0000912057-95-006022.txt : 19950808
0000912057-95-006022.hdr.sgml : 19950808
ACCESSION NUMBER: 0000912057-95-006022
CONFORMED SUBMISSION TYPE: S-4
PUBLIC DOCUMENT COUNT: 16
FILED AS OF DATE: 19950807
SROS: NYSE
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: WISCONSIN ENERGY CORP
CENTRAL INDEX KEY: 0000783325
STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931]
IRS NUMBER: 391391525
STATE OF INCORPORATION: WI
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: S-4
SEC ACT: 1933 Act
SEC FILE NUMBER: 033-61619
FILM NUMBER: 95559416
BUSINESS ADDRESS:
STREET 1: 231 W MICHIGAN ST
CITY: MILWAUKEE
STATE: WI
ZIP: 53201
BUSINESS PHONE: 4142212345
MAIL ADDRESS:
STREET 1: PO BOX 2949
CITY: MILWAUKEE
STATE: WI
ZIP: 53201
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: NORTHERN POWER WISCONSIN CORP
CENTRAL INDEX KEY: 0000948968
STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000]
STATE OF INCORPORATION: WI
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: S-4
SEC ACT: 1933 Act
SEC FILE NUMBER: 033-61619-01
FILM NUMBER: 95559417
BUSINESS ADDRESS:
STREET 1: C/O GARY JOHNSON NORTHERN STATES POWER C
STREET 2: PO BOX 414 NICOLLET MALL
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55401
BUSINESS PHONE: 6123307623
MAIL ADDRESS:
STREET 1: C/O GARY JOHNSON NORTHERN STATES PWR CO
STREET 2: PO BOX 414 NICOLLET MALL
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55401
S-4
1
S-4
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WISCONSIN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
(TO BE RENAMED PRIMERGY CORPORATION)
WISCONSIN 6719 39-1391525
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
231 West Michigan Street
P.O. Box 2949, Milwaukee,
Wisconsin 53201
(414) 221-2345
(Address, including Zip Code, and telephone number,
including area code, of registrant's principal executive offices)
JERRY G. REMMEL
Vice President, Treasurer and Chief Financial Officer
Wisconsin Energy Corporation
231 West Michigan Street
P.O. Box 2949
Milwaukee, Wisconsin 53201
(414) 221-2345
(Name, address, including Zip Code, and telephone number,
including area code, of agent for service)
NORTHERN POWER WISCONSIN CORP.
(Exact name of registrant as specified in its charter)
(TO BE RENAMED NORTHERN STATES POWER COMPANY)
WISCONSIN 4939 APPLIED FOR
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
414 Nicollet Mall
Minneapolis, Minnesota 55401
(612) 330-5500
(Address, including Zip Code, and telephone number,
including area code, of registrant's principal executive offices)
EDWARD J. MCINTYRE
President
Northern Power Wisconsin Corp.
414 Nicollet Mall
Minneapolis, Minnesota 55401
(612) 330-7712
(Name, address, including Zip Code, and telephone number,
including area code, of agent for service)
----------------------------------------
COPIES OF ALL CORRESPONDENCE TO:
BRUCE C. DAVIDSON SETH A. KAPLAN SHELDON S. ADLER PETER D. CLARKE
Quarles & Brady Wachtell, Lipton, Rosen & Katz Skadden, Arps, Slate, Gardner, Carton & Douglas
411 East Wisconsin Avenue 51 West 52nd Street Meagher & Flom Quaker Tower
Milwaukee, Wisconsin 53202 New York, New York 10019 919 Third Avenue 321 North Clark Street
(414) 277-5000 (212) 403-1000 New York, New York 10022 Chicago, Illinois 60610
(212) 735-3000 (312) 644-3000
----------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the registration statement becomes effective and
all conditions prerequisite have been satisfied or waived.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
----------------------------------
CALCULATION OF REGISTRATION FEE: WISCONSIN ENERGY CORPORATION
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED BE REGISTERED (1)(4) PER UNIT (2) OFFERING PRICE (2) REGISTRATION FEE (3)
Common Stock, $.01 par
value................... 114,357,613 shares $27.02 $3,090,152,275 $1,065,569.75
(1) Assumes that up to 70,330,635 shares of common stock of Northern States
Power Company ("NSP") are converted into shares of Wisconsin Energy
Corporation ("WEC") common stock at the exchange ratio of 1.626 shares of
WEC common stock for each share of NSP common stock pursuant to the Amended
and Restated Agreement and Plan of Merger (the "Merger Agreement") to which
this registration statement relates. In connection with the consummation of
the transactions provided for in the Merger Agreement, WEC will change its
name to Primergy Corporation ("Primergy").
(2) Estimated pursuant to Rules 457(f)(l) and 457(c) under the Securities Act
of 1933 solely for the purpose of calculating the registration fee, based
on $43.9375 per share, the average of the high and low sale prices for a
share of NSP common stock on the New York Stock Exchange Composite Tape on
August 3, 1995. The proposed maximum offering price per unit has been
determined by dividing the proposed maximum aggregate offering price by the
number of shares being registered, rounded to the nearest cent.
(3) Includes the fee of $656,138.50 paid to the Commission on June 7, 1995 upon
filing the preliminary proxy materials of WEC and NSP and the additional
fee of $1,453 paid on July 14, 1995 upon the filing of amended preliminary
proxy materials. Pursuant to Rule 457(b), the $407,978.25 balance of the
registration fee is being paid to the Commission upon filing this
registration statement.
(4) To the extent that less than the maximum number of shares registered hereby
are issued pursuant to the Merger Agreement, it is intended that the
balance of the registered shares will be utilized in connection with NSP
stock plans assumed pursuant to the Merger Agreement, by filing one or more
post-effective amendments hereto on the appropriate registration form with
respect to such plans.
----------------------------------
CALCULATION OF REGISTRATION FEE: NORTHERN POWER WISCONSIN CORP.
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED (1) PER UNIT (2) OFFERING PRICE (2) REGISTRATION FEE
Cumulative Preferred Stock, par
value $100 per share..............
$3.60 Series 275,000 $100 $27,500,000
$4.08 Series 150,000 $100 $15,000,000
$4.10 Series 175,000 $100 $17,500,000
$4.11 Series 200,000 $100 $20,000,000
$4.16 Series 100,000 $100 $10,000,000 $134,483
$4.56 Series 150,000 $100 $15,000,000
$6.80 Series 200,000 $100 $20,000,000
$7.00 Series 200,000 $100 $20,000,000
Variable Rate, Series A 300,000 $100 $30,000,000
Variable Rate, Series B 650,000 $100 $65,000,000
Undesignated Series 1,500,000 $100 $150,000,000
(1) Assumes that up to 3,900,000 shares of cumulative preferred stock, par
value $100 per share, of NSP are converted into shares of Northern Power
Wisconsin Corp. ("New NSP") preferred stock at the exchange ratio of one
share of New NSP preferred stock for each share of NSP preferred stock
pursuant to the Amended and Restated Agreement and Plan of Merger (the
"Merger Agreement") to which this registration statement relates. In
connection with the consummation of the transactions provided for in the
Merger Agreement, New NSP will change its name to Northern States Power
Company.
(2) Estimated pursuant to Rules 457(f) under the Securities Act of 1933 based
upon the book value of a share of each series of NSP preferred stock on
August 1, 1995 to be converted pursuant to the Merger Agreement. NSP also
may issue up to 1,500,000 shares of preferred stock prior to the
consummation of the transactions provided for in the Merger Agreement.
Accordingly, shares of New NSP preferred stock representing such amounts
are being registered.
----------------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
WISCONSIN ENERGY CORPORATION
NORTHERN POWER WISCONSIN CORP.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
LOCATION OR CAPTION IN
FORM S-4 ITEM NUMBER AND CAPTION JOINT PROXY STATEMENT/PROSPECTUS
------------------------------------------------------------- --------------------------------------------------
A. INFORMATION ABOUT THE TRANSACTION.
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Available Information; Incorporation by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................ Summary of Joint Proxy Statement/ Prospectus;
Selected Historical and Pro Forma Data
4. Terms of the Transaction.......................... Summary of Joint Proxy Statement/ Prospectus; The
Mergers; Regulatory Matters; The Merger
Agreement; The Stock Option Agreements;
Description of Primergy Capital Stock; Comparison
of Shareholder Rights
5. Pro Forma Financial Information................... Unaudited Pro Forma Combined Condensed Financial
Information; Primergy Following the Mergers
6. Material Contacts with the Company Being
Acquired......................................... Summary of Joint Proxy Statement/ Prospectus; The
Mergers; The Merger Agreement; The Stock Option
Agreements; Selected Information Concerning WEC
and NSP
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters.... *
8. Interests of Named Experts and Counsel............ Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... *
B. INFORMATION ABOUT THE REGISTRANT.
10. Information with Respect to S-3 Registrants....... *
11. Incorporation of Certain Information by
Reference........................................ Incorporation by Reference
12. Information with Respect to S-2 or S-3
Registrants...................................... *
13. Incorporation of Certain Information by
Reference........................................ *
LOCATION OR CAPTION IN
FORM S-4 ITEM NUMBER AND CAPTION JOINT PROXY STATEMENT/PROSPECTUS
------------------------------------------------------------- --------------------------------------------------
14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants........................... Summary of Joint Proxy Statement/ Prospectus; The
Mergers; Selected Historical and Pro Forma Data;
Selected Information Concerning WEC and NSP;
Annex N
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED.
15. Information with Respect to S-3 Companies......... Incorporation by Reference
16. Information with Respect to S-2 or S-3
Companies........................................ *
17. Information with Respect to Companies Other Than
S-3 or S-2 Companies............................. *
D. VOTING AND MANAGEMENT INFORMATION.
18. Information if Proxies, Consents or Authorizations
are to be Solicited.............................. Incorporation by Reference; Summary of Joint Proxy
Statement/Prospectus; Meetings, Voting and
Proxies; The Mergers; Selected Information
Concerning WEC and NSP; Election of NSP
Directors; Information Concerning the NSP Board;
Compensation of Executive Officers; Options and
Stock Appreciation Rights (SARs); Corporate
Management Committee Report on Executive
Compensation;** Total Shareholder Return
Comparison;** Pension Plan Table; Severance Plans
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange
Offer............................................ *
------------------------
*Not Applicable.
**In accordance with Item 402(a)(8) and (9) of Regulation S-K, the information
under these captions is provided for the purposes of NSP's Proxy Statement
only and is not intended to be a part of the Joint Registration Statement or
the Prospectus.
[LOGO]
August 7, 1995
Dear NSP Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Northern States Power Company, a Minnesota corporation ("NSP"), which will be
held on Wednesday, September 13, 1995, at the Minneapolis Convention Center,
1301 South Second Avenue, Minneapolis, Minnesota 55463, Exhibit Hall I. The
meeting will start at 10:00 a.m., local time.
At this important meeting, the NSP shareholders will be asked to approve a
merger agreement (the "Merger Agreement") relating to a "merger-of-equals"
transaction with Wisconsin Energy Corporation, a Wisconsin corporation ("WEC").
As a result of the mergers contemplated by the Merger Agreement (the "Mergers"),
Primergy Corporation ("Primergy") will become the holding company for NSP and
the operating subsidiaries of WEC. The headquarters of Primergy will be located
in Minneapolis. Pursuant to the Merger Agreement, each outstanding share of NSP
common stock will be cancelled and ultimately converted into the right to
receive 1.626 shares (the "Ratio") of Primergy common stock, and each
outstanding share of NSP preferred stock will be cancelled and converted into
preferred stock of the successor entity to NSP, incorporated in Wisconsin, with
identical terms (including dividend rates) and designations.
Your Board of Directors believes that this "merger-of-equals" will create a
combined enterprise well positioned for an increasingly competitive energy
industry environment, benefiting not only shareholders but also customers,
employees and the communities served by our respective utility companies.
Meaningful strategic advantages that Primergy will possess include substantial
cost savings from, among other things, decreased fuel costs and reduced
corporate and administrative expense, and implementation of a rate reduction to
be followed by a rate freeze through the year 2000 for retail electric
customers. Primergy will also enjoy increased financial strength as well as
greater opportunities for earnings and dividend growth through the pooling of
NSP's and WEC's equity, management, human resources and technical expertise.
Based on the capitalization of NSP and WEC as of the date of the Merger
Agreement, the common shareholders of NSP and WEC would each as a group have
held approximately 50% of the shares of Primergy common stock that would have
been outstanding if the Mergers had been consummated as of such date. Your Board
of Directors has received the opinion of its financial advisor, Goldman, Sachs &
Co., that as of the date hereof and based on the factors and assumptions
described in such opinion, the Ratio is fair to the holders of NSP common stock.
Approval of the Merger Agreement by shareholders of NSP and WEC entitled to
vote thereon is a condition to the consummation of the transaction. The
transaction will be consummated only after certain regulatory approvals are
received and other conditions are satisfied or waived. It is presently
anticipated that this will occur in the last quarter of 1996.
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE MERGER AGREEMENT, BELIEVES THAT THEY ARE IN THE BEST INTERESTS
OF NSP AND ITS SHAREHOLDERS, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
At the Annual Meeting, you will also be asked to consider and vote upon:
certain employee plans proposed to be implemented by Primergy; the election of
four directors to Class III to serve on the NSP Board of Directors for terms of
three years until their successors are elected and qualified; the ratification
of the appointment of Price Waterhouse LLP as NSP's independent accountants for
1995; and two shareholder proposals. As described in the accompanying Joint
Proxy Statement/Prospectus, at the effective time of the Mergers, the Primergy
Board of Directors will consist of 12 members, six of whom will be directors
appointed by the NSP Board of Directors and six of whom will be directors
appointed by the WEC Board of Directors.
YOUR BOARD OF DIRECTORS ALSO RECOMMENDS A VOTE FOR THE APPROVAL OF EACH OF
THE PRIMERGY EMPLOYEE PLANS, FOR THE PROPOSED SLATE OF DIRECTORS, FOR THE
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS AND AGAINST THE TWO
SHAREHOLDER PROPOSALS AT THE ANNUAL MEETING.
Your vote is important no matter how many shares you hold. Even if you plan
to attend the meeting, we urge you to mark, sign and date the enclosed proxy and
return it promptly. You have the option to revoke it at any time, or to vote
your shares personally on request if you attend the meeting. For the Merger
Agreement to be approved, it must have the support of the majority of the votes
entitled to be cast by the outstanding shares of NSP common stock and NSP
preferred stock entitled to vote, voting as a single class.
IF YOU DO NOT RETURN THE PROXY CARD AND DO NOT VOTE AT THE MEETING, IT WILL
HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST THE MERGER AGREEMENT.
The accompanying Joint Proxy Statement/Prospectus sets forth the voting
rights of holders of NSP common and preferred stock with respect to these
matters, and describes the matters to be acted upon at the Annual Meeting.
Shareholders are urged to review carefully the attached Joint Proxy
Statement/Prospectus, which contains a detailed description of the Merger
Agreement, the terms and conditions thereof and the transactions contemplated
thereby. If the Mergers are consummated, holders of NSP common and preferred
stock who wish to assert such rights and have complied with the requirements of
the Minnesota Business Corporation Act will have certain dissenters' rights
under Minnesota law, as described in more detail in the accompanying Joint Proxy
Statement/ Prospectus.
Promptly after the Mergers, a letter of transmittal will be mailed to each
holder of record of shares of NSP common stock. PLEASE DO NOT SEND YOUR NSP
COMMON STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD OR TO THE EXCHANGE AGENT
UNLESS AND UNTIL YOU RECEIVE THE LETTER OF TRANSMITTAL, WHICH WILL INCLUDE
INSTRUCTIONS AS TO THE PROCEDURE TO BE USED IN SENDING YOUR NSP COMMON STOCK
CERTIFICATES. Holders of NSP preferred stock will not have to exchange their
stock certificates as a result of the Mergers.
Sincerely,
[SIG]
James J. Howard
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
(ii)
NORTHERN STATES POWER COMPANY
(A MINNESOTA CORPORATION)
414 NICOLLET MALL
MINNEAPOLIS, MINNESOTA 55401
(612) 330-5500
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, SEPTEMBER 13, 1995
------------------------
To the Shareholders of
Northern States Power Company
The Annual Meeting of holders of common stock and preferred stock of
Northern States Power Company, a Minnesota corporation ("NSP"), will be held on
Wednesday, September 13, 1995 at the Minneapolis Convention Center, 1301 South
Second Avenue, Minneapolis, Minnesota 55463, Exhibit Hall I, commencing at 10:00
a.m., local time. At the Annual Meeting, shareholders will be asked to consider
and vote upon the following matters, which are more fully described in the
accompanying Joint Proxy Statement/Prospectus:
1. A proposal to approve the Amended and Restated Agreement and Plan of
Merger, dated as of April 28, 1995, as amended and restated as of July 26,
1995 (the "Merger Agreement"), among NSP, Wisconsin Energy Corporation, a
Wisconsin corporation ("WEC" and, after the effective time of the mergers
contemplated by the Merger Agreement, Primergy Corporation ("Primergy")),
Northern Power Wisconsin Corp., a Wisconsin corporation and a wholly-owned
subsidiary of NSP ("New NSP"), and WEC Sub Corp., a Wisconsin corporation
and a wholly-owned subsidiary of WEC ("WEC Sub"), a copy of which is
attached as Annex A to the accompanying Joint Proxy Statement/Prospectus;
2. A proposal to approve the Primergy Stock Incentive Plan, a copy of
which is attached as Annex K to the accompanying Joint Proxy
Statement/Prospectus;
3. A proposal to approve the Primergy Management Incentive Compensation
Plan, a copy of which is attached as Annex L to the accompanying Joint Proxy
Statement/Prospectus;
4. A proposal to elect four directors to Class III to serve for terms
of three years until their successors are elected and qualified;
5. A proposal to ratify the appointment of Price Waterhouse LLP as
independent accountants for NSP for 1995;
6. A "Shareholder Resolution on Public Image," if properly presented at
the Annual Meeting;
7. A "Shareholder Resolution on Regulatory Reform," if properly
presented at the Annual Meeting; and
8. Such other business as may properly come before the Annual Meeting
or any adjournment or postponement thereof.
Holders of record of shares of NSP common stock and NSP preferred stock at
the close of business on July 27, 1995 will be entitled to notice of and to vote
at the Annual Meeting or at any adjournment or postponement thereof.
Approval of the Merger Agreement, the Primergy Stock Incentive Plan and the
Primergy Management Incentive Compensation Plan are conditions to consummation
of the transactions contemplated by the Merger Agreement. If approved by
shareholders, the Primergy Stock Incentive Plan and the Primergy Management
Incentive Compensation Plan will be implemented only if the transactions
contemplated by the Merger Agreement are consummated.
EVEN IF YOU NOW EXPECT TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO
MARK, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ADDRESSED
POSTAGE-PAID ENVELOPE. If you do attend the Annual Meeting, you may vote in
person, whether or not you have sent in your proxy.
Under Section 302A.471 of the Minnesota Business Corporation Act, holders of
NSP common stock and holders of NSP preferred stock have the right to dissent
from the transactions contemplated by the Merger Agreement and, if such
transactions are consummated, to obtain payment of the fair value of their
shares in lieu of the consideration provided for in the Merger Agreement.
Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act are
attached in full as Annex M to the accompanying Joint Proxy
Statement/Prospectus, which also includes a description of the procedure to be
followed under those sections by a shareholder wishing to dissent.
By Order of the Board of Directors
[SIG]
Gary R. Johnson
VICE PRESIDENT, GENERAL COUNSEL
AND CORPORATE SECRETARY
Minneapolis, Minnesota
August 7, 1995
REMEMBER TO SIGN, DATE AND RETURN YOUR PROXY
(ii)
[LOGO]
August 7, 1995
Dear Wisconsin Energy Corporation Stockholder:
A Special Meeting of Stockholders will be held at 9:00 A.M. on WEDNESDAY,
SEPTEMBER 13, 1995 in the Exhibition Hall of The Grand Milwaukee Hotel, 4747
South Howell Avenue, Milwaukee, Wisconsin. The purpose of this meeting is to
vote on proposals relating to the strategic business combination between your
Company and Minneapolis-based Northern States Power Company (NSP).
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE MATTERS TO BE VOTED UPON AND BELIEVES THAT THEY ARE IN THE
BEST INTERESTS OF WEC AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" EACH OF THE PROPOSALS DESCRIBED IN THE ATTACHED JOINT
PROXY STATEMENT.
Your Board believes that this "merger of equals" will create a combined
enterprise that will be well-positioned for an increasingly competitive energy
environment. The combined enterprise will be called Primergy ("Prime-er-gee")
Corporation. Strategic advantages that Primergy will possess include substantial
cost savings from decreased fuel cost and reduced corporate/administrative
expense, and competitive benefits of a proposed retail electric rate reduction
to be followed by a freeze through the year 2000. Primergy will also enjoy
increased financial strength as well as greater opportunities for earnings and
dividend growth through the pooling of WEC's and NSP's equity, management, human
resources and technical expertise.
Upon completion of the merger, each share of WEC common stock you own will
represent one share of Primergy common stock. As a WEC stockholder, YOU WILL NOT
NEED TO EXCHANGE YOUR WEC STOCK CERTIFICATES. The exchange ratio has been set so
that common stockholders of WEC and NSP would each own approximately 50% of the
outstanding shares of Primergy common stock based upon the capitalization of WEC
and NSP on the date of the merger agreement. This means that NSP common
stockholders will receive 1.626 shares of Primergy common stock in exchange for
each share of NSP common stock they own. Your Board has received the opinions of
its financial advisor, Barr Devlin & Co. Incorporated, to the effect that the
exchange ratio of 1.626 is fair, from a financial point of view, to the holders
of WEC common stock.
In connection with the merger, you are also being asked to approve certain
changes to the Restated Articles of Incorporation and to approve certain stock
incentive and management incentive compensation plans. The Articles changes are
necessary to effect the change of the name of your Company to Primergy
Corporation and to ensure that Primergy will have the flexibility to issue stock
when the need arises without the delay of having to obtain shareholder approval
to authorize the issuance if not otherwise required. The incentive plans are
intended to replace the comparable existing WEC and NSP plans and will provide
management with incentives directly linked to the profitability of Primergy's
businesses and increases in stockholder value.
Each of the proposals is more fully described in the accompanying Notice and
Joint Proxy Statement/Prospectus and its various attachments. I encourage you to
study these materials carefully. This is an important transaction that requires
many issues to be considered and agreed upon.
This strategic business combination is subject to your approval as well as the
approval of NSP stockholders. AS NOTED ABOVE, YOUR BOARD RECOMMENDS A VOTE "FOR"
EACH PROPOSAL PRESENTED. The combination is also subject to certain required
regulatory approvals and other conditions. If all required approvals are
received, it is presently anticipated that the transaction will be effective in
the last quarter of 1996.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU HOLD. TO ENSURE YOUR SHARES
WILL BE REPRESENTED AT THE MEETING, WHETHER OR NOT YOU PLAN TO ATTEND, I URGE
YOU TO PROMPTLY COMPLETE AND MAIL YOUR PROXY IN THE ENCLOSED ENVELOPE. You may
cancel your proxy before the meeting and vote in person if you wish.
If you have any questions about the meeting, please call our toll-free
Stockholder Hotline at 1-800-558-9663.
Sincerely,
[SIG]
Richard A. Abdoo
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
(ii)
WISCONSIN ENERGY CORPORATION
231 WEST MICHIGAN STREET
P.O. BOX 2949
MILWAUKEE, WISCONSIN 53201
(414) 221-2345
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, SEPTEMBER 13, 1995
------------------------
To the Shareholders of
Wisconsin Energy Corporation:
A special meeting of the shareholders of Wisconsin Energy Corporation, a
Wisconsin corporation ("WEC"), will be held on Wednesday, September 13, 1995, in
the Exhibition Hall of The Grand Milwaukee Hotel, 4747 South Howell Avenue,
Milwaukee, Wisconsin, commencing at 9:00 a.m., local time (the "Special
Meeting"). At the Special Meeting, shareholders will be asked to consider and
vote upon the following matters, which are more fully described in the
accompanying Joint Proxy Statement/Prospectus:
1. A proposal to approve the Amended and Restated Agreement and Plan of
Merger, dated as of April 28, 1995, as amended and restated as of July 26,
1995 (the "Merger Agreement"), by and among WEC, Northern States Power
Company, a Minnesota corporation ("NSP"), WEC Sub Corp., a Wisconsin
corporation and wholly-owned subsidiary of WEC, and Northern Power Wisconsin
Corp., a Wisconsin corporation and wholly-owned subsidiary of NSP, a copy of
which is attached as Annex A to the accompanying Joint Proxy
Statement/Prospectus, and the transactions contemplated thereby including,
among other things, the issuance of shares of common stock of WEC (to be
renamed Primergy Corporation ("Primergy")) pursuant to the terms of the
Merger Agreement;
2. A proposal to approve the amendment to and restatement of WEC's
Restated Articles of Incorporation so as to change the name of WEC to
Primergy Corporation (the "Name Change Amendment"), as provided for in the
Restated Articles of Incorporation of Primergy attached as Annex H to the
accompanying Joint Proxy Statement/Prospectus;
3. A proposal to approve the amendment to and restatement of WEC's
Restated Articles of Incorporation so as to increase the amount of
authorized common stock of WEC from 325,000,000 shares to 750,000,000
shares, thereby increasing WEC's authorized capitalization from 340,000,000
shares to 765,000,000 shares (which includes the 15,000,000 shares of
preferred stock presently authorized) (the "Common Stock Amendment" and,
together with the Name Change Amendment, the "WEC Articles Amendments"), as
provided for in the Restated Articles of Incorporation of Primergy attached
as Annex H to the accompanying Joint Proxy Statement/Prospectus;
4. A proposal to approve the Primergy Stock Incentive Plan, a copy of
which is attached as Annex K to the accompanying Joint Proxy
Statement/Prospectus;
5. A proposal to approve the Primergy Management Incentive Compensation
Plan, a copy of which is attached as Annex L to the accompanying Joint Proxy
Statement/Prospectus; and
6. Such other matters as may properly come before the Special Meeting
or any adjournment or postponement thereof.
Shareholders of record at the close of business on July 27, 1995 will be
entitled to notice of and to vote at the Special Meeting or at any adjournment
or postponement thereof. Approval of the Merger Agreement, the Primergy Stock
Incentive Plan and the Primergy Management Incentive Compensation Plan
(collectively, the "Primergy Plans") requires the affirmative vote of the
holders of a majority of the shares of WEC common stock represented at the
Special Meeting and entitled to vote thereon. Approval of the Name Change
Amendment and the Common Stock Amendment requires the affirmative vote of the
holders of a majority of the outstanding shares of WEC common stock entitled to
vote thereon. WEC shareholders are not entitled to dissenters' rights.
Approval of proposals 1 through 5 are conditions to the consummation of the
transactions contemplated by the Merger Agreement. If approved by shareholders,
each of the WEC Articles Amendments will become effective, and each of the
Primergy Plans will be implemented, only if the transactions contemplated by the
Merger Agreement are consummated.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE
NAME CHANGE AMENDMENT, THE COMMON STOCK AMENDMENT, THE PRIMERGY STOCK INCENTIVE
PLAN AND THE PRIMERGY MANAGEMENT INCENTIVE COMPENSATION PLAN AND RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT, FOR APPROVAL OF EACH OF
THE WEC ARTICLES AMENDMENTS AND FOR APPROVAL OF EACH OF THE PRIMERGY PLANS.
By Order of the Board of Directors
[SIG]
John H. Goetsch
VICE PRESIDENT AND SECRETARY
Milwaukee, Wisconsin
August 7, 1995
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER OR
NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE MARK, SIGN, DATE AND
PROMPTLY RETURN THE ACCOMPANYING PROXY USING THE ENCLOSED, SELF-ADDRESSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF FOR ANY
REASON YOU SHOULD DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE
IT IS VOTED AT THE SPECIAL MEETING.
(ii)
JOINT PROXY STATEMENT
OF
NORTHERN STATES POWER COMPANY
AND
WISCONSIN ENERGY CORPORATION
---------------------
PROSPECTUS OF
WISCONSIN ENERGY CORPORATION AND NORTHERN POWER WISCONSIN CORP.
TO BE RENAMED TO BE RENAMED
PRIMERGY CORPORATION NORTHERN STATES POWER COMPANY
------------------------
This Joint Proxy Statement/Prospectus relates to (i) the proposed mergers
and certain related transactions contemplated by the Amended and Restated
Agreement and Plan of Merger, dated as of April 28, 1995, as amended and
restated as of July 26, 1995 (the "Merger Agreement"), by and among Northern
States Power Company, a Minnesota corporation ("NSP"), Wisconsin Energy
Corporation, a Wisconsin corporation ("WEC"), Northern Power Wisconsin Corp., a
Wisconsin corporation and a wholly-owned subsidiary of NSP ("New NSP"), and WEC
Sub Corp., a Wisconsin corporation and a wholly-owned subsidiary of WEC ("WEC
Sub") and (ii) in the case of NSP, the election of directors and certain other
matters. Upon consummation of the mergers provided for in the Merger Agreement,
WEC (which will be renamed Primergy Corporation ("Primergy") at or prior to such
time) will be the holding company of both NSP (which, for regulatory reasons,
will reincorporate in Wisconsin) and the operating subsidiaries of WEC,
including Wisconsin Electric Power Company, a Wisconsin corporation ("WEPCO").
Primergy will be registered under the Public Utility Holding Company Act of
1935, as amended (the "1935 Act"). See "Regulatory Matters." As used in this
Joint Proxy Statement/Prospectus, "Primergy" shall refer to WEC from and after
the effective time of the mergers provided for in the Merger Agreement.
The Merger Agreement provides for: (i) the merger of NSP with and into New
NSP (the "Reincorporation Merger") pursuant to which (a) each issued and
outstanding share of common stock, par value $2.50 per share, of NSP ("NSP
Common Stock") (except shares held by NSP shareholders who perfect dissenters'
rights with respect thereto ("NSP Dissenting Shares")) will be cancelled and
converted into one share of common stock, par value $2.50 per share, of New NSP
("New NSP Common Stock") and (b) each issued and outstanding share of cumulative
preferred stock, par value $100 per share, of NSP ("NSP Preferred Stock")
(except NSP Dissenting Shares) will be cancelled and converted into one share of
cumulative preferred stock, par value $100 per share, of New NSP ("New NSP
Preferred Stock") with terms (including dividend rates) and designations under
New NSP's Articles of Incorporation (the "New NSP Articles") identical to those
of the cancelled share of NSP Preferred Stock under NSP's existing Restated
Articles of Incorporation (the "NSP Articles"); and (ii) the merger of WEC Sub
with and into New NSP (the "NSP Merger"; together with the Reincorporation
Merger, the "Mergers") pursuant to which (a) each issued and outstanding share
of New NSP Common Stock will be cancelled and converted into 1.626 (the "Ratio")
shares of common stock, par value $.01 per share, of Primergy ("Primergy Common
Stock") and (b) each issued and outstanding share of New NSP Preferred Stock
will remain outstanding and shall be unchanged thereby (except for any shares of
New NSP Common Stock and New NSP Preferred Stock owned directly or indirectly by
New NSP or WEC, which will be cancelled and will not be converted or remain
outstanding). Each issued and outstanding share of common stock, par value $.01
per share, of WEC ("WEC Common Stock") will remain outstanding, unchanged, as
one share of Primergy Common Stock. Based upon the capitalization of WEC and NSP
on April 28, 1995 and the Ratio, holders of WEC Common Stock and NSP Common
Stock would each have held approximately 50% of the aggregate number of shares
of Primergy Common Stock that would have been outstanding if the Mergers had
been consummated as of such date.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is August 7, 1995. This
Joint ProxyStatement/Prospectus is first being mailed to the shareholders of NSP
and WEC on or about August 10, 1995.
This Joint Proxy Statement/Prospectus constitutes a prospectus of WEC (to be
renamed Primergy) filed as part of the Joint Registration Statement (as defined
herein) with respect to up to 114,357,613 shares of Primergy Common Stock to be
issued pursuant to or as contemplated by the Merger Agreement. This Joint Proxy
Statement/Prospectus also constitutes a prospectus of New NSP (to be renamed
Northern States Power Company) filed as part of the Joint Registration Statement
with respect to up to 3,900,000 shares of New NSP Preferred Stock to be issued
pursuant to or as contemplated by the Merger Agreement.
This Joint Proxy Statement/Prospectus is being furnished to the common and
preferred shareholders of NSP in connection with the solicitation of proxies by
the Board of Directors of NSP (the "NSP Board") for use at the annual meeting of
NSP common and preferred shareholders (the "NSP Meeting") to be held at 10:00
a.m., local time, on Wednesday, September 13, 1995 at the Minneapolis Convention
Center, 1301 South Second Avenue, Minneapolis, Minnesota 55463, Exhibit Hall I,
and at any adjournment or postponement thereof. At the NSP Meeting, in addition
to voting upon proposals to approve and adopt the Merger Agreement and proposals
to approve certain employee plans of Primergy, holders of NSP Common Stock and
NSP Preferred Stock will also consider and vote upon proposals with respect to
the election of directors, the ratification of the appointment of NSP's
independent accountants and certain shareholder proposals. Information with
respect to these proposals is being furnished at the back of this Joint Proxy
Statement/Prospectus to the shareholders of NSP only.
This Joint Proxy Statement/Prospectus is also being furnished to the common
shareholders of WEC in connection with the solicitation of proxies by the Board
of Directors of WEC (the "WEC Board") for use at the special meeting of WEC
common shareholders (the "WEC Meeting") to be held at 9:00 a.m., local time, on
Wednesday, September 13, 1995 in the Exhibition Hall of The Grand Milwaukee
Hotel, 4747 South Howell Avenue, Milwaukee, Wisconsin, and at any adjournment or
postponement thereof. At the WEC Meeting, holders of WEC Common Stock will
consider and vote upon proposals to adopt and approve the Merger Agreement and
the transactions contemplated thereby, including the issuance of shares of
Primergy Common Stock pursuant to the terms of the Merger Agreement, to approve
certain employee plans of Primergy and to approve certain amendments to and the
restatement of the Restated Articles of Incorporation of WEC (the "WEC
Articles").
All information herein with respect to WEC has been furnished by WEC and all
information herein with respect to NSP and New NSP has been furnished by NSP.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Joint Proxy Statement/Prospectus, and, if given or made, such information or
representation should not be relied upon as having been authorized. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Joint Proxy
Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction, to or
from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither the
delivery of this Joint Proxy Statement/Prospectus nor any distribution of
securities pursuant to this Joint Proxy Statement/Prospectus shall, under any
circumstances, create an implication that there has been no change in the
affairs of NSP or WEC or in the information set forth herein since the date of
this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus does not cover any resale of the
securities to be received by shareholders of NSP upon consummation of the
Mergers, and no person is authorized to make any use of this Joint Proxy
Statement/Prospectus in connection with any such resale.
AVAILABLE INFORMATION
Each of WEC and NSP is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and,
accordingly, files reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Such reports, proxy statements and
other information filed with the SEC are available for inspection and copying at
the public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and at 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such documents may also be obtained from the Public
Reference Room of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, any such material and
other information concerning NSP and WEC can be inspected at the New York Stock
Exchange, Inc. (the "NYSE"), 20 Broad Street, 7th Floor, New York, New York
10005, on which exchange the NSP Common Stock, the WEC Common Stock and certain
series of NSP Preferred Stock are listed, and such material and other
information concerning NSP can also be inspected at the Chicago Stock Exchange,
Inc. (the "CSE"), 440 South LaSalle Street, Chicago, Illinois 60605 or the
Pacific Stock Exchange, Inc. (the "PSE"), 301 Pine Street, San Francisco,
California 94104, on which exchanges the NSP Common Stock is listed.
2
WEC and New NSP have filed a joint registration statement on Form S-4
(together with all amendments, schedules and exhibits thereto, the "Joint
Registration Statement") with the SEC pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the shares of Primergy Common
Stock to be issued in connection with the NSP Merger and the shares of New NSP
Preferred Stock to be issued in connection with the Reincorporation Merger,
respectively. This Joint Proxy Statement/Prospectus does not contain all the
information set forth in the Joint Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the SEC. The
Joint Registration Statement is available for inspection and copying as set
forth above. Statements contained in this Joint Proxy Statement/Prospectus or in
any document incorporated by reference in this Joint Proxy Statement/Prospectus
as to the contents of any contract or other document referred to herein or
therein are not necessarily complete, and, in each instance, reference is made
to the copy of such contract or other document filed as an exhibit to the Joint
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
INCORPORATION BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE UPON REQUEST FROM, IN THE CASE OF DOCUMENTS RELATING TO WEC, MR. J. H.
GOETSCH, VICE PRESIDENT AND SECRETARY, WISCONSIN ENERGY CORPORATION, 231 WEST
MICHIGAN STREET, P.O. BOX 2949, MILWAUKEE, WISCONSIN 53201, (800) 881-5882, AND,
IN THE CASE OF DOCUMENTS RELATING TO NSP, MS. JACKIE CURRIER, VICE PRESIDENT AND
TREASURER, NORTHERN STATES POWER COMPANY, 414 NICOLLET MALL, MINNEAPOLIS,
MINNESOTA 55401, (612) 330-6020. TO ENSURE TIMELY DELIVERY OF WEC DOCUMENTS, ANY
REQUEST TO WEC SHOULD BE MADE BY SEPTEMBER 6, 1995. TO ENSURE TIMELY DELIVERY OF
NSP DOCUMENTS, ANY REQUEST TO NSP SHOULD BE MADE BY SEPTEMBER 6, 1995.
WEC and NSP hereby undertake to provide without charge to each person,
including any beneficial owner, to whom a copy of this Joint Proxy
Statement/Prospectus has been delivered, upon the written or oral request of
such person, by first class mail or other equally prompt means within one
business day of receipt of such request, a copy (without exhibits, except those
specifically incorporated by reference) of any and all of the documents referred
to below which have been or may be incorporated in this Joint Proxy
Statement/Prospectus by reference. Requests for such documents should be
directed to the persons indicated above.
The following documents, previously filed with the SEC by WEC (File No.
1-9057) or NSP (File No. 1-3034) pursuant to the Exchange Act, are hereby
incorporated by reference:
1. WEC's Annual Report on Form 10-K for the year ended December 31,
1994 and Amendment No. 1 thereto (on Form 10-K/A) dated June 23, 1995.
2. WEC's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1995 and June 30, 1995.
3. WEC's Current Report on Form 8-K dated April 28, 1995.
4. NSP's Annual Report on Form 10-K for the year ended December 31,
1994.
5. NSP's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1995 and June 30, 1995 (and Amendments thereto (on Form 10-Q/A) dated
August 4, 1995 and August 7, 1995).
6. NSP's Current Reports on Form 8-K dated January 30, 1995, February
28, 1995, April 28, 1995 and June 27, 1995.
In lieu of incorporating by reference the description of WEC Common Stock
contained in WEC's Current Report on Form 8-K dated October 31, 1991, which
updates the description of WEC Common Stock incorporated by reference in WEC's
Registration Statement on Form 8-B dated January 7, 1987, such description is
included in this Joint Proxy Statement/Prospectus. See "Description of Primergy
Capital Stock."
The information relating to WEC and NSP contained in this Joint Proxy
Statement/Prospectus does not purport to be comprehensive and should be read
together with the information in the documents incorporated by reference herein.
All documents filed by WEC and NSP pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the date of the WEC
Meeting on Wednesday, September 13, 1995, and any adjournment or postponement
thereof, or the NSP Meeting on Wednesday, September 13, 1995, and any
adjournment or postponement thereof, respectively, shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/ Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
3
TABLE OF CONTENTS
PAGE
-----
AVAILABLE INFORMATION................................................. 2
INCORPORATION BY REFERENCE............................................ 3
TABLE OF CONTENTS..................................................... 4
INDEX OF DEFINED TERMS................................................ 7
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS........................... 10
SELECTED HISTORICAL AND PRO FORMA DATA................................ 23
Selected Historical Financial and Market Data..................... 23
Selected Unaudited Pro Forma Financial Data....................... 26
Comparative Market Prices and Dividends........................... 27
MEETINGS, VOTING AND PROXIES.......................................... 28
NSP Meeting....................................................... 28
WEC Meeting....................................................... 30
THE MERGERS........................................................... 33
Background of the Mergers......................................... 33
Reasons for the Mergers; Recommendations of the Boards of
Directors........................................................ 38
Opinions of Financial Advisors.................................... 41
Interests of Certain Persons in the Mergers....................... 51
Certain Arrangements Regarding the Directors and Management of
Primergy Following the Mergers................................... 51
Employment Agreements............................................. 52
Employee Plans and Severance Arrangements......................... 53
Primergy Plans.................................................... 53
Dividend Reinvestment Plan........................................ 55
Certain Federal Income Tax Consequences........................... 55
Accounting Treatment.............................................. 56
Stock Exchange Listing of Primergy Common Stock................... 56
Federal Securities Law Consequences............................... 57
Minnesota Dissenters' Rights...................................... 57
No Wisconsin Dissenters' Rights................................... 59
REGULATORY MATTERS.................................................... 60
THE MERGER AGREEMENT.................................................. 65
The Mergers....................................................... 65
Direct Subsidiaries and Unrestricted Subsidiaries................. 67
Representations and Warranties.................................... 67
Certain Covenants................................................. 67
No Solicitation of Transactions................................... 69
Primergy Board of Directors....................................... 69
Indemnification................................................... 70
Conditions to Each Party's Obligation to Effect the Mergers....... 70
Benefit Plans..................................................... 71
Termination....................................................... 72
Termination Fees.................................................. 73
Expenses.......................................................... 74
Amendment and Waiver.............................................. 74
Standstill Provisions............................................. 75
THE STOCK OPTION AGREEMENTS........................................... 76
General........................................................... 76
Certain Repurchases............................................... 76
4
[ALTERNATE PAGE FOR NSP SHAREHOLDERS ONLY]
PAGE
---------
Voting................................................................................................. 77
Restrictions on Transfer............................................................................... 77
AMENDMENTS TO AND RESTATEMENT OF WEC RESTATED ARTICLES OF INCORPORATION.................................... 78
Name Change Amendment.................................................................................. 78
Common Stock Amendment................................................................................. 78
DESCRIPTION OF PRIMERGY CAPITAL STOCK...................................................................... 79
General................................................................................................ 79
Primergy Preferred Stock............................................................................... 80
Primergy Common Stock.................................................................................. 80
Certain Anti-Takeover Provisions....................................................................... 81
DESCRIPTION OF NEW NSP PREFERRED STOCK..................................................................... 82
General................................................................................................ 82
Dividend Rights........................................................................................ 83
Limitations on Payment of Dividends on and Acquisitions of NSP Common Stock............................ 83
Voting Rights.......................................................................................... 84
Redemption Provisions.................................................................................. 84
Change of Control...................................................................................... 84
Liquidation Rights..................................................................................... 85
Preemptive and Subscription Rights..................................................................... 85
COMPARISON OF SHAREHOLDER RIGHTS........................................................................... 85
Comparison of Primergy Articles and Bylaws to NSP Articles and Bylaws.................................. 85
Comparison of Minnesota and Wisconsin Law.............................................................. 89
APPROVAL OF PRIMERGY PLANS................................................................................. 94
Primergy Stock Incentive Plan.......................................................................... 94
Primergy Management Incentive Compensation Plan........................................................ 99
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION............................................... 102
SELECTED INFORMATION CONCERNING WEC AND NSP................................................................ 112
Business of WEC........................................................................................ 112
WEC Executive Compensation............................................................................. 112
Business of NSP........................................................................................ 117
Certain Business Relationships Between WEC and NSP..................................................... 118
PRIMERGY FOLLOWING THE MERGERS............................................................................. 118
Management of Primergy................................................................................. 119
Operations............................................................................................. 119
Dividends.............................................................................................. 120
EXPERTS.................................................................................................... 120
LEGAL MATTERS.............................................................................................. 120
SHAREHOLDER PROPOSALS...................................................................................... 120
ELECTION OF NSP DIRECTORS.................................................................................. 122
General Information.................................................................................... 122
5
[ALTERNATE PAGE FOR NSP SHAREHOLDERS ONLY]
PAGE
---------
INFORMATION CONCERNING THE NSP BOARD....................................................................... 125
Committees of the Board................................................................................ 125
Director Meetings...................................................................................... 125
Director Compensation.................................................................................. 125
Share Ownership of Directors, Nominees and Named Executive Officers.................................... 126
COMPENSATION OF EXECUTIVE OFFICERS......................................................................... 127
OPTIONS AND STOCK APPRECIATION RIGHTS (SARs)............................................................... 129
CORPORATE MANAGEMENT COMMITTEE REPORT ON EXECUTIVE COMPENSATION............................................ 131
Corporate Management Committee......................................................................... 131
Compensation Strategy.................................................................................. 131
Base Pay............................................................................................... 131
Annual Incentive....................................................................................... 131
Long-term Incentive.................................................................................... 132
Other Benefits......................................................................................... 133
Conclusion............................................................................................. 133
TOTAL SHAREHOLDER RETURN COMPARISON........................................................................ 134
PENSION PLAN TABLE......................................................................................... 135
SEVERANCE PLANS............................................................................................ 135
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS..................................................... 136
SHAREHOLDER PROPOSALS...................................................................................... 136
Annex A Amended and Restated Agreement and Plan of Merger............................................. A-1
Annex B NSP Stock Option Agreement.................................................................... B-1
Annex C WEC Stock Option Agreement.................................................................... C-1
Annex D Form of Employment Agreement of James J. Howard............................................... D-1
Annex E Form of Employment Agreement of Richard A. Abdoo.............................................. E-1
Annex F Opinion of Goldman, Sachs & Co................................................................ F-1
Annex G Opinion of Barr Devlin & Co. Incorporated..................................................... G-1
Annex H Form of Restated Articles of Incorporation of Primergy Corporation............................ H-1
Annex I Form of Bylaws of Primergy Corporation........................................................ I-1
Annex J Form of Amended and Restated Articles of Incorporation of Northern Power Wisconsin Corp. (New
NSP).......................................................................................... J-1
Annex K Primergy Stock Incentive Plan................................................................. K-1
Annex L Primergy Management Incentive Compensation Plan............................................... L-1
Annex M Sections 302A.471 and 302A.473 of the Minnesota Business
Corporation Act.............................................................................. M-1
Annex N Audited Financial Statements of Northern Power Wisconsin Corp.
(New NSP).................................................................................... N-1
Annex O Bylaws of Northern Power Wisconsin Corp. (New NSP)............................................ O-1
6
[ALTERNATE PAGE FOR NSP SHAREHOLDERS ONLY]
INDEX OF DEFINED TERMS
PAGE
---------
1935 Act................................................................................................... 1
1992 Act................................................................................................... 33
$3.60 Series Preferred Stock............................................................................... 28
aggregate market value..................................................................................... 48
Antitrust Division......................................................................................... 63
Atomic Energy Act.......................................................................................... 20
Barr Devlin................................................................................................ 16
Business Combination....................................................................................... 73
Business Combination Proposal.............................................................................. 69
Closing.................................................................................................... 65
Closing Date............................................................................................... 65
Code....................................................................................................... 19
Common Stock Amendment..................................................................................... 11
Comparable Companies....................................................................................... 48
Comparable Transactions.................................................................................... 49
Confidentiality Agreement.................................................................................. 73
CSE........................................................................................................ 2
DCF........................................................................................................ 49
Deloitte & Touche.......................................................................................... 33
DESARs..................................................................................................... 128
Direct Subsidiaries........................................................................................ 67
Division................................................................................................... 62
EBIT....................................................................................................... 47
EBITDA..................................................................................................... 48
EEI 100.................................................................................................... 132
Effective Time............................................................................................. 13
Employment Agreements...................................................................................... 16
EPS........................................................................................................ 43
ERISA...................................................................................................... 67
EWGs....................................................................................................... 33
Exchange Act............................................................................................... 2
Exchange Agent............................................................................................. 66
Executive.................................................................................................. 52
FERC....................................................................................................... 20
FTC........................................................................................................ 63
Goldman Sachs.............................................................................................. 16
Goldman Sachs Engagement Letter............................................................................ 44
holding company............................................................................................ 60
HSR Act.................................................................................................... 20
implied total consideration................................................................................ 49
Incentive Period........................................................................................... 100
Indemnified Parties........................................................................................ 70
Indenture Effective Date................................................................................... 83
Initial Period............................................................................................. 52
IRS........................................................................................................ 18
ISO Holding Period......................................................................................... 98
ISOs....................................................................................................... 54
Issuer..................................................................................................... 76
Joint Registration Statement............................................................................... 3
LTIP....................................................................................................... 126
LTM Period................................................................................................. 47
Market/Offer Price......................................................................................... 77
MBCA....................................................................................................... 12
MDH........................................................................................................ 137
Merger Agreement........................................................................................... 1
Mergers.................................................................................................... 1
7
[ALTERNATE PAGE FOR NSP SHAREHOLDERS ONLY]
PAGE
---------
MESP.................................................................................. 31
MESP Fund............................................................................. 32
MIC Plan.............................................................................. 99
Michigan Commission................................................................... 60
Minnesota Commission.................................................................. 60
Name Change Amendment................................................................. 11
New NSP............................................................................... 1
New NSP Articles...................................................................... 1
New NSP Common Stock.................................................................. 1
New NSP Preferred Stock............................................................... 1
North Dakota Commission............................................................... 60
Notice Date........................................................................... 77
NRC................................................................................... 20
NRG................................................................................... 10
NSP................................................................................... 1
NSP Articles.......................................................................... 1
NSP Board............................................................................. 2
NSP Bylaws............................................................................ 12
NSP Certificates...................................................................... 13
NSP Common Stock...................................................................... 1
NSP Dissenting Shares................................................................. 1
NSP DRIP.............................................................................. 29
NSP ESOP.............................................................................. 29
NSP Meeting........................................................................... 2
NSP Merger............................................................................ 1
NSP Option............................................................................ 14
NSP Preferred Stock................................................................... 1
NSP Record Date....................................................................... 11
NSP Stock Award....................................................................... 72
NSP Stock Option...................................................................... 72
NSP Stock Option Agreement............................................................ 14
NSP Subsidiaries...................................................................... 67
NSP/WEC Application................................................................... 63
NSP-Wisconsin......................................................................... 10
NYSE.................................................................................. 2
Offer Price........................................................................... 77
Option Holder......................................................................... 76
option price.......................................................................... 96
Option Shares......................................................................... 76
Options............................................................................... 14
OSIP.................................................................................. 114
Participants.......................................................................... 16
Payor................................................................................. 74
P/E................................................................................... 43
Peer Group............................................................................ 129
Performance Goals..................................................................... 96
Plan.................................................................................. 131
Primergy.............................................................................. 1
Primergy Articles..................................................................... 22
Primergy Board........................................................................ 16
Primergy Bylaws....................................................................... 79
Primergy Common Stock................................................................. 1
Primergy Compensation Committee....................................................... 54
Primergy Plans........................................................................ 11
Primergy Preferred Stock.............................................................. 79
Projection Period..................................................................... 47
PSE................................................................................... 2
Ratio................................................................................. 1
8
[ALTERNATE PAGE FOR NSP SHAREHOLDERS ONLY]
PAGE
---------
Reincorporation Effective Time............................................................................. 13
Reincorporation Merger..................................................................................... 1
Representatives............................................................................................ 69
Repurchase Period.......................................................................................... 76
RESP....................................................................................................... 31
RESP Fund.................................................................................................. 31
Restated Indenture......................................................................................... 83
Restricted Shares.......................................................................................... 77
Rule 16b-3................................................................................................. 95
ROE........................................................................................................ 132
SARs....................................................................................................... 54
SEC........................................................................................................ 2
Secondary Period........................................................................................... 52
Section 83(b) election..................................................................................... 98
Securities Act............................................................................................. 3
Selected Companies......................................................................................... 42
SERP....................................................................................................... 116
Severance Policies......................................................................................... 16
share acquisition date..................................................................................... 93
Shareholder Proposals...................................................................................... 11
significant shareholder.................................................................................... 94
South Dakota Commission.................................................................................... 60
spread..................................................................................................... 98
Stock Option Agreements.................................................................................... 14
Stock Plus................................................................................................. 31
synergies working group.................................................................................... 35
Transaction Fee............................................................................................ 44
Trigger Event.............................................................................................. 74
Unrestricted Subsidiaries.................................................................................. 67
WBCL....................................................................................................... 12
WEC........................................................................................................ 1
WEC Articles............................................................................................... 2
WEC Articles Amendments.................................................................................... 11
WEC Board.................................................................................................. 2
WEC Bylaws................................................................................................. 12
WEC Common Stock........................................................................................... 1
WEC Compensation Committee................................................................................. 114
WEC Meeting................................................................................................ 2
WEC Option................................................................................................. 14
WEC Preferred Stock........................................................................................ 11
WEC Record Date............................................................................................ 12
WEC Stock Option Agreement................................................................................. 14
WEC Sub.................................................................................................... 1
WEC Sub Common Stock....................................................................................... 15
WEC Subsidiaries........................................................................................... 67
WEPCO...................................................................................................... 1
WEPCO Common Stock......................................................................................... 80
WEPCO Preferred Stock...................................................................................... 21
Wisconsin Commission....................................................................................... 20
Wisconsin Holding Company Act.............................................................................. 20
Wisconsin Natural.......................................................................................... 10
Wisconsin Natural Common Stock............................................................................. 80
WPSC....................................................................................................... 118
9
[ALTERNATE PAGE FOR WEC SHAREHOLDERS ONLY]
PAGE
---------
Voting................................................................................................. 77
Restrictions on Transfer............................................................................... 77
AMENDMENTS TO AND RESTATEMENT OF WEC RESTATED ARTICLES OF INCORPORATION.................................... 78
Name Change Amendment.................................................................................. 78
Common Stock Amendment................................................................................. 78
DESCRIPTION OF PRIMERGY CAPITAL STOCK...................................................................... 79
General................................................................................................ 79
Primergy Preferred Stock............................................................................... 80
Primergy Common Stock.................................................................................. 80
Certain Anti-Takeover Provisions....................................................................... 81
DESCRIPTION OF NEW NSP PREFERRED STOCK..................................................................... 82
General................................................................................................ 82
Dividend Rights........................................................................................ 83
Limitations on Payment of Dividends on and Acquisitions of NSP Common Stock............................ 83
Voting Rights.......................................................................................... 84
Redemption Provisions.................................................................................. 84
Change of Control...................................................................................... 84
Liquidation Rights..................................................................................... 85
Preemptive and Subscription Rights..................................................................... 85
COMPARISON OF SHAREHOLDER RIGHTS........................................................................... 85
Comparison of Primergy Articles and Bylaws to NSP Articles and Bylaws.................................. 85
Comparison of Minnesota and Wisconsin Law.............................................................. 89
APPROVAL OF PRIMERGY PLANS................................................................................. 94
Primergy Stock Incentive Plan.......................................................................... 94
Primergy Management Incentive Compensation Plan........................................................ 99
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION............................................... 102
SELECTED INFORMATION CONCERNING WEC AND NSP................................................................ 112
Business of WEC........................................................................................ 112
WEC Executive Compensation............................................................................. 112
Business of NSP........................................................................................ 117
Certain Business Relationships Between WEC and NSP..................................................... 118
PRIMERGY FOLLOWING THE MERGERS............................................................................. 118
Management of Primergy................................................................................. 119
Operations............................................................................................. 119
Dividends.............................................................................................. 120
EXPERTS.................................................................................................... 120
LEGAL MATTERS.............................................................................................. 120
SHAREHOLDER PROPOSALS...................................................................................... 120
5
[ALTERNATE PAGE FOR WEC SHAREHOLDERS ONLY]
Annex A Amended and Restated Agreement and Plan of Merger........ A-1
Annex B NSP Stock Option Agreement............................... B-1
Annex C WEC Stock Option Agreement............................... C-1
Annex D Form of Employment Agreement of James J. Howard.......... D-1
Annex E Form of Employment Agreement of Richard A. Abdoo......... E-1
Annex F Opinion of Goldman, Sachs & Co........................... F-1
Annex G Opinion of Barr Devlin & Co. Incorporated................ G-1
Annex H Form of Restated Articles of Incorporation of Primergy
Corporation...................................................... H-1
Annex I Form of Bylaws of Primergy Corporation.................. I-1
Annex J Form of Amended and Restated Articles of Incorporation of
Northern Power Wisconsin Corp. (New NSP)................. J-1
Annex K Primergy Stock Incentive Plan............................ K-1
Annex L Primergy Management Incentive Compensation Plan.......... L-1
Annex M Sections 302A.471 and 302A.473 of the Minnesota Business
Corporation Act.......................................... M-1
Annex N Audited Finanical Statements of Northern Power Wisconsin
Corp.
(New NSP)............................................... N-1
Annex O Bylaws of Northern Power Wisconsin Corp. (New NSP)....... O-1
6
[ALTERNATE PAGE FOR WEC SHAREHOLDERS ONLY]
INDEX OF DEFINED TERMS
PAGE
---------
1935 Act................................................................................................... 1
1992 Act................................................................................................... 33
$3.60 Series Preferred Stock............................................................................... 28
aggregate market value..................................................................................... 48
Antitrust Division......................................................................................... 63
Atomic Energy Act.......................................................................................... 19
Barr Devlin................................................................................................ 16
Business Combination....................................................................................... 73
Business Combination Proposal.............................................................................. 69
Closing.................................................................................................... 65
Closing Date............................................................................................... 65
Code....................................................................................................... 19
Common Stock Amendment..................................................................................... 11
Comparable Companies....................................................................................... 48
Comparable Transactions.................................................................................... 49
Confidentiality Agreement.................................................................................. 73
CSE........................................................................................................ 2
DCF........................................................................................................ 49
Deloitte & Touche.......................................................................................... 33
Direct Subsidiaries........................................................................................ 67
Division................................................................................................... 62
EBIT....................................................................................................... 47
EBITDA..................................................................................................... 48
Effective Time............................................................................................. 13
Employment Agreements...................................................................................... 16
EPS........................................................................................................ 43
ERISA...................................................................................................... 67
EWGs....................................................................................................... 33
Exchange Act............................................................................................... 2
Exchange Agent............................................................................................. 66
Executive.................................................................................................. 52
FERC....................................................................................................... 20
FTC........................................................................................................ 63
Goldman Sachs.............................................................................................. 16
Goldman Sachs Engagement Letter............................................................................ 44
holding company............................................................................................ 60
HSR Act.................................................................................................... 20
implied total consideration................................................................................ 49
Incentive Period........................................................................................... 100
Indemnified Parties........................................................................................ 70
Indenture Effective Date................................................................................... 83
Initial Period............................................................................................. 52
IRS........................................................................................................ 18
ISO Holding Period......................................................................................... 98
ISOs....................................................................................................... 54
Issuer..................................................................................................... 76
Joint Registration Statement............................................................................... 3
LTM Period................................................................................................. 47
Market/Offer Price......................................................................................... 77
MBCA....................................................................................................... 12
Merger Agreement........................................................................................... 1
Mergers.................................................................................................... 1
7
[ALTERNATE PAGE FOR WEC SHAREHOLDERS ONLY]
PAGE
---------
MESP....................................................................................................... 31
MESP Fund.................................................................................................. 32
MIC Plan................................................................................................... 99
Michigan Commission........................................................................................ 60
Minnesota Commission....................................................................................... 60
Name Change Amendment...................................................................................... 11
New NSP.................................................................................................... 1
New NSP Articles........................................................................................... 1
New NSP Common Stock....................................................................................... 1
New NSP Preferred Stock.................................................................................... 1
North Dakota Commission.................................................................................... 60
Notice Date................................................................................................ 77
NRC........................................................................................................ 20
NRG........................................................................................................ 10
NSP........................................................................................................ 1
NSP Articles............................................................................................... 1
NSP Board.................................................................................................. 2
NSP Bylaws................................................................................................. 12
NSP Certificates........................................................................................... 13
NSP Common Stock........................................................................................... 1
NSP Dissenting Shares...................................................................................... 1
NSP DRIP................................................................................................... 29
NSP ESOP................................................................................................... 29
NSP Meeting................................................................................................ 2
NSP Merger................................................................................................. 1
NSP Option................................................................................................. 14
NSP Preferred Stock........................................................................................ 1
NSP Record Date............................................................................................ 11
NSP Stock Award............................................................................................ 72
NSP Stock Option........................................................................................... 72
NSP Stock Option Agreement................................................................................. 14
NSP Subsidiaries........................................................................................... 67
NSP/WEC Application........................................................................................ 63
NSP-Wisconsin.............................................................................................. 10
NYSE....................................................................................................... 2
Offer Price................................................................................................ 77
Option Holder.............................................................................................. 76
option price............................................................................................... 96
Option Shares.............................................................................................. 76
Options.................................................................................................... 14
OSIP....................................................................................................... 114
Participants............................................................................................... 16
Payor...................................................................................................... 74
P/E........................................................................................................ 43
Performance Goals.......................................................................................... 96
Primergy................................................................................................... 1
Primergy Articles.......................................................................................... 22
Primergy Board............................................................................................. 16
Primergy Bylaws............................................................................................ 79
Primergy Common Stock...................................................................................... 1
Primergy Compensation Committee............................................................................ 54
Primergy Plans............................................................................................. 11
Primergy Preferred Stock................................................................................... 79
Projection Period.......................................................................................... 47
8
[ALTERNATE PAGE FOR WEC SHAREHOLDERS ONLY]
PAGE
---------
PSE........................................................................................................ 2
Ratio...................................................................................................... 1
Reincorporation Effective Time............................................................................. 13
Reincorporation Merger..................................................................................... 1
Representatives............................................................................................ 69
Repurchase Period.......................................................................................... 76
RESP....................................................................................................... 31
RESP Fund.................................................................................................. 32
Restated Indenture......................................................................................... 82
Restricted Shares.......................................................................................... 77
Rule 16b-3................................................................................................. 95
SARs....................................................................................................... 54
SEC........................................................................................................ 2
Secondary Period........................................................................................... 52
Section 83(b) election..................................................................................... 98
Securities Act............................................................................................. 3
Selected Companies......................................................................................... 42
SERP....................................................................................................... 116
Severance Policies......................................................................................... 16
share acquisition date..................................................................................... 93
Shareholder Proposals...................................................................................... 11
significant shareholder.................................................................................... 94
South Dakota Commission.................................................................................... 60
spread..................................................................................................... 98
Stock Option Agreements.................................................................................... 14
Stock Plus................................................................................................. 31
synergies working group.................................................................................... 35
Transaction Fee............................................................................................ 44
Trigger Event.............................................................................................. 74
Unrestricted Subsidiaries.................................................................................. 67
WBCL....................................................................................................... 12
WEC........................................................................................................ 1
WEC Articles............................................................................................... 2
WEC Articles Amendments.................................................................................... 11
WEC Board.................................................................................................. 2
WEC Bylaws................................................................................................. 12
WEC Common Stock........................................................................................... 1
WEC Compensation Committee................................................................................. 114
WEC Meeting................................................................................................ 2
WEC Option................................................................................................. 14
WEC Preferred Stock........................................................................................ 11
WEC Record Date............................................................................................ 12
WEC Stock Option Agreement................................................................................. 14
WEC Sub.................................................................................................... 1
WEC Sub Common Stock....................................................................................... 15
WEC Subsidiaries........................................................................................... 67
WEPCO...................................................................................................... 1
WEPCO Common Stock......................................................................................... 80
WEPCO Preferred Stock...................................................................................... 21
Wisconsin Commission....................................................................................... 20
Wisconsin Holding Company Act.............................................................................. 20
Wisconsin Natural.......................................................................................... 10
Wisconsin Natural Common Stock............................................................................. 80
WPSC....................................................................................................... 118
9
SUMMARY OF JOINT PROXY STATEMENT/PROSPECTUS
THE FOLLOWING IS A SUMMARY OF CERTAIN IMPORTANT TERMS AND CONDITIONS OF THE
MERGERS AND RELATED INFORMATION. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
APPEARING IN THIS JOINT PROXY STATEMENT/PROSPECTUS, THE ANNEXES AND THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS ARE URGED TO READ THIS
JOINT PROXY STATEMENT/PROSPECTUS AND THE ANNEXES IN THEIR ENTIRETY.
THE PARTIES
PRIMERGY. The WEC Articles will be amended and restated immediately prior
to or upon consummation of the Mergers to, among other things, change the name
of WEC to "Primergy Corporation." Primergy will be the holding company for New
NSP and the operating subsidiaries of WEC following the Mergers. Primergy will
be a public utility holding company registered under the 1935 Act. See
"Regulatory Matters" and "Primergy Following the Mergers." The principal
executive office of Primergy will be located at 414 Nicollet Mall, Minneapolis,
Minnesota 55401, telephone number (612) 330-2930.
WEC. WEC is a holding company whose principal subsidiaries are WEPCO, an
electric utility, and Wisconsin Natural Gas Company, a gas utility ("Wisconsin
Natural"). WEPCO generates, transmits, distributes and sells electric energy in
a territory of approximately 12,000 square miles with a population estimated at
over 2,200,000 in southeastern (including the Milwaukee area), east central and
northern Wisconsin and in the Upper Peninsula of Michigan. WEPCO also
distributes and sells steam supplied by one of its power plants to certain
customers in Milwaukee. Wisconsin Natural purchases, distributes and sells
natural gas to retail customers and transports customer-owned gas in three
distinct service areas in Wisconsin: west and south of the City of Milwaukee;
the Appleton area; and the Prairie du Chien area. Wisconsin Natural's service
territory has an estimated population of over 1,100,000 and is largely within
the electric service area of WEPCO. WEC also has certain non-utility
subsidiaries. Prior to or upon the consummation of the Mergers, WEPCO's Restated
Articles of Incorporation will be amended to change the name of WEPCO to
"Wisconsin Energy Company." The principal executive office of WEC and WEPCO is,
and the principal executive office of Wisconsin Energy Company after the
Effective Time (as defined herein) will be, located at 231 West Michigan Street,
P.O. Box 2949, Milwaukee, Wisconsin 53201, telephone number (414) 221-2345. See
"Selected Information Concerning WEC and NSP -- Business of WEC" and "Primergy
Following the Mergers -- Operations."
NSP. NSP is predominantly an operating public utility engaged, along with
its most significant subsidiary, Northern States Power Company, a Wisconsin
corporation ("NSP-Wisconsin"), in the generation, transmission and distribution
of electricity throughout a 49,000 square mile service area and the distribution
of natural gas in approximately 148 communities within this area. NSP serves
customers in Minnesota, North Dakota and South Dakota. NSP-Wisconsin provides
electric and natural gas utility service to customers in Wisconsin and the Upper
Peninsula of Michigan. Of the approximately 3,000,000 people served by NSP and
NSP-Wisconsin, the majority are concentrated in the Minneapolis-St. Paul
metropolitan area. NSP has several other subsidiaries including Viking Gas
Transmission Company, a Delaware corporation, and NRG Energy, Inc., a Delaware
corporation ("NRG"). NRG manages many of NSP's non-utility energy subsidiaries.
The principal executive office of NSP is, and after the Effective Time will be,
located at 414 Nicollet Mall, Minneapolis, Minnesota 55401, telephone number
(612) 330-5500. See "Selected Information Concerning WEC and NSP -- Business of
NSP" and "Primergy Following the Mergers -- Operations."
NEW NSP. New NSP is a Wisconsin corporation which was created to effect the
Reincorporation Merger. It has, and prior to the Mergers will have, no
operations except as contemplated by the Merger Agreement. The audited financial
statements of New NSP are attached as Annex N. NSP is the only shareholder of
New NSP. Pursuant to the Merger Agreement, immediately prior to the consummation
of the NSP Merger, New NSP will acquire certain utility assets from
NSP-Wisconsin. Following the Mergers, it is anticipated that New NSP will not
retain ownership of the existing subsidiaries of NSP,
10
as it is expected that NSP-Wisconsin will be merged into WEPCO (which will be
renamed "Wisconsin Energy Company") and the remaining subsidiaries of NSP will
be transferred to Primergy. The New NSP Articles will be amended, effective upon
the consummation of the Mergers, to change the name of New NSP to "Northern
States Power Company." The principal executive office of New NSP is located at
414 Nicollet Mall, Minneapolis, Minnesota 55401, telephone number (612)
330-2903. See "The Merger Agreement -- The Mergers" and "Primergy Following the
Mergers -- Operations."
WEC SUB. WEC Sub is a Wisconsin corporation which was created to effect the
NSP Merger. It has, and prior to the Mergers will have, no operations except as
contemplated by the Merger Agreement. WEC is the only shareholder of WEC Sub.
The principal executive office of WEC Sub is located at 231 West Michigan
Street, P.O. Box 2949, Milwaukee, Wisconsin 53201, telephone number (414)
221-2345. See "The Merger Agreement -- The Mergers."
THE MEETINGS
NSP. At the NSP Meeting, the holders of NSP Common Stock and NSP Preferred
Stock, voting as a single class, will be asked to consider and vote upon
proposals (i) to approve the Merger Agreement, (ii) to approve the Primergy
Stock Incentive Plan, (iii) to approve the Primergy Management Incentive
Compensation Plan (together with the Primergy Stock Incentive Plan, the
"Primergy Plans"), (iv) to elect four directors to Class III to serve for terms
of three years until their successors are elected and qualified, (v) to ratify
the appointment of Price Waterhouse LLP as independent accountants for NSP for
1995, and (vi) to consider and act upon two shareholder proposals (the
"Shareholder Proposals"). Pursuant to the Merger Agreement, consummation of the
Mergers is conditioned upon approval of proposals (i), (ii) and (iii) above, but
is not conditioned upon approval by the shareholders of NSP of any other of the
above proposals. NSP and WEC retain the right to waive the approval of either or
both of the Primergy Plans (proposals (ii) and (iii) above) as conditions to the
consummation of the Mergers. If approved, the Primergy Plans will be implemented
only if the Mergers are consummated. See "Meetings, Voting and Proxies -- NSP
Meeting."
The NSP Meeting is scheduled to be held at 10:00 a.m., local time, on
Wednesday, September 13, 1995 at the Minneapolis Convention Center, 1301 South
Second Avenue, Minneapolis, Minnesota 55463, Exhibit Hall I. The NSP Board has
fixed the close of business on July 27, 1995 as the record date (the "NSP Record
Date") for the determination of holders of NSP Common Stock and NSP Preferred
Stock entitled to notice of and to vote at the NSP Meeting.
The NSP Board, by a unanimous vote, has approved and adopted the Merger
Agreement and the transactions contemplated thereby, and each of the Primergy
Plans, and recommends that NSP shareholders vote FOR approval of the Merger
Agreement and FOR approval of each of the Primergy Plans. In addition, the NSP
Board recommends that NSP shareholders vote FOR the election of the nominated
directors, FOR ratification of the appointment of Price Waterhouse LLP as NSP's
independent accountants for 1995, and AGAINST the Shareholder Proposals.
WEC. At the WEC Meeting, the holders of WEC Common Stock will be asked to
consider and vote upon proposals (i) to approve the Merger Agreement and the
transactions contemplated thereby, including, among other things, the issuance
of shares of Primergy Common Stock pursuant to the terms of the Merger
Agreement, (ii) to approve the amendment to and restatement of the WEC Articles
so as to change the name of WEC to "Primergy Corporation" (the "Name Change
Amendment"), (iii) to approve the amendment to and restatement of the WEC
Articles so as to increase the amount of authorized WEC Common Stock from
325,000,000 shares to 750,000,000 shares, thereby increasing WEC's total
authorized capitalization from 340,000,000 shares to 765,000,000 shares (which
includes the 15,000,000 shares of preferred stock, par value $.01 per share, of
WEC ("WEC Preferred Stock") currently authorized) (the "Common Stock Amendment"
and, together with the Name Change Amendment, the "WEC Articles Amendments"),
(iv) to approve the Primergy Stock Incentive Plan and (v) to approve the
Primergy Management Incentive Compensation Plan. Pursuant to the Merger
Agreement, consummation of the Mergers is conditioned upon approval by the
shareholders of WEC of each of the proposals set forth above. NSP and WEC retain
the right to waive the
11
approval of either or both of the Primergy Plans (proposals (iv) and (v) above),
or the approval of the Common Stock Amendment (proposal (iii) above), as
conditions to the consummation of the Mergers. If approved, each of the WEC
Articles Amendments will become effective, and each of the Primergy Plans will
be implemented, only if the Mergers are consummated. See "Meetings, Voting and
Proxies -- WEC Meeting."
The WEC Meeting is scheduled to be held at 9:00 a.m., local time, on
Wednesday, September 13, 1995 in the Exhibition Hall of The Grand Milwaukee
Hotel, 4747 South Howell Avenue, Milwaukee, Wisconsin. The WEC Board has fixed
the close of business on July 27, 1995 as the record date (the "WEC Record
Date") for the determination of holders of WEC Common Stock entitled to notice
of and to vote at the WEC Meeting.
The WEC Board, by a unanimous vote, has adopted and approved the Merger
Agreement and the transactions contemplated thereby, each of the WEC Articles
Amendments and each of the Primergy Plans, and recommends that WEC's
shareholders vote FOR approval of the Merger Agreement (including the issuance
of shares of Primergy Common Stock pursuant to the terms of the Merger
Agreement), FOR approval of each of the WEC Articles Amendments and FOR approval
of each of the Primergy Plans.
REQUIRED VOTE
WEC. As provided under the Wisconsin Business Corporation Law (the "WBCL"),
the WEC Articles, the bylaws of WEC (the "WEC Bylaws") and the rules of the
NYSE, as applicable: (i) the affirmative vote of a majority of the votes
entitled to be cast by the holders of the shares of WEC Common Stock represented
at the WEC Meeting and entitled to vote thereon (provided that the total vote
cast represents over 50% of all the shares of WEC Common Stock entitled to vote
thereon) is required for approval of the Merger Agreement (including the
issuance of shares of Primergy Common Stock pursuant to the terms of the Merger
Agreement) and the Primergy Stock Incentive Plan; (ii) the affirmative vote of a
majority of the votes entitled to be cast at the WEC Meeting by the holders of
the outstanding shares of WEC Common Stock entitled to vote thereon is required
for approval of each of the WEC Articles Amendments; and (iii) the affirmative
vote of a majority of the votes entitled to be cast by the holders of the shares
of WEC Common Stock represented at the WEC Meeting and entitled to vote thereon
is required for approval of the Primergy Management Incentive Compensation Plan.
On the WEC Record Date, there were 109,936,834 shares of WEC Common Stock
outstanding and entitled to vote. As of the WEC Record Date, directors and
executive officers of WEC, together with their affiliates as a group, owned less
than 1% of the issued and outstanding shares of WEC Common Stock. See "Meetings,
Voting and Proxies -- WEC Meeting."
NSP. Under the Minnesota Business Corporation Act (the "MBCA"), the NSP
Articles, the bylaws of NSP (the "NSP Bylaws") and the rules of the NYSE, as
applicable: (i) the affirmative vote of a majority of the votes entitled to be
cast at the NSP Meeting by the holders of the outstanding shares of NSP Common
Stock and NSP Preferred Stock entitled to vote, voting as a single class, is
required for approval of the Merger Agreement; (ii) with respect to the election
of NSP's directors, shareholders are entitled to vote cumulatively, each
shareholder being entitled to a number of votes for such election equal to the
number of shares held by such shareholder (other than the holders of the $3.60
Series Preferred Stock (as defined herein) who are entitled to a number of votes
equal to three times the number of such shares held) multiplied by the number of
directors to be elected, and being entitled to cast all votes for one nominee or
distribute the votes among the nominees; the election of each director shall be
decided by plurality vote; and (iii) the affirmative vote of a majority of the
votes entitled to be cast by the holders of the shares of NSP Common Stock and
NSP Preferred Stock represented at the NSP Meeting and entitled to vote thereon,
voting as a single class (PROVIDED that the total vote cast represents over 50%
of the voting power of all the shares of NSP Common Stock and NSP Preferred
Stock entitled to vote thereon) is required to approve each of the other
proposals expected to be presented at the NSP Meeting. On the NSP Record Date,
there were 67,693,931 shares of NSP Common Stock outstanding and entitled to
vote and 2,400,000 shares of NSP Preferred Stock
12
outstanding and entitled to vote, of which 275,000 shares are of a series which
is entitled to three votes per share. As of the NSP Record Date, directors and
executive officers of NSP, together with their affiliates as a group, owned less
than 1% of the issued and outstanding shares of NSP Common Stock and less than
1% of the issued and outstanding shares of each series of NSP Preferred Stock.
See "Meetings, Voting and Proxies -- NSP Meeting."
THE MERGERS
The Merger Agreement provides for (a) the Reincorporation Merger in which
NSP will be merged with and into New NSP with New NSP to be the surviving
corporation and (b) the NSP Merger in which WEC Sub will be merged with and into
New NSP with New NSP to be the surviving corporation. Pursuant to the Merger
Agreement, (i) each issued and outstanding share of NSP Common Stock (other than
shares owned directly or indirectly by NSP or WEC and NSP Dissenting Shares)
will be cancelled and ultimately converted into the right to receive 1.626
shares of Primergy Common Stock; (ii) each issued and outstanding share of NSP
Preferred Stock (other than shares owned directly or indirectly by NSP or WEC
and NSP Dissenting Shares) will be cancelled and converted into the right to
receive one share of New NSP Preferred Stock with terms (including dividend
rates) and designations under the New NSP Articles identical to those of the
cancelled share of NSP Preferred Stock under the NSP Articles; and (iii) each
issued and outstanding share of WEC Common Stock will be unchanged as a result
of the NSP Merger and will remain outstanding thereafter as a share of Primergy
Common Stock, so that the common shareholders of WEC and NSP immediately prior
to the Mergers (except for the holders of NSP Dissenting Shares) will all be
common shareholders of Primergy immediately upon the consummation of the
Mergers.
The Reincorporation Merger will become effective at the time specified in
the articles of merger filed by New NSP with the Secretaries of State of the
States of Minnesota and Wisconsin (the "Reincorporation Effective Time"). The
NSP Merger will become effective at the time specified in the articles of merger
filed by New NSP with the office of the Secretary of State of the State of
Wisconsin. The "Effective Time" shall mean the time and date that the NSP Merger
becomes effective.
See "The Merger Agreement -- The Mergers."
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Effective Time, the exchange agent will
mail transmittal instructions to each holder of record of shares of NSP Common
Stock at the Effective Time, advising such holder of the procedure for
surrendering such holder's certificates ("NSP Certificates") which immediately
prior to the Reincorporation Effective Time represented shares of NSP Common
Stock that were cancelled and became instead the right ultimately to receive
shares of Primergy Common Stock for certificates representing shares of Primergy
Common Stock. Holders of certificates which prior to the Effective Time
represented shares of NSP Common Stock will not be entitled to receive any
payment of dividends or other distributions on or payment for any fractional
share with respect to their NSP Certificates until such certificates have been
surrendered for certificates representing shares of Primergy Common Stock. Cash
will be paid to NSP shareholders in lieu of fractional shares of Primergy Common
Stock. Holders of shares of NSP Common Stock should not submit their stock
certificates for exchange until a form of letter of transmittal and instructions
therefor are received. See "The Merger Agreement -- The Mergers."
Holders of NSP Preferred Stock do not need to exchange their existing
certificates representing shares of NSP Preferred Stock for new stock
certificates. Each outstanding certificate representing shares of NSP Preferred
Stock immediately prior to the Effective Time shall, from and after the
Effective Time, represent the same number of shares of the corresponding series
of New NSP Preferred Stock with terms (including dividend rates) and
designations under the New NSP Articles identical to those of the cancelled
shares of NSP Preferred Stock under the NSP Articles. After the Effective Time,
new certificates reflecting the fact that New NSP is a Wisconsin corporation
will be issued as outstanding stock certificates formerly representing shares of
NSP Preferred Stock are presented for transfer.
13
Shareholders of WEC need not exchange their existing stock certificates for
new stock certificates reflecting WEC's name change to Primergy. However, any
WEC shareholders desiring new stock certificates may, after the Effective Time,
submit their existing stock certificates representing shares of WEC Common Stock
to the transfer agent of Primergy to obtain new certificates. Each outstanding
certificate representing shares of WEC Common Stock immediately prior to the
Effective Time shall, from and after the Effective Time, represent the same
number of shares of Primergy Common Stock. After the Effective Time, new
certificates bearing the name of Primergy will be issued as outstanding WEC
stock certificates are presented for transfer.
PRIMERGY PLANS
Pursuant to the Merger Agreement, Primergy will adopt the Primergy Stock
Incentive Plan and the Primergy Management Incentive Compensation Plan to
replace the comparable plans of NSP and WEC. The Primergy Stock Incentive Plan
is a comprehensive stock compensation plan providing for the grant of stock
options, stock appreciation rights, restricted stock and performance units. The
Primergy Management Incentive Compensation Plan is a short-term incentive
compensation plan providing for cash awards based upon the achievement of
individual, group and corporate performance goals during periods of up to 12
months. For descriptions of the Primergy Plans, see "The Mergers -- Primergy
Plans" and "Approval of Primergy Plans."
STOCK OPTION AGREEMENTS
Pursuant to (i) the NSP Stock Option Agreement dated as of April 28, 1995,
by and between WEC and NSP (the "NSP Stock Option Agreement") and (ii) the WEC
Stock Option Agreement dated as of April 28, 1995, by and between WEC and NSP
(the "WEC Stock Option Agreement"; together with the NSP Stock Option Agreement,
the "Stock Option Agreements"), NSP has granted to WEC the right (the "WEC
Option"), and WEC has granted to NSP the right (the "NSP Option"; together with
the WEC Option, the "Options"), to purchase, under certain circumstances, up to
a certain number of authorized but unissued shares of the respective issuer's
common stock (representing 19.9% of the outstanding common stock of such issuer
on April 28, 1995), at a price of $44.075 per share, in the case of NSP Common
Stock, and $27.675 per share, in the case of WEC Common Stock. The exercise of
the Options is subject to certain conditions described in the Merger Agreement.
See "The Stock Option Agreements -- General" and "The Merger Agreement --
Termination Fees." In addition, the Stock Option Agreements provide that the
holder of an Option has the right to require the issuer thereof to repurchase
from the holder of the Option (i) all or any portion of the Option at any time
the Option is exercisable at a price which is the difference between the
Market/Offer Price (as defined herein) and the exercise price of the Option, and
(ii) on or at any time prior to April 30, 1997 (which date may be extended to
October 31, 1997 under certain circumstances) all or any portion of any shares
purchased pursuant to the Option. See "The Stock Option Agreements -- Certain
Repurchases." The Stock Option Agreements are intended to increase the
likelihood that the Mergers will be consummated in accordance with the terms of
the Merger Agreement and may have the effect of discouraging competing offers.
See "The Stock Option Agreements."
Further, the Stock Option Agreements contemplate the continuation of certain
standstill provisions and provide that any shares of the other party acquired or
otherwise beneficially owned must be voted for and against each matter submitted
to a shareholder vote in the same proportion as the other shareholders of the
issuer thereof vote for and against such matter. See "The Merger Agreement --
Standstill Provisions" and "The Stock Option Agreements -- Voting."
TREATMENT OF SHARES; RATIO
Each share of NSP Common Stock issued and outstanding immediately prior to
the Reincorporation Effective Time (other than NSP Dissenting Shares) will,
pursuant to the Merger Agreement, be cancelled and converted into the right to
receive one share of New NSP Common Stock which, in turn, will be cancelled and
converted into the right to receive 1.626 shares of Primergy Common Stock. Each
share of WEC Common Stock outstanding immediately prior to the Effective Time
will, upon consummation of the Mergers, remain outstanding and unchanged as one
share of Primergy Common
14
Stock. Holders of NSP Common Stock will receive cash in lieu of fractional
shares of Primergy Common Stock. Each share of NSP Preferred Stock outstanding
immediately prior to the Reincorporation Effective Time (other than NSP
Dissenting Shares) will, upon consummation of the Mergers, be cancelled and
converted into the right to receive one share of New NSP Preferred Stock with
terms (including dividend rates) and designations under the New NSP Articles
identical to those of the cancelled share of NSP Preferred Stock under the NSP
Articles. Each share of common stock, par value $.01 per share, of WEC Sub ("WEC
Sub Common Stock") issued and outstanding immediately prior to the Effective
Time will, upon consummation of the Mergers, be cancelled and converted into one
share of New NSP Common Stock. See "The Merger Agreement -- The Mergers."
BACKGROUND
For a description of the background of the Mergers, see "The Mergers --
Background of the Mergers."
REASONS FOR THE MERGERS
NSP and WEC believe that the Mergers offer significant strategic and
financial benefits to each company and to their respective shareholders, as well
as to their employees and customers and the communities in which they do
business. These benefits include, among others:
- Maintenance of competitive rates that will improve ability to meet the
challenges of the increasingly competitive environment in the utility
industry.
- Integration of corporate and administrative functions, including the
elimination of duplicate positions, limiting capital expenditures for
administrative facilities and information systems, and savings in areas
such as legal, audit, and consulting fees.
- Expanded management resources and ability to select leadership from a
larger and more diverse management pool.
- Centralized management, supervision, and operation of nuclear generating
facilities.
- Greater purchasing power for items such as fuel and transportation
services, and streamlining of inventories.
- More efficient pursuit of diversification into non-utility areas.
- Increased geographic diversity of service territories, reducing exposure
to local changes in economic, competitive, or climatic conditions.
- Continued ability to play a strong role in the economic development
efforts of the communities NSP and WEC's utility subsidiaries now serve.
- Cost savings in a variety of categories, estimated to result in net
savings of approximately $2 billion over a ten-year period following the
Mergers.
See "The Mergers -- Reasons for the Mergers; Recommendations of the Boards
of Directors."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
NSP. The NSP Board, by a unanimous vote, has approved and adopted the
Merger Agreement, believes that the terms of the Mergers are fair to, and in the
best interests of, NSP's shareholders, has approved each of the Primergy Plans,
and recommends that the shareholders of NSP vote (i) FOR approval of the Merger
Agreement and (ii) FOR approval of each of the Primergy Plans. The NSP Board
approved and adopted the Merger Agreement after consideration of a number of
factors described under the heading "The Mergers -- Reasons for the Mergers;
Recommendations of the Boards of Directors." In addition, the NSP Board
recommends that NSP shareholders vote FOR the election of the nominated
directors, FOR ratification of the appointment of Price Waterhouse LLP as NSP's
independent accountants for 1995, and AGAINST the Shareholder Proposals.
15
WEC. The WEC Board, by a unanimous vote, has adopted and approved the
Merger Agreement, believes that the terms of the Mergers are fair to, and in the
best interests of, WEC's shareholders, has approved each of the WEC Articles
Amendments, has approved each of the Primergy Plans, and recommends that the
shareholders of WEC vote (i) FOR approval of the Merger Agreement (including the
issuance of shares of Primergy Common Stock pursuant to the terms of the Merger
Agreement), (ii) FOR approval of each of the WEC Articles Amendments, and (iii)
FOR approval of each of the Primergy Plans. The WEC Board adopted and approved
the Merger Agreement after consideration of a number of factors described under
the heading "The Mergers -- Reasons for the Mergers; Recommendations of the
Boards of Directors."
OPINIONS OF FINANCIAL ADVISORS
NSP. On April 28, 1995, Goldman, Sachs & Co. ("Goldman Sachs") delivered
its oral opinion to the NSP Board that, as of that date, the Ratio pursuant to
the Merger Agreement is fair to the holders of shares of NSP Common Stock.
Goldman Sachs subsequently confirmed its April 28, 1995 oral opinion by delivery
of its written opinion dated as of the date of this Joint Proxy
Statement/Prospectus. The full text of the written opinion of Goldman Sachs,
dated as of the date of this Joint Proxy Statement/Prospectus, which sets forth
assumptions made, matters considered and limits of the review undertaken in
connection with the opinion, is attached hereto as Annex F and is incorporated
herein by reference. HOLDERS OF SHARES OF NSP COMMON STOCK ARE URGED TO, AND
SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "The Mergers -- Opinions of
Financial Advisors" and Annex F.
WEC. Barr Devlin & Co. Incorporated ("Barr Devlin") delivered to the WEC
Board its written opinions dated April 28, 1995 and the date of this Joint Proxy
Statement/Prospectus stating that, as of the dates of such opinions and based
upon the assumptions made, matters considered and limits of the review
undertaken, as set forth in such opinions, the Ratio is fair, from a financial
point of view, to the holders of the WEC Common Stock. The written opinion of
Barr Devlin dated the date of this Joint Proxy Statement/Prospectus is attached
hereto as Annex G and is incorporated herein by reference. HOLDERS OF SHARES OF
WEC COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
The April 28, 1995 opinion is substantially identical to the opinion attached
hereto. See "The Mergers -- Opinions of Financial Advisors" and Annex G.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
DIRECTORSHIPS. The Merger Agreement provides that the Board of Directors of
Primergy (the "Primergy Board") will, upon consummation of the Mergers, consist
of 12 persons with six persons designated by NSP, including James J. Howard,
Chairman of the Board, President and Chief Executive Officer of NSP, and six
persons designated by WEC, including Richard A. Abdoo, Chairman of the Board,
President and Chief Executive Officer of WEC. See "The Mergers -- Interests of
Certain Persons in the Mergers -- Board of Directors."
EMPLOYMENT AGREEMENTS. Each of Messrs. Howard and Abdoo will enter into an
employment agreement with Primergy to become effective upon consummation of the
Mergers (the "Employment Agreements"). Pursuant to the Employment Agreements,
Mr. Howard will serve as Chairman and Chief Executive Officer of Primergy from
and after the Effective Time until the later of the date of the annual meeting
of the shareholders of Primergy that occurs in 1998 and the last day of the
sixteenth full month following the Effective Time, and thereafter will retire as
Chief Executive Officer but will continue to serve as Chairman until the later
of July 1, 2000, or two years after he ceases to be Chief Executive Officer. Mr.
Abdoo will serve as Vice Chairman, President and Chief Operating Officer of
Primergy from and after the Effective Time until Mr. Howard ceases to be Chief
Executive Officer, and thereafter will serve as Vice Chairman, President and
Chief Executive Officer. Mr. Abdoo will assume the position of Chairman when Mr.
Howard ceases to be Chairman. See "The Mergers -- Interests of Certain Persons
in the Mergers -- Employment Agreements."
SEVERANCE POLICIES. Effective April 28, 1995, the NSP and WEC Boards have
each adopted a Senior Executive Severance Policy (the "Severance Policies")
providing for severance benefits to the respective NSP and WEC employees
designated as participants (the "Participants"). The Severance
16
Policies will be binding upon Primergy. A total of 25 NSP executives and 25 WEC
executives have been designated as Participants under the respective Severance
Policies. The Severance Policies provide severance benefits to Participants
whose employment is terminated under certain circumstances at any time before
(i) the second anniversary of the Effective Time (if the Mergers are
consummated) or (ii) April 28, 2000 (if the Mergers are not consummated), unless
further extended by the respective Boards of Directors. If all Participants in
the Severance Policies had been terminated as of July 1, 1996 under
circumstances giving rise to an entitlement to severance benefits, the aggregate
value of the severance benefits (assuming specified increases in base salary and
specified incentive compensation levels) would have been approximately
$19,000,000 for the NSP Participants and approximately $13,000,000 for the WEC
Participants. See "The Mergers -- Employee Plans and Severance Arrangements."
EMPLOYEE PLANS. Under certain benefit plans and agreements maintained or
entered into by WEC, certain directors, officers and other employees of WEC will
be entitled to immediate vesting of stock options and vesting and/or payment of
certain retirement and other deferred compensation upon consummation of the
Mergers. WEC has agreed to use its best efforts to obtain all necessary consents
to the waiver of these entitlements with respect to the Mergers. See "The
Mergers -- Interests of Certain Persons in the Mergers -- Employee Plans and
Severance Arrangements."
INDEMNIFICATION. The parties have agreed in the Merger Agreement that
Primergy will indemnify, to the fullest extent permitted by applicable law, the
present and former officers, directors and employees of each of the parties to
the Merger Agreement or any of their subsidiaries against certain liabilities
(i) arising out of actions or omissions occurring at or prior to the Effective
Time that arise from or are based on such service as an officer, director or
employee or (ii) that are based on or arise out of or pertain to the
transactions contemplated by the Merger Agreement, and to maintain policies of
directors' and officers' liability insurance for a period of not less than six
years after the Effective Time. To the fullest extent permitted by law, from and
after the Effective Time, all rights to indemnification existing in favor of the
employees, agents, directors or officers of NSP, WEC and their respective
subsidiaries with respect to their activities as such prior to the Effective
Time, as provided in their respective articles of incorporation and bylaws, in
effect on April 28, 1995, or otherwise in effect on April 28, 1995, shall
survive the Mergers and shall continue in full force and effect for a period of
not less than six years from the Effective Time. See "The Mergers -- Interests
of Certain Persons in the Mergers -- Indemnification" and "The Merger Agreement
-- Indemnification."
MANAGEMENT OF PRIMERGY
As provided in the Merger Agreement, at the Effective Time, the Primergy
Board will consist of 12 directors, six designated by WEC and six designated by
NSP. At the Effective Time, Mr. Howard will become Chairman and Chief Executive
Officer of Primergy, and Mr. Abdoo will become Vice Chairman, President and
Chief Operating Officer of Primergy. To date, NSP and WEC have not determined
which individuals, in addition to Messrs. Howard and Abdoo, will be designated
to serve as directors or officers of Primergy as of the Effective Time. See "The
Mergers -- Employment Agreements" and "Primergy Following the Mergers --
Management of Primergy."
CONDITIONS TO THE MERGERS
The obligations of NSP, on the one hand, and WEC, on the other hand, to
consummate the Mergers are subject to the satisfaction of certain conditions,
including the approval of the Merger Agreement by the shareholders of each of
NSP and WEC, the receipt of all material governmental approvals, the absence of
any injunction that prevents the consummation of the Mergers, the listing on the
NYSE of the shares of Primergy Common Stock to be issued pursuant to the terms
of the Merger Agreement, the qualification of the Mergers as a pooling of
interests transaction for accounting purposes, the accuracy of the
representations and warranties of the other party set forth in the Merger
Agreement as of the Closing Date (as defined herein) (except for inaccuracies
which would not have a material adverse effect on such other party), the
performance by the other party in all material respects, or waiver, of all
obligations required to be performed under the Merger Agreement and the
17
Stock Option Agreements (see "The Stock Option Agreements"), the receipt of an
officer's certificate from the other party stating that certain conditions set
forth in the Merger Agreement have been satisfied, there having been no material
adverse effect on the other party, the receipt of a private letter ruling from
the Internal Revenue Service (the "IRS") containing certain assurances regarding
the federal income tax consequences of the Mergers and tax opinions that the
Mergers will qualify as tax-free reorganizations, the receipt of certain
material third-party consents, the receipt of letters from affiliates of the
other party with respect to transactions in securities of NSP, WEC or Primergy,
the effectiveness of the Joint Registration Statement and the number of shares
of NSP Common Stock and NSP Preferred Stock which are NSP Dissenting Shares not
constituting more than 5% of the number of issued and outstanding shares of NSP
Common Stock and NSP Preferred Stock, taken together as a single class. See "The
Merger Agreement -- Conditions to Each Party's Obligation to Effect the
Mergers."
RIGHTS TO TERMINATE, AMEND OR WAIVE CONDITIONS
The Merger Agreement may be terminated under certain circumstances,
including: by mutual consent of WEC and NSP; by any party if the Mergers are not
consummated by April 30, 1997 (which date may be extended to October 31, 1997
under certain circumstances); by any party if the requisite shareholder
approvals are not obtained or if any state or federal law or court order
prohibits consummation of the Mergers; by a non-breaching party if there occurs
a material breach of the Merger Agreement which is not cured within 20 days; or
by either party, under certain circumstances, as a result of a more favorable
third-party tender offer or business combination proposal with respect to such
party. The Merger Agreement requires that termination fees be paid under certain
circumstances, including if there is a material, willful breach of the Merger
Agreement or if, under certain circumstances, a business combination with a
third party is consummated within two and one-half years of the termination of
the Merger Agreement. See "The Merger Agreement -- Termination." The aggregate
termination fees under these provisions together with the amounts payable under
certain provisions of the Stock Option Agreements may not exceed $125,000,000.
See "The Merger Agreement -- Termination Fees" and "The Stock Option Agreements
-- Certain Repurchases."
The Merger Agreement may be amended by the Boards of Directors of the
parties at any time before or after its approval by the shareholders of NSP and
WEC, but after any such approval, no amendment may be made which alters or
changes (i) the amount or kind of shares, rights or the manner of conversion of
such shares, (ii) the terms or conditions of the Merger Agreement, if such
alteration or change, alone or in the aggregate, would materially adversely
affect the rights of the WEC shareholders or NSP shareholders, or (iii) any term
of the form of the Primergy Articles (as defined herein) attached hereto as
Annex H, except for alterations or changes that could otherwise be adopted by
the WEC Board without the further approval of such shareholders. See "The Merger
Agreement -- Amendment and Waiver."
At any time prior to the Effective Time, to the extent permitted by
applicable law, the conditions to NSP's or WEC's obligations to consummate the
Mergers may be waived by the other party. Any determination to waive a condition
would depend upon the facts and circumstances existing at the time of such
waiver and would be made by the waiving party's Board of Directors, exercising
its fiduciary duties to such party and its shareholders. See "The Merger
Agreement -- Amendment and Waiver."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Each party's obligation to effect the Mergers is conditioned on (i) the
receipt of a private letter ruling from the IRS providing certain assurances
regarding the federal income tax consequences of the Mergers and (ii) the
delivery of an opinion to NSP from Wachtell, Lipton, Rosen & Katz, counsel for
NSP, and an opinion to WEC from Skadden, Arps, Slate, Meagher & Flom or Quarles
& Brady, counsel for WEC, each dated as of the Closing Date, based upon certain
customary representations
18
and assumptions set forth therein and on such private letter ruling,
substantially to the effect that, for federal income tax purposes, each of the
Mergers constitutes a tax-free reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Provided that such a ruling is obtained (in which case, provided that there
shall have been no adverse changes in applicable law or facts at such time, such
opinions of counsel will be delivered), in general: (i) no gain or loss will be
recognized by NSP, New NSP, WEC or WEC Sub pursuant to the Mergers; (ii) no gain
or loss will be recognized by holders of NSP Preferred Stock and NSP Common
Stock upon the cancellation of their NSP Preferred Stock and NSP Common Stock
and conversion thereof into New NSP Preferred Stock and New NSP Common Stock,
respectively, pursuant to the Reincorporation Merger; (iii) no gain or loss will
be recognized by holders of New NSP Common Stock upon the cancellation of their
New NSP Common Stock and conversion thereof into Primergy Common Stock pursuant
to the NSP Merger; and (iv) no gain or loss will be recognized by shareholders
of WEC upon the Reincorporation Merger or the NSP Merger. See "The Mergers --
Certain Federal Income Tax Consequences."
EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE TAX
CONSEQUENCES OF THE MERGERS TO SUCH SHAREHOLDER UNDER FEDERAL, STATE, LOCAL OR
ANY OTHER APPLICABLE LAW.
OPERATIONS AFTER THE MERGERS
Following the Mergers, Primergy will be a registered public utility holding
company under the 1935 Act, and New NSP (which will be renamed "Northern States
Power Company") and WEPCO (which will be renamed "Wisconsin Energy Company")
will operate as its principal subsidiaries. The headquarters of Primergy will be
in Minneapolis, Minnesota. The headquarters of the two utility subsidiaries will
remain in their current locations, Northern States Power Company's in
Minneapolis and Wisconsin Energy Company's in Milwaukee. Primergy's utility
subsidiaries will serve approximately 2,300,000 electric customers and 750,000
natural gas customers in portions of Minnesota, Wisconsin, North Dakota, South
Dakota and the Upper Peninsula of Michigan. The business of Primergy will be to
operate as a holding company for its utility subsidiaries, and various
non-utility subsidiaries. It is anticipated that Wisconsin Natural will be
merged into WEPCO by January 1, 1996, as previously planned, and that
NSP-Wisconsin will merge into WEPCO following the Mergers. Pursuant to the
Merger Agreement, New NSP will acquire certain utility assets from
NSP-Wisconsin. NSP and WEC recognize that a divestiture mandated by the SEC of
their existing gas operations and certain non-utility operations is a
possibility under the registered holding company structure, but intend to seek
approval from the SEC to maintain such businesses. See "Regulatory Matters" and
"Primergy Following the Mergers -- Operations."
Pursuant to the Merger Agreement, Primergy and its subsidiaries will
continue to play a strong role in the economic development efforts of the
communities NSP and WEC now serve. The philanthropic and volunteer programs
currently maintained by the two companies will be continued. See "Primergy
Following the Mergers -- Operations."
NSP PREFERRED STOCK
Pursuant to the Merger Agreement, NSP will be merged into New NSP and each
issued and outstanding share of NSP Preferred Stock (other than shares owned
directly or indirectly by NSP or WEC and NSP Dissenting Shares) will be
cancelled and converted into the right to receive one share of New NSP Preferred
Stock with terms (including dividend rates) and designations under the New NSP
Articles identical to those of the cancelled shares of NSP Preferred Stock under
the NSP Articles. Currently, earnings from NSP's subsidiaries (including
NSP-Wisconsin) are available as a source for dividends on NSP Preferred Stock.
It is anticipated that, following the Mergers, NSP-Wisconsin will be merged into
WEPCO (which will be renamed "Wisconsin Energy Company") and all of NSP's other
subsidiaries will be transferred to Primergy. When and if these transactions
occur, the earnings of the current subsidiaries of NSP will cease to be
available as a source of dividends on New NSP Preferred Stock. NSP does not
believe that these transfers will impair New NSP's ability to pay dividends on
the
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New NSP Preferred Stock during the foreseeable future. New NSP's operations
would continue to include the existing electric and gas utility operations
conducted directly by NSP. Also, as indicated below under "Selected Historical
and Pro Forma Data," NSP's ratio of earnings to fixed charges plus preferred
dividend requirements was 3.3 for the twelve months ended June 30, 1995, and New
NSP's pro forma ratio of earnings to fixed charges plus preferred dividend
requirements for the twelve months ended June 30, 1995 was 3.1, after giving
effect to the Mergers, the anticipated merger of NSP-Wisconsin into WEPCO (which
will be renamed "Wisconsin Energy Company") and the anticipated transfer of
NSP's remaining subsidiaries to Primergy. See "Primergy Following the Mergers --
Operations."
REGULATORY MATTERS
The approval of the SEC under the 1935 Act, the Nuclear Regulatory
Commission (the "NRC") under the Atomic Energy Act of 1954, as amended (the
"Atomic Energy Act"), the Federal Energy Regulatory Commission (the "FERC")
under the Federal Power Act, as well as the approval of the Minnesota,
Wisconsin, North Dakota and Michigan utility commissions under applicable state
laws and the expiration or termination of the applicable waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), are required in order to consummate the Mergers. In addition, an
application for disclaimer of jurisdiction has been filed with the South Dakota
utilities commission.
Upon consummation of the Mergers, Primergy must register as a holding
company under the 1935 Act. The 1935 Act imposes restrictions on the operations
of registered holding company systems. Among these are requirements that
securities issuances, sales and acquisitions of utility assets or of securities
of utilities companies and acquisitions of interests in any other business be
approved by the SEC. The 1935 Act also limits the ability of registered holding
companies to engage in non-utility ventures and regulates holding company system
service companies and the rendering of services by holding company affiliates to
the system's utilities.
The SEC may require as a condition to its approval of the Mergers that NSP
and WEC divest their gas utility properties and possibly certain non-utility
ventures within a reasonable time after the Mergers. In a few cases, the SEC has
allowed the retention of such properties or deferred the question of divestiture
for a substantial period of time. In those cases in which divestiture has taken
place, the SEC has usually allowed enough time to complete the divestiture so as
to allow the applicant to avoid a "fire sale" of the divested assets. NSP and
WEC believe strong policy reasons and prior SEC decisions exist which support
their retaining their existing gas utility properties and non-utility ventures,
or, alternatively, which support deferring the question of divestiture for a
substantial period of time. Accordingly, WEC and NSP will request in their 1935
Act application that NSP and WEC be allowed to retain, or in the alternative
that the question of divestiture be deferred with respect to, NSP's and WEC's
existing gas utility properties and non-utility ventures.
Following consummation of the Mergers, Primergy also will be subject to
regulation by the Public Service Commission of Wisconsin (the "Wisconsin
Commission") under Section 196.795, Wis. Stats. (the "Wisconsin Holding Company
Act") as WEC is currently. The Wisconsin Holding Company Act will regulate,
among other things, the type and amount of investments in non-utility
businesses.
Under the Merger Agreement, NSP and WEC have agreed to use all reasonable
efforts to obtain all governmental authorizations necessary or advisable to
consummate or effect the transactions contemplated by the Merger Agreement.
Various parties may seek intervention in these proceedings to oppose the Mergers
or to have conditions imposed upon the receipt of necessary approvals. While WEC
and NSP believe that they will receive the requisite regulatory approvals for
the Mergers, there can be no assurance as to the timing of such approvals or the
ability of such parties to obtain such approvals on satisfactory terms or
otherwise. It is a condition to the consummation of the Mergers that final
orders approving the Mergers be obtained from the various federal and state
commissions described above on terms and conditions which would not have, or
would not be reasonably likely to have, a material adverse effect on the
business, assets, financial condition or results of operations of
20
Primergy and its prospective subsidiaries taken as a whole, or on Primergy's
prospective utility subsidiaries located in the State of Minnesota taken as a
whole, or on its prospective utility subsidiaries located in the State of
Wisconsin taken as a whole, or which would be materially inconsistent with the
agreements of the parties contained in the Merger Agreement. There can be no
assurance that any such approvals will not contain terms or conditions that
cause such approvals to fail to satisfy such condition to the consummation of
the Mergers. See "Regulatory Matters."
ACCOUNTING TREATMENT
NSP and WEC believe that the Mergers will be treated as a pooling of
interests for accounting purposes. See "The Mergers -- Accounting Treatment."
The receipt by each of WEC and NSP of a letter from their respective independent
accountants, stating that the transaction will qualify as a pooling of
interests, is a condition precedent to consummation of the Mergers. See "The
Merger Agreement -- Conditions to Each Party's Obligation to Effect the
Mergers."
DISSENTERS' RIGHTS
Under Minnesota law, holders of record of NSP Common Stock and NSP Preferred
Stock as of the NSP Record Date who do not wish to accept shares of Primergy
Common Stock in the NSP Merger or New NSP Preferred Stock in the Reincorporation
Merger, as the case may be, have the right to have the fair value of their NSP
shares appraised by judicial determination and paid to them in cash. In order to
perfect such dissenters' rights, holders of NSP Common Stock and NSP Preferred
Stock must comply with the procedural requirements of the MBCA, including,
without limitation, filing written notice with NSP prior to the NSP Meeting of
such shareholder's intention to dissent and demand payment of the fair value of
his or her shares, not voting in favor of the Merger Agreement and making a
written demand for payment and depositing the certificates representing such
shares within 30 days after notice is given by NSP of the results of the vote at
the NSP Meeting. See "The Mergers -- Minnesota Dissenters' Rights" and Annex M.
Under Wisconsin law, the holders of WEC Common Stock have no dissenters'
rights. See "The Mergers -- No Wisconsin Dissenters' Rights."
DIVIDENDS
WEC AND NSP. Pursuant to the Merger Agreement, each of WEC and NSP shall
not, and shall not permit any of its direct subsidiaries to, declare or pay any
dividends on, or make other distributions in respect of, any of its capital
stock, other than to such party or its wholly-owned subsidiaries and other than
dividends required to be paid on any series of NSP Preferred Stock in accordance
with the terms thereof, dividends required to be paid on any shares of preferred
stock of WEPCO ("WEPCO Preferred Stock") in accordance with the terms thereof,
and regular quarterly dividends to be paid on NSP Common Stock and WEC Common
Stock not to exceed 106% of the dividends for the prior fiscal year.
PRIMERGY. It is anticipated that Primergy will adopt NSP's common share
dividend payment level as of the Effective Time adjusted for the Ratio. NSP
currently pays $2.70 per share annually, and WEC's annual dividend rate is
currently $1.47 per share. Based on the Ratio and NSP's current dividend rate,
the pro forma dividend rate for Primergy would be $1.66 per share. The dividend
policy of Primergy is subject to evaluation from time to time by the Primergy
Board based on Primergy's results of operations, financial condition, capital
requirements and other relevant considerations, including regulatory
considerations. See "Primergy Following the Mergers" and "Description of
Primergy Capital Stock -- Primergy Common Stock."
AMENDMENTS TO WEC ARTICLES
Pursuant to the Merger Agreement, subject to the approval of each of the WEC
Articles Amendments by WEC's shareholders at the WEC Meeting, the WEC Articles
will be amended and restated no later than the Effective Time in the form set
forth in Annex H. The WEC Articles Amendments would (i) change the name of WEC
to Primergy Corporation and (ii) increase the amount of authorized WEC Common
Stock from 325,000,000 shares to 750,000,000 shares, thereby increasing WEC's
authorized
21
capitalization from 340,000,000 shares to 765,000,000 shares (which includes the
15,000,000 shares of WEC Preferred Stock presently authorized). The WEC
Articles, as so amended and restated, will be the Restated Articles of
Incorporation of Primergy (the "Primergy Articles") at the Effective Time and
until thereafter amended in accordance with the WBCL and the Primergy Articles.
See "Amendments to and Restatement of WEC Restated Articles of Incorporation."
COMPARISON OF RIGHTS OF NSP SHAREHOLDERS
As a result of the Mergers, holders of NSP Common Stock (other than NSP
Dissenting Shares) will become shareholders of Primergy, a Wisconsin
corporation. Such shareholders will have certain different rights as Primergy
shareholders than they had as shareholders of NSP, both because of the
differences between the NSP Articles and the Primergy Articles, and because of
differences between Wisconsin and Minnesota corporation law. Holders of NSP
Preferred Stock (other than NSP Dissenting Shares) will receive in the
Reincorporation Merger shares of preferred stock of New NSP, a Wisconsin
corporation. Although the terms (including dividend rates) and designations of
the shares of New NSP Preferred Stock (as set forth in the New NSP Articles, the
form of which is attached hereto as Annex J) will be identical to those of the
corresponding shares of NSP Preferred Stock (as set forth in the NSP Articles),
the rights of holders of New NSP Preferred Stock will be different in certain
respects under Wisconsin law than the rights of holders of NSP Preferred Stock
under Minnesota law due to differences between Minnesota and Wisconsin law. For
a comparison of Wisconsin and Minnesota law and the articles and bylaw
provisions of NSP and Primergy, see "Comparison of Shareholder Rights."
22
SELECTED HISTORICAL AND PRO FORMA DATA
The summary below sets forth selected historical financial and market data
and selected unaudited pro forma financial data. The financial data should be
read in conjunction with the historical consolidated financial statements and
related notes thereto of NSP and WEC, incorporated herein by reference, and in
conjunction with the unaudited pro forma combined condensed financial statements
and related notes thereto of Primergy included elsewhere in this Joint Proxy
Statement/ Prospectus. See "Unaudited Pro Forma Combined Condensed Financial
Information." The results of operations for interim periods are not necessarily
indicative of the results for a full year due to seasonal variations in weather
and other factors.
SELECTED HISTORICAL FINANCIAL AND MARKET DATA
The selected historical financial data of each of NSP and WEC for the five
years ended December 31, 1994, set forth below, have been derived from audited
financial statements. The selected historical financial data of NSP and WEC as
of and for the 12-month period ended June 30, 1995, set forth below, have been
derived from unaudited financial statements. The selected historical market data
of each of NSP and WEC for the dates indicated below are based on the closing
sale prices of NSP Common Stock and WEC Common Stock as reported on the NYSE
Composite Tape for such dates. The Aggregate Market Capitalization represents
the product of the closing sale prices on such dates multiplied by the number of
outstanding shares on such dates.
23
NORTHERN STATES POWER COMPANY
YEAR ENDED DECEMBER 31,
12 MONTHS ENDED -------------------------------------------
JUNE 30, 1995 1994 1993 1992 1991 1990
--------------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
Operating Revenues.............................. $ 2,472 $ 2,487 $ 2,404 $ 2,160 $ 2,201 $ 2,065
Operating Income................................ 313 308 304 256 306 289
Allowance for Borrowed and Other Funds Used
During Construction............................ 14 12 13 15 12 6
Income from Continuing Operations Before
Accounting Change.............................. 253 243 212 161 207 193
Preferred Dividend Requirements................. 13 12 15 16 18 18
Earnings Available for Common Shares(a)......... 240 231 197 145 189 175
Earnings per Common Share(a).................... 3.59 3.46 3.02 2.31 3.02 2.79
Cash Dividends Declared per Common Share........ 2.66 2.63 2.57 2.50 2.40 2.30
Ratio of Earnings to Fixed Charges(b)........... 3.8x 4.0x 4.0x 3.2x 3.9x 3.7x
Ratio of Earnings to Fixed Charges Plus
Preferred Dividend Requirements(b)............. 3.3x 3.5x 3.3x 2.6x 3.1x 3.0x
DECEMBER 31,
JUNE 30, -------------------------------------------
1995 1994 1993 1992 1991 1990
--------------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA
Total Assets.................................... $ 6,004 $ 5,954 $ 5,588 $ 5,142 $ 4,919 $ 4,932
Long-Term Debt.................................. 1,466 1,463 1,292 1,300 1,234 1,240
Short-Term Debt(c).............................. 478 396 338 221 69 29
Preferred Stock --
Not Subject to Mandatory Redemption........... 240 240 240 275 301 301
Subject to Mandatory Redemption............... -- -- -- -- -- --
Common Stock Equity............................. 1,944 1,897 1,827 1,622 1,577 1,527
Book Value per Common Share..................... 28.79 28.35 27.32 25.91 25.21 24.42
DECEMBER 31,
JUNE 30, -------------------------------------------
1995 1994 1993 1992 1991 1990
--------------- ------- ------- ------- ------- -------
MARKET DATA -- COMMON STOCK
Aggregate Market Capitalization (millions)...... $ 3,114 $ 2,945 $ 2,884 $ 2,707 $ 2,689 $ 2,126
Closing Market Price per Share.................. $46.125 $44.000 $43.125 $43.250 $43.000 $34.000
Ratio of Market Value to Book Value............. 1.60x 1.55x 1.58x 1.67x 1.71x 1.39x
See accompanying Notes to Selected Historical and Pro Forma Data.
24
WISCONSIN ENERGY CORPORATION
YEAR ENDED DECEMBER 31,
12 MONTHS ENDED -------------------------------------------
JUNE 30, 1995 1994(D) 1993 1992 1991 1990
--------------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
Operating Revenues.............................. $ 1,708 $ 1,742 $ 1,693 $ 1,596 $ 1,580 $ 1,480
Operating Income................................ 313 263 265 242 253 244
Allowance for Borrowed and Other Funds Used
During Construction............................ 9 10 15 12 13 12
Preferred Dividend Requirements of Subsidiary... 1 1 4 6 6 6
Net Income(a)................................... 229 181 190 171 190 188
Earnings per Common Share(a).................... 2.10 1.67 1.80 1.66 1.85 1.83
Cash Dividends Declared per Common Share........ 1.43 1.40 1.34 1.29 1.22 1.16
Ratio of Earnings to Fixed Charges(b)........... 4.0x 3.4x 3.4x 3.4x 3.7x 3.8x
DECEMBER 31,
JUNE 30, -------------------------------------------
1995 1994 1993 1992 1991 1990
--------------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA
Total Assets.................................... $ 4,441 $ 4,408 $ 4,271 $ 3,789 $ 3,534 $ 3,397
Long-Term Debt.................................. 1,253 1,284 1,296 1,221 1,105 997
Short-Term Debt(c).............................. 294 285 230 144 123 135
Preferred Stock --
Not Subject to Mandatory Redemption........... 30 30 30 30 30 30
Subject to Mandatory Redemption............... -- -- 5 68 70 70
Common Stock Equity............................. 1,804 1,745 1,664 1,556 1,462 1,396
Book Value per Common Share..................... 16.43 16.01 15.56 14.86 14.24 13.60
DECEMBER 31,
JUNE 30, -------------------------------------------
1995 1994 1993 1992 1991 1990
--------------- ------- ------- ------- ------- -------
MARKET DATA -- COMMON STOCK
Aggregate Market Capitalization (millions)...... $ 3,075 $ 2,819 $ 2,941 $ 2,775 $ 2,682 $ 2,156
Closing Market Price per Share.................. $ 28.00 $25.875 $27.500 $26.500 $26.125 $21.000
Ratio of Market Value to Book Value............. 1.70x 1.62x 1.77x 1.78x 1.83x 1.54x
See accompanying Notes to Selected Historical and Pro Forma Data.
25
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The following selected unaudited pro forma financial information combines
the historical consolidated balance sheets and statements of income of NSP and
WEC, including their respective subsidiaries, after giving effect to the
Mergers. The unaudited pro forma combined condensed balance sheet data at June
30, 1995 and December 31, 1994, 1993 and 1992 give effect to the Mergers as if
they had occurred at the respective balance sheet dates. The unaudited pro forma
combined condensed statements of income for each of the years in the three-year
period ended December 31, 1994, and the 12-month period ended June 30, 1995,
give effect to the Mergers as if they had occurred at January 1, 1992. These
statements are prepared on the basis of accounting for the Mergers as a pooling
of interests and are based on the assumptions set forth in the notes thereto.
The following information is not necessarily indicative of the financial
position or operating results that would have occurred had the Mergers been
consummated on the date as of which, or at the beginning of the periods for
which, the Mergers are being given effect nor is it necessarily indicative of
future operating results or financial position. See "Unaudited Pro Forma
Combined Condensed Financial Information."
PRO FORMA FINANCIAL DATA
YEAR ENDED DECEMBER 31,
12 MONTHS ENDED ---------------------------
JUNE 30, 1995 1994(d) 1993 1992
----------------- ------- ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
Operating Revenues.............................. $ 4,180 $ 4,229 $4,097 $3,755
Operating Income................................ 626 572 569 498
Allowance for Borrowed and Other Funds Used
During Construction............................ 23 22 28 27
Preferred Dividend Requirements of
Subsidiaries................................... 14 14 19 22
Income from Continuing Operations Before
Accounting Change(a)........................... 469 412 387 316
Earnings Per Common Share(a)(e)................. 2.15 1.90 1.83 1.54
Cash Dividends Declared per Common Share(e)..... 1.53 1.51 1.46 1.41
Ratio of Earnings to Fixed Charges(b)........... 3.6x 3.4x 3.4x 3.0x
EQUIVALENT NSP PRO FORMA PER SHARE DATA(f)
Earnings per Common Share(a).................... $ 3.50 $ 3.09 $ 2.98 $ 2.50
Cash Dividends Declared per Common Share(g)..... 2.49 2.45 2.37 2.29
DECEMBER 31,
JUNE 30, ---------------------------
1995 1994 1993 1992
----------------- ------- ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA
Total Assets.................................... $10,307 $10,222 $9,744 $8,864
Long-Term Debt.................................. 2,719 2,747 2,587 2,521
Short-Term Debt(c).............................. 772 681 568 365
Preferred Stock --
Not Subject to Mandatory Redemption........... 271 271 271 305
Subject to Mandatory Redemption............... -- -- 5 68
Common Stock Equity............................. 3,748 3,642 3,491 3,178
Book Value per Common Share..................... 17.07 16.72 16.19 15.39
EQUIVALENT NSP PRO FORMA PER SHARE DATA(f)
Book Value per Common Share..................... 27.75 27.19 26.32 25.02
NOTES TO SELECTED HISTORICAL AND PRO FORMA DATA
(a) Income/earnings based on income from continuing operations before
accounting changes and after preferred dividend requirements.
(b) For purposes of computing the ratios of earnings to fixed charges,
"earnings" consist of income from continuing operations before accounting
changes, plus interest charges, preferred dividend requirements, income
taxes, and the estimated interest component of rentals, minus the
undistributed equity in earnings of unconsolidated investees. "Earnings"
also include allowance for borrowed and other funds used during
construction. "Fixed charges" consist of interest charges, the estimated
interest component of rentals and the pre-tax dividend requirements on
subsidiary preferred stock. Currently, the NSP Preferred Stock is not
issued by a subsidiary; subsequent to the Mergers, the New NSP Preferred
Stock will be issued by a subsidiary of Primergy. The pro forma ratios of
earnings to fixed charges plus preferred dividend requirements of New NSP
for the years ended December 31, 1992, 1993 and 1994 and for the twelve
months ended June 30, 1995 are 2.5x, 3.2x, 3.5x and 3.1x, respectively.
(c) Includes bank and other notes payable, commercial paper borrowings and
current portion of long-term debt.
(d) Income/earnings for the fiscal year ended December 31, 1994 includes a
pre-tax charge of $73.9 million for WEC revitalization costs recorded in
the first quarter of 1994.
26
(e) Pro forma per common share amounts give effect to the conversion of each
share of NSP Common Stock outstanding into 1.626 shares of Primergy Common
Stock. See "The Merger Agreement -- The Mergers" and "Primergy Following
the Mergers -- Dividends." Pro forma per common share amounts do not,
however, give effect to the synergies of the transaction or transaction
costs. For a description of the synergies, see "The Mergers -- Reasons for
the Mergers; Recommendations of the Boards of Directors."
(f) Represents the pro forma equivalent of one share of NSP Common Stock
calculated by multiplying the pro forma information by the conversion ratio
of 1.626 shares of Primergy Common Stock for each share of NSP Common
Stock.
(g) Pursuant to SEC requirements, calculated based on historical dividends paid
by NSP and WEC combined. It is anticipated that Primergy will adopt NSP's
common share dividend payment level adjusted for the Ratio, and that
therefore the holders of shares of NSP Common Stock immediately prior to
the Mergers will be entitled to an annual dividend on the shares of
Primergy Common Stock that they receive equal in amount to the dividends
they would have received in respect of their shares of NSP Common Stock.
COMPARATIVE MARKET PRICES AND DIVIDENDS
The NSP Common Stock and the WEC Common Stock are traded on the NYSE. The
NSP Common Stock is also traded on the CSE and on the PSE. The following table
sets forth, for the periods indicated, the high and low sales prices of NSP
Common Stock and WEC Common Stock as reported on the NYSE Composite Tape and
dividends declared.
WEC(1) NSP
---------------------------------- ------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
-------- ------- ------------- ------- ------- ----------
1992
First Quarter............... $ 26.250 $23.750 $ 0.31000 $43.000 $39.250 $0.605
Second Quarter.............. 27.250 24.250 0.32500 42.000 38.500 0.630
Third Quarter............... 28.500 26.000 0.32500 45.625 41.000 0.630
Fourth Quarter.............. 26.875 24.750 0.32500 45.375 41.625 0.630
1993
First Quarter............... $ 28.375 $24.750 $ 0.32500 $47.000 $42.250 $0.630
Second Quarter.............. 28.125 25.375 0.33875 46.875 42.875 0.645
Third Quarter............... 29.375 27.000 0.33875 47.875 44.750 0.645
Fourth Quarter.............. 29.375 25.875 0.33875 46.375 40.125 0.645
1994
First Quarter............... $ 27.500 $24.000 $ 0.33875 $43.875 $40.125 $0.645
Second Quarter.............. 26.375 23.125 0.35250 43.625 38.750 0.660
Third Quarter............... 26.375 23.375 0.35250 43.875 40.375 0.660
Fourth Quarter.............. 27.000 24.500 0.35250 47.000 41.875 0.660
1995
First Quarter............... $ 28.250 $25.500 $ 0.35250 $46.750 $42.500 $0.660
Second Quarter.............. 29.000 26.750 0.36750 47.375 42.875 0.675
Third Quarter (through
August 4).................. 28.250 27.000 0.36750 46.625 43.625 (2)
------------------------------
(1) Prior data restated to reflect a 3-for-2 stock split in June 1992.
(2) It is expected that NSP's regular quarterly dividend for the third quarter
will be declared by the NSP Board in August 1995.
On April 28, 1995, the last full trading day before the public announcement
of the execution and delivery of the Merger Agreement, the high, low and closing
sales prices per share of (i) NSP Common Stock on the NYSE Composite Tape were
$44.25, $ 43.875 and $44.25, respectively, and (ii) WEC Common Stock on the NYSE
Composite Tape were $27.75, $27.50 and $27.75, respectively.
On August 4, 1995, the most recent date for which it was practicable to
obtain market price data prior to printing this Joint Proxy
Statement/Prospectus, the high, low and closing sales prices per share of NSP
Common Stock on the NYSE Composite Tape were $44.375, $43.875 and $43.875,
respectively, and the high, low and closing sales prices per share of WEC Common
Stock on the NYSE Composite Tape were $27.375, $27.125 and $27.125,
respectively. Accordingly, if the Mergers had been consummated on that date,
each share of NSP Common Stock would have been converted into the right to
receive 1.626 shares of Primergy Common Stock having a market value of $44.105
based upon the closing price per share of WEC Common Stock on such date.
The market prices of NSP Common Stock and WEC Common Stock are subject to
fluctuation. NSP shareholders and WEC shareholders are urged to obtain current
market quotations for NSP Common Stock and WEC Common Stock.
27
MEETINGS, VOTING AND PROXIES
This Joint Proxy Statement/Prospectus is being furnished to (i) the holders
of NSP Common Stock and NSP Preferred Stock in connection with the solicitation
of proxies by the NSP Board from the holders of NSP Common Stock and NSP
Preferred Stock for use at the NSP Meeting, and (ii) the holders of WEC Common
Stock in connection with the solicitation of proxies by the WEC Board from the
holders of WEC Common Stock for use at the WEC Meeting.
NSP MEETING
PURPOSE OF NSP MEETING. The purpose of the NSP Meeting is to consider and
vote upon: (i) a proposal to approve the Merger Agreement and the transactions
contemplated thereby, (ii) a proposal to approve the Primergy Stock Incentive
Plan, (iii) a proposal to approve the Primergy Management Incentive Compensation
Plan, (iv) a proposal to elect four directors to Class III to serve for terms of
three years until their successors are elected and qualified, (v) a proposal to
ratify the appointment of Price Waterhouse LLP as independent accountants for
NSP for 1995, (vi) two Shareholder Proposals and (vii) such other matters, if
any, as may properly be presented for consideration. The NSP Board does not
know, as of the date of mailing of this Joint Proxy Statement/Prospectus, of any
other business to be brought before the NSP Meeting. The enclosed proxy card
authorizes the voting of shares represented by the proxy on all other matters
that may properly come before the NSP Meeting, and any adjournment or
postponement thereof, and it is the intention of the proxy holders to take such
action in connection therewith as shall be in accordance with their best
judgment.
The NSP Board, by a unanimous vote, has approved the Merger Agreement,
authorized the execution and delivery of the Merger Agreement, and approved the
Primergy Plans, and recommends that NSP shareholders vote FOR approval and
adoption of the Merger Agreement, FOR the approval of the Primergy Stock
Incentive Plan, FOR the approval of the Primergy Management Incentive
Compensation Plan, FOR the election of the nominated directors, FOR ratification
of the appointment of Price Waterhouse LLP as NSP's independent accountants for
1995 and AGAINST the Shareholder Proposals.
Pursuant to the Merger Agreement, consummation of the Mergers is conditioned
upon approval of proposals (i), (ii) and (iii) above, but is not conditioned
upon approval by the shareholders of NSP of any other of the above proposals.
NSP and WEC retain the right to waive the approval of either or both of the
Primergy Plans (proposals (ii) and (iii) above) as conditions to the
consummation of the Mergers. If approved, the Primergy Plans will be implemented
only if the Mergers are consummated.
DATE, PLACE AND TIME; RECORD DATE. The NSP Meeting is scheduled to be held
on Wednesday, September 13, 1995, at 10:00 a.m., local time, at the Minneapolis
Convention Center, 1301 South Second Avenue, Minneapolis, Minnesota 55463,
Exhibit Hall I. Holders of record of shares of NSP Common Stock and NSP
Preferred Stock at the close of business on July 27, 1995, the NSP Record Date,
will be entitled to notice of and to vote at the NSP Meeting. At the close of
business on the NSP Record Date, 67,693,931 shares of NSP Common Stock and
2,400,000 shares of NSP Preferred Stock (of which 275,000 shares are of a series
which is entitled to three votes per share) were issued and outstanding and
entitled to vote.
VOTING RIGHTS. Each outstanding share of NSP Common Stock is entitled to
one vote and each outstanding share of NSP Preferred Stock is entitled to one
vote (other than NSP Preferred Stock of the series designated "Cumulative
Preferred Stock, $3.60 Series" (the "$3.60 Series Preferred Stock"), which is
entitled to three votes per share) upon each matter presented at the NSP
Meeting. On the NSP Record Date, there were 275,000 shares of $3.60 Series
Preferred Stock outstanding.
A majority of the voting power of the shares issued and outstanding and
entitled to vote, present in person or by proxy, shall constitute a quorum for
the transaction of business at the NSP Meeting. Abstentions and broker non-votes
(i.e., proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons entitled to
vote shares as to a matter with respect to which brokers or nominees do not have
discretionary power to vote) will be
28
considered present for the purpose of establishing a quorum. The affirmative
vote of a majority of the votes entitled to be cast by the holders of the
outstanding shares of NSP Common Stock and NSP Preferred Stock entitled to vote,
voting as a single class, is required to approve the Merger Agreement. Approval
of the Merger Agreement is a condition to consummation of the Mergers. Under
applicable Minnesota law, in determining whether the Merger Agreement has
received the requisite number of affirmative votes, abstentions and broker
non-votes will have the same effect as votes cast against approval of the Merger
Agreement.
Shareholders are entitled to vote cumulatively for the election of
directors. Each shareholder is entitled to a number of votes for such election
equal to the number of votes entitled to be cast with respect to the shares held
by such shareholder multiplied by the number of directors to be elected, and may
cast all votes for one nominee or distribute the votes among the nominees. The
election of each director shall be decided by plurality vote. As a result, any
shares not voted for a director (whether by withholding authority, broker
non-vote or otherwise) will have no impact on the election of directors except
to the extent that the failure to vote for an individual results in another
individual receiving a larger number of votes.
The affirmative vote of a majority of the votes entitled to be cast by the
holders of the shares of NSP Common Stock and NSP Preferred Stock represented at
the NSP Meeting and entitled to vote thereon, voting as a single class (PROVIDED
that the total vote cast represents over 50% of the voting power of all the
shares of NSP Common Stock and NSP Preferred Stock entitled to vote thereon) is
required to approve the Primergy Stock Incentive Plan, the Primergy Management
Incentive Compensation Plan, the ratification of the appointment of Price
Waterhouse LLP as NSP's independent accountants for 1995 and the Shareholder
Proposals. Abstentions from voting on such matters are treated as votes against,
while broker non-votes are treated as shares not entitled to vote.
The directors and executive officers of NSP, together with their affiliates
as a group, own beneficially less than 1% of the issued and outstanding shares
of NSP Common Stock and less than 1% of the issued and outstanding shares of
each series of NSP Preferred Stock. First Trust N.A., the Trustee for NSP's
Employee Stock Ownership Plan (the "NSP ESOP"), holds approximately 8.41% of the
NSP Common Stock for the benefit of NSP ESOP participants, none of whom has a
total beneficial interest of more than 5% of NSP's outstanding voting
securities. No other person holds of record or, to the knowledge of NSP
management, owns beneficially more than 5% of any class of the outstanding
voting securities of NSP.
If an NSP shareholder is a participant in the NSP ESOP, the participant will
receive an NSP ESOP voting directive for shares allocated to the participant's
account under the NSP ESOP. The trustee for the NSP ESOP will vote such shares
as instructed by the participant in his or her NSP ESOP voting directive. If a
participant in the NSP ESOP does not return an NSP ESOP voting directive, the
trustee for the NSP ESOP will vote such participant's allocated NSP ESOP shares,
along with all unallocated shares held in the NSP ESOP, in the same proportion
that all allocated shares in the NSP ESOP are voted.
If an NSP shareholder is a participant in the NSP Dividend Reinvestment and
Stock Purchase Plan (the "NSP DRIP"), the NSP proxy will represent the shares
held on behalf of the participant under the NSP DRIP and such shares will be
voted in accordance with the instructions on the NSP proxy. If a participant in
the NSP DRIP does not return an NSP proxy, the participant's shares will not be
voted.
PROXIES. Holders of the NSP Common Stock and NSP Preferred Stock may vote
either in person or by properly executed proxy. By completing and returning the
form of proxy, the NSP shareholder authorizes the persons named therein to vote
all the NSP shareholder's shares on his or her behalf. Issued and outstanding
shares of NSP Common Stock and NSP Preferred Stock, the holders of which are
entitled to vote at the NSP Meeting, which are represented by properly executed
proxies, will, unless such proxies have been revoked, be voted in accordance
with the instructions indicated in such proxies. If no instructions are
indicated, such shares will be voted FOR approval of the Merger
29
Agreement, FOR the approval of the Primergy Stock Incentive Plan, FOR the
approval of the Primergy Management Incentive Compensation Plan, FOR the
election of the nominated directors, FOR ratification of the appointment of
Price Waterhouse LLP as NSP's independent accountants for 1995 and AGAINST each
of the Shareholder Proposals. With respect to the election of the nominated
directors, the persons named as proxies reserve the right to cumulate votes
represented by proxies which they receive and to distribute such votes among one
or more of the nominees at their discretion. A NSP shareholder may revoke a
proxy at any time prior to the NSP Meeting by delivering to the Secretary of NSP
a notice of revocation or a duly executed proxy bearing a later date or by
attending the NSP Meeting and voting in person. Attendance at the NSP Meeting
will not in itself constitute revocation of a proxy.
NSP will bear the cost of soliciting proxies for the NSP Meeting, except
that NSP and WEC shall share equally expenses incurred in connection with
printing and filing this Joint Proxy Statement/ Prospectus. See "The Merger
Agreement -- Expenses." In addition to soliciting proxies by mail, officers and
employees of NSP, without receiving additional compensation therefor, may
solicit proxies by telephone, by telecopy, by telegram or in person. NSP has
retained D.F. King & Co., Inc. to aid in the solicitation of proxies from the
NSP shareholders. The fee for such services of such firm shall be $6,500 plus an
additional $3.00 per shareholder contact and reimbursement for reasonable
out-of-pocket expenses.
The NSP Meeting may be adjourned to another date and/or place for any proper
purpose (including, without limitation, for the purpose of soliciting additional
proxies).
WEC MEETING
PURPOSE OF WEC MEETING. The purpose of the WEC Meeting is to consider and
vote upon: (i) a proposal to approve the Merger Agreement and the transactions
contemplated thereby (including, among other things, the issuance of shares of
Primergy Common Stock pursuant to the terms of the Merger Agreement); (ii) a
proposal to approve the Name Change Amendment; (iii) a proposal to approve the
Common Stock Amendment; (iv) a proposal to aprove the Primergy Stock Incentive
Plan; (v) a proposal to approve the Primergy Management Incentive Compensation
Plan; and (vi) such other matters, if any, as may properly come before the WEC
Meeting. The WEC Board is not aware, as of the date of mailing of this Joint
Proxy Statement/Prospectus, of any other matters which may properly come before
the WEC Meeting. The WBCL provides that only business within the purposes
described in the Notice of the WEC Meeting may be conducted at the WEC Meeting.
If any other matters properly come before the WEC Meeting, or any adjournment or
postponement thereof, it is the intention of the persons named in the proxy to
vote such proxies in accordance with their best judgment on such matters.
The WEC Board, by unanimous vote, has adopted and approved the Merger
Agreement, each of the WEC Articles Amendments and each of the Primergy Plans,
and recommends that WEC shareholders vote FOR approval of the Merger Agreement
(including the issuance of shares of Primergy Common Stock pursuant to the terms
of the Merger Agreement), FOR approval of each of the WEC Articles Amendments
and FOR approval of each of the Primergy Plans.
Pursuant to the Merger Agreement, consummation of the Mergers is conditioned
upon approval by the shareholders of WEC of proposals (i) through (v) set forth
above. NSP and WEC retain the right to waive the approval of either or both of
the Primergy Plans (proposals (iv) and (v) above), or the approval of the Common
Stock Amendment (proposal (iii) above), as conditions to the consummation of the
Mergers. If approved, each of the WEC Articles Amendments will become effective,
and each of the Primergy Plans will be implemented, only if the Mergers are
consummated.
DATE, PLACE AND TIME; RECORD DATE. The WEC Meeting is scheduled to be held
on Wednesday, September 13, 1995, at 9:00 a.m., local time, in the Exhibition
Hall of The Grand Milwaukee Hotel, 4747 South Howell Avenue, Milwaukee,
Wisconsin. Holders of record of shares of WEC Common Stock at the close of
business on July 27, 1995, the WEC Record Date, will be entitled to notice of
and
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to vote at the WEC Meeting. As of the WEC Record Date, 109,936,834 shares of WEC
Common Stock were issued and outstanding and entitled to vote. A list of
shareholders of record entitled to vote at the WEC Meeting will be available for
inspection by WEC shareholders at WEC's principal business office at 231 West
Michigan Street, Milwaukee, Wisconsin prior to the WEC Meeting. The list will
also be available on the day of the WEC Meeting at the meeting site.
VOTING RIGHTS. Each outstanding share of WEC Common Stock is entitled to
one vote upon each matter presented at the WEC Meeting. A majority of the votes
entitled to be cast by holders of shares of WEC Common Stock, represented in
person or by proxy, shall constitute a quorum for each matter presented at the
WEC Meeting. Abstentions and broker non-votes (I.E., proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owners or other persons entitled to vote shares as to a matter with
respect to which brokers or nominees do not have discretionary power to vote)
will be considered present for the purpose of establishing a quorum.
If a quorum is present, (i) the affirmative vote of a majority of the votes
entitled to be cast by the holders of the shares of WEC Common Stock represented
at the WEC Meeting and entitled to vote thereon (PROVIDED that the total vote
cast represents over 50% of all the shares of WEC Common Stock entitled to vote)
is required for approval of the Merger Agreement (including the issuance of
shares of Primergy Common Stock pursuant to the terms of the Merger Agreement)
and the Primergy Stock Incentive Plan, (ii) the affirmative vote of a majority
of the votes entitled to be cast at the WEC Meeting by the holders of the
outstanding shares of WEC Common Stock entitled to vote thereon is required for
approval of each of the WEC Articles Amendments, and (iii) the affirmative vote
of a majority of the votes entitled to be cast by the holders of the shares of
WEC Common Stock represented at the WEC Meeting and entitled to vote thereon is
required for approval of the Primergy Management Incentive Compensation Plan. As
to each proposal before shareholders at the WEC Meeting, abstentions will have
the same effect as votes cast against approval of the proposal. Broker non-votes
will have the same effect as votes cast against approval of each of the WEC
Articles Amendments but will not be counted as votes entitled to be cast by the
holders of shares of WEC Common Stock present or represented by proxy at the WEC
Meeting in determining whether holders of a majority of such votes have voted to
approve the Merger Agreement and each of the Primergy Plans. Failure to return a
WEC proxy or vote in person at the WEC Meeting will have the effect of a vote
against each of the WEC Articles Amendments. The directors and executive
officers of WEC, together with their affiliates as a group, are deemed to own
less than 1% of the issued and outstanding shares of WEC Common Stock.
PROXIES. Holders of the WEC Common Stock may vote either in person or by
properly executed proxy. By completing and returning the form of proxy, the WEC
shareholder authorizes the persons named therein to vote all the WEC
shareholder's shares on his or her behalf. All completed WEC proxies returned
will be voted in accordance with the instructions indicated on such proxies. If
no instructions are given, the WEC proxies will be voted FOR approval of the
Merger Agreement (including the issuance of shares of Primergy Common Stock
pursuant to the terms of the Merger Agreement), FOR approvalof each of the WEC
Articles Amendments and FOR approval of each of the Primergy Plans. A WEC proxy
may be revoked by voting in person at the WEC Meeting, by written notice to
WEC's Corporate Secretary, or by delivery of a later-dated proxy, in each case
prior to the closing of the polls for voting at the WEC Meeting. Attendance at
the WEC Meeting will not in itself constitute revocation of a proxy.
If a WEC shareholder is a participant in WEC's Stock Plus Investment Plan
("Stock Plus") or owns shares through investments in the WEC Common Stock Fund
of WEPCO's Management Employee Savings Plan ("MESP") or Represented Employee
Savings Plan ("RESP"), the WEC proxy will serve as voting instructions for the
participant's shares held in those plans, as well as a proxy for shares
registered in the participant's name. Shares of plan participants will be voted
by the administrator for Stock Plus and the trustee for MESP and RESP in
accordance with such participant's proxies/voting instructions. If a participant
in Stock Plus does not return a WEC proxy, the administrator for Stock Plus will
not vote such participant's shares held in Stock Plus. If a participant in the
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WEC Common Stock Fund of MESP (the "MESP Fund") or the WEC Common Stock Fund of
RESP (the "RESP Fund") does not return a WEC proxy, the trustee for such plans
will vote such participant's shares held in the MESP Fund or RESP Fund, as the
case may be, in the same proportion that all shares in the MESP Fund or RESP
Fund, as the case may be, are voted.
WEC will bear the cost of the solicitation of proxies for the WEC Meeting,
except that NSP and WEC shall share equally expenses incurred in connection with
printing and filing this Joint Proxy Statement/Prospectus. See "The Merger
Agreement -- Expenses." Proxies may be solicited by certain officers and
employees of WEC or its subsidiaries by mail, by telephone, personally or by
other communications, without compensation apart from their normal salaries. WEC
has retained D.F. King & Co., Inc. to assist in the solicitation of proxies from
WEC shareholders, including brokers' accounts, at a fee for such services of
$6,500 plus an additional $3.00 per shareholder contact and reasonable
out-of-pocket expenses.
The WEC Meeting may be adjourned to another date and/or place for any proper
purpose (including, without limitation, for the purpose of soliciting additional
proxies).
32
THE MERGERS
BACKGROUND OF THE MERGERS
WEC and NSP both believe that fundamental changes in the regulatory
structure of the electric utility industry are inevitable and that such changes
will likely occur in the near future. Recently enacted federal laws and recent
actions by federal and state regulatory commissions are facilitating the changes
to bring more competition to various segments of the industry.
The Energy Policy Act of 1992 (the "1992 Act") granted the FERC the
authority to order electric utilities to provide transmission service to other
utilities and to other buyers and sellers of electricity in the wholesale
market. The 1992 Act also created a new class of power producers, exempt
wholesale generators ("EWGs"), which are exempt from regulation under the 1935
Act. The exemption from regulation under the 1935 Act of EWGs has increased the
number of entrants into the wholesale electric generation market, thus
increasing competition in the wholesale segment of the electric utility
industry.
Commencing in December 1993, pursuant to its authority under the 1992 Act,
FERC issued a number of orders in specific cases directing utilities to provide
transmission services. Under FERC's evolving transmission policies, utilities
are being required to offer transmission services to third parties on a basis
comparable to services that the utilities provide themselves. On April 7, 1995,
FERC issued a notice of proposed rulemaking under which it proposed to
implement, on a comprehensive basis, the comparable transmission service
policies it has set forth in specific cases. FERC's actions to date and its
transmission rulemaking proceeding have increased the availability of
transmission services, thus creating greater competition in the wholesale power
market.
In addition, state regulatory bodies in certain states, including, among
others, California, Minnesota and Wisconsin, have initiated proceedings to
review the basic structure of the industry. These bodies are considering
proposals to require some measure of competition in the retail portion of the
industry. The Wisconsin Commission requested comments regarding how the industry
might be restructured in order to create a more competitive environment.
Following receipt of responses, the Wisconsin Commission created a task force to
analyze how the industry might be restructured in Wisconsin to allow consumers
to receive the benefits of increased competition. While the Wisconsin
Commission's proceedings and the various other state proceedings have not
concluded, it is the view of the managements of NSP and WEC that such
proceedings will result in some measure of increased competition in the retail
segment of the business.
The changes to the electric industry that have occurred and that are
occurring are bringing increased competition to various sectors of the business
and are putting pressure on utilities to lower their costs. Both NSP and WEC
recognized that a combination with another financially strong utility would
enable the combined entity to generate and deliver energy more cheaply and
efficiently and thereby remain a premier supplier of energy in an increasingly
deregulated industry.
For a description of certain preexisting business relationships between WEC
and NSP, see "Selected Information Concerning WEC and NSP -- Certain Business
Relationships Between WEC and NSP."
Beginning in the spring of 1994, the management of NSP analyzed various
potential strategic options that might be available to NSP, including possible
business combinations with other utilities. Beginning in late summer of 1994,
management was assisted in this process by the Management Consulting Division of
Deloitte & Touche LLP ("Deloitte & Touche"). The NSP Board was briefed at its
August 1994 meeting with respect to the work that had been done by NSP
management in assessing the industry environment and analyzing various potential
merger partners and possible legal structures. The management of NSP looked at
substantially all of the utilities of significant size and with service areas
proximate to the main service areas of NSP. None of the other utilities offered
synergy opportunities of the magnitude that could be realized through a merger
with WEC. The physical proximity of the service areas of WEC, the compatibility
of and similarity between NSP's and
33
WEC's operations and the excellent reputation of WEC's management made WEC the
natural first choice for a combination partner for NSP. No alternative merger
scenarios were seriously considered at or after this time.
In September 1994, Mr. Edwin Theisen, then-President and Chief Operating
Officer of NSP, raised the concept of a combination of NSP and WEC with Mr.
Abdoo, Chairman, President and Chief Executive Officer of WEC, at the suggestion
of Mr. Howard, Chairman and Chief Executive Officer of NSP. That led to a series
of discussions between Messrs. Abdoo and Theisen which ultimately resulted in a
meeting at the end of October 1994 between Messrs. Howard, Abdoo and Theisen, at
which the two companies' views of the future of the utility industry were
discussed. The three men discussed in a very preliminary fashion the concept of
a business combination, structured as a merger of equals, between NSP and WEC.
They also identified the issues of management succession, board composition and
the location of the headquarters as significant points to be agreed upon.
Shortly after the October 1994 meeting, NSP engaged the law firms of
Gardner, Carton & Douglas and Wachtell, Lipton, Rosen & Katz to advise it with
respect to the potential transaction.
Shortly after the October 1994 meeting, WEC management reviewed possible
strategic alternatives for WEC, including a business combination with NSP, the
possibility of remaining an independent company and the possibility of a
combination with another Midwestern utility. No alternative merger scenarios
were seriously considered by WEC management. There was a review of the
consequences of WEC remaining an independent company. WEC sought advice from the
investment banking firm of Barr Devlin and the law firms of Quarles & Brady and
Skadden, Arps, Slate, Meagher & Flom with respect to strategic alternatives. The
WEC Board was briefed at its November 1994 meeting with respect to the fact that
WEC management was reviewing various strategic alternatives mentioned above,
including a possible business combination with NSP, and that management would
report back to the WEC Board.
In late November 1994, representatives of WEC advised representatives of NSP
that WEC management was interested in exploring the possibility of a combination
of the two companies, but WEC felt that it needed to perform additional internal
analysis of the potential benefits of the transaction before it further engaged
NSP in any substantive discussions.
In December 1994, NSP management briefed the NSP Board with respect to its
analysis of the potential synergies that could be achieved by a combination with
WEC or other utilities (such as cost savings from economies of scale and
decreased fuel costs, reduction in operational and maintenance expenses,
integration of nuclear facilities and elimination of duplicative administrative
expenditures), and the legal and regulatory implications of alternative
combination structures.
Representatives of WEC contacted representatives of NSP in early January
1995 and indicated that WEC was interested in proceeding with discussions
concerning a possible merger of equals. Messrs. Howard and Abdoo met on January
6, 1995, at which meeting Mr. Abdoo indicated that WEC was interested in
proceeding with the discussions. The parties agreed that it was desirable to
arrange an introductory meeting of the parties' respective management teams and
advisors to discuss, among other things, the due diligence and negotiation
process.
On January 10, 1995, NSP engaged Goldman Sachs as its financial advisor in
connection with the possible transaction.
An introductory meeting was held on January 12, 1995, attended by
representatives of WEC and NSP and their respective counsel, financial advisors
and consultants. Working groups composed of representatives of both companies
were formed to examine various issues including structure, financial modeling,
regulatory considerations, integration of employee benefit plans, communications
and an analysis of synergies.
34
Shortly after the meeting, the companies entered into a confidentiality
agreement, pursuant to which the parties agreed to exchange non-public
information with a view toward exploring a possible business combination. For a
description of certain standstill provisions contained in such confidentiality
agreement, see "The Merger Agreement -- Standstill Provisions."
Deloitte & Touche was engaged to assist the senior managements of NSP and
WEC and certain employees designated by them (collectively, the "synergies
working group") in identifying and quantifying the potential cost savings from
synergies resulting from the proposed merger.
On January 25, 1995, the NSP Board met with NSP's advisors. Representatives
of Goldman Sachs discussed their views on changing conditions in the utility
industry and the financial profiles of the two companies. Management set out a
proposed timetable and legal counsel for NSP explained the directors' legal
responsibilities. The NSP Board discussed the potential benefits to shareholders
of NSP (in the form of enhanced opportunities for earnings and dividend growth)
and customers of NSP (in the form of maintenance of competitive rates) that
could result from the proposed combination and encouraged management to proceed
with the process.
On January 25, 1995, the WEC Board met with WEC's advisors. Representatives
of Barr Devlin discussed the status of the utility industry and the financial
profiles of the two companies. Management explained the financial, structural,
regulatory and synergy analyses being undertaken and the timetable for their
completion. Legal counsel for WEC described the directors' legal
responsibilities. The WEC Board discussed the rationale for the proposed
combination and agreed that management should continue the analyses.
During the next several weeks, the various task forces continued their work
with respect to the synergies analysis, business plans, legal structures,
regulatory plans, due diligence and employee benefits. In addition, discussions
continued between the NSP management and Goldman Sachs on the one hand, and WEC
management and Barr Devlin on the other hand, with respect to negotiation of the
exchange ratio, and between counsel for WEC and counsel for NSP, with respect to
the terms of the draft merger agreement and stock option agreements.
On February 22, 1995, the NSP Board met and received updates from
management, Goldman Sachs, legal counsel and consultants. Management reviewed in
detail the NSP five-year plan, which sets forth the targeted earnings growth,
return on equity and capital requirements for NSP and its subsidiaries. Legal
counsel reviewed the implications of adopting a registered holding company
structure under the 1935 Act, including the possibility that divestiture of the
combined entity's gas and certain non-utility operations would be required. The
NSP Board again discussed the potential benefits to shareholders of NSP (in the
form of enhanced opportunities for earnings and dividend growth) and customers
of NSP (in the form of maintenance of competitive rates) that would result from
the combination of NSP and WEC.
On February 22, 1995, the WEC Board met and were updated by management, Barr
Devlin, legal counsel and consultants. Management reviewed the WEC five-year
plan in detail, which was composed of income, balance sheet and cash flow
information. Barr Devlin reviewed the NSP five-year plan and the valuation
methodologies that it would apply in evaluating whether a particular exchange
ratio would, in its opinion, be fair to WEC shareholders. Legal counsel reviewed
the due diligence process and status of discussions concerning the structure of
any transaction with NSP, including the implications of becoming a registered
holding company under the 1935 Act, and the possibility that divestiture of the
combined entity's gas and certain non-utility operations would be required. The
WEC Board discussed the potential benefits to shareholders (in the form of
enhanced opportunities for earnings and dividend growth) and customers (in the
form of maintenance of competitive rates) of WEC which would result from a
combination of WEC and NSP.
On March 7, 1995, the WEC Board met and received further updates. The WEC
Board received a status report on the synergies working group's analysis of
potential synergies, which indicated that the combination could result in
synergies, net of costs to achieve such synergies, of approximately
35
$2 billion over a ten-year period. Barr Devlin gave a report concerning certain
pro forma financial information for WEC and NSP and provided an update on the
valuation methodologies that it would apply in evaluating whether a particular
exchange ratio would, in its opinion, be fair to WEC shareholders. The WEC Board
discussed the potential benefits to customers (in the form of maintenance of
competitive rates) and shareholders (in the form of enhanced opportunities for
earnings and dividend growth) of WEC that would result from a combination of WEC
and NSP and the significant issues under discussion between management of WEC
and NSP.
The NSP Board met and received further updates on March 10, 1995. The NSP
Board received a status report on the synergies working group's analysis of
potential synergies, which indicated that the combination could result in
synergies, net of costs to achieve such synergies, of approximately $2 billion
over a ten-year period. Legal counsel reviewed generally the structure of the
merger agreement and stock option agreements under discussion between the two
parties. The potential benefits to shareholders of NSP (in the form of enhanced
opportunities for earnings and dividend growth) and customers of NSP (in the
form of maintenance of competitive rates) were again discussed by the NSP Board.
On March 14, 1995, Mr. Howard met with the WEC Board and reviewed with them
his perspective on the utility industry generally, the business of NSP and its
subsidiaries and the proposed business combination.
During the next several days, discussions between management of WEC and NSP
continued regarding the exchange ratio, the management succession plan and the
transition process between execution of a definitive merger agreement and
consummation of the transaction. Despite repeated efforts, the two sides were
unable to bridge their differences on these issues. Mr. Howard told the NSP
directors that he did not believe that at that point an adequate understanding
had been reached between the specific management teams which would allow for the
development of the high level of cooperation necessary to realize the potential
synergies and that, in his view, the discussions had reached an impasse and
should be terminated. Mr. Howard so advised Mr. Abdoo on March 20, 1995. The NSP
decision to terminate discussions was confirmed by a letter dated the same day.
By letter dated March 27, 1995, WEC acknowledged NSP's March 20, 1995 letter.
The WEC Board met on March 21, 1995 and was briefed by management on the
breakdown of the discussions. The WEC Board discussed the issues that led to the
impasse between WEC and NSP and the potential benefits to customers (in the form
of maintenance of competitive rates) and shareholders (in the form of enhanced
opportunities for earnings and dividend growth) of WEC which could result from
the combination. The WEC Board concluded that, in light of the potential
benefits to shareholders and customers of WEC of a business combination between
NSP and WEC, the WEC Board would be interested in further exploration of a
possible business combination between NSP and WEC if the open issues could be
resolved on an acceptable basis.
Representatives of WEC advised representatives of NSP that the WEC Board
remained supportive of the transaction and urged that representatives of the two
companies be authorized to meet to attempt to resolve the open issues.
The NSP Board met on March 24, 1995 and was briefed by management on the
breakdown of discussions and the message communicated by the WEC Board. It was
the sense of the NSP Board at that meeting that, while the business logic of the
transaction in terms of the possible synergies was quite compelling, those
synergies could only be realized if the transition to a combined company could
be effected smoothly and economically.
Representatives of NSP contacted representatives of WEC and advised them
that it was the view of the NSP Board that Messrs. Howard and Abdoo themselves
should meet to see whether the impasse reached in negotiating the transaction
could be overcome. A meeting between Messrs. Abdoo and Howard was held on March
30, 1995 at which there was discussion of the reasons for the impasse in the
discussions, the issues that led to the impasse and the potential benefits to
shareholders and
36
customers of both WEC and NSP from the combination, namely the enhanced
opportunities for shareholders to achieve earnings and dividend growth, and the
maintenance of competitive rates for customers. Messrs. Howard and Abdoo met
again on April 4, 1995 with other representatives of the parties to review those
issues. Several meetings and discussions were then held between representatives
of the two parties over the next two weeks on the issues of transition and
management succession. Messrs. Howard and Abdoo met again on April 17, 1995 and
at that meeting confirmed their understandings on those issues. Messrs. Abdoo
and Howard directed their advisors to meet to discuss any remaining issues
between the parties and the proposed schedule. The lawyers and management teams
for the two sides met on April 18, 1995 and confirmed the understandings reached
by Messrs. Howard and Abdoo. On April 19, 1995, the WEC Board formally approved
the reopening of the discussions between the parties. The parties later
confirmed the reopening of discussions as of such date in an amendment to the
confidentiality agreement.
The advisors for both parties met and spoke several times over the next
week, discussing the transaction and the related documentation, agreed upon the
proposed structure for the transaction and negotiated the terms of the Merger
Agreement, including the conditions to closing, the termination provisions, the
break-up fees, the covenants which would govern the operations of NSP and WEC
prior to the Effective Time and various other matters, such as employee benefits
and workforce matters, which would govern the operations of Primergy after the
Effective Time. Goldman Sachs and Barr Devlin held further discussions with
respect to the exchange ratio and agreed to recommend to their clients a ratio
which would result in each company's common shareholders as a group owning 50%
of the surviving company's common equity.
On April 26, 1995, Mr. Abdoo met with the NSP Board and reviewed with them
his views on the utility industry generally, the business of WEC and its
subsidiaries and the proposed business combination.
On April 26, 1995, the WEC Board met and received detailed advice from Barr
Devlin, legal counsel and an outside employee benefits consultant. The WEC Board
also received an updated status report on the synergies working group's analysis
of potential synergies, including discussions of potential cost savings from
economies of scale and decreased fuel costs, integration of nuclear facilities
and elimination of duplicative administrative expenses. Barr Devlin reviewed
financial and other information concerning NSP and WEC and the proposed exchange
ratio. Counsel outlined in detail the terms and conditions of the Merger
Agreement and Stock Option Agreements. Counsel also reviewed the succession plan
contained in the Merger Agreement and the handling of various social issues
relating to the transaction, such as the composition of the Primergy Board and
the location of the corporate headquarters of Primergy. The outside employee
benefits consultant reviewed the terms of the employment agreements to be
entered into by Primergy upon consummation of the Mergers as well as the
Severance Policies covering certain senior executives of NSP and WEC. The WEC
Board discussed the significant potential benefits from a combination to
shareholders and customers of WEC and NSP.
On April 28, 1995, at a meeting of the NSP Board, counsel to NSP outlined in
detail the terms and conditions of the Merger Agreement and Stock Option
Agreements. Counsel also reviewed the succession plan outlined in the Merger
Agreement and the handling of the various social issues relating to the
transaction, such as the composition of the Primergy Board and the location of
the headquarters of the combined entity. The NSP Board also received an updated
status report on the synergies working group's analysis of the potential
synergies, and management reviewed the regulatory plan. An outside consultant
reviewed with the directors the terms of the employment agreements proposed to
be entered into by Primergy upon consummation of the Mergers, as well as the
Severance Policies covering the senior executives of NSP and WEC. At the April
28 meeting, Goldman Sachs delivered its oral opinion to the NSP Board that, as
of such date and based upon and subject to the matters discussed, the proposed
exchange ratio of 1.626 shares of Primergy Common Stock per share of NSP Common
Stock was fair to the holders of NSP Common Stock. A committee composed of all
of the directors other than Messrs. Howard and Theisen was formed to review the
transactions and make a
37
recommendation with respect thereto to the entire NSP Board. Such committee met
and approved the Merger Agreement and the Stock Option Agreements and the
transactions contemplated thereby. The NSP Board discussed the presentations
they had received and, upon conclusion, unanimously approved the Merger
Agreement and the Stock Option Agreements and authorized their execution.
On April 28, 1995, the WEC Board met and received advice from Barr Devlin
and legal counsel. Barr Devlin reviewed various financial and other information
and rendered to the WEC Board its opinion to the effect that, as of the date of
said opinion and based upon and subject to the matters stated therein, the
proposed exchange ratio of 1.626 shares of Primergy Common Stock per share of
NSP Common Stock was fair to the holders of WEC Common Stock from a financial
point of view. Legal counsel reviewed the final forms of Merger Agreement and
Stock Option Agreements and other transaction documents with the WEC Board. The
WEC Board discussed the advice they had received at the various WEC Board
meetings and the significant potential benefits to shareholders and customers of
WEC which would result from a combination of WEC and NSP. After such
discussions, the WEC Board unanimously approved the Merger Agreement and the
Stock Option Agreements and authorized their execution.
Following the meetings of the NSP Board and the WEC Board, the Merger
Agreement and the Stock Option Agreements were executed.
REASONS FOR THE MERGERS; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
NSP and WEC believe that the Mergers offer the following significant
strategic and financial benefits to each company and to their respective
shareholders, as well as to their employees and customers and the communities in
which they do business:
- MAINTENANCE OF COMPETITIVE RATES -- Primergy will be able to
meet the challenges of the increasingly competitive environment
in the utility industry more effectively than either WEC or NSP
standing alone. The Mergers will create the opportunity for
strategic, financial and operational benefits for customers in
the form of lower rates over the long term and for shareholders
in the form of greater financial strength and financial
flexibility.
- INTEGRATION OF CORPORATE AND ADMINISTRATIVE FUNCTIONS --
Primergy would be able to consolidate certain corporate and
administrative functions of NSP and WEC, thereby eliminating
duplicative positions, reducing other non-labor corporate and
administrative expenses and limiting or avoiding capital
expenditures for administrative facilities and information
systems. In addition, it is anticipated that a large portion of
the corporate and administrative functions of NSP-Wisconsin
could be eliminated or performed by WEPCO. A joint transition
task force is examining the manner in which to best organize
and manage the businesses of Primergy and identify duplicative
positions in the corporate and administrative areas. It is
anticipated that, as a result of combining staff and other
functions, Primergy will have fewer employees within several
years than NSP and WEC currently have in the aggregate. NSP and
WEC are committed to achieve cost savings in the area of
personnel reductions through attrition, strictly controlled
hiring, reassignment and retraining and, to the extent
required, severance and targeted early retirement programs. In
addition, some savings in areas such as insurance and
regulatory costs and legal, audit and consulting fees should be
realized.
- EXPANDED MANAGEMENT RESOURCES -- In combination, WEC and NSP
will be able to draw on a larger and more diverse mid- and
senior-level management pool to
38
lead Primergy forward in an increasingly competitive
environment for the delivery of energy and should be better
able to attract and retain the most qualified employees. The
employees of Primergy should also benefit from new
opportunities in the expanded organization.
- INTEGRATION OF NUCLEAR OPERATIONS -- The centralization of the
management, supervision and operation of NSP's and WEPCO's
separate nuclear generating facilities should avoid duplication
and enhance effectiveness in making and implementing decisions
affecting nuclear operations without compromising public
safety.
- PURCHASING ECONOMIES AND STREAMLINING OF INVENTORIES -- The
combination of the two companies should result in greater
purchasing powers for items such as fuel and transportation
services and the reduction of inventories for standardized
materials and supplies for construction, operations, and
maintenance within the combined generation, transmission and
distribution systems.
- COORDINATION OF DIVERSIFICATION PROGRAMS -- NSP and WEC each
have significant non-utility subsidiaries, and Primergy, as a
stronger financial entity, should be able to manage and pursue
such subsidiary businesses more efficiently and effectively.
- MORE DIVERSE SERVICE TERRITORY -- The combined service
territories of NSP and WEPCO will be larger and more diverse
than either of the service territories of NSP or WEPCO as
independent entities. This increased geographical diversity
will reduce the exposure to changes in economic, competitive or
climatic conditions in any given sector of the combined service
territory.
- COMMUNITY INVOLVEMENT -- Primergy will continue to play a
strong role in the economic development efforts of the
communities NSP and WEC now serve. The philanthropic and
volunteer programs currently maintained by the two companies
will be continued.
Subject to the qualifications expressed below, NSP and WEC believe that
synergies from the Mergers will generate substantial cost savings to Primergy,
which would not be available absent the Mergers. Preliminary estimates by the
managements of NSP and WEC indicate that the Mergers could result in potential
net cost savings (that is, after taking into account the costs incurred to
achieve such savings) of approximately $2 billion during the ten-year period
following the Mergers. Approximately one-half of these savings are expected to
be achieved through personnel reductions. Other potentially significant cost
savings include reduced corporate and administrative programs, reduced fuel
costs, lower gas supply costs, and other avoided or reduced operation and
maintenance costs, such as labor and materials. Achieved savings in costs are
expected to inure to the benefit of both shareholders and customers. The
treatment of the benefits and cost savings will depend on the results of
regulatory proceedings in the various jurisdictions in which NSP and WEC operate
their businesses. See "Regulatory Matters."
The analyses employed in order to develop estimates of potential savings as
a result of the Mergers were necessarily based upon various assumptions that
involve judgments with respect to, among other things, future national and
regional economic and competitive conditions, inflation rates, regulatory
treatment, weather conditions, financial market conditions, future business
decisions, and other uncertainties, all of which are difficult to predict and
many of which are beyond the control of NSP and WEC. Accordingly, while NSP and
WEC believe that such assumptions are reasonable for purposes of the development
of estimates of potential savings, there can be no assurance that such
assumptions will approximate actual experience or that such savings will be
realized.
NSP. The NSP Board believes that the terms of the Mergers are fair to, and
in the best interests of, NSP and its shareholders. Accordingly, the NSP Board,
by a unanimous vote, has approved the
39
Merger Agreement and recommends its approval and adoption by NSP's shareholders.
The NSP Board believes: that the Mergers present a unique opportunity for NSP
and WEC to combine as equals; that NSP's shareholders will benefit by
participation in the combined economic growth of the NSP and WEPCO service
territories, and from the inherent increase in scale economies, the market
diversification and the resulting increased financial stability and strength;
that the Mergers will result in cost savings from decreased fuel costs, a
reduction in operational and maintenance expense and other factors discussed
above; and that the combined enterprise can participate in the increasingly
competitive market for the generation of power. All of these factors offer a
potential increase in earnings and dividend growth and the creation of a larger,
financially stronger company. In reaching its conclusions, the NSP Board
considered (i) the financial performance, condition, business operations and
prospects of each of NSP and WEC and that, on a combined basis, the companies
will likely have greater financial stability and strength due to participation
in the combined economic climate and growth of both the WEPCO and NSP service
territories, the inherent increase in scale economies, the market
diversification resulting from the combination of customer bases and the impact
of the potential operating efficiencies and other synergies which are expected
to reduce operational and maintenance expenses, as more fully discussed above;
(ii) current industry, economic, market and regulatory conditions which
encourage consolidation to reduce risk and create new avenues for earnings
growth as discussed under "The Mergers -- Background of the Mergers" above;
(iii) the anticipated positive effect of the Mergers on shareholders and
customers; (iv) the proposed structure of the transaction as a merger of equals
between NSP and WEC and the terms of the Merger Agreement, the Stock Option
Agreements, the Employment Agreements and other documents executed and to be
executed in connection with the Mergers which provide for reciprocal
representations and warranties, conditions to closing and rights to termination,
balanced rights and obligations and protection for employees of NSP and the
communities it serves; (v) the management succession plan specified in the
Merger Agreement and the Employment Agreements of Messrs. Howard and Abdoo (as
described under "-- Employment Agreements" and "Primergy Following the Mergers
-- Management of Primergy") which provides a prudent plan for managing the
integration of and transition in management; (vi) the impact of regulation under
various state and federal laws (as described under "Regulatory Matters" and "--
Background of the Mergers"); (vii) that the Mergers are expected to be treated
as a tax-free reorganization to shareholders and to be accounted for as a
pooling-of-interests transaction (which avoids the reduction in earnings which
would result from the creation and amortization of goodwill under purchase
accounting); and (viii) the opinion of Goldman Sachs, described below, that the
Ratio is fair to holders of NSP Common Stock. In determining that the Mergers
are fair to and in the best interests of its shareholders, the NSP Board
considered the above factors as a whole and did not assign specific or relative
weights to them.
THE NSP BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND BELIEVES
THAT THE TERMS OF THE MERGERS ARE FAIR TO, AND IN THE BEST INTERESTS OF, NSP'S
SHAREHOLDERS, HAS APPROVED EACH OF THE PRIMERGY PLANS, SUPPORTS THE ELECTION OF
THE NOMINATED DIRECTORS, SUPPORTS THE RATIFICATION OF THE APPOINTMENT OF PRICE
WATERHOUSE LLP AS NSP'S INDEPENDENT ACCOUNTANTS FOR 1995, AND OPPOSES THE
SHAREHOLDER PROPOSALS. THE NSP BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE
MERGER AGREEMENT, FOR APPROVAL OF EACH OF THE PRIMERGY PLANS, FOR THE ELECTION
OF THE NOMINATED DIRECTORS, FOR THE RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT ACCOUNTANTS AND AGAINST EACH OF THE SHAREHOLDER PROPOSALS.
WEC. The WEC Board has determined that the terms of the proposed Mergers
are fair to, and in the best interests of, WEC's shareholders. At the meeting
held on April 28, 1995, the WEC Board unanimously adopted and approved the
Merger Agreement and the transactions contemplated thereby.
The WEC Board believes that the Mergers represent a significant strategic
opportunity for WEC and should offer WEC and its shareholders better prospects
for the future than would be available to
40
WEC as a stand-alone entity. In addition to the joint benefits described above,
the WEC Board believes that the Mergers would offer the following distinct
benefits to WEC and its shareholders over the long term:
- It is anticipated that Primergy will adopt NSP's common share dividend
payment level as of the Effective Time adjusted for the Ratio. NSP
currently pays $2.70 per share annually and, based on the Ratio, the pro
forma dividend rate for Primergy would be $1.66 per share. WEC's current
annual dividend rate is $1.47 per share. Thus the Primergy dividend would
represent a 13% increase in the dividend per share for current WEC
shareholders. While the dividend policy actually adopted by Primergy is
subject to evaluation from time to time by the Primergy Board based on
Primergy's results of operations, financial condition, capital
requirements and other relevant considerations, the WEC Board considered
this possible dividend increase a distinct benefit to its shareholders.
- The potential for revenues and growth in the non-utility businesses
currently conducted by NSP's non-utility subsidiaries provides an
opportunity for WEC shareholders to realize the benefits of these
diversification activities.
In reaching its decision to approve the Merger Agreement, and in addition to
the factors described above, the WEC Board considered the following factors: (i)
the current and historical market prices and dividends on the WEC Common Stock
and the NSP Common Stock (as disclosed under "Selected Historical and Pro Forma
Data -- Comparative Market Prices and Dividends"); (ii) information concerning
the financial performance, condition, business operations and prospects of each
of WEC and NSP, which indicate the compatibility of the two companies and the
potential synergies which could be realized as a result of their combination;
(iii) the effects of the Mergers on WEC's existing shareholders, including the
opportunity to share in the anticipated benefits of ownership of the combined
enterprise; (iv) the expected accounting treatment of the Mergers as a pooling
of interests (as discussed under "-- Accounting Treatment"), which avoids the
reduction in earnings which would result from the creation and amortization of
goodwill under the purchase method of accounting; (v) the expected federal
income tax treatment of the Mergers as a tax-free reorganization to shareholders
(as described under "-- Certain Federal Income Tax Consequences"); (vi) the
proposed structure of the transaction as a "merger-of-equals," which provides
for balanced treatment of WEC and NSP and their respective shareholders; (vii)
the regulatory treatment to be requested in connection with the Mergers (as
discussed under "Regulatory Matters"); (viii) the opinion of Barr Devlin (see
"-- Opinions of Financial Advisors -- WEC's Financial Advisor"); (ix) the
projected pro forma ownership of Primergy by the shareholders of WEC implied by
the Ratio; and (x) the terms of the Merger Agreement (as described under "The
Merger Agreement"), the Stock Option Agreements (as decribed under "The Stock
Option Agreements") and the Employment Agreements with Messrs. Abdoo and Howard
(as described under "-- Employment Agreements" and "Primergy Following the
Mergers -- Management of Primergy"), which provide for an orderly integration of
and transition in management after the Effective Time. The WEC Board considered
the above factors as a whole, and did not assign specific or relative weights to
such factors.
THE WEC BOARD HAS UNANIMOUSLY ADOPTED AND APPROVED THE MERGER AGREEMENT AND
BELIEVES THAT THE TERMS OF THE MERGERS ARE FAIR TO, AND IN THE BEST INTERESTS
OF, WEC'S SHAREHOLDERS AND HAS APPROVED EACH OF THE WEC ARTICLES AMENDMENTS AND
EACH OF THE PRIMERGY PLANS. THE WEC BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE
MERGER AGREEMENT, FOR APPROVAL OF EACH OF THE WEC ARTICLES AMENDMENTS AND FOR
APPROVAL OF EACH OF THE PRIMERGY PLANS.
OPINIONS OF FINANCIAL ADVISORS
NSP'S FINANCIAL ADVISOR. On April 28, 1995, Goldman Sachs delivered its
oral opinion to the NSP Board that, as of the date of such opinion, the Ratio
pursuant to the Merger Agreement was fair to the holders of shares of NSP Common
Stock. Goldman Sachs subsequently confirmed its April 28, 1995 oral opinion by
delivery of its written opinion dated as of the date hereof.
41
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED AS OF THE DATE
OF THIS JOINT PROXY STATEMENT/ PROSPECTUS, WHICH SETS FORTH ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN IN CONNECTION WITH THE
OPINION, IS ATTACHED HERETO AS ANNEX F AND IS INCORPORATED HEREIN BY REFERENCE.
HOLDERS OF SHARES OF NSP COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH
OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
the Merger Agreement; the Joint Registration Statement, including this Joint
Proxy Statement/Prospectus relating to the NSP and WEC Meetings; Annual Reports
to shareholders and Annual Reports on Form 10-K of NSP and WEC for the five
years ended December 31, 1994; certain interim reports to shareholders and
Quarterly Reports on Form 10-Q of NSP and WEC; FERC Forms 1 of NSP and WEC;
certain other communications from NSP and WEC to their respective shareholders;
and certain internal financial analyses and forecasts for NSP and WEC prepared
by their respective managements, including analyses and forecasts of certain
operating efficiencies and financial synergies expected to be achieved as a
result of the Mergers. Goldman Sachs also held discussions with members of the
senior management of NSP and WEC regarding the past and current business
operations, financial condition and future prospects of their respective
companies and their analyses of the strategic benefits of the Mergers,
including, without limitation, the amount and timing of realization of the
synergies referred to above. In addition, Goldman Sachs reviewed the reported
price and trading activity for the shares of NSP Common Stock and the WEC Common
Stock, compared certain financial and stock market information for NSP and WEC
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the electric utility industry specifically and in other
industries generally and performed such other studies and analyses as Goldman
Sachs considered appropriate.
Goldman Sachs relied, without independent verification, upon the accuracy
and completeness of all of the financial and other information reviewed by it
for purposes of its opinion, including certain synergies expected to be achieved
in the Mergers. In addition, Goldman Sachs has not made an independent
evaluation or appraisal of the assets and liabilities of NSP or WEC or any of
their respective subsidiaries and Goldman Sachs has not been furnished with any
such evaluation or appraisal. Goldman Sachs assumed, with NSP's consent, that
the consummation of the transactions contemplated by the Merger Agreement will
be accounted for as a pooling of interests under generally accepted accounting
principles. In arriving at its opinion, Goldman Sachs assumed that the Mergers
will be reorganizations as described in Section 368(a) of the Code, and the
regulations thereunder, and that WEC, NSP and the shareholders of NSP who
exchange their shares solely for stock of Primergy will recognize no gain or
loss for federal income tax purposes as a result of the consummation of the
Mergers.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its oral opinion to the NSP Board on
April 28, 1995. Goldman Sachs utilized substantially the same type of financial
analyses in connection with providing the written opinion attached hereto as
Annex F.
(i) SELECTED COMPANIES ANALYSIS. Goldman Sachs reviewed and compared
certain actual and estimated financial information relating to NSP and WEC
to corresponding financial information, ratios and public market multiples
for nine publicly traded corporations: American Electric Power Company,
Inc., Baltimore Gas & Electric Company, CINergy Corp., Duke Power Company,
LG&E Energy Corp., PacifiCorp, Union Electric Co., Utilicorp United Inc. and
WPL Holdings Inc. (collectively, the "Selected Companies"). The Selected
Companies were chosen because they are publicly-traded companies with
operations that for purposes of analysis may be considered similar to NSP
and WEC. Goldman Sachs calculated and compared various financial multiples
and ratios. The multiples of NSP and WEC were calculated using a price of
$44.00 per share of NSP Common Stock and a price of $27.63 per share of WEC
Common Stock, the respective closing prices of the shares of NSP Common
Stock and WEC Common Stock on the NYSE on April 20, 1995. The multiples and
ratios for NSP and WEC and the multiples for each of the Selected Companies
were based on closing market prices on April 20, 1995, publicly reported
42
financial results and publicly available information from Goldman Sachs
Investment Research Estimates. Goldman Sachs considered for the Selected
Companies estimated 1995 price/earnings ("P/E") ratios, which ranged from
11.0x to 12.9x compared to 12.6x for NSP and 12.9x for WEC; dividend yield
and payout percentages, which ranged from 5.0% to 7.5% and 62% to 83% for
the Selected Companies, respectively, compared to 6.0% and 75%,
respectively, for NSP and 5.1% and 66%, respectively, for WEC; a five-year
projected earnings per share ("EPS") and dividend per share growth rates,
which were provided from Goldman Sachs Investment Research and which ranged
from 2.0% to 3.5% and 1.0% to 3.5% for the Selected Companies, respectively,
compared to 2.5% and 2.0%, respectively, for NSP and 2.5% and 2.0%,
respectively, for WEC. Goldman Sachs also considered market values as a
multiple of book value and cash flows (which were computed by adding to net
income after preferred dividends, depreciation accruals and income tax
deferrals and deducting any funds used during construction, deferred fuel
expenses and accrued revenues). Goldman Sachs' analyses of the Selected
Companies indicated multiples of book value which ranged from 1.28x to 1.77x
compared to multiples of 1.55x for NSP and 1.75x for WEC. Goldman Sachs'
analyses of the Selected Companies also indicated multiples of cash flows
which ranged from 4.45x to 8.94x compared to multiples of 5.98x and 6.66x
for NSP and WEC, respectively.
(ii) PRO FORMA MERGER ANALYSIS. Goldman Sachs prepared pro forma
analyses of the financial impact of the Mergers on holders of shares of NSP
Common Stock. Using net income estimates for WEC and net income estimates
for NSP prepared by their respective managements for the years 1995, 1996,
1997, 1998 and 1999, Goldman Sachs compared the EPS of NSP Common Stock, on
a stand-alone basis, to the EPS of the Primergy Common Stock on a pro forma
basis. Goldman Sachs performed this analysis based on certain assumptions,
financial forecasts and synergies expected to be achieved in respect of the
Mergers. Based on such analysis, the proposed transaction would be accretive
to NSP's shareholders on an EPS basis in the years 1997, 1998 and 1999 at
levels of 8.6%, 13.3% and 15.5%, respectively.
(iii) CONTRIBUTION ANALYSIS. Goldman Sachs reviewed certain historical
and estimated future operating and financial information (including, among
other things, market capitalization, net income and book value) for NSP, WEC
and Primergy resulting from the Mergers based on NSP and WEC managements'
consensus financial forecasts for each of NSP and WEC. The analysis
indicated that NSP would contribute 49% of the market capitalization and 52%
of the book value of Primergy. Goldman Sachs also analyzed the relative
income statement contributions of NSP and WEC to Primergy on a pro forma
basis based on actual 1994, and estimated years 1995 and 1996, financial
data provided to Goldman Sachs by NSP and WEC managements. This analysis
indicated that on a pro forma basis in 1994 NSP would have contributed 52%
of the net income of Primergy and on a pro forma basis in 1995 and 1996 NSP
would contribute 50% and 51% of the net income of Primergy, respectively.
The analysis also indicated a range of implied NSP/WEC exchange ratios of
1.59x to 2.20x.
(iv) HISTORICAL EXCHANGE RATIO. Goldman Sachs reviewed certain
historical trading prices for the shares of NSP Common Stock and the shares
of WEC Common Stock over the latest four years. Such analysis demonstrated a
range of exchange ratios (calculated by dividing the price per share of NSP
Common Stock by the per share price of WEC Common Stock) from 1.59x to 1.69x
and an exchange ratio of 1.59x as of April 20, 1995 (based on the closing
per share prices of $44.00 per share of NSP Common Stock and $27.63 per
share of WEC Common Stock on April 20, 1995).
(v) DISCOUNTED CASH FLOW ANALYSIS. Goldman Sachs performed discounted
cash flow analyses using NSP's management projections and WEC's management
projections. Goldman Sachs calculated a net present value of free cash flows
for NSP and WEC for the years 1995 through 1999 using discount rates ranging
from 11% to 14%. Goldman Sachs calculated NSP's and WEC's terminal values in
the year 1999 based on a multiple of 12x estimated free cash flows in 1999.
These terminal values were then discounted to present value using discount
rates from 11% to 14%. Using NSP's and WEC's terminal values based on a
multiple of 12x their respective
43
estimated free cash flows in 1999 and discounting such terminal values to
present value using discount rates ranging from 11% to 14%, the implied per
share values ranged from $44.62 to $50.34 for NSP and $33.06 to $37.25 for
WEC.
(vi) DIVIDEND DISCOUNT VALUATION ANALYSIS. Goldman Sachs performed a
dividend discount valuation analysis for NSP and WEC. Using estimated 1995
dividends of $2.69 per share for NSP and $1.45 per share for WEC, estimated
dividend growth rates ranging from 2% to 7% and estimated required return on
equity rates ranging from 9% to 13%, the implied share values ranged from
$24.41 to $134.25 for NSP and $13.18 to $72.50 for WEC.
Goldman Sachs has stated to NSP that, in its view, the preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. In addition, Goldman Sachs has advised
NSP that selecting portions of the analyses or of the summary set forth above,
without considering the analyses as a whole, could create an incomplete view of
the processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs considered the results of all such analyses, taken
as a whole. Furthermore, in arriving at its fairness opinion, Goldman Sachs did
not attribute any particular weight to any analysis or factor considered by it;
rather, Goldman Sachs made its determination as to fairness on the basis of
qualitative judgments as to the significance and relevance of the financial and
comparative analyses and factors described above, taken as a whole. No company
or transaction used in the above analyses as a comparison is identical to NSP or
WEC or the contemplated transaction. The analyses were prepared solely for
purposes of Goldman Sachs' providing its opinion to the NSP Board as to the
fairness of the Ratio to the holders of shares of NSP Common Stock and do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of the parties or their respective
advisors, none of NSP, WEC, Goldman Sachs or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, Goldman Sachs' opinion to the NSP Board was one of many
factors taken into consideration by the NSP Board in making its determination to
approve the Merger Agreement. Although Goldman Sachs evaluated the fairness of
the Ratio to the holders of shares of NSP Common Stock, the specific Ratio was
determined by WEC and NSP through arm's-length negotiation. The foregoing
summary does not purport to be a complete description of the analysis performed
by Goldman Sachs and is qualified by reference to the written opinion of Goldman
Sachs set forth in Annex F hereto.
Pursuant to a letter agreement dated January 10, 1995 (the "Goldman Sachs
Engagement Letter"), NSP engaged Goldman Sachs to act as its financial advisor
in connection with the Mergers. Pursuant to the terms of the Goldman Sachs
Engagement Letter, NSP has paid Goldman Sachs an initial fee of $250,000, which
amount will be credited against the Transaction Fee (as defined herein). In
addition, NSP has agreed to pay Goldman Sachs a transaction fee of 0.27% of the
aggregate value of the market capitalization of WEC calculated using the average
of the last sales prices of WEC Common Stock on each of the five trading days
prior to the public announcement of the transaction (the "Transaction Fee"),
which Transaction Fee amounts to approximately $8,100,000. This Transaction Fee
is earned and payable in three equal installments, one each at public
announcement, shareholder approval and Closing (as defined below). NSP has
agreed to indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws. In addition, the Goldman Sachs
Engagement Letter provides that NSP will reimburse Goldman Sachs for any sales,
use or similar taxes arising in connection with the engagement.
Goldman Sachs was selected as NSP financial advisor because Goldman Sachs,
as part of its investment banking business, is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Goldman Sachs is familiar
with NSP having acted as its financial
44
advisor in connection with, and having participated in certain of the
negotiations leading to, the Merger Agreement. Goldman Sachs also has provided
certain investment banking services to NSP from time to time, including acting
as managing underwriter of certain public offerings of debt securities of NSP
and may provide investment banking services to NSP in the future. During the
past two years, Goldman Sachs has earned compensation of approximately $350,000
from NSP with respect to such investment banking services (excluding
compensation with respect to its services related to the Mergers). Goldman Sachs
also has provided certain investment banking services to WEC from time to time,
including acting as managing underwriter of certain public offerings of debt
securities of WEPCO, for which it received customary compensation, and may
provide investment banking services to WEC in the future. During the past two
years, Goldman Sachs has earned compensation of approximately $350,000 from WEC
with respect to such investment banking services.
In the ordinary course of its business, Goldman Sachs actively trades the
debt and equity securities of NSP, WEC and their subsidiaries for its own
account and for the accounts of customers of Goldman Sachs. Goldman Sachs may,
therefore, at any time hold a long or short position in such securities.
WEC'S FINANCIAL ADVISOR. On January 12, 1995, WEC entered into an
engagement letter with Barr Devlin pursuant to which Barr Devlin was retained to
act as WEC's financial advisor in connection with a potential business
combination with NSP. Barr Devlin has delivered its written opinions to the WEC
Board, dated April 28, 1995 and the date of this Joint Proxy
Statement/Prospectus, to the effect that, on and as of the dates of such
opinions, and based upon assumptions made, matters considered and limits of the
review, as set forth in such opinions, the Ratio was and is fair, from a
financial point of view, to the holders of WEC Common Stock. A COPY OF THE
OPINION OF BARR DEVLIN DATED THE DATE HEREOF IS ATTACHED TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AS ANNEX G AND IS INCORPORATED HEREIN BY REFERENCE. THE
APRIL 28, 1995 OPINION IS SUBSTANTIALLY IDENTICAL TO THE OPINION ATTACHED
HERETO. WEC SHAREHOLDERS ARE URGED TO CAREFULLY READ THE OPINION DATED THE DATE
HEREOF IN ITS ENTIRETY FOR ASSUMPTIONS MADE, MATTERS CONSIDERED AND THE LIMITS
OF THE REVIEW UNDERTAKEN BY BARR DEVLIN. THE SUMMARY OF BARR DEVLIN'S OPINION
SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE ATTACHED OPINION.
In connection with rendering its opinion dated the date of this Joint Proxy
Statement/Prospectus, Barr Devlin (i) reviewed the Annual Reports, Form 10-Ks
and the related financial information for the three years in the period ended
December 31, 1994, and the Form 10-Qs and the related unaudited financial
information for the quarterly periods ended March 31, 1995 and June 30, 1995,
for WEC, WEPCO and Wisconsin Natural; (ii) reviewed the Annual Reports, Form
10-Ks and the related financial information for the three years in the period
ended December 31, 1994, and the Form 10-Qs and the related unaudited financial
information for the quarterly periods ended March 31, 1995 and June 30, 1995,
for NSP and NSP-Wisconsin; (iii) reviewed certain other filings with the SEC and
other regulatory authorities made by WEC, WEPCO, Wisconsin Natural, NSP and
NSP-Wisconsin, including proxy statements, FERC Form 1s, Form 8-Ks and
registration statements, during the last three years; (iv) reviewed certain
internal information, including financial forecasts, relating to the business,
earnings, capital expenditures, cash flow, assets and prospects of WEC and NSP
furnished to Barr Devlin by WEC and NSP; (v) conducted discussions with members
of senior management of WEC and NSP concerning their respective businesses,
regulatory environments, prospects and strategic objectives and possible
operating, administrative and capital synergies which might be realized for the
benefit of Primergy following the Effective Time; (vi) reviewed the historical
market prices and trading activity for shares of WEC Common Stock and NSP Common
Stock, and compared them with those of certain publicly traded companies deemed
by Barr Devlin to be relevant; (vii) compared the results of operations of WEC
and NSP with those of certain companies deemed by Barr Devlin to be relevant;
(viii) compared the proposed financial terms of the Mergers with the financial
terms of certain utility industry business combinations deemed by Barr Devlin to
be relevant; (ix) analyzed the respective contributions in terms of assets,
earnings, cash flow and shareholders' equity of WEC and NSP to Primergy; (x)
analyzed the valuation of shares of WEC Common Stock and NSP Common
45
Stock using various valuation methodologies deemed by Barr Devlin to be
appropriate; (xi) considered the pro forma effect of the Mergers on Primergy's
capitalization, earnings and cash flow; (xii) compared the pro forma effect of
the Mergers on WEC's capitalization ratios, earnings per share, dividends per
share, book value per share, cash flow per share, return on equity and payout
ratio with each of their corresponding current and projected values on a
stand-alone basis; (xiii) considered the obligation of Primergy to register as a
public utility holding company under the 1935 Act and the resulting possibility
that Primergy would be required to dispose of WEC's and/or NSP's gas operations
or to dispose of certain of WEC's and/or NSP's non-utility businesses; (xiv)
examined the possible tax treatment of alternative ways of effecting a
disposition of certain of WEC's and/or NSP's gas operations, and a disposition
of WEC's and/or NSP's non-utility businesses should any such disposition be
required pursuant to the 1935 Act, for which Barr Devlin relied on the advice of
WEC's counsel; (xv) reviewed the Merger Agreement and the Stock Option
Agreements; (xvi) reviewed the Joint Registration Statement, including this
Joint Proxy Statement/Prospectus; and (xvii) reviewed such other studies,
conducted such other analyses, considered such other financial, economic and
market criteria, performed such other investigations and took into account such
other matters as Barr Devlin deemed necessary or appropriate for purposes of its
opinion.
In preparing its opinions, Barr Devlin relied, without independent
verification, on the accuracy and completeness of all financial and other
information publicly available or otherwise furnished or made available to it by
WEC and NSP, and further relied upon the assurances of management of WEC and NSP
that they were not aware of any facts that would make such information
inaccurate or misleading. With respect to the financial projections of WEC and
NSP (including, without limitation, projected cost savings and operating
synergies), Barr Devlin relied upon assurances of management of WEC and NSP that
such projections were reasonably prepared and reflected the best currently
available estimates and judgments of the management of WEC and NSP as to the
future financial performance of WEC and NSP, as the case may be, and as to the
outcomes projected of legal, regulatory and other contingencies. Barr Devlin was
not provided with and did not undertake an independent evaluation or appraisal
of the assets or liabilities (contingent or otherwise) of WEC or NSP, nor did
Barr Devlin make any physical inspection of the properties or assets of WEC or
NSP.
In arriving at its opinions, Barr Devlin assumed that the Mergers will be
reorganizations as described in Section 368(a) of the Code, and the regulations
thereunder, and that WEC, NSP and the shareholders of NSP who exchange their
shares solely for stock of Primergy will recognize no gain or loss for federal
income tax purposes as a result of the consummation of the Mergers. In addition,
Barr Devlin has assumed that the Mergers will qualify as a pooling of interests
for financial accounting purposes. Barr Devlin's opinions are based upon general
financial, stock market and other conditions and circumstances as they existed
and could be evaluated, and the information made available to it, as of the
respective dates of the opinions. Barr Devlin's opinions are directed only to
the WEC Board and the fairness of the Ratio from a financial point of view, do
not address any other aspect of the Mergers and do not constitute a
recommendation to any WEC shareholder as to how such shareholder should vote at
the WEC Meeting. Although Barr Devlin evaluated the fairness of the Ratio from a
financial point of view to the holders of WEC Common Stock, the specific Ratio
was determined by WEC and NSP through arm's-length negotiation. WEC did not
place any limitations upon Barr Devlin with respect to the procedures followed
or factors considered by Barr Devlin in rendering its opinions.
Barr Devlin has advised WEC that, in its view, the preparation of a fairness
opinion involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its fairness
opinions, Barr Devlin did not attribute any particular weight to any analysis or
factor considered by it, nor did Barr Devlin ascribe a specific range of fair
values to WEC; rather, Barr Devlin made its determination as to the fairness of
the Ratio on the basis of qualitative judgments as to the significance and
relevance of each of the financial and comparative analyses and factors
described below. Accordingly, notwithstanding the separate factors summarized
below, Barr Devlin believes that its analyses must be considered as
46
a whole and that considering any portions of such analyses and of the factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the evaluation process underlying its opinion.
In its analyses, Barr Devlin made many assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond WEC's and NSP's control. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than as set
forth therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
In connection with rendering its opinions dated April 28, 1995 and the date
hereof, and preparing its various written and oral presentations to the WEC
Board, Barr Devlin performed a variety of financial and comparative analyses and
considered a variety of factors of which the material analyses and factors are
summarized below. The summary set forth below does not purport to be a complete
description of the analyses performed or factors considered by Barr Devlin in
this regard. The results of the analyses described in this summary were
discussed with the WEC Board at its meeting on April 28, 1995. Barr Devlin
derived implied exchange ratios for WEC Common Stock and NSP Common Stock based
upon what these analyses, when considered in light of the judgment and
experience of Barr Devlin, suggested about their relative values. Barr Devlin's
opinions are based upon its consideration of the collective results of all such
analyses, together with the other factors referred to in its opinions. Because
each share of WEC Common Stock will remain outstanding, unchanged, as one share
of Primergy Common Stock, these implied exchange ratios can be compared to the
1.626 shares of Primergy Common Stock that each share of NSP Common Stock (other
than NSP Dissenting Shares) will ultimately be converted into pursuant to the
Mergers. In concluding that the Ratio is fair, from a financial point of view,
to the holders of WEC Common Stock and in its discussions with the WEC Board,
Barr Devlin noted that 1.626 was within or below each range of implied exchange
ratios set forth below, which were derived from the analyses performed by it. In
connection with its opinion dated the date hereof, Barr Devlin performed certain
procedures to update its analyses made in connection with the delivery of its
April 28, 1995 opinion and reviewed with the managements of WEC and NSP the
assumptions upon which such analyses were based. The results of such analyses
were substantially the same as those arrived at in connection with the April 28,
1995 opinion of Barr Devlin.
CONTRIBUTION ANALYSIS. Barr Devlin calculated the relative contribution of
WEC and NSP to the pro forma combined Primergy, assuming that WEC and NSP
performed in accordance with the operating and financial projections of their
respective managements for the period 1995 through 1999 (the "Projection
Period"), with respect to (i) net income, (ii) book value of common equity,
(iii) earnings before interest and taxes ("EBIT") and (iv) cash flow, in each
case for the year 1994 and for each year in the Projection Period.
Although Barr Devlin considered each of the above-mentioned contribution
measures, Barr Devlin attributed relatively greater weight to three of these
measures (net income, book value of common equity and EBIT) because of its
judgment that they are more appropriate indicators of relative contribution to
shareholder value. The analysis of relative contribution of net income to common
stock yielded implied exchange ratios during the Projection Period ranging from
1.55 to 1.67 with a midpoint value of 1.61. The analysis of relative
contribution of book value of common equity yielded implied exchange ratios
during the Projection Period ranging from 1.73 to 1.76 with a midpoint value of
1.74. The analysis of relative contribution of EBIT yielded implied exchange
ratios during the Projection Period ranging from 1.66 to 1.80 with a midpoint
value of 1.73. These contribution indices yielded implied exchange ratios during
the Projection Period ranging from 1.55 to 1.80 with a midpoint value of 1.68.
STOCK TRADING HISTORY. Barr Devlin reviewed the performance of the per
share market price and trading volumes of WEC Common Stock and NSP Common Stock
and compared such per share market price movements to movements in (i) the Dow
Jones Utility Index and (ii) the Standard & Poor's 500 Index, to provide
perspective on the current and historical stock price performance of WEC and NSP
47
relative to the Comparable Companies (as defined herein) and selected market
indices. Barr Devlin also calculated the ratio of the per share weekly closing
market price of NSP to the per share weekly closing market price of WEC for the
period April 24, 1992 to April 21, 1995. This analysis showed that over this
three-year period NSP Common Stock traded at a price as high as 1.79 times, as
low as 1.50 times and at an average of 1.64 times the then-current per share
market price of WEC Common Stock. For the six-month and 18-month periods ending
April 21, 1995, NSP Common Stock traded, respectively, at an average of 1.69 and
1.66 times the then-current per share market price of WEC Common Stock. This
analysis was utilized to provide historical background for the manner in which
the public trading market had valued WEC and NSP in absolute terms and relative
to each other.
PUBLICLY TRADED COMPARABLE COMPANY ANALYSIS. Using publicly available
information, Barr Devlin compared selected financial information and ratios
(described below) for WEC and NSP with the corresponding financial information
and ratios for a group of electric and/or gas utilities operating in the upper
midwestern U.S. and a group of other selected electric utilities deemed by Barr
Devlin to be comparable to WEC and NSP (collectively, the "Comparable
Companies"). The upper midwestern U.S. Comparable Companies were selected on the
basis of being companies which possessed general business, operating and
financial characteristics representative of companies in industries in which WEC
and NSP operate and whose principal geographic areas of operation are located
either: (i) in states in which WEC or NSP have electric or gas utility
operations, or (ii) in states contiguous to those in which WEC or NSP have
electric or gas utility operations. The other Comparable Companies were
companies which possessed general business, operating and financial
characteristics representative of companies in industries in which WEC and NSP
operate and whose principal geographic areas of operation are located outside of
the upper midwestern U.S. The upper midwestern U.S. Comparable Companies
included Interstate Power Company, Madison Gas & Electric Company, Minnesota
Power & Light Company, Otter Tail Power Company, WICOR Inc., WPL Holdings Inc.
and WPS Resources Corporation. The other Comparable Companies included Baltimore
Gas & Electric Company, Florida Progress Corporation, NIPSCO Industries Inc.,
San Diego Gas & Electric Company, SCANA Corporation, Union Electric Company and
Western Resources Inc.
In evaluating the current market value of WEC Common Stock and NSP Common
Stock, Barr Devlin determined ranges of multiples for selected financial ratios
for the Comparable Companies, including: (i) the market value of outstanding
common stock as a multiple of (a) net income available to common stock for the
latest 12-month period ending December 31, 1994 (the "LTM Period"), (b)
projected net income available to common stock for the 12-month period ending
December 31, 1995, (c) book value of common equity for the most recently
available fiscal quarter ending December 31, 1994, and (d) after-tax cash flow
from operations for the 12-month period ending December 31, 1995; and (ii) the
"aggregate market value" (defined as the sum of the market value of common
stock, plus the liquidation value of preferred stock, the principal amount of
debt, capitalized lease obligations and minority interests, minus cash and cash
equivalents) as a multiple of (a) earnings before interest, taxes and
depreciation ("EBITDA") for the LTM Period and (b) EBIT for the LTM Period. This
analysis produced reference values of $24.91 to $29.02 per share, in the case of
WEC, and $43.85 to $53.14 per share, in the case of NSP. The implied range of
exchange ratios resulting from these reference values was 1.51 to 2.13 with a
midpoint value of 1.82.
Barr Devlin also evaluated the projected market values of shares of
outstanding WEC Common Stock for NSP Common Stock on: (i) December 31, 1995
based on selected ranges of multiples for the Comparable Companies and (a)
projected 1995 and 1996 net income available to common stock, (b) projected book
value of common stock as of year-end 1995, and (c) projected dividend yields as
of year-end 1995; and (ii) December 31, 1996 based on selected ranges of
multiples for the Comparable Companies and (a) projected 1996 and 1997 net
income available to common stock, (b) projected book value of common stock as of
year-end 1996, and (c) projected dividend yields as of year-end 1996. For the
year ending December 31, 1995, this analysis produced reference values of $25.99
to $29.47 per share, in the case of WEC, and $43.26 to $48.97 per share, in the
case of NSP. The implied range of exchange ratios resulting from these reference
values was 1.47 to 1.88 with a midpoint value of 1.68.
48
For the year ending December 31, 1996, this analysis produced reference values
of $27.27 to $30.91 per share in the case of WEC and $45.30 to $51.27 per share
in the case of NSP. The implied range of exchange ratios resulting from these
reference values was 1.47 to 1.88 with a midpoint value of 1.67.
COMPARABLE TRANSACTION ANALYSIS. In order to determine an implied exchange
ratio based upon a comparable transaction analysis, Barr Devlin reviewed certain
transactions involving mergers between regulated electric utilities or holding
companies for regulated electric utilities (the "Comparable Transactions"). The
Comparable Transactions were selected on the basis of being strategic
combinations of electric or electric and gas utility companies (or their holding
companies) which resulted in the creation of a newly formed, newly named
publicly traded corporation, the board of directors of which consisted of
representatives from the boards of directors of each of the merging companies
prior to the transaction.
Barr Devlin calculated the implied equity consideration for each of the
Comparable Transactions as a multiple of each company's respective latest
12-month net income available to common stock, latest 12-month cash flow, and
book value of common equity for the most recently available fiscal quarter
preceding such transaction. In addition, Barr Devlin calculated the "implied
total consideration" (defined as the sum of the implied equity consideration
plus the liquidation value of preferred stock and the principal amount of debt,
minus cash and option proceeds) for each of the Comparable Transactions as a
multiple of each company's respective latest 12-month EBITDA and EBIT. The
Comparable Transactions included in this analysis consisted of Midwest Resources
Inc./Iowa-Illinois Gas & Electric Company, Washington Water Power Company/Sierra
Pacific Resources, Cincinnati Gas & Electric Company/PSI Resources, Midwest
Energy Company/Iowa Resources and Cleveland Electric Illuminating Company/Toledo
Edison Company. This analysis produced reference values of $23.53 to $32.90 per
share in the case of WEC and $42.36 to $55.00 per share in the case of NSP. The
implied range of exchange ratios resulting from these reference values was 1.29
to 2.34 with a midpoint value of 1.81.
Because the reasons for and circumstances surrounding each of the Comparable
Transactions analyzed were diverse and because of the inherent differences
between the operations of WEC, NSP and the companies engaged in the selected
transactions, Barr Devlin believed that a purely quantitative comparable
transaction analysis would not be particularly meaningful in the context of the
Mergers. Barr Devlin believed that an appropriate use of a comparable
transaction analysis in this instance would involve qualitative judgments
concerning differences between the characteristics of these transactions and the
Mergers which would affect the relative values of the merged companies and WEC.
DISCOUNTED CASH FLOW ANALYSIS. In order to determine an implied exchange
ratio based upon a discounted cash flow ("DCF") analysis, Barr Devlin prepared
and reviewed the results of unleveraged DCF analyses for both WEC and NSP for
the Projection Period. The purpose of the DCF analysis was to determine the
present value of each of WEC and NSP. To calculate the present value of a
business using a DCF analysis, the projected unleveraged free cash flows for
each year, together with the estimated value of the business in the final year
of the Projection Period, are discounted to the present. Barr Devlin estimated
terminal values for WEC and NSP by applying multiples (described below) to (i)
the projected book value of WEC's and NSP's common equity as of the end of 1999
and (ii) the projected net income of WEC and NSP for 1999. The multiples applied
were based on analyses of the corresponding multiples of certain public
companies comparable to WEC and NSP. For the purposes of these analyses, the
terminal multiple ranges used were 1.45x-1.70x with respect to book value and
12.0x-13.5x with respect to net income. The cash flow streams and terminal
values were then discounted to present value using discount rates (based on the
weighted average costs of capital of 9.67% for WEC and 9.76% for NSP) that
ranged from 9.0% to 10.0% for both WEC and NSP. This analysis produced reference
values of $22.71 to $29.80 per share in the case of WEC, and $35.83 to $47.58
per share in the case of NSP. The implied range of exchange ratios resulting
from these reference values was 1.20 to 2.10 with a midpoint value of 1.65.
49
DISCOUNTED DIVIDEND ANALYSIS. Barr Devlin prepared and reviewed the results
of discounted dividend analyses of WEC and NSP based on certain financial
assumptions relating to projected dividends per share for each year in the
Projection Period prepared by WEC's and NSP's managements. To calculate the
value of a stock using discounted dividend analysis, the projected dividend per
share for each year together with the estimated share price in 1999 are
discounted to the present at an estimated cost of equity capital rate. Barr
Devlin estimated the 1999 share price by dividing (x) the estimated annualized
year-end dividend in 1999 by (y) the estimated cost of equity capital rate less
the estimated sustainable rate of growth in the respective company's dividends
after 1999.
Barr Devlin considered cost of equity capital rates ranging from 10.0% to
11.0% and sustainable dividend growth rates ranging from 5.0% to 6.0% for WEC
and cost of equity capital rates ranging from 10.0% to 11.0% and sustainable
dividend growth rates ranging from 4.0% to 5.0% for NSP. This analysis produced
reference values of $23.36 to $33.40 per share in the case of WEC, and $36.12 to
$48.08 per share in the case of NSP. The implied range of exchange ratios
resulting from these reference values was 1.08 to 2.06 with a midpoint value of
1.57.
PRO FORMA MERGER ANALYSIS. Barr Devlin analyzed certain pro forma effects
to the shareholders of WEC resulting from the Mergers, based on the Ratio, for
each year in the Projection Period. This analysis, based on the respective
forecasts of the managements of WEC and NSP and assuming retention of a portion
of the synergies forecasted (assuming the regulatory plan was approved as
contemplated) showed meaningful accretion to WEC shareholders in dividends per
share and moderate accretion in earnings per share.
Barr Devlin was selected as WEC's financial advisor because Barr Devlin and
principals of Barr Devlin have a long history of association in the investment
banking and electric and gas utility industries. Barr Devlin is a privately-held
investment banking firm specializing in strategic and merger advisory services
to the electric and gas utility industries, the energy industry and selected
other industries. In this capacity, Barr Devlin and principals of Barr Devlin
have been involved as advisors in numerous transactions and advisory assignments
in the electric, gas and energy industries and are constantly engaged in the
valuation of businesses and securities within such industries.
Pursuant to the terms of Barr Devlin's engagement, WEC has agreed to pay
Barr Devlin for its services in connection with the Mergers (i) a financial
advisory retainer fee of $50,000 per quarter (which is the same retainer fee
required by a 1993 letter agreement between WEC and Barr Devlin for ongoing
financial advisory services; quarterly payment under such earlier agreement
constitutes payment of the quarterly retainer fee due for services rendered in
connection with the Mergers); (ii) an initial financial advisory progress fee of
$1,500,000 payable upon execution of the Merger Agreement; (iii) an additional
financial advisory progress fee of $1,500,000 payable upon WEC shareholder
approval of the Merger Agreement and the WEC Articles Amendment; (iv) if the
Mergers are consummated, a transaction fee based on the aggregate consideration
(I.E., the fair market value at the Closing Date of the Primergy Common Stock
issued pursuant to the Merger Agreement) to be paid in connection with the
Mergers, ranging from 0.45% of the aggregate consideration (for a transaction
with an aggregate consideration of $1,000,000,000) to 0.35% of the aggregate
consideration (for a transaction with an aggregate consideration of
$4,000,000,000); and (v) if WEC were to receive a termination fee pursuant to
the Merger Agreement and/or the NSP Stock Option Agreement, a breakup fee in an
amount which is equal to 20% of the excess of the aggregate amount of all such
termination fees over the direct out-of-pocket expenses incurred by WEC in
connection with the Mergers. If the Merger had been consummated as of the date
of this Joint Proxy Statement/Prospectus, the transaction fee payable to Barr
Devlin would have been approximately $11,600,000. All retainer fees payable
during the term of the engagement, all financial advisory progress fees and an
additional $750,000 would be credited against any transaction fee payable to
Barr Devlin. If a transaction fee is paid by WEC, Barr Devlin has agreed to
waive its rights to the four subsequent quarterly retainer fee payments
otherwise payable pursuant to the 1993 letter agreement following the date such
transaction fee becomes payable. WEC has agreed to reimburse Barr Devlin for its
out-of-pocket expenses, including fees and expenses of legal counsel and other
advisors engaged with the
50
consent of WEC, and to indemnify Barr Devlin against certain liabilities,
including liabilities under the federal securities laws, relating to or arising
out of its engagement. In connection with Barr Devlin's engagement, WEC has also
agreed to consider Barr Devlin as one of the potential candidates to act as
WEC's financial advisor in future transactions of a specified nature, if any,
for a period of three years following the date any transaction fee becomes
payable. If Barr Devlin were to be so engaged, the consideration to be paid to
Barr Devlin for any such successful future transaction would be at a discount
from its normal fee scale. If WEC were to engage a financial advisor other than
Barr Devlin for such a future transaction, the discounted fee schedule would not
apply to any subsequent engagement of Barr Devlin.
Barr Devlin has rendered from time to time various investment banking and
other financial advisory services to WEC. Since January 1, 1993, Barr Devlin has
earned compensation from WEC with respect to such services of approximately
$700,000 (excluding compensation with respect to its services related to the
Mergers).
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In considering the recommendations of the Boards of Directors of WEC and NSP
with respect to the Mergers, shareholders should be aware that certain members
of WEC's and NSP's management and Boards of Directors have certain interests in
the Mergers that are in addition to the interests of shareholders of WEC and NSP
generally. The Boards of Directors of each of WEC and NSP were aware of these
interests and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
EMPLOYMENT AGREEMENTS. The Employment Agreements with each of Messrs.
Howard and Abdoo will become effective only at the Effective Time. The
Employment Agreement of Mr. Howard will replace his existing employment
agreement dated February 1, 1987, and amended as of April 25, 1990 and August
24, 1994, with NSP. The Employment Agreements are described in greater detail
under "-- Employment Agreements" below.
EMPLOYEE PLANS AND SEVERANCE ARRANGEMENTS. Under certain benefit plans,
severance arrangements and other employee agreements maintained, or entered
into, by WEC, certain benefits may become vested, and certain payments may
become payable, in connection with the Mergers, but WEC has agreed in the Merger
Agreement to use its best efforts to obtain all necessary consents to the waiver
thereof in connection with the Mergers, as described in greater detail under "--
Primergy Plans -- Actions with Respect to Existing Stock Options and Certain
Other Existing Arrangements."
BOARD OF DIRECTORS. As provided in the Merger Agreement, at the Effective
Time, the Primergy Board will consist of 12 directors, comprised of six persons
designated by WEC, including Richard A. Abdoo, and six persons designated by
NSP, including James J. Howard. See "Primergy Following the Mergers --
Management of Primergy."
INDEMNIFICATION. Pursuant to the Merger Agreement, to the extent, if any,
not provided by an existing right of indemnification or other agreement or
policy, from and after the Effective Time, Primergy will, to the fullest extent
permitted by applicable law, indemnify, defend and hold harmless each person
who, prior to the Effective Time, was an officer, director or employee of WEC or
NSP or any of their subsidiaries (including New NSP or WEC Sub) against all
losses, expenses (including reasonable attorneys' fees), claims, damages or
liabilities or, subject to certain restrictions, amounts paid in settlement, (i)
arising out of actions or omissions occurring at or prior to the Effective Time
that are in whole or in part based on, or arising out of, the fact that such
person is or was a director, officer or employee of such party, or (ii) based
on, arising out of or pertaining to the transactions contemplated by the Merger
Agreement. See "The Merger Agreement -- Indemnification."
CERTAIN ARRANGEMENTS REGARDING THE DIRECTORS AND MANAGEMENT OF PRIMERGY
FOLLOWING THE MERGERS
In connection with the Mergers, the Primergy Board, at the Effective Time,
will consist of 12 persons, six of whom will be designated by NSP and six of
whom will be designated by WEC. See "Primergy Following the Mergers --
Management of Primergy" for a description of the composition of
51
the initial Primergy Board. To date, NSP and WEC have not determined which
individuals, in addition to Messrs. Howard and Abdoo, will be designated to
serve as directors of Primergy as of the Effective Time. In addition, the Merger
Agreement provides that during the three year period commencing at the Effective
Time, certain provisions thereof (including provisions relating to existing
employee agreements, workforce matters, benefit plans, stock option and other
plans and certain officer positions of Primergy) may be enforced on behalf of
the officers, directors and employees of WEC and NSP, as the case may be, by the
directors of Primergy designated by WEC and NSP, respectively (or their
successors).
EMPLOYMENT AGREEMENTS
Forms of the Employment Agreements of Messrs. Howard and Abdoo are attached
hereto as Annexes D and E, respectively. Messrs. Howard and Abdoo are sometimes
hereinafter individually referred to as the "Executive." The Employment
Agreements will become effective only at the Effective Time. The provisions of
the Employment Agreements which relate to the Executive serving as a director on
the Primergy Board assume that the Executive is elected to the Primergy Board by
the Primergy shareholders.
Pursuant to Mr. Howard's Employment Agreement, from the Effective Time until
the later of the date of the annual meeting of shareholders of Primergy that
occurs in 1998 and the last day of the sixteenth full month following the
Effective Time (the "Initial Period"), Mr. Howard will serve as Chairman and
Chief Executive Officer of Primergy, and thereafter will retire from the
position of Chief Executive Officer but will continue to serve as Chairman of
the Board of Primergy until the later of July 1, 2000 and the second anniversary
of the last day of the Initial Period (the "Secondary Period"). From the
Effective Time until Mr. Howard ceases to serve as Chief Executive Officer, Mr.
Abdoo will serve as Vice Chairman, President and Chief Operating Officer of
Primergy, and thereafter he will serve as Vice Chairman, President and Chief
Executive Officer. Mr. Abdoo will assume the position of Chairman at the end of
the Secondary Period. Mr. Abdoo's Employment Agreement expires on the fifth
anniversary of the Effective Time or, if later, January 31, 2002, but will be
extended by successive one-year periods on the third, fourth and fifth
anniversaries of the Effective Time unless either Primergy or Mr. Abdoo notifies
the other that it shall not be so extended.
Each Employment Agreement provides that the Executive will receive an annual
base salary, short-term and long-term incentive compensation (including stock
options and restricted stock) and supplemental retirement benefits no less than
they received before the Effective Time, as well as life insurance providing a
death benefit of three times their annual base salaries. The Executive is also
entitled to retirement and welfare benefits on the same basis as other
executives, and certain fringe benefits.
CERTAIN OBLIGATIONS OF PRIMERGY UPON TERMINATION OF EMPLOYMENT
AGREEMENT. If Primergy terminates the employment of the Executive without cause
(as defined in the Employment Agreements) or the Executive terminates his
employment for good reason (as defined in the Employment Agreements), Primergy
will continue to provide the compensation and benefits called for by the
Employment Agreement through the end of the term of the Employment Agreement
(with incentive compensation based on the maximum potential awards and any stock
compensation paid in cash), and all unvested stock compensation will vest
immediately and the Executive will be deemed to retire with full retiree welfare
benefits. If the Executive dies or becomes disabled, or terminates his
employment without good reason, during the term of the Employment Agreement,
Primergy will pay to the Executive or his beneficiaries or estate all
compensation earned through the date of death, disability or such termination
(including previously deferred compensation and pro rata incentive compensation
based upon the maximum potential awards). If the Executive is terminated by
Primergy for cause, Primergy will pay his base salary through the date of
termination plus any previously deferred compensation. In the event that any
payments to the Executive under the Employment Agreement or
52
otherwise are subject to the excise tax on excess parachute payments, Primergy
will pay an additional amount to the Executive, such that after payment of all
income and excise taxes on the additional amount, the Executive will retain a
sufficient amount to pay the excise tax.
EMPLOYEE PLANS AND SEVERANCE ARRANGEMENTS
Effective April 28, 1995, the respective Boards of Directors of NSP and WEC
adopted the respective Severance Policies providing for severance benefits to
employees designated as Participants. A total of 25 NSP employees (including 12
executive officers) and 25 WEC employees (including four executive officers)
have been designated as Participants. The Severance Policies will provide
severance benefits to Participants whose employment is terminated under certain
circumstances at any time before (i) the second anniversary of the Effective
Time (if the Mergers are consummated) or (ii) if the Mergers are not
consummated, April 28, 2000, unless further extended by the respective Boards of
Directors. If all participants in the Severance Policies had been terminated as
of July 1, 1996 under circumstances giving rise to an entitlement to severance
benefits, the aggregate value of the severance benefits (assuming specified
increases in base salary and specified incentive compensation levels) would have
been approximately $19,000,000 for the NSP Participants (including the following
approximate amounts for the participating NSP executive officers: Douglas D.
Antony -- $950,000; Loren L. Taylor -- $950,000; Keith H. Wietecki -- $810,000;
Arland D. Brusven -- $660,000; Jackie A. Currier -- $680,000; Gary R. Johnson --
$950,000; Cynthia L. Lesher -- $760,000; Edward J. McIntyre -- $1,040,000;
Thomas A. Micheletti -- $770,000; Roger D. Sandeen -- $750,000; Robert H.
Schulte -- $770,000 and Edward L. Watzl -- $900,000) and approximately
$13,000,000 for the WEC Participants (including the following approximate
amounts for the participating WEC executive officers: Richard R. Grigg, Jr. --
$950,000; David K. Porter -- $870,000; Francis Brzezinski -- $690,000 and Anne
K. Klisurich -- $480,000).
The Severance Policies provide for the payment of severance benefits to any
Participant whose employment is terminated after April 28, 1995 and before the
second anniversary of the Effective Time (or April 28, 2000, if the Mergers are
not consummated), if the Participant's employment is terminated: (i) by the
employer, other than for cause, disability or retirement; (ii) as a result of
the sale of a business by the employer if the purchaser of the business does not
agree to employ the Participant on the same terms and conditions as were in
effect before the sale, including comparable severance protection; (iii) or by
the Participant within 90 days after a reduction in his or her salary, a
material and adverse diminishment of his or her duties and responsibilities or
of the program of incentive compensation and employee benefits covering the
Participant, or a relocation of the Participant by more than 50 miles.
The severance benefits under the Severance Policies consist of: (i) a cash
lump sum payment of three years' salary and annual incentive compensation; (ii)
a cash lump sum payment of the actuarial equivalent of the additional retirement
benefits the Participant would have earned if he or she had remained employed
for three more years; (iii) continued medical, dental and life insurance
coverage for three years; (iv) outplacement services at a cost of not more than
$30,000 or the use of office space and support for up to one year; (v) financial
planning counseling for two years; and (vi) transfer of title of the
Participant's company car, if any, at no cost to the Participant. If the
foregoing benefits, when taken together with any other payments to the
Participant, result in the imposition of the excise tax on excess parachute
payments, then the severance benefits will be reduced only if the reduction
results in a greater after-tax payment to the Participant.
PRIMERGY PLANS
Pursuant to the terms of the Merger Agreement, Primergy will implement the
Primergy Plans described below, subject to shareholder approval thereof at the
NSP Meeting and the WEC Meeting. Each of the Primergy Plans will become
effective as of the Effective Time.
PRIMERGY STOCK INCENTIVE PLAN. This plan is a comprehensive stock
compensation plan designed to provide Primergy with the ability to provide
incentives directly linked to the profitability of its businesses and increases
in shareholder value. Like the WEC 1993 Omnibus Stock Incentive Plan and
53
the NSP Long-Term Incentive Award Stock Plan, the Primergy Stock Incentive Plan
provides for the grant of stock options, including incentive stock options
("ISOs"), nonqualified stock options, stock appreciation rights ("SARs"),
restricted stock and performance units. The maximum number of shares of Primergy
Common Stock available for issuance under the plan is 12,000,000, but not more
than 3,000,000 shares may be issued as restricted stock. The Compensation
Committee of the Primergy Board (the "Primergy Compensation Committee") will
administer the plan and make awards thereunder, and will have broad authority to
fix the terms and conditions of individual agreements with participants. This
plan is being submitted to shareholders of WEC and NSP for approval, and is
described in greater detail under "Approval of Primergy Plans -- Primergy Stock
Incentive Plan" elsewhere in this Joint Proxy Statement/Prospectus; a copy of
the plan is attached as Annex K. Following implementation of the Primergy Stock
Incentive Plan, no further obligations will be incurred under the NSP Long-Term
Incentive Award Stock Plan or the WEC 1993 Omnibus Stock Incentive Plan.
PRIMERGY MANAGEMENT INCENTIVE COMPENSATION PLAN. This plan is a short-term
incentive compensation plan designed to benefit eligible employees of Primergy
and its subsidiaries. Like the WEC Short-Term Performance Plan and the NSP
Executive Incentive Compensation Plan, the Primergy Management Incentive
Compensation Plan rewards key management personnel for meeting established
individual, group and corporate goals. Employees who participate in this plan
will be granted awards payable in cash to the extent predetermined goals are
attained within the performance period (which will not exceed 12 months). Awards
are based on a percentage of a participant's annual base salary. This plan is
being submitted to shareholders of WEC and NSP for approval, and is described in
greater detail under "Approval of Primergy Plans -- Primergy Management
Incentive Compensation Plan" elsewhere in this Joint Proxy Statement/Prospectus;
a copy of the plan is attached as Annex L. Following implementation of the
Primergy Management Incentive Compensation Plan, no further obligations will be
incurred under the WEC Short-Term Performance Plan or the NSP Executive
Incentive Compensation Plan.
ACTIONS WITH RESPECT TO EXISTING STOCK OPTIONS AND CERTAIN OTHER EXISTING
ARRANGEMENTS. All stock options to acquire NSP Common Stock under the NSP
Long-Term Incentive Award Stock Plan that are outstanding at the Effective Time
will be converted into options to buy Primergy Common Stock, and the number of
shares and exercise price under such options will be adjusted so as to preserve
both the same aggregate gain or loss immediately after the Effective Time as
existed immediately before the Effective Time and the ratio of the exercise
price per share subject to the NSP stock option to the fair market value per
underlying share. Primergy will assume the obligation to honor such options and
any other outstanding awards under the NSP Long-Term Incentive Award Stock Plan,
and the terms and conditions of such options and awards will otherwise remain
the same as before the Effective Time after giving effect to the Ratio. See "The
Merger Agreement -- Benefit Plans." All stock options to acquire WEC Common
Stock and other awards under the WEC 1993 Omnibus Stock Incentive Plan that are
outstanding at the Effective Time will remain outstanding on the same terms and
conditions as before the Effective Time and will relate to Primergy Common
Stock.
The WEC Supplemental Executive Retirement Plan, the WEC Executive
Non-Qualified Trust, certain supplemental retirement benefit agreements with
executives of WEC and WEC's utility subsidiaries, the WEC Executive Deferred
Compensation Plan, the WEC Directors' Deferred Compensation Plan and the WEPCO
Directors' Deferred Compensation Plan all provide for accelerated vesting,
funding and/or payments upon a change of control. The WEC 1993 Omnibus Stock
Incentive Plan also provides that all unvested options and other benefits will
vest upon a change of control. WEC has agreed to amend each of the foregoing
arrangements so that the change of control provisions will not be triggered by
the Mergers. However, in the case of all such arrangements other than the WEC
Executive Non-Qualified Trust, WEC must obtain the consent of the affected
individuals, and WEC has agreed to use best efforts to obtain such consents. Mr.
Abdoo has consented to waive all benefits that would otherwise be paid to him
upon consummation of the Mergers under the change of control
54
provisions of those of the above plans in which he participates. All of the
outside directors participating in the WEC Directors' Deferred Compensation Plan
have consented to waive their rights to receive accelerated payment of the
balances in their respective accounts upon consummation of the Mergers. Other
than Mr. Abdoo, no WEC executive officers who participate in any of the
above-referenced plans have been approached to obtain such consent. Based on
plan account balances at December 31, 1994, the following WEC executive officer
participants in such plans would be entitled to the approximate amounts
indicated if they did not waive their rights to receive the balances in their
respective accounts upon consummation of the Mergers: Jerry G. Remmel --
$520,000; John H. Goetsch -- $290,000; David K. Porter -- $70,000; Richard R.
Grigg, Jr. -- $55,000; Francis Brzezinski -- $55,000; and Anne K. Klisurich --
$15,000.
DIVIDEND REINVESTMENT PLAN
WEC's Stock Plus Investment Plan as in effect at the Effective Time will
continue as the dividend reinvestment and stock purchase plan of Primergy
following the Mergers. Participants in WEC's Stock Plus Investment Plan
immediately prior to the Effective Time will continue to participate in the
Primergy dividend reinvestment and stock purchase plan after the Effective Time.
Following the Effective Time, former preferred and common shareholders of NSP
will be able to participate in the Primergy dividend reinvestment and stock
purchase plan with respect to the shares of New NSP Preferred Stock and Primergy
Common Stock that they receive in the Mergers, and to have their accounts under
the NSP DRIP transferred to the Primergy dividend reinvestment and stock
purchase plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL. The following is a summary description of the material federal
income tax consequences of the Mergers. This summary is not a complete
description of all of the consequences of the Mergers and, in particular, may
not address federal income tax considerations that may affect the treatment of a
shareholder that, at the Reincorporation Effective Time or the Effective Time,
is not a U.S. person or is a tax-exempt entity or an individual who acquired NSP
Common Stock pursuant to an employee stock option. In addition, no information
is provided with respect to the tax consequences of the Mergers under foreign,
state or local laws. The discussion is based on the Code as in effect on the
date of this Joint Proxy Statement/Prospectus, without consideration of the
particular facts or circumstances of any shareholder. CONSEQUENTLY, EACH
SHAREHOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES TO HIM OR HER OF THE MERGERS.
THE MERGERS. Each party's obligation to effect the Mergers is conditioned
on (i) the receipt of a private letter ruling from the IRS providing certain
assurances regarding the federal income tax consequences of the Mergers and (ii)
the delivery of an opinion to NSP from Wachtell, Lipton, Rosen & Katz, its
counsel, and an opinion to WEC from Skadden, Arps, Slate, Meagher & Flom or
Quarles & Brady, its counsel, each dated as of the Closing Date, based upon
certain customary representations and assumptions set forth therein and on such
private letter ruling, substantially to the effect that, for federal income tax
purposes, each of the Mergers constitutes a tax-free reorganization within the
meaning of Section 368(a) of the Code.
Provided that such a ruling is obtained (in which case, provided that there
shall have been no adverse changes in applicable law or facts at such time, such
opinions of counsel will be delivered), the material federal income tax
consequences of the Mergers will be:
(i) No gain or loss will be recognized by NSP, New NSP, WEC or WEC Sub
pursuant to the Mergers;
(ii) No gain or loss will be recognized by holders of NSP Preferred
Stock and NSP Common Stock upon the cancellation of their NSP Preferred
Stock and NSP Common Stock and conversion thereof into New NSP Preferred
Stock and New NSP Common Stock, respectively, pursuant to the
Reincorporation Merger, but a holder of NSP Dissenting Shares that receives
cash instead of stock will recognize gain or loss equal to the difference
between the cash received and the
55
shareholder's tax basis in the NSP Dissenting Shares. No gain or loss will
be recognized by holders of New NSP Common Stock upon the cancellation of
their New NSP Common Stock and conversion thereof into Primergy Common Stock
pursuant to the NSP Merger, except that a holder of New NSP Common Stock
that receives cash in lieu of a fractional share interest in Primergy Common
Stock will recognize gain or loss equal to the difference between the cash
received and the tax basis allocated to the fractional share interest. Any
gain or loss recognized by a shareholder will constitute capital gain or
loss if such shareholder's NSP Preferred Stock, NSP Common Stock or New NSP
Common Stock with respect to which gain or loss is recognized is held as a
capital asset at the Reincorporation Effective Time or the Effective Time,
as the case may be;
(iii) The tax basis of the New NSP Preferred Stock and the New NSP Common
Stock received by an NSP shareholder will be the same as such shareholder's
tax basis in the NSP Preferred Stock and NSP Common Stock that was cancelled
pursuant to the Mergers, and the tax basis of the Primergy Common Stock
received by a holder of New NSP Common Stock will be the same as such
shareholder's tax basis in the New NSP Common Stock that was cancelled
pursuant to the Mergers reduced by the tax basis allocable to any fractional
share interest in Primergy Common Stock with respect to which cash is being
received;
(iv) The holding period of the New NSP Preferred Stock and the New NSP
Common Stock received by an NSP shareholder will include the shareholder's
holding period with respect to the NSP Preferred Stock or NSP Common Stock
that was cancelled pursuant to the Mergers (PROVIDED that such NSP Preferred
Stock or NSP Common Stock was held by such NSP shareholder as a capital
asset at the Reincorporation Effective Time), and the holding period of the
Primergy Common Stock received by a holder of New NSP Common Stock will
include the shareholder's holding period with respect to the New NSP Common
Stock that was cancelled pursuant to the Mergers (provided that such New NSP
Common Stock was held by such NSP shareholder as a capital asset at the
Effective Time); and
(v) No gain or loss will be recognized by a shareholder of WEC upon the
Reincorporation Merger or the NSP Merger.
ACCOUNTING TREATMENT
The Mergers are designed to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of NSP and WEC will be carried forward to the
consolidated financial statements of Primergy at their recorded amounts; income
of Primergy will include income of NSP and WEC for the entire fiscal year in
which the Mergers occur; and the reported income of the separate corporations
for prior periods will be combined and restated as income of Primergy. The
receipt by each of WEC and NSP of a letter from their respective independent
accountants, stating that the transaction will qualify as a pooling of
interests, is a condition precedent to consummation of the Mergers.
Representatives of Price Waterhouse LLP are expected to be present at the NSP
Meeting and the WEC Meeting and to be available to respond to questions, and
will have an opportunity to make a statement if they desire to do so. See "The
Merger Agreement -- Conditions to Each Party's Obligation to Effect the Mergers"
and "Unaudited Pro Forma Combined Condensed Financial Information."
STOCK EXCHANGE LISTING OF PRIMERGY COMMON STOCK
Application will be made for the listing on the NYSE of the shares of
Primergy Common Stock to be issued pursuant to the terms of the Merger
Agreement. The listing on the NYSE of such shares, subject to notice of
issuance, is a condition precedent to the consummation of the Mergers. So long
as NSP and WEC continue to meet the requirements of the NYSE, NSP Common Stock,
and WEC Common Stock, as the case may be, will continue to be listed on the NYSE
until the Effective Time. So long as NSP continues to meet the requirements of
the PSE and the CSE, the other national securities exchanges which list NSP
Common Stock, NSP Common Stock will continue to be listed on the PSE and the CSE
until the Effective Time.
56
With respect to the series of NSP Preferred Stock currently listed on the
NYSE, New NSP will apply for listing of such series of New NSP Preferred Stock
on the NYSE. So long as NSP continues to meet the requirements of the NYSE, NSP
Preferred Stock listed on the NYSE will continue to be listed on the NYSE until
the Effective Time.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Primergy Common Stock and New NSP Preferred Stock received by
NSP shareholders in the Mergers will be freely transferable, except that shares
of Primergy Common Stock and New NSP Preferred Stock received by persons who are
deemed to be "affiliates" (as such term is defined under the Securities Act) of
NSP, New NSP or WEC prior to the Mergers may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144, in the case of such persons who become
affiliates of Primergy or New NSP) or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of NSP, New NSP, WEC
or Primergy generally include individuals or entities that control, are
controlled by, or are under common control with, such party and may include
certain officers and directors of such party as well as principal shareholders
of such party. The Merger Agreement requires each of NSP and WEC to use all
reasonable efforts to cause each of its affiliates to execute a written
agreement to the effect that such affiliate will not offer or sell or otherwise
dispose of (i) any shares of NSP, WEC or Primergy during the period beginning 30
days prior to the Effective Time and continuing until such time as results
covering at least 30 days of post-Effective Time operations of Primergy have
been published or (ii) any of the shares of Primergy Common Stock or New NSP
Preferred Stock issued to such affiliate in or pursuant to the Mergers in
violation of the Securities Act or the rules and regulations promulgated by the
SEC thereunder.
This Joint Proxy Statement/Prospectus does not cover resales of Primergy
Common Stock or New NSP Preferred Stock received by any person who may be deemed
to be an affiliate of NSP, New NSP, WEC or Primergy.
MINNESOTA DISSENTERS' RIGHTS
Sections 302A.471 and 302A.473 of the MBCA entitle any holder of NSP Common
Stock or NSP Preferred Stock who objects to the Mergers and who follows the
procedures prescribed by Section 302A.473 of the MBCA, in lieu of receiving the
consideration proposed under the Merger Agreement, to receive cash equal to the
"fair value" of such shareholder's shares of NSP Common Stock or NSP Preferred
Stock, as the case may be. Set forth below is a summary of the procedures
relating to the exercise of such dissenters' rights. This summary does not
purport to be a complete statement of dissenters' rights and is qualified in its
entirety by reference to Sections 302A.471 and 302A.473 of the MBCA, which are
reproduced in full as Annex M attached to this Joint Proxy Statement/Prospectus
and to any amendments to such provisions as may be adopted after the date of
this Joint Proxy Statement/Prospectus.
ANY NSP SHAREHOLDER CONTEMPLATING THE POSSIBILITY OF DISSENTING FROM THE
MERGERS SHOULD CAREFULLY REVIEW THE TEXT OF ANNEX M (PARTICULARLY THE SPECIFIED
PROCEDURAL STEPS REQUIRED TO PERFECT DISSENTERS' RIGHTS, WHICH ARE COMPLEX) AND
SHOULD ALSO CONSULT SUCH SHAREHOLDER'S LEGAL COUNSEL. SUCH RIGHTS WILL BE LOST
IF THE PROCEDURAL REQUIREMENTS OF SECTION 302A.473 OF THE MBCA ARE NOT FULLY AND
PRECISELY SATISFIED.
The MBCA provides dissenters' rights for shareholders of NSP who object to
the Mergers and meet the requisite statutory requirements contained in the MBCA.
Under the MBCA, any NSP shareholder who (i) files with NSP written notice of his
or her intent to demand the fair value for his or her shares of NSP Common Stock
or NSP Preferred Stock, as the case may be, if the Mergers are consummated and
become effective, which notice is filed with NSP before the vote is taken at the
NSP Meeting and (ii) does not vote his or her shares of NSP Common Stock or NSP
Preferred Stock, as the case may be, at the NSP Meeting in favor of the proposal
to approve the Mergers, shall be entitled, if
57
the Mergers are approved and effected, to receive a cash payment of the fair
value of such shareholder's shares of NSP Common Stock or NSP Preferred Stock
upon compliance with the applicable statutory procedural requirements. A failure
by any NSP shareholder to vote against the proposal to approve the Mergers will
not in and of itself constitute a waiver of the dissenter's rights of such
shareholder under the MBCA. In addition, a NSP shareholder's vote against the
proposal to approve the Mergers will not satisfy the notice requirement referred
to in clause (i) above.
Any written notice of a NSP shareholder's intent to demand payment for such
shareholder's shares of NSP Common Stock or NSP Preferred Stock, as the case may
be, if the Mergers are consummated must be filed with NSP at 414 Nicollet Mall,
Minneapolis, Minnesota 55401, Attn: Corporate Secretary, prior to the vote on
the Mergers at the NSP Meeting. A shareholder who votes for the Mergers will
have no dissenters' rights. A shareholder who does not satisfy each of the
requirements of Sections 302A.471 and 302A.473 of the MBCA is not entitled to
payment for such shareholder's shares of NSP Common Stock or NSP Preferred Stock
under the dissenters' rights provisions of the MBCA and will be bound by the
terms of the Merger Agreement.
After the proposed Mergers have been approved at the NSP Meeting, NSP must
send written notice to all shareholders who have given written notice and not
voted in favor of the Mergers as described above. The notice will contain: (i)
the address where the demand for payment and NSP Certificates must be sent and
the date by which they must be received (which date will be the 30th day after
the notice is given), (ii) any restrictions on transfer of uncertificated shares
that will apply after the demand for payment is received, (iii) a form to be
used to certify the date on which the shareholder, or the beneficial owner on
whose behalf the shareholder dissents, acquired the shares (or an interest in
them) and to demand payment, and (iv) a copy of the provisions of the MBCA set
forth in Annex M with a brief description of the procedures to be followed under
those provisions. A NSP shareholder who is sent a notice and who wishes to
assert dissenters' rights must demand payment and deposit his or her NSP stock
certificates (at the address specified in NSP's notice) within 30 days after
such notice is given. Prior to the Effective Time, a NSP shareholder exercising
dissenters' rights retains all other rights of a NSP shareholder. From and after
the Effective Time, dissenting shareholders will no longer be entitled to any
rights of a shareholder, including, but not limited to, the right to receive
notice of meetings, to vote at any meetings or to receive dividends, and will
only be entitled to any rights of appraisal as provided by the MBCA. If any such
holder of NSP Common Stock or NSP Preferred Stock shall have failed to perfect
or shall have effectively withdrawn or lost such right, his or her shares of NSP
Common Stock or NSP Preferred Stock, as the case may be, shall thereupon be
deemed to have been converted into the right to receive Primergy Common Stock
and cash for any fractional shares, or New NSP Preferred Stock, as the case may
be, pursuant to the Merger Agreement.
After the Effective Time or upon receipt of a valid demand for payment,
whichever is later, New NSP (as the successor to NSP in the Mergers) must remit
to each dissenting shareholder who complied with the requirements of the MBCA
the amount New NSP estimates to be the fair value of such shareholder's shares
of NSP Common Stock or NSP Preferred Stock, as the case may be, plus interest
accrued at a statutory rate from the fifth day after the Effective Time to the
date of payment. The payment also must be accompanied by certain financial data
relating to NSP, New NSP's estimate of the fair value of the shares and a
description of the method used to reach such estimate, and a copy of the
applicable provisions of the MBCA with a brief description of the procedures to
be followed in demanding supplemental payment. The dissenting shareholder may
decline to accept the amount remitted by New NSP and demand payment for an
amount equal to the dissenting shareholder's estimate of the fair value of the
NSP Common Stock or NSP Preferred Stock, as the case may be. Failure to make
such demand within 30 days after the notice is given by NSP entitles the
dissenting shareholder only to the amount initially remitted by New NSP. If New
NSP fails to remit payment within 60 days of the deposit of the NSP stock
certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited NSP Certificates and cancel all transfer
restrictions; however, New NSP may again give notice regarding the procedure to
exercise dissenters' rights and require deposit or restrict transfer at a later
time. If a dissenting shareholder believes that the amount
58
remitted is less than the fair value of the NSP Common Stock or NSP Preferred
Stock, as the case may be (including statutory interest), such dissenting
shareholder may give written notice to New NSP of his or her own estimate of the
fair value of the shares, plus interest, within 30 days after New NSP mails its
remittance, and demand payment of the difference. Otherwise a dissenting
shareholder is entitled only to the amount remitted by New NSP.
If New NSP receives a demand from a dissenting shareholder to pay such
difference, it shall, within 60 days after receiving the demand, either pay to
the dissenting shareholder the amount demanded or agreed to by the dissenting
shareholder after discussion with New NSP or file in court a petition requesting
that the court determine the fair value of the shares of NSP Common Stock or NSP
Preferred Stock, as the case may be, plus interest.
The court may appoint one or more appraisers to receive evidence and make
recommendations to the court on the amount of the fair value of the shares. The
court shall determine whether the dissenting shareholder has complied with the
requirements of Section 302A.473 of the MBCA and shall determine the fair value
of the shares, taking into account any and all factors the court finds relevant,
computed by any method or combination of methods that the court, in its
discretion, sees fit to use. The fair value of the shares as determined by the
court is binding on all dissenting shareholders and may be less than, equal to
or greater than the market price of the Primergy Common Stock or New NSP
Preferred Stock, as the case may be, to be issued to non-dissenting shareholders
for their shares of NSP Common Stock or NSP Preferred Stock, as the case may be,
if the Mergers are completed. If the court determines that the fair value of the
shares is in excess of the amount, if any, remitted by New NSP, then the court
will enter a judgment for cash in favor of the dissenting shareholders in an
amount by which the value determined by the court, plus interest, exceeds such
amount previously remitted. A dissenting shareholder will not be liable to New
NSP if the amount, if any, originally remitted to such shareholder by New NSP
exceeds the fair value of the shares, as determined by the court, plus interest.
Costs of the court proceeding shall be determined by the court and assessed
against New NSP, except that part or all of the costs may be assessed against
any dissenting shareholders whose actions in demanding supplemental payments are
found by the court to be arbitrary, vexatious or not in good faith.
If the court finds that New NSP did not substantially comply with the
relevant dissenters' provisions of the MBCA, the court may assess the fees and
expenses, if any, of attorneys or experts as the court deems equitable. Such
fees and expenses may also be assessed against any party if the court finds that
such party in bringing the proceeding has acted arbitrarily, vexatiously or not
in good faith, and may be awarded to a party injured by those actions. The court
may award, in its discretion, fees and expenses of an attorney for the
dissenting shareholders out of the amount awarded to such shareholders, if any.
A shareholder of record may assert dissenters' rights as to fewer than all
of the shares registered in such shareholder's name only if he or she dissents
with respect to all shares beneficially owned by any one beneficial shareholder
and notifies NSP in writing of the name and address of each person on whose
behalf he or she asserts dissenters' rights. The rights of such a partial
dissenting shareholder are determined as if the shares as to which he or she
dissents and his or her other shares were registered in the names of different
shareholders.
Under Subdivision 4 of Section 302A.471 of the MBCA, a NSP shareholder has
no right, at law or in equity, to set aside the approval of the Merger Agreement
or the consummation of the Mergers except if such approval or consummation was
fraudulent with respect to such shareholder or NSP.
NO WISCONSIN DISSENTERS' RIGHTS
The WBCL does not give WEC shareholders the right to dissent from and obtain
payment of the fair value of their shares in connection with the matters to be
acted upon at the WEC Meeting.
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REGULATORY MATTERS
As indicated below, consummation of the Mergers is subject to numerous
regulatory approvals, which are presently anticipated to be received by the last
quarter of 1996. Set forth below is a summary of the material regulatory
requirements affecting the Mergers.
STATE APPROVALS AND RELATED MATTERS. WEPCO, the electric utility subsidiary
of WEC, and NSP have included a regulatory plan in their filings for the
requisite state regulatory approvals. The companies propose that the net savings
expected to result from the Mergers be spread among the Primergy shareholders
and the retail electric customers in each of the five state jurisdictions in an
equitable manner. WEPCO and NSP have proposed, as a result of the allocation of
these net savings among each of the state jurisdictions, an average rate
reduction of approximately 1.5% in the retail electric rates beginning on or
about January 1997 (assuming that the Mergers are then effective) and a rate
freeze through the year 2000, subject to certain exceptions regarding matters
beyond NSP's or WEPCO's control, such as an increase in the federal corporate
tax rate.
NSP is currently subject to the jurisdiction of the Minnesota Public
Utilities Commission (the "Minnesota Commission"), the North Dakota Public
Service Commission (the "North Dakota Commission") and the South Dakota Public
Utilities Commission (the "South Dakota Commission") with respect to its utility
operations in those states. NSP-Wisconsin, the utility subsidiary of NSP, which
provides utility service in Wisconsin and the Upper Peninsula of Michigan, is
subject to the jurisdiction of the Wisconsin Commission and the Michigan Public
Service Commission (the "Michigan Commission").
WEPCO is subject to the jurisdiction of the Wisconsin Commission and
Michigan Commission with respect to retail utility service provided in Wisconsin
and the Upper Peninsula of Michigan. Wisconsin Natural provides retail gas
service in various portions of Wisconsin and is subject to the jurisdiction of
the Wisconsin Commission. As a result of its ownership of WEPCO and Wisconsin
Natural, WEC is a public utility holding company under the Wisconsin Holding
Company Act and is subject to the jurisdiction of the Wisconsin Commission.
Applications for approval of the Mergers and related transactions,
including, in the case of certain commissions, the issuance of securities in
connection therewith, were filed in early August, 1995 with the Minnesota
Commission, the Wisconsin Commission, the North Dakota Commission and the
Michigan Commission. An application for disclaimer of jurisdiction was filed
with the South Dakota Commission concurrently with the other state applications.
Assuming the requisite regulatory approvals are obtained, New NSP's utility
operations will remain subject to regulation by the Minnesota, North Dakota, and
South Dakota Commissions and WEPCO's utility operations (which will include the
operations of Wisconsin Natural and NSP-Wisconsin) will remain subject to
regulation by the Wisconsin and Michigan Commissions. In addition, assuming such
approvals, New NSP will become a Wisconsin utility by virtue of its acquisition
of gas utility properties from NSP-Wisconsin and will become subject to the
jurisdiction of the Wisconsin Commission with respect to such retail gas utility
service.
Primergy will be a public utility holding company (a "holding company")
under the Wisconsin Holding Company Act and will be subject to the jurisdiction
of the Wisconsin Commission to the same extent that WEC is currently subject to
the jurisdiction of the Wisconsin Commission. The following is a brief summary
of certain provisions of the Wisconsin Holding Company Act that currently apply
to WEC and will apply to Primergy.
The Wisconsin Holding Company Act prohibits any person from forming a
holding company or acquiring or holding more than 10% of the outstanding voting
securities of a holding company, without Wisconsin Commission approval. The
Wisconsin Commission, if it finds the capital of any public utility affiliate
will be impaired by payment of a dividend, may order the utility affiliate to
limit or cease payment of dividends to the holding company. Various transactions
by a public utility affiliate with others in the holding company system are
prohibited, including lending money, guaranteeing
60
obligations, combined advertising, providing utility service on terms different
from those for other consumers in the same class, and, without Wisconsin
Commission approval after establishment that the utility affiliate will be paid
at fair market value, certain sales or leases of real property and use of
services of utility employees. The Wisconsin Holding Company Act prohibits (i)
any public utility affiliate from providing any non-utility product or service
in a manner or at a price that unfairly discriminates against any competing
provider, (ii) any non-utility activity from being subsidized materially by the
customers of any public utility in the system, (iii) the operation of the system
in any way which materially impairs the credit, ability to acquire capital on
reasonable terms or ability to provide safe, reasonable, reliable and adequate
utility service, of any public utility affiliate in the system, (iv) any
transfer by a public utility affiliate to any other system company of any
confidential public utility information, including customer lists, for any
non-utility purpose, unless the Wisconsin Commission has approved the transfer,
and (v) any termination of the system's interest in a public utility affiliate
without Wisconsin Commission approval. Other statutory provisions which
pre-existed the Wisconsin Holding Company Act include requirements for
submission to the Wisconsin Commission for approval of certain contracts or
other arrangements for furnishing property or services between a public utility
and an affiliate.
The Wisconsin Holding Company Act also limits non-utility diversification,
in that, stated generally, the net book value of the assets (other than
investment in system affiliates) of all non-utility affiliates may not exceed
the sum of 25% of the net book value of all electric utility affiliates and a
percentage, to be determined by the Wisconsin Commission (but not less than
25%), of the net book value of all other public utility affiliates. In order for
Primergy to be within the foregoing prescribed limits at the time NSP becomes a
subsidiary of Primergy, NSP must first become a Wisconsin corporation, which is
the reason NSP will be merged into New NSP pursuant to the Reincorporation
Merger. Further, the Wisconsin Holding Company Act requires the Wisconsin
Commission to periodically investigate the impact of the operation of every
holding company system on every public utility affiliate in the system and to
determine whether each non-utility affiliate does, or can reasonably be expected
to do, at least one of the following: (a) substantially retain, attract or
promote business activity or employment or provide capital to businesses within
the service territory of any public utility affiliate or certain others, (b)
increase or promote energy conservation or develop, produce or sell renewable
energy products or equipment, (c) conduct a business that is functionally
related to the provision of utility service or to the development or acquisition
of energy resources, and (d) develop or operate commercial or industrial parks
in the service territory of any public utility affiliate. NSP and WEC believe
that their existing non-utility businesses meet the requirements of the
Wisconsin Holding Company Act. The Wisconsin Commission also is authorized to
order a holding company to terminate its interest in a public utility affiliate
if the Wisconsin Commission finds that, based upon clear and convincing
evidence, termination of the interest is necessary to protect the interest of
utility investors in a financially healthy utility and the interest of consumers
in reasonably adequate utility service at a just and reasonable price.
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935. Primergy is required to obtain
SEC approval under Section 9(a)(2) of the 1935 Act in connection with the
Mergers. Section 9(a)(2) of the 1935 Act provides that it is unlawful for any
person to acquire any security of any public utility company if that person
owns, or by virtue of that transaction will come to own, 5% or more of the
voting securities of that public utility company and of any other public utility
company, without the prior approval of the SEC. An application for approval of
the Mergers will be filed by WEC and NSP at the appropriate time. Under the
applicable standards of the 1935 Act, the SEC is directed to approve a proposed
acquisition unless it finds that (1) the acquisition would tend towards
detrimental interlocking relations or a detrimental concentration of control,
(2) the consideration to be paid in connection with the acquisition is not
reasonable, (3) the acquisition would unduly complicate the capital structure of
the applicant's holding company system or would be detrimental to the proper
functioning of the applicant's holding company system, or (4) the acquisition
would violate applicable state law. In order to
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approve a proposed acquisition, the SEC must also find that the acquisition
would tend towards the development of an integrated public utility system and
would otherwise conform to the 1935 Act's integration and corporate
simplification standards.
WEC is currently exempt from the registration and other requirements of the
1935 Act, other than from Section 9(a)(2) thereof, pursuant to an order of the
SEC under Section 3(a)(1) of the 1935 Act. The basis of the exemption under
Section 3(a)(1) is that WEC and its public utility subsidiaries are
predominantly intrastate in character and carry on their businesses
substantially in a single state in which they are organized (Wisconsin). NSP is
currently exempt from the registration and other requirements of the 1935 Act,
other than from Section 9(a)(2) thereof, pursuant to an order of the SEC under
Section 3(a)(2) of the 1935 Act. The basis of the exemption under Section
3(a)(2) is that NSP is predominantly a public utility which carries on its
utility business only in the state of its incorporation (Minnesota) and in
states contiguous thereto. Neither the Section 3(a)(1) exemption under which WEC
currently operates nor the Section 3(a)(2) exemption under which NSP currently
operates will be available to Primergy after consummation of the Mergers.
Accordingly, upon consummation of the Mergers, Primergy must register as a
holding company under the 1935 Act. The 1935 Act imposes numerous restrictions
on the operations of a registered holding company and its subsidiaries and
affiliates. Subject to limited exceptions, SEC approval is required under the
1935 Act for a registered holding company or any of its subsidiaries to: (i)
issue securities, (ii) acquire utility assets from a third person, (iii) acquire
the stock of another public utility, (iv) amend its articles of incorporation or
(v) acquire stock, extend credit, pay dividends, lend money or invest in any
manner in any other businesses. SEC approval under the 1935 Act also will be
required for certain proposed transactions relating to the Mergers. For example,
SEC approval will be required for Primergy's issuance of securities pursuant to
the Primergy Stock Incentive Plan, the merger of NSP-Wisconsin into WEPCO after
the Mergers, the transfer by NSP of its subsidiaries to Primergy and the
establishment of a services corporation to provide various administrative and
support services to Primergy and certain of its subsidiaries.
As part of the SEC's approval process, the 1935 Act also limits the ability
of registered holding companies to engage in non-utility ventures and regulates
holding company system service companies and the rendering of services by
holding company affiliates to the system's utilities.
The SEC may require, as a condition to its approval of the Mergers, that NSP
and WEC divest their gas utility properties and possibly certain non-utility
ventures within a reasonable time after the Mergers. In a few cases, the SEC has
allowed the retention of such properties or deferred the question of divestiture
for a substantial period of time. In those cases in which divestiture has taken
place, the SEC has usually allowed enough time to complete the divestiture so as
to allow the applicant to avoid a "fire sale" of the divested assets. NSP and
WEC believe strong policy reasons and prior SEC decisions exist which support
their retaining their existing gas utility properties and non-utility ventures,
or, alternatively, which support deferring the question of divestiture for a
substantial period of time; accordingly, WEC and NSP will request in their 1935
Act application that NSP and WEC be allowed to retain, or, in the alternative,
that the question of divestiture be deferred with respect to, NSP's and WEC's
existing gas utility properties and non-utility ventures.
On June 20, 1995, the SEC issued a series of new proposed regulations that
are designed, among other things, to ease the restrictions on and regulation of
the activities of registered holding companies. At the same time, the SEC's
Division of Investment Management (the "Division") issued a report of
legislative recommendations, including the Division's preferred recommendation
that Congress repeal the 1935 Act, subject to the transfer of certain authority
over the books and records of registered holding companies to state utility
commissions and to the FERC. The report also recommended liberalizing the
interpretation of the SEC's regulations to permit registered holding companies
to own both electric and gas utility systems where the affected states agree.
There is no assurance that the regulations proposed by the SEC will be
implemented or that the suggestions made in the
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Division's report will be adopted. To the extent that some or all of the
regulations and recommendations are implemented, however, restrictions on and
regulation of Primergy's activities may be scaled back, and Primergy's ability
to retain ownership of the gas utility properties and non-utility ventures
currently operated by WEC and NSP would be enhanced.
FEDERAL POWER ACT. Section 203 of the Federal Power Act provides that no
public utility shall sell or otherwise dispose of its jurisdictional facilities
or, directly or indirectly, merge or consolidate such facilities with those of
any other person or acquire any security of any other public utility without
first having obtained authorization from the FERC. The approval of the FERC is
required in order to consummate the Mergers. Under Section 203 of the Federal
Power Act, the FERC will approve a merger if it finds the merger "consistent
with the public interest." In reviewing a merger, the FERC generally evaluates:
(i) whether the merger will adversely affect competition, (ii) whether the
merger will adversely affect operating costs and rates, (iii) whether the merger
will impair the effectiveness of regulation, (iv) whether the purchase price is
reasonable, (v) whether the merger is the result of coercion, and (vi) whether
the accounting treatment is reasonable. On July 10, 1995, NSP and WEC filed a
combined application with the FERC requesting that the FERC approve the Mergers
under Section 203 of the Federal Power Act (the "NSP/WEC Application"). In
connection with the NSP/ WEC Application, NSP and WEC also filed a comparable
transmission service tariff and an interchange agreement under Section 205 of
the Federal Power Act, to become effective upon consummation of the Mergers.
In addition, NSP and NSP-Wisconsin hold certain hydroelectric project
licenses, as well as certificates of public convenience and necessity under
Section 7 of the Natural Gas Act. The merger of NSP into New NSP and of
NSP-Wisconsin into Wisconsin Energy Company will constitute transfers of the
hydroelectric project licenses and the certificates of public convenience and
necessity, requiring approval from the FERC.
Furthermore, prior to the mergers of NSP into New NSP and of NSP-Wisconsin
into Wisconsin Energy Company, the approval of the FERC under Section 204 of the
Federal Power Act is required for New NSP and Wisconsin Energy Company to assume
the debt of NSP and NSP-Wisconsin, respectively.
ANTITRUST CONSIDERATIONS. The HSR Act and the rules and regulations
promulgated thereunder provide that certain transactions (including the Mergers)
may not be consummated until certain information has been submitted to the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the Federal Trade Commission (the "FTC") and specified HSR Act waiting period
requirements have been satisfied. The expiration or earlier termination of the
HSR Act waiting period would not preclude the Antitrust Division or the FTC from
challenging the Mergers on antitrust grounds. Neither WEC nor NSP believes that
the Mergers will violate federal antitrust laws. If the Mergers are not
consummated within 12 months after the expiration or earlier termination of the
initial HSR Act waiting period, NSP and WEC would be required to submit new
information to the Antitrust Division and the FTC, and a new HSR Act waiting
period would have to expire or be earlier terminated before the Mergers could be
consummated. NSP and WEC intend to file their premerger notifications pursuant
to the HSR Act at such time as they believe will result in the expiration or
termination of the waiting period thereunder within 12 months before the
anticipated consummation of the Mergers.
ATOMIC ENERGY ACT. NSP holds NRC operating licenses in connection with its
ownership and operation of the Prairie Island and Monticello nuclear generating
facilities. The operating licenses authorize NSP to own and operate the
facilities. The Atomic Energy Act provides that such a license or any rights
thereunder may not be transferred or in any manner disposed of, directly or
indirectly, to any person through transfer of control unless the NRC finds that
such transfer is in accordance with the Atomic Energy Act and consents to the
transfer. Pursuant to the Atomic Energy Act, NSP and WEC will seek approval from
the NRC to reflect the fact that after the Mergers, New NSP, although continuing
to own and operate the Prairie Island and Monticello facilities, will become an
operating company subsidiary of Primergy.
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OTHER. NSP possesses municipal franchises and environmental permits and
licenses that may need to be renewed or replaced as a result of the Mergers. NSP
does not anticipate any difficulties at the present time in obtaining such
renewals or replacements.
GENERAL. Under the Merger Agreement, NSP and WEC have agreed to use all
reasonable efforts to obtain all necessary material permits, licenses,
franchises and other governmental authorizations necessary or advisable to
consummate or effect the transactions contemplated by the Merger Agreement.
Various parties may seek intervention in these proceedings to oppose the Mergers
or to have conditions imposed upon the receipt of necessary approvals. While NSP
and WEC believe that they will receive the requisite regulatory approvals for
the Mergers, there can be no assurance as to the timing of such approvals or the
ability of such parties to obtain such approvals on satisfactory terms or
otherwise. It is a condition to the consummation of the Mergers that final
orders approving the Mergers be obtained from the various federal and state
commissions described above on terms and conditions which would not have, or
would not be reasonably likely to have, a material adverse effect on the
business, assets, financial condition or results of operations of Primergy and
its prospective subsidiaries taken as a whole, or on Primergy's prospective
utility subsidiaries located in the State of Minnesota taken as a whole, or on
its prospective utility subsidiaries located in the State of Wisconsin taken as
a whole, or which would be materially inconsistent with the agreements of the
parties contained in the Merger Agreement. There can be no assurance that any
such approvals will not contain terms or conditions that cause such approvals to
fail to satisfy such condition to the consummation of the Mergers.
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, which is attached as Annex A and is incorporated herein by reference.
Such summary is qualified in its entirety by reference to the Merger Agreement.
THE MERGERS
The Merger Agreement provides that, following the approval of the Merger
Agreement by the shareholders of NSP and WEC, and the satisfaction or waiver of
the other conditions to the Mergers, including obtaining the requisite
regulatory approvals, NSP will be merged with and into New NSP in the
Reincorporation Merger and, immediately thereafter, WEC Sub will be merged with
and into New NSP in the NSP Merger.
If the Merger Agreement is approved by the shareholders of NSP and WEC, and
the other conditions to the Mergers are satisfied or waived, the closing of the
Mergers (the "Closing") will take place on the second business day immediately
following the date on which the last of the conditions referred to below under
"The Merger Agreement -- Conditions to Each Party's Obligation to Effect the
Mergers" is fulfilled or waived, or at such other time and date as NSP and WEC
shall mutually agree (the "Closing Date"). On or after the Closing Date, (i) the
Reincorporation Merger will become effective at the Reincorporation Effective
Time, as specified in the articles of merger filed by New NSP with the Secretary
of State of each of the States of Wisconsin and Minnesota and (ii) the NSP
Merger will become effective at the Effective Time, as specified in the articles
of merger filed by New NSP with the Secretary of State of the State of
Wisconsin, which will be subsequent to the Reincorporation Effective Time.
Subject to the condition that the opinions of Goldman Sachs and Barr Devlin
as to the fairness of the Ratio to the holders of NSP Common Stock and WEC
Common Stock, respectively, shall not have been withdrawn, WEC and NSP agreed in
the Merger Agreement to call, give notice of, convene and hold a meeting of
their respective shareholders as soon as reasonably practicable for the purpose
of securing their approval to the Mergers.
CONSUMMATION OF THE MERGERS. Upon the consummation of the Reincorporation
Merger, pursuant to the Merger Agreement:
- Each issued and outstanding share of New NSP Common Stock that is owned by
NSP will be cancelled and will cease to exist.
- Each issued and outstanding share of NSP Common Stock, other than NSP
Dissenting Shares, will be cancelled and converted into the right to
receive one share of New NSP Common Stock.
- Each issued and outstanding share of NSP Preferred Stock, other than NSP
Dissenting Shares, will be cancelled and converted into the right to
receive one share of New NSP Preferred Stock, with terms (including
dividend rates) and designations under the New NSP Articles identical to
those of the cancelled share of NSP Preferred Stock under the NSP
Articles.
Upon consummation of the NSP Merger:
- Each share of New NSP Common Stock and each share of New NSP Preferred
Stock that is owned by New NSP as treasury stock, by subsidiaries of New
NSP or by WEC or any of its subsidiaries, will be cancelled and cease to
exist.
- Each issued and outstanding share of New NSP Common Stock (other than
shares that are cancelled as described above and NSP Dissenting Shares)
will be cancelled and converted into the right to receive 1.626 shares of
Primergy Common Stock.
- Each issued and outstanding share of New NSP Preferred Stock (other than
shares of New NSP Preferred Stock that are cancelled as described above)
will be unchanged as a result of the NSP Merger and will remain
outstanding thereafter.
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- Each issued and outstanding share of WEC Sub Common Stock will be
cancelled and converted into one share of New NSP Common Stock; the number
of shares of WEC Sub Common Stock which shall be so outstanding, cancelled
and converted will be equal to the number of shares of New NSP Common
Stock issued and outstanding immediately prior to the Effective Time.
- Each issued and outstanding share of WEC Common Stock will remain
outstanding, unchanged, as one share of Primergy Common Stock.
- NSP Dissenting Shares will not be cancelled and converted into the right
to receive New NSP Common Stock or New NSP Preferred Stock, as the case
may be, in the Reincorporation Merger or, in the case of NSP Common Stock,
into the right to receive Primergy Common Stock in the NSP Merger, but
will be cancelled and converted into such consideration as may be due with
respect to such shares pursuant to the applicable provisions of the MBCA,
unless and until the right of such holder to receive fair value for such
NSP Dissenting Shares terminates in accordance with the MBCA, in which
case such shares will cease to be NSP Dissenting Shares and will represent
the right to receive Primergy Common Stock, or New NSP Preferred Stock, as
the case may be, pursuant to the Merger Agreement.
Based upon the capitalization of NSP and WEC on April 28, 1995, and the
Ratio of 1.626 shares of Primergy Common Stock per share of NSP Common Stock,
holders of NSP Common Stock, as a group, and WEC Common Stock, as a group, would
each have held approximately 50% of the aggregate number of shares of Primergy
Common Stock that would have been outstanding if the Mergers had been
consummated as of such date.
If any holder of NSP Common Stock would be entitled to receive a number of
shares of Primergy Common Stock that includes a fraction, then in lieu of a
fractional share, such holder will be entitled to receive a cash payment in an
amount determined by multiplying the fractional share interest by the average of
the last reported sales price, regular way, per share of WEC Common Stock on the
NYSE Composite Tape for the ten business days prior to and including the last
business day on which NSP Common Stock was traded on the NYSE, without any
interest thereon.
As soon as practicable after the Effective Time, a company mutually
agreeable to WEC and NSP (the "Exchange Agent") will mail to each holder of
record of a NSP Certificate which immediately prior to the Reincorporation
Effective Time represented outstanding shares of NSP Common Stock that were
cancelled and became instead the right to receive shares of Primergy Common
Stock, a letter of transmittal and instructions for use in effecting the
surrender of the NSP Certificates for certificates representing shares of
Primergy Common Stock. Upon surrender of a NSP Certificate to the Exchange Agent
for cancellation, together with a duly executed letter of transmittal and such
other documents, if any, as the Exchange Agent shall require, the holder of such
NSP Certificate will be entitled to receive a certificate representing that
number of whole shares of Primergy Common Stock and any cash in lieu of
fractional shares of Primergy Common Stock which such holder has the right to
receive pursuant to the provisions of the Merger Agreement. Until surrendered,
each NSP Certificate will be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of Primergy Common Stock and cash in lieu of any fractional
share of Primergy Common Stock.
The letter of transmittal may, at the option of Primergy, provide for the
ability of a holder of one or more NSP Certificates to elect that the shares of
Primergy Common Stock to be received in exchange for the shares of NSP Common
Stock formerly represented by such surrendered NSP Certificates be issued in
uncertificated form or to elect that such shares be credited to an account
established for such holder under Primergy's dividend reinvestment and stock
purchase plan.
No dividends or other distributions declared or made after the Effective
Time with respect to shares of Primergy Common Stock with a record date after
the Effective Time will be paid to the holder of any unsurrendered NSP
Certificate and no cash payment in lieu of fractional shares will be
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paid to any such holder until such NSP Certificate shall be surrendered. After
such surrender, subject to applicable law, there will be paid to such holder,
without interest, the unpaid dividends and distributions, and any cash payment
in lieu of a fractional share, to which such holder is entitled.
HOLDERS OF NSP COMMON STOCK SHOULD NOT SEND IN THEIR NSP CERTIFICATES UNTIL
THEY RECEIVE A TRANSMITTAL FORM. SHAREHOLDERS OF WEC AND HOLDERS OF NSP
PREFERRED STOCK NEED NOT EXCHANGE THEIR CERTIFICATES.
DIRECT SUBSIDIARIES AND UNRESTRICTED SUBSIDIARIES
The Merger Agreement designates the direct wholly-owned subsidiaries of WEC
and NSP, respectively, as "WEC Subsidiaries" and "NSP Subsidiaries" (which are
collectively referred to as "Direct Subsidiaries"). The remaining subsidiaries,
joint venture interests and investments of NSP and WEC are referred to as
"Unrestricted Subsidiaries." The representations and warranties of WEC and NSP
in the Merger Agreement apply only to, and the covenants of WEC and NSP in the
Merger Agreement apply only to, the parties themselves and their Direct
Subsidiaries. NSP and WEC have agreed to restrict to a certain dollar figure the
amount of additional investments in, or loans or capital contributions, or
guarantees or obligations that each can allocate to, their Unrestricted
Subsidiaries between the date of the Merger Agreement and the Effective Time.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
each of NSP and WEC relating to, among other things, (a) their respective
organizations, the organization of their respective Direct Subsidiaries and
similar corporate matters; (b) their respective capital structures; (c)
authorization, execution, delivery, performance and enforceability of the Merger
Agreement and related matters; (d) required regulatory approvals; (e) their
compliance with applicable laws and agreements; (f) reports and financial
statements filed with the SEC and the accuracy of information contained therein;
(g) the absence of any material adverse effect on their business, assets,
financial condition, results of operations, or prospects; (h) the absence of
adverse material suits, claims or proceedings, and other litigation issues; (i)
the accuracy of information supplied by each of WEC and NSP for use in the Joint
Registration Statement of which this Joint Proxy Statement/Prospectus forms a
part; (j) certain agreements relating to certain employment, consulting and
benefits matters; (k) tax matters; (l) retirement and other employee benefit
plans and matters relating to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"); (m) labor matters; (n) compliance with all
applicable environmental laws, possession of all material environmental, health,
and safety permits and other environmental issues; (o) the regulation of NSP and
WEC and their subsidiaries as public utilities in specified states; (p) the
shareholder vote required in connection with the Merger Agreement and the
transactions contemplated thereby (as set forth in this Joint Proxy Statement/
Prospectus) being the only vote required; (q) that neither NSP nor WEC or any of
their respective affiliates have taken or agreed to take any action that would
prevent Primergy from accounting for the Mergers as a pooling of interests; (r)
the absence of changes in their capital structure; (s) the applicability of
certain provisions of Wisconsin and Minnesota law relating to changes in
control; (t) the delivery of fairness opinions by Goldman Sachs, in the case of
NSP, and Barr Devlin, in the case of WEC; and (u) the absence of ownership of
each other's stock.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, WEC and NSP have agreed that, during the
period from the date of the Merger Agreement until the Effective Time, except as
permitted by the Merger Agreement (including the disclosure schedules thereto)
or the Stock Option Agreements, or as otherwise consented to in writing by the
other parties, it will (and each of its Direct Subsidiaries will), subject to
certain exceptions specified therein, among other things: (a) carry on its
business in the ordinary course consistent with prior practice; (b) not declare
or pay any dividends on or make other distributions in respect of any of its
capital stock, other than to such party or its wholly-owned subsidiaries,
dividends required to be paid on any NSP Preferred Stock and WEPCO Preferred
Stock, and regular quarterly dividends to be paid on WEC Common Stock and NSP
Common Stock not to exceed 106% of
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the dividends for the prior fiscal year; (c) not effect certain other changes in
its capitalization other than redeeming WEPCO Preferred Stock and NSP Preferred
Stock, as required by their respective terms, or in connection with a refunding
of preferred stock at a lower cost of funds, or if necessary to facilitate the
transactions contemplated by the Merger Agreement; (d) not issue or encumber any
capital stock, rights, warrants, options or convertible or similar securities
other than (i) issuances pursuant to the Stock Option Agreements, (ii)
intercompany issuances, (iii) in connection with refunding preferred stock with
preferred stock or debt at a lower cost of funds and (iv) up to 1,600,000 shares
of WEC Common Stock and 2,900,000 shares of NSP Common Stock to be issued for
general corporate purposes, including issuances in connection with acquisitions
and financings and issuances pursuant to employee benefit plans, stock option
and other incentive compensation plans, directors' plans and stock purchase and
dividend reinvestment plans; (e) not amend its articles of incorporation or
by-laws; (f) not engage in material acquisitions in excess of $50,000,000 in the
aggregate over the amounts budgeted; (g) not enter into any written commitments
for the purchase of sulfur dioxide emission allowances as provided for by the
Clean Air Act Amendments of 1990 in excess of an aggregate of $20,000,000; (h)
not make any capital expenditures in excess of $100,000,000 in the aggregate
over the amounts budgeted; (i) not sell, lease, encumber or otherwise dispose of
material assets in an aggregate amount equalling or exceeding $50,000,000, other
than planned or ordinary course of business dispositions and encumbrances; (j)
not incur indebtedness (or guarantees thereof), other than (i) short-term
indebtedness in the ordinary course of business consistent with prior practice,
(ii) long-term indebtedness, not aggregating more than $650,000,000, (iii)
arrangements between such party and its Direct Subsidiaries or among its Direct
Subsidiaries, (iv) in connection with the refunding of existing indebtedness at
a lower cost of funds, or (v) in connection with any permitted refunding of
preferred stock; (k) not enter into, adopt or amend or increase the amount or
accelerate the payment or vesting of any benefit or amount payable under, any
employee benefit plan or other agreement, commitment, arrangement, plan or
policy, except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits; (l) not engage in any activity which would cause
a change in its status under the 1935 Act; (m) not commence construction of or
obligate itself to purchase any additional generating, transmission or delivery
capacity other than in the ordinary course of business consistent with past
practice or pursuant to tariffs on file with the FERC or as budgeted; (n) not
make any material changes in their accounting methods other than as required by
law or in accordance with generally accepted accounting principles; (o) not take
any action to prevent Primergy from accounting for the business combination to
be effected by the Mergers as a pooling of interests; (p) not take any action
that would adversely affect the status of the Mergers as tax-free transactions;
(q) not enter into agreements with affiliates (other than wholly-owned
subsidiaries) other than on an arm's-length basis; (r) cooperate with the other
parties, provide reasonable access to its books and records and notify the other
parties of any significant changes; (s) discuss with the other parties any
proposed changes in its rates or charges (other than pass-through fuel and gas
rates or charges) or standards of service or accounting; consult with the other
prior to making any filing (or any amendment thereto), or effecting any
agreement, commitment, arrangement or consent with governmental regulators; and
not make any filing to change its rates on file with the FERC that would have a
material adverse effect on the benefits associated with the Mergers; (t) use all
commercially reasonable efforts to obtain certain third-party consents to the
Mergers; (u) not take any action that is likely to jeopardize the qualification
of NSP's or WEPCO's outstanding revenue bonds as tax-exempt industrial revenue
bonds; (v) create a joint transition management task force to examine
alternatives to effect the integration of the parties after the Effective Time;
(w) refrain from taking specified actions relating to tax matters; (x) not
discharge or satisfy any claims, liabilities or obligations, other than
discharges in the ordinary course of business or in accordance with their terms,
of liabilities reflected in the most recent consolidated financial statements;
(y) not, except in the ordinary course of business, change the status of any of
its material contracts or agreements or waive or release or assign any material
rights or claims; and (z) maintain adequate insurance and use reasonable efforts
to maintain all existing governmental permits. In addition, NSP agreed that it
will not make, and will not permit any of its Direct Subsidiaries to make, any
additional investments in, or loans to, any NSP Unrestricted
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Subsidiary in excess of $350,000,000 (inclusive of the amounts budgeted for
capital expenditures and acquisitions and the $50,000,000 basket referenced in
the Merger Agreement), and WEC agreed that it will not make, and will not permit
any of its Direct Subsidiaries to make, any additional investments in, or loans
to, any WEC Unrestricted Subsidiary in excess of $100,000,000 (inclusive of the
amounts budgeted for capital expenditures and acquisitions and the $50,000,000
basket referenced in the Merger Agreement).
In the Merger Agreement, NSP also agreed that, contemporaneously with the
Reincorporation Effective Time, NSP-Wisconsin will sell and transfer to New NSP
certain utility assets located in the State of Wisconsin such that, upon such
transfer, New NSP will be a Wisconsin utility.
The parties also agreed in the Merger Agreement that, prior to the Closing,
(a) WEC will take all actions necessary so that the Primergy Articles become
effective no later than the Effective Time; and (b) NSP will cause the New NSP
Articles to become effective no later than the Effective Time.
The Merger Agreement provides that if the parties are unable to obtain the
necessary tax ruling or any of the statutory approvals and other third-party
consents which are necessary to effect the strategic combination of NSP and WEC
in the form contemplated by the Merger Agreement, and the adoption of an
alternative structure (that otherwise substantially preserves for NSP and WEC
the economic benefits of the Mergers) would result in such conditions being
satisfied or waived, then the parties shall use their respective best efforts to
effect a business combination among themselves by means of a mutually agreed
upon structure other than the Mergers that so preserves such benefits.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that no party thereto will, and each such
party will cause its Direct Subsidiaries not to, and each such party will not
permit any of its officers, directors, employees, accountants, counsel,
investment bankers, financial advisors and other representatives (collectively,
"Representatives") or subsidiaries that are not Direct Subsidiaries to, and each
such party will use its best efforts to cause such persons not to, directly or
indirectly: initiate, solicit or encourage, or take any action to facilitate the
making of any offer or proposal which constitutes or is reasonably likely to
lead to, any Business Combination Proposal (as defined herein), or, in the event
of an unsolicited Business Combination Proposal, except to the extent required
by their fiduciary duties under applicable law if so advised in a written
opinion of outside counsel, engage in negotiations or provide any information or
data to any person relating to any Business Combination Proposal. As used above,
"Business Combination Proposal" shall mean any tender or exchange offer,
proposal for a merger, consolidation or other business combination involving any
party to the Merger Agreement or any of its material subsidiaries, or any
proposal or offer (in each case, whether or not in writing and whether or not
delivered to the shareholders of a party generally) to acquire in any manner,
directly or indirectly, a substantial equity interest in or a substantial
portion of the assets of any party to the Merger Agreement or any of its
material subsidiaries, other than pursuant to the transactions contemplated by
the Merger Agreement.
PRIMERGY BOARD OF DIRECTORS
The Merger Agreement provides that NSP's and WEC's respective Boards of
Directors will take such action as may be necessary to cause the number of
directors comprising the full Primergy Board at the Effective Time to be 12
persons, six of whom shall be designated by NSP prior to the Effective Time and
six of whom shall be designated by WEC prior to the Effective Time. The initial
designation of such directors among the three classes of the Primergy Board
shall be agreed to by NSP and WEC, the designees of each party to be divided
equally among such classes. If, prior to the Effective Time, any of such
designees shall decline or be unable to serve, the party which designated such
person shall designate another person to serve in such person's stead. To date,
NSP and WEC have not decided who, in addition to Messrs. Howard and Abdoo, will
be designated to serve on the Primergy Board after the Effective Time. NSP's and
WEC's respective Boards of Directors will also take such action as may be
necessary to cause each of the committees of the Primergy Board at the Effective
Time to consist of two members designated by NSP and two members designated by
WEC. WEC will select the
69
chairs of the Nominating Committee, the Finance Committee and the Nuclear
Oversight Committee. NSP will select the chairs of the Executive Committee, the
Compensation Committee and the Audit Committee.
INDEMNIFICATION
The Merger Agreement provides that, to the extent, if any, not provided by
an existing right of indemnification or other agreement or policy, from and
after the Effective Time, Primergy shall, to the fullest extent permitted by
applicable law, indemnify, defend and hold harmless each person who was at, or
who had been at any time prior to, April 28, 1995, or who becomes prior to the
Effective Time, an officer, director or employee of any of the parties thereto
or any subsidiary (the "Indemnified Parties") against all losses, expenses
(including reasonable attorney's fees and expenses), claims, damages or
liabilities or, subject to the provision of the next succeeding sentence,
amounts paid in settlement, arising out of actions or omissions occurring at or
prior to the Effective Time (and whether asserted or claimed prior to, at or
after the Effective Time) that are, in whole or in part, based on or arising out
of the fact that such person is or was a director, officer or employee of such
party, and all such indemnified liabilities to the extent they are based on or
arise out of or pertain to the transactions contemplated by the Merger
Agreement. In the event of any such loss, expense, claim, damage or liability
(whether or not arising before the Effective Time), (i) Primergy shall pay the
reasonable fees and expenses of counsel selected by the Indemnified Parties,
which counsel shall be reasonably satisfactory to Primergy, and otherwise
advance to such Indemnified Party upon request reimbursement of documented
expenses reasonably incurred, in either case to the extent not prohibited by law
and upon receipt of any affirmation and undertaking required by law, (ii)
Primergy will cooperate in the defense of any such matter and (iii) any
determination required to be made with respect to whether an Indemnified Party's
conduct complies with the standards set forth under Wisconsin law and the
Primergy Articles or the Primergy Bylaws shall be made by independent counsel
mutually acceptable to Primergy and the Indemnified Party; PROVIDED, HOWEVER,
that Primergy shall not be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld). The Merger
Agreement further provides that the Indemnified Parties as a group may retain
only one law firm with respect to each related matter except to the extent there
is, in the opinion of counsel to an Indemnified Party, under applicable
standards of professional conduct, a conflict on any significant issue between
positions of such Indemnified Party and any other Indemnified Party or
Indemnified Parties.
In addition, the Merger Agreement requires that for a period of six years
after the Effective Time, Primergy shall cause to be maintained in effect
policies of directors' and officers' liability insurance maintained by NSP and
WEC for the benefit of those persons who were covered by such policies at April
28, 1995, on terms no less favorable than the terms of such insurance coverage,
PROVIDED that Primergy shall not be required to expend in any year an amount in
excess of 200% of the annual aggregate premiums currently paid by NSP and WEC
for such insurance and, if the annual premiums of such insurance coverage exceed
such amount, Primergy shall be obligated to obtain a policy with the best
coverage available, in the reasonable judgment of the Primergy Board, for a cost
not exceeding such amount. Also, the Merger Agreement provides that to the
fullest extent not prohibited by law, from and after the Effective Time, all
rights to indemnification existing in favor of the employees, agents, directors
and officers of NSP, WEC and their respective subsidiaries with respect to their
activities as such prior to the Effective Time, as provided in their respective
articles of incorporation and bylaws in effect on April 28, 1995, or otherwise
in effect on April 28, 1995, shall survive the Mergers and shall continue in
full force and effect for a period of not less than six years from the Effective
Time.
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGERS
The respective obligations of WEC and NSP to effect the Mergers are subject
to the following conditions: (a) the approval of the Merger Agreement and each
of the Primergy Plans by the shareholders of NSP and the approval of the Merger
Agreement and the transactions contemplated thereby, each of the WEC Articles
Amendments and each of the Primergy Plans by the shareholders of WEC
70
shall have been obtained; (b) no temporary restraining order, preliminary or
permanent injunction or other order shall be in effect that prevents
consummation of the Mergers; (c) the Joint Registration Statement shall have
become effective and shall not be the subject of a stop order; (d) the shares of
Primergy Common Stock issuable in connection with the Mergers shall have been
authorized for listing on the NYSE, upon official notice of issuance; (e) the
receipt of all material governmental authorizations, consents, orders or
approvals which do not impose terms or conditions which could reasonably be
expected to have a material adverse effect; (f) the number of NSP Dissenting
Shares not constituting in excess of 5% of the issued and outstanding shares of
NSP Common Stock and NSP Preferred Stock, taken together; (g) the receipt by
each of WEC and NSP of letters from their independent accountants stating that
the Mergers will qualify as a pooling of interests transaction under generally
accepted accounting principles and applicable SEC regulations; (h) with respect
to each of NSP and WEC, the accuracy of the representations and warranties of
the other party set forth in the Merger Agreement as of April 28, 1995 and as of
the Closing Date (except as would not reasonably be likely to result in a
material adverse effect); (i) with respect to each of NSP and WEC, the
performance in all material respects of all obligations of the other party
required to be performed under the Merger Agreement and the Stock Option
Agreements; (j) WEC and NSP having received officers' certificates from each
other stating that certain conditions set forth in the Merger Agreement have
been satisfied; (k) with respect to each of NSP and WEC, there having been no
material adverse effect on the business, assets, financial condition, results of
operations or prospects of the other party and its subsidiaries taken as a
whole; (l) receipt of a private letter ruling from the IRS providing certain
assurances regarding the federal income tax consequences of the Mergers
satisfactory in form and substance to counsel to each party and receipt of tax
opinions by counsel to each party to the effect that the Mergers will be treated
as tax-free reorganizations under Section 368(a) of the Code; (m) with respect
to each of NSP and WEC, the receipt by the other party of certain material
third-party consents; and (n) with respect to each of NSP and WEC, the receipt
by Primergy of letter agreements relating to trading in securities of NSP, WEC
and Primergy (substantially in the form attached as an exhibit to the Merger
Agreement), duly executed by each affiliate of the other party.
In addition, the Merger Agreement provides that it shall be a condition to
the obligation of NSP to hold the NSP Meeting that the opinion of Goldman Sachs
attached hereto as Annex F shall not have been withdrawn, and it shall be a
condition to the obligation of WEC to hold the WEC Meeting that the opinion of
Barr Devlin attached hereto as Annex G shall not have been withdrawn.
At any time prior to the Effective Time, to the extent permitted by
applicable law, the conditions to NSP's or WEC's obligations to consummate the
Mergers may be waived by the other party. Any determination to waive a condition
would depend upon the facts and circumstances existing at the time of such
waiver and would be made by the waiving party's Board of Directors, exercising
its fiduciary duties to such party and its shareholders. See "-- Amendment and
Waiver."
BENEFIT PLANS
Except for the benefit plans referred to in the immediately following
paragraph, each of the benefit plans of NSP and WEC in effect as of the date of
the Merger Agreement will be continued for the employees or former employees of
NSP and WEC and any of their Direct Subsidiaries who are covered by such plans
immediately prior to the Closing Date, until Primergy otherwise determines after
the Effective Time (subject to any reserved right contained in any such benefit
plan to amend, modify, suspend, revoke or terminate such plan). To the extent
such benefit plans are not continued, Primergy or its subsidiaries have agreed
to provide, for at least one year following the Effective Time, benefits which
are no less favorable in the aggregate than the benefits provided under the NSP
or WEC benefit plans. Any employee first hired after the Closing Date will be
eligible to participate in any benefit plan maintained, or contributed to, by
the subsidiary, division or operation employing such person, so long as such
person meets the eligibility requirements of such plan.
Following the implementation of the Primergy Management Incentive
Compensation Plan, no additional awards will be made under the WEC Short-Term
Performance Plan or the NSP Executive
71
Incentive Compensation Plan. Subject to shareholder approval thereof at the NSP
Meeting and the WEC Meeting, the Primergy Management Incentive Compensation Plan
will go into effect at the Effective Time. The Primergy Management Incentive
Compensation Plan provides for annual cash bonuses, based on percentages of base
salaries, to be awarded based upon the achievement of performance goals
determined in advance by the Primergy Compensation Committee. With respect to
those participants in the new plan who are, or who the Primergy Compensation
Committee determines are likely to be, "covered individuals" within the meaning
of Section 162(m) of the Code, the performance goals are to be objective
standards that are approved by shareholders in accordance with the requirements
for exclusion from the limits of Section 162(m) of the Code as performance-based
compensation. See "Approval of Primergy Plans -- Primergy Management Incentive
Compensation Plan" and Annex L.
Following the implementation of the Primergy Stock Incentive Plan, no
additional awards will be made under the NSP Long-Term Incentive Award Stock
Plan or the WEC 1993 Omnibus Stock Incentive Plan. Subject to shareholder
approval thereof at the NSP Meeting and the WEC Meeting, the Primergy Stock
Incentive Plan will go into effect at the Effective Time. The Primergy Stock
Incentive Plan provides for the grant of stock options, SARs, restricted stock
and such other awards based upon Primergy Common Stock as the Primergy
Compensation Committee may determine, subject to shareholder approval of the
Primergy Stock Incentive Plan. Primergy intends to reserve 12,000,000 shares of
Primergy Common Stock for issuance under this plan. Accordingly, the Primergy
Stock Incentive Plan is being submitted to shareholders for approval. See
"Approval of Primergy Plans -- Primergy Stock Incentive Plan" and Annex K.
At the Effective Time, (i) each outstanding option to purchase shares of NSP
Common Stock under the NSP Long-Term Incentive Award Stock Plan (each an "NSP
Stock Option") will constitute an option to acquire, on the same terms and
conditions (subject to the adjustments necessary to give effect to the Mergers),
shares of Primergy Common Stock based on the same number of shares of Primergy
Common Stock as the holder of such NSP Stock Option would have been entitled to
receive pursuant to the Mergers had such holder exercised such option in full
immediately prior to the Effective Time and (ii) each other outstanding award
under the NSP Long-Term Incentive Award Stock Plan (each an "NSP Stock Award")
will constitute an award based upon the same number of shares of Primergy Common
Stock as the holder of such NSP Stock Award would have been entitled to receive
pursuant to the NSP Merger had such holder been the owner, immediately before
the Effective Time, of the shares of NSP Common Stock on which such NSP Stock
Award is based, and otherwise on the same terms and conditions as governed such
NSP Stock Award immediately before the Effective Time.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Closing
Date, whether before or after approval by the shareholders of WEC and NSP: (a)
by mutual written consent of the NSP Board and the WEC Board; (b) by any party
thereto, if the Effective Time shall not have occurred on or before April 30,
1997 (which date shall be extended to October 31, 1997 if the required statutory
approvals and consents have not been obtained by April 30, 1997, but all other
conditions to Closing shall be, or shall be capable of being, fulfilled);
PROVIDED, HOWEVER, that such right to terminate the Merger Agreement will not be
available to any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before that date; (c) by any party thereto if any required
shareholder approval shall not have been obtained at a duly held meeting of
shareholders or at any adjournment thereof; (d) by any party thereto, if any
state or federal law, order, rule or regulation is adopted or issued, which has
the effect of prohibiting the NSP Merger, or any court of competent jurisdiction
in the U.S. or any state shall have issued an order, judgment or decree
permanently restraining, enjoining or otherwise prohibiting the NSP Merger, and
such order, judgement or decree shall have become final and nonappealable; (e)
by either WEC or NSP, upon two-days' prior notice to the other party, if, as a
result of a tender offer by a person other than WEC or NSP, or any of their
affiliates, or any written offer or proposal with respect
72
to a merger of such party, sale of a material portion of such party's assets or
other business combination involving such party (each, a "Business Combination")
by a person other than WEC or NSP, or any of their affiliates, the Board of
Directors of such party determines in good faith that its fiduciary obligations
under applicable law require that such tender offer or other written offer or
proposal be accepted; provided, however, that (i) the Board of Directors of such
party shall have been advised in writing by outside counsel that notwithstanding
a binding commitment to consummate an agreement of the nature of the Merger
Agreement entered into in the proper exercise of their applicable fiduciary
duties and notwithstanding all concessions which may be offered by the other
party, such fiduciary duties would also require the directors to reconsider such
commitment as a result of such tender offer or other written offer or proposal;
and (ii) prior to any such termination, such party shall, and shall cause its
respective financial and legal advisors to, negotiate with the other party to
make such adjustments in the terms and conditions of the Merger Agreement as
would enable such party to proceed with the transactions contemplated thereby on
such adjusted terms; or (f) by either WEC on the one hand, or NSP, on the other
hand, by written notice to the other, if (i) there exist breaches of the
representations and warranties on the part of the other made in the Merger
Agreement as of the date thereof which breaches, individually or in the
aggregate, would or would be reasonably likely to result in a material adverse
effect on the business, assets, financial condition, results of operations or
prospects of the other party and its subsidiaries taken as a whole, and such
breaches shall not have been remedied within 20 days after receipt by the
breaching party of notice in writing from the non-breaching party, specifying
the nature of such breaches and requesting that they be remedied, (ii) the other
party (and/or its appropriate subsidiaries) shall not have performed and
complied in all respects with certain agreements and covenants relating to the
absence of changes in capitalization or issuance of securities or shall have
failed to perform and comply, in all material respects, with its other
agreements and covenants under the Merger Agreement or under the WEC Stock
Option Agreement or the NSP Stock Option Agreement, as the case may be, and such
failure to perform or comply shall not have been remedied within 20 days after
receipt by the breaching party of notice in writing from the non-breaching
party, specifying the nature of such failure and requesting that it be remedied,
or (iii) the Board of Directors of the other party or any committee thereof (A)
shall withdraw or modify in any manner adverse to such party its approval or
recommendation of the Merger Agreement or the NSP Merger, (B) shall fail to
reaffirm such approval or recommendation upon such party's request, (C) shall
approve or recommend any acquisition of the other party or a material portion of
its assets or any tender offer for the other party's common stock, in each case
by a party other than such party or any of its affiliates or (D) shall resolve
to take any of the actions specified in clause (A), (B) or (C).
In the event of termination of the Merger Agreement by either WEC or NSP as
provided above, there shall be no liability or obligation on the part of either
WEC or NSP or their respective officers or directors thereunder other than: to
hold in strict confidence all documents furnished to the other in accordance
with the Confidentiality Agreement, dated January 17, 1995, as amended on April
26, 1995 (the "Confidentiality Agreement"); to pay certain fees and expenses
pursuant to certain specified provisions of the Merger Agreement described below
under "-- Termination Fees" and " -- Expenses"; and to comply with certain other
specified provisions of the Merger Agreement.
TERMINATION FEES
The Merger Agreement provides that if the Merger Agreement is terminated at
such time as it is terminable by either (but not both) of NSP and WEC for
breaches of any representations or warranties contained in the Merger Agreement
as of the date thereof, or of agreements and covenants contained in the Merger
Agreement or the WEC Stock Option Agreement or NSP Stock Option Agreement, as
the case may be, pursuant to the provisions of the Merger Agreement described in
clauses (f)(i) and (f)(ii) under "-- Termination" above, then, if such breach is
not willful, the non-breaching party is entitled to reimbursement of its
documented out-of-pocket expenses, not to exceed $10,000,000. In the event of a
termination pursuant to such provisions as a result of a willful breach, the
non-breaching party will be entitled to its out-of-pocket expenses (which shall
not be limited to $10,000,000) and any remedies it may have at law or in equity,
PROVIDED that, if at the time of the
73
breaching party's willful breach, there shall have been a third-party tender
offer or proposal with respect to a Business Combination involving the breaching
party or one of its affiliates which at the time of termination shall not have
been rejected by the breaching party and withdrawn by the third party, and
within two and one-half years of any termination by the non-breaching party, the
breaching party accepts an offer to consummate or consummates a Business
Combination with such third party, then such breaching party, upon the signing
of a definitive agreement relating to such a Business Combination, or, if no
such agreement is signed then at the closing of such Business Combination, will
pay to the non-breaching party an additional fee equal to $75,000,000. The
Merger Agreement also requires payment of a termination fee of $75,000,000 (and
reimbursement of out-of-pocket expenses) by one party to the other in certain
circumstances, if (i) the Merger Agreement is terminated (A) as a result of the
acceptance by such party of a third-party tender offer or proposal with respect
to a Business Combination pursuant to the provisions of the Merger Agreement
described in clause (e) under "-- Termination" above, (B) following a failure of
the shareholders of such party to grant their approval to the Mergers or (C) as
a result of such party's material failure to convene a shareholder meeting,
distribute proxy materials and, subject to its Board of Directors' fiduciary
duties, recommend the Merger Agreement and the Mergers to its shareholders; (ii)
at the time of such termination or prior to the meeting of such party's
shareholders there shall have been a third-party tender offer or proposal with
respect to a Business Combination involving such party or any of its affiliates
which shall not have been rejected by such party and withdrawn by the third
party; and (iii) within two and one-half years of any such termination described
in clause (i) above, such party or such affiliate accepts an offer to consummate
or consummates a Business Combination with the third party. Such termination fee
and out-of-pocket expenses referred to in the previous sentence shall be paid
upon the signing of a definitive agreement between such party and the third
party, or, if no such agreement is signed, then at the closing of such
third-party Business Combination.
In the event that the Merger Agreement becomes terminable under
circumstances in which a $75,000,000 termination fee could be payable by one
party (the "Payor") pursuant to the immediately preceding paragraph, such event
will also constitute a "Trigger Event" under the Stock Option Agreement pursuant
to which the Payor issued an Option to the other party, so as to entitle the
other party to require the Payor to repurchase such Option or the Option Shares
(as defined herein) issued upon exercise thereof. The aggregate amount payable
by WEC or NSP, as the case may be, pursuant to the provisions described in the
immediately preceding paragraph and upon a required repurchase of an Option or
Option Shares pursuant to the WEC Stock Option Agreement or the NSP Stock Option
Agreement, as the case may be, may not exceed $125,000,000 (including
reimbursement of fees and expenses). See "The Stock Option Agreements."
The Merger Agreement further provides that all termination fees constitute
liquidated damages and not a penalty and, if one party should fail to pay any
termination fee due, the defaulting party shall pay the cost and expenses in
connection with any action taken to collect payment, together with interest on
the amount of any unpaid termination fee.
EXPENSES
Except as set forth above, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby shall be
paid by the party incurring such expense, except that those expenses incurred in
connection with printing and filing of this Joint Proxy Statement/Prospectus
shall be shared equally by WEC and NSP.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the directors of the parties thereto,
at any time before or after approval thereof by the shareholders of WEC and NSP
and prior to the Effective Time, but after such approvals no such amendment
shall alter or change the amount or kind of shares, rights or manner of
conversion of such shares, alter or change any of the terms and conditions of
the Merger Agreement if any of the alterations or changes, alone or in the
aggregate, would materially adversely affect the rights of holders of NSP Common
Stock or WEC Common Stock, or alter or change any term
74
of the Primergy Articles as approved by the shareholders of WEC, except for
alterations or changes that could otherwise be adopted by the Primergy Board
without the further approval of such shareholders. The parties to the Merger
Agreement may extend the time for the performance of any of the obligations or
other acts of the other parties thereto, waive any inaccuracies in the
representations and warranties contained therein or in any document delivered
pursuant thereto, and waive compliance with any of the agreements or conditions
contained in the Merger Agreement to the extent permitted by law.
STANDSTILL PROVISIONS
Pursuant to the Confidentiality Agreement, NSP and WEC have each agreed
(other than as contemplated in the Merger Agreement or Stock Option Agreements),
that they will not, until the second anniversary of any termination of the
Merger Agreement, (i) acquire any material portion of the other party's assets
or businesses or in excess of 1% of any class of securities issued by the other
party; (ii) seek or propose a business combination with the other party or any
of its subsidiaries; (iii) seek or propose to influence or control the
management or policies of the other party; or (iv) enter into or propose any
discussions, negotiations, arrangements or understandings with any third party
with respect to any of the foregoing.
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THE STOCK OPTION AGREEMENTS
The following is a brief summary of the terms of the Stock Option
Agreements, copies of which are attached as Annex B and Annex C and which are
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the Stock Option Agreements. The Stock Option Agreements are
intended to increase the likelihood that the Mergers will be consummated in
accordance with the terms of the Merger Agreement. Consequently, certain aspects
of the Stock Option Agreements may have the effect of discouraging persons who
might now or prior to the Effective Time be interested in acquiring all of or a
significant interest in, or otherwise effecting a business combination with, NSP
or WEC from considering or proposing such a transaction, even if such persons
were prepared to offer to pay consideration to shareholders of NSP or WEC, as
the case may be, which had a higher value than the shares of Primergy Common
Stock to be received per share of NSP Common Stock or to be retained by holders
of WEC Common Stock, as the case may be, pursuant to the Merger Agreement.
GENERAL
Pursuant to mutual Stock Option Agreements entered into concurrently with
the Merger Agreement, WEC has granted to NSP the NSP Option, and NSP has granted
to WEC the WEC Option. As holders of such Options (the "Option Holder"), NSP and
WEC have the right, under certain circumstances, to purchase, respectively, up
to (i) with respect to the NSP Option, 21,773,726 shares of WEC Common Stock,
and (ii) with respect to the WEC Option, 13,387,772 shares of NSP Common Stock
(shares of common stock purchasable by the NSP Option and the WEC Option are
collectively referred to as the "Option Shares") at a price of $27.675 per share
for WEC Common Stock and at a price of $44.075 per share for NSP Common Stock,
such prices being equal to the average of the daily closing sale prices for such
shares on the NYSE during the ten NYSE trading days prior to the fifth NYSE
trading day preceding the date of the Merger Agreement. The exercise price is
payable, at the Option Holder's option, in cash or, subject to any required
governmental approvals, shares of common stock of the Option Holder.
The Options may be exercised by the Option Holder, in whole or in part, at
any time or from time to time after the Merger Agreement becomes terminable by
such Option Holder under circumstances which could entitle such Option Holder to
termination fees as a result of a Trigger Event (as defined in the Stock Option
Agreements and described above under "The Merger Agreement -- Termination
Fees"), regardless of whether the Merger Agreement is actually terminated or
whether there occurs a closing of any Business Combination. The Options will
terminate upon the earlier of (i) the Effective Time, (ii) the termination of
the Merger Agreement pursuant to its terms (other than a termination upon or
during the continuance of a Trigger Event), or (iii) 180 days following any
termination of the Merger Agreement upon or during the continuance of a Trigger
Event (or, if at the expiration of such 180-day period the Option cannot be
exercised by reason of any applicable judgment, decree, order, law or
regulation, ten business days after such impediment to exercise shall have been
removed or shall have become final and not subject to appeal, but in no event
under this clause (iii) later than October 31, 1997).
Notwithstanding the foregoing, no Option may be exercised (a) if the Option
Holder is in material breach of any of its material representations or
warranties, or in material breach of any of its covenants or agreements
contained in the applicable Stock Option Agreement or in the Merger Agreement,
or (b) until all necessary regulatory approvals have been obtained for the
acquisition of shares pursuant to such Option.
CERTAIN REPURCHASES
Under the terms of the Stock Option Agreements, at any time during which the
Option is exercisable (the "Repurchase Period"), the Option Holder has the right
to require the issuer of the Option (the "Issuer") to repurchase from the Option
Holder all or any portion of the Option or, at any time prior to April 30, 1997
(PROVIDED that such date shall be extended to October 31, 1997 under the
circumstances where the date after which either party may terminate the Merger
Agreement has been extended to October 31, 1997), all or any portion of the
Option Shares purchased pursuant to the
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exercise of the Option. The amount that the Issuer will pay to the Option Holder
to repurchase the Option is the difference between the Market/Offer Price for
shares of Issuer common stock as of the date the Option Holder gives notice of
its intent to exercise its repurchase rights (the "Notice Date") and the
exercise price for the Option, multiplied by the number of Option Shares
purchasable pursuant to the Option, or the portion thereof to be so repurchased,
but only if the Market/Offer Price is greater than such exercise price. The
amount that the Issuer will pay to the Option Holder to repurchase the Option
Shares is the exercise price paid by the Option Holder for the Option Shares
plus the difference between the Market/Offer Price and the exercise price paid
by the Option Holder for the Option Shares (but only if the Market/Offer Price
is greater than such exercise price), multiplied by the number of Option Shares
to be so repurchased. The Stock Option Agreements define "Market/Offer Price" as
the higher of (A) the price per share (the "Offer Price") offered as of the
Notice Date pursuant to any tender or exchange offer or other business
combination offer which was made prior to the Notice Date and not terminated or
withdrawn as of such date or (B) the Fair Market Value of Issuer common stock as
of the Notice Date (which is defined in the Stock Option Agreements as the
average of the daily closing sale price for such shares on the NYSE during the
ten NYSE trading days prior to the fifth NYSE trading day preceding such date).
The Offer Price for the repurchase by the Issuer of Option Shares purchased by
the Option Holder pursuant to the Option is the highest price per share offered
pursuant to a tender or exchange offer or other business combination offer which
was made during the Repurchase Period prior to the Notice Date. At any time
prior to April 30, 1997 (which date may be extended to October 31, 1997 under
the circumstances described above), the Option Holder may also require the
Issuer to sell to the Option Holder any shares of the Option Holder's common
stock delivered by the Option Holder to the Issuer in payment for the exercise
price of the Option, at the price attributed to such shares for such purpose
plus interest at the rate of 6.5% PER ANNUM (from the date of the delivery of
such shares through the date of such repurchase) less any dividends paid or
declared and payable thereon.
VOTING
Each party has agreed to vote, until April 28, 2000, any shares of the
capital stock of the other party acquired pursuant to the Stock Option
Agreements or otherwise beneficially owned by such party on each matter
submitted to a vote of shareholders of such other party for and against such
matter in the same proportion as the vote of all other shareholders of such
other party is voted for and against such matter.
RESTRICTIONS ON TRANSFER
The Stock Option Agreements provide that, until April 28, 2000, neither
party may sell, assign, pledge or otherwise dispose of or transfer the shares it
acquires pursuant to the Stock Option Agreements (collectively, the "Restricted
Shares") except as specifically provided for in the Stock Option Agreements. In
addition to the repurchase rights described above under "-- Certain
Repurchases," subsequent to the termination of the Merger Agreement, the parties
have the right to have such shares of the other party registered under the
Securities Act for sale in a public offering. The Stock Option Agreements also
provide that, following the termination of the Merger Agreement, either party
may sell any Restricted Shares pursuant to a tender or exchange offer approved
or recommended, or otherwise determined to be fair and in the best interests of
such other party's shareholders, by a majority of the Board of Directors of such
other party.
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AMENDMENTS TO AND RESTATEMENT OF WEC
RESTATED ARTICLES OF INCORPORATION
THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS WITH
RESPECT TO THE PROPOSED AMENDMENTS TO AND RESTATEMENT OF THE WEC ARTICLES IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE TEXT OF THE PROPOSED PRIMERGY
ARTICLES ATTACHED HERETO AS ANNEX H AND INCORPORATED HEREIN BY REFERENCE.
Pursuant to the terms of the Merger Agreement, WEC shareholders are being
asked to consider and approve each of the WEC Articles Amendments, which would
amend and restate the WEC Articles to (i) change the name of WEC to Primergy
Corporation and (ii) increase the amount of authorized WEC Common Stock from
325,000,000 shares to 750,000,000 shares, thereby increasing WEC's authorized
capitalization from 340,000,000 shares to 765,000,000 shares (which includes the
15,000,000 shares of WEC Preferred Stock presently authorized). The WEC Articles
as so amended and restated, attached hereto as Annex H, will be the Primergy
Articles at the Effective Time and until thereafter amended in accordance with
the WBCL and the Primergy Articles.
THE WEC BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF EACH OF THE WEC
ARTICLES AMENDMENTS. Approval of each of the WEC Articles Amendments is a
condition to consummation of the Mergers. NSP and WEC retain the right to waive
the approval of the Common Stock Amendment as a condition to the consummation of
the Mergers. If approved by WEC shareholders, it is intended that the WEC
Articles Amendments will not become effective until immediately prior to or
concurrent with the Effective Time. If, after WEC shareholder approval of each
of the WEC Articles Amendments, the Mergers are not consummated, WEC will not
file the WEC Articles Amendments with the Wisconsin Secretary of State and the
WEC Articles Amendments will therefore not become effective.
NAME CHANGE AMENDMENT
In the Merger Agreement, WEC agreed to change its name to a name agreed upon
by WEC and NSP. WEC and NSP have agreed upon the name "Primergy Corporation" as
the new name for WEC effective at the Effective Time. Changing the name of WEC
is deemed desirable by WEC and NSP in order to properly reflect the nature of
the transaction as a "merger-of-equals." Changing WEC's name does not
substantively or otherwise alter any of the rights of WEC shareholders.
The affirmative vote of a majority of the votes entitled to be cast at the
WEC Meeting by the holders of the outstanding shares of WEC Common Stock
entitled to vote thereon is required for approval of the Name Change Amendment.
COMMON STOCK AMENDMENT
As of the WEC Record Date, of the 325,000,000 shares of WEC Common Stock
presently authorized, 109,936,834 shares were issued and outstanding, and
approximately 13,091,000 shares of WEC Common Stock were reserved for issuance
for a specific purpose, as follows: 4,000,000 shares under the 1993 Omnibus
Stock Incentive Plan, 6,694,000 shares under Stock Plus, 1,083,000 shares under
MESP and 1,314,000 shares under RESP. An additional 21,773,726 shares (subject
to adjustment as provided in the WEC Stock Option Agreement) are reserved for
issuance under the WEC Stock Option Agreement, but the option to purchase such
shares granted to NSP thereunder will terminate at the Effective Time. See "The
Stock Option Agreements." If the Mergers are consummated, up to 114,357,613
additional shares of Primergy Common Stock would be issued to former holders of
NSP Common Stock pursuant to the Merger Agreement. Additional shares of Primergy
Common Stock would be issuable to holders of employee stock options to purchase
NSP Common Stock that are outstanding at the Effective Time, and will be
converted into options to acquire shares of Primergy Common Stock, upon exercise
of such options. Primergy is also obligated under the Merger Agreement to
reserve 12,000,000 shares of Primergy Common Stock for issuance under the
Primergy Stock Incentive Plan. See "Approval of Primergy Plans -- Primergy Stock
Incentive Plan."
The additional 425,000,000 authorized shares of Primergy Common Stock may be
issued for any proper corporate purpose approved by the Primergy Board. Without
the Common Stock Amendment, WEC would have a sufficient number of authorized
shares to complete the NSP Merger. However, the
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availability of additional authorized shares will enable the Primergy Board to
act with flexibility when and as the need arises to issue additional shares in
the future without the delays necessitated by having to obtain a shareholder
vote. Among the reasons for issuing additional shares would be to increase
Primergy's capital through sales of Primergy Common Stock, to engage in other
types of capital transactions, to undertake acquisitions, and to satisfy
contractual commitments, including employee stock options and other stock awards
that may be granted under the Primergy Stock Incentive Plan. The WEC Board has
not proposed the increase in the amount of authorized WEC Common Stock with the
intention of discouraging tender offers or takeover attempts of Primergy.
However, the availability of additional authorized shares for issuance could
render more difficult or discourage a merger, tender offer, proxy contest or
other attempt to obtain control of Primergy, which may adversely affect the
ability of Primergy shareholders to obtain a premium for their shares of
Primergy Common Stock and, accordingly, have a negative effect on the price of
Primergy Common Stock.
WEC management regularly reviews a range of possible financing transactions,
including the issuance of WEC Common Stock. Except for (i) shares to be issued
in connection with the Mergers and (ii) shares issued in connection with the
plans mentioned above, WEC has no present intention of issuing or selling WEC
Common Stock for any purpose, but may do so if market and other conditions
should indicate that such a course of action were advisable. Under the Merger
Agreement, WEC has agreed, from the date of the Merger Agreement through the
Effective Time or earlier termination of the Merger Agreement, to issue, without
the consent of NSP, no more than 1,600,000 additional shares of WEC Common Stock
for general corporate purposes, including issuances in connection with
acquisitions and financings and pursuant to employee benefit plans, stock option
and other incentive compensation plans, director plans and stock purchase and
dividend reinvestment plans.
If the Common Stock Amendment is approved, while the Primergy Board
generally may issue such additional authorized shares of Primergy Common Stock
without further shareholder approval, such issuances will generally require the
approval of the SEC under the 1935 Act as presently in effect. See "Regulatory
Matters." In some instances, shareholder approval for the issuance of additional
shares may be required by law or by the requirements of the NYSE, on which the
Primergy Common Stock will be listed, or the obtaining of such approvals may be
otherwise necessary or desirable. Except in such cases, it is not anticipated
that further shareholder authorization will be solicited. Holders of WEC Common
Stock are not entitled to preemptive rights to subscribe for or purchase any
part of any new or additional issue of WEC Common Stock or securities
convertible into WEC Common Stock.
The affirmative vote of a majority of the votes entitled to be cast at the
WEC Meeting by the holders of the outstanding shares of WEC Common Stock
entitled to vote thereon is required for approval of the Common Stock Amendment.
DESCRIPTION OF PRIMERGY CAPITAL STOCK
GENERAL
Pursuant to the Merger Agreement, no later than the Effective Time, the WEC
Articles will be amended and restated in the form attached hereto as Annex H,
subject to shareholder approval of each of the WEC Articles Amendments at the
WEC Meeting, and, as so amended and restated, shall be the Primergy Articles
until thereafter amended in accordance with the WBCL and the Primergy Articles.
See "Amendments to and Restatement of WEC Restated Articles of Incorporation."
The authorized capital stock of Primergy, as of the Effective Time, will consist
of 750,000,000 shares of Primergy Common Stock, and 15,000,000 shares of
preferred stock, par value $.01 per share ("Primergy Preferred Stock"). The
description of Primergy capital stock set forth herein does not purport to be
complete and is qualified in its entirety by reference to the Primergy Articles
and the Bylaws of Primergy (the "Primergy Bylaws"), attached hereto as Annexes H
and I, respectively, as well as applicable statutory or other law.
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PRIMERGY PREFERRED STOCK
Under the Primergy Articles, subject to any approval of the SEC which may be
required under the 1935 Act, the Primergy Board will be authorized to divide the
Primergy Preferred Stock into series, to issue shares of any such series and,
within the limitations set forth in the Primergy Articles or prescribed by law,
to fix and determine the relative rights and preferences of the shares of any
series so established, including the dividend rate, redemption price and terms,
amount payable upon liquidation, and any sinking fund provisions, conversion
privileges and voting rights. There are no present plans to issue any Primergy
Preferred Stock.
PRIMERGY COMMON STOCK
The holders of Primergy Common Stock will be entitled to receive such
dividends as the Primergy Board may from time to time declare, subject to any
rights of holders of Primergy Preferred Stock, if any is issued. Each holder of
Primergy Common Stock will be entitled to one vote per share on each matter
submitted to a vote at a meeting of shareholders, subject to any class or series
voting rights of holders of any Primergy Preferred Stock. The holders of
Primergy Common Stock will not be entitled to cumulate votes for the election of
directors. In the event of any liquidation, dissolution or winding up of
Primergy, the holders of Primergy Common Stock, subject to any rights of the
holders of any Primergy Preferred Stock, will be entitled to receive the
remainder, if any, of the assets of Primergy after the discharge of its
liabilities. Holders of Primergy Common Stock will not be entitled to preemptive
rights to subscribe for or purchase any part of any new or additional issue of
stock or securities convertible into stock. The Primergy Common Stock does not
contain any redemption provisions or conversion rights.
The shares of Primergy Common Stock to be issued pursuant to the Merger
Agreement, when so issued, will be fully paid and nonassessable. However, a
Wisconsin statute imposes on the shareholders of a corporation a liability "to
an amount equal to the par value of shares owned by them respectively . . . for
all debts owing to employees of the corporation for services performed for such
corporation, but not exceeding 6 months' service in any one case." In a case
involving shares in a privately held corporation, the Wisconsin Supreme Court by
an evenly divided vote affirmed a lower court decision that "par value," as used
in that provision in a substantially identical predecessor statute, means the
subscription price for the shares.
Primergy's ability to pay dividends will depend primarily upon the ability
of its subsidiaries to pay dividends or otherwise transfer funds to it. Various
financing arrangements, charter provisions and regulatory requirements will
impose certain restrictions on the ability of Primergy's public utility
subsidiaries to transfer funds to Primergy in the form of cash dividends, loans
or advances.
So long as any of WEPCO's First Mortgage Bonds, 5 1/8% Series due September
15, 1998 are outstanding, the most recent series of First Mortgage Bonds issued
under WEPCO's Mortgage and Deed of Trust dated October 28, 1938, as amended and
supplemented, WEPCO may not declare any dividend on its common stock, par value
$10.00 per share ("WEPCO Common Stock"), other than in WEPCO Common Stock, or
make any other distribution on, or acquire for value any shares of, WEPCO Common
Stock (except in exchange for WEPCO Common Stock) if, after giving effect
thereto, the aggregate of all such dividends, distributions or acquisitions
between July 1, 1993 and the last day of the third month preceding the month in
which any such dividend, distribution or acquisition is paid or made exceeds the
sum of $860,062,914 and the net income of WEPCO during such period applicable to
the WEPCO Common Stock. WEPCO's outstanding First Mortgage Bonds of other series
contain similar dividend restrictions.
So long as any of Wisconsin Natural's First Mortgage Bonds, 6 5/8% Series
due January 15, 1997 are outstanding, the only series of First Mortgage Bonds
outstanding under Wisconsin Natural's Mortgage and Deed of Trust dated June 1,
1950, as amended and supplemented, Wisconsin Natural may not declare any
dividend on its common stock, par value $1.00 per share ("Wisconsin Natural
Common Stock"), other than in Wisconsin Natural Common Stock, or make any other
distribution on,
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or acquire for value any shares of, Wisconsin Natural Common Stock (except in
exchange for Wisconsin Natural Common Stock), if after giving effect thereto,
the aggregate of all such dividends, distributions or acquisitions between
December 1, 1991 and the last day of the third month preceding the month in
which any such dividend, distribution or acquisition is paid or made exceeds the
sum of $33,519,275 and the net income of Wisconsin Natural during such period
applicable to the Wisconsin Natural Common Stock.
No dividends on WEPCO Common Stock may be paid by WEPCO if there are
dividends in arrears on WEPCO Preferred Stock.
The dividend restrictions referred to above are not expected to impair the
ability of WEPCO or Wisconsin Natural to make dividend payments consistent with
past practice.
See "Description of New NSP Preferred Stock -- Limitations on Payment of
Dividends on and Acquisitions of NSP Common Stock" for a description of the
limitations on New NSP's ability to pay dividends on its common stock to
Primergy.
In addition, under the Wisconsin Holding Company Act, Primergy's public
utility affiliates will be prohibited from loaning funds, either directly or
indirectly, to Primergy. Furthermore, the SEC, under the 1935 Act, and the
Wisconsin Commission, under the Wisconsin Holding Company Act, will have the
power to preclude the payment of dividends by New NSP and WEPCO to Primergy.
Under the 1935 Act, the SEC will also have the power to preclude the payment of
dividends by Primergy. See "Regulatory Matters."
It is a condition to consummation of the Mergers that the Primergy Common
Stock be approved for listing on the NYSE subject to official notification of
issuance.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Primergy Articles and Primergy Bylaws will contain provisions that may
have the effect of discouraging persons from acquiring large blocks of Primergy
stock or delaying or preventing a change in control of Primergy. The material
provisions which may have such an effect are (i) an anti-greenmail provision
prohibiting the purchase of shares of Primergy Common Stock from any person who
the Primergy Board believes to be a beneficial owner of more than 5% of the
outstanding shares of Primergy Common Stock at a market premium unless such
holder owned the shares for at least two years, such purchase was approved by a
majority of the combined voting power of the shareholders, or the purchase is
pursuant to a tender offer to all holders of Primergy Common Stock on the same
terms (which may diminish a person's incentive to acquire a significant block of
Primergy Common Stock if such person concluded that it could not be cashed out
at a premium); (ii) classification of the Primergy Board into three classes with
the term of only one class expiring each year; (iii) a provision permitting
removal of a director without cause only by at least an 80% shareholder vote;
(iv) authorization for the Primergy Board (subject to any required regulatory
approval) to issue Primergy Preferred Stock in series and to fix rights and
preferences of the series (including, among other things, whether, and to what
extent, the shares of any series will have voting rights and the extent of the
preferences of the shares of any series with respect to dividends and other
matters); (v) advance notice procedures with respect to nominations of directors
or proposals other than those adopted or recommended by the Primergy Board; (vi)
and provisions permitting amendment of certain of these and related provisions
only by at least an 80% shareholder vote at a meeting. In addition, the WBCL
contains supermajority voting/"fair price" provisions and business combination
provisions that would be applicable to certain mergers, share exchanges or sales
of substantially all assets involving Primergy or a subsidiary and a significant
shareholder and which could have the effect of substantially increasing the cost
to the acquiror and thus discourage any such transaction. See "Comparison of
Shareholder Rights -- Comparison of Minnesota and Wisconsin Law -- Anti-Takeover
Statutes."
The WBCL permits shareholders to adopt an amendment to the articles of
incorporation opting out of the supermajority voting/"fair price" provisions but
not the business combination provisions. The Primergy Articles do not opt out of
the supermajority voting/"fair price" provisions and require
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an 80% shareholder vote to do so, but do opt out of the control share
acquisition provision of the WBCL. See "Comparison of Shareholder Rights --
Comparison of Minnesota and Wisconsin Law -- Anti-Takeover Statutes."
The Wisconsin Statutes also contain provisions specifying that the approval
of the Wisconsin Commission is necessary for any acquisition or holding of more
than 10% of the outstanding voting shares of Primergy. Moreover, certain
acquisitions of outstanding voting shares of Primergy would also require
approval of the SEC under the 1935 Act. See "Regulatory Matters" and "Comparison
of Shareholder Rights."
DESCRIPTION OF NEW NSP PREFERRED STOCK
Pursuant to the Merger Agreement, prior to the Reincorporation Effective
Time, the articles of incorporation of New NSP will be amended and restated in
the form attached hereto as Annex J, and as so amended and restated shall be the
New NSP Articles until thereafter amended in accordance with the terms of the
WBCL and the New NSP Articles. The express terms of the shares of New NSP
Preferred Stock, as set forth in the New NSP Articles, are identical to the
terms of the corresponding shares of NSP Preferred Stock, as set forth in the
NSP Articles. The bylaws of New NSP, which are attached hereto as Annex O, are
substantially the same as the NSP Bylaws, except for changes required by the
WBCL. At the Reincorporation Effective Time, NSP will merge with and into New
NSP, with New NSP being the surviving corporation of the Reincorporation Merger.
The purpose of the Reincorporation Merger is to comply with the Wisconsin
Holding Company Act. See "Regulatory Matters -- State Approvals and Related
Matters." Each share of NSP Preferred Stock issued and outstanding immediately
prior to the Reincorporation Effective Time (other than NSP Dissenting Shares)
will be cancelled and converted into the right to receive one share of New NSP
Preferred Stock with terms (including dividend rates) and designations under the
New NSP Articles identical to those of the cancelled share of NSP Preferred
Stock under the NSP Articles; accordingly, the only differences between a share
of NSP Preferred Stock and a corresponding share of New NSP Preferred Stock are
those arising from the differences in the laws of Minnesota and Wisconsin. See
"Comparison of Shareholder Rights -- Comparison of Minnesota and Wisconsin Law."
The following is a description of both (i) the NSP Common Stock and NSP
Preferred Stock as they exist under the NSP Articles prior to the
Reincorporation Merger, and (ii) the New NSP Common Stock and New NSP Preferred
Stock as they will exist under the New NSP Articles following the
Reincorporation Effective Time. As used in the following description, the term
"NSP" refers to NSP with respect to any period prior to the Reincorporation
Effective Time and to New NSP with respect to any period after the
Reincorporation Effective Time. Except as otherwise indicated, the following
summary describes certain provisions of the NSP Articles and the New NSP
Articles (a copy of which is attached hereto as Annex J and incorporated herein
by reference), and is qualified in its entirety by reference to the NSP Articles
and the New NSP Articles.
GENERAL
The capital stock of NSP consists of two classes: NSP Common Stock
(160,000,000 shares authorized, of which 67,693,931 shares were outstanding as
of July 27, 1995); and NSP Preferred Stock (7,000,000 shares authorized, of
which the following series were outstanding as of July 27, 1995: $3.60 Series --
275,000 shares; $4.08 Series -- 150,000 shares; $4.10 Series -- 175,000 shares;
$4.11 Series -- 200,000 shares; $4.16 Series -- 100,000 shares; $4.56 Series --
150,000 shares; $6.80 Series -- 200,000 shares; $7.00 Series -- 200,000 shares;
Variable Rate Series A -- 300,000 shares; and Variable Rate Series B -- 650,000
shares). The NSP Board is authorized to provide for the issuance from time to
time of NSP Preferred Stock in series and, as to each series, to fix the
designation, dividend rates and time of payment, redemption price, and
liquidation price or preference as to assets
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in voluntary liquidation. Cumulative dividends, redemption provisions and
sinking fund requirements, to the extent that some or all of these features are
or may be present when NSP Preferred Stock is issued, could have an adverse
effect on the availability of earnings for distribution to the holders of the
NSP Common Stock or for other corporate purposes.
DIVIDEND RIGHTS
Before any dividends may be paid on the NSP Common Stock, the holders of
each series of NSP Preferred Stock are entitled to receive all accumulated and
unpaid dividends for past dividend periods at the respective rates provided for
the shares of the respective series.
LIMITATIONS ON PAYMENT OF DIVIDENDS ON AND ACQUISITIONS OF NSP COMMON STOCK
So long as any shares of NSP Preferred Stock are outstanding, dividends
(other than dividends payable in NSP Common Stock) or distributions on, or
acquisitions for value of, NSP Common Stock (i) may not exceed 50% of net income
of NSP for the preceding 12-month period, after deducting dividends accruing on
any NSP Preferred Stock during the period, if the sum of the capital represented
by the NSP Common Stock, premiums on capital stock (restricted to premiums on
NSP Common Stock only by orders of the SEC), and surplus accounts is less than
20% of the sum of the total capital, premiums on capital stock, surplus accounts
and debt maturing more than one year after date of issue, (ii) may not exceed
75% of net income for such preceding 12-month period, as adjusted, if such
capitalization ratio is 20% or more but less than 25%, and (iii) if such
capitalization ratio exceeds 25%, such dividends, distributions or acquisitions
may not reduce such ratio to less than 25% except to the extent permitted by
clauses (i) and (ii) above.
In NSP's First Mortgage Indenture, NSP has covenanted that the sum of (i)
all dividends and distributions on the NSP Common Stock after September 30, 1954
(other than in NSP Common Stock), and (ii) the cost of all shares of NSP Common
Stock acquired by it after that date shall not exceed the sum of (a) the earned
surplus of NSP and certain of its former subsidiary companies, consolidated, at
September 30, 1954, and (b) an amount equal to the net income of NSP and certain
of its former subsidiary companies, consolidated, earned after September 30,
1954, after making provisions for all dividends accruing after that date on NSP
Preferred Stock and after taking into consideration all proper charges and
credits to earned surplus made after that date. In computing net income for the
purpose of this covenant, there will be deducted an amount, if any, by which 15%
of the consolidated gross operating revenues of such companies, as defined in
the First Mortgage Indenture, after certain deductions, exceeds the aggregate of
the amounts expended for maintenance and provided for depreciation. None of the
foregoing provisions are expected to impair NSP's ability to pay dividends in
the foreseeable future.
NSP's Supplemental and Restated Trust Indenture dated May 1, 1988 (the
"Restated Indenture") amends and restates the First Mortgage Indenture. The
Restated Indenture will not become effective and operative until all First
Mortgage Bonds of each series issued under the First Mortgage Indenture prior to
July 1989 shall have been retired through payment or redemption or, subject to
certain limitations, until the holders of the requisite principal amount of such
First Mortgage Bonds shall have consented to the amendments contained in the
Restated Indenture (the "Indenture Effective Date"). The Restated Indenture will
replace the dividend restriction described in the preceding paragraph with the
requirement that (a) the sum of: (i) all dividends and distributions on NSP
Common Stock after the Indenture Effective Date (other than in NSP Common Stock)
and (ii) the amount, if any, by which the consideration given by NSP for the
purchase or other acquisition of NSP Common Stock after the Indenture Effective
Date exceeds the consideration received by it after the Indenture Effective Date
from the sale of NSP Common Stock, shall not exceed (b) the sum of: (i) the
retained earnings of NSP at the Indenture Effective Date, and (ii) an amount
equal to the net income of NSP earned after the Indenture Effective Date, after
deducting all dividends accruing after the Indenture Effective Date on all
classes and series of NSP Preferred Stock. In computing net income for the
purpose of this amended covenant, there will be deducted the amount, if any, by
which, after the date commencing 365 days prior to the Indenture Effective Date,
the actual expenditures or
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charges for ordinary repairs and maintenance and the charges for reserves,
renewals, replacements, retirements, depreciation and depletion are less than
2.50% of NSP's completed depreciable property (as defined in the Restated
Indenture).
VOTING RIGHTS
The holders of shares of NSP Preferred Stock of the $3.60 Series are
entitled to three votes for each share held, and the holders of shares of NSP
Common Stock and shares of NSP Preferred Stock of all other series are entitled
to one vote for each share held, on all matters submitted to a vote of NSP's
stockholders; PROVIDED that holders of NSP Common Stock and NSP Preferred Stock
have cumulative voting rights with respect to election of directors and provided
further that when dividends payable on the NSP Preferred Stock of any series
outstanding are in default in an amount equivalent to the amount payable thereon
during the immediately preceding 12-month period, and until such default shall
have been remedied, the holders of shares of NSP Preferred Stock, voting as a
class and without regard to series, are entitled to elect the smallest number of
directors necessary to constitute a majority of the NSP Board and the holders of
shares of NSP Common Stock, voting as a class, are entitled to elect the
remaining directors of NSP.
The affirmative vote or consent of the holders of various specified
percentages of NSP Preferred Stock is required to: increase the authorized
amount or prejudicially change the terms of the NSP Preferred Stock; authorize
stock senior to or on a parity with the NSP Preferred Stock; issue or assume
unsecured indebtedness under specified conditions; merge or consolidate with or
into any other corporation, unless such merger or consolidation shall have been
ordered, approved or permitted by the SEC under the provisions of the 1935 Act;
or issue additional NSP Preferred Stock unless certain net income and capital
ratio requirements are met, including a requirement that net income (as defined
in the NSP Articles) for a specified 12-month period shall be not less than one
and one-half times the sum of the interest requirements for one year on all debt
outstanding at the date of the proposed issue and the dividend requirements for
one year on all shares of NSP Preferred Stock, including the NSP Preferred Stock
then proposed to be issued but excluding debt or stock to be retired therewith.
REDEMPTION PROVISIONS
NSP, at its option, may at any time redeem the whole or any part of the NSP
Preferred Stock of any series or of all series upon at least 30 days' written
notice.
The orders of the SEC, in Files No. 70-3221 and 70-3279, under the
provisions of the 1935 Act, permitting the Declarations relating to NSP
Preferred Stock, $4.08 Series, and NSP Preferred Stock, $4.11 Series, to become
effective, contain conditions effective so long as any shares of these series
are outstanding that, in effect, prohibit NSP from redeeming or repurchasing
(through a sinking fund or otherwise) less than all shares of NSP Preferred
Stock while there is any arrearage in payment of dividends on NSP Preferred
Stock.
CHANGE OF CONTROL
The NSP Bylaws and the MBCA contain provisions that could discourage or make
more difficult a change of control of NSP, including provisions requiring
advance notice of the introduction by shareholders of business at annual or
special meetings of shareholders of NSP. Following the Reincorporation Effective
Time, the rights of holders of New NSP Preferred Stock, including rights
relating to a potential change of control of New NSP, will be governed by the
WBCL. For a discussion of the differences between such provisions under the MBCA
and the WBCL, see "Comparison of Shareholder Rights -- Comparison of Minnesota
and Wisconsin Law." Because Primergy will own all of the New NSP Common Stock,
and such New NSP Common Stock will constitute in excess of 90% of the voting
power of New NSP, the power to make determinations relating to change of control
matters as they relate to New NSP will belong to Primergy.
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LIQUIDATION RIGHTS
In the event of liquidation, after the holders of all series of NSP
Preferred Stock have received $100 per share in the case of involuntary
liquidation, and the then applicable redemption prices in the case of voluntary
liquidation, plus, in either case, an amount equal to all accumulated and unpaid
dividends, the holders of the NSP Common Stock are entitled to the remaining
assets. If upon any such liquidation the assets distributable among the holders
of the NSP Preferred Stock of all series shall be insufficient to pay in full
the amounts to which such holders are entitled, the amount distributable to the
holders of all shares of NSP Preferred Stock of all series shall be apportioned
among them ratably in proportion to the amounts to which they are respectively
then entitled.
PREEMPTIVE AND SUBSCRIPTION RIGHTS
No holder of NSP Common Stock or NSP Preferred Stock has the preemptive
right to purchase or subscribe for any additional capital stock of NSP.
COMPARISON OF SHAREHOLDER RIGHTS
If the Mergers are consummated, the persons who were holders of WEC Common
Stock immediately prior to the Mergers will remain common shareholders of
Primergy immediately after consummation of the Mergers and their rights will be
governed by the Primergy Articles, the Primergy Bylaws and the WBCL. The WEC
Articles, as amended and restated by the WEC Articles Amendments, which are
being submitted for shareholder approval at the WEC Meeting, will be the
Primergy Articles at the Effective Time. See "Amendments to and Restatement of
WEC Restated Articles of Incorporation." The Primergy Bylaws will be the WEC
Bylaws as in effect at the Effective Time, which are expected to be
substantially in the form of the WEC Bylaws as in effect on the date hereof.
The holders of the NSP Common Stock, upon consummation of the Mergers, will
become holders of Primergy Common Stock and their rights will be governed by the
Primergy Articles and the Primergy Bylaws, and by the WBCL. The Primergy
Articles and the Primergy Bylaws are different in certain respects from the NSP
Articles and the NSP Bylaws. In addition, certain differences exist between the
WBCL and MBCA with respect to shareholders' rights. While it is impracticable to
compare all these differences, material significant differences between the
Primergy Articles and the Primergy Bylaws, on the one hand, and the NSP Articles
and the NSP Bylaws, on the other hand, are summarized below under "-- Comparison
of Primergy Articles and Bylaws to NSP Articles and Bylaws," and material
similarities and differences between the WBCL and the MBCA with respect to
shareholders' rights are summarized below under "-- Comparison of Minnesota and
Wisconsin Law."
The following discussion is not intended to be complete and is qualified in
its entirety by reference to the Primergy Articles and the Primergy Bylaws which
are attached to this Joint Proxy Statement/ Prospectus as Annexes H and I,
respectively, the WBCL and MBCA and the NSP Articles and NSP Bylaws. The NSP
Articles and the NSP Bylaws are filed as exhibits to the Joint Registration
Statement of which this Joint Proxy Statement/Prospectus forms a part and are
incorporated herein by reference.
COMPARISON OF PRIMERGY ARTICLES AND BYLAWS TO NSP ARTICLES AND BYLAWS
BOARD OF DIRECTORS
The NSP Articles provide that the NSP Board shall be composed of between
three and seventeen members, as fixed in the NSP Bylaws. The NSP Bylaws provide
that the NSP Board will consist of twelve directors, but that the NSP Board or
shareholders may increase such number to not more than fifteen. If the NSP Board
fails to determine the number of directors, such number will be determined by
the shareholders at any annual or special meeting of shareholders. The NSP Board
currently consists of 13 directors. The Primergy Articles will provide that the
number of directors will be fixed by the Primergy Bylaws. The Primergy Bylaws
provide that the number of directors will be fixed from time to time by the
Primergy Board, but will not be less than three. At the Effective Time, the
number
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of directors on the Primergy Board will be set at 12, with six directors
designated by NSP and six directors designated by WEC. The Primergy Board, like
the NSP Board, will be classified into three classes.
CERTAIN SHARE ACQUISITIONS AND BUSINESS COMBINATIONS
Certain provisions of the MBCA have the effect of discouraging persons from
acquiring large blocks of NSP stock or delaying or preventing a change of
control of NSP. Under certain circumstances, these provisions could have the
effect of, among other things, (i) reducing the voting power of shares acquired
by a 20% shareholder, (ii) prohibiting a 10% shareholder from engaging in a
business combination with NSP for four years following the date of acquisition
of such 10% interest, (iii) prohibiting a potential tender offeror from engaging
in an unequal two-tier tender offer and (iv) prohibiting the payment of a market
premium (i.e., greenmail) to a 5% shareholder who has held such shares for less
than two years. See "-- Comparison of Minnesota and Wisconsin Law" below for a
more complete discussion of such provisions, including the circumstances under
which such provisions are triggered.
The WBCL contains somewhat similar provisions. See "-- Comparison of
Minnesota and Wisconsin Law." Under the Primergy Articles, however, Primergy
will opt out of the voting power reduction provision. Although the WBCL contains
an anti-greenmail provision, the Primergy Articles also contain a somewhat
different anti-greenmail provision that will prohibit Primergy from purchasing
shares of Primergy Common Stock from a 5% holder at a market premium, unless
such holder has owned the shares for at least two years, such purchase was
approved by a majority of the combined voting power of the shareholders or the
purchase is pursuant to a tender offer to all holders on the same terms.
REMOVAL OF DIRECTORS
The NSP Articles and Bylaws are silent as to the procedure for removing
directors. The MBCA provides that the shareholders may vote to remove any one or
all directors at any time, with or without cause, provided that if the company
has cumulative voting, unless the entire board is removed simultaneously, a
director may not be removed from the board if the votes cast against such
removal would have been sufficient to elect the director at an election of the
entire board under cumulative voting. The Primergy Bylaws provide that directors
may be removed for cause by a majority vote of the combined voting power of the
shareholders. Removal without cause will require an 80% vote of the combined
voting power of the shareholders.
VACANCIES ON THE BOARD OF DIRECTORS
The NSP Articles provide that vacancies caused by an increase in the size of
the board, or by death, resignation, disqualification or other cause are to be
filled by the remaining directors or by the shareholders. The NSP Bylaws further
provide that the remaining directors, even though less than a quorum, may fill
vacancies on the NSP Board.
The Primergy Bylaws provide that all vacancies may be filled by the
shareholders or the remaining directors. If the remaining directors are less
than a quorum, vacancies may be filled by the affirmative vote of a majority of
all directors remaining in office.
Both the NSP Bylaws and Primergy Bylaws provide that any new director
elected to fill a vacancy will serve for the remainder of the then present term
of the class of directors in which the vacancy is being filled.
AMENDMENTS TO ARTICLES OF INCORPORATION
The MBCA generally requires that, unless a greater proportion is required by
the articles, amendments to the articles of incorporation must be approved by
the affirmative vote of the holders of the greater of (i) a majority of the
voting power of the shares present and entitled to vote on that item of
business, or (ii) a majority of the voting power of the minimum number of shares
entitled to vote that would constitute a quorum. In certain circumstances, a
vote by class or series is required. Except
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for a requirement of majority approval by the Preferred Stock to increase the
authorized amount of Preferred Stock or the authorized number of shares of stock
ranking on a parity with such Preferred Stock as to assets or dividends and
except for a requirement of two-thirds approval of the Preferred Stock to change
the express terms and provisions of the Preferred Stock in any manner
substantially prejudicial to the holders thereof or to authorize any stock which
is preferred as to assets or dividends over such Preferred Stock, the NSP
Articles are silent as to amendment procedures.
The WBCL generally provides that amendments to the articles of incorporation
must be approved by a majority of the votes cast, unless a greater or lesser
proportion is required by the articles or bylaws. The Primergy Articles
generally provide that amendments to the Primergy Articles require the
affirmative vote of a majority of the votes entitled to be cast; provided that
amendments to certain sections (including those sections relating to the
preferred stock provisions, restrictions on greenmail, the voting requirements
for amending the Articles and any provision that would have the effect of
rendering inapplicable to Primergy the supermajority/fair-price and
anti-greenmail provisions of the WBCL) require an 80% vote of the shareholders.
AMENDMENTS TO BYLAWS
The NSP Articles provide that the NSP Board has the authority to make and
alter the Bylaws, subject to the power of the shareholders to change or repeal
such Bylaws. The Primergy Board will have the power to adopt, amend and repeal
the Bylaws, provided that such Bylaws generally may be amended or repealed by a
majority of the votes cast at a shareholders meeting at which a quorum is
present. Certain provisions of the Primergy Bylaws, including those provisions
(i) authorizing shareholder action by unanimous consent, (ii) fixing the number
of directors, (iii) providing for a classified board of directors, (iv)
establishing procedures for removing directors, (v) requiring notice of board
meetings, (vi) providing indemnification rights for officers and directors and
(vii) setting forth the vote required for certain amendments, may not be amended
or repealed without the approval of holders of 80% of the outstanding shares of
Primergy.
VOTING/CUMULATIVE VOTING
The NSP Articles provide that each share of NSP Common Stock and each share
of NSP Preferred Stock (other than the $3.60 Series Preferred Stock) is entitled
to one vote on each matter submitted to a vote of shareholders. Each share of
the $3.60 Series Preferred Stock is entitled to three votes per share. The NSP
Articles also provide for cumulative voting in connection with the election of
directors. The NSP Preferred Stock has certain special rights with respect to
the election of directors upon specified arrearages of dividends. The Primergy
Articles provide that each share of Primergy Common Stock is entitled to one
vote on each matter submitted to a vote of shareholders. The voting rights of
Primergy Preferred Stock, if any, will be determined by the Primergy Board at
the time such Primergy Preferred Stock is issued. The Primergy Articles do not
provide for cumulative voting in the election of directors.
SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION BY WRITTEN CONSENT
The NSP Bylaws provide that special meetings of shareholders may be called
and held as provided by the MBCA. The MBCA provides that special meetings of
shareholders may be called by the chief executive officer, the chief financial
officer, two or more directors, a person authorized in the articles or bylaws or
a shareholder or shareholders holding 10% or more of the voting power of the
shares entitled to vote, except that 25% or more of the voting power is required
to call a special meeting to consider any action to, directly or indirectly,
facilitate or effect a business combination. The Primergy Bylaws provide that
the Chairman, President or majority of the Board may call a special meeting of
the shareholders. In addition, the Primergy Bylaws provide that if and to the
extent required by the WBCL, shareholders holding at least 10% of the votes
entitled to be cast on an issue may demand that a special meeting be called.
The NSP Bylaws are silent as to whether shareholders may take action by
unanimous written consent without a meeting. The MBCA permits shareholders to
take action by unanimous written consent without a meeting.
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The Primergy Bylaws provide that the shareholders may take action without a
meeting only by unanimous written consent.
NOTICE OF SHAREHOLDER PROPOSALS/NOMINATIONS
The NSP Bylaws require advance notice of the introduction by shareholders of
business at annual or special meetings of shareholders. For any such proposal to
be properly brought before an annual or special meeting, a shareholder must
comply with the shareholder proposal requirements under the federal proxy rules
or deliver a written notice to the Secretary of NSP not less than 20 days nor
more than 90 days prior to the scheduled annual or special meeting, as the case
may be; provided that if the date of such meeting is not disclosed at least 30
days in advance of the meeting date, a shareholder notice will be timely
delivered if received by the close of business on the tenth day following the
earlier of the day on which notice of the date of the scheduled meeting was
mailed or the day on which public disclosure of the meeting date occurred. The
required notice from a shareholder must contain (i) a description of the
proposed business and the reasons for conducting such business, (ii) the name
and address of each shareholder supporting the proposal as it appears on NSP's
books, (iii) the class and number of shares owned by each such shareholder, and
(iv) a description of any financial or other interest of each such shareholder
in the proposal.
Primergy's Bylaws require advance notice of the nomination by a shareholder
of a person for election as a director or the introduction by shareholders of
business at annual or special meetings of shareholders. For a nomination or
proposal not included in the proxy statement to be properly brought before an
annual or special meeting by shareholders the Secretary of Primergy must have
received written notice thereof not less than 70 days nor more than 100 days, in
the case of an annual meeting, and a reasonable period of time, in the case of a
special meeting, prior to the meeting. The notice must contain (i) the name and
address of the shareholder who intends to make the proposal; (ii) a
representation that the shareholder is a holder of record entitled to vote at
the meeting (including the number of shares the shareholder owns as of the
record date and the length of time the shares have been held) and intends to
appear in person or by proxy to make the proposal specified in the notice; (iii)
the proposal and a brief supporting statement of such proposal; and (iv) such
other information regarding the proposal as would be required to be included in
a proxy statement filed pursuant to the proxy rules of the SEC.
INDEMNIFICATION/LIMITATION OF LIABILITY
The NSP Bylaws provide that NSP shall indemnify any person made or
threatened to be made a party to a proceeding by reason of the former or present
official capacity of the person acting for NSP or acting in an official capacity
with another entity at the direction or request of NSP, according to the terms
and under the procedures provided in the MBCA. See "-- Comparison of Minnesota
and Wisconsin Law -- Indemnification of Directors and Officers." The NSP
Articles also limit the personal liability of directors for monetary damages for
breach of their fiduciary duties, except to the extent provided for by
applicable law for or relating to (i) breaches of their duty of loyalty to NSP
or its shareholders, (ii) acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of the law, (iii) transactions
from which the directors receive improper personal benefits or (iv) payment of
an improper dividend, an improper repurchase of NSP stock or an unlawful sale of
securities. The Primergy Articles do not contain such a provision limiting
director liability, but a comparable limitation is statutorily mandated by the
WBCL. See "-- Comparison of Minnesota and Wisconsin Law -- Limited Liability of
Directors."
The Primergy Bylaws provide that Primergy shall indemnify to the fullest
extent permitted by law any person who is or was a party or threatened to be
made a party to any legal proceeding by reason of the fact that such person is
or was a director or officer of Primergy, or is or was serving at the request of
Primergy as a director or officer of another enterprise, against expenses
(including attorneys fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person. This right of indemnity
includes the advancement of expenses upon receipt of an undertaking to repay
upon specified conditions. The Primergy Bylaws also provide that directors or
officers who
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have been successful on the merits or otherwise in the defense of any proceeding
shall receive indemnification within 20 days of their request. The right to
indemnification (except in the event of a successful defense, in which case such
indemnification is automatic) will be determined at the indemnified party's
election by (i) majority vote of a quorum of disinterested directors, (ii)
independent legal counsel, (iii) a panel of three arbitrators, (iv) majority
vote of the shareholders, (v) a court or (vi) such other method provided for in
any additional right to indemnification.
COMPARISON OF MINNESOTA AND WISCONSIN LAW
In general, as described below, the MBCA and the WBCL provide shareholders
with similar rights and protections. A comparison of certain provisions of the
MBCA as it applies to NSP and the WBCL as it applies to Primergy is set forth
below:
CLASSIFIED BOARD OF DIRECTORS; REMOVAL OF DIRECTORS; VACANCIES. Both the
MBCA and the WBCL allow the Board of Directors to be divided into classes. Under
both the MBCA and the WBCL, absent a provision to the contrary in a
corporation's articles of incorporation or bylaws, a director can be removed
with or without cause by the affirmative vote of the holders of the proportion
of the voting power of the shares of the classes or series such director
represents sufficient to elect such director. Under both the MBCA and the WBCL,
in a corporation having cumulative voting a director is not removed from the
board if there are cast against removal of such director the votes of a
proportion of the voting power sufficient to elect such director at an election
of the entire board under cumulative voting (unless, in the case of the MBCA,
the entire board is removed simultaneously).
Under both the MBCA and the WBCL, absent provisions to the contrary in the
articles of incorporation, vacancies may be filled by the affirmative vote of a
majority of the directors, even though less than a quorum. Under the WBCL,
vacancies may also be filled by the shareholders.
INTERESTED DIRECTOR TRANSACTIONS. Under both the MBCA and the WBCL,
contracts or transactions in which one or more of the corporation's directors
has an interest are not void or voidable solely because of such interest or
because such director was present at the directors' or shareholders' meeting
where such contract or transaction was approved, if certain conditions are met.
Under both the WBCL and the MBCA, if the material facts of the transaction and
the director's interest are fully disclosed and a vote is taken in good faith,
such contracts or transactions may be approved by a majority vote of the
disinterested directors or by the requisite vote of disinterested shareholders,
which under the WBCL is a majority and under the MBCA is two-thirds. If the
contracts or transactions are shown to be fair and reasonable as to the
corporation at the time they are authorized, approved or ratified by the board,
separate disinterested shareholder or disinterested director approval is not
required.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. The WBCL provides for mandatory
indemnification of a director or officer against certain liabilities and
expenses if the director or officer was a party to a proceeding because of his
or her status as such: (a) to the extent such director or officer is successful
on the merits or otherwise in the defense of the proceeding; and (b) in
proceedings in which the director or officer is not successful in the defense
thereof, unless it is determined that the liability was incurred because the
director or officer breached or failed to perform a duty that he or she owes to
the corporation and the breach or failure to perform constitutes: (i) a willful
failure to deal fairly with the corporation or its shareholders in connection
with a matter in which the director or officer has a material conflict of
interest; (ii) a violation of criminal law, unless the director or officer had
reasonable cause to believe that his or her conduct was lawful or no reasonable
cause to believe that his or her conduct was unlawful; (iii) a transaction from
which the director or officer derived an improper personal profit; or (iv)
willful misconduct. Indemnification under the WBCL is not required if the
director or officer has previously received indemnification from any person,
including the corporation, in connection with the same proceeding. The WBCL
provides that a corporation's articles may limit its obligation to indemnify
directors and officers. The WBCL specifically states that it is the public
policy of Wisconsin to require or permit indemnification in connection with a
proceeding involving securities regulation, as described therein, to the extent
otherwise required or permitted under the WBCL.
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The MBCA contains comparable provisions. The MBCA provides that a
corporation shall indemnify a director or officer, made a party to a proceeding
because of his or her status as such, against certain liabilities if such
director or officer (a) has not been indemnified by another organization or
employee benefit plan for the same liabilities; (b) has acted in good faith; (c)
has received no improper personal benefit (and if the section relating to
director's conflicts of interest is applicable, its conditions have been
satisfied); (d) in the case of a criminal proceeding, had no reasonable cause to
believe the conduct was unlawful; and (e) reasonably believed his or her conduct
was in (or, in certain cases, was not opposed to) the best interests of the
corporation. Under the MBCA, the articles or bylaws may prohibit indemnification
or advances of expenses otherwise required by the indemnification section
described above or may impose additional conditions on indemnification
including, without limitation, monetary limits on indemnification or advances of
expenses, if the conditions apply equally to all persons or to all persons
within a given class.
LIMITED LIABILITY OF DIRECTORS. Both the MBCA and the WBCL provide for the
limitation or elimination of the personal liability of a company's directors to
the company or its shareholders for monetary damages for a breach of a
director's fiduciary duty. This immunity is automatic under Wisconsin law, but
must be provided for in the articles of incorporation under Minnesota law. In
either state, directors cannot be immunized in certain instances, including: (i)
breach of the duty of loyalty; (ii) violations of criminal law; and (iii)
willful misconduct. Other limitations specific to each state also exist.
AMENDMENT OF ARTICLES. The MBCA and WBCL provide that the board of
directors may propose amendments to a corporation's articles of incorporation.
The MBCA also contains provisions permitting a shareholder or shareholders
holding 3% or more of the voting power of the shares entitled to vote to propose
amendments. Under the MBCA, proposed amendments must be approved by the
affirmative vote of the holders of the greater of (1) a majority of the voting
power of the shares present and entitled to vote on the amendment, or (2) a
majority of the voting power of the minimum number of shares entitled to vote
that would constitute a quorum for the transaction of business at the meeting,
except where the MBCA or the articles require a larger proportion or number.
Under the WBCL and unless the articles, bylaws adopted under authority
granted in the articles, the board (if the board is proposing the amendment) or
the WBCL requires a greater vote or vote by voting groups, a proposed amendment
is adopted if approved by a majority of the votes cast by every voting group
entitled to vote on the amendment. In addition, both the MBCA and WBCL require
that certain amendments must be approved by a separate vote of a class or series
of stock if, among other things, the amendment would make a prejudicial change
to the rights or preferences of such shares. The Primergy Articles require a
shareholder vote of a majority of the outstanding shares to amend most
provisions therein and an 80% shareholder vote to amend certain provisions
thereof. See "-- Comparison of Primergy Articles and Bylaws to NSP Articles and
Bylaws -- Amendments to Articles of Incorporation."
AMENDMENT OF BYLAWS. Under the MBCA and WBCL, unless reserved by the
articles to the shareholders, the power to adopt, amend or repeal the bylaws is
generally vested in the board, subject to the power of the shareholders to
adopt, amend, or repeal bylaws adopted, amended or repealed by the board. The
MBCA also contains provisions permitting a shareholder or shareholders holding
3% or more of the voting power of the shares entitled to vote to propose a
resolution for action by the shareholders to adopt, amend, or repeal bylaws.
VOTE REQUIRED FOR CERTAIN REORGANIZATIONS OR CONSOLIDATIONS. The WBCL and
the MBCA both provide for a shareholder vote (except as indicated below and for
certain mergers between a parent company and its 90% owned subsidiary) of: (i)
each corporation that is party to a plan of merger; (ii) the corporation whose
shares will be acquired in a statutory share exchange; and (iii) the selling
corporation for the sale by the corporation of substantially all of its assets
if not in the usual and regular course of business. The WBCL and the MBCA also
provide for a shareholder vote to approve the dissolution of a corporation.
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Under the MBCA and the WBCL, unless a higher voting requirement is imposed
by the articles of incorporation or, in the case of the WBCL, by the bylaws
adopted under authority granted by the articles, the vote required to approve a
plan of merger, statutory share exchange, sale of substantially all assets not
in the ordinary course of business or dissolution is a majority of the voting
power of all shares entitled to vote of each corporation whose shareholders have
a right to vote; approval of a plan of merger or statutory share exchange (and
in the case of the WBCL, a sale of substantially all assets or dissolution) also
may require the affirmative vote of one or more classes or series of stock.
Neither the MBCA nor the WBCL requires the vote of the shareholders of a
surviving corporation in a merger if (i) the corporation's articles of
incorporation will not be amended in the transaction (except for amendments
permitted to be made by the board without a shareholder vote under the WBCL),
(ii) shareholders of the corporation immediately before the effective date of
the transaction will hold the same number of shares with identical rights
immediately after the effective date, (iii) the number of shares entitled to
vote immediately after the merger (plus shares issuable upon certain conversions
or pursuant to certain rights) does not exceed by more than 20% the number of
shares entitled to vote immediately before the transaction (the MBCA refers to
the voting power of the shares rather than the number of shares entitled to
vote); and (iv) the number of participating shares of the corporation
(outstanding shares of the corporation that entitle their holders to
participate, without limitation, in distributions by the corporation)
immediately after the merger, plus the number of participating shares of the
corporation issuable on the conversion of, or on the exercise of rights to
purchase, securities issued in the transaction, will not exceed by more than 20%
the number of participating shares of the corporation immediately before the
transaction.
CLASS VOTE FOR CERTAIN REORGANIZATIONS. Both the MBCA and the WBCL provide,
with certain exceptions, that a class or series of shares of a corporation is
entitled to vote on a plan of merger or statutory share exchange as a class or
series if any provision of the plan would, if contained in a proposed amendment
to the articles of incorporation, entitle the class or series of shares to vote
as a class or series and, in the case of an exchange, if the class or series is
included in the plan of exchange. In addition to the voting requirements
discussed above, anti-takeover legislation adopted in both Wisconsin and
Minnesota imposes additional restrictions on mergers and other business
combinations between certain shareholders and the corporation. See "--
Anti-Takeover Statutes."
SHAREHOLDER ACTION BY CONSENT. Both the WBCL and the MBCA permit
shareholders to take action without a meeting by unanimous written consent.
However, Wisconsin also allows a corporation, if it so elects in its articles of
incorporation, to take such action by less than unanimous written consent.
STATUTORY SHAREHOLDER LIABILITY. The WBCL provides that shareholders of
Wisconsin domestic corporations are personally liable for all debts owed to
employees for services performed, but not exceeding six months' service in any
one case. While the WBCL specifies that such liability is limited to the par
value of the shares, this has been interpreted by a Wisconsin trial court to
mean the consideration paid to a corporation for shares. This decision was
affirmed by a split decision of the Wisconsin Supreme Court without any written
opinion and with one justice abstaining.
DISTRIBUTIONS. Both the MBCA and the WBCL are the same in all material
respects with regard to distributions. Under both statutes, the board of
directors may authorize and the corporation may make, subject to any restriction
by the articles, distributions to its shareholders unless after such
distribution the corporation would not be able to pay its debts as they become
due or its total assets after the distribution would be less than the sum of its
total liabilities, plus the amount that would be needed, if the corporation were
to be dissolved at the time of the distribution, to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights are superior
to those receiving the distribution. The MBCA provides that if the amount
available for distribution is insufficient to satisfy all preferences, the
distribution must be made PRO RATA according to the order of priority of the
preferences by classes and by series within those classes.
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SPECIAL MEETINGS OF SHAREHOLDERS. Under the WBCL, a special meeting of
shareholders may be called by the board of directors or by any person authorized
by the articles of incorporation or bylaws to call a special meeting, or
pursuant to a written demand of the holders of not less than 10% of the votes
entitled to be cast at such a meeting.
Under the MBCA, special meetings of the shareholders may be called for any
purpose or purposes at any time, by: (i) the chief executive officer; (ii) the
chief financial officer; (iii) two or more directors; (iv) a person authorized
in the articles or bylaws to call special meetings; or (v) a shareholder or
shareholders holding 10% or more of the voting power of all shares entitled to
vote, except that a special meeting for the purpose of considering any action to
directly or indirectly facilitate or effect a business combination, including
any action to change or otherwise affect the composition of the board for that
purpose, must be called by 25% or more of the voting power of all shares
entitled to vote.
DISSENTERS' RIGHTS. Both the MBCA and WBCL entitle shareholders of a
corporation to dissent from and obtain fair value for their shares in the event
of certain corporate actions. Subject to certain exceptions, limitations and
conditions, shareholders in both states may dissent from (1) a plan of merger,
(2) a plan of share exchange, and (3) a sale of all or substantially all of the
assets of the corporation. Under the MBCA, shareholders are also entitled to
dissenters' rights in the event of any amendment to the articles that materially
and adversely affects the rights or preferences of the shares of the dissenting
shareholder in certain specified ways. The WBCL provides that the articles of
incorporation may give this right to the shareholders. Both the MBCA and WBCL
allow corporations to create additional dissenters' rights by affirmative
provision in the articles or bylaws or by board resolution. However, under the
WBCL, except in a "Section 180.1130 Business Combination" (as described below
under "Anti-Takeover Statutes") or unless the articles of incorporation provide
otherwise, dissenters' rights are not available to holders of shares registered
on a national securities exchange or quoted on NASDAQ on the record date for a
meeting of shareholders at which action on the proposed transaction otherwise
subject to dissenters' rights is to be taken. As a result, assuming the
continued listing of the Primergy Common Stock on the NYSE, under the WBCL,
shareholders will not be entitled to dissenters' rights with respect to any
future merger, plan of share exchange or sale of all or substantially all of the
assets of Primergy which might occur following the Mergers (unless it
constitutes a Section 180.1130 Business Combination). There are no current plans
for any such transaction.
DIRECTOR AND OFFICER DISCRETION. The WBCL provides that, in discharging his
or her duties to the corporation and in determining what he or she believes to
be in the best interests of the corporation, a director or officer may, in
addition to considering the effects of any action on shareholders, consider (i)
the effects of the action on employees, suppliers and customers of the
corporation, (ii) the effects of the action on the communities in which the
corporation operates and (iii) any other factors that the director or officer
considers pertinent. The MBCA contains comparable provisions. The MBCA provides
that, in discharging the duties of the position of director, a director may, in
considering the best interests of the corporation, consider the interests of the
corporation's employees, customers, suppliers, and creditors, the economy of the
state and nation, community and societal considerations, and the long-term as
well as short-term interests of the corporation and its shareholders including
the possibility that these interests may be best served by the continued
independence of the corporation.
ANTI-TAKEOVER STATUTES.
1. BUSINESS COMBINATION STATUTES. The MBCA and the WBCL both restrict
corporations from engaging in certain enumerated "business combinations" (as
defined therein to include, generally, a merger or statutory share exchange;
sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets
equal to at least 10% (5% under the WBCL) or more of the aggregate market value
of all the assets or at least 10% (5% under WBCL) of the aggregate market value
of the outstanding stock or at least 10% of the earning power or income; the
issuance or transfer of stock with a market value equal to at least 5% of the
outstanding stock; adoption of a plan or proposal of liquidation or dissolution,
and certain other transactions involving an "interested shareholder" (defined
generally
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as a shareholder who beneficially owns at least 10% of the outstanding voting
power or, under the WBCL, who is an affiliate or associate of the corporation
and beneficially owned 10% of the voting power of the then outstanding voting
stock within the preceding three years)) for a period of four years (three years
under the WBCL) following the date that the person became an interested
shareholder ("share acquisition date"). Under the MBCA, this restriction applies
unless the business combination or the acquisition of shares by the interested
shareholder is approved by a committee of disinterested directors prior to the
share acquisition date. A director is deemed disinterested if he or she has not
been an officer or employee of the corporation within the preceding five years.
Under the WBCL, this restriction applies for three years unless the business
combination or the acquisition of shares by the interested shareholder is
approved by the board of directors prior to the share acquisition date.
Following such three-year period, such business combinations are permitted if
(i) the acquisition of shares was approved by the board of directors prior to
the share acquisition date, (ii) the business combination is approved by a
majority of the voting stock not beneficially owned by the interested
shareholder or (iii) the consideration to be received by the corporation's
shareholders satisfies certain "fair price" provisions.
2. CONTROL SHARE ACQUISITION STATUTES. The MBCA reduces the voting rights
of any person acquiring one-fifth, one-third or a majority of the voting power
of the corporation, absent shareholder approval of such acquisition. The WBCL
contains similar provisions, except that the WBCL applies only to acquisitions
of more than one-fifth of the voting power of the corporation. Under both the
MBCA and WBCL, the person whose voting rights are reduced may demand a
shareholders meeting at which the shareholders shall vote on resolutions to
restore full voting rights to such person's shares. If the shareholders vote
against restoring full voting rights, the MBCA, unless expressly provided
otherwise in the articles of incorporation or bylaws, permits the corporation to
redeem a portion of the person's shares at market value.
The MBCA and WBCL permit a corporation to opt out of the foregoing
provisions on control share acquisitions. The Primergy Articles opt out of the
WBCL control share acquisition provisions.
3. ANTI-GREENMAIL STATUTES. The MBCA and WBCL also contain so-called
"anti-greenmail" provisions which, absent shareholder approval, restrict the
ability of publicly held companies to repurchase voting shares at above market
value (as defined in the MBCA and the WBCL) from certain large shareholders,
unless an identical or better offer to purchase is made to all owners of such
shares. Under the MBCA, these provisions apply to purchases from a person or
group who owns more than 5% of the voting power of the corporation and who has
owned such shares for less than two years. Under the WBCL, the provisions apply
to purchases during a take-over offer of more than 5% of the corporation's
shares from a person or group that holds more than 3% of the corporation's
voting shares and has held the shares for less than two years. These provisions
may have the effect of deterring a shareholder from acquiring a corporation's
shares with the goal of seeking to have the corporation repurchase such shares
at a premium over market value.
The WBCL also provides that shareholder approval is also required for the
corporation during a take-over offer to sell or option assets of the corporation
which amount to at least 10% of the market value of the corporation, unless the
corporation has at least three independent directors (directors who are not
officers or employees) and a majority of the independent directors vote not to
have this provision apply to the corporation.
4. FAIR PRICE PROVISIONS. The MBCA generally provides that a person who
makes or in any way participates in making a takeover offer (as defined therein)
may not acquire shares of a publicly held corporation within two years following
the last purchase of shares pursuant to such takeover offer, unless such
acquisition is approved by a committee of disinterested directors prior to any
acquisition by the offeror pursuant to the takeover offer or unless the
shareholders are permitted a reasonable opportunity to dispose of their shares
to the offeror upon substantially the same terms as those of the earlier
takeover offer.
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The WBCL provides that in addition to any approval otherwise required,
certain mergers, share exchanges or sales, leases, exchanges or other
dispositions involving a public corporation and a 10% holder or affiliate of the
public corporation who was a 10% holder at any time within the preceding two
years (a "significant shareholder") are subject to a supermajority vote of
shareholders, unless certain fair price standards have been met. Specifically,
approval of (i) 80% of the total voting power of the corporation and (ii) at
least 66 2/3% of the voting power not beneficially owned by the significant
shareholder or its affiliates or associates is required, unless the
consideration is in cash (or the form of consideration used to acquire the
largest number of shares) and such aggregate per share consideration is equal to
the greater of (a) the highest price paid by such significant shareholder within
the prior two-year period, (b) the market value of the shares on the date of
commencement of a tender offer by such significant shareholder, or (c) the
highest liquidation or dissolution distribution to which the shareholders would
be entitled. The Primergy Articles require an 80% shareholder vote to opt out of
the WBCL "fair price" provisions.
APPROVAL OF PRIMERGY PLANS
PRIMERGY STOCK INCENTIVE PLAN
Pursuant to the Merger Agreement, it was agreed that Primergy would adopt a
stock compensation plan to replace the NSP Long-Term Incentive Award Stock Plan
and the WEC 1993 Omnibus Stock Incentive Plan (except with respect to
obligations incurred or attributable to employment prior to the Effective Time)
subject to approval by shareholders. Accordingly, the Primergy Stock Incentive
Plan is submitted to the shareholders of NSP and WEC for approval, as more fully
described below. The Primergy Stock Incentive Plan will become effective only if
approved by shareholders as described below, in which event it will become
effective at the Effective Time and will terminate ten years thereafter.
The purpose of the Primergy Stock Incentive Plan is to enable Primergy and
its subsidiaries and other Affiliates (as defined in the Primergy Stock
Incentive Plan) to attract, retain and motivate officers and employees and to
provide Primergy and its affiliates with the ability to provide incentives
directly linked to the profitability of Primergy's businesses and increases in
shareholder value and the enhancement of performance relating to customers.
The Primergy Stock Incentive Plan has been designed to comply with recent
tax law changes which impose limits on the ability of a public company to claim
tax deductions for compensation paid to certain highly compensated executives.
Section 162(m) of the Code generally denies a corporate tax deduction for annual
compensation exceeding $1,000,000 paid to the chief executive officer and the
four other most highly compensated officers of a public company. Certain types
of compensation, including performance-based compensation, are generally
excluded from this deduction limit. In an effort to ensure that stock awards
under the Primergy Stock Incentive Plan will qualify as performance-based
compensation, which is generally deductible, the Primergy Stock Incentive Plan
is being submitted to shareholders of NSP and WEC for approval at the NSP
Meeting and the WEC Meeting, respectively. While NSP and WEC believe
compensation payable pursuant to the Primergy Stock Incentive Plan will be
deductible for federal income tax purposes under most circumstances, final
regulations have not yet been promulgated under Section 162(m) of the Code and
there can be no assurance in this regard. Moreover, under certain circumstances
such as death, disability and change in control (all as defined in the Primergy
Stock Incentive Plan), compensation not qualified under Section 162(m) of the
Code may be payable. By approving the Primergy Stock Incentive Plan, the
shareholders will be approving, among other things, the performance measures,
eligibility requirements and limits on various stock awards contained therein.
The affirmative vote of a majority of the votes entitled to be cast by the
holders of the shares of NSP stock (NSP Common Stock and NSP Preferred Stock
voting as a single class) and by the holders of shares of WEC Common Stock,
respectively, represented at the NSP Meeting and the WEC Meeting, respectively,
and entitled to vote thereon (PROVIDED that, in each case, the total vote cast
represents over 50% of the voting power of all the shares entitled to vote) is
required to approve the Primergy Stock Incentive Plan with respect to
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Section 162(m) of the Code. Such vote will also satisfy the shareholder approval
requirements of Section 422 of the Code with respect to the grant of ISOs and
Rule 16b-3 under the Exchange Act ("Rule 16b-3"). THE BOARDS OF DIRECTORS OF
EACH OF NSP AND WEC UNANIMOUSLY RECOMMEND A VOTE FOR APPROVAL OF THE PRIMERGY
STOCK INCENTIVE PLAN.
Set forth below is a summary of certain important features of the Primergy
Stock Incentive Plan, which summary is qualified in its entirety by reference to
the actual plan attached as Annex K to this Joint Proxy Statement/Prospectus:
ADMINISTRATION. The Primergy Stock Incentive Plan will be administered by
the Primergy Compensation Committee or such other committee of the Primergy
Board as the Primergy Board may from time to time designate, which will be
composed solely of not less than two "disinterested persons" for purposes of
Rule 16b-3 who also qualify as "outside directors" for purposes of Section
162(m) of the Code. Among other things, the Primergy Compensation Committee will
have the authority, subject to the terms of the Primergy Stock Incentive Plan,
to select officers and employees to whom awards may be granted, to determine the
type of award as well as the number of shares of Primergy Common Stock to be
covered by each award, and to determine the terms and conditions of any such
awards. The Primergy Compensation Committee also will have the authority to
adopt, alter and repeal such administrative rules, guidelines and practices
governing the Primergy Stock Incentive Plan as it shall deem advisable, to
interpret the terms and provisions of the Primergy Stock Incentive Plan and any
awards issued thereunder and to otherwise supervise the administration of the
Primergy Stock Incentive Plan. All decisions made by the Primergy Compensation
Committee pursuant to the Primergy Stock Incentive Plan will be final and
binding.
ELIGIBILITY. Officers and salaried employees of Primergy and its Affiliates
designated by the Primergy Compensation Committee who are responsible for or
contribute to the management, growth and profitability of Primergy are eligible
to be granted awards under the Primergy Stock Incentive Plan. No grant will be
made under the Primergy Stock Incentive Plan to a director who is not an officer
or a salaried employee. The initial determination of persons eligible to
participate in the Primergy Stock Incentive Plan will not be made until after
the Effective Time by the Primergy Compensation Committee as then constituted.
Accordingly, it is not possible to estimate at this time the number of persons
who will be eligible to participate in the Primergy Stock Incentive Plan.
PLAN FEATURES. The Primergy Stock Incentive Plan authorizes the issuance of
up to 12,000,000 shares of Primergy Common Stock pursuant to the grant or
exercise of stock options, including ISOs, nonqualified stock options, SARs,
restricted stock and performance units, but not more than 3,000,000 shares may
be issued as restricted stock. No single participant may be granted awards
pursuant to the Primergy Stock Incentive Plan covering in excess of 100,000
shares of Primergy Common Stock in any one calendar year and no participant may
be granted performance units in any one calendar year payable in cash in an
amount that would exceed $1,000,000. Subject to the foregoing limits, the shares
available under the Primergy Stock Incentive Plan can be divided among the
various types of awards and among the participants as the Primergy Compensation
Committee sees fit. The shares subject to grant under the Primergy Stock
Incentive Plan are to be made available from authorized but unissued shares or
from treasury shares as determined from time to time by the Primergy Board.
Awards may be granted for such terms as the Primergy Compensation Committee may
determine, except that the term of an ISO may not exceed ten years from its date
of grant. No awards outstanding on the termination date of the Primergy Stock
Incentive Plan shall be affected or impaired by such termination. Awards will
not be transferable, except by will and the laws of descent and distribution
and, in the case of nonqualified stock options and any related SARs, as a gift
to an optionee's children. The Primergy Compensation Committee will have broad
authority to fix the terms and conditions of individual agreements with
participants.
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As indicated above, several types of stock-related grants can be made under
the Primergy Stock Incentive Plan. A summary of these grants is set forth below:
STOCK OPTIONS. The Primergy Stock Incentive Plan authorizes the Primergy
Compensation Committee to grant options to purchase Primergy Common Stock at an
exercise price (the "option price") which cannot be less than 100% of the fair
market value of such stock on the date of grant. The Primergy Stock Incentive
Plan permits optionees, with the approval of the Primergy Compensation
Committee, to pay the exercise price of options in cash, stock (valued at its
fair market value on the date of exercise) or a combination thereof. As noted
above, options may be granted either as ISOs or nonqualified options. The
principal difference between ISOs and nonqualified options is their tax
treatment. See "-- Federal Income Tax Consequences."
SARS. The Primergy Stock Incentive Plan authorizes the Primergy
Compensation Committee to grant SARs in conjunction with all or part of any
stock option granted under the Primergy Stock Incentive Plan. An SAR entitles
the holder to receive upon exercise the excess of the fair market value of a
specified number of shares of Primergy Common Stock at the time of exercise over
the option price per share specified in the related stock option. Such amount
will be paid to the holder in shares of Primergy Common Stock (valued at its
fair market value on the date of exercise), cash or a combination thereof, as
the Primergy Compensation Committee may determine. An SAR may be granted in
conjunction with a contemporaneously granted ISO or a previously or
contemporaneously granted nonqualified option. Since the exercise of an SAR is
an alternative to the exercise of an option, the option will be cancelled to the
extent that the SAR is exercised and the SAR will be cancelled to the extent the
option is exercised.
RESTRICTED STOCK. The Primergy Stock Incentive Plan authorizes the Primergy
Compensation Committee to grant restricted stock to individuals with such
restriction periods as the Primergy Compensation Committee may designate. The
Primergy Compensation Committee may, prior to granting shares of restricted
stock, designate certain participants as "Covered Employees" upon determining
that such participants are or are expected to be "covered employees" within the
meaning of Section 162(m)(3) of the Code, and will provide that restricted stock
awards to these Covered Employees cannot vest unless applicable performance
goals established by the Primergy Compensation Committee within the time period
prescribed by Section 162(m) of the Code are satisfied. These performance goals
must be based on the attainment of specified levels of earnings per share,
market share, stock price, sales, costs, net operating income, cash flow,
retained earnings, return on equity, results of customer satisfaction surveys,
aggregate product price and other product price measures, safety record, service
reliability, demand-side management (including conservation and load
management), operating and maintenance cost management, energy production
availability, and individual performance measures. Such performance goals also
may be based on the attainment of specified levels of Primergy's performance
under one or more of the measures described above relative to the performance of
other corporations. Performance goals based on the foregoing factors are
hereinafter referred to as "Performance Goals." With respect to Covered
Employees, all Performance Goals must be objective performance goals satisfying
the requirements for "performance-based compensation" within the meaning of
Section 162(m)(4) of the Code. The Primergy Compensation Committee also may
condition the vesting of restricted stock awards to participants who are not
Covered Employees upon the satisfaction of these or other applicable performance
goals. The provisions of restricted stock awards (including any applicable
Performance Goals) need not be the same with respect to each participant. During
the restriction period, the Primergy Compensation Committee may require that the
stock certificates evidencing restricted shares be held by Primergy. Restricted
stock may not be sold, assigned, transferred, pledged or otherwise encumbered.
Other than these restrictions on transfer and any other restrictions the
Primergy Compensation Committee may impose, the participant will have all the
rights of a holder of stock holding the class or series of stock that is the
subject of the restricted stock award.
PERFORMANCE UNITS. The Primergy Stock Incentive Plan authorizes the
Primergy Compensation Committee to grant performance units. Performance units
may be denominated in shares of Primergy
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Common Stock or cash, or may represent the right to receive dividend equivalents
with respect to shares of Primergy Common Stock, as determined by the Primergy
Compensation Committee. Performance units will be payable in cash or shares of
Primergy Common Stock if applicable Performance Goals (based on one or more of
the measures described in the section entitled "-- Restricted Stock" above)
determined by such committee are achieved during an award cycle. An award cycle
will consist of a period of consecutive fiscal years or portions thereof
designated by the Primergy Compensation Committee over which performance units
are to be earned. At the conclusion of a particular award cycle, the Primergy
Compensation Committee will determine the number of performance units granted to
a participant which have been earned in view of applicable Performance Goals and
shall deliver to such participant (i) the number of shares of Primergy Common
Stock equal to the value of performance units determined by the Primergy
Compensation Committee to have been earned and/or (ii) cash equal to the value
of such earned performance units. The Primergy Compensation Committee may, in
its discretion, permit participants to defer the receipt of performance units on
terms and conditions established by the Primergy Compensation Committee.
The Primergy Compensation Committee will have the authority to determine the
officers and employees to whom and the time or times at which performance units
shall be awarded, the number of performance units to be awarded to any
participant, the duration of the award cycle and any other terms and conditions
of an award. In the event that a participant's employment is involuntarily
terminated or in the event of the participant's retirement, the Primergy
Compensation Committee will have the discretion to waive in whole or in part any
or all remaining payment limitations, PROVIDED, HOWEVER, that the satisfaction
of applicable Performance Goals by a designated Covered Employee cannot be
waived unless such Covered Employee's employment is terminated by death,
disability or change of control.
AMENDMENT AND DISCONTINUANCE. The Primergy Stock Incentive Plan may be
amended, altered or discontinued by the Primergy Board, but no amendment,
alteration or discontinuance may be made which would (i) impair the rights of an
optionee under an option or a recipient of an SAR, restricted stock award or
performance unit award previously granted without the optionee's or recipient's
consent, except such an amendment made to qualify the Primergy Stock Incentive
Plan for the exemption provided by Rule 16b-3 or (ii) disqualify the Primergy
Stock Incentive Plan from the exemption provided by Rule 16b-3. Except as
expressly provided in the Primergy Stock Incentive Plan, the Primergy Stock
Incentive Plan may not be amended without shareholder approval to the extent
such approval is required by law or agreement.
CHANGES IN CAPITALIZATION; CHANGE IN CONTROL. The Primergy Stock Incentive
Plan provides that, in the event of any change in corporate capitalization, such
as a stock split, or a corporate transaction, such as any merger, consolidation,
share exchange, separation, spin-off or other distribution of stock or property
of Primergy, or any reorganization or partial or complete liquidation of
Primergy, the Primergy Compensation Committee or the Primergy Board may make
such substitutions or adjustments in the aggregate number and kind of shares
reserved for issuance under the Primergy Stock Incentive Plan, in the number,
kind and option price of shares subject to outstanding stock options and SARs,
and in the number and kind of shares subject to other outstanding awards granted
under the Primergy Stock Incentive Plan as may be determined to be appropriate
by the Primergy Compensation Committee or the Primergy Board, in its sole
discretion. The Primergy Stock Incentive Plan also provides that in the event of
a change in control (as defined in the Primergy Stock Incentive Plan which is
attached hereto as Annex K) of Primergy (i) any SARs and stock options
outstanding as of the date of the change of control which are not then
exercisable and vested will become fully exercisable and vested, (ii) the
restrictions applicable to restricted stock will lapse and such restricted stock
shall become free of all restrictions and fully vested and (iii) all performance
units will be considered to be earned and payable in full and any restrictions
will lapse and such performance units will be settled in cash as promptly as
practicable. The holders of options (other than options of holders subject to
Section 16(b) of the Exchange Act that were granted not more than six months
before the change in control) will have the right, for a period of 60 days after
such date, to
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surrender such options in exchange for a cash payment based on the change in
control price (as defined in the Primergy Stock Incentive Plan). However, if
settlement in cash would disqualify a transaction from pooling-of-interests
accounting treatment, the Primergy Compensation Committee may substitute stock.
FEDERAL INCOME TAX CONSEQUENCES. The following discussion is intended only
as a brief summary of the federal income tax rules relevant to stock options,
SARs, restricted stock and performance units. The laws governing the tax aspects
of awards are highly technical and such laws are subject to change.
- NONQUALIFIED OPTIONS AND SARS. Upon the grant of a nonqualified option
(with or without an SAR), the optionee will not recognize any taxable
income and Primergy will not be entitled to a deduction. Upon the exercise
of such an option or an SAR, the excess of the fair market value of the
shares acquired on the exercise of the option over the option price (the
"spread"), or the consideration paid to the optionee upon exercise of the
SAR, will constitute compensation taxable to the optionee as ordinary
income. In determining the amount of the spread or the amount of
consideration paid to the optionee, the fair market value of the stock on
the date of exercise is used, except that in the case of an optionee
subject to the six month short-swing profit recovery provisions of Section
16(b) of the Exchange Act (generally officers and directors of Primergy),
the fair market value will be determined six months after the date on
which the option was granted (if such date is later than the exercise
date) unless such optionee elects to be taxed based on the fair market
value at the date of exercise. Any such election (a "Section 83(b)
election") must be made and filed with the IRS within 30 days after
exercise in accordance with the regulations under Section 83(b) of the
Code. Primergy, in computing its federal income tax, will generally be
entitled to a deduction in an amount equal to the compensation taxable to
the optionee.
- ISOS. An optionee will not recognize taxable income on the grant or
exercise of an ISO. However, the spread at exercise will constitute an
item includible in alternative minimum taxable income, and thereby may
subject the optionee to the alternative minimum tax. Such alternative
minimum tax may be payable even though the optionee receives no cash upon
the exercise of his ISO with which to pay such tax.
Upon the disposition of shares of stock acquired pursuant to the exercise
of an ISO after the later of (i) two years from the date of grant of the
ISO or (ii) one year after the transfer of the shares to the optionee (the
"ISO Holding Period"), the optionee will recognize long-term capital gain
or loss, as the case may be, measured by the difference between the
stock's selling price and the exercise price. Primergy is not entitled to
any tax deduction by reason of the grant or exercise of an ISO, or by
reason of a disposition of stock received upon exercise of an ISO if the
ISO Holding Period is satisfied. Different rules apply if the optionee
disposes of the shares of stock acquired pursuant to the exercise of an
ISO before the expiration of the ISO Holding Period.
- RESTRICTED STOCK. A participant who is granted restricted stock may make a
Section 83(b) election to have the grant taxed as compensation income at
the date of receipt, with the result that any future appreciation (or
depreciation) in the value of the shares of stock granted shall be taxed
as capital gain (or loss) upon a subsequent sale of the shares. However,
if the participant does not make a Section 83(b) election, then the grant
will be taxed as compensation income at the full fair market value on the
date that the restrictions imposed on the shares expire. Unless a
participant makes a Section 83(b) election, any dividends paid on stock
subject to the restrictions are compensation income to the participant and
compensation expense to Primergy. Primergy is generally entitled to an
income tax deduction for any compensation income taxed to the participant,
subject to the provisions of Section 162(m) of the Code.
- PERFORMANCE UNITS. A participant who has been granted a performance unit
award will not realize taxable income until the applicable award cycle
expires and the participant is in receipt
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of the stock distributed in payment of the award or an equivalent amount
of cash, at which time such participant will realize ordinary income equal
to the full fair market value of the shares delivered or the amount of
cash paid. At that time, Primergy generally will be allowed a
corresponding tax deduction equal to the compensation taxable to the award
recipient, subject to the provisions of Section 162(m) of the Code.
NEW PLAN BENEFITS. It cannot be determined at this time what benefits or
amounts, if any, will be received by or allocated to any person or group of
persons under the Primergy Stock Incentive Plan if the Incentive Plan is adopted
or what benefits or amounts would have been received by or allocated to any
person or group of persons for the last fiscal year if the Incentive Plan had
been in effect. These determinations will be made by the Primergy Compensation
Committee.
PRIMERGY MANAGEMENT INCENTIVE COMPENSATION PLAN
Pursuant to the Merger Agreement, it was agreed that Primergy would adopt,
subject to shareholder approval, an annual incentive plan to replace the WEC
Short-Term Performance Plan and the NSP Executive Incentive Compensation Plan
(except with respect to obligations incurred or attributable to employment prior
to the Effective Time), effective as of the Effective Time. The Primergy
Management Incentive Compensation Plan (the "MIC Plan") will not become
effective with respect to individuals who are subject to Section 162(m) of the
Code unless the shareholder approval described below is obtained.
The purpose of the MIC Plan is to provide a significant and flexible
economic opportunity to selected officers and salaried employees of Primergy and
its subsidiaries and other Affiliates (as defined in the MIC Plan) in an effort
to reward their individual and group contributions to Primergy and to more
closely link the financial interests of management, shareholders and customers.
The MIC Plan is designed to take into account Section 162(m) of the Code,
which generally denies a corporate tax deduction for annual compensation
exceeding $1,000,000 paid to the chief executive officer and the four other most
highly compensated officers of a public company. Certain types of compensation,
including performance-based compensation, are excluded from this deduction
limit. In an effort to ensure that compensation payable under the MIC Plan to
certain executives will qualify as performance-based compensation that is
generally tax-deductible, the MIC Plan is being submitted to shareholders of NSP
and WEC for approval at the NSP Meeting and the WEC Meeting, respectively. While
Primergy believes compensation payable pursuant to the MIC Plan will be
deductible for federal income tax purposes under most circumstances, final
regulations have not yet been promulgated under Section 162(m) of the Code and
there can be no assurance in this regard. Moreover, under certain circumstances
such as death, disability and change in control (all as defined in the MIC
Plan), compensation not qualified under Section 162(m) of the Code may be
payable. By approving the MIC Plan, the shareholders will be approving, among
other things, the performance measures, eligibility requirements and annual
incentive award limits contained therein. The affirmative vote of a majority of
the votes entitled to be cast by the holders of the shares of NSP Common Stock
and NSP Preferred Stock, on the one hand, and WEC Common Stock, on the other
hand, represented at the NSP Meeting and the WEC Meeting, respectively, and
entitled to vote thereon (PROVIDED THAT, in the case of the vote required at the
NSP Meeting, the total vote cast represents over 50% of the voting power of all
the shares of NSP Common Stock and NSP Preferred Stock entitled to vote thereon)
is required to approve the MIC Plan. THE BOARDS OF DIRECTORS OF NSP AND WEC EACH
UNANIMOUSLY RECOMMEND A VOTE FOR APPROVAL OF THE MIC PLAN.
Set forth below is a summary of certain important features of the MIC Plan,
which summary is qualified in its entirety by reference to the actual plan
attached as Annex L to this Joint Proxy Statement/Prospectus:
ADMINISTRATION. The MIC Plan will be administered by the Primergy
Compensation Committee, or such other committee of the Primergy Board as the
Primergy Board may from time to time designate, which, unless the Primergy
Board determines otherwise, will be composed solely
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of not less than two "disinterested persons" who qualify as "outside
directors" for purposes of Section 162(m) of the Code. The Primergy
Compensation Committee will have sole authority to make rules and
regulations relating to the administration of the MIC Plan, and any
interpretations and decisions of the Primergy Compensation Committee with
respect to the MIC Plan will be final and binding.
ELIGIBILITY. The Primergy Compensation Committee will, in its sole
discretion, determine those officers and salaried employees of Primergy who
shall be eligible to participate in the MIC Plan for a given period of 12
months or less (an "Incentive Period"). These participants will be selected
based upon their opportunity to have a substantial impact on Primergy's
results. Participation in the MIC Plan by a participant during a given
Incentive Period does not require continued participation by such
participant in any subsequent Incentive Period. The initial determination of
persons eligible to participate in the MIC Plan will not be made until after
the Effective Time by the Primergy Compensation Committee as then
constituted. Accordingly, it is not possible to estimate at this time the
number of persons who will be eligible to participate in the MIC Plan.
PLAN FEATURES. The MIC Plan provides for the payment of cash incentive
awards to participants designated by the Primergy Compensation Committee,
which payments may be conditioned upon the attainment of pre-established
performance goals or upon such other factors or criteria as the Primergy
Compensation Committee shall determine. Such performance goals may be
different for each participant. Bonus amounts are determined by multiplying
a participant's "Target Incentive Award" by a percentage which varies
depending on the extent to which the performance goals or other factors or
criteria are satisfied. A participant's Target Incentive Award, in turn, is
determined by multiplying such participant's base salary as of the last day
of the applicable Incentive Period by a percentage designated by the
Primergy Compensation Committee, in its sole discretion, which percentage
need not be the same for each participant (and which may exceed 100%). The
Primergy Compensation Committee may, in its sole discretion, increase or
decrease the amount of any incentive awards payable to a participant and
may, in recognition of special circumstances, pay incentive awards even if
not earned, PROVIDED that the Primergy Compensation Committee cannot
increase the amount of any incentive awards payable to certain designated
"Covered Employees." Incentive awards payable under the MIC Plan to certain
designated "Covered Employees" are subject to special restrictions described
in the following section.
DESIGNATED COVERED EMPLOYEES. The Primergy Compensation Committee will
have the authority, in its sole discretion, to designate certain
participants as "Covered Employees" for a specified Incentive Period upon
determining that such participants are or are expected to be "covered
employees" within the meaning of Section 162(m) of the Code for such
Incentive Period. Not more than 90 days after the beginning of the Incentive
Period, and, in any event, before 25% or more of the Incentive Period has
elapsed, the Primergy Compensation Committee will establish the performance
goals for the bonus award opportunities of these Covered Employees. Such
performance goals are to be comprised of one or more of the following
measures: earnings per share, market share, stock price, sales, costs, net
operating income, cash flow, retained earnings, return on equity, results of
customer satisfaction surveys, aggregate product price and other product
price measures, safety record, service reliability, demand-side management
(including conservation and load management), operating and maintenance cost
management, energy production availability, and individual performance
measures. Such performance goals also may be based on the attainment of
specified levels of performance by Primergy under one or more of the
measures described above relative to the performance of other corporations.
With respect to Covered Employees, all Performance Goals must be objective
performance goals satisfying the requirements for "performance-based
compensation" within the meaning of Section 162(m) of the Code. Incentive
awards payable to Covered Employees are to be calculated in the same manner
described in the "-- Plan Features" section above, except that subjective
individual
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performance ratings cannot be used to increase the amount of incentive
awards payable to Covered Employees. No incentive awards will be paid to
Covered Employees if the minimum applicable pre-established Performance
Goals are not satisfied, unless the Covered Employee's employment is
terminated because of death, disability or a change of control. Furthermore,
the Primergy Compensation Committee will have the authority to decrease, but
not to increase, the amount of incentive awards otherwise payable to Covered
Employees pursuant to pre-established performance goals and payment
formulas. The maximum amount payable to any Covered Employee for any fiscal
year of Primergy will be $1,000,000.
AMENDMENT AND DISCONTINUANCE. The Primergy Board will have the right to
amend, alter, discontinue or otherwise modify the MIC Plan from time to
time, but no amendment will, without the consent of the participant
affected, impair any award made prior to the effective date of the
modification.
NEW PLAN BENEFITS. It cannot be determined at this time what benefits
or amounts, if any, will be received by or allocated to any person or group
of persons under the MIC Plan if the MIC Plan is adopted or what benefits or
amounts would have been received by or allocated to any person or group of
persons for the last fiscal year if the MIC Plan had been in effect.
101
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma financial information combines the
historical consolidated balance sheets and statements of income of NSP and WEC,
including their respective subsidiaries, after giving effect to the Mergers. The
unaudited pro forma combined condensed balance sheet at June 30, 1995 gives
effect to the Mergers as if they had occurred at June 30, 1995. The unaudited
pro forma combined condensed statements of income for each of the three years in
the period ended December 31, 1994, the six-month periods ended June 30, 1995
and 1994, and the 12-month period ended June 30, 1995, give effect to the
Mergers as if they had occurred at January 1, 1992. These statements are
prepared on the basis of accounting for the Mergers as a pooling of interests
and are based on the assumptions set forth in the notes thereto.
The WEC income statements for the six-month period ended June 30, 1994 and
the fiscal year ended December 31, 1994 include a significant one-time pretax
charge of $73,900,000 for revitalization costs recorded in the first quarter of
1994. To provide a more representative recent 12-month period summarizing
combined operating results, a pro forma combined condensed statement of income
for the 12-month period ended June 30, 1995 is also presented.
The following pro forma financial information has been prepared from, and
should be read in conjunction with, the historical consolidated financial
statements and related notes thereto of NSP and WEC, incorporated by reference
herein. The following information is not necessarily indicative of the financial
position or operating results that would have occurred had the Mergers been
consummated on the date, or at the beginning of the periods, for which the
Mergers are being given effect nor is it necessarily indicative of future
operating results or financial position.
102
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1995
(IN THOUSANDS)
ASSETS
NSP WEC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
-------------- -------------- ------------ --------------
UTILITY PLANT
Electric......................................... $ 6,456,240 $ 4,598,068 $ -- $ 11,054,308
Gas.............................................. 687,963 475,853 -- 1,163,816
Other............................................ 287,969 39,700 -- 327,669
-------------- -------------- ------------ --------------
Total.......................................... 7,432,172 5,113,621 -- 12,545,793
Accumulated provision for depreciation........... (3,258,535) (2,222,972) -- (5,481,507)
Nuclear fuel -- net.............................. 86,016 56,873 -- 142,889
-------------- -------------- ------------ --------------
Net utility plant.............................. 4,259,653 2,947,522 -- 7,207,175
CURRENT ASSETS
Cash and cash equivalents........................ 58,371 14,424 -- 72,795
Accounts receivable -- net....................... 289,612 124,606 -- 414,218
Accrued utility revenues......................... 93,545 98,360 -- 191,905
Fossil fuel inventories.......................... 41,836 84,466 -- 126,302
Material & supplies inventories.................. 105,379 70,854 -- 176,233
Prepayments and other............................ 50,083 90,150 -- 140,233
-------------- -------------- ------------ --------------
Total current assets........................... 638,826 482,860 -- 1,121,686
OTHER ASSETS
Regulatory assets................................ 357,328 287,654 -- 644,982
External decommissioning fund.................... 173,881 253,657 -- 427,538
Investments in non-regulated projects and other
investments..................................... 266,021 116,746 -- 382,767
Non-regulated property -- net.................... 177,398 101,457 -- 278,855
Intangible assets and other (Note 4)............. 130,772 251,148 (137,514) 244,406
-------------- -------------- ------------ --------------
Total other assets............................. 1,105,400 1,010,662 (137,514) 1,978,548
-------------- -------------- ------------ --------------
TOTAL ASSETS................................... $ 6,003,879 $ 4,441,044 $ (137,514) $ 10,307,409
-------------- -------------- ------------ --------------
-------------- -------------- ------------ --------------
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
103
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET (CONTINUED)
JUNE 30, 1995
(IN THOUSANDS)
LIABILITIES AND EQUITY
NSP WEC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ------------ --------------
CAPITALIZATION
Common stock equity:
Common stock (Note 1).............................. $ 168,767 $ 1,098 $ (167,669) $ 2,196
Other stockholders' equity (Note 1)................ 1,774,940 1,803,154 167,669 3,745,763
------------- ------------- ------------ --------------
Total common stock equity........................ 1,943,707 1,804,252 -- 3,747,959
Cumulative preferred stock and premium............. 240,469 30,451 -- 270,920
Long-term debt..................................... 1,465,599 1,253,148 -- 2,718,747
------------- ------------- ------------ --------------
Total capitalization............................. 3,649,775 3,087,851 -- 6,737,626
CURRENT LIABILITIES
Current portion of long-term debt.................. 168,324 52,879 -- 221,203
Short-term debt.................................... 309,929 240,821 -- 550,750
Accounts payable................................... 181,631 70,039 -- 251,670
Taxes accrued...................................... 145,761 10,104 -- 155,865
Other accrued liabilities.......................... 136,424 103,174 -- 239,598
------------- ------------- ------------ --------------
Total current liabilities........................ 942,069 477,017 -- 1,419,086
OTHER LIABILITIES
Deferred income taxes (Note 4)..................... 856,503 480,367 (137,514) 1,199,356
Deferred investment tax credits.................... 168,599 91,913 -- 260,512
Regulatory liabilities............................. 214,495 167,638 -- 382,133
Other liabilities and deferred credits............. 172,438 136,258 -- 308,696
------------- ------------- ------------ --------------
Total other liabilities.......................... 1,412,035 876,176 (137,514) 2,150,697
------------- ------------- ------------ --------------
TOTAL CAPITALIZATION AND LIABILITIES............. $ 6,003,879 $ 4,441,044 $ (137,514) $ 10,307,409
------------- ------------- ------------ --------------
------------- ------------- ------------ --------------
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
104
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NSP WEC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ----------- -------------
Utility Operating Revenues
Electric............................................. $ 1,016,931 $ 691,196 $ -- $ 1,708,127
Gas.................................................. 233,909 176,275 -- 410,184
Steam................................................ -- 8,744 -- 8,744
------------- ------------- ----------- -------------
Total Operating Revenues......................... 1,250,840 876,215 -- 2,127,055
Utility Operating Expenses
Electric Production -- Fuel and Purchased Power...... 284,148 166,636 -- 450,784
Cost of Gas Sold & Transported....................... 139,613 105,339 -- 244,952
Other Operation...................................... 261,621 195,619 -- 457,240
Maintenance.......................................... 81,025 59,212 -- 140,237
Depreciation and Amortization........................ 143,899 90,148 -- 234,047
Taxes Other than Income Taxes........................ 124,352 36,537 -- 160,889
Revitalization Charges............................... -- -- -- --
Income Taxes......................................... 60,322 65,304 -- 125,626
------------- ------------- ----------- -------------
Total Operating Expenses......................... 1,094,980 718,795 -- 1,813,775
------------- ------------- ----------- -------------
Utility Operating Income............................... 155,860 157,420 -- 313,280
Other Income (Expense)
Equity Earnings of Unconsolidated Investees.......... 18,470 -- -- 18,470
Other Income and Deductions -- Net................... 15,696 12,591 -- 28,287
------------- ------------- ----------- -------------
Total Other Income (Expense)..................... 34,166 12,591 -- 46,757
------------- ------------- ----------- -------------
Income before Interest Charges and Preferred
Dividends............................................. 190,026 170,011 -- 360,037
Interest Charges....................................... 62,024 55,280 -- 117,304
Preferred Dividends of Subsidiaries.................... 6,327 602 -- 6,929
------------- ------------- ----------- -------------
Net Income....................................... $ 121,675 $ 114,129 $ -- $ 235,804
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
Average Common Shares Outstanding (Note 1) . 67,107 109,352 42,009 218,468
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
Earnings Per Common Share.............................. $ 1.81 $ 1.04 $ 1.08
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
105
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NSP WEC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ----------- -------------
Utility Operating Revenues
Electric............................................. $ 1,007,382 $ 694,514 $ -- $ 1,701,896
Gas.................................................. 258,044 206,081 -- 464,125
Steam................................................ -- 9,426 -- 9,426
------------- ------------- ----------- -------------
Total Operating Revenues......................... 1,265,426 910,021 -- 2,175,447
Utility Operating Expenses
Electric Production -- Fuel and Purchased Power...... 284,767 165,595 -- 450,362
Cost of Gas Sold & Transported....................... 163,631 128,438 -- 292,069
Other Operation...................................... 259,068 207,670 -- 466,738
Maintenance.......................................... 81,913 63,936 -- 145,849
Depreciation and Amortization........................ 135,711 87,389 -- 223,100
Taxes Other than Income Taxes........................ 118,376 40,415 -- 158,791
Revitalization Charges............................... -- 73,900 -- 73,900
Income Taxes......................................... 70,638 35,388 -- 106,026
------------- ------------- ----------- -------------
Total Operating Expenses......................... 1,114,104 802,731 -- 1,916,835
------------- ------------- ----------- -------------
Utility Operating Income............................... 151,322 107,290 -- 258,612
Other Income (Expense)
Equity Earnings of Unconsolidated Investees.......... 12,757 -- -- 12,757
Other Income and Deductions -- Net................... 3,435 13,034 -- 16,469
------------- ------------- ----------- -------------
Total Other Income (Expense)..................... 16,192 13,034 -- 29,226
------------- ------------- ----------- -------------
Income before Interest Charges and Preferred
Dividends............................................. 167,514 120,324 -- 287,838
Interest Charges....................................... 48,911 53,323 -- 102,234
Preferred Dividends of Subsidiaries.................... 6,113 749 -- 6,862
------------- ------------- ----------- -------------
Net Income....................................... $ 112,490 $ 66,252 $ -- $ 178,742
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
Average Common Shares Outstanding (Note 1)............. 66,765 107,525 41,795 216,085
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
Earnings Per Common Share.............................. $ 1.68 $ 0.62 $ 0.83
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
106
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
12 MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NSP WEC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ----------- -------------
Utility Operating Revenues
Electric............................................. $ 2,076,194 $ 1,400,244 $ -- $ 3,476,438
Gas.................................................. 395,768 294,543 -- 690,311
Steam................................................ -- 13,599 -- 13,599
------------- ------------- ----------- -------------
Total Operating Revenues........................... 2,471,962 1,708,386 -- 4,180,348
Utility Operating Expenses
Electric Production -- Fuel and Purchased Power...... 570,257 329,526 -- 899,783
Cost of Gas Sold & Transported....................... 239,425 176,412 -- 415,837
Other Operation...................................... 538,725 386,960 -- 925,685
Maintenance.......................................... 169,257 119,878 -- 289,135
Depreciation and Amortization........................ 281,990 180,373 -- 462,363
Taxes Other than Income Taxes........................ 240,540 72,157 -- 312,697
Revitalization Charges............................... -- -- -- --
Income Taxes......................................... 118,912 129,677 -- 248,589
------------- ------------- ----------- -------------
Total Operating Expenses........................... 2,159,106 1,394,983 -- 3,554,089
------------- ------------- ----------- -------------
Utility Operating Income............................... 312,856 313,403 -- 626,259
Other Income (Expense)
Equity Earnings of Unconsolidated Investees.......... 41,576 -- -- 41,576
Other Income and Deductions -- Net................... 18,770 26,522 -- 45,292
------------- ------------- ----------- -------------
Total Other Income (Expense)....................... 60,346 26,522 -- 86,868
------------- ------------- ----------- -------------
Income before Interest Charges and Preferred
Dividends............................................. 373,202 339,925 -- 713,127
Interest Charges....................................... 120,328 109,976 -- 230,304
Preferred Dividends of Subsidiaries.................... 12,578 1,204 -- 13,782
------------- ------------- ----------- -------------
Net Income......................................... $ 240,296 $ 228,745 $ -- $ 469,041
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
Average Common Shares Outstanding (Note 1)............. 67,004 108,931 41,945 217,880
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
Earnings Per Common Share.............................. $ 3.59 $ 2.10 $ 2.15
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
107
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NSP WEC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ----------- -------------
Utility Operating Revenues
Electric................................................. $ 2,066,644 $ 1,403,562 $ -- $ 3,470,206
Gas...................................................... 419,903 324,349 -- 744,252
Steam.................................................... -- 14,281 -- 14,281
------------- ------------- ----------- -------------
Total Operating Revenues............................... 2,486,547 1,742,192 -- 4,228,739
Utility Operating Expenses
Electric Production -- Fuel and Purchased Power.......... 570,880 328,485 -- 899,365
Cost of Gas Sold & Transported........................... 263,443 199,511 -- 462,954
Other Operation.......................................... 536,168 399,011 -- 935,179
Maintenance.............................................. 170,145 124,602 -- 294,747
Depreciation and Amortization............................ 273,801 177,614 -- 451,415
Taxes Other than Income Taxes............................ 234,564 76,035 -- 310,599
Revitalization Charges................................... -- 73,900 -- 73,900
Income Taxes............................................. 129,228 99,761 -- 228,989
------------- ------------- ----------- -------------
Total Operating Expenses............................... 2,178,229 1,478,919 -- 3,657,148
------------- ------------- ----------- -------------
Utility Operating Income................................... 308,318 263,273 -- 571,591
Other Income (Expense)
Equity Earnings of Unconsolidated Investees.............. 35,863 -- -- 35,863
Other Income and Deductions -- Net....................... 6,509 26,965 -- 33,474
------------- ------------- ----------- -------------
Total Other Income (Expense)........................... 42,372 26,965 -- 69,337
------------- ------------- ----------- -------------
Income before Interest Charges and Preferred Dividends..... 350,690 290,238 -- 640,928
Interest Charges........................................... 107,215 108,019 -- 215,234
Preferred Dividends of Subsidiaries........................ 12,364 1,351 -- 13,715
------------- ------------- ----------- -------------
Net Income............................................. $ 231,111 $ 180,868 $ -- $ 411,979
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
Average Common Shares Outstanding (Note 1)................. 66,845 108,025 41,845 216,715
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
Earnings Per Common Share.................................. $ 3.46 $ 1.67 $ 1.90
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
108
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NSP WEC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ----------- -------------
Utility Operating Revenues
Electric................................................. $ 1,974,916 $ 1,347,844 $ -- $ 3,322,760
Gas...................................................... 429,076 331,301 -- 760,377
Steam.................................................... -- 14,090 -- 14,090
------------- ------------- ----------- -------------
Total Operating Revenues............................. 2,403,992 1,693,235 -- 4,097,227
Utility Operating Expenses
Electric Production -- Fuel and Purchased Power.......... 524,126 318,265 -- 842,391
Cost of Gas Sold & Transported........................... 282,028 214,132 -- 496,160
Other Operation.......................................... 516,568 399,135 -- 915,703
Maintenance.............................................. 161,413 156,085 -- 317,498
Depreciation and Amortization............................ 264,517 167,066 -- 431,583
Taxes Other than Income Taxes............................ 223,108 74,653 -- 297,761
Revitalization Charges................................... -- -- -- --
Income Taxes............................................. 128,346 98,463 -- 226,809
------------- ------------- ----------- -------------
Total Operating Expenses............................. 2,100,106 1,427,799 -- 3,527,905
------------- ------------- ----------- -------------
Utility Operating Income................................... 303,886 265,436 -- 569,322
Other Income (Expense)
Equity Earnings of Unconsolidated Investees.............. 3,030 -- -- 3,030
Other Income and Deductions -- Net....................... 12,916 32,073 -- 44,989
------------- ------------- ----------- -------------
Total Other Income (Expense)......................... 15,946 32,073 -- 48,019
------------- ------------- ----------- -------------
Income before Interest Charges and Preferred Dividends..... 319,832 297,509 -- 617,341
Interest Charges........................................... 108,092 102,997 -- 211,089
Preferred Dividends of Subsidiaries........................ 14,580 4,377 -- 18,957
------------- ------------- ----------- -------------
Net Income........................................... $ 197,160 $ 190,135 $ -- $ 387,295
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
Average Common Shares Outstanding (Note 1)................. 65,211 105,878 40,822 211,911
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
Earnings Per Common Share.................................. $ 3.02 $ 1.80 $ 1.83
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
109
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NSP WEC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) ADJUSTMENTS COMBINED
------------- ------------- ----------- -------------
Utility Operating Revenues
Electric................................................. $ 1,823,316 $ 1,298,723 $ -- $ 3,122,039
Gas...................................................... 336,206 283,699 -- 619,905
Steam.................................................... -- 13,093 -- 13,093
------------- ------------- ----------- -------------
Total Operating Revenues............................... 2,159,522 1,595,515 -- 3,755,037
Utility Operating Expenses
Electric Production -- Fuel and Purchased Power.......... 451,696 330,461 -- 782,157
Cost of Gas Sold & Transported........................... 220,370 177,947 -- 398,317
Other Operation.......................................... 512,833 367,020 -- 879,853
Maintenance.............................................. 180,585 150,462 -- 331,047
Depreciation and Amortization............................ 242,914 164,367 -- 407,281
Taxes Other than Income Taxes............................ 204,439 73,714 -- 278,153
Revitalization Charges................................... -- -- -- --
Income Taxes............................................. 90,669 89,838 -- 180,507
------------- ------------- ----------- -------------
Total Operating Expenses............................... 1,903,506 1,353,809 -- 3,257,315
------------- ------------- ----------- -------------
Utility Operating Income................................... 256,016 241,706 -- 497,722
Other Income (Expense)
Equity Earnings of Unconsolidated Investees.............. 2,382 -- -- 2,382
Other Income and Deductions -- Net....................... 5,570 26,136 -- 31,706
------------- ------------- ----------- -------------
Total Other Income (Expense)........................... 7,952 26,136 -- 34,088
------------- ------------- ----------- -------------
Income before Interest Charges and Preferred Dividends..... 263,968 267,842 -- 531,810
Interest Charges........................................... 103,040 90,687 -- 193,727
Preferred Dividends of Subsidiaries........................ 16,172 5,916 -- 22,088
------------- ------------- ----------- -------------
Income Before Accounting Change........................ $ 144,756 $ 171,239 $ -- $ 315,995
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
Average Common Shares Outstanding (Note 1)................. 62,641 103,382 39,213 205,236
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
Earnings Per Common Share.................................. $ 2.31 $ 1.66 $ 1.54
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
110
PRIMERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. The pro forma combined condensed financial statements reflect the conversion
of each share of NSP Common Stock ($2.50 par value) outstanding into 1.626
shares of Primergy Common Stock ($.01 par value) and the continuation of
each share of WEC Common Stock ($.01 par value) outstanding as one share of
Primergy Common Stock, as provided in the Merger Agreement. The pro forma
combined condensed financial statements are presented as if the companies
were combined during all periods included therein.
2. The allocation between NSP and WEC and their customers of the estimated cost
savings resulting from the Mergers, net of the costs incurred to achieve
such savings, will be subject to regulatory review and approval. Transaction
costs are currently estimated to be approximately $30,000,000 (including
fees for financial advisors, attorneys, accountants, consultants, filings
and printing). None of these estimated cost savings, the costs to achieve
such savings, or transaction costs have been reflected in the pro forma
combined condensed financial statements.
3. Intercompany transactions (including purchased and exchanged power
transactions) between NSP and WEC during the periods presented were not
material and, accordingly, no pro forma adjustments were made to eliminate
such transactions.
4. A pro forma adjustment has been made to conform the presentation of
noncurrent deferred income taxes in the pro forma combined condensed balance
sheet into one net amount. All other financial statement presentation and
accounting policy differences are immaterial and have not been adjusted in
the pro forma combined condensed financial statements.
111
SELECTED INFORMATION CONCERNING WEC AND NSP
BUSINESS OF WEC
WEC, headquartered in Milwaukee, Wisconsin, is a holding company whose
principal subsidiaries are WEPCO and Wisconsin Natural. WEC also has certain
non-utility subsidiaries. WEPCO generates, transmits, distributes and sells
electric energy in a territory of approximately 12,000 square miles with a
population estimated at over 2,200,000 in southeastern (including the Milwaukee
area), east central and northern Wisconsin and in the Upper Peninsula of
Michigan. WEPCO also distributes and sells steam to space heating and processing
customers in downtown and near south side Milwaukee, Wisconsin. At December 31,
1994, WEPCO had approximately 945,000 electric customers and 470 steam
customers. Wisconsin Natural purchases, distributes and sells natural gas to
retail customers and transports customer-owned gas in three distinct service
areas in Wisconsin: west and south of the City of Milwaukee; the Appleton area;
and the Prairie du Chien area. Wisconsin Natural's gas service territory has an
estimated population of over 1,100,000 and is largely within the electric
service area of WEPCO. At December 31, 1994, Wisconsin Natural serviced
approximately 350,000 customers. WEC's non-utility subsidiaries are devoted
primarily to stimulating economic growth in the utilities' service territories
and to capitalizing on diversified investment opportunities for WEC
shareholders. Additional information concerning WEC and its subsidiaries is
included in the WEC documents filed with the SEC which are incorporated by
reference herein. See "Incorporation by Reference."
Information regarding the names, ages, positions, and business backgrounds
of the executive officers and directors of WEC, as well as additional
information, including executive compensation, security ownership of certain
beneficial owners and management and certain relationships and related
transactions, is incorporated by reference to Items 10, 11, 12 and 13 of WEC's
Annual Report on Form 10-K for the year ended December 31, 1994 (which
incorporates portions of WEC's definitive Proxy Statement for its Annual Meeting
of Stockholders held on May 17, 1995). In connection with the submission of the
Primergy Plans for shareholder approval, certain information concerning the
compensation of executive officers and directors of WEC is included herein
immediately below.
WEC EXECUTIVE COMPENSATION
COMPENSATION OF THE WEC BOARD OF DIRECTORS
During 1994, each nonemployee director of WEC received a monthly retainer
fee of $1,500 plus $1,000 for each WEC Board or committee meeting attended. In
addition, a PER DIEM fee of $1,000 for travel on company business is paid for
each day on which a WEC Board or committee meeting is not also held. Nonemployee
directors are also paid $300 for each signed, written unanimous consent in lieu
of a meeting. Effective with the date of the 1994 Annual Meeting, nonemployee
chairs of the committees of the WEC Board received a quarterly committee chair
retainer of $1,250. Although certain WEC directors also serve on WEPCO's Board
of Directors and compensation committee, only single fees are paid for meetings
held by both boards or committees on the same day. In these cases, fees are
allocated between WEC and WEPCO based on services rendered. Nonemployee
directors may defer fees so long as they serve on the Board of Directors of WEC
and/or its subsidiaries pursuant to an established plan which accrues interest
semiannually at the prime rate on the amounts which have been deferred. Such
deferral amounts are credited to an unsecured account in the name of each
participating director on the books of WEC and are payable only following
termination of the director's service to WEC and its subsidiaries. Such amounts
will be paid out of the general corporate assets or the grantor trust described
under "-- Retirement Plans." Employee directors receive no directors' fees.
112
EXECUTIVE OFFICERS' COMPENSATION
The table below summarizes certain information concerning compensation
awarded to, earned by or paid to WEC's Chief Executive Officer and each of WEC's
other four most highly compensated executive officers for services in all
capacities to WEC and its subsidiaries for the last three fiscal years.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
-------------
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#)(1) ($)(2)
--------------------------------------------- --------- --------- --------- --------------- ------------- -------------
Richard A. Abdoo ............................ 1994 450,000 222,396 0 25,000 15,970
Chairman of the Board, President and Chief 1993 450,000 122,000 0 22,500 15,170
Executive Officer of WEC; Chairman of the 1992 429,167 59,500 3,153 0 12,875
Board and Chief Executive Officer of five
subsidiaries and President and CEO of the
other two subsidiaries
John W. Boston .............................. 1994 320,000 98,246 0 0 11,005
Vice President of WEC; President and Chief 1993 262,000 56,000 0 0 8,876
Operating Officer of utility subsidiaries; 1992 247,667 33,900 3,067 0 7,430
Vice President of a non-utility subsidiary
Jerry G. Remmel ............................. 1994 215,000 66,009 0 0 7,481
Vice President and Treasurer of WEC; Chief 1993 190,000 41,000 0 0 6,406
Financial Officer of WEC and all 1992 181,500 22,000 3,153 0 5,445
subsidiaries; Vice President and Treasurer
of a non-utility subsidiary; Treasurer of
four other non-utility subsidiaries
David K. Porter ............................. 1994 190,000 58,333 0 3,000 6,695
Senior Vice President of WEPCO; Vice 1993 185,000 20,000 0 6,500 6,242
President of Wisconsin Natural 1992 178,167 17,500 3,497 0 5,345
Francis Brzezinski .......................... 1994 212,000 26,037 0 6,500 7,478
Vice President of WEC and WEPCO; President 1993 206,167 22,500 0 6,500 7,058
and Chief Operating Officer of three 1992 197,500 21,000 0 0 5,925
non-utility subsidiaries; Vice President of
a non-utility subsidiary
------------------------
(1) Grants in 1994 were in combination with contingent dividend awards, as
described in the table entitled "Long-Term Incentive Plans -- Awards in
Last Fiscal Year."
(2) All Other Compensation for 1994 for Messrs. Abdoo, Boston, Remmel, Porter
and Brzezinski, respectively, includes: (i) employer matching of
contributions by each named executive into the MESP in the amount of $4,620
for each named executive officer, (ii) "make whole" payments under the
Executive Deferred Compensation Plan with respect to matching in the MESP
on deferred salary or salary received but not otherwise eligible for
matching in the amounts of $8,880, $4,980, $1,830, $1,080 and $1,740,
respectively, and (iii) term life insurance premiums in the amounts of
$2,470, $1,405, $1,031, $995 and $1,118, respectively.
113
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS (1)
------------------------------------------------------------------------------------------ POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM (2)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
----------------------------------- ------------- --------------- --------- ---------- --------- -----------
Richard A. Abdoo................... 25,000 30.8% 26.813 12/13/04 421,564 1,068,325
John W. Boston..................... 0 N/A N/A N/A N/A N/A
Jerry G. Remmel.................... 0 N/A N/A N/A N/A N/A
David K. Porter.................... 3,000 3.7% 26.813 12/13/04 50,588 128,199
Francis Brzezinski................. 6,500 8.0% 26.813 12/13/04 109,607 277,765
------------------------
N/A = Not Applicable
(1) Consists of incentive and non-qualified stock options to purchase shares of
WEC Common Stock granted pursuant to the 1993 Omnibus Stock Incentive Plan
(the "OSIP") on December 14, 1994. These options were granted with an equal
number of contingent dividend awards (as described in the table entitled
"Long-Term Incentive Plans -- Awards in Last Fiscal Year"), have exercise
prices equal to the fair market value of the WEC shares on the date of
grant and first become exercisable on December 14, 1998, at which time they
become fully exercisable. Upon a "change in control" of WEC (as defined in
the OSIP; see " -- Mergers Not Intended to Constitute Change In Control")
or upon retirement, permanent total disability or death of the option
holder, these options shall become immediately exercisable. These options
were granted for a term of 10 years, subject to earlier termination in
certain events related to termination of employment. In the discretion of
the Compensation Committee of the WEC Board (the "WEC Compensation Commit-
tee"), the exercise price may be paid by delivery of already owned shares
and tax withholding obligations related to exercise may be satisfied by
withholding shares otherwise deliverable upon exercise, subject to certain
conditions. Subject to the limitations of the OSIP, the WEC Compensation
Committee has the power with the participant's consent to modify or waive
the restrictions on vesting of these options, to amend these options and to
grant extensions or to accelerate these options.
(2) The dollar amounts in these columns are the result of calculations at the
5% and 10% stock appreciation rates set by the SEC and therefore do not
forecast possible future appreciation, if any, of WEC's Common Stock price.
At the December 13, 2004 expiration date of the options granted in 1994,
the price of a share of WEC Common Stock would be $43.68 at an assumed
annual appreciation rate of 5% and $69.55 at an assumed annual appreciation
rate of 10%. Gains to all shareholders of record at year-end 1994 at those
assumed annual appreciation rates would be approximately $1.8 billion and
$4.7 billion, respectively. The total "Potential Realizable Value" for the
named executive officers would represent approximately .03% of such gains.
No stock options other than those granted pursuant to the OSIP were outstanding
in the last fiscal year. Since the earliest date outstanding options previously
granted under the OSIP become exercisable is December 15, 1997, no options were
exercisable in 1994. The following table sets forth the number of options which
were not exercisable and the value of such options based upon the difference
between the exercise price and the market price of the underlying shares as of
December 31, 1994.
114
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS OPTIONS/SARS
AT FISCAL YEAR-END AT FISCAL YEAR-END
(#) ($)
---------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------------------------------------------- ------------- ------------- ------------- ---------------
Richard A. Abdoo.......................................... 0 47,500 0 0
John W. Boston............................................ N/A N/A N/A N/A
Jerry G. Remmel........................................... N/A N/A N/A N/A
David K. Porter........................................... 0 9,500 0 0
Francis Brzezinski........................................ 0 13,000 0 0
------------------------
N/A = Not Applicable
The following table shows long-term incentive awards made during 1994:
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE
PAYOUTS UNDER
PERFORMANCE NON-STOCK
OR OTHER PRICE-BASED
NUMBER OF PERIOD PLANS
SHARES, UNITS UNTIL ----------------
OR OTHER MATURATION TARGET
NAME RIGHTS (#)(1) OR PAYOUT ($ OR #) (2)
------------------------------------------------------------------- ------------- ----------- ----------------
Richard A. Abdoo................................................... 25,000 12/13/98 $ 150,000
John W. Boston..................................................... 0 N/A N/A
Jerry G. Remmel.................................................... 0 N/A N/A
David K. Porter.................................................... 3,000 12/13/98 $ 18,000
Francis Brzezinski................................................. 6,500 12/13/98 $ 39,000
------------------------
N/A = Not Applicable
(1) Consists of performance units awarded under the OSIP in combination with
stock options (as described in the table entitled "Option/SAR Grants in
Last Fiscal Year"). These performance units, entirely in the form of
contingent dividends, will be paid if total shareholder return
(appreciation in the value of WEC Common Stock plus reinvested dividends)
over a four-year period ending December 13, 1998 equals or exceeds the
median return earned by the companies included in the Peer Group Index in
the "Performance Graph" section of WEC's definitive Proxy Statement for its
Annual Meeting of Stockholders held on May 17, 1995, except that there will
be no payout if WEC's total shareholder return is negative over the course
of such period. If payable, each participant shall receive an amount equal
to the actual dividends paid on WEC Common Stock for the period of December
14, 1994 through December 13, 1998 multiplied by the number of performance
units awarded to such participant. Upon a "change in control" of WEC, as
defined in the OSIP, this benefit shall immediately vest with all
performance goals deemed fully achieved.
(2) Assumes, for purposes of illustration only, 4% per year compound annual
dividend increase based on the current quarterly dividend rate.
115
RETIREMENT PLANS
WEC's utility subsidiaries maintain separate retirement plans for management
employees, including executive officers. WEC executive officers participate in
the WEPCO management employee retirement plan. The plans provide retirement
income based upon years of credited service and final average annual
compensation for the 36 highest consecutive months. The following table shows
the estimated annual pension benefits payable upon retirement to persons in
various compensation and years-of-service classifications (including amounts
attributable to the Supplemental Executive Retirement Plan (the "SERP")
described below that would otherwise be payable under the management employee
retirement plan if the pension benefits were calculated without regard to any
Code limitation on pension benefits or covered compensation):
PENSION PLAN TABLE
YEARS OF SERVICE
----------------------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40
----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
$ 50,000........................... $ 11,189 $ 14,918 $ 18,648 $ 22,378 $ 24,524 $ 26,670
100,000........................... 24,125 32,167 40,209 48,251 52,834 57,418
150,000........................... 37,064 49,418 61,773 74,128 81,149 88,170
200,000........................... 50,000 66,667 83,334 100,001 109,459 118,918
250,000........................... 62,937 83,916 104,895 125,874 137,770 149,665
300,000........................... 75,875 101,167 126,459 151,751 166,084 180,418
400,000........................... 101,750 135,667 169,584 203,501 222,709 241,918
500,000........................... 127,625 170,167 212,709 255,251 279,334 303,418
600,000........................... 153,500 204,667 255,834 307,001 335,959 364,918
700,000........................... 179,375 239,167 298,959 358,751 392,584 426,418
800,000........................... 205,250 273,667 342,084 410,501 449,209 487,918
900,000........................... 231,125 308,167 385,209 462,251 505,834 549,418
The compensation for the individuals listed in the above Summary
Compensation Table in the columns labeled "Salary", "Bonus" and "All Other
Compensation" is virtually equivalent to the compensation considered for
purposes of the retirement plans and the various supplemental plans. Messrs.
Abdoo, Boston, Remmel, Porter and Brzezinski currently have 19, 12, 39, 25 and 5
credited years of service, respectively. Credited years of service under the
retirement plans for certain individuals may be fewer than years of service with
the companies as reported in the annual report to stockholders. Retirement
benefits are not subject to any deduction for Social Security or other offset
since they are computed using a step-rate formula which provides a Social
Security integrated benefit based upon percentages of the average of the
participant's highest 36 consecutive months of compensation for up to 30 years
of credited service with additional (lower) percentages of compensation in
excess of 30 years up to a maximum of 10 years. The SERP (described below)
provides designated participants a "make whole" benefit equal to any decrease in
pension which may have resulted when the retirement plans adopted the step-rate
formula. Such "make whole" benefit will be paid as a pension supplement out of
the general corporate assets or the grantor trust described below.
Designated elected officers of WEC and the utility subsidiaries participate
in the SERP. The SERP provides monthly supplemental pension benefits to
participants, which will be paid out of corporate assets or the grantor trust
described below as follows: (a) an amount equal to the difference between the
actual pension benefit payable under the management employee retirement plan and
what such pension benefit would be if calculated without regard to any
limitation imposed by the Code on pension benefits or covered compensation, (b)
an amount calculated so as to provide participants with a supplemental lifetime
annuity, estimated to amount to between 8% and 10% of final average compensation
depending on which pension payment option is selected, and (c) an amount for
certain participants equal to the difference between the actual pension benefit
payable under the management employee retirement plan and what such pension
benefit would be if calculated under the prior
116
benefit formula in effect on December 31, 1988. Except for a "change in control"
of WEC (as defined in the SERP; see " -- Mergers Not Intended to Constitute
Change In Control") no such payments are made until after the retirement or
death of the participant.
WEC has entered into agreements with Mr. Abdoo and Mr. Boston, each of whom
could not accumulate by normal retirement age the maximum number of years of
credited service under the management employee retirement plans. According to
these agreements, Messrs. Abdoo and Boston at retirement will receive
supplemental retirement payments which will make their total retirement benefits
at age 58, in the case of Mr. Abdoo, and at age 60, in the case of Mr. Boston,
or older substantially the same as those payable to employees who are in the
same compensation bracket and who became plan participants at the age of 25. Mr.
Boston retired from all positions held as an officer and director of WEC and its
subsidiaries, effective July 1, 1995, at age 62. On October 27, 1993,
resolutions were adopted authorizing amendments to these agreements, the SERP
and the Executive Deferred Compensation Plan to provide for establishment of a
grantor trust to fund such agreements and plans and to provide for optional lump
sum payments and, in the instance of a change in control, mandatory lump sum
payouts without regard to whether the executive's employment has terminated. In
each case, the interest rate benchmark formula for calculating the lump sum
amount is the five-year U.S. Treasury Note yield as of the last business day of
the month prior to the date of payment. The WEC Executive Non-Qualified Trust
has been established and funded for this purpose.
MERGERS NOT INTENDED TO CONSTITUTE CHANGE IN CONTROL
See "The Mergers -- Primergy Plans -- Actions with Respect to Existing Stock
Options and Certain Other Existing Arrangements" for a description of WEC's
agreement to amend each of the WEC compensation arrangements containing change
in control provisions so that such provisions will not be triggered by the
Mergers. For purposes of these provisions, "change in control" is defined to
mean the occurrence of any of the following events, as a result of one
transaction or a series of transactions: (a) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Exchange Act, but excluding WEC, its
affiliates and any qualified or non-qualified plan maintained by WEC or its
affiliates) becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of securities of WEC
representing more than 20% of the combined voting power of WEC's then
outstanding securities; (b) individuals who constitute a majority of the WEC
Board immediately prior to a contested election for positions on the Board cease
to constitute a majority as a result of such contested election; (c) WEC is
combined (by merger, share exchange, consolidation, or otherwise) with another
corporation and as a result of such combination, less than 60% of the
outstanding securities of the surviving or resulting corporation are owned in
the aggregate by the former shareholders of WEC; (d) WEC sells, leases, or
otherwise transfers all or substantially all of its properties or assets not in
the ordinary course of business to another person or entity; or (e) the WEC
Board determines in its sole and absolute discretion that there has been a
change in control of WEC. These change in control provisions apply to successive
changes in control on an individual transaction basis.
WEC COMPENSATION COMMITTEE
The directors who served as members of the WEC Compensation Committee during
the fiscal year ended December 31, 1994 were Morris W. Reid (chair), John F.
Ahearne, John F. Bergstrom, Robert A. Cornog, Geneva B. Johnson, John L. Murray,
Frederick P. Stratton, Jr. and Jon G. Udell.
BUSINESS OF NSP
NSP is predominantly an operating public utility engaged in the generation,
transmission and distribution of electricity and the transportation of natural
gas in Minnesota, North Dakota and South Dakota. NSP's most significant
subsidiary, NSP-Wisconsin, also is an operating public utility and serves
customers in Wisconsin and the Upper Peninsula of Michigan. Together, NSP and
NSP-Wisconsin serve a 49,000 square mile service area with a population
estimated at approximately 3,000,000, of which the majority are concentrated in
the Minneapolis-St. Paul metropolitan area. At December 31, 1994, NSP and its
subsidiaries served approximately 1,380,000 electric customers and
117
400,000 gas customers. For the year ended December 31, 1994, approximately 83%
of NSP and NSP-Wisconsin's gross utility operating revenues were derived from
electricity and 17% from gas. NSP's other utility business is Viking Gas
Transmission Company, which owns and operates a 500-mile interstate natural gas
pipeline serving portions of Minnesota, Wisconsin and North Dakota.
In addition to its utility businesses, NSP, through various subsidiaries, is
engaged in non-utility businesses. NRG, a wholly-owned subsidiary of NSP,
builds, acquires, owns and operates, either directly or indirectly, through
subsidiaries, certain energy-related businesses. Among these businesses are the
ownership of a 33% interest in the coal mining, power generation and associated
operations of Mitteldeutsche Braunkohlengesellschaft mbH (MIBRAG), located south
of Leipzig, Germany and the ownership of a 37.5% interest in the Gladstone Power
Station, a 1680 Mw coal-fired plant in Gladstone, Queensland, Australia, which
NRG's Australian subsidiary also operates.
NSP's other non-utility subsidiaries include Cenergy, Inc., a natural gas
marketing company that also has recently received approval from the FERC to
market electricity, and Eloigne Company, which invests in affordable housing
projects that qualify for low-income housing tax credits under federal tax law.
NSP is an exempt holding company by order of the SEC under Section 3(a)(2)
of the 1935 Act and, accordingly, is exempt from the provisions of the 1935 Act,
other than with respect to certain acquisitions of securities of a public
utility.
Additional information concerning NSP is included in the NSP documents filed
with the SEC which are incorporated by reference herein. See "Incorporation by
Reference."
For NSP shareholders, information regarding the names, ages, positions and
business backgrounds of the executive officers and directors of NSP, as well as
additional information, including executive compensation, security ownership of
certain beneficial owners and management and certain relationships and related
transactions, is incorporated by reference to Items 10, 11, 12 and 13 of the NSP
Annual Report on Form 10-K for the year ended December 31, 1994. Certain of such
information is also set forth below under "Election of NSP Directors", which
section is included only in the Joint Proxy Statement/Prospectus being sent to
NSP shareholders.
CERTAIN BUSINESS RELATIONSHIPS BETWEEN WEC AND NSP
In the normal course of business, NSP and WEPCO buy and sell electric power
from and to each other in arm's-length transactions pursuant to filed rate
schedules. From time to time over the last several years, executive officers of
WEPCO and NSP have discussed possible business relationships. Most recently, in
September 1993, NSP, WEPCO and Wisconsin Public Service Corporation, a public
utility headquartered in Green Bay, Wisconsin ("WPSC"), agreed to collectively
evaluate the feasibility of, and potential savings in, forming a company to
provide operating services to WEPCO's, NSP's and WPSC's nuclear generating
plants. This evaluation identified and assessed the economies of scale and other
operational synergies that could be obtained as a result of such venture. By
late summer 1994, it was apparent that such an operating company would not be
feasible because of considerations concerning ownership, governance and
licensing.
PRIMERGY FOLLOWING THE MERGERS
No later than the Effective Time, subject to approval of the Name Change
Amendment at the WEC Meeting, WEC will change its name to "Primergy
Corporation." Primergy will be the parent of both New NSP and the operating
subsidiaries of WEC. The headquarters of Primergy will be in Minneapolis,
Minnesota. The utility subsidiaries of Primergy will serve approximately
2,300,000 electric customers and 750,000 natural gas customers, and its service
territory will include portions of Minnesota, Wisconsin, North Dakota, South
Dakota and the Upper Peninsula of Michigan. The business of Primergy will
consist of owning utilities and various non-utility subsidiaries. NSP and WEC
recognize that the divestiture of their existing gas operations and certain
non-utility operations is a possibility under the new registered holding company
structure, but are seeking approval from the SEC to maintain such businesses.
See "Regulatory Matters."
118
MANAGEMENT OF PRIMERGY
Pursuant to the Merger Agreement, at the Effective Time, the Primergy Board
will consist of 12 members, six members of which will be designated by WEC and
six members of which will be designated by NSP. It is anticipated that
simultaneously with the Mergers, all but six of the WEC directors then in office
will resign and the remaining WEC directors will increase the size of the
Primergy Board to 12 and appoint the six persons designated by the NSP Board to
fill the six resulting vacancies. To date, NSP and WEC have not determined which
individuals, in addition to Messrs. Howard and Abdoo, will be designated to
serve as directors of Primergy as of the Effective Time. The initial designation
of such directors among the three classes of the Primergy Board shall be agreed
to by NSP and WEC, the designees of each party to be divided equally among such
classes. Each designee shall serve for a term equal to the remaining balance of
the three-year term of the class of directors in which such designee shall
serve. At each annual shareholders' meeting after the Effective Time, the number
of directors equal to the number of the class whose term expires at the time of
the meeting shall be elected for a term of three years. See "The Merger
Agreement -- Primergy Board of Directors."
Mr. Howard will be Chairman and Chief Executive Officer of Primergy and Mr.
Abdoo will be Vice Chairman, President and Chief Operating Officer of Primergy.
Each of Mr. Howard and Mr. Abdoo will have an employment agreement with Primergy
following the Mergers. See "The Mergers -- Employment Agreements."
OPERATIONS
After the Mergers, New NSP (which will be renamed "Northern States Power
Company") and WEPCO (which will be renamed "Wisconsin Energy Company") will
continue to operate as the principal subsidiaries of Primergy. It is anticipated
that Wisconsin Natural will be merged into WEPCO by January 1, 1996, as
previously planned, and following the Mergers, NSP-Wisconsin will merge into
Wisconsin Energy Company. The headquarters of the two utilities will remain in
their current locations, Northern States Power Company's in Minneapolis and
Wisconsin Energy Company's in Milwaukee.
Upon receipt of the necessary approval from the FERC and on or after the
Effective Time, Wisconsin Energy Company and New NSP will become parties to a
Coordination Agreement, whereby costs of generating capacity and transmission
are shared in a manner similar to the existing coordination agreement between
NSP and NSP-Wisconsin. The integration of the Wisconsin Energy Company and New
NSP generating capacity should increase the ability of these companies to meet
demands for electricity within the territories each serves. It is also
anticipated that a single administrative and support system will be established
following the Mergers.
The non-utility operations of WEC are presently conducted through five
wholly-owned subsidiaries. The non-utility operations of NSP are conducted
primarily through NRG, Cenergy, Inc. and Eloigne Company. Following the Mergers,
it is anticipated that New NSP will transfer its non-utility businesses
(including Viking Gas Transmission Company) to Primergy and that such
non-utility businesses of New NSP, along with the non-utility businesses of WEC,
will be conducted through one or more subsidiaries of Primergy that are not
subsidiaries of New NSP or Wisconsin Energy Company. If, as is anticipated, all
of such subsidiaries are transferred, New NSP will consist of the existing
electric and gas utility operations conducted directly by NSP, as a stand-alone
entity. Reference is made to the NSP Form 10-Q for the quarter ended June 30,
1995, as amended, and the NSP Form 8-K dated June 27, 1995, which present
certain pro forma financial information of New NSP after giving effect to the
Mergers, the anticipated merger of NSP-Wisconsin into Wisconsin Energy Company
and the anticipated transfer by New NSP of its non-utility businesses to
Primergy.
Pursuant to the Merger Agreement, Primergy shall continue to provide
charitable contributions and community support within the service areas of WEC
(including the former service area of NSP-Wisconsin) and NSP, at comparable
levels to those provided by such parties within the two-year period prior to the
Effective Time.
119
DIVIDENDS
It is anticipated that Primergy will adopt NSP's common share dividend
payment level adjusted for the Ratio. NSP currently pays $2.70 per share
annually, and WEC's annual dividend rate is currently $1.47 per share. Based on
the Ratio and NSP's current dividend rate, the pro forma dividend rate for
Primergy would be $1.66 per share. However, no assurance can be given that such
dividend rate will be in effect or will remain unchanged, and Primergy reserves
the right to increase or decrease its dividend as may be required by law or
contract or as may be determined by the Primergy Board, in its discretion, to be
advisable. Declaration and timing of dividends on Primergy Common Stock will be
a business decision to be made by the Primergy Board from time to time based
upon the results of operations and financial condition of Primergy and its
subsidiaries and such other business considerations as the Primergy Board
considers relevant in accordance with applicable laws. For a description of
certain restrictions on Primergy's ability to pay dividends on the Primergy
Common Stock, see "Description of Primergy Capital Stock."
EXPERTS
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference to the Annual Report on Form 10-K of WEC for
the year ended December 31, 1994 have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference from NSP's Annual Report on Form 10-K for the
year ended December 31, 1994 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The balance sheet of Northern Power Wisconsin Corp. as of August 4, 1995
included in this Joint Proxy Statement/Prospectus has been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
Quarles & Brady will pass upon the legality of the shares of Primergy Common
Stock to be issued in connection with the Mergers. Quarles & Brady attorneys
providing services with respect to this matter own an aggregate of approximately
3,700 shares of WEC Common Stock. John P. Moore, Jr., General Counsel and
Secretary of NSP-Wisconsin, will pass upon the legality of the shares of New NSP
Preferred Stock to be issued in connection with the Reincorporation Merger. Mr.
Moore owns 3,142 shares of NSP Common Stock.
SHAREHOLDER PROPOSALS
It is anticipated that the proxy statement for the NSP annual shareholder
meeting in 1996 will be mailed on or about April 24, 1996. Therefore, to be
included in the proxy statement for the 1996 annual meeting of shareholders of
NSP, a proposal by a shareholder for the NSP annual shareholder meeting in 1996
must be received by the Secretary of NSP at 414 Nicollet Mall, Minneapolis,
Minnesota 55401, not later than the close of business on November 17, 1995.
Proposals received by that date will be included in the 1996 Proxy Statement if
the proposals are proper for consideration at an annual meeting and are required
for inclusion in the proxy statement by, and conform to, the rules of the SEC.
For a proposal to be properly brought before an annual meeting by a shareholder,
the NSP Bylaws provide that the Secretary of NSP must have received written
notice thereof not less than 20 nor more than 90 days prior to the meeting. The
notice must contain (i) a description of the proposed business and the reasons
for conducting such business at the annual meeting; (ii) the shareholder's name
and record address; (iii) the class and number of shares beneficially owned by
the shareholder; and (iv) any material interest of the shareholder in such
business.
120
Any proposal by a shareholder for the WEC annual shareholder meeting in 1996
must be received by the Secretary of WEC at 231 West Michigan Street, Milwaukee,
Wisconsin 53201, not later than the close of business on December 12, 1995.
Proposals received by that date will be included in the 1996 Proxy Statement if
the proposals are proper for consideration at an annual meeting and are required
for inclusion in the proxy statement by, and conform to, the rules of the SEC.
For a proposal not included in the proxy statement to be properly brought before
an annual meeting by a shareholder, the WEC Bylaws provide that written notice
of such proposal must be delivered personally or sent by certified mail to the
Secretary of WEC not less than 70 days nor more than 100 days prior to the
meeting. The notice must contain (i) the name and address of the shareholder who
intends to make the proposal; (ii) a representation that the shareholder is a
holder of record of the stock of the corporation entitled to vote at the meeting
(including the number of shares the shareholder owns as of the record date and
the length of time the shares have been held) and intends to appear in person or
by proxy to make the proposal specified in the notice; (iii) the proposal and a
brief supporting statement of such proposal; and (iv) such other information
regarding the proposal as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the SEC (whether or not such
rules are applicable). The WEC Bylaws state that such a notice of a shareholder
proposal must be provided to WEC a reasonable period of time before a special
meeting of shareholders, like the WEC Meeting, and the proposal must be within
the purposes described in the notice to shareholders of the special meeting.
121
[ALTERNATE PAGE FOR NSP SHAREHOLDERS ONLY]
ELECTION OF NSP DIRECTORS
GENERAL INFORMATION
NSP's Bylaws provide that the NSP Board shall consist of at least 12, but no
more than 15 directors, as determined by the NSP Board. The NSP Board is divided
into three classes as nearly equal in number as possible with staggered terms of
office so that one class of directors will be elected at each annual meeting for
a term of three years.
At the NSP Meeting of NSP Shareholders, the following four individuals are
the nominees to be elected to the NSP Board to serve in Class III until the 1998
Annual Meeting of Shareholders and until their successors are elected and have
qualified: H. Lyman Bretting, David A. Christensen, Allen F. Jacobson and
Margaret R. Preska. Each of these individuals is currently a director of NSP
whose term is scheduled to expire at the NSP Meeting.
All of the nominees have indicated a willingness to serve if elected.
However, should any of the nominees named above become unavailable, your proxy
will be voted for such person or persons as shall be recommended by a proxy
committee appointed by the NSP Board.
Shareholders are entitled to vote cumulatively for the election of
directors. Each shareholder is entitled to a number of votes for such election
equal to the number of shares held by such shareholder multiplied by the number
of directors to be elected, and may cast all votes for one nominee or distribute
the votes among the nominees.
The election of each director shall be decided by plurality vote. As a
result, any shares not voted for a director (whether by withholding authority,
broker non-vote or otherwise) have no impact on the election of directors except
to the extent the failure to vote for an individual results in another
individual receiving a larger number of votes.
THE NSP BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL OF THE NOMINEES
NAMED BELOW.
The following information is furnished with respect to each nominee:
PRINCIPAL OCCUPATION AND BUSINESS
EXPERIENCE DURING THE PAST FIVE YEARS
DIRECTOR AND OTHER DIRECTORSHIPS
--------------------------------------- ------------------------------------------------------------------------
CLASS III -- NOMINEES FOR TERMS EXPIRING IN 1998
H. Lyman Bretting ..................... President and Chief Executive Officer, C.G. Bretting Manufacturing
Age 58 Company, Inc., Ashland, Wisconsin, a manufacturer of napkin and paper
Director Since 1990 towel folding machines since prior to 1990. Also director of M&I
National Bank of Ashland and NSP-Wisconsin.
David A. Christensen .................. President and Chief Executive Officer, Raven Industries, Inc., Sioux
Age 60 Falls, South Dakota, a manufacturer of reinforced plastics, electronic
Director Since 1976 equipment and sewn products since prior to 1990. Also director of
Norwest Bank South Dakota, N.A., Norwest Corporation and Raven
Industries, Inc.
Allen F. Jacobson ..................... Retired effective November 1, 1991 as Chairman and Chief Executive
Age 68 Officer, Minnesota Mining and Manufacturing Company (3M), in which
Director Since 1983 capacities he had served since prior to 1990. Also director of Abbot
Laboratories, Deluxe Corporation, Minnesota Mining and Manufacturing
Company, Mobil Corporation, Potlatch Corporation, Prudential Insurance
Company of America, Sara Lee Corporation, Silicon Graphics, Inc., U.S.
West, Inc., and Valmont Industries, Inc.
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PRINCIPAL OCCUPATION AND BUSINESS
EXPERIENCE DURING THE PAST FIVE YEARS
DIRECTOR AND OTHER DIRECTORSHIPS
--------------------------------------- ------------------------------------------------------------------------
Margaret R. Preska .................... Distinguished Service Professor, Minnesota State Universities, since
Age 57 February 1, 1992. Prior to 1990 and until February 1, 1992, President,
Director Since 1980 Mankato State University, Mankato, Minnesota, an educational
institution. Also director of Norwest Bank Minnesota South Central, N.A.
The following information is furnished with respect to each director whose
term of office will continue:
PRINCIPAL OCCUPATION AND BUSINESS
EXPERIENCE DURING THE PAST FIVE YEARS
NOMINEE AND OTHER DIRECTORSHIPS
--------------------------------------- ------------------------------------------------------------------------
CLASS I -- DIRECTORS WHOSE TERMS EXPIRE IN 1996
W. John Driscoll ...................... Retired effective June 30, 1994 as Chairman of the Board, Rock Island
Age 65 Company, St. Paul, Minnesota, a private investment company, in which
Director Since 1974 capacity he had served since May 15, 1993. Prior to 1990 and until May
15, 1993, President. Also director of Comshare Inc., The John Nuveen
Company, Rock Island Company, MIP Properties, Inc., The St. Paul
Companies, Inc. and Weyerhaeuser Company.
Dale L. Haakenstad .................... Retired President and Chief Executive Officer, Western States Life
Age 67 Insurance Insurance Company, Fargo, North Dakota.
Director Since 1978
James J. Howard ....................... Chairman, President and Chief Executive Officer of NSP since December 1,
Age 59 1994. Prior thereto, Chairman of the Board and Chief Executive Officer
Director Since 1987 of NSP since July 1, 1990. Also director of Ecolab Inc., Honeywell Inc.,
The ReliaStar Financial Corp. and Walgreen Company.
John E. Pearson ....................... Retired effective January 31, 1992 as Chairman, The NWNL Companies, Inc.
Age 68 and Northwestern National Life Insurance Company, a wholly-owned
Director Since 1983 subsidiary of The NWNL Companies, Inc., in which capacity he had served
since July 1, 1991. Prior thereto, Chairman and Chief Executive Officer,
The NWNL Companies, Inc., and Northwestern National Life Insurance
Company since prior to 1990. Also director of Norwest Corporation.
G. M. Pieschel ........................ Chairman of the Board, Farmers and Merchants State Bank, Springfield,
Age 67 Minnesota, a commercial bank, since January 14, 1993. Prior thereto,
Director Since 1978 Chief Executive Officer and President of Farmers and Merchants State
Bank since prior to 1990.
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PRINCIPAL OCCUPATION AND BUSINESS
EXPERIENCE DURING THE PAST FIVE YEARS
NOMINEE AND OTHER DIRECTORSHIPS
--------------------------------------- ------------------------------------------------------------------------
CLASS II -- DIRECTORS WHOSE TERMS EXPIRE IN 1997
Richard M. Kovacevich ................. President and Chief Executive Officer Norwest Corporation, Minneapolis,
Age 51 Minnesota, a holding company for banking institutions, since January 1,
Director Since 1990 1993. Prior thereto, President and Chief Operating Officer, Norwest
Corporation since prior to 1990. Also director of Fingerhut Companies,
Inc., Northwestern National Life Insurance Company, Norwest Corporation
and ReliaStar Financial Corp.
Douglas W. Leatherdale ................ Chairman of the Board, President and Chief Executive Officer, The St.
Age 58 Paul Companies, Inc., a worldwide property and liability insurance
Director Since 1991 organization, since May 1, 1990. Also director of The John Nuveen
Company and United HealthCare Corporation.
A. Patricia Sampson ................... Consultant, Dr. Sanders and Associates, a management and diversity
Age 46 consulting company, since January 1, 1995. Prior to 1990 and until
Director Since 1985 December 31, 1994, Chief Executive Officer, and until June 1, 1993,
Executive Director, Greater Minneapolis Area Chapter of the American Red
Cross.
Edwin M. Theisen ...................... Retired effective November 30, 1994 as President and Chief Operating
Age 64 Officer of NSP, in which capacities he had served since July 1, 1990.
Director Since 1990 Also director of Firstar Bank of Minnesota, N.A.
The foregoing information concerning the nominees and continuing directors
is based on information furnished to NSP by each nominee and director
respectively.
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INFORMATION CONCERNING THE NSP BOARD
COMMITTEES OF THE BOARD
There are four committees of the NSP Board whose duties and responsibilities
are described below.
THE CORPORATE MANAGEMENT COMMITTEE has responsibilities for NSP Board
organization, director selection and compensation, senior management
organization, performance and compensation, corporate structure, mergers and
acquisitions, Human Resource policies, corporate ethics and long-range planning
and strategy for the Company. Current members of the Corporate Management
Committee are W. John Driscoll (Chairman), David A. Christensen, Allen F.
Jacobson, Douglas W. Leatherdale, John E. Pearson and Margaret R. Preska. The
Corporate Management Committee held 5 meetings during 1994.
Any shareholder may make recommendations to the Corporate Management
Committee for membership on the NSP Board by sending a written statement of the
qualifications of the recommended individual to the Secretary, Northern States
Power Company, 414 Nicollet Mall, Minneapolis, Minnesota 55401.
THE AUDIT COMMITTEE has responsibilities for actions relating to internal
and external audit activities. In performing these functions, the Audit
Committee is responsible for auditing activities by internal and external
auditors; financial reporting, internal controls and accounting policies and
practices; initiating and directing investigations into matters affecting
protection and recovery of assets of the Company; and oversight of the
management of assets of dedicated funds, including ERISA plans and nuclear
decommissioning funding. Current members of the Audit Committee are G. M.
Pieschel (Chairman), W. John Driscoll, Dale L. Haakenstad, Douglas W.
Leatherdale, A. Patricia Sampson and Edwin M. Theisen. The Audit Committee held
3 meetings during 1994.
THE POWER SUPPLY COMMITTEE has responsibilities for oversight and
recommendations for all generation requirements for NSP, including nuclear,
hydro, coal and alternative sources of power supply; bulk power supply planning;
power supply permits and license compliance; major power supply facility
construction and construction budgets; nuclear plant safety, reliability and
operations. Current members of the Power Supply Committee are David A.
Christensen (Chairman), H. Lyman Bretting, Dale L. Haakenstad, Allen F.
Jacobson, Richard M. Kovacevich and Margaret R. Preska. The Power Supply
Committee held 3 meetings during 1994.
THE FINANCE COMMITTEE has responsibilities for actions related to the
financial management of NSP. In performing these functions, the Finance
Committee will be responsible for corporate capital structure, capital budgets
and financial plans, dividend policy and dividend recommendations, insurance
coverages, banking relationships and investor relations. Current members of the
Finance Committee are John E. Pearson (Chairman), H. Lyman Bretting, Richard M.
Kovacevich, G. M. Pieschel and A. Patricia Sampson. The Finance Committee held 3
meetings during 1994.
DIRECTOR MEETINGS
There were 7 meetings of the NSP Board in 1994. Each director attended at
least 75% of the total number of meetings of the NSP Board and committees on
which such director served during 1994.
DIRECTOR COMPENSATION
Directors not employed by NSP receive a $20,000 annual retainer, or a PRO
RATA portion thereof if service is less than 12 months, and $1,200 for
attendance at each NSP Board meeting and $1,000 for each committee meeting
attended. A $2,500 annual retainer is paid to each elected committee
chairperson. Employees of NSP receive no separate compensation for services as a
director. In addition, directors have a deferred compensation and retirement
plan in which they can participate. The deferred compensation plan provides for
deferral of the director fees until after retirement from the NSP Board. The
retirement plan continues payment of the director's retainer, at the rate in
effect for
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the calendar quarter immediately preceding the director's retirement multiplied
by 1.2. Benefits continue for a period equal to the number of calendar quarters
served on the NSP Board, up to 40 calendar quarters.
Edwin M. Theisen, a director and former employee of NSP, is currently
retained by NSP to advise and assist NSP in its preparations for the changing
structure of the industry pursuant to a one-year agreement whereby he receives
$15,000 per month. Pursuant to this contract, Mr. Theisen has been involved in
the negotiations related to the Mergers. (See, "The Mergers -- Background of the
Mergers").
SHARE OWNERSHIP OF DIRECTORS, NOMINEES AND NAMED EXECUTIVE OFFICERS
Set forth in the following table is the beneficial ownership of NSP Common
Stock as of July 27, 1995 for all directors and the executive officers of NSP
listed in the Summary Compensation Table. As of July 27, 1995, the directors and
executive officers as a group beneficially owned 320,739 shares, less than 0.5%,
of NSP Common Stock (including shares allocated to the accounts of executive
officers in the Executive Long-Term Incentive Award Stock Plan (the "LTIP") and
the NSP ESOP for which they have voting power but not investment power). No
executive officers or directors of NSP beneficially own any shares of NSP
Preferred Stock.
H. Lyman Bretting................. 1,397 G. M. Pieschel.................... 704
David A. Christensen.............. 500 Margaret R. Preska................ 600
W. John Driscoll.................. 2,000 A. Patricia Sampson............... 380
Dale L. Haakenstad................ 697 Douglas D. Antony*................ 15,592
James J. Howard*.................. 9,744 Gary R. Johnson*.................. 18,293
Allen F. Jacobson................. 712 Edward J. McIntyre*............... 30,585
Richard M. Kovacevich............. 1,000 Loren L. Taylor*.................. 15,829
Douglas W. Leatherdale............ 300 Edwin M. Theisen*................. 47,869
John E. Pearson................... 1,395
------------------------
*Shares shown for Messrs. Howard, Antony, Johnson, McIntyre, Taylor and Theisen
include options to purchase NSP Common Stock which are exercisable within 60
days under NSP's LTIP: 65,577 option shares for Mr. Howard, 8,666 option shares
for Mr. Antony, 14,676 option shares for Mr. Johnson, 21,881 option shares for
Mr. McIntyre, 10,787 option shares for Mr. Taylor and 34,372 option shares for
Mr. Theisen. Also, shares shown for Mr. Johnson reflect the transfer of
3,736.962 shares pursuant to a divorce settlement in early 1995.
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COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth cash and noncash compensation for each of the
last three fiscal years ended December 31, 1994, for services in all capacities
to NSP and its subsidiaries, to the Chief Executive Officer, the next four
highest compensated executive officers of NSP who were serving as executives at
December 31, 1994, and one former executive officer who would have been one of
the four most highly compensated officers of NSP during 1994 had he not retired
from NSP before the end of the year.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
---------------------------------------------------
AWARDS
ANNUAL COMPENSATION ---------------------------- PAYOUTS
------------------------------------------------- (G) --------------------
(E) (F) NUMBER OF
(A) OTHER RESTRICTED SECURITIES (H) (I)
COMPENSATION ANNUAL STOCK UNDERLYING LTIP ALL
NAME AND PRINCIPAL (B) (C) (D) COMPENSATION AWARDS OPTIONS PAYOUTS OTHER
POSITION YEAR SALARY($) BONUS($)(4) ($)(5) ($)(6) AND SARS (#) ($)(7) ($)(8)
-------------------- ----- ---------- ------------ -------------- ----------- -------------- --------- --------
James J. Howard..... 1994 511,300 317,800 3,504 240,311 15,150 0 9,056
Chairman,
President & 1993 511,300 231,931 0 129,075 12,782 23,925 11,324
Chief Executive
Officer 1992 485,000 0 2,934 0 13,541 0 44,052
Edward J.
McIntyre........... 1994 205,600 102,700 2,465 61,680 5,117 0 6,438
Vice President &
Chief 1993 205,600 71,395 7,339 35,595 4,508 7,461 5,081
Financial Officer 1992 199,000 0 5,037 0 4,753 0 27,981
Gary R. Johnson..... 1994 183,600 81,700 9,945 55,080 4,570 0 3,672
Vice President,
General 1993 183,600 53,424 1,315 28,380 3,648 4,525 5,831
Counsel and 1992 168,450 0 6,005 0 3,889 0 6,922
Corporate
Secretary
Loren L.
Taylor(1).......... 1994 174,583 55,000 1,046 40,942 3,455 0 3,166
President, NSP
Electric 1993 171,500 32,347 1,202 18,290 2,737 2,728 5,685
1992 152,750 0 5,361 0 2,669 0 6,609
Douglas D.
Antony(2).......... 1994 163,893 75,100 1,025 41,837 2,942 0 4,419
President, 1993 146,300 61,329 6,517 17,210 2,493 2,087 3,490
NSP Generation 1992 103,344 0 5,097 0 1,168 0 1,982
Edwin M.
Theisen(3)......... 1994 297,367 283,516 10,681 0 8,843 0 7,775
Former President & 1993 324,400 129,452 1,271 65,620 7,240 10,650 6,267
Chief Operating
Officer 1992 306,500 0 6,870 0 7,606 0 55,324
------------------------
(1) Mr. Taylor was elected President, NSP Electric on October 27, 1994 after
having served as a Vice President in various areas of NSP since 1989.
(2) Mr. Antony was elected President, NSP Generation effective September 7,
1994 after having served as Vice President -- Nuclear Generation since
January 1993. Prior thereto, Mr. Antony was not an executive officer.
(3) Mr. Theisen retired as President & Chief Operating Officer of NSP on
November 30, 1994.
(4) This column consists of awards made to each named executive under NSP's
Executive Incentive Plan. Due to Mr. Theisen's retirement during 1994, he
also received the cash equivalent of the restricted stock award for 1994 in
accordance with NSP's LTIP, in the amount of $126,516.
(5) This column consists of reimbursements for taxes on certain personal
benefits received by the named executives.
(6) Amounts shown in this column reflect the market value of the shares of
restricted stock awarded under the LTIP, except with respect to Mr.
Antony's additional award (discussed below) and are based on the closing
price of NSP Common Stock on the date that the awards were made. Restricted
shares earned for 1994 under NSP's LTIP were granted on January 25, 1995
based on
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the performance period ending September 30, 1994. As of December 31, 1994,
the named executives held the following as a result of grants under the
LTIP: Mr. Howard held 3,097 restricted shares at a market value of
$136,268; Mr. McIntyre held 854 restricted shares at a market value of
$37,576; Mr. Antony held 413 restricted shares at a market value of
$18,172; Mr. Taylor held 454 restricted shares at a market value of
$19,976, Mr. Johnson held 680 restricted shares at a market value of
$29,957 and Mr. Theisen did not hold any restricted shares. The restricted
stock awards vest one year after the date of grant with respect to 50% of
the shares and two years after such date with respect to the remaining
shares, conditioned upon the continued employment of the recipient with
NSP. Non-preferential dividends are paid on the restricted shares.
Mr. Antony received an additional 2,200 shares of restricted stock during
1994, which as of December 31, 1994, had a market value of $96,800. These
additional shares vest with respect to 50% of the shares if Mr. Antony has
been continually employed by NSP on October 26, 1996 and with respect to
the remainder of the shares if he has been continually employed with NSP on
October 26, 1998.
The total number of restricted shares awarded during the years 1992, 1993
and 1994 are as follows: 7,191 shares for Mr. Howard, 1,910 shares for Mr.
McIntyre, 2,594 shares for Mr. Antony, 982 shares for Mr. Taylor, 1,473
shares for Mr. Johnson and 3,671 for Mr. Theisen.
(7) NSP had no LTIP payouts in 1994 due to the replacement, by the Corporate
Management Committee of the NSP Board, of dividend equivalent stock
appreciation rights ("DESARs") formerly awarded under NSP's LTIP, in favor
of increased stock options and restricted stock levels.
(8) This column consists of the following: $4,031 was contributed by NSP for
the ESOP for Messrs. Howard and Theisen, respectively, $3,807 for Mr.
McIntyre, $2,297 for Messrs. Johnson and Taylor, respectively, and $2,642
for Mr. Antony; (NSP's contribution on behalf of all ESOP participants,
including the named executive officers, was equal to 1.3% of their covered
compensation.); the value to each named executive of the remainder of
insurance premiums paid under the Officer Survivor Benefit Plan by NSP:
$2,320 for Mr. Howard, $227 for Mr. McIntyre, $476 for Mr. Johnson, $0 for
Mr. Taylor, $837 for Mr. Antony and $1,418 for Mr. Theisen; imputed income
as a result of life insurance paid by NSP on behalf of each named
executive: $2,205 for Mr. Howard, $341 for Mr. McIntyre, $399 for Mr.
Johnson, $369 for Mr. Taylor, $440 for Mr. Antony and $1,826 for Mr.
Theisen; NSP matching 401(k) plan contribution of $500 to each named
executive; and, earnings accrued under the NSP Deferred Compensation Plan
to the extent such earnings exceeded the market rate of interest (as
prescribed pursuant to the SEC rules), which was $1,563 for Mr. McIntyre
and none for all other named executives.
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OPTIONS AND STOCK APPRECIATION RIGHTS (SARS)
The following table indicates for each of the named executives (i) the
extent to which NSP used stock options and SARs for executive compensation
purposes in 1994 and (ii) the potential value of such options and SARs as
determined pursuant to the SEC rules.
OPTIONS AND SARS GRANTED IN 1994
INDIVIDUAL GRANTS
----------------------------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
(C) AT ASSUMED ANNUAL RATES OF
% OF TOTAL STOCK PRICE APPRECIATION
(B) OPTIONS AND (D) FOR OPTION TERM
OPTIONS/ SARS EXERCISE ----------------------------
SARS GRANTED TO OR BASE (E)
(A) GRANTED(1) EMPLOYEES PRICE EXPIRATION (F) (G)
NAME (#) IN 1994 ($/SH) DATE 5%($)(3) 10%($)(3)
------------------------------ --------------- --------------- ----------- ---------- ------------- -------------
J. Howard..................... 15,150 options 4.9% 42.187 1-26-04 401,952 1,018,626
E. McIntyre................... 5,117 options 1.7% 42.187 1-26-04 135,762 344,047
G. Johnson.................... 4,570 options 1.5% 42.187 1-26-04 121,249 307,269
L. Taylor..................... 3,455 options 1.1% 42.187 1-26-04 91,666 232,300
D. Antony..................... 2,942 options 1.0% 42.187 1-26-04 78,056 197,808
E. Theisen.................... 8,843 options 2.9% 42.187 1-26-04 234,618 594,568
All Shareholders(2)........... N/A N/A N/A N/A 1,774,775,230 4,497,470,638
------------------------
(1) Options were granted on January 26, 1994 and vested on January 26, 1995. No
SARs were awarded for 1994.
(2) Potential realizable values during the ten-year period commencing January
26, 1994, are based on the market price ($42.187) and the outstanding
shares (66,893,377) of NSP Common Stock on that date.
(3) The hypothetical potential appreciation shown in columns (f) and (g) for
the named executives is required by the SEC rules. The amounts in these
columns do not represent either the historical or anticipated future
performance of NSP's common stock level of appreciation.
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The following table indicates for each of the named executives the number
and value of exercisable and unexercisable options and SARs as of December 31,
1994.
AGGREGATED OPTION AND SAR EXERCISES IN 1994
AND FISCAL YEAR-END OPTION/SAR VALUE
(E)
VALUE OF
UNEXERCISED
(D) IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS AND SARS AT
(B) OPTIONS AND SARS AT 12/31/94 ($) --
SHARES (C) 12/31/94 EXERCISABLE (EX)/
(A) ACQUIRED ON REALIZED (#) -- EXERCISABLE (EX)/ UNEXERCISABLE
NAME EXERCISE(#) VALUE($) UNEXERCISABLE (UNEX) (UNEX)*
--------------------------------------- --------------- ----------- --------------------------- -------------------
J. Howard.............................. N/A N/A 52,423 (ex) 291,519 (ex)
15,150 (unex) 27,459 (unex)
E. McIntyre............................ N/A N/A 17,401 (ex) 94,769 (ex)
5,117 (unex) 9,274 (unex)
G. Johnson............................. N/A N/A 10,559 (ex) 36,588 (ex)
4,570 (unex) 8,281 (unex)
L. Taylor.............................. N/A N/A 7,673 (ex) 26,687 (ex)
3,455 (unex) 6,262 (unex)
D. Antony.............................. N/A N/A 5,938 (ex) 26,196 (ex)
2,942 (unex) 5,332 (unex)
E. Theisen............................. 66 3,005 25,529 (ex) 139,385 (ex)
8,843 (unex) 16,023 (unex)
------------------------
*Based on the closing per share price on December 30, 1994 of NSP Common Stock
of $44.
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CORPORATE MANAGEMENT COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
CORPORATE MANAGEMENT COMMITTEE. The Corporate Management Committee is
composed entirely of outside directors of NSP and makes recommendations to the
NSP Board concerning total compensation for executive officers of NSP. The
Corporate Management Committee is the sole administrator of the executive annual
and long-term incentive plans with full authority to establish and interpret the
terms of the plans and to make payment of the awards.
COMPENSATION STRATEGY. NSP's executive compensation goals for 1994 were:
(i) to provide a competitive compensation package that enables NSP to attract
and retain key executives and (ii) to align the executive's interests with those
of NSP's stockholders and with NSP's performance. The 1994 compensation of NSP's
executives was comprised primarily of base salary, annual incentive awards and
long-term incentive awards.
To achieve the compensation goal of providing a competitive compensation
package, the Corporate Management Committee seeks to set base salary and the
target amounts of the annual and long-term awards at the median of a combined
group of major utilities and industrial companies (the "Peer Group"). For 1994,
the Peer Group consists of ten industrial companies, with local representation
and average revenues of $2.6 billion, and ten utilities, all of which operate
nuclear facilities, with average revenues of $2.6 billion. The utilities
included in this group are also part of the Edison Electric Institute 100
utilities index used in the Total Shareholder Return Comparison in this proxy
statement, but all of the companies in such index are not included in the Peer
Group for purposes of compensation review. The twenty companies in the Peer
Group were selected primarily because they are viewed as representative of the
types of companies with which NSP competes in attracting and retaining executive
officers.
The annual and long-term portions of an executive's compensation are
intended to achieve NSP's goal of aligning an executive's interests with NSP's
shareholders and with NSP performance. These portions of an executive's
compensation are placed at risk and are limited to the accomplishment of
specific results that are designed to benefit NSP's stockholders and NSP, both
in the long and short term. As a result, during years of excellent performance,
executives are provided the opportunity to earn a competitive level of
compensation and, conversely, in years of below-average performance, their
compensation would be below competitive levels. Generally, higher level
executive officers have a greater level of compensation placed at risk.
In 1993, a new federal tax law was passed which limits the deductibility of
executive compensation in excess of $1,000,000 unless certain exceptions are
met. Under transition rules adopted by the IRS, this new law is not expected to
impact NSP with respect to executive compensation paid in 1995. The Committee is
reviewing the new law and associated regulations, as well as the structure of
its salary and various compensation programs, and its present intent is to take
appropriate steps to ensure the continued deductibility of its executive
compensation.
BASE PAY. The level of base pay is not directly related to NSP's financial
performance. Instead, target levels for base pay are established for each
executive officer based on the median base pay level for that position within
the Peer Group. The target level of base pay is subject to some adjustment (15%
either way) to reflect individual performance. Each January, the Corporate
Management Committee reviews officer goals that describe achievements expected
to be completed during the year and subsequently evaluates each officer's
performance of his or her goals. Because 1993 salary levels were within targeted
pay levels of the Peer Group, there were no general base pay increases for 1994,
despite solid individual performances of executive officers, including Mr.
Howard.
ANNUAL INCENTIVE. Annual incentive awards for the executive officers are
made in accordance with NSP's Executive Incentive Compensation Plan (the
"Plan"). Under the Plan, annual incentive awards are established with target
awards (expressed as a percentage of base pay) commensurate with annual
incentive awards for the position at the median level within the Peer Group. For
1994, target
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awards for executive officers ranged from 20% to 40% of their base pay.
Individuals can realize from 0% to 188% of their target awards dependent on the
performance of NSP, the individual and the individual's group in certain
pre-determined areas. These areas are NSP financial performance (based on EPS),
customer satisfaction, service reliability, price of product, safety and
individual performance. The awards given to the CEO, the President -- NSP
Generation and the Vice-President -- Nuclear Generation also are dependent on
performance specifically with respect to nuclear safety. The weight accorded
particular performance areas varies by executive. Generally, financial
performance accounts for 20%-30% of an executive's target incentive award. All
of the other areas account for between 10% and 25% of the target awards. Because
of NSP and individual performance, executives received from 21% to 62% of their
base pay for 1994. The annual awards paid for 1994 are reflected in the bonus
column of the Summary Compensation Table.
Mr. Howard's annual incentive award payout for 1994 was $317,800, as shown
in the Summary Compensation Table. The determination of this amount was based on
the criteria set forth above for the other executive officers. In particular,
Mr. Howard's target incentive award was 40% of his base pay and was based 25% on
financial performance, 10% on safety, 10% on nuclear safety, 15% on customer
satisfaction, 15% on price of product, 15% on reliability and 10% on individual
performance.
LONG-TERM INCENTIVE. Long-term incentive awards for executive officers are
determined in accordance with the LTIP and are generally set at target levels
commensurate with the median level for the respective positions within the Peer
Group. The LTIP permits the granting of non-qualified stock options and
restricted common stock to key employees. One of the goals of the LTIP is to
align key employee's long-term interests with those of NSP's shareholders
through the use of stock ownership and long-term financial performance goals.
The Corporate Management Committee made one grant of stock options during
1994 to each of the named executive officers. Option grants are positioned at a
level which generally equates to the average grant levels awarded to executives
in comparable positions in the Peer Group. The number of shares subject to
option was not affected by the number of shares previously awarded to such
executives. These options were not exercisable until one year after their grant,
and will remain exercisable for nine years. Stock options are granted with an
exercise price of 100% of the fair market value of the stock of the date of
grant to ensure that executives can only be rewarded for appreciation in the
price of NSP's stock when NSP's stockholders are similarly benefited.
Target awards of restricted stock (measured as a percentage of base pay) are
established for each executive at levels consistent with median levels for
comparable positions within the Peer Group. In 1994, target awards ranged from
25% to 55% of the executive's base pay. Restricted stock is actually granted,
however, only if NSP achieves a certain level of financial performance, as
measured by NSP's return on common equity ("ROE") for the three year period then
ending, as compared to the three year average ROE of the Edison Electric
Institute 100 utilities ("EEI 100") index (the same index used for purposes of
comparing shareholder return.) No restricted stock awards are made unless NSP's
three year average ROE is at least equal to the median of the EEI 100 index,
thereby prohibiting restricted stock awards when NSP performance does not
surpass the median performance of utilities in the Index. If NSP's ROE is .5% or
more above the index median, 100% of the target will be granted. Partial payout
of restricted stock will be made for ROE levels between the median and .5%
above. In 1994, NSP's ROE was at the median, resulting in a payout of 75% of the
target. The stock awards are restricted so that 50% of the shares awarded become
available one year following the grant and the remaining 50% becomes available
after two years. The restricted stock awards reinforce the tie to shareholder
returns, and the restrictions encourage the retention of qualified executives.
In 1994, Mr. Howard received an option for 15,150 shares. For 1994, Mr.
Howard also received 5,197 shares of restricted stock (47% of his base pay).
These amounts were determined as described above for other executive officers.
The terms of the options and restricted stock are the same as for other
executive officers.
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[ALTERNATE PAGE FOR NSP SHAREHOLDERS ONLY]
In an effort to retain top quality employees with expertise in the nuclear
field, Mr. Antony received an additional 2,200 shares of restricted stock during
1994 pursuant to a restricted stock agreement outside the LTIP. Under the terms
of the Agreement, these shares vest with respect to 50% of the shares if Mr.
Antony has been continually employed with NSP on October 26, 1996, and with
respect to the remainder of the shares if Mr. Antony has been continually
employed with NSP on October 26, 1998. All restricted shares held by Mr. Antony
are reflected on the Summary Compensation Table.
OTHER BENEFITS. Other benefits provided to executives generally are not
tied to NSP's financial performance. Rather, these benefits are primarily
designed to attract and retain executives. Among the benefits provided by NSP to
its executives are contributions to the Employee Stock Ownership Plan (at 1.3%
of the individual's covered compensation -- the same rate applied to all other
ESOP participants), NSP paid life insurance in an amount equal to 2 times base
pay and benefits provided under the NSP Deferred Compensation Plan and the NSP
Excess Benefit Plan that make up for pension benefits that can not be paid under
NSP's qualified defined benefit pension plan due to Code limitations and the
exclusion of certain elements of pay from pension-covered earnings. The level of
retirement benefits provided by these plans in the aggregate is reflected in the
Pension Plan Table.
CONCLUSION. The Corporate Management Committee believes that NSP's
executive compensation package effectively serves the interests of NSP and its
shareholders. The balance of base pay, and annual and long-term incentives
provides increased motivation to executives to contribute to and participate in
NSP's long-term success. The Corporate Management Committee is dedicated to
ensuring that NSP's total compensation package continues to meet the needs of
NSP and shall monitor and revise compensation policies as necessary.
W. JOHN DRISCOLL
DAVID A. CHRISTENSEN
ALLEN F. JACOBSON
DOUGLAS W. LEATHERDALE
JOHN E. PEARSON
MARGARET R. PRESKA
133
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TOTAL SHAREHOLDER RETURN COMPARISON
The graph below compares the cumulative total shareholder return on NSP
Common Stock for the last five fiscal years with the cumulative total return of
the Standard & Poor's 500 Stock Index and the EEI 100(1) over the same period
(assuming the investment of $100 in each vehicle on December 31, 1989 and
reinvestment of all dividends).
CUMULATIVE 5 YEAR VALUE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NSP EEI 100 S&P 500 PAINEWEBBER
1989 100.00 100.00 100.00 100.00
1990 91.40 101.37 96.90 101.14
1991 123.08 130.64 126.35 130.51
1992 131.37 140.59 135.96 139.80
1993 138.56 156.22 149.69 155.45
1994 150.41 138.14 151.64 138.55
TOTAL RETURN
1989 1990 1991 1992 1993 1994
------- ------- ------- ------- ------- -------
NSP..................................... $100.00 $ 91.40 $123.08 $131.37 $138.56 $150.41
EEI 100................................. $100.00 $101.37 $130.64 $140.59 $156.22 $138.14
S&P 500................................. $100.00 $ 96.90 $126.35 $135.96 $149.69 $151.64
PaineWebber............................. $100.00 $101.14 $130.51 $139.80 $155.45 $138.55
------------------------
(1) NSP has selected the EEI 100 index for this comparison because of its
timely production of index data and its similarity to the index used in the
1994 proxy statement. Except for MDU Resources Group, Inc. (which was
represented in last year's index, but is not in the EEI 100 index) and
ESELCO (which is represented in the EEI 100 index, but was not in 1994's
index), the utility companies represented in the EEI 100 index are
identical to those represented in 1994. The Kidder Peabody Electric Utility
index, which was used for the 1994 comparison, has been recently renamed
the PaineWebber Index and is represented in the graph above in accordance
with SEC rules.
134
[ALTERNATE PAGE FOR NSP SHAREHOLDERS ONLY]
PENSION PLAN TABLE
The following table illustrates the approximate retirement benefits payable
to employees retiring at the normal retirement age of 65 years:
ESTIMATED ANNUAL BENEFITS FOR YEARS OF SERVICE INDICATED
YEARS OF SERVICE
--------------------------------------------------------------------------
AVERAGE COMPENSATION (4 YEARS) 5 10 15 20 25 30
------------------------------------ --------- ----------- ----------- ----------- ----------- -----------
$ 50,000............................ $ 3,500 $ 7,000 $ 10,500 $ 14,500 $ 18,000 $ 21,500
100,000............................ 7,500 15,500 23,000 30,500 38,500 46,000
150,000............................ 11,500 23,500 35,000 47,000 58,500 70,500
200,000............................ 16,000 31,500 47,500 63,500 79,000 95,000
250,000............................ 20,000 40,000 59,500 79,500 99,500 119,500
300,000............................ 24,000 48,000 72,000 96,000 120,000 144,000
350,000............................ 28,000 56,000 84,000 112,500 140,500 168,500
400,000............................ 32,000 64,500 96,500 128,500 161,000 193,000
450,000............................ 36,000 72,500 108,500 145,000 181,000 217,500
500,000............................ 40,500 80,500 121,000 161,500 201,500 242,000
550,000............................ 44,500 89,000 133,000 177,500 222,000 266,500
600,000............................ 48,500 97,000 145,500 194,000 242,500 291,000
650,000............................ 52,500 105,000 157,500 210,500 263,000 315,500
700,000............................ 56,500 113,500 170,000 226,500 283,500 340,000
750,000............................ 60,500 121,500 182,000 243,000 303,500 364,500
800,000............................ 65,000 129,500 194,500 259,500 324,000 389,000
850,000............................ 69,000 138,000 206,500 275,500 344,500 413,500
900,000............................ 73,000 146,000 219,000 292,000 365,000 438,000
950,000............................ 77,000 154,000 231,000 308,500 385,500 462,500
After an employee has reached 30 years of service, no additional years are
used in determining pension benefits. The annual compensation used to calculate
the average compensation shown in this table is based on the participant's base
salary for the year (as shown on the Summary Compensation Table at column (c))
and bonus compensation paid in that same year (as shown on the Summary
Compensation Table at column (d); see figure for prior year). The benefit
amounts shown are amounts computed in the form of a straight-life annuity. The
amounts are not subject to offset for social security or otherwise, except as
provided in the employment agreement with Mr. Howard, as described below. At the
end of 1994, each of the executive officers named in the Summary Compensation
Table had the following credited service: Mr. Howard, 7.92 years, Mr. Antony,
25.5 years, Mr. Johnson, 16.08 years, Mr. McIntyre, 21.83 years, Mr. Taylor,
21.58 years and Mr. Theisen, 40 years.
An employment agreement with Mr. Howard provides that, if employment
terminates prior to age 60, he will receive payments from NSP equivalent to
benefits he would have earned under the Pension Plan without regard to service
and compensation limitations in a minimum annual amount of $22,535. If
employment continues past age 60, he and his spouse, if she survives him, will
receive combined benefits from the Pension Plan and supplemental NSP payments as
though he had completed 30 years of service, less the pension benefits earned
from a former employer.
SEVERANCE PLANS
NSP's Severance Plan covers the full-time regular-benefit, nonbargaining
employees of NSP, including the named executives, and participating
subsidiaries. The Severance Plan provides severance benefits to covered
employees whose termination of employment is involuntary and unrelated to
unsatisfactory performance. Subject to a maximum of 24 months of pay, a covered
employee is eligible to receive monthly payments of two months of base pay plus
the greater of two weeks of base pay for each year of service or one week of
base pay for each $2,000 of base annual salary. Covered employees are also
135
[ALTERNATE PAGE FOR NSP SHAREHOLDERS ONLY]
eligible to receive incentive pay, group insurance benefits and service and
compensation credit under the Pension Plan for the period they receive monthly
severance benefits. Outplacement services are also provided under the Plan.
NSP also recently adopted another severance plan in connection with its
entering into the Merger Agreement with WEC. For a description of the employees
covered by such plan and the terms thereof, see "The Mergers -- Employee Plans
and Severance Arrangements."
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
During 1994, NSP solicited proposals from six independent public accounting
firms to provide auditing services to NSP. After reviewing and evaluating the
qualifications of the firms, the services proposed, and the associated costs,
the Audit Committee of the NSP Board recommended a change of independent
accountants. On December 14, 1994, the NSP Board approved the Audit Committee's
recommendation that Price Waterhouse LLP be appointed as the independent
accountants to certify NSP's financial statements for 1995, subject to
ratification by the shareholders. Deloitte & Touche LLP has been informed that
their firm would no longer be engaged as independent accountants for NSP and its
subsidiaries after the completion of audit work for the fiscal year ended
December 31, 1994. Deloitte & Touche LLP has been NSP's independent accountants
since 1947.
During the two most recent fiscal years ended December 31, 1993 and 1994,
and during subsequent interim periods through the date of this proxy statement,
there were no disagreements with Deloitte & Touche LLP on any matter of
accounting principles or practices, financial statement disclosures, or auditing
scope or procedures, which if not resolved to their satisfaction, would have
caused Deloitte & Touche LLP to make reference thereto in connection with their
reports. Deloitte & Touche LLP's reports on NSP's financial statements for the
two most recent fiscal years ended December 31, 1993 and 1994 contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty or audit scope. Such reports included a fourth paragraph which
referred to a change in NSP's method of accounting for post-retirement health
care costs in 1993.
If the shareholders do not ratify the selection of Price Waterhouse LLP, the
NSP Board will consider the appointment of other independent accountants for
1995, as recommended by the Audit Committee.
Representatives from Deloitte & Touche LLP are expected to be present at the
NSP Meeting to answer questions regarding their audit of NSP's financial
statements for 1994 and to make a statement if they desire to do so.
Representatives from Price Waterhouse LLP are expected to be present at the NSP
Meeting to answer questions on their appointment for 1995 and to make a
statement if they desire to do so.
THE NSP BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
APPOINTMENT OF ACCOUNTANTS.
SHAREHOLDER PROPOSALS
Yvonne Ford, 6308 Barrie Road, Edina, MN 55435, beneficial owner of 238.942
shares of NSP Common Stock, and John W. Harmon, 1221 39th Avenue NE Ste. 2,
Columbia Heights, MN 55421, beneficial owner of 0.248 shares of NSP Common Stock
have given notice that they intend to present for action at the NSP Meeting the
following resolution:
Shareholder Resolution on Public Image
Whereas: Radiation, a byproduct of nuclear power, is a known carcinogen;
Whereas: A recent study by Doctors Ernest R. Sternglass and J. M. Gould
suggest that since NSP's nuclear plants were built women living near the
reactors have experienced large increases in deaths from breast cancer while
deaths among those living elsewhere have decreased.
136
[ALTERNATE PAGE FOR NSP SHAREHOLDERS ONLY]
Whereas: In our opinion, radioactive and toxic waste from the production and
use of nuclear fuel is more often than not stored near black, Indian and poor
communities. As a result these communities bear an unfair share of risks and
threats. In our opinion, the burden on these communities is "environmental
racism" which is a vital moral issue;
Whereas: These health effects and this environmental racism reflect poorly on
NSP's public image and can cause undesirable effects on shareholder equity;
Therefore be it resolved that the shareholders recommend to the Board of
Directors that NSP stop producing radioactive waste.
THE NSP BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL FOR THE FOLLOWING
REASONS:
The foregoing statement and resolution were included herein by NSP in order
to comply with the rules of the SEC. The NSP Board believes that many of the
assertions and the implications put forward by this shareholder proposal are
incorrect. There is absolutely no scientifically verifiable evidence which
suggests any correlation whatsoever between breast cancer and living near
nuclear power plants in the United States. The Minnesota Department of Health
(the "MDH") recently submitted a report to the Minnesota Legislature concerning
this issue. In its conclusion, the MDH stated:
The major purpose of this analysis was to respond to the allegation that
breast cancer mortality rates in counties surrounding Minnesota's nuclear
power plants had shown large and dramatic increases during the 1980s
compared to the early 1980s and the 1950s . . .
THIS ANALYSIS PROVIDES A CLEAR AND UNAMBIGUOUS CONCLUSION: BREAST CANCER
MORTALITY TRENDS OVER THE PERIOD 1950-1992 IN THE TEN COUNTIES NEAR
NUCLEAR POWER PLANTS SHOW NO DISCERNIBLE DIFFERENCE FROM STATEWIDE TRENDS.
THERE WERE ALSO NO DIFFERENCES FOUND IN THE RATE OF NEWLY-DIAGNOSED BREAST
CANCER DURING THE PERIOD 1988-1992 FOR WHICH [MINNESOTA CANCER
SURVEILLANCE SYSTEM] DATA ARE AVAILABLE.
This MDH report was consistent with a prior report of the National Cancer
Institute which "found no suggestion that nuclear facilities may be linked
causally with excess deaths from leukemia or from other cancers in populations
living nearby."
In addition, implementation of the proposal would cause NSP to cease
entirely the production of nuclear power and to close NSP's nuclear facilities.
NSP estimates that the present value of the costs of complying with the proposal
and shutting down NSP's nuclear facilities would exceed $2.5 billion. While NSP
would seek to recover these costs from customers, there is no guarantee that all
such costs would be recovered. Even if these costs were recovered, the
unnecessary imposition of an estimated $2.5 billion in costs on ratepayers would
likely cause NSP to lose its position as a low-cost supplier of electricity and
could seriously impair NSP's ability to compete against other electric suppliers
in the years ahead, substantially lessening shareholder value. ACCORDINGLY, THE
NSP BOARD AND MANAGEMENT UNANIMOUSLY RECOMMEND THAT YOU VOTE AGAINST THIS
PROPOSAL.
George W. Crocker and Cynthia L. Coombes-Foushee, 5903 Keats Avenue North,
Lake Elmo, MN 55042, who jointly hold 1.2810 shares of NSP Common Stock, Dorothy
L. Logan, 1221 39th Avenue N.E. Ste. 2, Columbia Heights, MN 55421, who holds
.2550 shares of NSP Common Stock and Carol Greenwood, 2615 38th Avenue South,
Minneapolis, MN 55406, who holds 600 shares of NSP Common Stock have given
notice that they intend to present for action at the NSP Meeting the following
resolution:
137
[ALTERNATE PAGE FOR NSP SHAREHOLDERS ONLY]
SHAREHOLDER RESOLUTION ON REGULATORY REFORM
WHEREAS, our company must eventually eliminate the costs and liabilities
attached to our use of nuclear and fossil fuels for providing electric
utility services, and shift to the efficient use of renewable energy
resources. At issue is the timing and speed of this transition.
Fission wastes from the nuclear fuel chain threaten public health and safety;
the potential for human error and technology failure at NSP's nuclear
facilities threatens public health and safety as well as shareholder equity
and earnings; and combustion wastes from NSP's coal fired power plants are
major contributors to wholesale ecological and public health degradation due
to mercury contamination, acidification, and global warming.
Furthermore, Minnesotans miss vital economic opportunities because we
annually export many hundred million dollars to import NSP's fossil and
nuclear fuels that degrade our environment.
These environmental and economic problems are the result of two fundamental
problems with electric utility regulation. The demand-side problem is related
to how consumers purchase electric utility services. The supply-side problem
is related to how electricity is produced. The demand-side problem increases
NSP's earnings as energy sales increase, while the efficient use of
electricity tends to erode earnings. In other words, NSP shareholders make
more money as NSP produces more radioactive waste and fossil fuel pollution.
Regulations should be changed so that shareholders earnings depend instead on
the efficient use of electricity. The supply-side problem protects NSP's
nuclear and fossil fuel facilities from fair market competition based on
actual energy production costs. This prevents energy consumers from using
renewable energy resources and technologies that are better from society's
perspective.
THEREFORE BE IT RESOLVED that shareholders recommend that the board:
1. Propose and support electric utility regulatory reform so that NSP
earnings increase only as a function of NSP's ability to demonstrate
that its demand-side investments cause its consumers to use
electricity more efficiently;
2. Propose and support regulatory reform so that independent power
producers can compete in NSP's energy market, with competition based
on energy pricing that includes fair value for presently externalized
capital, environmental and societal costs and benefits appropriate for
each energy resource.
THE NSP BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL FOR THE FOLLOWING
REASONS:
The NSP Board believes adoption of this proposal would depress the future
earnings of NSP and its shareholders, reduce the total equity value of NSP and
unnecessarily restrict NSP's competitive options.
The proposal would limit increases in NSP's and its shareholders' earnings
to one factor (I.E., demand-side investment), which the NSP Board believes is
totally inappropriate. The earnings of NSP and its shareholders are affected by
numerous factors, many of which are not tied to demand-side investments.
Limiting increases in earnings to one factor as requested by the proposal would
be detrimental to NSP's earning power and, in turn, to shareholder value.
Moreover, Minnesota law already requires NSP to support conservation efforts by
applying a percentage of its annual revenues to Minnesota regulators to
determine the maximum level of conservation NSP can economically and efficiently
provide to its customers. NSP currently offers over 40 demand-side management
programs to its customers. In 1994 alone, NSP spent more than $50,000,000 on
demand-side management matters, which helped NSP's customers conserve the need
for 350,000 megawatt hours of energy and 130 megawatts of peak demand.
138
[ALTERNATE PAGE FOR NSP SHAREHOLDERS ONLY]
The proposal also addresses competition. NSP is already undertaking
regulatory initiatives to promote competition in the energy markets. Recent
actions by NSP include: (i) proposing to the Minnesota Commission a competitive
bidding process for all future generation needs; (ii) filing with the FERC a
revised transmission tariff that is designed to supply service to the potential
transmission users, including independent power producers, in a manner that is
comparable to NSP's own use of its transmission system; and (iii) supporting in
a proceeding before the Wisconsin Commission changes in the regulatory structure
that would allow, among other elements, competition at the retail level. In
addition, under Minnesota law, NSP is mandated to consider the environmental and
socioeconomic impact of various supply options when selecting a generation
resource. For these reasons, the NSP Board also believes that the proposal is
unnecessary and would impair NSP's flexibility to respond to competitive changes
in the electric industry.
ACCORDINGLY, THE NSP BOARD AND MANAGEMENT UNANIMOUSLY RECOMMEND THAT YOU
VOTE AGAINST THIS PROPOSAL.
139
ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NORTHERN STATES POWER COMPANY,
WISCONSIN ENERGY CORPORATION,
NORTHERN POWER WISCONSIN CORP.
AND
WEC SUB CORP.
DATED AS OF APRIL 28, 1995,
AS AMENDED AND RESTATED AS OF JULY 26, 1995
A-1
TABLE OF CONTENTS
PAGE
---------
ARTICLE I
THE MERGERS
SECTION 1.1 The Mergers......................................................................... A-8
SECTION 1.2 Effects of the Mergers.............................................................. A-8
SECTION 1.3 Effective Time of the Mergers....................................................... A-9
ARTICLE II
TREATMENT OF SHARES
SECTION 2.1 Effect of the Mergers on Capital Stock.............................................. A-9
SECTION 2.2 Dissenting Shares................................................................... A-10
SECTION 2.3 Issuance of New Certificates........................................................ A-10
ARTICLE III
THE CLOSING
SECTION 3.1 Closing............................................................................. A-12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NSP
SECTION 4.1 Organization and Qualification...................................................... A-12
SECTION 4.2 Subsidiaries........................................................................ A-13
SECTION 4.3 Capitalization...................................................................... A-13
SECTION 4.4 Authority; Non-Contravention; Statutory Approvals; Compliance....................... A-14
SECTION 4.5 Reports and Financial Statements.................................................... A-15
SECTION 4.6 Absence of Certain Changes or Events................................................ A-15
SECTION 4.7 Litigation.......................................................................... A-15
SECTION 4.8 Registration Statement and Proxy Statement.......................................... A-16
SECTION 4.9 Tax Matters......................................................................... A-16
SECTION 4.10 Employee Matters; ERISA............................................................. A-17
SECTION 4.11 Environmental Protection............................................................ A-19
SECTION 4.12 Regulation as a Utility............................................................. A-20
SECTION 4.13 Vote Required....................................................................... A-20
SECTION 4.14 Accounting Matters.................................................................. A-21
SECTION 4.15 Applicability of Certain Minnesota Law.............................................. A-21
SECTION 4.16 Opinion of Financial Advisor........................................................ A-21
SECTION 4.17 Insurance........................................................................... A-21
SECTION 4.18 Ownership of WEC Common Stock....................................................... A-21
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF WEC
SECTION 5.1 Organization and Qualification...................................................... A-21
SECTION 5.2 Subsidiaries........................................................................ A-22
SECTION 5.3 Capitalization...................................................................... A-22
SECTION 5.4 Authority; Non-Contravention; Statutory Approvals; Compliance....................... A-23
SECTION 5.5 Reports and Financial Statements.................................................... A-24
SECTION 5.6 Absence of Certain Changes or Events................................................ A-24
SECTION 5.7 Litigation.......................................................................... A-24
A-2
PAGE
---------
SECTION 5.8 Registration Statement and Proxy Statement.......................................... A-24
SECTION 5.9 Tax Matters......................................................................... A-25
SECTION 5.10 Employee Matters; ERISA............................................................. A-26
SECTION 5.11 Environmental Protection............................................................ A-27
SECTION 5.12 Regulation as a Utility............................................................. A-28
SECTION 5.13 Vote Required....................................................................... A-28
SECTION 5.14 Accounting Matters.................................................................. A-28
SECTION 5.15 Applicability of Certain Wisconsin Law.............................................. A-28
SECTION 5.16 Opinion of Financial Advisor........................................................ A-29
SECTION 5.17 Insurance........................................................................... A-29
SECTION 5.18 Ownership of Old NSP Common Stock................................................... A-29
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGERS
SECTION 6.1 Covenants of the Parties............................................................ A-29
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Access to Information............................................................... A-34
SECTION 7.2 Joint Proxy Statement and Registration Statement.................................... A-35
SECTION 7.3 Regulatory Matters.................................................................. A-35
SECTION 7.4 Shareholder Approval................................................................ A-36
SECTION 7.5 Directors' and Officers' Indemnification............................................ A-36
SECTION 7.6 Disclosure Schedules................................................................ A-37
SECTION 7.7 Public Announcements................................................................ A-38
SECTION 7.8 Rule 145 Affiliates................................................................. A-38
SECTION 7.9 Employee Agreements and Workforce Matters........................................... A-38
SECTION 7.10 Employee Benefit Plans.............................................................. A-38
SECTION 7.11 Stock Option and Other Stock Plans.................................................. A-39
SECTION 7.12 No Solicitations.................................................................... A-40
SECTION 7.13 Company Board of Directors.......................................................... A-41
SECTION 7.14 Company Officers.................................................................... A-41
SECTION 7.15 Employment Contracts................................................................ A-42
SECTION 7.16 Post-Merger Operations.............................................................. A-42
SECTION 7.17 Expenses............................................................................ A-42
SECTION 7.18 Further Assurances.................................................................. A-42
SECTION 7.19 Utility Asset Transfer.............................................................. A-43
SECTION 7.20 Charter and Bylaw Amendments........................................................ A-43
ARTICLE VIII
CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligation to Effect the Mergers......................... A-43
SECTION 8.2 Conditions to Obligation of WEC to Effect the Mergers............................... A-44
SECTION 8.3 Conditions to Obligation of NSP to Effect the Mergers............................... A-45
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination......................................................................... A-45
SECTION 9.2 Effect of Termination............................................................... A-47
A-3
PAGE
---------
SECTION 9.3 Termination Fee; Expenses........................................................... A-47
SECTION 9.4 Amendment........................................................................... A-48
SECTION 9.5 Waiver.............................................................................. A-49
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Non-Survival; Effect of Representations and Warranties.............................. A-49
SECTION 10.2 Brokers............................................................................. A-49
SECTION 10.3 Notices............................................................................. A-49
SECTION 10.4 Miscellaneous....................................................................... A-50
SECTION 10.5 Interpretation...................................................................... A-51
SECTION 10.6 Counterparts; Effect................................................................ A-51
SECTION 10.7 Parties in Interest................................................................. A-51
SECTION 10.8 Waiver of Jury Trial and Certain Damages............................................ A-51
SECTION 10.9 Enforcement......................................................................... A-51
Exhibit A Form of WEC Stock Option Agreement
Exhibit B Form of NSP Stock Option Agreement
Exhibit 7.8 Form of Affiliate Agreement
Exhibit 7.10(a) Form of NSP Severance Plan
Exhibit 7.10(b) Form of WEC Severance Plan
Exhibit 7.13 Committees of the Board of Directors of the Company
Exhibit 7.15.1 Form of Employment Agreement of James J. Howard
Exhibit 7.15.2 Form of Employment Agreement of Richard A. Abdoo
Exhibit 7.20(b) Form of Amended and Restated Articles of Incorporation of New NSP
Exhibit 7.20(c) Form of Amended and Restated Articles of Incorporation of WEC Sub
A-4
INDEX OF DEFINED TERMS
TERM PAGE
---------------------------------------------------------------------------------------------------------- ---------
1935 Act.................................................................................................. A-13
affiliate................................................................................................. A-13
Affiliate Agreement....................................................................................... A-38
Affiliated Employees...................................................................................... A-38
Agreement................................................................................................. A-8
Atomic Energy Act......................................................................................... A-15
Business Combination...................................................................................... A-46
Business Combination Proposal............................................................................. A-41
Cancelled Common Shares................................................................................... A-11
Certificates.............................................................................................. A-11
Closing................................................................................................... A-12
Closing Agreement......................................................................................... A-17
Closing Date.............................................................................................. A-12
Code...................................................................................................... A-16
Committee................................................................................................. A-39
Company................................................................................................... A-8
Company Common Stock...................................................................................... A-10
Company Replacement Plans................................................................................. A-39
Company Shares............................................................................................ A-11
Company Stock Plan........................................................................................ A-39
Confidentiality Agreement................................................................................. A-35
control................................................................................................... A-21
date hereof............................................................................................... A-8
Direct Subsidiary......................................................................................... A-12
Disclosure Schedules...................................................................................... A-37
Effective Time............................................................................................ A-9
Environmental Claim....................................................................................... A-20
Environmental Laws........................................................................................ A-20
Environmental Permits..................................................................................... A-19
ERISA..................................................................................................... A-17
Exchange Act.............................................................................................. A-15
Exchange Agent............................................................................................ A-10
FERC...................................................................................................... A-15
Final Order............................................................................................... A-43
Foundation................................................................................................ A-42
GAAP...................................................................................................... A-15
Governmental Authority.................................................................................... A-14
Hazardous Materials....................................................................................... A-20
HSR Act................................................................................................... A-35
Indemnified Liabilities................................................................................... A-36
Indemnified Party......................................................................................... A-36
Initial Termination Date.................................................................................. A-45
IRS....................................................................................................... A-44
Joint Proxy/Registration Statement........................................................................ A-35
joint venture............................................................................................. A-13
MBCA...................................................................................................... A-9
Mergers................................................................................................... A-8
Mr. Abdoo................................................................................................. A-33
Mr. Howard................................................................................................ A-33
New NSP................................................................................................... A-8
A-5
TERM PAGE
---------------------------------------------------------------------------------------------------------- ---------
NRC....................................................................................................... A-15
NSP....................................................................................................... A-8
NSP Benefit Plans......................................................................................... A-17
NSP Common Stock.......................................................................................... A-9
NSP Disclosure Schedule................................................................................... A-37
NSP Dissenting Shares..................................................................................... A-10
NSP Effective Time........................................................................................ A-9
NSP Financial Statements.................................................................................. A-15
NSP Incentive Plan........................................................................................ A-39
NSP Joint Venture......................................................................................... A-13
NSP Material Adverse Effect............................................................................... A-15
NSP Merger................................................................................................ A-8
NSP Preferred Stock....................................................................................... A-9
NSP Required Consents..................................................................................... A-14
NSP Required Statutory Approvals.......................................................................... A-14
NSP SEC Reports........................................................................................... A-15
NSP Shareholders' Approval................................................................................ A-20
NSP Special Meeting....................................................................................... A-36
NSP Stock Awards.......................................................................................... A-40
NSP Stock Option.......................................................................................... A-39
NSP Stock Option Agreement................................................................................ A-8
NSP Stock Plan............................................................................................ A-39
NSP Subsidiary............................................................................................ A-12
NSP Unrestricted Subsidiaries............................................................................. A-13
NSP-W..................................................................................................... A-20
NYSE...................................................................................................... A-11
Old NSP Common Stock...................................................................................... A-9
Old NSP Preferred Stock................................................................................... A-9
PBGC...................................................................................................... A-18
PCBs...................................................................................................... A-20
Power Act................................................................................................. A-15
Preferred Certificates.................................................................................... A-11
Proxy Statement........................................................................................... A-16
Ratio..................................................................................................... A-10
Registration Statement.................................................................................... A-16
Reincorporation Effective Time............................................................................ A-9
Reincorporation Merger.................................................................................... A-8
Release................................................................................................... A-20
Representatives........................................................................................... A-34
SEC....................................................................................................... A-15
Securities Act............................................................................................ A-15
Stock Plans............................................................................................... A-40
subsidiary................................................................................................ A-12
Target Party.............................................................................................. A-48
Task Force................................................................................................ A-33
Tax Return................................................................................................ A-16
Tax Ruling................................................................................................ A-17
Taxes..................................................................................................... A-16
Three Year Period......................................................................................... A-51
Violation................................................................................................. A-14
WBCL...................................................................................................... A-9
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TERM PAGE
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WEC....................................................................................................... A-8
WEC Article Amendments.................................................................................... A-43
WEC Benefit Plans......................................................................................... A-26
WEC Common Stock.......................................................................................... A-10
WEC Disclosure Schedule................................................................................... A-37
WEC Financial Statements.................................................................................. A-24
WEC Incentive Plan........................................................................................ A-39
WEC Joint Venture......................................................................................... A-22
WEC Material Adverse Effect............................................................................... A-24
WEC Preferred Stock....................................................................................... A-22
WEC Required Consents..................................................................................... A-23
WEC Required Statutory Approvals.......................................................................... A-23
WEC SEC Reports........................................................................................... A-24
WEC Shareholders' Approval................................................................................ A-28
WEC Special Meeting....................................................................................... A-36
WEC Stock Option Agreement................................................................................ A-8
WEC Stock Plan............................................................................................ A-39
WEC Sub................................................................................................... A-8
WEC Subsidiary............................................................................................ A-21
WEC Unrestricted Subsidiaries............................................................................. A-22
WEPCO..................................................................................................... A-22
WEPCO Common Stock........................................................................................ A-22
WEPCO 6% Preferred Stock.................................................................................. A-22
WEPCO $100 Par Value Serial Preferred Stock............................................................... A-22
WEPCO $25 Par Value Serial Preferred Stock................................................................ A-22
WEPCO Preferred Stock..................................................................................... A-22
WN........................................................................................................ A-28
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of April 28,
1995 (referred to herein as the "date hereof"), as amended and restated as of
July 26, 1995 (this "AGREEMENT"), by and among Northern States Power Company, a
Minnesota corporation ("NSP"), Wisconsin Energy Corporation, a Wisconsin
corporation ("WEC" and, after the Effective Time (as defined below), the
"COMPANY"), Northern Power Wisconsin Corp., a Wisconsin corporation ("NEW NSP"),
and WEC Sub Corp., a Wisconsin corporation ("WEC SUB").
WHEREAS, NSP and WEC have determined to engage in a business combination as
peer firms in a merger of equals;
WHEREAS, in furtherance thereof, the respective Boards of Directors of NSP,
WEC, New NSP and WEC Sub have approved this Agreement and the transactions
contemplated hereby on the terms and conditions set forth in this Agreement
(such transactions referred to herein collectively as the "MERGERS");
WHEREAS, the Board of Directors of WEC has approved and WEC has executed an
agreement with NSP in the form of EXHIBIT A (the "WEC STOCK OPTION AGREEMENT")
and the Board of Directors of NSP has approved and NSP has executed an agreement
with WEC in the form of EXHIBIT B (the "NSP STOCK OPTION AGREEMENT") whereby
each of WEC and NSP, respectively, has granted to the other an option to
purchase shares of its common stock on the terms and conditions provided in such
agreement; and
WHEREAS, for federal income tax purposes, it is intended that the parties
hereto and their respective stockholders will recognize no gain or loss for
federal income tax purposes as a result of the consummation of the Mergers;
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGERS
Section 1.1 THE MERGERS. Upon the terms and subject to the conditions of
this Agreement:
(i) At the Reincorporation Effective Time (as defined in SECTION 1.3),
NSP shall be merged with and into New NSP (the "REINCORPORATION MERGER") in
accordance with the laws of the States of Minnesota and Wisconsin. New NSP
shall be the surviving corporation in the Reincorporation Merger and shall
continue its corporate existence under the laws of the State of Wisconsin.
The effects and the consequences of the Reincorporation Merger shall be as
set forth in SECTION 1.2(A). Throughout this Agreement, the term "NSP" shall
refer to NSP and/or New NSP, as the context requires.
(ii) At the NSP Effective Time (as defined in SECTION 1.3), WEC Sub
shall be merged with and into New NSP (the "NSP MERGER") in accordance with
the laws of the State of Wisconsin. New NSP shall be the surviving
corporation in the NSP Merger and shall continue its corporate existence
under the laws of the State of Wisconsin. The effects and the consequences
of the NSP Merger shall be as set forth in SECTION 1.2(B).
Section 1.2 EFFECTS OF THE MERGERS. (a) At the Reincorporation Effective
Time, (i) the articles of incorporation of New NSP, as in effect immediately
prior to the Reincorporation Effective Time, shall be the articles of
incorporation of the surviving corporation in the Reincorporation Merger until
thereafter amended as provided by law and such articles of incorporation, and
(ii) the by-laws of New NSP, as in effect immediately prior to the
Reincorporation Effective Time, shall be the by-laws of the surviving
corporation in the Reincorporation Merger until thereafter amended as provided
by law, the articles of incorporation of the surviving corporation in the
Reincorporation Merger and such by-laws.
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Subject to the foregoing, the additional effects of the Reincorporation Merger
shall be as provided in the applicable provisions of the Minnesota Business
Corporation Act (the "MBCA") and the Wisconsin Business Corporation Law (the
"WBCL").
(b) At the NSP Effective Time, (i) the articles of incorporation of New NSP,
as in effect immediately prior to the NSP Effective Time, shall be the articles
of incorporation of the surviving corporation in the NSP Merger until thereafter
amended as provided by law and such articles of incorporation, and (ii) the
by-laws of New NSP, as in effect immediately prior to the NSP Effective Time,
shall be the by-laws of the surviving corporation in the NSP Merger until
thereafter amended as provided by law, the articles of incorporation of the
surviving corporation in the NSP Merger and such by-laws. Subject to the
foregoing, the additional effects of the NSP Merger shall be as provided in the
applicable provisions of the WBCL.
Section 1.3 EFFECTIVE TIME OF THE MERGERS. On the Closing Date (as defined
in SECTION 3.1), (a) with respect to the Reincorporation Merger, articles of
merger complying with the requirements of the WBCL and the MBCA shall be
executed by NSP and New NSP and shall be filed by New NSP with the Secretary of
State of each of the States of Wisconsin and Minnesota, and (b) with respect to
the NSP Merger, articles of merger complying with the requirements of the WBCL
shall be executed by New NSP and WEC Sub and shall be filed by New NSP with the
Secretary of State of the State of Wisconsin. The Reincorporation Merger shall
become effective at the time specified in the articles of merger filed with
respect to the Reincorporation Merger (the "REINCORPORATION EFFECTIVE TIME").
The NSP Merger shall become effective at the time specified in the articles of
merger filed with respect to the NSP Merger (the "NSP EFFECTIVE TIME" or the
"EFFECTIVE TIME"). The effective time specified in the articles of merger to be
filed with respect to the Reincorporation Merger shall be prior to the effective
time specified in the articles of merger filed with respect to the NSP Merger.
ARTICLE II
TREATMENT OF SHARES
Section 2.1 EFFECT OF THE MERGERS ON CAPITAL STOCK. (a) At the
Reincorporation Effective Time, by virtue of the Reincorporation Merger and
without any action on the part of any holder of any capital stock of NSP or New
NSP:
(i) CANCELLATION OF NEW NSP STOCK. Each share of Common Stock, par
value $2.50 per share, of New NSP (the "NSP COMMON STOCK") that is owned by
NSP shall be cancelled and shall cease to exist.
(ii) TREATMENT OF NSP COMMON STOCK. Each issued and outstanding share
of Common Stock, par value $2.50 per share, of NSP (the "OLD NSP COMMON
STOCK"), other than NSP Dissenting Shares (as defined in SECTION 2.2), shall
be cancelled and converted into the right to receive one fully paid and,
subject to Section 180.0622(2)(b) of the WBCL, as judicially interpreted,
non-assessable share of NSP Common Stock. Upon such cancellation, all such
shares of Old NSP Common Stock shall cease to exist, and each holder of a
certificate formerly representing any such shares of Old NSP Common Stock
shall cease to have any rights with respect thereto, except the right to
receive the shares of NSP Common Stock to be issued in consideration
therefor and, following the NSP Merger, the right to receive the shares of
Company Common Stock (as defined in SECTION 2.1(B)(II)) to be issued in
consideration therefor upon the surrender of such certificate in accordance
with SECTION 2.3.
(iii) TREATMENT OF NSP PREFERRED STOCK. Each issued and outstanding
share of Cumulative Preferred Stock, par value $100.00 per share, of NSP
(the "OLD NSP PREFERRED STOCK"), other than NSP Dissenting Shares, shall be
cancelled and converted into the right to receive one fully paid and,
subject to Section 180.0622(2)(b) of the WBCL, as judicially interpreted,
non-assessable share of Cumulative Preferred Stock, par value $100.00 per
share, of New NSP ("NSP PREFERRED STOCK") with identical rights (including
dividend rates) and designations to the cancelled share of
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Old NSP Preferred Stock. Upon such cancellation, all such shares of Old NSP
Preferred Stock shall cease to exist, and each holder of a certificate
formerly representing any such shares of Old NSP Preferred Stock shall cease
to have any rights with respect thereto, except the right to receive the
shares of NSP Preferred Stock to be issued in consideration therefor, which
shares of NSP Preferred Stock shall be represented by the certificates
formerly representing shares of Old NSP Preferred Stock.
(b) At the NSP Effective Time, by virtue of the NSP Merger and without any
action on the part of any holder of any capital stock of New NSP or WEC Sub:
(i) CANCELLATION OF CERTAIN NSP STOCK. Each share of NSP Common Stock
and each share of NSP Preferred Stock that is owned by New NSP as treasury
stock, by subsidiaries of New NSP or by WEC or any of its subsidiaries shall
be cancelled and cease to exist.
(ii) TREATMENT OF NSP COMMON STOCK. Each issued and outstanding share
of NSP Common Stock (other than shares cancelled pursuant to SECTION
2.1(B)(I) and NSP Dissenting Shares) shall be cancelled and converted into
the right to receive 1.626 (the "RATIO") fully paid and, subject to Section
180.0622(2)(b) of the WBCL, as judicially interpreted, non-assessable shares
of Common Stock, par value $.01 per share, of WEC (the "WEC COMMON STOCK"
and, with respect to any period after the Effective Time, the "COMPANY
COMMON STOCK"). Upon such cancellation, all such Shares of NSP Common Stock
shall cease to exist, and each holder of a certificate formerly representing
any such shares shall cease to have any rights with respect thereto, except
the right to receive the shares of Company Common Stock to be issued in
consideration therefor upon the surrender of such certificate in accordance
with SECTION 2.3.
(iii) NO CHANGE IN NSP PREFERRED STOCK. Each issued and outstanding
share of NSP Preferred Stock (other than shares cancelled pursuant to
SECTION 2.1(B)(I)) shall be unchanged as a result of the NSP Merger and
shall remain outstanding thereafter.
(iv) TREATMENT OF WEC SUB STOCK. Each issued and outstanding share of
Common Stock, par value $.01 per share, of WEC Sub shall be cancelled and
converted into one fully paid and, subject to Section 180.0622(2)(b) of the
WBCL, as judicially interpreted, non-assessable share of NSP Common Stock.
Section 2.2 DISSENTING SHARES. Shares of Old NSP Common Stock and Old NSP
Preferred Stock held by any holder entitled to relief as a dissenting
shareholder under Section 302A.471 of the MBCA (the "NSP DISSENTING SHARES")
shall not become the right to receive NSP Common Stock or NSP Preferred Stock,
as the case may be, in the Reincorporation Merger or, in the case of Old NSP
Common Stock, into the right to receive Company Common Stock in the NSP Merger,
but shall be cancelled and converted into such consideration as may be due with
respect to such shares pursuant to the applicable provisions of the MBCA, unless
and until the right of such holder to receive fair cash value for such NSP
Dissenting Shares terminates in accordance with Section 302A.473 of the MBCA. If
such right is terminated otherwise than by the purchase of such shares by NSP,
then such shares shall cease to be NSP Dissenting Shares and shall represent the
right to receive Company Common Stock, as provided in SECTION 2.1(B), or NSP
Preferred Stock, as provided in SECTION 2.1(A).
Section 2.3 ISSUANCE OF NEW CERTIFICATES.
(a) DEPOSIT WITH EXCHANGE AGENT. As soon as practicable after the
Effective Time, the Company shall deposit with such bank or trust company
mutually agreeable to WEC and NSP (the "EXCHANGE AGENT"), certificates
representing shares of Company Common Stock required to effect the issuance
referred to in SECTION 2.1, together with cash payable in respect of fractional
shares pursuant to SECTION 2.3(D).
(b) ISSUANCE PROCEDURES. As soon as practicable after the Effective Time,
the Exchange Agent shall mail (x) to each holder of record of a certificate or
certificates (the "CERTIFICATES") which immediately prior to the Reincorporation
Effective Time represented outstanding shares of Old NSP
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Common Stock (the "CANCELLED COMMON SHARES") that were cancelled and became
instead the right to receive shares of Company Common Stock (the "COMPANY
SHARES") pursuant to SECTION 2.1, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon actual delivery of the Certificates to the
Exchange Agent) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing Company Shares. Upon
surrender of a Certificate to the Exchange Agent for cancellation (or to such
other agent or agents as may be appointed by agreement of NSP and WEC), together
with a duly executed letter of transmittal and such other documents as the
Exchange Agent shall require, the holder of such Certificate shall be entitled
to receive a certificate representing that number of whole Company Shares which
such holder has the right to receive pursuant to the provisions of this ARTICLE
II. In the event of a transfer of ownership of Cancelled Common Shares which is
not registered in the transfer records of NSP, a certificate representing the
proper number of Company Shares may be issued to a transferee if the Certificate
representing such Cancelled Common Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence satisfactory to the Exchange Agent that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this SECTION
2.3, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing Company Shares and cash in lieu of any fractional shares of Company
Common Stock as contemplated by this SECTION 2.3.
(c) DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect to
Company Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Company Shares
represented thereby and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to SECTION 2.3(d) until the holder of record of
such Certificate shall surrender such Certificate. Subject to the effect of
unclaimed property, escheat and other applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole Company Shares issued in consideration therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of Company Common Stock to which such
holder is entitled pursuant to SECTION 2.3(d) and the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole Company Shares and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole Company Shares.
(d) NO FRACTIONAL SECURITIES. Notwithstanding any other provision of this
Agreement, no certificates or scrip representing fractional shares of Company
Common Stock shall be issued upon the surrender for exchange of Certificates and
such fractional shares shall not entitle the owner thereof to vote or to any
other rights of a holder of Company Common Stock. A holder of NSP Common Stock
who would otherwise have been entitled to a fractional share of Company Common
Stock shall be entitled to receive a cash payment in lieu of such fractional
share in an amount equal to the product of such fraction multiplied by the
average of the last reported sales price, regular way, per share of WEC Common
Stock on the New York Stock Exchange ("NYSE") Composite Tape for the ten
business days prior to and including the last business day on which Old NSP
Common Stock was traded on the NYSE, without any interest thereon.
(e) BOOK ENTRY. Notwithstanding any other provision of this Agreement, the
letter of transmittal referred to in SECTION 2.3(b) may, at the option of the
Company, provide for the ability of a holder of one or more Certificates to
elect that the Company Shares to be received in exchange for the Cancelled
Common Shares formerly represented by such surrendered Certificates be issued in
uncertificated form or to elect that such Company Shares be credited to an
account established for the holder under the dividend reinvestment and stock
purchase plan of the Company.
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(f) CLOSING OF TRANSFER BOOKS. From and after the NSP Effective Time the
stock transfer books of NSP shall be closed and no transfer of any capital stock
of NSP shall thereafter be made. If, after the Effective Time, Certificates are
presented to the Company, they shall be cancelled and exchanged for certificates
representing the appropriate number of Company Shares, as provided in this
SECTION 2.3.
(g) TERMINATION OF EXCHANGE AGENT. Any certificates representing Company
Shares deposited with the Exchange Agent pursuant to SECTION 2.3(a) and not
exchanged within one year after the Effective Time pursuant to this SECTION 2.3
shall be returned by the Exchange Agent to the Company, which shall thereafter
act as Exchange Agent. All funds held by the Exchange Agent for payment to the
holders of unsurrendered Certificates and unclaimed at the end of one year from
the Effective Time shall be returned to the Company, after which time any holder
of unsurrendered Certificates shall look as a general creditor only to the
Company for payment of such funds to which such holder may be due, subject to
applicable law. The Company shall not be liable to any person for such shares or
funds delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
ARTICLE III
THE CLOSING
Section 3.1 CLOSING. The closing of the Mergers (the "CLOSING") shall take
place at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New
York, New York at 10:00 A.M., local time, on the second business day immediately
following the date on which the last of the conditions set forth in ARTICLE VIII
hereof is fulfilled or waived, or at such other time and date and place as NSP
and WEC shall mutually agree (the "CLOSING DATE").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NSP
NSP represents and warrants to WEC as follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. Except as set forth in Section
4.1 of the NSP Disclosure Schedule (as defined in SECTION 7.6(II)), each of NSP
and each of the NSP Subsidiaries (as defined below) is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite corporate power
and authority, and has been duly authorized by all necessary approvals and
orders to own, lease and operate its assets and properties to the extent owned,
leased and operated and to carry on its business as it is now being conducted
and is duly qualified and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership or leasing of its assets
and properties makes such qualification necessary. As used in this Agreement,
(a) the term "SUBSIDIARY" of a person shall mean any corporation or other entity
(including partnerships and other business associations) of which at least a
majority of the outstanding capital stock or other voting securities having
voting power under ordinary circumstances to elect directors or similar members
of the governing body of such corporation or entity shall at the time be held,
directly or indirectly, by such person, (b) the term "NSP SUBSIDIARY" shall mean
those of the subsidiaries of NSP identified as NSP Subsidiaries in Section 4.2
of the NSP Disclosure Schedule and (c) the term "DIRECT SUBSIDIARY" shall be
deemed to mean NSP Subsidiaries or WEC Subsidiaries (as defined in SECTION 5.1),
as the case may be.
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Section 4.2 SUBSIDIARIES. Section 4.2 of the NSP Disclosure Schedule sets
forth a description as of the date hereof, of all subsidiaries and joint
ventures of NSP, including (a) the name of each such entity and NSP's interest
therein, and (b) as to each NSP Subsidiary and NSP Joint Venture (as defined
below), a brief description of the principal line or lines of business conducted
by each such entity. Except as set forth in Section 4.2 of the NSP Disclosure
Schedule, none of the NSP Subsidiaries is a "public utility company", a "holding
company", a "subsidiary company" or an "affiliate" of any public utility company
within the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11) of the
Public Utility Holding Company Act of 1935, as amended (the "1935 ACT"),
respectively. Except as set forth in Section 4.2 of the NSP Disclosure Schedule,
all of the issued and outstanding shares of capital stock of each NSP Subsidiary
are validly issued, fully paid, nonassessable (subject to Section 180.0622(2)(b)
of the WBCL, as judicially interpreted, in the case of New NSP and NSP-W (as
defined in SECTION 4.12)) and free of preemptive rights, and are owned, directly
or indirectly, by NSP free and clear of any liens, claims, encumbrances,
security interests, equities, charges and options of any nature whatsoever and
there are no outstanding subscriptions, options, calls, contracts, voting
trusts, proxies or other commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement, obligating any
such NSP Subsidiary to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of its capital stock or obligating it to grant,
extend or enter into any such agreement or commitment. As used in this
Agreement, (a) the term "JOINT VENTURE" of a person shall mean any corporation
or other entity (including partnerships and other business associations) that is
not a subsidiary of such person, in which such person or one or more of its
subsidiaries owns an equity interest, other than equity interests held for
passive investment purposes which are less than 5% of any class of the
outstanding voting securities or equity of any such entity and (b) the term "NSP
JOINT VENTURE" shall mean those of the joint ventures of NSP or any NSP
Subsidiary identified as a NSP Joint Venture in Section 4.2 of the NSP
Disclosure Schedule. With respect to the subsidiaries and joint ventures of NSP
that are not NSP Subsidiaries (the "NSP UNRESTRICTED SUBSIDIARIES"): (i) except
as set forth in Section 4.2 of the NSP Disclosure Schedule, neither NSP nor any
NSP Subsidiary is liable for any obligations or liabilities of any NSP
Unrestricted Subsidiary; (ii) neither NSP nor any NSP Subsidiary is obligated to
make any loans or capital contributions to, or to undertake any guarantees or
other obligations with respect to, NSP Unrestricted Subsidiaries, except for
loans, capital contributions, guarantees and other obligations not in excess of
$75,000,000 in the aggregate to all such NSP Unrestricted Subsidiaries; and
(iii) the aggregate book value as of December 31, 1994, of NSP's investment in
the NSP Unrestricted Subsidiaries was not in excess of $300,000,000.
Section 4.3 CAPITALIZATION. The authorized capital stock of NSP consists
of 160,000,000 shares of Old NSP Common Stock, and 7,000,000 shares of Old NSP
Preferred Stock. As of the close of business on April 20, 1995, there were
issued and outstanding 67,275,241 shares of Old NSP Common Stock and 2,400,000
shares of Old NSP Preferred Stock, consisting of: 275,000 shares of $3.60
series; 150,000 shares of $4.08 series; 175,000 shares of $4.10 series; 200,000
shares of $4.11 series; 100,000 shares of $4.16 series; 150,000 shares of $4.56
series; 200,000 shares of $6.80 series; 200,000 shares of $7.00 series; 300,000
shares of Adjustable Rate Series A; and 650,000 shares of Adjustable Rate Series
B. All of the issued and outstanding shares of the capital stock of NSP are, and
any shares of Old NSP Common Stock issued pursuant to the NSP Stock Option
Agreement will be, validly issued, fully paid, nonassessable and free of
preemptive rights. Except as set forth in Section 4.3 of the NSP Disclosure
Schedule, as of the date hereof, there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating NSP or any of the NSP Subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of the
capital stock of NSP, or obligating NSP to grant, extend or enter into any such
agreement or commitment, other than under the NSP Stock Option Agreement. There
are no outstanding stock appreciation rights of NSP which were not granted in
tandem with a related stock option and no outstanding limited stock appreciation
rights or other rights to redeem for cash options or warrants of NSP.
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Section 4.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. NSP has all requisite power and authority to enter into
this Agreement and the NSP Stock Option Agreement, and, subject to the
applicable NSP Shareholders' Approval (as defined in SECTION 4.13) and the
applicable NSP Required Statutory Approvals (as defined in SECTION 4.4(c)), to
consummate the transactions contemplated hereby or thereby. The execution and
delivery of this Agreement and the NSP Stock Option Agreement and the
consummation by NSP of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of NSP,
subject to obtaining the applicable NSP Shareholders' Approval. Each of this
Agreement and the NSP Stock Option Agreement has been duly and validly executed
and delivered by NSP and, assuming the due authorization, execution and delivery
hereof and thereof by the other signatories hereto and thereto, constitutes the
valid and binding obligation of NSP enforceable against it in accordance with
its terms.
(b) NON-CONTRAVENTION. Except as set forth in Section 4.4(b) of the NSP
Disclosure Schedule, the execution and delivery of this Agreement and the NSP
Stock Option Agreement by NSP do not, and the consummation of the transactions
contemplated hereby or thereby will not, in any material respect, violate,
conflict with, or result in a material breach of any provision of, or constitute
a material default (with or without notice or lapse of time or both) under, or
result in the termination or modification of, or accelerate the performance
required by, or result in a right of termination, cancellation, or acceleration
of any obligation or the loss of a material benefit under, or result in the
creation of any material lien, security interest, charge or encumbrance upon any
of the properties or assets of NSP or any of the NSP Subsidiaries or NSP Joint
Ventures (any such violation, conflict, breach, default, right of termination,
modification, cancellation or acceleration, loss or creation, a "VIOLATION" with
respect to NSP, such term when used in ARTICLE V having a correlative meaning
with respect to WEC) pursuant to any provisions of (i) the articles of
incorporation, by-laws or similar governing documents of NSP or any of the NSP
Subsidiaries or the NSP Joint Ventures, (ii) subject to obtaining the NSP
Required Statutory Approvals and the receipt of the NSP Shareholders' Approval,
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any Governmental Authority (as defined in
SECTION 4.4(c)) applicable to NSP or any of the NSP Subsidiaries or the NSP
Joint Ventures or any of their respective properties or assets or (iii) subject
to obtaining the third-party consents set forth in Section 4.4(b) of the NSP
Disclosure Schedule (the "NSP REQUIRED CONSENTS") any material note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which NSP or any of the NSP Subsidiaries or the NSP Joint Ventures is a party or
by which it or any of its properties or assets may be bound or affected.
(c) STATUTORY APPROVALS. No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any court, federal, state,
local or foreign governmental or regulatory body (including a stock exchange or
other self-regulatory body) or authority (each, a "GOVERNMENTAL AUTHORITY") is
necessary for the execution and delivery of this Agreement or the NSP Stock
Option Agreement by NSP or the consummation by NSP of the transactions
contemplated hereby or thereby, except as described in Section 4.4(c) of the NSP
Disclosure Schedule (the "NSP REQUIRED STATUTORY APPROVALS", it being understood
that references in this Agreement to "obtaining" such NSP Required Statutory
Approvals shall mean making such declarations, filings or registrations; giving
such notices; obtaining such authorizations, consents or approvals; and having
such waiting periods expire as are necessary to avoid a violation of law).
(d) COMPLIANCE. Except as set forth in Section 4.4(d), Section 4.10 or
Section 4.11 of the NSP Disclosure Schedule, or as disclosed in the NSP SEC
Reports (as defined in SECTION 4.5) filed prior to the date hereof, neither NSP
nor any of the NSP Subsidiaries nor, to the knowledge of NSP, any NSP Joint
Venture is in material violation of, is under investigation with respect to any
material violation of, or has been given notice or been charged with any
material violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental law,
ordinance or regulation) of any Governmental Authority. Except as set forth in
Section 4.4(d) of the
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NSP Disclosure Schedule or in Section 4.11 of the NSP Disclosure Schedule, NSP
and the NSP Subsidiaries and NSP Joint Ventures have all permits, licenses,
franchises and other governmental authorizations, consents and approvals
necessary to conduct their businesses as presently conducted in all material
respects. Except as set forth in Section 4.4(d) of the NSP Disclosure Schedule,
NSP and each of the NSP Subsidiaries is not in material breach or violation of
or in material default in the performance or observance of any term or provision
of, and no event has occurred which, with lapse of time or action by a third
party, could result in a material default under, (i) its articles of
incorporation or by-laws or (ii) any material contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which it is a party or by which it is bound or to which any
of its property is subject.
Section 4.5 REPORTS AND FINANCIAL STATEMENTS. The filings required to be
made by NSP and the NSP Subsidiaries since January 1, 1990 under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), the 1935 Act, the Federal Power Act (the
"POWER ACT"), the Atomic Energy Act of 1954, as amended (the "Atomic Energy
Act") and applicable state laws and regulations have been filed with the
Securities and Exchange Commission (the "SEC"), the Federal Energy Regulatory
Commission (the "FERC"), the Nuclear Regulatory Commission ("NRC") or the
appropriate state public utilities commission, as the case may be, including all
forms, statements, reports, agreements (oral or written) and all documents,
exhibits, amendments and supplements appertaining thereto, and complied, as of
their respective dates, in all material respects with all applicable
requirements of the appropriate statute and the rules and regulations
thereunder. NSP has made available to WEC a true and complete copy of each
report, schedule, registration statement and definitive proxy statement filed by
NSP with the SEC since January 1, 1992 (as such documents have since the time of
their filing been amended, the "NSP SEC REPORTS"). As of their respective dates,
the NSP SEC Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim financial statements of NSP included in the NSP SEC Reports
(collectively, the "NSP FINANCIAL STATEMENTS") have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
("GAAP") (except as may be indicated therein or in the notes thereto and except
with respect to unaudited statements as permitted by Form 10-Q of the SEC) and
fairly present the financial position of NSP as of the dates thereof and the
results of its operations and cash flows for the periods then ended, subject, in
the case of the unaudited interim financial statements, to normal, recurring
audit adjustments. True, accurate and complete copies of the Restated Articles
of Incorporation and by-laws of NSP, as in effect on the date hereof, are
included (or incorporated by reference) in the NSP SEC Reports.
Section 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the NSP SEC Reports filed prior to the date hereof or as set forth in Section
4.6 of the NSP Disclosure Schedule, from December 31, 1994, NSP and each of the
NSP Subsidiaries have conducted their business only in the ordinary course of
business consistent with past practice and there has not been, and no fact or
condition exists which would have or, insofar as reasonably can be foreseen,
could have, a material adverse effect on the business, assets, financial
condition, results of operations or prospects of NSP and its subsidiaries taken
as a whole (a "NSP MATERIAL ADVERSE EFFECT").
Section 4.7 LITIGATION. Except as disclosed in the NSP SEC Reports filed
prior to the date hereof or as set forth in Section 4.7, Section 4.9 or Section
4.11 of the NSP Disclosure Schedule, (i) there are no material claims, suits,
actions or proceedings, pending or, to the knowledge of NSP, threatened, nor are
there, to the knowledge of NSP, any material investigations or reviews pending
or threatened against, relating to or affecting NSP or any of the NSP
Subsidiaries, (ii) there have not been any significant developments since
December 31, 1994 with respect to such disclosed claims,
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suits, actions, proceedings, investigations or reviews and (iii) there are no
material judgments, decrees, injunctions, rules or orders of any court,
governmental department, commission, agency, instrumentality or authority or any
arbitrator applicable to NSP or any of the NSP Subsidiaries.
Section 4.8 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of NSP for inclusion or
incorporation by reference in (i) the registration statement on Form S-4 to be
filed with the SEC by WEC in connection with the issuance of shares of Company
Common Stock in the Mergers (the "REGISTRATION STATEMENT") will, at the time the
Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and (ii) the joint proxy
statement, in definitive form, relating to the meetings of NSP and WEC
shareholders to be held in connection with the Mergers (the "PROXY STATEMENT")
will not, at the dates mailed to shareholders and at the times of the meetings
of shareholders to be held in connection with the Mergers, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Registration
Statement and the Proxy Statement will comply as to form in all material
respects with the provisions of the Securities Act and the Exchange Act and the
rules and regulations thereunder.
Section 4.9 TAX MATTERS. "TAXES", as used in this Agreement, means any
federal, state, county, local or foreign taxes, charges, fees, levies, or other
assessments, including all net income, gross income, sales and use, AD VALOREM,
transfer, gains, profits, excise, franchise, real and personal property, gross
receipt, capital stock, production, business and occupation, disability,
employment, payroll, license, estimated, stamp, custom duties, severance or
withholding taxes or charges imposed by any governmental entity, and includes
any interest and penalties (civil or criminal) on or additions to any such
taxes. "Tax Return", as used in this Agreement, means a report, return or other
information required to be supplied to a governmental entity with respect to
Taxes including, where permitted or required, combined or consolidated returns
for any group of entities that includes NSP or any of its subsidiaries, or WEC
or any of its subsidiaries, as the case may be.
Except as set forth in Section 4.9 of the NSP Disclosure Schedule:
(a) FILING OF TIMELY TAX RETURNS. NSP and each of the NSP Subsidiaries
have filed (or there has been filed on its behalf) all material Tax Returns
required to be filed by each of them under applicable law. All such Tax
Returns were and are in all material respects true, complete and correct and
filed on a timely basis.
(b) PAYMENT OF TAXES. NSP and each of the NSP Subsidiaries have,
within the time and in the manner prescribed by law, paid all Taxes that are
currently due and payable except for those contested in good faith and for
which adequate reserves have been taken.
(c) TAX RESERVES. NSP and the NSP Subsidiaries have established on
their books and records reserves adequate to pay all Taxes and reserves for
deferred income taxes in accordance with GAAP.
(d) TAX LIENS. There are no Tax liens upon the assets of NSP or any of
the NSP Subsidiaries except liens for Taxes not yet due.
(e) WITHHOLDING TAXES. NSP and each of the NSP Subsidiaries have
complied in all material respects with the provisions of the Internal
Revenue Code of 1986, as amended (the "CODE") relating to the withholding of
Taxes, as well as similar provisions under any other laws, and have, within
the time and in the manner prescribed by law, withheld from employee wages
and paid over to the proper governmental authorities all amounts required.
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(f) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Neither NSP nor any of
the NSP Subsidiaries has requested any extension of time within which to
file any Tax Return, which Tax Return has not since been filed.
(g) WAIVERS OF STATUTE OF LIMITATIONS. Neither NSP nor any of the NSP
Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) EXPIRATION OF STATUTE OF LIMITATIONS. The statute of limitations
for the assessment of all Taxes has expired for all applicable Tax Returns
of NSP and each of the NSP Subsidiaries or those Tax Returns have been
examined by the appropriate taxing authorities for all periods through the
date hereof, and no deficiency for any Taxes has been proposed, asserted or
assessed against NSP or any of the NSP Subsidiaries that has not been
resolved and paid in full.
(i) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of NSP or any of the NSP Subsidiaries.
(j) POWERS OF ATTORNEY. No power of attorney currently in force has
been granted by NSP or any of the NSP Subsidiaries concerning any Tax
matter.
(k) TAX RULINGS. Neither NSP nor any of the NSP Subsidiaries has
received a Tax Ruling (as defined below) or entered into a Closing Agreement
(as defined below) with any taxing authority that would have a continuing
adverse effect after the Closing Date. "TAX RULING", as used in this
Agreement, shall mean a written ruling of a taxing authority relating to
Taxes. "CLOSING AGREEMENT", as used in this Agreement, shall mean a written
and legally binding agreement with a taxing authority relating to Taxes.
(l) AVAILABILITY OF TAX RETURNS. NSP has made available to WEC
complete and accurate copies of (i) all Tax Returns, and any amendments
thereto, filed by NSP or any of the NSP Subsidiaries, (ii) all audit reports
received from any taxing authority relating to any Tax Return filed by NSP
or any of the NSP Subsidiaries and (iii) any Closing Agreements entered into
by NSP or any of the NSP Subsidiaries with any taxing authority.
(m) TAX SHARING AGREEMENTS. Neither NSP nor any NSP Subsidiary is a
party to any agreement relating to allocating or sharing of Taxes.
(n) CODE SECTION 280G. Neither NSP nor any of the NSP Subsidiaries is
a party to any agreement, contract, or arrangement that could result, on
account of the transactions contemplated hereunder, separately or in the
aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code.
(o) LIABILITY FOR OTHERS. None of NSP or any of the NSP Subsidiaries
has any liability for Taxes of any person other than NSP and the NSP
Subsidiaries (i) under Treasury Regulations Section 1.1502-6 (or any similar
provision of state, local or foreign law) as a transferee or successor, (ii)
by contract, or (iii) otherwise.
Section 4.10 EMPLOYEE MATTERS; ERISA. Except as set forth in Section 4.10
of the NSP Disclosure Schedule:
(a) BENEFIT PLANS. Section 4.10(a) of the NSP Disclosure Schedule
contains a true and complete list of each employee benefit plan covering
employees, former employees or directors of NSP and each of the NSP
Subsidiaries or their beneficiaries, or providing benefits to such persons
in respect of services provided to any such entity, including, but not
limited to, any employee benefit plans within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and any severance or change in control agreement (collectively, the "NSP
BENEFIT PLANS"). For the purposes of this SECTION 4.10 only, the term "NSP"
shall be deemed to include the predecessors of such company.
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(b) CONTRIBUTIONS. All material contributions and other payments
required to be made by NSP or any of the NSP Subsidiaries to any NSP Benefit
Plan (or to any person pursuant to the terms thereof) have been made or the
amount of such payment or contribution obligation has been reflected in the
NSP Financial Statements.
(c) QUALIFICATION; COMPLIANCE. Each of the NSP Benefit Plans intended
to be "qualified" within the meaning of Section 401(a) of the Code has been
determined by the IRS to be so qualified, and, to the best knowledge of NSP,
no circumstances exist that are reasonably expected by NSP to result in the
revocation of any such determination. NSP is in compliance in all material
respects with, and each of the NSP Benefit Plans is and has been operated in
all material respects in compliance with, all applicable laws, rules and
regulations governing such plan, including, without limitation, ERISA and
the Code. Each NSP Benefit Plan intended to provide for the deferral of
income, the reduction of salary or other compensation, or to afford other
income tax benefits, complies with the requirements of the applicable
provisions of the Code or other laws, rules and regulations required to
provide such income tax benefits.
(d) LIABILITIES. With respect to the NSP Benefit Plans, individually
and in the aggregate, no event has occurred, and, to the best knowledge of
NSP, there does not now exist any condition or set of circumstances, that
could subject NSP or any of the NSP Subsidiaries to any material liability
arising under the Code, ERISA or any other applicable law (including,
without limitation, any liability to any such plan or the Pension Benefit
Guaranty Corporation (the "PBGC")), or under any indemnity agreement to
which NSP is a party, excluding liability for benefit claims and funding
obligations payable in the ordinary course.
(e) WELFARE PLANS. None of the NSP Benefit Plans that are "welfare
plans", within the meaning of Section 3(1) of ERISA, provides for any
retiree benefits, other than continuation coverage required to be provided
under Section 4980B of the Code or Part 6 of Title I of ERISA.
(f) DOCUMENTS MADE AVAILABLE. NSP has made available to WEC a true and
correct copy of each collective bargaining agreement to which NSP or any of
the NSP Subsidiaries is a party or under which NSP or any of the NSP
Subsidiaries has obligations and, with respect to each NSP Benefit Plan,
where applicable, (i) such plan and summary plan description, (ii) the most
recent annual report filed with the IRS, (iii) each related trust agreement,
insurance contract, service provider or investment management agreement
(including all amendments to each such document), (iv) the most recent
determination of the IRS with respect to the qualified status of such NSP
Benefit Plan, and (v) the most recent actuarial report or valuation.
(g) PAYMENTS RESULTING FROM MERGERS. (i) The consummation or
announcement of any transaction contemplated by this Agreement will not
(either alone or upon the occurrence of any additional or further acts or
events) result in any (A) payment (whether of severance pay or otherwise)
becoming due from NSP or any of the NSP Subsidiaries to any officer,
employee, former employee or director thereof or to the trustee under any
"rabbi trust" or similar arrangement, or (B) benefit under any NSP Benefit
Plan being established or becoming accelerated, vested or payable and (ii)
neither NSP nor any of the NSP Subsidiaries is a party to (A) any
management, employment, deferred compensation, severance (including any
payment, right or benefit resulting from a change in control), bonus or
other contract for personal services with any officer, director or employee,
(B) any consulting contract with any person who prior to entering into such
contract was a director or officer of NSP, or (C) any plan, agreement,
arrangement or understanding similar to any of the foregoing.
(h) LABOR AGREEMENTS. As of the date hereof, neither NSP nor any of
the NSP Subsidiaries is a party to any collective bargaining agreement or
other labor agreement with any union or labor organization. To the best
knowledge of NSP, as of the date hereof, there is no current union
representation question involving employees of NSP or any of the NSP
Subsidiaries, nor does NSP know of any activity or proceeding of any labor
organization (or representative thereof) or employee group to organize any
such employees. Except as disclosed in the NSP SEC Reports filed
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prior to the date hereof or in Section 4.10(h) of the NSP Disclosure
Schedule, (i) there is no unfair labor practice, employment discrimination
or other material complaint against NSP or any of the NSP Subsidiaries
pending, or to the best knowledge of NSP, threatened, (ii) there is no
strike or lockout or material dispute, slowdown or work stoppage pending, or
to the best knowledge of NSP, threatened, against or involving NSP, and
(iii) there is no proceeding, claim, suit, action or governmental
investigation pending or, to the best knowledge of NSP, threatened, in
respect of which any director, officer, employee or agent of NSP or any of
the NSP Subsidiaries is or may be entitled to claim indemnification from NSP
or such NSP Subsidiary pursuant to their respective articles of
incorporation or by-laws or as provided in the indemnification agreements
listed in Section 4.10(h) of the NSP Disclosure Schedule.
Section 4.11 ENVIRONMENTAL PROTECTION. Except as set forth in Section 4.11
of the NSP Disclosure Schedule or in the NSP SEC Reports filed prior to the date
hereof:
(a) COMPLIANCE. NSP and each of the NSP Subsidiaries is in material
compliance with all applicable Environmental Laws (as defined in SECTION
4.11(g)(ii)); and neither NSP nor any of the NSP Subsidiaries has received
any communication (written or oral), from any person or Governmental
Authority that alleges that NSP or any of the NSP Subsidiaries is not in
such compliance with applicable Environmental Laws.
(b) ENVIRONMENTAL PERMITS. NSP and each of the NSP Subsidiaries has
obtained or has applied for all material environmental, health and safety
permits and governmental authorizations (collectively, the "ENVIRONMENTAL
PERMITS") necessary for the construction of their facilities or the conduct
of their operations, and all such Environmental Permits are in good standing
or, where applicable, a renewal application has been timely filed and is
pending agency approval, and NSP and the NSP Subsidiaries are in material
compliance with all terms and conditions of the Environmental Permits.
(c) ENVIRONMENTAL CLAIMS. To the best knowledge of NSP, there is no
material Environmental Claim (as defined in SECTION 4.11(g)(i)) pending (i)
against NSP or any of the NSP Subsidiaries or NSP Joint Ventures, (ii)
against any person or entity whose liability for any Environmental Claim NSP
or any of the NSP Subsidiaries has or may have retained or assumed either
contractually or by operation of law, or (iii) against any real or personal
property or operations which NSP or any of the NSP Subsidiaries owns, leases
or manages, in whole or in part.
(d) RELEASES. NSP has no knowledge of any material Releases (as
defined in SECTION 4.11(g)(iv)) of any Hazardous Material (as defined in
SECTION 4.11(g)(iii)) that would be reasonably likely to form the basis of
any material Environmental Claim against NSP or any of the NSP Subsidiaries,
or against any person or entity whose liability for any material
Environmental Claim NSP or any of the NSP Subsidiaries has or may have
retained or assumed either contractually or by operation of law.
(e) PREDECESSORS. NSP has no knowledge, with respect to any
predecessor of NSP or any of the NSP Subsidiaries, of any material
Environmental Claim pending or threatened, or of any Release of Hazardous
Materials that would be reasonably likely to form the basis of any material
Environmental Claim.
(f) DISCLOSURE. To NSP's best knowledge, NSP has disclosed to WEC all
material facts which NSP reasonably believes form the basis of a material
Environmental Claim arising from (i) the cost of NSP pollution control
equipment currently required or known to be required in the future; (ii)
current NSP remediation costs or NSP remediation costs known to be required
in the future; or (iii) any other environmental matter affecting NSP.
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(g) As used in this Agreement:
(i) "ENVIRONMENTAL CLAIM" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices of
noncompliance or violation (written or oral) by any person or entity
(including any Governmental Authority) alleging potential liability
(including, without limitation, potential responsibility for or liability
for enforcement, investigatory costs, cleanup costs, governmental
response costs, removal costs, remedial costs, natural-resources damages,
property damages, personal injuries or penalties) arising out of, based
on or resulting from (A) the presence, or Release or threatened Release
into the environment, of any Hazardous Materials at any location, whether
or not owned, operated, leased or managed by NSP or any of the NSP
Subsidiaries or NSP Joint Ventures (for purposes of this SECTION 4.11),
or by WEC or any of the WEC Subsidiaries or WEC Joint Ventures (for
purposes of SECTION 5.11); or (B) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law; or (C) any and
all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief
resulting from the presence or Release of any Hazardous Materials.
(ii) "ENVIRONMENTAL LAWS" means all federal, state, local laws, rules
and regulations relating to pollution, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or protection of human health as it relates to the
environment including, without limitation, laws and regulations relating
to Releases or threatened Releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials.
(iii) "HAZARDOUS MATERIALS" means (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, and transformers or
other equipment that contain dielectric fluid containing polychlorinated
biphenyls ("PCBS"); and (b) any chemicals, materials or substances which
are now defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely
hazardous wastes", "restricted hazardous wastes", "toxic substances",
"toxic pollutants", or words of similar import, under any Environmental
Law; and (c) any other chemical, material, substance or waste, exposure
to which is now prohibited, limited or regulated under any Environmental
Law in a jurisdiction in which NSP or any of the NSP Subsidiaries or NSP
Joint Ventures operates (for purposes of this SECTION 4.11) or in which
WEC or any of the WEC Subsidiaries or WEC Joint Ventures operates (for
purposes of SECTION 5.11).
(iv) "RELEASE" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, groundwater or property.
Section 4.12 REGULATION AS A UTILITY. NSP is regulated as a public utility
in the States of Minnesota, North Dakota and South Dakota and in no other state.
Northern States Power Company, a Wisconsin corporation ("NSP-W"), is regulated
as a public utility in the States of Wisconsin and Michigan and in no other
state. Except as set forth in Section 4.12 of the NSP Disclosure Schedule,
neither NSP nor any "subsidiary company" or "affiliate" of NSP is subject to
regulation as a public utility or public service company (or similar
designation) by any other state in the United States or any foreign country. NSP
is an exempt holding company under Section 3(a)(2) of the 1935 Act.
Section 4.13 VOTE REQUIRED. The approval of the Mergers by a majority of
the votes entitled to be cast by all holders of Old NSP Common Stock and Old NSP
Preferred Stock voting together as a single class (the "NSP SHAREHOLDERS'
APPROVAL") is the only vote of the holders of any class or series of the capital
stock of NSP or any of its subsidiaries required to approve this Agreement, the
Mergers and the other transactions contemplated hereby, PROVIDED that the
approval of shareholders of NSP
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may be required for the repurchase of shares of Old NSP Common Stock pursuant to
Section 7(a) of the NSP Stock Option Agreement under circumstances where
Subdivision 3 of Section 302A.553 of the MBCA would be applicable.
Section 4.14 ACCOUNTING MATTERS. Neither NSP nor, to NSP's best knowledge,
any of its affiliates has taken or agreed to take any action that would prevent
the Company from accounting for the transactions to be effected pursuant to this
Agreement as a pooling of interests in accordance with GAAP and applicable SEC
regulations. As used in this Agreement (except as specifically otherwise
defined), the term "AFFILIATE", except where otherwise defined herein, shall
mean, as to any person, any other person which directly or indirectly controls,
or is under common control with, or is controlled by, such person. As used in
this definition, "CONTROL" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise).
Section 4.15 APPLICABILITY OF CERTAIN MINNESOTA LAW. Assuming the
representation and warranty of WEC made in SECTION 5.18 is correct, none of the
control share acquisition provisions of Section 302A.671 of the MBCA, the
business combination provisions of Sections 302A.673 and 675 of the MBCA or any
similar provisions of the MBCA (or, to the best knowledge of NSP, any other
similar state statute) or the Restated Articles of Incorporation or by-laws of
NSP, are applicable to the transactions contemplated by this Agreement,
including the granting or exercise of the NSP Stock Option Agreement.
Section 4.16 OPINION OF FINANCIAL ADVISOR. NSP has received the opinion of
Goldman, Sachs & Co., dated April 28, 1995, to the effect that, as of the date
thereof, the Ratio is fair to the holders of Old NSP Common Stock.
Section 4.17 INSURANCE. Except as set forth in Section 4.17 of the NSP
Disclosure Schedule, NSP and each of the NSP Subsidiaries is, and has been
continuously since January 1, 1990, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary in
all material respects for companies conducting the business as conducted by NSP
and the NSP Subsidiaries during such time period. Except as set forth in Section
4.17 of the NSP Disclosure Schedule, neither NSP nor any of the NSP Subsidiaries
has received any notice of cancellation or termination with respect to any
material insurance policy of NSP or any of the NSP Subsidiaries. The insurance
policies of NSP and each of the NSP Subsidiaries are valid and enforceable
policies in all material respects.
Section 4.18 OWNERSHIP OF WEC COMMON STOCK. Except pursuant to the terms
of the WEC Stock Option Agreement, NSP does not "beneficially own" (as such term
is defined for purposes of Section 13(d) of the Exchange Act) any shares of WEC
Common Stock.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF WEC
WEC represents and warrants to NSP as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION. Except as set forth in Section
5.1 of the WEC Disclosure Schedule (as defined in SECTION 7.6(I)), each of WEC
and each of the WEC Subsidiaries (as defined below) is a corporation duly
organized, validly existing and in active status under the laws of its
jurisdiction of incorporation or organization, has all requisite corporate power
and authority, and has been duly authorized by all necessary approvals and
orders to own, lease and operate its assets and properties to the extent owned,
leased and operated and to carry on its business as it is now being conducted
and is duly qualified and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership or leasing of its assets
and properties makes such qualification necessary. As used in this Agreement,
the term: (a) "WEC SUBSIDIARY" shall mean those of the
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subsidiaries of WEC identified as WEC Subsidiaries in Section 5.2 of the WEC
Disclosure Schedule; and (b) "WEC JOINT VENTURE" shall mean those of the joint
ventures of WEC or any WEC Subsidiary identified as a WEC Joint Venture in
Section 5.2 of the WEC Disclosure Schedule.
Section 5.2 SUBSIDIARIES. Section 5.2 of the WEC Disclosure Schedule sets
forth a description as of the date hereof of all subsidiaries and joint ventures
of WEC, including (a) the name of each such entity and WEC's interest therein,
and (b) as to each WEC Subsidiary and WEC Joint Venture, a brief description of
the principal line or lines of business conducted by each such entity. Except as
set forth in Section 5.2 of the WEC Disclosure Schedule, none of the WEC
Subsidiaries is a "public utility company", a "holding company", a "subsidiary
company" or an "affiliate" of any public utility company within the meaning of
Section 2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11) of the 1935 Act, respectively.
Except as set forth in Section 5.2 of the WEC Disclosure Schedule, all of the
issued and outstanding shares of capital stock of each WEC Subsidiary are
validly issued, fully paid, nonassessable (subject to Section 180.0622(2)(b) of
the WBCL, as judicially interpreted) and free of preemptive rights, and are
owned directly or indirectly by WEC free and clear of any liens, claims,
encumbrances, security interests, equities, charges and options of any nature
whatsoever and there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating any such WEC Subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of its capital stock or
obligating it to grant, extend or enter into any such agreement or commitment.
With respect to the subsidiaries and joint ventures of WEC that are not WEC
Subsidiaries (the "WEC UNRESTRICTED SUBSIDIARIES"): (i) except as set forth in
Section 5.2 of the WEC Disclosure Schedule, neither WEC nor any WEC Subsidiary
is liable for any obligations or liabilities of any WEC Unrestricted Subsidiary;
(ii) neither WEC nor any WEC Subsidiary is obligated to make any loans or
capital contributions to, or to undertake any guarantees or other obligations
with respect to, WEC Unrestricted Subsidiaries, except for loans, capital
contributions, guarantees and other obligations not in excess of $35 million in
the aggregate to all such WEC Unrestricted Subsidiaries; and (iii) the aggregate
book value as of December 31, 1994, of WEC's investment in the WEC Unrestricted
Subsidiaries was not in excess of $120 million.
Section 5.3 CAPITALIZATION. The authorized capital stock of WEC consists
of 325,000,000 shares of WEC Common Stock, and 15,000,000 shares of Preferred
Stock, par value $.01 per share (the "WEC PREFERRED STOCK"). As of the close of
business on April 20, 1995, there were issued and outstanding 109,415,713 shares
of WEC Common Stock and no shares of WEC Preferred Stock. All of the issued and
outstanding shares of the capital stock of WEC are, and any WEC Common Stock
issued pursuant to the WEC Stock Option Agreement will be, validly issued, fully
paid, nonassessable (subject to Section 180.0622(2)(b) of the WBCL, as
judicially interpreted) and free of preemptive rights. The authorized capital
stock of Wisconsin Electric Power Company, a Wisconsin corporation ("WEPCO"),
consists of 65,000,000 shares of Common Stock, par value $10.00 per share (the
"WEPCO COMMON STOCK"), 45,000 shares of 6% Preferred Stock, par value $100.00
per share (the "WEPCO 6% PREFERRED STOCK"); 2,286,500 shares of Serial Preferred
Stock, par value $100.00 per share (the "WEPCO $100 PAR VALUE SERIAL PREFERRED
STOCK") and 5,000,000 shares of Serial Preferred Stock, par value $25.00 per
share (the "WEPCO $25 PAR VALUE SERIAL PREFERRED STOCK" and, together with the
WEPCO 6% Preferred Stock and the WEPCO $100 Par Value Serial Preferred Stock,
the "WEPCO PREFERRED STOCK"). As of the close of business on April 20, 1995,
there were issued and outstanding 33,289,327 shares of WEPCO Common Stock,
44,508 shares of the WEPCO 6% Preferred Stock, 260,000 shares of the WEPCO $100
Par Value Serial Preferred Stock, 3.60% Series, and no shares of the WEPCO $25
Par Value Serial Preferred Stock. Except as set forth in Section 5.3 of the WEC
Disclosure Schedule, as of the date hereof, there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating WEC or any of the WEC Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of the capital stock of WEC, or obligating
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WEC to grant, extend or enter into any such agreement or commitment, other than
under the WEC Stock Option Agreement. There are no outstanding stock
appreciation rights of WEC which were not granted in tandem with a related stock
option and no outstanding limited stock appreciation rights or other rights to
redeem for cash options or warrants of WEC.
Section 5.4 AUTHORITY; NON-CONTRAVENTION; STATUTORY APPROVALS; COMPLIANCE.
(a) AUTHORITY. WEC has all requisite power and authority to enter into
this Agreement and the WEC Stock Option Agreement, and, subject to the
applicable WEC Shareholders' Approval (as defined in SECTION 5.13) and the
applicable WEC Required Statutory Approvals (as defined in SECTION 5.4(c)), to
consummate the transactions contemplated hereby or thereby. The execution and
delivery of this Agreement and the WEC Stock Option Agreement and the
consummation by WEC of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of WEC,
subject to obtaining the applicable WEC Shareholders' Approval. Each of this
Agreement and the WEC Stock Option Agreement has been duly and validly executed
and delivered by WEC and, assuming the due authorization, execution and delivery
hereof and thereof by the other signatories hereto and thereto, constitutes the
valid and binding obligation of WEC enforceable against it in accordance with
its terms.
(b) NON-CONTRAVENTION. Except as set forth in Section 5.4(b) of the WEC
Disclosure Schedule, the execution and delivery of this Agreement and the WEC
Stock Option Agreement by WEC do not, and the consummation of the transactions
contemplated hereby or thereby will not, result in a material Violation pursuant
to any provisions of (i) the articles of incorporation, by-laws or similar
governing documents of WEC or any of the WEC Subsidiaries or the WEC Joint
Ventures, (ii) subject to obtaining the WEC Required Statutory Approvals and the
receipt of the WEC Shareholders' Approval, any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
Governmental Authority applicable to WEC or any of the WEC Subsidiaries or the
WEC Joint Ventures or any of their respective properties or assets or (iii)
subject to obtaining the third-party consents set forth in Section 5.4(b) of the
WEC Disclosure Schedule (the "WEC REQUIRED CONSENTS") any material note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which WEC or any of the WEC Subsidiaries or the WEC Joint Ventures is a party or
by which it or any of its properties or assets may be bound or affected.
(c) STATUTORY APPROVALS. No declaration, filing or registration with, or
notice to or authorization, consent or approval of, any Governmental Authority
is necessary for the execution and delivery of this Agreement or the WEC Stock
Option Agreement by WEC or the consummation by WEC of the transactions
contemplated hereby or thereby, except as described in Section 5.4(c) of the WEC
Disclosure Schedule (the "WEC REQUIRED STATUTORY APPROVALS", it being understood
that references in this Agreement to "obtaining" such WEC Required Statutory
Approvals shall mean making such declarations, filings or registrations; giving
such notices; obtaining such authorizations, consents or approvals; and having
such waiting periods expire as are necessary to avoid a violation of law).
(d) COMPLIANCE. Except as set forth in Section 5.4(d), Section 5.10 or
Section 5.11 of the WEC Disclosure Schedule, or as disclosed in the WEC SEC
Reports (as defined in SECTION 5.5) filed prior to the date hereof, neither WEC
nor any of the WEC Subsidiaries nor, to the knowledge of WEC, any WEC Joint
Venture, is in material violation of, is under investigation with respect to any
material violation of, or has been given notice or been charged with any
material violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental law,
ordinance or regulation) of any Governmental Authority. Except as set forth in
Section 5.4(d) of the WEC Disclosure Schedule or in Section 5.11 of the WEC
Disclosure Schedule, WEC and the WEC Subsidiaries and WEC Joint Ventures have
all permits, licenses, franchises and other governmental authorizations,
consents and approvals necessary to conduct their businesses as presently
conducted in all material respects. Except as set forth in Section 5.4(d) of the
WEC Disclosure Schedule, WEC and each of the WEC Subsidiaries is not in material
breach or violation of or in
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material default in the performance or observance of any term or provision of,
and no event has occurred which, with lapse of time or action by a third party,
could result in a material default under, (i) its articles of incorporation or
by-laws or (ii) any material contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which it is a party or by which it is bound or to which any of its
property is subject.
Section 5.5 REPORTS AND FINANCIAL STATEMENTS. The filings required to be
made by WEC and the WEC Subsidiaries since January 1, 1990 under the Securities
Act, the Exchange Act, the 1935 Act, the Power Act, the Atomic Energy Act and
applicable state laws and regulations have been filed with the SEC, the FERC,
the NRC or the appropriate state public utilities commission, as the case may
be, including all forms, statements, reports, agreements (oral or written) and
all documents, exhibits, amendments and supplements appertaining thereto, and
complied, as of their respective dates, in all material respects with all
applicable requirements of the appropriate statute and the rules and regulations
thereunder. WEC has made available to NSP a true and complete copy of each
report, schedule, registration statement and definitive proxy statement filed by
WEC with the SEC since January 1, 1992 (as such documents have since the time of
their filing been amended, the "WEC SEC REPORTS"). As of their respective dates,
the WEC SEC Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim financial statements of WEC included in the WEC SEC Reports
(collectively, the "WEC FINANCIAL STATEMENTS") have been prepared in accordance
with GAAP (except as may be indicated therein or in the notes thereto and except
with respect to unaudited statements as permitted by Form 10-Q of the SEC) and
fairly present the financial position of WEC as of the dates thereof and the
results of its operations and cash flows for the periods then ended, subject, in
the case of the unaudited interim financial statements, to normal, recurring
audit adjustments. True, accurate and complete copies of the Restated Articles
of Incorporation and by-laws of WEC, as in effect on the date hereof, are
included (or incorporated by reference) in the WEC SEC Reports.
Section 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the WEC SEC Reports filed prior to the date hereof or as set forth in Section
5.6 of the WEC Disclosure Schedule, from December 31, 1994, WEC and each of the
WEC Subsidiaries have conducted their business only in the ordinary course of
business consistent with past practice and there has not been, and no fact or
condition exists which would have or, insofar as reasonably can be foreseen,
could have, a material adverse effect on the business, assets, financial
condition, results of operations or prospects of WEC and its subsidiaries taken
as a whole (a "WEC MATERIAL ADVERSE EFFECT").
Section 5.7 LITIGATION. Except as disclosed in the WEC SEC Reports filed
prior to the date hereof or as set forth in Section 5.7, Section 5.9 or Section
5.11 of the WEC Disclosure Schedule, (i) there are no material claims, suits,
actions or proceedings, pending or, to the knowledge of WEC, threatened, nor are
there, to the knowledge of WEC, any material investigations or reviews pending
or threatened against, relating to or affecting WEC or any of the WEC
Subsidiaries, (ii) there have not been any significant developments since
December 31, 1994 with respect to such disclosed claims, suits, actions,
proceedings, investigations or reviews and (iii) there are no material
judgments, decrees, injunctions, rules or orders of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
applicable to WEC or any of the WEC Subsidiaries.
Section 5.8 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of WEC for inclusion or
incorporation by reference in (i) the Registration Statement will, at the time
the Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and (ii) the Proxy
Statement will not, at the dates mailed to shareholders and at the times of the
meetings of shareholders to be held in connection with the Mergers, contain any
untrue statement of a
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material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Registration
Statement and the Proxy Statement will comply as to form in all material
respects with the provisions of the Securities Act and the Exchange Act and the
rules and regulations thereunder.
Section 5.9 TAX MATTERS. Except as set forth in Section 5.9 of the WEC
Disclosure Schedule:
(a) FILING OF TIMELY TAX RETURNS. WEC and each of the WEC Subsidiaries
have filed (or there has been filed on its behalf) all material Tax Returns
required to be filed by each of them under applicable law. All such Tax
Returns were and are in all material respects true, complete and correct and
filed on a timely basis.
(b) PAYMENT OF TAXES. WEC and each of the WEC Subsidiaries have,
within the time and in the manner prescribed by law, paid all Taxes that are
currently due and payable except for those contested in good faith and for
which adequate reserves have been taken.
(c) TAX RESERVES. WEC and the WEC Subsidiaries have established on
their books and records reserves adequate to pay all Taxes and reserves for
deferred income taxes in accordance with GAAP.
(d) TAX LIENS. There are no Tax liens upon the assets of WEC or any of
the WEC Subsidiaries except liens for Taxes not yet due.
(e) WITHHOLDING TAXES. WEC and each of the WEC Subsidiaries have
complied in all material respects with the provisions of the Code relating
to the withholding of Taxes, as well as similar provisions under any other
laws, and have, within the time and in the manner prescribed by law,
withheld from employee wages and paid over to the proper governmental
authorities all amounts required.
(f) EXTENSIONS OF TIME FOR FILING TAX RETURNS. Neither WEC nor any of
the WEC Subsidiaries has requested any extension of time within which to
file any Tax Return, which Tax Return has not since been filed.
(g) WAIVERS OF STATUTE OF LIMITATIONS. Neither WEC nor any of the WEC
Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(h) EXPIRATION OF STATUTE OF LIMITATIONS. The statute of limitations
for the assessment of all Taxes has expired for all applicable Tax Returns
of WEC and each of the WEC Subsidiaries or those Tax Returns have been
examined by the appropriate taxing authorities for all periods through the
date hereof, and no deficiency for any Taxes has been proposed, asserted or
assessed against WEC or any of the WEC Subsidiaries that has not been
resolved and paid in full.
(i) AUDIT, ADMINISTRATIVE AND COURT PROCEEDINGS. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of WEC or any of the WEC Subsidiaries.
(j) POWERS OF ATTORNEY. No power of attorney currently in force has
been granted by WEC or any of the WEC Subsidiaries concerning any Tax
matter.
(k) TAX RULINGS. Neither WEC nor any of the WEC Subsidiaries has
received a Tax Ruling or entered into a Closing Agreement with any taxing
authority that would have a continuing adverse effect after the Closing
Date.
(l) AVAILABILITY OF TAX RETURNS. WEC has made available to NSP
complete and accurate copies of (i) all Tax Returns, and any amendments
thereto, filed by WEC or any of the WEC
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Subsidiaries, (ii) all audit reports received from any taxing authority
relating to any Tax Return filed by WEC or any of the WEC Subsidiaries and
(iii) any Closing Agreements entered into by WEC or any of the WEC
Subsidiaries with any taxing authority.
(m) TAX SHARING AGREEMENTS. Neither WEC nor any WEC Subsidiary is a
party to any agreement relating to allocating or sharing of Taxes.
(n) CODE SECTION 280G. Neither WEC nor any of the WEC Subsidiaries is
a party to any agreement, contract, or arrangement that could result, on
account of the transactions contemplated hereunder, separately or in the
aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code.
(o) LIABILITY FOR OTHERS. None of WEC or any of the WEC Subsidiaries
has any liability for Taxes of any person other than WEC and the WEC
Subsidiaries (i) under Treasury Regulations Section 1.1502-6 (or any similar
provision of state, local or foreign law) as a transferee or successor, (ii)
by contract, or (iii) otherwise.
Section 5.10 EMPLOYEE MATTERS; ERISA. Except as set forth in Section 5.10
of the WEC Disclosure Schedule:
(a) BENEFIT PLANS. Section 5.10(a) of the WEC Disclosure Schedule
contains a true and complete list of each employee benefit plan covering
employees, former employees or directors of WEC and each of the WEC
Subsidiaries or their beneficiaries, or providing benefits to such persons
in respect of services provided to any such entity, including, but not
limited to, any employee benefit plans within the meaning of Section 3(3) of
ERISA and any severance or change in control agreement (collectively, the
"WEC BENEFIT PLANS"). For the purposes of this Section 5.10 only, the term
"WEC" shall be deemed to include the predecessors of such company.
(b) CONTRIBUTIONS. All material contributions and other payments
required to be made by WEC or any of the WEC Subsidiaries to any WEC Benefit
Plan (or to any person pursuant to the terms thereof) have been made or the
amount of such payment or contribution obligation has been reflected in the
WEC Financial Statements.
(c) QUALIFICATION; COMPLIANCE. Each of the WEC Benefit Plans intended
to be "qualified" within the meaning of Section 401(a) of the Code has been
determined by the IRS to be so qualified, and, to the best knowledge of WEC,
no circumstances exist that are reasonably expected by WEC to result in the
revocation of any such determination. WEC is in compliance in all material
respects with, and each of the WEC Benefit Plans is and has been operated in
all material respects in compliance with, all applicable laws, rules and
regulations governing such plan, including, without limitation, ERISA and
the Code. Each WEC Benefit Plan intended to provide for the deferral of
income, the reduction of salary or other compensation, or to afford other
income tax benefits, complies with the requirements of the applicable
provisions of the Code or other laws, rules and regulations required to
provide such income tax benefits.
(d) LIABILITIES. With respect to the WEC Benefit Plans, individually
and in the aggregate, no event has occurred, and, to the best knowledge of
WEC, there does not now exist any condition or set of circumstances, that
could subject WEC or any of the WEC Subsidiaries to any material liability
arising under the Code, ERISA or any other applicable law (including,
without limitation, any liability to any such plan or the PBGC), or under
any indemnity agreement to which WEC is a party, excluding liability for
benefit claims and funding obligations payable in the ordinary course.
(e) WELFARE PLANS. None of the WEC Benefit Plans that are "welfare
plans", within the meaning of Section 3(1) of ERISA, provides for any
retiree benefits, other than continuation coverage required to be provided
under Section 4980B of the Code or Part 6 of Title I of ERISA.
(f) DOCUMENTS MADE AVAILABLE. WEC has made available to NSP a true and
correct copy of each collective bargaining agreement to which WEC or any of
the WEC Subsidiaries is a party or
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under which WEC or any of the WEC Subsidiaries has obligations and, with
respect to each WEC Benefit Plan, where applicable, (i) such plan and
summary plan description, (ii) the most recent annual report filed with the
IRS, (iii) each related trust agreement, insurance contract, service
provider or investment management agreement (including all amendments to
each such document), (iv) the most recent determination of the IRS with
respect to the qualified status of such WEC Benefit Plan, and (v) the most
recent actuarial report or valuation.
(g) PAYMENTS RESULTING FROM MERGERS. (i) The consummation or
announcement of any transaction contemplated by this Agreement will not
(either alone or upon the occurrence of any additional or further acts or
events) result in any (A) payment (whether of severance pay or otherwise)
becoming due from WEC or any of the WEC Subsidiaries to any officer,
employee, former employee or director thereof or to the trustee under any
"rabbi trust" or similar arrangement, or (B) benefit under any WEC Benefit
Plan being established or becoming accelerated, vested or payable and (ii)
neither WEC nor any of the WEC Subsidiaries is a party to (A) any
management, employment, deferred compensation, severance (including any
payment, right or benefit resulting from a change in control), bonus or
other contract for personal services with any officer, director or employee,
(B) any consulting contract with any person who prior to entering into such
contract was a director or officer of WEC, or (C) any plan, agreement,
arrangement or understanding similar to any of the foregoing.
(h) LABOR AGREEMENTS. As of the date hereof, neither WEC nor any of
the WEC Subsidiaries is a party to any collective bargaining agreement or
other labor agreement with any union or labor organization. To the best
knowledge of WEC, as of the date hereof, there is no current union
representation question involving employees of WEC or any of the WEC
Subsidiaries, nor does WEC know of any activity or proceeding of any labor
organization (or representative thereof) or employee group to organize any
such employees. Except as disclosed in the WEC SEC Reports filed prior to
the date hereof or in Section 5.10(h) of the WEC Disclosure Schedule, (i)
there is no unfair labor practice, employment discrimination or other
material complaint against WEC or any of the WEC Subsidiaries pending, or to
the best knowledge of WEC, threatened, (ii) there is no strike, or lockout
or material dispute, slowdown or work stoppage pending, or to the best
knowledge of WEC, threatened, against or involving WEC, and (iii) there is
no proceeding, claim, suit, action or governmental investigation pending or,
to the best knowledge of WEC, threatened, in respect of which any director,
officer, employee or agent of WEC or any of the WEC Subsidiaries is or may
be entitled to claim indemnification from WEC or such WEC Subsidiary
pursuant to their respective articles of incorporation or by-laws or as
provided in the indemnification agreements listed in Section 5.10(h) of the
WEC Disclosure Schedule.
Section 5.11 ENVIRONMENTAL PROTECTION. Except as set forth in Section 5.11
of the WEC Disclosure Schedule or in the WEC SEC Reports filed prior to the date
hereof:
(a) COMPLIANCE. WEC and each of the WEC Subsidiaries is in material
compliance with all applicable Environmental Laws; and neither WEC nor any
of the WEC Subsidiaries has received any communication (written or oral),
from any person or Governmental Authority that alleges that WEC or any of
the WEC Subsidiaries is not in such compliance with applicable Environmental
Laws.
(b) ENVIRONMENTAL PERMITS. WEC and each of the WEC Subsidiaries has
obtained or has applied for all the Environmental Permits necessary for the
construction of their facilities or the conduct of their operations, and all
such Environmental Permits are in good standing or, where applicable, a
renewal application has been timely filed and is pending agency approval,
and WEC and the WEC Subsidiaries are in material compliance with all terms
and conditions of the Environmental Permits.
(c) ENVIRONMENTAL CLAIMS. To the best knowledge of WEC, there is no
material Environmental Claim pending (i) against WEC or any of the WEC
Subsidiaries or WEC Joint Ventures, (ii) against any person or entity whose
liability for any Environmental Claim WEC or any of the
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WEC Subsidiaries has or may have retained or assumed either contractually or
by operation of law, or (iii) against any real or personal property or
operations which WEC or any of the WEC Subsidiaries owns, leases or manages,
in whole or in part.
(d) RELEASES. WEC has no knowledge of any material Releases of any
Hazardous Material that would be reasonably likely to form the basis of any
material Environmental Claim against WEC or any of the WEC Subsidiaries, or
against any person or entity whose liability for any material Environmental
Claim WEC or any of the WEC Subsidiaries has or may have retained or assumed
either contractually or by operation of law.
(e) PREDECESSORS. WEC has no knowledge, with respect to any
predecessor of WEC or any of the WEC Subsidiaries, of any material
Environmental Claim pending or threatened, or of any Release of Hazardous
Materials that would be reasonably likely to form the basis of any material
Environmental Claim.
(f) DISCLOSURE. To WEC's best knowledge, WEC has disclosed to NSP all
material facts which WEC reasonably believes form the basis of a material
Environmental Claim arising from (i) the cost of WEC pollution control
equipment currently required or known to be required in the future; (ii)
current WEC remediation costs or WEC remediation costs known to be required
in the future; or (iii) any other environmental matter affecting WEC.
Section 5.12 REGULATION AS A UTILITY. WEC is regulated as a public utility
holding company under Section 196.795 of the Wisconsin Statutes. WEPCO is
regulated as a public utility in the States of Wisconsin and Michigan and in no
other state. Wisconsin Natural Gas Company, a Wisconsin corporation ("WN"), is
regulated as a public utility in the State of Wisconsin and in no other state.
Neither WEC nor any "subsidiary company" or "affiliate" of WEC is subject to
regulation as a public utility or public service company (or similar
designation) by any other state in the United States or any foreign country. WEC
is an exempt holding company under Section 3(a)(1) of the 1935 Act.
Section 5.13 VOTE REQUIRED. The approval of the issuance of Company Common
Stock in connection with the NSP Merger by a majority of the votes entitled to
be cast by the holders of the shares of WEC Common Stock represented at the
meeting and entitled to vote thereon (in which the total vote cast represents
over 50% of all shares entitled to vote thereon) and approval of the WEC Article
Amendments (as defined in SECTION 7.20) by the votes required in the WEC
Restated Articles of Incorporation (collectively, the "WEC SHAREHOLDERS'
APPROVAL") are the only votes of the holders of any class or series of the
capital stock of WEC or any of its subsidiaries required to approve this
Agreement, the Mergers and the other transactions contemplated hereby, PROVIDED
that the approval of shareholders of WEC may be required for the repurchase of
shares of WEC Common Stock pursuant to Section 7(a) of the WEC Stock Option
Agreement under circumstances where Section 180.1134(1) of the WBCL or Article
III.D.(1) of WEC's Restated Articles of Incorporation would be applicable.
Section 5.14 ACCOUNTING MATTERS. Neither WEC nor, to WEC's best knowledge,
any of its affiliates has taken or agreed to take any action that would prevent
the Company from accounting for the transactions to be effected pursuant to this
Agreement as a pooling of interests in accordance with GAAP and applicable SEC
regulations.
Section 5.15 APPLICABILITY OF CERTAIN WISCONSIN LAW. Assuming that the
representation and warranty of NSP made in SECTION 4.18 is correct, none of the
control share acquisition provisions of Section 180.1150 of the WBCL, the
business combination provisions of Sections 180.1140 to 180.1144 of the WBCL,
the "fair price" provisions of Sections 180.1130 to 180.1134 of the WBCL or any
similar provisions of the WBCL (or, to the best knowledge of WEC, any other
similar state statute) or the Restated Articles of Incorporation or by-laws of
WEC, are applicable to the transactions contemplated by this Agreement,
including the granting or exercise of the WEC Stock Option Agreement (except as
set forth in Section 5.15 of the WEC Disclosure Schedule).
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Section 5.16 OPINION OF FINANCIAL ADVISOR. WEC has received the opinion of
Barr Devlin & Co. Incorporated, dated April 28, 1995, to the effect that, as of
the date thereof, the Ratio is fair from a financial point of view to the
holders of WEC Common Stock.
Section 5.17 INSURANCE. Except as set forth in Section 5.17 of the WEC
Disclosure Schedule, WEC and each of the WEC Subsidiaries is, and has been
continuously since January 1, 1990, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary in
all material respects for companies conducting the business as conducted by WEC
and the WEC Subsidiaries during such time period. Except as set forth in Section
5.17 of the WEC Disclosure Schedule, neither WEC nor any of the WEC Subsidiaries
has received any notice of cancellation or termination with respect to any
material insurance policy of WEC or any of the WEC Subsidiaries. The insurance
policies of WEC and each of the WEC Subsidiaries are valid and enforceable
policies in all material respects.
Section 5.18 OWNERSHIP OF OLD NSP COMMON STOCK. Except pursuant to the
terms of the NSP Stock Option Agreement, WEC does not "beneficially own" (as
such term is defined for purposes of Section 13(d) of the Exchange Act) any
shares of Old NSP Common Stock or Old NSP Preferred Stock.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGERS
Section 6.1 COVENANTS OF THE PARTIES. After the date hereof and prior to
the Effective Time or earlier termination of this Agreement, NSP and WEC each
agree as follows, each as to itself and to each of the NSP Subsidiaries and the
WEC Subsidiaries, as the case may be, except as expressly contemplated or
permitted in this Agreement, the NSP Stock Option Agreement or the WEC Stock
Option Agreement, or to the extent the other parties hereto shall otherwise
consent in writing:
(a) ORDINARY COURSE OF BUSINESS. Each party hereto shall, and shall
cause its Direct Subsidiaries to, carry on their respective businesses in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and use all commercially reasonable efforts to preserve
intact their present business organizations and goodwill, preserve the
goodwill and relationships with customers, suppliers and others having
business dealings with them and, subject to prudent management of workforce
needs and ongoing programs currently in force, keep available the services
of their present officers and employees. Except as set forth in Section
6.1(a) of the NSP Disclosure Schedule or the WEC Disclosure Schedule,
respectively, no party shall, nor shall any party permit any of its Direct
Subsidiaries to, enter into a new line of business, or make any change in
the line of business it engages in as of the date hereof involving any
material investment of assets or resources or any material exposure to
liability or loss, in the case of NSP, to NSP and its subsidiaries taken as
a whole, and in the case of WEC, to WEC and its subsidiaries taken as a
whole.
(b) DIVIDENDS. No party shall, nor shall any party permit any of its
Direct Subsidiaries to, (i) declare or pay any dividends on or make other
distributions in respect of any of their capital stock other than to such
party or its wholly-owned subsidiaries and other than dividends required to
be paid on any WEPCO Preferred Stock or Old NSP Preferred Stock in
accordance with the respective terms thereof, regular quarterly dividends on
WEC Common Stock with usual record and payment dates not, during any fiscal
year, in excess of 106% of the dividends for the prior fiscal year and
regular quarterly dividends on Old NSP Common Stock with usual record and
payment dates not, during any fiscal year, in excess of 106% of the
dividends for the prior fiscal year; (ii) split, combine or reclassify any
of their capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of, or in substitution for, shares
of their capital stock; or (iii) redeem, repurchase or otherwise acquire any
shares of their capital stock, other than (A) redemptions, purchases or
acquisitions required by the respective terms of any series of WEPCO
Preferred Stock or Old NSP Preferred Stock, (B) in connection with refunding
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of WEPCO Preferred Stock or Old NSP Preferred Stock with preferred stock or
debt at a lower cost of funds (calculating such cost on an after-tax basis),
(C) in connection with intercompany purchases of capital stock or (D) for
the purpose of funding employee stock ownership plans in accordance with
past practice. The last record date of each of WEC and NSP on or prior to
the Effective Time which relates to a regular quarterly dividend on WEC
Common Stock or Old NSP Common Stock, as the case may be, shall be the same
date and shall be prior to the Effective Time. Notwithstanding the
foregoing, (i) NSP may redeem all or any portion of the Old NSP Preferred
Stock if the Board of Directors of NSP determines such course of action will
facilitate the transactions contemplated hereby and (ii) WEPCO may redeem
all or any portion of the WEPCO Preferred Stock, if the WEPCO Board of
Directors determines such course of action will facilitate the transactions
contemplated hereby.
(c) ISSUANCE OF SECURITIES. No party shall, nor shall any party permit
any of its Direct Subsidiaries to, issue, agree to issue, deliver, sell,
award, pledge, dispose of or otherwise encumber or authorize or propose the
issuance, delivery, sale, award, pledge, disposal or other encumbrance of,
any shares of their capital stock of any class or any securities convertible
into or exchangeable for, or any rights, warrants or options to acquire, any
such shares or convertible or exchangeable securities, other than pursuant
to the NSP Stock Option Agreement and the WEC Stock Option Agreement, as the
case may be, other than intercompany issuances of capital stock, and other
than issuances (i) in the case of WEC and the WEC Subsidiaries (x) in
connection with refunding WEPCO Preferred Stock with preferred stock or debt
at a lower cost of funds (calculating such cost on an after-tax basis); and
(y) up to 1,600,000 shares of WEC Common Stock to be issued for general
corporate purposes, including issuances in connection with acquisitions and
financing and issuances pursuant to employee benefit plans, stock option and
other incentive compensation plans, directors plans and stock purchase and
dividend reinvestment plans; and (ii), in the case of NSP and the NSP
Subsidiaries (x) in connection with refunding of Old NSP Preferred Stock
with preferred stock or debt at a lower cost of funds (calculating such cost
on an after-tax basis); and (y) up to 2,900,000 shares of Old NSP Common
Stock (in addition to the 155,394 shares issued between April 20, 1995 and
the date hereof) to be issued for general corporate purposes, including
issuances in connection with acquisitions and financing and issuances
pursuant to employee benefit plans, stock option and other incentive
compensation plans, directors plans and stock purchase and dividend
reinvestment plans. The parties shall promptly furnish to each other such
information as may be reasonably requested including financial information
and take such action as may be reasonably necessary and otherwise fully
cooperate with each other in the preparation of any registration statement
under the Securities Act and other documents necessary in connection with
issuance of securities as contemplated by this SECTION 6.1(c), subject to
obtaining customary indemnities.
(d) CHARTER DOCUMENTS. Except as set forth in Section 6.1(d) of the
NSP Disclosure Schedule or the WEC Disclosure Schedule, no party shall amend
or propose to amend its respective articles of incorporation, by-laws or
regulations, or similar organic documents, except as contemplated herein.
(e) NO ACQUISITIONS. Except as set forth in Section 6.1(e) of the NSP
Disclosure Schedule or the WEC Disclosure Schedule, other than acquisitions
by a party and its Direct Subsidiaries not in excess of $50 million over the
amount budgeted by such party for acquisition expenditures, as set forth in
such Section 6.1(e) of the NSP Disclosure Schedule or the WEC Disclosure
Schedule, singularly or in the aggregate, no party shall, nor shall any
party permit any of its Direct Subsidiaries to, acquire, or publicly propose
to acquire, or agree to acquire, by merger or consolidation with, or by
purchase or otherwise, a substantial equity interest in or a substantial
portion of the assets of, any business or any corporation, partnership,
association or other business organization or division thereof, nor shall
any party acquire or agree to acquire a material amount of assets other than
in the ordinary course of business consistent with past practice.
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(f) CAPITAL EXPENDITURES AND EMISSION ALLOWANCES. Except as set forth
in Section 6.1(f) of the NSP Disclosure Schedule or the WEC Disclosure
Schedule or as required by law, no party shall, nor shall any party permit
any of its Direct Subsidiaries to, (i) make capital expenditures in excess
of $100 million over the amount budgeted by such party for capital
expenditures as set forth in such Section 6.1(f) of the NSP Disclosure
Schedule or the WEC Disclosure Schedule or (ii) enter into written
commitments for the purchase of sulfur dioxide emission allowances as
provided for by the Clean Air Act Amendments of 1990, in excess of $20
million, singularly or in the aggregate.
(g) NO DISPOSITIONS. Except as set forth in Section 6.1(g) of the NSP
Disclosure Schedule or the WEC Disclosure Schedule, other than dispositions
by a party and its Direct Subsidiaries of less than $50 million, singularly
or in the aggregate, no party shall, nor shall any party permit any of its
Direct Subsidiaries to, sell, lease, license, encumber or otherwise dispose
of, any of its assets, other than encumbrances or dispositions in the
ordinary course of its business consistent with past practice.
(h) INDEBTEDNESS. Except as contemplated by this Agreement, no party
shall, nor shall any party permit any of its Direct Subsidiaries to, incur
or guarantee any indebtedness (including any debt borrowed or guaranteed or
otherwise assumed including, without limitation, the issuance of debt
securities or warrants or rights to acquire debt) or enter into any "keep
well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of
any of the foregoing other than (i) short-term indebtedness in the ordinary
course of business consistent with past practice (such as the issuance of
commercial paper or the use of existing credit facilities); (ii) long-term
indebtedness not aggregating more than $650 million; (iii) arrangements
between such party and its Direct Subsidiaries or among its Direct
Subsidiaries; (iv) as set forth in Section 6.1(h) of the NSP Disclosure
Schedule or the WEC Disclosure Schedule; (v) in connection with the
refunding of existing indebtedness at a lower cost of funds; or (vi) in
connection with the refunding of WEPCO Preferred Stock or Old NSP Preferred
Stock as permitted in SECTION 6.1(b).
(i) COMPENSATION, BENEFITS. Except as set forth in Section 6.1(i) of
the NSP Disclosure Schedule or the WEC Disclosure Schedule, as may be
required by applicable law or as contemplated by this Agreement, no party
shall, nor shall any party permit any of its Direct Subsidiaries to, (i)
enter into, adopt or amend or increase the amount or accelerate the payment
or vesting of any benefit or amount payable under, any employee benefit plan
or other contract, agreement, commitment, arrangement, plan or policy
maintained by, contributed to or entered into by such party or any of its
Direct Subsidiaries, or increase, or enter into any contract, agreement,
commitment or arrangement to increase in any manner, the compensation or
fringe benefits, or otherwise to extend, expand or enhance the engagement,
employment or any related rights, of any director, officer or other employee
of such party or any of its Direct Subsidiaries, except for normal increases
in the ordinary course of business consistent with past practice that, in
the aggregate, do not result in a material increase in benefits or
compensation expense to such party or any of its Direct Subsidiaries or (ii)
enter into or amend any employment, severance or special pay arrangement
with respect to the termination of employment or other similar contract,
agreement or arrangement with any director or officer or other employee
other than in the ordinary course of business consistent with past practice.
(j) 1935 ACT. Except as set forth in Section 6.1(j) of the NSP
Disclosure Schedule or WEC Disclosure Schedule, no party shall, nor shall
any party permit any of its Direct Subsidiaries to, except as required or
contemplated by this Agreement, engage in any activities which would cause a
change in its status, or that of its subsidiaries, under the 1935 Act, or
that would impair the ability of NSP to claim an exemption as of right under
Rule 2 of the 1935 Act or that would impair the ability of WEC to claim an
exemption pursuant to its order under Section 3(a)(1) of the 1935
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Act prior to the Effective Time, other than (i) the application to the SEC
under the 1935 Act contemplated by this Agreement for approval to the extent
required of the transactions contemplated hereby and (ii) the registration
of the Company pursuant to the 1935 Act.
(k) TRANSMISSION, GENERATION. Except as required pursuant to tariffs
on file with the FERC as of the date hereof, in the ordinary course of
business consistent with past practice, or as set forth in Section 6.1(k) of
the NSP Disclosure Schedule or the WEC Disclosure Schedule, no party shall,
nor shall any party permit any of its Direct Subsidiaries to, (i) commence
construction of any additional generating, transmission or delivery
capacity, or (ii) obligate itself to purchase or otherwise acquire, or to
sell or otherwise dispose of, or to share, any additional generating,
transmission or delivery capacity except as set forth in the budgets of NSP
and WEC.
(l) ACCOUNTING. Except as set forth in Section 6.1(l) of the NSP
Disclosure Schedule or WEC Disclosure Schedule, no party shall, nor shall
any party permit any of its Direct Subsidiaries to, make any changes in
their accounting methods, except as required by law, rule, regulation or
GAAP.
(m) POOLING. No party shall, nor shall any party permit any of its
subsidiaries to, take any action which would, or would be reasonably likely
to, prevent the Company from accounting for the transactions to be effected
pursuant to this Agreement as a pooling of interests in accordance with GAAP
and applicable SEC regulations, and each party hereto shall use all
reasonable efforts to achieve such result (including taking such actions as
may be necessary to cure any facts or circumstances that could prevent such
transactions from qualifying for pooling-of-interests accounting treatment).
(n) TAX-FREE STATUS. No party shall, nor shall any party permit any of
its subsidiaries to, take any actions which would, or would be reasonably
likely to, adversely affect the status of the Mergers as tax-free
transactions (except as to dissenters' rights and fractional shares) under
Section 368(a) of the Code, and each party hereto shall use all reasonable
efforts to achieve such result.
(o) AFFILIATE TRANSACTIONS. Except as set forth in Section 6.1(o) of
each of the NSP Disclosure Schedule or the WEC Disclosure Schedule, no party
shall, nor shall any party permit any of its Direct Subsidiaries to, enter
into any material agreement or arrangement with any of their respective
affiliates (other than wholly-owned subsidiaries) on terms materially less
favorable to such party than could be reasonably expected to have been
obtained with an unaffiliated third party on an arm's-length basis.
(p) COOPERATION, NOTIFICATION. Each party shall, and shall cause its
Direct Subsidiaries to, (i) confer on a regular and frequent basis with one
or more representatives of the other party to discuss, subject to applicable
law, material operational matters and the general status of its ongoing
operations; (ii) promptly notify the other party of any significant changes
in its business, properties, assets, condition (financial or other), results
of operations or prospects; (iii) advise the other party of any change or
event which has had or, insofar as reasonably can be foreseen, is reasonably
likely to result in, in the case of NSP, a NSP Material Adverse Effect or,
in the case of WEC, a WEC Material Adverse Effect; and (iv) promptly provide
the other party with copies of all filings made by such party or any of its
Direct Subsidiaries with any state or federal court, administrative agency,
commission or other Governmental Authority in connection with this Agreement
and the transactions contemplated hereby.
(q) RATE MATTERS. Each of NSP and WEC shall, and shall cause its
Direct Subsidiaries to, discuss with the other any changes in its or its
Direct Subsidiaries' rates or charges (other than pass-through fuel and gas
rates or charges), standards of service or accounting from those in effect
on the date hereof and consult with the other prior to making any filing (or
any amendment thereto), or effecting any agreement, commitment, arrangement
or consent with governmental
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regulators, whether written or oral, formal or informal, with respect
thereto, and no party will make any filing to change its rates on file with
the FERC that would have a material adverse effect on the benefits
associated with the business combination provided for herein.
(r) THIRD-PARTY CONSENTS. NSP shall, and shall cause its Direct
Subsidiaries to, use all commercially reasonable efforts to obtain all NSP
Required Consents. NSP shall promptly notify WEC of any failure or
prospective failure to obtain any such consents and, if requested by WEC,
shall provide copies of all NSP Required Consents obtained by NSP to WEC.
WEC shall, and shall cause its Direct Subsidiaries to, use all commercially
reasonable efforts to obtain all WEC Required Consents. WEC shall promptly
notify NSP of any failure or prospective failure to obtain any such consents
and, if requested by NSP, shall provide copies of all WEC Required Consents
obtained by WEC to NSP.
(s) NO BREACH, ETC. No party shall, nor shall any party permit any of
its Direct Subsidiaries to, willfully take any action that would or is
reasonably likely to result in a material breach of any provision of this
Agreement, the NSP Stock Option Agreement or the WEC Stock Option Agreement,
as the case may be, or in any of its representations and warranties set
forth in this Agreement, the NSP Stock Option Agreement, or the WEC Stock
Option Agreement, as the case may be, being untrue on and as of the Closing
Date.
(t) TAX-EXEMPT STATUS. No party shall, nor shall any party permit any
Direct Subsidiary to, take any action that would likely jeopardize the
qualification of NSP's or WEPCO's outstanding revenue bonds which qualify on
the date hereof under Section 142(a) of the Code as "exempt facility bonds"
or as tax-exempt industrial development bonds under Section 103(b)(4) of the
Internal Revenue Code of 1954, as amended, prior to the Tax Reform Act of
1986.
(u) TRANSITION MANAGEMENT. As soon as practicable after the date
hereof, the parties shall create a special transition management task force
(the "TASK FORCE") which shall be headed by James J. Howard ("MR. HOWARD")
and Richard A. Abdoo ("MR. ABDOO"). The Task Force shall examine various
alternatives regarding the manner in which to best organize and manage the
business of the Company after the Effective Time, subject to applicable law.
Messrs. Howard and Abdoo will have joint decision-making authority regarding
the Task Force, and Mr. Abdoo will manage and be responsible for the
day-to-day activities and operations of the Task Force.
(v) TAX MATTERS. Except as set forth in Section 6.1(w) of the NSP
Disclosure Schedule or the WEC Disclosure Schedule, no party shall make or
rescind any material express or deemed election relating to taxes, settle or
compromise any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, or
change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of its federal
income tax return for the taxable year ending December 31, 1993, except as
may be required by applicable law.
(w) DISCHARGE OF LIABILITIES. No party shall pay, discharge or satisfy
any material claims, liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge
or satisfaction, in the ordinary course of business consistent with past
practice (which includes the payment of final and unappealable judgments) or
in accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements
(or the notes thereto) of such party included in such party's reports filed
with the SEC, or incurred in the ordinary course of business consistent with
past practice.
(x) CONTRACTS. No party shall, except in the ordinary course of
business consistent with past practice, modify, amend, terminate, renew or
fail to use reasonable business efforts to renew any material contract or
agreement to which such party or any Direct Subsidiary of such party is a
party or waive, release or assign any material rights or claims.
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(y) INSURANCE. Each party shall, and shall cause its Direct
Subsidiaries to, maintain with financially responsible insurance companies
insurance in such amounts and against such risks and losses as are customary
for companies engaged in the electric and gas utility industry and employing
methods of generating electric power and fuel sources similar to those
methods employed and fuels used by such party or its Direct Subsidiaries.
(z) PERMITS. Each party shall, and shall cause its Direct Subsidiaries
to, use reasonable efforts to maintain in effect all existing governmental
permits pursuant to which such party or its Direct Subsidiaries operate.
(aa) LIMITATION ON INVESTMENTS IN UNRESTRICTED SUBSIDIARIES. From and
after the date hereof, NSP will not make, and will not permit any NSP
Subsidiary to make, any additional investments in, or loans or capital
contributions to, or to undertake any guarantees or other obligations with
respect to, any NSP Unrestricted Subsidiary in excess of $350 million (which
number shall be made up of, and shall not be in duplication of, the amounts
budgeted for capital expenditures and acquisitions as set forth in Sections
6.1(e) and (f) of the NSP Disclosure Schedule and amounts spent pursuant to
the $50 million basket referenced in SECTION 6.1(e)) in the aggregate to all
NSP Unrestricted Subsidiaries; and WEC will not make, and will not permit
any WEC Subsidiary to make, any additional investments in, or loans or
capital contributions to, or to undertake any guarantees or other
obligations with respect to, any WEC Unrestricted Subsidiary in excess of
$100 million (which number shall be made up of, and shall not be in
duplication of, the amounts budgeted for capital expenditures and
acquisitions as set forth in Sections 6.1(e) and (f) of the WEC Disclosure
Schedule and amounts spent pursuant to the $50 million basket referenced in
SECTION 6.1(e)) in the aggregate to all WEC Unrestricted Subsidiaries.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS TO INFORMATION. Upon reasonable notice, each party
shall, and shall cause its Direct Subsidiaries to, afford to the officers,
directors, employees, accountants, counsel, investment bankers, financial
advisors and other representatives of the other (collectively,
"REPRESENTATIVES") reasonable access, during normal business hours throughout
the period prior to the Effective Time, to all of its properties, books,
contracts, commitments and records (including, but not limited to, Tax Returns)
and, during such period, each party shall, and shall cause its Direct
Subsidiaries to, furnish promptly to the other (i) access to each report,
schedule and other document filed or received by it or any of its Direct
Subsidiaries pursuant to the requirements of federal or state securities laws or
filed with or sent to the SEC, the FERC, the NRC, the Department of Justice, the
Federal Trade Commission, the Minnesota Public Utilities Commission, the Public
Service Commission of Wisconsin or any other federal or state regulatory agency
or commission, and (ii) access to all information concerning themselves, their
subsidiaries, directors, officers and shareholders and such other matters as may
be reasonably requested by the other party in connection with any filings,
applications or approvals required or contemplated by this Agreement or for any
other reason related to the transactions contemplated by this Agreement. Each
party shall provide access to those premises, documents, reports and information
described above of subsidiaries of such party that are not Direct Subsidiaries
to the extent such party has or is able to obtain such access. Each party shall,
and shall cause its subsidiaries and Representatives to, hold in strict
confidence all documents and information concerning the other furnished to it in
connection with the transactions contemplated by this Agreement in accordance
with the Confidentiality Agreement, dated January 17, 1995, between NSP and WEC,
as it may be amended from time to time (the "CONFIDENTIALITY AGREEMENT").
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Section 7.2 JOINT PROXY STATEMENT AND REGISTRATION STATEMENT.
(a) PREPARATION AND FILING. The parties will prepare and file with the SEC
as soon as reasonably practicable after the date hereof the Registration
Statement and the Proxy Statement (together, the "JOINT PROXY/REGISTRATION
STATEMENT"). The parties hereto shall each use reasonable efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after such filing. Each party hereto shall also take
such action as may be reasonably required to cause the shares of Company Common
Stock issuable in connection with the Mergers to be registered or to obtain an
exemption from registration under applicable state "blue sky" or securities
laws; PROVIDED, HOWEVER, that no party shall be required to register or qualify
as a foreign corporation or to take other action which would subject it to
service of process in any jurisdiction where it will not be, following the
Mergers, so subject. Each of the parties hereto shall furnish all information
concerning itself which is required or customary for inclusion in the Joint
Proxy/Registration Statement. The parties shall use reasonable efforts to cause
the shares of Company Common Stock issuable in the Mergers to be approved for
listing on the NYSE upon official notice of issuance. The information provided
by any party hereto for use in the Joint Proxy/Registration Statement shall be
true and correct in all material respects without omission of any material fact
which is required to make such information not false or misleading. No
representation, covenant or agreement is made by any party hereto with respect
to information supplied by any other party for inclusion in the Joint Proxy
Statement/Registration Statement.
(b) LETTER OF NSP'S ACCOUNTANTS. NSP shall use best efforts to cause to be
delivered to WEC letters of Deloitte & Touche LLP and Price Waterhouse LLP,
dated a date within two business days before the date of the Joint
Proxy/Registration Statement, and addressed to WEC, in form and substance
reasonably satisfactory to WEC and customary in scope and substance for "cold
comfort" letters delivered by independent public accountants in connection with
registration statements on Form S-4.
(c) LETTER OF WEC'S ACCOUNTANTS. WEC shall use best efforts to cause to be
delivered to NSP a letter of Price Waterhouse LLP, dated a date within two
business days before the date of the Joint Proxy/Registration Statement, and
addressed to NSP, in form and substance reasonably satisfactory to NSP and
customary in scope and substance for "cold comfort" letters delivered by
independent public accountants in connection with registration statements on
Form S-4.
(d) FAIRNESS OPINIONS. It shall be a condition to the mailing of the Joint
Proxy/Registration Statement to the shareholders of NSP and WEC that (i) NSP
shall have received an opinion from Goldman, Sachs & Co., dated the date of the
Joint Proxy/Registration Statement, to the effect that, as of the date thereof,
the Ratio is fair to the holders of Old NSP Common Stock and (ii) WEC shall have
received an opinion from Barr Devlin & Co. Incorporated, dated the date of the
Joint Proxy Statement, to the effect that, as of the date thereof, the Ratio is
fair from a financial point of view to the holders of WEC Common Stock.
Section 7.3 REGULATORY MATTERS.
(a) HSR FILINGS. Each party hereto shall file or cause to be filed with
the Federal Trade Commission and the Department of Justice any notifications
required to be filed by their respective "ultimate parent" companies under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), and the rules and regulations promulgated thereunder with respect to the
transactions contemplated hereby. Such parties will use all commercially
reasonable efforts to make such filings promptly and to respond promptly to any
requests for additional information made by either of such agencies.
(b) OTHER REGULATORY APPROVALS. Each party hereto shall cooperate and use
its best efforts to promptly prepare and file all necessary documentation, to
effect all necessary applications, notices, petitions, filings and other
documents, and to use all commercially reasonable efforts to obtain all
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necessary permits, consents, approvals and authorizations of all Governmental
Authorities necessary or advisable to consummate the transactions contemplated
by this Agreement, including, without limitation, the NSP Required Statutory
Approvals and the WEC Required Statutory Approvals.
Section 7.4 SHAREHOLDER APPROVAL.
(a) APPROVAL OF WEC SHAREHOLDERS. Subject to the provisions of SECTION
7.4(c) and SECTION 7.4(d), WEC shall, as soon as reasonably practicable after
the date hereof (i) take all steps necessary to duly call, give notice of,
convene and hold a special meeting of its shareholders (the "WEC SPECIAL
MEETING") for the purpose of securing the WEC Shareholders' Approval, (ii)
distribute to its shareholders the Proxy Statement in accordance with applicable
federal and state law and with its Restated Articles of Incorporation and
by-laws, (iii) subject to the fiduciary duties of its Board of Directors,
recommend to its shareholders the approval of the NSP Merger, this Agreement and
the transactions contemplated hereby (including the WEC Article Amendments) and
(iv) cooperate and consult with NSP with respect to each of the foregoing
matters.
(b) APPROVAL OF NSP SHAREHOLDERS. Subject to the provisions of SECTION
7.4(c) and SECTION 7.4(d), NSP shall, as soon as reasonably practicable after
the date hereof (i) take all steps necessary to duly call, give notice of,
convene and hold a meeting of its shareholders (the "NSP SPECIAL MEETING") for
the purpose of securing the NSP Shareholders' Approval, (ii) distribute to its
shareholders the Proxy Statement in accordance with applicable federal and state
law and with its Restated Articles of Incorporation and by-laws, (iii) subject
to the fiduciary duties of its Board of Directors, recommend to its shareholders
the approval of the NSP Merger, this Agreement and the transactions contemplated
hereby and (iv) cooperate and consult with WEC with respect to each of the
foregoing matters.
(c) MEETING DATE. The WEC Special Meeting for the purpose of securing the
WEC Shareholders' Approval and the NSP Special Meeting for the purpose of
securing the NSP Shareholders' Approval shall be held on such dates as NSP and
WEC shall mutually determine.
(d) FAIRNESS OPINIONS NOT WITHDRAWN. It shall be a condition to the
obligation of NSP to hold the NSP Special Meeting that the opinion of Goldman,
Sachs & Co., referred to in SECTION 7.2(d), shall not have been withdrawn, and
it shall be a condition to the obligation of WEC to hold the WEC Special Meeting
that the opinion of Barr Devlin & Co. Incorporated, referred to in SECTION
7.2(d), shall not have been withdrawn.
Section 7.5 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) INDEMNIFICATION. To the extent, if any, not provided by an existing
right of indemnification or other agreement or policy, from and after the
Effective Time, the Company shall, to the fullest extent permitted by applicable
law, indemnify, defend and hold harmless each person who is now, or has been at
any time prior to the date hereof, or who becomes prior to the Effective Time,
an officer, director or employee of any of the parties hereto or any subsidiary
(each an "INDEMNIFIED PARTY" and collectively, the "INDEMNIFIED PARTIES")
against (i) all losses, expenses (including reasonable attorney's fees and
expenses), claims, damages or liabilities or, subject to the proviso of the next
succeeding sentence, amounts paid in settlement, arising out of actions or
omissions occurring at or prior to the Effective Time (and whether asserted or
claimed prior to, at or after the Effective Time) that are, in whole or in part,
based on or arising out of the fact that such person is or was a director,
officer or employee of such party (the "INDEMNIFIED LIABILITIES"), and (ii) all
Indemnified Liabilities to the extent they are based on or arise out of or
pertain to the transactions contemplated by this Agreement. In the event of any
such loss, expense, claim, damage or liability (whether or not arising before
the Effective Time), (i) the Company shall pay the reasonable fees and expenses
of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to the Company, promptly after
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statements therefor are received and otherwise advance to such Indemnified Party
upon request reimbursement of documented expenses reasonably incurred, in either
case to the extent not prohibited by the WBCL and upon receipt of any
affirmation and undertaking required by Section 180.0853 of the WBCL, (ii) the
Company will cooperate in the defense of any such matter and (iii) any
determination required to be made with respect to whether an Indemnified Party's
conduct complies with the standards set forth under Wisconsin law and the
Restated Articles of Incorporation (including the WEC Article Amendments) or
By-laws of the Company (as the same shall be amended pursuant to SECTION 7.20)
shall be made by independent counsel mutually acceptable to the Company and the
Indemnified Party; PROVIDED, HOWEVER, that the Company shall not be liable for
any settlement effected without its written consent (which consent shall not be
unreasonably withheld). The Indemnified Parties as a group may retain only one
law firm with respect to each related matter except to the extent there is, in
the opinion of counsel to an Indemnified Party, under applicable standards of
professional conduct, a conflict on any significant issue between positions of
such Indemnified Party and any other Indemnified Party or Indemnified Parties.
(b) INSURANCE. For a period of six years after the Effective Time, the
Company shall cause to be maintained in effect policies of directors' and
officers' liability insurance maintained by NSP and WEC for the benefit of those
persons who are currently covered by such policies on terms no less favorable
than the terms of such current insurance coverage; PROVIDED, HOWEVER, that the
Company shall not be required to expend in any year an amount in excess of 200%
of the annual aggregate premiums currently paid by NSP and WEC for such
insurance; and PROVIDED, FURTHER, that if the annual premiums of such insurance
coverage exceed such amount, the Company shall be obligated to obtain a policy
with the best coverage available, in the reasonable judgment of the Board of
Directors of the Company, for a cost not exceeding such amount.
(c) SUCCESSORS. In the event the Company or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then and in either such case, proper provisions shall be made so
that the successors and assigns of the Company shall assume the obligations set
forth in this SECTION 7.5.
(d) SURVIVAL OF INDEMNIFICATION. To the fullest extent permitted by law,
from and after the Effective Time, all rights to indemnification as of the date
hereof in favor of the employees, agents, directors and officers of NSP, WEC and
their respective subsidiaries with respect to their activities as such prior to
the Effective Time, as provided in their respective articles of incorporation
and by-laws in effect on the date hereof, or otherwise in effect on the date
hereof, shall survive the Mergers and shall continue in full force and effect
for a period of not less than six years from the Effective Time.
(e) BENEFIT. The provisions of this SECTION 7.5 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
Section 7.6 DISCLOSURE SCHEDULES. On the date hereof, (i) WEC has
delivered to NSP a schedule (the "WEC DISCLOSURE SCHEDULE"), accompanied by a
certificate signed by the chief financial officer of WEC stating the WEC
Disclosure Schedule is being delivered pursuant to this SECTION 7.6(i) and (ii)
NSP has delivered to WEC a schedule (the "NSP DISCLOSURE SCHEDULE"), accompanied
by a certificate signed by the chief financial officer of NSP stating the NSP
Disclosure Schedule is being delivered pursuant to this SECTION 7.6(II). The NSP
Disclosure Schedule and the WEC Disclosure Schedule are collectively referred to
herein as the "DISCLOSURE SCHEDULES". The Disclosure Schedules constitute an
integral part of this Agreement and modify the respective representations,
warranties, covenants or agreements of the parties hereto contained herein to
the extent that such representations, warranties, covenants or agreements
expressly refer to the Disclosure Schedules. Anything to the contrary contained
herein or in the Disclosure Schedules notwithstanding, any and all statements,
representations, warranties or disclosures set forth in the Disclosure Schedules
shall be deemed to have been made on and as of the date hereof.
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Section 7.7 PUBLIC ANNOUNCEMENTS. Subject to each party's disclosure
obligations imposed by law, NSP and WEC will cooperate with each other in the
development and distribution of all news releases and other public information
disclosures with respect to this Agreement or any of the transactions
contemplated hereby and shall not issue any public announcement or statement
with respect hereto or thereto without the consent of the other party (which
consent shall not be unreasonably withheld).
Section 7.8 RULE 145 AFFILIATES. Within 30 days after the date of this
Agreement, NSP shall identify in a letter to WEC, and WEC shall identify in a
letter to NSP, all persons who are, and to such person's best knowledge who will
be at the Closing Date, "affiliates" of NSP and WEC, respectively, as such term
is used in Rule 145 under the Securities Act (or otherwise under applicable SEC
accounting releases with respect to pooling-of-interests accounting treatment).
Each of NSP and WEC shall use all reasonable efforts to cause their respective
affiliates (including any person who may be deemed to have become an affiliate
after the date of the letter referred to in the prior sentence) to deliver to
each other on or prior to the Closing Date a written agreement substantially in
the form attached as EXHIBIT 7.8 (each, an "AFFILIATE AGREEMENT").
Section 7.9 EMPLOYEE AGREEMENTS AND WORKFORCE MATTERS.
(a) CERTAIN EMPLOYEE AGREEMENTS. Subject to SECTION 7.10, SECTION 7.14 and
SECTION 7.15, the Company and its subsidiaries shall honor, without
modification, all contracts, agreements, collective bargaining agreements and
commitments of the parties prior to the date hereof which apply to any current
or former employee or current or former director of the parties hereto;
PROVIDED, HOWEVER, that this undertaking is not intended to prevent the Company
from enforcing such contracts, agreements, collective bargaining agreements and
commitments in accordance with their terms, including, without limitation, any
reserved right to amend, modify, suspend, revoke or terminate any such contract,
agreement, collective bargaining agreement or commitment.
(b) WORKFORCE MATTERS. Subject to applicable collective bargaining
agreements, for a period of three years following the Effective Time, any
reductions in workforce in respect of employees of the Company shall be made on
a fair and equitable basis, in light of the circumstances and the objectives to
be achieved, giving consideration to previous work history, job experience, and
qualifications, without regard to whether employment was with NSP or its
subsidiaries or WEC or its subsidiaries, and any employees whose employment is
terminated or jobs are eliminated by the Company or any of its subsidiaries
during such period shall be entitled to participate on a fair and equitable
basis in the job opportunity and employment placement programs offered by the
Company or any of its subsidiaries. Any workforce reductions carried out
following the Effective Time by the Company and its subsidiaries shall be done
in accordance with all applicable collective bargaining agreements, and all laws
and regulations governing the employment relationship and termination thereof
including, without limitation, the Worker Adjustment and Retraining Notification
Act and regulations promulgated thereunder, and any comparable state or local
law.
Section 7.10 EMPLOYEE BENEFIT PLANS.
(a) MAINTENANCE OF NSP AND WEC BENEFIT PLANS. Subject to SECTION 7.10(b),
Section 7.10(c) and SECTION 6.1(i), each of the NSP Benefit Plans and WEC
Benefit Plans in effect at the date hereof shall be maintained in effect with
respect to the employees or former employees of NSP and any of its Direct
Subsidiaries, on the one hand, and of WEC and any of its Direct Subsidiaries, on
the other hand, respectively, who are covered by any such benefit plan
immediately prior to the Closing Date (the "AFFILIATED EMPLOYEES") until the
Company otherwise determines after the Effective Time; PROVIDED, HOWEVER, that
nothing herein contained shall limit any reserved right contained in any such
NSP Benefit Plan or WEC Benefit Plan to amend, modify, suspend, revoke or
terminate any such plan; PROVIDED, FURTHER, HOWEVER, that the Company or its
subsidiaries shall provide to the Affiliated Employees for a period of not less
than one year following the Effective Time benefits, other than with respect to
plans referred to in SECTION 7.10(b) and SECTION 7.11, which are no less
favorable in the aggregate than those provided under the NSP Benefit Plans or
the WEC Benefit Plans, as the case
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may be. Without limitation of the foregoing, each participant of any such NSP
Benefit Plan or WEC Benefit Plan shall receive credit for purposes of
eligibility to participate, vesting, benefit accrual and eligibility to receive
benefits under any benefit plan of the Company or any of its subsidiaries or
affiliates for service credited for the corresponding purpose under such benefit
plan; PROVIDED, HOWEVER, that such crediting of service shall not operate to
duplicate any benefit to any such participant or the funding for any such
benefit. Any person hired by the Company or any of its subsidiaries after the
Closing Date who was not employed by any party hereto or its subsidiaries
immediately prior to the Closing Date shall be eligible to participate in such
benefit plans maintained, or contributed to, by the subsidiary, division or
operation by which such person is employed, PROVIDED that such person meets the
eligibility requirements of the applicable plan.
(b) ADOPTION OF COMPANY REPLACEMENT PLANS. With respect to the WEC
Short-Term Performance Plan (the "WEC INCENTIVE PLAN"), the NSP Executive
Incentive Compensation Plan (the "NSP INCENTIVE PLAN"), the NSP Long-Term
Incentive Award Stock Plan (the "NSP STOCK PLAN") and the WEC 1993 Omnibus Stock
Incentive Plan (the "WEC STOCK PLAN"), the Company and its subsidiaries shall
adopt replacement plans as set forth in this SECTION 7.10(b) (collectively, the
"COMPANY REPLACEMENT PLANS"). Subject to shareholder approval thereof by the NSP
shareholders and the WEC shareholders, the Company Replacement Plans will go
into effect at the Effective Time. Upon the consummation of the Mergers, no
additional obligations shall be incurred under the NSP Incentive Plan, the WEC
Incentive Plan, the WEC Stock Plan or the NSP Stock Plan, except to the extent
such obligations are attributable to employment prior to the Effective Time and
are consistent with past practice under the applicable plan. The WEC Incentive
Plan and the NSP Incentive Plan shall be replaced (except with respect to
obligations incurred or attributable to employment prior to the Effective Time)
by a new annual bonus plan under which cash bonuses, based on percentages of
base salaries, are awarded based upon the achievement of performance goals
determined in advance by the Compensation Committee of the Board of Directors of
the Company (the "COMMITTEE"). With respect to those participants in the new
plan who are, or who the Committee determines are likely to be, "covered
individuals" within the meaning of Section 162(m) of the Code, the performance
goals shall be objective standards that are approved by shareholders in
accordance with the requirements for exclusion from the limits of Section 162(m)
of the Code as performance-based compensation. The NSP Stock Plan and the WEC
Stock Plan shall be replaced (except with respect to obligations incurred or
attributable to employment prior to the Effective Time) by a stock compensation
plan (the "COMPANY STOCK PLAN") providing for the grant of stock options, stock
appreciation rights, restricted stock and such other awards based upon the
Company Common Stock as the Committee may determine, subject to shareholder
approval of the Company Stock Plan. The Company shall reserve 12 million shares
for issuance under the Company Stock Plan.
(c) NSP AND WEC ACTION. With respect to each of the Company Replacement
Plans, each of NSP and WEC shall take all corporate action necessary or
appropriate to obtain the approval of the respective shareholders with respect
to such plan prior to the Effective Time. Before the Effective Time, WEC shall
take all steps necessary to amend (i) the WEC Supplemental Executive Retirement
Plan, (ii) the WEC Executive Non-Qualified Trust, (iii) each of the Supplemental
Retirement Benefit Agreements set forth in Section 5.10(g) of the WEC Disclosure
Schedule, (iv) the WEC Executive Deferred Compensation Plan, (v) the WEC
Directors' Deferred Compensation Plan, and (vi) the WEPCO Directors' Deferred
Compensation Plan, so that none of the transactions contemplated by this
Agreement shall constitute a Change of Control for purposes of said
arrangements, PROVIDED that with respect to items (iii) through (vi), WEC shall
use its best efforts to obtain the consent of the other parties thereto. Prior
to or as soon as practicable after the date hereof, each of NSP and WEC shall
adopt severance plans substantially in the forms attached hereto as EXHIBITS
7.10(a) and 7.10(b), respectively.
Section 7.11 STOCK OPTION AND OTHER STOCK PLANS.
(a) AMENDMENT OF NSP STOCK PLAN AND AGREEMENTS. Effective as of the
Effective Time, NSP shall amend the NSP Stock Plan and each underlying award
agreement to provide that (i) each
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outstanding option to purchase shares of Old NSP Common Stock (each, a "NSP
STOCK OPTION"), along with any tandem stock appreciation right, shall constitute
an option to acquire shares of Company Common Stock, on the same terms and
conditions as were applicable under such NSP Stock Option, based on the same
number of shares of the Company Common Stock as the holder of such NSP Stock
Option would have been entitled to receive pursuant to the NSP Merger in
accordance with ARTICLE II had such holder exercised such option in full
immediately prior to the Effective Time; PROVIDED, that the number of shares,
the option price, and the terms and conditions of exercise of such option, shall
be determined in a manner that preserves both (A) the aggregate gain (or loss)
on the NSP Stock Option immediately prior to the Effective Time and (B) the
ratio of the exercise price per share subject to the NSP Stock Option to the
fair market value (determined immediately prior to the Effective Time) per share
subject to such option; and PROVIDED, FURTHER, that in the case of any option to
which Section 421 of the Code applies by reason of its qualification under any
of Sections 422-424 of the Code, the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise of
such option shall be determined in order to comply with Section 424(a) of the
Code; and (ii) each other outstanding award under the NSP Stock Plan ("NSP STOCK
AWARDS") shall constitute an award based upon the same number of shares of
Company Common Stock as the holder of such NSP Stock Award would have been
entitled to receive pursuant to the NSP Merger in accordance with ARTICLE II had
such holder been the absolute owner, immediately before the Effective Time, of
the shares of NSP Common Stock on which such NSP Stock Award is based, and
otherwise on the same terms and conditions as governed such NSP Stock Award
immediately before the Effective Time. At the Effective Time, the Company shall
assume each stock award agreement relating to the NSP Stock Plan, each as
amended as previously provided. As soon as practicable after the Effective Time,
the Company shall deliver to the holders of NSP Stock Options and NSP Stock
Awards appropriate notices setting forth such holders' rights pursuant to the
Company Stock Plan and each underlying stock award agreement, each as assumed by
the Company.
(b) AMENDMENT OF WEC STOCK PLAN AND AGREEMENTS. Effective as of the
Effective Time, WEC shall amend the WEC Stock Plan and use its best efforts to
amend each underlying stock award agreement to provide that none of the
transactions contemplated by this Agreement shall constitute a Change in Control
for purposes of the WEC Stock Plan.
(c) COMPANY ACTION. With respect to each of the NSP Stock Plan, the WEC
Stock Plan, the NSP Employee Stock Ownership Plan and any other plans under
which the delivery of Old NSP Common Stock, WEC Common Stock or Company Common
Stock is required upon payment of benefits, grant of awards or exercise of
options (the "STOCK PLANS"), the Company shall take all corporate action
necessary or appropriate to (i) obtain shareholder approval with respect to such
Stock Plan to the extent such approval is required for purposes of the Code or
other applicable law, or to enable such Stock Plan to comply with Rule 16b-3
promulgated under the Exchange Act, (ii) reserve for issuance under such plan or
otherwise provide a sufficient number of shares of Company Common Stock for
delivery upon payment of benefits, grant of awards or exercise of options under
such Stock Plan and (iii) as soon as practicable after the Effective Time, file
registration statements on Form S-3 or Form S-8, as the case may be (or any
successor or other appropriate forms), with respect to the shares of Company
Common Stock subject to such Stock Plan to the extent such registration
statement is required under applicable law, and the Company shall use its best
efforts to maintain the effectiveness of such registration statements (and
maintain the current status of the prospectuses contained therein) for so long
as such benefits and grants remain payable and such options remain outstanding.
With respect to those individuals who subsequent to the Mergers will be subject
to the reporting requirements under Section 16(a) of the Exchange Act, the
Company shall administer the Stock Plans, where applicable, in a manner that
complies with Rule 16b-3 promulgated under the Exchange Act.
Section 7.12 NO SOLICITATIONS. No party hereto shall, and each such party
shall cause its Direct Subsidiaries not to, shall not permit any of its
Representatives or subsidiaries that are not Direct Subsidiaries to, and shall
use its best efforts to cause such persons not to, directly or indirectly:
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initiate, solicit or encourage, or take any action to facilitate the making of
any offer or proposal which constitutes or is reasonably likely to lead to, any
Business Combination Proposal (as defined below), or, in the event of an
unsolicited Business Combination Proposal, except to the extent required by
their fiduciary duties under applicable law if so advised in a written opinion
of outside counsel, engage in negotiations or provide any information or data to
any person relating to any Business Combination Proposal. Each party hereto
shall notify the other party orally and in writing of any such inquiries, offers
or proposals (including, without limitation, the terms and conditions of any
such proposal and the identity of the person making it), within 24 hours of the
receipt thereof, shall keep the other party informed of the status and details
of any such inquiry, offer or proposal, and shall give the other party five
days' advance notice of any agreement to be entered into with or any information
to be supplied to any person making such inquiry, offer or proposal. Each party
hereto shall immediately cease and cause to be terminated all existing
discussions and negotiations, if any, with any parties conducted heretofore with
respect to any Business Combination Proposal. As used in this SECTION 7.12,
"BUSINESS COMBINATION PROPOSAL" shall mean any tender or exchange offer,
proposal for a merger, consolidation or other business combination involving any
party to this Agreement or any of its material subsidiaries, or any proposal or
offer (in each case, whether or not in writing and whether or not delivered to
the stockholders of a party generally) to acquire in any manner, directly or
indirectly, a substantial equity interest in or a substantial portion of the
assets of any party to this Agreement or any of its material subsidiaries, other
than pursuant to the transactions contemplated by this Agreement. Nothing
contained herein shall prohibit a party from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a) under the Exchange Act
with respect to a Business Combination Proposal by means of a tender offer.
Section 7.13 COMPANY BOARD OF DIRECTORS. NSP's and WEC's respective Boards
of Directors will take such action as may be necessary to cause the number of
directors comprising the full Board of Directors of the Company at the Effective
Time to be 12 persons, six of whom shall be designated by NSP prior to the
Effective Time and six of whom shall be designated by WEC prior to the Effective
Time. The initial designation of such directors among the three classes of the
Board of Directors of the Company shall be agreed to by NSP and WEC, the
designees of each party to be divided equally among such classes; PROVIDED,
HOWEVER, that if, prior to the Effective Time, any of such designees shall
decline or be unable to serve, the party which designated such person shall
designate another person to serve in such person's stead. NSP's and WEC's
respective Boards of Directors will also take such action as may be necessary to
cause the committees of the Board of Directors of the Company at the Effective
Time to consist of that number of NSP and WEC designees with such chairs as are
set forth on EXHIBIT 7.13.
Section 7.14 COMPANY OFFICERS. At the Effective Time, pursuant to the
terms hereof and of the employment contracts referred to in SECTION 7.15: (a)
Mr. Howard shall hold the positions of Chairman of the Board and Chief Executive
Officer of the Company and shall be entitled to serve in such capacities until
the end of the Initial Period (as defined in Mr. Howard's employment contract
entered into pursuant to SECTION 7.15), at which time he shall be entitled to
continue to hold the position of Chairman of the Board of the Company until the
end of the Secondary Period (as defined in Mr. Howard's employment contract
entered into pursuant to SECTION 7.15); and (b) Mr. Abdoo shall hold the
positions of Vice Chairman of the Board, President and Chief Operating Officer
of the Company and shall be entitled to serve in such capacities until the end
of the Initial Period, at which time he shall be entitled to hold the additional
position of Chief Executive Officer of the Company and to serve in all such
capacities until his successor is elected or appointed and shall have qualified
in accordance with the WBCL and the Restated Articles of Incorporation
(including the WEC Article Amendments) and By-laws of the Company (as the same
shall be amended pursuant to SECTION 7.20). If either of such persons is unable
or unwilling to hold such offices for the periods set forth above, his successor
shall be selected by the Board of Directors of the Company in accordance with
its By-laws.
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Section 7.15 EMPLOYMENT CONTRACTS. The Company shall, as of or prior to
the Effective Time, enter into employment contracts with Mr. Howard and Mr.
Abdoo in the forms set forth in EXHIBIT 7.15.1 and EXHIBIT 7.15.2, respectively.
Section 7.16 POST-MERGER OPERATIONS. Following the Effective Time, the
Company shall conduct its operations in accordance with the following:
(a) PRINCIPAL CORPORATE OFFICES. The Company and NSP shall maintain
their principal corporate offices in Minnesota in the city of Minneapolis
and WEPCO shall maintain its principal corporate offices in Wisconsin in the
city of Milwaukee.
(b) MAINTENANCE OF SEPARATE EXISTENCE OF NEW NSP AND WEPCO. WEPCO, on
the one hand, and New NSP, on the other hand, shall continue their separate
corporate existences, operating under the names of "WISCONSIN ENERGY
COMPANY" and "NORTHERN STATES POWER COMPANY", respectively. The respective
corporate officers of WEPCO, on the one hand, and NSP, on the other hand,
shall be entitled to maintain their current titles and responsibilities as
officers of WEPCO and New NSP, respectively, unless and until otherwise
determined by the Board of Directors of WEPCO and New NSP.
(c) CHARITIES. After the Effective Time, the Company shall provide
charitable contributions and community support within the service areas of
the parties and each of their respective subsidiaries at levels
substantially comparable to the levels of charitable contributions and
community support provided by the parties and their respective subsidiaries
within their service areas within the two-year period immediately prior to
the Effective Time. The assets of The Wisconsin Energy Corporation
Foundation, Inc. (the "FOUNDATION") shall be used for charitable purposes in
accordance with the articles and by-laws of the Foundation in the service
areas of WEPCO (including the prior service area of NSP-W) unless changed by
the Board of Directors of the Company.
Section 7.17 EXPENSES. Subject to SECTION 9.3, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that those
expenses incurred in connection with printing the Joint Proxy/ Registration
Statement, as well as the filing fee relating thereto, shall be shared equally
by NSP and WEC.
Section 7.18 FURTHER ASSURANCES. Each party will, and will cause its
Direct Subsidiaries to, execute such further documents and instruments and take
such further actions as may reasonably be requested by any other party in order
to consummate the Mergers in accordance with the terms hereof. The parties
expressly acknowledge and agree that, although it is their current intention to
effect a business combination among themselves in the form contemplated by this
Agreement, it may be preferable to effectuate such a business combination by
means of an alternative structure in light of the conditions set forth in
SECTION 8.1(e), SECTION 8.2(e), SECTION 8.2(f), SECTION 8.3(e), and SECTION
8.3(f). Accordingly, if the only conditions to the parties' obligations to
consummate the Mergers which are not satisfied or waived are receipt of any one
or more of the NSP Required Consents, NSP Required Statutory Approvals, WEC
Required Consents, WEC Required Statutory Approvals or the ruling referred to in
SECTIONS 8.2(e) and 8.3(e), and the adoption of an alternative structure (that
otherwise substantially preserves for NSP and WEC the economic benefits of the
Merger) would result in such conditions being satisfied or waived, then the
parties shall use their respective best efforts to effect a business combination
among themselves by means of a mutually agreed upon structure other than the
Mergers that so preserves such benefits; PROVIDED that, prior to closing any
such restructured transaction, all material third party and Governmental
Authority declarations, filings, registrations, notices, authorizations,
consents or approvals necessary for the effectuation of such alternative
business combination shall have been obtained and all other conditions to the
parties' obligations to consummate the Mergers, as applied to such alternative
business combination, shall have been satisfied or waived.
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Section 7.19 UTILITY ASSET TRANSFER. In addition to the transactions
described in ARTICLE I and ARTICLE II, contemporaneously with the
Reincorporation Effective Time, NSP-W shall transfer to New NSP certain utility
assets located in the State of Wisconsin such that, upon such transfer, New NSP
shall be a Wisconsin utility for purposes of considering its assets as assets of
a public utility affiliate in the determination made under Section 196.795(5)(p)
of the Wisconsin Statutes.
Section 7.20 CHARTER AND BY-LAW AMENDMENTS. Prior to the Closing: (a) WEC
and NSP shall agree upon amendments to be effected to the Restated Articles of
Incorporation of WEC, including to change the name of WEC to a name agreed upon
by NSP and WEC (which shall not be the name of, or a name substantially similar
to, either NSP or WEC) (the "WEC ARTICLE AMENDMENTS"), and the by-laws of WEC,
and WEC shall take all actions necessary so that the WEC Article Amendments and
such amendments to the WEC by-laws become effective no later than the Effective
Time; (b) NSP shall cause the articles of incorporation of New NSP to be amended
and restated in substantially the form attached hereto as Exhibit 7.20(b); (c)
WEC shall cause the articles of incorporation of WEC Sub to be amended and
restated substantially in the form attached hereto as Exhibit 7.20(c) and shall
cause WEC Sub to issue to WEC additional fully paid shares of WEC Sub's common
stock so that, immediately prior to the Effective Time, the number of
outstanding shares of common stock of WEC Sub is equal to the number of
outstanding shares of NSP Common Stock at such time.
ARTICLE VIII
CONDITIONS
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGERS. The respective obligations of each party to effect the Mergers shall
be subject to the satisfaction on or prior to the Closing Date of the following
conditions, except, to the extent permitted by applicable law, that such
conditions may be waived in writing pursuant to SECTION 9.5 by the joint action
of the parties hereto:
(a) SHAREHOLDER APPROVALS. The WEC Shareholders' Approval and the NSP
Shareholders' Approval shall have been obtained.
(b) NO INJUNCTION. No temporary restraining order or preliminary or
permanent injunction or other order by any federal or state court preventing
consummation of the Mergers shall have been issued and be continuing in
effect, and the Mergers and the other transactions contemplated hereby shall
not have been prohibited under any applicable federal or state law or
regulation.
(c) REGISTRATION STATEMENT. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act,
and no stop order suspending such effectiveness shall have been issued and
remain in effect.
(d) LISTING OF SHARES. The shares of Company Common Stock issuable in
the Mergers pursuant to ARTICLE II shall have been approved for listing on
the NYSE upon official notice of issuance.
(e) STATUTORY APPROVALS. The NSP Required Statutory Approvals and the
WEC Required Statutory Approvals shall have been obtained at or prior to the
Effective Time, such approvals shall have become Final Orders (as defined
below) and such Final Orders do not impose terms or conditions which, in the
aggregate, would have, or insofar as reasonably can be foreseen, could have,
a material adverse effect on the business, assets, financial condition or
results of operations of the Company and its prospective subsidiaries taken
as a whole or on the Company's prospective utility subsidiaries located in
the State of Minnesota taken as a whole, or on its prospective utility
subsidiaries located in the State of Wisconsin taken as a whole or which
would be materially inconsistent with the agreements of the parties
contained herein. A "FINAL ORDER" means action by the relevant regulatory
authority which has not been reversed, stayed, enjoined, set aside, annulled
or suspended, with respect to which any waiting period prescribed by law
before the
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transactions contemplated hereby may be consummated has expired, and as to
which all conditions to the consummation of such transactions prescribed by
law, regulation or order have been satisfied.
(f) DISSENTERS' RIGHTS. The number of NSP Dissenting Shares shall not
constitute more than 5% of the number of issued and outstanding shares of
Old NSP Common Stock and Old NSP Preferred Stock, taken together as a single
class, for this purpose.
(g) POOLING. Each of NSP and WEC shall have received a letter of its
independent public accountants, dated the Closing Date, in form and
substance reasonably satisfactory, in each case, to NSP and WEC, stating
that the transactions effected pursuant to this Agreement will qualify as a
pooling of interests transaction under GAAP and applicable SEC regulations.
Section 8.2 CONDITIONS TO OBLIGATION OF WEC TO EFFECT THE MERGERS. The
obligation of WEC to effect the NSP Merger shall be further subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by WEC in writing pursuant to SECTION 9.5:
(a) PERFORMANCE OF OBLIGATIONS OF NSP. NSP (and/or its appropriate
subsidiaries) will have performed its agreements and covenants contained in
SECTIONS 6.1(b) and 6.1(c) and SECTION 7.19 and will have performed in all
material respects its other agreements and covenants contained in or
contemplated by this Agreement and the NSP Stock Option Agreement required
to be performed by it at or prior to the Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of NSP set forth in this Agreement and the NSP Stock Option Agreement shall
be true and correct (i) on and as of the date hereof and (ii) on and as of
the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a specific
date or time other than the date hereof or the Closing Date which need only
be true and correct as of such date or time) except in each of cases (i) and
(ii) for such failures of representations or warranties to be true and
correct (without regard to any materiality qualifications contained therein)
which, individually or in the aggregate, would not be reasonably likely to
result in a NSP Material Adverse Effect.
(c) CLOSING CERTIFICATES. WEC shall have received a certificate signed
by the chief financial officer of NSP, dated the Closing Date, to the effect
that, to the best of such officer's knowledge, the conditions set forth in
SECTION 8.2(a) and SECTION 8.2(b) have been satisfied.
(d) NSP MATERIAL ADVERSE EFFECT. No NSP Material Adverse Effect shall
have occurred and there shall exist no fact or circumstance which is
reasonably likely to have a NSP Material Adverse Effect.
(e) TAX RULING AND OPINION. WEC shall have received (i) a private
letter ruling from the Internal Revenue Service ("IRS") providing certain
assurances regarding the federal income tax consequences of the Mergers
satisfactory in form and substance to Skadden, Arps, Slate, Meagher & Flom
and Quarles & Brady and (ii) an opinion of Skadden, Arps, Slate, Meagher &
Flom or Quarles & Brady based upon such ruling and satisfactory in form and
substance to WEC, dated as of the Closing Date, to the effect that the
Reincorporation Merger and the subsequent NSP Merger will each be treated as
a tax-free reorganization under Section 368(a) of the Code.
(f) NSP REQUIRED CONSENTS. The NSP Required Consents the failure of
which to obtain would have a NSP Material Adverse Effect shall have been
obtained.
(g) AFFILIATE AGREEMENTS. WEC shall have received Affiliate
Agreements, duly executed by each "affiliate" of NSP, substantially in the
form of EXHIBIT 7.8, as provided in SECTION 7.8.
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Section 8.3 CONDITIONS TO OBLIGATION OF NSP TO EFFECT THE MERGERS. The
obligation of NSP to effect the NSP Merger shall be further subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by NSP in writing pursuant to SECTION 9.5:
(a) PERFORMANCE OF OBLIGATIONS OF WEC. WEC (and/or its appropriate
subsidiaries) will have performed its agreements and covenants contained in
SECTIONS 6.1(b) and 6.1(c) and will have performed in all material respects
its other agreements and covenants contained in or contemplated by this
Agreement and the WEC Stock Option Agreement required to be performed at or
prior to the Effective Time.
(b) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of WEC set forth in this Agreement and the WEC Stock Option Agreement shall
be true and correct (i) on and as of the date hereof and (ii) on and as of
the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a specific
date or time other than the date hereof or the Closing Date which need only
be true and correct as of such date or time) except in each of cases (i) and
(ii) for such failures of representations or warranties to be true and
correct (without regard to any materiality qualifications contained therein)
which, individually or in the aggregate, would not be reasonably likely to
result in a WEC Material Adverse Effect.
(c) CLOSING CERTIFICATES. NSP shall have received a certificate signed
by the chief financial officer of WEC, dated the Closing Date, to the effect
that, to the best of such officer's knowledge, the conditions set forth in
SECTION 8.3(a) and SECTION 8.3(b) have been satisfied.
(d) WEC MATERIAL ADVERSE EFFECT. No WEC Material Adverse Effect shall
have occurred and there shall exist no fact or circumstance which is
reasonably likely to have a WEC Material Adverse Effect.
(e) TAX RULING AND OPINION. NSP shall have received (i) a private
letter ruling from the IRS providing certain assurances regarding the
federal income tax consequences of the Mergers satisfactory in form and
substance to Wachtell, Lipton, Rosen & Katz and (ii) an opinion of Wachtell,
Lipton, Rosen & Katz based upon such ruling and satisfactory in form and
substance to NSP, dated as of the Closing Date, to the effect that the
Reincorporation Merger and the subsequent NSP Merger will each be treated as
a tax-free reorganization under Section 368(a) of the Code.
(f) WEC REQUIRED CONSENTS. The WEC Required Consents the failure of
which to obtain would have a WEC Material Adverse Effect shall have been
obtained.
(g) AFFILIATE AGREEMENTS. NSP shall have received Affiliate
Agreements, duly executed by each "affiliate" of WEC substantially in the
form of EXHIBIT 7.8, as provided in SECTION 7.8.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval by the shareholders
of the respective parties hereto contemplated by this Agreement:
(a) by mutual written consent of the Boards of Directors of NSP and WEC;
(b) by any party hereto, by written notice to the other parties, if the
Effective Time shall not have occurred on or before April 30, 1997 (the
"INITIAL TERMINATION DATE"); PROVIDED, HOWEVER, that the right to terminate
the Agreement under this SECTION 9.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before this date; and PROVIDED, FURTHER,
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that if on the Initial Termination Date the conditions to the Closing set
forth in SECTIONS 8.1(e), 8.2(f) and/or 8.3(f) shall not have been fulfilled
but all other conditions to the Closing shall be fulfilled or shall be
capable of being fulfilled, then the Initial Termination Date shall be
extended to October 31, 1997;
(c) by any party hereto, by written notice to the other parties, if the
WEC Shareholders' Approval shall not have been obtained at a duly held WEC
Special Meeting, including any adjournments thereof, or the NSP
Shareholders' Approval shall not have been obtained at a duly held NSP
Special Meeting, including any adjournments thereof;
(d) by any party hereto, if any state or federal law, order, rule or
regulation is adopted or issued, which has the effect, as supported by the
written opinion of outside counsel for such party, of prohibiting the NSP
Merger, or by any party hereto if any court of competent jurisdiction in the
United States or any State shall have issued an order, judgment or decree
permanently restraining, enjoining or otherwise prohibiting the NSP Merger,
and such order, judgment or decree shall have become final and
nonappealable;
(e) by WEC, upon two days' prior notice to NSP, if, as a result of a
tender offer by a party other than NSP or any of its affiliates or any
written offer or proposal with respect to a merger, sale of a material
portion of its assets or other business combination (each, a "BUSINESS
COMBINATION") by a party other than NSP or any of its affiliates, the Board
of Directors of WEC determines in good faith that their fiduciary
obligations under applicable law require that such tender offer or other
written offer or proposal be accepted; PROVIDED, HOWEVER, that (i) the Board
of Directors of WEC shall have been advised in a written opinion of outside
counsel that notwithstanding a binding commitment to consummate an agreement
of the nature of this Agreement entered into in the proper exercise of their
applicable fiduciary duties, and notwithstanding all concessions which may
be offered by NSP in negotiations entered into pursuant to CLAUSE (ii)
below, such fiduciary duties would also require the directors to reconsider
such commitment as a result of such tender offer or other written offer or
proposal; and (ii) prior to any such termination, WEC shall, and shall cause
its respective financial and legal advisors to, negotiate with NSP to make
such adjustments in the terms and conditions of this Agreement as would
enable WEC to proceed with the transactions contemplated herein on such
adjusted terms;
(f) by NSP, upon two days' prior notice to WEC, if, as a result of a
tender offer by a party other than WEC or any of its affiliates or any
written offer or proposal with respect to a Business Combination by a party
other than WEC or any of its affiliates, the Board of Directors of NSP
determines in good faith that their fiduciary obligations under applicable
law require that such tender offer or other written offer or proposal be
accepted; PROVIDED, HOWEVER, that (i) the Board of Directors of NSP shall
have been advised in a written opinion of outside counsel that
notwithstanding a binding commitment to consummate an agreement of the
nature of this Agreement entered into in the proper exercise of their
applicable fiduciary duties, and notwithstanding all concessions which may
be offered by WEC in negotiations entered into pursuant to clause (ii)
below, such fiduciary duties would also require the directors to reconsider
such commitment as a result of such tender offer or other written offer or
proposal; and (ii) prior to any such termination, NSP shall, and shall cause
its respective financial and legal advisors to, negotiate with WEC to make
such adjustments in the terms and conditions of this Agreement as would
enable NSP to proceed with the transactions contemplated herein on such
adjusted terms;
(g) by NSP, by written notice to WEC, if (i) there exist breaches of the
representations and warranties of WEC made herein as of the date hereof
which breaches, individually or in the aggregate, would or would be
reasonably likely to result in a WEC Material Adverse Effect, and such
breaches shall not have been remedied within 20 days after receipt by WEC of
notice in writing from NSP, specifying the nature of such breaches and
requesting that they be remedied, (ii) WEC (and/or its appropriate
subsidiaries) shall not have performed and complied with its agreements and
covenants contained in SECTIONS 6.1(b) and 6.1(c) or shall have failed to
perform
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and comply with, in all material respects, its other agreements and
covenants hereunder or under the WEC Stock Option Agreement and such failure
to perform or comply shall not have been remedied within 20 days after
receipt by WEC of notice in writing from NSP, specifying the nature of such
failure and requesting that it be remedied; or (iii) the Board of Directors
of WEC or any committee thereof (A) shall withdraw or modify in any manner
adverse to NSP its approval or recommendation of this Agreement or the NSP
Merger, (B) shall fail to reaffirm such approval or recommendation upon
NSP's request, (C) shall approve or recommend any acquisition of WEC or a
material portion of its assets or any tender offer for shares of capital
stock of WEC, in each case, by a party other than NSP or any of its
affiliates or (D) shall resolve to take any of the actions specified in
CLAUSE (A), (B) or (C); or
(h) by WEC, by written notice to NSP, if (i) there exist material
breaches of the representations and warranties of NSP made herein as of the
date hereof which breaches, individually or in the aggregate, would or would
be reasonably likely to result in a NSP Material Adverse Effect, and such
breaches shall not have been remedied within 20 days after receipt by NSP of
notice in writing from WEC, specifying the nature of such breaches and
requesting that they be remedied, (ii) NSP (and/or its appropriate
subsidiaries) shall not have performed and complied with its agreements and
covenants contained in SECTIONS 6.1(b) and 6.1(c) or shall have failed to
perform and comply with, in all material respects, its other agreements and
covenants hereunder or under the NSP Stock Option Agreement, and such
failure to perform or comply shall not have been remedied within 20 days
after receipt by NSP of notice in writing from WEC, specifying the nature of
such failure and requesting that it be remedied; or (iii) the Board of
Directors of NSP or any committee thereof (A) shall withdraw or modify in
any manner adverse to WEC its approval or recommendation of this Agreement
or the NSP Merger, (B) shall fail to reaffirm such approval or
recommendation upon WEC's request, (C) shall approve or recommend any
acquisition of NSP or a material portion of its assets or any tender offer
for the shares of capital stock of NSP, in each case by a party other than
WEC or any of its affiliates or (D) shall resolve to take any of the actions
specified in CLAUSE (A), (B) or (C).
Section 9.2 EFFECT OF TERMINATION. Subject to SECTION 10.1(b), in the
event of termination of this Agreement by either NSP or WEC pursuant to SECTION
9.1 there shall be no liability on the part of either NSP or WEC or their
respective officers or directors hereunder, except that SECTION 7.17 and SECTION
9.3, the agreement contained in the last sentence of SECTION 7.1, SECTION 10.2
and SECTION 10.8 shall survive the termination.
Section 9.3 TERMINATION FEE; EXPENSES.
(a) TERMINATION FEE UPON BREACH OR WITHDRAWAL OF APPROVAL. If this
Agreement is terminated at such time that this Agreement is terminable pursuant
to one (but not both) of (x) SECTION 9.1(g)(i) or (ii) or (y) SECTION 9.1(h)(i)
or (ii), then: (i) the breaching party shall promptly (but not later than five
business days after receipt of notice from the non-breaching party) pay to the
non-breaching party in cash an amount equal to all documented out-of-pocket
expenses and fees incurred by the non-breaching party (including, without
limitation, fees and expenses payable to all legal, accounting, financial,
public relations and other professional advisors arising out of, in connection
with or related to the Mergers or the transactions contemplated by this
Agreement) not in excess of $10 million; PROVIDED, HOWEVER, that, if this
Agreement is terminated by a party as a result of a willful breach by the other
party, the non-breaching party may pursue any remedies available to it at law or
in equity and shall, in addition to its out-of-pocket expenses (which shall be
paid as specified above and shall not be limited to $10 million), be entitled to
retain such additional amounts as such non-breaching party may be entitled to
receive at law or in equity; and (ii) if (x) at the time of the breaching
party's willful breach of this Agreement, there shall have been a third party
tender offer for shares of, or a third party offer or proposal with respect to a
Business Combination involving, such party or any of its affiliates which at the
time of such termination shall not have been rejected by such party and its
board of directors and withdrawn by the third party, and (y) within two and
one-half years of any termination by the non-breaching party, the breaching
party or an affiliate thereof becomes a subsidiary of such
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offeror or a subsidiary of an affiliate of such offeror or accepts a written
offer to consummate or consummates a Business Combination with such offeror or
an affiliate thereof, then such breaching party (jointly and severally with its
affiliates), upon the signing of a definitive agreement relating to such a
Business Combination, or, if no such agreement is signed then at the closing
(and as a condition to the closing) of such breaching party becoming such a
subsidiary or of such Business Combination, will pay to the non-breaching party
an additional fee equal to $75 million in cash.
(b) ADDITIONAL TERMINATION FEE. If (i) this Agreement (x) is terminated by
any party pursuant to SECTION 9.1(e) or SECTION 9.1(f), (y) is terminated
following a failure of the shareholders of any one of the parties to grant the
necessary approvals described in SECTION 4.13 and SECTION 5.13 or (z) is
terminated as a result of such party's material breach of SECTION 7.4, and (ii)
at the time of such termination or prior to the meeting of such party's
shareholders there shall have been a third-party tender offer for shares of, or
a third-party offer or proposal with respect to a Business Combination
involving, such party or any of its affiliates which at the time of such
termination or of the meeting of such party's shareholders shall not have been
(A) rejected by such party and its board of directors and (B) withdrawn by the
third party, and (iii) within two and one-half years of any such termination
described in clause (i) above, the party or its affiliate which is the subject
of the tender offer or offer or proposal with respect to a Business Combination
(the "TARGET PARTY") becomes a subsidiary of such offeror or a subsidiary of an
affiliate of such offeror or accepts a written offer to consummate or
consummates a Business Combination with such offeror or affiliate thereof, then
such Target Party (jointly and severally with its affiliates), upon the signing
of a definitive agreement relating to such a Business Combination, or, if no
such agreement is signed, then at the closing (and as a condition to the
closing) of such Target Party becoming such a subsidiary or of such Business
Combination, will pay to the other party a termination fee equal to $75 million
in cash plus the out-of-pocket fees and expenses incurred by the non-breaching
party (including, without limitation, fees and expenses payable to all legal,
accounting, financial, public relations and other professional advisors arising
out of, in connection with or related to the Mergers or the transactions
contemplated by this Agreement).
(c) EXPENSES. The parties agree that the agreements contained in this
SECTION 9.3 are an integral part of the transactions contemplated by the
Agreement and constitute liquidated damages and not a penalty. If one party
fails to promptly pay to the other any fee due hereunder, the defaulting party
shall pay the costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other legal
action, taken to collect payment, together with interest on the amount of any
unpaid fee at the publicly announced prime rate of Citibank, N.A. from the date
such fee was required to be paid.
(d) LIMITATION OF TERMINATION FEES. Notwithstanding anything herein to the
contrary, the aggregate amount payable to NSP and its affiliates pursuant to
SECTION 9.3(a), SECTION 9.3(b) and the terms of the WEC Stock Option Agreement
shall not exceed $125 million and the aggregate amount payable to WEC and its
affiliates pursuant to SECTION 9.3(a), SECTION 9.3(b) and the terms of the NSP
Stock Option Agreement shall not exceed $125 million (including, in each case,
reimbursement for fees and expenses payable pursuant to this SECTION 9.3). For
purposes of this SECTION 9.3(d), the amount payable pursuant to the terms of the
WEC Stock Option Agreement or the NSP Stock Option Agreement, as the case may
be, shall be the amount paid pursuant to Section 7(a)(i) and 7(a)(ii) thereof.
Section 9.4 AMENDMENT. This Agreement may be amended by the Boards of
Directors of the parties hereto, at any time before or after approval hereof by
the shareholders of NSP and WEC and prior to the Effective Time, but after such
approvals, no such amendment shall (i) alter or change the amount or kind of
shares, rights or any of the proceedings of the treatment of shares under
Article II, (ii) alter or change any of the terms and conditions of this
Agreement if any of the alterations or changes, alone or in the aggregate, would
materially adversely affect the rights of holders of Old NSP Common Stock or WEC
Common Stock, or (iii) alter or change any term of the Restated Articles of
Incorporation of WEC (including the WEC Article Amendments) as approved by the
shareholders of
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WEC, except for alterations or changes that could otherwise be adopted by the
Board of Directors of the Company, without the further approval of such
shareholders, as applicable. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
Section 9.5 WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein, to the extent permitted by applicable law. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid if set forth in an instrument in writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 NON-SURVIVAL; EFFECT OF REPRESENTATIONS AND WARRANTIES. (a)
All representations, warranties and agreements in this Agreement shall not
survive the Mergers, except as otherwise provided in this Agreement and except
for the agreements contained in this SECTION 10.1 and in ARTICLE II, SECTION
7.5, SECTION 7.9, SECTION 7.10, SECTION 7.11, SECTION 7.14, SECTION 7.15,
SECTION 7.16, SECTION 7.17 and SECTION 10.7.
(b) No party may assert a claim for breach of any representation or warranty
contained in this Agreement (whether by direct claim or counterclaim) except in
connection with the cancellation of this Agreement pursuant to SECTION 9.1(g)(i)
or SECTION 9.1(h)(i) (or pursuant to any other subsection of SECTION 9.1, if the
terminating party would have been entitled to terminate this Agreement pursuant
to SECTION 9.1(g)(i) or SECTION 9.1(h)(i)).
Section 10.2 BROKERS. NSP represents and warrants that, except for
Goldman, Sachs & Co. whose fees have been disclosed to WEC prior to the date
hereof, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Mergers or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of NSP. WEC represents and warrants that, except for Barr Devlin & Co.
Incorporated, whose fees have been disclosed to NSP prior to the date hereof, no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Mergers or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
WEC.
Section 10.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if (i) delivered personally, (ii) sent
by reputable overnight courier service, (iii) telecopied (which is confirmed),
or (iv) five days after being mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to NSP, to:
Northern States Power Company
414 Nicollet Mall
Minneapolis, Minnesota 55401
Attention: Gary Johnson, Esq.
Telephone: (612) 330-7623
Telecopy: (612) 330-6222
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with a copy to:
Gardner, Carton & Douglas
Quaker Tower, 31st Floor
321 North Clark Street
Chicago, Illinois 60610-4795
Attention: Peter Clarke, Esq.
Telephone: (312) 245-8685
Telecopy: (312) 644-3381
and a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Barry A. Bryer, Esq.
Seth A. Kaplan, Esq.
Telephone: (212) 403-1000
Telecopy: (212) 403-2000
(b) If to WEC, to:
Wisconsin Energy Corporation
231 West Michigan Street
Milwaukee, WI 53201
Attention: Walter T. Woelfle, Esq.
Telephone: (414) 221-2765
Telecopy: (414) 221-2412
with a copy to:
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Patrick M. Ryan, Esq.
Telephone: (414) 277-5181
Telecopy: (414) 277-5174
and a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Sheldon S. Adler, Esq.
Telephone: (212) 735-3000
Telecopy: (212) 735-2000
Section 10.4 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (i) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
other than the Confidentiality Agreement; (ii) shall not be assigned by
operation of law or otherwise; and (iii) shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts
executed in and to be fully performed in such State, without giving
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effect to its conflicts of law, rules or principles and except to the extent the
provisions of this Agreement (including the documents or instruments referred to
herein) are expressly governed by or derive their authority from the MBCA or the
WBCL.
Section 10.5 INTERPRETATION. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section or Exhibit of this
Agreement, respectively, unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
Section 10.6 COUNTERPARTS; EFFECT. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
Section 10.7 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except for rights of
Indemnified Parties as set forth in SECTION 7.5, nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Notwithstanding the foregoing and any other provision of this Agreement, and in
addition to any other required action of the Board of Directors of the Company
(a) a majority of the directors (or their successors) serving on the Board of
Directors of the Company who are designated by WEC pursuant to SECTION 7.13
shall be entitled during the three year period commencing at the Effective Time
(the "THREE YEAR PERIOD") to enforce the provisions of SECTION 7.9, SECTION
7.10, SECTION 7.11 and SECTION 7.14 on behalf of the WEC officers, directors and
employees, as the case may be, and (b) a majority of the directors (or their
successors) serving on the Board of Directors of the Company who are designated
by NSP pursuant to SECTION 7.13 shall be entitled during the Three Year Period
to enforce the provisions of, SECTIONS 7.9, SECTION 7.10, SECTION 7.11, and
SECTION 7.14 on behalf of the NSP officers, directors and employees, as the case
may be. Such directors' rights and remedies under the preceding sentence are
cumulative and are in addition to any other rights and remedies they may have at
law or in equity, but in no event shall this SECTION 10.7 be deemed to impose
any additional duties on any such directors. The Company shall pay, at the time
they are incurred, all costs, fees and expenses of such directors incurred in
connection with the assertion of any rights on behalf of the persons set forth
above pursuant to this SECTION 10.7.
Section 10.8 WAIVER OF JURY TRIAL AND CERTAIN DAMAGES. Each party to this
Agreement waives, to the fullest extent permitted by applicable law, (i) any
right it may have to a trial by jury in respect of any action, suit or
proceeding arising out of or relating to this Agreement and (ii) without
limitation to SECTION 9.3, any right it may have to receive damages from any
other party based on any theory of liability for any special, indirect,
consequential (including lost profits) or punitive damages.
Section 10.9 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of New York or in New York state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of New York or
any New York state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny such personal jurisdiction by motion or other request
for leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a federal or state court sitting in the State
of New York.
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IN WITNESS WHEREOF, NSP, WEC, New NSP and WEC Sub have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
NORTHERN STATES POWER COMPANY
By: /s/ JAMES J. HOWARD
----------------------------------------
Name: James J. Howard
Attest: /s/ GARY R. JOHNSON Title: Chairman and Chief
Executive Officer
---------------------------------------
Secretary
WISCONSIN ENERGY CORPORATION
By: /s/ RICHARD A. ABDOO
----------------------------------------
Name: Richard A. Abdoo
Attest: /s/ JOHN H. GOETSCH Title: Chairman, President
and Chief Executive Officer
---------------------------------------
Secretary
NORTHERN POWER WISCONSIN CORP.
By: /s/ EDWARD J. McINTYRE
----------------------------------------
Name: Edward J. McIntyre
Attest: /s/ GARY R. JOHNSON Title: President
---------------------------------------
Secretary
WEC SUB CORP.
By: /s/ RICHARD A. ABDOO
----------------------------------------
Name: Richard A. Abdoo
Attest: /s/ ANN MARIE BRADY Title: Chairman, President and
Chief Executive Officer
---------------------------------------
Secretary
A-52
EXHIBIT A TO MERGER AGREEMENT
FORM OF WEC
STOCK OPTION AGREEMENT
SEE ANNEX C TO THE
JOINT PROXY STATEMENT/PROSPECTUS
A-53
EXHIBIT B TO MERGER AGREEMENT
FORM OF NSP
STOCK OPTION AGREEMENT
SEE ANNEX B TO THE
JOINT PROXY STATEMENT/PROSPECTUS
A-54
EXHIBIT 7.8 TO MERGER AGREEMENT
FORM OF AFFILIATE AGREEMENT
GENTLEMEN:
[The undersigned is a holder of shares of [Common Stock, par value $2.50 per
share ("NSP COMMON STOCK"), of Northern States Power Company, a Minnesota
corporation ("NSP")] [Common Stock, par value $.01 per share ("WEC COMMON
STOCK") of Wisconsin Energy Corporation, a Wisconsin corporation ("WEC")]
[Cumulative Preferred Stock, par value $100 per share ("NSP PREFERRED STOCK") of
Northern States Power Company, a Minnesota corporation ("NSP")] [Preferred
Stock, par value $100 per share ("WEPCO PREFERRED STOCK") of Wisconsin Electric
Power Company, a Wisconsin corporation ("WEPCO")]]. [The undersigned is entitled
to receive in connection with the merger (the "MERGER") of [NSP], after it is
reincorporated in Wisconsin, with a subsidiary of [WEC], securities of WEC (the
"Securities").] [This letter relates to the merger (the "Merger") of [NSP],
after it is reincorporated in Wisconsin, with a subsidiary of [WEC], in which
holders of securities of NSP shall receive securities of WEC (the
"Securities").]
The undersigned acknowledges that the undersigned may be deemed an
"affiliate" of [NSP] [WEC] within the meaning of Rule 145 ("RULE 145")
promulgated under the Securities Act of 1933, as amended (the "ACT"), and/or as
such term is used in and for purposes of Accounting Series Releases 130 and 135,
as amended, of the Securities and Exchange Commission (the "Commission"),
although nothing contained herein shall be construed as an admission of such
status.
If in fact the undersigned were an affiliate of [NSP] [WEC] under the Act,
the undersigned's ability to sell, assign or transfer any Securities [received
by the undersigned in exchange for any shares of NSP Common Stock pursuant to
the Merger] may be restricted unless such transaction is registered under the
Act or an exemption from such registration is available. The undersigned
understands that such exemptions are limited and the undersigned has obtained
advice of counsel as to the nature and conditions of such exemptions, including
information with respect to the applicability to the sale of such securities of
Rules 144 and 145(d) promulgated under the Act.
The undersigned hereby represents to and covenants with [WEC] [NSP] that it
will not sell, assign or transfer any Securities [received by the undersigned in
exchange for shares of NSP Common Stock pursuant to the Merger] except (i)
pursuant to an effective registration statement under the Act, (ii) by a sale
made in conformity with the volume and other limitations of Rule 145 (and
otherwise in accordance with Rule 144 under the Act if the undersigned is an
affiliate of WEC and if so required at the time) or (iii) in a transaction
which, in the opinion of independent counsel reasonably satisfactory to WEC or
as described in a "no-action" or interpretive letter from the Staff of the
Commission, is not required to be registered under the Act.
The undersigned understands that WEC is under no obligation to register the
sale, transfer or other disposition of the Securities by the undersigned or on
behalf of the undersigned under the Act or to take any other action necessary in
order to make compliance with an exemption from such registration available
solely as a result of the Merger.
In the event of a sale of Securities pursuant to Rule 145, the undersigned
will supply WEC with evidence of compliance with such Rule, in the form of
customary seller's and broker's Rule 145 representation letters or as WEC may
otherwise reasonably request. The undersigned understands that WEC may instruct
its transfer agent to withhold the transfer of any Securities disposed of by the
undersigned in a manner inconsistent with this letter.
The undersigned acknowledges and agrees that appropriate legends will be
placed on certificates representing Securities received by the undersigned in
the Merger or held by a transferee thereof, which legends will be removed (i) by
delivery of substitute certificates upon receipt of an opinion in form and
substance reasonably satisfactory to WEC to the effect that such legends are no
longer
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required for the purposes of the Act and the rules and regulations of the
Commission promulgated thereunder or (ii) in the event of a sale of the
Securities which has been registered under the Act or made in conformity with
the provisions of Rule 145.
The undersigned further represents to, and covenants with WEC that the
undersigned will not, during the 30 days prior to the effective time of the
Merger sell, transfer or otherwise dispose of, or reduce any risk relative to,
any securities of WEPCO, NSP or WEC, and the undersigned will not sell, transfer
or otherwise dispose of, or reduce any risk relative to, the Securities received
by the undersigned in the Merger or any other shares of the capital stock of WEC
until after such time as results covering at least 30 days of operations of WEC
(including the combined operations of NSP and WEC) have been published by WEC in
the form of a quarterly earnings report, an effective registration statement
filed with the Commission, a report to the Commission on Form 10-K, 10-Q, or
8-K, or any other public filing or announcement which includes such results of
operations.
The undersigned acknowledges that it has carefully reviewed this letter and
understands the requirements hereof and the limitations imposed upon the
distribution, sale, transfer or other disposition of Securities.
Very truly yours,
______________________________________
[Name]
Dated:
As an inducement to the above individual to deliver this letter, WEC agrees
that for so long as and to the extent necessary to permit such individual to
sell the Securities pursuant to Rule 145 and, to the extent applicable, Rule 144
under the Act, WEC shall use all reasonable efforts to file, on a timely basis,
all reports and data required to be filed by it with the Commission pursuant to
Section 13 of the Securities Exchange Act of 1934.
Very truly yours,
WISCONSIN ENERGY CORPORATION
By: __________________________________
Name:
Title:
A-56
EXHIBIT 7.10 (a) TO MERGER AGREEMENT
NSP SENIOR EXECUTIVE SEVERANCE POLICY
INTRODUCTION
Northern States Power Company, a Minnesota corporation ("NSP") and Wisconsin
Energy Corporation, a Wisconsin corporation ("WEC") have entered into an
Agreement and Plan of Merger dated as of April 28, 1995 (the "Merger
Agreement"), whereby the NSP and WEC organizations will engage in a
merger-of-equals transaction (the "Combination"). The Board of Directors of NSP
recognizes that the pendency of the Combination, and the inevitable adjustments
that will occur during the transition period following the Combination, may
result in the loss or distraction of employees of the Corporation and its
Subsidiaries to the detriment of the Corporation and its shareholders.
The Board considers the avoidance of such loss and distraction to be
essential to protecting and enhancing the best interests of the Corporation and
its shareholders. The Board also believes that during the pendency of the
Combination and the transition period thereafter, the Board should be able to
receive and rely on disinterested service from employees without concern that
employees might be distracted or concerned by personal uncertainties and risks.
In addition, the Board believes that it is consistent with the Corporation's
employment practices and policies and in the best interests of the Corporation
and its shareholders to treat fairly its employees whose employment terminates
in connection with or following the Combination.
Accordingly, the Board has determined that appropriate steps should be taken
to assure the Corporation of the continued employment and attention and
dedication to duty of its employees and to seek to ensure the availability of
their continued service, notwithstanding the Combination.
Therefore, in order to fulfill the above purposes, the following plan has
been developed and is hereby adopted.
ARTICLE I
ESTABLISHMENT OF PLAN
As of the Effective Date, the Corporation hereby establishes a separation
compensation plan known as the NSP Senior Executive Severance Policy, as set
forth in this document.
ARTICLE II
DEFINITIONS
As used herein the following words and phrases shall have the following
respective meanings unless the context clearly indicates otherwise.
(a) ANNUAL INCENTIVE AWARD. The highest amount a Participant received as
an annual cash incentive award in any of the three years prior to a termination
of employment entitling the Participant to a Separation Benefit.
(b) ANNUAL COMPENSATION. The sum of a Participant's Annual Salary and
Annual Incentive Award.
(c) ANNUAL SALARY. The Participant's regular annual base salary
immediately prior to his or her termination of employment, including
compensation converted to other benefits under a flexible pay arrangement
maintained by the Corporation or deferred pursuant to a written plan or
agreement with the Corporation, but excluding overtime pay, allowances, premium
pay, compensation paid or payable under any Corporation long-term or short-term
incentive plan or any similar payment.
(d) BOARD. The Board of Directors of Northern States Power Company.
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(e) CODE. The Internal Revenue Code of 1986, as amended from time to time.
(f) COMMITTEE. The Compensation Committee of the Board.
(g) CORPORATION. Northern States Power Company and any successor thereto,
including without limitation Northern Power Wisconsin Corp.
(h) DATE OF THE COMBINATION. The Effective Time, as defined in the Merger
Agreement.
(i) DATE OF TERMINATION. The date on which a Participant ceases to be an
Employee.
(j) EFFECTIVE DATE. The date of the Merger Agreement.
(k) EMPLOYEE. Any full-time, regular-benefit, non-bargaining employee of
an Employer. The term shall exclude all individuals employed as independent
contractors, temporary employees, other benefit employees, non-benefit
employees, leased employees, even if it is subsequently determined that such
classification is incorrect.
(l) EMPLOYER. The Corporation or a Subsidiary which has adopted the Plan
pursuant to Article V hereof.
(m) PARTICIPANT. An individual who is designated as such pursuant to
Section 3.1.
(n) SEPARATION BENEFITS. The benefits described in Section 4.3 that are
provided to qualifying Participants under the Plan.
(o) PLAN. The NSP Senior Executive Severance Policy.
(p) SEPARATION PERIOD. The period beginning on a Participant's Date of
Termination and ending on the third anniversary thereof.
(q) SUBSIDIARY. Any corporation in which the Corporation, directly or
indirectly, holds a majority of the voting power of such corporation's
outstanding shares of capital stock.
(r) TARGET ANNUAL INCENTIVE. The Annual Incentive Award that the
Participant would have received for the year in which his or her Date of
Termination occurs, if the target goals had been achieved.
ARTICLE III
ELIGIBILITY
3.1 PARTICIPATION. Each of the individuals named on Schedule 1 hereto
shall be a Participant in the Plan. Schedule 1 may be amended by the Board from
time to time to add individuals as Participants.
3.2 DURATION OF PARTICIPATION. A Participant shall only cease to be a
Participant in the Plan as a result of an amendment or termination of the Plan
complying with Article VII of the Plan, or when he ceases to be an Employee of
any Employer, unless, at the time he ceases to be an Employee, such Participant
is entitled to payment of a Separation Benefit as provided in the Plan or there
has been an event or occurrence described in Section 4.2(a) which would enable
the Participant to terminate his employment and receive a Separation Benefit. A
Participant entitled to payment of a Separation Benefit or any other amounts
under the Plan shall remain a Participant in the Plan until the full amount of
the Separation Benefit and any other amounts payable under the Plan have been
paid to the Participant.
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ARTICLE IV
SEPARATION BENEFITS
4.1 RIGHT TO SEPARATION BENEFIT. A Participant shall be entitled to
receive Separation Benefits in accordance with Section 4.3 if the Participant
ceases to be an Employee for any reason specified in Section 4.2(a).
4.2 TERMINATION OF EMPLOYMENT.
(a) TERMINATIONS WHICH GIVE RISE TO SEPARATION BENEFITS UNDER THIS
PLAN. Except as set forth in subsection (b) below, a Participant shall be
entitled to Separation Benefits if, at any time before the second anniversary of
the Date of the Combination:
(i) the Participant ceases to be an Employee by action of the Employer
or any of its affiliates (excluding any transfer to another Employer);
(ii) the Participant's Annual Salary is reduced below the higher of (x)
the amount in effect on the Effective Date and (y) the highest amount in
effect at any time thereafter, and the Participant ceases to be an Employee
by his or her own action within 90 days after the occurrence of such
reduction;
(iii) the Participant's duties and responsibilities or the program of
incentive compensation and retirement and welfare benefits offered to the
Participant are materially and adversely diminished in comparison to the
duties and responsibilities or the program of benefits enjoyed by the
Participant on the Effective Date, and the Participant ceases to be an
Employee by his or her own action within 90 days after the occurrence after
such reduction;
(iv) the Participant is required to be based at a location more than 50
miles from the location where the Participant was based and performed
services on the Effective Date, and the Participant ceases to be an Employee
by his or her own action within 90 days after such relocation;
(v) an Employer or any affiliate of an Employer sells or otherwise
distributes or disposes of the subsidiary, branch or other business unit in
which the Participant was employed before such sale, distribution or
disposition and the requirements of subsection (b)(iv) of this Section 4.2
are not met, and the Participant ceases to be an Employee upon or within 90
days after such sale, distribution or disposition.
(b) TERMINATIONS WHICH DO NOT GIVE RISE TO SEPARATION BENEFITS UNDER THIS
PLAN. If a Participant's employment is terminated for Cause, disability,
retirement, or a qualified sale of business (as those terms are defined below),
or voluntarily by the Participant in the absence of an event described in
subsection (a)(ii), (iii) or (iv) of this Section 4.2, the Participant shall not
be entitled to Separation Benefits under the Plan.
(i) A termination for disability shall have occurred where a Participant
is terminated because illness or injury has prevented him from performing
his duties (as they existed immediately prior to the illness or injury) on a
full time basis for 180 consecutive business days.
(ii) A termination by retirement shall have occurred where a
Participant's termination is due to his voluntary late, normal or early
retirement under a pension plan sponsored by his Employer or its affiliates,
as defined in such plan.
(iii) A termination for Cause shall have occurred where a Participant is
terminated because of:
(A) the willful and continued failure of the Participant to perform
substantially the Participant's duties with the Corporation or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Participant by the Board or an elected
officer of
A-59
the Corporation which specifically identifies the manner in which the
Board or the elected officer believes that the Participant has not
substantially performed the Participant's duties, or
(B) the willful engaging by the Participant in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Corporation.
For purposes of this provision, no act or failure to act, on the part of the
Participant, shall be considered "willful" unless it is done, or omitted to
be done, by the Participant in bad faith or without reasonable belief that
the Participant's action or omission was in the best interests of the
Corporation. Any act, or failure to act, based upon authority given pursuant
to a resolution duly adopted by the Board, or upon the advice of counsel for
the Corporation, shall be conclusively presumed to be done, or omitted to be
done, by the Participant in good faith and in the best interests of the
Corporation.
(iv) A termination due to a qualified sale of business shall have
occurred where an Employer or an affiliate of an Employer has sold,
distributed or otherwise disposed of the subsidiary, branch or other
business unit in which the Participant was employed before such sale,
distribution or disposition and the Participant has been offered employment
with the purchaser of such subsidiary, branch or other business unit or the
corporation or other entity which is the owner thereof on substantially the
same terms and conditions under which he worked for the Employer (including,
without limitation, base salary, duties and responsibilities, program of
benefits and location where based). Such terms and conditions shall also
include, without limitation, a legally binding agreement or plan covering
such Participant, providing that upon a termination of employment with the
subsidiary, branch or business unit (or the corporation or other entity
which is the owner thereof) or any successor thereto of the kind described
in Article VI of this Plan, at any time before the second anniversary of the
Date of the Combination, the Participant's employer or any successor will
pay to each such former Participant an amount equal to the separation
benefit and other benefits that such former Participant would have received
under the Plan had he been a Participant at the time of such termination.
For purposes of this subsection, the new employer plan or agreement must
treat service with any Employer (irrespective of whether the Employer was an
affiliate of the Corporation or the Employee was a Participant at the time
of such service) and the new employer as continuous service for purposes of
calculating separation benefits.
4.3 SEPARATION BENEFITS.
(a) If a Participant's employment is terminated in circumstances entitling
him to a separation benefit as provided in Section 4.2(a), the Participant's
Employer shall pay such Participant, within ten days of the Date of Termination,
a cash lump sum as set forth in subsection (b) below and the continued benefits
set forth in subsection (c) below. For purposes of determining the benefits set
forth in subsections (b) and (c), if the termination of the Participant's
employment is based upon a reduction of the Participant's Annual Salary or
benefits as described in subsection (ii) or (iii) of Section 4.2, such reduction
shall be ignored.
(b) The cash lump sum referred to in Section 4.3(a) shall equal the
aggregate of the following amounts:
(i) the sum of (1) the Participant's Annual Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
Target Incentive and (y) a fraction, the numerator of which is the number of
days in such year through the Date of Termination, and the denominator of
which is 365, and (3) any compensation previously deferred by the
Participant (together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid and in
full satisfaction of the rights of the Participant thereto;
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(ii) an amount equal to the product of (1) three and (2) the sum of (x)
the Participant's Annual Salary and (y) the higher of the Target Annual
Incentive or the Annual Incentive Award; and
(iii) an amount equal to the difference between (a) the actuarial
equivalent of the benefit under the Corporation's qualified defined benefit
retirement plan (the "Retirement Plan") and any excess or supplemental
retirement plans in which the Participant participates (together, the
"SERP") which the Participant would receive if his or her employment
continued during the Separation Period, assuming that the Participant's
compensation during the Separation Period would have been equal to his or
her compensation as in effect immediately before the termination or, if
higher, on the Effective Date, and (b) the actuarial equivalent of the
Participant's actual benefit (paid or payable), if any, under the Retirement
Plan and the SERP as of the Date of Termination. The actuarial assumptions
used for purposes of determining actuarial equivalence shall be no less
favorable to the Participant than the most favorable of those in effect
under the Retirement Plan and the SERP on the Date of Termination and the
Effective Date.
(c) The continued benefits referred to above shall be as follows.
(i) During the Separation Period, the Participant and his family shall
be provided with medical, dental and life insurance benefits as if the
Participant's employment had not been terminated; provided, however, that if
the Participant becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another employer-provided
plan, the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility (but not the
time of commencement of benefits) of the Participant for retiree medical,
dental and life insurance benefits under the Corporation's plans, practices,
programs and policies, the Participant shall be considered to have remained
employed during the Separation Period and to have retired on the last day of
such period;
(ii) The Corporation shall, at its sole expense as incurred, provide the
Participant with outplacement services the scope and provider of which shall
be selected by the Participant in his or her sole discretion (but at a cost
to the Corporation of not more than $30,000) or, at the Participant's
option, the use of office space, office supplies and equipment and
secretarial services for a period not to exceed one year;
(iii) The Corporation shall continue to provide the Participant with
financial planning counselling benefits through the second anniversary of
the Date of Termination, on the same terms and conditions as were in effect
immediately before the termination or, if more favorable, on the Effective
Date; and
(iv) The Corporation shall transfer to the Participant, at no cost to the
Participant, the title to the company car being used by the Participant as
of the Date of Termination.
To the extent any benefits described in this Section 4.3(c) cannot be provided
pursuant to the appropriate plan or program maintained for Employees, the
Employer shall provide such benefits outside such plan or program at no
additional cost (including without limitation tax cost) to the Participant.
4.4 OTHER BENEFITS PAYABLE. The cash lump sum and continuing benefits
described in Section 4.3 above shall be payable in addition to, and not in lieu
of, all other accrued or vested or earned but deferred compensation, rights,
options or other benefits which may be owed to a Participant upon or following
termination, including but not limited to accrued vacation or sick pay, amounts
or benefits payable under any bonus or other compensation plans, stock option
plan, stock ownership plan, stock purchase plan, life insurance plan, health
plan, disability plan or similar or successor plan, but excluding any severance
pay or pay in lieu of notice required to be paid to such Participant under
applicable law.
A-61
4.5 CERTAIN REDUCTION OF PAYMENTS BY THE CORPORATION.
(a) For purposes of this Section 4.5, (i) a Payment shall mean any payment
or distribution in the nature of compensation to or for the benefit of a
Participant, whether paid or payable pursuant to this Plan or otherwise; (ii)
Separation Payment shall mean a Payment paid or payable pursuant to this Plan
(disregarding this Section); (iii) Net After Tax Receipt shall mean the Present
Value of a Payment net of all taxes imposed on a Participant with respect
thereto under Sections 1 and 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), determined by applying the highest marginal rate under
Section 1 of the Code which applied to the Participant's taxable income for the
immediately preceding taxable year; (iv) "Present Value" shall mean such value
determined in accordance with Section 280G(d)(4) of the Code; and (v) "Reduced
Amount" shall mean the greatest aggregate amount of Separation Payments which
(a) is less than the sum of all Separation Payments and (b) results in aggregate
Net After Tax Receipts which are equal to or greater than the Net After Tax
Receipts which would result if the Participant were paid the sum of all
Separation Payments.
(b) Anything in this Agreement to the contrary notwithstanding, in the event
Price Waterhouse or such other certified public accounting firm designated by
the Participant (the "Accounting Firm") shall determine that receipt of all
Payments would subject the Participant to tax under Section 4999 of the Code, it
shall determine whether some amount of Separation Payments would meet the
definition of a "Reduced Amount." If the Accounting Firm determines that there
is a Reduced Amount, the aggregate Separation Payments shall be reduced to such
Reduced Amount. All fees payable to the Accounting Firm shall be paid solely by
the Corporation.
(c) If the Accounting Firm determines that aggregate Separation Payments
should be reduced to the Reduced Amount, the Corporation shall promptly give the
Participant notice to that effect and a copy of the detailed calculation
thereof, and the Participant may then elect, in his sole discretion, which and
how much of the Separation Payments shall be eliminated or reduced (as long as
after such election the present value of the aggregate Separation Payments
equals the Reduced Amount), and shall advise the Corporation in writing of his
election within ten days of his receipt of notice. If no such election is made
by the Participant within such ten-day period, the Corporation may elect which
of such Separation Payments shall be eliminated or reduced (as long as after
such election the present value of the aggregate Separation Payments equals the
Reduced Amount) and shall notify the Participant promptly of such election. All
determinations made by the Accounting Firm under this Section shall be binding
upon the Corporation and the Participant and shall be made within 60 days of a
termination of employment of the Participant. As promptly as practicable
following such determination, the Corporation shall pay to or distribute for the
benefit of the Participant such Separation Payments as are then due to the
Participant under this Plan and shall promptly pay to or distribute for the
benefit of the Participant in the future such Separation Payments as become due
to the Participant under this Plan.
(d) While it is the intention of the Corporation to reduce the amounts
payable or distributable to the Participants hereunder only if the aggregate Net
After Tax Receipts to a Participant would thereby be increased, as a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
amounts will have been paid or distributed by the Corporation to or for the
benefit of a Participant pursuant to this Plan which should not have been so
paid or distributed ("Overpayment") or that additional amounts which will have
not been paid or distributed by the Corporation to or for the benefit of a
Participant pursuant to this Plan could have been so paid or distributed
("Underpayment"), in each case, consistent with the calculation of the Reduced
Amount hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against either the
Corporation or the Participant which the Accounting Firm believes has a high
probability of success determines that an Overpayment has been made, any such
Overpayment paid or distributed by the Corporation to or for the benefit of a
Participant shall be treated for all purposes as a loan to the Participant which
the Participant shall repay to the Corporation together with interest at the
applicable federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no such loan
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shall be deemed to have been made and no amount shall be payable by a
Participant to the Corporation if and to the extent such deemed loan and payment
would not either reduce the amount on which the Participant is subject to tax
under Section 1 and Section 4999 of the Code or generate a refund of such taxes.
In the event that the Accounting Firm, based upon controlling precedent or
substantial authority, determines that an Underpayment has occurred, any such
Underpayment shall be promptly paid by the Corporation to or for the benefit of
the Participant together with interest at the applicable federal rate provided
for in Section 7872(f)(2) of the Code.
4.6 PAYMENT OBLIGATIONS ABSOLUTE. Subject to Section 4.5, the obligations
of the Corporation and the Employers to pay the separation benefits described in
Section 4.3 shall be absolute and unconditional and shall not be affected by any
circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which the Corporation or any of its
Subsidiaries may have against any Participant. In no event shall a Participant
be obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to a Participant under any of the provisions
of this Plan, nor shall the amount of any payment hereunder be reduced by any
compensation earned by a Participant as a result of employment by another
employer, except as specifically provided in Section 4.3(c)(i).
ARTICLE V
PARTICIPATING EMPLOYERS
This Plan may be adopted by any Subsidiary of the Corporation. Upon such
adoption, the Subsidiary shall become an Employer hereunder and the provisions
of the Plan shall be fully applicable to the Employees of that Subsidiary who
are Participants pursuant to Section 3.1.
ARTICLE VI
SUCCESSOR TO CORPORATION
This Plan shall bind any successor of the Corporation, its assets or its
businesses (whether direct or indirect, by purchase, merger, consolidation or
otherwise), including without limitation Northern Power Wisconsin Corp., in the
same manner and to the same extent that the Corporation would be obligated under
this Plan if no succession had taken place.
In the case of any transaction in which a successor would not by the
foregoing provision or by operation of law be bound by this Plan, the
Corporation shall require such successor expressly and unconditionally to assume
and agree to perform the Corporation's obligations under this Plan, in the same
manner and to the same extent that the Corporation would be required to perform
if no such succession had taken place. The term "Corporation," as used in this
Plan, shall mean the Corporation as hereinbefore defined and any successor or
assignee to the business or assets which by reason hereof becomes bound by this
Plan.
ARTICLE VII
DURATION, AMENDMENT AND TERMINATION
7.1 DURATION. If the Combination has not occurred, this Plan shall expire
five years from the Effective Date, unless extended for an additional period or
periods by resolution adopted by the Board.
If the Combination occurs, this Plan shall continue in full force and effect
and shall not terminate or expire until after all Participants who become
entitled to any payments hereunder shall have received such payments in full and
all adjustments required to be made pursuant to Section 4.5 have been made.
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7.2 AMENDMENT. Except as provided in Section 7.1, the Plan shall not be
subject to amendment, change, substitution, deletion, revocation or termination
in any respect which adversely affects the rights of Participants.
7.3 FORM OF AMENDMENT. The form of any amendment of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the
Corporation, certifying that the amendment has been approved by the Board.
ARTICLE VIII
MISCELLANEOUS
8.1 INDEMNIFICATION. If a Participant institutes any legal action in
seeking to obtain or enforce, or is required to defend in any legal action the
validity or enforceability of, any right or benefit provided by this Plan, the
Corporation or the Employer will pay for all actual legal fees and expenses
incurred (as incurred) by such Participant, regardless of the outcome of such
action.
8.2 EMPLOYMENT STATUS. This Plan does not constitute a contract of
employment or impose on the Participant or the Participant's Employer any
obligation to retain the Participant as an Employee, to change the status of the
Participant's employment, or to change the Corporation's policies or those of
its Subsidiaries regarding termination of employment.
8.3 CLAIM PROCEDURE. If an Employee or former Employee makes a written
request alleging a right to receive benefits under this Plan or alleging a right
to receive an adjustment in benefits being paid under the Plan, the Corporation
shall treat it as a claim for benefit. All claims for benefit under the Plan
shall be sent to the Human Resources Department of the Corporation and must be
received within 30 days after termination of employment. If the Corporation
determines that any individual who has claimed a right to receive benefits, or
different benefits, under the Plan is not entitled to receive all or any part of
the benefits claimed, it will inform the claimant in writing of its
determination and the reasons therefor in terms calculated to be understood by
the claimant. The notice will be sent within 90 days of the claim unless the
Corporation determines additional time, not exceeding 90 days, is needed. The
notice shall make specific reference to the pertinent Plan provisions on which
the denial is based, and describe any additional material or information that is
necessary. Such notice shall, in addition, inform the claimant what procedure
the claimant should follow to take advantage of the review procedures set forth
below in the event the claimant desires to contest the denial of the claim. The
claimant may within 90 days thereafter submit in writing to the Corporation a
notice that the claimant contests the denial of his or her claim by the
Corporation and desires a further review. The Corporation shall within 60 days
thereafter review the claim and authorize the claimant to appear personally and
review pertinent documents and submit issues and comments relating to the claim
to the persons responsible for making the determination on behalf of the
Corporation. The Corporation will render its final decision with specific
reasons therefor in writing and will transmit it to the claimant within 60 days
of the written request for review, unless the Corporation determines additional
time, not exceeding 60 days, is needed, and so notifies the Participant. If the
Corporation fails to respond to a claim filed in accordance with the foregoing
within 60 days or any such extended period, the Corporation shall be deemed to
have denied the claim.
8.4 VALIDITY AND SEVERABILITY. The invalidity or unenforceability of any
provision of the Plan shall not affect the validity or enforceability of any
other provision of the Plan, which shall remain in full force and effect, and
any prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
8.5 GOVERNING LAW. The validity, interpretation, construction and
performance of the Plan shall in all respects be governed by the laws of
Minnesota, without reference to principles of conflict of law, except to the
extent pre-empted by federal law.
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EXHIBIT 7.10(b) TO MERGER AGREEMENT
WEC
SENIOR EXECUTIVE SEVERANCE POLICY
INTRODUCTION
Northern States Power Company, a Minnesota corporation ("NSP") and Wisconsin
Energy Corporation, a Wisconsin corporation ("WEC") have entered into an
Agreement and Plan of Merger dated as of April 28, 1995 (the "Merger
Agreement"), whereby the NSP and WEC organizations will merge with WEC as the
surviving parent (the "Combination"). The Board of Directors of WEC recognizes
that the pendency of the Combination, and the inevitable adjustments that will
occur during the transition period following the Combination, may result in the
loss or distraction of employees of WEC and its Subsidiaries to the detriment of
WEC and its shareholders.
The Board considers the avoidance of such loss and distraction to be
essential to protecting and enhancing the best interests of WEC and its
shareholders. The Board also believes that during the pendency of the
Combination and the transition period thereafter, the Board should be able to
receive and rely on disinterested service from employees without concern that
employees might be distracted or concerned by personal uncertainties and risks.
In addition, the Board believes that it is consistent with WEC's employment
practices and policies and in the best interests of WEC and its shareholders to
treat fairly its employees whose employment terminates in connection with or
following the Combination.
Accordingly, the Board has determined that appropriate steps should be taken
to assure WEC of the continued employment and attention and dedication to duty
of its employees and to seek to ensure the availability of their continued
service, notwithstanding the Combination.
Therefore, in order to fulfill the above purposes, the following plan has
been developed and is hereby adopted.
ARTICLE I
ESTABLISHMENT OF PLAN
As of the Effective Date, WEC hereby establishes a separation compensation
plan known as the WEC Senior Executive Severance Policy, as set forth in this
document.
ARTICLE II
DEFINITIONS
As used herein the following words and phrases shall have the following
respective meanings unless the context clearly indicates otherwise.
(a) ANNUAL INCENTIVE AWARD. The highest amount a Participant received as
an annual incentive award in any of the three years prior to a termination of
employment entitling the Participant to a Separation Benefit.
(b) ANNUAL COMPENSATION. The sum of a Participant's Annual Salary and
Annual Incentive Award.
(c) ANNUAL SALARY. The Participant's regular annual base salary
immediately prior to his or her termination of employment, including
compensation converted to other benefits under a flexible pay arrangement
maintained by the Corporation or deferred pursuant to a written plan or
agreement with the Corporation, but excluding overtime pay, allowances, premium
pay, compensation paid or payable under any Corporation long-term or short-term
incentive plan or any similar payment.
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(d) BOARD. The Board of Directors of Wisconsin Energy Corporation.
(e) CODE. The Internal Revenue Code of 1986, as amended from time to time.
(f) COMMITTEE. The Compensation Committee of the Board.
(g) CORPORATION. Wisconsin Energy Corporation and any successor thereto.
(h) DATE OF THE COMBINATION. The Effective Time, as defined in the Merger
Agreement.
(i) DATE OF TERMINATION. The date on which a Participant ceases to be an
Employee.
(j) EFFECTIVE DATE. The date of the Merger Agreement.
(k) EMPLOYEE. Any full-time, regular-benefit, non-bargaining employee of
an Employer. The term shall exclude all individuals employed as independent
contractors, temporary employees, other benefit employees, non-benefit
employees, leased employees, even if it is subsequently determined that such
classification is incorrect.
(l) EMPLOYER. The Corporation or a Subsidiary which has adopted the Plan
pursuant to Article V hereof.
(m) PARTICIPANT. An individual who is designated as such pursuant to
Section 3.1.
(n) SEPARATION BENEFITS. The benefits described in Section 4.3 that are
provided to qualifying Participants under the Plan.
(o) PLAN. The WEC Senior Executive Severance Policy.
(p) SEPARATION PERIOD. The period beginning on a Participant's Date of
Termination and ending on the third anniversary thereof.
(q) SUBSIDIARY. Any corporation in which the Corporation, directly or
indirectly, holds a majority of the voting power of such corporation's
outstanding shares of capital stock.
(r) TARGET ANNUAL INCENTIVE. The Annual Incentive that the Participant
would have received for the year in which his or her Date of Termination occurs,
if the target goals had been achieved.
ARTICLE III
ELIGIBILITY
3.1 PARTICIPATION. Each of the individuals named on Schedule 1 hereto
shall be a Participant in the Plan. Schedule 1 may be amended by the Board from
time to time to add individuals as Participants.
3.2 DURATION OF PARTICIPATION. A Participant shall only cease to be a
Participant in the Plan as a result of an amendment or termination of the Plan
complying with Article VII of the Plan, or when he ceases to be an Employee of
any Employer, unless, at the time he ceases to be an Employee, such Participant
is entitled to payment of a Separation Benefit as provided in the Plan or there
has been an event or occurrence described in Section 4.2(a) which would enable
the Participant to terminate his employment and receive a Separation Benefit. A
Participant entitled to payment of a Separation Benefit or any other amounts
under the Plan shall remain a Participant in the Plan until the full amount of
the Separation Benefit and any other amounts payable under the Plan have been
paid to the Participant.
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ARTICLE IV
SEPARATION BENEFITS
4.1 RIGHT TO SEPARATION BENEFIT. A Participant shall be entitled to
receive Separation Benefits in accordance with Section 4.3 if the Participant
ceases to be an Employee for any reason specified in Section 4.2(a).
4.2 TERMINATION OF EMPLOYMENT.
(a) TERMINATIONS WHICH GIVE RISE TO SEPARATION BENEFITS UNDER THIS
PLAN. Except as set forth in subsection (b) below, a Participant shall be
entitled to Separation Benefits if at any time before the second anniversary of
the Date of the Combination:
(i) the Participant ceases to be an Employee by action of the Employer
or any of its affiliates (excluding any transfer to another Employer);
(ii) the Participant's Annual Salary is reduced below the higher of (x)
the amount in effect on the Effective Date and (y) the highest amount in
effect at any time thereafter, and the Participant ceases to be an Employee
by his or her own action within 90 days after the occurrence of such
reduction;
(iii) the Participant's duties and responsibilities or the program of
incentive compensation and retirement and welfare benefits offered to the
Participant are materially and adversely diminished in comparison to the
duties and responsibilities or the program of benefits enjoyed by the
Participant on the Effective Date, and the Participant ceases to be an
Employee by his or her own action within 90 days after the occurrence after
such reduction;
(iv) the Participant is required to be based at a location more than 50
miles from the location where the Participant was based and performed
services on the Effective Date, and the Participant ceases to be an Employee
by his or her own action within 90 days after such relocation;
(v) an Employer or any affiliate of an Employer sells or otherwise
distributes or disposes of the subsidiary, branch or other business unit in
which the Participant was employed before such sale, distribution or
disposition and the requirements of subsection (b)(iv) of this Section 4.2
are not met, and the Participant ceases to be an Employee upon or within 90
days after such sale, distribution or disposition.
(b) TERMINATIONS WHICH DO NOT GIVE RISE TO SEPARATION BENEFITS UNDER THIS
PLAN. If a Participant's employment is terminated for Cause, disability,
retirement, or a qualified sale of business (as those terms are defined below),
or voluntarily by the Participant in the absence of an event described in
subsection (a)(ii), (iii) or (iv) of this Section 4.2, the Participant shall not
be entitled to Separation Benefits under the Plan.
(i) A termination for disability shall have occurred where a Participant
is terminated because illness or injury has prevented him from performing
his duties (as they existed immediately prior to the illness or injury) on a
full time basis for 180 consecutive business days.
(ii) A termination by retirement shall have occurred where a
Participant's termination is due to his voluntary late, normal or early
retirement under a pension plan sponsored by his Employer or its affiliates,
as defined in such plan.
(iii) A termination for Cause shall have occurred where a Participant is
terminated because of:
(A) the willful and continued failure of the Participant to perform
substantially the Participant's duties with the Corporation or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Participant by the Board or an elected
officer of
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the Corporation which specifically identifies the manner in which the
Board or the elected officer believes that the Participant has not
substantially performed the Participant's duties, or
(B) the willful engaging by the Participant in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Corporation.
For purposes of this provision, no act or failure to act, on the part of the
Participant, shall be considered "willful" unless it is done, or omitted to
be done, by the Participant in bad faith or without reasonable belief that
the Participant's action or omission was in the best interests of the
Corporation. Any act, or failure to act, based upon authority given pursuant
to a resolution duly adopted by the Board or upon the advice of counsel for
the Corporation, shall be conclusively presumed to be done, or omitted to be
done, by the Participant in good faith and in the best interests of the
Corporation.
(iv) A termination due to a qualified sale of business shall have
occurred where an Employer or an affiliate of an Employer has sold,
distributed or otherwise disposed of the subsidiary, branch or other
business unit in which the Participant was employed before such sale,
distribution or disposition and the Participant has been offered employment
with the purchaser of such subsidiary, branch or other business unit or the
corporation or other entity which is the owner thereof on substantially the
same terms and conditions under which he worked for the Employer (including,
without limitation, base salary, duties and responsibilities, program of
benefits and location where based). Such terms and conditions shall also
include, without limitation, a legally binding agreement or plan covering
such Participant, providing that upon a termination of employment with the
subsidiary, branch or business unit (or the corporation or other entity
which is the owner thereof) or any successor thereto of the kind described
in Article VI of this Plan, at any time before the second anniversary of the
Date of the Combination, the Participant's employer or any successor will
pay to each such former Participant an amount equal to the separation
benefit and other benefits that such former Participant would have received
under the Plan had he been a Participant at the time of such termination.
For purposes of this subsection, the new employer plan or agreement must
treat service with any Employer (irrespective of whether the Employer was an
affiliate of the Corporation or the Employee was a Participant at the time
of such service) and the new employer as continuous service for purposes of
calculating separation benefits.
4.3 SEPARATION BENEFITS.
(a) If a Participant's employment is terminated in circumstances entitling
him to a separation benefit as provided in Section 4.2(a), the Participant's
Employer shall pay such Participant, within ten days of the Date of Termination,
a cash lump sum as set forth in subsection (b) below and the continued benefits
set forth in subsection (c) below. For purposes of determining the benefits set
forth in subsections (b) and (c), if the termination of the Participant's
employment is based upon a reduction of the Participant's Annual Salary or
benefits as described in subsection (ii) or (iii) of Section 4.2, such reduction
shall be ignored.
(b) The cash lump sum referred to in Section 4.3(a) shall equal the
aggregate of the following amounts:
(i) the sum of (1) the Participant's Annual Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
Target Incentive and (y) a fraction, the numerator of which is the number of
days in such year through the Date of Termination, and the denominator of
which is 365, and (3) any compensation previously deferred by the
Participant (together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid and in
full satisfaction of the rights of the Participant thereto;
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(ii) an amount equal to the product of (1) three, and (2) the sum of (x)
the Participant's Annual Salary and (y) the higher of the Target Annual
Incentive or the Annual Incentive Award; and
(iii) an amount equal to the difference between (a) the actuarial
equivalent of the benefit under the Corporation's qualified defined benefit
retirement plan (the "Retirement Plan") and any excess or supplemental
retirement plans in which the Participant participates (together, the
"SERP") which the Participant would receive if his or her employment
continued during the Separation Period, assuming that the Participant's
compensation during the Separation Period would have been equal to his or
her compensation as in effect immediately before the termination or, if
higher, on the Effective Date, and (b) the actuarial equivalent of the
Participant's actual benefit (paid or payable), if any, under the Retirement
Plan and the SERP as of the Date of Termination. The actuarial assumptions
used for purposes of determining actuarial equivalence shall be no less
favorable to the Participant than the most favorable of those in effect
under the Retirement Plan and the SERP on the Date of Termination and the
Effective Date.
(c) The continued benefits referred to above shall be as follows:
(i) During the Separation Period, the Participant and his family shall
be provided with medical, dental and life insurance benefits as if the
Participant's employment had not been terminated; provided, however, that if
the Participant becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another employer-provided
plan, the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility (but not the
time of commencement of benefits) of the Participant for retiree medical,
dental and life insurance benefits under the Corporation's plans, practices,
programs and policies, the Participant shall be considered to have remained
employed during the Separation Period and to have retired on the last day of
such period;
(ii) The Corporation shall, at its sole expense as incurred, provide the
Participant with outplacement services the scope and provider of which shall
be selected by the Participant in his or her sole discretion (but at a cost
to the Corporation of not more than $30,000) or, at the Participant's
option, the use of office space, office supplies and equipment and
secretarial services for a period not to exceed one year;
(iii) The Corporation shall continue to provide the Participant with
financial planning counseling benefits through the second anniversary of the
Date of Termination, on the same terms and conditions as were in effect
immediately before the termination or, if more favorable, on the Effective
Date; and
(iv) The Corporation shall transfer to the Participant, at no cost to the
Participant, the title to the company car being used by the Participant as
of the Date of Termination.
To the extent any benefits described in this Section 4.3(c) cannot be provided
pursuant to the appropriate plan or program maintained for Employees, the
Employer shall provide such benefits outside such plan or program at no
additional cost (including without limitation tax cost) to the Participant.
4.4 OTHER BENEFITS PAYABLE. The cash lump sum and continuing benefits
described in Section 4.3 above shall be payable in addition to, and not in lieu
of, all other accrued or vested or earned but deferred compensation, rights,
options or other benefits which may be owed to a Participant upon or following
termination, including but not limited to accrued vacation or sick pay, amounts
or benefits payable under any bonus or other compensation plans, stock option
plan, stock ownership plan, stock purchase plan, life insurance plan, health
plan, disability plan or similar or successor plan but excluding any severance
pay or pay in lieu of notice required to be paid to such Participant under
applicable law.
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4.5 CERTAIN REDUCTION OF PAYMENTS BY THE CORPORATION.
(a) For purposes of this Section 4.5, (i) a Payment shall mean any payment
or distribution in the nature of compensation to or for the benefit of a
Participant, whether paid or payable pursuant to this Plan or otherwise; (ii)
Separation Payment shall mean a Payment paid or payable pursuant to this Plan
(disregarding this Section); (iii) Net After Tax Receipt shall mean the Present
Value of a Payment net of all taxes imposed on a Participant with respect
thereto under Sections 1 and 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), determined by applying the highest marginal rate under
Section 1 of the Code which applied to the Participant's taxable income for the
immediately preceding taxable year; (iv) "Present Value" shall mean such value
determined in accordance with Section 280G(d)(4) of the Code; and (v) "Reduced
Amount" shall mean the greatest aggregate amount of Separation Payments which
(a) is less than the sum of all Separation Payments and (b) results in aggregate
Net After Tax Receipts which are equal to or greater than the Net After Tax
Receipts which would result if the Participant were paid the sum of all
Separation Payments.
(b) Anything in this Agreement to the contrary notwithstanding, in the event
Price Waterhouse or such other certified public accounting firm designated by
the Participant (the "Accounting Firm") shall determine that receipt of all
Payments would subject the Participant to tax under Section 4999 of the Code, it
shall determine whether some amount of Separation Payments would meet the
definition of a "Reduced Amount." If the Accounting Firm determines that there
is a Reduced Amount, the aggregate Separation Payments shall be reduced to such
Reduced Amount. All fees payable to the Accounting Firm shall be paid solely by
the Corporation.
(c) If the Accounting Firm determines that aggregate Separation Payments
should be reduced to the Reduced Amount, the Corporation shall promptly give the
Participant notice to that effect and a copy of the detailed calculation
thereof, and the Participant may then elect, in his sole discretion, which and
how much of the Separation Payments shall be eliminated or reduced (as long as
after such election the present value of the aggregate Separation Payments
equals the Reduced Amount), and shall advise the Corporation in writing of his
election within ten days of his receipt of notice. If no such election is made
by the Participant within such ten-day period, the Corporation may elect which
of such Separation Payments shall be eliminated or reduced (as long as after
such election the present value of the aggregate Separation Payments equals the
Reduced Amount) and shall notify the Participant promptly of such election. All
determinations made by the Accounting Firm under this Section shall be binding
upon the Corporation and the Participant and shall be made within 60 days of a
termination of employment of the Participant. As promptly as practicable
following such determination, the Corporation shall pay to or distribute for the
benefit of the Participant such Separation Payments as are then due to the
Participant under this Plan and shall promptly pay to or distribute for the
benefit of the Participant in the future such Separation Payments as become due
to the Participant under this Plan.
(d) While it is the intention of the Corporation to reduce the amounts
payable or distributable to the Participants hereunder only if the aggregate Net
After Tax Receipts to a Participant would thereby be increased, as a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
amounts will have been paid or distributed by the Corporation to or for the
benefit of a Participant pursuant to this Plan which should not have been so
paid or distributed ("Overpayment") or that additional amounts which will have
not been paid or distributed by the Corporation to or for the benefit of a
Participant pursuant to this Plan could have been so paid or distributed
("Underpayment"), in each case, consistent with the calculation of the Reduced
Amount hereunder. In the event that the Accounting Firm, either upon the
assertion of a deficiency by the Internal Revenue Service against either the
Corporation or the Participant which the Accounting Firm believes has a high
probability of success determines that an Overpayment has been made, any such
Overpayment paid or distributed by the Corporation to or for the benefit of a
Participant shall be treated for all purposes as a loan to the Participant which
the Participant shall repay to the Corporation together with interest at the
applicable federal rate provided for in Section 7872(f)(2) of the Code;
provided, however, that no such loan
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shall be deemed to have been made and no amount shall be payable by a
Participant to the Corporation if and to the extent such deemed loan and payment
would not either reduce the amount on which the Participant is subject to tax
under Section 1 and Section 4999 of the Code or generate a refund of such taxes.
In the event that the Accounting Firm, based upon controlling precedent or
substantial authority, determines that an Underpayment has occurred, any such
Underpayment shall be promptly paid by the Corporation to or for the benefit of
the Participant together with interest at the applicable federal rate provided
for in Section 7872(f)(2) of the Code.
4.6 PAYMENT OBLIGATIONS ABSOLUTE. Subject to Section 4.5, the obligations
of the Corporation and the Employers to pay the separation benefits described in
Section 4.3 shall be absolute and unconditional and shall not be affected by any
circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which the Corporation or any of its
Subsidiaries may have against any Participant. In no event shall a Participant
be obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to a Participant under any of the provisions
of this Plan, nor shall the amount of any payment hereunder be reduced by any
compensation earned by a Participant as a result of employment by another
employer, except as specifically provided in Section 4.3(c)(i).
ARTICLE V
PARTICIPATING EMPLOYERS
This Plan may be adopted by any Subsidiary of the Corporation. Upon such
adoption, the Subsidiary shall become an Employer hereunder and the provisions
of the Plan shall be fully applicable to the Employees of that Subsidiary who
are Participants pursuant to Section 3.1.
ARTICLE VI
SUCCESSOR TO CORPORATION
This Plan shall bind any successor of the Corporation, its assets or its
businesses (whether direct or indirect, by purchase, merger, consolidation or
otherwise) in the same manner and to the same extent that the Corporation would
be obligated under this Plan if no succession had taken place.
In the case of any transaction in which a successor would not by the
foregoing provision or by operation of law be bound by this Plan, the
Corporation shall require such successor expressly and unconditionally to assume
and agree to perform the Corporation's obligations under this Plan, in the same
manner and to the same extent that the Corporation would be required to perform
if no such succession had taken place. The term "Corporation," as used in this
Plan, shall mean the Corporation as hereinbefore defined and any successor or
assignee to the business or assets which by reason hereof becomes bound by this
Plan.
ARTICLE VII
DURATION, AMENDMENT AND TERMINATION
7.1 DURATION. If the Combination has not occurred, this Plan shall expire
five years from the Effective Date, unless extended for an additional period or
periods by resolution adopted by the Board.
If the Combination occurs, this Plan shall continue in full force and effect
and shall not terminate or expire until after all Participants who become
entitled to any payments hereunder shall have received such payments in full and
all adjustments required to be made pursuant to Section 4.5 have been made.
7.2 AMENDMENT. Except as provided in Section 7.1, the Plan shall not be
subject to amendment, change, substitution, deletion, revocation or termination
in any respect which adversely affects the rights of Participants.
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7.3 FORM OF AMENDMENT. The form of any amendment of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the
Corporation, certifying that the amendment has been approved by the Board.
ARTICLE VIII
MISCELLANEOUS
8.1 INDEMNIFICATION. If a Participant institutes any legal action in
seeking to obtain or enforce, or is required to defend in any legal action the
validity or enforceability of, any right or benefit provided by this Plan, the
Corporation or the Employer will pay for all actual legal fees and expenses
incurred (as incurred) by such Participant, regardless of the outcome of such
action.
8.2 EMPLOYMENT STATUS. This Plan does not constitute a contract of
employment or impose on the Participant or the Participant's Employer any
obligation to retain the Participant as an Employee, to change the status of the
Participant's employment, or to change the Corporation's policies or those of
its Subsidiaries regarding termination of employment.
8.3 CLAIM PROCEDURE. If an Employee or former Employee makes a written
request alleging a right to receive benefits under this Plan or alleging a right
to receive an adjustment in benefits being paid under the Plan, the Corporation
shall treat it as a claim for benefit. All claims for benefit under the Plan
shall be sent to the Human Resources Department of the Corporation and must be
received within 30 days after termination of employment. If the Corporation
determines that any individual who has claimed a right to receive benefits, or
different benefits, under the Plan is not entitled to receive all or any part of
the benefits claimed, it will inform the claimant in writing of its
determination and the reasons therefor in terms calculated to be understood by
the claimant. The notice will be sent within 90 days of the claim unless the
Corporation determines additional time, not exceeding 90 days, is needed. The
notice shall make specific reference to the pertinent Plan provisions on which
the denial is based, and describe any additional material or information that is
necessary. Such notice shall, in addition, inform the claimant what procedure
the claimant should follow to take advantage of the review procedures set forth
below in the event the claimant desires to contest the denial of the claim. The
claimant may within 90 days thereafter submit in writing to the Corporation a
notice that the claimant contests the denial of his or her claim by the
Corporation and desires a further review. The Corporation shall within 60 days
thereafter review the claim and authorize the claimant to appear personally and
review pertinent documents and submit issues and comments relating to the claim
to the persons responsible for making the determination on behalf of the
Corporation. The Corporation will render its final decision with specific
reasons therefor in writing and will transmit it to the claimant within 60 days
of the written request for review, unless the Corporation determines additional
time, not exceeding 60 days, is needed, and so notifies the Participant. If the
Corporation fails to respond to a claim filed in accordance with the foregoing
within 60 days or any such extended period, the Corporation shall be deemed to
have denied the claim.
8.4 VALIDITY AND SEVERABILITY. The invalidity or unenforceability of any
provision of the Plan shall not affect the validity or enforceability of any
other provision of the Plan, which shall remain in full force and effect, and
any prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
8.5 GOVERNING LAW. The validity, interpretation, construction and
performance of the Plan shall in all respects be governed by the laws of
Wisconsin, without reference to principles of conflict of law, except to the
extent pre-empted by federal law.
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EXHIBIT 7.13 TO MERGER AGREEMENT
BOARD COMMITTEES
The Board of Directors of the Company shall have the following committees.
Each of such committees will have four (4) members, with WEC selecting two (2)
members of each such committee and NSP selecting two (2) members of each such
committee. The chair of each such committee shall be selected by the party set
forth below:
CHAIR
COMMITTEE SELECTED BY
----------------------------------------------------------------------- -----------
Executive Committee.................................................... NSP
Nominating Committee................................................... WEC
Compensation Committee................................................. NSP
Audit Committee........................................................ NSP
Finance Committee...................................................... WEC
Nuclear Oversight Committee............................................ WEC
A-73
EXHIBIT 7.15.1 TO MERGER AGREEMENT
FORM OF EMPLOYMENT AGREEMENT
OF JAMES J. HOWARD
SEE ANNEX D TO THE
JOINT PROXY STATEMENT/PROSPECTUS
A-74
EXHIBIT 7.15.2 TO MERGER AGREEMENT
FORM OF EMPLOYMENT AGREEMENT
OF RICHARD A. ABDOO
SEE ANNEX E TO THE
JOINT PROXY STATEMENT/PROSPECTUS
A-75
EXHIBIT 7.20(b) TO MERGER AGREEMENT
FORM OF AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF NEW NSP
SEE ANNEX J TO THE
JOINT PROXY STATEMENT/PROSPECTUS
A-76
EXHIBIT 7.20(c) TO MERGER AGREEMENT
FORM OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
WEC SUB CORP.
These Amended and Restated Articles of Incorporation of WEC Sub Corp., a
corporation incorporated under the Wisconsin Business Corporation Law, Chapter
180 of the Wisconsin Statutes (the "WBCL"), supersede and take the place of the
existing Articles of Incorporation and all prior amendments thereto.
ARTICLE I
NAME
The name of the corporation is WEC Sub Corp.
ARTICLE II
PURPOSES
The purposes for which the corporation is organized are to engage in any
lawful activity within the purposes for which a corporation may be organized
under the WBCL.
ARTICLE III
CAPITAL STOCK
The aggregate number of shares which the corporation shall have authority to
issue is [Eighty Million (80,000,000)] shares, consisting of [Seventy Three
Million (73,000,000)] shares designated as "Common Stock," of the par value of
One Cent ($.01) per share, and [Seven Million (7,000,000)] shares designated as
"Preferred Stock," of the par value of One Cent ($.01) per share.
The Board of Directors shall have authority to divide the Preferred Stock
into series, to issue shares of any such series and to fix and determine the
relative rights and preferences of the shares of any series so established,
including (i) the rate of dividend payable thereon and whether such dividend
shall be cumulative, noncumulative or partially cumulative; (ii) the extent to
which such dividends are payable on a parity with or in preference to the
dividends payable on the shares of any other class or series of stock; (iii) the
amount payable upon shares in the event of voluntary or involuntary liquidation;
(iv) the terms and conditions on which shares may be converted into any other
class or series of stock, if the shares are issued with the privilege of
conversion; (v) the price at and the terms and conditions on which the shares
may be redeemed; (vi) the terms or amount of any sinking fund provided for the
purchase or redemption of shares; (vii) the voting rights, if any, of the
holders thereof; and (viii) such other provisions as may be permitted to be
fixed by the Board of Directors of the corporation pursuant to the laws of the
State of Wisconsin, as in effect at the time of the creation of any such series.
A-77
ARTICLE IV
PREEMPTIVE RIGHTS
No holder of any stock of the corporation shall have any preemptive right to
purchase, subscribe for, or otherwise acquire any shares of stock of the
corporation of any class now or hereafter authorized, or any securities
exchangeable for or convertible into such shares.
ARTICLE V
REGISTERED OFFICE AND AGENT
The address of the registered office of the corporation is 411 East
Wisconsin Avenue, Milwaukee, Milwaukee County, Wisconsin 53202 and the name of
its registered agent at such address is Lawdock, Inc.
A-78
ANNEX B
NSP STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of April 28, 1995 by and among Wisconsin
Energy Corporation, a Wisconsin corporation ("WEC"), and Northern States Power
Company, a Minnesota corporation (the "COMPANY").
WHEREAS, concurrently with the execution and delivery of this Agreement, (i)
the Company, WEC, Northern Power Wisconsin Corp., a Wisconsin corporation ("NEW
NSP") and WEC Sub Corp., a Wisconsin corporation ("SUB"), are entering into an
Agreement and Plan of Merger, dated as of the date hereof (the "MERGER
AGREEMENT"), which provides, among other things, upon the terms and subject to
the conditions thereof, for the merger of the Company with and into New NSP and
the merger of Sub with and into New NSP (the "MERGERS"), and (ii) WEC and the
Company are entering into a certain stock option agreement dated as of the date
hereof whereby WEC grants to the Company an option with respect to certain
shares of WEC's common stock on the terms and subject to the conditions set
forth therein (the "WEC STOCK OPTION AGREEMENT"); and
WHEREAS, as a condition to WEC's willingness to enter into the Merger
Agreement, WEC has requested that the Company agree, and the Company has so
agreed, to grant to WEC an option with respect to certain shares of the
Company's common stock, on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, to induce WEC to enter into the Merger Agreement, and in
consideration of the mutual covenants and agreements set forth herein and in the
Merger Agreement, the parties hereto agree as follows:
1. GRANT OF OPTION. The Company hereby grants WEC an irrevocable
option (the "COMPANY OPTION") to purchase up to 13,387,772 shares, subject
to adjustment as provided in SECTION 11 (such shares being referred to
herein as the "COMPANY SHARES") of common stock, par value $2.50 per share,
of the Company (the "COMPANY COMMON STOCK") (being 19.9% of the number of
shares of Company Common Stock outstanding on the date hereof) in the manner
set forth below at a price (the "EXERCISE PRICE") per Company Share of
$44.075 (which is equal to the Fair Market Value (as defined below) of a
Company Share on the date hereof) payable, at WEC's option, (a) in cash or
(b) subject to the Company's having obtained the approvals of any
Governmental Authority required for the Company to acquire the WEC Shares
(as defined below) from WEC, which approvals the Company shall use best
efforts to obtain, in shares of common stock, par value $.01 per share, of
WEC ("WEC SHARES") in either case in accordance with Section 4 hereof.
Notwithstanding the foregoing, in no event shall the number of Company
Shares for which the Company Option is exercisable exceed 19.9% of the
number of issued and outstanding shares of Company Common Stock. As used
herein, the "FAIR MARKET VALUE" of any share shall be the average of the
daily closing sales price for such share on the New York Stock Exchange (the
"NYSE") during the 10 NYSE trading days prior to the fifth NYSE trading day
preceding the date such Fair Market Value is to be determined. Capitalized
terms used herein but not defined herein shall have the meanings set forth
in the Merger Agreement.
2. EXERCISE OF OPTION. The Company Option may be exercised by WEC, in
whole or in part, at any time or from time to time after the Merger
Agreement becomes terminable by WEC under circumstances which could entitle
WEC to termination fees under either Section 9.3(a) of the Merger Agreement
(provided that the events specified in Section 9.3(a)(ii)(x) of the Merger
Agreement shall have occurred, although the events specified in Section
9.3(a)(ii)(y) thereof need not have occurred) or Section 9.3(b) of the
Merger Agreement (regardless of whether the Merger Agreement is actually
terminated or whether there occurs a closing of any Business Combination
involving a Target Party or a closing by which a Target Party becomes a
subsidiary), any such event by which the Merger Agreement becomes so
terminable by WEC being referred to herein as a "TRIGGER EVENT." The Company
shall notify WEC promptly in writing of the occurrence of any
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Trigger Event, it being understood that the giving of such notice by the
Company shall not be a condition to the right of WEC to exercise the Company
Option. In the event WEC wishes to exercise the Company Option, WEC shall
deliver to the Company a written notice (an "EXERCISE NOTICE") specifying
the total number of Company Shares it wishes to purchase. Each closing of a
purchase of Company Shares (a "CLOSING") shall occur at a place, on a date
and at a time designated by WEC in an Exercise Notice delivered at least two
business days prior to the date of the Closing. The Company Option shall
terminate upon the earlier of: (i) the Effective Time; (ii) the termination
of the Merger Agreement pursuant to Section 9.1 thereof (other than upon or
during the continuance of a Trigger Event); or (iii) 180 days following any
termination of the Merger Agreement upon or during the continuance of a
Trigger Event (or if, at the expiration of such 180 day period the Company
Option cannot be exercised by reason of any applicable judgment, decree,
order, law or regulation, 10 business days after such impediment to exercise
shall have been removed or shall have become final and not subject to
appeal, but in no event under this clause (iii) later than October 31,
1997). Notwithstanding the foregoing, the Company Option may not be
exercised if WEC is in material breach of any of its material
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement. Upon
the giving by WEC to the Company of the Exercise Notice and the tender of
the applicable aggregate Exercise Price, WEC shall be deemed to be the
holder of record of the Company Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Company Shares shall not then
be actually delivered to WEC.
3. CONDITIONS TO CLOSING. The obligation of the Company to issue the
Company Shares to WEC hereunder is subject to the conditions, which (other
than the conditions described in clauses (i), (iii) and (iv) below) may be
waived by the Company in its sole discretion, that (i) all waiting periods,
if any, under the HSR Act, applicable to the issuance of the Company Shares
hereunder shall have expired or have been terminated; (ii) the Company
Shares, and any WEC Shares which are issued in payment of the Exercise
Price, shall have been approved for listing on the NYSE upon official notice
of issuance; (iii) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any federal, state or local
administrative agency or commission or other federal state or local
Governmental Authority, if any, required in connection with the issuance of
the Company Shares hereunder shall have been obtained or made, as the case
may be, including, without limitation, the approval of the SEC under Section
10 of the 1935 Act of the acquisition of the Company Shares by WEC and, if
applicable, the acquisition by the Company of the WEC Shares constituting
the Exercise Price hereunder; and (iv) no preliminary or permanent
injunction or other order by any court of competent jurisdiction prohibiting
or otherwise restraining such issuance shall be in effect.
4. CLOSING. At any Closing, (a) the Company will deliver to WEC or its
designee a single certificate in definitive form representing the number of
the Company Shares designated by WEC in its Exercise Notice, such
certificate to be registered in the name of WEC and to bear the legend set
forth in SECTION 12, and (b) WEC will deliver to the Company the aggregate
price for the Company Shares so designated and being purchased by (i) wire
transfer of immediately available funds or certified check or bank check or
(ii) subject to the condition in Section 1(b), a certificate or certificates
representing the number of WEC Shares being issued by WEC in consideration
thereof, as the case may be. For the purposes of this Agreement, the number
of WEC Shares to be delivered to the Company shall be equal to the quotient
obtained by dividing (i) the product of (x) the number of Company Shares
with respect to which the Company Option is being exercised and (y) the
Exercise Price by (ii) the Fair Market Value of the WEC Shares on the date
immediately preceding the date the Exercise Notice is delivered to the
Company. The Company shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates
under this Section 4 in the name of WEC or its designee.
B-2
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to WEC that (a) except as set forth in Section 4.1
of the NSP Disclosure Schedule, the Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Minnesota and has the corporate power and authority to enter into this
Agreement and, subject to obtaining the applicable approval of shareholders
of the Company for the repurchase of Company Shares pursuant to SECTION 7(A)
below under circumstances where Subdivision 3 of Section 302A.553 of the
MBCA would be applicable (the "BUYBACK APPROVALS") and subject to any
regulatory approvals referred to herein and to the provisions of Section
302A.551 of the MBCA, if applicable, to carry out its obligations hereunder,
(b) the execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or any of the transactions
contemplated hereby (other than any required Buyback Approvals), (c) such
corporate action (including the approval of the Board of Directors of the
Company) is intended to render inapplicable to this Agreement and the Merger
Agreement and the transactions contemplated hereby and thereby, the
provisions of the MBCA referred to in Section 4.15 of the Merger Agreement,
(d) this Agreement has been duly executed and delivered by the Company,
constitutes a valid and binding obligation of the Company and, assuming this
Agreement constitutes a valid and binding obligation of WEC, is enforceable
against the Company in accordance with its terms, (e) the Company has taken
all necessary corporate action to authorize and reserve for issuance and to
permit it to issue, upon exercise of the Company Option, and at all times
from the date hereof through the expiration of the Company Option will have
reserved, 13,387,772 authorized and unissued Company Shares, such amount
being subject to adjustment as provided in SECTION 11, all of which, upon
their issuance and delivery in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable, (f) upon delivery of
the Company Shares to WEC upon the exercise of the Company Option, WEC will
acquire the Company Shares free and clear of all claims, liens, charges,
encumbrances and security interests of any nature whatsoever, (g) except as
described in Section 4.4(b) of the Merger Agreement, the execution and
delivery of this Agreement by the Company does not, and the consummation by
the Company of the transactions contemplated hereby will not, violate,
conflict with, or result in a breach of any provision of, or constitute a
default (with or without notice or lapse of time, or both) under, or result
in the termination of, or accelerate the performance required by, or result
in a right of termination, cancellation, or acceleration of any obligation
or the loss of a material benefit under, or the creation of a lien, pledge,
security interest or other encumbrance on assets (any such conflict,
violation, default, right of termination, cancellation or acceleration, loss
or creation, a "VIOLATION") of the Company or any of its subsidiaries,
pursuant to, (A) any provision of the Restated Articles of Incorporation or
by-laws of the Company, (B) any provisions of any loan or credit agreement,
note, mortgage, indenture, lease, Company benefit plan or other agreement,
obligation, instrument, permit, concession, franchise, license or (C) any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets, which Violation, in
the case of each of clauses (B) and (C), could reasonably be expected to
have a material adverse effect on the Company and its subsidiaries taken as
a whole, (h) except as described in Section 4.4(c) of the Merger Agreement
or SECTION 1(B) or SECTION 3 hereof, the execution and delivery of this
Agreement by the Company does not, and the performance of this Agreement by
the Company will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Authority, (i) none
of the Company, any of its affiliates or anyone acting on its or their
behalf has issued, sold or offered any security of the Company to any person
under circumstances that would cause the issuance and sale of the Company
Shares, as contemplated by this Agreement, to be subject to the registration
requirements of the Securities Act as in effect on the date hereof and,
assuming the representations of WEC contained in SECTION 6(H) are true and
correct, the issuance, sale and delivery of the Company Shares hereunder
would be exempt from the registration and prospectus delivery requirements
of the Securities Act, as in effect on the
B-3
date hereof (and the Company shall not take any action which would cause the
issuance, sale and delivery of the Company Shares hereunder not to be exempt
from such requirements), and (j) any WEC Shares acquired pursuant to this
Agreement will be acquired for the Company's own account, for investment
purposes only and will not be acquired by the Company with a view to the
public distribution thereof in violation of any applicable provision of the
Securities Act.
6. REPRESENTATIONS AND WARRANTIES OF WEC. WEC represents and warrants
to the Company that (a) WEC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Wisconsin and
has the corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder, (b) the execution and delivery of this
Agreement by WEC and the consummation by WEC of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of WEC and no other corporate proceedings on the part of
WEC are necessary to authorize this Agreement or any of the transactions
contemplated hereby, (c) this Agreement has been duly executed and delivered
by WEC and constitutes a valid and binding obligation of WEC, and, assuming
this Agreement constitutes a valid and binding obligation of the Company, is
enforceable against WEC in accordance with its terms, (d) prior to any
delivery of WEC Shares in consideration of the purchase of Company Shares
pursuant hereto, WEC will have taken all necessary corporate action to
authorize for issuance and to permit it to issue such WEC Shares, all of
which, upon their issuance and delivery in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable (subject to
Section 180.0622(2)(b) of the WBCL, as judicially determined), and to render
inapplicable to the receipt by the Company of the WEC Shares the provisions
of the WBCL referred to in Section 5.15 of the Merger Agreement, (e) upon
any delivery of such WEC Shares to the Company in consideration of the
purchase of Company Shares pursuant hereto, the Company will acquire the WEC
Shares free and clear of all claims, liens, charges, encumbrances and
security interests of any nature whatsoever, (f) except as described in
Section 5.4(b) of the Merger Agreement, the execution and delivery of this
Agreement by WEC does not, and the consummation by WEC of the transactions
contemplated hereby will not, violate, conflict with, or result in the
breach of any provision of, or constitute a default (with or without notice
or lapse of time, or both) under, or result in any Violation by WEC or any
of its subsidiaries, pursuant to (A) any provision of the Restated Articles
of Incorporation or By-laws of WEC, (B) any provisions of any loan or credit
agreement, note, mortgage, indenture, lease, WEC benefit plan or other
agreement, obligation, instrument, permit, concession, franchise, license or
(C) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to WEC or its properties or assets, which Violation, in the case
of each of clauses (B) and/or (C), would have a material adverse effect on
WEC and its subsidiaries taken as a whole, (g) except as described in
Section 5.4(c) of the Merger Agreement or SECTION 1(B) or SECTION 3 hereof,
the execution and delivery of this Agreement by WEC does not, and the
consummation by WEC of the transactions contemplated hereby will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority and (h) any Company Shares
acquired upon exercise of the Company Option will be acquired for WEC's own
account, for investment purposes only and will not be, and the Company
Option is not being, acquired by WEC with a view to the public distribution
thereof in violation of any applicable provision of the Securities Act.
7. CERTAIN REPURCHASES.
(a) WEC PUT. At the request of WEC by written notice at any time
during which the Company Option is exercisable pursuant to SECTION 2 (the
"REPURCHASE PERIOD"), the Company (or any successor entity thereof) shall
repurchase from WEC all or any portion of the Company Option, at the price
set forth in subparagraph (i) below, or, at the request of WEC by written
notice at any time prior to April 30, 1997 (provided that such date shall be
extended to October 31, 1997 under the circumstances where the date after
which either party may terminate the Merger Agreement pursuant to Section
9.1(b) of the Merger Agreement has been extended to October 31,
B-4
1997), the Company (or any successor entity thereof) shall repurchase from
WEC all or any portion of the Company Shares purchased by WEC pursuant to
the Company Option, at the price set forth in subparagraph (ii) below:
(i) the difference between the "MARKET/OFFER PRICE" for shares of
Company Common Stock as of the date WEC gives notice of its intent to
exercise its rights under this SECTION 7 (defined as the higher of (A)
the price per share offered as of such date pursuant to any tender or
exchange offer or other offer with respect to a Business Combination
which was made prior to such date and not terminated or withdrawn as of
such date (the "OFFER PRICE") and (B) the Fair Market Value of Company
Common Stock as of such date (the "MARKET PRICE")) and the Exercise
Price, multiplied by the number of Company Shares purchasable pursuant to
the Company Option (or portion thereof with respect to which WEC is
exercising its rights under this SECTION 7), but only if the Market/Offer
Price is greater than the Exercise Price;
(ii) the product of (x) the sum of (A) the Exercise Price paid by WEC
per Company Share acquired pursuant to the Company Option and (B) the
difference between the Market/Offer Price and the Exercise Price, but
only if the Market/Offer Price is greater than the Exercise Price, and
(y) the number of Company Shares so to be repurchased pursuant to this
SECTION 7. For purposes of this clause (ii), the Offer Price shall be the
highest price per share offered pursuant to a tender or exchange offer or
other Business Combination offer during the Repurchase Period prior to
the delivery by WEC of a notice of repurchase.
(b) REDELIVERY OF WEC SHARES. If WEC elected to purchase Company
Shares pursuant to the exercise of the Company Option by the issuance and
delivery of WEC Shares, then the Company shall, if so requested by WEC, in
fulfillment of its obligation pursuant to clause (A) of SECTION 7(A)(II)(X)
(that is, with respect to the Exercise Price only and without limitation to
its obligation to pay additional consideration under clause (B) of SECTION
7(A)(II)(X)), redeliver the certificate for such WEC Shares to WEC, free and
clear of all liens, claims, damages, charges and encumbrances of any kind or
nature whatsoever; PROVIDED, HOWEVER, that if less than all of the Company
Shares purchased by WEC pursuant to the Company Option are to be repurchased
pursuant to this SECTION 7, then WEC shall issue to the Company a new
certificate representing those WEC Shares which are not due to be
redelivered to WEC pursuant to this SECTION 7 as they constituted payment of
the Exercise Price for the Company Shares not being repurchased.
(c) PAYMENT AND REDELIVERY OF COMPANY OPTION OR SHARES. In the event
WEC exercises its rights under this SECTION 7, the Company shall, within 10
business days thereafter, pay the required amount to WEC in immediately
available funds and WEC shall surrender to the Company the Company Option or
the certificates evidencing the Company Shares purchased by WEC pursuant
thereto, and WEC shall warrant that it owns the Company Option or such
shares and that the Company Option or such shares are then free and clear of
all liens, claims, damages, charges and encumbrances of any kind or nature
whatsoever.
(d) WEC CALL. If WEC has elected to purchase Company Shares pursuant
to the exercise of the Company Option by the issuance and delivery of WEC
Shares, notwithstanding that WEC may no longer hold any such Company Shares
or that WEC elects not to exercise its other rights under this SECTION 7,
WEC may require, at any time or from time to time prior to April 30, 1997
(provided that such date shall be extended to October 31, 1997 under the
circumstances where the date after which either party may terminate the
Merger Agreement pursuant to Section 9.1(b) of the Merger Agreement has been
extended to October 31, 1997), the Company to sell to WEC any such WEC
Shares at the price attributed to such WEC Shares pursuant to SECTION 4 plus
interest at the rate of 6.5% per annum on such amount from the Closing Date
relating to the exchange of such WEC Shares pursuant to SECTION 4 to the
closing date under this SECTION 7(D) less any dividends on such WEC Shares
paid during such period or declared and payable to stockholders of record on
a date during such period.
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(e) REPURCHASE PRICE REDUCED AT WEC'S OPTION. In the event the
repurchase price specified in SECTION 7(A) would subject the repurchase of
the Company Option or the Company Shares purchased by WEC pursuant to the
Company Option to a vote of the shareholders of the Company pursuant to
Section 302A.553, Subd. 3 of the MBCA, then WEC may, at its election, reduce
the repurchase price to an amount which would permit such repurchase without
the necessity for such a shareholder vote.
8. VOTING OF SHARES. Following the date hereof and prior to the fifth
anniversary of the date hereof (the "EXPIRATION DATE"), each party shall
vote any shares of capital stock of the other party acquired by such party
pursuant to this Agreement, including any WEC Shares issued pursuant to
SECTION 1(B) ("RESTRICTED SHARES") or otherwise beneficially owned (within
the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT")) by such party on each matter
submitted to a vote of shareholders of such other party for and against such
matter in the same proportion as the vote of all other shareholders of such
other party are voted (whether by proxy or otherwise) for and against such
matter.
9. RESTRICTIONS ON TRANSFER.
(a) RESTRICTIONS ON TRANSFER. Prior to the Expiration Date, neither
party shall, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by such party, other than (i) pursuant to SECTION 7, or
(ii) in accordance with SECTION 9(B) or SECTION 10.
(b) PERMITTED SALES. Following the termination of the Merger
Agreement, a party shall be permitted to sell any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or
exchange offer that has been approved or recommended, or otherwise
determined to be fair to and in the best interests of the shareholders of
the other party, by a majority of the members of the Board of Directors of
such other party which majority shall include a majority of directors who
were directors prior to the announcement of such tender or exchange offer.
10. REGISTRATION RIGHTS. Following the termination of the Merger
Agreement, each party hereto (a "DESIGNATED HOLDER") may by written notice
(the "REGISTRATION NOTICE") to the other party (the "REGISTRANT") request
the Registrant to register under the Securities Act all or any part of the
Restricted Shares beneficially owned by such Designated Holder (the
"REGISTRABLE SECURITIES") pursuant to a bona fide firm commitment
underwritten public offering in which the Designated Holder and the
underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use their best efforts to
prevent any person (including any Group (as used in Rule 13d-5 under the
Exchange Act)) and its affiliates from purchasing through such offering
Restricted Shares representing more than 1% of the outstanding shares of
common stock of the Registrant on a fully diluted basis (a "PERMITTED
OFFERING"). The Registration Notice shall include a certificate executed by
the Designated Holder and its proposed managing underwriter, which
underwriter shall be an investment banking firm of nationally recognized
standing (the "MANAGER"), stating that (i) they have a good faith intention
to commence promptly a Permitted Offering and (ii) the Manager in good faith
believes that, based on the then prevailing market conditions, it will be
able to sell the Registrable Securities at a per share price equal to at
least 80% of the then Fair Market Value of such shares. The Registrant
(and/or any person designated by the Registrant) shall thereupon have the
option exercisable by written notice delivered to the Designated Holder
within 10 business days after the receipt of the Registration Notice,
irrevocably to agree to purchase all or any part of the Registrable
Securities proposed to be so sold for cash at a price (the "OPTION PRICE")
equal to the product of (i) the number of Registrable Securities to be so
purchased by the Registrant and (ii) the then Fair Market Value of such
shares. Any such purchase of Registrable Securities by the Registrant (or
its designee) hereunder shall take place at a closing to be held at the
principal executive offices of the Registrant or at the offices of its
counsel at any reasonable date and time designated by the
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Registrant and/or such designee in such notice within 20 business days after
delivery of such notice. Any payment for the shares to be purchased shall be
made by delivery at the time of such closing of the Option Price in
immediately available funds.
If the Registrant does not elect to exercise its option pursuant to this
SECTION 10 with respect to all Registrable Securities, it shall use its best
efforts to effect, as promptly as practicable, the registration under the
Securities Act of the unpurchased Registrable Securities proposed to be so
sold; PROVIDED, HOWEVER, that (i) neither party shall be entitled to more
than an aggregate of two effective registration statements hereunder and
(ii) the Registrant will not be required to file any such registration
statement during any period of time (not to exceed 40 days after such
request in the case of clause (A) below or 90 days in the case of clauses
(B) and (C) below) when (A) the Registrant is in possession of material
non-public information which it reasonably believes would be detrimental to
be disclosed at such time and, in the opinion of counsel to the Registrant,
such information would have to be disclosed if a registration statement were
filed at that time; (B) the Registrant is required under the Securities Act
to include audited financial statements for any period in such registration
statement and such financial statements are not yet available for inclusion
in such registration statement; or (C) the Registrant determines, in its
reasonable judgment, that such registration would interfere with any
financing, acquisition or other material transaction involving the
Registrant or any of its affiliates. The Registrant shall use its reasonable
best efforts to cause any Registrable Securities registered pursuant to this
SECTION 10 to be qualified for sale under the securities or Blue-Sky laws of
such jurisdictions as the Designated Holder may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
PROVIDED, HOWEVER, that the Registrant shall not be required to qualify to
do business in, or consent to general service of process in, any
jurisdiction by reason of this provision.
The registration rights set forth in this SECTION 10 are subject to the
condition that the Designated Holder shall provide the Registrant with such
information with respect to such holder's Registrable Securities, the plans
for the distribution thereof, and such other information with respect to
such holder as, in the reasonable judgment of counsel for the Registrant, is
necessary to enable the Registrant to include in such registration statement
all material facts required to be disclosed with respect to a registration
thereunder.
A registration effected under this SECTION 10 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and
the fees and the expenses of counsel to the Designated Holder, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as
are customary in connection with underwritten public offerings as such
underwriters may reasonably require. In connection with any such
registration, the parties agree (i) to indemnify each other and the
underwriters in the customary manner, (ii) to enter into an underwriting
agreement in form and substance customary for transactions of such type with
the Manager and the other underwriters participating in such offering and
(iii) to take all further actions which shall be reasonably necessary to
effect such registration and sale (including, if the Manager deems it
necessary, participating in road-show presentations).
The Registrant shall be entitled to include (at its expense) additional
shares of its common stock in a registration effected pursuant to this
SECTION 10 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such
offering.
11. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without limitation to
any restriction on the Company contained in this Agreement or in the Merger
Agreement, in the event of any change in Company Common Stock by reason of
stock dividends, splitups, mergers (other than the Mergers),
recapitalizations, combinations, exchange of shares or the like, the type
and number of shares or securities subject to the Company Option, and the
purchase price per share provided in SECTION 1, shall be adjusted
appropriately to restore to WEC its rights hereunder,
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including the right to purchase from the Company (or its successors) shares
of Company Common Stock representing 19.9% of the outstanding Company Common
Stock for the aggregate Exercise Price calculated as of the date of this
Agreement as provided in SECTION 1.
12. RESTRICTIVE LEGENDS. Each certificate representing shares of
Company Common Stock issued to WEC hereunder, and WEC Shares, if any,
delivered to the Company at a Closing, shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT,
DATED AS OF APRIL 28, 1995, A COPY OF WHICH MAY BE OBTAINED FROM THE
ISSUER UPON REQUEST.
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if WEC or the
Company, as the case may be, shall have delivered to the other party a copy
of a letter from the staff of the Securities and Exchange Commission, or an
opinion of counsel, in form and substance satisfactory to the other party,
to the effect that such legend is not required for purposes of the
Securities Act; (ii) the reference to the provisions to this Agreement in
the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in
compliance with the provisions of this Agreement and under circumstances
that do not require the retention of such reference; and (iii) the legend
shall be removed in its entirety if the conditions in the preceding clauses
(i) and (ii) are both satisfied. In addition, such certificates shall bear
any other legend as may be required by law. Certificates representing shares
sold in a registered public offering pursuant to SECTION 10 shall not be
required to bear the legend set forth in this SECTION 12.
13. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Except as
expressly provided for in this Agreement, neither this Agreement nor the
rights or the obligations of either party hereto are assignable, except by
operation of law, or with the written consent of the other party. Nothing
contained in this Agreement, express or implied, is intended to confer upon
any person other than the parties hereto and their respective permitted
assigns any rights or remedies of any nature whatsoever by reason of this
Agreement. Any Restricted Shares sold by a party in compliance with the
provisions of SECTION 10 shall, upon consummation of such sale, be free of
the restrictions imposed with respect to such shares by this Agreement,
unless and until such party shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall not
be entitled to the registration rights of such party.
14. SPECIFIC PERFORMANCE. The parties recognize and agree that if for
any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate
and irreparable harm or injury would be caused for which money damages would
not be an adequate remedy. Accordingly, each party agrees that, in addition
to other remedies, the other party shall be entitled to an injunction
restraining any violation or threatened violation of the provisions of this
Agreement. In the event that any action should be brought in equity to
enforce the provisions of the Agreement, neither party will allege, and each
party hereby waives the defense, that there is adequate remedy at law.
15. ENTIRE AGREEMENT. This Agreement, the WEC Stock Option Agreement,
the Confidentiality Agreement and the Merger Agreement (including the
exhibits and schedules thereto)
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constitute the entire agreement among the parties with respect to the
subject matter hereof and thereof and supersede all other prior agreements
and understandings, both written and oral, among the parties or any of them
with respect to the subject matter hereof and thereof.
16. FURTHER ASSURANCES. Each party will execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
17. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect.
In the event any court or other competent authority holds any provisions of
this Agreement to be null, void or unenforceable, the parties hereto shall
negotiate in good faith the execution and delivery of an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision and the economic effects thereof. If for any reason any such court
or regulatory agency determines that WEC is not permitted to acquire, or the
Company is not permitted to repurchase pursuant to SECTION 7, the full
number of shares of Company Common Stock provided in SECTION 1 hereof (as
the same may be adjusted), it is the express intention of the Company to
allow WEC to acquire or to require the Company to repurchase such lesser
number of shares as may be permissible, without any amendment or
modification hereof. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to
be null, void or unenforceable, or order any party to take any action
inconsistent herewith, or not take any action required herein, the other
party shall not be entitled to specific performance of such provision or
part hereof or to any other remedy, including but not limited to money
damages, for breach hereof or of any other provision of this Agreement or
part hereof as the result of such holding or order.
18. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if (i) delivered personally, or (ii)
sent by reputable overnight courier service, or (iii) telecopied (which is
confirmed), or (iv) five days after being mailed by registered or certified
mail (return receipt requested) to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
A. If to WEC, to:
Wisconsin Energy Corporation
231 West Michigan Street
Milwaukee, WI 53201
Attention: Walter T. Woelfle, Esq.
Telephone: (414) 221-2765
Telecopy: (414) 221-2412
with a copy to:
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202
Attention: Patrick M. Ryan, Esq.
Telephone: (414) 277-5181
Telecopy: (414) 277-5174
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and a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Attention: Sheldon S. Adler, Esq.
Telephone: (212) 735-3000
Telecopy: (212) 735-2000
B. If to the Company, to:
Northern States Power Company
4 Nicollet Mall
Minneapolis, MN 55401
Attention: Gary R. Johnson, Esq.
Telephone: (612) 330-7623
Telecopy: (612) 330-6222
with a copy to:
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street, 31st Floor
Chicago, IL 60610
Attention: Peter Clarke, Esq.
Telephone: (312) 245-8685
Telecopy: (312) 644-3381
and a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Barry A. Bryer, Esq.
Seth A. Kaplan, Esq.
Telephone: (212) 403-1000
Telecopy: (212) 403-2000
19. GOVERNING LAW; CHOICE OF FORUM. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within such State
and without regard to its choice of law principles. Each of the parties
hereto (a) consents to submit itself to the personal jurisdiction of any
federal court located in the State of New York or any New York state court
in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring
any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a federal court
sitting in the State of New York or a New York state court.
20. INTERPRETATION. When a reference is made in this Agreement to a
Section such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including"
are used in this Agreement, they shall be deemed to be followed by the words
"without limitation". The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
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21. COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original, but both of which, taken
together, shall constitute one and the same instrument.
22. EXPENSES. Except as otherwise expressly provided herein or in the
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
23. AMENDMENTS; WAIVER. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or, in
the case of a waiver, by an instrument signed on behalf of the party waiving
compliance.
24. EXTENSION OF TIME PERIODS. The time periods for exercise of
certain rights under SECTIONS 2, 6 and 7 shall be extended: (i) to the
extent necessary to obtain all regulatory approvals for the exercise of such
rights, and for the expiration of all statutory waiting periods; and (ii) to
the extent necessary to avoid any liability under Section 16(b) of the
Exchange Act by reason of such exercise.
25. REPLACEMENT OF COMPANY OPTION. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender
and cancellation of this Agreement, if mutilated, the Company will execute
and deliver a new Agreement of like tenor and date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
WISCONSIN ENERGY CORPORATION
By: /s/_RICHARD A. ABDOO______________
Name: Richard A. Abdoo
Title: Chairman, President and
Chief
Executive Officer
NORTHERN STATES POWER COMPANY
By: /s/_JAMES J. HOWARD_______________
Name: James J. Howard
Title: Chairman and Chief
Executive Officer
B-11
ANNEX C
WEC STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of April 28, 1995 by and among Northern
States Power Company, a Minnesota corporation ("NSP"), and Wisconsin Energy
Corporation, a Wisconsin corporation (the "COMPANY").
WHEREAS, concurrently with the execution and delivery of this Agreement, (i)
NSP, the Company, Northern Power Wisconsin Corp., a Wisconsin corporation ("NEW
NSP") and WEC Sub Corp., a Wisconsin corporation ("WEC SUB"), are entering into
an Agreement and Plan of Merger, dated as of the date hereof (the "MERGER
AGREEMENT"), which provides, among other things, upon the terms and subject to
the conditions thereof, for the merger of NSP with and into New NSP and the
merger of WEC Sub with and into New NSP (the "MERGERS"), and (ii) the Company
and NSP are entering into a certain stock option agreement dated as of the date
hereof whereby NSP grants to the Company an option with respect to certain
shares of NSP's common stock on the terms and subject to the conditions set
forth therein (the "NSP STOCK OPTION AGREEMENT"); and
WHEREAS, as a condition to NSP's willingness to enter into the Merger
Agreement, NSP has requested that the Company agree, and the Company has so
agreed, to grant to NSP an option with respect to certain shares of the
Company's common stock, on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, to induce NSP to enter into the Merger Agreement, and in
consideration of the mutual covenants and agreements set forth herein and in the
Merger Agreement, the parties hereto agree as follows:
1. GRANT OF OPTION. The Company hereby grants NSP an irrevocable
option (the "COMPANY OPTION") to purchase up to 21,773,726 shares, subject
to adjustment as provided in SECTION 11 (such shares being referred to
herein as the "COMPANY SHARES") of common stock, par value $.01 per share,
of the Company (the "COMPANY COMMON STOCK") (being 19.9% of the number of
shares of Company Common Stock outstanding on the date hereof) in the manner
set forth below at a price (the "EXERCISE PRICE") per Company Share of
$27.675 (which is equal to the Fair Market Value (as defined below) of a
Company Share on the date hereof) payable, at NSP's option, (a) in cash or
(b) subject to the Company's having obtained the approvals of any
Governmental Authority required for the Company to acquire the NSP Shares
(as defined below) from NSP, which approvals the Company shall use best
efforts to obtain, in shares of common stock, par value $2.50 per share, of
NSP ("NSP SHARES") in either case in accordance with Section 4 hereof.
Notwithstanding the foregoing, in no event shall the number of Company
Shares for which the Company Option is exercisable exceed 19.9% of the
number of issued and outstanding shares of Company Common Stock. As used
herein, the "FAIR MARKET VALUE" of any share shall be the average of the
daily closing sales price for such share on the New York Stock Exchange (the
"NYSE") during the 10 NYSE trading days prior to the fifth NYSE trading day
preceding the date such Fair Market Value is to be determined. Capitalized
terms used herein but not defined herein shall have the meanings set forth
in the Merger Agreement.
2. EXERCISE OF OPTION. The Company Option may be exercised by NSP, in
whole or in part, at any time or from time to time after the Merger
Agreement becomes terminable by NSP under circumstances which could entitle
NSP to termination fees under either Section 9.3(a) of the Merger Agreement
(provided that the events specified in Section 9.3(a)(ii)(x) of the Merger
Agreement shall have occurred, although the events specified in Section
9.3(a)(ii)(y) thereof need not have occurred) or Section 9.3(b) of the
Merger Agreement (regardless of whether the Merger Agreement is actually
terminated or whether there occurs a closing of any Business Combination
involving a Target Party or a closing by which a Target Party becomes a
subsidiary), any such event by which the Merger Agreement becomes so
terminable by NSP being referred to herein as a "TRIGGER EVENT." The Company
shall notify NSP promptly in writing of the occurrence of any
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Trigger Event, it being understood that the giving of such notice by the
Company shall not be a condition to the right of NSP to exercise the Company
Option. In the event NSP wishes to exercise the Company Option, NSP shall
deliver to the Company a written notice (an "EXERCISE NOTICE") specifying
the total number of Company Shares it wishes to purchase. Each closing of a
purchase of Company Shares (a "CLOSING") shall occur at a place, on a date
and at a time designated by NSP in an Exercise Notice delivered at least two
business days prior to the date of the Closing. The Company Option shall
terminate upon the earlier of: (i) the Effective Time; (ii) the termination
of the Merger Agreement pursuant to Section 9.1 thereof (other than upon or
during the continuance of a Trigger Event); or (iii) 180 days following any
termination of the Merger Agreement upon or during the continuance of a
Trigger Event (or if, at the expiration of such 180 day period the Company
Option cannot be exercised by reason of any applicable judgment, decree,
order, law or regulation, 10 business days after such impediment to exercise
shall have been removed or shall have become final and not subject to
appeal, but in no event under this clause (iii) later than October 31,
1997). Notwithstanding the foregoing, the Company Option may not be
exercised if NSP is in material breach of any of its material
representations or warranties, or in material breach of any of its covenants
or agreements, contained in this Agreement or in the Merger Agreement. Upon
the giving by NSP to the Company of the Exercise Notice and the tender of
the applicable aggregate Exercise Price, NSP shall be deemed to be the
holder of record of the Company Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Company Shares shall not then
be actually delivered to NSP.
3. CONDITIONS TO CLOSING. The obligation of the Company to issue the
Company Shares to NSP hereunder is subject to the conditions, which (other
than the conditions described in clauses (i), (iii) and (iv) below) may be
waived by the Company in its sole discretion, that (i) all waiting periods,
if any, under the HSR Act, applicable to the issuance of the Company Shares
hereunder shall have expired or have been terminated; (ii) the Company
Shares, and any NSP Shares which are issued in payment of the Exercise
Price, shall have been approved for listing on the NYSE upon official notice
of issuance; (iii) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any federal, state or local
administrative agency or commission or other federal state or local
Governmental Authority, if any, required in connection with the issuance of
the Company Shares hereunder shall have been obtained or made, as the case
may be, including, without limitation, the approval of the SEC under Section
10 of the 1935 Act of the acquisition of the Company Shares by NSP and, if
applicable, the acquisition by the Company of the NSP Shares constituting
the Exercise Price hereunder; and (iv) no preliminary or permanent
injunction or other order by any court of competent jurisdiction prohibiting
or otherwise restraining such issuance shall be in effect.
4. CLOSING. At any Closing, (a) the Company will deliver to NSP or its
designee a single certificate in definitive form representing the number of
the Company Shares designated by NSP in its Exercise Notice, such
certificate to be registered in the name of NSP and to bear the legend set
forth in SECTION 12, and (b) NSP will deliver to the Company the aggregate
price for the Company Shares so designated and being purchased by (i) wire
transfer of immediately available funds or certified check or bank check or
(ii) subject to the condition in SECTION 1(B), a certificate or certificates
representing the number of NSP Shares being issued by NSP in consideration
thereof, as the case may be. For the purposes of this Agreement, the number
of NSP Shares to be delivered to the Company shall be equal to the quotient
obtained by dividing (i) the product of (x) the number of Company Shares
with respect to which the Company Option is being exercised and (y) the
Exercise Price by (ii) the Fair Market Value of the NSP Shares on the date
immediately preceding the date the Exercise Notice is delivered to the
Company. The Company shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates
under this Section 4 in the name of NSP or its designee.
C-2
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to NSP that (a) except as set forth in Section 5.1
of the WEC Disclosure Schedule, the Company is a corporation duly organized,
validly existing and in active status under the laws of the State of
Wisconsin and has the corporate power and authority to enter into this
Agreement and, subject to obtaining the applicable approval of shareholders
of the Company for the repurchase of Company Shares pursuant to SECTION 7(A)
below under circumstances where Section 180.1134(1) of the WBCL or Article
III D.(1) of the Company's Restated Articles of Incorporation ("RESTATED
ARTICLES") would be applicable (the "BUYBACK APPROVALS") and subject to any
regulatory approvals referred to herein and to the provisions of Section
180.0640 of the WBCL, if applicable, to carry out its obligations hereunder,
(b) the execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or any of the transactions
contemplated hereby (other than any required Buyback Approvals), (c) such
corporate action (including the approval of the Board of Directors of the
Company) is intended to render inapplicable to this Agreement and the Merger
Agreement and the transactions contemplated hereby and thereby, the
provisions of the WBCL referred to in Section 5.15 of the Merger Agreement,
(d) this Agreement has been duly executed and delivered by the Company,
constitutes a valid and binding obligation of the Company and, assuming this
Agreement constitutes a valid and binding obligation of NSP, is enforceable
against the Company in accordance with its terms, (e) the Company has taken
all necessary corporate action to authorize and reserve for issuance and to
permit it to issue, upon exercise of the Company Option, and at all times
from the date hereof through the expiration of the Company Option will have
reserved, 21,773,726 authorized and unissued Company Shares, such amount
being subject to adjustment as provided in SECTION 11, all of which, upon
their issuance and delivery in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable (subject to Section
180.0622(2)(b) of the WBCL, as judicially interpreted), (f) upon delivery of
the Company Shares to NSP upon the exercise of the Company Option, NSP will
acquire the Company Shares free and clear of all claims, liens, charges,
encumbrances and security interests of any nature whatsoever, (g) except as
described in Section 5.4(b) of the Merger Agreement, the execution and
delivery of this Agreement by the Company does not, and the consummation by
the Company of the transactions contemplated hereby will not, violate,
conflict with, or result in a breach of any provision of, or constitute a
default (with or without notice or lapse of time, or both) under, or result
in the termination of, or accelerate the performance required by, or result
in a right of termination, cancellation, or acceleration of any obligation
or the loss of a material benefit under, or the creation of a lien, pledge,
security interest or other encumbrance on assets (any such conflict,
violation, default, right of termination, cancellation or acceleration, loss
or creation, a "VIOLATION") of the Company or any of its subsidiaries,
pursuant to, (A) any provision of the Restated Articles or by-laws of the
Company, (B) any provisions of any loan or credit agreement, note, mortgage,
indenture, lease, Company benefit plan or other agreement, obligation,
instrument, permit, concession, franchise, license or (C) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or its properties or assets, which Violation, in the case of each of
clauses (B) and (C), could reasonably be expected to have a material adverse
effect on the Company and its subsidiaries taken as a whole, (h) except as
described in Section 5.4(c) of the Merger Agreement or SECTION 1(B) OR
SECTION 3 hereof, the execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company will
not, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Authority, (i) none of the
Company, any of its affiliates or anyone acting on its or their behalf has
issued, sold or offered any security of the Company to any person under
circumstances that would cause the issuance and sale of the Company Shares,
as contemplated by this Agreement, to be subject to the registration
requirements of the Securities Act as in effect on the date hereof and,
assuming the representations of NSP contained in SECTION 6(H) are true and
correct, the issuance, sale and delivery of the
C-3
Company Shares hereunder would be exempt from the registration and
prospectus delivery requirements of the Securities Act, as in effect on the
date hereof (and the Company shall not take any action which would cause the
issuance, sale and delivery of the Company Shares hereunder not to be exempt
from such requirements), and (j) any NSP Shares acquired pursuant to this
Agreement will be acquired for the Company's own account, for investment
purposes only and will not be acquired by the Company with a view to the
public distribution thereof in violation of any applicable provision of the
Securities Act.
6. REPRESENTATIONS AND WARRANTIES OF NSP. NSP represents and warrants
to the Company that (a) NSP is a corporation duly organized, validly
existing and in good standing under the laws of the State of Minnesota and
has the corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder, (b) the execution and delivery of this
Agreement by NSP and the consummation by NSP of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of NSP and no other corporate proceedings on the part of
NSP are necessary to authorize this Agreement or any of the transactions
contemplated hereby, (c) this Agreement has been duly executed and delivered
by NSP and constitutes a valid and binding obligation of NSP, and, assuming
this Agreement constitutes a valid and binding obligation of the Company, is
enforceable against NSP in accordance with its terms, (d) prior to any
delivery of NSP Shares in consideration of the purchase of Company Shares
pursuant hereto, NSP will have taken all necessary corporate action to
authorize for issuance and to permit it to issue such NSP Shares, all of
which, upon their issuance and delivery in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable, and to
render inapplicable to the receipt by the Company of the NSP Shares the
provisions of the MBCA referred to in Section 4.15 of the Merger Agreement,
(e) upon any delivery of such NSP Shares to the Company in consideration of
the purchase of Company Shares pursuant hereto, the Company will acquire the
NSP Shares free and clear of all claims, liens, charges, encumbrances and
security interests of any nature whatsoever, (f) except as described in
Section 4.4(b) of the Merger Agreement, the execution and delivery of this
Agreement by NSP does not, and the consummation by NSP of the transactions
contemplated hereby will not, violate, conflict with, or result in the
breach of any provision of, or constitute a default (with or without notice
or lapse of time, or both) under, or result in any Violation by NSP or any
of its subsidiaries, pursuant to (A) any provision of the Restated Articles
of Incorporation or By-laws of NSP, (B) any provisions of any loan or credit
agreement, note, mortgage, indenture, lease, NSP benefit plan or other
agreement, obligation, instrument, permit, concession, franchise, license or
(C) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to NSP or its properties or assets, which Violation, in the case
of each of clauses (B) and/or (C), would have a material adverse effect on
NSP and its subsidiaries taken as a whole, (g) except as described in
Section 4.4(c) of the Merger Agreement or SECTION 1(B) OR SECTION 3 hereof,
the execution and delivery of this Agreement by NSP does not, and the
consummation by NSP of the transactions contemplated hereby will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority and (h) any Company Shares
acquired upon exercise of the Company Option will be acquired for NSP's own
account, for investment purposes only and will not be, and the Company
Option is not being, acquired by NSP with a view to the public distribution
thereof in violation of any applicable provision of the Securities Act.
7. CERTAIN REPURCHASES.
(a) NSP PUT. At the request of NSP by written notice at any time
during which the Company Option is exercisable pursuant to SECTION 2 (the
"REPURCHASE PERIOD"), the Company (or any successor entity thereof) shall
repurchase from NSP all or any portion of the Company Option, at the price
set forth in subparagraph (i) below, or, at the request of NSP by written
notice at any time prior to April 30, 1997 (provided that such date shall be
extended to October 31, 1997 under the circumstances where the date after
which either party may terminate the Merger Agreement pursuant to Section
9.1(b) of the Merger Agreement has been extended to October 31,
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