Document:

EXECUTION COPY

EXECUTION COPY

ELM ROAD GENERATING STATION UNIT 2

EASEMENT AND INDEMNIFICATION AGREEMENT

by and between

WISCONSIN ELECTRIC POWER COMPANY,

as Grantor,

and

MGE POWER ELM ROAD, LLC

and

WISCONSIN PUBLIC POWER INC.,

as Grantees

TABLE OF CONTENTS

Page

ARTICLE I DEFINITIONS; RULES OF INTERPRETATION

2

ARTICLE II GRANT OF EASEMENTS AND ADDITIONAL RIGHTS

2

SECTION 2.1

Easements.

2

SECTION 2.2

WEPCO’s Reserved Rights.

3

SECTION 2.3

Ownership of Unit 2 and the New Common Facilities.

4

SECTION 2.4

Provisions Applicable to the Access Easement.

4

SECTION 2.5

Request for Documentation.

5

SECTION 2.6

Improvements Not On the Elm Road Site.

5

SECTION 2.7

Additional Rights.

6

ARTICLE III COMPLIANCE WITH LAW

6

SECTION 3.1

Compliance with Law.

6

ARTICLE IV CONSIDERATION

6

SECTION 4.1

Compensation in Consideration of Use.

6

SECTION 4.2

Compensation for Site Preparation Costs

7

ARTICLE V TERM

7

SECTION 5.1

Term of Easements.

7

SECTION 5.2

Termination.

8

SECTION 5.3

Provisions Related to the Ground Lease.

8

ARTICLE VI ENVIRONMENTAL

9

SECTION 6.1

Environmental Matters.

9

SECTION 6.2

Indemnification Procedures.

10

ARTICLE VII INDEMNIFICATION; INDEMNIFICATION PROCEDURE

11

SECTION 7.1

General Indemnity.

11

SECTION 7.2

Indemnification Procedures.

11

ARTICLE VIII ASSIGNABILITY; WEPCO AND GRANTEES RIGHT TO GRANT SECURITY INTEREST IN THIS AGREEMENT; LENDER PROTECTIVE PROVISIONS  12

SECTION 8.1

Assignability.

12

SECTION 8.2

Non-Disturbance.

12

SECTION 8.3

Modification to Easement Agreement Upon Request by a Lender.

12

SECTION 8.4

No Liens or Encumbrances.

13

SECTION 8.5

Grantee’s Right to Grant Security Interests in This Agreement.

13

SECTION 8.6

Notices.

13

SECTION 8.7

Cure Rights.

14

SECTION 8.8

Assignment In A Foreclosure Action.

14

SECTION 8.9

New Agreement.

14

SECTION 8.10

No Merger.

14

ARTICLE IX MISCELLANEOUS

15

SECTION 9.1

No Easement by Prescription.

15

SECTION 9.2

Binding Effect; Successors and Assigns.

15

SECTION 9.3

Waiver or Consent.

15

SECTION 9.4

Notices.

15

SECTION 9.5

Applicable Law.

16

SECTION 9.6

Jury Trials.

16

SECTION 9.7

Severability.

16

SECTION 9.8

Entire Agreement.

17

SECTION 9.9

Amendments and Waivers.

17

SECTION 9.10

Counterparts.

17

SECTION 9.11

Headings and Table of Contents.

17

SECTION 9.12

Exhibits.

17

SECTION 9.13

No Joint Venture.

17

SECTION 9.14

Third-Party Beneficiaries.

17

SECTION 9.15

Further Assurances.

17

SECTION 9.16

Survival.

18

SECTION 9.17

Measuring Life.

18

SECTION 9.18

Certificates.

18

SECTION 9.19

Default and Remedies.

18

SECTION 9.20

Recordation.

19

SECTION 9.21

Waiver of Right to Partition.

19

ARTICLE X REPRESENTATIONS AND WARRANTIES

19

SECTION 10.1

Representations and Warranties

19

EXHIBITS AND SCHEDULES

Exhibit A

Legal Description of the Land

Exhibit B

Legal Descriptions of Parcel 1, Parcel 2 and the Retained Land

Exhibit C

Description of the New Common Facilities Easement Area

Exhibit D

Description of the Access Easement Area  

Exhibit E

Environmental Responsibility Exclusions

Schedule 1.1

Definitions; Interpretation

Schedule 4.2

Site Preparation Costs

Schedule 8.2

Form of Non-Disturbance Agreement

Schedule 10.2

Existing Encumbrances

EASEMENT AND INDEMNIFICATION AGREEMENT

THIS EASEMENT AND INDEMNIFICATION AGREEMENT (this “Agreement”) is made as of the day of December 17, 2004, by and among WISCONSIN ELECTRIC POWER COMPANY, a Wisconsin corporation (“WEPCO”), as Grantor, MGE POWER ELM ROAD, LLC, a Wisconsin limited liability company (“MGE Power”), as Grantee, and WISCONSIN PUBLIC POWER INC., a Wisconsin municipal electric company (“WPPI”), as Grantee.  Each of WEPCO, MGE Power and WPPI is sometimes herein referred to as a “Party,” and WEPCO, MGE Power and WPPI are sometimes herein referred to collectively as the “Parties.”

WITNESSETH:

WHEREAS, WEPCO owns certain land in fee in Milwaukee County and Racine County, Wisconsin, as more particularly described in Exhibit A (the “Land”); which Land consists of Parcel 1, Parcel 2 and the Retained Land (as more particularly described in Exhibit B).

WHEREAS, WEPCO and Elm Road Generating Station Supercritical, LLC (“ERGS SC”), have entered into that certain Elm Road II Ground Lease and Easement Agreement dated as of November 9, 2004 (the “Ground Lease”), pursuant to which WEPCO has leased and granted to ERGS SC, and ERGS SC has leased and received from WEPCO:  (i) Parcel 2; (ii) a non-exclusive easement upon, over, under, through and across those portions of the Retained Land and Parcel 1 reasonably required for certain uses identified in the Ground Lease with respect to Unit 2 (as defined below) on Parcel 2, including portions of the Retained Land and Parcel 1 necessary for laydown space and parking; (iii) the right to use any Site Improvements constructed on Parcel 2; (iv) a non-exclusive easement upon, over, under, through and across those portions of the Land necessary for ingress to and egress from Parcel 2; (v) a non-exclusive easement upon, over, under, through and across those portions of the Land necessary for access to and for certain uses identified in the Ground Lease with respect to the New Common Facilities located on the Elm Road Site; and (vi) any and all other appurtenances, rights, privileges and easements benefiting, belonging or pertaining to Parcel 2 (such leasehold interest, non-exclusive easements and other rights listed in (i) through (vi) above are hereinafter collectively referred to as the “Ground Interest”); 

WHEREAS, ERGS SC and WEPCO have entered into that certain Elm Road II Ground Sublease Agreement dated as of November 9, 2004 (the “Ground Sublease”), pursuant to which ERGS SC has subleased to WEPCO, and WEPCO has subleased from ERGS SC, the Ground Interest;

WHEREAS, subject to that certain Elm Road II Ownership Agreement dated as of December 17, 2004 among ERGS SC, MGE Power, WPPI and Elm Road Services LLC (the “Unit 2 Ownership Agreement”), ERGS SC, MGE Power and WPPI may each own, as tenants-in-common, undivided interests in (i) an approximately 615 MW net nominal baseload supercritical pulverized coal electric generating facility, including all facilities, components, equipment and materials contained therein and all improvements thereto (“Unit 2”), to be constructed on Parcel 2 and (ii) certain facilities, components, equipment and materials utilized in common in the operation and maintenance of Unit 1 and Unit 2 and, where applicable, one or 

more of WEPCO’s existing electric generating units located on the Land (the “New Common Facilities”); and

WHEREAS, after the completion of the construction of Unit 2 and the New Common Facilities it is expected that (i) MGE Power will lease to Madison Gas and Electric Company (“MGE”) MGE Power’s ownership interest in Unit 2 and the New Common Facilities pursuant to a long-term facility lease in a form approved by the Public Service Commission of Wisconsin (the “MGE Facility Lease”); (ii) MGE Power will assign its rights hereunder to MGE pursuant to the Assignment of Easement and Indemnification Agreement (the “Assignment of Easement”); (iii) ERGS SC will lease to WEPCO ERGS SC’s ownership interest in Unit 2 and the New Common Facilities pursuant to that certain Elm Road II Facility Lease Agreement dated as of November 9, 2004 (the “ERGS SC Facility Lease”); and (iv) ERGS SC will sublease its Ground Interest to WEPCO pursuant the Ground Sublease; and

WHEREAS, WEPCO desires to grant to MGE Power and WPPI (i) a non-exclusive easement in Parcel 2 for the ownership and siting of Unit 2, (ii) a non-exclusive easement over certain portions of the Land necessary for the ownership and siting of the New Common Facilities, and (iii) a non-exclusive easement for pedestrian and vehicular access to Unit 2 and the New Common Facilities.  

NOW, THEREFORE, in consideration of the foregoing premises, the mutual terms, covenants, conditions and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE I

DEFINITIONS; RULES OF INTERPRETATION

Capitalized terms used but not defined herein shall have the meanings set forth in Schedule 1.1, and the rules of interpretation set forth in Schedule 1.1 shall apply to this Agreement.

ARTICLE II

GRANT OF EASEMENTS AND ADDITIONAL RIGHTS

SECTION 2.1

Easements.

Subject to the terms and conditions set forth in this Agreement, WEPCO hereby grants to the Grantees, and to each of them, as the owners of undivided interests in Unit 2 and the New Common Facilities, and the Grantees, and each of them, hereby receive from WEPCO, the following easements (collectively, the “Easements”):

(a)

a non-exclusive easement upon, over, under, through and across Parcel 2 (the “Unit 2 Parcel Easement”) as is required and necessary for the ownership and siting of Unit 2;

(b)

a non-exclusive easement upon, over, under, through and across those portions of the Retained Land as are required and necessary for the ownership and siting of the New Common Facilities (the “New Common Facilities Easement”); the land subject to the New Common Facilities Easement is more specifically described on Exhibit C (the “New Common Facilities Easement Area”); and

(c)

a non-exclusive easement upon, over, under, through and across those portions of the Retained Land necessary for ingress to Parcel 2 and the New Common Facilities Easement Area from a publicly dedicated right-of-way, and egress from Parcel 2 and the New Common Facilities Easement Area to a publicly dedicated right-of-way, and between Parcel 2 and the New Common Facilities Easement Area (the “Access Easement”); the land subject to the Access Easement is more specifically described on Exhibit D (the “Access Easement Area”).

SECTION 2.2

WEPCO’s Reserved Rights.  

(a)

WEPCO and each of the Grantees acknowledges and agrees that notwithstanding anything to the contrary contained in this Agreement, WEPCO shall remain at all times the owner of the fee title to the Land (including all rights appurtenant thereto, such as riparian and littoral rights), the Site Improvements, the Existing Units and the Existing Common Facilities.

(b)

Other than the rights granted to the Grantees pursuant to this Agreement, WEPCO reserves for itself and its agents, licensees, invitees, employees, lessees, sublessees, successors and assigns all other rights related to the Land (including, without limitation, the Elm Road Site), the Site Improvements, the Existing Units, the Existing Common Facilities and such improvements as may be constructed by WEPCO on the Retained Land.  Without limitation, but subject to Section 2.2(c), WEPCO’s reserved rights shall include (i) a right of reasonable access, in accordance with Prudent Utility Practice, to the Elm Road Site; (ii) the right, from time to time, to create, grant or convey one or more non-exclusive rights of way and/or easements over or in respect of any portions of the Elm Road Site and the right to mortgage or grant security interests in the Land in connection with WEPCO financing (collectively, the “Encumbrances”); and (iii) the right from time to time to remove, relocate, substitute, use, construct or connect to, at its sole cost and expense, any building improvements, utility or other structure (other than Unit 2, the New Common Facilities and/or the Site Improvements) hereinafter existing on the Elm Road Site, in WEPCO’s reasonable discretion.

(c)

The exercise of such reserved rights by WEPCO shall not, individually or in the aggregate, (i) have a material adverse effect on the use, operation or maintenance of Unit 2 and/or the New Common Facilities as contemplated herein or by the Ground Leases, the Ownership Agreements and the O&M Agreements, or (ii) preclude the use, operation and maintenance of Unit 2 and/or the New Common Facilities in substantially the same manner and to substantially the same extent as was permitted prior to any such exercise, or (iii) other than in a de minimis respect, diminish the fair market value, utility, remaining useful life or residual value of Unit 2 and/or the New Common Facilities as measured immediately prior to such exercise, or (iv) cause Unit 2 and/or the New Common Facilities to become “limited use” property within the meaning of Rev. Proc. 2001-28, 2001-19 I.R.B. 1156.

SECTION 2.3

Ownership of Unit 2 and the New Common Facilities.

(a)

WEPCO and each of the Grantees agrees that Unit 2 and the New Common Facilities have been severed from the Elm Road Site by agreement and it is the intention of WEPCO and the Grantees that, during the Term, Unit 2 and the New Common Facilities (i) shall remain severed from the Elm Road Site; (ii) even though attached to or affixed to or installed upon the Elm Road Site, shall not be considered to be fixtures or a part of the Elm Road Site; and (iii) shall not be or become subject to any Lien heretofore or hereafter placed by WEPCO (other than Permitted Encumbrances and the ERGS SC Facility Lease).

(b)

WEPCO and each of the Grantees acknowledges and agrees that notwithstanding any provision to the contrary contained in this Agreement, but subject to the rights of WEPCO under the Ground Leases, the Ownership Agreements, the O&M Agreements and the ERGS SC Facility Lease, at all times during the Term:  (i) title to Unit 2 and New Common Facilities shall be vested in the Unit 2 Owners and the New Common Facilities Owners, respectively, and (ii) the Unit 2 Owners and the New Common Facilities Owners shall be the equitable and beneficial owners of the components, replacement components and all such other equipment and property (other than the Site Improvements) relating solely to Unit 2 and the New Common Facilities, respectively, at any time acquired or constructed and located on the Elm Road Site.

(c)

Notwithstanding any provision to the contrary contained in this Agreement, (i) the operation and maintenance of Unit 2 shall be governed by the terms and conditions of the Unit 2 O&M Agreement as long as it is in effect, and (ii) the operation and maintenance of the New Common Facilities shall be governed by the terms and conditions of the New Common Facilities O&M Agreement as long as it is in effect.

SECTION 2.4

Provisions Applicable to the Access Easement.

(a)

WEPCO covenants that during the Term a road suitable for use by pedestrians and trucks, automobiles and other vehicles shall be located on the Access Easement Area and shall, in accordance with Prudent Utility Practice, permit the Grantees (and their employees, agents, subcontractors, and representatives) to reasonably access Parcel 2 and the New Common Facilities Easement Area.

(b)

WEPCO shall maintain the Access Easement Area and the roads located therein in accordance with Prudent Utility Practice.  The costs of such maintenance shall be borne by the Parties in accordance with the O&M Agreements; following the expiration or termination of the O&M Agreements the Parties shall negotiate in good faith a new agreement regarding sharing such maintenance costs.  In connection with such maintenance obligation, WEPCO shall have the right from time to time to close temporarily all or any portion of the Access Easement Area for the purpose of making repairs, changes or alterations thereto or performing necessary maintenance in connection with any emergency (including closings resulting from adverse weather conditions); provided, that WEPCO shall promptly perform such repairs, changes, alterations or maintenance, and where access to and from Parcel 2 and/or the New Common Facilities Easement Area is affected, shall provide alternative access.  Such closings, individually or in the aggregate, if performed by WEPCO, shall not (i) materially decrease the Grantees’ rights and benefits hereunder, (ii) have a material adverse effect on the use, operation or 

maintenance of Unit 2 and/or the New Common Facilities as contemplated herein or by the Ground Leases, the Ownership Agreements and/or the O&M Agreements, (iii) other than in a de minimis respect, diminish the fair market value, utility, remaining useful life or residual value of Unit 2 and/or the New Common Facilities as measured immediately prior to such actions, or (iv) cause Unit 2 and/or the New Common Facilities to become “limited use” property within the meaning of Rev.  Proc.  2001-28, 2001-19 I.R.B.  1156.

(c)

WEPCO may modify or relocate the Access Easement Area from time to time, either on a temporary basis (not to exceed two (2) Business Days) or, upon written notice to the Grantees, on a permanent basis, so long as the Access Easement continues to provide reasonable access to Unit 2 and the New Common Facilities over roads satisfying the requirements of Section 2.4(a), and so long as such relocation does not unreasonably interfere with the Grantees’ ownership and siting of Unit 2 and/or the New Common Facilities.  In the event of a permanent modification or relocation of the Access Easement Area, the Parties agree to execute an amendment to this Agreement in recordable form to evidence such modification or relocation.

(d)

Each of the Grantees acknowledges and agrees that its use of the Easements and the Access Easement Area and New Common Facilities Easement Area shall be limited to the use provided for pursuant to the terms and conditions of the Ownership Agreements and the O&M Agreements and in accordance with Prudent Utility Practice.

(e)

Subject to this Agreement, the Grantees shall have no right to improve or alter the Access Easement Area, and such area may also be used by WEPCO and other parties to whom WEPCO grants rights of use.

SECTION 2.5

Request for Documentation.

WEPCO and each of the Grantees acknowledges and agrees that upon reasonable request of a Party, at the cost and expense of the requesting Party, it shall promptly and duly execute and deliver such reasonable documents and further take reasonable action to acknowledge and confirm to the other Parties or third parties specified by the other Parties that (i) fee title to the Land, the Site Improvements, the Existing Units and the Existing Common Facilities remains vested in WEPCO and the Grantees have no rights to all or any portion of the Land except as set forth in this Agreement, and/or (ii) title to Unit 2 and the New Common Facilities is vested in the Unit 2 Owners and the New Common Facilities Owners, respectively, and, except as set forth in this Agreement and/or in the ERGS SC Facility Lease, the Ground Leases, the Ownership Agreements and/or the O&M Agreements, WEPCO has no rights to all or any portion of Unit 2 or the New Common Facilities.

SECTION 2.6

Improvements Not On the Elm Road Site.  

WEPCO hereby agrees that, if at any time on or prior to the end of the Term, any improvement is required or necessary because of applicable Law and/or Prudent Utility Practice for the use, operation and maintenance of Unit 2 and/or the New Common Facilities as contemplated herein or by the Ground Leases, the Ownership Agreements and/or the O&M Agreements and is made in accordance with Prudent Utility Practice, applicable Law and the Ground Lease, and such improvement is or will be located on land outside the boundaries of the 

Elm Road Site, but within the boundaries of the Land, WEPCO shall, subject to its review and approval, which shall not be unreasonably withheld, conditioned or delayed, prior to commencement of such improvement, enter into an amendment to this Agreement or other document (in recordable form reasonably acceptable to the Parties) with the Grantees amending the definitions of Parcel 2, the New Common Facilities Easement Area, the Access Easement Area, and/or the Elm Road Site appropriately to include such additional land that would be necessary and appropriate in connection with the use, operation and maintenance of such improvement to Unit 2 and/or the New Common Facilities to its full use and benefit, all at no cost or expense to WEPCO.  WEPCO and the Grantees agree to cooperate with each other in connection with, and to use commercially reasonable efforts to minimize any costs and expenses (including State of Wisconsin and Milwaukee County and Racine County recordation taxes) to be incurred as a result of, the granting of any such real estate interests. 

SECTION 2.7

Additional Rights.  

WEPCO agrees that if WEPCO grants additional rights to ERGS SC necessary for ERGS SC to have or obtain the enjoyment and benefit of its ownership or use of Unit 2, WEPCO will grant similar rights to WPPI and/or MGE on the same basis, to the extent such rights are necessary for WPPI and/or MGE to have or obtain the enjoyment and benefit of their ownership or use of Unit 2.

ARTICLE III

COMPLIANCE WITH LAW

SECTION 3.1

Compliance with Law.  

Each Grantee’s use of the Easements during the Term shall be in accordance with all applicable Laws and Prudent Utility Practice; provided, however, that the Grantees shall not be obligated to comply with any Laws (a) whose application or validity is being contested diligently and in good faith by appropriate proceedings for the time period of such contest, or (b) compliance with which shall have been excused or exempted by a non-conforming use permit, waiver, extension or forbearance exempting it from such Laws, so long as, in the case of each of clauses (a) or (b) above, such failure of compliance does not result in any material danger of (i) any sale, forfeiture or loss of any part of the Land, or (ii) the subjection of the Land to any Lien, other than Permitted Encumbrances, or (iii) any unindemnified liability or any criminal liability on the part of WEPCO.

ARTICLE IV

CONSIDERATION

SECTION 4.1

Compensation in Consideration of Use.  

In consideration of the rights granted to the Grantees under this Agreement, each Grantee agrees to pay WEPCO an annual fee (the “Annual Fee”) of Fifteen Thousand and 00/100 

Dollars ($15,000.00), except as otherwise provided in this Section 4.1.  If applicable, the Annual Fee shall be prorated for the first and/or last years of the Term of this Agreement.  The Annual Fee shall be payable on the commencement of the Term for each Grantee and on or before each anniversary date of such date thereafter.  In the event of expiration or early termination of the ERGS SC Facility Lease during the Term, and only if WEPCO does not acquire ERGS SC’s ownership share in Unit 2 and the New Common Facilities, then and in such event the Annual Fee for the remainder of the Term shall be equal to each Grantee’s pro-rata share (based on percentage ownership of Unit 2 and the New Common Facilities) of the fair market value of Parcel 2 and the New Common Facilities Easement Area, together with the Access Easement, as determined using the methodology established under the Ground Lease.

SECTION 4.2

Compensation for Site Preparation Costs

In order to compensate WEPCO for costs associated with preparing the Land for the construction of Unit 2 and the New Common Facilities, each Grantee agrees to pay WEPCO such Grantee’s pro-rata share of the Site Preparation Costs (as identified in Schedule 4.2) assigned to Unit 2 based on its ownership interest in Unit 2, contingent upon the commencement of the Term with respect to such Grantee.  Estimates of these costs and the assignment of costs to Unit 2 are indicated in Schedule 4.2 to this Agreement.  Charges shall be based on the actual costs incurred to complete each activity and shall be invoiced to each Grantee upon completion of the activity.  Payment for the charges shall be due 15 business days after the delivery of the invoice, together with supporting documentation.

ARTICLE V

TERM

SECTION 5.1

Term of Easements.  

(a)

This Agreement shall be effective as to all Parties as of the date of its execution as set forth in the opening paragraph.  The Term of this Agreement and the Easements provided hereunder shall commence, for each of MGE Power and WPPI, upon the closing of the acquisition of an ownership interest in Unit 2 by MGE Power and WPPI, respectively, pursuant to Article IV of the Unit 2 Ownership Agreement.  The Term of this Agreement and the Easements provided hereunder shall commence, for WEPCO, upon the first of such closings.  Subject to Section 5.2 below, the Term of this Agreement and the Easements provided hereunder shall continue for each Grantee for so long as such Grantee, or its successors and/or assigns as permitted under the Ownership Agreements, shall be an owner of an undivided interest in Unit 2 and/or the New Common Facilities, or until WEPCO and a Grantee agree in writing to terminate this Agreement as between them, whichever occurs first.  Upon the termination of a Grantee’s (or a Grantee’s successor’s and/or permitted assign’s) ownership interest in Unit 2 and/or the New Common Facilities, such Grantee's respective rights (but not accrued liabilities) under this Agreement shall automatically terminate.

SECTION 5.2

Termination.  

This Agreement shall terminate for each Grantee, in addition to the expiration of the term of this Agreement in accordance with Section 5.1 above, upon the occurrence of any of the following:  (i) retirement of Unit 2 under Article 9.2(b) of the Unit 2 Ownership Agreement and/or Article X of the Unit 2 Ownership Agreement; (ii) the issuance of a final, non-appealable order by a Governmental Authority that invalidates this Agreement or permanently deprives such Grantee of the use and enjoyment of its undivided ownership interest in Unit 2; (iii) a default by such Grantee as set forth in Section 9.19 below; or (iv) as otherwise provided in Section 9.17 below.  In the event of such termination, the applicable Parties agree to execute a written notice of termination and record it with the Registers of Deeds for Milwaukee County and Racine County.

SECTION 5.3

Provisions Related to the Ground Lease.  

Each of the Grantees acknowledges that it has received an executed copy of each of the Ground Leases.  Notwithstanding any provision to the contrary in this Agreement, WEPCO and each of the Grantees further acknowledges and agrees that:

(a)

this Agreement is subject to the terms and conditions of the Ground Leases;

(b)

nothing in this Agreement shall be construed to abrogate or diminish in any way the rights of ERGS SC or its successors and assigns under the Ground Leases;

(c)

as long as the Ground Lease remains in effect or as long as ERGS SC or any of its successors or assigns has fee simple title, a leasehold interest in or is in possession of the Land, or any portion thereof (which shall include any interest of a Leasehold Mortgagee (as defined in the Ground Lease) under a new lease, as contemplated by Section 18.5 of the Ground Lease), neither Grantee shall exercise or enforce the Easements or any other right granted from WEPCO to the Grantees hereunder, in any manner which would diminish, interfere with, or be in conflict, other than in a de minimis respect, with the right and ability of ERGS SC to enjoy its rights and perform its obligations under the Ground Leases; 

(d)

this Agreement shall be subject to the rights of any ERGS SC’s Lender providing financing which is secured by an assignment (whether collaterally or absolutely) of ERGS SC’s rights under the Ground Lease, or evidenced by any other security interest in the Ground Lease, regardless of the date on which such security interest is granted or perfected and as the same may be modified or amended from time to time; provided, however, that the Parties hereto acknowledge and confirm that the ERGS SC Lenders have no authority or legal right to terminate Grantees’ rights hereunder in connection with any foreclosure, action in lieu of foreclosure or similar creditor’s action related to a default by ERGS SC or any permitted assignee under its Financing Documents, in the exercise of its remedies thereunder;

(e)

ERGS SC and ERGS SC’s Lenders, and their respective successors and assigns, shall be third party beneficiaries of the terms and conditions of this Section 5.3.  The designation of ERGS SC and ERGS SC’s Lenders as third party beneficiaries shall not be 

construed as the consent, approval or agreement of ERGS SC or ERGS SC’s Lenders to any of the terms and conditions of this Agreement; and

(f)

WEPCO and the Grantees shall not modify or amend this Agreement in a manner which would diminish or adversely affect the rights of ERGS SC or ERGS SC’s Lenders as third party beneficiaries hereto without the prior consent of such adversely affected party.

ARTICLE VI

ENVIRONMENTAL

SECTION 6.1

Environmental Matters.

(a)

As between WEPCO and the Grantees, the Grantees shall have no responsibility for any costs, claims and liabilities of either environmental compliance or remediation of any Hazardous Materials that is required by any Governmental Authority or Environmental Law, that: (i) arises from events or uses occurring at, in, adjacent to or under the Elm Road Site prior to (or as a condition of) the commencement of construction of Unit 2 and/or the New Common Facilities on the Elm Road Site; (ii) arises from operation of generation or related facilities located at or adjacent to the Elm Road Site as to which the Grantees have no ownership interest or which are not common facilities as to which the Grantees have cost responsibility; or (iii) is otherwise specifically designated in Exhibit E of this Agreement.  

(b)

Each Grantee shall have no liability under this Agreement to any third parties resulting from any Hazardous Materials at, in, adjacent to or under the Elm Road Site that:  (i) exist on the Elm Road Site prior to the commencement of construction of Unit 2 and/or the New Common Facilities; or (ii) arise from operation of generation or related facilities located at or adjacent to the Elm Road Site as to which the Grantees have no ownership interest or which are common facilities as to which the Grantees have no cost responsibility or partial ownership.

(c)

WEPCO shall indemnify and defend each Grantee from and against any and all costs, claims, and liabilities to the extent that such Grantee has no responsibility and no liability for such costs, claims and liabilities pursuant to Section 6.1(a) and Section 6.1(b) of this Agreement.

(d)

Each Grantee shall indemnify and defend WEPCO and the other Grantee from, and hold them harmless against, any and all Environmental Claims imposed on, asserted against or incurred by WEPCO and/or the other Grantee to the extent they arise from the indemnifying Grantee’s (i) acts or omissions on or about the Elm Road Site, (ii) exercise of any rights granted in the Ownership Agreements, O&M Agreements or MGE Facility Lease, or (iii) violation of or liability otherwise arising under any applicable Law, including Environmental Laws.

(e)

WEPCO shall not assert any claims under the O&M Agreements for contribution, cost recovery or otherwise, against the Grantees or their Affiliates for environmental contaminants for which the Grantees have no responsibility and no liability pursuant to this Agreement.  

(f)

Notwithstanding the foregoing, WEPCO shall have the right to contest any environmental compliance or remediation sought or required by a Governmental Authority or any third-party claims or liabilities.

(g)

If an Environmental Claim is made which WEPCO and one or both of the Grantees each partially caused, contributed to or is otherwise liable for, then the liability for the same shall be borne by WEPCO and the applicable Grantee(s) in proportion to their respective fault.

(h)

The provisions of this Section 6.1 shall survive the expiration, early termination or surrender of this Agreement.

SECTION 6.2

Indemnification Procedures.  

(a)

Cooperation Regarding Environmental Claims.  For purposes of this Section 6.2, a Party that has an obligation of indemnification under Article VI of this Agreement is referred to as an “Environmental Indemnitor” and a Party that is being indemnified under Article VI of this Agreement (including its officers, directors, employees, representatives and agents) is referred to as an “Environmental Indemnitee.”  If any Environmental Indemnitee receives notice or has knowledge of any Environmental Claim that may result in a claim for indemnification under Section 6.1 by such Environmental Indemnitee against an Environmental Indemnitor pursuant to this Article VI, such Environmental Indemnitee shall as promptly as possible give the Environmental Indemnitor notice of such Environmental Claim, including a reasonably detailed description of the facts and circumstances relating to such Environmental Claim, a complete copy of all notices, pleadings and other papers related thereto, and in reasonable detail the basis for its environmental claim for indemnification with respect thereto.  Failure to promptly give such notice or to provide such information and documents shall not relieve the Environmental Indemnitor from the obligation hereunder to respond to or defend the Environmental Indemnitee against such Environmental Claim unless such failure shall materially diminish the ability of the Environmental Indemnitor to respond to or to defend the Environmental Indemnitee against such Environmental Claim.  The Environmental Indemnitor, upon its acknowledgment in writing of its obligation to indemnify the Environmental Indemnitee in accordance with this Article VI shall be entitled to assume the defense or to represent the interest of the Environmental Indemnitee, as the case may be, with respect to such Environmental Claim, which shall include the right to select and direct legal counsel and other consultants, appear in proceedings on behalf of such and to propose, accept or reject offers of settlement, all at its sole cost.  If and to the extent that any Environmental Claim is other than for money damages, then (i) the terms of the foregoing sentence shall not apply, (ii) WEPCO shall be entitled to assume the defense with respect to the Environmental Claim, which shall include the right to select and direct legal counsel and other consultants, which shall be paid for by the Environmental Indemnitor, and (iii) any settlement will be subject to the reasonable approval of any other Party affected by its terms.  Nothing herein shall prevent an Environmental Indemnitee from retaining its own legal counsel and other consultants and participating in its own defense at its own cost and expense.  The Parties shall cooperate with each other in any notification to insurers.

(b)

Limitation on Liability.  Notwithstanding any provision in this Agreement to the contrary, no Party shall be liable under this Agreement for any consequential or indirect loss or damage, including loss of profit, cost of capital, loss of goodwill, replacement power, loss of revenue from the sale of capacity or energy or any other special, punitive or incidental damages.

ARTICLE VII

INDEMNIFICATION; INDEMNIFICATION PROCEDURE

SECTION 7.1

General Indemnity.

(a)

Each Party (an “Indemnitor”) shall indemnify the other Parties, their respective officers, directors, employees, representatives and agents (each an “Indemnitee”) from, and hold each of them harmless against, any and all Claims that may at any time be imposed on, asserted against, or incurred by, any Indemnitee as a result of, or arising out of, or in any way related to (a) the execution, delivery or performance by the Indemnitor of this Agreement, (b) any breach or default by the Indemnitor of any of its covenants or representations and warranties under this Agreement, (c) any violation by the Indemnitor of any applicable Law or Government Approval, and (d) any liability to any Person arising out of the management, use, control, ownership or operation, as the case may be, by the Indemnitor of Unit 2 and/or the New Common Facilities, or the Elm Road Site; provided, however, that in no event shall an Indemnitee be indemnified for any Claims caused by reason of the Gross Negligence or willful misconduct of such Indemnitee.

(b)

The provisions of this Section 7.1 shall survive the expiration, early termination or surrender of this Agreement.

(c)

The provisions of this Article VII shall not apply to Environmental Claims made pursuant to Article VI.

SECTION 7.2

Indemnification Procedures.

(a)

Cooperation Regarding Claims.  If any Indemnitee receives notice or has knowledge of any Claim that may result in a claim for indemnification by such Indemnitee against an Indemnitor pursuant to this Article VII, such Indemnitee shall as promptly as possible give the Indemnitor notice of such Claim, including a reasonably detailed description of the facts and circumstances relating to such Claim, a complete copy of all notices, pleadings and other papers related thereto, and in reasonable detail the basis for its claim for indemnification with respect thereto.  Failure to promptly give such notice or to provide such information and documents shall not relieve the Indemnitor from the obligation hereunder to respond to or defend the Indemnitee against such Claim unless such failure shall materially diminish the ability of the Indemnitor to respond to or to defend the Indemnitee against such Claim.  The Indemnitor, upon its acknowledgment in writing of its obligation to indemnify the Indemnitee in accordance with this Article VII shall be entitled to assume the defense or to represent the interest of the Indemnitee, as the case may be, with respect to such Claim, which shall include the right to select and direct legal counsel and other consultants, appear in proceedings on behalf of such and to propose, accept or reject offers of settlement, all at its sole cost.  If and to the extent that any Claim is other than for money damages, then (i) the terms of the foregoing sentence shall not 

apply, (ii) WEPCO shall be entitled to assume the defense with respect to the Claim, which shall include the right to select and direct legal counsel and other consultants, which shall be paid for by the Indemnitor, and (iii) any settlement will be subject to the reasonable approval of any other Party affected by its terms.  Nothing herein shall prevent an Indemnitee from retaining its own legal counsel and other consultants and participating in its own defense at its own cost and expense.  The Parties shall cooperate with each other in any notification to insurers.

(b)

Limitation on Liability.  Notwithstanding any provision in this Agreement to the contrary, no Party shall be liable under this Agreement for any consequential or indirect loss or damage, including loss of profit, cost of capital, loss of goodwill, replacement power, loss of revenue from the sale of capacity or energy or any other special, punitive or incidental damages.

ARTICLE VIII

ASSIGNABILITY; WEPCO AND GRANTEES RIGHT TO GRANT SECURITY INTEREST IN THIS AGREEMENT; LENDER PROTECTIVE PROVISIONS

SECTION 8.1

Assignability.  

The rights of a Grantee under this Agreement may not be transferred, assigned or subdivided except in connection with a permitted transfer of such Grantee’s ownership interest in Unit 2 and the New Common Facilities under the Ownership Agreements in which case a transfer or assignment shall be permitted hereunder to a transferee permitted under the terms of the Ownership Agreements.  For the avoidance of doubt, WEPCO agrees that MGE Power may assign its rights and delegate its obligations hereunder to MGE pursuant to the Assignment of Easement.  In the event of any such permitted transfer, the transferring Grantee agrees to provide WEPCO with written notice of the transfer (including the name of the transferee and a written assumption of this Agreement by such transferee in form and substance satisfactory to WEPCO) within ten days after the effective date of transfer.

SECTION 8.2

Non-Disturbance.  

WEPCO shall obtain from any WEPCO Lender holding a mortgage, deed to secure debt or other security instrument placed against the Elm Road Site, either prior to or at any time after the commencement of the Term hereof in accordance with Section 5.1, an agreement substantially in the form of Schedule 8.2, which provides that in the event of any foreclosure, sale under power of sale or transfer in lieu of any of the foregoing pursuant to any security instrument, Grantee’s use, operation, possession and enjoyment of the Easements and its rights hereunder shall not be disturbed or interrupted and this Agreement shall not terminate and shall continue in full force and effect.

SECTION 8.3

Modification to Easement Agreement Upon Request by a Lender.  

If, in connection with WEPCO obtaining financing to be secured with a Lien upon all or any portion of the Land or its interest in this Agreement, WEPCO’s Lender shall request any modification(s) to this Agreement as a condition to such financing, WEPCO and Grantees covenant and agree to make such modifications to this Agreement as reasonably requested by WEPCO’s Lender, including the creation of such instrument (in recordable form to the extent 

required) effecting such modification(s), provided that such modification(s) do not materially increase the obligations or reduce the rights of the Parties hereunder or materially adversely (other than in a de minimis respect) affect the Easements and/or Grantees’ rights to own and site Unit 2 and the New Common Facilities. 

SECTION 8.4

No Liens or Encumbrances.

(a)

Each Grantee hereby covenants that it shall not, as a result of any act or omission of such Grantee, directly or indirectly, create, incur, assume or suffer to exist any Liens on or with respect to the Land, Site Improvements, Existing Units or Existing Common Facilities or WEPCO’s title thereto or interest therein, as the case may be.  Each Grantee shall promptly notify WEPCO of the imposition of any such Lien of which such Grantee is aware and shall promptly, at its own expense, take such action as may be necessary to fully discharge or release any such Lien or contest any such Lien in good faith and with due diligence by appropriate legal proceedings and such Grantee shall provide WEPCO with such security as may be reasonably required by WEPCO in connection with any such contest.  

(b)

WEPCO hereby covenants that it shall not, as a result of any act or omission of WEPCO, directly or indirectly, create, incur, assume or suffer to exist any Liens on or with respect to the Elm Road Site, other than the Permitted Encumbrances.  WEPCO shall promptly notify the Grantees of the imposition of any such Lien not permitted above of which WEPCO is aware and shall promptly, at its own expense, take such action as may be necessary to discharge or to release fully any such Lien or contest any such Lien in good faith and with due diligence by appropriate legal proceedings and WEPCO shall provide the Grantees with such security as may be reasonably required by the Grantees in connection with any such contest.   

SECTION 8.5

Grantee’s Right to Grant Security Interests in This Agreement.

(a)

During the Term, each Grantee shall have the right to assign as collateral, encumber, pledge or hypothecate its interest in this Agreement (any such encumbrance, pledge, hypothecation or assignment, a “Collateral Lien”) in favor of or to any Lender providing financing to such Grantee in connection with Unit 2 and/or the New Common Facilities (a “Secured Lender”).  Grantee shall give advance written notice to WEPCO of the creation of any Collateral Lien.

(b)

Upon full payment to the Secured Lenders and in any event not later than the end of the Term, each Grantee shall obtain and record, at its cost and expense, a release or other document required in order to effectuate a release of any Collateral Liens it has created in favor of its Secured Lenders.  The obligations of the Grantees contained in this Section 8.5(b) shall survive the expiration, early termination or surrender of this Agreement.

SECTION 8.6

Notices.  

Any notice of default given by WEPCO to a Grantee shall state the nature of the alleged default and shall specify the amounts of Annual Fee or other payments herein provided for, if any, that are claimed to be in default and each Grantee shall have the right to provide its Secured Lenders with all notices it receives pursuant to this Agreement.

SECTION 8.7

Cure Rights.  

During the existence of a default by a Grantee hereunder, WEPCO shall accept any timely curative acts undertaken by or at the instigation of such Grantee’s Secured Lender(s) as if the same had been undertaken by the Grantee.

SECTION 8.8

Assignment In A Foreclosure Action.  

A Grantee’s interest in this Agreement may be assigned pursuant to judicial or non-judicial foreclosure or, with WEPCO’s prior written approval, not to be unreasonably withheld, delayed, or conditioned, a conveyance in lieu of foreclosure (a “Foreclosure Transfer”) to any Person, provided such Person assumes in writing the obligations of such Grantee hereunder and under each of the Ownership Agreements and any applicable O&M Agreement and such assumptions are in accordance with the terms thereof.  Any such transferee under a Foreclosure Transfer, and any Person that acquires a Grantee’s interest under a new easement agreement pursuant to Section 8.9, may assign this Agreement or such new easement agreement in accordance with the terms of this Agreement and, provided that such assignee enters into a written assumption of liabilities in form and substance reasonably acceptable to WEPCO, shall thereupon be released from all liability as a Grantee under this Agreement from and after the date of such assignment.

SECTION 8.9

New Agreement.  

If this Agreement, without the consent of the applicable Secured Lender, is terminated with respect to a Grantee for any reason prior to its stated Term, then WEPCO shall, upon written request from the Secured Lender made within thirty (30) days after such termination, and provided that the Secured Lender is the owner of an undivided interest in Unit 2 and/or  the New Common Facilities, enter into a new agreement regarding the Easements with such Secured Lender timely requesting such a new agreement.  The new agreement shall be on substantially the same terms and conditions as this Agreement and shall have the same priority as this Agreement; provided, that notwithstanding the foregoing, WEPCO shall not be responsible for removing or satisfying any Lien which is not attributable to WEPCO.  WEPCO’s obligation to enter into the new agreement shall be conditioned upon the following:  (a) the Secured Lender shall have cured all payment and non-payment defaults, and (b) the Secured Lender shall reimburse WEPCO for all reasonable costs and expenses incurred in entering into the new easement agreement. 

SECTION 8.10

No Merger.  

In the event that a Grantee acquires the fee estate in Parcel 2, the Easements created pursuant to this Agreement shall not merge out of existence but instead shall be, become and continue as an encumbrance of the entire interests of such Grantee in the real property.

ARTICLE IX

MISCELLANEOUS

SECTION 9.1

No Easement by Prescription.  

Each Grantee agrees that its past, present, or future use of the Elm Road Site shall not be deemed to permit the creation or further the existence of prescriptive easement or the procurement of title by adverse possession with respect to all or any portion of the Land.  Each Grantee agrees that all of its rights in the Land are governed exclusively by this Agreement.  Each Grantee further agrees that the rights granted hereunder do not create in the public any right to enter or use the Land, or any portion thereof, for any reason whatsoever.

SECTION 9.2

Binding Effect; Successors and Assigns.  

The benefits and burdens of the Easements shall run with the land and shall be binding upon and benefit and burden WEPCO and all subsequent owners of the Elm Road Site.  This Agreement and the terms and provisions hereof shall be binding upon the Parties hereto and their respective successors and permitted assigns.

SECTION 9.3

Waiver or Consent.  

No waiver of, acquiescence in, or consent to any breach of any term, condition, or covenant contained herein shall be construed as or constitute a waiver of, acquiescence in, or consent to any other, further, or succeeding breach of the same or of any other term, condition, or covenant contained herein.

SECTION 9.4

Notices.  

Unless otherwise expressly specified or permitted by the terms of this Agreement, all communications and notices provided for herein shall be in writing or shall be produced by a telecommunications device capable of creating a written record, and any such notice shall become effective (a) upon personal delivery thereof, including by overnight mail or next Business Day or courier service, (b) in the case of notice by United States mail, certified or registered, postage prepaid, return receipt requested, upon receipt thereof, or (c) in the case of notice by such a telecommunications device, upon transmission thereof, provided such transmission is promptly confirmed by either of the methods set forth in clauses (a) or (b) above, in each case addressed as provided below or to such other address as any party may designate by written notice to the other parties:

If to WEPCO:

Wisconsin Electric Power Company

231 W.  Michigan Street

Milwaukee, WI  53203

Attn:    General Counsel

Vice President – Fossil Operations

If to MGE Power:

MGE Power  Elm Road, LLC

P.O. Box 1231

Madison, WI 53701

Attn:  

Chief Financial Officer

General Counsel

Vice President Power Operations

If to WPPI:

Wisconsin Public Power Inc.

1425 Corporate Center Drive

Sun Prairie, WI 5359-9109

Attn:   

Senior Vice President – Legal and

               Regulatory Affairs

Senior Vice President – Power Supply

SECTION 9.5

Applicable Law.  

THE RIGHTS AND OBLIGATIONS OF WEPCO AND GRANTEES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF WISCONSIN.

SECTION 9.6

Jury Trials.  

EACH OF WEPCO AND GRANTEES WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

SECTION 9.7

Severability.  

Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement shall be prohibited by or deemed invalid under any applicable Law, such provision shall be ineffective to 

the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

SECTION 9.8

Entire Agreement.  

This Agreement states the rights and obligations of WEPCO and Grantees with respect to Easements and the other transactions contemplated by this Agreement, and supersedes all prior agreements, oral or written, with respect thereto.

SECTION 9.9

Amendments and Waivers.  

No term, covenant, agreement or condition of this Agreement may be amended or compliance therewith waived (either generally or in a particular instance, retroactively or prospectively) except by an instrument or instruments in recordable form executed by both WEPCO and Grantees.  The Parties agree to promptly record such instrument or instruments and the cost thereof shall be shared equally by the Parties.

SECTION 9.10

Counterparts.  

This Agreement may be executed in one or more counterparts, each of which will be deemed an original.

SECTION 9.11

Headings and Table of Contents.  

Section headings in this Agreement (including the Schedules, Annexes and Exhibits hereto) are for the convenience of reference only and shall not affect the construction or interpretation of this Agreement.

SECTION 9.12

Exhibits.  

The Exhibits attached hereto, along with all attachments referenced therein, are incorporated herein by reference and made a part hereof.

SECTION 9.13

No Joint Venture.  

Any intention to create a joint venture or partnership relation between any of the Parties to this Agreement is hereby expressly disclaimed.

SECTION 9.14

Third-Party Beneficiaries.  

Except as expressly provided herein (including with reference to WEPCO’s or Grantees’ Lenders), none of the provisions of this Agreement are intended for the benefit of any Person except WEPCO and Grantees, and their respective successors and permitted assigns.

SECTION 9.15

Further Assurances.  

WEPCO and each Grantee shall promptly and duly execute and deliver such further documents and assurances for and take such further action reasonably requested by the other Party, all as may be reasonably necessary to carry out the purpose of this Agreement, including, 

but not limited to, structuring arrangements to permit a Party or its Affiliate to seek revenue recovery from the Public Service Commission of Wisconsin.

SECTION 9.16

Survival.  

Except as expressly provided herein, and except for accrued monetary obligations, the warranties and covenants made by each Party shall not survive the expiration, early termination or surrender of this Agreement in accordance with its terms.

SECTION 9.17

Measuring Life.  

If and to the extent that any of the rights and privileges granted under this Agreement, would, in the absence of the limitation imposed by this sentence, be invalid or unenforceable as being in violation of the rule against perpetuities or any other rule or law relating to the vesting of interests in property or the suspension of the power of alienation of property, then it is agreed that notwithstanding any other provision of this Agreement, such options, rights and privileges, subject to the respective conditions hereof governing the exercise of such options, rights and privileges, shall be exercisable only during (a) the longer of (i) a period which will end twenty-one (21) years after the death of the last survivor of the descendants living on the date of the execution of this Agreement of the following Presidents of the United States:  Franklin D.  Roosevelt, Harry S.  Truman, Dwight D.  Eisen­hower, John F.  Kennedy, Lyndon B.  Johnson, Richard M.  Nixon, Gerald R.  Ford, James E.  Carter, Ronald W.  Reagan, George H.W.  Bush, William J.  Clinton and George W.  Bush or (ii) the period provided under the Uniform Statutory Rule Against Perpetuities or (b) the specified applicable period of time expressed in this Agreement, whichever of (a) and (b) is shorter.

SECTION 9.18

Certificates.  

Any Party shall, without charge, at any time and from time to time hereafter, within thirty (30) days after written request of any other Party, certify by written instrument duly executed and acknowledged to any mortgagee, Lender or purchaser, or proposed mortgagee, proposed Lender or proposed purchaser, or any other Person specified in such request: (a) as to whether this Agreement has been supplemented or amended, and, if so, the substance and manner of such supplement or amendment; (b) as to the validity and force and effect of this Agreement, in accordance with its tenor as then constituted; (c) as to the existence of any default under this Agreement; (d) as to the existence of any offsets, counterclaims or defenses thereto on the part of such other Party; (e) as to the commencement and expiration dates of the Term of this Agreement; (f) as to the Annual Fee payable hereunder and the date through which such Annual Fee has been paid; and (g) as to any other matters as may reasonably be so requested.  Any such certificate may be relied upon by the Party requesting it and any other Person to whom the same may be exhibited or delivered, and the contents of such certificate shall be binding on the Party executing same.

SECTION 9.19

Default and Remedies.  

In the event that any Party defaults in the performance of any obligation set forth in this Agreement, which default continues for a period of thirty (30) days after receipt of written notice thereof by a non-defaulting Party (except that (i) such thirty (30) day period shall be reduced to 

ten (10) days in the event of a monetary default, and no notice shall be required at all after the second monetary default in any calendar year, and (ii) such thirty (30) day period shall be extended for up to an additional ninety (90) days in the event of a default that cannot be cured within thirty days through the exercise of diligent efforts, provided that such Party continues to use diligent efforts to cure the default), then each non-defaulting Party shall have the right to exercise all available rights, and pursue all available remedies, at law and in equity. 

SECTION 9.20

Recordation.

Upon the commencement of the Term for WEPCO, this Agreement shall be filed and recorded with the Registers of Deeds for Milwaukee County and Racine County, and the costs of such recording and filing shall be the responsibility of Grantees.

SECTION 9.21

Waiver of Right to Partition.

To the maximum extent permitted by Law, each of the Parties, on its own behalf and on behalf of its successors and assigns, hereby waives any right, whether pursuant to statute or common law, to partition the Elm Road Site or any interest or portion thereof, including the Easements or any interest or portion thereof, and such waiver shall remain in effect until expiration, early termination or surrender of this Agreement.  Each of Parties agrees not to commence during the Term any action or proceeding of any kind seeking any form of partition of the Elm Road Site or any interest or portion thereof, including the Easements or any interest or portion thereof, with respect thereto.  Each of the Parties agrees to incorporate this waiver in all deeds, deeds of trust, mortgages, and instruments of conveyance relating to the Elm Road Site or any interest or portion thereof.  

ARTICLE X

REPRESENTATIONS AND WARRANTIES

SECTION 10.1

Representations and Warranties  

WEPCO and each Grantee represents and warrants to the other Parties, as of the date of execution of this Agreement as follows:

(a)

Due Organization.  It: (i) is duly formed, validly existing and in good standing under the Laws of the State of Wisconsin; (ii) has all requisite power and all material Government Approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (iii) is duly qualified to do business in all jurisdictions in which the nature of the business conducted by it or proposed to be conducted by it makes such qualification necessary.

(b)

Due Authorization.  It has all necessary corporate power and authority to execute, deliver and perform its obligations under this Agreement, and the execution, delivery and performance by it of this Agreement have been duly authorized by all necessary corporate action on its part.

(c)

Non-Contravention.  The execution, delivery and performance by it of this Agreement does not and shall not:

(i)

violate its organic documents;

(ii)

violate any Law or Government Approval applicable to it or its property or any right or interest in the Elm Road Site;

(iii)

result in a breach of or constitute a default under the terms of any material agreement to which it is a party; or

(iv)

result in, or require the creation or imposition of, any lien (other than a Permitted Encumbrance) on any of its properties.

(d)

Enforceability.  This Agreement: (i) has been duly authorized and duly and validly executed and delivered by it; and (ii) assuming the due authorization, execution and delivery thereof by the other Parties, constitutes its legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights generally and by general principles of equity.

(e)

Litigation.  Except as disclosed in writing to the other Parties, no court order or judgment or arbitral award or decision has been issued and is outstanding with respect to it or any of its properties, rights or assets (including the Elm Road Site, Site Improvements, Unit 2 and the New Common Facilities) which prohibits it from executing or delivering this Agreement or performing in any material respect its obligations under this Agreement.

(f)

Government Approvals.  Except as disclosed in writing to the other Parties, all Government Approvals that are required by applicable Law to be obtained prior to the date on which this representation and warranty is made in connection with the execution and delivery by it of this Agreement and the performance by it of its material obligations under this Agreement have been obtained and are in full force and effect and free from conditions or requirements (i) compliance with which could reasonably be expected to have a material adverse effect on its ability to perform its material obligations under this Agreement or the validity or enforceability of this Agreement or (ii) which it does not reasonably expect to be able to satisfy.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.  

WISCONSIN ELECTRIC POWER COMPANY, a Wisconsin corporation

By: /s/ Scott A. Patulski

Title: Vice President

MGE POWER ELM ROAD, LLC, a 

Wisconsin limited liability company

By: /s/ Gary J. Wolter

Title: Manager

WISCONSIN PUBLIC POWER INC., a Wisconsin municipal electric company

By: /s/ J. Leroy Thilly

Title: President and CEO

STATE OF WISCONSIN 

)

)SS.

COUNTY OF 

          

)

Personally came before me this             day of                           , 200__ the above-named 

, the 

        of Wisconsin Electric Power Company, to me known to be the person who executed the foregoing instrument and acknowledged the same on behalf of said corporation.

___________________________________ 

Print Name:  _________________________ 

    County, State of Wisconsin

My Commission:  _____________________

STATE OF WISCONSIN 

)

)SS.

COUNTY OF 

          

)

Personally came before me this             day of                           , 200__ the above-named

, the 

        of MGE Power Elm Road, LLC, to me known to be the person who executed the foregoing instrument and acknowledged the same on behalf of said limited liability company.

___________________________________ 

Print Name:  _________________________ 

    County, State of Wisconsin

My Commission:  _____________________

STATE OF WISCONSIN 

)

)SS.

COUNTY OF 

          

)

Personally came before me this             day of                           , 2004 the above-named 

, the 

        of Wisconsin Public Power Inc., to me known to be the person who executed the foregoing instrument and acknowledged the same on behalf of said corporation.

___________________________________ 

Print Name:  _________________________ 

    County, State of Wisconsin

My Commission:  _____________________

This document was drafted by, and after recording should be returned to: Kenneth C.H. Willig, Piper Rudnick, LLP, 1251 Avenue of the Americas, New York, NY 10020.

EXHIBIT A

Legal Description of the Land

Parcel Identification Numbers: _________________________

EXHIBIT A

Area "A"

Being part of the Northwest 1/4 and the Northeast Fractional 1/4 of Section 36, Town 5 North, Range 22 East and the Northwest Fractional 1/4 of Section 31, Town 5 North, Range 23 East, City of Oak Creek, Milwaukee County, Wisconsin, bounded and described as follows:

Commencing at the Northwest corner of the aforesaid Northeast Fractional 1/4 of Section 36; thence N89°49'27'E along the North line of said Northeast Fractional 1/4 of Section 36, 2199.57 feet to a point on the East line of East Oakwood Road as delineated by the aforesaid City of Oak Creek, said point also being a meander corner on said North line and the point of beginning; thence S21°09'39"E along a meander line, 1210.79 feet to a meander corner on the East line of said Northeast Fractional 1/4 of Section 36; thence S25°43'15"E along a meander line, 1669.86 feet to a point on the East line of East Elm Road as delineated by the aforesaid City of Oak Creek, said point also being a meander corner on the South line of the aforesaid Northwest Fraction 1/4 of Section 31; thence S89°11'23"W along said South line, 702.85 feet to the Southeast corner of the aforesaid Northeast Fractional 1/4 of Section 36; thence S89°44'16"W along the South line of the said Northeast Fractional 1/4 Section 36, 2389.50 feet to a point on the Easterly line of the Chicago and North Western Transportation Company right-of-way; thence N21°17'33"W along said Easterly line, 2803.75 feet to an iron pipe found and a point on the South line of the aforesaid East Oakwood Road; thence N89°49'19"E along said South line, 194.06 feet to the Westerly line of Lot 1, Certified Survey Map (C.S.M.) No. 5261; thence S21°17'33"E along said Westerly line, 911.31 feet to an iron rod found; thence N89°46'47"E along the South line of said Lot 1, 366.42 feet to a iron rod found; thence N00°40'16"W along the East line of said Lot 1 and the West line of Lot 2, C.S.M. No. 88, 822.89 feet to a point on the South line of the aforesaid East Oakwood Road, said point also being the Northwest corner of Lot 2, Certified Survey Map No. 88; thence N89°49'27"E along said South line, 528.00 feet to an iron pipe found; thence N00°40'16"W along said South line, 27.00 feet; thence N89°49'27"E along said South line, 1539.27 feet to a point on the aforesaid East line of East Oakwood Road; thence N00°10'33"W along said East line, 33.00 feet to the point of beginning, expecting the Southerly 33 feet West of the meander corner dedicated for road purposes, together with that part of the  aforesaid Northeast Fractional 1/4 Section 36 and that part of the aforesaid Northwest Fractional 1/4 of Section 31 lying East of the aforesaid meander lines and West of the Westerly boundary of Lake Michigan.  Containing 193.8592 acres (8,444,507 Sq. Ft.) more or less of land gross to the Westerly boundary of Lake Michigan, 166.9345 acres (7,271,667 Sq. Ft.) more or less of land net to said meander lines.  Subject to riparian rights, covenants, conditions, restrictions and easements of record.

Area "B"

Being part of the Southeast 1/4 Section 36, Town 5, Range 22 East and the Southwest Fractional 1/4 of Section 31, Town 5 North, Range 23 East, City of Oak Creek, Milwaukee County, Wisconsin, bounded and described as follows:

Beginning at the Northeast corner of the aforesaid Southeast 1/4 of Section 36; thence N89°11'23"E along the North line of the aforesaid Southwest Fractional 1/4 of Section 31, 702.85 feet to a meander corner on said North line; thence S20°44'41"E along a meander line, 2795.19 feet to a meaner corner on the South line of the aforesaid Southwest Fractional 1/4 of  Section 31; thence S89°12'43"W along said South line, 1655.56 feet to the Southeast corner of 

EXHIBIT A

the aforesaid Southeast 1/4 of Section 36; thence S89°13'29"W along the South line of said Southeast 1/4, 1346.79 feet to the Easterly line of the Chicago and North Western Transportation Company right-of-way; thence N21°17'33"W along said Easterly line, 750.00 feet; thence continuing along said Easterly line, N51°17'33"W, 100 feet; thence continuing along said Easterly line, N21°17'33"W, 2009.95 feet to a point on the North line of the aforesaid Southeast 1/4 of Section 36; thence N89°44'16"E along said North line, 2389.50 feet to the point of beginning, excepting the Northerly 33 feet West of the meander corner dedicated for road purposes, together with that part of the aforesaid Southwest Fractional 1/4 of Section 31 lying East of the aforesaid meander line and West of the Westerly boundary of Lake Michigan. Containing 241.3945 acres (10,515,143 Sq. Ft.) more or less of land gross to the Westerly boundary of Lake Michigan, 182.5011 acres (7,949,748 Sq. Ft.) more or less of land net to said meander line.  Subject to riparian rights, covenants, conditions, restrictions and easements of record.

Area "C"

Being part of the Northeast 1/4 of Section 1, Town 4 North, Range 22 East and the North Fractional 1/2 of Section 6, Town 4 North, Range 23 East, Town of Caledonia, Racine County, Wisconsin, bounded and described as follows:

Beginning at the Northeast corner of the aforesaid Northeast 1/4 of Section 1; thence N89°12'43"E along the North line of the aforesaid North Fractional 1/2 of Section 6, 1655.55 feet to a meander corner on said North line; thence S20°46'04"E along a meander line, 1472.36 feet to a point on the North line of the South 80 acres of said North Fractional 1/2 of Section 6; thence S85°31'53"W along said North line, 2162.64 feet to a point on the East line of the aforesaid Northeast 1/4 of Section 1, said point being 1522.57 feet South of the Northeast corner of the aforesaid Northeast 1/4 of Section 1 as measured along said East line; thence S00°48'20"E along said East line, 1119.17 feet to the Southeast corner of said Northeast 1/4 of Section 1; thence N88°30'37"W along the South line of said Northeast 1/4 of Section 1, 419.49 feet to a point on the Easterly line of the Chicago and North Western Transportation Company right-of-way; thence N21°17'33"W along said Easterly line, 2684.25 feet; thence continuing along said Easterly line, N68°42'27"E, 50.00 feet; thence continuing along said Easterly line, N21°17'33"W, 100.00 feet to a point on the North line of said Northeast 1/4 of Section 1; thence N89°13'29"E along said North line, 1346.79 feet to the point of beginning, together with that part of the aforesaid North Fractional 1/2 of Section 6 lying East of the aforesaid meander line, North of the aforesaid North line of the South 80 acres and West of the Westerly boundary of Lake Michigan.  Containing 139.1991 acres (6,063,511 Sq. Ft.) more or less of land gross to the Westerly boundary of Lake Michigan, 118.7895 acres (5,174,472 Sq. Ft.) more or less of land net to said meander line. Subject to riparian rights, covenants, conditions, restrictions and easements of record.

Area "D"

Being part of the Southeast 1/4 of Section 1, Town 4 North, Range 22 East and the South Fractional 1/2 of Section 6, Town 4 North, Range 23 East, Town of Caledonia, Racine County, Wisconsin, bounded and described as follows:

Beginning at the Northeast corner of the aforesaid Southeast 1/4 of Section 1; thence N85°31'53"E along the North line of the aforesaid South Fractional 1/2 of Section 6, 2560.72 feet to a meander line intersecting said North line; thence S20°46'04"E along said meander line, 292.10 feet to a meander corner on the North and South 1/4 line of said South Fractional 1/2 of Section 6; thence S30°47'21"E along a meander line, 2627.79 feet to a meander corner on the 

EXHIBIT A

South line of said South Fractional 1/2 of Section 6; thence S85°36'59"W along said South line, 1329.18 feet to the South of said South Fractional 1/2 of Section 6; thence N00°28'53"W along the aforesaid North and South 1/4 line, 1791.96 feet to the South line of the North 12.82 chains of Southwest 1/4 of said Section 6; thence S85°31'53"W along said South line of the North 12.82 chains, 2647.20 feet to the Easterly line of Tax Key No. 06-013-000, said Easterly line also being the Westerly line of Certified Survey map No. 1189; thence S21°16'53"E along said Easterly line, 1832.97 feet to an iron pipe found and the North line of Seven Mile Road; thence S85°31'53"W along said North line, 104.47 feet to the Easterly line of the Chicago and North Western Transportation Company right-of-way; thence N21°16'53"W along said Easterly line, 2762.36 feet to a point on the North line of the aforesaid Southeast 1/4 of Section 1; thence S88°30'37"E along said North line, 419.49 feet to the point of beginning, together with that part of the aforesaid South Fractional 1/2 of Section 6 lying East of the aforesaid meander lines and West of the Westerly boundary of Lake Michigan. Containing 128.6296 acres (5,603,106 Sq. Ft.) more or less of land gross to the Westerly boundary of Lake Michigan, 96.4971 acres (4,203,413 Sq. Ft.) more or less of land net to said meander line. Subject to riparian rights, covenants, conditions, restrictions and easements of record.

Area "E"

Being part of the Northwest 1/4 of the Northwest 1/4 of Section 7, Town 4 North, Range 23 East, Town of Caledonia, Racine County, Wisconsin, bounded and described as follows:

Commencing at the Northwest corner of the aforesaid Northwest 1/4 of Section 7; thence N85°31'54"E along the North line of said Northwest 1/4 of Section 7, 469.66 feet to a point on the Westerly line of the Chicago and North Western Transportation Company right-of-way; thence S21°21'16"E along said Westerly line, 34.49 feet to a point on the South line of Seven Mile Road, said point also being the point of beginning; thence continuing S21°21'16"E along said Westerly line, 767.80 feet; thence S85°31'54"W, 717.72 feet; thence N00°53'05"W, parallel to and 33.00 feet East of (as measured at right angles to) the West line of the aforesaid Northwest 1/4 of Section 7, 736.14 feet to a point on the aforesaid South line of Seven Mile Road, thence N85°31'54"E along said South line, 448.68 feet to the point of beginning.   Containing 9.8364 acres (428,473 Sq. Ft.) more or less of land. Subject to covenants, conditions, restrictions and easements of record.

Area "F"

Being part of the Northeast 1/4 of Section 12, Town 4 North, Range 22 East, Town of Caledonia, Racine County, Wisconsin, bounded and described as follows:

Commencing at the Northeast corner of the aforesaid Northeast 1/4 of Section 12; thence S00°53'05"E along the East line of said Northeast 1/4 of Section 12, 144.60 feet; thence N88°40'57"W parallel to the North line of said Northeast 1/4 of Section 12, 33.02 feet to the point of beginning; thence S00°53'05"E parallel to and 33.00 feet West of (as measured at right angles to) the aforesaid East line of the Northeast 1/4 of Section 12, 624.60 feet; thence N88°40'57"W, 193.50 feet; thence N00°53'05"W, 624.60 feet; thence S88°40'57"E, 193.50 feet to the point of beginning. Containing 2.7725 acres (120,768 Sq. Ft.) more or less of land. Subject to covenants, conditions, restrictions and easements of record.

Area "G"

Being part of the Southeast 1/4 of Section 1, Town 4 North, Range 22 East and part of the Southwest 1/4 of Section 6, Town 4 North, Range 23 East, Town of Caledonia, Racine County, Wisconsin, bounded and described as follows:

EXHIBIT A

Commencing at the Southeast corner of the aforesaid Southeast 1/4 of Section 1; thence N88°40'57" W along the South line of said Southeast 1/4 of Section 1, 572.27 feet; thence N01°19'03" E, 33.00 feet to a point on the North line of Seven Mile Road (North line being 33.00 feet North of, as measured at right angles to, the South line of said Southeast 1/4 of Section 1 and the South line of said Southwest 1/4 of Section 6), said point also being the point of beginning; thence continuing N01°19'03" E along a West line of Tax Key No. 01-057-003, 308.00 feet; thence N88°40'57" W along a South line of Tax Key No. 01-057-003, 380.02 feet; thence S01°19'03"W along the East line of Tax Key No. 01-053-000, 63.00 feet to an iron rod found; thence N88°40'57"W along the South line of Tax Key No. 01-053-000, 260.72 feet to a point on the Easterly line of Douglas Avenue (S.T.H. "32"), thence Northwesterly along said Easterly line and the arc of a curve to the left, 150.68 feet, radius of 5763.45 feet and a chord bearing N24°51'09"W, 150.68 feet; thence continuing along said Easterly line N24°15'37"W, 1007.43 feet to the North line of the South 1/2 of the aforesaid Southeast 1/4 of Section 1; thence S88°35'47"E along said North line, 1653.44 feet to a point on the Westerly line of the Chicago and North Western Transportation Company right-of-way; thence S21°16'53"E along said Westerly line, 1343.29 feet to a point on the aforesaid North line of Seven Mile Road; thence South 85°31'53" W along said North line, 459.22 feet; thence continuing along said North line, N88°40'57" W, 570.61 feet to the point of beginning. Containing 43.5668 acres (1,897,771 Sq. Ft.) more or less of land. Subject to covenants, conditions, restrictions and easements of record.

Area "H"

Being part of the Southeast 1/4 of Section 1, Town 4 North, Range 22 East, Town of Caledonia, Racine County, Wisconsin, bounded and described as follows:

Commencing at the Northwest corner of the aforesaid Southeast 1/4 of Section 1; thence S00°45'44"E along the West line of said Southeast 1/4 of Section 1, 3.23 feet to a point on the Westerly line of Douglas Avenue (S.T.H. "32"), said point being the point of beginning; thence S38°23'59"E along said Westerly line, 742.73 feet; thence S53°34'18"W along the Northerly line of Lot 1, Certified Survey Map No. 1833, 354.24 feet; thence S36°25'42"E along the Westerly line of said Lot 1, 399.14 feet; thence N53°34'18"E along the Southerly line of said Lot 1, 343.76 feet to a point on the aforesaid Westerly line of Douglas Avenue; thence Southeasterly along said Westerly line and the arc of a curve to the right, 226.22 feet, radius of 2257.00 feet and a chord bearing S27°07'52"E, 226.12 feet; thence continuing along said Westerly line S24°15'35"E, 254.24 feet to an iron rod found; thence N88°35'47"W along the South line of the North 1/2 of the aforesaid Southeast 1/4 of Section 1, 880.20 feet to an iron rod found; thence N00°45'44"W along the aforesaid West line of the Southeast 1/4 of Section 1, 1321.01 feet to the point of beginning. Containing 11.6507 acres (507,506 Sq. Ft.) more or less of land. Subject to covenants, conditions, restrictions and easements of record.

Area "J"

Being part of the Northeast 1/4 and the Northwest 1/4 of Section 1, Town 4 North, Range 22 East, Town of Caledonia, Racine County, Wisconsin, bounded and described as follows:

Beginning at the Northwest corner of the aforesaid Northeast 1/4 of Section 1; thence N89°39'50"E along the North line of the said Northeast 1/4 of Section 1, 22.27 feet to the Southwest corner of the Southeast 1/4 of Section 36, Town 5 North, Range 22 East, City of Oak Creek, Milwaukee County, Wisconsin; thence continuing on said North line, N89°13'29"E, 1125.71 feet to a point on the Westerly line of the Chicago and North Western Transportation 

EXHIBIT A

Company right-of-way; thence S21°17'33"E along said Westerly line, 2798.39 feet to a point on the South line of said Northeast 1/4 of Section 1; thence N88°30'37"W along said South line, 2023.93 feet to a point on the Easterly line of Douglas Avenue (S.T.H. "32"); thence N38°21'36"W along said Easterly line, 1680.96 feet; thence Northwesterly along said Easterly line and the arc of a curve to the left, 176.96 feet, radius of 5763.00 feet with a chord bearing N39°21'44" W, 176.95 feet; thence N36°51'12"W along said Easterly line, 258.94 feet, thence continuing along said Easterly line, N43°09'12"W, 155.19 feet, thence continuing along said Easterly line, N47°56'12"W, 382.34 feet; thence continuing along said Easterly line, N44°36'55"W, 697.01 feet to a point on the North line of the aforesaid Northwest 1/4 of Section 1; thence N89°39'50"E along said North line, 2049.83 feet to the point of beginning. Containing 149.6117 acres (6,517,086 Sq. Ft.) more or less of land. Subject to covenants, conditions, restrictions and easements of record.

Area "K"

Being part of the Southeast 1/4 and the Southwest 1/4 of Section 36, Town 5 North, Range 22 East, City of Oak Creek, Milwaukee County, Wisconsin, bounded and described as follows:

Commencing at the Northwest corner of the aforesaid Southeast 1/4 of Section 36; thence S00°42'13"E along the West line of said Southeast 1/4 of Section 36, 24.75 feet to a point on the South line of East Elm Road, said point also being the point of beginning; thence continuing on said West line of the Southeast 1/4 of Section 36 and said South line of East Elm Road, S00°42'13"E, 8.25 feet; thence continuing on said South line, N89°44'16"E, 143.35 feet to a point on the Westerly line of the Chicago and North Western Transportation Company right-of-way; thence S21°17'33"E along said Westerly line, 2793.51 feet to a point on the South line of said Southeast 1/4 of Section 36; thence S89°13'29"W along said South line, 1125.71 feet to the Southwest corner of said Southeast 1/4 of Section 36; thence S89°39'50"W along the South line of the aforesaid Southwest 1/4 of Section 36, 22.27 feet to the Northwest corner of the Northeast 1/4 of Section 1, Town 4 North, Range 22 East, Town of Caledonia, Racine County, Wisconsin; thence continuing S89°39'50"W along said South line, 2049.83 feet to a point on the Easterly line of South Chicago Road (S.T.H. "32"), said Easterly line is 33.0 feet Easterly of (as measured at right angles to) the reference line described in Document No. 6669080; thence N44°36'55"W along said Easterly line, 25.21 feet; thence continuing along said Easterly line and the arc of a curve to the right, 1436.73 feet, radius of 1730.06 feet and a chord bearing N20°49'29.5"W, 1395.80 feet to a point on the North line of the South 1/2 of the Southwest 1/4 of said Section 36, said North line also being the South line of lands conveyed by Deed recorded in Volume 118 of Deeds at page 607; thence N89°40'13"E along said North line, 214.19 feet; thence N06°26'53"E along the East line of said Deed, 204.93 feet; thence S89°40'13"W along the North line of said Deed, 214.50 feet to a point on the aforesaid Easterly line of South Chicago Road; thence Northeasterly along said easterly line and the arc of a curve to the right, 142.66 feet, radius of 1730.06 feet and a chord bearing N12°07'05"E, 142.62 feet; thence continuing along said Easterly line, N14°28'49"E, 367.90 feet; thence continuing along said Easterly line and the arc of a curve to the left, 611.60 feet, radius of 3307.05 feet and a chord bearing N09°10'56"E, 610.73 feet to a point on the South line of East Elm Road; thence N89°40'36"E along said South line, 726.76 feet; thence S00°42'24"E along the West line of lands conveyed by Deed in Reel 630 of Deeds at image 1338-1339, 363.00 feet; thence N89°40'36"E along the South line of said Deed, 900.00 feet; thence N00°42'24"W along the East line of said Deed, 363.00 feet to a point on the aforesaid South line of East Elm Road; thence N89°40'36"E along said South line, 684.93 feet to the point of beginning. Containing 176.2727 acres (7,678,439 Sq. Ft.) more or less of land. Subject to covenants, conditions, restrictions and easements of record.

Area "L"

EXHIBIT A

Being all that part of Lots 1, 2, 3 and 4, Block 16, Oak View Subdivision No. 3, located in the Northwest 1/4 of Section 36, and that part of the Northeast Fractional 1/4 of Section 36, all in Town 5 North, Range 22 East, City of Oak Creek, Milwaukee County, Wisconsin, bounded and described as follows:

Commencing at the Southeast corner of the aforesaid Northwest 1/4 of Section 36; thence N00°40'16"W along the East line of said Northwest 1/4 of Section 36, 33.00 feet to a point on the North line of East Elm Road, said point also being the point of beginning; thence continuing N00°40'16"W along said East line of the Northwest 1/4 of Section 36 and said North line of East Elm Road, 42.00 feet; thence continuing along said North line, S89°40'36"W, 474.12 feet to the West line of the aforesaid Lot 4; thence N00°20'19"W along said West line, 200.00 feet to an iron pipe found and the North line of the said Lot 4; thence N89°40'36"E along the North line of the aforesaid Lots 1, 2, 3 and 4, 472.96 feet to the aforesaid East line of the Northwest 1/4 of Section 36; thence N00°40'16"W along said East line, 71.94 feet to a point on the Westerly line of the Chicago and North Western Transportation Company right-of-way; thence S21°17'33"E along said Westerly line, 336.34 feet to a point on the aforesaid North line of East Elm Road; thence S89°44'16"W along said North line, 118.46 feet to the point of beginning. Containing 2.6011 acres (113,303 Sq. Ft.) more or less of land. Subject to covenants, conditions, restrictions and easements of record.

Area "M"

Being part of the Southeast 1/4 of the Southeast 1/4 of Section 35 and part of the Southwest 1/4 of the Southwest 1/4 of Section 36, all in Town 5 North, Range 22 East, City of Oak Creek, Milwaukee County, Wisconsin, bounded and described as follows:

Commencing at the Southeast corner of the aforesaid Southeast 1/4 of Section 35; thence S89°23'03"W along the South line of said Southeast 1/4 of Section 35, 1311.215 feet; thence N01°00'36"W along the West line of the East 1/2 of said Southeast 1/4 of Section 35, 24.75 feet to a point on the North line of County Line Road (North line being 24.75 feet North of, as measured at right angles to, the South line of said Southeast 1/4 of Section 35 and the South line of said Southwest 1/4 of Section 36), said point also being the point of beginning; thence continuing N01°00'36"W along said West line, 1301.17 feet; thence N89°23'43"E along the North line of the South 1/2 of said Southeast 1/4 of Section 35, 1302.21 feet to a point on the Westerly line of South Chicago Road (S.T.H. "32"), said Westerly line is 33.0 feet Westerly of (as measured at right angles to) the reference line described in Document No. 6669080; thence Southeasterly along said the Westerly line and the arc of a curve to the left, 1415.39 feet, radius of 1796.06 feet with a chord bearing S19°43'56"E, 1379.05 feet; thence S89°39'50"W along the aforesaid North line of County Line Road, 433.44 feet; thence continuing along said North line, S89°23'03"W, 1311.52 feet to the point of beginning. Containing 42.5762 acres (1,854,618 Sq. Ft.) more or less of land. Subject to covenants, conditions, restrictions and easements of record.

Area "A-B"

Being part of the Northeast Fractional 1/4 and the Southeast 1/4 of Section 36, Town 5 North, Range 22 East and part of the Northwest Fractional 1/4 and the Southwest Fractional 1/4 of Section 31, Town 5 North, Range 23 East, City of Oak Creek, Milwaukee County, Wisconsin, bounded and described as follows:

A 66 foot wide strip of land, formerly known as East Elm Road, being the South 33 feet of said Northeast Fractional 1/4 of Section 36, the South 33 feet of said Northwest Fractional 1/4 of 

EXHIBIT A

Section 31, the North 33 feet of said Southeast 1/4 of Section 36, the North 33 feet of said Southwest Fractional 1/4 of Section 31; lying East of the East line of the Chicago and North Western Transportation Company right-of-way. Containing 4.69 acres more or less of land. Subject to covenants, conditions, restrictions and easements of record.

Area "D-1"

Being part of the Northeast 1/4 and the Northwest 1/4 of the Southwest 1/4 of Section 6, Town 4 North, Range 23 East, Town of Caledonia, Racine County, Wisconsin, bounded and described as follows:

Being the East 2007.70 feet of said Southwest 1/4 of Section 6, bounded on the North by the South line of the North 12.82 chains (846.12 feet) of said Southwest 1/4 of Section 6, bounded on the South by the North line of Parcel 3, Certified Survey Map No. 1189, recorded in Volume 3 of Certified Survey Maps on Pages 476-479 at the Registers Office of Racine County as Document No. 1214113. Containing 4.81 acres more or less of land. Subject to covenants, conditions, restrictions and easements of record.

Area "D-2"

Being part of the Northeast 1/4, Northwest 1/4, Southwest 1/4 and the Southeast 1/4 of the Southwest 1/4 of Section 6, Town 4 North, Range 23 East, Town of Caledonia, Racine County, Wisconsin, bounded and described as follows:

Being all of Parcel 3, Certified Survey Map No. 1189, recorded in Volume 3 of Certified Survey Maps on Pages 476-479 at the Registers Office of Racine County as Document No. 1214113. Containing 33.14 acres more or less of land. Subject to covenants, conditions, restrictions and easements of record.

Area "D-3"

Being part of the Southwest 1/4 and the Southeast 1/4 of the Southwest 1/4 of Section 6, Town 4 North, Range 23 East, Town of Caledonia, Racine County, Wisconsin, bounded and described as follows:

Being the South 14.64 chains (966.24 feet) of said Southwest 1/4 of Section 6, lying East of the East line of the Chicago and North Western Transportation Company right-of-way. Excepting therefrom the West 166 feet, being a 166 foot wide strip of land lying East of, parallel and adjacent to said East line of the Chicago and North Western Transportation Company right-of-way, further excepting the South 33 feet for road purposes. Containing 44.98 acres more or less of land. Subject to covenants, conditions, restrictions and easements of record.

Area "K-L"

Being part of the Southeast 1/4 of the Northwest 1/4, the Southwest 1/4 of the Northeast 1/4, the Northwest 1/4 of the Southeast 1/4, the Northeast 1/4 of the Southwest 1/4 of Section 36, Town 5 North, Range 22 East, City of Oak Creek, Milwaukee County, Wisconsin, formerly known as East Elm Road, bounded and described as follows:

Commencing at the Southwest corner of said Northwest 1/4 of Section 36; thence N89°40’36”E along the South line of said Northwest 1/4 of Section 36, 2161.85 feet to a point S89°40’36”W, 

EXHIBIT A

474.58 feet from the Southeast corner of said Northwest 1/4 of Section 36, said point also being the point of beginning; thence N00°19’24”W, 75.00 feet to the Southwest corner of Lot 4, Block 16, Oak View Subdivision No. 3; thence N89°40’36”E along the South line of said Block 16, 474.12 feet; thence S00°40’16”E along the East line of said Northwest 1/4 of Section 36, 42.00 feet; thence N89°44’16”E along the South line of Tax Key No. 963-9995, 118.46 feet; thence S21°17’33”E along the West line of the Chicago and North Western Transportation Company right-of-way, 70.71 feet; thence S89°44’16”W along the North line of Tax Key No. 996-9998, 143.35 feet; thence N00°42’13”W along the East line of said Southeast 1/4 of Section 36, 8.25 feet; thence S89°40’36”W along the North line of Tax Key No. 967-9999-001, 474.74 feet; thence N00°19’24”W, 24.75 feet to the point of beginning. Containing 1.2848 acres (55,964 Sq. Ft.) more or less of land. Subject to covenants, conditions, restrictions and easements of record.

Corridor South of 7 Mile Road (not shown on diagram)

All that part of the Northwest One-quarter of Section Numbered Seven (7), Township Numbered Four (4) North, Range Numbered Twenty-three (23) East, described as follows:  Commencing at the point where the North line of said Section Seven (7) intersects the East line of the railway right of way, One Hundred (100) feet in width of the Chicago and Northwestern Railway Company; running thence Southeasterly on said East line of said One Hundred (100) foot right of way to the South line of the Northwest One-quarter of said Section Seven (7); thence East on said South line to a point, which point is One Hundred (100) feet distant Northeasterly from the East line of said railway right of way, One Hundred (100) feet in width, measured at right angles thereto; thence Northwesterly on a line parallel to and One Hundred (100) feet distant from the East line of said railway right of way,  One Hundred (100) feet in width to the North line of said Section Seven (7); thence West on said North line to the place of beginning.  Said land being in the Town of Caledonia, County of Racine, State of Wisconsin.

EXHIBIT B

Legal Descriptions of Parcel 1, Parcel 2 and the Retained Land

EXHIBIT B

Being part of the Northeast one-quarter of the Southeast one-quarter and the Southeast one-quarter of the Northeast Fractional one-quarter of Section 36, Town 5 North, Range 22 East, and part of the Southwest Fractional one-quarter of the Northwest Fractional one-quarter and the Northwest Fractional one-quarter of the Southwest Fractional one-quarter of Section 31, Town 5 North, Range 23 East, all in the City of Oak Creek, Milwaukee County, Wisconsin; Parcel 1 and Parcel 2 of said Easement and Indemnification Agreement being bounded and described as follows (see preceding diagram):

Parcel 1

Commencing at a meander corner located on the North line of the aforesaid Southwest Fractional one-quarter of Section 31; thence South 89°11'23" West along said North line, 702.85 feet to the Northeast corner of the aforesaid Southeast one-quarter of Section 36 and the point of beginning; thence North 66°17'20" East, 927.86 feet; thence North 23°42'40" West, 77.15 feet; thence North 66°17'20" East, 166.64 feet; thence South 23°42'40" East, 787.91 feet; thence South 66°17'20" West, 1313.52 feet; thence North 68°42'40" West, 317.56 feet; thence North 23°42'40" West, 486.22 feet; thence North 66°17'20" East, 443.57 feet to the point of beginning, containing 24.8128 acres (1,080,846 square feet) more or less of land.  Subject to covenants, conditions, restrictions and easements of record.

Parcel 2

Commencing at a meander corner located on the North line of the aforesaid Southwest Fractional one-quarter of Section 31; thence South 89°11'23" West along said North line, 702.85 feet to the Northeast corner of the aforesaid Southeast one-quarter of Section 36 and the point of beginning; thence North 66°17'20" East, 927.86 feet; thence North 23°42'40" West, 77.15 feet; thence North 66°17'20" East, 166.64 feet; thence North 23°42'40" West, 196.12 feet; thence North 53°42'40" West, 625.32 feet; thence South 66°17'20" West, 877.47 feet; thence South 21°17'20" West, 492.06 feet; thence South 23°42'40" East, 466.87 feet; thence North 66°17'20" East, 443.57 feet to the point of beginning, containing 25.1419 acres (1,095,182 square feet) more or less of land.  Subject to covenants, conditions, restrictions and easements of record.

Retained Land

The Land as described in Exhibit A less and except Parcel 1 and Parcel 2 as described above.

EXHIBIT C

Description of the New Common Facilities Easement Area

The Parties agree that the New Common Facilities Easement covers only those portions of the Retained Land which are required and necessary for the ownership and siting of the New Common Facilities.  The Parties will formalize a legal description of the New Common Facilities Easement Area once specific metes and bounds descriptions have been prepared.

EXHIBIT D

Description of the Access Easement Area

The Parties agree that the Access Easement Area covers only those portions of the Retained Land which are necessary for ingress to Parcel 2 and the New Common Facilities Easement Area from a publicly dedicated right-of-way, and egress from Parcel 1 and the New Common Facilities Easement Area.  The Parties will formalize a legal description of the Access Easement Area once specific metes and bounds descriptions have been prepared.

EXHIBIT E

Environmental Responsibility Exclusions

NONE

SCHEDULE 1.1

DEFINITIONS; INTERPRETATION

A.

Interpretation.  Unless a clear contrary intention appears:

(i)

the singular number includes the plural number and vice versa;

(ii)

reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually;

(iii)

reference to either gender includes the other gender;

(iv)

reference to any agreement, document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof;

(v)

reference to any Law means such Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder and reference to any section or other provision of any Law means that provision of such Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or re-enactment of such section or other provision;

(vi)

reference in this Agreement to any Preamble, Recital, Article, Section, Annex, Schedule or Exhibit means such Article or Section thereof or Preamble, Recital, Annex, Schedule or Exhibit thereto;

(vii)

“hereunder”, “hereof”, “hereto” and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Article, Section or other provision thereof;

(viii)

“including” (and with the correlative meaning “include”) means including without limiting the generality of any description preceding such term; and

(ix)

with respect to any rights and obligations of the Parties under this Agreement, all such rights and obligations shall be construed to the extent permitted by applicable Law.

B.

Computation of Time Periods.  For purposes of computation of periods of time under this Agreement, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”.

C.

Accounting Terms and Determinations.  Unless otherwise specified herein, all terms of an accounting character used in this Agreement shall be interpreted, all accounting determinations thereunder shall be made, and any financial statements required to be delivered thereunder shall be prepared, in accordance with GAAP.

D.

Coordination With Other Agreements.  If there is any conflict between this Agreement and the Ground Lease, this Agreement and the Ground Lease shall be interpreted and construed, if possible, so as to avoid or minimize such conflict. 

E.

Legal Representation of the Parties.  This Agreement was negotiated by the Parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against any Party shall not apply to any construction or interpretation hereof.

F.

If either MGE Power or WPPI elects not to participate in the ownership of Unit 2 and the New Common Facilities, this Agreement shall be interpreted as an Agreement between and among the participating Party (either MGE Power or WPPI) and WEPCO, as necessary to give reasonable effect to the provisions of the Agreement, and all references to the non-participating Party should be disregarded.

B.

Definitions.  Unless the context otherwise requires, the following defined terms shall have the meanings ascribed to them below:

“Access Easement Area” has the meaning given to such term in Section 2.1(c)

“Access Easement” has the meaning given to such term in Section 2.1(c)

“Affiliate” means, as to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with, such Person.  For purposes of this definition, “control” (including, without correlative meanings, the terms “controlling,” “under common control with” and “controlled by”), as used with respect to any Person, means the direct or indirect ownership, or right to vote by contract or otherwise, of more than fifty percent (50%) of the voting stock or other equity interests of any Person.

“Agreement” has the meaning set forth in the Preamble.

“Annual Fee” has the meaning given to it in Section 4.1.

“Assignment of Easement” has the meaning given to such term in the Recitals.

“Business Day” shall mean any day on which commercial banks are not authorized or required to close in Milwaukee, Wisconsin.

“Claims” shall mean liabilities, obligations, damages, losses, demands, penalties, interest, fines, claims, actions, suits, judgments, settlements, and reasonable costs, fees, expenses and disbursements (including reasonable legal fees and expenses and costs of investigation) whether any of the foregoing be founded or unfounded, of any kind and nature whatsoever.

“Collateral Lien” has the meaning given to such term in Section 8.5(a).

“Dispute” shall mean any controversy, claim or dispute of whatsoever nature or kind between the Parties, arising out of or relating to this Agreement or the validity, execution, performance, discharge, termination or breach hereof.

“Easements” has the meaning given to such term in Section 2.1.

“Elm Road Site” means, collectively, Parcel 2, the New Common Facilities Easement Area and the Access Easement Area.   

“Encumbrances” has the meaning given to such term in Section 2.2(b).

“Environmental Claim” shall mean, with respect to any Person, any notice, claim, administrative, regulatory or judicial action, suit, lien, judgment, demand or other communication (whether written or oral) by any other Person alleging or asserting such Person’s liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or other property, personal injuries, fines or penalties arising out of, based on or resulting from (a) the presence, or Release into the environment, of any Hazardous Material at any location, whether or not owned by such Person, or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law.

“Environmental Indemnitee” has the meaning given to such term in Section 6.2.

“Environmental Indemnitor” has the meaning given to such term in Section 6.2.

“Environmental Law” shall mean any and all Laws, now or hereafter in effect, and any judicial or administrative judgment, relating to the environment, or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or toxic or hazardous substances or wastes into the environment including ambient air, surface water, groundwater, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or toxic or hazardous substances or wastes.

“ERGS SC” has the meaning given to such term in the Recitals.

“ERGS SC Facility Lease” has the meaning given to such term in the Recitals.

“Existing Common Facilities” means any and all facilities, components, equipment and materials which are (a) utilized in support of the operation and maintenance of the Existing Units and one or both of Unit 1 or Unit 2, (b) owned by WEPCO and located on the Land and (c) in-place and operational prior to the initiation of construction of Unit 2 and the New Common Facilities, as such facilities, components, equipment and materials may be repaired from time to time.  

“Existing Encumbrances” means the encumbrances to title listed on Schedule 10.2 attached hereto and made a part hereof.  For the avoidance of doubt, for purposes of this Agreement, Existing Encumbrances shall be deemed to also be Permitted Encumbrances.

“Existing Units” shall mean the four (4) coal-based electric generating units and one (1) gas-based electric generating unit, and related facilities, currently located on the Retained Land.

“Financing Documents” means each agreement, document or instrument pursuant to which a Unit 2 Owner or New Common Facilities Owner or one of their Affiliates is provided construction and/or term debt financing and/or working capital and/or other financing or refinancing in connection with Unit 2 or the New Common Facilities and each other agreement, document or instrument delivered in connection with any of the foregoing.

“Foreclosure Transfer”  has the meaning given to such term in Section 8.8.

“Government Approval” shall mean any authorization, consent, approval, license, lease, ruling, permit, tariff, rate, certification, exemption, filing (except any filing relating to the perfection of security interests), variance, claim, order, judgment, decree, publication, notices to, declarations of or with or registration by or with any Governmental Authority.

“Governmental Authority” shall mean any applicable federal, state, county, municipal or other government, quasi-government or regulatory authority, agency, board, body, commission, instrumentality, court or tribunal, or any political subdivision of any thereof, or any arbitrator or panel of arbitrators.

“Grantee” shall mean either MGE Power or WPPI, and its successors and permitted assigns.

“Gross Negligence” shall be determined by reference to Wisconsin common law concepts of gross negligence, provided that no Party shall use the absence of a gross negligence concept under Wisconsin law as a defense to a claim alleging Gross Negligence or as a basis to substitute a standard other then Gross Negligence where it is provided for in this Agreement.

“Ground Interest” has the meaning given to such term in the Recitals.

“Ground Lease” has the meaning given to such term in the Recitals.

“Ground Leases” shall mean the Ground Lease and the Ground Sublease.

“Ground Sublease” has the meaning given to such term in the Recitals.

“Hazardous Materials” shall mean, collectively, any petroleum or petroleum product, asbestos in any form that is or could become friable, transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls (PCB’s), hazardous waste, hazardous material, hazardous substance, toxic substance, contaminant or pollutant, as defined or regulated as such under any Environmental Law including the Resource Conservation and Recovery Act, as amended, 42 U.S.C.  Section 6901 et seq., the Comprehensive Environmental Response Compensation and Liability Act, as amended, 42 U.S.C.  Section 9601 et seq., or any similar state statute.  

“Indemnitee” has the meaning given to such term in Section 7.1.

“Indemnitor” has the meaning given to such term in Section 7.1.

“Land” has the meaning given to such term in the Recitals.

“Law” shall mean any statute, law regulation, ordinance, rule, judgment, order, decree, permit, concession, grant, franchise, license, agreement, directive, guideline, policy, requirement, or other governmental restriction or any similar form of decision of or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority or judicial or administrative body, whether now or hereafter in effect (including any Environmental Law).

“Lenders” (and individually a “Lender”) shall mean the banks, bond and commercial paper holders and/or financial institutions (together with their administrative agents, collateral agents, depositary banks and other agents) and/or other Persons which provide construction and/or term debt financing and/or working capital and/or other financing or refinancing to a Unit 2 Owner or New Common Facilities Owner or one of its Affiliates in connection with Unit 2 and/or the New Common Facilities or any portion thereof.

“Lien” shall mean, with respect to any property, any mortgage, lien, pledge, charge, lease, easement, servitude, right of others, security interest or encumbrance of any kind in respect of such property.

“MGE” has the meaning given to such term in the Recitals.

“MGE Facility Lease” has the meaning given to such term in the Recitals.

“MGE Power” has the meaning given to such term in the Preamble.

“New Common Facilities” has the meaning given to such term in the Recitals.

“New Common Facilities Easement” has the meaning given to such term in Section 2.1(b).

“New Common Facilities Easement Area” has the meaning given to such term in Section 2.1(b).

“New Common Facilities O&M Agreement” shall mean that certain New Common Facilities Operating and Maintenance Agreement by and among WEPCO, MGE and WPPI for the New Common Facilities dated as of December 17, 2004.

“New Common Facilities Owners” means ERGS SC and each other Person that becomes a New Common Facilities Owner in accordance with the terms and conditions of the New Common Facilities Ownership Agreement.

“New Common Facilities Ownership Agreement” shall mean that certain New Common Facilities Ownership Agreement dated as of December 17, 2004 among ERGS, MGE Power and WPPI.

“O&M Agreements” shall mean the Unit 2 O&M Agreement and the New Common Facilities O&M Agreement.

“Ownership Agreements” shall mean the Unit 2 Ownership Agreement and the New Common Facilities Ownership Agreement.

“Parcel 1” means the land more particularly described in Exhibit B.

“Parcel 2” means the land more particularly described in Exhibit B.

“Party” and “Parties” have the meanings given to such terms in the Preamble.

“Permitted Encumbrances” shall mean:

(a)

Liens for taxes, assessments or governmental charges not due and delinquent;

(b)

Liens for taxes, assessments or governmental charges already due, but whose validity or amount is being contested in good faith, by appropriate proceedings initiated timely and diligently prosecuted, and for which adequate reserves in accordance with GAAP are maintained against any adverse determination of such contest or a bond in the full amount thereof has been posted;

(c)

carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business or incident to the construction or improvement of such property in respect of obligations which are not overdue for a period of more than thirty (30) days or which are being contested in good faith, by appropriate proceedings initiated timely and diligently prosecuted, and for which adequate reserves in accordance with GAAP are maintained against any adverse determination of such contest or a bond in the full amount thereof has been posted;

(d)

easements, rights of way, reservations, restrictions, covenants, party-wall agreements, agreements for joint or common use, landlords’ rights of distraint and other similar encumbrances affecting such property, granted in the ordinary course of business, which in the aggregate are not material in amount and which do not in the aggregate materially detract from the value of such property subject thereto or impair the use of such property for the purposes for which it is held;

(e)

court proceedings affecting such property, provided the execution or other enforcement thereof is effectively stayed and the Claims secured thereby are being contested in good faith, by appropriate proceedings initiated timely and diligently prosecuted, and for which adequate reserves in accordance with GAAP are maintained against any adverse determination of such contest or a bond in the full amount thereof has been posted; 

(f)

Minor defects and irregularities in title to such property, which do not in the aggregate materially impair the value of such property or the use of such property for the purposes for which it is held; 

(g)

Liens arising in connection with Liens pursuant to the Security Documents, if any; 

(h)

The Ground Leases;

(i)

The Encumbrances; and 

(j)

The Existing Encumbrances.

“Person” means an individual, a corporation, a partnership, a limited liability company, an association, a joint-stock company, a trust, an unincorporated organization or any government or political subdivision thereof.

“Prudent Utility Practice” shall mean, at a particular time: (a) any of the practices, methods and acts engaged in or approved by a significant portion of the United States electric power generating industry prior to such time; or (b) any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with applicable Law and good business practices, reliability, safety and expedition; provided that “Prudent Utility Practice” is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather to be a spectrum of possible practices, methods or acts having due regard for, among other things, manufacturers’ warranties and the requirements of Governmental Authority and any applicable agreement.  

“Release” shall mean any “release” as such term is defined in 42 U.S.C.  § 9601 (22) or any successor statute.

“Retained Land” shall mean the Land less and except Parcel 1 and Parcel 2.

“Secured Lender” has the meaning given to such term in Section 8.5.

“Security Documents” shall mean all security agreements, pledges, consents and other security documents, if any, granting Liens to the Lenders to secure the obligations and liabilities of a Unit 2 Owner or New Common Facilities Owner under the Financing Documents, if any.

“Site Improvements” means any modifications, alterations, additions or improvements to Parcel 1 as are considered necessary or desirable in the construction, use, operation and maintenance of Unit 2 and the New Common Facilities; provided that no Site Improvement shall cause Unit 2 or the New Common Facilities to become “limited use” property, within the meaning of Rev. Proc. 2001-28, 2001-19 I.R.B. 1156, and provided, further, that all Site Improvements shall be constructed in a good and workmanlike manner, in compliance with applicable Law.  The term “Site Improvements” shall expressly exclude Unit 2, the New Common Facilities and modifications, alterations, additions or improvements to Unit 2 or the New Common Facilities or to any components or replacement components thereof, and the terms “Unit 2” and “New Common Facilities” shall expressly exclude the Site Improvements.  

“Term” means the term of this Agreement as provided in Article V.

“Unit 1” shall mean the approximately 615 MW net nominal base load supercritical pulverized coal electric generating facility, including all facilities, components, equipment and materials contained therein and all improvements thereto to be constructed on Parcel 1.

“Unit 2” has the meaning given to such term in the Recitals.

“Unit 2 O&M Agreement” shall mean that certain Operating and Maintenance Agreement by and among WEPCO, MGE, and WPPI for Elm Road Generating Station Unit 2 dated as of December 17, 2004.

“Unit 2 Owners” means ERGS SC and each other Person that becomes a Unit 2 Owner in accordance with the terms and conditions of the Unit 2 Ownership Agreement.

“Unit 2 Ownership Agreement” has the meaning given to such term in the Recitals.

“Unit 2 Parcel Easement” has the meaning given to such term in Section 2.1(a).

“WEPCO” has the meaning given to it in the Preamble.

“WEPCO’s Lender” shall mean a bank, bond and commercial paper holder or financial institution (together with its administrative agents, collateral agents, depositary banks and other agents) and/or another Person which provides construction and/or term debt financing and/or working capital and/or other financing or refinancing to WEPCO.

“WPPI” has the meaning given to it in the Preamble.

SCHEDULE 4.2

SITE PREPARATION COSTS

										
	IO Number

	Activity Description

	Tracts Impacted

	 	 	 	 	 
	    Parcel 1 

	Parcel 2

	Common Easement Area

	Current Estimate (October 2004)

	Unit 1 Cost Estimate

	Unit 2 Cost Estimate

	Unit 1 Percentage of Costs

	Unit 2 Percentage of Costs

	1003285

	Utility Relocation Engineering and Design

	X

	X

	X

	$160,323 

	$67,338 

	$67,338 

	42%

	42%

	1003286

	Street lighting, transformer and 24.9kV modifications by Electric Operations

	X

	X

	 

	$1,876,000 

	$938,000 

	$938,000 

	50%

	50%

	1003287

	Relocate fiber optic and telephone lines to switchyard

	 

	 

	X

	$75,534 

	$19,642 

	$19,642 

	26%

	26%

	1003288

	Relocate 138kV, 230kV and 345kV transmission lines in the new coal handling area

	 

	 

	X

	$1,957,424 

	$509,013 

	$509,013 

	26%

	26%

	1003289

	Relocate fiber optic line from the bowl

	X

	X

	 

	$126,000 

	$63,000 

	$63,000 

	50%

	50%

	1003290

	Relocate telephone line running along Elm Road west of the bowl excavation

	X

	X

	 

	$191,258 

	$95,629 

	$95,629 

	50%

	50%

	1003291

	Relocate potable water line from the bowl

	X

	X

	 

	$685,000 

	$342,500 

	$342,500 

	50%

	50%

	1003292

	Raise sewer manholes east of the RR tracks

	 

	 

	X

	$3,000 

	$780 

	$780 

	26%

	26%

	1003293

	Upgrade potable water line to the existing Car Dumper (rolled into order 1003291)

	 

	 

	 

	 

	 

	 

	 

	 

	1003294

	Relocate the LNG facility drain line to Lake (rolled into 1003291)

	 

	 

	 

	 

	 

	 

	 

	 

	1003295

	Clear the JM Building and north lay down and rail loop areas.

	X

	X

	 

	$10,116 

	$5,058 

	$5,058 

	50%

	50%

	1003296

	Relocate or abandon North and South Landfill collection system monitoring wells

	 

	 

	X

	$16,500 

	$4,291 

	$4,291 

	26%

	26%

	1003297

	Retire the LWA Scale House (REMOVAL)

	 

	 

	X

	$31,362 

	$8,155 

	$8,155 

	26%

	26%

	1003298

	Relocate 16" and 10" natural gas laterals

	 

	 

	X

	$1,600,000 

	$416,068 

	$416,068 

	26%

	26%

	1003719

	Remove north fly ash scale from the bowl area (REMOVAL)

	X

	X

	 

	$44,000 

	$22,000 

	$22,000 

	50%

	50%

	1003720

	Provide temporary facilities for displaced We Energies staff, to include guardhouses

	 

	 

	X

	$16,500 

	$4,291 

	$4,291 

	26%

	26%

	1003721

	Relocate south fly ash scale to allow rail loop construction

	 

	 

	X

	$110,553 

	$28,748 

	$28,748 

	26%

	26%

	1003750

	Allowance for Unforeseen Utility Relocations (scope is to be determined - will not be spent unless necessary)

	 

	 

	X

	$800,000 

	$208,034

	$208,034 

	26%

	26%

	1003718

	Demolish existing coal dock equipment to allow new dock construction (REMOVAL).  

	X

	X

	 X

	$1,625,000 

	$682,583 

	$682,583 

	42%

	42%

	 

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	Total Costs:

	$9,328,570 

	$3,415,070 

	$3,415,070 

	 	 

SCHEDULE 8.2

FORM OF NON-DISTURBANCE AGREEMENT

SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

This SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this “Agreement”), dated as of ____  __, 200_, made by and among WISCONSIN ELECTRIC POWER COMPANY, a Wisconsin corporation, having a principal place of business at 333 W. Everett Street, Milwaukee, Wisconsin, 53203 (“WEPCO”), MGE POWER ELM ROAD, LLC, a Wisconsin limited liability company with an address at [__________], [__________] (“MGE Power”) and WISCONSIN PUBLIC POWER INC. a Wisconsin municipal electric company with an address at [__________], [__________] (“WPPI”; MGE Power and WPPI, collectively “Easement Grantee”) and [__________], a [____________] with an address at [__________], [__________] (the “Mortgagee”),

WITNESSETH:

WHEREAS, WEPCO has heretofore executed and delivered to Mortgagee the following security instruments (collectively, the “Mortgage”):  [List of mortgage documents to be inserted here], recorded in Book ___, Page ___, in the records of ___________, Wisconsin and encumbering the property described therein located in Milwaukee County and Racine County, respectively, (“Mortgaged Premises”) to secure payment of the indebtedness described therein; and

WHEREAS, WEPCO and Easement Grantee made and entered into that certain Easement and Indemnification Agreement dated the ___ day of ________, 2004 (the “Easement Agreement”), with respect to certain premises described on Exhibit A thereof (the “Easement Area”); and

WHEREAS, the parties hereto desire to enter into certain agreements with respect to the Mortgage and the Easement Agreement, as set forth herein;

NOW, THEREFORE, in consideration of the mutual covenants and conditions set forth below, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement agree as follows:

1.

Subordination.  Subject to the terms of this Agreement, the Easement Agreement is and shall at all times remain, subject and subordinate to the Mortgage and to all renewals, modifications, consolidations, replacements and extensions thereof.

2.

Existence of Easement Agreement.  Neither a foreclosure of the Mortgage, entry by the Mortgagee, nor any other action by the Mortgagee with respect to the Mortgage will affect the continued existence of the Easement Agreement, or the rights and obligations of Easement Grantee thereunder.

3.

Nondisturbance.  Except as is otherwise provided in this Agreement, if the interest of WEPCO under the Easement Agreement shall be acquired by Mortgagee, by reason of exercise of the power of sale or the foreclosure of the Mortgage or other proceedings brought to enforce the rights of the holder thereof, whether by deed in lieu of foreclosure or by any other method, so long as Easement Grantee is not in default of its obligations under the Easement Agreement beyond all available cure periods, Easement Grantee shall peaceably and quietly have, hold and enjoy the Easement Area and the appurtenant rights thereto for the full term of the Easement Agreement, as the same may be extended or earlier terminated in accordance with the provisions of the Easement Agreement, subject to the terms, covenants, conditions, provisions, and agreements of the Easement Agreement.

4.

Attornment.  Easement Grantee shall attorn to Mortgagee, as fee owner, that attornment to be effective and self-operative without the execution of any other instruments on the part of either party upon receipt by Easement Grantee of notice of Mortgagee’s succeeding to the interest of WEPCO under the Easement Agreement, and the Easement Agreement shall continue in full force and effect in accordance with its terms between Easement Grantee, as grantee thereunder, and Mortgagee, as grantor.

5.

Mortgagee Covenants.  In consideration of the foregoing agreements of Easement Grantee, Mortgagee agrees that, so long as Easement Grantee is not in material default of the terms of the Easement Agreement beyond all available cure periods, it will not join or name Easement Grantee as party in any proceedings to foreclose the Mortgage unless applicable law requires Easement Grantee to be made a party thereto as a condition to proceeding against WEPCO or prosecuting such rights and remedies, it will not disturb Easement Grantee’s possession of the Easement Area under the Easement Agreement upon Mortgagee’s coming into possession of or acquisition of title to all or any portion of the Mortgaged Premises as a result of a foreclosure or other enforcement of the Mortgage, or as a result of any other means, it will accept the attornment of Easement Grantee, and subject to the limitations contained in this Agreement, it will assume and perform, (but only while owner or in possession or control of all or any portion of the Mortgaged Premises) all of WEPCO’s obligations under the Easement Agreement, except as otherwise provided in this Agreement. 

6.

Limitation of Liability.  Notwithstanding anything to the contrary in the Easement Agreement or the Mortgage, if Mortgagee succeeds to the interest of WEPCO under the Easement Agreement, Mortgagee shall not be liable for or bound by any of the following matters:

a.

Claims Against WEPCO.  Any offset right that Easement Grantee may have against WEPCO relating to any event or occurrence before the date of attornment, including any claim for damages of any kind whatsoever as the result of any breach by WEPCO that occurred before the date of attornment unless Easement Grantee shall have given notice of the event or circumstance giving rise to the offset right to Mortgagee.  (The foregoing shall not limit either (i) Easement Grantee’s right to exercise against WEPCO any offset right otherwise available to Easement Grantee because of events occurring after the date of attornment, or (ii) Mortgagee’s obligation to correct any conditions that existed as of the date of attornment and violate Mortgagee’s obligations as grantor under the Easement Agreement.)

b.

Prepayments.  Any payment of the Annual Fee that Easement Grantee may have made to WEPCO more than one year before the date such Annual Fee was first due and payable under the Easement Agreement with respect to any period after the date of attornment other than, and only to the extent that, the Easement Agreement expressly required such a prepayment.

c.

Modification, Amendment or Waiver.  Any modification or amendment of the Easement Agreement hereafter made without Mortgagee’s written consent, which materially adversely affects Mortgagee’s rights, duties or obligations under this Agreement.

7.

Exculpation of WEPCO.  Notwithstanding anything to the contrary in this Agreement or the Easement Agreement, upon any attornment pursuant to this Agreement the Easement Agreement shall be deemed to have been automatically amended to provide that Mortgagee’s obligations and liability under the Easement Agreement shall never extend beyond Mortgagee’s (or its successors’ or assigns’) interest, if any, in the Easement Area from time to time, including insurance and condemnation proceeds, interest in the Easement Agreement, and the proceeds from any sale or other disposition of WEPCO’s property by Mortgagee (collectively, “Mortgagee’s Interest”).  Easement Grantee shall look exclusively to Mortgagee’s Interest (or that of its successors and assigns) for payment or discharge of any obligations of Mortgagee under the Easement Agreement as affected by this Agreement.  If Easement Grantee obtains any money judgment against Mortgagee with respect to the Easement Agreement or the relationship between Mortgagee and Easement Grantee, then Easement Grantee shall look solely to Mortgagee’s Interest (or that of its successors and assigns) to collect such judgment.  Easement Grantee shall not collect or attempt to collect any such judgment out of any other assets of Mortgagee.

8.

Notices.  All notices or other written communications hereunder shall be deemed to have been properly given (a) upon delivery, if delivered in person with receipt acknowledged by the recipient thereof, (b) one business day after having been deposited for overnight delivery with any reputable overnight courier service, or (c) three (3) business days after having been deposited in any post office or mail depository regularly maintained by the U. S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed to the receiving party at its address set forth below:

If to WEPCO:

Wisconsin Electric Power Company

231 W.  Michigan Street

Milwaukee, WI  53203

Attn:    General Counsel

Vice President – Fossil Operations

If to MGE Power:

MGE Power  Elm Road, LLC

P.O. Box 1231

Madison, WI 53701

Attn:  

Chief Financial Officer

General Counsel

Vice President Power Operations

If to WPPI:

Wisconsin Public Power Inc.

1425 Corporate Center Drive

Sun Prairie, WI 5359-9109

Attn:   

Senior Vice President – Legal and

               Regulatory Affairs

Senior Vice President – Power Supply

If to Mortgagee: 

or addressed as such party may from time to time designate by written notice to the other parties.  Either party by notice to the other may designate additional or different addressees for subsequent notices or communications.

9.

Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original.  Such counterparts shall constitute but one and the same instrument and shall be binding upon, and shall inure to the benefit of, each of the undersigned individually as fully and completely as if all had signed one instrument.

10.

Successors and Assigns.  The obligations and rights of the parties pursuant to this Agreement shall bind and inure to the benefit of the successors, assigns, heirs and legal representative of the respective parties.

[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

WISCONSIN ELECTRIC POWER COMPANY, a Wisconsin corporation

By: /s/ Scott A. Patulski

Title: Vice President

MGE POWER ELM ROAD, LLC, a 

Wisconsin limited liability company

By: /s/ Gary J. Wolter

Title: Manager

WISCONSIN PUBLIC POWER INC., a Wisconsin municipal electric company

By: /s/ J. Leroy Thilly

Title: President and CEO

[MORTGAGEE]

By:

____________________________

Name printed: 

______________________

Title: 

____________________________

SCHEDULE 10.2

EXISTING ENCUMBRANCES

NoneConverted by EDGARwiz

OPERATING AGREEMENT

­­­­­­­MGE TRANSCO INVESTMENT  LLC

 The undersigned enter this Operating Agreement ("Agreement") for MGE Transco Investment  LLC ("Company"), a limited liability company organized under Chapter 183 of the Wisconsin Statutes, as members of the Company ("Members").

ARTICLE I

Formation

1.1 

Agreement.  For and in consideration of the mutual covenants of this Agreement, the Members executing this Agreement agree to the terms and conditions of this Agreement, as it may from time to time be amended according to its terms. 

1.2 

Ratification.  James B. Egle, as Organizer, filed Articles of Organization with the Wisconsin Department of Financial Institutions on August 23, 2005.  A copy of those Articles is attached as Exhibit A.  The actions of James B. Egle, as Organizer, in executing and causing to be duly filed and recorded the Articles of Organization of the Company, are ratified, approved and confirmed; the Articles of Organization as filed are accepted, and the resignation of James B. Egle, as Organizer, is given and accepted.

1.3 

Sole Source.  It is the express intention of the Members that the Agreement shall be the sole source of agreement of the parties.  This Agreement is an "operating agreement" within the meaning of sec. 183.0102(16), Stats.  To the extent that any provision of this Agreement conflicts with a default provision of Chapter 183 of the Wisconsin Statutes, and Chapter 183 allows the default provision to be varied by operating agreement, this Agreement and its provisions shall control.

1.4 

 Purposes.  The Company shall have the right to engage in any activity and to exercise any powers permitted to limited liability companies under the laws of the state of Wisconsin, but the Company shall restrict its investment activities to the American Transmission Company LLC ("ATC LLC"), a Wisconsin limited liability company, or its successor.  The Company is the assignee of an interest in ATC LLC held by Madison Gas and Electric Company. 

1.5 

Effective Date.  This Agreement shall be effective when signed by both Members.

ARTICLE II

Principal Place of Business; Resident Agent

2.1 

Principal Place of Business.  The  principal place of business of the Company shall be 133 South Blair Street, Madison, WI 53703. The Company may have such principal and other business offices, either within or outside the State of Wisconsin, as the Members may designate or as the Company's business may require from time to time.

2.2 

Resident Agent.   Kristine A. Euclide shall be the Company's resident agent.  The Company's resident agent may be changed from time to time by or under the authority of the Managers.  

ARTICLE III

Definitions

The following terms used in this Agreement shall have the following meanings (unless otherwise expressly provided herein):

3.1 

"Affiliate" means any Person which, with respect to Madison Gas and Electric Company, meets the definition of “affiliated interests” as set forth in section 196.52(1) of the Wisconsin Statutes.

3.2 

"Articles of Organization" means the Articles of Organization of MGE Transco Investment  LLC, as filed with the Wisconsin Department of Financial Institutions, as amended from time to time.

3.3 

"Capital Account" as of any given date shall mean the capital contribution to the Company by a Member as adjusted to that date pursuant to Article IV.

3.4 

"Code" shall mean the Internal Revenue Code of 1986 or corresponding provisions of subsequent superseding federal revenue laws.

3.5 

“Member” shall mean an entity listed on Exhibit B.

3.6 

"Membership Interest" shall mean a Member's entire interest in the Company, including such Member's Percentage Interest and such other rights and privileges that the Member may enjoy by being a Member.

3.7 

"Manager" shall mean any person named by the Members to serve as Manager, as set forth in section 6 below.

3.8 

"Percentage Interest" shall have the meaning set forth in section 4.4 below.

3.9 

"Person" shall mean any person or entity.

3.10 

"Treasury Regulations" shall include proposed, temporary and final regulations promulgated under the Code in effect as of the date of filing the Articles of Organization and the corresponding sections of any regulations subsequently issued that amend or supersede such regulations.

ARTICLE IV

Capital Contributions

4.1 

Initial Capital Contributions.  The Members have unanimously agreed to the values set forth on Exhibit B as the valuation of the initial capital contribution of Madison Gas and Electric Company, which consists of 1,875,849 membership units of ATC LLC.  MGE Energy, Inc., has not yet made any capital contributions to the Company, but shall have the option to make any future capital contributions requested by ATC LLC as provided by the ATC LLC operating agreement dated January 1, 2001, as subsequently amended    If MGE Energy, Inc. does not elect to meet a future capital contribution request by ATC LLC, then Madison Gas and Electric Company may elect to do so (but is not required to do so).

4.2 

Capital Contribution of Dissociated Member.  No Member is entitled to receive any distribution, or to receive a repayment of any balance of the Member's Capital Account, except as provided in this Agreement. 

4.3 

No Interest; Company Loans.  No interest shall accrue on any capital contribution. The Company shall restrict its borrowing activities to those necessary to meet short-term working capital requirements.  At no time shall the Company’s borrowings exceed one hundred thousand dollars ($100,000).

 

4.4 

Percentage Interest.  Each Member's equity interest in the Company is represented by a percentage (the "Percentage Interest").  The initial Percentage Interest of each Member is set forth on Exhibit B.  The total Percentage Interests of the Members at all times will equal 100%.The Managers shall maintain a record of each Member's Percentage Interest, but apart from this Agreement and such Company record, no share certificates or other evidence of ownership of any Member's Percentage Interest will be issued.

a.

Percentage Interests shall be determined as follows:  Madison Gas and Electric Company shall be credited with an initial capital contribution of $18,467,014.  Madison Gas and Electric Company shall remain responsible for any deferred taxes (and entitled to any deferred tax credits) attributable to its previous ownership of the equity investment in ATC LLC. Future contributions by MGE Energy, Inc., or MGE shall be valued at the amount of cash contributed to ATC LLC pursuant to capital calls.   The initial contribution of Madison Gas and Electric Company, and the total subsequent contributions of MGE Energy, Inc., and MGE shall be added to determine the denominator used in establishing the Percentage Interests; the numerator for each party's interest shall be its capital contributions relative to ATC LLC.  For example, if MGE Energy, Inc. makes a $2 million capital contribution to ATC LLC in 2006, Madison Gas and Electric Company would have a 90.228% Percentage Interest ($18,467,014/$20,467,014) and MGE Energy, Inc., would have a 9.772% Percentage Interest ($2,000,000/$20,467,014).   For purposes of this Agreement, the Percentage Interests shall be recalculated as of the last day of each month, with each optional capital contribution to ATC LLC by MGE Energy, Inc., and MGE, treated as being made at the end of the month.

 

b.

The Percentage Interests determine ownership of equity interests in the Company for the purposes of voting.  Except as provided in Article VII, allocation of income, deductions, profits and losses, and distributions corresponding to those allocations, shall be made based on the Members’ pro rata share of Percentage Interests at the time of the allocation.

4.5 

Capital Account.  A Capital Account shall be established and maintained for each Member in accordance with the following:

a.

Each Member’s Capital Account shall be increased by (i) the Member’s Capital Contributions; (ii) the Member’s allocable share of  income and profits as provided in section 4.4(b); and (iii) the amount of debt of the Company that is assumed by the Member or that is secured by any property distributed to the Member.

b.

Each Member’s Capital Account shall be decreased by (i) the amount of cash and the fair market value, as determined by the Managers, of any Company asset distributed to the Member; (ii) the Member’s allocable share of losses pursuant to section 4.4(b); and (iii) the amount of any debt of the Member that is assumed by the Company or secured by any property contributed by the Member to the Company.

4.6 

Adjustments.   The value of the Company’s property and the Capital Accounts of the Members may be restated from time to time in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(f) and (g); provided, however, that such adjustments shall be made at any time a similar revaluation and restatement is made by ATC LLC.

4.7 

Incorporation.  The provisions of this Article IV and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulation Section 1.704-1(b), the terms and requirements of which are incorporated hereby and shall be interpreted and applied in a manner consistent with those terms and conditions. 

ARTICLE V

Members’ Actions and Voting Rights 

5.1 

Authority and Powers in General.  Except to the extent otherwise provided in this Agreement, the business of the Company shall be managed by the Managers, and no Member shall have any right or power to take part in the management or control of the Company or its business.   Except as such authority may be limited, the Managers shall have full and complete authority to manage the business of the Company, to make all decisions regarding those matters, and to perform all other acts customary or incident to the management of the Company's business. Members have the right to vote only on those matters expressly set forth in this Agreement or as otherwise required by chapter 183 of the Wisconsin Statutes.  The President of an entity that is a Member shall designate an individual to represent the Member at any meetings of the Company; the designation may be changed at any time by providing written notice to the Managers of the Company.

5.2 

Number of Managers; Selection of Managers; Term.   The Company shall have three Managers.   The initial Managers shall be Gary J. Wolter, Kristine A. Euclide and Jeffrey C. Newman.    The Members may replace a Manager or Managers at any time, with or without cause, by Majority Consent of the Percentage Interests of the Company held by Members.  The Managers shall devote such time, effort and attention to the business as is reasonably necessary to accomplish the Company's goals.  Provided, however, that Madison Gas and Electric Company, as an operating public utility as defined in sec.196.02 of the Wisconsin Statutes, shall have the right to name at least one Manager of the Company, which Manager shall serve as the Company's representative on the  board of ATC Management  Inc., as long as Madison Gas and Electric Company has the right to appoint a member to the board of ATC Management Inc.

5.3 

Quorum.  Except as otherwise provided by Chapter 183 of the Wisconsin Statutes, Members holding a majority of the Percentage Interests entitled to vote, represented in person or by proxy,  shall constitute a quorum at any meeting of Members.  Action may be taken on a matter at a Members' meeting only if quorum exists.  Once a Member is represented for any purpose at a meeting, other than for the purpose of objecting to holding the meeting or transacting business at the meeting, that Member is considered present for purposes of determining whether a quorum exists for the remainder of the meeting and for any adjournment of the meeting.  At the adjourned meeting at which a quorum is represented, any business may be transacted that might have been transacted at the meeting as originally noticed.

5.4 

Voting. 

a.

If a quorum exists, action on a matter is approved if the number of votes represented at the meeting favoring the action exceeds the number of votes represented at the meeting opposing the action, unless Chapter 183 of the Wisconsin Statutes or another provision of this Agreement requires a greater number of affirmative votes.

b.

Where this Agreement requires "Majority Consent," more than 50 percent of all the Percentage Interests in the Company held by Members, whether or not represented at the meeting, must approve the action, and "Unanimous Consent" shall mean all Percentage Interests have approved the action.

c.

Each Member shall vote the Percentage Interest held by him or her in the same manner as to any given issue.

d.

Any Member who is present at a meeting but who abstains from voting shall be deemed to have voted his or her Percentage Interest in the same proportion and manner as the Members not abstaining on the issue.

e.

Meetings may be conducted by telephone conference call if all Members are given written notice of the meeting and the opportunity to participate.  One or more Members may participate in a meeting by telephone, provided all Members simultaneously hear all matters communicated over telephone.  A Member participating by telephone is deemed to have attended the meeting for all purposes.

f.

A Member who is not physically present at the meeting may assign his or her vote to another Member by written proxy, or may vote on matters for which a vote is taken orally if attending by telephone, or in writing transmitted by facsimile, mail, e-mail or by courier, providing the Member's vote is received by all of the Members participating in the meeting at the time the vote is taken. 

5.5 

Consent Resolutions.  Any action required or permitted by the Articles of Organization, this Agreement, or any provision of Chapter 183, Wisconsin Statutes, to be taken by the Members may be taken without a meeting by the consent of those Members who would have the voting power to cast at a meeting not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all Percentage Interests entitled to vote were present and voted.  The consent of the Members shall be effective when one or more consents describing the action taken, signed by the number of Members sufficient to take the action, are delivered to the Company for inclusion in the Company's records, unless some other effective date is specified in the consent.  Within ten days after action taken by consent of the Members pursuant to this provision becomes effective, the Company shall give notice of the action to Members who were not represented on the written consent or consents.

ARTICLE VI

Management

6.1 

Members' Management Rights.  Pursuant to sec. 183.0401(1) and (2), Stats., the Members have vested management of the business and affairs of the Company in its Managers.  No Member, in his or her capacity as such, shall have the authority to act for the Company in any matter.  This Section 6.1 restricts management rights and duties of the Members to the extent such rights and duties have been delegated to the Managers.

6.2 

Term of Managers.  Each Manager shall serve until (1) the Manager resigns, or (2) the Manager is removed (with or without cause) by vote of the Members with Majority Consent. 

6.3 

Authority, Powers of the Managers.

a.

Except to the extent otherwise provided in this Agreement, the Managers are authorized to do on behalf of the Company all things that in their sole judgment, are necessary, proper or desirable to carry out the business of the Company in its ordinary course.  Acts by a Manager involving persons other than Members are taken in his or her role as agent of the Company. 

b.

Any person dealing with the Company or a Manager may rely upon a certificate signed by a Manager as to:

(1)

The identity of the Members and the Managers;

(2)

The existence or non-existence of any fact or facts that constitute a condition precedent to acts by the Managers or any other matter germane to the affairs of the Company;

(3)

The persons who are authorized to execute and deliver any instrument or document on behalf of the Company;

(4)

Any act or failure to act by the Company or its Members, or as to any other matter involving the Company or any Member.

c.

Only the Managers have the right, power and authority to execute documents on behalf of and in the name of the  Company, and no person shall be obligated to inquire into the authority of a Manager to bind the company.

6.4 

Restrictions on Manager's Authority.  

a.

A Manager shall not have the authority to:

(1)

do any act in contravention of law or this Agreement that would make it impossible to carry on the ordinary business of the Company;

(2)

possess property of the Company or assign rights in the specific property of the Company, for other than a purpose of the Company;

(3)

perform any act that would subject the Members to liability in any jurisdiction.

b.

Without Unanimous Consent, the Manager shall not have the authority to:

(1)

confess a judgment

(2)

incur indebtedness on behalf of the Company, enter a contract or pledge assets of the Company other than in the ordinary course of business, consistent with the Company's limited purposes;

(3)

make capital expenditures or expenditures for maintenance, except those requested by ATC LLC (as assumed by MGE Energy, Inc., or Madison Gas and Electric Company pursuant to this Agreement).

6.5 

Records.  Pursuant to sec. 183.0405, Stats., the Managers shall keep the following records:

a.

An alphabetical list of the full name and last known address of each past and present Member and Manager, as well as the date on which the person became a Member or Manager and the date any past member ceased being a Member or Manager.

b.

A copy of the Articles of Organization and all amendments to the articles, together with executed copies of any powers of attorney under which the articles were executed.

c.

Copies of the Company's federal and state income and franchise tax returns for the most recent four years.

d.

Copies of this Agreement and all amendments to this Agreement.

e.

A list of the valuation of Members' contributions as determined under sec. 183.0501(2), Stats.

f.

A list of any agreements under which a Member has agreed to make additional contributions.

g.

A list of all events upon which the Company shall be dissolved and its business wound up.

h.

Copies of the minutes of any meetings of the Members and all informal action resolutions signed by the Members.

Upon reasonable request, the Company shall allow a Member to inspect and copy the above records during ordinary business hours.  Such inspection shall be at the Member's  expense; the Member shall pay all reasonable copying expenses.  The Managers shall provide true and full information of all things affecting the Members to any Member or the legal representative of the Member upon reasonable request of the Member or the legal representative.

6.6 

Capital Accounts.   The Managers shall maintain a record of the capital account of each Member in accordance with section 4.5 through 4.7 of this Agreement.  The Managers may retain a certified public accountant or other qualified individual to assist in the maintenance of this record.

6.7 

Tax Matters Partner.  Pursuant to § 6231 of the Internal Revenue Code,  the initial tax  matters partner shall be MGE Energy, Inc.  The tax matters partner shall take such action as may be necessary to cause each other Member to become a notice partner within the meaning of § 6223 of the Code.

6.8 

Standard of Care.  A Manager shall discharge his or her duties as Manager in good faith, and in a manner he or she reasonably believes to be in the best interest of the Company.  A Manager shall not be liable to the Company or any Members for any breach of such duties, except for the receipt of a financial benefit to which the Manager is not entitled, making or assenting to a distribution to Members in violation of this Agreement, or a loss or damage resulting from a knowing violation of the law.

6.9 

Indemnification.  The Company shall indemnify the Managers and make advances for expenses to the maximum extent permitted under sec. 183.0403, Stats.  The Company shall indemnify its Members, employees and other agents who are not Members to the fullest extent permitted by law, provided that such indemnification in any given situation is approved by Majority Consent.

6.10 

Bank Accounts.  The Managers, from time to time, may open bank accounts in the name of the Company and shall be the signatories on the account.

6.11 

Manner of Acting by Managers.  Except to the extent otherwise provided in this Agreement, the Managers are authorized to do on behalf of the Company all things that in their sole judgment, are necessary, proper or desirable to carry out the business of the Company in its ordinary course.  

 

ARTICLE VII

Allocations, Income Tax, Distributions, Elections and Reports

7.1 

Profits and Losses. Except as expressly provided in this Article VII, income, gain, loss, or deduction of the Company shall be allocated to the Members as provided in section 4.4(b) of this Agreement.

7.2 

Tax Allocations.  The following special allocations shall be made in the following order:

a.

To the extent that the Company has interest income or deductions with respect to any obligation of or to a Member pursuant to section 483, sections 1271-1288, or section 7872 of the Code, such interest income or deductions shall be specially allocated to the Member to whom the obligation relates.

b.

This Agreement shall be deemed to contain provisions relating to “minimum gain chargeback,” “nonrecourse deductions,” “qualified income offset,” “gross income allocations,” and any other provision required to be contained in the Agreement pursuant to the Treasury Regulations under section 704(b) of the Code (the “704(b) Allocations”), other than the requirement that a Member be required to contribute to the Company an amount equal to any deficit in the Member’s capital account.   No allocation of loss shall be made to a Member if the allocation would result in a negative balance in the Member’s Capital Account in excess of (a) the amount the Member has loaned the Company, or (b) the amount of Company debt that the Member has guaranteed.  In the event there is a negative balance in a Member’s Capital Account in excess of the amount(s) set forth above, the Member shall be allocated income and gain the amount of that excess as quickly as possible.  Any loss that cannot be allocated to a Member pursuant to the restrictions contained in this paragraph shall be allocated to other Members.   The other provisions of section 4.4 and Article VII notwithstanding, the 704(b) Allocations shall be taken into account in allocating other profits, losses and items of income, gain, and deduction among the Members so that, to the extent possible, the net amount of the allocations of other profits, losses and other items and the 704(b) Allocations to each Member shall equal the net amount that would have been allocated to each Member had the 704(b) Allocations not occurred.

c.

In accordance with section 704(c) of the Code and the Treasury Regulations under that section, income, gain, loss, or deduction with respect to any capital contribution shall, solely for tax purposes, be allocated among Members so as to take into account any variation between the adjusted basis of the property to the Company for federal income tax purposes.

d.

Any elections or other decisions relating to such allocations shall be made by the Managers in any manner that reasonably reflects the purpose and intent of this Agreement.  Allocations pursuant to this Section are solely for the purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any capital account, share of income, gain, loss, or deduction, or distribution pursuant to any provision of this Agreement. 

e.

The Members are aware of the income tax consequences of the allocations made by this Article and agree to be bound by the provisions of this Article in reporting their shares of income and loss for income tax purposes.

7.3 

Distributions.  Distributions of distributable cash shall be made to the Members when determined by the Managers, but in general any non-liquidating distributions from ATC LLC shall be paid to the Members in accordance with their respective Percentage Interests at the time of the distributions.

7.4 

Limitation Upon Distributions.  Notwithstanding any provisions of this Article to the contrary, pursuant to sec. 183.0607, Stats., no distribution shall be declared and paid unless, after the distribution is made, the assets of the Company are in excess of all liabilities of the Company, except liabilities to Members on account of their contributions, or if the Company would be unable to pay its debts in the ordinary course.

7.5 

Accounting Principles.  The profits and losses of the Company shall be determined in accordance with generally accepted accounting principles applied on a consistent basis.  It is intended that the Company will elect those accounting methods which provide the Company with the greatest tax benefits.

7.6 

Accounting Period.  The Company's accounting period shall be the calendar year. 

7.7 

Returns and Other Elections. The Managers shall cause the preparation and timely filing of all tax returns required to be filed by the Company pursuant to the Code and all other tax returns deemed necessary and required in each jurisdiction in which the Company does business.  Copies of such returns, or pertinent information therefrom, shall be furnished to the Members within a reasonable time after the end of the Company's fiscal year.

ARTICLE VIII

Transfers of Percentage Interest

A Member may voluntarily sell, assign or transfer all or a portion of its rights with respect to, and interest in, the Company only with the consent of a majority of the Managers.  Such a sale, assignment or transfer shall not result in the dissolution of the Company.

ARTICLE IX

Dissolution

9.1 

Dissolution.  The Company shall be dissolved and its affairs wound up upon the first to occur of the following events:

a.

The Company being adjudicated insolvent or bankrupt;

b.

The entry of a decree of judicial dissolution pursuant to Chapter 183 of the Wisconsin Statutes.

c.

The Unanimous Consent of the Members.

d.

The bankruptcy or insolvency of a Member.

9.2 

Winding up and liquidation.  Upon a dissolution of the Company, the Managers shall select a liquidator (the “Liquidator”) who may be a Manager of the Company.  The Liquidator shall liquidate the Company’s assets to the extent necessary to pay outstanding creditors of the Company and otherwise deemed advisable by the Liquidator.  The Liquidator need not sell interests in ATC LLC. if not required to do so to discharge debts and liabilities of the Company.  The Liquidator shall apply and distribute the assets of the Company as follows:

a.

First, to the payment and discharge or all of the Company’s debts and liabilities to creditors of the Company;

b.

Second, to the Members in accordance with their Capital Account balances, after making the adjustments for allocations under Article VII, above, up to and including the date of the liquidating distribution.

ARTICLE X

Amendment

This Agreement may be modified or amended with Unanimous Consent of the Members.   Any amendment shall be in writing.

ARTICLE XI

Miscellaneous

11.1 

Entire Agreement.  This Agreement represents the entire agreement among all the Members and the Members and the Company.

11.2 

No Partnership Intended for Non-Tax Purposes.  The Members have formed the Company under chapter 183 of the Wisconsin Statutes.  The Members expressly do not intend hereby to form a partnership.  The Members do not intend to be partners to one another, or partners as to any third party.  To the extent any Director, Officer or Member, by word or action, represents to another person that any Member is a partner or that the Company is a partnership, the Member making such wrongful representation shall be liable to any other Member who incurs personal liability by reason of such wrongful representation.

11.3 

Rights of Creditors and Third Parties Under Agreement.  The Agreement is expressly not intended for the benefit of any creditor of the Company or any other person.  Except and only to the extent provided by applicable statute, no such creditor or third party shall have any rights under this Agreement or any agreement between the Company and any member with respect to a capital contribution or otherwise.

11.4 

Execution of Additional Instruments.  Each Member hereby agrees to execute such other and further statements of interest and holdings, designations, powers of attorney and other instruments necessary to comply with any laws, rules or regulations.

11.5 

Construction.  Whenever the singular number is used in this Agreement and when required by the context, the same shall include the plural and vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa.

11.6 

Headings.  The headings in this Operating Agreement are inserted for convenience only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any of its provisions.

11.7 

Waiver.  The failure of any party to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this Agreement shall not prevent the subsequent act, which would have originally constituted a violation, from having the effect of an original violation.

11.8 

Rights and Remedies Cumulative.  The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive the right to use any or all other remedies.  These rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance or otherwise.

11.9 

Severability.  If any provision of this Agreement or the application thereof to any person or circumstance shall be invalid, illegal or unenforceable to any extent, the remainder of this Agreement and the application thereof shall not be affected and shall be enforceable to the fullest extent permitted by law.

11.10 

Binding Effect.  Each and all of the covenants, terms, provisions and agreements herein contained shall be binding upon and inure to the benefit of the parties hereto and, to the extent permitted by this Agreement, their respective heirs, legal representatives, successors and assigns.

11.11 

Investment Representations.  The undersigned Members  acknowledge that the Membership Interests evidenced by this Agreement have not been registered under the Securities Act of 1933 or any other state securities laws and may not be resold or transferred by the Member without appropriate registration or the availability of an exemption from such requirements. 

CERTIFICATE

The undersigned hereby agree, acknowledge and certify that this Agreement constitutes the Operating Agreement of MGE Transco Investment  LLC, adopted by the Members of the Company effective October 28, 2005.

MGE Transco Investment  LLC

MEMBERS

MADISON GAS AND ELECTRIC

MGE ENERGY, INC.

COMPANY

By:

/s/ Terry A. Hanson

By:

/s/ Jeffrey C. Newman

Terry A. Hanson

Jeffrey C. Newman

Vice President, Chief

Vice President and Treasurer

Financial Officer and Secretary

MANAGERS

By: 

/s/ Gary J. Wolter

/s/ Kristine A. Euclide

Gary J. Wolter

Kristine A. Euclide

By: 

/s/ Jeffrey C. Newman

Jeffrey C. Newman

ACKNOWLEDGEMENT

I acknowledge that Exhibit A contains a true and correct copy of the Articles of Organization filed by me with the Wisconsin Department of Financial Institutions to organize the Company.

10/26/05

/s/ James B. Egle

Date

James B. Egle, Organizer

Attachments:

Exhibit A (Articles of Organization)

Exhibit B (List of Capital Contributions)

EXHIBIT B

				
	

Member

	

Contribution

	

Value

	Percent. Interest

	Madison Gas and Electric Company

	1,875,849 units in ATC LLC

	$18,467,014

	100%

	MGE Energy, Inc. 

	Option right to make future capital contributions requested by ATC LLC*

	                   0

	0%

* As MGE Energy, Inc.,or MGE makes capital contributions to ATC LLC in future, Percentage Interests will be recalculated as provided in Operating Agreement.

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