UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ........ to ........
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-8946 CILCORP Inc. 37-1169387
(An Illinois Corporation)
300 Hamilton Blvd., Suite 300
Peoria, Illinois 61602
(309) 675-8810
1-2732 CENTRAL ILLINOIS LIGHT COMPANY 37-0211050
(An Illinois Corporation)
300 Liberty Street
Peoria, Illinois 61602
(309) 675-8810
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class so registered on which registered
CILCORP Inc. Common stock, no par value New York and Chicago
CILCO Preferred Stock, Cumulative
$100 par, 4 1/2% series New York
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrants were required to
file such reports), and (2) have been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
1
At March 19, 1999, the aggregate market value of the voting stock
of CILCORP Inc. (CILCORP) held by nonaffiliates was approximately
$825 million. On that date, 13,610,680 common shares (no par
value) were outstanding.
At March 19, 1999, the aggregate market value of the voting stock
of Central Illinois Light Company (CILCO) held by nonaffiliates
was approximately $63 million. The voting stock of CILCO
consists of its common and preferred stock. On that date,
13,563,871 shares of CILCO's common stock, no par value, were
issued and outstanding and privately held, beneficially and of
record, by CILCORP Inc.
DOCUMENTS INCORPORATED BY REFERENCE
CILCORP Inc.'s Proxy Statement, to be filed not later than
April 30, 1999, in connection with its Annual Meeting to be held
in June 1999, is incorporated into Part I and Part III hereof.
Central Illinois Light Company's Proxy Statement, to be filed not
later than April 30, 1999, in connection with its Annual Meeting
to be held in June 1999, is incorporated into Part I and Part III
hereof.
CILCORP Inc.'s Annual Report to Shareholders for the year ended
December 31, 1998 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations, which will
accompany or precede the mailing to shareholders of the above-
referenced proxy statement of CILCORP Inc., is incorporated
herein by reference into Part II Item 7.
CILCORP Inc.'s Annual Report to Shareholders for the year ended
December 31, 1998 -- Financial Statements, Notes to the Financial
Statements and Supplementary Data, which will accompany or
precede the mailing to shareholders of the above-referenced proxy
statement of CILCORP Inc., is incorporated herein by reference
into Part II Item 8.
2
CILCORP INC.
and
Central Illinois Light Company
1998 Form 10-K Annual Report
This combined Form 10-K is filed separately by CILCORP Inc. and
Central Illinois Light Company (CILCO). Information herein relating to
each individual registrant is filed by such registrant on its own
behalf. Accordingly, except for its subsidiaries, CILCO makes no
representation as to information relating to any other subsidiary
of CILCORP Inc.
Table of Contents
Page
Glossary 5-6
Part I
Item 1. Business
The Company and its Subsidiaries 7-9
Business of CILCO 9
Electric Service 9-10
Gas Service 10-11
Regulation 11
Electric Fuel and Purchased Gas
Adjustment Clauses 12
Fuel Supply - Coal 12
Natural Gas Supply 12
Financing and Capital Expenditures Programs 13
Environmental Matters 13-14
Significant Customer 14
Franchises 14
Competition 14-15
Employees 15
Union Contracts 15
Business of QST (Excluding QST Environmental) 15
Business of QST Environmental 15-16
Customers 16
Regulation of QST Environmental's Clients 16
Regulation of QST Environmental 17
Competition 17
Subcontractors 17
Government Contracts 17
Potential Liabilities and Insurance 18
Employees 18
Other Businesses 19
CIM 19
CVI 19
Employees 19
Year 2000 20
Item 2. Properties 20-21
Item 3. Legal Proceedings 21-22
Item 4. Submission of Matters to a Vote of Security Holders 22
Executive Officers of the Registrant 22-24
3
Part II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 25
Item 6. Selected Financial Data 26
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 26
Item 8. Index - Financial Statements, Supplementary Data
and Exhibits 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 55
Part III
Item 10. Directors and Executive Officers of the Registrants 55-56
Item 11. Executive Compensation 56
Item 12. Security Ownership of Certain Beneficial
Owners and Management 56
Item 13. Certain Relationships and Related Transactions 56-57
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 58-63
4
GLOSSARY OF TERMS
When used herein, the following terms have the meanings
indicated.
AFUDC -- Allowance for Funds Used During Construction
BTU -- British Thermal Unit. The quantity of heat required to raise the
temperature of one pound of water one degree Fahrenheit.
Bcf -- Billion cubic feet
CAA -- Clean Air Act
Caterpillar -- Caterpillar Inc., CILCO's largest industrial customer
CECO -- CILCO Energy Corporation, a wholly-owned subsidiary of CILCO
CEDCO -- CILCO Exploration and Development Company, a wholly-owned
subsidiary of CILCO
CERCLA -- Comprehensive Environmental Response, Compensation and
Liability Act
CESI -- CILCORP Energy Services Inc.
CILCO -- Central Illinois Light Company
CIM -- CILCORP Investment Management Inc.
CIPS - AmerenCIPS, formerly Central Illinois Public Service Company
CLM -- CILCORP Lease Management Inc.
Company -- CILCORP Inc. and subsidiaries
Cooling Degree Day -- The measure of the extent to which the
average of high and low temperatures for a day
rises above 65 degrees Fahrenheit (annual
degree days above historic average indicate
warmer than average temperatures); the
historic average provided by U.S. Weather
Bureau for 30-year period.
CVI -- CILCORP Ventures Inc.
CWA -- Clean Water Act
DSM -- Demand Side Management. The process of helping customers
control how they use energy resources.
FAC -- Fuel Adjustment Clause
FASB -- Financial Accounting Standards Board
FERC -- Federal Energy Regulatory Commission
FIFRA -- Federal Insecticide, Fungicide & Rodenticide Act
5
Heating Degree Day -- The measure of the extent to which the average of
high and low temperatures for a day falls below 65 degrees
Fahrenheit (annual degree days above historic average
indicates cooler than average temperatures); the
historic average provided by U.S. Weather Bureau for
30-year period.
ICC -- Illinois Commerce Commission
IEPA -- Illinois Environmental Protection Agency
KW -- Kilowatt, a thousand watts
KWH -- Kilowatt-hour, one thousand watts used for one hour (unit of work)
MAIN -- Mid-America Interconnected Network. One of nine
regions that make up the North American Electric Reliability
Council. Its purpose is to ensure the Midwest region will meet
its load responsibility.
MCF -- One thousand cubic feet
MW -- Megawatt, a million watts
MWG -- Midwest Grain Products, Inc.
NEPA -- National Energy Policy Act
NPDES -- National Pollutant Discharge Elimination System
OSHA -- Occupational Safety and Health Act
PGA -- Purchased Gas Adjustment
QST -- QST Enterprises Inc.
QST Communications -- QST Communications Inc.
QST Energy -- QST Energy Inc.
QST Environmental -- QST Environmental Inc.
QST Trading -- QST Energy Trading Inc.
RCRA -- Resource Conservation and Recovery Act
SDWA -- Safe Drinking Water Act
SFAS -- Statement of Financial Accounting Standards
Therm -- Unit of measurement for natural gas; a therm is equal to one
hundred cubic feet (volume); a therm is also equal to
100,000 BTUs (energy).
TSCA -- Toxic Substances Control Act
USEPA -- U.S. Environmental Protection Agency
6
PART I
Item 1. Business
THE COMPANY AND ITS SUBSIDIARIES
CILCORP Inc. (CILCORP or the Company) was incorporated as a
holding company in the state of Illinois in 1985. The financial
condition and operating results of CILCORP primarily reflect the
operations of Central Illinois Light Company (CILCO) and QST
Enterprises Inc. (QST), the Company's principal business
subsidiaries. A former CILCORP first-tier subsidiary, QST
Environmental Inc.(QST Environmental), formerly known as
Environmental Science & Engineering, Inc. (ESE) became a
subsidiary of QST effective October 29, 1996. The Company also
has two other first-tier subsidiaries, CILCORP Investment
Management Inc. (CIM) and CILCORP Ventures Inc. (CVI), whose
operations, combined with those of the holding company itself
(Holding Company), are collectively referred to herein as Other
Businesses. CILCORP owns 100% of the common stock of all of its
subsidiaries.
On November 23, 1998, the Company announced that The AES
Corporation (AES) has offered to buy 100% of the Company's
outstanding common stock for $65 per share, subject to CILCORP
shareholder approval and various regulatory approvals. On March
10, 1999, the Illinois Commerce Commission issued its approval of
CILCORP's merger with AES. Other required approvals are in
process. The Company anticipates that this transaction will
close in mid 1999. Refer to Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations in
CILCORP's 1998 Annual Report to Shareholders incorporated herein
by reference for discussion regarding this transaction.
CILCO is engaged in the generation, transmission, distribution
and sale of electric energy in an area of approximately 3,700
square miles in central and east-central Illinois, and the
purchase, distribution, transportation and sale of natural gas in
an area of approximately 4,500 square miles in central and east-
central Illinois.
CILCO has two wholly-owned subsidiaries, CILCO Exploration and
Development Company (CEDCO) and CILCO Energy Corporation (CECO).
CEDCO was formed to engage in the exploration and development of
gas, oil, coal and other mineral resources. CECO was formed to
research and develop new sources of energy, including the
conversion of coal and other minerals into gas. The operations
of these subsidiaries are not currently significant.
QST, formed in December 1995, provided energy and energy-related
services to a broad spectrum of retail and wholesale customers
through its subsidiary, QST Energy Inc. (QST Energy). QST Energy
has one wholly-owned subsidiary - QST Energy Trading Inc. (QST
Trading), which purchased and sold energy in the wholesale
market. QST provided fiber optic telecommunications services
through another wholly-owned subsidiary, QST Communications Inc.
(QST Communications). In August 1998, QST sold its 100% interest
in QST Communications. In the fourth quarter of 1998, QST
decided to discontinue its energy operations and report their
results as discontinued. Refer to the caption "QST Enterprises
Discontinued Operations" of Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations and to
"Note 10 - QST Enterprises Discontinued Operations" of Item 8.
Financial Statements and Supplementary Data included in CILCORP's
1998 Annual Report to Shareholders which is incorporated herein
by reference.
ESE was formed in February 1990 to conduct the environmental
consulting and analytical services businesses acquired from
Hunter Environmental Services, Inc. (Hunter) during that year.
Effective October 29, 1996, ESE (now known as
7
QST Environmental) became a wholly-owned subsidiary of QST. QST
Environmental provides engineering and environmental consulting
services to a variety of governmental, industrial and commercial
customers. QST Environmental has six wholly-owned subsidiaries:
Keck Instruments, Inc., which manufactures geophysical
instruments used in environmental applications; QST Architectural
Services, Inc., which provides architectural services in
Illinois; National Professional Casualty Co., which provides
professional and pollution liability insurance to QST
Environmental; Chemrox, Inc., which formerly manufactured
products and provided engineering services for the safe use and
control of ethylene oxide and chlorofluorocarbons; Environmental
Staffing Solutions, Inc., which provides temporary staffing
services. During the fourth quarter of 1997, QST Environmental
completed the sale of substantially all of the assets of ESE Land
for cash and continued membership interests in the acquiring
companies. In the fourth quarter of 1998, the Company decided to
sell its 100% ownership interest in QST Environmental. Refer to
the caption "QST Enterprises Discontinued Operations" of Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations and to "Note 10 - QST Enterprises
Discontinued Operations" of Item 8. Financial Statements and
Supplementary Data included in CILCORP's 1998 Annual Report to
Shareholders which is incorporated herein by reference.
CIM manages the Company's investment portfolio. CIM holds eight
leveraged lease investments through three wholly-owned
subsidiaries: CILCORP Lease Management Inc. which was formed in
1985, and CIM Leasing Inc. and CIM Air Leasing Inc., which were
both formed in 1993. CIM's other wholly-owned subsidiary is CIM
Energy Investments Inc., which was formed in 1989 to invest in
non-regulated, independent power production facilities (see Other
Businesses). CIM also directly owns limited partnership
interests in affordable housing portfolios.
CVI primarily invests in ventures in energy-related products and
services. CVI has an 80% interest in the Agricultural Research
and Development Corporation and has one wholly-owned subsidiary,
CILCORP Energy Services Inc. (CESI). CESI was formed to pursue
energy-related opportunities in the non-regulated market. CESI's
primary business is the sale of gas management services
(including commodity purchasing). During 1998, 1997 and 1996
CESI provided certain energy-related services to Caterpillar Inc.
Refer to the caption "Competition" of Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations in CILCORP's 1998 Annual Report to Shareholders which
is incorporated herein by reference.
8
The following table summarizes the relative contribution of each
business group to consolidated assets at December 31, 1998, and
to revenue and net income for the year ended December 31, 1998.
<TABLE>
<CAPTION>
Assets Revenue Net Income
(Loss)
(In thousands)
<S> <C> <C> <C>
CILCO $1,024,428 $ 534,079 $ 41,041
Other Businesses 170,945 24,717 (2,823)
----------
Total Continuing Operations 38,218
QST Enterprises Discontinued Operations (21,908)
----------
Net Income $ 16,310
==========
</TABLE>
CILCORP is an intrastate exempt holding company under
Section 3(a)(1) of the Public Utility Holding Company Act of 1935
(PUHCA). Federal legislation dealing with the restructuring of
the electric utility industry, including repeal of PUHCA, has
been introduced in both Houses of Congress. Repeal of PUHCA
would, among other things, remove certain presently applicable
restrictions to the merger or combination of non-contiguous
electric and natural gas utility holding companies. The Company
cannot predict whether or when any of these proposals might be
enacted at the federal level or the ultimate effect on the
Company.
BUSINESS OF CILCO
CILCO was incorporated under the laws of Illinois in 1913.
CILCO's principal business is the generation, transmission,
distribution and sale of electric energy in an area of
approximately 3,700 square miles in central and east-central
Illinois, and the purchase, distribution, transportation and sale
of natural gas in an area of approximately 4,500 square miles in
central and east-central Illinois.
CILCO is continuing to experience, in varying degrees, the impact
of developments common to the electric and gas utility
industries. These include increased competition in wholesale
markets and the prospect of competition in retail markets,
changes in regulation and legislation affecting utilities,
uncertainties as to the future demand for electricity and natural
gas, structural and competitive changes in the markets for these
commodities, the high cost of compliance with environmental and
safety laws and regulations and uncertainties in regulatory and
political processes. At the same time, CILCO has sought to
provide reliable service at reasonable rates for its customers
and a fair return for its investors. Refer to the caption
"Competition" of Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations in CILCORP's 1998
Annual Report to Shareholders which is incorporated herein by
reference.
ELECTRIC SERVICE
CILCO furnishes electric service to retail customers in 136
Illinois communities (including Peoria, East Peoria, Pekin,
Lincoln and Morton). At December 31, 1998, CILCO had
approximately 189,000 retail electric customers.
9
In 1998, 68% of CILCO's total operating revenue was derived from
the sale of electricity. Approximately 37% of electric revenue
resulted from residential sales, 31% from commercial sales, 25%
from industrial sales, 5% from sales for resale and 2% from other
sales. Electric sales, particularly residential and commercial
sales during the summer months, fluctuate based on weather
conditions.
The electric operating revenues of CILCO were derived from the
following sources:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Residential $133,687 $125,071 $121,668
Commercial 111,830 103,747 100,944
Industrial 87,895 82,318 79,065
Sales for resale 18,866 19,966 15,206
Street lighting 1,385 1,343 1,283
Other revenue 6,346 5,651 4,619
-------- -------- --------
Total electric revenue $360,009 $338,096 $322,785
======== ======== ========
</TABLE>
CILCO owns and operates two coal-fired base load generating
plants, a natural gas-fired cogeneration plant, and two natural
gas combustion turbine generators which are used for peaking
service. The 1998 system peak demand was 1,195 MW on June 26,
1998. This was a new all-time system peak demand.
The system peak demand for 1999 is estimated to be 1,228 MW with
a planned reserve margin of approximately 20.2%. The planned
reserve margin takes into account 150 MW of firm purchased power
(see Note 8 - Commitments and Contingencies) and 93 MW of
interruptible industrial load and other related Demand Side
Management (DSM) programs. CILCO's planned reserve margin is
designed to comply with planning reserve margin requirements
established by the Mid-America Interconnected Network (MAIN), of
which CILCO is a member.
Studies conducted by CILCO indicate that it has sufficient base
load generating capacity and purchased capacity to provide an
adequate and reliable supply of electricity to satisfy base load
demand.
CILCO is interconnected with AmerenCIPS (CIPS), formerly Central
Illinois Public Service Company, Commonwealth Edison Company,
Illinois Power Company and the Springfield City Water, Light and
Power Department to provide for the interchange of electric
energy on an emergency and mutual help basis.
GAS SERVICE
CILCO provides gas service to customers in 128 Illinois
communities (including Peoria, East Peoria, Pekin, Lincoln and
Springfield). At December 31, 1998, CILCO had approximately
197,000 gas customers, including 837 industrial, commercial and
residential gas transportation customers that purchase gas
directly from suppliers for transportation through CILCO's
system. For further discussion of gas transportation, refer to
the caption "CILCO Gas Operations" of Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations in CILCORP's 1998 Annual Report to Shareholders,
incorporated herein by reference.
10
In 1998, 32% of CILCO's total operating revenue was derived from
the sale or transportation of natural gas. Approximately 58% of
gas revenue resulted from residential sales, 25% from commercial
sales, 4% from industrial sales, 3% from transportation and 10%
from other sales. Gas sales, particularly residential and
commercial sales during the winter months, fluctuate based on
weather conditions.
The gas operating revenues of CILCO were derived from the
following sources:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Residential $100,010 $124,440 $125,869
Commercial 42,713 51,204 44,695
Industrial 6,627 8,276 5,670
Transportation of gas 5,911 6,484 8,388
Other revenue 17,066 18,354 11,148
-------- -------- --------
Total gas revenue $172,327 $208,758 $195,770
======== ======== ========
</TABLE>
CILCO's all-time maximum daily send-out of 443,167 MCF occurred
on January 15, 1972. The 1998 peak day send-out of 327,328 MCF
occurred on January 13, 1998. CILCO has been able to meet all of
its existing customer requirements during the 1998-1999 heating
season. CILCO believes that its present and planned supplies of
gas will continue to be sufficient to serve all of its existing
customer requirements during the 1999-2000 heating season.
REGULATION
CILCO is a public utility under the laws of the State of Illinois
and is subject to the jurisdiction of the ICC. The ICC has
general power of supervision and regulation with respect to
services and facilities, rates and charges, classification of
accounts, valuations of property, determination of depreciation
rates, construction, contracts with any affiliated interest, the
issuance of stock and evidences of indebtedness and various other
matters. In Illinois, the Electric Service Customer Choice and
Rate Relief Law of 1997 (Customer Choice Law) began a transition
process to a fully competitive market for electricity. Large
industrial customers and customers representing one-third of
remaining non-residential Kwh sales will be able to choose their
electric supplier beginning October 1, 1999. CILCO, as required
by the Customer Choice Law, filed its delivery service tariffs
pertaining to these customers on March 5, 1999. The ICC must act
on CILCO's tariffs by September 1, 1999. The ICC's supervision
and regulatory oversight of certain transactions by electric
utilities is reduced or suspended during the mandatory transition
period (which terminates on January 1, 2005) and, for certain non-
utility transactions, is permanently eliminated under the
Customer Choice Law. Refer to the caption "Competition" of Item
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations in CILCORP's 1998 Annual Report to
Shareholders, which is incorporated herein by reference, for
changes in the Illinois regulatory environment enacted in 1997.
With respect to certain electric matters, CILCO is subject to
regulation by the FERC. CILCO is exempt from the provisions of
the Natural Gas Act, but is affected by orders, rules and
regulations issued by the FERC with respect to certain gas
matters.
11
ELECTRIC FUEL AND PURCHASED GAS ADJUSTMENT CLAUSES
CILCO's tariffs provide for adjustments to its electric rates
through the fuel adjustment clause (FAC) to recover the cost of
energy purchased from other suppliers and to reflect increases or
decreases in the cost of fuel used in its generating stations.
The transportation costs of coal are not currently included in
the FAC, but are collected through base rates.
CILCO's current tariffs also provide for adjustments to its gas
rates through the purchased gas adjustment clause (PGA) to
reflect increases or decreases in the cost of natural gas
purchased for sale to customers.
FUEL SUPPLY - COAL
Substantially all of CILCO's electric generation capacity is coal-
fired. Approximately 2.7 million tons of coal were burned during
1998. Existing coal contracts with suppliers in central Illinois
are expected to supply 100% of the 1999 requirements.
During the years 1998, 1997, and 1996, the average cost per ton
of coal burned, including transportation, was $33.56, $34.01, and
$31.82, respectively. The cost of coal burned per million BTU's
was $1.54, $1.56, and $1.44, respectively (see Electric Fuel and
Purchased Gas Adjustment Clauses).
CILCO has a long-term contract with Freeman United Coal Mining
Company (Freeman) for the purchase of high-sulfur, Illinois coal
used predominantly at the Duck Creek Station. The contract gives
CILCO the flexibility to purchase between 500,000 and 1,000,000
tons annually. Under the terms of the contract, CILCO's
obligation to purchase coal could be extended through 2010;
however, Freeman has the option of terminating the contract (with
two years' notice). The contract requires CILCO to pay all
variable coal production costs on tons purchased and certain
fixed costs not affected by the volume purchased. On August 8,
1997, CILCO filed a demand for arbitration with Freeman alleging
that Freeman has failed to keep and perform its prudent mining
obligations, as required by the parties' contract. The relief
sought by CILCO through this arbitration includes damages and
confirmation of CILCO's termination rights under this contract.
CILCO and Freemen have agreed to continue operating under the
present contract until a ruling on CILCO's claims is reached by
the arbitrators, which is expected in late 1999. CILCO cannot at
this time predict the ultimate outcome of this dispute or whether
its resolution will have a material impact on CILCO's operating
results.
NATURAL GAS SUPPLY
During 1998, CILCO continued to maintain a widely diversified and
flexible natural gas supply portfolio. This portfolio is
structured around firm and interruptible gas transportation
service provided by five interstate pipeline suppliers and firm
and interruptible gas purchase arrangements of varying terms made
directly with approximately 20 gas suppliers. Reliability is
enhanced through natural gas injections and withdrawals at
CILCO's two natural gas storage fields and contracted storage
facilities. The supply and pipeline capacity portfolio continues
to provide reliable supplies at prevailing market prices. CILCO
believes that its present and planned supply of gas will continue
to be sufficient to serve all of its present and projected firm
customer requirements.
During 1998, CILCO purchased and delivered approximately
37,828,000 MCF of natural gas at a cost of approximately $101.0
million, or an average cost of $2.67 per MCF. The average cost
per MCF of natural gas purchased and delivered was $3.03 in 1997
and $3.05 in 1996 (see Electric Fuel and Purchased Gas Adjustment
Clauses).
12
FINANCING AND CAPITAL EXPENDITURES PROGRAMS
CILCO's ongoing capital expenditures program is designed to
maintain reliable electric and gas service and to meet the
anticipated demands of its customers. Capital expenditures for
1999 are estimated to be $56.6 million, including pollution
control expenditures of $4.9 million. Expenditures include
$30.8 million for the electric business, $12.7 million for the
gas business and $13.1 million for general and miscellaneous
purposes. Electric expenditures include $13.7 million for
additions and modifications to generating facilities and
$17.1 million for transmission and distribution system additions
and improvements. Gas expenditures are primarily for necessary
additions, replacements and improvements to existing facilities.
Anticipated gas and electric capital expenditures for 2000-2003
are $202.4 million.
The above estimates for 1999 capital expenditures include
$11.8 million for information technology projects. Included in
1999 information technology projects is replacement of existing
computer software containing two-digit date fields which will not
be able to distinguish the year 2000 from the year 1900. Refer
to the caption "Year 2000" of Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations in
CILCORP's 1998 Annual Report to Shareholders which is
incorporated herein by reference.
CILCO expects to finance its 1999 capital expenditures with funds
provided by operating activities. Future funds provided by
operations may be affected by the deregulation of the electric
and natural gas utility industries. CILCO's short-term debt
increased to $40.6 million at December 31, 1998, from
$21.3 million at December 31, 1997. CILCO retired $10.65 million
of medium-term notes in June 1998 and $20 million of first
mortgage bonds in March 1997. Also, in 1998, CILCO paid $20
million of dividends to CILCORP in addition to regular quarterly
dividends. At December 31, 1998, CILCO had bank lines of credit
aggregating $45 million, all of which were unused, except in
support of commercial paper issuance. CILCO expects the support
of commercial paper issuance to be the only use of these bank
lines during 1999. Refer to the caption "Capital Resources and
Liquidity - CILCO" of Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations in
CILCORP's 1998 Annual Report to Shareholders which is
incorporated herein by reference.
ENVIRONMENTAL MATTERS
Refer to the caption "Environmental Matters" of Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations in CILCORP's 1998 Annual Report to
Shareholders which is incorporated herein by reference.
Since the adoption of the United Nations Framework on Climate
Change in 1992, there has been a worldwide effort to reduce
greenhouse gas (GHG) emissions to 1990 levels or below. In
December of 1997, the Clinton administration participated in the
Kyoto, Japan negotiations, where the basis of a Climate Change
treaty was formulated. Under the treaty, the United States would
have an overall reduction target of 7% in GHG emissions from 1990
levels by 2008-2012. A key part of the initiative is a trading
program for GHG emissions, which at this time is undefined.
CILCO estimates that reducing GHG emissions to 7% below the 1990
levels during the period 2008-2012 could require significant
capital outlays and increases in annual operating expenses
associated with electric generation which could have a material
adverse impact on the Company.
13
The U.S. Senate passed a resolution in 1997 indicating the Senate
would not ratify an agreement that does not involve commitments
from developing nations to limit GHG emissions or one that would
damage the U.S. economy. The Clinton administration has approved
a program for U.S. GHG emissions reductions. The
administration's program has not yet been approved by the U.S.
Senate.
Many urban areas around the country face the major challenge of
achieving compliance with ozone air quality standards. Ozone is
formed when volatile organic compound (VOC) emissions and/or
nitrogen oxide (NOx) emissions photochemically react in the
atmosphere. Strategies for reduction of ozone levels have
targeted mobile, area and stationary sources (including power
plants) of VOCs and NOx.
Under Title I of the Clean Air Act, states are required to
develop and implement State Implementation Plans (SIP) for ozone
compliance by September 2003. CILCO has been targeted by the
U.S. Environmental Protection Agency (USEPA) for additional NOx
emission reductions of 85% at its power plants, by May 2003,
pursuant to regional ozone compliance programs, despite the fact
that CILCO's plants are in attainment areas. Illinois has until
September 1999 to finalize a SIP to achieve this target. CILCO's
capital expenditures to meet the NOx emission requirements could
total $59 million by 2003.
CILCO is currently in the process of investigating and
implementing potential beneficial re-use for ash (a coal
combustion by-product) generated at both generating stations.
Providing alternate uses for the ash will allow CILCO to avoid
potential costs associated with the construction of additional
facilities to store and manage this by-product.
SIGNIFICANT CUSTOMER
Caterpillar Inc. is CILCO's largest industrial customer.
Aggregate gas and electric revenues from sales to Caterpillar
were 7.6%, 7.5%, and 7.5% of CILCO's total operating revenue for
1998, 1997 and 1996, respectively. Sales to Caterpillar from all
CILCORP subsidiaries represent 4.0%, 4.4%, and 6.3% of CILCORP
consolidated revenue for 1998, 1997 and 1996, respectively. See
CILCO's Consolidated Statements of Segments of Business under
Item 8. Financial Statements and Supplementary Data.
FRANCHISES
CILCO negotiates franchise agreements which authorize it to
provide utility services to the communities in its service area.
The franchises are for various terms, usually 10 to 25 years.
Based on past experience, CILCO anticipates that, as franchises
expire, new franchises will be granted in the normal course of
business.
COMPETITION
CILCO, as a regulated public utility, has an obligation to
provide service to retail customers within its defined service
territory; thus, CILCO has not generally been in competition with
other public utilities for retail electric or gas customers in
these areas. However, the passage of the Electric Service
Customer Choice and Rate Relief Law of 1997 began a transition
process to a fully competitive market for electricity in
Illinois. In addition, electricity and natural gas compete with
other forms of energy available to customers. For example,
within the City of Springfield, CILCO's natural gas business
competes with the City's municipal electric system to provide
customer energy needs.
Refer to the caption "Competition" of Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations in CILCORP's 1998
14
Annual Report to Shareholders, incorporated herein by reference,
for discussion regarding CILCO's electric and gas pilot programs
(collectively known as Power Quest), Illinois' Electric Service
Customer Choice and Rate Relief Law of 1997, and other
competitive trends which may affect CILCO's electric and gas
operations.
EMPLOYEES
The number of full-time and part-time employees at December 31,
1998, was 1,274, excluding employees assigned to the Holding
Company. Of these, 389 gas and electric department employees
were represented by Local 51 of the International Brotherhood of
Electrical Workers (IBEW), and 200 power plant employees were
represented by Local 8 of the National Conference of Firemen and
Oilers (NCF&O).
CILCO'S UNION CONTRACTS
The IBEW ratified its current agreement on October 10, 1997. The
contract expires on July 1, 2000. The NCF&O ratified its current
contract with the Company on October 23, 1998. CILCO's previous
contract with the NCF&O expired on July 1, 1998, and the NCF&O
membership had been working without a contract since that time.
The new contract expires on July 1, 2001.
BUSINESS OF QST (EXCLUDING QST ENVIRONMENTAL)
QST Enterprises Inc. (QST) was formed in December 1995. Through
its wholly-owned subsidiary, QST Energy, QST provided a portfolio
of non-regulated, energy-related products and services including
wholesale and retail sales of electricity and natural gas in
markets that are open to competition. QST also provided fiber
optic telecommunication services in Central Illinois. Due to
uncertainties related to energy deregulation across the country,
the illiquidity of certain energy markets and its pending
acquisition by AES, the Company will focus in the future on the
opportunities in the Illinois energy market resulting from the
deregulation of electricity under the Electric Service Customer
Choice and Rate Relief Law of 1997. Accordingly, the operations
of QST Enterprises Inc. and its subsidiaries are shown as
discontinued operations in the statements of income. QST sold
its wholly-owned fiber optic-based telecommunications subsidiary,
QST Communications, in August 1998.
BUSINESS OF QST ENVIRONMENTAL
QST Environmental is an environmental consulting and engineering
firm with additional capabilities in equipment manufacturing. As
discussed above in "Business of QST (Excluding QST
Environmental)", the Company will focus in the future on the
opportunities in the Illinois energy market. As a result, the
Company decided in the fourth quarter of 1998 to sell its 100%
ownership interest in QST Environmental. Accordingly, the
operations of QST Environmental are shown as discontinued on the
statements of income. Refer to the caption "QST Enterprises
Discontinued Operations" of Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations and to
"Note 10 - QST Enterprises Discontinued Operations" of Item 8.
Financial Statements and Supplementary Data included in CILCORP's
1998 Annual Report to Shareholders which is incorporated herein
by reference.
QST Environmental's services are intended to address the concern
over the quality of the environment, the numerous complex
federal, state and local environmental regulations and
enforcement efforts in support of environmental laws. As such,
QST Environmental's business is affected by the existence and
enforcement of various federal and state statutes and regulations
dealing with the environment and the use, control, disposal and
clean-up of hazardous
15
wastes (see Regulation of QST Environmental's Clients herein).
QST Environmental provides a full-service approach to business,
industrial and governmental clients, commencing with problem
identification and analysis, continuing through regulatory
negotiation and engineering, and concluding with the preparation
and implementation of a remediation plan or final design and
construction.
QST Environmental has a wide range of clients in business,
industry and government, including federal agencies, state and
local governments, institutional, commercial and industrial firms
and professional service firms. QST Environmental employs
environmental, chemical, geotechnical, civil, mechanical,
structural and transportation engineers; geologists;
hydrogeologists; chemists; biologists; toxicologists;
meteorologists; industrial hygienists; architects; and surveyors.
QST Environmental has a nationwide network of offices with its
corporate office in Peoria, Illinois. In late 1998, QST
Environmental decided to discontinue its laboratory operations.
QST Environmental provides services in the following areas: air
quality, chemical analysis, asbestos and lead-based paint
management, industrial hygiene, environmental assessment and
toxicology, hydrogeology, remediation, construction management,
storage tank management, surface water resources analysis, and
environmental audits. QST Environmental also provides
engineering design, and environmental, transportation, and
water/wastewater engineering services. In addition, QST
Environmental manufactures instrumentation for groundwater
analysis and mineral exploration through its wholly-owned
subsidiary, Keck Instruments, Inc.
CUSTOMERS
QST Environmental sells its products and services to governmental
agencies and public and private companies. Approximately 43% of
QST Environmental's revenue for 1998 was generated by services
performed for federal, state and local governmental agencies
compared to 48% for 1997. In the year ended 1998, two customer
contracts, EPA and Lucent Technologies, Inc., accounted for 5.7%
and 5.4% of gross revenues, respectively. The EPA contract was
rebid in 1998 and awarded to QST Environmental. The Lucent
Technologies, Inc. contract was concluded in 1998.
In 1998, approximately 92% of QST Environmental's revenue was
generated from environmental consulting and engineering services,
6% from laboratory services and 2% from manufactured equipment
sales.
REGULATION OF QST ENVIRONMENTAL'S CLIENTS
The level and nature of QST Environmental's business activity is
largely dependent upon government statutes and regulations
relating to the environment.
Significant laws or regulations impacting QST Environmental and
the demand for its services include:
Clean Air Act of 1970 (CAA), Clean Water Act of 1972, as amended
in 1987 (CWA), Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (Superfund or CERCLA), Federal
Insecticide, Fungicide and Rodenticide Act (FIFRA), National
Environmental Policy Act of 1970 (NEPA), National Pollutant
Discharge Elimination System (NPDES) Stormwater Permitting
Regulations of 1990, Occupational Safety and Health Act of 1970
(OSHA), Resource Conservation and Recovery Act of 1976 (RCRA),
Safe Drinking Water Act, as amended in 1986 and 1996 (SDWA),
Toxic Substances Control Act of 1976 (TSCA), and State and Local
Regulations.
16
REGULATION OF QST ENVIRONMENTAL
The environmental statutes and regulations listed above primarily
affect QST Environmental's clients, and thus have a significant
impact on the volume of QST Environmental's business activity and
specific types of services that QST Environmental provides to its
clients. These environmental statutes and regulations also
govern the manner in which QST Environmental performs services
for its clients. QST Environmental must comply with specific
worker protection requirements and other health and safety
standards. These standards include taking steps to limit
exposure to asbestos and chemical substances in the workplace.
QST Environmental also must comply with regulations pertaining to
the disposal of certain hazardous chemicals and substances
pursuant to guidelines established under federal and state law.
Among those substances are materials removed from the properties
and facilities of its clients. Disposal costs for these
materials, and legal compliance costs generally for QST
Environmental, have risen steadily in recent years and are
expected to continue to increase.
Management believes that the degree of enforcement of
environmental regulations at the federal, state and local level
will continue to affect the levels of business of QST
Environmental and its clients.
COMPETITION
The market for QST Environmental's consulting services is highly
competitive, and QST Environmental is subject to competition with
respect to all of the services it provides. QST Environmental
competes primarily on the basis of quality of service, expertise,
and price. QST Environmental's competitors range from small
local firms to major national companies. No single entity
currently dominates the environmental consulting and engineering
services marketplace.
SUBCONTRACTORS
Because of the nature of the projects in which QST Environmental
is involved, QST Environmental often subcontracts a portion of
its projects to other contractors in order to utilize their
expertise, equipment and experience in areas where QST
Environmental may lack the ability to complete the entire
project. For example, if QST Environmental does not have the
necessary equipment to perform all aspects of a project, such
work may be subcontracted to local contractors. In addition,
contracts which QST Environmental has with federal, state and
local governmental agencies may require, as a matter of law, that
on a particular job QST Environmental hire a certain percentage
of minority-owned subcontractors.
GOVERNMENT CONTRACTS
Many of QST Environmental's contracts with governmental agencies
are cost-plus, based on a combination of labor cost, overhead
cost and allowable fee. Overhead rates are estimated at the time
of contract negotiations. Following the completion of a
contract, actual overhead is determined and the difference is
reimbursed to the government or paid to QST Environmental within
the limits of the contract. Although QST Environmental enjoys a
good working relationship with the governmental agencies for
which it performs these services, these contracts may be subject
to renegotiation of profits or termination at the election of the
governmental agency.
17
POTENTIAL LIABILITIES AND INSURANCE
QST Environmental is exposed to risk of financial loss during its
normal course of business in a variety of ways typically
associated with an environmental and engineering consulting
business, including: work-related injury or illness of employees
or third parties; damage to property in QST Environmental's
control during the course of a project; damage to QST
Environmental's property; repair or rectification costs resulting
from failure to detect, analyze, or measure pollutants, asbestos
or other toxic substances; repair or rectification costs due to
faulty design, workmanship, or liability resulting from QST
Environmental's construction or design activities; failure to
perform or delay in project completion; and claims by third
parties for alleged pollution or contamination damage. Also, QST
Environmental assumes contingent liabilities arising out of its
need to exercise care in the selection and supervision of
subcontractors on various projects. Since QST Environmental
derives revenues from work involving hazardous materials, toxic
wastes and pollutants, potential losses may surface many years
after a project is completed.
These risks, along with enforcement of environmental regulations
and increasing public awareness regarding environmental issues
and responsibilities, make it mandatory that QST Environmental
maintain a sound risk management and insurance program.
QST Environmental carries professional liability insurance which
covers design errors and omissions resulting from its typical
operations. This policy is extended to include pollution
liability losses. The current policy, effective April 1, 1998,
has a limit of $8 million per claim ($13 million in aggregate for
the annual term), with the first $50,000 of each claim as
retention ($200,000 in aggregate). The policies cover activities
in which QST Environmental is typically involved. QST
Environmental expects to renew these policies annually in the
normal course of business. The professional and pollution
liability insurance policies include standard industry exclusions
for: dishonesty, discrimination, warranties and guarantees,
punitive damages, intentional non-compliance with government
regulations or statutes, nuclear energy, war and bodily injury
from the specification, installation, transportation, storage or
disposal of asbestos.
QST Environmental also carries insurance policies covering
workers' compensation, general liability and auto and property
damage claims. The workers' compensation policy provides
statutory average limits. General liability and auto policies
provide full insurance coverage with minor deductible amounts.
Also, performance and payment bonds may be provided for specific
projects if required by clients. To supplement its risk transfer
to insurance policies, QST Environmental attempts with its
clients to limit and/or transfer its risk contractually.
QST Environmental believes it operates in a safe manner and, as
described above, purchases insurance to protect against loss and
maintain competitiveness in the marketplace; however, its entire
potential liability may not be covered by insurance. Also, the
total cost of a potential claim could exceed QST Environmental's
policy limits.
EMPLOYEES
At December 31, 1998, QST Environmental employed 501 full-time,
part-time and on-call employees, many of whom have advanced
degrees in a variety of technical disciplines and all of whom are
non-union.
18
OTHER BUSINESSES
CIM
The investment portfolio of CIM at December 31, 1998, and
December 31, 1997, is shown in the following table:
<TABLE>
<CAPTION>
Type of Investment
At December 31 1998 1997
(In thousands)
<S> <C> <C>
Investment in leveraged leases $146,990 $146,458
Cash and temporary cash investments 71 152
Investment in Energy Investors Fund 1,510 1,158
Investment in affordable
housing funds 13,808 15,557
Other 120 156
-------- --------
Total $162,499 $163,481
======== ========
</TABLE>
At December 31, 1998, CIM held equity investments in eight
leveraged leases through its wholly-owned subsidiaries, CILCORP
Lease Management Inc. (CLM), CIM Air Leasing Inc. and CIM Leasing
Inc. According to the terms of some of the lease agreements,
under certain circumstances, subsidiaries of CIM may be obligated
to incur additional non-recourse debt to finance the cost of
certain alterations, additions, or improvements required by the
lessee.
CIM, through its wholly-owned subsidiary, CIM Energy Investments
Inc., has a net investment of $1,510,000 in the Energy Investors
Fund, L.P.(Fund), representing a 3.1% interest in the Fund at
December 31, 1998. The Fund invests in non-regulated, non-
utility facilities for the production of electricity or thermal
energy. The equity method of accounting is used for this
investment.
CIM is a limited partner in eight affordable housing portfolios.
The ownership interests in these partnerships range from 3% to
10% at December 31, 1998. The equity method of accounting is
used for these investments.
CVI
CVI's net investment in CESI, its wholly-owned subsidiary, is
approximately $1.1 million. CESI's primary business is the sale
of gas management services (including commodity purchasing). In
addition, during 1998, costs related to providing additional
value-added services to Caterpillar in connection with CILCO's
Power Quest programs were reflected in CESI's operating results.
Refer to the caption "Competition" of Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations in CILCORP's 1998 Annual Report to Shareholders which
is incorporated herein by reference.
EMPLOYEES
At December 31, 1998, there were 10 full-time employees assigned
to CILCORP, CVI and CIM.
19
YEAR 2000
Refer to the captions "Forward-Looking Information" and "Year
2000" of Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations in CILCORP's 1998
Annual Report to Shareholders which is incorporated herein by
reference.
Item 2. Properties
CILCO
CILCO owns and operates two steam-electric generating plants, a
cogeneration plant and two combustion turbine-generators. These
facilities had an available summer capability of 1,152 MW in
1998. The two combustion turbine generators have a summer rating
of 30 MW (15 MW each) and are used during peak periods. They
typically operate less than 100 hours per year. The cogeneration
plant, which became operational during 1995, produces steam for
Midwest Grain Products, Inc. (MWG) and also generates electricity
for distribution to CILCO's customers. This turbine-generator
has an available summer capability of 16 MW.
The major generating facilities of CILCO (representing 96.0% of
CILCO's available summer generating capability projected for
1999), all of which are fueled with coal, are as follows:
<TABLE>
<CAPTION>
Available
Summer
Capability
(MW)
Station & Unit Installed Actual 1998
<S> <C> <C>
Duck Creek
Unit 1 1976 366
E. D. Edwards
Unit 1 1960 117
Unit 2 1968 262
Unit 3 1972 361
</TABLE>
CILCO's transmission system includes approximately 285 circuit
miles operating at 138,000 volts, 48 circuit miles operating at
345,000 volts and 16 principal substations with an installed
capacity of 2,150,000 kilovolt-amperes.
The electric distribution system includes approximately 6,223
miles of overhead pole and tower lines and 2,096 miles of
underground distribution cables. The distribution system also
includes 105 substations with an installed capacity of 1,665,885
kilovolt-amperes.
The gas system includes approximately 3,581 miles of transmission
and distribution mains.
CILCO has an underground gas storage facility located about ten
miles southwest of Peoria near Glasford, Illinois. The facility
has a present recoverable capacity of approximately 4.5 Bcf. An
additional storage facility near Lincoln, Illinois, has a present
recoverable capacity of approximately 5.2 Bcf.
QST ENVIRONMENTAL
QST Environmental owns approximately 53 acres of land in
Gainesville, Florida, containing 118,000 square feet of office
space. In Peoria, Illinois, QST
20
Environmental owns approximately 27,000 square feet of offices
and other space and leases approximately 21,000 square feet of
additional space for offices. QST Environmental and its
subsidiaries lease additional facilities for offices and
warehouse space in 22 cities throughout the United States. QST
Environmental believes its facilities are suitable and adequate
for its current businesses and does not expect to make any
material acquisitions of real property in the near future. Refer
to the caption "Capital Resources and Liquidity - QST
Environmental" of Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations in CILCORP's
1998 Annual Report to Shareholders which is incorporated herein
by reference.
Item 3. Legal Proceedings
Reference is made to the captions "Environmental Matters" of Item
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations and to "Note 9 - Commitments and
Contingencies" of Item 8. Financial Statements and Supplementary
Data in CILCORP's 1998 Annual Report to Shareholders,
incorporated herein by reference, for certain pending legal
proceedings and/or proceedings known to be contemplated by govern-
mental authorities.
Pursuant to CILCO's By-Laws, CILCO has advanced legal and other
expenses actually and reasonably incurred by employees, and
former employees, in connection with the United States Department
of Justice's (DOJ) investigation of CILCO's Springfield gas
operations. In 1992, after a significant number of leaks were
detected in CILCO's Springfield cast iron distribution system,
CILCO began a detailed examination of the system and related
operating practices and procedures. CILCO then began an
aggressive program, which it completed in September 1993, to
renew the Springfield cast iron system. The ICC staff began an
informal review of CILCO's Springfield gas operations and
recordkeeping practices in September 1992. Subsequently, the
U.S. Department of Transportation (DOT) and the DOJ began
conducting investigations of CILCO, which were also focused
principally on CILCO's Springfield gas operations. The DOJ and
DOT investigations were subject to a September 1994 settlement
agreement under which CILCO entered into a federal court civil
consent decree that concluded the DOT and DOJ investigations. As
part of the settlement, CILCO accepted adjustments recommended by
the ICC staff which resulted in disallowance from rate base of
$4.6 million of the cost of the Springfield renewal program and
payments of $1 million by CILCO in civil fines and investigation
costs. Additionally, in an employment litigation matter, CILCO
has advanced legal expenses incurred by an officer who has been
named as a defendant in that litigation initiated by a former
employee.
On February 1, 1999, QST notified two of its California
commercial customers that they were in default of their agreement
to purchase energy from QST as a result of their failure to pay
$11 million billed to them by QST. In late February, 1999, after
expiration of a period to cure the non-payment, QST filed suit in
Federal District Court for payment. On March 1, the customers
filed a counter suit in California Superior Court alleging they
were not in default of the contract for various reasons,
including QST's issuance of estimated bills. Management cannot
predict the ultimate outcome of this dispute, but intends to
vigorously pursue its legal remedies to receive payment.
The Company and its subsidiaries are subject to certain claims
and lawsuits in connection with work performed in the ordinary
course of their businesses. Except as otherwise disclosed or
referred to in this section, in the opinion of management, all
such claims currently pending will not result in a material
adverse effect on the financial position and results of
operations of the Company. Risk of loss is mitigated, in some
cases, by insurance or
21
contractual or statutory indemnification. The Company has
established appropriate reserves for potential losses.
Item 4. Submission of Matters to a Vote of Security Holders
CILCORP
There were no matters submitted to a vote of security holders
during the fourth quarter of 1998.
CILCO
There were no matters submitted to a vote of security holders
during the fourth quarter of 1998.
<TABLE>
<CAPTION>
Executive Officers of CILCORP
Age as Initial
Name of Positions Held During Effective
3/31/99 Past Five Years Date(1)
<S> <C> <C> <C>
R. O. Viets 55 President and Chief
Executive Officer February 1, 1988
J. G. Sahn 52 Vice President,
Secretary and
Treasurer August 17, 1998
Vice President,
General Counsel and
Secretary March 1, 1994
T. D. Hutchinson (2) 44 Controller January 20, 1997
<FN>
Notes:
(1) The term of each executive officer extends to the
organization meeting of CILCORP's Board of Directors
following the next annual election of Directors.
(2) T. D. Hutchinson served as Controller from February 1, 1988,
until April 1, 1995, when he became CILCO Director -
Competitive Strategy. From January 1, 1996 to January 20,
1997, Mr. Hutchinson served as Director of Planning and
Administration of QST Enterprises Inc.
</TABLE>
22
<TABLE>
<CAPTION>
Executive Officers of CILCO
Age as of Positions Held During Initial
Name 3/31/99 Past Five Years(1) Effective Date(2)
<S> <C> <C> <C>
R. O. Viets (3) 55 Chairman of the
Board, President
and Chief
Executive Officer August 17, 1998
Chairman of the
Board and Chief
Executive Officer April 1, 1995
J. M. Elliott (4) 55 Senior Vice
President August 17, 1998
W. M. Shay (5) 46 Senior Vice
President August 17, 1998
J. F. Vergon 51 Senior Vice
President August 17, 1998
President and Chief
Operating Officer January 29, 1996
Group President,
Gas Operations April 1, 1995
Vice President October 1, 1986
M. J. Bowling 52 Vice President April 1, 1995
S. A. Cisel 45 Vice President April 1, 1995
C. Gilson 41 Vice President September 23, 1997
K. A. Lockenvitz 42 Vice President September 23, 1997
T. S. Romanowski 49 Vice President October 1, 1986
R. J. Sprowls (6) 41 Vice President and
Chief Financial
Officer August 17, 1998
W. R. Dodds 44 Treasurer and
Manager of
Treasury Department October 1, 1990
T. D. 44 Controller and
Hutchinson(7) Manager of
Accounting January 1, 1997
J. G. Sahn (8) 52 Secretary March 1, 1993
<FN>
Notes:
(1) The officers listed have been employed by CILCO in executive
or management positions for the past five years except for Mr.
Viets, Mr. Elliott, Mr. Shay, Mr. Sprowls and Mr. Hutchinson.
(2) The term of each executive officer extends to the
organization meeting of CILCO's Board of Directors following
the next annual election of Directors.
(3) Mr. Viets previously served as Chairman of the Board from
February 1, 1988 to April 23, 1991. He also serves as
President and Chief Executive Officer of CILCO's parent,
CILCORP Inc., a position he has held since February 1, 1988.
23
(4) Mr. Elliott continues to serve as President of QST
Enterprises Inc., a position he has held since November 4,
1996. QST Enterprises Inc. is also a subsidiary of CILCORP
Inc.
(5) Mr. Shay served as Executive Vice President and Chief Legal
Officer of CILCORP Inc. effective November 4, 1997 and as
Executive Vice President as of November 4, 1996. He served as
President and Chief Operating Officer of QST Enterprises Inc.
from January 29, 1996 to November 4, 1996. Previously, he was
Group President of CILCO from April 1, 1995 to January 29, 1996
and Vice President of CILCO from January 1, 1993 to April 4,
1995.
(6) Mr. Sprowls serves as CILCO's Chief Financial Officer. He
was Senior Vice President and Chief Financial Officer of QST
Enterprises Inc. from April 22, 1997 to August 17, 1998 and
Vice President from August 19, 1996 to April 22, 1997. Mr.
Sprowls was Vice President of the Company from April 1, 1995
to January 29, 1996 and, from October 1, 1990 to April 25,
1995, he served as Treasurer of CILCORP.
(7) Mr. Hutchinson is also Controller of CILCORP, effective
January 20, 1997, having previously served as CILCORP
Controller from February 1, 1988 to April 1, 1995. He
served as CILCO Director-Competitive Strategy from April 1,
1995 to December 31, 1995 and as Director of Planning and
Administration of QST Enterprises Inc. from January 1, 1996
to January 20, 1997.
(8) Mr. Sahn also serves as Vice President of CILCORP Inc., a
position he has held since February 1, 1989. He was elected
to the additional positions of Secretary of CILCORP
effective March 1, 1994 and as Treasurer of CILCORP
effective August 17, 1998.
</TABLE>
24
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
CILCORP
The Company's common stock is listed on the New York and Chicago
Stock Exchanges (ticker symbol CER). At December 31, 1998, there
were 12,873 holders of record of the Company's common stock.
The following table sets forth, for the periods indicated, the
dividends per share of common stock and the high and low prices
of the common stock as reported in New York Stock Exchange
Composite Transactions.
<TABLE>
<CAPTION>
Quarter
1997 First Second Third Fourth
<S> <C> <C> <C> <C>
Price Range
High $39 5/8 $41 3/8 $43 $49
Low $35 5/8 $37 1/2 $38 13/16 $40 1/2
Dividends Paid $ .615 $ .615 $ .615 $ .615
1998
Price Range
High $48 15/16 $50 $54 1/8 $61 9/16
Low $44 3/16 $43 5/16 $45 1/4 $50 3/8
Dividends Paid $ .615 $ .615 $ .615 $ .615
<FN>
The number of common shareholders of record as of March 19, 1999,
was 12,729.
</TABLE>
CILCO
CILCO's common stock is not traded on any market. As of
March 19, 1999, 13,563,871 shares of CILCO's Common Stock, no par
value, were issued, and outstanding and privately held,
beneficially and of record, by CILCORP Inc.
CILCO's requirement for retained earnings before common stock
dividends may be paid is described in Note 5 of CILCO's Notes to
the Consolidated Financial Statements contained in Item 8.
Financial Statements and Supplementary Data.
25
<PAGE>
Item 6. Selected Financial Data
<TABLE>
CILCORP INC.
Selected Financial Data
<CAPTION>
For the Years Ended December 31
1998 1997 1996 1995 1994
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenue $ 559,024 $ 557,906 $ 527,060 $ 482,642 $ 472,340
Net income available
for common
stockholders 16,310 16,395 27,943 38,582 32,586
Earnings per share 1.20 1.20 2.07 2.93 2.50
Total assets 1,312,940 1,334,819 1,285,693 1,279,303 1,238,384
Long-term debt 285,552 298,528 320,666 344,113 326,695
Dividends declared
per common share 2.46 2.46 2.46 2.46 2.46
</TABLE>
<TABLE>
Central Illinois Light Company
Selected Financial Data
<CAPTION>
For the Years Ended December 31
1998 1997 1996 1995 1994
(In thousands)
<S> <C> <C> <C> <C> <C>
Electric and Gas
Revenue $ 532,336 $ 546,854 $ 518,555 $ 477,744 $ 461,370
Net income available
for common
stockholders 41,041 50,251 41,939 39,099 29,507
Total assets 1,024,428 1,022,655 1,036,169 1,063,223 1,019,109
Long-term debt 267,884 267,836 278,439 298,397 278,359
Ratio of earnings
to fixed charges 3.4 3.5 3.4 3.3 3.0
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information under the heading Management's Discussion and
Analysis of Financial Condition and Results of Operations in
CILCORP's 1998 Annual Report to Shareholders is incorporated
herein by reference.
26
Item 8. Financial Statements and Supplementary Data
The financial statements and Management's Report to the
Stockholders of CILCORP Inc. contained in CILCORP's 1998 Annual
Report to Shareholders are incorporated herein by reference.
Index to Financial Statements:
Page
CILCORP
Report of Independent Public Accountants on
Schedules 28
CILCO
Management's Report 29
Report of Independent Public Accountants 30
Consolidated Statements of Income 31
Consolidated Balance Sheets 32-33
Consolidated Statements of Cash Flows 34-35
Statements of Segments of Business 36-38
Consolidated Statements of Retained Earnings 39
Notes to Consolidated Financial Statements 40-55
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To CILCORP Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in
CILCORP Inc.'s Annual Report to Shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon
dated January 27, 1999. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The
financial statement schedules listed in Item 14(a)2 are the
responsibility of the Company's management and are presented for
purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial
statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 1999
28
<PAGE>
MANAGEMENT'S REPORT
The accompanying financial statements and notes for CILCO and its
consolidated subsidiaries have been prepared by management in
accordance with generally accepted accounting principles.
Estimates and judgments used in developing these statements are
the responsibility of management. Financial data presented
throughout this report is consistent with these statements.
CILCO maintains a system of internal accounting controls which
management believes is adequate to provide reasonable assurance
as to the integrity of accounting records and the protection of
assets. Such controls include established policies and
procedures, a program of internal audit and the careful selection
and training of qualified personnel.
The financial statements have been audited by CILCO's independent
public accountants, Arthur Andersen LLP. Their audit was
conducted in accordance with generally accepted auditing
standards and included an assessment of selected internal
accounting controls only to determine the scope of their audit
procedures. The report of the independent public accountants is
contained in this Form 10-K annual report.
The Audit Committee of the CILCORP Inc. Board of Directors,
consisting solely of outside directors, meets periodically with
the independent public accountants, internal auditors and
management to review accounting, auditing, internal accounting
control and financial reporting matters. The independent public
accountants have direct access to the Audit Committee. The Audit
Committee meets separately with the independent public
accountants.
R. O. Viets
Chairman of the Board,
President and Chief
Executive Officer
R. J. Sprowls
Vice President and Chief
Financial Officer
T. D. Hutchinson
Controller and Manager of
Accounting
29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Central Illinois Light Company:
We have audited the accompanying consolidated balance sheets of
Central Illinois Light Company (an Illinois corporation) and
subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, cash flows, segments of
business, and retained earnings for each of the three years in
the period ended December 31, 1998. These financial statements
and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Central Illinois Light Company and subsidiaries as of
December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The financial
statement schedule listed in Item 14(a)2 is presented for
purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic
financial statements. This financial statement schedule has
been subjected to the auditing procedures applied in our audits
of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be
set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 1999
30
Central Illinois Light Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Years Ended December 31 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Operating Revenues:
Electric $360,009 $338,096 $322,785
Gas 172,327 208,758 195,770
-------- -------- --------
Total Operating Revenues 532,336 546,854 518,555
-------- -------- --------
Operating Expenses:
Cost of Fuel 94,490 92,230 90,715
Cost of Gas 93,586 123,531 108,286
Purchased Power 29,568 22,851 10,907
Other Operations and Maintenance 118,707 109,833 119,334
Depreciation and Amortization 65,273 61,505 59,664
Income Taxes 25,088 29,317 26,548
State and Local Taxes on Revenue 26,502 22,467 22,004
Other Taxes 11,407 11,808 11,419
-------- -------- --------
Total Operating Expenses 464,621 473,542 448,877
-------- -------- --------
Operating Income 67,715 73,312 69,678
-------- -------- --------
Other Income and Deductions:
Cost of Equity Funds Capitalized -- 35 36
CILCO-owned Life Insurance, Net (1,013) (1,177) (679)
Other, Net 274 (256) 200
-------- -------- --------
Total Other Income and
(Deductions) (739) (1,398) (443)
-------- -------- --------
Income Before Interest Expenses 66,976 71,914 69,235
-------- -------- --------
Interest Expenses:
Interest on Long-term Debt 19,498 20,024 21,012
Cost of Borrowed Funds Capitalized (34) (99) (54)
Other 3,277 2,622 3,150
-------- -------- --------
Total Interest Expenses 22,741 22,547 24,108
-------- -------- --------
Net Income Before Extraordinary
Item and Preferred Dividends 44,235 49,367 45,127
Extraordinary Item -- 4,100 --
-------- -------- --------
Net Income Before Preferred
Dividends 44,235 53,467 45,127
Dividends on Preferred Stock 3,194 3,216 3,188
-------- -------- --------
Net Income Available for Common
Stock $ 41,041 $ 50,251 $ 41,939
-------- -------- --------
Other Comprehensive Income (169) (317) (5)
Comprehensive Income $ 40,872 $ 49,934 $ 41,934
======== ======== ========
<FN>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
31
<TABLE>
Central Illinois Light Company
Consolidated Balance Sheets
Assets
<CAPTION>
As of December 31 1998 1997
(In thousands)
<S> <C> <C>
Utility Plant, At Original Cost:
Electric $1,237,885 $1,213,585
Gas 417,585 401,870
---------- ----------
1,655,470 1,615,455
Less - Accumulated Provision for
Depreciation 812,630 769,792
---------- ----------
842,840 845,663
Construction Work in Progress 30,075 21,550
Plant Acquisition Adjustments, Net of
Amortization 505 1,217
---------- ----------
Total Utility Plant 873,420 868,430
---------- ----------
Other Property and Investments:
Cash Surrender Value of Company-owned
Life Insurance (Net of Related Policy
Loans of $48,132 in 1998 and $42,898
in 1997) 2,655 2,399
Other 1,176 1,214
---------- ----------
Total Other Property and Investments 3,831 3,613
---------- ----------
Current Assets:
Cash and Temporary Cash Investments 1,362 698
Receivables, Less Reserves of $1,106
and $703 35,767 44,550
Accrued Unbilled Revenue 31,315 31,248
Fuel, at Average Cost 13,431 7,816
Materials and Supplies, at Average Cost 15,062 13,685
Gas in Underground Storage, at Avg. Cost 20,494 22,118
Prepaid Taxes 2,265 1,189
Other 6,626 6,331
---------- ----------
Total Current Assets 126,322 127,635
---------- ----------
Deferred Debits:
Unamortized Loss on Reacquired Debt 3,261 3,581
Unamortized Debt Expense 1,852 2,019
Prepaid Pension Cost 417 455
Other 15,325 16,922
---------- ----------
Total Deferred Debits 20,855 22,977
---------- ----------
Total Assets $1,024,428 $1,022,655
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these balance sheets.
</TABLE>
32
<PAGE>
<TABLE>
Central Illinois Light Company
Consolidated Balance Sheets
Capitalization and Liabilities
<CAPTION>
As of December 31 1998 1997
(In thousands)
<S> <C> <C>
Capitalization:
Common Shareholder's Equity:
Common Stock, No Par Value; Authorized
20,000,000 Shares; Outstanding
13,563,871 Shares $ 185,661 $ 185,661
Retained Earnings 135,315 147,757
Accumulated Other Comprehensive Income (845) (676)
---------- ----------
Total Common Shareholder's Equity 320,131 332,742
Preferred Stock Without Mandatory
Redemption 44,120 44,120
Preferred Stock With Mandatory Redemption 22,000 22,000
Long-term Debt 267,884 267,836
---------- ----------
Total Capitalization 654,135 666,698
---------- ----------
Current Liabilities:
Current Maturities of Long-Term Debt -- 10,650
Notes Payable 40,600 21,300
Accounts Payable 53,260 44,844
Accrued Taxes 7,303 2,593
Accrued Interest 9,394 9,234
PGA Over-Recoveries 304 1,666
Level Payment Plan 1,519 2,375
Other 5,261 4,670
---------- ----------
Total Current Liabilities 117,641 97,332
---------- ----------
Deferred Liabilities and Credits:
Accumulated Deferred Income Taxes 141,746 139,274
Regulatory Liability 46,346 56,807
Investment Tax Credits 19,450 21,117
Capital Lease Obligation 1,703 2,182
Other 43,407 39,245
---------- ----------
Total Deferred Liab. and Credits 252,652 258,625
---------- ----------
Total Capitalization and Liabilities $1,024,428 $1,022,655
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these balance sheets.
</TABLE>
33
<PAGE>
<TABLE>
Central Illinois Light Company
Consolidated Statements of Cash Flows
<CAPTION>
For the Years Ended December 31 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income Before Extraordinary Item
and Preferred Dividends $ 44,235 $ 49,367 $ 45,127
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Depreciation and Amortization 65,986 62,217 60,376
Deferred Taxes, Investment Tax Credits
and Regulatory Liability, Net (7,690) (6,585) (1,727)
Decrease(Increase) in Accts Receivable 8,328 (946) (1,292)
(Increase)Decrease in Fuel, Materials
and Supplies, and Gas
in Underground Storage (5,368) 3,372 (5,262)
Increase in Unbilled Revenue (67) (369) (1,988)
Increase(Decrease) in Accts Payable 8,416 (1,282) 5,643
Increase(Decrease) in Accrued Taxes
and Interest 4,870 (4,947) 2,349
Capital Lease Payments 645 645 645
(Increase)Decrease in Other Current
Assets (1,372) 3,331 7,427
Decrease in Other Current Liabilities (1,627) (458) (1,106)
(Increase)Decrease in Other Non-
Current Assets 2,328 6,372 (3,506)
Increase in Other Non-Current Liab. 3,571 1,273 5,130
-------- -------- --------
Net Cash Provided by Operating
Activities 122,255 111,990 111,816
-------- -------- --------
Cash Flows from Investing Activities:
Capital Expenditures (67,102) (55,026) (43,525)
Cost of Equity Funds Capitalized -- (35) (36)
Other (5,817) (5,950) (2,495)
-------- -------- --------
Net Cash Used in Investing
Activities (72,919) (61,011) (46,056)
-------- -------- --------
Cash Flows from Financing Activities:
Common Dividends Paid (53,483) (39,482) (46,121)
Preferred Dividends Paid (3,194) (3,216) (3,188)
Long-Term Debt Retired (10,650) (20,000) (16,000)
Payments on Capital Lease Obligation (645) (645) (645)
Increase(Decrease) in Short-Term
Borrowing 19,300 11,400 (14,700)
-------- -------- --------
Net Cash Provided from (Used in)
Financing Activities (48,672) (51,943) (80,654)
-------- -------- --------
Net Increase(Decrease) in Cash and
Temporary Cash Investments 664 (964) (14,894)
Cash and Temporary Cash Investments at
Beginning of Year 698 1,662 16,556
-------- -------- --------
Cash and Temporary Cash Investments at
December 31 $ 1,362 $ 698 $ 1,662
======== ======== ========
34
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period for:
Interest (Net of Cost of Borrowed
Funds Capitalized) $23,200 $24,148 $23,475
Income Taxes $30,421 $37,907 $22,079
<FN>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these statements.
</TABLE>
35
<PAGE>
<TABLE>
Central Illinois Light Company
Statements of Segments of Business
<CAPTION>
1998
CILCO CILCO CILCO Total
Electric Gas Other CILCO
(In thousands)
<S> <C> <C> <C> <C>
Revenues $360,009 $172,327 $ 1,743 $ 534,079
Interest Income -- -- 228 228
-------- -------- ------- ----------
Total 360,009 172,327 1,971 534,307
-------- -------- ------- ----------
Operating Expenses 235,801 138,459 3,600 377,860
Depreciation and Amortization 46,017 19,256 713 65,986
-------- -------- ------- ----------
Total 281,818 157,715 4,313 443,846
-------- -------- ------- ----------
Interest Expense 16,261 6,514 -- 22,775
Preferred Stock Dividends -- -- 3,194 3,194
Fixed Charges and Other Exp. (34) -- 1,013 979
-------- -------- ------- ----------
Total 16,227 6,514 4,207 26,948
-------- -------- ------- ----------
Income from Continuing Oper.
Before Income Taxes 61,964 8,098 (6,549) 63,513
Income Taxes 21,645 3,443 (2,616) 22,472
-------- -------- ------- ----------
Segment Net Income $ 40,319 $ 4,655 $(3,933) $ 41,041
======== ======== ======= ==========
Capital Expenditures $ 44,213 $ 22,889 $ -- $ 67,102
Revenue from major customer
Caterpillar Inc. $ 39,354 $ 948 $ -- $ 40,302
Segment Assets $731,985 $287,371 $ 5,072 $1,024,428
36
1997
CILCO CILCO CILCO Total
Electric Gas Other CILCO
(In thousands)
<S> <C> <C> <C> <C>
Revenues $338,096 $208,758 $ -- $ 546,854
Interest Income -- -- 239 239
-------- -------- ------- ----------
Total 338,096 208,758 239 547,093
-------- -------- ------- ----------
Operating Expenses 217,700 165,020 2,831 385,551
Depreciation and Amortization 43,858 17,647 713 62,218
-------- -------- ------- ----------
Total 261,558 182,667 3,544 447,769
-------- -------- ------- ----------
Interest Expense 16,192 6,454 -- 22,646
Preferred Stock Dividends -- -- 3,216 3,216
Fixed Charges and Other Exp. (134) -- 1,177 1,043
-------- -------- ------- ----------
Total 16,058 6,454 4,393 26,905
-------- -------- ------- ----------
Income from Continuing Oper.
Before Income Taxes 60,480 19,637 (7,698) 72,419
Income Taxes 21,901 7,416 (3,049) 26,268
-------- -------- ------- ----------
Net Income from Continuing
Operations before
Extraordinary Item 38,579 12,221 (4,649) 46,151
Extraordinary Item 4,100 -- -- 4,100
-------- -------- ------- ----------
Segment Net Income $ 42,679 $ 12,221 $(4,649) $ 50,251
======== ======== ======= ==========
Capital Expenditures $ 35,196 $ 19,830 $ -- $ 55,026
Revenue from major customer
Caterpillar Inc. $ 40,106 $ 934 $ -- $ 41,040
Segment Assets $725,725 $291,291 $ 5,639 $1,022,655
37
1996
CILCO CILCO CILCO Total
Electric Gas Other CILCO
(In thousands)
<S> <C> <C> <C> <C>
Revenues $322,785 $195,770 $ -- $ 518,555
Interest Income -- -- 680 680
-------- -------- ------- ----------
Total 322,785 195,770 680 519,235
-------- -------- ------- ----------
Operating Expenses 208,566 154,099 2,234 364,899
Depreciation and Amortization 42,530 17,134 713 60,377
-------- -------- ------- ----------
Total 251,096 171,233 2,947 425,276
-------- -------- ------- ----------
Interest Expense 17,445 6,716 -- 24,161
Preferred Stock Dividends -- -- 3,188 3,188
Fixed Charges and Other Exp. (90) -- 679 589
-------- -------- ------- ----------
Total 17,355 6,716 3,867 27,938
-------- -------- ------- ----------
Income from Continuing Oper.
Before Income Taxes 54,334 17,821 (6,134) 66,021
Income Taxes 19,576 6,972 (2,466) 24,082
-------- -------- ------- ----------
Segment Net Income $ 34,758 $ 10,849 $(3,668) $ 41,939
======== ======== ======= ==========
Capital Expenditures $ 28,032 $ 15,529 $ -- $ 43,561
Revenue from major customer
Caterpillar Inc. $ 37,724 $ 1,053 $ -- $ 38,777
Segment Assets $733,071 $296,674 $ 6,424 $1,036,169
</TABLE>
38
<PAGE>
<TABLE>
Central Illinois Light Company
Consolidated Statements of Retained Earnings
<CAPTION>
For the Years Ended December 31 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Balance Beginning of Year $147,081 $136,629 $140,814
Add
Net Income Before Preferred
Dividends 44,235 53,467 45,127
-------- -------- --------
Total 191,316 190,096 185,941
-------- -------- --------
Deduct
Cash Dividends Declared
Preferred Stock
$100 Par Value
4 1/2% Series 501 501 501
4.64% Series 371 371 371
5.85% Series 1,287 1,287 1,287
Auction Rate Series (rate at
December 31, 1998 was 4.04%) 1,035 1,057 1,027
Common Stock, No Par Value 53,483 39,482 46,121
-------- -------- --------
Total Dividends Declared 56,677 42,698 49,307
-------- -------- --------
Additional Minimum Liability for
Non-Qualified Pension Plan at
December 31, 1998, 1997, and
1996 net of taxes of $111,
$208 and $3, respectively 169 317 5
-------- -------- --------
56,846 43,015 49,312
-------- -------- --------
Balance End of Year $134,470 $147,081 $136,629
======== ======== ========
<FN>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
39
<PAGE>
CENTRAL ILLINOIS LIGHT COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of CILCO include the
accounts of CILCO and its subsidiaries, CILCO Exploration and
Development Company and CILCO Energy Corporation. CILCO is a
subsidiary of CILCORP Inc. Prior year amounts have been
reclassified on a basis consistent with the 1998 presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
REGULATION
CILCO is a public utility subject to regulation by the Illinois
Commerce Commission (ICC) and the Federal Energy Regulatory
Commission (FERC) with respect to accounting matters, and
maintains its accounts in accordance with the Uniform System of
Accounts prescribed by these agencies.
CILCO is subject to the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation" (SFAS 71) for its regulated public
utility operations. Under SFAS 71, assets and liabilities are
recorded to represent probable future increases and decreases,
respectively, of revenues to CILCO resulting from the ratemaking
action of regulatory agencies.
The Electric Service Customer Choice and Rate Relief Law of 1997
(Customer Choice Law) became effective in Illinois in December
1997. Among other provisions, this law begins a nine-year
transition process to a fully competitive market for electricity
in Illinois. Electric transmission and distribution activities
are expected to continue to be regulated, but a customer may
choose to purchase electricity from another supplier (see
Management's Discussion - Competition).
The Customer Choice Law contains many other provisions affecting
how CILCO will or may conduct its business in the future. The
Customer Choice Law also requires the ICC to promulgate rules
pertaining to various matters, including accounting and
recordkeeping requirements, electric reliability standards, and
affiliated interest rules. CILCO will adapt its business plans
to take advantage of the competitive opportunities afforded by
the new law.
Due to the transition cost recovery limitations and base rate
reductions of the Customer Choice Law, CILCO's electric
generation activities will no longer be subject to the provisions
of SFAS 71. Accordingly, regulatory assets of $1.5 million and
liabilities of $5.6 million associated with electric generating
plant were written-off or credited, respectively, to income in
1997 as a net $4.1 million after-tax extraordinary item.
Regulatory assets
40
included on the Consolidated Balance Sheets at December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Included in prepayments and other:
Fuel and gas cost adjustments $ 4,740 $ 2,954
Coal tar remediation cost -
estimated current 609 844
Gas transition costs -- 159
------- -------
Current costs included in
prepayments and other 5,349 3,957
------- -------
Included in other assets:
Coal tar remediation cost, net of
recoveries 1,281 2,745
Regulatory tax asset 5,723 7,578
Deferred gas costs 4,039 4,145
Unamortized loss on reacquired debt 3,261 3,581
------- -------
Future costs included in other assets 14,304 18,049
------- -------
Total regulatory assets $19,653 $22,006
======= =======
</TABLE>
Regulatory assets at December 31, 1998 are related to CILCO's
regulated electric and gas distribution activities. CILCO does
not currently believe the costs recorded for its generating
plants and related assets at December 31, 1998 to be impaired as
a result of the Customer Choice Law. Regulatory liabilities,
consisting of deferred tax items primarily related to CILCO's
electric and gas transmission and distribution operations, are
approximately $46.3 million and $56.8 million at December 31,
1998 and 1997, respectively.
41
CILCO's electric generation-related identifiable assets included
in the balance sheet at December 31, 1998 and 1997 were:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Property, Plant and Equipment $ 537,358 $ 535,065
Less: Accumulated Depreciation (266,461) (259,988)
--------- ---------
270,897 275,077
Construction Work in Progress 3,268 1,979
--------- ---------
Net Property, Plant and Equipment 274,165 277,056
Fuel, at Average Cost 8,704 8,520
Materials and Supplies, at Avg. Cost 8,452 8,202
--------- ---------
Total Identifiable Electric
Generation Assets $ 291,321 $ 293,778
========= =========
</TABLE>
Accumulated deferred income taxes associated with electric
generation property at December 31, 1998 and 1997 were
approximately $72 million and $79 million, respectively.
UTILITY OPERATING REVENUES, FUEL COSTS AND COST OF GAS
Electric and gas revenues include service provided but unbilled
at year end. Substantially all electric rates and gas system
sales rates of CILCO include a fuel adjustment clause and a
purchased gas adjustment clause, respectively. These clauses
provide for the recovery of changes in electric fuel costs,
excluding coal transportation, and changes in the cost of gas on
a current basis in billings to customers. CILCO adjusts the cost
of fuel and cost of gas to recognize over or under recoveries of
allowable costs. The cumulative effects are deferred on the
Balance Sheets as a current asset or current liability (see
Regulation, above) and adjusted by refunds or collections through
future billings to customers. For further discussion, refer to
the caption, "Electric Fuel and Purchased Gas Adjustment Clauses"
of Item 1. Business.
CONCENTRATION OF CREDIT RISK
CILCO, as a public utility, must provide service to customers
within its defined service territory and may not discontinue
service to residential customers when certain weather conditions
exist. CILCO continually reviews customers' creditworthiness and
requests or refunds deposits based on that review. At December
31, 1998, CILCO had net receivables of $35.8 million, of which
approximately $4.7 million was due from its major customers.
TRANSACTIONS WITH AFFILIATES
CILCO, which is a subsidiary of CILCORP, incurs certain corporate
expenses such as legal, shareholder and accounting fees on behalf
of CILCORP and its other subsidiaries. Also, beginning in 1997,
CILCO sold natural gas to its affiliate CESI, in conjunction with
CESI's gas marketing program. These expenses are billed monthly
to CILCORP and its other subsidiaries based on specific
identification of costs except for shareholder-related costs
which are based on the relative equity percentages of CILCORP and
its subsidiary
42
corporations. A return on CILCO assets used by CILCORP and its
other subsidiaries is also calculated and billed monthly. Total
billings to CILCORP and its other subsidiaries amounted to
$11.6 million, $7.5 million, and $5.4 million in 1998, 1997 and
1996, respectively.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
The allowance, representing the cost of equity and borrowed funds
used to finance construction, is capitalized as a component of
the cost of utility plant. The amount of the allowance varies
depending on the rate used and the size and length of the
construction program. The Uniform System of Accounts defines
AFUDC, a non-cash item, as the net cost for the period of
construction of borrowed funds used for construction purposes and
a reasonable rate upon other funds when so used. On the income
statement, the cost of borrowed funds capitalized is reported as
a reduction of total interest expense and the cost of equity
funds capitalized is reported as other income. In accordance
with the FERC formula, the composite AFUDC rates used in 1998,
1997 and 1996 were 5.9%, 7.2% and 7.8%, respectively.
DEPRECIATION AND MAINTENANCE
Provisions for depreciation of utility property for financial
reporting purposes are based on straight-line composite rates.
The annual provisions for utility plant depreciation, expressed
as a percentage of average depreciable utility property, were
3.8% and 4.6% for electric and gas, respectively, for each of the
last three years. Utility maintenance and repair costs are
charged directly to expense. Renewals of units of property are
charged to the utility plant account, and the original cost of
depreciable property replaced or retired, together with the
removal cost less salvage, is charged to the accumulated
provision for depreciation.
INCOME TAXES
CILCO follows a policy of comprehensive interperiod income tax
allocation. Investment tax credits related to utility property
have been deferred and are being amortized over the estimated
useful lives of the related property. CILCORP and its
subsidiaries file a consolidated federal income tax return.
Income taxes are allocated to the individual companies based on
their respective taxable income or loss.
CONSOLIDATED STATEMENTS OF CASH FLOWS
CILCO considers all highly liquid debt instruments purchased with
a remaining maturity of three months or less to be cash
equivalents for purposes of the Consolidated Statements of Cash
Flows.
43
CILCO-OWNED LIFE INSURANCE POLICIES
The following amounts related to CILCO-owned life insurance
contracts, issued by one major insurance company, are recorded on
the Consolidated Balance Sheets:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Cash surrender value of contracts $ 50,786 $ 45,297
Borrowings against contracts (48,132) (42,898)
-------- --------
Net investment $ 2,654 $ 2,399
======== ========
</TABLE>
Interest expense related to borrowings against CILCO-owned life
insurance, included in CILCO-owned Life Insurance, Net on the
Consolidated Statements of Income, was $3.6 million, $3.5 million
and $2.7 million for 1998, 1997 and 1996, respectively.
NOTE 2 - INCOME TAXES
CILCO uses the liability method to account for income taxes.
Under the liability method, deferred income taxes are recognized
at currently enacted income tax rates to reflect the tax effect
of temporary differences between the financial reporting basis
and the tax basis of assets and liabilities. Temporary
differences occur because the income tax law either requires or
permits certain items to be reported on CILCO's income tax return
in a different year than they are reported in the financial
statements. CILCO has recorded a regulatory asset and liability
to account for the effect of expected future regulatory actions
related to unamortized investment tax credits, income tax
liabilities initially recorded at tax rates in excess of current
rates, the equity component of AFUDC and other items for which
deferred taxes had not previously been provided. The temporary
differences
44
related to the consolidated deferred income tax asset and
liability at December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
December 31 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Deferred Tax Assets:
Deferred Tax Asset $ 20,307 $ 16,752 $ 14,967
Adjustment to reflect
regulatory asset (5,723) (7,578) (4,777)
-------- -------- --------
Net deferred tax asset $ 14,584 $ 9,174 $ 10,190
======== ======== ========
Deferred Tax Liabilities:
Deferred Tax Liability- $201,872 $205,777 $211,517
property
Adjustment to reflect
regulatory liability (46,346) (56,807) (68,565)
-------- -------- --------
Net Deferred Tax Liability-
property 155,526 148,970 142,952
Deferred Tax Liability-other 804 (522) 2,489
-------- -------- --------
Accumulated Deferred Income
Tax Liability $156,330 $148,448 $145,441
======== ======== ========
Accumulated Deferred Income
Tax Liab., net of deferred
tax assets $141,746 $139,274 $135,251
======== ======== ========
</TABLE>
The following table reconciles the change in the accumulated
deferred income tax liability to the deferred income tax expense
included in the income statement for the period:
<TABLE>
<CAPTION>
December 31 1998 1997
(In thousands)
<S> <C> <C>
Net change in deferred
income tax liability per
above table $ 2,472 $ 4,023
Change in tax effects of
income tax related
regulatory assets
and liabilities (8,606) (14,559)
Deferred taxes related to
extraordinary item -- 5,634
Other 111 208
-------- --------
Deferred income tax expense
(benefit) for the period $ (6,023) $ (4,694)
======== ========
</TABLE>
45
Income tax expenses were as follows:
<TABLE>
<CAPTION>
Years Ended December 31 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Current income taxes
Federal $26,278 $29,244 $27,260
State 6,260 6,350 5,504
------- ------- -------
Total operating current
taxes 32,538 35,594 32,764
------- ------- -------
Deferred operating income
taxes, net
Depreciation and amort. (955) (6,080) (3,937)
Repair allowance 158 1,384 (197)
Borrowed component of AFUDC 37 80 136
Capitalized overhead costs (783) (807) (750)
Removal costs (3,189) 2,515 4,832
Gas take-or-pay settlements 522 (339) (706)
Gas storage field (1,681) (191) 405
Taxable salvage 599 220 351
Environmental remediation
costs 55 46 (642)
Pension expense 869 (1,798) (1,726)
Other (1,415) 377 (2,298)
------- ------- -------
Total operating deferred
income taxes, net (5,783) (4,593) (4,532)
Investment tax credit
amortization (1,667) (1,684) (1,684)
------- ------- -------
Total operating
income taxes 25,088 29,317 26,548
Income tax reduction for
disallowed plant costs 133 144 156
Other, net (2,749) (3,192) (2,622)
------- ------- -------
Total income taxes before
extraordinary item 22,472 26,269 24,082
Deferred taxes related to
extraordinary item -- (5,634) --
------- ------- -------
Total income taxes $22,472 $20,635 $24,082
======= ======= =======
<FN>
The 1997 income tax provision has been reduced to reflect the
crediting to income as an extraordinary item the regulatory
liability related to electric generation property deferred taxes
which were recorded at tax rates in excess of the current rate
(see Note 1).
Total operating deferred income taxes, net, includes deferred
state income taxes of $(848,000), $(65,000) and $(62,000) for
1998, 1997 and 1996, respectively. Other, net, includes deferred
state income taxes of $(43,000), $(18,000) and $(51,000) for
1998, 1997 and 1996, respectively.
</TABLE>
46
The following table represents a reconciliation of the effective
tax rate with the statutory federal income tax rate:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
==== ==== ====
Equity component of AFUDC not
subject to taxation -- -- --
Amortization of property-related
deferred taxes provided at tax
rates in excess of the current
rate (2.7) (1.4) (2.2)
Amortization of investment tax
credit (2.6) (2.4) (2.6)
CILCO-owned life insurance (1.4) (1.1) (1.1)
State income taxes 5.2 5.0 5.0
Preferred dividends and other
permanent differences 2.1 2.1 2.0
Other differences (0.1) (0.2) 0.5
---- ---- ----
Total 0.5 2.0 1.6
---- ---- ----
Effective income tax rate before
effect of extraordinary item 35.5 37.0 36.6
Tax effect of extraordinary item -- (7.9) --
---- ---- ----
Effective income tax rate 35.5% 29.1% 36.6%
==== ==== ====
</TABLE>
NOTE 3 - POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS
POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS AND HEALTH CARE
CILCO has recorded a liability of approximately $1.5 million at
December 31, 1998 and 1997, for benefits other than pensions or
health care provided to former or inactive employees. The
liability for these benefits (primarily long-term and short-term
disability payments under plans self-insured by CILCO) is
actuarially determined.
PENSION BENEFITS
Substantially all of CILCO's full-time employees, including
those assigned to the Holding Company, are covered by trusteed,
non-contributory defined benefit pension plans. Benefits under
these qualified plans reflect the employee's years of service,
age at retirement and maximum total compensation for any
consecutive sixty-month period prior to retirement. CILCO also
has an unfunded nonqualified plan for certain employees.
47
Pension costs for the past three years were charged as follows:
<TABLE>
<CAPTION> 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Operating expenses $ (893) $ 493 $ 9,700
Utility plant and other 6 125 922
------- ------- -------
Net pension costs $ (887) $ 618 $10,622
======= ======= =======
</TABLE>
Provisions for pension expense reflect the use of the projected
unit credit actuarial cost method. At December 31, 1998 and
1997, CILCO recognized an additional minimum liability on the
Balance Sheets for the plan in which the accumulated benefit
obligation exceeds the fair value of plan assets.
POSTRETIREMENT HEALTH CARE BENEFITS
Provisions for postretirement benefits expenses are determined
under the accrual method of accounting.
Substantially all of CILCO's full-time employees, including
those assigned to the Holding Company, are currently covered by
a trusteed, non-contributory defined benefit postretirement
health care plan. The plan pays stated percentages of most
necessary medical expenses incurred by retirees, after
subtracting payments by Medicare or other providers and after a
stated deductible has been met. Participants become eligible
for the benefits if they retire from CILCO after reaching age 55
with 10 or more years of service. Neither QST Enterprises nor
its subsidiaries provide health care benefits to retired
employees.
Postretirement health care benefit costs were charged as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Operating expenses $3,904 $3,989 $5,096
Utility plant and other 1,260 1,825 1,883
------ ------ ------
Net postretirement health
care benefit costs $5,164 $5,814 $6,979
====== ====== ======
</TABLE>
48
The components of net periodic benefit costs follow:
<TABLE>
<CAPTION>
1998 1997 1998 1997
(In thousands)
Other
Pension Benefits Postretirement
Benefits
<S> <C> <C> <C> <C>
Service cost $ 5,410 $ 4,384 $ 1,417 $ 1,298
Interest cost 19,024 17,561 5,371 5,047
Expected return on plan
assets (25,304) (21,005) (4,388) (3,249)
Amortization of transition
liability (asset) (888) (888) 2,858 2,858
Amortization of past
service cost 1,068 1,068 -- --
Recognized actuarial loss (197) (502) (94) (140)
-------- -------- -------- --------
Net benefit cost $ (887) $ 618 $ 5,164 $ 5,814
======== ======== ======== ========
Pension Plans with
Accumulated Benefit
Obligations in Excess
of Assets
Total projected benefit
obligation $ (4,191) $ (3,692)
Total accumulated benefit
obligation $ (3,582) $ (2,902)
Total fair value of assets $ -- $ --
</TABLE>
49
Information on the plans' funded status follows:
<TABLE>
<CAPTION>
1998 1997 1998 1997
(In thousands)
Other
Pension Benefits Postretirement
Benefits
<S> <C> <C> <C> <C>
Change in Benefit
Obligations
Benefit obligation at
January 1, $(254,929) $(235,441) $(72,542) $(67,367)
Service cost (5,410) (4,384) (1,417) (1,298)
Interest cost (19,024) (17,561) (5,371) (5,047)
Actuarial (gain) loss (22,521) (13,928) (7,500) (2,891)
Benefits paid 16,238 16,385 4,514 4,061
--------- --------- -------- --------
Benefit obligation at
December 31, $(285,646) $(254,929) $(82,316) $(72,542)
========= ========= ======== ========
Change in Plan Assets
Fair value of assets at
January 1, $ 289,091 $ 254,824 $ 52,263 $ 39,601
Actual return on assets 36,467 50,489 5,781 9,907
Company contributions 163 163 863 6,816
Participant contributions -- -- -- --
Benefits paid (16,238) (16,385) (4,514) (4,061)
--------- --------- -------- --------
Fair value of assets at
December 31, $ 309,483 $ 289,091 $ 54,393 $ 52,263
========= ========= ======== ========
Funded Status at
December 31,
Benefit obligation less
(greater) than plan
assets $ 23,837 $ 34,162 $(27,923) $(20,279)
Unrecognized net transition
liability (asset) (4,011) (4,899) 30,297 33,155
Unrecognized actuarial
(gain) loss (35,875) (47,431) (6,777) (12,977)
Unrecognized prior
service cost 6,365 7,433 -- --
Intangible asset (415) (455) -- --
Accumulated other
comprehensive income (1,401) (1,120) -- --
--------- --------- -------- --------
Prepaid (accrued) benefit
cost $ (11,500) $ (12,310) $ (4,403) $ (101)
========= ========= ======== ========
Assumptions as of
December 31,
Discount rate 6.75% 7.25% 6.75% 7.25%
Long-term return on assets 9.00% 8.50% 8.50% 8.50%
Long-term compensation
increase 3.50% 4.50% N/A N/A
</TABLE>
For measurement purposes, a 7.2 percent annual rate of increase
in the per capita cost of covered health care benefits was
assumed for 1998. The rate was assumed to decrease gradually to
5.7 percent for 2025 and remain level thereafter.
Increasing the assumed health care cost trend rate by 1% in each
year would increase the accumulated postretirement benefit
obligation at December 31, 1998, by $2.9 million and the
aggregate of the service and interest cost
50
components of net postretirement health care cost for 1998 by
$252,000. Decreasing the assumed health care cost trend rate by
1% in each year would decrease the accumulated postretirement
benefit obligation at December 31, 1998, by $3.3 million and the
aggregate of the service and interest cost components of net
postretirement health care cost for 1998 by $295,000.
NOTE 4 - SHORT-TERM DEBT
CILCO had arrangements for bank lines of credit totaling $45
million at December 31, 1998, all of which were unused. These
lines of credit were maintained by commitment fees of 1/20 of 1%
per annum in lieu of balances. These bank lines of credit
support CILCO's issuance of commercial paper. Short-term
borrowings consisted of commercial paper totaling $40.6 million
and $21.3 million at December 31, 1998 and 1997, respectively.
NOTE 5 - RETAINED EARNINGS
CILCO's Articles of Incorporation provide that no dividends shall
be paid on the common stock if, at the time of declaration, the
balance of retained earnings does not equal at least two times
the annual dividend requirement on all outstanding shares of
preferred stock. The amount of retained earnings so required at
December 31, 1998, was $6.3 million.
NOTE 6 - PREFERRED STOCK
<TABLE>
<CAPTION>
At December 31 1998 1997
(In thousands)
<S> <C> <C>
Preferred stock, cumulative
$100 par value, authorized 1,500,000 shares
Without mandatory redemption
4.50% series - 111,264 shares $11,126 $11,126
4.64% series - 79,940 shares 7,994 7,994
Class A, no par value,
authorized 3,500,000 shares
Flexible auction rate -
250,000 shares (*) 25,000 25,000
With mandatory redemption
5.85% series - 220,000 shares 22,000 22,000
------- -------
Total preferred stock $66,120 $66,120
======= =======
<FN>
(*) Dividend rates at December 31, 1998 and 1997, were 4.04%
and 4.18%, respectively.
</TABLE>
All classes of preferred stock are entitled to receive cumulative
dividends and rank equally as to dividends and assets, according
to their respective terms.
The total annual dividend requirement for preferred stock
outstanding at December 31, 1998, is $3.2 million, assuming a
continuation of the auction dividend rate at December 31, 1998,
for the flexible auction rate series.
51
PREFERRED STOCK WITHOUT MANDATORY REDEMPTION
The call provisions of preferred stock redeemable at CILCO's
option outstanding at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Series Callable Price Per Share (plus accrued dividends)
<S> <C>
4.50% $110
4.64% $102
Flexible auction rate $100
</TABLE>
PREFERRED STOCK WITH MANDATORY REDEMPTION
CILCO's 5.85% Class A preferred stock may be redeemed in 2003 at
$100 per share. A mandatory redemption fund must be established
on July 1, 2003. The fund will provide for the redemption of
11,000 shares for $1.1 million on July 1 of each year through
July 1, 2007. On July 1, 2008, the remaining 165,000 shares will
be retired for $16.5 million.
PREFERENCE STOCK, CUMULATIVE
No Par Value, Authorized 2,000,000 shares, of which none have
been issued.
NOTE 7 - LONG-TERM DEBT
<TABLE>
<CAPTION>
At December 31 1998 1997
(In thousands)
<S> <C> <C>
First Mortgage Bonds
7 1/2% series due 2007 $ 50,000 $ 50,000
8 1/5% series due 2022 65,000 65,000
Medium-Term Notes
6.4% series due 2000 30,000 30,000
6.82% series due 2003 25,350 25,350
6.13% series due 2005 16,000 16,000
7.8% series due 2023 10,000 10,000
7.73% series due 2025 20,000 20,000
Pollution Control Refunding Bonds
6.5% series F due 2010 5,000 5,000
6.2% series G due 2012 1,000 1,000
6.5% series E due 2018 14,200 14,200
5.9% series H due 2023 32,000 32,000
-------- --------
268,550 268,550
Unamortized premium and discount
on long-term debt, net (666) (714)
-------- --------
Total CILCO long-term debt $267,884 $267,836
======== ========
</TABLE>
CILCO's first mortgage bonds are secured by a lien on
substantially all of its property and franchises. Unamortized
borrowing expense, premium and discount on outstanding long-term
debt are being amortized over the lives of the respective issues.
52
Scheduled maturities of long-term debt are $30 million for 2000
and $25 million for 2003. There are no scheduled maturities of
long-term debt for 2001 or 2002.
NOTE 8 - COMMITMENTS & CONTINGENCIES
CILCO's 1999 capital expenditures for utility plant are estimated
to be $56.6 million, in connection with which CILCO has normal
and customary purchase commitments at December 31, 1998.
CILCO's policy is to act as a self-insurer for certain insurable
risks resulting from employee health and life insurance programs.
In August 1990, CILCO entered into a firm, wholesale power
purchase agreement with Central Illinois Public Service Company,
now AmerenCIPS (CIPS). This agreement provided for a minimum
contract delivery rate from CIPS of 90 MW until the contract
expired in May 1998.
In March 1995, CILCO and CIPS amended a limited-term power
agreement reached in November 1992. This agreement, which now
expires in May 2009, provides for CILCO to purchase up to 150 MW
of CIPS' capacity from June 1998 through May 2002, and 50 MW from
June 2002 through May 2009.
In January 1997, CILCO intervened in a proceeding before the
Federal Energy Regulatory Commission (FERC) to raise contract
issues relating to CIPS' proposal to engage with a second
utility in joint dispatch of their respective generating units.
CILCO also challenged the validity of the power agreements with
CIPS because of CIPS' failure to obtain FERC approval of the
agreements. In the alternative, CILCO requested that FERC
provide an "open season" during which CILCO may cancel the power
agreements in whole or in part. In an October 1997 order, FERC
rejected CILCO's challenges to joint dispatch and denied CILCO's
request for an open season. However, CIPS was ordered to file
the agreements with FERC and, on its own motion, FERC initiated
a separate proceeding to investigate the terms of the
agreements. Hearings in that proceeding have concluded, and the
Administrative Law Judge has entered an order finding the
agreements are, with minor exceptions, just and reasonable.
CILCO is appealing that order to FERC and is requesting FERC to
assess penalties against CIPS for CIPS' failure to file the 1990
agreement before providing service to CILCO under that
agreement. FERC's October 1997 order failed to address certain
contract issues raised by CILCO. FERC denied rehearing of that
order in February 1998, and CILCO has appealed to the United
States Court of Appeals for the District of Columbia Circuit for
a review of FERC's orders concerning the CIPS agreements. CILCO
also filed a separate complaint at FERC in December 1998,
challenging the manner in which CIPS is performing, or failing
to perform, under the agreements and has notified CIPS that
CILCO considers CIPS to be in default under the agreements. On
the ground that CIPS is in default regarding performance under
the 1992 agreement, CILCO suspended capacity reservation
payments to CIPS under the agreements as of January 21, 1999.
CILCO cannot predict how FERC or the Court will ultimately rule
on the issues pending before them. If CILCO's position is not
upheld on certain issues, CILCO could be required to pay the
suspended capacity reservation charges which are currently
$865,000 per month, plus interest, to CIPS. While the capacity
payments are suspended, CILCO is purchasing power and energy
from other sources.
For a discussion of former gas manufacturing sites, refer to the
caption "Environmental Matters" of Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations in CILCORP's 1998 Annual Report which is incorporated
herein by reference.
53
NOTE 9 - LEASES
CILCO leases certain equipment, buildings and other facilities
under capital and operating leases. Minimum future rental
payments under non-cancellable capital and operating leases
having remaining terms in excess of one year as of December 31,
1998, are $13.6 million in total. Payments due during the years
ending December 31, 1999, through December 31, 2003, are $5.4
million, $3.7 million, $2.0 million, $1.4 million and $.5
million, respectively.
NOTE 10 - FINANCIAL INSTRUMENTS AND PRICE RISK MANAGEMENT
CILCO utilizes commodity futures contracts, options and swaps in
the normal course of its natural gas business activities.
However, it does not currently utilize these instruments to hedge
its electric purchase and sale transactions or to participate in
energy trading activities. Gains and losses arising from
derivative financial instrument transactions which hedge the
impact of fluctuations in energy prices are recognized in income
concurrent with the related purchases and sales of the commodity.
If a derivative financial instrument contract is terminated
because it is probable that a transaction or forecasted
transaction will not occur, any gain or loss as of such date is
immediately recognized. If a derivative financial instrument
contract is terminated early for other economic reasons, any gain
or loss as of the termination date is deferred and recorded
concurrently with the related purchase and sale of natural gas.
CILCO is subject to commodity price risk for deregulated sales to
the extent that energy is sold under firm price commitments. Due
to market conditions, at times CILCO may have unmatched
commitments to purchase and sell energy on a price and quantity
basis. Physical and derivative financial instruments give rise
to market risk, which represents the potential loss that can be
caused by a change in the market value of a particular
commitment. Market risks are actively monitored to ensure
compliance with the Company's risk management policies, including
limits to the Company's total net exposure at any time.
The net loss reflected in operating results from derivative
financial instruments was $.2 million for the year 1998. As of
December 31, 1998, CILCO had fixed-price derivative financial
instruments representing hedges of natural gas purchases of .4
Bcf and natural gas sales of .9 Bcf for commitments through March
1999. The net deferred loss and carrying amount on these fixed-
price derivatives at December 31, 1998 was $.4 million. At
December 31, 1998, CILCO had open positions in derivative
financial instruments used to hedge basis of 1.5 Bcf for
commitments through August 1999. The net deferred gain on these
basis derivatives at December 31, 1998, was $.1 million.
54
NOTE 11 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following quarterly operating results are unaudited, but, in
the opinion of management, include all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of
CILCO's operating results for the periods indicated. The results
of operations for each of the fiscal quarters are not necessarily
comparable to, or indicative of, the results of an entire year
due to the seasonal nature of CILCO's business.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31 June 30 September 30 December 31
(In thousands)
<S> <C> <C> <C> <C>
1998
Operating revenue $149,080 $116,614 $136,506 $130,136
Operating income 18,324 14,593 24,815 9,983
Net income 12,316 8,929 19,064 3,926
1997
Operating revenue $165,795 $111,520 $123,355 $146,184
Operating income 19,197 14,382 22,491 17,242
Net income before
extraordinary item 13,051 8,567 16,337 11,412
Extraordinary item -- -- -- 4,100
Net income after
extraordinary item 13,051 8,567 16,337 15,512
</TABLE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
CILCORP
Not applicable.
CILCO
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
CILCORP
The information required by Item 10 relating to directors is set
forth in the Company's definitive proxy statement for its 1999
Annual Meeting of Stockholders filed with the United States
Securities and Exchange Commission (Commission) pursuant to
Regulation 14A. Such information is incorporated herein by
reference to the material appearing under the caption "Election
of Directors" of such proxy statement. Information required by
Item 10 relating to executive officers of the Company is set
forth under a separate caption in Part I hereof.
CILCO
The information required by Item 10 relating to directors is set
forth in CILCO's definitive proxy statement for its 1999 Annual
Meeting of Stockholders filed with the Commission pursuant to
Regulation 14A. Such information is incorporated herein by
reference to the material appearing under the caption "Election
of Directors" of such proxy statement. Information required by
Item
55
10 relating to executive officers of CILCO is set forth under a
separate caption in Part I hereof.
Item 11. Executive Compensation
CILCORP
The Company has filed with the Commission a definitive proxy
statement pursuant to Regulation 14A. The information required
by Item 11 is incorporated herein by reference to the material
appearing under the caption "Executive Compensation" of such
proxy statement.
CILCO
CILCO has filed with the Commission a definitive proxy statement
pursuant to Regulation 14A. The information required by Item 11
is incorporated herein by reference to the material appearing
under the caption "Executive Compensation" of such proxy
statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
CILCORP
The Company has filed with the Commission a definitive proxy
statement pursuant to Regulation 14A. The information required
by Item 12 is incorporated herein by reference to the material
appearing under the caption "Voting Securities and Principal
Holders" of such proxy statement.
CILCO
CILCO has filed with the Commission a definitive proxy statement
pursuant to Regulation 14A. The information required by Item 12
is incorporated herein by reference to the material appearing
under the caption "Voting Securities and Principal Holders" of
such proxy statement.
Item 13. Certain Relationships and Related Transactions
CILCORP
CILCORP Inc. (CILCORP or Company), a holding company, is the
parent of its direct subsidiaries Central Illinois Light Company
(CILCO), CILCORP Investment Management Inc. (CIM), CILCORP
Ventures Inc. (CVI), and QST Enterprises Inc. (QST). A former
CILCORP first-tier subsidiary, QST Environmental Inc., formerly
known as Environmental Science & Engineering, Inc. (ESE) became a
subsidiary of QST effective October 29, 1996. Effective June 1,
1997, ESE began operating under the name QST Environmental Inc.
(QST Environmental). In the course of business, the Company
carries on certain relations with affiliated companies such as
shared facilities, utilization of employees and other business
transactions. Central Illinois Light Company is reimbursed at
cost by the Company and the other subsidiaries for any services
it provides.
CILCORP has been authorized by the Board of Directors to
guarantee up to $30 million of obligations incurred by QST
(excluding QST Environmental). Through February 28, 1999,
CILCORP has guaranteed $12.1 million of the obligations of QST
(excluding QST Environmental). CILCORP receives a fee for
providing these guarantees.
QST has been authorized to guarantee up to $50 million of
obligations incurred by its subsidiaries (excluding QST
Environmental). Through February 28, 1999,
56
QST has guaranteed $3.0 million of its subsidiaries' obligations.
QST receives a fee for providing these guarantees.
QST (excluding QST Environmental) had no outstanding debt at the
end of 1998.
QST Environmental's cash flow is supplemented by a $15 million
revolving line of credit with the Holding Company which expires
in May 2000. At December 31, 1998, QST Environmental had
borrowed $7 million from the Holding Company.
CIM had outstanding debt of $37.7 million (all to the Holding
Company) at the end of 1998.
Through December 31, 1998, CIM has paid $14 million to fund
affordable housing commitments, $3.8 million of which was paid
during 1998. CIM funded these commitments with cash borrowed
from the Holding Company.
CIM has guaranteed the performance of CIM Leasing Inc., CIM Air
Leasing Inc. and CLM Inc. VI (a second tier subsidiary) with
respect to certain obligations arising from the leveraged lease
investments held by these subsidiaries.
CILCO
One member of the Board of Directors of CILCORP Inc. is also a
member of the Board of Directors of CILCO. The Chairman,
President and Chief Executive Officer of CILCO is also the
President and Chief Executive Officer of CILCORP and the
Secretary of CILCO is also Vice President, Secretary and
Treasurer of CILCORP Inc.
57
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
CILCORP
(a) 1. Financial Statements
The following statements are included in
Exhibit 13 of this filing and are incorporated
herein by reference from CILCORP Inc.'s 1998
Annual Report:
Management's Report
Report of Independent Public Accountants
Consolidated Statements of Income for the three
years ended December 31, 1998
Consolidated Balance Sheets as of
December 31, 1998, and December 31, 1997
Consolidated Statements of Segments of Business for
the three years ended December 31, 1998
Consolidated Statements of Cash Flows for the three
years ended December 31, 1998
Consolidated Statements of Common Stockholders' Equity
for the three years ended December 31, 1998
Notes to the Consolidated Financial Statements
(a) 2. Financial Statement Schedules
The following schedules are included herein:
Page No.
Form 10-K
---------
Schedule II - Valuation and Qualifying Accounts
and Reserves 64
Schedule XIII -Investment in Leveraged Leases at
December 31, 1998 66
Other schedules are omitted because of the absence of
conditions under which they are required or because the
required information is given in the financial statements or
notes thereto.
(a) 3. Exhibits
*(3) Articles of Incorporation (Designated in Form 10-K for the
year ended December 31, 1991, File No. 1-8946, as Exhibit 3).
(3)a By-laws as amended effective January 26, 1999.
***(4) Instruments defining the rights of security holders,
including indentures
58
(10) CILCO Executive Deferral Plan. As amended effective August
17, 1998.
(10)a CILCO Executive Deferral Plan II. As amended effective
August 17, 1998.
*(10)b CILCORP Economic Value Added Incentive Compensation Plan
(Adopted February 29, 1989 & Revised January 29, 1991 and
January 30, 1996.) [Designated in Form 10-K for the year ended
December 31, 1995. File No. 1-8946, as Exhibit 10(b)]
**(10)c Employment Agreement between CILCORP and Robert O. Viets,
President and Chief Executive Officer (effective
September 23, 1997; extended for a period of three years
effective April 28, 1998). [Designated in Form 10-K for
the year ended December 31, 1997. File No. 1-8946, as
Exhibit 10(c)]
(10)d CILCO Benefit Replacement Plan (as amended effective
November 12, 1998).
*(10)e CILCORP Deferred Compensation Stock Plan (Designated in
Form 10-K for the year ended December 31, 1991, File No.
1-8946, as Exhibit (10)f).
*(10)f CILCORP Shareholder Return Incentive Compensation Plan
(as amended effective October 28, 1997). [Designated in
Form 10-K for the year ended December 31, 1997.
File No. 1-8946, as Exhibit 10(f)].
*(10)g Agreement and Plan of Merger between CILCORP and the AES
Corporation [Designated in Form 8-K filed December 3, 1998.
File No. 1-8946].
(10)h Management Continuity Agreement between CILCORP and
various subsidiary officers (approved January 27, 1998).
(10)i CILCO Compensation Protection Plan (approved November 20,
1998).
(12) Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
Page No.
Form 10-K
---------
(13) Annual Report to Security Holders 71
(23) Consent of Arthur Andersen LLP 72
(24) Power of Attorney
(27) CILCORP Inc. Consolidated Financial Data Schedule
(b) 3. Reports on Form 8-K
A Form 8-K was filed on December 3, 1998 regarding the
Agreement and Plan of Merger between CILCORP Inc. and the
AES Corporation.
* These exhibits have been previously filed with the Securities and
Exchange Commission (SEC) as exhibits to registration
statements or to other filings of CILCORP or CILCO with the SEC
and are incorporated herein as exhibits by reference. The file
number and exhibit number of each such exhibit (where
applicable) are stated in the description of such exhibit.
59
**A comparable Employment Agreement, effective April 28, 1998,
exists between the Company and John G. Sahn. The only
material difference in these Agreements pertains to the
duration of the Agreements and the annual base salary in
effect on the date of each Agreement. The duration of the
Agreement with Mr. Sahn is two years and his annual base
salary specified in the Agreement is $151,000.
***Pursuant to Paragraph (b)(4)(iii)(A) of Item 601 of Regulation
S-K, the Company has not filed as an exhibit to this Form 10-K
any instrument with respect to long-term debt as the total amount
of securities authorized thereunder does not exceed 10 percent of
the total assets of the Company and its subsidiaries on a
consolidated basis, but hereby agrees to furnish to the SEC
on request any such instruments.
60
CILCO
Page No.
Form 10-K
----------
(a) 1. Financial Statements
The following are included herein:
Management's Report 29
Report of Independent Public Accountants 30
Consolidated Statements of Income for the three years
ended December 31, 1998 31
Consolidated Balance Sheets as of December 31, 1998
and December 31, 1997 32-33
Consolidated Statements of Cash Flows for the three
years ended December 31, 1998 34-35
Consolidated Statements of Segments of Business for
the three years ended December 31, 1998 36-38
Consolidated Statements of Retained Earnings for the
three years ended December 31, 1998 39
Notes to the Consolidated Financial Statements 40-55
(a) 2. Financial Statement Schedules
The following schedule is included herein:
Schedule II - Valuation and Qualifying Accounts and
Reserves for the three years ended
December 31, 1998 65
Other schedules are omitted because of the absence of conditions
under which they are required or because the required information
is given in the financial statements or notes thereto.
(a) 3. Exhibits
(3) Articles of Incorporation. As amended April 28, 1998.
*(3)a Bylaws. As amended effective April 23, 1996.
[Designated in Form 10-K for the year ended December 31,
1996, File No. 1-2732, as Exhibit (3)a.]
*(4) Indenture of Mortgage and Deed of Trust
between Illinois Power Company and Bankers Trust
Company, as Trustee, dated as of April 1, 1933,
Supplemental Indenture between the same parties dated as
of June 30, 1933, Supplemental Indenture between the
Company and Bankers Trust Company, as Trustee, dated as
of July 1, 1933 and Supplemental Indenture between the
same parties dated as of January 1, 1935, securing First
Mortgage Bonds, and indentures supplemental to the
foregoing through November 1, 1994. (Designated in
Registration No. 2-1937 as Exhibit B-1, in Registration
No. 2-2093 as Exhibit B-1(a), in Form 8-K for April
1940, File No. 1-2732-2, as Exhibit A, in Form 8-K for
December 1949, File No. 1-2732-2, as Exhibit A, in Form
8-K for December 1951, File No. 1-2732, as Exhibit A, in
Form 8-K for July 1957, File No. 1-2732, as Exhibit A,
61
in Form 8-K for July 1958, File No. 1-2732, as
Exhibit A, in Form 8-K for March 1960, File No. 1-2732,
as Exhibit A, in Form 8-K for September 1961, File No. 1-
2732, as Exhibit B, in Form 8-K for March 1963, File No.
1-2732, as Exhibit A, in Form 8-K for February 1966,
File No. 1-2732, as Exhibit A, in Form 8-K for March
1967, File No. 1-2732, as Exhibit A, in Form 8-K for
August 1970, File No. 1-2732, as Exhibit A, in Form 8-K
for September 1971, File No. 1-2732, as Exhibit A, in
Form 8-K for September 1972, File No. 1-2732, as Exhibit
A, in Form 8-K for April 1974, File No. 1-2732, as
Exhibit 2(b), in Form 8-K for June 1974, File No. 1-
2732, as Exhibit A, in Form 8-K for March 1975, File No.
1-2732, as Exhibit A, in Form 8-K for May 1976, File No.
1-2732, as Exhibit A, in Form 10-Q for the quarter ended
June 30, 1978, File No. 1-2732, as Exhibit 2, in Form 10-
K for the year ended December 31, 1982, File No. 1-2732,
as Exhibit (4)(b), in Form 8-K dated January 30, 1992,
File No. 1-2732, as Exhibit (4) in Form 8-K dated
January 29, 1993, File No. 1-2732, as Exhibit (4) and in
Form 8-K dated December 2, 1994, File No. 1-2732, as
Exhibit (4).)
(10) CILCO Executive Deferral Plan. As amended
effective August 17, 1998.
(10)a CILCO Executive Deferral Plan II. As
amended effective August 17, 1998.
**(10)b Employment Agreement between CILCORP and Robert O.
Viets, Chairman, President and Chief Executive Officer
of CILCO (effective September 23, 1997; extended for a
period of three years effective April 28, 1998).
[Designated in Form 10-K for the year ended December 31,
1997. File No. 1-2732, as Exhibit 10(b).]
*(10)c CILCO Deferred Compensation Stock Plan. [Designated in
Form 10-K for the year ended December 31, 1990, File No.
1-2732, as Exhibit (10)d.]
*(10)d CILCORP Economic Value Added Incentive Compensation Plan
(adopted February 29, 1989 and revised January 29, 1991
and January 30, 1996). [Designated in Form 10-K for the
year ended December 31, 1995, File No. 1-8946, as
Exhibit (10)b.]
(10)e Benefit Replacement Plan (as amended effective November
12, 1998).
*(10)f CILCORP Shareholder Return Incentive Compensation Plan
(as amended effective October 28, 1997).
[Designated in Form 10-K for the year ended December 31,
1997. File No. 1-2732, as Exhibit 10(f).]
(10)g Management Continuity Agreement between CILCORP and
various subsidiary officers (approved
January 27, 1998).
(10)h CILCO Compensation Protection Plan (approved November 20,
1998).
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Central Illinois Light Company Financial Data Schedule
(b) 3. Reports on Form 8-K
None
* These exhibits have been previously filed with the Securities
and Exchange Commission (SEC) as exhibits to registration
statements or to other
62
filings of CILCO with the SEC and are incorporated herein as
exhibits by reference. The file number and exhibit number of
each such exhibit (where applicable) are stated in the
description of such exhibit.
**This exhibit has been previously filed with the Securities
and Exchange Commission (SEC) as an exhibit to a previous
filing on Form 10-K and is incorporated herein as an exhibit
by reference. Comparable Employment Agreements, also
effective September 23, 1997, and extended for a period of
three years effective April 28, 1998, exist between the
Company and J. Mark Elliott, William M. Shay and James F.
Vergon. The only material difference in these Agreements
pertains to the annual base salary in effect on the date of
each Agreement.
63
<PAGE>
<TABLE>
SCHEDULE II
CILCORP INC. AND SUBSIDIARY COMPANIES
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1998, 1997 and 1996
(Thousands of dollars)
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charged Charged Balance at
Beginning to to Other End of
Description of Period Income Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1998
Accumulated Provisions
Deducted from Assets-
Doubtful Accounts $2,518 $3,356 $ -- $2,463 $3,411
Accumulated Provisions
Not Deducted from
Assets -
Injuries and Damages 1,210 768 -- 376 1,602
Discontinued
Operations Reserve -- 8,581 -- -- 8,581
Year ended December 31,
1997
Accumulated Provisions
Deducted from Assets-
Doubtful Accounts $2,600 $2,867 $ -- $2,949 $2,518
Accumulated Provisions
Not Deducted from
Assets -
Injuries and Damages 1,381 814 -- 985 1,210
Year ended December 31,
1996
Accumulated Provisions
Deducted from Assets-
Doubtful Accounts $2,223 $3,464 $ -- $3,087 $2,600
Accumulated Provisions
Not Deducted from
Assets -
Injuries and Damages 2,550 1,328 -- 2,497 1,381
</TABLE>
64
<PAGE>
<TABLE>
SCHEDULE II
CENTRAL ILLINOIS LIGHT COMPANY
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1998, 1997 and 1996
(Thousands of dollars)
<CAPTION>
Column A Column B Column C Column DColumn E
Additions
Balance at Charged Charged Balance at
Beginning to to Other End of
Description of Period Income Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1998
Accumulated Provisions
Deducted from Assets-
Doubtful Accounts $ 703 $2,500 $ -- $2,098 $1,105
Accumulated Provisions
Not Deducted from
Assets -
Injuries and Damages 1,210 768 -- 376 1,602
Year ended December 31,
1997
Accumulated Provisions
Deducted from Assets-
Doubtful Accounts $1,000 $2,438 $ -- $2,735 $ 703
Accumulated Provisions
Not Deducted from
Assets -
Injuries and Damages 1,381 814 -- 985 1,210
Year ended December 31,
1996
Accumulated Provisions
Deducted from Assets-
Doubtful Accounts $ 650 $2,832 $ -- $2,482 $1,000
Accumulated Provisions
Not Deducted from
Assets -
Injuries and Damages 2,550 1,328 -- 2,497 1,381
</TABLE>
65
<PAGE>
<TABLE>
SCHEDULE XIII
CILCORP INC. AND SUBSIDIARY COMPANIES
Investment in Leveraged Leases
<CAPTION>
Year Ended December 31, 1998
(Thousands of dollars)
Amount
Cost of each carried on
lease(A) Balance
Sheet(B)
<S> <C> <C>
Office buildings $ 23,130 $ 64,158
Warehouses 11,746 19,855
Mining equipment 10,244 11,437
Generating stations 21,890 30,395
Passenger railway equipment 3,805 6,110
Cargo aircraft 9,583 15,035
-------- --------
Totals $ 80,398 $146,990
======== ========
<FN>
(A) This value is the original cost of the leveraged lease net of
original nonrecourse debt.
(B) The amount carried on the balance sheet includes current
rents receivable and estimated residual value, net of
unearned and deferred income and nonrecourse debt. The
investment in leveraged leases balance does not include
deferred taxes of $103,566.
</TABLE>
66
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CILCORP INC.
March 26, 1999 By
R. O. Viets
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
(i) and (ii) Principal executive officer, director and principal
financial officer:
R. O. Viets President and Chief March 26, 1999
Executive Officer
and Director
(iii) Controller
T. D. Hutchinson Controller March 26, 1999
(iv) A majority of the Directors
(including the director named above):
M. Alexis* Director March 26, 1999
J. R. Brazil* Director March 26, 1999
W. Bunn III* Director March 26, 1999
J. D. Caulder* Director March 26, 1999
H. J. Holland* Director March 26, 1999
H. S. Peacock* Director March 26, 1999
K. E. Smith* Director March 26, 1999
M. M. Yeomans* Director March 26, 1999
R. O. Viets Director March 26, 1999
*By
R. O. Viets
Attorney-in-fact
67
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CENTRAL ILLINOIS LIGHT COMPANY
March 26, 1999 By
R. O. Viets
Chairman of the Board,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature Title Date
(i) Principal executive officer and director:
R. O. Viets Chairman of the Board, March 26, 1999
President and Chief
Executive Officer
and Director
(ii) Principal financial officer:
R. J. Sprowls Vice President and March 26, 1999
Chief Financial
Officer
(iii) Controller
T. D. Hutchinson Controller and March 26, 1999
Manager of Accounting
(iv) A majority of the Directors
(including the directors named above):
J. M. Elliott Director March 26, 1999
T. S. Romanowski Director March 26, 1999
W. M. Shay Director March 26, 1999
J. F. Vergon Director March 26, 1999
R. O. Viets Director March 26, 1999
68
<PAGE>
<TABLE>
EXHIBIT (12)
CILCORP INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
<CAPTION>
Twelve Months Ended 1998 1997 1996 1995 1994
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Earnings, as Defined:
Net Income $16,310 $16,395 $27,943 $38,582 $32,586
Income Taxes 5,435 16,940 14,505 23,274 18,180
Interest 29,473 27,462 28,964 29,861 26,341
Interest Portion of
Rentals 2,733 2,819 2,844 1,905 1,864
Preferred Dividends 3,194 3,216 3,188 3,299 2,980
------- ------- ------- ------- -------
Total Earnings,
as Defined $57,145 $66,832 $77,444 $96,921 $81,951
======= ======= ======= ======= =======
Fixed Charges, as Defined:
Interest Expense $25,849 $23,971 $26,233 $27,512 $24,313
Interest Expense on COLI 3,624 3,491 2,731 2,349 2,028
Interest Portion of
Rentals 2,733 2,819 2,844 1,905 1,864
Tax Effected Preferred
Dividends 5,294 5,331 5,284 5,468 4,939
------- ------- ------- ------- -------
Total Fixed Charges, as
Defined $37,500 $35,612 $37,092 $37,234 $33,144
======= ======= ======= ======= =======
Ratio of Earnings to Fixed
Charges* 1.5 1.9 2.1 2.6 2.5
=== === === === ===
<FN>
*The fixed charge coverage ratio without the effects of the QST
discontinued operations and the CILCO extraordinary item would
have been 2.5, 3.0 and 2.5 for 1998, 1997 and 1996,
respectively. Furthermore, if the effect of the goodwill write-
off was also excluded from operating results, the 1997 fixed
charge coverage ratio would have been 3.7.
</TABLE>
69
<PAGE>
<TABLE>
EXHIBIT (12)
CENTRAL ILLINOIS LIGHT COMPANY
Computation of Ratio of Earnings
to Fixed Charges
<CAPTION>
Twelve Months Ended 1998 1997 1996 1995 1994
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Earnings, as Defined:
Net Income $44,235 $ 53,467 $45,127 $42,398 $32,487
Income Taxes 22,472 20,633 24,082 22,534 17,168
Fixed Charges, as Below 28,187 29,434 28,504 27,876 24,693
------- -------- ------- ------- -------
Total Earnings,
as Defined $94,894 $103,534 $97,713 $92,808 $74,348
======= ======== ======= ======= =======
Fixed Charges, as Defined:
Interest on COLI $ 3,624 $ 3,491 $ 2,731 $ 2,349 $ 2,028
Interest on Short-term Debt 962 281 149 744 292
Interest on Long-term Debt 19,498 20,024 21,012 20,242 19,221
Amortization of Debt
Discount & Expense,
Premium and
Reacquired Loss 535 2,218 681 669 665
Miscellaneous Interest
Expense 1,780 1,658 2,320 1,967 623
Interest Portion of
Rentals 1,788 1,762 1,611 1,905 1,864
------- -------- ------- ------- -------
Total Fixed Charges, as
Defined $28,187 $ 29,434 $28,504 $27,876 $24,693
======= ======== ======= ======= =======
Ratio of Earnings to Fixed
Charges 3.4 3.5 3.4 3.3 3.0
=== === === === ===
</TABLE>
70
NOTICE
This copy of CILCORP Inc.'s and Central Illinois Light Company's
Form 10-K does not include our 1998 Consolidated Annual Report
which is to be mailed not later than June 1999.
Telephone:
In Peoria 675-8808
Elsewhere in Illinois 1-800-322-3569
Outside Illinois 1-800-622-5514
TDD 1-309-675-8892
Or you can write to us at:
Investor Relations Department
CILCORP Inc.
300 Hamilton Blvd.
Suite 300
Peoria, IL 61602-1238
71
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our reports, dated January 27,
1999, included herein or incorporated by reference in this Form
10-K, into CILCORP Inc.'s previously filed Registration
Statements File No. 33-45318, 33-51241 and 33-62105.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 26, 1999
72
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
In 1998 and prior years, the financial condition and operating
results of CILCORP Inc. and its subsidiaries (the Company)
primarily reflected the operations of Central Illinois Light
Company (CILCO), QST Enterprises Inc. (QST), and their
subsidiaries. On November 23, 1998, the Company announced that
The AES Corporation (AES) has offered to buy 100% of the Company's
outstanding common stock for $65 per share, subject to CILCORP
shareholder approval and various regulatory approvals. On March
10, 1999, the Illinois Commerce Commission issued its approval of
CILCORP's merger with AES. Other required approvals are in
process. The Company anticipates that this transaction will close
in mid 1999.
As a result of the pending acquisition and after reviewing its
business plans, the Company decided in late 1998 to sell its 100%
ownership interest in QST Environmental Inc. (QST Environmental),
a first-tier subsidiary of QST that provides environmental
consulting and engineering services. An offering memorandum was
sent to potential purchasers in early 1999. QST had sold another
of its subsidiaries, QST Communications Inc., in August 1998.
In June 1998, QST Energy Inc. (QST Energy), another first-tier
subsidiary of QST, incurred a material loss related to wholesale
electricity contracts, triggered by an unprecedented increase in
short-term wholesale electricity prices. QST Energy closed its
electric and gas non-retail positions and, in the fourth quarter
of 1998, closed its Houston energy trading office and transferred
its Pennsylvania retail electric and gas customers to other
marketers. In late 1998, QST Energy began negotiating with its
remaining non-Illinois commercial customers to end its obligations
to provide electric service over the remaining terms of its
contracts with them.
Due to uncertainties related to electric deregulation across the
country, the illiquidity of certain energy markets, and its
pending acquisition by AES, the Company will focus in the future
on the opportunities in the Illinois energy market resulting from
the deregulation of electricity under the Electric Service
Customer Choice and Rate Relief Law of 1997 (see Competition).
This law will enable CILCO, the Company's regulated public utility
that generates and distributes electricity and purchases,
transports and distributes natural gas, to serve Illinois
customers outside its traditional service territory in Central
Illinois. As a result of these events, the Company is reporting
the results of QST Enterprises and its subsidiaries as
discontinued operations (see Note 10). During the fourth quarter
of 1997, QST Environmental sold substantially all of the assets of
ESE Land Corporation (ESE Land), its wholly-owned subsidiary that
acquired environmentally impaired property for remediation and
resale. The operations of ESE Land are included in discontinued
operations in 1997 and 1996.
The Other Businesses segment includes the operations of the
holding company itself (Holding Company), its investment
subsidiary, CILCORP Investment Management Inc. (CIM), and CILCORP
Ventures Inc. (CVI).
1
OVERVIEW
Contributions to the Company's earnings per share for the last
three calendar years are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CILCO (excluding
extraordinary item) $ 3.02 $ 3.39 $ 3.11
CILCO Extraordinary Item -- .30 --
Other Businesses (.21) (.18) (.30)
QST Enterprises Discontinued
Operations (1.61) (2.31) (.74)
------ ------ ------
Earnings Per Common
Share - Basic $ 1.20 $ 1.20 $ 2.07
====== ====== ======
</TABLE>
CILCO's earnings, excluding the extraordinary item, decreased by
11% in 1998 primarily due to increased power plant maintenance
expense, repairs to the electric distribution system resulting
from a severe storm in June 1998, higher gas maintenance expenses,
and higher information technology costs. Electric gross margin
increased by 5% as a result of warmer than normal summer weather.
However, this increase was partially offset by a 9% decrease in
gas gross margin due to warmer than normal weather during the
heating season. CILCO's 1997 earnings included a credit of $4.1
million ($.30 per share) for an after-tax extraordinary item
related to the write-off of regulatory assets and liabilities
associated with electric generating plant (see Note 1).
CILCO's earnings before the extraordinary item increased by 9% in
1997 primarily due to a decline in operations and maintenance
expense. Results for 1996 included a $5.4 million after-tax
charge ($.40 per share) related to an early retirement program.
Decreased residential gas sales resulting from warmer weather
during the heating season and increased power plant maintenance
expense due to a scheduled outage at the Duck Creek generating
station partially offset the decline in 1997 expenses resulting
from the early retirement program.
An unprecedented short-term increase in wholesale electricity
prices during June 1998 contributed to a $10.6 million, or $.47
per share, reduction in QST's electric gross margin in the second
quarter. QST Energy's electric gross margin for 1998 was $(14.3)
million compared to $(.8) million in 1997, a reduction of $.60 per
share from 1997 results. In addition, as a result of
discontinuing its operations at December 31, 1998, QST Energy
adjusted to market value its future contractual commitments to
sell electricity and natural gas, resulting in a $5.2 million pre-
tax charge against income, or $.23 per share. Additional losses
were recognized in 1998 related to the disposal of QST assets,
termination of leases and other agreements, severance costs, and
estimated operating expenses which will be incurred until QST is
able to completely exit the non-Illinois markets.
In August 1998, QST sold its 100% interest in QST Communications
Inc., realizing an after-tax gain of $8.3 million or $.60 per
share, partially offset by the $.05 per share 1998 loss from
discontinued operations prior to the sale.
In 1997, $22.6 million ($1.66 per share) of goodwill related to
QST Environmental was written off (see Note 1). The results of
QST Environmental were adversely affected in 1998 by continued
losses at its laboratory operations and by the estimated loss from
the discontinuance of the business. The loss includes estimated
severance costs and other closing costs related to laboratory and
other operations that will not be sold and which are being
discontinued.
2
These amounts were partially offset by net income, approximating
$.05 per share, earned at its consulting business.
Other Businesses results for 1998 were approximately the same as
1997. CIM realized a gain from the refinancing of a leveraged
lease investment and also shared in the after-tax gain resulting
from the sale of facilities of the Energy Investors Fund, L.P., in
which CIM has a 3% interest. These items were offset by reduced
income from CIM's affordable housing investments and costs
incurred by the Holding Company related to the AES transaction.
Other Businesses results improved in 1997 due to an after-tax gain
resulting from CIM's share in the sale of another facility owned
by the Energy Investors Fund. Increased tax credits from
affordable housing investments, a decline in Holding Company costs
related to corporate repositioning, and increased income resulting
from CIM's investment in a new leveraged lease also contributed to
improved results, partially offset by increased costs related to
services provided to Caterpillar Inc. (see Competition).
Return on average common equity was 4.7% in 1998, compared to 4.5%
in 1997 and 7.7% in 1996. Excluding discontinued operations and
extraordinary items, return on average common equity was 9.8% in
1998, compared to 11.5% in 1997 and 10.4% in 1996. The ratio of
common equity to total capitalization, including short-term debt,
was 43% in 1998, 44% in 1997, and 46% in 1996. The fixed charge
coverage ratio decreased to 1.5 in 1998 (2.5 excluding
discontinued operations), compared to 1.9 in 1997 (3.7 without
discontinued operations and the extraordinary item) and 2.1 in
1996 (2.5 excluding discontinued operations).
Inflation may have a significant impact on the Company's future
operations and its ability to contain costs. To help protect
CILCO from the effects of inflation, substantially all electric
and gas sales rates include a fuel adjustment clause (FAC) or a
purchased gas adjustment (PGA) to provide for changes in electric
fuel costs, excluding coal transportation, and changes in the cost
of natural gas. Over the past five years, the annual rate of
inflation, as measured by the Consumer Price Index, has ranged
from 1.6% to 2.9%.
Forward-Looking Information
Forward-looking information is included in Management's Discussion
and Analysis of Financial Condition and Results of Operations
(MD&A). Certain material contingencies are also described in Note
9 to the Consolidated Financial Statements.
Some important factors could cause actual results or outcomes to
differ materially from those expressed or implied in MD&A. The
business and profitability of CILCORP and its subsidiaries are
influenced by economic and geographic factors, including ongoing
changes in environmental laws and weather conditions; the extent
and pace of development of competition for retail and wholesale
energy customers; changes in technology; third party compliance
with Year 2000 requirements; the inability to identify and
remediate or replace embedded computer chips in affected
equipment; pricing and transportation of commodities; market
supply and demand for energy and energy derivative financial
instruments; inflation; capital market conditions; and
environmental protection and compliance costs. Prevailing
governmental policies, statutory changes, and regulatory actions
with respect to rates, industry structure and recovery of various
costs incurred by CILCO in the course of its business and
increasing wholesale and retail competition in the electric and
gas business affect its earnings. All such factors are difficult
to predict, contain uncertainties that may materially affect
actual results and, to a significant degree, are beyond the
control of CILCORP and its subsidiaries. CILCORP and its
subsidiaries undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result of changes in
actual results, assumptions or other factors.
3
CAPITAL RESOURCES AND LIQUIDITY
The Company believes that internal and external sources of capital
which are or are expected to be available to the Holding Company
and its subsidiaries will be adequate to fund its capital
expenditures, pay its financial obligations, meet working capital
needs and retire or refinance debt as it matures. The Agreement
and Plan of Merger (The Agreement) between the Company and The AES
Corporation provides for the ongoing payment of common dividends,
not to exceed the average for the four quarterly dividend payments
prior to the effective date of The Agreement, pending the merger.
THE COMPANY
CILCORP is currently authorized by its Board of Directors to
borrow up to $60 million on a short-term basis and had $60 million
of committed bank lines at the end of 1998 and 1997. At December
31, 1998, $55.6 million of the lines were used, compared to $40.9
million in use at December 31, 1997.
The Company had $30.5 million of medium-term notes outstanding at
year-end and may issue an additional $27 million under its
existing medium-term note program to retire maturing debt and to
provide funds for other purposes.
CILCO
In 1998, CILCO spent $67.1 million for capital additions and
improvements, consisting primarily of replacements and
improvements to the existing electric transmission and
distribution and natural gas distribution systems and information
technology projects. Estimated 1999 and 2000 capital expenditures
are $56.6 million and $51 million, respectively. The 1999
expenditures include $14.2 million for electric energy supply and
transmission projects, $.6 million for gas supply and transmission
projects, $28.7 million for electric and gas distribution systems
improvements, and $11.8 million for information technology
projects. Actual capital expenditures may vary from these
estimates due to a number of factors, including changes in costs
of labor, equipment, capital, environmental regulations, and load
growth estimates.
CILCO's short-term debt increased to $40.6 million at December 31,
1998, from $21.3 million at December 31, 1997. CILCO retired
$10.65 million of medium-term notes in June 1998 and $20 million
of first mortgage bonds in March 1997. Also, in 1998, CILCO paid
$20 million of dividends to CILCORP in addition to regular
quarterly dividends. CILCO expects to issue commercial paper
periodically during 1999, and is currently authorized by its Board
of Directors to issue up to $66 million of short-term debt. At
December 31, 1998, committed bank lines of credit totaled
$45 million, all of which were unused except in support of
commercial paper issuance. During 1999, CILCO expects the support
of commercial paper issuance to be the sole use of these bank
lines of credit. CILCO plans to finance its 1999 and 2000 capital
expenditures primarily with funds provided by operations. Future
funds provided by operations may be affected by the deregulation
of the electric and natural gas utility industries (see
Competition).
QST
Capital expenditures, excluding those of QST Environmental,
totaled approximately $7.6 million for 1998, primarily for
construction of fiber optic and other communications facilities by
QST Communications Inc. prior to its sale in August 1998 (see Note
10). Working capital balances at QST (excluding QST
Environmental) increased by $8.6 million during 1998, primarily
due to an increase in accounts receivable and unbilled revenue
related to QST Energy's business in California.
QST is currently involved in a billing dispute with two of its
large California commercial customers who, as a result, have not
paid QST for energy delivered.
4
In February 1999, QST notified these customers that they were in
default of their contract with QST. QST filed suit in Federal
District Court in February to recover the $11 million owed at that
date; the customers have responded. QST cannot predict the
ultimate outcome of this matter, but intends to vigorously pursue
its claim.
QST expects to finance working capital needs prior to its exit
from the non-Illinois markets with funds provided by the Holding
Company. At December 31, 1998, QST (excluding QST Environmental)
had no outstanding debt.
QST Environmental spent $1.3 million for capital additions and
improvements in 1998 and plans to spend $.5 million in 1999 on
capital additions. QST Environmental generated $3.3 million of
cash from operations in 1998.
QST Environmental has a line of credit with CILCORP under which it
may borrow up to $15 million, depending upon the amount of QST
Environmental's receivables and fixed assets. This line of credit
expires in May 2000. At December 31, 1998, QST Environmental had
borrowed $7 million from CILCORP. Based upon its current
receivables and fixed assets, QST Environmental has an additional
$8 million available under this revolving line of credit. QST
Environmental's outstanding term debt at December 31, 1997, was
$12.5 million. QST Environmental anticipates that cash and short-
term investments, funds generated by operations and amounts
available under the Holding Company line of credit will be
sufficient to meet its anticipated working capital requirements
prior to its sale.
CIM
CIM had outstanding debt of $37.7 million and $37.2 million (all
to the Holding Company) at the end of 1998 and 1997, respectively.
During 1997 and prior years, CIM committed to invest $16.6 million
in affordable housing funds. Through December 31, 1998, CIM has
paid $14 million to fund these commitments, $3.8 million of which
was paid during 1998. CIM expects to pay approximately
$1.6 million of the remaining $2.6 million commitment in 1999, and
lesser amounts in each year thereafter through 2006. CIM funded
these commitments with cash borrowed from the Holding Company.
CIM expects to finance it capital needs during 1999 with a
combination of funds generated internally and with funds provided
by the Holding Company.
YEAR 2000
The Company is continuing its progress toward making its computer
systems and operations ready for the year 2000. CILCO began
evaluating its information technology systems in 1996. Systems
were reviewed and a schedule was developed for the analysis of all
computer application code and for the replacement or modification
of those systems that were identified as obsolete and/or having
potential Year 2000 (Y2K) issues. Replacement of several major
computer systems with Y2K issues began in 1997. A Y2K team was
established in March 1998, consisting of personnel from each
operating division of CILCO. In conjunction with the formation of
the Y2K team, an outside firm specializing in Y2K projects was
retained to assist CILCO with its overall Y2K project plans.
CILCO has also worked with an independent audit team to evaluate
the status of the Y2K project. The project was divided into three
phases, as follows:
Phase I tasks included an inventory of all present systems for
embedded chips having potential Y2K issues, contacting all
manufacturers of embedded chip devices for the Y2K status of these
devices, identifying and surveying all critical suppliers, and
conducting an inventory of all information technology hardware and
software for analysis of Y2K problems. Phase I was completed in
August 1998.
5
Phase II is currently in progress. This phase includes Y2K
compliance testing of all suspect embedded chip devices identified
in Phase I in the power plants, service centers, and business
offices. In addition, two separate groups of outside consultants
evaluated all mainframe application code to identify specific
instances of date problems in each application program for systems
that are not being replaced. Phase II has been completed except
for the testing of power plant embedded chip devices. This
testing will occur during scheduled power plant outages in 1999.
Phase III is also in progress and includes the upgrade/replacement
and re-testing of embedded chip devices found not to be Y2K
compliant during Phase II. This phase includes completion of
mainframe computer operating software upgrades to current Y2K
compliant versions and defining Y2K contingency plans for each
business unit. Computer application code that was determined to
have Y2K date related problems during Phase II will be corrected.
Testing of all applications which have undergone Y2K
upgrades/modifications, testing of operating system software, and
development and testing of contingency plans through simulation or
actual tests, where practical, will complete Phase III, which is
expected to be completed by October 1999. Systems identified as
critical to the continued provision of utility services will be of
particular focus during the testing portion of Phase III. These
critical systems are generating station equipment, electric
transmission and distribution control systems, gas delivery
control systems, and telecommunications systems.
An estimated $2 million (historical and future costs) will be
spent for embedded chip analysis, vendor management, application
code scanning, remediation, testing and contingency planning at
CILCO. Approximately $30.7 million will have been spent prior to
the year 2000 for system replacements or hardware upgrades
initiated for business purposes other than solely for Y2K
compliance.
QST Environmental is scheduled to complete the upgrade of its
billing and project accounting system to a Y2K compliant version
by June 1999. Replacement of this system will cost approximately
$1 million, $624,000 of which was spent in 1998.
CILCO is working both internally and with utility industry groups,
including the Mid-America Interconnected Network (MAIN) and the
North American Electric Reliability Council (NERC), to identify
and plan for all identified risks associated with the Y2K issue.
While these groups are modeling potential worst case scenarios,
the probability of extreme disruptions due to Y2K issues is
considered extremely low. CILCO's Y2K team has identified the
most likely worst case scenario to be an interruption in service
by a critical supplier. Consequently, alternate sources for
supplies have been identified and the need for CILCO to stock
additional inventories of critical items is being evaluated.
CILCO is also following the contingency planning process
recognized by MAIN and NERC. Accordingly, CILCO has established a
Y2K contingency planning team that has received training in
contingency planning techniques and goals. The team is collecting
data and contingency planning began in March 1999. Within this
structure, CILCO is required to submit its contingency plans to
MAIN by March 31, 1999. MAIN is then required to submit plans to
NERC by June 30, 1999. This contingency planning process is
expected to continue through the fourth quarter 1999, and will
include CILCO's participation in the NERC industry-wide drills
during the spring and fall of 1999.
The Company currently believes it will be able to achieve Y2K
compliance, as discussed above, through a combination of
modifications of certain existing programs and systems, the
replacement of others with new software that is Y2K compliant, and
the development of contingency plans. If such modifications and
conversions are not made, however, or are not made in a timely
manner, the Y2K issue could have a material impact on the
Company's operations. In addition, management cannot predict the
nature or impact on operations of third-party noncompliance with
Y2K requirements beyond the assurances given during critical
vendor assessments.
6
COMPETITION
The electric utility industry will change significantly during the
coming years at both the wholesale and retail levels. In
Illinois, the Electric Service Customer Choice and Rate Relief Law
of 1997 (Customer Choice Law) began a transition process to a
fully competitive market for electricity. Large industrial
customers and customers representing one-third of remaining non-
residential kwh sales will be able to choose their electric
supplier beginning October 1, 1999, with all other non-residential
customers having a choice after December 31, 2000. Residential
electric customers will be able to choose their electric supplier
on May 1, 2002.
If a customer chooses to leave its present electricity supplier,
that utility will collect a fee for delivering power and may
assess an additional transition charge on the customer. This
charge must be filed with the Illinois Commerce Commission (ICC)
and is designed to help utilities recover the cost of past
investments made under a regulated system. The transition charge
will reduce a customer's economic incentive to switch suppliers.
Transition charges may be collected through 2006 (2008 upon the
ICC's finding that a utility's financial condition is impaired).
The Customer Choice Law also requires electric base rate
reductions that vary by utility. CILCO reduced its residential
base rates by 2% in August 1998 and must reduce base rates by an
additional 2% in October 2000 and 1% in October 2002. Also,
CILCO's return on common equity will, in general, be capped (the
Equity Cap) at an index (a 12 month average yield for 30 year U.S.
Treasury bonds plus 8% for calendar years 1998 and 1999 and a 12
month average yield for U.S. Treasury bonds plus 9% for calendar
years 2000 through 2004) plus 1.5 percentage points. If CILCO's
two-year average return on common equity exceeds the two-year
average of the Equity Cap, fifty percent of the earnings in excess
of the average Equity Cap must be refunded to customers in the
following year.
With the enactment of the Customer Choice Law, electric generation
in Illinois will become deregulated and competitive. As a result,
the accounting principles applicable to rate-regulated enterprises
will no longer apply to the electric generation portion of CILCO's
business (see Note 1). Also, the cost of any assets whose
recovery is impaired by the transition to a competitive
marketplace must be written-off. CILCO has not determined its
electric generating asset values to be impaired; its ability to
keep total production costs competitive in a deregulated market
will determine whether and to what extent the value of these
assets may be impaired in the future.
In 1996, CILCO began Power Quest, which consisted of two electric
and one gas pilot retail competition programs. The retail
competition program for industrial electric customers ended as
scheduled on April 30, 1998. That program allowed CILCO's eight
largest industrial customers to secure up to 50 megawatts in
aggregate (10% of CILCO's industrial load) from suppliers other
than CILCO. Seven of these customers participated in the program.
Caterpillar Inc., with three eligible accounts, elected to form a
strategic alliance with CILCORP rather than take its entire Power
Quest allocation from suppliers other than CILCO. In December
1998, CILCO received approval from the ICC to eliminate the other
electric pilot program (for residential and commercial customers
in six areas in its service territory) effective May 1, 1999. At
the end of 1998, approximately 1,400 residential and commercial
customers participated in this program. CILCORP experienced a
$2.4 million reduction in 1998 pre-tax income as a result of the
electric industrial pilot program (including electric margin lost
by CILCO, CVI costs associated with the Caterpillar alliance and
QST margin on Power Quest customers). The other electric pilot
program reduced CILCORP's 1998 pre-tax income by $.9 million.
While CILCO has not filed with the ICC to terminate the gas pilot
program, its affiliate QST Energy withdrew from participation in
the program in August 1998. Most gas customers that had been
served by QST have returned to CILCO or other
7
affiliates. Participation in the gas pilot program by marketers
other than QST has been minimal. This program did not have a
material impact on CILCORP's 1998 financial position or results of
operation.
With the coming of electric choice in 1999 to its industrial
customers and some of its commercial customers, CILCO has entered
into contracts with six of its largest customers, representing
approximately 12% of total 1998 electric revenue. These
contracts, which expire from 2001 to 2002, were designed to
capture at least the same revenue that the customers paid to CILCO
and QST in 1997 when they participated in the Power Quest pilot
program. They cover each customer's full electric requirements
for a period which extends at least 18 months past the
implementation of customer choice.
The ultimate market price for electricity, the cost for a utility
to produce or buy electricity, and the number of customers that
may be gained or lost due to customer choice of supplier in
Illinois cannot be predicted. As a result, management cannot
predict the ultimate impact that the Customer Choice Law will have
on CILCORP's financial position or results of operation, but the
effect could be significant. However, CILCO is currently a low-
cost provider of electricity, and management will continue to
position CILCO for competition by controlling costs, maintaining
good customer relations, and developing flexibility to meet
individual customer requirements.
ENVIRONMENTAL MATTERS
CILCO's capital expenditures related to pollution control
facilities are estimated to be $4.9 million in 1999. The acid
rain provisions of the Clean Air Act Amendments of 1990
(Amendments) require additional sulfur dioxide (SO2) and nitrogen
oxide (NOx) emission reductions at CILCO's generating facilities.
CILCO's facilities are exempt from Phase I of the Amendments due
to previous emission reductions, but are subject to Phase II of
the Amendments, which require further emission reductions
beginning in the year 2000.
The U.S. Environmental Protection Agency (USEPA) has issued a
State Implementation Plan Call to Illinois under Title I of the
Amendments requiring additional NOx emission reductions from
CILCO's coal-fired power plants beginning May 2003. Each of
CILCO's generating units would be allowed a targeted amount of NOx
emissions during the peak ozone months of May through September.
The Illinois Environmental Protection Agency (IEPA) must adopt
rules by September 1999 implementing this new requirement.
CILCO's capital expenditures to meet the NOx emission requirements
could total $59 million by 2003.
CILCO's near-term compliance strategy is being implemented based
upon regulations issued under the Amendments. CILCO continues to
monitor regulatory actions and develop compliance strategies to
minimize any financial impact. Due to the deregulation of the
electric industry resulting from the Customer Choice Law, recovery
of compliance costs in the future will depend upon the number of
retail customers CILCO serves and the marketability of the power
it generates in a competitive environment. CILCO's present
strategy includes use of an existing SO2 scrubber, fuel switching
and SO2 allowance purchases to meet Phase II SO2 emissions
targets, and combustion control modifications to meet Phase II NOx
emissions targets. The USEPA established SO2 emission allowance
reserves for power plants in Phase II. Allowances are
transferable to third parties at market prices. The cost of
purchased SO2 allowances may be recovered from customers through
the fuel adjustment clause. CILCO continues to weigh the costs of
purchasing additional allowances against alternative operating
scenarios. Under this strategy, CILCO's generating units will not
require additional SO2 scrubbers, but will require some fuel
switching.
Various initiatives are being discussed both in the United States
and worldwide to reduce so-called "greenhouse gases" such as
carbon dioxide and other by-products of burning fossil fuels.
Reductions of emissions below historical
8
levels could result in significant capital outlays or material
increases in annual operating expenses.
Neither CILCORP, CILCO, nor any of their affiliates has been
identified as a potentially responsible party under federal or
state environmental laws governing waste storage or disposal.
CILCO continues to investigate and/or monitor four former gas
manufacturing plant sites located within its present gas service
territory. The purpose of these studies is to determine if waste
materials, principally coal tar, are present, whether such waste
materials constitute an environmental or health risk and if CILCO
is responsible for the remediation of any remaining waste
materials at those sites. Remediation work at one of the four
sites was substantially completed in 1991. Based on the operation
of a groundwater collection system and other controls, CILCO
expects to request a "No Further Remediation" letter for this site
in 1999. A remedial action plan for the second site was
determined during 1997 and site remediation was completed in 1998.
CILCO has a request for a "No Further Remediation" letter pending
with the IEPA for the second site. CILCO has not determined the
ultimate extent of its liability for, or the ultimate cost of any
remediation of, the remaining two sites, pending further studies.
Investigation of the third site is planned for 1999.
CILCO spent approximately $1.7 million for former gas
manufacturing plant site monitoring, legal fees and feasibility
studies in 1998. A $1.6 million regulatory asset and a
corresponding liability are recorded on the Balance Sheet
representing the minimum amount of future coal tar investigation
and remediation costs CILCO expects to incur. Coal tar
remediation costs incurred through December 1998 have been
deferred on the Balance Sheets, net of amounts recovered from
customers (see Note 1).
Through December 31, 1998, CILCO has recovered approximately
$6.2 million in coal tar remediation costs from its customers
through a gas rate rider approved by the ICC. Currently, that
rider allows recovery of coal tar remediation costs in the year
they are incurred. Under these circumstances, management believes
that the cost of coal tar remediation will not have a material
adverse effect on CILCO's financial position or results of
operations.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1998, the Emerging Issues Task Force (EITF) of the
Financial Accounting Standards Board reached consensus on Issue
No. 98-10, Accounting for Contracts Involved in Energy Trading and
Risk Management Activities. EITF 98-10 requires energy trading
contracts to be recorded at fair value on the balance sheet,
starting January 1999, with changes in fair value recorded in
earnings. QST's energy trading activities, as defined by EITF 98-
10, were marked to market at December 31, 1998, and accounted for
as discontinued operations. The resulting loss of $5.2 million,
representing losses on net open energy sales commitments, is
included in Discontinued Operations on the Income Statement (see
QST Enterprises Discontinued Operations). CILCORP currently
anticipates that its future activities will not be classified as
energy trading operations under EITF 98-10. Management therefore
does not expect EITF 98-10 to have a material effect on CILCORP's
1999 results of operations unless there is a material change in
the market value of the open energy sale commitments included in
discontinued operations in 1998.
In June 1998, the Financial Accounting Standards Board issued SFAS
133, Accounting for Derivative Instruments and Hedging Activities.
Effective January 1, 2000, SFAS 133 establishes accounting and
reporting standards requiring that derivative financial
instruments (including those embedded in other contracts) be
recorded on the balance sheet as either an asset or liability
measured at its fair value. Changes in the derivative's fair
value are to be recognized currently in earnings, unless certain
specified criteria are met which allow the derivative to be
treated as a hedge. Special accounting
9
for qualifying hedges allows a derivative's gains or losses to
offset related results of the hedged item in the income statement.
The effect of adopting SFAS 133 on CILCORP's net income or
financial position has not yet been determined; however,
volatility of earnings and comprehensive income could be
increased.
PRICE RISK MANAGEMENT
The majority of CILCORP's energy sales at the end of 1998 were to
CILCO retail customers in Illinois under tariffs regulated by the
ICC. Although the Illinois retail electric market is becoming
deregulated (see Competition), prudently incurred costs of fuel
used to generate electricity, purchased power costs and gas
purchased for resale may be recovered from retail customers that
purchase energy through regulated tariffs. Thus, there is very
limited commodity price risk associated with CILCO's traditional
regulated sales. However, as more customers in Illinois purchase
energy on a competitive basis pursuant to the current Illinois
deregulation timetable, CILCO's exposure to commodity price risk
will increase. At December 31, 1998, QST's non-Illinois electric
operations and gas trading activities have been accounted for as
discontinued operations (see Note 10).
The market risk inherent in the activities of CILCORP (exclusive
of regulated Illinois tariff customers) is the potential loss
arising from adverse changes in natural gas and electric commodity
prices relative to the physical and financial positions that the
Company maintains. The prices of natural gas and electricity are
subject to fluctuations resulting from changes in supply and
demand. At December 31, 1998, CILCORP engaged in deregulated
electric retail and natural gas sales in Illinois, including
wholesale power purchases and sales to utilize its electric
generating capability. These deregulated activities had net open
market price risk positions of approximately 14,000 MWh of
electricity and 1.3 Bcf of natural gas. A market price
sensitivity of 10% applied to these positions is not material to
the Company. At December 31, 1998, QST's discontinued operations
had a net open market price risk in electricity of approximately
1.3 million MWh (see New Accounting Pronouncements). Assuming a
10% adverse change in market prices, the Company would record an
additional loss of $3.1 million. Actual results may differ
materially. See Note 12 for a discussion of CILCORP's use of
financial derivatives for hedging purposes. Due to the high
correlation between the changes in the value of the financial
instruments owned by CILCORP to the change in price of the
underlying commodity, the net effect on CILCORP's net income
resulting from the change in value of these financial instruments
is not expected to be material.
10
RESULTS OF OPERATIONS
CILCO ELECTRIC OPERATIONS
The following table summarizes electric operating revenue and
expenses by component.
<TABLE>
<CAPTION>
Components of Electric Income 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Revenue:
Electric retail $341,143 $318,130 $307,579
Sales for resale 18,866 19,966 15,206
-------- -------- --------
Total revenue 360,009 338,096 322,785
-------- -------- --------
Cost of sales:
Cost of fuel 94,490 92,230 90,715
Purchased power expense 29,568 22,851 10,907
Revenue taxes 18,581 15,388 14,504
-------- -------- --------
Total cost of sales 142,639 130,469 116,126
-------- -------- --------
Gross margin 217,370 207,627 206,659
-------- -------- --------
Operating expenses:
Operation and maintenance
expenses 84,502 78,648 84,174
Depreciation and amortization 46,017 43,858 42,530
Other taxes 8,660 8,583 8,266
-------- -------- --------
Total operating expenses 139,179 131,089 134,970
-------- -------- --------
Fixed charges and other:
Cost of equity funds
capitalized -- (35) (36)
Interest on long-term debt 13,921 14,317 15,171
Cost of borrowed funds
capitalized (34) (99) (54)
Other interest 2,340 1,875 2,274
-------- -------- --------
Total 16,227 16,058 17,355
-------- -------- --------
Income before taxes 61,964 60,480 54,334
Income taxes 21,645 21,901 19,576
-------- -------- --------
Electric income $ 40,319 $ 38,579 $ 34,758
======== ======== ========
</TABLE>
Electric gross margin increased 5% and retail kilowatt hour (kwh)
sales increased 6% in 1998. Residential sales volumes increased
4% while commercial sales increased 6%. Cooling degree days were
28% higher in 1998 than 1997. Industrial sales volumes increased
8% compared to 1997. Industrial sales were favorably impacted by
customers returning to retail supply due to the completion of
CILCO's Power Quest industrial program.
Electric gross margin remained constant in 1997 primarily due to
level retail kwh sales. Residential sales volumes increased 1%
while commercial sales volumes remained constant. Cooling degree
days were 5% higher in 1997 than in 1996. Industrial sales
volumes increased 1% compared to 1996.
11
Sales for resale decreased 6% in 1998 as a result of lower
available capacity for bulk sales due to unscheduled generating
station outages. Sales for resale increased 31% in 1997 due to
favorable market conditions. Sales for resale vary based on the
energy requirements of native load customers, neighboring
utilities and power marketers, CILCO's available capacity for bulk
power sales and the price of power available for sale. In the
future, CILCO expects increased activity in the sales for resale
and purchased power markets.
The overall level of business activity in CILCO's service
territory and weather conditions are expected to continue to be
the primary factors affecting electric sales in the near term.
CILCO's electric sales will also be affected in the long term by
deregulation and increased competition in the electric utility
industry.
The cost of fuel for generation increased 2% in 1998 primarily due
to an increase in generation, partially offset by a decrease in
the cost of coal burned. Substantially all of CILCO's electric
generation capacity is coal-fired. The cost per ton of coal
burned, including transportation cost, decreased 1% in 1998
compared to 1997.
Purchased power expense varies based on CILCO's need for energy
and the price of power available for purchase. CILCO makes use of
purchased power when it is economical to do so, and when required
during maintenance outages at CILCO plants. The costs of energy
purchased for retail customers are passed through to those
customers via the fuel adjustment clause (FAC).
Electric operations and maintenance expenses increased 7% in 1998
compared to 1997. The 1998 increases were primarily due to
increases in steam generation expenses arising from outages at
CILCO's E. D. Edwards facility, and increased electric
distribution overhead line maintenance expense due to a severe
storm in June, which, at its peak, affected power delivery to
approximately half of CILCO's electric customers. Also
contributing to the increases were higher information technology
costs. The increases were partially offset by lower outside
service costs and decreases in the actuarially-determined costs
for pensions and post-employment benefits. The 1997 decreases
were primarily due to lower pension and benefits, outside
services, and injury and damages costs partially offset by
increased power plant maintenance expenses due to a scheduled
outage at the Duck Creek generating station.
The increase in depreciation and amortization expense in 1998 and
1997 reflects additions and replacements of utility plant at costs
in excess of the original cost of the property retired and
increased amortization associated with the implementation of new
computer systems.
12
CILCO GAS OPERATIONS
The following table summarizes gas operating revenue and expenses
by component.
<TABLE>
<CAPTION>
Components of Gas Income 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Revenue:
Sale of gas $166,416 $202,274 $187,432
Transportation services 5,911 6,484 8,338
-------- -------- --------
Total revenue 172,327 208,758 195,770
-------- -------- --------
Cost of sales:
Cost of gas 93,586 123,531 108,286
Revenue taxes 7,921 7,079 7,500
-------- -------- --------
Total cost of sales 101,507 130,610 115,786
-------- -------- --------
Gross margin 70,820 78,148 79,984
-------- -------- --------
Operating expenses:
Operation and maintenance
expenses 34,205 31,185 35,160
Depreciation and amortization 19,256 17,647 17,134
Other taxes 2,747 3,225 3,153
-------- -------- --------
Total operating expenses 56,208 52,057 55,447
-------- -------- --------
Fixed charges and other:
Cost of equity funds -- -- --
capitalized
Interest on long-term debt 5,577 5,707 5,841
Cost of borrowed funds
capitalized -- -- --
Other interest 937 747 875
-------- -------- --------
Total 6,514 6,454 6,716
-------- -------- --------
Income before taxes 8,098 19,637 17,821
Income taxes 3,443 7,416 6,972
-------- -------- --------
Gas income $ 4,655 $ 12,221 $ 10,849
======== ======== ========
</TABLE>
Gas gross margin decreased 9% in 1998 compared to 1997.
Residential and commercial sales volumes decreased 17% and 12%,
respectively, primarily due to warmer weather during the heating
season. Heating degree days were 19% lower in 1998 than in 1997.
The overall level of business activity in CILCO's service
territory and weather conditions are expected to be the primary
factors affecting gas sales in the near term. CILCO's gas sales
may also be affected by further deregulation in the natural gas
industry.
Gas gross margin decreased 2% in 1997 compared to 1996.
Residential sales volumes decreased 9%, primarily due to warmer
weather during the heating season. Heating degree days were 6%
lower in 1997 than in 1996. Commercial sales increased 10% in
1997 due to customers switching from gas transportation to CILCO
system supply.
The cost of gas decreased 24% in 1998 and increased 14% in 1997,
primarily due to changes in natural gas prices. These changes
were passed through to customers via the PGA.
13
Gas operations and maintenance expenses increased 10% in 1998 and
decreased 11% in 1997. The increase for 1998 was due to higher
maintenance and information technology costs, partially offset by
lower outside service costs and decreases in the actuarially-
determined costs for pension and post-employment benefits. The
decrease for 1997 was due to lower pension and benefits, outside
services and injury and damages expenses.
Revenue from gas transportation services decreased 9% in 1998 and
22% in 1997, while the volume of gas transported decreased 2% in
1998 and increased 4% in 1997. Transportation revenues have
decreased primarily due to a continuing decline in the number of
commercial transportation customers. Despite increased
transportation sales volumes in 1997, transportation revenues
decreased due to increased gas transportation by customers using
Rate 800 contract service, which has a lower per unit charge than
other classes of transportation service. Rate 800 customers have
the ability to connect directly to interstate pipelines and bypass
CILCO's gas system and may negotiate rates individually with
CILCO.
The increases in depreciation and amortization expenses in 1998
and 1997 reflect additions and replacements of utility plant at
costs in excess of the original cost of the property retired and
increased amortization associated with the implementation of new
computer systems.
CILCO OTHER
The following table summarizes other income and deductions:
<TABLE>
<CAPTION>
Components of Other
Income and Deductions 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Revenue $ 1,743 $ -- $ --
Interest income 228 239 680
Amortization (713) (713) (713)
Operating expenses (3,600) (2,831) (2,234)
Preferred stock dividends (3,194) (3,216) (3,188)
Other (1,013) (1,177) (679)
------- ------- -------
Other income (deductions) (6,549) (7,698) (6,134)
Income taxes (benefit) (2,616) (3,049) (2,466)
------- ------- -------
Other income
(deductions), net $(3,933) $(4,649) $(3,668)
======= ======= =======
</TABLE>
14
OTHER BUSINESSES
The following table summarizes Other Businesses revenue and
expenses. Other Businesses results include income earned and
expenses incurred at the Holding Company, CIM, and CVI.
<TABLE>
<CAPTION>
Components of Other Businesses
Net Loss 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Revenue:
Leveraged lease revenue $ 7,102 $ 6,539 $ 5,933
Other revenue 17,615 4,328 1,892
------- ------- -------
Total revenue 24,717 10,867 7,825
------- ------- -------
Expenses:
Operating expenses 23,366 12,189 10,107
Depreciation and amort. 193 198 197
Interest expense 6,698 4,816 4,803
Other taxes 56 25 97
------- ------- -------
Total expenses 30,313 17,228 15,204
------- ------- -------
Loss before income taxes (5,596) (6,361) (7,379)
Income taxes (2,773) (3,919) (3,380)
------- ------- -------
Other businesses net loss $(2,823) $(2,442) $(3,999)
======= ======= =======
</TABLE>
Leveraged lease revenue increased in 1998 due to a full year's
revenue from CIM's investment in an additional leveraged lease in
July 1997. The income tax expense related to leveraged lease
income was $2.7 million, $2.5 million and $2.3 million for 1998,
1997 and 1996, respectively.
Other revenue increased in 1998 due to a $3.9 million pre-tax gain
resulting from CIM's refinancing of a leveraged lease investment
and an increase of $10.4 million in gas marketing revenues of
CILCORP Energy Services Inc. (CESI), a subsidiary of CVI.
Operating expenses increased in 1998 primarily due to an increase
of $10 million in the cost of gas for CESI's gas marketing
program. CIM recorded an additional charge of approximately $1
million during 1998 related to a decrease in the residual value of
one of its leveraged leases (see Note 6). In addition, the
Holding Company incurred $2 million in transaction costs related
to the AES acquisition.
Interest expense increased in 1998 due to higher average short-
term debt balances.
The income tax benefit decreased in 1998 due to higher net income
at CIM and expenses related to the AES transaction.
QST ENTERPRISES DISCONTINUED OPERATIONS
The results of QST and its past and present subsidiaries - QST
Communications, QST Environmental and QST Energy - are reported in
1998 and prior periods as discontinued operations (see Note 10).
The tables below show the components of the discontinued
operations.
15
Loss from operations of discontinued businesses, net of tax:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
QST Communications, net of tax of
$(463), $(576) and $(334) $ (704) $ (876) $ (508)
QST Enterprises (excluding QST
Environmental and QST
Communications), net of tax of
$(15,331), $(5,893) and $(2,296) (23,369) (8,967) (3,490)
QST Environmental, net of tax of
$(484), $(829) and $(3,567) (952) (24,283) (5,999)
-------- -------- --------
$(25,025) $(34,126) $ (9,997)
======== ======== ========
</TABLE>
Estimated (loss) realized gain on sale/disposal of assets of
discontinued businesses, net of tax:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
QST Enterprises (excluding QST
Environmental), net of tax of
$4,640 $ 7,057 $ -- $ --
QST Environmental, net of tax of
$(2,626) and $1,889 (3,940) 2,712 --
------- ------- -------
$ 3,117 $ 2,712 $ --
======= ======= =======
In August 1998, QST Enterprises sold its wholly-owned fiber optic-
based telecommunications subsidiary, QST Communications, to McLeod
USA for $20 million cash and McLeod stock options valued at $5.5
million, resulting in an after-tax gain of approximately $8.3
million which is included in the second table above. Operating
losses incurred by QST Communications prior to the sale are shown
in the first table. The gain from the sale of QST Communications
is partially offset by the estimated loss on discontinuance of QST
Energy.
At December 31, 1998, QST Enterprises and QST Energy had ceased
operations, except for fulfillment of contractual commitments
extending beyond 1998. The 1998 loss from operations of QST
Enterprises (excluding QST Environmental and QST Communications)
shown in the first table primarily results from energy trading
operations, negative electric margin generated by QST Energy's
commercial customers, and the marking to market under EITF 98-10
at December 31, 1998 of QST's contractual commitments to supply
electricity or natural gas to customers after 1998. Pre-tax gross
margin for 1998 was ($14.3) million for electricity and ($3.9)
million for natural gas, compared to ($.8) million and ($4.9)
million in 1997 for electricity and natural gas, respectively. An
unprecedented, sudden increase in wholesale electricity prices
during June 1998, transmission congestion problems in the
deregulated California market, and other California market
dynamics contributed to the decline in electric gross margin. QST
accrued a loss of $5.2 million to mark its contractual commitments
to deliver energy to market value. Increased administrative and
general costs and estimated administrative and operating costs
that will be incurred prior to QST's exit from the non-Illinois
markets also contributed to the increased loss in 1998.
Increased losses on gas trading operations in late 1997, increased
electric supply and delivery costs during the summer of 1997 and
higher administrative and general costs were the primary factors
contributing to QST Enterprises'
16
(excluding QST Environmental and QST Communications) increased
losses in 1997 compared to 1996.
As shown in the second table above, QST Environmental recorded an
after-tax charge to income of $3.9 million in 1998 to record
estimated losses related to the sale or discontinuance of its
business, including estimated losses related to assets and
obligations, such as the laboratories, not integral to the
environmental consulting business activities to be sold. QST
Environmental's 1998 loss from operations of discontinued
business, as shown in the first table, resulted primarily from
losses at its analytical laboratory operations, partially offset
by approximately $.6 million earned by its consulting business.
QST Environmental's net loss increased in 1997 compared to 1996
primarily due to the write-off of $22.6 million in goodwill,
partially offset by improved performance of the environmental
consulting operations due to cost control. An after-tax gain of
$2.7 million from the sale of the discontinued operations of QST
Environmental's subsidiary, ESE Land, is shown in the second table
above.
17
<PAGE>
Management's Report
To the Stockholders of CILCORP Inc.:
Management has prepared the accompanying financial statements and
notes for CILCORP Inc. and its consolidated subsidiaries in
accordance with generally accepted accounting principles.
Estimates and judgments used in developing these statements are
the responsibility of management. Financial data presented
throughout this report is consistent with these statements.
CILCORP Inc. maintains a system of internal accounting controls
which management believes is adequate to provide reasonable
assurance as to the integrity of accounting records and the
protection of assets. Such controls include established policies
and procedures, a program of internal audit and the careful
selection and training of qualified personnel.
The financial statements have been audited by CILCORP's
independent public accountants, Arthur Andersen LLP. Their audit
was conducted in accordance with generally accepted auditing
standards and included an assessment of selected internal
accounting controls only to determine the scope of their audit
procedures. The report of the independent public accountants is
contained in this annual report.
The Audit Committee of the Board of Directors, consisting solely
of outside directors, meets periodically with the independent
public accountants, internal auditors and management to review
accounting, auditing, internal accounting control, and financial
reporting matters. The independent public accountants have direct
access to the Audit Committee. The Audit Committee meets
separately with the independent public accountants.
R. O. Viets
President and Chief Executive Officer
T. D. Hutchinson
Controller
18
<PAGE>
Report of Independent Public Accountants
To the Stockholders of CILCORP Inc.:
We have audited the accompanying consolidated balance sheets of
CILCORP Inc. (an Illinois corporation) and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated
statements of income, cash flows, stockholders' equity and
segments of business for each of the three years in the period
ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
CILCORP Inc. and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
January 27, 1999
19
<PAGE>
</TABLE>
<TABLE>
Consolidated Statements of Income
CILCORP Inc. and Subsidiaries
<CAPTION>
For the Years Ended December 31 1998 1997 1996
(In thousands except per share amounts)
<S> <C> <C> <C>
Revenue:
Electric $360,009 $338,096 $322,785
Gas 172,327 208,758 195,770
Other Businesses 26,688 11,106 8,505
-------- -------- --------
Total 559,024 557,960 527,060
-------- -------- --------
Operating Expenses:
Fuel for Generation and
Purchased Power 124,058 115,081 101,622
Gas Purchased for Resale 93,586 123,532 108,286
Other Operations and
Maintenance 145,673 124,852 131,675
Depreciation and Amortization 66,179 62,416 60,574
State and Local Revenue Taxes 26,502 22,467 22,004
Other Taxes 11,463 11,833 11,516
-------- -------- --------
Total 467,461 460,181 435,677
-------- -------- --------
Fixed Charges and Other:
Interest Expense 29,473 27,462 28,964
Preferred Stock Dividends
of Subsidiary 3,194 3,216 3,188
Allowance for Funds Used
During Construction (34) (134) (90)
Other 1,013 1,177 679
-------- -------- --------
Total 33,646 31,721 32,741
-------- -------- --------
Income from Continuing
Operations Before Income Taxes 57,917 66,058 58,642
Income Taxes 19,699 22,349 20,702
-------- -------- --------
Net Income from Continuing
Operations Before
Extraordinary Item 38,218 43,709 37,940
Loss from Operations of
Discontinued Businesses, Net
of Tax of $(16,278),
$(7,298) and $(6,197) (25,025) (34,126) (9,997)
Gain on Sale/Disposal of
Assets of Discontinued
Businesses, Net of Tax of
$2,014 and $1,889 3,117 2,712 --
Extraordinary Item (see Note 1) -- 4,100 --
-------- -------- --------
Net Income $ 16,310 $ 16,395 $ 27,943
Other Comprehensive Income (169) (317) (5)
-------- -------- --------
Comprehensive Income $ 16,141 $ 16,078 $ 27,938
======== ======== ========
20
Average Common Shares
Outstanding - Basic 13,611 13,611 13,480
Earnings Per Common Share -
Basic
Continuing Operations $ 2.81 $ 3.21 $ 2.81
Discontinued Operations (1.61) (2.31) (.74)
Extraordinary Item -- .30 --
------ ------ ------
Net Income Per Common Share -
Basic $ 1.20 $ 1.20 $ 2.07
====== ====== ======
Average Common Shares
Outstanding - Diluted 13,707 13,627 13,480
Earnings Per Common Share -
Diluted
Continuing Operations $ 2.79 $ 3.21 $ 2.81
Discontinued Operations (1.60) (2.31) (.74)
Extraordinary Item -- .30 --
------ ------ ------
Net Income Per Common Share -
Diluted $ 1.19 $ 1.20 $ 2.07
====== ====== ======
Dividends per Common Share $ 2.46 $ 2.46 $ 2.46
<FN>
The accompanying Notes to Financial Statements are an integral part of these
statements.
</TABLE>
21
<PAGE>
<TABLE>
Consolidated Balance Sheets
CILCORP Inc. and Subsidiaries
<CAPTION>
Assets (As of December 31) 1998 1997
(In thousands)
<S> <C> <C>
Current Assets:
Cash and Temporary Cash Investments $ 1,669 $ 10,576
Receivables, Less Reserves of $3,411 and
$2,518 134,666 141,234
Accrued Unbilled Revenue 39,220 38,775
Fuel, at Average Cost 13,431 7,816
Materials and Supplies, at Average Cost 15,062 13,685
Gas in Underground Storage, at Average Cost 20,767 22,666
Prepayments and Other 7,706 10,971
---------- ----------
Total Current Assets 232,521 245,723
---------- ----------
Investments and Other Property:
Investment in Leveraged Leases 146,990 146,458
Other Investments 19,500 21,074
---------- ----------
Total Investments and Other Property 166,490 167,532
---------- ----------
Property, Plant and Equipment:
Utility Plant, at Original Cost
Electric 1,237,885 1,213,585
Gas 417,585 401,870
---------- ----------
1,655,470 1,615,455
Less - Accumulated Provision for
Depreciation 812,630 769,792
---------- ----------
842,840 845,663
Construction Work in Progress 30,075 21,550
Other, Net of Depreciation 7,796 22,188
---------- ----------
Total Property, Plant and Equipment 880,711 889,401
---------- ----------
Other Assets: 33,218 32,163
---------- ----------
Total Assets $1,312,940 $1,334,819
========== ==========
<FN>
The accompanying Notes to Financial Statements are an integral
part of these balance sheets.
</TABLE>
22
<PAGE>
<TABLE>
Consolidated Balance Sheets
CILCORP Inc. and Subsidiaries
<CAPTION>
Liabilities and Stockholders' Equity (As of December 31)
1998 1997
(In thousands)
<S> <C> <C>
Current Liabilities:
Current Portion of Long-Term Debt $ 13,027 $ 22,185
Notes Payable 96,200 62,150
Accounts Payable 136,840 132,286
Accrued Taxes 8,185 2,810
Accrued Interest 10,102 9,473
FCA/PGA Over-Recoveries 304 1,666
Other 8,881 19,798
---------- ----------
Total Current Liabilities 273,539 250,368
---------- ----------
Long-Term Debt 285,552 298,528
---------- ----------
Deferred Credits and Other Liabilities:
Deferred Income Taxes 239,306 241,013
Regulatory Liab. of Regulated Subsidiary 46,346 56,807
Deferred Investment Tax Credit 19,450 21,117
Other 47,089 48,273
---------- ----------
Total Deferred Credits 352,191 367,210
---------- ----------
Preferred Stock of Subsidiary 66,120 66,120
---------- ----------
Stockholders' Equity:
Common Stock, no par value; Authorized
50,000,000 shares - Outstanding
13,610,680 and 13,610,680 shares 192,853 192,567
Retained Earnings 143,530 160,702
Accumulated Other Comprehensive Income (845) (676)
---------- ----------
Total Stockholders' Equity 335,538 352,593
---------- ----------
Total Liabilities and
Stockholders' Equity $1,312,940 $1,334,819
========== ==========
<FN>
The accompanying Notes to Financial Statements are an integral
part of these balance sheets.
</TABLE>
23
<PAGE>
<TABLE>
Statements of Segments of Business
CILCORP Inc. and Subsidiaries
<CAPTION>
1998
CILCO CILCO CILCO Other Discont.
Electric Gas Other Businesses Operations Totals
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $360,009 $172,327 $ 1,743 $ 24,717 $ -- $ 558,796
Interest income 228 228
-------- -------- ------- --------- ----------
Total 360,009 172,327 1,971 24,717 559,024
-------- -------- ------- --------- ----------
Operating
expenses 235,801 138,459 3,600 23,422 401,282
Depreciation
and amortization 46,017 19,256 713 193 66,179
-------- -------- ------- --------- ----------
Total 281,818 157,715 4,313 23,615 467,461
-------- -------- ------- --------- ----------
Interest expense 16,261 6,514 6,698 29,473
Preferred stock
dividends 3,194 3,194
Fixed charges
and other exp. (34) 1,013 979
-------- -------- ------- --------- ----------
Total 16,227 6,514 4,207 6,698 33,646
-------- -------- ------- --------- ----------
Income from
continuing
oper. before
income taxes 61,964 8,098 (6,549) (5,596) 57,917
Income taxes 21,645 3,443 (2,616) (2,773) 19,699
-------- -------- ------- --------- ----------
Net income from
continuing
operations 40,319 4,655 (3,933) (2,823) 38,218
Effect of
discontinued
operations (21,908) (21,908)
-------- -------- ------- --------- ---------- ----------
Segment net
income $ 40,319 $ 4,655 $(3,933)$ (2,823) $ (21,908) $ 16,310
======== ======== ======= ========= ========== ==========
Capital
expenditures $ 44,213 $ 22,889 $ -- $ 10 $ 8,916 $ 76,028
Revenue from
major
customer
Caterpillar
Inc. $ 39,354 $ 948 $ -- $ 7,669 $ 1,130 $ 49,101
Segment assets $730,354 $286,737 $ 5,072 $ 594,734 $ 121,647 $1,738,544
Consolidation
adjustments (1,304) (507) -- (423,789) (4) (425,604)
-------- -------- ------- --------- ---------- ----------
Total assets $729,050 $286,230 $ 5,072 $ 170,945 $ 121,643 $1,312,940
======== ======== ======= ========= ========== ==========
24
1997
CILCO CILCO CILCO Other Discont.
Electric Gas Other Businesses Operations Totals
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $338,096 $208,758 $ -- $ 10,867 $ -- $ 557,721
Interest income 239 239
-------- -------- ------- -------- ----------
Total 338,096 208,758 239 10,867 557,960
-------- -------- ------- -------- ----------
Operating
expenses 217,700 165,020 2,831 12,214 397,765
Depreciation
and amort. 43,858 17,647 713 198 62,416
-------- -------- ------- -------- ----------
Total 261,558 182,667 3,544 12,412 460,181
-------- -------- ------- -------- ----------
Interest exp. 16,192 6,454 4,816 27,462
Preferred stock
dividends 3,216 3,216
Fixed charges
and other exp. (134) 1,177 1,043
-------- -------- ------- -------- ----------
Total 16,058 6,454 4,393 4,816 31,721
-------- -------- ------- -------- ----------
Income from
continuing
oper. before
income taxes 60,480 19,637 (7,698) (6,361) 66,058
Income taxes 21,901 7,416 (3,049) (3,919) 22,349
-------- -------- ------- -------- ----------
Net income
from cont.
oper. before
extraord.
item 38,579 12,221 (4,649) (2,442) 43,709
Effect of
discontinued
operations and
extraord. item 4,100 (31,414) (27,314)
-------- -------- ------- -------- --------- ----------
Segment net
income $ 42,679 $ 12,221 $(4,649)$ (2,442) $ (31,414) $ 16,395
======== ======== ======= ======== ========= ==========
Capital
expenditures $ 35,196 $ 19,830 $ -- $ 29 $ 6,188 $ 61,243
Revenue from
major
customer
Caterpillar
Inc. $ 40,106 $ 934 $ -- $ 1,208 $ 1,870 $ 44,118
Segment assets $724,869 $290,958 $ 5,639 $606,786 $ 144,412 $1,772,664
Consolidation
adjustments (1,070) (416) -- (436,345) (14) (437,845)
-------- -------- ------- -------- --------- ----------
Total assets $723,799 $290,542 $ 5,639 $170,441 $ 144,398 $1,334,819
======== ======== ======= ======== ========= ==========
25
1996
CILCO CILCO CILCO Other Discont.
Electric Gas Other Businesses Operations Totals
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $322,785 $195,770 $ -- $ 7,825 $ -- $ 526,380
Interest income 680 680
-------- -------- ------- --------- ----------
Total 322,785 195,770 680 7,825 527,060
-------- -------- ------- --------- ----------
Operating
expenses 208,566 154,099 2,234 10,204 375,103
Depreciation
and amort. 42,530 17,134 713 197 60,574
-------- -------- ------- --------- ----------
Total 251,096 171,233 2,947 10,401 435,677
-------- -------- ------- --------- ----------
Interest exp. 17,445 6,716 4,803 28,964
Preferred stock
dividends 3,188 3,188
Fixed charges
and other exp. (90) 679 589
-------- -------- ------- --------- ----------
Total 17,355 6,716 3,867 4,803 32,741
-------- -------- ------- --------- ----------
Income from
continuing
oper. before
income taxes 54,334 17,821 (6,134) (7,379) 58,642
Income taxes 19,576 6,972 (2,466) (3,380) 20,702
-------- -------- ------- --------- ----------
Net income
from
continuing
operations 34,758 10,849 (3,668) (3,999) 37,940
Effect of
discontinued
operations (9,997) (9,997)
-------- -------- ------- --------- ------- ----------
Segment net
income $ 34,758 $ 10,849 $(3,668) $ (3,999) $(9,997) $ 27,943
======== ======== ======= ========= ======= ==========
Capital
expenditures $ 28,032 $ 15,529 $ -- $ 119 $ 3,061 $ 46,741
Revenue from
major
customer
Caterpillar
Inc. $ 37,724 $ 1,053 $ -- $ 68 $ 119 $ 38,964
Segment assets $732,219 $296,343 $ 6,424 $ 585,732 $94,492 $1,715,210
Consolidation
adjustments (352) (137) -- (428,815) (213) (429,517)
-------- -------- ------- --------- ------- ----------
Total assets $731,867 $296,206 $ 6,424 $ 156,917 $94,279 $1,285,693
======== ======== ======= ========= ======= ==========
</TABLE>
26
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
CILCORP Inc. and Subsidiaries
<CAPTION>
For the Years Ended December 31 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income from Continuing
Operations Before Preferred
Dividends $ 41,412 $ 46,925 $ 41,128
-------- -------- --------
Adjustments to Reconcile Net
Income to Net Cash Provided
by Operating Activities:
Non-Cash Income (6,150) (4,102) (4,297)
Cash Receipts in Excess of
Debt Service on Leases 7,618 -- --
Depreciation and Amort. 66,179 62,416 60,574
Deferred Income Taxes,
Investment Tax Credit
and Regulatory Liability
of Subsidiary, Net (5,865) (3,342) (1,707)
Changes in Operating Assets
and Liabilities:
Decrease (Increase) in
Accounts Receivable and
Accrued Unbilled Revenue 5,430 (74) (3,474)
(Increase) Decrease in
Inventories (5,093) 3,294 (5,310)
Increase (Decrease) in
Accounts Payable 14,188 (1,961) 6,809
Increase (Decrease) in
Accrued Taxes 10 3,893 (5,843)
(Increase) Decrease in
Other Assets 209 (17,027) 2,197
Increase (Decrease)in
Other Liabilities (6,426) (9,039) 11,036
-------- -------- --------
Total Adjustments 70,100 34,058 59,985
-------- -------- --------
Net Cash Provided by
Operating Activities 111,512 80,983 101,113
Net Cash Provided by (Used
in) Operating Activities
of Discontinued Operations (43,202) 10,031 1,263
-------- -------- --------
Cash Flow from Operations 68,310 91,014 102,376
-------- -------- --------
Cash Flows from Investing
Activities:
Additions to Plant (67,112) (55,055) (43,680)
Purchase of Long-Term
Investments -- (6,933) (4,713)
Other (4,514) (1,242) 482
-------- -------- --------
Net Cash Used in Investing
Activities (71,626) (63,230) (47,911)
Net Cash Provided by (Used
in) Investing Activities of
Discontinued Operations 19,169 3,310 (3,082)
-------- -------- --------
Cash Flow from Investing
Activities (52,457) (59,920) (50,993)
-------- -------- --------
27
Cash Flows from Financing
Activities:
Net Increase (Decrease) in
Short-Term Debt 34,050 34,250 (19,200)
Repayment of Long-Term Debt (22,102) (22,954) (19,393)
Common Dividends Paid (33,482) (33,482) (33,142)
Preferred Dividends Paid (3,194) (3,216) (3,188)
Common Stock Issued -- -- 11,430
-------- -------- --------
Net Cash Provided by (Used in)
Financing Activities of
Continuing Operations (24,728) (25,402) (63,493)
Net Cash Provided by (Used
in) Financing Activities of
Discontinued Operations (32) (57) (49)
-------- -------- --------
Net Cash Used in Financing
Activities (24,760) (25,459) (63,542)
-------- -------- --------
Net Increase (Decrease) in
Cash and Temporary
Cash Investments (8,907) 5,635 (12,159)
Cash and Temporary Cash
Investments at
Beginning of Year 10,576 4,941 17,100
-------- -------- --------
Cash and Temporary Cash
Investments at End of Year $ 1,669 $ 10,576 $ 4,941
======== ======== ========
<FN>
The accompanying Notes to Financial Statements are an integral
part of these statements.
</TABLE>
28
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' Equity
CILCORP Inc. and Subsidiaries
<CAPTION>
Other
Common Stock Retained Comprehensive
Shares Amount Earnings Income Total
(In thousands except share amounts)
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1995 13,335,606 $179,330 $183,002 $ (354) $361,978
Common Stock Issued 275,074 11,430 11,430
Cash Dividend Declared
on Common Stock ($2.46
per share) (33,141) (33,141)
Additional Minimum
Liability of Non-
Qualified Pension Plan
at December 31, 1996,
net of $(3) taxes (5) (5)
Net Income 27,943 27,943
---------- -------- -------- ------- --------
Balance at December 31,
1996 13,610,680 $190,760 $177,804 $ (359) $368,205
CILCORP Shareholder
Return Incentive
Compensation 1,807 1,807
Cash Dividend Declared
on Common Stock
($2.46 per share) (33,482) (33,482)
Additional Minimum
Liability of Non-
Qualified Pension Plan
at December 31, 1997,
net of $(208) taxes (317) (317)
Other (15) (15)
Net Income 16,395 16,395
---------- -------- -------- ------- --------
Balance at December 31,
1997 13,610,680 $192,567 $160,702 $ (676) $352,593
Cash Dividend Declared
on Common Stock
($2.46 per share) (33,482) (33,482)
Additional Minimum
Liability of Non-
Qualified Pension Plan
at December 31, 1998,
net of $(111) taxes (169) (169)
Other 286 286
Net Income 16,310 16,310
---------- -------- -------- ------- --------
Balance at December 31,
1998 13,610,680 $192,853 $143,530 $ (845) $335,538
========== ======== ======== ======= ========
<FN>
The accompanying Notes to Financial Statements are an integral
part of these statements.
</TABLE>
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
CILCORP Inc. (CILCORP or the Holding Company), Central Illinois
Light Company (CILCO), QST Enterprises Inc. (QST) and its
subsidiaries (QST Environmental Inc., formerly known as
Environmental Science & Engineering, Inc. (ESE) and QST Energy
Inc. (QST Energy))and CILCORP's other subsidiaries (collectively,
the Company) after elimination of significant intercompany
transactions. In 1998, the operations of QST and its subsidiaries
were discontinued (see Note 10). Prior year amounts have been
reclassified on a basis consistent with the 1998 presentation.
CILCORP is an investor-owned public utility holding company.
CILCO, the Company's principal business subsidiary, is engaged in
the generation, transmission, distribution and sale of electric
energy in an area of approximately 3,700 square miles in central
and east-central Illinois, and the purchase, distribution,
transportation and sale of natural gas in an area of approximately
4,500 square miles in central and east-central Illinois. Other
CILCORP first-tier subsidiaries are CILCORP Investment Management
Inc. (CIM), which manages the Company's investment portfolio and
CILCORP Ventures Inc. (CVI), which pursues investment
opportunities in energy-related products and services.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
See Management's Discussion and Analysis of Financial Condition
and Results of Operations - New Accounting Pronouncements for a
discussion of accounting pronouncements issued by the Financial
Accounting Standards Board which are effective in 1998 or
thereafter.
REGULATION
CILCO is a public utility subject to regulation by the Illinois
Commerce Commission (ICC) and the Federal Energy Regulatory
Commission (FERC) with respect to accounting matters, and
maintains its accounts in accordance with the Uniform System of
Accounts prescribed by these agencies.
CILCO is subject to the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation" (SFAS 71) for its regulated public
utility operations. Under SFAS 71, assets and liabilities are
recorded to represent probable future increases and decreases,
respectively, of revenues to CILCO resulting from the ratemaking
action of regulatory agencies.
The Electric Service Customer Choice and Rate Relief Law of 1997
(Customer Choice Law) became effective in Illinois in December
1997. Among other provisions, this law begins a nine-year
transition process to a fully competitive market for electricity
in Illinois. Electric transmission and distribution activities
are expected to continue to be regulated, but a customer may
choose to purchase electricity from another supplier (see
Management's Discussion - Competition).
30
Due to the transition cost recovery limitations and base rate
reductions of the Customer Choice Law, CILCO's electric generation
activities will no longer be subject to the provisions of SFAS 71.
Accordingly, regulatory assets of $1.5 million and liabilities of
$5.6 million associated with electric generating plant were
written-off or credited, respectively, to income in 1997 as a net
$4.1 million after-tax extraordinary item. Regulatory assets
included on the Consolidated Balance Sheets at December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Included in prepayments and other:
Fuel and gas cost adjustments $ 4,740 $ 2,954
Coal tar remediation cost -
estimated current 609 844
Gas transition costs -- 159
------- -------
Current costs included in
prepayments and other 5,349 3,957
------- -------
Included in other assets:
Coal tar remediation cost, net of
recoveries 1,281 2,745
Regulatory tax asset 5,723 7,578
Deferred gas costs 4,039 4,145
Unamortized loss on reacquired debt 3,261 3,581
------- -------
Future costs included in other assets 14,304 18,049
------- -------
Total regulatory assets $19,653 $22,006
======= =======
</TABLE>
Regulatory assets at December 31, 1998 are related to CILCO's
regulated electric and gas distribution activities. CILCO does
not currently believe the costs recorded for its generating plants
and related assets at December 31, 1998 to be impaired as a result
of the Customer Choice Law. Regulatory liabilities, consisting of
deferred tax items primarily related to CILCO's electric and gas
transmission and distribution operations, are approximately
$46.3 million and $56.8 million at December 31, 1998 and 1997,
respectively.
CILCO's electric generation-related identifiable assets included
in the balance sheet at December 31, 1998 and 1997 were:
<TABLE>
<CAPTION> 1998 1997
(In thousands)
<S> <C> <C>
Property, Plant and Equipment $ 537,358 $ 535,065
Less: Accumulated Depreciation (266,461) (259,988)
--------- ---------
270,897 275,077
Construction Work in Progress 3,268 1,979
--------- ---------
Net Property, Plant and Equipment 274,165 277,056
Fuel, at Average Cost 8,704 8,520
Materials and Supplies, at Average Cost 8,452 8,202
--------- ---------
Total Identifiable Electric
Generation Assets $ 291,321 $ 293,778
========= =========
</TABLE>
31
Accumulated deferred income taxes associated with electric
generation property at December 31, 1998 and 1997 were
approximately $72 million and $79 million, respectively.
OPERATING REVENUES, FUEL COSTS AND COST OF GAS
Electric, gas, and non-regulated energy and energy services
revenues include service provided but unbilled at year end.
Substantially all electric rates and gas system sales rates of
CILCO include a fuel adjustment clause and a purchased gas
adjustment clause, respectively. These clauses provide for the
recovery of changes in electric fuel costs, excluding coal
transportation, and changes in the cost of gas on a current basis
in billings to customers. CILCO adjusts the cost of fuel and cost
of gas to recognize over or under recoveries of allowable costs.
The cumulative effects are deferred on the Balance Sheets as a
current asset or current liability (see Regulation, above) and
adjusted by refunds or collections through future billings to
customers.
CONCENTRATION OF CREDIT RISK
CILCO, as a public utility, must provide service to customers
within its defined service territory and may not discontinue
service to residential customers when certain weather conditions
exist. CILCO continually reviews customers' creditworthiness and
requests deposits or refunds deposits based on that review. At
December 31, 1998, CILCO had net receivables of $35.8 million, of
which approximately $4.7 million was due from its major customers.
See Note 6 for a discussion of receivables related to CILCORP
Investment Management Inc.'s leveraged lease portfolio.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of Cash and Temporary Cash Investments, Other
Investments, and Notes Payable approximates fair value. The
estimated fair value of the Company's Preferred Stock with
Mandatory Redemption was $23 million at December 31, 1998 and
1997, based on current market interest rates for other companies
with comparable credit ratings, capital structure, and size. The
estimated fair value of the Company's Long-Term Debt, including
current maturities, was $339 million at December 31, 1998, and
$352 million at December 31, 1997. The fair market value of these
instruments was based on current market interest rates for other
companies with comparable credit ratings, capital structures, and
size.
DEPRECIATION AND MAINTENANCE
Provisions for depreciation of utility property for financial
reporting purposes are based on straight-line composite rates.
The annual provisions for utility plant depreciation, expressed as
a percentage of average depreciable utility property, were 3.8%
and 4.6% for electric and gas, respectively, for each of the last
three years. Utility maintenance and repair costs are charged
directly to expense. Renewals of units of property are charged to
the utility plant account, and the original cost of depreciable
property replaced or retired, together with the removal cost less
salvage, is charged to the accumulated provision for depreciation.
Non-utility property is depreciated over estimated lives ranging
from 3 to 40 years.
GOODWILL
As a result of significant downsizing of QST Environmental Inc.
(QST Environmental) during 1996 and 1997 and continuing
overcapacity and competition in the environmental segment in the
fourth quarter of 1997, the Company
32
determined that an impairment to goodwill associated with QST
Environmental existed. As a result, the Company wrote off the
$22.6 million unamortized goodwill balance. In late 1998, the
Company decided to sell its 100% ownership interest in QST
Environmental and has classified its results as discontinued (see
Note 10).
INCOME TAXES
The Company follows a policy of comprehensive interperiod income
tax allocation. Investment tax credits related to utility
property have been deferred and are being amortized over the
estimated useful lives of the related property. CILCORP and its
subsidiaries file a consolidated federal income tax return.
Income taxes are allocated to the individual companies based on
their respective taxable income or loss.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company considers all highly liquid debt instruments purchased
with a remaining maturity of three months or less to be cash
equivalents for purposes of the Consolidated Statements of Cash
Flows.
Cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Interest $26,067 $28,710 $28,988
Income taxes $19,611 $28,537 $13,572
------- ------- -------
</TABLE>
COMPANY-OWNED LIFE INSURANCE POLICIES
The following amounts related to Company-owned life insurance
contracts, issued by one major insurance company, are included in
Other Investments:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Cash surrender value of contracts $ 50,786 $ 45,297
Borrowings against contracts (48,132) (42,898)
-------- --------
Net investment $ 2,654 $ 2,399
======== ========
</TABLE>
Interest expense related to borrowings against Company-owned life
insurance, included in "Other" on the Consolidated Statements of
Income, was $3.6 million, $3.5 million and $2.7 million for 1998,
1997 and 1996, respectively.
NOTE 2 - INCOME TAXES
The Company uses the liability method to account for income taxes.
Under the liability method, deferred income taxes are recognized
at currently enacted income tax rates to reflect the tax effect of
temporary differences between the financial reporting basis and
the tax basis of assets and liabilities. Temporary differences
occur because the income tax law either requires or permits
certain items to be reported on the Company's income tax return in
a different year than they are reported in the financial
statements. CILCO has recorded a regulatory asset and liability
to account for the effect of expected
33
future regulatory actions related to unamortized investment tax
credits, income tax liabilities initially recorded at tax rates in
excess of current rates, the equity component of Allowance for
Funds Used during Construction and other items for which deferred
taxes had not previously been provided. The temporary differences
related to the consolidated deferred income tax asset and
liability at December 31, 1998, 1997, and 1996 were as follows:
<TABLE>
<CAPTION>
December 31 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Deferred tax asset $20,742 $18,347 $16,452
Adjustment to reflect
regulatory asset (5,723) (7,578) (4,777)
------- ------- -------
Net deferred tax asset $15,019 $10,769 $11,675
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Deferred tax liabilities:
Deferred tax liability-
property $196,301 $207,460 $214,356
Adjustment to reflect
regulatory liability (46,346) (56,807) (68,565)
-------- -------- --------
Net deferred tax
liability-property 149,955 150,653 145,791
Deferred tax liability-
leases 103,566 101,005 97,964
Deferred tax liability-
other 804 124 3,159
-------- -------- --------
Accumulated deferred
income tax liability $254,325 $251,782 $246,914
======== ======== ========
Accumulated deferred
income tax liability, net
of deferred tax assets $239,306 $241,013 $235,239
======== ======== ========
</TABLE>
34
The following table reconciles the change in the accumulated
deferred income tax liability to the deferred income tax expense
included in the income statement:
<TABLE>
<CAPTION>
December 31 1998 1997
(In thousands)
<S> <C> <C>
Net change in deferred income tax
liability per above table $ (1,707) $ 5,774
Change in tax effects of income tax
related regulatory assets and
liabilities (8,606) (14,559)
Deferred taxes related to
extraordinary item -- 5,634
Other (106) 125
-------- --------
Deferred income tax benefit for
the period (10,419) (3,026)
Less: Deferred income tax benefit
for the period from
discontinued operations (6,115) (1,245)
-------- --------
Deferred income tax benefit for the
period from continuing operations $ (4,304) $ (1,781)
======== ========
</TABLE>
35
Income tax expenses were as follows:
<TABLE>
<CAPTION>
December 31 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Current income taxes
Federal $ 13,731 $17,814 $15,129
State 3,791 3,836 2,169
-------- ------- -------
Total current taxes 17,522 21,650 17,298
-------- ------- -------
Deferred income taxes,
net
Property-related
deferred income taxes (11,262) (841) (2,346)
Leveraged leases 2,602 3,040 4,398
Unbilled revenue (287) (885) 425
Gas take-or-pay
settlements 522 (339) (706)
Environmental
remediation costs (58) 46 (642)
Pension expenses 869 (1,798) (1,726)
Other post-employment
benefits expenses (847) (617) 187
Customer advances 478 (438) (40)
Gas in underground
storage (1,681) (191) 405
Amortization of debt
discounts, premiums
and expenses (790) (179) (179)
CILCO Executive Deferred
Compensation Plan (671) (191) (525)
CILCORP Shareholder
Return Incentive
Comp. Plan (717) -- --
QST Gas Derivatives
Mark to Market 948 -- --
Other 475 (633) (360)
-------- ------- -------
Total deferred
income taxes, net (10,419) (3,026) (1,109)
-------- ------- -------
Investment tax credit
amortization (1,668) (1,684) (1,684)
-------- ------- -------
Total income tax
provisions before
extraordinary item 5,435 16,940 14,505
Deferred taxes related
to extraordinary item -- (5,634) --
-------- ------- -------
Total income tax
provisions $ 5,435 $11,306 $14,505
======== ======= =======
</TABLE>
36
Total Income tax provisions are presented within the Income
Statement as follows:
<TABLE>
<CAPTION>
December 31 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Income taxes from
continuing operations $ 19,699 $22,349 $20,702
Tax on income (loss)
from operations of
discontinued businesses (16,278) (7,298) (6,197)
Tax on gain (loss) on
sale/disposal of
discontinued
businesses 2,014 1,889 --
Deferred taxes related
to extraordinary item -- (5,634) --
-------- ------- -------
Total income tax
provisions $ 5,435 $11,306 $14,505
======== ======= =======
</TABLE>
The 1997 income tax provision has been reduced to reflect the
crediting to income as an extraordinary item the regulatory
liability related to electric generation property deferred taxes
which were recorded at tax rates in excess of the current rate.
Total deferred income taxes, net, includes deferred state income
taxes of $(1,635,000) $(229,000) and $(538,000) for 1998, 1997 and
1996, respectively.
The following table represents a reconciliation of the effective
tax rate with the statutory federal income tax rate.
<TABLE>
<CAPTION> Years Ended December 31 1998 1997 1996
<S> <C> <C> <C>
Statutory federal income tax 35.0% 35.0% 35.0%
----- ----- -----
Amortization of property related
deferred taxes provided at tax
rates in excess of current rate (8.3) (3.9) (3.4)
Amortization of investment tax
credit (7.6) (6.1) (4.0)
State income taxes 5.5 9.0 4.8
Goodwill write-off and amortization -- 29.2 .6
Preferred dividends of subsidiary
and other permanent differences 6.6 5.2 3.6
Tax provision adjustment -- (1.6) (.4)
Affordable housing tax credits (6.1) (3.4) (.1)
Corporate-owned life insurance (4.2) (2.9) (1.7)
AES transaction costs 3.3 -- --
Other differences 1.1 .7 (.2)
----- ----- -----
Total (9.7) 26.2 (.8)
----- ----- -----
Effective income tax rate before
effect of extraordinary item 25.3 61.2 34.2
Tax effect of extraordinary item -- (20.4) --
----- ----- -----
Effective income tax rate 25.3% 40.8% 34.2%
===== ===== =====
</TABLE>
37
NOTE 3 - POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS
POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS AND HEALTH CARE
CILCO has recorded a liability of approximately $1.5 million at
December 31, 1998 and 1997, for benefits other than pensions or
health care provided to former or inactive employees. The
liability for these benefits (primarily long-term and short-term
disability payments under plans self-insured by CILCO) is
actuarially determined.
PENSION BENEFITS
Substantially all of CILCO's full-time employees, including those
assigned to the Holding Company, are covered by trusteed, non-
contributory defined benefit pension plans. Benefits under these
qualified plans reflect the employee's years of service, age at
retirement and maximum total compensation for any consecutive
sixty-month period prior to retirement. CILCO also has an
unfunded nonqualified plan for certain employees.
Pension costs for the past three years were charged as follows:
<TABLE>
<CAPTION> 1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Operating expenses $ (893) $ 493 $ 9,700
Utility plant and other 6 125 922
------- ------- -------
Net pension costs $ (887) $ 618 $10,622
======= ======= =======
</TABLE>
Provisions for pension expense reflect the use of the projected
unit credit actuarial cost method. At December 31, 1998 and 1997,
CILCO recognized an additional minimum liability on the Balance
Sheets for the plan in which the accumulated benefit obligation
exceeds the fair value of plan assets.
POSTRETIREMENT HEALTH CARE BENEFITS
Provisions for postretirement benefits expenses are determined
under the accrual method of accounting.
Substantially all of CILCO's full-time employees, including those
assigned to the Holding Company, are currently covered by a
trusteed, non-contributory defined benefit postretirement health
care plan. The plan pays stated percentages of most necessary
medical expenses incurred by retirees, after subtracting payments
by Medicare or other providers and after a stated deductible has
been met. Participants become eligible for the benefits if they
retire from CILCO after reaching age 55 with 10 or more years of
service. Neither QST Enterprises nor its subsidiaries provide
health care benefits to retired employees.
38
Postretirement health care benefit costs were charged as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Operating expenses $3,904 $3,989 $5,096
Utility plant and other 1,260 1,825 1,883
------ ------ ------
Net postretirement health
care benefit costs $5,164 $5,814 $6,979
====== ====== ======
</TABLE>
The components of net periodic benefit costs follow:
<TABLE>
<CAPTION>
1998 1997 1998 1997
(In thousands)
Other
Pension Benefits Postretirement
Benefits
<S> <C> <C> <C> <C>
Service cost $ 5,410 $ 4,384 $ 1,417 $ 1,298
Interest cost 19,024 17,561 5,371 5,047
Expected return on plan
assets (25,304) (21,005) (4,388) (3,249)
Amortization of transition
liability (asset) (888) (888) 2,858 2,858
Amortization of past
service cost 1,068 1,068 -- --
Recognized actuarial loss (197) (502) (94) (140)
-------- -------- -------- --------
Net benefit cost $ (887) $ 618 $ 5,164 $ 5,814
======== ======== ======== ========
Pension Plans with
Accumulated Benefit
Obligations in Excess
of Assets
Total projected benefit
obligation $ (4,191) $ (3,692)
Total accumulated benefit
obligation $ (3,582) $ (2,902)
Total fair value of assets $ -- $ --
</TABLE>
39
Information on the plans' funded status follows:
<TABLE>
<CAPTION>
1998 1997 1998 1997
(In thousands)
Other
Pension Benefits Postretirement
Benefits
<S> <C> <C> <C> <C>
Change in Benefit
Obligations
Benefit obligation at
January 1, $(254,929) $(235,441) $(72,542) $(67,367)
Service cost (5,410) (4,384) (1,417) (1,298)
Interest cost (19,024) (17,561) (5,371) (5,047)
Actuarial (gain) loss (22,521) (13,928) (7,500) (2,891)
Benefits paid 16,238 16,385 4,514 4,061
--------- --------- -------- --------
Benefit obligation at
December 31, $(285,646) $(254,929) $(82,316) $(72,542)
========= ========= ======== ========
Change in Plan Assets
Fair value of assets at
January 1, $ 289,091 $ 254,824 $ 52,263 $ 39,601
Actual return on assets 36,467 50,489 5,781 9,907
Company contributions 163 163 863 6,816
Participant contributions -- -- -- --
Benefits paid (16,238) (16,385) (4,514) (4,061)
--------- --------- -------- --------
Fair value of assets at
December 31, $ 309,483 $ 289,091 $ 54,393 $ 52,263
========= ========= ======== ========
Funded Status at
December 31,
Benefit obligation less
(greater) than plan
assets $ 23,837 $ 34,162 $(27,923) $(20,279)
Unrecognized net transition
liability (asset) (4,011) (4,899) 30,297 33,155
Unrecognized actuarial
(gain) loss (35,875) (47,431) (6,777) (12,977)
Unrecognized prior
service cost 6,365 7,433 -- --
Intangible asset (415) (455) -- --
Accumulated other
comprehensive income (1,401) (1,120) -- --
--------- --------- -------- --------
Prepaid (accrued) benefit
cost $ (11,500) $ (12,310) $ (4,403) $ (101)
========= ========= ======== ========
Assumptions as of
December 31,
Discount rate 6.75% 7.25% 6.75% 7.25%
Long-term return on assets 9.00% 8.50% 8.50% 8.50%
Long-term compensation
increase 3.50% 4.50% N/A N/A
</TABLE>
For measurement purposes, a 7.2 percent annual rate of increase in
the per capita cost of covered health care benefits was assumed
for 1998. The rate was assumed to decrease gradually to 5.7
percent for 2025 and remain level thereafter.
Increasing the assumed health care cost trend rate by 1% in each
year would increase the accumulated postretirement benefit
obligation at December 31, 1998, by $2.9 million and the
aggregate of the service and interest cost components of net
postretirement health care cost for 1998 by $252,000. Decreasing
the assumed health care cost trend rate by 1% in each year would
decrease the accumulated postretirement benefit obligation at
December 31,
40
1998, by $3.3 million and the aggregate of the service and
interest cost components of net postretirement health care cost
for 1998 by $295,000.
NOTE 4 - CILCORP SHAREHOLDER RETURN INCENTIVE COMPENSATION PLAN
Under the Company's Shareholder Return Incentive Compensation Plan
(the Plan), eligible key employees of the Company and its
subsidiaries are entitled to receive shares of the Company's
common stock based on a performance methodology established and
periodically amended by the Compensation Committee of the
Company's Board of Directors. During 1997, 350,000 fully-vested
performance shares were distributed. Such shares are convertible
into common stock with the number of shares received based upon
the number of performance shares exercised multiplied by the
difference between the average market price of the Company's
common stock for the fifteen days prior to exercise and $36,
divided by the market price of common stock at the exercise date.
The compensation expense recognized under this Plan, based on the
provisions of Statement of Financial Accounting Standards No. 123,
(SFAS 123) was $1.8 million in 1997 when the performance shares
were distributed. These shares were convertible into common stock
at any time until December 31, 1998 (the Performance Period). The
fair value of each performance share granted under the Plan was
$5.98 - estimated using the Black-Scholes option-pricing model
assuming a risk-free interest rate of 5.7%, dividend yield of
5.9%, expected life of one year and volatility of 16.1%.
In 1998, the Performance Period for the originally granted
performance shares was extended to December 31, 1999. No
additional expense was recorded following this extension, as a
revaluation of the fair value of the performance shares per the
provisions of SFAS 123 yielded no material valuation difference
due to the one-year extension.
To the extent that the market price exceeds $56, the Plan
participants are entitled to receive cash in lieu of common stock.
Consequently, the Company recognized expense of $1.75 million in
the fourth quarter 1998 to reflect a share price approximating
$61.
NOTE 5 - SHORT-TERM DEBT
Short-term debt at December 31, 1998, consisted of $55.6 million
of Holding Company bank borrowings and $40.6 million of CILCO
commercial paper. Short-term debt at December 31, 1997, included
$40.9 million of Holding Company bank borrowings and $21.3 million
of CILCO commercial paper.
The Holding Company had arrangements for bank lines of credit
totaling $60 million at December 31, 1998, of which $55.6 million
was used. These lines were maintained by commitment fees of 1/8
of 1% per annum in lieu of balances.
CILCO had arrangements for bank lines of credit totaling $45
million at December 31, 1998, all of which were unused. These
lines of credit were maintained by commitment fees of 1/20 of 1%
per annum in lieu of balances. These bank lines of credit support
CILCO's issuance of commercial paper.
NOTE 6 - LEVERAGED LEASE INVESTMENTS
The Company, through subsidiaries of CILCORP Investment Management
Inc. (CIM), is a lessor in eight leveraged lease arrangements
under which mining equipment, electric production facilities,
warehouses, office buildings, passenger railway equipment and an
aircraft are leased to third parties. The economic lives and
lease terms vary with the leases. CIM's share of total equipment
and facilities cost was approximately $350 million at December 31,
1998, and 1997.
The cost of the equipment and facilities owned by CIM is partially
financed by non-recourse debt provided by lenders, who have been
granted, as their sole remedy in the event of a lessee default, an
assignment of rents due under the
41
leases and a security interest in the leased property. Such debt
amounted to $232 million at December 31, 1998, and $237 million at
December 31, 1997. Leveraged lease residual value assumptions,
which are conservative in relation to independently appraised
residual values of the lease portfolio, are tested on a periodic
basis. In 1998, CIM decreased the estimated residual value of one
of its leases by approximately $6.8 million to reflect current
conditions in the secondary market for the asset.
CIM's net investment in leveraged leases at December 31, 1998 and
1997 is shown below:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Minimum lease payments receivable $142,095 $136,916
Estimated residual value 87,569 94,368
Less: Unearned income 82,674 84,826
-------- --------
Investment in lease financing
receivables 146,990 146,458
Less: Deferred taxes arising
from leveraged leases 103,566 101,005
-------- --------
Net investment in leveraged leases $ 43,424 $ 45,453
======== ========
</TABLE>
NOTE 7 - PREFERRED STOCK
PREFERRED STOCK OF SUBSIDIARY
<TABLE>
<CAPTION>
At December 31 1998 1997
(In thousands)
<S> <C> <C>
Preferred stock, cumulative
$100 par value, authorized
1,500,000 shares
Without mandatory redemption
4.50% series - 111,264 shares $11,126 $11,126
4.64% series - 79,940 shares 7,994 7,994
Class A, no par value,
authorized 3,500,000 shares
Flexible auction rate -
250,000 shares (*) 25,000 25,000
With mandatory redemption
5.85% series - 220,000 shares 22,000 22,000
------- -------
Total preferred stock $66,120 $66,120
======= =======
<FN>
(*) Dividend rates at December 31, 1998 and 1997, were 4.04 % and
4.18%, respectively.
</TABLE>
All classes of preferred stock are entitled to receive cumulative
dividends and rank equally as to dividends and assets, according
to their respective terms.
The total annual dividend requirement for preferred stock
outstanding at December 31, 1998, is $3.2 million, assuming a
continuation of the auction dividend rate at December 31, 1998,
for the flexible auction rate series.
42
PREFERRED STOCK WITHOUT MANDATORY REDEMPTION
The call provisions of preferred stock redeemable at CILCO's
option outstanding at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Series Callable Price Per Share (plus accrued dividends)
<S> <C>
4.50% $110
4.64% $102
Flexible Auction Rate $100
</TABLE>
PREFERRED STOCK WITH MANDATORY REDEMPTION
CILCO's 5.85% Class A preferred stock may be redeemed in 2003 at
$100 per share. A mandatory redemption fund must be established
on July 1, 2003. The fund will provide for the redemption of
11,000 shares for $1.1 million on July 1 of each year through July
1, 2007. On July 1, 2008, the remaining 165,000 shares will be
retired for $16.5 million.
PREFERENCE STOCK OF SUBSIDIARY, CUMULATIVE
No Par Value, Authorized 2,000,000 shares, of which none have been
issued.
PREFERRED STOCK OF HOLDING COMPANY
No Par Value, Authorized 4,000,000 shares, of which none were
outstanding at December 31, 1998 and 1997.
COMMON STOCK RIGHTS
On October 29, 1996, the Board of Directors of CILCORP authorized
and declared a dividend distribution of one right for each share
of common stock of the Company to stockholders of record at
November 12, 1996, and for each share of common stock issued
thereafter. Each right gives the stockholder the right to
purchase one one-hundredth of a share of preferred stock of the
Company for $100, subject to the conditions set forth in the
agreement governing the rights plan.
43
NOTE 8 - LONG-TERM DEBT
<TABLE>
<CAPTION>
At December 31 1998 1997
(In thousands)
<S> <C> <C>
CILCO first mortgage bonds
7 1/2% series due 2007 $ 50,000 $ 50,000
8 1/5% series due 2022 65,000 65,000
Medium-term notes
6.4% series due 2000 30,000 30,000
6.82% series due 2003 25,350 25,350
6.13% series due 2005 16,000 16,000
7.8% series due 2023 10,000 10,000
7.73% series due 2025 20,000 20,000
Pollution control refunding bonds
6.5% series F due 2010 5,000 5,000
6.2% series G due 2012 1,000 1,000
6.5% series E due 2018 14,200 14,200
5.9% series H due 2023 32,000 32,000
-------- --------
268,550 268,550
Unamortized premium and discount
on long-term debt, net (666) (714)
-------- --------
Total CILCO $267,884 $267,836
-------- --------
CILCORP Inc. Unsecured medium-term
notes; various maturities in 2001;
interest rates ranging from 8.52%
to 9.10% 17,500 30,500
Other 168 192
-------- --------
Total long-term debt $285,552 $298,528
======== ========
</TABLE>
CILCO's first mortgage bonds are secured by a lien on
substantially all of its property and franchises. Unamortized
borrowing expense, premium and discount on outstanding long-term
debt are being amortized over the lives of the respective issues.
Total consolidated maturities of long-term debt for 2000-2003 are
as follows: $30 million in 2000, $18 million in 2001, no debt due
in 2002, and $25 million in 2003. The remaining maturities of
long-term debt of $214 million, occur in 2004 and beyond.
The 1999 and 1998 maturities of long-term borrowings have been
classified as current liabilities.
NOTE 9 - COMMITMENTS & CONTINGENCIES
CILCO's 1999 capital expenditures are estimated to be
$56.6 million in connection with which CILCO has normal and
customary purchase commitments at December 31, 1998.
CILCO acts as a self-insurer for certain insurable risks resulting
from employee health and life insurance programs.
The International Brotherhood of Electrical Workers Local 51
(IBEW) ratified its current agreement on October 10, 1997. The
contract expires on July 1, 2000. The IBEW represents
approximately 389 CILCO gas and electric department employees.
The National Conference of Firemen and Oilers Local 8 (NCF&O)
44
ratified its current contract with the Company on October 23,
1998. CILCO's previous contract with the NCF&O expired on July 1,
1998, and the NCF&O membership had been working without a contract
since that time. The new contract expires on July 1, 2001. The
NCF&O represents approximately 200 CILCO power plant employees.
In August 1990, CILCO entered into a firm, wholesale power
purchase agreement with Central Illinois Public Service Company,
now AmerenCIPS (CIPS). This agreement provided for a minimum
contract delivery rate from CIPS of 90 MW until the contract
expired in May 1998.
In March 1995, CILCO and CIPS amended a limited-term power
agreement reached in November 1992. This agreement, which now
expires in May 2009, provides for CILCO to purchase up to 150 MW
of CIPS' capacity from June 1998 through May 2002, and 50 MW from
June 2002 through May 2009.
In January 1997, CILCO intervened in a proceeding before the
Federal Energy Regulatory Commission (FERC) to raise contract
issues relating to CIPS' proposal to engage with a second utility
in joint dispatch of their respective generating units. CILCO
also challenged the validity of the power agreements with CIPS
because of CIPS' failure to obtain FERC approval of the
agreements. In the alternative, CILCO requested that FERC provide
an "open season" during which CILCO may cancel the power
agreements in whole or in part. In an October 1997 order, FERC
rejected CILCO's challenges to joint dispatch and denied CILCO's
request for an open season. However, CIPS was ordered to file the
agreements with FERC and, on its own motion, FERC initiated a
separate proceeding to investigate the terms of the agreements.
Hearings in that proceeding have concluded, and the Administrative
Law Judge has entered an order finding the agreements are, with
minor exceptions, just and reasonable. CILCO is appealing that
order to FERC and is requesting FERC to assess penalties against
CIPS for CIPS' failure to file the 1990 agreement before providing
service to CILCO under that agreement. FERC's October 1997 order
failed to address certain contract issues raised by CILCO. FERC
denied rehearing of that order in February 1998, and CILCO has
appealed to the United States Court of Appeals for the District of
Columbia Circuit for a review of FERC's orders concerning the CIPS
agreements. CILCO also filed a separate complaint at FERC in
December 1998, challenging the manner in which CIPS is performing,
or failing to perform, under the agreements and has notified CIPS
that CILCO considers CIPS to be in default under the agreements.
On the ground that CIPS is in default regarding performance under
the 1992 agreement, CILCO suspended capacity reservation payments
to CIPS under the agreements as of January 21, 1999. CILCO cannot
predict how FERC or the Court will ultimately rule on the issues
pending before them. If CILCO's position is not upheld on certain
issues, CILCO could be required to pay the suspended capacity
reservation charges which are currently $865,000 per month, plus
interest, to CIPS. While the capacity payments are suspended,
CILCO is purchasing power and energy from other sources.
Reference is made to Management's Discussion and Analysis of
Financial Condition and Results of Operations - Environmental
Matters (regarding former gas manufacturing sites) for a
discussion of that item.
NOTE 10 - QST ENTERPRISES DISCONTINUED OPERATIONS
Due to uncertainties related to energy deregulation across the
country, the illiquidity of certain energy markets and its pending
acquisition by AES, the Company will focus in the future on the
opportunities in the Illinois energy market resulting from the
deregulation of electricity under the Electric Service Customer
Choice and Rate Relief Law of 1997 (see Management's Discussion
and Analysis - Competition). As a result, the Company decided in
the fourth quarter of 1998 to sell its 100% ownership interest in
QST Environmental Inc., a first-tier subsidiary of QST providing
environmental consulting and engineering services. In August
1998, QST sold its wholly-owned fiber optic-based
telecommunications subsidiary, QST Communications, for $20 million
cash and
45
stock options valued at $5.5 million. Since incurring material
losses in the wholesale electricity market in June 1998 and
subsequent losses in its energy operations outside of Illinois,
QST Energy has transferred its Pennsylvania retail customers to
other marketers, ceased its Houston-based energy trading
operations, and has begun an effort to negotiate an end to its
obligation to provide electricity to its non-Illinois customers.
Accordingly, the operations of QST Enterprises and its
subsidiaries are shown as discontinued operations in the
statements of income. The Company's investment in QST
Enterprises, as of December 31, 1998, on the accompanying
consolidated balance sheet, consists primarily of $17.4 million in
working capital, $6.9 million in fixed assets and $6.3 million of
investments and other assets. Prior year financial statements,
which also include the discontinued operations of ESE Land
Corporation (sold by QST Environmental in November 1997, for $9.5
million and residual interests in three limited liability
corporations), have been reclassified to conform to the current
year presentation.
NOTE 11 - LEASES
The Company and its subsidiaries lease certain equipment,
buildings and other facilities under capital and operating leases.
Several of the operating leases provide that the Company pay
taxes, maintenance and other occupancy costs applicable to these
premises.
Minimum future rental payments under non-cancellable capital and
operating leases having remaining terms in excess of one year as
of December 31, 1998, are $19.9 million in total. Payments due
during the years ending December 31, 1999, through December 31,
2003, are $8.1 million, $5.6 million, $3.4 million, $1.9 million
and $.5 million, respectively.
NOTE 12 - FINANCIAL INSTRUMENTS AND PRICE RISK MANAGEMENT
CILCORP utilizes commodity futures contracts, options and swaps in
the normal course of its natural gas business activities.
However, it does not currently utilize these instruments to hedge
its electric purchase and sale transactions or to participate in
energy trading activities. Gains and losses arising from
derivative financial instrument transactions which hedge the
impact of fluctuations in energy prices are recognized in income
concurrent with the related purchases and sales of the commodity.
If a derivative financial instrument contract is terminated
because it is probable that a transaction or forecasted
transaction will not occur, any gain or loss as of such date is
immediately recognized. If a derivative financial instrument
contract is terminated early for other economic reasons, any gain
or loss as of the termination date is deferred and recorded
concurrently with the related purchase and sale of natural gas.
CILCORP is subject to commodity price risk for deregulated sales
to the extent that energy is sold under firm price commitments.
Due to market conditions, at times CILCORP may have unmatched
commitments to purchase and sell energy on a price and quantity
basis. Physical and derivative financial instruments give rise to
market risk, which represents the potential loss that can be
caused by a change in the market value of a particular commitment.
Market risks are actively monitored to ensure compliance with the
Company's risk management policies, including limits to the
Company's total net exposure at any time.
The net loss reflected in operating results from derivative
financial instruments was $2.2 million for the year 1998. As of
December 31, 1998, CILCORP had fixed-price derivative financial
instruments representing hedges of natural gas purchases of 5.6
Bcf and natural gas sales of 7.2 Bcf for commitments through
September 1999. The net deferred loss and carrying amount on
these fixed-price derivatives at December 31, 1998 was $.9
million. At December 31, 1998, CILCORP had open positions in
derivative financial instruments used to hedge basis of 1.0 Bcf
for commitments through October 1999. The net deferred loss on
these basis derivatives at December 31, 1998, was $.1 million.
46
NOTE 13 - EARNINGS PER SHARE
The following data show the amounts used in computing earnings per
share and the effect on income and the weighted average number of
shares of dilutive potential common stock. The shares calculated
for dilutive potential result from the CILCORP Shareholder Return
Incentive Compensation Plan.
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Income available to common shareholders $16,310 $16,395
Weighted average number of common shares
used in Basic Earnings Per Share 13,611 13,611
Weighted number of dilutive potential common
stock used in Diluted Earnings Per Share 96 16
</TABLE>
The Company adopted Statement of Financial Accounting Standards
No. 128, Earnings Per Share, beginning with the year ended
December 31, 1997. Restatement of 1996 is not applicable as no
potential common stock dilution occurred until 1997.
47
NOTE 14 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following quarterly operating results are unaudited, but, in
the opinion of management, include all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of
the Company's operating results for the periods indicated. The
results of operations for each of the fiscal quarters
are not necessarily comparable to, or indicative of, the results
of an entire year due to the seasonal nature of the Company's
business and other factors.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31 June 30 September 30 December 31
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
1998
Revenue $154,274 $121,435 $141,143 $142,172
Income from continuing
operations before
income taxes 17,566 10,254 29,020 1,077
Income taxes 6,250 2,519 10,983 (53)
Net income from
continuing operations 11,316 7,735 18,037 1,130
Loss from operations of
discontinued
business, net of tax
of $(2,355), $(5,512),
$(2,354), $(6,057) (3,622) (8,423) (3,620) (9,360)
Gain (loss) on
sale/disposal of
assets of
discontinued
business, net of
tax of $5,425,
$(3,411) -- -- 8,252 (5,135)
Net income (loss) $ 7,694 $ (688) $ 22,669 $(13,365)
Earnings per average
common share -
basic
Continuing
operations $ 0.83 $ 0.57 $ 1.33 $ 0.08
Discontinued
operations (0.27) (0.62) 0.34 (1.06)
Net income (loss) $ 0.56 $(0.05) $ 1.67 $(0.98)
Earnings per average
common share -
diluted
Continuing
operations $ 0.83 $ 0.56 $1.32 $ 0.08
Discontinued
operations (0.27) (0.61) 0.34 (1.06)
Net income (loss) $ 0.56 $(0.05) $1.66 $(0.98)
1997
Revenue $168,595 $113,610 $125,050 $150,705
Income from
continuing
operations before
income taxes 16,793 10,889 23,966 14,410
Income taxes 5,254 3,559 8,858 4,678
Net income from
continuing
operations before
extraordinary item 11,539 7,330 15,108 9,732
Loss from operations
of discontinued
business, net of
tax of $(1,060),
$(842), $(1,195),
$(4,201) (1,820) (1,513) (2,034) (28,759)
Gain on sale of
assets of
discontinued
business, net of
tax of $1,889 -- -- -- 2,712
48
Extraordinary item -- -- -- 4,100
Net income (loss) $ 9,719 $ 5,817 $ 13,074 $(12,215)
Earnings per average
common share -
basic
Continuing
operations $ 0.85 $ 0.54 $ 1.11 $ 0.71
Discontinued
operations (0.14) (0.11) (0.15) (1.91)
Extraordinary item -- -- -- 0.30
Net income (loss) $ 0.71 $ 0.43 $ 0.96 $(0.90)
Earnings per average
common share -
diluted
Continuing
operations $ 0.85 $ 0.54 $ 1.11 $ 0.71
Discontinued
operations (0.14) (0.11) (0.15) (1.91)
Extraordinary item -- -- -- .30
Net income (loss) $ 0.71 $ 0.43 $ 0.96 $(0.90)
</TABLE>
49
[DESCRIPTION] Graph Data attached to EXHIBIT 13
Information related to the eight graphs included in the CILCORP
Inc. Annual Report in Management's Discussion and Analysis and
Financial Statements follows.
A bar graph titled "Fixed Charge Coverage (Scale: # of Times)"
depicting the following information appears in Management's
Discussion and Analysis.
1994 2.6
1995 2.7
1996 2.1
1997 1.8
1998 1.5
A bar graph titled "Utility Plant Expenditures (Scale: $
Millions)" depicting the following information appears in
Management's Discussion and Analysis.
1994 91
1995 70
1996 44
1997 55
1998 67
A bar graph titled "Electric Sales (Scale: Millions of kilowatt-
hours)" depicting the following information appears in
Management's Discussion and Analysis. Each bar consists of four
sections which build on one another.
1998 1997 1996 1995 1994
BAR 1 RESIDENTIAL1,785 1,725 1,713 1,783 1,672
BAR 2 COMMERCIAL 1,658 1,568 1,564 1,537 1,470
CUMULATIVE 3,443 3,293 3,277 3,320 3,142
BAR 3 INDUSTRIAL 2,319 2,140 2,123 2,325 2,303
CUMULATIVE 5,762 5,433 5,400 5,645 5,445
BAR 4 OTHER 801 909 772 270 390
CUMULATIVE 6,563 6,342 6,172 5,915 5,835
A bar graph titled "Cooling Degree Days Per Year Compared to
Normal" depicting the following information appears in
Management's Discussion and Analysis. A horizontal bar depicting
normal cooling days is shown at approximately 1061.5 days.
1994 1,104.0
1995 1,222.0
1996 909.0
1997 953.0
1998 1,223.5
A bar graph titled "Gas Sales (Scale: Millions of mcf)" depicting
the following information appears in Management's Discussion and
Analysis. Each bar consists of three sections which build on one
another.
1998 1997 1996 1995 1994
BAR 1 RESIDENTIAL16,204 19,593 21,547 20,080 18,929
BAR 2 COMMERCIAL 8,662 9,794 8,948 7,374 6,686
CUMULATIVE 24,866 29,387 30,495 27,454 25,615
BAR 3 INDUSTRIAL 2,132 2,537 1,659 1,242 1,186
CUMULATIVE 26,998 31,924 32,154 28,696 26,801
A bar graph titled "Heating Degree Days Per Year Compared to
Normal" depicting the following information appears in
Management's Discussion and Analysis. A horizontal bar depicting
normal heating degree days is shown at approximately 5,918.0 days.
1994 5,443.5
1995 5,920.5
1996 6,321.0
1997 5,966.5
1998 4,808.0
Two pie charts titled "Consolidated Assets by Segment" as
percentage of the whole by year are printed below the Asset
portion of the Balance Sheets.
1998 1998 1997 1997
Electric 729,050 55.5% 723,799 54.2%
Gas 286,230 21.8% 290,542 21.8%
Non-Regulated Energy &
Energy Services 121,643 9.3% 144,398 10.8%
Environmental and
Engineering Services 5,072 .4% 5,639 .4%
Other 170,945 13.0% 170,441 12.8%
Total 1,312,940 100.0% 1,334,819 100.0%
Two pie charts titled "Consolidated Capitalization Including Short-
Term Debt" as percentages of the whole by year are printed below
the Liability portion of the Balance Sheets.
1998 1998 1997 1997
S-T Debt 109,227 14% 84,335 11%
L-T Debt 285,552 36% 298,528 37%
Preferred Stock 66,120 8% 66,120 8%
Common Stock 335,538 42% 352,593 44%
Total 796,437 100% 801,576 100%
BY-LAWS
of
CILCORP Inc.
(As Amended Effective January 26, 1999)
ARTICLE I
OFFICES
The corporation shall continuously maintain in the State
of Illinois a registered office and a registered agent whose
business office is identical with such registered office, and may
have other offices within or without the State.
ARTICLE II
SHAREHOLDERS
SECTION l. ANNUAL MEETING. An annual meeting of the
shareholders for the purpose of electing directors and for the
transaction of such other business as may come before the meeting
shall be held as determined by the Board of Directors in
accordance with the applicable provisions of the Illinois
Business Corporation Act.
SECTION 2. SPECIAL MEETINGS. Special meetings of the
shareholders may be called by the Chief Executive Officer, by the
Board of Directors, or by the holders of not less than one-fifth
of all the outstanding shares entitled to vote on the matter for
which the meeting is called, for the purpose or purposes stated
in the call of the meeting.
SECTION 3. PLACE OF MEETING. The Board of Directors
may designate any place as the place of meeting for any annual
meeting or for any special meeting called by the Board of
Directors. If no designation is made, or if a special meeting be
otherwise called, the place of meeting shall be at the principal
office of the corporation in the City of Peoria, Illinois.
SECTION 4. NOTICE OF MEETINGS. Written notice stating
the place, date and hour of the meeting, and in the case of a
special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten nor more than sixty
days before the date of the meeting, or in the case of a merger,
consolidation, share exchange, dissolution or sale, lease or
exchange of assets, not less than twenty nor more than sixty days
before the meeting, either personally or by mail, by or at the
direction of the President, or the Secretary, or the officer or
persons calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall
be deemed to be delivered when deposited in the United States
mail, addressed to the shareholder at his or her address as it
appears on the records of the corporation, with postage thereon
prepaid. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the
adjournment is taken.
SECTION 5. FIXING OF RECORD DATE. For the purpose of
determining the shareholders entitled to notice of or to vote at
any meeting of shareholders, or to receive payment of any
dividend, or for the purpose of determining shareholders for any
other proper purpose, the Board of Directors may fix in advance a
record date which shall not be more than sixty days and, for a
meeting of shareholders, not less than ten days, or in the case
of a merger, consolidation, share exchange, dissolution or sale,
lease or exchange of assets, not less than twenty days, before
the date of such meeting. If no record date is fixed, the record
date for the determination of shareholders entitled to notice of
or to vote at a meeting of shareholders shall be the date on
which notice of the meeting is mailed, and the record date for
the determination of shareholders for any other purpose shall be
the date on which the Board of Directors adopts the resolution
relating thereto. A determination of shareholders of record
entitled to notice of or to vote at a meeting of shareholders
shall apply to any adjournment of the meeting.
SECTION 6. VOTING LISTS. The officer or agent having
charge of the transfer books for shares of the corporation shall
make, within twenty days after the record date for a meeting of
shareholders or ten days before such meeting, whichever is
earlier, a complete list of the shareholders entitled to vote at
such meeting, arranged in alphabetical order, with the address of
and the number of shares held by each, which list, for a period
of ten days prior to such meeting, shall be kept on file at the
registered office of the corporation and shall be subject to
inspection by any shareholder, and to copying at the
shareholder's expense, for any purpose germane to the meeting, at
any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and
may be inspected by any shareholder during the whole time of the
meeting. The original share ledger or transfer book, or a
duplicate thereof kept in this State, shall be prima facie
evidence as to who are the shareholders entitled to examine such
list or share ledger or transfer book or to vote at any meeting
of shareholders.
SECTION 7. QUORUM. A majority of the outstanding
shares of the corporation entitled to vote on a matter,
represented in person or by proxy, shall constitute a quorum for
consideration of such matter at a meeting of shareholders;
provided, that if less than a majority of the outstanding shares
entitled to vote on a matter are represented at said meeting, a
majority of the shares so represented may adjourn the meeting as
to that matter at any time without further notice. If a quorum
is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on a matter shall
be the act of the shareholders, unless the vote of a greater
number or voting by classes is required by the Business
Corporation Act of 1983, or the Articles of Incorporation. At
any adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at
the original meeting. Withdrawal of shareholders from any
meeting shall not cause failure of a duly constituted quorum at
that meeting.
SECTION 8. PROXIES. Each shareholder entitled to vote
at a meeting of shareholders or to express consent or assent to
corporate action in writing without a meeting may authorize
another person or persons to act for him by proxy, but no such
proxy shall be valid after eleven months from the date thereof,
unless otherwise provided in the proxy.
SECTION 9. VOTING OF SHARES. Each outstanding share
shall be entitled to one vote upon each matter submitted to a
vote at a meeting of shareholders.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares
registered in the name of another corporation, domestic or
foreign, may be voted by any officer, agent, proxy or other legal
representative authorized to vote such shares under the law of
incorporation of such corporation.
Shares registered in the name of a deceased
person, a minor ward or person under legal disability, may be
voted by his or her administrator, executor or court appointed
guardian, either in person or by proxy, without a transfer of
such shares into the name of such administrator, executor or
court appointed guardian. Shares standing in the name of a
trustee may be voted by him or her, either in person or by proxy.
Shares registered in the name of a receiver may be voted
by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer
thereof into his or her name if authority so to do is contained
in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled
to vote such shares until the shares have been transferred into
the name of the pledgee, and thereafter the pledgee shall be
entitled to vote the shares so transferred.
Shares of the corporation held by it in a fiduciary
capacity may be voted and shall be counted in determining the
total number of outstanding shares entitled to vote at any given
time.
SECTION 11. INSPECTORS. At any meeting of
shareholders, the chairman of the meeting may, or upon the
request of any shareholder shall, appoint one or more persons as
inspectors for such meeting.
Such inspectors shall ascertain and report the number of
shares represented at the meeting, based upon their determination
of the validity and effect of proxies; count all votes and report
the results; and do such other acts as are proper to conduct the
election and voting with impartiality and fairness to all the
shareholders.
Each report of an inspector shall be in writing and
signed by him or her or by a majority of them if there be more
than one inspector acting at such meeting. If there is more than
one inspector, the report of a majority shall be the report of
the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of
the voting shall be prima facie evidence thereof.
SECTION 12. VOTING BY BALLOT. Voting on any question
or in any election may be by voice unless the chairman of the
meeting shall order or any shareholder entitled to vote shall
demand that voting be by ballot.
ARTICLE III
DIRECTORS
SECTION l. GENERAL POWERS. The business and affairs of
the corporation shall be managed by or under the direction of its
Board of Directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The
number of directors of the corporation shall be ten.
Directors need not be residents of Illinois or
shareholders of the Corporation. Unless sooner terminated by any
other provision hereof, the term of any Director shall
automatically expire at the first annual meeting of the
shareholders following his or her attainment of the age of 67.
Provided, however, that the term of any Director serving in such
capacity and over the age of 60 on August 20, 1993 shall
automatically expire at the first annual meeting of the
shareholders following his or her attainment of the age of
70. Notwithstanding any other provision hereof, the term of any
Director who is an officer or other full-time employee of the
Corporation shall automatically expire immediately upon his or
her retirement or other termination of employment by the Company.
If a vacancy occurs in the Board of Directors prior to the end of
what would have been a three-year term but for the provisions of
this paragraph, the vacancy shall be filled for the balance of
said three year term in accordance with the provisions of Section
9 of this article."
SECTION 3. REGULAR MEETINGS. A regular meeting of the
Board of Directors shall be held without other notice than this
By-law, immediately after the annual meeting of shareholders. The
Board of Directors may provide, by resolution, the time and place
for the holding of additional regular meetings without other
notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the
Board of Directors may be called by or at the request of the
Chief Executive Officer or any two directors. The person or
persons authorized to call special meetings of the Board of
Directors may fix any place as the place for holding any special
meeting of the Board of Directors called by them.
SECTION 5. NOTICE. Notice of any special meeting shall
be given by written notice to each director at his business
address. If mailed, such notice shall be given at least seven
days prior to the meeting, and shall be deemed to be delivered
when deposited in the United States mail so addressed, with
postage thereon prepaid. If notice be given by telegram, or
overnight delivery service, such notice shall be given at least
three days prior to the meeting and shall be deemed to be
delivered when, in the case of a telegram, it is delivered to the
telegraph company, or in the case of overnight delivery service,
it is delivered to the carrier. The attendance of a director at
any meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business
to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice
or waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the number of
directors fixed by these By-laws shall constitute a quorum for
the transaction of business at any meeting of the Board of
Directors, provided that if less than a majority of such number
of directors are present at said meeting, a majority of the
directors present may adjourn the meeting at any time without
further notice. The presence of a director who is directly or
indirectly a party to a transaction to be acted upon by the Board
of Directors, or who is otherwise not disinterested, may be
counted in determining whether a quorum is present, but the vote
of such director may not be counted when the Board of Directors
or a committee of the Board takes action on the transaction.
SECTION 7. MANNER OF ACTING. The act of the majority
of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors, unless the
act of a greater number is required by these By-laws or the
Articles of Incorporation. Members of the Board of Directors or
of any committee of the Board may participate in and act at a
meeting through the use of a conference telephone or other
communication equipment by means of which all persons
participating in the meeting can hear each other. Participation
in such meeting shall constitute attendance and presence in
person at the meeting of the person or persons so participating.
SECTION 8. RESIGNATIONS. A director may resign at any
time by giving written notice to the Board of Directors, its
chairman, or to the President or Secretary of the corporation. A
resignation is effective when the notice is given unless the
notice specifies a future date.
SECTION 9. VACANCIES. Any vacancy occurring in
the Board of Directors, including any vacancy occurring by reason
of an increase in the number of directors, shall be filled by
election at an annual meeting or at a special meeting of
shareholders called for that purpose, provided that the Board of
Directors may fill by appointment any such vacancy occurring
between meetings of the shareholders. A director appointed by
the Board of Directors pursuant to this Section to fill a vacancy
shall serve until the next meeting of shareholders at which
directors are to be elected. A director elected by the
shareholders to fill a vacancy shall hold office for the balance
of the term for which he or she was elected.
SECTION 10. ACTION WITHOUT A MEETING. Any action
required to be taken at a meeting of the Board of Directors, or
any other action which may be taken at a meeting of the Board of
Directors or a committee thereof, may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall
be signed by all the directors entitled to vote with respect to
the subject matter thereof, or by all the members of such
committee, as the case may be. The consent shall be evidenced by
one or more written approvals, each of which sets forth the
action taken and bears the signature of one or more directors.
All such approvals shall be delivered to the Secretary to be
filed in the corporate records. The action taken shall be
effective when all the directors have approved the consent unless
the consent specifies a different effective date. Any such
consent signed by all the directors or all the members of a
committee shall have the same effect as a unanimous vote, and may
be stated as such in any document filed with the Secretary of
State of Illinois or with anyone else.
SECTION 11. COMPENSATION. The Board of Directors, by
the affirmative vote of a majority of directors then in office,
and irrespective of any personal interest of any of its members,
shall have authority to establish reasonable compensation of all
directors for services to the corporation as directors, officers
or otherwise. The directors shall be paid their expenses, if any,
of attendance at each meeting of the Board. No such payment
previously mentioned in this Section shall preclude any director
from serving the corporation in any other capacity and receiving
compensation therefor.
SECTION 12. REMOVAL OF DIRECTORS. If the notice of a
meeting of shareholders shall state that a purpose of the meeting
is to vote upon the removal of one or more directors named in the
notice, then one or more of such directors may be removed at such
meeting by the affirmative vote of the holders of a majority of
the outstanding shares then entitled to vote at an election of
directors. Only the named director or directors may be removed at
such meeting and directors may only be removed for cause.
SECTION 13. PRESUMPTION OF ASSENT. A director of the
corporation who is present at a meeting of the Board of Directors
at which action on any corporate matter is taken shall be
conclusively presumed to have assented to the action taken unless
his or her dissent is entered in the minutes of the meeting or
unless he or she (a) files his or her written dissent to such
action with the person acting as the Secretary of the meeting
before the adjournment thereof, or (b) forwards such dissent by
registered or certified mail to the Secretary of the corporation
immediately after the adjournment of the meeting. Such right to
dissent does not apply to a director who voted in favor of such
action.
SECTION 14. COMMITTEES. A majority of the directors
may create one or more committees and appoint members of the
Board to serve on the committee or committees. Each committee
shall have two or more members, who serve at the pleasure of the
Board. Each committee, to the extent specified by the Board of
Directors, may exercise the authority of the Board of Directors
in the management of the corporation, except as otherwise
provided by law. Vacancies in the membership of the committee
shall be filled by the Board of Directors at a regular or special
meeting of the Board of Directors. Each committee shall render a
report of its
proceedings to the Board when required. Unless the
resolution of appointment by the Board of Directors requires a
greater number, a majority of any committee shall constitute a
quorum, and a majority of a quorum shall be necessary for
committee action. A committee may act by unanimous consent in
writing without a meeting and, subject to the provisions of these
By-laws or action of the Board of Directors, the committee by
majority vote of its members shall determine the time and place
of meetings and the notice required therefor.
SECTION 15. NOMINATIONS OF DIRECTORS. Only persons who
are nominated in accordance with the following procedures shall
be eligible for election as directors. Nominations of persons for
election to the Board of Directors of the corporation may be made
at a meeting of shareholders (a) by or at the direction of the
Board of Directors by any nominating committee or person
appointed by the Board or, (b) by any shareholder of the
corporation entitled to vote for the election of directors at the
meeting who complies with the notice procedures set forth in this
Section 15. Such nominations, other than those made by or at the
direction of the Board, shall be made pursuant to timely notice
in writing to the Secretary. To be timely, a shareholder's notice
shall be delivered to, or mailed and received at, the principal
executive offices of the corporation not less than sixty (60)
days prior to the first anniversary of the date of the last
annual meeting of shareholders. Such shareholder's notice to the
Secretary shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a
director, (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or
employment of the person, (iii) the class and number of shares of
the corporation which are beneficially owned by the person, and
(iv) such other information relating to the person that would be
required to be included in a proxy statement filed pursuant to
the proxy rules of the Securities and Exchange Commission as then
in effect; and (b) as to the shareholder giving the notice
(i) the name and record address of the shareholder, and (ii) the
class and number of shares of the corporation which are
beneficially owned by the shareholder.
If the Chairman of the meeting of shareholders shall
determine that a nomination was not made in accordance with the
foregoing procedure, he or she shall so declare to the meeting
and the defective nomination shall be disregarded.
ARTICLE IV
OFFICERS
SECTION l. NUMBER. The officers of the corporation
shall be a Chairman of the Board (if one is elected by the Board
of Directors), a President, one or more Vice Presidents (the
number thereof to be determined by the Board of Directors), a
Treasurer, and a Secretary to be elected by the Board of
Directors, and such Assistant Treasurers, Assistant Secretaries,
Controller or other officers as may be elected by the Board of
Directors or appointed by the Board of Directors or the Chief
Executive Officer of the corporation. The Chief Executive Officer
of the corporation shall be the Chairman of the Board or the
President as designated by the Board of Directors. In the event
that a Chairman of the Board is not elected, the President shall
be the Chief Executive Officer. Any two or more offices may be
held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The
elected officers of the corporation shall be elected annually by
the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of shareholders. If the
election of officers shall not be held at such meeting, such
election shall be held as soon thereafter as shall be convenient.
Vacancies may be filled or new offices created and filled at any
meeting of the Board of Directors. Each officer shall hold office
until his or her successor shall have been duly elected and shall
have qualified or until his or her death or until he or she shall
resign or shall have been removed in the manner hereinafter
provided. Election or appointment of an officer shall not of
itself create contract rights.
SECTION 3. REMOVAL. Any elected officer may be removed
by the Board of Directors whenever in its judgment the best
interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if
any, of the person so removed. Any appointed officer may be
similarly removed by either the Board of Directors or the Chief
Executive Officer of the corporation.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the
Board of Directors shall have such duties and functions as shall
be assigned or delegated to him or her from time to time by the
Board of Directors. The chairman shall report to the Board of
Directors, and shall preside at the meetings of the shareholders
and of the Board of Directors.
SECTION 5. PRESIDENT. Subject to the direction and
control of the Board of Directors, the President shall be in
charge of the business of the corporation; he or she shall see
that the resolutions and directions of the Board of Directors are
carried into effect except in those instances in which that
responsibility is specifically assigned to some other person by
the Board of Directors; and, in general, he or she shall
discharge all duties incident to the office of President and such
other duties as may be prescribed by the Board of Directors from
time to time. In the absence of the Chairman of the Board, the
President shall preside at all meetings of the shareholders and
of the Board of Directors. Except in those instances in which the
authority to execute is expressly delegated to another officer or
agent of the corporation or a different mode of execution is
expressly prescribed by the Board of Directors or these By-laws,
the President may execute for the corporation certificates for
its shares, and any contracts, deeds, mortgages, bonds, or other
instruments which the Board of Directors has authorized to be
executed, and may accomplish such execution either under or
without the seal of the corporation and either individually or
with the Secretary, any Assistant Secretary, or any other officer
thereunto authorized by the Board of Directors, according to the
requirements of the form of the instrument. The President may
vote all securities which the corporation is entitled to vote
except to the extent such authority shall be vested in a
different officer or agent of the corporation by the Board of
Directors.
SECTION 6. THE VICE PRESIDENTS. Each Vice President
shall assist the President in the discharge of his or her duties,
as the President may direct, and shall perform such other duties
as from time to time may be assigned to him or her by the
President or by the Board of Directors. In the absence of the
President or in the event of his or her inability or refusal to
act, the Vice President (or in the event there be more than one
Vice President, the Vice Presidents in the order designated by
the Board of Directors, or by the President if the Board of
Directors has not made such a designation, or in the absence of
any designation, then in the order of seniority of tenure as Vice
President) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the
restrictions upon the President. Except in those instances in
which the authority to execute is expressly delegated to another
officer or agent of the corporation or a different mode of
execution is expressly prescribed by the Board of Directors or
these By-laws, the Vice President (or each of them if there are
more than one) may execute for the corporation certificates for
its shares and any contracts, deeds, mortgages, bonds or other
instruments which the Board of Directors has authorized
to be executed, and he or she may accomplish such execution
either under or without the seal of the corporation and either
individually or with the Secretary, any Assistant Secretary, or
any other officer thereunto authorized by the Board of Directors,
according to the requirements of the form of the instrument.
SECTION 7. THE TREASURER. Subject to the supervision
of the Board of Directors and Chief Executive Officer, the
Treasurer shall have the custody of all funds and securities of
the corporation and charge of the collection of amounts due the
corporation. He or she shall disburse the funds of the
corporation only upon receipt of properly authorized vouchers and
shall keep a record of all receipts and disbursements of funds by
him or her. He or she shall have authority to give receipts for
moneys paid to the corporation and to endorse checks, drafts and
warrants in the name of the corporation.
SECTION 8. THE SECRETARY. The Secretary shall: (a)
record the minutes of the shareholders' and the Board of
Directors' meetings in one or more books provided for that
purpose; (b) see that all notices are duly given in accordance
with the provisions of these By-laws or as required by law; (c)
be custodian of the corporate records and of the seal of the
corporation; (d) keep a register of the post office address of
each shareholder which shall be furnished to the Secretary by
such shareholder; (e) sign with the President or a Vice
President, or any other officer thereunto authorized by the Board
of Directors, certificates for shares of the corporation, the
issue of which shall have been authorized by the Board of
Directors, and any contracts, deeds, mortgages, bonds, or other
instruments which the Board of Directors has authorized to be
executed, according to the requirements of the form of the
instrument, except when a different mode of execution is
expressly prescribed by the Board of Directors or these By-laws;
(f) have general charge of the stock transfer books of the
corporation; and (g) perform all duties incident to the office of
Secretary and such other duties as from time to time may be
assigned to him or her by the President or by the Board of
Directors. The Secretary shall have the authority to certify the
By-laws, resolutions of the shareholders and Board of Directors
and committees thereof, and other documents of the corporation as
true and correct copies thereof.
SECTION 9. ASSISTANT TREASURERS, ASSISTANT SECRETARIES,
CONTROLLER, AND OTHER OFFICERS. The Assistant Treasurers and
Assistant Secretaries shall perform such duties as shall be
assigned to them by the Treasurer or the Secretary, respectively,
or by the President or the Board of Directors. The Assistant
Secretaries may sign with the President, or a Vice President, or
any other officer thereunto authorized by the Board of Directors,
certificates for shares of the corporation, the issue of which
shall have been authorized by the Board of Directors, and any
contracts, deeds, mortgages, bonds, or other instruments which
the Board of Directors has authorized to be executed, according
to the requirements of the form of the instrument, except when a
different mode of execution is expressly prescribed by the Board
of Directors or these By-laws. The Assistant Treasurers shall
respectively, if required by the Board of Directors, give bonds
for the faithful discharge of their duties in such sums and with
such sureties as the Board of Directors shall determine. The
Controller, if one be elected or appointed, shall be the
principal accounting officer of the corporation and as such shall
have and perform all duties normally incident to the office of
principal accounting officer. The Assistant Treasurers, the
Assistant Secretaries, the Controller and any other officers
shall have and perform such other duties as may be assigned from
time to time by the Board of Directors or the Chief Executive
Officer of the corporation.
SECTION 10. SALARIES. The salaries of the officers
shall be fixed from time to time by the Board of Directors or, if
authorized by the Board, by the Chief Executive Officer of the
corporation. No officer shall be prevented from receiving any
salary by reason of the fact that he or she is also a director of
the corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION l. CONTRACTS. The Board of Directors may
authorize any officer or officers, agent or agents, to enter into
any contract or execute and deliver any instrument in the name of
and on behalf of the corporation, and such authority may be
general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on
behalf of the corporation and no evidences of indebtedness shall
be issued in its name unless authorized by a resolution of the
Board of Directors. Such authority may be general or confined to
specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or
other orders for the payment of money, notes or other evidences
of indebtedness issued in the name of the corporation, shall be
signed by such officer or officers, agent or agents of the
corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the corporation not
otherwise employed shall be deposited from time to time to the
credit of the corporation in such banks, trust companies or other
depositaries as the Board of Directors may select.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION l. CERTIFICATES FOR SHARES. Certificates
representing shares of the corporation shall be signed by the
President or a Vice President or by such officer as shall be
designated by resolution of the Board of Directors and by the
Secretary or an Assistant Secretary, and shall be sealed with the
seal or a facsimile of the seal of the corporation. If both of
the signatures of the officers be by facsimile, the certificate
shall be manually signed by or on behalf of a duly authorized
transfer agent or clerk. Each certificate representing shares
shall be consecutively numbered or otherwise identified, and
shall also state the name of the person to whom issued, the
number and class of shares (with designation of series, if any),
the date of issue, and that the corporation is organized under
Illinois law. If the corporation is authorized and does issue
shares of more than one class or of a series within a class, the
certificate shall also contain such information or statement with
respect thereto as may be required by law.
The name and address of each shareholder, the number and
class of shares held and the date on which the certificates for
the shares were issued shall be entered on the books of the
corporation. The person in whose name shares stand on the books
of the corporation shall be deemed the owner thereof for all
purposes as regards the corporation.
SECTION 2. LOST CERTIFICATES. If a certificate
representing shares allegedly has been lost or destroyed, the
Board of Directors may in its discretion, except as may be
required by law, direct that a new certificate be issued upon
such indemnification and other reasonable requirements as it may
impose.
SECTION 3. TRANSFERS OF SHARES. Transfers of
shares of the corporation shall be recorded on the books of the
corporation and, except in the case of a lost or destroyed
certificate, shall be made only upon surrender for cancellation
of the certificate for such shares. A certificate presented for
transfer must be duly endorsed and accompanied by proper guaranty
of signature and other appropriate assurances that the
endorsement is effective.
ARTICLE VII
INDEMNIFICATION
SECTION l. The corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason
of the fact that he or she is or was a director, officer,
employee or agent of the corporation, or who is or was serving at
the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such
action, suit or proceeding, if such person acted in good faith
and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he or she
reasonably believed to be in or not opposed to the best interests
of the corporation or, with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
SECTION 2. The corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including
attorneys' fees) actually and reasonably incurred by such person
in connection with the defense or settlement of such action or
suit, if such person acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to, the best
interests of the corporation, provided that no indemnification
shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his or her duty to
the corporation, unless, and only to the extent that the court in
which such action or suit was brought shall determine upon
application that, despite the adjudication of liability, but in
view of all circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court
shall deem proper.
SECTION 3. To the extent that a director, officer,
employee or agent of the corporation has been successful, on the
merits or otherwise, in the defense of any action, suit or
proceeding referred to in Sections l and 2 of this Article, or in
defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection
therewith.
SECTION 4. Any indemnification under Sections l
and 2 of this Article (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case, upon
a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he or
she has met the applicable standard of conduct set forth in
Section l or 2 of this Article. Such determination shall be made
(a) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit
or proceeding, or (b) if such a quorum is not obtainable, or even
if obtainable, if a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion, or (c) by the
shareholders.
SECTION 5. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action,
suit or proceeding, as authorized by the Board of Directors in
the specific case, upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such amount,
unless it shall ultimately be determined that he or she is
entitled to be indemnified by the corporation as authorized in
this Article.
SECTION 6. The indemnification provided by this Article
shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any by-law,
agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action in his or her official capacity and
as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director,
officer, employee or agent, and shall inure to the benefit of the
heirs, executors and administrators of such a person.
SECTION 7. The corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability
asserted against such person and incurred by such person in any
such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify
such person against such liability under the provisions of this
Article.
SECTION 8. If the corporation has paid indemnity or has
advanced expenses to a director, officer, employee or agent, the
corporation shall report the indemnification or advance in
writing to the shareholders with or before the notice of the next
shareholders' meeting.
SECTION 9. For purposes of this Article, references to
"the corporation" shall include, in addition to the surviving
corporation, any merging corporation (including any corporation
having merged with a merging corporation) absorbed in a merger
which, if its separate existence had continued, would have had
the power and authority to indemnify its directors, officers and
employees or agents, so that any person who was a director,
officer, employee or agent of such merging corporation, or was
serving at the request of such merging corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article with respect to the
surviving corporation as such person would have with respect to
such merging corporation if its separate existence had continued.
SECTION 10. For purposes of this Article, references to
"other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references
to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by such
director, officer, employee, or agent with respect to an employee
benefit plan, its participants, or beneficiaries. A person who
acted in good
faith and in a manner he or she reasonably believed to
be in the best interest of the participants and beneficiaries of
an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as
referred to in this Article.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the corporation shall begin on the
first day of January in each year and end on the last day of
December in each year.
ARTICLE IX
DISTRIBUTIONS
The Board of Directors from time to time may authorize,
and the corporation may make, distributions to its shareholders
in the manner and upon the terms and conditions provided by law
and its Articles of Incorporation.
ARTICLE X
SEAL
The corporation shall have a corporate seal with the
name of the corporation and the word "Illinois" inscribed about a
circle and the phrase "Incorporated 1985" within such circle.
Such seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
ARTICLE XI
WAIVER OF NOTICE
Whenever any notice is required to be given under the
provisions of these By-laws, the Articles of Incorporation or the
Business Corporation Act of 1983, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance at any
meeting shall constitute waiver of notice thereof unless the
person at the meeting objects to the holding of the meeting
because proper notice was not given.
ARTICLE XII
AMENDMENTS
In furtherance of, and not in limitation of, the powers
conferred by statute, the Board of Directors of the Corporation
is expressly authorized and empowered to adopt, amend or repeal
the By-laws (or any portion thereof) of the Corporation. The
shareholders of the Corporation are authorized and empowered to
adopt, amend or repeal the By-laws only by an affirmative vote of
75% of the shares outstanding and entitled to vote thereon. The
By-laws may contain any provisions for the regulation and
management of the affairs of the Corporation not inconsistent
with law or the Articles of Incorporation.
CENTRAL ILLINOIS LIGHT COMPANY
EXECUTIVE DEFERRAL PLAN
(EDP)
December 1, 1985
as amended
February 22, 1994
January 29, 1996
August 17, 1998
ARTICLE 1 - DEFINITIONS 1
ARTICLE 2 - ELIGIBILITY 1
2.1SELECTION BY COMMITTEE 1
2.2PLAN AGREEMENT OF EXECUTIVE 1
ARTICLE 3 - DEFERRAL COMMITMENTS 1
3.1MINIMUM DEFERRAL 1
3.2MAXIMUM DEFERRAL 1
3.3SPECIAL DEFERRAL 1
3.4WITHHOLDING OF DEFERRAL AMOUNTS 1
3.5ANNUAL RATE 1
3.6DEFERRAL PERIOD 1
3.7DEFAULT 1
3.8DEFERRAL PENALTY IN THE EVENT OF DEFAULT 1
3.9NO WAIVER OF DEFAULT 1
3.10CREDITING OF DEFERRAL AMOUNTS, COMPANY
CONTRIBUTIONS AND ROLLOVER ESPP AMOUNTS 1
3.11TERMINATION OF PARTICIPATION 1
ARTICLE 4 - 7TH YEAR DISTRIBUTION 1
4.17TH-YEAR DISTRIBUTION 1
4.2SUPPLEMENTAL PLAN AGREEMENTS 1
4.3HARDSHIP WITHDRAWALS 1
ARTICLE 5 - RETIREMENT BENEFIT 1
5.1RETIREMENT BENEFIT 1
5.2RATE OF INTEREST FOR RETIREMENT BENEFITS 1
5.3FORM AND COMMENCEMENT OF RETIREMENT BENEFITS 1
5.4POST-RETIREMENT PLAN AGREEMENTS 1
5.5AMOUNT OF RETIREMENT BENEFIT 1
5.6DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFITS 1
ARTICLE 6 - ROLLOVER ESPP 1
6.1PARTICIPANTS ELIGIBLE FOR ESPP ROLLOVER 1
6.2ESPP VESTING CREDIT 1
ARTICLE 7 - SURVIVOR BENEFITS 1
7.1PRE-RETIREMENT SURVIVOR BENEFIT 1
7.2AMOUNT OF SURVIVOR BENEFITS 1
7.3ELIGIBILITY REQUIREMENTS FOR SURVIVOR BENEFIT 1
7.4RESTRICTION IN THE EVENT OF SUICIDE 1
ARTICLE 8 - TERMINATION BENEFIT 1
8.1TERMINATION BENEFITS 1
8.2TERMINATION PRIOR TO 7 YEARS OF PLAN PARTICIPATION
AND PRIOR TO AGE 55 1
8.3TERMINATION AFTER 7 YEARS OF PLAN PARTICIPATION
AND PRIOR TO AGE 55 1 1
8.4INVOLUNTARY TERMINATION WITHOUT CAUSE FOLLOWING A
CHANGE IN CONTROL OF CILCORP INC. 1
ARTICLE 9 - DISABILITY BENEFIT 1
9.1AMOUNT OF DISABILITY BENEFIT 1
9.2COMMENCEMENT AND TERMINATION OF DISABILITY BENEFITS 1
9.3MAXIMUM AGE FOR DISABILITY BENEFITS 1
ARTICLE 10 - BENEFICIARY DESIGNATION 1
10.1BENEFICIARY DESIGNATION 1
10.2CHANGE OF BENEFICIARY DESIGNATION 1
10.3NO PARTICIPANT DESIGNATION 1
10.4EFFECT OF PAYMENT 1
ARTICLE 11 - LEAVE OF ABSENCE 1
11.1PAID LEAVE OF ABSENCE 1
11.2UNPAID LEAVE OF ABSENCE 1
ARTICLE 12 - OTHER BENEFITS AND AGREEMENTS 1
12.1COORDINATION WITH OTHER BENEFITS 1
12.2RESTORATION OF PENSION BENEFITS 1
ARTICLE 13 - DISCONTINUANCE, AMENDMENT OR TERMINATION 1
13.1DISCONTINUANCE 1
13.2AMENDMENT 1
13.3TERMINATION 1
ARTICLE 14 - MISCELLANEOUS 1
14.1UNSECURED GENERAL CREDITOR 1
14.2NONASSIGNABILITY 1
14.3NOT A CONTRACT OF EMPLOYMENT 1
14.4PROTECTIVE PROVISIONS 1
14.5TERMS 1
14.6CAPTIONS 1
14.7GOVERNING LAW 1
14.8VALIDITY 1
14.9NOTICE 1
14.10SUCCESSORS 1
14.11HOSTILE TAKEOVER 1
14.12ATTORNEY FEES 1
14.13LATE PAYMENT PENALTY 1
14.14INCOMPETENT 1
ARTICLE 15 - ADMINISTRATION 1
15.1COMMITTEE DUTIES 1
15.2AGENTS 1
15.3BINDING EFFECT OF DECISION 1
15.4INDEMNITY OF COMMITTEE 1
15.5EMPLOYER INFORMATION 1
15.6CHANGE IN PAYMENTS 1
EXECUTIVE DEFERRAL PLAN
OF
CENTRAL ILLINOIS LIGHT COMPANY
Purpose
The primary purpose of the Executive Deferral Plan of
Central Illinois Light Company is to help attract and maintain
high caliber employees in high-level management positions.
Directors, executive officers of the Company and certain other
key employees on the Company's management staff (i.e., elected
officers, department heads, and other key employees reporting to
executive officers) will be allowed to participate in the
Executive Deferral Plan. Members of the management staff allowed
to participate will be those key employees who, in the opinion of
the administrative committee of the Executive Deferral Plan,
contribute significantly to the health and well-being of the
Company through their leadership and managerial talents and who
occupy management positions of importance in the Company.
Article 1 - Definitions
For purposes hereof, unless otherwise clearly apparent from
the context, the following phrases or terms shall have the
following indicated meanings:
1.1 "Base Annual Salary" shall mean the yearly compensation
excluding bonuses or other fees paid to a Participant for
employment services rendered to the Employer, before
reduction for compensation deferred pursuant to this plan.
1.2 "Beneficiary" shall mean the person or persons, or the
entity designated by the Participant to receive any
benefits payable under this Plan upon the death of a
Participant. Any Participant's Beneficiary designation
shall be made by written instrument filed with the
Committee and shall become effective only when received,
accepted and acknowledged in writing by the Committee.
1.3 "Committee" shall mean the administrative committee
appointed to manage and administer the Plan in accordance
with its provisions pursuant to Article 15.
1.4 "Company" shall mean CENTRAL ILLINOIS LIGHT COMPANY, any
corporation which is, along with the Company, a member of a
controlled group of corporations as described in Section
414(b) of the Internal Revenue Code of 1954, as amended,
and all successor companies thereto.
1.5 "Company Contributions" shall mean such amounts, if any,
that an Employer, in its sole discretion, contributed to
the Plan in any year for the benefit of all or some
Participants.
1.5(a) "Continuing Director" means any member of the Board
of the Company or of its majority shareholder (hereinafter
the "Board"), while such person is a member of the Board,
who was a member of the Board prior to January 29, 1996. A
"Continuing Director" also means any person who
subsequently becomes a member of the Board, while such
person is a member of the Board, if such person's
nomination for election or election to the Board is
recommended or approved by resolution of a majority of the
Continuing Directors.
1.6 "Covered Salary" shall mean a Participant's Base Annual
Salary and bonuses which serves as a basis for computation
of the Retirement, Survivor or Termination benefits
pursuant to the terms and conditions of this Plan.
1.7 "Deferral Amount" shall mean the amount of Covered Salary
deferred by a Participant each year pursuant to his
election in the form of a Plan Agreement.
1.8 "Deferral Period" shall mean the period during which
amounts of Covered Salary are being deferred pursuant to
the deferral election of the Participant as set forth in
the Participant's Plan Agreement.
1.9 "Disability". A Participant shall be considered totally
disabled by bodily injuries, sickness or disease for
purposes of the Plan for the period, excluding any period
for which he receives benefits under the Company's Sick Pay
Plan, if:
a. During the first two years of any period of total
disability, the Participant is unable to perform the duties of
his occupation; and
b. During continuation of the period of total disability beyond
two years, the Participant is unable to engage in any business or
occupation or to perform any work for compensation, gain or
profit for which he is reasonably fitted by education, training
or experience.
1.10 "EDP Account" shall mean an individual account comprised of
a Participant's Deferral Amounts, Rollover ESPP amounts,
Company Contributions and interest credited thereon. An
EDP Account shall be maintained for each Participant. A
Participant's EDP Account shall be utilized solely as a
device for the measurement and determination of the amounts
to be paid to the Participant pursuant to this Plan. A
Participant's EDP Account shall not constitute or be
treated as a trust fund.
1.11 "Employer" shall mean the Company having one or more
eligible Employees who have been selected by the Committee
to participate. Where the context dictates, the term
"Employer" as used herein refers to the particular Employer
which has entered into a Plan Agreement with a specific
Participant.
1.12 "Executive" shall mean directors and those persons in the
regular full-time employment of the Company who are key
employees and members of the management staff who are
selected for participation in the Plan by the Committee.
1.12(a) "Hostile Takeover" shall mean the acquisition of
beneficial ownership (determined in accordance with Rule
13(d)-3 of the Exchange Act) directly or indirectly, of
more than 30% of the voting power of the outstanding stock
of the Company or its majority shareholder by any person
coupled with or followed by the failure of Continuing
Directors to constitute a majority of the Board."
1.13 "Moody's Seasoned Corporate Bond Rate" (Moody's) shall mean
an economic indicator which is an arithmetic average of
yields of representative bonds: industrials, public
utilities, Aaa, Aa, A, and Baa.
1.14 "Participant" shall mean any Executive who elects to
participate in the Plan by executing a Plan Agreement.
1.15 "Plan" shall mean the Executive Deferral Plan of the
Employer which shall be evidenced by this instrument and by
each Plan Agreement, as amended from time to time.
1.16 "Plan Agreement" shall mean the form of written agreement,
as amended from time to time, which is entered into by and
between an Employer and a Participant.
1.17 "Plan Anniversary Date" shall be the last day of the Plan
Year.
1.18 "Plan Year" shall mean the 12 consecutive month period
commencing on December 1 and ending on the next following
November 30.
1.19 "Retirement" and "Retire" shall mean severance from
employment with the Employer at or after the attainment of
age fifty-five (55).
1.20 "Retirement Benefit Date" shall mean the date that the
Retired Participant first receives Retirement benefits
under the Plan.
1.21 "Rollover ESPP" shall mean the amount credited to a
Participant under the Executive Salary Protection Plan
which is to be credited to the Participant's EDP Account
(one-time credit equal to the present value of the ESPP
benefit).
1.22 "Secondary Account Balance" shall mean the portion of the
EDP Account attributable to the 5% interest credited
thereon which is above Moody's and any accumulation thereon
at a crediting rate of Moody's plus five percent (5%).
1.23 "Termination of Employment" shall mean the ceasing of
employment with the Company, voluntarily or involuntarily,
for any reason other than Retirement, Disability or death.
Article 2 - Eligibility
2.1 Selection By Committee
The Committee shall have the sole discretion to determine
the employees of the Company who are key employees and
members of the management staff who are eligible to become
Participants in accordance with the purpose of the Plan.
The Committee shall also have the sole discretion to
determine the directors of the Company who are eligible to
become Participants. The foregoing notwithstanding,
participation shall be limited to those individuals who are
Participants as of June 15, 1994.
2.2 Plan Agreement of Executive
As a condition of participation, each Executive shall
complete, execute and return to the Committee prior to the
beginning of the applicable Deferral Period a Plan
Agreement.
Article 3 - Deferral Commitments
3.1 Minimum Deferral
The Participant may defer no less than $2,000 per Plan
Year.
3.2 Maximum Deferral
A Participant who became eligible to participate in the
Plan on or before November 30, 1989, and all directors of
the Company, may defer no more than 100% of Covered Salary
or board fees, as applicable. A Participant who became
eligible to participate in the Plan on or after December 1,
1989 may defer no more than 15% of Covered Salary.
3.3 Special Deferral
The Committee may specify the Plan Years, if any, in which
each Participant may elect to defer an amount ("Special
Deferral Amount") in addition to the amount or percentage
of Covered Salary otherwise specified for deferral under
the Plan Agreement. The Special Deferral Amount, if any,
shall be set forth in the Plan Agreement of the Participant
and shall be treated as a Deferral Amount under the
provisions of the Plan except as otherwise provided in
Sections 7.2 and 9.1.
3.4 Withholding of Deferral Amounts
The amount or percentage of Covered Salary elected to be
deferred pursuant to the Plan Agreement of a Participant
shall be withheld over the Deferral Period in the manner
set forth in the Plan Agreement of the Participant.
3.5 Annual Rate
The Moody's rate for any Plan Year shall be fixed 60 days
prior to the beginning of the Plan Year. Subject to the
provisions and limitations of the Plan, the EDP Account
will accrue annual interest at a crediting rate of Moody's
plus five percent (5%) from the date of Plan inception.
3.6 Deferral Period
The Deferral Period for each Participant shall be a fixed 4
year period commencing on the December 1 coincident with or
next preceding the date on which the Participant's initial
Deferral Amount is made to the Plan following the
Participant's filing of a Plan Agreement with the
Committee.
3.7 Default
Default occurs when the Participant does not defer the
amount of Covered Salary previously committed to the Plan
under that Participant's Plan Agreement. Termination of
Employment is not considered a default. A Participant who
has a Termination of Employment will receive Termination
Benefits, as set forth in Article 8.
3.8 Deferral Penalty In the Event of Default
In the event of default by a Participant on a deferral
commitment during the Deferral Period, the Participant may
not defer any portion of his Covered Salary for the balance
of the Plan Year in which the default occurs or for the
next following Plan Year.
3.9 No Waiver of Default
The Committee may not waive any default penalty set forth
in Section 3.8.
3.10 Crediting of Deferral Amounts, Company Contributions and
Rollover ESPP Amounts
The amount or percentage of Covered Salary that a
Participant elects to defer in the Plan Agreement executed
by the Participant with respect to each Plan Year shall be
credited by the Employer to the Participant's EDP Account
throughout each Plan Year as the Participant is paid the
nondeferred portion of Covered Salary for such Plan Year or
on the date any lump sum Deferral Amount is contributed to
the Plan. The amount or percentage of Covered Salary so
credited to a Participant's EDP Account shall equal the
amount deferred. The Participant shall designate in the
Plan Agreement the amount or percentage of Covered Salary
to be deferred. Company Contributions, if any, and
Rollover ESPP amounts, if any, shall be credited to a
Participant's EDP Account at the time made by the Employer.
3.11 Termination of Participation
A Participant may terminate participation in the Plan at
any time by giving the Employer written notice of such
termination not less than 30 days prior to the anniversary
date of the execution of the most recent Plan Agreement of
the Participant. Benefits to a Participant who elects to
terminate Plan participation shall be payable in accordance
with the terms of the Plan.
Article 4 - 7th Year Distribution
4.1 7th-Year Distribution
Except as otherwise provided in Section 4.2, a Participant
shall be paid his EDP Account, excluding that portion
attributable to interest credited in excess of Moody's and
any accumulation thereon, 45 days after the commencement of
his seventh Plan Year of participation in the Plan. All
other funds in the EDP Account will remain in the Plan
until the Participant dies, incurs a Disability, Retires or
incurs a Termination of Employment.
4.2 Supplemental Plan Agreements
Prior to the Plan Anniversary Date preceding the Plan Year
in which the 7th-Year Distribution is payable to a
Participant, the Participant may enter into a Supplemental
Plan Agreement ("Supplemental Plan Agreement") whereby the
Participant and the Employer agree to a further deferral
until retirement of all or a portion of the amount that
would otherwise be payable as a 7th-Year Distribution. The
Supplemental Plan Agreement must be entered into a minimum
of one (1) year prior to the Plan Anniversary Date
preceding the Plan Year in which the 7th-Year Distribution
is payable to a Participant, must be executed by the
Participant in writing in a form acceptable to the
Committee, and must be returned to the Committee one (1)
year prior to the beginning of the Plan Year in which the
7th-Year Distribution would otherwise be payable. If a
Supplemental Plan Agreement is timely executed all funds
remaining in the EDP Account will remain in the Plan until
the Participant's death, disability, retirement or
termination of employment. No Retired Participant shall be
eligible to enter into a Supplemental Plan Agreement under
this provision.
4.3 Hardship Withdrawals
A Participant may make a "Hardship" withdrawal of his EDP
Account balance only if: (1) the withdrawal is on account
of an immediate and heavy financial need of the
Participant; and (2) the withdrawal does not exceed the
amount necessary to satisfy the immediate and heavy
financial need. Any request for a withdrawal in accordance
with this subsection 4.3 shall be in writing filed with the
Committee in such form and at such time as the Committee
may require. A Participant will be deemed to have a
Hardship if he has an immediate and heavy financial need
and if such withdrawal is for the purpose of: (1) medical
expenses of the Participant, his spouse or a dependent, (2)
the purchase of a Participant's principal residence; (3)
the post-secondary tuition (for a period following the date
of the hardship request) of the Participant, his spouse or
a dependent; or (4) the prevention of the eviction from or
the foreclosure on a Participant's principal residence. A
distribution will be deemed not to exceed the amount
necessary to meet the Participant's immediate and heavy
financial need if: (a) the amount of withdrawal under this
paragraph 4.3 does not exceed the amount necessary to
satisfy his immediate and heavy financial need; (b) he has
received all distributions and taken all loans under any
tax-qualified plan of the Company; (c) his ability to make
contributions to any salary deferral plan, qualified or
nonqualified, is suspended for a period of 12 months
following a withdrawal under this paragraph 4.3; and (d)
the maximum amount of contributions the Participant may
make to any salary deferral plan, qualified or
nonqualified, for the Plan Year next following the Plan
Year in which a Hardship withdrawal, pursuant to this
paragraph 4.3 is made, is reduced by the amount of
contributions, if any, the Participant made during the Plan
Year in which such a withdrawal was made.
Article 5 - Retirement Benefit
5.1 Retirement Benefit
A Participant who Retires shall become eligible to receive,
in accordance with this Article 5, Retirement benefits on
the Participant's Retirement Benefit Date. Unless a Post-
Retirement Plan Agreement provides otherwise, the
Retirement Benefit Date of a Participant who Retires shall
be the first day of the month following his Retirement.
Retirement benefits may be in the form of a lump sum or an
amount per month based on his EDP Account as of the
Participant's Retirement Benefit Date.
5.2 Rate of Interest for Retirement Benefits
The interest on the EDP Account will be based on a fixed
rate which is an average of the annual Moody's Seasoned
Corporate Bond Rate for a five (5) year period consisting
of the Plan Year in which the Participant's Retirement
Benefit Date occurs and the four (4) immediately preceding
Plan Years with an additional 5% interest credited to the
fixed rate.
5.3 Form and Commencement of Retirement Benefits
Thirty (30) days before his Retirement the Participant must
inform the Committee in writing of the form in which his
Retirement benefits are to be paid, either in a lump sum or
in equal monthly payments. If no election is timely made,
the Plan will pay benefits in equal monthly installments.
Unless otherwise provided pursuant to a Post-Retirement
Plan Agreement, Retirement benefits, if a lump sum form of
payment is selected, shall be paid on the first day of the
month following the Participant's Retirement. If the
Participant elects the monthly installment form of payment,
his Retirement benefits shall commence on the first day of
the month following the Retirement of the Participant and
shall be paid over a period up to 120 months or a 180 or
240 month period, in equal monthly installments. Thirty
(30) days before his Retirement, the Participant must
inform the Committee in writing of the benefit payment
period over which his monthly benefits are to be paid. If
no election is timely made, the Plan will pay benefits over
240 months.
5.4 Post-Retirement Plan Agreements
A Participant may enter into a Post-Retirement Plan
Agreement whereby the Participant and the Employer agree to
a deferral to a date certain of the payment of the
Retirement benefits that would otherwise be paid under
Section 5.3, the form in which the benefits are to be paid
and/or, if a monthly installment form has been selected,
the time period over which such benefits are to be paid.
The Post-Retirement Plan Agreement must be executed by the
Participant in writing in a form acceptable to the
Committee and delivered to the Committee at least thirty
(30) days prior to the Participant's Retirement.
Retirement benefits which are deferred by reason of a Post-
Retirement Plan Agreement shall be paid to the Participant
in the form and on the date certain as selected by the
Participant. No Participant may defer the payment of his
Retirement benefits to a date beyond the later of (1) ten
(10) years following the Participant's commencement of Plan
participation, (2) Retirement, or (3) age 65 (age 72 in the
case of a Participant who was a Director on August 20,
1993).
5.5 Amount of Retirement Benefit
A Participant's Retirement benefits shall be equal to the
balance of his EDP Account as of his Retirement Benefit
Date, except that the amount payable from the Participant's
Secondary Account Balance shall be reduced, as appropriate,
in accordance with the vesting schedule set forth in
Section 8.3 and fixed as of the date that a lump sum
payment is made or that monthly payments commence (the
Retirement Benefit Date).
5.6 Death Prior to Completion of Retirement Benefits
If a Retired Participant who has elected the monthly
installment form of payment dies after the commencement of
Retirement benefit payments but before the applicable
Retirement benefit is paid in full, the Participant's
unpaid Retirement benefit payments shall continue and be
paid to that Participant's Beneficiary in the same manner
as selected by the Participant. If a Retired Participant
dies prior to the payment of Retirement benefits, his
Beneficiary shall be paid benefits in a lump sum on the
first day of the month following the death of the
Participant, unless the Participant had retired on or
before January 1, 1995, in which case the benefit will be
paid over a 240 month period. The aggregate benefits to be
paid to the Participant's Beneficiary will be in an amount
equal to the balance of the Participant's EDP Account as of
the date of the Participant's death. Notwithstanding the
foregoing, the Committee may, in its sole and absolute
discretion, select a later commencement date or an
alternate payment period not to exceed 120 months for the
payment of benefits under this Section to any Beneficiary.
Article 6 - Rollover ESPP
6.1 Participants Eligible for ESPP Rollover
A Participant who had participated in the Executive Salary
Protection Plan ("ESPP") shall be entitled to a Rollover
ESPP only if such Participant is age 55 or older as of
December 1, 1985. Each Participant who is eligible for a
Rollover ESPP will be credited with such amount in his EDP
Account. Individual Rollover ESPP amounts, if any, will be
reported on the Participant's Plan Agreement.
6.2 ESPP Vesting Credit
All Participants who had participated in the ESPP shall be
credited with three additional years of Plan participation
for purposes of the vesting schedule set forth in Section
8.3 but for no other purpose under the Plan. The vesting
years so credited shall be in addition to actual years (and
fractional years) of actual participation in the ESPP. A
Participant's Rollover ESPP will at all times remain fully
vested. For example, a Participant with four and one-half
years in the ESPP will initially be 70% vested in his
Secondary Account Balance (4 1/2 years + 3 years = 7 1/2
years = 70% vested).
Article 7 - Survivor Benefits
7.1 Pre-Retirement Survivor Benefit
If a Participant dies before Retirement, the Employer will
pay a Survivor's Benefit to the designated Beneficiary of
the Participant.
7.2 Amount of Survivor Benefits
The Beneficiary eligible for a Survivor Benefit will
receive in a lump sum as soon as practicable the greater
of:
a. The existing EDP Account balance, or
b. Ten (10) times the sum of:
i. the greatest Deferral Amount committed in one Plan Year by
the Participant, except that only one-quarter (1/4) of any
Special Deferral Amount shall be considered for this purpose, and
ii. the Company Contributions made for that Plan Year,
provided, however, that if a Participant failed to meet
the eligibility requirement set forth in Section 7.3(b),
the Beneficiary of that Participant shall be limited to
the Survivor Benefit set forth in paragraph (a) of this
Section 7.2.
7.3 Eligibility Requirements For Survivor Benefit
The obligation of the Employer to pay the Survivor Benefit
to any Beneficiary shall exist only if:
a. at the time of death, the Participant was employed by the
Employer, on an authorized leave of absence, or absent from
employment due to Disability;
b. all amounts committed for deferral under the Plan were
actually deferred;
c. the Participant's death was determined not to be from a
bodily or mental cause or causes, the information about which was
withheld, or knowingly concealed, or falsely provided by the
Participant, when requested by the Employer to furnish evidence
of good health;
d. proof of death in such form as determined acceptable by the
Committee is furnished.
7.4 Restriction in the Event of Suicide
In the event of a Participant's suicide, the amount of the
Survivor Benefit which the Employer shall be obligated to
pay shall be limited to benefits granted more than two
years prior to the date of such suicide.
Article 8 - Termination Benefit
8.1 Termination Benefits
If the Participant incurs a Termination of Employment prior
to age 55 by means other than death or Disability, such
Participant will be eligible to receive a Termination
Benefit as set forth in this Article 8.
8.2 Termination Prior to 7 Years of Plan Participation and
Prior to Age 55
A participant who incurs a Termination of Employment before
completing 7 years of Plan participation, and prior to
attaining age 55, shall be entitled to receive in a lump
sum that portion of his EDP Account attributable to his
Deferral Amount, his Rollover ESPP Benefit, if any, his
Company Contributions, if any, and interest credited at
Moody's. Such amount shall be paid to the Participant
within 90 days of the date of his Termination of
Employment.
8.3 Termination after 7 Years of Plan Participation and Prior
to Age 55
A participant who incurs a Termination of Employment after
completing 7 years of Plan participation, and prior to
attaining age 55, shall receive, to the extent not
otherwise distributed pursuant to Article 4, a distribution
of his EDP Account, including that vested portion
attributable to interest credited in excess of Moody's and
any accumulation thereon, in a lump sum within 90 days of
the date of his Termination of Employment. The vested
portion of such Participant's Secondary Account Balance
shall be determined upon his Termination of Employment in
accordance with the following schedule:
Percentage of
Years of Plan Secondary
Participation Account Balance
Less than 7 years 0%
7 but less than 8 years 70%
8 but less than 9 years 80%
9 but less than 10 years 90%
10 or more years 100%
8.4 Involuntary Termination Without Cause Following A Change in
Control of CILCORP Inc.
a. A Participant who incurs a Termination of Employment
involuntarily and other than for Cause within two years after a
Change in Control of CILCORP Inc. will be eligible to make an
irrevocable election to receive either a termination benefit as
set forth in this Article 8 or retirement benefits as provided at
Article 5, as if the Participant retired from the Company. In
addition, the Participant shall, at the time of the involuntary
termination, be considered to be 100% vested in the Participant's
Secondary Account Balance.
b. If, at the time of a Termination of Employment, a
Participant elects to receive a termination benefit in the form
of a lump sum payment, such payment shall be made to the
Participant no earlier than 60 days from the date the Participant
made an irrevocable election provided for under this Section 8.4
(a).
c. The following definitions shall be applicable to the terms
used in this Section 8.4:
i. "Change in Control" shall be deemed to have occurred:
(a) if CILCORP Inc. ("CILCORP") merges or consolidates with or
into another corporation in a transaction in which neither
CILCORP nor any member of a controlled group of corporations as
defined in Article I, Section 1.4 is the surviving corporation;
or upon a sale or other disposition of all or substantially all
of CILCORP's assets to any corporation, person, other entity or
group (other than to an entity whose stock is owned or controlled
by CILCORP or any qualified or non-qualified plan maintained by
CILCORP or an affiliate); or
(b) if any corporation, person, other entity or group (other
than CILCORP or any affiliate) becomes the Beneficial Owner (as
defined in CILCORP's Articles of Incorporation) of 30% or more of
the voting stock of CILCORP; or
(c) if, during any period of two consecutive years, Continuing
Directors, as hereinafter defined, cease to comprise a majority
of CILCORP's Board of Directors. Continuing Directors are:
(i) Members of the Board of Directors of CILCORP at the
beginning of such period of two consecutive years; and
(ii) Any person who subsequently becomes a member of the Board of
Directors if such person's nomination for election or election
to the Board of Directors of CILCORP is recommended or
approved by
resolution of a majority of the Continuing Directors or such
person is included as a nominee in a proxy statement of CILCORP
distributed when a majority of the Board of Directors of
CILCORP consists of Continuing Directors.
ii. "Cause" shall mean:
(d) the Participant has willfully and continually failed to
perform substantially his/her duties with the Company other than
such failure resulting from disability (as herein defined), after
a written demand for substantial performance is delivered to the
Participant by his/her supervisor which specifically identifies
the manner in which the supervisor believes that the Participant
has not substantially performed his/her duties; or
(e) the Participant's willfully engaging in illegal conduct or
gross misconduct which his/her supervisor believes is materially
and demonstrably injurious to the Company.
For purposes of this definition, no act or failure to
act on the Participant's part shall be considered
"willful" unless it is done, or omitted to be done, by
the Participant in bad faith or without reasonable
belief that his/her action or omission was in the best
interests of the Company. Any act or failure to act,
based on authority given pursuant to a resolution duly
adopted by the Board or on the instructions of the CEO
or a senior officer of the Company or based on the
advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the
Participant in good faith and in the best interests of
the Company.
Article 9 - Disability Benefit
9.1 Amount of Disability Benefit
If the Committee determines that a Participant has a
Disability, the Participant shall be eligible to receive an
annual Disability Benefit in an amount equal to one and one-
half (1.5) times the greatest Deferral Amount committed
under the Plan in any Plan Year prior to or coincident with
the date in which benefits commence under the Sick Pay Plan
of the Company, except that only one quarter (1/4) of any
Special Deferral Amount shall be considered for this
purpose.
9.2 Commencement and Termination of Disability Benefits
Disability Benefits will be paid to a Participant who has a
Disability commencing on the date immediately following the
expiration of benefits to that Participant under the Sick
Pay Plan of the Company. The Disability Benefits of a
Participant shall continue until the earliest of:
a. the date of the death of the Participant;
b. the date as of which the Participant ceases to be classified
as having a Disability; or
c. the date the Participant attains age 65.
9.3 Maximum Age for Disability Benefits
In order to be eligible to receive a Disability Benefit
upon Disability as set forth in this Article 9, a
Participant must first enter into a Plan Agreement prior to
attaining age 60.
Article 10 - Beneficiary Designation
10.1 Beneficiary Designation
Each Participant shall have the right, at any time, to
designate any person or persons as his Beneficiary or
Beneficiaries (both principal as well as contingent).
10.2 Change of Beneficiary Designation
Any Beneficiary designation may be changed by a Participant
at any time by the filing in writing of such change on a
form prescribed by the Committee. The filing of a new
Beneficiary designation form will cancel all Beneficiary
designations previously filed. The Committee shall be
entitled to rely on the last designation filed by the
Participant prior to his death.
10.3 No Participant Designation
If a Participant fails to designate a Beneficiary as
provided above, or if all designated Beneficiaries
predecease the Participant or die prior to complete
distribution of the Participant's benefits, then the
Participant's designated Beneficiary shall be deemed to be
the surviving spouse. If the Participant has no surviving
spouse, the benefits remaining under the Plan shall be
payable to the Participant's personal representative
(executor or administrator of the Participant's estate).
10.4 Effect of Payment
The payment of benefits under the Plan to the deemed
Beneficiary shall completely discharge the Employer's
obligations under this Plan.
Article 11 - Leave of Absence
11.1 Paid Leave of Absence
If a Participant is authorized by the Company for any
reason to take a paid leave of absence from the employment
of the Company, the deferral commitments for the Deferral
Period shall remain in full force and effect during such
leave of absence.
11.2 Unpaid Leave of Absence
If a Participant is authorized by the Company for any
reason to take an unpaid leave of absence from the
employment of the Company, the deferral commitments shall
be suspended and shall be considered a default pursuant to
Section 3.7.
Article 12 - Other Benefits and Agreements
12.1 Coordination With Other Benefits
The benefits provided for a Participant or for the
Beneficiary of a Participant under the Plan are in addition
to any other benefits to which the Participant or
Beneficiary may be entitled under any other plan or program
of the Employer. This Plan shall supplement and shall not
supersede, modify or amend any other such plan or program
except as may otherwise be expressly provided.
12.2 Restoration of Pension Benefits
The Company recognizes that amounts deferred under the Plan
may not be considered as earnings for purposes of the
computation of benefits under qualified plans under the
Employee Retirement Income Security Act of 1974, as
amended, and the Internal Revenue Code of 1954, as amended.
Therefore, any loss of retirement benefits incurred by a
Participant under the Pension Plan for Management, Office &
Technical Employees of Central Illinois Light Company, as
may be amended and restated from time to time (the "Pension
Plan"), which result from the deferrals made under the Plan
by the Participant, shall be restored by the Company upon
the Retirement of a Participant or upon the Termination of
Employment of a Participant prior to Retirement. Such
pension restoration benefit payments may be paid from this
Plan or, in the sole discretion of the Committee, may be
paid through an alternate vehicle. Such pension
restoration benefits shall be in an amount designed to
restore the benefits, if any, that were lost under the
Pension Plan due to the deferral under this Plan, and the
timing and other characteristics of the pension restoration
benefit payments shall coincide as closely as practicable
to benefit payments which would otherwise have been made
under the Pension Plan.
Article 13 - Discontinuance, Amendment or Termination
13.1 Discontinuance
The Company reserves the right to discontinue the Plan at
any time. Upon discontinuance of the Plan, the Partici
pants' EDP Accounts shall be paid out according to the
schedules set forth in Articles 5 and 8, as applicable.
The discontinuance of the Plan shall not adversely affect
any Participant or Beneficiary who has become entitled to
the payment of benefits under the Plan.
13.2 Amendment
The Company may, at any time, amend or modify the Plan in
whole or in part, provided, however, that no amendment or
modification shall adversely affect any EDP Account in
existence at the time the amendment or modification is
made. The amendment or modification of the Plan shall not
affect any Participant or Beneficiary who has become
entitled to the payment of benefits under the Plan as of
the date of the amendment or modification.
13.3 Termination
The Company reserves the right, in the event of a hostile
or non-negotiated takeover or acquisition of the Company,
or upon a final decision of any court or administrative
agency pertaining to the income tax treatment of Plan
benefits or deductions to the Company or a Participant
which is deemed adverse by the Company, to terminate the
Plan and to distribute the present value of the
Participants' estimated future EDP Accounts, as determined
by the Company, to them as soon as practicable thereafter.
Article 14 - Miscellaneous
14.1 Unsecured General Creditor
Participants and their Beneficiaries, heirs, successors and
assigns shall have no legal or equitable rights, interest
or claims in any property or assets of Employer, nor shall
they be Beneficiaries of, or have any rights, claims or
interests in any life insurance policies, annuity contracts
or the proceeds therefrom owned or which may be acquired by
the Employer ("Policies"). Such Policies or other assets
of the Employer shall not be held under any trust for the
benefit of Participants, their Beneficiaries, heirs,
successors or assigns, or held in any way as collateral
security for the fulfilling of the obligations of the
Employer under this Plan. Any and all of the Employer's
assets and Policies shall be, and remain, the general
assets of the Employer. The Employer's obligation under
the Plan shall be merely that of an unfunded and unsecured
promise of the Employer to pay money in the future.
14.2 Nonassignability
Neither a Participant nor any other person shall have any
right to commute, sell, assign, transfer, pledge, antici
pate, mortgage or otherwise encumber, transfer, hypothecate
or convey in advance of actual receipt, the amounts, if
any, payable hereunder, or any part thereof, which are, and
all rights to which are, expressly declared to be
unassignable and nontransferable. No part of the amounts
payable shall, prior to actual payment, be subject to
seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by
Participant or any other person, nor be transferable by
operation of law in the event of a Participant's or any
other person's bankruptcy or insolvency.
14.3 Not a Contract of Employment
The terms and conditions of this Plan shall not be deemed
to constitute a contract of employment between the Employer
and the Participant, and the Participant (or his
Beneficiary) shall have no rights against the Employer
except as may otherwise be specifically provided herein.
Moreover, nothing in this Plan shall be deemed to give a
Participant the right to be retained in the service of the
Employer or to interfere with the right of the Employer to
discipline or discharge him at any time.
14.4 Protective Provisions
A Participant will cooperate with the Employer by
furnishing any and all information requested by the
Employer in order to facilitate the payment of benefits
hereunder and by taking such physical examinations as the
Employer may deem necessary and taking such other action as
may be requested by the Employer.
14.5 Terms
Whenever any words are used herein in the masculine, they
shall be construed as though they were used in the feminine
in all cases where they would so apply; and whenever any
words are used herein in the singular or in the plural,
they shall be construed as though they were used in the
plural or the singular, as the case may be, in all cases
where they would so apply.
14.6 Captions
The captions of the articles, sections and paragraphs of
this Plan are for convenience only and shall not control or
affect the meaning or construction of any of its
provisions.
14.7 Governing Law
The provisions of this Plan shall be construed and
interpreted according to the laws of the State of Illinois.
14.8 Validity
In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall
not affect the remaining parts hereof, but this Plan shall
be construed and enforced as if such illegal and invalid
provision had never been inserted herein.
14.9 Notice
Any notice or filing required or permitted to be given to
the Committee under this Plan shall be sufficient if in
writing and hand-delivered, or sent by registered or
certified mail, to
Central Illinois Light Company
Executive Deferral Plan
Administrative Committee
300 Liberty Street
Peoria, Illinois 61602
Such notice shall be deemed given as of the date of
delivery or, if delivery is made by mail, as of the date
shown on the postmark on the receipt for registration or
certification.
14.10Successors
The provisions of this Plan shall bind and inure to the
benefit of the Employer and its successors and assigns.
The term successors as used herein shall include any corpo
rate or other business entity which shall, whether by
merger, consolidation, purchase or otherwise acquire all or
substantially all of the business and assets of the
Employer, and successors of any such corporation or other
business entity.
14.11Hostile Takeover
In the event of a hostile or non-negotiated takeover or
acquisition of an Employer by another corporation or
entity, the benefits to all persons under the Plan may
become fully vested at the option of the Employer prior to
such takeover or acquisition.
14.12Attorney Fees
In the event that the Company breaches any of the terms of
the Plan and it is necessary for a Participant to institute
court proceedings to enforce the Plan provisions, the
Participant, upon prevailing, shall also recover reasonable
attorney's fees and costs as damages from the Company.
14.13Late Payment Penalty
In the event that the Company fails or refuses to make any
of the payments to a Participant or a Beneficiary required
by the Plan, after the Participant or Beneficiary has
advised the Company in writing of such failure or refusal
and has given the Company thirty (30) days to make such
payment, the Company shall pay interest to the Participant
or Beneficiary on the amount of the late payment at the
rate of two times Moody's, plus 10%, from the date such
payment was due until the date such payment is made by the
Company.
14.14Incompetent
In the event that it shall be found upon evidence
satisfactory to the Committee that any Participant or
Beneficiary to whom a benefit is payable under this Plan is
unable to care for his affairs because of illness or
accident, any payment due (unless prior claim therefor
shall have been made by a duly authorized guardian or other
legal representative) may be paid, upon appropriate
indemnification of the Committee, to the spouse of such
person or other person deemed by the Committee to have
incurred expense for such Participant. Any such payment
shall be a payment for the account of the Participant and
shall be a complete discharge of any liability of the Plan
for such payment amount.
Article 15 - Administration
15.1 Committee Duties
This Plan shall be administered by a Committee which shall
consist of persons appointed by the Board of Directors of
the Company. Members of the Committee may be Participants
under this Plan. The Committee shall also have the
authority to make, amend, interpret, and enforce all
appropriate rules and regulations for the administration of
this Plan and decide or resolve any and all questions
including interpretations of this Plan, as may arise in
connection with the Plan.
15.2 Agents
In the administration of this Plan, the Committee may, from
time to time, employ agents and delegate to them such
administrative duties as it sees fit and may from time to
time consult with counsel who may be counsel to the
Employer.
15.3 Binding Effect of Decision
The decision or action of the Committee with respect to any
question arising out of or in connection with the
administration, interpretation and application of the Plan
and the rules and regulations promulgated hereunder shall
be final and conclusive and binding upon all persons having
any interest in the Plan.
15.4 Indemnity of Committee
The Employer shall indemnify and hold harmless the members
of the Committee against any and all claims, loss, damage,
expense or liability arising from any action or failure to
act with respect to this Plan, except in the case of
willful misconduct by the Committee or any of its members.
15.5 Employer Information
To enable the Committee to perform its functions, the
Employer shall supply full and timely information to the
Committee on all matters relating to the Covered Salary of
all Participants, the date and circumstances of the
Retirement, Disability, death or Termination of Employment
of all Participants, and such other pertinent information
as the Committee may reasonably require.
15.6 Change in Payments
The Committee shall have the power, in its sole discretion,
to change the manner and time of payments to be made to a
Participant or Beneficiary from that which would be
otherwise payable to such person.
CENTRAL ILLINOIS LIGHT COMPANY
EXECUTIVE DEFERRAL PLAN II
(EDP II)
December 1, 1989
as amended
January 29, 1996 and
August 17, 1998
ARTICLE 1 - DEFINITIONS 1
ARTICLE 2 - ELIGIBILITY 1
2.1 SELECTION BY COMMITTEE 1
2.2 PLAN AGREEMENT OF EXECUTIVE 1
ARTICLE 3 - DEFERRAL COMMITMENTS 1
3.1 MINIMUM DEFERRAL 1
3.2 MAXIMUM DEFERRAL 1
3.3 DEFERRAL ELECTION 1
3.4 CHANGING DEFERRAL ELECTION 1
3.5 WITHHOLDING OF DEFERRAL AMOUNTS 1
3.6 ANNUAL RATE 1
3.7 DEFERRAL PERIOD 1
3.8 DEFAULT 1
3.9 DEFERRAL PENALTY IN THE EVENT OF DEFAULT 1
3.10 NO WAIVER OF DEFAULT 1
3.11 CREDITING OF DEFERRAL AMOUNTS 1
ARTICLE 4 - 5TH YEAR DISTRIBUTIONS 1
4.1 5TH-YEAR DISTRIBUTION 1
ARTICLE 5 - RETIREMENT BENEFIT 1
5.1 RETIREMENT BENEFIT 1
5.2 RATE OF INTEREST FOR RETIREMENT BENEFITS 1
5.3 COMMENCEMENT OF RETIREMENT BENEFITS 1
5.4 PRE-RETIREMENT PLAN AGREEMENTS 1
5.5 AMOUNT OF RETIREMENT BENEFIT 1
5.6 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFITS 1
ARTICLE 6 - SURVIVOR BENEFITS 1
6.1 SURVIVOR BENEFIT 1
6.2 AMOUNT OF SURVIVOR BENEFITS 1
ARTICLE 7 - TERMINATION BENEFIT 1
7.1 TERMINATION BENEFITS 1
7.2 INVOLUNTARY TERMINATION WITHOUT CAUSE FOLLOWING A
CHANGE IN CONTROL OF CILCORP INC. 1
ARTICLE 8 - DISABILITY BENEFIT 1
8.1 AMOUNT OF DISABILITY BENEFIT 1
ARTICLE 9 - BENEFICIARY DESIGNATION 1
9.1 BENEFICIARY DESIGNATION 1
9.2 CHANGE OF BENEFICIARY DESIGNATION 1
9.3 NO PARTICIPANT DESIGNATION 1
9.4 EFFECT OF PAYMENT 1
ARTICLE 10 - LEAVE OF ABSENCE 1
10.1 PAID LEAVE OF ABSENCE 1
10.2 UNPAID LEAVE OF ABSENCE 1
ARTICLE 11 - OTHER BENEFITS AND AGREEMENTS 1
11.1 COORDINATION WITH OTHER BENEFITS 1
11.2 RESTORATION OF PENSION BENEFITS 1
ARTICLE 12 - DISCONTINUANCE, AMENDMENT OR TERMINATION 1
12.1 DISCONTINUANCE 1
12.2 AMENDMENT 1
12.3 TERMINATION 1
ARTICLE 13 - MISCELLANEOUS 1
13.1 UNSECURED GENERAL CREDITOR 1
13.2 NONASSIGNABILITY 1
13.3 NOT A CONTRACT OF EMPLOYMENT 1
13.4 PROTECTIVE PROVISIONS 1
13.5 TERMS 1
13.6 CAPTIONS 1
13.7 GOVERNING LAW 1
13.8 VALIDITY 1
13.9 NOTICE 1
13.10 SUCCESSORS 1
13.11 ATTORNEY FEES 1
13.12 LATE PAYMENT PENALTY 1
13.13 INCOMPETENT 1
ARTICLE 14 - ADMINISTRATION 1
14.1 COMMITTEE DUTIES 1
14.2 AGENTS 1
14.3 BINDING EFFECT OF DECISION 1
14.4 INDEMNITY OF COMMITTEE 1
14.5 EMPLOYER INFORMATION 1
14.6 CHANGE IN PAYMENTS 1
EXECUTIVE DEFERRAL PLAN II
OF
CENTRAL ILLINOIS LIGHT COMPANY
Purpose
The primary purpose of the Executive Deferral Plan II of
Central Illinois Light Company is to help attract and maintain
high caliber employees in high-level management positions.
Directors, executive officers of the Company and certain other
key employees on the Company's management staff (i.e., elected
officers, department heads, and other key employees reporting to
executive officers) will be allowed to participate in the
Executive Deferral Plan II. Members of the management staff
allowed to participate will be those key employees who, in the
opinion of the administrative committee of the Executive Deferral
Plan II, contribute significantly to the health and wellbeing of
the Company through their leadership and managerial talents and
who occupy management positions of importance in the Company.
Article 1 - Definitions
For purposes hereof, unless otherwise clearly apparent from
the context, the following phrases or terms shall have the
following indicated meanings:
1.1 "Base Annual Salary" shall mean the yearly compensation
excluding bonuses or other fees paid to a Participant for
employment services rendered to the Employer, before
reduction for compensation deferred pursuant to this plan.
1.2 "Beneficiary" shall mean the person, persons, or the entity
designated by the Participant to receive any benefits
payable under this Plan upon the death of a Participant.
Any Participant's Beneficiary designation shall be made by
written instrument filed with the Committee and shall
become effective only when received, accepted and
acknowledged in writing by the Committee.
1.3 "Committee" shall mean the administrative committee
appointed to manage and administer the Plan in accordance
with its provisions pursuant to Article 14.
1.4 "Company" shall mean CENTRAL ILLINOIS LIGHT COMPANY, any
corporation which is, along with the Company, a member of a
controlled group of corporations as described in Section
414(b) of the Internal Revenue Code of 1986, as amended,
and all successor companies thereto.
1.4(a) "Continuing Director" means any member of the Board
of the Company or of its majority shareholder (hereinafter
the "Board"), while such person is a member of the Board,
who was a member of the Board prior to January 29, 1996. A
"Continuing Director" also means any person who
subsequently becomes a member of the Board, while such
person is a member of the Board, if such person's
nomination for election or election to the Board is
recommended or approved by resolution of a majority of the
Continuing Directors.
1.5 "Covered Salary" shall mean a Participant's Base Annual
Salary and bonuses.
1.6 "Deferral Amount" shall mean the amount of Covered Salary
deferred by a Participant pursuant to his election in the
form of a Plan Agreement, or as changed pursuant to Article
3.4 hereof.
1.7 "Deferral Period" shall mean the period during which
amounts of Covered Salary are being deferred pursuant to
the deferral election of the Participant as set forth in
the Participant's Plan Agreement.
1.8 "Disability". A Participant shall be considered totally
disabled by bodily injuries, sickness or disease for
purposes of the Plan for the period, excluding any period
for which he receives benefits under the Company's Sick Pay
Plan, if the Participant is unable to perform the duties of
his occupation.
1.9 "EDP II Account" shall mean an individual account comprised
of a Participant's Deferral Amounts and interest credited
thereon. An EDP II Account shall be maintained for each
Participant. A Participant's EDP II Account shall be
utilized solely as a device for the measurement and
determination of the amounts to be paid to the Participant
pursuant to this Plan. A Participant's EDP II Account
shall not constitute or be treated as a trust fund.
1.10 "Employer" shall mean the Company having one or more
eligible Employees who have been selected by the Committee
to participate. Where the context dictates, the term
"Employer" as used herein refers to the particular Employer
which has entered into a Plan Agreement with a specific
Participant.
1.11 "Executive" shall mean directors and those persons in the
regular full-time employment of the Company who are key
employees and members of the management staff who are
selected for participation in the Plan by the Committee.
1.11(a) "Hostile Takeover" shall mean the acquisition of
beneficial ownership (determined in accordance with Rule
13(d)-3 of the Exchange Act) directly or indirectly, of more
than 30% of the voting power of the outstanding stock of the
Company or its majority shareholder by any person coupled
with or followed by the failure of Continuing Directors to
constitute a majority of the Board."
1.12 "Moody's Seasoned Corporate Bond Rate" (Moody's) shall mean
an economic indicator which is an arithmetic average of
yields of representative Aaa, Aa, and Baa bonds for
industrials and public utilities.
1.13 "Participant" shall mean any Executive who elects to
participate in the Plan by executing a Plan Agreement.
1.14 "Plan" shall mean the Executive Deferral Plan II of the
Employer which shall be evidenced by this instrument and by
each Plan Agreement, as amended from time to time.
1.15 "Plan Agreement" shall mean the form of written agreement,
as amended from time to time, which is entered into by and
between and Employer and a Participant.
1.16 "Plan Anniversary Date" shall be the last day of the Plan
Year.
1.17 "Plan Year" shall mean the 12 consecutive month period
commencing on January I and ending on the next following
December 31.
1.18 "Retirement" and 'Retire' shall mean severance from
employment with the Employer at or after the attainment of
age fifty-five (55).
1.19 "Retirement Benefit Date" shall mean the date that the
Retired Participant first receives Retirement benefits
under the Plan.
1.20 "Termination of Employment" shall mean the ceasing of
employment with the Company, voluntarily or involuntarily,
for any reason other than Retirement, Disability or death.
Article 2 - Eligibility
2.1 Selection By Committee
The Committee shall have the sole discretion to determine
the employees of the Company who are key employees and
members of the management staff who are eligible to become
Participants in accordance with the purpose of the Plan.
The Committee shall also have the sole discretion to
determine the directors of the Company who are eligible to
become Participants.
2.2 Plan Agreement of Executive
As a condition of participation, each Executive shall
complete, execute and return to the Committee prior to the
beginning of the applicable Deferral Period a Plan
Agreement.
Article 3 - Deferral Commitments
3.1 Minimum Deferral
The Participant may defer no less than $1.00 per Plan Year.
3.2 Maximum Deferral
The Participant may defer no more than 100% of Covered
Salary or board fees, as applicable.
3.3 Deferral Election
The Participant may elect to participate in the Plan by
executing a Plan Agreement. If the Participant executes a
Plan Agreement on or before December 15, the Participant's
Deferral Period shall begin on January 1 of the following
Plan Year. However, if a Participant was participating in
the Company's Executive Deferral Plan dated December 1,
1985, the Participant may begin his initial Deferral Period
for this Plan on the December 1 immediately following the
completion of his Deferral Period in that Plan by executing
a Plan Agreement hereunder by December 1 of that year.
3.4 Changing Deferral Election
A Participant may change his Deferral Amount for any
following Plan Year by providing the Employer with written
notice of such change by December 15.
3.5 Withholding of Deferral Amounts
The amount or percentage of Covered Salary elected to be
deferred pursuant to the Plan Agreement of a Participant
shall be withheld over the Deferral Period in the manner set
forth in the Plan Agreement of the Participant.
3.6 Annual Rate
The Moody's rate for any Plan Year shall be fixed 90 days
prior to the beginning of the Plan Year. Subject to the
provisions and limitations of the Plan, the EDP II Account
will accrue annual interest at a crediting rate of Moody's.
Interest shall accrue monthly on a Participant's EDP II
Account balance.
3.7 Deferral Period
The Deferral Period for each Participant shall be that
individual's full time employment term, or directorship,
with the Company.
3.8 Default
Default occurs when the Participant does not defer the
amount of Covered Salary previously committed to the Plan
under that Participant's Plan Agreement.
3.9 Deferral Penalty In the Event of Default
In the event of default by a Participant on a deferral
commitment during the Deferral Period, the Participant may
not defer any portion of his Covered Salary for the balance
of the Plan Year in which the default occurs or for the next
following Plan Year.
3.10 No Waiver of Default
The Committee may not waive any default penalty set forth in
Section 3.9.
3.11 Crediting of Deferral Amounts
The amount or percentage of Covered Salary that a
Participant elects to defer in the Plan Agreement executed
by the Participant with respect to each Plan Year shall be
credited by the Employer to the Participant's EDP II Account
throughout each Plan Year as the Participant is paid the
nondeferred portion of Covered Salary for such Plan Year.
The amount or percentage of Covered Salary so credited to a
Participant's EDP II Account shall equal the amount
deferred. The Participant shall designate in the Plan
Agreement the percentage of Covered Salary to be deferred.
Article 4 - 5th Year Distributions
4.1 5th-Year Distribution
A Participant may elect in writing, at the time of the
execution of his Plan Agreement, to receive a distribution
of all, or any percentage, of his EDP II Account, as it
exists as of the distribution date, on January 15, 1995,
January 15, 2000,January 15, 2005 and January 15, 2010. All
other funds in the EDP II Account will remain in the Plan
until the Participant dies, incurs a Disability, Retires or
incurs a Termination of Employment.
Article 5 - Retirement Benefit
5.1 Retirement Benefit
A Participant who Retires shall become eligible to receive,
in accordance with this Article 5, an amount per month based
on his EDP II Account as of the Participant's Retirement
Benefit Date. The Retirement Benefit Date of a Participant
who Retires shall be the first day of the month following
his Retirement.
5.2 Rate of Interest for Retirement Benefits
The interest on the EDP II Account, for purposes of
calculating the retirement benefit, will be based on a fixed
rate which is an average of the annual Moody's Seasoned
Corporate Bond Rate for a five (5) year period consisting of
the Plan Year in which the Participant's Retirement Benefit
Date occurs and the four (4) immediately preceding Plan
Years.
5.3 Commencement of Retirement Benefits
Unless otherwise provided pursuant to a Pre-Retirement Plan
Agreement as provided in Section 5.4, Retirement benefit
payments of a Participant shall commence on the first day of
the month following the Retirement of the Participant and
shall be paid at the Participant's election in a lump sum or
in equal monthly payments, not to exceed 240 months,
pursuant to the election made by the Participant at the time
of the execution of his Plan Agreement. Not less than
thirty (30) days before his Retirement, the Participant must
inform the Committee in writing of any desired change in the
benefit payment period over which his benefits are to be
paid. If no change in the election is timely made, the Plan
will pay benefits pursuant to the Participant's Plan
Agreement election.
5.4 Pre-Retirement Plan Agreements
A Participant may enter into a Pre-Retirement Plan Agreement
whereby the Participant and the Employer agree to a change
of the time period over which such benefits are to be paid.
The Pre-Retirement Plan Agreement must be executed by the
Participant in writing in a form acceptable to the Company
not less than 30 days prior to the Participant's Retirement.
Retirement benefit payments which are changed by reason of a
Pre-Retirement Agreement shall be paid to the Participant
commencing on the first day of the month following the
Retirement of the Participant pursuant to the terms of the
Pre-Retirement Plan Agreement (the Retirement Benefit Date)
in a lump sum or in equal monthly payments, not to exceed
240 months, as selected by the Participant.
5.5 Amount of Retirement Benefit
A Participant's Retirement benefits shall be equal to the
balance of his EDP II Account as of his Retirement Benefit
Date plus interest thereon at the rate set forth in Article
5.2 hereof on any undistributed balance.
5.6 Death Prior to Completion of Retirement Benefits
If a Retired Participant dies after the commencement of
Retirement benefit payments, but before the applicable
Retirement benefit is paid in full, the Participant's unpaid
Retirement benefit payments shall continue and shall be paid
to the Participant's Beneficiary in the same manner as
selected by the Participant.
Article 6 - Survivor Benefits
6.1 Survivor Benefit
If a Participant dies before the commencement of Retirement
benefit payments, the Employer will pay a Survivor's Benefit
to the designated Beneficiary of the Participant.
6.2 Amount of Survivor Benefits
The Beneficiary eligible for a Survivor Benefit will receive
in a lump sum as soon as practicable the existing EDP II
Account balance.
Article 7 - Termination Benefit
7.1 Termination Benefits
If the Participant incurs a Termination of Employment, by
means other than Retirement, Disability or death, such
Participant shall receive in a lump sum his EDP II Account.
Such amount shall be paid to the Participant within 90 days
of the date of his Termination of Employment
7.2 Involuntary Termination Without Cause Following A Change in
Control of CILCORP Inc.
a. A Participant who incurs a Termination of Employment
involuntarily and other than for Cause within two years after a
Change in Control of CILCORP Inc. will be eligible to make an
irrevocable election to receive either a termination benefit as
set forth in this Article 7 or retirement benefits as provided at
Article 5, as if the Participant retired from the Company.
b. If, at the time of a Termination of Employment, a
Participant elects to receive a termination benefit in the form
of a lump sum payment, such payment shall be made to the
Participant no earlier than 60 days from the date the Participant
made an irrevocable election provided for under this Section 7.2
(a).
c. The following definitions shall be applicable to the terms
used in this Section 7.2:
i. "Change in Control" shall be deemed to have
occurred:
(a) if CILCORP Inc. ("CILCORP") merges or consolidates with or
into another corporation in a transaction in which neither
CILCORP nor any member of a controlled group of corporations as
defined in Article I, Section 1.4 is the surviving corporation;
or upon a sale or other disposition of all or substantially all
of CILCORP's assets to any corporation, person, other entity or
group (other than to an entity whose stock is owned or
controlled by CILCORP or any qualified or non-qualified plan
maintained by CILCORP or an affiliate); or
(b) if any corporation, person, other entity or group (other
than CILCORP or any affiliate) becomes the Beneficial Owner (as
defined in CILCORP's Articles of Incorporation) of 30% or more
of the voting stock of CILCORP; or
(c) if, during any period of two consecutive years, Continuing
Directors, as hereinafter defined, cease to comprise a majority
of CILCORP's Board of Directors. Continuing Directors are:
(i) Members of the Board of Directors of CILCORP at the
beginning of such period of two consecutive years; and
(ii) Any person who subsequently becomes a member of the Board
of Directors if such person's nomination for election or
election to the Board of Directors of CILCORP is
recommended or approved by resolution of a majority of
the Continuing Directors or such
person is included as a nominee in a proxy statement
of CILCORP distributed when a majority of the Board of
Directors of CILCORP consists of Continuing Directors.
ii. "Cause" shall mean:
(a) the Participant has willfully and continually failed to
perform substantially his/her duties with the Company other
than such failure resulting from disability (as herein
defined), after a written demand for substantial performance
is delivered to the Participant by his/her supervisor which
specifically identifies
the manner in which the supervisor believes that the
Participant has not substantially performed his/her duties; or
(b) the Participant's willfully engaging in illegal conduct or
gross misconduct which his/her supervisor believes is
materially and demonstrably injurious to the Company.
For purposes of this definition, no act or failure
to act on the Participant's part shall be considered
"willful" unless it is done, or omitted to be done,
by the Participant in bad faith or without
reasonable belief that his/her action or omission
was in the best interests of the Company. Any act
or failure to act, based on authority given pursuant
to a resolution duly adopted by the Board or on the
instructions of the CEO or a senior officer of the
Company or based on the advice of counsel for the
Company shall be conclusively presumed to be done,
or omitted to be done, by the Participant in good
faith and in the best interests of the Company.
Article 8 - Disability Benefit
8.1 Amount of Disability Benefit
If the Committee determines that a Participant has a
Disability, the Participant shall receive in a lump sum his
EDP II Account. Such amount shall be paid to the
participant within 90 days of the date that the Committee
determines that the Participant is disabled.
Article 9 - Beneficiary Designation
9.1 Beneficiary Designation
Each Participant shall have the right, at any time, to
designate any person or persons as his Beneficiary or
Beneficiaries (both principal as well as contingent).
9.2 Change of Beneficiary Designation
Any Beneficiary designation may be changed by a Participant
at any time by the filing in writing of such change on a
form prescribed by the Committee. The filing of a new
Beneficiary designation form will cancel all Beneficiary
designations previously filed. The Committee shall be
entitled to rely on the last designation filed by the
Participant prior to his death.
9.3 No Participant Designation
If a Participant fails to designate a Beneficiary as
provided above, or if all designated Beneficiaries
predecease the Participant or die prior to complete
distribution of the Participant's benefits, then the
Participant's designated Beneficiary shall be deemed to be
the surviving spouse. If the Participant has no surviving
spouse, the benefits remaining under the Plan shall be
payable to the Participant's personal representative
(executor or administrator of the Participant's estate).
9.4 Effect of Payment
The payment of benefits under the Plan to the deemed
Beneficiary shall completely discharge the Employer's
obligations under this Plan.
Article 10 - Leave of Absence
10.1 Paid Leave of Absence
If a Participant is authorized by the Company for any reason
to take a paid leave of absence from the employment of the
Company, the Deferral Amount for the Deferral Period shall
remain in full force and effect during such leave of
absence.
10.2 Unpaid Leave of Absence
If a Participant is authorized by the Company for any reason
to take an unpaid leave of absence from the employment of
the Company, the Deferral Amount shall be suspended and
shall be considered a Default pursuant to Section 3.8.
Article 11 - Other Benefits and Agreements
11.1 Coordination With Other Benefits
The benefits provided for a Participant or for the
Beneficiary of a Participant under the Plan are in addition
to any other benefits to which the Participant or
Beneficiary may be entitled under any other plan or program
of the Employer. This Plan shall supplement and shall not
supersede, modify or amend any other such plan or program
except as may otherwise be expressly provided.
11.2 Restoration of Pension Benefits
The Company recognizes that amounts deferred under the Plan
may not be considered as earnings for purposes of the
computation of benefits under qualified plans under the
Employee Retirement Income Security Act of 1974, as amended,
and the Internal Revenue Code of 1986, as amended.
Therefore, any loss of retirement benefits incurred by a
Participant under the Pension Plan for Management, Office &
Technical Employees of Central Illinois Light Company, as
may be amended and restated from time to time (the "Pension
Plan"), which result from deferrals made under the Plan by
the Participant, shall be restored by the Company upon the
Retirement of a Participant or upon the Termination of
Employment of a Participant prior to Retirement. Such
pension restoration benefit payments may be paid from this
Plan or, in the sole discretion of the Committee, may be
paid through an alternate vehicle. Such pension restoration
benefits shall be in an amount designed to restore the
benefits, if any, that were lost under the Pension Plan due
to the deferral under this Plan, and the timing and other
characteristics of the pension restoration benefit payments
shall coincide as closely as practicable to benefit payments
which would otherwise have been made under the Pension Plan.
Article 12 - Discontinuance, Amendment or Termination
12.1 Discontinuance
The Company reserves the right to discontinue the Plan at
any time. Upon discontinuance of the Plan, the
Participants' EDP II Accounts shall be paid out according to
the Plan. The discontinuance of the Plan shall not
adversely affect any Participant or Beneficiary who has
become entitled to the payment of benefits under the Plan.
12.2 Amendment
The Company may, at any time, amend or modify the Plan in
whole or in part, provided, however, that no amendment or
modification shall adversely affect any EDP II Account in
existence at the time the amendment or modification is made.
The amendment or modification of the Plan shall not affect
any Participant or Beneficiary who has become entitled to
the payment of benefits under the Plan as of the date of the
amendment or modification.
12.3 Termination
The Company reserves the right, in the event of a hostile or
nonnegotiated takeover or acquisition of the Company, or
upon a final decision of any court or administrative agency
pertaining to the income tax treatment of Plan benefits or
deductions to the Company or a Participant which is deemed
adverse by the Company, to terminate the Plan and to
distribute the Participants' EDP II Accounts to them as soon
as practicable thereafter.
Article 13 - Miscellaneous
13.1 Unsecured General Creditor
Participants and their Beneficiaries, heirs, successors and
assigns shall have no legal or equitable rights, interest or
claims in any property or assets of Employer, nor shall they
be Beneficiaries of, or have any rights, claims or interests
in any life insurance policies, annuity contracts or the
proceeds therefrom owned or which may be acquired by the
Employer ("Policies"). Such Policies or other assets of the
Employer shall not be held under any trust for the benefit
of Participants, their Beneficiaries, heirs, successors or
assigns, or held in any way as collateral security for the
fulfilling of the obligations of the Employer under this
Plan. Any and all of the Employer's assets and Policies
shall be, and remain, the general assets of the Employer.
The Employer's obligation under the Plan shall be merely
that of an unfunded and unsecured promise of the Employer to
pay money in the future.
13.2 Nonassignability
Neither a Participant nor any other person shall have any
right to commute, sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, transfer,
hypothecate or convey in advance of actual receipt, the
amounts, if any, payable hereunder, or any part thereof,
which are, and all rights to which are, expressly declared
to be unassignable and nontransferable. No part of the
amounts payable shall, prior to actual payment, be subject
to seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by
Participant or any other person, nor be transferable by
operation of law in the event of a Participant's or any
other person's bankruptcy or insolvency.
13.3 Not a Contract of Employment
The terms and conditions of this Plan shall not be deemed to
constitute a contract of employment between the Employer and
the Participant, and the Participant (or his Beneficiary)
shall have no rights against the Employer except as may
otherwise be specifically provided herein. Moreover,
nothing in this Plan shall be deemed to give a Participant
the right to be retained in the service of the Employer or
to interfere with the right of the Employer to discipline or
discharge him at any time.
13.4 Protective Provisions
A Participant will cooperate with the Employer by furnishing
any and all information requested by the Employer in order
to facilitate the payment of benefits hereunder and by
taking such physical examinations as the Employer may deem
necessary and taking such other action as may be requested
by the Employer.
13.5 Terms
Whenever any words are used herein in the masculine, they
shall be construed as though they were used in the feminine
in all cases where they would so apply; and whenever any
words are used herein in the singular or in the plural, they
shall be construed as though they were used in the plural or
the singular, as the case may be, in all cases where they
would so apply.
13.6 Captions
The captions of the articles, sections and paragraphs of
this Plan are for convenience only and shall not control or
affect the meaning or construction of any of its provisions.
13.7 Governing Law
The provisions of this Plan shall be construed and
interpreted according to the laws of the State of Illinois.
13.8 Validity
In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall
not affect the remaining parts hereof, but this Plan shall
be construed and enforced as if such illegal and invalid
provision had never been inserted herein.
13.9 Notice
Any notice or filing required or permitted to be given to
the Committee under this Plan shall be sufficient if in
writing and hand-delivered, or sent by registered or
certified mail, to
Central Illinois Light Company
Executive Deferral Plan II
Administrative Committee
300 Liberty Street
Peoria, Illinois 61602
Such notice shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification.
13.10Successors
The provisions of this Plan shall bind and inure to the
benefit and detriment of the Employer and its successors and
assigns. The term successors as used herein shall include
any corporate or other business entity which shall, whether
by merger, consolidation, purchase or otherwise acquire all
or substantially all of the business and assets of the
Employer, and successors of any such corporation or other
business entity.
13.11Attorney Fees
In the event that the Company breaches any of the terms of
the Plan and it is necessary for a Participant to institute
court proceedings to enforce the Plan provisions, the
Participant, upon prevailing, shall also recover reasonable
attorney's fees and costs as damages from the Company.
13.12Late Payment Penalty
In the event that the Company fails or refuses to make any
of the payments to a Participant or a Beneficiary required
by the Plan, after the Participant or Beneficiary has
advised the Company in writing of such failure or refusal
and has given the Company thirty (30) days to make such
payment, the Company shall pay interest to the Participant
or Beneficiary on the amount of the late payment at the rate
of two times Moody's from the date such payment was due
until the date such payment is made by the Company.
13.13Incompetent
In the event that it shall be found upon evidence
satisfactory to the Committee that any Participant or
Beneficiary to whom a benefit is payable under this Plan is
unable to care for his affairs because of illness or
accident, any payment due (unless prior claim therefor shall
have been made by a duly authorized guardian or other legal
representative) may be paid, upon appropriate
indemnification of the Committee, to the spouse of such
person or other person deemed by the Committee to have
incurred expense for such Participant. Any such payment
shall be a payment for the account of the Participant and
shall be a complete discharge of any liability of the Plan
for such payment amount.
Article 14 - Administration
14.1 Committee Duties
This Plan shall be administered by a Committee which shall
consist of persons appointed by the Board of Directors of
the Company. Members of the Committee may be Participants
under this Plan. The Committee shall also have the
authority and discretion to make, amend, interpret, and
enforce all appropriate rules and regulations for the
administration of this Plan and decide or resolve any and
all questions including interpretations of this Plan and the
calculation of benefits, as may arise in connection with the
Plan.
14.2 Agents
In the administration of this Plan, the Committee may, from
time to time, employ agents and delegate to them such
administrative duties as it sees fit and may from time to
time consult with counsel who may be counsel to the
Employer.
14.3 Binding Effect of Decision
The decision or action of the Committee with respect to any
question arising out of or in connection with the
administration, interpretation and application of the Plan
and the rules and regulations promulgated hereunder shall be
final and conclusive and binding upon all persons having any
interest in the Plan.
14.4 Indemnity of Committee
The Employer shall indemnify and hold harmless the members
of the Committee against any and all claims, loss, damage,
expense or liability arising from any action or failure to
act with respect to this Plan, except in the case of willful
misconduct by the Committee or any of its members.
14.5 Employer Information
To enable the Committee to perform its functions, the
Employer shall supply full and timely information to the
Committee on all matters relating to the Covered Salary of
all Participants, the date and circumstances of the
Retirement, Disability, death or Termination of Employment
of all Participants, and such other pertinent information as
the Committee may reasonable require.
14.6 Change in Payments
The Committee shall have the power, in its sole discretion,
to change the manner and time of payments to be made to a
Participant or Beneficiary from that which would be
otherwise payable to such person.
CENTRAL ILLINOIS LIGHT COMPANY
BENEFIT REPLACEMENT PLAN
(Effective January 1, 1991)
Amended Effective November 12, 1998
CENTRAL ILLINOIS LIGHT COMPANY
BENEFIT REPLACEMENT PLAN
(Amended Effective November 12, 1998)
TABLE OF CONTENTS
Article I. Establishment and Construction
1.1 The Plan and its Effective Date 1
1.2 Purpose 1
1.3 Application of the Plan 1
Article II. Definitions and Construction
2.1 Definitions 2
2.2 Gender and Number 6
2.3 Severability 6
2.4 Applicable Law 6
Article III. Participation
3.1 Eligibility 7
3.2 Participation in the Plan 7
Article IV. Benefits
4.1 Benefits 8
4.2 Vesting 9
4.3 Timing and Form of Retirement Benefits 9
4.4 Death Benefits 10
Article V. Financing
5.1 Unfunded Plan 12
5.2 Grantor Trust 12
5.3 Unsecured Interest 12
5.4 Nonalienation 12
Article VI. Administration
6.1 Administration 13
6.2 No Enlargement of Employee Rights 13
6.3 Appeals from Denial of Claim 13
6.4 Notice of Address and Missing Persons 14
6.5 Data and Information for Benefits 15
6.6 Indemnity for Liability 15
6.7 Tax Liability 15
CENTRAL ILLINOIS LIGHT COMPANY
BENEFIT REPLACEMENT PLAN
TABLE OF CONTENTS
(Continued)
Article VII. Amendment and Termination
7.1 Amendment 17
7.2 Termination 17
7.3 Change in Control 17
Article VIII. Participation in and Withdrawal
from the Plan by an Employer
8.1 Participation in the Plan Withdrawal from the Plan 18
8.2 Withdrawal from the Plan 19
CENTRAL ILLINOIS LIGHT COMPANY
BENEFIT REPLACEMENT PLAN
(Amended Effective November 12, 1998)
Article I. Establishment and Construction
1.1 The Plan and its Effective Date. The CENTRAL ILLINOIS
LIGHT COMPANY BENEFIT REPLACEMENT PLAN (the "Plan") is hereby
established by Central Illinois Light Company (the "Company")
effective January 1, 1991.
1.2 Purpose. The purpose of the Plan is to provide each
Eligible Employee of the Employer with additional retirement
income that, when combined with retirement benefits payable from
the Pension Plan For Management, Office and Technical Employees
of Central Illinois Light Company ("MOT Plan"), will equal the
retirement benefit such Eligible Employee would have received if
he continued to accrue benefits under the MOT Plan through the
date of his actual retirement, but without regard to(a)the
limitations imposed under Code sections 415 and 401(a)(17), or
(b) the exclusion of amounts deferred under the Central Illinois
Light Company Executive Deferral Plan and the Central Illinois
Light Company Executive Deferral Plan II (collectively "EDP
Plans"), and the Central Illinois Light Company Deferred
Compensation Stock Plan from the definition of "Earnings" under
the MOT Plan.
1.3 Application of the Plan. The provisions of this Plan are
applicable only to those Eligible Employees who, on or after
January 1, 1991, are either (a) in the active employ of the
Employer or (b) retired key management and executive staff who
are receiving or who are eligible to receive benefit payments
under the EDP Plans. Any other Eligible Employee who retired or
whose active employment relationship with the Employer was
terminated prior to January 1, 1991 shall not be covered under
this Plan.
Article II. Definitions and Construction
2.1 Definitions. The terms used in this Plan shall have the
same meaning set forth below, except as otherwise indicated
herein. The definition of any term in the singular shall also
include the plural.
(a) "Actuarial Equivalent" means a benefit having the same
value as the benefit which it replaces, computed on the
basis of the factors specified in the definition of
"Actuarial Equivalent" in the MOT Plan.
(b) "Affiliate" means any subsidiary or affiliated or
associated corporation of the Company that is an
"Affiliate" within the meaning of that term in the MOT
Plan.
(c) "Average Monthly Earnings" means "Average Monthly
Earnings" as defined under the MOT Plan.
(d) "Change in Control" means the occurrence of any of the
following:
(1) the sale or transfer of the business of the
Company or a Unit of the company to a person or
entity not controlled, directly or indirectly, by
CILCORP, whether such sale of the business of the
Company or a Unit of the company, as the case may
be, is effected through the (A) sale, directly or
indirectly, of the voting stock of the Company,
(B)merger or consolidation of the company,
(C)sale, lease, exchange, or transfer of all or
substantially all of the assets of the company or
of a Unit of the Company, or (D) a combination of
the foregoing;
(2) a merger or consolidation of CILCORP with one or
more corporations, as a result of which CILCORP is
not the surviving corporation or pursuant to which
substantially all shares of CILCORP's common stock
are converted into cash, securities, or other
property;
(3) the acquisition of beneficial ownership, directly or
indirectly, of more than 30 percent of the voting power of the
outstanding stock of CILCORP by any "Person" (as such term is
used in Section 13(d) of the Securities Exchange Act of 1934, as
amended, and as in effect on the date of adoption of the Plan)
coupled with or followed by the failure of Continuing Directors
to constitute a majority of the board of directors of CILCORP; or
(4) the sale, lease, exchange, or transfer of all or
substantially all the assets of CILCORP;
provided, however, that the term "Change in Control"
shall not apply to any merger, consolidation, internal
reorganization, or recapitalization of CILCORP
initiated voluntarily by CILCORP in which Continuing
Directors constitute a majority of the members of the
board of directors of CILCORP or any successor thereto
and the holders of CILCORP's common stock immediately
prior to the merger have the same proportionate
ownership of common stock of the surviving corporation
after the merger.
(e) "CILCORP" means CILCORP Inc., an Illinois corporation,
and any successor thereto.
(f) "Code" means the Internal Revenue Code of 1986, as
amended.
(g) "Company" means the Central Illinois Light Company, an
Illinois corporation, and any successor thereto.
(h) "Continuing Director" means any member of the board of
directors of CILCORP, while such person is a member of
such board of directors, who was a member of such board
of directors prior to the date of adoption of this
Plan. A "Continuing Director" also means any person
who subsequently becomes a member of the board of
directors of CILCORP, while such person is a member of
such board of directors, if such person's nomination
for election or election to such board of directors is
recommended or approved by resolution of a majority of
the Continuing Directors.
(i) "Deferred Compensation Stock Plan" means the Central
Illinois Light Company Deferred Compensation Stock
Plan.
(j) "EDP Plans" means, individually or collectively (as the
context requires), the Central Illinois Light Company
Executive Deferral Plan and the Central Illinois Light
Company Executive Deferral Plan II.
(k) "Effective Date" means January 1, 1991.
(l) "Eligible Employee" means--
(1) an employee of the Employer who is in a select
group of management or highly compensated
employees, participates in the MOT Plan, and has
his benefits limited under the MOT Plan by:
(A) the limits under Code section 415 or
401(a)(17); or
(B) the "Earnings" definition which excludes
deferrals under the EDP Plans or the Deferred
Compensation Stock Plan;
and is designated as an Eligible Employee by the
Employer's board of directors;
(2) any retired key management and executive employee
of the Employer who, as of the Effective Date, is
receiving or is eligible to receive benefit
payments under the EDP Plans; and
(3) any other highly compensated, key employee
of the Employer's management staff who may be
designated, from time to time, by the Employer's
board of directors.
(m) "Employer" means the Company and any Affiliate that,
with the consent of the Company, has adopted the MOT
Plan and this Plan for the benefit of its Eligible
Employees.
(n) "Grantor Trust Agreement" means an agreement
establishing a grantor trust referred to in section
5.2.
(o) "MOT Plan" means the Pension Plan for Management,
Office and Technical Employees of Central Illinois
Light Company.
(p) "Participant" means an Eligible Employee of the
Employer who meets the participation requirements set
forth in section 3.1.
(q) "Plan" means the Central Illinois Light Company
Benefit Replacement Plan.
(r) "Plan Year" means the calendar year.
(s) "Service" means "Service" as defined under the MOT
Plan.
(t) "Trustee" means the trustee or trustees of a
Grantor Trust.
(u) "Unit of the Company" means an organizational
department of the Company as may be so designated from
time to time on the official organizational chart of
the Company.
2.2 Gender and Number. Except when otherwise indicated by
the context, words in the masculine gender shall include the
feminine and neuter genders; the plural shall include the
singular and the singular shall include the plural.
2.3 Severability. In the event any provision of the Plan
shall be held invalid or illegal for any reason, any illegality
or invalidity shall not affect the remaining parts of the Plan,
but the Plan shall be construed and enforced as if the illegal or
invalid provision had never been inserted, and the Company shall
have the privilege and opportunity to correct and remedy such
questions of illegality or invalidity by amendment as provided in
the Plan.
2.4 Applicable Law. The Plan shall be governed and construed
in accordance with the laws of the State of Illinois to the
extent not superseded by the laws of the United States.
Article III. Participation
3.1 Eligibility. An Eligible Employee of the Employer
shall become a Participant if benefits under the MOT Plan are
limited, on or after the Effective Date, due to any of the
following limitations:
(a) Limit on Compensation under Code Section 401(a)(17).
The Eligible Employee's benefits under the MOT Plan are
limited to ensure compliance with Code section
401(a)(17).
(b) Limit on Accruals under Code Section 415. The Eligible
Employee's benefits under the MOT Plan are limited to
ensure compliance with Code section 415.
(c) Limit on "Earnings" Considered under the MOT Plan. The
Eligible Employee's Average Monthly Earnings under the
MOT Plan are limited because (1) the Eligible Employee
participates in the MOT Plan and in the EDP Plans or
the Deferred Compensation Stock Plan, and (2)
"Earnings" under the MOT Plan formula is defined to
exclude deferrals made under the EDP Plans or the
Deferred Compensation Stock Plan, thus reducing Average
Monthly Earnings.
3.2 Participation in the Plan. An Eligible Employee shall
become a Participant as of the later of--
(a) the first day as of which it is determined that his
benefit under the MOT Plan, which would be payable at
or after the earliest date on which he could receive a
retirement benefit under the MOT Plan, is limited by
the limitations described in section 3.1; or
(b) the Effective Date.
Article IV. Benefits
4.1 Benefits. When a Participant's benefits under the MOT
Plan are limited in accordance with the limits described in
section 3.1(a),(b), or (c) for Plan Years beginning on or after
January 1, 1991, this Plan shall provide a benefit determined as
follows:
(a) General Rule. This Plan shall provide a benefit equal
to the excess of (1) over (2) below:
(1) The benefit which, but for the limitations
described in section 3.1(a), (b), or (c) of this
Plan, would have been provided under the MOT Plan,
calculated as of the determination date and
payable at the time and in the form payable
pursuant to section 4.3.
(2) The benefit which has actually been provided under
the MOT Plan, calculated as of the determination
date, and expressed as a benefit payable at the
time and in the form payable pursuant to section
4.3.
(b) Exception. Notwithstanding the foregoing, if payment of
the Participant's benefit under the MOT Plan
commences prior to the date his benefit under this Plan
is made or commences, this Plan shall provide a benefit
equal to the sum of (1) and (2) below:
(1) The amount determined as described in (a) above as
if the Participant had elected, pursuant to
section 4.3 of this Plan, the same benefit
commencement date as he elected under the MOT Plan
(the MOT Plan benefit commencement date).
(2) An annuity which is payable at the time actually
elected pursuant to section 4.3 (this Plan's
benefit commencement date) and in the form elected
pursuant to section 4.3 and which is the Actuarial
Equivalent of the benefits which would have been
paid under this Plan between the MOT Plan benefit
commencement date and this Plan's
benefit commencement date, had the Participant
elected, pursuant to section 4.3 of this Plan, to
commence receiving benefits under this Plan on the
MOT Plan benefit commencement date.
4.2 Vesting. A Participant who completes at least five years
of Service for purposes of vesting under the MOT Plan shall
be fully vested in his benefit under this Plan. In addition, a
Participant who attains age 65 while employed by an Employer
shall be fully vested in his benefit under this Plan. Subject to
the special Service rules for rehired Participants, any other
Participant shall forfeit his benefit upon termination of
employment with the Employer.
4.3 Timing and Form of Retirement Benefits. No payments
shall be made to a Participant under this Plan prior to the
Participant's termination of employment with the Company and all
Affiliates. After such termination of employment, benefits under
section 4.1 shall become payable, at the Participant's election,
in one of the forms available to the Participant under the MOT
Plan, equal to the Actuarial Equivalent of his benefit under this
Plan; provided, however, that upon becoming a Participant (or as
soon as practicable after it is ascertained that he is a
Participant) he shall elect-
(a) the form in which his benefits under this Plan will be
paid if he is married on the date as of which such
benefits become payable; and
(b) the form in which his benefits under this Plan will be
paid if he is unmarried on the date as of which such
benefits become payable.
For purposes of the preceding sentence-
(1) If the Participant is married at the time he elects the
form of payment under this Plan, the normal form of
payment if he is married when his benefits under this
Plan become payable shall be a joint and 100 percent
spouse's annuity determined on the same basis as the
annuity described in section 4.7(b) of the MOT Plan,
and his spouse's consent, as described in section
4.9(a) of the MOT Plan, shall be required for the
Participant to reject such joint and 100 percent
spouse's annuity;
(2) At the time he elects the form of payment under this
Plan, the Participant shall elect the date as of which
such payment will be made or commence, provided that
(A) such date shall not be before the earliest date as
of which the Participant can begin receiving benefit
payments under the MOT Plan and (B) such payment will
not commence before the Participant's employment with
the Employer is terminated;
(3) Once the Participant has elected the timing of his
benefit payments as described in this section 4.3, he
shall not be permitted to change such election;
(4) Once the Participant has elected the form of his
benefit payments as described in this section 4.3, he
shall not be permitted to change such election,
provided that if his final election on form of payment
made pursuant to sections 4.7, 4.8, and 4.9 of the
MOT Plan differs from his election on form of payment
made pursuant to the preceding provisions of this
section 4.3, his election pursuant to this section 4.3
shall automatically be changed to match said final
election under the MOT Plan; and
(5) Notwithstanding the preceding provisions of this
section 4.3, no election will be available to any
Participant who is a retired employee described in
section 2.1(1)(2); instead, such Participant's benefits
under this Plan shall be payable in the same form and
at the same times as the benefits the Participant was
receiving under the MOT Plan immediately prior to the
Effective Date.
4.4 Death Benefits. Upon the death of a Participant
(including a Participant who has suffered a Disability) before
payment of his benefits under this Plan has commenced, if the
Participant leaves a surviving spouse to whom he had been
continuously married for the one-year period ending on the date
of his death, this Plan shall provide a benefit to such spouse
equal to the excess of (a) over (b), where--
(a) is the monthly benefit which would have been payable
for the life of the surviving spouse under section 4.6
of the MOT Plan, but for the limitations described in
section 3.1(a), (b), and (c) of this Plan; and
(b) is the monthly benefit actually payable for the life of
the surviving spouse under section 4.6 of the MOT Plan.
Benefit payments under this section 4.4 shall commence as of the
earliest date on which the surviving spouse is entitled to
receive benefit payments under section 4.6 of the MOT Plan,
regardless of the date on which the spouse actually begins to
receive payments under said section 4.6. The amount of such
payments shall be adjusted for the timing of the payments, in
accordance with Article IV of the MOT Plan.
Article V. Financing
5.1 Unfunded Plan. Except as otherwise provided pursuant
to section 5.2, the benefits under this Plan shall be paid in
cash out of the general assets of the Company.
5.2 Grantor Trust. Notwithstanding section 5.1, the
Company and each other Employer may establish a trust for the
purpose of accumulating assets to assist it in fulfilling its
obligations under the Plan, provided that--
(a) such trust shall be a "grantor trust" with the result
that the corpus and income of the trust be treated as
assets and income of the Employer pursuant to sections
671 through 679 of the Code; and
(b) the Plan shall be an "unfunded plan" within the meaning
of that term under the Code and the Employee Retirement
Income Security Act of 1974 as amended.
5.3 Unsecured Interest. No Participant hereunder shall
have any interest whatsoever in any specific asset of the
Employer. To the extent that any person acquires a right to
receive payments under this Plan, such right shall be no greater
than the right of any unsecured general creditor of the Employer.
5.4 Nonalienation. Except as otherwise provided by law, no
Participant entitled to receive benefits in accordance with the
provisions hereof shall have power to sell, assign, transfer,
pledge, or mortgage the benefits so payable to the Participant,
nor shall benefits be subject to levy, sale, seizure, attachment,
garnishment, or any other judicial process issued by or on behalf
of any creditor of a Participant.
Article VI. Administration
6.1 Administration. The Company shall be responsible for
the administration of the Plan. The Company shall have all such
powers as may be necessary to carry out the provisions hereof and
may, from time to time, establish rules for the administration of
the Plan and the transaction of the Plan's business. The Company
shall have the exclusive right to make any finding of fact
necessary or appropriate for any purpose under the Plan
including, but not limited to, the determination of the eligi
bility for and the amount of any benefit payable under the Plan.
The Company shall have the exclusive right to interpret the terms
and provisions of the Plan and to determine any and all questions
arising under the Plan or in connection with the administration
thereof, including, without limitation, the right to remedy or
resolve possible ambiguities, inconsistencies, or omissions, by
general rule or particular decision. The Company shall make, or
cause to be made, all reports or other filings, if any, necessary
to meet the reporting and disclosure requirement of ERISA. To
the extent permitted by law, all findings of fact, determin
ations, interpretations, and decisions of the Company shall be
conclusive and binding upon all persons having or claiming to
have any interest or right under the Plan.
6.2 No Enlargement of Employee Rights. Nothing contained in
the Plan shall be deemed to give any employee the right to be
retained in the service of the Employer or to interfere with the
right of the Employer to discharge or retire any employee at any
time.
6.3 Appeals from Denial of Claim. If any claim for benefits
under the Plan is wholly or partially denied, the claimant
shall be given notice in writing within a reasonable period of
time after receipt of the claim by the Plan (not to exceed 90
days after receipt of the claim or, if special circumstances
require an extension of time, written notice of the extension
shall be furnished to the claimant and an additional 90 days will
be considered reasonable) by registered or certified mail of such
denial, written in a manner calculated to be understood by the
claimant, setting forth the following information:
(a) the specific reasonings for such denial;
(b) specific reference to pertinent Plan provisions on
which the denial is based;
(c) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is
necessary; and
(d) an explanation of the Plan's claim review procedure.
The claimant also shall be advised that he or his duly authorized
representative may request a review by the Company of the deci
sion denying the claim by filing with the Company, within 60 days
after such notice has been received by the claimant, a written
request for such review, and that he may review pertinent docu
ments, and submit issues and comments in writing within the same
60-day period. If such request is so filed, such review shall be
made by the Company within 60 days after receipt for such
request, unless special circumstances require an extension of
time for processing, in which case the claimant shall be so
notified and a decision shall be rendered as soon as possible,
but not later than 120 days after receipt of the request for
review. The Participant or beneficiary shall be given written
notice of the decision resulting from such review, which notice
shall include specific reasons for the decision, written in a
manner calculated to be understood by the claimant, and specific
references to the pertinent Plan provisions on which the decision
is based.
6.4 Notice of Address and Missing Persons. Each person
entitled to benefits under the Plan must file with the Company,
in writing, his post office address and each change of post
office address. Any communication, statement, or notice
addressed to such a person at his latest reported post office
address will be binding upon him for all purposes of the Plan and
neither the Company nor any Trustee shall be obliged to search
for or ascertain his whereabouts. In the event that such person
cannot be located, the Company may direct that such benefit and
all further benefits with respect to such person shall be
discontinued and all liability for the payment thereof shall
terminate; provided, however, that in the event of the subsequent
reappearance of the Participant or beneficiary prior to the
termination of the Plan, the benefits which were due and payable
and which such person missed shall be paid in a single sum, and
the future benefits due such person shall be reinstated in full.
6.5 Data and Information for Benefits. All persons
claiming benefits under the Plan must furnish to the Company or
its designated agent such documents, evidence, or information as
the Company or its designated agent consider necessary or
desirable for the purpose of administering the Plan, and such
person must furnish such information promptly and sign such
documents as the Company or its designated agent may require
before any benefits become payable under the Plan.
6.6 Indemnity for Liability. The Company shall indemnify
any individual who is directed by the Company to carry out
responsibilities and duties imposed by this Plan against any and
all claims, losses, damages, and expenses, including counsel
fees, approved by the Company, and any liability, including any
amounts paid in settlement with the Company's approval, arising
from the individual's action or failure to act, in connection
with such person's responsibilities and duties under the Plan,
except when the same is judicially determined to be attributable
to the gross negligence or willful misconduct of such person.
6.7 Tax Liability. The Company may withhold from any
payment of benefits hereunder any taxes required to be withheld
and such sum as the Company may reasonably estimate to be neces
sary to cover any taxes for which the Employer may be liable and
Which may be assessed with regard to such payment.
Article VII. Amendment and Termination
7.1 Amendment. The Company reserves the right to amend the
Plan at any time by action of its board of directors, provided
that retroactive Plan amendments may not decrease the accrued
benefits of any Participant determined as of the time the
amendment is adopted.
7.2 Termination. The Company reserves the right to
terminate the Plan at any time by action of its Board of
Directors.
7.3 Change in Control. Notwithstanding the preceding
provisions of this Article VII, no termination, amendment, or
change to this Plan which would have the effect of reducing
benefits or benefit accruals hereunder, which would rescind an
alternative procedure for accelerated payment previously adopted,
or which would otherwise have an adverse effect on the
determination of benefits hereunder shall be made after a Change
in Control occurs, and this Plan shall be, and the Company shall
require this Plan to be, a continuing obligation of the surviving
entity resulting from any Change in Control. Participants shall
be given written notice of any such termination, amendment, or
change within a reasonable time after any such action is taken.
Article VIII. Participation in and Withdrawal
from the Plan by an Employer
8.1 Participation in the Plan. Any Affiliate which desires
to become an Employer hereunder may elect, with the consent of
the Company's board of directors, to become a party to the Plan
and any Grantor Trust Agreement by adopting the Plan for the
benefit of its eligible employees, effective as of the date
specified in such adoption--
(a) by filing with the Company a certified copy of a
resolution of its board of directors to that effect,
and such other instruments as the Company may require;
and
(b) by the Company's filing with the then Trustee (if any)
a copy of such resolution, together with a certified
copy of resolutions of the Company's board of directors
approving such adoption.
The adoption resolution or decision may contain such specific
changes and variations in Plan or Grantor Trust Agreement terms
and provisions applicable to such adopting Employer and its
employees as may be acceptable to the Company and the Trustee.
However, the sole, exclusive right of any other amendment of
whatever kind or extent to the Plan or any Grantor Trust
Agreement is reserved by the Company. The Company may not amend
specific changes and variations in the Plan or any Grantor Trust
Agreement terms and provisions as adopted by the Employer in its
adoption resolution without the consent of such Employer. The
adoption resolution or decision shall become, as to such adopting
organization and its employees, a part of this Plan as then
amended or thereafter amended and any related Grantor Trust
Agreement. It shall not be necessary for the adopting
organization to sign or execute the original or then amended Plan
or any Grantor Trust Agreement documents. The coverage date of
the Plan for any such adopting organization shall be that stated
in the resolution or decision of adoption, and from and after
such effective date, such adopting organization shall assume all
the rights, obligations, and liabilities of an individual
employer entity hereunder and under any Grantor Trust Agreement.
The administrative powers and control of the Company, as provided
in the Plan and any Grantor Trust Agreement, including the sole
right to amendment, and of appointment and removal of the Trustee
and successor Trustees, shall not be diminished by reason of the
participation of any such adopting organization in the Plan and
any Grantor Trust Agreement.
8.2 Withdrawal from the Plan. Any Employer, by action of its
board of directors or other governing authority, may withdraw
from the Plan and any Grantor Trust Agreement after giving 90
days' notice to the Company's board of directors, provided the
Company's board of directors consents to such withdrawal.
Distribution of vested benefits (if any) to Participants affected
by such a withdrawal may be implemented through any method
determined by the Company and agreed to by the withdrawing
Employer.
MANAGEMENT CONTINUITY AGREEMENT
THIS AGREEMENT is made and entered into as of the ______ day
of ___________, 1998, by and between CILCORP Inc., an Illinois
corporation (hereinafter referred to as the "Company") and
_______________________ (hereinafter referred to as the "Key
Employee").
WITNESSETH:
WHEREAS, the Company has determined it should enter into
management continuity agreements with certain key employees of
the Company;
WHEREAS, _________________________ is a Key Employee of the
Company or one of its subsidiaries; and
WHEREAS, should the possibility of a Change-in-Control of
the Company arise, the Company believes it to be in the best
interests of the Company and its shareholders to minimize
concerns that the Key Employee might be distracted by the
personal uncertainties and risks created by the possibility of a
Change-in-Control;
NOW THEREFORE, to assure the Company that it will have the
continued service and dedication of the Key Employee
notwithstanding the possibility, threat, or occurrence of a
Change-in-Control of the Company, to induce the Key Employee to
remain in the employ of the Company, and for other good and
valuable consideration, the Company and the Key Employee agree as
follows:
Section 1. Definition of Change-in-Control; Change-in-Control
Period.
1.1 Change-in-Control.
For purposes of this Agreement, a "Change-in-Control" of the
Company shall be deemed to have occurred:
(a) if the Company merges or consolidates with or into
another corporation in a transaction in which neither the
Company nor any of its wholly-owned subsidiaries is the
surviving corporation; or sells or otherwise disposes of all
or substantially all of the Company's assets to any
corporation, person, other entity or group (other than the
Company or any of its wholly-owned subsidiaries or any
qualified or nonqualified plan maintained by the Company);
(b) if any corporation, person, other entity or group (other
than the Company or any of its wholly-owned subsidiaries)
becomes the Beneficial Owner (as defined in the Company's
articles of incorporation) of 30% or more of the voting
stock of the Company; or
(c) if during any period of two consecutive years,
Continuing Directors, as hereinafter defined, cease to
comprise a majority of the Company's Board of Directors.
Continuing Directors are:
(i) members of the Board of Directors of the
Company at the beginning of such period of two
consecutive years; and
(ii) any person who subsequently becomes a member
of the Board of Directors if such person's nomination
for election or election to the Board of Directors of
the Company is recommended or approved by resolution of
a majority of the Continuing Directors or such person
is included as a nominee in a proxy statement of the
Company distributed when a majority of the Board of
Directors of the Company consists of Continuing
Directors.
1.2 Change-in-Control Period.
The Change-in-Control Period shall mean the period beginning on
the date of a Change-in-Control and ending on the second
anniversary of the date thereof.
Section 2. Termination of Employment.
2.1 Termination by the Company with Cause. For purposes of this
Agreement, the Company may terminate the Key Employee's
employment during the Change-in-Control Period for Cause. In the
event of such termination, the Company shall give the Key
Employee a Notice of Termination in conformity with Section 6
herein. For purposes of this Agreement, Cause shall mean:
(a) the Key Employee's willful and continued
failure to perform substantially his/her duties with
the Company or one of its subsidiaries other than such
failure resulting from disability (as hereinafter
defined), as determined by the Chief Executive Officer
of the Company (the "CEO"), after a written demand for
substantial performance is delivered to the Key
Employee by the CEO which specifically identifies the
manner in which the CEO believes that the Key Employee
has not substantially performed his/her duties; or
(b) the Key Employee's willful engaging in illegal
conduct or gross misconduct which the CEO believes is
materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the
Key Employee's part, shall be considered "willful" unless it is
done, or omitted to be done, by the Key Employee in bad faith or
without reasonable belief that his/her action or omission was in
the best interests of the Company. Any act or failure to act,
based on authority given pursuant to a resolution duly adopted by
the Board or on the instructions of the CEO or a senior officer
of the Company or based on the advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done,
by the Key Employee in good faith and in the best interests of
the Company. The termination of the Key Employee's employment
shall not be deemed to be for Cause unless and until there shall
have been delivered to him/her a copy of the resolution duly
adopted by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting of the
Board called and held for such purpose (after reasonable notice
is provided to the Key Employee and the Key Employee is given an
opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
Key Employee is guilty of the conduct described above.
2.2 Termination by the Employee for Good Reason.
The Key Employee's employment with the Company shall be deemed to
be terminated by him/her for Good Reason if, during the Change-in-
Control Period:
(a) there is a reduction by the Company in the Key
Employee's Annual Compensation (as hereinafter defined);
(b) there is a material reduction in his/her benefits;
(c) the Company requires the Key Employee to travel on
Company business to a substantially greater extent than
required immediately prior to the Change-in-Control; or
(d) the Company notifies the Key Employee that he/she will
be required to change the Key Employee's principal place of
employment during the Change-in-Control Period to a location
that is more than 75 miles from the Key Employee's principal
place of employment immediately prior to the effective date
of the Change-in-Control; and
(e) as a result of one of the foregoing events, the Key
Employee voluntarily terminates his/her employment
relationship with the Company.
In the event the Key Employee terminates his/her employment for
Good Reason, the Key Employee shall notify the Company in
accordance with Section 6 within 30 days of the date following
the first occurrence of an event described herein.
2.3 Termination by Retirement or Death.
For purposes of this Agreement, termination of the Key Employee's
employment based on Retirement during the Change-in-Control
Period shall mean voluntary termination in accordance with the
Company's retirement policy, including early retirement,
generally applicable to the Company's salaried employees. The
Key Employee's death during the Change-in-Control Period shall
automatically terminate his/her employment. In either the event
of retirement or death, the Company shall pay the Key Employee or
the Key Employee's beneficiary(ies) any unpaid Annual
Compensation and pay for any accrued, unused vacation through the
Date of Termination, at the salary rate then in effect, plus all
other amounts to which the Key Employee or the Key Employee's
beneficiary(ies) are entitled under any retirement, survivor's
benefits, insurance, and other applicable programs of the Company
then in effect, and the Company shall have no further obligations
to the Key Employee and the Key Employee's beneficiary(ies) under
this Agreement.
2.4 Termination by Disability.
If the Company determines in good faith that the Key Employee's
Disability has occurred during the Change-in-Control Period
(pursuant to the definition of Disability as set forth in the
Company's Long-Term Disability Plan then in effect), it may give
the Key Employee written notice, in accordance with Section 6
herein, of its intention to terminate the Key Employee's
employment. In such event, the Key Employee's employment with
the Company will terminate within 30 days after written Notice of
Termination is received by the Key Employee ("Disability
Effective Date") and provided that within 30 days after receiving
such notice, the Key Employee has not returned to the full-time
performance of his/her duties. The Key Employee shall receive
his/her unpaid Annual Compensation through the Disability
Effective Date at which point the Key Employee's compensation and
benefits, if any, shall be determined in accordance with the
Company's retirement, insurance, and other applicable plans and
programs in effect on the Disability Effective Date, and the
Company shall have no further obligations to the Key Employee
under this Agreement.
Section 3. Obligations of the Company Upon Termination.
3.1 If, during the Change-in-Control Period, the Company
terminates the Key Employee's employment other than for Cause,
Death, Disability, or Retirement or if the Key Employee
terminates employment for Good Reason, the Key Employee shall
receive, in addition to any salary, benefit or compensation due
the Key Employee as of the Termination Date, the aggregate of the
following amounts:
(a) an amount equal to two times the Key Employee's Annual
Compensation if the Key Employee is terminated within 12
months following a Change-in-Control and one time if the Key
Employee is terminated after 12 months following a Change-in-
Control but before the end of the Change-in-Control Period;
and
(b) an amount equal to 18 times the monthly premium charged
to a terminated employee who selects continuation coverage
under the Company's comprehensive hospital and medical
insurance plan (commonly known as "COBRA payments").
The Company shall also provide the Key Employee with years of
service and compensation credits, along with commensurate
additional benefits, if any, the Key Employee would have accrued
during the Change-in-Control Period, but for the termination, in
any qualified or nonqualified pension, retirement, supplemental
benefit or compensation deferral plan in effect on the Date of
Termination.
For purposes of this Agreement, Annual Compensation shall include
Annual Base Salary (the greater of annual base pay rate in effect
during the month immediately preceding a Date of Termination or
the annual base pay rate in effect during the month immediately
prior to a Change-in-Control) plus, pro rata, the annual target
level of any bonus established for the Key Employee for the
fiscal year in which a Change-in-Control occurs, assuming an
achievement level of 100% of any target award established under
an incentive compensation or bonus plan of the Company in which
the Key Employee participates. For purposes of this section,
COBRA payments shall be that amount necessary to provide either
family or individual comprehensive hospital or medical insurance
coverage as had been elected by the Key Employee in the month
immediately preceding the Date of Termination.
3.2 Timing of Payments.
At the Key Employee's irrevocable election at the time of his/her
signing of this Agreement, all payments made by the Company
pursuant to Section 3.1 shall be paid either:
(a) in a lump sum payment in cash within 30 days after
his/her Date of Termination;
(b) in 18 equal, monthly installments beginning on the
first day of the month following his/her Date of
Termination.
3.3 Tax Indemnity.
In the event it shall ultimately be determined by a court or the
Internal Revenue Service that any payment by the Company to or
for the benefit of the Key Employee (whether paid or payable
pursuant to the terms of this Agreement) would be subject to the
excise tax (including penalties and interest) imposed by Section
4999 of the Internal Revenue Code of 1986, as amended, (the
"Code"), then the Key Employee shall be entitled to receive a
lump sum cash payment sufficient to place the Key Employee in the
same net after-tax position as if the excise tax had not been
imposed (a "gross up" payment). The determination of the maximum
gross up amount payable to the Key Employee shall be made by an
accounting firm designated by the Company and shall be paid to
the Key Employee within 30 days of such determination.
Section 4. Administration of the Agreement.
4.1 Administration.
The CEO or his/her assignee shall administer the Agreement. The
CEO shall have the authority to interpret the Agreement and adopt
rules for the implementation thereof.
4.2 Date of Termination.
The "Date of Termination" shall mean:
(a) if the Key Employee's employment is terminated by the
Company for Cause or the Key Employee terminates his/her
employment for Good Reason, the date of the receipt of the
Notice of Termination (as defined in Section 6);
(b) if the Key Employee's employment is terminated by the
Company other than for Cause, the Date of Termination shall
be the date on which the Company notifies the Key Employee
of the termination; and
(c) if the Key Employee's employment is terminated by
reason of Death, Disability or Retirement, the Date of
Termination shall be the date of the Key Employee's Death,
Retirement or Disability Effective Date, as the case may be.
Section 5. Notice.
For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when hand delivered
or mailed by United States registered mail, return receipt
requested, postage prepaid, provided that all notices to the
Company be addressed to:
CILCORP Inc.
Corporate Secretary
300 Hamilton Boulevard
Suite 300
Peoria, Illinois 61602
or to the Corporate Secretary of any successor company at its
principal place of business;
and if to the Key Employee:
(Insert Key Employee's name and address)
Section 6. Notice of Termination.
Any termination by the Company for Cause or Disability or by the
Key Employee for Good Reason shall be communicated by a written
notice of termination ("Notice of Termination") to the other
party hereto and shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon by
the party, shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Key Employee's employment under the provision indicated and the
Date of Termination (as defined above). The failure by the
Company or the Key Employee to set forth in the Notice of
Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the
Company or the Key Employee, respectively, from asserting such
fact or circumstance in enforcing the Key Employee's or the
Company's rights hereunder.
Section 7. Not a Contract of Employment.
The employment-at-will relationship between the Key Employee and
the Company shall continue except as modified by this Agreement.
Section 8. Governing Law.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Illinois.
Section 9. Successors and Assigns.
This Agreement shall be binding on the Company and any assignee
or successor in interest to the Company and on the Key Employee
and his/her heirs, assigns or legatees.
Section 10. Non-exclusive Rights.
Nothing in this Agreement shall prevent or limit the Key
Employee's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its
subsidiaries for which the Key Employee may qualify, nor shall it
affect such rights as the Key Employee may have under any
contract or agreement with the Company or any of its
subsidiaries. The foregoing notwithstanding, should the Key
Employee be entitled to or paid any of the amounts set forth in
Section 3.1, then the Key Employee shall not be eligible for or
paid any severance pay or comprehensive hospital and medical
insurance coverage, payment or benefits except to the extent that
such comprehensive hospital and medical insurance coverage must
be offered under federal COBRA laws.
Section 11. Arbitration and Legal Fees.
The Key Employee and the Company agree to have any dispute or
controversy arising under or in connection with this Agreement
settled by arbitration using an Arbitration Panel. For the
purposes of this Agreement, the term "Arbitration Panel" shall
mean three independent arbitrators, one of whom shall be selected
by the Company, one by the Key Employee and the third shall be
selected by the two other arbitrators. In the event that
agreement cannot be reached on the selection of the third
arbitrator, such arbitrator shall be selected by the American
Arbitration Association. All arbitrators shall be selected from
a list provided by the American Arbitration Association, and all
matters presented to the Arbitration Panel shall be decided by
majority vote. The Key Employee and the Company agree that any
decision rendered in any such arbitration proceeding shall be
final and binding and that each of the parties waives their
rights to seek remedies in court, including the right to jury
trial. All expenses of such arbitration, including the fees and
expenses of the counsel for the Key Employee and the Company
shall be borne by the Company and/or the Key Employee in the
amount determined by the arbitrator. Any such arbitration shall
be held in the city where the Key Employee's principal place of
business while employed by the Company is located, unless the
Company and Key Employee mutually agree on another location.
Section 12. Amendment of Agreement.
Upon the occurrence of a Change-in-Control, and until the end of
the Change-in-Control Period, this Agreement may not be
terminated, or amended in any manner which has a significant
adverse effect on the Key Employee's rights hereunder without the
Key Employee's written consent. Notwithstanding any other
provision hereof, in the sole and absolute discretion of the
Company, the Agreement may be amended only to the extent
necessary in order to obtain or maintain the status of the
Company's retirement plans as qualified plans under Section
401(a) of the Code.
Section 13. Entire Agreement.
This Agreement constitutes the entire agreement between the
parties and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the
parties hereto, including the Company's predecessors, with
respect to the subject matter hereof.
Section 14. Termination of Agreement.
The Agreement shall continue until, and terminate, three years
from the date hereof.
By: By:
Officer
(Title)
Date: Date:
Timing of Payments Election
As a Key Employee and signatory to this Agreement, I hereby
irrevocably elect the following method of payment of any amount
payable under Section 3.1 of this Agreement:
1. Lump sum
2. Monthly installments
Central Illinois Light Company
Compensation Protection Program
Introduction
The Compensation Protection Program is designed to provide
certain eligible employees with pay and medical insurance
protection if they are terminated due to a Layoff or Reduction in
Force within a one-year period following the date of a change in
control. Some of these important terms are defined in the
"Definitions" section of this document. This benefit program is
not intended to create a contract of employment, and all eligible
employees shall retain their present status as "employees at
will".
Participation in the Program
Eligibility
To be eligible for the Compensation Protection Program, an
employee must have been classified as a regular, full-time
employee of CILCO, CILCORP or an affiliate company
continuously during the 12-month period immediately before the
date of a change in control. Furthermore, to be eligible an
employee must be Actively Working (as that term is later
defined). In addition, eligibility in this Program is
limited to those employees working in nonunion-represented
Management, Office and Technical positions on the date of a
termination of employment. (Executive officers of CILCO and
CILCORP are not eligible.) Employees who are Retirement
Eligible (as that term is later defined) may elect
participation either in this program or in the retirement plan
for which they are eligible.
When the Program Would Take Effect
In order for this Program to go into effect, there must be a
Change in Control (as that term is later defined). For a 12-
month period after the change-in-control effective date, if an
eligible employee's employment is terminated because of a
Layoff or a Reduction in Force, he/she will be entitled to
receive the benefits under this Program. An employee who is
terminated for any other reason is not eligible for Program
benefits.
Description of Benefits
Compensation Benefit
An employee who satisfies all of the eligibility requirements
will receive a one-time, lump sum payment equal to base pay
(at the rate in effect at the date of the change in control or
at the date of termination, whichever is greater) for the
greater of 6 months or the number of whole months between the
termination date and the date that is 12 months after the date
of a change in control. CILCO will withhold all required
amounts from this payment, but no other deductions will be
made, such as to the Employees' Savings Plan [401(k)], the
United Way, Political Action Committee, etc. Payment of the
compensation benefit will be made on the date that is the
later of two weeks after the employee's termination date or
the next regular pay date.
Medical Insurance Coverage
Medical insurance coverage will be extended up to the level of
coverage (family or individual) in effect immediately prior to
termination for a period equal to the number of weeks for
which the employee receives termination pay, but continuing
until the last calendar day of the month in which termination
pay ceases. Once this coverage expires, an employee may
continue to receive COBRA continuation benefits for the
remainder of the 18 months by paying the full COBRA premium in
accordance with the federal law known as COBRA. (Employees
will receive a separate notice of their COBRA rights. The
period of Company-provided coverage runs concurrently with,
and does not extend, the employee's maximum COBRA coverage
period of 18 months.) CILCO becomes the secondary medical
provider in accordance with applicable federal law if the
employee elects COBRA coverage at the end of the benefit pay
period and takes a job at another employer with group
benefits.
Other Benefits
Compensation Protection Program benefits are in addition to
any other benefits for which employees may be eligible, such
as vested Management, Office and Technical Employees' Pension
Plan benefits, EDP benefits, accrued vacation pay, etc. (As
noted above, employees who are Retirement Eligible when they
are notified of their termination must choose between retiring
or accepting benefits under this Program. However, if an
employee accepts benefits under this Program, he/she will not
forfeit any vested pension benefits. There would, however, be
a loss of any medical benefits being offered to retirees - and
if the individual begins receiving pension benefits before age
65 there would be a significant reduction in those benefits.)
Definitions
Actively Working is defined as being on CILCO's payroll as a
regular full-time employee who is not on long-term disability or
an unauthorized leave of absence on the date of termination.
Base Pay is defined as an employee's weekly salary --
excluding overtime, performance and incentive payments, bonuses,
awards, tuition refunds, allowances and deferred compensation
payments.
Change in Control is defined as:
(a) if CILCORP merges or consolidates with or into another
corporation in a transaction in which neither CILCORP, CILCO
nor any of CILCORP's wholly-owned subsidiaries is the
surviving corporation; or sells or otherwise disposes of all
or substantially all of CILCORP's assets to any corporation,
person, other entity or group (other than CILCORP or any of
its wholly-owned subsidiaries or any qualified or
nonqualified plan maintained by CILCORP or CILCO); or
(b) if any corporation, person, other entity or group (other
than CILCORP or any of its wholly-owned subsidiaries)
becomes the Beneficial Owner (as defined in CILCORP's
articles of incorporation) of 30% or more of the voting
stock of CILCORP; or
(c) if during any period of two consecutive years,
Continuing Directors, as defined, cease to comprise a
majority of CILCORP's Board of Directors. Continuing
Directors are:
(i) members of the Board of Directors of CILCORP
at the beginning of such period of two consecutive
years; and
(ii) any person who subsequently becomes a member
of the Board of Directors if such person's nomination
for election or election to the Board of Directors of
CILCORP is recommended or approved by resolution of a
majority of the Continuing Directors or such person is
included as a nominee in a proxy statement of CILCORP
distributed when a majority of the Board of Directors
of CILCORP consists of Continuing Directors.
Layoff is defined as terminated -- with or without an
expectation of recall -- due to lack of work.
Reduction in Force is defined as terminated due to
elimination of job duties, redundancy of job duties, or a
reduction in the number of employees of the Company or its
successor.
Retirement Eligible is defined as being 55 years or older
with 10 or more years of service as defined in the MOT CILCO
pension plan.
CENTRAL ILLINOIS LIGHT COMPANY
(Organized April 11, 1913)
ARTICLES OF INCORPORATION
Composite
As Amended From Time to Time to and Including the Amendment Filed
in the Office of the Secretary of State of Illinois on May 29,
1998.
ARTICLE 1. The name of such corporation is Central Illinois
Light Company.
ARTICLE 2. The object for which it is formed is to manufacture or
generate and sell and distribute light, heat, and power to the
public in the form of gas, electricity, steam, hot water or other
agency and for the transaction of any or all lawful businesses
for which corporations may be incorporated under the Illinois
Business Corporation Act."
ARTICLE 3. The aggregate number of shares which the Company is
authorized to issue is 27,000,000 divided into four (4) classes.
The designation of each class, the number of shares of each class
(and the par value, if any, of the shares of each class, or a
statement that the shares of any class are without par value),
are as follows:
Class Series No. of Shares Par value Per
Share
Common None 20,000,000 No par value
Preferred 4 1/2% 111,264 $100
Preferred 4.64% 79,940 $100
Preferred Undesignated 1,308,796 $100
Class A 5.85% 220,000 No par value
Preferred
Class A Flexible 250,000 No par value
Preferred Auction Rate
Class A Undesignated 3,030,000 No par value
Preferred
Preference Undesignated 2,000,000 No par value
27,000,000
Shares of Common Stock without par value may be issued
for such consideration as may be fixed from time to time by the
Board of Directors and the entire amount of the consideration
received for any such shares so issued shall be stated capital.
The preferences, qualifications, limitations,
restrictions and the special or relative rights in respect of the
shares of each class, the provisions, if any, for the division
into and issue in series of shares of July 21, 1993 each class,
the designation of each series authorized by the Articles of
Incorporation, the variations in the relative rights and
preferences as between the different series of any class insofar
as the same are to be fixed in the Articles of Incorporation, and
the statement of the authority vested in the Board of Directors
to establish series of any class and fix and determine the
variations in the relative rights and preferences as between
series of any class, are as follows:
PREFERRED STOCK
Provision for Division Into and Issue in Series of Preferred
Stock and Grant of Authority to Board of Directors
The shares of the Preferred Stock may be divided
into and issued in series. Each series shall be designated so as
to distinguish the shares thereof from the shares of all other
series and classes and all shares of the Preferred Stock
irrespective of series shall be identical except as to the
following relative rights and preferences in respect of any or
all of which there may be variations between different series and
authority is hereby expressly vested in the Board of Directors,
to the extent that series are not established by the Articles of
Incorporation and the variations and the relative rights and
preferences as between series fixed and determined therein, to
establish series and to fix and determine the following relative
rights and preferences of the shares thereof in accordance with
the provisions of the Business Corporation Act of Illinois
applicable thereto:
(a) The rate of dividend;
(b) The price at which shares may be
redeemed, such price to be not less
than $100.00 or more than $115.00 per
share, plus accrued dividends to the
date of redemption;
(c) The amount payable upon shares in event
of involuntary liquidation, which
amount shall not be less than $100.00
per share or more than $115.00 per
share, plus accrued dividends;
(d) The amount payable upon shares in event
of voluntary liquidation, which amount
shall not be less than $100.00 per
share or more than $115.00 per share,
plus accrued dividends.
The Board of Directors is hereby authorized to issue
and sell all the authorized and unissued shares of Preferred
Stock as shares of any series which shall have been duly
established, and in the event that the Company shall acquire, by
purchase or redemption or otherwise, any issued shares of its
Preferred Stock of any series, the Board of Directors may resell
or convert and sell, in their discretion, any shares so acquired
as shares of the same or of any other series of Preferred Stock
which shall have been duly established.
Series of Preferred Stock Established by
Articles of Incorporation
Without limitation of the foregoing authority
conferred upon the Board of Directors, there is hereby
established a series of Preferred Stock designated as 4 1/2%
Preferred Stock. The relative rights and preferences of the
shares of said series in those respects in which the shares
thereof may vary from the shares of other series, shall be as
follows:
(a) The rate of dividend shall be 4 1/2%;
(b) The price at which shares may be
redeemed shall be $110.00 per share,
plus accrued dividends to the date of
redemption;
(c) The amount payable in event of
involuntary liquidation shall be
$100.00 per share, plus accrued
dividends;
(d) The amount payable in event of
voluntary liquidation shall be $105.00
per share, plus accrued dividends.
Series of Preferred Stock Established by
the Board of Directors
Pursuant to the foregoing authority conferred upon
the Board of Directors, 80,000 of the authorized but unissued
shares of Preferred Stock of the Company shall be established as
a series of Preferred Stock which is hereby designated 4.64%
Preferred Stock, and the relative rights and preferences of the
shares of said series in those respects in which the shares
thereof may vary from the shares of other series, shall be as
follows:
(a) The rate of dividend shall be 4.64%;
(b) The price at which shares may be
redeemed shall be $106.00 per share if
the date of redemption is on or prior
to July 1, 1961, $104.00 per share if
the date of redemption is after July 1,
1961 and on or prior to July 1, 1966
and $102.00 per share if the date of
redemption is after July 1, 1966 plus
accrued dividends in each case to the
date of redemption;
(c) The amount payable in event of
involuntary liquidation shall be
$100.00 per share, plus accrued
dividends;
(d) The amount payable in event of
voluntary liquidation shall be $100.00
per share, plus accrued dividends.
General Provisions
The following provisions shall apply to all the
Preferred Stock irrespective of series:
(1)The holders of the Preferred Stock of each series
shall be entitled to receive dividends, payable quarterly on the
first days of January, April, July and October of each year, when
and as declared by the Board of Directors, at the rates
determined for the respective series, from the first day of the
current dividend period within which such stock shall have been
originally issued except that, as to any share of Preferred Stock
originally issued subsequent to December 31, 1973, from the date
upon which such share shall have been originally issued, before
any dividends shall be declared or paid upon or set apart for the
Common Stock or any other class of stock of the Company not
having preference over the Preferred Stock as to payment of
dividends. Such dividends shall be cumulative so that if for any
dividend period or periods dividends shall not have been paid or
declared and set apart for payment upon all outstanding Preferred
Stock at the rates determined for the respective series, the
deficiency shall be fully paid, or declared and set apart for
payment, before any dividends shall be declared or paid upon the
Common Stock or any other class of stock of the Company not
having preference over the Preferred Stock as to payment of
dividends. Dividends shall not be declared and set apart for
payment, or paid, on the Preferred Stock of any one series, for
any dividend period, unless dividends have been or are
contemporaneously declared and set apart for payment or paid on
the Preferred Stock of all series for all dividend periods
terminating on the same or an earlier date.
(2)When full cumulative dividends as aforesaid upon the
Preferred Stock of all series then outstanding for all past
dividend periods and for the current dividend period shall have
been paid or declared and set apart for payment, the Board of
Directors may, subject to the provisions of the laws of the State
of Illinois and of the Articles of Incorporation, declare
dividends on the Common Stock or any other class of stock over
which the Preferred Stock has a preference as to payment of
dividends, and no holders of any series of the Preferred Stock as
such shall be entitled to share therein; provided, however, that
no dividends shall be paid on Common Stock or on any other class
of stock over which the Preferred Stock has preference as to
payment of dividends or as to assets, either out of paid-in
surplus or any surplus created by a reduction of stated capital
or capital stock, or if, at the time of declaration thereof there
shall not remain to the credit of earned surplus account, (after
deducting therefrom the amount of such dividends), an amount at
least equal to two times the annual dividend requirements on all
then outstanding shares of the Preferred Stock and of all other
classes of stock over which the Preferred Stock does not have
preference as to the payment of dividends or as to assets.
(3)Upon any dissolution, liquidation or winding up of
the Company, whether voluntary or involuntary, the holders of
Preferred Stock of each series, without any preference of the
shares of any series of Preferred Stock over the shares of any
other series of Preferred Stock, shall be entitled to receive out
of the assets of the Company, whether capital, surplus or other,
before any distribution of the assets to be distributed shall be
made to the holders of Common Stock or of any other class of
stock not having preference as to assets over the Preferred
Stock, the amount determined to be payable on the shares of such
series in the event of voluntary or involuntary liquidation, as
the case may be. After payment to the holders of the Preferred
Stock of the full preferential amounts hereinbefore provided for,
the holders of the Preferred Stock as such shall have no right or
claim to any of the remaining assets of the Company, either upon
any distribution of such assets or upon dissolution, liquidation
or winding up, and the remaining assets to be distributed, if
any, upon a distribution of such assets or upon dissolution,
liquidation or winding up, may be distributed, subject to the
provisions of the laws of the State of Illinois and the Articles
of Incorporation, among the holders of the Common Stock or of any
other class of stock over which the Preferred Stock has
preference as to assets. Without limiting the right of the
Company to distribute its assets or to dissolve, liquidate or
wind up in connection with any sale, merger or consolidation, the
sale of all the property of the Company to, or the merger or
consolidation of the Company into or with any other corporation
shall not be deemed to be a distribution of assets or a
dissolution, liquidation or winding up for the purposes of this
paragraph.
(4)At the option of the Board of Directors of the
Company, the Company may redeem any series of Preferred Stock
determined to be redeemable, or any part of any series, at any
time at the redemption price determined for such series;
provided, however, that not less than thirty nor more than sixty
days previous to the date fixed for redemption a notice of the
time and place thereof shall be given to the holders of record of
the Preferred Stock so to be redeemed, by mail or publication, in
such manner as may be prescribed by the Bylaws of the Company or
by resolution of the Board of Directors; and, provided, further,
that in every case of redemption of less than all of the
outstanding shares of any one series of Preferred Stock, the
shares of such series to be redeemed shall be chosen by lot in
such manner as may be prescribed by resolution of the Board of
Directors. At any time after notice of redemption has been given
in the manner prescribed by the Bylaws of the Company or by
resolution of the Board of Directors to the holders of stock so
to be redeemed, the Company may deposit, or may cause its nominee
to deposit, the aggregate redemption price with some bank or
trust company named in such notice, payable on the date fixed for
redemption as aforesaid and in the amounts aforesaid to the
respective orders of the holders of the shares so to be redeemed,
on endorsement to the Company or its nominee, or otherwise, as
may be required, and upon surrender of the certificates for such
shares. Upon the deposit of said money as aforesaid, or, if no
such deposit is made, upon said redemption date (unless the
Company defaults in making payment of the redemption price as set
forth in such notice), such holders shall cease to be
shareholders with respect to said shares, and from and after the
making of said deposit, or, if no such deposit is made, after the
redemption date (the Company not having defaulted in making
payment of the redemption price as set forth in such notice), the
said holders shall have no interest in or claim against the
Company or its nominee with respect to said shares, but shall be
entitled only to receive said moneys on the date fixed for
redemption as aforesaid from said bank or trust company, or if no
such deposit is made, from the Company, without interest thereon,
upon endorsement, if required, and surrender of the certificates
as aforesaid.
If such deposit shall be made by a nominee of the
Company as aforesaid, such nominee shall upon such deposit become
the owner of the shares with respect to which such deposit was
made and certificates of stock may be issued to such nominee in
evidence of such ownership.
In case the holder of any such Preferred Stock shall
not, within six years after said deposit, claim the amount
deposited as above stated for the redemption thereof, the
Depositary shall upon demand pay over to the Company such amounts
so deposited and the Depositary shall thereupon be relieved from
all responsibility to the holder thereof.
Nothing herein contained shall limit any legal right
of the Company to purchase any shares of the Preferred Stock.
(5)At all meetings of the shareholders of the Company,
the holders of the Preferred Stock shall be entitled to one vote
for each share of such Preferred Stock held by them respectively.
(6) So long as any shares of the Preferred Stock are
outstanding, no amendment to the Articles of Incorporation shall
be adopted without the affirmative vote of the holders of at
least 66-2/3% of the shares of Preferred Stock outstanding at the
time of the adoption of such amendment, which would either
(a) create any class of shares preferred as to dividends or
assets over the Preferred Stock, or (b) change the designations,
preferences, qualifications, limitations, restrictions or other
special or relative rights of the then outstanding Preferred
Stock; provided, however, that nothing in this paragraph
contained shall authorize the adoption of any amendment of the
Articles of Incorporation by the vote of the holders of a less
number of shares of Preferred Stock, or of any other class of
stock, or of all classes of stock, than is required for the
adoption of such amendment by the laws of the State of Illinois
at that time applicable thereto.
(7)So long as any shares of the Preferred Stock shall be
outstanding, the Company shall not issue or assume any evidences
of indebtedness maturing more than twelve months from the date of
issue or assumption in an amount at any one time outstanding
exceeding 15% of the aggregate, at the time of such issue or
assumption, of the stated capital represented by the outstanding
shares of Preferred Stock and any other class of stock over which
the Preferred Stock has a preference as to dividends or assets
and of the surplus of the Company (paid-in, earned, and other, if
any), unless (i) such evidences of indebtedness are either
(a) bonds issued under the Mortgage and Deed of Trust to Bankers
Trust Company, New York, as Trustee, dated as of April 1, 1933,
assumed by the Company, or (b) bonds or other evidences of
indebtedness issued under another mortgage and deed of trust on
substantially all the mortgageable property of the Company, under
which mortgage and deed of trust bonds or other evidences of
indebtedness have been issued, upon the basis, directly or
indirectly, of the refunding of bonds issued under said Mortgage
and Deed of Trust, dated as of April 1, 1933 and permitting the
issuance of additional bonds or evidences of indebtedness upon
the basis directly or indirectly, of the refunding of the
remainder thereof, if any, or (c) indebtedness secured by the
pledge of bonds or evidences of indebtedness issued under said
Mortgage and Deed of Trust, dated as of April 1, 1933, or such
other mortgage and deed of trust, to an equal principal amount of
such bonds or such evidences of indebtedness pledged, or (ii) the
issue and assumption of said evidence of indebtedness has been
submitted to the vote of the shareholders of the Company at any
annual or special meeting thereof, has been approved at such
meeting by the affirmative vote of the holders of a majority of
the outstanding shares of the Company, irrespective of class, and
has not been voted against at such meeting by the holders of 33-
1/3% or more of the outstanding shares of Preferred Stock.
(8)So long as any shares of Preferred Stock shall be
outstanding
(a) No shares of Preferred Stock or
of any other class of stock
over which the Preferred Stock
does not have preference as to
the payment of dividends and as
to assets, shall be issued,
sold or otherwise disposed of
unless the net income of the
Company available for the
payment of dividends for a
period of twelve consecutive
calendar months within the
fifteen calendar months
immediately preceding the
issuance, sale or disposition
of such stock is at least equal
to 2 1/2 times the annual
dividend requirements of all
outstanding shares of Preferred
Stock and of all other classes
of stock over which the
Preferred Stock does not have
preference as to the payment of
dividends and as to assets,
including the shares proposed
to be issued;
(b) After the Company has issued
131,464 shares of Preferred
Stock, no additional shares of
Preferred Stock shall be issued
unless prior thereto, the total
of the stated capital of the
Company represented by shares
of stock over which the
Preferred Stock has a
preference as to the payment of
dividends and as to assets,
shall have been increased over
the stated capital represented
by the Common Stock on March
31, 1936 by an amount at least
equal to the aggregate par
value of the additional shares
of Preferred Stock proposed to
be issued.
(9)The term "accrued dividends" shall be deemed to mean
in respect of any share of the Preferred Stock of any series, as
of any given date, the amount, if any, by which the product of
the rate of dividend per annum, determined upon the shares of
such series, multiplied by the number of years and any fractional
part of a year which shall have elapsed from the date after which
dividends on such stock became cumulative to such given date,
exceeds the total dividends actually paid on such stock and the
dividends declared and set apart for payment. Accumulations of
dividends shall not bear interest.
The term "outstanding", whenever used herein with
respect to shares of Preferred Stock or of any other class of
stock which are by their terms redeemable, shall not include any
such shares which have been called for redemption in accordance
with the provisions applicable thereto, of which call for
redemption notice shall have been given as required by such
provisions, and for the redemption of which a sum of money
sufficient to pay the amount payable on such redemption shall
have been deposited with a bank or trust company, irrevocably in
trust for such purpose.
CLASS A PREFERRED STOCK
Provision for Division Into and Issue in Series of Class A Prefe
rred
Stock and Grant of Authority to Board of Directors
The shares of the Class A Preferred Stock may be
divided into and issued in series. Each series shall be
designated so as to distinguish the shares thereof from the
shares of all other series and classes and all shares of the
Class A Preferred Stock irrespective of series shall be identical
except as to the following relative rights and preferences in
respect of any or all of which there may be variations between
different series and authority is hereby expressly vested in the
Board of Directors, to the extent that series are not established
by the Articles of Incorporation and the variations and the
relative rights and preferences as between series fixed and
determined therein, to establish series and to fix and determine
the following relative rights and preferences of the shares
thereof in accordance with the provisions of the Business
Corporation Act of Illinois applicable thereto:
(a) The rate of dividend;
(b) The price at and the terms and
conditions on which shares may be
redeemed;
(c) The amount payable upon shares in event
of involuntary liquidation;
(d) The amount payable upon shares in event
of voluntary liquidation;
(e) Sinking fund provisions for the
redemption or purchase of shares (the
term "sinking fund", as used herein,
including any analogous fund, however
designated).
The Board of Directors is hereby authorized to issue
and sell all the authorized and unissued shares of Class A
Preferred Stock as shares of any series which shall have been
duly established, and in the event that the Company shall
acquire, by purchase or redemption or otherwise, any issued
shares of its Class A Preferred Stock of any series, the Board of
Directors may resell or convert and sell, in their discretion,
any shares so acquired as shares of the same or of any other
series of Class A Preferred Stock which shall have been duly
established.
Shares of any series of Class A Preferred Stock,
without par value, may be issued for such consideration, not less
than the aggregate preferential amount payable upon such shares
in the event of involuntary liquidation, as may be fixed by the
Board of Directors prior to the time of such issuance and, except
as otherwise determined by the Board of Directors in accordance
with the provisions of the Business Corporation Act of Illinois
applicable thereto, the entire amount of such consideration shall
be stated capital.
The General Provisions heretofore set forth in this
Article 3 following the heading, "Preferred Stock" shall be
applicable in all respects to the Class A Preferred Stock and any
reference therein to "Preferred Stock" shall in each instance
include, within the meaning of that term, the Class A Preferred
Stock. In applying said General Provisions, the reference in
paragraph (b) thereof to "aggregate par value" shall, in the case
of the Class A Preferred Stock, be deemed to refer to the
aggregate amount payable in event of involuntary liquidation upon
the additional shares of Class A Preferred Stock proposed to be
issued.
In addition to the requirement concerning the
declaration of dividends on the Common Stock or any class of
stock over which the Preferred Stock and the Class A Preferred
Stock have preference as to payment of dividends, which are
contained in paragraph (2) under the General Provisions referred
to in the preceding paragraph, it shall also be a condition to
the declaration of dividends on the Common Stock or any class of
stock over which the Preferred Stock and the Class A Preferred
Stock have preference as to payment of dividends, by the Board of
Directors as contemplated in said paragraph (2) that all amounts
required to be paid or set aside for any sinking fund for the
retirement of Class A Preferred Stock of any series, with respect
to all preceding sinking fund dates, shall have been paid or set
aside.
Series of Class A Preferred Stock Established by
the Board of Directors
Pursuant to the foregoing authority conferred upon
the Board of Directors, 220,000 of the authorized but unissued
shares of Class A Preferred Stock of the Company shall be
established as a series of Class A Preferred Stock which is
hereby designated 5.85% Class A Preferred Stock, and the relative
rights and preferences of the shares of said series in those
respects in which the shares thereof may vary from the shares of
other series, shall be as follows:
(a) The rate of dividend shall be $5.85 per
annum.
(b) The shares will not be redeemable prior
to July 1, 2003. On and after July 1,
2003, the shares will be redeemable at
the option of the Company, in whole or
in part, at a price of $100 per share
plus accrued dividends to the date of
redemption.
(c) The amount payable in event of
involuntary liquidation shall be $100
per share, plus accrued dividends.
(d) The amount payable in event of
voluntary liquidation shall be $100 per
share, plus accrued dividends.
(e) The 5.85% Class A Preferred Stock will
be entitled to a sinking fund as
follows: 11,000 shares of such stock
shall be redeemed on July 1, 2003 and
on each July 1 thereafter to and
including July 1, 2007, and 165,000
shares of such stock shall be redeemed
on July 1, 2008, in each case at $100
per share, plus accrued dividends to
the redemption date. This sinking fund
requirement may be satisfied in whole
or in part by crediting against such
requirement shares of such stock
redeemed by the Company at its option,
purchased by the Company in the open
market or acquired by the Company
otherwise than through the sinking
fund.
Series of Class A Preferred Stock Established by
the Board of Directors
Pursuant to the foregoing authority conferred upon
the Board of Directors, 250,000 of the authorized but unissued
shares of Class A preferred stock of the Company shall be
established as a series of Class A preferred stock which is
hereby designated Flexible Auction Rate Preferred Stock, without
par value, and that the relative rights and preferences of the
shares of said series in those respects in which shares thereof
may vary from the shares of other series, shall be as follows:
Definitions. As used herein, the following terms shall
have the following meanings, unless the context otherwise
requires. To the extent definitions contain procedures or
specifications concerning the determination of time periods,
rates or other matters, such procedures and specifications shall
be applicable to the shares of the Flexible Auction Rate
Preferred Stock, without par value, as fully as if set forth
independently from such definitions.
(i) "60-day 'AA' Composite Commercial Paper Rate", on
any date, shall mean (i) the interest equivalent of the 60-day
rate on commercial paper placed on behalf of issuers whose
corporate bonds are rated "AA" by S&P or "Aa" by Moody's or the
equivalent of either or both of such ratings by such agencies or
another rating agency, as such 60-day rate is made available on a
discount basis or otherwise by the Federal Reserve Bank of New
York on the Business Day immediately preceding such date or
(ii) in the event that the Federal Reserve Bank of New York does
not make available such a rate, then the arithmetic average of
the interest equivalent of the 60-day rate on commercial paper
placed on behalf of such issuers, as quoted on a discount basis
or otherwise by the Commercial Paper Dealers, to the Auction
Agent for the close of business on the Business Day immediately
preceding such date. If any Commercial Paper Dealer does not
quote a rate required to determine the 60-day "AA" Composite
Commercial Paper Rate, the 60-day "AA" Composite Commercial Paper
Rate shall be determined on the basis of the quotation or
quotations furnished by the remaining Commercial Paper Dealer and
any Substitute Commercial Paper Dealer or Dealers selected by the
Company to provide such rate or rates not being supplied by any
Commercial Paper Dealer or Dealers, as the case may be, or, if
the Company does not select any such Substitute Commercial Paper
Dealer or Dealers, by the remaining Commercial Paper Dealer. If
the number of Dividend Period Days in a Short-Term Dividend
Period shall be (i) fewer than 70 days, such rate shall be the
interest equivalent of the 60-day rate on such commercial paper,
(ii) 70 or more days but fewer than 85 days, such rate shall be
the arithmetic average of the interest equivalent of the 60-day
and 90-day rates on such commercial paper, and (iii) 85 or more
days but fewer than 3 months, such rate shall be the interest
equivalent of the 90-day rate on such commercial paper. For the
purpose of this definition, any arithmetic average shall be
rounded to the nearest one-thousandth (.001) of one percent (or,
if there is no nearest one-thousandth (.001) of one percent, to
the next highest one-thousandth (.001) of one percent), and
"interest equivalent" means the equivalent yield on a 360-day
basis of a discount-basis security to an interest-bearing
security.
(ii) "90-day 'AA' Composite Commercial Paper Rate", on
any date, shall mean (i) the interest equivalent of the 90-day
rate on commercial paper placed on behalf of issuers whose
corporate bonds are rated "AA" by S&P or "Aa" by Moody's or the
equivalent of either or both of such ratings by such agencies or
another rating agency, as such 90-day rate is made available on a
discount basis or otherwise by the Federal Reserve Bank of New
York on the Business Day immediately preceding such date or
(ii) in the event that the Federal Reserve Bank of New York does
not make available such a rate, then the arithmetic average of
the interest equivalent of the 90-day rate on commercial paper
placed on behalf of such issuers, as quoted on a discount basis
or otherwise by the Commercial Paper Dealers, to the Auction
Agent for the close of business on the Business Day immediately
preceding such date. If any Commercial Paper Dealer does not
quote a rate required to determine the 90-day "AA" Composite
Commercial Paper Rate, the 90-day "AA" Composite Commercial Paper
Rate shall be determined on the basis of the quotation or
quotations furnished by the remaining Commercial Paper Dealer and
any Substitute Commercial Paper Dealer or Dealers selected by the
Company to provide such rate or rates not being supplied by any
Commercial Paper Dealer or Dealers, as the case may be, or, if
the Company does not select any such Substitute Commercial Paper
Dealer or Dealers, by the remaining Commercial Paper Dealer. For
the purpose of this definition, any arithmetic average shall be
rounded to the nearest one-thousandth (.001) of one percent (or,
if there is no nearest one-thousandth (.001) of one percent, to
the next highest one-thousandth (.001) of one percent), and
"interest equivalent" means the equivalent yield on a 360-day
basis of a discount-basis security to an interest-bearing
security.
(iii) "Affiliate" shall mean any Person known to the
Auction Agent to be controlled by, in control of or under common
control with the Company.
(iv) "Agent Member" shall mean the member of or
participant in the Securities Depository that will act on behalf
of a Bidder and is identified as such in such Bidder's Master
Purchaser's Letter.
(v) "Applicable 'AA' Composite Commercial Paper
Rate", for any Multiple Quarterly Dividend Period or Long-Term
Dividend Period, on any date, shall mean in the case of any
Multiple Quarterly Dividend Period or Long-Term Dividend Period
having a term (i) more than 49 days but fewer than 120 days, the
interest equivalent of the 90-day rate, (ii) 120 days or more but
fewer than 148 days, the arithmetic average of the interest
equivalent of the 90-day and 180-day rates, (iii) 148 days or
more but fewer than 210 days, the interest equivalent of the 180-
day rate, (iv) 210 days or more but fewer than 238 days, the
arithmetic average of the interest equivalent of the 180-day and
270-day rates, and (v) 238 or more days but less than one year,
the interest equivalent of the 270-day rate, on commercial paper
placed on behalf of issuers whose corporate bonds are rated "AA"
by S&P or "Aa" by Moody's, or the equivalent of either or both of
such ratings by such agencies or such rating by another rating
agency, as made available on a discount basis or otherwise by the
Federal Reserve Bank of New York for the Business Day immediately
preceding such date or in the event that the Federal Reserve Bank
of New York does not make available any such rate, then the
arithmetic average of such rates, as quoted on a discount basis
or otherwise by the Commercial Paper Dealers to the Auction Agent
for the close of business on the Business Day next preceding such
date. If any Commercial Paper Dealer does not quote a rate
required to determine the Applicable "AA" Composite Commercial
Paper Rate, the Applicable "AA" Composite Commercial Paper Rate
shall be determined on the basis of the quotation or quotations
furnished by the remaining Commercial Paper Dealer and any
Substitute Commercial Paper Dealer or Dealers selected by the
Company to provide such rate or rates not being supplied by any
Commercial Paper Dealer or Dealers, as the case may be, or, if
the Company does not select any such Substitute Commercial Paper
Dealer or Dealers, by the remaining Commercial Paper Dealer. For
the purpose of this definition, any arithmetic average shall be
rounded to the nearest one-thousandth (.001) of one percent (or,
if there is no nearest one-thousandth (.001) of one percent, to
the next highest one-thousandth (.001) of one percent) and
"interest equivalent" means the equivalent yield on a 360-day
basis of a discount-basis security to an interest-bearing
security.
(vi) "Applicable Rate" shall mean dividend rate per
annum applicable to the shares of Flexible Preferred during a
Dividend Period. If an Auction is not held on an Auction Date for
any reason (other than because of the discontinuation of Auctions
that results in the Applicable Rate becoming the Default Rate or
because of the prior call for redemption of all shares of
Flexible Preferred then outstanding), except in certain limited
circumstances discussed under paragraph (f) of the definition of
Auction Procedures, the dividend rate for the next succeeding
Dividend Period shall be the Maximum Applicable Rate for a
Quarterly Dividend Period or, if the next succeeding Dividend
Period is a Seven-Day Dividend Period, a Short-Term Dividend
Period, determined as of such Auction Date.
(vii) "Applicable Treasury Rate", on any date, with
respect to Flexible Preferred with a Multiple Quarterly Dividend
Period or a Long-Term Dividend Period of one year or more, means
the interest equivalent of the rate for direct obligations of the
United States Treasury having an original maturity which is equal
to, or next lower than, the length of such Multiple Quarterly
Dividend Period or Long-Term Dividend Period, as the case may be,
or thirty years, in the case of a Perpetual Dividend Period, as
published weekly by the Federal Reserve Board in "Federal Reserve
Statistical Release H.15(519)--Selected Interest Rates", or any
successor publication by the Federal Reserve Board, within five
Business Days preceding such date. In the event that the Federal
Reserve Board does not publish such weekly per annum interest
rate, or if such release is not yet available, the Applicable
Treasury Rate will be the arithmetic average of the secondary
market bid rates as of approximately 3:30 PM, New York City time,
on the Business Day next preceding such date, of Kidder, Peabody
& Co. Incorporated and Smith Barney, Harris Upham & Co.
Incorporated or, in lieu of either thereof, their respective
affiliates or successors (the "U.S. Government Securities
Dealers") obtained by the Auction Agent (or in lieu thereof, the
Company) for the issue of direct obligations of the United States
Treasury, in an aggregate principal amount of at least $1,000,000
with a remaining maturity equal to, or next lower than, the
length of such Multiple Quarterly Dividend Period or Long-Term
Dividend Period, as the case may be, or thirty years, in the case
of a Perpetual Dividend Period. If any U.S. Government Securities
Dealer does not quote a rate required to determine the Applicable
Treasury Rate, the Applicable Treasury Rate shall be determined
on the basis of the quotation or quotations furnished by the
remaining U.S. Government Securities Dealer or any Substitute
U.S. Government Securities Dealer or Dealers selected by the
Company to provide such rate or rates not being supplied by any
U.S. Government Securities Dealer or Dealers, as the case may be,
or, if the Company does not select any such Substitute U.S.
Government Securities Dealer or Dealers, by the remaining U.S.
Government Securities Dealer; provided, that in the event the
Company is unable to cause such quotations to be furnished to the
Auction Agent (or, if applicable, to the Company) by such
sources, the Company may cause the Applicable Treasury Rate to be
furnished to the Auction Agent (or, if applicable, to the
Company) by such alternative source or sources as the Company in
good faith deems to be reliable. For the purpose of this
definition, (i) any arithmetic average shall be rounded to the
nearest one-thousandth (.001) of one percent (or, if there is no
nearest one-thousandth (.001) of one percent, to the next highest
one-thousandth (.001) of one percent), (ii) the "interest
equivalent" means the equivalent yield on a 360-day basis of a
discount-basis security to an interest-bearing security and
(iii) "Substitute U.S. Government Securities Dealer" means any
dealer in United States Treasury obligations, the principal
office of which is located in New York City, that is a nationally
recognized leading dealer in the market for United States
Treasury obligations, provided that no such dealer may be a U.S.
Government Securities Dealer or any affiliate of the Company.
(viii) "Articles" shall mean the Articles of
Incorporation of the Company, as amended.
(ix) "Auction" shall mean the periodic implementation
of the Auction Procedures.
(x) "Auction Agent" shall mean Bankers Trust Company
(together with any successor bank or trust company or other
entity entering into an Auction Agent Agreement with the
Company).
(xi) "Auction Agent Agreement" shall mean an agreement
entered into by the Company with a bank or trust company or other
entity which will provide, among other things, that such bank or
trust company or other entity will follow the Auction Procedures
for the purposes of determining the Applicable Rate.
(xii) "Auction Date" shall mean the Business Day
immediately preceding the first day of each Dividend Period which
commences after the initial Dividend Period and, in connection
with an Auction with respect to a Quarterly Dividend Period or a
Multiple Quarterly Dividend Period that was cancelled because of
an event or events not within the control of the Company and not
directly involving the Company or its properties, the first
Business Day following the date of such cancelled Auction that
the Auction Agent determines an Auction can be held.
(xiii) "Auction Procedures" shall mean the following
procedures pursuant to which the Applicable Rate is determined:
(a)The headings of the various subdivisions below
are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.
(b)Orders by Existing Holders and Potential Holders.
(i)Prior to the Submission Deadline on each
Auction Date:
(A) each Existing Holder may submit to a
Broker-Dealer information as to:
(1) the number of Outstanding shares, if
any, of Flexible Preferred held by such Existing Holder
which such Existing Holder desires to continue to hold
without regard to the Applicable Rate for the next
succeeding Dividend Period;
(2) the number of Outstanding shares, if
any, of Flexible Preferred that such Existing Holder desires
to sell, provided that the Applicable Rate for the next
succeeding Dividend Period shall be less than the rate per
annum specified by such Existing Holder; and/or
(3) the number of Outstanding shares, if
any, of Flexible Preferred held by such Existing Holder
which such Existing Holder offers to sell without regard to
the Applicable Rate for the next succeeding Dividend Period;
and
(B) each Broker-Dealer, using a list of
Potential Holders that shall be maintained by such Broker-
Dealer in good faith for the purpose of conducting a
competitive Auction, shall contact Potential Holders,
including Persons that are not Existing Holders, on such
list to determine the number of shares, if any, of Flexible
Preferred that each such Potential Holder offers to
purchase, provided that the Applicable Rate for the next
succeeding Dividend Period shall not be less than the rate
per annum specified by such Potential Holder.
For the purposes hereof, the communication to a
Broker-Dealer of the information referred to in this
paragraph (b)(i) is hereinafter referred to as an "Order"
and each Existing Holder and each Potential Holder placing
an Order is hereinafter referred to as a "Bidder"; an Order
containing the information referred to in clause (A)(1) of
this paragraph (b)(i) is hereinafter referred to as a "Hold
Order"; an Order containing the information referred to in
clause (A)(2) or (B) of this paragraph (b)(i) is hereinafter
referred to as a "Bid"; and an Order containing the
information referred to in clause (A)(3) of this paragraph
(b)(i) is hereinafter referred to as a "Sell Order". Each
Order by an Existing Holder or a Potential Holder must
specify the number of shares of Flexible Preferred subject
to such Order in whole Units. Any Order that specifies a
number of shares other than in whole Units will not be
accepted by the Auction Agent and will not be considered a
Submitted Order for purposes of the Auction.
(ii) (A) A Bid by an Existing Holder shall
constitute an irrevocable offer to sell:
(1) the number of Outstanding shares of
Flexible Preferred specified in such Bid if the Applicable
Rate determined on such Auction Date shall be less than the
rate per annum specified in such Bid;
(2) the number of Outstanding shares of
Flexible Preferred specified in such Bid or a lesser number
of Outstanding shares of Flexible Preferred to be determined
as set forth in paragraph (e)(i)(D) if the Applicable Rate
determined on such Auction Date shall be equal to the rate
per annum specified in such Bid; or
(3) the number of Outstanding shares of
Flexible Preferred specified in such Bid or a lesser number
of Outstanding shares of Flexible Preferred to be determined
as set forth in paragraph (e)(ii)(C) if the rate per annum
specified in such Bid shall be higher than the Maximum
Applicable Rate and Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall
constitute an irrevocable offer to sell:
(1) the number of Outstanding shares of
Flexible Preferred specified in such Sell Order if
Sufficient Clearing Bids do exist; or
(2) the number of Outstanding shares of
Flexible Preferred specified in such Sell Order or a lesser
number of Outstanding shares of Flexible Preferred to be
determined as set forth in paragraph (e)(ii)(C) if
Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall
constitute an irrevocable offer to purchase:
(1) the number of Outstanding shares of
Flexible Preferred specified in such Bid if the Applicable
Rate determined on such Auction Date shall be higher than
the rate per annum specified in such Bid; or
(2) the number of Outstanding shares of
Flexible Preferred specified in such Bid or a lesser number
of Outstanding shares of Flexible Preferred to be determined
as set forth in paragraph (e)(i)(E) if the Applicable Rate
determined on such Auction Date shall be equal to the rate
per annum specified in such Bid.
(c)Submission of Orders by Broker-Dealers to Auction
Agent.
(i)Each Broker-Dealer shall submit in writing to
the Auction Agent prior to the Submission Deadline on each
Auction Date all Orders obtained by such Broker-Dealer and
shall specify with respect to each Order:
(A) the name of the Bidder placing such
Order;
(B) the aggregate number of shares of
Flexible Preferred that are subject of such
Order;
(C) to the extent that such Bidder is an
Existing Holder;
(1) the number of shares, if any, of
Flexible Preferred subject to any Hold Order placed by such
Existing Holder;
(2) the number of shares, if any, of
Flexible Preferred subject to any Bid placed by such
Existing Holder and the rate specified in such Bid; and
(3) the number of shares, if any, of
Flexible Preferred subject to any Sell Order placed by such
Existing Holder; and
(D) to the extent that such Bidder is a
Potential Holder, the rate and the number of shares of
Flexible Preferred specified in such Potential Holder's Bid.
(ii) If any rate specified on any Bid
contains more than three figures to the right of the decimal
point, the Auction Agent shall round such rate up to the
next higher one thousandth (.001) of one percent.
(iii) If any Order or Orders covering all of
the Outstanding shares of Flexible Preferred held by an
Existing Holder is not submitted to the Auction Agent prior
to the Submission Deadline, the Auction Agent shall deem a
Hold Order to have been submitted on behalf of such Existing
Holder covering the number of Outstanding shares of Flexible
Preferred held by such Existing Holder and not subject to
Orders submitted to the Auction Agent.
(iv) If one or more Orders covering in the
aggregate more than the number of Outstanding shares of
Flexible Preferred held by an Existing Holder are submitted
to the Auction Agent, such Orders shall be considered valid
as follows and in the following order of priority:
(A) Any Hold Order submitted on behalf of
such Existing Holder shall be considered valid up to and
including the number of Outstanding shares of Flexible
Preferred held by such Existing Holder; provided that if
more than one Hold Order is submitted on behalf of such
Existing Holder and the number of shares of Flexible
Preferred subject to such Hold Orders exceeds the number of
Outstanding shares of Flexible Preferred held by such
Existing Holder, the number of shares of Flexible Preferred
subject to such Hold Orders shall be reduced pro rata in
whole Units so that such Hold Orders shall cover the number
of Outstanding shares of Flexible Preferred held by such
Existing Holder.
(B) Any Bid shall be considered valid to the
extent and in the order of priority specified in this clause
(B):
(1) any Bid shall be considered valid up
to and including the excess (the "Bid Excess") of the number
of Outstanding shares of Flexible Preferred held by such
Existing Holder over the number of shares of Flexible
Preferred subject to Hold Orders referred to in paragraph
(c)(iv)(A); and
(2) subject to clause (1) above, if more
than one Bid with the same rate is submitted on behalf of
such Existing Holder and the number of Outstanding shares of
Flexible Preferred subject to such Bids is greater than the
Bid Excess, the number of shares of Flexible Preferred
subject to such Bids shall be reduced pro rata in whole
Units so that such Bids shall cover the number of shares of
Flexible Preferred equal to the Bid Excess; and
(3) subject to clause (1) above, if more
than one Bid with different rates is submitted on behalf of
such Existing Holder, such Bids shall be considered valid in
the ascending order of their respective rates up to and
including the Bid Excess, provided that, in any event, the
number, if any, of Outstanding shares subject to Bids not
valid under this clause (B) shall be treated as the subject
of a Bid by a Potential Holder.
(C) Any Sell Order shall be considered valid
to the extent and in the order of priority specified in this
clause (C):
(1) any Sell Order shall be considered
valid up to and including the excess (the "Sell Excess") of
the number of Outstanding shares of Flexible Preferred held
by such Existing Holder over the number of shares of
Flexible Preferred, subject to Hold Orders referred to in
paragraph (c)(iv)(A) and Bids referred to in paragraph
(c)(iv)(B); and
(2) subject to clause (1) above, if more
than one Sell Order is submitted on behalf of such Existing
Holder and the number of Outstanding shares of Flexible
Preferred subject to such Sell Orders is greater than the
Sell Excess, the number of shares of Flexible Preferred
subject to such Sell Orders shall be reduced pro rata in
whole Units so that such Sell Orders shall cover the number
of shares of Flexible Preferred equal to the Sell Excess.
(v)If more than one Bid is submitted on behalf
of any Potential Holder, each Bid submitted shall be a
separate Bid with the rate and number of shares of Flexible
Preferred therein specified.
(vi) Each Order by an Existing Holder or a
Potential Holder must specify numbers of shares subject to
such Order in whole Units. Any Order that specifies a number
of shares other than in whole Units will not be accepted and
will not be considered a Submitted Order for purposes of an
Auction.
(d)Determination of Sufficient Clearing Bids,
Winning Bid Rate and Applicable Rate.
(i)Not earlier than the Submission Deadline on
each Auction Date, the Auction Agent shall assemble all
Orders submitted or deemed submitted to it by the Broker-
Dealers (each such Order as submitted or deemed submitted by
a Broker-Dealer being hereinafter referred to individually
as a "Submitted Hold Order", a "Submitted Bid" or a
"Submitted Sell Order", as the case may be, or as a
"Submitted Order") and shall determine:
(A) the excess of the total number of
Outstanding shares of Flexible Preferred over the number of
Outstanding shares of Flexible Preferred that are the
subject of Submitted Hold Orders (such excess being
hereinafter referred to as the "Available Flexible
Preferred");
(B) from the Submitted Orders whether the
number of Outstanding shares of Flexible Preferred that are
the subject of Submitted Bids by Potential Holders
specifying one or more rates equal to or lower than the
Maximum Applicable Rate exceeds or is equal to the sum of:
(x) the number of Outstanding shares of
Flexible Preferred that are the subject of
Submitted Bids by Existing Holders
specifying one or more rates higher than the
Maximum Applicable Rate; and
(y) the number of Outstanding shares of
Flexible Preferred that are subject to
Submitted Sell Orders
(if such excess or such equality exists
(other than because the number of shares of
Flexible Preferred in clauses (x) and (y) is
each zero because all of the Outstanding
shares of Flexible Preferred are the subject
of Submitted Hold Orders), such Submitted
Bids by Potential Holders being hereinafter
referred to collectively as "Sufficient
Clearing Bids"); and
(C) If Sufficient Clearing Bids exist, the
lowest rate specified in the Submitted Bids (the "Winning
Bid Rate") which if the Auction Agent accepted:
(1) each Submitted Bid from Existing
Holders specifying such lowest rate and all other Submitted
Bids from Existing Holders specifying rates lower than such
lowest rate; and
(2) each Submitted Bid from Potential
Holders specifying such lowest rate and all other Submitted
Bids from Potential Holders specifying rates lower than such
lowest rate would result in such Existing Holders described
in subclause (1) continuing to hold an aggregate number of
Outstanding shares of Flexible Preferred that, when added to
the number of Outstanding shares of Flexible Preferred to be
purchased by such Potential Holders described in
subclause (2), would equal not less than the Available
Flexible Preferred.
(ii) Promptly after the Auction Agent has
made the determinations pursuant to paragraph (d)(i), the
Auction Agent shall advise the Company of the Maximum
Applicable Rate and, based on such determinations, the
Applicable Rate for the related Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that
the Applicable Rate for such Dividend Period shall be equal
to the Winning Bid Rate so determined;
(B) if Sufficient Clearing Bids do not exist
(other than because all of the Outstanding shares of
Flexible Preferred are the subject of Submitted Hold
Orders), then (a) if the Company has not given a Notice of
Adjustment of Dividend Period with respect to the next
succeeding Dividend Period or has given a Notice of
Revocation with respect thereto, that such next succeeding
Dividend Period will be a Quarterly Dividend Period, unless
the existing Dividend Period is a Short-Term Period or a
Long-Term Dividend Period, in either of such cases the
succeeding Dividend Period will be a Short-Term Dividend
Period, and that the Applicable Rate for the applicable
Dividend Period will be the Maximum Applicable Rate on the
Auction Date for a Quarterly Dividend Period or a Short-Term
Dividend Period, as applicable, and (b) if the Company has
given a Notice of Adjustment of Dividend Period with respect
to the next succeeding Dividend Period and has not given a
Notice of Revocation with respect thereto, that such next
succeeding Dividend Period will, notwithstanding such Notice
of Adjustment of Dividend Period, be a Quarterly Dividend
Period, unless the existing Dividend Period is a Short-Term
Dividend Period or a Long-Term Dividend Period, in either of
such cases the succeeding Dividend Period will be a Seven-
Day Dividend Period, all Bids and Sell Orders will be
rejected and that the Applicable Rate for the applicable
Dividend Period will be the greater of (1) the Maximum
Applicable Rate on the Auction Date for a Quarterly Dividend
Period or a Short-Term Dividend Period, as applicable, and
(2) the dividend rate in effect for the Dividend Period
during which such Auction occurred; if Sufficient Clearing
Bids have not been made, Existing Holders that have
submitted Sell Orders will not be able to sell in the
Auction all, and may not be able to sell in the Auction any,
shares which are the subject of such submitted Sell Orders;
(C) if all of the Outstanding shares of
Flexible Preferred are the subject of Submitted Hold Orders,
that the Applicable Rate for the next succeeding Dividend
Period shall (1) in the case of a Short-Term Dividend
Period, be equal to 59% of the 60-day "AA" Composite
Commercial Paper Rate in effect on such Auction Date, (2) in
the case of a Quarterly Dividend Period, be equal to 59% of
the 90-day "AA" Composite Commercial Paper Rate in effect on
such Auction Date and (3) in the case of a Multiple
Quarterly Dividend Period or a Long-Term Dividend Period,
59% of the Reference Rate in effect on such Auction Date,
subject in each case to a maximum of 25% per annum.
(e)Acceptance and Rejection of Submitted Bids and
Submitted Sell Orders and Allocations of Shares. Existing
Holders shall continue to hold shares of Flexible Preferred
that are the subject of Submitted Hold Orders and, based on
the determinations made pursuant to paragraph (d)(i), the
Submitted Bids and Submitted Sell Orders shall be accepted
or rejected and the Auction Agent shall take such other
action as set forth below:
(i)If Sufficient Clearing Bids have been made,
subject to the provisions of paragraph (e)(iii), Submitted
Bids and Submitted Sell Orders shall be accepted or rejected
in the following order of priority and all other Submitted
Bids shall be rejected:
(A) the Submitted Sell Orders of Existing
Holders shall be accepted and the Submitted Bid of each of
the Existing Holders specifying any rate that is higher than
the Winning Bid Rate shall be accepted, thus requiring each
such Existing Holder to sell the shares of Flexible
Preferred that are the subject of such Submitted Sell Order
or Submitted Bid;
(B) the Submitted Bid of each of the
Existing Holders specifying any rate that is lower than the
Winning Bid Rate shall be rejected, thus entitling each such
Existing Holder to continue to hold the shares of Flexible
Preferred that are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the
Potential Holders specifying any rate that is lower than the
Winning Bid Rate shall be accepted, thus requiring each such
Potential Holder to purchase the number of shares of
Flexible Preferred subject to such Submitted Bid;
(D) the Submitted Bid of each of the
Existing Holders specifying a rate that is equal to the
Winning Bid Rate shall be rejected, thus entitling each such
Existing Holder to continue to hold the shares of Flexible
Preferred that are the subject of such Submitted Bid, unless
the number of Outstanding shares of Flexible Preferred
subject to all such Submitted Bids shall be greater than the
number of shares of Flexible Preferred ("Remaining Shares")
equal to the excess of the Available Flexible Preferred over
the number of shares of Flexible Preferred subject to
Submitted Bids described in paragraphs (e)(i)(B) and
(e)(i)(C), in which event the Submitted Bids of each such
Existing Holder shall be accepted, and each such Existing
Holder shall be required to sell shares of Flexible
Preferred, but only in an amount equal to the difference
between (1) the number of Outstanding shares of Flexible
Preferred then held by such Existing Holder subject to such
Submitted Bid and (2) the number of shares of Flexible
Preferred obtained by multiplying (x) the number of
Remaining Shares by (y) a fraction, the numerator of which
shall be the number of Outstanding shares of Flexible
Preferred held by such Existing Holder subject to such
Submitted Bid and the denominator of which shall be the sum
of the number of Outstanding shares of Flexible Preferred
subject to such Submitted Bids made by all such Existing
Holders that specified a rate equal to the Winning Bid Rate;
and
(E) the Submitted Bid of each of the
Potential Holders specifying a rate that is equal to the
Winning Bid Rate shall be accepted, but only in an amount
equal to the number of shares of Flexible Preferred obtained
by multiplying the difference between the Available Flexible
Preferred and the number of shares of Flexible Preferred
subject to Submitted Bids described in paragraphs (e)(i)(B),
(e)(i)(C) and (e)(i)(D) by a fraction, the numerator of
which shall be the number of Outstanding shares of Flexible
Preferred held by such Potential Holder subject to such
Submitted Bid and the denominator of which shall be the sum
of the number of Outstanding shares of Flexible Preferred
subject to such Submitted Bids made by all such Potential
Holders that specified a rate equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not
been made (other than because all of the Outstanding shares
of Flexible Preferred are subject to Submitted Hold Orders)
in an Auction relating to a Quarterly Dividend Period,
subject to the provisions of paragraphs (e)(iii) and
(e)(iv), Submitted Orders shall be accepted or rejected as
follows in the following order of priority and all other
Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing
Holder specifying any rate that is equal to or lower than
the Maximum Applicable Rate shall be rejected, thus
entitling such Existing Holder to continue to hold the
shares of Flexible Preferred that are the subject of such
Submitted Bid;
(B) the Submitted Bid of each Potential
Holder specifying any rate that is equal to or lower than
the Maximum Applicable Rate shall be accepted, thus
requiring such Potential Holder to purchase the shares of
Flexible Preferred that are the subject of such Submitted
Bid; and
(C) the Submitted Bids of each Existing
Holder specifying any rate that is higher than the Maximum
Applicable Rate shall be accepted and the Submitted Sell
Orders of each Existing Holder shall be accepted, in both
cases only in an amount equal to the difference between
(1) the number of outstanding shares of Flexible Preferred
then held by such Existing Holder subject to such Submitted
Bid or Submitted Sell Order and (2) the number of shares of
Flexible Preferred obtained by multiplying (x) the
difference between the Available Flexible Preferred and the
aggregate number of shares of Flexible Preferred subject to
Submitted Bids described in paragraphs (e)(ii)(A) and
(e)(ii)(B) by (y) a fraction, the numerator of which shall
be the number of Outstanding shares of Flexible Preferred
held by such Existing Holder subject to such Submitted Bid
or Submitted Sell Order and the denominator of which shall
be the number of Outstanding shares of Flexible Preferred
subject to all such Submitted Bids and Submitted Sell
Orders.
(iii) If, as a result of the procedures
described in paragraph (e)(i) or (e)(ii), any Existing
Holder would be entitled or required to sell, or any
Potential Holder would be entitled or required to purchase
on any Auction Date, shares of Flexible Preferred other than
in whole Units, the Auction Agent shall, in such manner as,
in its sole discretion, it shall determine, (x) round up or
down the number of shares of Flexible Preferred to be sold
or purchased by any Existing Holder or Potential Holder on
such Auction Date so that the number of shares sold or
purchased by each Existing Holder or Potential Holder on
such Auction Date shall be in whole Units of Flexible
Preferred and (y) allocate such whole Units for
purchase among Potential Holders even if such allocation
results in one or more of such Potential Holders purchasing
no shares of Flexible Preferred.
(iv) If Sufficient Clearing Bids have not
been made (other than because all of the Outstanding shares
of Flexible Preferred are subject to Submitted Hold Orders)
in an Auction relating to a Short-Term Dividend Period, a
Multiple Quarterly Dividend Period or a Long-Term Dividend
Period, all Submitted Bids and all Submitted Sell Orders
shall be rejected, thus requiring each Existing Holder to
continue to hold the shares of Flexible Preferred held by
such Existing Holder immediately prior to such Auction and
the next succeeding Dividend Period will be, in the case of
an Auction relating to a Multiple Quarterly Dividend Period,
a Quarterly Dividend Period, and, in the case of an Auction
relating to a Short-Term Dividend Period or a Long-Term
Dividend Period, a Seven-Day Dividend Period.
(v)If all of the Outstanding shares of Flexible
Preferred are the subject of Submitted Hold Orders, all
Submitted Bids shall be rejected.
(vi) Based on the results of each Auction,
the Auction Agent shall determine the aggregate number of
shares of Flexible Preferred to be purchased and the
aggregate number of shares of Flexible Preferred to be sold
by Potential Holders and Existing Holders on whose behalf
each Broker-Dealer submitted Bids or Sell Orders, and, with
respect to each Broker-Dealer, to the extent that such
aggregate number of shares to be purchased and such
aggregate number of shares to be sold differ, determine to
which other Broker-Dealer or Broker-Dealers acting for one
or more purchasers such Broker-Dealer shall deliver, or from
which other Broker-Dealer or Broker-Dealers acting for one
or more sellers such Broker-Dealer shall receive, as the
case may be, shares of Flexible Preferred.
(f)Cancelled Auctions. Notwithstanding anything
contained herein to the contrary, if an Auction with respect
to a Quarterly Dividend Period or a Multiple Quarterly
Dividend Period is cancelled because of an event or events
not within the control of the Company and not directly
involving the Company or its properties, an Auction will be
held on the first Business Day following the date of such
cancelled Auction that the Auction Agent determines an
Auction can be held. The Applicable Rate for the Dividend
Period commencing on the Quarterly Dividend Payment Date on
or immediately prior to the rescheduled Auction will be the
Applicable Rate resulting from such Auction. Unless Existing
Holders who sell Units at the rescheduled Auction make
arrangements with their Agent Member to assure that they
will receive unpaid dividends that accrued prior to the
rescheduled Auction, such Existing Holders will not be
entitled to receive dividends on such Units on the Quarterly
Dividend Payment Date following such Auction.
(g)Miscellaneous. An Existing Holder (A) may sell,
transfer or otherwise dispose of shares of Flexible
Preferred only in whole Units and only pursuant to a Bid or
Sell Order in accordance with the procedures described above
to or through a Broker-Dealer or to a Person that has
delivered a signed copy of a Master Purchaser's Letter to
the Auction Agent, provided that in the case of all
transfers other than pursuant to Auctions such Existing
Holder, its Broker-Dealer or its Agent Member advises the
Auction Agent of such transfer, and (B) shall have the
beneficial ownership of the shares of Flexible Preferred
held by it maintained in book-entry form by the Securities
Depository in the account of its Agent Member, which in turn
will maintain records of such Existing Holder's beneficial
ownership. The Company and its Affiliates shall not submit
any Order in any Auction except as set forth in the next
sentence. Any Broker-Dealer that is an Affiliate of the
Company may submit Orders in Auctions but only if such
Orders are not for its own account, except that if such
affiliated Broker-Dealer holds shares of Flexible Preferred
for its own account, it must submit a Sell Order in the next
Auction with respect to such shares of Flexible Preferred.
If Sufficient Clearing Bids have been made, or all
outstanding shares of Flexible Preferred are subject to
Submitted Hold Orders, with respect to an Auction held
during a Seven-Day Dividend Period, the next succeeding
Dividend Period will be a Short-Term Dividend Period,
otherwise the next succeeding Dividend Period will be a
Seven-Day Dividend Period.
(xiv) "Available Flexible Preferred" shall have the
meaning specified in paragraph (d)(i)(A) of the definition of
Auction Procedures.
(xv) "Bid" shall have the meaning specified in
paragraph (b)(i) of the definition of Auction Procedures.
(xvi) "Bidder" shall have the meaning specified in
paragraph (b)(i) of the definition of Auction
Procedures.
(xvii) "Bid Excess" shall have the meaning specified in
paragraph (c)(iv)(B)(1) of the definition of Auction Procedures.
(xviii) "Broker-Dealer" shall mean any broker-dealer or
other entity permitted by law to perform the functions required
of a Broker-Dealer in connection with the Auction Procedures that
has been selected by the Company to perform such functions and
has entered into a Broker-Dealer Agreement with the Auction Agent
that remains effective.
(xix) "Broker-Dealer Agreement" shall mean an agreement
between the Auction Agent and a Broker-Dealer pursuant to which
such Broker-Dealer agrees to follow the Auction Procedures.
(xx) "Business Day" shall mean a day on which the New
York Stock Exchange is open for trading and which is not a day on
which banking institutions in New York City are authorized or
required by law or executive order to close.
(xxi) "Commercial Paper Dealers" shall mean Kidder,
Peabody & Co. Incorporated and Smith Barney, Harris Upham & Co.
Incorporated and their respective successors or affiliates.
(xxii) "Default Rate" shall have the meaning specified
in the second paragraph of paragraph (a) following these
definitions.
(xxiii) "Dividend Payment Date" shall mean each date that
dividends on shares of Flexible Preferred are payable. Such dates
shall be (a) the first days of January, April, July and October
with respect to Quarterly Dividend Periods and Multiple Quarterly
Dividend Periods, (b) each seventh Wednesday following the
preceding Dividend Payment Date with respect to Short-Term
Dividend Periods, (c) the Business Day next succeeding the last
day of the Dividend Period, and if payable prior to that date, on
a selected day of the second, third or fourth month (as specified
in the related Notice of Adjustment of Dividend Period) after the
commencement of the Dividend Period, and quarterly thereafter on
the same day of each succeeding third month, with respect to Long-
Term Dividend Periods and (d) on the seventh day following the
Business Day next succeeding the date of the Auction giving rise
to the Seven-Day Dividend Period with respect to Seven-Day
Dividend Periods.
(xxiv) "Dividend Period" shall mean the initial Dividend
Period (date of initial issuance to September 30, 1993), a
Quarterly Dividend Period, a Multiple Quarterly Dividend Period,
a Short-Term Dividend Period, a Long-Term Dividend Period or a
Seven-Day Dividend Period.
If an Auction is not held on an Auction Date for any
reason (other than because of the discontinuation of Auctions due
to a failure to pay dividends or the redemption price when due or
the prior call for redemption of all shares of Flexible Preferred
then outstanding), whether or not a Notice of Adjustment of
Dividend Period has been given with respect thereto, the related
Dividend Period will be a Quarterly Dividend Period unless the
existing Dividend Period is a Short-Term Period or a Long-Term
Dividend Period, in either of such cases, the related Dividend
Period will be a Seven-Day Dividend Period.
If the Company does not give a Notice of Adjustment of
Dividend Period with respect to a next succeeding Dividend
Period, or gives a Notice of Revocation with respect thereto,
such next succeeding Dividend Period will be a Quarterly Dividend
Period, unless the existing Dividend Period is a Short-Term
Dividend Period or a Long-Term Dividend Period, in either of such
cases, the next succeeding Dividend Period shall be a Short-Term
Dividend Period. In addition, in the event the Company has given
a Notice of Adjustment of Dividend Period with respect to a next
succeeding Dividend Period, but Sufficient Clearing Bids are not
made in the related Auction (other than because all shares of
Flexible Preferred are the subject of Submitted Hold Orders),
such next succeeding Dividend Period will, notwithstanding such
Notice of Adjustment of Dividend Period, be a Quarterly Dividend
Period, unless the existing Dividend Period is a Short-Term
Dividend Period or a Long-Term Dividend Period, in either of such
cases and in the case of the failure to receive Sufficient
Clearing Bids (other than because all shares of Flexible
Preferred are the subject of Submitted Hold Orders) relating to a
Short-Term Dividend Period, the next succeeding Dividend Period
shall be a Seven-Day Dividend Period and the Company may not
again give a Notice of Adjustment of Dividend Period that
specifies a term which is a Multiple Quarterly Dividend Period or
Long-Term Dividend Period (and any such notice shall be null and
void) until Sufficient Clearing Bids have theretofore been made
(or all shares were the subject of Submitted Hold Orders) in an
Auction with respect to a Quarterly Dividend Period or a Short-
Term Dividend Period, as the case may be.
Notwithstanding the foregoing, if the Dividend Payment
Date with respect to any Dividend Period (other than a Seven-Day
Dividend Period) is a day that would result in the number of days
in such Dividend Period not being at least equal to the then
current Minimum Holding Period, then such Dividend Period shall
be extended to a date that results in the number of days included
in such Dividend Period being at least equal to the Minimum
Holding Period and dividends payable on the final Dividend
Payment Date of such Dividend Period shall be payable, (i) in
respect of a Quarterly Dividend Period or a Multiple Quarterly
Dividend Period, on the first Quarterly Dividend Payment Date
next succeeding such date, and (ii) in respect of a Short-Term
Dividend Period or a Long-Term Dividend Period, on the first day
following such date that is next succeeded by a Business Day.
In addition, notwithstanding the foregoing, in the
event of a change in law altering the Minimum Holding Period, the
Board of Directors may adjust the period of time between Dividend
Payment Dates in connection with Short-Term Dividend Period so as
to adjust uniformly the number of days (such number of days,
without giving effect to the adjustments referred to above, being
referred to herein as "Dividend Period Days") in between
successive Dividend Payment Dates commencing after the date of
such change in law to equal or exceed the then current Minimum
Holding Period, provided that the number of Dividend Period Days
shall not exceed by more than nine days the length of such then
current Minimum Holding Period and shall be evenly divisible by
seven, and the maximum number of Dividend Period Days, as
adjusted pursuant to these provisions, shall in no event exceed
98 days. Upon any such change in the number of Dividend Period
Days as a result of a change in law, the Company will give notice
of such change to all Existing Holders of Flexible Preferred.
Although any particular Dividend Payment Date may not
occur on the originally scheduled Dividend Payment Date because
of the foregoing adjustments or because such originally scheduled
Dividend Payment Date is not a Business Day, each succeeding
Dividend Payment Date shall be, subject to such adjustments, the
date determined as set forth in this definition of Dividend
Payment Date as if each preceding Dividend Payment Date had
occurred on the respective originally scheduled Dividend Payment
Date.
(xxv) "Dividend Period Days" shall have the meaning
specified in the penultimate paragraph under the definition of
Dividend Period.
(xxvi) "Dividend Quarter" shall mean the period from the
preceding Dividend Payment Date to the next Dividend Payment Date
during a Multiple Quarterly Dividend Period or a Long-Term
Dividend Period in the case where such Dividend Payment Dates are
on the same date of the month and the next Dividend Payment Date
is in the third calendar month after the preceding Dividend
Payment Date.
(xxvii) "Enabling Event" shall mean the designation by
the Company of a Short-Term Dividend Period after such amendments
to the Articles as are necessary to accommodate the payment of
dividends on the Flexible Preferred on a basis other than
quarterly have been duly adopted by the Company's shareholders
and the Company has provided the Auction Agent and the Broker-
Dealers with copies of such amendments to the Articles, together
with an opinion of counsel, satisfactory to the Auction Agent and
the Broker-Dealers, to the effect that such amendments have been
duly adopted and filed with the Secretary of State of the State
of Illinois and that the Company's designation of a Dividend
Period other than a Quarterly Dividend Period or a Multiple
Quarterly Dividend Period with respect to the Flexible Preferred
will not conflict with or violate the Articles or the laws of
Illinois.
(xxviii) "Existing Holder" shall mean a person who has
signed a Master Purchaser's Letter and is listed as the
beneficial owner of shares of Flexible Preferred in the records
of the Auction Agent.
(xxix) "Flexible Preferred" shall mean the shares of
Flexible Auction Rate Class A Preferred Stock, without par value,
subject to an Auction on any Auction Date.
(xxx) "Hold Order" shall have the meaning specified in
paragraph (b)(i) of the definition of Auction Procedures.
(xxxi) "Long-Term Dividend Period" shall mean a period
greater than 49 days and either not exceeding 25 years or without
end, which (unless it is without end) contains a number of days
evenly divisible by 7. Each Long-Term Dividend Period shall
commence on a Dividend Payment Date and end, unless it is a
Perpetual Dividend Period, on the day next preceding a Dividend
Payment Date.
(xxxii) "Master Purchaser's Letter" shall mean a letter
addressed to the Company, the Auction Agent, a Broker-Dealer and
others in which a Person agrees, among other things, to offer to
purchase, purchase, offer to sell and/or sell shares of Flexible
Preferred pursuant to the Auction Procedures.
(xxxiii) "Maximum Applicable Rate" on any date shall mean
the lesser of 25% per annum and (a) in the case of a Quarterly
Dividend Period, a per annum rate equal to the product of the 90-
day "AA" Composite Commercial Paper Rate in effect on such date
multiplied by the Rate Multiple in effect on such date, (b) in
the case of a Short-Term Dividend Period, a per annum rate equal
to the product of the 60-day "AA" Composite Commercial Paper Rate
in effect on such date multiplied by the Rate Multiple in effect
on such date or (c) in the case of a Multiple Quarterly Dividend
Period or a Long-Term Dividend Period, a per annum rate equal to
the product of the Reference Rate in effect on such date
multiplied by the Rate Multiple in effect on such date.
(xxxiv) "Minimum Holding Period" shall mean the minimum
holding period under the federal tax laws of the United States
required for corporate taxpayers to be entitled to claim a
deduction with respect to dividends on preferred stock received
by them.
(xxxv) "Moody's" shall mean Moody's Investors Service,
Inc. or its successor.
(xxxvi) "Multiple Quarterly Dividend Period" shall mean a
period greater than 3 months and either not exceeding 25 years or
without end, which (unless it is without end) contains a number
of months evenly divisible by 3. Each Multiple Quarterly Dividend
Period shall commence on a Quarterly Dividend Payment Date and
end, unless it is a Perpetual Dividend Period, on the day next
preceding a Quarterly Dividend Payment Date.
(xxxvii) "No Call Period" shall have the meaning
specified in the definition of Notice of Adjustment of Dividend
Period.
(xxxviii) "Notice of Adjustment of Dividend Period"
shall mean a written notice by the Company to the Auction Agent
and the Securities Depository (which may be revoked by a Notice
of Revocation) given not less than 10 nor more than 20 days prior
to an Auction Date specifying the term of the next succeeding
Dividend Period will be a Multiple Quarterly Dividend Period, a
Long-Term Dividend Period or the initial Short-Term Dividend
Period. For any Auction occurring after the initial Auction, the
Company may not give a Notice of Adjustment of Dividend Period
(and any such notice shall be null and void) unless Sufficient
Clearing Bids were made (or all shares of the Flexible Preferred
were subject to Hold Orders) in the last occurring Auction, and
full cumulative dividends on shares of the Flexible Preferred,
whether or not earned or declared payable prior to such Auction
Date have been paid in full. Each Notice of Adjustment of
Dividend Period shall state (i) the term thereof if not a
Perpetual Dividend Period, (ii) the length of the period,
beginning on the first day of a Multiple Quarterly Dividend
Period or Long-Term Dividend Period, as the case may be, during
which the shares will not be redeemable at the option of the
Company (a "No-Call Period"), subject to any Special Redemption
or Sinking Fund Redemption stated to be applicable during such No-
Call Period as described in clause (vi) or (vii) below; (iii) the
premium per share, if any, that the Company will pay as part of
the redemption price if shares of Flexible Preferred are redeemed
by the Company otherwise than pursuant to a Special Redemption or
a Sinking Fund Redemption (the "Redemption Premium"), provided
that no such Redemption Premium will be stated in a Notice of
Adjustment of Dividend Period unless duly authorized by the Board
of Directors and provided, further, that any Redemption Premium
may be specified by the Company to decline over time to not less
than 0% in the applicable Notice of Adjustment of Dividend
Period; (iv) the terms, if any, on which the Applicable Rate for
a Multiple Quarterly Dividend Period or Long-Term Dividend
Period, as the case may be, will be adjusted upon the occurrence
of specified events relating to the U.S. federal income tax
consequences of the receipt of dividends on the Flexible
Preferred, which terms shall be specified in the applicable
Notice of Adjustment of Dividend Period; (v) the applicable
Broker-Dealer fee for such Auction; (vi) whether or not the
Flexible Preferred will be subject to a Special Redemption at the
option of the Company during a Multiple Quarterly Dividend Period
or Long-Term Dividend Period, as the case may be, and, if so, the
applicable Triggering Rate, or the formula or other basis for
determining the applicable Triggering Rate for such Special
Redemption; and (vii) whether or not the Flexible Preferred will
be subject to Sinking Fund Redemption during a Multiple Quarterly
Dividend Period or Long-Term Dividend Period, as the case may be,
and the period or periods within which, and the terms and
conditions upon which, the Flexible Preferred will be redeemed,
in whole or in part, pursuant to a Sinking Fund Redemption
obligation, provided that no Sinking Fund Redemption obligation
will be stated in a Notice of Adjustment of Dividend Period
unless duly authorized by the Board of Directors.
If in a Notice of Adjustment of Dividend Period the
Company has specified that the next succeeding Dividend Period
will be an initial Short-Term Dividend Period, such initial Short-
Term Dividend Period will end on a Tuesday specified in such
Notice of Adjustment of Dividend Period which will be no earlier
than the 46th day and no later than the eighth Tuesday following
the last day of the preceding Dividend Period (subject to
adjustment for a change in the Minimum Holding Period). Once the
Company has exercised its option to specify an initial Short-Term
Dividend Period, each succeeding Dividend Period shall be either
a Short-Term Dividend Period, a Long-Term Dividend Period or a
Seven-Day Dividend Period.
If in a Notice of Adjustment of Dividend Period the
Company has specified a Perpetual Dividend Period and Sufficient
Clearing Bids are made in the Auction relating to such
designation (or all shares of Flexible Preferred are the subject
of Submitted Hold Orders); (i) such Perpetual Dividend Period
will be the last Dividend Period, (ii) such Auction will be the
final Auction with respect to the Flexible Preferred, (iii) the
services of the Auction Agent (except in its capacities as
dividend disbursement agent, redemption agent, registrar and
transfer agent) and of the Broker-Dealers will end;
(iv) transferability of the shares of Flexible Preferred will not
be restricted to persons who have executed Master Purchaser's
Letters; (v) Master Purchaser's Letters will no longer be
required with respect to shares of Flexible Preferred; (vi) there
will be no adjustment to the dividend rate following the
commencement of such Perpetual Dividend Period for payment
failures or otherwise; and (vii) if so stated in the Notice of
Adjustment of Dividend Period, shares of Flexible Preferred will
no longer be required to be transferred in Units during such
Perpetual Dividend Period.
(xxxix) "Notice of Revocation" shall mean a telephonic
notice given by the Company to the Auction Agent, the Broker-
Dealers and the Security Depository at or prior to 10 AM on the
related Auction Date, and promptly confirmed in writing, that the
Company has revoked the Notice of Adjustment of Dividend Period
previously given by it with respect to such Auction Date.
(xl) "Order" shall have the meaning specified in
paragraph (b)(i) in the definition of Auction Procedures.
(xli) "Outstanding" shall mean, as of any date, shares
of Flexible Preferred theretofore issued by the Company except,
without duplication, (A) any shares of Flexible Preferred
theretofore cancelled or delivered to the Auction Agent for
cancellation, or redeemed by the Company or as to which a notice
of redemption shall have been given by the Company, (B) any
shares of Flexible Preferred as to which the Company or any
Affiliate thereof (other than an Affiliate which is a Broker-
Dealer) shall be an Existing Holder and (C) any shares of
Flexible Preferred represented by any certificate in lieu of
which a new certificate has been executed and delivered by the
Company.
(xlii) "Perpetual Dividend Period" shall mean a Multiple
Quarterly Dividend Period or a Long-Term Dividend Period without
end.
(xliii) "Person" shall mean and include an individual, a
partnership, a corporation, a trust, an unincorporated
association, a joint venture or other entity or a government or
any agency or political subdivision thereof.
(xliv) "Post-Enabling Event" shall mean the failure of
an Auction related to a Short-Term Dividend Period or a Long-Term
Dividend Period because Sufficient Clearing Bids do not exist
(other than because all of the outstanding shares of Flexible
Preferred are the subject of Submitted Hold Orders) or an Auction
is not held on an Auction Date for any reason (other than because
of a discontinuation of Auctions that results in the Applicable
Rate becoming the Default Rate).
(xlv) "Potential Holder" shall mean any Person,
including any Existing Holder, (A) who shall have executed a
Master Purchaser's Letter and (B) who may be interested in
acquiring shares of Flexible Preferred (or, in the case of an
Existing Holder, additional shares of Flexible Preferred).
(xlvi) "Quarterly Dividend Payment Date" shall mean the
first days of January, April, July and October.
(xlvii) "Quarterly Dividend Period" shall mean a period
of 3 months. Each Quarterly Dividend Period shall commence on a
Quarterly Dividend Payment Date and end on the day next preceding
the next succeeding Quarterly Dividend Payment Date.
(xlviii) "Rate Multiple" shall mean the percentage,
determined as set forth below, based on the prevailing rating of
the Flexible Preferred in effect at the close of business on the
Business Day preceding the applicable Auction Date (each Rate
Multiple appearing in the below table opposite a prevailing
rating being referred to as the "Original Rate Multiple" for such
prevailing rating):
Rate
Prevailing Ratings Multiple
AA/aa or Above 125%
A/a 150%
BBB/baa 200%
Below BBB/baa 250%
Notwithstanding the foregoing, with respect to any Auction Date,
(i) the Company may, by telephonic and written notice to the
Auction Agent by 10 AM New York City time, on such Auction Date,
increase the Rate Multiple to be in effect on such Auction Date,
such increased Rate Multiple to remain in effect thereafter
unless and until the Company gives notice, as provided in
clauses (i) and (ii) of this paragraph, to the Auction Agent and,
if required, the Broker-Dealers of a subsequent change to such
Rate Multiple, and (ii) the Company may, by telephonic and
written notice to the Auction Agent and the Broker-Dealers
delivered not less than 10 days prior to any Auction Date,
decrease the Rate Multiple to be in effect on such Auction Date
(but in no event to a Rate Multiple for any prevailing rating
which is less than the Original Rate Multiple for such prevailing
rating), such decreased Rate Multiple to remain in effect
thereafter unless and until the Company gives notice, as provided
in clauses (i) and (ii) of this paragraph, to the Auction Agent
and if required, the Broker-Dealers of a subsequent change to
such Rate Multiple; provided that in each case there has been
delivered to the Company and the Auction Agent an opinion of
counsel to the Company to the effect that the use of such higher
or lower, as the case may be, Rate Multiple will not adversely
affect the tax treatment of the Flexible Preferred.
For purposes of this definition, the "prevailing rating"
of Flexible Preferred shall be (i) AA/aa or Above, if the
Flexible Preferred has a rating of AA- or better by S&P and aa3
or better by Moody's or the equivalent of both of such ratings by
such agencies or a substitute rating agency or agencies selected
as provided below, (ii) if not AA/aa or Above, then A/a, if the
Flexible Preferred has a rating of A- or better by S&P and a3 or
better by Moody's or the equivalent of both of such ratings by
such agencies or a substitute rating agency or agencies selected
as provided below, (iii) if not AA/aa or Above or A/a, then
BBB/baa, if the Flexible Preferred has a rating of BBB- or better
by S&P and baa3 or better by Moody's or the equivalent of both of
such ratings by such agencies or a substitute rating agency or
agencies selected as provided below, and (iv) if not AA/aa or
Above, A/a or BBB/baa, then Below BBB/baa. Accordingly, for
purposes of the foregoing, the "prevailing rating" of the
Flexible Preferred will be based upon the lower of the two
ratings provided by S&P and Moody's or a substitute rating agency
or agencies. The Company shall take all reasonable action
necessary to enable S&P and Moody's to provide a rating for the
Flexible Preferred. If either or both of S&P or Moody's shall not
make such a rating available, the Company shall select a
nationally recognized statistical rating organization (as that
term is used in the rules and regulations of the Commission under
the Securities Exchange Act of 1934, as amended) or two
nationally recognized statistical rating organizations to act as
substitute rating agency or substitute rating agencies, as the
case may be.
(xlix) "Reference Rate" shall mean for Multiple
Quarterly Dividend Periods and Long-Term Dividend Periods having
a term (i) fewer than 270 days, the Applicable "AA" Composite
Commercial Paper Rate, (ii) 270 days or more and less than one
year, the higher of the 270-day Applicable "AA" Composite
Commercial Paper Rate and the one-year Applicable Treasury Rate
and (iii) one year or more, the Applicable Treasury Rate.
(l) "S&P" shall mean Standard & Poor's Corporation or
its successor.
(li) "Securities Depository" shall mean The Depository
Trust Company and its successors and assigns or any other
securities depository selected by the Company which agrees to
follow the procedures required to be followed by such securities
depository in connection with shares of Flexible Preferred.
(lii) "Sell Excess" shall have the meaning specified in
paragraph (c)(iv)(C)(1) of the definition of Auction Procedures.
(liii) "Sell Order" shall have the meaning specified in
paragraph (b)(i) of the definition of Auction Procedure.
(liv) "Seven-Day Dividend Period" shall mean a period
of 7 days. Each Seven-Day Dividend Period shall commence on a
Dividend Payment Date and end on the day next preceding a
Dividend Payment Date.
(lv) "Short-Term Dividend Period" shall mean a period
of 49 days or, in the event the Minimum Holding Period shall
exceed 49 days, a period designated by the Company which is not
greater than the lesser of (a) the length of the Minimum Holding
Period plus 9 days and (b) 98 days, which contains a number of
days evenly divisible by 7. Each Short-Term Dividend Period shall
commence on a Dividend Payment Date and end on the day next
preceding a Dividend Payment Date.
(lvi) "Sinking Fund Redemption" shall have the meaning
specified in paragraph (e) following these definitions.
(lvii) "Special Redemption" shall have the meaning
specified in paragraph (b) following these definitions.
(lviii) "Submission Deadline" shall mean 1 PM, New York
City time, on any Auction Date or such other time on any Auction
Date by which Broker-Dealers are required to submit Orders to the
Auction Agent as specified by the Auction Agent from time to
time.
(lix) "Submitted Bid" shall have the meaning specified
in paragraph (d)(i) of the definition of Auction Procedures.
(lx) "Submitted Hold Order" shall have the meaning
specified in paragraph (d)(i) of the definition of Auction
Procedures.
(lxi) "Submitted Order" shall have the meaning
specified in paragraph (d)(i) of the definition of Auction
Procedures.
(lxii) "Submitted Sell Order" shall have the meaning
specified in paragraph (d)(i) of the definition of Auction
Procedures.
(lxiii) "Substitute Commercial Paper Dealer" shall mean
any commercial paper dealer (other than the Commercial Paper
Dealers), the principal office of which is located in New York
City, that is a nationally recognized leading dealer in the
domestic commercial paper market, provided that no such dealer
may be an affiliate of the Company.
(lxiv) "Sufficient Clearing Bids" shall have the meaning
specified in paragraph (d)(i)(B) of the definition of Auction
Procedures.
(lxv) "Triggering Rate" shall have the meaning
specified in paragraph (b) following these definitions.
(lxvi) "Unit" shall mean a unit of Flexible Preferred
consisting of 1,000 shares of Flexible Preferred.
(lxvii) "Winning Bid Rate" shall have the meaning
specified in paragraph (d)(i)(C) of the definition of Auction
Procedures.
[End of Definitions]
(a) The rate of dividend shall be 2.45% per
annum until September 30, 1993.
Thereafter the rate of dividend for
each subsequent Dividend Period (which
shall be a Quarterly Dividend Period
prior to the Enabling Event and a Short-
Term Dividend Period after the Enabling
Event, unless a Notice of Adjustment of
Dividend Period has been given which
has not been revoked by a Notice of
Revocation or a Post-Enabling Event has
occurred, in which case, the Dividend
Period shall be as specified in such
Notice of Adjustment of Dividend Period
or a Seven-Day Dividend Period if a
Post-Enabling Event has occurred),
except as provided in the next
succeeding paragraph, shall be the rate
that the Auction Agent advises the
Company is the Applicable Rate for such
Dividend Period resulting from the
implementation of the Auction
Procedures. Except during a Perpetual
Dividend Period, in the event of the
failure by the Company to pay to the
Auction Agent by 12 Noon, New York City
time, (i) on the Business Day next
preceding any Dividend Payment Date,
the full amount of any dividend
(whether or not earned or declared) to
be paid on such Dividend Payment Date
on any share or (ii) on the Business
Day next preceding any redemption date,
the full redemption price to be paid on
such redemption date for any share
after a notice of redemption has been
(or should have been) given, and any
such failure shall not have been cured
within three Business Days thereafter
by payment to the Auction Agent, by
12 Noon, New York City time, on such
third Business Day, of the full amount
of all such dividends or the full
amount of the aggregate redemption
price for the shares that have been (or
should have been) called for
redemption, plus accrued and unpaid
dividends from the date of redemption
to the date of such cure, as the case
may be, then until such time as the
full amount due shall have been paid to
the Auction Agent, (a) Auctions will be
discontinued and (b) the Applicable
Rate for each Dividend Period, or, in
the case of a Multiple Quarterly
Dividend Period or a Long-Term Dividend
Period, each Dividend Quarter,
commencing on or after any such
Dividend Payment Date (or redemption
date, as the case may be) shall be
equal to the Default Rate for such
Dividend Period or Dividend Quarter.
The foregoing shall continue until, at
least one Business Day prior to a
Dividend Payment Date, the full amount
of any dividends (whether or not earned
or declared) payable on each Dividend
Payment Date prior to such Dividend
Payment Date, and the full amount of
any redemption price then or
theretofore due shall have been paid to
the Auction Agent, and thereupon,
(a) Auctions shall resume on the terms
stated herein and (b) with respect to a
Multiple Quarterly Dividend Period or a
Long-Term Dividend Period, dividend
payments shall resume at the Applicable
Rate established by the Auction with
respect to such Multiple Quarterly
Dividend Period or Long-Term Dividend
Period, as the case may be. With
respect to any such failure, the
"Default Rate" will be the higher of
250% of the 90-day "AA" Composite
Commercial Paper Rate determined as of
the date of such failure (unless such
failure occurs during a Short-Term
Dividend Period or a Long-Term Dividend
Period, in either of such cases 250% of
the 60-day "AA" Composite Commercial
Paper Rate determined as of the date of
such failure) and (i) if the Company
has failed timely to pay dividends in
respect of a Quarterly Dividend Period,
Multiple Quarterly Dividend Period,
Short-Term Dividend Period, Long-Term
Dividend Period, or Seven-Day Dividend
Period, the dividend rate in effect for
the Quarterly Dividend Period, Multiple
Quarterly Dividend Period, Short-Term
Dividend Period, Long-Term Dividend
Period or Seven-Day Dividend Period, as
the case may be, in respect of which
such failure occurred or (ii) if the
Company has failed timely to pay the
redemption price of shares called for
redemption, the dividend rate in effect
for the Dividend Period in which the
applicable redemption was to have
occurred; but in no event higher than
25% per annum.
Notwithstanding the occurrence of any
payment failure described in the
preceding paragraph, the dividend rate
with respect to a Perpetual Dividend
Period will not change.
The amount of dividends per share of
the Flexible Preferred payable for each
Quarterly Dividend Period and for each
Dividend Quarter during any Multiple
Quarterly Dividend Period or Long-Term
Dividend Period shall be computed by
multiplying the Applicable Rate for
such Quarterly Dividend Period,
Multiple Quarterly Dividend Period or
Long-Term Dividend Period, as
applicable, by $100 per share ($100,000
per Unit) and dividing the amount so
obtained by 4. The amount of dividends
per share of the Flexible Preferred
payable for the initial Dividend Period
and each Short-Term Dividend Period,
Seven-Day Dividend Period and each
Dividend Period during a Long-Term
Dividend Period (other than a Dividend
Quarter) shall be computed by
multiplying the Applicable Rate for
each such Dividend Period by a
fraction, the numerator of which shall
be the number of days in the Dividend
Period that such share was outstanding
and the denominator of which shall be
360 and
multiplying the amount so obtained by
$100 per share ($100,000 per Unit).
Each dividend, other than with respect
to a Perpetual Dividend Period (for
which the Board of Directors may
establish a different record date)
shall be payable to the holder or
holders of record of the Flexible
Preferred as of the close of business
on the Business Day immediately
preceding the applicable Dividend
Payment Date. Dividends in arrears for
any past Dividend Period (and for any
past Dividend Quarter during a Multiple
Quarterly Dividend Period or a Long-
Term Dividend Period) may be
declared and paid at any time, on a
regular Dividend Payment Date or
otherwise, to the holder or holders of
record of the Flexible Preferred as of
the applicable record date fixed by the
Board of Directors, which shall not be
more than 15 days prior to the date
fixed for the payment of such
dividends. Any dividend payment made on
shares of Flexible Preferred shall
first be credited against the dividends
accrued with respect to the earliest
Dividend Period (or, if applicable, the
earliest Dividend Quarter) for which
dividends have not been paid.
(b) At the option of the Company, shares of
Flexible Preferred may be redeemed out
of funds legally available therefor, in
whole or in part, in whole Units only,
(i) with respect to a Quarterly
Dividend Period, a Short-Term Dividend
Period or a Seven-Day Dividend Period,
on any Dividend Payment Date and
(ii) with respect to a Multiple
Quarterly Dividend Period or a Long-
Term Dividend Period, on any Dividend
Payment Date on or after the expiration
of any applicable No-Call Period
specified by the Company in the related
Notice of Adjustment of Dividend
Period, in each case at a redemption
price equal to the sum of (a) $100,000
per Unit ($100 per share), (b) accrued
and unpaid dividends on the shares
subject to redemption to the date fixed
for redemption and (c) with respect to
Multiple Quarterly Dividend Periods or
Long-Term Dividend Periods, the
Redemption Premium, if any, in effect
on the date of redemption.
Notwithstanding any applicable No-Call
Period, in the event that in any Notice
of Adjustment of Dividend Period
specifying a Multiple Quarterly
Dividend Period or a Long-Term Dividend
Period, the Company elects that a
Special Redemption provision will be
applicable, then, if Sufficient
Clearing Bids are made in an Auction
relating to such Multiple Quarterly
Dividend Period or Long-Term Dividend
Period, as the case may be, but the
Applicable Rate for such Multiple
Quarterly Dividend Period or Long-Term
Dividend Period, as the case may be,
equals or exceeds any rate (the
"Triggering Rate") specified in, or
determinable from a formula or
description contained in, such Notice
of Adjustment of Dividend Period on the
date of determination of such
Applicable Rate, the Company may, as
its option, redeem (a "Special
Redemption") the Flexible Preferred in
whole but not in part, at a redemption
price equal to $100,000 per Unit ($100
per share) plus accrued and unpaid
dividends to the date fixed for
redemption, on any date during the 10-
day period commencing on the day which
is 46 days (or in the event of a change
in law lengthening the Minimum Holding
Period, the first day after the
expiration of such Minimum Holding
Period) following the first day of such
Multiple Quarterly Dividend Period or
Long-Term Dividend Period, as the case
may be. Notice of exercise of such
option must be given within two
Business Days after the date of the
Auction establishing such Applicable
Rate by written or telephonic notice to
the Auction Agent and the Securities
Depository.
If the Company shall duly give notice
of redemption, and the Company shall
have deposited a sum sufficient to
redeem the shares of Flexible Preferred
as to which notice of redemption has
been given in trust with the Auction
Agent, with irrevocable instructions
and authority to pay the redemption
price to the holders thereof, or if no
such deposit is made, then upon such
date fixed for redemption (unless the
Company shall default in making payment
of the redemption price), all rights of
holders with respect to the shares so
called for redemption shall cease and
terminate, except the right of the
holders of such shares to receive the
redemption price thereof, but without
interest, and such shares shall no
longer be deemed to be outstanding for
any purpose. The Company shall be
entitled to receive, from time to time,
the interest, if any, earned on such
money deposited with the Auction Agent,
and the holders of any shares so
redeemed shall have no claim to any
such interest. Any funds so deposited
which are unclaimed at the end of six
years from such redemption date shall,
at the request of the Company, be
repaid to the Company, after which the
Auction Agent shall be relieved of all
responsibility to the holders of the
shares of Flexible Preferred so called
for redemption and such holders shall
look only to the Company for payment
thereof.
So long as shares of Flexible Preferred
are held for record by the nominee of
the Securities Depository, the
redemption price for such shares will
(unless the Company shall default in
making payment of the redemption price)
be paid to the Securities Depository on
the redemption date.
If shares of Flexible Preferred are
called for redemption by the Company,
unless the Company shall default in
making payment of the redemption price,
the dividend rate for such shares until
the commencement of the next Dividend
Period and for each subsequent Period
until the redemption date shall be the
Applicable Rate in effect on the date
the notice of redemption is given.
(c) The amount payable in event of
involuntary liquidation shall be $100
per share ($100,000 per Unit), plus
accrued dividends.
(d) The amount payable in event of
voluntary liquidation shall be $100 per
share ($100,000 per Unit), plus accrued
dividends.
(e) In the event that in any Notice of
Adjustment of Dividend Period
specifying a Multiple Quarterly or a
Long-Term Dividend Period, the Company
elects that Sinking Fund Redemption
provisions will be applicable to the
Flexible Preferred, then, during such
Multiple Quarterly Dividend Period or
Long-Term Dividend Period, as the case
may be, the Company will redeem (a
"Sinking Fund Redemption"), out of
funds legally available therefor, on
each Dividend Payment Date specified in
such Notice of Adjustment of Dividend
Period, the number or percentage of
shares of Flexible Preferred (in whole
Units only, unless a Perpetual Dividend
Period) set forth in such Notice of
Adjustment of Dividend Period, at a
redemption price equal to the sum of
(a) $100,000 per Unit ($100 per share)
and (b) accrued and unpaid dividends on
the shares subject to redemption of the
date fixed for redemption. If so
provided in the Notice of Adjustment of
Dividend Period, the Company may, at
its option, on such Dividend Payment
Date, redeem (also a "Sinking Fund
Redemption") such additional number or
percentage of shares (in whole Units
only, unless a Perpetual Dividend
Period) as may be specified in such
Notice of Adjustment of Dividend Period
at such redemption price. The right to
make such additional sinking fund
redemption in each period will, unless
otherwise specified in such Notice of
Adjustment of Dividend Period, be
noncumulative. If so specified in the
Notice of Adjustment of Dividend
Period, any mandatory Sinking Fund
Redemption requirement will be subject
to decrease, at the election of the
Company, by the application thereto (at
$100,000 per Unit or $100 per share) of
any Flexible Preferred theretofore
purchased, redeemed or otherwise
acquired (other than through the
mandatory Sinking Fund Redemption
requirement) which have not previously
been applied in reduction of any
mandatory Sinking Fund Redemption
requirement.
PREFERENCE STOCK
Provision for Division Into and Issue in Series of Preference
Stock and
Grant of Authority to Board of Directors
The shares of the Preference Stock may be divided into
and issued in series. Each series shall be designated so as to
distinguish the shares thereof from the shares of all other
series and classes and all shares of the Preference Stock
irrespective of series shall be identical except as to the
following relative rights and preferences in respect of any or
all of which there may be variations between different series and
authority is hereby expressly vested in the Board of Directors to
the extent that series are not established by the Articles of
Incorporation and the variations and the relative rights and
preferences as between series fixed and determined therein, to
establish series and to fix and determine the following relative
rights and preferences of the shares thereof in accordance with
the provisions of the Business Corporation Act of Illinois
applicable thereto:
(a) The rate of dividend;
(b) The price at and the terms and
conditions on which
shares may be redeemed;
(c) The amount payable upon shares in event
of involuntary liquidation;
(d) The amount payable upon shares in event
of voluntary liquidation;
(e) Sinking fund provisions for the
redemption or purchase of shares (the
term "sinking fund" as used herein,
including any analogous fund, however
designated);
(f) The terms and conditions on which
shares may be converted, if the shares
of any series are issued with the
privilege of conversion.
The Board of Directors is hereby authorized to issue and
sell all the authorized and unissued shares of Preference Stock
as shares of any series which shall have been duly established,
and in the event that the Company shall acquire, by purchase or
redemption or otherwise, any issued shares of its Preference
Stock of any series, the Board of Directors may resell or convert
and sell, in their discretion, any shares so acquired as shares
of the same or of any other series of Preference Stock which
shall have been duly established.
Shares of any series of Preference Stock, without par
value, may be issued for such consideration, not less than the
aggregate preferential amount payable upon such shares in the
event of involuntary liquidation, as may be fixed by the Board of
Directors prior to the time of such issuance and, except as
otherwise determined by the Board of Directors in accordance with
the provisions of the Business Corporation Act of Illinois
applicable thereto, the entire amount of such consideration shall
be stated capital.
General Provisions
The following provisions shall apply to all shares
of the Preference Stock irrespective of series:
(A)The shares of Preference Stock shall be subordinate
to the Preferred Stock and the Class A Preferred Stock but in
preference to the Common Stock as to the payment of dividends.
The holders of the Preference Stock of each series shall be
entitled to receive dividends payable quarterly on the first day
of January, April, July and October of each year, when and as
declared by the Board of Directors, at such rates as shall be
determined for the respective series, from the date upon which
such shares shall have been originally issued, before any
dividends shall be declared or paid upon or set apart for the
Common Stock or any other stock of the Company not having
preference over the Preference Stock as to payment of dividends.
Such dividends shall be cumulative so that if for any dividend
period or periods dividends shall not have been paid or declared
and set apart for payment upon all outstanding Preference Stock
at the rates determined for the respective series, the deficiency
shall be fully paid, or declared and set apart for payment,
before any dividends shall be declared or paid upon the Common
Stock or any other stock of the Company not having preference
over the Preference Stock as to payment of dividends. Dividends
shall not be declared and set apart for payment, or paid, on the
Preference Stock of any one series, for any dividend period,
unless dividends have been or are contemporaneously declared and
set apart for payment or paid on the Preference Stock of all
series for all dividend periods terminating on the same or an
earlier date.
(B)When full cumulative dividends as aforesaid upon the
Preference Stock of all series then outstanding for all past
dividend periods and for the current dividend periods shall have
been paid or declared and set apart for payment, the Board of
Directors may declare dividends on the Common Stock or any other
stock over which the Preference Stock has a preference as to
payment of dividends, and no holders of any series of Preference
Stock as such shall be entitled to share therein.
(C)The shares of Preference Stock shall be subordinate
to the Preferred Stock and the Class A Preferred Stock but in
preference to the Common Stock upon any dissolution, liquidation
or winding up of the Company, whether voluntary or involuntary.
Upon any such dissolution, liquidation or winding up of the
Company, whether voluntary or involuntary, the holders of
Preference Stock of each series, without any preference of the
shares of any series of Preference Stock over the shares of any
other series of Preference Stock, shall be entitled to receive
out of the assets of the Company, whether capital, surplus or
other, before any distribution of the assets to be distributed
shall be made to the holders of Common Stock or of any other
stock not having preference as to assets over the Preference
Stock, the amount determined to be payable on the shares of such
series in the event of voluntary or involuntary liquidation, as
the case may be. In case the assets shall not be sufficient to
pay in full the amounts determined to be payable on all the
shares of Preference Stock in the event of voluntary or
involuntary liquidation, as the case may be, then the assets
available for such payment shall be distributed ratably among the
holders of the Preference Stock of all series in accordance with
the amounts determined to be payable on the shares of each
series, in the event of voluntary or involuntary liquidation, as
the case may be, in proportion to the full preferential amounts
to which they are respectively entitled. After payment to the
holders of the Preference Stock of the full preferential amounts
hereinbefore provided for, the holders of the Preference Stock as
such shall have no right or claim to any of the remaining assets
of the Company, either upon any distribution of such assets or
upon dissolution, liquidation or winding up, and the remaining
assets to be distributed, if any, upon a distribution of such
assets or upon dissolution, liquidation or winding up, may be
distributed, subject to the laws of the State of Illinois and the
Articles of Incorporation, among the holders of the Common Stock
or of any other stock over which the Preference Stock has
preference as to assets. Without limiting the right of the
Company to distribute its assets or to dissolve, liquidate or
wind up in connection with any sale, merger, or consolidation,
the sale of all the property of the Company to, or the merger or
consolidation of the Company into or with any other corporation
shall not be deemed to be a distribution of assets or a
dissolution, liquidation or winding up for the purposes of this
paragraph.
(D)At the option of the Board of Directors of the
Company, the Company may redeem any series of Preference Stock
determined to be redeemable, or any part of any series, at any
time at the redemption price determined for such series;
provided, however, that not less than thirty nor more than sixty
days previous to the date fixed for redemption a notice of the
time and place thereof shall be given to the holders of record of
the Preference Stock so to be redeemed, by mail or publication,
in such manner as may be prescribed by the Bylaws of the Company
or by resolution of the Board of Directors; and, provided
further, that in every case of redemption of less than all of the
outstanding shares of any one series of Preference Stock, the
shares of such series to be redeemed shall be chosen by lot in
such manner as may be prescribed by resolution of the Board of
Directors. At any time after notice of redemption has been given
in the manner prescribed by the Bylaws of the Company or by
resolution of the Board of Directors to the holders of stock so
to be redeemed, the Company may deposit or may cause its nominee
to deposit, the aggregate redemption price with some bank or
trust company named in such notice, payable on the date fixed for
redemption as aforesaid and in the amounts aforesaid to the
respective orders of the holders of the shares so to be redeemed,
on endorsement to the Company or its nominee or otherwise, as may
be required, and upon surrender of the certificates for such
shares. Upon the deposit of said money as aforesaid, or if no
such deposit is made, upon said redemption date (unless the
Company defaults in making payment of the redemption price as set
forth in such notice), such holders shall cease to be
shareholders with respect to said shares and from and after the
making of said deposit, or if no such deposit is made, after the
redemption date (the Company not having defaulted in making
payment of the redemption price as set forth in such notice), the
said holders shall have no interest in or claim against the
Company or its nominee with respect to said shares, but shall be
entitled only to receive said moneys on the date fixed for
redemption as aforesaid from said bank or trust company, or if no
such deposit is made, from the Company, without interest thereon,
upon endorsement (if required) and surrender of the certificates
as aforesaid.
If such deposit shall be made by a nominee of the
Company as aforesaid, such nominee shall upon such deposit become
the owner of the shares with respect to which such deposit was
made and certificates of stock may be issued to such nominee in
evidence of such ownership.
In case the holder of any such Preference Stock
shall not, within six years after said deposit, claim the amount
deposited as above stated for the redemption thereof, the
Depositary shall upon demand pay over to the Company such amounts
so deposited and the Depositary shall thereupon be relieved from
all responsibility to the holder thereof.
Nothing herein contained shall limit any legal right
of the Company to purchase any shares of the Preference Stock.
(E)At all meetings of the shareholders of the Company,
the holders of the Preference Stock shall be entitled to one vote
for each share of such Preference Stock held by them
respectively.
(F)So long as any shares of the Preference Stock are
outstanding, no amendment to the Articles of Incorporation shall
be adopted without the affirmative vote of the holders of at
least 66-2/3% of the shares of Preference Stock outstanding at
the time of the adoption of such amendment, which would either
(a) create any class of shares preferred as to dividends or
assets over the Preference Stock, or (b) change the designations,
preferences, qualifications, limitations, restrictions or other
special or relative rights of the then outstanding Preference
Stocks, provided however, that nothing in this paragraph
contained shall authorize the adoption of any amendment of the
Articles of Incorporation by the vote of the holders of a less
number of shares of Preference Stock, or of any other class of
stock, or of all classes of stock, than is required for the
adoption of such amendment by the laws of the State of Illinois
at that time applicable thereto.
COMMON STOCK
There shall be a class of stock of the Company
designated Common Stock and each share of Common Stock shall be
equal to every other share of said stock in every respect.
At all meetings of the shareholders of the Company the
holders of the Common stock shall be entitled to one vote for
each share of such Common Stock held by them respectively.
Limitation of Preemptive Rights of Holders of
Preferred, Class A Preferred, Preference and Common Stock
No holder of the shares of the capital stock of any
class of the Company shall have any preemptive or preferential
right of subscription for or to purchase any shares of any class
of the capital stock of the Company, whether now or hereafter
authorized, or any bonds, debentures or other obligations or
rights or options convertible into or exchangeable for or
entitling the holder or owner to subscribe for or purchase any
shares of the capital stock of the Company, other than such right
or rights, if any, and at such price as the Board of Directors in
its discretion, from time to time may determine, and the Board of
Directors may issue such shares of stock, bonds, debentures,
obligations, rights or options without offering the same in whole
or in part to the shareholders of the Company. Should the Board
of Directors as to any portion of the shares of the Company,
whether now or hereafter authorized, or any such bonds,
debentures, obligations, rights or options, offer the same to the
shareholders, such offer shall not constitute a waiver or release
of the right of the Board of Directors subsequently to dispose of
other portions thereof without so offering the same to the
shareholders.
ARTICLE 4. (Deleted)
ARTICLE 5. (Deleted)
ARTICLE 6. The location of the principal office is the City of
Peoria, County of Peoria, and State of Illinois.
ARTICLE 7. The duration of the corporation shall be perpetual.
ARTICLE 8. The number of the members of the Board of Directors
shall be fixed by the Bylaws of the corporation and shall not be
less than three. Except to the extent otherwise provided by law,
vacancies in the Board of Directors arising between meetings of
shareholders, by reason of an increase in the number of directors
or otherwise, may be filled by a majority of directors then in
office and any director so selected shall serve until the next
annual meeting of shareholders. A majority of the outstanding
shares represented in person or by proxy shall constitute a
quorum at a meeting of shareholders; provided however, that at
any such meeting a lower percentage (but not less than one-third)
of the outstanding shares shall constitute a quorum, if, prior to
such meeting, such lower percentage has been determined as
sufficient for such purpose by the vote in person or by proxy of
a majority of the outstanding shares at any annual meeting of
shareholders or at any special meeting thereof called for that
purpose and such determination has not been modified or revoked
by a subsequent determination of shareholders similarly voted.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF INCOME, STATEMENT OF CASH FLOWS AND BALANCE SHEET AND IS QUALIFIED
IN ITS ENTIRETY BY REFEREENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000762129
<NAME> CILCORP INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 873,420
<OTHER-PROPERTY-AND-INVEST> 173,781
<TOTAL-CURRENT-ASSETS> 232,521
<TOTAL-DEFERRED-CHARGES> 33,218
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,312,940
<COMMON> 192,853
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 142,685
<TOTAL-COMMON-STOCKHOLDERS-EQ> 335,538
22,000
44,120
<LONG-TERM-DEBT-NET> 285,552
<SHORT-TERM-NOTES> 55,600
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 40,600
<LONG-TERM-DEBT-CURRENT-PORT> 13,027
0
<CAPITAL-LEASE-OBLIGATIONS> 1,703
<LEASES-CURRENT> 478
<OTHER-ITEMS-CAPITAL-AND-LIAB> 514,322
<TOT-CAPITALIZATION-AND-LIAB> 1,312,940
<GROSS-OPERATING-REVENUE> 1,228,675
<INCOME-TAX-EXPENSE> 5,435
<OTHER-OPERATING-EXPENSES> 1,172,435
<TOTAL-OPERATING-EXPENSES> 1,177,870
<OPERATING-INCOME-LOSS> 50,805
<OTHER-INCOME-NET> 1,013
<INCOME-BEFORE-INTEREST-EXPEN> 49,792
<TOTAL-INTEREST-EXPENSE> 30,288
<NET-INCOME> 19,504
3,194
<EARNINGS-AVAILABLE-FOR-COMM> 16,310
<COMMON-STOCK-DIVIDENDS> 33,482
<TOTAL-INTEREST-ON-BONDS> 22,702
<CASH-FLOW-OPERATIONS> 68,310
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF INCOME, STATEMENT OF CASH FLOWS AND BALANCE SHEET AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000018651
<NAME> CENTRAL ILLINOIS LIGHT COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 873,420
<OTHER-PROPERTY-AND-INVEST> 3,831
<TOTAL-CURRENT-ASSETS> 126,322
<TOTAL-DEFERRED-CHARGES> 20,855
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,024,428
<COMMON> 185,661
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 134,470
<TOTAL-COMMON-STOCKHOLDERS-EQ> 320,131
22,000
44,120
<LONG-TERM-DEBT-NET> 267,884
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 40,600
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 1,703
<LEASES-CURRENT> 478
<OTHER-ITEMS-CAPITAL-AND-LIAB> 327,512
<TOT-CAPITALIZATION-AND-LIAB> 1,024,428
<GROSS-OPERATING-REVENUE> 532,336
<INCOME-TAX-EXPENSE> 25,088
<OTHER-OPERATING-EXPENSES> 439,533
<TOTAL-OPERATING-EXPENSES> 464,621
<OPERATING-INCOME-LOSS> 67,715
<OTHER-INCOME-NET> (739)
<INCOME-BEFORE-INTEREST-EXPEN> 66,976
<TOTAL-INTEREST-EXPENSE> 22,741
<NET-INCOME> 44,235
3,194
<EARNINGS-AVAILABLE-FOR-COMM> 41,041
<COMMON-STOCK-DIVIDENDS> 53,483
<TOTAL-INTEREST-ON-BONDS> 19,498
<CASH-FLOW-OPERATIONS> 122,255
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
