If the provisions of Sections 280G and 4999 of the Code (or any successor provisions) are repealed without succession, then this paragraph (a) of Section 9 shall be of no further force or effect. (b) If, notwithstanding the provisions of paragraph (a) of Section 9, it is ultimately determined by a court or pursuant to a final determination by the Internal Revenue Service that any portion of Total Payments is subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any successor provision), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive after deduction of any Excise Tax and any interest charges or penalties in respect of the imposition of such Excise Tax (but not any federal, state or local income tax) on the Total Payments, and any federal, state and local income tax and Excise Tax upon the payment provided for by this paragraph (b) of section 9, shall be equal to the Total Payments. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of the Executive's domicile for income tax purposes on the date the Gross-Up Payment is made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. 10. Executive's Service on the Board. (a) Appointment and Nomination. The Company shall appoint the Executive as a member of the Board for an initial three (3) year term commencing on the Effective Date (the "Initial Board Term"). (b) Board and Committee Compensation. The Executive shall be compensated for his Board services in accordance with the general policies and practices of the Company as in effect from time to time relating to the compensation of employee and non-employee directors, as the case may be, and to the extent that such policies and practices provide for such compensation. (c) Office and Secretarial Assistance. Provided that the Executive remains in the employ of the Company as of the conclusion of the Employment Period and continues to serve as a member of the Board throughout his initial three-year term as a director, the Company shall provide to the Executive, for a period of one (1) year following the conclusion of the Employment Period, a furnished office and a full-time secretary at the Executive's disposal at the existing executive offices of IES Industries in Cedar Rapids, Iowa for the Executive's use in connection with any continuing business of the Company and any personal business of the Executive. 11. Attorneys' Fees. The Company agrees to pay, as incurred, to the fullest extent permitted by law, all legal fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of the outcome) by the Company, the Executive or others of the validity or enforceability of or liability under, or otherwise involving, any provision of this Agreement, together with interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Code. 12. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean both the Company as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise. 13. Miscellaneous. (a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Iowa, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by facsimile, addressed as follows: If to the Executive: Mr. Lee Liu 3086 Loggerhead Road Cedar Rapids, Iowa 52411 If to the Company: Interstate Energy Corporation 222 West Washington Avenue P.O. Box 2568 Madison, Wisconsin 53701-2568 Attn: General Counsel or to such other address as either party furnishes to the other in writing in accordance with this paragraph (b) of Section 13. Notices and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. (d) Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. (e) The Executive's or the Company's failure to insist upon strict compliance with any provisions of, or to assert any right under, this Agreement (including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to paragraph (c) of Section 4 of this Agreement) shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. (f) The Executive and the Company acknowledge that this Agreement supersedes the Employment Agreement between IES Industries and the Executive, dated February 27, 1991 and the Executive Change of Control Severance Agreement between IES Industries and the Executive, dated December 12, 1989 (and any successor Executive Change of Control Severance Agreement between the Executive and IES Industries). (g) The rights and benefits of the Executive under this Agreement may not be anticipated, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. (h) This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. 14. Effectiveness of Agreement. The effectiveness of this Agreement is subject to the consummation of the Merger (as defined in the Merger Agreement). If for any reason the Merger is not consummated in accordance with the terms of the Merger Agreement, this Agreement shall be null and void ab initio. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization of the Board of Directors, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. INTERSTATE ENERGY CORPORATION By: /s/ Edward M. Gleason Name: Edward M. Gleason Title: Vice President /s/ Lee Liu LEE LIU EX-10.3 7 As Executed EMPLOYMENT AGREEMENT THIS AGREEMENT by and between Interstate Power Company, a Delaware corporation (the "Company"), and Michael R. Chase (the "Executive"), dated as of the 21st day of April, 1998. WHEREAS, the Company, WPL Holdings, Inc. ("WPL Holdings"), IES Industries Inc., WPLH Acquisition Co. and Interstate Power Company, a Wisconsin corporation (collectively, the "Merger Parties"), have entered into an Agreement and Plan of Merger dated as of November 10, 1995, as amended (the "Merger Agreement"); and WHEREAS, the Merger Parties wish to provide for the orderly succession of management of the Company following the Effective Time (as defined in the Merger Agreement); and WHEREAS, the Merger Parties further wish to provide for the employment by the Company of the Executive, and the Executive wishes to serve the Company, in the capacities and on the terms and conditions set forth in this Agreement: NOW, THEREFORE, it is hereby agreed as follows: 1. Employment Period. The Company shall employ the Executive, and the Executive shall serve the Company as an employee and officer of the Company, on the terms and conditions set forth in this Agreement, for the period commencing on the Effective Time and ending on the last day of the calendar month immediately following the calendar month in which the Executive attains age 62 (the "Employment Period"). Upon the termination of the Employment Period the Executive will have the status of a retired senior executive officer of the Company and shall be entitled to all of the rights, privileges and benefits provided to such retired officers. 2. Position and Duties. (a) Title. During the Employment Period, the Executive shall serve as the President of the Company. (b) Duties. During the Employment Period, the Executive shall report to the Board of Directors of the Company (the "Board") and shall perform the duties, undertake the responsibilities and exercise the authority customarily performed, undertaken and exercised by persons situated in a similar executive capacity and shall additionally perform such duties as may be reasonably assigned from time to time by the Board, consistent with his status as President. During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive shall devote the whole of his attention and time during normal business hours (and outside those hours when reasonably necessary to his duties hereunder) to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive under this Agreement, use the Executive's reasonable best efforts to carry out such responsibilities faithfully and efficiently. It shall not be considered a violation of the foregoing for the Executive to serve on corporate, industry, civic or charitable boards or committees, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. (c) Office. The Executive's services hereunder shall be performed primarily at the executive offices of the Company located in Dubuque, Iowa, subject to such business travel as shall be necessary and appropriate. 3. Compensation. (a) Base Salary. The Executive's compensation during the Employment Period shall be determined by the Board upon the recommendation of the Compensation and Personnel Committee (or the appropriate committee) of the Board, subject to the next sentence and paragraph (b) of Section 3. During the Employment Period, the Executive shall receive an annual salary ("Annual Base Salary") of not less than his aggregate annual base salary from the Company and its affiliates in effect immediately before the Effective Time. The Annual Base Salary shall be payable in accordance with the Company's regular payroll practice for its senior executives, as in effect from time to time. During the Employment Period, the Annual Base Salary shall be reviewed for possible increase at least annually. Any increase in the Annual Base Salary shall not limit or reduce any other obligation of the Company under this Agreement. The Annual Base Salary shall not be reduced after any such increase, and the term "Annual Base Salary" shall thereafter refer to the Annual Base Salary as so increased. (b) Incentive Compensation. During the Employment Period, the Executive shall participate in such short-term incentive compensation plans and long-term incentive compensation plans as shall be decided upon in the discretion of the Compensation Committee of the Board (or other appropriate committee) (the latter to consist of plans offering stock options, restricted stock and/or other long-term incentive compensation), offered by WPL Holdings and its present and future affiliates, to the same extent as other senior executives of WPL Holdings and its primary subsidiaries (the "Incentive Compensation"). (c) Other Benefits. In addition, and without limiting the generality of the foregoing, during the Employment Period and thereafter: (A) the Executive shall be entitled to participate in all applicable incentive, savings and retirement plans, practices, policies and programs of WPL Holdings and its affiliates to the same extent as other senior executives (or, where applicable, retired senior executives) of the Company, and (B) the Executive and/or the Executive's family, as the case may be, shall be eligible for immediate participation in (and without any limitation for pre-existing conditions), and shall receive all benefits under, all applicable welfare benefit plans, practices, policies and programs provided by WPL Holdings and its affiliates, including, without limitation, medical, prescription, dental, disability, salary continuance, employee life insurance, accidental death and travel insurance plans and programs, to the same extent as other senior executives (or, where applicable, retired senior executives) of the Company; provided, however that the Executive's aggregate benefits as a retired senior executive under the plans described in this clause (B) shall not be less than the benefits provided by the Company to its retired senior executive officers as of the date of this Agreement. (d) Perquisites. During the Employment Period, the Executive shall be entitled to receive such perquisites as WPL Holdings may establish from time to time which are commensurate with his position and at least comparable to those received by other senior executives at WPL Holdings. (e) Expense Reimbursement. The Company shall reimburse the Executive for all reasonable and documented expenses incurred by the Executive in the performance of the Executive's duties under this Agreement. (f) Supplemental Retirement Benefit. During the Employment Period, the Executive shall participate in a retirement plan and/or supplemental retirement plan such that the aggregate value of the retirement benefits that will be payable to or with respect to the Executive at the end of the Employment Period under all defined benefit plans of the Company and its affiliates (whether qualified or not) will not be less than the benefits he would have received (assuming his employment through the end of the Employment Period) under the Interstate Power Company Retirement Income Plan and the Interstate Power Company Supplemental Retirement Plan, as in effect on the date of this Agreement. 4. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. The Company shall be entitled to terminate the Executive's employment because of the Executive's Disability during the Employment Period. "Disability" means that (i) the Executive has been unable, for a period of one hundred and eighty (180) consecutive business days, to perform the Executive's duties under this Agreement, as a result of physical or mental illness or injury, and (ii) a physician selected by the Company or its insurers, and acceptable to the Executive or the Executive's legal representative, has determined that the Executive's incapacity is total and permanent. A termination of the Executive's employment by the Company for Disability shall be communicated to the Executive by written notice and shall be effective on the thirtieth (30th) day after receipt of such notice by the Executive (the "Disability Effective Date"), unless the Executive returns to full-time performance of the Executive's duties before the Disability Effective Date. (b) By the Company. (i) The Company may terminate the Executive's employment during the Employment Period for Cause or without Cause. "Cause" means: A. the willful and continued failure of the Executive substantially to perform the Executive's duties under this Agreement (other than as a result of physical or mental illness or injury), after the Board of Directors of the Company (the "Board") delivers to the Executive a written demand for substantial performance that specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties; or B. illegal conduct or gross misconduct by the Executive, in either case that is willful and results in material and demonstrable damage to the business or reputation of the Company. No act or failure to act on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act or failure to act that is based upon authority given pursuant to a resolution duly adopted by the Board, or the advice of counsel for the Company, shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. (ii) A termination of the Executive's employment for Cause shall be effected in accordance with the following procedures. The Company shall give the Executive written notice ("Notice of Termination for Cause") of its intention to terminate the Executive's employment for Cause, setting forth in reasonable detail the specific conduct of the Executive that it considers to constitute Cause and the specific provision(s) of this Agreement on which it relies, and stating the date, time and place of the Board Meeting for Cause. The "Board Meeting for Cause" means a meeting of the Board at which the Executive's termination for Cause will be considered, that takes place not less than ten (10) and not more than twenty (20) business days after the Executive receives the Notice of Termination for Cause. The Executive shall be given an opportunity, together with counsel, to be heard at the Board Meeting for Cause. The Executive's termination for Cause shall be effective when and if a resolution is duly adopted at the Board Meeting for Cause by a two- thirds vote of the entire membership of the Board, excluding employee directors, stating that in the good faith opinion of the Board, the Executive is guilty of the conduct described in the Notice of Termination for Cause, and that conduct constitutes Cause under this Agreement. (iii) A termination of the Executive's employment without Cause shall be effected in accordance with the following procedures. The Company shall give the Executive written notice ("Notice of Termination Without Cause") of its intention to terminate the Executive's employment without Cause, stating the date, time and place of the Board Meeting without Cause. The "Board Meeting without Cause" means a meeting of the Board at which the Executive's termination without Cause will be considered, that takes place not less than ten (10) and not more than twenty (20) business days after the Executive receives the Notice of Termination without Cause. The Executive shall be given an opportunity, together with counsel, to be heard at the Board Meeting without Cause. The Executive's termination without Cause shall be effective when and if a resolution is duly adopted at the Board Meeting without Cause by a two- thirds vote of the entire membership of the Board, excluding employee directors, stating that the Executive is terminated without Cause. (c) Good Reason. (i) The Executive may terminate employment for Good Reason or without Good Reason. "Good Reason" means: A. the assignment to the Executive of any duties inconsistent in any respect with paragraphs (a) and (b) of Section 2 of this Agreement, or any other action by the Company that results in a diminution in the Executive's position, authority, duties or responsibilities, or a diminution in the overall importance of the Executive's role to WPL Holdings and its affiliates, other than an isolated, insubstantial and inadvertent action that is not taken in bad faith and is remedied by the Company promptly after receipt of notice thereof from the Executive; B. any failure by the Company to comply with any provision of Section 3 of this Agreement, other than an isolated, insubstantial and inadvertent failure that is not taken in bad faith and is remedied by the Company promptly after receipt of notice thereof from the Executive; C. any requirement by the Company that the Executive's services be rendered primarily at a location or locations other than that provided for in paragraph (c) of Section 2 of this Agreement; D. any purported termination of the Executive's employment by the Company for a reason or in a manner not expressly permitted by this Agreement; E. any failure by the Company to comply with paragraph (c) of Section 11 of this Agreement; or F. any other substantial breach of this Agreement by the Company that either is not taken in good faith or is not remedied by the Company promptly after receipt of notice thereof from the Executive. (ii) A termination of employment by the Executive for Good Reason shall be effectuated by giving the Company written notice ("Notice of Termination for Good Reason") of the termination within three (3) months of the event constituting Good Reason, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which the Executive relies. A termination of employment by the Executive for Good Reason shall be effective on the fifth (5th) business day following the date when the Notice of Termination for Good Reason is given, unless the notice sets forth a later date (which date shall in no event be later than thirty (30) days after the notice is given). (iii) A termination of the Executive's employment by the Executive without Good Reason shall be effected by giving the Company written notice of the termination. (d) Date of Termination. The "Date of Termination" means the date of the Executive's death, the Disability Effective Date, the date on which the termination of the Executive's employment by the Company for Cause or without Cause or by the Executive for Good Reason is effective, or the date on which the Executive gives the Company notice of a termination of employment without Good Reason, as the case may be. 5. Obligations of the Company Upon Termination. (a) By the Company other than for Cause, Death or Disability; by the Executive for Good Reason. If, during the Employment Period, the Company terminates the Executive's employment, other than for Cause, Death or Disability, or the Executive terminates employment for Good Reason, the Company shall continue to provide the Executive with the compensation and benefits set forth in paragraphs (a), (b) and (c) of Section 3 as if he had remained employed by the Company pursuant to this Agreement until the end of the Employment Period; PROVIDED, that the annualized Incentive Compensation for such period shall be equal to the average of the annualized Incentive Compensation payable to the Executive in respect of each of the three successive calendar years ended immediately prior to the Date of Termination; PROVIDED, further that in lieu of stock options, restricted stock and other stock-based awards, the Executive shall be paid cash equal to the fair market value (without regard to any restrictions) of the stock options, restricted stock and other stock-based awards that would otherwise have been granted; PROVIDED, further, that to the extent any benefits described in paragraph (c) of Section 3 cannot be provided pursuant to a plan or program maintained by the Company for its executives, the Company shall provide such benefits outside such plan or program at no additional cost (including without limitation tax cost) to the Executive and his family; and PROVIDED, finally, that during any period when the Executive is eligible to receive benefits of the type described in clause (B) of paragraph (c) of Section 3 under another employer-provided plan, the benefits provided by the Company under this paragraph (a) of Section 5 may be made secondary to those provided under such other plan. In addition to the foregoing, any restricted stock outstanding on the Date of Termination shall be fully vested as of the Date of Termination and all options outstanding on the Date of Termination shall be fully vested and exercisable and shall remain in effect and exercisable through the end of their respective terms, without regard to the termination of the Executive's employment. The payments and benefits provided pursuant to this paragraph (a) of Section 5 are intended as liquidated damages for a termination of the Executive's employment by the Company other than for Cause or Disability or for the actions of the Company leading to a termination of the Executive's employment by the Executive for Good Reason, and shall be the sole and exclusive remedy therefor. (b) Death and Disability. If the Executive's employment is terminated by reason of the Executive's death or Disability during the Employment Period, the Company shall pay to the Executive or, in the case of the Executive's death, to the Executive's designated beneficiaries (or, if there is no such beneficiary, to the Executive's surviving spouse, or if the Executive is not survived by a spouse, to the Executive's estate or legal representative), in a lump sum in cash within thirty (30) days after the Date of Termination, the sum of the following amounts (the "Accrued Obligations"): (1) any portion of the Executive's Annual Base Salary through the Date of Termination that has been earned but not yet been paid; (2) an amount representing the Incentive Compensation for the period that includes the Date of Termination, computed by assuming that the amount of all such Incentive Compensation would be equal to the maximum amount of such Incentive Compensation that the Executive would have been eligible to earn for such period, and multiplying that amount by a fraction, the numerator of which is the number of days in such period through the Date of Termination, and the denominator of which is the total number of days in the relevant period; (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) that has not yet been paid; and (4) any accrued but unpaid Incentive Compensation and vacation pay. Any deferred compensation (together with any accrued interest or earnings thereon, if any) that has not yet been paid, will be paid in accordance with the terms and conditions applicable to such deferred compensation. (c) By the Company for Cause; by the Executive other than for Good Reason. If the Executive's employment is terminated by the Company for Cause during the Employment Period, the Company shall pay the Executive the Annual Base Salary through the Date of Termination and the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon), in each case to the extent not yet paid, and the Company shall have no further obligations under this Agreement, except as specified in Section 6 below. If the Executive voluntarily terminates employment during the Employment Period, other than for Good Reason, the Company shall pay the Accrued Obligations to the Executive in a lump sum in cash within thirty (30) days of the Date of Termination, and the Company shall have no further obligations under this Agreement, except as specified in Section 6 below. 6. Non-Exclusivity of Rights. Subject to Section 12(f), nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company for which the Executive may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliates relating to subject matter other than that specifically addressed herein. Vested benefits and other amounts that the Executive is otherwise entitled to receive under the Incentive Compensation, the deferred compensation and other benefit programs listed in paragraph (c) of Section 3, or any other plan, policy, practice or program of, or any contract or agreement with, the Company or any of its affiliates on or after the Date of Termination shall be payable in accordance with the terms of each such plan, policy, practice, program, contract or agreement, as the case may be, except as explicitly modified by this Agreement. 7. Full Settlement. The Company's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The amounts payable by the Company under this Agreement shall not be offset or reduced by any amounts otherwise receivable or received by the Executive from any source, except as specifically provided in paragraph (a) of Section 5 with respect to benefits described in clause (B) of paragraph (c) of Section 3. 8. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies and their respective businesses that the Executive obtains during the Executive's employment by the Company or any of its affiliated companies and that is not public knowledge (other than as a result of the Executive's violation of this Section 8) ("Confidential Information"). The Executive shall not communicate, divulge or disseminate Confidential Information at any time during or after the Executive's employment with the Company, except with the prior written consent of the Company or as otherwise required by law or legal process. In no event shall any asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 9. Limitation on Payments. (a) Notwithstanding any other provision of this Agreement, if any portion of any payment under this Agreement, or under any other agreement with or plan of the Company or its affiliates (in the aggregate "Total Payments"), would constitute an "excess parachute payment," then the Total Payments to be made to the Executive shall be reduced such that the value of the aggregate Total Payments that the Executive is entitled to receive shall be One Dollar ($1) less than the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 (or any successor provision) of the Internal Revenue Code of 1986, as amended (the "Code") or which the Company may pay without loss of deduction under Section 280G(a) of the Code (or any successor provision). For purposes of this Agreement, the terms "excess parachute payment" and "parachute payments" shall have the meanings assigned to them in Section 280G of the Code (or any successor provision), and such "parachute payments" shall be valued as provided therein. Present value for purposes of this Agreement shall be calculated in accordance with Section 1274(b)(2) of the Code (or any successor provision). Within fifteen (15) days following the Date of Termination or notice by the Company to the Executive of its belief that there is a payment or benefit due the Executive which will result in an excess parachute payment as defined in Section 280G of the Code (or any successor provision), the Executive and the Company, at the Company's expense, shall obtain the opinion (which need not be unqualified) of nationally recognized tax counsel selected by the Company's independent auditors and acceptable to the Executive in his sole discretion (which may be regular outside counsel to the Company), which opinion sets forth (i) the amount of the Base Period Income, (ii) the amount and present value of Total Payments and (iii) the amount and present value of any excess parachute payments determined without regard to the limitations of this paragraph (a) of Section 9. As used in this Agreement, the term "Base Period Income" means an amount equal to the Executive's "annualized includible compensation for the base period" as defined in Section 280G(d)(1) of the Code (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 Executive. Such opinion shall be dated as of the Date of Termination and addressed to the Company and the Executive and shall be binding upon the Company and the Executive. If such opinion determines that there would be an excess parachute payment, any payment or benefit determined by such counsel to be includible in Total Payments shall be reduced or eliminated as specified by the Executive in writing delivered to the Company within thirty (30) days of his receipt of such opinion or, if the Executive fails to so notify the Company, then as the Company shall reasonably determine, so that under the bases of calculations set forth in such opinion there will be no excess parachute payment. If such legal counsel so requests in connection with the opinion required by this paragraph (a) of Section 9, the Executive and the Company shall obtain, at the Company's expense, and the 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 Executive. If the provisions of Sections 280G and 4999 of the Code (or any successor provisions) are repealed without succession, then this paragraph (a) of Section 9 shall be of no further force or effect. (b) If, notwithstanding the provisions of paragraph (a) of Section 9, it is ultimately determined by a court or pursuant to a final determination by the Internal Revenue Service that any portion of Total Payments is subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any successor provision), the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive after deduction of any Excise Tax and any interest charges or penalties in respect of the imposition of such Excise Tax (but not any federal, state or local income tax) on the Total Payments, and any federal, state and local income tax and Excise Tax upon the payment provided for by this paragraph (b) of section 9, shall be equal to the Total Payments. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rates of taxation in the state and locality of the Executive's domicile for income tax purposes on the date the Gross-Up Payment is made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. 10. Attorneys' Fees. The Company agrees to pay, as incurred, to the fullest extent permitted by law, all legal fees and expenses that the Executive may reasonably incur as a result of any contest (regardless of the outcome) by the Company, the Executive or others of the validity or enforceability of or liability under, or otherwise involving, any provision of this Agreement, together with interest on any delayed payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Code. 11. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean both the Company as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Iowa, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by facsimile, addressed as follows: If to the Executive: Mr. Michael R. Chase 7790 Timmerman Drive East Dubuque, Illinois 61025 If to the Company: Interstate Power Company 1000 Main Street P.O. Box 769 Dubuque, Iowa 52004-0769 Attn: General Counsel with a copy to: Interstate Energy Corporation 222 West Washington Avenue P.O. Box 2568 Madison, Wisconsin 53701-2568 Attn: General Counsel or to such other address as either party furnishes to the other in writing in accordance with this paragraph (b) of Section 12. Notices and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. (d) Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations. (e) The Executive's or the Company's failure to insist upon strict compliance with any provisions of, or to assert any right under, this Agreement (including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to paragraph (c) of Section 4 of this Agreement) shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement. (f) The Executive and the Company acknowledge that this Agreement supersedes any other agreement between the Executive and Company concerning the subject matter hereof, excluding the Agreement between the Executive and the Company dated as of November 8, 1995, as in effect on the date hereof or as hereafter amended from time to time (the "Severance Agreement"); provided, however, that to the extent that a payment or benefit to be provided, or limitation or restriction to be imposed, under this Agreement is similarly to be provided or imposed under the Severance Agreement, the Company agrees to pay, provide or impose that payment, benefit, limitation or restriction which, in each case, provides the highest value to the Executive, and the Executive agrees, in order to avoid duplication of payments or benefits, that upon the receipt of any such highest value payment or benefit under either this Agreement or the Severance Agreement, as the case may be, he shall have no right to any similar payment or benefit of lesser value under the other agreement. (g) The rights and benefits of the Executive under this Agreement may not be anticipated, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by the Executive to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. Payments hereunder shall not be considered assets of the Executive in the event of insolvency or bankruptcy. (h) This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument. 13. Effectiveness of Agreement. The effectiveness of this Agreement is subject to the consummation of the Merger (as defined in the Merger Agreement). If for any reason the Merger is not consummated in accordance with the terms of the Merger Agreement, this Agreement shall be null and void ab initio. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization of the Board of Directors, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. INTERSTATE POWER COMPANY By: /s/ Michael R. Chase Name: Michael R. Chase Title: President and Chief Executive Officer /s/ Michael R. Chase MICHAEL R. CHASE EX-23.1 8 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports on the consolidated financial statements of IES Industries Inc. incorporated by reference in this Interstate Energy Corporation Form 8-K into Interstate Energy Corporation's previously filed Registration Statements on Form S-8 (Nos. 33-52215, 333-41485 and 333-46735) and Form S-3 (Nos. 33-21482 and 333-26627). ARTHUR ANDERSEN LLP Chicago, Illinois May 5, 1998 EX-23.2 9 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Form 8-K of Interstate Energy Corporation filed May 5, 1998 of our report dated January 29, 1998 with respect to the audited financial statements, appearing in the Annual Report on Form 10-K of Interstate Power Company for the year ended December 31, 1997. /s/ Deloitte & Touche LLP Davenport, Iowa May 5, 1998 -----END PRIVACY-ENHANCED MESSAGE-----