Exhibit 10.42

WISCONSIN ENERGY CORPORATION
TERMS and CONDITIONS GOVERNING
PERFORMANCE SHARES AWARD

 

1. DEFINED TERMS

All capitalized terms used in this grant and not otherwise defined herein are
defined in the attached Appendix or in the Plan.

2. PERFORMANCE SHARE GRANT

The Company grants to the Employee performance share units ("Performance
Shares"), the number of which is specified in the notice of grant. The
Performance Shares granted under this Agreement are units that will be reflected
in a book account maintained by the Company until they have been distributed as
shares of common stock of the Company (the "Common Stock") under paragraph 6 or
have been forfeited.

3. REGULAR VESTING OF PERFORMANCE SHARES

Except as otherwise provided in paragraph 4 below, this Performance Share grant
shall be vested based upon the Company's rank in Total Shareholder Return
("TSR") over a three-year performance period beginning January 1, 2004, relative
to thirty (30) benchmark electric utilities with similar characteristics. The
regular vesting schedule for the Performance Share grant is as set forth in the
following schedule:

Percentile Rank

Vesting %

<25th Percentile

25th Percentile

Target (50th Percentile)

75th Percentile

90th Percentile or above

0%

25%

100%

125%

175%

The calculation of the Employee's vesting percentage shall be subject to the
following rules:

(i) The Committee shall make appropriate changes to the percentile rank
calculations to reflect corporate transactions affecting the benchmark electric
utilities (e.g., corporate mergers). The Committee's determination regarding
such changes shall be binding upon the Company and the Employee.

(ii) In the event that the Company's percentile rank is between the benchmarks
identified in the left hand column, the vesting percentage shall be determined
by interpolating the appropriate vesting percentage. For example, if the Company
is the 12th best of the 30 benchmark electric utilities (or 60th percentile),
the vesting percentage would be 110%, and if the Company is the 6th best of the
30 benchmark utilities (or 80th percentile), the vesting percentage would be
141.66%.

Except as provide in paragraph 4 below, any unvested Performance Shares are
immediately forfeited upon the Employee's cessation of employment with the
Company or a subsidiary prior to the completion of the three-year performance
period.

 

4. SPECIAL VESTING OF PERFORMANCE SHARES

The Performance Shares shall become immediately exercisable at the Target 100%
rate upon the occurrence of any of the following events (the "Special Vesting
Events"):

(i) the termination of the Employee's employment with the Company or a
subsidiary by reason of Disability or death, or

(ii) the occurrence of a Change in Control of the Company while the Employee is
employed by the Company or a subsidiary.

Further, a prorated number of the Performance Shares shall become vested upon
the termination of the Employee's employment with the Company or a subsidiary by
reason of Retirement prior to December 31, 2006. The number of Performance
Shares becoming vested shall be determined by multiplying the number of
Performance Shares at the Target 100% rate by a fraction, with the numerator of
the fraction being the number of full calendar months between Employee's
Retirement and January 1, 2004 and the denominator being thirty-six (36).
Therefore, if Employee retires on September 15, 2005, the number of Performance
Shares becoming vested as a result of Employee's Retirement shall be equal to
the number of Performance Shares at the Target 100% rate times 20/36.

5. DIVIDEND EQUIVALENTS

Whenever the Company declares a cash dividend on Common Stock, an Employee who
is employed on the dividend declaration date shall be entitled to receive a cash
amount determined by multiplying (a) the number of Performance Shares at the
Target 100% rate on the dividend declaration date, times (b) the amount of the
cash dividend paid by the Company on a share of its Common Stock. The deemed
dividend equivalent shall be paid to the Employee within a reasonable period of
time after the dividends are paid to Company stockholders.

6. SETTLEMENT OF PERFORMANCE SHARES

As soon as practicable after the Performance Shares become vested pursuant to
paragraph 3 or 4 above, the Company shall deliver to the Employee one share of
Common Stock for each Performance Share that becomes vested.

7. NON-TRANSFERABILITY; DEATH; DESIGNATED BENEFICIARY

This Performance Share grant is not transferable by the Employee otherwise than
by will or the laws of descent and distribution. If the Employee dies prior to
the settlement of any vested Performance Shares, the shares of Common Stock
shall be issued to the Employee's "Designated Beneficiary." The "Designated
Beneficiary" shall be the beneficiary or beneficiaries designated by the
Employee in a writing filed with the Committee in such form and at such time as
the Committee may

require. In the absence of a living Designated Beneficiary, any rights or
benefits that would have been exercisable by or distributable to the Employee
shall be exercised by or distributed to the legal representative of Employee's
estate or the person to whom the benefit passes by will or by the laws of
descent and distribution.

 

8. REGISTRATION

If at any time during the option period the Company shall be advised by its
counsel that shares to be delivered are required to be registered under the
Securities Act of 1933 ("Act") or any state securities laws, or that delivery of
the shares must be accompanied or preceded by a prospectus meeting the
requirements of that Act or such state securities laws, the Company will use its
best efforts to effect the registration or provide the prospectus within a
reasonable time, but delivery of shares by the Company may be deferred until the
registration is effected or the prospectus is available. The Employee shall have
no interest in shares covered by this award until certificates for the shares
are issued, or in lieu of certificates, shares are credited to the Employee's
account in the book-entry form.

9. ADJUSTMENTS

If the Company shall at any time change the number of shares of its Common Stock
without new consideration to the Company (such as by stock dividend, stock split
or similar transaction), the number of Performance Shares shall be changed in
proportion to the change in issued shares. If the Common Stock of the Company
shall be changed into another kind of stock or into securities of another
corporation, cash, evidence of indebtedness, other property or any combination
thereof, whether as a result of reorganization, sale, merger, consolidation, or
other similar transaction, the Committee shall cause adequate provision to be
made to the Performance Shares granted hereunder.

10. WITHHOLDING

Employee may satisfy any tax withholding obligations arising with respect to the
payment of dividend equivalents or the issuance of Common Stock by tendering a
check to the Company for any required amount, by election to have a portion of
the cash or shares that would otherwise be distributed withheld to defray all or
a portion of any applicable taxes, or by election to have the Company or its
subsidiaries withhold the required amounts from other compensation payable to
the Employee.

11. IMPACT ON OTHER BENEFITS

The income attributable to the exercise of this option shall not be includable
as compensation or earnings for purposes of any other benefit plan or program
offered by the Company or its subsidiaries.

12. PLAN GOVERNS

Notwithstanding anything in this option, the terms of this option shall be
subject to the terms of the Plan, a copy of which may be obtained by the
Employee from the Secretary of the Company, and this option is subject to all
interpretations, amendments, rules and regulations established by the Committee
from time to time pursuant to the Plan.

 

APPENDIX

This is an appendix to the Wisconsin Energy Corporation Terms and Conditions
Governing an award of Performance Shares.

As used in the Terms & Conditions, the terminology set forth below shall have
the following meanings:

(a) "Total Shareholder Return" means: the calculation of total return (stock
price appreciation plus reinvested dividends) for a peer utility based upon an
initial investment of $100 and subsequent $100 investments at the end of each
quarter during the three-year performance period.

(b) "Disability" means separation from the service of the Company or a
subsidiary because of such illness or injury as renders the Employee unable to
perform the material duties of the Employee's job.

(c) "Retirement" means separation from the Service of the Company or a
subsidiary at or after age 60.