Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1996
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 1-3548
Minnesota Power & Light Company
A Minnesota Corporation
IRS Employer Identification No. 41-0418150
30 West Superior Street
Duluth, Minnesota 55802
Telephone - (218) 722-2641
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Common Stock, no par value,
31,935,547 shares outstanding
as of July 31, 1996
Minnesota Power & Light Company
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
June 30, 1996 and December 31, 1995 1
Consolidated Statement of Income -
Quarter and Six Months Ended June 30, 1996
and 1995 2
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1996 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security
Holders 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Definitions
The following abbreviations or acronyms are used in the text.
Abbreviation
or Acronym Term
- ----------------- --------------------------------------------------------
1995 Form 10-K Minnesota Power's Annual Report on Form 10-K for the
Year Ended December 31, 1995
ADESA ADESA Corporation
Capital Re Capital Re Corporation
Company Minnesota Power & Light Company and its Subsidiaries
CPI Consolidated Papers, Inc.
DRIP Dividend Reinvestment and Stock Purchase Plan
ESOP Employee Stock Ownership Plan
FERC Federal Energy Regulatory Commission
FPSC Florida Public Service Commission
Lehigh Lehigh Acquisition Corporation
Minnesota Power Minnesota Power & Light Company and its Subsidiaries
MPUC Minnesota Public Utilities Commission
MW Megawatt(s)
OOU Orange Osceola Utilities
QUIPS Quarterly Income Preferred Securities
Seabrook Heater of Seabrook, Inc.
Square Butte Square Butte Electric Cooperative
SSU Southern States Utilities, Inc.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Minnesota Power
Consolidated Balance Sheet
In Thousands
June 30, December 31,
1996 1995
Unaudited Audited
- -------------------------------------------------------------------------------------------------------------------
Assets
Plant and Other Assets
Electric operations $ 799,091 $ 800,477
Water operations 319,331 323,182
Automobile auctions 140,257 123,632
Investments 227,056 201,360
----------- -----------
Total plant and other assets 1,485,735 1,448,651
----------- -----------
Current Assets
Cash and cash equivalents 63,432 31,577
Trading securities 76,319 40,007
Trade accounts receivable (less reserve of $4,088 and $3,325) 171,700 128,072
Notes and other accounts receivable 22,309 12,220
Fuel, material and supplies 25,911 26,383
Prepayments and other 16,910 13,706
----------- -----------
Total current assets 376,581 251,965
----------- -----------
Deferred Charges
Regulatory 82,178 88,631
Other 26,703 25,037
----------- -----------
Total deferred charges 108,881 113,668
----------- -----------
Intangible Assets
Goodwill 124,122 120,245
Other 12,712 13,096
----------- -----------
Total intangible assets 136,834 133,341
----------- -----------
Total Assets $ 2,108,031 $ 1,947,625
- -------------------------------------------------------------------------------------------------------------------
Capitalization and Liabilities
Capitalization
Common stock without par value, 65,000,000 shares authorized
31,917,569 and 31,467,650 shares outstanding $ 384,286 $ 377,684
Unearned ESOP shares (71,047) (72,882)
Net unrealized gain on securities investments 1,165 3,206
Cumulative translation adjustment (401) (177)
Retained earnings 277,744 276,241
----------- -----------
Total common stock equity 591,747 584,072
Cumulative preferred stock 11,492 28,547
Redeemable serial preferred stock 20,000 20,000
Company obligated mandatorily redeemable preferred securities of
MP&L Capital I 75,000 -
Long-term debt 653,039 639,548
----------- -----------
Total capitalization 1,351,278 1,272,167
----------- -----------
Current Liabilities
Accounts payable 92,366 68,083
Accrued taxes 39,386 40,999
Accrued interest and dividends 16,136 14,471
Notes payable 89,330 96,218
Long-term debt due within one year 70,060 9,743
Other 27,155 27,292
----------- -----------
Total current liabilities 334,433 256,806
----------- -----------
Deferred Credits
Accumulated deferred income taxes 164,994 164,737
Contributions in aid of construction 97,468 98,167
Regulatory 56,491 57,950
Other 103,367 97,798
----------- -----------
Total deferred credits 422,320 418,652
----------- -----------
Total Capitalization and Liabilities $ 2,108,031 $ 1,947,625
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
-1-
Minnesota Power
Consolidated Statement of Income
In Thousands Except Per Share Amounts - Unaudited
Quarter Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
Operating Revenue and Income
Electric operations $ 129,219 $ 119,694 $ 260,718 $ 240,448
Water operations 23,050 17,814 42,277 33,416
Automobile auctions 45,215 - 84,908 -
Investments 11,019 9,828 23,275 20,160
--------- ---------- --------- ---------
Total operating revenue and income 208,503 147,336 411,178 294,024
--------- ---------- --------- ---------
Operating Expenses
Fuel and purchased power 48,291 44,113 91,934 84,422
Operations 87,034 60,975 173,063 123,117
Administrative and general 40,559 16,790 74,350 35,252
Interest expense 14,357 11,388 28,517 22,489
--------- ---------- --------- ---------
Total operating expenses 190,241 133,266 367,864 265,280
--------- ---------- --------- ---------
Income (Loss) from Equity Investments 2,832 2,361 6,609 (3,909)
--------- ---------- --------- ---------
Operating Income from Continuing Operations 21,094 16,431 49,923 24,835
Income Tax Expense (Benefit) 4,753 5,508 15,077 (9,893)
--------- ---------- --------- ---------
Income from Continuing Operations 16,341 10,923 34,846 34,728
Income from Discontinued Operations - 1,190 - 2,842
--------- ---------- --------- ---------
Net Income 16,341 12,113 34,846 37,570
Dividends on Preferred Stock 634 800 1,434 1,600
Distributions on Company Obligated Mandatorily
Redeemable Preferred Securities of MP&L Capital I 1,509 - 1,711 -
--------- ---------- --------- ---------
Earnings Available for Common Stock $ 14,198 $ 11,313 $ 31,701 $ 35,970
========= ========== ========= =========
Average Shares of Common Stock 29,053 28,446 28,919 28,409
Earnings Per Share of Common Stock
Continuing operations $ .49 $ .35 $ 1.10 $1.17
Discontinued operations - .05 - .10
----- ----- ------ -----
Total $ .49 $ .40 $ 1.10 $1.27
===== ===== ====== =====
Dividends Per Share of Common Stock $ .51 $ .51 $ 1.02 $1.02
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
-2-
Minnesota Power
Consolidated Statement of Cash Flows
In Thousands - Unaudited
Six Months Ended
June 30,
1996 1995
- -------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 34,846 $ 37,570
Depreciation and amortization 32,511 27,575
Deferred income taxes (1,515) (29,101)
Deferred investment tax credits (839) (1,024)
Pre-tax gain on sale of plant (1,073) -
Pre-tax loss on disposal of discontinued operations - 1,793
Changes in operating assets and liabilities
excluding the effects of discontinued operations
Trading securities (36,312) 18,013
Notes and accounts receivable (53,488) 8,646
Fuel, material and supplies 531 (2,090)
Accounts payable 24,201 (1,325)
Other current assets and liabilities (4,970) 8,221
Other - net 12,429 (2,514)
---------- ---------
Cash from operating activities 6,321 65,764
---------- ---------
Investing Activities
Proceeds from sale of investments in securities 14,640 94,162
Proceeds from sale of plant 5,311 -
Proceeds from sale of discontinued operations - 106,115
Funds held by trustee for ADESA acquisition - (161,810)
Additions to investments (51,921) (65,996)
Additions to plant (45,427) (40,906)
Changes to other assets - net 6,443 2,777
---------- ---------
Cash for investing activities (70,954) (65,658)
---------- ---------
Financing Activities
Issuance of long-term debt 190,134 9,000
Issuance of Company obligated mandatorily
redeemable preferred securities of MP&L Capital I - net 72,270 -
Issuance of common stock 9,015 1,467
Changes in notes payable (9,588) 124,372
Reductions of long-term debt (116,455) (2,217)
Redemption of preferred stock (17,568) -
Dividends on preferred and common stock (31,320) (30,846)
---------- ---------
Cash from financing activities 96,488 101,776
---------- ---------
Change in Cash and Cash Equivalents 31,855 101,882
Cash and Cash Equivalents at Beginning of Period 31,577 27,001
---------- ---------
Cash and Cash Equivalents at End of Period $ 63,432 $ 128,883
========== =========
Supplemental Cash Flow Information
Cash paid during the period for
Interest (net of capitalized) $ 24,930 $ 22,481
Income taxes $ 17,182 $ 11,893
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
-3-
Notes to Consolidated Financial Statements
The accompanying unaudited consolidated financial statements and notes should be
read in conjunction with the Company's 1995 Form 10-K. In the opinion of the
Company, all adjustments necessary for a fair statement of the results for the
interim periods have been included. The results of operations for an interim
period may not give a true indication of results for the year. The income
statement information for prior periods has been reclassified to reflect the way
in which the Company currently reports information regarding its businesses.
Financial statement information may not be comparable between periods due to the
purchase of ADESA on July 1, 1995.
Note 1. Business Segments
In Thousands
Investments
--------------------- Corporate
Electric Water Automobile Portfolio & Real Charges
Consolidated Operations Operations Auctions Reinsurance Estate & Other
------------ ---------- ---------- ------------ ----------- -------- ---------
Quarter Ended June 30, 1996
- ---------------------------
Operating revenue and income $208,503 $129,219 $ 23,050 $ 45,215 $4,736 $ 6,605 $ (322)
Operation and other expense 159,589 102,218 13,926 37,026 731 3,845 1,843
Depreciation and amortization
expense 16,295 10,512 3,070 2,705 - 8 -
Interest expense 14,357 5,537 3,057 2,017 - 486 3,260
Income from equity investments 2,832 - - - 2,832 - -
-------- -------- -------- -------- ------ -------- -------
Operating income (loss) 21,094 10,952 2,997 3,467 6,837 2,266 (5,425)
Income tax expense (benefit) 4,753 3,593 1,010 2,002 928 (782) (1,998)
-------- -------- -------- -------- ------ -------- -------
Net income $ 16,341 $ 7,359 $ 1,987 $ 1,465 $5,909 $ 3,048 $(3,427)
======== ======== ======== ======== ====== ======== =======
Quarter Ended June 30, 1995
- ---------------------------
Operating revenue and income $147,336 $119,694 $ 17,814 - $6,223 $ 4,438 $ (833)
Operation and other expense 109,152 91,128 11,692 - 1,322 3,492 1,518
Depreciation and amortization
expense 12,726 10,115 2,551 - - 60 -
Interest expense 11,388 5,573 2,534 - 1 - 3,280
Income from equity investments 2,361 - - - 2,361 - -
-------- -------- -------- ------ -------- -------
Operating income (loss)
from continuing operations 16,431 12,878 1,037 - 7,261 886 (5,631)
Income tax expense (benefit) 5,508 5,014 348 - 488 592 (934)
-------- -------- -------- ------ -------- -------
Income (loss) from
continuing operations 10,923 $ 7,864 $ 689 - $6,773 $ 294 $(4,697)
======== ======== ====== ======== =======
Income from
discontinued operations 1,190
--------
Net income $ 12,113
========
- ------------------------------
Purchased July 1, 1995.
-4-
Note 1. Business Segments (Continued)
In Thousands
Investments
---------------------- Corporate
Electric Water Automobile Portfolio & Real Charges
Consolidated Operations Operations Auctions Reinsurance Estate & Other
------------ ---------- ---------- ------------ ----------- -------- ---------
Six Months Ended June 30, 1996
- ------------------------------
Operating revenue and income $ 411,178 $ 260,718 $ 42,277 $ 84,908 $ 8,605 $ 15,281 $ (611)
Operation and other expense 306,836 197,523 25,444 71,228 1,254 7,058 4,329
Depreciation and amortization
expense 32,511 21,011 6,207 5,255 - 38 -
Interest expense 28,517 11,212 6,344 3,308 1 488 7,164
Income from equity investments 6,609 - - - 6,609 - -
---------- --------- --------- -------- --------- -------- --------
Operating income (loss) 49,923 30,972 4,282 5,117 13,959 7,697 (12,104)
Income tax expense (benefit) 15,077 11,367 1,459 2,664 2,897 1,581 (4,891)
---------- --------- --------- -------- --------- -------- --------
Net income $ 34,846 $ 19,605 $ 2,823 $ 2,453 $ 11,062 $ 6,116 $ (7,213)
========== ========= ========= ======== ========= ======== ========
Total assets $2,108,031 $ 983,971 $ 341,792 $453,561 $ 244,526 $ 82,516 $ 1,665
Accumulated depreciation $ 646,609 $ 527,425 $ 115,162 $ 4,022 - - -
Accumulated amortization $ 5,819 - - $ 4,949 - $ 870 -
Construction work in progress $ 55,559 $ 13,769 $ 17,816 $ 23,974 - - -
Six Months Ended June 30, 1995
- ------------------------------
Operating revenue and income $ 294,024 $ 240,448 $ 33,416 - $ 12,962 $ 8,703 $ (1,505)
Operation and other expense 217,464 178,165 22,749 - 2,257 10,626 3,667
Depreciation and amortization
expense 25,327 20,136 5,071 - - 120 -
Interest expense 22,489 11,070 4,986 - 4 2 6,427
Income (loss) from
equity investments (3,909) - - - 4,619 - (8,528)
---------- --------- --------- --------- -------- --------
Operating income (loss)
from continuing operations 24,835 31,077 610 - 15,320 (2,045) (20,127)
Income tax expense (benefit) (9,893) 12,833 (47) - 1,950 (17,423) (7,206)
---------- --------- --------- --------- -------- --------
Income (loss) from
continuing operations 34,728 $ 18,244 $ 657 - $ 13,370 $ 15,378 $(12,921)
========= ========= ========= ======== ========
Income from
discontinued operations 2,842
----------
Net income $ 37,570
==========
Total assets $1,872,156 $ 993,127 $ 325,348 - $ 518,702 $ 34,181 $ 798
Accumulated depreciation $ 604,884 $ 510,170 $ 94,714 - - - -
Accumulated amortization $ 580 - - - - $ 580 -
Construction work in progress $ 22,672 $ 9,943 $ 12,729 - - - -
- -------------------------------
Purchased July 1, 1995.
Includes $3.7 million of minority interest relating to the recognition of tax benefits. (See Note 3.)
Includes an $8.5 million pre-tax provision for exiting the equipment manufacturing business.
Includes $18.4 million of tax benefits. (See Note 3.)
-5-
Note 2. Regulatory Matters
FPSC Refund Order in Connection with 1993 Rate Case. On June 11, 1996 the FPSC
voted 3-2 to require SSU to refund about $10 million, including interest, to
certain customers who had paid more to SSU under a uniform rate structure than
they would have paid under a stand-alone rate structure during the period
September 1993 to January 1996. In so ruling, the majority of the FPSC
determined that a February 1996 decision of the Florida Supreme Court in GTE
Florida v. FPSC did not render a refund requirement unlawful independent of an
offsetting surcharge. SSU believes that the GTE Florida decision substantiates
SSU's claim that it would be unlawful for the FPSC to order a refund to certain
customers who paid more under uniform rates without also permitting SSU to
recover the refund amount from remaining customers who paid less. SSU has
recorded no provision for refund. SSU intends to appeal the FPSC's order to the
First District Court of Appeal.
SSU's 1995 Rate Case. On July 31, 1996 the FPSC voted to allow SSU approximately
61 percent of the $18.1 million rate increase requested in June 1995. The FPSC
is expected to issue its final order on SSU's request on September 4, 1996.
Note 3. Income Tax Expense
Quarter Ended Six Months Ended
June 30, June 30,
Schedule of Income Tax Expense (Benefit) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
In Thousands
Charged to continuing operations
Current tax
Federal $ 4,030 $ 1,040 $ 12,888 $ 3,866
Foreign 551 - 450 -
State 1,162 493 4,093 1,620
--------- --------- -------- ---------
5,743 1,533 17,431 5,486
--------- --------- -------- ---------
Deferred tax
Federal 1,143 3,598 1,131 3,524
State 84 781 (646) 521
--------- --------- -------- ---------
1,227 4,379 485 4,045
--------- --------- -------- ---------
Change in valuation allowance (2,000) - (2,000) (18,400)
--------- --------- -------- ---------
Deferred tax credits (217) (404) (839) (1,024)
--------- --------- -------- ---------
Income tax - continuing operations 4,753 5,508 15,077 (9,893)
--------- --------- -------- ---------
Charged to discontinued operations
Current tax
Federal - 13,502 - 13,396
State - 4,209 - 4,192
--------- --------- -------- ---------
- 17,711 - 17,588
--------- --------- -------- ---------
Deferred tax
Federal - (12,870) - (11,851)
State - (3,195) - (2,895)
--------- --------- -------- ---------
- (16,065) - (14,746)
--------- --------- -------- ---------
Income tax - discontinued operations - 1,646 - 2,842
--------- --------- -------- ---------
Total income tax expense (benefit) $ 4,753 $ 7,154 $ 15,077 $ (7,051)
========= ========= ======== =========
In March 1995 based on the results of a project which analyzed the economic
feasibility of realizing future tax benefits available to the Company, the board
of directors of Lehigh directed the management of Lehigh to dispose of Lehigh's
assets in a manner that would maximize utilization of tax benefits. Based on
this directive, Lehigh recognized $18.4 million of income in the first quarter
of 1995 by reducing the valuation reserve which offsets deferred tax assets. In
May 1996 an additional $2 million of income was recognized based on a management
review of the appropriateness of the valuation reserve. Additional unrealized
net deferred tax assets of $6.2 million resulting from the original purchase of
Lehigh are included on the Company's balance sheet. These assets are fully
offset by the deferred tax asset valuation allowance because under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," it is
currently "more likely than not" that the value of these assets will not be
realized. Management reviews the appropriateness of the valuation allowance
quarterly.
-6-
Note 4. Square Butte Purchased Power Contract
The Company has a contract to purchase power and energy from Square Butte. Under
the terms of the contract which extends through 2007, the Company is purchasing
71 percent of the output from a generating plant which is capable of generating
up to 470 MW. Reductions to about 49 percent of the output are provided for in
the contract and, at the option of Square Butte, could begin after a five-year
advance notice to the Company.
The cost of the power and energy is a proportionate share of Square Butte's
fixed obligations and variable operating costs, based on the percentage of the
total output purchased by the Company. The annual fixed obligations of the
Company to Square Butte are $19.4 million from 1996 through 2000. The variable
operating costs are not incurred unless production takes place. The Company is
responsible for paying all costs and expenses of Square Butte if not paid by
Square Butte when due. These obligations and responsibilities of the Company are
absolute and unconditional whether or not any power is actually delivered to the
Company.
Note 5. Preferred Stock
On May 13, 1996 Minnesota Power redeemed all of the 170,000 outstanding shares
of its Serial Preferred Stock, $7.36 Series. The redemption price was $103.34
plus $.86 accrued dividends. Proceeds from the QUIPS financing in March 1996
were used to redeem the shares.
Note 6. Mandatorily Redeemable Preferred Securities of MP&L Capital I
MP&L Capital I (Trust) was established as a wholly owned business trust of the
Company for the purpose of issuing common and preferred securities (Trust
Securities). On March 20, 1996 the Trust publicly issued three million 8.05%
Cumulative Quarterly Income Preferred Securities (QUIPS), representing preferred
beneficial interests in the assets held by the Trust, indirectly resulting in
net proceeds to the Company of $72.6 million. Holders of the QUIPS are entitled
to receive quarterly distributions at an annual rate of 8.05 percent of the
liquidation preference value of $25 per security. The Company is the owner of
all the common trust securities, which constitute approximately 3 percent of the
aggregate liquidation amount of all the Trust Securities. The sole asset of the
Trust is $77.5 million of 8.05% Junior Subordinated Debentures, Series A, Due
2015 (Subordinated Debentures) issued by the Company, interest on which is
deductible by the Company for income tax purposes. The Trust will use interest
payments received on the Subordinated Debentures it holds to make the quarterly
cash distributions on the QUIPS.
The QUIPS are subject to mandatory redemption upon repayment of the Subordinated
Debentures at maturity or upon redemption. The Company has the option at any
time on or after March 20, 2001, to redeem the Subordinated Debentures, in whole
or in part. The Company also has the option, upon the occurrence of certain
events, (i) to redeem at any time the Subordinated Debentures, in whole but not
in part, which would result in the redemption of all the Trust Securities, or
(ii) to terminate the Trust and cause the pro rata distribution of the
Subordinated Debentures to the holders of the Trust Securities.
In addition to the Company's obligations under the Subordinated Debentures, the
Company has guaranteed, on a subordinated basis, payment of distributions on the
Trust Securities, to the extent the Trust has funds available to pay such
distributions, and has agreed to pay all of the expenses of the Trust (such
additional obligations collectively, the Back-up Undertakings). Considered
together, the Back-up Undertakings constitute a full and unconditional guarantee
by the Company of the Trust's obligations under the QUIPS.
Note 7. Long-Term Debt
On May 30, 1996 ADESA issued $90 million of 7.70% Senior Notes, Series A, Due
2006 in a private placement offering. Proceeds were used by ADESA to repay
existing indebtedness, including borrowings under ADESA's revolving bank credit
agreement, floating rate option notes and certain borrowings from Minnesota
Power. In June 1996 Lehigh obtained a $20 million adjustable rate revolving line
of credit due in 2003. The proceeds were used to partially finance the
acquisition of real estate near Palm Coast, Florida.
-7-
Note 8. Common Stock
Shareholder Rights Plan. On July 24, 1996 the Board of Directors of the Company
adopted a rights plan (Rights Plan) pursuant to which it declared a dividend
distribution of one preferred share purchase right (Right) for each outstanding
share of Common Stock of the Company (Common Stock) to shareholders of record at
the close of business on July 24, 1996 (the Record Date) and authorized the
issuance of one Right with respect to each share of Common Stock that becomes
outstanding between the Record Date and July 23, 2006, or such earlier time as
the Rights are redeemed.
Each Right will be exercisable to purchase one one-hundredth of a share of
Junior Serial Preferred Stock A, without par value, at an exercise price of $90,
subject to adjustment, following a distribution date which shall be the earlier
to occur of (i) 10 days following a public announcement that a person or group
(Acquiring Person) has acquired, or obtained the right to acquire, beneficial
ownership of 15 percent or more of the outstanding shares of Common Stock (Stock
Acquisition Date) or (ii) 15 business days (or such later date as may be
determined by the Board of Directors prior to the time that any person becomes
an Acquiring Person) following the commencement of, or a public announcement of
an intention to make, a tender or exchange offer if, upon consummation thereof,
such person would meet the 15 percent threshold.
Subject to certain exempt transactions, in the event that the 15 percent
threshold is met, each holder of a Right (other than the Acquiring Person) will
thereafter have the right to receive, upon exercise at the then current exercise
price of the Right, Common Stock (or, in certain circumstances, cash, property
or other securities of the Company) having a value equal to two times the
exercise price of the Right. If, at any time following the Stock Acquisition
Date, the Company is acquired in a merger or other business combination
transaction or 50 percent or more of the Company's assets or earning power are
sold, each Right will entitle the holder (other than the Acquiring Person) to
receive, upon exercise at the then current exercise price of the Right, common
stock of the acquiring or surviving company having a value equal to two times
the exercise price of the Right. Certain stock acquisitions will also trigger a
provision permitting the Board of Directors to exchange each Right for one share
of Common Stock.
The Rights are nonvoting and expire on July 23, 2006, unless redeemed by the
Company at a price of $.01 per Right at any time prior to the time a person
becomes an Acquiring Person. The Board of Directors has authorized the
reservation of one million shares of Junior Serial Preferred Stock A for
issuance under the Rights Plan in the event of excercise of the Rights.
Stock Option and Award Plans. In May 1996 Company shareholders approved an
Executive Long-Term Incentive Compensation Plan (the Executive Plan) and a
Director Long-Term Stock Incentive Plan (the Director Plan), effective January
1, 1996.
The Executive Plan allows for the grant of up to 2.1 million shares of Common
Stock to key employees of the Company. Such grants may be in the form of stock
options and other awards, including stock appreciation rights, restrictive
stock, performance units and performance shares. In January 1996 the Company
granted non-qualified stock options to purchase 132,542 shares of Common
Stock and granted 176,616 performance shares. Additionally, 24,000 restrictive
shares of Common Stock were granted, with the restriction expiring over a three-
year period. Pursuant to the Director Plan each nonemployee director receives an
annual grant of 725 stock options and a biennial grant of performance shares
equal to $10,000 in value of Common Stock on the date of grant. The Director
Plan provides for the grant of up to 150,000 shares of Common Stock.
The exercise price for stock options is equal to the market value of the Common
Stock on the date of a grant. Stock options may be excercised 50 percent on the
first anniversary date of the grant and the remaining 50 percent on the second
anniversary and expire on the tenth anniversary. Grants of performance shares
are earned over multi-year time periods upon the achievement of performance
objectives.
The Company has elected to recognize compensation cost for its stock-based
compensation plans in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Generally, no compensation
expense is recognized for stock options with exercise prices equal to the market
value of the underlying shares of stock at the date of the grant. Compensation
cost is recognized over the vesting periods for performance share awards based
on the market value of the underlying shares of stock.
-8-
Note 9. Discontinued Operations
On June 30, 1995 Minnesota Power sold its interest in the paper and pulp
business. The financial results of the paper and pulp business, including the
loss on disposition, have been accounted for as discontinued operations.
Quarter Ended Six Months Ended
June 30, June 30,
Summary of Discontinued Operations 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
In Thousands
Operating revenue and income - $ 22,285 - $ 44,324
========= ========
Equity in earnings - $ 5,675 - $ 7,496
========= ========
Income from operations - $ 4,629 - $ 7,477
Income tax expense - 1,921 - 3,117
--------- --------
- 2,708 - 4,360
--------- --------
Loss on disposal - (1,793) - (1,793)
Income tax benefit - 275 - 275
--------- --------
- (1,518) - (1,518)
--------- --------
Income from discontinued operations - $ 1,190 - $ 2,842
========= ========
The Company is still committed to a maximum guaranty of $95 million to ensure a
portion of a $33.4 million annual lease obligation for paper mill equipment
under an operating lease extending to 2012. The purchaser of the Company's paper
and pulp business, CPI, has agreed to indemnify the Company for any payments the
Company may make as a result of the Company's obligation relating to this
operating lease.
-9-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Minnesota Power has operations in four business segments: (1) electric
operations, which include electric and gas services, and coal mining; (2) water
operations, which include water and wastewater services; (3) automobile
auctions, which also include a finance company and an auto transport company;
and (4) investments, which include real estate operations in Florida, a 21
percent equity investment in a financial guaranty reinsurance company, and a
securities portfolio.
Earnings per share of common stock for the quarter ended June 30, 1996 were 49
cents compared to 40 cents for the quarter ended June 30, 1995. All four
business segments were profitable for the second quarter ended June 30, 1996.
Although earnings from electric operations decreased, water operations and
investments significantly improved over second quarter results in 1995. The sale
of the Company's paper and pulp business was included in the results for the
quarter ended June 30, 1995 as discontinued operations.
Earnings per share of common stock for the six months ended June 30, 1996 were
$1.10 compared to $1.27 for the six months ended June 30, 1995. Factors
contributing to 1996 earnings include increased electric and water revenue, a
gain resulting from the sale of certain water operations, the inclusion of
automobile auctions and improvement in real estate operations (excluding the
recognition of tax benefits in 1995).
Higher earnings in 1995 were attributed to the 52 cent per share recognition of
tax benefits associated with real estate operations. Earnings in 1995 also
reflect an 18 cent per share provision associated with exiting the truck-mounted
lifting equipment business. The sale of the Company's paper and pulp business
was included in 1995 as discontinued operations.
Quarter Ended Six Months Ended
June 30, June 30,
Earnings Per Share 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
Continuing Operations
Electric Operations $.23 $ .26 $ .64 $ .61
Water Operations .07 .02 .10 .02
Automobile Auctions .05 - .08 -
Investments
Portfolio and reinsurance .20 .24 .38 .47
Real estate .10 .01 .21 .54
---- ----- ------ -----
.30 .25 .59 1.01
Corporate Charges and Other (.16) (.17) (.31) (.47)
---- ---- ------ -----
Total Continuing Operations .49 .36 1.10 1.17
Discontinued Operations - .04 - .10
---- ---- ------ -----
Total Earnings Per Share $.49 $.40 $ 1.10 $1.27
==== ==== ====== =====
Results of Operations
Comparison of the Quarter Ended June 30, 1996 and 1995.
Electric Operations. Operating revenue and income from electric operations were
higher in 1996 compared to 1995 due to a 30 percent increase in total
kilowatthour sales. The increase in sales is attributed primarily to the
Company's ability to market energy to other power suppliers.
Revenue from electric sales to taconite customers accounted for 33 percent of
electric operating revenue in 1996 compared to 36 percent in 1995. Electric
sales to paper and other wood-products companies accounted for 11 percent of
electric operating revenue in 1996 and 13 percent in 1995. Sales to other
-10-
power suppliers accounted for 15 percent of electric operating revenue in 1996
compared to 8 percent in 1995.
Although revenue from electric operations was higher, earnings for the quarter
ended June 30, 1996 were lower reflecting efforts in preparing for and meeting
the more competitive challenges of today's electric industry. New industrial
rates were lower on average while expenses associated with marketing new
products and improving customer service were higher. Additionally, the costs
associated with the early retirement plan offered in mid-1995 are being expensed
over three years and are included in 1996 expenses. Scheduled maintenance
expenses were also higher in 1996.
Water Operations. Operating revenue and income from water operations were higher
in 1996 due to the addition of 17,000 new water and wastewater customers as a
result of the December 1995 purchase of the assets of Orange Osceola Utilities
(OOU) in Florida, and SSU's implementation of a $7.9 million interim rate
increase effective January 23, 1996. Operating costs also increased in 1996
because of the purchase of OOU.
Automobile Auctions. ADESA sold 160,000 cars during the quarter ended June 30,
1996, the best quarterly sales since Minnesota Power purchased the business in
July 1995. One additional auction site was purchased during the quarter.
Operating expenses include significant start-up costs at two other new locations
added in 1996 and relocation costs for two existing auction operations.
Consolidated operating expenses in 1996 were significantly higher due to the
inclusion of ADESA's operations following its purchase by the Company in July
1995.
Investments.
- Securities Portfolio and Reinsurance. The Company's securities portfolio
and reinsurance performed well in 1996, however earnings were less
because the portfolio balance was smaller. A portion of the portfolio
was sold in 1995 to fund the purchase of ADESA.
- Real Estate Operations. Increased land sales, combined with the
recognition of $2 million of tax benefits at Lehigh, resulted in a more
profitable quarter for the Company's real estate business in 1996.
Discontinued Operations. Income from discontinued operations in 1995 reflects
the sale and operating results of the paper and pulp business which was sold in
June 1995.
Comparison of the Six Months Ended June 30, 1996 and 1995.
Electric Operations. Operating revenue and income from electric operations were
higher in 1996 compared to 1995 due to a 22 percent increase in total
kilowatthour sales. The increase in sales is attributed primarily to the
Company's ability to market energy to other power suppliers as well as extreme
winter weather in 1996 compared to the milder winter in 1995.
Revenue from electric sales to taconite customers accounted for 32 percent of
electric operating revenue in 1996 compared to 36 percent in 1995. Electric
sales to paper and other wood-products companies accounted for 11 percent of
electric operating revenue in 1996 and 13 percent in 1995. Sales to other power
suppliers accounted for 12 percent of electric operating revenue in 1996
compared to 6 percent in 1995.
Purchased power and other expenses for electric operations were considerably
higher in 1996 than in 1995. Increased purchased power costs were incurred in
1996 to meet higher demand. However, the average cost per kilowatthour was lower
than in 1995. Square Butte, one of Minnesota Power's low priced sources of
energy, produced 64 percent more energy in 1996, while in 1995 it was down for
scheduled maintenance. Costs associated with the early retirement offering in
mid-1995 are being expensed over three years and are reflected in 1996 expenses.
Scheduled maintenance expenses were higher in 1996.
-11-
Water Operations. Operating revenue and income from water operations were higher
in 1996 due to the $1.1 million pre-tax gain from the sale of Seabrook's assets
in South Carolina, the addition of 17,000 new water and wastewater customers as
a result of the December 1995 purchase of the assets of OOU in Florida, and
SSU's implementation of a $7.9 million interim rate increase effective January
23, 1996. Operating costs also increased in 1996 because of the purchase of OOU.
Automobile Auctions. Automobile auction operations were profitable despite
severe winter weather on the east coast which limited auction sales in January
1996. New auctions began operations at Jacksonville, Florida and Newark, New
Jersey during the first half of 1996. Start-up costs associated with these new
sites have had a negative impact on profitability of this segment and are
expected to continue having such an impact on results through 1997. All
other auction sites including, ADESA's acquisition of an auto auction
facility in Portage, Wisconsin, have performed well in 1996.
Consolidated operating expenses in 1996 are significantly higher due to the
inclusion of ADESA's operations following its purchase by the Company in July
1995.
Investments.
- Securities Portfolio and Reinsurance. The Company's securities portfolio
and reinsurance performed well in 1996. The portfolio produced less
earnings in 1996 because its balance was smaller as a result of the sale
of a portion of the portfolio to fund the purchase of ADESA.
- Real Estate Operations. Revenue in 1996 includes $3.7 million from the
sale of Lehigh's joint venture in a resort and golf course. In 1995 $18.4
million of tax benefits were recognized by Lehigh. The Company's portion
of the tax benefits reflected as net income was $14.7 million, or 52
cents per share. In 1996 an additional $2 million of tax benefits were
recognized.
Corporate Charges and Other. In March 1995 the Company recorded a $5 million
provision, lowering earnings per share by 18 cents, in anticipation of exiting
the truck-mounted lifting equipment business.
Discontinued Operations. Income from discontinued operations in 1995 reflects
the operating results of the paper and pulp business which was sold in June
1995.
Liquidity and Financial Position
Reference is made to the Consolidated Statement of Cash Flows for the six months
ended June 30, 1996 and 1995, for purposes of the following discussion.
Automobile auction operations, which were acquired July 1, 1995, are included in
the six months ended June 30, 1996.
Cash Flow Activities. Cash from operating activities was affected by a number of
factors representative of normal operations.
Working capital, if and when needed, generally is provided by the sale of
commercial paper. In addition, securities investments can be liquidated to
provide funds for reinvestment in existing businesses or acquisition of new
businesses, and approximately 5,268,000 original issue shares of common stock
are available for issuance through the DRIP.
MP&L Capital I (Trust) was established as a wholly owned business trust of the
Company for the purpose of issuing common and preferred securities. On March 20,
1996 the Trust publicly issued three million 8.05% Cumulative Quarterly Income
Preferred Securities (QUIPS), representing preferred beneficial interests in the
assets held by the Trust, indirectly resulting in net proceeds to the Company of
$72.6 million. The net proceeds to the Company were used to retire approximately
$56 million of commercial paper and approximately $17 million were used to
redeem all of the outstanding shares of the Company's Serial Preferred Stock,
$7.36 Series, on May 13, 1996.
On May 30, 1996 ADESA issued $90 million of 7.70% Senior Notes, Series A, Due
2006 in a private placement offering. Proceeds were used by ADESA to repay
existing indebtedness, including borrowings
-12-
under ADESA's revolving bank credit agreement, floating rate option notes and
certain borrowings from Minnesota Power. In June 1996 Lehigh obtained a $20
million adjustable rate revolving line of credit due in 2003. The proceeds were
used to partially finance the acquisition of real estate near Palm Coast,
Florida.
On June 24, 1996 the Company's registration with the Securities and Exchange
Commission became effective with respect to 5 million additional shares of
common stock for offer and sale pursuant to the DRIP. Previously available to
registered holders and electric utility customers, the DRIP has been amended,
effective July 2, 1996, to, among other things, expand the customer feature and
allow any interested investor to enroll in the plan with an initial investment
of $250. Capital raised through the sale of new issue shares under the DRIP is
expected to be used for general corporate purposes.
Capital Requirements. Consolidated capital expenditures for the six months ended
June 30, 1996 totaled $53 million. These expenditures include $19 million for
electric operations, $8 million for water operations and $26 million for
automobile auction operations. Internally generated funds were the primary
source for funding electric and water operation expenditures. ADESA issued
long-term debt to finance its construction expenditures.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Shareholders on May 14, 1996.
(b) The election of directors, appointment of independent accountants and
approval of the Minnesota Power Executive Long-Term Incentive
Compensation Plan and the Minnesota Power Director Long-Term Stock
Incentive Plan were voted on at the Annual Meeting of Shareholders.
The results were as follows:
Votes
Withheld or Broker
Directors Votes For Against Abstentions Nonvotes
- --------- --------- ------- ----------- --------
Merrill K. Cragun 26,353,001 705,930 - -
Dennis E. Evans 26,282,462 776,469 - -
D. Michael Hockett 26,229,993 828,938 - -
Peter J. Johnson 26,385,179 673,752 - -
Jack R. Kelly, Jr. 26,322,548 736,383 - -
George L. Mayer 26,364,365 694,566 - -
Paula F. McQueen 26,371,643 687,288 - -
Robert S. Nickoloff 26,292,136 766,795 - -
Jack I. Rajala 26,379,143 679,788 - -
Edwin L. Russell 26,363,621 695,310 - -
Arend J. Sandbulte 26,325,841 733,090 - -
Nick Smith 26,327,260 731,671 - -
Bruce W. Stender 26,369,095 689,836 - -
Donald C. Wegmiller 26,338,697 720,234 - -
Independent Accountants
- -----------------------
Price Waterhouse LLP 26,375,793 234,701 448,438 -
Minnesota Power Executive Long-Term Incentive Compensation Plan
- ---------------------------------------------------------------
17,096,568 3,999,538 1,743,484 4,219,341
Minnesota Power Director Long-Term Stock Incentive Plan
- -------------------------------------------------------
17,025,492 4,084,573 1,729,524 4,219,342
-13-
Item 5. Other Information
Reference is made to the Company's 1995 Form 10-K for background information on
the following updates. Unless otherwise indicated, cited references are to the
Company's 1995 Form 10-K.
Ref. Page 8. - Third Full Paragraph
On June 19, 1996 the FERC approved the proposed wholesale rates as filed. The
new rates have an effective date of January 1, 1996.
Ref. Page 9. - Second Full Paragraph and Page 13. - Fourth Paragraph
Ref. 10-Q for the quarter ended March 31, 1996, Page 10. - Second Paragraph
On June 27, 1996 the Company filed in the U.S. Court of Appeals for the District
of Columbia Circuit a petition for review of the order issued by the FERC
granting a new license for the Company's St. Louis River Project. On June 28,
1996 separate petitions for review were filed in the same court by the U.S.
Department of the Interior and the Fond du Lac Band of Lake Superior Chippewa,
two intervenors in the licensing proceedings. The issues to be resolved
concern the terms and conditions of the license which will govern the Company's
operation and maintenance of the project.
Ref. Page 10. - Fourth Paragraph
Ref. 10-Q for the quarter ended March 31, 1996, Page 10. - Fifth Paragraph
The wholesale transmission tariff filed on April 16, 1996, in anticipation of
new rules governing open access transmission for wholesale service became
effective on June 16, 1996 subject to refund pending a hearing before an
Administrative Law Judge and final FERC approval. The hearing is scheduled to
begin on January 14, 1997. As required by Order No. 888, the Company filed with
the FERC on July 9, 1996, a tariff for open access transmission service
incorporating the terms and conditions of the FERC's pro forma tariff with
appropriate modifications. A decision on the filing is pending.
In order to comply with the FERC's regulations and policies governing open
access to electric transmission systems, the Company has initiated procedures
which will result in the functional separation of the Company's operation of its
transmission system from other aspects of its business as required by the FERC's
Standards of Conduct implemented by Order No. 889. Compliance with Order No. 889
is required by November 1, 1996.
On July 15, 1996, the FERC accepted for filing and made effective a tariff
allowing the Comapny to sell power at market-based rates. The tariff will permit
the Company to respond more quickly and in a more competitive manner to requests
for power from wholesale customers.
Ref. Page 13. - Table- Summary of National Pollutant Discharge Elimination
System Permits
Facility Issue Date Expiration Date
- -------- ---------- ---------------
Arrowhead DC Terminal June 17, 1996 March 31, 2001
Ref. Page 15. - Seventh Paragraph
On July 31, 1996 the FPSC voted to allow SSU approximately 61 percent of the
$18.1 million rate increase requested in June 1995. The FPSC is expected to
issue its final order on SSU's request on September 4, 1996.
-14-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 (a) Minnesota Power Executive Long-Term Incentive Compensation Plan
10 (b) Minnesota Power Director Long-Term Stock Incentive Plan
27 Financial Data Schedule
* 99 The consolidated financial statements of ADESA Corporation
for the quarter ended June 30, 1995 (filed as Item 7(a) to
Form 8-K/A dated September 8 ,1995, File No. 1-3548).
- ----------------
* Incorporated herein by reference as indicated.
(b) Reports on Form 8-K.
Report on Form 8-K dated and filed June 18, 1996 with respect to Item 5.
Other Events.
Report on Form 8-K dated and filed August 2, 1996 with respect to Item 5.
Other Events and Item 7. Financial Statements and Exhibits.
-15-
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Minnesota Power & Light Company
-------------------------------
(Registrant)
August 9, 1996 D. G. Gartzke
------------------------------
D. G. Gartzke
Senior Vice President - Finance
and Chief Financial Officer
August 9, 1996 Mark A. Schober
-----------------------------
Mark A. Schober
Corporate Controller
-16-
Exhibit 10(a)
MINNESOTA POWER
EXECUTIVE LONG-TERM
INCENTIVE COMPENSATION PLAN
Effective 01/01/96
MINNESOTA POWER
EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN
1. Establishment, Purpose and Duration
1 Establishment of the Plan. Minnesota Power & Light Company,
a Minnesota corporation (hereinafter referred to as the "Company"), hereby
establishes an incentive compensation plan to be known as the "Minnesota Power
Executive Long-Term Incentive Compensation Plan" (hereinafter referred to as the
"Plan"), as set forth in this document. The Plan permits the grant of
Nonqualified Stock Options (NQSO), Incentive Stock Options (ISO), Stock
Appreciation Rights (SAR), Restricted Stock, Performance Units, Performance
Shares and other grants.
The Plan shall become effective as of January 1, 1996 (the "Effective
Date"), subject to shareholder approval, and shall remain in effect as provided
in Section 1.3 herein.
2 Purpose of the Plan. The purpose of the Plan is to promote
the success and enhance the value of the Company by linking the personal
interests of Participants to those of Company shareholders and customers,
providing Participants with an incentive for outstanding performance.
The Plan is further intended to assist the Company in its ability to
motivate, attract and retain the services of Participants upon whom the
successful conduct of its operations is largely dependent.
3 Duration of the Plan. The Plan shall commence on the
Effective Date, as described in Section 1.1 herein, and shall remain in effect,
subject to the right of the Board of Directors to terminate the Plan at any time
pursuant to Article 15 herein, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions. However, in no event
may a Grant be made under the Plan on or after the tenth anniversary of the
Effective Date.
2. Definitions
Whenever used in the Plan, the following terms shall have the meanings
set forth below and, when such meaning is intended, the initial letter of the
word is capitalized:
1 "Base Value" of an SAR shall have the meaning set forth in
Section 7.1 herein.
2 "Board" or "Board of Directors" means the Board of Directors of
the Company.
3 "Cause" means: (i) willful misconduct on the part of a Participant
that is detrimental to the Company or (ii) the conviction of a Participant for
the commission of a felony or crime involving moral turpitude. "Cause" under
either (i) or (ii) shall be determined in good faith by the Committee.
4 "Change in Control" of the Company shall be deemed to have
occurred as of the first day that any one or more of the following conditions
shall have been satisfied:
(a) the dissolution or liquidation of the Company;
(b) a reorganization, merger or consolidation of the Company
with one or more unrelated corporations, as a result of which
the Company is not the surviving corporation;
(c) the sale, exchange, transfer or other disposition of shares of
the common stock of the Company (or shares of the stock of any
person that is a shareholder of the Company) in one or more
transactions, related or unrelated, to one or more Persons
unrelated to the Company if, as a result of such transactions,
any Person (or any Person and its affiliates) owns more than
twenty percent (20%) of the voting power of the outstanding
common stock of the Company; or
(d) a reorganization, merger or consolidation of the Company with
one or more unrelated corporations, if immediately after the
consummation of such transaction less than a majority of the
board of directors of the surviving corporation is comprised of
Continuing Directors. Continuing Director shall mean (i) each
member of the Board of Directors of the Company, while such
person is a member of the Board, who is not the other party to
the transaction, an Affiliate or Associate (as these terms are
defined in the Exchange Act) of such other party to the
transaction, or a representative of such other party or of any
such Affiliate or Associate, and was a member of the Board
immediately prior to the initial public announcement of a
proposal relating to a reorganization, merger or consolidation
involving such other party, or an Affiliate or Associate of such
other party or (ii) any person who subsequently becomes a member
of the Board, while such person is a member of the Board, who is
not the other party to the transaction, or an Affiliate or
Associate thereof, or a representative of such other party to
the transaction or of any such Affiliate or Associate, if such
person's nomination for election to the Board is recommended or
approved by two-thirds of the Continuing Directors then in
office;
(e) the sale of all or substantially all the assets of the Company.
5 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
6 "Committee" means the committee, as specified in Article 3,
appointed by the Board to administer the Plan with respect to Grants.
7 "Company" means Minnesota Power & Light Company, a Minnesota
corporation, or any successor thereto as provided in Article 17 herein.
8 "Director" means any individual who is a member of the Board of
Directors of the Company.
9 "Disability" shall have the meaning ascribed to such term under
Section 22(e)(3) of the Code.
2
10 "Dividend Equivalent" means, with respect to Shares subject to
Options or Performance Shares, a right to an amount equal to dividends declared
on an equal number of outstanding Shares.
11 "Eligible Employee" means an employee who is eligible to
participate in the Plan, as set forth in Section 5.1 herein.
12 "Employee" means any full-time employee of the Company or of the
Company's Subsidiaries, who is not covered by any collective bargaining
agreement to which the Company or any of its Subsidiaries is a party. Directors
who are not otherwise employed by the Company shall not be considered Employees
under the Plan. For purposes of the Plan, transfer of employment of a
Participant between the Company and any one of its Subsidiaries (or between
Subsidiaries) shall not be deemed a termination of employment.
13 "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor act thereto.
14 "Exercise Period" means the period during which an SAR or Option
is exercisable, as set forth in the related Grant Agreement.
15 "Fair Market Value" means the closing sale price as reported in
the composite reporting system or, if there is no such sale on the relevant
date, then on the last previous day on which a sale was reported.
16 "Freestanding SAR" means an SAR that is granted independently of
any Options.
17 "Grant" means, individually or collectively, a grant under the
Plan of NQSOs, ISOs, SARs, Restricted Stock, Performance Units, Performance
Shares or any other type of grant permitted under Article 10 of the Plan.
18 "Grant Agreement" means an agreement entered into by each
Participant and the Company, setting forth the terms and provisions applicable
to a Grant made to a Participant under the Plan.
19 "Incentive Stock Option" or "ISO" means an option to purchase
Shares, granted under Article 6 herein, which is designated as an
Incentive Stock Option and satisfies the requirements of Section 422 of the
Code.
20 "Insider means an Employee who is, on the relevant date, an
officer, director or ten percent (10%) beneficial owner of the Common Stock of
the Company, as defined under Section 16 of the Exchange Act.
21 "Named Executive Officer" means a Participant who, as of the
date of vesting and/or payout of a Grant, is one of the group of "covered
employees," as defined in the Regulations promulgated under Code Section 162(m),
or any successor statute.
3
22 "Nonqualified Stock Option" or "NQSO" means an option to
purchase Shares, granted under Article 6 herein, which is not intended to be an
Incentive Stock Option.
23 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
24 "Option Price" means the price at which a Share may be purchased
by a Participant pursuant to an Option, as determined by the Committee and set
forth in the Option Grant Agreement.
25 "Participant" means an Employee who has outstanding a Grant made
under the Plan.
26 "Performance Unit" means a Grant made to an Employee, as
described in Article 9 herein.
27 "Performance Share" means a Grant made to an Employee, as
described in Article 9 herein.
28 "Period of Restriction" means the period during which the
transfer of Restricted Stock is limited, as provided in Article 8 herein.
29 "Person shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act, as used in Sections 13(d) and 14(d) thereof
including usage in the definition of a "group" in Section 13(d) thereof.
30 "Restricted Stock" means a Grant of Shares made to a Participant
pursuant to Article 8 herein.
31 "Retirement" shall, with respect to a Participant, have the
meaning ascribed to such term in the tax-qualified defined benefit pension plan
maintained by the Company for the benefit of such Participant.
32 "Shares" means the shares of common stock of the Company, without
par value.
33 "Stock Appreciation Right" or "SAR" means a right, granted alone
or in connection with a related Option, designated as an SAR, to receive a
payment on the day the right is exercised, pursuant to the terms of Article 7
herein. Each SAR shall be denominated in terms of one Share.
34 "Subsidiary" means any corporation that is a "subsidiary
corporation" of the Company as that term is defined in Section 424(f) of the
Code.
35 "Tandem SAR" means an SAR that is granted in connection
with a related Option, the exercise of which shall require forfeiture of the
right to purchase a Share under the related Option (and when a Share is
purchased under the Option, the Tandem SAR shall be similarly canceled).
4
3. Administration
1 The Committee. The Plan shall be administered by the
Executive Compensation Committee of the Board, or by any other Committee
appointed by the Board consisting of not less than three (3) non-employee
Directors. The members of the Committee shall be appointed from time to time by,
and shall serve at the discretion of, the Board of Directors.
The Committee, to the extent necessary, shall be comprised solely of
Directors who are eligible to administer the Plan pursuant to Rule 16b-3 under
the Exchange Act and Treas. Reg. 1.162-27(e)(3) with respect to Grants made to
Named Executive Officers. However, if for any reason the Committee does not
qualify to administer the Plan, as contemplated by Rule 16b-3 under the Exchange
Act or Treas. Reg. 1.162-27(e)(3), the Board of Directors may appoint a new
Committee so as to comply with Rule 16b-3 and Treas. Reg. 1.162-27(e)(3).
2 Authority of the Committee. The Committee shall have full
power except as limited by law, the Articles of Incorporation and the Bylaws of
the Company, subject to such other restricting limitations or directions as may
be imposed by the Board and subject to the provisions herein, to determine the
size and types of Grants; to determine the terms and conditions of such Grants
in a manner consistent with the Plan; to construe and interpret the Plan and any
agreement or instrument entered into under the Plan; to establish, amend or
waive rules and regulations for the Plan's administration; and (subject to the
provisions of Article 15 herein) to amend the terms and conditions of any
outstanding Grant. Further, the Committee shall make all other determinations
which may be necessary or advisable for the administration of the Plan. As
permitted by law, the Committee may delegate its authorities as identified
hereunder.
3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its shareholders, Employees, Participants and their
estates and beneficiaries.
4 Costs. The Company shall pay all costs of administration of the
Plan.
4. Shares Subject to the Plan
1 Number of Shares. Subject to Section 4.2 herein, the maximum
number of Shares available for grant under the Plan shall be two million
one hundred thousand (2,100,000). Shares underlying lapsed or forfeited
Grants, or Grants that are not paid in stock, may be reused for other Grants.
Shares may be (i) authorized but unissued shares of Common Stock or (ii) shares
purchased on the open market.
2 Adjustments in Authorized Shares. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, stock
dividend, split-up, share combination or other change in the corporate structure
of the Company affecting the Shares, such adjustment shall be made in the number
and class of Shares which may be delivered under the Plan, and in the number and
class of and/or price of Shares subject to outstanding Grants made under the
Plan, as may be determined to be appropriate and equitable by the Committee, in
its sole discretion, to prevent dilution or enlargement of rights; provided,
however, that the number of Shares subject to any Grant shall always be a whole
number.
5
5. Eligibility and Participation
1 Eligibility. Persons eligible to participate in the Plan include
all officers and key employees of the Company and its Subsidiaries, as
determined by the Committee, including Employees who are members of the Board,
but excluding Directors who are not Employees.
2 Actual Participation. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees those to
whom Grants shall be made and shall determine the nature and amount of each
Grant.
6. Stock Options
1 Grant of Options. Subject to the terms and conditions of the Plan,
Options may be granted to an Eligible Employee at any time and from time to
time, as shall be determined by the Committee. The Committee shall have complete
discretion in determining the number of Shares subject to Options granted to
each Participant (subject to Article 4 herein) and consistent with the
provisions of the Plan, in determining the terms and conditions pertaining to
such Options; provided, however, the maximum number of shares subject to Options
which may be granted to any single Participant during any one calendar year is
twenty thousand (20,000). The Committee may grant ISOs, NQSOs or a combination
thereof.
2 Option Grant Agreement. Each Option grant shall be evidenced by
an Option Grant Agreement that shall specify the Option Price, the duration of
the Option, the number of Shares to which the Option pertains, the Exercise
Period and such other provisions as the Committee shall determine. The Option
Grant Agreement also shall specify whether the Option is intended to be an ISO
or a NQSO.
3 Option Price. The Option Price for each Option granted under the
Plan shall be the Fair Market Value of a Share on the date of grant.
4 Duration of Options. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the tenth (10th) anniversary of its date
of grant.
5 Dividend Equivalents. Simultaneously with the grant of an Option,
the Participant receiving the Option may be granted Dividend Equivalents with
respect to the Shares subject to such Option. Dividend Equivalents shall
constitute rights to amounts equal to the dividends declared on an equal number
of outstanding Shares on all payment dates occurring during the period between
the grant date of an Option and the date the Option is exercised. The Committee
shall determine at the time Dividend Equivalents are granted the conditions, if
any, to which the payment of such Dividend Equivalents is subject.
6 Exercise of and Payment for Options. Options granted under the
Plan shall be exercisable at such times and be subject to such restrictions and
conditions as the Committee shall in each instance approve, which need not be
the same for each Grant or for each Participant. However, in no event may an
Option granted under the Plan become exercisable prior to six (6) months
following the date of its grant.
6
A Participant may exercise an Option at any time during the Exercise
Period. Options shall be exercised by the delivery of a written notice of
exercise to the Company, setting forth the number of Shares with respect to
which the Option is to be exercised, accompanied by provisions for full payment
for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either (a) in cash or its equivalent, (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered must have been held by the Participant for at least six (6) months
prior to their tender to satisfy the Option Price), (c) by share withholding or
(d) by a combination of (a), (b) and/or (c).
The Committee also may allow cashless exercise as permitted under
Federal Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of
exercise of an Option and provisions for full payment therefor, the Company
shall deliver to the Participant, in the Participant's name, Share certificates
in an appropriate amount based upon the number of Shares purchased under the
Option(s).
7 Restrictions on Share Transferability. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise of an Option
under the Plan as it may deem advisable, including, without limitation,
restrictions to comply with applicable Federal securities laws, with the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded and with any blue sky or state securities laws applicable
to such Shares.
8 Termination of Employment. Each Option Grant Agreement shall set
forth the extent to which the Participant shall have the right to exercise the
Option following termination of the Participant's employment with the Company
and its Subsidiaries. Such provisions shall be determined in the sole discretion
of the Committee, shall be included in the Option Grant Agreement entered into
with Participants, need not be uniform among all Options granted pursuant to the
Plan or among Participants and may reflect distinctions based on the reasons for
termination of employment.
9 Nontransferability of Options. No Option granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Further, all Options granted to a Participant under the Plan shall be
exercisable during his or her lifetime only by such Participant or his or her
legal representative.
7. Stock Appreciation Rights
1 Grant of SARs. Subject to the terms and conditions of the Plan,
an SAR may be granted to an Eligible Employee at any time and from time to time,
as shall be determined by the Committee. The Committee may grant Freestanding
SARs, Tandem SARs or any combination of these forms of SAR.
7
The Committee shall have complete discretion in determining the number
of SARs granted to each Participant (subject to Article 4 herein) and,
consistent with the provisions of the Plan, in determining the terms and
conditions pertaining to such SARs; provided, however, the maximum number of
SARs which may be granted to any single Participant during any one calendar year
is twenty thousand (20,000).
The Base Value of a Freestanding SAR shall equal the Fair Market Value
of a Share on the date of grant of the SAR. The Base Value of Tandem SARs shall
equal the Option Price of the related Option. In no event shall any SAR granted
hereunder become exercisable within the first six (6) months of its grant.
2 SAR Grant Agreement. Each SAR grant shall be evidenced by an SAR
Grant Agreement that shall specify the number of SARs granted, the Base Value,
the term of the SAR (not to exceed ten (10) years), the Exercise Period and such
other provisions as the Committee shall determine.
3 Exercise of Tandem SARs. Tandem SARs may be exercised for all or
part of the Shares subject to the related Option upon the surrender of the right
to exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of the Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than one hundred
percent (100%) of the difference between the Option Price of the underlying ISO
and the Fair Market Value of the Shares subject to the underlying ISO at the
time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only
when the Fair Market Value of the Shares subject to the ISO exceeds the Option
Price of the ISO.
4 Exercise of Freestanding SARs. Freestanding SARs may be exercised
upon whatever terms and conditions the Committee, in its sole discretion,
imposes upon them.
5 Exercise and Payment of SARs. A Participant may exercise an SAR
at anytime during the Exercise Period. SARs shall be exercised by the delivery
of a written notice of exercise to the Company, setting forth the number of SARs
being exercised. Upon exercise of an SAR, a Participant shall be entitled to
receive payment from the Company in an amount equal to the product of:
(a) the excess of (i) the Fair Market Value of a Share on the date
of exercise over (ii) the Base Value of the SAR, multiplied by
(b) the number of Shares with respect to which the SAR is exercised.
At the sole discretion of the Committee, the payment upon SAR exercise
may be in cash, in Shares of equivalent value, or in some combination thereof.
8
6 Termination of Employment. Each SAR Grant Agreement shall set
forth the extent to which the Participant shall have the right to exercise the
SAR following termination of the Participant's employment with the Company and
its Subsidiaries. Such provisions shall be determined in the sole discretion of
the Committee, shall be included in the SAR Grant Agreement entered into with
Participants, need not be uniform among all SARs granted pursuant to the Plan or
among Participants and may reflect distinctions based on the reasons for
termination of employment.
7 Nontransferability of SARs. No SAR granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, all SARs
granted to a Participant under the Plan shall be exercisable during his or her
lifetime only by such Participant or his or her legal representative.
8. Restricted Stock
1 Grant of Restricted Stock. Subject to the terms and conditions
of the Plan, Restricted Stock may be granted to Eligible Employees at any time
and from time to time, as shall be determined by the Committee. The Committee
shall have complete discretion in determining the number of shares of Restricted
Stock granted to each Participant (subject to Article 4 herein) and, consistent
with the provisions of the Plan, in determining the terms and conditions
pertaining to such Restricted Stock.
2 Restricted Stock Grant Agreement. Each Restricted Stock grant
shall be evidenced by a Restricted Stock Grant Agreement that shall specify the
Period or Periods of Restriction, the number of Restricted Stock Shares granted
and such other provisions as the Committee shall determine.
3 Transferability. Except as provided in this Article 8, Restricted
Stock granted herein may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the Restricted Stock
Grant Agreement. However, in no event may any Restricted Stock granted under the
Plan become vested in a Participant prior to six (6) months following the date
of its grant. All rights with respect to the Restricted Stock granted to a
Participant under the Plan shall be available during his or her lifetime only to
such Participant.
4 Certificate Legend. Each certificate representing Restricted
Stock granted pursuant to the Plan may bear a legend substantially as follows:
"The sale or other transfer of the shares of stock represented by
this certificate, whether voluntary, involuntary or by operation of
law, is subject to certain restrictions on transfer as set forth in
the Minnesota Power Executive Long-Term Incentive Compensation
Plan, and in a Restricted Stock Grant Agreement. A copy of such
Plan and such Agreement may be obtained from Minnesota Power &
Light Company."
The Company shall have the right to retain the certificates representing
Restricted Stock in the Company's possession until such time as all restrictions
applicable to such Shares have been satisfied.
5 Removal of Restrictions. Except as otherwise provided in this
Article 8, Restricted Stock shall become freely transferable by the
Participant after the last day of the Period of Restriction applicable thereto.
Once Restricted Stock is released from the restrictions, the Participant
shall be entitled to have the legend referred to in Section 8.4 removed from
his or her stock certificate.
9
6 Voting Rights. During the Period of Restriction, Participants
holding Restricted Stock may exercise full voting rights with respect to
those Shares.
7 Dividends and Other Distributions. During the Period of
Restriction, Participants holding Restricted Stock shall be credited with all
regular cash dividends paid with respect to all Shares while they are so held.
All cash dividends and other distributions paid with respect to Restricted Stock
shall be credited to Participants subject to the same restrictions on
transferability and forfeitability as the Restricted Stock with respect to which
they were paid. If any such dividends or distributions are paid in Shares, such
Shares shall be subject to the same restrictions on transferability and
forfeitability as the Restricted Stock with respect to which they were paid.
Subject to the restrictions on vesting and the forfeiture provisions, all
dividends credited to a Participant shall be paid to the Participant promptly
following the full vesting of the Restricted Stock with respect to which such
dividends were paid. The provisions of this Section 8.7 are subject to the right
of the Committee to determine otherwise at the time of grant.
8 Termination of Employment. Each Restricted Stock Grant
Agreement shall set forth the extent to which the Participant shall have the
right to receive unvested Restricted Shares following termination of the
Participant's employment with the Company and its Subsidiaries. Such provisions
shall be determined in the sole discretion of the Committee, shall be included
in the Restricted Stock Grant Agreement entered into with Participants, need not
be uniform among all grants of Restricted Stock or among Participants and may
reflect distinctions based on the reasons for termination of employment.
9. Performance Units and Performance Shares
1 Grant of Performance Units and Performance Shares. Subject to
the terms of the Plan, Performance Units and/or Performance Shares may be
granted to an Eligible Employee at any time and from time to time, as shall be
determined by the Committee. The Committee shall have complete discretion in
determining the number of Performance Units and/or Performance Shares granted to
each Participant (subject to Article 4 herein) and, consistent with the
provisions of the Plan, in determining the terms and conditions pertaining to
such Grants; provided, however, the maximum payout to any single Participant
with respect to Performance Units granted in any one calendar year shall be 200%
of base salary determined at the earlier of the beginning of the Performance
Period and the time the performance goals are set by the Committee and with
respect to Performance Shares shall be twenty thousand (20,000) shares.
2 Performance Unit/Performance Share Grant Agreement. Each grant
of Performance Units and/or Performance Shares shall be evidenced by a
Performance Unit and/or Performance Share Grant Agreement that shall specify the
number of Performance Units and/or Performance Shares granted, the initial value
(if applicable), the Performance Period, the performance goals and such other
provisions as the Committee shall determine, including, but not limited to, any
right to Dividend Equivalents during or after the Performance Period.
10
3 Value of Performance Units/Shares. Each Performance Unit shall
have an initial value that is established by the Committee at the time of grant.
The value of a Performance Share shall equal the value of one Share. The
Committee shall set performance goals in its discretion which, depending on the
extent to which they are met, will determine the number and/or value of
Performance Units/Shares that will be paid out to the Participants. The time
period during which the performance goals must be met shall be called a
"Performance Period." Performance Periods shall, in all cases, be at least six
(6) months in length.
Unless and until the Committee proposes for shareholder vote a change
in the general performance goals set forth below, the attainment of which shall
serve as a basis for the determination of the number and/or value of Performance
Units and/or Performance Shares granted under the Plan, the performance goals to
be used for purposes of grants to Named Executive Officers shall be based upon
any one or more of the following:
(a) Total shareholder return (measured as the sum of Share
appreciation and dividends declared).
(b) Return on invested capital, assets or net assets.
(c) Share earnings/earnings growth.
(d) Cash flow/cash flow growth.
(e) Cost of services to consumers.
(f) Growth in revenues, sales, operating income, net income, stock
price and/or earnings per share.
(g) Return on shareholders equity.
(h) Economic value created.
(i) Customer satisfaction and/or customer service quality.
(j) Operating effectiveness.
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance goals without obtaining
shareholder approval of such changes and without losing any income tax benefits
to the Company, the Committee shall have sole discretion to make such changes
without obtaining shareholder approval.
4 Earning of Performance Units/Shares. After the applicable
Performance Period has ended, the holder of Performance Units/Shares shall be
entitled to receive payout with respect to the Performance Units/Shares earned
by the Participant over the Performance Period, to be determined as a function
of the extent to which the corresponding performance goals have been achieved.
11
5 Form and Timing of Payment of Performance Units/Shares.
Payment of earned Performance Units/Shares shall be made following the close of
the applicable Performance Period or at such later time as the Committee, in its
sole discretion, may determine. The Committee, in its sole discretion, may pay
earned Performance Units/Shares in cash or in Shares (or in a combination
thereof), which have an aggregate Fair Market Value equal to the value of the
earned Performance Units/Shares at the close of the applicable Performance
Period. Such Shares may be granted subject to any restrictions deemed
appropriate by the Committee.
6 Dividend Equivalents. Simultaneously with the grant of Performance
Shares, the Participant may be granted Dividend Equivalents with respect to such
Performance Shares. Dividend Equivalents shall constitute rights to amounts
equal to the dividends declared on an equal number of outstanding Shares on all
payment dates occurring during the period between the grant date and the date
the Performance Shares are earned or paid out. The Committee shall determine at
the time Dividend Equivalents are granted the conditions, if any, to which the
payment of such Dividend Equivalents is subject.
7 Termination of Employment. Each Grant Agreement shall set forth
the extent to which the Participant shall have the right to receive a
Performance Unit/Share payout following termination of the Participant's
employment with the Company and its Subsidiaries. Such provisions shall be
determined in the sole discretion of the Committee, shall be included in the
Grant Agreement entered into with the Participants, need not be uniform among
all grants of Performance Units/Shares or among Participants and may reflect
distinctions based upon reasons for termination of employment.
8 Nontransferability. Performance Units/Shares may not be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, a
Participant's rights under the Plan shall be exercisable during the
Participant's lifetime only by the Participant or the Participant's legal
representative.
10. Other Grants
The Committee shall have the right to make other Grants which may
include, without limitation, the grant of Shares based on certain conditions,
the payment of cash based on performance criteria established by the Committee,
and the payment of Shares in lieu of cash under other Company incentive or bonus
programs. Payment under or settlement of any such Grants shall be made in such
manner and at such times as the Committee may determine.
11. Beneficiary Designation
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Committee, and will be effective only when filed by the
Participant in writing with the Committee during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
The spouse of a married Participant domiciled in a community property
jurisdiction shall join in any designation of beneficiary or beneficiaries other
than the spouse.
12
12. Deferrals
The Committee may permit a Participant to defer such Participant's
receipt of the payment of cash or the delivery of Shares that would otherwise be
due to such Participant by virtue of (1) the exercise of an SAR or (2) the
satisfaction of any requirements or goals with respect to any Grants. If any
such deferral election is permitted, the Committee shall, in its sole
discretion, establish rules and procedures for such payment deferrals.
13. Rights of Employees
1 Employment. Nothing in the Plan shall interfere with or limit in
any way the right of the Company to terminate any Participant's employment at
any time, for any reason or no reason in the Company's sole discretion, nor
confer upon any Participant any right to continue in the employ of the Company.
2 Participation. No Employee shall have the right to be selected to
receive a Grant under the Plan, or, having been so selected, to be selected to
receive a future Grant.
14. Change in Control
Upon the occurrence of a Change in Control, as defined herein, unless
otherwise specifically prohibited by the terms of Article 18 herein or unless
the Committee provides otherwise prior to the Change in Control:
(a) Any and all Options and SARs granted hereunder shall become
immediately exercisable;
(b) Any restriction periods and restrictions imposed on Restricted
Stock shall be deemed to have expired;
(c) With respect to all outstanding Grants of Performance Units,
Performance Shares and other performance-based Grants, there
shall be paid out immediately to Participants the superior number
of Performance Units or Shares granted for the entire Performance
Period as increased by Dividend Equivalents for the entire
Performance Period. Payment shall be made in cash or in stock, as
determined by the Committee. However, there shall not be an
accelerated payout under this Section 14(c) with respect to Grants
of Performance Units, Performance Shares or other performance-based
Grants which were made less than six (6) months prior to the
effective date of the Change in Control; and
13
(d) All earned Performance Units, Performance Shares and other
performance-based Grants (as increased by any Dividend Equivalents
to the date of payment) not yet paid out shall be paid out
immediately, in cash or in stock, as determined by the Committee.
15. Amendment, Modification and Termination
1 Amendment, Modification and Termination. The Board may, at any
time and from time to time, alter, amend, suspend or terminate the Plan in whole
or in part; provided, however, that no amendment which requires shareholder
approval in order for the Plan to continue to comply with Rule 16b-3 under the
Exchange Act, including any successor to such Rule, shall be effective unless
such amendment shall be approved by the requisite vote of the shareholders of
the Company entitled to vote thereon.
2 Grants Previously Made. No termination, amendment or modification
of the Plan shall adversely affect in any material way any Grant previously made
under the Plan, without the written consent of the Participant holding such
Grant unless such termination, modification or amendment is required by
applicable law.
16. Withholding
1 Tax Withholding. The Company shall have the power and the right
to deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy Federal, state and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to a
Grant made under the Plan.
2 Share Withholding. With respect to withholding required upon
the exercise of Options or SARs, upon the lapse of restrictions on Restricted
Stock, or upon any other taxable event arising out of or as a result of Grants
made hereunder, Participants may elect, subject to the approval of the
Committee, to satisfy the withholding requirement, in whole or in part, by
having the Company withhold Shares having a Fair Market Value on the date the
tax is to be determined equal to the minimum statutory total tax which could be
imposed on the transaction. All elections shall be irrevocable, made in writing
and signed by the Participant.
17. Successors
All obligations of the Company under the Plan, with respect to Grants
made hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.
14
18. Legal Construction
1 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine, the
plural shall include the singular and the singular shall include the plural.
2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
3 Requirements of Law. The making of Grants and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
Notwithstanding any other provision set forth in the Plan, if required
by the then-current Section 16 of the Exchange Act, any "derivative security" or
"equity security" offered pursuant to the Plan to any Insider may not be sold or
transferred within the minimum time limits specified or required in such rule.
The terms "equity security" and "derivative security" shall have the meanings
ascribed to them in the then-current Rule 16a-1 under the Exchange Act.
4 Securities Law Compliance. With respect to Insiders, transactions
under the Plan are intended to comply with all applicable conditions of the
Federal securities laws. To the extent any provision of the Plan or action by
the Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
5 Governing Law. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with, and
governed by, the laws of the State of Minnesota.
MINNESOTA POWER
By Edwin L. Russell
---------------------------
Its Chief Executive Officer
Attest:
By Philip R. Halverson
-----------------------------------
Corporate Secretary
15
Exhibit 10(b)
MINNESOTA POWER
DIRECTOR LONG-TERM
STOCK INCENTIVE PLAN
Effective 01/01/96
MINNESOTA POWER
DIRECTOR LONG-TERM STOCK INCENTIVE PLAN
1. Establishment, Purpose and Duration
1 Establishment of the Plan. Minnesota Power & Light Company,
a Minnesota corporation (hereinafter referred to as the "Company"), hereby
establishes an outside director plan to be known as the "Minnesota Power
Director Long-Term Stock Incentive Plan" (hereinafter referred to as the
"Plan"), as set forth in this document. The Plan provides for the automatic
grant of Stock Options and Performance Shares to non-employee directors.
The Plan shall become effective as of January 1, 1996 (the "Effective
Date"), subject to shareholder approval, and shall remain in effect as provided
in Section 1.3 herein.
2 Purpose of the Plan. The purpose of the Plan is to promote
the success and enhance the value of the Company by linking the personal
interests of directors to those of Company shareholders. The Plan is further
intended to assist the Company in its ability to motivate, attract and retain
highly qualified individuals to serve as directors of the Company.
3 Duration of the Plan. The Plan shall commence on the
Effective Date, as described in Section 1.1 herein, and shall remain in effect,
subject to the right of the Board of Directors to terminate the Plan at any time
pursuant to Article 12 herein, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions. However, in no event
may a Grant be made under the Plan on or after the tenth anniversary of the
Effective Date.
4 Long-Term Incentive Plan. The Company has previously made
grants to outside directors under the Directors' Long-Term Incentive Plan, which
provides for maximum award opportunities of 600 shares of Company common stock
every other year. The terms of this plan are set forth in Annex A hereto. One
performance period (1994-1997) is still running under this plan, although no new
performance period will commence in 1996. On and after the Effective Date, the
shares relating to the existing performance period shall be deemed to be covered
by this Plan and shall be counted against the number of shares available under
this Plan, and their grant and the performance goals shall be deemed to have
been approved by Company shareholders by their approval of this Plan.
2. Definitions
Whenever used in the Plan, the following terms shall have the meanings
set forth below and, when such meaning is intended, the initial letter of the
word is capitalized:
1 "Board" or "Board of Directors" means the Board of Directors of
the Company.
2 "Change in Control" of the Company shall be deemed to have
occurred as of the first day that any one or more of the following conditions
shall have been satisfied:
(a) the dissolution or liquidation of the Company;
(b) a reorganization, merger or consolidation of the Company
with one or more unrelated corporations, as a result of which the
Company is not the surviving corporation;
(c) the sale, exchange, transfer or other disposition of shares
of the common stock of the Company (or shares of the stock of any
person that is a shareholder of the Company) in one or more
transactions, related or unrelated, to one or more Persons
unrelated to the Company if, as a result of such transactions,
any Person (or any Person and its affiliates) owns more than
twenty percent (20%) of the voting power of the outstanding
common stock of the Company; or
(d) the sale of all or substantially all the assets of the Company.
3 "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
4 "Committee" means the committee, as specified in
Article 3, appointed by the Board to administer the Plan with respect to Grants.
5 "Company" means Minnesota Power & Light Company, a Minnesota
corporation, or any successor thereto as provided in Article 15 herein.
6 "Director" means any individual who is a member of the
Board of Directors of the Company.
7 "Dividend Equivalent" means, with respect to Shares subject to
Performance Shares, a right to be paid an amount equal to any and all dividends
declared on an equal number of outstanding Shares.
8 "Employee" means any full-time employee of the Company or of the
Company's Subsidiaries, who is not covered by any collective bargaining
agreement to which the Company or any of its Subsidiaries is a party. Directors
who are not otherwise employed by the Company shall not be considered Employees
under the Plan.
2
9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
10 "Exercise Period" means the period during which an Option is
exercisable, as set forth in the related Grant Agreement.
11 "Fair Market Value" means the closing sale price as reported in
the composite reporting system or, if there was no such sale on the relevant
date, then on the last previous day on which a sale was reported.
12 "Grant" means, individually or collectively, a grant under the
Plan of Stock Options and Performance Shares and the grant made under the
Directors' Long-Term Incentive Plan referred to in Section 1.4 herein.
13 "Grant Agreement" means an agreement entered into by each
Participant and the Company, setting forth the terms and provisions applicable
to a Grant made to a Participant under the Plan.
14 "Insider" means an Employee who is, on the relevant date, an
officer, director or ten percent (10%) beneficial owner of the common stock of
the Company, as defined under Section 16 of the Exchange Act.
15 "Option or "Stock Option" means an option to purchase Shares,
granted under Article 6 herein.
16 "Option Price" means the price at which a Share may be purchased
by a Participant pursuant to an Option, set forth in the Grant Agreement.
17 "Participant" means any person who is elected or appointed to
the Board of Directors of the Company and who is not an Employee.
18 "Performance Period" means the time period during which
performance goals must be met.
19 "Performance Share" means a Grant made to a Participant, as
described in Article 7 herein.
20 "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act, as used in Sections 13(d) and 14(d) thereof
including usage in the definition of a "group" in Section 13(d) thereof.
21 "Plan Year" means the period commencing on the Effective Date of
the Plan and ending the next following December 31 and thereafter the calendar
year.
3
22 "Retirement" means resignation from the Board upon reaching
retirement age, or otherwise resigning or not standing for reelection with the
approval of the Board.
23 "Shares" means the shares of common stock of the Company,
without par value.
24 "Subsidiary" means any corporation that is a "subsidiary
corporation" of the Company as that term is defined in Section 424(f) of the
Code.
3. Administration
1 The Committee. The Plan shall be administered by a committee (the
"Committee") appointed by the Board consisting of not less than three persons
who are not eligible to participate in the Plan. The members of the Committee
shall be appointed from time to time by, and shall serve at the discretion of,
the Board of Directors. Members of the Committee need not be members of the
Board.
2 Authority of the Committee. The Committee shall have full power
except as limited by law, the Articles of Incorporation and the Bylaws of the
Company, subject to such other restricting limitations or directions as may be
imposed by the Board and subject to the provisions herein, to construe and
interpret the Plan and any agreement or instrument entered into under the Plan
and to establish, amend or waive rules and regulations for the Plan's
administration. Further, the Committee shall make all other determinations which
may be necessary or advisable for the administration of the Plan. As permitted
by law, the Committee may delegate its authorities as identified hereunder.
3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its shareholders, the Participants and their estates and
beneficiaries.
4 Costs. The Company shall pay all costs of administration of the
Plan.
4. Shares Subject to the Plan
1 Number of Shares. Subject to Section 4.2 herein, the maximum
number of Shares available for grant under the Plan shall be one hundred fifty
thousand (150,000). Shares underlying lapsed or forfeited grants may be reused
for other grants. Shares may be (i) authorized but unissued shares of common
stock or (ii) shares purchased on the open market.
4
2 Adjustments in Authorized Shares. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, stock
dividend, split-up, share combination or other change in the corporate structure
of the Company affecting the Shares, such adjustment shall be made in the number
and class of Shares which may be delivered under the Plan, and in the number and
class of and/or price of Shares subject to outstanding Grants made under the
Plan, as may be determined to be appropriate and equitable by the Committee, in
its sole discretion, to prevent dilution or enlargement of rights; provided,
however, that the number of Shares subject to any Grant shall always be a whole
number.
5. Eligibility and Participation
Persons eligible to participate in the Plan are any persons elected or
appointed to the Board of Directors of the Company, who are not Employees.
6. Stock Options
1 Grant of Options. On the first business day after the
Effective Date and on each January 2nd thereafter (or on the first business day
thereafter if January 2nd is not a business day), 725 Options shall be granted
to each Participant.
2 Option Grant Agreement. Each Option grant shall be evidenced by
an Option Grant Agreement that shall specify the Option Price, the duration of
the Option, the number of Shares to which the Option pertains and the Exercise
Period.
3 Option Price. The Option Price for each Option grant under the
Plan shall be the Fair Market Value of a Share on the date of grant.
4 Duration of Options. Each Option shall expire on the tenth
anniversary of the date of grant.
5 Exercise Period and Exercise. 50% of the Options shall become
exercisable on the first anniversary of the date of grant; the remaining 50% of
the Options shall become exercisable on the second anniversary of the date of
grant.
Subject to the provisions of Article 8 herein, a Participant may
exercise an Option at any time during the Exercise Period. Options shall be
exercised by the delivery of a written notice of exercise to the Company,
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by provisions for full payment for the Shares.
5
The Option Price upon exercise of any Option shall be payable to the
Company in full either (a) in cash or its equivalent, (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered must have been held by the Participant for at least six (6) months
prior to their tender to satisfy the Option Price), (c) by share withholding,
(d) by cashless exercise or (e) by a combination of (a), (b) (c) and/or (d).
As soon as practicable after receipt of a written notification of
exercise of an Option and provisions for full payment therefor, the Company
shall deliver to the Participant, in the Participant's name, Share certificates
in an appropriate amount based upon the number of Shares purchased under the
Option(s).
7. Performance Shares
1 Grant of Performance Shares. On the first business day after the
Effective Date and on every second January 2nd thereafter (or on the first
business day thereafter, if January 2nd is not a business day), Performance
Shares, equal in number to $10,000 divided by the Fair Market Value for a Share
on the date of Grant, shall be granted to each Participant.
2 Dividend Equivalents. The Participant shall also
receive Dividend Equivalents with respect to the number of Performance Shares
subject to the Grant. The Dividend Equivalents credited on each common stock
ex-dividend date during the Performance Period shall be in the form of
additional Performance Shares, shall be added to the number of Performance
Shares subject to the Grant and shall equal the number of Shares (including
fractional Shares) that could be purchased on the ex-dividend date, based on the
closing sale price as reported in the consolidated transaction reporting system
on that date, with cash dividends that would have been paid on Performance
Shares, if such Performance Shares were Shares.
3 Performance Share Grant Agreement. Each grant of Performance
Shares shall be evidenced by a Performance Share Grant Agreement that shall
specify the date of grant, the number of Performance Shares granted and the
Performance Period. Performance Periods shall end on the December 31st two years
after the date of grant.
Performance Goals. The Performance Goal for each Performance Period is
total shareholder return (defined as stock price appreciation plus dividends
reinvested on the ex-dividend date throughout the Performance Period, divided by
the Fair Market Value of a share at the beginning of the Performance Period) for
the Company in comparison to the total shareholder return for the 16 companies
set forth in Annex B hereto over the Performance Period.
6
First Performance Cycle (1996-1997)
Threshold Target Superior
--------- ------ --------
% Payout 50% 100% 200%
Goal 40th percentile 50th percentile 75th percentile
Subsequent Performance Cycles (1998-1999 and thereafter)
Threshold Target Superior
--------- ------ --------
% Payout 50% 100% 200%
Goal 47th percentile 65th percentile 88th percentile
No awards will be paid if the threshold percentiles are not reached.
Earned awards will range from 50% up to 200% of the number of Performance Shares
granted (as increased by the Dividend Equivalents), based on the percentile
reached. Straight line interpolation will be used for results between those
specified, rounded down to the nearest whole Share.
If any company listed on Annex B hereto no longer exists, whether by
merger into another company, dissolution or for any other reason, no replacement
company shall be named unless the number of companies still remaining on the
list is reduced below 12, in which case the Company's independent compensation
consulting firm shall select replacement companies to bring the number back to
16.
4 Earning of Performance Shares. After the applicable Performance
Period has ended, the holder of Performance Shares shall receive a payout with
respect to the Performance Shares earned by the Participant over the Performance
Period, to be determined as a function of the extent to which the corresponding
performance goals have been achieved.
5 Form and Timing of Payment of Performance Shares. Subject to the
provisions of Articles 8 and 11, 50% of any earned Performance Shares (as
increased by the Dividend Equivalents) shall be paid after the end of the
Performance Period promptly after determination of the extent to which
Performance Goals have been met. The remaining 50% of the earned Performance
Shares (as increased by the Dividend Equivalents) shall continue to accrue
Dividend Equivalents, as set forth in Section 7.2 above, until paid out as set
forth in the next sentence. One-half of the remaining earned Performance Shares
(as increased by the Dividend Equivalents) shall be paid out on the first
business day in January, 1999. The remaining Performance Shares shall continue
to accrue Dividend Equivalents and shall be paid out on the first business day
in January, 2000.
Payment shall be made in Minnesota Power common stock.
7
8. Termination of Director Status
1 Retirement or Death. In the event a Participant ceases to be a
Director of the Company by reason of Retirement or death
(i) before the Exercise Period commences for a Stock Option
Grant, any Stock Options not yet exercisable shall become
exercisable immediately and may be exercisable in full at
any time during the one year period after Retirement or death;
(ii) after the Exercise Period commences for a Stock Option Grant,
such Stock Options may be exercised in full at any time during the
one year period after Retirement or death, but in no even after
the Exercise Period has expired;
(iii) during a Performance Period for Performance Shares, the
Participant (or his beneficiary or estate) shall receive a payment
of any earned Performance Shares (as increased by the Dividend
Equivalents), promptly after determination of the extent to which
Performance Goals have been met. The payment shall be prorated
based upon the number of complete and partial calendar months
within the Performance Period which have elapsed as of the date of
Retirement or death in relation to the number of calendar months
in the full Performance Period; and
(iv) after the end of a Performance Period, but before any or all
earned Performance Shares have been paid out, the Participant (or
his beneficiary or estate) shall be entitled to a full payout of
all earned Performance Shares (as increased by the Dividend
Equivalents), which shall be paid promptly after such occurrence.
2 Other. Except as set forth in Article 11 herein, in the event a
participant ceases to be a director of the Company for any other reason
(i) all Stock Options not yet exercisable or exercised shall be
forfeited;
(ii) all Performance Shares and related Dividend Equivalents
not yet earned shall be forfeited; and
(iii) all earned Performance Shares (as increased by Dividend
Equivalents) shall continue to accrue Dividend Equivalents and
shall be paid out as and when provided in Section 7.6 above.
8
9. Beneficiary Designation
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Committee and will be effective only when filed by the
Participant in writing with the Committee during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
The spouse of a married Participant domiciled in a community property
jurisdiction shall join in any designation of beneficiary or beneficiaries other
than the spouse.
10. Continuation of Directors in Same Status
Nothing in the Plan or any action taken pursuant to the Plan
shall be construed as creating or constituting evidence of any agreement or
understanding, express or implied, that the Company will retain a Director as a
director or in any other capacity for any period of time or at a particular
retainer or other rate of compensation, as conferring upon any Participant any
legal or other right to continue as a director or in any other capacity, or as
limiting, interfering with or otherwise affecting the right of the Company to
terminate a Participant in his capacity as a director or otherwise at any time
for any reason, with or without cause, and without regard to the effect that
such termination might have upon him as a Participant under the Plan.
11. Change in Control
Upon the occurrence of a Change in Control, as defined herein, unless
otherwise specifically prohibited by the terms of Article 16 herein:
(a) Any and all Options granted hereunder shall become immediately
exercisable;
(b) With respect to all outstanding Grants of Performance
Shares, the Committee (i) shall determine the greater of (x) the
payout at 100% of the number of Performance Shares granted for
the entire Performance Period and (y) the payout based upon
actual performance for the Performance Period ending as of the
effective date of the Change in Control, in either case after
giving effect to accumulation of Dividend Equivalents and (ii)
shall pay to the Participants immediately the greater of such
amounts, in Shares, prorated based upon the number of complete
and partial calendar months within the Performance Period which
have elapsed as of the effective date of the Change in Control
in relation to the number of calendar months in the full
Performance Period. However, there shall not be an accelerated
payout under this Section 11(b) with respect to Grants of
Performance Shares which were made less than six (6) months
prior to the effective date of the Change in Control; and
9
(c) All earned Performance Shares (as increased by Dividend
Equivalents) not yet paid out shall be paid out immediately.
12. Amendment, Modification and Termination
1 Amendment, Modification and Termination. The Board may, at
any time and from time to time, alter, amend, suspend or terminate the Plan in
whole or in part; provided, however, that no amendment which requires
shareholder approval in order for the Plan to continue to comply with Rule 16b-3
under the Exchange Act, including any successor to such Rule, shall be effective
unless such amendment shall be approved by the requisite vote of the
shareholders of the Company entitled to vote thereon. Notwithstanding the
foregoing, any provision of the Plan that either states the amount and price of
securities to be issued under the Plan and specifies the timing of such
issuances, or sets forth a formula that determines the amount, price and timing
of such issuances, shall not be amended more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, or the rules thereunder.
2 Grants Previously Made. No termination, amendment or modification
of the Plan shall adversely affect in any material way any Grant previously made
under the Plan, without the written consent of the Participant holding such
Grant unless such termination, modification or amendment is required by
applicable law.
13. Restrictions on Share Transferability
The Committee may impose such restrictions on any Shares acquired
pursuant to the exercise of an Option or the payment of Performance Shares under
the Plan as it may deem advisable, including, without limitation, restrictions
to comply with applicable Federal securities laws, with the requirements of any
stock exchange or market upon which such Shares are then listed and/or traded
and with any blue sky or state securities laws applicable to such Shares.
14. Nontransferability
No Options or Performance Shares granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, a
Participant's rights under the Plan shall be exercisable during his or her
lifetime only by such Participant or his or her legal representative.
10
15. Successors
All obligations of the Company under the Plan, with respect to Grants
made hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.
16. Legal Construction
1 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine, the
plural shall include the singular and the singular shall include the plural.
2 Severability. In the event any provision of the Plan shall
be held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
3 Requirements of Law. Neither the Plan nor the Company shall
be obligated to issue any shares of common stock pursuant to the Plan at any
time unless and until all applicable requirements imposed by any federal and
state securities and other laws, rules and regulations, by any regulatory
agencies or by any stock exchanges upon which the common stock may be listed
have been fully met. As a condition precedent to any issuance of shares of
common stock and delivery of certificates evidencing such shares pursuant to the
Plan, the Board or the Committee may require a Participant to take any such
action or make any such covenants, agreements and representations as the Board
or the Committee, as the case may be, in its discretion deems necessary or
advisable to ensure compliance with such requirements. The Company shall in no
event be obligated to register the shares of common stock deliverable under the
Plan pursuant to the Securities Act of 1933, as amended, or to qualify or
register such shares under any securities laws of any state upon their issuance
under the Plan or at any time thereafter, or to take any other action in order
to cause the issuance and delivery of such shares under the Plan or any
subsequent offer, sale, or other transfer of such shares to comply with any such
law, regulation or requirement. Participants are responsible for complying with
all applicable federal and state securities and other laws, rules, and
regulations in connection with any offer, sale, or other transfer of the shares
of common stock issued under the Plan or any interest therein including, without
limitation, compliance with the registration requirements of the Securities Act
of 1933 as amended (unless an exception therefrom is available) or with the
provisions of Rule 144 promulgated thereunder, if applicable, or any successor
provisions. Certificates for shares of common stock may be legended as the
Committee shall deem appropriate.
Notwithstanding any other provision set forth in the Plan, if required
by the then-current Section 16 of the Exchange Act, any "derivative security" or
"equity security" offered pursuant to the Plan to any Insider may not be sold or
transferred within the minimum time limits specified or required in such rule.
The terms "equity security" and "derivative security" shall have the meanings
ascribed to them in the then-current Rule 16a-1 under the Exchange Act.
11
4 Securities Law Compliance. With respect to Insiders,
transactions under the Plan are intended to comply with all applicable
conditions of the Federal securities laws. To the extent any provision of the
Plan or action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
Governing Law. To the extent not preempted by Federal law,
the Plan, and all agreements hereunder, shall be construed in accordance with,
and governed by, the laws of the State of Minnesota.
.
.
.
MINNESOTA POWER
By E. L. Russell
----------------------------
Its Chief Executive Officer
Attest:
By Philip R. Halverson
----------------------------------------
Corporate Secretary
12
ANNEX A
Directors' Long-Term Incentive Plan
The plan awards a maximum of 600 shares of common stock to
each outside director if, over a four-year period commencing with each
even-numbered year, total shareholders return (TSR) equals or exceeds (i) median
TSR compared to a pre-selected group of comparable utilities (listed below)
and/or (ii) the 40.0 percentile TSR compared to companies in the Standard &
Poor's 500. No awards are granted to directors if Company results are below both
of these threshold performance levels. The comparison to comparable utilities
and to the S&P 500 companies is weighted 60% and 40%, respectively.
The first comparator group is comprised of:
Midamerican Energy Company
IES Industries, Inc.
Interstate Power Company
Madison Gas & Electric Company
Northern States Power Company
Otter Tail Power Company
Wisconsin Energy Corporation
WPL Holdings, Inc.
Northwestern Public Service Company
Wisconsin Public Service Corporation
The second comparator group is the companies comprising the
S&P 500.
After calculation of the Company's TSR ranking within the
first and second comparator groups, the schedule below indicates the percent of
the Director's Performance Award Opportunity actually earned.
Utility TSR Ranking
- -------------------
-----------------------------------------------------------------
1-2 60 68 76 84 92 100
-----------------------------------------------------------------
3 48 56 64 72 80 88
-----------------------------------------------------------------
4 36 44 52 60 68 76
-----------------------------------------------------------------
5 24 32 40 48 56 64
-----------------------------------------------------------------
6 12 20 28 36 44 52
-----------------------------------------------------------------
7-11 0 8 16 24 32 40
-----------------------------------------------------------------
0-40 50 60 70 80 90
TSR Percentile Ranking in S&P 500
---------------------------------
13
TSR is defined as:
TSR = Stock price appreciation + reinvested dividends
-----------------------------------------------
Initial stock price
- Stock prices for the beginning and end of the period are the
closing prices on the composite reporting system on the first
and last business days of the period.
- Dividends are assumed to be reinvested on the ex-dividend
date at the closing stock prices on that date.
- Calculation of TSR for the S&P 500 group is based on the
companies included in the S&P 500 Index as of the end of the
period.
14
ANNEX B
Black Hills Corp.
Central & South West
CILCORP Inc.
Eastern Utilities Assoc.
Florida Progress Corp.
Hawaiian Electric Indust.
Mid American Energy
MDU Resources Group
Montana Power Co.
New England Electric Sys.
PacifiCorp
Potomac Electric Power
Public Service Enterprise
SCEcorp
TECO Energy Inc.
UtiliCorp United, Inc.
15
UT
1,000
6-MOS
DEC-31-1996
JAN-01-1996
JUN-30-1996
PER-BOOK
1,118,422
367,313
376,581
108,881
136,834
2,108,031
384,286
0
277,744
591,747
75,000
31,492
653,039
89,330
0
0
70,060
0
0
0
527,080
2,108,031
411,178
15,077
339,347
367,864
49,923
6,609
63,363
28,517
34,846
3,145
31,701
29,685
0
6,321
1.10
1.10
Includes $1,711,000 for distribution on Company Obligated Mandatorily
Redeemable Preferred Securities of MP&L Capital I.
