WISCONSIN ENERGY CORPORATION DIRECTORS' DEFERRED COMPENSATION PLAN

Exhibit 10.16

 

 

 

WISCONSIN ENERGY CORPORATION

DIRECTORS' DEFERRED COMPENSATION PLAN

Effective as of January 1, 2005

 

 

 

ARTICLE 1 DEFINITIONS    ............................................................1

1.1       "Account"         ...........................................1

1.2       "Annual Installment Method"     ................1

1.3       "Beneficiary"     ........................................2

1.4       "Board"            ...............................................2

1.5       "Chairman"       ..........................................2

1.6       "Change in Control"      .............................2

1.7       "Code" ................................................4

1.8       "Committee"     .........................................4

1.9       "Company"       ..........................................4

1.10     "Director"         ..........................................4

1.11     "Election Form"            ..................................4

1.12     "Ending Valuation Date"            ......................4

1.13     "Fees"  .................................................4

1.14     "In-Service Payout"      .............................4

1.15     "Measurement Funds"   ..........................4

1.16     "Participant"      ..........................................4

1.17     "Plan"   ..................................................4

1.18     "Plan Year"       .........................................4

1.19     "Restricted Stock"        ...............................5

1.20     "Restricted Stock Amount"       ..................5

1.21     "Separation from Service"         ....................5

1.22     "Stock" ...............................................5

1.23     "Trust"  ................................................5

1.24     "Unforeseeable Emergency"      .................5

ARTICLE 2 PARTICIPATION.          ........................................................5

2.1       Participation     .........................................5

2.2       Enrollment Requirements           .......................5

2.3       Cessation of Participation          ......................6

ARTICLE 3 DEFERRALS AND CONTRIBUTIONS            ......................6

3.1       Deferral of Fees            ...................................6

3.2       Restricted Stock           ...................................6

3.3       New Directors  ......................................7

ARTICLE 4 ACCOUNTS       .................................................................7

4.1       Establishment of Accounts        .....................7

4.2       Vesting ..................................................7

4.3       Deemed Investments     ..............................8

4.4       Taxes   ....................................................10

ARTICLE 5 DISTRIBUTION OF ACCOUNT           ..................................10

5.1       Time for Distribution     ..............................10

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5.2       In-Service Payout         ..................................10

5.3       Benefits Upon Separation from Service .....11

5.4       Benefits Upon Death     ................................11

5.5       Changes to Form of Payment    ...................12

5.6       Unforeseeable Emergency         ........................13

5.7       Change in Control         ...................................13

5.8       Discretion to Accelerate Distribution     ........13

ARTICLE 6 BENEFICIARY DESIGNATION           ....................................14

6.1       Beneficiary       ...............................................14

6.2       Beneficiary Designation; Change           ...............14

6.3       Acknowledgment          ......................................14

6.4       No Beneficiary Designation       ........................14

6.5       Doubt as to Beneficiary ..............................15

6.6       Discharge of Obligations           ..............................15

ARTICLE 7 TERMINATION, AMENDMENT OR MODIFICATION         ..................15

7.1       Termination      .................................................................15

7.2       Amendment      .................................................................16

7.3       Effect of Payment         .........................................................16

ARTICLE 8 ADMINISTRATION      ............................................................................16

8.1       Plan Administration       ......................................................16

8.2       Powers, Duties and Procedures            ....................................17

8.3       Administration Upon Change In Control            .........................17

8.4       Agents  ...........................................................................17

8.5       Binding Effect of Decisions        .............................................18

8.6       Indemnity of Committee            .................................................18

8.7       Company and Participating Subsidiary Information        ..........18

8.8       Coordination with Other Benefits          ....................................18

ARTICLE 9 CLAIMS PROCEDURES           .......................................................................18

9.1       Presentation of Claim    ......................................................18

9.2       Decision on Initial Claim            .................................................18

9.3       Right to Review            ..............................................................19

9.4       Decision on Review      ........................................................19

9.5       Form of Notice and Decision    ..........................................20

9.6       Legal Action     ...................................................................20

ARTICLE 10 TRUST  ..................................................................................................20

10.1     Establishment of the Trust         .............................................20

10.2     Interrelationship of the Plan and the Trust          ......................20

10.3     Distributions From the Trust      ..........................................21

ARTICLE 11 MISCELLANEOUS      ..............................................................................21

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11.1     Unsecured General Creditor     ........................................21

11.2     Company's Liability      ....................................................21

11.3     Nonassignability            ..........................................................21

11.4     Not a Contract of Service         ............................................21

11.5     Furnishing Information   ..................................................21

11.6     Receipt and Release     ....................................................22

11.7     Incompetent     .................................................................22

11.8     Governing Law and Severability            ....................................22

11.9     Notices and Communications    ........................................22

11.10   Successors       ...................................................................22

11.11   Insurance          .......................................................................22

11.12   Legal Fees To Enforce Rights After Change in Control  ......23

11.13   Terms   ................................................................................23

11.14   Headings          ............................................................................23

 

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WISCONSIN ENERGY CORPORATION
DIRECTORS' DEFERRED COMPENSATION PLAN

Introduction

Wisconsin Energy Corporation, a Wisconsin Corporation (the "Company"), previously established the Legacy Wisconsin Energy Corporation Directors' Deferred Compensation Plan (previously named the Wisconsin Energy Corporation Directors' Deferred Compensation Plan) (the "Legacy Plan"). The Company most recently amended and restated the Legacy Plan effective May 1, 2004. The Company froze the Legacy Plan effective December 31, 2004 with respect to new deferrals such that all earned and vested amounts credited under the Legacy Plan are "grandfathered" within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") enacted under the American Jobs Creation Act of 2004.

Effective as of January 1, 2005, the Company hereby establishes the Wisconsin Energy Corporation Directors' Deferred Compensation Plan (the "Plan"), as set forth herein, as a method of paying directors' compensation which will aid the Company and its subsidiaries, if any, in attracting and retaining as members of their Boards of Directors persons whose abilities, experience and judgment can contribute to the continued progress of the Company and such subsidiaries. The Plan shall be unfunded for tax purposes.

The Plan is intended to comply with the provisions of Code Section 409A, and any guidance and regulations issued thereunder. The Plan shall be interpreted and administered consistent with this intent and shall apply to all amounts deferred under the Plan on or after January 1, 2005. Such amounts include any amounts previously earned and deferred under the Legacy Plan, but not vested as of December 31, 2004. Notwithstanding the foregoing, during the Code Section 409A transition period in effect from January 1, 2005 through December 31, 2008, the Company permitted distribution elections and changes consistent with IRS transition relief, the elections and changes of which are otherwise documented via completed election forms.

ARTICLE 1
DEFINITIONS

Whenever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context:

1.1       "Account"shall mean a bookkeeping account established for the benefit of a Participant under Article 4 utilized solely to measure and determine the amounts credited under the Plan on behalf of a Participant or her Beneficiary. A Participant's Account may include one or more of the following sub-accounts, as more fully described in Article 4.

1. 1. Deferral Account, and
   2. Restricted Stock Account.

1.2       "Annual Installment Method" shall mean an annual installment payment over a specified number of years as further described in Section 5.3. To determine the value of the

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Participant's Account balance for calculating an installment payment, the Participant's Account balance shall be valued as of the close of business on the last business day of the Plan Year preceding the Plan Year for which payment is to be made. Each annual installment shall be calculated by multiplying this Account balance by a fraction, the numerator of which is one, and the denominator of which is the remaining number of annual payments due to the Participant. For example, if a 10-year Annual Installment Method is specified, the first payment shall be 1/10 of the Account balance, valued as described herein. The following Plan Year, the payment shall be 1/9 of the Account balance, valued as described herein.

1.3       "Beneficiary" shall mean one or more persons, trusts, estates or other entities designated by the Participant in accordance with Article 6 that are entitled to receive benefits under this Plan upon the death of a Participant.

1.4       "Board"shall mean the board of directors of the Company, and the board of directors of any subsidiary of the Company on which Directors serve.

1.5       "Chairman" . shall mean the Chairman of the Board of the Company.

1.6       "Change in Control" shall mean, with respect to the Company, the occurrence of any one of the following dates, interpreted consistent with Treasury Regulation Section 1.409A-3(i)(5).

1. 3. Change in Ownership . The date any one Person, or more than one Person Acting as a Group, acquires ownership of stock of the Company that, together with stock held by such Person or Group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company. Notwithstanding the foregoing, for purposes of this paragraph, if any one Person, or more than one Person Acting as a Group, is considered to own more than 50% of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same Person or Persons is not considered to cause a Change in Control.
   4. Change in Effective Control .
   5. 1. The date any one Person, or more than one Person Acting as a Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company. Notwithstanding the foregoing, for purposes of this subparagraph, if any one Person, or more than one Person Acting as a Group, is considered to effectively control the Company, the acquisition of additional control of the Company by the same Person or Persons is not considered to cause a Change in Control; or
      2. The date a majority of the members of the Company's Board is replaced during any 12-month period by directors whose appointment or election is

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not endorsed by a majority of the members of the Company's Board before the date of the appointment or election.

1. 5. Change in Ownership of a Substantial Portion of the Company's Assets . The date any one Person, or more than one Person Acting as a Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions. For purposes of this paragraph (c), "gross fair market value" means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. Notwithstanding the foregoing, a transfer of assets is not treated as a Change in Control if the assets are transferred to:
   6. 1. An entity that is controlled by the shareholders of the transferring corporation;
      2. A shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock;
      3. An entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company;
      4. A Person, or more than one Person Acting as a Group, that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Company; or
      5. An entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a Person described in clause (iv).
   7. "Person" and "Acting as a Group."
   8. 1. For purposes of this Section, "Person" shall have the meaning set forth in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended.
      2. For purposes of this Section, Persons shall be considered to be "Acting as a Group" if they are owners of a corporation that enter into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company. If a Person, including an entity, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be Acting as a Group with the other shareholders only with respect to the ownership in that corporation before the transaction giving rise to the change and not with respect to the ownership interest in the other corporation. Notwithstanding the foregoing, Persons shall not be considered to be Acting as a Group solely because they purchase or own

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stock of the same corporation at the same time, or as a result of the same public offering.

1.7       "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.

1.8       "Committee" shall mean the Directors' Deferred Compensation Plan Policy Committee appointed by the Company's Chairman to administer the Plan in accordance with Article 8.

1.9       "Company"shall mean Wisconsin Energy Corporation, a Wisconsin corporation, and any successor to all or substantially all of the Company's assets or business.

1.10       "Director" shall mean, solely for purposes of this Plan, any director of the Company or a participating subsidiary who is not also an officer or employee of the Company or any of its subsidiaries. This Plan is solely for "outside" Directors.

1.11       "Election Form" shall mean the form or forms established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make a deferral election, make or change a payment form election, and/or make or change an investment election. To the extent authorized by the Committee, such form may be electronic or set forth in some other media or format.

1.12       "Ending Valuation Date" shall mean the last business day of the Plan Year immediately preceding the Plan Year of distribution of a lump sum payment or final installment payment, as the case may be.

1.13       "Fees" shall mean the annual fees, meeting fees and any other fees payable to a Director for her services, and shall exclude any income from stock options or other equity-based awards.

1.14       "In-Service Payout" shall mean distribution, as of a specified date elected by a Participant, of all or a portion of Fees deferred in accordance with Article 3.

1.15       "Measurement Funds" shall mean the hypothetical investment funds available under the Plan, as provided in Section 4.3, to determine the earnings and losses credited to a Participant's Account.

1.16       "Participant" shall mean any Director who elects to participate in the Plan in accordance with Article 2 and maintains an Account balance hereunder. A spouse or former spouse of a Participant shall not be treated as a Participant in the Plan or have an Account under the Plan, even if she has an interest in the Participant's Account as a result of applicable law or property settlements resulting from legal separation or divorce.

1.17       "Plan" shall mean the Wisconsin Energy Corporation Directors' Deferred Compensation Plan, including any amendments adopted hereto.

1.18       "Plan Year" shall mean the calendar year.

 

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1.19       "Restricted Stock" shall mean unvested shares of Stock which is restricted stock selected by the Compensation Committee, approved by the Board in its sole discretion, and awarded to the Participant under any Company stock incentive plan or arrangement.

1.20       "Restricted Stock Amount" shall mean, for any grant of Restricted Stock, the amount equal to the value of such Restricted Stock, calculated using the average of the reported high and low prices for the Stock as of the day such Restricted Stock would otherwise vest (if a business day) or as of the next following business day.

1.21       "Separation from Service" shall mean the Participant's termination of service with the Company and other entities affiliated with the Company, voluntarily or involuntarily, for any reason other than death, or as otherwise provided by the Department of Treasury in regulations promulgated under Code Section 409A. For purposes of the foregoing, whether an entity is affiliated with the Company shall be determined pursuant to the controlled group rules of Code Section 414, as modified by Code Section 409A.

1.22       "Stock" shall mean Wisconsin Energy Corporation common stock.

1.23       "Trust" shall mean the fund created by the Wisconsin Energy Corporation Rabbi Trust Agreement dated December 1, 2000 between the Company and The Northern Trust Company, and as amended from time to time.

1.24       "Unforeseeable Emergency" shall mean, as determined by the Committee in its sole discretion, a severe financial hardship to the Participant resulting from (i) an illness or accident of the Participant, the Participant's spouse, the Participant's Beneficiary, or the Participant's dependent (as defined in Code Section 152, without regard to Code Section 152(b)(1), (b)(2), and (d)(1)(B)), (ii) loss of the Participant's property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance), or (iii) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.

ARTICLE 2
PARTICIPATION

2.1       Participation To begin participation in the Plan, a Director shall properly complete and timely submit an Election Form to the Committee in accordance with the Committee's rules. A Director shall become a Participant on the first day on which a deferral of an elected amount is first credited to her Account. The Committee or its delegate may establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary. Such Participant shall remain a Participant in the Plan until her Account balance is paid in full.

2.2 Enrollment Requirements Election Forms shall be completed and filed with the Committee by the time periods set forth in Article 3 for the particular type of compensation elected for deferral or during such other enrollment period as the Committee determines in accordance with such Article. A Participant may change or revoke a deferral election any time before such election becomes irrevocable, which shall

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occur as of the applicable deadline specified in Article 3 unless the Committee establishes an earlier deadline. Unless the Committee determines otherwise, a new Election Form shall be required for each Plan Year in which a Participant wants to defer a type of compensation eligible for deferral. A Participant's Election Form shall specify the form of payment, which shall be paid at the times specified in Article 5. Beginning with the enrollment period held in 2008, the form of payment elected on the Participant's Election Form shall govern all amounts credited to her Account beginning in 2009 and shall apply to each subsequent Plan Year's deferrals, until changed on either a prospective or retroactive basis by the Participant pursuant to Section 5.5. Distribution elections made during the Code Section 409A transition period that relate to amounts deferred in Plan Years 2005, 2006, 2007 and 2008, as the case may be, shall be honored for such respective amounts, even if such amounts are not credited to a Participant's Account until a later Plan Year or the Participant chose a form of payment that was offered under the Legacy Plan, but not under the Plan.

2.3       Cessation of Participation

1. 1. Elective deferrals made by a Participant or Beneficiary who receives a distribution due to an Unforeseeable Emergency pursuant to Section 5.6 will be canceled due to such distribution if the Committee so decides in its discretion. In either event, the Participant (or Beneficiary, as applicable) shall remain a Participant in the Plan until her Account balance is paid in full.
   2. Notwithstanding anything in the Plan to the contrary, upon the earlier to occur of a Participant's Separation from Service or death, any outstanding deferral election shall be given effect to the extent any amounts covered by such election are paid after such event. Payment of deferred amounts shall be made pursuant to Article 5.

ARTICLE 3
DEFERRALS AND CONTRIBUTIONS

3.1       Deferral of Fees . For each Plan Year, a Director may elect to defer all or any Fees. A Participant's Election Form with respect to any Fees shall be filed with the Committee before the beginning of each Plan Year in which such Fees are earned. Subject to Section 2.2, such deferral elections shall be irrevocable as of the first day of the Plan Year to which the Election Form relates.

3.2       Restricted Stock .

1. 1. For any grant of Restricted Stock, a Participant may elect to defer up to 100% (in whole percentage or fixed dollar amount) of her Restricted Stock Amount, subject to such other terms or conditions as set forth in the plan or agreement under which such Restricted Stock was granted.
   2. A Participant's Election Form with respect to the deferral of Restricted Stock Amounts shall be filed with the Committee before the beginning of the Plan Year

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in which the Restricted Stock is awarded, as determined under the terms of the plan or arrangement. Notwithstanding the foregoing, at the discretion of the Committee, an Election Form may be submitted within 30 days after the Restricted Stock is awarded, provided that the Restricted Stock's first vesting date is at least 12 months after the date the completed Election Form is delivered to and accepted by the Committee (taking into account any automatic vesting provisions upon certain terminations from service that may occur before such 12 month period).

1. 3. Subject to Section 2.2, such deferral elections shall be irrevocable as of the first day of the Plan Year to which the Election Form relates, or the 30 ^th day after the Restricted Stock is awarded, as the case may be.

3.3       New Directors . . Notwithstanding anything in the Plan to the contrary, a newly-elected Director who is first eligible to participate in the Plan (as determined in accordance with plan aggregation rules set forth in Code Section 409A) shall be given 30 days from the date she becomes first elected as a Director to complete and submit an Election Form with respect to Fees, and such election shall apply only to Fees paid for services performed after the date on which the election is effective.

ARTICLE 4
ACCOUNTS

4.1       Establishment of Accounts Bookkeeping accounts shall be established for each Participant to reflect the deferrals of amounts made for the Participant's benefit, together with adjustments for income, gains or losses attributable thereto, and any payments from the respective sub-accounts. Accounts are established solely for the purpose of tracking deferrals made by Participants and any income adjustments thereto. The Accounts shall not be used to segregate assets for payment of any amounts deferred or allocated under the Plan, and shall not constitute or be treated as a trust fund of any kind. Unless the Committee determines otherwise, the Plan shall maintain and credit the following sub-accounts:

1. 1. Deferral Account . The Participant's Deferral Account shall reflect a Participant's Fee deferrals credited on her behalf. Fee deferrals shall be withheld and credited to the Deferral Account as of the date or dates on which the Fees would otherwise be paid to the Participant or as soon as administratively feasible.
   2. Restricted Stock Account . Restricted Stock Amount deferrals shall be credited to the Restricted Stock Account as of the date the Restricted Stock would otherwise vest under the terms of the plan or arrangement pursuant to which the Restricted Stock was granted, but for the election to defer.

4.2       Vesting A Participant shall at all times be 100% vested and have a nonforfeitable right to amounts credited to her Deferral Account and Restricted Stock Account, adjusted for deemed income, gains and losses attributable thereto.

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4.3       Deemed Investments Subject to paragraphs (b) and (h) below, and in accordance with, and subject to, the rules and procedures that are established from time to time by the Committee in its sole discretion, amounts shall be credited or debited to a Participant's Account in accordance with the following rules. The Committee's discretion includes the right to supersede the specific rights identified below, with or without retroactive effect:

1. 3. Measurement Funds . Amounts credited to each Participant's Account shall be deemed invested, in accordance with the Participant's directions, in one or more Measurement Funds that are available under the Plan. The hypothetical investment funds available under the Plan shall be those designated by the Committee, from time to time in its discretion, following recommendations by the WEC Investment Trust Policy Committee. Subject to paragraphs (b) and (h) below, a Participant may elect one or more of the following Measurement Funds for the purpose of crediting additional amounts to her Account: (i) any Measurement Fund selected by the Committee from time to time, (ii) the Prime Rate Fund (described as a mutual fund that is 100% invested in a hypothetical debt instrument which earns interest at an annualized interest rate equal to the "Prime Rate" as reported each business day by the Wall Street Journal, with interest deemed reinvested in additional units of such hypothetical debt instrument), or (iii) a Company Stock Measurement Fund (described as a mutual fund that is 100% invested in shares of Company Stock, with dividends deemed reinvested in additional shares of Company Stock).

Subject to paragraphs (b) and (h) below, the Committee may, in its sole discretion, discontinue, substitute or add a Measurement Fund, subject to such advance notice to Participants if the Committee determines, in its sole discretion, that such notice is necessary.

1. 4. Special Rule for Restricted Stock Amounts . Notwithstanding any provision of this Plan to the contrary, the Participant's Restricted Stock Amounts deferred under the Plan that would have otherwise been distributed in Stock shall be deemed invested in the Company Stock Measurement Fund at all times before distribution from this Plan. Further, the Participant's Restricted Stock Amounts shall be distributed from this Plan in the form of cash.
   5. Election of Measurement Funds . Subject to paragraphs (b) and (h), a Participant shall elect on her initial Election Form one or more Measurement Funds to be used to determine the additional amounts to be credited to her Account, unless changed pursuant to rules as the Committee shall determine, in its discretion, from time to time. However, subject to paragraphs (b) and (h) and any rules and procedures established from time to time by the Committee in its sole discretion, the Participant may elect, by submitting an Election Form to the Committee that is accepted by the Committee, to add or delete one or more Measurement Funds to be used to determine the additional amounts to be credited to her Account, or to change the portion of her Account allocated to each previously or newly elected Measurement Fund. Such rules may include, but are not limited to, rules and/or trading policies that govern the timing, frequency, and manner in which elections

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are made to allocate or reallocate deemed investment amounts among the Measurement Funds, and may be modified at any time and from time to time by the Committee in its sole discretion. If an election is made to change a Measurement Fund, it sha