-----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, VyNbRxuXLh4BLZyzehUDQzo8nMSzWgnTaaef/B/DE7sSiScWJ/LR3/KjW7p4Gd5U uWL8sAO1nqJKHrEArn6vlg== 0000107832-03-000014.txt : 20030326 0000107832-03-000014.hdr.sgml : 20030325 20030325214048 ACCESSION NUMBER: 0000107832-03-000014 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WISCONSIN POWER & LIGHT CO CENTRAL INDEX KEY: 0000107832 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 390714890 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-00337 FILM NUMBER: 03616803 BUSINESS ADDRESS: STREET 1: 4902 NORTH BILTMORE LANE STREET 2: PO BOX 77007 CITY: MADISON STATE: WI ZIP: 53707-1007 BUSINESS PHONE: 608-4583314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERSTATE POWER & LIGHT CO CENTRAL INDEX KEY: 0000052485 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 420331370 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04117 FILM NUMBER: 03616804 BUSINESS ADDRESS: STREET 1: 200 FIRST ST SE STREET 2: ALLIANT ENERGY TOWER CITY: CEDAR RAPIDS STATE: IA ZIP: 52401 BUSINESS PHONE: 3193984411 FORMER COMPANY: FORMER CONFORMED NAME: IOWA RAILWAY & LIGHT CORP DATE OF NAME CHANGE: 19670629 FORMER COMPANY: FORMER CONFORMED NAME: IOWA ELECTRIC LIGHT & POWER CO DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IES UTILITIES INC DATE OF NAME CHANGE: 19940107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANT 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: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09894 FILM NUMBER: 03616802 BUSINESS ADDRESS: STREET 1: 4902 NORTH BILTMORE LANE STREET 2: PO BOX 77007 CITY: MADISON STATE: WI ZIP: 53707-1007 BUSINESS PHONE: 608-458-3314 MAIL ADDRESS: STREET 1: 4902 NORTH BILTMORE LANE STREET 2: PO BOX 77007 CITY: MADISON STATE: WI ZIP: 53707-1007 FORMER COMPANY: FORMER CONFORMED NAME: WPL HOLDINGS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: INTERSTATE ENERGY CORP DATE OF NAME CHANGE: 19980427 10-K 1 form10k123102.txt FORM 10-K 12/31/02 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 ----------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______
Commission Name of Registrant, State of Incorporation, IRS Employer File Number Address of Principal Executive Offices and Telephone Number Identification Number - ----------- ----------------------------------------------------------- --------------------- 1-9894 ALLIANT ENERGY CORPORATION 39-1380265 (a Wisconsin corporation) 4902 N. Biltmore Lane Madison, Wisconsin 53718 Telephone (608)458-3311 0-4117-1 INTERSTATE POWER AND LIGHT COMPANY 42-0331370 (an Iowa corporation) Alliant Energy Tower Cedar Rapids, Iowa 52401 Telephone (319)786-4411 0-337 WISCONSIN POWER AND LIGHT COMPANY 39-0714890 (a Wisconsin corporation) 4902 N. Biltmore Lane Madison, Wisconsin 53718 Telephone (608)458-3311
This combined Form 10-K is separately filed by Alliant Energy Corporation, Interstate Power and Light Company and Wisconsin Power and Light Company. Information contained in the Form 10-K relating to Interstate Power and Light Company and Wisconsin Power and Light Company is filed by such registrant on its own behalf. Each of Interstate Power and Light Company and Wisconsin Power and Light Company makes no representation as to information relating to registrants other than itself. Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Title of Class Exchange on Which Registered -------------- ---------------------------- Alliant Energy Corporation Common Stock, $.01 Par Value New York Stock Exchange Alliant Energy Corporation Common Stock Purchase Rights New York Stock Exchange Interstate Power and Light Company 7-7/8% Quarterly Debt Capital Securities New York Stock Exchange (Subordinated Deferrable Interest Debentures) Wisconsin Power and Light Company 4.50% Preferred Stock, No Par Value American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: Wisconsin Power and Light Company Preferred Stock (Accumulation without Par Value) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Exchange Act). Alliant Energy Corporation Yes [X] No [ ] Interstate Power and Light Company Yes [ ] No [X] Wisconsin Power and Light Company Yes [ ] No [X] The aggregate market value of the voting and non-voting common equity held by nonaffiliates as of June 28, 2002: Alliant Energy Corporation $2.32 billion Interstate Power and Light Company $-- Wisconsin Power and Light Company $-- Number of shares outstanding of each class of common stock as of Feb. 28, 2003:
Alliant Energy Corporation Common stock, $0.01 par value, 92,658,243 shares outstanding Interstate Power and Light Company Common stock, $2.50 par value, 13,370,788 shares outstanding (all of which are owned beneficially and of record by Alliant Energy Corporation) Wisconsin Power and Light Company Common stock, $5 par value, 13,236,601 shares outstanding (all of which are owned beneficially and of record by Alliant Energy Corporation)
DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statements relating to Alliant Energy Corporation's and Wisconsin Power and Light Company's 2003 Annual Meetings of Shareowners are, or will be upon filing with the Securities and Exchange Commission, incorporated by reference into Part III hereof. 2
TABLE OF CONTENTS Page Number ------ Part I Item 1. Business 6 Item 2. Properties 23 Item 3. Legal Proceedings 25 Item 4. Submission of Matters to a Vote of Security Holders 26 Executive Officers of the Registrants 26 Part II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters 29 Item 6. Selected Financial Data 30 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 32 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 56 Item 8. Financial Statements and Supplementary Data 56 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 124 Part III Item 10. Directors and Executive Officers of the Registrants 124 Item 11. Executive Compensation 124 Item 12. Security Ownership of Certain Beneficial Owners and Management 125 Item 13. Certain Relationships and Related Transactions 126 Item 14. Controls and Procedures 126 Part IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 126 Signatures 134 Certifications 137 Exhibit Index 143
3
DEFINITIONS Certain abbreviations or acronyms used in the text and notes of this report are defined below: Abbreviation or Acronym Definition - ----------------------- ---------- AFUDC Allowance for Funds Used During Construction Alliant Energy Alliant Energy Corporation ANR ANR Pipeline APB Accounting Principles Board Opinion ATC American Transmission Company LLC Btu British Thermal Unit CAA Clean Air Act Calpine Calpine Corporation Capstone Capstone Turbine Corporation Cargill Cargill Incorporated Cargill-Alliant Cargill-Alliant, LLC CIPCO Central Iowa Power Cooperative Corporate Services Alliant Energy Corporate Services, Inc. DAEC Duane Arnold Energy Center DNR Department of Natural Resources DOE U.S. Department of Energy Dth Dekatherm EAC Energy Adjustment Clause EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization EIP 2002 Equity Incentive Plan EITF Emerging Issues Task Force EITF Issue 02-3 Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities EITF Issue 98-10 Accounting for Contracts Involved in Energy Trading and Risk Management Activities Enermetrix Enermetrix, Inc. EPA U.S. Environmental Protection Agency EPS Earnings Per Average Common Share EWG Exempt Wholesale Generator FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission FIN FASB Interpretation No. FIN 45 Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others FIN 46 Consolidation of Variable Interest Entities FUCO Foreign Utility Company GAAP Accounting Principles Generally Accepted in the U.S. ICC Illinois Commerce Commission IES IES Industries Inc. IESU IES Utilities Inc. Integrated Services Alliant Energy Integrated Services Company International Alliant Energy International, Inc. Investments Alliant Energy Investments, Inc. IPC Interstate Power Company IP&L Interstate Power and Light Company IRS Internal Revenue Service ISO Independent System Operator IUB Iowa Utilities Board Kewaunee Kewaunee Nuclear Power Plant KV Kilovolt KW Kilowatt KWh Kilowatt-hour 4 Abbreviation or Acronym Definition - ----------------------- ---------- LTEIP Long-Term Equity Incentive Plan MAIN Mid-America Interconnected Network, Inc. MAPP Mid-Continent Area Power Pool McLeod McLeodUSA Incorporated MD&A Management's Discussion and Analysis of Financial Condition and Results of Operations MG&E Madison Gas & Electric Company MGP Manufactured Gas Plants Moody's Moody's Investors Service MPUC Minnesota Public Utilities Commission MW Megawatt MWh Megawatt-hour NEIL Nuclear Electric Insurance Limited NEPA National Energy Policy Act of 1992 NERC North American Electric Reliability Council NGPL Natural Gas Pipeline Co. of America NMC Nuclear Management Company, LLC NNG Northern Natural Gas Company NOx Nitrogen Oxides NRC Nuclear Regulatory Commission NWPA Nuclear Waste Policy Act of 1982 PSCW Public Service Commission of Wisconsin PUHCA Public Utility Holding Company Act of 1935 Resources Alliant Energy Resources, Inc. SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards SFAS 115 Accounting for Certain Investments in Debt and Equity Securities SFAS 133 Accounting for Derivative Instruments and Hedging Activities SFAS 143 Accounting for Asset Retirement Obligations SmartEnergy SmartEnergy, Inc. South Beloit South Beloit Water, Gas and Electric Company Southern Hydro Southern Hydro Partnership STB U.S. Surface Transportation Board Synfuel Alliant Energy Synfuel LLC TBD To Be Determined TRANSLink TRANSLink Transmission Company LLC Transportation Alliant Energy Transportation, Inc. U.S. United States of America WEPCO Wisconsin Electric Power Company Whiting Whiting Petroleum Corporation WP&L Wisconsin Power and Light Company WPLH WPL Holdings, Inc. WPSC Wisconsin Public Service Corporation WUHCA Wisconsin Utility Holding Company Act
5 FORWARD-LOOKING STATEMENTS Refer to "Forward-Looking Statements" in MD&A for information and disclaimers regarding forward-looking statements contained in this Annual Report on Form 10-K. PART I This Annual Report on Form 10-K includes information relating to Alliant Energy, IP&L and WP&L (as well as Resources and Corporate Services). Where appropriate, information relating to a specific entity has been segregated and labeled as such. At Dec. 31, 2002, the assets and liabilities of Alliant Energy's oil and gas (Whiting), Australian (including Southern Hydro) and affordable housing businesses were classified as held for sale. The operating results for these non-regulated businesses for all periods presented have been separately classified and reported as discontinued operations in Alliant Energy's Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this Annual Report. Refer to Note 16 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information. On Jan. 1, 2002, IPC merged with and into IESU and IESU changed its name to IP&L. IP&L's Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this Annual Report illustrate the impact of the merger as if it had occurred as of Jan. 1, 2000. ITEM 1. BUSINESS A. GENERAL In April 1998, IES, WPLH and IPC completed a merger resulting in Alliant Energy. The primary first tier subsidiaries of Alliant Energy include: IP&L, WP&L, Resources and Corporate Services. Among various other regulatory constraints, Alliant Energy is operating as a registered public utility holding company subject to the limitations imposed by PUHCA. Alliant Energy was incorporated in Wisconsin in 1981. A brief description of the primary first-tier subsidiaries of Alliant Energy is as follows: 1) IP&L - incorporated in Iowa in 1925 as Iowa Railway and Light Corporation. IP&L is a public utility engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of steam services in selective markets, in Iowa, Minnesota and Illinois. In Iowa, non-exclusive franchises, which cover the use of streets and alleys for public utility facilities in incorporated communities, are granted for a maximum of 25 years by a majority vote of local qualified residents. At Dec. 31, 2002, IP&L supplied electric and gas service to 526,284 and 234,853 (excluding transportation and other) customers, respectively. In 2002, 2001 and 2000, IP&L had no single customer for which electric, gas and/or steam sales accounted for 10% or more of IP&L's consolidated revenues. 2) WP&L - incorporated in Wisconsin in 1917 as Eastern Wisconsin Electric Company, is a public utility engaged principally in the generation, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of water services in selective markets. Nearly all of WP&L's customers are located in south and central Wisconsin. WP&L operates in municipalities pursuant to permits of indefinite duration, which are regulated by Wisconsin law. At Dec. 31, 2002, WP&L supplied electric and gas service to 430,406 and 170,123 (excluding transportation and other) customers, respectively. WP&L also had 19,527 water customers. In 2002, 2001 and 2000, WP&L had no single customer for which electric, gas and/or water sales accounted for 10% or more of WP&L's consolidated revenues. WPL Transco LLC is a wholly-owned subsidiary of WP&L and holds WP&L's investment in ATC. WP&L also owns all of the outstanding capital stock of South Beloit, a public utility supplying electric, gas and water service, principally in Winnebago County, Illinois, which was incorporated in 1908. 3) RESOURCES - incorporated in 1988 in Wisconsin, the majority of Alliant Energy's non-regulated investments are organized under Resources. Resources' significant wholly-owned subsidiaries at Dec. 31, 2002 include International, Alliant Energy Generation, Inc., Integrated Services, Investments, Transportation, Whiting and SmartEnergy. Refer to "D. Information Relating to Non-regulated Operations" for additional details. 4) CORPORATE SERVICES - subsidiary formed to provide administrative services to Alliant Energy and its subsidiaries as required under PUHCA. 6 Refer to Note 13 of the "Notes to Consolidated Financial Statements" for further discussion of business segments, which information is incorporated herein by reference. B. INFORMATION RELATING TO ALLIANT ENERGY ON A CONSOLIDATED BASIS 1) EMPLOYEES As of Dec. 31, 2002, Alliant Energy had the following employees (full-time and part-time):
Percentage Number of Number of of Workforce Number of Bargaining Unit Bargaining Covered by Employees Employees Agreements Agreements ------------- ----------------- -------------- ---------------- IP&L 1,692 1,426 7 84% WP&L 1,541 1,456 1 94% Resources: International (a) 3,135 -- -- -- Integrated Services 647 -- -- -- Investments (a) 246 81 5 33% Other 83 -- -- -- Corporate Services 1,626 -- -- -- ------------- ----------------- -------------- 8,970 2,963 13 33% ============= ================= ==============
(a) Includes employees of Alliant Energy's discontinued operations, which represented approximately 2% of total employees at Dec. 31, 2002. In 2003, five bargaining agreements expire representing approximately 51% of employees covered under bargaining agreements and 17% of total Alliant Energy employees. Alliant Energy has not experienced any significant work stoppage problems in the past. While negotiations have commenced, Alliant Energy is currently unable to predict the outcome of these negotiations. 2) CAPITAL EXPENDITURE AND INVESTMENT PLANS Refer to "Liquidity and Capital Resources - Construction and Acquisition Expenditures" in MD&A for discussion of anticipated construction and acquisition expenditures for 2003-2005. Refer to "C. Information Relating to Domestic Utility Operations - 1) Electric Utility Operations - Power Supply" for information related to IP&L's and WP&L's plans for the development of new electric generation in Iowa and Wisconsin, respectively. 3) REGULATION Alliant Energy operates as a registered public utility holding company subject to regulation by the SEC under PUHCA. Alliant Energy and its subsidiaries are subject to the regulatory provisions of PUHCA, including provisions relating to the issuance and sales of securities, acquisitions and sales of certain utility properties, acquisitions and retention of interests in non-utility businesses and the services provided by Corporate Services to Alliant Energy and its subsidiaries. Alliant Energy is subject to regulation by the PSCW. The PSCW regulates, among other things, the type and amount of Alliant Energy's investments in non-utility businesses. WP&L is also subject to regulation by the PSCW as to retail utility rates and service, accounts, issuance and use of proceeds of securities, certain additions and extensions to facilities and in other respects. WP&L is required to file a rate case with the PSCW at least every two years based on a forward-looking test year period. IP&L operates under the jurisdiction of the IUB. The IUB has authority to regulate rates and standards of service, to prescribe accounting requirements and to approve the location and construction of electric generating facilities having a capacity in excess of 25,000 KW. Requests for rate relief are based on historical test periods, adjusted for certain known and measurable changes. The IUB must decide on requests for rate relief within 10 months of the date of the application for which relief is filed or the interim prices granted become permanent. Interim rates, if allowed, are permitted to become effective, subject to refund, no later than 90 days after the rate increase application is filed. 7 IP&L is also subject to regulation by the MPUC. Requests for rate relief can be based on either historical or projected data. The MPUC must reach a final decision within 10 months. Interim rates are permitted. The MPUC also has jurisdiction to approve IP&L's capital structure on an annual basis. In addition, IP&L and South Beloit are subject to regulation by the ICC for retail utility rates and service, accounts, issuance and use of proceeds of securities, certain additions and extensions to facilities and in other respects. Requests for rate relief must be decided within 11 months. FERC has jurisdiction under the Federal Power Act over certain of the electric utility facilities and operations, wholesale rates and accounting practices of IP&L and WP&L, and in certain other respects. In addition, certain natural gas facilities and operations of IP&L and WP&L are subject to the jurisdiction of FERC under the Natural Gas Act. With respect to environmental matters, the EPA administers certain federal statutes and has delegated the administration of other environmental initiatives to the applicable state environmental agencies. In addition, the state agencies have jurisdiction over air and water quality standards associated with certain electric generation and the level and flow of water, safety and other matters pertaining to hydroelectric generation. IP&L and WP&L are directly and indirectly subject to the jurisdiction of the NRC, with respect to DAEC and Kewaunee, respectively, and to the jurisdiction of the DOE with respect to the disposal of nuclear fuel and other radioactive wastes from DAEC and Kewaunee. At Dec. 31, 2002, Alliant Energy's remaining investment authority under the 100% of consolidated retained earnings PUHCA order was approximately $200 million of future EWG and/or FUCO investments with financings that have recourse to the parent company in addition to certain commitments already made. The electricity industry in Brazil, as it relates to Alliant Energy's unconsolidated investments, is regulated by the Brazilian federal government, acting through the Ministry of Mines and Energy, which has exclusive authority over the electricity sector through regulatory powers assigned to it. Regulatory policy for the sector is implemented by an autonomous national electric energy agency (Agencia Nacional de Energia Eletrica or "ANEEL"), which delegates certain functions to agencies based in certain states of Brazil. However, ANEEL cannot delegate any authority regarding tariffs to state agencies. In January 2003, a new Minister of Mines and Energy was appointed thus the comprehensive review of the regulatory process and policies that was underway in 2002 has ceased and a new plan has since been announced. This plan includes a pooling of generation so that all companies will have access to lower energy prices, use of a different inflation index for purposes of tariff setting and aid from the national development bank. Although details of the plan are unknown at this time, Alliant Energy believes the plan will not have a material adverse impact on Alliant Energy's investments in Brazil. Refer to Note 2 of Alliant Energy's "Notes to Consolidated Financial Statements" and "Rates and Regulatory Matters" in MD&A for additional information regarding regulation and utility rate matters. 4) STRATEGIC ACTIONS Refer to "Strategic Actions" in MD&A for a discussion of various strategic actions Alliant Energy is taking to strengthen its financial profile. C. INFORMATION RELATING TO DOMESTIC UTILITY OPERATIONS Alliant Energy realized 50%, 44%, 4% and 2% of its 2002 electric utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively. Approximately 91% of the electric revenues were regulated by the respective state commissions while the other 9% were regulated by FERC. Alliant Energy realized 50%, 44%, 3% and 3% of its 2002 gas utility revenues in Iowa, Wisconsin, Minnesota and Illinois, respectively. IP&L realized 91%, 7% and 2% of its 2002 electric utility revenues in Iowa, Minnesota and Illinois, respectively. Approximately 96% of IP&L's 2002 electric revenues were regulated by the respective state commissions while the other 4% were regulated by FERC. IP&L realized 93%, 5% and 2% of its 2002 gas utility revenues in Iowa, Minnesota and Illinois, respectively. WP&L realized 98% of its 2002 electric utility revenues in Wisconsin and 2% 8 in Illinois. Approximately 84% of WP&L's 2002 electric revenues were regulated by the PSCW or the ICC while the other 16% were regulated by FERC. WP&L realized 97% of its 2002 gas utility revenues in Wisconsin and 3% in Illinois. 1) ELECTRIC UTILITY OPERATIONS General - The utilities provide electric service in Iowa, southern and central Wisconsin, southern Minnesota and northern and northwestern Illinois. The number of electric customers and communities served by each utility at Dec. 31, 2002 was as follows:
Retail Customers Wholesale Customers Other Customers Communities Served ----------------- ----------------------- -------------------- ---------------------- IP&L 524,956 10 1,318 760 WP&L 428,390 30 1,986 602 ----------------- ----------------------- -------------------- ---------------------- 953,346 40 3,304 1,362 ================= ======================= ==================== ======================
2002 electric utility operations accounted for 80% and 81% of operating revenues and 90% and 90% of operating income for IP&L and WP&L, respectively. Electric sales are seasonal to some extent with the annual peak normally occurring in the summer months. In 2002, the maximum peak hour demands for IP&L and WP&L were 3,097 MW on July 8, 2002 and 2,674 MW on Aug. 1, 2002, respectively. In 2002, the maximum peak hour demand for Alliant Energy was 5,729 MW on July 8, 2002, which was the coincident peak of the entire Alliant Energy system. IP&L and WP&L are members of the MAIN Regional Reliability Council which is one of the 10 regional members of NERC. Each regional member of NERC is responsible for maintaining reliability in its area through coordination of planning and operations. In 2001, IP&L and five other electric utility companies filed an application with FERC to create TRANSLink, a for-profit, transmission-only company. In April 2002, FERC conditionally approved the formation of TRANSLink and TRANSLink's participation in the Midwest ISO. In June 2002, TRANSLink Development Co. LLC was formed to oversee the start-up activities for TRANSLink. In the fourth quarter of 2002, three additional electric utility companies joined TRANSLink. Current plans call for IP&L to contribute transmission assets of 69 KV and greater, which have an estimated net book value of approximately $226 million (as of Dec. 31, 2002), to TRANSLink in exchange for a yet to be determined combination of a corresponding ownership interest in TRANSLink and cash. IP&L filed for the necessary state approvals in the fourth quarter of 2002. TRANSLink is currently expected to be operational in the third quarter of 2003 and will be the transmission network provider to approximately 7.7 million customers in 13 states. The PSCW issued a final ruling in October 2002 regarding incremental electric transmission costs, which allows Wisconsin utilities, including WP&L, to continue to defer any such costs related to retail service for five years with deferred amounts included in future base rate cases. During this period, changes in electric transmission costs will have no material impact on WP&L's results of operations. WP&L, including South Beloit, transferred its transmission assets with no gain or loss (approximate net book value of $186 million) to a transmission-only company, ATC, on Jan. 1, 2001. WP&L received a tax-free cash distribution of $75 million from ATC and had a $112 million equity investment in ATC, with an ownership percentage of approximately 26.6% at Dec. 31, 2002. This transfer has not resulted in a significant impact on WP&L's financial condition or results of operations since FERC allows ATC to earn a return on the contributed assets comparable to the return formerly allowed WP&L by the PSCW and FERC. In addition, incremental start-up and ongoing transmission costs are being recovered in rates. During 2002, ATC returned approximately 80% of its earnings to the equity holders and, although no assurance can be given, Alliant Energy anticipates ATC will continue with this policy in the future. ATC realizes its revenues from the provision of transmission services to both participants in ATC as well as non-participants. ATC is a transmission-owning member of the Midwest ISO and the MAIN Regional Reliability Council. IP&L maintains and operates transmission and substation facilities connecting with its high voltage transmission systems pursuant to a non-cancelable operation agreement (the Operating Agreement) with CIPCO. The Operating 9 Agreement, which will terminate on Dec. 31, 2035, provides for the joint use of certain transmission facilities of IP&L and CIPCO. IP&L has transmission interconnections at various locations with nine other transmission owning utilities in the Midwest. WP&L transferred its transmission and substation facilities to ATC on Jan. 1, 2001 and ATC has transmission interconnections at various locations. These interconnections enhance the overall reliability of the Alliant Energy transmission system and provide access to multiple sources of economic and emergency energy. Refer to "Properties" for additional information regarding electric properties. Fuel - Refer to the Electric Operating Information tables for details on the sources of electric energy for Alliant Energy, IP&L and WP&L from 1998 to 2002. The average cost of fuel per million Btu's used for electric generation was as follows:
IP&L WP&L ---------------------------------------- ---------------------------------------- 2002 2001 2000 2002 2001 2000 ---------------------------------------- ---------------------------------------- Coal $1.067 $0.991 $0.981 $1.262 $1.146 $1.152 Nuclear 0.572 0.608 0.594 0.457 0.423 0.424 All Fuels 1.032 1.046 1.014 1.234 1.158 1.115
Coal - Alliant Energy, through Corporate Services, IP&L and WP&L, has entered into contracts with different suppliers to ensure that a specified supply of coal is available at known prices for IP&L and WP&L for 2003 through 2006. These contracts provide for a portfolio of coal supplies that cover approximately 94%, 68%, 49% and 23% of the total utilities' estimated coal supply needs for 2003 through 2006, respectively. Management believes this portfolio of coal supplies represents a reasonable balance between the risks of insufficient supplies and those associated with larger open positions subject to price volatility in the coal markets. Remaining coal requirements will be met from either future contracts or purchases in the spot market. The majority of the coal utilized by IP&L and WP&L is from the Wyoming Powder River Basin. A majority of this coal is transported by rail-car directly from Wyoming to IP&L's and WP&L's generating stations, with the remainder transported from Wyoming to the Mississippi River by rail-car and then via barges to the final destination. As protection against interruptions in coal deliveries, IP&L and WP&L maintain average coal inventories of 30 to 50 days for generating stations with year-round deliveries and 30 to 150 days (depending upon time of the year) for generating stations with seasonal deliveries. Average delivered fossil fuel costs are expected to increase in the future due to price/rate structures and adjustment provisions in existing coal and transportation contracts and recent coal market trends. Existing coal contracts with terms of greater than one year have fixed future year prices that generally reflect recent upward market trends. Other factors which may impact coal prices are related to changes in various associated laws and regulations. For example, sulfur dioxide and NOx emission restrictions and other environmental limitations on generating stations have increased significantly and proposed additional restrictions (including some for mercury emissions), if enacted, will likely further increase the difficulty and cost of obtaining adequate coal supplies. Rate adjustment provisions in transportation contracts are primarily based on changes in the Rail Cost Adjustment Factor as published by the STB. Refer to Note 1(j) for discussion of IP&L's and WP&L's rate recovery of fuel costs, Note 10(a) for information on coal derivatives and Note 11(b) for details relating to coal purchase commitments in the "Notes to Consolidated Financial Statements." Purchased-Power - During 2002, approximately 23% and 30% of IP&L's and WP&L's total MWh requirements, respectively, were met through purchased-power. Refer to Notes 3 and 11(b) of the "Notes to Consolidated Financial Statements" for details relating to purchased-power commitments. Nuclear - Alliant Energy owns interests in two nuclear facilities, DAEC and Kewaunee. DAEC, a 580 MW (net capacity) boiling water reactor plant, is operated by the NMC under contract to IP&L, which has a 70% ownership interest in the plant. The owners of DAEC are responsible for the decommissioning of the plant. The DAEC operating license expires in 2014. Kewaunee, a 532 MW (net capacity) pressurized water reactor plant, is operated by the NMC under contract to WPSC and is jointly owned by WPSC (59%) 10 and WP&L (41%). WPSC and WP&L are responsible for the decommissioning of the plant. The Kewaunee operating license expires in 2013. WPSC is considering whether or not to seek extension of the operating license to 2033. Alliant Energy Nuclear LLC, a non-utility subsidiary of Alliant Energy, has a 20% ownership interest in the NMC. The purpose of the NMC is to consolidate operation of the nuclear plants owned by the NMC partners and to provide similar capability for other nuclear plant operators and owners. Consolidation of operation by the NMC is expected to sustain long-term safety, optimize reliability and improve the operational performance of the nuclear generating plants. The NMC currently operates eight nuclear generating units at six sites. The NMC partners continue to individually own their plants through their utility subsidiaries, are entitled to energy generated at the plants and retain the financial obligations for the safe operation, maintenance and decommissioning of the plants. As co-owners of nuclear generating units, IP&L and WP&L are subject to the jurisdiction of the NRC. The NRC has broad supervisory and regulatory jurisdiction over the construction and operation of nuclear reactors, particularly with regard to public health, safety and environmental considerations. The operation and design of nuclear power plants is under constant review by the NRC. IP&L's and WP&L's anticipated nuclear-related construction expenditures for 2003-2005 are approximately $70 million and $32 million, respectively. Kewaunee is subject to additional inspections related to reactor vessel head cracking found at other pressurized water reactor plants. After evaluating the cost of continued required inspections of the existing reactor vessel head, WPSC and WP&L have submitted a construction authorization request to the PSCW for replacement of the reactor vessel head. The replacement is scheduled to occur during the fall 2004 refueling outage at a total cost of approximately $20 million (WP&L's share is approximately $8 million). In 2001, a steam generator replacement was completed at Kewaunee. On Feb. 25, 2002, the NRC issued an order to all licensees formalizing their requirements for additional security resulting from the Sept. 11, 2001 terrorist attacks on the U.S. Prior to this order, the additional security measures were voluntary based on NRC guidance. The NMC, as operator of DAEC and Kewaunee, responded to the NRC and has fully implemented the additional security measures. The issue of cost recovery for DAEC is being addressed in IP&L's pending retail rate case. In December 2001, the PSCW authorized WP&L to defer incremental costs for security measures and insurance premiums related to the Sept. 11, 2001 terrorist attacks. WP&L began deferring the increased costs in December 2001 and the issue of cost recovery is being addressed in WP&L's pending 2003 retail rate case. In 2000, the NRC issued expanded performance measures, which raised several areas of concern with Kewaunee's operations. Addressing the NRC's concerns and ensuring that Kewaunee operates in accordance with current industry and regulatory standards resulted in additional operating costs. WP&L has deferred $5.5 million of such costs at Dec. 31, 2002. The incremental and deferred amounts are currently being collected in WP&L's 2002 retail rate increase. Public liability for nuclear accidents is governed by the Price-Anderson Act of 1988 as amended (Act), which sets a statutory limit of $9.55 billion for liability to the public for a single nuclear power plant incident and requires nuclear power plant operators to provide financial protection for this amount. As required, IP&L provides this financial protection for a nuclear incident at DAEC through a combination of liability insurance ($300 million) and industry-wide retrospective payment plans ($9.25 billion). Under the industry-wide plan, each operating licensed nuclear reactor in the U.S. is subject to an assessment in the event of a nuclear incident at any nuclear plant in the U.S. IP&L, as a 70% owner of DAEC, could be assessed a maximum of $61.7 million per nuclear incident, with a maximum of $7 million per incident per year, if losses relating to the incident exceeded $300 million. These limits are subject to adjustments for changes in the number of participants and inflation in future years. Similarly, WP&L, as a 41% owner of Kewaunee, is subject to an overall assessment of approximately $36.1 million per incident, not to exceed $4.1 million payable in any given year. The Act expired on Aug. 1, 2002, with no impact to IP&L or WP&L as existing nuclear power plants are covered under the insurance system of the Act for the remainder of their operating lives. It is anticipated that extension or renewal of the Act will apply only to new construction. Currently there is legislation pending in the U.S. Congress that includes extensions of the Act, increasing the statutory limit for liability to the public for a single nuclear power plant incident and increasing the maximum annual assessment per incident. 11 IP&L and WP&L are members of NEIL, which provides $1.5 billion of insurance coverage for DAEC and $1.8 billion for Kewaunee on certain property losses for property damage, decontamination and premature decommissioning. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair and premature decommissioning. NEIL also provides separate coverage for additional expenses incurred during certain outages. Owners of nuclear generating stations insured through NEIL are subject to retroactive premium adjustments if losses exceed accumulated reserve funds. NEIL's accumulated reserve funds are currently sufficient to more than cover its exposure in the event of a single incident under the primary and excess property damage or additional expense coverages. However, IP&L could be assessed annually a maximum of $3.3 million for NEIL primary property, $3.2 million for NEIL excess property and $2.4 million for NEIL additional expenses if losses exceed the accumulated reserve funds. WP&L could be assessed annually a maximum of $1.7 million for NEIL primary property, $3.3 million for NEIL excess property and $1.0 million for NEIL additional expense coverage. IP&L and WP&L are not currently aware of any losses that they believe are likely to result in an assessment. In the event of a catastrophic loss at DAEC or Kewaunee, the amount of insurance available may not be adequate to cover property damage, decontamination and premature decommissioning. Uninsured losses, to the extent not recovered through rates, would be borne by IP&L or WP&L, as the case may be, and could have a material adverse effect on their financial condition and results of operations. The NWPA assigned responsibility to the DOE to establish a facility for the ultimate disposition of high level waste and spent nuclear fuel and authorized the DOE to enter into contracts with parties for the disposal of such material beginning in 1998, in exchange for payments by contract holders. IP&L (for DAEC) and WPSC (for Kewaunee) entered into such contracts and have made the agreed payments to the Nuclear Waste Fund held by the U.S. Treasury. The companies were subsequently notified by the DOE that it was not able to begin acceptance of spent nuclear fuel by the 1998 deadline. Furthermore, the DOE has experienced significant delays in its efforts and material acceptance is now expected to occur no earlier than 2010 with the possibility of further delay being likely. Alliant Energy continues to monitor and evaluate its options for recovery of damages due to the DOE's delay in accepting spent nuclear fuel. The DOE is currently preparing an application to license a permanent spent fuel storage facility in the Yucca Mountain area of Nevada. The NWPA also assigned responsibility for interim storage of spent nuclear fuel to generators of such spent nuclear fuel, such as IP&L and WPSC. In accordance with this responsibility, IP&L and WPSC have been and will continue storing spent nuclear fuel on site at DAEC and Kewaunee, respectively, until removal of all spent nuclear fuel by the DOE to its permanent repository occurs. Interim storage activities at reactor sites, regardless of DOE delays or acceptance schedules, will extend after final reactor shutdown. Construction of a dry cask storage facility by IP&L at DAEC has been completed and transfer of used fuel into the facility is expected to begin in 2003. The storage facility will provide assurance that both the operating and post-shutdown storage needs of DAEC are satisfied. Kewaunee has sufficient fuel storage capacity to store all of the fuel it will generate through 2009. No decisions have been made concerning additional storage capacity needed beyond 2009. The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandates that each state must take responsibility for the storage of low-level radioactive waste produced within its borders. The States of Iowa and Wisconsin are members of the six-state Midwest Interstate Low-Level Radioactive Waste Compact (Compact), which is responsible for development of any new disposal capability within the Compact member states. Disposal facilities located near Barnwell, South Carolina and Clive, Utah continue to accept the low-level waste from DAEC and Kewaunee, thereby minimizing the amount of low-level waste stored on-site. Given technological advances, waste compaction and the reduction in the amount of waste generated, DAEC and Kewaunee each have on-site storage capability sufficient to store low-level waste expected to be generated over at least the next 10 years. While the operators of DAEC and Kewaunee are unable to predict how long these facilities will continue to accept their waste, continuing access to these facilities expands their on-site storage capability indefinitely. WPSC purchases uranium concentrates, conversion services, enrichment services, and fabrication services for nuclear fuel assemblies at Kewaunee. New fuel assemblies replace used assemblies that are removed from the reactor every 18 months and placed in storage at the plant site pending removal by the DOE. Uranium concentrates, conversion services, and enrichment services are purchased at spot market prices, through a bid process, or using existing contracts. Conversion services are complete for the nuclear fuel reload scheduled in 2003. WPSC has contracted for a fixed quantity of enrichment 12 services through 2004. Additional enrichment services will be acquired under an existing contract or by purchases on the spot market. WPSC has contracted for fuel fabrication services for the next six reloads. WPSC's uranium inventory policy is to maintain sufficient inventory for up to two reloads of fuel. At Dec. 31, 2002, approximately 160,000 pounds of yellowcake (a processed form of uranium ore) or its equivalent was held in inventory for the plant. Each refueling requires approximately 500,000 pounds of yellowcake. In 2003, approximately 825,000 pounds of yellowcake will be acquired to meet the requirements of the inventory policy. Uranium and enrichment services for the Spring 2003 refueling outage at DAEC have been completed. IP&L believes that an ample supply of uranium and enrichment services will be available in the future and intends to continue its strategy of purchasing such uranium and enrichment services as necessary on the spot market and/or via medium length (less than five years) contracts to meet its generation requirements. These sources of supply will be used to meet delivery requirements for an early 2005 refueling outage. Arrangements for the fabrication of nuclear fuel are in place through the 2011 refueling of DAEC. Additional discussions of various other nuclear issues relating to DAEC and Kewaunee are included in Notes 1, 3, 9, 10(c), 11(e), 11(f) and 12 of the "Notes to Consolidated Financial Statements." Power Supply - Wisconsin enacted electric reliability legislation in 1998 (Wisconsin Reliability Act) with the goal of assuring reliable electric energy for Wisconsin. The law allows the construction of merchant power plants in the state and streamlines the regulatory approval process for building new generation and transmission facilities. The PSCW is authorized to order construction of new transmission facilities, based on the findings of its regional transmission constraint study, through Dec. 31, 2004. In October 2001, the PSCW approved the construction of a 345 KV transmission line, which will improve transmission import capabilities in Wisconsin. Re-approval of the project due to significant cost increases is expected during the summer of 2003 by the PSCW. WP&L notes that it may take time for new transmission and power plant projects to be approved and built in Wisconsin. In 2000, WP&L and Calpine announced an agreement whereby Calpine would build, own and operate a 600 MW natural gas-fired combined cycle power plant in Wisconsin at WP&L's Rock River plant (Riverside project). WP&L has entered into a purchased-power agreement for 453 MW of this plant's output, which is anticipated to be available prior to the time of the 2004 summer peak demand. Construction began in September 2002 and is expected to assist WP&L in meeting its growing demands for electricity, to place a greater reliance on generation physically located in Wisconsin versus power purchased from outside of Wisconsin and to help WP&L maintain the required 18% reserve margin in Wisconsin. The Iowa Legislature passed a bill in 2001 to encourage construction of new generating facilities in Iowa. In 2001, Alliant Energy's subsidiaries announced their interest in developing new electric generation capacity in Iowa and Wisconsin over the next 10 years with an estimated investment of $2.5 billion. IP&L announced a willingness to develop up to 1,200 MW of new electric generation over the next 10 years. Currently, Alliant Energy's Power Iowa plan includes adding approximately 550 MW of natural gas-fired generation (500 MW by 2004), 100 MW of capacity generated from renewable energy sources by December 2003, researching options for an additional 500-600 MW of generation and increases in energy efficiency through energy conservation and process improvements at various commercial and industrial customer locations. In January 2003, the IUB approved IP&L's siting certificate for a 500 MW natural gas-fired plant in Mason City, Iowa and construction began. In addition, in December 2002, IP&L began purchasing approximately 57 MW of capacity from a wind generation facility in Iowa. In Wisconsin, Alliant Energy's current plans are to install approximately 800 MW of additional electric generation over the next 10 years, including approximately 500-700 MW of base and/or intermediate generation and approximately 100-300 MW of simple-cycle gas generation. WP&L currently anticipates meeting its 2003 power supply requirements, including the required 18% reserve margin, through a variety of incremental power supply resources which include, but are not limited to, renegotiated purchased-power contracts from current suppliers utilizing existing firm transmission rights to replace currently expiring purchased-power contracts and additional power purchases from existing generating units located within and outside of Wisconsin. The largest challenge that WP&L faces in securing power supply resources necessary to meet its 2003 requirements is the lack of available incremental firm transmission service to import additional power 13 supply resources into WP&L's load-serving area from bulk power supply sources outside of Wisconsin. While Alliant Energy currently expects to meet utility customer demands in 2003, unanticipated reliability issues could still arise in the event of unexpected power plant outages, transmission system outages or extended periods of extremely hot weather. Refer to "Liquidity and Capital Resources - Construction and Acquisition Expenditures" in MD&A for additional information. Electric Environmental Matters - Alliant Energy is regulated in environmental matters by a number of federal, state and local agencies. Such regulations are the result of a number of environmental laws passed by the U.S. Congress, state legislatures and local governments and enforced by federal, state and local agencies. The laws impacting Alliant Energy's operations include, but are not limited to, the Safe Drinking Water Act; Clean Water Act; CAA, as amended by the CAA Amendments of 1990; National Environmental Policy Act; Toxic Substances Control Act; Emergency Planning and Community Right-to-Know Act; Resource Conservation and Recovery Act; Comprehensive Environmental Response, Compensation and Liability Act of 1980; NWPA; Occupational Safety and Health Act; and NEPA. Alliant Energy regularly obtains federal, state and local permits to assure compliance with the environmental protection laws and regulations. Costs associated with such compliance have increased in recent years and are expected to increase moderately in the future. In February 2003, WP&L's Columbia Energy Center (Columbia) received a Notice of Violation from the Wisconsin DNR for exceeding limits in its Wisconsin Pollutant Discharge Elimination System permit, which requires Columbia to sample its discharge to test for acute and chronic toxicity. In its most recent permit, Columbia was to identify what was causing the toxicity issue through an evaluation and develop a reduction plan. The evaluation was performed and Columbia developed a reduction plan that identified carbon dioxide injection as the treatment to reduce the aluminum concentrations. The Wisconsin DNR did not approve this method of treatment and directed Columbia to revise the reduction plan, at which time Columbia began evaluating a number of treatment alternatives and physical evaluation. WP&L has been working with the Wisconsin DNR to resolve this issue. While it is possible that the Wisconsin DNR may subsequently seek to impose a civil penalty, WP&L believes it can resolve this issue to the Wisconsin DNR's satisfaction in a manner that will not have a material adverse effect on its financial condition or results of operations. Refer to "Liquidity and Capital Resources - Environmental" in MD&A and Note 11(e) of the "Notes to Consolidated Financial Statements" for further discussion of electric environmental matters. 14
Alliant Energy Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Electric Operating Information (Utility Only) 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $626,947 $599,074 $567,283 $541,714 $532,676 Commercial 376,365 373,145 349,019 329,487 317,704 Industrial 526,804 543,471 501,155 476,140 477,241 --------------------------------------------------------------------------- Total from ultimate customers 1,530,116 1,515,690 1,417,457 1,347,341 1,327,621 Sales for resale 160,335 184,507 173,148 155,801 199,128 Other 62,083 56,359 57,431 45,796 40,693 --------------------------------------------------------------------------- Total $1,752,534 $1,756,556 $1,648,036 $1,548,938 $1,567,442 =========================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Electric Sales (000s MWh): Residential 7,616 7,344 7,161 7,024 6,826 Commercial 5,542 5,464 5,364 5,260 4,943 Industrial 12,297 12,469 13,092 13,036 12,718 --------------------------------------------------------------------------- Total from ultimate customers 25,455 25,277 25,617 25,320 24,487 Sales for resale 4,805 4,936 4,906 5,566 7,189 Other 197 168 174 162 158 --------------------------------------------------------------------------- Total 30,457 30,381 30,697 31,048 31,834 =========================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Customers (End of Period): Residential 822,229 807,754 799,603 790,669 781,127 Commercial 128,212 125,539 123,833 122,509 121,027 Industrial 2,905 2,826 2,773 2,730 2,618 Other 3,344 3,324 3,316 3,282 3,267 --------------------------------------------------------------------------- Total 956,690 939,443 929,525 919,190 908,039 =========================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Electric Data: Maximum peak hour demand (MW) 5,729 5,677 5,397 5,233 5,228 Sources of electric energy (000s MWh): Coal and gas 18,349 18,662 19,139 19,078 19,119 Purchased power 8,596 8,727 8,058 8,619 10,033 Nuclear 5,012 4,116 4,675 4,362 4,201 Other 379 452 427 528 504 --------------------------------------------------------------------------- Total 32,336 31,957 32,299 32,587 33,857 =========================================================================== Revenue per KWh from ultimate customers (cents) 6.01 6.00 5.53 5.32 5.42 - ------------------------------------------------------------------------------------------------------------------------------------
15
Interstate Power and Light Company - ------------------------------------------------------------------------------------------------------------------------------------ Electric Operating Information 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $355,072 $350,946 $337,615 $328,218 $333,906 Commercial 229,639 234,876 221,820 212,540 208,980 Industrial 315,494 335,680 311,070 305,022 314,470 ------------------------------------------------------------------------ Total from ultimate customers 900,205 921,502 870,505 845,780 857,356 Sales for resale 34,513 53,320 57,433 53,050 70,592 Other 30,136 28,284 27,907 23,501 24,790 ------------------------------------------------------------------------ Total $964,854 $1,003,106 $955,845 $922,331 $952,738 ======================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Electric Sales (000s MWh): Residential 4,184 4,026 4,010 3,913 3,862 Commercial 3,392 3,342 3,333 3,280 3,045 Industrial 7,843 7,931 8,404 8,466 8,225 ------------------------------------------------------------------------ Total from ultimate customers 15,419 15,299 15,747 15,659 15,132 Sales for resale 1,151 1,412 1,678 2,314 2,697 Other 103 107 111 108 99 ------------------------------------------------------------------------ Total 16,673 16,818 17,536 18,081 17,928 ======================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Customers (End of Period): Residential 446,202 439,508 437,425 434,978 430,793 Commercial 76,856 75,132 74,483 73,813 73,170 Industrial 1,898 1,836 1,799 1,783 1,709 Other 1,328 1,359 1,393 1,389 1,407 ------------------------------------------------------------------------ Total 526,284 517,835 515,100 511,963 507,079 ======================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Electric Data: Maximum peak hour demand (MW) 3,097 3,104 3,021 2,930 2,902 Sources of electric energy (000s MWh): Coal and gas 10,219 10,343 11,065 10,892 10,203 Purchased power 4,134 4,595 4,041 5,183 6,110 Nuclear 3,202 2,697 3,117 2,548 2,682 Other 127 171 179 240 216 ------------------------------------------------------------------------ Total 17,682 17,806 18,402 18,863 19,211 ======================================================================== Revenue per KWh from ultimate customers (cents) 5.84 6.02 5.53 5.40 5.67 - ------------------------------------------------------------------------------------------------------------------------------------
16
Wisconsin Power and Light Company - ------------------------------------------------------------------------------------------------------------------------------------ Electric Operating Information 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $271,875 $248,128 $229,668 $213,496 $198,770 Commercial 146,726 138,269 127,199 116,947 108,724 Industrial 211,310 207,791 190,085 171,118 162,771 ------------------------------------------------------------------------ Total from ultimate customers 629,911 594,188 546,952 501,561 470,265 Sales for resale 125,822 131,187 115,715 102,751 128,536 Other 31,947 28,075 29,524 22,295 15,903 ------------------------------------------------------------------------ Total $787,680 $753,450 $692,191 $626,607 $614,704 ======================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Electric Sales (000s MWh): Residential 3,432 3,318 3,151 3,111 2,964 Commercial 2,150 2,122 2,031 1,980 1,898 Industrial 4,454 4,538 4,688 4,570 4,493 ------------------------------------------------------------------------ Total from ultimate customers 10,036 9,978 9,870 9,661 9,355 Sales for resale 3,654 3,524 3,228 3,252 4,492 Other 94 61 63 54 59 ------------------------------------------------------------------------ Total 13,784 13,563 13,161 12,967 13,906 ======================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Customers (End of Period): Residential 376,027 368,246 362,178 355,691 350,334 Commercial 51,356 50,407 49,350 48,696 47,857 Industrial 1,007 990 974 947 909 Other 2,016 1,965 1,923 1,893 1,860 ------------------------------------------------------------------------ Total 430,406 421,608 414,425 407,227 400,960 ======================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Electric Data: Maximum peak hour demand (MW) 2,674 2,696 2,508 2,397 2,292 Sources of electric energy (000s MWh): Coal and gas 8,130 8,319 8,074 8,186 8,916 Purchased power 4,462 4,132 4,017 3,436 3,923 Nuclear 1,810 1,419 1,558 1,814 1,519 Other 252 281 248 288 288 ------------------------------------------------------------------------ Total 14,654 14,151 13,897 13,724 14,646 ======================================================================== Revenue per KWh from ultimate customers (cents) 6.28 5.95 5.54 5.19 5.03 - ------------------------------------------------------------------------------------------------------------------------------------
17 2) GAS UTILITY OPERATIONS The utilities provide gas service in Iowa, southern and central Wisconsin, southern Minnesota and northern and northwestern Illinois. The number of gas customers and communities served by each utility at Dec. 31, 2002 was as follows:
Transportation and Retail Customers Other Customers Communities Served ------------------- ---------------------- ----------------------- IP&L 234,853 219 253 WP&L 170,123 254 233 ------------------- ---------------------- ----------------------- 404,976 473 486 =================== ====================== =======================
2002 gas utility operations accounted for 18% and 18% of operating revenues and 7% and 9% of operating income for IP&L and WP&L, respectively, which include providing gas services to retail and transportation customers. In providing gas commodity service to retail customers, Corporate Services administers a diversified portfolio of transportation and storage contracts on behalf of IP&L and WP&L. Transportation contracts with NNG, NGPL and ANR allow access to gas supplies located in the U.S. and Canada. Arrangements with Firm Citygate Supplies (FCS) provide IP&L and WP&L with gas delivered directly to their service territories. The maximum daily delivery capacity of the individual utilities for 2002 was as follows (in Dths):
NNG NGPL ANR FCS Total --------------- -------------- --------------- ----------------- --------------- IP&L 198,641 89,932 61,737 22,000 372,310 WP&L 90,056 -- 146,467 34,000 270,523
IP&L and WP&L maintain purchase agreements with over 30 suppliers of natural gas from all gas producing regions of the U.S. and Canada. The majority of the gas supply contracts are for terms of six months or less, with the remaining supply contracts having terms up to two years. The utilities' gas supply commitments are index-based. In addition to sales of natural gas to retail customers, IP&L and WP&L provide transportation service to commercial and industrial customers by moving customer-owned gas through their distribution systems to the customers' meter. Revenues are collected for this service pursuant to transportation tariffs. The gas sales of IP&L and WP&L follow a seasonal pattern. There is an annual base load of gas used for cooking, heating and other purposes, with a large heating peak occurring during the winter season. Natural gas obtained from producers, marketers and brokers, as well as gas in storage, is utilized to meet the peak heating season requirements. Storage contracts allow IP&L and WP&L to purchase gas in the summer, store the gas in underground storage fields and deliver it in the winter. Gas storage met approximately 20% and 16% of IP&L's and WP&L's annual gas requirements in 2002, respectively. Refer to Note 1(j) for information relating to utility natural gas cost recovery, Note 10(a) for information on natural gas derivatives and Note 11(b) for discussion of natural gas commitments in the "Notes to Consolidated Financial Statements." Gas Environmental Matters - Refer to Note 11(e) of the "Notes to Consolidated Financial Statements" for discussion of gas environmental matters. 18
Alliant Energy Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Gas Operating Information (Utility Only) 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $218,746 $270,248 $245,697 $185,090 $175,603 Commercial 111,343 141,121 127,104 89,118 85,842 Industrial 25,177 31,262 27,752 21,855 20,204 Transportation/other 38,720 45,246 14,395 18,256 13,941 ----------------------------------------------------------------- Total $393,986 $487,877 $414,948 $314,319 $295,590 ================================================================= - ------------------------------------------------------------------------------------------------------------------------------------ Gas Sales (000s Dths): Residential 30,931 29,580 32,026 30,309 28,378 Commercial 19,348 18,055 19,696 18,349 17,760 Industrial 5,373 5,344 5,350 5,963 5,507 Transportation/other 47,386 48,539 43,931 46,954 52,389 ----------------------------------------------------------------- Total 103,038 101,518 101,003 101,575 104,034 ================================================================= - ------------------------------------------------------------------------------------------------------------------------------------ Customers at End of Period (Excluding Transportation/Other): Residential 358,384 353,430 351,990 347,533 342,586 Commercial 45,793 45,480 44,654 44,289 43,825 Industrial 799 951 953 1,037 982 ----------------------------------------------------------------- Total 404,976 399,861 397,597 392,859 387,393 ================================================================= - ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Gas Data: Revenue per Dth sold (excluding transportation/other) $6.38 $8.35 $7.02 $5.42 $5.45 Purchased gas costs per Dth sold (excluding transportation/other) $4.02 $6.31 $4.88 $3.30 $3.22 - ------------------------------------------------------------------------------------------------------------------------------------
19
Interstate Power and Light Company - ------------------------------------------------------------------------------------------------------------------------------------ Gas Operating Information 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $124,237 $162,575 $149,493 $115,428 $110,430 Commercial 61,222 82,463 72,592 53,548 51,944 Industrial 18,197 22,355 19,171 15,778 14,308 Transportation/other 11,239 13,621 8,540 8,795 7,171 ------------------------------------------------------------------ Total $214,895 $281,014 $249,796 $193,549 $183,853 ================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Gas Sales (000s Dths): Residential 18,068 17,826 19,257 18,239 17,442 Commercial 10,774 10,483 11,101 10,578 10,475 Industrial 4,070 4,147 3,874 4,443 4,085 Transportation/other 28,814 31,673 30,251 33,717 39,441 ------------------------------------------------------------------ Total 61,726 64,129 64,483 66,977 71,443 ================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Customers at End of Period (Excluding Transportation/Other): Residential 206,808 205,065 205,300 203,518 201,521 Commercial 27,607 27,649 27,071 26,909 26,767 Industrial 438 441 440 461 476 ------------------------------------------------------------------ Total 234,853 233,155 232,811 230,888 228,764 ================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Gas Data: Revenue per Dth sold (excluding transportation/other) $6.19 $8.24 $7.05 $5.55 $5.52 Purchased gas cost per Dth sold (excluding transportation/other) $4.11 $6.20 $4.89 $3.41 $3.20 - ------------------------------------------------------------------------------------------------------------------------------------ Wisconsin Power and Light Company - ------------------------------------------------------------------------------------------------------------------------------------ Gas Operating Information 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (000s): Residential $94,509 $107,673 $96,204 $69,662 $65,173 Commercial 50,121 58,658 54,512 35,570 33,898 Industrial 6,980 8,907 8,581 6,077 5,896 Transportation/other 27,481 31,625 5,855 9,461 6,770 ------------------------------------------------------------------ Total $179,091 $206,863 $165,152 $120,770 $111,737 ================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Gas Sales (000s Dths): Residential 12,863 11,754 12,769 12,070 10,936 Commercial 8,574 7,572 8,595 7,771 7,285 Industrial 1,303 1,197 1,476 1,520 1,422 Transportation/other 18,572 16,866 13,680 13,237 12,948 ------------------------------------------------------------------ Total 41,312 37,389 36,520 34,598 32,591 ================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Customers at End of Period (Excluding Transportation/Other): Residential 151,576 148,365 146,690 144,015 141,065 Commercial 18,186 17,831 17,583 17,380 17,058 Industrial 361 510 513 576 506 ------------------------------------------------------------------ Total 170,123 166,706 164,786 161,971 158,629 ================================================================== - ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Gas Data: Revenue per Dth sold (excluding transportation/other) $6.67 $8.54 $6.97 $5.21 $5.34 Purchased gas cost per Dth sold (excluding transportation/other) $3.89 $6.47 $4.69 $3.00 $3.13 - ------------------------------------------------------------------------------------------------------------------------------------
20 D. INFORMATION RELATING TO NON-REGULATED OPERATIONS Resources manages a portfolio of wholly-owned subsidiaries and additional investments through distinct platforms: International, Non-regulated Generation, Integrated Services, Investments and Energy Technologies. In November 2002, Alliant Energy announced its commitment to pursue the sale of, or other exit strategies for, Whiting, its investments in Australia and its affordable housing business. Refer to Note 16 in Alliant Energy's "Notes to Consolidated Financial Statements" for additional information. Resources intends to focus on its International and Non-regulated Generation businesses as its primary long-term strategic platforms and will continue reviewing for ways to narrow its strategic focus and business platforms. International - has invested in energy generation and distribution companies and projects in select growing markets. Currently, International has investments in Brazil, China and New Zealand and a loan to a development project in Mexico. International has focused on these locations because of its belief that they offer a growing demand for energy and are receptive to foreign investment. International also has developed partnerships with other entities that have intimate knowledge of each local market's business trends and customs. In addition, Alliant Energy has investments in Australia that it is in the process of selling. Refer to Note 9 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information related to Alliant Energy's investments in foreign entities. Non-regulated Generation - Alliant Energy Generation, Inc., was formed to build a portfolio of competitive generating assets across the U.S., focusing primarily on the Upper Midwest. Alliant Energy expects to build this portfolio through a combination of strategic acquisitions, partnerships and development projects. Given the status of the current non-regulated generation market, Alliant Energy's initial investments in this market will focus on facilities with underlying long-term purchased-power agreements. While Alliant Energy believes there are strong acquisition opportunities in the existing non-regulated generation market, it will continue to be patient, prudent and diligent in its pursuit of such opportunities. Synfuel has an equity interest in a synthetic fuel processing facility. The synthetic fuel project generates operating losses at its fuel processing facility, which are more than offset by tax credits and the tax benefit of the losses generated. Refer to "Liquidity and Capital Resources - Construction and Acquisition Expenditures" in MD&A for additional information including an announcement in February 2003 regarding the purchase of a generation facility. Integrated Services - provides a wide range of energy and environmental services for commercial, industrial, institutional, educational and governmental customers. It offers large energy users an array of services to maximize customers' productivity, profitability and energy efficiency, and provides solutions for waste remediation and other environmental engineering and consulting services. Integrated Services includes: Cogenex Corporation (Cogenex), Industrial Energy Applications, Inc. (IEA), Heartland Energy Group, Inc. (HEG), RMT, Inc. (RMT) and Alliant Energy Integrated Services Company - Energy Solutions L.L.C. (Energy Solutions). Cogenex and IEA provide business customers with on-site energy services. HEG offers commodities-based energy services primarily related to supplying natural gas and owns several natural gas and oil gathering systems in Texas. RMT is an environmental and engineering consulting company that serves clients nationwide in a variety of industrial market segments and specializes in consulting on solid and hazardous waste management, ground water quality protection, industrial design and hygiene engineering, and air and water pollution control. RMT is marketing SmartBurn, which is a large-scale emissions-reducing program for coal-burning facilities, to other U.S. companies. Energy Solutions provides energy consulting services to commercial, industrial and institutional customers. Investments - subsidiaries and investments include Transportation and Investments. Transportation is a holding company whose wholly-owned subsidiaries include the Cedar Rapids and Iowa City Railway Company (CRANDIC), which is a short-line railway that provides freight service between Cedar Rapids and Iowa City; IEI Barge Services, Inc. (Barge), which provides barge terminal and hauling services on the Mississippi River; and Williams Bulk Transfer Inc. (Williams) and Transfer Services, Inc. (Transfer), which provide transfer and storage services. Investments is a holding company whose primary wholly-owned subsidiary includes Iowa Land and Building Company (Iowa Land) which is organized to pursue real estate and economic development activities in IP&L's service territory. Investments also has direct and indirect equity interests in various small real estate and economic development ventures, primarily concentrated in Cedar Rapids, Iowa, and holds other passive investments, including an equity interest in McLeod, an integrated telecommunications and services provider. Alliant Energy is in the process of selling Whiting and its affordable housing business. 21 Energy Technologies - Resources has invested in energy technologies by purchasing equity interests in Capstone, a microturbine producer; Nth Power Technologies Fund II, LP, a venture capital fund specializing in emerging energy-technology companies; and several other modest investments in emerging energy technology businesses. These ventures allow Alliant Energy to provide its customers with new technologies that are smaller in scale than more traditional generation technologies, such as microturbines, fuel cells, solar concepts and wind turbines. Mass Marketing has held interests in energy marketing businesses. In January 2003, Alliant Energy committed to a plan to sell SmartEnergy, an internet-based retailer, and Alliant Energy is in the process of disbanding its Mass Marketing business unit. E. DISCLOSURE CONCERNING WEBSITE ACCESS TO REPORTS Alliant Energy makes its periodic and current reports, and amendments to those reports, available, free of charge, on its website at www.alliantenergy.com/investors on the same day as such material is electronically filed with, or furnished to, the SEC. Alliant Energy is not including the information contained on its website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. 22 ITEM 2. PROPERTIES IP&L IP&L's principal electric generating stations at Dec. 31, 2002, were as follows:
Name and Location Primary Fuel 2002 Summer Capability of Station Type in KWs - ------------------------------------------------------------------ --------------- -------------------------------------- Duane Arnold Energy Center, Palo, IA Nuclear 393,050 (1) Ottumwa Generating Station, Ottumwa, IA Coal 345,690(2) Prairie Creek Station, Cedar Rapids, IA Coal 194,560 Sutherland Station, Marshalltown, IA Coal 142,700 Sixth Street Station, Cedar Rapids, IA Coal 49,510 Burlington Generating Station, Burlington, IA Coal 215,060 George Neal Unit 3, Sioux City, IA Coal 144,200(3) George Neal Unit 4, Sioux City, IA Coal 138,640(4) Dubuque Units 2, 3 and 4, Dubuque, IA Coal 77,070 M. L. Kapp Plant Units 1 and 2, Clinton, IA Coal 238,300 Lansing Units 1, 2, 3 and 4, Lansing, IA Coal 317,130 Louisa Unit 1, Louisa, IA Coal 28,000(5) ----------- Total Coal 1,890,860 Marshalltown Combustion Turbines, Marshalltown, IA Oil 167,500 Centerville Combustion Turbines, Centerville, IA Oil 53,660 Montgomery Combustion Turbine Unit 1, Montgomery, MN Oil 20,210 Fox Lake Plant Combustion Turbine Unit 4, Sherburn, MN Oil 20,070 Lime Creek Plant Combustion Turbine Units 1 and 2, Mason City, IA Oil 72,960 Diesel Stations, in IA/MN Oil 18,350 ----------- Total Oil 352,750 Grinnell Station, Grinnell, IA Gas 25,630 Agency Street Combustion Turbines, West Burlington, IA Gas 66,990 Burlington Combustion Turbines, Burlington, IA Gas 66,730 Red Cedar Combustion Turbine, Cedar Rapids, IA Gas 17,380 Fox Lake Plant Units 1, 2 and 3, Sherburn, MN Gas 106,870 ----------- Total Gas 283,600 ------------ Total generating capability 2,920,260 ============
All KWs shown below represent the 2002 summer generating capability. (1) Represents IP&L's 70% ownership interest in this 561,500 KW generating station, which is operated by IP&L. (2) Represents IP&L's 48% ownership interest in this 720,190 KW generating station, which is operated by IP&L. (3) Represents IP&L's 28% ownership interest in this 515,000 KW generating station, which is operated by MidAmerican Energy Company. (4) Represents IP&L's 21.5% ownership interest in this 644,000 KW generating station, which is operated by MidAmerican Energy Company. (5) Represents IP&L's 4% ownership interest in this 700,000 KW generating station, which is operated by MidAmerican Energy Company. IP&L owns 7,068 miles of electric transmission lines and 801 substations, substantially all located in Iowa, Minnesota and Illinois. IP&L's principal properties are suitable for their intended use and are held subject to the liens of indentures relating to its bonds. 23 WP&L WP&L's principal electric generating stations at Dec. 31, 2002, were as follows:
Name and Location Primary Fuel 2002 Summer Capability of Station Type in KWs - ----------------------------------------------------------- --------------- -------------------------------------- Kewaunee Nuclear Power Plant, Kewaunee, WI Nuclear 217,300 (1) Nelson Dewey Generating Station, Cassville, WI Coal 222,460 Edgewater Generating Station #3, Sheboygan, WI Coal 76,000 Edgewater Generating Station #4, Sheboygan, WI Coal 230,520 (2) Edgewater Generating Station #5, Sheboygan, WI Coal 314,340 (3) Columbia Energy Center, Portage, WI Coal 502,130 (4) ------------- Total Coal 1,345,450 Blackhawk Generating Station, Beloit, WI Gas 54,500 Rock River Generating Station, Beloit, WI Gas 147,830 Rock River Combustion Turbine, Beloit, WI Gas 150,330 South Fond du Lac Combustion Turbine Units 2 and 3, Fond du Lac, WI Gas 167,670 Sheepskin Combustion Turbine, Edgerton, WI Gas 37,920 ------------- Total Gas 558,250 Kilbourn Hydro Plant, Wisconsin Dells, WI Hydro 7,000 Prairie du Sac Hydro Plant, Prairie du Sac, WI Hydro 15,000 Petenwell/Castle Rock Hydro Plants, Wisconsin Rapids, WI Hydro 6,000 (5) ------------- Total Hydro 28,000 ------------- Total generating capability 2,149,000 =============
All KWs shown below represent the 2002 summer generating capability. (1) Represents WP&L's 41% ownership interest in this 530,000 KW generating station, which is operated by WPSC. (2) Represents WP&L's 68.2% ownership interest in this 338,000 KW generating station, which is operated by WP&L. (3) Represents WP&L's 75% ownership interest in this 419,120 KW generating station, which is operated by WP&L. (4) Represents WP&L's 46.2% ownership interest in this 1,086,860 KW generating station, which is operated by WP&L. (5) WP&L has a 50% ownership interest in this 18,000 KW hydro plant, which is operated by Wisconsin River Power Company, but has a contract to purchase only one-third of the plant's output. WP&L owns 158 distribution substations located adjacent to the communities served, substantially all located in Wisconsin. WP&L's transmission assets were transferred to ATC in 2001. Substantially all of WP&L's facilities are suitable for their intended use and are held subject to the lien of its First Mortgage Bond indenture. Refer to "C. Information Relating to Domestic Utility Operations - 1) Electric Utility Operations - General" in "Business" for information related to WP&L's investment in ATC. 24 Resources Resources' principal properties at Dec. 31, 2002 were as follows: 1. International - owns nine combined heat and power facilities located in China with an aggregate generating capacity of approximately 475 MW. 2. Non-regulated Generation - turbines and related generation equipment for use in future generation projects. 3. Integrated Services - standby generation, cogeneration, steam production and propane air systems and owns an interest in an oil gathering system and natural gas gathering systems, which had 500 miles and 213 miles, respectively, of pipeline in Texas. 4. Investments - CRANDIC has 112 railroad track miles all located within Iowa. ITEM 3. LEGAL PROCEEDINGS Alliant Energy In October 2000, Alliant Energy and WP&L filed a federal lawsuit seeking declaratory relief regarding whether certain provisions of WUHCA are unconstitutional as a violation of the interstate commerce and equal protection provisions of the U.S. Constitution. Alliant Energy and WP&L are challenging the provisions of WUHCA which restrict ownership in utility holding companies, limit the investments those companies can make and place significant restrictions on companies that invest in Wisconsin utility holding companies. Alliant Energy and WP&L also requested that the court consider the constitutionality of issues related to the asset cap on non-utility investments imposed by WUHCA. Alliant Energy and WP&L were seeking only declaratory relief and not damages in the litigation. In February 2001, the lawsuit was dismissed based on lack of allegations of "injury in fact." Alliant Energy and WP&L filed a motion for reconsideration with the court, which was denied in April 2001. Alliant Energy and WP&L appealed the lower court's rulings to the 7th Circuit Court of Appeals. In January 2002, the 7th Circuit reversed the district court's decision and remanded the case back to the district court for hearing. In May 2002, the district judge granted the state's motion for summary judgment and dismissed Alliant Energy's and WP&L's case. Alliant Energy and WP&L appealed the district court's decision to the 7th Circuit Court of Appeals in June 2002. Briefing of the appeal has been completed, with a decision expected in the second quarter of 2003. Alliant Energy and WP&L cannot currently predict the outcome of this litigation. Alliant Energy received an adverse ruling in 1999 from a U.S. district court dealing with an income tax refund claim Alliant Energy filed relating to capital losses disallowed under audit by the IRS. The district court also disallowed certain related deductions allowed by the IRS to reduce a tax refund due to Alliant Energy related to another tax issue. Alliant Energy appealed the district court's ruling and the government appealed the decision which led to the tax refund due to Alliant Energy. In June 2001, the U.S. Court of Appeals for the 8th Circuit ruled in Alliant Energy's favor with respect to both tax issues. In July 2001, the government filed a petition for rehearing with the U.S. Court of Appeals related to the capital losses allowed in the 8th Circuit opinion. The 8th Circuit denied the appeal in September 2001 and remanded the case back to the district court for entry of judgment. The federal government decided not to pursue the ruling in favor of Alliant Energy of the U.S. Court of Appeals for the 8th Circuit with respect to these two tax issues. As a result, Alliant Energy recorded the applicable tax benefit and interest income in the fourth quarter of 2001 related to these events. An additional potential refund of approximately $14 million, plus interest, was also being contested by the government. However, the district court ruled in favor of the federal government in July 2002 on such issue. Alliant Energy has appealed the most recent district court decision. An adverse decision on appeal would not result in Alliant Energy recording any charges to earnings as the potential refund simply represents a gain contingency. Subsequently, the government filed a cross appeal, which it later decided not to pursue and voluntarily moved for its dismissal. Alliant Energy is awaiting a decision from the 8th Circuit Court of Appeals. IP&L IP&L has appealed to the Iowa State Board of Tax Review, an agency of the State of Iowa, regarding assessments of Iowa property tax made by the Director of the Iowa Department of Revenue and Finance. The appeals involve assessments for the years 1994 through 1998 and seek reduction of the assessments reflecting the true value of the operating property of the companies. At the present time, IP&L cannot predict what impact, if any, the appeals process will have on its financial condition or results of operations. 25 WP&L - None Environmental Matters The information required by Item 3 with regards to environmental matters is included in "C. Information Relating to Domestic Utility Operations - 1) Electric Utility Operations" in "Business," "Liquidity and Capital Resources - - Environmental" in MD&A and Note 11(e) of the "Notes to Consolidated Financial Statements," which information is incorporated herein by reference. Rate Matters The information required by Item 3 with regards to rate matters is included in Note 2 of Alliant Energy's "Notes to Consolidated Financial Statements" and "Rates and Regulatory Matters" in MD&A, which information is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS IP&L At IP&L's annual meeting of shareowners held on Oct. 9, 2002, Alan B. Arends, Katharine C. Lyall, Singleton B. McAllister and Anthony R. Weiler were elected as directors of IP&L for terms expiring in 2005. Alliant Energy voted all of the outstanding shares of common stock of IP&L (consisting of 13,370,788 shares) in favor of the election of these individuals. The following are the other directors of IP&L whose terms of office continued after the 2002 annual meeting: Erroll B. Davis, Jr., Lee Liu, Robert W. Schlutz and Wayne H. Stoppelmoor, with terms expiring in 2003; and Jack B. Evans, Joyce L. Hanes, David A. Perdue and Judith D. Pyle, with terms expiring in 2004. EXECUTIVE OFFICERS OF THE REGISTRANTS - ------------------------------------- The executive officers of Alliant Energy, IP&L and WP&L as of the date of this filing are as follows (figures following the names represent the officer's age as of Dec. 31, 2002): Executive Officers of Alliant Energy Erroll B. Davis, Jr., 58, was elected Chairman of the Board effective April - --------------- 2000, has served as President and Chief Executive Officer (CEO) since 1990 and has been a board member since 1988. William D. Harvey, 53, was elected Executive Vice President (EVP)-Generation - ----------------- effective April 1998. James E. Hoffman, 49, was elected EVP-Business Development effective April - ---------------- 1998. Eliot G. Protsch, 49, was elected EVP-Energy Delivery effective April 1998. - ---------------- Barbara J. Swan, 51, was elected EVP and General Counsel effective October - --------------- 1998. She previously served as Vice President (VP)-General Counsel from 1994 to 1998 at WP&L. Thomas M. Walker, 55, was elected EVP and Chief Financial Officer (CFO) - ---------------- effective April 1998. Pamela J. Wegner, 55, was elected EVP-Shared Solutions effective October - ---------------- 1998. She previously served as VP-Information Services and Administration from 1994 to 1998 at WP&L. Dundeana K. Doyle, 44, was elected VP-Infrastructure Security effective - ----------------- January 2002. She previously served as VP-Customer Operations since December 2000 at IESU and WP&L, VP-Customer Services and Operations from 1999 to 2000 at IESU and WP&L, VP-Customer Operations from 1998 to 1999 at IESU and VP-Customer Services from 1998 to 1999 at WP&L. Thomas L. Hanson, 49, was elected VP and Treasurer effective April 2002. He - ---------------- previously served as Managing Director-Generation Services since 2001 and General Manager-Business and Financial Performance, Generation from 1998 to 2001. John E. Kratchmer, 40, was elected VP-Controller and Chief Accounting Officer - ----------------- effective October 2002. He previously served as Corporate Controller and Chief Accounting Officer since October 2000 and Assistant Controller from 1998 to 2000. Barbara A. Siehr, 51, was elected VP-Financial Planning and Strategic - ---------------- Projects effective October 2002. She previously served as Managing Director-Operations and Operations Services since December 2000, General Manager-Operations East from 1999 to 2000 and General Manager-Engineering/Operations Services from 1998 to 1999. 26 F. J. Buri, 48, was elected Corporate Secretary effective April 2002. He - ---------- previously served as Senior Attorney since June 1999. Prior to joining Alliant Energy, he was General Counsel and Secretary from 1996 to 1999 at Universal Savings Bank, N.A. None of the executive officers listed above is related to any member of the Board of Directors or nominee for director or any other executive officer. Mr. Davis has an employment agreement with Alliant Energy pursuant to which his term of office is established. All other executive officers have no definite terms of office and serve at the pleasure of the Board of Directors. Additional Officers of Alliant Energy Enrique Bacalao, 53, was elected Assistant Treasurer effective November - --------------- 1998. Prior to joining Alliant Energy, he was VP, Corporate Banking from 1995 to 1998 at the Chicago Branch of The Industrial Bank of Japan, Limited. Eric D. Mott, 35, was elected Assistant Treasurer effective December 2001. - ------------ He previously served as Manager-Investor Relations and Trust Fund Investment Management since December 2000 and Senior Treasury Analyst from 1998 to 2000. Joan M. Thompson, 45, was elected Assistant Controller effective June 2000. - ---------------- She previously served as Manager-IESU and IPC Accounting since February 1999 and Manager-IESU Accounting from 1998 to 1999. Patricia L. Reininger, 50, was elected Assistant Corporate Secretary - --------------------- effective January 2003. She previously served as Executive Administrative Assistant since August 2000. Prior to joining Alliant Energy, she was Assistant to the Chairperson and Assistant Corporate Secretary from 1993 to 1999 at Sentry Insurance. Executive Officers of IP&L Erroll B. Davis, Jr., 58, was elected Chairman of the Board effective April - --------------- 2000 and CEO effective April 1998. Mr. Davis is also an officer of Alliant Energy and WP&L. Eliot G. Protsch, 49, was elected President effective April 1998. Mr. - ---------------- Protsch is also an officer of Alliant Energy and WP&L. William D. Harvey, 53, was elected EVP-Generation effective October 1998. - ----------------- Mr. Harvey is also an officer of Alliant Energy and WP&L. Barbara J. Swan, 51, was elected EVP and General Counsel effective October - --------------- 1998. Ms. Swan is also an officer of Alliant Energy and WP&L. Thomas M. Walker, 55, was elected EVP and CFO in 1996. Mr. Walker is also an - ---------------- officer of Alliant Energy and WP&L. Pamela J. Wegner, 55, was elected EVP-Shared Solutions effective October - ---------------- 1998. Ms. Wegner is also an officer of Alliant Energy and WP&L. Dundeana K. Doyle, 44, was elected VP-Infrastructure Security effective - ----------------- January 2002. Ms. Doyle is also an officer of Alliant Energy and WP&L. Vern A. Gebhart, 49, was elected VP-Customer Operations effective January - --------------- 2002. He previously served as Managing Director-Strategic Projects and Capital Control since 2000 and Director-Strategic Projects and Capital Control from 1998 to 2000 at Alliant Energy. Mr. Gebhart is also an officer of WP&L. Thomas L. Hanson, 49, was elected VP and Treasurer effective April 2002. Mr. - ---------------- Hanson is also an officer of Alliant Energy and WP&L. John E. Kratchmer, 40, was elected VP-Controller and Chief Accounting Officer - ----------------- effective October 2002. Mr. Kratchmer is also an officer of Alliant Energy and WP&L. Daniel L. Mineck, 54, was elected VP-Performance Engineering and - ---------------- Environmental effective October 1998. He previously served as Assistant VP-Corporate Engineering since 1996. Mr. Mineck is also an officer of WP&L. Barbara A. Siehr, 51, was elected VP-Financial Planning and Strategic - ---------------- Projects effective October 2002. Ms. Siehr is also an officer of Alliant Energy and WP&L. Kim K. Zuhlke, 49, was elected VP-Engineering, Sales and Marketing effective - ------------- September 1999. He previously served as VP-Customer Operations since October 1998. Mr. Zuhlke is also an officer of WP&L. F. J. Buri, 48, was elected Corporate Secretary effective April 2002. Mr. - ---------- Buri is also an officer of Alliant Energy and WP&L. None of the executive officers listed above is related to any member of the Board of Directors or nominee for director or any other executive officer. Mr. Davis has an employment agreement with Alliant Energy pursuant to which 27 his term of office is established. All other executive officers have no definite terms of office and serve at the pleasure of the Board of Directors. Additional Officers of IP&L Enrique Bacalao, 53, was elected Assistant Treasurer effective November 1998. - --------------- Mr. Bacalao is also an officer of Alliant Energy and WP&L. Steven F. Price, 50, was elected Assistant Treasurer effective April 1998. - --------------- Mr. Price is also an officer of WP&L. Patricia L. Reininger, 50, was elected Assistant Corporate Secretary - --------------------- effective January 2003. Ms. Reininger is also an officer of Alliant Energy and WP&L. Daniel L. Siegfried, 43, was elected Assistant Corporate Secretary effective - ------------------- April 1998. He also serves as Senior Attorney for Alliant Energy. Executive Officers of WP&L Erroll B. Davis, Jr., 58, was elected Chairman of the Board effective April - -------------------- 2000 and CEO effective April 1998. Mr. Davis is also an officer of Alliant Energy and IP&L. William D. Harvey, 53, was elected President effective April 1998. Mr. - ----------------- Harvey is also an officer of Alliant Energy and IP&L. Eliot G. Protsch, 49, was elected EVP-Energy Delivery effective October - ---------------- 1998. He previously served as Senior VP from 1993 to 1998 at WP&L. Mr. Protsch is also an officer of Alliant Energy and IP&L. Barbara J. Swan, 51, was elected EVP and General Counsel effective October - --------------- 1998. She previously served as VP-General Counsel from 1994 to 1998 at WP&L. Ms. Swan is also an officer of Alliant Energy and IP&L. Thomas M. Walker, 55, was elected EVP and CFO effective October 1998. Mr. - ---------------- Walker is also an officer of Alliant Energy and IP&L. Pamela J. Wegner, 55, was elected EVP-Shared Solutions effective October - ---------------- 1998. She previously served as VP-Information Services and Administration from 1994 to 1998 at WP&L. Ms. Wegner is also an officer of Alliant Energy and IP&L. Dundeana K. Doyle, 44, was elected VP-Infrastructure Security effective - ----------------- January 2002. Ms. Doyle is also an officer of Alliant Energy and IP&L. Vern A. Gebhart, 49, was elected VP-Customer Operations effective January - --------------- 2002. Mr. Gebhart is also an officer of IP&L. Thomas L. Hanson, 49, was elected VP and Treasurer effective April 2002. Mr. - ---------------- Hanson is also an officer of Alliant Energy and IP&L. John E. Kratchmer, 40, was elected VP-Controller and Chief Accounting Officer - ----------------- effective October 2002. Mr. Kratchmer is also an officer of Alliant Energy and IP&L. Daniel L. Mineck, 54, was elected VP-Performance Engineering and - ---------------- Environmental effective April 1998. Mr. Mineck is also an officer of IP&L. Barbara A. Siehr, 51, was elected VP-Financial Planning and Strategic - ---------------- Projects effective October 2002. Ms. Siehr is also an officer of Alliant Energy and IP&L. Kim K. Zuhlke, 49, was elected VP-Engineering, Sales & Marketing effective - ------------- September 1999. He previously served as VP-Customer Operations since April 1998 at WP&L and since October 1998 at IESU and as VP-Customer Services and Sales from 1993 to 1998 at WP&L. Mr. Zuhlke is also an officer of IP&L. F. J. Buri, 48, was elected Corporate Secretary effective April 2002. Mr. - ---------- Buri is also an officer of Alliant Energy and IP&L. None of the executive officers listed above is related to any member of the Board of Directors or nominee for director or any other executive officer. Mr. Davis has an employment agreement with Alliant Energy pursuant to which his term of office is established. All other executive officers have no definite terms of office and serve at the pleasure of the Board of Directors. Additional Officers of WP&L Enrique Bacalao, 53, was elected Assistant Treasurer effective November - --------------- 1998. Mr. Bacalao is also an officer of Alliant Energy and IP&L. Steven F. Price, 50, was elected Assistant Treasurer effective April 1998. - --------------- Mr. Price is also an officer of IP&L. Patricia L. Reininger, 50, was elected Assistant Corporate Secretary - --------------------- effective January 2003. Ms. Reininger is also an officer of Alliant Energy and IP&L. 28 PART II ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Alliant Energy's common stock trades on the New York Stock Exchange under the symbol "LNT." Quarterly sales price ranges and dividends with respect to Alliant Energy's common stock were as follows:
2002 2001 ----------------------------------------- --------------------------------------- Quarter High Low Dividend High Low Dividend ------- ---- --- -------- ---- --- -------- First $31.01 $28.67 $0.50 $33.20 $28.75 $0.50 Second 30.85 24.75 0.50 32.67 28.20 0.50 Third 25.77 16.35 0.50 31.49 27.90 0.50 Fourth 19.89 14.28 0.50 32.29 27.50 0.50 Year 31.01 14.28 2.00 33.20 27.50 2.00
Stock closing price at Dec. 31, 2002: $16.55 Although Alliant Energy's practice has been to pay cash dividends on its common stock quarterly, the timing of payment and amount of future dividends are necessarily dependent upon future earnings, capital requirements, general financial condition, general business conditions, the ability of Alliant Energy's subsidiaries to pay dividends and other factors. Effective with the dividend declared and paid in the first quarter of 2003, Alliant Energy reduced its targeted annual common stock dividend from $2.00 to $1.00 per share. At Dec. 31, 2002, there were approximately 55,470 holders of record of Alliant Energy's stock, including holders in Alliant Energy's Shareowner Direct Plan. Alliant Energy is the sole common shareowner of all 13,370,788 shares of IP&L common stock currently outstanding. During 2002 and 2001, IP&L paid dividends on its common stock of $82 million and $80 million, respectively, to its parent. Under certain circumstances, IP&L has the right under terms of its subordinated deferrable interest debentures to extend interest payments for periods not to exceed 20 consecutive quarters. It is IP&L's current intent not to exercise such right. In the event IP&L did exercise this right, it would limit IP&L's ability to pay dividends, among other things. Alliant Energy is the sole common shareowner of all 13,236,601 shares of WP&L common stock currently outstanding. During both 2002 and 2001, WP&L paid dividends on its common stock of $60 million to its parent. WP&L's dividends are restricted to the extent that such dividend would reduce the common stock equity ratio to less than 25%. The PSCW has ordered that it must approve the payment of dividends by WP&L to Alliant Energy that are in excess of the level forecasted in the rate order ($62 million), if such dividends would reduce WP&L's average common equity ratio below 44.67% of total capitalization. The dividends paid by WP&L to Alliant Energy since the rate order was issued have not exceeded such level. IP&L and WP&L each have common stock dividend payment restrictions based on their respective bond indentures and the terms of their preferred stock. 29
ITEM 6. SELECTED FINANCIAL DATA Alliant Energy Corporation - ------------------------------------------------------------------------------------------------------------------------------------ Financial Information 2002 (1) 2001 (1) 2000 (1) 1999 (2) 1998 (3) - ------------------------------------------------------------------------------------------------------------------------------------ (dollars in thousands, except per share data) Income Statement Data: Operating revenues $2,608,812 $2,624,676 $2,279,674 $2,048,158 $2,053,318 Income from continuing operations 76,269 126,245 330,915 154,334 95,437 Income from discontinued operations, net of tax 30,612 58,985 51,039 42,247 1,238 Income before cumulative effect of changes in accounting principle, net of tax 106,881 185,230 381,954 196,581 96,675 Cumulative effect of changes in accounting principle, net of tax -- (12,868) 16,708 -- -- Net income 106,881 172,362 398,662 196,581 96,675 - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock Data: Earnings per average common share (diluted): Income from continuing operations $0.84 $1.57 $4.18 $1.98 $1.24 Income from discontinued operations $0.34 $0.73 $0.64 $0.53 $0.02 Cumulative effect of changes in accounting principle -- ($0.16) $0.21 -- -- Net income $1.18 $2.14 $5.03 $2.51 $1.26 Common shares outstanding at year-end (000s) 92,304 89,682 79,010 78,984 77,630 Dividends declared per common share $2.00 $2.00 $2.00 $2.00 $2.00 Market value per share at year-end $16.55 $30.36 $31.88 $27.50 $32.25 Book value per share at year-end (4) $19.89 $21.39 $25.79 $27.29 $20.69 - ------------------------------------------------------------------------------------------------------------------------------------ Other Selected Financial Data: Construction and acquisition expenditures $656,792 $713,061 $845,454 $418,371 $313,033 Total assets at year-end (4) $7,001,395 $6,237,925 $6,733,766 $6,075,683 $4,959,337 Long-term obligations, net $2,784,216 $2,586,044 $2,128,496 $1,660,558 $1,713,649 Times interest earned before income taxes (5) 1.64X 1.99X 4.35X 3.05X 2.40X Capitalization ratios: Common equity (4) 39% 43% 50% 57% 49% Preferred stock 5% 2% 3% 3% 4% Long-term debt, excluding current portion 56% 55% 47% 40% 47% ---------------------------------------------------------------- Total 100% 100% 100% 100% 100% ================================================================ - ------------------------------------------------------------------------------------------------------------------------------------
(1) Refer to "MD&A - Alliant Energy Results of Operations" for a discussion of the 2002, 2001 and 2000 results of operations. (2) Includes $25 million ($0.32 per diluted share) of net income from gains on sales of McLeod stock. (3) Results reflect the recording of $54 million of pre-tax merger-related charges. (4) Alliant Energy adjusts the carrying value of its investments in McLeod to its estimated fair value, pursuant to the applicable accounting rules. At December 31, 2002, 2001, 2000, 1999 and 1998, the carrying amount reflected an unrealized gain (loss) of approximately $1 million, ($13) million, $543 million, $1.1 billion and $291 million, respectively, with a net of tax increase (decrease) to common equity of $0.4 million, ($9) million, $317 million, $640 million and $170 million, respectively. (5) Represents income from continuing operations before income taxes plus preferred dividend requirements of subsidiaries plus interest expense divided by interest expense. 30
IP&L 2002 2001 2000 1999 1998 - ---- ----------------------------------------------------------------------------- (in thousands) Operating revenues $1,211,608 $1,316,250 $1,234,007 $1,142,801 $1,162,819 Earnings available for common stock 88,015 94,656 99,724 93,896 77,278 Cash dividends declared on common stock 81,790 80,340 80,339 120,509 27,612 Total assets 2,738,406 2,426,314 2,524,802 2,415,068 2,446,315 Long-term obligations, net 902,243 922,941 792,323 836,486 872,517
Alliant Energy is the sole common shareowner of all 13,370,788 shares of IP&L's common stock outstanding. As such, earnings per share data is not disclosed herein. The 1998 financial results reflect the recording of $31 million of pre-tax merger-related charges.
WP&L 2002 2001 2000 1999 1998 - ---- ------------------------------------------------------------------------------ (in thousands) Operating revenues $972,078 $965,353 $862,381 $752,505 $731,448 Earnings available for common stock 77,614 70,180 68,126 67,520 32,264 Cash dividends declared on common stock 59,645 60,449 -- 58,353 58,341 Total assets 1,984,597 1,875,800 1,857,024 1,766,135 1,685,150 Long-term obligations, net 523,308 523,183 569,309 471,648 471,554
Alliant Energy is the sole common shareowner of all 13,236,601 shares of WP&L's common stock outstanding. As such, earnings per share data is not disclosed herein. The 1998 financial results reflect the recording of $17 million of pre-tax merger-related charges. 31 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Statements contained in this report that are not of historical fact are forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, such statements. Some, but not all, of the risks and uncertainties include: factors listed in "Other Matters - Other Future Considerations;" weather effects on sales and revenues; economic and political conditions in Alliant Energy's domestic and international service territories; federal, state and international regulatory or governmental actions, including the ability to obtain adequate and timely rate relief, including recovery of operating costs and earning reasonable rates of return, and to pay expected levels of dividends; Alliant Energy's proposed asset divestitures at expected values and on expected timelines; unanticipated construction and acquisition expenditures; issues related to the supply of purchased electricity and price thereof including the ability to recover purchased-power and fuel costs through rates; risks related to the operations of Alliant Energy's nuclear facilities; costs associated with Alliant Energy's environmental remediation efforts and with environmental compliance generally; developments that adversely impact Alliant Energy's ability to implement its strategic plan; improved results from Alliant Energy's Brazil investments and no material adverse changes in the rates allowed by the Brazilian regulators; improved performance by Alliant Energy's other non-regulated businesses as a whole; no material permanent declines in the fair market value of, or expected cash flows from, Alliant Energy's investments; continued access to the capital markets; Alliant Energy's ability to continue cost controls and operational efficiencies; Alliant Energy's ability to identify and successfully complete proposed acquisitions and development projects; access to technological developments; employee workforce factors, including changes in key executives, collective bargaining agreements or work stoppages; and changes in the rate of inflation. Alliant Energy assumes no obligation, and disclaims any duty, to update the forward-looking statements in this report. STRATEGIC ACTIONS In November 2002, Alliant Energy's Board of Directors approved five strategic actions designed to maintain a strong credit profile for Alliant Energy, strengthen its balance sheet and position Alliant Energy for improved long-term financial performance. The five strategic actions, which signaled a shift to less aggressive growth targets driven primarily by Alliant Energy's utility operations, included: 1. A commitment to pursue the sale of, or other exit strategies for, a number of non-regulated businesses, including Alliant Energy's oil and gas (Whiting), Australian (including Southern Hydro) and affordable housing businesses. For accounting purposes, such businesses have been classified as available for sale, and the operating results of these businesses have been separately classified and reported as discontinued operations, in Alliant Energy's Consolidated Financial Statements. Alliant Energy anticipates strengthening its liquidity position by up to $800 million to $1 billion from reductions in consolidated debt and increasing its cash and temporary cash investment balances as a result of these transactions. The amount of proceeds ultimately received from these divestitures, and the timing of the completion of the transactions, are subject to a variety of factors, including the transaction structures Alliant Energy utilizes to exit these businesses. In January 2003, Alliant Energy also decided to sell SmartEnergy which was classified as held and used, and its operating results were included in continuing operations, in Alliant Energy's Consolidated Financial Statements. Refer to Note 16 of Alliant Energy's "Notes to Consolidated Financial Statements" for further discussion. 2. A reduction in Alliant Energy's targeted annual common stock divided from $2.00 per share to $1.00 per share, effective with the dividend declared and paid in the first quarter of 2003. 3. Reductions in Alliant Energy's aggregated anticipated 2002 and 2003 construction and acquisition expenditures by approximately $400 million. 4. A plan to raise approximately $200 to $300 million of common equity in 2003, dependent on market conditions. Alliant Energy expects to direct the majority of the proceeds towards additional capital investments in its regulated domestic utilities. 5. The implementation of additional cost control measures to be accomplished through Alliant Energy's new Six Sigma program, the operation of its new enterprise resource planning system that was placed in service in October 2002 and by a heightened focus on operating its domestic utility business in a manner that aligns operating expenses with the revenues granted in its various rate filings. 32 Alliant Energy is continuing in its efforts to implement these strategic actions. Refer to "Other Matters - Other Future Considerations - Asset Sales" for discussion of an agreement Alliant Energy recently entered into related to the sale of its Australian business. RATES AND REGULATORY MATTERS Overview - Alliant Energy has two primary utility subsidiaries, IP&L and - -------- WP&L. IP&L was formed as a result of the merger of IPC with and into IESU effective Jan. 1, 2002. WP&L has one utility subsidiary, South Beloit. As a public utility holding company with significant utility assets, Alliant Energy competes in an ever-changing utility industry. Electric energy generation, transmission and distribution are in a period of fundamental change resulting from legislative, regulatory, economic and technological changes. These changes impact competition in the electric wholesale and retail markets as customers of electric utilities are being offered alternative suppliers. Such competitive pressures could result in electric utilities losing customers and incurring stranded costs (i.e., assets and other costs rendered unrecoverable as the result of competitive pricing), which would be borne by security holders if the costs cannot be recovered from customers. Alliant Energy's utility subsidiaries are currently subject to regulation by FERC, and state regulation in Iowa, Wisconsin, Minnesota and Illinois. FERC regulates competition in the electric wholesale power generation market and each state regulates whether to permit retail competition, the terms of such retail competition and the recovery of any portion of stranded costs that are ultimately determined to have resulted from retail competition. Alliant Energy cannot predict the timing of a restructured electric industry or the impact on its financial condition or results of operations but does believe it is well-positioned to compete in a deregulated competitive market. Although Alliant Energy ultimately believes that the electric industry will be deregulated, the pace of deregulation in its primary retail electric service territories has been delayed due to more recent developments in the industry. Certain Recent Developments - In July 2002, FERC issued a notice of proposed - --------------------------- rules intended to standardize the wholesale electric market, which has generated significant industry discussion. Although Alliant Energy believes that standardization of the wholesale electric market is appropriate and would benefit market participants, there may be significant changes to the proposed rules before they are adopted. Therefore, Alliant Energy cannot determine the impact the final rules will have on its results of operations or financial condition. Alliant Energy's merger-related price freezes expired in April 2002 in all of its primary domestic utility jurisdictions and it is currently addressing the recovery of its utility cost increases through numerous rate filings. WP&L has received final orders in two of its rate cases and IP&L and WP&L currently have four other rate cases pending. Details of these rate cases are as follows (dollars in millions):
Expected Interim Interim Final Final Final Utility Filing Increase Increase Effective Increase Effective Effective Case Type Date Requested Granted (1) Date Granted Date Date Notes - -------------- ------- -------------- ----------- ------------ ----------- ---------- ----------- ----------------- ------- WP&L: 2002 retail E/G/W Aug. 2001 $104 $49 April 2002 $82 Sept. 2002 N/A (2) 2003 retail E/G/W May 2002 101 TBD TBD TBD TBD April 2003 2004 retail E/G/W March 2003 65 TBD TBD TBD TBD Jan. 2004 Wholesale E Feb. 2002 6 6 April 2002 3 Jan. 2003 N/A (3) IP&L retail E March 2002 82 15 July 2002 TBD TBD June 2003 (4) IP&L retail G July 2002 20 17 Oct. 2002 TBD TBD July 2003 ----------- ------------ ---------- Total $378 $87 $85 =========== ============ ==========
(1) Interim rate relief is implemented, subject to refund, pending determination of final rates. (2) In its September 2002 final order, the PSCW increased the authorized return on common equity from 11.7% to 12.3%. (3) In the fourth quarter of 2002, WP&L reached a settlement agreement with certain wholesale customers for an annual increase of $3 million and a refund of amounts previously collected in excess of the settlement. The settlement agreement was approved by FERC in January 2003. At Dec. 31, 2002, WP&L had reserved all amounts related to the anticipated refund. 33 (4) In accordance with the interim rate relief rules in Iowa, IP&L only requested interim rate relief of $22 million. A significant portion of the rate increases included in the previous table reflect the recovery of anticipated increased costs incurred by IP&L and WP&L, or costs they expect to incur, thus the increase in revenues related to these cost increases would not result in a corresponding increase in income. IP&L, WP&L and South Beloit are currently in the process of determining what other rate case filings may be necessary in 2003. WP&L's retail electric rates are based on annual forecasted fuel and purchased-power costs. Under PSCW rules, WP&L can seek emergency rate increases if the annual costs are more than 3% higher than the estimated costs used to establish rates. For 2001 and 2002, any collections in excess of costs incurred must be refunded, with interest. Accordingly, WP&L has established a reserve due to overcollection of past fuel and purchased-power costs and expects to refund such amount in 2003. The final ruling from the PSCW could result in an increase or decrease to the reserve that has been recorded. The PSCW has issued new rules relating to the collection of fuel and purchased-power costs by Wisconsin utilities, including WP&L. The new rules and related procedures are intended, among other things, to significantly reduce regulatory lag for the utilities and customers related to the timing of the recovery of increased or decreased fuel and purchased-power costs. Purchased-power capacity costs will now be included in base rates. A process will also exist whereby the utilities can seek deferral treatment of capacity, transmission and emergency costs between base rate cases. The new rules are expected to be implemented for WP&L with its pending 2003 retail rate case. In 2002, IP&L filed with the IRS for a change in method of accounting for tax purposes for 1987 through 2001 that would allow a current deduction related to mixed service costs. Such costs had previously been capitalized and depreciated for tax purposes over the appropriate tax lives. This change would create a significant current tax benefit which has not been reflected in IP&L's results of operations pending a decision from the IUB on the required rate making treatment of the benefit. There would be no material negative impact on IP&L's results of operations or financial position should the IUB and/or IRS reject IP&L's proposal. ALLIANT ENERGY RESULTS OF OPERATIONS Unless otherwise noted, all "per share" references in the Results of Operations section refer to earnings per diluted share. Refer to Note 1(a) of Alliant Energy's "Notes to Consolidated Financial Statements" for discussion of the various components of Alliant Energy's business. Alliant Energy Overview - Alliant Energy's EPS for 2002, 2001 and 2000 were - ----------------------- as follows:
2002 2001 2000 ---------- --------- ---------- Income from continuing operations $0.84 $1.57 $4.18 Income from discontinued operations 0.34 0.73 0.64 Cumulative effect of changes in accounting principle -- (0.16) 0.21 ---------- --------- ---------- Net income $1.18 $2.14 $5.03 ========== ========= ==========
Income from continuing operations in 2002 and 2001 included $0.46 per share and $0.26 per share, respectively, of valuation charges incurred in its non-regulated businesses. Income from continuing operations in 2000 included $2.37 per share of non-cash income related to Alliant Energy's adoption of SFAS 133. In addition to the higher valuation charges, the lower 2002 income from continuing operations was primarily the result of lower earnings from Alliant Energy's non-regulated businesses. This was primarily due to a net loss of $47 million from Alliant Energy's Brazil investments in 2002, compared to a net loss of $24 million in 2001, lower earnings from Alliant Energy's Mass Marketing business and higher interest expense. Improved results from Alliant Energy's China and New Zealand businesses partially offset the lower non-regulated results. Income from Alliant Energy's domestic utility business increased slightly in 2002 as higher electric and gas margins were largely offset by increased operating expenses and a higher effective income tax rate. 34 Domestic Electric Utility Margins - Electric margins and MWh sales for - --------------------------------- Alliant Energy were as follows (in thousands):
Revenues and Costs MWhs Sold ------------------------------------------------------ -------------------------------------------- 2002 2001 * 2000 ** 2002 2001 * 2000 ** ------------ ------------ ------- ------------ ------ ------- --------- ------- --------- -------- Residential $626,947 $599,074 5% $567,283 6% 7,616 7,344 4% 7,161 3% Commercial 376,365 373,145 1% 349,019 7% 5,542 5,464 1% 5,364 2% Industrial 526,804 543,471 (3%) 501,155 8% 12,297 12,469 (1%) 13,092 (5%) ------------ ------------ ------------ ------- --------- --------- Total from ultimate customers 1,530,116 1,515,690 1% 1,417,457 7% 25,455 25,277 1% 25,617 (1%) Sales for resale 160,335 184,507 (13%) 173,148 7% 4,805 4,936 (3%) 4,906 1% Other 62,083 56,359 10% 57,431 (2%) 197 168 17% 174 (3%) ------------ ------------ ------------ ------- --------- --------- Total revenues/sales 1,752,534 1,756,556 -- 1,648,036 7% 30,457 30,381 -- 30,697 (1%) ======= ========= ========= Electric production fuels expense 286,474 292,002 (2%) 271,073 8% Purchased-power expense 362,501 403,166 (10%) 294,818 37% ------------ ------------ ------------ Margin $1,103,559 $1,061,388 4% $1,082,145 (2%) ============ ============ ============
* Reflects the percent change from 2001 to 2002. ** Reflects the percent change from 2000 to 2001. To comply with FERC regulatory requirements governing transmission systems, WP&L transferred its transmission assets to ATC on Jan. 1, 2001, in exchange for cash and an equity ownership in ATC. The wheeling expenses from ATC included in electric margin in 2002 and 2001 were offset by equity income (WP&L accounts for its investment in ATC under the equity method), reduced other operation and maintenance expenses and lower depreciation expense, resulting in no significant net income impact due to the formation of ATC. On a comparable basis, electric margin increased $42.2 million, or 4%, and $9.6 million, or 1%, for 2002 and 2001, respectively. The 2002 increase was primarily due to the impact of rate increases implemented in 2002, more favorable weather conditions, lower purchased-power and fuel costs and continued modest retail customer growth. These increases were partially offset by reduced energy conservation revenues (which were largely offset by lower energy conservation expense) and the impact of a sluggish economy. The 2001 increase was primarily due to lower purchased-power and fuel costs impacting margin, increased residential and commercial sales due to more favorable weather conditions in 2001 compared to 2000 and continued retail customer growth. These items were partially offset by $10 million of income recorded in 2000 for a change in estimate of WP&L's utility services rendered but unbilled at month-end due to the implementation of a refined estimation process and lower industrial sales, largely due to impacts of a slowing economy. Gas Utility Margins - Gas margins and Dth sales for Alliant Energy were as - ------------------- follows (in thousands):
Revenues and Costs Dths Sold ---------------------------------------------------- -------------------------------------------------- 2002 2001 * 2000 ** 2002 2001 * 2000 ** ----------- ----------- -------- ----------- ------- ---------- ---------- -------- ---------- -------- Residential $218,746 $270,248 (19%) $245,697 10% 30,931 29,580 5% 32,026 (8%) Commercial 111,343 141,121 (21%) 127,104 11% 19,348 18,055 7% 19,696 (8%) Industrial 25,177 31,262 (19%) 27,752 13% 5,373 5,344 1% 5,350 -- Transportation/other 38,720 45,246 (14%) 14,395 214% 47,386 48,539 (2%) 43,931 10% ----------- ----------- ----------- ---------- ---------- ---------- Total revenues/sales 393,986 487,877 (19%) 414,948 18% 103,038 101,518 1% 101,003 1% ========== ========== ========== Cost of utility gas sold 248,994 360,911 (31%) 278,734 29% ----------- ----------- ----------- Margin $144,992 $126,966 14% $136,214 (7%) =========== =========== ===========
* Reflects the percent change from 2001 to 2002. ** Reflects the percent change from 2000 to 2001. Gas revenues and cost of utility gas sold were unusually high in 2001 due to increased natural gas prices in the first half of 2001. Due to Alliant Energy's rate recovery mechanisms for gas costs, these price differences alone had little impact on gas margin. Gas margin increased $18.0 million, or 14%, and decreased $9.2 million, or 7%, for 2002 and 2001, respectively. The 2002 increase was largely due to the impact of several rate increases implemented in 2002, improved results from WP&L's performance-based commodity cost recovery program (which are shared by ratepayers and shareowners), continued modest retail customer growth and the negative impact high gas prices in early 2001 had on gas consumption during that period. These increases were partially offset by reduced energy conservation revenues (which were largely offset by lower energy conservation expenses). The 2001 decrease was largely due to lower retail sales primarily related to the unusually high gas prices in early 2001 as some customers either chose alternative fuel sources or used less natural gas, the impact of the slowing economy and losses associated with performance-based commodity costs at WP&L. Alliant Energy realized 35 pre-tax income of $0, $4.0 million and $2 million from weather hedges it had in place in 2002, 2001 and 2000, respectively, which is recorded in "Miscellaneous, net" in the Consolidated Statements of Income. Refer to Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" for information relating to utility fuel and natural gas cost recovery. Refer to Note 2 of Alliant Energy's "Notes to Consolidated Financial Statements" and "Rates and Regulatory Matters" for discussion of various rate filings. Non-regulated and Other Revenues - Details regarding Alliant Energy's - -------------------------------- non-regulated and other revenues are as follows (in millions): 2002 2001 2000 ------------- ------------- ------------- Integrated Services $259 $242 $172 International 103 85 -- Mass Marketing 47 7 1 Investments 26 27 29 Other (includes eliminations) 27 19 15 ------------- ------------- ------------- $462 $380 $217 ============= ============= ============= The 2002 Integrated Services increase was primarily due to higher natural gas sales, partially offset by decreased gas prices and lower energy services revenues. The increased International revenues for 2002 were primarily due to the 2001 acquisitions of additional combined heat and power facilities in China. Mass Marketing revenues for 2002 increased due to the fourth quarter 2001 acquisition of a controlling interest in SmartEnergy, an energy services company operating in competitive energy markets. The 2001 Integrated Services increase was primarily due to acquisitions in the third and fourth quarters of 2000 of various energy services businesses. The 2001 International increase resulted from the December 2000 change from the equity method of accounting to the consolidation method for an investment in China and the addition of five combined heat and power facilities to Alliant Energy's China portfolio during the fifteen months prior to Dec. 31, 2001. Other Operating Expenses - Other operation and maintenance expenses were as - ------------------------ follows (in millions): 2002 2001 2000 ------------- ------------- ------------- Utility $555 $509 $497 Integrated Services 242 229 158 International 83 69 4 Mass Marketing 57 8 2 Investments 15 16 18 Other (includes eliminations) 5 (3) 8 ------------- ------------- ------------- $957 $828 $687 ============= ============= ============= The 2002 utility increase was primarily due to increased fossil and nuclear generation, employee benefit and energy delivery expenses, partially offset by lower energy conservation expenses and decreased uncollectible customer account balances. Alliant Energy is addressing these cost increases in various utility rate proceedings that are currently pending. The 2001 utility increase was primarily due to higher transmission wheeling and other costs in Alliant Energy's energy delivery business unit, increased nuclear operating costs (partially due to a planned refueling outage at Kewaunee in 2001), higher uncollectible customer account balances largely due to the unusually high gas prices earlier in the year and higher costs in the generation business unit. These increases were partially offset by the impact of the formation of ATC earlier in 2001, as discussed in "Domestic Electric Utility Margins." The Integrated Services, International and Mass Marketing variances were largely driven by the same factors impacting the revenue variances discussed previously. The Mass Marketing 2002 increase was also impacted by increases in the provisions for uncollectible accounts at SmartEnergy in 2002. Charges of $5 million and $2 million are included in "Other" in 2002 and 2001, respectively, for cancelled generation projects in Alliant Energy's Non-regulated Generation business unit. The 2001 Integrated Services increase was partially offset by a one-time charge of $4 million related to a loss on a contract in 2000. Depreciation and amortization expense increased $8.0 million and $5.9 million in 2002 and 2001, respectively. Contributing to both increases were utility property additions, acquisitions at the non-regulated businesses and 36 increased regulatory and software amortizations. Increased earnings on the WP&L nuclear decommissioning trust fund also contributed to the 2002 increase. The 2002 increase was partially offset by lower expenses due to: a decrease of $14 million from implementation of lower depreciation rates at IP&L on Jan. 1, 2002, resulting from an updated depreciation study; lower decommissioning expense based on reduced retail funding levels at WP&L; and the elimination of $5 million of goodwill amortization expense in compliance with new accounting rules effective in 2002. The 2001 increase was partially offset by the impact of the formation of ATC in 2001, as discussed in "Domestic Electric Utility Margins," and lower earnings on the WP&L nuclear decommissioning trust fund. The accounting for earnings on the nuclear decommissioning trust fund results in no net income impact. Miscellaneous, net income increases for earnings on the trust fund and the corresponding offset is recorded through depreciation expense at WP&L. Taxes other than income taxes increased $2.1 million and $4.4 million in 2002 and 2001, respectively, primarily due to increased property taxes in 2002 and increased gross receipts and payroll taxes in 2001. Interest Expense and Other - Interest expense increased $0.9 million and - -------------------------- $17.5 million in 2002 and 2001, respectively. Both increases were impacted by higher non-regulated borrowings, partially offset by the impact of lower interest rates on Alliant Energy's variable rate borrowings. The 2002 increase was also partially offset by lower short-term debt borrowings at the Alliant Energy parent level, largely due to the impact of proceeds received in November 2001 from a common equity offering. Alliant Energy recorded income tax and associated interest income of $0.13 per share in 2001 related to a ruling in a tax refund case. The federal government decided in the fourth quarter of 2001 not to pursue the ruling in favor of Alliant Energy by the U.S. Court of Appeals for the 8th Circuit dealing with capital losses disallowed under audit by the IRS and certain related deductions. An additional potential refund of approximately $14 million, plus interest, remains a contested issue in this case. Alliant Energy cannot offer any assurance it will be successful in obtaining this additional refund and has not recognized any income for the potential additional refund. Equity income (loss) from Alliant Energy's unconsolidated investments was as follows (in millions): 2002 2001 2000 ------------- -------------- ------------- ATC (began operations 1/01) $14 $15 $-- New Zealand 4 -- 3 China* 2 2 1 Cargill-Alliant (sold in 2002) 1 7 15 Synfuel (began operations 5/02) (13) -- -- Brazil (23) (4) 3 Other 2 (1) (3) ------------- ------------- ------------- ($13) $19 $19 ============= ============= ============= * Majority of investments are accounted for under the consolidation method. Equity income from unconsolidated investments decreased $32 million in 2002. The differences in income from New Zealand during the three years were largely due to the 2001 results being depressed because of drought conditions. The lower earnings in 2002 and 2001 at Cargill-Alliant were impacted by fewer weather-related trading opportunities and less volatile market prices. Refer to "Liquidity and Capital Resources - Sales of Non-strategic Assets" for discussion relating to Alliant Energy's sale of this investment in 2002. In the second quarter of 2002, Synfuel, a direct subsidiary of Resources, purchased an equity interest in a synthetic fuel processing facility. The synthetic fuel project generates operating losses at its fuel processing facility, which are more than offset by tax credits and the tax benefit of the losses the project generates. All tax benefits are included in "Income taxes" in Alliant Energy's Consolidated Statements of Income. The lower 2002 results from the Brazil investments were largely due to losses incurred by Alliant Energy's investment in a gas-fired generating plant, charges incurred in 2002 related to the recovery of the impacts of rationing and other prior costs and higher interest expense. The loss from the generating plant was due to the impact of a significant decline in the currency rates associated with the debt issued to finance the plant and a depressed wholesale energy market in 2002. Increased electric sales volumes in 2002 compared to 2001, largely due to the impacts of the drought-driven rationing program that was in place for approximately seven months in 2001 compared to only two months in 2002, partially offset the lower Brazil earnings. The 2001 Brazil results included a charge related to the impacts of a settlement reached between the Brazilian government and the distribution companies on the economic resolution of various cost recovery issues. 37 Refer to Note 9 of Alliant Energy's "Notes to Consolidated Financial Statements" for discussion of the asset valuation charges recorded by Alliant Energy in 2002 related to its McLeod available-for-sale securities. On July 1, 2000, Alliant Energy adopted SFAS 133 for its consolidated entities. Related to the adoption, Alliant Energy recorded a $321.3 million pre-tax gain from the designation of a portion of Alliant Energy's McLeod holdings as trading securities. This gain related to the unrealized appreciation in value of approximately 27% of Alliant Energy's McLeod holdings that were designated as trading as of the adoption date. Miscellaneous, net income decreased $12.7 million and $26.7 million in 2002 and 2001, respectively. The 2002 decrease was due to the recording of pre-tax asset valuation charges of $10 million and $9 million related to Alliant Energy's Energy Technologies and Enermetrix investments, respectively, lower interest income (the 2001 results included $10 million from tax settlements), a pre-tax goodwill impairment charge of $7 million at SmartEnergy and gains from asset sales realized in 2001. These decreases were partially offset by lower pre-tax, non-cash SFAS 133 valuation charges of $29 million, related to the net change in the value of the McLeod trading securities and the derivative component of Resources' exchangeable senior notes, and increased earnings on WP&L's nuclear decommissioning trust fund. The 2001 decrease was largely due to higher pre-tax, non-cash SFAS 133 valuation charges of $33 million related to the net change in the value of the McLeod trading securities and the derivative component of Resources' exchangeable senior notes, reduced nuclear decommissioning trust fund earnings and lower gains from asset sales. These decreases were partially offset by higher interest income, including the $10 million from tax settlements in 2001. Alliant Energy realized $0, $4 million and $2 million of income from weather hedges in 2002, 2001 and 2000, respectively. Refer to Note 10(a) of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information related to the exchangeable senior notes embedded derivative, the McLeod trading securities and the cumulative effect of changes in accounting principle. Income Taxes - The effective income tax rates for Alliant Energy's continuing - ------------ operations were 30.5%, 27.6% and 40.1% in 2002, 2001 and 2000, respectively. Refer to Note 5 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information. Income from Discontinued Operations - The 2002 decrease of $28 million in - ----------------------------------- income from discontinued operations was largely due to lower earnings from Alliant Energy's oil and gas (Whiting) business due to lower prices, higher operating expenses and lower gains from dispositions of oil and gas properties in 2002 compared to 2001. Tax adjustments recorded in 2002 related to Alliant Energy's decision to sell its Australian (Southern Hydro) and affordable housing businesses also contributed to the lower income. The 2002 decrease was partially offset by higher oil and gas sales volumes at Whiting and higher earnings from Southern Hydro due to increased generation and sales of renewable energy credits earned through the generation of hydropower. The 2001 increase in income was largely due to non-cash SFAS 133 income in 2001 related to the valuation of electricity derivatives at Southern Hydro and higher earnings from Whiting which resulted from higher gas prices earlier in 2001, increased oil and gas sales volumes and income from a reduction in the estimated dismantlement cost of an offshore oil and gas platform. The 2001 increase was partially offset by approximately $16 million of income from gains on the sale of 1.3 million shares of McLeod in 2000 by Alliant Energy's affordable housing business. Refer to Note 16 of Alliant Energy's "Notes to Consolidated Financial Statements" for further discussion of Alliant Energy's discontinued operations. IP&L RESULTS OF OPERATIONS Overview - IP&L's earnings available for common stock decreased $6.6 million - -------- and $5.1 million in 2002 and 2001, respectively. The 2002 decrease was primarily due to increased operating expenses, a higher effective income tax rate and lower interest income, partially offset by higher electric and gas margins. The 2001 decrease was primarily due to increased operating expenses and lower electric and gas margins, partially offset by a lower effective income tax rate and higher interest income. 38 Electric Utility Margins - Electric margins and MWh sales for IP&L were as - ------------------------ follows (in thousands):
Revenues and Costs MWhs Sold --------------------------------------------------- --------------------------------------------- 2002 2001 * 2000 ** 2002 2001 * 2000 ** ---------- ------------ -------- ---------- ------- -------- --------- -------- -------- ------- Residential $355,072 $350,946 1% $337,615 4% 4,184 4,026 4% 4,010 -- Commercial 229,639 234,876 (2%) 221,820 6% 3,392 3,342 1% 3,333 -- Industrial 315,494 335,680 (6%) 311,070 8% 7,843 7,931 (1%) 8,404 (6%) ---------- ------------ ---------- -------- --------- -------- Total from ultimate customers 900,205 921,502 (2%) 870,505 6% 15,419 15,299 1% 15,747 (3%) Sales for resale 34,513 53,320 (35%) 57,433 (7%) 1,151 1,412 (18%) 1,678 (16%) Other 30,136 28,284 7% 27,907 1% 103 107 (4%) 111 (4%) ---------- ------------ ---------- -------- --------- -------- Total revenues/sales 964,854 1,003,106 (4%) 955,845 5% 16,673 16,818 (1%) 17,536 (4%) ======== ========= ======== Electric production fuels expense 153,982 171,280 (10%) 157,865 8% Purchased-power expense 145,292 185,860 (22%) 147,879 26% ---------- ------------ ---------- Margin $665,580 $645,966 3% $650,101 (1%) ========== ============ ==========
* Reflects the percent change from 2001 to 2002. ** Reflects the percent change from 2000 to 2001. Electric margin increased $19.6 million, or 3%, and decreased $4.1 million, or 1%, for 2002 and 2001, respectively. The 2002 increase was primarily due to the impact of the interim retail rate increase, lower purchased-power capacity costs, more favorable weather conditions and continued modest retail customer growth. These increases were partially offset by reduced energy conservation revenues of $10 million and the impacts of a sluggish economy. The 2001 decrease was primarily due to reduced energy conservation revenues of $5 million and lower sales largely due to impacts of a slowing economy, partially offset by decreased purchased-power capacity costs and continued retail customer growth. For both 2002 and 2001, the reduced energy conservation revenues were largely offset by lower energy conservation expenses. Gas Utility Margins - Gas margins and Dth sales for IP&L were as follows (in - ------------------- thousands):
Revenues and Costs Dths Sold -------------------------------------------------- ------------------------------------------- 2002 2001 * 2000 ** 2002 2001 * 2000 ** ---------- ---------- -------- ----------- ------- --------- -------- ------- -------- ------- Residential $124,237 $162,575 (24%) $149,493 9% 18,068 17,826 1% 19,257 (7%) Commercial 61,222 82,463 (26%) 72,592 14% 10,774 10,483 3% 11,101 (6%) Industrial 18,197 22,355 (19%) 19,171 17% 4,070 4,147 (2%) 3,874 7% Transportation/other 11,239 13,621 (17%) 8,540 59% 28,814 31,673 (9%) 30,251 5% ---------- ---------- ----------- --------- -------- -------- Total revenues/sales 214,895 281,014 (24%) 249,796 12% 61,726 64,129 (4%) 64,483 (1%) ========= ======== ======== Cost of gas sold 138,875 207,088 (33%) 171,603 21% ---------- ---------- ----------- Margin $76,020 $73,926 3% $78,193 (5%) ========== ========== ===========
* Reflects the percent change from 2001 to 2002. ** Reflects the percent change from 2000 to 2001. Gas revenues and cost of gas sold were unusually high in 2001 due to the increased natural gas prices in the first half of 2001. Such fluctuations alone had no impact on IP&L's gas margin given its rate recovery mechanism for gas costs. Gas margin increased $2.1 million, or 3%, and decreased $4.3 million, or 5%, for 2002 and 2001, respectively. The 2002 increase was primarily due to the impact of the interim retail rate increase and the negative impact high gas prices in early 2001 had on gas consumption during that period, partially offset by reduced energy conservation revenues of $4 million. The 2001 decrease was largely due to lower retail sales primarily related to unusually high gas prices earlier in 2001 as some customers either chose alternative fuel sources or used less natural gas, the impact of the slowing economy and reduced energy conservation revenues. For both 2002 and 2001, the reduced energy conservation revenues were largely offset by lower energy conservation expenses. Refer to Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" for information relating to utility fuel and natural gas cost recovery. Refer to Note 2 of Alliant Energy's "Notes to Consolidated Financial Statements" and "Rates and Regulatory Matters" for discussion of IP&L's rate filings. Other Operating Expenses - Other operation and maintenance expenses increased - ------------------------ $16.6 million and $14.2 million for 2002 and 2001, respectively. The 2002 increase was primarily due to increased fossil and nuclear generation, employee benefit and energy delivery expenses. These increases were partially offset by lower energy conservation expenses of $11 million and decreased uncollectible customer account balances. The 2001 increase was primarily due to higher transmission wheeling and other energy delivery costs, fossil and nuclear generation costs and uncollectible customer account 39 balances largely due to the unusually high gas prices earlier in 2001 and a downturn in the economy. These increases were partially offset by one-time fees in 2000 related to the transfer from the MAPP reliability region to the MAIN region and a decrease of $3 million in energy conservation expenses. Depreciation and amortization expenses decreased $2.4 million and increased $5.0 million for 2002 and 2001, respectively. The 2002 decrease was primarily due to a $14 million reduction in depreciation expense from implementation of lower depreciation rates on Jan. 1, 2002, resulting from an updated depreciation study, largely offset by property additions. The 2001 increase was primarily due to property additions and amortization of software. Interest Expense and Other - Miscellaneous, net income decreased $3.9 million - -------------------------- and increased $6.0 million for 2002 and 2001, respectively, primarily due to higher interest income in 2001 and income from weather hedges in 2001. IP&L realized $5 million and $4 million in interest income from tax settlements in 2001 and 2000, respectively. The 2002 decrease was partially offset by higher income from sales of non-commodity products and services. Income Taxes - The effective income tax rates were 40.7%, 35.1% and 38.7% in - ------------ 2002, 2001 and 2000, respectively. Refer to Note 5 of IP&L's "Notes to Consolidated Financial Statements" for additional information. WP&L RESULTS OF OPERATIONS Overview - WP&L's earnings available for common stock increased $7.4 million - -------- and $2.1 million in 2002 and 2001, respectively. The 2002 increase was primarily due to higher electric and gas margins, partially offset by increased operating expenses. The 2001 increase was primarily due to higher electric margins and a lower effective income tax rate, partially offset by increased operating expenses and lower gas margins. Electric Utility Margins - Electric margins and MWh sales for WP&L were as - ------------------------ follows (in thousands):
Revenues and Costs MWhs Sold --------------------------------------------------- ------------------------------------------- 2002 2001 * 2000 ** 2002 2001 * 2000 ** ---------- ----------- ------- ----------- -------- -------- -------- ------- -------- ------- Residential $271,875 $248,128 10% $229,668 8% 3,432 3,318 3% 3,151 5% Commercial 146,726 138,269 6% 127,199 9% 2,150 2,122 1% 2,031 4% Industrial 211,310 207,791 2% 190,085 9% 4,454 4,538 (2%) 4,688 (3%) ---------- ----------- ----------- -------- -------- ------- Total from ultimate customers 629,911 594,188 6% 546,952 9% 10,036 9,978 1% 9,870 1% Sales for resale 125,822 131,187 (4%) 115,715 13% 3,654 3,524 4% 3,228 9% Other 31,947 28,075 14% 29,524 (5%) 94 61 54% 63 (3%) ---------- ----------- ----------- -------- -------- ------- Total revenues/sales 787,680 753,450 5% 692,191 9% 13,784 13,563 2% 13,161 3% ======== ======== ======= Electric production fuels expense 132,492 120,722 10% 113,208 7% Purchased-power expense 217,209 217,306 -- 146,939 48% ---------- ----------- ----------- Margin $437,979 $415,422 5% $432,044 (4%) ========== =========== ===========
* Reflects the percent change from 2001 to 2002. ** Reflects the percent change from 2000 to 2001. Due to the formation of ATC on Jan. 1, 2001, the wheeling expenses from ATC included in electric margin in 2002 and 2001 were offset by equity income (WP&L accounts for its investment in ATC under the equity method), reduced other operation and maintenance expenses and lower depreciation expense, resulting in no significant net income impact due to the formation of ATC. On a comparable basis, electric margin increased $22.6 million, or 5%, and $13.8 million, or 3%, during 2002 and 2001, respectively. The 2002 increase was primarily due to the implementation of various rate increases in 2002, continued modest retail customer growth and more favorable weather conditions in 2002 compared to 2001, partially offset by the sluggish economy. The 2001 increase was primarily due to lower purchased-power and fuel costs impacting margin, increased residential and commercial sales due to more favorable weather conditions in 2001 compared to 2000 and continued retail customer growth. These items were partially offset by $10 million of income recorded in 2000 for a change in estimate of utility services rendered but unbilled at month-end due to the implementation of a refined estimation process and lower industrial sales, largely due to impacts of a slowing economy. 40 Gas Utility Margins - Gas margins and Dth sales for WP&L were as follows (in - ------------------- thousands):
Revenues and Costs Dths Sold -------------------------------------------------- -------------------------------------------- 2002 2001 * 2000 ** 2002 2001 * 2000 ** --------- ----------- --------- --------- -------- --------- -------- ------- -------- -------- Residential $94,509 $107,673 (12%) $96,204 12% 12,863 11,754 9% 12,769 (8%) Commercial 50,121 58,658 (15%) 54,512 8% 8,574 7,572 13% 8,595 (12%) Industrial 6,980 8,907 (22%) 8,581 4% 1,303 1,197 9% 1,476 (19%) Transportation/other 27,481 31,625 (13%) 5,855 440% 18,572 16,866 10% 13,680 23% --------- ----------- --------- --------- -------- -------- Total revenues/sales 179,091 206,863 (13%) 165,152 25% 41,312 37,389 10% 36,520 2% ========= ======== ======== Cost of gas sold 110,119 153,823 (28%) 107,131 44% --------- ----------- --------- Margin $68,972 $53,040 30% $58,021 (9%) ========= =========== =========
* Reflects the percent change from 2001 to 2002. ** Reflects the percent change from 2000 to 2001. Gas revenues and cost of gas sold were unusually high in 2001 due to the large increase in natural gas prices in the first half of 2001. Due to WP&L's rate recovery mechanisms for gas costs, these increases alone had little impact on gas margin. Gas margin increased $15.9 million, or 30%, and decreased $5.0 million, or 9%, during 2002 and 2001, respectively. The 2002 increase was largely due to the implementation of a rate increase in 2002, improved results from WP&L's performance-based commodity cost recovery program, continued modest retail customer growth and the negative impact high gas prices in early 2001 had on gas consumption during that period. The 2001 decrease was largely due to lower retail sales primarily related to unusually high gas prices earlier in 2001 as some customers either chose alternative fuel sources or used less natural gas, the impact of the slowing economy and lower results from WP&L's performance-based commodity cost recovery program. Refer to Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" for information relating to utility fuel and natural gas cost recovery. Refer to Note 2 of Alliant Energy's "Notes to Consolidated Financial Statements" and "Rates and Regulatory Matters" for discussion of WP&L's rate filings. Other Operating Expenses - Due to the formation of ATC in 2001, WP&L incurred - ------------------------ $10 million of operation and maintenance expenses in 2000 that were not incurred in 2001. On a comparable basis, other operation and maintenance expenses increased $29.2 million and $7.6 million for 2002 and 2001, respectively. The 2002 increase was largely due to higher fossil generation, employee benefit, energy conservation, and energy delivery expenses. The 2001 increase was primarily due to higher nuclear operating costs (partially due to a planned refueling outage at Kewaunee in the fourth quarter of 2001), higher uncollectible customer account balances largely due to the unusually high gas prices earlier in the year and higher other administrative and general costs. These items were partially offset by decreased fossil plant maintenance expenses. Depreciation and amortization expenses increased $7.1 million and decreased $10.8 million for 2002 and 2001, respectively. The 2002 increase was largely due to higher regulatory and software amortizations. Increased earnings on the nuclear decommissioning trust fund were largely offset by lower decommissioning expense based on reduced retail funding levels. The 2001 decrease was primarily due to the impact of the formation of ATC and decreased earnings on the nuclear decommissioning trust fund, partially offset by increased expense due to property additions. The accounting for earnings on the nuclear decommissioning trust funds results in no net income impact. Interest income is increased for earnings on the trust fund, which is offset in depreciation expense. Taxes other than income taxes increased $3.3 million for 2001 due to increased gross receipts and payroll taxes. Interest Expense and Other - Interest expense decreased $3.3 million in 2002 - -------------------------- due to lower average interest rates on the outstanding borrowings. Interest income increased $13.5 million and decreased $5.0 million in 2002 and 2001, respectively, due to differences in earnings on the nuclear decommissioning trust fund. Equity income from unconsolidated investments increased $15.0 million in 2001, largely due to ATC beginning operations on Jan. 1, 2001. Miscellaneous, net income decreased $7.3 million in 2002 primarily due to lower income from sales of non-commodity products and services and income realized from weather hedges in 2001. Income Taxes - The effective income tax rates were 35.6%, 35.9% and 37.5% in - ------------ 2002, 2001 and 2000, respectively. Refer to Note 5 of WP&L's "Notes to Consolidated Financial Statements" for additional information. 41 LIQUIDITY AND CAPITAL RESOURCES Overview - Alliant Energy's recent and proposed financing activities have - -------- been and will be undertaken against a backdrop of increased market concerns about general economic conditions and corporate governance issues as well as risks associated with particular sectors of the economy, including the energy industry. As a result of these factors, capital markets have become more restrictive. The commercial paper market, for example, has become more limited for many companies in terms of the amounts of available capital and the corresponding maturities. Medium- and long-term debt markets have become sensitive to increased credit ratings volatility and to a heightened perception of liquidity risk in the energy sector. As a result, investors have become more selective and have differentiated among otherwise comparable issuers in a way that has made the financing process more challenging. In response to these changing market conditions, Alliant Energy is working closely with its financial advisors and others to access the capital it needs to operate its businesses. Based on its strong cash flows coupled with actions Alliant Energy expects to take to strengthen its balance sheet, Alliant Energy currently believes it will be able to secure the capital it requires to implement its refined strategic plan. Alliant Energy believes its ability to secure additional capital will be significantly enhanced by the completion of the actions addressed in "Strategic Actions," including the divestiture of selected businesses. Alliant Energy's capital requirements are primarily attributable to its utility subsidiaries' construction and acquisition programs, Resources' acquisition and investment opportunities and its debt maturities. Alliant Energy's utility subsidiaries anticipate financing their construction expenditures, including new electric generation facilities, during 2003-2005 through internally generated funds supplemented, when necessary, by outside financing. Funding for Resources' acquisition and investment expenditures over that same period of time is expected to be accomplished with a combination of external financings, sales of assets and internally generated funds. In 2001, Alliant Energy and Resources received SEC approval for their ongoing program of external financing, credit support arrangements and other related proposals for the period through Dec. 31, 2004. Among other things, the approval authorized Alliant Energy directly or through financing subsidiaries to issue common and preferred stock, unsecured long-term debt securities and other equity-linked securities up to an amount of $1.5 billion; to provide guarantees and credit support for obligations of its subsidiaries up to an amount of $3 billion; to enter into hedging transactions to manage interest rate costs and risk exposure; and to increase its aggregate investment limit in EWGs and FUCOs to 100% of consolidated retained earnings. The approval, among other things, also authorized Resources to provide guarantees and credit support for obligations of non-utility subsidiaries up to an amount of $600 million outstanding at any one time and to spend up to $800 million to construct or acquire energy assets that are incidental to the energy marketing and oil and gas productions of its subsidiaries. Alliant Energy's ability to undertake any such financings contemplated by the SEC's order is dependent on its ability to access the capital markets as described above. Cash Flows - Selected information from Alliant Energy's, IP&L's and WP&L's - ---------- Consolidated Statements of Cash Flows was as follows (in thousands):
Alliant Energy IP&L WP&L ---------------------------------- --------------------------------- -------------------------------- Cash flows from (used for): 2002 2001 2000 2002 2001 2000 2002 2001 2000 ---------------------------------- --------------------------------- -------------------------------- Operating activities $544,040 $426,111 $393,090 $250,430 $305,948 $267,564 $223,750 $135,886 $174,060 Financing activities 84,090 170,525 513,063 6,286 (102,086) (77,716) (27,685) (19,176) 987 Investing activities (632,658) (656,262) (869,253) (250,727) (203,838) (189,862) (187,795) (116,832) (174,880)
In 2002, Alliant Energy's cash flows from operating activities increased primarily due to changes in working capital; cash flows from financing activities decreased primarily due to proceeds from the issuance of common stock in 2001, partially offset by a net increase in the amount of preferred stock outstanding at IP&L; and cash flows used for investing activities decreased primarily due to lower construction and acquisition expenditures partially offset by proceeds received in 2001 from the transfer of WP&L's transmission assets to ATC. In 2001, Alliant Energy's cash flows from financing activities decreased primarily due to net changes in amount of debt issued and retired, partially offset by proceeds from the issuance of common stock in 2001; and cash flows used for investing activities decreased primarily due to lower non-regulated investments. In 2002, IP&L's cash flows from operating activities decreased primarily due to changes in working capital; cash flows used for financing activities decreased due to a net increase in the amount of preferred stock outstanding and a capital contribution of $60 million by Alliant Energy; and cash flows used for investing activities increased due to increased levels of construction expenditures. In 2001, IP&L's cash flows from operating 42 activities increased primarily due to changes in working capital; cash flows used for financing activities increased due to the net changes in the amount of debt issued and retired; and cash flows used for investing activities increased due to higher levels of construction expenditures. In 2002, WP&L's cash flows from operating activities increased due to changes in working capital; and cash flows used for investing activities increased primarily due to proceeds received from the transfer of WP&L's transmission assets to ATC in 2001. In 2001, WP&L's cash flows from operating activities decreased due to changes in working capital; cash flows used for financing activities increased due to common stock dividends paid in 2001 as no dividends were declared in 2000 due to management of WP&L's capital structure, partially offset by a capital contribution of $35 million by Alliant Energy and changes in debt issued and retired; cash flows used for investing activities decreased in 2001 primarily due to proceeds received from the transfer of WP&L's transmission assets to ATC. Common Equity - In November 2002, Alliant Energy announced its intentions to - ------------- raise approximately $200 million to $300 million of common equity in 2003, dependent on market conditions. The proceeds are expected to be used to fund the Power Iowa initiative and other regulated domestic utility needs. The PSCW has indicated it will require an additional equity infusion by Alliant Energy into WP&L during 2003. Alliant Energy anticipates the final PSCW order, which is expected to be issued in the second quarter of 2003, will also include a customer refund provision if the timing and/or amount of the equity infusion differs from the assumptions included in the WP&L rate case. Preferred Stock - In September 2002, IP&L redeemed all of its then - --------------- outstanding shares of preferred stock at an aggregate redemption price of $58.3 million. In December 2002, IP&L issued six million shares of preferred stock at $25.00 per share in a private placement. IP&L used the net proceeds of approximately $145 million to repay its short-term debt and for general corporate purposes, including to fund capital expenditures and to repay other debt. Debt - In June 2002, Alliant Energy received approval (through Dec. 31, 2004) - ---- from the SEC to issue and sell up to an aggregate amount of $1 billion of short-term debt outstanding at any one time and to guarantee borrowings by Resources in an aggregate amount that would not exceed $700 million at any one time in addition to its other guarantee authority. In addition, IP&L received SEC approval to issue short-term debt in a principal amount which would not at any one time exceed $300 million. Alliant Energy discontinued the use of its utility money pool in 2002 and WP&L and IP&L are now meeting any short-term borrowing needs by issuing commercial paper and borrowing on bank lines of credit, respectively. Alliant Energy and its subsidiaries are party to various credit facilities and other borrowing arrangements, some of which are summarized below. In addition to the specific covenants detailed below under the 364-day revolving credit agreements, Alliant Energy's facilities and borrowing arrangements contain various customary terms and conditions, including required capitalization, net worth and interest coverage requirements, maintenance requirements related to bonded property and cross-default provisions. At Dec. 31, 2002, Alliant Energy and its subsidiaries were in compliance with the financial ratios and covenant requirements under their respective credit facilities and borrowing arrangements. The aggregate borrowing capacity under short-term credit agreements of Alliant Energy and its subsidiaries at Dec. 31, 2002 was $845 million. At Dec. 31, 2002, the total amount borrowed under these facilities was $281 million leaving unused capacity of $564 million. In addition, Resources had a $250 million standby credit facility at Dec. 31, 2002 as discussed below. There are no borrowings currently outstanding under such facility. Alliant Energy also had $28 million of short-term borrowings outstanding at Dec. 31, 2002 related to various generation projects in China. In October 2002, Alliant Energy completed the syndication of three 364-day revolving credit facilities totaling $915 million, available for direct borrowing or to support commercial paper, which replaced the former facilities that totaled $900 million in borrowing availability. The three facilities consist of a $565 million facility for Alliant Energy (at the parent company level), which was reduced to $450 million at the end of 2002, a $200 million facility for IP&L and a $150 million facility for WP&L. Availability under the Alliant Energy credit facility will be further reduced by the proceeds of asset sales in excess of 5% of Alliant Energy's consolidated assets in any 12-month period commencing October 2002 and up to $50 million from the proceeds of an issuance of equity securities in excess of $300 million. These new credit facility agreements contain various covenants, including the following: 43
Covenant Description Covenant Requirement Status at Dec. 31, 2002 - ------------------------------------------ ------------------------- -------------------------- Alliant Energy: Consolidated debt-to-capital ratio * Less than 65% 59.6% Consolidated net worth * At least $1.4 billion $1.8 billion EBITDA interest coverage ratio * At least 2.5x 3.6x IP&L debt-to-capital ratio Less than 58% 47.9% WP&L debt-to-capital ratio Less than 58% 40.7%
* In compliance with the agreements, results of discontinued operations have been included in the covenant calculations. The debt component of the capital ratios includes long- and short-term debt (excluding trade payables), capital lease obligations, letters of credit and guarantees of the foregoing and unfunded vested benefits under pension plans. The equity component excludes accumulated other comprehensive income (loss). Alliant Energy is also subject to a PUHCA requirement whereby Alliant Energy's common equity balance must be at least 30% of its total consolidated capitalization, including short-term debt. Alliant Energy's common equity ratio as of Dec. 31, 2002, as computed under such requirement, was 35.8%. In December 2002, Resources secured a 364-day $250 million standby credit facility. Designed as a bridge to enhance Alliant Energy's short-term liquidity position until it receives the expected proceeds from the assets it plans to sell in 2003, the availability under the facility is reduced by amounts realized on such asset sales. At Dec. 31, 2002, there were no borrowings outstanding under this credit facility. Also in December 2002, Whiting finalized a secured revolving $200 million credit facility which will mature in December 2005. At Dec. 31, 2002, Whiting had $185 million of borrowings outstanding under this facility at an interest rate of 3.63%, which was included in "Long-term debt" on Alliant Energy's Consolidated Balance Sheet. Information regarding commercial paper and bank facility borrowings at Dec. 31, 2002 was as follows (dollars in millions):
Alliant Energy (Parent) WP&L -------------------------- ------------- Commercial paper outstanding $135.5 $60.0 Weighted average maturity of commercial paper 2 days 34 days Discount rates on commercial paper 1.95% 1.6% Bank facility borrowings $85.0 -- Interest rates on bank facility borrowings 2.3-2.4% --
As a result of the Moody's downgrade of Alliant Energy's commercial paper in January 2003 to P-3, Alliant Energy's ability to issue commercial paper at the parent company level has been reduced, requiring greater reliance on bank lines. In addition to funding working capital needs, the availability of short-term financing provides the companies flexibility in the issuance of long-term securities. The level of short-term borrowing fluctuates based on seasonal corporate needs, the timing of long-term financing and capital market conditions. At Dec. 31, 2002, IP&L and WP&L were authorized by the applicable federal or state regulatory agencies to issue short-term debt of $180 million and $240 million, respectively. The $240 million borrowing authority for WP&L includes $85 million for general corporate purposes, an additional $100 million should WP&L no longer sell its utility receivables and an additional $55 million should WP&L need to repurchase its variable rate demand bonds. In December 2002, Resources issued $300 million of 9.75% senior notes due 2013 in a private placement. The notes are unconditionally guaranteed by Alliant Energy. Resources used the proceeds to repay short-term debt. At Dec. 31, 2002, Alliant Energy, IP&L and WP&L had $783 million, $175 million and $255 million, respectively, of long-term debt that will mature prior to Dec. 31, 2007. The $783 million at Alliant Energy represents long-term debt maturities of $47 million in 2003, $106 million in 2004, $337 million in 2005, $68 million in 2006 and $225 million in 2007. Depending upon market conditions, it is currently anticipated that a majority of the maturing debt will be refinanced with the issuance of long-term securities. 44 Refer to "Construction and Acquisition Expenditures" for information regarding a credit facility Resources entered into in February 2003 relating to the purchase of a non-regulated power plant. Refer to Note 8 of the "Notes to Consolidated Financial Statements" for additional information on short- and long-term debt. Credit Ratings and Balance Sheet - Access to the long- and short-term capital - -------------------------------- and credit markets, and costs of external financing, are dependent on creditworthiness. Alliant Energy is committed to taking the necessary steps required to maintain strong credit ratings and to strengthen its balance sheet. Refer to "Strategic Actions" for a discussion of specific actions being taken in this regard. Although Alliant Energy believes such actions will enable it to strengthen its balance sheet and maintain strong credit ratings, no assurance can be given that it will be able to maintain its existing credit ratings. If Alliant Energy's credit ratings are downgraded in the future, then Alliant Energy's borrowing costs may increase and its access to capital markets may be limited. If access to capital markets becomes significantly constrained, then Alliant Energy's results of operations and financial condition could be materially adversely affected. In December 2002 and January 2003, Standard & Poor's and Moody's, respectively, issued revised credit ratings as follows (long-term debt ratings only apply to senior debt):
Standard & Poor's Moody's --------------------- -------------- IP&L Secured long-term debt A- A3 Unsecured long-term debt BBB Baa1 Commercial paper A-2 P-2 Corporate BBB+ Baa1 WP&L Secured long-term debt A A1 Unsecured long-term debt BBB+ A2 Commercial paper A-2 P-1 Corporate A- A2 Resources (a) Unsecured long-term debt BBB Baa3 Commercial paper A-2 P-3 Corporate BBB+ Baa3 Alliant Energy Unsecured long-term debt BBB Not rated Commercial paper A-2 P-3 Corporate BBB+ Not rated All Entities Outlook Negative Stable
(a) Resources' debt is fully and unconditionally guaranteed by Alliant Energy. Ratings Triggers - The long-term debt of Alliant Energy and its subsidiaries - ---------------- is not subject to any repayment requirements as a result of credit rating downgrades or so-called "ratings triggers." However, certain lease agreements do contain such ratings triggers. The threshold for these triggers varies among the applicable leases. If the payments were accelerated under all the affected leases it would result in accelerated payments of approximately $45 million. In addition, the amount of proceeds available to IP&L and WP&L from their sale of utility customer accounts receivable programs could be reduced in the aggregate by approximately $20 million in the event of certain credit rating downgrades at the Alliant Energy parent company level. Alliant Energy and its subsidiaries are also parties to various agreements, including purchased-power agreements, fuel contracts and corporate guarantees that may be deemed to be in default in the event of certain credit rating downgrades. In the event of such a default, Alliant Energy or its subsidiaries may be able to cure the default in a number of ways, including posting letters of credit equal to the amount of the exposure, unwinding the contract or paying the obligation. Sale of Accounts Receivable - Refer to Note 4 of Alliant Energy's "Notes to - --------------------------- Consolidated Financial Statements" for information on Alliant Energy's sale of accounts receivable program. Off-Balance Sheet Arrangements - Alliant Energy utilizes synthetic leases to - ------------------------------ finance its corporate headquarters, corporate aircraft, certain utility railcars and a utility radio dispatch system. Synthetic leases provide favorable financing rates to Alliant Energy while allowing it to maintain operating control of its leased assets. Several of Alliant Energy's synthetic leases involve the use of unconsolidated structured finance or variable interest entities. Alliant Energy has guarantees outstanding related to the residual value of these synthetic leases. Alliant Energy does not currently anticipate entering into any additional synthetic leases. Alliant Energy also uses variable interest entities for its utility sale of accounts receivable program whereby IP&L and WP&L use proceeds from the sale of the accounts receivable and unbilled revenues to maintain flexibility in their capital structures, take advantage of favorable short-term interest rates and finance a portion of their long-term cash needs. The sale of 45 accounts receivables generates a significant amount of short-term financing for IP&L and WP&L. If this financing alternative were not available, IP&L and WP&L anticipate they would have enough short-term borrowing capacity to compensate. Refer to "Ratings Triggers" for the impact of credit rating downgrades on Alliant Energy and its subsidiaries related to these synthetic leases and accounts receivable sales program. Beginning in the third quarter of 2003, under FIN 46 it is reasonably possible that Alliant Energy could be considered the primary beneficiary of certain variable interest entities utilized for its synthetic lease financings and receivable sales program and could be required to consolidate the operating results and associated assets and liabilities of the variable interest entities in its financial statements. Alliant Energy is in the process of evaluating the potential impacts of FIN 46. Alliant Energy is also currently evaluating the structure of its synthetic leases and receivable sales program to determine if these structures can be modified to qualify for off-balance sheet treatment under FIN 46. Contractual Obligations - Alliant Energy's long-term contractual cash - ----------------------- obligations as of Dec. 31, 2002 were as follows (in millions):
2003 2004 2005 2006 2007 Thereafter Total -------- --------- ------- --------- ------- ------------ --------- Long-term debt (Note 8) and capital lease obligations (Note 3) $62 $122 $347 $104 $227 $2,303 $3,165 Operating leases (Note 3) 45 76 95 99 123 384 822 Purchase obligations (Note 11(b)) 286 110 68 30 18 27 539 -------- --------- ------- --------- ------- ------------ --------- $393 $308 $510 $233 $368 $2,714 $4,526 ======== ========= ======= ========= ======= ============ ========= IP&L's long-term contractual cash obligations as of Dec. 31, 2002 were as follows (in millions): 2003 2004 2005 2006 2007 Thereafter Total -------- --------- ------- --------- ------- ------------ --------- Long-term debt (Note 8) and capital lease obligations (Note 3) $20 $16 $13 $96 $109 $663 $917 Operating leases (Note 3) 9 7 10 3 3 33 65 Purchase obligations (Note 11(b)) 99 25 14 6 4 -- 148 -------- --------- ------- --------- ------- ------------ --------- $128 $48 $37 $105 $116 $696 $1,130 ======== ========= ======= ========= ======= ============ ========= WP&L's long-term contractual cash obligations as of Dec. 31, 2002 were as follows (in millions): 2003 2004 2005 2006 2007 Thereafter Total -------- --------- ------- --------- ------- ------------ --------- Long-term debt (Note 8) $-- $62 $88 $-- $105 $269 $524 Operating leases (Note 3) 27 61 75 76 76 335 650 Purchase obligations (Note 11(b)) 86 47 26 15 15 27 216 -------- --------- ------- --------- ------- ------------ --------- $113 $170 $189 $91 $196 $631 $1,390 ======== ========= ======= ========= ======= ============ =========
At Dec. 31, 2002, long-term debt and capital lease obligations as noted in the previous tables were included on the respective Consolidated Balance Sheets. In addition, at Dec. 31, 2002, there were various other long-term liabilities and deferred credits included on the respective Consolidated Balance Sheets that, due to the nature of the liabilities, the timing of payments cannot be estimated and are therefore excluded from the tables. Operating leases and purchase obligations are amounts committed under contract which were not recorded on the respective Consolidated Balance Sheets at Dec. 31, 2002, in accordance with GAAP. Purchase obligations represent normal business contracts used to ensure adequate purchased-power, coal and natural gas supplies and to minimize exposure to market price fluctuations. In connection with Alliant Energy's, IP&L's and WP&L's construction and acquisition programs, they also enter into commitments related to such programs on an ongoing basis. Sales of Non-strategic Assets - In the third quarter of 2002, Alliant Energy - ----------------------------- completed the sale of its 50% ownership interest in its Cargill-Alliant electricity-trading joint venture to Cargill. The sale proceeds were approximately $19.3 million, the book value of Alliant Energy's share of the joint venture. As noted earlier, the strategic actions currently being executed by Alliant Energy will focus on additional potential sales of non-strategic assets, among other items. Refer to "Strategic Actions," "Other Matters - Other Future Considerations" and Note 16 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional discussion on the potential impact of future asset sales. Credit Risk - Credit risk is inherent in Alliant Energy's operations and - ----------- relates to the risk of loss resulting from non-performance of contractual obligations by a counterparty. Alliant Energy maintains credit risk 46 oversight and sets limits and policies with regards to its counterparties, which management believes minimizes its overall credit risk exposure. However, there is no assurance that such policies will protect Alliant Energy against all losses from non-performance by counterparties. Environmental - Alliant Energy's pollution abatement programs are subject to - ------------- continuing review and are periodically revised due to changes in environmental regulations, construction plans and escalation of construction costs. While management cannot precisely forecast the effect of future environmental regulations on operations, it has taken steps to anticipate the future while also meeting the requirements of current environmental regulations. Alliant Energy's facilities are subject to state and federal requirements of the CAA, including meeting ambient air quality standards. As a result of a new rate-of-progress rule developed by the Wisconsin DNR, and based on existing technology, Alliant Energy estimates the total aggregate capital investments necessary by WP&L to comply with the new rules will be approximately $19 million in 2003 through 2007. Alliant Energy is also currently addressing various other potential federal and state environmental rulemakings and activities, including: 1) proposed revisions to the Wisconsin Administrative Code concerning the amount of heat that WP&L's generating stations can discharge into Wisconsin waters which could have a significant impact on WP&L's operation of its Wisconsin generating facilities; 2) potential new rules that may be pursued by the EPA and the states in the Alliant Energy service territory related to various air emissions; 3) the multiple requests WP&L has received from the EPA related to the historical operation of WP&L's major coal-fired generating units, which requests have been the precursor to penalties and additional capital requirements in some cases involving similar requests to other electric generating facilities; 4) the New Source Review reforms published by the EPA in December 2002; 5) several other legislative and regulatory proposals regarding the control of emissions of air pollutants and greenhouse gases from a variety of sources, including generating facilities; and 6) the July 2002 request from the Wisconsin DNR that WP&L submit a written plan for facility closure of the Rock River Generating Station landfill and clean-up of its support ponds and all areas where coal combustion waste is present. Alliant Energy cannot presently predict the final outcome of these proposals or actions, but believes that required capital investments and/or modifications resulting from them could be significant. Alliant Energy believes that prudent expenses incurred by IP&L and WP&L likely would be recovered in rates from its customers. Refer to Note 11(e) of the "Notes to Consolidated Financial Statements" for further discussion of environmental matters. Construction and Acquisition Expenditures - Capital expenditures, investments - ----------------------------------------- and financing plans are continually reviewed, approved and updated as part of Alliant Energy's ongoing strategic planning and annual budgeting processes. In addition, material capital expenditures and investments are subject to a rigorous cross-functional review prior to approval. Changes in Alliant Energy's anticipated construction and acquisition expenditures may result from a number of reasons including economic conditions, regulatory requirements, ability to obtain adequate and timely rate relief, the level of Alliant Energy's profitability, Alliant Energy's desire to maintain strong credit ratings and reasonable capitalization ratios, variations in sales, changing market conditions and new opportunities. As noted in "Strategic Actions," Alliant Energy recently reduced its anticipated construction and acquisition expenditure levels in order to strengthen its balance sheet. Alliant Energy believes its capital control processes adequately reduce the risks associated with large capital expenditures and investments. Alliant Energy currently anticipates construction and acquisition expenditures as follows (in millions):
2003 2004-2005 ------------- ------------- Domestic utility: IP&L utility infrastructure and reliability investments $230 $560 IP&L Power Iowa program* 220 80 WP&L utility infrastructure and reliability investments 160 410 Non-regulated domestic generation 130 10 Other non-regulated business development 80 70 ------------- ------------- Total from continuing operations 820 1,130 Discontinued operations 80 -- ------------- ------------- Total $900 $1,130 ============= =============
* Excludes approximately $109 million in 2003 for potential purchase of turbines and related equipment from affiliates. 47 Alliant Energy has not entered into contractual commitments relating to the majority of its anticipated capital expenditures. As a result, Alliant Energy does have discretion as to the eventual level of capital expenditures incurred and it closely monitors and updates such estimates on an ongoing basis based on numerous economic and other factors. In September 2002, the IUB approved a settlement agreement establishing advance rate making principles for the proposed 500 MW natural gas-fired plant IP&L plans to construct in Mason City, Iowa as part of its Power Iowa initiative to develop new electric generation capacity in Iowa. The settlement establishes, among other things, a set depreciation period whereby IP&L is ensured of recovering the estimated $400 million cost of its investment over 28 years based on a fixed 12.23% return on the common equity component. In January 2003, the IUB approved IP&L's siting certificate for the Mason City plant and construction began. The plant is scheduled to be in service prior to the 2004 summer peak demand. Given the status of the current non-regulated generation market, Alliant Energy's initial investments in this market will focus on facilities with underlying long-term purchased-power agreements. While Alliant Energy believes there are excellent acquisition opportunities in the existing non-regulated generation market, it will continue to be patient, prudent and diligent in its pursuit of such opportunities. Consistent with this approach, in February 2003, Resources announced the purchase of a 309 MW, non-regulated, natural gas-fired power plant in Wisconsin for $109 million, which Resources financed with a $73 million 8-year secured credit facility, which is non-recourse to Alliant Energy. At Feb. 28, 2003, Resources had $60 million of borrowings outstanding under this facility, at an interest rate of approximately 5%, and an $11 million letter of credit related to a purchased- power agreement. The entire power output of the facility is sold under contract to Milwaukee-based We Energies through June 2008. OTHER MATTERS Market Risk Sensitive Instruments and Positions - Alliant Energy's primary - ----------------------------------------------- market risk exposures are associated with interest rates, commodity prices, equity prices and currency exchange rates. Alliant Energy has risk management policies to monitor and assist in controlling these market risks and uses derivative instruments to manage some of the exposures. Interest Rate Risk - Alliant Energy is exposed to risk resulting from changes in interest rates as a result of its issuance of variable-rate debt, utility customer accounts receivable sale program and variable-rate leasing agreements. Alliant Energy manages its interest rate risk by limiting its variable interest rate exposure and by continuously monitoring the effects of market changes on interest rates. Alliant Energy also uses interest rate swap and interest rate forward agreements to assist in the management of its interest exposure. In the event of significant interest rate fluctuations, management would take actions to minimize the effect of such changes on Alliant Energy's results of operations and financial condition. Assuming no change in Alliant Energy's, IP&L's and WP&L's consolidated financial structure, if variable interest rates were to average 100 basis points higher (lower) in 2003 than in 2002, interest expense and pre-tax earnings would increase (decrease) by approximately $9.4 million, $1.5 million and $2.5 million, respectively. These amounts were determined by considering the impact of a hypothetical 100 basis point increase (decrease) in interest rates on Alliant Energy's, IP&L's and WP&L's consolidated variable-rate debt held, the amount outstanding under the utility customer accounts receivable sale program and variable-rate lease balances at Dec. 31, 2002. Commodity Risk - Non-trading - Alliant Energy is exposed to the impact of market fluctuations in the commodity price and transportation costs of electricity and natural gas products it markets. Alliant Energy employs established policies and procedures to manage its risks associated with these market fluctuations including the use of various commodity derivatives. Alliant Energy's exposure to commodity price risks in its utility business is significantly mitigated by the current rate making structures in place for the recovery of its electric fuel and purchased energy costs as well as its cost of natural gas purchased for resale. Refer to Note 1(j) of Alliant Energy's "Notes to Consolidated Financial Statements" for further discussion. WP&L periodically utilizes gas commodity derivative instruments to reduce the impact of price fluctuations on gas purchased and injected into storage during the summer months and withdrawn and sold at current market prices during the winter months. The gas commodity swaps in place approximate the forecasted storage withdrawal plan during this period. Therefore, market price fluctuations that result in an increase or decrease in the value of the physical commodity are substantially offset by changes in the value of the gas commodity swaps. To the extent actual storage withdrawals vary from forecasted withdrawals, WP&L has physical commodity price exposure. A 10% 48 increase (decrease) in the price of gas would not have a significant impact on the combined fair market value of the gas in storage and related swap arrangements in place at Dec. 31, 2002. IP&L also utilizes natural gas commodity derivative instruments to mitigate the risk of rising prices. Since the IUB allows for the prudently incurred costs associated with these instruments and the underlying supply of natural gas to be recovered from ratepayers, IP&L does not have significant natural gas commodity risk exposure. Whiting, currently accounted for as a discontinued operation, is exposed to market risk in the pricing of its oil and gas production. Historically, prices received for oil and gas production have been volatile because of seasonal weather patterns, supply and demand factors, transportation availability and price, and general economic conditions. Worldwide political developments have historically also had an impact on oil prices. Whiting periodically utilizes oil and gas swaps, costless collars and long-term delivery contracts to mitigate the impact of oil and gas price fluctuations. Historically, Alliant Energy has hedged or contracted approximately 50% of its oil and gas volumes. The actual level of hedging or contracting utilized is based on management's assessment of the prudency of hedging given current market conditions and other factors and is reviewed on an ongoing basis. Based on Whiting's estimated oil and gas sales in 2003, and the hedging and delivery contracts outstanding for such period, a sustained 10% increase (decrease) in oil and gas prices would impact Alliant Energy's pre-tax 2003 earnings by approximately $9.9 million. Southern Hydro, currently accounted for as a discontinued operation, owns and operates hydroelectric generation facilities in the state of Victoria in Australia. These generation facilities operate as peaking units. Under the rules of the Australian market, Southern Hydro must sell all of its production into a spot market in which the price changes every five minutes and is set on the average of each half hour. Electricity prices in this market can and have been very volatile. In order to manage the electricity commodity price risk associated with anticipated sales into the spot market, Southern Hydro enters into a variety of electricity derivative contracts with terms of up to five years. The value of these derivative instruments can change significantly as a result of changes in forward electricity prices. These instruments do not qualify for hedge accounting under SFAS 133. Accordingly, per GAAP, changes in the fair value of these derivatives, which are non-cash valuation adjustments, must be reported in Southern Hydro's earnings. Alliant Energy believes Southern Hydro's ownership of the physical generating facilities that are not marked-to-market, combined with the electricity derivative contracts, act as an economic hedge to volatile electricity prices, such that Southern Hydro's net economic exposure to volatile electricity prices over the next five years is managed within reasonable limits. Southern Hydro manages market risks inherent in its business through established derivative trading and risk management policies and tools. The principal tool utilized in managing the risks associated with volatile prices is a five to 40-day Earnings-at-Risk (EAR) model which calculates EAR to a 95% confidence level. At December 31, 2002, the estimated EAR for Southern Hydro for expected earnings in 2003 was approximately $0.9 million. Equity Price Risk - IP&L and WP&L maintain trust funds to fund their anticipated nuclear decommissioning costs. At Dec. 31, 2002 and 2001, these funds were invested primarily in domestic equity and debt instruments. Fluctuations in equity prices or interest rates will not affect Alliant Energy's consolidated results of operations as such fluctuations are recorded in equally offsetting amounts of investment income and depreciation (WP&L) or interest (IP&L) expense when they are realized. In 2001, WP&L entered into a four-year hedge on equity assets in its nuclear decommissioning trust fund. Refer to Note 10(c) of Alliant Energy's "Notes to Consolidated Financial Statements" for further discussion. Currency Risk - Alliant Energy has investments in various countries where the net investments are not hedged, including Australia, Brazil, China and New Zealand. As a result, these investments are subject to currency exchange risk with fluctuations in currency exchange rates. At Dec. 31, 2002, Alliant Energy had a cumulative foreign currency translation loss, net of any tax benefits realized, of $165 million, which related to decreases in value of the Brazil real of $152 million, New Zealand dollar of $11 million and Australian dollar of $2 million in relation to the U.S. dollar. This loss is recorded in "Accumulated other comprehensive loss" on Alliant Energy's Consolidated Balance Sheets. Based on Alliant Energy's investments at Dec. 31, 2002, a 10% sustained increase/decrease over the next 12 months in the foreign exchange rates of Australia, Brazil, China and New Zealand would result in a corresponding increase/decrease in the cumulative foreign currency translation loss of $57 million. Alliant Energy's equity income (loss) from its foreign investments is also impacted by fluctuations in currency exchange rates. In addition, Alliant Energy has currency exchange risk associated with the debt issued to finance a thermal plant constructed by Alliant Energy and its Brazilian partners. In 2002, Alliant Energy recorded pre-tax charges of $6.5 million related to its share of the foreign currency transaction losses on such debt. Based on the loan balance and 49 currency rates at Dec. 31, 2002, a 10% change in the currency rates would result in a $1.9 million after-tax increase (decrease) in net income. Refer to Notes 1(n) and 10 of Alliant Energy's "Notes to Consolidated Financial Statements" for further discussion of Alliant Energy's derivative financial instruments. Accounting Pronouncements - On Oct. 25, 2002, the EITF reached a consensus on - ------------------------- EITF Issue 02-3. Alliant Energy's natural gas trading business, NG Energy Trading, LLC (NG Energy), is impacted by EITF Issue 02-3, which requires that all sales of energy and the related cost of energy purchased under contracts that meet the definition of energy trading contracts under EITF Issue 98-10 and that are derivatives under SFAS 133 must be reflected on a net basis in the income statement for all periods presented. Under the guidance of EITF Issue 98-10, Alliant Energy reported its energy trading contracts and related gas in storage at fair market value, and reported related revenues and expenses on a gross basis in the income statement. EITF Issue 02-3 also rescinded EITF Issue 98-10 on a prospective basis. Accordingly, any new contracts entered into after Oct. 25, 2002 must be reported on a historical cost basis rather than at fair market value unless the contract meets the definition of a derivative under SFAS 133. Alliant Energy adopted EITF Issue 02-3 on Jan. 1, 2003 for all contracts that were in place and storage gas acquired prior to Oct. 25, 2002, and will reclassify prior period trading contracts on a net basis in the income statement for 2003. The impact of transitioning from reporting inventory and existing contracts that are not derivatives under SFAS 133 at fair value to historical cost will be reported in net income in the first quarter of 2003 and is not expected to be material due to the relatively small size of the NG Energy business. Had Alliant Energy presented its trading activities in the income statement on a net basis rather than a gross basis, for 2002, 2001 and 2000, "Non-regulated and other" revenues and "Other operation and maintenance" expenses would have both decreased $125 million, $49 million and $9 million, respectively, with no impact on net income. In November 2002, the FASB issued FIN 45 which requires disclosures by a guarantor about its obligations under certain guarantees that it has issued. FIN 45 also requires recognizing, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The recognition and measurement provisions of FIN 45 are effective on a prospective basis for guarantees issued or modified after Dec. 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after Dec. 15, 2002. Alliant Energy does not anticipate FIN 45 will have a material impact on its financial condition or results of operations. Refer to Note 11(d) of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information on guarantees. In January 2003, the FASB issued FIN 46 which addresses consolidation by business enterprises of variable interest entities. FIN 46 requires consolidation where there is a controlling financial interest in a variable interest entity or where the variable interest entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. Alliant Energy will apply the provisions of FIN 46 prospectively for all variable interest entities created after Jan. 31, 2003. For variable interest entities created before Jan. 31, 2003, Alliant Energy will be required to consolidate all entities in which it is a primary beneficiary beginning in the third quarter of 2003. It is reasonably possible the implementation of FIN 46 will require that certain variable interest entities be included on Alliant Energy's Consolidated Balance Sheets. Refer to Notes 3 and 4 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information on variable interest entities related to synthetic leases and the utility customer accounts receivable sale program, respectively. SFAS 143, which provides accounting and disclosure requirements for retirement obligations associated with long-lived assets, was effective Jan. 1, 2003. SFAS 143 requires that the present value of retirement costs for which Alliant Energy has a legal obligation be recorded as liabilities with an equivalent amount added to the asset cost. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity settles the obligation for its recorded amount or incurs a gain or loss. The adoption of SFAS 143 will have no impact on IP&L's and WP&L's earnings, as the effects will be offset by the establishment of regulatory assets or liabilities pursuant to SFAS 71, "Accounting for the Effects of Certain Types of Regulation." Alliant Energy has completed a detailed assessment of the specific applicability and implications of SFAS 143. The scope of SFAS 143 as it relates to Alliant Energy primarily includes decommissioning costs for DAEC and Kewaunee. It also applies to a smaller extent to several other regulated and non-regulated assets including, but not limited to, active ash landfills, water intake facilities, underground storage tanks, groundwater wells, 50 transmission and distribution equipment, easements, leases and the dismantlement of certain hydro facilities. Other than DAEC and Kewaunee, Alliant Energy's asset retirement obligations as of Jan. 1, 2003 are not significant. Prior to January 2003, IP&L and WP&L recorded nuclear decommissioning charges in accumulated depreciation on their Consolidated Balance Sheets. Upon adoption of SFAS 143, IP&L and WP&L will reverse approximately $125 million and $175 million, respectively, previously recorded in accumulated depreciation and will record liabilities of approximately $250 million and $175 million, respectively. The difference between amounts previously recorded and the net SFAS 143 liability will be deferred as a regulatory asset and is expected to approximate $125 million and $0 for IP&L and WP&L, respectively. IP&L and WP&L have previously recognized removal costs as a component of depreciation expense and accumulated depreciation for other non-nuclear assets in accordance with regulatory rate recovery. As of Dec. 31, 2002, IP&L and WP&L estimate that they have approximately $250 million and $150 million, respectively, of such regulatory liabilities recorded in "Accumulated depreciation" on their Consolidated Balance Sheets. In 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which replaced SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144 also applies to discontinued operations. SFAS 144 requires that those long-lived assets classified as held for sale be measured at the lower of their carrying amount or the fair value less cost to sell, and that no depreciation, depletion and amortization shall be recorded while an asset is classified as held for sale. Discontinued operations are no longer measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a planned disposal transaction that is probable of being completed within one year. If the criteria to classify operations as held for sale are subsequently no longer met, the assets classified as held for sale shall be reclassified as held and used in the period the held for sale criteria are no longer met. Alliant Energy adopted SFAS 144 on January 1, 2002. Refer to Note 16 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information about Alliant Energy's application of SFAS 144 in the fourth quarter of 2002 as relates to various assets it is planning to sell. Alliant Energy does not expect the various other new accounting pronouncements not mentioned above that were effective in 2002 to have a material impact on Alliant Energy's results of operations or financial condition. Critical Accounting Policies - Based on historical experience and various - ---------------------------- other factors, Alliant Energy believes the policies identified below are critical to its business and the understanding of its results of operations as they require critical estimates be made based on the assumptions and judgment of management. The preparation of consolidated financial statements requires management to make various estimates and assumptions that affect revenues, expenses, assets, liabilities and the disclosure of contingencies. The results of these estimates and judgments form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and judgments. Alliant Energy's management has discussed these critical accounting policies with the Audit Committee of its Board of Directors. Refer to Note 1 of Alliant Energy's "Notes to Consolidated Financial Statements" for a discussion of Alliant Energy's accounting policies and the estimates and assumptions used in the preparation of the consolidated financial statements. Regulatory Assets and Liabilities - Alliant Energy's domestic utility business is regulated by various federal and state regulatory agencies. As a result, the regulated utilities qualify for the application of SFAS 71. SFAS 71 recognizes that the actions of a regulator can provide reasonable assurance of the existence of an asset or liability. Regulatory assets or liabilities arise as a result of a difference between GAAP and the accounting principles imposed by the regulatory agencies. Regulatory assets generally represent incurred costs that have been deferred as they are probable of recovery in customer rates. Regulatory liabilities generally represent obligations to make refunds to customers for various reasons. Alliant Energy's utility subsidiaries recognize regulatory assets and liabilities in accordance with the rulings of their federal and state regulators and future regulatory rulings may impact the carrying value and accounting treatment of Alliant Energy's regulatory assets and liabilities. Alliant Energy periodically assesses whether the regulatory assets are probable of future recovery by considering factors such as regulatory environment changes, recent rate orders issued by the applicable regulatory agencies and the status of any pending or potential deregulation legislation. The assumptions and judgments used by regulatory authorities continue to have an impact on the recovery of costs, the rate of return on 51 invested capital and the timing and amount of assets to be recovered by rates. A change in these assumptions may result in a material impact on Alliant Energy's results of operations. Refer to Note 1(c) of Alliant Energy's "Notes to Consolidated Financial Statements" for further discussion. Asset Valuations - Long-Lived Assets - Alliant Energy's Consolidated Balance Sheets include - ----------------- significant long-lived assets, which are not subject to recovery under SFAS 71. As a result, Alliant Energy must generate future cash flows from such assets in a non-regulated environment to ensure the carrying value is not impaired. Many of these assets are the result of capital investments which have been made in recent years and have not yet reached a mature life cycle. Alliant Energy assesses the carrying amount and potential impairment of these assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors Alliant Energy considers in determining if an impairment review is necessary include a significant underperformance of the assets relative to historical or projected future operating results, a significant change in Alliant Energy's use of the acquired assets or business strategy related to such assets, and significant negative industry or economic trends. When Alliant Energy determines an impairment review is necessary, a comparison is made between the expected undiscounted future cash flows and the carrying amount of the asset. If the carrying amount of the asset is the larger of the two balances, an impairment loss is recognized equal to the amount the carrying amount of the asset exceeds the fair value of the asset. The fair value is determined by the use of quoted market prices, appraisals, or the use of valuation techniques such as expected discounted future cash flows. Alliant Energy must make assumptions regarding these estimated future cash flows and other factors to determine the fair value of the respective assets. Alliant Energy has made payments of $156 million for turbines and related generation equipment at Dec. 31, 2002 and has also entered into commitments for an additional $84 million. Alliant Energy expects to utilize approximately $124 million of such equipment in its first Power Iowa generation project and is currently reviewing various other potential generation projects to utilize the remaining $116 million of equipment. As a result, Alliant Energy has assessed the recoverability of the $116 million equipment cost compared to the future anticipated cash flows from the generation projects under review. The future anticipated cash flows is a significant estimate. Alliant Energy has no current intentions to sell any of this equipment. If a decision was made to sell such equipment, the recoverability of the equipment cost would be assessed by comparing the future anticipated sales proceeds to the carrying value of the equipment. Investments - Alliant Energy's Consolidated Balance Sheets include - ----------- investments in several available-for-sale securities accounted for in accordance with SFAS 115. Alliant Energy monitors any unrealized losses from such investments to determine if the loss is considered to be a temporary or permanent decline. The determination as to whether the investment is temporarily versus permanently impaired requires considerable judgment. When the investment is considered permanently impaired, the previously recorded unrealized loss would be recorded directly to the income statement as a realized loss. Alliant Energy incurred pre-tax valuation charges under the provisions of SFAS 115 of $27 million and $10 million related to its McLeod and Energy Technologies investments, respectively, in 2002. Alliant Energy's Consolidated Balance Sheets also contain various other investments that are evaluated for recoverability when indicators of impairment may exist. Resources holds a non-controlling interest in five Brazilian electric utility companies accounted for under the equity method of accounting. The recoverability of these equity method investments is assessed by comparing the future anticipated local currency cash flows from these investments and the carrying value of these investments. The future anticipated cash flows currently include anticipated periodic distributions that, when aggregated, exceed the carrying value of these investments. The future anticipated cash flows represents a significant estimate. The $214 million carrying value of Alliant Energy's Brazil investments has been reduced by $210 million of pre-tax cumulative foreign currency translation losses. The net of tax balance of $152 million has been recorded in "Accumulated other comprehensive loss" on Alliant Energy's Consolidated Balance Sheet at Dec. 31, 2002. Cumulative foreign currency translation losses are reflected in Alliant Energy's results of operations only if the related investment is sold or substantially liquidated. If Alliant Energy would decide to exit these Brazil investments in the future, the recoverability of these equity method investments would be assessed by comparing the future anticipated sales proceeds to the carrying value. Alliant Energy has no current intention of exiting these Brazil investments. Resources' investment in Mexico consists of a loan receivable (including accrued interest income) from a Mexican development company. The loan accrues interest at 8.75% and is secured by the undeveloped land of the resort community. Repayment of the loan principal and interest will be based on a portion of the proceeds from the sales of real estate in the resort 52 community and therefore is dependent on the successful development of the project and the ability to sell real estate. The recoverability of this loan receivable is currently assessed by comparing the fair value of the undeveloped land of the resort community used to secure the loan and the carrying value of the loan including accrued interest income. Based on an independent appraisal that indicated the fair value of the collateral was less than the loan balance plus accrued interest, Alliant Energy recorded a valuation allowance of approximately $7 million in the second quarter of 2002 and ceased accruing interest income on the loan. Based on an updated independent appraisal, Alliant Energy reversed the valuation allowance in the fourth quarter of 2002 and resumed accruing interest income on the loan. The fair value of such collateral is a significant estimate. Refer to Note 9 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information concerning Alliant Energy's investments in Brazil and Mexico. Alliant Energy announced its intentions to sell various businesses in November 2002 and is currently accounting for them as assets held for sale and discontinued operations. The estimated sales proceeds, less costs to sell, for each business exceeded the carrying value of each business as of Dec. 31, 2002. Alliant Energy will continue to monitor the estimated sales proceeds of its assets held for sale as they relate to the respective carrying values. Refer to Note 16 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information. Goodwill - As a result of the adoption of SFAS 142, "Goodwill and Other - -------- Intangible Assets," on Jan. 1, 2002, Alliant Energy is required to evaluate its goodwill for impairment at least annually and more frequently when indicators of impairment may exist. At Dec. 31, 2002, Alliant Energy had $66 million of net goodwill (including $41 million, $10 million and $9 million within its Cogenex, China and SmartEnergy reporting units, respectively) on its Consolidated Balance Sheet. If the fair value of a reporting unit is less than its carrying value, including goodwill, a goodwill impairment charge may be necessary. Alliant Energy estimates the fair value of its reporting units utilizing a combination of market value indicators and the expected discounted future cash flows. This process requires the use of significant management estimates and judgments regarding cash flow assumptions from future sales, operating costs and discount rates over an indefinite life. Alliant Energy's cash flow assumptions are derived using a combination of historical trends, internal budgets, strategic plans and other market information. Each reporting unit is evaluated separately based on the nature of its operations and therefore the assumptions vary by reporting unit relative to its applicable circumstances. To determine its discount rates, Alliant Energy utilizes the capital asset pricing model which is based upon market comparables adjusted for company-specific risk. In the event market comparables are not available, Alliant Energy utilizes expected industry returns based upon published information. In the fourth quarter of 2002, Alliant Energy recorded a pre-tax goodwill impairment charge related to SmartEnergy of $7 million. Derivative Financial Instruments - Alliant Energy uses derivative financial instruments to hedge exposures to fluctuations in interest rates, certain commodity prices, volatility in a portion of natural gas sales volumes due to weather and to mitigate the equity price volatility associated with certain investments in equity securities. Alliant Energy does not use such instruments for speculative purposes. To account for these derivative instruments in accordance with the applicable accounting rules, Alliant Energy must determine the fair value of its derivatives. In accordance with SFAS 133, the fair value of all derivative instruments are recognized as either assets or liabilities in the balance sheet with the changes in their value recognized in earnings for the non-regulated businesses, unless specific hedge accounting criteria are met. For IP&L and WP&L, changes in the derivatives fair values are generally recorded as regulatory assets or liabilities. If an established, quoted market exists for the underlying commodity of the derivative instrument, Alliant Energy uses the quoted market price to value the derivative instrument. For other derivatives, Alliant Energy estimates the value based upon other quoted prices or acceptable valuation methods. Alliant Energy also reviews the nature of its contracts for the purchase and sale of non-financial assets to assess whether the contracts meet the definition of a derivative and the requirements to follow hedge accounting as allowed by the applicable accounting rules. The determination of derivative status and valuations involves considerable judgment. The majority of Alliant Energy's derivative transactions are in its regulated domestic utility business and based on the fuel and natural gas cost recovery mechanisms in place, as well as other specific regulatory authorizations, changes in fair market values of such derivatives generally have no impact on Alliant Energy's results of operations. Alliant Energy does have an embedded derivative within its exchangeable senior notes that is impacted by the value of McLeod stock. Changes in the fair value of this derivative impact Alliant Energy's results of operations and the changes did have a material impact on Alliant Energy's 2001 results of operations. However, given a significant decline in the value of the McLeod stock, Alliant Energy does not expect changes in the fair value of this derivative to have a material impact on Alliant Energy's results of operations in the foreseeable future. In 53 addition, Alliant Energy has a small investment in a gas trading business. Such business accounted for all of its trading transactions under EITF Issue 98-10 through 2002 and adopted the provisions of EITF Issue 02-3 on Jan. 1, 2003 (and for new transactions after Oct. 25, 2002). However, due to the insignificant size of this business, Alliant Energy does not expect this accounting change to have a material impact on Alliant Energy's results of operations in the future. Unbilled Revenues - Unbilled revenues are primarily associated with Alliant Energy's utility operations. Energy sales to individual customers are based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of energy delivered to customers since the date of the last meter reading are estimated and the corresponding estimated unbilled revenue is recorded. The unbilled revenue estimate is based on daily generation volumes, estimated customer usage by class, weather impacts, line losses and the most recent customer rates. Such process involves the use of various estimates, thus significant changes in the estimates could have a material impact on Alliant Energy's results of operations. Accounting for Pensions - Alliant Energy accounts for pensions under SFAS 87, "Employers' Accounting for Pensions." Under these rules, certain assumptions are made which represent significant estimates. There are many factors involved in determining an entity's pension liabilities and costs each period including assumptions regarding employee demographics (including age, life expectancies, compensation levels), discount rates, assumed rate of returns and funding. Changes made to the plan provisions may also impact current and future pension costs. Alliant Energy's assumptions are supported by historical data and reasonable projections and are reviewed annually with an outside actuary firm and an investment consulting firm. As of Dec. 31, 2002, Alliant Energy was using a 6.75% discount rate and a 9% annual rate of return on investments. In selecting an assumed discount rate, Alliant Energy reviews various corporate Aa bond indices. The 9% annual rate of return is consistent with Alliant Energy's historical returns and is based on projected long-term equity and bond returns, maturities and asset allocations. A 100 basis point change in the discount rate would result in approximate changes of $79 million and $7 million in Alliant Energy's qualified pension benefit obligation and pension expense, respectively. A 100 basis point change in the rate of return would result in an approximate change of $4 million in qualified pension expense. Other Future Considerations - In addition to items discussed earlier in MD&A, - --------------------------- the following items could impact Alliant Energy's future financial condition or results of operations: Asset Sales - It is possible Alliant Energy could record material gains, losses, accounting adjustments or other charges and/or income related to its planned asset divestitures discussed in "Strategic Actions." Alliant Energy is not able to predict or estimate what such items may be at this time. Refer to Note 16 of Alliant Energy's "Notes to Consolidated Financial Statements" for additional information. Alliant Energy announced in March 2003 that it entered into an agreement with New Zealand-based Meridian Energy Limited for the sale of Alliant Energy's Australian investment, primarily made up of Alliant Energy's ownership of Southern Hydro. The sale price will be approximately $350 million. This amount includes the repayment of approximately $145 million in debt in Australia. On an after-tax basis, the sale will result in net cash proceeds to Alliant Energy of approximately $165 million. The transaction is expected to close by the end of April 2003 and is subject to customary closing conditions. Retirement Benefits - Alliant Energy's qualified pension and other postretirement benefit expenses for 2003 are currently expected to be approximately $18 million higher than in 2002, primarily due to unfavorable asset returns, a reduction in the discount rate used to value plan benefit obligations and expected increases in retiree medical costs. Alliant Energy will pursue the possible recovery of the utility portion of these cost increases, which represents a significant majority of the increase, in any rate filings it has in its various jurisdictions Exchangeable Senior Notes - At Dec. 31, 2002, the carrying amount of the debt component of Resources' exchangeable senior notes was $40.1 million, consisting of the par value of $402.5 million, less unamortized debt discount of $362.4 million. The terms of the exchangeable senior notes require Resources to pay interest on the par value of the notes at 7.25% from February 2000 to February 2003, and at 2.5% thereafter until maturity in February 2030. As explained in Note 10(a) of Alliant Energy's "Notes to Consolidated Financial Statements," Resources accounted for the net proceeds from the issuance of the notes as two separate components, a debt component and an embedded derivative component. In accordance with SFAS 133, Alliant Energy determined the initial carrying value of the debt component by subtracting the fair value of the derivative component from the net proceeds realized from the issuance of the exchangeable senior notes. This resulted in a very low initial carrying amount of the debt component which results in the recording of interest expense at an effective rate of 26.8% of the 54 carrying amount of the debt component. For 2002, interest expense on the notes was $13.2 million. Interest payments in excess of interest expense are recorded as a reduction of the carrying amount of the debt component. As a result of the higher interest payments for the first three years, the carrying amount of the debt component declined until it reached $37.8 million in February 2003, and then gradually increases over the next 27 years to the ultimate repayment amount of $402.5 million in 2030. Interest expense on the debt component of the notes will be $10.2 million in 2003, 2004 and 2005. If the existing McLeod shares would ever be cancelled, the notes would remain outstanding until maturity. Enterprise Resource Planning (ERP) System - Alliant Energy implemented a new ERP system in October 2002 which will result in annual amortization expense of approximately $11 million for five years. Alliant Energy is seeking rate recovery of the utility portion of the amortized expenses which represents a significant majority of the amortized expenses. 55 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and Qualitative Disclosures About Market Risk are reported under "Other Matters - Market Risk Sensitive Instruments and Positions" in MD&A. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Alliant Energy Page Number - -------------- ----------- Report of Management 57 Independent Auditors' Report 58 Consolidated Statements of Income for the Years Ended Dec. 31, 2002, 2001 and 2000 59 Consolidated Balance Sheets as of Dec. 31, 2002 and 2001 60 Consolidated Statements of Cash Flows for the Years Ended Dec. 31, 2002, 2001 and 2000 62 Consolidated Statements of Capitalization as of Dec. 31, 2002 and 2001 63 Consolidated Statements of Changes in Common Equity for the Years Ended Dec. 31, 2002, 2001 and 2000 64 Notes to Consolidated Financial Statements 65 IP&L - ---- Independent Auditors' Report 94 Consolidated Statements of Income for the Years Ended Dec. 31, 2002, 2001 and 2000 95 Consolidated Balance Sheets as of Dec. 31, 2002 and 2001 96 Consolidated Statements of Cash Flows for the Years Ended Dec. 31, 2002, 2001 and 2000 98 Consolidated Statements of Capitalization as of Dec. 31, 2002 and 2001 99 Consolidated Statements of Changes in Common Equity for the Years Ended Dec. 31, 2002, 2001 and 2000 100 Notes to Consolidated Financial Statements 101 WP&L - ---- Independent Auditors' Report 109 Consolidated Statements of Income for the Years Ended Dec. 31, 2002, 2001 and 2000 110 Consolidated Balance Sheets as of Dec. 31, 2002 and 2001 111 Consolidated Statements of Cash Flows for the Years Ended Dec. 31, 2002, 2001 and 2000 113 Consolidated Statements of Capitalization as of Dec. 31, 2002 and 2001 114 Consolidated Statements of Changes in Common Equity for the Years Ended Dec. 31, 2002, 2001 and 2000 115 Notes to Consolidated Financial Statements 116
Refer to Note 15 of Alliant Energy's, IP&L's and WP&L's "Notes to Consolidated Financial Statements" for the quarterly financial data required by Item 8. 56 ALLIANT ENERGY CORPORATION REPORT ON THE FINANCIAL INFORMATION Alliant Energy Corporation management is responsible for the information and representations contained in the financial statements and in other sections of this Annual Report. The consolidated financial statements that follow have been prepared in accordance with accounting principles generally accepted in the United States of America. In addition to selecting appropriate accounting principles, management is responsible for the manner of presentation and for the reliability of the financial information. In fulfilling that responsibility, it is necessary for management to make estimates based on currently available information and judgments of current conditions and circumstances. Through a well-developed system of internal controls, management seeks to ensure the integrity and objectivity of the financial information presented in this report. This system of internal controls is designed to provide reasonable assurance that the assets of the company are safeguarded and that the transactions are executed according to management's authorizations and are recorded in accordance with the appropriate accounting principles. The Board of Directors participates in the financial information reporting process through its Audit Committee. /s/ Erroll B. Davis, Jr. - ------------------------ Erroll B. Davis, Jr. Chairman, President and Chief Executive Officer /s/ Thomas M. Walker - -------------------- Thomas M. Walker Executive Vice President and Chief Financial Officer /s/ John E. Kratchmer - --------------------- John E. Kratchmer Vice President-Controller and Chief Accounting Officer March 18, 2003 57 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareowners of Alliant Energy Corporation: We have audited the accompanying consolidated balance sheets and statements of capitalization of Alliant Energy Corporation and subsidiaries (the "Company") as of December 31, 2002 and 2001, and related consolidated statements of income, cash flows and changes in common equity for each of the three years in the period ended December 31, 2002. Our audit also included the supplemental schedule listed in Item 15(a)(2). These financial statements and the supplemental schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the supplemental schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such supplemental schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 10 to the financial statements, on July 1, 2000, the Company changed its method of accounting for derivative instruments to adopt Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended ("SFAS 133"), and on January 1, 2001, the Company's equity method investees changed their method of accounting for derivative instruments to adopt SFAS 133. /s/ DELOITTE & TOUCHE LLP - ------------------------- Milwaukee, Wisconsin March 18, 2003 58
ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Operating revenues: Electric utility $1,752,534 $1,756,556 $1,648,036 Gas utility 393,986 487,877 414,948 Non-regulated and other 462,292 380,243 216,690 ----------------- ----------------- ----------------- 2,608,812 2,624,676 2,279,674 ----------------- ----------------- ----------------- - --------------------------------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 303,625 310,689 288,621 Purchased power 362,501 403,166 294,818 Cost of utility gas sold 248,994 360,911 278,734 Other operation and maintenance 957,144 828,125 686,976 Depreciation and amortization 310,617 302,643 296,732 Taxes other than income taxes 104,236 102,184 97,823 ----------------- ----------------- ----------------- 2,287,117 2,307,718 1,943,704 ----------------- ----------------- ----------------- - --------------------------------------------------------------------------------------------------------------------------------- Operating income 321,695 316,958 335,970 ----------------- ----------------- ----------------- - --------------------------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 186,538 185,604 168,149 Interest income from loans to discontinued operations, net (15,959) (9,938) (7,195) Equity (income) loss from unconsolidated investments 12,825 (18,799) (19,468) Allowance for funds used during construction (7,696) (11,144) (8,761) Preferred dividend requirements of subsidiaries 6,172 6,720 6,713 Impairment of available-for-sale securities of McLeodUSA Inc. 27,218 - - Gain on reclassification of investment - - (321,349) Miscellaneous, net 220 (12,497) (39,214) ----------------- ----------------- ----------------- 209,318 139,946 (221,125) ----------------- ----------------- ----------------- - --------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 112,377 177,012 557,095 ----------------- ----------------- ----------------- - --------------------------------------------------------------------------------------------------------------------------------- Income taxes 36,108 50,767 226,180 ----------------- ----------------- ----------------- - --------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 76,269 126,245 330,915 ----------------- ----------------- ----------------- - --------------------------------------------------------------------------------------------------------------------------------- Income from discontinued operations, net of tax (Note 16) 30,612 58,985 51,039 ----------------- ----------------- ----------------- - --------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of changes in accounting principle, net of tax 106,881 185,230 381,954 ----------------- ----------------- ----------------- - --------------------------------------------------------------------------------------------------------------------------------- Cumulative effect of changes in accounting principle, net of tax - (12,868) 16,708 ----------------- ----------------- ----------------- - --------------------------------------------------------------------------------------------------------------------------------- Net income $106,881 $172,362 $398,662 ================= ================= ================= - --------------------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding (basic) 90,897 80,498 79,003 ================= ================= ================= - --------------------------------------------------------------------------------------------------------------------------------- Earnings per average common share (basic): Income from continuing operations $0.84 $1.57 $4.19 Income from discontinued operations 0.34 0.73 0.65 Cumulative effect of changes in accounting principle - (0.16) 0.21 ----------------- ----------------- ----------------- Net income $1.18 $2.14 $5.05 ================= ================= ================= - --------------------------------------------------------------------------------------------------------------------------------- Average number of common shares outstanding (diluted) 90,959 80,636 79,193 ================= ================= ================= - --------------------------------------------------------------------------------------------------------------------------------- Earnings per average common share (diluted): Income from continuing operations $0.84 $1.57 $4.18 Income from discontinued operations 0.34 0.73 0.64 Cumulative effect of changes in accounting principle - (0.16) 0.21 ----------------- ----------------- ----------------- Net income $1.18 $2.14 $5.03 ================= ================= ================= - --------------------------------------------------------------------------------------------------------------------------------- Dividends declared per common share $2.00 $2.00 $2.00 ================= ================= ================= - --------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS December 31, ASSETS 2002 2001 - -------------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Utility: Electric plant in service $5,295,381 $5,123,781 Gas plant in service 613,122 597,494 Other plant in service 530,456 517,938 Accumulated depreciation (3,573,407) (3,374,867) ----------------- ---------------- Net plant 2,865,552 2,864,346 Construction work in progress 263,096 111,069 Other, net 68,340 62,194 ----------------- ---------------- Total utility 3,196,988 3,037,609 ----------------- ---------------- Non-regulated and other, net: International 171,179 157,743 Non-regulated generation 156,699 60,411 Integrated Services 73,983 79,202 Investments 54,303 56,647 Corporate Services and other 76,055 50,566 ----------------- ---------------- Total non-regulated and other 532,219 404,569 ----------------- ---------------- 3,729,207 3,442,178 ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 63,872 68,400 Restricted cash 9,686 34,421 Accounts receivable: Customer, less allowance for doubtful accounts of $12,721 and $8,340 81,277 43,411 Unbilled utility revenues 50,624 71,388 Other, less allowance for doubtful accounts of $845 and $319 60,107 72,912 Income tax refunds receivable 97,469 25,401 Production fuel, at average cost 63,126 54,707 Materials and supplies, at average cost 58,603 54,401 Gas stored underground, at average cost 62,797 57,114 Regulatory assets 46,076 19,632 Assets of discontinued operations (Note 16) 944,328 540,187 Other 76,183 66,882 ----------------- ---------------- 1,614,148 1,108,856 ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Investments: Investments in unconsolidated foreign entities 373,816 508,145 Nuclear decommissioning trust funds 344,892 332,953 Investment in ATC and other 217,992 243,804 ----------------- ---------------- 936,700 1,084,902 ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 302,365 241,973 Deferred charges and other 418,975 360,016 ----------------- ---------------- 721,340 601,989 ----------------- ---------------- - -------------------------------------------------------------------------------------------------------------------- Total assets $7,001,395 $6,237,925 ================= ================ - -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (Continued) December 31, CAPITALIZATION AND LIABILITIES 2002 2001 - ------------------------------------------------------------------------------------------------------------------ (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock - $0.01 par value - authorized 200,000,000 shares; outstanding 92,304,220 and 89,682,334 shares, respectively $923 $897 Additional paid-in capital 1,293,919 1,239,793 Retained earnings 758,187 832,293 Accumulated other comprehensive loss (209,943) (152,434) Shares in deferred compensation trust - 239,467 and 71,958 shares at an average cost of $28.80 and $30.68 per share, respectively (6,896) (2,208) ------------------ ------------------ Total common equity 1,836,190 1,918,341 ------------------ ------------------ Cumulative preferred stock of subsidiaries, net 205,063 113,953 Long-term debt (excluding current portion) 2,637,803 2,457,941 ------------------ ------------------ 4,679,056 4,490,235 ------------------ ------------------ - ------------------------------------------------------------------------------------------------------------------ Current liabilities: Current maturities and sinking funds 46,591 10,506 Variable rate demand bonds 55,100 55,100 Commercial paper 195,500 68,389 Other short-term borrowings 113,721 84,318 Accounts payable 286,690 221,823 Accrued taxes 106,015 87,099 Liabilities of discontinued operations (Note 16) 134,999 60,913 Other 187,902 174,224 ------------------ ------------------ 1,126,518 762,372 ------------------ ------------------ - ------------------------------------------------------------------------------------------------------------------ Other long-term liabilities and deferred credits: Accumulated deferred income taxes 626,417 607,552 Accumulated deferred investment tax credits 54,375 59,398 Pension and other benefit obligations 181,010 96,496 Environmental liabilities 48,730 45,144 Other 241,864 133,617 ------------------ ------------------ 1,152,396 942,207 ------------------ ------------------ - ------------------------------------------------------------------------------------------------------------------ Minority interest 43,425 43,111 ------------------ ------------------ - ------------------------------------------------------------------------------------------------------------------ Commitments and contingencies (Note 11) - ------------------------------------------------------------------------------------------------------------------ Total capitalization and liabilities $7,001,395 $6,237,925 ================== ================== - ------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $106,881 $172,362 $398,662 Adjustments to reconcile net income to net cash flows from operating activities: Income from discontinued operations, net of tax (30,612) (58,985) (51,039) Depreciation and amortization 310,617 302,643 296,732 Other amortizations 51,567 52,724 63,214 Deferred tax expense (benefit) and investment tax (credit) 9,145 (20,099) 111,103 Losses (gains) on dispositions of assets, net 123 (4,446) (11,780) Equity loss (income) from unconsolidated investments, net 12,825 (18,799) (19,468) Distributions from equity method investments 21,671 16,961 7,389 Non-cash valuation charges 66,379 33,706 2,897 Cumulative effect of changes in accounting principle, net of tax - 12,868 (16,708) Gain on reclassification of investment - - (321,349) Other (29,594) (5,297) (2,922) Other changes in assets and liabilities: Accounts receivable 3,010 79,470 (133,776) Income tax refunds receivable (72,067) (6,485) (5,917) Gas stored underground (5,683) (15,755) (18,208) Accounts payable 38,788 (52,827) 96,012 Accrued taxes 18,915 11,734 3,392 Manufactured gas plants insurance refunds - (21,541) - Other 42,075 (52,123) (5,144) -------------- --------------- -------------- Net cash flows from operating activities 544,040 426,111 393,090 -------------- --------------- -------------- - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Common stock dividends (180,987) (158,231) (157,964) Proceeds from issuance of common stock 56,066 288,553 1,069 Proceeds from issuance of preferred stock of subsidiary 144,602 - - Redemption of preferred stock of subsidiary (56,389) - - Net change in Resources' credit facility (383,610) 63,110 181,652 Proceeds from issuance of exchangeable senior notes - - 402,500 Proceeds from issuance of other long-term debt 300,023 513,530 107,747 Reductions in other long-term debt (20,818) (145,359) (53,572) Net change in commercial paper and other short-term borrowings 200,145 (320,449) 147,277 Net change in loans to discontinued operations 49,320 (39,556) (87,112) Other (24,262) (31,073) (28,534) ---------------- --------------- -------------- Net cash flows from financing activities 84,090 170,525 513,063 ---------------- --------------- -------------- - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Construction and acquisition expenditures: Regulated domestic utilities (404,736) (340,789) (304,656) Non-regulated businesses (218,282) (332,253) (529,675) Corporate Services and other (33,774) (40,019) (11,123) Nuclear decommissioning trust funds (22,923) (22,100) (22,100) Proceeds from formation of ATC and other asset dispositions 27,644 107,934 30,890 Other 19,413 (29,035) (32,589) ---------------- --------------- -------------- Net cash flows used for investing activities (632,658) (656,262) (869,253) ---------------- --------------- -------------- - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments (4,528) (59,626) 36,900 ---------------- --------------- -------------- - ----------------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 68,400 128,026 91,126 ---------------- --------------- -------------- - ----------------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $63,872 $68,400 $128,026 ================ =============== ============== - ----------------------------------------------------------------------------------------------------------------------------------- Supplemental cash flows information: Cash paid during the period for: Interest $184,146 $180,356 $158,850 ================ =============== ============== Income taxes, net of refunds $29,359 $70,895 $117,226 ================ =============== ============== Noncash investing and financing activities: Capital lease obligations incurred and other $19,101 $19,967 $20,419 ================ =============== ============== - ----------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 2002 2001 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity $1,836,190 $1,918,341 ----------------- ----------------- - -------------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock of subsidiaries, net (Note 7(b)) 205,063 113,953 ----------------- ----------------- - -------------------------------------------------------------------------------------------------------------------------------- Long-term debt: First Mortgage Bonds: 7.75%, due 2004 62,000 62,000 1.85% variable rate at December 31, 2002 to 7.6% fixed rate, due 2005 88,000 88,000 7-1/4% to 8%, due 2007 52,450 52,450 1.6% variable rate at December 31, 2002, due 2014 8,500 8,500 1.85% to 2.1% variable rate at December 31, 2002, due 2015 30,600 30,600 8-5/8%, due 2021 20,000 20,000 7-5/8%, due 2023 94,000 94,000 8.6%, due 2027 70,000 70,000 ----------------- ----------------- 425,550 425,550 Collateral Trust Bonds: 7.25%, due 2006 60,000 60,000 6-7/8%, due 2007 55,000 55,000 6%, due 2008 50,000 50,000 5.5% to 7%, due 2023 69,400 69,400 ----------------- ----------------- 234,400 234,400 Pollution Control Revenue Bonds: 5.75% to 6.35%, partially retired in 2002, due 2003 to 2012 14,930 15,490 2.8% variable rate at December 31, 2002 to 6.35% fixed rate, due 2003 to 2023 10,100 10,100 4.05% to 4.30% through 2004 fixed/variable rate, due 2005 to 2023 25,900 25,900 ----------------- ----------------- 50,930 51,490 Other long-term debt: Senior notes, 9.75%, due 2013 300,000 - Senior notes, 7%, due 2011 300,000 300,000 Senior notes, 7.375%, due 2009 250,000 250,000 Senior notes, 8.59%, due 2004 24,000 24,000 Exchangeable senior notes, 7.25% through February 2003, 2.5% thereafter, due 2030 402,500 402,500 Senior debentures, 6-5/8% to 6-3/4%, due 2009 to 2011 335,000 335,000 Debentures, 5.7% to 7-5/8%, due 2007 to 2010 265,000 265,000 Whiting credit facility, 3.63% at December 31, 2002, due 2005 185,000 - Subordinated deferrable interest debentures, 7-7/8%, due 2025 50,000 50,000 Multifamily housing revenue bonds, 1.75% variable rate at December 31, 2002, due 2036 34,075 34,075 Multifamily housing revenue bonds, 7% to 7.55%, due 2003 to 2024 4,755 4,841 Resources' credit facility, 3% to 3.45% at December 31, 2001, retired in 2002 - 383,610 Other, 1% to 11.34%, due 2003 to 2045 251,841 116,814 ----------------- ----------------- 3,113,051 2,877,280 ----------------- ----------------- Less: Current maturities (46,591) (10,506) Variable rate demand bonds (55,100) (55,100) Unamortized debt discount, net (373,557) (353,733) ----------------- ----------------- Total long-term debt (excluding current portion) 2,637,803 2,457,941 ----------------- ----------------- - -------------------------------------------------------------------------------------------------------------------------------- Total capitalization $4,679,056 $4,490,235 ================= ================= - -------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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ALLIANT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY Accumulated Other Shares in Additional Comprehensive Deferred Total Common Paid-In Retained Income Compensation Common Stock Capital Earnings (Loss) Trust Equity - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) 2000: Beginning balance (a) $790 $942,408 $577,464 $634,903 $- $2,155,565 Net income 398,662 398,662 Unrealized holding losses on securities, net of tax of ($77,853) (105,292) (105,292) Less: adjustment for gain on reclassification of investments included in net income, net of tax of $134,053 187,296 187,296 Less: reclassification adjustment for other gains included in net income, net of tax of $8,426 16,370 16,370 ---------- ------------ Net unrealized losses on securities (308,958) (308,958) ---------- ------------ Foreign currency translation adjustments (50,400) (50,400) ---------- ------------ Unrealized holding losses on derivatives due to cumulative effect of a change in accounting principle, net of tax of ($4,693) (6,582) (6,582) Other unrealized holding losses on derivatives, net of tax of ($2,560) (3,427) (3,427) Less: reclassification adjustment for losses included in net income, net of tax of ($4,502) (6,331) (6,331) ---------- ------------ Net unrealized losses on qualifying derivatives (3,678) (3,678) ---------- ------------ Total comprehensive income 35,626 Common stock dividends (157,964) (157,964) Common stock issued 5,096 (851) 4,245 ----------- ----------- --------- ---------- -------- ------------ Ending balance 790 947,504 818,162 271,867 (851) 2,037,472 2001: Net income 172,362 172,362 Unrealized holding losses on securities, net of tax of ($240,579) (343,285) (343,285) Less: reclassification adjustment for gains included in net income, net of tax of $-- 259 259 ---------- ------------ Net unrealized losses on securities (343,544) (343,544) ---------- ------------ Foreign currency translation adjustments (66,830) (66,830) ---------- ------------ Minimum pension liability adjustments, net of tax of ($11,022) (16,378) (16,378) ---------- ------------ Unrealized holding losses on derivatives, net of tax of ($1,569) (1,003) (1,003) Less: reclassification adjustment for losses included in net income, net of tax of ($2,078) (3,454) (3,454) ---------- ------------ Net unrealized gains on qualifying derivatives 2,451 2,451 ---------- ------------ Total comprehensive loss (251,939) Common stock dividends (158,231) (158,231) Common stock issued 107 292,289 (1,357) 291,039 ----------- ----------- --------- ---------- -------- ------------ Ending balance 897 1,239,793 832,293 (152,434) (2,208) 1,918,341 2002: Net income 106,881 106,881 Unrealized holding losses on securities, net of tax of ($8,544) (11,069) (11,069) Less: reclassification adjustment for losses included in net income, net of tax of ($14,393) (23,146) (23,146) ---------- ------------ Net unrealized gains on securities 12,077 12,077 ---------- ------------ Foreign currency translation adjustments, net of tax (37,785) (37,785) ---------- ------------ Minimum pension liability adjustments, net of tax of ($18,874) (27,226) (27,226) ---------- ------------ Unrealized holding losses on derivatives, net of tax of ($2,765) (2,671) (2,671) Less: reclassification adjustment for gains included in net income, net of tax of $1,658 1,904 1,904 ---------- ------------ Net unrealized losses on qualifying derivatives (4,575) (4,575) ---------- ------------ Total comprehensive income 49,372 Common stock dividends (180,987) (180,987) Common stock issued 26 58,338 (4,688) 53,676 Redemption of preferred stock of subsidiary (4,212) (4,212) --------- ----------- --------- ---------- -------- ------------ Ending balance $923 $1,293,919 $758,187 ($209,943) ($6,896) $1,836,190 ========= =========== ========= ========== ======== ============ - ------------------------------------------------------------------------------------------------------------------------------------ (a) Accumulated other comprehensive income (loss) at December 31, 1999 consisted of $644,481 of net unrealized gains on securities and ($9,578) of foreign currency translation adjustments. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
64 ALLIANT ENERGY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) General - The consolidated financial statements include the accounts of Alliant Energy and its consolidated subsidiaries. Alliant Energy is an investor-owned public utility holding company, whose primary subsidiaries are IP&L, WP&L, Resources and Corporate Services. On Jan. 1, 2002, IPC merged with and into IESU and IESU changed its name to IP&L. Since IPC and IESU were both wholly-owned operating subsidiaries of Alliant Energy, the transaction had no impact on the consolidated financial statements. IP&L and WP&L are utility subsidiaries that are engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of steam and water services in Iowa, Wisconsin, Minnesota and Illinois. Resources (through its numerous direct and indirect subsidiaries) is comprised of various business units: International, Non-regulated Generation, Integrated Services, Investments and Energy Technologies. International holds interests in global partnerships to develop energy generation, delivery and infrastructure in growing international markets, including Australia, Brazil, China and New Zealand. Alliant Energy is, however, currently in the process of selling its investments in Australia. Non-regulated Generation intends to build or acquire a portfolio of competitive electric generating assets in select business areas of the U.S. Integrated Services provides a wide range of energy and environmental services for commercial, industrial, institutional, educational and governmental customers. Investments includes ownership of an oil and gas production company, transportation companies, affordable-housing properties and various other investments. Alliant Energy is, however, currently in the process of selling its oil and gas and affordable housing businesses. Energy Technologies invests in leading-edge energy technologies, such as microturbines, fuel cells, solar concepts and wind turbines. Mass Marketing has interests in energy marketing businesses. In January 2003, Alliant Energy committed to a plan to sell SmartEnergy, an internet-based energy retailer, and Alliant Energy is in the process of disbanding its Mass Marketing business unit. Corporate Services is the subsidiary formed to provide administrative services to Alliant Energy and its subsidiaries as required under PUHCA. At Dec. 31, 2002, the assets and liabilities of Alliant Energy's oil and gas (Whiting), Australian (including Southern Hydro) and affordable housing businesses were classified as held for sale. The operating results for these non-regulated businesses for all periods presented have been separately classified and reported as discontinued operations in Alliant Energy's Consolidated Financial Statements and Notes to Consolidated Financial Statements. Refer to Note 16 for additional information. The consolidated financial statements reflect investments in controlled subsidiaries on a consolidated basis. All significant intercompany balances and transactions, other than certain energy-related transactions affecting the utility subsidiaries, have been eliminated from the consolidated financial statements. Such energy-related transactions not eliminated are made at prices that approximate market value and the associated costs are recoverable from customers through the rate making process. The consolidated financial statements are prepared in conformity with GAAP, which give recognition to the rate making and accounting practices of FERC and state commissions having regulatory jurisdiction. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect: a) the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements; and b) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain prior period amounts have been reclassified on a basis consistent with the current year presentation. Unconsolidated investments for which Alliant Energy has at least a 20% non-controlling voting interest are generally accounted for under the equity method of accounting. These investments are stated at acquisition cost, increased or decreased for Alliant Energy's equity in net income or loss, which is included in "Equity (income) loss from unconsolidated investments" in the Consolidated Statements of Income and decreased for any dividends received. These investments are also increased or decreased for Alliant Energy's proportionate share of the investee's other comprehensive income (loss), which is included in "Accumulated other comprehensive loss" on the Consolidated Balance Sheets. Investments that do not meet the criteria for consolidation or the equity method of accounting are accounted for under the cost method. Refer to Note 9 for discussion of Alliant Energy's cost method investments that are marked-to-market in accordance with SFAS 115. 65 (b) Regulation - Alliant Energy is a registered public utility holding company subject to regulation by the SEC under PUHCA. The utility subsidiaries are subject to regulation under PUHCA, FERC and their respective state regulatory commissions. (c) Regulatory Assets and Liabilities - Alliant Energy is subject to the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation," which provides that rate-regulated public utilities record certain costs and credits allowed in the rate making process in different periods than for non-regulated entities. These are deferred as regulatory assets or accrued as regulatory liabilities and are recognized in the Consolidated Statements of Income at the time they are reflected in rates. As of Dec. 31, 2002, IP&L and WP&L had approximately $7 million and $6 million, respectively, of regulatory assets that were not earning returns. At Dec. 31, 2002 and 2001, regulatory assets and liabilities were comprised of the following items (in millions):
Regulatory Assets Regulatory Liabilities ----------------------- ------------------------- 2002 2001 2002 2001 ---------- --------- ----------- ---------- Tax-related (Note 1(d)) $177.6 $115.3 $83.8 $15.1 Environmental-related 64.9 63.1 5.1 5.2 Energy efficiency program costs 46.7 39.9 -- -- Other 59.2 43.3 22.3 11.4 ---------- --------- ----------- ---------- $348.4 $261.6 $111.2 $31.7 ========== ========= =========== ==========
If a portion of the utility subsidiaries' operations becomes no longer subject to the provisions of SFAS 71 as a result of competitive restructuring or otherwise, a write-down of related regulatory assets would be required, unless some form of transition cost recovery is established by the appropriate regulatory body that would meet the requirements under GAAP for continued accounting as regulatory assets during such recovery period. In addition, each utility subsidiary would be required to determine any impairment of other assets and write-down such assets to their fair value. (d) Income Taxes - Alliant Energy is subject to the provisions of SFAS 109, "Accounting for Income Taxes," and follows the liability method of accounting for deferred income taxes, which requires the establishment of deferred tax assets and liabilities, as appropriate, for all temporary differences between the tax basis of assets and liabilities and the amounts reported in the consolidated financial statements. Deferred taxes are recorded using currently enacted tax rates. Except as noted below, income tax expense includes provisions for deferred taxes to reflect the tax effects of temporary differences between the time when certain costs are recorded in the accounts and when they are deducted for tax return purposes. As temporary differences reverse, the related accumulated deferred income taxes are reversed to income. Investment tax credits have been deferred and are subsequently credited to income over the average lives of the related property. Other tax credits reduce income tax expense in the year claimed and are generally related to nonconventional fuel and research and development. Consistent with Iowa rate making practices for IP&L, deferred tax expense is not recorded for certain temporary differences (primarily related to utility property, plant and equipment). As the deferred taxes become payable (over periods exceeding 30 years for some generating plant differences) they are recovered through rates. Accordingly, IP&L has recorded deferred tax liabilities and regulatory assets for certain temporary differences, as identified in Note 1(c). In Wisconsin, the PSCW has allowed rate recovery of deferred taxes on all temporary differences since August 1991. WP&L established a regulatory asset associated with those temporary differences occurring prior to August 1991 that will be recovered in future rates through 2007. (e) Common Shares Outstanding - A reconciliation of the weighted average common shares outstanding used in the basic and diluted earnings per share calculation was as follows:
Weighted average common shares outstanding: 2002 2001 2000 -------------- ------------- ------------- Basic earnings per share calculation 90,896,885 80,497,823 79,002,643 Effect of dilutive securities 62,177 138,006 190,134 -------------- ------------- ------------- Diluted earnings per share calculation 90,959,062 80,635,829 79,192,777 ============== ============= =============
66 In 2002, 2001 and 2000, 3,338,978, 1,501,854, and 1,358,597 options, respectively, to purchase shares of common stock, with average exercise prices of $29.67, $31.08, and $30.27, respectively, were excluded from the calculation of diluted earnings per share as the exercise prices were greater than the average market price. (f) Temporary Cash Investments and Restricted Cash - Temporary cash investments are stated at cost, which approximates market value, and are considered cash equivalents for the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows. These investments consist of short-term liquid investments that have maturities of less than 90 days from the date of acquisition. At Dec. 31, 2002 and 2001, restricted cash was primarily related to borrowing requirements for the construction of various power plants in China. (g) Depreciation of Utility Property, Plant and Equipment - The utility subsidiaries use a combination of remaining life, straight-line and sum-of-the-years-digits depreciation methods as approved by their respective regulatory commissions. The remaining life of DAEC, of which IP&L is a co-owner, is based on the NRC license end-of-life of 2014. The remaining depreciable life of Kewaunee, of which WP&L is a co-owner, is based on the PSCW approved revised end-of-life of 2010. Depreciation expense related to the decommissioning of DAEC and Kewaunee is discussed in Note 11(f). The average rates of depreciation for electric and gas properties, consistent with current rate making practices, were as follows:
IP&L WP&L --------------------------------- --------------------------------- 2002 2001 2000 2002 2001 2000 ---------- ----------- ---------- ---------- ----------- ---------- Electric 3.4% 3.5% 3.5% 3.6% 3.7% 3.6% Gas 2.9% 3.6% 3.5% 4.1% 4.1% 4.1%
(h) Property, Plant and Equipment - Utility plant (other than acquisition adjustments) is recorded at original cost, which includes overhead, administrative costs and AFUDC. At Dec. 31, 2002 and 2001, IP&L had $22.0 million and $23.2 million, respectively, of acquisition adjustments, net of accumulated amortization, included in utility plant ($4.9 million and $5.2 million, respectively, of such balances are currently being recovered in IP&L's rates). The aggregate gross AFUDC recovery rates, computed in accordance with the prescribed regulatory formula, were as follows: 2002 2001 2000 ------- ------- ------- IP&L 6.9% 7.7% 6.6% WP&L 2.6% 7.9% 10.8% Non-regulated property, plant and equipment is recorded at original cost. The majority of the non-regulated property, plant and equipment is depreciated using the straight-line method over periods ranging from five to 20 years. Upon retirement or sale of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in "Miscellaneous, net" in the Consolidated Statements of Income. Ordinary retirements of utility plant, including removal costs less salvage value, are charged to accumulated depreciation upon removal from utility plant accounts and no gain or loss is recognized. (i) Operating Revenues - Revenues from IP&L and WP&L are primarily from the sale and delivery of electricity and natural gas and are recorded under the accrual method of accounting and recognized upon delivery. Revenues from Alliant Energy's non-regulated businesses are primarily from the sale of energy or services and are recognized based on output delivered or services provided as specified under contract terms. Alliant Energy accrues revenues for services rendered but unbilled at month-end. In 2000, Alliant Energy recorded an increase of $10 million at WP&L in the estimate of utility services rendered but unbilled at month-end due to the implementation of refined estimation processes. (j) Utility Fuel Cost Recovery - IP&L's retail tariffs provide for subsequent adjustments to its electric and natural gas rates for changes in the cost of fuel, purchased energy and natural gas purchased for resale. Changes in the under/over collection of these costs are reflected in "Electric and steam production fuels" and "Cost of utility gas sold" in the Consolidated Statements of Income. The cumulative effects are reflected on the Consolidated Balance Sheets as a current regulatory asset or liability, pending automatic reflection in future billings to customers. At IP&L, purchased-power capacity costs are not recovered from electric customers through EACs. Recovery of these costs must be addressed in base rates in a formal rate proceeding. WP&L's retail electric rates are based on annual forecasted fuel and purchased-power costs. Under PSCW rules, WP&L can seek emergency rate increases if the annual costs are more than 3% higher than the estimated 67 costs used to establish rates. Any collections in excess of costs incurred will be refunded, with interest. Accordingly, WP&L has established a reserve due to overcollection of past fuel and purchased-power costs and expects to refund such amount in 2003. WP&L has a gas performance incentive which includes a sharing mechanism whereby 50% of all gains and losses relative to current commodity prices, as well as other benchmarks, are retained by WP&L, with the remainder refunded to or recovered from customers. (k) Nuclear Refueling Outage Costs - The IUB allows IP&L to collect, as part of its base revenues, funds to offset other operation and maintenance expenditures incurred during refueling outages at DAEC. As these revenues are collected, an equivalent amount is charged to other operation and maintenance expense with a corresponding credit to a reserve. During a refueling outage, the reserve is reversed to offset the refueling outage expenditures. Operating expenses incurred during refueling outages at Kewaunee are expensed by WP&L as incurred. Scheduled refueling outages occurred most recently at DAEC and Kewaunee in Spring and late 2001, respectively. The next scheduled refueling outages at DAEC and Kewaunee are anticipated to commence in Spring 2003. (l) Nuclear Fuel - Nuclear fuel for DAEC is leased. Annual nuclear fuel lease expenses include the cost of fuel, based on the quantity of heat produced for the generation of electricity, plus the lessor's interest costs related to fuel in the reactor and administrative expenses. Nuclear fuel for Kewaunee is recorded at its original cost and is amortized to expense based upon the quantity of heat produced for the generation of electricity. This accumulated amortization assumes spent nuclear fuel will have no residual value. Estimated future disposal costs of such fuel are expensed based on KWhs generated. Refer to Note 3 for additional information on DAEC's nuclear fuel lease. (m) Translation of Foreign Currency - Assets and liabilities of international investments, where the local currency is the functional currency, have been translated at year-end exchange rates and related income statement results have been translated using average exchange rates prevailing during the year. Adjustments resulting from translation, including gains and losses on intercompany foreign currency transactions which are long-term in nature, and which Alliant Energy does not intend to settle in the foreseeable future, have been recorded in "Accumulated other comprehensive loss" on Alliant Energy's Consolidated Balance Sheets. (n) Derivative Financial Instruments - Alliant Energy uses derivative financial instruments to hedge exposures to fluctuations in interest rates, certain electric and gas commodity prices and volatility in a portion of natural gas sales volumes due to weather. Alliant Energy also utilizes derivatives to mitigate the equity price volatility associated with certain investments in equity securities. Alliant Energy does not use such instruments for speculative purposes. The fair value of all derivatives are recorded as assets or liabilities on the Consolidated Balance Sheets and gains and losses related to derivatives that are designated as, and qualify as hedges, are recognized in earnings when the underlying hedged item or physical transaction is recognized in income. Gains and losses related to derivatives that do not qualify for, or are not designated in hedge relationships, are recognized in earnings immediately. The majority of Alliant Energy's derivative transactions are in its regulated domestic utility business and based on the fuel and natural gas cost recovery mechanisms in place, as well as other specific regulatory authorizations, changes in fair market values of such derivatives generally have no impact on Alliant Energy's results of operations. Alliant Energy has a number of commodity purchase and sales contracts that have been designated, and qualify for, the normal purchase and sale exception in SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of SFAS 133." Based on this designation, these contracts are not accounted for as derivative instruments. Alliant Energy is exposed to losses related to financial instruments in the event of counterparties' non-performance. Alliant Energy has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate its exposure to counterparty credit risk. Alliant Energy is not aware of any material exposure to counterparty credit risk. Refer to Note 10 for further discussion of Alliant Energy's derivative financial instruments. (o) Accounting for Stock Options - At Dec. 31, 2002, Alliant Energy had two stock-based incentive compensation plans, which are described more fully in Note 6(b). Alliant Energy accounts for stock options issued under these plans under the recognition and measurement principles of APB 25, "Accounting for Stock Issued to Employees." No stock-based compensation cost is reflected in net income in Alliant Energy's Consolidated Statements of Income, as all options granted under those plans had an exercise price equal to the quoted market price of the underlying common stock on the date of grant. Alliant Energy adopted the disclosure provisions of SFAS 148 "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS 123," effective for financial statements for fiscal years 68 ending after Dec. 15, 2002. The effect on net income and EPS if Alliant Energy had applied the fair value recognition provisions of SFAS 123, "Accounting for Stock-Based Compensation," to the stock options issued under these plans was as follows (in thousands):
2002 2001 2000 ------------- ------------- ------------- Net income, as reported $106,881 $172,362 $398,662 Less: stock-based compensation expense, net of tax 2,541 2,446 1,284 ------------- ------------- ------------- Pro forma net income $104,340 $169,916 $397,378 ============= ============= ============= EPS (basic): As reported $1.18 $2.14 $5.05 Pro forma $1.15 $2.11 $5.03 EPS (diluted): As reported $1.18 $2.14 $5.03 Pro forma $1.15 $2.11 $5.02
(p) Pension Plan - For the defined benefit pension plan sponsored by Corporate Services, Alliant Energy allocates pension costs and contributions to IP&L, WP&L, Resources and the parent company based on labor costs of plan participants and any additional minimum pension liability based on each group's funded status. (q) Asset Valuations - Long-lived assets, excluding goodwill and regulatory assets, are reviewed for possible impairment whenever events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Impairment is indicated if the carrying value of an asset exceeds its undiscounted future cash flows. An impairment charge is recognized equal to the amount the carrying value exceeds the asset's fair value. The fair value is determined by the use of quoted market prices, appraisals, or the use of other valuation techniques such as expected discounted future cash flows. Goodwill represents the excess of the purchase price over the fair value of the identifiable net tangible and intangible assets acquired in a business combination. Effective January 1, 2002 with the adoption of SFAS 142, "Goodwill and Other Intangible Assets," goodwill is required to be evaluated for impairment at least annually and more frequently if indicators of impairment exist. If the fair value of a reporting unit is less than its carrying value, including goodwill, an impairment charge may be necessary. The fair value of reporting units is determined by utilizing a combination of market value indicators and expected discounted future cash flows. Refer to Note 14 for additional information. If events or circumstances indicate the carrying value of investments accounted for under the equity method of accounting may not be recoverable, potential impairment is assessed by comparing the future anticipated cash flows from these investments to their carrying values. The estimated fair value less cost to sell of assets held for sale are compared each reporting period to their carrying values. Impairment charges are recorded for equity method investments and assets held for sale if the carrying value of such asset exceeds the future anticipated cash flows or the estimated fair value less cost to sell, respectively. (2) UTILITY RATE MATTERS In 2002, IP&L filed electric and gas rate cases in Iowa. Interim rates, subject to refund, were granted for $15 million and $17 million for electric and gas, respectively. IP&L expects final rates to be in place in June 2003 for the electric case and July 2003 for the gas case. Although it is possible that final rates could be lower than interim rates, IP&L does not believe this to be probable and therefore has not recorded any reserves related to potential refund obligations. In 2002 and 2001, WP&L had an electric fuel cost recovery mechanism that required WP&L to refund any overcollection of fuel and purchased-power costs. WP&L has recorded the necessary reserve for refunds at Dec. 31, 2002 and 2001. In 2002, WP&L filed a rate case with FERC related to its electric wholesale customers. An interim rate increase, subject to refund, of $6 million annually was granted effective April 2002. The case was subsequently settled with final rates of $3 million annually. At Dec. 31, 2002, WP&L recorded a reserve for the difference between interim and final rates. 69 (3) LEASES IP&L has a capital lease covering its 70% undivided interest in nuclear fuel purchased for DAEC. Annual nuclear fuel lease expenses (included in "Electric and steam production fuels" in the Consolidated Statements of Income) for 2002, 2001 and 2000 were $15.5 million, $14.1 million and $16.0 million, respectively. Alliant Energy's operating lease rental expenses, which include certain purchased-power agreements, for 2002, 2001 and 2000 were $45.1 million, $40.4 million and $24.5 million, respectively. The purchased-power agreements total below includes $463 million and $78 million, respectively, related to a new plant (Riverside) currently under development and the RockGen plant, both in Wisconsin. The Riverside plant is expected to be placed in-service in 2004. The synthetic leases relate to the financing of the corporate headquarters, corporate aircraft, utility railcars and a utility radio dispatch system that were not included on Alliant Energy's Consolidated Balance Sheets. Alliant Energy has guaranteed the residual value of its synthetic leases totaling $76 million in the aggregate. The guarantees extend through the maturity of each respective underlying lease with remaining terms up to 13 years. Residual value guarantees have been included in the future minimum lease payments noted in the table below (in millions):
2003 2004 2005 2006 2007 Thereafter Total -------------------------------------------------------------------- Operating leases: Certain purchased-power agreements $18.7 $51.8 $66.3 $67.6 $69.0 $308.6 $582.0 Synthetic leases 10.0 12.1 19.3 24.6 49.0 31.0 146.0 Other 16.3 12.2 9.3 6.3 5.2 44.2 93.5 -------------------------------------------------------------------- Total operating leases $45.0 $76.1 $94.9 $98.5 $123.2 $383.8 $821.5 ====================================================================
Present Less: value of net amount minimum representing capital lease 2003 2004 2005 2006 2007 Thereafter Total interest payments ------- -------- -------- ------- -------- ------------ -------- -------------- -------------- Capital leases $15.1 $15.8 $9.8 $35.5 $1.7 $1.2 $79.1 $9.3 $69.8
In January 2003, the FASB issued FIN 46 which addresses consolidation by business enterprises of variable interest entities, commonly referred to as "special purpose entities." FIN 46 requires consolidation where there is a controlling financial interest in a variable interest entity or where the variable interest entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. Alliant Energy will apply the provisions of FIN 46 prospectively for all variable interest entities created after Jan. 31, 2003. For variable interest entities created before Jan. 31, 2003, Alliant Energy will be required to consolidate all variable interest entities in which it is the primary beneficiary beginning in the third quarter of 2003. It is reasonably possible the implementation of FIN 46 will require that certain variable interest entities associated with these synthetic leases be included on Alliant Energy's Consolidated Balance Sheets. Alliant Energy is in the process of analyzing each synthetic lease in accordance with FIN 46. Alliant Energy does not anticipate the adoption of FIN 46 will have a material impact on its results of operations given it estimates the fair market value of the underlying assets is not materially less than the remaining lease obligations at Dec. 31, 2002. (4) UTILITY ACCOUNTS RECEIVABLE Utility customer accounts receivable, including unbilled revenues, arise primarily from the sale of electricity and natural gas. At Dec. 31, 2002 and 2001, the utility subsidiaries were serving a diversified base of residential, commercial and industrial customers and did not have any significant concentrations of credit risk. Alliant Energy's utility subsidiaries participate in a combined utility customer accounts receivable sale program whereby IP&L and WP&L may sell up to a combined maximum amount of $250 million (there are no individual subsidiary limits) of their respective accounts receivable to a third-party financial institution on a limited recourse basis through wholly-owned and consolidated variable interest entities. Corporate Services acts as a collection agent for the buyer and receives a fee for collection services that approximates fair value. The agreement expires in April 2006 and is subject to annual renewal or renegotiation for a longer period thereafter. Under terms of the agreement, the third-party financial institution purchases the receivables initially for the face amount. On a monthly basis, this sales price is adjusted, resulting in payments to the third-party financial institution of an amount that varies based on interest rates and length of time the sold receivables remain outstanding. Collections on sold receivables are used to purchase additional receivables from the utility subsidiaries. 70 At Dec. 31, 2002 and 2001, Alliant Energy had sold $202 million and $178 million of receivables, respectively. In 2002, 2001 and 2000, Alliant Energy received $2.3 billion, $2.2 billion and $1.6 billion, respectively, in aggregate proceeds from the sale of accounts receivable. The utility subsidiaries use proceeds from the sale of accounts receivable and unbilled revenues to maintain flexibility in their capital structures, take advantage of favorable short-term rates and finance a portion of their long-term cash needs. Alliant Energy paid fees associated with these sales of $4.2 million, $7.9 million and $9.0 million in 2002, 2001 and 2000, respectively. Alliant Energy and its utility subsidiaries account for the sale of accounts receivable to the third-party financial institution as sales under SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Retained receivables are available to the third-party financial institution to pay any fees or expenses due it, and to absorb all credit losses incurred on any of the sold receivables. Beginning in the third quarter of 2003 under FIN 46, it is reasonably possible that Alliant Energy could be considered the primary beneficiary given the current structure of the variable interest entities related to the program, and could be required to consolidate the operating results and associated assets and liabilities of the variable interest entities in its financial statements. Based on the receivables sold at Dec. 31, 2002, consolidation of the variable interest entities would have resulted in an additional $202 million in accounts receivable and related debt recorded on Alliant Energy's Consolidated Balance Sheet. Alliant Energy is currently evaluating the structure of its receivable sales program to determine if this structure can be modified to qualify for off-balance sheet treatment under FIN 46. (5) INCOME TAXES The components of income taxes for Alliant Energy were as follows (in millions):
2002 2001 2000 ------------- ------------- ------------- Current tax expense: Federal $19.4 $51.3 $92.1 State 21.6 16.2 24.0 Deferred tax expense (benefit): Federal 16.8 (9.3) 97.6 State (2.5) (5.6) 18.0 Foreign tax expense 5.5 4.2 0.2 Amortization of investment tax credits (5.2) (5.2) (4.5) Research and development tax credits (4.5) -- -- Nonconventional fuel credits (14.9) (0.5) (0.9) Other tax credits (0.1) (0.3) (0.3) ------------- ------------- ------------- $36.1 $50.8 $226.2 ============= ============= =============
Included in "Cumulative effect of changes in accounting principle, net of tax" in the Consolidated Statements of Income for 2001 and 2000 was income tax (benefit) expense of ($5.5) million and $9.8 million, respectively, related to the adoption of SFAS 133 by an equity method foreign affiliate of Alliant Energy on Jan. 1, 2001 and by Alliant Energy's consolidated subsidiaries on July 1, 2000, respectively. The overall effective income tax rates shown in the following table were computed by dividing total income tax expense by income from continuing operations before income taxes and preferred dividend requirements of subsidiaries.
2002 2001 2000 ------------- ------------- -------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 9.7 5.6 6.6 Foreign operations 7.4 (0.8) -- Adjustment of prior period taxes 1.0 (11.6) (0.6) Effect of rate making on property related differences 0.1 2.3 0.9 Research and development tax credits (3.8) -- -- Amortization of investment tax credits (4.4) (3.1) (1.0) Nonconventional fuel credits (12.6) (0.3) (0.2) Other items, net (1.9) 0.5 (0.6) ------------- ------------- -------------- Overall effective income tax rate 30.5% 27.6% 40.1% ============= ============= ==============
71 The accumulated deferred income tax (assets) and liabilities included on the Consolidated Balance Sheets at Dec. 31 arise from the following temporary differences (in millions): 2002 2001 ------------- ------------- Property related $647.2 $548.8 Exchangeable senior notes 140.8 129.7 Decommissioning (33.1) (28.6) Other (128.5) (42.3) ------------- ------------- $626.4 $607.6 ============= ============= At Dec. 31, 2002, 2001 and 2000, Alliant Energy had not recorded U.S. tax provisions of approximately $16.3 million, $6.8 million and $3.8 million, respectively, relating to approximately $46.6 million, $19.5 million and $10.9 million, respectively, of unremitted earnings from foreign investments as these earnings are expected to be reinvested indefinitely. U.S. and foreign sources of income (loss) from continuing operations before income taxes were as follows (in millions):
2002 2001 2000 ------------- ------------- ------------ U.S. sources $115.3 $156.0 $543.7 Foreign sources (2.9) 21.0 13.4 ------------- ------------- ------------ Income from continuing operations before income taxes $112.4 $177.0 $557.1 ============= ============= ============
(6) BENEFIT PLANS (a) Pension Plans and Other Postretirement Benefits - Alliant Energy has several non-contributory defined benefit pension plans that cover a significant number of its employees. Benefits are based on the employees' years of service and compensation. Alliant Energy also provides certain postretirement health care and life benefits to eligible retirees. In general, the health care plans are contributory with participants' contributions adjusted regularly and the life insurance plans are non-contributory. The weighted-average assumptions at the measurement date of Sept. 30 were as follows:
Qualified Pension Benefits Other Postretirement Benefits -------------------------------------- ------------------------------------ 2002 2001 2000 2002 2001 2000 ------------ ------------- ----------- ---------- ---------- ----------- Discount rate 6.75% 7.25% 8.00% 6.75% 7.25% 8.00% Expected return on plan assets 9% 9% 9% 9% 9% 9% Rate of compensation increase 3.5-4.5% 3.5-4.5% 3.5-4.5% 3.5% 3.5% 3.5% Medical cost trend on covered charges: Initial trend rate N/A N/A N/A 10.8% 12.0% 9.0% Ultimate trend rate N/A N/A N/A 5% 5% 5%
The components of Alliant Energy's qualified pension benefits and other postretirement benefits costs were as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------ ---------------------------------- 2002 2001 2000 2002 2001 2000 ---------- ---------- -------- --------- --------- --------- Service cost $12.9 $11.0 $11.1 $5.5 $4.0 $3.7 Interest cost 39.7 38.2 36.7 12.7 10.6 9.8 Expected return on plan assets (41.8) (48.5) (45.7) (5.5) (6.1) (5.3) Amortization of: Transition obligation (asset) (2.0) (2.4) (2.4) 3.7 3.7 3.9 Prior service cost 2.7 2.7 2.6 (0.3) (0.3) (0.3) Actuarial loss (gain) 2.1 (1.5) (1.0) 0.5 (1.5) (1.9) ---------- ---------- -------- --------- --------- --------- $13.6 ($0.5) $1.3 $16.6 $10.4 $9.9 ========== ========== ======== ========= ========= =========
72 The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A 1% change in the medical trend rates for 2002, holding all other assumptions constant, would have the following effects (in millions):
1% Increase 1% Decrease -------------- --------------- Effect on total of service and interest cost components $1.9 ($1.7) Effect on postretirement benefit obligation $19.4 ($17.3)
A reconciliation of the funded status of Alliant Energy's plans to the amounts recognized on Alliant Energy's Consolidated Balance Sheets at Dec. 31 was as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ----------------------------- -------------------------------- 2002 2001 2002 2001 ------------ ------------- ------------- -------------- Change in benefit obligation: Net benefit obligation at beginning of year $553.3 $483.6 $174.5 $130.7 Service cost 12.9 11.0 5.5 4.0 Interest cost 39.7 38.2 12.7 10.6 Plan participants' contributions -- -- 1.8 1.9 Plan amendments 1.1 -- (0.9) -- Actuarial loss 33.0 56.6 34.3 40.7 Gross benefits paid (31.5) (36.1) (12.2) (13.4) ------------ ------------- ------------- -------------- Net benefit obligation at end of year 608.5 553.3 215.7 174.5 ------------ ------------- ------------- -------------- Change in plan assets: Fair value of plan assets at beginning of year 483.3 556.3 73.8 83.0 Actual return on plan assets (25.1) (36.9) (7.2) (6.8) Employer contributions 40.0 -- 11.1 9.1 Plan participants' contributions -- -- 1.8 1.9 Gross benefits paid (31.5) (36.1) (12.2) (13.4) ------------ ------------- ------------- -------------- Fair value of plan assets at end of year 466.7 483.3 67.3 73.8 ------------ ------------- ------------- -------------- Funded status at end of year (141.8) (70.0) (148.4) (100.7) Unrecognized net actuarial loss 172.1 74.2 63.4 16.8 Unrecognized prior service cost 19.9 21.5 (0.9) (0.9) Unrecognized net transition obligation (asset) (1.4) (3.3) 36.7 41.1 ------------ ------------- ------------- -------------- Net amount recognized at end of year $48.8 $22.4 ($49.2) ($43.7) ============ ============= ============= ============== Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $70.4 $45.5 $2.3 $2.1 Accrued benefit cost (21.6) (23.1) (51.5) (45.8) Additional minimum liability (90.0) (36.1) -- -- Intangible asset 16.5 8.7 -- -- Accumulated other comprehensive loss 73.5 27.4 -- -- ------------ ------------- ------------- -------------- Net amount recognized at measurement date 48.8 22.4 (49.2) (43.7) ------------ ------------- ------------- -------------- Contributions paid after 9/30 and prior to 12/31 -- -- 4.0 2.5 ------------ ------------- ------------- -------------- Net amount recognized at 12/31 $48.8 $22.4 ($45.2) ($41.2) ============ ============= ============= ==============
73 The benefit obligation and fair value of plan assets for the postretirement welfare plans with benefit obligations in excess of plan assets were $213.9 million and $64.3 million, respectively, at Sept. 30, 2002 and $167.8 million and $64.5 million, respectively, at Sept. 30, 2001. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the qualified pension plans with accumulated benefit obligations in excess of plan assets were $452.4 million, $418.8 million and $313.2 million, respectively, at Sept. 30, 2002 and $293.9 million, $283.7 million and $225.7 million, respectively, at Sept. 30, 2001. Alliant Energy's net periodic benefit cost is primarily included in "Other operation and maintenance" in the Consolidated Statements of Income. For the various Alliant Energy pension and postretirement plans, Alliant Energy common stock represented less than 1% of total plan investments at Dec. 31, 2002 and 2001. Alliant Energy sponsors several non-qualified pension plans that cover certain current and former key employees. At both Dec. 31, 2002 and 2001, the funded balances of such plans totaled approximately $4 million, none of which consisted of Alliant Energy common stock. Alliant Energy's pension benefit obligation under these plans was $38.2 million and $34.4 million at Dec. 31, 2002 and 2001, respectively. Alliant Energy's pension expense under these plans was $4.3 million, $3.4 million, and $3.6 million in 2002, 2001 and 2000, respectively. Alliant Energy has various life insurance policies that cover certain key employees and directors. At Dec. 31, 2002 and 2001, the cash surrender value of these investments was $32 million and $30 million, respectively. Under Alliant Energy's deferred compensation plans, certain key employees and directors can defer part or all of their current compensation in company stock or interest accounts, which are held in grantor trusts. At Dec. 31, 2002 and 2001, the fair market value of the trusts totaled approximately $4.9 million and $2.2 million, respectively, the majority of which consisted of Alliant Energy common stock. A significant number of Alliant Energy employees also participate in defined contribution pension plans (401(k) and Employee Stock Ownership plans). Alliant Energy's contributions to the plans, which are based on the participants' level of contribution, were $9.2 million, $8.2 million, and $8.1 million in 2002, 2001 and 2000, respectively. (b) Equity Incentive Plans - In 2002, Alliant Energy shareowners approved the EIP that permits the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and performance units to key employees. At Dec. 31, 2002, non-qualified stock options were outstanding under this plan. The maximum number of shares of Alliant Energy common stock that may be issued under the plan is 4 million. Alliant Energy also has an LTEIP that permits the grant of incentive stock options, non-qualified stock options, restricted stock, performance shares and performance units to key employees. At Dec. 31, 2002, non-qualified stock options, restricted stock and performance shares were outstanding. The maximum number of shares of Alliant Energy common stock that may be issued under the plan is 3.8 million. This plan expires January 2004, at which time no further grants may be made under this plan. Options granted to date under the plans were granted at the quoted market price of the shares on the date of grant, vest over three years and expire no later than 10 years after the grant date. Options become fully vested upon retirement and remain exercisable at any time prior to their expiration date, or for three years after the effective date of the retirement, whichever period is shorter. Participants' options that are not vested become forfeited when participants leave Alliant Energy and their vested options expire after three months. A summary of the stock option activity was as follows:
2002 2001 2000 ------------------------- ------------------------- ----------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------------------- ------------------------- ----------------------- Outstanding at beginning of year 2,917,229 $30.03 2,265,862 $29.67 1,543,028 $30.32 Options granted 945,863 27.79 721,072 31.14 899,094 28.59 Options exercised -- -- (42,432) 29.87 (15,486) 30.03 Options forfeited (20,956) 29.41 (27,273) 30.07 (160,774) 29.90 -------------- ------------- ------------ Outstanding at end of year 3,842,136 29.48 2,917,229 30.03 2,265,862 29.67 ============== ============= ============ Exercisable at end of year 2,242,187 29.93 1,593,047 29.94 962,073 30.12
74 The range of exercise prices for the options outstanding at Dec. 31, 2002 was $27.50 to $31.56. The weighted-average remaining contractual life of outstanding options at Dec. 31, 2002, 2001 and 2000 was 7.4 years, 7.7 years and 8.3 years, respectively. The value of the options granted during the year using the Black-Scholes pricing method was as follows:
2002 2001 2000 ------------- ------------ ------------ Value of options $9.14 $4.30 $7.71 Volatility 40.6% 18.9% 32.7% Risk free interest rate 5.0% 5.0% 5.7% Expected life 10 years 10 years 10 years Expected dividend yield 6.0% 6.6% 6.3%
At Dec. 31, 2002 and 2001, Alliant Energy had 1,745 and 61,137 shares of restricted stock outstanding, respectively. Any unvested shares of restricted stock become fully vested upon retirement. Participants' unvested restricted stock is forfeited when the participant leaves Alliant Energy. Compensation cost, which is recognized over the three-year restriction period, was $0.2 million, $0.6 million and $0.6 million in 2002, 2001 and 2000, respectively. The payout to key employees of Corporate Services for performance shares is contingent upon achievement over a three-year period of specified earnings per share growth and total return to shareowners of Alliant Energy compared with an investor-owned utility peer group. The payout to key employees of Resources is contingent upon achievement over a three-year period of specified Resources earnings per share growth. Performance shares are paid out in shares of Alliant Energy's common stock or a combination of cash and stock and are modified by a performance multiplier, which ranges from zero to two, based on the performance criteria. Performance shares have an intrinsic value equal to the quoted market price of a share on the date of grant. Pursuant to APB 25, Alliant Energy accrues the plan expense over the three-year period the services are performed and recognized (income) expense of ($1.6) million, $2.4 million and $0.4 million in 2002, 2001 and 2000, respectively. (7) COMMON AND PREFERRED STOCK (a) Common Stock - The number of shares of common stock issued by Alliant Energy under its various stock plans was as follows:
2002 2001 2000 ---------------- ---------------- ---------------- Beginning balance 89,682,334 79,010,114 78,984,014 Shares issued: Public offering -- 9,775,000 -- Shareowner Direct Plan 1,877,032 668,379 5,666 401(k) Savings Plan 689,336 161,239 -- Equity incentive plans 55,518 67,602 20,434 ---------------- ---------------- ---------------- Ending balance 92,304,220 89,682,334 79,010,114 ================ ================ ================
In November 2001, Alliant Energy completed a public offering of its common stock generating net proceeds of approximately $263 million which were used to repay short-term debt. From January 2000 to June 2001, Alliant Energy satisfied its requirements under the Shareowner Direct Plan (dividend reinvestment and stock purchase plan) by acquiring Alliant Energy common stock on the open market, rather than through original issue. In 2000, 5,666 shares of common stock were issued related to an adjustment of a prior acquisition of oil and gas properties. At Dec. 31, 2002 and 2001, Alliant Energy had a total of 6.8 million and 2.6 million shares, respectively, available for issuance in the aggregate, pursuant to its Shareowner Direct Plan, LTEIP, EIP and 401(k) Savings Plan. Alliant Energy has a Shareowner Rights Plan whereby rights will be exercisable only if a person or group acquires, or announces a tender offer to acquire, 15% or more of Alliant Energy's common stock. Each right will initially entitle shareowners to buy one-half of one share of Alliant Energy's common stock. The rights will only be exercisable in multiples of two at an initial price of $95.00 per full share, subject to adjustment. If any shareowner acquires 15% or more of the outstanding common stock of Alliant Energy, each right (subject to limitations) will entitle its holder to purchase, at the right's then current exercise price, a number of common shares of Alliant Energy or of the acquirer having a market value at the time of twice the right's per full share exercise price. The Board of Directors is also authorized to reduce the 15% ownership threshold to not less than 10%. Alliant Energy's utility subsidiaries each have dividend payment restrictions based on their respective bond indentures, the terms of their outstanding preferred stock and state regulatory limitations applicable to them. WP&L's 75 preferred stock restricts dividends to the extent that such dividend would reduce the common stock equity ratio to less than 25%. In its September 2002 rate order, the PSCW stated it must approve the payment of dividends by WP&L to Alliant Energy in excess of the level forecasted in the order ($62 million annually) if such dividends would reduce WP&L's common equity ratio below 44.67% of total capitalization. In accordance with the IUB order authorizing the IP&L merger, IP&L must inform the IUB if its common equity ratio falls below 42% of total capitalization. As of Dec. 31, 2002, Alliant Energy's utility subsidiaries were in compliance with all such dividend restrictions. In 2002, 11 non-employee directors received 1,000 shares each of Alliant Energy common stock through the Shareowner Direct Plan as part of the directors' compensation program, for a total of approximately $337,000. In 2001, 14 non-employee directors received up to 1,000 shares each of Alliant Energy common stock through the Shareowner Direct Plan, for a total of approximately $338,000. In 2000, 12 non-employee directors received up to $20,000 each in Alliant Energy common stock, for a total of approximately $222,000. (b) Preferred Stock - In September 2002, IP&L redeemed all of its then outstanding shares of preferred stock. In December 2002, IP&L issued six million shares of preferred stock at $25.00 per share in a private placement. IP&L used the net proceeds of approximately $145 million to repay its short-term debt and for general corporate purposes, including to fund capital expenditures and to repay other debt. The fair market value of Alliant Energy's cumulative preferred stock of subsidiaries, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2002 and 2001 was $198 million and $99 million, respectively. Information related to the carrying value of Alliant Energy's cumulative preferred stock of subsidiaries, net at Dec. 31 was as follows (in millions):
2002 2001 ------------ ------------- Par/Stated Authorized Shares Mandatory Value Shares Outstanding Series Redemption ----- ------ ----------- ------ ---------- $25 16,000,000 6,000,000 8.375% No $150.0 $-- $100 * 449,765 4.40% - 6.20% No 45.0 45.0 $25 * 599,460 6.50% No 15.0 15.0 $50 466,406 ** 366,406 4.30% - 6.10% No -- 18.3 $50 *** 216,381 4.36% - 7.76% No -- 10.8 $50 *** 545,000 6.40% $50 / share -- 27.3 ------------ ------------- 210.0 116.4 Less: unamortized expenses (4.9) (2.4) ------------ ------------- $205.1 $114.0 ============ =============
* 3,750,000 authorized shares in total. ** Fully retired in 2002. *** 2,000,000 authorized shares in total, fully retired in 2002. (8) DEBT (a) Short-Term Debt - To provide short-term borrowing flexibility and security for commercial paper outstanding, Alliant Energy and its subsidiaries maintain bank lines of credit, of which most require a fee. Alliant Energy discontinued the use of its utility money pool in 2002 and WP&L and IP&L are now meeting any short-term borrowing needs they have by issuing commercial paper and borrowing on its bank lines of credit, respectively. At Dec. 31, 2001, IP&L and WP&L had money pool borrowings of $38.0 million and $90.8 million, respectively. Information regarding short-term debt was as follows (dollars in millions):
2002 2001 ---------------- ------------- At Dec. 31: Commercial paper outstanding $195.5 $68.4 Discount rates on commercial paper 1.6-1.9% 2.4-3.2% Bank facility borrowings $85.0 $-- Interest rates on bank facility borrowings 2.3-2.4% N/A Short-term borrowings at foreign subsidiaries $28.7 $84.3 Interest rates on foreign short-term borrowings 5.3-6.9% 5.6-6.9% For the year ended: Average amount of short-term debt (based on daily outstanding balances) $337.9 $274.1 Average interest rates on short-term debt 2.7% 4.8%
76 (b) Long-Term Debt - The former IESU indentures securing its First Mortgage and Collateral Trust Bonds constitute direct first mortgage liens and a second lien while First Mortgage Bonds remain outstanding, respectively, upon substantially all tangible public utility property of IP&L (excluding those of the former IPC). WP&L's and the former IPC's First Mortgage Bonds are secured by substantially all of their utility plant. IP&L, WP&L and Resources also maintain indentures relating to the issuance of unsecured debt securities. In December 2002, Resources issued $300 million of 9.75% senior notes due 2013 in a private placement. The notes are unconditionally guaranteed by Alliant Energy. Resources used the proceeds to repay short-term debt. In November 2001, Resources issued $300 million of senior notes at a fixed interest rate of 7%, due 2011. The notes are fully and unconditionally guaranteed by Alliant Energy. Resources used the proceeds to repay other Resources' debt. In March 2001, IP&L issued $200 million of senior unsecured debentures at a fixed interest rate of 6-3/4%, due 2011. IP&L used the proceeds to repay short- and long-term debt. Debt maturities for 2003 to 2007 are $47 million, $106 million, $337 million, $68 million and $225 million, respectively. Depending upon market conditions, it is currently anticipated that a majority of the maturing debt will be refinanced with the issuance of long-term securities. The carrying value of Alliant Energy's long-term debt (including current maturities and variable rate demand bonds) at Dec. 31, 2002 and 2001 was $2.7 billion and $2.5 billion, respectively. The fair market value, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2002 and 2001 was $2.9 billion and $2.6 billion, respectively. (9) INVESTMENTS AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of Alliant Energy's current assets and current liabilities approximates fair value because of the short maturity of such financial instruments. Since IP&L and WP&L are subject to regulation, any gains or losses related to the difference between the carrying amount and the fair value of their financial instruments may not be realized by Alliant Energy's shareowners. Information relating to various investments held by Alliant Energy at Dec. 31 that are marked-to-market as a result of SFAS 115 were as follows (in millions):
2002 2001 ---------------------------------- ----------------------------------- Unrealized Unrealized Carrying/Fair Gains, Net of Carrying/Fair Gains/(Losses), Value Tax Value Net of Tax ----------------- ---------------- ---------------- ------------------ Available-for-sale securities: Nuclear decommissioning trust funds: Debt securities $206 $9 $191 $3 Equity securities 139 13 142 42 Total 345 22 333 45 Investment in McLeod 2 -- 14 (9) Various other investments 19 3 23 1 Trading securities: Investment in McLeod 1 (a) 6 (a)
(a) Adjustments to the trading securities are reflected in earnings in the "Miscellaneous, net" line in the Consolidated Statements of Income. Nuclear Decommissioning Trust Funds - At Dec. 31, 2002, $114 million, $43 million and $49 million of the debt securities mature in 2003-2010, 2011-2020 and 2021-2049, respectively. The fair value of the nuclear decommissioning trust funds was, as reported by the trustee, adjusted for the tax effect of unrealized gains and losses. Net unrealized holding gains were recorded as part of accumulated provision for depreciation of related plant assets. The funds realized gains from the sales of securities of $10.4 million, $2.0 million and $5.0 million in 2002, 2001 and 2000, respectively (cost of the investments based on specific identification was $111.1 million, $169.8 million and $213.4 million, respectively, and proceeds from the sales were $121.5 million, $171.8 million and $218.4 million, respectively). 77 Investment in McLeod - Alliant Energy has investments in the common stock of McLeod, a telecommunications company. In accordance with SFAS 115, the carrying values of the investments are adjusted to estimated fair value based upon McLeod's closing price at the end of each quarter. Changes in fair value of investments designated as available-for-sale securities are reported in other comprehensive income, and impact current earnings when gains or losses are realized through sale or if a decline in value is determined to be "other-than-temporary." Changes in fair value of investments designated as trading securities are reflected in earnings in the "Miscellaneous, net" line in the Consolidated Statements of Income. Upon the adoption of SFAS 133 in 2000 for the embedded derivative related to McLeod stock in Resources' exchangeable senior notes (refer to Note 10(a) for additional information), Alliant Energy designated a portion of its McLeod investments as trading securities. As result of this change in designation to trading securities, in 2000, Alliant Energy reclassified $321.3 million of unrealized appreciation ($187.3 million after-tax) from accumulated other comprehensive income to net income. In 2000, Alliant Energy recognized miscellaneous income of $23.8 million for pre-tax gains realized upon sales of McLeod available-for-sale securities, for which the appreciation was previously reflected in accumulated other comprehensive income. On Jan. 31, 2002, McLeod filed a pre-negotiated plan of reorganization in a Chapter 11 bankruptcy proceeding and the trading of McLeod's common stock was suspended by Nasdaq. Consequently, Alliant Energy discontinued accounting for its investment in McLeod under the provisions of SFAS 115 and reduced the cost basis of its investments to the last quoted market price on Jan. 30, 2002. In June 2002, Alliant Energy received from McLeod under its plan of reorganization an initial distribution of approximately 3.3 million shares of new common stock and classified 0.9 million and 2.4 million shares (0.1 million shares were received by discontinued operations) as trading and available-for-sale securities, respectively. With the receipt of the new McLeod common shares and the resumption of trading on Nasdaq, Alliant Energy resumed accounting for its McLeod investments under SFAS 115 and adjusted its cost basis to the quoted market price on the date the shares were received. As a result of these events, Alliant Energy recognized pre-tax impairment charges in 2002 for available-for-sale securities totaling $27.2 million. Investments in Foreign Entities - The geographic concentration of Alliant Energy's significant continuing foreign investments at Dec. 31 was as follows (in millions):
Brazil China New Zealand Mexico Total --------- ---------- --------------- ---------- --------- 2002 - ---- Unconsolidated $214 $19 $86 $55 $374 Consolidated -- 161 -- -- 161 --------- ---------- --------------- ---------- --------- Total $214 $180 $86 $55 $535 ========= ========== =============== ========== ========= 2001 - ---- Unconsolidated $378 $21 $68 $41 $508 Consolidated -- 146 -- -- 146 --------- ---------- --------------- ---------- --------- Total $378 $167 $68 $41 $654 ========= ========== =============== ========== =========
Brazil - Resources holds a non-controlling interest in five Brazilian - ------ electric utility companies through several direct investments accounted for under the equity method of accounting. At Dec. 31, 2002 and 2001, Resources' direct investments included a 49.9% direct ownership interest in GIPAR, S.A., an electric utility holding company; a 39.4% direct ownership interest in Companhia Forca e Luz Cataguazes - Leopoldina, S.A. (Cataguazes), an electric utility; a 45.6% direct ownership interest in Energisa, S.A., an energy development company; a 49.9% direct ownership interest in Pbpart - SE 1 Ltda., an electric utility holding company; and a 50.0% (49.7% at Dec. 31, 2001) direct ownership interest in Usina Termeletrica de Juiz de Fora S.A., a thermal power plant. China - Resources' consolidated investments included a controlling interest - ----- in Peak Pacific Investment Company, Ltd., a company that develops investment opportunities in generation infrastructure projects in China, and Anhui New Energy Heat & Power Co., Ltd., a combined heat and power facility. Resources' unconsolidated investments included a 50.0% ownership interest in Jiaxing JIES Power & Heat Co., Ltd. and a 30.0% ownership interest in Tongxiang TIES Power & Heat Co., Ltd. Both of these combined heat and power facilities are accounted for under the equity method. 78 New Zealand - Resources' investments included a 20.4% ownership interest in - ----------- TrustPower Ltd., a New Zealand hydro and wind generation utility company, which is accounted for under the equity method and several other smaller investments accounted for under the cost method. Mexico - Resources' investment in Mexico consisted of a loan receivable - ------ (including accrued interest income) from a Mexican development company. Under provisions of the loan, Resources has agreed to lend up to $65 million to support the development of a resort community near the Baja peninsula. The loan accrues interest at 8.75% and is secured by the undeveloped land of the resort community. Repayment of the loan principal and interest will be based on a portion of the proceeds from the sales of real estate in the resort community and therefore is dependent on the successful development of the project and the ability to sell real estate. Alliant Energy may also realize royalty income on the real estate sales once the loan is repaid. Investment in ATC - At Dec. 31, 2002 and 2001, WP&L had ownership interests in ATC of approximately 26.6% and 26.5%, respectively, and accounts for this investment under the equity method. Pursuant to various agreements, WP&L receives a range of transmission services from ATC. WP&L provides operation, maintenance, and various transitional and construction services to ATC. WP&L and ATC also bill each other for use of shared facilities owned by each party. ATC billed WP&L $38.7 million and $36.4 million in 2002 and 2001, respectively. WP&L billed ATC $18.1 million and $18.4 million in 2002 and 2001, respectively, and recorded equity earnings of $14.3 million and $14.6 million in 2002 and 2001, respectively. Unconsolidated Equity Investments - Summary financial information from Alliant Energy's unconsolidated equity investments' financial statements is as follows (in millions):
2002 * 2001 2000 ------------ ------------ ---------- Operating revenues $1,440.6 $2,214.1 $1,194.3 Operating income 159.8 138.2 42.5 Net income (loss) 36.6 52.1 69.7 As of Dec. 31: Current assets 383.0 454.5 Non-current assets 1,976.4 2,117.0 Current liabilities 435.9 519.3 Non-current liabilities 505.1 557.0 Minority interest 133.4 213.5
* Alliant Energy's investment in Cargill-Alliant was sold in 2002. (10) DERIVATIVE FINANCIAL INSTRUMENTS (a) Accounting for Derivative Instruments and Hedging Activities - Alliant Energy records derivative instruments at fair value on the balance sheet as assets or liabilities and changes in the derivatives' fair values for non-regulated entities in earnings unless specific hedge accounting criteria are met. For IP&L and WP&L, changes in the derivatives' fair values are generally recorded as regulatory assets or liabilities. The PSCW issued a letter to WP&L in August 2002 authorizing accounting for its derivatives in such manner. At Dec. 31, 2002 and 2001, Alliant Energy had $6.4 million and $6.5 million, respectively, of derivative assets included in "Other current assets" on its Consolidated Balance Sheets and $9.1 million and $3.6 million, respectively, of derivative liabilities included in "Other current liabilities" on its Consolidated Balance Sheets. At Dec. 31, 2001, Alliant Energy also had $0.4 million of derivative liabilities included in "Other long-term liabilities and deferred credits" on its Consolidated Balance Sheets. In the first quarter of 2001, Alliant Energy recorded a net loss of $12.9 million (all related to discontinued operations) for a cumulative effect of a change in accounting principle representing the impact of adopting SFAS 133 as of Jan. 1, 2001 at Alliant Energy's equity method investees. This transition adjustment represents Alliant Energy's share of the difference between the carrying amount of Southern Hydro's electricity derivative contracts under the applicable accounting principles in effect at Dec. 31, 2000, and the carrying values of these electricity derivative contracts as determined in accordance with SFAS 133 as of Jan. 1, 2001. In the third quarter of 2000, Alliant Energy recorded net income of $16.7 million for a cumulative effect of a change in accounting principle representing the impact of adopting SFAS 133 as of July 1, 2000 at Alliant 79 Energy's consolidated subsidiaries. This transition adjustment was primarily the result of the difference between the carrying amount of Resources' exchangeable senior notes issued in February 2000 (due in 2030) under the applicable accounting principles in effect at June 30, 2000, and the carrying values of the debt and embedded derivative components of the notes as determined in accordance with SFAS 133 as of July 1, 2000. Transition adjustments relating to Alliant Energy's other derivative instruments had no material impact on net income. During 2001 and 2000, $0.1 million of net gains (includes $0.1 million of net losses from discontinued operations) and $6.7 million of net losses (includes $1.3 million of net losses from discontinued operations), respectively, included in the cumulative effect of a change in accounting principle component of accumulated other comprehensive income (loss) were reclassified into earnings, resulting in remaining balances of $0 and $0.1 million at Dec. 31, 2001 and 2000, respectively. Cash Flow Hedging Instruments - During 2002 and 2001, Alliant Energy held - ----------------------------- various derivative instruments designated as cash flow hedging instruments. WP&L utilized gas commodity financial swap arrangements to reduce the impact of price fluctuations on gas purchased and injected into storage during the summer months and withdrawn and sold at current market prices during the winter months pursuant to the natural gas cost incentive sharing mechanism with customers in Wisconsin. IP&L and WP&L utilized physical coal purchase contracts, which did not qualify for the normal purchase and sale exception, to manage the price of anticipated coal purchases and sales. In 2002 and 2001, a net loss of $0.1 million (includes a net gain of $0.1 million from discontinued operations) and a net gain of $2.0 million (includes a net gain of $2.1 million from discontinued operations), respectively, were recognized relating to the amount of hedge ineffectiveness in accordance with SFAS 133. In 2002 and 2001, Alliant Energy did not exclude any components of the derivative instruments' gain or loss from the assessment of hedge effectiveness and in 2001 reclassified a loss of $0.9 million (all continuing operations) into earnings as a result of the discontinuance of hedges. At Dec. 31, 2002, the maximum length of time over which Alliant Energy hedged its exposure to the variability in future cash flows for forecasted transactions was six months (three months for continuing operations) and Alliant Energy estimated that losses of $3.3 million (includes losses of $3.5 million for discontinued operations) will be reclassified from accumulated other comprehensive income (loss) into earnings in 2003 as the hedged transactions affect earnings. Other Derivatives Not Designated in Hedge Relationships - Alliant Energy's - ------------------------------------------------------- derivatives that were not designated in hedge relationships during 2002 and/or 2001 included the embedded derivative component of Resources' exchangeable senior notes, electricity price collars, and physical coal and gas contracts not designated in hedge relationships. At maturity, the holders of Resources' exchangeable senior notes are paid the higher of the principal amount of the notes or an amount based on the value of McLeod common stock. SFAS 133 requires that Alliant Energy split the initial value of the notes into debt and derivative components. The payment feature tied to McLeod stock is considered an embedded derivative under SFAS 133 that must be accounted for as a separate derivative instrument. This component is classified as a derivative liability on the Consolidated Balance Sheets. Subsequent changes in the fair value of the option are reflected as increases or decreases in Alliant Energy's reported net income. The carrying amount of the host debt security, classified as long-term debt, is adjusted for amortization of the debt discount in accordance with the interest method as prescribed by APB 21, "Interest on Receivables and Payables." Changes in the fair value of the McLeod shares designated as trading are reflected as increases or decreases in Alliant Energy's net income. These trading gains or losses are expected to correspond with, and partially offset, changes in the intrinsic value of the embedded derivative component of Resources' exchangeable senior notes. Changes in the time value portion of the derivative component will result in non-cash increases or decreases to Alliant Energy's net income. Included in "Miscellaneous, net" in Alliant Energy's Consolidated Statements of Income for 2002, 2001 and 2000 was expense of $5.0 million, $215.1 million and $102.5 million, respectively, related to the change in value of the McLeod trading securities, partially offset by income of $0.4 million, $181.6 million and $101.8 million, respectively, related to the change in value of the derivative component of the exchangeable senior notes. 80 Electricity price collars were used to manage utility energy costs during supply/demand imbalances. Physical coal and gas contracts that do not qualify for the normal purchase and sale exception were used to manage the price of anticipated coal and gas purchases and sales. (b) Weather Derivatives - Alliant Energy uses weather derivatives to reduce the impact of weather volatility on its natural gas sales volumes. In 2002 and 2001, Corporate Services, as agent for IP&L and WP&L, entered into non-exchange traded options based on heating degree days in which Corporate Services receives payment from the counterparty if actual heating degree days are less than the strike price in the contract. Corporate Services paid premiums to enter into these contracts, which are amortized to expense over the contract period. Alliant Energy has used the intrinsic value method to account for these weather derivatives. (c) Nuclear Decommissioning Trust Fund Investments - Historically, WP&L has entered into combinations of options to mitigate the effect of significant market fluctuations on its common stock investments in its nuclear decommissioning trust funds. The derivative transactions are designed to protect the portfolio's value while allowing the funds to earn a total return modestly in excess of long-term expectations over the hedge period. Fair value changes of these instruments do not impact net income as they are recorded as equally offsetting changes in the investment in nuclear decommissioning trust funds and accumulated depreciation. (d) Energy-trading Contracts - Resources is the majority owner of a natural gas marketing operation, NG Energy Trading, LLC (NG). NG enters into financial and physical contracts for the sale, purchase, storage, transportation and loan of natural gas. NG accounts for all its positions, including gas in storage, at estimated fair value, with changes in fair value reported in earnings. Alliant Energy adopted EITF Issue 02-3 effective Jan. 1, 2003 for all contracts that were in place and storage gas acquired prior to Oct. 25, 2002, and will reclassify prior period trading contracts on a net basis in its Consolidated Statements of Income commencing in January 2003. (11) COMMITMENTS AND CONTINGENCIES (a) Construction and Acquisition Expenditures - Certain commitments have been made in connection with 2003 capital expenditures. During 2003, total construction and acquisition expenditures relating to continuing operations are estimated to be approximately $820 million. (b) Purchased-Power, Coal and Natural Gas Contracts - Alliant Energy, through its subsidiaries Corporate Services, IP&L and WP&L, has entered into purchased-power, coal and natural gas supply, transportation and storage contracts. Certain purchased-power commitments are considered operating leases and are therefore not included here, but are included in Note 3. The natural gas supply commitments are all index-based. Alliant Energy expects to supplement its coal and natural gas supplies with spot market purchases as needed. The table includes commitments for "take-or-pay" contracts which result in dollar commitments with no associated tons or Dths. At Dec. 31, 2002, Alliant Energy's minimum commitments were as follows (dollars and Dths in millions; MWhs and tons in thousands):
Purchased-power Coal Natural gas ----------------------- ------------------------- ------------------------- Dollars MWhs Dollars Tons Dollars Dths ---------- --------- ---------- ---------- ----------- ---------- 2003 $114.5 2,752 $81.1 9,889 $90.7 6 2004 15.5 361 57.6 9,301 36.5 -- 2005 2.0 -- 40.2 6,130 26.0 -- 2006 2.0 -- 12.7 898 15.0 -- 2007 0.1 -- 3.6 -- 14.7 -- Thereafter 0.4 -- -- -- 26.4 --
(c) Legal Proceedings - Alliant Energy is involved in legal and administrative proceedings before various courts and agencies with respect to matters arising in the ordinary course of business. Although unable to predict the outcome of these matters, Alliant Energy believes that appropriate reserves have been established and final disposition of these actions will not have a material adverse effect on its financial condition or results of operations. (d) Guarantees and Commitments - At Dec. 31, 2002 and 2001, Alliant Energy had guarantees outstanding to support unconsolidated affiliate and third-party financing arrangements of approximately $4 million and $14 million, respectively. Such guarantees are not included on Alliant Energy's Consolidated Balance Sheets. At Dec. 31, 2002, the remaining term of the guarantees and the underlying debt was five years. Refer to Note 3 for discussion of Alliant Energy's residual value guarantees of its synthetic leases. 81 In the third quarter of 2002, Alliant Energy sold its 50% ownership interest in its Cargill-Alliant electricity-trading joint venture to Cargill. Under the purchase and sale agreement ("Agreement"), Alliant Energy agreed to indemnify Cargill from expenses resulting from the breach of the representations and warranties made by Alliant Energy as of the closing date, and for the breach of its obligations under the Agreement. While the indemnification does not include a maximum limit, Alliant Energy believes the likelihood of having to make any material cash payments under this indemnification is remote. At Dec. 31, 2002, there were no claims related to the indemnification. In November 2002, the FASB issued FIN 45 which requires disclosures by a guarantor about its obligations under certain guarantees that it has issued. FIN 45 also requires recognizing, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The recognition and measurement provisions of FIN 45 are effective on a prospective basis for guarantees issued or modified after Dec. 31, 2002. Alliant Energy does not anticipate FIN 45 will have a material impact on its financial condition or results of operations. (e) Environmental Liabilities - Alliant Energy had recorded the following environmental liabilities, and regulatory assets associated with certain of these liabilities, at Dec. 31 (in millions):
Environmental liabilities 2002 2001 Regulatory assets 2002 2001 - ------------------------- ----------- ----------- ----------------- ---------- ----------- MGP sites $49.3 $43.9 MGP sites $54.1 $50.2 NEPA 6.6 8.2 NEPA 7.9 9.7 Other 0.2 0.4 Other 2.9 3.2 ----------- ----------- ----------- ----------- $56.1 $52.5 $64.9 $63.1 =========== =========== =========== ===========
MGP Sites - IP&L and WP&L have current or previous ownership interests in 43 - --------- and 14 sites, respectively, previously associated with the production of gas for which they may be liable for investigation, remediation and monitoring costs relating to the sites. IP&L and WP&L have received letters from state environmental agencies requiring no further action at eight and five sites, respectively. IP&L and WP&L are working pursuant to the requirements of various federal and state agencies to investigate, mitigate, prevent and remediate, where necessary, the environmental impacts to property, including natural resources, at and around the sites in order to protect public health and the environment. IP&L and WP&L record environmental liabilities based upon periodic studies, most recently updated in the third quarter of 2002, related to the MGP sites. Such amounts are based on the best current estimate of the remaining amount to be incurred for investigation, remediation and monitoring costs for those sites where the investigation process has been or is substantially completed, and the minimum of the estimated cost range for those sites where the investigation is in its earlier stages. It is possible that future cost estimates will be greater than current estimates as the investigation process proceeds and as additional facts become known. The amounts recognized as liabilities are reduced for expenditures made and are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their fair value. Management currently estimates the range of remaining costs to be incurred for the investigation, remediation and monitoring of all utility subsidiary sites to be approximately $37 million to $64 million. Under the current rate making treatment approved by the PSCW, the MGP expenditures of WP&L, net of any insurance proceeds, are deferred and collected from gas customers over a five-year period after new rates are implemented. The MPUC also allows the deferral of MGP-related costs applicable to the Minnesota sites and IP&L has been successful in obtaining approval to recover such costs in rates in Minnesota. The IUB has permitted utilities to recover prudently incurred costs. Regulatory assets have been recorded by IP&L and WP&L, which reflect the probable future rate recovery, where applicable. Considering the current rate treatment, and assuming no material change therein, IP&L and WP&L believe that the clean-up costs incurred for these MGP sites will not have a material adverse effect on their respective financial conditions or results of operations. Settlement has been reached with all of IP&L's and WP&L's insurance carriers regarding reimbursement for their MGP-related costs. Insurance recoveries available at Dec. 31, 2002 for IP&L and WP&L were $4.5 million and $2.1 million, respectively. Pursuant to their applicable rate making treatment, IP&L has recorded its recoveries in "Other long-term liabilities and deferred credits" and WP&L has recorded its recoveries as an offset against its regulatory assets. In February 2001, the IUB issued an order directing IP&L to refund its insurance recoveries related to former IESU MGP sites. Under 82 the refund plan, IP&L returned 90% of the recoveries to customers of the former IESU in 2001 and retained 10%. NEPA - NEPA requires owners of nuclear power plants to pay a special - ---- assessment into a "Uranium Enrichment Decontamination and Decommissioning Fund." The assessment is based upon prior nuclear fuel purchases. IP&L and WP&L recover the costs associated with this assessment through EACs and fuel costs, respectively, over the period the costs are assessed. Alliant Energy continues to pursue relief from this assessment through litigation. (f) Decommissioning of DAEC and Kewaunee - The IUB, in its interim electric rate order effective July 2002, allows IP&L to recover $11 million annually for its share of the cost to decommission DAEC. FERC, in its most recent interim wholesale rate order effective April 2002, allows WP&L to recover $3 million annually for its share of the cost to decommission Kewaunee. Both interim orders are subject to refund, pending determination of final rates. The PSCW, in an order effective Jan. 1, 2002, eliminated WP&L's recovery from retail customers for the cost to decommission Kewaunee, due to the trust fund being adequately funded. Decommissioning expense is included in "Depreciation and amortization" in the Consolidated Statements of Income and the cumulative amount is included in "Accumulated depreciation" on the Consolidated Balance Sheets to the extent recovered through rates. Additional information relating to the decommissioning of DAEC and Kewaunee was as follows (dollars in millions):
DAEC Kewaunee ------------------------- ---------------------- Assumptions relating to current rate recovery amounts: Alliant Energy's share of estimated decommissioning cost $374.3 $263.2 Year dollars in 2002 2002 Method to develop estimate Site-specific study Site-specific study Annual inflation rate 4.20% 6.50% Decommissioning method Prompt dismantling Prompt dismantling and removal and removal Year decommissioning to commence 2014 2013 After-tax return on external investments: Qualified 7.10% 6.12% Non-qualified 4.70% 5.14% External trust fund balance at Dec. 31, 2002 $121.2 $223.7 Internal reserve at Dec. 31, 2002 $21.7 $-- After-tax earnings on external trust funds in 2002 $3.8 $19.7
The interim rate recovery amounts for DAEC only include an inflation estimate through 2005. Both IP&L and WP&L are funding all rate recoveries for decommissioning into external trust funds and funding on a tax-qualified basis to the extent possible. In accordance with their respective regulatory requirements, IP&L and WP&L record the earnings on the external trust funds as interest income with a corresponding entry to interest expense at IP&L and to depreciation expense at WP&L. The earnings accumulate in the external trust fund balances and in accumulated depreciation on utility plant. SFAS 143, which provides accounting and disclosure requirements for retirement obligations associated with long-lived assets, was adopted by Alliant Energy on Jan. 1, 2003. SFAS 143 requires that the present value of retirement costs for which Alliant Energy has a legal obligation be recorded as liabilities with an equivalent amount added to the asset cost. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity settles the obligation for its recorded amount or incurs a gain or loss. The adoption of SFAS 143 will have no impact on IP&L's and WP&L's earnings, as the effects will be offset by the establishment of regulatory assets or liabilities pursuant to SFAS 71. Alliant Energy has completed a detailed assessment of the specific applicability and implications of SFAS 143. The scope of SFAS 143 as it relates to Alliant Energy primarily includes decommissioning costs for DAEC and Kewaunee. It also applies to a smaller extent to several other regulated and non-regulated assets including, but not limited to, active ash landfills, water intake facilities, underground storage tanks, groundwater wells, transmission and distribution equipment, easements, leases and the dismantlement of certain hydro facilities. Other than DAEC and Kewaunee, Alliant Energy's asset retirement obligations as of Jan. 1, 2003 are not significant. 83 Prior to January 2003, IP&L and WP&L recorded nuclear decommissioning charges in accumulated depreciation on their Consolidated Balance Sheets. Upon adoption of SFAS 143, IP&L and WP&L will reverse approximately $125 million and $175 million, respectively, previously recorded in accumulated depreciation and will record liabilities of approximately $250 million and $175 million, respectively. The difference between amounts previously recorded and the net SFAS 143 liability will be deferred as a regulatory asset and is expected to approximate $125 million and $0 for IP&L and WP&L, respectively. IP&L and WP&L have previously recognized removal costs as a component of depreciation expense and accumulated depreciation for other non-nuclear assets in accordance with regulatory rate recovery. As of Dec. 31, 2002, IP&L and WP&L estimate that they have approximately $250 million and $150 million, respectively, of such regulatory liabilities recorded in "Accumulated depreciation" on their Consolidated Balance Sheets. (12) JOINTLY-OWNED ELECTRIC UTILITY PLANT Under joint ownership agreements with other Iowa and Wisconsin utilities, the utility subsidiaries have undivided ownership interests in jointly-owned electric generating stations. IP&L also has joint ownership agreements related to transmission facilities. Each of the respective owners is responsible for the financing of its portion of the construction costs. KWh generation and operating expenses are divided on the same basis as ownership with each owner reflecting its respective costs in its Consolidated Statements of Income. Information relative to the utility subsidiaries' ownership interest in these facilities at Dec. 31, 2002 was as follows (dollars in millions):
Accumulated Construction Fuel Ownership Plant in Provision for Work-In- Type Interest % Service Depreciation Progress ---------- ----------------- --------------- --------------- ---------------- IP&L - ---- DAEC Nuclear 70.0 $543.3 $318.5 $25.2 Ottumwa Coal 48.0 190.9 118.2 0.7 Neal Unit 4 Coal 21.5 85.3 59.4 0.2 Neal Unit 3 Coal 28.0 59.9 36.9 1.9 Louisa Unit 1 Coal 4.0 25.0 14.9 0.1 --------------- --------------- ---------------- 904.4 547.9 28.1 --------------- --------------- ---------------- WP&L - ---- Edgewater Unit 5 Coal 75.0 234.8 112.9 0.4 Columbia Energy Center Coal 46.2 187.5 110.3 1.6 Kewaunee Nuclear 41.0 172.6 120.9 6.8 Edgewater Unit 4 Coal 68.2 60.0 36.1 1.6 --------------- --------------- ---------------- 654.9 380.2 10.4 --------------- --------------- ---------------- $1,559.3 $928.1 $38.5 =============== =============== ================
(13) SEGMENTS OF BUSINESS Alliant Energy's principal business segments are: o Regulated domestic utilities - consists of IP&L and WP&L, serving customers in Iowa, Wisconsin, Minnesota and Illinois, and includes three segments: a) electric operations; b) gas operations; and c) other, which includes the steam and water businesses and the unallocated portions of the utility business. Various line items in the following tables are not allocated to the electric and gas segments for management reporting purposes and therefore are included in "Total Regulated Domestic Utilities." o Non-regulated businesses - represents the operations of Resources, its subsidiaries and Alliant Energy's investment in Cargill-Alliant (sold in 2002), and is broken down into two segments: a) International (Int'l) and b) other, which includes the operations of the Integrated Services, Investments, Non-regulated Generation, Energy Technologies and Mass Marketing business units described in Note 1(a); the operations of Resources (the non-regulated holding company); and any non-regulated reconciling/eliminating entries. o Other - includes the operations of Alliant Energy (the parent company) and Corporate Services, as well as any Alliant Energy parent company reconciling/eliminating entries. 84 Intersegment revenues were not material to Alliant Energy's operations and there was no single customer whose revenues were 10% or more of Alliant Energy's consolidated revenues. Refer to Note 9 for a breakdown of Alliant Energy's international investments by country. Certain financial information relating to Alliant Energy's significant business segments and products and services was as follows (in millions):
Regulated Domestic Utilities Non-regulated Businesses -------------------------------------- ------------------------------- Alliant Energy Electric Gas Other Total Int'l Other Total Other Consolidated - ------------------------------------------------------------------------------------------------------------------------------------ 2002 - ---- Operating revenues $1,752.5 $394.0 $37.2 $2,183.7 $103.2 $328.6 $431.8 ($6.7) $2,608.8 Depreciation and amortization 250.6 27.9 3.9 282.4 11.2 17.0 28.2 -- 310.6 Operating income (loss) 299.2 26.2 8.2 333.6 9.7 (21.1) (11.4) (0.5) 321.7 Interest expense, net of AFUDC 100.0 44.9 31.6 76.5 2.3 178.8 Interest income from loans to discontinued operations, net -- (6.0) (10.0) (16.0) -- (16.0) Equity (income) loss from unconsolidated investments (17.6) 17.1 13.3 30.4 -- 12.8 Preferred dividends 6.2 -- -- -- -- 6.2 Impairment of available-for-sale securities of McLeodUSA Inc. -- -- 27.2 27.2 -- 27.2 Miscellaneous, net (27.9) 3.4 25.4 28.8 (0.6) 0.3 Income tax expense (benefit) 107.1 (12.1) (54.6) (66.7) (4.3) 36.1 Income from continuing operations 165.8 (37.6) (54.0) (91.6) 2.1 76.3 Income from discontinued operations, net of tax -- 10.5 20.1 30.6 -- 30.6 Net income (loss) 165.8 (27.1) (33.9) (61.0) 2.1 106.9 Total assets 3,676.5 574.9 474.8 4,726.2 1,009.6 1,250.8 2,260.4 14.8 7,001.4 Investments in equity method subsidiaries 125.1 -- -- 125.1 297.1 29.1 326.2 0.3 451.6 Construction and acquisition expenditures 371.3 28.6 4.8 404.7 65.5 152.8 218.3 33.8 656.8 - ------------------------------------------------------------------------------------------------------------------------------------
Regulated Domestic Utilities Non-regulated Businesses --------------------------------------- ------------------------------ Alliant Energy Electric Gas Other Total Int'l Other Total Other Consolidated - ----------------------------------------------------------------------------------------------------------------------------------- 2001 - ---- Operating revenues $1,756.6 $487.9 $37.1 $2,281.6 $85.4 $263.3 $348.7 ($5.6) $2,624.7 Depreciation and amortization 245.6 28.8 3.2 277.6 8.3 16.7 25.0 -- 302.6 Operating income (loss) 306.1 11.2 7.5 324.8 7.4 (13.3) (5.9) (1.9) 317.0 Interest expense, net of AFUDC 100.5 54.6 9.6 64.2 9.8 174.5 Interest income from loans to discontinued operations, net -- (0.1) (9.8) (9.9) -- (9.9) Equity (income) loss from unconsolidated investments (15.6) 4.1 (7.2) (3.1) (0.1) (18.8) Preferred dividends 6.7 -- -- -- -- 6.7 Miscellaneous, net (25.9) (2.8) 20.7 17.9 (4.6) (12.6) Income tax expense (benefit) 94.2 (22.7) (12.3) (35.0) (8.4) 50.8 Income from continuing operations 164.9 (25.7) (14.3) (40.0) 1.4 126.3 Income from discontinued operations, net of tax -- 11.3 47.7 59.0 -- 59.0 Cumulative effect of a change in accounting principle, net of tax -- (12.9) -- (12.9) -- (12.9) Net income (loss) 164.9 (27.3) 33.4 6.1 1.4 172.4 Total assets 3,336.6 506.4 465.0 4,308.0 858.6 995.9 1,854.5 75.4 6,237.9 Investments in equity method subsidiaries 119.2 -- -- 119.2 448.3 32.6 480.9 -- 600.1 Construction and acquisition expenditures 298.7 36.9 5.2 340.8 173.0 159.3 332.3 40.0 713.1 - -----------------------------------------------------------------------------------------------------------------------------------
85
Regulated Domestic Utilities Non-regulated Businesses ---------------------------------------- ------------------------------- Alliant Energy Electric Gas Other Total Int'l Other Total Other Consolidated - ------------------------------------------------------------------------------------------------------------------------------------ 2000 - ---- Operating revenues $1,648.0 $415.0 $33.4 $2,096.4 $ -- $186.0 $186.0 ($2.7) $2,279.7 Depreciation and amortization 252.6 27.7 3.1 283.4 3.7 9.6 13.3 -- 296.7 Operating income (loss) 330.6 26.6 4.5 361.7 (7.8) (18.1) (25.9) 0.2 336.0 Interest expense, net of AFUDC 103.1 38.8 9.0 47.8 8.5 159.4 Interest income from loans to discontinued operations, net -- -- (7.2) (7.2) -- (7.2) Equity income from unconsolidated investments (0.5) (5.8) (13.2) (19.0) -- (19.5) Preferred dividends 6.7 -- -- -- -- 6.7 Gain on reclassification of investments -- -- (321.3) (321.3) -- (321.3) Miscellaneous, net (23.3) (8.9) (4.3) (13.2) (2.7) (39.2) Income tax expense 107.9 (14.2) 132.2 118.0 0.3 226.2 Income from continuing operations 167.8 (17.7) 186.7 169.0 (5.9) 330.9 Income from discontinued operations, net of tax -- (0.5) 51.6 51.1 -- 51.1 Cumulative effect of a change in accounting principle, net of tax -- -- 16.7 16.7 -- 16.7 Net income (loss) 167.8 (18.2) 255.0 236.8 (5.9) 398.7 Total assets 3,402.2 554.4 427.2 4,383.8 631.0 1,702.3 2,333.3 16.7 6,733.8 Investments in equity method subsidiaries 6.5 -- -- 6.5 389.0 29.5 418.5 -- 425.0 Construction and acquisition expenditures 265.9 35.8 3.0 304.7 395.6 134.1 529.7 11.1 845.5 - ------------------------------------------------------------------------------------------------------------------------------------
Products and Services - --------------------- Non-regulated and Other Revenues - ----------------------------------------------------------------------------------------------------------- Integrated Year Services International Mass Marketing Investments Other Total - ----------------------------------------------------------------------------------------------------------- (in millions) 2002 $258.8 $103.2 $46.9 $26.1 $27.3 $462.3 2001 241.9 85.4 6.8 26.6 19.5 380.2 2000 172.3 -- 0.7 28.5 15.2 216.7
(14) GOODWILL AND OTHER INTANGIBLE ASSETS Alliant Energy adopted SFAS 142 on Jan. 1, 2002, which resulted in goodwill no longer being subject to amortization. Had SFAS 142 been adopted Jan. 1, 2000, net income for 2001 and 2000 would have increased $4 million and $1 million, respectively, and basic and diluted EPS would have increased $0.05 and $0.02 per share, respectively. Certain information regarding net goodwill and other intangible assets included on Alliant Energy's Consolidated Balance Sheets at Dec. 31 was as follows (in millions):
2002 2001 ----------- ----------- Net goodwill Deferred charges and other (consolidated investments) $66 $66 Investments in unconsolidated foreign entities (equity method investments) 9 7 Net other intangible assets Deferred charges and other (consolidated investments) 19 20 Investments in unconsolidated foreign entities (equity method investments) 22 35 Investment in ATC and other (equity method investments) 25 --
In January 2003, Alliant Energy committed to a plan to sell its interest in SmartEnergy by year-end. In the fourth quarter of 2002, Alliant Energy recorded a SFAS 142 after-tax non-cash goodwill impairment charge related to SmartEnergy of $4.5 million primarily due to less favorable market conditions. The fair value of SmartEnergy's goodwill was estimated using a combination of the expected discounted future cash flows and market value 86 indicators. The impairment charge was recorded in continuing operations, "Miscellaneous, net," in Alliant Energy's Consolidated Statement of Income for 2002. (15) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) All "per share" references refer to earnings per diluted share. Summation of the individual quarters may not equal annual totals due to rounding.
2002 2001 ---------------------------------------- --------------------------------------- March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 ---------- --------- --------- --------- ---------- --------- -------- -------- (in millions, except per share data) Operating revenues $608.6 $570.9 $709.4 $719.9 $805.6 $571.0 $631.1 $617.0 Operating income 63.1 58.7 128.3 71.6 69.4 54.3 125.2 68.1 Income (loss) from continuing operations (8.4) (6.7) 43.9 47.5 18.6 8.6 53.2 45.8 Income (loss) from discontinued operations, net of tax 18.1 13.1 0.8 (1.4) 3.5 29.1 16.1 10.3 Cumulative effect of a change in accounting principle, net of tax -- -- -- -- (12.9) -- -- -- Net income 9.7 6.3 44.7 46.1 9.2 37.7 69.3 56.1 EPS: Income (loss) from continuing operations (0.09) (0.07) 0.48 0.52 0.23 0.11 0.67 0.54 Income (loss) from discontinued operations 0.20 0.14 0.01 (0.01) 0.05 0.37 0.20 0.12 Cumulative effect of a change in accounting principle -- -- -- -- (0.16) -- -- -- Net income 0.11 0.07 0.49 0.51 0.12 0.48 0.87 0.66
(16) DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE Alliant Energy announced in November 2002 its commitment to pursue the sale of, or other exit strategies for, certain non-regulated businesses in 2003. In the fourth quarter of 2002, Alliant Energy applied the provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," to certain of its assets which were held for sale. SFAS 144 requires that a long-lived asset classified as held for sale be measured at the lower of its carrying amount or fair value, less costs to sell, and to cease depreciation, depletion and amortization. At Dec. 31, 2002, Alliant Energy's oil and gas (Whiting), Australian (including Southern Hydro) and affordable housing businesses have been classified as held for sale. Alliant Energy currently plans to complete the sales by year-end. The operating results for these businesses have been separately classified and reported as discontinued operations in Alliant Energy's Consolidated Financial Statements. A summary of the components of discontinued operations in Alliant Energy's Consolidated Statements of Income was as follows (in thousands):
2002 2001 2000 -------------- ------------ ------------- Operating revenues $185,576 $152,664 $125,310 Operating expenses 140,037 99,598 80,224 Interest expense and other 15,466 (14,992) (18,589) -------------- ------------ ------------- Income before income taxes 30,073 68,058 63,675 Income tax expense (benefit) (539) 9,073 12,636 -------------- ------------ ------------- Income from discontinued operations, net of tax $30,612 $58,985 $51,039 ============== ============ =============
Alliant Energy's Australian business enters into electricity derivative contracts that have not been designated as hedges (as defined by SFAS 133) to manage the electricity commodity price risk associated with anticipated sales into the spot market. Approximately $16 million of income is included in "Interest expense and other" for both 2002 and 2001 in the previous table related to the change in the fair value of these electricity derivative contracts during these respective periods. In 2000, Alliant Energy's affordable housing business sold a portion of its investment in McLeod, resulting in a pre-tax gain of approximately $24 million included in "Interest expense and other" in the previous table. At Dec. 31, 2002, Alliant Energy's affordable housing business owned approximately 0.1 million shares of McLeod. "Income tax expense (benefit)" in the previous table includes approximately $10 million, $10 million and $7 million of affordable housing 87 tax credits earned by Alliant Energy's affordable housing business during 2002, 2001 and 2000, respectively. These tax credits had a significant impact on the effective tax rate of Alliant Energy's discontinued operations. A summary of the components of assets and liabilities of discontinued operations on Alliant Energy's Consolidated Balance Sheets at Dec. 31 was as follows (in thousands):
2002 2001 ------------- ------------ Assets of discontinued operations: Property, plant and equipment, net $644,137 $420,619 Current assets 99,044 45,217 Investments 6,824 60,442 Deferred charges and other 194,323 13,909 ------------- ------------ Total assets of discontinued operations $944,328 $540,187 ============= ============ Liabilities of discontinued operations: Current liabilities 65,885 28,521 Other long-term liabilities and deferred credits 68,990 32,125 Minority interest 124 267 ------------- ------------ Total liabilities of discontinued operations 134,999 60,913 ------------- ------------ Net assets of discontinued operations $809,329 $479,274 ============= ============
In March 2002, Alliant Energy acquired a controlling interest in Southern Hydro and therefore changed from the equity method of accounting to the consolidation method at such time. A summary of the components of cash flows for discontinued operations for the years ended Dec. 31 was as follows (in thousands):
2002 2001 2000 ------------- ------------ ------------ Net cash flows from operating activities $84,118 $51,562 $44,844 Net cash flows from financing activities 141,234 32,079 99,338 Net cash flows used for investing activities (215,583) (87,051) (145,573) ------------- ------------ ------------ Net increase (decrease) in cash and temporary cash investments 9,769 (3,410) (1,391) Cash and temporary cash investments at beginning of period 5,261 8,671 10,062 ------------- ------------ ------------ Cash and temporary cash investments at end of period $15,030 $5,261 $8,671 ============= ============ ============ Supplemental cash flows information: Cash paid during the period for: Interest $14,693 $6,350 $4,878 ============= ============ ============ Income taxes, net of refunds ($7,712) ($3,331) ($331) ============= ============ ============
(17) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS Alliant Energy has fully and unconditionally guaranteed the payment of principal and interest on various debt securities issued by Resources and, as a result, is required to present condensed consolidating financial statements. No other Alliant Energy subsidiaries are guarantors of Resources' debt securities. Alliant Energy's condensed consolidating financial statements are as follows: 88
Alliant Energy Corporation Condensed Consolidating Statements of Income for the Years Ended December 31, 2002 and 2001 Alliant Energy Other Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy -------------------------------------------------------------------- Year Ended December 31, 2002 (in thousands) - ---------------------------- Operating revenues: Electric utility $- $- $1,752,534 $- $1,752,534 Gas utility - - 393,986 - 393,986 Non-regulated and other - 431,819 356,286 (325,813) 462,292 -------------------------------------------------------------------- - 431,819 2,502,806 (325,813) 2,608,812 -------------------------------------------------------------------- Operating expenses: Electric and steam production fuels - - 303,570 55 303,625 Purchased power - - 362,501 - 362,501 Cost of utility gas sold - - 248,994 - 248,994 Other operation and maintenance 2,116 408,419 846,988 (300,379) 957,144 Depreciation and amortization 7 28,242 288,577 (6,209) 310,617 Taxes other than income taxes - 6,517 99,031 (1,312) 104,236 -------------------------------------------------------------------- 2,123 443,178 2,149,661 (307,845) 2,287,117 -------------------------------------------------------------------- Operating income (loss) (2,123) (11,359) 353,145 (17,968) 321,695 -------------------------------------------------------------------- Interest expense and other: Interest expense 5,640 76,486 116,344 (11,932) 186,538 Interest income from loans to discontinued operations, net - (15,959) - - (15,959) Equity (income) loss from unconsolidated investments (941) 31,337 (17,571) - 12,825 Allowance for funds used during construction - - (8,480) 784 (7,696) Preferred dividend requirements of subsidiaries - - 6,172 - 6,172 Impairment of available-for-sale securities of McLeodUSA Inc. - 27,218 - - 27,218 Miscellaneous, net (109,236) 27,218 (17,167) 99,405 220 -------------------------------------------------------------------- (104,537) 146,300 79,298 88,257 209,318 -------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 102,414 (157,659) 273,847 (106,225) 112,377 -------------------------------------------------------------------- Income tax expense (benefit) (4,467) (66,442) 107,959 (942) 36,108 -------------------------------------------------------------------- Income (loss) from continuing operations 106,881 (91,217) 165,888 (105,283) 76,269 -------------------------------------------------------------------- Income from discontinued operations, net of tax - 30,612 - - 30,612 -------------------------------------------------------------------- Net income (loss) $106,881 ($60,605) $165,888 ($105,283) $106,881 ==================================================================== Year Ended December 31, 2001 - ---------------------------- Operating revenues: Electric utility $- $- $1,756,556 $- $1,756,556 Gas utility - - 487,877 - 487,877 Non-regulated and other - 348,611 310,520 (278,888) 380,243 -------------------------------------------------------------------- - 348,611 2,554,953 (278,888) 2,624,676 -------------------------------------------------------------------- Operating expenses: Electric and steam production fuels - - 310,689 - 310,689 Purchased power - - 403,166 - 403,166 Cost of utility gas sold - - 360,911 - 360,911 Other operation and maintenance 3,609 322,599 772,246 (270,329) 828,125 Depreciation and amortization - 25,052 277,591 - 302,643 Taxes other than income taxes - 6,897 103,408 (8,121) 102,184 -------------------------------------------------------------------- 3,609 354,548 2,228,011 (278,450) 2,307,718 -------------------------------------------------------------------- Operating income (loss) (3,609) (5,937) 326,942 (438) 316,958 -------------------------------------------------------------------- Interest expense and other: Interest expense 14,281 64,096 117,707 (10,480) 185,604 Interest income from loans to discontinued operations, net - (9,938) - - (9,938) Equity (income) loss from unconsolidated investments (7,237) 4,138 (15,700) - (18,799) Allowance for funds used during construction - - (11,144) - (11,144) Preferred dividend requirements of subsidiaries - - 6,720 - 6,720 Miscellaneous, net (177,151) 18,026 (30,285) 176,913 (12,497) -------------------------------------------------------------------- (170,107) 76,322 67,298 166,433 139,946 -------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 166,498 (82,259) 259,644 (166,871) 177,012 -------------------------------------------------------------------- Income tax expense (benefit) (5,864) (37,573) 94,642 (438) 50,767 -------------------------------------------------------------------- Income (loss) from continuing operations 172,362 (44,686) 165,002 (166,433) 126,245 -------------------------------------------------------------------- Income from discontinued operations, net of tax - 58,985 - - 58,985 -------------------------------------------------------------------- Income before cumulative effect of a change in accounting principle, net of tax 172,362 14,299 165,002 (166,433) 185,230 -------------------------------------------------------------------- Cumulative effect of a change in accounting principle, net of tax - (12,868) - - (12,868) -------------------------------------------------------------------- Net income $172,362 $1,431 $165,002 ($166,433) $172,362 ====================================================================
89
Alliant Energy Corporation Condensed Consolidating Statement of Income for the Year Ended December 31, 2000 Alliant Energy Other Consolidated Parent Alliant Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ---------------------------------------------------------------------- Operating revenues: (in thousands) Electric utility $- $- $1,648,036 $- $1,648,036 Gas utility - - 414,948 - 414,948 Non-regulated and other - 185,952 294,507 (263,769) 216,690 ---------------------------------------------------------------------- - 185,952 2,357,491 (263,769) 2,279,674 ---------------------------------------------------------------------- Operating expenses: Electric and steam production fuels - - 288,621 - 288,621 Purchased power - - 294,818 - 294,818 Cost of utility gas sold - - 278,734 - 278,734 Other operation and maintenance 703 192,472 751,888 (258,087) 686,976 Depreciation and amortization - 13,350 283,382 - 296,732 Taxes other than income taxes - 6,069 98,379 (6,625) 97,823 ---------------------------------------------------------------------- 703 211,891 1,995,822 (264,712) 1,943,704 ---------------------------------------------------------------------- Operating income (loss) (703) (25,939) 361,669 943 335,970 ---------------------------------------------------------------------- Interest expense and other: Interest expense 17,350 47,832 121,250 (18,283) 168,149 Interest income from loans to discontinued operations, net - (7,195) - - (7,195) Equity income from unconsolidated investments (14,653) (4,311) (504) - (19,468) Allowance for funds used during construction - - (8,761) - (8,761) Preferred dividend requirements of subsidiaries - - 6,713 - 6,713 Gain on reclassification of investment - (321,349) - - (321,349) Miscellaneous, net (407,484) (13,234) (31,790) 413,294 (39,214) ---------------------------------------------------------------------- (404,787) (298,257) 86,908 395,011 (221,125) ---------------------------------------------------------------------- Income from continuing operations before income taxes 404,084 272,318 274,761 (394,068) 557,095 ---------------------------------------------------------------------- Income taxes 5,422 112,820 106,996 942 226,180 ---------------------------------------------------------------------- Income from continuing operations 398,662 159,498 167,765 (395,010) 330,915 ---------------------------------------------------------------------- Income from discontinued operations, net of tax - 51,039 - - 51,039 ---------------------------------------------------------------------- Income before cumulative effect of a change in accounting principle, net of tax 398,662 210,537 167,765 (395,010) 381,954 ---------------------------------------------------------------------- Cumulative effect of a change in accounting principle, net of tax - 16,673 35 - 16,708 ---------------------------------------------------------------------- Net income $398,662 $227,210 $167,800 ($395,010) $398,662 ====================================================================== Alliant Energy Corporation Condensed Consolidating Balance Sheet as of December 31, 2002 Alliant Energy Other Consolidated Parent Alliant Energy Consolidating Alliant ASSETS Company Resources Subsidiaries Adjustments Energy Property, plant and equipment: ---------------------------------------------------------------------- Utility: (in thousands) Electric plant in service $- $- $5,295,381 $- $5,295,381 Gas plant in service - - 613,122 - 613,122 Other plant in service - - 530,456 - 530,456 Accumulated depreciation - - (3,573,407) - (3,573,407) Construction work in progress - - 263,096 - 263,096 Other, net - - 68,340 - 68,340 ---------------------------------------------------------------------- Total utility - - 3,196,988 - 3,196,988 ---------------------------------------------------------------------- Non-regulated and other, net: Non-regulated generation - 156,699 - - 156,699 Other - 300,128 75,503 (111) 375,520 ---------------------------------------------------------------------- Total non-regulated and other - 456,827 75,503 (111) 532,219 ---------------------------------------------------------------------- - 456,827 3,272,491 (111) 3,729,207 ---------------------------------------------------------------------- Current assets: Income tax refunds receivable 18,175 72,882 6,412 - 97,469 Regulatory assets - - 46,076 - 46,076 Assets of discontinued operations - 944,328 - - 944,328 Other 254,461 219,028 489,181 (436,395) 526,275 ---------------------------------------------------------------------- 272,636 1,236,238 541,669 (436,395) 1,614,148 ---------------------------------------------------------------------- Investments: Consolidated subsidiaries 1,817,341 - 10 (1,817,351) - Investments in unconsolidated foreign entities - 373,816 - - 373,816 Other 11,660 56,357 494,867 - 562,884 ---------------------------------------------------------------------- 1,829,001 430,173 494,877 (1,817,351) 936,700 ---------------------------------------------------------------------- Deferred charges and other - 137,202 611,721 (27,583) 721,340 ---------------------------------------------------------------------- Total assets $2,101,637 $2,260,440 $4,920,758 ($2,281,440) $7,001,395 ======================================================================
90
Alliant Energy Corporation Condensed Consolidating Balance Sheet (Continued) as of December 31, 2002 Alliant Energy Other Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------------------ CAPITALIZATION AND LIABILITIES (in thousands) Capitalization: Common stock and additional paid-in capital $1,294,842 $232,743 $906,261 ($1,139,004) $1,294,842 Retained earnings 758,187 114,838 773,556 (888,394) 758,187 Accumulated other comprehensive loss (209,943) (166,947) (42,996) 209,943 (209,943) Shares in deferred compensation trust (6,896) - - - (6,896) ------------------------------------------------------------------------------ Total common equity 1,836,190 180,634 1,636,821 (1,817,455) 1,836,190 ------------------------------------------------------------------------------ Cumulative preferred stock of subsidiaries, net - - 205,063 - 205,063 Long-term debt (excluding current portion) 24,000 1,290,205 1,323,598 - 2,637,803 ------------------------------------------------------------------------------ 1,860,190 1,470,839 3,165,482 (1,817,455) 4,679,056 ------------------------------------------------------------------------------ Current liabilities: Current maturities and sinking funds - 41,511 5,080 - 46,591 Commercial paper 135,500 - 60,000 - 195,500 Other short-term borrowings 85,000 194,482 79,003 (244,764) 113,721 Accounts payable 1,534 61,503 223,653 - 286,690 Accrued taxes 9,743 14,149 82,123 - 106,015 Liabilities of discontinued operations - 134,999 - - 134,999 Other 6,419 122,395 305,819 (191,631) 243,002 ------------------------------------------------------------------------------ 238,196 569,039 755,678 (436,395) 1,126,518 ------------------------------------------------------------------------------ Other long-term liabilities and deferred credits: Accumulated deferred income tax expense (benefit) (3,198) 137,263 492,352 - 626,417 Pension and other benefit obligations 6,328 4,348 170,334 - 181,010 Other 121 35,526 336,912 (27,590) 344,969 ------------------------------------------------------------------------------ 3,251 177,137 999,598 (27,590) 1,152,396 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ Minority interest - 43,425 - - 43,425 ------------------------------------------------------------------------------ Total capitalization and liabilities $2,101,637 $2,260,440 $4,920,758 ($2,281,440) $7,001,395 ============================================================================== Alliant Energy Corporation Condensed Consolidating Balance Sheet as of December 31, 2001 ASSETS Property, plant and equipment: Utility: Electric plant in service $- $- $5,123,781 $- $5,123,781 Gas plant in service - - 597,494 - 597,494 Other plant in service - - 517,938 - 517,938 Accumulated depreciation - - (3,374,867) - (3,374,867) Construction work in progress - - 111,069 - 111,069 Other, net - - 62,194 - 62,194 ------------------------------------------------------------------------------ Total utility - - 3,037,609 - 3,037,609 ------------------------------------------------------------------------------ Non-regulated and other, net: Non-regulated generation - 60,411 - - 60,411 Other - 295,255 49,014 (111) 344,158 ------------------------------------------------------------------------------ Total non-regulated and other - 355,666 49,014 (111) 404,569 ------------------------------------------------------------------------------ - 355,666 3,086,623 (111) 3,442,178 ------------------------------------------------------------------------------ Current assets: Income tax refunds receivable 7,552 11,438 6,411 - 25,401 Regulatory assets - - 19,632 - 19,632 Assets of discontinued operations - 540,187 - - 540,187 Other 180,962 231,008 337,582 (225,916) 523,636 ------------------------------------------------------------------------------ 188,514 782,633 363,625 (225,916) 1,108,856 ------------------------------------------------------------------------------ Investments: Consolidated subsidiaries 1,793,737 - - (1,793,737) - Investments in unconsolidated foreign entities - 508,145 - - 508,145 Other 32,814 66,028 477,929 (14) 576,757 ------------------------------------------------------------------------------ 1,826,551 574,173 477,929 (1,793,751) 1,084,902 ------------------------------------------------------------------------------ Deferred charges and other 3,661 120,005 511,537 (33,214) 601,989 ------------------------------------------------------------------------------ Total assets $2,018,726 $1,832,477 $4,439,714 ($2,052,992) $6,237,925 ==============================================================================
91
Alliant Energy Corporation Condensed Consolidating Balance Sheet (Continued) as of December 31, 2001 Alliant Energy Other Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------ CAPITALIZATION AND LIABILITIES (in thousands) Capitalization: Common stock and additional paid-in capital $1,240,690 $232,743 $789,002 ($1,021,745) $1,240,690 Retained earnings 832,293 175,443 749,102 (924,545) 832,293 Accumulated other comprehensive loss (152,434) (140,137) (12,297) 152,434 (152,434) Shares in deferred compensation trust (2,208) - - - (2,208) ------------------------------------------------------------------ Total common equity 1,918,341 268,049 1,525,807 (1,793,856) 1,918,341 ------------------------------------------------------------------ Cumulative preferred stock of subsidiaries, net - - 113,953 - 113,953 Long-term debt (excluding current portion) 24,000 1,105,792 1,328,149 - 2,457,941 ------------------------------------------------------------------ 1,942,341 1,373,841 2,967,909 (1,793,856) 4,490,235 ------------------------------------------------------------------ Current liabilities: Current maturities and sinking funds - 9,946 560 - 10,506 Commercial paper 68,389 - - - 68,389 Other short-term borrowings - 84,318 - - 84,318 Accounts payable - 35,969 185,949 (95) 221,823 Accrued taxes - 9,712 77,387 - 87,099 Liabilities of discontinued operations - 60,913 - - 60,913 Other 4,341 46,670 404,134 (225,821) 229,324 ------------------------------------------------------------------ 72,730 247,528 668,030 (225,916) 762,372 ------------------------------------------------------------------ Other long-term liabilities and deferred credits: Accumulated deferred income tax expense (benefit) (4,033) 152,196 459,389 - 607,552 Pension and other benefit obligations 7,555 3,539 85,402 - 96,496 Other 133 12,262 258,984 (33,220) 238,159 ------------------------------------------------------------------ 3,655 167,997 803,775 (33,220) 942,207 ------------------------------------------------------------------ ------------------------------------------------------------------ Minority interest - 43,111 - - 43,111 ------------------------------------------------------------------ Total capitalization and liabilities $2,018,726 $1,832,477 $4,439,714 ($2,052,992) $6,237,925 ================================================================== Alliant Energy Corporation Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2002 Alliant Energy Other Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ------------------------------------------------------------------ (in thousands) Net cash flows from operating activities $107,594 $89,116 $458,785 ($111,455) $544,040 ------------------------------------------------------------------ Cash flows from (used for) financing activities: Common stock dividends (180,987) - (141,435) 141,435 (180,987) Proceeds from issuance of common stock 56,066 - - - 56,066 Proceeds from issuance of preferred stock of subsidiary - - 144,602 - 144,602 Redemption of preferred stock of subsidiary - - (56,389) - (56,389) Net change in Resources' credit facility - (383,610) - - (383,610) Proceeds from issuance of other long-term debt - 300,023 - - 300,023 Reductions in other long-term debt - (20,258) (560) - (20,818) Net change in commercial paper and other short-term borrowings 76,106 153,795 (31,695) 1,939 200,145 Net change in loans to discontinued operations - 49,320 - - 49,320 Other 1,417 (15,760) 105,431 (115,350) (24,262) ------------------------------------------------------------------ Net cash flows from (used for) financing activities (47,398) 83,510 19,954 28,024 84,090 ------------------------------------------------------------------ Cash flows used for investing activities: Construction and acquisition expenditures: Regulated domestic utilities - - (404,736) - (404,736) Non-regulated businesses - (218,282) - - (218,282) Corporate Services and other (50) - (33,724) - (33,774) Proceeds from dispositions of assets 19,349 8,295 - - 27,644 Other (85,872) 24,859 (27,867) 85,370 (3,510) ------------------------------------------------------------------ Net cash flows used for investing activities (66,573) (185,128) (466,327) 85,370 (632,658) ------------------------------------------------------------------ Net increase (decrease) in cash and temporary cash investments (6,377) (12,502) 12,412 1,939 (4,528) ------------------------------------------------------------------ Cash and temporary cash investments at beginning of period 6,381 60,751 3,207 (1,939) 68,400 ------------------------------------------------------------------ Cash and temporary cash investments at end of period $4 $48,249 $15,619 $- $63,872 ================================================================== Supplemental cash flows information: Cash paid (refunded) during the period for: Interest $5,244 $74,933 $103,969 $- $184,146 ================================================================== Income taxes, net of refunds ($2,183) ($46,033) $77,575 $- $29,359 ================================================================== Noncash investing and financing activities: Capital lease obligations incurred $- $- $19,101 $- $19,101 ==================================================================
92
Alliant Energy Corporation Condensed Consolidating Statements of Cash Flows for the Years Ended December 31, 2001 and 2000 Alliant Energy Other Alliant Consolidated Parent Energy Consolidating Alliant Company Resources Subsidiaries Adjustments Energy ----------------------------------------------------------------- Year Ended December 31, 2001 (in thousands) - ---------------------------- Net cash flows from (used for) operating activities $155,559 ($10,090) $453,795 ($173,153) $426,111 ----------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends (158,231) - (140,789) 140,789 (158,231) Proceeds from issuance of common stock 288,553 - - - 288,553 Net change in Resources' credit facility - 63,110 - - 63,110 Proceeds from issuance of other long-term debt - 313,530 200,000 - 513,530 Reductions in other long-term debt - (9,249) (136,110) - (145,359) Net change in commercial paper and other short-term borrowings (265,496) (54,953) - - (320,449) Net change in loans to discontinued operations - (39,556) - - (39,556) Other 46,777 (30,112) (16,850) (30,888) (31,073) ----------------------------------------------------------------- Net cash flows from (used for) financing activities (88,397) 242,770 (93,749) 109,901 170,525 ----------------------------------------------------------------- Cash flows used for investing activities: Construction and acquisition expenditures: Regulated domestic utilities - - (340,789) - (340,789) Non-regulated businesses - (332,253) - - (332,253) Corporate Services - - (40,019) - (40,019) Proceeds from formation of ATC and other asset dispositions - 32,117 75,817 - 107,934 Other (61,355) 2,922 (54,015) 61,313 (51,135) ----------------------------------------------------------------- Net cash flows used for investing activities (61,355) (297,214) (359,006) 61,313 (656,262) ----------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments 5,807 (64,534) 1,040 (1,939) (59,626) ----------------------------------------------------------------- Cash and temporary cash investments at beginning of period 574 125,285 2,167 - 128,026 ----------------------------------------------------------------- Cash and temporary cash investments at end of period $6,381 $60,751 $3,207 ($1,939) $68,400 ================================================================= Supplemental cash flows information: Cash paid (refunded) during the period for: Interest $12,461 $60,772 $107,123 $- $180,356 ================================================================= Income taxes, net of refunds ($10,258) ($32,015) $113,168 $- $70,895 ================================================================= Noncash investing and financing activities: Capital lease obligations incurred and other $- $- $19,967 $- $19,967 ================================================================= Year Ended December 31, 2000 - ---------------------------- Net cash flows from (used for) operating activities $391,284 ($23,712) $427,241 ($401,723) $393,090 ----------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends (157,964) - (80,340) 80,340 (157,964) Proceeds from issuance of common stock 1,069 - - - 1,069 Net change in Resources' credit facility - 181,652 - - 181,652 Proceeds from issuance of exchangeable senior notes - 402,500 - - 402,500 Proceeds from issuance of other long-term debt - 7,747 100,000 - 107,747 Reductions in other long-term debt - (501) (53,071) - (53,572) Net change in commercial paper and other short-term borrowings 48,060 99,217 - - 147,277 Net change in loans to discontinued operations - (87,112) - - (87,112) Other 3,385 (13,962) (23,212) 5,255 (28,534) ----------------------------------------------------------------- Net cash flows from (used for) financing activities (105,450) 589,541 (56,623) 85,595 513,063 ----------------------------------------------------------------- Cash flows used for investing activities: Construction and acquisition expenditures: Regulated domestic utilities - - (304,656) - (304,656) Non-regulated businesses - (529,675) - - (529,675) Corporate Services and other - - (11,123) - (11,123) Proceeds from dispositions of assets 2,281 25,273 3,336 - 30,890 Other (316,188) 8,834 (63,463) 316,128 (54,689) ----------------------------------------------------------------- Net cash flows used for investing activities (313,907) (495,568) (375,906) 316,128 (869,253) ----------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments (28,073) 70,261 (5,288) - 36,900 ----------------------------------------------------------------- Cash and temporary cash investments at beginning of period 28,647 55,024 7,455 - 91,126 ----------------------------------------------------------------- Cash and temporary cash investments at end of period $574 $125,285 $2,167 $- $128,026 ================================================================= Supplemental cash flows information: Cash paid (refunded) during the period for: Interest $17,220 $44,135 $97,495 $- $158,850 ================================================================= Income taxes, net of refunds ($2,350) ($20,560) $140,136 $- $117,226 ================================================================= Noncash investing and financing activities: Capital lease obligations incurred and other $- $- $20,419 $- $20,419 =================================================================
93 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareowners of Interstate Power and Light Company: We have audited the accompanying consolidated balance sheets and statements of capitalization of Interstate Power and Light Company and subsidiaries (the "Company") as of December 31, 2002 and 2001, and related consolidated statements of income, cash flows and changes in common equity for each of the three years in the period ended December 31, 2002. Our audit also included the supplemental schedule listed in Item 15(a)(2). These financial statements and the supplemental schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the supplemental schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such supplemental schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP - ------------------------- Milwaukee, Wisconsin March 18, 2003 94
INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------- (in thousands) Operating revenues: Electric utility $964,854 $1,003,106 $955,845 Gas utility 214,895 281,014 249,796 Steam 31,859 32,130 28,366 ----------------- ----------------- ----------------- 1,211,608 1,316,250 1,234,007 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Operating expenses: Electric and steam production fuels 171,133 189,967 175,413 Purchased power 145,292 185,860 147,879 Cost of gas sold 138,875 207,088 171,603 Other operation and maintenance 339,214 322,644 308,434 Depreciation and amortization 146,137 148,494 143,471 Taxes other than income taxes 64,846 62,783 62,592 ----------------- ----------------- ----------------- 1,005,497 1,116,836 1,009,392 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Operating income 206,111 199,414 224,615 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 67,458 68,149 67,234 Allowance for funds used during construction (5,057) (6,391) (3,396) Miscellaneous, net (9,461) (13,377) (7,370) ----------------- ----------------- ----------------- 52,940 48,381 56,468 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Income before income taxes 153,171 151,033 168,147 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Income taxes 62,294 52,967 65,020 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Net income 90,877 98,066 103,127 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Preferred dividend requirements 2,862 3,410 3,403 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Earnings available for common stock $88,015 $94,656 $99,724 ================= ================= ================= - ----------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
95
INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS December 31, ASSETS 2002 2001 - ---------------------------------------------------------------------------------------------------------------- (in thousands) Property, plant and equipment: Electric plant in service $3,451,547 $3,344,188 Gas plant in service 326,470 316,613 Steam plant in service 59,737 59,452 Other plant in service 195,328 182,868 Accumulated depreciation (2,163,371) (2,046,756) ----------------- ----------------- Net plant 1,869,711 1,856,365 Construction work in progress 166,350 73,241 Other, net 50,529 44,110 ----------------- ----------------- 2,086,590 1,973,716 ----------------- ----------------- - ---------------------------------------------------------------------------------------------------------------- Current assets: Cash and temporary cash investments 6,076 87 Accounts receivable: Customer, less allowance for doubtful accounts of $894 and $1,564 42,647 19,950 Associated companies 79,105 4,718 Other, less allowance for doubtful accounts of $388 and $319 27,898 25,497 Production fuel, at average cost 36,852 32,083 Materials and supplies, at average cost 28,821 29,121 Gas stored underground, at average cost 19,450 18,447 Regulatory assets 18,077 14,469 Prepayments and other 13,941 9,498 ----------------- ----------------- 272,867 153,870 ----------------- ----------------- - ---------------------------------------------------------------------------------------------------------------- Investments: Nuclear decommissioning trust funds 121,158 117,159 Other 13,492 15,157 ----------------- ----------------- 134,650 132,316 ----------------- ----------------- - ---------------------------------------------------------------------------------------------------------------- Other assets: Regulatory assets 199,691 132,109 Deferred charges and other 44,608 34,303 ----------------- ----------------- 244,299 166,412 ----------------- ----------------- - ---------------------------------------------------------------------------------------------------------------- Total assets $2,738,406 $2,426,314 ================= ================= - ---------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
96
INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS (Continued) December 31, CAPITALIZATION AND LIABILITIES 2002 2001 - -------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock - $2.50 par value - authorized 24,000,000 shares; 13,370,788 shares outstanding $33,427 $33,427 Additional paid-in capital 477,701 422,461 Retained earnings 374,428 368,203 Accumulated other comprehensive loss (18,887) (2,131) ------------------ ----------------- Total common equity 866,669 821,960 ------------------ ----------------- Cumulative preferred stock, not mandatorily redeemable 145,100 29,139 Cumulative preferred stock, mandatorily redeemable - 24,850 Long-term debt (excluding current portion) 855,389 860,068 ------------------ ----------------- 1,867,158 1,736,017 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities and sinking funds 5,080 560 Notes payable to associated companies - 38,047 Accounts payable 83,126 49,574 Accounts payable to associated companies 41,537 21,194 Accrued interest 14,628 14,715 Accrued taxes 62,135 70,747 Accumulated refueling outage provision 13,845 5,614 Other 40,946 46,102 ------------------ ----------------- 261,297 246,553 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 313,308 268,010 Accumulated deferred investment tax credits 31,135 34,491 Pension and other benefit obligations 88,449 40,573 Regulatory liabilities 78,995 8,520 Environmental liabilities 39,849 38,206 Other 58,215 53,944 ------------------ ----------------- 609,951 443,744 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 11) - -------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $2,738,406 $2,426,314 ================== ================= - -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
97
INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $90,877 $98,066 $103,127 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 146,137 148,494 143,471 Amortization of leased nuclear fuel 14,781 12,702 13,867 Amortization of deferred energy efficiency expenditures 3,956 17,032 25,610 Deferred tax benefits and investment tax credits 18,735 (15,155) (14,486) Refueling outage provision 8,232 (3,628) 7,787 Other 641 93 1,468 Other changes in assets and liabilities: Accounts receivable (99,485) 78,640 (57,532) Accounts payable 30,510 (36,958) 49,111 Accrued taxes (8,612) 8,744 3,096 Adjustment clause balances (7,881) 25,962 (10,252) Manufactured gas plants insurance refunds - (21,541) - Other 52,539 (6,503) 2,297 --------------- --------------- --------------- Net cash flows from operating activities 250,430 305,948 267,564 --------------- --------------- --------------- - --------------------------------------------------------------------------------------------------------------------- Cash flows from (used for) financing activities: Common stock dividends (81,790) (80,340) (80,339) Preferred stock dividends (2,862) (3,410) (3,403) Capital contribution from parent 60,000 - - Redemption of preferred stock (56,389) - - Proceeds from issuance of preferred stock 144,602 - - Proceeds from issuance of long-term debt - 200,000 - Reductions in long-term debt (560) (89,110) (51,196) Net change in short-term borrowings (38,047) (131,266) 73,169 Principal payments under capital lease obligations (14,328) (9,122) (15,813) Other (4,340) 11,162 (134) --------------- --------------- --------------- Net cash flows from (used for) financing activities 6,286 (102,086) (77,716) --------------- --------------- --------------- - --------------------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Utility construction expenditures (247,815) (193,757) (171,753) Nuclear decommissioning trust funds (6,831) (6,008) (6,008) Other 3,919 (4,073) (12,101) --------------- --------------- --------------- Net cash flows used for investing activities (250,727) (203,838) (189,862) --------------- --------------- --------------- - --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments 5,989 24 (14) --------------- --------------- --------------- - --------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 87 63 77 --------------- --------------- --------------- - --------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $6,076 $87 $63 =============== =============== =============== - --------------------------------------------------------------------------------------------------------------------- Supplemental cash flows information: Cash paid during the period for: Interest $64,430 $63,886 $57,040 =============== =============== =============== Income taxes, net of refunds $39,024 $61,134 $82,254 =============== =============== =============== Noncash investing and financing activities: Capital lease obligations incurred and other $19,101 $19,967 $20,419 =============== =============== =============== - --------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
98
INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 2002 2001 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity $866,669 $821,960 ------------------- -------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock: Par/Stated Authorized Shares Mandatory Value Shares Outstanding Series Redemption ----- ------ ----------- ------ ---------- $25 16,000,000 6,000,000 8.375% No 150,000 - $50 * 100,000 6.10% No - 5,000 $50 * 146,406 4.80% No - 7,320 $50 * 120,000 4.30% No - 6,000 $50 ** 216,381 4.36% - 7.76% No - 10,819 $50 ** 545,000 6.40% $50 / share - 27,250 ------------------- -------------------- 150,000 56,389 Less: Unamortized expenses (4,900) (2,400) ------------------- -------------------- 145,100 53,989 ------------------- -------------------- * 466,406 authorized shares in total, fully retired in 2002. ** 2,000,000 authorized shares in total, fully retired in 2002. - ---------------------------------------------------------------------------------------------------------------------------------- Long-term debt: Collateral Trust Bonds: 7.25% series, due 2006 60,000 60,000 6-7/8% series, due 2007 55,000 55,000 6% series, due 2008 50,000 50,000 7% series, due 2023 50,000 50,000 5.5% series, due 2023 19,400 19,400 ------------------- -------------------- 234,400 234,400 First Mortgage Bonds: 7-1/4% series, due 2007 27,450 27,450 8% series, due 2007 25,000 25,000 8-5/8% series, due 2021 20,000 20,000 7-5/8% series, due 2023 94,000 94,000 ------------------- -------------------- 166,450 166,450 Pollution Control Revenue Bonds: 5.75%, due 2003, partially retired in 2002 2,680 3,240 6.25%, due 2009 1,000 1,000 6.30%, due 2010 5,600 5,600 6.35%, due 2012 5,650 5,650 Variable rate (2.8% at December 31, 2002), due 2003 to 2010 10,100 10,100 Variable/fixed rate series 1998 (4.25% to 4.30% through 2003), due 2005 to 2023 14,950 14,950 Variable/fixed rate series 1999 (4.05% to 4.20% through 2004), due 2010 to 2013 10,950 10,950 ------------------- -------------------- 50,930 51,490 Senior debentures, 6-5/8% to 6-3/4%, due 2009 to 2011 335,000 335,000 Subordinated deferrable interest debentures, 7-7/8%, due 2025 50,000 50,000 Other, 5.34% at December 31, 2002, due 2006 28,000 28,000 ------------------- -------------------- 864,780 865,340 ------------------- -------------------- Less: Current maturities (5,080) (560) Unamortized debt discount, net (4,311) (4,712) ------------------- -------------------- 855,389 860,068 ------------------- -------------------- - ---------------------------------------------------------------------------------------------------------------------------------- Total capitalization $1,867,158 $1,736,017 =================== ==================== - ---------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
99
INTERSTATE POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY Accumulated Additional Other Total Common Paid-In Retained Comprehensive Common Stock Capital Earnings Loss Equity - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) 2000: Beginning balance $33,427 $422,011 $334,502 $- $789,940 Earnings available for common stock 99,724 99,724 Unrealized holding gains on derivatives due to cumulative effect of a change in accounting principle, net of tax of $38 54 54 Other unrealized holding gains on derivatives, net of tax of $151 212 212 Less: reclassification adjustment for gains included in earnings available for common stock, net of tax of $201 284 284 ------------ ------------- Net unrealized losses on qualifying derivatives (18) (18) ------------ ------------- Total comprehensive income 99,706 Common stock dividends (80,339) (80,339) Amortization of preferred stock issuance costs and other (58) (58) ------------ ------------ ------------- ------------ ------------- Ending balance 33,427 421,953 353,887 (18) 809,249 2001: Earnings available for common stock 94,656 94,656 Reclassification adjustment for losses included in earnings available for common stock related to derivatives qualified as hedges, net of tax of ($12) 18 18 Minimum pension liability adjustment, net of tax of ($1,469) (2,131) (2,131) ------------- Total comprehensive income 92,543 Common stock dividends (80,340) (80,340) Amortization of preferred stock issuance costs and other 508 508 ------------ ------------ ------------- ------------ ------------- Ending balance 33,427 422,461 368,203 (2,131) 821,960 2002: Earnings available for common stock 88,015 88,015 Minimum pension liability adjustment, net of tax of ($11,844) (16,756) (16,756) ------------- Total comprehensive income 71,259 Common stock dividends (81,790) (81,790) Amortization of preferred stock issuance costs and other (548) (548) Capital contribution from parent 60,000 60,000 Redemption of preferred stock (4,212) (4,212) ------------ ------------ ------------- ------------ ------------- Ending balance $33,427 $477,701 $374,428 ($18,887) $866,669 ============ ============ ============= ============ ============= - ----------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
100 INTERSTATE POWER AND LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Except as modified below, the Alliant Energy "Notes to Consolidated Financial Statements" are incorporated by reference insofar as they relate to IP&L and incorporate the disclosures relating to IP&L contained in the following notes of the Alliant Energy "Notes to Consolidated Financial Statements":
Summary of Significant Accounting Policies Note 1(a) 3rd and 4th paragraphs, 1(b), 1(c), 1(d), 1(f) to 1(l), 1(n), 1(p), 1(q) Utility Rate Matters Note 2 Leases Note 3 Utility Accounts Receivable Note 4 Common and Preferred Stock Note 7 Debt Note 8(a) 1st paragraph, 8(b) 1st and 2nd paragraphs Investments Note 9 1st paragraph Derivative Financial Instruments Note 10(a) 1st paragraph, "Cash Flow Hedging Instruments" 1st paragraph, "Other Derivatives Not Designated in Hedge Relationships" 4th paragraph; 10(b) Commitments and Contingencies Note 11(b) 1st paragraph, 11(c), 11(e) "MGP Sites" and "NEPA," 11(f) Jointly-Owned Electric Utility Plant Note 12
The notes that follow herein set forth additional specific information for IP&L and are numbered to be consistent with the Alliant Energy "Notes to Consolidated Financial Statements." (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) General - The consolidated financial statements include the accounts of IP&L and its consolidated subsidiaries. IP&L is a direct subsidiary of Alliant Energy and is engaged principally in the generation, transmission, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of steam services in Iowa, Minnesota and Illinois. The merger of IPC with and into IESU was approved by their respective shareowners in April 2001 and by the SEC in October 2001. The merger was effective Jan. 1, 2002 and IESU changed its name to IP&L. Each share of IPC common stock outstanding was cancelled without payment and each share of IPC preferred stock outstanding was cancelled and converted into the right to receive one share of a new class of IESU Class A preferred stock with substantially identical designations, rights and preferences as the previously outstanding IPC preferred stock. IPC and IESU were both wholly-owned operating subsidiaries of Alliant Energy. As such, the transaction was accounted for as a common control merger. The consolidated financial statements and notes to consolidated financial statements illustrate the impact of the merger as if it had occurred as of Jan. 1, 2000. (c) Regulatory Assets and Liabilities - At Dec. 31, 2002 and 2001, regulatory assets and liabilities were comprised of the following items (in millions):
Regulatory Assets Regulatory Liabilities ----------------------- ----------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ----------- Tax-related $152.6 $86.3 $69.2 $-- Environmental-related 45.9 44.4 4.5 4.7 Energy efficiency program costs 8.1 6.0 -- -- Other 11.2 9.9 5.3 3.8 ---------- ---------- ---------- ----------- $217.8 $146.6 $79.0 $8.5 ========== ========== ========== ===========
(d) Income Taxes - Alliant Energy files a consolidated federal income tax return. Under the terms of an agreement between Alliant Energy and its subsidiaries, the subsidiaries calculate their respective federal income tax provisions and make payments to or receive payments from Alliant Energy as if they were separate taxable entities. 101 (3) LEASES IP&L's operating lease rental expenses for 2002, 2001 and 2000 were $12.4 million, $11.7 million and $11.6 million, respectively. The synthetic leases relate to the financing of the utility railcars that were not included on IP&L's Consolidated Balance Sheets. IP&L has guaranteed the residual value of its synthetic leases totaling $6.8 million in the aggregate. The guarantees extend through the maturity of each respective underlying lease with remaining terms up to seven years. Residual value guarantees have been included in the future minimum lease payments noted in the table below (in millions):
Present Less: value of amount net minimum representing capital lease 2003 2004 2005 2006 2007 Thereafter Total interest payments ------- -------- ------- -------- -------- ----------- --------- -------------- ------------- Operating leases $8.9 $6.5 $4.5 $3.0 $2.4 $30.1 $55.4 n/a n/a Synthetic leases 0.4 0.5 5.1 0.3 0.3 2.7 9.3 n/a n/a Capital leases 15.1 15.8 9.8 35.5 1.7 1.2 79.1 $9.3 $69.8
(4) UTILITY ACCOUNTS RECEIVABLE At Dec. 31, 2002 and 2001, IP&L had sold $86 million and $90 million of receivables, respectively. In 2002, 2001 and 2000, IP&L received $1.1 billion, $1.1 billion and $0.7 billion, respectively, in aggregate proceeds from the sale of accounts receivable. IP&L paid fees associated with these sales of $2.0 million, $3.9 million and $4.0 million in 2002, 2001 and 2000, respectively. (5) INCOME TAXES The components of income taxes for IP&L were as follows (in millions):
2002 2001 2000 -------------- ------------- -------------- Current tax expense: Federal $28.2 $57.3 $63.3 State 17.8 11.0 16.4 Deferred tax expense (benefit): Federal 22.8 (9.7) (9.0) State (0.7) (2.1) (2.9) Research and development tax credits (2.2) -- -- Amortization of investment tax credits and other (3.6) (3.5) (2.8) -------------- ------------- -------------- $62.3 $53.0 $65.0 ============== ============= ==============
The overall effective income tax rates shown in the following table were computed by dividing total income tax expense by income before income taxes.
2002 2001 2000 ------------- ------------- -------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 7.0 4.5 5.4 Effect of rate making on property related differences 1.3 3.9 3.8 Adjustment of prior period taxes 0.8 (5.5) (2.8) Amortization of investment tax credits (2.2) (2.5) (2.3) Other items, net (1.2) (0.3) (0.4) ------------- ------------- -------------- Overall effective income tax rate 40.7% 35.1% 38.7% ============= ============= ==============
102 The accumulated deferred income tax (assets) and liabilities included on the Consolidated Balance Sheets at Dec. 31 arise from the following temporary differences (in millions): 2002 2001 ------------- ------------- Property related $418.9 $327.8 Other (105.6) (59.8) ------------- ------------- $313.3 $268.0 ============= ============= (6) BENEFIT PLANS (a) Pension Plans and Other Postretirement Benefits - Substantially all of IP&L's employees are covered by three non-contributory defined benefit pension plans. For the defined benefit pension plan sponsored by Corporate Services, Alliant Energy allocates pension costs and contributions to IP&L based on labor costs of plan participants and any additional minimum pension liability based on each group's funded status. The weighted-average assumptions at the measurement date of Sept. 30 were as follows:
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------ --------------------------------------- 2002 2001 2000 2002 2001 2000 ----------- ------------------------ ----------- ----------- --------------- Discount rate 6.75% 7.25% 8.00% 6.75% 7.25% 8.00% Expected return on plan assets 9% 9% 9% 9% 9% 9% Rate of compensation increase 3.5% 3.5% 3.5% N/A N/A N/A Medical cost trend on covered charges: Initial trend rate N/A N/A N/A 10.8% 12.0% 9.0% Ultimate trend rate N/A N/A N/A 5% 5% 5%
The components of IP&L's qualified pension benefits and other postretirement benefits costs were as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------- ---------------------------------- 2002 2001 2000 2002 2001 2000 --------- ----------- --------- -------- --------- --------- Service cost $4.2 $3.4 $3.5 $1.8 $1.5 $1.6 Interest cost 11.3 10.6 10.1 7.7 6.7 6.3 Expected return on plan assets (12.8) (14.4) (13.7) (4.0) (4.5) (3.8) Amortization of: Transition obligation (asset) (0.1) -- -- 2.6 2.6 2.8 Prior service cost 1.3 1.3 1.2 (0.2) (0.2) (0.3) Actuarial loss (gain) 0.3 (1.2) (1.0) 0.3 (0.9) (1.1) --------- ----------- --------- -------- --------- --------- $4.2 ($0.3) $0.1 $8.2 $5.2 $5.5 ========= =========== ========= ======== ========= =========
The pension benefit cost shown above (and in the following tables) represents only the pension benefit cost for bargaining unit employees of IP&L covered under the bargaining unit pension plans that are sponsored by IP&L. The benefit obligations and assets associated with IP&L's non-bargaining employees who are participants in other Alliant Energy plans are reported in Alliant Energy's consolidated financial statements and are not reported above. The pension benefit cost for IP&L's non-bargaining employees who are now participants in other Alliant Energy plans was $2.7 million, $1.2 million and $1.9 million for 2002, 2001 and 2000, respectively. In addition, Corporate Services provides services to IP&L. The allocated pension benefit costs associated with these services was $2.7 million, $2.1 million and $1.9 million for 2002, 2001 and 2000, respectively. The other postretirement benefit cost shown above for each period (and in the following tables) represents the other postretirement benefit cost for all IP&L employees. The allocated other postretirement benefit cost associated with Corporate Services for IP&L was $0.9 million, $0.5 million and $0.4 million for 2002, 2001 and 2000, respectively. 103 The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A 1% change in the medical trend rates for 2002, holding all other assumptions constant, would have the following effects (in millions):
1% Increase 1% Decrease ---------------- ---------------- Effect on total of service and interest cost components $1.1 ($0.9) Effect on postretirement benefit obligation $13.1 ($11.5)
A reconciliation of the funded status of IP&L's plans to the amounts recognized on IP&L's Consolidated Balance Sheets at Dec. 31 was as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ----------------------------- ------------------------------- 2002 2001 2002 2001 ------------ ------------ ------------- ------------- Change in benefit obligation: Net benefit obligation at beginning of year $154.9 $132.8 $107.6 $85.2 Service cost 4.2 3.4 1.8 1.5 Interest cost 11.3 10.6 7.7 6.7 Plan participants' contributions -- -- 0.3 0.3 Plan amendments 1.1 -- -- -- Actuarial loss 16.3 15.2 17.6 22.0 Gross benefits paid (7.1) (7.1) (6.8) (8.1) ------------ ------------ ------------- ------------- Net benefit obligation at end of year 180.7 154.9 128.2 107.6 ------------ ------------ ------------- ------------- Change in plan assets: Fair value of plan assets at beginning of year 145.3 163.1 56.0 63.7 Actual return on plan assets (6.5) (10.7) (5.7) (6.5) Employer contributions -- -- 6.8 6.6 Plan participants' contributions -- -- 0.3 0.3 Gross benefits paid (7.1) (7.1) (6.8) (8.1) ------------ ------------ ------------- ------------- Fair value of plan assets at end of year 131.7 145.3 50.6 56.0 ------------ ------------ ------------- ------------- Funded status at end of year (49.0) (9.6) (77.6) (51.6) Unrecognized net actuarial loss 43.8 8.5 38.3 11.5 Unrecognized prior service cost 11.0 11.2 (0.4) (0.7) Unrecognized net transition obligation (asset) (0.7) (0.8) 26.0 28.5 ------------ ------------ ------------- ------------- Net amount recognized at end of year $5.1 $9.3 ($13.7) ($12.3) ============ ============ ============= ============= Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $5.9 $9.3 $0.8 $0.8 Accrued benefit cost (0.8) -- (14.5) (13.1) Additional minimum liability (24.1) (2.6) -- -- Intangible asset 11.0 2.3 -- -- Accumulated other comprehensive loss 13.1 0.3 -- -- ------------ ------------ ------------- ------------- Net amount recognized at measurement date 5.1 9.3 (13.7) (12.3) ------------ ------------ ------------- ------------- Contributions paid after 9/30 and prior to 12/31 -- -- 2.9 1.5 ------------ ------------ ------------- ------------- Net amount recognized at 12/31 $5.1 $9.3 ($10.8) ($10.8) ============ ============ ============= =============
The projected benefit obligation, accumulated benefit obligation, and fair value of assets for pension plans with the accumulated benefit obligation in excess of plan assets are $180.7 million, $150.7 million and $131.7 million, respectively, as of Sept. 30, 2002 and $37.3 million, $30.4 million and $29.1 million, respectively, as of Sept. 30, 2001. In addition to the additional minimum liability in the table above, Corporate Services allocated an additional minimum liability at Dec. 31, 2002 and 2001 of $24.0 million and $0, respectively. 104 Alliant Energy sponsors several non-qualified pension plans that cover certain current and former key employees. The pension expense allocated to IP&L for these plans was $2.7 million, $2.1 million and $2.3 million in 2002, 2001 and 2000, respectively. IP&L has various life insurance policies that cover certain key employees and directors. At both Dec. 31, 2002 and 2001, the cash surrender value of these investments was $9 million. A significant number of IP&L employees also participate in defined contribution pension plans (401(k) and Employee Stock Ownership plans). IP&L's contributions to the plans, which are based on the participants' level of contribution, were $2.0 million, $2.3 million and $2.5 million in 2002, 2001 and 2000, respectively. (7) COMMON AND PREFERRED STOCK (b) Preferred Stock - The carrying value of IP&L's cumulative preferred stock at Dec. 31, 2002 and 2001 was $145 million and $54 million, respectively. The fair market value, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2002 and 2001 was $150 million and $50 million, respectively. (8) DEBT (a) Short-Term Debt - Information regarding IP&L's short-term debt was as follows (dollars in millions):
2002 2001 ------------- -------------- At Dec. 31: Money pool borrowings $-- $38.0 Interest rates on money pool borrowings N/A 2.4% For the year ended: Average amount of short-term debt (based on daily outstanding balances) $35.2 $31.2 Average interest rates on short-term debt 2.6% 5.9%
(b) Long-Term Debt - IP&L's debt maturities for 2003 to 2007 are $5.1 million, $0, $2.7 million, $60.0 million and $107.5 million, respectively. The carrying value of IP&L's long-term debt (including current maturities) at Dec. 31, 2002 and 2001 was $860 million and $861 million, respectively. The fair market value, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2002 and 2001 was $920 million and $872 million, respectively. (9) INVESTMENTS AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS Information relating to various investments held by IP&L at Dec. 31 that are marked-to-market as a result of SFAS 115 was as follows (in millions):
2002 2001 --------------------------- -------------------------- Carrying/ Unrealized Carrying/ Unrealized Fair Gains, Fair Gains, Value Net of Tax Value Net of Tax ------------ -------------- ------------ ------------- Available-for-sale securities: Nuclear decommissioning trust funds: Debt securities $75 $4 $69 $1 Equity securities 46 8 48 19 ------------ -------------- ------------ ------------- Total $121 $12 $117 $20 ============ ============== ============ =============
Nuclear Decommissioning Trust Funds - At Dec. 31, 2002, $39 million, $19 million and $17 million of the debt securities mature in 2003-2010, 2011-2020 and 2021-2035, respectively. The funds realized gains/(losses) from the sales of securities of $0.1 million, ($0.1) million and ($0.2) million in 2002, 2001 and 2000, respectively (cost of the investments based on specific identification was $18.9 million, $22.4 million and $11.3 million and proceeds from the sales were $19.0 million, $22.3 million and $11.1 million, respectively). 105 (11) COMMITMENTS AND CONTINGENCIES (a) Construction and Acquisition Expenditures - Certain commitments have been made in connection with 2003 capital expenditures. During 2003, total construction and acquisition expenditures are estimated to be approximately $450 million. (b) Purchased-Power, Coal and Natural Gas Contracts - Based on the System Coordination and Operating Agreement, Alliant Energy annually allocates purchased-power contracts to IP&L and WP&L. Such process considers factors such as resource mix, load growth and resource availability. However, for 2003, system-wide purchased-power contracts of $45.1 million (1.6 million MWh) have not yet been directly assigned to IP&L and WP&L since the specific needs of each utility is not yet known. Refer to Note 18 for additional information. Coal contract quantities are directly assigned to specific plants at IP&L and WP&L based on various factors including projected heat input requirements, combustion compatibility and efficiency. However, for 2003-2006, system-wide coal contracts of $56.1 million (7.8 million tons), $37.5 million (7.6 million tons), $28.0 million (4.7 million tons) and $8.2 million (0.9 million tons), respectively, have not yet been directly assigned to IP&L and WP&L since the specific needs of each utility is not yet known. At Dec. 31, 2002, IP&L's minimum commitments were as follows (dollars and Dths in millions; MWhs and tons in thousands):
Purchased-power Coal Natural gas ---------------------- ------------------------ ------------------------- Dollars MWhs Dollars Tons Dollars Dths --------- --------- ---------- ---------- ----------- ---------- 2003 $38.1 937 $18.0 2,078 $42.5 4 2004 7.5 142 13.1 1,714 4.2 -- 2005 2.0 -- 10.9 1,386 1.0 -- 2006 2.0 -- 3.2 -- 0.9 -- 2007 0.1 -- 2.3 -- 1.4 -- Thereafter 0.4 -- -- -- -- --
(e) Environmental Liabilities - IP&L had recorded the following environmental liabilities, and regulatory assets associated with certain of these liabilities, at Dec. 31 (in millions):
Environmental Liabilities Regulatory Assets ------------------------------- ----------------------------- 2002 2001 2002 2001 ------------- ------------- ------------ ------------ MGP sites $42.4 $39.5 $41.1 $38.5 NEPA 4.1 5.1 4.8 5.7 Other 0.1 0.3 -- 0.2 ------------- ------------- ------------ ------------ $46.6 $44.9 $45.9 $44.4 ============= ============= ============ ============
MGP Sites - Management currently estimates the range of remaining costs to be - --------- incurred for the investigation, remediation and monitoring of all IP&L's sites to be approximately $31 million to $57 million. 106 (13) SEGMENTS OF BUSINESS IP&L is a regulated domestic utility, serving customers in Iowa, Minnesota and Illinois, and includes three segments: a) electric operations; b) gas operations; and c) other, which includes the steam business and the unallocated portions of the utility business. Various line items in the following tables are not allocated to the electric and gas segments for management reporting purposes and therefore are included in "Total." Intersegment revenues were not material to IP&L's operations and there was no single customer whose revenues were 10% or more of IP&L's consolidated revenues. Certain financial information relating to IP&L's significant business segments was as follows (in millions):
Electric Gas Other Total - ------------------------------------------------------------------------------------------------------------------------------ 2002 - ---- Operating revenues $964.9 $214.9 $31.8 $1,211.6 Depreciation and amortization 133.3 10.2 2.6 146.1 Operating income 185.1 14.1 6.9 206.1 Interest expense, net of AFUDC 62.4 Miscellaneous, net (9.5) Income tax expense 62.3 Net income 90.9 Preferred dividends 2.9 Earnings available for common stock 88.0 Total assets 2,186.6 315.4 236.4 2,738.4 Construction and acquisition expenditures 226.8 17.9 3.1 247.8 - ------------------------------------------------------------------------------------------------------------------------------ 2001 - ---- Operating revenues $1,003.1 $281.0 $32.2 $1,316.3 Depreciation and amortization 134.1 12.4 2.0 148.5 Operating income 184.5 8.7 6.2 199.4 Interest expense, net of AFUDC 61.7 Miscellaneous, net (13.4) Income tax expense 53.0 Net income 98.1 Preferred dividends 3.4 Earnings available for common stock 94.7 Total assets 2,010.1 280.7 135.5 2,426.3 Construction and acquisition expenditures 170.8 20.1 2.9 193.8 - ------------------------------------------------------------------------------------------------------------------------------ 2000 - ---- Operating revenues $955.8 $249.8 $28.4 $1,234.0 Depreciation and amortization 129.7 11.8 2.0 143.5 Operating income 207.4 14.4 2.8 224.6 Interest expense, net of AFUDC 63.8 Miscellaneous, net (7.3) Income tax expense 65.0 Net income 103.1 Preferred dividends 3.4 Earnings available for common stock 99.7 Total assets 2,055.6 328.3 140.9 2,524.8 Construction and acquisition expenditures 150.4 20.6 0.8 171.8
107 (15) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) Summation of the individual quarters may not equal annual totals due to rounding.
2002 2001 ---------------------------------------- --------------------------------------- March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 ---------- --------- --------- --------- ---------- --------- -------- --------- (in millions) Operating revenues $278.8 $269.3 $351.5 $312.0 $395.4 $303.4 $343.5 $274.0 Operating income 38.2 34.2 96.6 37.2 40.0 32.8 92.9 33.7 Net income 12.9 15.8 45.0 17.2 15.7 12.2 51.3 18.9 Earnings available for common stock 12.0 14.9 44.3 16.8 14.8 11.3 50.5 18.1
(18) RELATED PARTIES IP&L and WP&L have entered into a System Coordination and Operating Agreement. The agreement, which has been approved by FERC, provides a contractual basis for coordinated planning, construction, operation and maintenance of the interconnected electric generation and transmission systems of IP&L and WP&L. In addition, the agreement allows the interconnected system to be operated as a single entity with off-system capacity sales and purchases made to market excess system capability or to meet system capability deficiencies. Such sales and purchases are allocated among IP&L and WP&L based on procedures included in the agreement. The sales amounts allocated to IP&L were $27.3 million, $40.6 million and $41.7 million for 2002, 2001 and 2000, respectively. The purchases allocated to IP&L were $138.8 million, $183.1 million and $134.7 million for 2002, 2001 and 2000, respectively. The procedures were approved by both FERC and all state regulatory bodies having jurisdiction over these sales. Under the agreement, IP&L and WP&L are fully reimbursed for any generation expense incurred to support the sale to an affiliate or to a non-affiliate. Any margins on sales to non-affiliates are distributed to IP&L and WP&L in proportion to each utility's share of electric production at the time of the sale. Pursuant to a service agreement approved by the SEC under PUHCA, IP&L receives various administrative and general services from an affiliate, Corporate Services. These services are billed to IP&L at cost based on payroll and other expenses incurred by Corporate Services for the benefit of IP&L. These costs totaled $182.1 million, $149.5 million and $146.8 million for 2002, 2001 and 2000, respectively, and consisted primarily of employee compensation, benefits and fees associated with various professional services. At Dec. 31, 2002 and 2001, IP&L had a net intercompany payable to Corporate Services of $39.1 million and $33.6 million, respectively. 108 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareowners of Wisconsin Power and Light Company: We have audited the accompanying consolidated balance sheets and statements of capitalization of Wisconsin Power and Light Company and subsidiaries (the "Company") as of December 31, 2002 and 2001, and related consolidated statements of income, cash flows and changes in common equity for each of the three years in the period ended December 31, 2002. Our audit also included the supplemental schedule listed in Item 15(a)(2). These financial statements and the supplemental schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the supplemental schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such supplemental schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP - ------------------------- Milwaukee, Wisconsin March 18, 2003 109
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------- (in thousands) Operating revenues: Electric utility $787,680 $753,450 $692,191 Gas utility 179,091 206,863 165,152 Water 5,307 5,040 5,038 ----------------- ----------------- ----------------- 972,078 965,353 862,381 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Operating expenses: Electric production fuels 132,492 120,722 113,208 Purchased power 217,209 217,306 146,939 Cost of gas sold 110,119 153,823 107,131 Other operation and maintenance 215,689 186,477 188,967 Depreciation and amortization 136,232 129,098 139,911 Taxes other than income taxes 32,874 32,504 29,163 ----------------- ----------------- ----------------- 844,615 839,930 725,319 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Operating income 127,463 125,423 137,062 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Interest expense and other: Interest expense 40,202 43,483 44,644 Interest income (21,590) (8,109) (13,143) Equity income from unconsolidated investments (17,022) (15,535) (552) Allowance for funds used during construction (2,639) (4,753) (5,365) Miscellaneous, net 2,864 (4,391) (2,841) ----------------- ----------------- ----------------- 1,815 10,695 22,743 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Income before income taxes 125,648 114,728 114,319 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Income taxes 44,724 41,238 42,918 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Income before cumulative effect of a change in accounting principle, net of tax 80,924 73,490 71,401 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Cumulative effect of a change in accounting principle, net of tax - - 35 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Net income 80,924 73,490 71,436 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Preferred dividend requirements 3,310 3,310 3,310 ----------------- ----------------- ----------------- - ----------------------------------------------------------------------------------------------------------------- Earnings available for common stock $77,614 $70,180 $68,126 ================= ================= ================= - ----------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
110
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS December 31, ASSETS 2002 2001 - ------------------------------------------------------------------------------------------------------------------ (in thousands) Property, plant and equipment: Electric plant in service $1,843,834 $1,779,593 Gas plant in service 286,652 280,881 Water plant in service 33,062 32,497 Other plant in service 242,329 243,121 Accumulated depreciation (1,410,036) (1,328,111) ----------------- ----------------- Net plant 995,841 1,007,981 Construction work in progress 96,746 37,828 Other, net 17,811 18,085 ----------------- ----------------- 1,110,398 1,063,894 ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------ Current assets: Cash and temporary cash investments 8,577 307 Accounts receivable: Customer, less allowance for doubtful accounts of $1,770 and $1,543 7,977 33,190 Associated companies 21,484 3,676 Other, less allowance for doubtful accounts of $458 and $- 18,191 16,571 Production fuel, at average cost 18,980 17,314 Materials and supplies, at average cost 22,133 20,669 Gas stored underground, at average cost 16,679 22,187 Regulatory assets 27,999 5,163 Prepaid gross receipts tax 27,388 25,673 Other 8,599 7,855 ----------------- ----------------- 178,007 152,605 ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------ Investments: Nuclear decommissioning trust funds 223,734 215,794 Investment in ATC and other 133,043 127,941 ----------------- ----------------- 356,777 343,735 ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------ Other assets: Regulatory assets 102,674 109,864 Deferred charges and other 236,741 205,702 ----------------- ----------------- 339,415 315,566 ----------------- ----------------- - ------------------------------------------------------------------------------------------------------------------ Total assets $1,984,597 $1,875,800 ================= ================= - ------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED BALANCE SHEETS (Continued) December 31, CAPITALIZATION AND LIABILITIES 2002 2001 - -------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock - $5 par value - authorized 18,000,000 shares; 13,236,601 shares outstanding $66,183 $66,183 Additional paid-in capital 325,603 264,603 Retained earnings 399,302 381,333 Accumulated other comprehensive loss (24,108) (10,167) ------------------ ----------------- Total common equity 766,980 701,952 ------------------ ----------------- Cumulative preferred stock 59,963 59,963 Long-term debt (excluding current portion) 468,208 468,083 ------------------ ----------------- 1,295,151 1,229,998 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Current liabilities: Variable rate demand bonds 55,100 55,100 Commercial paper 60,000 - Notes payable to associated companies - 90,816 Accounts payable 90,869 94,091 Accounts payable to associated companies 43,276 25,231 Accrued taxes 19,353 2,057 Regulatory liabilities 16,938 7,619 Other 29,064 25,543 ------------------ ----------------- 314,600 300,457 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Other long-term liabilities and deferred credits: Accumulated deferred income taxes 191,894 206,245 Accumulated deferred investment tax credits 23,241 24,907 Pension and other benefit obligations 58,921 18,175 Customer advances 36,555 34,178 Other 64,235 61,840 ------------------ ----------------- 374,846 345,345 ------------------ ----------------- - -------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 11) - -------------------------------------------------------------------------------------------------------------------- Total capitalization and liabilities $1,984,597 $1,875,800 ================== ================= - -------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
112
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $80,924 $73,490 $71,436 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 136,232 129,098 139,911 Amortization of nuclear fuel 6,486 4,554 5,066 Amortization of deferred energy efficiency expenditures 21,179 14,361 14,361 Deferred tax benefits and investment tax credits (5,562) (6,791) (12,077) Equity income from unconsolidated investments, net (17,022) (15,535) (552) Distributions from equity method investments 13,199 8,450 992 Other (22,160) (10,539) (15,451) Other changes in assets and liabilities: Accounts receivable 5,785 14,408 (29,733) Accounts payable (11,676) (20,549) 36,265 Accrued taxes 17,296 (1,225) (3,257) Other (931) (53,836) (32,901) ---------------- --------------- --------------- Net cash flows from operating activities 223,750 135,886 174,060 ---------------- --------------- --------------- - --------------------------------------------------------------------------------------------------------------------------- Cash flows used for financing activities: Common stock dividends (59,645) (60,449) - Preferred stock dividends (3,310) (3,310) (3,310) Capital contribution from parent 61,000 35,000 - Proceeds from issuance of long-term debt - - 100,000 Reductions in long-term debt - (47,000) (1,875) Net change in short-term borrowings (30,816) 61,572 (96,505) Other 5,086 (4,989) 2,677 ---------------- --------------- --------------- Net cash flows used for financing activities (27,685) (19,176) 987 ---------------- --------------- --------------- - --------------------------------------------------------------------------------------------------------------------------- Cash flows used for investing activities: Utility construction expenditures (156,921) (147,032) (131,640) Nuclear decommissioning trust funds (16,092) (16,092) (16,092) Proceeds from formation of ATC and other asset dispositions - 75,600 961 Other (14,782) (29,308) (28,109) ---------------- --------------- --------------- Net cash flows used for investing activities (187,795) (116,832) (174,880) ---------------- --------------- --------------- - --------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and temporary cash investments 8,270 (122) 167 ---------------- --------------- --------------- - --------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at beginning of period 307 429 262 ---------------- --------------- --------------- - --------------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of period $8,577 $307 $429 ================ =============== =============== - --------------------------------------------------------------------------------------------------------------------------- Supplemental cash flows information: Cash paid during the period for: Interest $39,540 $43,237 $40,455 ================ =============== =============== Income taxes, net of refunds $35,875 $54,161 $54,676 ================ =============== =============== - --------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
113
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 2002 2001 - ------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Common equity $766,980 $701,952 ------------------ ------------------ - ------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock: Cumulative, without par value, not mandatorily redeemable - authorized 3,750,000 shares, maximum aggregate stated value $150,000,000: $100 stated value - 4.50% series, 99,970 shares outstanding 9,997 9,997 $100 stated value - 4.80% series, 74,912 shares outstanding 7,491 7,491 $100 stated value - 4.96% series, 64,979 shares outstanding 6,498 6,498 $100 stated value - 4.40% series, 29,957 shares outstanding 2,996 2,996 $100 stated value - 4.76% series, 29,947 shares outstanding 2,995 2,995 $100 stated value - 6.20% series, 150,000 shares outstanding 15,000 15,000 $25 stated value - 6.50% series, 599,460 shares outstanding 14,986 14,986 ------------------ ------------------ 59,963 59,963 ------------------ ------------------ - ------------------------------------------------------------------------------------------------------------------------- Long-term debt: First Mortgage Bonds: 1984 Series A, variable rate (1.6% at December 31, 2002), due 2014 8,500 8,500 1988 Series A, variable rate (2.1% at December 31, 2002), due 2015 14,600 14,600 1991 Series A, variable rate (1.85% at December 31, 2002), due 2015 16,000 16,000 1991 Series B, variable rate (1.85% at December 31, 2002), due 2005 16,000 16,000 1992 Series W, 8.6%, due 2027 70,000 70,000 1992 Series X, 7.75%, due 2004 62,000 62,000 1992 Series Y, 7.6%, due 2005 72,000 72,000 ------------------ ------------------ 259,100 259,100 Debentures, 7%, due 2007 105,000 105,000 Debentures, 5.7%, due 2008 60,000 60,000 Debentures, 7-5/8%, due 2010 100,000 100,000 ------------------ ------------------ 524,100 524,100 ------------------ ------------------ Less: Variable rate demand bonds (55,100) (55,100) Unamortized debt discount, net (792) (917) ------------------ ------------------ 468,208 468,083 ------------------ ------------------ - ------------------------------------------------------------------------------------------------------------------------- Total capitalization $1,295,151 $1,229,998 ================== ================== - ------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
114
WISCONSIN POWER AND LIGHT COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY Accumulated Additional Other Total Common Paid-In Retained Comprehensive Common Stock Capital Earnings Loss Equity - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) 2000: Beginning balance $66,183 $229,438 $303,476 $-- $599,097 Earnings available for common stock 68,126 68,126 Unrealized holding losses on derivatives due to cumulative effect of a change in accounting principle, net of tax of ($430) (642) (642) Other unrealized holding losses on derivatives, net of tax of ($3,634) (5,151) (5,151) Less: reclassification adjustment for losses included in earnings available for common stock, net of tax of ($769) (1,085) (1,085) -------------- ----------- Net unrealized losses on qualifying derivatives (4,708) (4,708) -------------- ----------- Total comprehensive income 63,418 Stock options exercised 78 78 ----------- ----------- ------------ -------------- ----------- Ending balance 66,183 229,516 371,602 (4,708) 662,593 2001: Earnings available for common stock 70,180 70,180 Minimum pension liability adjustment, net of tax of ($9,552) (14,248) (14,248) Unrealized holding gains on derivatives, net of tax of $3,932 5,952 5,952 Less: reclassification adjustment for losses included in earnings available for common stock, net of tax of ($1,676) (2,837) (2,837) -------------- ----------- Net unrealized gains on qualifying derivatives 8,789 8,789 -------------- ----------- Total comprehensive income 64,721 Common stock dividends (60,449) (60,449) Stock options exercised 87 87 Capital contribution from parent 35,000 35,000 ----------- ----------- ------------ -------------- ----------- Ending balance 66,183 264,603 381,333 (10,167) 701,952 2002: Earnings available for common stock 77,614 77,614 Minimum pension liability adjustment, net of tax of ($6,823) (10,177) (10,177) Unrealized holding losses on derivatives, net of tax of ($92) (137) (137) Less: reclassification adjustment for gains included in earnings available for common stock, net of tax of $2,432 3,627 3,627 -------------- ----------- Net unrealized losses on qualifying derivatives (3,764) (3,764) -------------- ----------- Total comprehensive income 63,673 Common stock dividends (59,645) (59,645) Capital contribution from parent 61,000 61,000 ----------- ----------- ------------ -------------- ----------- Ending balance $66,183 $325,603 $399,302 ($24,108) $766,980 =========== =========== ============ ============== =========== - ------------------------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
115 WISCONSIN POWER AND LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Except as modified below, the Alliant Energy "Notes to Consolidated Financial Statements" are incorporated by reference insofar as they relate to WP&L and incorporate the disclosures relating to WP&L contained in the following notes of the Alliant Energy "Notes to Consolidated Financial Statements":
Summary of Significant Accounting Policies Note 1(a) 3rd and 4th paragraphs, 1(b), 1(c), 1(d), 1(f) to 1(l), 1(n), 1(p), 1(q) Utility Rate Matters Note 2 Leases Note 3 Utility Accounts Receivable Note 4 Common and Preferred Stock Note 7 Debt Note 8(a) 1st paragraph, 8(b) 1st paragraph Investments Note 9 1st paragraph, "Investment in ATC" Derivative Financial Instruments Note 10(a) 1st paragraph, "Cash Flow Hedging Instruments" 1st paragraph, "Other Derivatives Not Designated in Hedge Relationships" 4th paragraph; 10(b); 10(c) Commitments and Contingencies Note 11(b) 1st paragraph, 11(c), 11(e) "MGP Sites" and "NEPA," 11(f) Jointly-Owned Electric Utility Plant Note 12
The notes that follow herein set forth additional specific information for WP&L and are numbered to be consistent with the Alliant Energy "Notes to Consolidated Financial Statements." (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) General - The consolidated financial statements include the accounts of WP&L and its principal consolidated subsidiaries WPL Transco LLC and South Beloit. WP&L is a direct subsidiary of Alliant Energy and is engaged principally in the generation, distribution and sale of electric energy; the purchase, distribution, transportation and sale of natural gas; and the provision of water services. Nearly all of WP&L's retail customers are located in south and central Wisconsin. (c) Regulatory Assets and Liabilities - At Dec. 31, 2002 and 2001, regulatory assets and liabilities were comprised of the following items (in millions):
Regulatory Assets Regulatory Liabilities ---------------------- ----------------------- 2002 2001 2002 2001 ---------- ---------- ----------- ---------- Energy efficiency program costs $38.6 $33.9 $-- $-- Tax-related 25.0 29.0 14.6 15.1 Environmental-related 19.0 18.7 0.6 0.5 Other 48.1 33.4 17.0 7.6 ---------- ---------- ----------- ---------- $130.7 $115.0 $32.2 $23.2 ========== ========== =========== ==========
(d) Income Taxes - Alliant Energy files a consolidated federal income tax return. Under the terms of an agreement between Alliant Energy and its subsidiaries, the subsidiaries calculate their respective federal income tax provisions and make payments to or receive payments from Alliant Energy as if they were separate taxable entities. (3) LEASES WP&L's operating lease rental expenses, which include certain purchased-power agreements, for 2002, 2001 and 2000 were $24.5 million, $23.4 million and $7.9 million, respectively. The purchased-power agreements below include $463 million and $78 million, respectively, related to a new plant (Riverside) currently under development and the RockGen plant, both in Wisconsin. The Riverside plant is expected to be placed in-service in 2004. The synthetic leases relate to the financing of the utility railcars and a utility radio dispatch system that were not included on WP&L's Consolidated Balance Sheets. WP&L has guaranteed the residual value of its synthetic leases totaling $14.3 million in the aggregate. The guarantees extend through the maturity of each respective underlying lease with remaining terms 116 up to 13 years. Residual value guarantees have been included in the future minimum lease payments noted in the table below (in millions):
2003 2004 2005 2006 2007 Thereafter Total -------- -------- -------- -------- -------- ----------- --------- Certain purchased-power agreements $18.7 $51.8 $66.3 $67.6 $69.0 $308.6 $582.0 Synthetic leases 6.4 7.6 7.5 7.4 5.5 25.5 59.9 Other 2.0 1.1 1.2 1.0 1.0 2.2 8.5 -------- -------- -------- -------- -------- ----------- --------- $27.1 $60.5 $75.0 $76.0 $75.5 $336.3 $650.4 ======== ======== ======== ======== ======== =========== =========
(4) UTILITY ACCOUNTS RECEIVABLE At Dec. 31, 2002 and 2001, WP&L had sold $116 million and $88 million of receivables, respectively. In 2002, 2001 and 2000, WP&L received $1.2 billion, $1.1 billion and $0.9 billion, respectively, in aggregate proceeds from the sale of accounts receivable. WP&L paid fees associated with these sales of $2.2 million, $4.0 million and $5.0 million in 2002, 2001 and 2000, respectively. (5) INCOME TAXES The components of income taxes for WP&L were as follows (in millions):
2002 2001 2000 ------------- ------------- ------------- Current tax expense: Federal $42.8 $36.8 $44.5 State 9.7 11.2 10.5 Deferred tax expense (benefit): Federal (5.0) (4.6) (9.9) State 1.2 (0.4) (0.3) Amortization of investment tax credits (1.8) (1.8) (1.9) Research and development tax credits (2.2) -- -- ------------- ------------- ------------- $44.7 $41.2 $42.9 ============= ============= =============
The overall effective income tax rates shown in the following table were computed by dividing total income tax expense by income before income taxes.
2002 2001 2000 ------------- -------------- -------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal benefits 6.1 6.4 6.0 Adjustment of prior period taxes (1.1) (2.8) (0.8) Amortization of investment tax credits (1.4) (1.6) (1.6) Amortization of excess deferred taxes (1.4) (1.5) (1.3) Research and development tax credits (1.8) -- -- Other items, net 0.2 0.4 0.2 ------------- -------------- -------------- Overall effective income tax rate 35.6% 35.9% 37.5% ============= ============== ==============
The accumulated deferred income tax (assets) and liabilities included on the Consolidated Balance Sheets at Dec. 31 arise from the following temporary differences (in millions): 2002 2001 --------------- --------------- Property related $201.2 $200.8 Minimum pension liability (16.4) (9.6) Decommissioning (25.2) (20.8) Other 32.3 35.8 --------------- --------------- $191.9 $206.2 =============== =============== 117 (6) BENEFIT PLANS (a) Pension Plans and Other Postretirement Benefits - Substantially all of WP&L's employees are covered by two non-contributory defined benefit pension plans. For the defined benefit pension plan sponsored by Corporate Services, Alliant Energy allocates pension costs and contributions to WP&L based on labor costs of plan participants and any additional minimum pension liability based on each group's funded status. The weighted-average assumptions at the measurement date of Sept. 30 were as follows:
Qualified Pension Benefits Other Postretirement Benefits ------------------------------------- ---------------------------------------- 2002 2001 2000 2002 2001 2000 ------------ ----------- ------------ ----------- ------------- --------------- Discount rate 6.75% 7.25% 8.00% 6.75% 7.25% 8.00% Expected return on plan assets 9% 9% 9% 9% 9% 9% Rate of compensation increase 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% Medical cost trend on covered charges: Initial trend rate N/A N/A N/A 10.8% 12.0% 9.0% Ultimate trend rate N/A N/A N/A 5% 5% 5%
The components of WP&L's qualified pension benefits and other postretirement benefits costs were as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits -------------------------------------- --------------------------------- 2002 2001 2000 2002 2001 2000 ---------- ----------- ---------- -------- -------- --------- Service cost $3.6 $2.8 $3.0 $2.4 $1.6 $1.4 Interest cost 10.1 9.2 8.9 4.4 3.6 3.3 Expected return on plan assets (12.2) (13.7) (12.9) (1.6) (1.7) (1.6) Amortization of: Transition obligation (asset) (1.7) (2.1) (2.1) 1.1 1.2 1.2 Prior service cost 0.4 0.5 0.4 -- -- -- Actuarial loss (gain) 1.5 -- -- 0.1 (0.6) (0.8) ---------- ----------- ---------- -------- -------- --------- $1.7 ($3.3) ($2.7) $6.4 $4.1 $3.5 ========== =========== ========== ======== ======== =========
The pension benefit cost shown above (and in the following tables) represents only the pension benefit cost for bargaining unit employees of WP&L covered under the bargaining unit pension plan that is sponsored by WP&L. The benefit obligations and assets associated with WP&L's non-bargaining employees who are participants in other Alliant Energy plans are reported in Alliant Energy's consolidated financial statements and are not reported above. The pension benefit (income) cost for WP&L's non-bargaining employees who are now participants in other Alliant Energy plans was $0.3 million, ($1.5) million and ($1.3) million for 2002, 2001 and 2000, respectively. In addition, Corporate Services provides services to WP&L. The allocated pension benefit costs associated with these services was $1.7 million, $1.3 million and $1.3 million for 2002, 2001 and 2000, respectively. The other postretirement benefit cost shown above for each period (and in the following tables) represents the other postretirement benefit cost for all WP&L employees. The allocated other postretirement benefit cost associated with Corporate Services for WP&L was $0.5 million, $0.3 million and $0.3 million for 2002, 2001 and 2000, respectively. The assumed medical trend rates are critical assumptions in determining the service and interest cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A one percent change in the medical trend rates for 2002, holding all other assumptions constant, would have the following effects (in millions):
1% Increase 1% Decrease ------------------- ---------------------- Effect on total of service and interest cost components $0.6 ($0.6) Effect on postretirement benefit obligation $5.6 ($5.1)
118 A reconciliation of the funded status of WP&L's plans to the amounts recognized on WP&L's Consolidated Balance Sheets at Dec. 31 was as follows (in millions):
Qualified Pension Benefits Other Postretirement Benefits ----------------------------- ------------------------------- 2002 2001 2002 2001 ------------ ------------ -------------- ------------ Change in benefit obligation: Net benefit obligation at beginning of year $139.2 $115.9 $60.5 $42.3 Service cost 3.6 2.8 2.4 1.6 Interest cost 10.1 9.2 4.4 3.6 Plan participants' contributions -- -- 1.5 1.6 Actuarial loss 10.3 18.3 13.2 16.6 Gross benefits paid (7.2) (7.0) (5.4) (5.2) ------------ ------------ -------------- ------------ Net benefit obligation at end of year 156.0 139.2 76.6 60.5 ------------ ------------ -------------- ------------ Change in plan assets: Fair value of plan assets at beginning of year 138.8 156.3 17.8 19.4 Actual return on plan assets (8.1) (10.5) (1.4) (0.5) Employer contributions 30.0 -- 4.2 2.5 Plan participants' contributions -- -- 1.5 1.6 Gross benefits paid (7.2) (7.0) (5.4) (5.2) ------------ ------------ -------------- ------------ Fair value of plan assets at end of year 153.5 138.8 16.7 17.8 ------------ ------------ -------------- ------------ Funded status at end of year (2.5) (0.4) (59.9) (42.7) Unrecognized net actuarial loss 63.5 34.3 20.4 4.4 Unrecognized prior service cost 3.4 3.9 (0.1) (0.2) Unrecognized net transition obligation (asset) -- (1.7) 11.5 12.6 ------------ ------------ -------------- ------------ Net amount recognized at end of year $64.4 $36.1 ($28.1) ($25.9) ============ ============ ============== ============ Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid benefit cost $64.4 $36.1 $1.5 $1.3 Accrued benefit cost -- -- (29.6) (27.2) ------------ ------------ -------------- ------------ Net amount recognized at measurement date 64.4 36.1 (28.1) (25.9) ------------ ------------ -------------- ------------ Contributions paid after 9/30 and prior to 12/31 -- -- 1.0 1.1 ------------ ------------ -------------- ------------ Net amount recognized at 12/31 $64.4 $36.1 ($27.1) ($24.8) ============ ============ ============== ============
The benefit obligation and fair value of plan assets for the postretirement welfare plans with benefit obligations in excess of plan assets were $74.7 million and $13.7 million, respectively, as of Sept. 30, 2002 and $53.8 million and $8.5 million, respectively, as of Sept. 30, 2001. At Dec. 31, 2002 and 2001, Corporate Services allocated an additional minimum liability of $41.3 million and $0 million, respectively. Alliant Energy sponsors several non-qualified pension plans that cover certain current and former key employees. The pension expense allocated to WP&L for these plans was $1.5 million, $1.0 million and $1.2 million in 2002, 2001 and 2000, respectively. WP&L has various life insurance policies that cover certain key employees and directors. At Dec. 31, 2002 and 2001, the cash surrender value of these investments was $10 million and $9 million, respectively. A significant number of WP&L employees also participate in defined contribution pension plans (401(k) plans). WP&L's contributions to the plans, which are based on the participants' level of contribution, were $2.2 million, $2.1 million and $2.1 million in 2002, 2001 and 2000, respectively. (7) COMMON AND PREFERRED STOCK (b) Preferred Stock - The carrying value of WP&L's cumulative preferred stock at both Dec. 31, 2002 and 2001 was $60 million. The fair market value, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2002 and 2001 was $48 million and $49 million, respectively. 119 (8) DEBT (a) Short-Term Debt - Information regarding WP&L's short-term debt was as follows (dollars in millions):
2002 2001 -------------- -------------- At Dec. 31: Commercial paper outstanding $60.0 $-- Discount rates on commercial paper 1.6% N/A Money pool borrowings $-- $90.8 Interest rates on money pool borrowings N/A 2.4% For the year ended: Average amount of short-term debt (based on daily outstanding balances) $57.4 $23.8 Average interest rates on short-term debt 1.8% 3.7%
(b) Long-Term Debt - WP&L's debt maturities for 2003 to 2007 are $0, $62.0 million, $88.0 million, $0, and $105.0 million, respectively. The carrying value of WP&L's long-term debt (including variable rate demand bonds) at both Dec. 31, 2002 and 2001 was $523 million. The fair market value, based upon the market yield of similar securities and quoted market prices, at Dec. 31, 2002 and 2001 was $574 million and $548 million, respectively. (9) INVESTMENTS AND ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS Information relating to various investments held by WP&L at Dec. 31 that are marked-to-market as a result of SFAS 115 was as follows (in millions):
2002 2001 --------------------------- -------------------------- Carrying/ Unrealized Carrying/ Unrealized Fair Gains, Fair Gains, Value Net of Tax Value Net of Tax ------------ -------------- ------------ ------------- Available-for-sale securities: Nuclear decommissioning trust funds: Debt securities $131 $5 $122 $2 Equity securities 93 5 94 23 ------------ -------------- ------------ ------------- Total $224 $10 $216 $25 ============ ============== ============ =============
Nuclear Decommissioning Trust Funds - At Dec. 31, 2002, $75 million, $24 million and $32 million of the debt securities mature in 2003-2010, 2011-2020 and 2021-2049, respectively. The funds realized gains from the sales of securities of $10.3 million, $2.1 million and $5.2 million in 2002, 2001 and 2000, respectively (cost of the investments based on specific identification was $92.2 million, $147.4 million and $202.1 million and proceeds from the sales were $102.5 million, $149.5 million and $207.3 million, respectively). Unconsolidated Equity Investments - Summary financial information from WP&L's unconsolidated equity investments' financial statements is as follows (in millions): 2002 2001 2000 ---------- ----------- ---------- Operating revenues $211.7 $180.3 $5.3 Operating income 75.7 65.8 1.3 Net income 59.5 55.9 1.6 As of Dec. 31: Current assets 44.7 59.5 Non-current assets 774.4 681.4 Current liabilities 50.8 39.3 Non-current liabilities 7.5 4.4 120 (11) COMMITMENTS AND CONTINGENCIES (a) Construction and Acquisition Expenditures - Certain commitments have been made in connection with 2003 capital expenditures. During 2003, total construction and acquisition expenditures are estimated to be approximately $160 million. (b) Purchased-Power, Coal and Natural Gas Contracts - Based on the System Coordination and Operating Agreement, Alliant Energy annually allocates purchased-power contracts to IP&L and WP&L. Such process considers factors such as resource mix, load growth and resource availability. However, for 2003, system-wide purchased-power contracts of $45.1 million (1.6 million MWh) have not yet been directly assigned to IP&L and WP&L since the specific needs of each utility is not yet known. Refer to Note 18 for additional information. Coal contract quantities are directly assigned to specific plants at IP&L and WP&L based on various factors including projected heat input requirements, combustion compatibility and efficiency. However, for 2003-2006, system-wide coal contracts of $56.1 million (7.8 million tons), $37.5 million (7.6 million tons), $28.0 million (4.7 million tons) and $8.2 million (0.9 million tons), respectively, have not yet been directly assigned to IP&L and WP&L since the specific needs of each utility is not yet known. At Dec. 31, 2002, WP&L's minimum commitments were as follows (dollars and Dths in millions; MWhs and tons in thousands):
Purchased-power Coal Natural gas ----------------------- ----------------------- ------------------------- Dollars MWhs Dollars Tons Dollars Dths --------- ---------- --------- ---------- ----------- ---------- 2003 $31.3 219 $6.9 -- $48.1 2 2004 8.0 219 6.9 -- 32.3 -- 2005 -- -- 1.3 -- 25.0 -- 2006 -- -- 1.3 -- 14.1 -- 2007 -- -- 1.3 -- 13.3 -- Thereafter -- -- -- -- 26.4 --
(e) Environmental Liabilities - WP&L had recorded the following environmental liabilities, and regulatory assets associated with certain of these liabilities, at Dec. 31 (in millions):
Environmental Liabilities Regulatory Assets ---------------------------- ---------------------------- 2002 2001 2002 2001 ------------ ------------- ------------ ------------ MGP sites $6.9 $4.4 $13.0 $11.7 NEPA 2.5 3.1 3.1 4.0 Other -- -- 2.9 3.0 ------------ ------------- ------------ ------------ $9.4 $7.5 $19.0 $18.7 ============ ============= ============ ============
MGP Sites - Management currently estimates the range of remaining costs to be - --------- incurred for the investigation, remediation and monitoring of all WP&L's sites to be approximately $6 million to $7 million. (13) SEGMENTS OF BUSINESS WP&L is a regulated domestic utility, serving customers in Wisconsin and Illinois, and includes three segments: a) electric operations; b) gas operations; and c) other, which includes the water business and the unallocated portions of the utility business. Various line items in the following tables are not allocated to the electric and gas segments for management reporting purposes and therefore are included in "Total." In 2002 and 2001, gas revenues included $22 million and $21 million, respectively, for sales to the electric segment. All other intersegment revenues were not material to WP&L's operations and there was no single customer whose revenues were 10% or more of WP&L's consolidated revenues. Certain financial information relating to WP&L's significant business segments was as follows (in millions): 121
Electric Gas Other Total - ------------------------------------------------------------------------------------------------------------------------------ 2002 - ---- Operating revenues $787.7 $179.1 $5.3 $972.1 Depreciation and amortization 117.3 17.7 1.2 136.2 Operating income 114.1 12.0 1.4 127.5 Interest expense, net of AFUDC 37.6 Interest income (21.6) Equity income from unconsolidated investments (17.0) Miscellaneous, net 2.9 Income tax expense 44.7 Net income 80.9 Preferred dividends 3.3 Earnings available for common stock 77.6 Total assets 1,426.7 259.5 298.4 1,984.6 Investments in equity method subsidiaries 121.7 121.7 Construction and acquisition expenditures 144.6 10.6 1.7 156.9 - ------------------------------------------------------------------------------------------------------------------------------ 2001 - ---- Operating revenues $753.5 $206.9 $5.0 $965.4 Depreciation and amortization 111.5 16.4 1.2 129.1 Operating income 121.6 2.5 1.3 125.4 Interest expense, net of AFUDC 38.7 Interest income (8.1) Equity income from unconsolidated investments (15.5) Miscellaneous, net (4.4) Income tax expense 41.2 Net income 73.5 Preferred dividends 3.3 Earnings available for common stock 70.2 Total assets 1,323.9 224.5 327.4 1,875.8 Investments in equity method subsidiaries 117.3 117.3 Construction and acquisition expenditures 127.9 16.8 2.3 147.0 - ------------------------------------------------------------------------------------------------------------------------------ 2000 - ---- Operating revenues $692.2 $165.2 $5.0 $862.4 Depreciation and amortization 122.9 15.9 1.1 139.9 Operating income 123.2 12.2 1.7 137.1 Interest expense, net of AFUDC 39.3 Interest income (13.1) Equity income from unconsolidated investments (0.5) Miscellaneous, net (2.9) Income tax expense 42.9 Net income 71.4 Preferred dividends 3.3 Earnings available for common stock 68.1 Total assets 1,344.9 226.1 286.0 1,857.0 Investments in equity method subsidiaries 4.8 4.8 Construction and acquisition expenditures 114.2 15.1 2.3 131.6
122 (15) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) Summation of the individual quarters may not equal annual totals due to rounding.
2002 2001 ---------------------------------------- --------------------------------------- March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 ---------- --------- --------- --------- ---------- --------- -------- --------- (in millions) Operating revenues $229.5 $217.5 $249.0 $276.1 $317.2 $204.1 $228.3 $215.8 Operating income 24.1 28.6 35.4 39.3 37.0 23.4 36.2 28.8 Net income 15.7 12.8 19.2 33.2 19.3 11.6 19.9 22.8 Earnings available for common stock 14.9 12.0 18.3 32.4 18.4 10.7 19.0 22.0
(18) RELATED PARTIES IP&L and WP&L have entered into a System Coordination and Operating Agreement. The agreement, which has been approved by FERC, provides a contractual basis for coordinated planning, construction, operation and maintenance of the interconnected electric generation and transmission systems of IP&L and WP&L. In addition, the agreement allows the interconnected system to be operated as a single entity with off-system capacity sales and purchases made to market excess system capability or to meet system capability deficiencies. Such sales and purchases are allocated among IP&L and WP&L based on procedures included in the agreement. The sales amounts allocated to WP&L were $26.9 million, $32.1 million and $28.6 million for 2002, 2001 and 2000, respectively. The purchases allocated to WP&L were $205.8 million, $209.2 million and $130.7 million for 2002, 2001 and 2000, respectively. The procedures were approved by both FERC and all state regulatory bodies having jurisdiction over these sales. Under the agreement, IP&L and WP&L are fully reimbursed for any generation expense incurred to support the sale to an affiliate or to a non-affiliate. Any margins on sales to non-affiliates are distributed to IP&L and WP&L in proportion to each utility's share of electric production at the time of the sale. Pursuant to a service agreement approved by the SEC under PUHCA, WP&L receives various administrative and general services from an affiliate, Corporate Services. These services are billed to WP&L at cost based on payroll and other expenses incurred by Corporate Services for the benefit of WP&L. These costs totaled $117.7 million, $107.0 million and $103.4 million for 2002, 2001 and 2000, respectively, and consisted primarily of employee compensation, benefits and fees associated with various professional services. At Dec. 31, 2002 and 2001, WP&L had a net intercompany payable to Corporate Services of $31.1 million and $32.2 million, respectively. 123 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS ALLIANT ENERGY The information required by Item 10 relating to directors and nominees for election of directors at the 2003 Annual Meeting of Shareowners is incorporated herein by reference to the relevant information under the caption "Election of Directors" in Alliant Energy's Proxy Statement for the 2003 Annual Meeting of Shareowners (the 2003 Alliant Energy Proxy Statement), which will be filed with the SEC within 120 days after the end of Alliant Energy's fiscal year. The information required by Item 10 relating to the timely filing of reports under Section 16 of the Securities Exchange Act of 1934 is incorporated herein by reference to the relevant information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2003 Alliant Energy Proxy Statement. Information regarding executive officers of Alliant Energy may be found in Part I of this report under the caption "Executive Officers of the Registrants." IP&L IP&L's directors are identical to those of Alliant Energy. The information required by Item 10 relating to directors and nominees for election of directors at the 2003 Annual Meeting of Shareowners is incorporated herein by reference to the relevant information included under the caption "Election of Directors" in the 2003 Alliant Energy Proxy Statement, which will be filed with the SEC within 120 days after the end of IP&L's fiscal year. The information required by Item 10 relating to the timely filing of reports under Section 16 of the Securities Exchange Act of 1934 is incorporated herein by reference to the relevant information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2003 Alliant Energy Proxy Statement. Information regarding executive officers of IP&L may be found in Part I of this report under the caption "Executive Officers of the Registrants." WP&L The information required by Item 10 relating to directors and nominees for election of directors at the 2003 Annual Meeting of Shareowners is incorporated herein by reference to the relevant information under the caption "Election of Directors" in WP&L's Proxy Statement for the 2003 Annual Meeting of Shareowners (the 2003 WP&L Proxy Statement), which will be filed with the SEC within 120 days after the end of WP&L's fiscal year. The information required by Item 10 relating to the timely filing of reports under Section 16 of the Securities Exchange Act of 1934 is incorporated herein by reference to the relevant information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2003 WP&L Proxy Statement. Information regarding executive officers of WP&L may be found in Part I of this report under the caption "Executive Officers of the Registrants." ITEM 11. EXECUTIVE COMPENSATION ALLIANT ENERGY The information required by Item 11 is incorporated herein by reference to the relevant information under the captions "Compensation of Directors," "Compensation of Executive Officers," "Stock Options," "Long-Term Incentive Awards," "Certain Agreements" and "Retirement and Employee Benefit Plans" in the 2003 Alliant Energy Proxy Statement, which will be filed with the SEC within 120 days after the end of Alliant Energy's fiscal year. IP&L The directors as well as the CEO and the four other most highly compensated executive officers for IP&L are the same as for WP&L. Therefore, the information required by Item 11 is incorporated herein by reference to the relevant information under the captions "Compensation of Directors," "Compensation of Executive Officers," "Stock Options," "Long-Term Incentive Awards," "Certain Agreements" and "Retirement and Employee Benefit Plans" in the 2003 WP&L Proxy Statement, which will be filed with the SEC within 120 days after the end of IP&L's fiscal year. 124 WP&L The information required by Item 11 is incorporated herein by reference to the relevant information under the captions "Compensation of Directors," "Compensation of Executive Officers," "Stock Options," "Long-Term Incentive Awards," "Certain Agreements" and "Retirement and Employee Benefit Plans" in the 2003 WP&L Proxy Statement, which will be filed with the SEC within 120 days after the end of WP&L's fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ALLIANT ENERGY Information regarding Alliant Energy's equity compensation plans as of Dec. 31, 2002 was as follows:
(c) (a) (b) Number of securities Number of securities Weighted-average remaining available for to be issued upon exercise price of future issuance under exercise of outstanding equity compensation plans outstanding options, options, warrants (excluding securities Plan Category warrants and rights and rights reflected in column (a)) - ----------------------------------- ---------------------- -------------------- ----------------------------- Equity compensation plans approved by shareowners 4,325,172 (1) $29.44 3,226,517 (2) Equity compensation plans not approved by shareowners N/A (3) N/A N/A (4) ---------------------- -------------------- ----------------------------- Total 4,325,172 $29.44 3,226,517 ====================== ==================== =============================
(1) Represents performance shares and options to purchase shares of Alliant Energy common stock granted under the Alliant Energy LTEIP and EIP. The performance shares are paid out in shares of Alliant Energy common stock or a combination of cash and stock and are modified by a performance multiplier, which ranges from zero to two, based on the performance criteria. The performance shares included in column (a) of the table reflect an assumed payout at a performance multiplier of two. (2) All of the available shares under the LTEIP and EIP may be issued upon the exercise of stock options or may be issued as awards in the form of stock appreciation rights, restricted stock, restricted stock units, performance shares or performance units. Excludes 1,745 shares of restricted common stock previously issued and outstanding for which the restrictions have not lapsed. (3) As of Dec. 31, 2002, there have been 239,467 shares of Alliant Energy common stock issued under the Alliant Energy Key Employee Deferred Compensation Plan (KEDCP) and the Alliant Energy Deferred Compensation Plan for Directors (DDCP) described below. (4) There is no limit on the number of shares of Alliant Energy common stock that may be issued under the KEDCP and the DDCP. Deferred Compensation Plans - Alliant Energy maintains an unfunded KEDCP under which participants may defer up to 100% of base salary, incentive compensation and eligible supplemental executive retirement plan payments. Participants who have made the maximum allowed contribution to the Alliant Energy 401(k) Savings Plan may receive an additional credit to the deferred compensation plan. Alliant Energy also maintains an unfunded DDCP under which directors may elect to defer all or part of their retainer fee. Key employees and directors may elect to have their deferrals credited to an interest account or a company stock account, which are held in grantor trusts. Payments from the company stock account will be made in shares of Alliant Energy common stock. The remainder of the information required by Item 12 is incorporated herein by reference to the relevant information under the caption "Ownership of Voting Securities" in the 2003 Alliant Energy Proxy Statement, which will be filed with the SEC within 120 days after the end of Alliant Energy's fiscal year. IP&L To IP&L's knowledge, no shareowner beneficially owned 5% or more of IP&L's 8.375% Cumulative Preferred Stock as of Dec. 31, 2002. None of the directors or executive officers of IP&L own any shares of IP&L's 8.375% Cumulative Preferred Stock. 125 WP&L The information required by Item 12 is incorporated herein by reference to the relevant information under the caption "Ownership of Voting Securities" in the 2003 WP&L Proxy Statement, which will be filed with the SEC within 120 days after the end of WP&L's fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. ITEM 14. CONTROLS AND PROCEDURES Within 90 days prior to the date of filing this Annual Report on Form 10-K, Alliant Energy, IP&L and WP&L carried out evaluations, under the supervision and with the participation of their management, including their CEO, CFO and Disclosure Committee, of the effectiveness of the design and operation of Alliant Energy's, IP&L's and WP&L's disclosure controls and procedures pursuant to the requirements of the Securities Exchange Act of 1934, as amended. Based on those evaluations, the CEO and the CFO concluded that Alliant Energy's, IP&L's and WP&L's disclosure controls and procedures were effective as of the date of such evaluation. There have been no significant changes in Alliant Energy's, IP&L's and WP&L's internal controls, or in other factors that could significantly affect internal controls, subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Consolidated Financial Statements - Refer to "Index to Financial --------------------------------- Statements" in Item 8 Financial Statements and Supplementary Data. (a) (2) Financial Statement Schedules - Schedule II. Valuation and Qualifying ----------------------------- Accounts and Reserves NOTE: All other schedules are omitted because they are not applicable or not required, or because that required information is shown either in the consolidated financial statements or in the notes thereto. (a) (3) Exhibits Required by Securities and Exchange Commission ------------------------------------------------------- Regulation S-K - The following Exhibits are filed herewith or incorporated - -------------- herein by reference. 2.1 Agreement and Plan of Merger, dated as of March 15, 2000, as amended on Nov. 29, 2000, between IP&L (formerly IESU) and IPC (incorporated by reference to Appendix A to the joint proxy statement/prospectus of IP&L, dated Feb. 13, 2001 (Registration No. 333-53846)) 3.1 Restated Articles of Incorporation of Alliant Energy, as amended (incorporated by reference to Exhibit 3.2 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1999) 3.2 Bylaws of Alliant Energy, as amended, effective as of Jan. 30, 2001 (incorporated by reference to Exhibit 3.2 to Alliant Energy's Form 10-K for the year 2000) 3.3 Restated Articles of Incorporation of WP&L, as amended (incorporated by reference to Exhibit 3.1 to WP&L's Form 10-Q for the quarter ended June 30, 1994) 3.4 Bylaws of WP&L, as amended, effective as of Jan. 30, 2001 (incorporated by reference to Exhibit 3.4 to WP&L's Form 10-K for the year 2000) 3.5 Restated Articles of Incorporation of IP&L (incorporated by reference to Exhibit 3.1 to IP&L's Form 10-Q for the quarter ended Sept. 30, 2002) 3.5a Articles of Amendment to IP&L's Restated Articles of Incorporation 126 3.6 Bylaws of IP&L, as amended, effective as of Jan. 30, 2001 (incorporated by reference to Exhibit 3.6 to IP&L's Form 10-K for the year 2000) 4.1 Rights Agreement, dated Jan. 20, 1999, between Alliant Energy and Wells Fargo Bank Minnesota, N.A., successor (incorporated by reference to Exhibit 4.1 to Alliant Energy's Registration Statement on Form 8-A, dated Jan. 20, 1999) 4.2 Indenture of Mortgage or Deed of Trust dated Aug. 1, 1941, between WP&L and U.S. Bank National Association (U.S. Bank) and Robert T. Jones, successor, as Trustees, filed as Exhibit 7(a) in File No. 2-6409, and the indentures supplemental thereto dated, respectively, Jan. 1, 1948, Sept. 1, 1948, June 1, 1950, April 1, 1951, April 1, 1952, Sept. 1, 1953, Oct. 1, 1954, March 1, 1959, May 1, 1962, Aug. 1, 1968, June 1, 1969, Oct. 1, 1970, July 1, 1971, April 1, 1974, Dec. 1, 1975, May 1, 1976, May 15, 1978, Aug. 1, 1980, Jan. 15, 1981, Aug. 1, 1984, Jan. 15, 1986, June 1, 1986, Aug. 1, 1988, Dec. 1, 1990, Sept. 1, 1991, Oct. 1, 1991, March 1, 1992, May 1, 1992, June 1, 1992 and July 1, 1992 (Second Amended Exhibit 7(b) in File No. 2-7361; Amended Exhibit 7(c) in File No. 2-7628; Amended Exhibit 7.02 in File No. 2-8462; Amended Exhibit 7.02 in File No. 2-8882; Second Amendment Exhibit 4.03 in File No. 2-9526; Amended Exhibit 4.03 in File No. 2-10406; Amended Exhibit 2.02 in File No. 2-11130; Amended Exhibit 2.02 in File No. 2-14816; Amended Exhibit 2.02 in File No. 2-20372; Amended Exhibit 2.02 in File No. 2-29738; Amended Exhibit 2.02 in File No. 2-32947; Amended Exhibit 2.02 in File No. 2-38304; Amended Exhibit 2.02 in File No. 2-40802; Amended Exhibit 2.02 in File No. 2-50308; Exhibit 2.01(a) in File No. 2-57775; Amended Exhibit 2.02 in File No. 2-56036; Amended Exhibit 2.02 in File No. 2-61439; Exhibit 4.02 in File No. 2-70534; Amended Exhibit 4.03 in File No. 2-70534; Exhibit 4.02 in File No. 33-2579; Amended Exhibit 4.03 in File No. 33-2579; Amended Exhibit 4.02 in File No. 33-4961; Exhibit 4.24 in File No. 33-45726, Exhibit 4.25 in File No. 33-45726, Exhibit 4.26 in File No. 33-45726, Exhibit 4.27 in File No. 33-45726, Exhibit 4.1 to WP&L's Form 8-K dated March 9, 1992, Exhibit 4.1 to WP&L's Form 8-K dated May 12, 1992, Exhibit 4.1 to WP&L's Form 8-K dated June 29, 1992 and Exhibit 4.1 to WP&L's Form 8-K dated July 20, 1992) 4.3 Indenture, dated as of June 20, 1997, between WP&L and U.S. Bank, as Trustee, relating to debt securities (incorporated by reference to Exhibit 4.33 to Amendment No. 2 to WP&L's Registration Statement on Form S-3 (Registration No. 33-60917)) 4.4 Officers' Certificate, dated as of June 25, 1997, creating WP&L's 7% debentures due June 15, 2007 (incorporated by reference to Exhibit 4 to WP&L's Form 8-K, dated June 25, 1997) 4.5 Officers' Certificate, dated as of Oct. 27, 1998, creating WP&L's 5.7% debentures due Oct. 15, 2008 (incorporated by reference to Exhibit 4 to WP&L's Form 8-K, dated Oct. 27, 1998) 4.6 Officers' Certificate, dated as of March 1, 2000, creating WP&L's 7-5/8% debentures due March 1, 2010 (incorporated by reference to Exhibit 4 to WP&L's Form 8-K, dated March 1, 2000) 4.7 Indenture of Mortgage and Deed of Trust, dated as of Sept. 1, 1993, between IP&L and Bank One Trust Company, National Association (Bank One Trust), successor, as Trustee (incorporated by reference to Exhibit 4(c) to IP&L's Form 10-Q for the quarter ended Sept. 30, 1993), and the indentures supplemental thereto dated, respectively, Oct. 1, 1993, Nov. 1, 1993, March 1, 1995, Sept. 1, 1996 and April 1, 1997 (Exhibit 4(d) in IP&L's Form 10-Q dated Nov. 12, 1993, Exhibit 4(e) in IP&L's Form 10-Q dated Nov. 12, 1993, Exhibit 4(b) in IP&L's Form 10-Q dated May 12, 1995, Exhibit 4(c)(i) in IP&L's Form 8-K dated Sept. 19, 1996 and Exhibit 4(a) in IP&L's Form 10-Q dated May 14, 1997) 4.8 Indenture or Deed of Trust dated as of Feb. 1, 1923, between IP&L and Bank One Trust, successor and Lawrence Dillard, successor, as Trustees (incorporated by reference to Exhibit B-1 to File No. 2-1719), and the indentures supplemental thereto dated, respectively, May 1, 1940, May 2, 1940, Oct. 1, 1945, Oct. 2, 1945, Jan. 1, 1948, Sept. 1, 1950, Feb. 1, 1953, Oct. 2, 1953, Aug. 1, 1957, Sept. 1, 1962, June 1, 1967, Feb. 1, 1973, Feb. 1, 1975, July 1, 1975, Sept. 2, 1975, March 10, 1976, Feb. 1, 1977, Jan. 1, 1978, March 1, 1979, March 1, 1980, May 31, 1986, July 1, 1991, Sept. 1, 1992 and Dec. 1, 1994 (Exhibit B-1-k in File No. 2-4921, Exhibit B-1-l in File No. 2-4921, Exhibit 7(m) in File No. 2-8053, Exhibit 7(n) in File No. 2-8053, Exhibit 7(o) in File No. 2-8053, Exhibit 4(e) in 127 File No. 33-3995, Exhibit 4(b) in File No. 2-10543, Exhibit 4(q) in File No. 2-10543, Exhibit 2(b) in File No. 2-13496, Exhibit 2(b) in File No. 2-20667, Exhibit 2(b) in File No. 2-26478, Exhibit 2(b) in File No. 2-46530, Exhibit 2(aa) in File No. 2-53860, Exhibit 2(bb) in File No. 2-54285, Exhibit 2(bb) in File No. 2-57510, Exhibit 2(cc) in File No. 2-57510, Exhibit 2(ee) in File No. 2-60276, Exhibit 2 in File No. 0-849, Exhibit 2 in File No. 0-849, Exhibit 2 in File No. 0-849, Exhibit 4(g) in File No. 33-3995, Exhibit 4(h) in File No. 0-849, Exhibit 4(m) in File No. 0-849 and Exhibit 4(f) in File No. 0-4117-1) 4.9 Indenture (For Unsecured Subordinated Debt Securities), dated as of Dec. 1, 1995, between IP&L and Bank One Trust, successor, as Trustee (incorporated by reference to Exhibit 4(i) to IP&L's Amendment No. 1 to Registration Statement, File No. 33-62259) 4.10 Indenture (For Senior Unsecured Debt Securities), dated as of Aug. 1, 1997, between IP&L and Bank One Trust, successor, as Trustee (incorporated by reference to Exhibit 4(j) to IP&L's Registration Statement, File No. 333-32097) 4.11 Officer's Certificate, dated as of Aug. 4, 1997, creating IP&L's 6-5/8% Senior Debentures, Series A, due 2009 (incorporated by reference to Exhibit 4.12 to IP&L's Form 10-K for the year 2000) 4.12 Officers' Certificate, dated as of March 6, 2001, creating IP&L's 6-3/4% Series B Senior Debentures due 2011 (incorporated by reference to Exhibit 4 to IP&L's Form 8-K, dated March 6, 2001) 4.13 The Original through the Nineteenth Supplemental Indentures of IP&L, successor, to JPMorgan Chase Bank and James P. Freeman, successor, as Trustee, dated Jan. 1, 1948 securing First Mortgage Bonds (incorporated by reference to Exhibits 4(b) through 4(t) to IPC's Registration Statement No. 33-59352 dated March 11, 1993) 4.14 Twentieth Supplemental Indenture of IP&L, successor, to JPMorgan Chase Bank and James P. Freeman, successor, as Trustees, dated May 15, 1993 (incorporated by reference to Exhibit 4(u) to IPC's Registration Statement No. 33-59352 dated March 11, 1993) 4.15 Twenty-First Supplemental Indenture of IP&L, successor, to JPMorgan Chase Bank and James P. Freeman, as Trustees, dated Dec. 31, 2001 (incorporated by reference to Exhibit 4.3 to IP&L's Form 8-K, dated Jan. 1, 2002) 4.16 Indenture, dated as of Nov. 4, 1999, among Resources, Alliant Energy, as Guarantor, and U.S. Bank, as Trustee (incorporated by reference to Exhibit 4.1 to Resources' and Alliant Energy's Registration Statement on Form S-4 (Registration No. 333-92859)), and the indentures supplemental thereto dated, respectively, Nov. 4, 1999, Feb. 1, 2000 and Nov. 15, 2001 (Exhibit 4.2 in Registration No. 333-92859, Exhibit 99.4 in Alliant Energy's Form 8-K dated Feb. 1, 2000 and Exhibit 4.4 in Resources' and Alliant Energy's Registration Statement on Form S-4 (Registration No. 333-75020)) 4.16a Fourth Supplemental Indenture, dated as of Dec. 26, 2002, among Resources, Alliant Energy, as Guarantor, and U.S. Bank, as Trustee 4.17 Registration Rights Agreement, dated as of Dec. 26, 2002, among Resources, Alliant Energy, Merrill Lynch, Pierce, Fenner & Smith Inc., Utehdahl Capital Partners, L.P. and The Williams Capital Group, L.P. 4.18 Registration Rights Agreement, dated as of Dec. 20, 2002, between IP&L and Robert W. Baird & Co. Inc. 10.1 364-Day Credit Agreement, dated as of Oct. 11, 2002, among Alliant Energy, the Banks named therein and Bank One, NA, as administrative agent and issuer of Letters of Credit (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended Sept. 30, 2002) 10.2 Credit Agreement, dated as of Oct. 11, 2002, among IP&L, the Banks named therein and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 10.2 to IP&L's 10-Q for the quarter ended Sept. 30, 2002) 10.3 Credit Agreement, dated as of Oct. 11, 2002, among WP&L, the Banks named therein and Citibank, N.A., as administrative agent (incorporated by reference to Exhibit 10.3 to WP&L's 10-Q for the quarter ended Sept. 30, 2002) 128 10.4 364-Day Credit Agreement, dated as of Dec. 27, 2002, among Resources, as Borrower, and Alliant Energy, Heartland Properties, Inc. and International, as Guarantors and the Lenders Named therein and Merrill Lynch Capital Corporation, as Administrative Agent 10.5 Credit Agreement, dated as of Dec. 20, 2002, among Whiting, as Borrower, the Financial Institutions Listed on Schedule 1.1 thereto, as Banks, Bank One, NA, as Administrative Agent, and Wachovia Bank, National Association, as Syndication Agent 10.5a First Amendment to Credit Agreement, dated as of Jan. 7, 2003, by and among Whiting, Bank One, NA, as Administrative Agent and each of the Financial Institutions a Party thereto 10.6 Service Agreement by and among WP&L, South Beloit, IP&L and Corporate Services (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.7 Service Agreement by and among Resources, IPC Development Company, Inc. and Corporate Services (incorporated by reference to Exhibit 10.2 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.8 System Coordination and Operating Agreement dated April 11, 1997, among IP&L, WP&L and Corporate Services (incorporated by reference to Exhibit 10.3 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.9 Joint Power Supply Agreement among WPSC, WP&L, and MG&E, dated Feb. 2, 1967 (incorporated by reference to Exhibit 4.09 of WPSC in File No. 2-27308) 10.9a Amendment No. 1 to Joint Power Supply Agreement dated Feb. 2, 1967 among WPSC, WP&L, and MG&E (incorporated by reference to Exhibit 10.1 to WP&L's Form 10-Q for the quarter ended Sept. 30, 2001) 10.10 Joint Power Supply Agreement among WPSC, WP&L, and MG&E, dated July 26, 1973 (incorporated by reference to Exhibit 5.04A of WPSC in File No. 2-48781) 10.11 Basic Generating Agreement, Unit 4, Edgewater Generating Station, dated June 5, 1967, between WP&L and WPSC (incorporated by reference to Exhibit 4.10 of WPSC in File No. 2-27308) 10.12 Agreement for Construction and Operation of Edgewater 5 Generating Unit, dated Feb. 24, 1983, between WP&L, WEPCO and WPSC (incorporated by reference to Exhibit 10C-1 to WPSC's Form 10-K for the year 1983 (File No. 1-3016)) 10.12a Amendment No. 1 to Agreement for Construction and Operation of Edgewater 5 Generating Unit, dated Dec. 1, 1988 (incorporated by reference to Exhibit 10C-2 to WPSC's Form 10-K for the year 1988 (File No. 1-3016)) 10.13 Revised Agreement for Construction and Operation of Columbia Generating Plant among WPSC, WP&L, and MG&E, dated July 26, 1973 (incorporated by reference to Exhibit 5.07 of WPSC in File No. 2-48781) 10.14 Operating and Transmission Agreement between CIPCO and IP&L (incorporated by reference to Exhibit 10(q) to IP&L's Form 10-K for the year 1990) 10.15 DAEC Ownership Participation Agreement dated June 1, 1970 between CIPCO, Corn Belt Power Cooperative and IP&L (incorporated by reference to Exhibit 5(kk) to IP&L's Registration Statement, File No. 2-38674) 10.16 DAEC Operating Agreement dated June 1, 1970 between CIPCO, Corn Belt Power Cooperative and IP&L (incorporated by reference to Exhibit 5(ll) to IP&L's Registration Statement, File No. 2-38674) 10.17 DAEC Agreement for Transmission, Transformation, Switching, and Related Facilities dated June 1, 1970 between CIPCO, Corn Belt Power Cooperative and IP&L (incorporated by reference to Exhibit 5(mm) to IP&L's Registration Statement, File No. 2-38674) 129 10.18 Basic Generating Agreement dated April 16, 1975 between Iowa Public Service Company, Iowa Power and Light Company, Iowa-Illinois Gas and Electric Company and IP&L for the joint ownership of Ottumwa Generating Station-Unit 1 (OGS-1) (incorporated by reference to Exhibit 1 to IP&L's Form 10-K for the year 1977) 10.18a Addendum Agreement to the Basic Generating Agreement for OGS-1 dated Dec. 7, 1977 between Iowa Public Service Company, Iowa-Illinois Gas and Electric Company, Iowa Power and Light Company and IP&L for the purchase of 15% ownership in OGS-1 (incorporated by reference to Exhibit 3 to IP&L's Form 10-K for the year 1977) 10.19 Second Amended and Restated Credit Agreement dated as of Sept. 17, 1987 between Arnold Fuel, Inc. and Bank One Trust, successor, and the Amended and Restated Consent and Agreement dated as of Sept. 17, 1987 by IP&L (incorporated by reference to Exhibit 10(j) to IP&L's Form 10-K for the year 1987) 10.20 Asset Contribution Agreement between ATC and WEPCO, WP&L, WPSC, MG&E, Edison Sault Electric Company and South Beloit, dated as of Dec. 15, 2000 (incorporated by reference to Exhibit 10.15 to Alliant Energy's Form 10-K for the year 2000) 10.20a Addenda to the Asset Contribution Agreement between ATC and WEPCO, WP&L, WPSC, MG&E, Edison Sault Electric Company and South Beloit, dated as of Dec. 15, 2000 (incorporated by reference to Exhibit 10.15a to Alliant Energy's Form 10-K for the year 2000) 10.21 Operating Agreement of ATC, dated as of Jan. 1, 2001 (incorporated by reference to Exhibit 10.16 to Alliant Energy's Form 10-K for the year 2000) 10.22# Alliant Energy LTEIP, as amended (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1999) 10.23# Alliant Energy EIP (incorporated by reference to Exhibit 4.2 to Alliant Energy's Registration Statement on Form S-8 (Registration No. 333-88304)) 10.24# Alliant Energy 1998 Officer Incentive Compensation Plan (incorporated by reference to Exhibit 10.16 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 10.25# Alliant Energy KEDCP (incorporated by reference to Exhibit 4.2 to Alliant Energy's Registration Statement on Form S-8 dated Dec. 1, 2000) 10.26# KEDCP (incorporated by reference to Exhibit 10(n) to IES's Form 10-K for the year 1987) 10.26a# Amendments to Key Employee Deferred Compensation Agreement for Key Employees (incorporated by reference to Exhibit 10(v) to IES's Form 10-Q for the quarter ended March 31, 1990) 10.27# DDCP, as amended and restated effective Jan. 1, 2000, amended Nov. 14, 2001 (incorporated by reference to Exhibit 10.22 to Alliant Energy's Form 10-K for the year 2001) 10.28# IP&L Irrevocable Trust Agreement dated April 30, 1990 (incorporated by reference to Exhibit 99.f to IPC's Form 10-K for the year 1993) 10.29# IP&L Irrevocable Trust Agreement dated December 1997 (incorporated by reference to Exhibit 99.7 to IPC's Form 10-K for the year 1997) 10.30# Alliant Energy Grantor Trust for Deferred Compensation Agreements (Key Employees) (incorporated by reference to Exhibit 4.4 to Alliant Energy's Registration Statement on Form S-8 (Registration No. 33-51126)) 10.31# Alliant Energy Grantor Trust for Deferred Compensation Agreements (Directors) (incorporated by reference to Exhibit 4.3 to Alliant Energy's Registration Statement on Form S-8 (Registration No. 33-51126)) 10.32# Form of Supplemental Retirement Agreement (SRA) (incorporated by reference to Exhibit 10.15 to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 130 10.33# Form of SRA (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended June 30, 2002) 10.34# Supplemental Retirement Plan (incorporated by reference to Exhibit 10(l) to IES's Form 10-K for the year 1987) 10.35# Alliant Energy Excess Plan (incorporated by reference to Exhibit 10.33 to Alliant Energy's Form 10-K for the year 2000) 10.36# SRA by and between Alliant Energy and E.B. Davis, Jr., W.D. Harvey, J.E. Hoffman, E.G. Protsch, B.J. Swan, P.J. Wegner and T.M. Walker (incorporated by reference to Exhibit 10.1 to Alliant Energy's Form 10-Q for the quarter ended March 31, 2000) 10.37# Key Executive Employment and Severance Agreement (KEESA), dated March 29, 1999, by and between Alliant Energy and Erroll B. Davis, Jr. (incorporated by reference to Exhibit 10.2 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.38# KEESA, dated March 29, 1999, by and between Alliant Energy and each of J.E. Hoffman, W.D. Harvey, E.G. Protsch, P.J. Wegner, T.M. Walker and B.J. Swan (incorporated by reference to Exhibit 10.3 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.39# KEESA, dated March 29, 1999, by and between Alliant Energy and each of T.L. Aller, D.K. Doyle, D.L. Mineck, and K.K. Zuhlke; dated April 23, 2002, by and between Alliant Energy and V.A. Gebhart; dated May 22, 2002, by and between Alliant Energy and T.L. Hanson (incorporated by reference to Exhibit 10.4 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.40# Employment Agreement by and between Alliant Energy and Erroll B. Davis, Jr., amended and restated as of March 29, 1999 (incorporated by reference to Exhibit 10.5 to Alliant Energy's Form 10-Q for the quarter ended March 31, 1999) 10.41# Executive Tenure Compensation Plan as revised November 1992 (incorporated by reference to Exhibit 10A to Alliant Energy's Form 10-K for the year 1992) 10.41a# Amendment to Executive Tenure Compensation Plan adopted Feb. 23, 1998 (incorporated by reference to Exhibit 10.19a to Alliant Energy's Form 10-Q for the quarter ended June 30, 1998) 21 Subsidiaries of Alliant Energy and WP&L 23 Independent Auditors' Consent for Alliant Energy 99.1 Written Statement of the Chairman, President and CEO Pursuant to 18 U.S.C. Section 1350 for Alliant Energy 99.2 Written Statement of the EVP and CFO Pursuant to 18 U.S.C. Section 1350 for Alliant Energy 99.3 Written Statement of the Chairman and CEO Pursuant to 18 U.S.C. Section 1350 for IP&L 99.4 Written Statement of the EVP and CFO Pursuant to 18 U.S.C. Section 1350 for IP&L 99.5 Written Statement of the Chairman and CEO Pursuant to 18 U.S.C. Section 1350 for WP&L 99.6 Written Statement of the EVP and CFO Pursuant to 18 U.S.C. Section 1350 for WP&L Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrants agree to furnish to the SEC, upon request, any instrument defining the rights of holders of unregistered long-term debt not filed as an exhibit to this Form 10-K. No such instrument authorizes securities in excess of 10% of the total assets of Alliant Energy, WP&L or IP&L, as the case may be. Documents incorporated by reference to filings made by Alliant Energy under the Securities Exchange Act of 1934, as amended, are under File No. 1-9894. Documents incorporated by reference to filings made by WP&L under the Securities Exchange Act of 1934, as amended, are under File No. 0-337. Documents incorporated by reference to filings made by IES under the Securities Exchange Act of 1934, as amended, are under File No. 1-9187. Documents incorporated by reference to filings made by IP&L under the 131 Securities Exchange Act of 1934, as amended, are under File No. 0-4117-1. Documents incorporated by reference to filings made by IPC under the Securities Exchange Act of 1934, as amended, are under File No. 1-3632. # - A management contract or compensatory plan or arrangement. (b) Reports on Form 8-K ------------------- Alliant Energy Alliant Energy filed a Current Report on Form 8-K, dated Dec. 26, 2002, reporting (under Items 5 and 7) that it issued a press release announcing that Resources completed a private placement of $300 million in senior notes in accordance with Rule 144A under the Securities Act of 1933. Alliant Energy filed a Current Report on Form 8-K, dated Dec. 20, 2002, reporting (under Items 5 and 7) that it issued two press releases announcing that: 1) IP&L completed a private placement of $150 million of preferred stock in accordance with Rule 144A under the Securities Act of 1933; and 2) Whiting closed a revolving credit facility with a current maximum borrowing availability of $200 million which matures on Dec. 20, 2005. Alliant Energy filed a Current Report on Form 8-K, dated Dec. 16, 2002, reporting (under Item 5) that, among other things, it: 1) will, as early as the fourth quarter of 2002, be required under SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," to classify the assets of Whiting, its investments in Australia and its affordable housing business as held for sale and their operations as discontinued operations; 2) may also be required to record accounting adjustments, other charges and/or income in the fourth quarter of 2002 and/or in 2003 related to these proposed divestitures; 3) had engaged its current independent auditors, Deloitte & Touche LLP, to reaudit its financial statements for the years ended Dec. 31, 2001 and 2000 as a result of the aforementioned reclassifications; and 4) continues to pursue various financing transactions, the proceeds of which will be used to repay short-term debt and for other general corporate purposes, to enhance its liquidity position. Alliant Energy filed a Current Report on Form 8-K, dated Nov. 22, 2002, reporting (under Items 5 and 7) that it issued a press release announcing that its Board of Directors approved five strategic actions designed to maintain strong credit ratings, strengthen its balance sheet and position it for improved long-term financial performance and providing updated 2003 earnings guidance based on these actions. IP&L IP&L filed a Current Report on Form 8-K, dated Dec. 20, 2002, reporting (under Items 5 and 7) that Alliant Energy issued a press release announcing that IP&L completed a private placement of $150 million of preferred stock in accordance with Rule 144A under the Securities Act of 1933. WP&L - None. 132 SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Additions ----------------------------------- Balance, Charged to Charged to Other Balance, Description Jan. 1 Expense Accounts (1) Deductions (2) Dec. 31 - ------------------------------------------------------------------------------------------------------------------------------- (in thousands) Valuation and Qualifying Accounts Which are Deducted in the Balance Sheet From the Assets to Which They Apply: Accumulated Provision for Uncollectible Accounts: ------------------------------------------------- Alliant Energy -------------- Year ended Dec. 31, 2002 $9,045 $15,659 $1,244 $12,072 $13,876 Year ended Dec. 31, 2001 4,341 9,613 2,368 7,277 9,045 Year ended Dec. 31, 2000 3,048 3,644 1,616 3,967 4,341 IP&L ---- Year ended Dec. 31, 2002 $1,883 $3,115 $-- $3,716 $1,282 Year ended Dec. 31, 2001 1,316 7,206 -- 6,639 1,883 Year ended Dec. 31, 2000 1,841 3,273 -- 3,798 1,316 WP&L ---- Year ended Dec. 31, 2002 $1,543 $4,067 $1,244 $4,626 $2,228 Year ended Dec. 31, 2001 8 37 1,498 -- 1,543 Year ended Dec. 31, 2000 6 2 -- -- 8 Note: The above provisions relate to various customer, notes and other receivable balances included in various line items on the respective Consolidated Balance Sheets. Other Reserves: Accumulated Provision for Injuries & Damages, Workers' Compensation, Litigation and Other Miscellaneous Reserves: ----------------------------------------------------------------------------------------------------------------- Alliant Energy -------------- Year ended Dec. 31, 2002 $7,596 $10,221 $-- $4,079 $13,738 Year ended Dec. 31, 2001 12,489 3,047 -- 7,940 7,596 Year ended Dec. 31, 2000 8,963 8,505 -- 4,979 12,489 IP&L ---- Year ended Dec. 31, 2002 $4,618 $4,551 $-- $1,994 $7,175 Year ended Dec. 31, 2001 4,825 1,712 -- 1,919 4,618 Year ended Dec. 31, 2000 5,123 2,766 -- 3,064 4,825 WP&L ---- Year ended Dec. 31, 2002 $2,574 $4,011 $-- $1,732 $4,853 Year ended Dec. 31, 2001 2,689 1,266 -- 1,381 2,574 Year ended Dec. 31, 2000 2,994 1,282 -- 1,587 2,689
(1) Accumulated provision for uncollectible accounts: In 2001, Resources acquired SmartEnergy and assumed a provision of $0.9 million. In 2000, Alliant Energy acquired EUA Cogenex Corporation and assumed a provision of $1.6 million. In accordance with its regulatory treatment, certain amounts provided by WP&L are recorded in regulatory assets. (2) Deductions are of the nature for which the reserves were created. In the case of the accumulated provision for uncollectible accounts, deductions from this reserve are reduced by recoveries of amounts previously written off. 133 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 25th day of March 2003. ALLIANT ENERGY CORPORATION By: /s/ Erroll B. Davis, Jr. ------------------------ Erroll B. Davis, Jr. Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 25th day of March 2003.
/s/ Erroll B. Davis, Jr. Chairman, President, Chief Executive Officer and Director (Principal Executive Officer) - ----------------------------- Erroll B. Davis, Jr. /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer (Principal Financial Officer) - ----------------------------- Thomas M. Walker /s/ John E. Kratchmer Vice President-Controller and Chief Accounting Officer (Principal Accounting Officer) - ----------------------------- John E. Kratchmer /s/ Alan B. Arends Director /s/ David A. Perdue Director - ----------------------------- -------------------------------- Alan B. Arends David A. Perdue /s/ Jack B. Evans Director /s/ Judith D. Pyle Director - ----------------------------- -------------------------------- Jack B. Evans Judith D. Pyle /s/ Joyce L. Hanes Director /s/ Robert W. Schlutz Director - ----------------------------- -------------------------------- Joyce L. Hanes Robert W. Schlutz /s/ Lee Liu Director /s/ Wayne H. Stoppelmoor Director - ----------------------------- -------------------------------- Lee Liu Wayne H. Stoppelmoor /s/ Katharine C. Lyall Director /s/ Anthony R. Weiler Director - ----------------------------- -------------------------------- Katharine C. Lyall Anthony R. Weiler /s/ Singleton B. McAllister Director - ----------------------------- Singleton B. McAllister
134 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 25th day of March 2003. INTERSTATE POWER AND LIGHT COMPANY By: /s/ Erroll B. Davis, Jr. ------------------------ Erroll B. Davis, Jr. Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 25th day of March 2003.
/s/ Erroll B. Davis, Jr. Chairman, Chief Executive Officer and Director (Principal Executive Officer) - ----------------------------- Erroll B. Davis, Jr. /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer (Principal Financial Officer) - ----------------------------- Thomas M. Walker /s/ John E. Kratchmer Vice President-Controller and Chief Accounting Officer (Principal Accounting Officer) - ----------------------------- John E. Kratchmer /s/ Alan B. Arends Director /s/ David A. Perdue Director - ----------------------------- -------------------------------- Alan B. Arends David A. Perdue /s/ Jack B. Evans Director /s/ Judith D. Pyle Director - ----------------------------- -------------------------------- Jack B. Evans Judith D. Pyle /s/ Joyce L. Hanes Director /s/ Robert W. Schlutz Director - ----------------------------- -------------------------------- Joyce L. Hanes Robert W. Schlutz /s/ Lee Liu Director /s/ Wayne H. Stoppelmoor Director - ----------------------------- -------------------------------- Lee Liu Wayne H. Stoppelmoor /s/ Katharine C. Lyall Director /s/ Anthony R. Weiler Director - ----------------------------- -------------------------------- Katharine C. Lyall Anthony R. Weiler /s/ Singleton B. McAllister Director - ----------------------------- Singleton B. McAllister
135 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 25th day of March 2003. WISCONSIN POWER AND LIGHT COMPANY By: /s/ Erroll B. Davis, Jr. ------------------------ Erroll B. Davis, Jr. Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 25th day of March 2003.
/s/ Erroll B. Davis, Jr. Chairman, Chief Executive Officer and Director (Principal Executive Officer) - ----------------------------- Erroll B. Davis, Jr. /s/ Thomas M. Walker Executive Vice President and Chief Financial Officer (Principal Financial Officer) - ----------------------------- Thomas M. Walker /s/ John E. Kratchmer Vice President-Controller and Chief Accounting Officer (Principal Accounting Officer) - ----------------------------- John E. Kratchmer /s/ Alan B. Arends Director /s/ David A. Perdue Director - ----------------------------- -------------------------------- Alan B. Arends David A. Perdue /s/ Jack B. Evans Director /s/ Judith D. Pyle Director - ----------------------------- -------------------------------- Jack B. Evans Judith D. Pyle /s/ Joyce L. Hanes Director /s/ Robert W. Schlutz Director - ----------------------------- -------------------------------- Joyce L. Hanes Robert W. Schlutz /s/ Lee Liu Director /s/ Wayne H. Stoppelmoor Director - ----------------------------- -------------------------------- Lee Liu Wayne H. Stoppelmoor /s/ Katharine C. Lyall Director /s/ Anthony R. Weiler Director - ----------------------------- -------------------------------- Katharine C. Lyall Anthony R. Weiler /s/ Singleton B. McAllister Director - ----------------------------- Singleton B. McAllister
136 CERTIFICATIONS I, Erroll B. Davis, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of Alliant Energy Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Erroll B. Davis, Jr. ------------------------ Erroll B. Davis, Jr. Chairman, President and Chief Executive Officer 137 I, Thomas M. Walker, certify that: 1. I have reviewed this annual report on Form 10-K of Alliant Energy Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Thomas M. Walker -------------------- Thomas M. Walker Executive Vice President and Chief Financial Officer 138 I, Erroll B. Davis, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of Interstate Power and Light Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Erroll B. Davis, Jr. ------------------------ Erroll B. Davis, Jr. Chairman and Chief Executive Officer 139 I, Thomas M. Walker, certify that: 1. I have reviewed this annual report on Form 10-K of Interstate Power and Light Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Thomas M. Walker -------------------- Thomas M. Walker Executive Vice President and Chief Financial Officer 140 I, Erroll B. Davis, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of Wisconsin Power and Light Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Erroll B. Davis, Jr. ------------------------ Erroll B. Davis, Jr. Chairman and Chief Executive Officer 141 I, Thomas M. Walker, certify that: 1. I have reviewed this annual report on Form 10-K of Wisconsin Power and Light Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 /s/ Thomas M. Walker -------------------- Thomas M. Walker Executive Vice President and Chief Financial Officer 142 ALLIANT ENERGY CORPORATION INTERSTATE POWER AND LIGHT COMPANY WISCONSIN POWER AND LIGHT COMPANY Exhibit Index to Annual Report on Form 10-K For the fiscal year ended Dec. 31, 2002
Exhibit Number Description ------ ----------- 3.5a Articles of Amendment to IP&L's Restated Articles of Incorporation 4.16a Fourth Supplemental Indenture, dated as of Dec. 26, 2002, among Resources, Alliant Energy, as Guarantor, and U.S. Bank, as Trustee 4.17 Registration Rights Agreement, dated as of Dec. 26, 2002, among Resources, Alliant Energy, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Utehdahl Capital Partners, L.P. and The Williams Capital Group, L.P. 4.18 Registration Rights Agreement, dated as of Dec. 20, 2002, between IP&L and Robert W. Baird & Co. Incorporated 10.4 364-Day Credit Agreement, dated as of Dec. 27, 2002, among Resources, as Borrower, and Alliant Energy, Heartland Properties, Inc. and International, as Guarantors and the Lenders Named therein and Merrill Lynch Capital Corporation, as Administrative Agent 10.5 Credit Agreement, dated as of Dec. 20, 2002, among Whiting, as Borrower, the Financial Institutions Listed on Schedule 1.1 thereto, as Banks, Bank One, NA, as Administrative Agent, and Wachovia Bank, National Association, as Syndication Agent 10.5a First Amendment to Credit Agreement, dated as of Jan. 7, 2003, by and among Whiting, Bank One, NA, as Administrative Agent and each of the Financial Institutions a Party thereto 21 Subsidiaries of Alliant Energy and WP&L 23 Independent Auditors' Consent for Alliant Energy 99.1 Written Statement of the Chairman, President and CEO Pursuant to 18 U.S.C. Section 1350 for Alliant Energy 99.2 Written Statement of the EVP and CFO Pursuant to 18 U.S.C. Section 1350 for Alliant Energy 99.3 Written Statement of the Chairman and CEO Pursuant to 18 U.S.C. Section 1350 for IP&L 99.4 Written Statement of the EVP and CFO Pursuant to 18 U.S.C. Section 1350 for IP&L 99.5 Written Statement of the Chairman and CEO Pursuant to 18 U.S.C. Section 1350 for WP&L 99.6 Written Statement of the EVP and CFO Pursuant to 18 U.S.C. Section 1350 for WP&L
143 EX-3 3 exhibit3pt5a.txt EXHIBIT 3.5A EXHIBIT 3.5a ARTICLES OF AMENDMENT OF INTERSTATE POWER AND LIGHT COMPANY (Regarding Designation and Authorization of 8.375% Series A Cumulative Preferred Stock and 8.375% Series B Cumulative Preferred Stock) TO THE SECRETARY OF STATE OF THE STATE OF IOWA: Pursuant to Section 602 of the Iowa Business Corporation Act, Interstate Power and Light Company, an Iowa corporation (the "Corporation"), adopts the following amendment regarding the designation and authorization of 8.375% Series A Cumulative Preferred Stock and 8.375% Series B Cumulative Preferred Stock by the Corporation. 1. The name of the Corporation is Interstate Power and Light Company. 2. The preferences, limitations, relative rights and other terms of the 8.375% Series A Cumulative Preferred Stock and the 8.375% Series B Cumulative Preferred Stock were determined by Erroll B. Davis, Jr., Chairman and Chief Executive Officer of the Corporation (the "Senior Executive Officer"), pursuant to authority granted by the Board of Directors of the Corporation under Section 490.825(5)(h) of the Iowa Business Corporation Act on November 20, 2002. A true and correct copy of the portion of the consent action by which the Senior Executive Officer authorized the 8.375% Series A Cumulative Preferred Stock and the 8.375% Series B Cumulative Preferred Stock and determined the respective preferences, limitations, relative rights and other terms thereof is attached hereto as Exhibit A and incorporated herein by this reference. 3. The consent action of the Senior Executive Officer as set forth in Exhibit A was duly adopted by such Senior Executive Officer on December 18, 2002 pursuant to authority granted by the Board of Directors of the Corporation under Section 490.825(5)(h) of the Iowa Business Corporation Act on November 20, 2002. Dated: December 18, 2002 INTERSTATE POWER AND LIGHT COMPANY By: /s/ Erroll B. Davis, Jr. ------------------------------------ Chairman and Chief Executive Officer CONSENT ACTION OF SENIOR EXECUTIVE OFFICER ESTABLISHING 8.375% SERIES A CUMULATIVE PREFERRED STOCK AND 8.375% SERIES B CUMULATIVE PREFERRED STOCK There is hereby authorized and established a series of shares of Preferred Stock, $.01 par value, of the Company to be known and designated as the 8.375% Series A Cumulative Preferred Stock, with the preferences, limitations, relative rights and other terms as set forth below. There is also hereby authorized and established a series of shares of Preferred Stock, $.01 par value, of the Company to be known and designated as the 8.375% Series B Cumulative Preferred Stock, with the preferences, limitations, relative rights and other terms as set forth below. CERTIFICATE OF DESIGNATION 8.375% Series A Cumulative Preferred Stock Section 1. Designation and Number. ----------------------- (a) There is hereby created out of the authorized but unissued Preferred Stock a series of Preferred Stock designated as "8.375% Series A Cumulative Preferred Stock" (the "Series A Preferred Stock"). The number of shares constituting the Series A Preferred Stock shall be 6,000,000. (b) All shares of the Series A Preferred Stock redeemed, purchased, exchanged, converted or otherwise acquired by the Corporation shall be retired and canceled and, upon the taking of any action required by applicable law, shall be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series, and may thereafter be designated or redesignated and issued or reissued as part of any series of Preferred Stock. At such time as no shares of Series A Preferred Stock are issued and outstanding as a result of the issuance of shares of Series B Preferred Stock in exchange for shares of Series A Preferred Stock pursuant to the Exchange Offer, the appropriate officers of the Corporation shall promptly cause to be prepared and duly filed with the Secretary of State of the State of Iowa such documents as are necessary to restate the Restated Articles of Incorporation to eliminate the Sections 1 through 8 establishing the Series A Preferred Stock. (c) Capitalized terms used herein and not otherwise defined herein or in the Corporation's Restated Articles of Incorporation shall have the meanings set forth in Section 7. Section 2. Ranking. -------- (a) The Series A Preferred Stock shall rank, with respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up of the Corporation: (i) senior to Junior Stock; and (ii) on a parity with Parity Stock. Section 3. Dividends. ---------- (a) The holders of shares of the Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the payment of dividends, cash dividends at an annual rate of 8.375% of the Liquidation Preference (the "Original Rate"). (b) In the event that a Registration Default occurs, the rate of dividends that accrues on the Series A Preferred Stock shall be increased ("Additional Dividend Payments") by 0.25% per annum upon the occurrence of a Registration Default, which rate shall increase by an additional 0.25% at the beginning of each subsequent 90-day period that such Additional Dividend Payments continue to accrue under any such circumstance, provided that the maximum aggregate increase in the dividend accrual rate shall in no event exceed 1.25% per annum. Following the cure of all Registration Defaults the accrual of Additional Dividend Payments shall cease and the dividend accrual rate shall revert to the Original Rate. (c) If the Shelf Registration Statement (if required) is unusable by the holders of the Series A Preferred Stock for any reason after the Shelf Registration Statement has been declared effective by the SEC, and the aggregate number of days in any consecutive twelve-month period for which the Shelf Registration Statement shall not be usable exceeds 30 days in the aggregate, then the rate of dividend payments that accrues on the Series A Preferred Stock, so long as any shares of Series A Preferred Stock are Registrable Securities, shall be increased by 0.25% per annum for the first 90-day period (or portion thereof) beginning on the 31st day following the date that such Shelf Registration Statement ceases to be usable, which rate shall be increased by an additional 0.25% per annum at the beginning of each subsequent 90-day period, provided that the maximum aggregate increase in the dividend accrual rate shall in no event exceed 1.25% per annum. Any amounts payable under this Section 3(c) shall also be deemed "Additional Dividend Payments." Upon the Shelf Registration Statement once again becoming usable, the rate of dividend payments that accrues on the Series A Preferred Stock shall be reduced to the Original Rate if the Corporation is otherwise in compliance with the Registration Rights Agreement at such time. Additional Dividend Payments shall be computed based on the actual number of days elapsed in each 90-day period in which the Shelf Registration Statement is unusable. (d) The Corporation shall notify each record holder of the Series A Preferred Stock within three Business Days after each and every date on which an event occurs in respect of which Additional Dividend Payments are required to be paid (an "Event Date"). The Additional Dividend Payments due shall be payable on each dividend payment date with respect to the Series A Preferred Stock as set forth in Section 3(e) and on the same terms and conditions and subject to the same limitations as pertain at such time for the payment of regular dividends. Each obligation to pay Additional Dividend Payments shall be deemed to accrue and be cumulative from and including the day following the applicable Event Date. (e) All dividends on the Series A Preferred Stock (other than Additional Dividends) shall accrue and be cumulative from the date of original issuance. Dividends shall be payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, beginning on March 15, 2003. If any of those dates is not a Business Day, then dividends shall be payable on the next succeeding Business Day. Dividends shall be payable on those dates to holders of record as they appear in the stock records of the Corporation at the close of business on the applicable record date, which shall be the last Business Day of the month prior to the month in which the applicable dividend payment date falls. The amount of dividends payable for the initial dividend period or any period shorter than a full dividend period shall be computed on the basis of a 360-day year consisting of twelve 30-day months and the actual number of days elapsed in the period. (f) The Board of Directors shall not authorize, and the Corporation shall not pay, any dividends on the Series A Preferred Stock or set aside funds for the payment of dividends if the terms of any of the Corporation's agreements, including agreements relating to indebtedness, prohibit that authorization, payment or setting aside of funds or provide that the authorization, payment or setting aside of funds is a breach of or a default under that agreement, or if the authorization, payment or setting aside of funds is restricted or prohibited by law. (g) Notwithstanding the provisions of Section 3(f), dividends on the Series A Preferred Stock shall accrue whether or not the Corporation has earnings, whether or not there are funds legally available for the payment of dividends and whether or not dividends are authorized. No interest shall be paid in respect of any accrued but unpaid dividends on the Series A Preferred Stock. (h) Holders of shares of the Series A Preferred Stock shall not be entitled to any dividends in excess of full cumulative dividends on the Series A Preferred Stock as described above. Any dividend payment made on the Series A Preferred Stock shall first be credited against the earliest accrued and unpaid dividend due. (i) The Corporation shall not pay any dividends with respect to Junior Stock if dividends payable on the Series A Preferred Stock are in arrears. Section 4. Liquidation Preference. ----------------------- (a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, each holder of shares of the Series A Preferred Stock shall be entitled to payment, out of the Corporation's assets available for distribution to its shareowners, of an amount equal to the Liquidation Preference plus an amount equal to all accrued and unpaid dividends on those shares to, but excluding, the date of liquidation, dissolution or winding up before any distribution is made on any Junior Stock. After payment in full of the Liquidation Preference and the amount equal to all accrued and unpaid dividends to which holders of shares of the Series A Preferred Stock are entitled, the holders of the Series A Preferred Stock shall not be entitled to any further participation in any distribution of the Corporation's assets. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the amounts payable with respect to shares of the Series A Preferred Stock and any Parity Stock are not paid in full, then the holders of shares of the Series A Preferred Stock and the holders of the Parity Stock shall share equally and ratably in any distribution of the Corporation's assets in proportion to the full distributable amounts to which each such holder is entitled. (b) Neither the voluntary sale, conveyance, exchange or transfer, for cash, shares of stock, securities or other consideration, of all or substantially all of the Corporation's property or assets nor the consolidation, merger or amalgamation of the Corporation with or into any other entity or the consolidation, merger or amalgamation of any other entity with or into the Corporation will be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Corporation. Section 5. Redemption. ----------- (a) The Corporation may not redeem the Series A Preferred Stock prior to March 15, 2013. On or after March 15, 2013, the Corporation, at its sole option, may redeem the Series A Preferred Stock, out of funds legally available therefor, in whole or in part from time to time at a price of $25 per share, plus an amount equal to accrued and unpaid dividends to, but excluding, the redemption date (the "Redemption Price"). (b) In the case of any partial redemption, the Corporation may select the shares of the Series A Preferred Stock to be redeemed on a pro rata basis, by lot or any other method that the Corporation, in its discretion, deems fair and appropriate. However, the Corporation may, without regard to proportionality or any other factor, redeem all of the shares of the Series A Preferred Stock held by any holders of fewer than 100 shares of the Series A Preferred Stock (or all the shares of the Series A Preferred Stock held by holders who would hold fewer than 100 shares of the Series A Preferred Stock as a result of such redemption). (c) If the Corporation elects to redeem the Series A Preferred Stock in the manner described in this Section 5, then notice of such redemption (the "Redemption Notice") shall be given to the holders of record of shares of the Series A Preferred Stock not less than 45 nor more than 90 days before the date of the redemption (the "Redemption Date"); provided, however, that no failure to give such Redemption Notice on or any deficiency therein shall affect the validity of the procedure for the redemption of any shares of the Series A Preferred Stock to be redeemed except as to the holder or holders to whom the Corporation has failed to give said Redemption Notice or except as to the holder or holders whose Redemption Notice was defective. All such Redemption Notices shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the total number of shares of the Series A Preferred Stock to be redeemed; (iv) that the Redemption Price will become due and payable on the Redemption Date upon each such share of Series A Preferred Stock to be redeemed and that dividends thereon will cease to accrue on and after the Redemption Date; and (v) the place or places where certificates for the Series A Preferred Stock are to be surrendered for payment of the Redemption Price. (d) Prior to any Redemption Date, the Corporation shall deposit with a designated bank or trust company as paying agent (or, if the Transfer Agent or the Corporation is acting as the paying agent, segregate and hold in trust) an amount of consideration sufficient to pay the Redemption Price of all shares of Series A Preferred Stock which are to be redeemed on that date other than any Series A Preferred Stock called for prior to the date of such deposit. (e) Notice of redemption having been given as described above, the Redemption Price of the Series A Preferred Stock to be redeemed shall, on the Redemption Date, become due and payable, and from and after such date (unless the Corporation shall default in the payment of the Redemption Price), such shares of Series A Preferred Stock shall no longer be outstanding, dividends on such Series A Preferred Stock shall cease to accrue and all rights of holders thereof as shareowners of the Corporation (except the right to receive the Redemption Price without interest) shall cease. Upon book-entry transfer or surrender of any certificate representing any such share of Series A Preferred Stock for redemption in accordance with said notice, such Redemption Price shall thereupon be paid. (f) If any certificate that represents more than one share of Series A Preferred Stock, not all of which are subject to redemption, is surrendered at any office or agency of the Corporation designated for that purpose (with, if the Corporation or the Transfer Agent so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Corporation and the Transfer Agent duly executed by, the holder thereof or such holder's attorney duly authorized in writing), the Corporation shall execute, and the Transfer Agent shall deliver to the holder of such shares of Series A Preferred Stock without service charge, a new certificate or certificates, representing any number of shares of Series A Preferred Stock, as requested by such holder, in an aggregate amount equal to the number of shares not redeemed and represented by the certificate so surrendered. (g) Payment of the Redemption Price for the Series A Preferred Stock is conditioned upon book-entry transfer or physical delivery of the certificates representing the Series A Preferred Stock, together with necessary endorsements to the Transfer Agent at any time after delivery of the Redemption Notice. Payment of the Redemption Price for the Series A Preferred Stock will be made promptly following the later of the Redemption Date and the time of book-entry transfer or physical delivery of the certificates representing the Series A Preferred Stock subject to redemption. (h) If the Transfer Agent holds money sufficient to pay the Redemption Price of the Series A Preferred Stock on the Redemption Date in accordance with the terms of this Section 5, then, on the Redemption Date, the Series A Preferred Stock will cease to be outstanding, whether or not book-entry transfer is made or certificates representing the Series A Preferred Stock are delivered to the Transfer Agent. At such time, all rights of a holder as a holder of Series A Preferred Stock shall terminate, other than the right to receive the Redemption Price. (i) If the Redemption Date falls after a dividend payment record date and before the related dividend payment date, then the holders of the shares of Series A Preferred Stock at the close of business on that dividend payment record date will be entitled to receive the dividend payable of those shares on the corresponding dividend payment date. However, the Redemption Price payable on such Redemption Date will not include dividends accruing on that dividend payment record date and payable on the corresponding dividend payment date. Section 6. Voting Rights. -------------- (a) The shares of Series A Preferred Stock shall have no voting rights except as set forth in this Section 6 or as otherwise provided by Iowa law. (b) In the event that any four quarterly cumulative dividends, whether consecutive or not, payable on the Series A Preferred Stock are in arrears, the holders of the Series A Preferred Stock shall have the right, voting separately as a class together with holders of any Parity Stock upon which like voting rights have been conferred and are exercisable, at the next meeting of shareowners called for the election of directors, to elect two members of the Board of Directors. The right of such holders of the Series A Preferred Stock to elect members of the Board of Directors shall continue until such time as all dividends accumulated and in arrears on such shares of the Series A Preferred Stock have been paid in full, at which time such right will terminate, subject to revesting in the event of each and every subsequent failure to pay dividends as described above. Upon any termination of the right of the holders of the Series A Preferred Stock to vote as a class for directors, the term of office of all directors then in office elected by such holders voting as a class will terminate immediately. (c) Without the affirmative vote or consent of the holders of at least two-thirds of the outstanding shares of the Series A Preferred Stock, voting as a single class, or voting as a single class together with holders of any other series of Preferred Stock (i) upon which like voting or consent rights have been conferred and (ii) which are similarly affected by the matter to be voted upon, the Corporation shall not: (i) increase the amount of authorized shares of the Preferred Stock or create or issue any class of stock in addition to the Preferred Stock ranking senior to or on a parity with the Preferred Stock, or any series thereof, as to the payment of dividends or the distribution of assets; (ii) adopt any amendment to the Restated Articles of Incorporation of the Corporation that adversely alters the preferences, powers and rights of the Series A Preferred Stock (provided, that Articles of Amendment to issue a series of Preferred Stock shall not be considered to adversely alter the preferences, powers and rights of the Series A Preferred Stock solely because such series is on parity with the Series A Preferred Stock with respect to payment of dividends and distribution of assets); (iii) issue any shares of Preferred Stock of any series if the cumulative dividends payable on the Series A Preferred Stock are in arrears; or (iv) create or issue any shares of Preferred Stock of any series that rank senior to the Series A Preferred Stock as to payment of dividends or the distribution of assets. (d) On any matter set forth in Section 6(b) or Section 6(c) in which the holders of the Series A Preferred Stock are entitled to vote as a class, such holders will be entitled to one vote per share. On any other matter for which holders of the Series A Preferred Stock are provided the right to vote together with holders of the Common Stock under Iowa law, if any, holders of the Series A Preferred Stock will be entitled to the number of votes per share determined by dividing the Liquidation Preference of such share by 100. Section 7. Certain Definitions. As used in this Amendment, the following -------------------- terms shall have the following meanings, unless the context otherwise requires: (a) "Board of Directors" means the board of directors of the Corporation. (b) "Business Day" means any day other than a Saturday, Sunday or U.S. Federal holiday or day on which commercial banks in the City of New York or the States of Iowa or Wisconsin are authorized or required by law or executive order to close. (c) "Exchange Offer" shall have the meaning set forth in the Registration Rights Agreement. (d) "Exchange Offer Registration Statement" shall have the meaning set forth in the Registration Rights Agreement. (e) "Junior Stock" means the Common Stock and any other of the Corporation's equity securities that by their terms rank junior to the Series A Preferred Stock with respect to payment of dividends and distribution of assets upon the liquidation, dissolution or winding up of the Corporation. (f) "Liquidation Preference" means $25 per share of the Series A Preferred Stock. (g) "Parity Stock" means any series of preferred stock established hereafter by the Board of Directors, the terms of which expressly provide that such series will rank on a parity with the Series A Preferred Stock with respect to payment of dividends and distribution of assets upon the liquidation, dissolution or winding up of the Corporation. (h) A "Registration Default" occurs if: (i) the Exchange Offer Registration Statement is not filed with the SEC on or prior to April 1, 2003; (ii) the Exchange Offer Registration Statement has not been declared effective on or prior to June 1, 2003; (iii) the Exchange Offer is not consummated on or prior to July 1, 2003; or (iv) if required, the Shelf Registration Statement is not declared effective on or prior to July 1, 2003. (i) "Registrable Securities" shall have the meaning set forth in the Registration Rights Agreement. (j) "Registration Rights Agreement" means the Registration Rights Agreement, between the Corporation and Robert W. Baird & Co. Incorporated, with respect to the Series A Preferred Stock. (k) "SEC" means the United States Securities and Exchange Commission or any successor agency or government body performing the functions currently performed by the United States Securities and Exchange Commission. (l) "Shelf Registration Statement" shall have the meaning set forth in the Registration Rights Agreement. (m) "Transfer Agent" means the Shareowner Services Department of Alliant Energy Corporation, as the transfer agent of the Corporation, and any successor transfer agent duly appointed by the Corporation. Section 8. Headings. The headings of the Sections are for convenience of --------- reference only and shall not define, limit or affect any of the provisions hereof. 8.375% Series B Cumulative Preferred Stock Section 1. Designation and Number. ----------------------- (a) There is hereby created out of the authorized but unissued Preferred Stock a series of Preferred Stock designated as "8.375% Series B Cumulative Preferred Stock" (the "Series B Preferred Stock"). The number of shares constituting the Series B Preferred Stock shall be 6,000,000. (b) All shares of the Series B Preferred Stock redeemed, purchased, exchanged, converted or otherwise acquired by the Corporation shall be retired and canceled and, upon the taking of any action required by applicable law, shall be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series, and may thereafter be designated or redesignated and issued or reissued as part of any series of Preferred Stock. (c) Capitalized terms used herein and not otherwise defined herein or in the Corporation's Restated Articles of Incorporation shall have the meanings set forth in Section 7. Section 2. Ranking. -------- (a) The Series B Preferred Stock shall rank, with respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up of the Corporation: (i) senior to Junior Stock; and (ii) on a parity with Parity Stock. Section 3. Dividends. ---------- (a) The holders of shares of the Series B Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the payment of dividends, cash dividends at an annual rate of 8.375% of the Liquidation Preference. (b) All dividends on the Series B Preferred Stock shall accrue and be cumulative from the date of original issuance, subject to the following. Dividends shall be payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, beginning on the First Dividend Payment Date. If any of those dates is not a Business Day, then dividends shall be payable on the next succeeding Business Day. Dividends shall be payable on those dates to holders of record as they appear in the stock records of the Corporation at the close of business on the applicable record date, which shall be the last Business Day of the month prior to the month in which the applicable dividend payment date falls. Holders of shares of the Series A Preferred Stock exchanged for shares of the Series B Preferred Stock will not be entitled to receive any payments with respect to unpaid dividends on shares of the Series A Preferred Stock so exchanged. Notwithstanding the foregoing, on the First Dividend Payment Date, each share of the Series B Preferred Stock that was issued in exchange for a share of Series A Preferred Stock shall entitle the holder thereof to receive, when, as and if declared by the Board of Directors out of funds legally available for the payment of dividends, cash dividends in an amount equal to the cumulative dividends to which the holder of the shares of the Series A Preferred Stock in exchange for which such share of the Series B Preferred Stock was issued would have been entitled had such share of Series A Preferred Stock been outstanding on the applicable record date for such First Dividend Payment Date. The amount of dividends payable for the initial dividend period or any period shorter than a full dividend period shall be computed on the basis of a 360-day year consisting of twelve 30-day months and the actual number of days elapsed in the period. (c) The Board of Directors shall not authorize, and the Corporation shall not pay, any dividends on the Series B Preferred Stock or set aside funds for the payment of dividends if the terms of any of the Corporation's agreements, including agreements relating to indebtedness, prohibit that authorization, payment or setting aside of funds or provide that the authorization, payment or setting aside of funds is a breach of or a default under that agreement, or if the authorization, payment or setting aside of funds is restricted or prohibited by law. (d) Notwithstanding the provisions of Section 3(f), dividends on the Series B Preferred Stock shall accrue whether or not the Corporation has earnings, whether or not there are funds legally available for the payment of dividends and whether or not dividends are authorized. No interest shall be paid in respect of any accrued but unpaid dividends on the Series B Preferred Stock. (e) Holders of shares of the Series B Preferred Stock shall not be entitled to any dividends in excess of full cumulative dividends on the Series B Preferred Stock as described above. Any dividend payment made on the Series B Preferred Stock shall first be credited against the earliest accrued and unpaid dividend due. (f) The Corporation shall not pay any dividends with respect to Junior Stock if dividends payable on the Series B Preferred Stock are in arrears. Section 4. Liquidation Preference. ----------------------- (a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, each holder of shares of the Series B Preferred Stock shall be entitled to payment, out of the Corporation's assets available for distribution to its shareowners, of an amount equal to the Liquidation Preference plus an amount equal to all accrued and unpaid dividends on those shares to, but excluding, the date of liquidation, dissolution or winding up before any distribution is made on any Junior Stock. After payment in full of the Liquidation Preference and the amount equal to all accrued and unpaid dividends to which holders of shares of the Series B Preferred Stock are entitled, the holders of the Series B Preferred Stock shall not be entitled to any further participation in any distribution of the Corporation's assets. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the amounts payable with respect to shares of the Series B Preferred Stock and any Parity Stock are not paid in full, then the holders of shares of the Series B Preferred Stock and the holders of the Parity Stock shall share equally and ratably in any distribution of the Corporation's assets in proportion to the full distributable amounts to which each such holder is entitled. (b) Neither the voluntary sale, conveyance, exchange or transfer, for cash, shares of stock, securities or other consideration, of all or substantially all of the Corporation's property or assets nor the consolidation, merger or amalgamation of the Corporation with or into any other entity or the consolidation, merger or amalgamation of any other entity with or into the Corporation will be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Corporation. Section 5. Redemption. ----------- (a) The Corporation may not redeem the Series B Preferred Stock prior to March 15, 2013. On or after March 15, 2013, the Corporation, at its sole option, may redeem the Series B Preferred Stock, out of funds legally available therefor, in whole or in part from time to time at a price of $25 per share, plus an amount equal to accrued and unpaid dividends to, but excluding, the redemption date (the "Redemption Price"). (b) In the case of any partial redemption, the Corporation may select the shares of the Series B Preferred Stock to be redeemed on a pro rata basis, by lot or any other method that the Corporation, in its discretion, deems fair and appropriate. However, the Corporation may, without regard to proportionality or any other factor, redeem all of the shares of the Series B Preferred Stock held by any holders of fewer than 100 shares of the Series B Preferred Stock (or all the shares of the Series B Preferred Stock held by holders who would hold fewer than 100 shares of the Series B Preferred Stock as a result of such redemption). (c) If the Corporation elects to redeem the Series B Preferred Stock in the manner described in this Section 5, then notice of such redemption (the "Redemption Notice") shall be given to the holders of record of shares of the Series B Preferred Stock not less than 45 nor more than 90 days before the date of the redemption (the "Redemption Date"); provided, however, that no failure to give such Redemption Notice on or any deficiency therein shall affect the validity of the procedure for the redemption of any shares of the Series B Preferred Stock to be redeemed except as to the holder or holders to whom the Corporation has failed to give said Redemption Notice or except as to the holder or holders whose Redemption Notice was defective. All such Redemption Notices shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the total number of shares of the Series B Preferred Stock to be redeemed; (iv) that the Redemption Price will become due and payable on the Redemption Date upon each such share of Series B Preferred Stock to be redeemed and that dividends thereon will cease to accrue on and after the Redemption Date; and (v) the place or places where certificates for the Series B Preferred Stock are to be surrendered for payment of the Redemption Price. (d) Prior to any Redemption Date, the Corporation shall deposit with a designated bank or trust company as paying agent (or, if the Transfer Agent or the Corporation is acting as the paying agent, segregate and hold in trust) an amount of consideration sufficient to pay the Redemption Price of all shares of Series B Preferred Stock which are to be redeemed on that date other than any Series B Preferred Stock called for prior to the date of such deposit. (e) Notice of redemption having been given as described above, the Redemption Price of the Series B Preferred Stock to be redeemed shall, on the Redemption Date, become due and payable, and from and after such date (unless the Corporation shall default in the payment of the Redemption Price), such shares of Series B Preferred Stock shall no longer be outstanding, dividends on such Series B Preferred Stock shall cease to accrue and all rights of holders thereof as shareowners of the Corporation (except the right to receive the Redemption Price without interest) shall cease. Upon book-entry transfer or surrender of any certificate representing any such share of Series B Preferred Stock for redemption in accordance with said notice, such Redemption Price shall thereupon be paid. (f) If any certificate that represents more than one share of Series B Preferred Stock, not all of which are subject to redemption, is surrendered at any office or agency of the Corporation designated for that purpose (with, if the Corporation or the Transfer Agent so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Corporation and the Transfer Agent duly executed by, the holder thereof or such holder's attorney duly authorized in writing), the Corporation shall execute, and the Transfer Agent shall deliver to the holder of such shares of Series B Preferred Stock without service charge, a new certificate or certificates, representing any number of shares of Series B Preferred Stock, as requested by such holder, in an aggregate amount equal to the number of shares not redeemed and represented by the certificate so surrendered. (g) Payment of the Redemption Price for the Series B Preferred Stock is conditioned upon book-entry transfer or physical delivery of the certificates representing the Series B Preferred Stock, together with necessary endorsements to the Transfer Agent at any time after delivery of the Redemption Notice. Payment of the Redemption Price for the Series B Preferred Stock will be made promptly following the later of the Redemption Date and the time of book-entry transfer or physical delivery of the certificates representing the Series B Preferred Stock subject to redemption. (h) If the Transfer Agent holds money sufficient to pay the Redemption Price of the Series B Preferred Stock on the Redemption Date in accordance with the terms of this Section 5, then, on the Redemption Date, the Series B Preferred Stock will cease to be outstanding, whether or not book-entry transfer is made or certificates representing the Series B Preferred Stock are delivered to the Transfer Agent. At such time, all rights of a holder as a holder of Series B Preferred Stock shall terminate, other than the right to receive the Redemption Price. (i) If the Redemption Date falls after a dividend payment record date and before the related dividend payment date, then the holders of the shares of Series B Preferred Stock at the close of business on that dividend payment record date will be entitled to receive the dividend payable of those shares on the corresponding dividend payment date. However, the Redemption Price payable on such Redemption Date will not include dividends accruing on that dividend payment record date and payable on the corresponding dividend payment date. Section 6. Voting Rights. -------------- (a) The shares of Series B Preferred Stock shall have no voting rights except as set forth in this Section 6 or as otherwise provided by Iowa law. (b) In the event that any four quarterly cumulative dividends, whether consecutive or not, payable on the Series B Preferred Stock are in arrears, the holders of the Series B Preferred Stock shall have the right, voting separately as a class together with holders of any Parity Stock upon which like voting rights have been conferred and are exercisable, at the next meeting of shareowners called for the election of directors, to elect two members of the Board of Directors. The right of such holders of the Series B Preferred Stock to elect members of the Board of Directors shall continue until such time as all dividends accumulated and in arrears on such shares of the Series B Preferred Stock have been paid in full, at which time such right will terminate, subject to revesting in the event of each and every subsequent failure to pay dividends as described above. Upon any termination of the right of the holders of the Series B Preferred Stock to vote as a class for directors, the term of office of all directors then in office elected by such holders voting as a class will terminate immediately. (c) Without the affirmative vote or consent of the holders of at least two-thirds of the outstanding shares of the Series B Preferred Stock, voting as a single class, or voting as a single class together with holders of any other series of Preferred Stock (i) upon which like voting or consent rights have been conferred and (ii) which are similarly affected by the matter to be voted upon, the Corporation shall not: (i) increase the amount of authorized shares of the Preferred Stock or create or issue any class of stock in addition to the Preferred Stock ranking senior to or on a parity with the Preferred Stock, or any series thereof, as to the payment of dividends or the distribution of assets; (ii) adopt any amendment to the Restated Articles of Incorporation of the Corporation that adversely alters the preferences, powers and rights of the Series B Preferred Stock (provided, that Articles of Amendment to issue a series of Preferred Stock shall not be considered to adversely alter the preferences, powers and rights of the Series B Preferred Stock solely because such series is on parity with the Series B Preferred Stock with respect to payment of dividends and distribution of assets); (iii) issue any shares of Preferred Stock of any series if the cumulative dividends payable on the Series B Preferred Stock are in arrears; or (iv) create or issue any shares of Preferred Stock of any series that rank senior to the Series B Preferred Stock as to payment of dividends or the distribution of assets. (d) On any matter set forth in Section 6(b) or Section 6(c) in which the holders of the Series B Preferred Stock are entitled to vote as a class, such holders will be entitled to one vote per share. On any other matter for which holders of the Series B Preferred Stock are provided the right to vote together with holders of the Common Stock under Iowa law, if any, holders of the Series B Preferred Stock will be entitled to the number of votes per share determined by dividing the Liquidation Preference of such share by 100. Section 7. Certain Definitions. As used in this Amendment, the following -------------------- terms shall have the following meanings, unless the context otherwise requires: (a) "Board of Directors" means the board of directors of the Corporation. (b) "Business Day" means any day other than a Saturday, Sunday or U.S. Federal holiday or day on which commercial banks in the City of New York or the States of Iowa or Wisconsin are authorized or required by law or executive order to close. (c) "First Dividend Payment Date" means the first dividend payment date to occur following the date on which shares of the Series B Preferred Stock are first issued in exchange for shares of the Series A Preferred Stock. (d) "Junior Stock" means the Common Stock and any other of the Corporation's equity securities that by their terms rank junior to the Series B Preferred Stock with respect to payment of dividends and distribution of assets upon the liquidation, dissolution or winding up of the Corporation. (e) "Liquidation Preference" means $25 per share of the Series B Preferred Stock. (f) "Parity Stock" means any series of preferred stock established hereafter by the Board of Directors, the terms of which expressly provide that such series will rank on a parity with the Series B Preferred Stock with respect to payment of dividends and distribution of assets upon the liquidation, dissolution or winding up of the Corporation. (g) "Transfer Agent" means the Shareowner Services Department of Alliant Energy Corporation, as the transfer agent of the Corporation, and any successor transfer agent duly appointed by the Corporation. Section 8. Headings. The headings of the Sections are for convenience of --------- reference only and shall not define, limit or affect any of the provisions hereof. EX-4 4 exhibit4pt16a.txt EXHIBIT 4.16A Execution Copy -------------- EXHIBIT 4.16a FOURTH SUPPLEMENTAL INDENTURE DATED AS OF DECEMBER 26, 2002 ALLIANT ENERGY RESOURCES, INC., Company, ALLIANT ENERGY CORPORATION, As Guarantor, and U.S. BANK NATIONAL ASSOCIATION, as Trustee Fourth Supplemental Indenture to the Indenture dated as of November 4, 1999 FOURTH SUPPLEMENTAL INDENTURE, dated as of December 26, 2002 (the "Fourth Supplemental Indenture"), among ALLIANT ENERGY RESOURCES, INC., a Wisconsin corporation (the "Company"), ALLIANT ENERGY CORPORATION, a Wisconsin corporation, as guarantor (the "Guarantor"), and U.S. BANK NATIONAL ASSOCIATION, as successor to FIRSTAR BANK, N.A., as Trustee (the "Trustee"). RECITALS OF THE COMPANY AND THE GUARANTOR The Company and the Guarantor have heretofore executed and delivered to the Trustee an Indenture, dated as of November 4, 1999 (as supplemented by the First Supplemental Indenture dated as of November 4, 1999, the Second Supplemental Indenture dated as of February 1, 2000 and the Third Supplemental Indenture dated as of November 15, 2001, and as may be further supplemented and amended from time to time, the "Indenture"), providing for the issuance from time to time of the Company's unsecured unsubordinated debentures, notes or other evidences of indebtedness (the "Securities"), to be issued in one or more series as provided in the Indenture. It is provided in Section 2.02 of the Indenture that the Company, the Guarantor and the Trustee may enter into indentures supplemental thereto to establish the form or terms of Securities of any series. The Company and the Guarantor desire to supplement and amend the Indenture to allow for the issuance of Securities to be initially sold within the United States to U.S. Persons that are Qualified Institutional Buyers and issued in the form of one or more Restricted Global Securities deposited with the Trustee, as custodian for the Depositary, and registered in the name of a nominee of the Depositary. The Company and the Guarantor desire to set forth the terms and form of a new series of Restricted Securities to be known as the Company's 9.75% Senior Notes, in an aggregate principal amount of THREE HUNDRED MILLION DOLLARS ($300,000,000) (the "9.75% Senior Notes") and guaranteed by the Guarantor. The 9.75% Senior Notes and the certificate of authentication to be borne by the 9.75% Senior Notes are to be substantially in the form set forth in Exhibit A hereto. NOW, THEREFORE, THIS FOURTH SUPPLEMENTAL INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the 9.75% Senior Notes by the Holders (as defined herein) thereof, it is mutually covenanted and agreed as follows for the equal and ratable benefit of the Holders of the 9.75% Senior Notes: ARTICLE 1. AMENDMENTS Section 1.01. Article 1 of the Indenture shall be amended by inserting in Section 1.01 the following new terms with the following definitions in the appropriate alphabetic positions: "Additional Interest" with respect to the 9.75% Senior Notes has the meaning set forth in Section 2.06 of the Fourth Supplemental Indenture. "Adjustment Date" means any date on which the interest rate on the 9.75% Senior Notes is increased or decreased in accordance with the terms of the 9.75% Senior Notes upon a ratings change by Moody's Investors Services, Inc. or Standard & Poor's Rating Service. "Capitalized Lease Obligations" means obligations to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real and/or personal property which obligation is required to be classified and accounted for as a capital lease on a balance sheet prepared in accordance with GAAP, and for purposes hereof the amount of such obligations shall be the capitalized amount determined in accordance with such principles. "Closing Time" means, with respect to the 9.75% Senior Notes, December 26, 2002, the date of initial issuance of the Securities issued hereunder. "Consolidated Indebtedness" means, at any date of determination, the aggregate Indebtedness of the Guarantor and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP, but shall not include Nonrecourse Indebtedness of any Consolidated Subsidiary of the Guarantor. "Consolidated Net Worth" means, at any time of determination, the net worth of such the Guarantor and its Consolidated Subsidiaries as determined in accordance with GAAP. "Consolidated Subsidiary" means any Subsidiary of the Guarantor whose accounts are or are required to be consolidated with the accounts of the Guarantor in accordance with GAAP. "Consolidated Total Capitalization" means, at any date of determination, the sum of (i) Consolidated Indebtedness; (ii) consolidated equity of the common shareowners of the Guarantor and its Consolidated Subsidiaries; (iii) consolidated equity of the preference shareowners of the Guarantor and its Consolidated Subsidiaries; and (iv) consolidated equity of the preferred shareowners of the Guarantor and its Consolidated Subsidiaries, in each case determined at such date in accordance with GAAP, excluding, however, from such calculation, amounts identified as "Accumulated Other Comprehensive Income (Loss)" in the financial statements of the Guarantor set forth in the Guarantor's report on Form 10-K or 10-Q, as the case may be, filed most recently with the SEC prior to the date of such determination. "EBITDA" means, with respect to any period, the sum of operating income of the Guarantor and its Consolidated Subsidiaries for such period, as determined on a consolidated basis in accordance with GAAP, plus all amounts deducted in the computation thereof on account of depreciation and amortization. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means, with respect to any Person, any trade or business (whether or not incorporated) which is a member of a group of which such Person is a member and which is under common control within the meaning of the regulations under Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended from time to time. "Fourth Supplemental Indenture" means the Fourth Supplemental Indenture dated as of December 26, 2002, among the Company, the Guarantor and the Trustee. "GAAP" means, with respect to the 9.75% Senior Notes, generally accepted accounting principles in the United States on the date of the Fourth Supplemental Indenture. "Indebtedness" means, for any person, any and all indebtedness, liabilities and other monetary obligations of such person (i) for borrowed money or evidenced by bonds, debentures, notes or other similar instruments, (ii) to pay the deferred purchase price of property or services (except trade accounts payable arising and repaid in the ordinary course of business), (iii) Capitalized Lease Obligations, (iv) under reimbursement or similar agreements with respect to letters of credit (other than trade letters of credit) issued to support indebtedness or obligations of such person or of others of the kinds referred to in clauses (i) through (iii) above and clause (v) below, (v) reasonably quantifiable obligations under direct guaranties or indemnities, or under support agreements, in respect of, and reasonably quantifiable obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, or to assure an obligee against failure to make payment in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above, and (vi) in respect of unfunded vested benefits under Plans. In determining Indebtedness for any person, there shall be included accrued interest on the principal amount thereof to the extent such interest has accrued for more than six months. "Interest Coverage Ratio" means, as of any date, the ratio of (i) EBITDA of the Guarantor and its Consolidated Subsidiaries for the most recently ended four fiscal quarters for which internal financial statements are available ending on or prior to such date, as determined on a consolidated basis in accordance with GAAP to (ii) the Interest Expense payable by the Guarantor and its Consolidated Subsidiaries during such four-quarter period, determined in the case of clauses (i) and (ii) on a pro forma basis as if the additional indebtedness had been incurred and proceeds of the additional indebtedness applied at the beginning of such four-quarter period. "Interest Expense" means, with respect to any period, interest expense of the Guarantor and its Consolidated Subsidiaries for such period, including both capitalized and noncapitalized interest and the interest component of capital lease obligations and all debt discount and expense amortized during such period, as determined on a consolidated basis in accordance with GAAP. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and which (i) is maintained for employees of the Guarantor or an ERISA Affiliate of the Guarantor and at least one Person other than the Guarantor and its ERISA Affiliates or (ii) was so maintained and in respect of which the Guarantor or an ERISA Affiliate of the Guarantor could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Nonrecourse Indebtedness" means Indebtedness of any person that finances the acquisition, development, ownership or operation of an asset in respect of which the obligee of such Indebtedness has no recourse whatsoever to such person or any of its Affiliates other than: (i) recourse to the named obligor with respect to such Indebtedness (the "Debtor") for amounts limited to the cash flow or net cash flow (other than historic cash flow or historic net cash flow) from the asset; and (ii) recourse to the Debtor for the purposes only of enabling amounts to be claimed in respect of such Indebtedness in an enforcement of any security interest or lien given by the Debtor over the asset or the income, cash flow or other proceeds deriving from the asset (or given by any shareholder or the like in the Debtor over its shares or like interest in the capital of the Debtor) to secure the Indebtedness, but only if the extent of the recourse to the Debtor is limited solely to the amount of any recoveries made on any such enforcement; and (iii) recourse to the Debtor generally or indirectly to any Affiliate of the Debtor, under any form of assurance, undertaking or support, which recourse is limited to a claim for damages (other than liquidated damages and damages required to be calculated in a specified way) for a breach of an obligation (other than a payment obligation or an obligation to comply or to procure compliance by another with any financial ratios or other tests of financial condition) by the Person against which such recourse is available. "Permitted Indebtedness" means: (i) Indebtedness of Alliant Energy Corporate Services, Inc., so long as it is a mutual service company that provides services to utility and non-utility Subsidiaries of the Guarantor pursuant to the Public Utility Holding Company Act of 1935, as amended. (ii) intercompany Indebtedness owed to the Company, to the Guarantor or to any Consolidated Subsidiary; (iii) Indebtedness to the cash management programs established by the Guarantor pursuant to the SEC's approval under the Public Utility Holding Company Act of 1935, as amended, for (A) the Guarantor's domestic public utility Subsidiaries and Alliant Energy Corporate Services, Inc., known as the "utility money pool" and (B) the Guarantor's non-utility Subsidiaries, known as the "non-utility money pool"; (iv) Nonrecourse Indebtedness; (v) Indebtedness incurred to fund Alliant Energy Corporate Services, Inc. or the cash management program of the Guarantor's domestic public utility Subsidiaries, known as the "utility money pool"; (vi) Permitted Refinancing Indebtedness; (vii) Indebtedness arising from the deposit and collection of checks and similar items in the ordinary course of business; (viii) Indebtedness arising from the guarantee of other Indebtedness permitted by this Indenture; (ix) Indebtedness represented by letters of credit issued in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business; (x) Indebtedness in respect of bid, payment and performance bonds, bankers' acceptances, workers' compensation claims, surety or appeal bonds, payment obligations in connection with self-insurance or similar obligations, and bank overdrafts (and letters of credit in respect thereof) in the ordinary course of business; (xi) Indebtedness consisting of guarantees, indemnities or obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets; (xii) Indebtedness of the Guarantor and its Consolidated Subsidiaries in existence on the date of original issuance of the 9.75% Senior Notes, until such amounts are repaid; (xiii) Indebtedness represented by the 9.75% Senior Notes and the guarantee of the Guarantor related thereto; and (xiv) additional Indebtedness in an aggregate principal amount not to exceed $100 million at any one time outstanding. "Permitted Refinancing Indebtedness" means any Indebtedness of the Guarantor or any of its Consolidated Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Guarantor or any of its Subsidiaries permitted to be incurred by this Indenture; provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii)if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is Indebtedness that is subordinate or junior in right of payment to the 9.75% Senior Notes or the Guarantee pursuant to written agreement, such Permitted Refinancing Indebtedness is subordinated in right of payment to the 9.75% Senior Notes and the Guarantee on terms at least as favorable to the holders of the 9.75% Senior Notes as those contained in the documentation governing such subordinated debt being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred by the Person who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "Registration Default" with respect to the 9.75% Senior Notes has the meaning set forth in Section 2.06 of the Fourth Supplemental Indenture. "Registration Rights Agreement" means, with respect to the 9.75% Senior Notes, the Registration Rights Agreement to be executed among the Company, the Guarantor and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Utendahl Capital Partners, L.P., and The Williams Capital Group, L.P., as initial purchasers, in connection with the offering of the 9.75% Senior Notes. "9.75% Senior Notes" has the meaning set forth in Section 2.01 of the Fourth Supplemental Indenture. "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and which (i) is maintained for employees of the Guarantor or an ERISA Affiliate of the Guarantor and no Person other than the Guarantor and its ERISA Affiliates, or (ii) was so maintained and in respect of which the Guarantor or an ERISA Affiliate of the Guarantor could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Subsidiary" with respect to the 9.75% Senior Notes means, with respect to any Person, any corporation or unincorporated entity of which more than 50% of the outstanding capital stock (or comparable interest) having ordinary voting power (irrespective of whether at the time capital stock (or comparable interest) of any other class or classes of such corporation or entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by said Person (whether directly or through one or more other Subsidiaries). In the case of an unincorporated entity, a Person shall be deemed to have more than 50% of the interest having ordinary voting power only if such Person's vote in respect of such interests comprises more than 50% of the total voting power of all such interests in the unincorporated entity. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. Section 1.02. Article 1 of the Indenture shall be amended by amending and restating in their entirety the following definitions in Section 1.01: "Exchange Offer" shall mean the exchange offer by the Company and the Guarantor of Exchange Securities for Registrable Securities, as provided for in a related registration rights agreement. "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, including the Prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein. "Supplemental Indenture" means the First Supplemental Indenture, the Second Supplemental Indenture, the Third Supplemental Indenture, the Fourth Supplemental Indenture and any further supplemental indentures that the Company, the Guarantor and the Trustee may execute from time to time. Section 1.03. The Indenture shall be amended by adding exhibits titled "Exhibit G" and "Exhibit H," respectively, immediately following Exhibit F of the Indenture. Exhibit G to the Indenture shall be the form of the 9.75% Senior Note and the related guarantee attached as Exhibit A to this Fourth Supplemental Indenture and Exhibit H to the Indenture shall be the form of Incurrence Certificate attached as Exhibit B to this Fourth Supplemental Indenture. Section 1.04. To the extent necessary, the forms of Transfer Certificate and Exchange Certificate, each as attached to the Indenture as Exhibits B and C, respectively, shall be amended to refer to the appropriate Securities and the appropriate dates. ARTICLE 2. PROVISIONS FOR THE 9.75% SENIOR NOTES Section 2.01. There shall be a series of Securities entitled "9.75% Senior Notes" (herein designated the "9.75% Senior Notes"). The form of the 9.75% Senior Notes, the Guarantees issued by the Guarantor and the Trustee's certificate of authentication to be borne thereby shall be substantially in the forms set forth in Exhibit A hereto and shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, all of the terms, conditions and covenants of the Indenture and this Fourth Supplemental Indenture, including, but not limited to, the provisions of the Indenture with respect to the transfer, exchange and replacement thereof. The aggregate principal amount of the 9.75% Senior Notes that may be executed by the Company and authenticated by the Trustee hereunder shall be limited to THREE HUNDRED MILLION DOLLARS ($300,000,000); provided, however, any exchanges or replacements of the 9.75% Senior Notes made pursuant to the Indenture and the Fourth Supplemental Indenture following the original issuance thereof, shall not be counted against this limit. Section 2.02. In accordance with the terms and conditions of the Indenture, the Company may issue and sell the 9.75% Senior Notes inside the United States without registration under the Securities Act in reliance on Rule 144A thereunder. Section 2.03. Except as provided below, the 9.75% Senior Notes shall be represented initially in the form of a Restricted Global Security. Each Restricted Global Security shall be registered in the name of a nominee of the Depositary and deposited on behalf of the purchasers of the 9.75% Senior Notes represented thereby with a custodian for the Depositary for credit to the respective accounts of the purchasers (or to such other accounts as they may direct). Except as set forth below, each Restricted Global Security shall be in the form of the 9.75% Senior Notes attached hereto as Exhibit A and may be transferred, in whole and not in part, only to another nominee of the Depositary or to a successor of the Depositary or its nominee. Section 2.04. (a) Each Restricted Global Security, or any 9.75% Senior Notes that may be issued in exchange for an interest in a Restricted Global Security, shall be dated as provided in Section 2.03 of the Indenture, shall mature on January 15, 2013 and shall bear interest at the initial rate of 9.75% per annum (subject to increase pursuant to Section 2.06 hereof and the terms of the 9.75% Senior Notes) from December 26, 2002, payable semiannually on January 15 and July 15 in each year, commencing with July 15, 2003, until payment of the principal amount shall have been made or duly provided for. The record dates with respect to the interest payment dates for the 9.75% Senior Notes shall be January 1 and July 1 (whether or not a business day), respectively. The holder of record of 9.75% Senior Notes on any record date for the payment of interest shall be entitled to receive the interest payable on such interest payment date. (b) Both principal of and interest on the 9.75% Senior Notes shall be payable at the office of the Paying Agent in St. Paul, Minnesota and the Borough of Manhattan, The City of New York, New York or at any other office maintained by the Company or the Guarantor, as the case may be, for such purpose; provided that interest may be payable, at the option of the Company or the Guarantor, as the case may be, by check mailed to the registered address of the person entitled thereto as such address shall appear on the registry books of the Company. On each interest payment date the Trustee shall pay to the registered holder interest accrued in respect of such 9.75% Senior Notes. Payment of principal on 9.75% Senior Notes shall be paid to the registered holder or upon his order only upon presentation and surrender for payment of such 9.75% Senior Notes on or after the payment date at the offices of the Company or the Guarantor, as the case may be, in St. Paul, Minnesota and the Borough of Manhattan, The City of New York, New York or at any other office of the Company or the Guarantor, as the case may be, maintained for such purpose. (c) The 9.75% Senior Notes shall not be convertible into or exchangeable for equity securities of the Company or the Guarantor. (d) The 9.75% Senior Notes shall not be subject to any sinking fund. (e) The 9.75% Senior Notes shall not be included for listing on any national securities exchange. (f) The Trustee, at its Corporate Trust Office located at 180 East Fifth Street, St. Paul, Minnesota 55101, shall initially act as Paying Agent for the 9.75% Senior Notes. Section 2.05. (a) So long as a nominee of the Depositary is the registered owner of any Restricted Global Security, such nominee shall be considered the sole owner and holder of the 9.75% Senior Notes represented by such Restricted Global Security under the Indenture, as supplemented and amended hereby. Except as herein provided, owners of beneficial interests in any Restricted Global Security shall not be entitled to have 9.75% Senior Notes represented by the such Restricted Global Security registered in their names, shall not receive or be entitled to receive physical delivery of 9.75% Senior Notes in certificated form and shall not be considered the owners or holders thereof under the Indenture. (b) None of the Company, the Guarantor or the Trustee shall have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in any Restricted Global Security, or for maintaining, supervising or reviewing any records relating to such beneficial interests. Section 2.06. In the event that (a) the Exchange Offer Registration Statement is not filed with the SEC on or prior to the 120th calendar day following the Closing Time, (b) the Exchange Offer Registration Statement has not been declared effective on or prior to the 210th calendar day following the Closing Time, (c) the Exchange Offer is not consummated, on or prior to the 45th calendar day following the effective date of the Exchange Offer Registration Statement or (d) if required, the Shelf Registration Statement is not declared effective on or prior to the 210th calendar day following the Closing Time (each such event referred to in clauses (a) through (d) above, a "Registration Default"), the interest rate borne by the 9.75% Senior Notes shall be increased ("Additional Interest"), in the amount of one-half of one percent (0.50%) per annum, which rate will increase by one-quarter of one percent (0.25%) at the beginning of each subsequent 90-day period during which a Registration Default is continuing, provided that the maximum aggregate increase in the interest rate pursuant to this Section 2.06 will in no event exceed two percent (2.0%) per annum. Following the cure of all Registration Defaults with respect to the 9.75% Senior Notes the accrual of Additional Interest will cease and the interest rate will revert to the rate that otherwise would be in effect had such Registration Default not occurred. If the Shelf Registration Statement with respect to the 9.75% Senior Notes is unusable by the Holders for any reason after the Shelf Registration Statement has been declared effective by the SEC, and the aggregate number of days in any consecutive twelve-month period for which the Shelf Registration Statement shall not be usable exceeds 30 days in the aggregate, then the interest rate borne by the 9.75% Senior Notes, so long as any such notes are required to be registered under the Registration Rights Agreement, will be increased by one-half of one percent (0.50%) per annum of the principal amount of the 9.75% Senior Notes for the first 90-day period (or portion thereof) beginning on the 31st day following the date that such Shelf Registration Statement ceases to be usable, which rate shall be increased by an additional one-quarter of one percent (0.25%) per annum of the principal amount of the 9.75% Senior Notes at the beginning of each subsequent 90-day period, provided that the maximum aggregate increase in the interest rate pursuant to this Section 2.06 will in no event exceed two percent (2.00%) per annum. Any amounts payable under this Section 2.06 shall also be deemed "Additional Interest" for purposes of the Indenture and the Registration Rights Agreement. Upon the Shelf Registration Statement once again becoming usable, the interest rate borne by the 9.75% Senior Notes will be reduced to the interest rate that otherwise would be in effect had the Shelf Registration Statement not become unusable, provided the Company and the Guarantor are otherwise in compliance with this the Indenture and the Registration Rights Agreement at such time. Additional Interest shall be computed based on the actual number of days elapsed in each 90-day period in which the Shelf Registration Statement is unusable. The Company and the Guarantor shall notify the Trustee within three business days after each and every Event Date with respect to the 9.75% Senior Notes. Additional Interest with respect to the 9.75% Senior Notes shall be paid by depositing with the Trustee, in trust, for the benefit of the Holders of the 9.75% Senior Notes, on or before the applicable semiannual interest payment date, immediately available funds in sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each interest payment date to the record Holder of the 9.75% Senior Notes entitled to receive the interest payment to be paid on such date as set forth in the Indenture. Each obligation to pay Additional Interest shall be deemed to accrue from and including the day following the applicable Event Date. Section 2.07. The 9.75% Senior Notes will be redeemable at the Company's option in whole or in part at any time, on at least 30 days' but not more than 60 days' prior written notice mailed to the registered holders of the 9.75% Senior Notes, at a price equal to the greater of (i) 100% of the principal amount of the 9.75% Senior Notes being redeemed and (ii) the sum of the present values of the principal amount of the 9.75% Senior Notes to be redeemed and the remaining scheduled payments of interest on the 9.75% Senior Notes from the redemption date to January 15, 2013, discounted from their respective scheduled payment dates to the redemption date semi-annually (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Yield plus 50 basis points, plus accrued interest on the 9.75% Senior Notes to the redemption date. Section 2.08. Neither the Company nor the Guarantor shall, and each shall not permit any Consolidated Subsidiary other than, in the case of the Guarantor, the Guarantor's domestic public utility Subsidiaries, to, directly or indirectly, create, incur, issue, assume, Guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (other than Permitted Indebtedness) if, after giving pro forma effect to the incurrence of such Indebtedness, any of the following is true: (a) Consolidated Net Worth would be less than $1.2 billion; (b) the ratio of Consolidated Indebtedness to Consolidated Total Capitalization would exceed 0.70 to 1.00; or (c) the Interest Coverage Ratio would be less than 2.0 to 1.0. Upon the incurrence of any Indebtedness (other than Permitted Indebtedness) by the Company, the Guarantor or any Consolidated Subsidiary other than, in the case of the Guarantor, the Guarantor's domestic public utility Subsidiaries, the Guarantor shall deliver to the Trustee a certificate substantially in the form set forth in Exhibit C hereto (the "Certificate of Incurrence") signed by one or more officers of the Guarantor holding at least two of the following three titles: Chief Financial Officer, Treasurer and Chief Accounting Officer of the Guarantor. Section 2.09. The Guarantor shall not, and shall not permit any Subsidiary, other than the Guarantor's domestic public utility Subsidiaries, to issue, assume or guarantee any Debt if the Debt is secured by any Lien upon any of its property or assets (other than cash), without effectively securing the outstanding 9.75% Senior Notes (together with any other indebtedness or obligation then existing or thereafter created ranking equally with such 9.75% Senior Notes) equally and ratably with the Debt. This limitation does not apply to: (a) Liens in existence on the date of original issuance of the 9.75% Senior Notes; (b) (i) any Lien created or arising over any property or assets which the Guarantor or a Subsidiary acquires, constructs or creates, but only if (A) such Lien secures only principal amounts (not exceeding the cost of the acquisition, construction or creation) of Debt incurred for the purposes of the acquisition, construction or creation, together with any costs, expenses, interest and fees incurred in connection with the acquisition, construction or creation or a guarantee given in connection with the acquisition, construction or creation, (B) the Lien is created or arises on or before 90 days after the completion of the acquisition, construction or creation and (C) the Lien is confined solely to the property or assets so acquired, constructed or created; or (ii) any Lien to secure the Debt incurred by the Guarantor or a Subsidiary in connection with a specifically identifiable project where the Lien relates and is confined to a property or properties (including, without limitation, shares or other rights of ownership in the entities which own such property or project) involved in such project and acquired by the Guarantor or a Subsidiary after the date of original issuance of the 9.75% Senior Notes and the recourse of the creditors in respect of the Debt is limited to any or all of such project and property (including as aforesaid); (c) any Lien securing amounts not more than 90 days overdue or otherwise being contested in good faith; (d) (i) rights of financial institutions to offset credit balances in connection with the operation of cash management programs established for the Guarantor's or any Subsidiary's benefit or in connection with the issuance of letters of credit for the Guarantor's or any Subsidiary's benefit; (ii) any Lien securing Debt incurred by the Guarantor or any Subsidiary in connection with the financing of accounts receivable; (iii) any Lien incurred or deposits made in the ordinary course of business, including, but not limited to, (A) any mechanics', materialmen's, carriers', workmen's, vendors' or other like Liens and (B) any Liens securing amounts in connection with workers' compensation, unemployment insurance and other types of social security; (iv) any Lien upon specific items of the Guarantor's or any Subsidiary's inventory or other goods and proceeds securing the Guarantor's or any Subsidiary's obligations in respect of bankers' acceptances issued or created to facilitate the purchase, shipment or storage of such inventory or other goods; (v) any Lien incurred or deposits made securing the performance of tenders, bids, leases, trade contracts (other than for borrowed money), statutory obligations, surety bonds, appeal bonds, government contracts, performance bonds, return-of-money bonds and other obligations of like nature incurred by the Guarantor or any Subsidiary in the ordinary course of business; (vi) any Lien constituted by a right of set off or right over a margin call account or any form of cash or cash collateral or any similar arrangement for obligations incurred by the Guarantor or any Subsidiary in respect of the hedging or management of risks under transactions involving any currency or interest rate swap, cap or collar arrangements, forward exchange transaction, option, warrant, forward rate agreement, futures contract or other derivative instrument of any kind; (vii) any Lien arising out of title retention or like provisions in connection with the purchase of goods and equipment by the Guarantor or any Subsidiary in the ordinary course of business; and (viii) any Lien securing reimbursement obligations under letters of credit, guarantees and other forms of credit enhancement given in connection with the purchase of goods and equipment by the Guarantor or any Subsidiary in the ordinary course of business; (e) (i) Liens on any property or assets acquired from an entity which is merged with or into the Guarantor or any Subsidiary and is not created in anticipation of any such transaction (unless the Lien was created to secure or provide for the payment of any part of the purchase price of the entity to be acquired) and (ii) any Lien on any property or assets existing at the time of acquisition by the Guarantor or any Subsidiary and which is not created in anticipation of the acquisition (unless the Lien was created to secure or provide for the payment of any part of the purchase price of the property or assets so acquired); (f) (i) Liens required by any contract or statute in order to permit the Guarantor or any Subsidiary to perform any contract or subcontract made by it with or at the request of a governmental entity or any department, agency or instrumentality of a governmental entity, or to secure partial, progress, advance or any other payments by the Guarantor or any Subsidiary to a governmental unit under the provisions of any contract or statute; (ii) any Lien securing industrial revenue, development or similar bonds issued by the Guarantor or any Subsidiary or for its respective benefit, provided that the industrial revenue, development or similar bonds are nonrecourse to the Guarantor and/or the applicable Subsidiary; and (iii) any Lien securing taxes or assessments or other applicable governmental charges or levies; (g) (i) any Lien which arises under any order of attachment, distraint or similar legal process arising in connection with court proceedings and any Lien which secures the reimbursement obligation for any bond obtained in connection with an appeal taken in any court proceeding, so long as the execution or other enforcement of the Lien arising in connection with such legal process is effectively stayed and the claims secured by the Lien are being contested in good faith and, if appropriate, by appropriate legal proceedings, or any Lien in favor of a plaintiff or defendant in any action before a court or tribunal as security for costs or expenses; or (ii) any Lien arising by operation of law or by order of a court or tribunal or any Lien arising by an agreement of similar effect, including, without limitation, judgment liens; or (h) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Liens referred to in clauses (a) through (g) above, for amounts not exceeding the principal amount of the Debt secured by the Lien so extended, renewed or replaced, so long as the extension, renewal or replacement Lien is limited to all or a part of the same property or assets that were covered by the Lien that was extended, renewed or replaced (plus improvements on such property or assets); provided, however, the Guarantor or any such Subsidiary may create or permit - -------- ------- to subsist Liens over any of the Guarantor's or Subsidiary's property or assets so long as the aggregate amount of Debt secured by all Liens that the Guarantor or any such Subsidiary incurs (excluding the amount of Debt secured by Liens set forth in clauses (a) through (h) above) does not exceed 10% of the Guarantor's Consolidated Net Tangible Assets. Section 2.10. The Company and the Guarantor shall notify the Trustee within three business days after each and every Adjustment Date. ARTICLE 3. MISCELLANEOUS Section 3.01. Capitalized terms used but not defined herein shall have the respective meanings set forth in the Indenture, as may be amended and supplemented from time to time in accordance therein. Section 3.02. Except as supplemented and amended hereby, the Indenture is in all respects ratified and confirmed, and all of the terms, provisions and conditions thereof shall be and remain in full force and effect, and this Fourth Supplemental Indenture and all its provisions shall be deemed a part thereof. Section 3.03. In case any provision in this Fourth Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 3.04. If any provision of this Fourth Supplemental Indenture limits, qualifies or conflicts with any other provision hereof or of the Indenture which provision is required to be included in the Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control. Section 3.05. THIS FOURTH SUPPLEMENTAL INDENTURE AND ALL DISPUTES, CONTROVERSIES OR CLAIMS ARISING OUT OF OR RELATING TO THIS FOURTH SUPPLEMENTAL INDENTURE OR A BREACH HEREOF SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WISCONSIN WITHOUT REGARD TO THE CONFLICTS OF LAWS AND RULES OF SAID STATE. Section 3.06. This Fourth Supplemental Indenture has been simultaneously executed in several counterparts, each of which shall be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Delivery by telecopier of an executed signature page hereto shall be effective as delivery of a manually executed counterpart hereof. Section 3.07. This Fourth Supplemental Indenture shall be deemed to have been executed on the date of the acknowledgment thereof by the officer of the Trustee who signed it on behalf of the Trustee. [THE REST OF THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK.] IN WITNESS WHEREOF, the Company, the Guarantor and the Trustee have caused their names to be signed hereto by their respective officers thereunto duly authorized and their respective corporate seals, duly attested, to be hereunto affixed, all as of the day and year first above written. ALLIANT ENERGY RESOURCES, INC. ATTEST: By:_/s/ Enrique Bacalao By:_/s/ Thomas L. Hanson -------------------------- ------------------------------------ Name: Enrique Bacalao Name: Thomas L. Hanson Title: Assistant Treasurer Title: Vice President and Treasurer ALLIANT ENERGY CORPORATION, ATTEST: as Guarantor By:_/s/ Enrique Bacalao By:_/s/ Thomas L. Hanson --------------------------- ------------------------------------ Name: Enrique Bacalao Name: Thomas L. Hanson Title: Assistant Treasurer Title: Vice President and Treasurer U.S. BANK NATIONAL ASSOCIATION, as Trustee By:_/s/ Steven J. Peterson ------------------------------------ Name: Steven J. Peterson Title: Trust Officer EXHIBIT A EXHIBIT G TO THE INDENTURE [Form of 9.75% Senior Notes] Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to Alliant Energy Resources, Inc., or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or to such other entity or in such other name as is requested by an authorized representative of DTC (and any payment hereon is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. Transfers of this Global Security shall be limited to transfers in whole, but not in part, to nominees of Cede & Co. or to a successor thereof or such successor's nominee [and transfers of portions of this Global Security shall be limited to transfers made in accordance with the restrictions set forth in Section 2.20 of the Indenture referred to in this Global Security]. [THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" ("QIB") (AS DEFINED IN RULE 144A ("RULE 144A") UNDER THE SECURITIES ACT), (2) AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER THIS NOTE PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(K) UNDER THE SECURITIES ACT) AFTER THE LATER OF THE ORIGINAL ISSUE DATE OF THE NOTES AND THE LAST DATE ON WHICH ALLIANT ENERGY RESOURCES, INC. OR ANY "AFFILIATE" (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF ALLIANT ENERGY RESOURCES, INC. WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) OR (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW (THE "RESALE RESTRICTION TERMINATION DATE") EXCEPT (A) TO ALLIANT ENERGY RESOURCES, INC., (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, IN EACH CASE TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT SUBJECT IN EACH OF THE FOREGOING CASES OF ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH INVESTOR ACCOUNT OR ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL, AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT ALLIANT ENERGY RESOURCES, INC. AND THE TRUSTEE SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING CASES, BUT ONLY IF THIS NOTE IS NOT A GLOBAL SECURITY (AS DEFINED IN THE INDENTURE REFERRED TO HEREIN), TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO ALLIANT ENERGY RESOURCES, INC. AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.] ALLIANT ENERGY RESOURCES, INC. 9.75% SENIOR NOTES DUE 2013 CUSIP No. 018803 ____ __ $300,000,000 Global Note Alliant Energy Resources, Inc., a corporation duly organized and existing under the laws of the State of Wisconsin (the "Company," which term includes any successor person under the Indenture hereinafter referred to), for value received, hereby promises to pay to Cede & Co. or registered assigns, the principal sum of THREE HUNDRED MILLION DOLLARS ($300,000,000) on January 15, 2013, at the office or agency of the Company referred to below, in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts, and to pay interest thereon in like coin or currency from December 26, 2002, or from the most recent interest payment date on which interest has been paid or duly provided for, semi-annually in arrears on January 15 and July 15 in each year, commencing July 15, 2003, at the initial rate of 9.75% per annum, until the principal hereof is paid or made available for payment, and (to the extent lawful) to pay interest at the same rate per annum on any overdue principal and premium and on any overdue installment of interest until paid. The interest rate borne by this Senior Note will be increased at any time to and including January 1, 2004 upon a rating change by Moody's Investors Services, Inc. ("Moody's") or Standard & Poor's Rating Service ("Standard & Poor's") on or prior to such date that causes the rating of this Senior Note by either agency to be below Baa3 in the case of Moody's and BBB- in the case of Standard & Poor's (or equivalent rating by such agency if such rating reference is no longer in effect) (a "Rating Downgrade"). Beginning with and including the date on which a Rating Downgrade is assigned (the "Step-Up Date"), the interest rate borne by this Senior Note will be the rate otherwise applicable plus one percent (1.00%) per annum. If on any date through January 1, 2004 (the "Step-Down Date"), subsequent to a Step-Up Date, a new rating change by Moody's or Standard & Poor's causes the ratings of this Senior Note to be above Ba1 in the case of Moody's and BB+ in the case of Standard & Poor's, the interest rate borne by this Senior Note will be the rate otherwise applicable less one percent (1.00%) per annum. Such decrease will be effective from and including the Step-Down Date. There is no limit on the number of times through January 1, 2004 that the interest rate borne by this Senior Note can be adjusted up or down based on a rating change by Moody's and Standard & Poor's during this period, provided, however, that the interest rate shall never increase more than one percent (1.00%) due to ratings downgrades, and following January 1, 2004, the interest rate borne on this Senior Note will no longer be subject to increase or decrease and such interest rate, as in effect on January 1, 2004, will remain in effect during the remaining life of this Senior Note. Interest so payable, and punctually paid or duly provided for, on any interest payment date, as provided in the Indenture, shall be paid to the person in whose name this Senior Note (or one or more predecessor Senior Notes) is registered at the close of business on the record date for such interest, which shall be January 1 or July 1 (whether or not a business day), as the case may be, next preceding such interest payment date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the person in whose name this Senior Note is registered on such record date and may either be paid to the person in whose name this Senior Note is registered at the close of business on a record date for the payment of such defaulted interest to be fixed by the Trustee, notice whereof shall be given to the person in whose name this Senior Note is registered not less than ten days prior to such record date, or be paid at any time in any other lawful manner, all as more fully provided in the Indenture. This Senior Note is a "book-entry" security and is being registered in the name of Cede & Co. as nominee of The Depository Trust Company ("DTC"), a clearing agency. Subject to the terms of the Indenture, dated as of November 4, 1999 (as supplemented by the First Supplemental Indenture dated as of November 4, 1999, the Second Supplemental Indenture dated as of February 1, 2000, the Third Supplemental Indenture dated as of November 15, 2001, the Fourth Supplemental Indenture dated as of December 26, 2002 and as supplemented and amended from time to time, the "Indenture"), among the Company, Alliant Energy Corporation (the "Guarantor"), and U.S. Bank National Association, as successor to Firstar Bank, N.A., as trustee (the "Trustee"), and except as provided therein, this Senior Note will be held by a clearing agency or its nominee, and beneficial interests will be held by beneficial owners through the book-entry facilities of such clearing agency or its nominee in integrals of $1,000 in excess thereof. The statements set forth in the restrictive legend above are an integral part of the terms of this Senior Note and by acceptance hereof each holder of this Senior Note agrees to be subject to and bound by the terms and provisions set forth in such legend. The Trustee will make payments of principal of and interest on (except as otherwise provided below) this Senior Note by wire transfer of immediately available funds. Notwithstanding the above, the final payment on this Senior Note will be made after due notice by the Trustee of the pendency of such payment and only upon presentation and surrender of this Senior Note at its principal corporate trust office or such other offices or agencies appointed by the Trustee for that purpose and such other locations provided in the Indenture. Payments of principal of (and premium, if any) and interest on this Senior Note will be made at the offices or agency of the Company or the Guarantor, as the case may be, maintained for that purpose in St. Paul, Minnesota and the Borough of Manhattan, The City of New York, New York in such coin or currency of the United States of America as at the time of payment is legal tender for payments of public and private debts; provided, however, that at the option of the Company or the Guarantor, as the case may be, payment of interest may be made by check mailed to the address of the person entitled thereto as such address shall appear in the register of the Company. This Senior Note is one of a duly authorized issue of Securities of the Company, designated 9.75% Senior Notes (the "9.75% Senior Notes"), limited in aggregate principal amount at any time outstanding to THREE HUNDRED MILLION DOLLARS ($300,000,000) which may be issued under the Fourth Supplemental Indenture. Reference is hereby made to the Indenture, the Fourth Supplemental Indenture and all other indentures supplemental thereto for a statement of the respective rights, limitations of rights, duties, obligations and immunities thereunder of the Company, the Guarantor, the Trustee and the Holders of the 9.75% Senior Notes, and the terms upon which the 9.75% Senior Notes are, and are to be, authenticated and delivered. All terms used in this Senior Note that are defined in the Indenture shall have the meanings assigned to them in the Indenture. The Holder of this Senior Note is entitled to the benefits of the Registration Rights Agreement, dated as of December 26, 2002 (the "Registration Rights Agreement"), among the Company, the Guarantor and the initial purchasers named therein (the "Initial Purchasers"). In the event that (i) the Company and the Guarantor fail to file an Exchange Offer Registration Statement with respect to the 9.75% Senior Notes with the Securities and Exchange Commission (the "Commission") on or prior to the 120th calendar day following the Closing Time, (ii) the Commission does not declare such Exchange Offer Registration Statement effective on or prior to the 210th calendar day following the Closing Time, (iii) the Exchange Offer is not consummated on or prior to the 45th calendar day following the effective date of the Exchange Offer Registration Statement or (iv) if required, a Shelf Registration Statement with respect to the 9.75% Senior Notes is not declared effective by the Commission on or prior to the 210th calendar day following the Closing Time (each, a "Registration Default"), the per annum interest rate borne by the 9.75% Senior Notes shall be increased by one-half of one percent (0.50%) per annum for the first 90-day period following the Registration Default. The interest rate borne by the 9.75% Senior Notes will be increased by an additional one-quarter of one percent (0.25%) per annum for the subsequent 90-day period (or portion thereof) during which any such Registration Default continues up to a maximum aggregate increase in the annual interest rate pursuant to this paragraph of two percent (2.0%) per annum. Following the cure of all Registration Defaults, the interest rate borne by the 9.75% Senior Notes shall be reduced to the interest rate borne by the 9.75% Senior Notes that otherwise would be in effect had such Registration Default not occurred. If the Shelf Registration Statement is unusable by the Holders for any reason after the Shelf Registration Statement has been declared effective by the Commission, and the aggregate number of days in any consecutive twelve-month period for which the Shelf Registration is unusable exceeds 30 days in the aggregate, then the interest rate borne by the 9.75% Senior Notes will be increased by one-half of one percent (0.50%) per annum of the principal amount of the 9.75% Senior Notes for the first 90-day period (or a portion thereof) beginning the 31st day following the date that such Shelf Registration Statement ceases to be usable, which rate shall be increased by an additional one-quarter of one percent (0.25%) per annum of the principal amount of 9.75% Senior Notes at the beginning of each subsequent 90-day period, provided that the maximum aggregate increase in the interest rate pursuant to this paragraph will in no event exceed two percent (2.0%) per annum. Upon the Shelf Registration Statement once again becoming usable, the interest rate borne by the 9.75% Senior Notes will be reduced to the interest rate that otherwise would be in effect had the Shelf Registration Statement not become unusable. All accrued additional interest shall be paid to Holders by the Company in the same manner and at the same time as interest is paid pursuant to the Indenture. All terms used in this Senior Note that are defined in the Registration Rights Agreement shall have the meanings assigned to them in the Registration Rights Agreement. Each purchaser of 9.75% Senior Notes, by its acquisition thereof, will be deemed to have acknowledged, represented to and agreed with the Initial Purchasers, the Company and the Guarantor as follows: (1) Such purchaser understands and acknowledges that the 9.75% Senior Notes have not been registered under the Securities Act or any other applicable securities laws, are being offered for resale in transactions not requiring registration under the Securities Act or any other securities laws including sales pursuant to Rule 144A under the Securities Act, and may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the Securities Act or any other applicable securities law, or pursuant to an exemption therefrom or in a transaction not subject thereto, and in each case in compliance with the conditions for transfer set forth in paragraph (4) below. (2) Such purchaser is not an "affiliate" (as defined in Rule 144 under the Securities Act) of the Company and it is a QIB and is aware that any sale of 9.75% Senior Notes to it will be made in reliance on Rule 144A and such acquisition will be for its own account or for the account of another QIB with respect to which it exercises sole investment discretion and to whom it has given notice that the 9.75% Senior Notes are being sold in reliance on Rule 144A. (3) Such purchaser acknowledges that none of the Company, the Guarantor or the Initial Purchasers, or any person representing the Company, the Guarantor or the Initial Purchasers, has made any representation to it with respect to the Company, the Guarantor or the offering or sale of any 9.75% Senior Notes other than the information contained in the Offering Memorandum, which has been delivered to it and upon which such purchaser is relying in making its investment decision with respect to the 9.75% Senior Notes. Accordingly, such purchaser acknowledges that no representation or warranty is made by the Initial Purchasers as to the accuracy or completeness of such materials. Such purchaser has had access to such financial and other information concerning the Company, the Guarantor and the 9.75% Senior Notes (and the Guarantees) as it has deemed necessary in connection with its decision to purchase any of the 9.75% Senior Notes, including an opportunity to ask questions of and request information from the Initial Purchasers, the Company and the Guarantor. (4) Such purchaser is purchasing the 9.75% Senior Notes for its own account, or for one or more investor accounts for which it is acting as a fiduciary or agent, in each case for investment, and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act, subject to any requirement of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control and subject to its or their ability to resell such 9.75% Senior Notes pursuant to Rule 144A or any exemption from registration available under the Securities Act or pursuant to a registration statement which has been declared effective under the Securities Act. Such purchaser agrees on its own behalf and on behalf of any investor account for which it is purchasing the 9.75% Senior Notes, and each subsequent holder of the 9.75% Senior Notes by its acceptance thereof will be deemed to agree, to offer, sell or otherwise transfer the 9.75% Senior Notes prior to (x) the date which is two years (or such shorter period of time as permitted by Rule 144(k) under the Securities Act) after the later of the date of original issue of the 9.75% Senior Notes and the last date on which the Company or any of its "affiliates" (as defined in Rule 144 under the Securities Act) was the owner of the 9.75% Senior Notes (or any predecessor thereto) or (y) such later date, if any, as may be required by applicable law (the "Resale Restriction Termination Date"), only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) for so long as the 9.75% Senior Notes are eligible for resale pursuant to Rule 144A to a person it reasonably believes is a QIB that purchases for its own account or for the account of a QIB, in each case to whom notice is given that the transfer is being made in reliance on Rule 144A or (d) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control and to compliance with any applicable state or other securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. Each purchaser of 9.75% Senior Notes acknowledges that the Company, the Guarantor and the Trustee reserve the right prior to any offer, sale or other transfer of 9.75% Senior Notes prior to the Resale Restriction Termination Date pursuant to clauses (d), above, to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to them and the Trustee. Each purchaser of 9.75% Senior Notes acknowledges that each 9.75% Senior Note will contain a legend substantially in the form on the face of this Senior Note unless otherwise agreed by the Company, the Guarantor and the Trustee. (5) Such purchaser acknowledges that the Company, the Guarantor, the Initial Purchasers, the Trustee and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements and agree that, if any of the acknowledgments, representations, warranties and agreements deemed to have been made by its purchase of the notes are no longer accurate, it shall promptly notify the Initial Purchasers. If such purchaser is acquiring any notes as a fiduciary or agent for one or more investor accounts, it represents that it has sole investment discretion with respect to each such account and it has full power to make the foregoing acknowledgments, representations and agreements on behalf of each such account and that each such investor account is eligible to purchase the notes. (6) Such purchaser acknowledges that the Trustee, the transfer agent and the registrar will not be required to accept for registration of transfer any notes acquired by it, except upon presentation of evidence satisfactory to the Company and the Trustee that the restrictions set forth above have been complied with. (7) Such purchaser acknowledges that the foregoing restrictions apply to holders of beneficial interests in the 9.75% Senior Notes, as well as the holders of the 9.75% Senior Notes. The 9.75% Senior Notes do not have the benefit of any sinking fund obligations and shall not be repayable at the option of the Holder prior to maturity. The 9.75% Senior Notes may be redeemed at the Company's option, in whole or in part, at any time on at least 30 days', but not more than 60 days', prior written notice mailed to the registered holders of the 9.75% Senior Notes, at a price equal to the greater of (a) 100% of the principal amount of the 9.75% Senior Notes being redeemed and (b) the sum of the present values of the principal amount of the 9.75% Senior Notes to be redeemed and the remaining scheduled payments of interest on the 9.75% Senior Notes from the redemption date to January 15, 2013, discounted from their respective scheduled payment dates to the redemption date semi-annually (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the equivalent yield to maturity of a comparable treasury security plus 50 basis points, plus accrued interest on the 9.75% Senior Notes to the redemption date. If an Event of Default with respect to the 9.75% Senior Notes shall occur and be continuing, the principal of all the 9.75% Senior Notes may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company (and the Guarantor) under this Senior Note and (b) certain restrictive covenants and the related defaults and Events of Default with respect to the 9.75% Senior Notes applicable to the Company and the Guarantor, in each case, upon compliance by the Company and the Guarantor with certain conditions set forth in the Indenture, which provisions apply to this Senior Note. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the Guarantor and the rights of the Holders of the 9.75% Senior Notes under the Indenture at any time by the Company, the Guarantor and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the 9.75% Senior Notes at the time outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the 9.75% Senior Notes at the time outstanding, on behalf of the Holders of all 9.75% Senior Notes, to waive compliance by the Company and the Guarantor with certain provisions of the Indenture and certain past Defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Senior Note shall be conclusive and binding upon such Holder and upon all future Holders of this Senior Note and of any 9.75% Senior Notes issued upon the registration of transfer thereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Senior Note. No reference herein to the Indenture and provision of this Senior Note or of the Indenture shall alter or impair the obligation of the Company and the Guarantor, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Senior Note at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations on transfer of this Senior Note by DTC or its nominee, the transfer of this Senior Note is registrable by the Registrar, upon surrender of this Senior Note for registration of transfer at the office or agency of the Company or the Guarantor, as the case may be, in St. Paul, Minnesota and the Borough of Manhattan, The City of New York, New York, duly endorsed by, or accompanied by the written instrument of transfer attached hereto duly executed by the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new 9.75% Senior Notes, of authorized denominations and for the same aggregate principal amount, shall be issued to the designated transferee or transferees. The 9.75% Senior Notes are issuable only in fully registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, the 9.75% Senior Notes are exchangeable for a like aggregate principal amount of 9.75% Senior Notes of different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange of 9.75% Senior Notes, but the Company and the Guarantor may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Senior Note for registration of transfer, the Company, the Guarantor, the Trustee and any agent of the Company, the Guarantor or the Trustee may treat the person in whose name this Senior Note is registered as the owner hereof for all purposes, whether or not this Senior Note be overdue, and none of the Company, the Guarantor, the Trustee or any such agent shall be affected by notice to the contrary. Interest on this Senior Note shall be computed on the basis of a 360-day year of twelve 30-day months. The Company shall furnish to any Holder of record of 9.75% Senior Notes, upon written request and without charge, a copy of the Indenture. The Indenture and this Senior Note each shall be governed by and construed in accordance with the laws of the State of Wisconsin without regard to principles of conflicts of law. Unless the certificate of authentication hereon has been executed by the Trustee by manual signature, this Senior Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. [the rest of this page has INTENTIONALLY been left blank.] In Witness Whereof, Alliant Energy Resources, Inc. has caused this 9.75% Senior Note to be signed in its corporate name by the facsimile signature of two of its officers thereunto duly authorized and has caused a facsimile of its corporate seal to be affixed hereto or imprinted or otherwise reproduced hereon. ATTEST: ALLIANT ENERGY RESOURCES, INC. By: _________________________ By: ________________________________ Name: Name: Title: Title: FOR VALUE RECEIVED, the Guarantor, hereby unconditionally guarantees to the Holder of the Security upon which this Guarantee is endorsed the due and punctual payment of the principal, of premium, if any, or interest on said Security, when and as the same shall be become due and payable, whether at maturity, upon redemption or otherwise, according to the terms thereof and of the Indenture referred to therein. The Guarantor agrees to determine, at least one business day prior to the date upon which a payment of principal, of premium, if any, or interest on said Security is due and payable, whether the Company has available the funds to make such payment as the same shall become due and payable. In case of the failure of the Company punctually to pay any such principal, premium, if any, or interest, the Guarantor hereby agrees to cause any such payment to be made punctually when and as the same shall become due and payable, whether at maturity, upon redemption or otherwise, and as if such payment were made by the Company. The Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrevocable and absolute, irrespective of the validity, regularity or enforceability of said Security or said Indenture, the absence of any action to enforce the same, any waiver or consent by the Holder of said Security with respect to any provisions thereof, the recovery of any judgment against the Company or any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of merger or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to said Security or indebtedness evidenced thereby, and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in said Security and in this Guarantee. The Guarantor shall be subrogated to all rights of the Holder of said Security against the Company in respect to any amounts paid by the Guarantor pursuant to the provisions of this Guarantee; provided, however, that the Guarantor shall not, without the consent of the Holders of all of the Securities then outstanding, be entitled to enforce or to receive any payments arising out of or based upon such right of subrogation until the principal of and premium, if any, and interest on all Securities shall have been paid in full or payment thereof shall have been provided for in accordance with said Indenture. Notwithstanding anything to the contrary contained herein, if following any payment of principal or interest by the Company on the Securities to the Holders of the Securities it is determined by a final decision of a court of competent jurisdiction that such payment shall be avoided by a trustee in bankruptcy (including any debtor-in-possession) as a preference under 11 U.S.C. Section 547 and such payment is paid by such Holder to such trustee in bankruptcy, then and to the extent of such repayment the obligations of the Guarantor hereunder shall remain in full force and effect. This Guarantee shall not be valid or become obligatory for any purpose with respect to a Security until a certificate of authentication on such Security shall have been signed by the Trustee (or the authenticating agent). This Guarantee shall be governed by the laws of the State of Wisconsin. IN WITNESS WHEREOF, ALLIANT ENERGY CORPORATION has caused this Guarantee to be signed in its corporate name by the signature of two of its officers thereunto duly authorized and has caused its corporate seal to be affixed hereto or imprinted or otherwise reproduced hereon. ALLIANT ENERGY CORPORATION, ATTEST: as Guarantor By: _________________________ By: ________________________________ Name: Name: Title: Title: TRUSTEE CERTIFICATE OF AUTHENTICATION ------------------------------------- This is one of the 9.75% Senior Notes described in the within-named Indenture. U.S. BANK NATIONAL ASSOCIATION, as Trustee By: ________________________________ Name: Title: EXHIBIT B EXHIBIT H TO THE INDENTURE FORM OF INCURRENCE CERTIFICATE TO: U.S. BANK NATIONAL ASSOCIATION Reference is hereby made to the Fourth Supplemental Indenture, dated as of December 26, 2002 (the "Fourth Supplemental Indenture"), among Alliant Energy Resources, Inc., a Wisconsin corporation (the "Company"), Alliant Energy Corporation, a Wisconsin corporation, as guarantor (the "Guarantor"), and U.S. Bank National Association, as successor to Firstar Bank, N.A., as Trustee. Terms with initial capital letters used but not defined herein have the meanings assigned to them in the Fourth Supplemental Indenture. This Incurrence Certificate is being delivered pursuant to Section 2.08 of the Fourth Supplemental Indenture and relates to [description of new Indebtedness] (the "New Indebtedness") by the [Company/Guarantor/name of Consolidated Subsidiary] incurred on [date New Indebtedness is incurred] (the "Incurrence Date"). The undersigned are the _________________________ and the __________________________, respectively, of the Guarantor and each hereby certifies as of the date hereof, in his capacity as officer of the Guarantor, as follows: As of the Incurrence Date, after giving pro forma effect to the incurrence of the New Indebtedness: (a) Consolidated Net Worth is more than $1.2 billion; (b) the ratio of Consolidated Indebtedness to Consolidated Total Capitalization does not exceed 0.70 to 1.00; and (c) the Interest Coverage Ratio is more than 2.0 to 1.0. Schedule I attached hereto sets forth the calculations performed by the undersigned in order to make the foregoing certifications. IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand this __ day of _______, 20__. ______________________________________ Name: Title: ______________________________________ Name: Title: SCHEDULE I [CALCULATIONS USED TO PROVIDE INCURRENCE CERTIFICATE] EX-4 5 exhibit4pt17.txt EXHIBIT 4.17 EXECUTION COPY -------------- =============================================================================== EXHIBIT 4.17 REGISTRATION RIGHTS AGREEMENT Dated as of December 26, 2002 among ALLIANT ENERGY RESOURCES, INC., ALLIANT ENERGY CORPORATION and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, and THE OTHER INITIAL PURCHASERS LISTED IN SCHEDULE A HERETO =============================================================================== This REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of December 26, 2002, is made and entered among Alliant Energy Resources, Inc., a Wisconsin corporation (the "Company"), Alliant Energy Corporation, a Wisconsin corporation (the "Parent"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated and each of the other initial purchasers listed in Schedule A hereto (collectively, the "Initial Purchasers"). This Agreement is made pursuant to the Purchase Agreement, dated December 20, 2002, among the Company, the Parent, as guarantor, and the Initial Purchasers (the "Purchase Agreement"), which provides for the sale by the Company to the Initial Purchasers of an aggregate of $300,000,000 principal amount of the Company's 9.75% Senior Notes due 2013 (the "Senior Notes") (collectively, the "Securities"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company and the Parent have agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. ----------- As used in this Agreement, the following capitalized defined terms shall have the following meanings: "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "1934 Act" shall mean the Securities Exchange Act of l934, as amended from time to time. "Agreement" shall have the meaning set forth in the preamble. "Closing Date" shall mean the Closing Time as defined in the Purchase Agreement. "Company" shall have the meaning set forth in the preamble and shall also include the Company's successors. "Depositary" shall mean The Depository Trust Company, or any other depositary appointed by the Company; provided, however, that such depositary must have an address in the Borough of Manhattan, in the City of New York. "Effectiveness Period" shall have the meaning set forth in Section 2.2 hereof. "Exchange Offer" shall mean the exchange offer by the Company and the Parent of Exchange Securities for Registrable Securities pursuant to Section 2.1 hereof. "Exchange Offer Registration" shall mean a registration under the 1933 Act effected pursuant to Section 2.1 hereof. "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, including the Prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein. "Exchange Period" shall have the meaning set forth in Section 2.1 hereof. "Exchange Securities" shall mean the 9.75% Senior Notes due 2013, issued by the Company under the Indenture containing terms identical to the Securities in all material respects (except for references to certain interest rate provisions, restrictions on transfers and restrictive legends), to be offered to Holders of Securities in exchange for Registrable Securities pursuant to the Exchange Offer. "Holder" shall mean an Initial Purchaser, for so long as it owns any Registrable Securities, and each of its successors, assigns and direct and indirect transferees who become registered owners of Registrable Securities under the Indenture and each Participating Broker-Dealer that holds Exchange Securities for so long as such Participating Broker-Dealer is required to deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities. "Indenture" shall mean the Indenture relating to, among other debt securities, the Securities, dated as of November 4, 1999, between the Company, the Parent and U.S. Bank National Association, as successor to Firstar Bank, N.A., as trustee, as the same may be amended, supplemented, waived or otherwise modified from time to time in accordance with the terms thereof. "Initial Purchaser" or "Initial Purchasers" shall have the meaning set forth in the preamble. "Majority Holders" shall mean the Holders of a majority of the aggregate principal amount of Outstanding (as defined in the Indenture) Registrable Securities; provided that whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company and other obligors on the Securities or any Affiliate (as defined in the Indenture) of the Company shall be disregarded in determining whether such consent or approval was given by the Holders of such required percentage amount. "NASD" shall mean the National Association of Securities Dealers, Inc. "Parent" shall have the meaning set forth in the preamble and shall also include the Parent's successors. "Participating Broker-Dealer" shall mean any of Merrill Lynch, Pierce, Fenner & Smith Incorporated, each of the other Initial Purchasers listed on Schedule A hereto and any other broker-dealer which makes a market in the Securities and exchanges Registrable Securities in the Exchange Offer for Exchange Securities. "Person" shall mean an individual, partnership (general or limited), corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Private Exchange" shall have the meaning set forth in Section 2.1 hereof. "Private Exchange Securities" shall have the meaning set forth in Section 2.1 hereof. "Prospectus" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including any such prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein. "Purchase Agreement" shall have the meaning set forth in the preamble. "Registrable Securities" shall mean the Securities and, if issued, the Private Exchange Securities; provided, however, that the -------- ------- Securities and, if issued, the Private Exchange Securities, shall cease to be Registrable Securities when (i) a Registration Statement with respect to such securities shall have been declared effective under the 1933 Act and such securities shall have been disposed of pursuant to such Registration Statement, (ii) such securities have been sold to the public pursuant to Rule l44 (or any similar provision then in force, but not Rule 144A) under the 1933 Act, (iii) such securities shall have ceased to be outstanding or (iv) the Exchange Offer is consummated (except in the case of Securities purchased from the Company and continued to be held by the Initial Purchasers). "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Company and the Parent with this Agreement, including without limitation: (i) all SEC, stock exchange or the NASD registration and filing fees, including, if applicable, the fees and expenses of any "qualified independent underwriter" (and its counsel) that is required to be retained by any holder of Registrable Securities in accordance with the rules and regulations of the NASD, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws and compliance with the rules of the NASD (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with blue sky qualification of any of the Exchange Securities or Registrable Securities and any filings with the NASD), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Securities on any securities exchange or exchanges, (v) all rating agency fees, (vi) the fees and disbursements of counsel for the Company and the Parent and of the independent public accountants of the Company and the Parent, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, (vii) the fees and expenses of the Trustee, and any escrow agent or custodian, (viii) in the case of a Shelf Registration Statement, the reasonable fees and disbursements of one special counsel designated in writing by the Majority Holders to represent the Holders of Registrable Securities and (ix) any fees and disbursements of the underwriters customarily required to be paid by issuers or sellers of securities and the fees and expenses of any special experts retained by the Company and the Parent in connection with any Registration Statement, but excluding underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder. "Registration Statement" shall mean any registration statement of the Company and the Parent which covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Representative" shall mean Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the Initial Purchasers. "SEC" shall mean the United States Securities and Exchange Commission or any successor agency or government body performing the functions currently performed by the United States Securities and Exchange Commission. "SEC Order" shall have the meaning set forth in Section 2.1. "Securities" shall have the meaning set forth in the preamble. "Senior Notes" shall have the meaning set forth in the preamble. "Shelf Registration" shall mean a registration effected pursuant to Section 2.2 hereof. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company and the Parent pursuant to the provisions of Section 2.2 of this Agreement which covers all of the Registrable Securities or all of the Private Exchange Securities on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "TIA" shall mean the trust Indenture Act of 1939, as amended. "Trustee" shall mean the trustee with respect to the Securities under the Indenture. "Underwriter" shall have the meaning set forth in Section 4. 2. Registration Under the 1933 Act. ------------------------------- 2.1 Exchange Offer. Except as provided in Section 2.2 and to the -------------- extent not prohibited by any applicable law or applicable interpretation of the staff of the SEC, the Company and the Parent shall, for the benefit of the Holders, at the cost of the Company and the Parent, (A) prepare and, as soon as practicable but not later than 120 days following the Closing Date, file with the SEC an Exchange Offer Registration Statement on an appropriate form under the 1933 Act with respect to a proposed Exchange Offer and the issuance and delivery to the Holders, in exchange for the Registrable Securities (other than Private Exchange Securities), of a like principal amount of Exchange Securities, (B) use their reasonable best efforts to cause the Exchange Offer Registration Statement to be declared effective under the 1933 Act within 210 days of the Closing Date, (C) use their reasonable best efforts to keep the Exchange Offer Registration Statement effective until the closing of the Exchange Offer and (D) use their reasonable best efforts to cause the Exchange Offer to be consummated not later than 45 days after the effective date of the Exchange Offer Registration Statement. The Exchange Securities will be issued under the Indenture. Upon the effectiveness of the Exchange Offer Registration Statement, the Company and the Parent shall promptly commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder eligible and electing to exchange Registrable Securities for Exchange Securities (assuming that such Holder (a) is not an affiliate of the Company within the meaning of Rule 405 under the 1933 Act, (b) is not a broker-dealer tendering Registrable Securities acquired directly from the Company for its own account, (c) acquired the Exchange Securities in the ordinary course of such Holder's business and (d) has no arrangements or understandings with any Person to participate in the Exchange Offer for the purpose of distributing the Exchange Securities) to transfer such Exchange Securities from and after their receipt without any limitations or restrictions under the 1933 Act and under state securities or blue sky laws. In connection with the Exchange Offer, the Company and the Parent shall: (a) mail as promptly as practicable to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Exchange Offer open for acceptance for a period of not less than 20 business days after the date notice thereof is mailed to the Holders (or longer if required by applicable law) (such period referred to herein as the "Exchange Period"); (c) utilize the services of the Depositary for the Exchange Offer; (d) permit Holders to withdraw tendered Registrable Securities at any time prior to 5:00 p.m. (Eastern Time), on the last business day of the Exchange Period, by sending to the institution specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Securities delivered for exchange, and a statement that such Holder is withdrawing such Holder's election to have such Securities exchanged; (e) notify each Holder that any Registrable Security not tendered will remain outstanding and continue to accrue interest, but will not retain any rights under this Agreement (except in the case of the Initial Purchasers and Participating Broker-Dealers as provided herein); and (f) otherwise comply in all respects with all applicable laws relating to the Exchange Offer. If, prior to consummation of the Exchange Offer, the Initial Purchasers hold any Securities acquired by them and having the status of an unsold allotment in the initial distribution, the Company and the Parent upon the request of any Initial Purchaser shall, simultaneously with the delivery of the Exchange Securities in the Exchange Offer and subject to compliance with applicable securities laws, issue and deliver to such Initial Purchaser in exchange (the "Private Exchange") for the Securities held by such Initial Purchaser, a like principal amount of debt securities of the Company on a senior basis, that are identical (except that such securities shall bear appropriate transfer restrictions) to the Exchange Securities (the "Private Exchange Securities"). The Exchange Securities and the Private Exchange Securities shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture and which, in either case, has been qualified under the TIA, or is exempt from such qualification and shall provide that the Exchange Securities shall not be subject to the transfer restrictions set forth in the Indenture but that the Private Exchange Securities shall be subject to such transfer restrictions. The Indenture or such indenture shall provide that the Exchange Securities, the Private Exchange Securities and the Securities shall vote and consent together on all matters as one class and that none of the Exchange Securities, the Private Exchange Securities or the Securities will have the right to vote or consent as a separate class on any matter. The Private Exchange Securities shall be of the same series as and the Company and the Parent shall use all commercially reasonable efforts to have the Private Exchange Securities bear the same CUSIP number as the Exchange Securities. Neither the Company nor the Parent shall have any liability under this Agreement solely as a result of such Private Exchange Securities not bearing the same CUSIP number as the Exchange Securities. As soon as practicable after the close of the Exchange Offer and/or the Private Exchange, as the case may be, the Company and the Parent shall: (i) accept for exchange all Registrable Securities duly tendered and not validly withdrawn pursuant to the Exchange Offer in accordance with the terms of the Exchange Offer Registration Statement and the letter of transmittal which shall be an exhibit thereto; (ii) accept for exchange all Securities properly tendered pursuant to the Private Exchange; (iii)deliver to the Trustee for cancellation all Registrable Securities so accepted for exchange; and (iv) cause the Trustee promptly to authenticate and deliver Exchange Securities or Private Exchange Securities, as the case may be, to each Holder of Registrable Securities so accepted for exchange in a principal amount equal to the principal amount of the Registrable Securities of such Holder so accepted for exchange. Interest on each Exchange Security and Private Exchange Security will accrue from the last date on which interest was paid on the Registrable Securities surrendered in exchange therefor or, if no interest has been paid on the Registrable Securities, from the date of original issuance. The Exchange Offer and the Private Exchange shall not be subject to any conditions, other than (i) that the Exchange Offer or the Private Exchange, or the making of any exchange by a Holder, does not violate applicable law or any applicable interpretation of the staff of the SEC, (ii) the due tendering of Registrable Securities in accordance with the Exchange Offer and the Private Exchange, (iii) that each Holder of Registrable Securities exchanged in the Exchange Offer shall have represented that all Exchange Securities to be received by it shall be acquired in the ordinary course of its business and that at the time of the consummation of the Exchange Offer it shall have no arrangement or understanding with any person to participate in the distribution (within the meaning of the 1933 Act) of the Exchange Securities and shall have made such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to render the use of Form S-4 or other appropriate form under the 1933 Act available and (iv) that no action or proceeding shall have been instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer or the Private Exchange which, in the judgment of the Company and the Parent, would reasonably be expected to impair the ability of the Company and the Parent to proceed with the Exchange Offer or the Private Exchange and that the Exchange Offer and the Private Exchange shall comply with the provisions of the SEC's Release No. 35-27448, 70-9891 dated as of October 3, 2001, by which the Parent and the Company are bound (the "SEC Order"). The Company and the Parent shall inform the Initial Purchasers of the names and addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right to contact such Holders and otherwise facilitate the tender of Registrable Securities in the Exchange Offer. 2.2 Shelf Registration. (i) If, because of any changes in the ------------------ law, SEC rules or regulations or applicable interpretations thereof by the staff of the SEC, the Company and the Parent are not permitted to effect the Exchange Offer as contemplated by Section 2.1 hereof, (ii) if for any other reason the Exchange Offer Registration Statement is not declared effective within 210 days following the Closing Date (other than as a result of an ongoing review of the Exchange Offer Registration Statement by the staff of the SEC) or the Exchange Offer is not consummated within 45 days after effectiveness of the Exchange Offer Registration Statement (provided that if the Exchange Offer Registration Statement shall be declared effective after such 210-day period or if the Exchange Offer shall be consummated after such 45-day period, then the obligation of the Company and the Parent under this clause (ii) arising from the failure of the Exchange Offer Registration Statement to be declared effective within such 210-day period or the failure of the Exchange Offer to be consummated within such 45-day period, respectively, shall terminate), (iii) upon the request of any of the Initial Purchasers within 90 days following the consummation of the Exchange Offer, or (iv) if, as a result of any changes in law, SEC rules or regulations or applicable interpretations thereof by the staff of the SEC or otherwise, a Holder (other than an Initial Purchaser holding securities acquired directly from the Company) is not permitted to participate in the Exchange Offer or does not receive fully tradable Exchange Securities pursuant to the Exchange Offer, then in case of each of clauses (i) through (iv) the Company and the Parent shall, at their cost: (a) As promptly as practicable, file with the SEC, and thereafter shall use their reasonable best efforts to cause to be declared effective as promptly as practicable but no later than 210 days after the Closing Date, a Shelf Registration Statement relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by the Majority Holders participating in the Shelf Registration and set forth in such Shelf Registration Statement. (b) Use their reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the Prospectus forming part thereof to be usable by Holders for a period of two years from the Closing Date, or for such shorter period that will terminate when all Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement or cease to be outstanding or otherwise to be Registrable Securities (the "Effectiveness Period"); provided, however, that the -------- ------- Effectiveness Period in respect of the Shelf Registration Statement shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the 1933 Act and as otherwise provided herein. (c) Notwithstanding any other provisions hereof, use their reasonable best efforts to ensure that (i) any Shelf Registration Statement and any amendment thereto and any Prospectus forming part thereof and any supplement thereto complies in all material respects with the 1933 Act and the rules and regulations thereunder, (ii) any Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Shelf Registration Statement, and any supplement to such Prospectus (as amended or supplemented from time to time), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading; provided, however, that clauses (ii) and (iii) shall not apply to any information relating to any Initial Purchaser or any Holder furnished to the Company in writing by such Initial Purchaser or Holder expressly for use in the Shelf Registration Statement. The Company and the Parent further agree, if necessary, to supplement or amend the Shelf Registration Statement, as required by Section 3(b) below, and to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC. 2.3 Expenses. The Company and the Parent shall pay all -------- Registration Expenses in connection with the registration pursuant to Section 2.1 or 2.2. Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement. 2.4. Effectiveness. ------------- (a) The Company and the Parent will be deemed not to have used their reasonable best efforts to cause the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, to become, or to remain, effective during the requisite period if the Company and the Parent voluntarily take any action that would, or omit to take any action which omission would, result in any such Registration Statement not being declared effective or in the Holders of Registrable Securities covered thereby not being able to exchange or offer and sell such Registrable Securities during that period as and to the extent contemplated hereby, unless such action is required by applicable law, as contemplated by clause (i) of Section 2.2, or, in the case of the Exchange Offer Registration Statement, such action would violate the provisions of the SEC Order. (b) An Exchange Offer Registration Statement pursuant to Section 2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it has been declared effective, the offering of Registrable Securities pursuant to an Exchange Offer Registration Statement or a Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have become effective during the period of such interference, until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. 2.5 Interest. The Indenture executed in connection with the -------- Securities will provide that in the event that (a) the Exchange Offer Registration Statement is not filed with the Commission on or prior to the 120th calendar day following the Closing Date, (b) the Exchange Offer Registration Statement has not been declared effective on or prior to the 210th calendar day following the Closing Date, (c) the Exchange Offer is not consummated, on or prior to the 45th calendar day following the effective date of the Exchange Offer Registration Statement or (d) if required, the Shelf Registration Statement is not declared effective on or prior to the 210th calendar day following the Closing Date (each such event referred to in clauses (a) through (d) above, a "Registration Default"), the interest rate borne by the Securities shall be increased ("Additional Interest") by one-half of one percent (0.50%) per annum upon the occurrence of a Registration Default, which rate will increase by an additional one-quarter of one percent (0.25%) at the beginning of each subsequent 90-day period that such Additional Interest continues to accrue under any such circumstance, provided that the maximum aggregate increase in the interest rate will in no event exceed two percent (2.00%) per annum. Following the cure of all Registration Defaults the accrual of Additional Interest will cease and the interest rate will be reduced to the rate that otherwise would be in effect had such Registration Default not occurred. If the Shelf Registration Statement is unusable by the Holders for any reason after the Shelf Registration Statement has been declared effective by the SEC, and the aggregate number of days in any consecutive twelve-month period for which the Shelf Registration Statement shall not be usable exceeds 30 days in the aggregate, then the interest rate borne by the Securities, so long as any Securities are Registrable Securities, will be increased by one-half of one percent (0.50%) per annum of the principal amount of the Securities for the first 90-day period (or portion thereof) beginning on the 31st day following the date that such Shelf Registration Statement ceases to be usable, which rate shall be increased by an additional one-quarter of one percent (0.25%) per annum of the principal amount of the Securities at the beginning of each subsequent 90-day period, provided that the maximum aggregate increase in the interest rate will in no event exceed two percent (2.00%) per annum. Any amounts payable under this paragraph shall also be deemed "Additional Interest" for purposes of this Agreement. Upon the Shelf Registration Statement once again becoming usable, the interest rate borne by the Securities will be reduced to the interest rate that otherwise would be in effect had such Registration Statement not become unusable, provided the Company and the Parent are otherwise in compliance with this Agreement at such time. Additional Interest shall be computed based on the actual number of days elapsed in each 90-day period in which the Shelf Registration Statement is unusable. The Company and the Parent shall notify the Trustee within three business days after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an "Event Date"). Additional Interest shall be paid by depositing with the Trustee, in trust, for the benefit of the Holders of the Securities, on or before the applicable semiannual interest payment date, immediately available funds in sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each interest payment date to the record Holder of Securities entitled to receive the interest payment to be paid on such date as set forth in the Indenture. Each obligation to pay Additional Interest shall be deemed to accrue from and including the day following the applicable Event Date. 3. Registration Procedures. ----------------------- In connection with and subject to the rights and the obligations of the Company and the Parent with respect to Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company and the Parent shall: (a) prepare and file with the SEC a Registration Statement, within the relevant time period specified in Section 2, on the appropriate form under the 1933 Act, which form (i) shall be selected by the Company and the Parent, (ii) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the selling Holders thereof, (iii) shall comply as to form in all material respects with the requirements of the applicable form and include or incorporate by reference all financial statements required by the SEC to be filed therewith or incorporated by reference therein and (iv) shall comply in all material respects with the requirements of Regulation S-T under the 1933 Act, and use their reasonable best efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof; (b) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary under applicable law to keep such Registration Statement effective for the applicable period; and cause each Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provision then in force) under the 1933 Act and comply with the provisions of the 1933 Act, the 1934 Act and the rules and regulations thereunder applicable to them with respect to the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof (including sales by any Participating Broker-Dealer); (c) in the case of a Shelf Registration, (i) notify each Holder of Registrable Securities, at least five business days prior to filing, that a Shelf Registration Statement with respect to the Registrable Securities is being filed and advising such Holders that the distribution of Registrable Securities will be made in accordance with the method selected by the Majority Holders participating in the Shelf Registration; (ii) furnish to each Holder of Registrable Securities and to each underwriter of an underwritten offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder or underwriter may reasonably request, including financial statements and schedules and, if the Holder so requests, all exhibits in order to facilitate the public sale or other disposition of the Registrable Securities; and (iii) hereby consent to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; (d) use their reasonable best efforts to register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions as any Holder of Registrable Securities covered by a Registration Statement and each underwriter of an underwritten offering of Registrable Securities shall reasonably request by the time the applicable Registration Statement is declared effective by the SEC, and do any and all other acts and things which may be reasonably necessary or advisable to enable each such Holder and underwriter to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; provided, however, -------- ------- that neither the Company nor the Parent shall be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), or (ii) take any action which would subject it to general service of process or taxation in any such jurisdiction where it is not then so subject; (e) notify promptly each Holder of Registrable Securities under a Shelf Registration or any Participating Broker-Dealer who has notified the Company and the Parent that it is utilizing the Exchange Offer Registration Statement as provided in paragraph (f) below and, if requested by such Holder or Participating Broker-Dealer, confirm such advice in writing promptly (i) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of any request by the SEC or any state securities authority for post-effective amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) in the case of a Shelf Registration, if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company and the Parent contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to the offering cease to be true and correct in all material respects, (v) of the happening of any event or the discovery of any facts during the period a Shelf Registration Statement is effective which makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or which requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading, (vi) of the receipt by the Company or the Parent of any notification with respect to the suspension of the qualification of the Registrable Securities or the Exchange Securities, as the case may be, for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (vii) of any determination by the Company and the Parent that a post-effective amendment to such Registration Statement would be appropriate; (f) (A) in the case of the Exchange Offer Registration Statement (i) include in the Exchange Offer Registration Statement a section entitled "Plan of Distribution" which section shall be reasonably acceptable to the Representative on behalf of the Participating Broker-Dealers, and which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that holds Registrable Securities acquired for its own account as a result of market-making activities or other trading activities and that will be the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities to be received by such broker-dealer in the Exchange Offer, whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies, in the reasonable judgment of the Representative on behalf of the Participating Broker-Dealers and its counsel, represent the prevailing views of the staff of the SEC, including a statement that any such broker-dealer who receives Exchange Securities for Registrable Securities pursuant to the Exchange Offer may be deemed a statutory underwriter and must deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities, (ii) furnish to each Participating Broker-Dealer who has delivered to the Company and the Parent the notice referred to in Section 3(e), without charge, as many copies of each Prospectus included in the Exchange Offer Registration Statement, including any preliminary prospectus, and any amendment or supplement thereto, as such Participating Broker-Dealer may reasonably request, (iii) hereby consent to the use of the Prospectus forming part of the Exchange Offer Registration Statement or any amendment or supplement thereto, by any Person subject to the prospectus delivery requirements of the SEC, including all Participating Broker-Dealers, in connection with the sale or transfer of the Exchange Securities covered by the Prospectus or any amendment or supplement thereto, and (iv) include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer (x) the following provision: "If the exchange offeree is a broker-dealer holding Registrable Securities acquired for its own account as a result of market-making activities or other trading activities, it will deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of Exchange Securities received in respect of such Registrable Securities pursuant to the Exchange Offer;" and (y) a statement to the effect that by a broker-dealer making the acknowledgment described in clause (x) and by delivering a Prospectus in connection with the exchange of Registrable Securities, the broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the 1933 Act; and (B) in the case of any Exchange Offer Registration Statement, the Company and the Parent agree to deliver to the Initial Purchasers on behalf of the Participating Broker-Dealers upon the effectiveness of the Exchange Offer Registration Statement (i) an opinion of counsel or opinions of counsel substantially in the form attached hereto as Exhibit A and (ii) officers' certificates substantially in the form customarily delivered in a public offering of debt securities; (g) (i) in the case of an Exchange Offer, furnish counsel for the Initial Purchasers and (ii) in the case of a Shelf Registration, furnish counsel for the Holders of Registrable Securities copies of any comment letters received from the SEC or any other request by the SEC or any state securities authority for amendments or supplements to a Registration Statement and Prospectus or for additional information; (h) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment; (i) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, and each underwriter, if any, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto, including financial statements and schedules (without documents incorporated therein by reference and all exhibits thereto, unless requested); (j) in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations (consistent with the provisions of the Indenture) and registered in such names as the selling Holders or the underwriters, if any, may reasonably request at least three business days prior to the closing of any sale of Registrable Securities; (k) in the case of a Shelf Registration, upon the occurrence of any event or the discovery of any facts, each as contemplated by Sections 3(e)(v) and 3(e)(vi) hereof, as promptly as practicable after the occurrence of such an event, use their reasonable best efforts to prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities or Participating Broker-Dealers, such Prospectus will not contain at the time of such delivery any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or will remain so qualified. At such time as such public disclosure is otherwise made or the Company and the Parent determine that such disclosure is not necessary, in each case to correct any misstatement of a material fact or to include any omitted material fact, the Company and the Parent agree promptly to notify each Holder of such determination and to furnish each Holder such number of copies of the Prospectus as amended or supplemented, as such Holder may reasonably request; (l) in the case of a Shelf Registration, a reasonable time prior to the filing of any Registration Statement, any Prospectus, any amendment to a Registration Statement or amendment or supplement to a Prospectus or any document which is to be incorporated by reference into a Registration Statement or a Prospectus after initial filing of a Registration Statement, provide copies of such document to the Initial Purchasers on behalf of such Holders; and make representatives of the Company and the Parent as shall be reasonably requested by the Holders of Registrable Securities, or the Initial Purchasers on behalf of such Holders, available for discussion of such document upon reasonable advance notice. In connection with such discussions, the Holders or the Initial Purchasers, on behalf of such Holders, shall use their reasonable best efforts to minimize any disruption to the business of the Company and the Parent; (m) obtain a CUSIP number for all Exchange Securities, Private Exchange Securities or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement, and provide the Trustee with certificates for the Exchange Securities, Private Exchange Securities or the Registrable Securities, as the case may be, in a form eligible for deposit with the Depositary; (n) (i) cause the Indenture to be qualified under the TIA in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be, (ii) cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and (iii) execute, and use their reasonable best efforts to cause the Trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; (o) in the case of a Shelf Registration, enter into agreements (including underwriting agreements) and take all other customary and appropriate actions in order to expedite or facilitate the disposition of such Registrable Securities and in such connection whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration: (i) make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in similar underwritten offerings as may be reasonably requested by them; (ii) obtain opinions of counsel to the Company and the Parent and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and the holders of a majority in principal amount of the Registrable Securities being sold) addressed to each selling Holder and the underwriters, if any, covering the matters customarily covered in opinions requested in sales of securities or underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters; (iii) obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company and the Parent (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or the Parent or of any business acquired by the Company or the Parent for which financial statements are, or are required to be, included in the Registration Statement) addressed to the underwriters, if any, and use reasonable efforts to have such letter addressed to the selling Holders of Registrable Securities (to the extent consistent with Statement on Auditing Standards No. 72 of the American Institute of Certified Public Accountants), such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to underwriters in connection with similar underwritten offerings; (iv) enter into a securities sales agreement with the Holders and an agent of the Holders providing for, among other things, the appointment of such agent for the selling Holders for the purpose of soliciting purchases of Registrable Securities, which agreement shall be in form, substance and scope customary for similar offerings; (v) if an underwriting agreement is entered into, cause the same to set forth indemnification provisions and procedures substantially equivalent to the indemnification provisions and procedures set forth in Section 4 hereof with respect to the underwriters and all other parties to be indemnified pursuant to said Section or, at the request of any underwriters, in the form customarily provided to such underwriters in similar types of transactions; and (vi) deliver such documents and certificates as may be reasonably requested and as are customarily delivered in similar offerings to the Holders of a majority in principal amount of the Registrable Securities being sold and the managing underwriters, if any. The above shall be done at (i) the effectiveness of such Registration Statement (and each post-effective amendment thereto) and (ii) each closing under any underwriting or similar agreement as and to the extent required thereunder; (p) in the case of a Shelf Registration or if a Prospectus is required to be delivered by any Participating Broker-Dealer in the case of an Exchange Offer, make available for inspection by representatives of the Holders of the Registrable Securities, any underwriters participating in any disposition pursuant to a Shelf Registration Statement, any Participating Broker-Dealer and any counsel or accountant retained by any of the foregoing, all financial and other records, pertinent corporate documents and properties of the Company and the Parent reasonably requested by any such persons, and cause the respective officers, directors, employees, and any other agents of the Company and the Parent to supply all information reasonably requested by any such representative, underwriter, special counsel or accountant in connection with a Registration Statement, and make such representatives of the Company and the Parent available for discussion of such documents as shall be reasonably requested by the Initial Purchasers; (q) (i) in the case of an Exchange Offer Registration Statement, a reasonable time prior to the filing of any Exchange Offer Registration Statement, any Prospectus forming a part thereof, any amendment to an Exchange Offer Registration Statement or amendment or supplement to such Prospectus, provide copies of such document to the Initial Purchasers and to counsel to the Holders of Registrable Securities and make such changes in any such document prior to the filing thereof as the Initial Purchasers or counsel to the Holders of Registrable Securities may reasonably request and, except as otherwise required by applicable law, not file any such document in a form to which the Initial Purchasers on behalf of the Holders of Registrable Securities and counsel to the Holders of Registrable Securities shall not have previously been advised and furnished a copy of or to which the Initial Purchasers on behalf of the Holders of Registrable Securities or counsel to the Holders of Registrable Securities shall reasonably object, and make the representatives of the Company and the Parent available for discussion of such documents as shall be reasonably requested by the Initial Purchasers; and (ii) in the case of a Shelf Registration, a reasonable time prior to filing any Shelf Registration Statement, any Prospectus forming a part thereof, any amendment to such Shelf Registration Statement or amendment or supplement to such Prospectus, provide copies of such document to the Holders of Registrable Securities, to the Initial Purchasers, to counsel for the Holders and to the underwriter or underwriters of an underwritten offering of Registrable Securities, if any, make such changes in any such document prior to the filing thereof as the Initial Purchasers, the counsel to the Holders or the underwriter or underwriters reasonably request and not file any such document in a form to which the Majority Holders, the Initial Purchasers on behalf of the Holders of Registrable Securities, counsel for the Holders of Registrable Securities or any underwriter shall not have previously been advised and furnished a copy of or to which the Majority Holders, the Initial Purchasers of behalf of the Holders of Registrable Securities, counsel to the Holders of Registrable Securities or any underwriter shall reasonably object, and make the representatives of the Company and the Parent available for discussion of such document as shall be reasonably requested by the Holders of Registrable Securities, the Initial Purchasers on behalf of such Holders, counsel for the Holders of Registrable Securities or any underwriter. (r) in the case of a Shelf Registration, use their reasonable best efforts to cause all Registrable Securities to be listed on any securities exchange on which similar debt securities issued by the Company or the Parent are then listed if requested by the Majority Holders, or if requested by the underwriter or underwriters of an underwritten offering of Registrable Securities, if any; (s) in the case of a Shelf Registration, use their reasonable best efforts to cause the Registrable Securities to be rated by the appropriate rating agencies, if so requested by the Majority Holders, or if requested by the underwriter or underwriters of an underwritten offering of Registrable Securities, if any; (t) otherwise comply with all applicable rules and regulations of the SEC and make available to its security holders, as soon as reasonably practicable, an earnings statement of the Parent covering at least 12 months which shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder; (u) cooperate and assist in any filings required to be made with the NASD and, in the case of a Shelf Registration, in the performance of any due diligence investigation by any underwriter and its counsel (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD); and (v) upon consummation of an Exchange Offer or a Private Exchange, obtain a customary opinion of counsel to the Company and the Parent addressed to the Trustee for the benefit of all Holders of Registrable Securities participating in the Exchange Offer or Private Exchange, and which includes an opinion that (i) each of the Company and the Parent has duly authorized, executed and delivered the Exchange Securities and/or Private Exchange Securities, as applicable, and the related indenture, and (ii) each of the Exchange Securities and related indenture constitute a legal, valid and binding obligation of the Company and the Parent, enforceable against the Company and the Parent in accordance with its respective terms (with customary exceptions). In the case of a Shelf Registration Statement, the Company and the Parent may (as a condition to such Holder's participation in the Shelf Registration) require each Holder of Registrable Securities (i) to furnish to the Company and the Parent such information regarding the Holder and the proposed distribution by such Holder of such Registrable Securities as the Company and the Parent may from time to time reasonably request and (ii) to agree in writing to be bound by this Agreement, including the indemnification provisions. In the case of a Shelf Registration Statement, each Holder agrees that, upon receipt of any notice from the Company and the Parent of the happening of any event or the discovery of any facts, each of the kind described in Section 3(e)(v) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(k) hereof, and, if so directed by the Company and the Parent, such Holder will deliver to the Company and the Parent (at its expense) all copies in such Holder's possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event that the Company and the Parent fail to effect the Exchange Offer or file any Shelf Registration Statement and maintain the effectiveness of any Shelf Registration Statement as provided herein, neither the Company nor the Parent shall file any Registration Statement with respect to any securities (within the meaning of Section 2(1) of the 1933 Act) of the Company or the Parent other than Registrable Securities; notwithstanding the foregoing, the Company and the Parent shall be permitted to file registration statements solely to register securities issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans. If any of the Registrable Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the underwriter or underwriters and manager or managers that will manage such offering will be selected by the Majority Holders of such Registrable Securities included in such offering and shall be acceptable to the Company and the Parent. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 4. Indemnification; Contribution. ----------------------------- (a) The Company and the Parent jointly and severally agree to indemnify and hold harmless the Initial Purchasers, each Holder, each Participating Broker-Dealer, each Person who participates as an underwriter (any such Person being an "Underwriter") and each Person, if any, who controls any Holder or Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment or supplement thereto) pursuant to which Exchange Securities or Registrable Securities were registered under the 1933 Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 4(d) below) any such settlement is effected with the written consent of the Company and the Parent; and (iii)against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by any indemnified party), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any -------- ------- loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by the Holder or Underwriter expressly for use in a Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto). (b) Each Holder severally, but not jointly, agrees to indemnify and hold harmless the Company, the Parent, the Initial Purchasers, each Underwriter and the other selling Holders, and each of their respective directors and officers, and each Person, if any, who controls the Company, the Parent, the Initial Purchasers, any Underwriter or any other selling Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Shelf Registration Statement (or any amendment thereto) or any Prospectus included therein (or any amendment or supplement thereto) in reliance upon and in conformity with written information with respect to such Holder furnished to the Company by such Holder expressly for use in the Shelf Registration Statement (or any amendment thereto) or such Prospectus (or any amendment or supplement thereto); provided, however, that no such Holder shall be liable for any -------- ------- claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Shelf Registration Statement. (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action; provided, however, that counsel to the indemnifying party shall not -------- ------- (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. In addition, the indemnifying party shall be entitled to, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense of any claim or action brought against an indemnified party with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 4 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that the Representative shall have -------- ------- the right to employ one counsel to represent jointly it and those other Initial Purchasers and their respective officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Initial Purchasers against the Company and the Parent under this Section 4 if, in the reasonable judgment of the Representative, either (i) there is an actual or potential conflict between the position of the Company and the Parent on the one hand and the Initial Purchasers on the other hand or (ii) there may be defenses available to it or them that are different from or additional to those available to the Company and Parent (in any of which events the Company shall not have the right to direct the defense of such action on behalf of the Representative with respect to such different defenses), in any of which events such reasonable fees and expenses shall be borne by the Company and Parent. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 4 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 4(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (e) If the indemnification provided for in this Section 4 is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, in such proportion as is appropriate to reflect the relative fault of the Company and the Parent on the one hand and the Holders and the Initial Purchasers on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative fault of the Company and the Parent on the one hand and the Holders and the Initial Purchasers on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, the Parent, the Holders or the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Parent, the Holders and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 4. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 4 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 4, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities sold by it were offered exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 4, each Person, if any, who controls an Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Initial Purchaser or Holder, and each director of the Company, the Parent and each Person, if any, who controls the Company or the Parent within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company and the Parent. The Initial Purchasers' respective obligations to contribute pursuant to this Section 4 are several in proportion to the principal amount of Securities set forth opposite their respective names in Schedule A to the Purchase Agreement and not joint. 5. Miscellaneous. ------------- 5.1 Rule 144 and Rule 144A. For so long as the Parent is subject ---------------------- to the reporting requirements of Section 13 or 15 of the 1934 Act, the Parent covenants that it will file the reports required to be filed by it under the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and regulations adopted by the SEC thereunder. If the Parent ceases to be so required to file such reports, the Parent covenants that it will upon the request of any Holder of Registrable Securities (a) make publicly available such information as is necessary to permit sales pursuant to Rule 144 under the 1933 Act, (b) deliver such information to a prospective purchaser as is necessary to permit sales pursuant to Rule 144A under the 1933 Act and it will take such further action as any Holder of Registrable Securities may reasonably request, and (c) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, (ii) Rule 144A under the 1933 Act, as such Rule may be amended from time to time, or (iii) any similar rules or regulations hereafter adopted by the SEC. Upon the request of any Holder of Registrable Securities, the Parent will deliver to such Holder a written statement as to whether it has complied with such requirements. The Company shall not be subject to the requirements of this Section 5.1, provided, that, it obtains no-action relief from the SEC regarding its reporting requirements under Section 13 or 15 of the 1934 Act and under the 1933 Act. 5.2 No Inconsistent Agreements. Neither the Company nor the Parent -------------------------- has entered into and neither the Company nor the Parent will after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not and will not for the term of this Agreement in any way conflict with the rights granted to the holders of the Company's or the Parent's other issued and outstanding securities under any such agreements. 5.3 Amendments and Waivers. The provisions of this Agreement, ---------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company and the Parent have obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or departure. 5.4 Notices. All notices and other communications provided for or ------- permitted hereunder shall be made in writing by hand delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (a) if to a Holder, at the most current address given by such Holder to the Company or the Parent, as the case may be, by means of a notice given in accordance with the provisions of this Section 5.4, which address initially is the address set forth in the Purchase Agreement with respect to the Initial Purchasers; (b) if to the Company, initially at the Company's address set forth in the Purchase Agreement, and thereafter at such other address of which notice is given in accordance with the provisions of this Section 5.4 and (c) if to the Parent, initially at the Parent's address set forth in Purchase Agreement, and thereafter at such other address of which notice is given in accordance with the provisions of this Section 5.4. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; two business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands, or other communications shall be concurrently delivered by the person giving the same to the Trustee under the Indenture, at the address specified in such Indenture. 5.5 Successor and Assigns. This Agreement shall inure to the --------------------- benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such person shall be entitled to receive the benefits hereof. 5.6 Third Party Beneficiaries. The Initial Purchasers (even if ------------------------- the Initial Purchasers are not Holders of Registrable Securities) shall be third party beneficiaries to the agreements made hereunder between the Company and the Parent, on the one hand, and the Holders, on the other hand, and shall have the right to enforce such agreements directly to the extent they deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder. Each Holder of Registrable Securities shall be a third party beneficiary to the agreements made hereunder between the Company and the Parent, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights hereunder. 5.7. Specific Enforcement. Without limiting the remedies available -------------------- to the Initial Purchasers and the Holders, the Company and the Parent acknowledge that any failure by the Company and the Parent to comply with its obligations under Sections 2.1 through 2.4 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it would not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the obligations of the Company and the Parent under Sections 2.1 through 2.4 hereof. 5.8. Restriction on Resales. Until the expiration of two years ---------------------- after the original issuance of the Securities and the related guarantees, the Company and the Parent will not, and will cause their "affiliates" (as such term is defined in Rule 144(a)(1) under the 1933 Act) not to, resell any Securities and related guarantees which are "restricted securities" (as such term is defined under Rule 144(a)(3) under the 1933 Act) that have been reacquired by any of them and shall immediately upon any purchase of any such Securities and related guarantees submit such Securities and related guarantees to the Trustee for cancellation. 5.9 Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 5.10 Headings. The headings in this Agreement are for convenience -------- of reference only and shall not limit or otherwise affect the meaning hereof. 5.11 GOVERNING LAW. THIS AGREEMENT AND ALL DISPUTES, CONTROVERSIES ------------- OR CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR A BREACH HEREOF SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 5.12 Severability. In the event that any one or more of the ------------ provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. ALLIANT ENERGY RESOURCES, INC. By: /s/ Thomas L. Hanson --------------------------------------- Name: Thomas L. Hanson Title: Vice President and Treasurer ALLIANT ENERGY CORPORATION, By: /s/ Thomas L. Hanson --------------------------------------- Name: Thomas L. Hanson Title: Vice President and Treasurer Confirmed and accepted as of the date first above written: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED BY: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: /s/_______________________ Authorized Signatory For itself and as Representative of the other Initial Purchasers named in Schedule A hereto. SCHEDULE A TO THE REGISTRATION RIGHTS AGREEMENT Other Initial Purchasers: Utendahl Capital Partners, L.P. The Williams Capital Group, L.P. Exhibit A Form of Opinion of Counsel MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED UTENDAHL CAPITAL PARTNERS, L.P. THE WILLIAMS CAPITAL GROUP, L.P. c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281-1209 Ladies and Gentlemen: We have acted as counsel for Alliant Energy Resources, Inc., a Wisconsin corporation (the "Company"), and Alliant Energy Corporation, a Wisconsin corporation (the "Parent"), in connection with the sale by the Company to the Initial Purchasers (as defined below) of $300,000,000 aggregate principal amount of 9.75% Senior Notes due 2013 of the Company pursuant to the Purchase Agreement dated December 20, 2002 (the "Purchase Agreement") among the Company, the Parent, as guarantor and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Utendahl Capital Partners, L.P., and The Williams Capital Group, L.P. (collectively, the "Initial Purchasers") and the filing by the Company and the Parent of an Exchange Offer Registration Statement (the "Registration Statement") in connection with an Exchange Offer to be effected pursuant to the Registration Rights Agreement (the "Registration Rights Agreement"), dated December 26, 2002 among the Company, the Parent and the Initial Purchasers. This opinion is furnished to you pursuant to Section 3(f)(B) of the Registration Rights Agreement. Unless otherwise defined herein, capitalized terms used in this opinion that are defined in the Registration Rights Agreement are used herein as so defined. We have examined such documents, records and matters of law as we have deemed necessary for purposes of this opinion. In rendering this opinion, as to all matters of fact relevant to this opinion, we have assumed the completeness and accuracy of, and are relying solely upon, the representations and warranties of the Company and the Parent set forth in the Purchase Agreement and the statements set forth in certificates of public officials and officers of the Company and the Parent, without making any independent investigation or inquiry with respect to the completeness or accuracy of such representations, warranties or statements, other than a review of the certificate of incorporation, by-laws and relevant minute books of the Company and the Parent. Based on and subject to the foregoing, we are of the opinion that: 1. The Exchange Offer Registration Statement and the Prospectus (other than the financial statements, notes or schedules thereto and other financial and statistical data and supplemental schedules included or incorporated by reference therein or omitted therefrom and the Form T-1, as to which such counsel need express no opinion), comply as to form in all material respects with the requirements of the 1933 Act and the applicable rules and regulations promulgated under the 1933 Act. We have participated in the preparation of the Registration Statement and the Prospectus and in the course thereof have had discussions with representatives of the Underwriters, officers and other representatives of the Company, the Parent and Deloitte & Touche LLP, the independent public accountants of the Company and the Parent, during which the contents of the Registration Statement and the Prospectus were discussed. We have not, however, independently verified and are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement and the Prospectus. Based on our participation as described above, nothing has come to our attention that would lead us to believe that the Registration Statement (except for financial statements and schedules and other financial and statistical data included therein as to which we make no statement) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto (except for financial statements and schedules and other financial and statistical data included therein, as to which such counsel need make no statement), at the time the Prospectus was issued, at the time any such amended or supplemented Prospectus was issued or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. This opinion is being furnished to you solely for your benefit in connection with the transactions contemplated by the Registration Rights Agreement, and may not be used for any other purpose or relied upon by any person other than you. Except with our prior written consent, the opinions herein expressed are not to be used, circulated, quoted or otherwise referred to in connection with any transactions other than those contemplated by the Registration Rights Agreement by or to any other person. Very truly yours, EX-4 6 exhibit4pt18.txt EXHIBIT 4.18 Execution Copy -------------- =============================================================================== EXHIBIT 4.18 REGISTRATION RIGHTS AGREEMENT Dated as of December 20, 2002 between INTERSTATE POWER AND LIGHT COMPANY and ROBERT W. BAIRD & CO. INCORPORATED =============================================================================== This REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of December 20, 2002, is made and entered between Interstate Power and Light Company, an Iowa corporation (the "Company"), and Robert W. Baird & Co. Incorporated ("Baird"). This Agreement is made pursuant to the Purchase Agreement, dated December 18, 2002, between the Company and Baird (the "Purchase Agreement"), which provides for the sale by the Company to Baird of 6,000,000 shares of the Company's 8.375% Series A Cumulative Preferred Stock, par value $0.01 per share (the "Securities"). In order to induce Baird to enter into the Purchase Agreement, the Company has agreed to provide to Baird and its direct and indirect transferees the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. ----------- As used in this Agreement, the following capitalized defined terms shall have the following meanings: "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "1934 Act" shall mean the Securities Exchange Act of l934, as amended from time to time. "Affiliate" shall mean (a) any Person which, directly or indirectly, is in control of, is controlled by or is under common control with such Person, or (b) any Person who is a director or officer of (i) such Person, (ii) of any subsidiary of such Person, or (iii) a Person described in clause (a) above. For purposes of this definition, control of a Person shall mean the power, direct or indirect, (x) to vote 51% or more of the securities having ordinary voting power for the election of directors of such Person, whether by ownership of securities, contract, proxy or otherwise, or (y) to direct or cause the direction of the management and policies of such Person, whether by ownership of securities, contract, proxy or otherwise. "Agreement" shall have the meaning set forth in the preamble. "Articles of Amendment" means the Articles of Amendment to the Company's Restated Articles of Incorporation relating to the Securities filed with the Secretary of State of the State of Iowa on December 18, 2002. "Baird" shall have the meaning set forth in the preamble. "Closing Date" shall mean the Closing Time as defined in the Purchase Agreement. "Company" shall have the meaning set forth in the preamble and shall also include the Company's successors. "Depositary" shall mean The Depository Trust Company, or any other depositary appointed by the Company; provided, however, that such -------- ------- depositary must have an address in the Borough of Manhattan, in the City of New York. "Effectiveness Period" shall have the meaning set forth in Section 2.2 hereof. "Exchange Offer" shall mean the exchange offer by the Company of Exchange Securities for Registrable Securities pursuant to Section 2.1 hereof. "Exchange Offer Registration" shall mean a registration under the 1933 Act effected pursuant to Section 2.1 hereof. "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, including the Prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein. "Exchange Period" shall have the meaning set forth in Section 2.1 hereof. "Exchange Securities" shall mean shares of the Company's 8.375% Series B Cumulative Preferred Stock identical to the Securities in all material respects (except that such shares will be a separate series and except for certain additional dividend rate provisions and restrictive legends), to be offered to Holders of Securities in exchange for Registrable Securities pursuant to the Exchange Offer. "Holder" shall mean Baird, for so long as it owns any Registrable Securities, and each of its successors, assigns and direct and indirect transferees who become registered owners of Registrable Securities and each Participating Broker-Dealer that holds Exchange Securities for so long as such Participating Broker-Dealer is required to deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities. "Majority Holders" shall mean the Holders of a majority of the number of shares of outstanding Registrable Securities; provided that whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or any Affiliate of the Company shall be disregarded in determining whether such consent or approval was given by the Holders of such required percentage amount. "NASD" shall mean the National Association of Securities Dealers, Inc. "Participating Broker-Dealer" shall mean Baird and any other broker-dealer which makes a market in the Securities and exchanges Registrable Securities in the Exchange Offer for Exchange Securities. "Person" shall mean an individual, partnership (general or limited), corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Private Exchange" shall have the meaning set forth in Section 2.1 hereof. "Private Exchange Securities" shall have the meaning set forth in Section 2.1 hereof. "Prospectus" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including any such prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein. "Purchase Agreement" shall have the meaning set forth in the preamble. "Registrable Securities" shall mean the Securities and, if issued, the Private Exchange Securities; provided, however, that the -------- ------- Securities and, if issued, the Private Exchange Securities, shall cease to be Registrable Securities when (i) a Registration Statement with respect to such securities shall have been declared effective under the 1933 Act and such securities shall have been disposed of pursuant to such Registration Statement, (ii) such securities have been sold to the public pursuant to Rule l44 (or any similar provision then in force, but not Rule 144A) under the 1933 Act, (iii) such securities shall have ceased to be outstanding or (iv) the Exchange Offer is consummated (except in the case of Securities purchased from the Company and continued to be held by Baird). "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC, stock exchange or the NASD registration and filing fees, including, if applicable, the fees and expenses of any "qualified independent underwriter" (and its counsel) that is required to be retained by any holder of Registrable Securities in accordance with the rules and regulations of the NASD, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws and compliance with the rules of the NASD (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with blue sky qualification of any of the Exchange Securities or Registrable Securities and any filings with the NASD), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Securities on any securities exchange or exchanges, (v) all rating agency fees, (vi) the fees and disbursements of counsel for the Company and of the independent public accountants of the Company, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, (vii) the fees and expenses of any escrow agent or custodian, (viii) in the case of a Shelf Registration Statement, the reasonable fees and disbursements of one special counsel designated in writing by the Majority Holders to represent the Holders of Registrable Securities and (ix) any fees and disbursements of the underwriters customarily required to be paid by issuers or sellers of securities and the fees and expenses of any special experts retained by the Company in connection with any Registration Statement, but excluding underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder. "Registration Statement" shall mean any registration statement of the Company which covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "SEC" shall mean the United States Securities and Exchange Commission or any successor agency or government body performing the functions currently performed by the United States Securities and Exchange Commission. "SEC Order" shall have the meaning set forth in Section 2.1. "Securities" shall have the meaning set forth in the preamble. "Shelf Registration" shall mean a registration effected pursuant to Section 2.2 hereof. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company pursuant to the provisions of Section 2.2 of this Agreement which covers all of the Registrable Securities or all of the Private Exchange Securities on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Underwriter" shall have the meaning set forth in Section 4. 2. Registration Under the 1933 Act. ------------------------------- 2.1 Exchange Offer. Except as provided in Section 2.2 and to the -------------- extent not prohibited by any applicable law or applicable interpretation of the staff of the SEC, the Company shall, for the benefit of the Holders, at the cost of the Company, (A) prepare and, as soon as practicable but not later than April 1, 2003, file with the SEC an Exchange Offer Registration Statement on an appropriate form under the 1933 Act with respect to a proposed Exchange Offer and the issuance and delivery to the Holders, in exchange for the Registrable Securities (other than Private Exchange Securities), of a like number of shares of Exchange Securities, (B) use its reasonable best efforts to cause the Exchange Offer Registration Statement to be declared effective under the 1933 Act on or before June 1, 2003, (C) use its reasonable best efforts to keep the Exchange Offer Registration Statement effective until the closing of the Exchange Offer and (D) use its reasonable best efforts to cause the Exchange Offer to be consummated on or before July 1, 2003. The Exchange Securities will be issued pursuant to the Articles of Amendment. Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder eligible and electing to exchange Registrable Securities for Exchange Securities (assuming that such Holder (a) is not an affiliate of the Company within the meaning of Rule 405 under the 1933 Act, (b) is not a broker-dealer tendering Registrable Securities acquired directly from the Company for its own account, (c) acquired the Exchange Securities in the ordinary course of such Holder's business and (d) has no arrangements or understandings with any Person to participate in the Exchange Offer for the purpose of distributing the Exchange Securities) to transfer such Exchange Securities from and after their receipt without any limitations or restrictions under the 1933 Act and under state securities or blue sky laws. In connection with the Exchange Offer, the Company shall: (a) mail as promptly as practicable to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Exchange Offer open for acceptance for a period of not less than 20 business days after the date notice thereof is mailed to the Holders (or longer if required by applicable law) (such period referred to herein as the "Exchange Period"); (c) utilize the services of the Depositary for the Exchange Offer; (d) permit Holders to withdraw tendered Registrable Securities at any time prior to 5:00 p.m. (Eastern Time), on the last business day of the Exchange Period, by sending to the institution specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the number of shares of Registrable Securities delivered for exchange, and a statement that such Holder is withdrawing such Holder's election to have such Securities exchanged; (e) notify each Holder that any Registrable Security not tendered will remain outstanding and continue to accrue dividends, if any, but will not retain any rights under this Agreement (except in the case of Baird and Participating Broker-Dealers as provided herein); and (f) otherwise comply in all respects with all applicable laws relating to the Exchange Offer. If, prior to consummation of the Exchange Offer, Baird holds any Securities acquired by it and having the status of an unsold allotment in the initial distribution, the Company upon the request of Baird shall, simultaneously with the delivery of the Exchange Securities in the Exchange Offer and subject to compliance with applicable securities laws, issue and deliver to Baird in exchange (the "Private Exchange") for the Securities held by Baird, a like number of shares of preferred securities of the Company, that are identical (except that such securities shall bear appropriate transfer restrictions) to the Exchange Securities (the "Private Exchange Securities"). The Exchange Securities and the Private Exchange Securities shall be issued under the Articles of Amendment. The Articles of Amendment shall provide that the Exchange Securities, the Private Exchange Securities and the Securities shall vote and consent together on all matters as one class and that none of the Exchange Securities, the Private Exchange Securities or the Securities will have the right to vote or consent as a separate class on any matter. The Private Exchange Securities shall be of the same series as and the Company shall use all commercially reasonable efforts to have the Private Exchange Securities bear the same CUSIP number as the Exchange Securities. The Company shall not have any liability under this Agreement solely as a result of such Private Exchange Securities not bearing the same CUSIP number as the Exchange Securities. As soon as practicable after the close of the Exchange Offer and/or the Private Exchange, as the case may be, the Company shall: (i) accept for exchange all Registrable Securities duly tendered and not validly withdrawn pursuant to the Exchange Offer in accordance with the terms of the Exchange Offer Registration Statement and the letter of transmittal which shall be an exhibit thereto; (ii) accept for exchange all Securities properly tendered pursuant to the Private Exchange; (iii)cancel all Registrable Securities so accepted for exchange; and (iv) deliver Exchange Securities or Private Exchange Securities, as the case may be, to each Holder of Registrable Securities so accepted for exchange in that number of shares equal to the number of shares of the Registrable Securities of such Holder so accepted for exchange. Dividends on each Exchange Security and Private Exchange Security will accrue from the last date on which dividends were paid on the Registrable Securities surrendered in exchange therefor or, if no dividends have been paid on the Registrable Securities, from the date of original issuance. The Exchange Offer and the Private Exchange shall not be subject to any conditions, other than (i) that the Exchange Offer or the Private Exchange, or the making of any exchange by a Holder, does not violate applicable law or any applicable interpretation of the staff of the SEC, (ii) the due tendering of Registrable Securities in accordance with the Exchange Offer and the Private Exchange, (iii) that each Holder of Registrable Securities exchanged in the Exchange Offer shall have represented that all Exchange Securities to be received by it shall be acquired in the ordinary course of its business and that at the time of the consummation of the Exchange Offer it shall have no arrangement or understanding with any person to participate in the distribution (within the meaning of the 1933 Act) of the Exchange Securities and shall have made such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to render the use of Form S-4 or other appropriate form under the 1933 Act available and (iv) that no action or proceeding shall have been instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer or the Private Exchange which, in the judgment of the Company, would reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer or the Private Exchange and that the Exchange Offer and the Private Exchange shall comply with the provisions of the SEC's Release No. 35-27614, 70-10077 dated as of December 12, 2002 by which the Company is bound (the "SEC Order"). The Company shall inform Baird of the names and addresses of the Holders to whom the Exchange Offer is made, and Baird shall have the right to contact such Holders and otherwise facilitate the tender of Registrable Securities in the Exchange Offer. 2.2 Shelf Registration. (i) If, because of any changes in the ------------------ law, SEC rules or regulations or applicable interpretations thereof by the staff of the SEC, the Company is not permitted to effect the Exchange Offer as contemplated by Section 2.1 hereof, (ii) if for any other reason the Exchange Offer Registration Statement is not declared effective on or prior to June 1, 2003 (other than as a result of an ongoing review of the Exchange Offer Registration Statement by the staff of the SEC) or the Exchange Offer is not consummated on or prior to July 1, 2003 (provided that if the Exchange Offer Registration Statement shall be declared effective after June 1, 2003 or if the Exchange Offer shall be consummated after July 1, 2003, then the obligation of the Company under this clause (ii) arising from the failure of the Exchange Offer Registration Statement to be declared effective on or before June 1, 2003 or the failure of the Exchange Offer to be consummated on or before July 1, 2003, respectively, shall terminate), (iii) upon the request of Baird within 90 days following the consummation of the Exchange Offer, or (iv) if, as a result of any changes in law, SEC rules or regulations or applicable interpretations thereof by the staff of the SEC or otherwise, a Holder (other than Baird holding securities acquired directly from the Company) is not permitted to participate in the Exchange Offer or does not receive fully tradeable Exchange Securities pursuant to the Exchange Offer, then in case of each of clauses (i) through (iv) the Company shall, at its cost: (a) As promptly as practicable, file with the SEC, and thereafter shall use its reasonable best efforts to cause to be declared effective as promptly as practicable but no later than July 1, 2003, a Shelf Registration Statement relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by the Majority Holders participating in the Shelf Registration and set forth in such Shelf Registration Statement. (b) Use its reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the Prospectus forming part thereof to be usable by Holders for a period of two years from the Closing Date, or for such shorter period that will terminate when all Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement or cease to be outstanding or otherwise to be Registrable Securities (the "Effectiveness Period"); provided, however, that the -------- ------- Effectiveness Period in respect of the Shelf Registration Statement shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the 1933 Act and as otherwise provided herein. (c) Notwithstanding any other provisions hereof, use its reasonable best efforts to ensure that (i) any Shelf Registration Statement and any amendment thereto and any Prospectus forming part thereof and any supplement thereto complies in all material respects with the 1933 Act and the rules and regulations thereunder, (ii) any Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Shelf Registration Statement, and any supplement to such Prospectus (as amended or supplemented from time to time), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading; provided, however, that clauses (ii) and (iii) shall not apply to any information relating to Baird or any Holder furnished to the Company in writing by Baird or such Holder expressly for use in the Shelf Registration Statement. The Company further agrees, if necessary, to supplement or amend the Shelf Registration Statement, as required by Section 3(b) below, and to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC. 2.3 Expenses. The Company shall pay all Registration Expenses in -------- connection with the registration pursuant to Section 2.1 or 2.2. Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement. 2.4. Effectiveness. ------------- (a) The Company will be deemed not to have used its reasonable best efforts to cause the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, to become, or to remain, effective during the requisite period if the Company voluntarily takes any action that would, or omits to take any action which omission would, result in any such Registration Statement not being declared effective or in the Holders of Registrable Securities covered thereby not being able to exchange or offer and sell such Registrable Securities during that period as and to the extent contemplated hereby, unless such action is required by applicable law, as contemplated by clause (i) of Section 2.2, or, in the case of the Exchange Offer Registration Statement, such action would violate the provisions of the SEC Order. (b) An Exchange Offer Registration Statement pursuant to Section 2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it -------- ------- has been declared effective, the offering of Registrable Securities pursuant to an Exchange Offer Registration Statement or a Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have become effective during the period of such interference, until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. 2.5 Additional Dividend Payments. The Articles of Amendment ---------------------------- executed in connection with the Securities will provide that in the event that (a) the Exchange Offer Registration Statement is not filed with the Commission on or prior to April 1, 2003, (b) the Exchange Offer Registration Statement has not been declared effective on or prior to June 1, 2003, (c) the Exchange Offer is not consummated, on or prior to July 1, 2003 or (d) if required, the Shelf Registration Statement is not declared effective on or prior to July 1, 2003 (each such event referred to in clauses (a) through (d) above, a "Registration Default"), the rate of dividends that accrues on the Securities shall be increased ("Additional Dividend Payments") by one-quarter of one percent (0.25%) per annum upon the occurrence of a Registration Default, which rate will increase by an additional one-quarter of one percent (0.25%) at the beginning of each subsequent 90-day period that such Additional Dividend Payments continue to accrue under any such circumstance, provided that the maximum aggregate increase in the dividend accrual rate will in no event exceed one and one-quarter percent (1.25%) per annum. Following the cure of all Registration Defaults the accrual of Additional Dividend Payments will cease and the dividend accrual rate will revert to the original rate. If the Shelf Registration Statement (if required) is unusable by the Holders for any reason after the Shelf Registration Statement has been declared effective by the SEC, and the aggregate number of days in any consecutive twelve-month period for which the Shelf Registration Statement shall not be usable exceeds 30 days in the aggregate, then the rate of dividend payments that accrues on the Securities, so long as any Securities are Registrable Securities, will be increased by one-quarter of one percent (0.25%) per annum for the first 90-day period (or portion thereof) beginning on the 31st day following the date that such Shelf Registration Statement ceases to be usable, which rate shall be increased by an additional one-quarter of one percent (0.25%) per annum at the beginning of each subsequent 90-day period, provided that the maximum aggregate increase in the dividend accrual rate will in no event exceed one and one-quarter percent (1.25%) per annum. Any amounts payable under this paragraph shall also be deemed "Additional Dividend Payments" for purposes of this Agreement. Upon the Shelf Registration Statement once again becoming usable, the rate of dividend payments that accrues on the Securities will be reduced to the original dividend accrual rate if the Company is otherwise in compliance with this Agreement at such time. Additional Dividend Payments shall be computed based on the actual number of days elapsed in each 90-day period in which the Shelf Registration Statement is unusable. The Company shall notify each record holder of the Securities within three business days after each and every date on which an event occurs in respect of which Additional Dividend Payments are required to be paid (an "Event Date"). The Additional Dividend Payments due shall be payable on each dividend payment date with respect to the Securities on the same terms and conditions and subject to the same limitations as govern, at such time, the payment of regular dividends as set forth in the Articles of Amendment. Each obligation to pay Additional Dividend Payments shall be deemed to accrue and be cumulative from and including the day following the applicable Event Date. 3. Registration Procedures. ----------------------- In connection with and subject to the rights and the obligations of the Company with respect to Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company shall: (a) prepare and file with the SEC a Registration Statement, within the relevant time period specified in Section 2, on the appropriate form under the 1933 Act, which form (i) shall be selected by the Company, (ii) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the selling Holders thereof, (iii) shall comply as to form in all material respects with the requirements of the applicable form and include or incorporate by reference all financial statements required by the SEC to be filed therewith or incorporated by reference therein and (iv) shall comply in all material respects with the requirements of Regulation S-T under the 1933 Act, and use its reasonable best efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof; (b) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary under applicable law to keep such Registration Statement effective for the applicable period; and cause each Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provision then in force) under the 1933 Act and comply with the provisions of the 1933 Act, the 1934 Act and the rules and regulations thereunder applicable to them with respect to the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof (including sales by any Participating Broker-Dealer); (c) in the case of a Shelf Registration, (i) notify each Holder of Registrable Securities, at least five business days prior to filing, that a Shelf Registration Statement with respect to the Registrable Securities is being filed and advising such Holders that the distribution of Registrable Securities will be made in accordance with the method selected by the Majority Holders participating in the Shelf Registration; (ii) furnish to each Holder of Registrable Securities and to each underwriter of an underwritten offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder or underwriter may reasonably request, including financial statements and schedules and, if the Holder so requests, all exhibits in order to facilitate the public sale or other disposition of the Registrable Securities; and (iii) hereby consents to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; (d) use its reasonable best efforts to register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions as any Holder of Registrable Securities covered by a Registration Statement and each underwriter of an underwritten offering of Registrable Securities shall reasonably request by the time the applicable Registration Statement is declared effective by the SEC, and do any and all other acts and things which may be reasonably necessary or advisable to enable each such Holder and underwriter to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; provided, however, -------- ------- that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), or (ii) take any action which would subject it to general service of process or taxation in any such jurisdiction where it is not then so subject; (e) notify promptly each Holder of Registrable Securities under a Shelf Registration or any Participating Broker-Dealer who has notified the Company that it is utilizing the Exchange Offer Registration Statement as provided in paragraph (f) below and, if requested by such Holder or Participating Broker-Dealer, confirm such advice in writing promptly (i) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of any request by the SEC or any state securities authority for post-effective amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) in the case of a Shelf Registration, if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to the offering cease to be true and correct in all material respects, (v) of the happening of any event or the discovery of any facts during the period a Shelf Registration Statement is effective which makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or which requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading, (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities or the Exchange Securities, as the case may be, for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (vii) of any determination by the Company that a post-effective amendment to such Registration Statement would be appropriate; (f) (A) in the case of the Exchange Offer Registration Statement (i) include in the Exchange Offer Registration Statement a section entitled "Plan of Distribution" which section shall be reasonably acceptable to Baird on behalf of the Participating Broker-Dealers, and which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that holds Registrable Securities acquired for its own account as a result of market-making activities or other trading activities and that will be the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities to be received by such broker-dealer in the Exchange Offer, whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies, in the reasonable judgment of Baird on behalf of the Participating Broker-Dealers and its counsel, represent the prevailing views of the staff of the SEC, including a statement that any such broker-dealer who receives Exchange Securities for Registrable Securities pursuant to the Exchange Offer may be deemed a statutory underwriter and must deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities, (ii) furnish to each Participating Broker-Dealer who has delivered to the Company the notice referred to in Section 3(e), without charge, as many copies of each Prospectus included in the Exchange Offer Registration Statement, including any preliminary prospectus, and any amendment or supplement thereto, as such Participating Broker-Dealer may reasonably request, (iii) hereby consents to the use of the Prospectus forming part of the Exchange Offer Registration Statement or any amendment or supplement thereto, by any Person subject to the prospectus delivery requirements of the SEC, including all Participating Broker-Dealers, in connection with the sale or transfer of the Exchange Securities covered by the Prospectus or any amendment or supplement thereto, and (iv) include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer (x) the following provision: "If the exchange offeree is a broker-dealer holding Registrable Securities acquired for its own account as a result of market-making activities or other trading activities, it will deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of Exchange Securities received in respect of such Registrable Securities pursuant to the Exchange Offer;" and (y) a statement to the effect that by a broker-dealer making the acknowledgment described in clause (x) and by delivering a Prospectus in connection with the exchange of Registrable Securities, the broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the 1933 Act; and (B) in the case of any Exchange Offer Registration Statement, the Company agrees to deliver to Baird on behalf of the Participating Broker-Dealers upon the effectiveness of the Exchange Offer Registration Statement (i) an opinion of counsel or opinions of counsel substantially in the form attached hereto as Exhibit A and (ii) officers' certificates substantially in the form customarily delivered in a public offering of preferred stock; (g) (i) in the case of an Exchange Offer, furnish counsel for Baird and (ii) in the case of a Shelf Registration, furnish counsel for the Holders of Registrable Securities copies of any comment letters received from the SEC or any other request by the SEC or any state securities authority for amendments or supplements to a Registration Statement and Prospectus or for additional information; (h) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment; (i) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, and each underwriter, if any, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto, including financial statements and schedules (without documents incorporated therein by reference and all exhibits thereto, unless requested); (j) in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations and registered in such names as the selling Holders or the underwriters, if any, may reasonably request at least three business days prior to the closing of any sale of Registrable Securities; (k) in the case of a Shelf Registration, upon the occurrence of any event or the discovery of any facts, each as contemplated by Sections 3(e)(v) and 3(e)(vi) hereof, as promptly as practicable after the occurrence of such an event, use its reasonable best efforts to prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities or Participating Broker-Dealers, such Prospectus will not contain at the time of such delivery any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or will remain so qualified. At such time as such public disclosure is otherwise made or the Company determines that such disclosure is not necessary, in each case to correct any misstatement of a material fact or to include any omitted material fact, the Company agrees promptly to notify each Holder of such determination and to furnish each Holder such number of copies of the Prospectus as amended or supplemented, as such Holder may reasonably request; (l) in the case of a Shelf Registration, a reasonable time prior to the filing of any Registration Statement, any Prospectus, any amendment to a Registration Statement or amendment or supplement to a Prospectus or any document which is to be incorporated by reference into a Registration Statement or a Prospectus after initial filing of a Registration Statement, provide copies of such document to Baird on behalf of such Holders; and make representatives of the Company as shall be reasonably requested by the Holders of Registrable Securities, or Baird on behalf of such Holders, available for discussion of such document upon reasonable advance notice. In connection with such discussions, the Holders or Baird, on behalf of such Holders, shall use their or its, as the case may be, reasonable best efforts to minimize any disruption to the business of the Company; (m) obtain a CUSIP number for all Exchange Securities, Private Exchange Securities or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement, and provide the Depositary or its custodian certificates for the Exchange Securities, Private Exchange Securities or the Registrable Securities, as the case may be, in a form eligible for deposit with the Depositary; (n) in the case of a Shelf Registration, enter into agreements (including underwriting agreements) and take all other customary and appropriate actions in order to expedite or facilitate the disposition of such Registrable Securities and in such connection whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration: (i) make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in similar underwritten offerings as may be reasonably requested by them; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and the Holders of a majority of the number of Registrable Securities being sold) addressed to each selling Holder and the underwriters, if any, covering the matters customarily covered in opinions requested in sales of securities or underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters; (iii) obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements are, or are required to be, included in the Registration Statement) addressed to the underwriters, if any, and use reasonable efforts to have such letter addressed to the selling Holders of Registrable Securities (to the extent consistent with Statement on Auditing Standards No. 72 of the American Institute of Certified Public Accountants), such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to underwriters in connection with similar underwritten offerings; (iv) enter into a securities sales agreement with the Holders and an agent of the Holders providing for, among other things, the appointment of such agent for the selling Holders for the purpose of soliciting purchases of Registrable Securities, which agreement shall be in form, substance and scope customary for similar offerings; (v) if an underwriting agreement is entered into, cause the same to set forth indemnification provisions and procedures substantially equivalent to the indemnification provisions and procedures set forth in Section 4 hereof with respect to the underwriters and all other parties to be indemnified pursuant to said Section or, at the request of any underwriters, in the form customarily provided to such underwriters in similar types of transactions; and (vi) deliver such documents and certificates as may be reasonably requested and as are customarily delivered in similar offerings to the Holders of a majority of the number of Registrable Securities being sold and the managing underwriters, if any. The above shall be done at (i) the effectiveness of such Registration Statement (and each post-effective amendment thereto) and (ii) each closing under any underwriting or similar agreement as and to the extent required thereunder; (o) in the case of a Shelf Registration or if a Prospectus is required to be delivered by any Participating Broker-Dealer in the case of an Exchange Offer, make available for inspection by representatives of the Holders of the Registrable Securities, any underwriters participating in any disposition pursuant to a Shelf Registration Statement, any Participating Broker-Dealer and any counsel or accountant retained by any of the foregoing, all financial and other records, pertinent corporate documents and properties of the Company reasonably requested by any such persons, and cause the officers, directors, employees, and any other agents of the Company to supply all information reasonably requested by any such representative, underwriter, special counsel or accountant in connection with a Registration Statement, and make such representatives of the Company available for discussion of such documents as shall be reasonably requested by Baird; (p) (i) in the case of an Exchange Offer Registration Statement, a reasonable time prior to the filing of any Exchange Offer Registration Statement, any Prospectus forming a part thereof, any amendment to an Exchange Offer Registration Statement or amendment or supplement to such Prospectus, provide copies of such document to Baird and to counsel to the Holders of Registrable Securities and make such changes in any such document prior to the filing thereof as Baird or counsel to the Holders of Registrable Securities may reasonably request and, except as otherwise required by applicable law, not file any such document in a form to which Baird on behalf of the Holders of Registrable Securities and counsel to the Holders of Registrable Securities shall not have previously been advised and furnished a copy of or to which Baird on behalf of the Holders of Registrable Securities or counsel to the Holders of Registrable Securities shall reasonably object, and make the representatives of the Company available for discussion of such documents as shall be reasonably requested by Baird; and (ii) in the case of a Shelf Registration, a reasonable time prior to filing any Shelf Registration Statement, any Prospectus forming a part thereof, any amendment to such Shelf Registration Statement or amendment or supplement to such Prospectus, provide copies of such document to the Holders of Registrable Securities, to Baird, to counsel for the Holders and to the underwriter or underwriters of an underwritten offering of Registrable Securities, if any, make such changes in any such document prior to the filing thereof as Baird, the counsel to the Holders or the underwriter or underwriters reasonably request and not file any such document in a form to which the Majority Holders, Baird on behalf of the Holders of Registrable Securities, counsel for the Holders of Registrable Securities or any underwriter shall not have previously been advised and furnished a copy of or to which the Majority Holders, Baird of behalf of the Holders of Registrable Securities, counsel to the Holders of Registrable Securities or any underwriter shall reasonably object, and make the representatives of the Company available for discussion of such document as shall be reasonably requested by the Holders of Registrable Securities, Baird on behalf of such Holders, counsel for the Holders of Registrable Securities or any underwriter. (q) in the case of a Shelf Registration, use its reasonable best efforts to cause all Registrable Securities to be listed on any securities exchange on which similar securities issued by the Company are then listed if requested by the Majority Holders, or if requested by the underwriter or underwriters of an underwritten offering of Registrable Securities, if any; (r) in the case of a Shelf Registration, use its reasonable best efforts to cause the Registrable Securities to be rated by the appropriate rating agencies, if so requested by the Majority Holders, or if requested by the underwriter or underwriters of an underwritten offering of Registrable Securities, if any; (s) otherwise comply with all applicable rules and regulations of the SEC and make available to its security holders, as soon as reasonably practicable, an earnings statement of the Company covering at least 12 months which shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder; and (t) cooperate and assist in any filings required to be made with the NASD and, in the case of a Shelf Registration, in the performance of any due diligence investigation by any underwriter and its counsel (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD). In the case of a Shelf Registration Statement, the Company may (as a condition to such Holder's participation in the Shelf Registration) require each Holder of Registrable Securities (i) to furnish to the Company such information regarding the Holder and the proposed distribution by such Holder of such Registrable Securities as the Company may from time to time reasonably request and (ii) to agree in writing to be bound by this Agreement, including the indemnification provisions. In the case of a Shelf Registration Statement, each Holder agrees that, upon receipt of any notice from the Company of the happening of any event or the discovery of any facts, each of the kind described in Section 3(e)(v) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(k) hereof, and, if so directed by the Company, such Holder will deliver to the Company (at its expense) all copies in such Holder's possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event that the Company fails to effect the Exchange Offer or file any Shelf Registration Statement and maintain the effectiveness of any Shelf Registration Statement as provided herein, the Company shall not file any Registration Statement with respect to any securities (within the meaning of Section 2(1) of the 1933 Act) of the Company other than Registrable Securities; notwithstanding the foregoing, the Company shall be permitted to file registration statements solely to register securities issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans. If any of the Registrable Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the underwriter or underwriters and manager or managers that will manage such offering will be selected by the Majority Holders of such Registrable Securities included in such offering and shall be acceptable to the Company. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 4. Indemnification; Contribution. ----------------------------- (a) The Company agrees to indemnify and hold harmless Baird, each Holder, each Participating Broker-Dealer, each Person who participates as an underwriter (any such Person being an "Underwriter") and each Person, if any, who controls any Holder or Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment or supplement thereto) pursuant to which Exchange Securities or Registrable Securities were registered under the 1933 Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 4(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by any indemnified party), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any -------- ------- loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by the Holder or Underwriter expressly for use in a Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto). (b) Each Holder severally, but not jointly, agrees to indemnify and hold harmless the Company, Baird, each Underwriter and the other selling Holders, and each of their respective directors and officers, and each Person, if any, who controls the Company, Baird, any Underwriter or any other selling Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Shelf Registration Statement (or any amendment thereto) or any Prospectus included therein (or any amendment or supplement thereto) in reliance upon and in conformity with written information with respect to such Holder furnished to the Company by such Holder expressly for use in the Shelf Registration Statement (or any amendment thereto) or such Prospectus (or any amendment or supplement thereto); provided, however, that no such Holder shall be liable for any -------- ------- claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Shelf Registration Statement. (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action; provided, however, that counsel to the indemnifying party shall not -------- ------- (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. In addition, the indemnifying party shall be entitled to, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense of any claim or action brought against an indemnified party with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 4 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that Baird shall have the right to -------- ------- employ one counsel to represent it and its officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by Baird against the Company under this Section 4 if, in the reasonable judgment of Baird, either (i) there is an actual or potential conflict between the position of the Company on the one hand and Baird on the other hand or (ii) there may be defenses available to it that are different from or additional to those available to the Company (in any of which events the Company shall not have the right to direct the defense of such action on behalf of Baird with respect to such different defenses), in any of which events such reasonable fees and expenses shall be borne by the Company. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 4 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 4(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (e) If the indemnification provided for in this Section 4 is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Holders and Baird on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and the Holders and Baird on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, the Holders or Baird and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Holders and Baird agree that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation (even if Baird were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 4. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 4 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 4, Baird shall not be required to contribute any amount in excess of the amount by which the total price at which the Securities sold by it were offered exceeds the amount of any damages which Baird has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 4, each Person, if any, who controls Baird or a Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as Baird or such Holder, and each director of the Company and each Person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. 5. Miscellaneous. ------------- 5.1 Rule 144 and Rule 144A. For so long as the Company is subject ---------------------- to the reporting requirements of Section 13 or 15 of the 1934 Act, the Company covenants that it will file the reports required to be filed by it under the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and regulations adopted by the SEC thereunder. If the Company ceases to be so required to file such reports, the Company covenants that it will upon the request of any Holder of Registrable Securities (a) make publicly available such information as is necessary to permit sales pursuant to Rule 144 under the 1933 Act, (b) deliver such information to a prospective purchaser as is necessary to permit sales pursuant to Rule 144A under the 1933 Act and it will take such further action as any Holder of Registrable Securities may reasonably request, and (c) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, (ii) Rule 144A under the 1933 Act, as such Rule may be amended from time to time, or (iii) any similar rules or regulations hereafter adopted by the SEC. Upon the request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. The Company shall not be subject to the requirements of this Section 5.1, provided, that, it obtains no-action relief from the SEC regarding its reporting requirements under Section 13 or 15 of the 1934 Act and under the 1933 Act. 5.2 No Inconsistent Agreements. The Company has not entered into -------------------------- and will not after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not and will not for the term of this Agreement in any way conflict with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements. 5.3 Amendments and Waivers. The provisions of this Agreement, ---------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority of the number of shares outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or departure. 5.4 Notices. All notices and other communications provided for or ------- permitted hereunder shall be made in writing by hand delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (a) if to a Holder, at the most current address given by such Holder to the Company, by means of a notice given in accordance with the provisions of this Section 5.4, which address initially is the address set forth in the Purchase Agreement with respect to Baird and (b) if to the Company, initially at the Company's address set forth in the Purchase Agreement, and thereafter at such other address of which notice is given in accordance with the provisions of this Section 5.4. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; two business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. 5.5 Successor and Assigns. This Agreement shall inure to the --------------------- benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such person shall be entitled to receive the benefits hereof. 5.6 Third Party Beneficiaries. Baird (even if Baird is no longer ------------------------- a Holder of Registrable Securities) shall be a third party beneficiary to the agreements made hereunder between the Company, on the one hand, and the Holders, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. Each Holder of Registrable Securities shall be a third party beneficiary to the agreements made hereunder between the Company, on the one hand, and Baird, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights hereunder. 5.7. Specific Enforcement. Without limiting the remedies available -------------------- to Baird and the Holders, the Company acknowledges that any failure by the Company to comply with its obligations under Sections 2.1 through 2.4 hereof may result in material irreparable injury to Baird or the Holders for which there is no adequate remedy at law, that it would not be possible to measure damages for such injuries precisely and that, in the event of any such failure, Baird or any Holder may obtain such relief as may be required to specifically enforce the obligations of the Company under Sections 2.1 through 2.4 hereof. 5.8. Restriction on Resales. Until the expiration of two years ---------------------- after the original issuance of the Securities, the Company will not, and will cause its "affiliates" (as such term is defined in Rule 144(a)(1) under the 1933 Act) not to, resell any Securities which are "restricted securities" (as such term is defined under Rule 144(a)(3) under the 1933 Act) that have been reacquired by any of them. 5.9 Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 5.10 Headings. The headings in this Agreement are for convenience -------- of reference only and shall not limit or otherwise affect the meaning hereof. 5.11 GOVERNING LAW. THIS AGREEMENT AND ALL DISPUTES, CONTROVERSIES ------------- OR CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR A BREACH HEREOF SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS. 5.12 Severability. In the event that any one or more of the ------------ provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. Very truly yours, INTERSTATE POWER AND LIGHT COMPANY By: /s/ Thomas L. Hanson ------------------------ Thomas L. Hanson Vice President and Treasurer CONFIRMED AND ACCEPTED, as of the date first above written: ROBERT W. BAIRD & CO. INCORPORATED By: /s/ Lance R. Lange ------------------------ Authorized Signatory Exhibit A Form of Opinion of Counsel Robert W. Baird & Co. Incorporated 777 East Wisconsin Avenue Milwaukee, WI 53202 Ladies and Gentlemen: We have acted as counsel for Interstate Power and Light Company, an Iowa corporation (the "Company"), in connection with the sale by the Company to the Robert W. Baird & Co. Incorporated (the "Baird") of 6,000,000 shares of the Company's 8.375% Series A Cumulative Preferred Stock, par value $0.01 per share, pursuant to the Purchase Agreement dated December 18, 2002 (the "Purchase Agreement") among the Company and Baird and the filing by the Company of an Exchange Offer Registration Statement (the "Registration Statement") in connection with an Exchange Offer to be effected pursuant to the Registration Rights Agreement (the "Registration Rights Agreement"), dated December 20, 2002 among the Company and Baird. This opinion is furnished to you pursuant to Section 3(f)(B) of the Registration Rights Agreement. Unless otherwise defined herein, capitalized terms used in this opinion that are defined in the Registration Rights Agreement are used herein as so defined. We have examined such documents, records and matters of law as we have deemed necessary for purposes of this opinion. In rendering this opinion, as to all matters of fact relevant to this opinion, we have assumed the completeness and accuracy of, and are relying solely upon, the representations and warranties of the Company set forth in the Purchase Agreement and the statements set forth in certificates of public officials and officers of the Company, without making any independent investigation or inquiry with respect to the completeness or accuracy of such representations, warranties or statements, other than a review of the certificate of incorporation, by-laws and relevant minute books of the Company. Based on and subject to the foregoing, we are of the opinion that: 1. The Exchange Offer Registration Statement and the Prospectus (other than the financial statements, notes or schedules thereto and other financial and statistical data and supplemental schedules included or incorporated by reference therein or omitted therefrom, as to which such counsel need express no opinion), comply as to form in all material respects with the requirements of the 1933 Act and the applicable rules and regulations promulgated under the 1933 Act. We have participated in the preparation of the Registration Statement and the Prospectus and in the course thereof have had discussions with representatives of the Underwriters, officers and other representatives of the Company and Deloitte & Touche LLP, the independent public accountants of the Company, during which the contents of the Registration Statement and the Prospectus were discussed. We have not, however, independently verified and are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement and the Prospectus. Based on our participation as described above, nothing has come to our attention that would lead us to believe that the Registration Statement (except for financial statements and schedules and other financial and statistical data included therein as to which we make no statement) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto (except for financial statements and schedules and other financial and statistical data included therein, as to which such counsel need make no statement), at the time the Prospectus was issued, at the time any such amended or supplemented Prospectus was issued or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. This opinion is being furnished to you solely for your benefit in connection with the transactions contemplated by the Registration Rights Agreement, and may not be used for any other purpose or relied upon by any person other than you. Except with our prior written consent, the opinions herein expressed are not to be used, circulated, quoted or otherwise referred to in connection with any transactions other than those contemplated by the Registration Rights Agreement by or to any other person. Very truly yours, EX-10 7 exhibit10pt4.txt EXHIBIT 10.4 EXHIBIT 10.4 EXECUTION COPY =============================================================================== $250,000,000 364-DAY CREDIT AGREEMENT Dated as of December 27, 2002 Among ALLIANT ENERGY RESOURCES, INC. as Borrower and ALLIANT ENERGY CORPORATION HEARTLAND PROPERTIES, INC. and ALLIANT ENERGY INTERNATIONAL, INC. as Guarantors and THE LENDERS NAMED HEREIN as Lenders and MERRILL LYNCH CAPITAL CORPORATION as Administrative Agent =============================================================================== MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INC. Arranger =============================================================================== TABLE OF CONTENTS
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS........................................................................1 SECTION 1.01. Certain Defined Terms................................................................1 SECTION 1.02. Computation of Time Periods.........................................................17 SECTION 1.03. Computations of Outstandings........................................................17 SECTION 1.04. Accounting Terms....................................................................17 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES.....................................................................18 SECTION 2.01. The Advances........................................................................18 SECTION 2.02. Making the Advances.................................................................18 SECTION 2.03. Fees................................................................................19 SECTION 2.04. Reduction of the Commitments........................................................19 SECTION 2.05. Repayment of Advances...............................................................20 SECTION 2.06. Interest on Advances................................................................20 SECTION 2.07. Additional Interest on Eurodollar Rate Advances.....................................21 SECTION 2.08. Interest Rate Determination.........................................................21 SECTION 2.09. Voluntary Conversion of Advances....................................................22 SECTION 2.10. Optional Prepayments of Advances....................................................22 SECTION 2.11. Mandatory Prepayments...............................................................23 SECTION 2.12. Increased Costs.....................................................................23 SECTION 2.13. Illegality..........................................................................24 SECTION 2.14. Payments and Computations...........................................................24 SECTION 2.15. Noteless Agreement; Evidence of Indebtedness........................................25 SECTION 2.16. Taxes...............................................................................26 SECTION 2.17. Sharing of Payments, Etc............................................................27 ARTICLE III CONDITIONS OF LENDING................................................................................28 SECTION 3.01. Conditions Precedent to Closing.....................................................28 SECTION 3.02. Conditions Precedent to Each Borrowing..............................................29 SECTION 3.03. Reliance on Certificates............................................................30 ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................................................30 SECTION 4.01. Representations and Warranties of the Borrower......................................30 ARTICLE V COVENANTS OF THE LOAN PARTIES..........................................................................33 SECTION 5.01. Affirmative Covenants...............................................................33 SECTION 5.02. Negative Covenants..................................................................37 ARTICLE VI EVENTS OF DEFAULT.....................................................................................41 SECTION 6.01. Events of Default...................................................................41 ARTICLE VII GUARANTEE............................................................................................41 SECTION 7.01. Guarantee...........................................................................41 SECTION 7.02. Right of Contribution...............................................................41 SECTION 7.03. No Subrogation......................................................................41 SECTION 7.04. Amendments, etc. with respect to the Borrower Obligations...........................41 SECTION 7.05. Guarantee Absolute and Unconditional................................................41 SECTION 7.06. Reinstatement.......................................................................41 SECTION 7.07. Payments............................................................................41 ARTICLE VIII THE AGENT...........................................................................................41 SECTION 8.01. Authorization and Action............................................................41 SECTION 8.02. Agent's Reliance, Etc...............................................................41 SECTION 8.03. Agent and Affiliates................................................................41 SECTION 8.04. Lender Credit Decision..............................................................41 SECTION 8.05. Indemnification.....................................................................41 SECTION 8.06. Successor Agent.....................................................................41 ARTICLE IX MISCELLANEOUS.........................................................................................41 SECTION 9.01. Amendments, Etc.....................................................................41 SECTION 9.02. Notices, Etc........................................................................41 SECTION 9.03. No Waiver; Remedies.................................................................41 SECTION 9.04. Costs, Expenses, Taxes and Indemnification..........................................41 SECTION 9.05. Right of Set-off....................................................................41 SECTION 9.06. Binding Effect......................................................................41 SECTION 9.07. Assignments and Participations......................................................41 SECTION 9.08. Confidentiality.....................................................................41 SECTION 9.09. WAIVER OF JURY TRIAL................................................................41 SECTION 9.10. Governing Law.......................................................................41 SECTION 9.11. Relation of the Parties; No Beneficiary.............................................41 SECTION 9.12. Execution in Counterparts...........................................................41 SECTION 9.13. Entire Agreement....................................................................41
EXHIBITS AND SCHEDULES Exhibit 1.01 - Form of Note Exhibit 2.02(a) - Form of Notice of Borrowing Exhibit 2.09 - Form of Notice of Conversion Exhibit 3.01(a)(viii)-1 - Form of Opinion of Foley & Lardner Exhibit 3.01(a)(viii)-2 - Form of Opinion of General Counsel Exhibit 3.01(a)(viii)-3 - Form of Opinion of Thelen Reid & Priest LLP Exhibit 9.07 - Form of Lender Assignment Schedule I - Commitment Schedule Schedule II - Existing Liens Schedule III - List of Indentures
364-DAY CREDIT AGREEMENT Dated as of December 27, 2002 THIS 364-DAY CREDIT AGREEMENT (this "Agreement") is made by and among: (i) ALLIANT ENERGY RESOURCES, INC., a Wisconsin corporation (the "Borrower"), (ii) ALLIANT ENERGY CORPORATION, a Wisconsin corporation ("Parent"), HEARTLAND PROPERTIES, INC., a Wisconsin corporation ("HPI") and ALLIANT ENERGY INTERNATIONAL, INC., an Iowa corporation ("AEI") (collectively, together with Parent, HPI and AEI, the "Guarantors"; the Guarantors together with the Borrower, the "Loan Parties"), (iii) the Lenders (as hereinafter defined) listed on the signature pages hereof and the other Lenders from time to time party hereto, and (iv) Merrill Lynch Capital Corporation, as administrative agent (the "Agent") for the Lenders hereunder. PRELIMINARY STATEMENTS (1) The Borrower has requested that the Lenders make certain Advances to the Borrower. (2) The Lenders have agreed to make such Advances subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01....Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Advance" means an advance by a Lender to the Borrower as part of a Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance, each of which shall be a "Type" of Advance. "AER Notes" means the Borrower's 9.75% Senior Notes due 2013 and issued and outstanding on the date of this Agreement or, when used in the determination of the Applicable Margin, if on any Determination Date, no such Notes are outstanding, the issued and outstanding notes or debentures of the Borrower selected by the Agent in its sole discretion. "Affected Lender" has the meaning assigned to that term in Section 2.13. "Affected Lender Advance" has the meaning assigned to that term in Section 2.13. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control another entity if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by contract, or otherwise. "Alternate Base Rate" means a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the higher of: (i) the rate of interest announced publicly by the Agent from time to time, as its corporate base rate or prime rate of interest; and (ii) 1/2 of one percent per annum above the Federal Funds Rate. Each change in the Alternate Base Rate shall take effect concurrently with any change in such base or prime rate or the Federal Funds Rate. "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance. "Applicable Margin" means, (a) for any day in any Monthly Period as to any Eurodollar Rate Advance, a rate per annum equal to the sum of (i) the Fixed Rate Treasury Spread for the applicable Determination Date minus the Buy Side Swap Spread for such Determination Date plus (ii) 1.00%, provided that the Applicable Margin as to any Eurodollar Rate Advance shall in no event be less than 5.00% per annum and (b) as to any Base Rate Advance at any time, a rate per annum that is 1.00% less than the Applicable Margin then in effect as to Eurodollar Rate Advances. As used in this definition, the following terms shall have the following meanings: "Buy Side Swap Spread" for any Determination Date means the bid column ten-year dollar swap spread between United States Treasury securities and London interbank offered rate borrowings as quoted on page 18 of the Bloomberg Screen IRSB (or such other page and place as may replace such page on such service for displaying the information referred to therein) with respect to a United States Treasury security listed on such page with a maturity most nearly equal to that of the AER Notes, as determined by the Agent as of 11:00 A.M. (New York City time) on such Determination Date. "Determination Date" means, for any Monthly Period, the second Business Day prior to the first day of such Monthly Period. "Fixed Rate Treasury Spread" for any Determination Date, means the excess, if any, of (a) the average of the yields to maturity on the Determination Date on the AER Notes received by the Agent from each of the Quoting Dealers over (b) the average of the yields to maturity on the Determination Date on a U.S. Treasury security with a maturity comparable to the maturity of the AER Notes received by the Agent from the Quoting Dealers. "Monthly Period" means each of the successive periods of one month, the first of which shall commence on the date of the initial Advance. "Applicable Rate" means: (i) in the case of each Base Rate Advance, a rate per annum equal at all times to the sum of the Alternate Base Rate in effect from time to time plus the Applicable Margin in effect from time to time as to Base Rate Advances; and (ii) in the case of each Eurodollar Rate Advance comprising part of the same Borrowing, a rate per annum during each Interest Period equal at all times to the sum of the Eurodollar Rate for such Interest Period plus the Applicable Margin as to Eurodollar Rate Advances in effect from time to time during such Interest Period. "Arranger" means Merrill Lynch & Co. and Merrill Lynch, Pierce, Fenner & Smith Inc. "Asset Sale Event" means any Disposition, or series of related Dispositions, after December 15, 2002 of any property of the Parent or any of its Subsidiaries (excluding (A) any Disposition permitted by Section 5.02(f)(i), (B) sales of accounts receivable by Cogenex Corporation and its Subsidiaries and Energy Performance Services, Inc. and (C) sales or other dispositions of worn out or obsolete equipment no longer used and useful in the business of the Parent and its Subsidiaries, to the extent that the proceeds of such sales or other dispositions are used to acquire replacement equipment) that yields gross proceeds to the Parent or any of its Subsidiaries (valued at the initial principal amount thereof in the case of non-cash proceeds consisting of notes or other debt securities and valued at fair market value in the case of other non-cash proceeds) to the Parent or any of its Subsidiaries in excess of $1,000,000; provided, however, that any Disposition or series of related Dispositions by a Utility that would otherwise constitute an Asset Sale Event shall not constitute an Asset Sale Event except to the extent that the amount of the proceeds thereof that are paid to the Parent as a dividend (as declared by the Board of Directors of such Utility in its sole discretion in compliance with all applicable regulatory restrictions) exceeds $1,000,000. "Available Commitment" means, for each Lender at any time on any day, the unused portion of such Lender's Commitment, computed after giving effect to all Borrowings made prior to such time. "Available Commitments" means, at any time, the aggregate of the Lenders' then Available Commitments hereunder. "Base Rate Advance" means an Advance that bears interest as provided in Section 2.06(a). "Borrower Obligations" means the collective reference to the unpaid principal of and interest on the Borrowings and all other obligations and liabilities of the Borrower (including, without limitation, interest accruing at the then applicable rate provided in this Agreement after the maturity of the Borrowings and interest accruing at the then applicable rate provided in this Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), to the Agent or any Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with this Agreement, the other Loan Documents or any other document made, delivered or given in connection with any of the foregoing, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Agent or to the Lenders that are required to be paid by the Borrower pursuant to the terms of any of the foregoing agreements). "Borrowing" means a borrowing consisting of simultaneous Advances of the same Type, having the same Interest Period and ratably made or Converted on the same day by each of the Lenders pursuant to Section 2.02 or 2.09, as the case may be. All Advances of the same Type, having the same Interest Period and made or Converted on the same day shall be deemed a single Borrowing hereunder until repaid or next Converted. "Business Day" means a day of the year on which banks are not required or authorized to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advance, on which dealings are carried on in the London interbank market. "Capital Expenditures" means, for any period, with respect to any Person, the aggregate of all expenditures by such Person and its Subsidiaries for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) that should be capitalized under GAAP on a consolidated balance sheet of such Person and its Subsidiaries. "Capitalized Lease Obligations" means obligations to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real and/or personal property which obligation is required to be classified and accounted for as a capital lease on a balance sheet prepared in accordance with GAAP, and for purposes hereof the amount of such obligations shall be the capitalized amount determined in accordance with such principles. "Cash and Cash Equivalents" means, with respect to any Person, the aggregate amount of the following, to the extent owned by such Person free and clear of all Liens, encumbrances and rights of others and not subject to any judicial, regulatory or other legal constraint: (i) cash on hand; (ii) Dollar demand deposits maintained in the United States with any commercial bank and Dollar time deposits maintained in the United States with, or certificates of deposit having a maturity of one year or less issued by, any commercial bank which has an office in the United States and which has a combined capital and surplus of at least $100,000,000; (iii) eurodollar time deposits maintained in the United States with, or eurodollar certificates of deposit having a maturity of one year or less issued by, any commercial bank having outstanding unsecured indebtedness that is rated (on the date of acquisition thereof) A- or better by S&P or A3 or better by Moody's (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating unsecured bank indebtedness); (iv) direct obligations of, or unconditionally guaranteed by, the United States and having a maturity of one year or less; (v) commercial paper rated (on the date of acquisition thereof) A-1 or P-1 or better by S&P or Moody's, respectively (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating commercial paper), and having a maturity of one year or less; (vi) obligations with any Lender or any other commercial bank in respect of the repurchase of obligations of the type described in clause (iv), above, provided that such repurchase obligations shall be fully secured by obligations of the type described in said clause (iv) and the possession of such obligations shall be transferred to, and segregated from other obligations owned by, such Lender or such other commercial bank; and (vii) preferred stock of any Person that is rated A- or better by S&P or A3 or better by Moody's (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such corporations is then in the business of rating preferred stock of entities engaged in such businesses). "Certifying Officer" has the meaning assigned to that term in Section 5.01(h)(iv). "Closing" means the day upon which each of the applicable conditions precedent enumerated in Section 3.01 shall be fulfilled to the satisfaction of, or waived with the consent of, the Lenders, the Agent and the Borrower. All transactions contemplated by the Closing shall take place on a Business Day on or prior to December 27, 2002, at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10010, at 10:00 a.m. (New York City time), or such later Business Day as the parties hereto may mutually agree. "Commitment" means, for each Lender, the obligation of such Lender to make Advances to the Borrower in an amount no greater than the amount set forth on Schedule I hereto or, if such Lender has entered into one or more Lender Assignments, set forth for such Lender in the Register maintained by the Agent pursuant to Section 9.07(c), in each such case as such amount may be reduced from time to time pursuant to Section 2.04 (a), (b), (c) or (d). "Commitment Fee" has the meaning assigned to that term in Section 2.03(a). "Commitments" means the total of the Lenders' Commitments hereunder. "Confidential Information" has the meaning assigned to that term in Section 9.08. "Consolidated Capital" means, with respect to any Person, at any date of determination, the sum of (i) Consolidated Debt of such Person, (ii) consolidated equity of the common stockholders of such Person and its Consolidated Subsidiaries, (iii) consolidated equity of the preference stockholders of such Person and its Consolidated Subsidiaries and (iv) consolidated equity of the preferred stockholders of such Person and its Consolidated Subsidiaries, in each case determined at such date in accordance with GAAP, excluding, however, from such calculation, amounts identified as "Accumulated Other Comprehensive Income (Loss)" in the financial statements of the Parent set forth in the Parent's Report on Form 10-K or 10-Q, as the case may be, filed most recently with the Securities and Exchange Commission prior to the date of such determination. "Consolidated Debt" means, with respect to any Person, at any date of determination, the aggregate Debt of such Person and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP, but shall not include Nonrecourse Debt of any Subsidiary of the Parent. "Consolidated Net Worth" means, at any time of determination, with respect to any Person and its Consolidated Subsidiaries, the net worth of such Person and such Person's Consolidated Subsidiaries as determined in accordance with GAAP. "Consolidated Subsidiary" means, with respect to any Person, any Subsidiary of such Person whose accounts are or are required to be consolidated with the accounts of such Person in accordance with GAAP. "Continuing Directors" means the members of the Board of Directors of the Parent on the date hereof and each other director of the Parent, if such other director's nomination for election to the Board of Directors of the Parent is recommended by a majority of the then Continuing Directors. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Convert", "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of another Type, or to the selection of a new, or the renewal of the same, Interest Period for Advances, as the case may be, pursuant to Section 2.08 or 2.19. "Debt" means, for any Person, any and all indebtedness, liabilities and other monetary obligations of such Person (i) for borrowed money or evidenced by bonds, debentures, notes or other similar instruments, (ii) to pay the deferred purchase price of property or services (except trade accounts payable arising and repaid in the ordinary course of business), (iii) Capitalized Lease Obligations, (iv) under reimbursement or similar agreements with respect to letters of credit (other than trade letters of credit) issued to support indebtedness or obligations of such Person or of others of the kinds referred to in clauses (i) through (iii) above and clause (v) below, (v) reasonably quantifiable obligations under direct guaranties or indemnities, or under support agreements, in respect of, and reasonably quantifiable obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, or to assure an obligee against failure to make payment in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above, and (vi) in respect of unfunded vested benefits under Plans. In determining Debt for any Person, there shall be included accrued interest on the principal amount thereof to the extent such interest has accrued for more than six months. "Debt Event" means, the issuance or incurrence by the Parent or any of its Subsidiaries after December 15, 2002 of any Indebtedness in excess of $10,000,000 other than (A) Indebtedness hereunder, under the Parent Facility, any of the Utility Facilities, the AER Notes, the Whiting Financing or any other revolving credit facilities of Subsidiaries of the Parent (in each case described in this clause (A) including refinancings and extensions thereof but without giving effect to any increases thereto subsequent to the date hereof), (B) Nonrecourse Debt, in an aggregate principal amount not to exceed $62,000,000 (up to $6,000,000 of which may be guaranteed by the Parent and which may also include a letter of credit in the amount of $10,764,000), in connection with the purchase by the Parent or any of its Subsidiaries of a 309 megawatt natural gas fired power plant in Neenah, Wisconsin from Mirant Corporation, (C) Indebtedness issued by any Foreign Subsidiary of the Parent, so long as it is not Indebtedness of the Parent or any Subsidiary of the Parent that is not a Foreign Subsidiary and the proceeds of the issuance of such Indebtedness is not repatriated to the Parent or any Subsidiary of the Parent that is not a Foreign Subsidiary, (D) the issuance of commercial paper by the Parent or any of its Subsidiaries, (E) the issuance or incurrence of any Indebtedness by either of the Utilities, except to the extent that the proceeds of such Indebtedness are paid by such Utility to the Parent as a dividend (as declared by the Board of Directors of such Utility in its sole discretion in compliance with all applicable regulatory restrictions) and (F) any intercompany Indebtedness issued by the Parent to any of its wholly-owned Subsidiaries or by any such Subsidiary to the Parent or any of its wholly-owned Subsidiaries (including, without limitation, Indebtedness incurred under the Utility Money Pool and the Non-Utility Money Pool); provided, that the foregoing shall not be deemed to imply that any such Debt Event is permitted under this Agreement. "Default Rate" means (i) with respect to the unpaid principal of any Advance, the greater of (A) 2% per annum above the Applicable Rate in effect from time to time for such Advance and (B) 2% per annum above the Applicable Rate in effect from time to time for Base Rate Advances and (ii) with respect to the unpaid interest on any Advance or any other unpaid amount hereunder, 2% per annum above the Applicable Rate in effect from time to time for Base Rate Advances. "Direct Subsidiary" means, with respect to any Person, any Subsidiary directly owned by such Person. "Disposition" means, with respect to any property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition of such property, but does not include the creation of any Lien. "Dollars" and the sign "$" each means lawful money of the United States. "Domestic Lending Office" means, with respect to any Lender, the office or affiliate of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Lender Assignment pursuant to which it became a Lender, or such other office or affiliate of such Lender as such Lender may from time to time specify in writing to the Borrower and the Agent. "Eligible Assignee" means (i) a commercial bank or trust company organized under the laws of the United States, or any State thereof; (ii) a commercial bank organized under the laws of any other country that is a member of the OECD, or a political subdivision of any such country, provided that such bank is acting through a branch or agency located in the United States; (iii) the central bank of any country that is a member of the OECD; and (iv) any other commercial bank or other financial institution or other Person engaged generally in the business of extending credit or purchasing debt instruments; provided, however, that (A) any such Person which is acquiring all or any portion of the Available Commitment of any Lender shall also (1) have outstanding senior unsecured indebtedness that is rated BBB- or better by S&P or Baa3 or better by Moody's (or an equivalent rating by another nationally-recognized credit rating agency of similar standing if neither of such rating agencies is then in the business of rating senior unsecured indebtedness of entities engaged in such businesses) or (2) have combined capital and surplus (as established in its most recent report of condition to its primary regulator) of not less than $250,000,000 (or its equivalent in foreign currency), (B) any Person described in clause (ii), (iii) or (iv) above shall, on the date on which it is to become a Lender hereunder, (x) be entitled to receive payments hereunder without deduction or withholding of any United States Federal income taxes (as contemplated by Section 2.16) and (y) not be incurring any losses, costs or expenses of the type for which such Person could demand payment under Section 2.12, and (C) any Person described in clause (ii), (iii) or (iv) above shall, in addition, be reasonably acceptable to the Agent and, so long as no Event of Default shall have occurred and be continuing, the Borrower. "Equity Event" means, on any date after the date hereof (a) the contribution in cash of capital (x) to the Parent by any Person or (y) to any Subsidiary of the Parent by any Person other than the Parent or a Subsidiary of the Parent, or (b) any issuance of Equity Interests (x) by the Parent to any Person or (y) by any Subsidiary of the Parent to any Person other than the Parent or a Subsidiary of the Parent; provided that the foregoing shall not include (1) the issuance of Equity Interests related to (A) the Alliant Energy Corporation Shareowner Direct Plan or (B) existing stock option or other compensation plans or (2) the contribution in cash or capital to or the issuance of Equity Interests by either of the Utilities or Peak Pacific Investment Company, Ltd., a Singapore corporation, except to the extent that the proceeds thereof are paid to the Parent as a dividend (as declared by the Board of Directors of such Person in its sole discretion in compliance with all applicable regulatory restrictions). "Equity Interests" means, (a) with respect to a corporation, shares of capital stock of such corporation or any other interest convertible or exchangeable into any such interest, (b) with respect to a limited liability company, a membership interest in such company, (c) with respect to a partnership, a partnership interest in such partnership, and (d) with respect to any other Person, an interest in such Person analogous to interests described in clauses (a) through (c). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means, with respect to any Person, any trade or business (whether or not incorporated) which is a member of a group of which such Person is a member and which is under common control within the meaning of the regulations under Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended from time to time. "ERISA Event" means (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC; (ii) the provision by the administrator of any Plan of notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii) the cessation of operations at a facility in the circumstances described in Section 4062(e) of ERISA; (iv) the withdrawal by the Parent, any of its Subsidiaries or any of their respective ERISA Affiliates from a Multiple Employer Plan or a Multiemployer Plan during a plan year for which it was a "substantial employer", as defined in Section 4001(a)(2) of ERISA; (v) the failure by the Parent, any of its Subsidiaries or any of their respective ERISA Affiliates to make a payment to a Plan required under Section 302(f)(1) of ERISA, which failure results in the imposition of a lien for failure to make required payments; (vi) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; or (vii) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Plan. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender, the office or affiliate of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Lender Assignment pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office or affiliate of such Lender as such Lender may from time to time specify in writing to the Borrower and the Agent. "Eurodollar Rate" means, for each Interest Period for each Eurodollar Rate Advance made as part of the same Borrowing, the rate per annum determined by the British Bankers' Association on the basis of the rate for deposits in dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Telerate screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Telerate screen (or otherwise on such screen), the "Eurodollar Rate" for purposes of this definition shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Agent after consultation with the Borrower. "Eurodollar Rate Advance" means an Advance that bears interest as provided in Section 2.06(b). "Eurodollar Reserve Percentage" of any Lender for each Interest Period for each Eurodollar Rate Advance means the reserve percentage applicable to such Lender during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under Regulation D or other regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) then applicable to such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period. "Events of Default" has the meaning assigned to that term in Section 6.01. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means the letter agreement, dated December 15, 2002, among the Borrower, Merrill Lynch & Co, Merrill Lynch, Pierce, Fenner & Smith Inc. and Merrill Lynch Capital Corporation. "Foreign Subsidiary" means any Subsidiary of the Borrower that is organized under the law of any jurisdiction other than any state of the United States of America. "GAAP" has the meaning assigned to that term in Section 1.04. "Governmental Approval" means any authorization, consent, approval, license, franchise, lease, ruling, tariff, rate, permit, certificate, exemption of, or filing or registration with, any governmental authority or other legal or regulatory body. "Granting Lender" has the meaning assigned to that term in Section 9.07(i). "Hazardous Substance" means any waste, substance, or material identified as hazardous, dangerous or toxic by any office, agency, department, commission, board, bureau, or instrumentality of the United States or of the State or locality in which the same is located having or exercising jurisdiction over such waste, substance or material. "Hostile Acquisition" means any acquisition involving a tender offer or proxy contest that has not been recommended or approved by the board of directors (or similar governing body) of the Person that is the subject of such acquisition prior to the first public announcement or disclosure relating to such acquisition. "Indebtedness" means, for any Person, all indebtedness, liabilities and other monetary obligations of such Person of a type described in clauses (i), (ii) and (iii) of the definition of the term "Debt". "Indemnified Person" has the meaning assigned to that term in Section 9.04(c). "Interest Coverage Ratio" means, as of any date, the ratio of (i) consolidated operating income plus depreciation and amortization of the Parent and its Consolidated Subsidiaries for the four fiscal quarters ending on such date to (ii) the Interest Expense payable by the Parent and its Consolidated Subsidiaries during such period. "Interest Expense" means, for any Person and its Consolidated Subsidiaries and for any period, all consolidated interest expense (including all amortization of debt discount and expenses and reported interest) on all Debt of such Person and its Consolidated Subsidiaries during such period. "Interest Period" means, for each Eurodollar Rate Advance made as part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Advance into such a Eurodollar Rate Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be 1, 2, 3 or 6 months, as the Borrower may, upon notice received by the Agent not later than 11:00 a.m. on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: (i) the Borrower may not select any Interest Period that ends after the Termination Date; (ii) Interest Periods commencing on the same date for Advances comprising part of the same Borrowing shall be of the same duration; and (iii)whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, in the case of any Interest Period for a Eurodollar Rate Advance, that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day. "IPL" means Interstate Power and Light Company, an Iowa corporation. "Lender Assignment" means an assignment and acceptance agreement entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of Exhibit 9.07. "Lenders" means the banks listed on the signature pages hereof and each Eligible Assignee that shall become a party hereto pursuant to Section 9.07. "Lien" has the meaning assigned to that term in Section 5.02(a). "Loan Documents" means (i) this Agreement, any Note issued pursuant to Section 2.15, the Fee Letter, (ii) all agreements, documents and instruments in favor of the Agent or the Lenders (or the Agent on behalf of the Lenders), and (iii) all other agreements, instruments and documents now or hereafter executed and/or delivered pursuant hereto or thereto. "Majority Lenders" means, on any date of determination, Lenders that, collectively, on such date (i) hold greater than 50% of the then outstanding Advances and (ii) if there are no Outstanding Borrowings, have Percentages in the aggregate greater than 50%. Any determination of those Lenders constituting the Majority Lenders shall be made by the Agent and shall be conclusive and binding on all parties absent manifest error. "Margin Stock" has the meaning assigned to that term in Regulation U of the Board Governors of the Federal Reserve System. "Material Adverse Change" means any event, development or circumstance that has had or could reasonably be expected to have a material adverse effect on (a) the operations, business, properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of the Parent or the Parent and its Subsidiaries taken as a whole; provided, however, a downgrade by S&P or Moody's of its rating of the Parent or any Debt of the Parent shall not, in and of itself, be deemed to be a Material Adverse Change, but for purposes of clarity in interpreting the foregoing, it is agreed that the event, change, circumstance or condition that causes such downgrade (or an announcement of a potential downgrade or a review for possible ratings change) of any such rating, and the effect or change caused by such downgrade (or an announcement of a potential downgrade or a review for possible ratings change), will be considered in whether there has been a Material Adverse Change; provided, further, the fact that the Parent or any Consolidated Subsidiary is unable to issue Debt in the commercial paper market due to market conditions generally affecting the commercial paper market shall not, in and of itself, be deemed to be a Material Adverse Change; (b) the ability of any Loan Party to perform its obligations under any of the Loan Documents to which it is a party; or (c) the legality, validity, binding effect or enforceability against any Loan Party or any of the Loan Documents to which it is a party. "Moody's" means Moody's Investors Service, Inc. or any successor thereto. "Mortgage Bond Indentures" means the indentures listed on Schedule III hereto. "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, which is subject to Title IV of ERISA and to which the Parent or any ERISA Affiliate of the Parent is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions, such plan being maintained pursuant to one or more collective bargaining agreements. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and which (i) is maintained for employees of the Parent or an ERISA Affiliate of the Parent and at least one Person other than the Parent and its ERISA Affiliates or (ii) was so maintained and in respect of which the Parent or an ERISA Affiliate of the Parent could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Net Cash Proceeds" means (i) in connection with any Asset Sale Event, the proceeds thereof in the form of Cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale Event, net of (x) (1) attorneys' fees, accountants' fees, investment banking fees and other customary fees and expenses actually incurred in connection therewith, (2) taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and (3) Debt of a Subsidiary of the Borrower that is repaid in connection with a sale of such Subsidiary or its assets, (y) any tax sharing arrangements and (z) amounts required to be applied to the repayment of Debt in accordance with any mandatory prepayment or redemption provisions of any Debt of the Parent or any of its Subsidiaries outstanding on the date of this Agreement; and (b) in connection with any Debt Event or Equity Event, the cash proceeds received from such issuance or incurrence, net of (without duplication) attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith, and amounts required to be applied to the repayment of Debt in accordance with any mandatory prepayment or redemption provisions of any Debt of the Parent or any of its Subsidiaries outstanding on the date of this Agreement. "Nonrecourse Debt" means any Debt that finances the acquisition, development, ownership or operation of an asset to the extent that the Person to which such Debt is owed has no recourse whatsoever to the Parent or any of its Affiliates other than: (i) recourse to the named obligor with respect to such Debt (the "Debtor") for amounts limited to the cash flow or net cash flow (other than historic cash flow or historic net cash flow) from the asset; and (ii) recourse to the Debtor for the purpose only of enabling amounts to be claimed in respect of such Debt in an enforcement of any security interest or lien given by the Debtor over the asset or the income, cash flow or other proceeds deriving from the asset (or given by any shareholder or the like in the Debtor over its shares or like interest in the capital of the Debtor) to secure the Debt, but only if the extent of the recourse to the Debtor is limited solely to the amount of any recoveries made on any such enforcement; and (iii)recourse to the Debtor generally or indirectly to any Affiliate of the Debtor, under any form of assurance, undertaking or support, which recourse is limited to a claim for damages (other than liquidated damages and damages required to be calculated in a specified way) for a breach of an obligation (other than a payment obligation or an obligation to comply or to procure compliance by another with any financial ratios or other tests of financial condition) by the Person against which such recourse is available. "Non-Utility Money Pool" means the cash management program of the Borrower and certain of its Subsidiaries known as the "Non-Utility Money Pool" that is described in the Post-Effective Amendment No. 4 to Form U-1 Application or Declaration (File No. 70-10052) filed, pursuant to PUHCA, with the Securities and Exchange Commission on December 12, 2002. "Note" means a promissory note issued at the request of a Lender pursuant to Section 2.15, in substantially the form of Exhibit 1.01 hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the Advances made by such Lender. "Notice of Borrowing" has the meaning assigned to that term in Section 2.02(a). "Notice of Conversion" has the meaning assigned to that term in Section 2.09. "OECD" means the Organization for Economic Cooperation and Development. "Other Taxes" has the meaning assigned to that term in Section 2.16(b). "Outstanding Borrowings" means, on any date of determination, an amount equal to the aggregate principal amount of all Borrowings outstanding on such date. "Parent Facility" means the up to $650,000,000 364-Day Credit Agreement, dated as of October 11, 2002, among Parent, the lenders parties thereto and Bank One, NA as administrative agent and issuer of letters of credit. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor entity) established under ERISA. "Percentage" means, for any Lender on any date of determination, the percentage obtained by dividing (a) the sum of such Lender's Available Commitment and outstanding Advances on such day by (b) the sum of the Available Commitments and aggregate outstanding Advances on such date, and multiplying the quotient so obtained by 100%. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "PUHCA" means the Public Utility Holding Company Act of 1935, as amended from time to time. "Quoting Dealers" means collectively, Merrill Lynch, Pierce, Fenner & Smith Inc. and two other dealers of comparable recognized standing identified by the Agent in consultation with the Borrower. "Register" has the meaning assigned to that term in Section 9.07(c). "Report" has the meaning assigned to that term in Section 5.01(h)(iv). "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in the Parent, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of (x) any such Equity Interests in the Parent or (y) any option, warrant or other right to acquire any such Equity Interests in the Parent. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor thereto. "Senior Financial Officer" means the President, the Chief Executive Officer, the Chief Financial Officer or the Treasurer of the Parent. "Significant Subsidiary" means any Subsidiary of the Parent that, on a consolidated basis with any of its Subsidiaries as of any date of determination, accounts for more than 20% of the consolidated assets (valued at book value) of the Parent and its Subsidiaries. "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which is subject to Title IV of ERISA and which (i) is maintained for employees of the Parent, any of its Subsidiaries or any of their respective ERISA Affiliates and no Person other than the Parent, any of its Subsidiaries or any of their respective ERISA Affiliates, or (ii) was so maintained and in respect of which the Parent, any of its Subsidiaries or any of their respective ERISA Affiliates could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "SPC" has the meaning assigned to that term in Section 9.07(i). "Subsidiary" means, with respect to any Person, any corporation or unincorporated entity of which more than 50% of the outstanding capital stock (or comparable interest) having ordinary voting power (irrespective of whether at the time capital stock (or comparable interest) of any other class or classes of such corporation or entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by said Person (whether directly or through one or more other Subsidiaries). In the case of an unincorporated entity, a Person shall be deemed to have more than 50% of interests having ordinary voting power only if such Person's vote in respect of such interests comprises more than 50% of the total voting power of all such interests in the unincorporated entity. "Subsidiary Guarantor" has the meaning assigned to that term in Section 7.02(a). "Taxes" has the meaning assigned to that term in Section 2.16(a). "Termination Date" means the earlier to occur of (i) December 26, 2003 and (ii) the date of termination or reduction in whole of the Commitments pursuant to Section 2.04 or 6.01. "Type" has the meaning assigned to that term (i) in the definition of "Advance" when used in such context and (ii) in the definition of "Borrowing" when used in such context. "Unmatured Default" means an event that, with the giving of notice or lapse of time, or both, would constitute an Event of Default. "Utilities" means, collectively, WPL and IPL. "Utility Facilities" means (i) the $200,000,000 Credit Agreement, dated as of October 11, 2002, among IPL, the banks named therein and Citibank, N.A., as administrative agent; and (ii) the $150,000,000 Credit Agreement, dated as of October 11, 2002, among WPL, the banks named therein and Citibank, N.A., as administrative agent. "Utility Money Pool" means the cash management program of the Parent and the Utilities known as the "Utility Money Pool" that is described in the Post-Effective Amendment No. 4 to Form U-1 Application or Declaration (File No. 70-10052) filed, pursuant to PUHCA, with the Securities and Exchange Commission on December 12, 2002. "Whiting Financing" means the $350,000,000 Credit Agreement, dated as of December 20, 2002, among Whiting Petroleum Corporation, the financial institutions listed therein, Bank One, NA, as administrative agent and Wachovia Bank, National Association, as syndication agent. "WPL" means Wisconsin Power and Light Company, a Wisconsin corporation. SECTION 1.02....Computation of Time Periods. Unless otherwise indicated, each reference in this Agreement to a specific time of day is a reference to New York, New York time. In the computation of periods of time under this Agreement, any period of a specified number of days or months shall be computed by including the first day or month occurring during such period and excluding the last such day or month. In the case of a period of time "from" a specified date "to" or "until" a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". SECTION 1.03....Computations of Outstandings. Whenever reference is made in this Agreement to the "principal amount outstanding" on any date under this Agreement, such reference shall refer to the aggregate principal amount of all Advances outstanding on such date after giving effect to all Advances to be made on such date and the application of the proceeds thereof. SECTION 1.04....Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles ("GAAP") consistent with those applied in the preparation of the financial statements referred to in Section 4.01(f). ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01....The Advances. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Advances to the Borrower from time to time during the period from and including the date hereof, to and up to, but excluding, the Termination Date, in an amount not to exceed at any time such Lender's then Available Commitment. Each Borrowing shall be in an aggregate amount not less than $10,000,000 (or, if lower and if such Borrowing consists solely of Base Rate Advances, the amount of the Available Commitments) or an integral multiple of $1,000,000 in excess thereof and shall consist of Advances of the same Type made on the same day by the Lenders ratably according to their respective Percentages. Amounts borrowed and repaid by the Borrower hereunder may not be reborrowed. SECTION 2.02....Making the Advances. (a) Each Borrowing shall be made on notice, given not later than 11:00 a.m. (i) on the third Business Day prior to the date of the proposed Borrowing, in the case of a Borrowing comprised of Eurodollar Rate Advances and (ii) on the date of the proposed Borrowing, in the case of a Borrowing comprised of Base Rate Advances, in each case by the Borrower to the Agent, which shall give to each Lender prompt notice thereof by telecopier, telex or cable. Each such notice of a Borrowing (a "Notice of Borrowing") shall be by telecopier, telex or cable, in substantially the form of Exhibit 2.02(a) hereto, specifying therein the requested (A) date of such Borrowing, (B) Type of Advances comprising such Borrowing, (C) aggregate amount of such Borrowing and (D) in the case of a Borrowing comprised of Eurodollar Rate Advances, the initial Interest Period for each such Advance. Each Lender shall, before (x) 12:00 noon on the date of such Borrowing, in the case of a Borrowing comprised of Eurodollar Rate Advances, and (y) 1:00 p.m. on the date of such Borrowing, in the case of a Borrowing comprised of Base Rate Advances, make available for the account of its Applicable Lending Office to the Agent at its address referred to in Section 9.02, in same day funds, such Lender's ratable portion of such Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will promptly make such funds available to the Borrower at the Agent's aforesaid address. (b) Each Notice of Borrowing shall be irrevocable and binding on the Borrower. In the case of any Borrowing which the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Eurodollar Rate Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. (c) Unless the Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Agent such Lender's Advance as part of such Borrowing, the Agent may assume that such Lender has made such Advance available to the Agent on the date of such Borrowing in accordance with subsection (a) of this Section 2.02, and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such Advance available to the Agent, such Lender and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount, together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance as part of such Borrowing for purposes of this Agreement. (d) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. SECTION 2.03....Fees. (a) The Borrower agrees to pay to the Agent for the account of each Lender a commitment fee (the "Commitment Fee") which shall accrue at the rate of 0.50% per annum on the daily amount of the Available Commitment of such Lenders in effect hereunder at any time during the period from and including the date of this Agreement to but excluding the Termination Date. Except as provided for in Section 2.04(a), the Commitment Fee shall be payable quarterly in arrears on the last day of each March, June, September and December, commencing March 31, 2003, and on the Termination Date, in immediately available funds, to the Agent for distribution among the Lenders. (b) In addition to the Commitment Fee, the Borrower shall pay to the Agent, for the account of the Agent, such fees as are provided for in the Fee Letter. SECTION 2.04....Reduction of the Commitments. (a) The Borrower shall have the right, upon at least three Business Days' written notice to the Agent, to terminate in whole or reduce ratably in part the respective Available Commitments of the Lenders; provided that (i) each partial reduction shall be in a minimum amount of $10,000,000 or any whole multiple of $1,000,000 in excess thereof and (ii) the Borrower shall pay to the Agent for the account of the Lenders, on the date of each termination or reduction of the aggregate amount of the Commitments of the Lenders, the Commitment Fee on the amount of the Commitments so terminated or reduced accrued through the date of such termination or reduction. (b) On the date of any Debt Event: (i) if the sum of (x) the Net Cash Proceeds thereof and (y) the Net Cash Proceeds of all other Debt Events that shall have occurred on or before such date shall be equal to or less than $300,000,000, the Net Cash Proceeds of such Debt Event shall be applied to the prepayment of the Advances until all Advances outstanding immediately prior to such prepayment, if any, have been repaid in full. (ii) if the sum of (x) the Net Cash Proceeds thereof and (y) the Net Cash Proceeds of all other Debt Events that shall have occurred on or before such date exceed $300,000,000, (A) such Net Cash Proceeds shall be applied to the prepayment of the Advances until all Advances outstanding immediately prior to such prepayment, if any, have been repaid in full and (B) an amount equal to such excess over $300,000,000 (after deducting from such amount the aggregate of the amounts, if any, previously so applied in accordance with this clause (B)) shall be applied to reduce permanently the Available Commitments. (c) On the date of any Equity Event, an amount equal to the excess, if any, of the sum of (x) the Net Cash Proceeds thereof and (y) the Net Cash Proceeds of all other Equity Events that occur after the date of this Agreement and on or before such date over $350,000,000 shall be applied (after deducting from such amount the aggregate of the amounts, if any, previously so applied in accordance with this paragraph), first, to the prepayment of the Advances until all Advances outstanding immediately prior to such prepayment, if any, have been repaid in full and, second, to reduce permanently the Available Commitments. (d) On the date of any Asset Sale Event, the Net Cash Proceeds thereof shall be applied, first, to the prepayment of the Advances until all Advances outstanding immediately prior to such prepayment, if any, have been repaid in full and, second, to reduce permanently the Available Commitments. (e) On the Termination Date, the Commitments of the Lenders shall be reduced to zero. (f) Any termination or reduction of the Commitments under this Section 2.04 shall be irrevocable, and the Commitments shall not thereafter be reinstated. SECTION 2.05....Repayment of Advances. The Borrower shall repay the principal amount of each Advance made by each Lender on the Termination Date. SECTION 2.06....Interest on Advances. The Borrower shall pay interest on the unpaid principal amount of each Advance owing to each Lender from the date of such Advance until such principal amount shall be paid in full, at the Applicable Rate for such Advance (except as otherwise provided in this Section 2.06), payable as follows: (a) Base Rate Advances. If such Advance is a Base Rate Advance, interest thereon shall be payable quarterly in arrears on the last day of each March, June, September and December, on the date of any Conversion of such Base Rate Advance and on the date such Base Rate Advance shall become due and payable or shall otherwise be paid in full; provided that at any time an Event of Default shall have occurred and be continuing, each Base Rate Advance shall bear interest, payable on demand, at a rate per annum equal at all times to the Default Rate. (b) Eurodollar Rate Advances. If such Advance is a Eurodollar Rate Advance, interest thereon shall be payable on the last day of such Interest Period and, if the Interest Period for such Advance has a duration of more than three months, on that day of each third month during such Interest Period that corresponds to the first day of such Interest Period (or, if any such month does not have a corresponding day, then on the last day of such month); provided that at any time an Event of Default shall have occurred and be continuing, each Eurodollar Rate Advance shall bear interest, payable on demand, at a rate per annum equal at all times to the Default Rate. SECTION 2.07....Additional Interest on Eurodollar Rate Advances. The Borrower shall pay to Agent for the account of each Lender any costs actually incurred by such Lender with respect to Eurodollar Rate Advances that are attributable to such Lender's compliance with regulations of the Board of Governors of the Federal Reserve System requiring the maintenance of reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities. Such costs shall be paid to the Agent for the account of such Lender in the form of additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Lender, from the date of such Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the Interest Period for such Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such Advance. Such additional interest shall be determined by such Lender and notified to the Borrower through the Agent. A certificate as to the amount of such additional interest, submitted to the Borrower and the Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination thereof shall have been made by such Lender in good faith. SECTION 2.08....Interest Rate Determination. (a) If any one or more of the Quoting Dealers shall not furnish timely information to the Agent for the purpose of determining any Applicable Margin, the Agent shall determine such Applicable Margin on the basis of timely information furnished by the remaining Quoting Dealers. (b) The Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Agent for purposes of Section 2.06(a) or (b), and the applicable rate, if any, furnished by each Quoting Dealer for the purpose of determining the applicable interest rate under Section 2.06(b). (c) If, with respect to any Eurodollar Rate Advances, the Majority Lenders notify the Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Agent shall forthwith so notify the Borrower and the Lenders, whereupon: (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance; and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. (d) If the Borrower shall fail to (i) select the duration of any Interest Period for any Eurodollar Rate Advance in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01 or (ii) provide a Notice of Conversion with respect to any Eurodollar Rate Advance on or prior to 12:00 noon on the third Business Day prior to the last day of the Interest Period applicable thereto, the Agent will forthwith so notify the Borrower and the Lenders, and such Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance. (e) On the date on which the aggregate unpaid principal amount of Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than the product of (i) $1,000,000 and (ii) the number of Lenders on such date, such Advances shall, if they are Advances of a Type other than Base Rate Advances, automatically Convert into Base Rate Advances, and on and after such date the right of the Borrower to Convert such Advances into Advances of a Type other than Base Rate Advances shall terminate; provided, however, that if and so long as each such Advance shall be of the same Type and have the same Interest Period as Advances comprising another Borrowing or other Borrowings, and the aggregate unpaid principal amount of all such Advances shall equal or exceed the product of (i) $1,000,000 and (ii) the number of Lenders on such date, the Borrower shall have the right to continue all such Advances as, or to Convert all such Advances into, Advances of such Type having such Interest Period. (f) Upon the occurrence and during the continuance of any Event of Default, each outstanding Eurodollar Rate Advance shall automatically Convert into a Base Rate Advance at the end of the Interest Period then in effect for such Eurodollar Rate Advance. SECTION 2.09....Voluntary Conversion of Advances. Subject to the conditions set forth below, the Borrower may on any Business Day, by delivering a notice of Conversion (a "Notice of Conversion") to the Agent not later than 12:00 noon (i) on the third Business Day prior to the date of the proposed Conversion, in the case of a Conversion to or in respect of Eurodollar Rate Advances and (ii) on the date of the proposed Conversion, in the case of a Conversion to or in respect of Base Rate Advances, and subject to the provisions of Sections 2.08 and 2.13, Convert all Advances of one Type comprising the same Borrowing into Advances of another Type; provided, however, that, in the case of any Conversion of any Eurodollar Rate Advances into Base Rate Advances on a day other than the last day of an Interest Period for such Eurodollar Rate Advances, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 9.04(b). Each such Notice of Conversion shall be in substantially the form of Exhibit 2.09 and shall, within the restrictions specified above, specify (A) the date of such Conversion, (B) the Advances to be Converted, (C) if such Conversion is into Eurodollar Rate Advances, the duration of the Interest Period for each such Advance, and (D) the aggregate amount of Advances proposed to be Converted. Notwithstanding the foregoing, the Borrower may not Convert Base Rate Advances into Eurodollar Rate Advances and may not select a new Interest Period for Eurodollar Rate Advances at any time an Event of Default has occurred and is continuing. SECTION 2.10....Optional Prepayments of Advances. The Borrower may, upon at least three Business Days' notice to the Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay for the ratable account of the Lenders the outstanding principal amounts of the Advances comprising part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that each partial prepayment shall be in an aggregate principal amount not less than $10,000,000 (or, if lower, the principal amount outstanding hereunder on the date of such prepayment) or an integral multiple of $1,000,000 in excess thereof. In the case of any such prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 9.04(b). Except as provided in this Section 2.10 and in Section 2.11, the Borrower shall have no right to prepay any principal amount of any Advances. SECTION 2.11....Mandatory Prepayments. (a) On the date of any termination or reduction of the Commitments or prepayment of Advances pursuant to Section 2.04, the Borrower shall pay (A) accrued interest to the date of such prepayment on the principal amount repaid or prepaid and (B) in the case of prepayments of Eurodollar Rate Advances, any amount payable to the Lenders pursuant to Section 9.04(b). (b) All prepayments of Advances required to be made pursuant to Section 2.04, 2.10 or 2.11 shall be applied (without reference to minimum dollar requirements) to outstanding Base Rate Advances up to the full amount thereof before they are applied to Eurodollar Rate Advances. (c) In lieu of prepaying any Eurodollar Rate Advance under any provision (other than Sections 2.13 and 6.01) of this Agreement, the Borrower may, upon notice to the Agent, deliver such funds to the Agent to be held as additional cash collateral securing the obligations hereunder. The Agent shall deposit all amounts delivered to it in a non-interest-bearing special purpose cash collateral account, to be governed by a cash collateral agreement in form and substance satisfactory to the Borrower and the Agent, and shall apply all such amounts in such account against such Advances on the last day of the Interest Period therefor. The Agent shall promptly notify the Lenders of any election by the Borrower to deliver funds to the Agent under this subsection (c). SECTION 2.12....Increased Costs. (a) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements, in the case of Eurodollar Rate Advances, included in the Eurodollar Rate Reserve Percentage) in or to the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower and the Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination thereof shall have been made by such Lender in good faith. (b) If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by such Lender (with a copy of such demand to the Agent), the Borrower shall immediately pay to the Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's Commitment. A certificate as to such amounts submitted to the Borrower and the Agent by such Lender, describing in reasonable detail the manner in which such amounts have been calculated, shall be conclusive and binding for all purposes, absent manifest error, provided that the determination and allocation thereof shall have been made by such Lender in good faith. (c) Notwithstanding the provisions of subsections (a) or (b) above to the contrary, no Lender shall be entitled to demand compensation or be compensated thereunder to the extent that such compensation relates to any period of time more than 60 days prior to the date upon which such Lender first notified the Borrower of the occurrence of the event entitling such Lender to such compensation (unless, and to the extent, that any such compensation so demanded shall relate to the retroactive application of any event so notified to the Borrower). SECTION 2.13....Illegality. Notwithstanding any other provision of this Agreement to the contrary, if any Lender (the "Affected Lender") shall notify the Agent and the Borrower that the introduction of or any change in or to the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for the Affected Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder, all Eurodollar Rate Advances of the Affected Lender shall, on the fifth Business Day following such notice from the Affected Lender, automatically be Converted into a like number of Base Rate Advances, each in the amount of the corresponding Eurodollar Rate Advance of the Affected Lender being so Converted (each such Advance, as so Converted, being an "Affected Lender Advance"), and the obligation of the Affected Lender to make, maintain, or Convert Advances into Eurodollar Rate Advances shall thereupon be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, or the Affected Lender has been replaced pursuant to Section 9.07(g). For purposes of any prepayment under this Agreement, each Affected Lender Advance shall be deemed to continue to be part of the same Borrowing as the Eurodollar Rate Advances to which it corresponded at the time of the Conversion of such Affected Lender Advance pursuant to this Section 2.13. SECTION 2.14....Payments and Computations. (a) The Borrower shall make each payment hereunder not later than 1:00 p.m. on the day when due in Dollars to the Agent at its address referred to in Section 9.02 in same day funds. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or fees ratably (other than amounts payable pursuant to Section 2.07, 2.16 or 9.04(b)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of a Lender Assignment and recording of the information contained therein in the Register pursuant to Section 9.07(d), from and after the effective date specified in such Lender Assignment, the Agent shall make all payments hereunder in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Lender Assignment shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) The Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made when due hereunder held by such Lender, to charge from time to time against any or all of the Borrower's accounts with such Lender any amount so due. (c) All computations of interest based on clause (i) of the definition of "Alternate Base Rate" and of the Commitment Fee shall be made by the Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate and the Federal Funds Rate shall be made by the Agent, and all computations of interest pursuant to Section 2.07 shall be made by a Lender, on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Agent (or, in the case of Section 2.07, by a Lender) of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error, provided that such determination shall have been made by the Agent or such Lender, as the case may be, in good faith. (d) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (e) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date, and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that the Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.15....Noteless Agreement; Evidence of Indebtedness. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Advance made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (b) The Agent shall also maintain accounts in which it will record (i) the amount of each Advance made hereunder, the Type thereof and the Interest Period (if any) with respect thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder, and (iii) the amount of any sum received by the Agent hereunder from the Borrower and each Lender's share thereof. (c) The entries maintained in the accounts maintained pursuant to subsections (a) and (b) above shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of the Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay such obligations in accordance with their terms. (d) Any Lender may request that its Advances be evidenced by a Note. In such event, the Borrower shall prepare, execute and deliver to such Lender a Note payable to the order of such Lender. Thereafter, the Advances evidenced by such Note and interest thereon shall at all times (including after any assignment pursuant to Section 9.07) be represented by one or more Notes payable to the order of the payee named therein or any assignee pursuant to Section 9.07, except to the extent that any such Lender or assignee subsequently returns any such Note for cancellation and requests that such Advances once again be evidenced as described in subsections (a) and (b) above. SECTION 2.16....Taxes. (a) Any and all payments by the Borrower hereunder and under the other Loan Documents shall be made, in accordance with Section 2.14, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, taxes imposed on its overall net income and franchise taxes imposed on it by any jurisdiction, unless such Lender or the Agent (as the case may be) would not have had such taxes imposed on it by such jurisdiction but for such Lender's or the Agent's (as the case may be) having entered into this Agreement, having consummated the transactions contemplated hereby or having received payments by the Borrower hereunder or under the other Loan Documents (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any other Loan Document to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.16) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any other Loan Document or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrower will indemnify each Lender and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.16) paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or the Agent (as the case may be) makes written demand therefor. Nothing herein shall preclude the right of the Borrower to contest any such Taxes or Other Taxes so paid, and the Lenders in question or the Agent (as the case may be) will, following notice from, and at the expense of, the Borrower, reasonably cooperate with the Borrower to preserve the Borrower's rights to contest such Taxes or Other Taxes. (d) Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Agent, at its address referred to in Section 9.02, the original or a certified copy of a receipt evidencing payment thereof. (e) Each Lender agrees that, on or prior to the date upon which it shall become a party hereto, and upon the reasonable request from time to time of the Borrower or the Agent or such Lender will deliver to the Borrower and the Agent either (i) a statement that it is organized under the laws of a jurisdiction within the United States or (ii) duly completed copies of such form or forms as may from time to time be prescribed by the United States Internal Revenue Service indicating that such Lender is entitled to receive payments without deduction or withholding of any United States federal income taxes, as permitted by the Internal Revenue Code of 1986, as amended from time to time. Each Lender that delivers to the Borrower and the Agent the form or forms referred to in the preceding sentence further undertakes to deliver to the Borrower and the Agent further copies of such form or forms, or successor applicable form or forms, as the case may be, as and when any previous form filed by it hereunder shall expire or shall become incomplete or inaccurate in any respect. Each Lender represents and warrants that each such form supplied by it to the Agent and the Borrower pursuant to this subsection (e), and not superseded by another form supplied by it, is or will be, as the case may be, complete and accurate. (f) Any Lender claiming any additional amounts payable pursuant to this Section 2.16 shall use its best efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. (g) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.16 shall survive the payment in full of principal and interest hereunder. SECTION 2.17....Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances made by it (other than pursuant to Section 2.07, 2.12, 2.16 or 9.04(b)) in excess of its ratable share of payments obtained by all the Lenders on account of the Advances, such Lender shall forthwith purchase from the other Lenders such participations in the Advances made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery, together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.17 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. ARTICLE III CONDITIONS OF LENDING SECTION 3.01....Conditions Precedent to Closing. The Commitments of the Lenders shall not become effective unless the following conditions precedent shall have been fulfilled: (a) The Agent shall have received the following, each dated the date of the Closing, in form and substance satisfactory to the Lenders and in sufficient copies for each Lender: (i) this Agreement, duly executed by the Borrower, each Guarantor, each Lender and the Agent; (ii) each Note requested by a Lender pursuant to Section 2.15 payable to the order of each such Lender, duly completed and executed by the Borrower; (iii) copies of (A) the resolutions of the Board of Directors of each of the Loan Parties approving this Agreement and the other Loan Documents to which such Loan Party is, or is to be, a party, and (B) all documents evidencing other necessary corporate action on the part of such Loan Party with respect to this Agreement and the other Loan Documents to which such Loan Party is, or is to be, a party, certified by the Secretary or an Assistant Secretary of the applicable Loan Party; (iv) a certificate of the Secretary or an Assistant Secretary of each of the Loan Parties certifying the names, true signatures and incumbency of the officers of such Loan Party authorized to sign this Agreement and the other Loan Documents to which such Loan Party is, or is to be, a party; (v) copies of the Certificate of Incorporation (or comparable charter document) and by-laws of each of the Loan Parties, together with all amendments thereto, certified by the Secretary or an Assistant Secretary of the applicable Loan Party; (vi) copies of all Governmental Approvals, if any, required in connection with the execution, delivery and performance by each of the Loan Parties of this Agreement and the other Loan Documents, certified by the Secretary or an Assistant Secretary of the applicable Loan Party; (vii) copies of the financial statements referred to in Section 4.01(f), certified by the Secretary or an Assistant Secretary of the Parent; (viii) favorable opinions of: (A) Foley & Lardner, special counsel for each of the Loan Parties, in substantially the form of Exhibit 3.01(a)(viii)-1 and as to such other matters as the Majority Lenders, through the Agent, may reasonably request; (B) Barbara J. Swan, Executive Vice President and General Counsel of the Parent and General Counsel of the Borrower, in substantially the form of Exhibit 3.01(a)(viii)-2 and as to such other matters as the Majority Lenders, through the Agent, may reasonably request; and (C) Thelen Reid & Priest LLP, special PUHCA counsel for each of the Loan Parties, in substantially the form of Exhibit 3.01(a)(viii)-3 and as to such other matters as the Majority Lenders, through the Agent, may reasonably request; and (ix) such other approvals, opinions and documents as any Lender, through the Agent, may reasonably request. (b) The following statements shall be true and correct, and the Agent shall have received a certificate of a duly authorized officer of the Parent, dated the date of the Closing and in sufficient copies for each Lender, stating that: (i) the representations and warranties set forth in Section 4.01 of this Agreement are true and correct on and as of the date of the Closing as though made on and as of such date, and (ii) no event has occurred and is continuing that constitutes an Unmatured Default or an Event of Default. (c) The Borrower shall have paid (i) all fees payable hereunder or payable pursuant to the Fee Letter to the extent then due and payable, and (ii) all costs and expenses of the Agent (including counsel fees and disbursements) incurred through (and for which statements have been provided prior to) the Closing. SECTION 3.02....Conditions Precedent to Each Borrowing. The obligation of each Lender to make an Advance on the occasion of each Borrowing (including the initial Borrowing) shall be subject to the conditions precedent that, on the date of such Advance: (a) the following statements shall be true and correct (and the giving of the applicable Notice of Borrowing and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by the Parent that, on the date of such Borrowing, such statements are true and correct): (i) the representations and warranties contained in Section 4.01 are true and correct on and as of the date of such Borrowing, before and after giving effect to the application of the proceeds of any Borrowing made in connection therewith as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such Borrowing or from the application of any Borrowing made in connection therewith that constitutes an Event of Default or an Unmatured Default; (b) the Agent shall have received such other approvals, opinions, or documents as the Agent, or the Majority Lenders through the Agent, may reasonably request, and such approvals, opinions, and documents shall be satisfactory in form and substance to the Agent; (c) the Arranger shall not have presented to Parent, the Borrower or any of their respective Subsidiaries a then available alternative debt financing (other than a debt financing to either of the Utilities) the terms of which are reasonable and prudent and the proceeds of which would be available for the purposes to which the proceeds of such Advances then requested to be made would otherwise be put; and (d) the trading level, for the ten trading sessions preceding the date of such Borrowing, of the AER Notes (which shall be determined by the Agent taking an average trading spread from the Quoting Dealers) shall not have been greater than 650 basis points above the yield on the relevant U.S. Treasury security with a final maturity comparable to that of the AER Notes. SECTION 3.03....Reliance on Certificates. The Lenders and the Agent shall be entitled to rely conclusively upon the certificates delivered from time to time by officers of any of the Loan Parties as to the names, incumbency, authority and signatures of the respective Persons named therein until such time as the Agent may receive a replacement certificate, in form acceptable to the Agent, from an officer of such Person identified to the Agent as having authority to deliver such certificate, setting forth the names and true signatures of the officers and other representatives of such Person thereafter authorized to act on behalf of such Person. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01....Representations and Warranties of the Borrower. The Parent represents and warrants as follows: (a) The Parent and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified to do business in, and is in good standing in, all other jurisdictions where the nature of its business or the nature of property owned or used by it makes such qualification necessary (except where the failure to so qualify would not constitute a Material Adverse Change). (b) The execution, delivery and performance by each of the Loan Parties of this Agreement and the other Loan Documents to which such Loan Party is or will be a party are within such Loan Party's corporate powers, have been duly authorized by all necessary corporate action, and do not and will not contravene (i) such Loan Party's charter or by-laws, (ii) any law, or (iii) any legal or contractual restriction binding on or affecting such Loan Party; and such execution, delivery and performance do not and will not result in or require the creation of any Lien (other than pursuant to the Loan Documents) upon or with respect to any of its properties. (c) No Governmental Approval is required in connection with the execution, delivery or performance by any of the Loan Parties of any Loan Document except for (a) Release No. 35-27448; 70-9891, issued by the Securities and Exchange Commission on October 3, 2001, as supplemented by the order dated December 17, 2002 (Release No. 35-27620), and (b) Release No. 35-27542; 70-10052 issued by the Securities and Exchange Commission on June 21, 2002, as supplemented by the orders dated October 10, 2002 (Release No. 35-27575) and December 13, 2002 (Release No. 35-27615), each of which is final and in full force and effect and not subject to appeal, rehearing, review or reconsideration. (d) This Agreement is, and each other Loan Document to which any of the Loan Parties will be a party when executed and delivered hereunder will be, legal, valid and binding obligations of such Loan Party enforceable against such Loan Party in accordance with their respective terms, subject to the qualifications, however, that the enforcement of the rights and remedies herein and therein is subject to bankruptcy and other similar laws of general application affecting rights and remedies of creditors and that the remedy of specific performance or of injunctive relief is subject to the discretion of the court before which any proceedings therefor may be brought. (e) Since September 30, 2002, there has been no Material Adverse Change. (f) The audited consolidated balance sheets of the Parent and its Subsidiaries as at December 31, 2001, and the related audited consolidated, and, with respect to the Parent, consolidating, statements of income of the Parent and its Subsidiaries for the fiscal year then ended, and the unaudited consolidated balance sheets of the Parent and its Subsidiaries as at September 30, 2002 and the related unaudited consolidated statements of income for the nine-month period ended on such date, copies of each of which have been furnished to each Lender, fairly present (subject, in the case of such balance sheets and statements of income for the nine-month period ended on September 30, 2002, to year-end adjustments) the consolidated financial condition of the Parent and its Subsidiaries as at such dates and the consolidated results of operations of the Parent and its Subsidiaries for the periods ended on such dates, all in accordance, in all material respects, with GAAP. (g) Except as disclosed in the Parent's Report on Form 10-K for the year ended December 31, 2001 and Report on Form 10-Q for the period ended September 30, 2002, there is no pending or threatened action or proceeding affecting the Parent or any of its Subsidiaries or properties before any court, governmental agency or arbitrator, that might reasonably be expected to constitute a Material Adverse Change; and since December 31, 2001 there have been no material adverse developments in any action or proceeding so disclosed. (h) No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan of the Parent or any of its Subsidiaries or any of their respective ERISA Affiliates which would result in a material liability to the Parent or any of its Subsidiaries. No "prohibited transaction" has occurred with respect to any Plan of the Parent or any of its Subsidiaries that is reasonably expected to result in a material liability to the Parent or any of its Subsidiaries. None of the Parent, any of its Subsidiaries or any of their respective ERISA Affiliates has incurred nor reasonably expects to incur any material withdrawal liability under ERISA to any Multiemployer Plan. (i) The Parent and each of its Subsidiaries has filed all tax returns (Federal, state and local) required to be filed and paid all taxes shown thereon to be due, including interest and penalties, or, to the extent the Parent or its Subsidiary, as applicable, is contesting in good faith an assertion of liability based on such returns, has provided adequate reserves for payment thereof in accordance with GAAP. (j) Neither the Parent nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of purchasing or carrying Margin Stock, or extending credit for the purpose of purchasing or carrying Margin Stock. After the making of each Borrowing, Margin Stock will constitute less than 25 percent of the assets (as determined by any reasonable method) of the Parent and its Subsidiaries on a consolidated basis. (k) Neither the Parent nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. (l) None of the Loan Parties is a "holding company" or a "subsidiary company" or an "affiliate" of a "holding company" within the meaning of PUHCA, except that the Parent is a "registered holding company" and each of the Borrower and the Guarantors (other than the Parent) is a "subsidiary company" of the Parent within the meaning of PUHCA. The execution, delivery and performance by the Loan Parties of this Agreement and each other Loan Documents to which any of the Loan Parties is or will be a party, and their respective obligations hereunder and thereunder, do not and will not violate any provision of PUHCA or any rule or regulation under PUHCA. (m) Neither the Parent nor any Subsidiary is in default in any respect under any Contractual Obligation which default could reasonably be expected to result in a Material Adverse Change. No Unmatured Default or Event of Default has occurred or exists or would result from the consummation of the transactions contemplated by this Agreement and the other Loan Documents. (n) No report, financial statement or other written information furnished by or on behalf of the Parent or any of the Loan Parties to the Agent or any Lender pursuant to or in connection with this Agreement or any other Loan Documents contains or will contain any material misstatement of fact or omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were or will be made, not misleading. (o) The Parent and each of its Subsidiaries has complied in all material respects with all Federal, state, local and other statutes, ordinances, orders, judgments, rulings and regulations relating to environmental pollution or to environmental or nuclear regulation or control, except to the extent that failure to so comply could not reasonably be expected to result in a Material Adverse Change. Neither the Parent nor any of its Subsidiaries has received notice of any failure so to comply, except where such failure could not reasonably be expected to result in a Material Adverse Change. Except as set forth in or contemplated by the financial statements referred to in Section 4.01(f), the facilities of the Parent or any of its Subsidiaries, as the case may be, are not used to manage any hazardous wastes, hazardous substances, hazardous materials, toxic substances, toxic pollutants or substances similarly denominated, as those terms or similar terms are used in the Resource Conservation and Recovery Act, the Comprehensive Environmental Response Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substance Control Act, the Clean Air Act, the Clean Water Act or any other applicable law relating to environmental pollution, or any nuclear fuel or other radioactive materials, in violation in any material respect of any law or any regulations promulgated pursuant thereto, except to the extent that such violations could not reasonably be expected to result in a Material Adverse Change. Except as set forth in or contemplated by such financial statements, the Parent is aware of no events, conditions or circumstances involving environmental pollution or contamination that could reasonably be expected to result in a Material Adverse Change. ARTICLE V COVENANTS OF THE LOAN PARTIES SECTION 5.01....Affirmative Covenants. So long as any amount in respect of this Agreement shall remain unpaid or any Lender shall have any Commitment, the Parent will, unless the Majority Lenders shall otherwise consent in writing: (a) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, all taxes, assessments and governmental charges, royalties or levies imposed upon it or upon its property except, in the case of taxes, to the extent the Parent or such Subsidiary is contesting the same in good faith and by appropriate proceedings and has set aside adequate reserves for the payment thereof in accordance with GAAP. (b) Maintenance of Insurance. Maintain, or cause to be maintained, insurance or other risk management program covering the Parent and each of its Subsidiaries and their respective properties in effect at all times in such amounts and covering such risks and using such means as are usual and customary for companies of a similar size (based on the aggregate book value of the Parent's assets, as determined on a consolidated basis in accordance with GAAP), engaged in similar businesses and owning similar properties, either with reputable insurance companies or, in whole or in part, by establishing reserves of one or more insurance funds or other risk management mechanisms, either alone or with other corporations or associations. (c) Preservation of Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence, material rights (statutory and otherwise) and franchises; provided, however, that neither the Parent nor any of its Subsidiaries shall be required to preserve and maintain any such right or franchise, and no such Subsidiary shall be required to preserve and maintain its corporate existence, unless the failure to do so would constitute a Material Adverse Change. (d) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, including without limitation any such laws, rules, regulations and orders relating to zoning, environmental protection, use and disposal of Hazardous Substances, land use, ERISA, construction and building restrictions, and employee safety and health matters relating to business operations, the non-compliance with which would constitute a Material Adverse Change. (e) Inspection Rights. At the reasonable expense of the Parent, at any time and from time to time, upon reasonable notice, permit or arrange for the Agent, the Lenders and their respective agents and representatives to examine and make copies of and abstracts from the records and books of account of, and the properties of, the Parent and each of its Subsidiaries, and to discuss the affairs, finances and accounts of the Parent and its Subsidiaries with the Parent and its Subsidiaries and their respective officers, directors and accountants. (f) Keeping of Books. Keep, and cause its Subsidiaries to keep, proper records and books of account, in which full and correct entries shall be made of all financial transactions of the Parent and its Subsidiaries and the assets and business of the Parent and its Subsidiaries, in accordance with GAAP. (g) Maintenance of Properties, Etc. Maintain, and cause each of its Subsidiaries to maintain, good and marketable title to, and preserve, maintain, develop, and operate in substantial conformity with all laws and material Contractual Obligations, all of its properties which are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted, except where the failure to do so would not constitute a Material Adverse Change. (h) Reporting Requirements. Furnish to each Lender: (i) as soon as possible and in any event within five Business Days after the occurrence of each Unmatured Default or Event of Default continuing on the date of such statement, a statement of a Senior Financial Officer setting forth details of such Unmatured Default or Event of Default and the action that the Parent proposes to take with respect thereto; (ii) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Parent, a consolidated balance sheet of the Parent and its Subsidiaries as at the end of such quarter and consolidated, and, with respect to the Parent, consolidating, statements of income, retained earnings and cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all in reasonable detail and duly certified (subject to year-end audit adjustments) by a Senior Financial Officer as having been prepared in accordance (in all material respects) with GAAP, together with a certificate of said Officer stating that no Unmatured Default or Event of Default has occurred and is continuing or, if an Unmatured Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent proposes to take with respect thereto; (iii) as soon as available and in any event within 120 days after the end of each fiscal year of the Parent, a copy of the audited consolidated balance sheet of the Parent and its Subsidiaries as at the end of such fiscal year and consolidated, and, with respect to the Parent, consolidating, statements of income, retained earnings and cash flows of the Parent and its Subsidiaries for such fiscal year, together with a certificate of a Senior Financial Officer stating that no Unmatured Default or Event of Default has occurred and is continuing or, if an Unmatured Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent proposes to take with respect thereto; (iv) concurrently with the delivery of the financial statements referred to in clauses (ii) and (iii) above (each a "Report"), a certificate signed by the principal executive officer and the principal financial officer of the Parent (each, a "Certifying Officer") certifying that (i) each Certifying Officer has reviewed the Report; (ii) based on such Certifying Officer's knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading; (iii) based on such Certifying Officer's knowledge, the financial statements, and other financial information included in the Report, fairly represent in all material respects the financial condition and results of operations of the Parent and its Subsidiaries as of, and for, the period presented in the Report; (iv) such Certifying Officer and the other Certifying Officer (A) are responsible for establishing and maintaining internal controls; (B) have designed such internal controls to ensure that material information relating to the Parent and its Subsidiaries is made known to such officers by others within the entities, particularly during the period in which the periodic reports are being prepared; (C) have evaluated the effectiveness of the internal controls of the Borrower as of a date within 90 days prior to the Report; and (D) have presented in the Report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date; (v) such Certifying Officer and the other Certifying Officer have disclosed to the auditors and the audit committee of the Board of Directors of the Parent (A) all significant deficiencies in the design or operation of internal controls which could adversely affect the ability of the Parent to record, process, summarize, and report financial data and have identified for the Parent's auditors any material weakness in internal controls; and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the internal controls of the Parent; and (vi) such Certifying Officer and the other Certifying Officer have indicated in the Report whether or not there were significant changes in internal controls or other factors that could significantly affect internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Furthermore, such certificate signed by the Certifying Officers shall (i) certify as to whether an Unmatured Default or Event of Default has occurred and is continuing on the date of such certificate, and if an Unmatured Default or an Event of Default has then occurred and is continuing, specifying the details thereof and the action that the Parent has taken or proposes to take with respect thereto, (ii) set forth in reasonable detail calculations demonstrating compliance with Sections 5.02(h), (i) and (j) and (iii) state whether any change in GAAP or the application thereof has occurred since the date of the audited financial statements referred to in Section 4.01 and, if any change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (v) as soon as possible and in any event (A) within 30 days after any ERISA Event described in clause (i) of the definition of ERISA Event with respect to any Plan of the Parent or any of its Subsidiaries or any of their respective ERISA Affiliates has occurred and (B) within 10 days after any other ERISA Event with respect to any Plan of the Parent or any of its Subsidiaries or any of their respective ERISA Affiliates has occurred, a statement of a Senior Financial Officer describing such ERISA Event and the action, if any, which the Parent or such ERISA Affiliate proposes to take with respect thereto; (vi) promptly after receipt thereof by the Parent or any of its ERISA Affiliates from the PBGC copies of each notice received by the Parent or such ERISA Affiliate of the PBGC's intention to terminate any Plan of the Parent or such ERISA Affiliate or to have a trustee appointed to administer any such Plan; (vii) promptly after receipt thereof by the Parent or any of its Subsidiaries or any of their respective ERISA Affiliates from a Multiemployer Plan sponsor, a copy of each notice received by the Parent or any of its Subsidiaries or any of their respective ERISA Affiliates concerning the imposition or amount of withdrawal liability in an aggregate principal amount of at least $250,000 pursuant to Section 4202 of ERISA in respect of which the Parent or any of its Subsidiaries or any of their respective ERISA Affiliate, as applicable, is reasonably expected to be liable; (viii) promptly after the Parent becomes aware of the occurrence thereof, notice of all actions, suits, proceedings or other events (A) of the type described in Section 4.01(g) or (B) for which the Agent and the Lenders will be entitled to indemnity under Section 9.04(c); (ix) promptly after the sending or filing thereof, copies of all such proxy statements, financial statements, and reports which the Parent sends to its public security holders (if any), and copies of all regular, periodic and special reports, and all registration statements and periodic or special reports, if any, which the Parent or any Subsidiary of the Parent files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or with any national securities exchange; and (x) promptly after requested, such other information respecting the business, properties, results of operations, prospects, revenues, condition or operations, financial or otherwise, of the Parent or any of its Subsidiaries as the Agent or any Lender through the Agent may from time to time reasonably request. (i) Use of Proceeds. Use, and cause its Subsidiaries to use, the proceeds of the Advances hereunder solely to refinance maturing Debt and for general corporate purposes, in each case, of the Parent and its Subsidiaries other than the Utilities, and not to finance any Hostile Acquisition. (j) Further Assurances. At the expense of the Parent, promptly execute and deliver, or cause to be promptly executed and delivered, all further instruments and documents, and take and cause to be taken all further actions, that may be necessary or that the Majority Lenders through the Agent may reasonably request to enable the Lenders and the Agent to enforce the terms and provisions of this Agreement and to exercise their rights and remedies hereunder or under any other Loan Document. In addition, the Parent will, and will cause its Subsidiaries to, use all reasonable efforts to duly obtain Governmental Approvals required in connection with the Loan Documents from time to time on or prior to such date as the same may become legally required, and thereafter to maintain all such Governmental Approvals in full force and effect. SECTION 5.02....Negative Covenants. So long as any amount in respect of this Agreement shall remain unpaid or any Lender shall have any Commitment outstanding, the Parent will not, without the written consent of the Majority Lenders: (a) Liens, Etc. Create, incur, assume, or suffer to exist, or permit any of its Subsidiaries to create, incur, assume, or suffer to exist, any lien, security interest, or other charge or encumbrance (including the lien or retained security title of a conditional vendor) of any kind, or any other type of arrangement intended or having the effect of conferring upon a creditor a preferential interest upon or with respect to any of its properties of any character (including, without limitation, accounts) (any of the foregoing being referred to herein as a "Lien"), excluding, however, from the operation of the foregoing restrictions any Liens created under the Loan Documents and the following: (i) Liens for taxes, assessments or governmental charges or levies to the extent not past due; (ii) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's liens and other similar Liens arising in the ordinary course of business securing obligations which are not overdue or which are being contested in good faith, provided that any such contested Lien securing an amount claimed in excess of $1,000,000 shall be fully bonded within 90 days after the imposition of such Lien; (iii) pledges or deposits to secure obligations under workmen's compensation laws or similar legislation, to secure public or statutory obligations of the Parent or such Subsidiary, or to secure the utility obligations of any such Subsidiary incurred in the ordinary course of business; (iv) (A) purchase money Liens upon or in property now owned or hereafter acquired by the Parent or any of its Subsidiaries in the ordinary course of business (consistent with present practices, it being understood that for purposes of this paragraph, the purchase, construction or maintenance of generating facilities by the Utilities shall be deemed to be in the ordinary course of business and consistent with present practices) to secure (1) the purchase price of such property or (2) Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such property to be subject to such Liens, or (B) Liens existing on any such property at the time of acquisition, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided that no such Lien shall extend to or cover any property other than the property being acquired, constructed or improved and replacements, modifications and proceeds of such property, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; (v) Liens on the capital stock of any of the Parent's single-purpose Subsidiaries or any such Subsidiary's assets to secure the repayment of project financing or Nonrecourse Debt for such Subsidiary; (vi) attachment, judgment or other similar Liens arising in connection with court proceedings, provided that the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith by appropriate proceedings or the payment of which is covered in full (subject to customary deductible amounts) by insurance maintained with responsible insurance companies; (vii) Liens securing obligations under agreements entered into pursuant to the Iowa Industrial New Jobs Training Act or any similar or successor legislation, provided that such obligations do not exceed $1,000,000 in the aggregate at any one time outstanding; (viii) Liens created pursuant to the Mortgage Bond Indentures; (ix) Liens on the ownership interests in, and the assets of, any Foreign Subsidiary to secure not more than $250 million aggregate principal amount of Debt of any Foreign Subsidiary; provided that in the event any such Debt is not denominated in Dollars, the calculation of the Dollar equivalent amount of such Debt shall be made as of the date of the incurrence of such Lien securing such Debt; (x) Liens in favor of Citibank, N.A., as administrative agent under the Utility Facilities to secure the obligations of the respective Utilities under such agreements, and Liens in favor of Bank One, NA, as administrative agent, for the benefit of the Lenders, under the Whiting Financing to secure the obligations of Whiting Petroleum Corporation under the Whiting Financing; and (xi) other Liens set forth in Schedule II hereto, and any extensions or renewals of any such Liens upon or in the same property theretofore subject thereto. (b) Debt. Create, incur, assume, or suffer to exist or permit the Borrower to create, incur, assume, or suffer to exist, any Debt other than: (A) Debt hereunder and under the other Loan Documents; (B) unsecured Debt owing by the Parent to the Utilities; provided, however, that the aggregate amount of all such Debt owing to any Utility at any time shall not exceed the amount that such Utility could, in conformance with applicable law, dividend to the Parent at such time; further provided, however, that the foregoing shall not restrict the Parent's ability to incur unsecured Debt owing to any Utility in connection with the Utility Money Pool; (C) unsecured Debt owing by the Borrower to its Subsidiaries, including, without limitation, unsecured Debt owing to any such Subsidiary in connection with the Non-Utility Money Pool; and (D) other Debt of the Parent and/or the Borrower that is pari passu with, or subordinate to, the Debt hereunder, provided that the Parent is in compliance with Sections 2.04 and 5.02(h). (c) Compliance with ERISA. (i) Permit, or permit any of its Subsidiaries to permit to exist any "accumulated funding deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986, as amended from time to time) (unless such deficiency exists with respect to a Multiple Employer Plan or Multiemployer Plan and the Parent or its Subsidiary, as applicable, has no control over the reduction or elimination of such deficiency), (ii) terminate, or permit any of its Subsidiaries or any ERISA Affiliate of the Parent or its Subsidiaries to terminate, any Plan of the Parent, such Subsidiary or such ERISA Affiliate, as applicable, so as to result in any material (in the opinion of the Majority Lenders) liability of the Parent or any of its Subsidiaries to the PBGC, or (iii) permit, or permit any of its Subsidiaries to permit to exist any occurrence of any Reportable Event (as defined in Title IV of ERISA), or any other event or condition, which presents a material (in the opinion of the Majority Lenders) risk of such a termination by the PBGC of any Plan of the Parent, such Subsidiary or such ERISA Affiliate and such a material liability to the Parent. (d) Transactions with Affiliates. Enter into, or permit any of its Subsidiaries to enter into, any transaction with an Affiliate of the Parent, unless such transaction is on terms no less favorable to the Parent or such Subsidiary, as the case may be, than if the transaction had been negotiated in good faith on an arm's length basis with a Person that was not an Affiliate of the Parent, or such transaction has been approved by the Securities and Exchange Commission pursuant to PUHCA. (e) Mergers, Etc. (i) merge with or into or consolidate with or into any other Person, except the Parent may merge with or into or consolidate with or into any of its Subsidiaries, provided that immediately after giving effect thereto, (A) no event shall occur and be continuing that constitutes an Unmatured Default or an Event of Default, (B) the Parent is the surviving corporation and (C) the Parent shall not be liable with respect to any Debt or allow its property to be subject to any Lien which it could not become liable with respect to or allow its property to become subject to under this Agreement or any other Loan Document on the date of such transaction; or (ii) permit any of its Subsidiaries to merge with or into or consolidate with or into any other Person, except that any such Subsidiary may merge with or into any other Person, provided that immediately after giving effect thereto, (A) the surviving corporation is a Subsidiary of the Parent, (B) no event shall occur and be continuing that constitutes an Unmatured Default or an Event of Default and (C) the Parent or any of its Subsidiaries shall not be liable with respect to any Debt or allow its property to be subject to any Lien which it could not become liable with respect to or allow its property to become subject to under this Agreement or any other Loan Document on the date of such transaction. (f) Sales, Etc., of Assets. Sell, lease, transfer, assign or otherwise dispose of any of its assets, or permit any of its Subsidiaries to sell, lease, transfer, assign or otherwise dispose of any of its assets, except (i) sales, leases, transfers and assignments from one Subsidiary of the Parent to another such Subsidiary, (ii) in connection with a sale and leaseback transaction entered into by any Subsidiary of the Parent, (iii) sales, leases, transfers and assignments of other assets representing not in excess of 5% of the consolidated assets (valued at book value) of the Parent and its Subsidiaries in the aggregate during any 12-calendar-month period in any single or series of transactions, whether or not related and sales, leases, transfers and assignments of worn out or obsolete equipment no longer used and useful in the business of the Parent and its Subsidiaries, (iv) dispositions of the transmission assets of IPL and its Subsidiaries to TRANSlink Transmission Company or to any other Regional Transmission Organization authorized by the Federal Energy Regulatory Commission, (v) sale or capital contribution of nuclear generation assets to Nuclear Management Company LLC, (vi) sales of accounts receivable by Cogenex Corporation and its Subsidiaries and Energy Performance Services, Inc. and (vii) sales of accounts receivable by the Utilities pursuant to asset securitization transactions to which one or both of the Utilities may now or hereafter be a party; provided in each case described in clauses (i) to (vii) above, that no Unmatured Default or Event of Default shall have occurred and be continuing after giving effect thereto; provided further that the Parent or any of its Subsidiaries may, pursuant to Section 5.02(a)(ix), pledge its ownership interests in, and the assets of, any Foreign Subsidiary to secure not more than $250 million aggregate principal amount of Debt incurred by any Foreign Subsidiary; provided further that in the event any such Debt is not denominated in Dollars, the calculation of the Dollar equivalent amount of such Debt shall be made as of the date of the pledge of assets or ownership interests, as the case may be, securing such Debt. (g) Maintenance of Ownership of Significant Subsidiaries. Sell, assign, transfer, pledge or otherwise dispose of any shares of capital stock of any of its Significant Subsidiaries or any warrants, rights or options to acquire such capital stock, or permit any of its Significant Subsidiaries to issue, sell or otherwise dispose of any shares of its capital stock or the capital stock of any other of its Subsidiaries or any warrants, rights or options to acquire such capital stock, except (and only to the extent) as may be necessary to give effect to a transaction permitted by subsection (e) above. Notwithstanding the foregoing, the Parent or any of its Subsidiaries may, pursuant to Section 5.02(a)(ix), pledge its ownership interests in, and the assets of, any Foreign Subsidiary to secure not more than $250 million aggregate principal amount of Debt incurred by any Foreign Subsidiary; provided that in the event any such Debt is not denominated in Dollars, the calculation of the Dollar equivalent amount of such Debt shall be made as of the date of the pledge of assets or ownership interests, as the case may be, securing such Debt. (h) Capitalization Ratio. Permit the ratio of Consolidated Debt of the Parent to Consolidated Capital of the Parent to exceed .65 to 1.00. (i) Consolidated Net Worth. Permit, at any time, its Consolidated Net Worth to be less than $1,400,000,000. (j) Interest Coverage Ratio. Permit, as of the last day of each fiscal quarter of the Parent, the Interest Coverage Ratio to be less than 2.50 to 1.00. (k) Restrictive Agreements. Directly or indirectly, enter into or permit to exist, or permit any of its Significant Subsidiaries to enter into or permit to exist, any agreement or other arrangement that prohibits, restricts or imposes any condition upon the ability of any of the Significant Subsidiaries of the Parent to declare or pay dividends; provided that the foregoing limitations do not apply to (i) financial covenants that require the maintenance of a minimum net worth or compliance with financial tests as conditions to the ability to pay dividends or make other distributions with respect to capital stock or otherwise; (ii) restrictions that arise only if dividends on preferred stock have not been paid; (iii) limitations or restrictions imposed by law or in regulatory proceedings and (iv) limitations imposed pursuant to agreements and instruments in effect on the date hereof (without giving effect to any amendments or modifications to such limitations) relating to Debt or Debt facilities. (l) Synthetic Lease Restrictions. Enter into or permit any Subsidiary to enter into a synthetic lease transaction. (m) Capital Expenditures. Make or commit to make, or permit any of its Subsidiaries to make or commit to make, any Capital Expenditures, except for Capital Expenditures (when added to the aggregate amount of investments permitted by Section 5.02(n)(v)) in an aggregate amount not to exceed $600,000,000, provided that the amount permitted by this -------- paragraph shall be increased by the aggregate Net Cash Proceeds available for Capital Expenditures received by the Parent and/or its Subsidiaries from the issuance subsequent to the date hereof of Debt and/or Equity Interests (after deducting therefrom the amount thereof, if any, that is required to be applied to prepay any Debt and/or reduce any credit facility in accordance with any mandatory prepayment or redemption provisions of Section 2.04 or of any other Debt of the Parent or any of its Subsidiaries in existence on the date of this Agreement that are applicable); it is agreed that for purposes of this Section 5.02(m), borrowings under any credit facility in existence on the date hereof shall not constitute an issuance of Debt subsequent to the date hereof except to the extent, if any, that such credit facility is increased subsequent to the date hereof. (n) Investments, Loans, Advances, Guarantees and Acquisitions. Purchase, hold or acquire, or permit any of its Subsidiaries to purchase, hold or acquire, (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any Equity Interests, evidences of Debt or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (i) Cash and Cash Equivalents; (ii) investments by the Parent existing on the date hereof in the Equity Interests of its Subsidiaries; (iii) loans or advances made by the Parent to any Subsidiary and made by any Subsidiary to the Parent or any other Subsidiary (including, without limitation, loans and advances under the Utility Money Pool or the Non-Utility Money Pool); (iv) guarantees constituting Debt permitted by Section 5.02(b); (v) investment in an aggregate principal amount not to exceed $109,000,000 in connection with the purchase by the Parent or any of its Subsidiaries of a 309 megawatt natural-gas-fired power plant in Neenah, Wisconsin from Mirant Corporation; and (vi) in connection with a transaction permitted by Section 5.2(e). (o) Restricted Payments. At any time after the Parent Facility shall have expired (in accordance with the terms and conditions thereof in effect on the date hereof, without giving effect to any extensions or renewals thereof) or been terminated and all amounts payable thereunder shall have been paid in full, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except (i) the Parent may declare and pay regular quarterly dividends on shares of its issued and outstanding common stock, (ii) the Parent may declare and pay dividends with respect to its Equity Interests payable solely in additional shares of its common stock and (iii) the Parent may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Parent and its Subsidiaries. (p) Lines of Business. Engage, or permit any of its Subsidiaries to engage, to any material extent in any business other than businesses of the type conducted by the Parent and its Subsidiaries on the date of this Agreement and businesses reasonably related thereto. ARTICLE VI EVENTS OF DEFAULT SECTION 6.01....Events of Default. If any of the following events (each an "Event of Default") shall occur and be continuing after the applicable grace period and notice requirement (if any): (a) The Borrower shall fail to pay any principal of any Borrowing when such principal becomes due and payable; or (b) The Borrower shall fail to pay any interest on any Borrowing or any other amount due under this Agreement for two days after the same becomes due; or (c) Any representation or warranty made by or on behalf of the Parent in any Loan Document or in any certificate or other writing delivered pursuant thereto shall prove to have been incorrect in any material respect when made or deemed made; or (d) The Parent shall fail to perform or observe any term or covenant on its part to be performed or observed contained in Section 5.01(c), 5.01(h)(i) or 5.02 (other than subsection (c) or (d) thereof); or (e) The Parent shall fail to perform or observe any other term or covenant on its part to be performed or observed contained in this Agreement or in any other Loan Document, and any such failure shall remain unremedied, after the earlier of (i) actual knowledge by the Parent thereof, and (ii) written notice thereof shall have been given to the Borrower by the Agent, for a period of 30 days; or (f) The Parent or any of its Subsidiaries shall fail to pay any of its Debt, including any interest or premium thereon but excluding Debt hereunder aggregating $25,000,000 or more when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in any agreement or instrument relating to such Debt; or any other default under any agreement or instrument relating to any such Debt, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof as a result of a default or other similar adverse event; or (g) The Parent or any of its Significant Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make an assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Parent or any of its Significant Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of its debts under any law relating to bankruptcy, insolvency, or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of a proceeding instituted against the Parent or any of its Significant Subsidiaries, either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including without limitation the entry of an order for relief against the Parent or such Significant Subsidiary or the appointment of a receiver, trustee, custodian or other similar official for the Parent or such Significant Subsidiary or any of its property) shall occur; or the Parent or any of its Significant Subsidiaries shall take any corporate or other action to authorize any of the actions set forth above in this subsection (g); or (h) Any judgment or order for the payment of money equal to or in excess of $25,000,000 shall be rendered against the Parent or any of its Significant Subsidiaries (including, without limitation, the Utilities) or their respective properties and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) Any material provision of any Loan Document to which any of the Loan Parties is a party shall for any reason cease to be valid and binding on such Loan Party or such Loan Party shall so assert in writing; or (j) Any Governmental Approval required in connection with the execution, delivery and performance of the Loan Documents shall be rescinded, revoked, otherwise terminated, or amended or modified in any manner which is materially adverse to the interests of the Lenders and the Agent; or (k) Any ERISA Event shall have occurred with respect to a Plan which could reasonably be expected to result in a material liability to the Parent or any of its Significant Subsidiaries, and, 30 days after notice thereof shall have been given to the Borrower by the Agent or any Lender, such ERISA Event shall still exist; or (l) (i) The Parent shall cease to own 100% of the common equity interests of either of the Utilities; (ii) any Person or "group" (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) shall either (A) acquire beneficial ownership of more than 50% of any outstanding class of common stock of the Parent having ordinary voting power in the election of directors of the Parent or (B) obtain the power (whether or not exercised) to elect a majority of the Parent's directors or (iii) the Board of Directors of the Parent shall not consist of a majority of Continuing Directors; then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the holders of greater than 50% of the principal amount of the Advances then outstanding or, if no Advances are then outstanding, Lenders having greater than 50% of the Commitments, by notice to the Borrower, declare the obligation of each Lender to make Advances, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the holders of greater than 50% in principal amount of the Advances then outstanding or, if no Advances are then outstanding, Lenders having greater than 50% of the Commitments, by notice to the Borrower, declare the Advances (if any), all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Advances, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal Bankruptcy Code, (A) the Commitments and the obligation of each Lender to make Advances shall automatically be terminated and (B) the Advances, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE VII GUARANTEE SECTION 7.01....Guarantee. (a) Each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantees to the Agent, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Borrower when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations. (b) Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 7.02). (c) Each Guarantor agrees that the Borrower Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Article VII or affecting the rights and remedies of the Agent or any Lender hereunder. (d) The guarantee contained in this Article VII shall remain in full force and effect until all the Borrower Obligations and the obligations of each Guarantor under the guarantee contained in this Article VII shall have been satisfied by payment in full and the Commitments shall be terminated, notwithstanding that from time to time during the term of this Agreement the Borrower may be free from any Borrower Obligations; provided that if at any time hereafter all the Equity Interests of HPI or AEI are sold to a Person or Persons other than the Parent or any of its Subsidiaries, such Guarantor's obligations under this Agreement shall automatically be terminated. (e) No payment made by the Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by the Agent or any Lender from the Borrower, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Borrower Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Borrower Obligations or any payment received or collected from such Guarantor in respect of the Borrower Obligations), remain liable for the Borrower Obligations up to the maximum liability of such Guarantor hereunder until the Borrower Obligations are paid in full and the Commitments are terminated. SECTION 7.02....Right of Contribution. Each of the Guarantors other than the Parent (each, a "Subsidiary Guarantor") hereby agrees that to the extent that a Subsidiary Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Subsidiary Guarantor shall be entitled to seek and receive contribution from and against any other Subsidiary Guarantor hereunder which has not paid its proportionate share of such payment. Each Subsidiary Guarantor's right of contribution shall be subject to the terms and conditions of Section 7.03. The provisions of this Section 7.02 shall in no respect limit the obligations and liabilities of any Subsidiary Guarantor to the Agent and the Lenders, and each Subsidiary Guarantor shall remain liable to the Agent and the Lenders for the full amount guaranteed by such Subsidiary Guarantor hereunder. SECTION 7.03....No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Agent or any Lender, no Guarantor shall be entitled to be subrogated to any of the rights of the Agent or any Lender against the Borrower or any other Guarantor or any collateral security or guarantee or right of offset held by the Agent or any Lender for the payment of the Borrower Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Agent and the Lenders by the Borrower on account of the Borrower Obligations are paid in full and the Commitments are terminated. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Borrower Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Agent and the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Agent, if required), to be applied against the Borrower Obligations, whether matured or unmatured, in such order as the Agent may determine. SECTION 7.04....Amendments, etc. with respect to the Borrower Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Borrower Obligations made by the Agent or any Lender may be rescinded by the Agent or such Lender and any of the Borrower Obligations continued, and the Borrower Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Agent or any Lender in accordance with Section 9.01, and this Agreement and the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part in accordance with Section 9.01, as the Agent (or the Majority Lenders or all Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Agent or any Lender for the payment of the Borrower Obligations may be sold, exchanged, waived, surrendered or released. Neither the Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Borrower Obligations or for the guarantee contained in this Article VII or any property subject thereto. SECTION 7.05....Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Borrower Obligations and notice of or proof of reliance by the Agent or any Lender upon the guarantee contained in this Article VII or acceptance of the guarantee contained in this Article VII; the Borrower Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Article VII; and all dealings between the Borrower and any of the Guarantors, on the one hand, and the Agent and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Article VII. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Borrower or any of the Guarantors with respect to the Borrower Obligations. Each Guarantor understands and agrees that the guarantee contained in this Article VII shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of this Agreement or any other Loan Document, any of the Borrower Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Agent or any Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Borrower or any other Person against the Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Borrower or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Borrower for the Borrower Obligations, or of such Guarantor under the guarantee contained in this Article VII, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Agent or any Lender may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against the Borrower, any other Guarantor or any other Person or against any collateral security or guarantee for the Borrower Obligations or any right of offset with respect thereto, and any failure by the Agent or any Lender to make any such demand, to pursue such other rights or remedies or to collect any payments from the Borrower, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Borrower, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Agent or any Lender against any Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. SECTION 7.06....Reinstatement. The guarantee contained in this Article VII shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Borrower Obligations is rescinded or must otherwise be restored or returned by the Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. SECTION 7.07....Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Agent without set-off or counterclaim in Dollars. ARTICLE VIII THE AGENT SECTION 8.01....Authorization and Action. Each Lender hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement or any other Loan Document (including, without limitation, enforcement or collection of the Borrowings), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes (if any); provided, however, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. The Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement. The Agent shall be deemed to have exercised reasonable care in the administration and enforcement of this Agreement and the other Loan Documents if it undertakes such administration and enforcement in a manner substantially equal to that which Merrill Lynch Capital Corporation accords credit facilities similar to the credit facility hereunder for which it is the sole lender. SECTION 8.02....Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or any other Loan Document, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (i) may treat the payee of any Note as the holder thereof until the Agent receives and accepts a Lender Assignment entered into by the Lender which is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 9.07; (ii) may consult with legal counsel (including counsel for the Parent, the Borrower or any of their Subsidiaries), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement or any other Loan Document; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Loan Document on the part of the Parent, the Borrower or any of their Subsidiaries or to inspect the property (including the books and records) of the Parent, the Borrower or any of their Subsidiaries; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; and (vi) shall incur no liability under or in respect of this Agreement or any other Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.03....Agent and Affiliates. With respect to its Commitment and the Advances made by it, Merrill Lynch Capital Corporation shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent; and the term the "Lender" or "Lenders" shall, unless otherwise expressly indicated, include the Agent in its individual capacity. Merrill Lynch Capital Corporation and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any of its Subsidiaries and any Person who may do business with or own securities of the Borrower or any such Subsidiary, all as if Merrill Lynch Capital Corporation were not the Agent and without any duty to account therefor to the Lenders. SECTION 8.04....Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements referred to in Section 4.01(f) and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 8.05....Indemnification. The Lenders agree to indemnify the Agent (to the extent not reimbursed by the Borrower), ratably according to (i) on or before the Termination Date, the respective Percentages of the Lenders, or (ii) after the Termination Date, the respective outstanding principal amounts of the Advances, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Agent is not reimbursed for such expenses by the Borrower. SECTION 8.06....Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Majority Lenders, with any such resignation or removal to become effective only upon the appointment of a successor Agent pursuant to this Section 8.06. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Agent, which shall be a Lender or shall be another commercial bank or trust company (and reasonably acceptable to the Borrower so long as no Event of Default exists) organized under the laws of the United States or of any State thereof. If no successor Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a Lender or shall be another commercial bank or trust company organized under the laws of the United States of any State thereof reasonably acceptable to the Borrower. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. ARTICLE IX MISCELLANEOUS SECTION 9.01....Amendments, Etc. No amendment or waiver of any provision of any Loan Document, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders and, in the case of any amendment, the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) waive, modify or eliminate any of the conditions specified in Section 3.01 or 3.02, (b) increase or extend the Commitments of the Lenders or subject the Lenders to any additional obligations, (c) reduce the principal of, or interest on, the Advances, any Applicable Margin or any fees or other amounts payable hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the Advances or any fees or other amounts payable hereunder, (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Advances, or the number of Lenders, which shall be required for the Lenders or any of them to take any action hereunder, (f) amend this Section 9.01 or (g) release any collateral for the Borrower Obligations or the obligations of the Guarantors under Article VII or release any of the Guarantors from its obligations under Article VII; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement or any Note; and provided, further that this Agreement may be amended and restated without the consent of any Lender or the Agent if, upon giving effect to such amendment and restatement, such Lender or the Agent, as the case may be, shall no longer be a party to this Agreement (as so amended and restated) or have any Commitment or other obligation hereunder and shall have been paid in full all amounts payable hereunder to such Lender or the Agent, as the case may be. SECTION 9.02....Notices, Etc. All notices and other communications provided for hereunder and under the other Loan Documents shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the Borrower, at its address at 4902 North Biltmore Lane, Madison, Wisconsin 53718-2132 Attn: Treasurer, or P.O. Box 77007, Madison, Wisconsin 53707-1007; if to the Parent, at its address at 4902 North Biltmore Lane, Madison, Wisconsin 53718-2132 Attn: Treasurer, or P.O. Box 77007, Madison, Wisconsin 53707-1007 Attn: Treasurer; if to HPI or AEI, to it in care of the Parent at the address of the Parent set forth above; if to any Lender listed on Schedule I hereto, at its Domestic Lending Office specified opposite its name on said Schedule; if to any other Lender, at its Domestic Lending Office specified in the Lender Assignment pursuant to which it became a Lender; and if to the Agent, at its address at 4 World Financial Center - 16th Floor, New York, NY 10080, Attention: Eve Lam / Mark Campbell; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telecopied, telegraphed, telexed or cabled, be effective five days after being deposited in the mails, or when delivered to the telegraph company, telecopied, confirmed by telex answerback or delivered to the cable company, respectively, except that notices and communications to the Agent pursuant to Article II or VIII shall not be effective until received by the Agent. SECTION 9.03....No Waiver; Remedies. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9.04....Costs, Expenses, Taxes and Indemnification. (a) The Borrower agrees to pay on demand all costs and expenses of the Agent and the Arranger in connection with the preparation (including, without limitation, printing costs), negotiation, execution, delivery, modification and amendment of this Agreement and the other Loan Documents, and the other documents and instruments to be delivered hereunder and thereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for each of the Agent and the Arranger with respect thereto and with respect to the administration of, and advising the Agent and the Arranger as to its rights and responsibilities under, this Agreement and the other Loan Documents. The Borrower further agrees to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses of the Agent, the Arranger and each Lender), in connection with the enforcement and workout (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other Loan Documents and the other documents and instruments to be delivered hereunder and thereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 9.04(a). In addition, the Borrower shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Agreement and the other Loan Documents, and the other documents and instruments to be delivered hereunder and thereunder, and agrees to save the Agent, the Arranger and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. (b) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made other than on the last day of the Interest Period for such Advance as a result of a payment or Conversion pursuant to Section 2.08(f), 2.09, 2.10, 2.11 or 2.13 or acceleration of the maturity of the Advances pursuant to Section 6.01 or for any other reason, the Borrower shall, upon demand by any Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender, as the case may be, any amounts required to compensate such Lender for any additional losses, costs or expenses which it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. (c) The Borrower hereby agrees to indemnify and hold each Lender, the Agent and their respective officers, directors, employees, professional advisors and affiliates (each, an "Indemnified Person") harmless from and against any and all claims, damages, losses, liabilities, costs or expenses (including reasonable attorney's fees and expenses, whether or not such Indemnified Person is named as a party to any proceeding or is otherwise subjected to judicial or legal process arising from any such proceeding) which any of them may incur or which may be claimed against any of them by any Person (except for such claims, damages, losses, liabilities, costs and expenses resulting from such Indemnified Person's gross negligence or willful misconduct): (i) by reason of or resulting from the execution, delivery or performance of any of the Loan Documents or any transaction contemplated thereby, or the use by the Parent or any of its Subsidiaries of the proceeds of any Advance; (ii) in connection with any documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of any of the Loan Documents; or (iii) in connection with or resulting from the utilization, storage, disposal, treatment, generation, transportation, release or ownership of any Hazardous Substance (A) at, upon, or under any property of the Parent or any of its Affiliates or (B) by or on behalf of the Parent or any of its Affiliates at any time and in any place. (d) The Borrower's obligations under this Section 9.04 shall survive the repayment of all amounts owing to the Lenders hereunder and the termination of the Commitments. If and to the extent that the obligations of the Borrower under this Section 9.04 are unenforceable for any reason, the Borrower agrees to make the maximum contribution to the payment and satisfaction thereof which is permissible under applicable law. SECTION 9.05....Right of Set-off. (a) Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent by the Majority Lenders specified by Section 6.01 to authorize the Agent to declare all amounts owing hereunder due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under any Loan Document, irrespective of whether or not such Lender shall have made any demand under such Loan Document and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. (b) Each of the Loan Parties agrees that it shall have no right of set-off, deduction or counterclaim in respect of its obligations hereunder, and that the obligations of the Lenders hereunder are several and not joint. Nothing contained herein shall constitute a relinquishment or waiver of the rights of any of the Loan Parties to any independent claim that such Loan Party may have against the Agent or any Lender for the Agent's or such Lender's, as the case may be, gross negligence or wilful misconduct; provided that no Lender shall be liable for the conduct of the Agent or any other Lender; provided further that the Agent shall not be liable for the conduct of any Lender. SECTION 9.06....Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower, each of the Guarantors and the Agent and when the Agent shall have been notified in writing by each Lender that such Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, each of the Guarantors, the Agent and each Lender and their respective successors and assigns, except that neither the Borrower nor any of the Guarantors shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. SECTION 9.07....Assignments and Participations. (a) Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under the Loan Documents (including, without limitation, all or a portion of its Commitment, the Advances owing to it and the Note or Notes (if any) held by it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Lender's rights and obligations under the Loan Documents, (ii) the amount of the Commitment and/or Advance of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Lender Assignment with respect to such assignment) shall in no event be less than the lesser of the amount of such Lender's then remaining Commitment and $1,000,000 (except in the case of assignments between Lenders at the time already parties hereto and between a Lender and an Affiliate of such Lender), (iii) the Agent, the Arranger and, so long as no Event of Default shall have occurred and be continuing, the Borrower, shall have consented to such assignment (which may not be unreasonably withheld or delayed), and (iv) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, a Lender Assignment, together with any Note or Notes (if any) subject to such assignment and a processing and recordation fee of $3,500. Promptly following its receipt of such Lender Assignment, Note or Notes (if any) and fee, the Agent shall accept and record such Lender Assignment in the Register. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Lender Assignment, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Lender Assignment, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Lender Assignment, relinquish its rights and be released from its obligations under this Agreement (and, in the case of a Lender Assignment covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). Notwithstanding anything to the contrary contained in this Agreement, any Lender may at any time, with notice to the Borrower and the Agent, assign all or any portion of the Advances owing to it to any other Lender or any Affiliate of a Lender. No such assignment, other than to an Eligible Assignee, a Lender or an Affiliate of a Lender, shall release the assigning Lender from its obligations hereunder. (b) By executing and delivering a Lender Assignment, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Lender Assignment, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of each Loan Document, together with copies of the financial statements referred to in Section 4.01(f) hereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Lender Assignment; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender. (c) The Agent shall maintain at its address referred to in Section 9.02 a copy of each Lender Assignment delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a Lender Assignment executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with any Note or Notes (if any) subject to such assignment, the Agent shall, if such Lender Assignment has been completed and is in substantially the form of Exhibit 9.07 hereto, (i) accept such Lender Assignment, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. (e) Each Lender may sell participations to one or more banks, financial institutions or other entities in all or a portion of its rights and obligations under the Loan Documents (including, without limitation, all or a portion of its Commitment, the Advances owing to it and the Note or Notes (if any) held by it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note (if any) for all purposes of this Agreement, and (iv) the Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree, in accordance with the terms of Section 9.08, to preserve the confidentiality of any Confidential Information relating to the Borrower received by it from such Lender. (g) If any Lender (or any bank, financial institution, or other entity to which such Lender has sold a participation) shall (i) make any demand for payment under Section 2.07 or 2.12 or claim any additional amounts payable pursuant to Section 2.16 or (ii) give notice to the Agent pursuant to Section 2.13, then in the case of any demand made under clause (i) above, or the occurrence of the event described in clause (ii) above, within 30 days after any such demand or occurrence (if, but only if, in the case of any demanded payment described in clause (i), such demanded payment has been made by the Borrower), the Borrower may, with the approval of the Agent (which approval shall not be unreasonably withheld), and provided that no Event of Default or Unmatured Default shall then have occurred and be continuing, demand that such Lender assign in accordance with this Section 9.07 to one or more Eligible Assignees designated by the Borrower all (but not less than all) of such Lender's Commitment and the Advances owing to it within the period ending on the latest to occur of (x) the last day in the period described above and (y) the last day of the longest of the then-current Interest Periods for such Advances. If any such Eligible Assignee designated by the Borrower shall fail to consummate such assignment on terms acceptable to such Lender, or if the Borrower shall fail to designate any such Eligible Assignees for all or part of such Lender's Commitment or Advances, then such demand by the Borrower shall become ineffective, it being understood for purposes of this subsection (g) that such assignment shall be conclusively deemed to be on terms acceptable to such Lender, and such Lender shall be compelled to consummate such assignment to an Eligible Assignee designated by the Borrower, if such Eligible Assignee (1) shall agree to such assignment by entering into a Lender Assignment with such Lender and (2) shall offer compensation to such Lender in an amount equal to all amounts then owing by the Borrower to such Lender hereunder, whether for principal, interest, fees, costs or expenses (other than the demanded payment referred to above and payable by the Borrower as a condition to the Borrower's right to demand such assignment), or otherwise (including amounts payable pursuant to Section 9.04(b) hereof). (h) Anything in this Section 9.07 to the contrary notwithstanding, any Lender may assign and pledge all or any portion of its Commitment and the Advances owing to it to any Federal Reserve Bank (and its transferees) as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. (i) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC") of such Granting Lender identified as such in writing from time to time by the Granting Lender to the Agent and the Borrower, the option to provide to the Borrower all or any part of any Advance that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any such SPC to make any Advance, (ii) if such SPC elects not to exercise such option or otherwise fails to provide all or any part of such Advance, the Granting Lender shall be obligated to make such Advance pursuant to the terms hereof and (iii) no SPC or Granting Lender shall be entitled to receive any greater amount pursuant to Section 2.12 or 9.04(b) than the Granting Lender would have been entitled to receive had the Granting Lender not otherwise granted such SPC the option to provide any Advance to the Borrower. The making of an Advance by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Advance were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement for which a Lender would otherwise be liable so long as, and to the extent that, the related Granting Lender provides such indemnity or makes such payment. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against or join any other person in instituting against such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. Notwithstanding the foregoing, the Granting Lender unconditionally agrees to indemnify the Borrower, the Agent and each Lender against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be incurred by or asserted against the Borrower, the Agent or such Lender, as the case may be, in any way relating to or arising as a consequence of any such forbearance or delay in the initiation of any such proceeding against its SPC. Each party hereto hereby acknowledges and agrees that no SPC shall have the rights of a Lender hereunder, such rights being retained by the applicable Granting Lender. Accordingly, and without limiting the foregoing, each party hereby further acknowledges and agrees that no SPC shall have any voting rights hereunder and that the voting rights attributable to any Advance made by an SPC shall be exercised only by the relevant Granting Lender and that each Granting Lender shall serve as the administrative agent and attorney-in-fact for its SPC and shall on behalf of its SPC receive any and all payments made for the benefit of such SPC and take all actions hereunder to the extent, if any, such SPC shall have any rights hereunder. In addition, notwithstanding anything to the contrary contained in this Agreement any SPC may (i) with notice to, but without the prior written consent of any other party hereto, assign all or a portion of its interest in any Advances to the Granting Lender and (ii) disclose on a confidential basis any information relating to its Advances to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. This Section 9.07(i) may not be amended without the prior written consent of each Granting Lender, all or any part of whose Advance is being funded by an SPC at the time of such amendment. SECTION 9.08....Confidentiality. In connection with the negotiation and administration of this Agreement and the other Loan Documents, the Borrower and the Guarantors have furnished and will from time to time furnish to the Agent and the Lenders (each, a "Recipient") written information which is identified to the Recipient in writing when delivered as confidential (such information, other than any such information which (i) as publicly available, or otherwise known to the Recipient, at the time of disclosure, (ii) subsequently becomes publicly available other than through any act or omission by the Recipient or (iii) otherwise subsequently becomes known to the Recipient other than through a Person whom the Recipient knows to be acting in violation of his or its obligations to the Borrower or the Guarantors, as applicable, being hereinafter referred to as "Confidential Information"). The Recipient will maintain the confidentiality of any Confidential Information in accordance with such procedures as the Recipient applies generally to information of that nature. It is understood, however, that the foregoing will not restrict the Recipient's ability to freely exchange such Confidential Information with its Affiliates or with current or prospective participants in or assignees of, or any current or prospective counterparty (or its advisors) to any swap, securitization or derivative transaction relating to, the Recipient's position herein, but the Recipient's ability to so exchange Confidential Information shall be conditioned upon any such Affiliate's or prospective participant's or assignee's or counterparty's entering into an understanding as to confidentiality similar to this provision. It is further understood that the foregoing will not prohibit the disclosure of any or all Confidential Information if and to the extent that such disclosure may be required (i) by a regulatory agency or otherwise in connection with an examination of the Recipient's records by appropriate authorities, (ii) pursuant to court order, subpoena or other legal process or in connection with any pending or threatened litigation, (iii) otherwise as required by law, or (iv) in order to protect its interests or its rights or remedies hereunder or under the other Loan Documents; in the event of any required disclosure under clause (ii) or (iii) above, the Recipient agrees to use reasonable efforts to inform the Borrower as promptly as practicable. SECTION 9.09....WAIVER OF JURY TRIAL. THE AGENT, THE LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE AGENT, SUCH LENDERS OR THE BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT. SECTION 9.10....Governing Law. This Agreement and the other Loan Documents shall be governed by, and construed in accordance with, the laws of the State of New York. The Borrower, each Guarantor, each Lender and the Agent (i) irrevocably submits to the non-exclusive jurisdiction of any New York State court or Federal court sitting in New York City in any action arising out of any Loan Document, (ii) agrees that all claims in such action may be decided in such court, (iii) waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum and (iv) consents to the service of process by mail, provided that a copy shall be promptly sent by overnight courier to Foley & Lardner, Firstar Center, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202-5367, Attention: Emory Ireland, Esq. A final judgment in any such action shall be conclusive and may be enforced in other jurisdictions. Nothing herein shall affect the right of any party to serve legal process in any manner permitted by law or affect its right to bring any action in any other court. SECTION 9.11....Relation of the Parties; No Beneficiary. No term, provision or requirement, whether express or implied, of any Loan Document, or actions taken or to be taken by any party thereunder, shall be construed to create a partnership, association, or joint venture between such parties or any of them. No term or provision of the Loan Documents shall be construed to confer a benefit upon, or grant a right or privilege to, any Person other than the parties thereto. SECTION 9.12....Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 9.13....Entire Agreement. This Agreement, together with any Note, the Fee Letter and any other agreements, instruments and other documents required to be executed and delivered in connection herewith, represents the entire agreement of the parties hereto and supersedes all prior agreements and understandings of the parties with respect to the subject matter covered hereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. ALLIANT ENERGY RESOURCES, INC. as Borrower By /s/ Thomas L. Hanson ------------------------ Name: Thomas L. Hanson Title: Vice President and Treasurer ALLIANT ENERGY CORPORATION as Guarantor By /s/ Thomas L. Hanson ------------------------ Name: Thomas L. Hanson Title: Vice President and Treasurer HEARTLAND PROPERTIES, INC. as Guarantor By /s/ Ruth A. Domack ---------------------- Name: Ruth A. Domack Title: President ALLIANT ENERGY INTERNATIONAL, INC. as Guarantor By /s/ Thomas L. Hanson ------------------------ Name: Thomas L. Hanson Title: Vice President and Treasurer MERRILL LYNCH CAPITAL CORPORATION as Agent and as Lender By /s/ Anthony J. LaFare ------------------------- Name: Anthony J. LaFare Title: Vice President SCHEDULE I
2 ALLIANT ENERGY CORPORATION 364-Day Credit Agreement, dated as of December 27, 2002, among Alliant Energy Resources, Inc. as Borrower, Alliant Energy Corporation, Heartland Properties, Inc. and Alliant Energy International, Inc., as Guarantors, the Lenders named therein and Merrill Lynch Capital Corporation, as Administrative Agent Name of Lender Commitment Domestic Lending Office Eurodollar Lending Office - -------------- ---------- ----------------------- ------------------------- Merrill Lynch Capital $250,000,000 4 World Financial Center - Same as Domestic Lending Corporation 16th Floor, New York, NY Office 10080, Attention: Eve Lam / Mark Campbell TOTAL $250,000,000
EX-10 8 exhibit10pt5.txt EXHIBIT 10.5 EXHIBIT 10.5 CREDIT AGREEMENT among WHITING PETROLEUM CORPORATION, as Borrower, The Financial Institutions Listed on Schedule 1.1 Hereto, as Banks, BANK ONE, NA, as Administrative Agent and WACHOVIA BANK, NATIONAL ASSOCIATION, as Syndication Agent $350,000,000 dated as of December 20, 2002 BANC ONE CAPITAL MARKETS, INC., as Sole Lead Arranger and Bookrunner TABLE OF CONTENTS -----------------
Page No. -------- Article I TERMS DEFINED...............................................................................................1 Section 1.1 Definitions.....................................................................................1 Section 1.2 Accounting Terms and Determinations............................................................16 Section 1.3 Petroleum Terms................................................................................16 Section 1.4 Money..........................................................................................17 Article II THE CREDIT................................................................................................17 Section 2.1 Commitments....................................................................................17 Section 2.2 Method of Borrowing............................................................................19 Section 2.3 Method of Requesting Letters of Credit.........................................................20 Section 2.4 Notes..........................................................................................20 Section 2.5 Interest Rates; Payments.......................................................................20 Section 2.6 Mandatory Prepayments..........................................................................22 Section 2.7 Voluntary Prepayments..........................................................................22 Section 2.8 Voluntary Reduction of Commitments.............................................................22 Section 2.9 Termination of Commitments; Final Maturity of Revolving Loan...................................22 Section 2.10 Application of Payments........................................................................22 Section 2.11 Commitment Fee.................................................................................22 Section 2.12 Agency and other Fees..........................................................................22 Article III GENERAL PROVISIONS.......................................................................................22 Section 3.1 Delivery and Endorsement of Notes..............................................................22 Section 3.2 General Provisions as to Payments..............................................................23 Article IV BORROWING BASE............................................................................................23 Section 4.1 Reserve Report; Proposed Borrowing Base........................................................23 Section 4.2 Scheduled Redeterminations of the Borrowing Base; Procedures and Standards.....................23 Section 4.3 Special Redetermination........................................................................24 Section 4.4 Borrowing Base Deficiency......................................................................24 Section 4.5 Initial Borrowing Base.........................................................................25 Article V COLLATERAL AND GUARANTEES..................................................................................25 Section 5.1 Security.......................................................................................25 Section 5.2 Guarantees.....................................................................................26 Article VI CONDITIONS PRECEDENT......................................................................................26 Section 6.1 Conditions to Initial Borrowing and Participation in Letter of Credit Exposure.................26 Section 6.2 Conditions to Each Borrowing and each Letter of Credit.........................................28 Section 6.3 Post-Closing Deliveries and Actions............................................................28 Section 6.4 Materiality of Conditions......................................................................29 Article VII REPRESENTATIONS AND WARRANTIES...........................................................................29 Section 7.1 Corporate Existence and Power..................................................................29 Section 7.2 Credit Party and Governmental Authorization; Contravention.....................................29 Section 7.3 Binding Effect.................................................................................29 Section 7.4 Financial Information..........................................................................29 Section 7.5 Litigation.....................................................................................30 Section 7.6 ERISA..........................................................................................30 Section 7.7 Taxes and Filing of Tax Returns................................................................40 Section 7.8 Ownership of Properties Generally..............................................................40 Section 7.9 Mineral Interests..............................................................................40 Section 7.10 Licenses, Permits, Etc.........................................................................40 Section 7.11 Compliance with Law............................................................................41 Section 7.12 Full Disclosure................................................................................41 Section 7.13 Organizational Structure; Nature of Business...................................................41 Section 7.14 Environmental Matters..........................................................................41 Section 7.15 Burdensome Obligations.........................................................................42 Section 7.16 Fiscal Year....................................................................................42 Section 7.17 No Default.....................................................................................42 Section 7.18 Government Regulation..........................................................................42 Section 7.19 Insider........................................................................................42 Section 7.20 Gas Balancing Agreements and Advance Payment Contracts.........................................43 Section 7.21 Subordinate Loan Documents.....................................................................43 Article VIII AFFIRMATIVE COVENANTS...................................................................................43 Section 8.1 Information....................................................................................43 Section 8.2 Business of Credit Parties.....................................................................45 Section 8.3 Maintenance of Existence.......................................................................45 Section 8.4 Title Data.....................................................................................45 Section 8.5 Right of Inspection............................................................................45 Section 8.6 Maintenance of Insurance.......................................................................45 Section 8.7 Payment of Taxes and Claims....................................................................46 Section 8.8 Compliance with Laws and Documents.............................................................46 Section 8.9 Operation of Properties and Equipment..........................................................46 Section 8.10 Environmental Law Compliance...................................................................47 Section 8.11 ERISA Reporting Requirements...................................................................47 Section 8.12 Additional Documents...........................................................................48 Section 8.13 Environmental Review...........................................................................48 Section 8.14 Cash Management................................................................................48 Section 8.15 Permitted Exchange.............................................................................48 Article IX NEGATIVE COVENANTS........................................................................................50 Section 9.1 Incurrence of Debt.............................................................................50 Section 9.2 Restricted Payments............................................................................50 Section 9.3 Negative Pledge................................................................................50 Section 9.4 Consolidations and Mergers.....................................................................50 Section 9.5 Asset Dispositions.............................................................................51 Section 9.6 Amendments to Organizational Documents; Other Material Agreements..............................51 Section 9.7 Use of Proceeds...............................................................................51 Section 9.8 Investments....................................................................................52 Section 9.9 Transactions with Affiliates...................................................................52 Section 9.10 ERISA..........................................................................................52 Section 9.11 Hedge Transactions.............................................................................52 Section 9.12 Fiscal Year....................................................................................52 Section 9.13 Change in Business.............................................................................52 Section 9.14 Subordinate Debt...............................................................................52 Section 9.15 Obligations of Unrestricted Subsidiaries.......................................................52 Article X FINANCIAL COVENANTS........................................................................................52 Section 10.1 Current Ratio of Borrower......................................................................53 Section 10.2 Consolidated Total Debt to Annualized Consolidated EBITDAX.....................................53 Section 10.3 Consolidated Senior Debt to Annualized Consolidated EBITDAX....................................53 Article XI DEFAULTS..................................................................................................53 Section 11.1 Events of Default..............................................................................53 Article XII AGENTS...................................................................................................55 Section 12.1 Appointment; Nature of Relationship............................................................55 Section 12.2 Powers.........................................................................................55 Section 12.3 General Immunity...............................................................................56 Section 12.4 No Responsibility for Loans, Recitals, etc.....................................................56 Section 12.5 Action on Instructions of Banks................................................................56 Section 12.6 Employment of Agents and Counsel...............................................................56 Section 12.7 Reliance on Documents; Counsel.................................................................57 Section 12.8 Administrative Agent's Reimbursement and Indemnification.......................................57 Section 12.9 Notice of Default..............................................................................57 Section 12.10 Rights as a Bank...............................................................................57 Section 12.11 Bank Credit Decision...........................................................................58 Section 12.12 Successor Administrative Agent.................................................................58 Section 12.13 Delegation to Affiliates.......................................................................59 Section 12.14 Execution of Collateral Documents..............................................................59 Section 12.15 Collateral Releases............................................................................59 Section 12.16 Agents.........................................................................................59 Article XIII CHANGE IN CIRCUMSTANCES.................................................................................59 Section 13.1 Increased Cost and Reduced Return..............................................................59 Section 13.2 Limitation on Type of Loans....................................................................59 Section 13.3 Illegality.....................................................................................59 Section 13.4 Treatment of Affected Loans....................................................................59 Section 13.5 Compensation...................................................................................59 Section 13.6 Taxes..........................................................................................59 Section 13.7 Discretion of Banks as to Manner of Funding....................................................59 Article XIV MISCELLANEOUS............................................................................................59 Section 14.1 Notices........................................................................................59 Section 14.2 No Waivers.....................................................................................59 Section 14.3 Expenses; Indemnification......................................................................59 Section 14.4 Right of Set-off; Adjustments..................................................................59 Section 14.5 Amendments and Waivers.........................................................................59 Section 14.6 Survival.......................................................................................59 Section 14.7 Limitation on Interest.........................................................................59 Section 14.8 Invalid Provisions.............................................................................59 Section 14.9 Waiver of Consumer Credit Laws.................................................................59 Section 14.10 Assignments and Participations.................................................................59 Section 14.11 TEXAS LAW......................................................................................59 Section 14.12 Consent to Jurisdiction; Waiver of Immunities..................................................59 Section 14.13 Counterparts; Effectiveness....................................................................59 Section 14.14 No Third Party Beneficiaries...................................................................59 Section 14.15 COMPLETE AGREEMENT.............................................................................59 Section 14.16 WAIVER OF JURY TRIAL...........................................................................59 Section 14.17 Confidentiality................................................................................59
EXHIBITS -------- EXHIBIT A FORM OF FACILITY GUARANTY EXHIBIT B FORM OF PROMISSORY NOTE EXHIBIT C FORM OF BORROWER PLEDGE AGREEMENT EXHIBIT D FORM OF SUBSIDIARY PLEDGE AGREEMENT EXHIBIT E FORM OF REQUEST FOR BORROWING EXHIBIT F FORM OF REQUEST FOR LETTER OF CREDIT EXHIBIT G FORM OF NOTICE OF CONTINUATION OR CONVERSION EXHIBIT H FORM OF CERTIFICATE OF OWNERSHIP INTERESTS EXHIBIT I FORM OF CERTIFICATE OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER EXHIBIT J FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT EXHIBIT K FORM OF SUBORDINATE NOTE SCHEDULES --------- SCHEDULE 1.1 FINANCIAL INSTITUTIONS SCHEDULE 6.3 POST-CLOSING DELIVERIES SCHEDULE 7.5 LITIGATION SCHEDULE 7.6 ERISA MATTERS SCHEDULE 7.10 LICENSES, PERMITS, ETC. SCHEDULE 7.13 ORGANIZATIONAL STRUCTURE SCHEDULE 7.14 ENVIRONMENTAL DISCLOSURE SCHEDULE 9.8 PERMITTED INVESTMENTS SCHEDULE 9.15 OBLIGATIONS TO UNRESTRICTED SUBSIDIARIES CREDIT AGREEMENT ---------------- THIS CREDIT AGREEMENT (this "Agreement") is entered into as of the 20th day of December, 2002, among WHITING PETROLEUM CORPORATION, a Delaware corporation ("Borrower"), BANK ONE, NA, with its main office in Chicago, Illinois, as Administrative Agent ("Administrative Agent"), WACHOVIA BANK, NATIONAL ASSOCIATION as Syndication Agent ("Syndication Agent"), and the financial institutions listed on Schedule 1.1 hereto as Banks (individually a "Bank" and collectively "Banks"). W I T N E S S E T H: -------------------- WHEREAS, Borrower has requested that Banks provide Borrower with a revolving credit facility, and Banks are willing to provide such facility on the terms and subject to the conditions hereafter set forth; and WHEREAS, pursuant to of this Agreement, Bank One, NA has been appointed Administrative Agent for Banks hereunder; and WHEREAS, pursuant to certain separate agreements among Bank One, NA, Banc One Capital Markets, Inc. ("BOCM") and Borrower, BOCM has been appointed Sole Lead Arranger and Bookrunner for the credit facility provided herein. NOW, THEREFORE, in consideration of the premises, the representations, warranties, covenants and agreements contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Borrower, Administrative Agent, Syndication Agent and Banks agree as follows: Article I TERMS DEFINED ------------- Section 1.1.....Definitions. The following terms, as used herein, have the following meanings: "Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by Administrative Agent to be equal to the quotient obtained by dividing (a) the Eurodollar Rate for such Eurodollar Loan for such Interest Period by (b) 1 minus the Reserve Requirement for such Eurodollar Loan for such Interest Period. "Administrative Agent" means Bank One, NA, in its capacity as Administrative Agent for Banks hereunder or any successor thereto. "Advance Payment Contract" means any contract whereby any Credit Party either (a) receives or becomes entitled to receive (either directly or indirectly) any payment (an "Advance Payment") to be applied toward payment of the purchase price of Hydrocarbons produced or to be produced from Mineral Interests owned by any Credit Party and which Advance Payment is, or is to be, paid in advance of actual delivery of such production to or for the account of the purchaser regardless of such production, or (b) grants an option or right of refusal to the purchaser to take delivery of such production in lieu of payment, and, in either of the foregoing instances, the Advance Payment is, or is to be, applied as payment in full for such production when sold and delivered or is, or is to be, applied as payment for a portion only of the purchase price thereof or of a percentage or share of such production; provided that inclusion of the standard "take or pay" provision in any gas sales or purchase contract or any other similar contract shall not, in and of itself, constitute such contract as an Advance Payment Contract for the purposes hereof. "AER" means Alliant Energy Resources, Inc., a Wisconsin corporation. "Affiliate" means, as to any Person, any Subsidiary of such Person, or any other Person which, directly or indirectly, controls, is controlled by, or is under common control with, such Person and, with respect to any Credit Party, means, any director, executive officer, general partner or manager of such Credit Party and any Person who holds ten percent (10%) or more of the voting stock, partnership interests, membership interests or other ownership interests of such Credit Party. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, membership interests or partnership interests, or by contract or otherwise. "Agent" means Administrative Agent, Syndication Agent, Sole Lead Arranger, Bookrunner, or any other agent appointed hereunder from time to time, and "Agents" means Administrative Agent, Syndication Agent, Sole Lead Arranger, Bookrunner, and any other agent appointed hereunder from time to time, collectively. "Agreement" means this Credit Agreement as the same may hereafter be modified, amended or supplemented from time to time. "Alliant" means Alliant Energy Corporation, a Wisconsin corporation. "Annualized Consolidated EBITDAX" means, for purposes of calculating the financial ratios set forth in Section 10.2 and Section 10.3 for any Fiscal Quarter, Borrower's actual Consolidated EBITDAX for the two (2) consecutive Fiscal Quarters ending on the calculation date multiplied by 2. "Applicable Environmental Law" means any federal, state or local law, common law, ordinance, regulation or policy, as well as order, decree, permit, judgment or injunction issued, promulgated, approved, or entered thereunder, relating to the environment, health and safety, or Hazardous Substances (including, without limitation, the use, handling, transportation, production, disposal, discharge or storage thereof) or to industrial hygiene or the environmental conditions on, under, or about any real property owned, leased or operated at any time by any Credit Party or any real property owned, leased or operated by any other party including, without limitation, soil, groundwater, and indoor and ambient air conditions. "Applicable Lending Office" means, for each Bank and for each Type of Revolving Loan, the "Lending Office" of such Bank (or of an affiliate of such Bank) designated for such Type of Revolving Loan on the signature pages hereof or such other office of such Bank (or an affiliate of such Bank) as such Bank may from time to time specify to Administrative Agent and Borrower by written notice in accordance with the terms hereof as the office by which Revolving Loans of such Type are to be made and maintained. "Applicable Margin" means, on any date, with respect to each Type of Revolving Loan, an amount determined by reference to the ratio of Outstanding Credit to the Borrowing Base on such date in accordance with the table below:
==================================== ============================ ============================== Ratio of Outstanding Credit to Applicable Margin for Applicable Margin for Borrowing Base Eurodollar Loans Base Rate Loans ------------------------------------ ---------------------------- ------------------------------ > .90 to 1 2.250% 1.000% - ------------------------------------ ---------------------------- ------------------------------ > .75 to 1 and < .90 to 1 2.000% 0.750% - ------------------------------------ ---------------------------- ------------------------------ > .50 to 1 and < .75 to 1 1.750% 0.500% - ------------------------------------ ---------------------------- ------------------------------ < .50 to 1 1.500% 0.250% ==================================== ============================ ==============================
"Approved Fund" means any Fund that is administered or managed by (a) a Bank, (b) an Affiliate of a Bank, or (c) an entity or an Affiliate of an entity that administers or manages a Bank. "Approved Petroleum Engineer" means any reputable firm of independent petroleum engineers as shall be selected by Borrower and approved by Administrative Agent, such approval not to be unreasonably withheld. "Asset Disposition" means the sale, assignment, lease, license, transfer, exchange (including the Permitted Exchange) or other disposition by any Credit Party of all or substantially all of its right, title and interest in any Borrowing Base Property. "Assignment and Acceptance Agreement" has the meaning given such term in Section 14.10(c)(i). "Authorized Officer" means, as to any Person, its Chief Executive Officer, its President, its Chief Financial Officer, its Chief Accounting Officer, any of its Vice Presidents, its Treasurer or its corporate Secretary. "Availability" means, as of any date, the remainder of (a) the Borrowing Base in effect on such date, minus (b) the Outstanding Credit on such date. "Bank" means any financial institution reflected on Schedule 1.1 hereto as having a Commitment and its successors and permitted Assignees, and "Banks" shall mean all Banks. "Bank One" means Bank One, NA, a national banking association, with its main office in Chicago, Illinois, in its capacity as a Bank. "Base Rate" means, for any day, the rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus one-half of one percent (.5%) and (b) the Prime Rate for such day. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective automatically and without notice to Borrower or any Bank on the effective date of such change in the Prime Rate or Federal Funds Rate. "Base Rate Loan" means the portion of the principal of the Revolving Loan bearing interest with reference to the Base Rate. "BOCM" means Banc One Capital Markets, Inc. "Bookrunner" means BOCM, in its capacity as bookrunner for the credit facility hereunder or any successor thereto. "Borrower" means Whiting Petroleum Corporation, a Delaware corporation. "Borrower Pledge Agreement" means a Pledge Agreement substantially in the form of Exhibit C attached hereto (with applicable conforming changes) to be executed by Borrower pursuant to which Borrower shall pledge to Administrative Agent, for the ratable benefit of Banks, all of the issued and outstanding Equity owned by Borrower of each Restricted Subsidiary described therein to secure the Obligations. "Borrowing" means any disbursement to Borrower under, or to satisfy the obligations of any Credit Party under, any of the Loan Papers. Any Borrowing which will constitute a part of the Base Rate Loan is referred to herein as a "Base Rate Borrowing," and any Borrowing which will constitute a Eurodollar Loan, is referred to herein as a "Eurodollar Borrowing." "Borrowing Base" has the meaning set forth in Section 4.1 hereof. "Borrowing Base Deficiency" means, as of any date, the amount, if any, by which the Outstanding Credit on such date exceeds the Borrowing Base in effect on such date; provided, that, for purposes of determining the existence and amount of any Borrowing Base Deficiency, Letter of Credit Exposure will not be deemed to be outstanding to the extent it is secured by cash in the manner contemplated by Section 2.1(b). "Borrowing Base Properties" means all Mineral Interests evaluated by Banks for purposes of establishing the Borrowing Base. "Borrowing Date" means the Eurodollar Business Day or the Domestic Business Day, as the case may be, upon which the proceeds of any Borrowing are made available to Borrower or to satisfy any obligation of any Credit Party. "Certificate of Ownership Interests" means a Certificate of Ownership Interests in the form of Exhibit H attached hereto to be executed and delivered by an Authorized Officer of Borrower pursuant to Section 6.1(a)(xiii) hereof. "Change of Control" means that, for any reason, Borrower shall cease to be a wholly owned direct or indirect Subsidiary of Alliant. "Closing Date" means the date upon which all of the conditions precedent set forth in Section 6.1 have been satisfied; provided, that, in no event shall such date be later than December 20, 2002. "Code" means the Internal Revenue Code of 1986, as amended. "Commitment" means, with respect to any Bank, the commitment of such Bank to lend its Commitment Percentage of the Total Commitment to Borrower pursuant to Section 2.1 hereof, as such Commitment may be terminated or reduced from time to time in accordance with the provisions hereof. On the Closing Date, the amount of each Bank's Commitment is the amount set forth opposite such Bank's name on Schedule 1.1 hereto; provided, that after giving effect to any Assignment and Acceptance Agreement, the Commitment of each Bank shall be the amount set forth in the Register maintained by Administrative Agent pursuant to Section 14.10(c)(iv) hereof. "Commitment Fee Percentage" means, on any date, the percentage determined by reference to the ratio of Outstanding Credit to the Borrowing Base on such date in accordance with the table below:
===================================== ======================================= Ratio of Outstanding Credit to Commitment Fee Borrowing Base Percentage ------------------------------------- --------------------------------------- > .90 to 1 0.500% - ------------------------------------- --------------------------------------- > .75 to 1 and < .90 to 1 0.500% - ------------------------------------- --------------------------------------- > .50 to 1 and < .75 to 1 0.375% - ------------------------------------- --------------------------------------- < .50 to 1 0.375% ===================================== =======================================
"Commitment Percentage" means, with respect to each Bank, the Commitment Percentage for such Bank set forth on Schedule 1.1 hereto; provided, that after giving effect to any Assignment and Acceptance Agreement, the Commitment Percentage of each Bank shall be the amount set forth in the Register maintained by Administrative Agent pursuant to Section 14.10(c)(iv) hereof. "Consolidated Current Assets" means, for any Person at any time, the current assets of such Person and its Consolidated Subsidiaries at such time, plus, in the case of Borrower, the Availability at such time. For purposes of this definition, any non-cash gains on any Hedge Agreement resulting from the requirements of SFAS 133 for any period of determination shall be excluded from the determination of current assets of such Person and its Consolidated Subsidiaries. "Consolidated Current Liabilities" means, for any Person at any time, the current liabilities of such Person and its Consolidated Subsidiaries at such time, but, in the case of Borrower, excluding the current portion (if any) of the outstanding principal balance of the Revolving Loan. For purposes of this definition, any non-cash losses or charges on any Hedge Agreement resulting from the requirements of SFAS 133 for any period of determination shall be excluded from the determination of current liabilities of such Person and its Consolidated Subsidiaries. "Consolidated EBITDAX" means, for any Person for any period: (a) Consolidated Net Income of such Person for such period; plus, to the extent deducted in the calculation of Consolidated Net Income, (b) the sum of (i) income or franchise Taxes paid or accrued; (ii) Consolidated Net Interest Expense; (iii) amortization, depletion and depreciation expense; (iv) any non-cash losses or charges on any Hedge Agreement resulting from the requirements of SFAS 133 for that period; (v) other non-cash charges (excluding accruals for cash expenses made in the ordinary course of business); and (vi) costs and expenses associated with, and attributable to, oil and gas capital expenditures that are expensed rather than capitalized; less, to the extent included in the calculation of Consolidated Net Income, (c) the sum of (i) the income of any Person (other than wholly-owned Subsidiaries of such Person) unless such income is received by such Person in a cash distribution; (ii) gains or losses from sales or other dispositions of assets (other than Hydrocarbons produced in the normal course of business); (iii) any non-cash gains on any Hedge Agreement resulting from the requirements of SFAS 133 for that period; (iv) extraordinary or non-recurring gains, but not net of extraordinary or non-recurring "cash" losses; and (v) costs and expenses associated with, and attributable to, oil and gas capital expenditures that are expensed rather than capitalized. Notwithstanding anything to the contrary contained herein, all calculations of Consolidated EBITDAX shall be (A) in all respects, acceptable to, and approved by, Administrative Agent, and (B) for any applicable period of determination during which Borrower has consummated an acquisition or disposition (to the extent permitted hereunder) of properties or assets, calculated and determined on a pro forma basis as if such acquisition or disposition was consummated on the first day of such applicable period. "Consolidated Net Income" means, for any Person for any period, the net income (or loss) of such Person and its Consolidated Subsidiaries for such period. "Consolidated Net Interest Expense" means, for any Person for any period, the remainder of the following for such Person and its Consolidated Subsidiaries for such period: (a) interest expense, minus (b) interest income. "Consolidated Senior Debt" means, for any Person for any period, all Debt of such Person and its Consolidated Subsidiaries determined on a consolidated basis for such period, other than the Subordinate Debt. "Consolidated Subsidiary" or "Consolidated Subsidiaries" means, for any Person, any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements. "Consolidated Total Debt" means, for any Person for any period, all Debt of such Person and its Consolidated Subsidiaries determined on a consolidated basis for such period. "Continue," "Continuation" and "Continued" shall refer to the continuation pursuant to Section 2.5 hereof and/or Article XIII hereof of a Eurodollar Loan from one Interest Period to the next Interest Period. "Convert," "Conversion" and "Converted" shall refer to a conversion pursuant to Section 2.5 and/or Article XIII hereof of all or a portion of one Type of Revolving Loan into another Type of Revolving Loan. "Credit Parties" means, collectively, Borrower and each Restricted Subsidiary, and "Credit Party" means any one of the foregoing. "Debt" means, for any Person at any time, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all other indebtedness (including capitalized lease obligations, other than usual and customary oil and gas leases) of such Person on which interest charges are customarily paid or accrued, (d) all Guarantees by such Person, (e) the unfunded or unreimbursed portion of all letters of credit issued for the account of such Person, (f) any amount owed by such Person representing the deferred purchase price of property or services other than accounts payable incurred in the ordinary course of business and in accordance with customary trade terms and which are not more than (90) days past the invoice date, and (g) all liability of such Person as a general partner of a partnership for obligations of such partnership of the nature described in (a) through (f) preceding. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Default Rate" means, in respect of any principal of the Revolving Loan or any other amount payable by Borrower under any Loan Paper which is not paid when due (whether at stated maturity, by acceleration, or otherwise), a rate per annum during the period commencing on the due date until such amount is paid in full equal to the sum of (i) two percent (2%), plus (ii) the Applicable Margin for Base Rate Loans, plus (iii) the Base Rate as in effect from time to time (provided, that if such amount in default is principal of a Eurodollar Borrowing and the due date is a day other than the last day of an Interest Period therefor, the "Default Rate" for such principal shall be, for the period from and including the due date and to but excluding the last day of the Interest period therefor, the sum of (a) two percent (2%), plus (b) the Applicable Margin for Eurodollar Loans, plus (c) the Eurodollar Rate for such Borrowing for such Interest Period as provided in Section 2.5 hereof, and thereafter, the rate provided for above in this definition). "Distribution" by any Person, means (a) with respect to any stock issued by such Person or any partnership, joint venture, limited liability company, membership or other interest of such Person, the retirement, redemption, purchase, or other acquisition for value of any such stock or partnership, joint venture, limited liability company, membership or other interest, (b) the declaration or payment of any dividend or other distribution on or with respect to any stock, partnership, joint venture, limited liability company, membership or other interest of such Person, and (c) any other payment by such Person with respect to such stock, partnership, joint venture, limited liability company, membership or other interest of such Person. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which national banks in Dallas, Texas, are authorized by Law to close. "Domestic Lending Office" means, as to each Bank, (a) its office located at its address identified on Schedule 1.1 hereto as its Domestic Lending Office, (b) its office located at its address identified on the Register as its Domestic Lending Office, or (c) such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to Borrower and Administrative Agent. "Environmental Complaint" means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, proceeding, judgment, letter or other communication from any federal, state or municipal authority or any other party against any Credit Party involving (a) a Hazardous Discharge from, onto or about any real property owned, leased or operated at any time by any Credit Party, (b) a Hazardous Discharge caused, in whole or in part, by any Credit Party or by any Person acting on behalf of or at the instruction of any Credit Party, or (c) any violation of any Applicable Environmental Law by any Credit Party. "Equity" means shares of capital stock or a partnership, profits, capital, member or other equity interest, or options, warrants or any other rights to substitute for or otherwise acquire the capital stock or a partnership, profits, capital, member or other equity interest of any Person. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" means any corporation or trade or business under common control with any Credit Party as determined under section 4001(a)(14) of ERISA. "Eurodollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in the applicable Eurodollar interbank market. "Eurodollar Lending Office" means, as to each Bank, (a) its office, branch or affiliate located at its address identified on Schedule 1.1 hereto as its Eurodollar Lending Office, (b) its office, branch or affiliate located at its address identified on the Register as its Eurodollar Lending Office, or (c) such other office, branch or affiliate of such Bank as it may hereafter designate as its Eurodollar Lending Office by notice to Borrower and Administrative Agent. "Eurodollar Loans" means Revolving Loans that bear interest at rates based upon the Adjusted Eurodollar Rate. "Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period therefor, the applicable British Bankers' Association LIBOR rate for deposits in Dollars as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two (2) Eurodollar Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period; provided, that, if no such British Bankers' Association LIBOR rate is available to Administrative Agent, the applicable Eurodollar Rate for the relevant Interest Period shall instead be the rate determined by Administrative Agent to be the rate at which Bank One or one of its Affiliate banks offers to place deposits in Dollars with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two (2) Eurodollar Business Days prior to the first day of such Interest Period, in the appropriate amount of Bank One's relevant Eurodollar Loan and having a maturity equal to such Interest Period. "Events of Default" has the meaning set forth in Section 11.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Agreement" means any exchange agreement executed by and between Borrower and Qualified Intermediary in accordance with Section 8.15, and pursuant to which certain of the terms and provisions of a Permitted Exchange shall be set forth. "Exhibit" refers to an exhibit attached to this Agreement and incorporated herein by reference, unless specifically provided otherwise. "Existing Alliant Credit Agreement" means that certain 364-Day Credit Agreement, dated as of October 11, 2002, by and among Alliant, Bank One, in its capacity as administrative agent thereunder, and the financial institutions a party thereto. "Existing Reserve Report" means an engineering and economic analysis of the Borrowing Base Properties prepared effective as of October 1, 2002, and dated November 7, 2002, by Borrower's in-house staff. "Facility Guaranty" means a Guaranty substantially in the form of Exhibit A attached hereto to be executed by each Restricted Subsidiary of Borrower in favor of Banks, pursuant to which such Restricted Subsidiary of Borrower guarantees payment and performance in full of the Obligations. "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day; provided that (a) if the day for which such rate is to be determined is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (b) if such rate is not so published on such next succeeding Domestic Business Day, the Federal Funds Rate for any day shall be the average rate charged to Administrative Agent on such day on such transactions as determined by Administrative Agent. "Financial Officer" of any Person means its Chief Financial Officer; provided, that if no Person serves in such capacity, "Financial Officer" shall mean the highest ranking executive officer of such Person with responsibility for accounting, financial reporting, cash management and similar functions. "Fiscal Quarter" means the three (3) month periods ending on March 31, June 30, September 30 and December 31 of each Fiscal Year. "Fiscal Year" means a twelve (12) month period ending December 31. "Fund" means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business. "GAAP" means those generally accepted accounting principles and practices which are recognized as such by the Securities and Exchange Commission, the American Institute of Certified Public Accountants acting through its Accounting Principles Board or by the Financial Accounting Standards Board or through other appropriate boards or committees thereof and which are consistently applied for all periods after the Closing Date so as to properly reflect the financial condition, and the results of operations and changes in financial position, of Borrower and its Consolidated Subsidiaries, except that any accounting principle or practice required to be changed by the said Securities and Exchange Commission, Accounting Principles Board or Financial Accounting Standards Board (or other appropriate board or committee thereof) in order to continue as a generally accepted accounting principle or practice may be so changed. "Gas Balancing Agreement" means any agreement or arrangement whereby any Credit Party, or any other party having an interest in any Hydrocarbons to be produced from Mineral Interests in which any Credit Party owns an interest, has a right to take more than its proportionate share of production therefrom. "Governmental Authority" means any court or governmental department, commission, board, bureau, agency, or instrumentality of any nation or of any province, state, commonwealth, nation, territory, possession, county, parish, or municipality, whether now or hereafter constituted or existing. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions, by "comfort letter" or other similar undertaking of support or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. "Hazardous Discharge" means any releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping of any Hazardous Substance from or onto any real property owned, leased or operated at any time by any Credit Party or any real property owned, leased or operated by any other party. "Hazardous Substance" means any pollutant, toxic substance, hazardous waste, compound, element or chemical that is defined as hazardous, toxic, noxious, dangerous or infectious pursuant to any Applicable Environmental Law or which is otherwise regulated by any Applicable Environmental Law or is required to be investigated and/or remediated by or pursuant to any Applicable Environmental Law. "Hedge Agreements" means, collectively, any agreement, instrument, arrangement or schedule or supplement thereto evidencing any Hedge Transaction. "Hedge Transaction" means any financial derivative transaction under SFAS 133 pursuant to which a Person hedges risks related to commodity prices, interest rates, currency exchange rates, securities prices or financial market conditions. Hedge Transactions expressly includes Oil and Gas Hedge Transactions. "Hydrocarbons" means oil, gas, casinghead gas, drip gasolines, natural gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons produced or to be produced in conjunction therewith, and all products, by-products and all other substances derived therefrom or the processing thereof, and all other minerals and substances, including, but not limited to, sulphur, lignite, coal, uranium, thorium, iron, geothermal steam, water, carbon dioxide, helium, and any and all other minerals, ores, or substances of value, and the products and proceeds therefrom, including, without limitation, all gas resulting from the in-situ combustion of coal or lignite. "Immaterial Title Deficiencies" means, with respect to Borrowing Base Properties, defects or clouds on title, discrepancies in reported net revenue and working interest ownership percentages and other Liens, defects, discrepancies and similar matters which do not, individually or in the aggregate, affect Borrowing Base Properties with a Recognized Value greater than five percent (5%) of the Recognized Value of all of such Borrowing Base Properties. "Indirect Subsidiary" has the meaning given such term in the definition of "Subsidiary Pledge Agreement." "Initial Borrowing Base" means a Borrowing Base in the amount of $200,000,000, which shall be in effect during the period commencing on the Closing Date and continuing until the first Redetermination after the Closing Date. "Interest Period" means, with respect to each Eurodollar Borrowing and each Continuation of Eurodollar Loans and each Conversion of all or part of the Base Rate Loan to Eurodollar Loans, the period commencing on the date of such Borrowing, Continuation or Conversion and ending one (1), two (2), three (3) or six (6) months thereafter, as Borrower may elect in the applicable Request for Borrowing or Notice of Continuation or Conversion; provided, that: (a) any Interest Period which would otherwise end on a day which is not a Eurodollar Business Day shall be extended to the next succeeding Eurodollar Business Day unless such Eurodollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Eurodollar Business Day; (b) any Interest Period which begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Eurodollar Business Day of a calendar month; (c) if any Interest Period includes a date on which any payment of principal of the Eurodollar Loans which are the subject of such Borrowing, Continuation or Conversion is required to be made hereunder, but does not end on such date, then (i) the principal amount of such Eurodollar Loans required to be repaid on such date shall have an Interest Period ending on such date, and (ii) the remainder of each such Eurodollar Loans shall have an Interest Period determined as set forth above; and (d) no Interest Period shall extend past the Termination Date. "Investment" means, with respect to any Person, any loan, advance, extension of credit, capital contribution to, investment in or purchase of the stock or other securities of, or interests in, any other Person; provided, that, "Investment" shall not include current customer and trade accounts which are payable in accordance with customary trade terms. "Laws" means all applicable statutes, laws, ordinances, regulations, orders, writs, injunctions, or decrees of any state, commonwealth, nation, territory, possession, county, township, parish, municipality or Governmental Authority. "Lending Office" means, as to any Bank, its Domestic Lending Office or its Eurodollar Lending Office, as the context may require. "Letter of Credit Exposure" of any Bank means such Bank's aggregate participation in the unfunded portion and the funded but unreimbursed portion of Letters of Credit outstanding at any time. "Letter of Credit Fee" means, with respect to any Letter of Credit issued hereunder, a fee in an amount equal to the greater of (a) $500, or (b) a percentage of the stated amount of such Letter of Credit (calculated on a per annum basis based on the stated term of such Letter of Credit) determined by reference to the ratio of the Outstanding Credit to the Borrowing Base in effect on the date such Letter of Credit is issued in accordance with the table below:
===================================== ======================================= Ratio of Outstanding Credit to Per Annum Letter of Credit Fee Borrowing Base Percentage ------------------------------------- --------------------------------------- > .90 to 1 2.250% - ------------------------------------- --------------------------------------- > .75 to 1 and < .90 to 1 2.000% - ------------------------------------- --------------------------------------- > .50 to 1 and < .75 to 1 1.750% - ------------------------------------- --------------------------------------- < .50 to 1 1.500% ===================================== =======================================
"Letter of Credit Fronting Fee" means, with respect to any Letter of Credit issued hereunder, a fee equal to one eighth of one percent (.125%) per annum of the stated amount of such Letter of Credit. "Letter of Credit Issuer" has the meaning set forth in Section 2.1(b). "Letters of Credit" means letters of credit issued for the account of Borrower pursuant to Section 2.1(b). "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, financing statement or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Credit Parties shall be deemed to own subject to a Lien any asset which is acquired or held subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loan Papers" means this Agreement, the Notes, each Facility Guaranty which may now or hereafter be executed, each Borrower Pledge Agreement which may now or hereafter be executed, each Subsidiary Pledge Agreement which may now or hereafter be executed, all Mortgages now or at any time hereafter delivered pursuant to Section 5.1, all Letters of Credit, and all other certificates, documents or instruments delivered in connection with this Agreement, as the foregoing may be amended from time to time. "Margin Regulations" means Regulations T, U and X of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Margin Stock" means "margin stock" as defined in Regulation U. "Material Adverse Change" means any circumstance or event that has or would reasonably be expected to have a Material Adverse Effect. "Material Adverse Effect" means a material adverse effect on (a) the assets, liabilities, financial condition, results of operations or prospects of Borrower, individually, or the Credit Parties, taken as a whole, (b) the right or ability of any Credit Party to fully, completely and timely perform its obligations under the Loan Papers, (c) the validity or enforceability of any Loan Paper against any Credit Party which is a party thereto, or (d) the validity, perfection or priority of any material Lien intended to be created under or pursuant to any Loan Paper to secure the Obligations. "Material Agreement" means any material written or oral agreement, contract, commitment, or understanding to which a Person is a party, by which such Person is directly or indirectly bound, or to which any assets of such Person may be subject, which is not cancelable by such Person upon notice of thirty (30) days or less without liability for further payment other than nominal penalty. "Material Gas Imbalance" means, with respect to all Gas Balancing Agreements to which any Credit Party is a party or by which any Mineral Interest owned by any Credit Party is bound, a net gas imbalance to all such Credit Parties in excess of $5,000,000 in the aggregate. "Maximum Lawful Rate" means, for each Bank, the maximum rate (or, if the context so permits or requires, an amount calculated at such rate) of interest which, at the time in question would not cause the interest charged on the portion of the Revolving Loan owed to such Bank at such time to exceed the maximum amount which such Bank would be allowed to contract for, charge, take, reserve, or receive under applicable Laws after taking into account, to the extent required by applicable Laws, any and all relevant payments or charges under the Loan Papers. To the extent the Laws of the State of Texas are applicable for purposes of determining the "Maximum Lawful Rate," such term shall mean the "indicated rate ceiling" from time to time in effect under Chapter 303 of the Texas Finance Code, as amended, substituted for or restated, or, if permitted by applicable Law and effective upon the giving of the notices required by such Chapter 303 (or effective upon any other date otherwise specified by applicable Law), the "quarterly ceiling" or "annualized ceiling" from time to time in effect under such Chapter 303, whichever Administrative Agent (with the approval of Required Banks) shall elect to substitute for the "indicated rate ceiling," and vice versa, each such substitution to have the effect provided in such Chapter 303, and Administrative Agent (with the approval of Required Banks) shall be entitled to make such election from time to time and one or more times and, without notice to Borrower, to leave any such substitute rate in effect for subsequent periods in accordance with such Chapter 303. "Mineral Interests" means rights, estates, titles, and interests in and to oil and gas leases and any oil and gas interests, royalty and overriding royalty interest, production payment, net profits interests, oil and gas fee interests, and other rights therein, including, without limitation, any reversionary or carried interests relating to the foregoing, together with rights, titles, and interests created by or arising under the terms of any unitization, communization, and pooling agreements or arrangements, and all properties, rights and interests covered thereby, whether arising by contract, by order, or by operation of Laws, which now or hereafter include all or any part of the foregoing. "Money Pool Agreement" means that certain Non-Utility Money Pool Agreement, dated as of January 31, 1999, by and among Alliant, Alliant Energy Corporate Services, Inc., AER and certain subsidiaries of Alliant including, prior to the date hereof, Borrower. "Mortgages" means all mortgages, deeds of trust, amendments to mortgages, security agreements, assignments of production, pledge agreements, collateral mortgages, collateral chattel mortgages, collateral assignments, financing statements and other documents, instruments and agreements evidencing, creating, perfecting or otherwise establishing the Liens required by Section 5.1 hereof. All Mortgages shall be in form and substance satisfactory to Administrative Agent in its sole discretion. "Note" means a promissory note of Borrower payable to the order of a Bank, in substantially the form of Exhibit B hereto, in the amount of such Bank's Commitment, evidencing the obligation of Borrower to repay to such Bank its Commitment Percentage of the Revolving Loan, together with all modifications, extensions, renewals, and rearrangements thereof, and "Notes" means all of such Notes collectively. "Notice of Continuation or Conversion" has the meaning set forth in Section 2.5(c). "Obligations" means all present and future indebtedness, obligations and liabilities, and all renewals and extensions thereof, or any part thereof, of each Credit Party to Administrative Agent or to any Bank or any Affiliate of any Bank arising pursuant to the Loan Papers or pursuant to any Hedge Agreement or Hedge Transaction entered into with any Bank or any Affiliate of any Bank, and all interest accrued thereon and costs, expenses, and attorneys' fees incurred in the enforcement or collection thereof, regardless of whether such indebtedness, obligations and liabilities are direct, indirect, fixed, contingent, liquidated, unliquidated, joint, several or joint and several. "Oil & Gas Hedge Transaction" means a Hedge Transaction pursuant to which any Person hedges the price to be received by it for future production of Hydrocarbons. "Outstanding Credit" means, on any date, the sum of (a) the aggregate outstanding Letter of Credit Exposure on such date including the Letter of Credit Exposure attributable to Letters of Credit to be issued on such date, plus (b) the aggregate outstanding principal balance of the Revolving Loan on such date, including the amount of any Borrowing to be made on such date. "Parent" means Alliant Energy Investments, Inc., an Iowa corporation. "Participant" has the meaning given such term in Section 14.10(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted AER Distribution" means a one-time payment in an amount not greater than $170,000,000 to be paid by Borrower to AER on or before December 31, 2002, the proceeds of which shall be used and applied to repay Debt owing by Borrower to AER under the Money Pool Agreement. "Permitted Encumbrances" means with respect to any asset: (a) Liens securing the Obligations; (b) minor defects in title which do not secure the payment of money and otherwise have no material adverse effect on the value or the operation of the subject property, and for the purposes of this Agreement, a minor defect in title shall include, but not be limited to, easements, rights-of-way, servitudes, permits, surface leases and other similar rights in respect of surface operations, and easements for pipelines, streets, alleys, highways, telephone lines, power lines, railways and other easements and rights-of-way, on, over or in respect of any of the properties of any Credit Party that are customarily granted in the oil and gas industry; (c) inchoate statutory or operators' Liens securing obligations for labor, services, materials and supplies furnished to Mineral Interests which are not more than sixty (60) days delinquent (except to the extent permitted by Section 8.7); (d) mechanic's, materialmen's, warehouseman's, journeyman's and carrier's Liens and other similar Liens arising by operation of Law in the ordinary course of business which are not more than sixty (60) days delinquent (except to the extent permitted by Section 8.7); (e) Liens for Taxes or assessments not yet due or not yet delinquent, or, if delinquent, that are being contested in good faith in the normal course of business by appropriate action, as permitted by Section 8.7; (f) the terms of the oil and gas leases and lease burdens payable to third parties which are deducted in the calculation of discounted present value in the Reserve Report including, without limitation, any royalty, overriding royalty, net profits interest, production payment, carried interest or reversionary working interest; (g) Liens, charges and encumbrances upon Borrower's assets, which in the aggregate, do not have a value in excess of $5,000,000; (h) gas imbalances that are not Material Gas Imbalances; and (i) operating agreements, unit agreements, unit operating agreements, pooling and communitization agreements and pooling designations, division orders, sales contracts, processing contracts, transportation agreements, farm-in and farmout agreements and all other agreements entered into in the ordinary course of Borrower's business and affecting Borrower's assets to the extent, and only to the extent, a reasonable and prudent oil and gas industry owner or operator would find acceptable. "Permitted Exchange" means any exchange of any Relinquished Property for any Replacement Property in a transaction qualifying for nonrecognition of gain or loss under the provisions of Section 1031 of the Code, and which otherwise satisfies the terms and conditions set forth in Section 8.15 hereof and in any applicable Exchange Agreement. "Permitted Investments" means (a) readily marketable direct obligations of the United States of America (or investments in mutual funds or similar funds which invest solely in such obligations), (b) fully insured demand or time deposits and certificates of deposit with maturities of one year or less of any commercial bank operating in the United States having capital and surplus in excess of $500,000,000, (c) commercial paper of a domestic issuer if at the time of purchase such paper is rated in one of the two highest ratings categories of Standard and Poor's Corporation or Moody's Investors Service, (d) Investments by any Credit Party in a Subsidiary of Borrower that has provided a Facility Guaranty and the Equity of which has been pledged to Administrative Agent pursuant to a Borrower Pledge Agreement or a Subsidiary Pledge Agreement, (e) prepayments on drilling contracts, deposits made for property acquisitions and advance payments made on undeveloped leases and for configuration of gathering systems, all in the ordinary course of Borrower's business, (f) Investments existing on the date hereof and described on Schedule 9.8 attached hereto, and (g) other Investments; provided, that, the aggregate amount of all other Investments made pursuant to this clause (g) outstanding at any time shall not exceed $10,000,000 (measured on a cost basis). "Permitted Tax Distributions" means, for any applicable tax year of Borrower, quarterly tax distributions to Parent in an amount equal to the aggregate federal and state income tax liability incurred by Parent in respect of the Consolidated Net Income of Borrower for such tax year. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a Government Authority. "Plan" means (i) with respect to a Credit Party, an employee benefit plan within the meaning of section 3(3) of ERISA, and any other similar plan, policy or arrangement, including an employment contract, whether formal or informal and whether legally binding or not, under which any Credit Party has any current or future obligation or liability or under which any present or former employee of any Credit Party, or such present or former employee's dependents or beneficiaries, has any current or future right to benefits resulting from the present or former employee's employment relationship with any Credit Party, and (ii) with respect to an ERISA Affiliate, a plan described in clause (i) preceding if, and only if, such plan is subject to Title IV of ERISA. "Prime Rate" means the per annum rate of interest established from time to time by Bank One or its parent as its prime rate, which rate may not be the lowest rate of interest charged by Administrative Agent to its customers. "Proved Mineral Interests" means, collectively, Proved Producing Mineral Interests, Proved Nonproducing Mineral Interests, and Proved Undeveloped Mineral Interests. "Proved Nonproducing Mineral Interests" means all Mineral Interests which constitute proved developed nonproducing reserves. "Proved Producing Mineral Interests" means all Mineral Interests which constitute proved developed producing reserves. "Proved Undeveloped Mineral Interests" means all Mineral Interests which constitute proved undeveloped reserves. "Purchasers" has the meaning given such term in Section 14.10(c). "Qualified Intermediary" means Bank One in its capacity as a "qualified intermediary" for purposes of Section 1.1031(k)-1(g)(4) of the Regulations, and not in its capacity as Administrative Agent or a Bank hereunder. "Quarterly Date" means the last day of each March, June, September and December. "Recognized Value" means, with respect to all Proved Mineral Interests, the portion of the Borrowing Base which Bank One attributes to such Proved Mineral Interests for purposes of the most recent redetermination of the Borrowing Base pursuant to Article IV hereof (or for purposes of determining the initial Borrowing Base in the event no such redetermination has occurred), based upon the discounted present value of the estimated net cash flow to be realized from the production of Hydrocarbons from all such Proved Mineral Interests. "Redetermination" means any Scheduled Redetermination or Special Redetermination. "Redetermination Date" means (a) with respect to any Scheduled Redetermination, each November 1 and May 1, commencing May 1, 2003, and (b) with respect to any Special Redetermination, the first day of the first month which is not less than twenty (20) Domestic Business Days following the date of a request for a Special Redetermination. "Register" has the meaning given such term in Section 14.10(c)(iv). "Regulation A" means Regulation A of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 221, as in effect from time to time. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 221, as in effect from time to time. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 221, as in effect from time to time. "Regulations" means the regulations promulgated under the Code. "Relinquished Property" has the meaning set forth in Section 8.15. "Replacement Property " has the meaning set forth in Section 8.15. "Request for Borrowing" has the meaning set forth in Section 2.2(a). "Request for Letter of Credit" has the meaning set forth in Section 2.3(a). "Required Banks" means Banks holding at least sixty-six and two-thirds percent (66 2/3%) of the Total Commitment. "Required Reserve Value" means Proved Mineral Interests that have a Recognized Value of not less than eighty percent (80%) of the Recognized Value of all Proved Mineral Interests held by Borrower and its Subsidiaries and included in the Borrowing Base. "Reserve Report" means an unsuperseded engineering analysis of the Mineral Interests owned by Borrower, in form and substance reasonably acceptable to Administrative Agent, prepared in accordance with customary and prudent practices in the petroleum engineering industry and Financial Accounting Standards Board Statement 69. Each Reserve Report required to be delivered by April 1 of each year pursuant to Section 4.1 shall be prepared by the Approved Petroleum Engineer. Each other Reserve Report shall be prepared by either (i) the Approved Petroleum Engineer, or (ii) Borrower's in-house staff. Notwithstanding the foregoing, in connection with any Special Redetermination requested by Borrower, the Reserve Report shall be in form and scope mutually acceptable to Borrower and Administrative Agent. Until superseded, the Existing Reserve Report shall be considered the Reserve Report. "Reserve Requirement" means, at any time, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against in the case of Eurodollar Loans, "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Adjusted Eurodollar Rate is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. The Adjusted Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Requirement. "Restricted Payment" means, with respect to any Person, (a) any Distribution by such Person, (b) any capital contribution, loan or advance by any Credit Party to any Unrestricted Subsidiary, (c) the issuance of a Guarantee by any Credit Party with respect to any Debt or other obligation of Parent, Alliant, AER or any Unrestricted Subsidiary, (d) the retirement, redemption, defeasance, repurchase or prepayment prior to scheduled maturity by such Person or any Affiliate of such Person of any Debt of such Person, or (e) the retirement, redemption or payment by Borrower or any Affiliate of Borrower of any part of the principal of the Subordinate Debt at any time prior to the termination of all Commitments and the payment and performance in full of the Obligations. "Restricted Subsidiary" means any Subsidiary of Borrower which Borrower hereafter designates as a "Restricted Subsidiary;" provided, that, no Subsidiary of Borrower will be a Restricted Subsidiary unless (a) one hundred percent (100%) of its issued and outstanding Equity has been pledged to Administrative Agent to secure the Obligations pursuant to a Borrower Pledge Agreement or a Subsidiary Pledge Agreement, and (b) it has executed a Facility Guaranty. As of the date hereof, there are no Restricted Subsidiaries. "Revolving Loan" means the revolving credit loan in an amount outstanding at any time not to exceed the lesser of (i) the Borrowing Base then in effect, and (ii) the amount of (a) the Total Commitment then in effect less (b) the amount of the Letter Credit Exposure then outstanding to be made by Banks to Borrower in accordance with Section 2.1 hereof. The Revolving Loan may be comprised of the Base Rate Loan and one or more Eurodollar Loans as Borrower may select in a Request for Borrowing or a Notice of Continuation or Conversion. "Schedule" means a "schedule" attached to this Agreement and incorporated herein by reference, unless specifically indicated otherwise. "Scheduled Redetermination" means any Redetermination of the Borrowing Base pursuant to Section 4.2. "Section" refers to a "section" or "subsection" of this Agreement unless specifically indicated otherwise. "Sole Lead Arranger" means BOCM, in its capacity as sole lead arranger for the credit facility hereunder or any successor thereto. "Special Redetermination" means any Redetermination of the Borrowing Base pursuant to Section 4.3. "Subordinate Debt" means any and all Debt of Borrower owing under the Subordinate Loan Documents and evidenced by the Subordinate Note, including all renewals and extensions thereof to the extent permitted hereunder; provided, that, such Debt (i) does not exceed, in principal amount, at any time, $88,000,000, (ii) is unsecured, (iii) has a stated maturity of not less than one (1) year after the Termination Date, (iv) does not provide for a rate of interest greater than four and one-half percent (4.5%) per annum, and (v) is fully subordinated to the Obligations pursuant to the terms of the Subordinate Note. "Subordinate Loan Documents" means, collectively, the Subordinate Note, and all other promissory notes, Guarantees or other instruments given in connection with the foregoing. "Subordinate Note" means a Subordinated Promissory Note in the form of Exhibit K attached hereto to be executed by Borrower and payable to the order of Parent, in an original principal amount not to exceed $88,000,000. "Subsidiary" means, for any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions (including that of a general partner) are at the time directly or indirectly owned, collectively, by such Person and any Subsidiaries of such Person. The term "Subsidiary" shall include Subsidiaries of Subsidiaries (and so on). "Subsidiary Pledge Agreement" means a Pledge Agreement substantially in the form of Exhibit D attached hereto (with applicable conforming changes) to be executed by each existing and/or future Restricted Subsidiary of Borrower to the extent such Restricted Subsidiary owns any outstanding Equity of any other Restricted Subsidiary of Borrower (for purposes of this definition and Section 5.1(d) hereof, such Restricted Subsidiary is referred to herein and therein as an "Indirect Restricted Subsidiary"), pursuant to which such Indirect Restricted Subsidiary shall pledge to Administrative Agent, for the ratable benefit of Banks, all of the issued and outstanding Equity owned by such Indirect Restricted Subsidiary of each Restricted Subsidiary of such Indirect Restricted Subsidiary described therein to secure the Obligations. "Syndication Agent" means Wachovia Bank, National Association, in its capacity as Syndication Agent for Banks hereunder or any successors thereto. "Taxes" means all taxes, assessments, filing or other fees, levies, imposts, duties, deductions, withholdings, stamp taxes, capital transaction taxes, foreign exchange taxes or other charges, or other charges of any nature whatsoever, from time to time or at any time imposed by Law or any Governmental Authority. "Tax" means any one of the foregoing. "Termination Date" means December 20, 2005. "Total Commitment" means the Commitments of all Banks in an initial aggregate amount of $350,000,000 as such amount shall be reduced from time to time pursuant to Section 2.8 and Section 2.9. "Transferee" has the meaning given such term in Section 14.10(d). "Type" means, with reference to a Revolving Loan, the characterization of such Revolving Loan as the Base Rate Loan or a Eurodollar Loan based on the method by which the accrual of interest on such Revolving Loan is calculated. "Unrestricted Subsidiary" means any Subsidiary of Borrower which is not a Restricted Subsidiary. "Whiting-Golden Gas" means Whiting-Golden Gas Production Company, an Oklahoma corporation. "Whiting Institutional" means Whiting Institutional Oil & Gas Partnership 1985, Ltd., a Texas limited partnership. "Whiting Programs" means Whiting Programs, Inc., a Delaware corporation. "WOK" means WOK Acquisition Company, a Delaware corporation. Section 1.2.....Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be expressed in U.S. dollars and shall be prepared in accordance with GAAP, applied on a basis consistent with the most recent audited consolidated financial statements of Borrower and its Consolidated Subsidiaries delivered to Banks except for changes concurred in by Borrower's independent certified public accountants and which are disclosed to Administrative Agent on the next date on which financial statements are required to be delivered to Banks pursuant to Section 8.1(a) or Section 8.1(b); provided, that, unless Required Banks shall otherwise agree in writing, no such change shall modify or affect the manner in which compliance with the covenants contained in Article X are computed such that all such computations shall be conducted utilizing financial information presented consistently with prior periods. Section 1.3.....Petroleum Terms. As used herein, the terms "proved reserves," "proved developed reserves," "proved developed producing reserves," "proved developed nonproducing reserves," and "proved undeveloped reserves" have the meaning given such terms from time to time and at the time in question by the Society of Petroleum Engineers of the American Institute of Mining Engineers. Section 1.4.....Money. Unless expressly stipulated otherwise, all references herein to "dollars," "money," "funds," "payments," "prepayments" or similar financial or monetary terms, are references to currency of the United States of America. Article II THE CREDIT ---------- Section 2.1.....Commitments. (a) Each Bank severally agrees, subject to Section 2.1(c), Section 6.1 and Section 6.2 and the other terms and conditions set forth in this Agreement, to lend to Borrower from time to time prior to the Termination Date amounts requested by Borrower not to exceed in the aggregate at any one time outstanding, the amount of such Bank's Commitment reduced by an amount equal to such Bank's Letter of Credit Exposure. Each Borrowing shall be in an aggregate principal amount of $1,000,000 or any larger integral multiple of $100,000 (except that any Base Rate Borrowing may be in an amount equal to the Availability at such time), and (ii) shall be made from the Banks ratably in accordance with their respective Commitment Percentages. Subject to the foregoing limitations and the other provisions of this Agreement, prior to the Termination Date Borrower may borrow under this Section 2.1(a), repay amounts borrowed and request new Borrowings to be made under this Section 2.1(a). (b) Administrative Agent, or such Bank designated by Administrative Agent which (without obligation to do so) consents to the same ("Letter of Credit Issuer") will, from time to time prior to the date which is five (5) Domestic Business Days prior to the Termination Date, upon request by Borrower, issue Letters of Credit for the account of Borrower or any Restricted Subsidiary designated by Borrower, so long as (i) the sum of (A) the total Letter of Credit Exposure then existing, and (B) the amount of the requested Letter of Credit does not exceed $10,000,000, and (ii) Borrower would be entitled to a Borrowing under Section 2.1(a) and Section 2.1(c) in the amount of the requested Letter of Credit. Not less than three (3) Domestic Business Days prior to the requested date of issuance of any such Letter of Credit, Borrower (and any Restricted Subsidiary for whose account such Letter of Credit is being issued) shall execute and deliver to Letter of Credit Issuer, Letter of Credit Issuer's customary letter of credit application. Each Letter of Credit shall be in the minimum amount of $10,000 and shall be in form and substance acceptable to Letter of Credit Issuer. No Letter of Credit shall have an expiration date later than the earlier of (i) the Termination Date, or (ii) fifteen (15) months from the date of issuance (or, in the case of any renewal or extension thereof, fifteen (15) months after such renewal or extension). Upon the date of issuance of a Letter of Credit, Letter of Credit Issuer shall be deemed to have sold to each other Bank, and each other Bank shall be deemed to have unconditionally and irrevocably purchased from Letter of Credit Issuer, a non recourse participation in the related Letter of Credit and Letter of Credit Exposure equal to such Bank's Commitment Percentage of such Letter of Credit and Letter of Credit Exposure. Upon request of any Bank, but not less often than quarterly, Administrative Agent shall provide notice to each Bank by telephone, teletransmission or telex setting forth each Letter of Credit issued and outstanding pursuant to the terms hereof and specifying the beneficiary and expiration date of each such Letter of Credit, each Bank's percentage of each such Letter of Credit and the actual dollar amount of each Bank's participation held by Letter of Credit Issuer thereof for such Bank's account and risk. At the time of issuance of each Letter of Credit, Borrower shall pay to Administrative Agent in respect of such Letter of Credit (a) the applicable Letter of Credit Fee, and (b) the applicable Letter of Credit Fronting Fee. Administrative Agent shall distribute the Letter of Credit Fee payable upon the issuance of each Letter of Credit to Banks in accordance with their respective Commitment Percentages, and Administrative Agent shall distribute the Letter of Credit Fronting Fee to Letter of Credit Issuer for its own account. Any (y) material amendment or modification, or (z) renewal or extension of any Letter of Credit shall be deemed to be the issuance of a new Letter of Credit for purposes of this Section 2.1(b). Notwithstanding anything to the contrary contained herein, Borrower shall pay to Administrative Agent in connection with the issuance of each Letter of Credit and/or any amendment or modification of any nature to any existing Letter of Credit, Administrative Agent's usual and customary fees for the issuance of, amendments or modifications to, and processing of, Letters of Credit. Immediately upon the occurrence of an Event of Default and the acceleration of the Obligations hereunder, and also on the date which is five (5) Domestic Business Days prior to the Termination Date, Borrower shall deposit with Administrative Agent cash in such amounts as Administrative Agent may request, up to a maximum amount equal to the aggregate existing Letter of Credit Exposure of all Banks; provided, that, in the case of any of the Events of Default specified in Section 11.1(g) or Section 11.1(h), an amount equal to the aggregate existing Letter of Credit Exposure of all Banks shall be due and payable without any notice to Borrower or any other act by Administrative Agent or any Bank. Any amounts so deposited shall be held by Administrative Agent for the ratable benefit of all Banks as security for the outstanding Letter of Credit Exposure and the other Obligations, and Borrower will, in connection therewith, execute and deliver such security agreements in form and substance satisfactory to Administrative Agent which Administrative Agent may, in its discretion, require. As drafts or demands for payment are presented under any Letter of Credit, Administrative Agent shall apply such cash to satisfy such drafts or demands. When all Letters of Credit have expired and the Obligations have been repaid in full (and no Bank has any obligation to lend or issue Letters of Credit hereunder) or such Event of Default has been cured to the satisfaction of Required Banks, Administrative Agent shall release to Borrower any remaining cash deposited under this Section 2.1(b). Whenever Borrower is required to make deposits under this Section 2.1(b) and fails to do so on the day such deposit is due, Administrative Agent or any Bank may, without notice to Borrower, make such deposit (whether by application of proceeds of any collateral for the Obligations, by transfers from other accounts maintained with any Bank or otherwise) using any funds then available to any Bank of any Credit Party, any guarantor or any other party liable for repayment of the Obligations. Notwithstanding anything to the contrary contained herein, Borrower hereby agrees to reimburse each Letter of Credit Issuer immediately upon demand by such Letter of Credit Issuer, and in immediately available funds, for any payment or disbursement made by such Letter of Credit Issuer under any Letter of Credit issued by it. Payment shall be made by Borrower with interest on the amount so paid or disbursed by Letter of Credit Issuer from and including the date payment is made under any Letter of Credit to and including the date of payment, at the lesser of (i) the Maximum Lawful Rate, or (ii) the Default Rate. The obligations of Borrower under this paragraph will continue until all Letters of Credit have expired and all reimbursement obligations with respect thereto have been paid in full by Borrower and until all other Obligations shall have been paid in full. Borrower shall be obligated to reimburse Letter of Credit Issuer upon demand for all amounts paid under Letters of Credit as set forth in the immediately preceding paragraph hereof; provided, however, if Borrower for any reason fails to reimburse Letter of Credit Issuer in full upon demand, Banks shall reimburse Letter of Credit Issuer in accordance with each Banks' Commitment Percentage for amounts due and unpaid from Borrower as set forth hereinbelow; provided, however, that no such reimbursement made by Banks shall discharge Borrower's obligations to reimburse Letter of Credit Issuer. All reimbursement amounts payable by any Bank under this Section 2.1(b) shall include interest thereon at the Federal Funds Rate, from the date of the payment of such amounts by Letter of Credit Issuer to the date of reimbursement by such Bank. No Bank shall be liable for the performance or nonperformance of the obligations of any other Bank under this paragraph. The reimbursement obligations of Banks under this paragraph shall continue after the Termination Date and shall survive termination of this Agreement and the other Loan Papers. Borrower shall indemnify and hold Administrative Agent, Letter of Credit Issuer and each Bank, and their respective officers, directors, representatives and employees harmless from loss for any claim, demand or liability which may be asserted against any or such indemnified party in connection with actions taken under Letters of Credit or in connection therewith (including losses resulting from the negligence of any or such indemnified party), and shall pay each indemnified party for reasonable fees of attorneys and legal costs paid or incurred by each indemnified party in connection with any matter related to Letters of Credit, except for losses and liabilities incurred as a direct result of the gross negligence or willful misconduct of such indemnified party, IT BEING THE EXPRESS INTENTION OF THE PARTIES THAT EACH INDEMNIFIED PARTY SHALL BE INDEMNIFIED FOR THE CONSEQUENCES OF ITS OWN ORDINARY NEGLIGENCE. If Borrower for any reason fails to indemnify or pay such indemnified party as set forth herein in full, Banks shall indemnify and pay such indemnified party upon demand, in accordance with each Bank's Commitment Percentage of such amounts due and unpaid from Borrower; provided, however, that, no such payment made by Banks shall discharge Borrower's obligation to indemnify or pay such indemnified party in accordance with the terms hereof. The provisions of this paragraph shall survive the termination of this Agreement. Neither Administrative Agent nor any other Letter of Credit Issuer makes any representation or warranty, nor assumes any responsibility with respect to the validity, legality, sufficiency or enforceability of any letter of credit application executed and delivered in connection with any Letter of Credit issued hereunder or any document relative thereto or to the collectibility thereunder. Neither Administrative Agent nor any other Letter of Credit Issuer assumes any responsibility for the financial condition of Borrower or for the performance of any obligation of Borrower. Administrative Agent and each other Letter of Credit Issuer may use its discretion with respect to exercising or refraining from exercising any rights, or taking or refraining from taking any action which may be vested in it or which it may be entitled to take or assert with respect to any Letter of Credit or any letter of credit application. FURTHERMORE, EXCEPT AS SET FORTH HEREIN, NEITHER ADMINISTRATIVE AGENT NOR ANY OTHER LETTER OF CREDIT ISSUER SHALL BE UNDER ANY LIABILITY TO ANY BANK, WITH RESPECT TO ANYTHING ADMINISTRATIVE AGENT OR ANY SUCH LETTER OF CREDIT ISSUER MAY DO OR REFRAIN FROM DOING IN THE EXERCISE OF ITS JUDGMENT, THE SOLE LIABILITY AND RESPONSIBILITY OF ADMINISTRATIVE AGENT AND SUCH LETTER OF CREDIT ISSUER BEING TO HANDLE EACH BANK'S SHARE ON AS FAVORABLE A BASIS AS ADMINISTRATIVE AGENT OR SUCH LETTER OF CREDIT ISSUER HANDLES ITS OWN SHARE. NEITHER ADMINISTRATIVE AGENT NOR ANY OTHER LETTER OF CREDIT ISSUER SHALL HAVE ANY DUTIES OR RESPONSIBILITIES EXCEPT THOSE EXPRESSLY SET FORTH HEREIN AND THOSE DUTIES AND LIABILITIES SHALL BE SUBJECT TO THE LIMITATIONS AND QUALIFICATIONS SET FORTH HEREIN. FURTHERMORE, NEITHER ADMINISTRATIVE AGENT, ANY LETTER OF CREDIT ISSUER, NOR ANY OF THEIR DIRECTORS, OFFICERS, OR EMPLOYEES SHALL BE LIABLE FOR ANY ACTION TAKEN OR OMITTED (WHETHER OR NOT SUCH ACTION TAKEN OR OMITTED IS EXPRESSLY SET FORTH HEREIN) UNDER OR IN CONNECTION HEREWITH OR UNDER ANY OTHER INSTRUMENT OR DOCUMENT IN CONNECTION HEREWITH, EXCEPT FOR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. Neither Administrative Agent nor any other Letter of Credit Issuer shall incur any liability to any Bank, Borrower, or any Affiliate of any Bank or Borrower, in acting upon any notice, document, order, consent, certificate, warrant or other instrument reasonably believed by Administrative Agent or such Letter of Credit Issuer to be genuine or authentic and to be signed by the proper party. (c) No Bank will be obligated to lend to Borrower hereunder or incur Letter of Credit Exposure, and Borrower shall not be entitled to borrow hereunder or obtain Letters of Credit hereunder, in an amount which would cause the Outstanding Credit to exceed the Borrowing Base then in effect. No Bank shall be obligated to fund Borrowings hereunder and Borrower shall not be entitled to Borrowings hereunder during the existence of a Borrowing Base Deficiency. Nothing in this Section 2.1(c) shall be deemed to limit any Bank's obligation to reimburse any Letter of Credit Issuer with respect to its participation in Letters of Credit as a result of the drawing under any Letter of Credit pursuant to Section 2.1(b). Section 2.2.....Method of Borrowing. (a) In order to request any Borrowing under Section 2.1, Borrower shall hand deliver, telex or telecopy to Administrative Agent a duly completed Request for Borrowing (herein so called) prior to 11:00 a.m. (Dallas, Texas time), (i) on the Borrowing Date specified for a proposed Base Rate Borrowing, and (ii) at least three (3) Eurodollar Business Days before the Borrowing Date of a proposed Eurodollar Borrowing. Each such Request for Borrowing shall be substantially in the form of Exhibit E attached hereto, and shall specify: (i) the Borrowing Date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Eurodollar Business Day in the case of a Eurodollar Borrowing; (ii) the aggregate amount of such Borrowing; (iii) whether such Borrowing is to be a Base Rate Borrowing or a Eurodollar Borrowing; and (iv) in the case of a Eurodollar Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. (b) Upon receipt of a Request for Borrowing, Administrative Agent shall promptly notify each Bank of the contents thereof and the amount of the Borrowing to be loaned by such Bank pursuant thereto, and such Request for Borrowing shall not thereafter be revocable by Borrower. (c) Not later than 12:00 noon (Dallas, Texas time) on the date of each Borrowing, each Bank shall make available its Commitment Percentage of such Borrowing, in Federal or other funds immediately available in Dallas, Texas to Administrative Agent at its address set forth on Schedule 2.1 hereto. Unless Administrative Agent determines that any applicable condition specified in Section 6.2 has not been satisfied, Administrative Agent will make the funds so received from Banks available to Borrower at Administrative Agent's aforesaid address. Section 2.3.....Method of Requesting Letters of Credit. (a) In order to request any Letter of Credit hereunder, Borrower shall hand deliver, telex or telecopy to Administrative Agent a duly completed Request for Letter of Credit (herein so called) prior to 12:00 noon (Dallas, Texas time) at least three (3) Domestic Business Days before the date specified for issuance of such Letter of Credit. Each Request for Letter of Credit shall be substantially in the form of Exhibit F attached hereto, shall be accompanied by the applicable Letter of Credit Issuer's duly completed and executed letter of credit application and agreement and shall specify: (i) the requested date for issuance of such Letter of Credit; (ii) the terms of such requested Letter of Credit, including the name and address of the beneficiary, the stated amount, the expiration date and the conditions under which drafts under such Letter of Credit are to be available; and (iii) the purpose of such Letter of Credit. (b) Upon receipt of a Request for Letter of Credit, Administrative Agent shall promptly notify each Bank and the proposed Letter of Credit Issuer of the contents thereof, including the amount of the requested Letter of Credit, and such Request for Letter of Credit shall not thereafter be revocable by Borrower. (c) No later than 12:00 noon (Dallas, Texas time) on the date each Letter of Credit is requested, unless Administrative Agent or the applicable Letter of Credit Issuer determines that any applicable condition precedent set forth in Section 6.2 hereof has not been satisfied, Administrative Agent or such other applicable Letter of Credit Issuer will issue and deliver such Letter of Credit pursuant to the instructions of Borrower. Section 2.4.....Notes. Each Bank's Commitment Percentage of the Revolving Loan shall be evidenced by a single Note payable to the order of such Bank in an amount equal to such Bank's Commitment. Section 2.5.....Interest Rates; Payments. (a) The principal amount of the Base Rate Loan outstanding from day to day shall bear interest at a rate per annum equal to the sum of (i) the Applicable Margin plus (ii) the applicable Base Rate in effect from day to day; provided that in no event shall the rate charged hereunder or under the Notes exceed the Maximum Lawful Rate. Interest on the Base Rate Loan shall be payable as it accrues on each Quarterly Date, and on the Termination Date. (b) The principal amount of each Eurodollar Loan outstanding from day to day shall bear interest for the Interest Period applicable thereto at a rate per annum equal to the sum of (i) the Applicable Margin plus (ii) the applicable Adjusted Eurodollar Rate; provided that in no event shall the rate charged hereunder or under the Notes exceed the Maximum Lawful Rate. Interest on any portion of the principal of each Eurodollar Loan subject to an Interest Period of one (1), two (2) or three (3) months shall be payable on the last day of the Interest Period applicable thereto. Interest on any portion of the principal of each Eurodollar Loan subject to an Interest Period of six (6) months shall be payable on the last day of the Interest Period applicable thereto and on each Quarterly Date. (c) So long as no Default or Event of Default shall be continuing, subject to the provisions of this Section 2.5, Borrower shall have the option of having all or any portion of the principal outstanding under the Revolving Loan be a Base Rate Loan or one (1) or more Eurodollar Loans, which shall bear interest at rates determined by reference to the Base Rate and the Adjusted Eurodollar Rate, respectively; provided, that each Eurodollar Loan shall be in a minimum amount of $2,000,000 and shall be in an amount which is an integral multiple of $500,000. Prior to the termination of each Interest Period with respect to each Eurodollar Loan, Borrower shall give written notice (a "Notice of Continuation or Conversion") in the form of Exhibit G attached hereto to Administrative Agent of the Type of Loan which shall be applicable to the principal of such Eurodollar Loan upon the expiration of such Interest Period. Such Notice of Continuation or Conversion shall be given to Administrative Agent at least one (1) Domestic Business Day, in the case of a Base Rate Loan selection and three (3) Eurodollar Business Days, in the case of a Eurodollar Loan selection, prior to the termination of the Interest Period then expiring. If Borrower shall specify a Eurodollar Loan, such Notice of Continuation or Conversion shall also specify the length of the succeeding Interest Period (subject to the provisions of the definition of such term) selected by Borrower. Each Notice of Continuation or Conversion shall be irrevocable and effective upon notification thereof to Administrative Agent. If the required Notice of Continuation or Conversion shall not have been timely received by Administrative Agent, Borrower shall be deemed to have elected that the principal of the Eurodollar Loan subject to the Interest Period then expiring be Converted to the Base Rate Loan upon the expiration of such Interest Period and Borrower will be deemed to have given Administrative Agent notice of such election. Subject to the limitations set forth in this Section 2.5(c) on the amount and number of Eurodollar Loans, Borrower shall have the right to Convert all or any part of the Base Rate Loan to a Eurodollar Loan by giving Administrative Agent a Notice of Continuation or Conversion of such election at least three (3) Eurodollar Business Days prior to the date on which Borrower elects to make such Conversion (a "Conversion Date"). The Conversion Date selected by Borrower shall be a Eurodollar Business Day. Notwithstanding anything in this Section 2.5 to the contrary, no portion of the principal of the Base Rate Loan may be Converted to a Eurodollar Loan and no Eurodollar Loan may be Continued as such when any Default or Event of Default has occurred and is continuing, but each such Eurodollar Loan shall be automatically Converted to the Base Rate Loan on the last day of each applicable Interest Period. Borrower shall not be permitted to have more than five (5) Eurodollar Loans in effect at any time. (d) Notwithstanding anything to the contrary set forth in Section 2.5(a) or Section 2.5(b) above, after the occurrence of an Event of Default, interest shall accrue on the outstanding principal balance of the Revolving Loan, and to the extent permitted by Law, on the past due but unpaid interest on the Revolving Loan and all other past due Obligations from the period from and including the occurrence of such Event of Default to but excluding the date the same is remedied at a rate per annum equal to the lesser of (a) the Default Rate, and (b) the Maximum Lawful Rate. (e) Administrative Agent shall determine each interest rate applicable to the Revolving Loan in accordance with the terms hereof. Administrative Agent shall promptly notify Borrower and Banks by telex, telecopy or cable of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (f) Notwithstanding the foregoing, if at any time the rate of interest calculated with reference to the Base Rate or the Eurodollar Rate hereunder (the "contract rate") is limited to the Maximum Lawful Rate, any subsequent reductions in the contract rate shall not reduce the rate of interest on the Revolving Loan below the Maximum Lawful Rate until the total amount of interest accrued equals the amount of interest which would have accrued if the contract rate had at all times been in effect. In the event that at maturity (stated or by acceleration), or at final payment of any Note, the total amount of interest paid or accrued on such Note is less than the amount of interest which would have accrued if the contract rate had at all times been in effect with respect thereto, then at such time, to the extent permitted by law, Borrower shall pay to the holder of such Note an amount equal to the difference between (i) the lesser of the amount of interest which would have accrued if the contract rate had at all times been in effect and the amount of interest which would have accrued if the Maximum Lawful Rate had at all times been in effect, and (ii) the amount of interest actually paid on such Note. (g) Interest payable hereunder on each Eurodollar Loan shall be computed based on the number of actual days elapsed assuming that each calendar year consisted of 360 days. Interest payable hereunder on the Base Rate Loan shall be computed based on the actual number of days elapsed assuming that each calendar year consisted of 365 days (or 366 days in a leap year). Section 2.6.....Mandatory Prepayments. Upon the occurrence of any Borrowing Base Deficiency, including, without limitation, in connection with any Asset Disposition, Borrower shall make the mandatory prepayments of the Revolving Loan required by Section 4.4 and Section 8.15 hereof. Section 2.7.....Voluntary Prepayments. Borrower may, subject to Section 13.5 and the other provisions of this Agreement, prepay the principal of the Revolving Loan in whole or in part. Any partial prepayment shall be in a minimum amount of $500,000 and shall be in an integral multiple of $100,000. Section 2.8.....Voluntary Reduction of Commitments. Borrower may, by notice to Administrative Agent three (3) Domestic Business Days prior to the effective date of any such reduction, reduce the Total Commitment (and thereby reduce the Commitment of each Bank ratably) in amounts not less than $10,000,000 and in an amount which is an integral multiple of $10,000,000. On the effective date of any such reduction, Borrower shall, to the extent required as a result of such reduction, make a principal payment on the Revolving Loan in an amount sufficient to cause the principal balance of the Revolving Loan then outstanding to be equal to or less than the Total Commitment as thereby reduced. Notwithstanding the foregoing, Borrower shall not be permitted to voluntarily reduce the Total Commitment to an amount less than the aggregate Letter of Credit Exposure of all Banks. Section 2.9.....Termination of Commitments; Final Maturity of Revolving Loan. The Total Commitment (and the Commitment of each Bank) shall terminate, and the entire outstanding principal balance of the Revolving Loan, all interest accrued thereon, all accrued but unpaid fees hereunder and all other outstanding Obligations shall be due and payable in full on the Termination Date. Section 2.10....Application of Payments. Each repayment pursuant to Section 2.6, Section 2.7, Section 2.8, Section 2.9, Section 4.4, and Section 8.15 shall be made together with accrued interest on the amount repaid to the date of payment, and shall be applied in accordance with Section 3.2 and the other provisions of this Agreement. Section 2.11....Commitment Fee. On the Termination Date, on each Quarterly Date prior to the Termination Date, and, in the event the Commitments are terminated in their entirety prior to the Termination Date, on the date of such termination, Borrower shall pay to Administrative Agent, for the ratable benefit of each Bank based on each Bank's Commitment Percentage, a commitment fee equal to the Commitment Fee Percentage in effect from day to day (applied on a per annum basis and computed on the basis of actual days elapsed and as if each calendar year consisted of 365 days (or 366 days in a leap year)) of the average daily Availability for the Fiscal Quarter (or portion thereof) ending on the date such payment is due. Section 2.12....Agency and other Fees. Borrower shall pay to Administrative Agent and its Affiliates such other fees and amounts as Borrower shall be required to pay to Administrative Agent and its Affiliates from time to time pursuant to any separate agreement between Borrower and Administrative Agent or such Affiliates. Such fees and other amounts shall be retained by Administrative Agent and its Affiliates, and no Bank (other than Bank One) shall have any interest therein. Administrative Agent may disburse any fees paid to Administrative Agent and its Affiliates pursuant to this Section 2.12 in any manner Administrative Agent desires in its sole discretion. Article III GENERAL PROVISIONS ------------------ Section 3.1.....Delivery and Endorsement of Notes. On the Closing Date, Administrative Agent shall deliver to each Bank the Note payable to such Bank. Each Bank may endorse (and prior to any transfer of its Note shall endorse) on the schedules attached and forming a part thereof appropriate notations to evidence the date and amount of its Commitment Percentage of each Borrowing, the Interest Period applicable thereto, and the date and amount of each payment of principal made by Borrower with respect thereto; provided that the failure by any Bank to so endorse its Note shall not affect the liability of Borrower for the repayment of all amounts outstanding under such Note together with interest thereon. Each Bank is hereby irrevocably authorized by Borrower to endorse its Note and to attach to and make a part of any such Note a continuation of any such schedule as required. Section 3.2.....General Provisions as to Payments. (a) Borrower shall make each payment of principal of, and interest on, the Revolving Loan, and all fees payable hereunder shall be paid, not later than 12:00 noon (Dallas, Texas time) on the date when due, in Federal or other funds immediately available in Dallas, Texas, to Administrative Agent at its address set forth on Schedule 2.1 hereto, without defense, set-off, deduction or counterclaim. Administrative Agent will promptly (and if such payment is received by Administrative Agent by 10:00 a.m. (Dallas, Texas time), and otherwise if reasonably possible, on the same Domestic Business Day) distribute to each Bank its Commitment Percentage of each such payment received by Administrative Agent for the account of Banks. Whenever any payment of principal of, or interest on, the Base Rate Loan or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, any portion of any Eurodollar Loan shall be due on a day which is not a Eurodollar Business Day, the date for payment thereof shall be extended to the next succeeding Eurodollar Business Day (subject to the provisions of the definition of Interest Period). If the date for any payment of principal is extended by operation of Law or otherwise, interest thereon shall be payable for such extended time. Borrower hereby authorizes Administrative Agent to charge from time to time against Borrower's accounts with Administrative Agent any amount then due. (b) Prior to the occurrence of an Event of Default, all principal payments received by Banks with respect to the Revolving Loan shall be applied first to Eurodollar Loans outstanding with Interest Periods ending on the date of such payment, then to the Base Rate Loan, and then to Eurodollar Loans next maturing until such principal payment is fully applied. (c) After the occurrence of an Event of Default, all amounts collected or received by Administrative Agent or any Bank shall be applied first to the payment of all proper costs incurred by Administrative Agent in connection with the collection thereof (including reasonable expenses and disbursements of Administrative Agent), second to the payment of all proper costs incurred by Banks in connection with the collection thereof (including reasonable expenses and disbursements of Banks), third to the reimbursement of any advances made by Banks to effect performance of any unperformed covenants of any Credit Party under any of the Loan Papers, fourth to the payment of any unpaid fees required pursuant to Section 2.12, fifth to the payment of any unpaid fees required pursuant to Section 2.1(b) and Section 2.11, sixth, to the payment of all accrued but unpaid interest, seventh, to the payment to each Bank of its Commitment Percentage of the outstanding principal of the Revolving Loan and to satisfy all obligations and liabilities then due under Hedge Agreements, such payments to be made pro rata to each Bank owed such Obligations in proportion to all such payments owed to all Banks in respect of such Obligations, and eighth to establish the deposits required in Section 2.1(b). All payments received by a Bank after the occurrence of an Event of Default for application to the principal of the Revolving Loan shall be applied by such Bank in the manner provided in Section 3.2(b). Article IV BORROWING BASE -------------- Section 4.1.....Reserve Report; Proposed Borrowing Base. The aggregate amount of credit available to Borrower under this Agreement shall be limited by a Borrowing Base (herein so called) which shall be determined by Banks at the times and in accordance with the standards and procedures set forth in this Article IV. As soon as available and in any event by April 1 and September 1 of each year commencing April 1, 2003, Borrower shall deliver to Administrative Agent and each Bank a Reserve Report prepared as of the immediately preceding January 1 and July 1 respectively. Simultaneously with the delivery to Administrative Agent and each Bank of each Reserve Report, Borrower shall notify Administrative Agent and each Bank of the amount of the Borrowing Base which Borrower requests become effective on the next Redetermination Date (or such date promptly following such Redetermination Date as Required Banks shall elect). Section 4.2.....Scheduled Redeterminations of the Borrowing Base; Procedures and Standards. Based in part on the Reserve Reports made available to Banks pursuant to Section 4.1, Banks shall redetermine the Borrowing Base on or prior to the next Redetermination Date (or such date promptly thereafter as reasonably possible based on the engineering and other information available to Banks). Any Borrowing Base which becomes effective as a result of any Redetermination of the Borrowing Base shall be subject to the following restrictions: (a) such Borrowing Base shall not exceed the Borrowing Base requested by Borrower pursuant to Section 4.1 or Section 4.3 (as applicable), (b) such Borrowing Base shall not exceed the Total Commitment then in effect, (c) to the extent such Borrowing Base represents an increase from the Borrowing Base in effect prior to such Redetermination, such Borrowing Base shall be approved by all Banks, and (d) to the extent such Borrowing Base represents a decrease in the Borrowing Base in effect prior to such Redetermination, or a reaffirmation of such prior Borrowing Base, such Borrowing Base shall be approved by Required Banks. Each Redetermination shall be made by Banks in their sole discretion. Without limiting such discretion, Borrower acknowledges and agrees that Banks (i) may make such assumptions regarding appropriate existing and projected pricing for Hydrocarbons as they deem appropriate in their sole discretion, (ii) may make such assumptions regarding projected rates and quantities of future production of Hydrocarbons from the Mineral Interests owned by Borrower as they deem appropriate in their sole discretion, (iii) may consider the projected cash requirements of the Credit Parties, (iv) are not required to consider any asset other than Proved Mineral Interests owned by Borrower which are subject to first and prior Liens in favor of Administrative Agent for the ratable benefit of Banks to the extent required by Section 5.1 hereof, and (v) may make such other assumptions, considerations and exclusions as Banks deem appropriate in the exercise of their sole discretion. It is further acknowledged and agreed that each Bank may consider such other credit factors as it deems appropriate in the exercise of its sole discretion and shall have no obligation in connection with any Redetermination to approve any increase from the Borrowing Base in effect prior to such Redetermination. Promptly following any Redetermination of the Borrowing Base, Administrative Agent shall notify Borrower of the amount of the Borrowing Base as redetermined, which Borrowing Base shall be effective as of the date specified in such notice, and shall remain in effect for all purposes of this Agreement until the next Redetermination. Section 4.3.....Special Redetermination. (a) In addition to Scheduled Redeterminations, Borrower and Required Banks shall each be permitted to request a Special Redetermination of the Borrowing Base once in each Fiscal Year. Any request by Required Banks pursuant to this Section 4.3(a) shall be submitted to Administrative Agent and Borrower. Any request by Borrower pursuant to this Section 4.3(a) shall be submitted to Administrative Agent and each Bank and at the time of such request Borrower shall (i) deliver to Administrative Agent and each Bank a Reserve Report, and (ii) also notify Administrative Agent and each Bank of the Borrowing Base requested by Borrower in connection with such Special Redetermination. (b) Any Special Redetermination shall be made by Banks in accordance with the procedures and standards set forth in Section 4.2; provided, that, no Reserve Report will be required to be delivered to Administrative Agent and Banks in connection with any Special Redetermination requested by Required Banks pursuant to Section 4.3(a) above. Section 4.4.....Borrowing Base Deficiency. To the extent a Borrowing Base Deficiency exists after giving effect to any Redetermination (other than as a result of an Asset Disposition), Borrower shall, within thirty (30) days following notice thereof from Administrative Agent, provide written notice (the "Election Notice") to Administrative Agent stating the action which Borrower proposes to take to remedy such Borrowing Base Deficiency, and Borrower shall thereafter, at its option, within ninety (90) days following the delivery of the Election Notice, either (a) make a prepayment or prepayments of principal on the Revolving Loan in an amount sufficient to eliminate such Borrowing Base Deficiency, and if such Borrowing Base Deficiency cannot be eliminated pursuant to this Section 4.4 by prepayment of the Revolving Loan in full (as a result of outstanding Letter of Credit Exposure), Borrower shall also at such time deposit with Administrative Agent sufficient cash to be held by Administrative Agent to secure outstanding Letter of Credit Exposure in the manner contemplated by Section 2.1(b) as necessary to eliminate such Borrowing Base Deficiency, (b) submit additional oil and gas properties owned by Borrower and its Subsidiaries for consideration in connection with the determination of the Borrowing Base which Administrative Agent and Banks deem sufficient in their sole discretion to eliminate such Borrowing Base Deficiency, or (c) eliminate such Borrowing Base Deficiency through a combination of prepayments on the Revolving Loan and submission of additional oil and gas properties for inclusion in the Borrowing Base as set forth in subclauses (a) and (b) above. Notwithstanding the foregoing, upon the consummation of any Asset Disposition (other than the sale of any Relinquished Property, but including the consummation of any Permitted Exchange and as otherwise provided in Section 8.15) which results in a Borrowing Base Deficiency (or increase in an existing Borrowing Base Deficiency), Borrower shall promptly, but in all events within two (2) Domestic Business Days after such Borrowing Base Deficiency first occurs, make a mandatory prepayment of principal on the Revolving Loan in an amount sufficient to eliminate such Borrowing Base Deficiency. Furthermore, and notwithstanding anything to the contrary contained herein, Borrower shall promptly make all mandatory prepayments of the Revolving Loan required by Section 8.15. Section 4.5.....Initial Borrowing Base. Notwithstanding anything to the contrary contained herein, the Borrowing Base in effect during the period commencing on the Closing Date and ending on the effective date of the first Redetermination after the Closing Date shall be the Initial Borrowing Base. Article V COLLATERAL AND GUARANTEES ------------------------- Section 5.1.....Security. (a) The Obligations shall be secured by first and prior Liens (subject only to Permitted Encumbrances) covering and encumbering (i) the Required Reserve Value of all Borrowing Base Properties, together with all related assets and interests, including, without limitation, all operating equipment, accounts, inventory, contract rights and all products, proceeds and other interests relating to the ownership, operation and/or production of such Borrowing Base Properties, to the extent permitted by applicable law and regulations, the Exchange Funds (as defined in Section 8.15), and prior to any Distributions being permitted to be made to any Restricted Subsidiary pursuant to the terms of Section 9.2(b) and/or the definition of "Permitted Investments," all of the issued and outstanding Equity owned by Borrower and each Restricted Subsidiary of each Restricted Subsidiary. On the Closing Date, Borrower shall deliver to Administrative Agent for the ratable benefit of each Bank, the Mortgages in form and substance acceptable to Administrative Agent and duly executed by Borrower, together with such other assignments, conveyances, amendments, agreements and other writings, including, without limitation, UCC-1 financing statements (each duly authorized and executed, as applicable) as Administrative Agent shall deem necessary or appropriate to grant, evidence and perfect first and prior Liens in all Borrowing Base Properties and other interests of Borrower required by this Section 5.1(a). Borrower hereby authorizes Administrative Agent, and its agents, successors and assigns, to file any and all necessary financing statements under the Uniform Commercial Code, assignments or continuation statements as necessary from time to time (in Administrative Agent's discretion) to perfect (or continue perfection of) the Liens granted pursuant to the Loan Papers. (b) On or before each Redetermination Date after the Closing Date and at such other times as Administrative Agent or Required Banks shall request (including, without limitation, upon consummation of the Permitted Exchange), Borrower and its Restricted Subsidiaries shall execute and deliver to Administrative Agent, for the ratable benefit of each Bank, Mortgages in form and substance acceptable to Administrative Agent and duly executed by Borrower and any such Restricted Subsidiary (as applicable) together with such other assignments, conveyances, amendments, agreements and other writings, including, without limitation, UCC-1 financing statements (each duly authorized and executed) as Administrative Agent shall deem necessary or appropriate to grant, evidence and perfect the Liens required by Section 5.1(a) preceding with respect to Borrowing Base Properties acquired by Borrower and its Restricted Subsidiaries subsequent to the last date on which Borrower or any such Restricted Subsidiary was required to execute and deliver Mortgages pursuant to this Section 5.1(b), or which, for any other reason are not the subject of valid, enforceable, perfected first priority Liens (subject only to Permitted Encumbrances) in favor of Administrative Agent for the ratable benefit of Banks. (c) At any time Borrower or any of its Subsidiaries is required to execute and deliver Mortgages to Administrative Agent pursuant to this Section 5.1, Borrower shall also deliver to Administrative Agent such opinions of counsel (including, if so requested, title opinions within sixty (60) days of the date of any such request, and in each case addressed to Administrative Agent) and other evidence of title as Administrative Agent shall deem necessary or appropriate to verify (i) Borrower's or such Subsidiary's title to the Required Reserve Value of the Proved Mineral Interests which are subject to such Mortgages, and (ii) the validity and perfection of the Liens created by such Mortgages and such other matters regarding such Mortgages as Administrative Agent shall reasonably request. (d) To the extent required or contemplated by the terms of Section 5.1(a)(ii), Section 9.2 and the definition of "Permitted Investments," Borrower or any Indirect Restricted Subsidiary (as applicable) shall execute and deliver to Administrative Agent a Borrower Pledge Agreement or a Subsidiary Pledge Agreement (as applicable) together with (i) all certificates (or other evidence acceptable to Administrative Agent) evidencing the issued and outstanding Equity of any such Restricted Subsidiary of every class owned by Borrower or such Indirect Restricted Subsidiary (as applicable) which shall be duly endorsed or accompanied by stock powers executed in blank (as applicable), and (ii) such UCC-1 financing statements as Administrative Agent shall deem necessary or appropriate to grant, evidence and perfect the Liens required by Section 5.1(a)(iii) and Section 9.2 in the issued and outstanding Equity of each such Restricted Subsidiary. Section 5.2.....Guarantees. Prior to any Distributions being permitted to be made to any Restricted Subsidiary pursuant to terms of Section 9.2(b), payment and performance of the Obligations shall be fully guaranteed by each Restricted Subsidiary pursuant to a Facility Guaranty, and Borrower shall cause any such applicable Restricted Subsidiary to execute and deliver to Administrative Agent such Facility Guaranty. Article VI CONDITIONS PRECEDENT -------------------- Section 6.1.....Conditions to Initial Borrowing and Participation in Letter of Credit Exposure. The obligation of each Bank to loan its Commitment Percentage of the initial Borrowing hereunder and the obligation of Administrative Agent to issue (or cause another Bank to issue) any Letter of Credit issued hereunder is subject to the satisfaction of each of the following conditions: (a) Closing Deliveries. Administrative Agent shall have received each of the following documents, instruments and agreements, each of which shall be in form and substance and executed in such counterparts as shall be acceptable to Administrative Agent and each Bank and each of which shall, unless otherwise indicated, be dated the Closing Date: (i) a Note payable to the order of each Bank, each in the amount of such Bank's Commitment, duly executed by Borrower; (ii) the Mortgages to be executed on the Closing Date pursuant to Section 5.1(a), duly executed and delivered by Borrower, together with such other assignments, conveyances, amendments, agreements and other writings, including, without limitation, UCC-1 financing statements, in form and substance satisfactory to Administrative Agent, creating first and prior Liens in all Borrowing Base Properties; (iii) such financing statements (including, without limitation, the financing statements referenced in subclause (ii) above) in form and substance acceptable to Administrative Agent and executed by each Credit Party (as applicable) as Administrative Agent shall specify to fully evidence and perfect all Liens contemplated by the Loan Papers (to the extent such Liens may be perfected by filing a financing statement), all of which shall be filed of record in such jurisdictions as Administrative Agent shall require in its sole discretion; (iv) a copy of the Subordinate Note duly executed by Borrower; (v) a copy of the articles or certificate of incorporation, certificate of organization, or comparable charter documents, and all amendments thereto, of each Credit Party accompanied by a certificate that such copy is true, correct and complete, and dated within ten (10) days of the Closing Date (or within such other period as acceptable to Administrative Agent), issued by the appropriate Governmental Authority of the jurisdiction of incorporation of each such Credit Party, and accompanied by a certificate of the Secretary or comparable Authorized Officer of each such Credit Party that such copy is true, correct and complete on the Closing Date; (vi) a copy of the bylaws, regulations or comparable charter documents, and all amendments thereto, of each Credit Party accompanied by a certificate of the Secretary or comparable Authorized Officer of each such Credit Party that such copy is true, correct and complete as of Closing Date; (vii) certain certificates and other documents issued by the appropriate Governmental Authorities of such jurisdictions as Administrative Agent has requested relating to the existence of each Credit Party and to the effect that each such Credit Party is in good standing with respect to the payment of franchise and similar Taxes and is duly qualified to transact business in such jurisdictions; (viii) a certificate of incumbency of all officers of each Credit Party who will be authorized to execute or attest to any Loan Paper, dated the Closing Date, executed by the Secretary or comparable Authorized Officer of each such Credit Party; (ix) copies of resolutions or comparable authorizations approving the Loan Papers and authorizing the transactions contemplated by this Agreement and the other Loan Papers, duly adopted by the Board of Directors (or comparable authority) of each Credit Party accompanied by certificates of the Secretary or comparable officer of each such Credit Party that such copies are true and correct copies of resolutions duly adopted at a meeting of or (if permitted by applicable Law and, if required by such Law, by the bylaws or comparable charter documents of each such Credit Party, as applicable) by the unanimous written consent of the Board of Directors (or comparable authority) of each such Credit Party, as applicable, and that such resolutions constitute all the resolutions adopted with respect to such transactions, have not been amended, modified, or revoked in any respect, and are in full force and effect as of the Closing Date; (x) an opinion of (a) Foley & Lardner, special counsel for the Credit Parties, and (b) with respect to Texas law issues, an opinion of Welborn Sullivan Meck & Tooley, special counsel for the Credit Parties, each dated the Closing Date, favorably opining as to the enforceability of each of the Loan Papers and otherwise in form and substance satisfactory to Administrative Agent and Banks; (xi) an opinion of special counsel for Administrative Agent in each of Arkansas, Colorado, Louisiana, Michigan, Montana, North Dakota, Oklahoma and Wyoming, each dated the Closing Date, favorably opining as to the enforceability of the applicable Mortgages in each applicable State and otherwise in form and substance satisfactory to Administrative Agent and Banks; (xii) a certificate signed by an Authorized Officer of Borrower stating that (a) the representations and warranties contained in this Agreement and the other Loan Papers are true and correct in all respects, and (b) no Default or Event of Default has occurred and is continuing; (xiii) a Certificate of Ownership Interests signed by an Authorized Officer of Borrower in the form of Exhibit H attached hereto; (xiv) copies of all reports in Borrower's files (or otherwise reasonably available to Borrower) pertaining to Borrower's Mineral Interests and operations, which report(s) shall not reflect the existence of facts or circumstances which would constitute a material violation of any Applicable Environmental Law or which are likely to result in a material liability to any Credit Party; and (xv) certificates from Borrower's insurance broker setting forth the insurance maintained by Borrower and stating that such insurance is in full force and effect, and which certificates shall evidence that such insurance complies with the requirements of Section 8.6. (b) Title Review. Administrative Agent or its counsel shall have completed a review of title to the Required Reserve Value of all Borrowing Base Properties and such review shall not have revealed any condition or circumstance which would reflect that the representations and warranties contained in Section 7.8 and Section 7.9 hereof are inaccurate in any respect. (c) Repayment of Existing Debt. Subject only to the disbursement and application of the initial Borrowing, Borrower shall have repaid in full with proceeds of a Borrowing under this Agreement, all Debt accrued, outstanding and owing by Borrower under the letter loan agreement, dated as of October 16, 2002, between Borrower and Bank One, NA. (d) Evidence of Withdrawal from Money Pool Agreement. Administrative Agent shall have received written evidence (in form and substance satisfactory to Administrative Agent) that Borrower has effectively withdrawn from the Money Pool Agreement, and pursuant to such withdrawal, Borrower has no further rights, duties or obligations thereunder in any respect. (e) No Material Adverse Change. No Material Adverse Change shall have occurred. (f) No Legal Prohibition. The transactions contemplated by this Agreement shall be permitted by applicable Law and regulation and shall not subject any Agent or any Bank to any material adverse change in its assets, liabilities, financial condition, operations or prospects or subject any Credit Party to a Material Adverse Change. (g) No Litigation. No litigation, arbitration or similar proceeding shall be pending or threatened which calls into question the validity or enforceability of this Agreement, the other Loan Papers or the transactions contemplated hereby or thereby. (h) Closing Fees. Borrower shall have paid to Administrative Agent for the ratable benefit of each Bank, and shall have paid to Administrative Agent and its Affiliates (for its own account), the fees to be paid on the Closing Date pursuant to Section 2.12. (i) Other Matters. All matters related to this Agreement, the other Loan Papers and the Credit Parties shall be acceptable to each Bank in its sole discretion, and each Credit Party shall have delivered to Administrative Agent and each Bank such evidence as they shall request to substantiate any matters related to this Agreement and the other Loan Papers as Administrative Agent or any Bank shall request. Section 6.2.....Conditions to Each Borrowing and each Letter of Credit. The obligation of each Bank to loan its Commitment Percentage of each Borrowing and the obligation of any Letter of Credit Issuer to issue, extend, amend or renew any Letter of Credit on the date such Letter of Credit is to be issued, extended, amended or renewed is subject to the further satisfaction of the following conditions: (a) timely receipt by Administrative Agent of a Request for Borrowing or a Request for Letter of Credit (as applicable); (b) immediately before and after giving effect to such Borrowing or issuance of such Letter of Credit, no Default or Event of Default shall have occurred and be continuing and the funding of such Borrowing or the issuance of the requested Letter of Credit (as applicable) shall not cause a Default or Event of Default; (c) the representations and warranties of each Credit Party contained in this Agreement and the other Loan Papers shall be true and correct on and as of the date of such Borrowing or issuance of such Letter of Credit (as applicable); (d) the amount of the requested Borrowing or the amount of the requested Letter of Credit (as applicable) shall not exceed the Availability; (e) no Material Adverse Change shall have occurred; and (f) the funding of such Borrowing or the issuance of such Letter of Credit (as applicable) shall be permitted by applicable Law. The funding of each Borrowing and the issuance of each Letter of Credit hereunder shall be deemed to be a representation and warranty by Borrower on the date of such Borrowing and the date of issuance of each Letter of Credit as to the facts specified in Section 6.2(b) through Section 6.2(e). Section 6.3.....Post-Closing Deliveries and Actions. Borrower shall on or prior to January 15, 2003, establish separate and independent operating accounts with Bank One, on or prior to January 20, 2003, deliver, or cause to be delivered, opinions of title or other evidence of title in form and substance acceptable to Administrative Agent and its counsel regarding that portion of the Borrowing Base Properties which is not less than the Required Reserve Value, and (c) deliver, or cause to be delivered, to Administrative Agent each document, instrument or agreement, and take each action, or cause to be taken each action, specified in Schedule 6.3 hereto, in each case on or before the date specified in such Schedule 6.3. Section 6.4.....Materiality of Conditions. Each condition precedent herein is material to the transactions contemplated herein, and time is of the essence in respect of each thereof. Article VII REPRESENTATIONS AND WARRANTIES ------------------------------ Borrower represents and warrants to Administrative Agent and each Bank that each of the following statements is true and correct on the date hereof, and will be true and correct on the occasion of each Borrowing and the issuance of each Letter of Credit: Section 7.1.....Corporate Existence and Power. Each Credit Party (a) is a corporation, partnership or limited liability company duly incorporated or organized (as applicable), validly existing and in good standing under the Laws of its jurisdiction of incorporation or organization, (b) has all corporate, partnership or limited liability company power (as applicable) and all material governmental licenses, authorizations, consents and approvals required to carry on its businesses as now conducted and as proposed to be conducted, and (c) is duly qualified to transact business as a foreign corporation, partnership or limited liability company (as applicable) in each jurisdiction where a failure to be so qualified could reasonably be expected to have a Material Adverse Effect. Section 7.2.....Credit Party and Governmental Authorization; Contravention. The execution, delivery and performance of this Agreement and the other Loan Papers by each Credit Party (to the extent each Credit Party is a party to this Agreement and such Loan Papers) are within such Credit Party's corporate, partnership or limited liability company powers (as applicable), when executed will be duly authorized by all necessary corporate, partnership or limited liability company action (as applicable), require no action by or in respect of, or filing with, any Governmental Authority (except for filings and recordings to perfect Liens granted pursuant to such Loan Papers) and do not contravene, or constitute a default under, any provision of applicable Law (including, without limitation, the Margin Regulations) or of the articles or certificate of incorporation, bylaws, regulations, partnership agreement or comparable charter documents of any Credit Party or of any agreement, judgment, injunction, order, decree or other instrument binding upon any Credit Party or result in the creation or imposition of any Lien on any asset of any Credit Party other than the Liens securing the Obligations. Section 7.3.....Binding Effect. This Agreement constitutes a valid and binding agreement of Borrower; the other Loan Papers when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of each Credit Party executing the same; and each Loan Paper is, or when executed and delivered, will be, enforceable against each Credit Party which executes the same in accordance with its terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar Laws affecting creditors rights generally, and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability. Section 7.4.....Financial Information. (a) The most recent annual audited consolidated balance sheet of Borrower and the related consolidated statements of operations and cash flows for the Fiscal Year then ended, copies of which have been delivered to each Bank, fairly present, in conformity with GAAP, the consolidated financial position of Borrower as of the end of such Fiscal Year and its consolidated results of operations and cash flows for such Fiscal Year. (b) The most recent quarterly unaudited consolidated balance sheet of Borrower delivered to Banks, and the related unaudited consolidated statements of operations and cash flows for the portion of Borrower's Fiscal Year then ended, fairly present, in conformity with GAAP applied on a basis consistent with the financial statements referred to in Section 7.4(a), the consolidated financial position of Borrower as of such date and its consolidated results of operations and cash flows for such portion of Borrower's Fiscal Year. (c) Since the date of Borrower's most recent annual and quarterly consolidated balance sheet and consolidated statements of operations and cash flow delivered to Banks, there has been no material adverse change in the assets, liabilities, financial position, results of operations or prospects of Borrower, individually, or the Credit Parties, taken as a whole. Section 7.5.....Litigation. Except for matters disclosed on Schedule 7.5 attached hereto, there is no action, suit or proceeding pending against, or to the knowledge of any Credit Party, threatened against or affecting any Credit Party before any Governmental Authority in which there is a reasonable possibility of an adverse decision which could reasonably be expected to have a Material Adverse Effect or which could in any manner draw into question the validity of the Loan Papers. Section 7.6.....ERISA. No Credit Party maintains or has ever maintained or been obligated to contribute to any Plan covered by Title IV of ERISA or subject to the funding requirements of section 412 of the Code or section 302 of ERISA. Each Plan maintained by any Credit Party or any ERISA Affiliate of any Credit Party is in compliance in all material respects with all applicable Laws. Except in such instances where an omission or failure would not have a Material Adverse Effect, (a) all returns, reports and notices required to be filed with any regulatory agency with respect to any Plan have been filed timely, and (b) no Credit Party nor any ERISA Affiliate of any Credit Party has failed to make any contribution or pay any amount due or owing as required by the terms of any Plan. There are no pending or, to the best of Borrower's knowledge, threatened claims, lawsuits, investigations or actions (other than routine claims for benefits in the ordinary course) asserted or instituted against, and no Credit Party nor any ERISA Affiliate of any Credit Party has knowledge of any threatened litigation or claims against, the assets of any Plan or its related trust or against any fiduciary of a Plan with respect to the operation of such Plan that are likely to result in liability of any Credit Party having a Material Adverse Effect. Except in such instances where an omission or failure would not have a Material Adverse Effect, each Plan that is intended to be "qualified" within the meaning of section 401(a) of the Code is, and has been during the period from its adoption to date, so qualified, both as to form and operation and all necessary governmental approvals, including a favorable determination as to the qualification under the Code of such Plan and each amendment thereto, have been or will be timely obtained. No Credit Party nor any ERISA Affiliate of any Credit Party has engaged in any prohibited transactions, within the meaning of section 406 of ERISA or section 4975 of the Code, in connection with any Plan which would result in liability of any Credit Party having a Material Adverse Effect. Except as set forth on Schedule 7.6 attached hereto, no Credit Party maintains or contributes to any Plan that provides a post-employment health benefit, other than a benefit required under section 601 of ERISA, or maintains or contributes to a Plan that provides health benefits that is not fully funded except where the failure to fully fund such Plan could not reasonably be expected to have a Material Adverse Effect. No Credit Party maintains, has established or has ever participated in a multiple employer welfare benefit arrangement within the meaning of section 3(40)(A) of ERISA. Section 7.7.....Taxes and Filing of Tax Returns. Each Credit Party has filed all tax returns required to have been filed and has paid all Taxes shown to be due and payable on such returns, including interest and penalties, and all other Taxes which are payable by such party, to the extent the same have become due and payable, other than Taxes with respect to which a failure to pay would not have a Material Adverse Effect. No Credit Party knows of any proposed material Tax assessment against it and all Tax liabilities of each Credit Party are adequately provided for. No income tax liability in excess of $50,000 of any Credit Party has been asserted by the Internal Revenue Service or other Governmental Authority for Taxes in excess of those already paid. Section 7.8.....Ownership of Properties Generally. Except for Inmaterial Title Deficiencies, each Credit Party has good and defensible title to all material properties and assets purported to be owned by it, including, without limitation, all assets reflected in the balance sheets referred to in Section 7.4(a) and Section 7.4(b) and all assets which are used by the Credit Parties in the operation of their respective businesses, and none of such properties or assets is subject to any Lien other than Permitted Encumbrances. Section 7.9.....Mineral Interests. Borrower has good and defensible title to all Mineral Interests described in the Reserve Report, including, without limitation, all Borrowing Base Properties, free and clear of all Liens except Permitted Encumbrances and Immaterial Title Deficiencies. With the exception of Immaterial Title Deficiencies, all such Mineral Interests are valid, subsisting, and in full force and effect, and all rentals, royalties, and other amounts due and payable in respect thereof have been duly paid. Without regard to any consent or non-consent provisions of any joint operating agreement covering any of Borrower's Proved Mineral Interests, and with the exception of Immaterial Title Deficiencies, Borrower's share of (a) the costs for each Proved Mineral Interest described in the Reserve Report is not greater than the decimal fraction set forth in the Reserve Report, before and after payout, as the case may be, and described therein by the respective designations "working interests," "WI," "gross working interest," "GWI," or similar terms, and (b) production from, allocated to, or attributed to each such Proved Mineral Interest is not less than the decimal fraction set forth in the Reserve Report, before and after payout, as the case may be, and described therein by the designations "net revenue interest," "NRI," or similar terms. Each well drilled in respect of each Proved Producing Mineral Interest described in the Reserve Report (y) is capable of, and is presently, producing Hydrocarbons in commercially profitable quantities, and Borrower is currently receiving payments for its share of production, with no funds in respect of any thereof being presently held in suspense, other than any such funds being held in suspense pending delivery of appropriate division orders, and (z) has been drilled, bottomed, completed, and operated in compliance with all applicable Laws and no such well which is currently producing Hydrocarbons is subject to any penalty in production by reason of such well having produced in excess of its allowable production. Section 7.10....Licenses, Permits, Etc. Except as disclosed on Schedule 7.10 attached hereto, each Credit Party possesses such valid franchises, certificates of convenience and necessity, operating rights, licenses, permits, consents, authorizations, exemptions and orders of Governmental Authorities, as are necessary to carry on its business as now conducted and as proposed to be conducted, except to the extent a failure to obtain any such item would not have a Material Adverse Effect. Section 7.11....Compliance with Law. The business and operations of each Credit Party have been and are being conducted in accordance with all applicable Laws other than violations of Laws which do not (either individually or collectively) have a Material Adverse Effect. Section 7.12....Full Disclosure. All information heretofore furnished by each Credit Party to Administrative Agent or any Bank for purposes of or in connection with this Agreement, any Loan Paper or any transaction contemplated hereby or thereby is, and all such information hereafter furnished by or on behalf of any Credit Party to Administrative Agent or any Bank will be, true, complete and accurate in every material respect. The Credit Parties have disclosed or have caused to be disclosed to Banks in writing any and all facts which might reasonably be expected to result in a Material Adverse Change. Section 7.13....Organizational Structure; Nature of Business. Parent owns one hundred percent (100%) of the issued and outstanding common stock in Borrower. As of the Closing Date, Borrower has no direct, wholly-owned Subsidiaries, other than Whiting-Golden Gas, WOK and Whiting Programs. Whiting Programs is the general partner of various partnerships that own oil and gas properties that are not Borrowing Base Properties. Borrower also owns, directly and partially indirectly through Whiting Programs, one hundred percent (100%) of the Equity in Whiting Institutional, which has assets of not greater than $2,000,000, and which assets are not included in the Borrowing Base. Borrower is engaged only in the business of acquiring, exploring, developing and operating Mineral Interests and the production, processing and marketing of Hydrocarbons therefrom. Schedule 7.13 attached hereto accurately reflects (i) the jurisdiction of incorporation or organization of each Credit Party, (ii) each jurisdiction in which each Credit Party is qualified to transact business as a foreign corporation, foreign partnership or foreign limited liability company, (iii) the authorized, issued and outstanding Equity of each Credit Party, and (iv) all outstanding warrants, options, subscription rights, convertible securities or other rights to purchase Equity of each Credit Party. Section 7.14....Environmental Matters. Except for matters disclosed on Schedule 7.14 attached hereto, no operation conducted by any Credit Party and no real or personal property now or previously owned or leased by any Credit Party (including, without limitation, any Credit Party's Mineral Interests) and no operations conducted thereon, and to any Credit Parties' knowledge, no operations of any prior owner, lessee or operator of any such properties, is or has been in violation of any Applicable Environmental Law other than violations which neither individually nor in the aggregate will have a Material Adverse Effect. Except for matters disclosed on Schedule 7.14 attached hereto, no Credit Party, nor any such property nor operation is the subject of any existing, pending or, to any Credit Parties' knowledge, threatened Environmental Complaint which could, individually or in the aggregate, have a Material Adverse Effect. All notices, permits, licenses, and similar authorizations, required to be obtained or filed in connection with the ownership of each tract of real property or operations of any Credit Party thereon and each item of personal property owned, leased or operated by any Credit Party, including, without limitation, notices, licenses, permits and authorizations required in connection with any past or present treatment, storage, disposal, or release of Hazardous Substances into the environment, have been duly obtained or filed except to the extent the failure to obtain or file such notices, licenses, permits and authorizations would not have a Material Adverse Effect. All Hazardous Substances, generated at each tract of real property and by each item of personal property owned, leased or operated by any Credit Party have been transported, treated, and disposed of only by carriers or facilities maintaining valid permits under RCRA (as hereinafter defined) and all other Applicable Environmental Laws for the conduct of such activities except in such cases where the failure to obtain such permits would not, individually or in the aggregate, have a Material Adverse Effect. Except for matters disclosed on Schedule 7.14 attached hereto, there have been no Hazardous Discharges which were not in compliance with Applicable Environmental Laws other than Hazardous Discharges which would not, individually or in the aggregate, have a Material Adverse Effect. Except for matters disclosed on Schedule 7.14 attached hereto, no Credit Party has any contingent liability in connection with any Hazardous Discharge which could reasonably be expected to have a Material Adverse Effect. As used in this Section 7.14, the term "RCRA" shall mean the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Recovery Act of 1976, as amended by the Solid Waste Disposal Act of 1980, and the Hazardous and Solid Waste Amendments of 1984, as the same may be further amended and in effect from time to time. Section 7.15....Burdensome Obligations. No Credit Party, nor any of the properties of any Credit Party, is subject to any Law or any pending or threatened change of Law or subject to any restriction under its articles (or certificate) of incorporation, bylaws, regulations, partnership agreement or comparable charter documents or under any agreement or instrument to which any Credit Party or by which any Credit Party or any of their properties may be subject or bound, which is so unusual or burdensome as to be likely in the foreseeable future to have a Material Adverse Effect. Without limiting the foregoing, no Credit Party is a party to or bound by any agreement (other than the Loan Papers) or subject to any order of any Governmental Authority which prohibits or restricts in any way the right of such Credit Party or any Restricted Subsidiary to make Distributions. Section 7.16....Fiscal Year. Borrower's Fiscal Year is January 1 through December 31. Section 7.17....No Default. Neither a Default nor an Event of Default has occurred or will exist after giving effect to the transactions contemplated by this Agreement or the other Loan Papers. Section 7.18....Government Regulation. No Credit Party is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act (as any of the preceding acts have been amended), the Investment Company Act of 1940 or any other Law which regulates the incurring by such Credit Party of Debt, including, but not limited to Laws relating to common contract carriers or the sale of electricity, gas, steam, water or other public utility services. Section 7.19....Insider. No Credit Party is, and no Person having "control" (as that term is defined in 12 U.S.C. section 375(b) or regulations promulgated thereunder) of any Credit Party is an "executive officer," "director" or "shareholder" of any Bank or any bank holding company of which any Bank is a Subsidiary or of any Subsidiary of such bank holding company. Section 7.20....Gas Balancing Agreements and Advance Payment Contracts. On the date of this Agreement, (a) there is no Material Gas Imbalance, and (b) the aggregate amount of all Advance Payments received by any Credit Party under Advance Payment Contracts which have not been satisfied by delivery of production does not exceed $2,000,000. Section 7.21....Subordinate Loan Documents. Borrower has provided Administrative Agent with a true and correct copy of each of the Subordinate Loan Documents including all amendments and modifications thereto. No material rights or obligations of any party to any of such Subordinate Loan Documents have been (or will be on the Closing Date) waived, and no Credit Party nor any other party to any of such Subordinate Loan Documents is (or will be on the Closing Date) in default of its obligations thereunder. Each of the Subordinate Loan Documents is a valid, binding and enforceable obligation of the parties thereto in accordance with its terms (except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar Laws affecting creditors' rights generally, and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability) and is in full force and effect. Article VIII AFFIRMATIVE COVENANTS --------------------- Borrower covenants and agrees that, so long as any Bank has any commitment to lend or participate in Letter of Credit Exposure hereunder or any amount payable under any Note remains unpaid or any Letter of Credit remains outstanding: Section 8.1.....Information. Borrower will deliver, or cause to be delivered, to each Bank: (a) as soon as available and in any event within (i) ninety (90) days after the end of each Fiscal Year, consolidated balance sheets of Borrower as of the end of such Fiscal Year and the related consolidated statements of income and statements of cash flow for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, all reported by Borrower in accordance with GAAP and audited by a firm of independent public accountants of nationally recognized standing and acceptable to Administrative Agent; (b) as soon as available and in any event within forty-five (45) days after the end of each of the first three (3) Fiscal Quarters of each Fiscal Year, consolidated balance sheets of Borrower as of the end of such Fiscal Quarter and the related consolidated statements of income and statements of cash flow for such quarter and for the portion of Borrower's Fiscal Year ended at the end of such Fiscal Quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of Borrower's previous Fiscal Year; all financial statements delivered pursuant to this Section 8.1(b) shall be certified as to fairness of presentation, GAAP (except for the absence of footnotes and normal year end adjustments) and consistency by a Financial Officer of Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in Section 8.1(a) and Section 8.1(b) a certificate of the principal executive and Financial Officer of Borrower in the form of Exhibit I attached hereto, (i) setting forth in reasonable detail the calculations required to establish whether Borrower was in compliance with the requirements of Article X on the date of such financial statements, (ii) stating whether there exists on the date of such certificate any Default and, if any Default then exists, setting forth the details thereof and the action which Borrower is taking or proposes to take with respect thereto, (iii) stating whether or not such financial statements fairly reflect in all material respects the results of operations and financial condition of Borrower as of the date of the delivery of such financial statements and for the period covered thereby, (iv) setting forth (A) whether as of such date there is a Material Gas Imbalance and, if so, setting forth the amount of net gas imbalances under Gas Balancing Agreements to which Borrower is a party or by which any Mineral Interests owned by Borrower is bound, and (B) the aggregate amount of all Advance Payments received under Advance Payment Contracts to which Borrower is a party or by which any Mineral Interests owned by Borrower is bound which have not been satisfied by delivery of production, if any, (v) setting forth a summary of the Hedge Transactions to which Borrower is a party on such date, and (vi) setting forth the other information described in Exhibit I attached hereto; (d) promptly upon the filing thereof, copies of all final registration statements, post effective amendments thereto and annual, quarterly or special reports which any Credit Party shall have filed with the Securities and Exchange Commission; (e) promptly upon receipt of same, any notice or other information received by any Credit Party indicating (i) any potential, actual or alleged non-compliance with or violation of the requirements of any Applicable Environmental Law which could result in liability to any Credit Party for fines, clean up or any other remediation obligations or any other liability in excess of $1,000,000 in the aggregate; (ii) any threatened Hazardous Discharge which Hazardous Discharge would impose on any Credit Party a duty to report to a Governmental Authority or to pay cleanup costs or to take remedial action under any Applicable Environmental Law which could result in liability to any Credit Party for fines, clean up and other remediation obligations or any other liability in excess of $1,000,000 in the aggregate; or (iii) the existence of any Lien arising under any Applicable Environmental Law securing any obligation to pay fines, clean up or other remediation costs or any other liability in excess of $1,000,000 in the aggregate. Without limiting the foregoing, each Credit Party shall provide to Banks promptly upon receipt of same by any Credit Party copies of all environmental consultants or engineers reports received by any Credit Party which would render the representation and warranty contained in Section 7.14 untrue or inaccurate in any respect; (f) In the event any notification is provided to any Bank or Administrative Agent pursuant to Section 8.1(e) hereof or Administrative Agent or any Bank otherwise learns of any event or condition under which any such notice would be required, then, upon request of Required Banks, Borrower shall within thirty (30) days of such request, cause to be furnished to Administrative Agent and each Bank a report by an environmental consulting firm acceptable to Administrative Agent and Required Banks, stating that a review of such event, condition or circumstance has been undertaken (the scope of which shall be acceptable to Administrative Agent and Required Banks) and detailing the findings, conclusions and recommendations of such consultant. Borrower shall bear all expenses and costs associated with such review and updates thereof; (g) immediately upon any Authorized Officer of any Credit Party becoming aware of the occurrence of any Default, a certificate of an Authorized Officer of Borrower setting forth the details thereof and the action which Borrower is taking or proposes to take with respect thereto; (h) no later than April 1 and September 1 of each year, commencing April 1, 2003, reports of production volumes, revenue, expenses and product prices for all oil and gas properties owned by Borrower with a Recognized Value of $500,000 or more for the periods of six (6) months ending the preceding December 31 and June 30, respectively. Such reports shall be prepared on an accrual basis and (i) with respect to Proved Producing Mineral Interests that have a Recognized Value of greater than fifty percent (50%) of the Recognized Value of all Proved Producing Mineral Interests owned by Borrower, shall be reported on a field by field basis, and (ii) with respect to all other such oil and gas properties, shall be reported on a state by state basis; (i) promptly notify Banks of any Material Adverse Change; (j) promptly notify Banks of any material litigation involving any Credit Party; and (k) from time to time such additional information regarding the financial position or business of any Credit Party as Administrative Agent, at the request of any Bank, may reasonably request. Section 8.2.....Business of Credit Parties. The sole business of the Credit Parties will be (and will continue to be) the acquisition, exploration, development and operation of Mineral Interests and the production, processing and marketing of Hydrocarbons therefrom. Section 8.3.....Maintenance of Existence. Borrower shall, and shall cause each other Credit Party to, at all times (a) maintain its corporate, partnership or limited liability company existence in its state of incorporation or organization, and (b) maintain its good standing and qualification to transact business in all jurisdictions where the failure to maintain good standing or qualification to transact business could have a Material Adverse Effect. Section 8.4.....Title Data. In addition to the title information required by Section 5.1(c) and Section 6.1(b) hereof, Borrower shall, upon the request of Required Banks, cause to be delivered to Administrative Agent such title opinions and other information regarding title to Mineral Interests owned by Borrower as are appropriate to determine the status thereof. Section 8.5.....Right of Inspection. Borrower will permit, and will cause each other Credit Party to permit, any officer, employee or agent of Administrative Agent to visit and inspect any of the assets of any Credit Party, examine each Credit Party's books of record and accounts, take copies and extracts therefrom, and discuss the affairs, finances and accounts of each Credit Party with such Credit Party's officers, accountants and auditors, all at such reasonable times and as often as Administrative Agent may desire, all at the expense of Borrower. Section 8.6.....Maintenance of Insurance. Borrower will, and will cause each other Credit Party to, at all times maintain or cause to be maintained insurance covering such risks as are customarily carried by businesses similarly situated, including, without limitation, the following: (a) workmen's compensation insurance; (b) employer's liability insurance; (c) comprehensive general public liability and property damage insurance; (d) insurance against (other than losses or damage to property owned by Borrower which is self insured) losses customarily insured against as a result of damage by fire, lightning, hail, tornado, explosion and other similar risk; and (e) comprehensive automobile liability insurance. All loss payable clauses or provisions in all policies of insurance maintained by any Credit Party pursuant to this Section 8.6 shall be endorsed in favor of and made payable to Administrative Agent for the ratable benefit of Banks, as their interests may appear. Administrative Agent shall, during the continuance of an Event of Default, have the right, for the ratable benefit of Banks, to collect, and Borrower hereby assigns to Administrative Agent for the ratable benefit of Banks (and hereby agrees to cause each other Credit Party to assign), any and all monies that may become payable under any such policies of insurance by reason of damage, loss or destruction of any of property which stands as security for the Obligations or any part thereof, and Administrative Agent may, during the continuance of an Event of Default, at its election, either apply for the ratable benefit of Banks all or any part of the sums so collected toward payment of the Obligations, whether or not such Obligations are then due and payable, in such manner as Administrative Agent may elect or release same to the applicable Credit Party. Section 8.7.....Payment of Taxes and Claims. Borrower will, and will cause each other Credit Party to, pay (a) all Taxes imposed upon it or any of its assets or with respect to any of its franchises, business, income or profits before any material penalty or interest accrues thereon, and (b) all material claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by Law have or might become a Lien (other than a Permitted Encumbrance) on any of its assets; provided, however, no payment of Taxes or claims shall be required if (i) the amount, applicability or validity thereof is currently being contested in good faith by appropriate action promptly initiated and diligently conducted in accordance with good business practices and no material part of the property or assets of Borrower, and no part of the assets of any Subsidiary of Borrower which would be material to Borrower, is subject to any pending levy or execution, (ii) Borrower, and any Subsidiary of Borrower, as and to the extent required in accordance with GAAP, shall have set aside on their books reserves (segregated to the extent required by GAAP) deemed by them to be adequate with respect thereto, and (iii) Borrower has notified Administrative Agent of such circumstances, in detail satisfactory to Administrative Agent. Section 8.8.....Compliance with Laws and Documents. Borrower will, and will cause each other Credit Party to, comply with all Laws, their respective certificates (or articles) of incorporation, bylaws, regulations and similar organizational documents and all Material Agreements to which any Credit Party is a party, if a violation, alone or when combined with all other such violations, could reasonably be expected to have a Material Adverse Effect. Section 8.9.....Operation of Properties and Equipment. (a) Borrower will, and will cause each other Credit Party to, maintain, develop and operate its Mineral Interests in a good and workmanlike manner, and observe and comply with all of the terms and provisions, express or implied, of all oil and gas leases relating to such Mineral Interests so long as such Mineral Interests are capable of producing Hydrocarbons and accompanying elements in paying quantities, except where such failure to maintain, develop, operate, observe or comply could not reasonably be expected to have a Material Adverse Effect. (b) Borrower will, and will cause each other Credit Party to, comply in all respects with all contracts and agreements applicable to or relating to its Mineral Interest or the production and sale of Hydrocarbons and accompanying elements therefrom, except to the extent a failure to so comply could not reasonably be expected to have a Material Adverse Effect. (c) Borrower will, and will cause each other Credit Party to, at all times maintain, preserve and keep all operating equipment used with respect to its Mineral Interests in proper repair, working order and condition, and make all necessary or appropriate repairs, renewals, replacements, additions and improvements thereto so that the efficiency of such operating equipment shall at all times be properly preserved and maintained, except where such failure to comply could not reasonably be expected to have a Material Adverse Effect; provided, further that, no item of operating equipment need be so repaired, renewed, replaced, added to or improved, if Borrower shall in good faith determine that such action is not necessary or desirable for the continued efficient and profitable operation of the business of such Credit Party. Section 8.10....Environmental Law Compliance. Except to the extent a failure to comply could not reasonably be expected to have a Material Adverse Effect, Borrower will, and will cause each other Credit Party to, comply with all Applicable Environmental Laws, including, without limitation, (a) all licensing, permitting, notification and similar requirements of Applicable Environmental Laws, and (b) all provisions of all Applicable Environmental Laws regarding storage, discharge, release, transportation, treatment and disposal of Hazardous Substances. Borrower will, and will cause each other Credit Party to, promptly pay and discharge when due all legal debts, claims, liabilities and obligations with respect to any clean-up or remediation measures necessary to comply with Applicable Environmental Laws. Section 8.11....ERISA Reporting Requirements. Borrower shall furnish, or cause to be furnished, to Administrative Agent: (a) promptly and in any event (i) within thirty (30) days after Borrower or any ERISA Affiliate receives notice from any regulatory agency of the commencement of an audit, investigation or similar proceeding with respect to a Plan, and (ii) within ten (10) days after Borrower or any ERISA Affiliate contacts the Internal Revenue Service for the purpose of participation in a closing agreement or any voluntary resolution program with respect to a Plan which could reasonably be expected to have a Material Adverse Effect or knows or has reason to know that any event with respect to any Plan of Borrower or any ERISA Affiliate has occurred that is reasonably believed by Borrower to potentially have a Material Adverse Effect, a written notice describing such event and describing what action is being taken or is proposed to be taken with respect thereto, together with a copy of any notice of such event that is given to the PBGC; (b) promptly and in any event within thirty (30) days after the receipt by Borrower of a request therefor by a Bank, copies of any annual and other report (including Schedule B thereto) with respect to a Plan filed by Borrower or any ERISA Affiliate with the United States Department of Labor, the Internal Revenue Service or the PBGC; (c) notification within thirty (30) days of the effective date thereof of any material increases in the benefits, or material change in the funding method, of any existing Plan which is not a multiemployer plan (as defined in section 4001(a)(3) of ERISA), or the establishment of any material new Plans, or the commencement of contributions to any Plan to which Borrower or any ERISA Affiliate was not previously contributing; and (d) promptly after receipt of written notice of commencement thereof, notice of all (i) claims made by participants or beneficiaries with respect to any Plan, and (ii) actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting Borrower or any ERISA Affiliate with respect to any Plan, except those which, in the aggregate, if adversely determined could not reasonably be expected to have a Material Adverse Effect. Section 8.12....Additional Documents. Borrower will, and will cause each other Credit Party to, cure promptly any defects in the creation and issuance of each Note, and the execution and delivery of this Agreement and the other Loan Papers and, at Borrower's expense, Borrower shall promptly and duly execute and deliver to each Bank, and cause each other Credit Party to promptly and duly execute and deliver to each Bank, upon reasonable request, all such other and further documents, agreements and instruments in compliance with or accomplishment of the covenants and agreements of the Credit Parties in this Agreement and the other Loan Papers as may be reasonably necessary or appropriate in connection therewith. Section 8.13....Environmental Review. Borrower shall deliver to Administrative Agent prior to the completion by any Credit Party of any material acquisition of Mineral Interests or related assets, other than an acquisition of additional interests in Mineral Interests in which a Credit Party previously held an interest, any report or reports (including, without limitation, any Phase I environmental reports) obtained by Borrower in the course of such acquisition setting forth the results of any environmental review of such Mineral Interests and related assets. Additionally, if requested by Administrative Agent or Required Banks in writing in connection with any such material acquisition, and not otherwise obtained by Borrower and delivered to Administrative Agent in accordance with the foregoing provisions of this Section 8.13, Borrower shall deliver to Administrative Agent, within forty-five (45) days of Administrative Agent's or Required Banks' written request, a report or reports related to any such material acquisition which shall be in form, scope and detail acceptable to Administrative Agent from environmental engineering firms acceptable to Administrative Agent, and which shall set forth the results of a Phase I environmental review of the Mineral Interests and related assets the subject of such material acquisition. All of the reports delivered to Administrative Agent pursuant to this Section 8.13 shall not reflect the existence of facts or circumstances which would constitute a material violation of any Applicable Environmental Law or which are likely to result in a material liability to any Credit Party. Section 8.14....Cash Management. Borrower shall maintain the separate and independent operating accounts established pursuant to Section 6.3(a) hereof in a manner acceptable to Administrative Agent in all respects. Section 8.15....Permitted Exchange. Subject to the terms and conditions set forth herein, including, without limitation, Section 9.5 hereof, and provided no Default, Event of Default or Borrowing Base Deficiency exists, Borrower shall be permitted to consummate one or more Permitted Exchanges during the term of this Agreement; provided, further, that, the aggregate value (which, with respect to Mineral Interests, shall be the Recognized Value of such Mineral Interests and shall further be the net value or net Recognized Value realized or resulting from such Permitted Exchange) of all assets sold pursuant to this Section 8.15 in any Fiscal Year shall not exceed ten percent (10%) of the Borrowing Base then in effect. In the event Borrower desires to consummate a Permitted Exchange, Borrower shall (1) notify Administrative Agent thereof in writing, which notice shall unambiguously describe the property Borrower desires to relinquish (the "Relinquished Property"), (2) notify Administrative Agent and Banks of the execution of a purchase agreement (a "Relinquished Property PSA") for the Relinquished Property, which Relinquished Property PSA and the terms thereof (including, without limitation, the purchase price for the Relinquished Property) shall be acceptable to Administrative Agent in its reasonable discretion, and (3) deliver a fully executed copy of such Relinquished Property PSA, together with all amendments thereto, to Administrative Agent. On or before the date of transfer and conveyance of any Relinquished Property pursuant to the terms and conditions of a Relinquished Property PSA (a "Transfer Date"), Borrower shall enter into an Exchange Agreement with Qualified Intermediary pursuant to which provision shall be made for the deposit of the purchase price for such Relinquished Property into a "qualified escrow account" (within the meaning of Section 1.103(k)-1(g)(3) of the Regulations) with, and to be held by, Qualified Intermediary (such proceeds being referred to herein as the "Exchange Funds"). All such Exchange Funds shall be used for the acquisition of the applicable Replacement Property (as hereafter defined) and as otherwise set forth in such Exchange Agreement. On or before forty-five (45) days after the applicable Transfer Date (an "Identification Period"), Borrower shall either (a)(i) identify (which identification shall be made pursuant to and in compliance with the requirements of the Regulations) one or more replacement properties in a written document signed by Borrower and delivered to Administrative Agent, Banks and Qualified Intermediary, which document shall unambiguously describe the replacement property (the "Replacement Property") and which property shall be like-kind to the applicable Relinquished Property in accordance with the rules of Section 1031(a) of the Code and otherwise acceptable to Administrative Agent and Banks in their reasonable discretion, (ii) notify Administrative Agent, Banks and Qualified Intermediary of the execution of a purchase agreement (a "Replacement Property PSA") for such Replacement Property, which Replacement Property PSA and the terms thereof (including, without limitation, the purchase price for such Replacement Property) shall be acceptable to Administrative Agent in its reasonable discretion, and (iii) deliver a fully executed copy of such Replacement Property PSA to Administrative Agent, or (b) make a prepayment of principal on the Revolving Loan in an amount sufficient to eliminate any Borrowing Base Deficiency resulting from the sale of the applicable Relinquished Property. In the event Borrower has, prior to the expiration of the Identification Period, (1) properly identified applicable Replacement Property, (2) notified Qualified Intermediary and Administrative Agent of the execution of an applicable Replacement Property PSA, and (3) delivered a copy thereof to Administrative Agent in accordance with the terms hereof, then Borrower shall, on or prior to the date which occurs 180 days after the relevant Transfer Date (an "Exchange Date"), (A) notify Qualified Intermediary and Administrative Agent in writing that all conditions to the applicable Replacement Property PSA have been satisfied and that the seller under such Replacement Property PSA (the "Seller") is prepared to consummate the sale of such Replacement Property to Borrower, in which event, after receipt of such written notification, Borrower shall cause Qualified Intermediary to release the applicable Exchange Funds directly to the Seller on the closing date of such sale, and Borrower shall cause the conveyance and transfer of the applicable Replacement Property to Borrower. Promptly following the transfer and conveyance of any Replacement Property to Borrower, Borrower shall comply with the terms of Section 5.1(b) hereof. In the event (y) Borrower does not, prior to any applicable Exchange Date, consummate the closing of the sale of the applicable Replacement Property, or (z) the applicable Replacement Property PSA is otherwise terminated prior to any applicable Exchange Date, then Borrower shall, on the earlier of the applicable Exchange Date or the date of termination of the applicable Replacement Property PSA, make a prepayment of principal on the Revolving Loan in an amount sufficient to eliminate any Borrowing Base Deficiency resulting from the sale of any applicable Relinquished Property. Notwithstanding the foregoing or anything else to the contrary contained herein, Borrower shall comply in all respects with all of the terms and provisions of the applicable Exchange Agreement. Article IX NEGATIVE COVENANTS ------------------ Borrower agrees that, so long as any Bank has any commitment to lend or participate in Letter of Credit Exposure hereunder or any amount payable under any Note remains unpaid or any Letter of Credit remains outstanding: Section 9.1.....Incurrence of Debt. Borrower will not, nor will Borrower permit any other Credit Party to, incur, become or remain liable for any Debt other than (a) the Obligations, (b) the Subordinate Debt, and (c) other unsecured Debt in an aggregate amount outstanding at any time not to exceed $5,000,000. Section 9.2.....Restricted Payments. Except as set forth on Schedule 9.15 and except for Permitted Investments, Borrower will not, nor will Borrower permit any other Credit Party to, directly or indirectly, declare or pay, or incur any liability to declare or pay, any Restricted Payment; provided, that (a) any Subsidiary of Borrower may make Distributions to Borrower, any Credit Party may make Distributions to any other Credit Party that has provided a Facility Guaranty, and all of the Equity of which owned by Borrower or any Indirect Restricted Subsidiary has been pledged to Administrative Agent pursuant to a Borrower Pledge Agreement or a Subsidiary Pledge Agreement (as applicable), and (c) so long as no Default or Borrowing Base Deficiency exists on the date any such Distribution is declared or paid and no Default or Event of Default would result therefrom, in addition to Distributions permitted under the preceding clauses (a) and (b), Borrower may make (i) the Permitted AER Distribution on or prior to December 31, 2002, and (ii) Permitted Tax Distributions. Section 9.3.....Negative Pledge. Borrower will not, nor will Borrower permit any other Credit Party to, create, assume or suffer to exist any Lien on any of their respective assets, other than Permitted Encumbrances. Section 9.4.....Consolidations and Mergers. Borrower will not, nor will Borrower permit any other Credit Party to, consolidate or merge with or into any other Person; provided, that, so long as no Default or Event of Default exists or will result, Borrower or any Restricted Subsidiary may merge or consolidate with any other Person so long as Borrower or such Restricted Subsidiary is the surviving Person and, in the case of a Restricted Subsidiary, a wholly owned Subsidiary of Borrower. Section 9.5.....Asset Dispositions. Borrower will not, nor will Borrower permit any other Credit Party to, sell, lease, transfer, abandon or otherwise dispose of any asset other than (a) the sale in the ordinary course of business of Hydrocarbons produced from Borrower's Mineral Interests, (b) provided no Event of Default or Borrowing Base Deficiency exists, the sale, lease, transfer, abandonment, exchange or other disposition of other assets; provided, that, the aggregate value (which, in the case of assets consisting of Mineral Interests, shall be the Recognized Value of such Mineral Interests and in the case of any exchange, shall be the net value or net Recognized Value realized or resulting from such exchange) of all assets sold, leased, transferred or disposed of pursuant to this clause (b) in any period between Scheduled Redeterminations shall not exceed five percent (5%) of the Borrowing Base then in effect (for purposes of this clause (b) the Closing Date will be deemed to be a Scheduled Redetermination); provided, further, that, no Asset Disposition shall be permitted pursuant to this clause (b) unless all mandatory prepayments required by Section 2.6 in connection with such Asset Disposition are made concurrently (or at such other times as provided herein) therewith, and (c) subject to the terms and conditions set forth in this Agreement, including, without limitation, Section 8.15, any Permitted Exchange. In no event will Borrower sell, transfer or dispose of any Equity in any Subsidiary nor will any Credit Party issue or sell any Equity or any option, warrant or other right to acquire such Equity or security convertible into such Equity to any Person other than the Credit Party which is the direct parent of such issuer on the Closing Date. Section 9.6.....Amendments to Organizational Documents; Other Material Agreements. Borrower will not, nor will Borrower permit any other Credit Party to, enter into or permit any modification or amendment of, or waive any material right or obligation of any Person under, (a) its certificate or articles of incorporation, bylaws, partnership agreement, regulations or other organizational documents other than amendments, modifications and waivers which will not, individually or in the aggregate, have a Material Adverse Effect, or (b) the Subordinate Loan Documents. Section 9.7.....Use of Proceeds. The proceeds of Borrowings will not be used for any purpose other than (a) working capital, (b) to finance the acquisition, exploration and development of Mineral Interests, (c) for general corporate purposes, and (d) to the repayment of existing Debt owing by Borrower. None of such proceeds (including, without limitation, proceeds of Letters of Credit issued hereunder) will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock, and none of such proceeds will be used in violation of applicable Law (including, without limitation, the Margin Regulations). Letters of Credit will be issued hereunder only for the purpose of securing bids, tenders, bonds, contracts and other obligations entered into in the ordinary course of Borrower's business, and otherwise to guaranty payment and performance in accordance with the ordinary practice of Borrower's business. Without limiting the foregoing, no Letters of Credit will be issued hereunder for the purpose of or providing credit enhancement with respect to any Debt or equity security of any Credit Party or to secure any Credit Party's obligations with respect to Hedge Transactions other than Hedge Transactions with a Bank or an Affiliate of such Bank. Section 9.8.....Investments. Borrower will not, nor will Borrower permit any other Credit Party to, directly or indirectly, make or have outstanding any Investment other than Permitted Investments. Section 9.9.....Transactions with Affiliates. Borrower will not, nor will Borrower permit any of its Subsidiaries to, engage in any transaction with an Affiliate unless such transaction is as favorable to such party as could be obtained in an arm's length transaction with an unaffiliated Person in accordance with prevailing industry customs and practices. Section 9.10....ERISA. Except in such instances where an omission or failure would not have a Material Adverse Effect, Borrower will not, nor will Borrower permit any other Credit Party to (a) take any action or fail to take any action which would result in a violation of ERISA, the Code or other Laws applicable to the Plans maintained or contributed to by it or any ERISA Affiliate, or (b) modify the term of, or the funding obligations or contribution requirements under any existing Plan, establish a new Plan, or become obligated or incur any liability under a Plan that is not maintained or contributed to by Borrower or any ERISA Affiliate as of the Closing Date. Section 9.11....Hedge Transactions. Borrower will not, nor will Borrower permit any other Credit Party to, enter into any Hedge Transactions which would cause the amount of Hydrocarbons which are the subject of Hedge Transactions in existence at such time to exceed seventy-five percent (75%) of Borrower's anticipated production from Proved Producing Mineral Interests during the term of such existing Hedge Transactions, which Hedge Transactions shall not have a tenor of greater than three (3) years. Section 9.12....Fiscal Year. Borrower will not, nor will Borrower permit any other Credit Party to, change its Fiscal Year. Section 9.13....Change in Business. Borrower will not, nor will Borrower permit any other Credit Party to, engage in any business other than the businesses engaged in by such parties on the date hereof as described in Section 7.13 hereof. Section 9.14....Subordinate Debt. Borrower will not make any payment on or with respect to any Subordinate Debt except as expressly permitted by the terms hereof and by the terms of the Subordinate Note. Section 9.15....Obligations of Unrestricted Subsidiaries. Except as described on Schedule 9.15 attached hereto, Borrower will not, nor will Borrower permit any other Credit Party to, incur any liability, Debt or obligation to any Unrestricted Subsidiary of any nature, or have any liability (whether by operation of law or otherwise) for any liability, Debt or obligation of any Unrestricted Subsidiary. Article X FINANCIAL COVENANTS ------------------- Borrower agrees that so long as any Bank has any commitment to lend or participate in Letter of Credit Exposure hereunder or any amount payable under any Note remains unpaid or any Letter of Credit remains outstanding: Section 10.1....Current Ratio of Borrower. Borrower will not permit its ratio of Consolidated Current Assets to its Consolidated Current Liabilities as of the end of any Fiscal Quarter to be less than 1.0 to 1.0. Section 10.2....Consolidated Total Debt to Annualized Consolidated EBITDAX. As of the end of any Fiscal Quarter, commencing with the Fiscal Quarter ending December 31, 2002, Borrower will not permit its ratio of Consolidated Total Debt to Annualized Consolidated EBITDAX to be greater than 4.0 to 1.0. Section 10.3....Consolidated Senior Debt to Annualized Consolidated EBITDAX. As of the end of any Fiscal Quarter, commencing with the Fiscal Quarter ending December 31, 2002, Borrower will not permit its ratio of Consolidated Senior Debt to Annualized Consolidated EBITDAX to be greater than 3.0 to 1.0. Article XI DEFAULTS -------- Section 11.1....Events of Default. If one or more of the following events (collectively "Events of Default" and individually an "Event of Default") shall have occurred and be continuing: (a) Borrower shall fail to pay when due any principal on any Note; (b) Borrower shall fail to pay when due accrued interest on any Note or any fees or any other amount payable hereunder and such failure shall continue for a period of three (3) days following the due date; (c) Borrower shall fail to observe or perform any covenant or agreement contained in , Article IX or Article X of this Agreement; (d) any Credit Party shall fail to observe or perform any covenant or agreement contained in this Agreement or the other Loan Papers (other than those referenced in Section 11.1(a), Section 11.1(b) and Section 11.1(c)) and such failure continues for a period of thirty (30) days after the earlier of (i) the date any Authorized Officer of any Credit Party acquires knowledge of such failure, or (ii) written notice of such failure has been given to any Credit Party by Administrative Agent or any Bank; (e) any representation, warranty, certification or statement made or deemed to have been made by any Credit Party in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made; (f) any Credit Party shall fail to make any payment when due on any Debt of such Person in a principal amount equal to or greater than $1,000,000, or any other event or condition shall occur which (i) results in the acceleration of the maturity of any such Debt, or (ii) entitles the holder of such Debt to accelerate the maturity thereof; (g) any Credit Party shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar Law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate, partnership or limited liability company action to authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against any Credit Party seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar Law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days; or an order for relief shall be entered against any Credit Party under the federal bankruptcy Laws as now or hereafter in effect; (i) one (1) or more final judgments or orders for the payment of money aggregating in excess of $1,000,000 shall be rendered against any Credit Party and such judgment or order shall continue unsatisfied and unstayed for thirty (30) days; (j) (i) any event occurs with respect to any Plan or Plans pursuant to which any Credit Party incurs a liability due and owing at the time of such event, without existing funding therefor, for benefit payments under such Plan or Plans in excess of $1,000,000; or (ii) any Credit Party, any ERISA Affiliate, or any other "party-in-interest" or "disqualified person," as such terms are defined in section 3(14) of ERISA and section 4975(e)(2) of the Code, shall engage in transactions which in the aggregate result in a direct or indirect liability to any Credit Party or any ERISA Affiliate in excess of $1,000,000 under section 409 or 502 of ERISA or section 4975 of the Code which either (A) results in a Lien on any Credit Party's assets which is not a Permitted Encumbrance, or (B) continues unsatisfied for a period of thirty (30) days after any Authorized Officer of any Credit Party first acquires knowledge of such liability; (k) a Change of Control shall occur; (l) this Agreement or any other Loan Paper shall cease to be in full force and effect or shall be declared null and void or the validity or enforceability thereof shall be contested or challenged by any Credit Party, or any Credit Party shall deny that it has any further liability or obligation under any of the Loan Papers, or any Lien created by the Loan Papers shall for any reason (other than the release thereof in accordance with the Loan Papers) cease to be a valid, first priority, perfected Lien (subject to Permitted Encumbrances) upon any of the Proved Mineral Interests purported to be covered thereby, except as a result of any action or inaction of Administrative Agent or Banks; (m) a default or event of default shall occur under (i) any Hedge Agreement under which the liability to Borrower could reasonably be expected to exceed $1,000,000, or (ii) any Subordinate Loan Document, and any grace period applicable thereto shall have lapsed without cure or waiver of such default or event of default; or (n) Borrower or AER (or any other holder of Subordinate Debt) shall (i) default in the observance or performance of any obligation to be observed or performed by such party under the Subordination Agreement, (ii) breach any representation or warranty made by such party in the Subordination Agreement in any material respect, or (iii) repudiate the Subordination Agreement or assert in writing that the Subordination Agreement or any provision thereof is not valid, binding and enforceable against any such party; then, and in every such event, Administrative Agent shall without presentment, notice or demand (unless expressly provided for herein) of any kind (including, without limitation, notice of intention to accelerate and acceleration), all of which are hereby waived, (a) if requested by Required Banks, terminate the Commitments and they shall thereupon terminate, and (b) if requested by Required Banks, take such other actions as may be permitted by the Loan Papers including, declaring the Notes (together with accrued interest thereon) to be, and the Notes shall thereupon become, immediately due and payable; provided that, in the case of any of the Events of Default specified in Section 11.1(g) or Section 11.1(h), without any notice to any Credit Party or any other act by Administrative Agent or Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable. Article XII AGENTS ------ Section 12.1....Appointment; Nature of Relationship. Bank One, NA is hereby appointed by each of the Banks as its contractual representative and Administrative Agent hereunder and under each other Loan Paper, and each Bank irrevocably authorizes Administrative Agent to act as the contractual representative of such Bank with the rights and duties expressly set forth herein and in the other Loan Papers. Administrative Agent agrees to act as such contractual representative and Administrative Agent upon the express conditions contained in this Article XII. Notwithstanding the use of the defined term "Administrative Agent," it is expressly understood and agreed that Administrative Agent shall not have any fiduciary responsibilities to any Bank by reason of this Agreement or any other Loan Paper and that Administrative Agent is merely acting as the contractual representative of the Banks with only those duties as are expressly set forth in this Agreement and the other Loan Papers. In its capacity as the Banks' contractual representative, Administrative Agent (i) does not hereby assume any fiduciary duties to any of the Banks, (ii) is a "representative" of the Banks within the meaning of the term "secured party" as defined in the Illinois Uniform Commercial Code, and (iii) is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Papers. Each of the Banks hereby agrees to assert no claim against Administrative Agent on any theory of liability for breach of fiduciary duty, any and all of which claims each Bank hereby waives. Section 12.2....Powers. Administrative Agent shall have and may exercise such powers under the Loan Papers as are specifically delegated to Administrative Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. Administrative Agent shall have no implied duties to the Banks, or any obligation to the Banks to take any action thereunder except any action specifically provided by the Loan Papers to be taken by Administrative Agent. Section 12.3....General Immunity. Neither Administrative Agent nor any of its directors, officers, agents or employees shall be liable to Borrower or any Bank for any action taken or omitted to be taken by it or them hereunder or under any other Loan Paper or in connection herewith or therewith except to the extent such action or inaction is determined in a final non-appealable judgment by a court of competent jurisdiction to have arisen from the gross negligence or willful misconduct of such Person. Section 12.4....No Responsibility for Loans, Recitals, etc. Neither Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (a) any statement, warranty or representation made in connection with any Loan Paper or any Borrowing hereunder; (b) the performance or observance of any of the covenants or agreements of any obligor under any Loan Paper, including, without limitation, any agreement by an obligor to furnish information directly to each Bank; (c) the satisfaction of any condition specified in Article VI, except receipt of items required to be delivered solely to Administrative Agent; (d) the existence or possible existence of any Default or Event of Default; (e) the validity, enforceability, effectiveness, sufficiency or genuineness of any Loan Paper or any other instrument or writing furnished in connection therewith; (f) the value, sufficiency, creation, perfection or priority of any Lien in any collateral security; or (g) the financial condition of Borrower or any guarantor of any of the Obligations or of any of Borrower's or any such guarantor's respective Subsidiaries. Administrative Agent shall have no duty to disclose to the Banks information that is not required to be furnished by Borrower to Administrative Agent at such time, but is voluntarily furnished by Borrower to Bank One (either in its capacity as Administrative Agent or in its individual capacity). Section 12.5....Action on Instructions of Banks. Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Paper in accordance with written instructions signed by the Required Banks, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Banks. The Banks hereby acknowledge that Administrative Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement or any other Loan Paper unless it shall be requested in writing to do so by Required Banks. Administrative Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Paper unless it shall first be indemnified to its satisfaction by the Banks pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. Section 12.6....Employment of Agents and Counsel. Administrative Agent may execute any of its duties as Administrative Agent hereunder and under any other Loan Paper by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Banks, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Administrative Agent shall be entitled to advice of counsel concerning the contractual arrangement between Administrative Agent and the Banks and all matters pertaining to Administrative Agent's duties hereunder and under any other Loan Paper. Section 12.7....Reliance on Documents; Counsel. Administrative Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons, and, in respect to legal matters, upon the opinion of counsel selected by Administrative Agent, which counsel may be employees of Administrative Agent. Section 12.8....Administrative Agent's Reimbursement and Indemnification. Banks agree to reimburse and indemnify Administrative Agent ratably in proportion to their respective Commitments (or, if the Commitments have been terminated, in proportion to their Commitments immediately prior to such termination) (i) for any amounts not reimbursed by Borrower for which Administrative Agent is entitled to reimbursement by Borrower under the Loan Papers, (ii) for any other expenses incurred by Administrative Agent on behalf of the Banks, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Papers (including, without limitation, for any expenses incurred by Administrative Agent in connection with any dispute between Administrative Agent and any Bank or between two or more of the Banks) and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against Administrative Agent in any way relating to or arising out of the Loan Papers or any other document delivered in connection therewith or the transactions contemplated thereby (including, without limitation, for any such amounts incurred by or asserted against Administrative Agent in connection with any dispute between Administrative Agent and any Bank or between two or more of the Banks), or the enforcement of any of the terms of the Loan Papers or of any such other documents; provided that no Bank shall be liable for any of the foregoing to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of Administrative Agent. The obligations of the Banks under this Section 12.8 shall survive payment of the Obligations and termination of this Agreement. Section 12.9....Notice of Default. Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless Administrative Agent has received written notice from a Bank or Borrower referring to this Agreement describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that Administrative Agent receives such a notice, Administrative Agent shall give prompt notice thereof to the Banks. Section 12.10...Rights as a Bank. In the event Administrative Agent is a Bank, Administrative Agent shall have the same rights and powers hereunder and under any other Loan Paper with respect to its Commitment and its Revolving Loans as any Bank and may exercise the same as though it were not Administrative Agent, and the term "Bank" or "Banks" shall, at any time when Administrative Agent is a Bank, unless the context otherwise indicates, include in its individual capacity. Administrative Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Paper, with Borrower or any of its Subsidiaries in which Borrower or such Subsidiary is not restricted hereby from engaging with any other Person. Section 12.11...Bank Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon Administrative Agent, Sole Lead Arranger, Bookrunner or any other Agent or Bank and based on the financial statements prepared by Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Papers. Each Bank also acknowledges that it will, independently and without reliance upon Administrative Agent, Sole Lead Arranger, Bookrunner or any other Agent or Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Papers. Section 12.12...Successor Administrative Agent. Administrative Agent may resign at any time by giving written notice thereof to Banks and Borrower, such resignation to be effective upon the appointment of a successor Administrative Agent or, if no successor Administrative Agent has been appointed, forty-five (45) days after the retiring Administrative Agent gives notice of its intention to resign. Administrative Agent may be removed at any time with or without cause by written notice received by Administrative Agent from Required Banks, such removal to be effective on the date specified by Required Banks. Upon any such resignation or removal, Required Banks shall have the right to appoint, on behalf of Borrower and the Banks, a successor Administrative Agent, which shall be approved by Borrower, such approval not to be unreasonably withheld; provided, that, Borrower shall not have the right to approve any successor Administrative Agent appointed during the continuance of any Default. If no successor Administrative Agent shall have been so appointed by Required Banks within thirty (30) days after the resigning Administrative Agent's giving notice of its intention to resign, then the resigning Administrative Agent may appoint, on behalf of Borrower and Banks, a successor Administrative Agent which shall be approved by Borrower, such approval not to be unreasonably withheld; provided, that, Borrower shall not have the right to approve any successor Administrative Agent appointed during the continuance of any Default. If Administrative Agent has resigned or been removed and no successor Administrative Agent has been appointed, Banks may perform all the duties of Administrative Agent hereunder and Borrower shall make all payments in respect of the Obligations to the applicable Bank and for all other purposes shall deal directly with the Banks. No successor Administrative Agent shall be deemed to be appointed hereunder until such successor Administrative Agent has accepted the appointment. Any such successor Administrative Agent shall be a commercial bank having capital and retained earnings of at least $100,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning or removed Administrative Agent. Upon the effectiveness of the resignation or removal of Administrative Agent, the resigning or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the Loan Papers. After the effectiveness of the resignation or removal of an Administrative Agent, the provisions of this Article XII shall continue in effect for the benefit of such Administrative Agent in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent hereunder and under the other Loan Papers. In the event that there is a successor to Administrative Agent by merger, or Administrative Agent assigns its duties and obligations to an Affiliate pursuant to this Section 12.12, then the term "Prime Rate" as used in this Agreement shall mean the prime rate, base rate or other analogous rate of the new Administrative Agent. Section 12.13...Delegation to Affiliates. Borrower and Banks agree that Administrative Agent may delegate any of its duties under this Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents and employees) which performs duties in connection with this Agreement shall be entitled to the same benefits of the indemnification, waiver and other protective provisions to which Administrative Agent is entitled under Article XII and Article XIII. Section 12.14...Execution of Collateral Documents. Without limiting the powers and authority of Administrative Agent described herein, the Banks hereby empower and authorize Administrative Agent to execute and deliver to Borrower on their behalf the Mortgages, the Borrower Pledge Agreements, the Subsidiary Pledge Agreements and all related financing statements and any other financing statements, agreements, documents or instruments as shall be necessary or appropriate to effect the purposes of the foregoing instruments. Section 12.15...Collateral Releases. Banks hereby empower and authorize Administrative Agent to execute and deliver to Borrower on their behalf any agreements, documents or instruments as shall be necessary or appropriate to effect any releases of collateral which shall be permitted by the terms hereof or of any other Loan Paper or which shall otherwise have been approved by Required Banks (or, if required by the terms of Section 14.5, all of the Banks) in writing. Section 12.16...Agents. None of the Banks (if any) identified in, or appointed at any time under, this Agreement as a "Documentation Agent," "Co-Documentation Agent," "Syndication Agent" and/or a "Co-Syndication Agent" shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Banks as such. Without limiting the foregoing, none of any such Agents shall have or be deemed to have a fiduciary relationship with any Bank. Each Bank hereby makes the same acknowledgments with respect to any such Agents as it makes with respect to Administrative Agent in Section 12.11. Article XIII CHANGE IN CIRCUMSTANCES ----------------------- Section 13.1....Increased Cost and Reduced Return. (a) If, after the date hereof, the adoption of any applicable law, rule, or regulation, or any change in any applicable law, rule, or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such Governmental Authority, central bank, or comparable agency: (i) shall subject such Bank (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Eurodollar Loans, its Note, or its obligation to make Eurodollar Loans, or change the basis of taxation of any amounts payable to such Bank (or its Applicable Lending Office) under this Agreement or its Note in respect of any Eurodollar Loans (other than taxes imposed on the overall net income of such Bank or such Applicable Lending Office); (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, compulsory loan, or similar requirement (other than the Reserve Requirement utilized in the determination of the Adjusted Eurodollar Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Bank (or its Applicable Lending Office), including the Commitment of such Bank hereunder; or (iii) shall impose on such Bank (or its Applicable Lending Office) or on the London interbank market any other condition affecting this Agreement or its Note or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making, Converting into, Continuing, or maintaining any Eurodollar Loans or to reduce any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or its Note with respect to any Eurodollar Loans, then the Borrower shall pay to such Bank on demand such amount or amounts as will compensate such Bank for such increased costs or reductions incurred or experienced within one hundred twenty (120) days of such demand. If any Bank requests compensation by Borrower under this Section 13.1(a), the Borrower may, by notice to such Bank (with a copy to Administrative Agent), suspend the obligation of such Bank to make or Continue Eurodollar Loans or to Convert all or part of the Base Rate Loan owing to such Bank into Eurodollar Loans, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 13.4 shall be applicable); provided, that such suspension shall not affect the right of such Bank to receive the compensation so requested. (b) If, after the date hereof, any Bank shall have determined that the adoption of any applicable law, rule, or regulation regarding capital adequacy or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank, or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Bank or any corporation controlling such Bank as a consequence of such Bank's obligations hereunder to a level below that which such Bank or such corporation could have achieved but for such adoption, change, request, or directive (taking into consideration its policies with respect to capital adequacy), then, from time to time upon demand, Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reductions experienced within one hundred twenty (120) days of such demand. (c) Each Bank shall promptly notify Borrower and Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section 13.1 and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to it. Any Bank claiming compensation under this Section 13.1 shall furnish to Borrower and Administrative Agent a statement setting forth the additional amount or amounts to be paid to it hereunder which shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. Section 13.2....Limitation on Type of Loans. If on or prior to the first day of any Interest Period for any Eurodollar Loan: (a) Administrative Agent determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period; or (b) Required Banks determine (which determination shall be conclusive) and notify Administrative Agent that the Adjusted Eurodollar Rate will not adequately and fairly reflect the cost to Banks of funding Eurodollar Loans for such Interest Period; then Administrative Agent shall give Borrower prompt notice thereof specifying the relevant Type of Revolving Loans and the relevant amounts or periods, and so long as such condition remains in effect, Banks shall be under no obligation to make additional Revolving Loans of such Type, Continue Revolving Loans of such Type, or to Convert Revolving Loans of any other Type into Revolving Loans of such Type, and Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Revolving Loans of the affected Type, either prepay such Revolving Loans or Convert such Revolving Loans into another Type of Revolving Loan in accordance with the terms of this Agreement. Section 13.3....Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Bank or its Applicable Lending Office to make, maintain, or fund Eurodollar Loans hereunder, then such Bank shall promptly notify Borrower thereof and such Bank's obligation to make or Continue Eurodollar Loans and to Convert other Types of Revolving Loans into Eurodollar Loans shall be suspended until such time as such Bank may again make, maintain, and fund Eurodollar Loans (in which case the provisions of Section 13.4 shall be applicable). Section 13.4....Treatment of Affected Loans. If the obligation of any Bank to make particular Eurodollar Loans or to Continue Revolving Loans, or to Convert Revolving Loans of another Type into Revolving Loans of a particular Type shall be suspended pursuant to Section 13.1 or Section 13.3 hereof (Revolving Loans of such Type being herein called "Affected Loans" and such Type being herein called the "Affected Type"), such Bank's Affected Loans shall be automatically Converted into the Base Rate Loan on the last day(s) of the then current Interest Period(s) for Affected Loans (or, in the case of a Conversion required by Section 13.3 hereof, on such earlier date as such Bank may specify to Borrower with a copy to Administrative Agent) and, unless and until such Bank gives notice as provided below that the circumstances specified in Section 13.1 or Section 13.3 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Bank's Affected Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Bank's Affected Loans shall be applied instead to the Base Rate Loan; and (b) all Revolving Loans that would otherwise be made or Continued by such Bank as Revolving Loans of the Affected Type shall be made or Continued instead as part of the Base Rate Loan, and all Revolving Loans of such Bank that would otherwise be Converted into Revolving Loans of the Affected Type shall be Converted instead into (or shall remain) as part of the Base Rate Loan. If such Bank gives notice to Borrower (with a copy to Administrative Agent) that the circumstances specified in Section 13.1 or Section 13.3 hereof that gave rise to the Conversion of such Bank's Affected Loans pursuant to this Section 13.4 no longer exist (which such Bank agrees to do promptly upon such circumstances ceasing to exist) at a time when Revolving Loans of the Affected Type made by other Banks are outstanding, such Bank's portion of the Base Rate Loan shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Revolving Loans of the Affected Type, to the extent necessary so that, after giving effect thereto, all Revolving Loans held by Banks holding Revolving Loans of the Affected Type and by such Bank are held pro rata (as to principal amounts, Types and Interest Periods) in accordance with their respective Commitments. Section 13.5....Compensation. Upon the request of any Bank, Borrower shall pay to such Bank such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost, or expense (including loss of anticipated profits) incurred by it as a result of: (a) any payment, prepayment, or Conversion of a Eurodollar Loan for any reason (including, without limitation, the acceleration of the Revolving Loan) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Borrower for any reason (including, without limitation, the failure of any condition precedent specified in Article VI to be satisfied) to borrow, Convert, Continue, or prepay a Eurodollar Loan on the date for such Borrowing, Conversion, Continuation, or prepayment specified in the relevant Request for Borrowing, Notice of Continuation or Conversion, or other notice of Borrowing, prepayment, Continuation, or Conversion under this Agreement. Section 13.6....Taxes. (a) Any and all payments by Borrower to or for the account of any Bank or Administrative Agent hereunder or under any other Loan Paper shall be made free and clear of and without deduction for any and all present or future Taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and Administrative Agent, Taxes imposed on its income, and franchise Taxes imposed on it (all such non-excluded Taxes, duties, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to in this Section 13.6 as "Non-Excluded Taxes"). If Borrower shall be required by Law to deduct any Non-Excluded Taxes from or in respect of any sum payable under this Agreement or any other Loan Paper to any Bank or Administrative Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 13.6) such Bank or Administrative Agent receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions, (iii) Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Law, and (iv) Borrower shall furnish to Administrative Agent, at its address set forth on Schedule 1.1 hereto, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, Borrower agrees to pay any and all present or future stamp or documentary Taxes and any other excise or property Taxes or charges or similar levies which arise from any payment made under this Agreement or any other Loan Paper or from the execution or delivery of, or otherwise with respect to, this Agreement or any other Loan Paper (hereinafter referred to as "Other Taxes"). (c) Borrower agrees to indemnify each Bank and Administrative Agent for the full amount of Non-Excluded Taxes and Other Taxes (including, without limitation, any Non-Excluded Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 13.6) paid by such Bank or Administrative Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto. (d) Each Bank organized under the Laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on Schedule 1.1 hereto and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by Borrower or Administrative Agent (but only so long as such Bank remains lawfully able to do so), shall provide Borrower and Administrative Agent, at the time or times prescribed by applicable Law, with such properly completed and executed documentation prescribed by applicable Law (or reasonably requested by Borrower) certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States, and certifying that such Bank is entitled to an exemption from or a reduced rate of tax on payments pursuant to this Agreement or any of the other Loan Papers. (e) For any period with respect to which a Bank has failed to provide Borrower and Administrative Agent with the appropriate form pursuant to Section 13.6(d) (unless such failure is due to a change in treaty, law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 13.6(a), Section 13.6(b) or Section 13.6(c) with respect to Non-Excluded Taxes imposed by the United States; provided, however, that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding Tax, become subject to Non-Excluded Taxes because of its failure to deliver a form required hereunder, Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Non-Excluded Taxes. (f) If Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 13.6, then such Bank will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Bank, is not otherwise disadvantageous to such Bank. (g) Within thirty (30) days after the date of any payment of Non-Excluded Taxes, Borrower shall furnish to Administrative Agent the original or a certified copy of a receipt evidencing such payment. (h) Without prejudice to the survival of any other agreement of Borrower hereunder, the agreements and obligations of Borrower contained in this Section 13.6 shall survive the termination of the Commitments and the payment in full of the Notes. Section 13.7....Discretion of Banks as to Manner of Funding. Notwithstanding any provisions of this Agreement to the contrary, each Bank shall be entitled to fund and maintain its funding of all or any part of its Commitment in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Bank had actually funded and maintained each Eurodollar Loan during the Interest Period for such Eurodollar Loan through the purchase of deposits having a maturity corresponding to the last day of such Interest Period and bearing an interest rate equal to the Adjusted Eurodollar Rate for such Interest Period. Article XIV MISCELLANEOUS ------------- Section 14.1....Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telecopy or similar writing) and shall be given, if to Administrative Agent or any Bank, at its address or telecopier number set forth on Schedule 1.1 hereto, and if given to Borrower, at its address or telecopy number set forth on the signature pages hereof (or in either case, at such other address or telecopy number as such party may hereafter specify for the purpose by notice to the other parties hereto). Each such notice, request or other communication shall be effective (a) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section 14.1 and the appropriate answerback is received or receipt is otherwise confirmed, (b) if given by mail, three (3) Domestic Business Days after deposit in the mails with first class postage prepaid, addressed as aforesaid, or (c) if given by any other means, when delivered at the address specified in this Section 14.1; provided that notices to Administrative Agent under Article II or Article III shall not be effective until received. Section 14.2....No Waivers. No failure or delay by Administrative Agent or any Bank in exercising any right, power or privilege hereunder or under any Note or other Loan Paper shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by Law or in any of the other Loan Papers. Section 14.3....Expenses; Indemnification. (a) Borrower agrees to pay on demand all reasonable costs and expenses of Administrative Agent, Sole Lead Arranger and Bookrunner in connection with the syndication, preparation, execution, delivery, modification, and amendment of this Agreement, the other Loan Papers, and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of counsel for Administrative Agent with respect thereto and with respect to advising Administrative Agent as to its rights and responsibilities under the Loan Papers. Borrower further agrees to pay on demand all costs and expenses of Administrative Agent and Banks, if any (including, without limitation, reasonable attorneys' fees and expenses), in connection with (i) the enforcement (whether through negotiations, legal proceedings, or otherwise) of the Loan Papers and the other documents to be delivered hereunder, and (ii) any forbearance or workout, or any modifications to the Loan Papers, following an Event of Default. Each demand for payment of costs and expenses shall include a reasonably detailed list of such costs and expenses, and such costs and expenses payable hereunder shall not include the allocated costs of internal counsel of any Agent or Bank. (b) BORROWER AGREES TO INDEMNIFY AND HOLD HARMLESS EACH AGENT AND EACH BANK AND EACH OF THEIR AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, AND ADVISORS (EACH, AN "INDEMNIFIED PARTY") FROM AND AGAINST ANY AND ALL CLAIMS, DAMAGES, LOSSES, LIABILITIES, COSTS, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES) THAT MAY BE INCURRED BY OR ASSERTED OR AWARDED AGAINST ANY INDEMNIFIED PARTY, IN EACH CASE ARISING OUT OF OR IN CONNECTION WITH OR BY REASON OF (INCLUDING, WITHOUT LIMITATION, IN CONNECTION WITH ANY INVESTIGATION, LITIGATION, OR PROCEEDING OR PREPARATION OF DEFENSE IN CONNECTION THEREWITH) THE LOAN PAPERS, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE REVOLVING LOAN (INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF THE INDEMNIFIED PARTY), EXCEPT TO THE EXTENT SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST, OR EXPENSE IS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH INDEMNIFIED PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. IN THE CASE OF AN INVESTIGATION, LITIGATION OR OTHER PROCEEDING TO WHICH THE INDEMNITY IN THIS SECTION 14.3 APPLIES, SUCH INDEMNITY SHALL BE EFFECTIVE WHETHER OR NOT SUCH INVESTIGATION, LITIGATION OR PROCEEDING IS BROUGHT BY CREDIT PARTIES, ITS DIRECTORS, SHAREHOLDERS OR CREDITORS OR AN INDEMNIFIED PARTY OR ANY OTHER PERSON OR ANY INDEMNIFIED PARTY IS OTHERWISE A PARTY THERETO AND WHETHER OR NOT THE TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED. BORROWER AGREES NOT TO ASSERT ANY CLAIM AGAINST ANY AGENT, ANY BANK, ANY OF THEIR AFFILIATES, OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS, AGENTS, AND ADVISERS, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL, OR PUNITIVE DAMAGES ARISING OUT OF OR OTHERWISE RELATING TO THE LOAN PAPERS, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE REVOLVING LOAN. (c) Without prejudice to the survival of any other agreement of Borrower hereunder, the agreements and obligations of Borrower contained in this Section 14.3 shall survive the payment in full of the Revolving Loan and all other amounts payable under this Agreement. Section 14.4....Right of Set-off; Adjustments. (a) Upon the occurrence and during the continuance of any Event of Default, each Bank (and each of its Affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank (or any of its Affiliates) to or for the credit or the account of any Credit Party against any and all of the Obligations, irrespective of whether such Bank shall have made any demand under this Agreement or Note held by such and although such obligations may be unmatured. Each Bank agrees promptly to notify the affected Credit Party after any such set-off and application made by such Bank; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Bank under this Section 14.4 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Bank may have. (b) If any Bank (a "benefitted Bank") shall at any time receive any payment of all or part of the amounts owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, or otherwise), in a greater proportion than any such payment to or collateral received by any other Bank, if any, in respect of such other Bank's amounts owing to it, or interest thereon, such benefitted Bank shall purchase for cash from the other Banks a participating interest in such portion of each such other Bank's amounts owing to it, or shall provide such other Banks with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Bank to share the excess payment or benefits of such collateral or proceeds ratably with each other Bank; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Bank, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. Borrower agrees that any Bank so purchasing a participation from a Bank pursuant to this Section 14.4 may, to the fullest extent permitted by Law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Person were the direct creditor of Borrower in the amount of such participation. Section 14.5....Amendments and Waivers. Any provision of this Agreement, the Notes or any other Loan Paper may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by Borrower and Required Banks (and, if the rights or duties of any Agent are affected thereby, by such Agent); provided that no such amendment or waiver shall, unless signed by all Banks, (a) increase the Commitment of any Bank, (b) reduce the principal of or rate of interest on any Revolving Loan or any fees or other amounts payable hereunder or for termination of any Commitment, (c) change the percentage of the Total Commitment, or the number of Banks which shall be required for Banks or any of them to take any action under this Section 14.5 or any other provision of this Agreement, (d) extend the due date for, or forgive any principal, interest, fees or reimbursement obligations due hereunder, (e) release any material guarantor or other material party liable for all or any part of the Obligations or release any material part of the collateral for the Obligations or any part thereof other than releases required pursuant to sales of collateral which are expressly permitted by Section 9.5 hereof, (f) amend or modify any of the provisions of Article IV hereof or the definitions of any terms defined therein, or (g) increase any Borrowing Base above the Borrowing Base then in effect. Section 14.6....Survival. All representations, warranties and covenants made by any Credit Party herein or in any certificate or other instrument delivered by it or in its behalf under the Loan Papers shall be considered to have been relied upon by Banks and shall survive the delivery to Banks of such Loan Papers or the extension of the Revolving Loan (or any part thereof), regardless of any investigation made by or on behalf of Banks. The indemnity provided in Section 14.3(b) herein shall survive the repayment of all credit advances hereunder and/or the discharge or release of any Lien granted hereunder or in any other Loan Paper, contract or agreement between Borrower or any other Credit Party and any Agent or any Bank. Section 14.7....Limitation on Interest. Regardless of any provision contained in the Loan Papers, Banks shall never be entitled to receive, collect, or apply, as interest on the Revolving Loan, any amount in excess of the Maximum Lawful Rate, and in the event any Bank ever receives, collects or applies as interest any such excess, such amount which would be deemed excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such; and if the Revolving Loan is paid in full, any remaining excess shall promptly be paid to Borrower. In determining whether or not the interest paid or payable under any specific contingency exceeds the Maximum Lawful Rate, Borrower and Banks shall, to the extent permitted under applicable Law, (a) characterize any non-principal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof and (c) amortize, prorate, allocate and spread, in equal parts, the total amount of the interest throughout the entire contemplated term of the Notes, so that the interest rate is the Maximum Lawful Rate throughout the entire term of the Notes; provided, however, that if the unpaid principal balance thereof is paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Maximum Lawful Rate, Banks shall refund to Borrower the amount of such excess and, in such event, Banks shall not be subject to any penalties provided by any Laws for contracting for, charging, taking, reserving or receiving interest in excess of the Maximum Lawful Rate. Section 14.8....Invalid Provisions. If any provision of the Loan Papers is held to be illegal, invalid, or unenforceable under present or future Laws effective during the term thereof, such provision shall be fully severable, the Loan Papers shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part thereof, and the remaining provisions thereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of the Loan Papers a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid and enforceable. Section 14.9....Waiver of Consumer Credit Laws. Pursuant to Chapter 346 of the Texas Finance Code, as amended, Borrower agrees that such Chapter 346 shall not govern or in any manner apply to the Revolving Loan. Section 14.10...Assignments and Participations. (a) Successors and Assigns. The terms and provisions of the Loan Papers shall be binding upon and inure to the benefit of Borrower and Banks and their respective successors and assigns permitted hereby, except that (i) Borrower shall not have the right to assign its rights or obligations under the Loan Papers without the prior written consent of each Bank, (ii) any assignment by any Bank must be made in compliance with Section 14.10(c), and (iii) any transfer by participation must be made in compliance with Section 14.10(b). Any attempted assignment or transfer by any party not made in compliance with this Section 14.10(a) shall be null and void, unless such attempted assignment or transfer is treated as a participation in accordance with Section 14.10(b). The parties to this Agreement acknowledge that clause (ii) of this Section 14.10(a) relates only to absolute assignments and this Section 14.10(a) does not prohibit assignments creating security interests, including, without limitation, (x) any pledge or assignment by any Bank of all or any portion of its rights under this Agreement and any Note to a Federal Reserve Bank or (y) in the case of a Bank which is a Fund, any pledge or assignment of all or any portion of its rights under this Agreement and any Note to its trustee in support of its obligations to its trustee; provided, however, that no such pledge or assignment creating a security interest shall release the transferor Bank from its obligations hereunder unless and until the parties thereto have complied with the provisions of Section 14.10(c). Administrative Agent may treat the Person which made any Revolving Loan or which holds any Note as the owner thereof for all purposes hereof unless and until such Person complies with Section 14.10(c); provided, however, that Administrative Agent may in its discretion (but shall not be required to) follow instructions from the Person which made any Revolving Loan or which holds any Note to direct payments relating to such Revolving Loan or Note to another Person. Any assignee of the rights to any Revolving Loan or any Note agrees by acceptance of such assignment to be bound by all the terms and provisions of the Loan Papers. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the owner of the rights to any Revolving Loan (whether or not a Note has been issued in evidence thereof), shall be conclusive and binding on any subsequent holder or assignee of the rights to such Revolving Loan. (b) Participations. (i) Any Bank may at any time sell to one or more banks or other entities ("Participants") participating interests in any Revolving Loan owing to such Bank, any Note held by such Bank, any Commitment of such Bank or any other interest of such Bank under the Loan Papers. In the event of any such sale by a Bank of participating interests to a Participant, such Bank's obligations under the Loan Papers shall remain unchanged, such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, such Bank shall remain the owner of its Revolving Loans and the holder of any Note issued to it in evidence thereof for all purposes under the Loan Papers, all amounts payable by Borrower under this Agreement shall be determined as if such Bank had not sold such participating interests, and Borrower and Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under the Loan Papers. (ii) Each Bank shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Papers other than any amendment, modification or waiver with respect to any Revolving Loan or Commitment in which such Participant has an interest which would require consent of all of the Banks pursuant to the terms of Section 14.5 or of any other Loan Paper. (iii) Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Section 14.4 in respect of its participating interest in amounts owing under the Loan Papers to the same extent as if the amount of its participating interest were owing directly to it as a Bank under the Loan Papers; provided, that each Bank shall retain the right of setoff provided in Section 14.4 with respect to the amount of participating interests sold to each Participant. Banks agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 14.4, agrees to share with each Bank, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 14.4 as if each Participant were a Bank. Borrower further agrees that each Participant shall be entitled to the yield protection provisions contained in Article XIII to the same extent as if it were a Bank and had acquired its interest by assignment pursuant to Section 14.10(c); provided, that (A) a Participant shall not be entitled to receive any greater payment under Article XIII than the Bank who sold the participating interest to such Participant would have received had it retained such interest for its own account, unless the sale of such interest to such Participant is made with the prior written consent of Borrower, and (B) any Participant not incorporated under the laws of the United States of America or any State thereof agrees to comply with the provisions of Section 13.6 to the same extent as if it were a Bank. (c) Assignments. (i) Any Bank may at any time assign to one or more banks or other entities ("Purchasers") all or any part of its rights and obligations under the Loan Papers. The parties to such assignment shall execute and deliver an Assignment and Acceptance Agreement (herein so called) which shall be substantially in the form of Exhibit J or in such other form as may be agreed to by the parties thereto. Each such assignment with respect to a Purchaser which is not a Bank or an Affiliate of a Bank or an Approved Fund shall either be in an amount equal to the entire applicable Commitment and Revolving Loans of the assigning Bank or (unless each of Borrower and Administrative Agent otherwise consents) be in an aggregate amount not less than $5,000,000. The amount of the assignment shall be based on the Commitment or outstanding Revolving Loans (if the Commitment has been terminated) subject to the assignment, determined as of the date of such assignment or as of the "Effective Date," if the "Effective Date" is specified in the Assignment and Acceptance Agreement. (ii) The consent of Borrower shall be required prior to an assignment becoming effective unless Purchaser is a Bank, an Affiliate of a Bank or an Approved Fund, provided that the consent of Borrower shall not be required if a Default has occurred and is continuing. The consent of Administrative Agent shall be required prior to an assignment becoming effective unless the Purchaser is a Bank, an Affiliate of a Bank or an Approved Fund. The consent of Letter of Credit Issuer shall be required prior to an assignment of a Commitment becoming effective unless Purchaser is a Bank, an Affiliate of a Bank or an Approved Fund. Any consent required under this Section 14.10(c)(ii) shall not be unreasonably withheld or delayed. (iii) Upon (A) delivery to Administrative Agent of an Assignment and Acceptance Agreement, together with any consents required by Section 14.10(c)(i) and (ii), and (B) payment of a $3,500 fee to Administrative Agent for processing such assignment (unless such fee is waived by Administrative Agent), such assignment shall become effective on the effective date specified in such Assignment and Acceptance Agreement. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Bank party to this Agreement and any other Loan Paper executed by or on behalf of Banks and shall have all the rights and obligations of a Bank under the Loan Papers, to the same extent as if it were an original party thereto, and the transferor Bank shall be released with respect to the Commitment and Revolving Loans assigned to such Purchaser without any further consent or action by Borrower, Banks or Administrative Agent. In the case of an assignment covering all of the assigning Bank's rights and obligations under this Agreement, such Bank shall cease to be a Bank hereunder but shall continue to be entitled to the benefits of, and subject to, those provisions of this Agreement and the other Loan Papers which survive payment of the Obligations and termination of the applicable agreement. Any assignment or transfer by a Bank of rights or obligations under this Agreement that does not comply with this Section 14.10(c) shall be treated for purposes of this Agreement as a sale by such Bank of a participation in such rights and obligations in accordance with Section 14.10(b). Upon the consummation of any assignment to a Purchaser pursuant to this Section 14.10(c), the transferor Bank, Administrative Agent and Borrower shall make appropriate arrangements so that new Notes or, as appropriate, replacement Notes are issued to such transferor Bank and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their respective Commitments, as adjusted pursuant to such assignment. (iv) Administrative Agent, acting solely for this purpose as an agent of Borrower, shall maintain at one of its offices in Chicago, Illinois or Dallas, Texas a copy of each Assignment and Acceptance Agreement delivered to it and a register for the recordation of the names and addresses of the Banks, and the Commitments of, and principal amounts of the Revolving Loans owing to, each Bank pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and Borrower, Administrative Agent and Banks may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Bank hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by Borrower and any Bank, at any reasonable time and from time to time upon reasonable prior notice. (d) Dissemination of Information. Borrower authorizes each Bank to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Papers by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Bank's possession concerning the creditworthiness of Borrower and its Subsidiaries, including, without limitation, any information contained in any financial reports; provided, that, each Transferee and prospective Transferee agrees to be bound by Section 14.17 of this Agreement. (e) Tax Treatment. If any interest in any Loan Paper is transferred to any Transferee which is not incorporated under the laws of the United States or any State thereof, the transferor Bank shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 13.6(d). Section 14.11...TEXAS LAW. THIS AGREEMENT, EACH NOTE AND THE OTHER LOAN PAPERS HAVE BEEN EXECUTED AND DELIVERED IN THE STATE OF TEXAS AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT TO THE EXTENT THAT THE LAWS OF ANY STATE IN WHICH ANY PROPERTY INTENDED AS SECURITY FOR THE OBLIGATIONS IS LOCATED NECESSARILY GOVERN (A) THE PERFECTION AND PRIORITY OF THE LIENS IN FAVOR OF ADMINISTRATIVE AGENT AND BANKS WITH RESPECT TO SUCH PROPERTY, AND (B) THE EXERCISE OF ANY REMEDIES (INCLUDING FORECLOSURE) WITH RESPECT TO SUCH PROPERTY. Section 14.12...Consent to Jurisdiction; Waiver of Immunities. (a) Borrower hereby irrevocably submits to the jurisdiction of any Texas State or Federal court sitting in the Northern District of Texas over any action or proceeding arising out of or relating to this Agreement or any other Loan Papers, and Borrower hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Texas State or Federal court. Borrower irrevocably consents to the service of any and all process in any such action or proceeding by the delivery by Federal Express or other nationally recognized overnight delivery service of copies of such process to such Person at its address specified in Section 14.1 and to Foley & Lardner, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53207, Attn: Emory Ireland. Borrower agrees that a final judgment on any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. (b) Nothing in this Section 14.12 shall affect any right of Banks to serve legal process in any other manner permitted by Law or affect the right of any Bank to bring any action or proceeding against any Credit Party or their properties in the courts of any other jurisdictions. (c) To the extent that Borrower has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, such Person hereby irrevocably waives such immunity in respect of its obligations under this Agreement and the other Loan Papers. Section 14.13...Counterparts; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Subject to the terms and conditions herein set forth, this Agreement shall become effective when Administrative Agent shall have received counterparts hereof signed by all of the parties hereto or, in the case of any Bank as to which an executed counterpart shall not have been received, Administrative Agent shall have received telegraphic or other written confirmation from such Bank of execution of a counterpart hereof by such Bank. Section 14.14...No Third Party Beneficiaries. Except for the provisions hereof inuring to the benefit of Agents not a party to this Agreement, it is expressly intended that there shall be no third party beneficiaries of the covenants, agreements, representations or warranties herein contained other than third party beneficiaries permitted pursuant to Section 14.10. Section 14.15...COMPLETE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BY AND AMONG BANKS, AGENTS AND THE CREDIT PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF BANKS, AGENTS, AND THE CREDIT PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG BANKS, AGENTS, AND THE CREDIT PARTIES. Section 14.16...WAIVER OF JURY TRIAL. BORROWER, ADMINISTRATIVE AGENT AND BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN PAPERS AND FOR ANY COUNTERCLAIM THEREIN. Section 14.17...Confidentiality. Administrative Agent and each Bank (each, a "Lending Party") agrees to keep confidential any information furnished or made available to it by Borrower pursuant to this Agreement that is marked confidential; provided, that nothing herein shall prevent any Lending Party from disclosing such information (a) to any other Lending Party or any Affiliate of any Lending Party, or any officer, director, employee, agent, or advisor of any Lending Party or any Affiliate of any Lending Party, (b) to any other Person if reasonably incidental to the administration of the credit facility provided herein, (c) as required by any Law, rule or regulation, (d) upon the order of any court or administrative agency, (e) upon the request or demand of any regulatory agency or authority, (f) that is or becomes available to the public or that is or becomes available to any Lending Party other than as a result of a disclosure by any Lending Party prohibited by this Agreement, (g) in connection with any litigation to which such Lending Party or any of its affiliates may be a party relating to the Obligations or any Loan Paper, (h) to the extent necessary in connection with the exercise of any remedy under this Agreement or any other Loan Paper, and (i) subject to provisions substantially similar to those contained in this Section 14.17, to any actual or proposed participant or assignee. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective Authorized Officers on the day and year first above written. [signature pages to follow] SIGNATURE PAGE TO CREDIT AGREEMENT BY AND AMONG WHITING PETROLEUM CORPORATION, AS BORROWER, BANK ONE, NA, AS ADMINISTRATIVE AGENT, THE OTHER AGENTS A PARTY THERETO, AND THE FINANCIAL INSTITUTIONS LISTED ON SCHEDULE 1.1 THERETO, AS BANKS BORROWER: - --------- WHITING PETROLEUM CORPORATION, a Delaware corporation By: /s/ James J. Volker --------------------------- Name: James J. Volker ----------------------- Title: CEO ----------- Address for Notice: Mile High Center 1700 Broadway Suite 2300 Denver, Colorado 80290-2301 Attn: James J. Volker Fax No. (303) 390-5594 SIGNATURE PAGE TO CREDIT AGREEMENT BY AND AMONG WHITING PETROLEUM CORPORATION, AS BORROWER, BANK ONE, NA, AS ADMINISTRATIVE AGENT, THE OTHER AGENTS A PARTY THERETO, AND THE FINANCIAL INSTITUTIONS LISTED ON SCHEDULE 1.1 THERETO, AS BANKS ADMINISTRATIVE AGENT: - --------------------- BANK ONE, NA, as Administrative Agent By: /s/ J. Scott Fowler ------------------------- J. Scott Fowler, Director, Capital Markets BANK: - ----- BANK ONE, NA By: /s/ J. Scott Fowler ------------------------------- J. Scott Fowler, Director, Capital Markets SIGNATURE PAGE TO CREDIT AGREEMENT BY AND AMONG WHITING PETROLEUM CORPORATION, AS BORROWER, BANK ONE, NA, AS ADMINISTRATIVE AGENT, THE OTHER AGENTS A PARTY THERETO, AND THE FINANCIAL INSTITUTIONS LISTED ON SCHEDULE 1.1 THERETO, AS BANKS SYNDICATION AGENT: - ------------------ WACHOVIA BANK, NATIONAL ASSOCIATION, as Syndication Agent By: /s/ Philip Trinder ------------------------ Name: Philip Trinder -------------------- Title: Vice President -------------------- BANK: WACHOVIA BANK, NATIONAL ASSOCIATION By: /s/ Philip Trinder ------------------------ Name: Philip Trinder -------------------- Title: Vice President -------------------- SIGNATURE PAGE TO CREDIT AGREEMENT BY AND AMONG WHITING PETROLEUM CORPORATION, AS BORROWER, BANK ONE, NA, AS ADMINISTRATIVE AGENT, THE OTHER AGENTS A PARTY THERETO, AND THE FINANCIAL INSTITUTIONS LISTED ON SCHEDULE 1.1 THERETO, AS BANKS SCHEDULE 1.1 ------------ Financial Institutions
======================================== ========================= =========================== Banks Commitment Amount Commitment Percentage - ---------------------------------------- ------------------------- --------------------------- Bank One, NA $192,500,000 55.00% - ---------------------------------------- ------------------------- --------------------------- Wachovia Bank, National Association $157,500,000 45.00% - ---------------------------------------- ------------------------- --------------------------- Totals: $350,000,000 100.00% ======================================== ========================= ===========================
================================== =============================== =============================== =============================== Banks Domestic Lending Office Eurodollar Lending Office Address for Notice - ---------------------------------- ------------------------------- ------------------------------- ------------------------------- Bank One, NA 1717 Main Street 1717 Main Street 1717 Main Street 4th Floor 4th Floor 4th Floor Mail Code TX1-2448 Mail Code TX1-2448 Mail Code TX1-2448 Dallas, Texas 75201 Dallas, Texas 75201 Dallas, Texas 75201 Attn: J. Scott Fowler Attn: J. Scott Fowler Attn: J. Scott Fowler Tel. No. (214) 290-2162 Tel. No. (214) 290-2162 Tel. No. (214) 290-2162 Fax No. (214) 290-2332 Fax No. (214) 290-2332 Fax No. (214) 290-2332 - ---------------------------------- ------------------------------- ------------------------------- ------------------------------- Wachovia Bank, National 1001 Fannin, Suite 2255 1001 Fannin, Suite 2255 1001 Fannin, Suite 2255 Association Houston, Texas 77002 Houston, Texas 77002 Houston, Texas 77002 Attn: Debbie Blank Attn: Debbie Blank Attn: Philip Trinder Tel. No. (713) 346-2727 Tel. No. (713) 346-2727 Tel. No. (713) 346-2707 Fax No. (713) 650-6354 Fax No. (713) 650-6354 Fax No. (713) 650-6354 - ---------------------------------- ------------------------------- ------------------------------- -------------------------------
Administrative Agent - Address: 1717 Main Street, 4th Floor Mail Code TX1-2448 Dallas, Texas 75201 Attn: J. Scott Fowler Tel. No. (214) 290-2162 Fax No. (214) 290-2332 EX-10 9 exhibit10pt5a.txt EXHIBIT 10.5A EXHIBIT 10.5a FIRST AMENDMENT TO CREDIT AGREEMENT This First Amendment to Credit Agreement (this "First Amendment") is effective as of January 7, 2003 (the "Effective Date"), by and among WHITING PETROLEUM CORPORATION, a Delaware corporation ("Borrower"), BANK ONE, NA, a national banking association, as Administrative Agent ("Administrative Agent"), and each of the financial institutions a party hereto (hereinafter collectively referred to as "Banks", and individually, "Bank"). W I T N E S S E T H: -------------------- WHEREAS, Borrower, Administrative Agent and Banks are parties to that certain Credit Agreement dated as of December 20, 2002 (the "Credit Agreement") (unless otherwise defined herein, all terms used herein with their initial letter capitalized shall have the meaning given such terms in the Credit Agreement); and WHEREAS, pursuant to the Credit Agreement, Banks have made revolving credit loans to Borrower; and WHEREAS, Borrower has requested that the Credit Agreement be amended in certain respects; and WHEREAS, subject to the terms and conditions set forth herein, Banks have agreed to Borrower's request. NOW THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, Borrower, Administrative Agent and Banks hereby agree as follows: SECTION 1. Amendments. In reliance on the representations, warranties, covenants and agreements contained in this First Amendment, the Credit Agreement is hereby amended effective as of the Effective Date in the manner provided in this Section 1. 1.1. Amendment to Definition of "Loan Papers". The definition of "Loan Papers" contained in Section 1.1 of the Credit Agreement shall be amended to read in full as follows: "Loan Papers" means this Agreement, the First Amendment, the Notes, each Facility Guaranty which may now or hereafter be executed, each Borrower Pledge Agreement which may now or hereafter be executed, each Subsidiary Pledge Agreement which may now or hereafter be executed, all Mortgages now or at any time hereafter delivered pursuant to Section 5.1, all Letters of Credit, and all other certificates, documents or instruments delivered in connection with this Agreement, as the foregoing may be amended from time to time. 1.2. Additional Definition. Section 1.1 of the Credit Agreement shall be amended to add the following definition of "First Amendment" to such Section: "First Amendment" means that certain First Amendment to Credit Agreement dated as of January 7, 2003, among Borrower, Administrative Agent and Banks. 1.3. Amendment to Section 2.1(b). The fourth sentence of the first paragraph of Section 2.1(b) shall be amended to read in its entirety as follows: "No Letter of Credit shall have an expiration date later than the earlier of (i) one (1) year after the Termination Date, or (ii) fifteen (15) months from the date of issuance (or, in the case of any renewal or extension thereof, fifteen (15) months after such renewal or extension)." SECTION 2. Representations and Warranties of Borrower. To induce Banks and Administrative Agent to enter into this First Amendment, Borrower hereby represents and warrants to Banks and Administrative Agent as follows: 2.1. Due Authorization; No Conflict. The execution, delivery and performance by Borrower of this First Amendment are within Borrower's corporate powers, have been duly authorized by all necessary action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not violate or constitute a default under any provision of applicable law or any Material Agreement binding upon Borrower or result in the creation or imposition of any Lien upon any of the assets of Borrower except Permitted Encumbrances. 2.2. Validity and Enforceability. This First Amendment constitutes the valid and binding obligation of Borrower enforceable in accordance with its terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditor's rights generally, and (ii) the availability of equitable remedies may be limited by equitable principles of general application. SECTION 3. Miscellaneous. 3.1. Reaffirmation of Loan Papers. Any and all of the terms and provisions of the Credit Agreement and the Loan Papers shall, except as amended and modified hereby, remain in full force and effect. The amendments contemplated hereby shall not limit or impair any Liens securing the Obligations, each of which are hereby ratified, affirmed and extended to secure the Obligations. 3.2. Parties in Interest. All of the terms and provisions of this First Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. 3.3. Legal Expenses. Borrower hereby agrees to pay on demand all reasonable fees and expenses of counsel to Administrative Agent incurred by Administrative Agent in connection with the preparation, negotiation and execution of this First Amendment. 3.4. Counterparts. This First Amendment may be executed in counterparts, and all parties need not execute the same counterpart; however, no party shall be bound by this First Amendment until all parties have executed a counterpart. Facsimiles shall be effective as originals. 3.5. Complete Agreement. THIS FIRST AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG THE PARTIES. 3.6. Headings. The headings, captions and arrangements used in this First Amendment are, unless specified otherwise, for convenience only and shall not be deemed to limit, amplify or modify the terms of this First Amendment, nor affect the meaning thereof. 3.7. Effectiveness. This First Amendment shall be effective automatically and without necessity of any further action by Borrower, Administrative Agent or Banks when counterparts hereof have been executed by Borrower, Administrative Agent and all Banks, and all conditions to the effectiveness hereof set forth herein have been satisfied. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed by their respective Authorized Officers on the date and year first above written. [Signature pages to follow] SIGNATURE PAGE TO FIRST AMENDMENT TO CREDIT AGREEMENT BY AND AMONG WHITING PETROLEUM CORPORATION, AS BORROWER, BANK ONE, NA, AS ADMINISTRATIVE AGENT AND THE BANKS PARTY THERETO BORROWER: WHITING PETROLEUM CORPORATION, a Delaware corporation By: /s/ James J. Volker ----------------------- Name: James J. Volker --------------------- Title: CEO -------------------- SIGNATURE PAGE TO FIRST AMENDMENT TO CREDIT AGREEMENT BY AND AMONG WHITING PETROLEUM CORPORATION, AS BORROWER, BANK ONE, NA, AS ADMINISTRATIVE AGENT AND THE BANKS PARTY THERETO ADMINISTRATIVE AGENT: BANK ONE, NA /s/ J. Scott Fowler ------------------- J. Scott Fowler, Director, Capital Markets BANKS: BANK ONE, NA /s/ J. Scott Fowler ------------------- J. Scott Fowler, Director, Capital Markets WACHOVIA BANK, NATIONAL ASSOCIATION By: /s/ Philip Trinder ---------------------- Name: Philip Trinder -------------------- Title: Vice President ------------------- EX-21 10 exhibit21.txt EXHIBIT 21 EXHIBIT 21 ALLIANT ENERGY CORPORATION SUBSIDIARIES OF THE REGISTRANT
The following are deemed to be significant subsidiaries of Alliant Energy Corporation as of Dec. 31, 2002: Name of Subsidiary State of Incorporation - ------------------ ---------------------- Interstate Power and Light Company Iowa Wisconsin Power and Light Company Wisconsin Alliant Energy Resources, Inc. Wisconsin Alliant Energy International, Inc. Iowa WISCONSIN POWER AND LIGHT COMPANY SUBSIDIARIES OF THE REGISTRANT The following are deemed to be significant subsidiaries of Wisconsin Power and Light Company as of Dec. 31, 2002: Name of Subsidiary State of Incorporation - ------------------ ---------------------- WPL Transco LLC Wisconsin
EX-23 11 exhibit23.txt EXHIBIT 23 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference of our report dated March 18, 2003 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of a new accounting principle) on the consolidated financial statements of Alliant Energy Corporation appearing in this Annual Report on Form 10-K of Alliant Energy Corporation for the year ended December 31, 2002 in the following Registration Statements of Alliant Energy Corporation: 1. Registration Statement on Form S-8 (Registration Nos. 333-41485 and 333-92783) - Long-Term Equity Incentive Plan 2. Registration Statement on Form S-8 (Registration Nos. 333-46735 and 333-88306) - 401(k) Savings Plan 3. Registration Statement on Form S-8 (Registration No. 333-51126) - Deferred Compensation Plan 4. Registration Statement on Form S-8 (Registration No. 333-88304) - 2002 Equity Incentive Plan 5. Registration Statement on Form S-3 (Registration No. 333-26627) - Shareowner Direct Plan registration of 6,500,000 shares of Common Stock 6. Registration Statement on Form S-3 (Registration No. 333-70964) - Registration of 12,000,000 shares of Common Stock 7. Registration Statement on Form S-3 (Registration No. 333-101209) - Shareowner Direct Plan registration of 145,893 shares of Common Stock 8. Registration Statement on Form S-3 (Registration No. 333-101307) - Shareowner Direct Plan registration of 2,500,000 shares of Common Stock. DELOITTE & TOUCHE LLP Milwaukee, Wisconsin March 25, 2003 EX-99 12 exhibit99pt1.txt EXHIBIT 99.1 Exhibit 99.1 Written Statement of the Chairman, President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Chairman, President and Chief Executive Officer of Alliant Energy Corporation (the "Company"), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Erroll B. Davis, Jr. - ------------------------ Erroll B. Davis, Jr. March 25, 2003 EX-99 13 exhibit99pt2.txt EXHIBIT 99.2 Exhibit 99.2 Written Statement of the Executive Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Executive Vice President and Chief Financial Officer of Alliant Energy Corporation (the "Company"), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Thomas M. Walker - -------------------- Thomas M. Walker March 25, 2003 EX-99 14 exhibit99pt3.txt EXHIBIT 99.3 Exhibit 99.3 Written Statement of the Chairman and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Chairman and Chief Executive Officer of Interstate Power and Light Company (the "Company"), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Erroll B. Davis, Jr. - ------------------------ Erroll B. Davis, Jr. March 25, 2003 EX-99 15 exhibit99pt4.txt EXHIBIT 99.4 Exhibit 99.4 Written Statement of the Executive Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Executive Vice President and Chief Financial Officer of Interstate Power and Light Company (the "Company"), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Thomas M. Walker - -------------------- Thomas M. Walker March 25, 2003 EX-99 16 exhibit99pt5.txt EXHIBIT 99.5 Exhibit 99.5 Written Statement of the Chairman and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Chairman and Chief Executive Officer of Wisconsin Power and Light Company (the "Company"), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Erroll B. Davis, Jr. - ------------------------ Erroll B. Davis, Jr. March 25, 2003 EX-99 17 exhibit99pt6.txt EXHIBIT 99.6 Exhibit 99.6 Written Statement of the Executive Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Executive Vice President and Chief Financial Officer of Wisconsin Power and Light Company (the "Company"), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Thomas M. Walker - -------------------- Thomas M. Walker March 25, 2003 -----END PRIVACY-ENHANCED MESSAGE-----