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EXHIBIT (10)-3
WEC
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SENIOR EXECUTIVE SEVERANCE POLICY
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Introduction
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Northern States Power Company, a Minnesota corporation ("NSP") and
Wisconsin Energy Corporation, a Wisconsin corporation ("WEC") have entered
into an Agreement and Plan of Merger dated as of April 28, 1995 (the "Merger
Agreement"), whereby the NSP and WEC organizations will merge with WEC as the
surviving parent (the "Combination"). The Board of Directors of WEC
recognizes that the pendency of the Combination, and the inevitable
adjustments that will occur during the transition period following the
Combination, may result in the loss or distraction of employees of WEC and its
Subsidiaries to the detriment of WEC and its shareholders.
The Board considers the avoidance of such loss and distraction to
be essential to protecting and enhancing the best interests of WEC and its
shareholders. The Board also believes that during the pendency of the
Combination and the transition period thereafter, the Board should be able to
receive and rely on disinterested service from employees without concern that
employees might be distracted or concerned by personal uncertainties and
risks.
In addition, the Board believes that it is consistent with WEC's
employment practices and policies and in the best interests of WEC and its
shareholders to treat fairly its employees whose employment terminates in
connection with or following the Combination.
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Accordingly, the Board has determined that appropriate steps
should be taken to assure WEC of the continued employment and attention and
dedication to duty of its employees and to seek to ensure the availability of
their continued service, notwithstanding the Combination.
Therefore, in order to fulfill the above purposes, the following
plan has been developed and is hereby adopted.
ARTICLE I
ESTABLISHMENT OF PLAN
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As of the Effective Date, WEC hereby establishes a separation
compensation plan known as the WEC Senior Executive Severance Policy, as set
forth in this document.
ARTICLE II
DEFINITIONS
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As used herein the following words and phrases shall have the
following respective meanings unless the context clearly indicates otherwise.
(a) ANNUAL INCENTIVE AWARD. The highest amount a Participant
received as an annual incentive award in any of the three years prior to a
termination of employment entitling the Participant to a Separation Benefit.
(b) ANNUAL COMPENSATION. The sum of a Participant's Annual
Salary and Annual Incentive Award.
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(c) ANNUAL SALARY. The Participant's regular annual base salary
immediately prior to his or her termination of employment, including
compensation converted to other benefits under a flexible pay arrangement
maintained by the Corporation or deferred pursuant to a written plan or
agreement with the Corporation, but excluding overtime pay, allowances,
premium pay, compensation paid or payable under any Corporation long-term or
short-term incentive plan or any similar payment.
(d) BOARD. The Board of Directors of Wisconsin Energy
Corporation.
(e) CODE. The Internal Revenue Code of 1986, as amended from
time to time.
(f) COMMITTEE. The Compensation Committee of the Board.
(g) CORPORATION. Wisconsin Energy Corporation and any successor
thereto.
(h) DATE OF THE COMBINATION. The Effective Time, as defined in
the Merger Agreement.
(i) DATE OF TERMINATION. The date on which a Participant ceases
to be an Employee.
(j) EFFECTIVE DATE. The date of the Merger Agreement.
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(k) EMPLOYEE. Any full-time, regular-benefit, non-bargaining
employee of an Employer. The term shall exclude all individuals employed as
independent contractors, temporary employees, other benefit employees,
non-benefit employees, leased employees, even if it is subsequently determined
that such classification is incorrect.
(l) EMPLOYER. The Corporation or a Subsidiary which has adopted
the Plan pursuant to Article V hereof.
(m) PARTICIPANT. An individual who is designated as such
pursuant to Section 3.1.
(n) SEPARATION BENEFITS. The benefits described in Section 4.3
that are provided to qualifying Participants under the Plan.
(o) PLAN. The WEC Senior Executive Severance Policy.
(p) SEPARATION PERIOD. The period beginning on a Participant's
Date of Termination and ending on the third anniversary thereof.
(q) SUBSIDIARY. Any corporation in which the Corporation,
directly or indirectly, holds a majority of the voting power of such
corporation's outstanding shares of capital stock.
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(r) TARGET ANNUAL INCENTIVE. The Annual Incentive that the
Participant would have received for the year in which his or her Date of
Termination occurs, if the target goals had been achieved.
ARTICLE III
ELIGIBILITY
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3.1 PARTICIPATION. Each of the individuals named on Schedule 1
hereto shall be a Participant in the Plan. Schedule 1 may be amended by the
Board from time to time to add individuals as Participants.
3.2 DURATION OF PARTICIPATION. A Participant shall only cease
to be a Participant in the Plan as a result of an amendment or termination of
the Plan complying with Article VII of the Plan, or when he ceases to be an
Employee of any Employer, unless, at the time he ceases to be an Employee,
such Participant is entitled to payment of a Separation Benefit as provided in
the Plan or there has been an event or occurrence described in Section 4.2(a)
which would enable the Participant to terminate his employment and receive a
Separation Benefit. A Participant entitled to payment of a Separation Benefit
or any other amounts under the Plan shall remain a Participant in the Plan
until the full amount of the Separation Benefit and any other amounts payable
under the Plan have been paid to the Participant.
ARTICLE IV
SEPARATION BENEFITS
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4.1 RIGHT TO SEPARATION BENEFIT. A Participant shall be
entitled to receive Separation Benefits in accordance with Section 4.3 if the
Participant ceases to be an Employee for any reason specified in
Section 4.2(a).
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4.2 TERMINATION OF EMPLOYMENT.
(a) TERMINATIONS WHICH GIVE RISE TO SEPARATION BENEFITS
UNDER THIS PLAN. Except as set forth in subsection (b) below, a Participant
shall be entitled to Separation Benefits if at any time before the second
anniversary of the Date of the Combination:
(i) the Participant ceases to be an Employee by
action of the Employer or any of its affiliates (excluding any transfer to
another Employer);
(ii) the Participant's Annual Salary is reduced below
the higher of (x) the amount in effect on the Effective Date and (y) the
highest amount in effect at any time thereafter, and the Participant ceases to
be an Employee by his or her own action within 90 days after the occurrence of
such reduction;
(iii) the Participant's duties and responsibilities or
the program of incentive compensation and retirement and welfare benefits
offered to the Participant are materially and adversely diminished in
comparison to the duties and responsibilities or the program of benefits
enjoyed by the Participant on the Effective Date, and the Participant ceases
to be an Employee by his or her own action within 90 days after the occurrence
after such reduction;
(iv) the Participant is required to be based at a
location more than 50 miles from the location where the Participant was based
and performed services on the Effective Date, and the Participant ceases to be
an Employee by his or her own action within 90 days after such relocation;
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(v) an Employer or any affiliate of an Employer
sells or otherwise distributes or disposes of the subsidiary, branch or other
business unit in which the Participant was employed before such sale,
distribution or disposition and the requirements of subsection (b)(iv) of this
Section 4.2 are not met, and the Participant ceases to be an Employee upon or
within 90 days after such sale, distribution or disposition.
(b) TERMINATIONS WHICH DO NOT GIVE RISE TO SEPARATION
BENEFITS UNDER THIS PLAN. If a Participant's employment is terminated for
Cause, disability, retirement, or a qualified sale of business (as those terms
are defined below), or voluntarily by the Participant in the absence of an
event described in subsection (a)(ii), (iii) or (iv) of this Section 4.2, the
Participant shall not be entitled to Separation Benefits under the Plan.
(i) A termination for disability shall have occurred
where a Participant is terminated because illness or injury has prevented him
from performing his duties (as they existed immediately prior to the illness
or injury) on a full time basis for 180 consecutive business days.
(ii) A termination by retirement shall have occurred
where a Participant's termination is due to his voluntary late, normal or
early retirement under a pension plan sponsored by his Employer or its
affiliates, as defined in such plan.
(iii) A termination for Cause shall have occurred
where a Participant is terminated because of:
(A) the willful and continued failure of the
Participant to perform substantially the Participant's duties with
the Corporation or one of its affiliates (other than any such
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failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is
delivered to the Participant by the Board or an elected officer of
the Corporation which specifically identifies the manner in which
the Board or the elected officer believes that the Participant has
not substantially performed the Participant's duties, or
(B) the willful engaging by the Participant in
illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Corporation.
For purposes of this provision, no act or failure to act, on the part of the
Participant, shall be considered "willful" unless it is done, or omitted to be
done, by the Participant in bad faith or without reasonable belief that the
Participant's action or omission was in the best interests of the Corporation.
Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the advice of counsel for the
Corporation, shall be conclusively presumed to be done, or omitted to be done,
by the Participant in good faith and in the best interests of the Corporation.
(iv) A termination due to a qualified sale of
business shall have occurred where an Employer or an affiliate of an Employer
has sold, distributed or otherwise disposed of the subsidiary, branch or other
business unit in which the Participant was employed before such sale,
distribution or disposition and the Participant has been offered employment
with the purchaser of such subsidiary, branch or other business unit or the
corporation or other entity which is the owner thereof on substantially the
same terms and conditions under which he worked for the Employer (including,
without limitation, base salary, duties and responsibilities, program of
benefits and location where based). Such terms and conditions shall also
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include, without limitation, a legally binding agreement or plan covering such
Participant, providing that upon a termination of employment with the
subsidiary, branch or business unit (or the corporation or other entity which
is the owner thereof) or any successor thereto of the kind described in
Article VI of this Plan, at any time before the second anniversary of the Date
of the Combination, the Participant's employer or any successor will pay to
each such former Participant an amount equal to the separation benefit and
other benefits that such former Participant would have received under the Plan
had he been a Participant at the time of such termination. For purposes of
this subsection, the new employer plan or agreement must treat service with
any Employer (irrespective of whether the Employer was an affiliate of the
Corporation or the Employee was a Participant at the time of such service) and
the new employer as continuous service for purposes of calculating separation
benefits.
4.3 SEPARATION BENEFITS.
(a) If a Participant's employment is terminated in
circumstances entitling him to a separation benefit as provided in
Section 4.2(a), the Participant's Employer shall pay such Participant, within
ten days of the Date of Termination, a cash lump sum as set forth in
subsection (b) below and the continued benefits set forth in subsection (c)
below. For purposes of determining the benefits set forth in subsections (b)
and (c), if the termination of the Participant's employment is based upon a
reduction of the Participant's Annual Salary or benefits as described in
subsection (ii) or (iii) of Section 4.2, such reduction shall be ignored.
(b) The cash lump sum referred to in Section 4.3(a) shall
equal the aggregate of the following amounts:
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(i) the sum of (1) the Participant's Annual Salary through
the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the Target Incentive and (y) a fraction,
the numerator of which is the number of days in such year through
the Date of Termination, and the denominator of which is 365, and
(3) any compensation previously deferred by the Participant
(together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore
paid and in full satisfaction of the rights of the Participant
thereto;
(ii) an amount equal to the product of (1) three, and
(2) the sum of (x) the Participant's Annual Salary and (y) the
higher of the Target Annual Incentive or the Annual Incentive
Award; and
(iii) an amount equal to the difference between (a) the
actuarial equivalent of the benefit under the Corporation's
qualified defined benefit retirement plan (the "Retirement Plan")
and any excess or supplemental retirement plans in which the
Participant participates (together, the "SERP") which the
Participant would receive if his or her employment continued
during the Separation Period, assuming that the Participant's
compensation during the Separation Period would have been equal to
his or her compensation as in effect immediately before the
termination or, if higher, on the Effective Date, and (b) the
actuarial equivalent of the Participant's actual benefit (paid or
payable), if any, under the Retirement Plan and the SERP as of the
Date of Termination. The actuarial assumptions used for purposes
of determining actuarial equivalence shall be no less favorable
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to the Participant than the most favorable of those in effect
under the Retirement Plan and the SERP on the Date of Termination
and the Effective Date.
(c) The continued benefits referred to above shall be as
follows:
(i) During the Separation Period, the Participant and his
family shall be provided with medical, dental and life insurance
benefits as if the Participant's employment had not been
terminated; provided, however, that if the Participant becomes
reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer-provided
plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during
such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of
benefits) of the Participant for retiree medical, dental and life
insurance benefits under the Corporation's plans, practices,
programs and policies, the Participant shall be considered to have
remained employed during the Separation Period and to have retired
on the last day of such period;
(ii) The Corporation shall, at its sole expense as
incurred, provide the Participant with outplacement services the
scope and provider of which shall be selected by the Participant
in his or her sole discretion (but at a cost to the Corporation of
not more than $30,000) or, at the Participant's option, the use of
office space, office supplies and equipment and secretarial
services for a period not to exceed one year;
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(iii) The Corporation shall continue to provide the
Participant with financial planning counseling benefits through
the second anniversary of the Date of Termination, on the same
terms and conditions as were in effect immediately before the
termination or, if more favorable, on the Effective Date; and
(iv) The Corporation shall transfer to the Participant, at
no cost to the Participant, the title to the company car being
used by the Participant as of the Date of Termination.
To the extent any benefits described in this Section 4.3(c) cannot be provided
pursuant to the appropriate plan or program maintained for Employees, the
Employer shall provide such benefits outside such plan or program at no
additional cost (including without limitation tax cost) to the Participant.
4.4 OTHER BENEFITS PAYABLE. The cash lump sum and continuing
benefits described in Section 4.3 above shall be payable in addition to, and
not in lieu of, all other accrued or vested or earned but deferred
compensation, rights, options or other benefits which may be owed to a
Participant upon or following termination, including but not limited to
accrued vacation or sick pay, amounts or benefits payable under any bonus or
other compensation plans, stock option plan, stock ownership plan, stock
purchase plan, life insurance plan, health plan, disability plan or similar or
successor plan but excluding any severance pay or pay in lieu of notice
required to be paid to such Participant under applicable law.
4.5 CERTAIN REDUCTION OF PAYMENTS BY THE CORPORATION.
(a) For purposes of this Section 4.5, (i) a Payment shall
mean any payment or distribution in the nature of compensation to or for the
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benefit of a Participant, whether paid or payable pursuant to this Plan or
otherwise; (ii) Separation Payment shall mean a Payment paid or payable
pursuant to this Plan (disregarding this Section); (iii) Net After Tax Receipt
shall mean the Present Value of a Payment net of all taxes imposed on a
Participant with respect thereto under Sections 1 and 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), determined by applying the
highest marginal rate under Section 1 of the Code which applied to the
Participant's taxable income for the immediately preceding taxable year;
(iv) "Present Value" shall mean such value determined in accordance with
Section 280G(d)(4) of the Code; and (v) "Reduced Amount" shall mean the
greatest aggregate amount of Separation Payments which (a) is less than the
sum of all Separation Payments and (b) results in aggregate Net After Tax
Receipts which are equal to or greater than the Net After Tax Receipts which
would result if the Participant were paid the sum of all Separation Payments.
(b) Anything in this Agreement to the contrary
notwithstanding, in the event Price Waterhouse or such other certified public
accounting firm designated by the Participant (the "Accounting Firm") shall
determine that receipt of all Payments would subject the Participant to tax
under Section 4999 of the Code, it shall determine whether some amount of
Separation Payments would meet the definition of a "Reduced Amount." If the
Accounting Firm determines that there is a Reduced Amount, the aggregate
Separation Payments shall be reduced to such Reduced Amount. All fees payable
to the Accounting Firm shall be paid solely by the Corporation.
(c) If the Accounting Firm determines that aggregate
Separation Payments should be reduced to the Reduced Amount, the Corporation
shall promptly give the Participant notice to that effect and a copy of the
detailed calculation thereof, and the Participant may then elect, in his sole
discretion, which and how much of the Separation Payments shall be eliminated
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or reduced (as long as after such election the present value of the aggregate
Separation Payments equals the Reduced Amount), and shall advise the
Corporation in writing of his election within ten days of his receipt of
notice. If no such election is made by the Participant within such ten-day
period, the Corporation may elect which of such Separation Payments shall be
eliminated or reduced (as long as after such election the present value of the
aggregate Separation Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. All determinations made by the
Accounting Firm under this Section shall be binding upon the Corporation and
the Participant and shall be made within 60 days of a termination of
employment of the Participant. As promptly as practicable following such
determination, the Corporation shall pay to or distribute for the benefit of
the Participant such Separation Payments as are then due to the Participant
under this Plan and shall promptly pay to or distribute for the benefit of the
Participant in the future such Separation Payments as become due to the
Participant under this Plan.
(d) While it is the intention of the Corporation to reduce
the amounts payable or distributable to the Participants hereunder only if the
aggregate Net After Tax Receipts to a Participant would thereby be increased,
as a result of the uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accounting Firm hereunder, it
is possible that amounts will have been paid or distributed by the Corporation
to or for the benefit of a Participant pursuant to this Plan which should not
have been so paid or distributed ("Overpayment") or that additional amounts
which will have not been paid or distributed by the Corporation to or for the
benefit of a Participant pursuant to this Plan could have been so paid or
distributed ("Underpayment"), in each case, consistent with the calculation of
the Reduced Amount hereunder. In the event that the Accounting Firm, either
upon the assertion of a deficiency by the Internal Revenue Service against
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either the Corporation or the Participant which the Accounting Firm believes
has a high probability of success determines that an Overpayment has been
made, any such Overpayment paid or distributed by the Corporation to or for
the benefit of a Participant shall be treated for all purposes as a loan to
the Participant which the Participant shall repay to the Corporation together
with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code; provided, however, that no such loan shall be
deemed to have been made and no amount shall be payable by a Participant to
the Corporation if and to the extent such deemed loan and payment would not
either reduce the amount on which the Participant is subject to tax under
Section 1 and Section 4999 of the Code or generate a refund of such taxes. In
the event that the Accounting Firm, based upon controlling precedent or
substantial authority, determines that an Underpayment has occurred, any such
Underpayment shall be promptly paid by the Corporation to or for the benefit
of the Participant together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code.
4.6 PAYMENT OBLIGATIONS ABSOLUTE.
Subject to Section 4.5, the obligations of the Corporation and the
Employers to pay the separation benefits described in Section 4.3 shall be
absolute and unconditional and shall not be affected by any circumstances,
including, without limitation, any set-off, counterclaim, recoupment, defense
or other right which the Corporation or any of its Subsidiaries may have
against any Participant. In no event shall a Participant be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to a Participant under any of the provisions of this Plan, nor shall
the amount of any payment hereunder be reduced by any compensation earned by a
Participant as a result of employment by another employer, except as
specifically provided in Section 4.3(c)(i).
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ARTICLE V
PARTICIPATING EMPLOYERS
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This Plan may be adopted by any Subsidiary of the Corporation.
Upon such adoption, the Subsidiary shall become an Employer hereunder and the
provisions of the Plan shall be fully applicable to the Employees of that
Subsidiary who are Participants pursuant to Section 3.1.
ARTICLE VI
SUCCESSOR TO CORPORATION
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This Plan shall bind any successor of the Corporation, its assets
or its businesses (whether direct or indirect, by purchase, merger,
consolidation or otherwise) in the same manner and to the same extent that the
Corporation would be obligated under this Plan if no succession had taken
place.
In the case of any transaction in which a successor would not by
the foregoing provision or by operation of law be bound by this Plan, the
Corporation shall require such successor expressly and unconditionally to
assume and agree to perform the Corporation's obligations under this Plan, in
the same manner and to the same extent that the Corporation would be required
to perform if no such succession had taken place. The term "Corporation," as
used in this Plan, shall mean the Corporation as hereinbefore defined and any
successor or assignee to the business or assets which by reason hereof becomes
bound by this Plan.
ARTICLE VII
DURATION, AMENDMENT AND TERMINATION
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7.1 DURATION. If the Combination has not occurred, this Plan
shall expire five years from the Effective Date, unless extended for an
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additional period or periods by resolution adopted by the Board.
If the Combination occurs, this Plan shall continue in full force
and effect and shall not terminate or expire until after all Participants who
become entitled to any payments hereunder shall have received such payments in
full and all adjustments required to be made pursuant to Section 4.5 have been
made.
7.2 AMENDMENT. Except as provided in Section 7.1, the Plan
shall not be subject to amendment, change, substitution, deletion, revocation
or termination in any respect which adversely affects the rights of
Participants.
7.3 FORM OF AMENDMENT. The form of any amendment of the Plan
shall be a written instrument signed by a duly authorized officer or officers
of the Corporation, certifying that the amendment has been approved by the
Board.
ARTICLE VIII
MISCELLANEOUS
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8.1 INDEMNIFICATION. If a Participant institutes any legal
action in seeking to obtain or enforce, or is required to defend in any legal
action the validity or enforceability of, any right or benefit provided by
this Plan, the Corporation or the Employer will pay for all actual legal fees
and expenses incurred (as incurred) by such Participant, regardless of the
outcome of such action.
8.2 EMPLOYMENT STATUS. This Plan does not constitute a contract
of employment or impose on the Participant or the Participant's Employer any
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obligation to retain the Participant as an Employee, to change the status of
the Participant's employment, or to change the Corporation's policies or those
of its Subsidiaries regarding termination of employment.
8.3 CLAIM PROCEDURE. If an Employee or former Employee makes a
written request alleging a right to receive benefits under this Plan or
alleging a right to receive an adjustment in benefits being paid under the
Plan, the Corporation shall treat it as a claim for benefit. All claims for
benefit under the Plan shall be sent to the Human Resources Department of the
Corporation and must be received within 30 days after termination of
employment. If the Corporation determines that any individual who has claimed
a right to receive benefits, or different benefits, under the Plan is not
entitled to receive all or any part of the benefits claimed, it will inform
the claimant in writing of its determination and the reasons therefor in terms
calculated to be understood by the claimant. The notice will be sent within
90 days of the claim unless the Corporation determines additional time, not
exceeding 90 days, is needed. The notice shall make specific reference to the
pertinent Plan provisions on which the denial is based, and describe any
additional material or information that is necessary. Such notice shall, in
addition, inform the claimant what procedure the claimant should follow to
take advantage of the review procedures set forth below in the event the
claimant desires to contest the denial of the claim. The claimant may within
90 days thereafter submit in writing to the Corporation a notice that the
claimant contests the denial of his or her claim by the Corporation and
desires a further review. The Corporation shall within 60 days thereafter
review the claim and authorize the claimant to appear personally and review
pertinent documents and submit issues and comments relating to the claim to
the persons responsible for making the determination on behalf of the
Corporation. The Corporation will render its final decision with specific
reasons therefor in writing and will transmit it to the claimant within
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60 days of the written request for review, unless the Corporation determines
additional time, not exceeding 60 days, is needed, and so notifies the
Participant. If the Corporation fails to respond to a claim filed in
accordance with the foregoing within 60 days or any such extended period, the
Corporation shall be deemed to have denied the claim.
8.4 VALIDITY AND SEVERABILITY. The invalidity or
unenforceability of any provision of the Plan shall not affect the validity or
enforceability of any other provision of the Plan, which shall remain in full
force and effect, and any prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
8.5 GOVERNING LAW. The validity, interpretation, construction
and performance of the Plan shall in all respects be governed by the laws of
Wisconsin, without reference to principles of conflict of law, except to the
extent pre-empted by federal law.
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